SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 28, 1996
OR
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______________ to
_______________.
0-17541
(Commission File No.)
PRESSTEK, INC.
(Exact name of registrant as specified in its charter)
Delaware 02-0415170
(State or other juris- (I.R.S. Employer
diction of incorporation or Identification No.)
organization)
8-9 Commercial Street, Hudson, New Hampshire 03051
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (603) 595-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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 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. |X|
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of February 28, 1997, was approximately
$640,000,000.
As of February 28, 1997, there were 15,393,996 shares of the registrant's Common
Stock outstanding.
Documents Incorporated by Reference: None
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PART I
Item 1. Business.
Set forth below is a glossary of certain terms used in this report:
A2(4-up) a printing term referring to a standard paper size capable
of printing four 8.5" x 11" pages on a sheet of paper
A3(2-up) a printing term referring to a standard paper size capable
of printing two 8.5" x 11" pages on a sheet of paper
Ablation a controlled detachment/vaporization caused by a thermal
event. This process is used during the imaging of the
Company's PEARL(R) consumables
Bitmap a rasterized computer file containing picture elements that
define whether to image or not, a map of laser sites
Color a printing industry classification denoting prepress
service bureaus functions
Commercial a printing industry classification denoting print providers
printers offering general printing services
Computer-to-plate a general term referring to the exposure of
(direct-to-plate) lithographic plate material from a digital database,
off-press
Dampening solution traditional lithographic printing chemical bath
used to coat the non-image areas of a printing plate
Direct Imaging (DI) Digital Imaging systems that allow image carriers
technologies (film and plates) to be imaged from a digital
database, on-and off-press
Dots per inch (dpi) a measurement of the resolving power or the
addressability of an imaging device
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Effluents waste materials that flow from photographic processing
equipment, which are often toxic in nature
Electrophotography an imaging and reproduction method similar to xerography in
which a corona charges and attracts a toner-based material
to image areas and then transfers the image to paper
GTO-DI the first generation of Direct Imaging, waterless presses
available in two, four and five printing station
configuration, a joint effort between Heidelberg and
Presstek
Heidelberg Heidelberger Druckmaschinen AG, the world's largest printing
press manufacturer, headquartered in Heidelberg, Germany
Imagesetter a graphic arts term referring to digital exposure of an
image carrier, most often used when referring to film
Imposition a graphic arts term referring to the positioning of pages on
a press sheet to ensure the correct order after the printed
sheet is folded and trimmed
Infrared lying outside of the visible spectrum at its red-end longer
wavelengths; used in the Company's thermal imaging process
Ink density a numerical reading from a densitometer (light measuring
tool) used to determine the proper ink coating on
a printed sheet
Large format a printing term referring to printing layouts that
include four or more pages on a single sheet of paper
Lithographic printing from a single plane surface under the principle
that image area carries ink and the nonimage area does not,
and that ink and water do not mix
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On-demand a manufacturing philosophy when applied to printing provides
faster service, shorter run lengths and less inventory
PEARL(R) the name associated with Presstek's current laser imaging
technologies and related products and consumables
PEARL Imaging the Presstek components required to convert a conventional
systems printing press into a Direct Imaging press, including laser
diode arrays, computers, electronics
PEARLsetter(TM) the Company's product line of computer-to-plate, off-press
plate making equipment
Photosensitive silver halide emulsions exposed by a reaction to light
requiring a subsequent chemical development and
stabilization process
Platemaking the process of applying a printable image to a printing
plate
PostScript(R) a page description programming language developed by Adobe
Systems, Inc., a defacto standard in the printing industry
Prepress graphic arts operations and methodologies that occur prior
to the printing process; typically these include
photography, scanning, image assembly, exposure of image
carriers (film and/or plate), proofing
Quickmaster 46-4; the second generation of Direct Imaging, waterless
Quickmaster DI presses, highly automated with roll-fed PEARL plate
material, a joint effort between Heidelberg and Presstek
Semiconductor a high-powered, infrared imaging technology employed in
laser diode the PEARL imaging system
Separations the division of hues into discrete images with the standard
method being four-color process separations of cyan,
magenta, yellow and black
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Short-run a graphic arts classification used to denote an
markets/printing emerging trend for lower print quantities
Spark Discharge the Company's first Direct Imaging technology in
Technology which a proprietary printing plate was
imaged by means of discharging an electrical spark
Subtractive primary Yellow, magenta and cyan; the hues used for
colors process color printing inks
Thermally-based a method of digitally exposing a material via the heat
generated from a laser beam
Vapor disposition a technology to accurately, uniformly coat substrates
process in a controlled environment
Waterless a lithographic printing method that uses dry offset printing
plates and inks thus it does not require a dampening system
General
Presstek, Inc. (the "Company" or "Presstek"), which was incorporated in the
State of Delaware in September 1987, continues to further develop and market its
proprietary, digital imaging technologies and system architectures, and
non-photographic consumables (the "Direct Imaging" technologies) primarily to
the graphic arts and related imaging industries. The Company's current Direct
Imaging technologies, referred to as PEARL, permit the direct digital imaging of
the Company's printing plates and films which eliminates the need for
photosensitive materials and the hazardous waste by-products and effluents
usually associated with these processes. The Company's system accepts
PostScript(R)(1) compatible files from digitally based electronic prepress
systems and images the color separated pages directly onto the Company's
proprietary thermal imaging based consumables.
PEARL is a high resolution, high powered semiconductor laser diode imaging
technology and is the result of significant past development efforts by the
Company. The Company believes that PEARL represents a technological breakthrough
for the worldwide printing and publishing industry and has several applications
for it and its consumables in the graphic arts industry: a printing press (the
"Direct Imaging Printing Press") and a stand-alone computer-to-plate imaging
device (the "PEARLsetter"), both of which incorporate the Company's PEARL Direct
Imaging technologies. PEARL uses its precision, high powered semiconductor laser
diode to ablate, or remove the materials from the surface of the Company's
plates to produce precisely positioned
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(1) PostScript is a registered trademark of Adobe Systems, Inc.
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and formed laser dots at resolutions up to 2540 dots per inch. When these laser
dots are combined by the Company's proprietary system (software, firmware and
hardware) they form printers' dots from which high quality, lithographic color
print images are printed. The graphic arts industry recognizes that the
automation and simplification of the color printing process resulting from the
use of these types of computer direct-to-plate and direct-to-press devices will
provide significant reductions in the time and cost of multi-color lithographic
printing. Therefore, the Company believes the graphic arts industry will move
with ever increasing speed towards computer-to-plate imaging devices and
computer-to-press printing systems. The Company also believes that its PEARL
laser ablation imaging technology's ability to produce high quality printed
materials, with freedom from the environmental concerns found in traditional
chemically based imaging methods, represents a breakthrough in the expanding
market for computer-to-plate/press products. As a result, the Company believes
its past investments in its proprietary PEARL Direct Imaging technologies and
its years of experience in developing digital imaging systems (software,
firmware and hardware) places the Company in a significant position in the
markets it has chosen to serve.
Strategic Alliances/Proposed New Products
The Company continues to pursue a strategy based on alliances and
relationships with major corporations in the graphic arts and other industries
encompassing licensing, product development and commercialization,
manufacturing, marketing, distribution, sales and services. The Company and
Heidelberger Druckmaschinen AG ("Heidelberg"), the world's largest manufacturer
of printing presses and printing equipment, based in Germany, jointly developed
the first Heidelberg Direct Imaging Printing Press (the "GTO-DI") and its
successor, the four color, fully automated lithographic press, the Quickmaster
DI 46-4 ("Quickmaster DI") to take full advantage of the Company's improved
implementation of its Direct Imaging technologies. The Quickmaster DI press,
which was introduced by Heidelberg in May 1995 to replace the GTO-DI (which is
no longer being produced), has a smaller "footprint" than existing four color
presses and employs the Company's automatic plate changing cylinder which
eliminates the need for manually changing plates between jobs. This press also
contains other features which will result in reduced costs per printed page and
contains or employs nine of the Company's patented technologies, some of which
have been licensed to Heidelberg. The Company believes that the Quickmaster-DI
will be able to compete on jobs requiring as few as 200 sheets per job, while
also being able to produce runs in excess of 20,000 sheets at a cost that cannot
be equalled by any existing "on demand" four color printing system. Both
Heidelberg and the Company believe the Quickmaster-DI will greatly expand the
use of the Company's Direct Imaging technologies and allow a broad cross section
of the graphic arts market to experience the productivity and lower cost
benefits of direct-to-press digital, high quality lithographic printing. The
Company also has an agreement with the Adast-Adamov Company, a manufacturer of
offset lithographic presses. This agreement has resulted in the use of Company's
Direct Imaging technologies on a larger format (19" x 26") multicolor press. The
Company believes
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the availability of a larger format Direct Imaging press will provide a
greater number of market applications and will strengthen the Company's position
in the direct-to-press market. The Company is currently pursuing additional
strategic relationships and/or arrangements focused on the use of the Company's
Direct Imaging technologies for a broader array of applications. In addition,
Nilpeter A/S of Denmark has announced the introduction of an offset label press
that utilizes the Company's technology. Moreover, other systems are under
development which will use the Company's imaging and plate technology in a
broader range of printing applications.
Background
The Company believes thermally based computer-to-press imaging devices and
computer-to-plate offline imaging systems, free of the environmental concerns
that are found in photo chemically based imaging systems, will eventually become
the preferred method for providing printing plates in the graphic arts industry.
The most current and widely used method for producing color printing plates for
the full-color printing process employs computers, which output PostScript files
to a film imaging device, known as a film recorder, or imagesetter. The film
recorder is used to expose four pieces of film, each representing a
corresponding color separation for yellow, cyan, magenta and black, the
subtractive primary colors used in combination to produce process color
printing. Each of these unprocessed films must then be developed utilizing
photographic chemical developing systems which generate waste effluents that are
difficult to dispose of in an environmentally sound manner. The four processed
films are then delivered to the printer for imposition, platemaking, and
printing. Imposition is a costly, time and labor intensive process preceding
platemaking, in which all of the image elements required to maximize the
available imaging area of the plate are manually assembled to make the most
efficient use of the plate material. Once the components of the press sheet are
imposed for each of the four separations, each is then exposed onto separate
plates, typically using ultra-violet light sources and vacuum frames to hold the
imposed image tightly against the plate material during its exposure cycle. To
produce the final printing plates, the exposed plates must then go through a
chemical development process similar to that which is used to develop the
separation films. This process also produces chemical wastes which must be
disposed of in an environmentally sound manner at an ever increasing cost to the
printer. The printer then brings the plates to the press, mounts the plates on
the press, registers or precisely aligns all four plates one to another, adjusts
the ink density and settings, and then begins the actual printing process on the
press. The complex nature of color printing utilizing a conventional press is
such that the quality of the printed materials are very dependent on the press
operators performing these highly skilled functions.
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In response to perceived market opportunities for more time and
cost-effective color printing (an opportunity that would encompass taking better
advantage of the growing use of PostScript based digital prepress systems; one
that would be less reliant on operator skills and that would be free from
chemical processes and environmental concerns), the Company undertook
development of its proprietary Direct Imaging technologies.
The original implementation of the Company's Direct Imaging technologies
employed a complex system of software and hardware. This first generation
process imaged or etched the Company's proprietary printing plates by means of
discharging an electrical spark (the "spark discharge" technology). In 1992, the
Company began shipping to Heidelberg spark discharge based Direct Imaging
systems for integration into GTO presses.
In response to the market's demand for higher quality printed materials,
even in the short-run markets, the Company developed its high resolution
semiconductor laser diode based imaging technology, PEARL, which it introduced
in 1993. This second generation technology is based on the same concept as the
spark discharge technology except that it employs the use of an infrared
semiconductor laser in place of the spark discharge. This second generation
PEARL technology completely replaced the Company's prior spark discharge
technology.
The GTO-DI was reintroduced by Heidelberg with PEARL in September 1993. The
Company began shipping initial systems necessary to install the PEARL Imaging
System on the GTO-DI to Heidelberg in September 1993, with full production
commencing in February 1994. The GTO-DI has been replaced by the Quickmaster DI
which uses the Company's third generation of its Direct Imaging technologies.
The Company believes the radically different press design of the
Quickmaster-DI, in concert with the Company's third generation of Direct Imaging
technologies targeted towards the growing short run process color print market
has been well received by the print industry. The Quickmaster DI won the 1995
Intertech New Technology Award and in February 1996 two Seybold Editors' Awards.
One award was made to the Company for it PEARL Direct Imaging technologies and
one to Heidelberg for the Quickmaster DI. The Company also received the National
Association of Printers and Lithographers Award for the contribution its Direct
Imaging technologies have made to the printing industry.
The Company's PEARL Direct Imaging Technology System and Consumables
The Company's PEARL Direct Imaging technology is part of the PEARL imaging
system for producing imaged color printing plates and nonphotosensitive films in
a simple one-step process (the "PEARL Imaging System"). The primary elements of
the PEARL Imaging System are:
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(i) DI Server Computer - which accepts, stores and allows for viewing
the bitmapped files of the digital page and then transmits that data to
implement the imaging function. The DI Server consists of either a
Pentium(R)(2) or a DEC Alpha(R)(3) based computer, image capture software,
viewing software and memory.
(ii) The Imaging Computer - communicates with the DI Server to
receive, store and implement the imaging function.
(iii) Imaging heads - consist of the semi-conductor laser diodes and
drivers, lens assembly, precision carriage assembly and related systems.
(iv) Consumables - consist of wet and/or dry aluminum based printing
plates and wet and dry polyester based printing plates.
The Direct Imaging Press
The Direct Imaging Printing Press automates or eliminates most of the
intermediate processes and steps necessary for full color printing, including
many of the highly skilled functions required to prepare the press. The plates
are imaged in register directly on the press. After the plates are wiped either
automatically or manually, an operator can begin the printing process. The use
of dry offset plates in the printing process eliminates the need for a chemical
dampening solution and its required water balancing. Proper ink density is
automatically pre-set by the computer. The Company and its licensees typically
jointly develop and/or work together on the development of the press. The
Company, as more fully described below, supplies hardware components and
subassemblies and software necessary for installation of PEARL Imaging systems
into two, four and five color presses. The advantages and features of the Direct
Imaging presses include:
o the ability to accept and buffer the bitmapped image data of fully
composed pages, particularly those utilizing PostScript interpreters;
o imaging on-press of all two, four or five plates simultaneously;
o imaging of the plates directly on the plate cylinders, in register
(i.e., the fitting of two or more printing images in precise alignment
with each other);
o elimination of the need for plate development processes, by-products
of which cause environmental concerns;
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(2) Pentium is a registered trademark of Intel Corp.
(3) Alpha is a registered trademark of Digital Equipment Corporation.
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o the imaged plates are waterless, therefore eliminating the need of the
chemical dampening solution and its required balancing; and
o automatic pre-setting of the ink keys from the bitmap already resident
in the computer.
As a result, process color offset lithographic printing can be produced
with fewer complex steps and at a lower cost than in the case of other
conventional color printing methods. The time savings in producing four-color
work would permit a printer to perform a greater number of printing jobs per day
more cost effectively with less waste.
Further, by accepting the digital data directly from a prepress page layout
system, the user of a press equipped with the Company's Direct Imaging
technology benefits from the efficiency and cost advantages of electronic page
make up and, by extending the use of digital data to the printing process,
permits a closure of the digital loop in the production of color printing.
The Company believes that its PEARL based Direct Imaging computer-to-press
technology with PEARL has been well received by the industry. By the end of
1996, the Company had shipped 330 of its PEARL Imaging systems for Heidelberg's
Quickmaster DI presses, 115 of which were shipped in 1995.
Presstek Consumables
The Company has and continues to develop its proprietary, thermally based
consumables that are imaged by its PEARL semiconductor laser diode imaging
technology. As part of the PEARL laser diode development process, the Company
has increased the number, types and functional characteristics of its consumable
products. These consumables currently include a polyester based dry printing
plate, an aluminum based dry printing plate, and an aluminum based wet printing
plate. There are additional consumable products in various stages of development
which may, in the future, provide new sources of consumable revenues.
The Company has developed and is currently having manufactured by Rexam
Industries Corp ("Rexam"), a custom maker of precision films based in North
Carolina, both the polyester-based and aluminum-based dry and wet offset
printing plates. The Company believes that wet offset plates imaged by its PEARL
Direct Imaging technology have applications for use on the large installed base
of existing printing presses. This population of printing presses operates with
a dampening system which requires wet offset printing plates. Although the
Company believes that it can complete the development and commercialization of
the polyester and aluminum based wet offset printing plates and other consumable
products, there can be no assurance that it can do so.
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The Company, realizing that sources for the Company's requirements for
current and new PEARL consumables, plates and films, would have to be found, in
February 1996 acquired 90% of the outstanding Common Stock (the "Purchased
Shares") of Catalina Coatings, Inc. ("Catalina"), an Arizona corporation engaged
in the development, manufacture, and sale of vacuum deposition coating equipment
and the licensing and sublicensing of patent rights with respect to a vapor
deposition process to coat moving webs of materials at high speeds. The
aggregate consideration paid by the Company pursuant to the stock purchase
agreement was $8,400,000, of which $8,200,000 represented the purchase price of
the Purchased Shares and $200,000 represented consideration for the
non-competition and confidentiality covenants of two of the principal
shareholders of Catalina who sold their shares to the Company.
Catalina, which operates as a subsidiary of the Company, is developing and
manufacturing the equipment the Company believes it will require to manufacture
its PEARL thermal printing plates in a more cost effective manner than using
currently available conventional technology. In September 1996, the Company
began construction of a new 100,000 square foot consumables manufacturing
facility located on a 60 acre site in Hudson, New Hampshire, approximately four
miles from the Company's existing offices. This new building will house the
Company's first Catalina manufactured thin film vacuum coating system along with
other manufacturing equipment needed to produce all or part of the Company's
thermal plate consumables products. The Company has already installed plate
converting and finishing equipment in its recently leased 33,200 square foot
facilities located in Hudson, New Hampshire. Even if the Company commences
manufacturing of PEARL thermal printing plates, it may still need to enter into
manufacturing arrangements with third parties. The Company is currently engaged
in discussions with certain other parties relating to entering into strategic
alliances, arrangements or relationships with respect to the manufacture and/or
the distribution of the Company's PEARL consumables. There can be no assurance
that the Company will be able to enter into any arrangements for the
manufacturing of its consumables, or that such arrangements will result in
successful commercial products. Additionally, there can be no assurance that the
Company through Catalina will be able to successfully complete the development
and undertake the manufacture of the PEARL consumables.
Direct Imaging Printing Press
In January 1991, the Company entered into a master agreement (the "Master
Agreement"), a technology license agreement (the "Technology License") and a
supply agreement (the "Supply Agreement") (the foregoing agreements being
sometimes collectively referred to herein as the "Heidelberg Agreements") with
Heidelberg. These relate to the integration of the Direct Imaging technology
into various presses manufactured by Heidelberg (the "Heidelberg Presses") and
the manufacture of components for and the commercialization of such presses.
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Pursuant to the Heidelberg Agreements, the Company granted Heidelberg
certain exclusive rights, for use of the Direct Imaging technology for the
Quickmaster DI format size. In consideration for such rights, Heidelberg agreed
to pay to the Company royalties on the net sales prices of various specified
types of Heidelberg Presses.
The Heidelberg Agreements and amendments further provide for the Company to
supply Direct Imaging systems to Heidelberg at specified rates. The terms of the
Heidelberg agreements are for periods ending in December 2011 in the case of
each of the Master Agreement and Technology License. The Supply Agreement which
related primarily to the GTO-DI, which is no longer manufactured, expired
December 1995. The Heidelberg Agreements also contain, among other things,
certain early termination provisions and extension provisions.
On September 3, 1992, the Company and Heidelberg signed a contract
modification agreement that details arrangements with respect to the development
of additional products planned to be introduced in the future.
On April 27, 1993, the Company and Heidelberg signed a contract
modification agreement that details the arrangements with respect to
Heidelberg's licensing of the Company's PEARL Direct Imaging technology, which
was not otherwise encompassed within the prior arrangements.
The Company also granted Heidelberg a forty-five month exclusive license
expiring in January 1997 for the manufacture and sale of the Quickmaster DI
which uses PEARL technology. After the initial forty-five month period,
Heidelberg's rights remain exclusive subject to the Company's right to terminate
such exclusivity on three months' written notice to Heidelberg. Certain other
modifications have been made to certain exclusive arrangements under the
previous agreements between Heidelberg and the Company which provide for a
non-exclusive license for the balance of the term of the original agreement.
In November 1995, the Company and Heidelberg agreed (the "November
Agreement") to certain other arrangements whereby the Company was provided with
incremental engineering revenue, certain price increases, and modifications of
the Quickmaster DI royalty billing and payment terms by Heidelberg. The Master
Agreement was also modified by the November Agreement to provide Heidelberg with
a fixed royalty rate on the Quickmaster DI. These arrangements were made as a
result of a schedule change requested by Heidelberg in November 1995 to reduce
the number of PEARL imaging systems being manufactured by the Company each month
for Heidelberg from the amount then being produced. The production schedule for
Quickmaster DI imaging systems was subsequently increased by Heidelberg in
September 1996, requiring the Company to produce three systems per day (60 per
month) commencing in April 1997. In March 1997, the production schedule was
further increased, requiring the Company to manufacture four systems per day (80
per month) commencing in September 1997, and in March 1997 the Company and
Heidelberg agreed to a fixed royalty rate for the Direct Imaging systems,
subject to Heidelberg maintaining an exclusive license on the Quickmaster DI.
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The PEARL Platesetter
The PEARL Platesetter, now referred to as the PEARLsetter, is an additional
application of the Company's PEARL Direct Imaging technology and consumables.
The PEARLsetter is a computer-to-plate imaging device that can image both the
Company's wet and dry offset plates in both an A3 (2-up) and A2 (4-up) format
size.
The PEARLsetter directly accepts a PostScript file from a prepress system
and utilizing its high powered semiconductor laser diodes, produces a precisely
shaped and located laser dot. The imaged plates require no further processing,
other than wiping the ablated debris from the imaging process off the plates,
and accordingly, do not create chemical waste which must be disposed of. The
plates can then be immediately mounted and registered on the press.
The Company has entered into distribution agreements with the Pitman
Company in the United States, KNP-BT in certain European countries, Heidelberg
Australia in Australia and New Zealand, and EAC (East Asiatic Company) in
certain Asian and Scandinavian countries. The Company has also entered into
distribution agreements covering Switzerland, Israel, Germany, and Greece. These
agreements provide for the distribution of the Company's PEARLsetter product
line and its PEARL based consumables. The Company has also entered into OEM
relationships with Sakurai Machinery Company for the resale of its PEARLsetter
product under private label by this company. The Company is also currently
engaged in additional discussions with certain other parties relating to
entering into strategic alliances and OEM arrangements or relationships with
respect to the PEARLsetter product line and its PEARL based consumables. In
addition, the Company has continued independent development and
commercialization of one or more PEARLsetter products. There can be no assurance
that the Company will be able to enter into any additional arrangements with
respect to, or that any such arrangements will result in, the successful
commercialization of additional PEARLsetter products. Additionally, there can be
no assurance that the Company will have the resources or otherwise be able to
successfully complete development and undertake the manufacture of, or
successfully commercialize, additional PEARLsetter products.
Manufacturing, Marketing Component Procurement
The Company engages in certain manufacturing, as described below, and also
is engaged in the distribution and sales of PEARL based offset printing plates,
which are manufactured exclusively for the Company by third parties. In
addition, the Company engages in certain marketing activities which include
informing the industry of the Company's products and capabilities; contacting
potential strategic partners; establishing relationships with potential
resellers including both OEM partners and dealers; establishing liaisons with
companies which manufacture and/or market products which may incorporate the
Company's PEARL Direct Imaging technology, or jointly develop new applications
of the Company's intellectual property portfolio. The Company also provides
Heidelberg and its other licensees and distribution partners with marketing and
sales support.
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The Company's agreements provide, among other things, for it to supply its
PEARL Imaging Systems for integration into certain printing presses. In November
1994, the Company commenced manufacturing operations in a 36,000 square foot
facility located in Hudson, New Hampshire, adjacent to its existing facility. In
June 1996, the Company leased an additional 33,200 square foot facility at 18-20
Hampshire Drive in Hudson, New Hampshire. This building now houses the Company's
consumables development group and plate converting and finishing equipment.
These additional facilities were required based on both existing and projected
development and manufacturing requirements for PEARL Imaging Systems. The
Company believes that it has the available resources and personnel with the
knowledge and experience to further increase its manufacturing capacity to
satisfy any future product demand.
The Company obtains certain components and supplies used in production of
PEARL Imaging Systems from a number of suppliers. Although the Company believes
that there are available various sources for necessary components, parts and
disposable items (including printing plates and inks) for both the Company's
manufacturing activities and to support the market for products incorporating
the Company's PEARL Direct Imaging technology, sources for certain of such items
are limited and there can be no assurance that procurement or supply
arrangements will be available on satisfactory terms; any inability to establish
satisfactory manufacturing or procurement or supply arrangements or significant
delays in establishing such arrangements could have an adverse effect on the
Company and/or cause delays in the Company's ability to deliver products
incorporating its PEARL Direct Imaging technology.
The PEARL laser diode system includes semiconductor laser diodes. Although
the Company currently uses only one source for the laser diode devices, it
believes that there will be several sources available to manufacture the laser
diodes to the Company's specification, if required, in the future. Additionally,
the Company has "in-house", limited laser diode development and manufacturing
capabilities. The Company would still require the surmounted "diode chips," a
component of the laser diode, to be supplied by a third party. The Company
believes that several sources are available to supply this component, if
required. The Company's laser diode manufacturing capabilities currently
function principally for research and development, quality assurance and
manufacturing engineering. However, the Company believes that, if required, it
could expand these facilities in the future as a primary or secondary source.
The Company has developed and continues to develop proprietary consumables
that are imaged by its PEARL semiconductor laser diode imaging technology as
well as other thermally based direct-to plate systems. As part of the PEARL
laser diode development process the Company has increased the number, types and
functional
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characteristics of the consumable products it has under development or which are
currently being manufactured. These consumables currently include a polyester
based dry printing plate, an aluminum based dry printing plate, and an aluminum
based wet printing plate. There are additional consumable products in various
stages of development which may, in the future, provide new sources of
consumable revenues. The Company's PEARL offset printing plates, both aluminum
and polyester based are being supplied by Rexam. The Company, realizing that
sources for the Company's requirements for current and new PEARL consumables,
plates and films, would have to be found, acquired Catalina in February 1996.
The Company anticipates that Catalina, which operates as a subsidiary of the
Company, will successfully complete the development and manufacture of the
equipment the Company believes it will require to manufacture its Pearl thermal
printing plates and films (which are currently manufactured by third parties) in
a more cost effective manner than using currently available conventional
technology. However, even if the Company commences manufacture of PEARL thermal
printing plates and consummables, additional sources to satisfy all of the
Company's requirements for current and new consumables, printing plates and
films, may have to be found. Therefore, the Company is actively pursuing these
additional sources at this time. However, there can be no assurance that the
Company will be able to enter into any arrangements for the volume manufacturing
of its consumables, or that any such arrangement will result in successful
commercial products. Additionally, there can be no assurance that the Company
through Catalina will be able to successfully complete the development and
undertake the manufacture of the PEARL consumables.
The Company currently anticipates that the PEARLsetter will continue to be
marketed through traditional graphic arts distribution sales channels and will
be positioned as an alternative to existing imagesetter or platesetter products.
Market acceptance for any products incorporating the Company's technology
will require substantial marketing efforts and expenditure of significant sums,
either by the Company, its strategic partners or both. There can be no assurance
that any existing products will continue to achieve market acceptance or that
any new product that may be introduced will achieve market acceptance or be
commercially viable.
Development Program
During the fiscal years ended December 31, 1994, December 30, 1995, and
December 28, 1996, the Company expended $5,123,000, $6,155,000, and $8,894,000,
respectively, on engineering and product development. The Company is currently
concentrating its development efforts on refining and improving the performance
of its current and future technologies, and proprietary printing plates and
anticipates that it will continue to do so, both independently and in
conjunction with strategic partners. The Company is also engaged in continuing
development efforts with respect to its PEARLsetter product line. There can be
no assurance that the Company, in conjunction with a strategic partner or
independently, will successfully
-15-
<PAGE>
complete development of any additional marketable products, or that technical or
other problems will not occur in connection with the Company's development
program, products or technology.
Patents and Proprietary Rights
As of February 28, 1997, the Company has been issued fifty (50) U.S.
patents, of which the Company has elected to maintain forty-one (41) in force.
The Company has also been issued six (6) Canadian patents, five (5) European
patents registered in the following nine countries (Austria, Belgium, France,
Germany, Great Britain, Italy, the Netherlands, Sweden and Switzerland), and
three (3) Great Britain patents, two (2) German patents, one (1) Japanese
patent, and five (5) Australian patents, and has received notice of allowance
for an additional fifteen (15) patents, eight (8) in the U.S., two (2) in
Australia, one (1) in Canada, and five (5) European patents. The Company intends
to register these additional European patents in one or more of the following
countries: Austria, Belgium, France, Germany, Great Britain, Italy, the
Netherlands, Switzerland and Sweden. The Company has applied for and is pursuing
its applications for twenty (20) additional U.S. patents and sixty-nine (69)
foreign patents (consisting of 25 Japan, 17 Canada, 12 Europe, 9 Australia, and
2 in each of Belgium, France, and Italy. The Company anticipates that it will
apply for additional patents and for copyrights, as deemed appropriate. Catalina
has one (1) U.S. patent issued and one (1) U.S. patent pending. Catalina also
has seventeen (17) foreign applications pending. There can be no assurance as to
the issuance of any such patents or the breadth or degree of protection which
the Company's patents or copyrights may afford the Company. There is rapid
technological development in the computer and image reproduction industries,
resulting in extensive patent filings and a rapid rate of issuance of new
patents. Although the Company believes that its technology has been
independently developed and that the products it markets and proposes to market
will not infringe the patents or violate other proprietary rights of others, it
is possible that such infringement of existing or future patents or violation of
proprietary rights may occur. In such event the Company may be required to
modify its design or obtain a license. No assurance can be given that the
Company will be able to do so in a timely manner, upon acceptable terms and
conditions, or at all. The failure to do any of the foregoing could have a
material adverse effect on the Company. Furthermore, there can be no assurance
that the Company will have the financial or other resources necessary to
successfully defend a patent infringement or proprietary rights violation
action. Moreover, the Company may be unable, for financial or other reasons, to
enforce its rights under any of its patents.
The Company also intends to rely on proprietary know-how and to employ
various methods to protect the source codes, concepts, ideas and documentation
of its proprietary software, which methods may include copyrights. However, such
methods may not afford complete protection and there can be no assurance that
others will not independently develop such know-how or obtain access to the
Company's know-how or software codes, concepts, ideas and documentation.
Furthermore, although the Company has and expects to have confidentiality
agreements with its employees and appropriate vendors, there can be no assurance
-16-
<PAGE>
that such arrangements will adequately protect the Company's trade secrets.
Competition
The Company believes that its developed and proprietary technologies, its
alliance with Heidelberg, the world's largest printing press manufacturer, and
other press manufacturing companies; the application of its imaging technology
to a broader array of uses its relationships with graphic arts distribution
organizations and its established presence in the Direct Imaging market provide
the Company with a competitive advantage.
The Company is aware of several companies employing electrophotography as
their imaging technology. Electrophotography, sometimes referred to as
xerography, is a technology which historically has been used primarily in black
and white copiers, and more recently in color copying. Canon Inc. was the first
company to successfully employ electrophotography in a full color copier
product, the CLC 500.
Indigo N.V., a company with research and development, and manufacturing
operations in Israel, introduced their digital, sheet-fed offset color press,
the E-Print 1000 in September 1993. The E-Print 1000 utilizes an
electrophotographic imaging technology, with a liquid toner, and prints at 800
dots per inch. Xeikon, N.V. of Belgium also introduced their digital,
web-(roll)fed color printing product, the Xeikon DCP-1 in September 1993, and an
improved model, the DCP-2, in late 1996. Versions of these products which are
being marketed by Agfa Gevaert, N.V. ("Agfa") as the Chromopress, also utilize
an electrophotographic imaging technology with a dry toner and print a variable
dot density of 600 dots per inch.
Canon and Xerox Corp. are two major corporations along with other
traditional copier manufacturers which have also developed and introduced color
electrophotographic copier products that could impact the very short-run digital
color printing markets. Canon has at least two color copier products which it
claims provide improved print quality even at their resolution limitation of 400
dots per inch. They also claim faster speeds. Xerox also has color copiers which
it is currently marketing. Scitex Corp. has also introduced its Spontane
xerographic based color imaging system which uses a xerographic color copier
engine supplied by Fuji Xerox.
The Company is also aware that there is a direction in the graphic arts
industry to create stand-alone computer-to-plate imaging devices. The Company
anticipates that most of the major corporations in the graphic arts industry
have or are considering a computer-to-plate imaging device. To date, these
devices, for the most part, utilize printing plates that require a post imaging
photochemical developing step, and in some cases, also require a heating
process. This is, nonetheless, an important step in the printing industry, as it
eliminates the use of films. Potential competitors in this area would include,
among others, Creo Products, Gerber Scientific Inc., Misomex, Optronics, a
Division of Intergraph Corporation, Komori, Krause, Scitex Corporation Ltd.,
Linotype-Hell, Dainippon Screen, Agfa, Polaroid Corp. and Fuji Photo Film
-17-
<PAGE>
Co. Ltd. The Company's stand-alone computer-to-plate imagesetter is, in the
Company's opinion, a further technological advancement. The Company's
computer-to-plate imagesetter eliminates not only the films, but also the
post-imaging photochemical developing steps. The Company believes that some of
the graphic arts companies mentioned above are likely to be working on similar
plate imaging processes that would also eliminate the production of the
hazardous materials associated with the photochemical developing process. Others
of this group have expressed interest in (and are, in fact) using the Company's
thermally based consumable plate products in their systems.
The Company also anticipates competition from printing plate manufacturing
companies that either manufacture, or have the potential to manufacture digital
plates. Such companies include Agfa, Polychrome Corp., a Division of Dainippon
Ink & Chemicals, Inc., Toray, Howson, a Division of Dupont, Horsell/Anitec, a
Division of International Paper, Kodak, Polaroid Corp., Mitsubishi, Fuji Photo
Film Co., Ltd. and Imation Corp.
Products incorporating Direct Imaging technology can also be expected to
face competition from conventional presses and products utilizing existing
platemaking technology, as well as presses and other products utilizing new
technologies. Leading press manufacturers include Heidelberg, Komori Printing
Machinery Co., Ltd., Mitsubishi, and MAN Roland, and, in the single color and
two color press market, Ryobi Limited, Hamada and AB Dick. Companies marketing
conventional imagesetter equipment include Agfa, Linotype-Hell, ECRM, Optronics,
Crosfield and Scitex Corporation Ltd. Other companies, which may include such
major corporations as International Business Machines Corporation, Xerox
Corporation, Polaroid Corp., Canon and Kodak, are considered by the Company to
have the type of electronic and image reproduction expertise which could
encourage them to attempt to develop and market competitive products.
Most of the companies marketing competitive products or with the potential
to do so are well established, have substantially greater financial and other
resources than the Company and have established records in the development, sale
and service of products. There can be no assurance that the Company, any Company
product or any products incorporating the Company's technology will be able to
compete successfully in the future.
Backlog
As of March 27, 1997, the Company had a backlog of products under contract
aggregating approximately $56,297,000 (including royalties payable to the
Company) compared to a backlog of $16,822,000 as of February 29, 1996,
(including royalties payable to the Company). Substantially all of the backlog
of products under contract as of March 7, 1997, is expected to be shipped by the
Company in 1997.
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<PAGE>
Employees
As of February 28, 1997, the Company had one hundred eighty-three (183)
employees, seventy-seven (77) of whom are engaged primarily in engineering,
service and marketing; eighty-five (85) of whom are engaged primarily in
manufacturing, manufacturing engineering and quality control; and twenty-one
(21) of whom are engaged primarily in corporate management, administration and
finance. The Company considers its relationship with its employees to be good.
Item 2. Properties.
The Company leases approximately 24,000 square feet of space for its
research and development facilities at 8 Commercial Street, Hudson, New
Hampshire. The lease of these premises, which expires in March 1998, subject to
two one-year renewal options, provides for rent of $9,500 per month, adjusted
annually, plus a pro rata share of real estate taxes, utilities and certain
other expenses. The Company also leases approximately 36,000 square feet to
accommodate its manufacturing and administrative facilities at 9 Commercial
Street, Hudson, New Hampshire. The lease, as amended, specifies a base monthly
rent of $12,400, adjusted annually, plus a pro rata share of real estate taxes,
utilities, and certain other expenses. The lease expires on September 30, 2000,
subject to an option to renew for an additional three years and the Company's
right of first refusal to purchase the property.
In 1996, the Company entered into a lease for approximately 33,200 square
feet of space at 18-20 Hampshire Drive, Hudson, New Hampshire to allow for
expansion of its consumables development group and its current plate converting
and finishing equipment capabilities. The lease of these premises, which expires
in May 1999, subject to two one-year renewal options, provides for rent at the
rate of $9,683 per month, adjusted annually, plus a pro rata share of real
estate taxes, utilities, and certain other expenses.
Catalina also leases four suites totaling approximately 10,500 square feet
of space at 2555 North Coyote Drive in Tucson, Arizona which provides for rent
of $5,400 per month. The leases expire in May 1997, at which time Catalina
becomes a tenant-at-will subject to monthly renewals.
In June 1996, Catalina acquired a 13 acre parcel of land in Tucson,
Arizona. Construction of a new 60,000 square foot manufacturing facility on this
parcel began in September and is currently expected to be completed in May 1997.
This new building will house all of Catalina's operations and includes space for
future expansion.
In August 1996, the Company purchased a 60 acre site in Hudson, New
Hampshire. The first phase of construction for the Company's future facilities
commenced in September. This first phase will include construction of a 100,000
square foot consumables manufacturing operation that will house the first
Catalina
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<PAGE>
Coating system designed and developed exclusively for the manufacture of the
Company's PEARL based thermal plates. The Company believes that its existing
facilities and its facilities under construction will be adequate for its
current operations and future capacity increases.
Item 3. Legal Proceedings.
On October 15, 1996, the Company was notified that an arbitration panel of
the International Chamber of Commerce issued its Award in the arbitration
proceeding commenced against the Company by AGFA Gevaert, N.V. ("Agfa") in June
1995. The Award directs Agfa to transfer to the Company Agfa's U.S. Patent No.
5,378,580 including its underlying applications, return to the Company all
copies of confidential information that the Company provided to Agfa, and pay
the Company's legal expenses in the arbitration in the amount of $769,140. Agfa
has complied with the financial terms of the Award and has assigned to the
Company the foregoing patent and underlying applications. Agfa has also returned
to the Company the confidential documents which Agfa asserts contitutes full
compliance with its obligation to return such material as required by the Award.
The arbitrators rejected the request for affirmative relief sought by Agfa in
the arbitration.
The Company has been advised that the Securities and Exchange Commission
(the "Commission") has entered a formal order of private investigation with
respect to activities by certain unnamed persons and entities in connection with
the securities of the Company. The Company has been advised by its counsel that
the investigation includes, among other things, trading in the Company's
securities as well as the adequacy and accuracy of statements made by the
Company and others. In that connection, the Company and some of its officers,
directors and employees have received subpoenas duces tecum requesting them to
produce certain documents and testify, and have complied with those subpoenae.
The Company has not been advised by the Staff of the Commission that the Staff
intends to recommend to the Commission that it initiate a proceeding against the
Company in connection with the foregoing investigation.
As previously disclosed, seven class action lawsuits were filed against the
Company and others in either the United States District Court for the District
of New Hampshire or the Southern District of New York. By court orders, all of
such actions have been consolidated before the United States District Court,
District of New Hampshire, under the common caption Bill Berke, et al. v.
Presstek, Inc., et al. Following such consolidation, the plaintiffs jointly
filed and served a Consolidated
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<PAGE>
Amended Class Action Complaint naming as defendants (i) the Company; (ii) Robert
Howard, Lawrence Howard, Bert DePamphilis and Harold N. Sparks, who are
directors of the Company, Richard A. Williams, and Robert E. Verrando, who are
officers and directors of the Company, and Frank G. Pensavecchia and Glenn J.
DiBenedetto who are officers of the Company (sometimes hereinafter collectively
referred to as the "Officer and Director Defendants"); (iii) Cabot Heritage
Corp., Cabot Market Letter, Carlton G. Lutts, Timothy Lutts, Robert Lutts and
Cabot Money Management (sometimes hereinafter collectively referred to as the
"Cabot Defendants");(iv) Donald Chapman, Everen Securities, Inc., Mack Walker,
John T. Oxley, John C. Oxley and Thomas E. Oxley as co-executors of the estate
of John T. Oxley ("Oxley"), the Oxley Estate and the Oxley Foundation (sometimes
hereinafter collectively referred to as the "Individual Investor and Broker
Defendants"); and (v) BDO Seidman, LLP ("Seidman"), the Company's independent
auditors. The plaintiffs allege that the Company and the Officer and Director
Defendants, the Cabot Defendants, the Individual Investor and Broker Defendants
and Seidman violated Section 10(b) ("Sect. 10(b)") of the Securities Exchange
Act of 1934, (the "Exchange Act") and Rule 10b-5 ("Rule 10b-5") promulgated
thereunder, (ii) the Officer and Director Defendants, Timothy Lutts, Carlton
Lutts, Robert Lutts, Everen Securities and Oxley violated Section 20(a) ("Sect.
20(a)") of the Exchange Act, (iii) the Company, the Officer and Director
Defendants, the Cabot Defendants and Seidman committed common law negligent
misrepresentation, (iv) all defendants committed common law fraud and violated
the New Hampshire Blue Sky Laws. The alleged basis for the action against the
Company and/or the Officer and Director Defendants includes, among other things,
the Company's allegedly issuing false and misleading reports or failure to
disclose material facts including a misstatement of earnings in the Company's
financial statements for the years ending December 31, 1994, and December 30,
1995, and for the first quarter ending March 30, 1996, as a result of the
allegedly improper application of certain accounting principles relating to the
tax benefits received upon exercise of certain stock options previously granted
by the Company, the alleged failure to disclose to the public certain alleged
adverse information concerning the Company's patents and its proprietary
technology as well as patent and confidentiality issues involved in the
Company's arbitration with Agfa, the alleged failure to fully disclose the
nature and extent of the investigation into trading in the securities of the
Company being conducted by the Commission (the "SEC Investigation"), and alleged
material misstatements of the Company's backlog of orders from, supply contracts
with, and orders received by its principal customer. The Officer and Director
Defendants are alleged to have sold the Company's common stock at artificially
increased prices after allegedly causing an artificial inflation in the price of
the Company's common stock and helping maintain such increase while they were in
possession of material non-public information concerning the Company. The basis
for the plaintiffs' allegations against the Cabot Defendants includes, among
other things, the allegation that the Cabot Defendants were in possession of
material nonpublic information concerning the Company, that certain of the Cabot
Defendants issued false reports about the Company and its prospects in order to
artificially inflate the market price of the Company's common stock to benefit
themselves financially, while, at the same time, other Cabot Defendants were
privately
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<PAGE>
recommending to clients to sell stock of the Company, that certain of the Cabot
Defendants failed to timely file required disclosure documents with the
Commission regarding their ownership of the Company's common stock, and that the
Cabot Defendants together with the Individual Investor and Broker Defendants
engaged in an illegal plan and scheme to manipulate and artificially inflate the
price of Presstek common stock. The Investor and Broker Defendants are also
alleged to have manipulated the price of the Company's common stock by, among
other things, withdrawing common stock from availability to short sellers such
that the short sellers would be caught in a "short squeeze". The basis for
plaintiffs' allegations against Seidman is, among other things, the allegation
that Seidman gave false and misleading advice to the Company regarding the
application of certain accounting principles relating to the tax benefits
received upon exercise of certain stock options previously granted by the
Company. The plaintiffs seek unspecified compensatory and punitive damages,
attorney and expert fees and other costs and expenses incurred by the plaintiffs
in connection with the action.
On July 16, 1996, Richard Strauss commenced a derivative suit on behalf of
the Company in the Court of Chancery of the State of Delaware, New Castle
County, against Robert Howard, Lawrence Howard, Richard Williams, Robert
Verrando, Bert DePamphilis and Harold Sparks. The plaintiff alleges that the
defendants breached the fiduciary duties they each owed to the Company and its
other shareholders and wasted corporate assets by making false and misleading
statements of fact or concealing material facts concerning the viability of the
Company's "key" patent and its proprietary interest in its PEARL technology, its
failure to properly disclose the scope of the SEC Investigation, and its
misstatement of its financial results for the first quarter of 1996, and that
they used this information for their personal use by selling common stock of the
Company at artificially inflated prices. The plaintiff also alleges that these
actions by the defendants resulted in breaches of Sect. 10(b) and Rule 10b-5
which resulted in other lawsuits being commenced against the Company which will
require the Company to expend resources to defend. The plaintiff seeks to
recover against the defendants, on behalf of the Company, unspecified damages
allegedly sustained by the Company as a results of the defendants' alleged
breaches of fiduciary duty, a return to the Company of all salaries and the
value of other remuneration paid to the defendants by the Company during the
time they were in breach of their fiduciary duties, and accounting of and/or
constructive trust on the proceeds of defendants' trading activities in the
Company's common stock and recovery of costs and disbursements of the action.
On March 14, 1997, James P. Cassidy commenced a derivative suit on behalf
of the Company in the United States District Court for the District of New
Hampshire, against Robert Howard, Lawrence Howard, Richard Williams, Robert
Verrando, Bert DePamphilis, Harold Sparks and Seidman. The plaintiff alleges
that the individual defendants breached the fiduciary duties they each owed to
the Company and its other shareholders and wasted corporate assets by making
false and misleading statements of fact or concealing material facts concerning
the scope and viability of the Company's "key" patents and its proprietary
interest in PEARL(R) technology, causing the Company to issue false and
misleading reports or failure to disclose material facts including a
misstatement of earnings in the Company's financial statements for the year
ending December 30, 1995, and for the first quarter ending March 30,1996 as a
result of the allegedly improper application of certain accounting principles
relating to the tax benefits received upon exercise of certain stock options
previously granted by the Company, and that they sold securities of the Company
while they were in possession of material non-public information concerning the
Company. The plaintiff also alleges that these actions by the individual
defendants constituted violations of Section 10(b) and Rule 10b-5 which resulted
in other lawsuits being commenced against the Company to which will require the
Company to expend resources to defend, and also constituted gross negligence and
branches of these defendants' contractual obligations to the Company. The
plaintiff also alleges that Seidman negligently permitted the Company to issue
financial statements for 1995 and the first quarter of 1996 that were prepared
in violation of recognized accounting procedures. The plaintiff seeks to recover
against the defendants, on behalf of the Company, unspecified damages allegedly
sustained by the Company as a result of the defendants' actions as alleged, and
recovery of costs, disbursements, and fees of attorneys and experts by the
plaintiff.
The Company intends to vigorously defend all of the foregoing actions.
However, the outcome of any litigation is subject to uncertainty and a
successful claim against the Company, in any of the foregoing actions, could
have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock has traded in the over-the-counter market on the
NASDAQ National Market System under the symbol PRST since July 18, 1990, and,
prior thereto, from May 11, 1990, to July 17, 1990, traded on the NASDAQ System.
Prior thereto, from the Company's initial public offering until May 11, 1990,
the principal redemption date of the Warrants, the Company's Units, Common Stock
and Warrants were traded on the NASDAQ System. The following table sets forth,
for the periods indicated, the high and low sales prices of the Company's Common
Stock as reported by NASDAQ and retroactively adjusted for the Company's five
for four stock split effected in the form a 25% stock dividend paid in September
1994 and the Company's two for one stock split effected in the form of a 100%
stock divided paid in May 1995.
Year Ended High Low
December 30, 1995 ---- ----
- -----------------
First Quarter $ 37 1/8 $21 1/2
Second Quarter 62 1/2 23 1/2
Third Quarter 63 49 1/2
Fourth Quarter 100 38 1/2
Year Ended
December 28, 1996
- -----------------
First Quarter $127 1/4 $76
Second Quarter 200 40
Third Quarter 75 1/2 44 3/4
Fourth Quarter 95 68 1/4
As of February 28, 1997, there were approximately 1,395 holders of record
of the Company's Common Stock.
Dividend Policy
To date, the Company has not paid any cash dividends on its Common Stock.
The payment of cash dividends, if any, in the future is within the discretion of
the Company's Board of Directors and will depend upon the Company's earnings,
its capital requirements and financial condition and other relevant factors. The
Board of Directors does not intend to declare any cash dividends in the
foreseeable future, but
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<PAGE>
instead intends to retain all earnings, if any, for use in the Company's
business operations.
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<PAGE>
Item 6. Selected Financial Data.
The following selected financial data of the Company has been derived from
the financial statements of the Company appearing elsewhere herein (except for
the statement of operations data for the years ended December 31, 1992, and
1993, and the balance sheet data at December 31, 1992, 1993, and 1994 which is
not included in such financial statements). All references to average number of
shares outstanding and per share data have been restated retroactively to
reflect the 1994 five-for-four and the 1995 two-for-one stock splits effected in
the form of stock dividends. The 1996 data includes the accounts of Catalina
Coatings, Inc., which was acquired as a subsidiary of the Company during 1996.
See Note 3 of Notes to Financial Statements.
<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------------------------------------
Statements of DEC 31 DEC 31 DEC 31 DEC 30 DEC 28
Income: 1992 1993 1994 1995 1996
---- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 12,558,434 $ 11,682,154 $ 16,517,858 $ 27,611,456 $ 48,627,569
------------ ------------ ------------ ------------ ------------
Costs and Expenses:
Costs of products sold 1,762,688 754,700 6,944,268 14,923,968 21,825,697
Engineering and product
development 4,695,370 5,647,562 5,123,439 6,155,421 8,894,420
Marketing 1,268,311 1,147,926 1,225,756 1,727,301 2,587,490
General and administrative 1,459,911 1,535,289 1,603,729 2,050,075 4,739,951
Nonrecurring charge -- 1,948,878 -- -- --
------------ ------------ ------------ ------------ ------------
Total costs and expense 9,186,280 11,034,355 14,897,192 24,856,765 38,047,558
------------ ------------ ------------ ------------ ------------
Other Income (Expense):
Dividend and interest income 359,361 412,025 407,977 327,213 786,095
Other 34,844 -- 166 (2,276) (244,817)
------------ ------------ ------------ ------------ ------------
Other income - net 394,205 412,025 408,143 324,937 541,278
------------ ------------ ------------ ------------ ------------
Income Before Income Taxes 3,766,359 1,059,824 2,028,809 3,079,628 11,121,289
Provision for Income Taxes (160,000) (100,000) (186,600) (220,000) (4,000,000)
------------ ------------ ------------ ------------ ------------
Net Income $ 3,606,359 $ 959,824 $ 1,842,209 $ 2,859,628 $ 7,121,289
============ ============ ============ ============ ============
Net Income per Common
and Common Equivalent Share $ .25 $ .07 $ .12 $ .18 $ .43
============ ============ ============ ============ ============
Weighted Average Number of
Common and Common
Equivalent Shares 14,216,666 14,222,574 14,865,344 15,855,076 16,581,254
============ ============ ============ ============ ============
</TABLE>
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<TABLE>
<CAPTION>
As of
---------------------------------------------------------------------------------------
DEC 31 DEC 31 DEC 31 DEC 30 DEC 28
Balance Sheet Data: 1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Working Capital $ 7,647,449 $ 9,916,103 $ 7,675,713 $16,836,997 $29,383,351
Total Assets 13,230,844 13,802,718 18,324,030 26,668,618 68,823,096
Short-Term Debt -- -- -- -- --
Long-Term Debt -- -- -- -- --
Stockholders' Equity 10,627,896 12,145,410 16,472,920 22,726,436 57,442,522
Cash Dividends -- -- -- -- --
</TABLE>
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
The statements which are not historical facts contained in this Item 7 and
elsewhere in this Form 10-K are forward looking statements that involve a number
of risks and uncertainties, including, but not limited to, the risks of
uncertainty of patent protection, the impact of supply and manufacturing
constraints or difficulties, possible technological obsolescence, increased
competition, litigation, and other risks detailed in the Securities and Exchange
Commission filings of the Company.
Results of Operations
The Company was organized as a Delaware corporation on September 3, 1987,
and was a development stage company through 1991. In September 1991,
Heidelberger Druckmaschinen A.G. ("Heidelberg"), the world's largest printing
press manufacturer introduced the Company's initial spark discharge based
imaging technology, in a jointly developed product, the Heidelberg GTO-DI. In
1993, after investing substantial effort and resources, the Company completed
the development of PEARL, its high resolution semiconductor laser diode based
imaging technology for the printing and graphic arts industries. PEARL's laser
diode technology is capable of imaging various types of Presstek printing plates
either off-press or on-press which may then be used to produce high-quality,
full-color lithographic printed materials at what the Company believes is a
lower cost than competitive processes. This second generation technology
replaced the Company's spark discharge technology. The GTO-DI was reintroduced
with PEARL in September 1993. The Company's relationship with Heidelberg has
been expanded to include the development and manufacture of Direct Imaging
systems utilized in Heidelberg's four color, fully automated lithographic press,
the Quickmaster DI 46-4. This press was introduced by Heidelberg in May 1995, to
replace the GTO-DI, which is no longer manufactured. Shipments of production
systems to Heidelberg for use in the Quickmaster commenced in the second quarter
of 1995. This press incorporates certain improvements to the Company's PEARL
Direct Imaging technologies and employs the Company's automatic plate changing
cylinder which eliminates the need for manually changing plates between jobs.
The Company is now building an installed base of customers which utilizes its
proprietary consumable printing plates on PEARL equipped Heidelberg presses.
The Company is also engaged in the development of additional products and
applications that incorporate the use of its proprietary technologies and
consumables, including both computer-to-plate and computer-to-press
applications. Some of these additional activities have resulted in an agreement
with the Adast Adamov Company, a manufacturer of sheet fed offset presses. This
agreement has resulted in the
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<PAGE>
availability of the Company's PEARL Direct Imaging technology on a larger format
Omni-Adast (19" x 26") multicolor press, the first showing of which took place
at an industry trade show during the first quarter of 1996. Shipments of the
Omni Adast Direct Imaging systems began in December 1996. Also, during the first
quarter of 1996, the Company began shipments of its PEARL platesetter, now
referred to as the PEARLsetter. The PEARLsetter is a computer-to-plate imaging
device that images both the Company's wet and dry offset plates. Another
agreement entered into with Nilpeter A/S of Denmark will result in the
utilization of the PEARL technology on a high-speed rotary label printing press
called the OFFSET 3300. Presstek will supply a special PEARL-based digital
imaging system which will image Presstek's thermal plates directly on the press
plate cylinder.
On February 15, 1996, the Company acquired 90% of the outstanding Common
Stock (the "Purchased Shares") of Catalina Coatings, Inc., an Arizona
corporation ("Catalina"). Catalina is engaged in the development, manufacture
and sale of vacuum deposition coating equipment and the licensing and
sublicensing of patent rights with respect to a vapor deposition process to coat
moving webs of material at high speeds. The Company has continued the business
of Catalina which operates as a subsidiary of the Company. The Purchased Shares
were acquired from the selling shareholders pursuant to a Stock Purchase
Agreement (the "Stock Purchase Agreement") dated and effective as of January 1,
1996. The aggregate consideration paid by the Company pursuant to the Stock
Purchase Agreement was $8,400,000, of which $8,200,000 represented the purchase
price of the Purchased Shares and $200,000 represented consideration for the
non-competition and confidentiality covenants of the selling shareholders.
Simultaneous with the closing of the acquisition, the Company entered into
a Put and Call Option Agreement (the "Option Agreement") which provides the
Company with the right, at any time after February 15, 2000, to acquire the
remaining 10% of the outstanding Common Stock of Catalina for an aggregate
consideration of $2,000,000. The Option Agreement also provides the selling
shareholders and another employee of Catalina with the right, at any time after
August 15, 2000, to cause the Company to purchase the remaining shares for an
aggregate consideration of $1,000,000. The Option Agreement will terminate if
Catalina consummates an initial public offering of its securities prior to
February 15, 2000.
The Company granted the selling shareholders and the other employee of
Catalina five-year non-qualified options to purchase an aggregate of 100,000
shares of the Company's Common Stock at an exercise price of $89.50 per share,
and Catalina granted to the same individuals an option to purchase an aggregate
5% of the issued and outstanding Common Stock of Catalina in the event that a
registration statement relating to an initial public offering of Catalina Common
Stock is declared effective by February 15, 2000.
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<PAGE>
The acquisition was accounted for as a purchase and, accordingly, the
results of Catalina's operations have been included in the Company's 1996
financial statements. Significant intercompany accounts and transactions have
been eliminated.
On June 19, 1995, the Company's Board of Directors determined to change its
fiscal year from a calendar year ending December 31 to a fiscal year ending on
the Saturday closest to December 31. Accordingly, the 1996 fiscal year ended on
December 28, 1996, and the fiscal years 1995 and 1994 ended on December 30,
1995, and December 31, 1994, respectively.
Revenues
Revenues for the years ended December 28, 1996, December 30, 1995, and
December 31, 1994, of $48,628,000 ( of which $1,950,000 related to sales by
Catalina), $27,611,000, and $16,518,000, respectively, consisted of product
sales, royalties, fees and other reimbursements. Product sales for 1996
increased $13,540,000 over 1995, primarily as a result of volume increases in
sales by the Company of products to be used in the Quickmaster DI 46-4, as well
as sales of the PEARLsetter, consumable printing plates, and spare parts.
Royalties and fees from licensees increased $7,475,000 in 1996 over 1995,
primarily as a result of increases in royalties of $946,000, of which $802,000
was earned on product sales to Heidelberg, and increases of $6,529,000 in
engineering fees and other revenues which are based primarily on amounts agreed
upon between the Company and Heidelberg. Revenues for the year ended December
30, 1995, totaled $27,611,000, an increase of $11,093,000 (67%) compared to
$16,518,000 recorded for the year ended December 31, 1994. Product sales for
1995 increased $10,567,000 over 1994, principally as a result of increased sales
volume of the Company's PEARL on-press direct imaging technology used in
Heidelberg's GTO-DI and Quickmaster DI 46-4, and consumable printing plates.
Revenues from royalties and fees for the year ended December 30, 1995, increased
$527,000, compared to 1994, as a result of an increase of $3,595,000 in
royalties earned on product sales and a decrease of $3,068,000 in engineering
fees and other revenues which are based primarily on amounts annually agreed
upon between the Company and Heidelberg. During 1996, revenues generated under
the Company's agreements with Heidelberg and revenues to Heidelberg's
distributors represented 73% of the Company's total revenues. Prior to 1996, the
Company relied on Heidelberg to generate substantially all of its revenues.
Cost of Products Sold
Costs of products sold for the years ended December 28, 1996, December 30,
1995, and December 31, 1994, of approximately $21,826,000 (of which $1,416,000
related to Catalina), $14,924,000, and $6,944,000, respectively, consisted of
the material, labor, and overhead costs associated with product sales, as well
as anticipated future warranty costs. The increases in such costs, comparing
1996 with 1995, and 1995 with 1994, relate primarily to increases in related
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<PAGE>
product sales. Improvement in the percentage relationship between costs of
products sold and product sales, comparing 1996 with 1995, results primarily
from product mix and manufacturing efficiencies.
Engineering and Product Development
Engineering and product development expenses for the year ended December
28, 1996, totaled $8,894,000 compared to $6,155,000 for the year ended December
30, 1995. The increase of $2,739,000 (45%) resulted principally from increased
expenditures for parts, supplies, labor, and contracted services related to the
Company's continued development of products incorporating its PEARL technology,
as well as other product development efforts including the Company's PEARLwet
and PEARLdry plates.
Engineering and product development expenses were $6,155,000 for the year
ended December 30, 1995, as compared to $5,123,000 for the year ended December
31, 1994. The increase in such expenses of $1,032,000 (20%) resulted principally
from increased expenditures for parts, supplies and labor related to the
Company's PEARL technology as well as other product development efforts and
matters relating to the Company's technologies.
Marketing
Marketing expenses for the year ended December 28, 1996, totaled
$2,587,000, compared to $1,727,000 for the year ended December 30, 1995, an
increase of $860,000 (50%). Marketing expenses increased $501,000 (41%)
comparing 1995 with 1994. These increases related principally to increased
expenditures for additional personnel and related costs as well as various
promotional activities.
General and Administrative
General and administrative expenses for the year ended December 28, 1996,
totaled $4,740,000 (of which $588,000 related to Catalina), compared to
$2,050,000 for the year ended December 30, 1995. The increase of $2,690,000
(131%) related primarily to the addition in 1996 of Catalina's general and
administrative expenses in addition to the amortization of goodwill and other
assets acquired in the acquisition of Catalina of $416,000 and to increases in
legal fees incurred in connection with certain legal proceedings, regulatory,
and other matters of $1,055,000 and expenditures for salaries and other costs
required to conduct various general and administrative functions of the Company.
-30-
<PAGE>
General and administrative expenses for 1995 increased $446,000 (28%) over
the $1,604,000 recorded for the year ended December 31, 1994. The increased
expenses in 1995 related principally to increased expenditures for salaries and
other costs required to conduct various general and administrative functions for
the Company.
Dividend and Interest Income
Dividend and interest income earned on the Company's cash and investments
increased $459,000 for the year ended December 28, 1996, compared to the year
ended December 30, 1995, principally as a result of the increased funds
available for investment.
Income Taxes
The provision for income taxes for the year ended December 28, 1996,
represents substantially the charge in lieu of income taxes arising during the
periods relating to the tax benefit of stock option deductions. The tax benefit
related to such stock options has been credited to stockholders' equity.
The provision for income taxes for the years ended December 30, 1995, and
December 31, 1994, represents substantially charges in lieu of state income
taxes arising during the periods relating to the tax benefit of stock option
deductions. No charges for federal income taxes were required for 1995 or 1994
due to the availability of federal net operating loss carryforwards for
accounting purposes.
Net Income
As a result of the foregoing, the Company had net income of $7,121,000 for
the year ended December 28, 1996, compared to net income of $2,860,000 and
$1,842,000 for the years ended December 30, 1995, and December 31, 1994,
respectively. The operations of Catalina did not have a material effect on net
income for the year ended December 28, 1996.
Liquidity and Capital Resources
At December 28, 1996, the Company had working capital of $29,383,000, an
increase of $12,546,000 as compared to working capital of $16,837,000 at
December 30, 1995. This increase was primarily attributed to the proceeds from
the issuances of Common Stock of $23,759,000, and net income from operations of
$7,121,000, plus non-cash items, including the tax benefit arising from stock
option deductions of $3,876,000, offset by the Company's investment in Catalina,
net of cash acquired, of $7,456,000 and additions to property, plant and
equipment of $16,390,000.
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<PAGE>
Net cash provided by operating activities of $4,231,000 for the year ended
December 28, 1996, resulted primarily from net income from operations of
$7,121,000 plus noncash items, including the tax benefit arising from stock
option deductions of $3,876,000 and an increase in accounts payable and accrued
expenses of $5,613,000, offset by increases in accounts receivable and inventory
of $9,470,000 and $5,036,000.
Net cash used for investing activities of $28,087,000 for the year ended
December 28, 1996, resulted primarily from the Company's investment in Catalina,
net of cash acquired, of $7,456,000, purchases of marketable securities net of
maturities of $3,456,000, and additions to property, plant and equipment used in
the Company's business of $16,390,000.
Net cash provided by financing activities during the year ended December
28, 1996, totaled $23,759,000, which included the private placements of an
aggregate of 282,846 shares of the Company's Common Stock for gross proceeds of
$20,209,000, net of costs of $33,500, and the sale of Common Stock incident to
the exercise of various stock options.
The Company is currently constructing two new facilities; a 60,000 square
foot facility in Tucson, Arizona for Catalina, and a 100,000 square foot
manufacturing facility in Hudson, New Hampshire. The Hudson manufacturing
facility is expected to accommodate the Company's new plate manufacturing
operations, which will utilize a new vacuum deposition coating system currently
being developed and built for the Company by Catalina, along with the necessary
plate finishing and packaging equipment. The Company estimates that the total
capital cost of these projects, including land purchases, to be approximately
$30,000,000.
During the year ended December 28, 1996, the Company expended approximately
$2,427,000 for the land purchases and approximately $3,875,000 for the land
improvements and construction of the two new facilities. As of December 28,
1996, the Company had outstanding purchase commitments of approximately
$7,280,000 with respect to the new facilities. In addition, the Company expended
approximately $7,809,000 for the new plate manufacturing and packaging
equipment. As of December 28, 1996, the Company had outstanding purchase
commitments of approximately $8,448,000 with respect to the plate manufacturing
and packaging equipment.
On December 18, 1996, the Company entered into an agreement with Citizens
Bank New Hampshire for a revolving line of credit loan under which the Company
may borrow a maximum of $10,000,000 for working capital requirements and general
corporate purposes. Borrowings are secured by substantially all of the Company's
assets and are guaranteed by the Company's subsidiary, Catalina Coatings, Inc.
and secured by its assets. Under the terms of the revolving credit agreement,
the Company is required to meet certain financial covenants on a quarterly and
annual
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<PAGE>
basis. Interest on the line of credit is payable at the LIBOR rate plus
1.75% (7.34% at December 28, 1996). The loan agreement terminates on July 31,
1997, at which date, the entire principal and accrued interest is due and
payable. As of December 28, 1996, the Company had $10,000,000 available under
the line.
The Company is currently exploring various long term funding options with
respect to financing the cost of its new facilities and plate manufacturing
equipment. Also, in order to fund increased production of Quickmaster DI Kits
during 1997, the Company will require additional working capital if its current
line of credit loan agreement is not renewed or replaced upon its expiration in
July 1997, or if the Company is unable to obtain long-term financing for its new
facilities. These can be no assurance that the Company can obtain long term
financing, or that the current line of credit loan agreement will be renewed.
During 1996 the Company received certain payments for engineering fees and
other revenue from Heidelberg based upon a previously negotiated amount. No such
amount has yet been negotiated for 1997.
In connection with the award issued by the International Chamber of
Commerce in the arbitration between Presstek and Agfa-Gevaert N.V., Agfa
reimbursed Presstek's legal expenses in the arbitration in the amount of
$769,140. These funds were recorded as an offset to general and administrative
expenses and are not included in revenues or other income.
Effect of Inflation
Inflation has not had, and is not expected to have, a material impact upon
the Company's operations.
Net Operating Loss Carryforwards
As of December 28, 1996, the Company had net operating loss carryforwards
totaling approximately $28,550,000 resulting from compensation deductions, for
tax purposes, relative to stock option plans. To the extent net operating losses
resulting from stock option plan compensation deductions become realizable, the
benefit will be credited directly to additional paid in capital. The amount of
the net operating loss carryforwards which may be utilized in any future period
may be subject to certain limitations, based upon changes in the ownership of
the Company's Common Stock.
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<PAGE>
Item 8. Financial Statements and Supplementary Data.
SELECTED QUARTERLY FINANCIAL DATA (unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
QUARTER ENDED
1995 MAR 31 JUL 1 SEP 30 DEC 30
------ ----- ------ ------
<S> <C> <C> <C> <C>
Total revenues $5,084 $5,503 $7,629 $9,395
Total costs & expenses 4,972 5,435 6,740 7,709
Net income 160 177 872 1,650
Net income per share $0.01 $0.01 $.05 $0.10
Weighted average number of common and common
equivalent shares 15,533 15,934 16,067 16,122
QUARTER ENDED
1996 MAR 30 JUN 29 SEP 28 DEC 28
------ ------ ------ ------
Total revenues $11,005 $11,880 $12,366 $13,377
Total costs & expenses 9,141 9,070 9,680 10,157
Net income 1,289 1,647 1,831 2,354
Net income per share $0.08 $0.10 $0.11 $0.14
Weighted average number of common and common
equivalent shares 16,501 16,706 16,459 16,567
</TABLE>
The audited financial statements appear in a separate section of this report
following Part IV.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The information required by this item has previously been reported in the
Company's Current Report on Form 8-K for the event dated December 28, 1995 and
Amendment No. 1 thereto, and its Current Report on Form 8-K for the event dated
January 11, 1996.
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<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The current directors and executive officers of the Company and their ages
and positions are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert Howard 73 Chairman of the Board and Director
Dr. Lawrence Howard 44 Director
Richard A. Williams 62 Chief Executive Officer, Secretary, Vice-Chairman of the Board and Director
Robert E. Verrando 63 President, Chief Operating Officer and Director
Frank G. Pensavecchia 62 Senior Vice President - Engineering
Glenn J. DiBenedetto 47 Chief Financial Officer
Harold N. Sparks(1) 75 Director
Bert DePamphilis(1) 64 Director
John W. Dreyer 59 Director
</TABLE>
(1) Member of the Company's Audit Committee and 1991 and 1994 Stock Option Plan
Committees.
Robert Howard, a founder of the Company, has been Chairman since June 1988
and a director since September 1987. Mr. Howard served as President and
Treasurer of the Company from October 1987 until June 1988. Mr. Howard was the
founder of Howtek, Inc. ("Howtek"), a publicly-held company engaged in the
manufacture of electronic prepress equipment, and has served as Chairman of the
Board of Howtek since August 1984. Mr Howard served as the President of Howtek
from August 1984 through November 1987 and as its Chief Executive Officer from
August 1984 to December 1993. Mr. Howard, the inventor of the first impact dot
matrix printer, was the founder of Centronics Data Computer Corporation
("Centronics"), a manufacturer
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<PAGE>
of printers. From 1969 to April 1980, he served as President and Chairman of the
Board of Directors of Centronics, and he resigned from Centronics' Board of
Directors in 1983. From April 1980 until 1983, Mr. Howard was principally
engaged in the management of his personal investments. Mr. Howard devotes only a
limited portion of his business time to consulting with management concerning
the Company's affairs. In February 1994, Mr. Howard entered into a settlement
agreement in the form of a consent decree with the Securities and Exchange
Commission (the "Commission") in connection with the Commission's investigation
covering trading in the Common Stock of Howtek by an acquaintance of Mr. Howard
and a business associate of such acquaintance. Mr. Howard, without admitting or
denying the Commission's allegations of securities laws violations, agreed to
pay a fine and to the entry of a permanent injunction against future violations
of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934.
Dr. Lawrence Howard, a founder of the Company, has been a director of the
Company since November 1987 and served as Vice Chairman of the Company from
November 1992 to February 1996. He served as Chief Executive Officer and
Treasurer of the Company from June 1988 to June 1993; served as President from
June 1988 to November 1992; and was Vice President from October 1987 to June
1988. From March 1997 to the present, Dr. Howard has been a general partner of
Hudson Ventures, LP., a limited partnership that has prepared an application to
qualify as a small business investment company. From July 1995 to March 1997,
Dr. Howard was President of Howard Capital Partners, Inc., an investment banking
firm. From July 1994 to July 1995 Dr. Howard was Senior Managing Director of
Whale Securities Co. L.P., an NASD registered broker-dealer. From October 1992
through June 1994 Dr. Howard was President and Chief Executive Officer of LH
Resources, Inc., a management and financial consulting firm. Dr. Howard is a
director of Resurgence Properties, Inc., a public company engaged in investments
in and management of real estate. Dr. Howard is the son of Robert Howard.
Richard A. Williams has been Chief Executive Officer and Vice-Chairman of
the Board of the Company since February 1996. He has been Secretary of the
Company since June 1988 and a director of the Company since November 1987. From
June 1988 to February 1996, Mr. Williams served as Executive Vice President and
Chief Operating Officer of the Company. From November 1987 to June 1988, Mr.
Williams served as Vice President of the Company. From June 1985 to February
1987, Mr. Williams served as Vice President of Engineering for Centronics, where
he was responsible for line matrix, and laser printer development and
introduction.
Robert E. Verrando has been President and Chief Operating Officer of the
Company since February 1996, and a director of the Company since November 1994.
From October 1994 to February 1996, he served as Executive Vice President of the
Company. From July 1993 to October 1994, Mr. Verrando was employed as a
consultant to the graphic arts industry. From October 1986 through July 1993, he
was employed in a variety of executive positions with Compugraphic
Corporation/Agfa
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<PAGE>
Compugraphic/Agfa Division, Miles, Inc; most recently as Vice President, General
Manager Business Imaging Systems Group. From April 1981 through September 1986,
he was employed as Vice President-Business Development of A.B. Dick Company.
Frank G. Pensavecchia has served as Senior Vice President -Engineering
since October 1991 and was the Company's Vice President - Engineering from
August 1988 to October 1991. From September 1987 to August 1988, he served as
the Company's Director of Engineering. From October 1983 to September 1987, Mr.
Pensavecchia served as Director of Laser Printer Engineering for Centronics.
Glenn J. DiBenedetto has served as Chief Financial Officer since November
1990. Mr. DiBenedetto has been a principal with the firm of DiBenedetto &
Company, P.A., certified public accountants, since July 1989. From 1984 to July
1989, Mr. DiBenedetto was a principal with the firm of Newton & DiBenedetto,
P.A., certified public accountants. Under his arrangement with the Company, Mr.
DiBenedetto engages in other activities and is not required to devote his full
business time to the affairs of the Company.
Harold N. Sparks has been a director since February 1989. From 1971 to
September 1995, Mr. Sparks was the President and Chief Executive Officer of
Fashion Neckwear Co., Inc., a manufacturer of men's neckties. Mr. Sparks has
served as a consultant to Fashion Neckwear Co., Inc. since September 1995.
Bert DePamphilis has been a director since June 1990. Mr. DePamphilis has
been an independent consultant to the graphic arts industry since May 1995. From
September 1994 through April 1995 he was a consultant to Applied Graphics
Technology ("AGT"), the world's largest prepress service. Mr. DePamphilis was
the founder, and from 1976 through August 1994, a principal of PDR Royal, Inc.,
a color prepress service for advertising agencies and Fortune 100 companies that
ceased independent operations when it became a division of AGT in September
1994.
John Dreyer has been a director since February 1996. Mr. Dreyer has been
employed by Pitman Company, the largest graphic arts and image supplier in the
United States, since 1965. He has served as Pitman's President since 1977 and
has also served as its Chief Executive Officer since 1978.
Directors are elected annually by the stockholders. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
Item 11. Executive Compensation.
The following table discloses the compensation for the person who served as
the Company's principal executive officer during the fiscal year ended December
28, 1996, and for the only other executive officers of the Company whose
salaries
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<PAGE>
exceeded $100,000 for the Company's fiscal year ended December 28, 1996, (the
"Named Executive Officers"). The number of securities underlying options has
been adjusted to give retroactive effect to the Company's five-for-four Common
Stock split in the form of a 25% stock dividend effected in September 1994 and a
two-for-one split in the form of a 100% stock dividend effected in May 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
------------ -----------
Securities
Name and Principal Salary Underlying
Position Year ($) Options (#)
- ------------------------ ---- ------------ -----------
<S> <C> <C> <C>
Richard A. Williams 1996 153,000 20,000
Chief Executive Officer 1995 134,000 --
1994 125,000 40,000
Robert E. Verrando 1996 179,000 20,000
President and 1995 179,000 --
Chief Operating Officer 1994 28,000 100,000
Frank G. Pensavecchia 1996 137,000 20,000
Senior Vice President- 1995 114,000 --
Engineering 1994 105,000 40,000
</TABLE>
No stock options were granted during fiscal 1995 to any of the Named
Executive Officers.
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<PAGE>
The following table provides information with respect to individual stock
options granted during fiscal 1996 to each of the Named Executive Officers.
Option Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
Potential Realizable
% of Value at Assumed
Total Annual Rates of
Options Stock Price
Shares Granted to Appreciation for
Underlying Employees Exercise Option Term (1)
Options in Fiscal Price Expiration ----------------------
Name Granted (#) Year (2) ($/sh) Date 5%($) 10%($)
---- ----------- -------- ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Robert E. Verrando 20,000 (3) 6.4 $71.00 12/2/01 $392,320 $866,924
Richard A. Williams 20,000 (3) 6.4 $71.00 12/2/01 $392,320 $866,924
Frank G. Pensavecchia 20,000 (3) 6.4 $71.00 12/2/01 $392,320 $866,924
</TABLE>
- ----------------------
(1) The potential realizable value columns of the table illustrate values that
might be realized upon exercise of the options immediately prior to their
expiration, assuming the Company's Common Stock appreciates at the
compounded rates specified over the term of the options. These numbers do
not take into account provisions of certain options providing for
termination of the option following termination of employment or
nontransferability of the options and do not make any provision for taxes
associated with exercise. Because actual gains will depend upon, among
other things, future performance of the Common Stock, there can be no
assurance that the amounts reflected in this table will be achieved.
(2) The percentage has been calculated based upon total options granted to
employees in fiscal 1996 under the Company's 1988, 1991, and 1994 stock
option plans.
(3) Non-qualified stock options; all options were granted under the 1994 Stock
Option Plan and became exercisable on the date of grant, December 2, 1996.
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<PAGE>
The following table sets forth information concerning the value of
unexercised stock options held by the Named Executive Officers as of December
28, 1996, and the options exercised by the Named Executive Officers during the
fiscal year ended December 28, 1996.
Aggregated Option Exercises for Fiscal Year-Ended December 28, 1996
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at December 28 1996 at December 28, 1996*
Shares ------------------- ---------------------
Acquired
on Value
Name Exercise Realized+ Exercisable Unexercisable Exercisable Unexercisable
---- -------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Williams 50,000 $3,700,526 122,500 12,500 $6,651,750 $ 724,375
Robert E. Verrando 10,000 $ 966,563 55,000 55,000 $1,940,000 $2,970,000
Frank G. Pensavecchia 17,500 $1,701,094 92,500 12,500 $4,667,750 $ 724,375
</TABLE>
- ----------
+ Value realized represents the positive spread between the exercise price of
such options and the market value of the Common Stock on date of exercise.
* Year-end values for unexercised in-the-money options represent the positive
spread between the exercise price of such options and the year-end market
value of the Common Stock which was $73.50 on December 27, 1996.
Compensation of Directors
Directors received no cash compensation for serving on the Board during the
year ended December 28, 1996. However, during such year, the Company paid Mr.
Robert Howard, the Chairman of the Board, $125,000 for consulting services
rendered to the Company. In addition, in December 1996, Mr. Howard was granted a
five-year option under the Company's 1994 Plan (defined below) to purchase
20,000 shares of Common Stock at $71.00 per share.
Effective December 1993, the Company adopted its Non-Employee Director
Stock Option Plan (the "Director Plan"). Only non-employee directors of the
Company (other than Robert Howard or Dr. Lawrence Howard) are eligible to
receive grants under the Director Plan. The Director Plan provides that eligible
directors automatically receive a grant of options to purchase 5,000 shares of
Common Stock at fair market value upon first becoming a director and,
thereafter, an annual grant, in January of each year, of 2,500 options at fair
market value. In 1996, Messrs. DePamphilis and Sparks received options to
purchase 2,500 shares each of Common Stock under the Director Plan.
Since joining the Board in February 1996, in addition to the grants of
five-year options to purchase 7,500 shares of Common Stock that he received
pursuant to the Director Plan, Mr. Dreyer has been granted under the 1994 Plan
options to purchase 5,000, 2,500, and 10,000 shares of Common Stock,
respectively, at exercise prices of $94.75, $99.25, and $70.25, respectively.
Under each of the Company's 1988 Stock Option Plan ("1988 Plan"), 1991
Stock Option ("1991 Plan") and 1994 Stock Option Plan ("1994 Plan"), directors
who are not employees of the Company (other than directors who
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<PAGE>
are members of the Stock Option Committee of the particular plan) are eligible
to be granted nonqualified options under such plan. The Board of Directors or
the Stock Option Committee (the "Committee") of each plan, as the case may be,
has discretion to determine the number of shares subject to each nonqualified
option (subject to the number of shares available for grant under the particular
plan), the exercise price thereof (provided such price is not less than the par
value of the underlying shares of Common Stock), the term thereof (but not in
excess of 10 years from the date of grant, subject to earlier termination in
certain circumstances), and the manner in which the option becomes exercisable
(amounts, intervals and other conditions). Directors who are employees of the
Company (but not members of the Committee of the particular plan) are eligible
to be granted incentive stock options or nonqualified options under such plans.
The Board or Committee of each plan, as the case may be, also has discretion to
determine the number of shares subject to each incentive stock option ("ISO"),
the exercise price and other terms and conditions thereof, but their discretion
as to the exercise price, the term of each ISO and the number of ISOs that may
vest may be in any year is limited by the Internal Revenue Code of 1986, as
amended. As of February 25, 1997, there were 4,382 shares of Common Stock
available for grant under the 1988 Plan, 6,016 shares of Common Stock available
for grant under the 1991 Plan, 224,976 shares available for grant under the 1994
Plan and 85,000 shares of Common Stock available for grant under the Director
Plan.
Employment Arrangements
The Company has an employment agreement with Mr. Richard A. Williams, which
provides for an annual salary which is subject to periodic review by the
Company's Board of Directors. The employment agreement expires on March 31,
1998, and contains certain non-disclosure provisions. Effective January 1997,
the Board increased Mr. Williams' annual salary to $175,000.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
The Company does not have a Compensation Committee of its Board of
Directors. Decisions as to compensation are made by the Company's Board of
Directors. Mr. Richard A. Williams, and Mr. Robert E. Verrando, in their
capacity as a director, each participated in the Board's deliberations
concerning compensation of executive officers for the Company's fiscal year
ended December 28, 1996. During the fiscal year ended December 28, 1996, none of
the executive officers of the Company has served on the Board of Directors or
the compensation committee of any other entity, any of whose officers has served
on the Board of Directors of the Company.
-41-
<PAGE>
Item 12. Security Ownership of Certain
Beneficial Owners and Management.
The following table sets forth information at February 28, 1997, based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of Common Stock by (i) each person known by the
Company to be the owner of more than 5% of the outstanding shares of Common
Stock, (ii) each director, (iii) each of the Named Executive Officers, and (iv)
all executive officers and directors of the Company as a group.
Amount and Nature Percentage
Name of of Beneficial of Outstanding
Beneficial Owner (1) Ownership (2) Shares Owned
- -------------------- ----------------- -------------
Robert Howard 1,370,724(3) 8.7
Dr. Lawrence Howard 1,354,326(4) 8.7
Richard A. Williams 331,400(5) 2.1
Robert E. Verrando 55,000(6) (7)
Harold N. Sparks 47,900(8) (7)
Bert DePamphilis 16,050(9) (7)
Frank Pensavecchia 105,000(10) (7)
John W. Dreyer 22,500(11) (7)
John C. Oxley 997,300(12) (13) 6.5
Thomas E. Oxley 806,700(12) (14) 5.2
Charles C. Killin 813,200(12) (15) 5.3
All executive officers
and directors as a
group (nine persons) 3,309,900(16) 20.1
- ----------
(1) The address of Dr. Lawrence Howard is 120 East End Avenue, New York, New
York 10028. The address of Robert Howard is 303 East 57th Street, New York,
New York 10022.
(2) The Company believes that except as set forth herein, all persons referred
to in the table have sole voting and investment power with respect to all
shares of Common Stock reflected as beneficially owned by them.
(3) Includes options to purchase 329,000 shares of Common Stock held by Mr.
Howard which are currently exercisable. Also includes 12,000 shares owned
by Mr. Howard's wife. Does not include shares owned by the son of Mr.
Howard's wife, with respect to which Mr. Howard disclaims any beneficial
interest.
-42-
<PAGE>
(4) Includes options to purchase 131,500 shares of Common Stock held by Dr.
Howard which are currently exercisable. Also includes 17,500 shares owned
by Dr. Howard's wife, 26,892 shares owned by Dr. Howard's wife as custodian
for Dr. Howard's children and 22,500 shares owned by Dr. Howard as
custodian for his children.
(5) Includes options to purchase 122,500 shares of Common Stock held by Mr.
Williams which are currently exercisable. Also includes 11,000 shares owned
by Mr. Williams' wife. Does not include shares owned by Mr. Williams'
children with respect to which Mr. Williams disclaims any beneficial
interest.
(6) Represents shares issuable upon exercise of options held by Mr. Verrando
which are currently exercisable.
(7) Less than 1%.
(8) Includes options to purchase 13,750 shares of Common Stock held by Mr.
Sparks which are currently exercisable.
(9) Includes options to purchase 13,750 shares of Common Stock held by Mr.
DePamphilis which are currently exercisable.
(10) Includes options to purchase 92,500 shares of common stock held by Mr.
Pensavecchia which are currently exercisable.
(11) Represents shares issuable upon exercise of options held by Mr. Dreyer
which are currently exercisable.
(12) The information with respect to the securities ownership of Messrs. John C.
Oxley, Thomas E. Oxley, and Charles C. Killin has been derived from their
respective Schedules 13-D as filed with the Securities and Exchange
Commission.
(13) Represents 19,600 shares of Common Stock held by Mr. Oxley, individually;
750,700 shares of Common Stock held by Mr. Oxley as a co-executor of the
estate of John T. Oxley (the "Oxley Estate"); 171,000 shares of Common
Stock held by Mr. Oxley as a co-trustee of the Oxley Foundation; and 56,000
shares of Common Stock held of record by Boca Polo, Inc. ("Boca Polo") a
Nevada corporation. Mr. Oxley is owner of 50% of the outstanding shares of
Boca Polo. The address of Mr. John C. Oxley is One West 3rd Street,
Williams Center Tower I, Suite 1300, Tulsa, OK 74103.
(14) Represents 750,700 shares of Common Stock held by the Oxley Estate, of
which Mr. Oxley is a co-executor; and 56,000 shares of Common Stock held of
record by Boca Polo. Mr. Oxley is a director and owner of 50% of the
-43-
<PAGE>
outstanding shares of Boca Polo. The address of Mr. Thomas E. Oxley is One
West 3rd Street, Williams Center Tower I, Suite 1305, Tulsa, OK 74103.
(15) Represents 750,700 shares of Common Stock held by Mr. Killin as a
co-executor of the Oxley Estate; 43,500 of Common Stock held by Mr. Killin
as the trustee of the Mary Jane Tritsch Trust dated September 3, 1952; and
19,000 shares of Common Stock held by Mr. Killin as the trustee of the
Thomas E. Oxley Trust dated September 3, 1952. The address for Mr. Killin
is 15 East 5th Street, Suite 2400, Tulsa, OK 74103.
(16) Includes options to purchase 329,000, 131,500, 122,500, 55,000, 92,500,
13,750, 13,750, 22,500, and 7,000 shares held by Robert Howard, Dr.
Lawrence Howard, Richard A. Williams, Robert E. Verrando, Frank
Pensavecchia, Bert DePamphilis, Harold Sparks, John W. Dreyer, and Glenn J.
DiBenedetto, respectively, which are currently exercisable. Does not
include options to purchase 12,500, 55,000, 12,500, 2,500, 2,500, and 2,500
shares of Common Stock held by Richard Williams, Robert E. Verrando, Frank
Pensavecchia, Harold Sparks, Bert DePamphilis and John W. Dreyer,
respectively, none of which are exercisable within 60 days from the date
hereof.
Item 13. Certain Relationships and Related Transactions.
The Company paid Mr. Robert Howard, its Chairman of the Board, $125,000 for
consulting services provided to the Company during 1996. In addition, the
Company paid Mr. Howard $35,513 as a tenant-at-will sublessee of certain offices
from Mr. Howard.
During the year ended December 28, 1996, the Company purchased equipment
from Howtek totaling $53,721. Mr. Robert Howard, is the Chairman of the Board of
Directors and a principal stockholder of Howtek, and the father of Dr. Lawrence
Howard. Dr. Howard currently serves as a director to the Company.
During 1996, the Company recorded sales of equipment and consumables to
Pitman of $3,379,000, and had accounts receivable from Pitman of $2,279,000 at
December 28, 1996. John Dreyer, who has been a director of the Company since
February 1996, is Pitman's President and Chief Executive Officer.
-44-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
<TABLE>
<CAPTION>
(a)(1) Financial Statements
Page
----
<S> <C>
Report of Independent Certified Public
Accountants F-2
Independent Auditors' Report F-3
Balance Sheets as of December 30, 1995, and
December 28, 1996 F-4
Statements of Income for the Years Ended
December 31, 1994, December 30, 1995,
and December 28, 1996 F-5
Statement of Changes in Stockholders' Equity
for the three years ended December 28, 1996 F-6-7
Statements of Cash Flows for the Years Ended
December 31, 1994, December 30, 1995,
and December 28, 1996 F-8
Notes to Financial Statements F-9
(a)(2) Financial Statement Schedules
Schedule II-Valuation and Qualifying Accounts and
Reserves. FS-1
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
(a)(3) Exhibits
</TABLE>
Exhibit
Number Description
2(a) Stock Purchase Agreement dated and effective as of January 1, 1996,
among the Company and David G. Shaw, Marc G. Langlois and David G.
-45-
<PAGE>
Shaw and Lynn R. Shaw, as Trustees of the David and Lynn Shaw
Charitable Remainder Unitrust, dated February 12, 1996, and John E.
Madocks and Catalina. **
2(b) Put and Call Option Agreement by and among the Company, David G. Shaw,
Marc G. Langlois and John E. Madocks. **
2(c) Confidentiality and Non-Competition Agreement by and among the
Company, David G. Shaw and Catalina. **
2(d) Confidentiality and Non-Competition Agreement by and among the
Company, Marc G. Langlois and Catalina. **
2(e) Confidentiality and Non-Competition Agreement by and among the
Company, John E. Madocks and Catalina. **
2(f) Special Option Agreement, among the Company, Catalina, David G. Shaw,
Marc G. Langlois and John E. Madocks. **
3(a) Amended and Restated Certificate of Incorporation of the Company, as
amended, incorporated by reference to Exhibit 3 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended June 29, 1996.
3(b) By-laws of the Company.***
10(a) Employment Agreement dated August 23, 1988, by and between the Company
and Richard Williams, incorporated by reference to Exhibit 10(b) of
Registration Statement 33-27112, effective March 28, 1989.
10(b) 1988 Stock Option Plan, incorporated by reference to Exhibit 10(c) of
Registration Statement 33-27112, effective March 28, 1989.
10(c) 1988 Restricted Stock Purchase Plan, incorporated by reference to
Exhibit 10(d) of Registration Statement 33-27112, effective March 28,
1989.
10(d) Confidentiality Agreement between the Company and Heidelberger
Druckmaschinen A.G., effective December 7, 1989 as amended,
-46-
<PAGE>
incorporated by reference to Exhibit 10(i) of the Company's Annual
Report on Form 10-K for the year ended December 31, 1989.
10(e) Development and Supply Agreement dated July 23, 1991, by and between
the Company and Inx Incorporated, incorporated by reference to the
Company's Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1991.
10(f) Master Agreement effective January 1, 1991, by and between
Heidelberger Druckmaschinen Aktiengesellschaft and the Company,
incorporated by reference to the Company's Form 8-K, dated January 1,
1991.
10(g) Technology License effective January 1, 1991, by and between
Heidelberger Druckmaschinen Aktiengesellschaft and the Company,
incorporated by reference to the Company's Form 8-K, dated January 1,
1991.
10(h) Supply Agreement effective January 1, 1991, by and between
Heidelberger Druckmaschinen Aktiengesellschaft and the Company,
incorporated by reference to the Company's Form 8-K, dated January 1,
1991.
10(i) Memorandum of Performance No. 3 dated April 27, 1993, to the Master
Agreement, Technology License, and Supply Agreement between the
Company and Heidelberger Druckmaschinen Aktiengesellschaft,
incorporated by reference to the Company's Quarterly Report on Form
10-Q for the Quarter Ended June 30, 1993.
10(j) Modification to Memorandum of Performance No. 3 dated April 27, 1993,
to the Master Agreement, Technology License, and Supply Agreement
between the Company and Heidelberger Druckmaschinen
Aktiengesellschaft.+
10(k) Memorandum of Understanding No. 4 dated November 9, 1995, to the
Master Agreement and Technology License and Supply Agreement between
the Company and Heidelberger Druckmaschinen Aktiengesellschaft.****
10(l) Lease relating to real property located at 8 Commercial Street,
Hudson, New Hampshire.
-47-
<PAGE>
10(m) Lease relating to real property located at 9 Commercial Street,
Hudson, New Hampshire.
10(n) Lease relating to real property located at 18-20 Hampshire Drive,
Hudson, New Hampshire.
10(o) Development and Supply Agreement dated November 13, 1991, by and
between the Company and Gans Ink & Supply Co., Inc.*
10(p) Amendment to Employment Agreement between the Company and Richard
Williams.
10(q) 1991 Stock Option Plan.*
10(r) 1994 Stock Option Plan.+
10(s) Non Employee Director Stock Option Plan.+
10(t) Memorandum of Understanding No.5 dated March 7, 1997 between the
Company and Heidelberger Druckmashchinen Aktiengesellschaft. ****
10(u) Loan Agreement between the Company and Citizens Bank, New Hampshire.
10(v) Revolving Line of Credit Promissory Note in favor of Citizens Bank,
New Hampshire.
21 Subsidiaries of the Company.
23(a) Consent of BDO Seidman LLP.
23(b) Consent of Deloitte & Touche LLP.
27 Financial Data Schedule (for SEC use only)
(b) During the quarter ended December 28, 1996, no reports on Form 8-K
were filed.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
- ----------
* Incorporated by reference to the exhibit filed with the Company's Annual
report on Form 10-K for the year ended December 31, 1991.
** Incorporated by reference to the exhibit filed with the Company's Form 8-K
for the event dated February 15, 1996.
*** Previously filed as an exhibit with the Company's Form 10-K for the year
ended December 30, 1995.
**** The Company has requested that the SEC grant it confidential treatment with
respect to a portion of this exhibit.
-48-
<PAGE>
+ Incorporated by reference to the exhibit filed with the Company's Annual
report on Form 10-K for the year ended December 31, 1994
-49-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Independent Auditors' Report F-3
Balance Sheets as of December 30, 1995,
and December 28, 1996 F-4
Statements of Income for the Years Ended
December 31, 1994, December 30, 1995,
and December 28, 1996 F-5
Statements of Changes in Stockholders' Equity
for the Three Years Ended December 28, 1996 F-6-7
Statements of Cash Flows for the Years Ended
December 31, 1994, December 30, 1995,
and December 28, 1996 F-8
Notes to Financial Statements F-9
Financial Statement Schedule:
Schedule II - Valuation and qualifying accounts
and reserves FS-1
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Presstek, Inc.
Hudson, New Hampshire
We have audited the accompanying balance sheets of Presstek, Inc. as of December
30, 1995 and December 28, 1996, and the related statements of income, changes in
stockholders' equity, and cash flows for the years then ended. We have also
audited the financial statement schedule listed in the accompanying index. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Presstek, Inc. at December 30,
1995 and December 28, 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
New York, New York
February 21, 1997 (except for Note 11 as to which
the date is March 26, 1997)
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
Presstek, Inc.:
We have audited the accompanying statements of income, changes in stockholders'
equity and cash flows of Presstek, Inc. for the year ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit 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 financial statements present fairly, in all material
respects the results of operations and cash flows of Presstek, Inc. for the year
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in Note 4 to the Financial Statements, the Company changed its
method of accounting for certain investments in debt and equity securities,
effective January 1, 1994, to conform with Statements of Financial Accounting
Standards No. 115.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Bedford, New Hampshire
March 15, 1995
F-3
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PRESSTEK, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 30, December 28,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,628,021 $ 3,530,866
Marketable securities 3,050,825 6,602,854
Accounts receivable, net of allowance
for doubtful accounts of $80,000 in 1995
and $183,851 in 1996 7,888,559 17,306,020
Inventory 5,615,743 10,639,657
Costs and estimated earnings in excess
of billings on uncompleted contracts 246,000 1,625,137
Other current assets 350,031 855,287
------------ ------------
Total current assets 20,779,179 40,559,821
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land -- 2,426,827
Buildings under construction -- 3,873,157
Machinery and equipment 5,659,211 14,026,575
Furniture and fixtures 372,889 681,648
Leasehold improvements 1,247,803 2,905,181
Other 34,498 34,498
------------ ------------
Total 7,314,401 23,947,886
Less accumulated depreciation
and amortization (3,023,089) (4,230,674)
------------ ------------
Property, plant and equipment, net 4,291,312 19,717,212
------------ ------------
OTHER ASSETS:
Goodwill, net -- 6,144,819
Patent application costs and license rights, net 1,012,147 1,704,406
Software development costs, net 585,980 546,838
Other -- 150,000
------------ ------------
Total other assets 1,598,127 8,546,063
------------ ------------
TOTAL $ 26,668,618 $ 68,823,096
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,392,846 $ 8,332,558
Accrued expenses 1,091,036 802,692
Accrued salaries and employee benefits 458,300 686,090
Billings in excess of costs and estimated
earnings on uncompleted contracts -- 1,355,130
------------ ------------
Total current liabilities 3,942,182 11,176,470
------------ ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST -- 204,104
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized
1,000,000 shares; no shares issued or
outstanding -- --
Common Stock, $.01 par value; authorized
75,000,000 shares; issued and outstanding
14,765,300 shares at December 30, 1995 147,653 153,923
15,392,276 shares at December 28, 1996;
Additional paid-in capital 21,559,856 49,188,118
Unrealized loss on marketable securities, net (3,176) (42,911)
Retained earnings 1,022,103 8,143,392
------------ ------------
Stockholders' equity 22,726,436 57,442,522
------------ ------------
TOTAL $ 26,668,618 $ 68,823,096
============ ============
</TABLE>
See notes to financial statements
F-4
<PAGE>
PRESSTEK, INC.
STATEMENTS OF INCOME
For the Years Ended
<TABLE>
<CAPTION>
December 31, December 30, December 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Product sales $ 9,462,032 $ 20,028,548 $ 33,569,400
Royalties and fees from licensees 7,055,826 7,582,908 15,058,169
------------ ------------ ------------
Total revenues 16,517,858 27,611,456 48,627,569
------------ ------------ ------------
COSTS AND EXPENSES:
Cost of products sold 6,944,268 14,923,968 21,825,697
Engineering and product development 5,123,439 6,155,421 8,894,420
Marketing 1,225,756 1,727,301 2,587,490
General and administrative 1,603,729 2,050,075 4,739,951
------------ ------------ ------------
Total costs and expenses 14,897,192 24,856,765 38,047,558
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Dividend and interest 407,977 327,213 786,095
Other, net 166 (2,276) (244,817)
------------ ------------ ------------
Total other income - net 408,143 324,937 541,278
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 2,028,809 3,079,628 11,121,289
PROVISION FOR INCOME TAXES (186,600) (220,000) (4,000,000)
------------ ------------ ------------
NET INCOME $ 1,842,209 $ 2,859,628 $ 7,121,289
============ ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES 14,865,344 15,855,076 16,581,254
============ ============ ============
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARE $ .12 $ .18 $ .43
============ ============ ============
</TABLE>
See notes to financial statements
F-5
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Years Ended December 28, 1996
<TABLE>
<CAPTION>
Unrealized Loss
Common Stock Additional On Investments Retained
-------------------- Paid-in Available Earning Stockholders'
Shares Amount Capital For Sale (Deficit) Equity
------ ------ ------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 5,388,968 $ 53,890 $15,771,254 $ -- $(3,679,734) $12,145,410
February through March 1994:
Issuance of Common Stock relative to the exercise
of warrants at $12.50 and $14.25 per share 50,000 500 668,250 668,750
August, 1994:
Five for four stock split, effected in
the form of a 25% stock dividend, net of
fractional shares 1,410,235 14,102 (17,782) (3,680)
January through December, 1994:
Issuances of Common Stock relative to the
exercise of incentive stock options at:
$1.50 per share 54,361 544 341,126 341,670
$1.20 per share 62,500 625 74,375 75,000
Issuances of Common Stock relative to the
exercise of nonqualified stock options at
$5.00 - $16.75 per share 74,856 748 612,963 613,711
Issuances of Common Stock relative to the
exercise of underwriters' warrants and unit
warrants for cash at:
$5.75 and $6.25 per share, respectively 95,254 953 570,571 571,524
$4.60 and $5.00 per share, respectively 57,846 578 277,082 277,660
State tax benefit arising from stock option deductions 140,000 140,000
Unrealized loss on marketable securities, net (199,334) (199,334)
Net income for the year 1,842,209 1,842,209
---------- -------- ----------- --------- ----------- -----------
BALANCE AT DECEMBER 31, 1994 7,194,020 71,940 18,437,839 (199,334) (1,837,525) 16,472,920
January through December, 1995:
Issuance of Common Stock relative to the
exercise of incentive stock options at
$10.00 - $15.55 per share 112,877 1,129 1,628,242 1,629,371
Issuance of Common Stock relative to the
exercise of nonqualified stock options at
$4.00 - $19.20 per share 159,931 1,599 1,282,760 1,284,359
Issuance of Common Stock relative to the
exercise of underwriters' warrants
and unit warrants for cash at $4.60 and $5.00
per share, respectively 22,500 225 107,775 108,000
May, 1995
Two for One stock split effected in
the form of a 100% stock dividend 7,275,972 72,760 (72,760) --
State tax benefit arising from stock option deductions 176,000 176,000
Unrealized gain on marketable securities, net 196,158 196,158
Net income for the year 2,859,628 2,859,628
---------- -------- ----------- --------- ----------- -----------
BALANCE AT DECEMBER 30, 1995 14,765,300 $147,653 $21,559,856 $ (3,176) $ 1,022,103 $22,726,436
</TABLE>
See notes to financial statements
<
F-6
<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Three Years Ended December 28, 1996
<TABLE>
<CAPTION>
Unrealized Loss
Common Stock Additional On Investments Retained
-------------------- Paid-in Available Earning Stockholders'
Shares Amount Capital For Sale (Deficit) Equity
------ ------ ------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE BROUGHT FORWARD
AT DECEMBER 30, 1995 14,765,300 $147,653 $ 21,559,856 $ (3,176) $ 1,022,103 $ 22,726,436
January through December 1996
Issuance of Common Stock relative
to the exercise of incentive stock
options at $10.00 - $52.75 per share 130,330 1,304 1,875,917 1,877,221
Issuance of Common Stock relative
to the exercise of non-qualified
stock options at $4.30 - $21.875 per share 213,800 2,138 1,703,915 1,706,053
January, 1996
Issuance of Common Stock relative
to the private placements at $73.00 per share 282,846 2,828 20,205,930 20,208,758
Costs relative to the private placement (33,500) (33,500)
Tax benefit arising from stock option deductions 3,876,000 3,876,000
Unrealized loss on marketable securities, net (39,735) (39,735)
Net income for the year 7,121,289 7,121,289
----------- -------- ------------ ---------- ----------- ------------
BALANCE AT DECEMBER 28, 1996 15,392,276 $153,923 $ 49,188,118 $ (42,911) $ 8,143,392 $ 57,442,522
=========== ======== ============ ========== =========== ============
</TABLE>
See notes to financial statements
F-7
<PAGE>
PRESSTEK, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended
<TABLE>
<CAPTION>
December 31, December 30, December 28,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS - OPERATING ACTIVITIES:
Net income $ 1,842,209 $ 2,859,628 $ 7,121,289
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Tax benefit arising from stock option deductions 140,000 176,000 3,876,000
Depreciation 601,197 819,507 1,253,812
Amortization 55,639 178,529 785,007
Provision for warranty and other costs 215,000 916,242 728,235
Other, net (28,388) 2,276 107,211
(Increase) decrease in:
Accounts receivable (3,384,070) (3,759,012) (9,469,737)
Inventory (1,562,606) (3,165,578) (5,036,014)
Costs and estimated earnings in excess of
billings on uncompleted contracts -- -- (605,556)
Other current assets (532,375) 406,561 (475,203)
Increase (decrease) in:
Accounts payable and accrued expense (126,332) 1,222,816 5,109,014
Accrued salaries and employee benefits 105,134 109,516 168,989
Billings in excess of costs and estimated
earnings on uncompleted contracts -- -- 667,805
------------ ------------ ------------
Net cash provided by (used for)
operating activities (2,674,592) (233,515) 4,230,852
------------ ------------ ------------
CASH FLOWS - INVESTING ACTIVITIES:
Investment in subsidiary, net of cash acquired -- -- (7,456,020)
Purchases of property and equipment (1,746,470) (2,387,379) (16,389,751)
Proceeds from sale of equipment 31,017 76,300 66,400
Increase in other assets (674,200) (561,261) (851,051)
Sales and maturities of
marketable securities 5,157,394 2,179,510 3,500,000
Purchases of marketable securities (2,095,152) -- (6,956,117)
------------ ------------ ------------
Net cash provided by (used for)
investing activities 672,589 (692,830) (28,086,539)
------------ ------------ ------------
CASH FLOWS - FINANCING ACTIVITIES:
Net proceeds from sale of common
stock and warrants 2,544,635 3,021,730 23,758,532
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 542,632 2,095,385 (97,155)
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 990,004 1,532,636 3,628,021
------------ ------------ ------------
END OF PERIOD $ 1,532,636 $ 3,628,021 $ 3,530,866
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF
CASH FLOWS INFORMATION -
Cash paid during the period for income taxes $ -- $ 52,000 $ 45,000
============ ============ ============
</TABLE>
See notes to financial statements
F-8
<PAGE>
PRESSTEK, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Presstek, Inc. ("the Company" or "Presstek") was organized as a Delaware
corporation on September 3, 1987 and was a development stage company through
1991. In September 1991, Heidelberger Druckmaschinen A.G. ("Heidelberg") the
world's largest printing press manufacturer introduced the Company's initial
spark discharge based imaging technology, in a jointly developed product, the
Heidelberg GTO-DI. In 1993, after investing substantial effort and resources,
the Company completed the development of PEARL(R), its high resolution
semiconductor laser diode based imaging technology. PEARL's laser diode
technology is capable of imaging various types of Presstek printing plates
either off-press or on-press which may then be used to produce high quality,
full-color lithographic printed materials. PEARL has completely replaced the
Company's spark discharge technology. The GTO-DI was reintroduced with PEARL in
September 1993. During the second quarter of 1995, the Company commenced
shipments of Direct Imaging systems to be utilized on Heidelberg's Quickmaster
DI 46-4. This press was introduced by Heidelberg in May 1995 to replace the
GTO-DI which is no longer manufactured. Presstek is also engaged in the
development of additional products and applications that incorporate its
proprietary PEARL technologies and consumables, including both computer-to-plate
and other direct-to-press applications. Shipments of Direct Imaging systems for
the larger format Omni Adast (19" x 26") multicolor press began in December
1996. Also, during the first quarter of 1996, the Company began shipments of its
PEARL platesetter, now referred to as the PEARLsetter. The Company is now
building an installed base of customers which utilizes its proprietary
consumable printing plates on PEARL equipped Heidelberg presses. During 1996,
revenues generated under the Company's agreements with Heidelberg and revenues
from Heidelberg's distributors represented 73% of the Company's total revenues.
Prior to 1996, the Company relied on Heidelberg to generate substantially all of
its revenues.
Catalina Coatings, Inc. ("Catalina"), a corporation organized under the
laws of Arizona on October 14, 1991, became a subsidiary of the Company in 1996
(see Note 3) and is engaged in the development, manufacture, and sale of vacuum
deposition coating equipment, and licensing and sublicensing of patent rights
with respect to a vapor deposition process to coat moving webs of material at
high speeds. During 1996, a substantial part of Catalina's efforts were devoted
to developing and manufacturing the equipment the Company believes it will
require to manufacture PEARL thermal plates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The financial statements include the accounts
of the Company and its 90% owned subsidiary and the results of operations of the
business acquisition (Note 3) since the beginning of fiscal 1996. Significant
intercompany accounts and transactions have been eliminated.
F-9
<PAGE>
Fiscal Year - On January 19, 1995, the Company's Board of Directors
determined to change its fiscal year from a calendar year ending December 31 to
a fiscal year ending on the Saturday closest to December 31; accordingly, fiscal
1996 ended December 28 and fiscal 1995 ended December 30, 1995. Fiscal 1994,
1995, and 1996 each reflect 52 week periods. The first 53 week period will occur
in fiscal 1997.
Use of 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 reporting period. Actual results could differ from these estimates.
Many of the Company's estimates and assumptions used in the financial statements
relate to the Company's products, which are subject to rapid technological
change. It is reasonably possible that changes may occur in the near term that
would affect management's estimates with respect to the carrying values of
inventories, equipment and software development costs.
Revenue Recognition - The Company records revenues on product sales and
related royalties at the time of shipment. Certain fees and other reimbursements
are recognized as revenue when the related services have been performed or the
revenues otherwise earned.
Revenues from fixed-price and modified fixed-price production contracts are
recognized on the percentage-of-completion method, measured by the percentage of
costs incurred to date to the estimated total of direct costs for each contract.
As contracts can extend over one or more accounting periods, revisions in costs
and earnings estimated during the course of the work are reflected during the
accounting period in which the facts that required such revisions become know.
Product Warranties - The Company warrants its products against defects in
material and workmanship for a period of one year. Anticipated future warranty
costs are accrued by a charge to expense as products are shipped and the related
revenue recognized. At December 30, 1995, and December 28, 1996, accrued
expenses included accrued warranty costs of $601,000 and $514,000, and product
replacement reserves for 1995 of $291,000. Product replacement activities were
completed in 1996 and the reserve was fully utilized.
F-10
<PAGE>
Inventory - Inventory is valued at the lower of cost or market, with cost
determined on the first-in, first-out method. At December 30, 1995, and December
28, 1996, inventory consisted of the following:
1995 1996
Raw materials $ 3,476,713 $ 6,155,277
Work in process 1,713,382 3,532,724
Finished goods 425,648 951,656
----------- -----------
Total $ 5,615,743 $10,639,657
=========== ===========
Property and Equipment - Property and equipment are stated at cost and are
depreciated using a straight-line method for both financial reporting and for
tax purposes over their estimated useful lives (ranging from 3 to 10 years).
Leasehold improvements are amortized over the life of the lease for financial
reporting purposes and a required longer period for tax purposes.
Goodwill - The excess of cost over the fair value of net assets acquired,
which relates to the Company's acquisition of Catalina (Note 3), of $6,469,000
is being amortized over a twenty year period using the straight line method.
Amortization expense was $324,800 for the year ended December 28, 1996.
Patent Applications Costs and License Rights - Patent application costs
represent the expense of preparing and filing applications to patent the
Company's proprietary technologies, in addition to certain patent and license
rights acquired in the acquisition of Catalina. Such costs are amortized against
income over a period ranging from five to seven years, beginning on the date the
patents or rights are issued or acquired. Amortization expense for the years
ended December 31, 1994, December 30, 1995, and December 28, 1996, was $55,639,
$72,530, and $212,055, respectively.
Software Development Costs - Software development costs for products and
certain product enhancements are capitalized subsequent to the establishment of
their technological feasibility (as defined in Statement of Financial Accounting
Standards No. 86) based upon the existence of working models of the products
which are ready for initial customer testing. Costs incurred prior to such
technological feasibility or subsequent to a product's general release to
customers are expensed as incurred. Prior to 1994, the Company did not incur
material costs subject to capitalization. Through 1996, the Company incurred and
capitalized $895,000 of costs subject to capitalization. Amortization of these
costs commenced in 1995 when the related product was released to customers.
Amortization for 1995 and 1996 was $98,500 and $249,500, respectively, based
upon the ratio that current gross revenues bear to total estimated gross
revenues, which was an amount greater than amortization on a straight-line
method over the estimated economic life of the product from three to five years.
Based upon current sales estimates, software costs are expected to be fully
amortized in less than three years.
F-11
<PAGE>
Non-Competition and Confidentiality Covenants - The consideration paid by
the Company to the selling shareholders of Catalina with respect to
non-competition and confidentiality is being amortized over a four year period
using the straight line method.
Research and Development Costs - Research and development costs are
expensed as incurred for financial reporting purposes. Such costs aggregated
$5,123,439, $6,155,421, and $8,894,420 for the years ended December 31, 1994,
December 30, 1995, and December 28, 1996, respectively.
Cash Flows Information - For purposes of reporting cash flows, the Company
considers all savings deposits, certificates of deposit, and money market funds
and deposits purchased with a maturity of three months or less to be cash
equivalents. At December 30, 1995, and December 28, 1996, cash and cash
equivalents consisted of cash balances on deposit and money market funds.
Reclassification - Various accounts in the prior years' Financial
Statements have been reclassified for comparative purposes to conform with the
presentation in the current-year Financial Statements.
Long-Lived Assets - Long-lived assets, such as property and equipment, are
evaluated for impairment when events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets. When any such
impairment exists, the related assets will be written down to fair value. No
write downs were necessary for the years ended December 30, 1995 and December
28, 1996.
Stock-Based Compensation - The Company has not adopted the optional fair
value based method for accounting for stock options granted to employees, as
permitted by Statement of Financial Accounting Standards No. 123, ("SFAS 123")
"Accounting for Stock-Based Compensation", which is effective for transactions
entered into in fiscal years that begin after December 15, 1995. See Note 8 of
the financial statements.
3. BUSINESS ACQUISITION
On February 15, 1996, the Company acquired 90% of the outstanding Common
Stock (the "Purchased Shares") of Catalina Coatings, Inc. The Company has
continued the business of Catalina which now operates as a subsidiary of the
Company. The Purchased Shares were acquired from the selling shareholders
pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement") dated
and effective as of January 1, 1996. The aggregate consideration paid by the
Company pursuant to the Stock Purchase Agreement was $8,400,000, of which
$8,200,000 represented the purchase price of the Purchased Shares and $200,000
represented consideration for the non-competition and confidentiality covenants
of the selling shareholders.
Simultaneous with the closing of the acquisition, the Company entered into
a Put and Call Option Agreement (the "Option Agreement") which provides the
Company with the right, at any time after February 15, 2000, to acquire the
remaining 10% of the outstanding Common Stock of Catalina for an aggregate
consideration
F-12
<PAGE>
of $2,000,000. The Option Agreement also provides the selling shareholders and
another employee of Catalina with the right, at any time after August 15, 2000,
to cause the Company to purchase the remaining shares for aggregate
consideration of $1,000,000. The Option Agreement will terminate if Catalina
consummates an initial public offering of its securities prior to February 15,
2000.
The Company granted the selling shareholders and the other employee of
Catalina five-year non-qualified options to purchase an aggregate 100,000 shares
of the Company's Common Stock at an exercise price of $89.50 per share,
representing fair market value at the date of grant, and Catalina granted to the
same individuals an option to purchase an aggregate 5% of the issued and
outstanding Common Stock of Catalina in the event that a registration statement
relating to an initial public offering of Catalina Common Stock is declared
effective by February 15, 2000.
A portion of the funds raised from the private placements referred to in
Note 8 were utilized to complete the acquisition.
The acquisition was accounted for as a purchase and, accordingly, the
results of Catalina's operations have been included in the Company's 1996
financial statements.
The purchase price, plus aquisition costs of $240,000, net of
non-competition and confidentiality covenants, has been allocated to assets
acquired and liabilities assumed based on fair market value at the date of
acquisition, as follows:
Current Assets $ 1,976,000
Property and Equipment 329,000
Other Assets 222,000
Intangibles 443,000
Goodwill 6,469,000
Current Liabilities ( 999,000)
-----------
$ 8,440,000
===========
During 1996, a substantial part of Catalina's efforts were devoted to
developing and manufacturing the equipment the Company believes it will require
to manufacture PEARL thermal printing plates. Catalina's 1996 revenues, after
eliminating significant intercompany accounts and transactions, totaled
approximately $1,950,000, and its results of operations were not material to the
Company.
The following unaudited pro forma summary combines the consolidated results
of operations of the Company and Catalina as if the acquisition had occurred at
the beginning of fiscal 1995, after giving effect to certain adjustments
including the amortization of excess of cost over net assets acquired and to
eliminate the effect of intercompany transactions. This pro forma summary for
fiscal 1995 does not necessarily reflect the results of operations as they would
have been if the Company and Catalina had constituted a single entity during the
period, and is not necessarily indicative of results which may be obtained in
the future.
F-13
<PAGE>
Revenues $32,754,000
===========
Costs and expenses $29,160,000
===========
Net income $ 3,809,000
===========
Net income per common
and common equivalent share $.24
====
4. MARKETABLE SECURITIES
Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Marketable Securities are classified
as available for sale and consist of United States Treasury Notes having
maturity dates of more than three months, and are stated at fair value.
Contractual maturities of securities as of December 28, 1996, were as
follows: February 1997 - $2,500,000; July 1997 - $1,000,000; December 1997 -
$2,000,000; April 1998 - $1,000,000. Aggregate net unrealized holding losses of
$3,176 and $42,911 at December 30, 1995, and December 28, 1996, respectively,
have been included as a separate component of stockholders' equity in the
accompanying balance sheets.
Certain information with respect to the Company's marketable securities as of
December 30, 1995, and December 28, 1996, is presented below:
1995 1996
---- ----
Total Total
----- -----
Amortized Cost $ 3,054,001 $ 6,645,765
Gross Unrealized 7,810
Holding Gains
Gross Unrealized
Holding Losses (10,986) (42,911)
----------- -----------
Fair Value $ 3,050,825 $ 6,602,854
=========== ===========
For the years ended December 30, 1995, and December 28, 1996, the Company
received proceeds from the sale or maturity of available for sale securities of
$2,179,510 and $3,500,000 and recorded net realized losses of $28,024 in 1995.
In computing such realized losses, cost was determined using the specific cost
method.
5. NET INCOME PER COMMON SHARE
Net income per common share is computed by dividing net income by the
weighted average number of Common Stock and Common Stock equivalent shares
outstanding. Common Stock equivalents represent the dilutive effect of the
assumed exercise of outstanding stock options and warrants. On August 2, 1994,
the Company's Board of Directors authorized a five-for-four stock split,
effected in the form of a 25% stock dividend, during the third quarter of 1994.
The split resulted in the issuance of 1,410,235 shares of Common Stock. On April
19, 1995, the Company's Board of Directors declared a two-for-one stock split,
effected in the form of a 100% stock dividend, during the second quarter of
1995. The split resulted in the issuance of 7,275,972 shares of Common Stock.
All references to average number of shares outstanding and prices per share have
been restated retroactively to reflect the splits.
F-14
<PAGE>
A summary of the calculations for the years ended December 31, 1994,
December 30, 1995, and December 28, 1996, follows:
(In Thousands, Except Per Share)
<TABLE>
<CAPTION>
1994 1995 1996
----------------------- ----------------------- ------------------------
Fully Fully Fully
Primary Diluted Primary Diluted Primary Diluted
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 1,842 $ 1,842 $ 2,860 $ 2,860 $ 7,121 $ 7,121
======== ======== ======== ======== ======== ========
Weighted average common
shares outstanding 14,026 14,388 14,562 14,562 15,189 15,189
Common equivalent shares
from assumed conversion
of outstanding options
and warrants
whose effect
are not antidilutive
on earnings per share 1,938 2,131 1,742 1,770 1,736 1,736
Less shares assumed
repurchased using the
treasury method for
calculation of net
shares outstanding (1,099) (917) (449) (239) (344) (344)
-------- -------- -------- -------- -------- --------
Weighted average common
and common equivalent
shares outstanding 14,865 15,602 15,855 16,093 16,581 16,581
======== ======== ======== ======== ======== ========
Net income per common
and common equivalent
shares $ .12 $ .12 $ .18 $ .18 $ .43 $ .43
======== ======== ======== ======== ======== ========
</TABLE>
F-15
<PAGE>
6. INCOME TAXES
The Company utilizes an asset and liability approach for financial
accounting and reporting for income taxes. The primary objectives of accounting
for income taxes are to (a) recognize the amount of tax payable for the current
year and (b) recognize the amount of deferred tax liability or asset for the
future tax consequences of events that have been reflected in the Company's
financial statements or tax returns.
The components of the provision for income taxes for the years ended
December 31, 1994, December 30, 1995, and December 28, 1996, were as follows:
1994 1995 1996
---------- ---------- ----------
Current tax expense - State $ 46,600 $ 44,000 $ 124,000
Charge in lieu of income taxes:
Federal -- -- 3,360,000
State 140,000 176,000 516,000
Change in deferred tax asset - net -- -- --
---------- ---------- ----------
Total provision $ 186,600 $ 220,000 $4,000,000
========== ========== ==========
The charges in lieu of income taxes included in the 1994, 1995, and 1996
provision for income taxes represent the tax benefit arising from stock option
deductions. No charge in lieu of federal income taxes was required for 1994 or
1995 due to the availability of federal net operating loss carryforwards for
accounting purposes. The tax benefit related to such stock option deductions has
been credited to shareholders' equity.
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. Deferred tax assets and
liabilities consisted of the following at December 30, 1995, and December 28,
1996:
1995 1996
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 5,600,000 $ 7,660,000
Tax credits 350,000 500,000
Warranty provisions and other accruals 640,000 635,000
----------- -----------
Gross deferred tax assets 6,590,000 8,795,000
----------- -----------
Deferred tax liabilities:
Patent applications costs 368,000 463,000
Accumulated depreciation and amortization 187,000 282,000
----------- -----------
Gross deferred tax liabilities 555,000 745,000
----------- -----------
6,035,000 8,050,000
Less valuation allowance (5,985,000) (8,000,000)
----------- -----------
Deferred tax asset - net $ 50,000 $ 50,000
=========== ===========
F-16
<PAGE>
The $50,000 deferred tax asset was included in other current assets at
December 30, 1995, and December 28, 1996. The valuation allowance increased
$195,000, $3,057,000, and $2,015,000 in 1994, 1995, and 1996, respectively.
The difference between income taxes at the United States federal income tax
rate and the effective income tax rate was as follows for the years ended
December 31, 1994, December 30, 1995, and December 28, 1996:
1994 1995 1996
---- ---- ----
Computed at federal statutory rate 34% 34% 34%
Increase (decrease) resulting from:
Expenses producing no current tax benefit 2% 11% 1%
State tax, net of federal benefit 7% 7% 4%
Alternative minimum tax 2% -% -%
Net operating loss carryforwards -28% -42% -%
Deductions for tax purposes in excess of
expenses for financial statement purposes -7% -% -2%
Patent perfection costs and other -1% -3% -1%
---- ---- ----
Effective rate, net 9% 7% 36%
As of December 28, 1996, the Company had net operating loss carryforwards
totaling approximately $28,550,000 resulting from compensation deductions for
tax purposes relative to stock option plans. To the extent net operating losses
resulting from stock option plan compensation deductions become realizable, the
benefit will be credited directly to additional paid in capital. The amount of
the net operating loss carryforwards which may be utilized to offset future
taxable income, when earned, may be subject to certain limitations, based upon
changes in the ownership of the Company's Common Stock. The following is a
breakdown of the net operating losses and their expirations dates:
Amount of remaining
Expiration date net operating loss carryforwards
--------------- --------------------------------
2005 $ 2,230,000
2006 $ 5,020,000
2008 $ 50,000
2009 $ 500,000
2010 $ 8,750,000
2011 $12,000,000
In addition, the Company has available tax credit carryforwards (adjusted
to reflect provisions of the Tax Reform Act of 1986) of approximately $500,000
which are available to offset future income tax liabilities when incurred.
7. RELATED PARTIES
During the years ended December 31, 1994, and December 30, 1995, the
Company made various sales to Howtek, Inc. totaling approximately $114,500 and
$23,250, respectively. During 1996, the Company made equipment purchases from
Howtek totaling $53,721. Mr. Robert Howard, Chairman and a principal stockholder
F-17
<PAGE>
of the Company, is the Chairman of the Board of Directors and a principal
stockholder of Howtek and the father of Dr. Lawrence Howard. Dr. Howard served
as Vice Chairman of the Board through February 1996. Dr. Howard currently serves
as a director to the Company.
The Company subleases certain of its office facilities from Mr. Robert
Howard, Chairman, as a tenant-at-will. Payments totaled $35,379, $35,400 and
$35,513, respectively, for the years ended December 31, 1994, December 30, 1995,
and December 28, 1996. Mr. Howard was paid $100,000 during 1994 and $110,000
during 1995 as a bonus for consulting services rendered. The Company paid Mr.
Howard $125,000 for consulting services provided to the Company during 1996.
During 1996, the Company recorded sales of equipment and consumables to
Pitman Company of $3,379,000: and at December 28, 1996 the Company had accounts
receivable from Pitman of $2,279,000. John Dreyer, who has been a director of
the Company since February 1996, is Pitman's President and Chief Executive
Officer.
8. STOCKHOLDERS' EQUITY
References herein to shares, options, warrants and the prices per share
have been restated for the 1994 and 1995 stock splits, effected in the form of
stock dividends, referred to in Note 5.
Preferred Stock - The Company' certificate of incorporation empowers
the Board of Directors, without stockholder approval, to issue up to 1,000,000
shares of $.01 par value preferred stock, with dividend, liquidation,
conversion, and voting or other rights to be determined upon issuance by the
Board of Directors.
Restricted Stock Purchase Plan - On August 22, 1988, the Company adopted a
Restricted Stock Purchase Plan ("the Purchase Plan") authorizing the sale of up
to 125,000 shares of Common Stock to its employees at a price to be determined
by the Board of Directors, but in no event to be less than $.01 per share or
greater than 110% of the then fair market value. At December 28, 1996, after
adjustment for the 1994 and 1995 splits 40,000 shares remained available for
sale.
Stock Option Plans - On August 22, 1988, the Company adopted the 1988 Stock
Option Plan (the "1988 Plan"), and effective August 19, 1991, the Company
adopted the 1991 Stock Option Plan (the "1991 Plan"), and effective April 8,
1994, the Company adopted the 1994 Stock Option Plan (the "1994 Plan"). Each
plan originally provided for the award, to key employees and other persons,
options to purchase up to 500,000 shares of the Company's Common Stock. As a
result of the 1994 and 1995 stock splits, the number of shares of Common Stock
issuable upon exercise of outstanding options granted under the above plans and
upon exercise of options available for future grants increased by 25% and 100%,
respectively. Options granted under the plans may be either Incentive Stock
Options ("ISOs") or Nonqualified Options. Generally, ISOs may only be granted to
employees of the Company, at an exercise price of not less than fair market
value of the stock at the date of grant. Nonqualified Options may be granted to
any person, at any exercise price. Nonqualified Options may be granted to any
person, at any exercise price not less than par value, within the discretion of
the Board of Directors or a committee appointed by the Board of Directors
("Committee"). Any options granted will generally become exercisable in
increments over a period not to exceed ten years from the date of grant,
F-18
<PAGE>
to be determined by the Board of Directors or Committee, and generally will
expire not more than 10 years from the date of grant.
Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation", requires the Company to provide pro
forma disclosure of net income and earnings per share as if the optional fair
value method had been applied to determine compensation costs for the Company's
Stock Option plans. The Company has used the Black-Scholes option-pricing model
to estimate the fair value of each stock option issued in 1995 and 1996. The
following weighted average assumptions were also used: a risk-free interest rate
of 6.0%; an expected option life of 4.0777 years; expected volatility of 68.3074
percent and no dividends paid.
Accordingly, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated in the following table:
1995 1996
------------- -------------
Net income
As reported $ 2,859,628 $ 7,121,289
Pro forma 2,303,720 249,000
Net income per
common and common
equivalent share
As reported .18 .43
Pro forma .15 .02
The above pro forma net income and net income per share do not recognize
the related tax benefits in 1995 and 1996 of $118,000 and $2,470,000
respectively, as these deferred tax assets would be fully offset by a valuation
allowance.
The following table summarizes information about stock options outstanding at
December 28, 1996.
<TABLE>
<CAPTION>
$5.70 $11.00 $36.00 $55.25 $75.50 $5.70
Range of exercise prices to $10.00 to $25.00 to $55.00 to $73.00 to $99.25 to $99.25
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding Options
Number outstanding
at December 28, 1996 673,267 724,749 62,250 180,400 145,500 1,786,166
Weighted-average remaining
contractual life (years) 1.3 3.4 4.5 5.1 4.4 2.9
Weighted-average exercise price $ 7.46 $ 16.89 $ 49.68 $ 69.88 $ 87.75 $ 25.61
Exercisable options
Number outstanding
at December 28, 1996 594,363 250,903 7,125 80,000 -- 924,781
Weighted-average exercise price $ 7.30 $ 16.59 $ 51.35 $ 71.00 -- $ 14.20
</TABLE>
F-19
<PAGE>
Information concerning incentive stock option activity under the 1988,
1991, and 1994 plans for the years ended December 31, 1994, December 30, 1995,
and December 28, 1996, is summarized as follows:
<TABLE>
<CAPTION>
Weighted
Option Option price average price Options
Shares per share per share Exercisable
------ --------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993 438,250 $ .60 - $25.00 $ 5.59 289,608
=======
Granted 509,000 $15.55 - $19.50 $15.71
Exercised (253,872) $ .60 - $10.00 $ 1.64
Cancelled/Expired ( 17,188) $10.00 - $25.00 $20.91
-------
Outstanding at December 31, 1994 676,190 $10.00 - $19.50 $14.29 12,591
======
Granted 34,500 $41.375 - $52.75 $51.60
Exercised (122,164) $10.00 - $15.55 $13.34
Cancelled/Expired --
Outstanding at December 30, 1995 588,526 $10.00 - $52.75 $16.68 76,279
------- ======
Granted 13,750 $51.00 - $71.00 $67.33
Exercised (130,330) $10.00 - $52.75 $14.40
Cancelled/Expired --
-------
Outstanding at December 28, 1996 471,946 $10.00 - $71.00 $18.78 124,383
======= =======
</TABLE>
The proceeds to the Company from incentive stock options exercised during
the years ended December 31, 1994, December 30, 1995, and December 28, 1996,
totaled $416,670, $1,629,371, and $1,877,221, respectively.
F-20
<PAGE>
Information concerning nonqualified stock option activity under the 1988,
1991, and 1994 Plans for the years ended December 31, 1994, December 30, 1995,
and December 28, 1996, is summarized as follows:
<TABLE>
<CAPTION>
Weighted
Option Option price average price Options
Shares per share per share Exercisable
------ --------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993 1,118,604 $ 2.00 - $ 9.70 $ 5.78 865,543
=======
Granted 421,998 $ 9.70 - $ 25.00 $17.33
Exercised ( 183,074) $ 2.00 - $ 6.70 $ 3.35
Cancelled/Expired ( 4,844) $ 5.90 - $ 14.60 $ 7.04
---------
Outstanding at December 31, 1994 1,352,684 $ 2.00 - $ 25.00 $ 9.71 878,802
=======
Granted 52,750 $ 22.31 - $ 62.00 $37.69
Exercised ( 210,096)* $ 2.00 - $ 15.55 $ 6.11
Cancelled/Expired ( 468) $ 6.10 - $ 6.10 $ 6.10
---------
Outstanding at December 30, 1995 1,194,870 $ 4.30 - $ 62.00 $11.58 802,800
=======
Granted 301,150 $ 56.00 - $ 99.25 $77.80
Exercised (213,800) $ 4.30 - $21.875 $ 7.98
Cancelled/Expired ( 500) $ 48.00 - $ 48.00 $48.00
---------
Outstanding at December 28, 1996 1,281,720 $ 5.70 - $ 99.25 $27.72 785,510
========= =======
</TABLE>
* Includes 31,450 additional options arising from the 1995 stock split.
The incentive and nonqualified stock options summarized in the tables above
were granted under various vesting schedules ranging from immediate to five
years, with termination dates ranging from five to six years from dates of grant
and may be subject to earlier termination as provided in the Plans.
The proceeds to the Company from nonqualified stock options exercised
during the years ended December 31, 1994, December 30, 1995, and December 28,
1996, totaled $613,711, $1,284,359, and $1,706,053, respectively.
F-21
<PAGE>
Director Stock Option Plan - Effective December 1993, the Company adopted
its Nonemployee Director Stock Option Plan (the "Director Plan"). Only
nonemployee directors of the Company (other than Robert Howard or Dr. Lawrence
Howard) are eligible to receive grants under the Director Plan. The Director
Plan provides that eligible directors automatically receive a grant of options
to purchase 5,000 shares of Common Stock at fair market value upon first
becoming a director and, thereafter, an annual grant, in January of each year,
options to purchase 2,500 shares at fair market value. Options granted under
this plan become 100% exercisable after one year and terminate five years from
date of grant. Information concerning activity under this plan for the years
ended December 31, 1994, December 30, 1995, and December 28, 1996, is summarized
as follows:
<TABLE>
<CAPTION>
Weighted
Option Option price average price Options
Shares per share per share Exercisable
------ --------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1993 -- --
===============
Granted 12,500 $11.00 $11.00
Exercised --
Cancelled/Expired
--
------
Outstanding at December 31, 1994 12,500 $11.00 $11.00 --
===============
Granted 10,000 $24.375 $24.375
Exercised --
Cancelled/Expired
--
------
Outstanding at December 30, 1995 22,500 $11.00 - $24.375 $16.94 12,500
===============
Granted 10,000 $94.75 - $97.00 $95.88
Exercised --
Cancelled/Expired
--
------
Outstanding at December 28, 1996 32,500 $11.00 - $97.00 $44.23 22,500
====== ===============
</TABLE>
Underwriter's Warrants - In connection with an initial public offering
during 1989, the Company issued the underwriter warrants to purchase 260,000
shares of Common Stock.
Through December 30, 1995, 138,034 shares of Common Stock at $5.75 per
share and 138,034 shares of Common Stock at $6.25 ($4.60 and $5.00 for exercises
after the four-for-five stock split) were issued to certain designees of the
underwriter pursuant to their exercise of warrants and unit warrants. The
proceeds to the Company from these transactions totaled $1,559,993. At December
30, 1995, there were no remaining warrants outstanding.
Other - During February 1996, the Company completed private placements of
an aggregate of 282,846 shares of its Common Stock for gross proceeds of
$20,208,758 to a limited number of domestic individual and institutional
investors, net of costs of $33,500. A portion of the proceeds was used to
acquire Catalina as described in Note 3.
F-22
<PAGE>
On January 20, 1992, in consideration of the payment by Union Bank of
Switzerland (the "Bank") to the Company of $25,000, the Company issued to the
Bank a warrant which, entitled the Bank or its assigns to purchase from the
Company 25,000 shares of Common Stock at $26.00 per share, which was
subsequently amended to $14.25 per share. The Warrant was exercised during March
1994, generating proceeds to the Company of $356,250.
On February 11, 1994, the Company issued 25,000 shares of Common Stock, at
$12.50 per share, to a consultant, in consideration of payment of $312,000
pursuant to the exercise of a warrant granted on August 12, 1992.
9. COMMITMENTS
The Company leases its various facilities under noncancelable operating
leases, many of which contain renewal options. The agreements generally require
minimum monthly rents, adjusted annually, plus a pro rata share of real estate
taxes and certain other expenses. Total rental expenses on the agreements was
$201,500, $296,000, and $517,900 for 1994, 1995, and 1996, respectively.
As of December 28, 1996, future minimum lease payments under these
agreements were as follows:
1997 $ 414,545
1998 304,652
1999 217,286
2000 129,186
----------
Total $1,065,669
==========
The Company is currently constructing two new facilities; a 60,000 square
foot facility in Tucson, Arizona for Catalina, and a 100,000 square foot
manufacturing facility in Hudson, New Hampshire. The Hudson manufacturing
facility is expected to accommodate the Company's new plate manufacturing
operations, which will utilize a new vacuum deposition coating system currently
being developed and built for the Company by Catalina, along with the necessary
plate finishing and packaging equipment. The Company estimates that the total
capital cost of these projects, including land purchases, to be approximately
$30,000,000.
During the year ended December 28, 1996, the Company expended approximately
$2,427,000 for the land purchases and approximately $3,875,000 for the land
improvements and construction of the two new facilities. As of December 28,
1996, the Company had outstanding purchase commitments of approximately
$7,280,000 with respect to the new facilities. In addition, the Company expended
approximately $7,809,000 for the new plate manufacturing and packaging
equipment. As of December 28, 1996, the Company had outstanding purchase
commitments of approximately $8,448,000 with respect to the plate manufacturing
and packaging equipment.
F-23
<PAGE>
10. HEIDELBERG AGREEMENTS
In January 1991, the Company entered into a master agreement (The "Master
Agreement"), a technology license agreement (the "Technology License"), and a
supply agreement (the "Supply Agreement") which expired December 1995; (the
foregoing agreements being sometimes collectively referred to herein as the
"Heidelberg Agreements") with Heidelberg. Pursuant to this series of related
agreements, as amended, the Company and Heidelberg agreed to certain terms
relating to the integration of the Company's proprietary Direct Imaging
technology into various presses manufactured by Heidelberg and certain of its
related parties (the "Heidelberg Presses") and the manufacture of components for
and the commercialization of such presses.
Pursuant to the Heidelberg Agreements, the Company granted Heidelberg
certain exclusive rights, subject to the satisfaction of certain conditions, for
the use of the Direct Imaging technology for the Quickmaster DI format size. In
consideration of such rights, Heidelberg agreed to pay to the Company royalties
on the net sales prices of various specified types of Heidelberg Presses.
The Heidelberg Agreements and Amendments further provide for the Company to
supply Direct Imaging systems to Heidelberg at specified rates, among other
things, engineering and development work based upon work projects and budgets
agreed to by the Company and Heidelberg. The terms of the Heidelberg Agreements
are for periods ending in December 2011 in the case of each of the Master
Agreement and Technology License. The Heidelberg Agreements also contain, among
other things, certain early termination provisions and extension provisions.
The Company also granted Heidelberg a forty-five month exclusive license
expiring in January 1997 for the manufacture and sale of the Quickmaster DI
which uses PEARL technology. After the initial forty-five month period,
Heidelberg's rights remain exclusive subject to the Company's right to terminate
such exclusivity on three months' written notice to Heidelberg. Certain other
modifications have been made to the exclusive arrangements under the previous
agreements between Heildelberg and the Company which provide for a non-exclusive
license for the balance of the term of the original agreement.
In November 1995, the Company and Heidelberg agreed (the "November
Agreement") to certain other arrangements whereby the Company was provided with
incremental engineering revenue, certain price increases, and modifications of
the Quickmaster DI royalty billing and payment terms by Heidelberg. The Master
Agreement was also modified by the November Agreement to provide Heidelberg with
a fixed royalty rate on the Quickmaster DI. These arrangements were made as a
result of a schedule change requested by Heidelberg in November 1995 to reduce
the number of PEARL imaging systems being manufactured by the Company each month
for Heidelberg from the amount then being produced. The production schedule for
Quickmaster DI imaging systems was subsequently increased by Heidelberg in
September 1996, requiring the Company to produce three systems per day (60 per
month) commencing in April 1997. In March 1997, the production schedule was
further increased, requiring the Company to manufacture four systems per day (80
per month) commencing in September 1997, and the Company and Heidelberg agreed
to
F-24
<PAGE>
a fixed royalty rate for the Direct Imaging systems, subject to Heidelberg
maintaining an exclusive license on the Quickmaster DI.
11. OTHER INFORMATION
On October 15, 1996, the Company was notified that an arbitration panel of
the International Chamber of Commerce issued its Award in the arbitration
proceeding commenced against the Company by AGFA Gevaert NV. ("Agfa") in June,
1995. The Award directs Agfa to transfer to the Company Agfa's U.S. Patent No.
5,378,580 including its underlying applications, return to the Company all
copies of confidential information that the Company provided to Agfa, and
reimburse the Company's legal expenses in the arbitration in the amount of
$769,140. Agfa has complied with the financial terms of the Award and has
assigned to the Company the foregoing patent and underlying applications. Agfa
has also returned to the Company the confidential documents which Agfa asserts
constitutes full compliance with its obligation to return such material as
required by the Award. The arbitrators rejected the request for affirmative
relief sought by Agfa in the arbitration.
The Company has been advised that the Securities and Exchange Commission
(the "Commission") has entered a formal order of private investigation with
respect to activities by certain unnamed persons and entities in connection with
the securities of the Company. The Company has been advised by its counsel that
the investigation includes, among other things, trading in the Company's
securities as well as the adequacy and accuracy of statements made by the
Company and others. In that connection, the Company and some of its officers,
directors and employees have received subpoenas duces tecum requesting them to
produce certain documents and testify, and have complied with those subpoenae.
The Company has not been advised by the Staff of the Commission that the Staff
intends to recommend to the Commission that it initiate a proceeding against the
Company in connection with the foregoing investigation.
Since June 28, 1996, several class action lawsuits were filed against the
Company and certain other defendants, including, but not limited to the
Company's officers and directors.
F-25
<PAGE>
These actions have been consolidated in the United States Distict Court,
District of New Hampshire, and a single consolidated amended complaint has been
filed by lead counsel for the plantiffs. In addition, two actions have been
filed derivatively, on behalf of the Company, one in the Chancery Court of the
State of Delaware and the other in the United States District Court, District of
New Hamphsire.
The lawsuits each contain a variety of allegations including, among other
things, that the defendants violated Section 10(b) of the Securities Exchange
Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder,
violations of Section 20(a) of the Exchange Act, common law fraud and deceit,
negligent misrepresentation and waste of corporate assets. The allegations
include claims that the Company issued false and misleading financial
statements, and failed to properly disclose (a) adverse information concerning
the Company's patents; (b) The nature and extent of the investigation by the
Securities and Exchange Commission; and (c) the backlog of orders from, supply
contracts with, and orders received by its principal customer. The Company's
officers and directors are alleged to have sold the Company's stock while in
possession of material non-public information. The plaintiffs generally are
seeking to recover unspecified damages and reimbursement of their costs and
expenses incurred in connection with the action. Moreover, the plaintiff in the
derivative action in Delaware is also seeking a return to the Company of all
salaries and the value of other remuneration paid to the defendants by the
Company during the time they were in breach of their fiduciary duties and an
accounting of and/or constructive trust on the proceeds of defendants trading
activities in the Common Stock.
The Company intends to vigorously defend all actions. However, the outcome
of any litigation is subject to uncertainty and a successful claim against the
Company, in any of the foregoing actions, could have a material adverse effect
on the financial position and results of operations of the Company. At the
present time, the Company cannot reasonably estimate the ultimate liability, if
any, resulting from these lawsuits. Accordingly, no provision for any liability
that may result has been recorded in the accompanying financial statements.
12. LINE OF CREDIT
On December 18, 1996, the Company entered into an agreement with Citizens
Bank New Hampshire for a revolving line of credit loan under which the Company
may borrow a maximum of $10,000,000 for working capital requirements and general
corporate purposes. Borrowings are secured by substantially all of the Company's
assets and are guaranteed by the Company's subsidiary, Catalina Coatings, Inc.
and secured by its assets. Under the terms of the revolving credit agreement,
the Company is required to meet certain financial covenants on a quarterly and
annual basis. Interest on the line of credit is payable at the LIBOR rate plus
1.75% (7.34% at December 28, 1996). The loan agreement terminates on July 31,
1997, at which date, the entire principal and accrued interest is due and
payable. As of December 28, 1996, the Company had $10,000,000 available under
the line.
F-26
<PAGE>
PRESSTEK, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Charged to Charges Balance at
Beginning Costs and Other Account Add (Deduct) End
Year Description of Year Expenses Describe Describe of Year
- ---- ----------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
1994 Allowance for doubtful
accounts $ 22,610 $ -- $ -- $ -- (1) $ 22,610
======== ============== ============== ============== ========
Warranty reserve 77,444 215,000 -- (93,360)(2) 199,084
======== ============== ============== ============== ========
Equipment replacement
reserve 400,980 -- -- (373,230)(3) 27,750
======== ============== ============== ============== ========
1995 Allowance for doubtful
accounts 22,610 57,502 -- (112)(1) 80,000
======== ============== ============== ============== ========
Warranty reserve 199,084 467,500 -- (65,370)(2) 601,214
======== ============== ============== ============== ========
Equipment replacement
reserve 27,750 291,240 -- (27,750)(3) 291,240
======== ============== ============== ============== ========
1996 Allowance for doubtful
accounts 80,000 114,518 -- (10,667)(1) 183,851
======== ============== ============== ============== ========
Warranty reserve 601,214 215,698 -- (302,892(2) 514,020
======== ============== ============== ============== ========
Equipment replacement
reserve 291,240 -- -- (291,240)(3) --
======== ============== ============== ============== ========
</TABLE>
(1) Allowance for doubtful accounts
(2) Warranty expenditures
(3) Equipment replacement
FS - 1
<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 this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
PRESSTEK, INC.
Dated: March 27, 1997 By: /s/ Richard A. Williams
------------------------
Richard A. Williams
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf on the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard A. Williams Chief Executive Officer, March 27, 1997
- ------------------------------- Secretary and Director
Richard A. Williams (Principal Executive Officer)
/s/ Robert E. Verrando President, Chief Operating March 27, 1997
- ------------------------------- Officer and Director
Robert E. Verrando
/s/ Robert Howard Chairman of the Board and March 27, 1997
- ------------------------------- Director
Robert Howard
/s/ Dr. Lawrence Howard Director March 27, 1997
- -------------------------------
Dr. Lawrence Howard
/s/ Harold N. Sparks Director March 27, 1997
- -------------------------------
Harold N. Sparks
/s/ Bert DePamphilis Director March 27, 1997
- -------------------------------
Bert DePamphilis
/s/ John W. Dreyer Director March 27, 1997
- -------------------------------
John W. Dreyer
/s/ Glenn J. DiBenedetto Chief Financial Officer March 27, 1997
- ------------------------------- (Principal Financial and
Glenn J. DiBenedetto Accounting Officer)
</TABLE>
-50-
LEASE AGREEMENT
IN CONSIDERATION of the covenants herein contained, 8-10 Commercial Street
Holdings Limited Liability Co. (hereinafter referred to as "Lessor") does hereby
lease to Presstek, Inc. (hereinafter referred to as "Lessee") and Lessee hereby
leases from Lessor the following described premises, hereinafter called the
"Leased Premises" upon the terms and conditions hereinafter set forth.
1. PREMISES
The building located at 8-10 Commercial Street, Hudson, NH, Essex County,
containing approximately 24,000 square feet, more or less.
2. TERM
Unless sooner terminated as hereinafter provided, the term of this Lease
shall be for a period of two (2) years commencing on March 16, 1996 and
ending on March 15, 1998.
3. BASE RENT
Lessee shall pay to Lessor base rent at the rate of $114,000.00 dollars per
year, payable in advance in monthly installments of $9,500.00* on the first
day of each calendar month in advance, the first monthly payment to be made
on execution of this Lease, including payment in advance for appropriate
fractions of a monthly payment for any portion of a month at the
commencement of said term or at the termination of this Lease, all payments
to be made to Lessor or its agent, at P.O. Box 696, N. Hampton, NH 03862 or
at such other place as Lessor shall from time to time in writing designate.
4. ADJUSTMENTS TO BASE RENT
If the "cost of living" has increased as shown by the Consumer Price Index
(Boston, Massachusetts, All Items, All Urban Consumers, Base Year = 1967,
United States Bureau of Labor Statistics), then the amount of base rent due
hereunder during each calendar year of this Lease and any estensions
thereof shall be annually adjusted in proportion to any increase in rent
due on NA of each year during the lease term. The base month from which to
determine the amount of each increase in the Index shall be NA which figure
shall be compared with the figure for NA and each NA thereafter to
determine the percentage increase, if any, in the base rent to be paid
during the
- --------
* 3/16/97 to 3/15/98 $120,000/year or $10,000/month.
<PAGE>
following calendar year. In no event, however, shall the base rental rate,
as adjusted, be less than the base rent stated hereinabove. In the event
that the publication of the Consumer Price Index as presently computed is
discontinued as a measure of "cost of living" a comparable alternate index
then in general use to compute such rental adjustment as provided herein.
5. SECURITY DEPOSIT
Lessee shall pay to Lessor a security deposit in the amount of -0- dollars
upon the execution of this Lease, which shall be held as security for the
Lessee's performance as provided herein and refunded to Lessee without
interest within thirty (30) days of the expiration or earlier termination
of this Lease subject to Lessee's satisfactory compliance with the
conditions hereof. Lessor shall not be required to segregate any such sums
held as a security deposit from other funds of the Lessor.
6. USE OF PREMISES
Lessee shall use the leased premises only for the purpose of research and
development. Said use of the premises by Lessee shall be in accordance with
and in compliance with Section 4.129 Industrial One (1) District as
contained in the Zoning By-Laws of the Town of Hudson as amended from time
to time.
7. ADDITIONAL RENT
(A) During each year of the initial term of this Lease and any renewal
term, Lessee shall pay to Lessor, as additional rent, within twenty (20)
days following notice thereof, Lessee's proportionate share of any and all
real estate taxes assessed for with respect to the land and building of
which the leased premises are a part for all tax periods wholly or
partially included in the term of this Lease. The term "real estate taxes"
shall mean the real estate taxes and assessments imposed upon the land and
building of which the leased premises are a part, including, but not
limited to, any and all other taxes, levies, betterments, assessments and
charges arising from the ownership and/or the operation of the building
which are or shall be imposed by Federal, State, Municipal or other
authorities, and which are or may become a lien upon said land and
building. If due to a future change in the method of taxation, any
franchise, income or profit tax shall be levied against Lessor in
substitution for or in lieu of any tax which would otherwise constitute a
real estate tax or if a specific tax on rentals from the building shall be
levied against Lessor, such franchise, rental, income or profit tax shall
be deemed to constitute real estate taxes for the purposes hereof.
-2-
<PAGE>
Lessee's proportionate share of any such real estate taxes shall be a sum
equal to 100% percent of such real estate taxes as defined hereinabove.
(B) During each year of the initial term of this Lease and any renewal
term, Lessee shall pay to Lessor at the times set forth in this paragraph
Lessee's share of Lessor's operating costs for the land and buildings of
which the leased premises are a part. Lessee's proportionate share of any
such operating costs shall be a sum equal to 100% percent of the total of
the Lessor's operating costs. Lessor's operating costs shall include,
without limitation, utilities, supplies, janitorial services, employees
wages, social security and employment insurance contributions, union
benefits, rubbish removal, snow and ice removal, maintenance and
replacement of landscaping, and premiums for public liability and property,
damage, fire, extended coverage insurance, and all costs of any kind paid
or incurred by Lessor in operating, cleaning, equipping, protecting,
lighting, repairing, replacing, heating, air conditioning and maintaining
the land and/or building of which the leased premises are a part or any
portion thereof. These Costs shall also include a reasonable reserve for
repair and replacement of equipment used in the maintenance and operation
of the building and all costs except those properly charged as a capital
expense and depreciation of the original cost of construction. Lessee shall
pay to Lessor the amount of Lessee's share of said operating costs within
thirty (30) days after written notice from Lessor.
(C) Lessee shall pay interest, at an annual rate of eighteen (18%) percent
from the date due, for any installment of rent or other payment which is
not received by Lessor within ten (10) days of said due date.
8. UTILITIES
Lessor shall provide equipment required to adequately heat the leased
premises and to cool any office areas in the leased premises for normal
uses in season. Lessee shall pay directly all charges for utilities,
including but not limited to, heat, electricity, water, and telephone, used
on the leased premises. No plumbing or electrical work of any type shall be
done without Lessor's approval and the appropriate municipal permit and
inspector's approval. Lessee hereby acknowledges that water connections are
provided by Lessor for domestic sanitary purposes only and no process water
usage shall be permitted on the leased premises.
-3-
<PAGE>
9. COMPLIANCE WITH LAWS
Lessee acknowledges that no trade, occupation, or activity shall be
conducted in the leased premises or use made thereof which will be
unlawful, improper, noisy or offensive or contrary to any law or any
municipal by-law or ordinance in force in the city or town in which the
premises are situated. Lessee shall keep all employees working in the
leased premises covered with Workmen's Compensation insurance, and Lessee
shall be responsible for causing the premises and any work conducted
therein to be in full compliance with the Occupational Safety and Health
Act of 1970 and any amendments thereof.
10. FIRE INSURANCE
Lessee shall not permit any use of the leased premises which will make
voidable any insurance on the property of which the leased premises are a
part or on the contents of said property or which would be contrary to any
law or regulation from time to time established by the Insurance Services
Office (or successor), local fire department or any similar body. Lessee
shall on demand reimburse Lessor and all other tenants for all additional
insurance premiums caused by Lessee's use of the premises. Lessee shall not
vacate the leased premises or permit the same to be unoccupied other during
Lessee's customary non-business days or hours.
11. MAINTENANCE
Lessor agrees to keep in good order, condition and repair the roof, (but
not the inside surface thereof), foundations and structural portions of the
premises, to the extent the same were originally constructed by Lessor,
excepting any glass in the leased premises and any condition in the
premises caused by any act or neglect of the Lessee or any employee, agent,
servant or contractor of Lessee. Without limitation, Lessor shall not be
responsible for the making of any improvements or repairs in the premises
other than as expressly provided herein. Further, Lessor shall never be
liable for any failure to make repairs which, under the provisions of this
section or elsewhere in this lease, Lessor has undertaken to make unless
Lessee has given notice to Lessor of the need to make such repairs, or of a
condition of the premises requiring repair and Lessor has failed to
commence to make such repairs within a reasonable time after receipt of
such notice. Lessee agrees to maintain at its expense all other aspects of
the leased premises in the same condition as they are at the commencement
of the term or as they may be put in during the term of this Lease, normal
wear and tear and damage by fire or other casualty only excepted, and
whenever necessary, to replace light bulbs, plate glass and other glass
therein, acknowledging
-4-
<PAGE>
that the leased premises are now in good order and the light bulbs and
glass whole. Lessee will properly control or vent all solvents, degreasers,
or other similar substances, and shall not cause the areas surrounding the
leased premises to be in anything other than a neat and clean condition,
depositing all waste in appropriate receptacles. Lessee shall not permit
the leased premises to he overloaded, damaged, stripped or defaced nor
suffer any waste and will not keep animals in the leased premises. Any
maintenance which is necessitated by some specific aspect of Lessee's use
of the premises shall be at Lessee's expense.
12. ALTERATIONS
Lessee shall not make any structural changes, alterations or additions to
the leased premises, but Lessee shall have the right, at its expense, from
time to time, having first obtained Lessor's written consent thereto (which
consent shall not be unreasonably withheld) to make non-structural
alterations, additions and changes in the leased premises; provided,
however, that such alterations and changes shall not injure the safety of
the structure of the leased premises, nor diminish its value and shall be
done in a good and workmanlike manner in a quality at least equal to the
present construction, and provided further that only upon Lessor's request,
Lessee, at the expiration or other termination of this Lease, shall restore
the leased premises or Lessor designated portions thereof, to their
original condition. Except as otherwise provided, upon expiration or
earlier termination of this Lease, any such alteration, addition or change
not required by Lessor to be removed shall become part of the real estate
and the property of Lessor. Maintenance of such improvements installed by
Lessee shall be Lessee's exclusive responsibility. Lessee shall not permit
any mechanic's liens or similar liens to remain upon the leased premises in
connection with work of any character performed or claimed to have been
performed at the direction of the Lessee and shall cause any such lien to
be released or removed forthwith without cost to Lessor. Lessee further
covenants and agrees to save Lessor harmless and indemnified from all
injury, loss, claims or damage to any person or property occasioned by or
arising out of any such work.
13. ASSIGNMENT OR SUBLEASING
Lessee shall not assign this Lease nor sublet or allow any other firm or
individual to occupy the whole or any part of the leased premises without
Lessor's prior written consent, which consent shall not be unreasonably
withheld. Notwithstanding any such consent, Lessee shall remain directly
and primarily liable to Lessor for the payment of all rent and the full
performance of the covenants and conditions of this Lease.
-5-
<PAGE>
14. SUBORDINATION
This Lease, and Lessee's interest hereunder, shall be subordinate to the
lien of any present or future mortgage or mortgages upon the leased
premises or any property of which the leased premises are a part
irrespective of the time of execution of the time or recording of any such
mortgage or mortgages. The word "mortgage" as used in this Article shall
mean mortgages, deeds of trust, and any other similar instruments in the
nature of a mortgage, and all modifications, extensions, renewals and
replacements thereof, and any and all advances thereunder. Lessee shall,
when requested, promptly execute and deliver such written instruments as
shall be necessary to show the subordination of this Lease to said
mortgages or other such instruments in the nature of a mortgage, and in any
event, Lessee hereby appoints Lessor attorney-in-fact irrevocable of Lessee
to execute, acknowledge and deliver any and all further instruments
required to affect any such subordination, if required by the holder of any
mortgage or other such instrument in the nature of a mortgage. If at any
time during the term hereof, or any extension thereof, Lessor shall hold
the demised premises as Lessee or tenant from any person, firm or
corporation owning the fee thereof, whether such leasehold or tenancy shall
come or have come into existence before, after or simultaneously with the
commencement of the term hereof, then this Lease and all the terms,
provisions and covenants herein contained shall be subject and subordinate
to such Lease (the "Overlease") whereby Lessor holds the leased premises,
and Lessee covenants that it will not do or permit to be done on or with
respect to the leased premises any act or anything whatsoever which may be
a violation of the terms of the Overlease, and Lessee further covenants and
agrees that upon the termination of the Overlease for any reason
whatsoever, other than the voluntary unilateral act of Lessor, or the
agreement of Less and such Overlandlord, this Lease and all obligations
thereunder not then accrued shall at Lessor's sole election, cease and
determine.
15. LESSOR'S ACCESS
Lessor shall have the right to enter the leased premises at all reasonable
hours for the purpose of inspecting or making repairs to the same, and
Lessor shall also have the right to make access available at all reasonable
hours to prospective or existing mortgagees or purchasers of the leased
premises or the property of which the leased premises are a part. For a
period commencing nine (9) months prior to the expiration of the term of
this Lease, Lessor shall have reasonable access at all reasonable hours to
the leased premises for the purpose of exhibiting the same to prospective
tenants.
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<PAGE>
16. SNOW REMOVAL
17. RUBBISH REMOVAL
18. COMMON AREAS AND PARKING
Lessee shall have the right, without additional charge, to use up to all
available parking spaces in the parking facilities provided for the leased
premises, stairs, walkways or other areas in common with the others
entitled to the use thereof for reasonable access to the leased premises.
Said parking areas plus any stairs, walkways or other common areas shall in
all cases be considered extensions of the leased premises to the extent
that they are utilized by Lessee, or Lessee's employees, visitors or
business invitees. Lessee shall not obstruct in any manner any portion of
the building or the walkways or approaches to said building and will
conform to all reasonable rules and regulations now or hereafter made by
Lessor for parking and for the care, use, or alteration of the building,
its facilities and approaches. Lessee further warrants that Lessee will not
permit any employee or visitor to violate this or any other covenant or
obligation of Lessee. No vehicle shall be stored or left in any parking
area for more than three (3) nights without Lessor's written approval.
Unregistered or disabled vehicles or storage trailers of any type may not
be parked overnight at any time. Lessee agrees to assume all expense and
risk for the towing of any misparked vehicle belonging to Lessee or
Lessee's agents, employees, business invitees or callers at any time.
Lessor shall have the right form time to time, to (A) change the size of
any common facility, (B) change the location and nature or any common
facility, (C) make, and from time to time change, reasonable rules and
regulations relating to the use of the common facilities, (D) employ police
officers to enforce such rules and regulations and to regulate the conduct
of persons using the common facilities, (E) designate specific parking
areas or other facilities or portions thereof for use by occupants of the
leased premises and their employees and agents and to change from time to
time the arrangement of parking areas, (F) temporarily close any common
facilities to make repairs or changes or to prevent the acquisition of
easements or a dedication to public use, or to discourage use of such
facilities by anyone not entitled thereto, and (G) do any other act or
thing respecting the common facilities which in Lessor's sole judgment may
be desirable to improve the convenience and utility of the common
facilities to the occupants of the premises and their customers.
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<PAGE>
19. INDEMNIFICATION
Lessee shall save Lessor harmless and indemnified, to the extent permitted
by law, from and against any and all claims, actions, loss, damages,
liability and expense in connection with loss of life, personal injury
and/or damage to property arising out of or resulting from any occurrence
in, upon or at the leased premises or the occupancy or use by Lessee or the
leased premises or any part thereof, or anywhere, if occasioned wholly or
in part by any act, neglect, failure to perform the obligations imposed by
this Lease or any breach thereof, or omission of Lessee, its agents,
contractors, employees, servants, licensees, concessionaires, or any other
persons occupying space in the leased premises. In case Lessor shall be
made a party to any litigation commenced by or against Lessee, then Lessee
shall protect and hold Lessor harmless and indemnified from and against and
shall pay all costs, expenses and reasonable attorney's fees incurred or
paid by Lessor in connection with such litigation. Lessee agrees that
Lessor shall not be liable to Lessee or anyone claiming under Lessee for
any injury, loss or damage by or resulting from the act or negligence of
any occupant of adjoining premises, upper stories, or any other part of the
building of which the leased premises are a part.
20. LESSEE'S LIABILITY INSURANCE
During the term of this Lease and any extension thereof, Lessee, at
Lessee's own expense shall maintain or cause to be procured and maintained,
in the names of Lessor and Lessee, a policy or policies of general
liability insurance against claims and damages in connection with the
premises in amount of not less than One Million ($1,000,000.00) Dollars
with respect to injuries or deaths suffered in any one accident and in the
amount of not less than Five Hundred Thousand ($500,000.00) Dollars with
respect to damage to property. Lessee covenants and agrees that Lessee,
will upon demand, as often as reasonably requested by Lessor, furnish to
Lessor a complete list, statement and description of all insurance,
together with certificates from each insurance company issuing any thereof,
that the same is in full force and effect, that all premiums have been
paid, and that the same will not be cancelled except upon ten (10) days
written notice to Lessor by registered or certified mail, return receipt
requested.
21. FIRE, CASUALTY, EMINENT DOMAIN
Should a substantial portion of the leased premises, or of the property of
which they are a part, be substantially damaged by fire or other casualty,
or be taken by eminent domain, Lessor may elect to terminate this Lease.
When such
-8-
<PAGE>
fire, casualty or taking renders the leased premises unsuitable for their
intended use, a just and proportionate abatement of rent shall be made and
Lessee may elect to terminate Lease if: (A) Lessor fails to give written
notice within thirty (30) days of its intention to restore the leased
premises or (B) Lessor fails to restore the leased premises in a condition
substantially suitable for their intended use within one hundred and eighty
(180) days of said fire, casualty or taking. Lessor reserves and the Lessee
grants to Lessor all rights which the Lessee may have for damages or injury
to the leased premises for any taking by eminent domain, except for damage
to Lessee's fixtures, property or equipment.
22. BROKERAGE
Lessee warrants and represents to Lessor that Lessee has dealt with no
broker or third party with respect to this Lease and Lessee agrees to
indemnify Lessor against any brokerage claims arising by virtue of this
Lease. Lessor warrants and represents to Lessee that Lessor has employed no
exclusive agent in connection with the letting of the leased premises.
23. SIGNS
Lessee shall not erect any sign on the leased premises without the written
consent of the Lessor, and in the event of Lessor's consent, Lessee shall
only place such signs as shall be purchased directly from Lessor and shall
be of such size, style, color, and wording and in such location as Lessor
shall in its sole discretion deem necessary in order to maintain an
aesthetically pleasing appearance for the land and building of which the
leased premises are a part.
24. DEFAULT, BANKRUPTCY AND ACCELERATION OF RENT
In the event that, (A) Lessee shall be declared bankrupt or insolvent
according to law, or if any assignment shall be made of Lessee's property
for the benefit of creditors or, (B) Lessee shall default in the payment of
his security deposit or any installment of rent or of any invoice for goods
or services or other sums herein specified and such default shall continue
for ten (10) days after written notice thereof, or (C) Lessee shall default
in the observance or performance of any other of Lessee's covenants,
agreements or obligations hereunder and the effect of any such default
shall not have been cured or Lessee shall not have commenced and diligently
prosecuted the same at all times thereafter within thirty (30) days after
written notice of said default from the Lessor, or (D) Lessee vacates the
premises or permits them to be unoccupied for more than ten (10) days, then
Lessor shall have the
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<PAGE>
right thereafter while such default continues, and without demand or
further notice, to re-enter and take complete possession of the leased
premises, to declare the term of this Lease ended and to remove Lessee's
effects without being guilty of any manner of trespass and without
prejudice to any remedies which might be otherwise used for arrears of rent
or other default or breach of covenant. Lessee shall indemnity Lessor
against all loss of rent and other payments which Lessor may incur by
reason of such termination during the remainder of the term. If Lessee
shall default, in the observance or performance of any conditions or
covenants on Lessee's part to be observed or performed under or by virtue
of any of the provisions in any Article of this Lease, Lessor, upon ten
(10) days written notice to Lessee, without being under any obligation to
do so and without thereby waiving such default, may remedy the same for the
account of and at the expense of Lessee. If Lessor pays or incurs any
obligations for the payment of money in connection therewith, including,
but not limited to, reasonable attorney's fees in instituting, prosecuting
or defending any action or proceeding, such sums paid or obligations
incurred, with interest at the rate of eighteen (18%) percent per annum and
costs, shall be paid to Lessor by Lessee as additional rent. Upon default
of this Lease by Lessee, and because the payment of rent in monthly
installments is for the sole convenience of Lessee, the entire balance of
rent which will accrue hereunder shall at the option of the Lessor become
immediately due and payable. Lessee further agrees to pay all reasonable
attorney's fees incurred by Lessor in enforcing any and all obligations of
Lessee under this Lease at any time.
25. NOTICE
All notices or other communications shall be deemed given and delivered to
the respective parties three (3) days after mailed by registered or
certified mail, postage and registration or certification charges prepaid,
addressed to the parties at the addresses set forth hereinabove, except
that either party may, by written notice to the other, designate another
address which shall thereupon become the effective address of such party
for the purposes of this paragraph.
26. OCCUPANCY
In the event that Lessee takes possession of said premises prior to the
commencement of the term of this Lease, Lessee covenants and agrees to
perform and observe all of Lessee's covenants herein from the date upon
which Lessee takes possession except its obligation for the payment of
additional rents for any period of less than one month. In the event that
Lessee remains after the agreed expiration
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<PAGE>
date of this Lease without the written permission of Lessor, then all other
terms of this Lease shall continue to apply except that Lessee shall be
liable to Lessor for any and all loss, damages or expenses incurred by
Lessor, and rent shall be due in monthly installments at a rate of one
hundred and fifty (150%) percent of that which would otherwise be due under
this Lease, it being understood between the parties that such extended
occupancy as a tenant at sufferance is solely for the benefit and
convenience of Lessee and as such has greater value.
27. FIRE PREVENTION
Lessee agrees to use every reasonable precaution against fire and agrees to
provide and maintain approved, labelled fire extinguishers and emergency
lighting equipment within the leased premises as required or recommended by
the Insurance Services Office (or successor organization), OSHA or local
authorities.
28. OUTSIDE AREA
No goods or things of any type or description shall be held or stored
outside the leased premises at any time without the express written
approval of Lessor.
29. ENVIRONMENT
Lessee will so conduct and operate the leased premises as not to interfere
in any manner with the use and enjoyment of other portions of the same or
neighboring buildings by other by reason of odors, smells, noise,
accumulation of garbage or trash, vermin or other pests or otherwise, and
will at its expense employ a professional pest control service if
necessary. Lessee agrees to maintain efficient and effective devices for
preventing damage to heating equipment from harmful solvents, degreasers,
cutting oils, and similar substances which may be used within the premises.
No hazardous waste or chemical waste of any sort shall be stored or allowed
to remain within the leased premises at any time.
30. RESPONSIBILITY
Lessor shall not be held liable to anyone for loss or damage caused in any
way by the use, leakage or escape of water, for cessation of any service or
utility rendered customarily to said premises or buildings or agreed to by
the terms of this Lease, due to any accident, to the making of repairs,
alterations or improvements, to labor difficulties, weather conditions, or
mechanical breakdowns, to trouble or scarcity in obtaining fuel,
electricity, service or supplies from the
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<PAGE>
sources which they are usually obtained for said building or to any cause
beyond the Lessor's immediate control.
31. SURRENDER
Lessee shall at the expiration or earlier termination of this Lease remove
all of Lessee's goods and effects from the leased premises. Lessee shall
deliver to Lessor the leased premises and all keys, locks thereto, and
other fixtures and equipment connected therewith and all alterations
additions and improvements made to or upon the leased premises except those
requested by Lessor to be removed including, but not limited to, any
offices, partitions, plumbing and plumbing fixtures, air conditioning
equipment and duct work of any type, exhaust or heaters, water coolers,
burglar alarms, telephone wiring, air or gas distribution piping,
compressors, overhead cranes, hoists, trolleys or conveyors, counters or
sides attached to the walls or floors and all electrical work, including
but not limited to lighting fixtures of any type, wiring conduits,
distribution panels, bus ducts, raceways, outlets and disconnects. Lessee
shall deliver the leased premises in a clean and neat order and in the same
condition as they were at the commencement of the term, or as they were put
in during the term hereof, reasonable wear and tear and damage by fire or
other casualty only excepted. In the event of Lessee's failure to remove
any and of Lessee's property from the leased premises, Lessor is hereby
authorized, without liability to Lessee for loss or damage thereto, and at
the sole risk of Lessee, to remove and store any such property at Lessee's
expense, or to retain the same under Lessor's control, or to sell at public
or private sale, without notice, any or all of the property not so removed
and to apply the net proceeds from such sale to the payment of any sum due
hereunder, or to destroy such property which shall be conclusively deemed
to have been abandoned.
32. WAIVER
One or more waivers of any covenant, condition or agreement contained
herein shall not be construed as a waiver of a further breach of the same
covenant, condition or agreement or of any other covenant, condition or
agreement, and a consent or approval by one party to any act by the other
such consent or approval shall not be deemed a waiver or render unnecessary
consent or approval to any subsequent similar act.
33. NO ABATEMENT OF RENT
The obligation of Lessee to make all payments of rent and any additional
rent in the form of real estate taxes, operating costs or otherwise shall
be absolute and
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<PAGE>
unconditional and shall not be subject to set off, recoupment or
counterclaim, except as expressly set forth herein.
34. BENEFIT
All covenants, agreements, conditions and undertakings under this Lease
shall extend to and be binding upon the legal representatives, successors
and assigns of the respective parties hereto.
35. GENERAL
(A) Every term and provision of this Lease shall be deemed of the essence
and every breach thereof material to the Lessor.
(B) All representations, warranties and agreements of the parties in this
Lease shall be deemed special, unique and extraordinary, and any breach
thereof by the parties shall be deemed to cause the other party irreparable
injury not properly compensable by damages in an action of law, and the
rights and remedies of the parties hereunder may therefore be enforced both
at law and in equity, by injunction or otherwise.
(C) All rights and remedies of each party shall be cumulative, and not
alternative, in addition to and not exclusive of any other right or remedy
to which such party may be lawfully entitled in case of any breach or
threatened breach of any terms or provisions herein except as otherwise
expressly provided herein.
(D) The rights and remedies of each party shall be continuing and not
exhausted by any one or more uses thereof, and may be exercised at any time
or from time to time and as often as may be expedient; and any option or
election to enforce any such right or remedy may be exercised or changed at
any time or from time to time.
(E) This Lease sets forth the entire agreement by the parties, and no
custom, act, forebearance, or words of silence at any time, gratuitous or
otherwise, shall impose any additional obligation or liability upon either
party or waive or release either party from any default or from the
performance or fulfillment of any obligation or liability, or operate as
against either party as a supplement, alteration, amendment or change of
any term or provision set forth herein, including this clause, unless set
forth in a written instrument duly executed by such party expressly stating
that it is intended to impose such an additional obligation or liability or
to constitute such a waiver or
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<PAGE>
release, or that it is intended to operate as such a supplement,
alteration, amendment or change.
(F) If any term or provision of this Lease or the application thereof to
any person, property or circumstance shall to any extent be invalid or
unenforceable, the remaining terms and provision shall not be affected
thereby, and each term and provision or this Lease shall be valid and
enforceable to the fullest extent permitted by law.
(G) The various headings of this Lease Agreement are inserted for
convenience only and shall not affect the meaning or interpretation or this
Agreement or any provision hereof.
(H) This Lease shall be construed in accordance with the laws of the State
of New Hampshire.
36. OPTION TO RENEW
In the event that Lessee is not in default of any of the provisions of this
Lease at the time of its exercise of the option hereunder and for the
period of time continuing to the expiration of the initial term or the
renewal term, if any, the Lessee shall have the right and option to extend
the Lease for one (1) additional term of two (2) years each by giving
written notice of its desire to so extend this Lease two hundred and
seventy (270) days at least prior to the expiration of the initial term or
any such renewal term. Upon the giving of any such notice, the term of this
Lease shall automatically be extended for an additional period of two (2)
years without the necessity for the execution of any other instrument in
confirmation thereof. Lessor and Lessee shall execute and deliver any such
instrument in recordable form as either may reasonably request for the
purpose of confirming this Lease and the exercise of any such extension
right. Except for the rights of extension which have theretofore been
exercised and the rent payable during any such extension period, any such
extension shall be upon all of the same terms, conditions and provisions
herein contained. References in this Lease to the term hereof shall be
deemed to include any renewal term for which the original term may be so
extended. The base rent due and payable by Lessee during any such renewal
term shall be in an amount as shall be mutually agreed upon by Lessor and
Lessee prior to the commencement of said renewal term.
37. RULES AND REGULATIONS
Lessee agrees to comply with the rules and regulations set forth in the
Exhibit attached to this Lease (as tho same may be amended from time to
time) as to the use and/or occupancy of the leased premises and land and
buildings of which the
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<PAGE>
same form a part, and the same are incorporated by reference herein and
made a part of this Lease.
38. NOTICE TO VACATE
Lessee will, in writing, give Lessor notice to vacate said premises within
sixty (60) days prior to expiration of lease.
If written notice is not received by Lessor within sixty (60) days prior to
expiration of lease, Lessee will be responsible for monthly rental payments
for sixty (60) days after Lessor has received such notice to vacate
premises.
IN WITNESS WHEREOF, the Lessor and Lessee have caused these presents to be
executed on this 16th day of April 1996, intending this document to take effect
as a sealed instrument.
LESSOR:
/s/ Sandra L. York /s/ Peter B. Hosmer
- --------------------------------- --------------------------------
Witness Peter B. Hosmer, Manager
8-10 Commercial Street
Holdings Limited Liability
Company
LESSEE:
/s/ Richard S. Lawler BY: /s/ Richard A. Williams
- --------------------------------- --------------------------------
Witness
/s/ Jennifer McKay Tardif
- ---------------------------------
Witness
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<PAGE>
RULES AND REGULATIONS EXHIBIT
1. In the event that Lessee shall desire to place any shades, coverings,
decorations, or the like upon any windows in the leased premises, Lessee
shall only utilize vertical blinds for such purposes, which blinds shall
first be approved by Lessor, said approval not to be unreasonably withheld.
2. Lessee hereby acknowledges that Lessor maintains high pressure sodium
lights on or about the leased premises which provide exterior lighting for
the safety and convenience of all of the Lessor's tenants and a portion of
said high pressure sodium lights are regulated by circuit breakers located
within the leased premises. Lessee shall not, at any time during this Lease
or any extension thereof, in any manner interfere with the automatic on/off
device for said high pressure sodium lights nor shall Lessee at any time
interfere with the electricity being provided to said lights or place the
circuit breakers within the leased premises in such a position as to
prevent electricity from being provided to said lights.
3. Lessee shall not obstruct any pedestrian walks, entrances, or exits to the
building in which the leased premises are situated, or any common areas or
facilities, with anything, or in any manner whatsoever, and shall not
obstruct any and all entrances, exits curb cuts, or walks serving the land
and building of which the leased premises are a part, nor create or suffer
any hazardous condition therein or thereon.
4. Lessee shall not leave, place, or dispose of any litter, refuse, garbage,
or thing outside the leased premises other than garbage or refuse in
containers or receptacles expressly designated by Lessor for that purpose,
as and where so designated. All refuse and garbage shall be removed by
Lessor from the leased premises and deposited and disposed of in
containers, in a manner and at times acceptable to Lessor.
5. Receiving, shipping, loading, and unloading by Lessee shall be done at the
loading dock or docks serving the leased premises, and Lessee, and its
employees, agents or invitees shall exercise due care and safety
precautions with respect to the same.
6. Lessee shall not conduct, advertise or suffer the occurrence of any auction
sale, bankruptcy sale, going out of business sale, distress sale, or the
like at the leased premises or at the land and buildings of which the
leased premises are a part.
7. Lessee shall keep the leased premises clean and free of refuse at all
times, shall paint the interior of the leased
<PAGE>
premises when reasonably necessary, and shall use pest extermination as and
when required and whenever Lessor shall direct.
8. Lessor shall comply with all applicable laws and governmental authorities
regarding the use and occupancy of the leased premises as said laws may for
time to time appear and/or be amended.
9. Lessee shall keep and maintain temperatures at the leased premises
sufficiently high to prevent freezing of, or interference with, any flow in
pipes in, at, and about the leased premises.
10. Lessee shall not attach, display, or maintain on the outer walls, doors,
windows, or roof of the leased premises or the building of which the same
from a part, any sign, awning, aerial, lettering matter or thing of any
time without Lessor's prior written consent which consent shall not be
unreasonably withheld. In the event Lessor grants approval to Lessee for
the display or erection of any sign, display or lettering, Lessee shall
maintain and keep the same in good repair, good appearance and good working
order at all times and make all replacements thereto as and when required
to keep the same in such condition.
11. Lessee shall not use any sound device which shall be deemed objectionable
to Lessor or other tenants, including, but not limited to loud speakers,
microphones, transmitters, amplifiers, or phonographs, which sounds can be
heard from outside of the leased premises.
12. Lessee shall not do anything which may damage the personal property of any
business or occupant at the building in which the leased premises are
located or any part thereof, or be a nuisance to other tenants located
therein.
13. The plumbing facilities, drains and lines in or about the leased premises
shall not be used by Lessee or anyone under its control for any purpose any
than that for which they were constructed, nor shall Lessee put (or dispose
of) any foreign substance therein of a kind other than that for which such
facility was specifically designed, or permit such event to occur; and all
costs and expenses of repairing, replacing or restoring said facilities or
equipment by reason of any breakage, stoppage, or damage resulting from a
violation of this provision shall be borne by Lessee.
14. Lessee shall not burn any trash or garbage of any kind in or about the
leased premises, the building and land of which leased premises are a part,
or within one thousand feet of the outside property lines of said land and
building.
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<PAGE>
15. Lessee shall not use nor suffer the use of the respective portions of the
land of which leased premises are a part for any purposes other than those
designated by Lessor, to wit: parking areas for parking of vehicles used in
the business conducted in the leased premises, employee parking, and
parking for business invitees; loading docks for the loading and unloading
of vehicles transporting material or equipment to or from the leased
premises; and curb cut and turn around areas for the unobstructed passage
of vehicles of and from said areas.
-3-
LEASE
This Agreement made in duplicate this 27th day of September 1996, between
Leonard A. Worden having his principal place of business at Hudson, County of
Hillsborough and State of New Hampshire, hereinafter called LESSOR, and
Presstek, Inc., a Delaware corporation, having its principal place of business
at Hudson, County of Hillsborough, and State of New Hampshire, hereinafter
called the LESSEE.
The LESSOR hereby leases to the LESSEE for the term of four (4) years, beginning
OCTOBER 1, 1996, and ending September 30, 2000, (unless renewal option is
exercised), the building (the "Building") and land, located on Commercial
Avenue, Hudson, New Hampshire, known as 9 Commercial Avenue, more particularly
described in Exhibit A attached hereto and made a part hereof (the "Property"),
consisting of thirty six thousand (36,000) square feet in the Building, referred
to herein as the "Leased Premises", on the Property with a right to use the
parking spaces on the Property, subject to right of others to cross the back
parking lot as required.
The LESSEE agrees to pay the sum of one-hundred forty eight thousand eight
hundred dollars ($148,800) per year effective October 1, 1996, payable monthly
in advance at the rate of twelve thousand four hundred dollars ($12,400) per
month for the term of said Lease. Said rent will be known as the Base Rent. In
addition, the LESSEE shall also pay as rent real estate taxes assessed against
the Property which LESSEE shall pay to LESSOR at the rate of two thousand two
hundred twenty six dollars ($2,226) per month effective October 1, 1996, until
the tax bill for the year 1996 is sent out, at which time an adjustment will be
made for the 1996 taxes, and the LESSEE will start paying monthly to the LESSOR
said 1996 real estate taxes in escrow toward the 1996 taxes. Effective October
1, 1997 and henceforth on October 1, the rent will be increased by five per cent
(5%) per annum.
This lease is made upon the following terms, conditions and covenants:
(1) ASSIGNMENT AND SUBLETTING: This Lease shall not be assigned nor sublet
without the written consent of the LESSOR first endorsed hereon, said consent
not to be unreasonably withheld. Provided, however, LESSEE may assign or sublet
this Lease without the consent of the LESSOR to (a) an entity which is
controlled by the LESSEE, or (b) the purchaser of all or substantially all of
the LESSEE'S assets.
(2) PROHIBITION AGAINST WASTE: LESSEE accepts said Leased premises in their
present condition and agrees to keep the entire premises in good and clean
condition subject to ordinary wear and tear, taking by eminent domain and damage
due to fire or
<PAGE>
casualty; to commit no waste thereon and to repay the LESSOR the cost of all
repairs made necessary by the careless use of said premises by the fault of the
LESSEE, its invites, and licensees; and to surrender the premises at the
termination hereof in like condition as when taken, ordinary wear and tear,
taking by eminent domain and damage due to fire, casualty or the elements
excepted.
(3) USE: LESSEE may use and occupy the Leased Premises for any lawful purpose
and shall not use nor knowingly permit any part of the Leased Premises to be
used for any unlawful purposes. LESSOR represents and warrants that the Leased
Premises are zoned for industrial uses.
(4) COMPLIANCE WITH LAWS: LESSEE at its sole expense shall comply with all laws,
orders, and regulations of federal, state or municipal authorities related to
its use of the Leased Premises, and with any directions of public officer made
pursuant thereto, which shall impose any duty upon the LESSOR or the LESSEE with
respect to the Leased Premises. LESSEE shall have no duty to comply with any
laws, orders or regulations of federal, state or municipal authorities unrelated
to its use of the Lease Premises or with any directions of any public officers
made pursuant thereto which shall impose any duty upon the LESSOR OR LESSEE with
respect to the Property, including the Leased Premises, which are unrelated to
the LESSEE'S use of the Leased Premises. LESSOR covenants that the Property,
including the Leased Premises, is or will be, on the commencement date of the
term hereof in full compliance with all such laws, orders and regulations and
directions. The LESSEE, at its sole expense, shall obtain all licenses or
permits which may be required for the conduct of its business within the terms
of this lease, or for the making of repairs, alteration, improvements, or
additions, and the LESSOR where necessary, will join with the LESSEE in applying
for all such permits or licenses.
(5) ALTERATIONS, ADDITIONS, AND IMPROVEMENTS: LESSEE shall make no alterations,
additions or improvements to Leased Premises without in each case the prior
written consent of the LESSOR. If the LESSOR consents, any such alterations,
additions, or improvements shall become and remain part of the Leased Premises
and remain the property of the LESSOR upon the termination of the Lease except
those alterations, additions or improvements which are removed from the Leased
Premises pursuant to the terms of Section (6) hereof. Notwithstanding anything
contained herein to the contrary, LESSEE shall be permitted, without the consent
of LESSOR, to make such alterations, additions or improvements to the Leased
Premises which do not affect the structure of the Building and do not cost in
excess of Five Thousand Dollars ($5,000).
(6) CONDITION OF LEASED PREMISES AT END OF TERM: At the expiration or sooner
termination of the term, LESSEE shall vacate
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the Leased Premises in the same good order and repair as such property shall
have been received, ordinary wear and tear excepted, and shall remove all its
property therefrom so that the LESSOR can repossess the Leased Premises not
later than midnight on the date upon which this Lease or any extension thereof
ends, whether upon notice or by otherwise as for the breach of any condition or
covenant of this Lease. The LESSEE may at any time prior to or upon the
termination of this Lease or any extension thereof remove from the Leased
Premises all alterations, additions, improvements, material, equipment, and
property of every other sort or nature installed by the LESSEE, provided that
such property is removed without substantial injury to the Leased Premises. No
injury shall be considered substantial if it is promptly corrected by
restoration to the condition prior to the installation of such property, if so
requested by the LESSOR. Any such property not removed shall become the property
of the LESSOR. LESSEE will close, at the expiration or sooner termination of the
term, all vent holes added to the building for use in its manufacturing process.
The LESSOR agrees that the LESSEE, at it's option, may remove the HVAC systems
that are utilized to air condition and heat the clean rooms. All HVAC systems in
the office areas will remain with the PREMISES upon termination of the LEASE.
The LESSEE will seal any areas where the HVAC units where removed and will
guaranty them to be free from leaks in said locations for one (1) year.
(7) UTILITIES: The LESSEE will be responsible for all utilities.
(8) TERMINATION UNDER CERTAIN CONDITION: This Lease is made upon the further
conditions that if, said rent or any part thereof shall remain unpaid for
fifteen (15) days after written notice it shall become due, or if the LESSEE
shall neglect or fail to cure any default of any other material covenants here
in contained on the LESSEE'S part to be performed or observed for a period of
thirty (30) days after written notice of any such failure or for such longer
period in the event that such cure cannot be completed within thirty (30) days
and providing that LESSEE begins the cure within thirty (30) days and diligently
prosecutes such cure to completion, or if the LESSEE shall be declared bankrupt
or insolvent according to law, or if a receiver or other officer shall be
appointed to take charge of any part of the property or to wind up the affairs
of the LESSEE, or if any assignment shall be made of the LESSEE's property for
the benefit of creditors, then and in any of the said cases the LESSEE shall be
in default and the LESSOR may immediately or at any time thereafter without
further notice or demand enter the Leased Premises or any part thereof in the
name of the whole repossess the same and expel the LESSEE and those claiming
under it and remove its effects if necessary without being taken or deemed
guilty of trespass and without prejudice to any remedies for arrears of rent or
preceding breach of covenants and upon entry as aforesaid the said term shall be
ended.
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(9) INDEMNIFICATION:
(A) LESSEE agrees to indemnify, hold harmless, and defend LESSOR from and
against any and all losses, claims, liabilities, and expenses, including
reasonable attorney fees, if any, which LESSOR may suffer or incur in connection
with LESSEE's use of the Leased Premises caused by LESSEE, its invites or
customers.
(B) LESSOR agrees to indemnify, hold harmless, and defend LESSEE from and
against any and all losses, claims, liabilities and expenses including
reasonable attorney's fees, if any, which LESSEE may suffer or incur arising out
of the negligence and/or willful conduct of LESSOR, its agents or employees.
(C) LESSOR shall indemnify, hold LESSEE harmless from and against any and
all liability and damages, costs and expenses including reasonable attorney's
fees, from and against any and all suits, claims and demands of any kind or
nature whatsoever, on behalf of any person, firm, association or corporation
arising out of or based upon any incidents, occurrence, injury or damage which
happens or which may happen on the Property from the use by LESSOR, its
employees, agents, servants or invitees on the Property to drive unregistered
vehicles across the rear parking lot.
(10) WAIVER OF PERFORMANCE: The failure of the LESSOR to insist upon performance
of any of the conditions of this Lease in any one or more instances shall not be
waived thereafter of the right to full performance of all the agreements of
LESSEE herein set forth and of all conditions when any performance is due.
(11) DAMAGE BY FIRE OR CASUALTY: In the event the Leased Premises shall be
destroyed or injured in whole or in part by fire or other casualty making it
unfit for occupancy the rent or a just and proportionate part thereof according
to the extent that the Leased Premises are rendered unfit for occupancy, shall
be suspended or abated until the LESSOR shall have restored the Leased Premises
as closely as practicable to the original specifications for occupancy thereof
by the LESSEE, provided that all insurance proceeds received by the LESSEE for
leasehold improvements are used for said purpose and that said proceeds are
adequate to cover the cost of replacing said leasehold improvements, but if the
LESSOR shall not restore the Leased Premises within the period of one hundred
twenty (120) days next after the date on which such destruction or injury
occurred, it being agreed that nothing contained in this paragraph shall
obligate the LESSOR to restore the Leased Premises (except where the damage to
the Leased Premises is so minor in nature as not to render any part of the
Leased Premises untenable), either party may at their option by written notice
to the other party terminate this Lease. LESSOR agrees to notify LESSEE in
writing of his intent to restore the Leased Premises within ten (10) days from
any destruction or injury to the Leased Premises, and, if
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such notice is not received by LESSEE, LESSEE may, at its option, terminate this
Lease by written notice to LESSOR. In the event LESSOR notifies LESSEE of it
intent to rebuild the Leased Premises, LESSOR shall be obligated rebuild within
one hundred twenty (120) days after the notice to LESSEE.
(12) EMINENT DOMAIN: If the Leased Premises is lawfully condemned or taken by
any public authority either in its entirety or in such proportion that it is no
longer suitable for the intended use by LESSEE, then the Lease will
automatically terminate without further act of either party hereto on the date
when possession of the Leased Premises is taken by such public authority, and
each party hereto will be relieved of any further obligation to the other,
except that LESSEE shall be liable for and shall promptly pay to LESSOR any rent
or other payments due hereunder then in arrears, or LESSOR shall promptly rebate
to LESSEE a prorated portion of any rent or other such payments paid in advance.
In the event the proportion of the Leased Premises so condemned or taken is such
that the Leased Premises is still suitable for its intended use by LESSEE, which
determination shall be made solely by LESSEE, this Lease will continue in effect
in accordance with its terms and a portion of the rent and other payments due
here under will abate equal to the proportion of the rental value of the Leased
Premises so condemned or taken. In either of the above events, the award for the
property so condemned or taken will be payable solely to LESSOR without
apportionment to LESSEE, except the LESSEE shall be entitled to a separate
award, if any, for moving expenses and for the value of the improvements
installed on the Leased Premises by the LESSEE.
(13) QUIET ENJOYMENT: LESSOR shall put LESSEE into possession of the Leased
Premises at the beginning of the term hereof, and LESSEE, upon paying the rent
and observing of the other covenants and conditions herein, upon its part to be
observed, shall have and hold peaceable and quite enjoyment of the Leased
Premises.
(14) AMERICANS WITH DISABILITIES ACT OF 1990:
(a) If the Leased Premises is now, or at any time during the term of this
Lease becomes, a "Public Accommodation" under the Americans with Disabilities
Act of 1990 (the "ADA"), LESSOR shall at his sole expense, be responsible for
compliance with Title III of the ADA to the extent that the ADA imposes
obligations on the procedure and design of any alterations to the Leased
Premises or to the Building made by LESSOR. If failure to make such
modifications constitutes a violation of the ADA, LESSOR shall indemnify, defend
and hold harmless LESSEE with respect to his failure to comply with the
foregoing responsibilities.
(b) If the Leased Premises at any time during the term of this Lease
becomes, a "Public Accommodation" under the Americans with Disabilities Act of
1990 (the "ADA"), LESSEE shall at his sole expense, be responsible for
compliance with Title III of the
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ADA to the extent that the ADA imposes obligations on the procedure and design
of any alterations to the Leased Premises or to the Building made by LESSEE. If
failure to make such modifications constitutes a violation of the ADA, LESSEE
shall indemnify, defend and hold harmless LESSOR with respect to his failure to
comply with the foregoing responsibilities.
(15) DANGEROUS MATERIALS: Except as disclosed on Exhibit E, attached hereto and
made a part hereof, LESSEE shall not keep or have on the Leased Premises any
article or thing of a dangerous, inflammable, or explosive character that might
substantially increase the danger of fire on the premises, or that might be
considered hazardous by a reasonable insurance company, unless the prior written
consent of the LESSOR is obtained and proof of adequate insurance protection is
provided by the LESSEE to LESSOR. The LESSEE will forward to the LESSOR copies
of Manufactures Safety Data Sheets (small quantities being exempted) on products
being used in the Leased Premises and any correspondence to or from federal,
state or local officials relating to the storage, removal, and/or disposal of
hazardous waste generated on the premises. A summary report shall be done on a
monthly basis which will also identify small quantity items used. Additionally
the LESSEE will furnish copies of any and all correspondence to or from the
Local Fire Department.
(16) HOLD HARMLESS: The LESSOR will indemnify, defend, and hold harmless the
LESSEE relative to contamination of the Property not caused by the LESSEE,
including, but not limited to, the contamination that has been identified by the
State of New Hampshire Department of Environmental Services, Administrative
Order WSPCD 93-02 dated March 5, 1993.
(17) COST OF COLLECTION: In the event the rent or any portion thereof shall
remain unpaid for more than fifteen (15) days after it shall become due, and
after written notice from LESSOR to LESSEE, and the LESSOR retains an attorney
to collect said unpaid rent, the LESSEE agrees to pay said attorney's fees.
(18) MAINTENANCE AND REPAIRS: LESSOR, at his own cost and expense, shall
maintain in good repair the structural integrity of the roof, the exterior walls
of the Building, the structural beams, structural columns and other structural
parts of the Leased Premises, the Building and the parking lot surrounding the
Building. LESSEE shall keep the interior of the Leased Premises (excluding the
structural integrity of the roof and exterior walls) in as good condition as the
same was at the commencement of the term hereof, ordinary wear and tear, taking
by eminent domain and damage due to fire or casualty insured against excepted.
(19) INSURANCE: LESSEE shall at its own cost and expense maintain General
Liability Insurance insuring against risk or injuries to persons or property in
or about the leased premises
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for the benefit of both LESSOR and LESSEE in an amount not less than One Million
Dollars ($1,000,000) for each occurrence, and Two Million Dollars ($2,000,000)
in the aggregate and injuries or damages to property for the benefit of both
LESSOR and LESSEE in the amount of Fifty Thousand Dollars ($50,000), and a
certificate of such insurance naming the LESSOR an additional insured will be
furnished to the LESSOR.
(20) SNOW REMOVAL AND GROUNDS MAINTENANCE: LESSOR shall be responsible for the
removal of snow. The LESSEE will maintain the unpaved grounds surrounding the
Leased Premises.
(21) PARKING: LESSEE will have use of the parking areas that are adjacent to the
Leased Premises.
(22) ACCESS BY LESSOR TO PREMISES: Subject to LESSEE's consent (which shall not
be unreasonably withheld), LESSOR shall have the right to enter the Leased
Premises to make inspections, provide necessary services, or show the unit to
perspective buyers, mortgagees, lessees or workers. As provided by law, in the
case of an emergency, LESSOR may enter the premises without LESSEE's consent.
(23) FIRE INSURANCE: LESSOR shall obtain fire insurance in the amount of One
Million One Hundred Thousand Dollars ($1,100,000) on the Building exclusive of
leasehold improvements and betterments made by the LESSEE on or after May 9,
1994. LESSEE agrees to pay the premiums on said policy. The LESSEE shall
insurance any and all lease hold improvements and betterments including but not
limited to interior walls, partitions, storage racks and the like in an amount
adequate to cover such improvements and betterments and name Concrete Systems,
Inc. and Leonard A. Worden as additional insured.
(24) RENEWAL OPTION: The LESSEE is granted a renewal option on said premises for
a term of three (3) years. The LESSEE will notify the LESSOR sixty (60) days
prior to exercising this option. The said renewal shall be upon the same terms
and conditions as herein contained; provided, however, that the rent for renewal
term of three (3) years shall be one hundred forty eight thousand eight hundred
dollars per annum plus one-half the increase in the Consumer Price Index (all
items) from September 1996, to the Current Index Number (all items) at the time
of renewal, as published by the Bureau of Labor Statistics of the United States
Department of Labor.
The Index Number indicated entitled "all items" for the month of September 1996,
shall be the "Base Index Number," and the corresponding Index number for the
month of October 2000, shall be the "Current Index Number."
The Base Index Number shall be subtracted from Current Index Number and the
resultant divided by the Base Index. Any positive
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result shall be multiplied by fifty percent (50%) the result of which shall be
deemed to be the percentage of increase to be utilized in computing the renewal
rate.
The fixed rent, as so determined, (i.e. the aggregate of one hundred forty eight
thousand eight dollars ($148,800) plus the increase calculated in accordance
with the Renewal Option) shall be due and payable monthly. In no event shall the
resultant rent be less than one hundred seventy two thousand two hundred fifty
five dollars ($172,255) per annum.
If the publication of the Consumer Price Index shall be discontinued, the
parties hereto shall thereafter accept comparable statistics on the cost of
living as they are published by the United States Government.
(25) PURCHASE OPTION: Subject to and upon the terms and conditions hereinafter
expressed, LESSOR grants to LESSEE the right of first refusal to purchase the
Property. In the event that LESSOR receives an offer to purchase the Property,
or any portion thereof, LESSEE shall have thirty (30) days to notify LESSOR in
writing that it will purchase the Property for the same purchase price as
offered by a bona fide third party. If LESSOR proposes to sell the Property to a
party related to or controlled by LESSOR or to any party who has not made a bona
fide offer, LESSEE shall have the right to refuse to exercise its right of first
refusal, in which event, the grantee of LESSOR shall take the Property subject
to this Section (25) and LESSEE's right of first refusal shall survive such
conveyance. Such exercise of the right of first refusal by LESSEE must be made
within thirty (30) days after notice from LESSOR. In the event LESSEE exercises
its right of first refusal, its obligation to purchase the Property (the
"Agreement to Purchase") shall be governed by the following terms and
conditions:
(a) PURCHASE PRICE: Subject to the terms and conditions of this Section
(25), if LESSEE exercises its right of first refusal, LESSEE shall buy the
Property and pay LESSOR therefore a sum equal to the price offered by a bona
fide third party (the "Purchase Price"). LESSEE shall pay the Purchase Price to
LESSOR at closing (hereinafter defined) by bank check or wire transfer.
(b) Title. LESSOR shall convey good, clear, recordable and marketable fee
simple title to the Property to LESSEE, free and clear of all encumbrances of
any nature whatsoever, including without limitation, all liens, tax liens,
leases, restrictions, conditions and easements. LESSEE may, at its sole cost and
expense, cause the title to the Property to be examined. If upon examination of
the title, LESSEE or its representative finds that the title to the Property is,
in its opinion, not in accordance with the first sentence of the Section
(25)(b), the LESSEE shall notify LESSOR of the record title to the Property
through the date of such examination. LESSOR shall immediately take all steps
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necessary to clear title within a reasonable time thereafter as to any matters
which are not in accordance with the first sentence of this Section (25)(b),
except for any mortgages which may be satisfied at closing: provided, however,
LESSOR shall not be obligated to expend more than Fifteen Thousand Dollars
($15,000), exclusive of the payment of any mortgages, to clear title to the
Property. If LESSOR is unable to clear title prior to the date of closing, the
LESSEE may, at its option, either: (i) rescind this Agreement to Purchase in
which event neither party will have any further rights or duties hereunder; or
(ii) take such title as LESSOR can convey without any diminution in the Purchase
Price; or (iii) postpone the closing for a reasonable time so that LESSOR can
clear title.
(c) Survey of the Property. LESSEE may at its option have the Property
surveyed at its sole cost and expense. If such survey discloses that any of the
improvements on the Property encroach into the applicable setbacks or onto
adjoining property, or that improvements on adjoining property encroach onto the
Property, or that the Property materially differs from the description herein,
then LESSEE may, at its option, rescind the Agreement to Purchase, in which
event neither party will have any further rights or duties under this Agreement
to Purchase; or LESSEE may, at its option, take title from LESSOR without any
diminution in the Purchase Price.
(d) Inspection. Prior to the date of closing, LESSEE, or LESSEE's
representatives, shall have the right to enter the entire building on the
Property at reasonable times to perform the inspections described in the next
sentence. LESSEE shall have the right to have a complete physical inspection
performed of the Building and the Property, including, but not limited to,
testing the septic system, the water supply system, (including the quality of
water furnished thereby), the heating system, the electrical system and the
plumbing system, and performing an environmental inspection of the entire
Property, including the Building. If LESSEE is not satisfied with such tests or
inspections, or if such tests or inspections disclose that any of the systems
are not in good condition and working order or are not in compliance with any
applicable laws, regulations, codes or ordinances LESSEE may, at its option,
rescind this Agreement to Purchase, in which event neither party shall have any
further right under this Agreement to Purchase.
(e) DEED. LESSOR shall convey the Property to LESSEE by statutory Warranty
Deed in proper form for recordation.
(f) Possession. LESSOR shall deliver exclusive possession of the Property
to LESSEE at closing, free and clear of all tenants, occupants and personal
property except for LESSEE and LESSEE's personal property.
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(g) Brokerage Commission. The parties each represent that no broker brought
about this transaction. If any claim on behalf of any other broker or agent is
made or upheld, then the party against or through whom such claim is made shall
defend, indemnify and hold the other harmless against any damages, costs or
expenses in any way attributed to such claim, including, without limitation,
reasonable attorney's fees.
(h) Closing. LESSOR shall transfer title of the Property to the LESSEE at
the offices of Divine, Millimet & Branch, Professional Association, 111 Amherst
Street, Manchester, New Hampshire, or such other place as the parties may
mutually agree upon, at a closing which will take place on or before ninety (90)
days following the exercise of the right of first refusal.
(i) Prorations. The parties agree that the real estate taxes, utility
bills, fuel in tanks, sewer rent, water bills and other charges and assessments
against that portion of the Property which is not Leased Premises shall be
prorated as of the date of closing.
(j) Insurance. LESSOR agrees that the risk of loss of the Property shall
remain on LESSOR until the date of transfer of title and agrees to maintain fire
and extend coverage insurance as provided in this Lease. In the event of damage
to the Property, LESSEE may, at its sole option, either take title to the
Property, in which event all insurance proceeds shall be paid to LESSEE, or
LESSEE may rescind this Agreement to Purchase, in which event neither party
shall have any further rights or duties under the Agreement to Purchase.
(k) Default. If either party defaults in the performance of its duties
under this Agreement to Purchase, then the other party shall have all remedies
afforded by law including the right to specific performance.
(l) Notice. Whenever notice must be given under the provisions of this
Agreement to Purchase, such notice must be given in writing and either hand
delivered or sent by certified mail, return receipt requested, postage prepaid
and addressed as set forth in Section (27) hereof.
(m) Miscellaneous.
(i) Section 1521 of the Tax Reform Act of 1986 amending Internal
Revenue Code Section 6045 relative to the reporting of real estate
transactions by real estate brokers requires that Internal Revenue Service
Form 1099-B be filed. For the purpose of completing such form LESSOR'S
social security number is as follows: ###-##-####.
(ii) LESSOR warrants that he is a U.S. citizen and that no withholding
will be necessary pursuant to the Foreign
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Investment in Real Property Tax Act. LESSOR shall execute a Certificate of
Non-Foreign Status at closing.
(n) Revival of Right of First Refusal. In the event that LESSEE exercises a
right of first refusal under the Section (26) and terminates its Agreement to
Purchase as permitted in Sections. (25)(b), (c), (d) or (j), LESSEE shall retain
its right of first refusal in the event the LESSOR or LESSOR'S successor in
interest obtains another offer to purchase from a bona fide third party.
(26) SHORT FORM RECORDING: There shall be recorded in the Hillsborough County
Registry of Deeds a Notice of this Lease that complies in content and form with
New Hampshire RSA Section 477:7-a. LESSOR and LESSEE shall execute and deliver a
Notice of Lease in such form for such purpose. Such Notice of Lease shall also
contain a Notice of the right of first refusal set forth in Section (25) above.
In the event of termination, cancellation or assignment of this Lease prior to
the expiration of the term hereof, LESSOR and LESSEE shall execute and deliver,
in recordable form, an instrument setting forth such termination, cancellation
or assignment.
(27) NOTICES: Whenever notice must be given under the provisions of this Lease,
such notice must be given in writing and either hand delivered or sent by
certified mail, return receipt requested, postage prepaid to the first address
of the party to whom the notice is to be given, as designated by such party in
writing. The LESSOR hereby designates its address as Leonard A. Worden, C/O
Concrete Systems, Inc., Commercial Avenue, Hudson, NH 03051. The LESSEE hereby
designates its address as Presstek, Inc., 8 Commercial Street, Hudson, NH 03051,
attention Richard A. Williams.
(28) ENTIRE AGREEMENT/AMENDMENT: This Lease Agreement contains the entire
agreement of the parties and there are no other promises or conditions in any
other agreement whether oral or written. This Lease may be modified and or
amended in writing if the writing is signed by the parties obligated under the
amendment.
(29) SEVERABILITY: If any portion of this Lease shall be held to be invalid or
unenforceable for any reason, the remaining provisions shall continue to be
valid and enforceable. If a court finds that any provisions of this Lease is
invalid or unenforceable, but that by limitation such provision, it would become
valid and enforceable, then such provision shall be deemed to be written,
construed, and enforced as so limited.
(30) WAIVER: The failure of either party to enforce any provisions of this Lease
shall not be construed as a waiver or limitation of the party's right to
subsequently enforce and compel strict compliance with every provision of this
Lease.
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(31) CUMULATIVE RIGHTS: The rights of the parties under this Lease are
cumulative, and shall not be construed as exclusive unless otherwise required by
law.
(32) GOVERNING LAW: This Lease shall be construed in accordance with the laws of
the State of New Hampshire.
(33) PARTIES: The covenants and agreements herein contained shall be binding
upon the parties, their heirs, executors, administrators, successors and
assignees.
IN WITNESS THEREOF, the said parties have hereunto and to a duplicate copy set
their hands on the day and year first above mentioned.
WITNESSES:
/s/ Willard Achibald By:/s/ Leonard A. Worden
- --------------------------- ------------------------------
Leonard A. Worden
PRESSTEK, INC.
/s/ Jacqueline L. Berry By:/s/ RA Williams
- --------------------------- ------------------------------
Richard A. Williams
Chief Operating Officer/
Executive Vice President
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EXHIBIT A
LEASE AGREEMENT
PRESSTEK, INC.
9 COMMERCIAL AVENUE
HUDSON, NH.
DESCRIPTION OF LEASED PROPERTY
A certain tract or parcel of land, with the buildings thereon, situated on the
southerly side of Commercial Avenue in Hudson, County of Hillsborough, state of
New Hampshire, bounded and described as follows:
Beginning at a point on the southerly side of said Commercial Avenue at land
shown as land of Indian Head Ntl. Bank on plan entitled "Subdivision Plat,
Rodgers Bros. Inc., Date Mar. 77, Scale 1" = 100', Piantidosi Associates, Inc."
said plan filed as Plan #10095 at the Hillsborough County Registry of Deeds,
said Indian Head Ntl. Bank land now owned by the grantee; thence running
1. Easterly by and along the south side of said Commercial Avenue and the
relocated cul-de-sac at its end, to a point at land of Concrete Systems, Inc.
(shown roughly as lot with Tax No. 4592-001+/- on said plan; thence and running
2. South 00(degree) 39' 27" West, by and along land of said Concrete
Systems, Inc., two hundred forty-three and 66/100 feet (243.66'), to a point at
land of Piaseczny, as shown on said Plan; thence turning and running
3. North 72(degree) 18' West, by and along said Piaseczny land forty and
00/feet (40.00'), to a point at land of Seabury, as shown on said Plan; thence
turning and running
4. South 68(degree) 51' 25.4" West by and along said Seabury land two
hundred thirty-seven and 05/100 feet (237.05'), to a point at land of Cravitz as
shown on said Plan; thence turning and running
<PAGE>
EXHIBIT A CON'T
5. Southwesterly, by and along said Cravitz land, one hundred fifty-two and
46/100 feet (152 46') to a point at land of Tyler as shown on said Plan; thence
turning and running
6. Northwesterly, by and along said Tyler land, one hundred thirteen and
66/100 feet (113.66'), to a point at land of the grantor, as shown on said Plan
(Tax No. 1653-412); thence turning and running
7. Northwesterly, by said land of the grantor, one hundred eleven and
80/100 feet (111.80'), to a point; thence turning and running
8. Northerly, by and along said land of the grantor, sixty and 00/100
(60.00'), to a point; thence turning and running
9. Westerly, by and along said land of the grantor, seventy-five feet and
00/100 feet (75.00'), to a point at land of Indian Head Ntl. Bank, shown on said
Plan (now land of the grantee); thence turning and running
10. North 15(degree) 23' 30" East, by and along said Indian Head Ntl. Bank,
land (now of grantee), two hundred twenty and 00/100 feet (220.00') to ;the
point of beginning.
The above-recited cul-de-sac has been relocated from the location shown on said
Plan. See Plan No. 15118 at the Hillsborough County Registry of Deeds.
Containing 4.26 acres, more or less, and being lot shown as tax No. 1653-313 on
said Plan.
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LEASE AGREEMENT
Lease made and entered into as of the Thirteenth day of May, 1996, by and
between ACORN LEASING CO INC., a Corporation with a principal place of business
at 145 Broadway Road, Dracut, Middlesex County, Massachusetts, hereinafter
referred to as "Lessor", and PRESSTEK INC., with a principal place of business
at 8 Commercial Street, Hudson, New Hampshire, hereinafter referred to as
"Lessee".
1. Lease of Premises. The Lessor hereby leases to the Lessee, and the
Lessee hereby leases from the Lessor, under the terms and conditions hereinafter
set forth, the "Leased Premises", consisting of the real property described in
Exhibit "A". The leased Premises consist of two (2) office areas of 4,000 square
feet each and one (1) 21,000 square foot section of warehouse/manufacturing
space located at 18-20 Hampshire Drive Hudson, N.H. The Lessor covenants and
agrees with the Lessee that it is the owner in fee simple of the Leased Premises
and has the right to make this Lease, and that upon the Lessee's paying the rent
and observing and performing all of the terms, covenants and conditions on the
Lessee's part to be observed and performed under this Lease, the Lessee may
peaceably and quietly have, hold, occupy and enjoy the Leased Premises.
2. Term. The Term of this Lease shall be considered to have effectively
commenced on June 1, 1996 and shall continue for thirty-six (36) Months to May
31, 1999, unless terminated or renewed as hereinafter provided.
<PAGE>
3. Option to Extend.
(A) RIGHT TO EXTEND
Lessee shall have the right, at its election to extend the original term of
this Lease for two (2) additional periods of twelve (12) Months commencing upon
the expiration of the original term, provided that Lessee shall give Lessor
notice of the exercise of its election at least one (1) month prior to the
expiration of the original term and provided further that Lessee shall not be in
default at the time of giving of such notice in the performance or observance of
any of the terms and conditions in this lease contained on the part of Lessee to
be performed or observed. Except as expressly otherwise provided in this Lease
(Basic Rent Adjustment), all the agreements and conditions in this Lease
contained shall apply to the additional period to which the original term shall
be extended as aforesaid. If Lessee shall give notice of the exercise of the
election in the manner and within the time provided aforesaid, the Term shall be
extended upon the giving of the notice without the requirement of any action on
the part of Lessor.
(B) BASIC RENT ADJUSTMENT
The Basic Rent payable for said additional periods beyond the original
Thirty-six Month term shall be as follows; Year Four and Year Five will be
$116,000 NNN for each year. If the Lessee wishes it shall have the right to
continue after year five upon the terms and conditions herein except that the
rent will be set at the Market price.
-2-
<PAGE>
4. Basic Rent. During the term of this Lease, the Lessee shall pay as basic
rent the sum of $313,200.00 NNN, payable in advance in monthly installments of
$8,458.33 NNN for Year One, $8,700.00 NNN for Year Two and $8,941.67 NNN for
year 3, commencing on the First day of June, 1996, and payable on the first day
of every month thereafter starting June 1, 1996, during the term hereof. Rent
shall be prorated for any period of less than a month. A late charge shall be
paid to the Lessor for any payment that is more than ten (10) days in arrears in
the sum of in the sum of fifteen (15) percent per annum, compounded monthly, of
the amount of said late payment. Such interest shall constitute additional rent
payable hereunder.
5. Fuel Adjustment. Heat is Lessee's responsibility.
6. Security Deposit. Upon execution of this Lease, the Lessee shall pay
onto the Lessor the amount of $8,458.33, which shall be held as security for the
Lessee's full performance as herein provided and refunded to the Lessee at the
end of this lease, subject to the Lessor's satisfactory compliance with the
terms and conditions hereof. The Lessor shall not be obligated to pay interest
to the Lessee for this security deposit.
7. Utilities. The Lessee shall pay all charges for electricity used on the
premises (including that consumed in connection with heating and air
conditioning) which shall be separately metered and billed directly to the
Lessee. The Lessee shall provide and pay for heating fuel sufficient for its
purposes and sufficient to maintain the premises at a safe temperature at all
times.
-3-
<PAGE>
8. Access. The Lessee and its invitees shall have the right to reasonable
access to and use of the common areas and facilities and the parking area
adjacent to the premises and owned by the Lessor in common with all other
occupants of the entire building at the site along with their invitees. The
Lessee and its invitees shall not obstruct or block or impede the mutual use of
the common areas and facilities and the parking area by other occupants and
their invitees. The Lessee shall cooperate with the Lessor and other occupants
in the reasonable and mutual use of the common areas and facilities and the
parking areas.
9. Use of Premises. The Lessee shall use the premises for light
manufacturing, assembly, administrative and research offices and warehousing of
material to produce plates for printing machinery, and uses reasonably incident
thereto and in conformity with Federal, State and Local Laws, regulations and
codes. The Lessee acknowledges that no trade or occupation shall be conducted
upon the leased premises or use made thereof which will be unlawful, improper,
noisy (considering the building is in an industrial zone), offensive to
neighbors or other tenants in the building, or contrary to any law or any
municipal by-law or ordinance in force in the Town of Hudson. The Lessee shall
not permit any use of the Leased Premises which will make voidable or increase
the premium on or cost of any insurance on the property of which the Leased
Premises are a part, or on the contents of said property, or which shall be
contrary to any law or to any regulation from time to time established by the
New England Fire
-4-
<PAGE>
Insurance Rating Association or any similar body succeeding to its powers. The
Lessee shall upon demand reimburse the Lessor and all other tenants all extra
insurance premiums caused by the Lessee's use of the premises.
10. Yard Area. The Lessee agrees to maintain the grass and yard area. The
Lessor will maintain the paved areas except for the sidewalk and will cause the
snow removal of the parking lot area only, the Lessee is responsible for the
sidewalk area and Lessee will be billed its pro rata share of the cost of snow
removal for the parking area.
11. Maintenance by Lessee. The Lessee agrees to maintain the Leased
Premises in the same condition as they are at the commencement of the term or as
they may be put into during the terms of this Lease, reasonable wear and tear
and damage by fire and other unavoidable casualty only excepted, and whenever
necessary, to replace plate and other glass attached to the Leased Premises,
acknowledging that the Leased Premises are presently in good order and the glass
whole. The Lessee agrees to keep clean and maintain and furnish supplies to any
restroom facilities used or intended to be used exclusively by Lessee in
connection with the Leased Premises and the Lessee shall install and replace and
maintain all light bulbs in the Leased Premises. The Lessee shall be responsible
for the maintenance and replacement of any plumbing, heating, air conditioning
and electrical equipment servicing the Leased Premises due to acts of negligence
or misuse by the Lessee and its agents, employees and invitees.
-5-
<PAGE>
12. Alterations Additions and Improvements. The Lessee shall not make any
alterations to the premises without the prior written consent of the Lessor. If
the Lessee wishes to alter the premises in any way, it shall first notify the
Lessor, detailing the expected alterations, improvements, or additions, and
obtain the written consent of the Lessor, which consent the Lessor shall not
unreasonably withhold.
Lessee may remove all such alterations, additions and improvements and its
trade fixtures and equipment regardless of the manner affixed to the premises
and Lessee shall repair any damage caused by such removal.
13. Signs. Lessee shall not have the right to erect signs or lettering on
the exterior walls of the building, interior walls in the lobby or on any door
or window of the demised premises, or any freestanding signs outside the
building unless it shall first obtain the written consent of the Lessor and any
governmental agency having jurisdiction over such signs. Lessee shall remove all
signs and lettering at the termination of this Lease, and shall repair any
damage and close any holes caused by such removal.
14. Insurance.
A. Lessor agrees to carry adequate fire and extended coverage insurance
(100% replacement cost) on the building of which the Leased Premises are a part.
B. Lessee shall not permit any operation to be conducted in the Leased
Premises that would cause suspension or
-6-
<PAGE>
cancellation of the fire and extended coverage insurance policy carried by
Lessor.
C. Lessee shall maintain and keep in force public liability insurance in
the amounts of $500,000.00 per person or $500,000.00 per occurrence and
$500,000.00 for property damage, and name the Lessor as an insured party in such
insurance. The Lessee shall provide the Lessor with a copy of such policy prior
to occupancy.
D. Lessee shall obtain and maintain at its sole expense Workmen's
Compensation Insurance covering all of the employees working in the premises.
E. Lessee shall cause the Lessor to receive duplicates or certificates of
insurance policies which Lessee must maintain pursuant to the terms of this
Lease, and also provide evidence of prompt payment of premium, upon demand by
Lessor. All such insurance certificates and policies referred to hereinabove
shall provide that such policy shall not be cancelled without at least ten (10)
days prior written notice to each insured named therein, including the Lessor.
15. Additional Covenants of Lessee. The Lessee covenants at its expense, at
all times during the term of this Lease, as follows:
A. The Lessee shall make all repairs, alterations, additions, or
replacements to the Leased Premises required by any law or ordinance or any
order or regulations of any public authority because of Lessee's use
thereof and not required to be made by lessor hereunder; to keep the Leased
Premises equipped
-7-
<PAGE>
with all safety appliances so required for any such use; and to comply with
the orders and regulations of all governmental authorities.
B. Any alterations and changes in the Leased Premises made by the
Lessee shall not injure the safety of the structure thereof nor diminish
its value, and such work shall be done in a good and workmanlike manner,
employing materials of good quality and complying with all governmental
requirements, including the obtaining of any licenses or permits for the
making of such alterations, changes or installations and in connection
therewith the Lessee agrees to save the Lessor harmless and indemnified
from all injury, loss, claims or damages to any person or property
occasioned by or growing out of such work and the Lessee agrees to pay
promptly when due the entire cost of any work to the Leased Premises so
that said property shall at all times be free of liens for labor and
materials and to discharge any such lien forthwith upon request by bonding,
payment or otherwise.
C. The Lessee shall comply with all applicable building, zoning and
land use, environmental protection, hazardous waste, sanitary and safety
laws, rules and regulations, including but not limited to Chapter 21E: will
not permit or commit waste on the Leased Premises or any nuisance thereon:
and will not use or occupy the Leased Premises in any manner which makes
cancelable any insurance then in force.
D. The Lessee shall at its sole cost, maintain and repair the Leased
Premises in accordance with Article 11 of this Lease and keep the same in
good and serviceable condition and in
-8-
<PAGE>
at least as good condition and repair (reasonable wear and tear and
casualty loss excepted) as it was on the date this Lease was actually
executed or date of occupancy, whichever occurs later, with respect to each
portion of the Leased Premises. It is the understanding of the parties that
it is the Lessor's responsibility to maintain the exterior of the Leased
Premises, the roof, the plumbing, air conditioning in the office areas and
heating systems, the sprinkler system, and structural systems, as well as
the other items mentioned in Article 10 of this Lease.
G. The Lessee agrees that all personal property in the Leased Premises
shall be at the sole risk of the Lessee, unless any such damage is caused
by the negligence of the Lessor or by its failure to properly maintain
those portions of the premises for which it is responsible under the terms
of this Lease.
H. The Lessee shall save the Lessor harmless and indemnified from all
injury, loss, claims or damage to any person or property: (1) While on the
Leased Premises unless caused by the act or negligence of the Lessor or
anyone whom the Lessor is legally responsible for, and (2) occasioned by
any omission, neglect or default of the Lessee or anyone for whom the
Lessee is responsible: including all costs, counsel fees, expenses and
liabilities reasonably incurred by the Lessor in connection with defending
any claim, action or proceeding related to the foregoing.
E. The Lessee shall comply with the rules and regulations attached
hereto and all other reasonable rules and regulations hereafter made by
Lessor (but only after copies
-9-
<PAGE>
thereof have been delivered to Lessee) and mutually agreed upon for the
care and use of the building and lot and their facilities and approaches,
it being expressly understood, however, that Lessor shall not be liable to
Lessee for the failure of other tenants of the building to conform to such
rules and regulations.
16. Fire Casualty Eminent Domain. Should a substantial portion of the
Leased Premises or of the property of which the Leased Premises are a part be
substantially damaged by fire or other casualty or be taken by eminent domain,
the Lessor may elect to terminate this Lease. When such fire, casualty or taking
renders the Leased Premises substantially unsuitable for their intended use, a
just and proportionate abatement of rent shall be made and the Lessee may elect
to terminate this Lease if:
(a) The Lessor fails to give written notice within
thirty (30) days of intention to restore the
Leased Premises; or
(b) The Lessor fails to restore the Leased Premises to a
condition substantially suitable for their intended
use within one hundred twenty (120) days of said
fire, casualty, or taking.
The Lessor reserves and the Lessee grants to the Lessor all rights which
the Lessee may have for damage or injury to the Leased Premises for any taking
by eminent domain, except for damage to the Lessee's personal property,
equipment or fixtures.
17. Assignment and Subletting. The Lessee shall not assign this Lease or
any interest therein in whole or in part, nor
-10-
<PAGE>
sublet all or any part of the Leased Premises, without the express written
consent of the Lessor, which consent shall not be unreasonably withheld or
delayed. In the event of any assignment or sublease, the Lessee shall notify the
Lessor in writing and provide the Lessor with signed copies of any documents
relative thereto.
18. Subordination. The Lessee hereby covenants and agrees that the within
Lease is and/or shall be subject to and subordinate to any mortgage or mortgages
securing notes executed by Lessor, which may now or hereafter affect the Leased
Premises, and to advances made thereunder and to the interest thereon and to all
renewals, modifications, consolidations, replacements and extensions thereof;
and the said Lessee hereby covenants and agrees to execute the necessary
instrument or instruments permitting said Lease to be subject to and subordinate
to the rights of any present or future mortgages, which now or hereafter affect
said Leased Premises, so that said rights of any present or future mortgages may
hereby be secured and be prior in lien to said Lease. The Lessee hereby
constitutes and appoints the Lessor, the Lessee's attorney-in-fact, to execute
any said instrument or instruments for and on behalf of the Lessee. However, the
foregoing is on the condition that so long as the Lessee is not in default in
the payment of rent or any other of the terms and conditions of this Lease, the
rights of the Lessee under said Lease shall not be terminated and the possession
of said Lessee shall not be disturbed by any mortgages or anyone who has
acquired any rights under any such mortgage and that any sale
-11-
<PAGE>
or foreclosure shall be subject to such Lease. Lessor shall obtain from any
mortgagee of the premises a non-disturbance agreement reasonably satisfactory to
Lessee protecting Lessee in accordance with the preceding sentence.
19. Defaults and Remedies.
a. Defaults. The Lessee shall be held in default under this Lease if
any of the following events shall occur:
(1) The Lessee shall fail to make any payment of the basic rent,
or additional rent provided for hereunder when due and said
payment continues to remain unpaid fifteen (15) days after
written notice thereof is given to Lessee by Lessor.
(2) The Lessee shall fail to observe or perform any other of its
covenants or obligation under this Lease and no action shall be
taken to remedy such failure within thirty (30) days after
written notice thereof is given to Lessee by the Lessor.
(3) The Lessee's interest in this Lease shall be taken on
execution or other process of law in any action against the
Lessee.
b. Remedies. In the event of a default hereunder which has not been
cured by Lessor within the permitted time period, the Lessor may,
to the extent legally permitted, in addition to its other
remedies under law or equity, exercise any or all of the
following remedies:
-12-
<PAGE>
(2) Entry. The Lessor may, after the expiration of the ten (10)
day period referred to in Paragraph 21 (b)(l) immediately or
thereafter and without demand or further notice make entry and
repossess the premises, and thereupon this Lease shall terminate.
c. Obligations After Default. If the Lessor shall terminate this
Lease as provided in Paragraph 21 (b)(2) above, the Lessee shall
be liable for basic rent, adjustments and additional rent for the
balance of the original term of this Lease as if such termination
had not occurred. The Lessor shall take reasonable action to
reduce or mitigate the Lessee's obligations under this Lease. The
proceeds of any reletting or subletting of the Leased Premises
after entry shall be credited against the Lessee's obligations
hereunder.
d. Costs. In the event of Lessee~s default, the Lessor shall be
entitled to recover reasonable costs and attorney's fees in
connection with any action taken in enforcing the Lessee~s
obligations under this Lease.
e. Non-Waiver. No waiver by the Lessor of any violation or default
in performance by the Lessee shall constitute or be construed as
a waiver of any other violation or default in performance, nor
shall lapse of time after violation or default in
-13-
<PAGE>
performance by the Lessee, Lessee having failed to cure, before
the Lessor shall exercise its option under this paragraph,
operate to defeat the right of the Lessor to declare this Lease
null and void and to re-enter upon the Leased Premises after the
said violation for default in performance.
20. Insolvency. It is further agreed that if at any time during the term of
this Lease, the Lessee shall make any assignment for the benefit of creditors or
be decreed insolvent or bankrupt according to law, or if a Receiver shall be
appointed for the Lessee, than the Lessor may, at its option, terminate this
Lease, exercise of such option to be evidenced by notice to that effect served
upon the Assignee, Receiver, Trustee or other person in charge of the
liquidation of the property of the Lessee or the Lessee's estate, but such
termination shall not release or discharge any payment of rent payable hereunder
and then accrued, or any liability then accrued by reason of any agreement or
covenant herein contained on the part of the Lessee or the Lessee's legal
representatives.
21. Holding Over. In the event that the Lessee shall remain in the Leased
Premises after the expiration of the term of this Lease and without having
executed a new written Lease or executing its right to renew with the Lessor,
such holding over shall not constitute a renewal or extension of this Lease. The
Lessor may, at its option, elect to treat the Lessee as one who has not removed
at the end of its term, and thereupon be entitled to all the remedies against
the Lessee provided by law in that
-14-
<PAGE>
situation, or the Lessor may elect, at its option, to construe such holding over
as a tenancy from month to month, subject to all the terms, provisions, and
conditions of this Lease insofar as same are applicable to a month to month
tenancy.
22. Indemnification and Liability. The Lessee shall hold and save the
Lessor harmless from all loss and damage occasioned by the use or escapade of
water by the bursting or breaking or leaking of pipes in areas within the Leased
Premises and caused by Lessee's negligence or violation of any covenant of this
Lease, as well as from any claim or damage resulting from any neglect in not
removing snow and ice as required herein or by any nuisance made or suffered
upon the Leased Premises by Lessee, its agents or employees or upon the property
of which said Leased Premises are a part unless such loss is caused by the
neglect of the Lessor.
23. Lessor's Access. The Lessor or agents of the Lessor may, at reasonable
times, and upon reasonable notice, enter to view the Leased Premises and may
remove placards and signs not approved or affixed as herein provided, and make
repairs and alterations as Lessor should elect to do provided such action does
not interfere with the Lessee's business, except in emergency situations. Lessor
may show the Leased Premises to others, and at any time within three (3) months
before the expiration of the term, may affix to any suitable part of the Leased
Premises a notice for letting or selling the Leased Premises or property of
which the Leased Premises are a part and keep the same so affixed without
hindrance or molestation.
-15-
<PAGE>
24. Relationship of Parties. It is understood and agreed that the
relationship of the parties hereto is strictly that of landlord and tenant and
that the Lessor has no ownership of the Lessee's enterprise and that this Lease
shall not be construed as a joint venture or partnership, the Lessee is not and
shall not be deemed to be agent or representative of the Lessor.
25. Notice of Lease. The Lessee agrees that it will not record this Lease.
However, both parties shall, upon the request of either, execute and deliver a
Notice of Lease in such form as may be required by statute for recordation
purposes.
26. Notice. Any and all notices and communication by either party to the
other required by this Lease or any extension or extensions thereof shall be in
writing and shall be deemed to be duly given if mailed by Registered or
Certified Mail, return receipt requested, postage prepaid, addressed to either
party for the other party as follows:
For tee Lessor: Acorn Leasing Co Inc.
145 Broadway Road
Dracut, MA 01826
For the Lessee: Presstek, Inc.
8 Commercial Street
Hudson, N.H. 03059
or to such other address as either party may, from time to time, designate by
written notice given to the other by Registered or Certified Mail, postage
prepaid, return receipt requested, at least ten (10) days before the effective
date of any such change of address.
-16-
<PAGE>
27. Miscellaneous Provisions.
a. Right of First Refusal to Purchase. Lessee shall have the right
of first refusal to purchase the building of which the Leased
Premises is a part on the same terms and conditions as offered to
Lessor in writing by any third party. Lessor shall notify Lessee
in writing of such offer and shall submit an agreement to Lessee
embodying the terms and conditions upon which a bona fide third
party has agreed to purchase the property (the "Purchase
Agreement"). Within thirty (30) days after the receipt of such
notice and Purchase Agreement, Lessee shall, if it desires to
purchase the said building, deliver to Lessor the signed Purchase
Agreement. Should Lessee exercise the right of first refusal, a
closing shall occur within sixty (60) days of delivery of the
signed Purchase Agreement to Lessor unless the transaction with
the third party would have closed later in which case the Lessee
may have until such later date.
aa. Right of First Refusal to Lease. (1) Lessee shall have the right
at any time and upon sixty (120) days notice to Lessor, to lease
the remainder of the building of which the Leased Premises is a
part upon the same terms and conditions set forth in this Lease.
The rent shall be set at a rate equal to the rate per
-17-
<PAGE>
square foot that Lessee is leasing the Leased Premises for in
accordance with paragraphs 3 and 4 above at the time the
additional premises are occupied. Lessee and Lessor shall enter
into an amendment to this Lease to effectuate the lease of the
additional premises (the "Amendment"). (2) Lessee shall also have
the right of first refusal to lease the remainder of the building
of which the Leased Premises is a part on the same terms and
conditions as offered to Lessor in writing by any third party or
on the same terms and conditions and rent as described in the
preceding paragraph 27 aa(1) as chosen by Lessee. Lessor shall
notify Lessee in writing of any such offer and shall submit a
lease to Lessee embodying the terms and conditions upon which a
bona fide third party has agreed to lease the remainder of the
property (the "Additional Lease"). Within thirty (30) days after
the receipt of such notice and Additional Lease, Lessee shall, if
it desires to lease the additional premises, deliver to Lessor
the signed Additional Lease or the Amendment.
aaa. Parties. Except as otherwise provided, the terms, and provisions
of this Lease shall be binding upon and inure to the benefit of
the successors and
-18-
<PAGE>
assigns, respectively, of the Lessor and the Lessee.
b. Severability. In the event that any provision of this Lease shall
be invalid in any circumstances, such invalidity shall not effect
any other provisions or circumstances.
c. Counterparts. This Lease may be executed in any number of
counterparts, each of which shall be deemed to be an original;
but such counterparts together shall constitute but one and the
same instrument.
d. Governing Law. This Lease shall be governed by the State of New
Hampshire.
e. Landlord/Lessor's Consent. Wherever in this Lease the consent or
approval of the Lessor shall be required, such approval or
Consent shall not be unreasonably withheld or delayed.
IN WITNESS WHEREOF, the said parties have caused their corporate seals to
be hereto affixed and these presents to be signed, acknowledged and delivered in
their names and behalf this 13th day of May, 1996.
LESSOR:
/s/ Suzanne T. Toupe 5-13-96
-------------------------------
Acorn Leasing Co. Inc.
LESSEE:
/s/ RA Williams 5-17-96
--------------------------------
Presstek Inc.
-19-
<PAGE>
RULES AND REGULATIONS
1. The public sidewalks, entrances, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by Tenant or used for any purpose other than ingress and egress to and from the
demised premises.
2. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by Tenant on any part of the demised premises or
Building so as to be visible from outside the demised premises without the prior
written consent of the landlord. In the event of the violation of this
paragraph, Landlord may remove same without any liability, and may charge the
expense incurred in such removal to Tenant, as additional rent.
3. No awnings, curtains, blinds, shades, screens or other projections shall
be attached to or hung in, or used in connection with, any window of the
Premises or any outside wall of the Building without the prior written consent
of Landlord. Such awnings, curtains, blinds, shades, screens or other
projections must be of a quality, type, design and color, and attached in the
manner, approved by Landlord.
4. The water and wash closets and other plumbing fixtures shall not be used
for any purpose other than those for which they were designed and constructed,
and no sweepings, rubbish, rags, acids or like substances shall be deposited
therein. All damage resulting from any misuse of said fixtures by Tenant or
anyone claiming under Tenant shall be borne by Tenant.
-20-
<PAGE>
5. Tenant must, upon the termination of its tenancy, return to Landlord all
locks, cylinders and keys to the demised premises and any offices therein.
6. Tenant shall be responsible for locking any doorway between the demised
premises and the remainder of the Building during such of the aforesaid times as
Landlord shall determine so to exclude persons from the remainder of the
Building; and if Tenant shall fail to do so, Tenant shall be liable to Landlord
for all wrongful acts of such persons who may gain access to the remainder of
the Building through any such door.
9. Canvassing, soliciting, and peddling in the Building are prohibited and
Tenant shall cooperate to prevent the same.
10. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by Tenant, nor shall any changes be made in existing locks
or the mechanism thereof without the prior consent of Landlord.
11. Landlord reserves the right to rescind, alter, waive and/or establish
any rules and regulations, which, in its judgment, are necessary, desirable or
proper for its best interests and the best interests of the occupants of the
Building, which will not interfere with the intended use of the demised premises
by the Tenant.
12. Landlord reserves the right at any time from time to time to change the
name and/or address of the Building.
-21-
<PAGE>
EXHIBIT "A"
PLAN
18-20 HAMPSHIRE DRIVE
HUDSON, N.H.
ACORN LEASING CO INC. PRESSTEK INC.
PRESSTEK INC. PRESSTEK INC.
-22-
Amendment To Employment Agreement
AMENDMENT dated as of February 10, 1997, to Employment Agreement dated as
of August 23, 1988, as amended, by and between Presstek, Inc., a Delaware
corporation (the "Company" or "Employer") and Richard A. Williams (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Executive is currently the Company's Vice
Chairman, Chief Executive Officer, and Secretary; and
WHEREAS, the Company and Executive entered into an Employment Agreement
dated as of February 23, 1988 (the "Agreement") which Agreement, as amended,
provided for the employment by the Company of the Executive until March 31,
1997; and
WHEREAS, the Company wishes to formally extend the term of the Executive's
employment with the Company pursuant to the Agreement for a period expiring in
March 1998; and
WHEREAS, the Company and Executive desire to amend the terms of the amended
Agreement as provided herein;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and other good and valuable consideration, the
sufficiency of which is hereby acknowledged, the Company and Executive hereby
agree as follows:
1) Section 2. (a) of the Agreement is hereby amended to provide that
Employer shall pay to Executive an annual salary of $175,000, payable in monthly
installments or more frequent pay periods as may be determined by the Employer.
Said salary shall be subject to periodic review by and possible upward
adjustment in the sole discretion of the Board of Directors of the Employer.
2) Section 8 (d) of the Agreement is hereby amended to provide that the
Employer agrees to employ the Executive as an executive officer for a period
expiring on March 31, 1998.
<PAGE>
3) Except as specifically set forth above, all of the other provisions of
the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this amendment as of
the date first written above.
PRESSTEK, INC.
By: s/ Robert E. Verrando
--------------------------
Robert E. Verrando
President and COO
s/ Richard A. Williams
--------------------------
Richard A. Williams
Memorandum of Understanding No. 5
Minutes of the Presstek-Heidelberg
Meeting on March 6, 1996 in Heidelberg
Presstek and Heidelberg agreed on the following subjects:
1) Heidelberg's kit orders to Presstek according to the current "Rolling
Forecast" shall be firm and binding until December 31, 1997 in order to help
Presstek renegotiating prices with its suppliers.
2) The future kit price shall be as follows:
-from April 1, 1997 [ * ]
-from September 1, 1997 [ * ]
-from March 1, 1998 [ * ]
-from September 1, 1998 [ * ]
3) The royalties on the kits already shipped by Presstek to Heidelberg are owed
and payment by Heidelberg will be made in three equal instalments on March 25,
April 25 and May 25, 1997.
4) From April 1, 1997 Presstek and Heidelberg agree on a fixed royalty in the
amount of [ * ] per kit. If Heidelberg's exclusive rights according to the
current Agreements are terminated, the aforementioned amount will be
renegotiated by the parties.
5) Heidelberg will pay the kit price as set forth in no. 2 and the fixed royalty
as set forth in no. 4 (e.g. from April 1, 1997 [ * ]) in total within 45 days
from the date of Presstek's invoice or from the date of shipment to Heidelberg,
whichever is later. Presstek's invoice shall separately indicate said kit price
and fixed royalty.
6. Heidelberg shall give Presstek its approval for future engineering changes
which affect form, fit or function of the Quickmaster DI within a target period
of 30 days after having received the solution (software/hardware) to the
engineering change from Presstek. If necessary, e.g. in case of a mechanical
redesign by Heidelberg, the parties will agree on an adequate extension of this
target period.
7) All other current Agreements between Presstek and Heidelberg shall not be
affected and remain [ * ].
Heidelberg, March 7, 1997
s/ Marcel Kiessling s/ Dietmar Kurz s/ Robert Howard s/ Richard A. Williams
- ----------------------------------- ---------------------------------------
Marcel Kiessling Dietmar Kurz Robert Howard Richard A. Williams
Heidelberger Druckmaschinen Presstek, Inc.
Aktiengesellschaft
* The portions of this document marked with an asterisk have been omitted and
confidential treatment of such omitted portions has been requested pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934.
CITIZENS BANK NEW HAMPSHIRE
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement"), is made as of the 18th day of
December, 1996, by and between PRESSTEK, INC., a Delaware corporation with a
principal place of business at 8 Commercial Street, Hudson, New Hampshire 03051
(the "BORROWER"), and CITIZENS BANK NEW HAMPSHIRE, a guaranty savings bank
organized under the laws of the State of New Hampshire with an address of 875
Elm Street, Manchester, New Hampshire 03101 (the "BANK").
RECITALS:
The BORROWER has requested and the BANK has agreed to provide certain
credit facilities to the BORROWER consisting of a revolving line of credit loan
in the maximum principal amount of up to Ten Million Dollars ($10,000,000.00)
(the "Loan" or "Revolving Line of Credit Loan"), all upon the terms and
conditions set forth in this Agreement and the Loan Documents (as defined
hereinbelow). The Loan is, together with all other debts, liabilities and
obligations of BORROWER to the BANK, direct or indirect, absolute or contingent,
now existing or hereafter arising, hereinafter sometimes collectively referred
to as the "Obligations". The Loan is and shall be evidenced by a promissory note
of even date (the "Note" or the "Revolving Line of Credit Note"), the Loan and
all of the other Obligations are guaranteed by Catalina Coatings, Inc. (the
"Guarantor") pursuant to a Guaranty Agreement of even date (the "Guaranty"), and
secured pursuant to two (2) Security Agreements of even date by and between the
BANK and the BORROWER, and the BANK and the Guarantor (collectively, the
"Security Agreement") and the other Loan Documents. In connection with the Loan,
the BORROWER has and may hereafter execute certain other documents, certificates
and agreements, all of which are, together with this Agreement, the Note, the
Guaranty, and the Security Agreement and as all of the same may be hereafter
amended, modified, revised, renewed, or extended, sometimes collectively
referred to herein as the "Loan Documents". The Loan shall be made upon and
subject to the terms and conditions set forth in the Note, the Security
Agreement, the other Loan Documents, and this Agreement. The terms, conditions,
representations, warranties, and covenants set forth in this Agreement are in
addition to, and not in limitation of, the terms, conditions, representations,
warranties, and covenants set forth in the other Loan Documents. In the event of
any conflict between the terms, conditions, representations, warranties, and
covenants contained in the Loan Documents, the term, condition, representation,
warranty, or covenant which confers the greatest benefit upon the BANK shall
control. The determination as to which term, condition, representation,
warranty, or covenant is more beneficial shall be made by the BANK in its sole
discretion and shall be binding upon the BORROWER.
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Citizens Bank NH/Presstek, Inc. Loan Agreement
NOW, THEREFORE, in consideration of the BANK extending the Loan to the
BORROWER as described hereinbelow, the BANK and the BORROWER hereby agree as
follows:
I. REVOLVING LINE OF CREDIT. The BANK shall make available to the BORROWER the
Revolving Line of Credit Loan in the maximum principal amount of up to Ten
Million Dollars ($10,000,000.00), as evidenced by the Revolving Line of Credit
Promissory Note made by the BORROWER payable to the order of the BANK in the
maximum principal amount of up to Ten Million Dollars ($10,000,000.00) of even
date herewith. The Revolving Line of Credit Loan shall be upon and subject to
the terms and conditions set forth in the Revolving Line of Credit Note, the
other Loan Documents, and this Agreement.
A. Maximum Available Amount. The aggregate maximum amount available to the
BORROWER from time to time under the Revolving Line of Credit Loan shall be up
to Ten Million Dollars ($10,000,000.00).
B. Advances. The Revolving Line of Credit Loan shall be disbursed, advanced,
readvanced, and repaid as provided in the Revolving Line of Credit Note and this
Agreement. BORROWER may request advances in a minimum amount of Two Hundred
Fifty Thousand Dollars ($250,000.00) (each such separate advance being
hereinafter referred to as an "Advance" and all such advances being collectively
referred to as the "Advances") , in writing from time to time in accordance with
the provisions of this Agreement and such other procedures as the BANK may from
time to time specify in an amount such that (i) the aggregate amounts of all
Advances outstanding under the Revolving Line of Credit Loan do not exceed the
maximum available amount as set forth in Section I. A. above, and (ii) there
shall not be more than six (6) separate Advances (including automatic rollover
Advances) outstanding under the Revolving Line of Credit Loan at any one time.
The BANK shall be under no obligation to make any Advance (automatic or
otherwise) at any time or times during which an Event of Default has occurred or
is existing under this Agreement or the Loan Documents, or if any condition
exists which, if not cured, would with the passage of time or the giving of
notice, or both, constitute such an Event of Default. At the time of each
Advance and readvance under the Revolving Line of Credit Loan, BORROWER shall
immediately become indebted to the BANK for the amount thereof. Each such
Advance or readvance may be credited by the BANK to any deposit account of
BORROWER with the BANK, be paid to BORROWER, or applied to any Obligation, as
the BANK may in each instance elect. BORROWER authorizes the BANK to charge any
account which BORROWER maintains with the BANK for any payments which BORROWER
may or must make, or customarily makes, to the BANK from time to time.
C. Review and Repayment. The Revolving Line of Credit Loan shall be subject to
review and, at the sole option and discretion of the BANK, renewal on July 31,
1997, and, if renewed, thereafter on each subsequent anniversary of such date
(July 31, 1997, and each anniversary thereof to which the Revolving Line of
Credit Loan is renewed, being a "Review Date"). IF THE REVOLVING LINE OF CREDIT
LOAN IS NOT RENEWED BY THE
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Citizens Bank NH/Presstek, Inc. Loan Agreement
BANK AS AFORESAID ON ANY REVIEW DATE, THE ENTIRE AMOUNT OF OUTSTANDING
PRINCIPAL, ACCRUED INTEREST AND OTHER CHARGES PAYABLE THEREUNDER SHALL BE DUE
AND PAYABLE BY BORROWER ON SUCH REVIEW DATE. BORROWER ACKNOWLEDGES AND AGREES
THAT THE BANK HAS NO OBLIGATION OR COMMITMENT TO RENEW THE REVOLVING LINE OF
CREDIT LOAN ON ANY REVIEW DATE. NOTWITHSTANDING THE FOREGOING, OR ANY PROVISION
OF THE REVOLVING LINE OF CREDIT NOTE, ANY OF LOAN DOCUMENTS OR HEREIN TO THE
CONTRARY, THE REVOLVING LINE OF CREDIT LOAN IS AND SHALL BE PAYABLE UPON DEMAND
BY THE BANK UPON THE OCCURRENCE OF AN EVENT OF DEFAULT.
D. Interest Rate. The principal balance of each Advance outstanding from time to
time under the Revolving Line of Credit Loan shall, unless BORROWER has
otherwise elected the Prime Rate as provided herein below, bear interest during
the Advance Term (as hereinafter defined) therefor at a fixed rate equal to the
LIBOR Rate (as hereinafter defined) plus one and three-quarters percent (1.75%)
per annum. As used herein, for each Advance the term "LIBOR Rate" shall mean the
rate as determined by the BANK on the basis of the offered rates for deposits in
U.S. dollars for a thirty (30) day period which appear on the Telerate page 3750
or Reuter's LIBOR page as of 11:00 a.m. London time on the date that is two (2)
Banking Days preceding the first day of the Advance Term for such Advance. If
such rate does not appear on the Telerate page 3750 or Reuter's LIBOR page, the
rate for that date will be determined on the basis of the offered rates for
deposits in U.S. dollars for a thirty (30) day period which are offered by four
major banks in the London interbank market at approximately 11:00 a.m. London
time on the date that is two (2) Banking Days preceding the first day of the
Advance Term for such Advance. The principal London office of each of the four
major BANKS in the London interbank market will be requested to provide a
quotation of its U.S. dollar deposit offered rate. If at least two such
quotations are provided, the rate for that date will be the arithmetic mean of
all such quotations. If fewer than two quotations are provided as requested, the
rate for that date will be determined on the basis of the rates quoted for loans
in U.S. dollars to leading European BANKS for a thirty (30) day period offered
by major BANKS in New York City at approximately 11:00 a.m., New York City time,
on the date that is two (2) Banking Days preceding the first day of the Advance
Term for such Advance. In the event that the Board of Governors of the Federal
Reserve System shall impose a Reserve Percentage on the BANK with respect to
LIBOR deposits of the BANK, then for any period during which such Reserve
Percentage shall apply, the LIBOR Rate shall be equal to the amount determined
above divided by an amount equal to 1 minus the Reserve Percentage actually
maintained by the BANK. In the event of any such imposition of a Reserve
Percentage, the BORROWER may elect by written notice to the BANK to have the
entire principal amount of all outstanding Advances bear interest at the Prime
Rate (as hereinafter defined). For purposes hereof, "Reserve Percentage" means
the rate (expressed as a decimal) at which the BANK is required to maintain
reserves under Regulation D of the Board of Governors of the Federal Reserve
System against Eurodollar liabilities outstanding. Interest shall be calculated
and charged daily on the basis of actual days elapsed over a three hundred sixty
(360) day banking year. The "Advance Term" for each Advance shall be a thirty
(30) day period beginning on the
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Citizens Bank NH/Presstek, Inc. Loan Agreement
Banking Day elected by the BORROWER for such Advance to be made. BORROWER shall
notify BANK in writing at least two (2) Banking Days in advance of the date upon
which the BORROWER desires the Advance to be made. BORROWER's notice to BANK as
aforesaid shall specify the amount requested to be advanced under the Revolving
Line of Credit Loan and the date such Advance is to be made (which must be a
Banking Day). The entire principal amount of each outstanding Advance shall
either be repaid in full as of the end of the Advance Term therefor or, if not
repaid in full, shall automatically (and without requirement of written
notification by BORROWER) be deemed a new Advance as to which (i) the Advance
Term shall commence as of the next day after last day of the Advance Term then
ending and (ii) the interest rate therefor shall be equal to a fixed rate equal
to the LIBOR Rate as of two (2) Banking Days preceding the first day of such new
Advance Term plus one and three-quarters percent (1.75%) per annum. As used
herein, the term "Prime Rate" shall mean the rate published by The Wall Street
Journal from time to time under the category "Prime Rate: The Base Rate of
Corporate Loans posted by at least 75% of the Nation's 30 Largest Banks" (the
lowest of the rates so published if more than one rate is published under this
category at any given time) or such other comparable index rate selected by the
BANK in its sole discretion if The Wall Street Journal ceases to publish such
rate. The BORROWER acknowledges that the Prime Rate is used for reference
purposes only as an index and is not necessarily the lowest interest rate
charged by the BANK on commercial loans. Each time the Prime Rate changes the
interest rate under the Revolving Line of Credit Loan shall change
contemporaneously with such change in the Prime Rate. Interest shall be
calculated and charged daily on the basis of actual days elapsed over a three
hundred sixty (360) day banking year.
E. Change in Circumstances; Prepayments. Notwithstanding the foregoing, if as a
result of any change in any foreign or United States law or regulation (or
change in the interpretation thereof) it is determined by BANK that it is
unlawful to maintain an Advance, or if any central BANK or governmental
authority (foreign or domestic) shall assert that it is unlawful to maintain a
Advance, then such Advance shall terminate and, if not then repaid in full,
shall bear interest at the Prime Rate. If for any reason an Advance is
terminated or prepaid prior to the end of an Advance Term, the BORROWER shall,
upon demand by BANK, pay to BANK any amounts required to compensate BANK for any
losses, costs, or expenses which it may reasonably incur as a result of such
termination or prepayment, including, without limitation, any losses, costs, or
expenses incurred by reason of the liquidation or redeployment of deposits or
other funds acquired by the BANK to fund or maintain such Advance. For purposes
hereof, a "Banking Day" means a day upon which banks are open for business to
the general public in New Hampshire, and upon which dealings are carried on and
banks are open for business in the London interbank market.
F. Purposes. Amounts advanced to BORROWER under the Revolving Line of Credit
Loan shall be used solely for BORROWER's ordinary working capital requirements
and general corporate purposes.
4
<PAGE>
Citizens Bank NH/Presstek, Inc. Loan Agreement
II. FEES. In addition to such other fees as are provided in this Agreement and
in the other Loan Documents, BORROWER agrees to pay the BANK the fees set forth
on Schedule II attached hereto.
III. PAYMENTS. All payments made by the BORROWER of principal and interest on
the Loan, and other sums and charges payable under the Loan Documents, shall be
made to the BANK in accordance with the terms of the respective Loan Documents
in lawful United States of America currency at its office set forth above, or by
the debiting by the BANK of the demand deposit account(s) in the name of the
BORROWER at the BANK, or in such other reasonable manner as may be designated by
the BANK in writing to the BORROWER.
IV. SECURITY. The Loan and all other Obligations of the BORROWER to the BANK,
whether now existing or hereafter arising, shall at all times be guaranteed by
the Guarantor pursuant to the Guaranty and be secured by perfected first
security interests in and liens on the Collateral (as hereinafter defined),
which security interests and liens shall continue until payment in full of all
amounts outstanding under the Loan and the other Obligations. The term
"Collateral" as used herein shall be deemed to include all property and assets
of the BORROWER and the Guarantor secured, mortgaged, pledged, assigned, or
otherwise encumbered or covered by any of the Loan Documents, including, but not
limited to the Security Agreement. The BORROWER covenants and agrees to take
such further actions and to execute such additional documents as may be
necessary from time to time to enable the BANK to obtain and maintain the
security interests and liens arising under the Loan Documents. If the Collateral
includes accounts and account receivables of BORROWER, then, in addition to such
other rights and remedies as are provided the BANK under the Loan Documents, the
BORROWER agrees that BANK may communicate with account debtors in order to
verify the existence, amount, and terms of any such accounts and accounts
receivable. Upon an Event of Default, BANK may notify account debtors of the
BANK's security interest and require that payments on accounts and account
receivables be made directly to BANK, and, after an Event of Default, upon the
request of BANK, BORROWER shall notify account debtors and indicate on all
billings that payments and returns are to be made directly to BANK. In
furtherance of the foregoing, BORROWER hereby appoints BANK as attorney
irrevocable with full power to collect, compromise, endorse, sell, or otherwise
deal with the BORROWER's accounts and account receivables or proceeds thereof
and to perform the terms of any contract in order to create accounts and account
receivables in BANK's name or in the name of BORROWER.
V. SUBORDINATION AND STANDBY OF DEBT. The BORROWER covenants and agrees that all
existing debt of BORROWER to any officer, director, or shareholder of BORROWER,
and all future debt if permitted hereunder of BORROWER to any officer, director,
or shareholder of a BORROWER, shall be and hereby is, without need for further
writing, made subject and subordinate to the prior payment and performance of
all the Loan
5
<PAGE>
Citizens Bank NH/Presstek, Inc. Loan Agreement
and other Obligations of BORROWER. In furtherance of the foregoing, the BORROWER
shall provide such subordinations, certificates, and other documents, and shall
mark its corporate books, records, stock certificates, and ledgers, as the BANK
may reasonably request from time to time, in form and substance satisfactory to
BANK and BANK's counsel, evidencing the subordination of all debt of BORROWER to
any officer, director, or shareholder of a BORROWER, whether now existing or
hereafter arising, in accordance with the covenants of BORROWER hereunder.
VI. CONTINUING REPRESENTATIONS AND WARRANTIES. BORROWER warrants and represents
to the BANK that so long as any of the Obligations are outstanding:
A. Good Standing. BORROWER is duly organized, validly existing, and in good
standing under the laws of its state of organization and is qualified to do
business in all other jurisdictions where the nature of the business conducted
or property owned by BORROWER require it to be so qualified. BORROWER has the
power to own its properties and to carry on its business as now being conducted.
B. Authority. BORROWER has full power and authority to enter into this Agreement
and to borrow under the Loan Documents, to execute and deliver the Loan
Documents and to incur the obligations provided for herein and in the Loan
Documents, all of which have been duly authorized by all proper and necessary
corporate or other action. The persons executing the Loan Documents on behalf of
the BORROWER have been duly authorized to do so.
C. Binding Agreement. This Agreement and the Loan Documents constitute the valid
and legally binding obligations of the BORROWER, enforceable in accordance with
their terms.
D. Litigation. Except for the lawsuits disclosed on Schedule VI. D. attached
hereto (the "Current Lawsuits"), there are no suits or proceedings of any kind
or nature pending or, to the knowledge of the BORROWER, threatened against or
affecting the BORROWER or its assets which, if adversely determined, would have
a material adverse affect on the financial condition or business of the BORROWER
or the Guarantor and which have not been disclosed in writing to the BANK.
E. Conflicting Agreements; Consents. There is no charter, bylaw, preference
stock, or trust provision of the BORROWER, and no provision(s) of any existing
mortgage, indenture, contract or agreement binding on the BORROWER or affecting
its property, which would conflict with, have a material adverse affect upon, or
in any way prevent the execution, delivery, or performance of the terms of this
Agreement or the Loan Documents. BORROWER is not required to obtain any order,
consent, approval, authorization of any person, entity, or governmental
authority in connection with or as a condition to the execution, delivery, and
performance of this Agreement or the Loan Documents or the granting of the
security interests and liens in the Collateral. Notwithstanding the foregoing,
the BANK acknowledges that the BORROWER's collateral assignment to the BANK of,
and granting of security interests to BANK in, amounts now due and hereafter
becoming due
6
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Citizens Bank NH/Presstek, Inc. Loan Agreement
under various agreements and contracts to which BORROWER is a party may, in
certain circumstances, be contrary to or in violation of the express terms,
conditions, or limitations of such contracts and agreements. BANK agrees that
any such violations shall not be deemed a breach of the BORROWER's
representations under this Section VI. E. or of BORROWER's similar
representations or covenants elsewhere in this Agreement or any of the Loan
Documents. The foregoing shall in no manner limit the effect of the collateral
assignment under the Security Agreement by the BORROWER to the BANK of the
accounts arising under such contracts or agreements for the payment of money now
due or hereafter becoming due to the BORROWER thereunder, or of the security
interests of the BANK in such accounts, or of the BANK's rights with respect
thereto under the Security Agreement.
F. Financial Condition. The financial statements delivered to the BANK by the
BORROWER have been and shall be prepared in accordance with generally accepted
accounting principles, consistently applied, are and will be complete and
correct, and fairly present the financial condition and results of the BORROWER.
Other than those liabilities disclosed in writing to the BANK, including, but
not limited to, the Current Lawsuits, there are no liabilities, direct or
indirect, fixed or contingent, of the BORROWER which are not reflected in the
financial statements or in the notes thereto which would be required to be
disclosed therein and there has been no material adverse change in the financial
condition or operations of the BORROWER since the date of such financial
statements.
G. Taxes. BORROWER has filed all federal, state and local tax returns required
to be filed by them and have paid all taxes shown by such returns to be due and
payable on or before the due dates thereof.
H. Solvency. The present fair saleable value of the BORROWER's assets is greater
than the amount required to pay its total liabilities; the amount of the
BORROWER's capital is adequate in view of the type of business in which it is
engaged.
I. Full Disclosure. None of the information with respect to the BORROWER which
has been furnished to the BANK in connection with the transactions contemplated
hereby is false or misleading with respect to any material fact, or omits to
state any material fact necessary in order to make the statements therein not
misleading.
J. Employee Benefit Plans. To BORROWER's knowledge, all Plans (as hereinafter
defined) which are pension plans as defined in Section 3(2) of the Employment
Retirement Income Security Act of 1974, as amended ("ERISA"), qualify under
Section 401 of the Internal Revenue Code of 1986 (as amended, the "IRC"), and
all Plans are in compliance with the provisions of the IRC and ERISA, and have
been administered in accordance with their terms. The term "Plan" means any
pension plan, as defined in Section 3(2) of ERISA and any welfare plan, as
defined in Section 3(1) of ERISA, which is sponsored, maintained or contributed
to by BORROWER or any commonly controlled entity, or in respect of which
BORROWER or a commonly controlled entity is an "employer" as defined in Section
3(5) of ERISA. To BORROWER's knowledge, and except with respect to events which
would not have a material adverse affect on BORROWER's business or financial
condition:
7
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Citizens Bank NH/Presstek, Inc. Loan Agreement
(i) Prohibited Transactions. None of the Plans has participated in, engaged
in or been a party to any non-exempt "prohibited transaction" as defined in
ERISA or the IRC, and no officer, director or employee of BORROWER has committed
a breach of any of the responsibilities or obligations imposed upon fiduciaries
by Title I or ERISA.
(ii) Claims. There are no contested claims, pending or threatened,
involving any Plan which is a pension plan by a current or former employee (or
beneficiary thereof) of BORROWER, nor is there any reasonable basis to
anticipate any claims involving any such Plan.
(iii) Reporting and Disclosure Requirements. There have been no violations
of any reporting or disclosure requirements with respect to any Plan and no such
Plan has violated applicable law, including but not limited to ERISA and the
IRC.
(iv) "Accumulated Funding Deficiency"; Reportable Event. No Plan which is a
defined benefit pension plan has (a) incurred an "accumulated funding
deficiency" (within the meaning of Section 412(a) of the IRC), whether or not
waived, (b) been a plan with respect to which a Reportable Event (to the extent
that the reporting of such events to the Pension Benefit Guaranty Corporation
(the "PBGC") within thirty (30) days of the occurrence has not been waived) has
occurred and is continuing, or (c) been a Plan with respect to which there
exists conditions or events which have occurred presenting a risk of termination
by PBGC.
(v) Multiemployer Plan. No Plan which is a multiemployer pension plan (as
defined in Section 414(f) of the IRC) to which BORROWER contributes has been a
plan with respect to which BORROWER has received any notification that such
Multiemployer Plan is in reorganization or has been terminated within the
meaning of Title IV of ERISA and no such Multiemployer Plan is reasonably
expected to be in reorganization or to be terminated within the meaning of Title
IV of ERISA. BORROWER has not withdrawn from, or incurred any withdrawal
liability to, any multiemployer plan.
(vi) COBRA. There has been no violation of the applicable requirements of
Section 4980B of the IRC pertaining to COBRA continuation coverage with respect
to any Plan.
(vii) Employee Welfare Benefit Plans. No Plan which is a medical,
dental, health, disability, insurance or other plan or arrangement, whether oral
or written, which constitutes an "employee welfare benefit plan" as defined in
Section 3(1) of ERISA, has any unfunded accrued liability or provides benefits
to former employees or retirees (except as may be required by COBRA).
K. Location of Records. All of the books and records or true and complete copies
thereof relating to the accounts and contracts of the BORROWER are and will be
kept at BORROWER's principal place of business located at the address first set
forth above (the "Premises").
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Citizens Bank NH/Presstek, Inc. Loan Agreement
L. Compliance with Laws. The BORROWER is in compliance in all material respects
with all laws and governmental rules and regulations applicable to the
Collateral and to its business, properties and assets.
M. Hazardous Waste. No Hazardous Waste (as hereinafter defined) has been
generated, stored or treated on any of the premises occupied by BORROWER, except
in compliance with all applicable laws. No Hazardous Waste has ever been, is
being, is intended to be, or is threatened to be spilled, released, discharged,
disposed, placed or otherwise caused to be found in the soil or water in, under,
or upon any of the premises occupied by the BORROWER. The BORROWER agrees to
indemnify and hold the BANK harmless from and against any claims, damages,
liabilities (whether joint or several), losses and expenses (including, without
limitation, attorneys' fees) incurred by the BANK as a result of the breach of
these representations. For the purpose of this Agreement, the term "Hazardous
Waste" means "hazardous waste", "hazardous material", "hazardous substance", and
"oil" as presently defined in the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Hazardous Material Transportation Act, the Federal Water Pollution Control Act,
and corresponding state and local statutes, ordinances, and regulations, as such
statutes, ordinances and regulations may be amended, or as defined in any
federal or state regulation adopted pursuant to such acts.
N. Title to Collateral. BORROWER, or Guarantor, as the case may be, has and will
at all times have good and marketable title to the Collateral, free and clear
from any liens, security interests, mortgages, encumbrances, pledges or other
right, title or interest of any other person or entity, except those arising
under the Loan Documents or disclosed to the BANK in the Security Agreement
("Permitted Encumbrances").
O. Employees. BORROWER has complied with all laws relating to the employment of
labor, including any provisions thereof relating to ERISA, wages, hours,
collective bargaining, the payment of social security and similar taxes, equal
employment opportunity, employment discrimination and occupational safety and
health, and is not liable for any arrears of wages or any taxes or penalties for
failure to comply with any of the foregoing.
VII. AFFIRMATIVE COVENANTS. Until payment in full of all indebtedness under the
Loan and the other Obligations, BORROWER, agrees that, unless the BANK shall
otherwise consent in writing, it will:
A. Prompt Payment. Pay promptly, subject to any applicable cure or grace period,
when due all amounts due and owing to the BANK.
B. Use of Proceeds. Use the proceeds of the Loan only for business purposes and
will furnish the BANK with such evidence as it may reasonably require with
respect to such use.
C. Financial Statements. Furnish the BANK with the following financial
statements of BORROWER:
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Citizens Bank NH/Presstek, Inc. Loan Agreement
1. United States Securities and Exchange Commission Annual Report on Form 10K of
BORROWER within one hundred twenty (120) days after the end of each fiscal year;
and
2. United States Securities and Exchange Commission Form 10-Q of BORROWER within
forty-five (45) days after the end of each of BORROWER's first three (3) fiscal
quarters of each fiscal year;
3. Financial statements of BORROWER, including a balance sheet and statement of
income, as prepared by management in accordance with generally accepted
accounting principles, within ninety (90) days of the end of the fourth fiscal
quarter of each fiscal year; and
4. United States Securities and Exchange Commission Form 8-K of BORROWER within
five (5) days of filing thereof.
All such statements shall be prepared on a consistent basis in a format
reasonably acceptable to the BANK.
D. Maintenance of Existence. Take all necessary action to maintain BORROWER's
legal existence.
E. Maintenance of Business. Do or cause to be done all things necessary to
maintain and preserve BORROWER's business.
F. Maintenance of Insurance. Keep all of BORROWER's properties (specifically
including, but not limited to, the Collateral) adequately insured against loss
or damage by fire and such other casualties and hazards as the BANK may specify
from time to time; maintain adequate Workman's Compensation Insurance under
applicable laws, Comprehensive General Public Liability Insurance, directors'
and officers' liability insurance, and products liability insurance; and
maintain adequate insurance covering such other risks as the BANK may reasonably
specify from time to time hereafter. All insurance required hereunder shall be
effected by valid and enforceable policies issued by insurers of recognized
responsibility authorized to transact business within the state of New
Hampshire, and shall, inter alia, (1) name the BANK as a loss payee, (2) provide
that no action of the BORROWER shall void any such policy as to the BANK, and
(3) provide that the BANK shall be notified in writing of any proposed
cancellation of such policy at least thirty (30) days in advance thereof and
will have the opportunity to correct any deficiencies justifying such proposed
cancellation. For the purposes of this Paragraph, an insurance policy shall be
deemed to be "adequate" if it provides coverage against such risks and in such
amounts as is customarily carried by owners of similar businesses and
properties.
G. Inspection by the BANK. BORROWER agrees that the BANK may conduct regular
field examination audits of the BORROWER's books, records, accounts, inventory,
and other property up to two (2) times during each of BORROWER's fiscal years
and that BORROWER shall pay the BANK all reasonable fees, costs, and expenses
charged or incurred by BANK for such audits. BORROWER also agrees that upon
prior reasonable
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Citizens Bank NH/Presstek, Inc. Loan Agreement
notice (other than in emergencies when no notice shall be required) and during
normal business hours, it shall permit any person designated by the BANK to
inspect any of BORROWER's properties, including its books, records, and accounts
(and including the making of copies thereof and extracts therefrom) all at
BANK's cost and expense. After and during the continuance of an Event of
Default, BORROWER also agrees that the BANK may conduct field examination audits
of the BORROWER's books, records, accounts, inventory, and other property as
often as the BANK deems necessary and appropriate in its sole discretion and
that BORROWER shall pay the BANK all reasonable fees, costs, and expenses
charged or incurred by BANK for such audits without limitation as to amount. All
inspections and audits by BANK pursuant hereto shall be conducted in a manner
which to the greatest extent possible minimizes any interference with or
disruption of BORROWER's normal operations.
H. Prompt Payment of Taxes. Accrue its tax liability (including withholdings for
employee taxes and social security) in accordance with usual accounting practice
and pay or discharge (or cause to be paid or discharged) as they become due all
taxes, assessments, and government charges upon its property, operations, income
and products (as well as all claims for labor, materials or supplies), which, if
unpaid might become a lien upon any of its property; provided, that the BORROWER
shall, prior to payment thereof, have the right to contest such taxes,
assessments and charges in good faith by appropriate proceedings so long as the
BANK's interests are protected by bond, letter of credit, escrowed funds or
other appropriate security.
I. Notification of Default Under This and Other Loan or Financing Arrangements.
Promptly notify the BANK in writing of the occurrence of any Event of Default
under this Agreement or any other loan or financing arrangement to which the
BORROWER is a party.
J. Notification of Litigation. Promptly notify the BANK in writing of any
litigation that has been instituted or is pending or threatened which might have
a material adverse affect on its continued operations or financial condition.
K. Notification of Governmental Action. Promptly notify the BANK in writing of
any governmental investigation or proceeding that has been instituted or is
pending or threatened, including without limitation, matters relating to the
federal or state tax returns of the BORROWER or the guarantor, compliance with
the Occupational Safety and Health Act, or proceedings by the Treasury
Department, Labor Department, or Pension Benefit Guaranty Corporation with
respect to matters affecting employee welfare, benefit or retirement programs.
L. Preservation of the Collateral. Take all reasonably necessary steps to
preserve, protect and defend the Collateral and keep it in good operating
condition and repair (reasonable wear and tear excepted) and free of unpermitted
liens and give BANK access to and permit it to inspect the Collateral during all
business hours and other reasonable times.
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Citizens Bank NH/Presstek, Inc. Loan Agreement
M. Maintenance of Records. Keep adequate records and books of account, in which
complete entries will be made in a manner reasonably acceptable to the BANK and
consistently applied, reflecting all financial transactions of the BORROWER.
N. Compliance With Laws. Comply in all material respects with all applicable
laws, rules, regulations, and orders, such compliance to include, without
limitation, paying before the same become delinquent all taxes, assessments, and
governmental charges imposed upon it or upon its property; provided, however,
that BORROWER shall be entitled to contest the same in good faith so long as
such action, in the BANK's sole opinion, does not have an adverse affect upon
the BANK's rights hereunder or the Collateral.
0. Accounts, Deposits, and Balances. BORROWER shall maintain its primary
operating and deposit accounts with the BANK.
P. Notification of Material Adverse Changes. Promptly notify the BANK in writing
of any conditions or circumstances which might have a material adverse effect on
BORROWER's continued operations or financial condition.
Q. Additional Financial and Other Covenants. Comply with the following
additional financial and other covenants:
1. BORROWER shall have a Tangible Capital Base (as hereinafter defined) equal to
at least Forty- four Million Three Hundred Ninety Thousand Dollars
($44,390,000.00) as at December 31, 1996, which Tangible Capital Base
requirement shall be measured and increased (but never, in any event decreased)
on a cumulative basis as at each fiscal quarter end thereafter by an amount
equal to the sum of (a) seventy-five percent (75%) of BORROWER's net income for
each such fiscal quarter and (b) the amount of equity capital proceeds received
by BORROWER during such fiscal quarter as a result of the issuance of capital
stock. "Tangible Capital Base" means total shareholders' equity less intangible
assets less Subordinated Debt, all as determined in accordance with generally
accepted accounting principles from BORROWER'S financial statements delivered to
the BANK in accordance with the covenants of the BORROWER in the Loan Agreement
(the "Financial Statements"); and
2. BORROWER shall have "Debt Coverage" (as hereinafter defined) of not less than
3:1 for each fiscal quarter commencing March 31, 1997. For purposes hereof,
"Debt Coverage" shall mean the ratio of BORROWER's net income for the applicable
fiscal quarter ending on the date of determination, before reduction for
interest, depreciation, taxes, and amortization expense for such period, to the
aggregate amount of interest expense and current maturities on long term debt
payable by BORROWER during such fiscal quarter, all as determined in accordance
with generally accepted accounting principals from the Financial Statements; and
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Citizens Bank NH/Presstek, Inc. Loan Agreement
3. BORROWER shall maintain a ratio of Current Assets (as hereinafter defined) to
Current Liabilities (as hereinafter defined) as at December 31, 1996 and as at
the end of each fiscal quarter thereafter of not less than 1:1. For purposes
hereof, "Current Assets" shall mean the amount of cash, cash equivalents,
marketable securities, and accounts receivable as at the fiscal quarter ending
on the date of determination, all as determined in accordance with generally
accepted accounting principals from the Financial Statements. For purposes
hereof, "Current Liabilities" shall mean the amount of current liabilities as at
the fiscal quarter ending on the date of determination, all as determined in
accordance with generally accepted accounting principals from the Financial
Statements; and
4. BORROWER shall maintain a ratio of Total Liabilities (as hereinafter defined)
to Tangible Capital Base as at December 31, 1996 and as at the end of each
fiscal quarter thereafter of not greater than 0.5:1. For purposes hereof, "Total
Liabilities" shall mean the aggregate amount of all liabilities as at the fiscal
quarter ending on the date of determination, all as determined in accordance
with generally accepted accounting principals from the Financial Statements; and
5. BORROWER shall maintain Cash Equivalents (as hereinafter defined) of not less
than $2,000,000.00 at all times. For purposes hereof, "Cash Equivalents " shall
mean the aggregate amount of all cash, bank accounts, certificates of deposit,
and marketable securities (i.e. equity securities listed on the New York or
American stock exchanges or quoted on the National Association of Securities
Dealers Automated Quotation system (NASDAQ), state or municipal bonds, or United
States Treasury securities) as at the fiscal quarter ending on the date of
determination, all as determined in accordance with generally accepted
accounting principals from the Financial Statements; and
6. BORROWER shall report and certify to BANK compliance with the financial
covenants hereinabove within forty-five (45) days of the end of each of the
first three (3) fiscal quarters and within ninety (90) days of the fourth fiscal
quarter on such form or forms as may from time to time be specified by the BANK.
VIII. NEGATIVE COVENANTS. Until payment in full of all indebtedness under
the Loan and the other Obligations, BORROWER covenants that it will not, without
the express prior written consent of the BANK:
A. Nature and Scope of Business. Enter into any type of business other than that
in which it is presently engaged, or otherwise significantly change the scope or
nature of its business.
B. Liens and Mortgages. Incur, create, assume or suffer to exist any mortgage,
pledge, lien, attachment, charge or other encumbrance of any nature whatsoever
on any of the properties or assets of BORROWER, including, but not limited to,
the Collateral, now or hereafter owned, other than (1) the security interests or
liens granted to the BANK pursuant to the Loan Documents; (2) deposits under
Workmen's Compensation, Unemployment
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Citizens Bank NH/Presstek, Inc. Loan Agreement
Insurance and Social Security laws; (3) liens imposed by law, such as carriers,
warehousemen's or mechanic's liens incurred in good faith in the ordinary course
of business, and which do not in the aggregate have a material adverse effect on
the BORROWER's financial condition or the Collateral; (4) the Permitted
Encumbrances; (5) purchase money security interests; and (6) a mortgage of and
lien on the real property, improvements and fixtures constituting the new
facility to be located in Hudson, New Hampshire as referenced in Section XI.P.
below but only in the event that the BANK does not extend to the BORROWER a
mortgage loan on mutually agreeable terms pursuant to said Section X.I. P.
C. Acquisition of Stock. Purchase, redeem or otherwise acquire for value any of
its outstanding capital stock.
D. Loans. Loan money or make advances to officers to officers, stockholders, or
directors of BORROWER which loans in the aggregate exceed Two Hundred Fifty
Thousand Dollars ($250,000.00) or to subsidiaries or affiliates of BORROWER
which loans in the aggregate exceed Five Hundred Thousand Dollars ($500,000.00).
E. Places of Business; Location of Collateral. Maintain or relocate to, open
(other than BORROWER's currently planned additional facility in Hudson, New
Hampshire) or close, any other place of business or move any of the Collateral
from the Premises (other than to BORROWER's currently planned additional
facility in Hudson, New Hampshire), except upon thirty (30) days prior written
notice to the BANK.
IX. CONDITIONS PRECEDENT TO MAKING OF LOANS. The obligation of the BANK to make
any Loan and make disbursements and advances of the proceeds of the same to the
BORROWER is subject to the satisfaction by the BORROWER or its representatives
of the following conditions precedent with respect to such Loan: (1) BORROWER
and the Guarantor have executed and delivered all of the Loan Documents deemed
appropriate and necessary by the BANK, in form and substance satisfactory to the
BANK, including, but not limited to, the documents described on the Closing
Agenda attached hereto as Schedule IX; (2) the BORROWER's and Guarantor's
warranties and representations as contained herein and in the Loan Documents
shall be accurate and complete and BANK has received satisfactory evidence of
the same; (3) the BANK has received an opinion of BORROWER's and Guarantor's
legal counsel in form and substance satisfactory to the BANK and its legal
counsel; and (4) the BORROWER shall not be in default under any of the
covenants, warranties, representations, terms, or conditions contained in this
Agreement or in the Loan Documents as of the date of entering into such Loan and
as of the date of each disbursement and advance thereunder.
X. EVENTS OF DEFAULT; ACCELERATION. The occurrence of any one or more of the
following events shall constitute a default under this Agreement, each of the
Loan Documents, and each of the Obligations (individually, an "Event of
Default", and
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Citizens Bank NH/Presstek, Inc. Loan Agreement
collectively, "Events of Default"): (1) if any statement, representation or
warranty made by the BORROWER or Guarantor in this Agreement or in any of the
Loan Documents, or in connection with any of the same, or if any financial
statement, report, schedule, or certificate furnished by the BORROWER or any of
its officers or accountants to the BANK, shall prove to have been false or
misleading when made, or subsequently becomes false or misleading, in any
material respect (as determined in the BANK's sole discretion); (2) default by
the BORROWER in payment on or before ten (10) days after its due date of any
principal or interest called for under the Loan or the Loan Documents, or of any
other amounts due under any other of the Obligations; (3) any other event of
default under, or default by the BORROWER or Guarantor in the performance or
observance of, any of the provisions, terms, conditions, warranties or covenants
of this Agreement, the Loan Documents, or any other of the Obligations which
default is not cured within thirty (30) days of BORROWER's knowledge thereof, or
such longer period as is reasonably required to effect such cure so long as
BORROWER promptly commences and diligently pursues such cure; provided, however,
that the BORROWER shall not be entitled to any cure period or the continuance or
extension thereof if the existence or continuance of such default has an
immediate material adverse affect upon the BORROWER, the Guarantor, the
Collateral, or any of the rights and remedies of the BANK under this Agreement
or any of the other Loan Documents; (4) the dissolution, termination of
existence, merger or consolidation of any BORROWER or Guarantor, or a sale of
BORROWER's or Guarantor 's business or the Collateral not in the ordinary course
of business; (5) BORROWER or Guarantor shall (a) apply for or consent to the
appointment of a receiver, trustee or liquidator of it or any of its property,
(b) make a general assignment for the benefit of creditors, (c) be adjudicated
as bankrupt or insolvent, (d) file a voluntary petition in bankruptcy, or a
petition or an answer seeking reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation under any law or statute, or an
answer admitting the material allegations of a petition filed against it in any
proceeding under any such law or statute, or (e) offer or enter into any
composition, extension or arrangement seeking relief or extension of its debts;
(6) proceedings shall be commenced or an order, judgment or decree shall be
entered, without the application, approval or consent of BORROWER or Guarantor,
in or by any court of competent jurisdiction, relating to the bankruptcy,
dissolution, liquidation, reorganization or the appointment of a receiver,
trustee or liquidator of BORROWER or Guarantor, or of all or a substantial part
of its assets, and such proceedings, order, judgment or decree shall continue
undischarged or unstayed for a period of sixty (60) days; (7) BORROWER's or
Guarantor's inability to pay its debts as they mature or other act of
insolvency, as determined by the BANK in accordance with generally accepted
accounting principals; or (8) a judgment for the payment of money exceeding
Fifty Thousand Dollars ($50,000.00) shall be rendered against BORROWER or
Guarantor and the same shall remain undischarged for a period of thirty (30)
days, during which period execution shall not be effectively stayed.
Upon the occurrence of any Event of Default, the BANK's commitment to make the
Loan under the Loan Documents or any other agreement with the BORROWER, and to
make any Advances or disbursements under any Loan, shall immediately cease and
terminate and, at the election of the BANK, all of the Obligations of the
BORROWER to the BANK, either under this Agreement, the Loan Documents, or
otherwise, will immediately become due and
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Citizens Bank NH/Presstek, Inc. Loan Agreement
payable without further demand, notice or protest, all of which are hereby
expressly waived. Thereafter, the BANK may proceed to protect and enforce its
rights, at law, in equity, or otherwise, against the BORROWER, the Guarantor,
and any other endorser or guarantor of the BORROWER's Obligations, either
jointly or severally, and may proceed to liquidate and realize upon any of its
Collateral in accordance with the rights of a secured party under the Uniform
Commercial Code, under any other applicable law, under any Loan Documents, under
any other agreement between the BORROWER and the BANK, or under any agreement
between any guarantor or endorser of the BORROWER's Obligations to the BANK, and
to apply the proceeds thereof to payment of the Obligations of the BORROWER to
the BANK in such order and in such manner as the BANK, in its sole discretion,
deems appropriate.
XI. MISCELLANEOUS PROVISIONS.
A. Entire Agreement; Waivers. This Agreement, the Schedules hereto, and the Loan
Documents together constitute the entire agreement between the BORROWER and the
BANK and no covenant, term, condition or other provision thereof nor any default
in connection therewith may be waived except by an instrument in writing, signed
by the BANK and delivered to the BORROWER. The BANK's failure to exercise or
enforce any of its rights, powers or privileges under this Agreement or the Loan
Documents shall not operate as a waiver thereof. In the event of any conflict
between the terms, covenants, conditions and restrictions contained in the Loan
Documents, the term, covenant, condition or restriction which confers the
greatest benefit upon the BANK shall control. The determination as to which
term, covenant, condition or restriction is more beneficial shall be made by the
BANK in its sole discretion.
B. Remedies Cumulative. All remedies provided under this Agreement and the Loan
Documents or afforded by law shall be cumulative and available to the BANK until
all of the BORROWER's Obligations to the BANK have been paid in full.
C. Survival of Covenants. All covenants, agreements, representations and
warranties made in this Agreement and in the Loan Documents shall be deemed to
be material and to have been relied on by the BANK, notwithstanding any
investigation made by the BANK or in its behalf, and shall survive the execution
and delivery of this Agreement and the Loan Documents. All such covenants,
agreements, representations and warranties shall bind and inure to the benefit
of the BORROWER's and the BANK's successors and assigns, whether so expressed or
not.
D. Governing Law; Jurisdiction. This Agreement and the Loan Documents shall be
construed and their provisions interpreted under and in accordance with the laws
of the State of New Hampshire. The BORROWER, to the extent they may legally do
so, hereby consents to the jurisdiction of the courts of the State of New
Hampshire and the United States District Court for the State of New Hampshire
for the purpose of any suit, action or other
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Citizens Bank NH/Presstek, Inc. Loan Agreement
proceeding arising out of any of their obligations hereunder or with respect to
the transactions contemplated hereby, and expressly waive any and all objections
they may have to venue in any such courts.
E. Assurance of Execution and Delivery of Additional Instruments. The BORROWER
agrees to execute and deliver, or to cause to be executed and delivered, to the
BANK all such further instruments, and to do or cause to be done all such
further acts and things, as the BANK may reasonably request or as may be
necessary or desirable to effect further the purposes of this Agreement and the
Loan Documents.
F. Waivers and Assents. The BORROWER, and any guarantor or endorser of the
BORROWER's Obligations to the BANK, hereby waive, to the fullest extent
permitted by law, all rights to marshalling of assets and all rights to demand,
notice, protest, notice of acceptance of this Agreement and the Loan Documents,
notice of the Loan made, credit extended, Collateral received or delivered or
other action taken in reliance hereon and all other demands and notices of any
description with respect both to the Loan Documents and the Collateral. The
BORROWER assents to any extension or postponement of the time of payment or any
other indulgence, to any substitution, exchange or release of Collateral, to the
addition or release of any party or person primarily or secondarily liable, to
the acceptance of partial payments thereon and the settlement, compromising or
adjusting of any thereof, all in such manner and at such time or times as the
BANK may deem advisable.
G. No Duty of the BANK With Respect to the Collateral. Except as may otherwise
be specifically required under the Uniform Commercial Code, the BANK shall have
no duty as to the collection or protection of Collateral or any income thereon,
nor as to the preservation of rights against prior parties, nor as to the
preservation of any rights pertaining thereto, beyond the safe custody thereof.
H. Election of the BANK. The BANK may exercise its rights with respect to
Collateral without resorting or regard to other collateral or sources of
reimbursement for the Obligations of BORROWER to the BANK.
I. Assignment. If at any time, by assignment or otherwise, the BANK transfers
its rights in any of the BORROWER's Obligations and its rights in Collateral
therefor, in whole or in part, such transfer shall carry with it the powers and
rights of the BANK under this Agreement, the Loan Documents, and the Collateral
so transferred and the transferee shall become vested with such powers and
rights whether or not they are specifically referred to in the instrument
evidencing the transfer. If, and to the extent that the BANK retains such rights
and Collateral, the BANK shall continue to have the rights and powers herein set
forth with respect thereto. This Agreement and the Loan Documents shall be
binding upon and inure to the benefit of the BANK, the BORROWER and the
guarantor, their successors, assigns, heirs and personal representatives;
provided, however, the rights and obligations of the BORROWER are not
assignable, delegable or transferable without the consent of the
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Citizens Bank NH/Presstek, Inc. Loan Agreement
BANK. All of the rights of the BANK under this Agreement and the Loan Documents
shall inure to the benefit of any participating BANK or BANKS and its or their
successors and assigns.
J. Expenses; Proceeds of Collateral. The BORROWER covenants and agrees that it
shall pay to the BANK, on demand, any and all reasonable out-of-pocket expenses,
including reasonable attorneys' fees, court costs, sheriffs' fees, and other
expenses incurred or paid by the BANK in protecting and enforcing its rights
under this Agreement, the Loan Documents, and the other Obligations, including
the costs of preparation of any amendments, modifications, consents, or waivers
in respect of the Loan Agreements or the Loan Documents, and all filing,
auditing, accounting, and appraisal fees. After deducting all of said expenses
and the reasonable expenses of retaking, holding, preparing for sale, selling
and the like, the residue of any proceeds of collections or sale of Collateral
shall be applied to the payment of principal of or interest on Obligations of
the BORROWER to the BANK in such order or preference as the BANK may determine,
and any excess shall be returned to the BORROWER (subject to the provisions of
the Uniform Commercial Code) and the BORROWER shall remain liable for any
deficiency.
K. The BANK's Right of Offset. The BORROWER hereby grants to the BANK a
continuing security interest in, and upon an Event of Default the right to set
off against, any deposits or other sums at any time credited or due from the
BANK or Citizens Bank Investment Services, Inc. to the BORROWER, and any
securities or other property of the BORROWER which at any time are in the
possession of the BANK or Citizens Bank Investment Services, Inc., for the
payment of any Obligations due the BANK. The BANK may apply or set off such
deposits or other sums against the BORROWER's Obligations whether or not the
Collateral is considered by the BANK to be adequate. The BORROWER expressly
grants to the BANK the right to set off and apply such deposits and sums upon an
Event of Default without having to resort to recourse to any other Collateral in
which the BANK has a security interest.
L. Notices. All notices, requests, demands and other communications provided for
hereunder shall be in writing (including telegraphic communication) and shall be
either mailed by certified mail, return receipt requested, or delivered by
overnight courier service, to the applicable party at the addresses set forth in
this Agreement.
M. Savings Clause. Any provision of this Agreement or any of the Loan Documents
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or thereof
or affecting the validity or enforceability of such provision in any other
jurisdiction.
N. Term of this Agreement and the Loan Documents. This Agreement and the Loan
Documents shall remain in full force and effect until all of the Obligations
have been paid in
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Citizens Bank NH/Presstek, Inc. Loan Agreement
full, all of the terms, conditions and covenants under the Loan Documents have
been performed, and all commitments of the BANK to advance funds under the Loan
has terminated.
O. Interest Rate Provisions. The interest rate provisions of each of the
Obligations are subject to the condition that in no event shall the amount paid
or agreed to be paid to the holder of such Obligation which is deemed interest
under applicable law exceed the maximum rate of interest on the unpaid principal
balance of such Obligation allowed by applicable law, if any, (the "Maximum
Allowable Rate"). For purposes hereof, "applicable law" shall mean the law in
effect on the date hereof, except that if there is a change in such law which
results in a higher Maximum Allowable Rate being applicable to the Obligation
subject thereto, then such Obligation shall be governed by such amended law from
and after its effective date. In the event that fulfillment of any provisions of
any Obligation results in the interest rate thereunder being in excess of the
Maximum Allowable Rate, then amount to be paid thereunder resulting in an
excessive interest rate shall automatically be reduced to eliminate such excess.
If notwithstanding the foregoing, the holder of such Obligation receives an
amount which under applicable law would cause the interest rate thereunder to
exceed the Maximum Allowable Rate, the portion thereof which would be excessive
shall automatically be applied to and deemed a prepayment of the unpaid
principal balance under such Obligation and not a payment of interest.
P. Proposed Mortgage Term Loan. Upon the BORROWER's completion of the
construction of its proposed new facility in Hudson, New Hampshire, and issuance
of occupancy and operating permits therefor by the appropriate authorities, the
BANK agrees to use its best efforts to provide to the BORROWER a mortgage term
loan in an approximate amount of up to $6,000,000.00 and for a term not to
exceed fifteen (15) years. The actual amount, term, applicable interest rate and
other charges will be subject to agreement of the BANK and the BORROWER at the
time of the underwriting of the mortgage term loan. The proceeds of such
mortgage term loan will be used to pay outstanding principal under the Revolving
Line of Credit Loan but shall not reduce the maximum available amount thereunder
as provided by Section I. A. of this Agreement. The mortgage term loan will be
secured by a first mortgage on the completed facility and real estate. Whether
the BANK will be able to provide such a mortgage term loan will depend upon the
then general banking conditions and underwriting requirements. It will also
depend upon conditions specific to the BORROWER and the property, such as the
financial and operating condition of the BORROWER, the appraised value and
environmental condition of the property, and other specific underwriting
criteria applicable to the BORROWER. While the BANK will use its best efforts to
make this mortgage term loan available, the BANK cannot guaranty that it will be
able to do so.
Q. Waiver of Jury Trial. THE BORROWER WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL
BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT OR ANY OF THE
LOAN DOCUMENTS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE
SITTING WITHOUT A JURY.
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Citizens Bank NH/Presstek, Inc. Loan Agreement
IN WITNESS WHEREOF, the BANK and the BORROWER have executed this Agreement all
as of the day and year first above written.
CITIZENS BANK NEW HAMPSHIRE
/s/ Tom Manson By: /s/ Dianne M. Srebnick
- ---------------------------- -----------------------------
Witness Dianne M. Srebnick,
Assistant Vice President
PRESSTEK, INC.
/s/ Tom Manson By: /s/ Robert E. Verrando
- ---------------------------- -----------------------------
Witness Robert E. Verrando, President
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Citizens Bank NH/Presstek, Inc. Loan Agreement
CITIZENS BANK NEW HAMPSHIRE
LOAN AGREEMENT
SCHEDULE II
FEES PAYABLE BY BORROWER
Initial Facility Fee: $25,000.00 payable on the date hereof.
Annual Facility Renewal Fee: $12,500.00 for a renewal as of July 31, 1997 and
$25,000.00 payable on each Review Date thereafter at which the Revolving Line of
Credit is renewed.
Unused Commitment Fee: .05% per annum of the daily average of unadvanced amounts
under the Revolving Line of Credit (based upon the maximum available amount
thereunder of $10,000,000.00), determined and payable quarterly in arrears.
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<PAGE>
Citizens Bank NH/Presstek, Inc. Loan Agreement
CITIZENS BANK NEW HAMPSHIRE
LOAN AGREEMENT
SCHEDULE VI. D.
DESCRIPTION OF LITIGATION
See attached description.
22
<PAGE>
Citizens Bank NH/Presstek, Inc. Loan Agreement
CITIZENS BANK NEW HAMPSHIRE
LOAN AGREEMENT
SCHEDULE IX
CLOSING AGENDA
CITIZENS BANK NEW HAMPSHIRE
$10,000,000.00 REVOLVING LINE OF CREDIT
TO
PRESSTEK, INC.
("Borrower")
Guaranteed
by
Catalina Coatings, Inc.
("Guarantor")
December 18, 1996
-------------------------------------------------------
DILIGENCE AND DOCUMENTATION CHECKLIST
I. BORROWER DUE DILIGENCE RESPONSIBLE PARTY STATUS
- -- ---------------------- ----------------- ------
1. Secretary's Certificate
Re: Directors' Borrowing
Resolutions for RLOC;
Bylaws; and Officers' and
Directors' Incumbency (BC)
2. Certified Articles of (BC)
Incorporation from
Delaware Secretary of
State
3. Certificate of Good
Standing from Delaware
Secretary of State (BC)
4. Certificate of Authority
from New Hampshire
Secretary of State and
other states (if
applicable) (BC)
23
<PAGE>
Citizens Bank NH/Presstek, Inc. Loan Agreement
5. UCC-11 Search Results (CLRM)
- New Hampshire SOS
- Hudson, NH Town Clerk
6. Collateral Lists (BO)
- Accounts Receivable
- Inventory
- Machinery, Equipment, and Fixtures
- List of Titled Vehicles with Certificates of Title
- List of registered trademarks
- List of applied for, pending, and issued
patents (foreign and domestic)
- Material license, supply, and requirements agreements
7. Insurance Certificates (BO)
for Borrower (On ACCORD
Forms, including
property, casualty and
extended coverage,
comprehensive general
liability, products
liability, worker's
compensation, and
directors and officers
liability) with Bank,
successors and assigns
named as loss payee
8. Real Estate Leases (BO)
9. Legal Opinion of Borrower's Counsel (BC)
II. GUARANTOR DUE DILIGENCE
10. Secretary's Certificate
Re: Directors' Guaranty
Resolutions for RLOC;
Bylaws; and Officers' and
Directors' Incumbency (BC)
11. Certified Articles of (BC)
Incorporation from
Arizona Secretary of
State
12. Certificate of Good
Standing from Arizona
Secretary of State (BC)
24
<PAGE>
Citizens Bank NH/Presstek, Inc. Loan Agreement
13. Certificate of Authority
from other states (if
applicable) (BC)
14. UCC-11 Search Results NH (BC)
Secretary of State
Hudson, NH
15. Collateral Lists (BO)
- Accounts Receivable
- Inventory
- Machinery, Equipment, and Fixtures
- List of Titled Vehicles with Certificates of Title
- List of registered trademarks - List of
applied for, pending, and issued
patents (foreign and domestic)
- Material license, supply, and requirements
agreements
16. Insurance Certificates (BO)
for Guarantor (On ACCORD
Forms, including
property, casualty and
extended coverage,
comprehensive general
liability, products
liability, worker's
compensation, and
directors and officers
liability) with Bank,
successors and assigns
named as loss payee
17. Real Estate Leases (BO)
18. Legal Opinion of Guarantor's Counsel (BC)
19. Copy of Purchase and Sale Agreement (BC)
for Guarantor
III. LOAN DOCUMENTS
20. Loan Agreement (CLRM)
21. Revolving Line of Credit Note (CLRM)
25
<PAGE>
Citizens Bank NH/Presstek, Inc. Loan Agreement
22. Guaranty Agreement (CLRM)
23. Borrower Security Agreement (CLRM)
24. Guarantor Security Agreement (CLRM)
25. Borrower UCC-1 Financing Statements
New Hampshire SOS (CLRM)
Hudson, NH Town Clerk (CLRM)
26. Guarantor UCC-1 Financing Statements
Arizona SOS (CLRM)
27. Borrower Collateral Assignment of
Leasehold Rights and Landlord's Consent (CLRM)
(if applicable)
28. Guarantor Collateral Assignment of
Leasehold Rights and Landlord's Consent (CLRM)
(if applicable)
29. Negative Pledge of Applied For, (CLRM)
Pending, and Issued Patent
30. Applications for Certificates of Title (BANK)
for Motor Vehicles with Bank named as
Lien Holder
31. RSA 399-B Disclosure Statement (CLRM)
-----------------------------------------------------
Key:
Bank: Citizens Bank New Hampshire ("BANK")
One Trafalger Square
Nashua, New Hampshire 03063
Attn: Dianne M. Srebnick, Assistant Vice President
Counsel: Cook, Little, Rosenblatt & Manson, p.l.l.c.
("CLRM")
The Center of New Hampshire
650 Elm Street
26
<PAGE>
Citizens Bank NH/Presstek, Inc. Loan Agreement
Manchester, New Hampshire 03101
Attn: Thomas P. Manson, Esq.
Borrower: Presstek, Inc. ("BO")
8 Commercial Street
Hudson, New Hampshire 03051
Attn: Richard Williams, CFO
Counsel: Devine, Millimet & Branch ("BC")
111 Amherst Street, PO Box 719
Manchester, New Hampshire 03105
Attn: Karen S. McGinley, Esq.
27
REVOLVING LINE OF CREDIT PROMISSORY NOTE
$10,000,000.00 U.S. Manchester, NH December 18, 1996
FOR VALUE RECEIVED, PRESSTEK, INC., a Delaware corporation with a principal
place of business at 8 Commercial Street, Hudson, New Hampshire 03051 (the
"Borrower"), promises to pay to the order of CITIZENS BANK NEW HAMPSHIRE, a
guaranty savings bank organized under the laws of the State of New Hampshire
with an address of 875 Elm Street, Manchester, New Hampshire 03101 (the "Bank"),
at such address, or such other place or places as the holder hereof may
designate in writing from time to time hereafter, the maximum principal sum of
TEN MILLION DOLLARS ($10,000,000.00), or so much thereof as may be advanced or
readvanced by the Bank to the Borrower from time to time hereafter (such amounts
defined as the "Debit Balance" below), together with interest as provided for
hereinbelow, in lawful money of the United States of America.
The Borrower's "Debit Balance" shall mean the debit balance in an account
on the books of the Bank, maintained in the form of a ledger card, computer
records or otherwise in accordance with the Bank's customary practice and
appropriate accounting procedures wherein there shall be recorded the principal
amount of all advances made by the Bank to the Borrower, all principal payments
made by the Borrower to the Bank hereunder, and all other appropriate debits and
credits.
Under the Revolving Line of Credit Loan evidenced by this Note (the "Line
of Credit"), the Bank agrees to lend to the Borrower, and the Borrower may
borrow, up to the maximum principal sum provided for in this Note, all in
accordance with and subject to the terms, conditions, and limitations of this
Note and the Loan Agreement of even date herewith by and between the Borrower
and the Bank, as the same may be amended from time to time (the "Loan
Agreement"). The holder of this Note is entitled to all of the benefits and
rights of the Bank under the Loan Agreement. However, neither this reference to
the Loan Agreement nor any provision thereof shall impair the absolute and
unconditional obligation of the Borrower to pay the principal and interest of
this Note as herein provided. Terms not otherwise defined herein shall have the
meanings ascribed to them in the Loan Agreement.
The Borrower shall make requests for advances under this Note as provided
in the Loan Agreement. The Borrower agrees that the Bank may make all advances
under this Note by direct deposit to any demand account of the Borrower with the
Bank or in such other manner as may be provided in the Loan Agreement, and that
all such advances shall represent binding obligations of the Borrower.
The Borrower acknowledges that this Note is to evidence the Borrower's
obligation to pay its Debit Balance, plus interest and any other applicable
charges as determined from time to time, and that it shall continue to do so
despite the occurrence of intervals when no Debit Balance exists because the
Borrower has paid the previously existing Debit Balance in full.
<PAGE>
Interest shall be calculated and charged daily, based on the actual days
elapsed over a three hundred sixty (360) day banking year, on the unpaid
principal balance outstanding from time to time of each Advance at a fixed rate
for the Advance Term applicable to such Advance equal to the LIBOR rate plus one
and three-quarters percent (1.75%) per annum. The term "LIBOR rate" shall mean
the rate as determined for each separate Advance by the BANK in accordance with
the provisions of the Loan Agreement. Subject to the terms of Loan Agreement,
outstanding principal which is not subject to an interest rate hereunder based
upon the LIBOR rate shall bear interest at a variable annual rate equal to the
Prime Rate (as hereinafter defined). As used herein, the term "Prime Rate" shall
mean the rate published by The Wall Street Journal from time to time under the
category "Prime Rate: The Base Rate of Corporate Loans posted by at least 75% of
the Nation's 30 Largest Banks" (the lowest of the rates so published if more
than one rate is published under this category at any given time) or such other
comparable index rate selected by the Bank in its sole discretion if The Wall
Street Journal ceases to publish such rate. The Borrower acknowledges that the
Prime Rate is used for reference purposes only as an index and is not
necessarily the lowest interest rate charged by the Bank on commercial loans.
Each time the Prime Rate changes the interest rate applicable to outstanding
principal hereunder which is subject to the Prime Rate shall change
contemporaneously with such change in the Prime Rate. Interest shall be
calculated and charged daily on the basis of actual days elapsed over a three
hundred sixty (360) day banking year.
The Bank shall extend the Line of Credit through and until July 31, 1997,
and, if the Line of Credit is renewed and extended by the Bank pursuant to the
Loan Agreement, through and until each anniversary of such date with respect to
which the Line of Credit is renewed and extended (July 31, 1997, and each
anniversary thereof to which the Line of Credit is renewed and extended, being a
"Review Date"). Pending a Review Date as to which the Line of Credit is not
extended, the Borrower shall (i) make payments of outstanding principal from
time to time as may be required under the Loan Agreement and (ii) make payments
of accrued and unpaid interest monthly in arrears commencing thirty (30) days
from the date hereof (or on any day within 30 days of the date hereof agreed to
by the Borrower and the Bank to provide for a convenient payment date) and
continuing on the same date of each month thereafter, through and until any
Review Date as to which the Line of Credit is not renewed by the Bank, whereupon
all principal, accrued and unpaid interest, and any other charges provided for
hereunder, shall be due and payable in full. In the event that the Line of
Credit is renewed pursuant to the Loan Agreement as of any Review Date, this
Note shall thereafter continue to evidence amounts advanced and due under the
Line of Credit as renewed. Prepayments of the outstanding principal amount of
any Advance prior to the end of the Advance Term therefor shall be subject to
prepayment charges and costs as
2
<PAGE>
Citizens Bank NH/Presstek, Inc. Note
determined under the Loan Agreement.
This Note is being executed and delivered in accordance with the terms of
the Loan Agreement and the documents defined therein as the "Loan Documents".
The payment and performance of the obligations contained in the Loan Documents
are secured by the collateral granted to the Bank therein (the "Collateral") and
the security granted to the Bank in the Loan Documents.
Upon the occurrence and during the continuance of an Event of Default
specified in the Loan Agreement, or if any payment of principal or interest
under this Note is not paid within ten (10) days of the due date therefor, the
principal hereof and all interest accrued and accruing hereon may be declared to
be forthwith due and payable.
The holder may impose upon the Borrower a delinquency charge of the greater
of Thirty Five Dollars ($35.00) or five percent (5%) of the amount of interest
not paid on or before the tenth (10th) day after such installment is due. The
entire principal balance of each Advance, together with accrued interest, shall
after maturity, whether by demand, acceleration or otherwise, bear interest at
the then applicable interest rate for such Advance hereunder plus five percent
(5%) per annum.
The Borrower agrees that any other property upon or in which the Borrower
has granted or hereafter grants the holder a mortgage or security interest,
securing the payment and performance of any other liability of the Borrower to
the holder, shall also constitute Collateral. As additional Collateral, the
Borrower grants (1) a security interest in, or pledges, assigns and delivers to
the holder, as appropriate, all deposits, credits and other property now or
hereafter due from the holder to the Borrower; and (2) the right to set off and
apply (and a security interest in said right), upon an Event of Default and
without demand or notice of any nature, all, or any portion, of such deposits,
credits and other property, against the indebtedness evidenced by this Note
whether the other Collateral, if any, is deemed adequate or not.
The Borrower, and every maker, endorser, or guarantor of this Note, jointly
and severally, agree to pay on demand all reasonable out-of-pocket costs of
collection hereof, including reasonable attorneys' fees, whether or not any
foreclosure or other action is instituted by the holder in its discretion.
No delay or omission on the part of the holder in exercising any right,
privilege or remedy shall impair such right, privilege or remedy or be construed
as a waiver thereof or of
3
<PAGE>
Citizens Bank NH/Presstek, Inc. Note
any other right, privilege or remedy. No waiver of any right, privilege or
remedy or any amendment to this Note shall be effective unless made in writing
and signed by the holder. Under no circumstances shall an effective waiver of
any right, privilege or remedy on any one occasion constitute or be construed as
a bar to the exercise of or a waiver of such right, privilege or remedy on any
future occasion.
The acceptance by the holder hereof of any payment after any default
hereunder shall not operate to extend the time of payment of any amount then
remaining unpaid hereunder or constitute a waiver of any rights of the holder
hereof under this Note.
All rights and remedies of the holder, whether granted herein or otherwise,
shall be cumulative and may be exercised singularly or concurrently, and the
holder shall have, in addition to all other rights and remedies, the rights and
remedies of a secured party under the Uniform Commercial Code of New Hampshire.
The holder shall have no duty as to the collection or protection of the
Collateral or of any income thereon, or as to the preservation of any rights
pertaining thereto beyond the safe custody thereof. Surrender of this Note, upon
payment or otherwise, shall not affect the right of the holder to retain the
Collateral as security for the payment and performance of any other liability of
the Borrower to the holder.
The Borrower, and every maker, endorser, or guarantor of this Note, hereby
jointly waive, to the fullest extent permitted by law, presentment, notice,
protest and all other demands and notices and assents (1) to any extension of
the time of payment or any other indulgence, (2) to any substitution, exchange
or release of Collateral, and (3) to the release of any other person primarily
or secondarily liable for the obligations evidenced hereby.
This Note and the provisions hereof shall be binding upon the Borrower and
the Borrower's heirs, administrators, executors, successors, legal
representatives and assigns and shall inure to the benefit of the holder, the
holder's heirs, administrators, executors, successors, legal representatives and
assigns.
The word "holder" as used herein shall mean the payee or endorsee of this
Note who is in possession of it, or the bearer, if this Note is at the time
payable to the bearer.
This Note may not be amended, changed or modified in any respect except by
a written document which has been executed by each party. This Note constitutes
a New Hampshire contract to be governed by the laws of such state and to be paid
and performed therein.
4
<PAGE>
Citizens Bank NH/Presstek, Inc. Note
The provisions of this Note are expressly subject to the condition that in
no event shall the amount paid or agreed to be paid to the holder hereunder and
deemed interest under applicable law exceed the maximum rate of interest on the
unpaid principal balance hereunder allowed by applicable law, if any, (the
"Maximum Allowable Rate"), which shall mean the law in effect on the date
hereof, except that if there is a change in such law which results in a higher
Maximum Allowable Rate being applicable to this Note, then this Note shall be
governed by such amended law from and after its effective date. In the event
that fulfillment of any provisions of this Note results in the interest rate
hereunder being in excess of the Maximum Allowable Rate, the obligation to be
fulfilled shall automatically be reduced to eliminate such excess. If
notwithstanding the foregoing, the holder receives an amount which under
applicable law would cause the interest rate hereunder to exceed the Maximum
Allowable Rate, the portion thereof which would be excessive shall automatically
be applied to and deemed a prepayment of the unpaid principal balance hereunder
and not a payment of interest.
Executed and delivered this 18th day of December, 1996.
PRESSTEK, INC.
/s/ Tom Manson By: /s/ Robert E. Verrando
- ------------------------- -------------------------------
Witness Robert E. Verrando, President
5
List of Subsidiaries
Name Jurisdiction of Incorporation
---- -----------------------------
Catalina Coatings, Inc. Arizona
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Presstek, Inc.
Hudson, New Hampshire
We hereby consent to the incorporation by reference in the respective
Prospectuses constituting part of the Registration Statements on Forms S-8 (Nos.
33-80466, 33-61215 and 33-39337) and on Forms S-3 (Nos. 333-2299 and 33-48342),
of our report dated February 21, 1997 (except for Note 11 as to which the date
is March 26, 1997), relating to the financial statements and schedule of
Presstek, Inc. appearing in the Company's Annual Report on Form 10-K for the
year ended December 28, 1996.
We also consent to the references to us under the caption "Experts" in the
Prospectuses.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
New York, New York
March 27, 1997
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-80466, No. 33-61215 and No. 33-39337 of Presstek, Inc. on Forms S-8 and in
Registration Statements No. 33-48342 and No. 333-2299 of Presstek, Inc. on Form
S-3 of our report dated March 15, 1995, appearing in this Annual Report on Form
10-K of Presstek, Inc. for the year ended December 28, 1996.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Bedford, New Hampshire
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
FORM 10-K FOR FISCAL YEAR ENDED DECEMBER 28, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 3,530,866
<SECURITIES> 6,602,854
<RECEIVABLES> 17,489,871
<ALLOWANCES> 183,851
<INVENTORY> 12,264,794
<CURRENT-ASSETS> 40,559,821
<PP&E> 23,947,886
<DEPRECIATION> 4,230,674
<TOTAL-ASSETS> 68,823,096
<CURRENT-LIABILITIES> 11,176,470
<BONDS> 0
0
0
<COMMON> 153,923
<OTHER-SE> 57,288,599
<TOTAL-LIABILITY-AND-EQUITY> 68,823,096
<SALES> 33,569,400
<TOTAL-REVENUES> 48,627,569
<CGS> 21,825,697
<TOTAL-COSTS> 21,825,697
<OTHER-EXPENSES> 8,894,420
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 11,121,289
<INCOME-TAX> 4,000,000
<INCOME-CONTINUING> 7,121,289
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,121,289
<EPS-PRIMARY> .43
<EPS-DILUTED> .43
</TABLE>
