<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934. [NO FEE REQUIRED]
For the fiscal year ended December 31, 1999.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934. [NO FEE REQUIRED]
For the transition period from to .
Commission file number 1-9348
QMS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 63-0737870
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Magnum Pass, Mobile, Alabama 36618
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (334) 633-4300
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -----------------------
<S> <C>
Common Stock, $.01
par value per share New York Stock Exchange
Rights to purchase shares of Series A
Participating Preferred Stock New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 21, 2000: approximately $20,815,064.
Number of shares of Common Stock outstanding as of March 21, 2000:
13,258,421
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held April 24, 2000, are incorporated by
reference into Part III.
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<PAGE>
PART I
Item 1. Business.
General
The Company designs and manufactures intelligent controllers which enhance
the graphics capabilities and performance of computer printing and imaging
systems. The Company incorporates its controllers, which consist of software
implemented on printed circuit boards, into computer printing and imaging
systems which it markets, sells, and supports. The Company also markets its
controllers separately for incorporation into products marketed by others.
The Company was incorporated under the laws of the State of Alabama in 1977
and reincorporated as a Delaware corporation in 1982. Its principal executive
offices are located at One Magnum Pass, Mobile, Alabama 36618. The Company's
telephone number is (334) 633-4300.
In October 1998, the Company changed its accounting periods 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 order to implement this change, the
Company had a 13-week transition period beginning on October 3, 1998, and
ending on January 1, 1999 (the "transition period"). In this Form 10-K, fiscal
1999 refers to the year ended December 31, 1999, fiscal 1998 refers to the year
ended October 2, 1998, and fiscal 1997 refers to the year ended October 3,
1997.
On June 7, 1999, Minolta Investments Company, a subsidiary of Minolta Co.,
Ltd., (collectively "Minolta") purchased 2,130,000 shares of common stock for a
total price of approximately $12.2 million. On July 12, 1999, Minolta acquired
an additional 5,440,000 shares of the Company's common stock through a cash
tender offer bringing its holdings to 7,570,000 shares, or 57.1% of the
Company's outstanding common stock.
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 was converted to a term loan with twenty quarterly payments
of $311,746 beginning January 15, 2000, and ending on October 15, 2004. The
remainder of the purchase was funded by a $12.8 million loan and $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, as mentioned above.
The Minolta alliance, along with the reacquisition of the Company's European
master distributor, is designed to position the Company as a new organization
that can more effectively compete in the global digital printing marketplace.
The alliance brings together the resources of each entity, combining engine and
controller technologies, coordinating joint sales and marketing efforts,
expanding entry into key markets, and integrating logistical operations. In the
United States, the convergence of these resources was completed in November
1999. Convergence of European operations, which began in 1999, is expected to
reach completion by April 2000.
Products/1/
The Company's principal products are intelligent networked and stand-alone
print systems consisting of purchased print engines, proprietary hardware and
software, proprietary intelligent printer-to-computer interfaces, and other
components.
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/1/ The following trademarks and registered trademarks of the Registrant are
used herein: QMS, Crown, CrownNet, and magicolor. All other trademarks and
registered trademarks are the property of their respective companies.
2
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The printing products marketed by the Company address the printing needs of
customers in electronic publishing, general business, graphic arts, scientific,
and engineering environments. The Company's products include both color and
monochrome print systems with a variety of speeds, paper handling, and
performance characteristics. The Company also markets accessories, add-ons, and
software for use with its printing systems and offers spare parts, fonts, and
consumables.
The Company's development efforts include a continuing program of upgrading
its two core printing architectures, Crown(R) and DeskLaser, to incorporate new
features consistent with industry trends. The Company's Crown printing
architecture is an open document processing technology that provides advanced
multitasking and networking capabilities across a range of the Company's print
systems. In August 1999, the Crown architecture incorporated a number of
advancements, including networking enhancements, host software modifications,
and productivity improvements. In conjunction with the Crown enhancements, the
Company updated its CrownNet(R) for Ethernet(R) interface to support both
traditional and Fast Ethernet networks. The addition of these features was
driven by technology trends and aims to improve printer management, document
processing performance, network throughput, and ease of use.
The DeskLaser printing architecture enables the Company to manufacture low-
cost, network printing solutions for workgroups standardized on the Windows(R)
operating system. By utilizing the power of the Windows operating system in
processing and printing files, the requirements of the printer's controller are
fewer, and the Company is therefore able to reduce costs in the development of
these products. In 1999, the printer driver for the magicolor(R) 2 DeskLaser, a
product based on the DeskLaser printing architecture, received a new user
interface and performance improvements. As a result, it was presented the "Best
Buy" award from PC World magazine.
In addition to enhancing its printing architecture, the Company extended its
color laser product line in 1999, releasing several new printers. In developing
these new color products, the Company focused on reducing costs and enhancing
performance and paper handling to be more in line with monochrome-only
printers.
The magicolor 2 DeskLaser Duplex, introduced in June, is designed as a low-
cost color laser printer for business workgroups using the Windows operating
system. It was the first magicolor model to offer automatic duplexing (two-
sided printing) and is positioned as an affordable, high-performance laser
printer alternative to ink jet technology.
In August, the magicolor 2+ color laser printer series further expanded the
Company's color laser printer line. Consisting of three models, the magicolor
2+ was the first product to receive the expanded Crown feature set and
continues the Company's trend of developing performance color printers that are
easy to use.
The magicolor 6100, introduced in November 1999, brings affordable, large-
format color laser printing to mainstream business. It prints 6-12 color pages
per minute and up to 24 black-and-white pages per minute and supports automatic
duplexing and print media as large as 13" X 19". In comparison to leading
competitive offerings, the magicolor 6100 is positioned favorably in product
feature set and price and offers the added benefit of the Crown printing
architecture to end-users.
To increase the functionality of the Company's color laser printers and
provide more of the document handling characteristics associated with
monochrome printers and copiers, the Company introduced the SC-200 digital
copier/scanner. This device attaches to any QMS color laser printer allowing
users to make full color copies on the printer. It can also operate as a
scanner by attaching to a PC.
The Company's monochrome product line also received new additions in 1999.
The first, occurring in February, was the 4032 Print System. At the time of
announcement, it was the lowest-priced 40 page-per-minute printer on the
market. The 4032 is modeled after the 3260 Print System, based on the same
print
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engine, controller, and processor, and shares common document finishing
options. The 4032 offers extra speed and a duty cycle of up to 200,000 pages
per month. Combined with its aggressive price point, the Company believes the
4032 Print System is currently positioned as the price/performance leader in
the midrange production printing market.
The 25 page-per-minute 2560 network printer family, announced in August,
introduced several new document finishing features to the Company's monochrome
printer line, including mailbox units, a stacker/stapler/hole punch finisher,
and a mailbox finisher. These document handling and finishing options position
the 2560 Print System as an adaptable resource that can grow with a business.
Upon completion of the Company's convergence with Minolta within the United
States, the Company integrated the recently co-branded PageWorks 18 printer
family into its monochrome product line. Management believes that the PageWorks
18 positions the Company to penetrate new markets and utilize alternative
distribution channels, including e-tail and catalog sales, due to its low price
point and markets served.
Sales and Marketing
The market for the Company's products is related to the market for computer
systems generally. Current end users of the Company's products include many
Fortune 500 companies, governmental agencies, and educational institutions. In
the United States and internationally, the Company sells its products primarily
through resellers, including national and regional distributors and computer
dealers, as well as directly through its Original Equipment Manufacturer
("OEM") partners.
As of December 31, 1999, the Company operated sales offices in 27 cities in
18 states in the United States. The Company, either directly or through its
international network and distributors, markets its products in 91 countries
outside of the United States.
As a result of the Minolta convergence, the Company's U.S. sales and
marketing strategy has been restructured to broaden product distribution
channels, refocus end-user awareness, and realign its internal support
structure to be more globally focused. Outlets for distribution now include
additional national and value-add reseller partners, retail outlets, catalog
providers, BTA (Business Technology Association) dealers, and the Minolta
direct sales force. The Company's marketing strategy also includes the e-tail
or e-commerce Internet distribution model, a fast-growing method for product
disbursement that is expected to allow the Company to realize higher-volume
distribution.
The Company's ten largest customers accounted for an aggregate of
approximately 41.5% of total net sales during fiscal 1999. Sales to Ingram
Micro, Inc. represented 10.8% of consolidated revenues for fiscal 1999.
The Company's products are advertised in the United States and international
markets and exhibited at industry trade shows under the co-branded name
"Minolta - QMS." This step was taken in an effort to refocus customer awareness
on the Company and capitalize on Minolta's brand equity.
The Company also provides field sales support, including training for
customers and resellers, trade show exhibits, sales training, and sales
assistance to sales representatives. The Company believes that this support has
been well received by its customers and sales organizations and has assisted
the Company in the introduction of new products.
In addition to Minolta - QMS co-branded products, several of the Company's
printer lines were sold in the United States and abroad under private label
through OEM partners. The Company has a long-standing history of OEM
relationships because of its competitive product line as well as its agility
and experience in this area. Private-label sales through OEM resources increase
coverage of the Company's products across an untapped customer base.
4
<PAGE>
International Operations
In fiscal 1997 and 1998, the transition period and fiscal 1999,
international sales totaled $27.8 million, $34.0 million, $17.5 million, and
$133.5 million, respectively, representing approximately 22%, 25%, 45% and 60%,
respectively, of the Company's net sales. The 1999 increase reflects the
inclusion of sales of the Company's reacquired European subsidiary. The Company
derives its international sales from Europe, the Middle East, the Far East,
Japan, Canada, and Central and South America.
With the reacquisition of the Company's Japanese operations in 1998 and its
European and Australian operations in 1999, and with the Minolta convergence in
place, the Company expects its international operations, like its U.S.
operations, to achieve increased lines of distribution, additional product
offerings, and increased resource availability. The convergence activities
related to the Minolta alliance began in 1999 and are expected to reach
completion for the Company's international organization by April 2000.
The components used in the Company's products are purchased abroad,
primarily from Japanese companies, including Minolta. Accordingly, the cost of
such components may increase if the value of the U.S. dollar declines relative
to the currency of the source country.
For financial information regarding the Company's foreign and domestic
operations and export sales, see Notes 1 and 16 of Notes to the Company's
Consolidated Financial Statements under Item 8 (Financial Statements and
Supplementary Data).
Service, Support, and Warranty
In 1999, the Company continued to provide technical and software support as
well as maintenance service and support to its end users directly and through
distributors, resellers, and third-party service providers. A staff of
engineers and technicians provided systems applications support, field service
support, and customer training for the use and maintenance of the Company's
products. In the United States, the Company provided technical hardware and
software support and maintenance service from its home office in Mobile,
Alabama, and from field offices located in 55 cities in 34 states. Technical
support was provided via telephone and the World Wide Web while a national
service organization provided alternative repair choices of return to depot or
factory, on site, and special contractual service. In the European market, the
Company provided technical hardware and software support and maintenance
service from its home office in Maarssen, The Netherlands. Service support was
also partially outsourced in Europe to specialized service and maintenance
providers who have been trained by the QMS European Training Center on new
products and technologies. During fiscal 1999, the Company provided
international technical service in Canada through its direct service
organization as well as through certain authorized dealers.
The Company warrants its products for a period of 90 days to 1 year from the
date of shipment, depending on the product. The Company's annual warranty costs
have not been significant relative to the Company's net sales.
Major efforts began in 1999 to transition the Company's service business and
portions of its support structure to IBM Printing Systems ("IBM"). This
strategic agreement, which was finalized in January 2000, names IBM as the
global service provider for the Company's printers. Under the terms of the
agreement IBM will provide warranty and service support for the Company's
printers under existing service contracts and will service new contracts as
they are written. The Company will continue qualifying resellers as authorized
service providers for the Company's products and will continue to provide
telephone-based and on-line technical hardware and software support through
IBM.
Competition
The digital printing market is in a state of great transition as
demonstrated by the number of key competitors participating in corporate
mergers and acquisitions. Through the convergence with Minolta,
5
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management believes the Company is well-positioned for several reasons. The
Company is building a worldwide distribution network that is expected to allow
for improved global sales coverage and customer support. Furthermore, the
convergence of technical expertise between the Company, as a controller
manufacturer, and Minolta, as a print engine developer, should encourage more
effective product development.
Incorporating products from Minolta allows the Company to compete in broader
printer markets, from single-user SOHO ("small office home office")
environments to departmental, multi-user settings. Laser printing competes with
other technologies in the computer printer market, including inkjet, dye
sublimation, ion deposition, magnetic, thermal, and impact printers. Other
manufacturers whose printers compete with the Company's include: Canon, Inc.;
Hewlett-Packard Company; IBM; Lexmark International, Inc.; NEC Technologies,
Inc.; Seiko Epson Corp.; and Xerox Corporation (Tektronix, Inc.). Many of these
competitors are larger companies with greater financial resources than those of
the Company. The alliance with Minolta, however, will increase resources
available to the Company to compete successfully with the above mentioned
competitors.
Manufacturing and Quality Control
The Company assembles its intelligent processors by adding components to
printed circuit boards manufactured according to its designs and
specifications. Essentially, the Company manufactures its products by
assembling components and subassemblies manufactured by others and adding
software enhancements. The intelligent processors, which include electronic
circuitry and software designed by the Company, are tested to ensure quality
and consistency of production and design.
Most of the parts, components, and subassemblies used in the Company's
products are available to the Company from a variety of sources. When
management determines, however, that a particular supplier is sufficiently
reliable, the Company generally chooses to rely on that single source for its
requirements. If the Company were required to change its sources of these
materials unexpectedly, the Company might be adversely affected during the
transitional time of negotiating new arrangements with another vendor and
integrating those materials into its production process. The Company, however,
is attempting to move away from its reliance upon single-source suppliers of
its requirements.
During fiscal 1999, the Company performed manufacturing and assembly
operations in Mobile, Alabama, and in Utrecht, The Netherlands.
Order Backlog
The Company's backlog consists of firm purchase orders that the Company
expects to fill during fiscal 2000. As of October 2, 1998, and December 31,
1999, the backlog was $9.5 million and $11.3 million, respectively.
As a result of transitioning from a direct sales force to distributors, the
Company has reduced its finished goods response time significantly for shipping
goods off the shelf. Because a substantial portion of the monthly sales has
historically been derived from new orders received during the month, backlog is
not necessarily an accurate indicator of future revenues. The Company does not
believe that sales of its products are subject to significant seasonal
fluctuations.
Print Engines
The Company purchases print engines for its products from third-party
manufacturers, including: Fuji Xerox Co., Ltd.; Fujitsu Computer Products of
America, Inc.; Hitachi America, Ltd.; Minolta Co., Ltd.; and Xerox
International Partners, Inc. While other sources are available, the Company
currently relies on these suppliers' abilities to make print engines available
as needed by the Company. Some of these print engines are supplied to the
Company pursuant to the terms of written contracts. These contracts specify
prices to be paid
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for each print engine, and these prices are sometimes dependent upon the annual
volume of print engines purchased from that manufacturer. Certain of the
Company's supply contracts with foreign manufacturing sources are subject to
adjustment for exchange rate fluctuations.
In certain cases, the Company applies its expertise in imaging technology to
influence the design and feature content of print engines that are planned to
be incorporated in its future products.
The Company believes that its requirements for print engines for fiscal 2000
will be adequately met under the terms of existing arrangements and those
expected to be entered into in fiscal 2000. The Company has some flexibility to
adjust delivery schedules and quantities as the demand for specific print
engines change as a result of changes in product mix and customer demand.
Although the Company will continue to source print engines from a variety of
suppliers, during fiscal 2000 Hitachi America, Ltd. will supply most of the
Company's color print engines, and Minolta will be the primary supplier for
monochrome print engines. Consequently, disruption of the Company's contracts
with these suppliers would adversely affect the Company during the time
required to negotiate new arrangements with different print engine suppliers
and to bring the new products to market.
Research and Development
The Company's research and development program examines new technologies,
develops new and improved applications for the Company's products, and provides
insights into new directions for the Company's business. During fiscal 1999,
the Company implemented a plan to revitalize its Crown technology and
introduced a number of new features, including a Portable Document Format
("PDF") emulation and additional typefaces, aimed at improving printer
performance and ease of use. These advances are expected to increase the
competitiveness of its controllers in future years.
The Company places significant emphasis on the addition of new features for
its print systems and enhancement of these systems to satisfy new applications.
The Company solicits and receives continuing advice from its end users and
various resellers in identifying appropriate additions. To augment in-house
development efforts, the Company contracts with third parties to develop
products to its specifications. The Company also licenses applications and
other software from third-party entities. In addition, the Company assists
certain software design firms in adapting their existing software for use with
the Company's products.
As of December 31, 1999, approximately 18.3% of the Company's employees were
employed in its research and development department. During fiscal 1997 and
1998, the transition period and fiscal 1999, the Company spent approximately
$13.5 million, $11.3 million, $3.5 million and $14.0 million, respectively, for
research and development and software costs and received no material customer-
sponsored funding for research and development. In fiscal 1997 and 1998, the
transition period and fiscal 1999, approximately $8.2 million, $7.7 million,
$2.8 million and $9.7 million, respectively, of the software costs for those
fiscal periods were capitalized in accordance with Financial Accounting
Standards ("FAS") Statement No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed."
Patents and Trademarks
The Company currently holds United States patents on certain of its
products; however, most of the Company's revenue is derived from products for
which there is no patent protection. Because of rapid technological changes in
the computer and electronic printing industries, the Company does not believe
that patents offer a significant degree of protection for most of its product
and technology advances. The Company's strategy for maintaining its competitive
position is to continue to emphasize product research and development, coupled
with a high level of customer support.
The Company has obtained registration of many of its trademarks, and has
applications pending on others, in the United States and other countries.
7
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Environmental Matters
Management believes the Company is in compliance in all material respects
with applicable federal, state, and local statutes and ordinances regulating
the discharge of materials into the environment. Management does not believe
the Company will be required to expend any material amounts in order to remain
in compliance with these laws and regulations or that compliance will
materially affect its capital expenditures, earnings, or competitive position.
Employees
As of December 31, 1999, the Company employed 575 permanent employees in the
United States. During fiscal 1999, the Company had four foreign operating
subsidiaries, employing a total of 216 permanent employees. QMS Europe B.V.
(including QMS Australia PTY, Ltd.), employing 199 permanent employees, has
sales and support organizations in the Netherlands and in offices in Germany,
France, the United Kingdom, Sweden and Australia. QMS Canada, Inc., employing
17 permanent employees, has sales and support organizations in Montreal,
Ottawa, Toronto, and Vancouver. QMS K.K., employing no permanent employees, has
a vendor that provides sales and support organizations in Tokyo.
Management believes that much of its future success depends on its ability
to attract and retain skilled personnel. The Company has implemented a Cash or
Deferred Retirement Plan and an Employee Stock Purchase Plan and maintains
stock option plans for officers and key employees.
The Company's employees are not subject to collective bargaining agreements,
and there have been no work stoppages due to labor difficulties. Management of
the Company believes that its relations with its employees are good.
Item 2. Properties.
The facilities of the Company's headquarters cover an aggregate of 117,000
square feet, of which 50,000 square feet are used for product research and
development. The Company's primary manufacturing and warehousing facility
covers 152,000 square feet. Both of these facilities are leased by the Company
and located in Mobile, Alabama. In Fort Walton Beach, Florida, a subsidiary of
the Company owned a 35,000 square foot facility on three acres of land.
Effective August 1997, this subsidiary ceased operations and, in June of 1999,
the property was sold for $925,000.
During fiscal 1999, the Company leased additional office space in the United
States, Europe, Australia, Canada, and Japan.
The Company's properties are utilized approximately five and one-half days
per week, with no significant under-utilization of facilities. The Company
believes that its owned and leased properties are sufficient for its current
and foreseeable needs.
Item 3. 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 4. Submission of Matters to a Vote of Security Holders.
None.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Price and Dividend Information
The Company's common stock is listed on the New York Stock Exchange under
the ticker symbol "AQM." The table below sets forth the per share quarterly
high and low closing prices of QMS common stock for the fiscal years ended
December 31, 1999, and October 2, 1998, and the transition period. In June
1999, the Company sold 2,130,000 shares of its common stock to Minolta for a
total price of $12.2 million. The proceeds from this sale were used in the
reacquisition of the Company's former European and Australian subsidiaries. No
cash dividends were declared in either of the last two fiscal years or the
transition period, and the Board of Directors has no present intention to pay
cash dividends in the foreseeable future. Payment of cash dividends is
prohibited by one of the Company's primary lenders and the lessor of its
corporate headquarters. There were 1,319 holders of record of the Company's
common stock at March 21, 2000.
<TABLE>
<CAPTION>
1999 1998
----------------- ----------------
Fiscal Quarter High Low High Low
- -------------- -------- -------- ------- --------
<S> <C> <C> <C> <C>
First........................................ $4 $2 5/8 $3 3/16 $2 1/4
Second....................................... 5 11/16 2 7/8 5 2 11/16
Third........................................ 5 5/8 3 3/8 5 3 3/8
Fourth....................................... 3 5/8 2 11/16 4 9/16 2 3/4
Transition Period............................ 4 1/8 3
</TABLE>
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Item 6. Selected Financial Data.
Five-Year Summary--Financial and Other Data
For the fiscal year ended December 31, 1999, the transition period ended
January 1, 1999, and the fiscal years ended October 2, 1998, October 3, 1997,
September 27, 1996, and September 29, 1995
<TABLE>
<CAPTION>
Transition
1999 Period 1998 1997 1996 1995
-------- ---------- -------- -------- -------- --------
Dollars in thousands, except per share amounts
<S> <C> <C> <C> <C> <C> <C>
Operating results
Net sales.............. $221,286 $39,338 $133,491 $124,589 $147,174 $259,740
Cost of sales.......... 177,005 29,326 94,071 98,557 99,151 210,032
Marketing and selling
expense............... 19,801 4,464 18,896 22,026 25,331 47,066
Research and
development expense... 4,236 619 3,672 5,294 4,567 6,282
General and
administrative
expense............... 35,399 4,694 14,771 15,900 12,461 32,862
Restructuring charges.. 5,646 0 0 8,029 0 8,364
Goodwill amortization.. 1,956 0 0 0 0 0
-------- ------- -------- -------- -------- --------
Operating income
(loss)................ (22,757) 235 2,081 (25,217) 5,664 (44,866)
Interest income........ 56 51 381 373 398 171
Interest expense....... (3,014) (193) (485) (721) (1,805) (4,113)
Gain on divestitures of
businesses............ 0 0 0 0 0 3,675
Miscellaneous income
(expense)............. (1,913) 23 (117) (557) (737) 847
-------- ------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary loss.... (27,628) 116 1,860 (26,122) 3,520 (44,286)
Income tax provision
(benefit)............. (621) 4 35 0 (733) 0
-------- ------- -------- -------- -------- --------
Income (loss) before
extraordinary loss.... (27,007) 112 1,825 (26,122) 4,253 (44,286)
Extraordinary loss on
early extinguishment
of debt............... (393) 0 0 0 0 0
-------- ------- -------- -------- -------- --------
Net income (loss) ..... $(27,400) $ 112 $ 1,825 $(26,122) $ 4,253 $(44,286)
======== ======= ======== ======== ======== ========
Income (loss) per common
share
Basic and diluted
before extraordinary
loss................... $ (2.22) $ 0.01 $ 0.17 $ (2.44) $ 0.40 $ (4.15)
Extraordinary loss..... (0.03) 0.00 0.00 0.00 0.00 0.00
-------- ------- -------- -------- -------- --------
Net income (loss) basic
and diluted .......... $ (2.25) $ 0.01 $ 0.17 $ (2.44) $ 0.40 $ (4.15)
======== ======= ======== ======== ======== ========
Weighted average number
of shares (in
thousands) used in
computing net income
(loss) per share:
Basic.................. 12,152 10,697 10,697 10,696 10,681 10,677
Diluted................ 12,152 10,876 10,887 10,696 10,722 10,677
Balance sheet
Total assets........... $151,206 $70,294 $ 69,355 $ 58,589 $ 91,718 $135,538
Net working capital.... $ 14,421 $14,392 $ 14,980 $ 12,287 $ 19,235 $ 35,511
Term debt and bank
loans................. $ 69,604 $ 7,306 $ 5,981 $ 447 $ 13,695 $ 36,404
Stockholders' equity... $ 13,130 $26,439 $ 26,038 $ 24,324 $ 47,432 $ 43,213
Other data
Current ratio.......... 1.15 1.37 1.39 1.46 1.49 1.55
Gross profit margin.... 20.0% 25.5% 29.5% 20.9% 32.6% 19.1%
Net profit (loss)
margin................ (12.4)% 0.3% 1.4% (21.0)% 2.9% (17.1)%
Return on average
stockholders' equity.. (139.9)% 0.4% 7.2% (72.8)% 9.4% (67.0)%
Persons employed at
period end............ 791 688 698 705 886 1,194
</TABLE>
10
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Fiscal Years 1999, 1998, and 1997 Compared
General
The year ended December 31, 1999, ("Fiscal 1999") was a year of transition
as the Company has gone through a change of control, a reacquisition of its
former European and Australian subsidiaries and completion of its plan to begin
outsourcing its service support on printers in early fiscal 2000. All of these
changes were critical to the Company's goals of returning to industry
prominence and positioning itself favorably in the global printer market.
In 1998, the Company modified its accounting period from a fiscal year
ending on the Friday closest to September 30 to a fiscal year ending on the
Friday closest to December 31. Accordingly, the Company has a 13-week
transition period beginning on October 3, 1998, and ending on January 1, 1999
(the "transition period"). During this transition period no unusual items
occurred that would affect the trends of operations discussed below for the
applicable years. The Company again modified its accounting period to align
with that of the Minolta Group. Accordingly, there will be another 13-week
transitional period ending March 31, 2000. The fiscal year 2000 will then begin
on April 1, 2000, and end on March 30, 2001 ("Fiscal 2000"). The Company enters
this transitional period, and will enter fiscal 2000, with a renewed focus on
its core business of laser print systems and consumables. With the continuing
evolution of the Company's sales channel structure, adequate borrowing
capacities, and new product introductions, management believes the Company is
positioned for renewed profitability and improved stockholder value.
Change of Control to Minolta Investments Company and the Purchase of QMS B.V.
As the Company entered 1999, it faced some serious financial issues that
limited its ability to compete worldwide. In February 1999, the Company began
discussions of forming an alliance with Minolta Co., Ltd., which wanted to
strengthen its position in the growing laser printer market and recognized the
Company's technical expertise and complementary strengths.
On June 7, 1999, Minolta Investments Company, a subsidiary of Minolta Co.,
Ltd., ("Minolta") purchased 2,130,000 shares of common stock for a total price
of approximately $12.2 million. On July 12, 1999, Minolta acquired 5,440,000
shares of the Company's common stock through a cash tender offer bringing its
holdings to 7,570,000 shares, or 57.1% of the Company's outstanding stock.
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 was converted to a term loan with twenty quarterly payments
of $311,746 beginning January 15, 2000, and ending on October 15, 2004. The
remainder of the purchase was funded by a $12.8 million loan and $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, as mentioned above.
The Company recognized restructuring charges of $3.3 million related to its
1999 Minolta convergence activities in North America (see Results of
Operations). Similar convergence-related restructuring charges are anticipated
for the Company's European and Japanese operations during fiscal 2000.
Activities related to this convergence are expected to be completed by April
2000. No material effect on future operating results or cash flows is
anticipated.
11
<PAGE>
IBM Global Service Support for QMS Printers
In December 1999, the Company entered into an agreement with IBM Printing
Systems ("IBM"), which will become the global service provider for the
Company's printers. The Company's customers will look to IBM, and its worldwide
infrastructure, for their printer service and parts needs as the Company
expands its newly integrated product line globally. This is the latest step in
the Company's strategy of focusing on its channel distribution and technology
development, and is part of the Company's overall restructuring and convergence
with Minolta.
In December 1999, the Company recognized restructuring charges of $2.3
million associated with the transfer of the service business to IBM, which
consisted of $1.6 million in salary continuation for approximately 109
employees from all levels and functional areas of the Company's service
business, $0.6 million for activities associated with field service office
closings, and $0.1 million in loss on disposal of the leased service van fleet.
These costs will be paid in fiscal 2000 and are expected to be funded primarily
from cash flows from operations.
Results of Operations
In fiscal 1999, the Company had a net loss of $27.4 million on net sales of
$221.3 million compared to net income of $1.8 million in the twelve months
ended October 2, 1998 ("fiscal 1998") and a net loss of $26.1 million in the
twelve months ended October 3, 1997, ("fiscal 1997") on net sales of $133.5
million and $124.6 million in fiscal 1998 and 1997, respectively. Of the $27.4
million loss in fiscal 1999, $5.6 million was from restructuring charges, $2.5
million was from special cost of sales charges, $2.3 million was for
convergence-related expenses and $0.4 million was for the early extinguishment
of debt. Of the $26.1 million loss in fiscal 1997, $8.0 million was from
restructuring charges and $7.0 million was from special cost of sales charges.
Net Sales
Table 1--Table of Net Sales Comparisons for Key Geographic Locations
<TABLE>
<CAPTION>
Year-to-Year
Net Sales Increases/(Decreases)
-------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1999 1998
-------- -------- -------- ----------- ----------
<CAPTION>
In thousands
<S> <C> <C> <C> <C> <C>
U.S./Canada............ $ 91,496 $104,377 $102,248 $(12,881) $ 2,129
Europe................. 96,927 20,617 12,070 76,310 8,547
Japan.................. 28,537 4,224 5,617 24,313 (1,393)
Latin America.......... 2,836 3,214 2,902 (378) 312
Other.................. 1,490 1,059 1,752 431 (693)
-------- -------- -------- ----------- ----------
Total................. $221,286 $133,491 $124,589 $ 87,795 $ 8,902
======== ======== ======== =========== ==========
</TABLE>
Total sales increased by $87.8 million (65.8%) during fiscal 1999 compared
to an increase of $8.9 million (7.1%) during fiscal 1998. The increase relates
primarily to the reacquisition of the Company's former European and Australian
subsidiaries and the inclusion of the Company's Japanese subsidiary for the
entire year of fiscal 1999.
Total U.S. and Canadian sales decreased 12.3% for fiscal 1999 compared to
fiscal 1998. This decrease reflects the extended implementation of moving the
direct sales force model to sales by distributors and value-added resellers
("VARs"), in addition to flat sales in the United States. Management expects to
complete the implementation of the sales channel structure in early fiscal 2000
and sales to increase based on this renewed sales channel structure.
12
<PAGE>
Until the reacquisition of the Company's former European and Australian
subsidiaries, European revenue included only sales of controller boards at cost
and commissions earned on product sales to the Company's European distributor.
After June 7, 1999, revenues included sales to third-party customers by the
Company's reacquired subsidiary and board sales to its former European
distributor. Net sales for Europe increased $76.3 million (370.1%) for fiscal
1999 compared to fiscal 1998 and increased $8.5 million (70.8%) in fiscal 1998
compared to fiscal 1997. The increase in revenue for fiscal 1999 was mainly due
to third-party sales through the Company's reestablished subsidiary. The
increase in European revenue for fiscal 1998 was primarily from sales of the
magicolor 2 product.
During the year 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 the Company's 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. Net sales for Japan increased $24.3 million (575.6%) in fiscal 1999
compared to fiscal 1998 and decreased $1.4 million (24.8%) in fiscal 1998
compared to fiscal 1997. The 1999 increase in revenue was due entirely to
third-party sales through the Company's Japanese subsidiary.
Gross Profit and Special Charges
Gross profit increased $4.9 million (12.3%) from $39.4 million in fiscal
1998 to $44.3 million in fiscal 1999. This increase for 1999 was due entirely
to the increase in sales volume. Gross profit as a percentage of sales
decreased from 29.5% in fiscal 1998 to 20.0% in fiscal 1999. The reasons for
this decrease include the evolution from a direct sales force model to sales by
distributors and VARs taking longer than expected and thus eroding gross
margin, a decrease in price on new products in order to increase placement in
the market, unfavorable purchase price variance caused by higher yen values,
and special charges incurred in fiscal 1999 as described below.
Gross profit increased $13.4 million (51.4%) from $26.0 million in fiscal
1997 to $39.4 million in fiscal 1998. Gross profit as a percentage of sales
increased from 20.9% in fiscal 1997 to 29.5% in fiscal 1998. The principal
reasons for this increase include the introduction of magicolor 2 in the first
quarter of fiscal 1998, favorable manufacturing volume variances, favorable
purchase price variances caused by lower yen values, lower excess and obsolete
inventory reserve requirements, and special charges incurred in fiscal 1997 as
described below.
Special charges of $2.5 million were included in cost of sales for fiscal
1999 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 in 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.
Special cost of sales charges for fiscal 1997 included fourth quarter excess
and obsolete valuation charges of $4.2 million related to reduced values for
surplus inventory and repaired parts. Additionally, a $2.6 million fourth
quarter charge was taken to reduce the balance of capitalized software
development costs to estimated net realizable value.
Operating Expenses
Operating expenses for fiscal 1999 increased $29.7 million (79.5%) compared
to fiscal 1998. Operating expenses for fiscal 1999 included $5.6 million in
restructuring expenses and $2.0 million in goodwill amortization. Excluding the
restructuring charges and goodwill amortization, operating expenses for fiscal
1999
13
<PAGE>
increased $22.1 million (59.2%) compared to fiscal 1998. This increase 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. As a percentage of
net sales, operating expenses for fiscal 1999 (excluding restructuring charges
and goodwill amortization) decreased from 28.0% in fiscal 1998 to 26.9% in
fiscal 1999.
Operating expenses for fiscal 1998 decreased $13.9 million (27.1%) compared
to fiscal 1997. Operating expenses for fiscal 1997 included $8.0 million in
restructuring expenses. Excluding these restructuring charges, operating
expenses for fiscal 1998 decreased $5.9 million (13.6%) compared to fiscal
1997. This decrease reflects the cost reduction efforts begun in the fourth
quarter of fiscal 1997. Specifically, most of the benefit of the reductions in
work force that occurred primarily in August of 1997 were recognized in fiscal
1998. The combined reduction in salaries from reductions in work force and
divestiture of businesses totaled $3.5 million.
The Company's strategy for the 13-week transitional period ending March 31,
2000, and fiscal 2000 is to continue to bring operating expenses in line with
revenues.
Special, Restructuring and Extraordinary Charges
The Company recognized special, restructuring, and extraordinary charges
totaling approximately $6.2 million in the third quarter of fiscal 1999,
essentially all related to the Minolta convergence in North America. Special
charges of $2.5 million were included in cost of sales, as described above.
Restructuring charges of $3.3 million consisted of $2.3 million in charges for
workforce reduction, $0.9 million for asset impairment loss related to the
cancellation of the planned implementation of an enterprise business software
project that will be replaced with systems consistent with those of Minolta,
and $0.1 million in other related expenses. The charges for workforce reduction
will be paid in fiscal 2000 and are expected to be funded primarily from cash
flows from operations. The charge for asset impairment was paid in a prior
year. In the fourth quarter of fiscal 1999, the Company recognized
restructuring charges of $2.3 million related to the outsourcing of service
support to IBM, as previously described. An extraordinary loss of approximately
$393,000 was recognized in 1999 for the early extinguishment of debt.
There were no restructuring charges for fiscal 1998. Restructuring charges
in fiscal 1997 totaled $8.0 million from reductions in force and divestiture of
businesses.
In the fourth quarter of fiscal 1997, the Company ceased operations of its
subsidiary QMS Circuits, Inc. ("QCI") and divested the Imaging Services
Business Unit ("IMS"). A charge of $800,000 was incurred to cover the
severance, asset and inventory writedowns, and other closing expenses
associated with QCI. In fiscal 1997, IMS lost $543,000 on sales of $123,000. In
divesting IMS, the Company incurred charges of $247,000.
During fiscal 1997, the Company's work force decreased nearly 20% to
approximately 700 employees due primarily to the closing and divestiture of
businesses and a corporate-wide reduction in work force. Severance and
outplacement expense recorded in fiscal 1997 totaled $1.6 million.
The Company entered into agreements during fiscal 1997 specifying the
retirement of two executives; the President and Chief Executive Officer, and
the Executive Vice President and Chief Technical Officer. These agreements
caused an additional $2.6 million in fiscal 1997 charges related to accelerated
retirement benefits and other management transition expenses.
Moreover, the Company recognized in the fiscal 1997 income statement
cumulative foreign currency translation losses of $2.4 million in connection
with its Canadian operations. These translation losses had previously been
recognized as a reduction of stockholders' equity.
14
<PAGE>
Other Income (Expense)
Net other expense increased $4.7, from $0.2 million in fiscal 1998 to $4.9
million in fiscal 1999. This increase in net other expense includes $2.5
million for foreign currency transaction losses related to the Company's
European subsidiary. In addition, interest expense increased $2.5 million, from
$0.5 million in fiscal 1998 to $3.0 million in fiscal 1999, after decreasing
$0.2 million, from $0.7 million in fiscal 1997 to $0.5 million in fiscal 1998.
The increase in interest expense reflects the new short-term and long-term debt
incurred in connection with the Minolta convergence and the reacquisition of
the Company's former European subsidiary.
The Company did not enter into any material foreign exchange contracts
during fiscal 1999, 1998, or 1997 and had no foreign exchange contracts at
December 31, 1999.
Income Taxes
In fiscal 1999, an income tax provision of $700,000 was recognized for state
income taxes relating to the audit of the Company's state tax returns for 1990
and 1991. In fiscal 1999, deferred tax benefits of $1.4 million were recognized
by the Company's European subsidiary. Of this amount, $828,000 represented an
income tax receivable, while the remaining $537,000 was a deferred tax benefit
for future years. In addition, the Company paid $42,000 in foreign tax withheld
on interest income received from its Japanese subsidiary.
For fiscal 1998, an income tax provision of $35,000 was recognized
reflecting estimated alternative minimum taxes on current period income after
application of available carryovers of net operating losses and general
business credits. No benefit or provision for income taxes was recognized for
fiscal 1997.
At December 31, 1999, the Company had domestic operating loss carryovers and
general business credit carryovers of approximately $56.2 million and $1.7
million, respectively, which expire in periods ranging from 2002 to 2019. (See
Note 15 of Notes to Consolidated Financial Statements.)
Factors Which May Affect Future Results
The Company's products include components (primarily microprocessors and
dynamic random-access memory devices) which, from time to time, are sensitive
to market conditions that may result in limited availability and/or price
fluctuations. An interruption in the supply of or significant changes in prices
for these components could have an adverse effect on the Company's operating
results. The Company purchases print engine mechanisms and consumables from
Japanese suppliers. Fluctuations in foreign currency exchange rates will affect
the prices of these products. The Company may attempt to mitigate possible
negative impacts through yen-sharing arrangements with suppliers, foreign
exchange contracts, and price negotiations; however, material price increases
resulting from exchange rate fluctuations could develop which would adversely
affect operating results.
Because the Company competes in an industry of rapid technological
advancement, it is important that the Company be able to develop innovative new
technologies and leading-edge print systems in a timely, cost-effective manner.
The Company has invested significantly in Crown advanced document processing
technology which, in addition to providing significantly improved
functionality, is intended to reduce the time it takes to develop products. New
product introduction delays could, however, have an adverse impact on operating
results.
These factors, including increasingly competitive pressures in the Company's
markets, along with others that may affect operating results, mean that past
financial performance may not be a reliable indicator of future performance.
Investors should not use historical trends to anticipate results or trends in
future periods. In addition, the Company participates in a highly dynamic
industry, which can result in significant volatility of the Company's common
stock price.
15
<PAGE>
Liquidity and Capital Resources
Cash and cash equivalents were $3.5 million at December 31, 1999, compared
to $2.8 million and $0.6 million at the end of fiscal 1998 and 1997,
respectively. Cash flow from operations was ($19.3) million for fiscal 1999
compared to $7.5 million and $9.8 million for fiscal 1998 and 1997,
respectively. The Company's financing for fiscal 1999 came from borrowings from
Minolta and borrowings under revolving credit agreements, along with the
issuance of the Company's common stock to Minolta. The Company's financing for
fiscal 1998 and 1997 came principally from cash flows from operations and
borrowings under revolving credit agreements. In addition, the divestiture of
businesses and disposal of property, plant and equipment provided cash flows of
$0.9 million, $0.4 million and $13.5 million in fiscal 1999, 1998 and 1997,
respectively.
The Company's working capital was $14.4 million at December 31, 1999, down
from $15.0 million at the end of fiscal 1998. This decrease is primarily due to
increased levels of short-term borrowing that reflects the inclusion of the
Company's European subsidiary.
During 1999, the Company had credit relationships with Foothill Capital
Corporation ("Foothill") and Harris Trust and Savings Bank ("Harris") in the
United States, and ING Bank N.V., ING Mezzanine Fonds B.V. and NMB Heller N.V.
(collectively "Heller") in Europe.
On August 19, 1999, the Company entered into a new financing arrangement
with Harris which allowed the Company to retire amounts due to Foothill and
terminate the existing secured revolving credit agreement. This new credit
facility provides for a revolving line of credit through August 2002 with
maximum availability of $20.0 million, secured by the Company's domestic and
Canadian accounts receivable and inventory. The stated rate of interest for any
borrowings under the agreement is one-quarter of one percent (0.25) over prime
or London Interbank Offered Rate ("LIBOR") plus three percent. The effective
rate at December 31, 1999, was 8.75%. The Harris credit facility prohibits the
payment of dividends, limits the amount of unamortized capital software
development costs and capital expenditures, and requires minimum levels of
tangible net worth and fixed charge coverage.
Total borrowing capacity under the Heller agreement which expires in
February 2001 is based on a percentage of eligible trade receivables and
inventory and is secured by these assets. The terms of this agreement require
lender approval for payment of dividends from QMS, B.V. to QMS, Inc.
Accordingly, QMS B.V.'s restricted net assets total approximately $6.0 million
as of December 31, 1999. The stated rate of interest for any borrowings under
this agreement is Amsterdam Interbank Offered Rate ("AIBOR") plus 1.25% with a
minimum of 4% per annum (4% at December 31, 1999).
Total borrowing capacity under the credit facilities is a function of
eligible accounts receivable and inventory. At December 31, 1999, total
availability was $38.1 million, consisting of $17.5 million with Harris and
$20.6 million with Heller. Of this total availability, at December 31, 1999,
the Company had borrowings of $9.1 million under the revolving credit facility
with Harris and $17.7 million under the revolving credit facility with Heller,
as well as cash on hand of $3.5 million.
At December 31, 1999, the Company was not in compliance with certain of the
Harris financial covenants or the Heller required minimum stockholders' equity
covenant. The Company obtained a waiver of non-compliance from Harris on March
2, 2000, and on February 11, 2000, received a waiver of non-compliance from
Heller. In February 2000, the Company used certain of the Minolta loans
described below to provide subordinated debt of $4.0 million to its European
subsidiary as a form of equity as defined under the Heller 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
16
<PAGE>
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 that time the $1.3 million in prepaid rent was
converted to a security deposit.
At December 31, 1999, the Company was in violation of several financial
covenants contained in the operating lease agreement and is not projected to
remedy these conditions of non-compliance upon expiration of a cure period on
March 31, 2000. Among the remedies available to the landlord is the
acceleration of all remaining base rent on a discounted basis for the initial
lease term (approximately $13.2 million), cancellation of the lease, or all
other remedies available by law. The violations of the financial covenants in
the lease agreement beyond the cure period will also constitute an event of
default under the Harris revolving credit agreement.
On March 10, 2000, the Company received a letter of intent from its landlord
indicating its willingness to sell the leased property for the greater of $14.0
million or an appraised value, based upon a mutually agreed to process,
provided such sale is consummated by April 28, 2000. Management believes it is
probable that negotiations to complete the purchase of the property and cancel
the operating lease agreement will be successful, and Minolta has agreed to
provide the funding necessary to consummate such purchase. In addition, on
March 20, 2000, the Company obtained a waiver of the cross covenant contained
in the Harris revolving credit agreement.
On November 10, 1999, December 22, 1999, and February 4, 2000, the Company
received $15 million, $5 million, and $10 million loans from Minolta,
respectively. These loans are payable over four years and have stated interest
rates of LIBOR plus 2.5% payable monthly in arrears. Proceeds of these loans
were used to repay the $5.0 million unsecured advance from Minolta, to fund
loans to the Company's European subsidiary for its working capital purposes,
and to provide for corporate working capital purposes.
Management believes the Company's fiscal 2000 working capital and capital
expenditure needs, as well as funding for research and development, will be met
by cash flows from operations and by the Harris and Heller credit facilities
(see Note 8 of Notes to Consolidated Financial Statements).
Year 2000 Compliance
In March 1997, the Company developed and began implementing a plan to review
its overall Year 2000 compliance. The plan encompassed the Company's critical
information technology ("IT") systems, its critical non-IT suppliers and
vendors, and its products.
The Company has experienced no computer-related problems as a result of the
Year 2000 issue in any of the areas referred to above. In addition, the Company
is not currently aware of any circumstances that would indicate a likely Year
2000-related problem in the future; however, the Company will continue to
monitor its Year 2000 compliance.
The Company has spent approximately $150,000 in connection with Year 2000
remediation; no significant additional expenditures are anticipated.
Inflation
Inflationary factors have not had a significant effect on the Company's
operations in the past three years. A significant increase in inflation would
adversely affect the Company's operations.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which will be effective (as
amended) for the Company in fiscal 2002. This Statement requires that all
derivatives be recognized in the statement of financial position as either
assets or liabilities and measured at fair value. In addition, all hedging
relationships must be designated, reassessed and documented pursuant to the
provisions of SFAS No. 133. The Company's management has not yet determined the
effect SFAS No. 133 will have on its consolidated financial statements.
17
<PAGE>
Item 7A. 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 these risks.
Foreign Currency Exchange Risk
At December 31, 1999, the Company had sales in over 90 countries worldwide.
These sales outside the United States accounted for approximately 60 percent of
worldwide sales. Virtually all of these sales were 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. The Company's U.S. operations purchase
significant quantities of inventory from Japanese suppliers. Payments are made
to these suppliers in U.S. dollars linked to the yen. In the OEM agreements
with these suppliers, a currency payment model is negotiated that describes how
fluctuations in exchange rates will be shared over the term of the agreement.
In June 1999, the Company reacquired its former European subsidiary which also
purchases significant quantities of inventory from Japanese suppliers in yen.
The Company is currently negotiating with its European subsidiary's suppliers
to adjust for fluctuations 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.
Prior to 1999, the Company on occasion has used derivatives to hedge
specific risk situations involving foreign currency exposures. No such
derivatives were held at December 31, 1999.
Interest Rate Risk
The financial liabilities of the Company that are exposed to changes in
interest rates include short-term borrowings and long-term debt. The stated
rate of interest for borrowings under the Harris revolving credit agreement is
one-quarter of one percent (0.25) over prime or LIBOR plus three percent, and
the stated rate of interest for borrowings under the Heller revolving credit
agreement is one and one-quarter percent (1.25) over AIBOR. Long-term
borrowings with Minolta and Alto Imaging Group N.V. have stated interest rates
of LIBOR plus 2.5% payable monthly in arrears and LIBOR plus 0.5% (but not to
be less than 6.50%), respectively. Long-term borrowings of the Company's
European subsidiary bear interest at 6% and 10%. A one percent annual increase
in the stated interest rates would have resulted in approximately $400,000 of
additional annual interest expense in 1999.
18
<PAGE>
Item 8. Financial Statements and Supplemental Data.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the fiscal year ended December 31, 1999, the transition period ended
January 1, 1999,
and the fiscal years ended October 2, 1998, and October 3, 1997
<TABLE>
<CAPTION>
Transition
1999 Period 1998 1997
-------- ---------- -------- --------
Dollars in thousands, except per
share amounts
<S> <C> <C> <C> <C>
Net sales
Printers and supplies............... $190,493 $31,525 $ 96,757 $ 91,002
Service............................. 30,793 7,813 36,734 33,587
-------- ------- -------- --------
Total net sales.................... 221,286 39,338 133,491 124,589
-------- ------- -------- --------
Cost of sales
Printers and supplies............... 156,551 24,451 70,775 74,842
Service............................. 20,454 4,875 23,296 23,715
-------- ------- -------- --------
Total cost of sales................ 177,005 29,326 94,071 98,557
-------- ------- -------- --------
Gross profit
Printers and supplies............... 33,942 7,074 25,982 16,160
Service............................. 10,339 2,938 13,438 9,872
-------- ------- -------- --------
Total gross profit................. 44,281 10,012 39,420 26,032
-------- ------- -------- --------
Operating expenses
Marketing and selling............... 19,801 4,464 18,896 22,026
Research and development............ 4,236 619 3,672 5,294
General and administrative.......... 35,399 4,694 14,771 15,900
Restructuring charges............... 5,646 0 0 8,029
Goodwill amortization............... 1,956 0 0 0
-------- ------- -------- --------
Total operating expenses........... 67,038 9,777 37,339 51,249
-------- ------- -------- --------
Operating income (loss).............. (22,757) 235 2,081 (25,217)
-------- ------- -------- --------
Other income (expense)
Interest income..................... 56 51 381 373
Interest expense.................... (3,014) (193) (485) (721)
Miscellaneous income (expense),
net................................ (1,913) 23 (117) (557)
-------- ------- -------- --------
Total other expense, net........... (4,871) (119) (221) (905)
-------- ------- -------- --------
Income (loss) before income taxes and
extraordinary loss.................. (27,628) 116 1,860 (26,122)
Income tax provision (benefit)....... (621) 4 35 0
-------- ------- -------- --------
Income (loss) before extraordinary
loss................................ (27,007) 112 1,825 (26,122)
Extraordinary loss on early
extinguishment of debt.............. (393) 0 0 0
-------- ------- -------- --------
Net income (loss).................... $(27,400) $ 112 $ 1,825 $(26,122)
======== ======= ======== ========
Income (loss) per common share
Basic and diluted before
extraordinary loss................. $ (2.22) $ 0.01 $ 0.17 $ (2.44)
Extraordinary loss.................. (0.03) .00 .00 .00
-------- ------- -------- --------
Net income (loss) basic and
diluted............................ $ (2.25) $ 0.01 $ 0.17 $ (2.44)
======== ======= ======== ========
Weighted average number of shares (in
thousands) used in computing net
income (loss) per common share
Basic............................... 12,152 10,697 10,697 10,696
Diluted............................. 12,152 10,876 10,887 10,696
</TABLE>
See Notes to Consolidated Financial Statements.
19
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the fiscal year ended December 31, 1999, the transition period ended
January 1, 1999,
and the fiscal years ended October 2, 1998, and October 3, 1997
<TABLE>
<CAPTION>
Transition
1999 Period 1998 1997
-------- ---------- ------ -------- ---
Dollars in thousands
<S> <C> <C> <C> <C> <C>
Net income (loss).................... $(27,400) $112 $1,825 $(26,122)
Other comprehensive income (loss) (no
income tax effect):
Foreign currency translation
adjustments........................ 457 288 (243) 2,431
Reclassification adjustment for
accumulated translation losses
included in net loss............... 0 0 0 (2,431)
-------- ---- ------ --------
Total other comprehensive income
(loss)............................. 457 288 (243) 0
-------- ---- ------ --------
Comprehensive income (loss).......... $(26,943) $400 $1,582 $(26,122)
======== ==== ====== ========
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE>
CONSOLIDATED BALANCE SHEETS
At December 31, 1999
and October 2, 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
Dollars in thousands,
except per share amounts
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents......................... $ 3,505 $ 2,754
Trade receivables (less allowance for doubtful
accounts of $666 in 1999
and $512 in 1998)................................ 39,926 21,636
Notes receivable (less reserve of $242 in 1999 and
$0 in 1998)...................................... 239 3,239
Inventories, net.................................. 56,987 23,090
Deferred income taxes............................. 3,202 680
Other current assets.............................. 5,946 1,568
------------ ------------
Total current assets............................. 109,805 52,967
Property, plant, and equipment, net................ 6,468 4,949
Notes receivable (less reserve of $343 in 1999 and
$1,150 in 1998)................................... 0 0
Capitalized and deferred software, net............. 9,481 9,271
Goodwill, net...................................... 21,773 0
Other assets, net.................................. 3,679 2,168
------------ ------------
Total assets..................................... $ 151,206 $ 69,355
============ ============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable.................................. $ 37,678 $ 12,999
Revolving credit loans............................ 26,840 5,981
Current maturities of long-term debt.............. 5,616 0
Current maturities of capital lease obligations... 568 330
Employment costs.................................. 5,003 3,713
Deferred service revenue.......................... 5,156 7,761
Other current liabilities......................... 14,523 7,203
------------ ------------
Total current liabilities........................ 95,384 37,987
Long-term debt..................................... 37,148 0
Capital lease obligations.......................... 1,385 383
Other liabilities.................................. 4,159 4,947
------------ ------------
Total liabilities................................ 138,076 43,317
------------ ------------
Commitments and contingencies (Note 18)
Stockholders' equity
Preferred stock-authorized, 500,000 shares of no
par value; none issued
Common stock-authorized, 25,000,000 shares of
$0.01 par value; issued,13,962,806 shares in 1999
and 11,832,806 shares in 1998.................... 140 118
Additional paid-in capital........................ 49,262 40,750
Accumulated deficit............................... (28,717) (1,429)
Treasury stock, at cost (707,695 shares in 1999
and 1,135,686 shares in 1998).................... (8,057) (13,158)
Accumulated other comprehensive income (loss)..... 502 (243)
------------ ------------
Total stockholders' equity....................... 13,130 26,038
------------ ------------
Total liabilities and stockholders' equity....... $ 151,206 $ 69,355
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
21
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the fiscal years ended October 3, 1997, and October 2, 1998, the transition
period
ended January 1, 1999, and the fiscal year ended December 31, 1999
<TABLE>
<CAPTION>
Common Stock Treasury Stock
----------------- -------------------
Retained Accumulated
Additional Earnings Other
Shares Paid-In (Accumulated Number of Comprehensive
Issued Amount Capital Deficit) Shares Amount Income/(Loss)
---------- ------ ---------- ------------ --------- -------- -------------
Dollars in thousands
<S> <C> <C> <C> <C> <C> <C> <C>
Balance September 27, 1996.. 11,832,806 $118 $40,156 $ 22,868 1,151,341 $(13,279) $(2,431)
Warrant issued............. 208
Stock options exercised.... (42) (15,600) 121
Foreign currency
translation............... 2,431
Other...................... 296
Net loss................... (26,122)
---------- ---- ------- -------- --------- -------- -------
Balance October 3, 1997..... 11,832,806 118 40,618 (3,254) 1,135,741 (13,158) 0
* Stock options--
compensation.............. 96
Stock options exercised.... (55)
Foreign currency
translation............... (243)
Other...................... 36
Net income................. 1,825
---------- ---- ------- -------- --------- -------- -------
Balance October 2, 1998..... 11,832,806 118 40,750 (1,429) 1,135,686 (13,158) (243)
Stock options exercised.... (1) (250) 2
Foreign currency
translation............... 288
Net income................. 112
---------- ---- ------- -------- --------- -------- -------
Balance January 1, 1999..... 11,832,806 118 40,749 (1,317) 1,135,436 (13,156) 45
Issuance of stock.......... 2,130,000 22 12,226
Stock options exercised.... (3,713) (427,741) 5,099
Foreign currency
translation............... 457
Net loss................... (27,400)
---------- ---- ------- -------- --------- -------- -------
Balance December 31, 1999... 13,962,806 $140 $49,262 $(28,717) 707,695 $ (8,057) $ 502
========== ==== ======= ======== ========= ======== =======
</TABLE>
- --------
* Expense related to issuance of stock options
See Notes to Consolidated Financial Statements.
22
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the fiscal year ended December 31, 1999, the transition period ended
January 1, 1999,
and the fiscal years ended October 2, 1998, and October 3, 1997
<TABLE>
<CAPTION>
Transition
1999 Period 1998 1997
-------- ---------- ------- --------
Dollars in thousands
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss)..................... $(27,400) $ 112 $ 1,825 $(26,122)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Extraordinary loss................... 393 0 0 0
Depreciation of property, plant, and
equipment........................... 2,835 576 2,245 4,392
Amortization of goodwill............. 1,956 0 0 0
Amortization and write-off of
capitalized and deferred software... 10,924 1,968 7,816 9,409
Provision (recovery) for losses on
accounts and notes receivable....... (384) (28) 233 146
Provision for losses on inventory.... 4,998 795 2,953 7,416
Deferred income tax benefit.......... (621) 0 0 0
Non-cash restructuring charges....... 931 0 0 4,178
Other................................ (393) 0 (226) 151
Changes in assets and liabilities
which provided (used) cash, net of
effects of acquisition in 1999:
Trade receivables.................... 2,484 (1,083) (4,084) 6,464
Inventories, net..................... (14,425) (3,394) (7,919) 2,826
Accounts payable..................... 1,151 1,364 6,437 (901)
Other assets and liabilities......... (1,309) (785) (1,813) 1,849
-------- ------- ------- --------
Total adjustments................... 8,540 (587) 5,642 35,930
-------- ------- ------- --------
Net cash provided by (used in)
operating activities............... (18,860) (475) 7,467 9,808
-------- ------- ------- --------
Investing activities:
Purchase of Europe and Australian
subsidiaries......................... (20,500) 0 0 0
Collections of notes receivable....... 473 1,593 387 1,057
Additions to property, plant, and
equipment............................ (2,546) (410) (2,115) (2,672)
Additions to capitalized software
costs................................ (9,719) (2,887) (7,439) (8,167)
Additions to deferred software costs.. (531) (25) (523) (611)
Proceeds from disposal of property,
plant, and equipment................. 880 0 428 13,548
-------- ------- ------- --------
Net cash provided by (used in)
investing activities............... (31,943) (1,729) (9,262) 3,155
-------- ------- ------- --------
Financing activities:
Proceeds from revolving credit lines,
net.................................. 4,304 1,325 5,534 (11,862)
Proceeds from long-term debt.......... 35,531 0 0 0
Payments of debt issuance costs, net.. (453) 0 0 0
Payments of capital lease obligations,
including current maturities......... (415) (168) (1,443) (757)
Proceeds from issuance of common
stock................................ 12,248 0 0 0
Proceeds from exercise of stock
options.............................. 1,386 0 0 0
Other................................. 0 0 (154) 78
-------- ------- ------- --------
Net cash provided by (used in)
financing activities............... 52,601 1,157 3,937 (12,541)
-------- ------- ------- --------
Net change in cash and cash
equivalents.......................... 1,798 (1,047) 2,142 422
Cash and cash equivalents, beginning
of period............................ 1,707 2,754 612 190
-------- ------- ------- --------
Cash and cash equivalents, end of
period............................... $ 3,505 $ 1,707 $ 2,754 $ 612
======== ======= ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business--QMS, Inc. designs and manufactures intelligent
controllers which enhance the graphics capabilities and performance of computer
printing and imaging systems. The Company incorporates its controllers, which
consist of software implemented on printed circuit boards, into computer
printing and imaging systems which it markets, sells, and supports in the
United States, Europe, Japan, Canada, and Central and South America. The market
for these products is related to the market for computer systems generally.
Current end users of the Company's products include many Fortune 500 companies,
governmental agencies, and educational institutions. Sales to the Company's ten
largest customers, both foreign and domestic, accounted for 41.5%, 45.1%,
47.1%, and 27.4% in fiscal 1999, the transition period beginning on October 3,
1998, and ending on January 1, 1999, and fiscal 1998 and 1997, respectively.
Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of QMS, Inc. and its wholly owned subsidiaries.
All material intercompany items have been eliminated.
Accounting Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported periods. Actual results could differ from those estimates.
Fiscal Year--On October 28, 1998, the Company's Board of Directors modified
the Company's accounting period 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
includes audited financial statements for the 13-week transition period
beginning on October 3, 1998, and ending on January 1, 1999, ("the transition
period") in this Annual Report on Form 10-K for its new fiscal year ended
December 31, 1999. Fiscal 1997 (the year ended October 3, 1997) included 53
weeks. Fiscal 1999 and 1998 (the year ended October 2, 1998) included 52 weeks.
On October 8, 1999, the Company's Board of Directors again modified the
Company's accounting period effective in 2000, from a fiscal year ending on the
Friday closest to December 31 to a fiscal year ending on the Friday closest to
March 31.
24
<PAGE>
Comparable Transition Period Financial Data--In connection with the
Company's change in fiscal year, presented below is the financial data for the
comparable unaudited three months ended January 2, 1998 (amounts in thousands):
<TABLE>
<S> <C>
Net sales........................................................... $28,578
Cost of sales....................................................... 19,505
-------
Gross profit........................................................ 9,073
Operating expenses.................................................. 8,844
-------
Operating income.................................................... 229
Other income........................................................ 176
-------
Income before income taxes.......................................... 405
Income tax provision................................................ 4
-------
Net income.......................................................... $ 401
=======
Basic and diluted net income per share.............................. $ 0.04
=======
</TABLE>
Cash Equivalents--The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Inventories--Inventories are stated at the lower of cost or market. Cost,
which includes materials, labor, and production and material overhead, is
determined on the first-in, first-out basis. Market is based on replacement
cost or net realizable value, as appropriate.
Property, Plant, and Equipment--Expenditures for property, plant, and
equipment, major renewals, and betterments are capitalized at cost. Certain
assets are financed under lease contracts which have been capitalized.
Aggregate lease payments, discounted at appropriate rates, have been recorded
as long-term debt, the related leased assets have been capitalized, and the
amortization of such assets is included in depreciation expense. Depreciation
is computed on the straight-line method over the estimated useful lives of the
assets, or the lease term, whichever is shorter.
Expenditures for maintenance, repairs, and minor renewals are charged to
expense. When items are disposed of, the cost and accumulated depreciation are
eliminated from the respective accounts, and the resulting gain or loss is
included in the statement of operations.
Goodwill--Goodwill is being amortized over seven years on a straight-line
basis.
Revenue Recognition--Sales of printers and supplies are recorded upon
shipments of products to customers provided that pervasive evidence of an
arrangement exists, the selling price is fixed and determinable, and
collectibility of the resulting receivables is probable. Service revenue is
recognized ratably over the term of the service contract.
The American Institute of Certified Public Accountants Statement of Position
No. 97-2, "Software Revenue Recognition," was effective for the Company
beginning in the transition period. This Statement did not have a material
impact on the Company's consolidated financial statements.
Warranty Policy--The Company warrants its products for a period of 90 days
to 1 year from the date of shipment, depending on the product.
Deferred Service Revenues--Amounts billed for service contracts are credited
to deferred service revenue and reflected in revenues over the terms of the
contracts, which range up to five years.
25
<PAGE>
Deferred Software Costs--Purchased computer software costs are amortized
based on current and future revenue for each product with an annual minimum
amortization equal to straight-line amortization over the remaining estimated
economic life of the product.
Capitalized Software Costs--The Company capitalizes the qualifying costs of
developing proprietary software included in its products. Capitalization of
costs requires that technological feasibility has been established. Upon
completion of projects, amortization is determined based on the larger of the
amounts computed using (a) the ratio that current gross revenue for each
product bears to the total of current and anticipated future gross revenues for
that product or (b) the straight-line method over the remaining estimated
economic life of the product. Actual estimated economic lives range from one to
two years. Amortization adjustments are made to reflect net realizable value
and any changes in the determination of the economic lives.
Capitalized software costs expended solely in the United States for fiscal
1999, the transition period, and fiscal 1998 and 1997 totaled $9.7 million,
$2.8 million, $7.7 million, and $8.2 million, respectively. For fiscal 1999,
the transition period, and fiscal 1998 and 1997, $8.5 million, $1.8 million,
$7.4 million and $6.0 million, respectively, were charged as amortization
expense on completed projects and were included in cost of goods sold.
Amortization expense included no write-offs or net realizable value adjustments
for the transition period or fiscal 1998, but included $1.8 million and $2.9
million of such adjustments for fiscal 1999 and 1997, respectively.
Research and Development--The Company expenses research and development
costs as incurred, including expenditures related to development of the
Company's software products that do not qualify for capitalization.
Income Taxes--The Company complies with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes," under which deferred
tax liabilities and assets are determined based on the difference between
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse
(see Note 15).
Segment Information--The Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information" in fiscal 1999. This
Statement establishes standards for the reporting of information about
operating segments in annual and interim financial statements. Operating
segments are defined as components of an enterprise for which separate
financial information is available that is evaluated regularly by the chief
operating decision maker(s) in deciding how to allocate resources and in
assessing performance. SFAS No. 131 also requires disclosures about products
and services, geographic areas and major customers. The adoption of SFAS No.
131 did not affect results of operations or financial position but did affect
the disclosure of segment information, as presented in Note 16.
Fair Value of Financial Instruments--SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments," requires certain disclosures for financial
instruments for which it is practicable to estimate the fair value. The
Company's financial instruments consist of cash and cash equivalents, trade and
notes receivables, trade payables, accrued expenses, and interest-bearing debt.
The fair value of the Company's financial instruments approximates the carrying
value reflected in the accompanying consolidated balance sheets at December 31,
1999, and October 2, 1998, primarily because of the short-term nature of these
instruments (excluding notes receivable and certain interest-bearing debt).
Fair value disclosure for the Company's notes receivable is presented in Note 6
and for interest-bearing debt is presented in Notes 8 and 9.
Recently Issued Accounting Standards--In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective (as amended) for
the Company in fiscal 2002. This Statement requires that all derivatives be
recognized in the statement of financial position as either assets or
liabilities and measured at fair value. In addition, all hedging relationships
must be designated, reassessed and documented pursuant to the provisions of
SFAS No. 133. The Company's management has not yet determined the effect SFAS
No. 133 will have on its consolidated financial statements.
26
<PAGE>
Net Income (Loss) per Common Share--In computing net income (loss) per
common share, weighted average common shares outstanding (diluted), includes
the dilutive effect of stock options as follows (in thousands):
<TABLE>
<CAPTION>
Transition
1999 Period 1998 1997
------ ---------- ------ ------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding
(basic)................................... 12,152 10,697 10,697 10,697
Dilutive effect of stock options........... 0 179 190 0
------ ------ ------ ------
Weighted average common shares outstanding
(diluted)................................. 12,152 10,876 10,887 10,697
====== ====== ====== ======
</TABLE>
Options and warrants to purchase 807,497, 1,214,762, 998,808, and 1,626,478
shares of common stock for the year ended December 31, 1999, the transition
period, and the years ended October 2, 1998, and October 3, 1997, respectively,
were excluded from the computation of weighted average shares as such options
and warrants would have been anti-dilutive.
Comprehensive Income (Loss)--The Company adopted SFAS No. 130, "Reporting
Comprehensive Income," during the transition period. This Statement requires
the Company to report comprehensive income (loss) and its components, which
consist of net income (loss) and foreign currency translation adjustments, in
its consolidated statement 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.
Foreign Currency Translation--The financial position and results of
operations of the Company's European, Australian, Canadian and Japanese
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of these subsidiaries have been translated at year-end
exchange rates, and income and expenses have been translated using weighted
average-for-the-year exchange rates.
During fiscal 1997, the Company recognized in the statement of operations
cumulative foreign currency translation losses of $2.4 million in connection
with its Canadian operations. Foreign currency transaction gains (losses) are
included as a component of miscellaneous income (expense) and were not material
to the Company's consolidated financial statements for the transition period,
and fiscal 1998 and 1997. For fiscal 1999, foreign currency transaction losses
were $1.6 million and included $2.5 million for transaction losses related to
the Company's European subsidiary.
Reclassifications--Certain reclassifications have been made to fiscal 1998
and 1997 amounts to conform to the fiscal 1999 presentation.
2. Acquisition and Minolta Investment
On June 7, 1999, the Company reacquired its former 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
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 was converted to a term loan with twenty quarterly payments
of $311,746 beginning January 15, 2000, and ending on October 15, 2004. The
remainder of the purchase was funded by a $12.8 million loan and $5.0 million
advance on future Company production from Minolta Co., Ltd. and a $12.2 million
sale of 2,130,000 shares of the Company's common stock to Minolta Investments
Company ("Minolta"). Surplus financing was used to reduce revolving lines of
credit.
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. Goodwill of $23.7 million was recognized on the acquisition equal to the
excess of the price paid over the estimated fair value of the net assets
acquired. Goodwill may be reduced as further information is obtained regarding
the fair value of QMS B.V.'s intangible assets. However, the Company does not
expect any material effect on its consolidated results of operations as a
result of this adjustment. The consolidated
27
<PAGE>
statements of operations include the results of European and Australian
operations from their acquisition date forward.
The estimated fair value of assets acquired and liabilities assumed in the
acquisition is summarized as follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired...................................... $ 50,408
Goodwill........................................................... 23,737
Liabilities assumed................................................ (44,235)
--------
$ 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
========
</TABLE>
The following unaudited pro forma consolidated results of operations for the
year ended December 31, 1999, and October 2, 1998, have been prepared as though
the acquisition occurred as of the beginning of the periods presented (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net sales............................................... $291,714 $213,361
Income (loss) before extraordinary loss................. (28,753) 2,845
Net income (loss)....................................... (29,146) 2,845
Basic and diluted income (loss) per share before
extraordinary loss..................................... (2.01) 0.22
Basic and diluted net income (loss) per share........... (2.04) 0.22
</TABLE>
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 indicated above or in the future.
QMS Europe B.V. and QMS Australia Pty. Ltd. were sold to Jalak Investment
B.V., effective the beginning of fiscal 1996. The Company continued to sell
controller boards and components to these businesses at cost and then realized
a commission on their sales of QMS products to third parties until the
reacquisition of QMS B.V. in June 1999. Commissions and royalties earned from
QMS B.V. totaled $9.5 million, $2.9 million, $8.4 million, and $9.0 million for
fiscal 1999 (prior to the date of acquisition), the transition period, and
fiscal 1998 and 1997, respectively.
3. Inventories
Inventories at December 31, 1999, and October 2, 1998, are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Raw materials.............................................. $13,705 $ 5,962
Work in process............................................ 16,191 2,158
Finished goods............................................. 35,718 18,643
Inventory reserves......................................... (8,627) (3,673)
------- -------
$56,987 $23,090
======= =======
</TABLE>
Inventory reserves consist primarily of excess and obsolete reserves, net
realizable value reserves, and spare part valuation reserves. Excess and
obsolete reserves are calculated based on specific identification of items that
are potentially excess or obsolete and are recorded on a routine basis due to
rapid obsolescence of certain inventory items. Net realizable value reserves
reflect differences in either future purchase commitments or standard product
cost compared to net realizable value. Spare part valuation reserves reflect
the reduced value of repaired parts from the historical cost of the parts'
original purchase price.
28
<PAGE>
During fiscal 1999, the Company purchased $5.7 million in printer engines
and related products from Minolta.
4. Capitalized and Deferred Software
Capitalized and deferred software at December 31, 1999, and October 2,
1998, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Capitalized software costs, net............................... $8,973 $8,542
Deferred software costs, net.................................. 508 729
------ ------
$9,481 $9,271
====== ======
</TABLE>
Accumulated amortization of capitalized software costs was $15.2 million
and $13.2 million at December 31, 1999, and October 2, 1998, respectively.
Accumulated amortization of deferred software costs was $1.7 million and $0.9
million at December 31, 1999, and October 2, 1998, respectively.
5. Property, Plant, and Equipment
Property, plant, and equipment at December 31, 1999, and October 2, 1998,
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Land........................................................ $ 0 $ 39
Buildings and improvements.................................. 0 1,233
Leasehold and land improvements............................. 1,017 255
Machinery and equipment..................................... 33,018 28,929
Office furniture and equipment.............................. 6,176 5,425
------- -------
40,211 35,881
Less accumulated depreciation............................... 33,743 30,932
------- -------
$ 6,468 $ 4,949
======= =======
</TABLE>
6. Notes Receivable
Notes receivable at December 31, 1999, and October 2, 1998, are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ------
<S> <C> <C>
QMS Europe B.V.--payable as described below (interest at
12%)......................................................... $ 0 $3,000
QMS Japan KK--payable over 24 months (interest at 8%),
less reserves of $585 in 1999 and $1,150 in 1998............. 239 239
---- ------
239 3,239
Less current portion.......................................... 239 3,239
---- ------
$ 0 $ 0
==== ======
</TABLE>
In November 1998, QMS Europe B.V. paid the note receivable in full. The
note from QMS Japan KK is currently unsecured but the Company has the option
to purchase all of the assets of QMS Japan KK. Because the majority of the
note balance is reserved, the fair value, as of December 31, 1999, and October
2, 1998, has been estimated to approximate carrying value.
In addition to the notes receivable balances, the Company has net trade
receivables balances from QMS Europe B.V. and QMS Japan KK of approximately
$2,742,000 and $9,000, respectively, as of October 2, 1998. There were no
outstanding trade receivables due from QMS Japan KK as of December 31, 1999.
29
<PAGE>
7. Other Current Liabilities
Other current liabilities at December 31, 1999, and October 2, 1998, are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------- ------
<S> <C> <C>
Warranty accrual............................................. $ 2,979 $1,208
Management transition--current............................... 1,809 697
Reserves for restructuring charges (Note 19)................. 3,980 343
Deferred income taxes........................................ 680 680
Other........................................................ 5,075 4,275
------- ------
$14,523 $7,203
======= ======
</TABLE>
8. Revolving Credit Agreement
Amounts borrowed at December 31, 1999, and October 2, 1998, consist of $26.8
million and $6.0 million, respectively, under secured revolving credit
agreements.
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 with Foothill Capital Corporation
("Foothill"). This new credit facility provides for a revolving line of credit
through August 2002 with maximum availability of $20.0 million, secured by the
Company's domestic and Canadian accounts receivable and inventory. At December
31, 1999, total availability was $17.5 million and $9.1 million was
outstanding. The stated rate of interest for any borrowings under the agreement
is one-quarter of one percent (0.25) over prime or London Interbank Offered
Rate ("LIBOR") plus three percent. The effective rate at December 31, 1999, was
8.75%.
At October 2, 1998, the Company had $6.0 million outstanding under a
revolving line of credit with Foothill at a stated interest rate of one and
one-half percent over prime (9.75% at October 2, 1998). In 1999, the Company
recognized an extraordinary loss of approximately $393,000 on the early
extinguishment of this debt.
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 and Foothill credit
facilities are classified as short-term debt in the financial statements.
The Harris credit facility prohibits payment of dividends, limits amounts of
unamortized capital software development costs and capital expenditures, and
requires minimum levels of tangible net worth and fixed charge coverage. The
Company was not in compliance with certain of these financial covenants at
December 31, 1999. A waiver of non-compliance was received from the lender. An
event of default under the Harris agreement is projected at March 31, 2000, as
a result of the Company's conditions of non-compliance with an operating lease
agreement. Under the terms of a letter of intent from the landlord, the Company
is presently negotiating the purchase of the leased property and cancellation
of the operating lease agreement (see Note 20). Accordingly, on March 20, 2000,
the Company obtained a waiver of this cross covenant from Harris.
At December 31, 1999, the Company's wholly owned subsidiary, QMS B.V., had
borrowings of $17.8 million under the revolving credit facilities with ING Bank
N.V., ING Mezzanine Fonds B.V. and NMB Heller N.V. (collectively "Heller")
through February 2001. Total borrowing capacity under this agreement is based
on a percentage of eligible accounts receivable and inventory and is secured by
these assets. At December 31, 1999, total availability was $20.6 million. The
stated rate of interest for any borrowings under this agreement is Amsterdam
Interbank Offered Rate ("AIBOR") plus 1.25% with a minimum of 4% per annum (4%
at December 31, 1999). The Company was not in compliance with the Heller
required minimum
30
<PAGE>
stockholders' equity covenant at December 31, 1999. A waiver of non-compliance
was received from the lender. The Heller credit facility requires lender
approval for payment of dividends from QMS, B.V. to QMS, Inc. Accordingly, QMS,
B.V.'s restricted net assets total approximately $6.0 million as of December
31, 1999.
The fair value of the Company's revolving credit loans, based on the
variable nature of the associated interest rates has been estimated to
approximate carrying value.
9. Term Debt
Term debt at December 31, 1999, is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999
-------
<S> <C>
Minolta......................................................... $32,800
Alto Imaging Group, N.V......................................... 6,234
Jalak Investments B.V........................................... 1,000
Heller.......................................................... 2,730
-------
42,764
Less current portion of term debt............................... 5,616
-------
$37,148
=======
</TABLE>
Term debt outstanding at December 31, 1999, matures as follows: $5.6 million
in 2000, $13.1 million in 2001, $12.2 million in 2002, $9.6 million in 2003,
$1.3 million in 2004 and $1.0 million thereafter.
At December 31, 1999, the indebtedness to Minolta consisted of
$12.8 million, $15.0 million, and $5.0 million in loans payable in aggregate
monthly principal installments, beginning on the first anniversary of each
loan, of approximately $911,000 through June 2003, $556,000 through November
2003, and $139,000 through December 2003. The stated interest rate for these
loans is LIBOR plus 2.5% payable monthly in arrears (7.94% at December 31,
1999). These loans are secured by the common stock of QMS B.V. Total interest
expense incurred on the Minolta loans was $0.6 million in fiscal 1999.
The Company received an additional loan from Minolta of $10.0 million on
February 4, 2000. This loan is payable in thirty-six principal installments of
approximately $277,800 with a stated interest rate of LIBOR plus 2.5% payable
monthly in arrears.
In the reacquisition of the Company's former European and Australian
subsidiaries, the Company financed $6.2 million of the purchase price through a
note payable with Alto Imaging Group, N.V. ("Alto"). This note was converted to
a term loan in the fourth quarter of 1999. This loan will be repaid in twenty
quarterly payments of $311,746 starting January 15, 2000, and ending on
October 15, 2004. The stated rate of interest for this loan is LIBOR plus 0.5%,
but not less than 6.50% (6.62% at December 31, 1999).
In addition, the Company's European subsidiary has term debt outstanding of
$3.7 million, consisting of a $1.0 million loan from Jalak Investments B.V.
("Jalak"), the parent company of Alto, with a stated interest rate of 6%, and
$2.7 million in loans from Heller with a stated interest rate of 10%. The Jalak
loan is subordinated to the credit facility and there is no repayment schedule.
The Heller loans are being repaid in quarterly payments of $454,857 until
fiscal 2001.
The difference between the fair value and carrying value of the Company's
term debt is not considered significant based on the variable nature of the
interest rates or, for borrowings at a fixed rate of interest, a discounted
cash flow analysis using a borrowing rate currently available to the Company
for loans with similar terms and maturities.
31
<PAGE>
10.Leases
The Company has capital leases for office and computer equipment that expire
through fiscal 2004. The Company is obligated under operating leases
principally for office and manufacturing space which expire through fiscal
2012. Future minimum lease payments under capital and operating leases with
noncancelable terms in excess of one year as of December 31, 1999, were as
follows (in thousands):
<TABLE>
<CAPTION>
Capital
Lease Operating
Fiscal Year Obligations Leases
----------- ----------- ---------
<S> <C> <C>
2000................................................. $ 703 $ 2,925
2001................................................. 582 2,697
2002................................................. 507 2,449
2003................................................. 321 1,901
2004................................................. 128 1,784
Thereafter........................................... 0 12,112
------ -------
Total minimum payments............................... 2,241 $23,868
=======
Less amounts representing interest................... 288
------
Present value of minimum payments.................... 1,953
Less current maturities under capital lease
obligations......................................... 568
------
$1,385
======
</TABLE>
Rent expense under operating leases for fiscal 1999, the transition period,
and fiscal 1998 and 1997 was $5.2 million, $1.1 million, $4.4 million, and $4.2
million, respectively.
Assets recorded under capital leases (included in property, plant, and
equipment in the accompanying consolidated balance sheets) at December 31,
1999, and October 2, 1998, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Machinery and equipment....................................... $4,259 $3,635
Office furniture and equipment................................ 1,681 1,612
------ ------
5,940 5,247
Less accumulated depreciation................................. 4,559 3,892
------ ------
$1,381 $1,355
====== ======
</TABLE>
11.Employee Benefit Plans
The Company has a Cash or Deferred Retirement Plan which covers
substantially all employees and is a qualified plan under Section 401(k) of the
Internal Revenue Code. Employees may make a pretax contribution of up to 10% of
their annual salaries and are provided several investment choices. The Company
may match employee contributions at varying rates up to a maximum of 3.5% of
annual salary, and Company contributions are made on an annual basis. The plan
is a calendar year plan. Employees at the end of the plan year are fully vested
in applicable Company contributions. The Company elected to match employee
contributions in calendar years 1999, 1998 and 1997. In fiscal 1999 and 1998,
the Company contributed $420,032 and $378,307 to the plan, respectively, with
such contributions being applicable to the immediately preceding calendar year.
In fiscal 1997 and the transition period, the Company contributed no amounts to
the Plan.
In January 1996, the Board of Directors and stockholders of the Company
adopted the Employee Stock Purchase Plan and reserved 500,000 shares for
issuance. The plan covers substantially all employees and is a qualified plan
under Section 423 of the Internal Revenue Code. Under the plan, employees may
elect to
32
<PAGE>
contribute between 2% and 10% of their annual salaries to purchase shares of
the Company's common stock at a price per share that is 85% of the fair market
value. The remaining 15% and all related fees and expenses of administering the
plan are paid by the Company. Shares purchased and expense recorded during
fiscal 1999, the transition period, and fiscal 1998 and 1997 were immaterial.
12. Stock Option Plans
The Company's stock option plans allow incentive or non-qualified stock
options to be granted to employees and directors providing the right, when
exercisable, to purchase up to an aggregate of 1,686,754 shares of the
Company's common stock. In the case of incentive stock options, the option
price is not less than the fair market value at date of grant. A non-qualified
optionee may receive the right to be paid cash upon the exercise of a non-
qualified option in an amount intended to approximate 100% of the amount of the
federal, state, and local income tax payable by that optionee upon exercise of
the option.
For employees with less than one year of service with the Company, one-
fourth of the granted options may be exercised one year after the date of
grant, with an additional one-fourth exercisable each year thereafter, although
other exercise provisions are allowed. For employees with greater than one year
of service, one-fifth of the granted options may be exercised on the date of
grant, with an additional one-fifth exercisable each year thereafter, although
other exercise provisions are allowed. Options that expire or are canceled
prior to exercise are restored to the shares available for future grants. At
December 31, 1999, the Company had reserved 397,526 shares for the future grant
of options under these plans.
The Company's stock option plans also provide that, in the event of a change
of control (as defined in each of the plans), all options then outstanding
could become exercisable immediately either in full or in part.
Under the Company's 1997 Stock Incentive Plan, stock options expire not
later than ten years from the date of grant. The Company's 1987 stock option
plan expired in fiscal 1997 upon the adoption of the Company's 1997 plan and
its 1984 plan expired during fiscal 1994. No additional options can be granted
under the expired plans. Outstanding stock options under these plans were not
affected by their expiration. Compensation expense under the 1997 plan was
$50,000 for fiscal year 1998. No compensation expense was recognized under this
plan for fiscal 1999, the transition period, and fiscal 1997.
In fiscal 1998, the Company repriced certain stock option grants under the
1987 Stock Option Plan. Stock option grants of 376,950 shares that were
previously issued under the 1987 plan at option prices greater than the current
fair market value were forfeited and replaced with stock option grants under
the 1997 Stock Incentive Plan for 188,475 shares (a rate of one new share for
two previous shares) at the fair market value on the date of grant. The grant
of these repriced options was restricted to non-executive officer employees.
During fiscal 1994, the Company adopted the Stock Option Plan for Directors
whereby non-employee directors receive non-qualified stock option grants
annually, and may make an irrevocable election annually to receive stock
options at a below-market exercise price in lieu of cash directors' fees.
Compensation expense under this plan for fiscal 1998 and 1997 was $45,996 and
$93,990, respectively. No such compensation expense was recognized in fiscal
1999 or the transition period. Stock options granted under this plan expire not
later than twenty years from the date of grant.
33
<PAGE>
A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Weighted Fair
Average Value of
Number of Option Price Exercise Options
Shares per Share Price Granted
--------- --------------- -------- --------
<S> <C> <C> <C> <C>
Outstanding,
September 27, 1996................. 1,383,470 $2.81 to $22.50 7.95
Granted at market value........... 376,750 2.69 to 5.63 5.15 2.29
Granted at above market value..... 3,750 5.63 to 5.63 5.63 1.39
Granted at below market value..... 32,708 2.81 to 2.81 2.81 3.18
Exercised......................... (15,600) 4.63 to 5.63 5.02
Terminated........................ (498,954) 2.81 to 22.50 10.14
---------
Outstanding,
October 3, 1997.................... 1,282,124 2.69 to 15.00 6.18
Granted at market value........... 825,525 2.69 to 4.44 3.30 1.54
Granted at below market value..... 400,000 2.44 to 2.44 2.44 1.70
Exercised......................... (55) 3.88 to 3.88 3.06
Terminated........................ (761,320) 2.69 to 8.88 5.84
---------
Outstanding,
October 2, 1998.................... 1,746,274 2.44 to 15.00 4.11
Granted at market value........... 288,500 3.75 to 3.81 3.75 2.08
Exercised......................... (250) 3.88 to 3.88 2.81
Terminated........................ (322,975) 2.44 to 11.25 4.35
---------
Outstanding,
January 1, 1999.................... 1,711,549 2.69 to 15.00 4.01
Granted at market value........... 295,400 3.00 to 3.88 3.20 1.84
Exercised......................... (427,741) 3.19 to 5.63 3.24
Terminated........................ (289,980) 2.81 to 15.00 5.08
========= =============== ======
Outstanding,
December 31, 1999.................. 1,289,228 $2.44 to $15.00 $ 3.84
=========
Exercisable
October 3, 1997................... 743,397 $2.69 to $15.00 $ 6.47
October 2, 1998................... 487,959 $2.81 to $15.00 $ 6.32
January 1, 1999................... 615,674 $2.44 to $15.00 $ 4.85
December 31, 1999................. 504,960 $2.44 to $15.00 $ 4.65
</TABLE>
A summary of outstanding and exercisable shares by price range as of
December 31, 1999, is as follows:
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Range of Shares Contractual Exercise Shares Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 2.44 - $ 2.69 199,999 8.01 $ 2.52 0 $0.00
2.81 - 3.00 278,984 11.20 2.90 140,834 2.84
3.06 - 3.43 174,680 9.00 3.17 22,166 3.07
3.69 - 3.69 32,180 8.58 3.69 21,545 3.69
3.75 - 3.75 270,000 8.86 3.75 108,000 3.75
3.88 - 4.63 163,785 10.88 4.35 73,105 4.52
5.13 - 8.88 164,600 12.21 7.08 134,310 7.38
15.00 - 15.00 5,000 2.06 15.00 5,000 15.00
--------- -------
2.44 - 15.00 1,289,228 9.90 3.84 504,960 4.65
========= =======
</TABLE>
34
<PAGE>
In October 1995, FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which defines a fair value method of accounting for stock-based
compensation. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. Pursuant to the new
standard, companies are encouraged, but are not required, to adopt the fair
value method of accounting for employee stock-based transactions. Companies
also are permitted to continue to account for such transactions under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), but are required to disclose in a note to the financial
statements pro forma information as if the Company had applied the new method
of accounting. The Company has elected to continue to follow APB 25, and the
required pro forma disclosures are presented below.
Pro forma information regarding net income (loss) and earnings (loss) per
share is required by SFAS 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for options was estimated at the date of the grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions: risk-free interest rate of 7.0% for fiscal 1999 and the transition
period, 5.0% for fiscal 1998 and 6.0% for fiscal 1997; dividend yields of 0%;
volatility factors of the expected market price of the Company's common stock
of 0.6904% for fiscal 1999, 0.6535% for the transition period, 0.6384% for
fiscal 1998 and 0.5285% for fiscal 1997; and a weighted-average expected life
of the option of 3.79 years for fiscal 1999, 3.97 for the transition period,
and 1.54 years for fiscal years 1998 and 1997.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effects
of applying SFAS 123 on a pro forma basis for fiscal 1999, the transition
period, and fiscal 1998 and 1997, would have approximated the following amounts
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
Transition
1999 Period 1998 1997
-------- ---------- ------ --------
<S> <C> <C> <C> <C>
Net income (loss):
Reported............................. $(27,400) $ 112 $1,825 $(26,122)
Basic and diluted per share......... (2.25) 0.01 0.17 (2.44)
Pro forma............................ (28,099) (64) 1,614 (26,652)
Basic and diluted per share......... (2.31) (0.01) 0.15 (2.49)
</TABLE>
13. Supplemental Executive Retirement and Certain Other Related Party Payments
The Company has supplemental executive retirement agreements with three of
its former officers (including the Company's former Chairman and Chief
Executive Officer) under which each is entitled to a monthly benefit upon
leaving the Company's employment. In fiscal 1997, the Company expensed $1.8
million related to these benefits. During fiscal 1997, the Company recognized
the expense associated with entering into agreements that accelerated the
retirement benefits for two officers. (See Note 19.)
The Company paid cash benefits of $548,824, $43,554, $174,216, and $92,771
in fiscal 1999, the transition period, and fiscal 1998 and 1997, respectively,
under these agreements.
The Company paid fees of $628,000, $156,000, $516,000 and $501,000 in fiscal
1999, the transition period, and fiscal 1998 and 1997, respectively, to a
professional services firm, a member of which served on the Company's Board of
Directors during these fiscal years.
35
<PAGE>
14. Stockholder Rights Plan
In March 1999, the Company adopted a Stockholder Rights Plan and pursuant to
the plan declared a dividend on its common stock of one right (a "Right") for
each share of common stock then outstanding and for each share of common stock
issued thereafter and prior to the time the Rights expire or become
exercisable. Upon the occurrence of certain events, each Right becomes
exercisable to purchase one one-hundredth of a share of Series A Participating
Preferred Stock at a price of $17.19. The Rights expire on February 28, 2009,
and, prior to the occurrence of certain events, may be redeemed at a price of
$.01 per Right. Of the Company's 500,000 authorized shares of preferred stock,
no par value, the Board of Directors has designated 250,000 shares as Series A
Participating Preferred Stock.
15. Income Taxes
The components of income (loss) before income taxes and the provision
(benefit) for income taxes (both domestic and foreign) for fiscal 1999, the
transition period, and fiscal 1998 and 1997 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Transition
1999 Period 1998 1997
-------- ---------- ------- --------
<S> <C> <C> <C> <C>
Income (loss) before income taxes:
Domestic.............................. $(21,174) $ 65 $ 3,030 $(23,800)
Foreign............................... (6,454) 51 (1,170) (2,322)
-------- ---- ------- --------
$(27,628) $116 $ 1,860 $(26,122)
======== ==== ======= ========
Provision (benefit) for income taxes:
Current:
Federal............................... $ 42 $ 3 $ 35 $ 0
Foreign............................... 0 1 0 0
State................................. 700 0 0 0
-------- ---- ------- --------
742 4 35 0
======== ==== ======= ========
Deferred:
Federal............................... 0 0 0 0
Foreign............................... (1,363) 0 0 0
State................................. 0 0 0 0
-------- ---- ------- --------
(1,363) 0 0 0
-------- ---- ------- --------
$ (621) $ 4 $ 35 $ 0
======== ==== ======= ========
</TABLE>
At December 31, 1999, the Company had domestic operating loss carryovers of
approximately $56.2 million of which $1.8 million will expire in 2007, $0.5
million in 2009, $20.5 million in 2010, $6.4 million in 2011, $11.7 million in
2012, $1.9 million in 2018 and $13.4 million in 2019. Foreign operating loss
carryovers of $5.4 million have an indefinite carryover period. In addition,
the Company had general business credit carryovers of approximately $1.7
million which will expire during fiscal years 2002 through 2007. Foreign tax
credit carryforwards of approximately $102,000 existed at December 31, 1999,
and will expire $17,000 in fiscal 2002, $43,000 in fiscal 2003, and $42,000 in
fiscal 2004.
36
<PAGE>
A reconciliation of the statutory federal income tax rate to the effective
rate for fiscal 1999, the transition period, and fiscal 1998 and 1997 is as
follows (in thousands):
<TABLE>
<CAPTION>
Transition
1998 Period 1997 1996
------- ---------- ----- -------
<S> <C> <C> <C> <C>
Tax at federal statutory rate.......... $(9,352) $ 42 $ 633 $(8,881)
State income taxes..................... 700 0 0 0
Operating losses generating no tax
benefit............................... 9,394 (39) 0 8,881
Utilization of carryovers.............. 0 0 (598) 0
Tax effect of international operations,
net................................... (1,363) 1 0 0
Other, net............................. 0 0
------- ---- ----- -------
$ (621) $ 4 $ 35 $ 0
======= ==== ===== =======
</TABLE>
Deferred tax assets and liabilities that arise as a result of temporary
differences at December 31, 1999, and October 2, 1998, are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C> <C>
Deferred tax assets:
Inventory reserves.................................. $ 1,494 $ 1,179
Restructuring reserves.............................. 2,111 190
Foreign tax credits................................. 102 60
General business credit carryforwards............... 1,696 1,696
Net operating loss carryforwards.................... 23,234 15,160
Deferred income..................................... 454 584
Other............................................... 3,306 3,909
-------- --------
Total gross deferred tax assets.................... 32,397 22,778
Deferred tax asset valuation allowance.............. (26,148) (19,013)
-------- --------
Total deferred tax assets.......................... 6,249 3,765
-------- --------
Deferred tax liabilities:
Depreciation........................................ (190) (307)
Capitalized software costs.......................... (3,347) (3,186)
Deferred software costs............................. (190) (272)
Other............................................... 0 0
-------- --------
Total deferred tax liabilities..................... (3,727) (3,765)
-------- --------
Net deferred taxes................................ $ 2,522 $ 0
======== ======== ===
</TABLE>
The valuation allowance was established based on certain assumptions about
levels of future pretax income that are consistent with historical results. In
fiscal 1999, the deferred tax asset valuation allowance reflects an evaluation
which recognizes uncertainties related to the future utilization of carryovers.
The valuation allowance for deferred tax assets increased by approximately $7.1
million and $6.1 million during fiscal 1999 and 1997, respectively, and
decreased by approximately $1.2 million and $1.7 million during the transition
period and fiscal 1998, respectively.
16. Segment Information
The Company has three geographic reportable segments: United
States/Canada/Latin America; Japan; and Europe/Australia. Each segment's
operations consist primarily of the manufacture and sale of network printing
solutions and related servicing activities. The accounting policies of the
segments are the same as those described in Note 1. The Company evaluates
segment performance based on operating profit (loss). Sales for each segment
are based on the location of the third-party customer. All intercompany
transactions between
37
<PAGE>
segments have been eliminated. Segment results for fiscal 1999, the transition
period, and fiscal 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Transition
1999 Period 1998 1997
-------- ---------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Net sales:
United States/Canada/Latin America.. $110,299 $30,378 $132,107 $124,589
Japan............................... 28,537 8,960 1,384 0
Europe/Australia.................... 82,450 0 0 0
Net transfer between geographic
areas................................ 24,159 2,063 3,251 3,592
Adjustments and eliminations.......... (24,159) (2,063) (3,251) (3,592)
-------- ------- -------- --------
Consolidated net sales............... $221,286 $39,338 $133,491 $124,589
======== ======= ======== ========
Operating income (loss):
United States/Canada/Latin America.. $ (8,738) $ 3,111 $ 11,451 $(14,797)
Japan............................... (1,295) (38) (52) 0
Europe/Australia.................... 2,574 0 0 0
Adjustments and eliminations.......... 0 0 0 (1,455)
-------- ------- -------- --------
Segment operating income (loss)....... (7,459) 3,073 11,399 (16,252)
General corporate expenses............ (15,298) (2,838) (9,318) (8,965)
Interest income....................... 56 51 381 373
Interest expense...................... (3,014) (193) (485) (721)
Miscellaneous income (expense)........ (1,913) 23 (117) (557)
-------- ------- -------- --------
Consolidated income (loss) before
income taxes and extraordinary
loss................................ $(27,628) $ 116 $ 1,860 $(26,122)
======== ======= ======== ========
Depreciation and amortization expense:
United States/Canada/Latin America.. $ 11,166 $ 2,405 $ 9,811 $ 10,755
Japan............................... 17 0 0 0
Europe/Australia.................... 2,203 0 0 0
-------- ------- -------- --------
Total depreciation and amortization
expense............................ $ 13,386 $ 2,405 $ 9,811 $ 10,755
======== ======= ======== ========
Segment assets:
United States/Canada/Latin America.. $ 59,763 $59,900 $ 60,424 $ 56,425
Japan............................... 9,138 6,247 3,167 0
Europe/Australia.................... 76,433 0 0 0
-------- ------- -------- --------
145,334 66,147 63,591 56,425
Corporate assets...................... 5,872 4,147 5,764 2,164
-------- ------- -------- --------
Total assets........................ $151,206 $70,294 $ 69,355 $ 58,589
======== ======= ======== ========
Capital expenditures:
United States/Canada/Latin America.. $ 1,314 $ 410 $ 2,115 $ 2,672
Japan............................... 213 0 0 0
Europe/Australia.................... 1,019 0 0 0
-------- ------- -------- --------
Total capital expenditures.......... $ 2,546 $ 410 $ 2,115 $ 2,672
======== ======= ======== ========
</TABLE>
38
<PAGE>
Sales to customers in the United States were $87.8 million, $21.8 million,
$99.5 million and $96.8 million in fiscal 1999, the transition period, and
fiscal 1998 and 1997, respectively.
Net sales by product for fiscal 1999, the transition period, and fiscal 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
Transition
1999 Period 1998 1997
--------- ---------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Net sales:
Print Systems........................ $ 90,987 $15,908 $ 54,334 $ 43,362
Consumables.......................... 80,675 10,122 30,732 32,612
Service.............................. 30,793 7,813 36,734 33,587
Other................................ 18,831 5,495 11,691 15,028
--------- ------- -------- --------
$ 221,286 $39,338 $133,491 $124,589
========= ======= ======== ========
</TABLE>
Third-party U.S. export sales for fiscal year 1999, the transition period,
and fiscal 1998 and 1997 were $17.3 million, $6.9 million, $26.7 million, and
$20.6 million, respectively.
Consolidated sales to Ingram Micro, Inc. represented 10.8%, 12.0%, and 12.1%
of consolidated net sales for fiscal 1999, the transition period, and fiscal
1998, respectively. Sales to QMS Europe B.V. represented 15.3% and 15.4% of
consolidated net sales for the transition period and fiscal 1998, respectively,
and the related accounts receivable balances amounted to $1.3 million and $1.4
million, respectively, as of the end of those periods. No customer accounted
for 10% or more of consolidated net sales for fiscal 1997.
17. Supplemental Cash Flow Information
Cash paid for interest and income taxes for fiscal 1999, the transition
period, and fiscal 1998 and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
Transition
1999 Period 1998 1997
------ ---------- ---- ----
<S> <C> <C> <C> <C>
Interest......................................... $2,801 $244 $703 $830
Income taxes..................................... 42 3 43 0
</TABLE>
Additions to capital lease assets and related obligations were $1.8 million,
$0.3 million, and $1.5 million in fiscal 1999, 1998 and 1997, respectively, as
a result of the Company entering into equipment leases. There were no additions
to capital lease assets during the transition period.
18. Commitments and Contingencies
At December 31, 1999, the Company and its subsidiaries had a commitment of
approximately $43.8 million under contracts to purchase print engines and
related components and approximately $25.3 million under contracts to purchase
spares and consumables.
39
<PAGE>
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.
19. Restructuring Charges
During the third quarter of 1999, the Company completed a restructuring and
recognized related 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 in salary continuation and out-
placement costs for 66 employees from all levels and functional areas of the
Company, $0.9 million in the write-off of assets related to a pending
implementation of an enterprise business software project, and $0.1 million in
other related expenses. The fair value of the impaired assets was determined to
be zero given that the implementation project was cancelled, and existing
systems will be replaced with those consistent with Minolta. Use of this
restructuring reserve for fiscal 1999 consisted of $0.9 million in salary
continuation and out-placement and approximately $50,000 in other exit
activities, resulting in $1.4 million in the reserve for restructuring charges
related to the Minolta convergence as of December 31, 1999.
During the fourth quarter of 1999, the Company recognized $2.3 million in
restructuring charges related to the outsourcing of its service business to a
third-party provider. These costs included $1.6 million in severance for
approximately 109 employees from all levels and functional areas of the
Company's service business, $0.6 million in activities associated with field
service office closings, and $0.1 million in loss on disposal of the service
van fleet. Activities associated with this restructuring were completed in
early 2000. There were no uses of this restructuring reserve during fiscal 1999
and thus the reserve for restructuring charges totaled $2.3 million as of
December 31, 1999.
During fiscal 1997, the Company recognized restructuring charges totaling
approximately $8.0 million. These costs included $1.6 million in severance and
out-placement costs for 119 employees from all levels and functional areas of
the Company, $2.6 million for retirement benefits and management transition
expenses, $2.4 million related to foreign translation adjustments in connection
with the substantial reduction of foreign operations, $0.6 million related to
the write-off of certain fixed assets, $0.4 million in the write-off of office
lease obligations, and $0.3 million in other expenses. Uses of the 1997
restructuring reserve in fiscal 1999, the transition period, and fiscal 1998
and 1997 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Transition
1999 Period 1998 1997
---- ---------- ------ ------
(In thousands)
<S> <C> <C> <C> <C>
Salary continuation and out-placement......... $ 0 $ 0 $ 977 $ 731
Payment of facility lease obiligations........ 22 25 204 281
Other exit activities......................... 0 0 223 649
--- --- ------ ------
$22 $25 $1,404 $1,661
=== === ====== ======
</TABLE>
The reserve for restructuring charges related to the fiscal 1997
restructuring totaled $0.3 million as of December 31, 1999.
There were no restructuring charges for fiscal 1998.
The retirement benefits and management transition reserve balance was an
additional $3.4 million and $3.8 million at December 31, 1999, and October 2,
1998, respectively.
20. Sale/Leaseback
In February 1997, the Company completed the sale and leaseback of land and
buildings at its Mobile, Alabama headquarters and operations. The initial term
of the operating lease is fifteen years with renewal options for five
additional five-year periods. Quarterly rent of approximately $0.4 million is
payable in advance, subject after three years to adjustment for increases in
the Consumer Price Index.
40
<PAGE>
Net proceeds of the sale were approximately $12.5 million which resulted in
no material gain or loss on the sale. The net proceeds were used to retire the
existing term loan and to substantially reduce the balance of the Company's
revolving credit loan.
The operating lease agreement contains various covenants and a provision
which requires the lessor's approval of the Company's payment of cash
dividends. At October 3, 1997, and October 2, 1998, the Company was not in
compliance with the minimum Net Worth covenant contained in the lease
agreement. On December 8, 1997, the Company obtained a one-year waiver of non-
compliance from the lessor through October 5, 1998, in exchange for $1.3
million in prepaid rent and an amendment to a related warrant agreement to
purchase 100,000 shares of the Company's common stock at $4 per share. Warrants
granted under this agreement are exercisable through December 31, 2001. 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 December 31, 1999, the Company was in violation of several financial
covenants contained in the operating lease agreement and is not projected to
remedy these conditions of non-compliance upon expiration of a cure period on
March 31, 2000. Among the remedies available to the landlord is the
acceleration of all remaining base rent on a discounted basis for the initial
lease term (approximately $13.2 million), cancellation of the lease, or all
other remedies available by law. The violations of the financial covenants in
the lease agreement beyond the cure period will also constitute an event of
default under the Harris revolving credit agreement (see Note 8).
On March 10, 2000, the Company received a letter of intent from its landlord
indicating its willingness to sell the leased property for the greater of $14.0
million or an appraised value, based upon a mutually agreed to process,
provided such sale is consummated by April 28, 2000. Management believes it is
probable that negotiations to complete the purchase of the property and cancel
the operating lease agreement will be successful, and Minolta has agreed to
provide the funding necessary to consummate such purchase. In addition, on
March 20, 2000, the Company obtained a waiver of the cross covenant contained
in the Harris revolving credit agreement.
21. Reactivation of Japanese Subsidiary
In September 1998, the Company reactivated its Japanese subsidiary under the
name QMS K.K. This subsidiary was closed in fiscal 1995 when the assets were
sold to an independent Master Distributor, QMS Japan KK.
In September 1998, the Master Distributor, QMS Japan KK, agreed to terminate
its Master Distributor Agreement with the Company, and it transferred inventory
and cash to reduce its accounts payable balance to the Company. The Company
then entered into a servicing agreement with QMS Japan KK to provide sales,
general, and administrative services to the reactivated subsidiary, QMS K.K. In
exchange for QMS Japan KK's services, the Company has agreed to pay the
reasonable expenses of QMS Japan KK and an additional management fee.
As of December 31, 1999, the Company had a note receivable due from QMS
Japan KK in the amount of $823,466 and has reserved $584,577 against the note
balance. The Company has also obtained a four-year option to purchase all of
the assets of QMS Japan KK.
41
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of QMS, Inc.:
We have audited the accompanying consolidated balance sheets of QMS, Inc.
and subsidiaries (a majority-owned subsidiary of Minolta Investments Company)
as of December 31, 1999 and October 2, 1998, and the related consolidated
statements of operations, comprehensive income, changes in stockholders'
equity, and cash flows for the fiscal year ended December 31, 1999, the period
from October 3, 1998 to January 1, 1999, and the fiscal years ended October 2,
1998, and October 3, 1997. Our audits also included the financial statement
schedules listed in the index at Item 14. These financial statements and the
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of QMS, Inc. and subsidiaries as
of December 31, 1999 and October 2, 1998, and the results of their operations
and their cash flows for the fiscal year ended December 31, 1999, the period
from October 3, 1998 to January 1, 1999, and the fiscal years ended October 2,
1998, and October 3, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the information set forth
therein.
/s/ Deloitte & Touche LLP
- ---------------------
DELOITTE & TOUCHE LLP
Birmingham, Alabama
March 2, 2000 (March 20, 2000 as to the fifth paragraphs of Note 8 and Note 20)
42
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of QMS, Inc. is responsible for the preparation, integrity,
and objectivity of the consolidated financial statements and all other sections
of this annual report. The financial statements have been prepared in
conformity with generally accepted accounting principles. In preparing the
consolidated financial statements, management made informed estimates and
judgments of the expected effects of events and transactions based upon
currently available facts and circumstances.
Management maintains a system of internal accounting controls which it
believes is adequate to provide reasonable assurance that assets are
safeguarded, transactions are executed in accordance with management
authorization, and the financial records are reliable for preparing the
consolidated financial statements. The concept of reasonable assurance
recognizes that the cost of a system of internal accounting controls should not
exceed the benefits derived and that there are inherent limitations in the
effectiveness of any system of internal accounting controls.
The Company's independent auditors, Deloitte & Touche LLP, have audited the
Company's consolidated financial statements and expressed an opinion that such
statements present fairly, in all material respects, the Company's financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. Their audit was conducted in accordance with
generally accepted auditing standards and included such procedures believed by
them to be sufficient to provide reasonable assurance that the consolidated
financial statements are free of material misstatement.
The Board of Directors, acting through its Audit Committee, oversees
management's responsibilities in the preparation of the consolidated financial
statements. The Audit Committee is responsible for reviewing and making
recommendations regarding the Company's employment of independent auditors, the
annual audit of the Company's financial statements and the Company's internal
accounting practices and policies. In performing this function, the Audit
Committee, which is composed of directors who are not employees of the Company,
meets periodically with management and the independent auditors to review the
work of each. Deloitte & Touche LLP has free access to the Audit Committee and
to the Board of Directors, without management present, to discuss internal
accounting control, auditing, and financial reporting matters.
We believe these policies and procedures provide reasonable assurance that
our operations are conducted with a high standard of business conduct and that
the financial statements reflect fairly the financial position, results of
operations, and cash flows of the Company.
/s/ Edward E. Lucente
_____________________________________
President and Chief Executive
Officer
/s/ Albert A. Butler
_____________________________________
Chief Financial Officer and
Vice President
43
<PAGE>
QUARTERLY DATA
Unaudited quarterly data for the fiscal years ended December 31, 1999, and
October 2, 1998.
<TABLE>
<CAPTION>
1999
---------------------------------------
First Second Third Fourth
Quarter Quarter Quarter(a) Quarter(b)
------- ------- ---------- ----------
Dollars in thousands, except per
share amounts
<S> <C> <C> <C> <C>
Net sales............................... $43,366 $50,933 $ 62,730 $64,257
Gross profit............................ 10,041 11,886 9,866 12,488
Net loss................................ (891) (1,419) (16,290) (8,800)
Net loss per common share
Basic and diluted...................... $ (0.07) $ (0.12) $ (1.23) $ (0.66)
<CAPTION>
1998
---------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ---------- ----------
Dollars in thousands, except per
share amounts
<S> <C> <C> <C> <C>
Net sales............................... $28,578 $34,621 $ 35,363 $34,929
Gross profit............................ 9,073 10,102 10,651 9,594
Net income.............................. 401 477 421 526
Net income per common share
Basic and diluted...................... $ 0.04 $ 0.04 $ 0.04 $ 0.05
</TABLE>
- --------
(a) Includes special charges of $4.8 million principally associated with the
Minolta convergence and $3.3 million for restructuring charges.
(b) Includes $2.3 million for restructuring charges.
44
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item is incorporated by reference to
information under the captions "Proposal 1--Election of Directors--Directors
and Director Nominees" and "Section 16(a) Beneficial Ownership Reporting
Compliance" on pages 2-5 of the Proxy Statement and "Executive Officers" on
page 5 of the Proxy Statement.
Item 11. Executive Compensation.
The information required by this item is incorporated by reference to
information under the captions "Proposal 1--Election of Directors--Director
Compensation" on pages 4-5, "Executive Compensation Tables" on pages 6-9,
"Stock Performance Graph" on page 10, "Executive Agreements" on page 11 and
"Report of the Compensation Committee of the Board of Directors of QMS, Inc."
on pages 12-13 of the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this item is incorporated by reference to
information under the caption "Beneficial Ownership of Common Stock" on pages
5-6 of the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The other information required by this item is incorporated by reference to
information under the caption "Compensation Committee Interlocks and Insider
Participation" on pages 13-14 and "Certain Transactions and Matters" and
"Interests of Certain Persons in Matters to be Acted Upon" on page 21 of the
Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements
The following financial statements are included in Item 8 of Part II:
. Consolidated Statements of Operations for the Fiscal Year Ended
December 31, 1999, the transition period ended January 1, 1999,
and the fiscal years ended October 2, 1998, and October 3, 1997.
. Consolidated Statements of Comprehensive Income (Loss) for the
Fiscal Year Ended December 31, 1999, the transition period ended
January 1, 1999, and the fiscal years ended October 2, 1998, and
October 3, 1997.
. Consolidated Balance Sheets at December 31, 1999, and October 2,
1998.
. Consolidated Statements of Changes in Stockholders' Equity for the
Fiscal Year Ended December 31, 1999, the transition period ended
January 1, 1999, and the fiscal years ended October 2, 1998, and
October 3, 1997.
. Consolidated Statements of Cash Flows for the Fiscal Year Ended
December 31, 1999, the transition period ended January 1, 1999,
and the fiscal years ended October 2, 1998, and October 3, 1997.
45
<PAGE>
. Notes to Consolidated Financial Statements for the Fiscal Year
Ended December 31, 1999, the transition period ended January 1,
1999, and the fiscal years ended October 2, 1998, and October 3,
1997.
2. Financial Statement Schedules
The schedules listed below are included herein immediately after the
signature pages hereto. Schedules not listed below have been omitted
because they are not applicable or the required information is
included in the financial statements or notes thereto.
<TABLE>
<C> <S>
Schedule
Number Description
------ -----------
I Condensed Financial Information of Registrant (Parent Company
Only) for the Fiscal Year Ended December 31, 1999
II Valuation and Qualifying Accounts and Reserves for the Fiscal
Year Ended December 31, 1999, the transition period ended
January 1, 1999, and the Fiscal Years Ended October 2, 1998,
and October 3, 1997
</TABLE>
The Registrant's independent auditors' report on the financial statements
and financial statement schedule listed above is located at Item 8 of Part II.
3. Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
---------- -----------
<C> <S>
3(a) Restated Certificate of Incorporation, as amended as of
February 17, 1987,(/1/) Certificate of Amendment thereto
filed with the Secretary of State of Delaware as of January
31, 1991,(/2/) and Certificate of Amendment thereto filed
with the Secretary of State of Delaware as of January 27,
1999.(/24/)
3(b) Bylaws of Registrant.(/1/)
4(a) The rights of security holders are defined in Articles 4, 9
and 10 of the Restated Certificate of Incorporation of the
Registrant, Articles II, VI and VII of the Bylaws of the
Registrant and the Rights Agreement. [Incorporated herein by
reference to Exhibits 3(a), 3(b) and 4(b), respectively.]
4(b) Copy of Rights Agreement between QMS, Inc. and Rights Agent
dated March 8, 1999.(/26/)
10(a)(i) Cash or Deferred Retirement Plan, as amended and restated as
of December 17, 1993.(/4/)*
10(a)(ii) Trust Agreement dated November 1, 1993, relating to the Cash
or Deferred Retirement Plan as amended by an Amendment to the
Trust Agreement dated December 28, 1993.(/4/)
10(c)(i) Form of 1987 Stock Option Plan, as amended and restated as of
December 13, 1990.(/2/)*
10(c)(ii) Form of First Amendment to the 1987 Stock Option Plan
effective November 7, 1991.(/2/)*
10(d) Supplemental Executive Retirement Plan Agreements dated
September 30, 1991.(/4/)*
10(f) Executive Services Agreement dated August 1, 1999, between
QMS, Inc. and Edward E. Lucente.(/22/)
10(f)(i) Amendment to the Executive Services Agreement between QMS,
Inc. and Edward E. Lucente dated October 25, 1999.(/22/)
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
---------- -----------
<C> <S>
10(f)(ii) Agreement between QMS, Inc. and Edward E. Lucente dated
October 25, 1999, in which QMS, Inc. adopts a nonqualified
compensation agreement.(/22/)
10(f)(iii) Amendment to Trust Agreement between QMS, Inc. and South
Alabama Trust Company, Inc. dated October 25, 1999.(/22/)
10(g) 1997 Stock Incentive Plan, dated October 23, 1996,(/27/)*
together with First Amendment thereto effective as of October
15, 1997.(/28/)*
10(h) Form of Executive Agreement entered into with: James L.
Busby, Donald L. Parker, Ph.D., Charles D. Daley and James K.
Doan.(/7/)*
10(h)(i) Form of Executive Agreement entered into with Edward E.
Lucente on January 5, 1998.(/25/)*
10(h)(ii) Form of Executive Services Agreement entered into with Edward
E. Lucente on January 5, 1998.(/25/)*
10(i) International Technical Support Agreement dated January 5,
2000, between International Business Machines and QMS, Inc.
10(j) Credit Agreement dated August 19, 1999, by and between QMS,
Inc. and Harris Trust and Savings Bank.(/22/)
10(j)(i) Waiver dated March 2, 2000, by and between QMS, Inc. and
Harris Trust and Savings Bank.
10(j)(ii) Waiver dated March 20, 2000, by and between QMS, Inc. and
Harris Trust and Savings Bank.
10(m) QMS, Inc. Employee Stock Purchase Plan.(/14/)
10(o) Stock Option Plan, dated July 30, 1984,(/8/)* together with
First Amendment thereto effective as of January 1,
1987,(/1/)* Second Amendment thereto effective as of
November 10, 1987,(/1/)* Third Amendment thereto effective as
of April 6, 1989,(/7/)* Fourth Amendment thereto effective as
of January 1, 1990,(/6/)* and Fifth Amendment thereto
effective as of November 7, 1991.(/2/)*
10(p) Stock Option Plan for Directors.(/9/)*
10(q)(i) Share Purchase Agreement dated October 12, 1995, between
Jalak Investments B.V. and QMS, Inc.(/10/)
10(q)(ii) Promissory Note dated October 16, 1995, in the original
principal amount of U.S. $4,000,000 from QMS Europe B.V. and
QMS Australia PTY Ltd. in favor of QMS, Inc.(/10/)
10(q)(iii) Pledge and Security Agreement and Pledging of Shares, each
dated October 16, 1995, by Jalak Investments, B.V. in favor
of QMS, Inc.(/10/)
10(q)(iv) Deed of Subordination and Pledge dated October 16, 1995, by
and among QMS, Inc., QMS Europe B.V. and Credit Lyonnais Bank
Nederland N.V.(/10/)
10(q)(v) Master Distributor Agreement dated October 16, 1995, among
the Registrant, QMS Europe, B.V. and QMS Australia PTY
Ltd.(/10/)
10(q)(vi) Trademark and Trade Name License Agreement dated October 16,
1995, between QMS Europe B.V. and QMS, Inc.(/10/)
10(r) Loan and Security Agreement dated November 7, 1995, by and
between QMS, Inc. and Foothill Capital Corporation.(/11/)
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------------ -----------
<C> <S>
10(r)(i) Stock Pledge Agreement dated November 7, 1995, by and
between QMS, Inc. and Foothill Capital Corporation.(/11/)
10(r)(ii) Term Note A dated November 7, 1995, in the original
principal amount of $1,750,000 from QMS, Inc. in favor of
Foothill Capital Corporation.(/11/)
10(r)(iii) Term Note B dated November 7, 1995, in the original
principal amount of $5,000,000 from QMS, Inc. in favor of
Foothill Capital Corporation.(/11/)
10(r)(iv) Trademark Security Agreement dated November 7, 1995, made
by QMS, Inc. in favor of Foothill Capital
Corporation.(/11/)
10(r)(v) QMS, Inc. Warrant to Purchase 100,000 shares of Common
Stock, dated November 7, 1995.(/11/)
10(r)(vi) General Security Agreement dated November 7, 1995, by and
between QMS Canada Inc. in favor of Foothill Capital
Corporation.(/11/)
10(r)(vii) General Continuing Guaranty dated November 7, 1995, by QMS
Canada Inc. in favor of Foothill Capital Corporation.(/11/)
10(r)(viii) Security Agreement dated November 7, 1995, by and between
Foothill Capital Corporation and QMS Canada Inc.(/11/)
10(r)(ix) General Continuing Guaranty dated November 7, 1995, by QMS
Circuits, Inc. in favor of Foothill Capital
Corporation.(/11/)
10(r)(x) Security Agreement dated November 7, 1995, between Foothill
Capital Corporation and QMS Circuits, Inc.(/11/)
10(r)(xi) Amendment Number One dated December 4, 1995, to the Loan
and Security Agreement dated November 7, 1995.(/13/)
10(r)(xii) Amendment Number Two dated February 7, 1996, to the Loan
and Security Agreement dated November 7, 1995.(/13/)
10(r)(xiii) Amendment Number Three dated July 31, 1996, to the Loan and
Security Agreement dated November 7, 1995.(/13/)
10(r)(xiv) Waiver Agreement dated May 5, 1997, waiving certain
provisions of the Loan and Security Agreement.(/15/)
10(r)(xv) Amendment Number Five dated June 3, 1997, to the Loan and
Security Agreement.(/16/)
10(r)(xvi) Amendment Number Four dated January 22, 1997, to the Loan
and Security Agreement.(/20/)
10(r)(xvii) Amendment Number Six dated October 8, 1997, to the Loan and
Security Agreement.(/20/)
10(r)(xviii) Amendment Number Seven dated September 23, 1998, to the
Loan and Security Agreement.(/20/)
10(r)(xix) Amendment Number Eight dated November 17, 1998, to the Loan
and Security Agreement.(/20/)
10(r)(xx) Amendment Number Nine dated April 30, 1999, to the Loan and
Security Agreement.(/21/)
10(s)(i) Asset Purchase Agreement dated September 30, 1995, between
QMS Japan Kabushiki Kaisha ("QMS Japan KK") and QMS,
Inc.(/12/)
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
----------- -----------
<C> <S>
10(s)(ii) Assumption of Liabilities dated September 30, 1995, by QMS
Japan KK.(/12/)
10(s)(iii) Inventory Johto-Tampo Agreement dated September 30, 1995,
between QMS Japan KK and QMS, Inc.(/12/)
10(s)(iv) Master Distributor Agreement dated September 30, 1995,
between QMS Japan KK and QMS, Inc.(/12/)
10(s)(v) Promissory Note dated September 30, 1995, in the original
principal amount of U.S. $3,000,000 from Yoji Kawai in favor
of QMS Japan KK.(/12/)
10(s)(vi) Promissory Note dated September 30, 1995, in the original
principal amount of U.S. $500,000 from Yoji Kawai in favor
of QMS Japan KK.(/12/)
10(s)(vii) Trademark and Trade Name License Agreement dated December 7,
1995, between QMS Japan KK and QMS, Inc.(/12/)
10(s)(viii) Assumption Agreement dated December 7, 1995, between QMS
Japan KK and QMS, Inc.(/12/)
10(t) Sale-Leaseback Agreement between QMS, Inc. and Ink (AL) QRS
12-21, Inc. dated February 18, 1997.(/17/)
10(t)(i) Waiver agreement between Ink (AL) QRS 12-21, Inc. and QMS,
Inc. dated December 8, 1997.(/19/)
10(t)(ii) Amendment to Warrant dated December 8, 1997, to the Sale-
Leaseback Agreement.(/19/)
10(t)(iii) Waiver agreement between Ink (AL) QRS 12-21, Inc. and QMS,
Inc. dated November 17, 1998.(/20/)
10(t)(iv) Waiver agreement and Lease Amendment dated June 7, 1999,
between Ink (AL) QRS 12-21, Inc. and QMS, Inc.(/22/)
10(u) Agreement dated July 7, 1997, between QMS, Inc. and James L.
Busby.(/18/)
10(v) Agreement dated August 7, 1997, between QMS, Inc. and Donald
L. Parker.(/19/)
10(w) QMS, Inc.--Genicom Corporation Strategic Partner
Agreement.(/19/)
10(x) Share Purchase Agreement between QMS, Inc. and Alto Imaging
Group, N.V. dated May 17, 1999.(/23/)
10(x)(i) Promissory Note between QMS, Inc. and Alto Imaging Group,
N.V.(/23/)
10(x)(ii) Loan Agreement between QMS, Inc. and Minolta Co., Ltd. dated
June 7, 1999.(/23/)
10(x)(iii) Stock Purchase Agreement between QMS, Inc., Minolta
Investments Company, and Minolta Co., Ltd. dated June 7,
1999.(/23/)
10(x)(iv) First Amendment to Rights Agreement dated June 7, 1999,
between QMS, Inc. and South Alabama Trust Company,
Inc.(/23/)
10(x)(v) Promissory Note between QMS, Inc. and Minolta Co., Ltd. for
$15,000,000 dated November 10, 1999.(/22/)
10(x)(vi) Promissory Note between QMS, Inc. and QMS Europe B.V. for
$4,000,000 dated November 10, 1999.(/22/)
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
----------- -----------
<C> <S>
10(x)(vii) Promissory Note between QMS, Inc. and Minolta Co., Ltd. for
$5,000,000 dated December 22, 1999.
10(x)(viii) Promissory Note between QMS, Inc. and Minolta Co., Ltd. for
$10,000,000 dated February 4, 2000.
10(x)(ix) Promissory Note between QMS, Inc. and QMS Europe B.V. for
$4,000,000 dated February 8, 2000.
10(x)(x) Waiver Agreement between QMS Europe B.V. and ING Bank N.V.,
ING Mezzanine Fonds B.V. and NMB Heller N.V. dated February
11, 2000.
11 Statement Regarding Computation of Earnings Per Share.
21 Subsidiaries of the Registrant.
23 Independent Auditors' Consent
27 Financial Data Schedules
</TABLE>
- --------
* Indicates a management contract or compensatory plan or arrangement.
(/1/) Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended October
2, 1987 (Commission File No. 1-9348).
(/2/) Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 27, 1991 (Commission File No. 1-9348).
(/3/) Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 30, 1988 (Commission File No. 1-9348).
(/4/) Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended October
1, 1993 (Commission File No. 1-9348).
(/5/) Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended October
2, 1992 (Commission File No. 1-9348).
(/6/) Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the quarter ended April 1,
1988 (Commission File No. 1-9348).
(/7/) Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 29, 1989 (Commission File No. 1-9348).
(/8/) Incorporated herein by reference to exhibit of same number in
Registrant's Registration Statement on Form S-1, filed September 19, 1984
(Registration No. 2-93329).
(/9/) Incorporated herein by reference to Appendix B to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on January 25, 1994
(Commission File No. 1-9348).
(/10/) Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on October 16, 1995 (Commission File No. 1-9348).
(/11/) Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on November 21, 1995 (Commission File No. 1-9348).
(/12/) Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
September 29, 1995 (Commission File No. 1-9348).
(/13/) Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter ended
June 28, 1996 (Commission File No. 1-9348).
(/14/) Incorporated herein by reference to Appendix A to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on January 23,
1996 (Commission File No. 1-9348).
(/15/) Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter ended
March 28, 1997 (Commission File No. 1-9348).
(/16/) Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter ended
June 27, 1997 (Commission File No. 1-9348).
50
<PAGE>
(/17/) Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on February 18, 1997 (Commission File No. 1-9348).
(/18/) Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on July 7, 1997 (Commission File No. 1-9348).
(/19/) Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
October 3, 1997 (Commission File No. 1-9348).
(/20/) Incorporated herein by reference to exhibit of same number in
Registrant's annual report on Form 10-K for the fiscal year ended
October 2, 1998 (Commission File No. 1-9348).
(/21/) Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter ended
April 2, 1999 (Commission File No. 1-9348).
(/22/) Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter ended
October 1, 1999 (Commission File No. 1-9348).
(/23/) Incorporated herein by reference to exhibit of same number in
Registrant's Form 8-K filed on June 7, 1999 (Commission File No. 1-
9348).
(/24/) Incorporated herein by reference to Appendix A of the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on January 27,
1999 (Commission File No. 1-9348).
(/25/) Incorporated herein by reference to exhibit of same number in
Registrant's quarterly report on Form 10-Q for the fiscal quarter ended
January 2, 1998 (Commission File No. 1-9348).
(/26/) Incorporated herein by reference to Exhibit 1 in Registrant's Form 8-A
filed on March 18, 1999 (Commission File No. 1-9348).
(/27/) Incorporated herein by reference to Appendix B of the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on January 21,
1997 (Commission File No. 1-9348).
(/28/) Incorporated herein by reference to Appendix A of the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on January 20,
1998 (Commission File No. 1-9348).
(b) Reports on Forms 8-K: The following reports were filed on Forms 8-K during
fiscal 1999.
. Form 8-K dated February 22, 1999, announcing the Company's intent to
exercise its option to reacquire its former subsidiaries, QMS Europe B.V.
and QMS Australia PTY Ltd.
. Form 8-K dated June 7, 1999, announcing the Company's reacquisition of
its former subsidiaries, QMS Europe B.V. and QMS Australia PTY Ltd.
. Form 8-K dated August 6, 1999, announcing the resignation of James A.
Wallace as Chief Financial Officer and Director
. Form 8-K/A dated June 7, 1999, and signed August 11, 1999, related to the
Company's reacquisition of its former subsidiaries, QMS Europe B.V. and
QMS Australia PTY Ltd.
. Form 8-K dated October 8, 1999, reporting the change in fiscal year end.
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
QMS, Inc.
/s/ Edward E. Lucente
Date: March 23, 2000 By: _____________________________________
Edward E. Lucente
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 23, 2000 /s/ Edward E. Lucente
-------------------------------------
Edward E. Lucente
President and Director (Principal
Executive Officer)
Date: March 23, 2000 /s/ Albert A. Butler
-------------------------------------
Albert A. Butler
Chief Financial Officer and Director
(Principal Financial and Accounting
Officer)
Date: March 23, 2000 /s/ William R. Bowles
-------------------------------------
William R. Bowles
Director
Date: March 23, 2000 /s/ F. Rigdon Currie
-------------------------------------
F. Rigdon Currie
Director
Date: March 23, 2000 /s/ Michael C. Dow
-------------------------------------
Michael C. Dow
Director
Date: March 23, 2000 /s/ Hiroshi Fujii
-------------------------------------
Hiroshi Fujii
Director
Date: March 23, 2000 /s/ Allen A. Hans
-------------------------------------
Allen A. Hans
Director
Date: March 23, 2000 /s/ Ryusho Kutani
-------------------------------------
Ryusho Kutani
Director
Date: March 23, 2000 /s/ Robert J. Materna
-------------------------------------
Robert J. Materna
Director
52
<PAGE>
SIGNATURES (continued)
Date: March 23, 2000 /s/ Yoshisuke Takekida
-------------------------------------
Yoshisuke Takekida
Director
Date: March 23, 2000 /s/ Shoei Yamana
-------------------------------------
Shoei Yamana
Vice President and Director
53
<PAGE>
SCHEDULE I
QMS, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company Only)
As discussed in Note 2 of the consolidated financial statements, QMS, Inc.
acquired 100% of the common stock of QMS B.V. on June 7, 1999. At December 31,
1999, QMS B.V. had borrowings outstanding under a revolving credit loan and
term debt agreement that restrict the payment of dividends to QMS, Inc. (see
Note 8). Accordingly, the following parent company only condensed financial
statements are presented because the distribution of the net assets of QMS B.V.
is restricted.
CONDENSED STATEMENT OF OPERATIONS
For the Fiscal Year Ended December 31, 1999
(Dollars in thousands, except per share amounts)
<TABLE>
<S> <C>
Net sales............................................................ $129,238
Cost of sales........................................................ 103,770
--------
Gross profit......................................................... 25,468
Operating expenses................................................... 45,026
--------
Operating loss....................................................... (19,558)
Other income (expense)
Interest income..................................................... 56
Interest expense.................................................... (2,022)
Miscellaneous income................................................ 258
--------
Total other expense, net........................................... (1,708)
Equity in net loss of subsidiaries................................... (4,999)
--------
Loss before income taxes and extraordinary loss...................... (26,265)
Income tax provision................................................. 742
--------
Loss before extraordinary loss....................................... (27,007)
Extraordinary loss on early extinguishment of debt................... 393
--------
Net loss............................................................. $(27,400)
--------
Loss per common share
Basic and diluted before extraordinary loss......................... $ (2.22)
Extraordinary loss.................................................. (0.03)
--------
Net loss basic and diluted.......................................... $ (2.25)
========
Shares used in basic and diluted per share computation............... 12,152
========
</TABLE>
54
<PAGE>
CONDENSED BALANCE SHEET
As of December 31, 1999
(Dollars in thousands)
<TABLE>
<S> <C>
Assets
Current assets
Cash and cash equivalents............................................ $ 925
Trade receivables (less allowance for doubtful accounts of $378)..... 36,345
Notes receivable (less allowance of $242)............................ 239
--------
Inventories:
Raw materials....................................................... 11,353
Work in process..................................................... 1,784
Finished goods...................................................... 16,925
Inventory reserves.................................................. (4,004)
--------
Total inventories, net............................................. 26,058
--------
Intercompany receivable.............................................. 5,101
Other current assets................................................. 2,138
--------
Total current assets............................................... 70,806
Property, plant, and equipment, net................................... 4,555
Investment in subsidiaries............................................ 16,522
Capitalized and deferred software, net................................ 9,481
Other assets, net..................................................... 2,679
--------
Total.............................................................. $104,043
========
Liabilities and Stockholders' Equity
Current liabilities
Revolving credit loans............................................... $ 9,094
Current maturities of long-term debt................................. 2,427
Current maturities of capital lease obligations...................... 568
Accounts payable..................................................... 16,772
Employment costs..................................................... 4,185
Deferred revenue..................................................... 4,844
--------
Other current liabilities:
Warranty accrual.................................................... 1,662
Restructuring reserve............................................... 3,980
Accrued management transition expenses.............................. 1,809
Other............................................................... 3,420
--------
Total other current liabilities.................................... 10,871
--------
Total current liabilities.......................................... 48,761
Long-term debt........................................................ 36,608
Capital lease obligations............................................. 1,385
Other liabilities..................................................... 4,159
--------
Total liabilities.................................................. 90,913
--------
Stockholders' equity.................................................. 13,130
--------
Total.............................................................. $104,043
========
</TABLE>
55
<PAGE>
CONDENSED STATEMENT OF CASH FLOWS
For the Fiscal Year Ended December 31, 1999
(Dollars in thousands)
<TABLE>
<S> <C>
Operating activities:
Net loss............................................................... $(27,400)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Extraordinary loss.................................................... 393
Depreciation.......................................................... 2,090
Equity in net loss of subsidiaries.................................... 4,999
Amortization and write-off of capitalized and deferred software
costs................................................................ 10,924
Provision for losses on inventory..................................... 375
Recovery of losses on accounts and notes receivable................... (384)
Non-cash restructuring charges........................................ 931
Other................................................................. 28
Changes in assets and liabilities which provided (used) cash:
Trade receivables..................................................... (10,131)
Inventories, net...................................................... (3,063)
Accounts payable...................................................... 3,296
Other................................................................. 2,815
--------
Net cash used in operating activities................................ (15,127)
--------
Investing activities:
Purchase of European and Australian subsidiaries....................... (20,500)
Collections of notes receivable........................................ 473
Additions to property, plant and equipment............................. (1,853)
Additions to capitalized and deferred software costs................... (10,250)
--------
Net cash used in investing activities................................ (32,130)
--------
Financing activities:
Proceeds from revolving credit lines, net.............................. 1,788
Proceeds from long-term debt........................................... 32,800
Payments of debt issuance costs, net................................... (453)
Payments of capital lease obligations.................................. (415)
Proceeds from issuance of common stock................................. 12,248
Proceeds from exercise of stock options................................ 1,386
--------
Net cash provided by financing activities............................ 47,354
--------
<CAPTION>
Net change in cash and cash equivalents................................. 97
Cash and cash equivalents, beginning of year............................ 828
<S> <C>
--------
<CAPTION>
Cash and cash equivalents, end of year.................................. $ 925
<S> <C>
========
</TABLE>
56
<PAGE>
SCHEDULE II
QMS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Fiscal Year Ended December 31, 1999, the transition period ended
January 1, 1999,
and the Fiscal Years Ended October 2, 1998, and October 3, 1997
<TABLE>
<CAPTION>
Balance at Additions
Beginning Charged to Costs Balance at
Description of Year and Expenses Deductions(a) End of Year
- ----------- ---------- ---------------- ------------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts--deducted from
receivables in the
balance sheet
Year ended October 3,
1997.................. $ 383,000 $ 402,000 $ 256,000 $ 529,000
========== ========== ========== ==========
Year ended October 2,
1998.................. $ 529,000 $ 202,000 $ 219,000 $ 512,000
========== ========== ========== ==========
Transition Period...... $ 512,000 $ 0 $ 28,000 $ 484,000
========== ========== ========== ==========
Year ended December 31,
1999.................. $ 484,000 $ 396,000 $ 214,000 $ 666,000
========== ========== ========== ==========
<CAPTION>
Additions
Balance at Charged to
Beginning Expenses and Balance at
Description of Year Other Accounts Deductions End of Year
- ----------- ---------- ---------------- ------------- -----------
<S> <C> <C> <C> <C>
Allowance for notes
receivable--deducted
from notes receivable
in the balance sheet
Year ended October 3,
1997.................. $ 900,000 $ 0 $ 0 $ 900,000
========== ========== ========== ==========
Year ended October 2,
1998.................. $ 900,000 $ 250,000 $ 0 $1,150,000
========== ========== ========== ==========
Transition Period...... $1,150,000 $ 0 $ 0 $1,150,000
========== ========== ========== ==========
Year ended December 31,
1999.................. $1,150,000 $ 0 $ 565,000(b) $ 585,000
========== ========== ========== ==========
<CAPTION>
Balance at Additions
Beginning Charged to Costs Balance at
Description of Year and Expenses Deductions(c) End of Year
- ----------- ---------- ---------------- ------------- -----------
<S> <C> <C> <C> <C>
Inventory reserves--
deducted from gross
inventories in the
balance sheet
Year ended October 3,
1997.................. $5,177,000 $7,416,000 $5,615,000 $6,978,000
========== ========== ========== ==========
Year ended October 2,
1998.................. $6,978,000 $2,953,000 $6,258,000 $3,673,000
========== ========== ========== ==========
Transition Period...... $3,673,000 $ 795,000 $ 839,000 $3,629,000
========== ========== ========== ==========
Year ended December 31,
1999.................. $3,629,000 $8,326,000 $3,328,000 $8,627,000
========== ========== ========== ==========
<CAPTION>
Balance at Additions
Beginning Charged to Costs Balance at
Description of Year and Expenses Deductions(d) End of Year
- ----------- ---------- ---------------- ------------- -----------
<S> <C> <C> <C> <C>
Reserves for
restructuring charges
and divestitures
of businesses
Year ended October 3,
1997.................. $ 466,000 $2,942,000 $1,661,000 $1,747,000
========== ========== ========== ==========
Year ended October 2,
1998.................. $1,747,000 $ 0 $1,404,000 $ 343,000
========== ========== ========== ==========
Transition Period...... $ 343,000 $ 0 $ 25,000 $ 318,000
========== ========== ========== ==========
Year ended December 31,
1999.................. $ 318,000 $4,628,000 $ 966,000 $3,980,000
========== ========== ========== ==========
</TABLE>
- --------
(a) Uncollectible accounts written off
(b) Recovery of amounts previously reserved
(c) Disposal of inventory
(d) Includes salary continuation and outplacement, divestitures of businesses,
and other write-offs. See Note 19 to the Company's Consolidated Financial
Statement under Item 8.
57
<PAGE>
3. Exhibits:
Exhibit
Number Description
------ -----------
3(a) Restated Certificate of Incorporation, as amended as of
February 17, 1987,(/1/) Certificate of Amendment thereto
filed with the Secretary of State of Delaware as of January
31, 1991,(/2/) and Certificate of Amendment thereto filed
with the Secretary of State of Delaware as of January 27,
1999.(/24/)
3(b) Bylaws of Registrant.(/1/)
4(a) The rights of security holders are defined in Articles 4, 9
and 10 of the Restated Certificate of Incorporation of the
Registrant, Articles II, VI and VII of the Bylaws of the
Registrant and the Rights Agreement. [Incorporated herein by
reference to Exhibits 3(a), 3(b) and 4(b), respectively.]
4(b) Copy of Rights Agreement between QMS, Inc. and Rights Agent
dated March 8, 1999.(/26/)
10(a)(i) Cash or Deferred Retirement Plan, as amended and restated as
of December 17, 1993.(/4/)*
10(a)(ii) Trust Agreement dated November 1, 1993, relating to the Cash
or Deferred Retirement Plan as amended by an Amendment to the
Trust Agreement dated December 28, 1993.(/4/)
10(c)(i) Form of 1987 Stock Option Plan, as amended and restated as of
December 13, 1990.(/2/)*
10(c)(ii) Form of First Amendment to the 1987 Stock Option Plan
effective November 7, 1991.(/2/)*
10(d) Supplemental Executive Retirement Plan Agreements dated
September 30, 1991.(/4/)*
10(f) Executive Services Agreement dated August 1, 1999, between
QMS, Inc. and Edward E. Lucente.(/22/)
10(f)(i) Amendment to the Executive Services Agreement between QMS,
Inc. and Edward E. Lucente dated October 25, 1999.(/22/)
10(f)(ii) Agreement between QMS, Inc. and Edward E. Lucente dated
October 25, 1999, in which QMS, Inc. adopts a nonqualified
compensation agreement.(/22/)
10(f)(iii) Amendment to Trust Agreement between QMS, Inc. and South
Alabama Trust Company, Inc. dated October 25, 1999.(/22/)
10(g) 1997 Stock Incentive Plan, dated October 23, 1996,(/27/)*
together with First Amendment thereto effective as of October
15, 1997.(/28/)*
1
<PAGE>
10(h) Form of Executive Agreement entered into with: James L.
Busby, Donald L. Parker, Ph.D., Charles D. Daley and James K.
Doan.(/7/)*
10(h)(i) Form of Executive Agreement entered into with Edward E.
Lucente on January 5, 1998.(/25/)*
10(h)(ii) Form of Executive Services Agreement entered into with Edward
E. Lucente on January 5, 1998.(/25/)*
10(i) International Technical Support Agreement dated January 5,
2000, between International Business Machines and QMS, Inc.
10(j) Credit Agreement dated August 19, 1999, by and between QMS,
Inc. and Harris Trust and Savings Bank.(/22/)
10(j)(i) Waiver dated March 2, 2000, by and between QMS, Inc. and
Harris Trust and Savings Bank.
10(j)(ii) Waiver dated March 20, 2000, by and between QMS, Inc. and
Harris Trust and Savings Bank.
10(m) QMS, Inc. Employee Stock Purchase Plan.(/14/)
10(o) Stock Option Plan, dated July 30, 1984,(/8/)* together with
First Amendment thereto effective as of January 1,
1987,(/1/)* Second Amendment thereto effective as of
November 10, 1987,(/1/)* Third Amendment thereto effective as
of April 6, 1989,(/7/)* Fourth Amendment thereto effective as
of January 1, 1990,(/6/)* and Fifth Amendment thereto
effective as of November 7, 1991.(/2/)*
10(p) Stock Option Plan for Directors.(/9/)*
10(q)(i) Share Purchase Agreement dated October 12, 1995, between
Jalak Investments B.V. and QMS, Inc.(/10/)
10(q)(ii) Promissory Note dated October 16, 1995, in the original
principal amount of U.S. $4,000,000 from QMS Europe B.V. and
QMS Australia PTY Ltd. in favor of QMS, Inc.(/10/)
10(q)(iii) Pledge and Security Agreement and Pledging of Shares, each
dated October 16, 1995, by Jalak Investments, B.V. in favor
of QMS, Inc.(/10/)
10(q)(iv) Deed of Subordination and Pledge dated October 16, 1995, by
and among QMS, Inc., QMS Europe B.V. and Credit Lyonnais Bank
Nederland N.V.(/10/)
10(q)(v) Master Distributor Agreement dated October 16, 1995, among
the Registrant, QMS Europe, B.V. and QMS Australia PTY
Ltd.(/10/)
10(q)(vi) Trademark and Trade Name License Agreement dated October 16,
1995, between QMS Europe B.V. and QMS, Inc.(/10/)
10(r) Loan and Security Agreement dated November 7, 1995, by and
between QMS, Inc. and Foothill Capital Corporation.(/11/)
10(r)(i) Stock Pledge Agreement dated November 7, 1995, by and
between QMS, Inc. and Foothill Capital Corporation.(/11/)
2
<PAGE>
10(r)(ii) Term Note A dated November 7, 1995, in the original
principal amount of $1,750,000 from QMS, Inc. in favor of
Foothill Capital Corporation.(/11/)
10(r)(iii) Term Note B dated November 7, 1995, in the original
principal amount of $5,000,000 from QMS, Inc. in favor of
Foothill Capital Corporation.(/11/)
10(r)(iv) Trademark Security Agreement dated November 7, 1995, made
by QMS, Inc. in favor of Foothill Capital
Corporation.(/11/)
10(r)(v) QMS, Inc. Warrant to Purchase 100,000 shares of Common
Stock, dated November 7, 1995.(/11/)
10(r)(vi) General Security Agreement dated November 7, 1995, by and
between QMS Canada Inc. in favor of Foothill Capital
Corporation.(/11/)
10(r)(vii) General Continuing Guaranty dated November 7, 1995, by QMS
Canada Inc. in favor of Foothill Capital Corporation.(/11/)
10(r)(viii) Security Agreement dated November 7, 1995, by and between
Foothill Capital Corporation and QMS Canada Inc.(/11/)
10(r)(ix) General Continuing Guaranty dated November 7, 1995, by QMS
Circuits, Inc. in favor of Foothill Capital
Corporation.(/11/)
10(r)(x) Security Agreement dated November 7, 1995, between Foothill
Capital Corporation and QMS Circuits, Inc.(/11/)
10(r)(xi) Amendment Number One dated December 4, 1995, to the Loan
and Security Agreement dated November 7, 1995.(/13/)
10(r)(xii) Amendment Number Two dated February 7, 1996, to the Loan
and Security Agreement dated November 7, 1995.(/13/)
10(r)(xiii) Amendment Number Three dated July 31, 1996, to the Loan and
Security Agreement dated November 7, 1995.(/13/)
10(r)(xiv) Waiver Agreement dated May 5, 1997, waiving certain
provisions of the Loan and Security Agreement.(/15/)
10(r)(xv) Amendment Number Five dated June 3, 1997, to the Loan and
Security Agreement.(/16/)
10(r)(xvi) Amendment Number Four dated January 22, 1997, to the Loan
and Security Agreement.(/20/)
10(r)(xvii) Amendment Number Six dated October 8, 1997, to the Loan and
Security Agreement.(/20/)
10(r)(xviii) Amendment Number Seven dated September 23, 1998, to the
Loan and Security Agreement.(/20/)
10(r)(xix) Amendment Number Eight dated November 17, 1998, to the Loan
and Security Agreement.(/20/)
3
<PAGE>
10(r)(xx) Amendment Number Nine dated April 30, 1999, to the Loan and
Security Agreement.(/21/)
10(s)(i) Asset Purchase Agreement dated September 30, 1995, between
QMS Japan Kabushiki Kaisha ("QMS Japan KK") and QMS,
Inc.(/12/)
10(s)(ii) Assumption of Liabilities dated September 30, 1995, by QMS
Japan KK.(/12/)
10(s)(iii) Inventory Johto-Tampo Agreement dated September 30, 1995,
between QMS Japan KK and QMS, Inc.(/12/)
10(s)(iv) Master Distributor Agreement dated September 30, 1995,
between QMS Japan KK and QMS, Inc.(/12/)
10(s)(v) Promissory Note dated September 30, 1995, in the original
principal amount of U.S. $3,000,000 from Yoji Kawai in favor
of QMS Japan KK.(/12/)
10(s)(vi) Promissory Note dated September 30, 1995, in the original
principal amount of U.S. $500,000 from Yoji Kawai in favor
of QMS Japan KK.(/12/)
10(s)(vii) Trademark and Trade Name License Agreement dated December 7,
1995, between QMS Japan KK and QMS, Inc.(/12/)
10(s)(viii) Assumption Agreement dated December 7, 1995, between QMS
Japan KK and QMS, Inc.(/12/)
10(t) Sale-Leaseback Agreement between QMS, Inc. and Ink (AL) QRS
12-21, Inc. dated February 18, 1997.(/17/)
10(t)(i) Waiver agreement between Ink (AL) QRS 12-21, Inc. and QMS,
Inc. dated December 8, 1997.(/19/)
10(t)(ii) Amendment to Warrant dated December 8, 1997, to the Sale-
Leaseback Agreement.(/19/)
10(t)(iii) Waiver agreement between Ink (AL) QRS 12-21, Inc. and QMS,
Inc. dated November 17, 1998.(/20/)
10(t)(iv) Waiver agreement and Lease Amendment dated June 7, 1999,
between Ink (AL) QRS 12-21, Inc. and QMS, Inc.(/22/)
10(u) Agreement dated July 7, 1997, between QMS, Inc. and James L.
Busby.(/18/)
10(v) Agreement dated August 7, 1997, between QMS, Inc. and Donald
L. Parker.(/19/)
10(w) QMS, Inc.--Genicom Corporation Strategic Partner
Agreement.(/19/)
4
<PAGE>
10(x) Share Purchase Agreement between QMS, Inc. and Alto Imaging
Group, N.V. dated May 17, 1999.(/23/)
10(x)(i) Promissory Note between QMS, Inc. and Alto Imaging Group,
N.V.(/23/)
10(x)(ii) Loan Agreement between QMS, Inc. and Minolta Co., Ltd. dated
June 7, 1999.(/23/)
10(x)(iii) Stock Purchase Agreement between QMS, Inc., Minolta
Investments Company, and Minolta Co., Ltd. dated June 7,
1999.(/23/)
10(x)(iv) First Amendment to Rights Agreement dated June 7, 1999,
between QMS, Inc. and South Alabama Trust Company,
Inc.(/23/)
10(x)(v) Promissory Note between QMS, Inc. and Minolta Co., Ltd. for
$15,000,000 dated November 10, 1999.(/22/)
10(x)(vi) Promissory Note between QMS, Inc. and QMS Europe B.V. for
$4,000,000 dated November 10, 1999.(/22/)
10(x)(vii) Promissory Note between QMS, Inc. and Minolta Co., Ltd. for
$5,000,000 dated December 22, 1999.
10(x)(viii) Promissory Note between QMS, Inc. and Minolta Co., Ltd. for
$10,000,000 dated February 4, 2000.
10(x)(ix) Promissory Note between QMS, Inc. and QMS Europe B.V. for
$4,000,000 dated February 8, 2000.
10(x)(x) Waiver Agreement between QMS Europe B.V. and ING Bank N.V.,
ING Mezzanine Fonds B.V. and NMB Heller N.V. dated February
11, 2000.
11 Statement Regarding Computation of Earnings Per Share.
21 Subsidiaries of the Registrant.
23 Independent Auditors' Consent
27 Financial Data Schedules
_________________
* Indicates a management contract or compensatory plan or arrangement.
(/1/) Incorporated herein by reference to exhibit of same number in Registrant's
annual report on Form 10-K for the fiscal year ended October 2, 1987
(Commission File No. 1-9348).
(/2/) Incorporated herein by reference to exhibit of same number in Registrant's
annual report on Form 10-K for the fiscal year ended September 27, 1991
(Commission File No. 1-9348).
(/3/) Incorporated herein by reference to exhibit of same number in Registrant's
annual report on Form 10-K for the fiscal year ended September 30, 1988
(Commission File No. 1-9348).
(/4/) Incorporated herein by reference to exhibit of same number in Registrant's
annual report on Form 10-K for the fiscal year ended October 1, 1993
(Commission File No. 1-9348).
5
<PAGE>
(/5/) Incorporated herein by reference to exhibit of same number in Registrant's
annual report on Form 10-K for the fiscal year ended October 2, 1992
(Commission File No. 1-9348).
(/6/) Incorporated herein by reference to exhibit of same number in Registrant's
quarterly report on Form 10-Q for the quarter ended April 1, 1988
(Commission File No. 1-9348).
(/7/) Incorporated herein by reference to exhibit of same number in Registrant's
annual report on Form 10-K for the fiscal year ended September 29, 1989
(Commission File No. 1-9348).
(/8/) Incorporated herein by reference to exhibit of same number in Registrant's
Registration Statement on Form S-1, filed September 19, 1984 (Registration
No. 2-93329).
(/9/) Incorporated)herein by reference to Appendix B to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on January 25, 1994
(Commission File No. 1-9348).
(/10/)Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on October 16, 1995 (Commission File No. 1-9348).
(/11/)Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on November 21, 1995 (Commission File No. 1-9348).
(/12/)Incorporated herein by reference to exhibit of same number in Registrant's
annual report on Form 10-K for the fiscal year ended September 29, 1995
(Commission File No. 1-9348).
(/13/)Incorporated herein by reference to exhibit of same number in Registrant's
quarterly report on Form 10-Q for the fiscal quarter ended June 28, 1996
(Commission File No. 1-9348).
(/14/)Incorporated herein by reference to Appendix A to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on January 23, 1996
(Commission File No. 1-9348).
(/15/)Incorporated herein by reference to exhibit of same number in Registrant's
quarterly report on Form 10-Q for the fiscal quarter ended March 28, 1997
(Commission File No. 1-9348).
(/16/)Incorporated herein by reference to exhibit of same number in Registrant's
quarterly report on Form 10-Q for the fiscal quarter ended June 27, 1997
(Commission File No. 1-9348).
(/17/)Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on February 18, 1997 (Commission File No. 1-9348).
(/18/)Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on July 7, 1997 (Commission File No. 1-9348).
(/19/)Incorporated herein by reference to exhibit of same number in Registrant's
annual report on Form 10-K for the fiscal year ended October 3, 1997
(Commission File No. 1-9348).
(/20/)Incorporated herein by reference to exhibit of same number in Registrant's
annual report on Form 10-K for the fiscal year ended October 2, 1998
(Commission File No. 1-9348).
(/21/)Incorporated herein by reference to exhibit of same number in Registrant's
quarterly report on Form 10-Q for the fiscal quarter ended April 2, 1999
(Commission File No. 1-9348).
6
<PAGE>
(/17/)Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on February 18, 1997 (Commission File No. 1-9348).
(/18/)Incorporated herein by reference to exhibits in Registrant's Form 8-K
filed on July 7, 1997 (Commission File No. 1-9348).
(/19/)Incorporated herein by reference to exhibit of same number in Registrant's
annual report on Form 10-K for the fiscal year ended October 3, 1997
(Commission File No. 1-9348).
(/20/)Incorporated herein by reference to exhibit of same number in Registrant's
annual report on Form 10-K for the fiscal year ended October 2, 1998
(Commission File No. 1-9348).
(/21/)Incorporated herein by reference to exhibit of same number in Registrant's
quarterly report on Form 10-Q for the fiscal quarter ended April 2, 1999
(Commission File No. 1-9348).
(/22/)Incorporated herein by reference to exhibit of same number in Registrant's
quarterly report on Form 10-Q for the fiscal quarter ended October 1, 1999
(Commission File No. 1-9348).
(/23/)Incorporated herein by reference to exhibit of same number in Registrant's
Form 8-K filed on June 7, 1999 (Commission File No. 1-9348).
(/24/)Incorporated herein by reference to Appendix A of the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on January 27, 1999
(Commission File No. 1-9348).
(/25/)Incorporated herein by reference to exhibit of same number in Registrant's
quarterly report on Form 10-Q for the fiscal quarter ended January 2, 1998
(Commission File No. 1-9348).
(/26/)Incorporated herein by reference to Exhibit 1 in Registrant's Form 8-A
filed on March 18, 1999 (Commission File No. 1-9348).
(/27/)Incorporated herein by reference to Appendix B of the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on January 21, 1997
(Commission File No. 1-9348).
(/28/)Incorporated herein by reference to Appendix A of the Registrant's Proxy
Statement for the Annual Meeting of Stockholders held on January 20, 1998
(Commission File No. 1-9348).
(b) Reports on Forms 8-K: The following reports were filed on Forms 8-K during
fiscal 1999.
. Form 8-K dated February 22, 1999, announcing the Company's intent to
exercise its option to reacquire its former subsidiaries, QMS Europe B.V.
and QMS Australia PTY Ltd.
. Form 8-K dated June 7, 1999, announcing the Company's reacquisition of
its former subsidiaries, QMS Europe B.V. and QMS Australia PTY Ltd.
. Form 8-K dated August 6, 1999, announcing the resignation of James A.
Wallace as Chief Financial Officer and Director
. Form 8-K/A dated June 7, 1999, and signed August 11, 1999, related to the
Company's reacquisition of its former subsidiaries, QMS Europe B.V. and
QMS Australia PTY Ltd.
. Form 8-K dated October 8, 1999, reporting the change in fiscal year end.
7
<PAGE>
EXHIBIT 10(i)
INTERNATIONAL TECHNICAL SUPPORT
AGREEMENT BETWEEN INTERNATIONAL BUSINESS
MACHINES CORPORATION AND QMS, INC.
Agreement Number: 99SBD155
IBM International Technical Support Agreement
Table of Contents
PART 1- GENERAL
1.0 - Scope of Work
2.0 - Definitions
3.0 - Term, Termination and Cancellation
4.0 - Charges
5.0 - Payment Terms
6.0 - Taxes
7.0 - Product Additions/Deletions/Withdrawals
8.0 - Failure to Deliver/Rights to Technical Data
9.0 - QMS Warranties
10.0 - IBM Warranties
11.0 - Most Favored Customer Benefits
12.0 - Public Disclosure
13.0 - Relationship of the Parties
14.0 - Amendments and Changes
15.0 - Interfering Code
16.0 - Advertising and Use of Trademark
17.0 - Indemnification
18.0 - Limitation of Liability
19.0 - Gifts or Gratuities
20.0 - Employees
21.0 - Commercial Insurance
22.0 - Force Majeure
23.0 - Order of Precedence
24.0 - Severability
25.0 - Successors
26.0 - Limitation on Actions
27.0 - Assignment
28.0 - Compliance with Governmental Legal Requirements
29.0 - Waiver
30.0 - No Conflicts
31.0 - Nonexclusive Agreement
32.0 - Governing Law and Forum
33.0 - Complete Agreement
34.0 - Third Party Beneficiary
35.0 - Notices
Exhibit A - Eligible Product List
Exhibit B - Product Maintenance Contracts
Attachment A - SOW for Warranty Service for the United States
Attachment B - SOW for Warranty Service for Canada
Attachment C - SOW for Warranty Service for Latin America
Attachment D - SOW for Non-Warranty Service for the United States
Attachment E - SOW for Non-Warranty Service for Canada
Attachment F - SOW for Non-Warranty Service for Latin America
<PAGE>
PART 2 - COUNTRY UNIQUE TERMS
- -----------------------------
EMEA - LIST OF THE IBM WORLD TRADE EMEA COUNTRIES
GERMANY
IRELAND
ITALY
PORTUGAL
TURKIYE
ASIA PACIFIC
AUSTRALIA
INDONESIA AND MALAYSIA
PAKISTAN
PEOPLE'S REPUBLIC OF CHINA
NORTH AMERICA
UNITED STATES OF AMERICA
CANADA
2
<PAGE>
IBM International Technical Support Agreement
PART 1 - GENERAL
This International Technical Support Agreement ("Agreement") is entered into
between International Business Machines Corporation ("IBM") and QMS, Inc.
("QMS"), whereby IBM and QMS mutually agree to the following:
1.0 Scope of Work
-------------
QMS currently provides warranty services for Products (as hereinafter defined)
to QMS end users. QMS and IBM desire to have IBM or to have IBM cause IBM's
local domestic or international subsidiaries (hereinafter referred to as "Local
IBM") to provide warranty service for Products to QMS end users for QMS as a
subcontractor of QMS pursuant to this Agreement in the United States in
accordance with the Statement of Work ("SOW") for Warranty Service for the
United States attached hereto as Attachment A, in Canada in accordance with the
SOW for Warranty Service for Canada attached hereto as Attachment B, in Latin
America in accordance with the SOW for Warranty Service for Latin America
attached hereto as Attachment C, and in such other countries and locations in
accordance with such SOWs and other such documents (hereinafter referred to as
"Transactions Documents") as QMS and IBM/Local IBM agree to and enter into from
time to time.
QMS currently provides product maintenance service for products, not under
warranty, to QMS end users pursuant to product maintenance contracts identified
and set forth in Exhibit B. QMS and IBM desire to have QMS assign to IBM the
product maintenance service contracts identified and set forth in Exhibit B. IBM
agrees to assume the contractual obligations under the product maintenance
service contracts and to provide product maintenance service to the QMS end
users pursuant to this Agreement in the United States in accordance with the SOW
for Non-Warranty Service for the United States attached hereto as Attachment D,
in Canada in accordance with the SOW for Non-Warranty Service for Canada
attached hereto as Attachment E, in Latin America in accordance with the SOW for
Non-Warranty Service for Latin America attached hereto as Attachment F, and in
such other countries and locations in accordance with such SOWs and Transactions
Documents as QMS and IBM/Local IBM agree to and enter into from time to time.
QMS currently operates a call center for Products under warranty to receive
calls from end-users, value added resalers (VARS), authorized service providers
and field engineers. QMS and IBM desire to have IBM or to have IBM cause IBM
Local to receive warranty calls on behalf of QMS as a subcontractor of QMS
pursuant to this Agreement in the United States in accordance with the SOW for
Warranty Service for the United States attached hereto as Attachment A, in
Canada in accordance with the SOW for Warranty Service for Canada attached
hereto as Attachment B, in Latin America in accordance with the SOW for Warranty
Service for Latin America attached hereto as Attachment C and in such other
countries and locations in accordance with such SOWs and Transactions Documents
as QMS and IBM/Local IBM agree to and enter into from time to time.
QMS currently operates a call center to receive calls from QMS end users for
products, not under warranty, pursuant to the product maintenance service
contracts identified and set forth in Exhibit B. QMS and IBM desire to have IBM
receive calls pursuant to this Agreement in the United States in accordance with
the SOW for Non-Warranty Service for the United States attached hereto as
3
<PAGE>
Attachment D, in Canada in accordance with the SOW for Non-Warranty Service for
Canada attached hereto as Attachment E, in Latin America in accordance with the
SOW for Non-Warranty Service for Latin America attached hereto as Attachment F,
and in such other countries and locations in accordance with such SOWs and
Transactions Documents as QMS and IBM/Local IBM agree to and enter into from
time to time.
QMS agrees to provide certain QMS deliverables and parts pursuant to this
Agreement in the United States in accordance with the SOW for Warranty Service
for the United States attached hereto as Attachment A, in Canada in accordance
with the SOW for Warranty Service for Canada attached hereto as Attachment B, in
Latin America in accordance with the SOW for Warranty Service for Latin America
attached hereto as Attachment C, and in such other countries and locations in
accordance with such SOWs and Transactions Documents as QMS and IBM/Local IBM
agree to and enter into from time to time.
The provision for the foregoing services will be subject to acceptance of the
terms and conditions of Part 1 - General Agreement and signing of the SOWs
and/or Transaction Documents between IBM and QMS. The SOW and/or Transaction
Document for each applicable country will be appended to the Agreement once
signed. IBM/Local IBM may, in its sole discretion, agree to enter into such SOW
and/or Transaction Document.
Transaction Documents must be signed by all parties thereto and will define, as
needed, the local characteristics of the service to be performed, local terms
and conditions including rates, and its prices. Such Transaction Documents may
include the SOWs.
The Agreement is written with the understanding that the lead countries are
bound by its terms. IBM and QMS will distribute copies of the Agreement to their
respective countries where applicable. The respective countries will acknowledge
acceptance of these terms through a Statement of Work (SOW) and/or an applicable
Transaction Document which incorporates this Agreement by reference.
2.0 Definitions
-----------
2.1 The term Documentation shall refer to, but not be limited to,
manuals, engineering changes (ECs), microcode, microcode updates,
and diagnostics.
2.2 The term due diligence period shall mean the initial period of up
to one-hundred-twenty (120) days of this Agreement during which
data is gathered and analyzed to substantiate the assumptions made
in this Agreement related to service delivery requirements,
processes, expectations, prices, and measurements of success. The
due diligence period runs concurrently with the implementation
period.
2.3 The term Effective Date shall mean January 3, 2000.
2.4 The term end user shall mean the ultimate user of the Products.
2.5 The term firmware shall mean microcode in read-only memory or
software loaded on a Product's harddriver or flashmemory.
4
<PAGE>
2.6 The term lead country is the country in which the parties
executing "Part 1 - General" are organized.
2.7 The term Product Service shall mean warranty services for
Products, non-warranty product maintenance service provided to QMS
end users under product maintenance service contracts set forth on
Exhibit B, the call center services for Products under warranty and
call center services for QMS end users under product maintenance
service contracts, set forth on Exhibit B.
2.8 The term Products shall mean those items which are manufactured
and/or sold by QMS and are identified and set forth on the Eligible
Product List attached hereto as Exhibit A.
2.9 The term QMS deliverables shall mean those items and materials as
described in the SOWs and/or Transaction Documents and in purchase
orders, which are to be delivered to IBM/Local IBM by QMS including
but not limited to, parts, manuals, diagnostics, engineering
changes (ECs), technical support, training, microcode and microcode
updates, resale tax exemption certificates, as well as items
ordered via IBM/Local IBM purchase order (if any).
The term IBM deliverables shall mean those items and materials as
described in the SOW and/or Transaction Document which are to be
delivered to QMS by IBM/Local IBM.
2.11 The term parts shall mean repair parts, new and/or refurbished,
that are consigned, sold or otherwise provided to IBM/Local IBM by
QMS and used for repair of QMS's Products pursuant to this
Agreement.
2.12 The term purchase order shall mean a written IBM/Local IBM
Purchase Order.
2.13 Related Company shall mean a corporation, company or other entity:
1. which is a Subsidiary of a party to this Agreement; or
2. of which a party hereto is a Subsidiary; or
3. which is another Subsidiary of a corporation, company or other
entity of which a party hereto is a Subsidiary.
2.14 The term response time shall mean (as applicable) the monthly
average period of time it is anticipated to take for the service
technician to arrive on-site at the end user location. With respect
to remote services, it is the period of time necessary for the end
user to talk to the remote support technician.
2.15 The term Subsidiary means any corporation, company or other entity:
5
<PAGE>
1. more than fifty percent (50%) of whose outstanding shares or
securities (representing the right to vote for the election of
directors or other managing authority); or,
2. which does not have outstanding shares or securities, as may
be the case in a partnership, joint venture or unincorporated
associate, but more than fifty percent (50%) of whose ownership
interest (representing the right to make the decisions for such
corporation, company or other entity) are, now or hereafter,
owned or controlled, directly or indirectly, by either QMS or
IBM, provided, however, that company or other entity shall be
deemed to be a Subsidiary only so long as such ownership or
control exists.
2.16 The term time & material ("T & M") shall mean the performance
method and billing rates by which IBM/Local IBM will perform and
bill QMS for time (i.e., labor time, travel time) and material
(ie., parts, supplies, etc.) services that do not constitute
Product Services under the scope of this Agreement, or the SOWs.
3.0 Term, Termination and Cancellation
----------------------------------
3.1 The term of this Agreement is five (5) years from the
"Effective Date". This Agreement may be further extended by way of
a mutually signed written agreement of extension between IBM and
QMS.
3.2 Any terms of this Agreement which, by their nature extend beyond
its termination, remain in force and effect and apply to the
parties, their respective successors and assigns.
3.3 IBM and QMS shall not terminate this Agreement, without cause,
on or prior to January 3, 2001. After January 3, 2001, IBM or QMS
may terminate this Agreement, with or without cause, upon at least
one hundred and eighty (180) days prior written notice.
3.4 IBM or QMS may immediately terminate this Agreement for a
material breach by the other party of its obligations hereunder if
that breach is not cured by the party in breach within thirty (30)
days after receiving written notice thereof.
3.5 If IBM or QMS is in material breach of its obligations under any
other agreement, which IBM and QMS entered into after the Effective
Date of this Agreement, relating to a transaction, exclusive of the
transactions contemplated hereunder, with a value of not less than
fifty thousand (50,000) USD or lead country currency equivalent,
IBM or QMS may terminate this Agreement if, after providing notice
of the unrelated material breach for which IBM or QMS may wish to
exercise its rights to terminate under this provision of the
Agreement to the party in material breach in the unrelated matter,
such breach is not cured by the party in material breach within
sixty (60) days after receipt of written notice of such breach.
6
<PAGE>
3.6 IBM or QMS may terminate this Agreement upon thirty (30) days
prior written notice to the other party if the other party makes
any change to their warranty practice which materially changes
IBM/Local IBM's or QMS's obligations under this Agreement.
3.7 The applicable Transaction Documents signed in the countries will
become effective on the dates specified in the Transaction
Documents. The termination of this Agreement will also terminate
any SOW and/or Transaction Document between QMS and IBM/Local IBM,
subject to the termination-related terms of the applicable
Transaction Document.
3.8 IBM/Local IBM may cancel any purchase order, or line item thereon,
for QMS deliverables and/or parts, without penalty provided written
notice of cancellation is given at least thirty (30) days prior to
the scheduled delivery date.
3.9 Any QMS deliverables and/or parts required to be provided to
IBM/Local IBM under the terms of this Agreement, SOW, Attachments,
and Transaction Documents ordered by IBM/Local IBM and the purchase
order having been accepted by QMS prior to termination of this
Agreement, shall be delivered in accordance with the terms of this
Agreement or that purchase order, unless that purchase order is
specifically canceled, as outlined in Subsection 3.8.
3.10 A Local IBM or QMS may immediately terminate its Transaction
Document and/or SOW for a material breach by the other party of its
obligations thereunder if such breach is not cured by the other
party within thirty (30) days after receipt of written notice
thereof.
3.11 IBM/Local IBM may terminate Product Service for specific Products
for which parts are no longer commercially available, by providing
a ninety (90) days prior written notice to QMS.
3.12 Upon termination or expiration of this Agreement, QMS will
continue to provide QMS deliverables, and other support as
necessary to allow IBM/Local IBM to fulfill IBM/Local IBM's then
outstanding (as of the date of termination) end user contractual
obligations under the terms and conditions of this Agreement.
3.13 Without prejudice to any other right or remedy, this Agreement
and IBM's obligations contained herein shall terminate immediately
upon written notice in the event (a) QMS commences (i) a voluntary
case against itself or (ii) any other proceedings under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law applicable to
QMS; or (b) an involuntary case or other such proceeding is
commenced against QMS and such case or proceeding is not dismissed
within 30 days; or (c) QMS is adjudged to be insolvent or shall
fail to pay, or shall state that it is unable to pay, its debts
generally as they become due.
4.0 Charges
-------
4.1 Payment by QMS to IBM. IBM agrees to provide for Product Services
----------------------
in the United States in the amounts set forth in the SOW for
Warranty Service for the United States
7
<PAGE>
attached hereto as Attachment A, for Product Services in Canada in
the amounts set forth in the SOW for Warranty Service for Canada
attached hereto as Attachment B, for Product Services in Latin
America in the amounts set forth in the SOW for Warranty Service
for Latin America attached hereto as Attachment C, and for Product
Services in such other countries and locations in the amounts set
forth in such SOWs and Transactions Documents as QMS and IBM/Local
IBM agree to and enter into from time to time.
4.2 Payment by IBM to QMS. QMS agrees to assign product maintenance
----------------------
service contracts and to provide parts for the amounts set forth in
the SOW for Warranty Service for the United States attached hereto
as Attachment A, and the SOW for Non-Warranty Service for the
United States attached hereto as Attachment D; in accordance with
the SOW for Warranty Service for Canada attached hereto as
Attachment B and the SOW for Non-Warranty Service for Canada
attached hereto as Attachment E; in accordance with the SOW for
Warranty Service for Latin America attached hereto as Attachment C
and the SOW for Non-Warranty Service for Latin America attached
hereto as Attachment F; and in such other countries and locations
in accordance with such SOWs and Transactions Documents as QMS and
IBM/Local IBM agree to and enter into from time to time.
5.0 Payment Terms
-------------
5.1 Amounts are due within thirty (30) days of receipt of an invoice
and are payable as IBM/Local IBM or QMS specifies in the invoice.
IBM and QMS agree to pay accordingly, including any late payment
fee.
5.2 Any amounts not paid within the terms stated on the IBM/Local IBM
or QMS invoice will be subject to a late payment fee that will be
equal to 2% per month, based on the outstanding balance, until paid
in full, or the highest rate allowed by law, whichever is less.
5.3 Payment by IBM/Local IBM or QMS shall not be construed as
acceptance of any improper, nonconforming, defective, or unsuitable
QMS deliverables and/or parts or IBM deliverables, nor shall it be
construed as a waiver of any of IBM/Local IBM's or QMS's rights or
remedies under this Agreement.
6.0 Taxes
-----
If any Authority imposes a duty, tax or fee (excluding those based
on IBM/Local IBM's net income) on services performed pursuant to an
SOW for Warranty Service or Transaction Document for Warranty
Service, QMS agrees to pay that amount as IBM/Local IBM specifies
in the invoice.
7.0 Product Additions/Deletions/Withdrawals
---------------------------------------
7.1 If either party requests the addition of Products, the requesting
party will provide the other party with such request in writing.
Upon acceptance of the request by the other
8
<PAGE>
party, the requesting party will allow up to one hundred twenty
(120) days from date of request for such Products to be added to
this Agreement by way of a written amendment to the Eligible
Product List.
7.2 QMS agrees to provide one hundred twenty (120) days prior written
notice to IBM/Local IBM of QMS's intent to delete from this
Agreement or withdraw from the marketplace any of the Products
listed in the Eligible Product List and identify all Products
intended for deletion or withdrawal.
7.3 If Products are serviced under an IBM/Local IBM maintenance
agreement between IBM/Local IBM and the end user, QMS agrees to
provide for parts availability and technical support, including QMS
deliverables, for a period of five (5) years beyond the deletion or
withdrawal date of the Products.
8.0 Failure to Deliver/Rights to Technical Data
-------------------------------------------
8.1 QMS will, during the term of this Agreement, maintain and deliver
to IBM/Local IBM all QMS deliverables and QMS copyrighted
Documentation relating to parts, Product repairs, repair vendors,
training, and support of the QMS Products listed in the Eligible
Product List. Should QMS at any time be unable to provide IBM/Local
IBM with the required support, QMS deliverables, or parts, QMS will
grant to IBM/Local IBM or will obtain for IBM/Local IBM the right
to obtain and use the QMS deliverables and/or parts as necessary to
enable IBM/Local IBM to provide Product Services to the QMS end
user in accordance with the Agreement.
8.2 QMS grants to IBM/Local IBM, for the sole purpose of performing it
obligations under this Agreement:
1. an irrevocable, non-exclusive, worldwide, royalty-free license
to use, execute, reproduce, display, perform, and distribute
(internally and externally) copies of, and prepare derivative
works based upon the QMS copyrighted Documentation referenced in
Section 8.1 above; and,
2. the right to authorize others to do any of the foregoing in
support of IBM/Local IBM's installed base of Products in the
event that QMS fails to deliver as described in Section 8.1
above.
8.3 Other than preexisting materials contained therein, QMS
represents and warrants the originality of the software/microcode
provided to IBM/Local IBM under this Agreement, and that no portion
of such software/microcode or its use or distribution, violates or
is protected by any copyright or similar right of any third party.
As to such preexisting materials, QMS represents and warrants that
QMS has acquired full, clear and unencumbered title thereto, or
that QMS has the right to grant IBM/Local IBM the license set forth
in Section 8.2 above.
9.0 QMS Warranties
--------------
9
<PAGE>
9.1 QMS warrants that all QMS parts and QMS copyrighted Documentation
shall be free of defects in material, workmanship, or design.
Notwithstanding the foregoing, the parties agree that a breach will
not result from a material defect in software, if QMS discloses the
known material defect in software by providing IBM notice
containing a description of the material defect in software and any
known corrective action with respect to the defect.
9.2 By its signature below, QMS represents and warrants that it has all
necessary corporate power and authority to execute or direct the
execution of this Agreement (including without limitation Part 1-
General, Part 2 - Country Unique Terms, SOWs, Attachments and
Transaction Documents) on its own behalf, as well as on behalf of
its Subsidiaries and Related Companies which may perform certain
obligations hereunder; to perform its obligations hereunder; and to
consummate the transactions contemplated hereby. If any portion of
this Agreement is signed by QMS's authorized agent, QMS will
concurrently provide IBM/Local IBM with a letter stating that such
agent is authorized to sign such document, which letter shall be
attached as an exhibit to such document. This Agreement has been
duly authorized by all required corporate action and no other
action on the part of the QMS is necessary to authorize the
execution and performance hereof.
10.0 IBM Warranties
--------------
10.1 IBM/Local IBM warrants that it will perform the services using
reasonable care and skill in accordance to current description of
the services contained in the Agreement, SOW, or Transaction
Document. In the event IBM/Local IBM receives notice from QMS of a
material defects in software pursuant to Section 9.1 above,
IBM/Local IBM shall perform the corrective action as contained in
the notice. To the extent that the corrective action contained in
the notice provided by QMS, IBM/Local IBM does not warrant that it
will correct such defects. Unless specified otherwise in writing,
IBM deliverables are provided without warranties of any kind.
IBM/Local IBM is not providing any Year 2000 services (i.e., Year
2000 assessment, conversion or testing) under this Agreement.
IBM/Local IBM shall not be responsible for its failure to perform
any of its obligations (including, for example, to meet service
levels) under this Agreement, if such a failure is the result,
directly or indirectly, of the inability of 1) a customer's or 2)
a third party's or 3) QMS's Products inability to correctly
process, provide and/or receive data with other Products or
deliverables. IBM/Local IBM assumes no responsibilities or
obligations to cause Products or deliverables to accurately
exchange date data with other Products under this Agreement.
10.2 By its signature below, the IBM represents and warrants that it
has all necessary corporate power and authority to execute or
direct the execution of this Agreement (including without
limitation Part 1 - General, Part 2 - Country Unique Terms, SOWs,
Attachments and Transaction Documents) on its own behalf, as well
as on behalf of its Subsidiaries and Related Companies which may
perform certain obligations hereunder; to perform its obligations
hereunder; and to consummate the transactions contemplated
10
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hereby. If any portion of this Agreement is signed by IBM's
authorized agent, IBM will concurrently provide QMS with a letter
stating that such agent is authorized to sign such document, which
letter shall be attached as an exhibit to such document. This
Agreement has been duly authorized by all required corporate
action and no other action on the part of the IBM is necessary to
authorize the execution and performance hereof.
11.0 Confidential Information
------------------------
QMS understands that IBM/Local IBM does not wish to receive from
QMS any information which may be considered confidential or
proprietary to QMS or any third party. Except as provided herein,
QMS represents and warrants that no information has been provided
to IBM/Local IBM that is confidential or proprietary to QMS or any
third party and IBM/Local IBM will not be obligated to retain in
confidence or restrict IBM/Local IBM's use of any information
received from QMS. In the event it becomes necessary to provide or
exchange information that is deemed confidential or proprietary to
either party, such provision or exchange shall take place in
accordance with a mutually agreed upon Confidential Disclosure
Agreement (the CDA). QMS and IBM/Local IBM agree to act in good
faith and enter into supplements to the CDA on an annual basis,
which will cover disclosure of information received in the normal
course of business. In the event QMS and IBM/Local IBM fail to
enter into such a supplement timely, the immediately preceding
supplement shall remain in full force and effect, to the extent
such supplement covers such information. The CDA and all
supplements thereto shall not be incorporated herein by reference
and shall not be subject to the limitations of liability contained
herein. Further, the CDA and all supplements thereto shall not be
considered a SOW or a Transaction Document.
With respect to QMS customer information, including without
limitation, the identity of the customers comprising QMS's customer
database, IBM agrees to treat such customer information as
confidential information in accordance with the mutually agreed
upon CDA and not to use such customer information to solicit sales
of IBM or third party products competitive with the products which
are the subject of this Agreement to such customers.
11.0 Most Favored Customer Benefits
------------------------------
QMS warrants to IBM/Local IBM that the prices quoted to IBM/Local
IBM by QMS do not exceed those offered by QMS to any other
unaffiliated entities under similar terms and conditions. If,
during this Agreement, QMS sells such items for lower prices to any
other entity, IBM/Local IBM will be offered the benefit of such
lower prices under the same terms and conditions. QMS agrees to
notify IBM/Local IBM in writing of such lower prices within ten
(10) calendar days after being made available to others.
12.0 Public Disclosure
-----------------
Neither party will disclose the terms and conditions of this
Agreement without the express written consent of the other, except
as may be required by law or governmental
11
<PAGE>
rule or regulation, or as explicitly stated otherwise in this
Agreement, or to establish a party's rights under this Agreement;
provided, however, that if either party seeks to disclose for
reasons not requiring the other party's consent, the disclosing
party will limit the disclosure to the extent required and will
allow the other party to review the information disclosed and will
apply, where available, for confidentiality, protective orders and
the like. Any review by either party under this Section will not be
construed to make such party responsible for the content of the
disclosure. Notwithstanding the above, IBM/Local IBM or QMS may
disclose the terms and conditions of this Agreement to a Related
Company.
13.0 Relationship of the Parties
---------------------------
Neither party is the other party's legal representative nor agent
for any purpose, and neither party has the authority to, and shall
not make, any warranties or representations or create any
obligations on behalf of the other party.
14.0 Amendments and Changes
----------------------
1. This Agreement may not be amended, modified, or altered except
in writing and duly executed by the parties so bound.
2. IBM or QMS may request a change to this Agreement. Any change
in this Agreement may result in a change in the charges or other
terms under this Agreement. Either party, if requested by the
other, will submit all change requests in writing.
3. To formalize a mutually agreed upon change, IBM/Local IBM will
prepare a written amendment for signature by both parties which
will describe the agreed upon change and set forth any
modifications to the terms of this Agreement.
4. In the event of an inconsistency between Amendments and/or
SOWs, the wording in the most current Amendment will prevail
over any inconsistent wording in previous Amendments or SOWs.
15.0 Interfering Code
----------------
QMS represents and warrants that QMS deliverables produced under
this Agreement will not knowingly contain any code, programming
instructions, or set of instructions that is intentionally
constructed with the ability to damage, interfere with, or
otherwise adversely affect computer programming code, data files,
or hardware without the consent and intent of the computer user.
QMS will establish and enforce commercially reasonable procedures,
which shall be reviewed with IBM/Local IBM at IBM/Local IBM's
request, to prevent any such code, programming instruction, or set
of instructions from being incorporated by any employee of or
subcontractor to QMS into any QMS deliverable and shall promptly
notify IBM/Local IBM of any knowledge or suspicion of QMS that any
such materials have been incorporated in the QMS deliverables.
12
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16.0 Advertising and Use of Trademark
--------------------------------
Provided that pricing, terms and conditions are not disclosed, QMS
and IBM/Local IBM may each, solely for the purpose of performing
its obligations under this Agreement, communicate to individual
third parties that IBM/Local IBM is a services provider for QMS,
and describe to third parties the services provided hereunder.
However, neither party will communicate such information to the
general public by any means, such as public broadcast, printed
brochures, media advertisements, electronic communications,
including but not limited to the Internet and World Wide WEB and
other such communications to the general public, without the prior
written consent of the other party.
Neither party shall use the other party's trademark without the
express written consent of the other party, and nothing contained
herein is intended to, or shall be construed to grant either party
any license or right regarding the other party's trademark, trade
name, service mark, or logo.
17.0 Indemnification
---------------
Each party will indemnify and hold the other harmless from any and
all claims, suits, actions, liabilities and costs of any kind,
including and without limitation, reasonable attorney fees and all
cost of litigation arising out of or pertaining to any willful or
negligent act or omission or failure to perform any obligations
hereunder.
Each party further agrees to indemnify the other from, and hold
each other harmless against, any and all claims, actions,
liabilities, costs (including reasonable attorney fees) and
expenses arising out of or in any way related to claims of patent,
trademark, or copyright infringement or trade secret
misappropriation arising out of or in any way related to Products,
parts or deliverables (including diagnostic software) provided
under this Agreement.
18.0 Limitation of Liability
-----------------------
QMS and IBM/Local IBM's entire liability and QMS's and IBM/Local
IBM's exclusive remedy are set forth in this Section 18.0.
Notwithstanding the foregoing, QMS and IBM agree that the
limitation of liability contained in this Section 18.0 shall not
limit QMS's or IBM/Local IBM's remedies for any breach of the CDA
and supplements thereto.
Under no circumstances is QMS or IBM/Local IBM liable for economic
consequential damages (including lost profits or savings) or
incidental damages, even if the other party is informed of their
possibility.
Both parties liability for actual damages, for any claims
whatsoever, will be limited to one hundred thousand (100,000) USD
or lead country currency equivalent, except for claims by QMS or
IBM/Local IBM for bodily injury or damage to real property or
tangible personal property for which either party is legally
liable. Under no
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circumstances will either party be liable for any damages claimed
by the other party based on any third party claim.
The aforesaid limitations will apply, regardless of the form of
action, whether in contract or in tort, including negligence.
19.0 Gifts or Gratuities
-------------------
Both parties agree not to give or offer gifts or gratuities of any
type to the other party's employees or members of their families.
Gifts include entertainment, personal services, favors, discounts,
or other preferential treatment of any kind. Such gifts or
offerings may be construed as attempts to improperly influence the
business relationship between the parties.
20.0 Employees
---------
In no event will employees or agents of either party be considered
employees or agents of the other party. Both parties assume full
responsibility for the actions of their respective personnel under
this Agreement and shall be solely responsible for their respective
supervision, daily direction and control, wage rates, withholding
income taxes, disability benefits, or the manner and means through
which the work under this Agreement will be accomplished.
21.0 Commercial Insurance
--------------------
QMS and IBM/Local IBM will maintain comprehensive general liability
insurance for claims for damages because of bodily injury
(including death) and property damage caused by or arising out of
acts or omissions of QMS's or IBM/Local IBM's employees. Such
insurance shall be in the combined single amount of not less than
one million (1,000,000.00) USD or lead country currency equivalent
and shall name the other party as an additional insured. A
certificate of insurance shall be furnished to each party upon
request. Both parties will also maintain Worker's Compensation
insurance in the statutory amount. In no event shall the insurance
be canceled or materially changed without prior written notice to
the other party.
22.0 Force Majeure
-------------
Neither party will be considered in default or liable for any delay
or failure to perform any provision of this Agreement if such delay
or failure arises directly or indirectly out of an act of God, acts
of the public enemy, freight embargoes, strikes, quarantine
restrictions, unusually severe weather conditions, insurrection,
riot, and other such causes beyond the reasonable control of the
party responsible for the delay or failure to perform, provided the
affected party notifies the other party within fifteen (15)
calendar days of the occurrence.
23.0 Order of Precedence
-------------------
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In the event of an inconsistency between terms of the various
documents, the order of precedence shall be:
1. Statement of Work ("SOW")
2. Transaction Document (including Local Transaction Documents)
3. Body of this Agreement ("PART 2 - COUNTRY-UNIQUE TERMS"),
prevails over ("PART 1 -GENERAL").
24.0 Severability
------------
In the event that any term or condition contained in this Agreement
is held to be invalid or unenforceable, the remaining terms and
conditions shall be unaffected and shall continue to inure to the
benefit of and to be binding upon the parties hereto.
25.0 Successors
----------
The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the parties and their respective
successors, assigns and legal representatives.
26.0 Limitation on Actions
---------------------
Neither party will bring a legal action more than two years after
the cause of action arose unless otherwise provided by local law
without the possibility of contractual waiver or limitation.
27.0 Assignment
----------
IBM/Local IBM and QMS may assign or delegate all or part of this
Agreement, SOW or Transaction Document only with prior written
consent except that each party may assign or delegate to their
respective subsidiaries or Related Companies without the prior
written consent of the other party.
28.0 Compliance with Governmental Legal Requirements
-----------------------------------------------
Each party agrees to comply and do all reasonable things necessary
to help the other party comply with all country and local laws,
regulations, and ordinances relative to this Agreement.
29.0 Waiver
------
Failure by either party to insist in any instance upon strict
conformance by the other party to any term herein or failure by
either party to act in the event of a breach shall not be construed
as a consent to or waiver of any subsequent breach of the same or
of any other term contained herein.
15
<PAGE>
30.0 No Conflicts
------------
Each party hereby represents and warrants that it has the authority
to enter into and perform this Agreement and that the execution,
delivery, and performance of this Agreement does not:
1. violate any provision of law, statute, rule or regulation to
which this Agreement is subject; or,
2. violate any order, judgment, or decree applicable to that
party; or,
3. conflict with, result in a breach or default under, or cause the
termination of, any term or condition of any provision of any
court order, trust document, agreement, document or other
instrument or commitment which is binding on that party.
31.0 Nonexclusive Agreement
----------------------
Nothing in this Agreement will prohibit either party from
performing like or similar services for any other person or entity.
32.0 Governing Law and Forum
-----------------------
Part 1 - General of this Agreement shall be governed by the law of
the lead country set forth in Part 2, without reference to
conflicts of law principles. SOWs shall be governed i) if issued
with respect to work performed in any country included on the
attached list of "EMEA Countries," by French law; or ii) if issued
with respect to work performed in countries not included on the
attached list of "EMEA Countries," by the law of the country in
which the SOW is issued. Country Unique Terms, purchase orders,
Attachments, and Transaction Documents (including Local Transaction
Documents) shall be governed by the law of the country in which the
transactions contemplated thereunder are performed. The "United
Nations Convention on Contracts for the International Sale of
Goods" does not apply.
33.0 Complete Agreement
------------------
This Agreement, its Attachments and relevant Transaction Documents
constitute the entire Agreement and understanding of the parties
with respect to the subject matter hereof, and no representations,
terms, or agreements, other than those set forth herein have been
relied upon or shall be binding upon any of the parties or imputed
to any of them. Once signed, 1) unless prohibited by local law or
specified otherwise, any reproduction of this Agreement or any of
its constituent documents, made by reliable means (for example
photocopy or facsimile) is considered an original and 2) all
Products and Product Services under this Agreement are subject to
it. This Agreement is a legal, valid, and binding obligation,
enforceable against the QMS and IBM in accordance with its terms
and subject to applicable bankruptcy and insolvency laws and to
general equitable principles.
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34.0 Third Party Beneficiary
-----------------------
This Agreement is not intended to benefit any party except
IBM/Local IBM and QMS. It is the parties express intent that this
Agreement is not a third-party beneficiary contract.
35.0 Notices
-------
Any and all notices given pursuant to this Agreement must be
provided in writing at the physical address or fax number provided
below:
IBM Corporation QMS, Inc.
Attention: Michael T. Kreager, Attention: Ginger C. Smith,
Program Director Director, Strategic Planning
Address: 6300 Diagonal Highway Address: One Magnum Pass
Boulder, CO 80301 Mobile, AL 36618
Fax #: (303) 924-5867 Fax #: (334) 639-3311
IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her
signature and seal or has caused this instrument to be executed (and its seal to
affixed hereto) by its officer(s) or partner(s) thereunto duly authorized as of
the day and date set forth below their respective signature.
Agreed to: Agreed to:
IBM Corporation QMS, Inc.
By /s/ James N. Fox By /s/ Edward E. Lucente
---------------------------- ----------------------------
Authorized signature Authorized signature
Name: James N. Fox Name: Edward E. Lucente
Vice President, Availability Chairman
Services One Magnum Pass
6300 Diagonal Highway Mobile, AL 36618
Boulder, CO 80301
Date: January 5, 2000 Date: January 5, 2000
--------------------------- ------------------------------
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PART 2 - COUNTRY UNIQUE TERMS
IBM International Technical Support Agreement
The terms of this Agreement apply for all countries, except that the
following terms are country amendments which replace or modify the General Terms
in Part 1 for the identified country. All General Terms which are not changed by
these amendments remain in effect as written.
EMEA - LIST OF THE IBM WORLD TRADE EMEA COUNTRIES
ABU DHABI - GUERNSEY - POLAND
AJMAN - GUINEA - PORTUGAL
ALBANIA - HUNGARY - QATAR
ALGERIA - ICELAND - RAS EL-KHAIMA
ANGOLA - IRAN - REUNION
ARMENIA - IRAQ - ROMANIA
ASCENSION ISLAND - IRELAND - RUSSIA/CIS
AUSTRIA - ISLE OF MAN - RWANDA
AZERBAIJAN - ISRAEL - SAUDI ARABIA
BAHRAIN - ITALY - SCILLY ISLES
BELARUS - IVORY COAST - SEMEA ITALY
BELGIUM - JERSEY - SENEGAL
BENIN (EX-DAHOMEY) - JORDAN - SERBIA
BOSNIA - HERZEGOVINA - KAZAKHSTAN
SEYCHELLES - BOTSWANA - KENYA
SHARJAH - BULGARIA - KIRGHIZIA
SIERRA LEONE - BURKINA FASO (EX-UV)
KUWAIT - SLOVAK REPUBLIC
BURUNDI - KYRGYZSTAN - SLOVENIA
CABO VERDE - LATVIA (BALTIC CTRY)
SOMALIA - CAMEROON - LEBANON
SOUTH AFRICA - CENTRAL AFRICAN REP
LESOTHO - SPAIN - CHAD
LIBERIA - ST. HELENA - COMOROS
LIBYA - SUDAN - CONGO
BRAZAVILLE - LIECHTENSTEIN - SWAZILAND
CROATIA - LITHUANIA (BALTIC)
SWEDEN - CYPRUS - LUXEMBOURG
SWITZERLAND - CZECH REPUBLIC - MACEDONIA
SYRIA - DENMARK - MADAGASCAR
TADJIKISTAN - DJIBOUTI - MALAGASY
TANZANIA - DUBAI - MALAWI
TOGO - EGYPT - MALI
TUNISIA - ESTONIA (BALTIC)
MALTA - TURKIYE - EQUATORIAL GUINEA
MARTINIQUE - TURKMENIA - ERITREA
MAURITANIA - TURKMENISTAN - ETHIOPIA
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MAURITIUS - UZBEKISTAN - FINLAND
MAYOTTE - UGANDA - FRANCE
MOLDOVA - UKRAINE - FRENCH GUYANA
MONACO - UMM AL QIWAN - FRENCH POLYNESIA
MOROCCO - UNITED ARAB - EMIRATES
FUJAIRA - MOZAMBIQUE - UNITED KINGDOM
FYROM (Former Yugoslav - NAMIBIA - VANUATU
Republic of Macedonia)
GABON - NETHERLANDS - WALLIS ET FUTUNA
GAMBIA - NEW CALEDONIA - YEMEN-NORTH
GEORGIA - NIGER - YEMEN-SOUTH
GERMANY - NIGERIA - YUGOSLAVIA (EX)
GHANA - NORTHERNIRELAND
ZAIRE - GIBRALTAR - NORWAY
ZAMBIA - GREECE - OMAN
ZIMBABWE - GUADELOUPE - PAKISTAN
GERMANY
- -------
The parties mutually agree to set forth any additional terms that
shall apply for Germany at such time as the parties enter into SOWs
and Transaction Documents for the performance of Product Services
in Germany.
IRELAND
- -------
The parties mutually agree to set forth any additional terms that
shall apply for Ireland at such time as the parties enter into SOWs
and Transaction Documents for the performance of Product Services
in Ireland.
ITALY
- -----
The parties mutually agree to set forth any additional terms that
shall apply for Italy at such time as the parties enter into SOWs
and Transaction Documents for the performance of Product Services
in Italy.
PORTUGAL
- --------
The parties mutually agree to set forth any additional terms that
shall apply for Portugal at such time as the parties enter into
SOWs and Transaction Documents for the performance of Product
Services in Portugal.
TURKIYE
- -------
The parties mutually agree to set forth any additional terms that
shall apply for Turkiye at such time as the parties enter into SOWs
and Transaction Documents for the performance of Product Services
in Turkiye.
ASIA PACIFIC
- ------------
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AUSTRALIA
- ---------
The parties mutually agree to set forth any additional terms that
shall apply for Australia at such time as the parties enter into
SOWs and Transaction Documents for the performance of Product
Services in Australia.
INDONESIA AND MALAYSIA
- ----------------------
The parties mutually agree to set forth any additional terms that
shall apply for Indonesia and Malaysia at such time as the parties
enter into SOWs and Transaction Documents for the performance of
Product Services in Indonesia and Malaysia.
PAKISTAN
- --------
The parties mutually agree to set forth any additional terms that
shall apply for Pakistan at such time as the parties enter into
SOWs and Transaction Documents for the performance of Product
Services in Pakistan.
PEOPLE'S REPUBLIC OF CHINA (Additional Terms)
- ---------------------------------------------
The parties mutually agree to set forth any additional terms that
shall apply for People's Republic of China at such time as the
parties enter into SOWs and Transaction Documents for the
performance of Product Services in People's Republic of China.
NORTH AMERICA
- -------------
UNITED STATES OF AMERICA
- ------------------------
Section 32.0 Governing Law and Forum (Additional Term)
The laws of the State of New York govern the Agreement and SOW.
Both parties expressly waive their right to a trial by jury for an
action resulting from the Agreement and/or SOW.
CANADA
- ------
Section 10.0 IBM Warranty (Additional Term)
Warranties include both warranties and conditions.
Section 18.0 Limitation of Liability (Additional Term)
Both parties liability for bodily injury (including death) or
damage to real property and tangible personal property shall be
limited to that caused by the other party's negligence. Except for
breaches of the CDA and any supplements thereto, which shall not be
subject to the limitation of liability contained in this provision,
neither party is liable for any indirect damages and harm to
records and data.
20
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This "Limitation of Liability" section applies regardless of the
basis on which either party is entitled to claim damages from the
other party, including, but not limited to:
1. breach of contract, even if fundamental breach; or
2. tort, including, but not limited to, negligence or
misrepresentation.
Section 32.0 Governing Law and Forum (Replacement Term)
The laws in the Province of Ontario govern this Agreement.
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<PAGE>
Attachment A - Statement of Work (SOW)
ITSA - IBM and QMS - WARRANTY SERVICES
IBM MACHINE TYPE - 0064
Agreement Number: 99SBD155
1. GENERAL INFORMATION
1.1 Purpose
The purpose of this SOW is to describe the scope of work as it relates to QMS,
Inc. warranty services to be provided by IBM. It also sets forth the work
related responsibilities of both parties, in connection with IBM providing
services on behalf of QMS in support of QMS end-user customers, in the USA.
1.2 Scope
IBM will provide Warranty maintenance services on behalf of QMS on products
listed in Exhibit A, "Eligible Products List". The "Eligible Products List" will
be revised from time to time by mutual agreement of the parties as QMS engages
IBM to provide the availability of service on additional QMS end-user customers
or products.
In the event Products or attachments that are not included in the Eligible
Product List (Exhibit A) are diagnosed as the cause of system failure, the IBM
Customer Engineer (CE) will contact QMS to get approval for continued work. This
work will be done at an hourly rate as described in 7.2 of this SOW.
In the event end-users request additional work be performed for which the CE was
not dispatched, the CE will contact the IBM Call Center, the IBM Call Center
will contact QMS for approval. Upon approval, the IBM Call Center will open a
new call using the standard call management methodology, described in (Exhibit
B) - "Call Flow". CEs will not perform additional work without prior approval
from an authorized representative of the IBM Call Center.
There may be requirements for additional or customized services that are not
covered by this SOW. Separate Agreements and Attachments will be used to set
forth the terms and conditions and charges for services not covered hereunder.
If an end-user requests services that are outside the scope of this Agreement,
the IBM Call Center will advise the end-user of (T&M) time and material costs,
IBM will bill the end-user.
Page 1 of 34
<PAGE>
1.3 Service Criteria
1.3.1 Software
Software support will be done through the IBM technical support call center. IBM
retains the right to refuse support on software if the customer is unwilling to
submit a file to the call center for testing purposes or allow IBM to
"re-create" the customer problem in one of the technical support labs. Any
unique software that is required to be tested by the call center group will be
made available by QMS or the purchase of such software will be invoiced to QMS
on a periodic basis. IBM agrees to get permission from QMS before performing any
customer recreates that require a software purchase before performing the
testing. For the purposes of this SOW, software is defined as any application
running on the customer's systems that was not provided as a part of the
original printer purchase or has not been subsequently provided to the customer
by QMS.
1.3.2 Service Locations
IBM reserves the right to engage QMS, to develop mutually agreeable terms, in
providing service support on products at QMS end-user customer locations where
the implementation of such service support is reasonably deemed by IBM to be
cost prohibitive, due to the geography. Service support at such QMS end-user
customer locations by IBM will be contingent upon the successful negotiation, on
a case-by-case basis, of a mutually agreeable service support compensation
arrangement.
A current list of the IBM Service Locations for the United States is listed in
exhibit E, of this SOW. Such locations may be increased from time to time upon
written notice from IBM to QMS and may be decreased from time to time upon not
less than ninety (90) day's prior written notice from IBM to QMS.
1.3.3 Engineering Changes
QMS will notify IBM immediately of all safety issues and safety related
engineering changes. Should IBM determine or discover a safety related
engineering or manufacturing defect, IBM may require QMS to resolve the defect
prior to the resumption of service.
Safety Engineering Change kits shall be provided on the first day of their
general availability, at no cost to IBM, in quantities sufficient to match the
IBM supported installation base. Safety Engineering Changes will be installed by
IBM within reasonable time frames as agreed to by QMS and IBM. If the Safety
Engineering Change is installed in conjunction with a service call, there will
be no charge to QMS, assuming it takes 30 minutes or less to install. For
installations in excess of 30 minutes or for non-safety Engineering Changes they
will be installed at the applicable hourly rate charge per Section 7.2 of this
SOW.
1.3.4 IBM Warranty
IBM warrants that it will perform services hereunder in a workmanlike manner.
Service repairs are warranted for a period of 60 days for the same problem on
the same machine serial.
Page 2 of 34
<PAGE>
Misuse, accident, unsuitable operating environment, modification, failure caused
by a product for which IBM is not responsible, or operation outside of
manufacturer's specifications may void this warranty. IBM does not warrant
uninterrupted or error-free operation.
IBM is not providing any Year 2000 services (for example, Year 2000 assessment,
conversion or testing) hereunder. IBM shall not be responsible for its failure
to perform any of its obligations (including, for example, to meet service
levels) under this Agreement, if such failure is the result, directly or
indirectly, of the inability of 1) a customer's or 2) a third party's or 3) your
product's inability to correctly process, provide and or receive data with other
products or deliverables to accurately exchange data with other products under
this agreement.
THIS WARRANTY REPLACES ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
1.3.5 Exclusions
Warranty maintenance services do not cover: product engineering change, product
level control, application software support, restoring application software and
customer related data files, or service for certain parts that are not subject
to failure through normal wear and tear, such as frames or covers. In addition,
maintenance services do not cover service of a product damaged by: misuse,
accident, modification, unsuitable physical or operating environment, improper
maintenance by the end-user, or failure caused by a product for which IBM is not
responsible, Repair or replacement work or increase in service time as a result
of damage or loss resulting from accident, casualty, transportation, neglect,
misuse or abuse, operator error, failure of proper management or supervision,
failure of electrical power, air conditioning or humidity control, use of
supplies not approved by the original manufacturer of the Product, or causes
other than ordinary prudent use for purposes for which any item of Product was
designed, except for neglect acts or omissions of IBM employees or agents; These
activities fall outside the definition of service, and as such will be subject
to time and materials charges per section 7.2 of this SOW. The IBM Call Center
will make every attempt to identify these conditions, when talking with the
end-user during call placement, to eliminate unnecessary CE on-site visits.
For end-users on the Full Service Care Plan, in addition to all parts, labor and
travel expenses being covered, one scheduled PM per year is included and normal
wear and tear items, such as, fusers, transfer rollers, felt cleaners, etc. are
also included as part of the maintenance. Toner and Paper are not included.
1.3.6 Evaluation Units
For selected new products, IBM may require that QMS provide evaluation products
for training and other support purposes. QMS agrees to provide one set each of
these products to each of IBM's five (5) training facilities. Such products will
remain the property of QMS, but will remain in the care and control of IBM until
this SOW or the Agreement is terminated.
1.4 Rights to Materials
QMS hereby grants to IBM a license to use preexisting training information ("QMS
Information") provided to IBM. Such license to the QMS Information and
derivative works is provided solely for the purpose of fulfilling the
obligations hereunder and IBM shall not use it
Page 3 of 34
<PAGE>
for any other purpose. This applies to currently marketed products only, as
shown in Exhibit A, "Eligible Products List". IBM may develop and produce
training materials and documentation to be used by IBM in which IBM retains all
rights, title, and interest.
Page 4 of 34
<PAGE>
1.5 Product Access
QMS agrees to inform the end-users of the eligible products that, to obtain
service, the end-user must provide IBM with full, free, and safe access to the
Products as identified in QMS's product specification documentation.
1.6 Project Implementation and Management
IBM will assign an Implementation Project Manager to ensure all startup
activities are implemented in accordance with this SOW. The Implementation
Project Manager will: ensure QMS familiarization with services, work with QMS to
integrate daily operating procedures, establish processes for call handling,
tracking, and financial reporting, establish the operational systems to support
those processes.
A Project Manager will be a single point of contact for QMS over the life of the
SOW. The Project Manager will: direct IBM support for QMS, monitor and ensure
service levels are achieved, ensure timely and accurate reporting to QMS, and
resolve any problems that may occur.
In the event QMS should request full-time on-site management support, QMS will
either provide call volume estimates that would justify such an assignment, or
agree to pay an additional fee for such services. If the estimates warrant an
assignment, IBM will assign a full-time Project Manager, and actual call volumes
will be assessed on a quarterly basis to verify the need for continuation of the
assignment. This full-time, on-site Project Manager will be responsible for all
operational and service aspects of this Agreement. IBM and QMS will mutually
agree when volumes or complexities justify such an assignment.
Upon request, IBM will provide dedicated project management services for project
and/or scheduled work. Project work and scheduled work are defined as service or
installation work which involves quantities greater than 100 units/locations or
network services. The project management fee will be negotiated on an
opportunity by opportunity basis. A minimum of 30 business days notice will be
required for implementation, as initiated by QMS, of project management
services. This assignment differs from the Project Manager assignment described
in the preceding paragraph in that it is limited to a specific project.
1.7 Service in Private Residences
QMS agrees that when IBM is requested to service Products in a private
residence, a person 18 years of age or older must make the appointment and be
present during the entire duration of the service incident. In the event the CE
arrives on-site and such person is not present, the call will be closed and QMS
will be invoiced for the incident. The CE will subsequently return via a new
service call if dispatched.
1.8 Safety
IBM agrees to service standard available products in a safe environment. In the
event IBM determines that an unsafe condition exists in a product to be serviced
or the environment in which the product is located, IBM will suspend service and
notify QMS of the problem. IBM will not resume service until the condition has
been corrected.
IBM reserves the right to decline support for Products serviced under this
Agreement in the event such Product is identified as not being certified by
Underwriters Laboratory (UL) or equivalent, or lacks the appropriate safety and
regulatory labeling.
Page 5 of 34
<PAGE>
1.9 IBM Employee Safety and Security
For reasons of safety and security, QMS agrees that IBM service representatives
will not work alone in the end-user customer site and will require an authorized
representative of the end-user customer be present when service is performed.
IBM will notify QMS of any condition encountered that may adversely affect the
safety and/or security of IBM employees or assets, and service will not be
performed until the condition is corrected.
1.10 Skills / Training
IBM will dispatch appropriately trained CEs. If, at any time, special training
specific to machines covered under this SOW is required, all costs for such
training will be the responsibility of QMS. QMS will provide train-the-trainer
(T-3) training, on the Products, with no cost to IBM, at QMS's facilities in
Mobile, Alabama. IBM is responsible for the salary, travel and living expenses
of its employees while attending such training sessions.
2. SERVICES
2.1 Documentation
QMS gives IBM the authority to reproduce all copyrighted service documentation
to be used in servicing QMS Products, for currently marketed Products. Such
authority is granted solely for the purpose of providing service information for
IBM to be able satisfy all maintenance service requirements and contractual
commitments to IBM and QMS customers under this Agreement.
2.2 On-Site Service Hours of Coverage
The on-site service hours of coverage applicable for products covered under this
SOW are:
. 5 x 9: Monday through Friday (excluding IBM holidays listed in Exhibit D),
8:00 AM to 5:00 PM, local time.
2.3 Customer Service Response Time
Customer service response time for this SOW is as follows:
Next day response, 5 x 9:
. On-Site Warranty Services that are provided in accordance with the criteria
specified in section 2.4.1 will be provided at the Per Incident rate listed
in section 7.1 of this SOW for all such Products on a labor only basis with
all necessary Parts provided by QMS at no cost to IBM. All Warranty
Maintenance calls for on-site service, received before 16:00, local
prevailing time, will be responded to by the end of the next business day
during the Principle Period of maintenance (PPM) Monday to Friday 8 AM to 5
PM local time, (excluding IBM and QMS holidays) listed in exhibit D. Any
service request that are received after 16:00, local prevailing time, will
be considered received on the next business day and will be covered no
later than the following business day. Within thirty (30) minutes of
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<PAGE>
receipt of a service call request from QMS for hardware Warranty service
IBM shall contact the QMS end-user customer. Repair normally occurs on the
next business day, Monday through Friday (excluding IBM and QMS holidays),
after the call has been received by IBM. However, if IBM is unable to
affect repair by 5:00 PM, local time, the next business day, service is
deferred until 8:00 AM, local time, the next business day, Monday through
Friday (excluding IBM and QMS holidays). Service in progress may be
discontinued at 5:00 PM, local time, and resumed at 8:00 Am, local time,
the next business day, Monday through Friday (excluding IBM and QMS
holidays). On-site service may be mutually scheduled by the assigned
Customer Engineer and QMS.
2.4 Service Offerings
2.4.1 Per Incident Rate Service
IBM provides the availability of on-site labor service to affect repair. This
service is invoiced in accordance with the schedules described in Section 7 -
"Pricing". QMS provides all the parts.
CE travel time to the QMS end-user customer site is included in the per incident
rate.
2.4.2 Hourly Rate Service
IBM provides the availability of on-site labor service to cover any services
outside the scope of this SOW ( e.g. installation service) as mutually agreed to
by IBM and QMS. This service is invoiced based the pricing schedules described
in Section 7.2 "Hourly Rate Service" on the actual CE on-site time at the QMS
end-user customer site (plus CE travel time to the QMS end-user customer site),
at the applicable hourly rate. QMS provides the parts, this process will be more
fully set forth in the Product Support Services SOW which is attached to this
Agreement.
2.4.3 Call Center Service
IBM will provide end-user call handling for QMS callers that telephone the QMS
Technical Support 1-800 number Monday through Friday 8:00AM to 5:00PM local
time, (excluding IBM and QMS holidays) listed in exhibit D. IBM will maintain
appropriate call handling resources to manage the call volumes as indicated in
Section 7.1
2.4.4 Telecommunications Agreement for Call Center Operations
QMS and IBM agree to a "Shared Use" of its 800 numbers in order to facilitate
their customer's contacting IBM. QMS will retain ownership of these 800 numbers
under this agreement that will re-direct the National Field Service 800 and the
Customer Response Center 800 Numbers to the Boulder Lucent switch. IBM agrees to
pay any charges associated with maintaining and moving the termination of these
numbers to Boulder and will agree to be invoiced for any telecommunications
charges that are a result of the QMS customers obtaining technical support from
the IBM/QMS Call Center.
(The "Shared Use Agreement" will be inserted into this SOW once it has been
executed.)
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<PAGE>
3. MAINTENANCE PLAN
3.1 Entitlement for Service
IBM will provide service to QMS Warranty and Maintenance customers for QMS
products using the call flow depicted in Exhibit B.
IBM Call Center personnel are responsible for entitlement and dispatch of calls
on behalf of QMS Warranty and Maintenance customers with QMS products. When the
end-user experiences a problem, the end-user will call the IBM Call Center at
877-778-2687.
IBM will screen all calls to:
. Verify service entitlement based on the end-user supplied machine type and
serial number
. Obtain problem information and log pertinent end-user information
. Perform problem determination and attempt to resolve end-user problem
The IBM Call Center will assess the problem, identify the appropriate FRU/Parts
and place a service call to the field for a Customer Engineer to be dispatched
for next day service.
3.2 Maintenance Roles/Responsibilities
3.2.1 IBM Responsibilities
IBM will provide the availability of a qualified CE to provide service. IBM will
be responsible for using the following recommended call flow, a more detailed
flow is shown is Exhibit B:
The CE will:
1. Identify himself/herself as representing QMS as long as the service is
under warranty
2. Provide on-site maintenance service
3. Obtain parts via the identified process
4. Escalate to QMS, via the IBM Call Center, for approval prior to servicing
any unit where failure was likely caused by end-user customer abuse or
mishandling. This escalation should only take place when the IBM Call
Center and the end-user cannot come to agreement on the cause of the
failure.
5. Utilize IBM technical or network support when necessary
6. Update call with appropriate call coding including identifying the problem
as resolved and using the appropriate QMS cause code.
7. Close resolved problems on a timely basis, via the laptop or RIM device, or
via voice, to the dispatch system
8. Test the product to ensure it performs in accordance with QMS service
manuals and service bulletins.
3.2.2 QMS Responsibilities
1. Provide Product registration base information as available
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<PAGE>
2. Provide entitlement database on a weekly basis
3. Provide access to QMS Engineering support for the IBM Call Center as
required:
A) Response criteria is defined as:
Severity 1 Customer product is down and critical to Customers Operation
= 2 hours
Severity 2 Customer product is not functioning properly Customer is
dissatisfied = 4 hours
Severity 3 Customer product is not functioning properly, not a
significant impact to Customer's operation, Customer is
willing to wait = 72 hours
B) Communications:
IBM Call Center and QMS Engineering support will communicate via E-
mail.
4. Provide appropriate product failure cause codes
3.4 Field Support
IBM shall maintain the necessary expertise, capabilities, and resources to
remotely support CEs to: install, maintain, provide operational assistance, and
provide technical problem resolution on for products on the Eligible Products
List shown in Exhibit A.
The IBM technical escalation process begins whenever a CE requires technical
support. For complex problems, IBM personnel are backed by a four tiered
technical support organization composed of subject matter experts for all IBM
supported Products and solutions. If a CE becomes involved in a highly complex
failure or issue, the CE and his/her management will progressively utilize its
hierarchy of technical experts within both, the organization and
partner/supplier organizations, to resolve the problem. These experts can assist
the CE either through remote consultation or by actually joining the CE on-site.
IBM technical support may engage QMS at any time for assistance. QMS will be
responsible for all costs associated with this support for their people. IBM and
QMS will mutually agree when QMS on-site assistance is required.
4. PARTS SUPPORT
4.1 QMS provides parts, IBM Ships Replacement Part to the End-User
Customer, IBM Ships Replaced Part Back to QMS's Designated Used Part
Return Facility, QMS reimburses IBM for the cost of parts
4.2 Parts Strategy
QMS will provide to IBM all necessary service parts and FRU's to maintain the
Products listed in exhibit A, the Eligible Product List. IBM will return used
parts and report usage on a monthly basis back to QMS. QMS is responsible for
all transportation costs to get parts to IBM's Central Distribution Center. IBM
is responsible for transportation costs to move parts within IBM's distribution
network. IBM will purchase parts from QMS, QMS will process a credit to IBM for
all parts returned to their facility. IBM will provide monthly reports
identifying the inexpensive parts, that are not to be returned to QMS, but were
used in providing the services
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<PAGE>
under this Agreement and QMS will credit IBM for the cost of these parts. QMS
will conduct periodic audits to ensure the validity of IBM's reported parts
usage.
IBM intends to purchase parts for QMS currently marketed products for the 1st
two years after warranty expiration. IBM further intends to provide 1st right of
refusal, to QMS for parts purchases after the initial two year period. The
initial purchase of QMS parts inventory is to be determined by the parties.
Warranty parts for the products to be provided to IBM, by QMS, while the product
is under QMS warranty. IBM and QMS are currently studying the "Consignment of
Maintenance Parts" option and will be jointly decided. Parts processes will be
more fully defined in the Product Support Services SOW, which is attached to
this Agreement.
QMS Responsibilities
. Provide IBM all necessary parts and FRU's in sufficient quantity, based on
the installed inventory of products and the projected parts usage, as
agreed upon between the parties, for the maintenance service of printers
listed in exhibit A Eligible Product List
. Provide parts in a timely fashion
. Provide all part numbers and description of service parts, FRU's and CRU's
. Provide MSDS documentation for all applicable parts
. Identify by part number UPR (used part return) status
. Provide failure analysis cards if applicable
. Provide distributor parts pricing
IBM Responsibilities
. Parts are more fully detailed in the attached SOW - Product Support
Services
. The IBM CE will follow IBM standard parts handling procedures
. Report Warranty parts usage to QMS on a monthly basis, including IBM and
QMS part numbers, customer name, address and date of usage, quantity, cost,
model number and serial number
5. ADMINISTRATIVE SUPPORT
5.1 Dispatch
Service call requests from QMS end-user customers will be received by the IBM
Call Center at 877-778-2687.
5.2 Activity Reporting
IBM CEs will use Quality Service Activity Reporting (QSAR) for service activity
reporting. When recording QSAR entries for QMS, the CE will use appropriate: IBM
machine types, serial numbers and service code.
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<PAGE>
IBM CEs will use Service Code 01 for repair service, Service Code 36 for standby
service, Service Code 08 for preventative maintenance, Service Code 33 for
Engineering changes, Service Code 20 for Installation and Rearrangement services
and Service Code 44 for all other services.
If the call has been properly placed by IBM Call Center the machine type and the
correct machine serial number will be in the dispatch record and will
automatically fill these fields when the CE records the service activity. The CE
should record the entire serial number.
6. Invoices and Detail Report
6.1 Invoices
QMS is responsible for notifying IBM of all billing, invoice, or reporting
requirements necessary for payment of services.
IBM will provide invoice charges based on specific contract requirements, or on
a monthly basis, for all service incidents completed. The invoices for service
incidents completed will include the following information:
1. QMS Corp.
2. Taxing jurisdiction (state) where work was performed
3. Dollar amounts grouped by the state where work was performed, including
applicable taxes
4. Total charges on the invoice
5. All payments to IBM to be sent to:
IBM Corporation
6300 Diagonal Highway
Boulder, CO 80301
Attention: Accounts Receivable
6.1.1 Detail Report
A detailed billing report may be provided along with the invoices, either
electronically or in hard copy. This detailed billing report may include the
following information:
1. QMS Work Order / Call Number
2. IBM Service Call Number
3. End-user name
4. End-user service location
5. Model and Serial Number
6. Labor hours, travel hours, and mileage per service incident
7. Labor, parts, mileage and total charges per service incident
8. Total charges on the invoice, excluding taxes.
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<PAGE>
The parties agree that when applicable, a blanket purchase order will be issued
by QMS for administration and billing purposes only and will not modify or add
to the terms and conditions of the Agreement or this SOW. Any terms and
conditions on the front and reverse side of such purchase order will not apply.
Page 12 of 34
<PAGE>
7. PRICING
7.1 Per Incident Rate Service
-----------------------------------------------------------------------
Description Service Offering Per Incident Rate
-----------------------------------------------------------------------
-----------------------------------------------------------------------
5x9, Next Business Day Per Incident, Labor Only $265.00
-----------------------------------------------------------------------
On-Site Response
-----------------------------------------------------------------------
-----------------------------------------------------------------------
5x9 Calls Taken IBM Call Center $26.00
-----------------------------------------------------------------------
-----------------------------------------------------------------------
A. Guaranteed Minimums:
- -----------------------
- - QMS agrees that they will be invoiced for a minimum of 150 CE incidents per
month
- - QMS agrees that they will be invoiced for a minimum of 1000 Call Center
incidents per month
- - Incidents or calls in excess of these minimums will be invoiced at the rates
above
- - IBM will respond to the first 300 WEB and E-mail communications each month at
no charge, fees for services in excess of 300 calls each month will be
negotiated in good faith by both parties.
- - Initial call center staffing will be based on an anticipated volume of 7,000
calls per month, with an abandon rate of less than five (5) percent, these 7,000
calls to have an average answer time of less than one-hundred and twenty (120)
seconds. The minimum charge for call center activity is $1.3M per year.
B. Criteria for an Additional Incident Charge:
- ----------------------------------------------
- - CE needs to return as result of a new defective part that was supplied by QMS.
C. Product Review
- ------------------
Actual service data will be closely monitored and at the end of the first six
months of service, for each product an evaluation will be made to determine how
closely the products have tracked to the number of repair actions and duration
of service calls based on the technical data provided to IBM by QMS. QMS will
also evaluate the cost of Warranty based on the number of service calls, travel
expense and parts usage as provided by IBM. QMS and IBM will review call center
activity to determine if the expected volumes are being realized. If it is
determined by either party that a price increase or decrease is deemed necessary
this will be negotiated at that time. After the initial review, IBM and QMS will
review performance and pricing on an annual basis to determine whether pricing
actions are required.
7.2 Hourly Rate Service (for the following activities):
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<PAGE>
$125 per hour for Engineering Change Installation (as described in Section
1.3.3)
$125 per hour for labor services on Preventive Maintenance (PM) (Parts not
included)
$125 per hour to provide Operator Training
$125 per hour for product installation (all models)
7.3 TIME AND MATERIALS SERVICE:
If the IBM Call Center determines that services requested are outside the
scope of this Agreement, the IBM Call Center will advise the end-user of
the availability of T&M Services. IBM will provide time and material
maintenance service at the rate of $234.00 per hour with a two (2) hour
minimum including travel plus the cost of parts required to service the
product. Mileage will be billed at IBM's then current rate. (as of
12/21/99, rate is 27.5 cents per mile). IBM will invoice the end-user.
Likewise, if QMS were, for whatever reason, to desire T&M services, IBM
will provide these services at these same rates. In such case, IBM will
invoice QMS directly.
Page 14 of 34
<PAGE>
Exhibit A
Eligible Products List
QMS, Inc. product lines currently eligible for service under this SOW are the
printers and QMS sold options, drivers, printer administration and software
items of the following:
magicolor CX
magicolor2
magicolor 330
magicolor 6100
QMS-2560
QMS-2060
QMS-3260/QMS-4032
QMS-2425
QMS-4060
Pageworks 18
The fuser on the 4060 is considered a consumable and is not covered under this
Agreement.
Note: All QMS models serviced under this SOW will be included in Exhibit A
Page 15 of 34
<PAGE>
Exhibit B - Call Flow
QMS End-user calls the IBM Call Center at 1-800-877-778-2687 and the call is
worked by an IBM Call Center Agent.
- - Agent will collect: customer name, phone number, address, printer type and
serial number.
- - Using data provided by QMS, the agent will entitle the end-user to warranty
service. The IBM Call Center to validate model number, serial number and
warranty start/stop dates. Warranty period is a total of 15 months (3 months
in channel and 12 months in end-user use). If the serial number doesn't
entitle and the customer claims it is under warranty, the IBM Call Center
agent will require that the customer provides proof of purchase.
- - Agent will attempt to resolve the customer problem over the phone entering all
of the call data information into the IBM call tracking tool.
If the IBM Call Center agent believes it is an on-site event.
- - Agent will get a live (real time) approval to dispatch a Customer Engineer.
- - Once the dispatch agent has been reached, the live call agent will transfer
the call to the IBM dispatch work queue.
- - IBM dispatch agent now assumes responsibility for the call.
IBM Dispatch Agent Responsibilities:
- - Dispatch agent will assist the customer with their printer problem continuing
with additional troubleshooting if needed.
- - If the problem is not resolved and an on-site incident is needed, the dispatch
agent will verify the customer information that had been inputted into the IBM
Call Tracking case and initiate a dispatch.
- - Dispatch agents will be responsible for determining what parts are needed to
be ordered by the CE and place those remarks in the IBM Call Tracking tool.
- - Dispatch agents will be responsible for fielding all CE questions and problems
when a CE calls into the Hardware Level 2 support 1-800 number and inputs the
IBM QMS machine type.
Dispatch Procedures
- - Dispatch agent will enter all of the appropriate customer information into IBM
Call Tracking tool that is required to facilitate an on-site event.
- - Dispatch agent will record the dispatch incident number into the IBM Call
Tracking tool case and defer the call for next day service in accordance with
the guidelines set forth in section 2.3.
- - IBM Call Center Agents will retain responsibility for the keeping call records
updated until call closure.
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<PAGE>
If Dispatch Agent and/or Field Engineer cannot resolve the printer problem:
- - Dispatch agent will engage QMS engineering support under the guidelines set
forth in section 3.4. of the SOW.
- - Dispatch agent will retain responsibility for seeing customer service incident
through to problem resolution.
Call Escalation Procedures
- - QMS will provide a contact who will handle any customer complaints that need
to be presented to the QMS corporate level including: product quality
concerns, product replacement/exchange, refunds, or any judgment that IBM
determines to be outside of the scope of their responsibility.
- - If a customer is granted a replacement/exchange printer, QMS will take
ownership of the call once the IBM Call Center has been notified that a
replacement printer has been authorized.
- - The IBM Call Center team leader or designate will be responsible for making
said replacement requests and responsible for informing all parties of the QMS
decision on replacement. Any disagreement regarding printer replacement
policy will be escalated to the QMS escalation contact.
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<PAGE>
Exhibit C
Escalation Procedures
Escalation By IBM to QMS
------------------------
<TABLE>
<CAPTION>
Contact Title Phone
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Charlie Phillips Service Product Manager 334-633-4301 x1205
- -----------------------------------------------------------------------------------------------
Ginger Smith Director of Service Planning 334-633-4301 x1252
- -----------------------------------------------------------------------------------------------
Al Butler VP of Finance and Operations 334-633-4300
- -----------------------------------------------------------------------------------------------
</TABLE>
Escalation By QMS to IBM
------------------------
<TABLE>
<CAPTION>
Contact Title Phone
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Mike Hickey Project Manager 201-967-6421
- ----------------------------------------------------------------------------------------------
Ralph Alston Service Planning Representative 303-924-6820
- ----------------------------------------------------------------------------------------------
Bill Huckaby Program Director, MAS 303-924-6409
- ----------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
Exhibit D
IBM and QMS Observed Holidays
. New Year's Day
. Memorial Day
. Independence Day (July 4)
. Labor Day
. Thanksgiving Day
. Christmas Day
Page 19 of 34
<PAGE>
EXHIBIT - E SERVICE OFFICE LOCATIONS
Designated Locations:
City ST City ST City ST
- ----------------------- -- ------------- --- -------------- --------------
ANCHORAGE AK SCOTTSDALE AZ HUNTINGTON CA
BEACH
JUNEAU AK TEMPE AZ INGLEWOOD CA
ADAMSVILLE AL TUCSON AZ IRVINE CA
ALABASTER AL ALHAMBRA CA LA HABRA CA
BIRMINGHAM AL ANAHEIM CA LA MESA CA
BOAZ AL ANTIOCH CA LA PUENTE CA
DAPHNE AL ARCADIA CA LAGUNA BEACH CA
DEATSVILLE AL ARTESIA CA LAKE ELSINORE CA
DECATUR AL ATASCADERO CA LAKESIDE CA
DORA AL BAKERSFIELD CA LIVERMORE CA
DOTHAN AL BELLFLOWER CA LOMITA CA
FLORENCE AL BOLINAS CA LONG BEACH CA
GRAND BAY AL CAMARILLO CA LOS ANGELES CA
HUNTSVILLE AL CARMICHAEL CA MARTINEZ CA
MIDLAND CITY AL CHICO CA MERCED CA
MOBILE AL CHINO HILLS CA MILPITAS CA
MONTGOMERY AL CITRUS CA MILPITAS CA
HEIGHTS
PLEASANT GROVE AL CONCORD CA MODESTO CA
TALLADEGA AL CORONA CA MORENO VALLEY CA
WOODSTOCK AL COSTA MESA CA MORGAN HILL CA
ALPENA AR CULVER CITY CA NAPA CA
BENTONVILLE AR CYPRESS CA NEWARK CA
CONWAY AR ELTORO CA NEWBURYPARK CA
FORT SMITH AR ELK GROVE CA NORTH CA
HOLLYWOOD
JONESBORO AR FAIRFIELD CA NORTHRIDGE CA
LITTLE ROCK AR FREMONT CA NORWALK CA
MONTICELLO AR FRESNO CA OAKLAND CA
NORTH LITTLE ROCK AR FULLERTON CA ORANGE CA
Page 20 of 34
<PAGE>
PEA RIDGE AR GARDEN GROVE CA ORANGEVALE CA
PINE BLUFF AR GILROY CA PICO RIVERA CA
SPRINGDALE AR GLENDALE CA PINON HILLS CA
CHANDLER AZ HALF MOON BAY CA PITTSBURG CA
GILBERT AZ HAYWARD CA PLAYA DEL REY CA
KINGMAN AZ HAWTHORNE CA PLEASANTON CA
PHOENIX AZ HOLLISTER CA POWAY CA
RANCHO CUCAMONGA CA WALNUT CREEK CA WALLINGFORD CT
REDDING CA WEST COVINA CA WEST HAVEN CT
RESEDA CA WINDSOR CA WASHINGTON DC
RICHMOND CA WOODLAND CA BEAR DE
RIO LINDA CA YUBA CITY CA NEW CASTLE DE
RIVERSIDE CA AURORA CO NEWARK DE
ROSEVILLE CA BOULDER CO OCEAN VIEW DE
SACRAMENTO CA BROOMFIELD CO WILMINGTON DE
SAN DIEGO CA COLORADO CO APOPKA FL
SPRINGS
SAN FERNANDO CA DENVER CO BOCA RATON FL
SANJOSE CA DURANGO CO BROOKSVILLE FL
SAN JUAN CAPISTRANO CA EASTLAKE CO BRYCEVILLE FL
SAN LEANDRO CA FRANKTOWN CO CASSELBERRY FL
SAN MATEO CA GRAND CO CLEARWATER FL
JUNCTION
SAN RAMON CA HYGIENE CO COCOA FL
SANTA ANA CA LITTLETON CO CRAWFORDVILLE FL
SANTA BARBARA CA LONGMONT CO FORT FL
LAUDERDALE
SANTA CLARITA CA LOVELAND CO FORT MYERS FL
SANTA CRUZ CA MORRISON CO GAINESVILLE FL
SANTA ROSA CA PARKER CO GLEN SAINT FL
MARY
SARATOGA CA PEYTON CO HIALEAH FL
SEALBEACH CA WESTMINSTER CO HIGH SPRINGS FL
Page 21 of 34
<PAGE>
SHINGLE SPRINGS CA BETHEL CT HOBESOUND FL
SIMI VALLEY CA CANTON CT HOLLYWOOD FL
SOUTH SAN FRANCISCO CA CHESHIRE CT JACKSONVILLE FL
STOCKTON CA CLINTON CT LAKE PLACID FL
TEHACHAPI CA COLCHESTER CT LAKE WORTH FL
TEMECULA CA COLLINSVILLE CT LAKELAND FL
TORRANCE CA DANBURY CT LAND O'LAKES FL
VACAVILLE CA HARTFORD CT LONGBOATKEY FL
VALLEJO CA MILFORD CT LUTZ FL
VAN NUYS CA NEW MILFORD CT MACCLENNY FL
VISALIA CA NEWTOWN CT MELBOURNE FL
VISTA CA SHERMAN CT MERRITT ISLAND FL
WALNUT CA VERNOW CT MIAMI FL
ROCKVILLE
NAPLES FL IRWINTON GA HIAWATHA IA
OCOEE FL KENNESAW GA MARSHALLTOWN IA
ODESSA FL LAWRENCEVILLE GA NORTH ENGLISH IA
ORANGE PARK FL LILBURN GA NORTH LIBERTY IA
ORLANDO FL LITHONIA GA SIOUX CITY IA
ORMOND BEACH FL LOGANVILLE GA WATERLOO IA
PANAMA CITY FL MACON GA BOISE ID
PENSACOLA FL MARIETTA GA KUNA ID
POMPANO BEACH FL MIDLAND GA MALAD CITY ID
SAINT PETERSBURG FL MONROE GA MERIDIAN ID
SARASOTA FL RIVERDALE GA NAMPA ID
SUMMERFIELD FL SAVANNAH GA ARLINGTON IL
HEIGHTS
TALLAHASSEE FL SHARPSBURG GA BARRINGTON IL
TAMPA FL SMYRNA GA BARTLETT IL
VALRICO FL STONE GA BELLEVILLE IL
MOUNTAIN
WEST PALM BEACH FL SUGAR HILL GA BERWYN IL
ATLANTA GA TIFTON GA BLOOMINGTON IL
AUGUSTA GA TUCKER GA BOLINGBROOK IL
Page 22 of 34
<PAGE>
BALL GROUND GA WARNER GA BROOKFIELD IL
ROBINS
BETHLEHEM GA WATKINSVILLE GA CALUMET CITY IL
BUFORD GA WOODSTOCK GA CHAMPAIGN IL
CANTON GA AGANA GU CHICAGO IL
COLUMBUS GA HILO HI COLLINSVILLE IL
CUMMING GA HONOLULU HI DAWSON IL
DAHLONEGA GA WAHIAWA HI DECATUR IL
DALLAS GA WAIANAE HI DOWNERS IL
GROVE
DECATUR GA AMES IA ELMHURST IL
DOERUN GA BETTENDORF IA FOREST PARK IL
DOUGLASVILLE GA CEDAR FALLS IA FRANKFORT IL
DULUTH GA CEDAR RAPIDS IA GLENVIEW IL
EVANS GA COUNCIL IA HIGHLAND PARK IL
BLUFFS
FAYETTEVILLE GA DAVENPORT IA KINGSTON IL
FLINTSTONE GA DES MOINES IA LAKE VILLA IL
FORSYTH GA DUBUQUE IA LANSING IL
GUYTON GA GLENWOOD IA LIBERTYVILLE IL
HINESVILLE GA HEDRICK IA LOCKPORT IL
LOMBARD IL BRAZIL IN SHAWNEE KS
MISSION
MACEDONIA IL CEDAR LAKE IN SILVER LAKE KS
MANHATTAN IL ELKHART IN SPRING HILL KS
MATTESON IL EVANSVILLE IN TOPEKA KS
MAYWOOD IL FORT WAYNE IN WICHITA KS
METROPOLIS IL GREENWOOD IN BOWLING GREEN KY
MIDLOTHIAN IL HAMMOND IN COVINGTON KY
MORTON GROVE IL INDIANAPOLIS IN ELIZABETHTOWN KY
MOUNT PROSPECT IL JASPER IN FLORENCE KY
NAPERVILLE IL LAWRENCEBURG IN FRANKFORT KY
NORMAL IL LEO IN FRENCHBURG KY
OAK FOREST IL LOWELL IN HOPKINSVILLE KY
Page 23 of 34
<PAGE>
OAK LAWN IL MISHAWAKA IN LAWRENCEBURG KY
ONEIDA IL MUNCIE IN LEXINGTON KY
PALATINE IL NEWBURGH IN LONDON KY
PALATINE IL NOBLESVILLE IN LOUISVILLE KY
PEKIN IL PLAINFIELD IN NEWPORT KY
PEORIA IL RICHMOND IN NICHOLASVILLE KY
PLANO IL SHELBYVILLE IN PAINT LICK KY
QUINCY IL TERRE HAUTE IN SHELBYVILLE KY
RIVERSIDE IL THORNTOWN IN VANCEBURG KY
ROCKFORD IL VINCENNES IN BATON ROUGE LA
ROUND LAKE IL WHITELAND IN COLFAX LA
SCHAUMBURG IL COLBY KS KENNER LA
SEYMOUR IL DESOTO KS LAFAYETTE LA
SILVIS IL HAYS KS LAKE CHARLES LA
SPRINGFIELD IL HUTCHINSON KS MANDEVILLE LA
SUGAR GROVE IL KANSAS CITY KS METAIRIE LA
TOWANDA IL LAKIN KS MONROE LA
TREMONT IL LAWRENCE KS NEW ORLEANS LA
WARRENVILLE IL MANHATTAN KS RINGGOLD LA
WESTMONT IL MC PHERSON KS SHREVEPORT LA
WHEELING IL OLATHE KS AGAWAM MA
WOOD DALE IL ROSE HILL KS BELLINGHAM MA
BLUFFTON IN SALINA KS BOSTON MA
BROCKTON MA GERMANTOWN MD CANTON MI
CHELMSFORD MA GLEN BURNIE MD CEDAR SPRINGS MI
DALTON MA HAGERSTOWN MD CLAWSON MI
DRACUT MA HYATTSVILLE MD COTTRELLVILLE MI
TWP
EAST BRIDGEWATER MA IJAMSVILLE MD DEARBORN MI
FALL RIVER MA LA PLATA MD DETROIT MI
FISKDALE MA LAUREL MD DRYDEN MI
HUDSON MA LINTHICUM MD EAST DETROIT MI
HEIGHTS
HYANNIS MA MITCHELLVILLE MD FENTON MI
LEOMINSTER MA MOUNT AIRY MD GRAND HAVEN MI
Page 24 of 34
<PAGE>
LOWELL MA MYERSVILLE MD GRANDLEDGE MI
MIDDLEBORO MA ODENTON MD GRAND RAPIDS MI
MILFORD MA OLNEY MD HOLLAND MI
NORTHBOROUGH MA PARKVILLE MD HUDSONVILLE MI
NORWELL MA PASADENA MD IRON MOUNTAIN MI
PLYMOUTH MA PRESTON MD JACKSON MI
QUINCY MA PRINCE GEORGES MD JENISON MI
FACIL
READING MA RANDALLSTOWN MD KALAMAZOO MI
STERLING MA SEVERN MD LANSING M1
TEWKSBURY MA SILVER SPRING MD LINCOLN PARK MI
WALPOLE MA SILVERSP MD LIVONIA MI
WALTHAM MA SYKESVILLE MD LOWELL MI
WESTBOROUGH MA UPPER MD MILAN MI
MARLBORO
WESTFIELD MA WALDORF MD MILFORD MI
WESTFORD MA WEST MD MOUNT CLEMENS MI
HYATTSVILLE
WORCESTER MA COOPERS MILLS ME NILES MI
ABERDEEN MD GORHAM ME NOVI MI
BALTIMORE MD HOLDEN ME PINCKNEY MI
BEL AIR MD KITTERY ME PLAINWELL MI
BETHESDA MD PORTLAND ME PONTIAC MI
CLINTON MD PRESQUE ISLE ME PORTHURON MI
COLUMBIA MD TOPSHAM ME SAINT CLAIR MI
SHORES
DAMASCUS MD BATTLE CREEK MI SANFORD MI
FORT WASHINGTON MD BENTON HARBOR MI SOUTHFIELD MI
FREDERICK MD BLOOMFIELD MI STERLING MI
HILLS HEIGHTS
Page 25 of 34
<PAGE>
Designated Locations (cont'd):
CITY ST CITY ST CITY ST
- ---- -- ---- -- ---- --
TRAVERSE CITY MI FENTON MO BENSON NC
TROY MI FLORISSANT MO CARY NC
UTICA MI GRANDVIEW MO CATAWBA NC
WALLED LAKE MI HARTSBURG MO CHARLOTTE NC
WATERFORD MI HAZELWOOD MO CLAYTON NC
WYANDOTTE MI IMPERIAL MO CLYDE NC
YPSILANTI MI INDEPENDENCE MO CONCORD NC
ALEXANDRIA MN JEFFERSON CITY MO CULLOWHEE NC
ANOKA MN KANSAS CITY MO DURHAM NC
BELLE PLAINE MN KIRKSVILLE MO FAYETTEVILLE NC
CANNON FALLS MN LAKE OZARK MO GARNER NC
CHAMPLIN MN LEES SUMMIT MO GRAHAM NC
DULUTH MN OSBORN MO GREENSBORO NC
ESKO MN OZARK MO GREENVILLE NC
GLENVILLE MN SAINT CHARLES MO HARRISBURG NC
KIMBALL MN SAINT LOUIS MO HIGH POINT NC
MANKATO MN SPRINGFIELD MO HOLLY SPRINGS NC
MARSHALL MN UNION MO INDIAN TRAIL NC
MAZEPPA MN WEST PLAINS MO JACKSONVILLE NC
MINNEAPOLIS MN BILOXI MS KERNERSVILLE NC
ROCHESTER MN COLDWATER MS KNIGHTDALE NC
SAINT FRANCIS MN COLUMBUS MS MOORESVILLE NC
SAINT PAUL MN CRYSTAL MS PFAFFTOWN NC
SPRINGS
SAVAGE MN GREENVILLE MS PINEVILLE NC
SHAKOPEE MN JACKSON MS RALEIGH NC
STEWARTVILLE MN MERIDIAN MS ROCKY MOUNT NC
VIRGINIA MN MOOREVILLE MS SALISBURY NC
WYOMING MN OLIVE BRANCH MS SOUTHPORT NC
ZUMBRO FALLS MN PETAL MS STATESVILLE NC
BALLWIN MO PORT GIBSON MS STOKESDALE NC
Page 26 of 34
<PAGE>
BELTON MO RIDGELAND MS TRINITY NC
BLUE SPRINGS MO BILLINGS MT WAKE FOREST NC
CARTHAGE MO APEX NC WASHINGTON NC
CHARLESTON MO ASHEBORO NC WHITSETT NC
COLUMBIA MO BAHAMA NC WILKESBORO NC
WINSTON-SALEM NC EAST HANOVER NJ PATERSON NJ
BISMARCK ND ELIZABETH NJ PISCATAWAY NJ
FARGO ND ELMWOOD PARK NJ PITMAN NJ
GRAND FORKS ND FAIR LAWN NJ PLAINFIELD NJ
WILLISTON ND FRANKLIN NJ POMPTON LAKES NJ
COLUMBUS NE FREEHOLD NJ RED BANK NJ
ELKHORN NE GREENDELL NJ RIVERSIDE NJ
HASTINGS NE HACKENSACK NJ ROCKAWAY NJ
LINCOLN NE HAZLET NJ RUNNEMEDE NJ
OMAHA NE HIGHTSTOWN NJ SOMERSET NJ
ACWORTH NH HILLSDALE NJ SOUTH ORANGE NJ
CANTERBURY NH HOLMDEL NJ SOUTH PLAINFIELD NJ
CLAREMONT NH HOWELL NJ STEWARTSVILLE NJ
CONCORD NH JACKSON NJ STOCKHOLM NJ
EXETER NH JAMESBURG NJ SUCCASUNNA NJ
HILLSBORO NH KEANSBURG NJ TEANECK NJ
MANCHESTER NH KEARNY NJ TOMS RIVER NJ
MERRIMACK NH LAKEHURST NJ WAYNE NJ
NASHUA NH MAHWAH NJ WEST KEANSBURG NJ
ROCHESTER NH MATAWAN NJ WEST MILFORD NJ
ANDOVER NJ MAYWOOD NJ WESTWOOD NJ
BEDMINSTER NJ MIDDLETOWN NJ WILLINGBORO NJ
BLAIRSTOWN NJ MILLINGTON NJ WYCKOFF NJ
BLOOMFIELD NJ MILLTOWN NJ ALBUQUERQUE NM
BRICK NJ MONROEVILLE NJ ROSWELL NM
BRIDGETON NJ MONTVALE NJ SANTA TERESA NM
BURLINGTON NJ MORGANVILLE NJ TOME NM
BUTLER NJ NEW BRUNSWICK NJ CARSON CITY NV
CALDWELL NJ NEWARK NJ HENDERSON NV
CAMDEN NJ NEWTON NJ LAS VEGAS NV
CARTERET NJ NUTLEY NJ RENO NV
Page 27 of 34
<PAGE>
CEDAR GROVE NJ OAKLAND NJ ALBANY NY
CLIFTON NJ OCEAN VIEW NJ ALBION NY
CRANFORD NJ ORANGE NJ BABYLON NY
DENVILLE NJ PARAMUS NJ BALDWIN NY
BEACON NY ISLIP NY SCHENECTADY NY
BETHPAGE NY JAMAICA NY SEAFORD NY
BREWSTER NY JAMESTOWN NY SMITHTOWN NY
BRIARWOOD NY JOHNSON CITY NY STATENISLAND NY
BRONX NY KINGS PARK NY STONY POINT NY
BROOKLYN NY KINGSTON NY SYRACUSE NY
BUFFALO NY LEVITTOWN NY VESTAL NY
CAMBRIDGE NY LINDENHURST NY WALLKILL NY
CAMILLUS NY LONG ISLAND NY WASHINGTONVILLE NY
CAMPBELL HALL NY MANLIUS NY WATERTOWN NY
CARMEL NY MASSAPEQUA NY WEST HURLEY NY
CHURCHVILLE NY MEDFORD NY WEST ISLIP NY
CLEVELAND NY MERRICK NY WHITE PLAINS NY
CORAM NY MILLER PLACE NY WHITNEY POINT NY
DEER PARK NY MINOA NY WILLISTON PARK NY
EAST AMHERST NY MONROE NY YONKERS NY
ENDICOTT NY MOUNT KISCO NY AKRON OH
FARMINGDALE NY NEW CITY NY ATWATER OH
FLORAL PARK NY NEW PALTZ NY BATAVIA OH
FLUSHING NY NEW ROCHELLE NY BAYVILLG OH
FRANKLIN SQUARE NY NEW YORK NY CINCINNATI OH
GLEN HEAD NY NIVERVILLE NY CLEVELAND OH
GLENS FALLS NY OLEAN NY COLUMBIA OH
STATION
GLOVERSVILLE NY ONTARIO NY COLUMBUS OH
GRAND ISLAND NY ORCHARD PARK NY DAYTON OH
GROTON NY OWEGO NY ENGLEWOOD OH
HARRISON NY PEARL RIVER NY FINDLAY OH
HAWTHORNE NY PERU NY FRANKLIN OH
FURNACE
Page 28 of 34
<PAGE>
HEMPSTEAD NY PINE PLAINS NY GROVE CITY OH
HICKSVILLE NY PLAINVIEW NY GROVEPORT OH
HIGHLAND NY POUGHKEEPSIE NY HAMILTON OH
HOLLAND NY ROCHESTER NY HILLIARD OH
HOLTSVILLE NY ROCKVILLE NY HUNTSVILLE OH
CENTRE
HUNTINGTON NY RONKONKOMA NY JOHNSTOWN OH
ISLAND PARK NY SALT POINT NY KENT OH
LANCASTER OH OKLAHOMA CITY OK GOULDSBORO PA
LIMA OH TULSA OK HALIFAX PA
LOUDONVILLE OH CORVALLIS OR HARRISBURG PA
LOVELAND OH GRESHAM OR HUMMELSTOWN PA
MADISON OH MEDFORD OR IRWIN PA
MANSFIELD OH PORTLAND OR JOHNSTOWN PA
MARIETTA OH SALEM OR KUTZTOWN PA
MARYSVILLE OH SPRINGFIELD OR LANCASTER PA
MASON OH ABINGTON PA LANGHORNE PA
MASSILLON OH ALIQUIPPA PA LAURYS STATION PA
MAUMEE OH ALLENTOWN PA LEOLA PA
MENTOR OH ALLISON PARK PA LEVITTOWN PA
MIDDLEBURG HEIGHTS OH ALTOONA PA LIBRARY PA
MOGADORE OH ATHENS PA LOCK HAVEN PA
NEWARK OH BEAVER PA MACUNGIE PA
NORWALK OH BEAVER FALLS PA MANHEIM PA
N. RIDGEVILLE OH BELLEFONTE PA MARS PA
PATASKALA OH BENSALEM PA MC KEES ROCKS PA
RICHFIELD OH BENTON PA MEADVILLE PA
SALEM OH BOYERTOWN PA MECHANICSBURG PA
SPRINGBORO OH BRYN MAWR PA MONACA PA
TOLEDO OH BULGER PA NAZARETH PA
UNIONTOWN OH BUSHKILL PA NEW CUMBERLAND PA
WADSWORTH OH CAMP HILL PA NEW GALILEE PA
Page 29 of 34
<PAGE>
WESTERVILLE OH CARLISLE PA NEW KENSINGTON PA
WOOSTER OH CARNEGIE PA NEW OXFORD PA
XENIA OH COLLEGEVILLE PA NICHOLSON PA
ARDMORE OK DANIELSVILLE PA OLYPHANT PA
BARTLESVILLE OK DILLSBURG PA PALMERTON PA
CLEVELAND OK DOWNINGTOWN PA PHILADELPHIA PA
DUNCAN OK DOYLESTOWN PA PITTSBURGH PA
JENKS OK EFFORT PA PLYMOUTH PA
MIDWEST CITY OK ERIE PA READING PA
MOUNDS OK ESSINGTON PA SCHWNKVL PA
NORMAN OK GEIGERTOWN PA SOUTHAMPTON PA
STROUDSBURG PA ORANGEBURG SC CONROE TX
SUMNEYTOWN PA PROSPERITY SC CONVERSE TX
TEMPLE PA ROCK HILL SC COPPELL TX
TRANSFER PA SIMPSONVILLE SC CORPUS CHRISTI TX
WARRENDALE PA SUMMERVILLE SC CROWLEY TX
WARRINGTON PA TAYLORS SC DAINGERFIELD TX
WAYNE PA BRANDON SD DALLAS TX
WAYNESBORO PA SIOUX FALLS SD DEER PARK TX
WEST CHESTER PA CHATTANOOGA TN DENTON TX
WEST MILTON PA ETOWAH TN DOUGLASSVILLE TX
CAROLINA PR JACKSON TN DRIPPING SPRINGS TX
GUAYNABO PR KINGSPORT TN DUNCANVILLE TX
NARANJITO PR KNOXVILLE TN ELPASO TX
PONCE PR MADISON TN ELGIN TX
SANJUAN PR MANCHESTER TN FLINT TX
SAN LORENZO PR MARYVILLE TN FORT WORTH TX
CHEPACHET RI MEMPHIS TN FRISCO TX
COVENTRY RI MURFREESBORO TN GLENN HEIGHTS TX
NEWPORT RI NASHVILLE TN GRAPEVINE TX
NORTH KINGSTOWN RI TALBOTT TN GREENVILLE TX
PROVIDENCE RI TRENTON TN HEWITT TX
WARREN RI WHITE HOUSE TN HITCHCOCK TX
WARWICK RI ABILENE TX HOUSTON TX
CAYCE-WEST SC AMARILLO TX IRVING TX
Page 30 of 34
<PAGE>
COLUMBIA
CENTRAL SC ARLINGTON TX JARRELL TX
CHARLESTON SC AUBREY TX JUSTIN TX
COLUMBIA SC AUSTIN TX KATY TX
CONWAY SC BAYTOWN TX KENNEDALE TX
ELGIN SC BEAUMONT TX LA MARQUE TX
FLORENCE SC BOERNE TX LAREDO TX
GREENVILLE SC BROOKSTON TX LEWISVILLE TX
INMAN SC BROWNSVILLE TX LONGVIEW TX
IRMO SC BURLESON TX LUBBOCK TX
KINARDS SC CARROLLTON TX LUFKIN TX
LANCASTER SC COLDSPRING TX MESQUITE TX
MIDLAND TX CHESAPEAKE VA WOODBRIDGE VA
MISSOURI CITY TX CHESAPEAKE VA ESSEX JUNCTION VT
ODESSA TX CHESAPEAKE VA MILTON VT
PALMER TX CHESTER VA MONTPELIER VT
PLANO TX CHESTERFIELD VA NORTH HERO VT
PORT LAVACA TX DANVILLE VA AUBURN WA
RICHARDSON TX FAIRFAX VA BLACK DIAMOND WA
ROUND ROCK TX FAIRFIELD VA BOTHELL WA
SAN ANGELO TX FLOYD VA COUPEVILLE WA
SAN ANTONIO TX FOREST VA ENUMCLAW WA
SAVOY TX FREDERICKSBURG VA EVERETT WA
SILSBEE TX GLADYS VA FERNDALE WA
SPRING TX HOPEWELL VA KENT WA
SUGAR LAND TX KING WILLIAM VA MAPLE VALLEY WA
TEMPLE TX LORTON VA OLYMPIA WA
TERRELL TX LYNCHBURG VA PUYALLUP WA
TEXARKANA TX MANASSAS VA SEATTLE WA
THE COLONY TX MIDLOTHIAN VA SHORELINE WA
TYLER TX NOKESVILLE VA SNOHOMISH WA
VENUS TX NORTH VA TACOMA WA
TAZEWELL
WACO TX PORTSMOUTH VA VANCOUVER WA
WICHITA FALLS TX RICHMOND VA YAKIMA WA
Page 31 of 34
<PAGE>
BOUNTIFUL UT RINER VA APPLETON WI
CLEARFIELD UT ROANOKE VA ARENA WI
MIDVALE UT ROANOKE VA CAMBRIDGE WI
OREM UT RUCKERSVILLE VA COTTAGE GROVE WI
PROVO UT SPOTSYLVANIA VA CUSTER WI
SALT LAKE CITY UT STAFFORD VA DE PERE WI
SANDY UT VIENNA VA DOUSMAN WI
ASHLAND VA VIRGINIA BEACH VA FOND DU LAC WI
AYLETT VA VIRGINIA BEACH VA GREEN BAY WI
BEDFORD VA WILLIAMSBURG VA GREENVILLE WI
BUMPASS VA WILLIAMSBURG VA HALES CORNERS WI
CENTREVILLE VA WINCHESTER VA KENOSHA WI
CHARLOTTESVILLE VA WINCHESTER VA LA CROSSE WI
MADISON WI
MENOMONIE WI
MIDDLETON WI
MILWAUKEE WI
MONROE WI
PORTAGE WI
RINGLE WI
SHERWOOD WI
SOUTH MILWAUKEE WI
STEVENS POINT WI
SUAMICO WI
THIENSVILLE WI
WATERTOWN WI
WAUKESHA WI
WAUSAU WI
BECKLEY WV
BRUCETON MILLS WV
CHARLES TOWN WV
CHARLESTON WV
GALLIPOLIS FERRY WV
AFTON WY
CASPER WY
CHEYENNE WY
GREEN RIVER WY
Page 32 of 34
<PAGE>
EXHIBIT F- SAMPLE QSAR DOCUMENT
QSAR Nav Tips
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Sequence Number 502 QSAR Date 12/30/99 Employee Number 776870
Service Code 01 - Corrective Maintenance Machine Type 0322
Activity / Task Performed
Contract / Work # ?
Service / Marketing BO
Common Problem Number
ADP Product Code
Billable Code ?
Customer Name
QSAR Comments will now be stored in a Notes Database, and
there is no longer a length limit.
Please enter good descriptive comments.
The first 70 characters will continue to be sent to Oasis.
Comments
Click the Record Parts button to fill this section in.
Machine Type
Part Number
From BO
From OL
Receiving BO
Receiving OL
Quantity Used
Quantity Ordered
Parts Acquistion Time
Have Bar Code Return Label?
Reason For Return
Part Source
UPS Tracking #
Return Authorization Number
Parts Return Form
Tracking ID Number
Bin / Order #
Alternate Ship BO
Delivery Point
</TABLE>
Page 33 of 34
<PAGE>
Click the Time & Expense button to fill this section in.
Miles
Expense
Last Stop Time
Travel Hours
PM Hours
Actual Hours
Stop Time
Overtime Hours
Page 34 of 34
<PAGE>
Attachment B - Statement of Work (SOW)
ITSA - IBM and QMS - NON-WARRANTY SERVICES
IBM MACHINE TYPE - 0322
Agreement Number: 99SBD155
1. GENERAL INFORMATION
1.1 Purpose
The purpose of this SOW is to describe the scope of work as it relates to QMS,
Inc. non-warranty services to be provided by IBM. It also sets forth the work
related responsibilities of both parties, in connection with IBM providing
services on QMS products in support of end-user customers, in the USA.
1.2 Scope
IBM will provide Non-Warranty maintenance services on QMS products listed in
Exhibit A, "Eligible Products List and End-User Pricing". The "Eligible Products
List and End-User Pricing" will be revised from time to time by mutual agreement
of the parties as QMS engages IBM to provide the availability of service on
additional QMS end-user customers or products.
There may be requirements for additional or customized services that are not
covered by this SOW. Separate Agreements and Attachments will be entered into
between IBM and the end-user to set forth the terms and conditions and charges
for services not covered hereunder.
1.3 Service Criteria
1.3.1 Software
Application software problems are the responsibility of the end-user unless
otherwise specified.
1.3.2 Service Locations
IBM reserves the right to decline providing service support, on new contracts,
for products at end-user customer locations where the implementation of such
service support is reasonably deemed by IBM to be cost prohibitive. Service
support at such end-user customer locations by IBM will be contingent upon the
successful negotiation, on a case-by-case basis, of a mutually agreeable service
support compensation arrangement, with the end-user.
A current list of the IBM Service Locations for the United States is listed in
exhibit E, of this SOW. Such locations may be increased from time to time upon
written notice from IBM to QMS and may be decreased from time to time.
Page 1 of 27
<PAGE>
1.3.3 Engineering Changes
QMS will notify IBM immediately of all safety issues and safety related
engineering changes. Should IBM determine or discover a safety related
engineering or manufacturing defect, IBM may require QMS to resolve the defect
prior to the resumption of service, this applies to QMS logoed products only.
Safety Engineering Change kits, on QMS logoed products, shall be provided on the
first day of their general availability, at no cost to IBM, in quantities
sufficient to match the IBM supported installation base. Safety Engineering
Changes will be installed by IBM within reasonable time frames. Mandatory
Engineering Changes will be installed with QMS providing the parts, at no cost
to IBM and IBM providing the labor, at no cost to QMS.
1.3.4 IBM Warranty
IBM warrants that it will perform services hereunder in a workmanlike manner.
Misuse, accident, unsuitable operating environment, modification, failure caused
by a product for which IBM is not responsible, or operation outside of
manufacturer's specifications may void this warranty. IBM does not warrant
uninterrupted or error-free operation.
For currently marketed products, listed in Exhibit A, "Eligible Products List
and End-User Pricing", IBM will warrant repair service for thirty (30) days for
the same problem and serial number.
IBM is not providing any Year 2000 services (for example, Year 2000 assessment,
conversion or testing) hereunder. IBM shall not be responsible for its failure
to perform any of its obligations (including, for example, to meet service
levels) under this Agreement, if such failure is the result, directly or
indirectly, of the inability of 1) a customer's or 2) a third party's or 3) your
product's inability to correctly process, provide and or receive data with other
products or deliverables to accurately exchange data with other products under
this agreement.
THIS WARRANTY REPLACES ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
1.3.5 Exclusions
Non-warranty maintenance services do not cover product engineering changes,
product level control, application software support, restoring
applicationsoftware and customer related data files, or service for certain
parts that are not subject to failure through normal wear and tear, such as
frames or covers. In addition, maintenance services do not cover service of a
product damaged by: misuse, accident, modification, unsuitable physical or
operating environment, improper maintenance by the end-user, or failure caused
by a product for which IBM is not responsible, Repair or replacement work or
increase in service time as a result of damage or loss resulting from accident,
casualty, transportation, neglect, misuse or abuse, operator error, failure of
proper management or supervision, failure of electrical power, air conditioning
or humidity control, use of supplies not approved by the original manufacturer
of the Product, or causes other than ordinary prudent use for purposes for which
any item of Product was designed, except for neglect acts or omissions of IBM
employees or agents; These activities fall outside the definition of service,
and as such will be subject to time and materials charges, to the end-user, per
Exhibit A - Eligible Product List and Pricing, of this SOW. Mandatory
Page 2 of 27
<PAGE>
engineering changes are covered under this Agreement, QMS will provide the
parts, at no cost to IBM and IBM will provide the labor, at no cost to QMS.
For end-users on the Full Service Care Plan, in addition to all parts, labor and
travel expenses being covered, one scheduled PM per year is included and normal
wear and tear items, such as, fusers, transfer rollers, felt cleaners, etc. are
also included as part of the maintenance. Toner and Paper are not included.
1.4 Rights to Materials
QMS hereby grants to IBM a license to use preexisting training information ("QMS
Information") provided to IBM. Such license to the QMS Information is provided
solely for the purpose of fulfilling the obligations hereunder and IBM shall not
use it for any other purpose. This applies to currently marketed products only.
IBM may develop and produce training materials and documentation, for the sole
purpose of fulfilling its obligations hereuner, to be used by IBM in which IBM
retains all rights, title, and interest.
1.5 Safety
IBM agrees to service standard available products in a safe environment. In the
event IBM determines that an unsafe condition exists in a product to be serviced
or the environment in which the product is located, IBM will suspend service and
notify the end-user of the problem. IBM will not resume service until the
condition has been corrected.
IBM reserves the right to decline support for Products serviced under this
Agreement in the event such Product is identified as not being certified by
Underwriters Laboratory (UL) or equivalent, or lacks the appropriate regulatory
labeling.
1.6 IBM Employee Safety and Security
For reasons of safety and security, IBM maintains a practice of not allowing its
employees to work alone in the end-user customer site, the end-user must also be
present. IBM will notify the end-user of any condition encountered that may
adversely affect the safety and/or security of IBM employees or assets, and
service will not be performed until the condition is corrected.
2. SERVICES
2.1 Documentation
QMS gives IBM the authority to reproduce all QMS copyrighted service
documentation to be used in servicing QMS Products, for currently marketed
Products. Such authority is granted solely for the purpose of providing service
information for IBM to be able satisfy all maintenance service requirements and
contractual commitments to IBM and QMS customers under this Agreement.
2.2 On-Site Service Hours of Coverage
The standard on-site service hours of coverage applicable for products covered
under this SOW are:
Page 3 of 27
<PAGE>
. 5 x 9: Monday through Friday (excluding IBM holidays listed in Exhibit D),
8:00 AM to 5:00 PM, local time.
. 7 x 24 coverage is available for an extra cost as shown in Exhibit A,
"Eligible Products List and End-User Pricing".
2.3 Customer Service Response Time
Customer service response time for this SOW is as follows:
Next day response, 5 x 9:
. All Non-warranty Maintenance calls for on-site service, received before
16:00, local prevailing time, will be responded to by the end of the next
business day during the Principle Period of maintenance (PPM) Monday to
Friday 8 AM to 5 PM local time, (excluding IBM holidays) listed in exhibit D.
Any service request that are received after 16:00, local prevailing time,
will be considered received on the next business day and will be covered no
later than the following business day. Within sixty (60) minutes of receipt
of a service call request from an end user for hardware service, IBM shall
contact the end-user customer. Repair normally occurs on the next business
day, Monday through Friday (excluding IBM holidays), after the call has been
received by IBM. However, if IBM is unable to affect repair by 5:00 PM, local
time, the next business day, service is deferred until 8:00 AM, local time,
the next business day, Monday through Friday (excluding IBM holidays).
Service in progress may be discontinued at 5:00 PM, local time, and resumed
at 8:00 Am, local time, the next business day, Monday through Friday
(excluding IBM holidays). On-site service may be mutually scheduled by the
assigned Customer Engineer and the end user.
Same day response, 4 hours:
. For an additional cost, as shown in Exhibit A, "Eligible Products List and
End-User Pricing", IBM will provide four (4) hour on-site response time
service. The IBM Call Center or IBM Customer Engineer will contact the end-
user within sixty (60) minutes to schedule an on-site arrival within four (4)
business hours, of the original call placement.
2.4 Service Offerings
2.4.1 Maintenance Agreement Service
IBM provides the availability of on-site labor service to affect repair. This
service is invoiced in accordance with the schedules described in Exhibit A -
"Eligible Product List and Pricing".
2.4.2 Hourly Rate Service
IBM provides the availability of on-site labor service to cover any services
outside the scope of this SOW (e.g. installation service) as mutually agreed
to by IBM and the end user. This service is invoiced, to the end-user, based
the pricing schedules described in Exhibit A - Eligible Product List and
Pricing, "Hourly Rate Service" on the actual CE on-site time at the end-user
customer site (plus CE travel time to the end-user customer site), at the
applicable hourly rate.
3. MAINTENANCE PLAN
Page 4 of 27
<PAGE>
3.1 Service Call Placement
3.1.1
IBM will provide service to Non-Warranty Maintenance customers for QMS products
using the call flow depicted in Exhibit B.
3.2 Maintenance Roles/Responsibilities
3.2.1 IBM Responsibilities
IBM will provide the availability of a qualified CE to provide service. IBM
will be responsible for using the following recommended call flow, a more
detailed flow is shown is Exhibit B:
The CE will:
1. Identify himself/herself as representing IBM for service that is non-
warranty
2. Provide on-site maintenance service
3. Obtain parts via the identified process
4. Utilize IBM technical or network support when necessary
5. Test the product to ensure it performs in accordance with QMS or OEM service
manuals and service bulletins.
3.2.2 QMS Responsibilities
1. Provide Level 3 technical support to IBM as required, at no cost, for
currently marketed products as shown in Exhibit A, "Eligible Products List
and End-User Pricing". This support will be available for one year after
warranty expiration.
2. Provide appropriate product failure cause codes
3.3 Field Support
IBM shall maintain the necessary expertise, capabilities, and resources to
remotely support CEs to: install, maintain, provide operational assistance, and
provide technical problem resolution on for products on the Eligible Products
List and End-User Pricing, shown in Exhibit A.
The IBM technical escalation process begins whenever a CE requires technical
support. For complex problems, IBM personnel are backed by a four tiered
technical support organization composed of subject matter experts for all IBM
supported Products and solutions. If a CE becomes involved in a highly complex
failure or issue, the CE and his/her management will progressively utilize its
hierarchy of technical experts within both, the organization and partner/
supplier organizations, to resolve the problem. These experts can assist the CE
either through remote consultation or by actually joining the CE on-site. IBM
technical support may engage QMS at any time for assistance. QMS will be
responsible for all costs associated with this support for their people. IBM and
QMS will mutually agree when QMS on-site assistance is required. This will apply
to currently marketed products only, as shown in Exhibit A, "Eligible Products
List and End-User Pricing".
4. PARTS SUPPORT
Page 5 of 27
<PAGE>
QMS will attempt to make available to IBM all necessary service parts and FRU's
to maintain the Products listed in exhibit A, the Eligible Product List. IBM is
responsible for transportation costs.
QMS Responsibilities
. Provide IBM all necessary parts and FRU's in sufficient quantity at a thirty
(30) percent off of QMS list price to IBM, for currently marketed products,
agreed upon between the parties, for the maintenance service of printers
listed in Exhibit A, "Eligible Products List and End-User Pricing".
. IBM intends to purchase parts for QMS currently marketed products for the 1st
two years after warranty expiraton. IBM further intends to provide 1st right
of refusal, to QMS for parts purchases after the initial two year period. The
initial purchase of QMS parts inventory is to be determined by the parties.
. QMS to provide parts at QMS's cost for legacy products as shown in the
Product Support Services SOW, which is attached to this Agreement, until such
time as QMS's stock of these parts is depleted.
. QMS and IBM will continue to negotiate, in good faith, for a parts
consignment process, between the two parties. Such a process would result in
IBM purchasing parts from QMS, as they are used, to support the products,
until such time as QMS's stock of parts is depleted.
. Provide parts in a timely fashion as described in the Product Support
Services SOW, which is attached to this Agreement.
. Provide all part numbers and description of service parts, FRU's and CRU's
. MSDS documentation for all applicable parts to be made available on the QMS
website
. Identify by part number UPR (used part return) status
IBM Responsibilities
. Parts are more fully detailed in the attached SOW - Product Support
Services
. The IBM CE will follow IBM standard parts handling procedures
5. ADMINISTRATIVE SUPPORT
5.1 Dispatch
Service call requests from QMS end-user customers will be received by the IBM
Call Center at 800-XXX-XXXX.
6. INVOICES AND DETAIL REPORT
6.1 Invoices
In the event that QMS would request services on it's behalf, IBM will provide
invoice charges based on specific contract requirements, or on a monthly basis,
for all service incidents completed. The invoices for service incidents
completed will include the following information:
Page 6 of 27
<PAGE>
1. QMS Corp.
2. Taxing jurisdiction (state) where work was performed
3. Dollar amounts grouped by the state where work was performed, including
applicable taxes
4. Total charges on the invoice
5. All payments to IBM to be sent to:
IBM Corporation
6300 Diagonal Highway
Boulder, CO 80301
Attention: Accounts Receivable
6.1.1 Detail Report
A detailed billing report may be provided along with the invoices, either
electronically or in hard copy. This detailed billing report may include the
following information:
1. QMS Work Order / Call Number
2. IBM Service Call Number
3. End-user name
4. End-user service location
5. Labor hours, travel hours, and mileage per service incident
6. Labor, parts, mileage and total charges per service incident
7. Total charges on the invoice, excluding taxes.
The parties agree that when applicable, a blanket purchase order will be issued
by QMS for administration and billing purposes only and will not modify or add
to the terms and conditions of the Agreement or this SOW. Any terms and
conditions on the front and reverse side of such purchase order will not apply.
Page 7 of 27
<PAGE>
7. Profit Sharing
7.1 Leads Generation Agreement
A. When QMS gains agreement and closes the deal for an IBM on-site
maintenance contract with an end-user, IBM will pay QMS twenty (20)
percent of the billed value of the end-user Agreement, for the first
year's maintenance.
B. When QMS passes on a lead for an IBM on-site maintenance contract
with an end-user and IBM closes the deal directly with the end-user,
IBM will pay QMS one-twelfth (1/12) of the billed value of the end-
user Agreement, for the first year's maintenance.
C. QMS will use the Opportunity Form, attached as Exhibit F to submit
all leads.
D. IBM Call Center to provide warranty call data monthly for use by QMS
sales team.
7.2 Payment Schedule
A. Upon the completion of the agreed to price increase and the
associated assignment of the existing maintenance contracts, IBM
intends to provide 50% of the projected Gross Profit for the 1st half
of the year on 01/01/2000, from the services provided under this
Agreement.
B. IBM to provide 50% of the projected Gross Profit for the 2nd half of
the year on 07/01/2000, from the services provided under this
Agreement, if the 1st half gross profit projections were met. If
projection was not met, IBM will recalculate the 2nd payment
adjusting for the shortfall.
C. IBM to provide 30% of the projected Gross Profit, to be reconciled
and paid quarterly (in arrears), for years two (2) and three (3) of
the Agreement.
D. IBM agrees that in the event the total royalty payment is less than
two million dollars at the end of the first three years of the
Agreement, that IBM will continue to pay at a rate of 10% of the
annual gross profit dollars on the initial contract base until the
minimum amount of two million dollars is achieved for services
provided between the parties governing this Agreement.
E. Gross Profit will be derived from the IBM Product Ledger, a sample is
attached as Exhibit G.
7.3 Prepaid Segment
A. For the $6M prepaid segment of the business, QMS will be charged a
Per Incident Rate of $300. QMS is to provide a list of customer
names, models and product serial numbers, along with renewal dates,
to IBM for the purpose of identifying these incidents.
B. A list of the current prepaid contracts to be added to this Agreement
as an Exhibit.
Page 8 of 27
<PAGE>
Exhibit A
Eligible Products List and End-User Pricing
1.0 End-User Pricing
See Attached Exhibit A-1 for annual End-UserMaintenance Agreement Pricing
1.1 HOURLY RATE SERVICES (for the following activities):
$135 per hour for Engineering Change Installation (as described in
Section 1.3.3)
$135 per hour for labor services on Preventive Maintenance (PM) (Parts
not included)
$135 per hour to provide Operator Training
$135 per hour for product installation (all models)
1.2 PREVAILING RATES:
IBM will provide labor only services, not related to normal maintenance,
at the rate of $135.00 per hour with a two (2) hour minimum including
travel. Mileage will be billed at IBM's then current rate. (As of
12/21/99, rate is 27.5 cents per mile).
1.3 TIME AND MATERIALS SERVICE:
IBM will provide time and material maintenance service at the rate of
$234.00 per hour with a two (2) hour minimum including travel plus the
cost of parts required to service the product. Mileage will be billed at
IBM's then current rate. (as of 12/21/99, rate is 27.5 cents per mile).
See warranty provision in Section 1.3.4.
Page 9 of 27
<PAGE>
Exhibit B - Call Flow
1. IBM will dispatch a service technician when a service call is placed.
2. The service technician will call the end user, normally within one (1)
hour of the time the call is placed and arrange for on-site arrival to
occur, next business day.
3. The service technician will update the call record with the
appropriate status.
4. The service technician will close the call record upon completion.
Page 10 of 27
<PAGE>
Exhibit C
Escalation Procedures
Escalation By IBM to QMS
------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Contact Title Phone
- -----------------------------------------------------------------------------------------------
Charlie Phillips Service Product Manager 334-633-4301 x1205
- -----------------------------------------------------------------------------------------------
Ginger Smith Director of Service Planning 334-633-4301 x1252
- -----------------------------------------------------------------------------------------------
Al Butler VP of Finance and Operations 334-633-4300
- -----------------------------------------------------------------------------------------------
</TABLE>
Escalation By QMS to IBM
------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Contact Title Phone
- ----------------------------------------------------------------------------------------------
Mike Hickey Project Manager 201-967-6421
- ----------------------------------------------------------------------------------------------
Ralph Alston Service Planning Representative 303-924-6820
- ----------------------------------------------------------------------------------------------
Bill Huckaby Program Director, MAS 303-924-6409
- ----------------------------------------------------------------------------------------------
</TABLE>
Page 11 of 27
<PAGE>
Exhibit D
IBM and QMS Observed Holidays
. New Year's Day
. Memorial Day
. Independence Day (July 4)
. Labor Day
. Thanksgiving Day
. Christmas Day
Page 12 of 27
<PAGE>
EXHIBIT - E SERVICE OFFICE LOCATIONS
- -------------------------------------
Designated Locations:
City ST City ST City ST
- ---- -- ---- -- ---- --
ANCHORAGE AK SCOTTSDALE AZ HUNTINGTON CA
BEACH
JUNEAU AK TEMPE AZ INGLEWOOD CA
ADAMSVILLE AL TUCSON AZ IRVINE CA
ALABASTER AL ALHAMBRA CA LA HABRA CA
BIRMINGHAM AL ANAHEIM CA LA MESA CA
BOAZ AL ANTIOCH CA LA PUENTE CA
DAPHNE AL ARCADIA CA LAGUNA BEACH CA
DEATSVILLE AL ARTESIA CA LAKE ELSINORE CA
DECATUR AL ATASCADERO CA LAKESIDE CA
DORA AL BAKERSFIELD CA LIVERMORE CA
DOTHAN AL BELLFLOWER CA LOMITA CA
FLORENCE AL BOLINAS CA LONG BEACH CA
GRAND BAY AL CAMARILLO CA LOS ANGELES CA
HUNTSVILLE AL CARMICHAEL CA MARTINEZ CA
MIDLAND CITY AL CHICO CA MERCED CA
MOBILE AL CHINO HILLS CA MILPITAS CA
MONTGOMERY AL CITRUS CA MILPITAS CA
HEIGHTS
PLEASANT GROVE AL CONCORD CA MODESTO CA
TALLADEGA AL CORONA CA MORENO VALLEY CA
WOODSTOCK AL COSTA MESA CA MORGAN HILL CA
ALPENA AR CULVER CITY CA NAPA CA
BENTONVILLE AR CYPRESS CA NEWARK CA
CONWAY AR ELTORO CA NEWBURYPARK CA
FORT SMITH AR ELK GROVE CA NORTH CA
HOLLYWOOD
JONESBORO AR FAIRFIELD CA NORTHRIDGE CA
LITTLE ROCK AR FREMONT CA NORWALK CA
MONTICELLO AR FRESNO CA OAKLAND CA
NORTH LITTLE ROCK AR FULLERTON CA ORANGE CA
PEA RIDGE AR GARDEN GROVE CA ORANGEVALE CA
PINE BLUFF AR GILROY CA PICO RIVERA CA
Page 13 of 27
<PAGE>
SPRINGDALE AR GLENDALE CA PINON HILLS CA
CHANDLER AZ HALF MOON BAY CA PITTSBURG CA
GILBERT AZ HAYWARD CA PLAYA DEL REY CA
KINGMAN AZ HAWTHORNE CA PLEASANTON CA
PHOENIX AZ HOLLISTER CA POWAY CA
RANCHO CUCAMONGA CA WALNUT CREEK CA WALLINGFORD CT
REDDING CA WEST COVINA CA WEST HAVEN CT
RESEDA CA WINDSOR CA WASHINGTON DC
RICHMOND CA WOODLAND CA BEAR DE
RIO LINDA CA YUBA CITY CA NEW CASTLE DE
RIVERSIDE CA AURORA CO NEWARK DE
ROSEVILLE CA BOULDER CO OCEAN VIEW DE
SACRAMENTO CA BROOMFIELD CO WILMINGTON DE
SAN DIEGO CA COLORADO CO APOPKA FL
SPRINGS
SAN FERNANDO CA DENVER CO BOCA RATON FL
SANJOSE CA DURANGO CO BROOKSVILLE FL
SAN JUAN CAPISTRANO CA EASTLAKE CO BRYCEVILLE FL
SAN LEANDRO CA FRANKTOWN CO CASSELBERRY FL
SAN MATEO CA GRAND CO CLEARWATER FL
JUNCTION
SAN RAMON CA HYGIENE CO COCOA FL
SANTA ANA CA LITTLETON CO CRAWFORDVILLE FL
SANTA BARBARA CA LONGMONT CO FORT FL
LAUDERDALE
SANTA CLARITA CA LOVELAND CO FORT MYERS FL
SANTA CRUZ CA MORRISON CO GAINESVILLE FL
SANTA ROSA CA PARKER CO GLEN SAINT FL
MARY
SARATOGA CA PEYTON CO HIALEAH FL
SEALBEACH CA WESTMINSTER CO HIGH SPRINGS FL
SHINGLE SPRINGS CA BETHEL CT HOBESOUND FL
SIMI VALLEY CA CANTON CT HOLLYWOOD FL
Page 14 of 27
<PAGE>
SOUTH SAN FRANCISCO CA CHESHIRE CT JACKSONVILLE FL
STOCKTON CA CLINTON CT LAKE PLACID FL
TEHACHAPI CA COLCHESTER CT LAKE WORTH FL
TEMECULA CA COLLINSVILLE CT LAKELAND FL
TORRANCE CA DANBURY CT LAND O'LAKES FL
VACAVILLE CA HARTFORD CT LONGBOATKEY FL
VALLEJO CA MILFORD CT LUTZ FL
VAN NUYS CA NEW MILFORD CT MACCLENNY FL
VISALIA CA NEWTOWN CT MELBOURNE FL
VISTA CA SHERMAN CT MERRITT ISLAND FL
WALNUT CA VERNOW CT MIAMI FL
ROCKVILLE
NAPLES FL IRWINTON GA HIAWATHA IA
OCOEE FL KENNESAW GA MARSHALLTOWN IA
ODESSA FL LAWRENCEVILLE GA NORTH ENGLISH IA
ORANGE PARK FL LILBURN GA NORTH LIBERTY IA
ORLANDO FL LITHONIA GA SIOUX CITY IA
ORMOND BEACH FL LOGANVILLE GA WATERLOO IA
PANAMA CITY FL MACON GA BOISE ID
PENSACOLA FL MARIETTA GA KUNA ID
POMPANO BEACH FL MIDLAND GA MALAD CITY ID
SAINT PETERSBURG FL MONROE GA MERIDIAN ID
SARASOTA FL RIVERDALE GA NAMPA ID
SUMMERFIELD FL SAVANNAH GA ARLINGTON IL
HEIGHTS
TALLAHASSEE FL SHARPSBURG GA BARRINGTON IL
TAMPA FL SMYRNA GA BARTLETT IL
VALRICO FL STONE GA BELLEVILLE IL
MOUNTAIN
WEST PALM BEACH FL SUGAR HILL GA BERWYN IL
ATLANTA GA TIFTON GA BLOOMINGTON IL
AUGUSTA GA TUCKER GA BOLINGBROOK IL
BALL GROUND GA WARNER GA BROOKFIELD IL
ROBINS
Page 15 of 27
<PAGE>
BETHLEHEM GA WATKINSVILLE GA CALUMET CITY IL
BUFORD GA WOODSTOCK GA CHAMPAIGN IL
CANTON GA AGANA GU CHICAGO IL
COLUMBUS GA HILO HI COLLINSVILLE IL
CUMMING GA HONOLULU HI DAWSON IL
DAHLONEGA GA WAHIAWA HI DECATUR IL
DALLAS GA WAIANAE HI DOWNERS IL
GROVE
DECATUR GA AMES IA ELMHURST IL
DOERUN GA BETTENDORF IA FOREST PARK IL
DOUGLASVILLE GA CEDAR FALLS IA FRANKFORT IL
DULUTH GA CEDAR RAPIDS IA GLENVIEW IL
EVANS GA COUNCIL IA HIGHLAND PARK IL
BLUFFS
FAYETTEVILLE GA DAVENPORT IA KINGSTON IL
FLINTSTONE GA DES MOINES IA LAKE VILLA IL
FORSYTH GA DUBUQUE IA LANSING IL
GUYTON GA GLENWOOD IA LIBERTYVILLE IL
HINESVILLE GA HEDRICK IA LOCKPORT IL
LOMBARD IL BRAZIL IN SHAWNEE KS
MISSION
MACEDONIA IL CEDAR LAKE IN SILVER LAKE KS
MANHATTAN IL ELKHART IN SPRING HILL KS
MATTESON IL EVANSVILLE IN TOPEKA KS
MAYWOOD IL FORT WAYNE IN WICHITA KS
METROPOLIS IL GREENWOOD IN BOWLING GREEN KY
MIDLOTHIAN IL HAMMOND IN COVINGTON KY
MORTON GROVE IL INDIANAPOLIS IN ELIZABETHTOWN KY
MOUNT PROSPECT IL JASPER IN FLORENCE KY
NAPERVILLE IL LAWRENCEBURG IN FRANKFORT KY
NORMAL IL LEO IN FRENCHBURG KY
OAK FOREST IL LOWELL IN HOPKINSVILLE KY
OAK LAWN IL MISHAWAKA IN LAWRENCEBURG KY
ONEIDA IL MUNCIE IN LEXINGTON KY
Page 16 of 27
<PAGE>
PALATINE IL NEWBURGH IN LONDON KY
PALATINE IL NOBLESVILLE IN LOUISVILLE KY
PEKIN IL PLAINFIELD IN NEWPORT KY
PEORIA IL RICHMOND IN NICHOLASVILLE KY
PLANO IL SHELBYVILLE IN PAINT LICK KY
QUINCY IL TERRE HAUTE IN SHELBYVILLE KY
RIVERSIDE IL THORNTOWN IN VANCEBURG KY
ROCKFORD IL VINCENNES IN BATON ROUGE LA
ROUND LAKE IL WHITELAND IN COLFAX LA
SCHAUMBURG IL COLBY KS KENNER LA
SEYMOUR IL DESOTO KS LAFAYETTE LA
SILVIS IL HAYS KS LAKE CHARLES LA
SPRINGFIELD IL HUTCHINSON KS MANDEVILLE LA
SUGAR GROVE IL KANSAS CITY KS METAIRIE LA
TOWANDA IL LAKIN KS MONROE LA
TREMONT IL LAWRENCE KS NEW ORLEANS LA
WARRENVILLE IL MANHATTAN KS RINGGOLD LA
WESTMONT IL MC PHERSON KS SHREVEPORT LA
WHEELING IL OLATHE KS AGAWAM MA
WOOD DALE IL ROSE HILL KS BELLINGHAM MA
BLUFFTON IN SALINA KS BOSTON MA
BROCKTON MA GERMANTOWN MD CANTON MI
CHELMSFORD MA GLEN BURNIE MD CEDAR SPRINGS MI
DALTON MA HAGERSTOWN MD CLAWSON MI
DRACUT MA HYATTSVILLE MD COTTRELLVILLE MI
TWP
EAST BRIDGEWATER MA IJAMSVILLE MD DEARBORN MI
FALL RIVER MA LA PLATA MD DETROIT MI
FISKDALE MA LAUREL MD DRYDEN MI
HUDSON MA LINTHICUM MD EAST DETROIT MI
HEIGHTS
HYANNIS MA MITCHELLVILLE MD FENTON MI
LEOMINSTER MA MOUNT AIRY MD GRAND HAVEN MI
LOWELL MA MYERSVILLE MD GRANDLEDGE MI
Page 17 of 27
<PAGE>
MIDDLEBORO MA ODENTON MD GRAND RAPIDS MI
MILFORD MA OLNEY MD HOLLAND MI
NORTHBOROUGH MA PARKVILLE MD HUDSONVILLE MI
NORWELL MA PASADENA MD IRON MOUNTAIN MI
PLYMOUTH MA PRESTON MD JACKSON MI
QUINCY MA PRINCE GEORGES MD JENISON MI
FACIL
READING MA RANDALLSTOWN MD KALAMAZOO MI
STERLING MA SEVERN MD LANSING MI
TEWKSBURY MA SILVER SPRING MD LINCOLN PARK MI
WALPOLE MA SILVERSP MD LIVONIA MI
WALTHAM MA SYKESVILLE MD LOWELL MI
WESTBOROUGH MA UPPER MD MILAN MI
MARLBORO
WESTFIELD MA WALDORF MID MILFORD MI
WESTFORD MA WEST MD MOUNT CLEMENS MI
HYATTSVILLE
WORCESTER MA COOPERS MILLS ME NILES MI
ABERDEEN MD GORHAM ME NOVI MI
BALTIMORE MD HOLDEN ME PINCKNEY MI
BEL AIR MD KITTERY ME PLAINWELL MI
BETHESDA MD PORTLAND ME PONTIAC MI
CLINTON MD PRESQUE ISLE ME PORTHURON MI
COLUMBIA MD TOPSHAM ME SAINT CLAIR MI
SHORES
DAMASCUS MD BATTLE CREEK MI SANFORD MI
FORT WASHINGTON MD BENTON HARBOR MI SOUTHFIELD MI
FREDERICK MD BLOOMFIELD MI STERLING M1
HILLS HEIGHTS
Page 18 of 27
<PAGE>
Designated Locations (cont'd):
City ST City ST City ST
- ---- -- ---- -- ---- --
TRAVERSE CITY MI FENTON MO BENSON NC
TROY MI FLORISSANT MO CARY NC
UTICA MI GRANDVIEW MO CATAWBA NC
WALLED LAKE MI HARTSBURG MO CHARLOTTE NC
WATERFORD MI HAZELWOOD MO CLAYTON NC
WYANDOTTE MI IMPERIAL MO CLYDE NC
YPSILANTI MI INDEPENDENCE MO CONCORD NC
ALEXANDRIA MN JEFFERSON CITY MO CULLOWHEE NC
ANOKA MN KANSAS CITY MO DURHAM NC
BELLE PLAINE MN KIRKSVILLE MO FAYETTEVILLE NC
CANNON FALLS MN LAKE OZARK MO GARNER NC
CHAMPLIN MN LEES SUMMIT MO GRAHAM NC
DULUTH MN OSBORN MO GREENSBORO NC
ESKO MN OZARK MO GREENVILLE NC
GLENVILLE MN SAINT CHARLES MO HARRISBURG NC
KIMBALL MN SAINT LOUIS MO HIGH POINT NC
MANKATO MN SPRINGFIELD MO HOLLY SPRINGS NC
MARSHALL MN UNION MO INDIAN TRAIL NC
MAZEPPA MN WEST PLAINS MO JACKSONVILLE NC
MINNEAPOLIS MN BILOXI MS KERNERSVILLE NC
ROCHESTER MN COLDWATER MS KNIGHTDALE NC
SAINT FRANCIS MN COLUMBUS MS MOORESVILLE NC
SAINT PAUL MN CRYSTAL MS PFAFFTOWN NC
SPRINGS
SAVAGE MN GREENVILLE MS PINEVILLE NC
SHAKOPEE MN JACKSON MS RALEIGH NC
STEWARTVILLE MN MERIDIAN MS ROCKY MOUNT NC
VIRGINIA MN MOOREVILLE MS SALISBURY NC
WYOMING MN OLIVE BRANCH MS SOUTHPORT NC
ZUMBRO FALLS MN PETAL MS STATESVILLE NC
BALLWIN MO PORT GIBSON MS STOKESDALE NC
Page 19 of 27
<PAGE>
BELTON MO RIDGELAND MS TRINITY NC
BLUE SPRINGS MO BILLINGS MT WAKE FOREST NC
CARTHAGE MO APEX NC WASHINGTON NC
CHARLESTON MO ASHEBORO NC WHITSETT NC
COLUMBIA MO BAHAMA NC WILKESBORO NC
WINSTON-SALEM NC EAST HANOVER NJ PATERSON NJ
BISMARCK ND ELIZABETH NJ PISCATAWAY NJ
FARGO ND ELMWOOD PARK NJ PITMAN NJ
GRAND FORKS ND FAIR LAWN NJ PLAINFIELD NJ
WILLISTON ND FRANKLIN NJ POMPTON LAKES NJ
COLUMBUS NE FREEHOLD NJ RED BANK NJ
ELKHORN NE GREENDELL NJ RIVERSIDE NJ
HASTINGS NE HACKENSACK NJ ROCKAWAY NJ
LINCOLN NE HAZLET NJ RUNNEMEDE NJ
OMAHA NE HIGHTSTOWN NJ SOMERSET NJ
ACWORTH NH HILLSDALE NJ SOUTH ORANGE NJ
CANTERBURY NH HOLMDEL NJ SOUTH PLAINFIELD NJ
CLAREMONT NH HOWELL NJ STEWARTSVILLE NJ
CONCORD NH JACKSON NJ STOCKHOLM NJ
EXETER NH JAMESBURG NJ SUCCASUNNA NJ
HILLSBORO NH KEANSBURG NJ TEANECK NJ
MANCHESTER NH KEARNY NJ TOMS RIVER NJ
MERRIMACK NH LAKEHURST NJ WAYNE NJ
NASHUA NH MAHWAH NJ WEST KEANSBURG NJ
ROCHESTER NH MATAWAN NJ WEST MILFORD NJ
ANDOVER NJ MAYWOOD NJ WESTWOOD NJ
BEDMINSTER NJ MIDDLETOWN NJ WILLINGBORO NJ
BLAIRSTOWN NJ MILLINGTON NJ WYCKOFF NJ
BLOOMFIELD NJ MILLTOWN NJ ALBUQUERQUE NM
BRICK NJ MONROEVILLE NJ ROSWELL NM
BRIDGETON NJ MONTVALE NJ SANTA TERESA NM
BURLINGTON NJ MORGANVILLE NJ TOME NM
BUTLER NJ NEW BRUNSWICK NJ CARSON CITY NV
CALDWELL NJ NEWARK NJ HENDERSON NV
CAMDEN NJ NEWTON NJ LAS VEGAS NV
CARTERET NJ NUTLEY NJ RENO NV
Page 20 of 27
<PAGE>
CEDAR GROVE NJ OAKLAND NJ ALBANY NY
CLIFTON NJ OCEAN VIEW NJ ALBION NY
CRANFORD NJ ORANGE NJ BABYLON NY
DENVILLE NJ PARAMUS NJ BALDWIN NY
BEACON NY ISLIP NY SCHENECTADY NY
BETHPAGE NY JAMAICA NY SEAFORD NY
BREWSTER NY JAMESTOWN NY SMITHTOWN NY
BRIARWOOD NY JOHNSON CITY NY STATENISLAND NY
BRONX NY KINGS PARK NY STONY POINT NY
BROOKLYN NY KINGSTON NY SYRACUSE NY
BUFFALO NY LEVITTOWN NY VESTAL NY
CAMBRIDGE NY LINDENHURST NY WALLKILL NY
CAMILLUS NY LONG ISLAND NY WASHINGTONVILLE NY
CITY
CAMPBELL HALL NY MANLIUS NY WATERTOWN NY
CARMEL NY MASSAPEQUA NY WEST HURLEY NY
CHURCHVILLE NY MEDFORD NY WEST ISLIP NY
CLEVELAND NY MERRICK NY WHITE PLAINS NY
CORAM NY MILLER PLACE NY WHITNEY POINT NY
DEER PARK NY MINOA NY WILLISTON PARK NY
EAST AMHERST NY MONROE NY YONKERS NY
ENDICOTT NY MOUNT KISCO NY AKRON OH
FARMINGDALE NY NEW CITY NY ATWATER OH
FLORAL PARK NY NEW PALTZ NY BATAVIA OH
FLUSHING NY NEW ROCHELLE NY BAYVILLG OH
FRANKLIN SQUARE NY NEW YORK NY CINCINNATI OH
GLEN HEAD NY NIVERVILLE NY CLEVELAND OH
GLENS FALLS NY OLEAN NY COLUMBIA OH
STATION
GLOVERSVILLE NY ONTARIO NY COLUMBUS OH
GRAND ISLAND NY ORCHARD PARK NY DAYTON OH
GROTON NY OWEGO NY ENGLEWOOD OH
HARRISON NY PEARL RIVER NY FINDLAY OH
HAWTHORNE NY PERU NY FRANKLIN OH
FURNACE
Page 21 of 27
<PAGE>
HEMPSTEAD NY PINE PLAINS NY GROVE CITY OH
HICKSVILLE NY PLAINVIEW NY GROVEPORT OH
HIGHLAND NY POUGHKEEPSIE NY HAMILTON OH
HOLLAND NY ROCHESTER NY HILLIARD OH
HOLTSVILLE NY ROCKVILLE NY HUNTSVILLE OH
CENTRE
HUNTINGTON NY RONKONKOMA NY JOHNSTOWN OH
ISLAND PARK NY SALT POINT NY KENT OH
LANCASTER OH OKLAHOMA CITY OK GOULDSBORO PA
LIMA OH TULSA OK HALIFAX PA
LOUDONVILLE OH CORVALLIS OR HARRISBURG PA
LOVELAND OH GRESHAM OR HUMMELSTOWN PA
MADISON OH MEDFORD OR IRWIN PA
MANSFIELD OH PORTLAND OR JOHNSTOWN PA
MARIETTA OH SALEM OR KUTZTOWN PA
MARYSVILLE OH SPRINGFIELD OR LANCASTER PA
MASON OH ABINGTON PA LANGHORNE PA
MASSILLON OH ALIQUIPPA PA LAURYS STATION PA
MAUMEE OH ALLENTOWN PA LEOLA PA
MENTOR OH ALLISON PARK PA LEVITTOWN PA
MIDDLEBURG HEIGHTS OH ALTOONA PA LIBRARY PA
MOGADORE OH ATHENS PA LOCK HAVEN PA
NEWARK OH BEAVER PA MACUNGIE PA
NORWALK OH BEAVER FALLS PA MANHEIM PA
N. RIDGEVILLE OH BELLEFONTE PA MARS PA
PATASKALA OH BENSALEM PA MC KEES ROCKS PA
RICHFIELD OH BENTON PA MEADVILLE PA
SALEM OH BOYERTOWN PA MECHANICSBURG PA
SPRINGBORO OH BRYN MAWR PA MONACA PA
TOLEDO OH BULGER PA NAZARETH PA
UNIONTOWN OH BUSHKILL PA NEW CUMBERLAND PA
WADSWORTH OH CAMP HILL PA NEW GALILEE PA
Page 22 of 27
<PAGE>
WESTERVILLE OH CARLISLE PA NEW KENSINGTON PA
WOOSTER OH CARNEGIE PA NEW OXFORD PA
XENIA OH COLLEGEVILLE PA NICHOLSON PA
ARDMORE OK DANIELSVILLE PA OLYPHANT PA
BARTLESVILLE OK DILLSBURG PA PALMERTON PA
CLEVELAND OK DOWNINGTOWN PA PHILADELPHIA PA
DUNCAN OK DOYLESTOWN PA PITTSBURGH PA
JENKS OK EFFORT PA PLYMOUTH PA
MIDWEST CITY OK ERIE PA READING PA
MOUNDS OK ESSINGTON PA SCHWNKVL PA
NORMAN OK GEIGERTOWN PA SOUTHAMPTON PA
STROUDSBURG PA ORANGEBURG SC CONROE TX
SUMNEYTOWN PA PROSPERITY SC CONVERSE TX
TEMPLE PA ROCK HILL SC COPPELL TX
TRANSFER PA SIMPSONVILLE SC CORPUS CHRISTI TX
WARRENDALE PA SUMMERVILLE SC CROWLEY TX
WARRINGTON PA TAYLORS SC DAINGERFIELD TX
WAYNE PA BRANDON SD DALLAS TX
WAYNESBORO PA SIOUX FALLS SD DEER PARK TX
WEST CHESTER PA CHATTANOOGA TN DENTON TX
WEST MILTON PA ETOWAH TN DOUGLASSVILLE TX
CAROLINA PR JACKSON TN DRIPPING SPRINGS TX
GUAYNABO PR KINGSPORT TN DUNCANVILLE TX
NARANJITO PR KNOXVILLE TN ELPASO TX
PONCE PR MADISON TN ELGIN TX
SANJUAN PR MANCHESTER TN FLINT TX
SAN LORENZO PR MARYVILLE TN FORT WORTH TX
CHEPACHET RI MEMPHIS TN FRISCO TX
COVENTRY RI MURFREESBORO TN GLENN HEIGHTS TX
NEWPORT RI NASHVILLE TN GRAPEVINE TX
NORTH KINGSTOWN RI TALBOTT TN GREENVILLE TX
PROVIDENCE RI TRENTON TN HEWITT TX
WARREN RI WHITE HOUSE TN HITCHCOCK TX
WARWICK RI ABILENE TX HOUSTON TX
CAYCE-WEST SC AMARILLO TX IRVING TX
Page 23 of 27
<PAGE>
COLUMBIA
CENTRAL SC ARLINGTON TX JARRELL TX
CHARLESTON SC AUBREY TX JUSTIN TX
COLUMBIA SC AUSTIN TX KATY TX
CONWAY SC BAYTOWN TX KENNEDALE TX
ELGIN SC BEAUMONT TX LA MARQUE TX
FLORENCE SC BOERNE TX LAREDO TX
GREENVILLE SC BROOKSTON TX LEWISVILLE TX
INMAN SC BROWNSVILLE TX LONGVIEW TX
IRMO SC BURLESON TX LUBBOCK TX
KINARDS SC CARROLLTON TX LUFKIN TX
LANCASTER SC COLDSPRING TX MESQUITE TX
MIDLAND TX CHESAPEAKE VA WOODBRIDGE VA
MISSOURI CITY TX CHESAPEAKE VA ESSEX JUNCTION VT
ODESSA TX CHESAPEAKE VA MILTON VT
PALMER TX CHESTER VA MONTPELIER VT
PLANO TX CHESTERFIELD VA NORTH HERO VT
PORT LAVACA TX DANVILLE VA AUBURN WA
RICHARDSON TX FAIRFAX VA BLACK DIAMOND WA
ROUND ROCK TX FAIRFIELD VA BOTHELL WA
SAN ANGELO TX FLOYD VA COUPEVILLE WA
SAN ANTONIO TX FOREST VA ENUMCLAW WA
SAVOY TX FREDERICKSBURG VA EVERETT WA
SILSBEE TX GLADYS VA FERNDALE WA
SPRING TX HOPEWELL VA KENT WA
SUGAR LAND TX KING WILLIAM VA MAPLE VALLEY WA
TEMPLE TX LORTON VA OLYMPIA WA
TERRELL TX LYNCHBURG VA PUYALLUP WA
TEXARKANA TX MANASSAS VA SEATTLE WA
THE COLONY TX MIDLOTHIAN VA SHORELINE WA
TYLER TX NOKESVILLE VA SNOHOMISH WA
VENUS TX NORTH VA TACOMA WA
TAZEWELL
WACO TX PORTSMOUTH VA VANCOUVER WA
WICHITA FALLS TX RICHMOND VA YAKIMA WA
Page 24 of 27
<PAGE>
BOUNTIFUL UT RINER VA APPLETON WI
CLEARFIELD UT ROANOKE VA ARENA WI
MIDVALE UT ROANOKE VA CAMBRIDGE WI
OREM UT RUCKERSVILLE VA COTTAGE GROVE WI
PROVO UT SPOTSYLVANIA VA CUSTER WI
SALT LAKE CITY UT STAFFORD VA DE PERE WI
SANDY UT VIENNA VA DOUSMAN WI
ASHLAND VA VIRGINIA BEACH VA FOND DU LAC WI
AYLETT VA VIRGINIA BEACH VA GREEN BAY WI
BEDFORD VA WILLIAMSBURG VA GREENVILLE WI
BUMPASS VA WILLIAMSBURG VA HALES CORNERS WI
CENTREVILLE VA WINCHESTER VA KENOSHA WI
CHARLOTTESVILLE VA WINCHESTER VA LA CROSSE WI
MADISON WI
MENOMONIE WI
MIDDLETON WI
MILWAUKEE WI
MONROE WI
PORTAGE WI
RINGLE WI
SHERWOOD WI
SOUTH MILWAUKEE WI
STEVENS POINT WI
SUAMICO WI
THIENSVILLE WI
WATERTOWN WI
WAUKESHA WI
WAUSAU WI
BECKLEY WV
BRUCETON MILLS WV
CHARLES TOWN WV
CHARLESTON WV
GALLIPOLIS FERRY WV
AFTON WY
CASPER WY
CHEYENNE WY
GREEN RIVER WY
Page 25 of 27
<PAGE>
EXHIBIT F
"OPPORTUNITY FORM"
QMS, Inc. - Product Report / Maintenance Request
<TABLE>
<CAPTION>
Type of Printer: [ ] New Printer [ ] Used Printer Billing Frequency: [ ] Quarterly [ ] Annual
Customer Candidate Name:
Installed at Address Invoice Address
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Contact: Attn:
- -----------------------------------------------------------------------------------------------------------------------
Telephone: Telephone:
- -----------------------------------------------------------------------------------------------------------------------
Fax: Fax:
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Inventory:
<TABLE>
<CAPTION>
Manufacturer/Type Serial Number Features Installed Maintenance Requested Maintenance
Services Start Date Charge
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
For more space to complete this section, attach an additional page, initialed
and dated by IBM. Page Attached: Yes____ No____
Coverage: [ ] 5x9 [ ] 7x24
Upon acceptance of this Opportunity Form a formal contract will be sent to the
customer for execution. Service performed prior to the effective date of service
will be charged on a time and materials basis at IBM's prevailing rates. IBM
reserves the right to inspect the machines to determine maintenance
acceptability and to train the Customer Engineers within 30 days of receiving
the signed contract. In such case, IBM reserves the right to not begin service
for 30 days from the date IBM receives the signed contract.
Customer Candidate agrees to allow IBM to send formal contracts to them.
Yes____ No____
If no, IBM must contact the Customer Candidate to close the deal.
QMS, Inc. __________________ Signature ________________ Date ___________
Name (type or print)
Page 26 of 27
<PAGE>
Acceptance/Rejection: (This section to be completed by IBM)
Date of Acceptance or Rejection _______________ ( ) Accepted ( ) Rejected
Name (type or print) By: _____________________
(Authorized Signature)
Please e-Mail Product Report to "IBM [email protected]"
********************************
PSC Office Use:
IBM Machine Type________________ Model_________Date MAQ Inspection_________
IBM Customer Number________________ Ent. Number___________________
Date Field Notification_________________ PSC B/O______________________
Page 27 of 27
<PAGE>
Attachment C
Parts Support Services Statement of Work
This Statement of Work ("SOW") adopts and incorporates by reference the terms
and conditions of the International Technical Support Agreement # 99SBD155
("Agreement") between IBM and QMS. Transactions performed under this SOW will be
conducted in accordance with and be subject to the terms and conditions of this
SOW, the Agreement and any applicable Work Authorizations ("WAs"). The term for
this SOW will begin 01/03/2000 and end upon termination of the Agreement,
subject to earlier termination as permitted by this Agreement, and subject to
extensions agreed to by the parties in writing. Upon receipt of a WA, Supplier
will sell Parts and/or provide Repair Services as specified in this SOW. This
SOW is not a WA.
BUYER WILL BE REQUIRED TO ISSUE A PO TO SUPPLIER BEFORE BUYER WILL HAVE
COMMITTED TO PURCHASE ANY PARTS OR SERVICES LISTED BELOW.
1.0 DEFINITIONS
"Available for Repair" or "AFR" means Parts which have had prior usage which
require Repair.
"Calendar Days" means (Business Days) consecutive calendar days, less all
Saturdays, Sundays and holidays generally observed in the U.S. by Buyer, or as
governed by the country in which transactions occur.
"Certified Service Parts" or "CSP" means Parts which have had prior usage and
which have been Repaired.
"Consigned Material" means materials that Buyer owns and continues to own that
are entrusted to Supplier.
"Emergency Order" or "EO" means a WA placed by Buyer with a lead time from
Supplier's receipt of the WA to the shipping date not to exceed 24 hours.
"End of Service" or "EOS" means date when customer service and support for a
Parts is officially discontinued.
"Field Replaceable Unit" or "FRU" means a Parts marked with a part number which
Buyer will either Repair or replace at the customer location.
"Lead Time" means the minimum length of time prior to a specific Delivery date
that Supplier must receive a WA from Buyer to ensure delivery by such date.
"New Defective" means a Parts that is not free of defects and fails upon
Delivery and/or installation which may occur as a result of, but not limited to,
shipping, handling, packaging or in manufacture prior to arrival at the delivery
point;
"Parts" means any FRU, specific component of a FRU, subassemblies of a FRU, CSP,
any other part, component or subassembly described in this SOW, documentation,
code and related Services associated with the completed assemblies. In the event
this SOW is issued under a Non-Technical Services Agreement, "Parts" will be
synonymous with "Deliverable".
"Repair" or "Repaired" means all required repair activity including:
disassembly, failure analysis, testing, component recovery, rework, warranty
process, packaging, and/or final testing in accordance with this SOW or relevant
WA.
"Turn Around Time" or "TAT" means the elapsed time from the date of receipt
acknowledgement of a FRU arriving at Supplier's from Buyer until shipment notice
back to Buyer.
"Yield" means the relationship between the AFR sent to Supplier for Repair and
the returned Repaired Parts to Buyer.
2.0 CERTIFICATIONS AND REQUIREMENTS
2.1 General Description
Supplier will provide Parts and/or the Repair of Parts as described hereunder
during the term of this SOW.
2.1.0 CSP Classification Requirements
Parts will only be classified as CSP with Buyer's approval. CSPs will meet the
following criteria: (i) the functional performance of such Parts will comply
with all current and applicable engineering drawings and specifications and at a
failure rate not greater than the acceptable failure rate of a new Parts during
its warranty period (or an acceptable failure rate agreed to by Buyer); (ii) the
appearance of such Parts will be equivalent to that of a new counterpart, except
in the case of internal nonfunctional parts or nonfunctional areas of parts.
2.1.1 CSP Electrical Repair Safety Requirements
Supplier will ensure that all repaired Parts functionality, performance and
appearance are as originally designed by the manufacturer and, if listed, will
be in accordance with National Registered Testing Laboratory (NRTL)
requirements. Repair of Parts will not violate or void any NRTL certification
granted to the original manufacturer. The electrical functionality of the Parts
will not be adversely affected during any process involving cleaning solvents,
paint, etc. Manufacturer warning labels will remain intact and legible or will
be replaced. Protective covers (e.g., guards or shields) will be securely
mounted as originally designed or will be replaced.
1 of 10
<PAGE>
Attachment C
Parts Support Services Statement of Work
2.1.2 COO Parts Certification
Supplier certifies that the Parts have the following country(ies) of origin. If
there are any changes to this information, Supplier will notify Buyer by
providing a new country of origin certification signed by an authorized Supplier
representative before shipping any Parts other than those with the country of
origin listed below for such Parts. If any part number listed has more than one
country of origin, Supplier certifies that each country of origin is listed
below, and Supplier agrees to deliver to Buyer, by 02/01/2000, instructions
regarding how Buyer can distinguish each country of origin for part numbers with
more than one country of origin:
3.0 PRICES, DELIVERY & WARRANTY
3.1 Prices
For the Deliverables and Services Supplier provides Buyer, Buyer will pay
Supplier Prices as described on the attached list of Parts and Prices. The
parties will meet on a quarterly basis, or as mutually agreed to by both
parties, to discuss pricing, reconciliation requirements, measurements or any
other issues as deemed necessary by either party.
3.2 Delivery & Support Requirements
Supplier will deliver Parts to Buyer as described throughout this document.
Supplier will provide support for Parts (e.g., availability of FRU's and/or
components of FRU's) and/or Repair of Parts up to and including the EOS date.
Leadtime for regular non-emergency orders shall be the standard thirty days.
3.3 CSP Warranty Claims
FRU warranty claims (claims on FRUs which have been returned to Buyer as CSP
Repaired but which fails within one hundred & eighty (180) days of such Repair)
by Buyer will state the p/n and date (when available) the FRU was verified by
Buyer to be defective. FRUs returned to Supplier under a FRU warranty claim will
be Repaired and returned to Buyer freight prepaid. Supplier will use reasonable
efforts to return the Repaired FRU to Buyer within thirty-five (35) Days from
date Supplier receives the defective FRU or, at Buyer's option, Supplier will
provide Buyer credit equal to the Price paid by Buyer for such Services on the
FRU. In the event of a FRU warranty claim for FRUs which are no longer available
or required by Buyer, Supplier will compensate Buyer an amount equal to the
Price paid by Buyer for such Services on the FRU. Repair Services will not be
performed on FRU's for second-time failures. In such event, Supplier will credit
or refund Buyer, at Buyer's option, an amount equal to the Price paid by Buyer
for such Services on the FRU (including associated shipping cost) and return the
units to Buyer for scrapping. This does not apply to (PM) Preventive Maintenance
parts.
CSP Warranty Claims Resulting in NDF: "No Defect Found" or "NDF" means a Parts
whose function was suspect, but no specific fault was detected during Supplier's
performance of failure analysis. Buyer will reimburse Supplier the actual and
reasonable cost associated with NDF screening and in no event will such costs
exceed an amount equal to the Price paid by Buyer for such Services on the FRU.
3.4 Parts Warranty Claims
For all additional parts and FRU Parts note covered by section 3.3 (CSP
Warranty Claims), Supplier agrees to provide a warranty period of not less than
one hundred and eighty (180) days from parts delivery. In no case, will said
warranty be for a period less than that provided by Supplier to its most favored
customers. Supplier will provide Buyer all information necessary for Buyer to
entitle and redeem the warranty. In the event of an FRU warranty claim for FRUs
which are no longer available or required by Buyer, Supplier will credit or
refund Buyer at Buyer's option, an amount equal to the Price paid by Buyer to
purchase the parts. This does not apply to PM parts.
3.5 CSP and Parts Warranty Returned
Buyer will ship all FRU parts, parts, and deliverables returned as warranty
claims to Supplier as prepaid.
2 of 10
<PAGE>
Attachment C
Parts Support Services Statement of Work
4.0 INVOICES, PAYMENTS & TAXES
4.1 Invoices & Payments
Supplier will invoice Buyer upon shipment of FRUs or provision of Services.
Terms for payment on all invoices will be net thirty (30) days from receipt of
an acceptable invoice by Buyer, unless specified otherwise. Invoices to Buyer
must include, at a minimum, the following: (i) applicable PO line item numbers
(ii) SOW and PO #, (iii) terms of payment as stated above; (iv) billing period
dates; (v) applicable bill rates; (vi) other authorized expenses (e.g., business
travel); (vii) total amount invoiced.
4.2 Taxes and Duties
Supplier warrants that the Prices do not include sales, use or similar taxes
applied against the finished Parts sold to Buyer. Regardless of the delivery
term, Supplier will be responsible for all legal, regulatory and administrative
requirements, in addition to all associated duties and fees, associated with
importation of Parts into the country where the Parts is received by Buyer.
4.3 Routing & Invoicing Instruction
Supplier will comply with the Routing and Billing requirements as specified by
Buyer (hard copy only available upon request).
5.0 CONSIGNED MATERIALS
5.1 Title & Ownership of Consigned Materials
Buyer will retain title to Consigned Material during the entire period of Repair
by Supplier.
5.2 Care & Handling of Consigned Materials
Supplier will: (i) use Consigned Materials only in the performance of this SOW
and will not reuse or resell nor allow to be reused or resold any Consigned
Material without Buyer's prior written authorization; (ii) acknowledge receipt
of Consigned Materials within five (5) Calendar Days of receipt, to include
reporting any shortages or overages, by e-mailing or faxing Buyer's Consignment
Coordinator, such acknowledgment to include p/n, relevant WA and quantity (any
shortages not reported to Buyer's Consignment Coordinator within five (5)
Business Days of Supplier's receipt of the relevant packing list will be deemed
received by Supplier); (iii) immediately notify carrier and Buyer's Consignment
Coordinator of any Consigned Materials that exhibit external damage at the time
of delivery, document on carrier's freight bill such damage, and receive either
an inspection report or a letter from carrier stating that such inspection has
been waived; (iv) report to ensure Consigned Materials are not pledged or
encumbered and are not be removed from Supplier's location without Buyer's prior
written authorization, unless sold by Supplier in the regular course of business
and in accordance with the terms and conditions of this SOW; (v) permit Buyer to
inspect Consigned Materials at any time during normal business hours, at
Supplier's location and to remove any or all of the same if Buyer so desires;
(vi) maintain replacement cost insurance on Consigned Materials; (vii) upon
termination or expiration of this SOW, return Consigned Materials to Buyer
pursuant to Buyer's instructions and in the same condition as received by
Supplier; and (viii) make due settlement and payment, if not already made, for
any and all Consigned Materials not returned to Buyer or sold, stolen, stripped,
lost, damaged or unaccounted for; (ix) upon Buyer request, mark Consigned
Material in a manner acceptable to Buyer to indicate Buyer's ownership.
5.3 Risk of Loss of Consigned Materials
Supplier will reimburse Buyer for Consigned Materials that are stripped, stolen,
lost, damaged or unaccounted for. The calculations for reimbursement of
Consigned Materials is as follows: (i) for new Consigned Materials Supplier will
reimburse Buyer an amount equal to Buyer's then current Price for the Consigned
Materials; or (ii) for used Consigned Materials Supplier will reimburse Buyer an
amount equal to twenty-five percent (25%) of Buyer's weighted average cost per
piece.
5.4 Return of Consigned Materials
Supplier will provide a packing slip with all return shipments of Consigned
Materials to Buyer which specify Supplier's name, Buyer p/n being shipped,
quantity of each p/n being shipped, and the relevant WA number. In addition to
the above, the packing slip for Consigned Materials which are un-repairable will
also reference a return authorization number (such numbers are obtained by
contacting Buyer's Consignment Coordinator), provide a reason for return, and
will be shipped
3 of 10
<PAGE>
Attachment C
Parts Support Services Statement of Work
within five (5) Calendar Days after receiving Buyer's authorization. Buyer
reserves the right to perform periodic or annual inventory audits of Consigned
Materials, with prior notification to Supplier.
6.0 EMERGENCY & NON-EMERGENCY ORDERS
Note: For the first 30 days of this Agreement (the start-up period) IBM will
waive Supplier Performance Measurements.
6.1 Emergency Order Placement
Supplier will accept Emergency Orders during normal business hours on all
business days. In addition, for end-users that are entitled to 7x24 service
coverage, supplier will accept and respond to Emergency Orders from Buyer twenty
four (24) hours a day, each day of the year. Order confirmation time period
begins at the time of Order placement by Buyer. Normal coverage for these
Emergency Orders will be during normal business hours. Supplier will provide a
telephone service number for Emergency Order coverage during weekends, holidays
and/or off-shift hours. All Emergency Orders are to be responded to within the
time periods designated below. Buyer will place and Supplier will respond to all
Emergency Orders with Supplier via fax, EDI (or other electronic commerce
approach) and/or telephone, such Emergency Order to be confirmed by Buyer with a
written WA mailed or electronically transmitted to Supplier within two (2)
Calendar Days of WA placement. Supplier will acknowledge all Emergency Orders
back to Buyer via fax or telephone within the specified order confirmation time
periods stated below.
6.2 Emergency Order Work Authorizations
WAs will include Buyer's Purchase Order number, Buyer's part number, part number
description, quantity, unit Price, order type (short lead time, in the event a
short lead time order is placed, are orders with requested Delivery Dates in
less than the agreed to Lead Time), regular, Emergency Order with the following
codes: A-Alert, A/S, X and B, Delivery Date and ship to address.
6.3 Emergency Order Codes
Supplier will ship code A-Alert Orders for next Calendar Day, unless
specifically designated otherwise by Buyer, to arrive at the Buyer specified
receiving location. If requested by Buyer, Supplier will ship code A-Alert
Orders via "Next Flight Out" and "Air Charter" to arrive at Buyer's specified
receiving location on the same Day of the WA. Supplier will ship code A/S, X and
B Orders to arrive on the next Calendar Day at the Buyer specified receiving
location, subject to receipt of WA's from Buyer within a period reasonably
allowing Supplier to meet cutoff times established by the transportation
carriers.
- --------------------------------------------------------------------------------
EMERGENCY ORDER CODES
- --------------------------------------------------------------------------------
ORDER CLASSIFICATION CONFIRMATION TIME FRAMES TIME BETWEEN ORDER RECEIPT
AND SHIPMENT
- --------------------------------------------------------------------------------
PREMIUM A
- --------------------------------------------------------------------------------
Code A-Alert/S 1 HOUR Next Calendar Day or Same
Day Upon Requested
- --------------------------------------------------------------------------------
PREMIUM B
- --------------------------------------------------------------------------------
Code X and B 2 HOURS 24 HOURS
- --------------------------------------------------------------------------------
6.4 Emergency Order Delivery and Cancellation
Supplier will deliver Emergency Orders directly to the address specified in the
WA and in accordance with this SOW. Buyer may cancel the Emergency Order without
cost by contacting Supplier within the WA confirmation time frame.
6.5 Carrier Cutoffs for Emergency Orders
If the transportation carrier's cutoff time is missed because of Supplier's
negligence or omission, then shipment must be made to Buyer's specified
receiving location via the first available premium service for morning delivery
at Supplier's expense. If the transportation carrier's cutoff time is missed
because of a WA being placed by Buyer after the established cutoff times
provided by the transportation carriers, Supplier will inform Buyer as soon as
practicable and Buyer will determine if the Emergency Order being placed is
required for delivery in the morning of the next Day or any time during the next
Day.
4 of 10
<PAGE>
Attachment C
Parts Support Services Statement of Work
6.6 Non-Emergency Order Placement
Buyer will place and Supplier will respond to all Non-Emergency Orders placed
with Supplier thirty (30) Calendar Days or more, unless a shorter Lead Time is
specified hereunder, prior to the requested Delivery Date and in accordance with
this SOW.
6.7 Non-Emergency Order Delivery & Cancellation
Supplier will not deliver Parts more than ten (10) Calendar Days in advance of
scheduled delivery date, as stated in the applicable WA, unless agreed to
otherwise in writing by Buyer. WA's placed with Supplier may not be canceled or
changed (eg. the quantity modified) within thirty (30) Calendar Days (Frozen
Zone) of the scheduled Delivery Date. Supplier will evaluate all requests for
Delivery Date or quantity changes within the Frozen Zone and will advise Buyer
within five (5) Calendar Days after receipt of Buyer's request for change
whether or not such request are accepted. WA may be canceled, rescheduled or
otherwise modified more than thirty (30) Calendar Days prior to the scheduled
Delivery Date without any liability or cost to Buyer.
7.0 SUPPLIER PERFORMANCE AND MEASUREMENTS
7.1 Supplier Performance Criteria
Supplier's performance will be measured against the following criteria.
Supplier scores are calculated on a monthly basis and are used to compare to
other similarily situated suppliers and the awarding of business.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Criterion Target Point System
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
New Defective Rate Less than 2% No Points Applied
- -----------------------------------------------------------------------------------------------------------------------------
On Time Performance 95%
(rating includes average leadtime Ship Pts. Lt. Lend Time
factor of part in overall % Mos. Factor
performance) 98-100 8 1 1
95-97 7 2 0.95
(Ship Points x Lead Time Factor = 90-94 4 3 0.9
total On Time Performance Rating) 85-89 2 4 0.85
80-84 0 5 0.8
less than 80 -2 6 0.75
less than 70 -4 7 0.7
- -----------------------------------------------------------------------------------------------------------------------------
Past Due Orders 0
(shipment received greater than 30 30 + Days Points
days after) less than 1 0
1-5 -1
5-10 -2
10-20 -3
greater than 20 -4
-----------------------------------------------------------------------------------------------------------------------------
Emergency Order 70% Objective Points
(tracks number of orders in a 70-100 3
given month that exceed target by 65-69 2
calculating percentage of orders 60-64 1
filled against orders placed) less than 60 0
- -----------------------------------------------------------------------------------------------------------------------------
Inbound Quality 98% Inbound Points
(tracks quality of shipments Quality
received ie. missing packing 100 3
slip, wrong part etc) 95-99 2
90-94 1
less than 90 -1
-----------------------------------------------------------------------------------------------------------------------------
Early Shipments Less than $200 Avg. $ Impact Points
</TABLE>
5 of 10
<PAGE>
Attachment C
Parts Support Services Statement of Work
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
Criterion Target Point System
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(compares delivery date versus $ (or local currency equivalent) impact Avg. $ Impact Points
actual request date) for delivery prior to 10 days before 0-200 0
actual date due 200-500 -1
501-1000 -2
Greater Than 1000 -3
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
7.2 Unsatisfactory Performance Review
In any calendar month in which Supplier fails to meet the Performance
Crieria specified in this Section of the SOW, Supplier will respond to Buyer
with an agreed upon action plan within five (5) Days of notification by Buyer
demonstrating its ability to achieve the required measurements. Supplier's
failure to successfully execute an action plan within an agreed upon time frame,
may result in substantial or complete reduction of new business awards from
Buyer.
8.0 COMMUNICATIONS
All communications between the parties will be carried out through the
following designated coordinators:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Business Coordinators
- ------------------------------------------------------------------------------------------------------------------
FOR SUPPLIER FOR BUYER
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Name Dan Hartung Name Mike Hickey
Title Logistics/Purchasing Manager Title Project Manager
Address One Magnum Pass, Mobile AL 36618 Address One Mack Drive, Mack Center II,
Paramus, NJ 07653
Phone 334-634-7464 Phone 201-967-6421
Fax 334-633-3145 Fax 201-848-5553
Email dan_hartung@nfs>qms.com Email [email protected]
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Legal Coordinators
- ------------------------------------------------------------------------------------------------------------------
FOR SUPPLIER FOR BUYER
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Name Dan Hartung Name Mike Hickey
Title Logistics/Purchasing Manager Title Project Manager
Address One Magnum Pass, Mobile AL 36618 Address One Mack Drive, Mack Center II,
Paramus, NJ 07653
Phone 334-634-7464 Phone 201-967-6421
Fax 334-633-3145 Fax 201-848-5553
Email dan_hartung@nfs>qms.com Email [email protected]
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Technical Coordinators
- ------------------------------------------------------------------------------------------------------------------
FOR SUPPLIER FOR BUYER
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Name Dan Hartung Name Mike Hickey
Title Logistics/Purchasing Manager Title Project Manager
Address One Magnum Pass, Mobile AL 36618 Address One Mack Drive, Mack Center II,
Paramus, NJ 07653
Phone 334-634-7464 Phone 201-967-6421
Fax 334-633-3145 Fax 201-848-5553
Email dan_hartung@nfs>qms.com Email [email protected]
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
9.0 ELECTRONIC COMMERCE
Unless previously submitted by Supplier, in order to initiate electronic
transfer of payments associated with this SOW, Supplier will complete the
attached form entitled "Authorization for Electronic Funds Transfer" and fax the
completed form to Accounts Payable at the number included on the form.
6 of 10
<PAGE>
Attachment C
Parts Support Services Statement of Work
Unless previously submitted by Supplier, in order to initiate electronic
transfer of payments associated with this SOW, Supplier will provide the
required information in the attachment entitled "Electronic Funds Transfer."
10.0
<TABLE>
<CAPTION>
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
<S> <C> <C> <C>
By: /s/ James N. Fox January 5, 2000 By: /s/ Edward E. Lucente
- ------------------------------------------------------- -------------------------------------------------------
Buyer Signature Date Supplier Signature Date
James N. Fox Edward E. Lucente
- ------------------------------------------------------- -------------------------------------------------------
Printed Name Printed Name
Vice President, Availability Services Chairman
- ------------------------------------------------------- -------------------------------------------------------
Title & Organization Title & Organization
- ------------------------------------------------------- -------------------------------------------------------
Buyer Address: 6300 Diagonal Highway Supplier Address: One Magnum Pass
Boulder, CO 80301 Mobile, Alabama 36618
</TABLE>
7 of 10
<PAGE>
Attachment C
Parts Support Services Statement of Work
International Business Machines Corporation
1701 North St.
Endicott, NY 13760
AUTHORIZATION FOR ELECTRONIC FUNDS TRANSFER
You hereby authorize IBM to initiate credit entries to the account listed below
in connection with agreed upon Electronic Data Interchange (EDI) transactions
between our companies. You agree that such transactions will be governed by the
National Automated Clearing House Association rules. This authority is to remain
in effect until IBM has received written notification of termination in such
time and such manner as to afford IBM a reasonable opportunity to act on it. IN
NO EVENT SHALL IBM BE LIABLE FOR ANY SPECIAL, INCIDENTAL, EXEMPLARY OR
CONSEQUENTIAL DAMAGES AS A RESULT OF THE DELAY, OMISSION OR ERROR OF AN
ELECTRONIC CREDIT ENTRY, EVEN IF IBM HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. This Agreement shall be governed by the laws of the State of New York.
Trading Partner Name ____________________________________________
Payment Remit Address ____________________________________________
in the event a paper
check needs to be sent ____________________________________________
City, State ______________________________ ZIP _________
Account Payee (If different than above) _______________________________
Address _________________________________________
_________________________________________
City, State ___________________________ ZIP _________
EFT Domestic Banking Institution ________________________________________
Contact Name / Title _________________________________________
Contact Phone Number _________________________________________
Address _________________________________________
_________________________________________
City, State ___________________________ ZIP _________
Account Number ______________________________ (MAX 17)
Bank Routing / Transit Cd ______________________________ (MAX 9)
Remit Advice Option _____ 1 _______________________________________
_____ 2 DUNS# / UserID + Acct# - See Attachment
Tax ID Number __________________________________
By ______________________________________________________
authorized signature
8 of 10
<PAGE>
Attachment C
Parts Support Services Statement of Work
Name ______________________________________________________
Title ______________________________________________________
Phone Number ______________________________________________________
Date _____ / _____ / _____
Fax completed form to Accounts Payable: FAX No. (607) 755-6124
9 of 10
<PAGE>
ASSIGNMENT OF CONTRACTS
-----------------------
THIS ASSIGNMENT OF CONTRACTS is executed and delivered by and between QMS,
Inc. ("Assignor"), and International Business Machines Corporation ("Assignee");
WITNESSETH:
----------
WHEREAS, Assignor is a party to certain contracts listed on Exhibit A
---------
hereto, which contracts relate to the operation of its non-warranty product
service business (the "Contracts");
WHEREAS, Assignee desires to purchase from Assignor, and Assignor desires
to sell and assign, as specified hereinbelow, to Assignee, the Contracts and all
amendments thereto and all of Assignor's right, title and interest therein;
NOW, THEREFORE, in consideration of the premises and the agreements and
covenants herein set forth, together with other good and valuable consideration
on this day paid and delivered by Assignee to Assignor, the receipt and
sufficiency of which are hereby acknowledged, Assignor does hereby ASSIGN,
TRANSFER, SET OVER, DELIVER AND CONVEY unto Assignee the Contracts and all of
the rights, benefits and privileges of the Assignor thereunder, but subject to
all terms, conditions, reservations and limitations set forth in the Contracts.
TO HAVE AND TO HOLD the same, all and singular unto Assignee and Assignee's
heirs, successors and assigns, forever.
1. It is specifically agreed that Assignor shall not be responsible to any
of the parties to the Contracts for the discharge and performance of any duties
and obligations to be performed and/or discharged by Assignor thereunder after
the date hereof. By accepting this Assignment of Contracts and by his execution
hereof, Assignee hereby assumes and agrees to perform all of the terms,
covenants and conditions of the Contracts on the part of Assignor heretofore
therein required to be performed, from and after the date hereof.
<PAGE>
2. All of the covenants, terms and conditions set forth herein shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns.
IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment of
Contracts to be executed and delivered this 5th day of January, 2000.
ASSIGNOR:
QMS, Inc.
/s/ Edward E. Lucente
--------------------------------------------
By: Edward E. Lucente
As its Chairman
ASSIGNEE:
International Business Machines Corporation
/s/ James N. Fox
--------------------------------------------
By: James N. Fox
As its Vice President, Availability Services
EXHIBIT A
List of Contracts
<PAGE>
EXHIBIT 10(j)(i)
March 2, 2000
QMS, Inc.
One Magnum Pass
Mobile, Alabama 36618
Re: Credit Agreement dated as of August 19, 1999 by and between
QMS, Inc. (the "Company") and Harris Trust and Savings Bank
Gentlemen:
We refer to that certain Credit Agreement dated as of August 19, 1999
currently in effect between you and us (the "Credit Agreement"). Terms used
herein without definition shall have the same meaning herein as such terms have
in the Credit Agreement.
The Company has informed us that the Company is in default of its
obligations under (i) Section 8.7 of the Credit Agreement by reason of its
failure through and including December 31, 1999, to maintain a Tangible Net
Worth at not less than $6,500,000, and (ii) Section 8.9 of the Credit Agreement
by reason of its failure as of December 31, 1999, to maintain a Fixed Charge
Coverage Ratio of not less than .90 to 1.
We hereby waive through and including (but not after) December 31, 1999,
your compliance with Sections 8.7 and 8.9 of the Credit Agreement.
This waiver is limited to the matter expressly stated herein. Except as
specifically waived hereby, all of the terms and conditions of the Credit
Agreement shall stand and remain in full force and effect. This waiver shall be
construed and determined in accordance with, and governed by, the laws of the
State of Illinois.
Very truly yours,
HARRIS TRUST AND SAVINGS BANK
By: /s/ James Andricopulos, Jr.
---------------------------
Its Vice President
<PAGE>
[LETTERHEAD OF HARRIS BANK APPEARS HERE]
Exhibit 10(j)(ii)
March 20, 2000
QMS, Inc.
One Magnum Pass
Mobile, Alabama 36618
Re: QMS, Inc. (the "Company")/Lease
Gentlemen:
You have informed us that the Company is currently in default of its
February 18, 1997 Lease Agreement with INK (AL) QRS 12-21, Inc. We understand
that this Lease is for the Company's use of its principal offices in Mobile.
The Lease is in default as a result of the Company's failure to comply as of
September 30, 1999 with the Lease's requirements in its Section 33 (Exhibit G)
with respect to the Consolidated Fixed Charge Coverage Ratio, Consolidated Net
Worth, Current Ratio and Debt to Equity Ratio. We will refer to this default as
"Lease Default."
As you know, the terms of the Company's credit arrangements with us are
governed by its August 19, 1999 Credit Agreement with us (which Credit Agreement
as previously amended, we will for reasons of convenience refer to in this
letter as the "Credit Agreement"). If the Company is in default of the Lease,
it is also (by virtue of Section 9.1(f) of the Credit Agreement) in default of
the Credit Agreement. You have requested that we waive the Event of Default
which arises under the Credit Agreement by virtue of the Company's default under
the Lease.
Accordingly, in response to the Company's request, we hereby waive the
Event of Default which arises under clause (i) of Section 9.1(f) of the Credit
Agreement by virtue of the Lease Default if and so long as:
(a) the Company keeps rent current on the Lease;
<PAGE>
QMS Inc.
March 20, 2000
Page 2
(b) the landlord under the Lease takes no action to enforce any of its
rights and remedies under the Lease in respect of the Lease Default,
including without limitation its rights to evict the Company, accelerate
repayment of the rent and levy and distrant for unpaid rent, or in the
event the landlord takes any such action, the default under the Lease
giving rise to that action is cured within five days to the same extent as
if it had never occurred (with the enforcement action halted and the Lease
continuing on in the normal course); and
(c) Minolta agrees with the Company to provide the Company the funds
necessary to cure any default under the Lease or to buy the leased
premises.
Except as specifically waived hereby, all of the terms and conditions of
the Credit Agreement shall stand and remain unchanged and in full force and
effect. We are not, for example, waiving any other noncompliance with the
Lease.
Very truly yours,
HARRIS TRUST AND SAVINGS BANK
By: /s/ James Andricopulos, Jr.
---------------------------------
Its Vice President
<PAGE>
Exhibit 10(x)(vii)
PROMISSORY NOTE
QMS, Inc.
Funding Date: December 22, 1999
Principal Amount: U.S. $5,000,000
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 Amount of five million Dollars ($5,000,000), or, if
less, the unpaid principal amount of the Additional Loan (as defined in the Loan
Agreement referred to below) of the Lender to the Borrower made on the Funding
Date set forth above (the "Loan"), payable in thirty-five (35) equal
installments of one-hundred thirty-eight thousand nine hundred Dollars
($138,900) due on the tenth (10th day) of each calendar month starting on the
full calendar month next succeeding the first anniversary of the Funding Date
set forth above until November 10, 2003 and the Borrower shall repay the entire
unpaid principal amount of the Loan on December 10, 2003.
The Borrower also promises to pay interest on the unpaid principal amount of the
Loan from the date hereof until paid at the rates (which shall not exceed the
maximum rate permitted by applicable law) and at the times determined in
accordance with the provisions of that certain Amended and Restated Loan
Agreement, dated as of November 10, 1999, by and between the Lender and the
Borrower (including, without limitation, all annexes, exhibits and schedules
thereto and as the same may be amended, restated, modified or supplemented from
time to time, the "Loan Agreement").
This Promissory Note is issued pursuant to, and is entitled to the benefits of,
the Loan Agreement and the other Loan Documents, to which reference is hereby
made for a more complete statement of the terms and conditions under which the
Additional Loan evidenced hereby are made and are to be repaid. Capitalized
terms defined in the Loan Agreement and not otherwise defined herein are used
herein with the meanings so defined.
All payments of principal and interest in respect of this Promissory Note shall
be made to the Lender not later than 11:00 A.M. (New York City time) on the date
and at the place due, to the Lender's account in lawful money of the United
States of America in same day funds.
This Promissory Note may be prepaid at the option of the Borrower as provided in
Section 2.4 (Optional Prepayments) of the Loan Agreement and must be prepaid in
accordance with such section.
The 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.
Upon the occurrence of any one or more of certain Events of Default, the unpaid
balance of the principal amount of this Promissory Note may become, and upon the
occurrence and continuation of any one or more of certain other Events of
Default, such unpaid balance may be declared to be, due and payable in the
manner, upon the conditions and with the effect provided in the Loan Agreement.
No reference herein to the Loan Agreement and no provisions of this Promissory
Note, the Loan Agreement or the other Loan Documents shall alter or impair the
obligation of the Borrower, which is absolute and unconditional, to pay the
principal of and interest on this Promissory Note at the place, at the
respective times, and in the currency herein prescribed.
The Borrower promises to pay all costs and expenses, including, without
limitation, reasonable attorneys' 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 Loan Agreement.
Time is of the
<PAGE>
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 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.
This Promissory Note is secured by certain of the Loan Documents, and reference
is made to such Loan Documents for the terms and conditions governing the
collateral security for the Obligations of the Borrower hereunder.
IN WITNESS WHEREOF, the Borrower has caused this Promissory Note to be executed
in the United States of America and delivered by its duly authorized officer, as
of the day and year and at the place first above written.
QMS, Inc.
By: /s/ Edward E. Lucente
Name: Edward E. Lucente
Title: Chief Executive Officer and President
<PAGE>
Exhibit 10(x)(viii)
PROMISSORY NOTE
QMS, Inc.
Funding Date: February 4, 2000
Principal Amount: U.S. $10,000,000
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 Amount of ten million Dollars ($10,000,000), or, if
less, the unpaid principal amount of the Additional Loan (as defined in the Loan
Agreement referred to below) of the Lender to the Borrower made on the Funding
Date set forth above (the "Loan"), payable in thirty-five (35) equal
installments of two hundred seventy-seven thousand eight hundred Dollars
($277,800) due on the tenth (10th day) of each calendar month starting on the
full calendar month next succeeding the first anniversary of the Funding Date
set forth above until January 10, 2004 and the Borrower shall repay the entire
unpaid principal amount of the Loan on February 10, 2004.
The Borrower also promises to pay interest on the unpaid principal amount of the
Loan from the date hereof until paid at the rates (which shall not exceed the
maximum rate permitted by applicable law) and at the times determined in
accordance with the provisions of that certain Amended and Restated Loan
Agreement, dated as of November 10, 1999, by and between the Lender and the
Borrower (including, without limitation, all annexes, exhibits and schedules
thereto and as the same may be amended, restated, modified or supplemented from
time to time, the "Loan Agreement").
This Promissory Note is issued pursuant to, and is entitled to the benefits of,
the Loan Agreement and the other Loan Documents, to which reference is hereby
made for a more complete statement of the terms and conditions under which the
Additional Loan evidenced hereby are made and are to be repaid. Capitalized
terms defined in the Loan Agreement and not otherwise defined herein are used
herein with the meanings so defined.
All payments of principal and interest in respect of this Promissory Note shall
be made to the Lender not later than 11:00 A.M. (New York City time) on the date
and at the place due, to the Lender's account in lawful money of the United
States of America in same day funds.
This Promissory Note may be prepaid at the option of the Borrower as provided in
Section 2.4 (Optional Prepayments) of the Loan Agreement and must be prepaid in
accordance with such section.
The 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.
Upon the occurrence of any one or more of certain Events of Default, the unpaid
balance of the principal amount of this Promissory Note may become, and upon the
occurrence and continuation of any one or more of certain other Events of
Default, such unpaid balance may be declared to be, due and payable in the
manner, upon the conditions and with the effect provided in the Loan Agreement.
No reference herein to the Loan Agreement and no provisions of this Promissory
Note, the Loan Agreement or the other Loan Documents shall alter or impair the
obligation of the Borrower, which is absolute and unconditional, to pay the
principal of and interest on this Promissory Note at the place, at the
respective times, and in the currency herein prescribed.
The Borrower promises to pay all costs and expenses, including, without
limitation, reasonable attorneys' 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 Loan Agreement.
Time is of the
<PAGE>
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 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.
This Promissory Note is secured by certain of the Loan Documents, and reference
is made to such Loan Documents for the terms and conditions governing the
collateral security for the Obligations of the Borrower hereunder.
IN WITNESS WHEREOF, the Borrower has caused this Promissory Note to be executed
in Mobile, Alabama, in the United States of America and delivered by its duly
authorized officer, as of the day and year and at the place first above written.
QMS, Inc.
By: /s/ Edward E. Lucente
Name: Edward E. Lucente
Title: Chief Executive Officer and President
<PAGE>
Exhibit 10(x)(ix)
PROMISSORY NOTE
February 8, 2000
U.S. $4,000,000.00
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 first 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 March 10, 2000. 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 March 10, 2000, 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 February 8, 2004, the maturity
date of this Promissory Note.
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
<PAGE>
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 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:
QMS Europe B.V., a corporation
organized under the laws of The
Netherlands
By: Jan Sunderlin
Title: Managing Director
<PAGE>
EXHIBIT 10(x)(x)
ING BANK
District Haaglanden
Postbus 204, 2501 AT Den Haag
QMS Europe B.V. Afdeling Wholesale
Attn. Mr. A.C. Steenkamer Telefoon (070)3189 139
P.O. Box 8540 Referentie R. Hordijk
3503 RM Utrecht Datum 11 February 2000
Subject: Waiver
Dear Mr. Steenkamer,
ING Bank N.V., ING Mezzanine Fonds B.V. and NMB Heller N.V. (hereinafter jointly
referred to as "The Bank") hereby informs you as follows.
QMS Europe B.V., with registered office at Utrecht, The Netherlands, hereinafter
referred to as "Debtor", has received credit from The Bank under certain
conditions, amongst which the condition that (1) the equity of Debtor, as
defined, will not decrease below NLG 20 million and (2) the solvency ratio of
Debtor, as defined, will be at least 25%.
As per December 31, 1999 Debtor was in non-compliance with the abovementioned
conditions.
The Bank hereby waives the aforementioned non-compliance retroactively.
The Bank shall continue to monitor compliance with the conditions in the future.
The next check will take place on the basis of the internal figures of June 30,
2000, which have to be made available to The Bank no later than August 1, 2000.
Kind Regards,
The Bank
by ING Bank, District of Haaglanden
/s/ P.L.M. Robijns
P.L.M. Robijns
Chairman
<PAGE>
EXHIBIT 11
QMS, INC. AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE NET INCOME (LOSS)
For the Fiscal Year Ended December 31, 1999, the Transition Period Ended January
1, 1999, and the Fiscal Years Ended October 2, 1998, and October 3, 1997
<TABLE>
<CAPTION>
Transition
(in thousands, except per share amounts) 1999 Period 1998 1997
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $(27,400) $ 112 $ 1,825 $(26,122)
======== ======= ======= ========
Shares used in this computation:
Weighted average common shares
outstanding (basic) 12,152 10,697 10,697 10,696
Shares applicable to stock options, net
of shares assumed to be purchased
from proceeds at average market 0 179 190 0
-------- ------- ------- --------
Total diluted shares 12,152 10,876 10,887 10,696
======== ======= ======= ========
Net income (loss) per common share:
Basic and diluted before extraordinary loss $ (2.22) $ 0.01 $ 0.17 $ (2.44)
Extraordinary loss (0.03) .00 .00 .00
-------- ------- ------- --------
Basic and diluted after extraordinary loss $ (2.25) $ 0.01 $ 0.17 $ (2.44)
======== ======= ======= ========
Weighted average number of shares used in
computing net income (loss) per share:
Basic 12,152 10,697 10,697 10,696
Diluted 12,152 10,887 10,887 10,696
</TABLE>
<PAGE>
EXHIBIT 21
QMS, INC.
SUBSIDIARIES AND TRADE NAMES
Unless indicated otherwise, each of the following is a
wholly owned subsidiary of QMS, Inc.
State or Other
Jurisdiction of Other Names Under Which
Legal Name of Subsidiary Incorporation Subsidiary Does Business
- ------------------------ ------------------- ------------------------
QMS Circuits, Inc. Delaware QCI
QMS Foreign Sales, Inc. U.S. Virgin Islands
QMS K.K. Japan
QMS Canada, Inc. Canada
QMS Europe B.V. The Netherlands
QMS Australia PTY Ltd. Australia
As of December 31, 1999
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
333-14891, 333-66377, and 333-66379 of QMS, Inc. and subsidiaries on Form S-8 of
our report dated March 2, 2000 (March 20, 2000 as to the fifth paragraphs of
Note 8 and Note 20) appearing in the Annual Report on Form 10-K of
QMS, Inc. and subsidiaries for the fiscal year ended December 31, 1999.
DELOITTE & TOUCHE LLP
Birmingham, Alabama
March 27, 2000
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