SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1999
---------------
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-17541
PRESSTEK, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 02-0415170
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 Commercial Street, Hudson, New Hampshire 03051-3907
- --------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code)
Registrant's telephone number, including area code (603) 595-7000
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES |X| NO |_|
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date: as of November 9, 1999 there
were 32,343,169 shares outstanding of the Registrant's Common Stock, $.01 par
value per share.
<PAGE>
PRESSTEK, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Balance Sheets as of October 2, 1999 (unaudited)
and January 2, 1999 3
Statements of Operations for the three and nine month
periods ended October 2, 1999 and October 3, 1998 (unaudited) 4
Statements of Cash Flows for the nine month periods
ended October 2, 1999 and October 3, 1998 (unaudited) 5
Notes to Financial Statements
(unaudited) 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 22
PART II OTHER INFORMATION 23
Item 1 Legal Proceedings
Item 6 Exhibits and Reports on form 8-K
Signatures 24
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
PRESSTEK, INC.
BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
October 2, January 2,
1999 1999
---------- ----------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,062 $ 2,950
Marketable securities 15,871 16,107
Accounts receivable, net of allowance for losses
of $2,629 in fiscal 1999; and $2,185 in fiscal 1998 11,256 20,626
Inventories 6,240 9,724
Other current assets 975 968
--------- ---------
Total current assets 37,404 50,375
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 1,107 1,489
Buildings 12,627 11,912
Machinery and equipment 39,600 31,508
Furniture and fixtures 950 893
Leasehold improvements 3,038 2,392
Other 57 57
--------- ---------
Total 57,379 48,251
Less accumulated depreciation and amortization (12,459) (8,754)
--------- ---------
Total property, plant and equipment, net 44,920 39,497
--------- ---------
OTHER ASSETS:
Patent application costs and license rights, net 3,176 3,195
Software development costs, net -- 40
Other 161 136
Net non-current assets of discontinued operations 5,567 13,427
--------- ---------
Total other assets 8,904 16,798
--------- ---------
TOTAL $ 91,228 $ 106,670
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long term debt $ 658 $ 522
Accounts payable and accrued expenses 8,109 8,893
Accrued salaries and employee benefits 1,358 937
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,810 1,995
Net current liabilities of discontinued operations 823 948
--------- ---------
Total current liabilities 12,758 13,295
--------- ---------
LONG TERM DEBT, NET OF CURRENT PORTION 9,441 5,922
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized
1,000,000 shares; no shares issues or outstanding -- --
Common stock, $.01 par value; authorized 75,000,000 shares;
issued and outstanding 32,326,169 shares at October 2, 1999;
32,276,263 shares at January 2, 1999 323 323
Additional paid-in capital 67,616 67,296
Retained earnings 1,083 19,834
Accumulated other comprehensive income 7 --
--------- ---------
Total stockholders' equity 69,029 87,453
--------- ---------
TOTAL $ 91,228 $ 106,670
========= =========
</TABLE>
See notes to financial statements
3
<PAGE>
PRESSTEK, INC.
STATEMENTS OF OPERATIONS
For the three and nine months ended
(amounts in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Product sales $ 12,700 $ 12,689 $ 33,263 $ 49,686
Royalties and fees from licensees 1,455 2,789 4,674 10,676
-------- -------- -------- --------
Total revenues 14,155 15,478 37,937 60,362
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of products sold 8,988 8,516 24,510 34,416
Engineering and product development 4,025 3,657 12,574 10,537
Sales and marketing 1,524 1,601 4,341 4,242
General and administrative 1,514 1,784 4,803 5,431
-------- -------- -------- --------
Total costs and expenses 16,051 15,558 46,228 54,626
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS (1,896) (80) (8,291) 5,736
-------- -------- -------- --------
OTHER INCOME:
Dividend and interest, net 119 235 409 403
Other, net (1) 25 79 228
-------- -------- -------- --------
Total other income, net 118 260 488 631
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (1,778) 180 (7,803) 6,367
PROVISION FOR INCOME TAXES -- 100 -- 2,090
-------- -------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS (1,778) 80 (7,803) 4,277
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations (555) 46 (448) (1,173)
Loss on disposal of discontinued operations (10,500) -- (10,500) --
-------- -------- -------- --------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS $(11,055) $ 46 $(10,948) $ (1,173)
-------- -------- -------- --------
NET INCOME (LOSS) $(12,833) $ 126 $(18,751) $ 3,104
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - BASIC:
FROM CONTINUING OPERATIONS $ (0.06) $ 0.00 $ (0.24) $ 0.13
======== ======== ======== ========
FROM DISCONTINUED OPERATIONS $ (0.34) $ 0.00 $ (0.34) $ (0.04)
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - BASIC $ (0.40) $ 0.00 $ (0.58) $ 0.10
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - DILUTED
FROM CONTINUING OPERATIONS $ (0.06) $ 0.00 $ (0.24) $ 0.13
======== ======== ======== ========
FROM DISCONTINUED OPERATIONS $ (0.34) $ 0.00 $ (0.34) $ (0.04)
======== ======== ======== ========
EARNINGS (LOSS) PER SHARE - DILUTED $ (0.40) $ 0.00 $ (0.58) $ 0.09
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC 32,317 32,112 32,309 31,932
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 32,317 32,393 32,309 32,699
======== ======== ======== ========
</TABLE>
See notes to financial statements
4
<PAGE>
PRESSTEK, INC.
STATEMENTS OF CASH FLOWS
For the nine months ended
(amounts in thousands)
<TABLE>
<CAPTION>
October 2, October 3,
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS - OPERATING ACTIVITIES:
Net income (loss) $(18,751) $ 3,104
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Loss from discontinued operations 8,234 756
Tax benefit arising from stock option deductions -- 1,640
Depreciation and amortization 4,143 2,750
Provision for warranty and other costs 163 1,483
Provision for losses on accounts receivable 1,340 655
Other, net (12) (254)
(Increase) decrease in:
Accounts receivable 8,030 7,902
Inventories 3,484 1,971
Costs and estimated earnings in excess of
Billings on uncompleted contracts 180
Other current assets (7) (196)
Increase (decrease) in:
Liabilities of discontinued operations (125) 2,303
Accounts payable and accrued expenses (1,505) (2,818)
Accrued salaries and employee benefits 421 416
Billings in excess of costs and estimated
Earnings on uncompleted contracts (185) 2,136
-------- --------
Net cash provided by operating activities 5,230 22,028
CASH FLOWS - INVESTING ACTIVITIES:
Purchases of property, plant and equipment (9,510) (3,988)
Proceeds from sale of land and equipment 381 441
Decrease (increase) in other assets of discontinued operations 73 (15)
Increase in other assets (361) (271)
Sales and maturities of marketable securities 13,967 1,000
Purchases of marketable securities (13,643) (15,976)
-------- --------
Net cash used for investing activities (9,093) (18,809)
-------- --------
CASH FLOWS - FINANCING ACTIVITIES:
Net proceeds from sale of common stock 320 1,245
Proceeds under mortgage term loan -- 6,900
Repayments of mortgage term loan (386) (333)
Proceeds under lease line of credit 4,041 --
Net payments on revolving line of credit -- (4,800)
Payment on Heath Custom Press, Inc.'s
revolving line of credit -- (600)
-------- --------
Net cash provided by financing activities 3,975 2,412
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 112 5,631
CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 2,950 4,939
Cash acquired from Heath Custom Press, Inc. -- 239
-------- --------
CASH AND CASH EQUIVALENTS END OF PERIOD $ 3,062 $ 10,809
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 338 $ 225
======== ========
Income taxes $ -- $ 250
======== ========
NON-CASH INVESTING AND FINANCING ACTIVITY:
Common stock issued and net assets acquired relating to
the acquisition of Heath Custom Press, Inc. $ -- $ 2,407
======== ========
</TABLE>
See notes to financial statements
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
OCTOBER 2, 1999
1. BASIS OF PRESENTATION
The unaudited financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Rule 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The financial
information included in the quarterly report should be read in conjunction with
the Company's audited financial statements and related notes thereto for the
fiscal year ended January 2, 1999. The January 2, 1999 information has been
derived directly from the annual financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included and all such adjustments were normal and recurring. Operating
results for the three and nine month periods ended October 2,1999 are not
necessarily indicative of the results that may be expected for the fiscal year
ended January 1, 2000.
Presstek, Inc. ("Presstek", or "the Company") is engaged in the
development, manufacture, and sale of PEARL(R), its patented, proprietary,
digital imaging system and process-free, thermal ablation printing plate
technologies. Presstek's products and applications incorporate PEARL
technologies and utilize PEARL consumables for computer-to-plate and
direct-to-press applications. PEARL's thermal laser diode system enables its
customers to produce high quality, full color lithographic printed materials for
the printing and graphic arts industries.
The Company operates and reports on a 52/53-week fiscal year ending on the
Saturday closest to December 31. Accordingly, the third quarters of 1999 and
1998 ended on October 2, 1999 and October 3, 1998, respectively.
During the quarter ended October 2, 1999 the Company determined to sell or
otherwise discontinue the operations of its Delta V Technologies, Inc., ("Delta
V") subsidiary to allow the Company to focus all of its efforts on the core
business of digital imaging and plate manufacturing. See Note 6 of notes to the
financial statements.
2. MARKETABLE SECURITIES
Marketable securities are classified as available-for-sale and are stated
at fair value. Unrealized gains and losses, if any, are recorded as a separate
component of stockholders' equity. At October 2, 1999 and January 2, 1999,
marketable securities consisted of high quality debt securities and commercial
paper.
6
<PAGE>
3. INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
on the first-in, first-out method. At October 2, 1999, and January 2, 1999,
inventories consisted of the following:
1999 1998
------ ------
(amounts in thousands)
Raw materials $1,845 $7,156
Work in process 2,767 690
Finished goods 1,628 1,878
------ ------
Total $6,240 $9,724
====== ======
4. LONG-TERM DEBT AND CREDIT FACILITIES
At October 2, 1999 and January 2, 1999, long-term debt consisted of the
following:
1999 1998
-------- --------
(amounts in thousands)
Mortgage term loan $ 6,058 $ 6,444
Lease line of credit 4,041 --
-------- --------
10,099 6,444
Less current portion (658) (522)
-------- --------
Total long-term debt $ 9,441 $ 5,922
======== ========
In September 1999, the Company borrowed $4,041,000 against a $10,000,000
lease line of credit facility from Keybank National Association. Borrowings are
secured by equipment valued at $5,199,000. The loan bears a variable rate of
interest, based upon the prime rate, with a fixed rate conversion provision. The
current interest rate is 7.25%. Principal and interest on the lease line of
credit facility are payable in 84 monthly installments beginning October 31,
1999. The commitment for the balance of $5,959,000 available under the lease
line of credit is scheduled to expire on April 30, 2000.
On February 6, 1998, the Company obtained a ten-year mortgage term loan in
the principal amount of $6,900,000 from Citizens Bank New Hampshire
("Citizens"). Borrowings are secured by land and buildings with a cost of
approximately $17,000,000. The loan bears a fixed rate of interest of 7.12% per
year during the first five years and a variable rate of interest at the LIBOR
rate plus 2%, for the remaining five years. Principal and interest payments
during the first five years of the loan will be made in 60 monthly installments
of $80,500. During the remaining five years, principal and interest payments
shall be made on a monthly basis in the amount of one-sixtieth of the
outstanding principal amount as of the first day of the second five year period,
plus accrued interest through the monthly payment date. All outstanding
principal and accrued and unpaid interest is due and payable on February 6,
2008.
In December 1998, the Company renewed its agreement with Citizens for a
revolving line of credit loan under which the Company may borrow a maximum of
7
<PAGE>
$10,000,000 for working capital requirements and general corporate purposes.
Borrowings are secured by substantially all of the Company's assets. Interest on
the line of credit is payable at the LIBOR rate plus 1.50% (6.92% at October 2,
1999). The loan agreement terminates on July 31, 2000, at which date, the entire
principal and accrued interest is due and payable. The Company currently has
$10,000,000 available under the line of credit loan agreement.
Under the terms of the mortgage term loan, the lease line of credit and the
revolving line of credit agreements, the Company is required to meet certain
financial covenants on a quarterly and annual basis. At October 2, 1999, the
Company was in compliance with all debt covenants.
5. INCOME TAXES
The components of the provision for income taxes for the three and nine
months ended October 2, 1999 and October 3, 1998, based upon the estimated
effective income tax rate for the full fiscal year, were as follows:
Three months Nine months
1999 1998 1999 1998
------ -------- ------ ----------
(amounts in thousands)
Current tax expense - state $ -- $ -- $ -- $ 450,000
Charge in lieu of income taxes:
Federal -- 100,000 -- 1,560,000
State -- -- -- 80,000
------ -------- ------ ----------
Total provision -- $100,000 $ -- $2,090,000
====== ======== ====== ==========
The Company did not record a provision for United States federal or state
income taxes or a charge in lieu of federal or state income taxes due to the net
operating loss incurred for the three and nine months ended October 2, 1999. The
charge in lieu of income taxes included in the three and nine months ended
October 3, 1998 relates principally to the realization of net operating loss
carryforwards resulting from stock compensation deductions for tax purposes.
6. DISCONTINUED OPERATIONS
During the quarter ended October 2, 1999 the Company determined to sell or
otherwise discontinue the operations of its Delta V Technologies, Inc., ("Delta
V") subsidiary to allow the Company to focus all of its efforts on the core
business of digital imaging and plate manufacturing. Located in Tucson, Arizona,
Delta V is engaged in the development, manufacture, and sale of vacuum
deposition coating equipment for vacuum coating applications used in a broad
range of industries and products including graphic arts, capacitors,
electronics, optics, architectural and decorative glass, flat panel displays and
packaging. The Company is actively pursuing the sale of Delta V, but will
discontinue operations at the end of fiscal 1999 if a buyer is not found.
8
<PAGE>
As a result of the decision to divest Delta V, the Company incurred a
$10,500,000 loss on disposal of discontinued operations for the three and nine
months ended October 2, 1999. This includes a provision of $3,061,000 for
anticipated closing costs and operating losses until disposal, $6,059,000
related to the write off of goodwill and other intangibles assets, and a
reduction in other assets values of $1,380,000.
Delta V is reported separately as a discontinued operation, and prior
periods have been restated in the financial statements, related footnotes and
the management's discussion and analysis to conform to this presentation.
Revenues and income from discontinued operations for the three and nine
months ended October 2, 1999 and October 3, 1998 were as follows:
Three months Nine months
1999 1998 1999 1998
------- ------- ------- -------
(amounts in thousands)
Revenues $ 1,307 $ 4,938 $ 7,248 $ 7,424
Costs and expenses 2,019 4,854 8,365 8,756
------- ------- ------- -------
Income (loss) from operations (712) 84 (1,117) (1,332)
Other income (loss) 157 (38) 669 159
------- ------- ------- -------
Net income (loss) $ (555) $ 46 $ (448) $(1,173)
======= ======= ======= =======
Net assets of discontinued operations at October 2, 1999 and January 2,
1999 were as follows:
1999 1998
-------- --------
(amounts in thousands)
Cash $ 945 $ 224
Accounts receivable 2,301 12
Other current assets 395 968
Accrual for anticipated closing costs (3,061) --
Other current liabilities (1,403) (2,152)
-------- --------
Net current liabilities of
discontinued operations $ (823) $ (948)
======== ========
Land and buildings $ 5,348 $ 5,364
Equipment 113 1,532
Goodwill -- 5,996
Other 106 535
-------- --------
Net non-current assets of
discontinued operations $ 5,567 $ 13,427
======== ========
9
<PAGE>
7. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted average number of shares of common stock outstanding during the
period. Diluted earnings (loss) per share is computed giving effect to all
diluted potential common shares that were outstanding during the period. Diluted
potential common shares consist of the incremental common shares issuable upon
exercise of stock options.
The following represents the calculation of basic and diluted earnings
(loss) per share for three and nine months ended October 2, 1999, and October 3,
1998:
<TABLE>
<CAPTION>
Three months Nine months
1999 1998 1999 1998
---------- ---------- ---------- ----------
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Income (loss) from continuing operations $ (1,778) $ 80 $ (7,803) $ 4,277
Loss from discontinued operations (11,055) 46 (10,948) (1,173)
---------- ---------- ---------- ----------
Net income (loss) $ (12,833) $ 126 $ (18,751) $ 3,104
========== ========== ========== ==========
Weighted average common shares
Outstanding - Basic 32,317 32,112 32,309 31,932
Effect of assumed conversion
Of stock options -- 281 -- 767
---------- ---------- ---------- ----------
Weighted average common shares
Outstanding - Diluted 32,317 32,393 32,309 32,699
========== ========== ========== ==========
Earnings (loss) per share - Basic:
From continuing operations $ (0.06) $ 0.00 $ (0.24) $ 0.13
From discontinued operations $ (0.34) $ 0.00 $ (0.34) $ (0.04)
---------- ---------- ---------- ----------
Earnings (loss) per share - Basic $ (0.40) $ 0.00 $ (0.58) $ .10
========== ========== ========== ==========
Earnings (loss) per share - Diluted:
From continuing operations $ (0.06) $ 0.00 $ (0.24) $ 0.13
From discontinued operations $ (0.34) $ 0.00 $ (0.34) $ (0.04)
---------- ---------- ---------- ----------
Earnings (loss) per share - Diluted $ (0.40) $ 0.00 $ (0.58) $ 0.09
========== ========== ========== ==========
</TABLE>
10
<PAGE>
All stock options outstanding for the nine months ended October 2, 1999 are
excluded from the calculation of diluted loss per share, as their effect would
be anti-dilutive. Options to purchase 192,500 shares of common stock at exercise
prices ranging from $16.81 to $44.75 per share were outstanding during a portion
of the nine months of 1998, but were excluded in the computation of diluted
earnings per share, as the exercise prices of the options were greater than the
average market price of the common shares.
8. COMPREHENSIVE INCOME (LOSS)
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130 "Reporting Comprehensive Income" in the first quarter of fiscal 1998.
SFAS No. 130 sets standards for the reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income (loss) is
comprised of net income (loss) and all changes in stockholder's equity except
those due to investments by owners and distributions to owners, which for the
Company includes unrealized gains on marketable securities. Comprehensive income
(loss) for the three and nine months ended October 2, 1999 and October 3, 1998,
was as follows:
<TABLE>
<CAPTION>
Three months Nine months
1999 1998 1999 1998
-------- ------ -------- --------
(amounts in thousands)
<S> <C> <C> <C> <C>
Net income (loss) $(12,833) $ 126 $(18,751) $ 3,104
Other comprehensive income -
unrealized gain on marketable
securities 7 -- 7 --
-------- ------ -------- --------
Comprehensive income (loss) $(12,826) $ 126 $(18,744) $ 3,104
======== ====== ======== ========
</TABLE>
9. SEGMENT INFORMATION
The Company adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" for the fiscal 1998 year-end reporting. The
statement requires disclosure of certain financial information related to
operating segments. In the Company's Form 10-K for the fiscal year ended January
2, 1999, two segments were reported, the Digital Imaging Products segment, and
Delta V. As a result of the decision to discontinue the operations of its Delta
V subsidiary, the Company's continuing operations are now reportable as a single
business segment.
Revenues generated under the Company's agreements with Heidelberg and its
distributors for the third quarter and nine months of fiscal 1999 were
$4,969,000 and $14,858,000, a decrease of $2,697,000 or 35% and $19,896,000 or
57% from the comparable periods of fiscal 1998. Revenues from Heidelberg
represented 39% and 51% of total revenues for the nine months of fiscal 1999 and
1998, respectively.
10. OTHER INFORMATION
In August 1999 Creo Products, Inc. filed an action in the District Court
for the Disctrict of Delaware against the Company asserting that Creo has a
11
<PAGE>
"reasonable apprehension that it will be sued by Presstek for infringement" of
two of the Company's patents and seeking a declaration that Creo's products "do
not and will not infringe any valid and enforceable claims" of the patents in
question. In September 1999, the Company filed a counterclaim against Creo for
patent infringement. The Company claims that Creo has infringed two direct
imaging patents owned by the Company which were recently the subject of
re-examination by the U.S. Patent and Trademark Office.
Since June 28, 1996, several class action lawsuits have been filed against
the Company and certain other defendants, including, but not limited to, certain
of the Company's officers and directors. These actions have been consolidated in
the United States District Court, District of New Hampshire, under the common
caption "Bill Berke, et al. V. Presstek, Inc., et al. ("Berke"), and a single
consolidated amended complaint has been filed by lead counsel for the
plaintiffs. 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 Hampshire.
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) and 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 with respect to activities by certain
unnamed persons and entities in connection with the securities of the Company
(c) the backlog of orders from, supply contracts with, and orders received by
its principal customer. The Company's officer and director defendants are
alleged to have sold the Company's common 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.
On March 30, 1999 the United States District Court for the District of New
Hampshire issued orders dismissing several of the claims brought against the
Company and others in the Berke lawsuit.
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, which may result from these lawsuits. Accordingly, no provision for any
liability that may result has been recorded in the accompanying financial
statements.
12
<PAGE>
11. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." ("SFAS No. 133"), which requires companies to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for fiscal years beginning after June 15, 2000. The Company does not presently
enter into any transactions involving derivative financial instruments and,
accordingly, does not anticipate the new standard will have any effect on its
financial statements for the foreseeable future.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
Certain statements contained in this Form 10-Q constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve a number of known and unknown
risks, uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, but are not limited to, the
risks of uncertainty of patent protection, the risks of uncertainty of strategic
alliances, the risk of Year 2000 noncompliance by the Company or critical
third-parties with which the Company does business, the impact of third-party
suppliers, manufacturing constraints or difficulties, market acceptance of and
demand for the Company's products and resulting revenues, development of
technology and manufacturing capabilities, impact of competitive products and
pricing, litigation and other risks detailed in the Company's other filings with
the Securities and Exchange Commission. The words "looking forward," "believe,"
"demonstrate," "intend," "expect," "estimate," "anticipate," "likely" and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date the statement was made.
Background
Presstek, Inc. (The "Company" or "Presstek"), incorporated in Delaware, was
founded in September 1987 as a development company. It was established to find a
new way to produce color offset printing. Heidelberger Druckmaschinen AG
("Heidelberg"), the world's largest printing press manufacturer, and the Company
established a relationship that was formalized in 1991 and resulted in the
introduction of the first jointly developed product, the spark discharge based
GTO-DI. In 1993, after investing substantial effort and resources, the Company
completed the development of its high resolution, semiconductor based laser
diode imaging and thermal plate technology referred to as PEARL. PEARL's thermal
laser diode system enables its customers to image 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 for the printing and
graphic arts industries. These printed materials typically can be produced at a
lower cost than traditional competitive methods. The PEARL-based GTO-DI was
introduced in late 1993, and in May of 1995, Heidelberg introduced the
Quickmaster DI 46-4, which replaced the GTO-DI product line. The Quickmaster DI
represents the second generation of Presstek's proprietary PEARL-based direct
imaging technology. It also employs the Company's patented automatic plate
changing cylinder, which eliminates the need to manually change plates between
jobs, as well as a number of other productivity improvement features. The
Company began shipment of its PEARL-based Quickmaster direct imaging systems to
Heidelberg in the second quarter of 1995. The Company estimates that as of the
end of fiscal 1998, there were more than 950 PEARL-equipped GTO-DI and
Quickmaster DI presses installed utilizing the Company's proprietary consumable
printing plates.
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The Company is also engaged in the development of additional PEARL-based
products that incorporate its patented, proprietary, digital imaging system and
process free thermal ablation printing plate technologies for both
computer-to-plate and computer-to-press applications. During the first quarter
of fiscal 1996, the Company began shipments of its PEARL platesetter, referred
to as the PEARLsetter. The PEARLsetter is a computer-to-plate imaging system
that images both the Company's wet and dry offset plates. Also, in December
1996, the Company began shipments of its direct imaging system for a larger
format Omni-Adast (19" x 26") multicolor press. In the second half of fiscal
1998 the Company began shipments of its PEARLhdp(TM) laser imaging system. The
PEARLhdp, jointly developed with Imation Corp., is a digital halftone-proofing
device. It can produce true halftone "dot for dot" color press proofs using the
Company's computer-to-plate imaging system specially modified for this unique
application. The Company has announced a comprehensive agreement whereby Imation
Corp. has been granted exclusive rights for sales, marketing and distribution of
the PEARLhdp proofing system.
The Company also has announced agreements with a number of other companies
including Scitex Corporation LTD., Nilpeter A/S, Werner Kammann Maschinenfabrik
GmbH, Alcoa Packaging Equipment, Sakurai Graphic Systems Corp., and Fuji Photo
Film Co., Ltd. These agreements typically are for the use of the Company's
direct imaging systems, technology licenses, and/or thermal plate materials.
They include a variety of "direct-to" offset printing applications ranging from
high quality label production and printing on aluminum cans to the production of
normal four-color printing.
The Company operates and reports on a 52/53-week fiscal year, ending on the
Saturday closest to December 31. Accordingly the three and nine months of fiscal
1999 and 1998 ended on October 2, 1999 and October 3, 1998, respectively.
During the quarter ended October 2, 1999 the Company determined to sell or
otherwise discontinue the operations of its Delta V Technologies, Inc., ("Delta
V") subsidiary to allow the Company to focus all of its efforts on the core
business of digital imaging and plate manufacturing. Located in Tucson, Arizona,
Delta V is engaged in the development, manufacture, and sale of vacuum
deposition coating equipment for vacuum coating applications used in a broad
range of industries and products including graphic arts, capacitors,
electronics, optics, architectural and decorative glass, flat panel displays and
packaging. The Company is actively pursuing the sale of Delta V, but will
discontinue operations at the end of fiscal 1999 if a buyer is not found.
As a result of the decision to divest Delta V, the Company incurred a
$10,500,000 loss on disposal of discontinued operations for the three and nine
months ended October 2, 1999. This includes a provision of $3,061,000 for
anticipated closing costs and operating losses until disposal, $6,059,000
related to the write off of goodwill and other intangibles assets, and a
reduction in other assets values of $1,380,000.
Delta V is reported separately as a discontinued operation, and prior
periods have been restated in the financial statements, related footnotes and
the management's discussion and analysis to conform to this presentation.
The Company adopted SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" for the fiscal 1998 year-end reporting.
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The statement requires disclosure of certain financial information related to
operating segments. In the Company's Form 10-K for the fiscal year ended January
2, 1999, two segments were reported, the Digital Imaging Products segment, and
Delta V. As a result of the decision to discontinue the operations of its Delta
V subsidiary, the Company's continuing operations are now reportable as a single
business segment.
Results of Operations
Revenues
Revenues for the three and nine months ended October 2, 1999 of $14,155,000
and $37,937,000 respectively, consisted of product sales, royalties, fees and
other reimbursements. Revenues decreased $1,323,000 or 9% and $22,425,000 or 37%
as compared to the three and nine month periods ending October 3, 1998.
Product sales for the third quarter of fiscal 1999 were $12,700,000
compared to $12,689,000 for the same period in fiscal 1998. The decrease of
shipments to Heidelberg for direct imaging systems used in the Quickmaster DI
and the sale of custom printing press products were offset by an increase in
sales of the Company's PEARLhdp laser imaging system and an increase in sales of
the Company's proprietary consumable products. Product sales for the nine months
of fiscal 1999 were $33,263,000 compared to $49,686,000 for the same period of
fiscal 1998. The decrease of $16,423,000 or 33% is primarily a result of the
decrease of shipments to Heidelberg for direct imaging systems used in the
Quickmaster DI and sales of custom printing press products. These decreases were
partially offset by an increase in sales of the Company's proprietary consumable
products.
The revenues generated from the sale of the Company's PEARLdry and other
consumable products were $9,277,000 and $26,884,000 for the third quarter and
nine months ended October 2, 1999, as compared to $6,496,000 and $20,380,000 for
the three and nine months ended October 3, 1998. These revenues for the third
quarter and nine months ended October 2, 1999 included $3,742,000 and
$12,776,000 sold under the Company's agreements with Heidelberg and its
distributors as compared to $2,179,000 and $8,275,000 for the three and nine
months ended October 3, 1998.
Royalties and fees from licensees for the three and nine months of fiscal
1999 of $1,455,000 and $4,674,000 respectively decreased $1,334,000 or 48% and
$6,002,000 or 56% as compared to royalties and fees for the same periods of
fiscal 1998. Royalties decreased $1,162,000 or 90% and $6,563,000 or 98%
comparing the three and nine months of fiscal 1999 to the same periods of fiscal
1998. These decreases are the result of the reduction of shipments, of direct
imaging systems, to Heidelberg for use in the Quickmaster DI. Engineering fees
decreased $290,000 or 18% for the third quarter of fiscal 1999 as compared to
the same period of fiscal 1998. Engineering fees increased $606,000 or 15% for
the nine months of fiscal 1999 as compared to the same period of fiscal 1998
primarily as a result of engineering and other fees received from Fuji Photo
Film Co., Ltd.
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Revenues generated under the Company's agreements with Heidelberg and its
distributors for the third quarter and nine months of fiscal 1999 were
$4,969,000 and $14,858,000, a decrease of $2,697,000 or 35% and $19,896,000 or
57% from the comparable periods of fiscal 1998. Revenues from Heidelberg
represented 39% and 51% of total revenues for the nine months of fiscal 1999 and
1998, respectively.
The Company has received orders from Heidelberg in connection with its
direct imaging systems used on the Quickmaster DI. Based on the delivery
schedule for these orders, the Company resumed production and initial low level
shipments of its direct imaging systems late in the third quarter, and expects
to continue shipments in the fourth quarter of fiscal 1999 and into the second
quarter of 2000. Additionally, the Company believes production levels through
the second quarter of 2000 will move closer to the actual installation rate of
Quickmaster DI's made by Heidelberg.
The Company believes that net revenues will be lower in fiscal 1999 as
compared to fiscal 1998. The Company will continue to feel the impact of reduced
shipments to Heidelberg for the direct imaging systems used on the Quickmaster
DI through fiscal 1999. The anticipated increase in sales volume related to the
Company's proprietary consumables sold for the QM-DI and other equipment, as
well as the anticipated increase in sales volume of the PEARLhdp imaging systems
is expected to partially mitigate the effect of the decrease in revenues. There
can be no assurance, however, that the Company will achieve these partially
offsetting revenue increases.
Cost of Products Sold
Cost of products sold consists of the costs of material, labor and overhead
as well as future warranty costs associated with product sales. Cost of products
sold for the third quarter of fiscal 1999 were $8,988,000 an increase of
$472,000 or 6% as compared to costs of products sold for the third quarter of
fiscal 1998. Cost of products sold for the nine months of fiscal 1999 were
$24,510,000, a decrease of $9,906,000 or 29% as compared to the cost of products
sold for the nine months of fiscal 1998. Gross margins on product sales
decreased to 29% and 26%, from 33% and 31% comparing the three and nine months
of fiscal 1999 and 1998, respectively. This decrease is attributed to the
reduced manufacturing volume of the direct imaging systems sold to Heidelberg
for use in the QM-DI, as well as increased fixed costs associated with the
Company's Hudson, New Hampshire manufacturing operations.
The Company anticipates the gross margin on product sales will show some
improvement in the fourth quarter of fiscal 1999, due to the resumption of
shipments of direct imaging systems to Heidelberg. There can be no assurance,
however, that the actual gross margins will not be lower than anticipated.
Engineering and Product Development Expenses
Engineering and product development expenses consist primarily of payroll
and related expenses for personnel, parts and supplies, and contracted services
required to conduct the Company's equipment and consumable product development
efforts.
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Engineering and product development expenses were $4,025,000 and
$12,574,000 or 28% and 33% of net revenues for the three and nine months ended
October 2, 1999 as compared to $3,657,000 and $10,537,000 or 24% and 17% of net
revenues for the three and nine months ended October 3, 1998. The increases of
$368,000 or 10% and $2,037,000 or 19% resulted principally from increased
expenditures for labor and professional services related to the Company's
continued development of products incorporating its PEARL technology. Included
in these development efforts were expenditures for the Company's PEARLgold
family of products and other consumables, as well as expenditures for its
next-generation laser diode technology and other product development efforts.
These increased expenditures were also a result of increased engineering
programs related to the Company's development contract with Fuji Photo Film Co.,
Ltd.
The Company expects these increasing development expenditures to continue
through fiscal 1999, as it prepares for the introduction of its next-generation
laser imaging technology, expands its PEARLgold family of proprietary consumable
printing plates, and pursues the development of additional products for the
DRUPA 2000 international printing-media trade show. There can be no assurance,
however, that these expenses will not be greater than currently anticipated.
Sales and Marketing Expenses
Sales and marketing expenses consist primarily of payroll and related
expenses for personnel, advertising and promotional expenses, and travel costs.
Sales and marketing expenses were $1,524,000 and $4,341,000 or 11% of net
revenues for the three and nine months ended October 2, 1999 as compared to
$1,601,000 and $4,242,000 or 10% and 7% of net revenues for the three and nine
months ended October 3, 1998. Overall expenditures for professional services,
other related costs associated with the Company's attendance at trade shows, the
continued expansion of its worldwide sales, distribution and technical support
network did not change materially comparing the respective periods.
It is expected that the current expenditure level will continue through
fiscal 1999 as the Company continues to expand its direct sales force and
distribution channels for its products in anticipation of the DRUPA 2000 trade
show. There can be no assurance, however, that these expenditures will not be
greater than currently anticipated.
General and Administrative Expenses
General and administrative expenses consist primarily of payroll and
related expenses for personnel and contracted professional services. General and
administrative expenses for the three and nine months ended October 2, 1999 were
$1,514,000 and $4,803,000 or 11% and 13% of net revenues compared to $1,784,000
and $5,431,000 or 12% and 9% of net revenues for the three and nine months ended
October 3, 1998. The decreases of $270,000 or 15% and $628,000 or 12%
respectively, relate primarily to decreases in expenditures for contracted
professional services that are required to conduct the finance, information
systems, and administrative functions of the Company.
The Company anticipates that general and administrative costs for fiscal
1999 will continue at current levels, however, there can be no assurance that
these expenses will not be greater than anticipated.
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Other Income and Expense
Other income was $118,000 and $488,000 or 1% of net revenues for the three
and nine months ended October 2, 1999 compared to $260,000 and $631,000 or 2%
and 1% of net revenues for the three and nine months ended October 3, 1998. The
decrease of approximately $143,000 for the three and nine months ended October
2, 1999 is primarily the result of a decrease in average cash balances available
for investment.
Provision for Income Taxes
For the three and nine months ended October 2, 1999, the Company did not
record a provision for federal or state income taxes as a result of net
operating losses from continuing operations of $1,778,000 and $7,803,000
reported for the periods. The provision for income taxes for the three and nine
months ended October 3, 1998 of $100,000 and $2,090,000, respectively included a
charge in lieu of federal and state income taxes. This charge relates
principally to the realization of net operating loss carryforwards resulting
from stock compensation deductions for tax purposes of $100,000 and $1,640,000,
respectively. The tax benefit related to such stock option deductions has been
credited to additional paid in capital. The state provision of $450,000 for the
nine months ended October 3, 1998 is based upon the estimated effective income
tax rate for the full fiscal year.
Income (Loss) from Continuing Operations
As a result of the foregoing, the Company had losses from continuing
operations of $1,778,000 and $7,803,000 for the three and nine months ended
October 2, 1999, compared to income of $80,000 and $4,277,000 for the three and
nine months ended October 3, 1998.
Income (Loss) from Discontinued Operations
The results of operations of Delta V are presented as discontinued
operations. For the three and nine months ended October 2, 1999 the Company
recorded a $10,500,000 loss on disposal of its discontinued operations. This
loss included a provision of $3,601,000 for anticipated closing costs and
operating losses until disposal, $6,059,000 related to the write off of goodwill
and other intangible assets and reductions in other asset values of $1,380,000.
For the three months of fiscal 1999, the Company recorded a loss from
discontinued operations of $555,000 compared to net income of $46,000 for the
third quarter of fiscal 1998. For the nine months of fiscal 1999, the Company
recorded a loss of $448,000 as compared to a loss of $1,173,000 for the same
period of fiscal 1998.
Liquidity and Capital Resources
At October 2, 1999, the Company had cash, cash equivalents, and short-term
marketable securities of $18,933,000 and working capital of $24,646,000 as
compared to cash, cash equivalents and marketable securities of $19,057,000 and
working capital of $37,080,000 at January 2, 1999.
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Cash generated from continuing operating activities was $5,230,000 for the
nine months ended October 2, 1999. The cash flow resulted primarily from
reductions in accounts receivable and inventories of $11,514,000, non-cash items
of depreciation and amortization of $4,143,000, a provision for losses on
accounts receivable of $1,340,000, offset by the loss from discontinuing
operations of $8,234,000, and the decreases in accounts payable and billings in
excess of costs of $1,690,000.
Net cash used for investing activities was $9,093,000 for the nine months
ended October 2, 1999. The cash flow consisted primarily of additions to
property, plant and equipment used in the Company's business of $9,510,000,
offset by the decrease in other assets from discontinued operations of $73,000,
and the proceeds from the sale of land and equipment of $381,000.
Net cash provided by financing activities was $3,975,000 for the nine
months ended October 2, 1999. The cash flow consisted primarily of the proceeds
from the issuance of common stock incident to the exercise of stock options of
$320,000 and the proceeds from the Company's lease line of credit of $4,041,000,
offset by payments on the mortgage term loan of $386,000.
In September 1999, the Company borrowed $4,041,000 against a $10,000,000
lease line of credit facility from Keybank National Association. Borrowings are
secured by equipment valued at $5,199,000. The loan bears a variable rate of
interest, based upon the prime rate, with a fixed rate conversion provision. The
current interest rate is 7.25%. Principal and interest on the lease line of
credit facility are payable in 84 monthly installments beginning October 31,
1999. The commitment for the balance of $5,959,000 available under the lease
line of credit is scheduled to expire on April 30, 2000.
On February 6, 1998, the Company obtained a ten-year mortgage term loan in
the principal amount of $6,900,000 from Citizens Bank New Hampshire
("Citizens"). Borrowings are secured by land and buildings with a cost of
approximately $17,000,000. The loan bears a fixed rate of interest of 7.12% per
year during the first five years and a variable rate of interest at the LIBOR
rate plus 2%, for the remaining five years. Principal and interest payments
during the first five years of the loan will be made in 60 monthly installments
of $80,500. During the remaining five years, principal and interest payments
shall be made on a monthly basis in the amount of one-sixtieth of the
outstanding principal amount as of the first day of the second five year period,
plus accrued interest through the monthly payment date. All outstanding
principal and accrued and unpaid interest is due and payable on February 6,
2008.
In December 1998, the Company renewed its agreement with Citizens 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. Interest on
the line of credit is payable at the LIBOR rate plus 1.50% (6.92% at October 2,
1999). The loan agreement terminates on July 31, 2000, at which date, the entire
principal and accrued interest that is due and payable. The Company currently
has $10,000,000 available under the line of credit loan agreement.
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Under the terms of the mortgage term loan, the lease line of credit and the
revolving line of credit agreements, the Company is required to meet certain
financial covenants on a quarterly and annual basis. At October 2, 1999, the
Company was in compliance with all debt covenants.
The Company has approved expenditures of $8,500,000 for additional plate
manufacturing equipment that is expected to reduce the cost of plate manufacture
and enhance the Company's development capabilities. The Company believes the
existing funds, cash flows from operations, cash available under its revolving
line of credit and lease line of credit should be sufficient to satisfy working
capital requirements and capital expenditures through the next twelve months.
Effect of Inflation
Inflation has not had, and is not expected to have, a material impact upon
the Company's operations.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." ("SFAS No. 133"), which requires companies to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for fiscal years beginning after June 15, 2000. The Company does not presently
enter into any transactions involving derivative financial instruments and,
accordingly, does not anticipate the new standard will have any effect on its
financial statements for the foreseeable future.
Year 2000
The Year 2000 ("Y2K") problem arose because many existing computer systems
use only the last two digits to identify the year instead of using all four
digits. These computer systems cannot recognize the difference in a year that
begins with "20" from a year that begins with "19". If not corrected, many of
these computer systems could fail or create erroneous results.
The Company has established a program to determine the impact of the Y2K
issue on the software and hardware utilized in the Company's internal operations
and included in its products manufactured for sale to customers. This assessment
includes applications and systems software, information technology ("IT")
infrastructure, manufacturing and process control technology, products and
services, and third party suppliers and customers. Representatives from each
functional area of the Company meet weekly to monitor program status and address
issues relating to the program's progress.
The major project phases include; inventorying affected technology and
assessing the impact of the Y2K issue on items determined to be material to the
Company; modifying or replacing items determined not to be Y2K compliant;
testing and certifying material items; and developing contingency plans.
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The inventory and assessment phase of the project has been completed.
Certain non-compliant systems were replaced in January 1998 as the Company
installed Y2K compliant business systems software. All other components of
software and hardware for the Company are in various phases. The Company has
completed the testing of its manufacturing and process control technology, as
well as its currently supported products available for sale to customers. The
Company is currently updating its IT systems and server infrastructure and
expects to be completed by the end of November 1999.
The Company relies on third-party suppliers for many systems, products and
services including its security system, building equipment and
telecommunications. Failure of such third party systems and equipment to operate
properly could adversely effect the Company. The Company has initiated formal
communications with its significant suppliers and has received assurances of Y2K
compliance from 95% of its critical suppliers. The Company expects to have
alternate sources of supply identified for the remaining suppliers by the end of
November 1999.
The total costs associated with becoming Y2K compliant are not expected to
be material to the Company's financial position or operations. Costs incurred
through October 2, 1999 have been incurred as part of normal IT operating costs.
Management believes it has an effective program in place to resolve Y2K
issues without significant costs or disruption of operations. However, it is not
possible to anticipate all future outcomes, especially when third parties are
involved. There could be circumstances that could adversely effect the Company's
results of operations, liquidity and financial condition. The Company is
developing a contingency plan to minimize the effect of non-compliance on
business operations, however the Company's contingency plans have not yet been
tested. There can be no assurance therefore, the contingency plans will provide
adequate safeguards in the event the Company or its critical third-party
business relations ultimately are not year 2000 compliant.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company has no material exposure to interest rate fluctuations on its
variable rate debt.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In August 1999 Creo Products, Inc. filed an action in the District Court
for the District of Delaware against the Company asserting that Creo has a
"reasonable apprehension that it will be sued by Presstek for infringement" of
two of the Company's patents and seeking a declaration that Creo's products "do
not and will not infringe any valid and enforceable claims" of the patents in
question. In September 1999, the Company filed a counterclaim against Creo for
patent infringement. The Company claims that Creo has infringed two direct
imaging patents owned by the Company which were recently the subject of
re-examination by the U.S. Patent and Trademark Office.
Presstek intends to vigorously enforce it patent rights.
See Item 3 of the Company's Form 10-K for the fiscal year ended January 2
1999, for a description of certain other legal proceedings pending against the
Company and certain of its officers and directors.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 10.1 Master Security Agreement and related Promissory Note, by
and between the Company and Keycorp Leasing, a Division of Key
Corporate Capital, Inc., dated September 27, 1999.
Exhibit 27 Financial Data Schedule (for SEC use only)
27.1 Financial Data Schedule for the nine month period ended
October 2, 1999
27.2 Restated Financial Data Schedule for the nine month period ended
October 3, 1998
27.3 Restated Financial Data Schedule for the fiscal year ended
January 2, 1999
(b) No reports on Form 8-K were filed for the quarter for which this
report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 16, 1999
PRESSTEK, INC.
(Registrant)
By: /s/ Robert W. Hallman
---------------------------
Robert W. Hallman
Chief Executive Officer
(Duly Authorized Officer)
By: /s/ Neil Rossen
---------------------------
Neil Rossen
Chief Financial Officer
(Principal Financial and
Accounting Officer)
24
Customer Number: 15334
Promissory Note Number: 8800018264
Master Security Agreement
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THIS MASTER SECURITY AGREEMENT (this "Agreement" or "Security Agreement")
dated as of September 27, 1999 is made by and between PRESSTEK, INC., a Delaware
corporation having its chief executive office at 9 Commercial Street, Hudson, NH
03051 (the "Borrower"), and KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL
INC. having an office at 54 State Street, Albany, New York 12207 ("KCL").
W I T N E S S E T H:
This Agreement provides terms and conditions that the parties intend to
apply to various loan transactions secured by personal property. Each such loan
transaction shall be evidenced in part by a collateral schedule that explicitly
incorporates the provisions of this Master Security Agreement and that sets
forth the description of the specific collateral. Where the provisions of a
Collateral Schedule (as defined below) conflict with the terms hereof, the
provisions of the Collateral Schedule shall prevail. Each Collateral Schedule
and Note (as defined below) shall constitute a complete and separate loan and
security agreement, independent of all other Collateral Schedules, and without
any requirement of being accompanied by an originally executed copy of this
Master Security Agreement.
One originally executed copy of the Collateral Schedule shall be
denominated "Originally Executed Copy No. 1 of __ originally executed copies."
If more than one copy of the Collateral Schedule is executed by Borrower and
KCL, all such other copies shall be consecutively numbered with numbers greater
than 1. Only transfer of possession by Secured Party of Originally Executed Copy
No. 1 shall be effective for purposes of perfecting an interest in such
Collateral Schedule by Possession.
1. Grant of Security Interest in the Equipment. In consideration of one or
more loans, advances or other financial accommodations at any time before, at or
after the date hereof, made or extended by KCL to or for the account of the
Borrower, directly or indirectly, as principal, guarantor or otherwise and to
secure the prompt payment and performance in full when due, whether by lapse of
time, acceleration or otherwise, of the Secured Obligations, the Borrower hereby
pledges, assigns, transfers and hypothecates to KCL and grants to KCL a security
interest in, and acknowledges and agrees that this Agreement shall create a
continuing security interest in, all of Borrower's right, title and interest in
and to the Collateral.
The Secured Obligations of the Borrower are absolute, irrevocable and
unconditional under any and all circumstances whatsoever and shall not be
subject to any right of set-off, counterclaim, deduction, defense or other right
which the Borrower may have for any reason against any vendor, supplier,
manufacturer, KCL or any other party. All obligations of Borrower hereunder
shall survive the expiration, cancellation or other termination of this
Agreement.
2. Definitions. Unless the context otherwise requires, as used in this
Agreement, the following terms shall have the respective meanings indicated
below and shall be equally applicable to both the singular and the plural forms
thereof:
"Alteration" shall have the meaning specified in Section 6 hereof.
"Applicable Law" shall mean all applicable Federal, state, local and foreign
laws, ordinances, judgments, decrees, injunctions, writs, rules, regulations,
orders, licenses and permits of any Governmental Authority.
"Authorized Signer" shall mean any officer of Borrower, set forth on an
incumbency certificate (in form and substance satisfactory to KCL) delivered by
Borrower to KCL, who is authorized and empowered to execute the Loan Documents.
"Certificate of Acceptance" shall mean a certificate of acceptance, in form and
substance satisfactory to KCL, executed and delivered by Borrower in accordance
with Section 3 hereof.
"Collateral" shall mean the Equipment and any and all substitutions,
replacements or exchanges therefor, and any and all proceeds (both cash and
non-cash) receivable or received from the sale, lease, license, collection, use,
exchange or other disposition of the Collateral, including insurance proceeds,
thereof (including, without limitation, claims of the Borrower against third
parties for Loss or Damage to any such collateral).
"Collateral Schedule" shall mean a collateral schedule (in substantially the
form of Exhibit 2 hereto) now or hereafter executed by Borrower in connection
with any Note or other evidence of indebtedness which incorporates the terms and
conditions of this Agreement. Each Collateral Schedule shall be serially
numbered. Unless and only to the extent otherwise
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Form No: MSA Rev. 012999 Page 1 of 12
<PAGE>
expressly provided in a Collateral Schedule, no Collateral Schedule shall
replace any previous Collateral Schedule but shall be supplementary to all
previous Collateral Schedules.
"Default" shall mean any event or condition which, with the passage of time or
the giving of notice, or both, would constitute an Event of Default.
"Equipment" shall mean an item or items of personal property which are described
on a Collateral Schedule, together with all replacement parts, additions,
attachments and accessories incorporated therein or affixed thereto including,
without limitation, any software that is a component or integral part of, or is
included or used in connection with, any Item of Equipment, but with respect to
such software, only to the extent of Borrower's interest therein, if any.
"Equipment Location" shall mean the location of the Equipment, as set forth in a
Collateral Schedule, or such other location (approved in writing by KCL) as
Borrower shall from time to time specify in writing.
"Event of Default" shall have the meaning specified in Section 16 hereof.
"GAAP" shall have the meaning specified in Section 22 (g) hereof.
"Governmental Action" shall mean all authorizations, consents, approvals,
waivers, filings and declarations of any Governmental Authority, including,
without limitation, those environmental and operating permits required for the
ownership, lease, use and operation of the Equipment.
"Governmental Authority" shall mean any foreign, Federal, state, county,
municipal or other governmental authority, agency, board or court.
"Guarantor" shall mean any guarantor of the Secured Obligations.
"Item of Equipment" shall mean each item of the Equipment.
"Installment(s)" shall mean the periodic payments due to repay the Note, and,
where the context hereof requires, all such additional amounts as may from time
to time be payable under any provision of the Loan Documents.
"Default Rate" shall mean an annual interest rate equal to the lesser of 18% or
the maximum interest rate permitted by Applicable Law.
"Liability" shall have the meaning set forth in Section 18 hereof.
"Loan Documents" shall mean, collectively, this Agreement, a Note, a Certificate
of Acceptance, a Collateral Schedule and all other documents prepared by KCL and
now or hereafter executed in connection therewith.
"Lien" shall mean all mortgages, pledges, security interests, liens,
encumbrances, claims or other charges of any kind whatsoever, except the
security interest of KCL created by this Agreement.
"Loss or Damage" shall mean any loss, theft, destruction, disappearance or any
condemnation, expropriation or requisition of or damage to any Item of
Equipment.
"Note" shall mean a Promissory Note in substantially the form attached hereto as
Exhibit 1 and executed in connection herewith, together with any extensions,
modifications, renewals, refinancings or other restructurings thereof.
"Secured Obligations" means all of the following obligations of Borrower,
whether direct or indirect, absolute or contingent, matured or unmatured,
originally contracted with KCL or another party, and now or hereafter owing to
or acquired in any manner partially or totally by KCL or in which KCL may have
acquired a participation, contracted by Borrower alone or jointly or severally:
(1) any and all indebtedness, obligations, liabilities, contracts, indentures,
agreements, warranties, covenants, guaranties, representations, provisions,
terms, and conditions of whatever kind, now existing or hereafter arising, and
however evidenced, that are now or hereafter owed, incurred or executed by
Borrower to, in favor of, or with KCL (including, without limitation, those as
are set forth or contained in, referred to, evidenced by, or executed with
reference to the Loan Documents any letter of credit agreements, advance
agreements, indemnity agreements, guaranties, lines of credit, mortgage deeds,
security agreements, assignments, pledge agreements, hypothecation agreements,
instruments, and acceptance financing agreements), and including any partial or
total extension, restatement, renewal, amendment, and substitution thereof or
therefor; (2) any and all claims of whatever kind of KCL against Borrower, now
existing or hereafter arising, including, without limitation, any arising out of
or in any way connected with warranties made by Borrower to KCL in connection
with any instrument purchased by KCL; and (3) any and all of KCL's fees, costs
and expenses related to the foregoing.
"Supplier" shall mean the manufacturer or the vendor of the Equipment, as set
forth on each Collateral Schedule.
"Term" shall mean the term of a Note.
"UCC" shall have the meaning set forth in Section 16(b)(ii) hereof and, where
applicable, and except as otherwise defined herein, terms used in this Agreement
shall have the meaning assigned to them in the UCC.
"Upgrade" shall have the meaning specified in Section 8 hereof.
3. Delivery and Acceptance. Concurrently with execution of a Collateral
Schedule hereunder, Borrower shall execute and deliver to KCL a Certificate of
Acceptance for the Equipment described on such Collateral Schedule. KCL SHALL
HAVE NO OBLIGATION TO ADVANCE ANY FUNDS TO BORROWER UNLESS AND UNTIL KCL SHALL
HAVE RECEIVED A CERTIFICATE OF ACCEPTANCE RELATING TO THE EQUIPMENT
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Form No: MSA Rev. 012999 Page 2 of 12
<PAGE>
EXECUTED BY BORROWER. Such Certificate of Acceptance shall constitute Borrower's
acknowledgment that such Equipment (a) was received by Borrower, (b) is
satisfactory to Borrower in all respects, (c) is suitable for Borrower's
purposes, (d) is in good order, repair and condition, (e) has been installed and
operates properly, and (f) is subject to all of the terms and conditions of the
Loan Documents. Borrower's execution and delivery of a Certificate of Acceptance
shall be conclusive evidence as between KCL and Borrower that the Items of
Equipment described therein are in all of the foregoing respects satisfactory to
Borrower, and Borrower shall not assert any claim of any nature whatsoever
against KCL based on any of the foregoing matters; provided, however, that
nothing contained herein shall in any way bar, reduce or defeat any claim that
Borrower may have against the Supplier or any other person (other than KCL).
4. Payments. Borrower shall pay each Note on the terms set forth therein.
All Installments shall be payable when due whether or not Borrower has received
any additional notice that such Installments are due. All Installments shall be
paid to KCL at P.O. Box 1865, Albany, New York 12201-1865, or as otherwise
directed by KCL in writing.
5. Location; Inspection. The Equipment shall be delivered to the Equipment
Location and shall not be removed therefrom without KCL's prior written consent.
Borrower shall maintain possession and control of the Equipment at all times.
KCL shall have the right to enter upon the Equipment Location and inspect the
Equipment at any reasonable time. Borrower will promptly give written notice to
KCL of any change in the identity or location of any Item of Equipment which
might require new filings or other action to assure continued perfection of the
security interest of KCL granted hereby. The Borrower owns, and will continue to
own, all Equipment Locations except as otherwise indicated on a Collateral
Schedule.
6. Use; Alterations. Borrower shall use the Equipment only in the course of
its business for commercial purposes (and shall not permanently discontinue use
of the Equipment), and in compliance with Applicable Law and the requirements of
any applicable insurance policies, and only in the manner for which it was
designed and intended and so as to subject it only to ordinary wear and tear.
Borrower shall comply with all Applicable Law with respect to the Equipment.
Borrower shall immediately notify KCL in writing of any existing or threatened
investigation, claim or action by any Governmental Authority in connection with
any Applicable Law or Governmental Action which could adversely affect the value
of the Equipment or the perfection or priority of the security interest of KCL
in the Collateral. Borrower shall not make any material alterations, additions,
modifications or improvements (each, an "Alteration") to the Equipment without
KCL's prior written consent; provided that Borrower, at its own expense, shall
make such Alterations to the Equipment as may be required from time to time to
meet the requirements of Applicable Law or Governmental Action. All such
Alterations immediately, and without further act, shall be deemed to constitute
Items of Equipment and fully be subject to the security interest granted to KCL
hereunder.
7. Repairs and Maintenance. Borrower, at Borrower's own cost and expense,
shall (a) keep the Equipment in good repair, operating condition and working
order and in compliance with the manufacturer's specifications and Borrower's
standard practices (but with respect to the latter, in no event less than
industry practices) and (b) enter into and keep in full force and effect during
the Term hereof a maintenance agreement with the manufacturer of the Equipment,
or a manufacturer-approved maintenance organization, to maintain, service and
repair the Equipment as otherwise required herein. Upon KCL's request, Borrower
shall furnish KCL with an executed copy of any such maintenance agreement. An
alternate source of maintenance may be used by Borrower with KCL's prior written
consent. Borrower, at its own cost and expense and within a reasonable period of
time, shall replace any part of any Item of Equipment that is unfit or
unavailable for use from any cause (whether or not such replacement is covered
by the aforesaid maintenance agreement) with a replacement part of the same
manufacture, value, remaining useful life and utility as the replaced part
immediately preceding the replacement (assuming that such replaced part was in
the condition required by this Agreement). Such replacement part shall be free
and clear of all Liens and upon installation, attachment or incorporation in, on
or into such Item of Equipment, such replacement part immediately, and without
further act, shall be deemed to constitute an Item of Equipment and fully be
subject to the security interest granted to KCL hereunder. If KCL repossesses
the Equipment pursuant to its rights under this Agreement and at that time, in
the opinion of KCL, any Item of Equipment fails to meet the standards set forth
above, Borrower agrees to pay on demand all costs and expenses incurred in
connection with repairing or restoring such Item of Equipment so as to meet such
standards and/or assembling and delivering such Item of Equipment.
8. Equipment Upgrades/Attachments. In addition to the requirements of
Section 6 hereof, Borrower, at its own expense, may from time to time add or
install upgrades or attachments (each, an "Upgrade") to the Equipment; provided,
that such Upgrades are readily removable without causing material damage to the
Equipment, and do not materially adversely affect the fair market value of the
Equipment. Any such Upgrades shall be owned by Borrower, shall become subject to
the security interest created by this Agreement and shall be kept free and clear
of all Liens so long as attached to the Equipment.
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Form No: MSA Rev. 012999 Page 3 of 12
<PAGE>
9. Lease and Assignment. (a) WITHOUT KCL'S PRIOR WRITTEN CONSENT, BORROWER
SHALL NOT (i) ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF, THE
EQUIPMENT OR ANY INTEREST THEREIN, OR ASSIGN OR DELEGATE ITS RIGHTS OR
OBLIGATIONS UNDER THE LOAN DOCUMENTS, OR (ii) LEASE OR LEND THE EQUIPMENT TO, OR
PERMIT THE EQUIPMENT TO BE USED BY, ANYONE OTHER THAN BORROWER.
(b) KCL, at any time with or without notice to Borrower, may sell,
transfer, grant participations in, assign and/or grant a security interest in
any or all of KCL's right, title and interest in and to the Loan Documents, or
in KCL's interest in any Item of Equipment. In any such event, any such
purchaser, transferee, assignee or secured party shall have and may exercise all
of KCL's rights hereunder or thereunder, and BORROWER SHALL NOT ASSERT AGAINST
ANY SUCH PURCHASER, TRANSFEREE, ASSIGNEE OR SECURED PARTY ANY DEFENSE,
COUNTERCLAIM OR OFFSET THAT BORROWER MAY HAVE AGAINST KCL. Borrower agrees that
upon written notice to Borrower of any such sale, transfer, assignment and/or
security interest, Borrower shall acknowledge receipt thereof in writing and
shall comply with the reasonable directions and demands of such purchaser,
transferee, assignee or secured party.
(c) Subject to the foregoing, all covenants and agreements contained herein
shall be binding upon, and inure to the benefit of, KCL and its successors and
permitted assigns and Borrower and its successors and permitted assigns.
10. Loss of or Damage to Equipment. In the event of Loss or Damage to any
Item of Equipment, Borrower shall immediately notify KCL of same and, at the
option of KCL, as specified in a notice from KCL to Borrower, Borrower shall
within thirty (30) days following such Loss or Damage: (1) place such Item of
Equipment in good condition and repair, in accordance with the terms hereof; (2)
replace such Item of Equipment with replacement equipment (acceptable to KCL) in
as good condition and repair, and with the same or better fair market value as
such replaced Item of Equipment immediately preceding the Loss or Damage
(assuming that such replaced Item of Equipment was in the condition required by
this Agreement), which replacement equipment shall immediately, and without
further act, be deemed to constitute Items of Equipment and be fully subject to
this Agreement as if originally pledged as Collateral hereunder and shall be
free and clear of all Liens; or (3) pay to KCL any unpaid Installments and other
charges due prior to the payment date specified in such notice plus an amount,
with respect to an Item of Equipment, equal to the pro rata portion of the
Installments attributable to such Item of Equipment under the Loan Documents
after discounting such Installments to present worth as of the payment date
specified in such notice on the basis of a per annum rate of discount equal to
three percent (3%) from the respective dates upon which such Installments would
have been paid but for the operation of this clause, together with interest on
such amount at the Default Rate from the payment date specified in such notice
to the date of actual payment.
Upon KCL's receipt of the payment required under clause (3) above, KCL
shall release its security interest in such Item of Equipment. If Borrower
replaces the Item of Equipment pursuant to clause (2) above, such replacement
shall be deemed to constitute an Item of Equipment and be fully subject to this
Agreement and the security interest granted to KCL hereunder, as if originally
pledged hereunder. If Borrower fails to either restore or replace the Item of
Equipment pursuant to clauses (1) or (2) above, respectively, Borrower shall
make the payment under clause (3) above.
11. Insurance. (a) Borrower, at Borrower's own cost and expense, shall
maintain (1) insurance against all risks of physical loss or damage to the
Equipment (which shall include theft and collision for Equipment consisting of
motor vehicles, and shall not exclude loss resulting from flood or earthquake)
in an amount not less than the full replacement value thereof and (2)
comprehensive public liability insurance including blanket contractual liability
for personal and bodily injury and property damage in an amount satisfactory to
KCL.
(b) All insurance policies required hereunder shall (1) require 30 days'
prior written notice to KCL of cancellation or material change in coverage (any
such cancellation or change, as applicable, not being effective until the
thirtieth (30th) day after the giving of such notice); (2) name "KeyCorp and its
subsidiaries and affiliated companies, including KeyCorp Leasing, a Division of
Key Corporate Capital Inc." as sole loss payee under the property insurance
policies; (3) not require contributions from other policies held by KCL; (4)
waive any right of subrogation against KCL; (5) in respect of any liability of
KCL, except for the insurers' salvage rights in the event of a Loss or Damage,
waive the right of such insurers to set-off, to counterclaim or to any other
deduction, whether by attachment or otherwise, to the extent of any monies due
KCL under such policies; (6) not require that KCL pay or be liable for any
premiums with respect to such insurance covered thereby; (7) be in full force
and effect throughout any geographical areas at any time traversed by any Item
of Equipment; and (8) contain breach of warranty provisions providing that, in
respect of the interests of KCL in such policies, the insurance shall not be
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Form No: MSA Rev. 012999 Page 4 of 12
<PAGE>
invalidated by any action or inaction of Borrower or any other person (other
than KCL) and shall insure KCL regardless of any breach or violation of any
warranty, declaration or condition contained in such policies by Borrower or by
any other person (other than KCL). Prior to funding a Note, and thereafter not
less than 15 days prior to the expiration dates of the expiring policies
theretofore delivered pursuant to this Section, Borrower shall deliver to KCL a
duplicate original of all policies (or in the case of blanket policies,
certificates thereof issued by the insurers thereunder) for the insurance
maintained pursuant to this Section.
(c) Proceeds of insurance with respect to physical loss or damage to the
Equipment shall be applied, at the option of KCL, to repair or replace the
Equipment or to reduce or satisfy (as applicable) the Secured Obligations.
12. Taxes. Borrower shall pay when due any and all taxes, fees, levies,
imposts, duties, assessments and public and private charges levied or assessed
on or with respect to the Equipment, on the use thereof, or on this Agreement or
any of the other Loan Documents.
13. KCL's Right to Perform for Borrower. If Borrower fails to perform any
of its obligations contained in the Loan Documents, KCL may (but shall not be
obligated to) itself perform such obligations, and the amount of the reasonable
costs and expenses of KCL incurred in connection with such performance, together
with interest on such amount from the date paid by KCL until the date repaid by
Borrower to KCL, at the Default Rate, shall be payable by Borrower to KCL upon
demand. No such performance by KCL shall be deemed a waiver of any rights or
remedies of KCL, or be deemed to cure the default of Borrower hereunder. All
such sums and amounts so expended by KCL shall be repayable by the Borrower
immediately without notice or demand, shall constitute additional Secured
Obligations and shall bear interest from the date said amounts are expended at
the Default Rate.
14. Delinquent Payments; Interest. If Borrower fails to pay any of the
Installments on the date when the same becomes due, Borrower shall pay to KCL a
late charge equal to five percent (5%) of such delinquent amount. Such late
charge shall be payable by Borrower upon demand by KCL and shall be deemed part
of the Secured Obligations. In no event shall such late charge exceed the
maximum amounts permitted under Applicable Law.
15. Personal Property; Liens; Warranty of Title. The Borrower is, and will
continue to be, the sole owner of the Equipment, free from any Lien. KCL and
Borrower hereby agree that the Equipment is, and shall at all times remain,
personal property notwithstanding the fact that any Item of Equipment may now
be, or hereafter become, in any manner affixed or attached to real property or
any improvements thereon. Borrower shall at all times keep the Equipment free
and clear from all Liens, and the Borrower shall obtain and deliver to KCL (to
be recorded at the Borrower's expense) from each person having a Lien on any
Equipment Location waivers of any Lien which such person might have or hereafter
obtain or claim with respect to the Equipment. Borrower shall (i) give KCL
immediate written notice of any Lien on the Collateral, (ii) promptly, at
Borrower's sole cost and expense, take such action as may be necessary to
discharge any such Lien, and (iii) indemnify and hold KCL, on an after-tax
basis, harmless from and against any loss or damage caused by any such Lien.
Borrower warrants that it has good, valid and marketable title to the Equipment,
and that (i) the security interest in the Collateral granted to KCL hereunder,
when properly perfected by filing, shall constitute a valid and perfected first
priority security interest in the Collateral and, (ii) the Collateral is not
subject to, and Borrower will not grant or permit to exist, any Liens or claims
on or against the Collateral, whether senior, superior, junior, subordinate or
equal to the security interest granted to KCL hereby, or otherwise.
16. Events of Default; Remedies. (a) As used herein, the term "Event of
Default" shall mean any of the following events: (1) Borrower fails to pay any
Installment within ten (10) days after the same becomes due and payable; (2)
Borrower breaches any of its other obligations under any of the Loan Documents
and fails to cure the same within thirty (30) days after written notice thereof;
(3) any dissolution, termination of existence, merger, consolidation, change in
controlling ownership of Borrower or Guarantor, or if Borrower or Guarantor is a
natural person, the death or incompetence of Borrower or Guarantor; (4) Borrower
or any Guarantor fails to pay its debts generally as they become due or becomes
insolvent or makes an assignment for the benefit of its creditors; (5) a
receiver, trustee, conservator or liquidator of Borrower or any Guarantor or of
all or a substantial part of Borrower's or such Guarantor's assets is appointed
with or without the application or consent of Borrower or such Guarantor,
respectively; (6) a petition is filed by or against Borrower or any Guarantor
under any bankruptcy, insolvency or similar legislation; (7) Borrower or any
Guarantor violates or fails to perform any provision of either the Loan
Documents or any other loan, lease or credit agreement or any acquisition or
purchase agreement with KCL or any other party; (8) Borrower violates or fails
to perform any covenant or representation made by Borrower in the Loan
Documents; (9) any representation or warranty made herein or in any of the Loan
Documents, certificates, financial
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Form No: MSA Rev. 012999 Page 5 of 12
<PAGE>
statements or other statements furnished to KCL (or KCL's parent, subsidiaries
or affiliates) shall prove to be false or misleading in any material respect as
of the date on which the same was made; (10) there is a material adverse change
in Borrower's or any Guarantor's financial condition; (11) Borrower shall fail
to satisfy any final judgment rendered against the Borrower by any court of
competent jurisdiction where the judgment is material in amount as to the
Borrower or materially impairs the financial or business condition of the
Borrower; (12) any of the liens created or granted hereby, or intended to be
granted or created hereby, to KCL shall fail to be valid, first priority
perfected liens subject to no prior or equal lien; or (13) the receipt by KCL of
a notice to creditors with regard to a bulk transfer by the Borrower pursuant to
Article 6 of the Uniform Commercial Code; or (14) an additional Lien attaches to
the Equipment or the Equipment becomes subject to risk of seizure or forfeiture.
(b) (i) Upon the occurrence of an Event of Default, KCL, at its option, may
declare any or all of the Secured Obligations, including, without limitation,
any Notes(s) issued pursuant hereto, to be immediately due and payable, without
demand or notice to Borrower or any Guarantor, and KCL shall have the immediate
right to enforce all Collateral Schedules. The obligations and liabilities
accelerated thereby shall bear interest (both before and after any judgment)
until paid in full at the Default Rate. Should there occur a Default and if a
voluntary or involuntary petition under the United States Bankruptcy Code is
filed by or against Borrower while such Default remains uncured, the Secured
Obligations automatically shall be accelerated and due and payable and interest
thereon at the Default Rate automatically shall apply as of the date of the
first occurrence of the Default, without any notice, demand or action of any
type on the part of KCL (including any action evidencing the acceleration or
imposition of the Default Rate). The fact that KCL has, prior to the filing of
the voluntary or involuntary petition under the United States Bankruptcy Code,
acted in a manner which is inconsistent with the acceleration and imposition of
the Default Rate shall not constitute a waiver of this provision or estop KCL
from asserting or enforcing KCL's rights hereunder.
(ii) Furthermore, upon the occurrence of an Event of Default, KCL shall
have, in addition to the rights and remedies provided herein, in the other Loan
Documents or by law, the rights and remedies of a secured party under the
Uniform Commercial Code under the laws of the State of New York (the "UCC")
(regardless of whether the UCC is the law of the jurisdiction where the rights
and remedies are asserted and regardless of whether the UCC applies to the
affected Collateral), and further KCL may do any one or more of the following as
KCL in its sole discretion may elect, with or without judicial process or the
aid and assistance of others: (i) enter and remain on any premises on which any
of the Equipment may be located and, without resistance or interference by the
Borrower, and without liability to KCL by reason of such entry or taking
possession, take possession of the Equipment, (ii) prepare for sale and sell or
otherwise dispose of any Equipment on any such premises, (iii) require the
Borrower to assemble and make available to KCL at Borrower's expense any
Equipment at any place and time designated by KCL, (iv) remove any Equipment
from any such premises for the purpose of effecting sale or other disposition
thereof, (v) without demand and without advertisement, notice, hearing or
process of law, all of which the Borrower hereby waives, at any place and time
or times, sell and deliver any or all Equipment held by or for it at public or
private sale, by one or more contracts, in one or more parcels, for cash, upon
credit or otherwise, at such prices and upon such terms as KCL deems advisable,
in its sole discretion, or (vi) lease all or any portion of the Equipment on
such terms and conditions as KCL in its sole discretion may determine. In
addition to all other sums due KCL hereunder, the Borrower shall pay KCL all
reasonable costs and expenses incurred by KCL, including reasonable attorneys'
fees and court costs, in obtaining or liquidating the Collateral, in enforcing
payment of Secured Obligations, or in the prosecution or defense of any action
or proceeding by or against KCL or the Borrower concerning any matter arising
out of or connected with the Loan Documents, the Collateral or the Secured
Obligations, including without limitation any of the foregoing arising in,
arising under or related to a case under the United States Bankruptcy Code.
(iii) Borrower's waivers regarding disposition of the Equipment. IF AN
EVENT OF DEFAULT OCCURS, BORROWER HEREBY WAIVES ANY DEFENSES, RIGHTS, OFFSETS OR
CLAIMS AGAINST KCL ARISING OUT OF THE REPOSSESSION, RETENTION, SALE, MANNER OR
METHOD OF SALE OR DISPOSITION OF ANY ITEMS OF EQUIPMENT. BORROWER AGREES THAT
ANY REQUIREMENT OF REASONABLE NOTICE SHALL BE MET IF SUCH NOTICE IS PERSONALLY
SERVED ON OR MAILED, POSTAGE PREPAID, TO THE BORROWER IN ACCORDANCE WITH THE
NOTICE PROVISIONS HEREOF AT LEAST 10 DAYS BEFORE THE TIME OF SALE OR OTHER EVENT
GIVING RISE TO THE REQUIREMENT OF SUCH NOTICE. KCL SHALL NOT BE OBLIGATED TO
MAKE ANY SALE OR OTHER DISPOSITION OF THE EQUIPMENT REGARDLESS OF NOTICE HAVING
BEEN GIVEN. KCL MAY BE THE PURCHASER AT ANY SUCH SALE. THE BORROWER HEREBY
WAIVES ALL OF ITS RIGHTS OF REDEMPTION FROM ANY SUCH SALE. KCL MAY POSTPONE OR
CAUSE THE POSTPONEMENT OF THE SALE OF ALL OR ANY PORTION OF THE EQUIPMENT BY
ANNOUNCEMENT AT THE TIME AND PLACE OF SUCH SALE, AND
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Form No: MSA Rev. 012999 Page 6 of 12
<PAGE>
SUCH SALE MAY, WITHOUT FURTHER NOTICE, BE MADE AT THE TIME AND PLACE TO WHICH
THE SALE WAS SCHEDULED. NONE OF KCL'S RIGHTS OR REMEDIES HEREUNDER ARE INTENDED
TO BE EXCLUSIVE OF, BUT EACH SHALL BE CUMULATIVE AND IN ADDITION TO, ANY OTHER
RIGHT OR REMEDY REFERRED TO HEREUNDER OR OTHERWISE AVAILABLE TO KCL OR ITS
ASSIGNS AT LAW OR IN EQUITY, AND MAY BE PURSUED SINGLY, SUCCESSIVELY OR
CONCURRENTLY AT THE SOLE DISCRETION OF LENDER AND MAY BE EXERCISED AS OFTEN AS
OCCASION THEREFOR SHALL OCCUR. THE FAILURE TO EXERCISE, OR ANY DELAY IN THE
EXERCISE OF, ANY RIGHT OR REMEDY SHALL IN NO EVENT BE CONSTRUED AS A WAIVER,
RELEASE OR EXHAUSTION OF ANY SUCH REMEDIES. NO EXPRESS OR IMPLIED WAIVER BY KCL
OF ANY EVENT OF DEFAULT SHALL CONSTITUTE A WAIVER OF ANY OTHER EVENT OF DEFAULT
OR A WAIVER OF ANY OF KCL'S RIGHTS UPON THE REOCCURRENCE OF ANY SUCH EVENT OF
DEFAULT.
(c) The Borrower hereby authorizes KCL, upon the occurrence and during the
continuation of any Event of Default hereunder, at KCL's option to adjust,
compromise and settle any losses under any insurance afforded, and the Borrower
does hereby irrevocably constitute KCL and each of its designees, as its
attorneys-in-fact, with full power and authority, upon the occurrence and during
the continuation of any Event of Default hereunder, to effect such adjustment,
compromise and/or settlement and to endorse any drafts drawn by an insurer of
the Equipment or any part thereof and to do everything necessary to carry out
such purposes and to receive and receipt for any unearned premiums due under
policies of such insurance; but unless or until KCL elects to adjust, compromise
or settle losses as aforesaid, such insurance proceeds shall be subject to the
lien and security interest of KCL hereunder.
(d) Upon the occurrence, and during the continuance, of an Event of Default
hereunder, any payments in respect of the Secured Obligations and any proceeds
of the Collateral, when received by KCL in cash or its equivalent, will be
applied first to costs of collection and, thereafter, in reduction of the
Secured Obligations in such order and manner as KCL may direct in its sole
discretion, and the Borrower irrevocably waives the right to direct the
application of such payments and proceeds and acknowledges and agrees that KCL
shall have the continuing and exclusive right to apply any and all such payments
and proceeds in KCL's sole discretion, notwithstanding any entry to the contrary
upon any of its books and records. The Borrower shall remain liable to KCL for
any deficiency. Any surplus remaining after the full payment and satisfaction of
the Secured Obligations shall be returned to the Borrower or to whomsoever a
court of competent jurisdiction shall determine to be entitled thereto.
(e) To the extent that any of the Secured Obligations are now or hereafter
secured by property other than the Collateral, or by a guarantee, endorsement or
property of any other person, then KCL also shall have the right to proceed
against such other property, guarantee or endorsement upon the occurrence of a
default hereunder, and KCL shall have the right, in its sole discretion, to
determine which rights, liens, security interests or remedies KCL shall at any
time pursue, relinquish, subordinate or modify, without in any way affecting the
Secured Obligations or any of KCL's rights under this Agreement.
17. Notices. All notices and other communications hereunder shall be in
writing and shall be transmitted by hand, overnight courier or certified mail
(return receipt requested), postage prepaid. Such notices and other
communications shall be addressed to the respective party at the address set
forth above or at such other address as any party may from time to time
designate by notice duly given in accordance with this Section. Such notices and
other communications shall be effective upon the earlier of receipt or three (3)
days after mailing if mailed in accordance with the terms of this section.
18. General Indemnification. Borrower shall pay, and shall indemnify and
hold KCL and its directors, officers, employees, counsel, agents and advisors
harmless on an after-tax basis from and against, any and all liabilities, causes
of action, claims, suits, penalties, damages, losses, costs or expenses
(including attorneys' fees), obligations, liabilities, demands and judgments,
and Liens, of any nature whatsoever (collectively, a "Liability") arising out of
or in any way related to: (a) the Loan Documents, (b) a failure to comply fully
with any Applicable Law, and (c) Borrower's failure to perform any covenant, or
breach of any representation or warranty under the Loan Documents; provided,
that the foregoing indemnity shall not extend to the Liabilities to the extent
resulting solely from the gross negligence or willful misconduct of KCL.
Borrower shall promptly deliver to KCL (i) copies of any documents received from
the United States Environmental Protection Agency or any state, county or
municipal environmental or health agency concerning the Equipment or its
operation and (ii) copies of any documents submitted by Borrower or any of its
subsidiaries to the United States Environmental Protection Agency or any state,
county or municipal environmental or health agency concerning the Equipment or
its operation. Borrower further agrees to indemnify KCL against, and hold it
harmless from, all present and
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 7 of 12
<PAGE>
future stamp, transfer, documentary and other such taxes, levies, fees,
assessments or other charges made by any jurisdiction by reason of the
execution, delivery, performance and enforcement of the Loan Documents.
19. Severability; Captions. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
Applicable Law. I, however, any provision of this Agreement or any of the Loan
Documents shall be prohibited or unenforceable in any jurisdiction, it shall, as
to such jurisdiction, be deemed modified to conform to the minimum requirements
of such law, or if for any reason it is not deemed so modified, it shall be
ineffective only to the extent of such prohibition or unenforceability without
affecting the remaining provisions hereof, and any such prohibition or
unenforceability shall not invalidate or render unenforceable such provision in
any other jurisdiction. Captions are intended for convenience or reference only,
and shall not be construed to define, limit or describe the scope or intent of
any provisions hereof.
20. Financial and Other Data. During the Term hereof, Borrower shall
furnish KCL, as soon as available and in any event within 120 days after the
last day of each fiscal year, financial statements of Borrower and each
Guarantor, in each case compiled, reviewed or audited by an independent
certified public accountant as required by KCL. Borrower shall also furnish such
other financial reports, information or data (including federal and state income
tax returns and quarterly or interim financial statements compiled, reviewed or
audited by an independent certified public accountant if required by KCL) as KCL
may reasonably request from time to time.
21. Financial Covenants. Borrower shall comply with all financial covenants
as set forth in an amendment to this Agreement which shall be executed by both
Borrower and KCL.
22. Representations and Warranties of Borrower. Borrower represents and
warrants that: (a) Borrower is a corporation duly organized and validly existing
in good standing under the laws of the state of its incorporation; (b) the
execution, delivery and performance of this Agreement and all related
instruments and documents: (1) have been duly authorized by all necessary
corporate action on the part of Borrower, (2) do not require the approval of any
stockholder, partner, trustee, or holder of any obligations of Borrower except
such as have been duly obtained, and (3) do not and will not contravene any law,
governmental rule, regulation or order now binding on Borrower, or the charter
or by-laws of Borrower, or contravene the provisions of, or constitute a default
under, or result in the creation of any lien or encumbrance upon the property of
Borrower under, any indenture, mortgage, contract or other agreement to which
Borrower is a party or by which it or its property is bound; (c) the Loan
Documents, when entered into, will constitute legal, valid and binding
obligations of Borrower enforceable against Borrower in accordance with the
terms thereof; (d) there are no pending actions or proceedings to which Borrower
is a party, and there are no other pending or threatened actions or proceedings
of which Borrower has knowledge, before any court, arbitrator or administrative
agency, which, either individually or in the aggregate, would adversely affect
the financial condition of Borrower, or the ability of Borrower to perform its
obligations under the Loan Documents; (e) Borrower is not in default under any
obligation for the payment of borrowed money, for the deferred purchase price of
property or for the payment of any installments under any lease agreement which,
either individually or in the aggregate, would have the same such effect; (f)
under the laws of the state(s) in which the Equipment is to be located, the
Equipment consists solely of personal property and not fixtures; (g) the
financial statements of Borrower (copies of which have been furnished to KCL)
have been prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP"), and fairly present Borrower's financial condition
and the results of its operations as of the date of and for the period covered
by such statements, and since the date of such statements there has been no
material adverse change in such conditions or operations; (h) the address stated
above is the chief place of business and chief executive office, or in the case
of individuals, the primary residence, of Borrower; (i) Borrower does not
conduct business under a trade, assumed or fictitious name, except as set forth
in a Collateral Schedule; (j) this Agreement creates a valid first priority
security interest in the Collateral securing payment and performance of the
Secured Obligations and all filings and other action necessary to perfect such
security interest have been taken or shall be promptly taken; (k) Borrower has
filed or has caused to have been filed all Federal, state and local tax returns
which, to the knowledge of Borrower, are required to be filed, and has paid or
caused to have been paid all taxes as shown on such returns or on any assessment
received by it, to the extent that such taxes have become due, unless and to the
extent only that such taxes, assessments and governmental charges are currently
contested in good faith and by appropriate proceedings by Borrower and adequate
reserves therefor have been established as required under GAAP and, to the
extent Borrower believes it advisable to do so, Borrower has set up reserves
which are believed by Borrower to be adequate for the payment of additional
taxes for years which have not been audited by the respective tax authorities;
(l) except as previously disclosed to KCL, neither Borrower nor any of its
officers or directors (if a corporation), partners (if a partnership) or members
or managers (if a limited liability corporation) has, directly or indirectly,
any financial interest in the Supplier; (m) Borrower is not in violation of any
Applicable Law, the violation of which would have a material
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 8 of 12
<PAGE>
adverse effect on the conduct of its business, and Borrower has obtained any and
all licenses, permits, franchises or other governmental authorizations necessary
for the ownership of its properties and the conduct of its business; and (n)
none of the proceeds of the loan made by KCL will be used, directly or
indirectly, by Borrower for the purpose of purchasing or carrying, or for the
purpose of reducing or retiring any indebtedness which was originally incurred
to purchase or carry any "margin stock" within the meaning of Regulation U (12
CFR Part 221), of the Board of Governors of the Federal Reserve System (herein
called "margin stock") or for any other purpose which might make the
transactions contemplated herein a "purpose credit" within the meaning of
Regulation U, or cause this Agreement to violate any other regulation of the
Board of Governors of the Federal Reserve System or the Securities Exchange Act
of 1934 or the Small Business Investment Act of 1958, as amended, or any rules
or regulations promulgated under any of such statutes. All representations and
warranties of the Borrower hereunder shall survive the execution and delivery of
the Loan Documents.
23. Further Covenants of Borrower. The Borrower further covenants that it
will not change its legal name, be a party to a merger, consolidation or other
change in structure or use a trade name in its business without at least 30 days
prior written notice to KCL; and shall execute and deliver to KCL (to be filed
at Borrower's expense) all UCC financing statements as may be required by KCL in
connection with such event.
24. Miscellaneous. Time is of the essence with respect to this Agreement.
ANY FAILURE OF KCL TO REQUIRE STRICT PERFORMANCE BY BORROWER OR ANY WAIVER BY
KCL OF ANY PROVISION HEREIN SHALL NOT BE CONSTRUED AS A CONSENT OR WAIVER OF ANY
PROVISION OF THIS AGREEMENT. None of the Loan Documents may be amended except by
a writing signed by KCL and Borrower. This Agreement will be binding upon KCL
only if executed by a duly authorized officer or representative of KCL at KCL's
principal place of business as set forth above. This Agreement, and all other
Loan Documents, shall be executed on Borrower's behalf by Authorized Signers of
Borrower. The Borrower hereby waives presentment, notice of dishonor and protest
of all instruments included in or evidencing any Secured Obligations, and all
other notices and demands whatsoever (except as expressly provided herein). THIS
AGREEMENT IS BEING DELIVERED IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING
ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE WITHOUT GIVING EFFECT TO
ANY CHOICE OF LAW OR CONFLICT OF LAWS PROVISION OR RULE (WHETHER OF THE STATE OF
NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
25. Jury Trial Waiver. KCL AND BORROWER HEREBY EACH WAIVE THEIR RESPECTIVE
RIGHTS TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION OR PROCEEDING TO WHICH
KCL OR BORROWER MAY BE PARTIES WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS OR OTHERWISE INCLUDING, WITHOUT LIMITATION, ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN ART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER IS MADE KNOWINGLY, WILLINGLY AND VOLUNTARILY BY
KCL AND THE BORROWER WHO EACH ACKNOWLEDGE THAT NO REPRESENTATIONS HAVE BEEN MADE
BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY
OR NULLIFY ITS EFFECT. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWAL, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
26. More than One Borrower. If more than one person or entity executes this
Agreement, each of the other Loan Documents, and all addenda or other documents
executed in connection herewith or therewith, as "Borrower," the obligations of
"Borrower" contained herein and therein shall be deemed joint and several and
all references to "Borrower" shall apply both individually and jointly.
27. Separate Borrowings. Each Note shall constitute a separate and
enforceable promissory note incorporating all the terms and conditions of this
Master Security Agreement as if such terms and conditions were set forth in full
in such Note. In the event that any term or condition of any Note conflicts with
or is inconsistent with any term or condition of this Master Security Agreement,
the terms and conditions of such Note shall govern.
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 9 of 12
<PAGE>
28. Entire Agreement. This Agreement, together with the other Loan
Documents, collectively constitute the entire understanding or agreement between
KCL and Borrower with respect to the financing of the Equipment, and there is no
understanding or agreement, oral or written, which is not set forth herein or
therein. This Agreement and the Collateral Schedules shall not be changed or
terminated orally or by course of conduct, but only by the written agreement of
KCL and Borrower.
29. Execution in Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute but one and the same instrument.
30. Assignment. This Agreement, any Collateral Schedules, any Note and/or
any of the other Loan Documents may be assigned, in whole or in part, by KCL
without notice to Borrower, and with respect to such assignee, Borrower hereby
waives any defense, counterclaim or cross-complaint Borrower may have against
KCL and agrees that KCL shall be solely responsible therefor. Borrower agrees
that if Borrower receives written notice of an assignment from KCL, Borrower
shall pay all payments and other amounts due under such assigned Note and
Collateral Schedule to such assignee as instructed by KCL. Borrower further
agrees to confirm in writing receipt of notice of assignment as may be
reasonably requested by KCL.
(Signatures follow on next page)
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 10 of 12
<PAGE>
31. Power of Attorney; UCC's. BORROWER HEREBY APPOINTS KCL, OR ITS
ASSIGNEE, AND ANY OF KCL'S OR ASSIGNEE'S OFFICERS OR EMPLOYEES AS ITS TRUE AND
LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO EXECUTE
AND FILE ON BEHALF OF BORROWER ALL UCC FINANCING STATEMENTS WHICH IN KCL'S SOLE
DISCRETION ARE NECESSARY OR PROPER TO SECURE KCL'S INTEREST IN THE COLLATERAL IN
ALL APPLICABLE JURISDICTIONS. Borrower hereby ratifies, to the extent permitted
by law, all that KCL shall lawfully and in good faith do or cause to be done by
reason of and in compliance with this paragraph. Further, the Borrower agrees to
execute and deliver to KCL such further agreements and assignments or other
instruments and to do all such other things as KCL may reasonably deem necessary
or appropriate to assure to KCL the perfection and priority of its security
interest hereunder.
Lender: Borrower:
KEYCORP LEASING,A DIVISION PRESSTEK, INC.
OF KEY CORPORATE CAPITAL INC.
By: /s/ Lou Sombat By: /s/ Robert Hallman
-------------------------- ---------------------------
Name: Lou Sombat Name: Robert Hallman
Title: Regional Business Title: CEO, President
Unit Manager
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 11 of 12
<PAGE>
Exhibit 1
to
Master Security Agreement
Promissory Note
- --------------------------------------------------------------------------------
$4,040,652.97 Funding Date: __________ (Month) _____ (Day), _______ (Year)
FOR VALUE RECEIVED, PRESSTEK, INC., a Delaware corporation ("Maker"), promises
to pay to the order of KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC.
("Holder"), the sum FOUR MILLION FORTY THOUSAND SIX HUNDRED FIFTY-TWO DOLLARS
AND 97 CENTS ($4,040,652.97) in lawful money of the United States of America
(the "Principal"), with interest thereon as hereafter provided ("Interest"), to
be paid in the manner set forth herein.
1. Interest Rate; Place of Payment. Interest on the balance of the
Principal outstanding on this Note shall accrue from the Funding Date of this
Note and shall be due and payable at a fixed rate of seven and twenty-five
hundredths percent (7.25%) per annum (the "Interest Rate") which rate shall be
immediately and correspondingly adjusted (pursuant to 2(b) hereof) with each
change in the Actual Index (as hereinafter defined). Interest shall be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Payment of the Principal and Interest hereunder shall be made to Holder at P.O.
Box 1865, Albany, New York 12201-1865, or at such other place as Holder may
designate from time to time in writing. Holder reserves the right to require
payment on this Note to be made by wired federal funds or other immediately
available funds.
2. Repayment Terms. (a) The Principal and Interest shall be due and payable
in eighty-four (84) consecutive monthly installments payable in arrears, each in
an amount equal to $61,479.28, commencing and payable on the date which is one
(1) month after the Funding Date and on the same day of each month thereafter
(each, a "Note Payment Date"). In addition, Maker will pay a late payment charge
of five percent (5%) of any payment due hereunder that is not paid on or before
the date due hereunder.
(b) Maker and Holder agree that each Note payment hereunder shall be
increased or decreased (but not below zero), as the case may be, by the Rate
Differential (as hereinafter defined) as follows: if, as of any Note Payment
Date, (i) the Rate Differential is greater than zero, the amount due on such
Note Payment Date shall be increased by such Rate Differential, and (ii) the
Rate Differential is less than zero, the amount of the Note Payment due on such
Note Payment Date shall be decreased by such Rate Differential.
(c) As used herein, the following terms shall have the respective meanings
indicated below:
(1) "Assumed Index" shall mean eight and twenty-five hundredths
percent (8.25%).
(2) "Actual Index" shall mean, as of the date of determination, the
"prime rate" announced in The Wall Street Journal, published on such day,
or if The Wall Street Journal is not published on such day, then the "prime
rate" announced in the most recently published edition of The Wall Street
Journal. If the Actual Index is no longer available, Holder will choose a
new index which is based upon comparable information and will give Maker
notice of such new "Actual Index."
(3) "Daily Equivalent" shall mean, as of the date of determination,
the product of the following formula:
=========================================================================
Daily Equivalent = Actual Index - Assumed Index X Net Investment Balance
360
=========================================================================
(4) "Net Investment Balance" shall mean, as of the date of
determination, the outstanding balance (initially calculated using the
Assumed Index minus 100 basis points) reflected on Holder's lease
accounting system (which assumes a 360 day year consisting of twelve 30 day
months), for the Note Payment Date immediately preceding such day or, if
such day is a Note Payment Date, for such Note Payment Date.
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Form No: MSA Rev. 012999 Page 1 of 5
<PAGE>
(5) "Rate Differential" shall mean, with respect to any Note Payment Date,
the sum of all Daily Equivalents (calculated on the basis of a 360 day year
consisting of twelve 30 day months) for the 30 day month to which such Note
Payment Date relates.
3. Relationship to Master Security Agreement; Further Assurances. This Note
shall be construed in connection with and as part of the Master Security
Agreement dated as of September 27, 1999 and Collateral Schedule No. 01 thereto
("Master Security Agreement"), and all terms and conditions contained in the
Master Security Agreement are hereby incorporated herein by reference with the
same force and effect as if such terms and conditions were fully stated herein.
In addition, capitalized terms used herein without definition shall have the
meaning given them in the Master Security Agreement. By execution of this Note,
Maker reaffirms all terms and conditions of the Master Security Agreement except
as they may be modified hereby. To the extent that any of the terms and
conditions of this Note are contrary to or inconsistent with any terms and
conditions of the Master Security Agreement, the terms and conditions of this
Note shall govern. MAKER HEREBY CERTIFIES TO HOLDER THAT THE REPRESENTATIONS AND
WARRANTIES MADE BY MAKER IN THE MASTER SECURITY AGREEMENT (INCLUDING, WITHOUT
LIMITATION, SECTION 22 THEREOF) ARE TRUE AND CORRECT IN ALL MATERIAL RESPECTS AS
OF THE DATE OF THIS NOTE WITH THE SAME EFFECT AS THOUGHT MADE ON AND AS OF SUCH
DATE. Maker shall take such additional actions and execute and deliver such
additional documents as Holder shall deem necessary from time to time to
effectuate the terms of the Note.
4. Security. Payment of the Principal and Interest hereunder, and the
performance and observance by Maker of all agreements, covenants and provisions
contained herein, is secured by a first priority security interest in the
Collateral.
5. Prepayment. Except as contemplated by clause (3) of section 10 of the
Security Agreement, Maker may not prepay, in whole or in part, the principal
outstanding hereunder; provided, however, that Maker may prepay, in whole but
not in part, the principal outstanding hereunder by paying to Holder such
outstanding principal, together with all accrued and unpaid interest thereon at
the Interest Rate in effect on the Funding Date, plus a prepayment premium
("Prepayment Premium") equal to five percent (5%) of such outstanding principal.
6. Transfer or Assignment. Holder may at any time assign or otherwise
transfer or negotiate this Note in whole or in part, without any notice to
Maker. The rights and obligations of Maker may not be assigned or delegated.
7. Application of Payments. Prior to an Event of Default, each payment
received on this Note shall be applied first to all costs of collection, then to
unpaid late payment charges (if any) and Prepayment Premium (if any) hereunder,
then to Interest as of the payment due date and the balance, if any, to the
outstanding Principal as of the date received. Upon the occurrence, and during
the continuance, of an Event of Default, any payments in respect of the Secured
Obligations and any proceeds of the Collateral when received by Holder in cash
or its equivalent, will be applied first to costs of collection and, thereafter,
in reduction of the Secured Obligations in such order and manner as Holder may
direct in its sole discretion, and Maker irrevocably waives the right to direct
the application of such payments and proceeds and acknowledges and agrees that
Holder shall have the continuing and exclusive right to apply any and all such
payments and proceeds in the Holder's sole discretion, notwithstanding any entry
to the contrary upon any of its books and records.
8. Events of Default. Maker shall be in default if any of the following
happens (an "Event of Default"): (1) Maker fails to make any installment of the
Principal or Interest, or any other payment due and owing, under this Note
within ten (10) days after the same becomes due and payable; or (2) Maker fails
to perform any other obligation required to be performed by Maker under this
Note, the Master Security Agreement or any of the other Loan Documents for
thirty (30) days after written notice from Holder of such failure; or (3) any
representation, warranty or other statement by or on behalf of Maker in
connection with this Note is false or misleading in any material respect; or (4)
an Event of Default has occurred and is continuing under the Master Security
Agreement.
(b) Notwithstanding anything to the contrary contained herein, upon the
occurrence of an Event of Default: (i) Holder may declare the entire outstanding
balance of the Principal, together with all accrued and unpaid Interest thereon,
immediately due and payable without notice or demand which amounts shall,
together with all other sums due hereunder, accrue interest from such
acceleration until the date of actual payment at the Default Rate (provided,
however, that should there occur an Event of Default, and if a voluntary or
involuntary petition under the United States Bankruptcy Code is filed by or
against Maker while such default remains uncured, the entire outstanding balance
of the Principal automatically shall be accelerated and due and payable and
interest thereon at the Default Rate, and Holder may exercise any and all of its
remedies
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 2 of 5
<PAGE>
hereunder, under the other Loan Documents and under Applicable Law. The remedies
of Holder provided herein, in the Master Security Agreement and under Applicable
Law shall be cumulative and concurrent and may be pursued singly, successively
or concurrently at the sole discretion of Holder and may be exercised as often
as occasion therefor shall occur. The failure to exercise, or any delay in the
exercise of, any right or remedy shall in no event be construed as a waiver,
release or exhaustion of any such remedies.
9. Collection Costs. In addition to the Principal, Interest, Prepayment
Premium (if any), and late payment charges (if any), Maker shall pay Holder on
demand, and Holder shall be entitled to collect all costs and expenses of
collection, including, without limitation, reasonable attorneys' fees incurred
in connection with enforcement of its rights and remedies hereunder and under
the other Loan Documents, the protection or realization of the Collateral or in
connection with Holder's collection efforts, or in connection with any
bankruptcy or other judicial proceeding, whether or not suit on this Note or any
foreclosure proceeding is filed. All such costs and expenses shall be payable on
demand and, until paid, shall be Secured Obligations secured by the security
interest granted under the Master Security Agreement and all other collateral,
if any, held by Holder as security for Maker's obligations under this Note.
10. Governing Law; Binding Agreement. The provisions of this Note shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors and assigns. THIS NOTE IS BEING DELIVERED IN THE STATE OF
NEW YORK AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAWS
PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION)
THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF NEW YORK.
11. More than One Signer. If more than one person or entity signs this Note
as a Maker, the obligations contained herein shall be deemed joint and several
and all references to "Maker" shall apply both jointly and severally.
12. General. Maker represents and warrants that this Note evidences a loan
for business or commercial purposes. Prior to signing this Note, Maker read and
understood the provisions hereof, and agrees to all terms and conditions
contained herein.
13. Waivers. MAKER AND ALL ENDORSERS, SURETIES, AND GUARANTORS HEREOF
HEREBY JOINTLY AND SEVERALLY WAIVE PRESENTMENT FOR PAYMENT, DEMAND, NOTICE OF
NON-PAYMENT OR DISHONOR, NOTICE OF INTENTION TO ACCELERATE THE MATURITY, NOTICE
OF PROTEST AND PROTEST OF THIS NOTE. HOLDER AND MAKER HEREBY EACH WAIVE THEIR
RESPECTIVE RIGHTS TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF OR RELATED TO THIS NOTE, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION OR PROCEEDING TO WHICH
HOLDER OR MAKER MAY BE PARTIES WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS OR OTHERWISE INCLUDING, WITHOUT LIMITATION, ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN ART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS NOTE OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF
OR THEREOF. THIS WAIVER IS MADE KNOWINGLY, WILLINGLY AND VOLUNTARILY BY HOLDER
AND THE MAKER WHO EACH ACKNOWLEDGE THAT NO REPRESENTATIONS HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR
NULLIFY ITS EFFECT. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWAL, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE AND THE OTHER LOAN DOCUMENTS.
14. Usury; Partial Invalidity. (a) At no time shall the Interest Rate (or
the Default Rate or other amounts paid or collected hereunder) exceed the
highest rate allowed by applicable law for this type of loan. Should Holder ever
collect interest at a rate that exceeds such applicable legal limit, such excess
will be credited to the Principal.
(b) Whenever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under Applicable Law, but if any
provision of this Note shall be prohibited by or invalid under the laws of any
applicable jurisdiction, such provision, as to such jurisdiction, shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note in any other jurisdiction.
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 3 of 5
<PAGE>
15. Notices. All notices and other communications under this Note shall be
in writing and shall be addressed: (i) if to Maker, 9 Commercial Street, Hudson,
NH 03051; and (ii) if to Holder, KeyCorp Leasing, a Division of Key Corporate
Capital Inc., 54 State Street, Albany, New York 12207, Attention: Account
Manager, or such other address as either party hereto shall communicate to the
other party at its address specified above. All such notices and other
communications shall be deemed to have been duly given if delivered by hand,
overnight courier or if sent by certified mail, return receipt requested, to the
party to whom such notice is intended to be given, and shall be effective upon
receipt.
16. Funding Date. The Funding Date for this Note shall be the date on which
Holder disburses funds hereunder. TO THE EXTENT THE FUNDING DATE IS LEFT BLANK
ABOVE, OR DOES NOT REFLECT THE ACTUAL DATE THAT HOLDER DISBURSES FUNDS
HEREUNDER, MAKER HEREBY AUTHORIZES HOLDER TO WRITE IN THE CORRECT DATE AT THE
TIME OF DISBURSEMENT.
IN WITNESS WHEREOF, Maker, intending to be legally bound, has caused this
Note to be duly executed on the day and year first above written.
MAKER:
PRESSTEK, INC.
By:
--------------------------
Name:
Title:
STATE OF )
) ss.:
COUNTY OF )
On this _____ (Day) day of ____________________ (Month), __________ (Year),
before me the subscriber personally appeared ______________________________, who
being by me duly sworn, did depose and say; that (s)he resides at
_________________ County, State of _______________: that (s)he is a
______________________________ of ______________________________, the
corporation described in and which executed the foregoing instrument; and that
(s)he signed his/her name thereto by order of the Board of Directors of said
corporation.
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 4 of 5
<PAGE>
- -----------------------------------------
NOTARY PUBLIC
My Commission Expires:
ATTACHMENT:
Collateral Schedule: This Note is secured by Collateral Schedule No. 01 to
Master Security Agreement dated September 27, 1999.
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 5 of 5
<PAGE>
Exhibit 2
to
Master Security Agreement
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 1 of 1
Collateral Schedule No. 01
- --------------------------------------------------------------------------------
PRESSTEK, INC.
1. General. This Collateral Schedule No. 01, dated as of September 27,
1999, is issued pursuant to the Master Security Agreement, dated as of September
27, 1999, which was made by PRESSTEK, INC. in favor of KeyCorp Leasing, a
Division of Key Corporate Capital Inc. and is executed in connection with the
Note by Borrower, dated as of September 27, 1999, in the principal amount of
$4,040,652.97. This Collateral Schedule incorporates all terms and conditions of
the Master Security Agreement. Capitalized terms not otherwise defined herein
shall have the meanings described in the Master Security Agreement. Borrower
hereby gives, grants and assigns to KCL a security interest in and against the
property described below, along with all present and future attachments and
accessions thereto, and all replacements and proceeds thereof, including all
amounts payable under any insurance policy, all herein referred to collectively
as "Collateral." The security interest in the Collateral secures the payment and
performance of any and all debts, obligations and liabilities of any kind or
nature of Borrower to KCL, now existing or hereafter arising, including without
limitation Borrower's obligations under the above-referenced Note and any
renewals, extensions, and modifications of the Note and Borrower's debts,
obligations and liabilities under the Master Security Agreement.
2. Equipment:
VENDOR: T.H. DIXON & CO. LTD
WORKS ROAD
LETCHWORTH HERTS SG6 1LS ENGLAND
EQUIPMENT LOCATION: 55 EXECUTIVE DRIVE
HUDSON, NH 03051-4903
QUANTITY EQUIPMENT DESCRIPTION INVOICE NO.
- -------- --------------------- -----------
1 COATING AND LAMINATING MACHINE 019482, 019158, 019321
SERIAL NUMBER: 4045, MODEL NUMBER 2010 019373, 019417, 019500
KIT OF ELECTRICAL COMMISSIONING SPARES 019639
2 MOUNTING ADAPTORS SV 30790 MODEL 1060 019587
2 FUSE BLOCKS GK1-DF 019587
VENDOR: ENERGY SCIENCES INC.
42 INDUSTRIAL WAY
WILMINGTON, MA 01887
QUANTITY EQUIPMENT DESCRIPTION INVOICE NO.
- -------- --------------------- -----------
1 ESI E-BEAM CURING UNIT 07976A-00, 07976A-01
150/120/900 ELECTROCURE SYSTEM 07976A-02, 07976A-03
3. Trade Names: None.
4. Discount Rate. Any provision of the Master Security Agreement or other
Loan Documents to the contrary notwithstanding, all present value calculations
to be made with respect to the Equipment described on this Collateral Schedule
shall be made using a discount rate equal to three percent (3%).
5. Additional Representation and Warranty. Borrower has conducted a
comprehensive review and assessment of the Borrower's computer applications and
made inquiry of the Borrower's key suppliers, vendors and customers with respect
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 1 of 3
<PAGE>
to the "year 2000 problem" (that is, the risk that computer applications may not
be able to properly perform date-sensitive functions after December 31, 1999)
and based on that review and inquiry, the Borrower does not believe the year
2000 problem will result in a material adverse change in the Borrower's business
condition (financial or otherwise), operations, properties or prospects, or
ability to perform the obligations of Borrower under this Agreement
(Signatures follow on next page)
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 2 of 3
<PAGE>
6. Power of Attorney; UCC's. BORROWER HEREBY APPOINTS KCL, OR ITS ASSIGNEE,
AND ANY OF KCL'S OR ASSIGNEE'S OFFICERS OR EMPLOYEES AS ITS TRUE AND LAWFUL
ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO EXECUTE AND FILE
ON BEHALF OF BORROWER ALL UCC FINANCING STATEMENTS WHICH IN KCL'S SOLE
DISCRETION ARE NECESSARY OR PROPER TO SECURE KCL'S INTEREST IN THE COLLATERAL IN
ALL APPLICABLE JURISDICTIONS. Borrower hereby ratifies, to the extent permitted
by law, all that KCL shall lawfully and in good faith do or cause to be done by
reason of and in compliance with this paragraph.
This Collateral Schedule is effective as of the date first above written.
Borrower: KCL:
PRESSTEK, INC. KEYCORP LEASING, A DIVISION
OF KEY CORPORATE CAPITAL INC.
By: By:
------------------------- ---------------------------
Name: Name:
Title: Title:
This is Originally Executed Copy No. 1 of 1 originally executed copies. Only
transfer of possession by KCL of Originally Executed Copy No. 1 shall be
effective for purposes of perfecting an interest in this Collateral Schedule by
possession.
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 3 of 3
<PAGE>
Exhibit 2
To
Master Security Agreement
THIS IS A CERTIFICATE ACKNOWLEDGING
ACCEPTANCE OF THE EQUIPMENT FOR
PURPOSES OF THE BELOW-REFERENCED
LOAN DOCUMENTS.
THIS IS NOT A DELIVERY RECEIPT.
Borrower Acknowledgment
- --------------------------------------------------------------------------------
(Certificate of Acceptance)
Borrower Name: PRESSTEK, INC.
All the Items of Equipment covered by Collateral Schedule No. 01 dated as
of September 27, 1999 and the Promissory Note in the amount of FOUR MILLION
FORTY THOUSAND SIX HUNDRED FIFTY-TWO DOLLARS AND 97 CENTS ($4,040,652.97) issued
in connection with the Master Security Agreement dated as of September 27, 1999
between the undersigned as Borrower and KeyCorp Leasing, a Division of Key
Corporate Capital Inc. ("KCL"), as secured party, (a) were received by the
undersigned, (b) are satisfactory to the undersigned in all respects and are
acceptable to the undersigned for financing under the Loan Documents, (c) are
suitable for the undersigned's purposes, (d) are in good order, repair and
condition, (e) have been installed and operate properly, and (f) are subject to
all of the terms and conditions of the Loan Documents. Capitalized terms used
herein without definition shall have the meaning given them in the Master
Security Agreement.
Dated: 9/28, 99
(Month/Day) (Year)
PRESSTEK, INC.
By: /s/ Robert Hallman
------------------------------
Name: Robert Hallman
Title: CEO, President
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999
<PAGE>
Customer Number: 15334
Promissory Note Number: 8800018264
Promissory Note
- --------------------------------------------------------------------------------
$4,040,652.97 Funding Date: __________ (Month) _____ (Day), ________ (Year)
FOR VALUE RECEIVED, PRESSTEK, INC., a Delaware corporation ("Maker"), promises
to pay to the order of KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC.
("Holder"), the sum of FOUR MILLION FORTY THOUSAND SIX HUNDRED FIFTY-TWO DOLLARS
AND 97 CENTS ($4,040,652.97) in lawful money of the United States of America
(the "Principal"), with interest thereon as hereafter provided ("Interest"), to
be paid in the manner set forth herein.
1. Interest Rate; Place of Payment. Interest on the balance of the
Principal outstanding on this Note shall accrue from the Funding Date of this
Note and shall be due and payable at a fixed rate of seven and twenty-five
hundredths percent (7.25%) per annum (the "Interest Rate") which rate shall be
immediately and correspondingly adjusted (pursuant to 2(b) hereof) with each
change in the Actual Index (as hereinafter defined). Interest shall be
calculated on the basis of a 360-day year consisting of twelve 30-day months.
Payment of the Principal and Interest hereunder shall be made to Holder at P.O.
Box 1865, Albany, New York 12201-1865, or at such other place as Holder may
designate from time to time in writing. Holder reserves the right to require
payment on this Note to be made by wired federal funds or other immediately
available funds.
2. Repayment Terms. (a) The Principal and Interest shall be due and payable
in eighty-four (84) consecutive monthly installments payable in arrears, each in
an amount equal to $61,479.28, commencing and payable on the date which is one
(1) month after the Funding Date and on the same day of each month thereafter
(each, a "Note Payment Date"). In addition, Maker will pay a late payment charge
of five percent (5%) of any payment due hereunder that is not paid on or before
the date due hereunder.
(b) Maker and Holder agree that each Note payment hereunder shall be
increased or decreased (but not below zero), as the case may be, by the Rate
Differential (as hereinafter defined) as follows: if, as of any Note Payment
Date, (i) the Rate Differential is greater than zero, the amount due on such
Note Payment Date shall be increased by such Rate Differential, and (ii) the
Rate Differential is less than zero, the amount of the Note Payment due on such
Note Payment Date shall be decreased by such Rate Differential.
(c) As used herein, the following terms shall have the respective meanings
indicated below:
(1) "Assumed Index" shall mean eight and twenty-five hundredths
percent (8.25%).
(2) "Actual Index" shall mean, as of the date of determination,
the "prime rate" announced in The Wall Street Journal, published on
such day, or if The Wall Street Journal is not published on such day,
then the "prime rate" announced in the most recently published edition
of The Wall Street Journal. If the Actual Index is no longer
available, Holder will choose a new index which is based upon
comparable information and will give Maker notice of such new "Actual
Index."
(3) "Daily Equivalent" shall mean, as of the date of
determination, the product of the following formula:
=========================================================================
Daily Equivalent = Actual Index - Assumed Index X Net Investment Balance
----------------------------
360
=========================================================================
(4) "Net Investment Balance" shall mean, as of the date of
determination, the outstanding balance (initially calculated using the
Assumed Index minus 100 basis points) reflected on Holder's lease
accounting system (which assumes a 360 day year consisting of twelve
30 day months), for the Note Payment Date immediately preceding such
day or, if such day is a Note Payment Date, for such Note Payment
Date.
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 1
<PAGE>
(5) "Rate Differential" shall mean, with respect to any Note
Payment Date, the sum of all Daily Equivalents (calculated on the
basis of a 360 day year consisting of twelve 30 day months) for the 30
day month to which such Note Payment Date relates.
3. Relationship to Master Security Agreement; Further Assurances. This Note
shall be construed in connection with and as part of the Master Security
Agreement dated as of September 27, 1999 and Collateral Schedule No. 01 thereto
("Master Security Agreement"), and all terms and conditions contained in the
Master Security Agreement are hereby incorporated herein by reference with the
same force and effect as if such terms and conditions were fully stated herein.
In addition, capitalized terms used herein without definition shall have the
meaning given them in the Master Security Agreement. By execution of this Note,
Maker reaffirms all terms and conditions of the Master Security Agreement except
as they may be modified hereby. To the extent that any of the terms and
conditions of this Note are contrary to or inconsistent with any terms and
conditions of the Master Security Agreement, the terms and conditions of this
Note shall govern. MAKER HEREBY CERTIFIES TO HOLDER THAT THE REPRESENTATIONS AND
WARRANTIES MADE BY MAKER IN THE MASTER SECURITY AGREEMENT (INCLUDING, WITHOUT
LIMITATION, SECTION 22 THEREOF) ARE TRUE AND CORRECT IN ALL MATERIAL RESPECTS AS
OF THE DATE OF THIS NOTE WITH THE SAME EFFECT AS THOUGHT MADE ON AND AS OF SUCH
DATE. Maker shall take such additional actions and execute and deliver such
additional documents as Holder shall deem necessary from time to time to
effectuate the terms of the Note.
4. Security. Payment of the Principal and Interest hereunder, and the
performance and observance by Maker of all agreements, covenants and provisions
contained herein, is secured by a first priority security interest in the
Collateral.
5. Prepayment. Except as contemplated by clause (3) of section 10 of the
Security Agreement, Maker may not prepay, in whole or in part, the principal
outstanding hereunder; provided, however, that Maker may prepay, in whole but
not in part, the principal outstanding hereunder by paying to Holder such
outstanding principal, together with all accrued and unpaid interest thereon at
the Interest Rate in effect on the Funding Date, plus a prepayment premium
("Prepayment Premium") equal to five percent (5%) of such outstanding principal.
6. Transfer or Assignment. Holder may at any time assign or otherwise
transfer or negotiate this Note in whole or in part, without any notice to
Maker. The rights and obligations of Maker may not be assigned or delegated.
7. Application of Payments. Prior to an Event of Default, each payment
received on this Note shall be applied first to all costs of collection, then to
unpaid late payment charges (if any) and Prepayment Premium (if any) hereunder,
then to Interest as of the payment due date and the balance, if any, to the
outstanding Principal as of the date received. Upon the occurrence, and during
the continuance, of an Event of Default, any payments in respect of the Secured
Obligations and any proceeds of the Collateral when received by Holder in cash
or its equivalent, will be applied first to costs of collection and, thereafter,
in reduction of the Secured Obligations in such order and manner as Holder may
direct in its sole discretion, and Maker irrevocably waives the right to direct
the application of such payments and proceeds and acknowledges and agrees that
Holder shall have the continuing and exclusive right to apply any and all such
payments and proceeds in the Holder's sole discretion, notwithstanding any entry
to the contrary upon any of its books and records.
8. Events of Default. Maker shall be in default if any of the following
happens (an "Event of Default"): (1) Maker fails to make any installment of the
Principal or Interest, or any other payment due and owing, under this Note
within ten (10) days after the same becomes due and payable; or (2) Maker fails
to perform any other obligation required to be performed by Maker under this
Note, the Master Security Agreement or any of the other Loan Documents for
thirty (30) days after written notice from Holder of such failure; or (3) any
representation, warranty or other statement by or on behalf of Maker in
connection with this Note is false or misleading in any material respect; or (4)
an Event of Default has occurred and is continuing under the Master Security
Agreement.
(b) Notwithstanding anything to the contrary contained herein, upon the
occurrence of an Event of Default: (i) Holder may declare the entire outstanding
balance of the Principal, together with all accrued and unpaid Interest thereon,
immediately due and payable without notice or demand which amounts shall,
together with all other sums due hereunder, accrue interest from such
acceleration until the date of actual payment at the Default Rate (provided,
however, that should there occur an Event of Default, and if a voluntary or
involuntary petition under the United States Bankruptcy Code is filed by or
against Maker while such default remains uncured, the entire outstanding balance
of the Principal automatically shall be accelerated and due and payable and
interest thereon at the Default Rate, and Holder may exercise any and all of its
remedies hereunder, under the other Loan Documents and under Applicable Law. The
remedies of Holder provided herein, in
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 2
<PAGE>
the Master Security Agreement and under Applicable Law shall be cumulative and
concurrent and may be pursued singly, successively or concurrently at the sole
discretion of Holder and may be exercised as often as occasion therefor shall
occur. The failure to exercise, or any delay in the exercise of, any right or
remedy shall in no event be construed as a waiver, release or exhaustion of any
such remedies.
9. Collection Costs. In addition to the Principal, Interest, Prepayment
Premium (if any), and late payment charges (if any), Maker shall pay Holder on
demand, and Holder shall be entitled to collect all costs and expenses of
collection, including, without limitation, reasonable attorneys' fees incurred
in connection with enforcement of its rights and remedies hereunder and under
the other Loan Documents, the protection or realization of the Collateral or in
connection with Holder's collection efforts, or in connection with any
bankruptcy or other judicial proceeding, whether or not suit on this Note or any
foreclosure proceeding is filed. All such costs and expenses shall be payable on
demand and, until paid, shall be Secured Obligations secured by the security
interest granted under the Master Security Agreement and all other collateral,
if any, held by Holder as security for Maker's obligations under this Note.
10. Governing Law; Binding Agreement. The provisions of this Note shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective successors and assigns. THIS NOTE IS BEING DELIVERED IN THE STATE OF
NEW YORK AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAWS
PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION)
THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF NEW YORK.
11. More than One Signer. If more than one person or entity signs this Note
as a Maker, the obligations contained herein shall be deemed joint and several
and all references to "Maker" shall apply both jointly and severally.
12. General. Maker represents and warrants that this Note evidences a loan
for business or commercial purposes. Prior to signing this Note, Maker read and
understood the provisions hereof, and agrees to all terms and conditions
contained herein.
13. Waivers. MAKER AND ALL ENDORSERS, SURETIES, AND GUARANTORS HEREOF
HEREBY JOINTLY AND SEVERALLY WAIVE PRESENTMENT FOR PAYMENT, DEMAND, NOTICE OF
NON-PAYMENT OR DISHONOR, NOTICE OF INTENTION TO ACCELERATE THE MATURITY, NOTICE
OF PROTEST AND PROTEST OF THIS NOTE. HOLDER AND MAKER HEREBY EACH WAIVE THEIR
RESPECTIVE RIGHTS TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF OR RELATED TO THIS NOTE, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION OR PROCEEDING TO WHICH
HOLDER OR MAKER MAY BE PARTIES WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS OR OTHERWISE INCLUDING, WITHOUT LIMITATION, ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN ART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS NOTE OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF
OR THEREOF. THIS WAIVER IS MADE KNOWINGLY, WILLINGLY AND VOLUNTARILY BY HOLDER
AND THE MAKER WHO EACH ACKNOWLEDGE THAT NO REPRESENTATIONS HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR
NULLIFY ITS EFFECT. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWAL, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE AND THE OTHER LOAN DOCUMENTS.
14. Usury; Partial Invalidity. (a) At no time shall the Interest Rate (or
the Default Rate or other amounts paid or collected hereunder) exceed the
highest rate allowed by applicable law for this type of loan. Should Holder ever
collect interest at a rate that exceeds such applicable legal limit, such excess
will be credited to the Principal.
(b) Whenever possible, each provision of this Note shall be interpreted in
such manner as to be effective and valid under Applicable Law, but if any
provision of this Note shall be prohibited by or invalid under the laws of any
applicable jurisdiction, such provision, as to such jurisdiction, shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Note in any other jurisdiction.
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 3
<PAGE>
15. Notices. All notices and other communications under this Note shall be
in writing and shall be addressed: (i) if to Maker, 9 Commercial Street, Hudson,
NH 03051; and (ii) if to Holder, KeyCorp Leasing, a Division of Key Corporate
Capital Inc., 54 State Street, Albany, New York 12207, Attention: Account
Manager, or such other address as either party hereto shall communicate to the
other party at its address specified above. All such notices and other
communications shall be deemed to have been duly given if delivered by hand,
overnight courier or if sent by certified mail, return receipt requested, to the
party to whom such notice is intended to be given, and shall be effective upon
receipt.
16. Funding Date. The Funding Date for this Note shall be the date on which
Holder disburses funds hereunder. TO THE EXTENT THE FUNDING DATE IS LEFT BLANK
ABOVE, OR DOES NOT REFLECT THE ACTUAL DATE THAT HOLDER DISBURSES FUNDS
HEREUNDER, MAKER HEREBY AUTHORIZES HOLDER TO WRITE IN THE CORRECT DATE AT THE
TIME OF DISBURSEMENT.
IN WITNESS WHEREOF, Maker, intending to be legally bound, has caused this
Note to be duly executed on the day and year first above written.
MAKER:
PRESSTEK, INC.
By: /s/ Robert Hallman
---------------------------
Name: Robert Hallman
Title: CEO, President
STATE OF NEW HAMPSHIRE )
) ss.:
COUNTY OF HILLSBOROUGH )
On this 28th (Day) day of September (Month), 1999 (Year), before me the
subscriber personally appeared Robert W. Hallman, who being by me duly sworn,
did depose and say; that (s)he resides at Hillsborough County, State of New
Hampshire: that (s)he is a Chief Executive Officer of Presstek, Inc., the
corporation described in and which executed the foregoing instrument; and that
(s)he signed his/her name thereto by order of the Board of Directors of said
corporation.
/s/ JANE MILLER
- -----------------------------------------
JUSTICE OF THE PEACE
[NOTARY PUBLIC]
My Commission Expires: February 17, 2004
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 4
<PAGE>
ATTACHMENT:
Collateral Schedule: This Note is secured by Collateral Schedule No. 01 to
Master Security Agreement dated September 27, 1999.
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999 Page 5
<PAGE>
Collateral Schedule No. 01
- --------------------------------------------------------------------------------
PRESSTEK, INC.
1. General. This Collateral Schedule No. 01, dated as of September 27,
1999, is issued pursuant to the Master Security Agreement, dated as of September
27, 1999, which was made by PRESSTEK, INC. in favor of KeyCorp Leasing, a
Division of Key Corporate Capital Inc. and is executed in connection with the
Note by Borrower, dated as of September 27, 1999, in the principal amount of
$4,040,652.97. This Collateral Schedule incorporates all terms and conditions of
the Master Security Agreement. Capitalized terms not otherwise defined herein
shall have the meanings described in the Master Security Agreement. Borrower
hereby gives, grants and assigns to KCL a security interest in and against the
property described below, along with all present and future attachments and
accessions thereto, and all replacements and proceeds thereof, including all
amounts payable under any insurance policy, all herein referred to collectively
as "Collateral." The security interest in the Collateral secures the payment and
performance of any and all debts, obligations and liabilities of any kind or
nature of Borrower to KCL, now existing or hereafter arising, including without
limitation Borrower's obligations under the above-referenced Note and any
renewals, extensions, and modifications of the Note and Borrower's debts,
obligations and liabilities under the Master Security Agreement.
2. Equipment:
VENDOR: T.H. DIXON & CO. LTD
WORKS ROAD
LETCHWORTH HERTS SG6 1LS ENGLAND
EQUIPMENT LOCATION: 55 EXECUTIVE DRIVE
HUDSON, NH 03051-4903
QUANTITY EQUIPMENT DESCRIPTION INVOICE NO.
- -------- --------------------- -----------
1 COATING AND LAMINATING MACHINE 019482, 019158, 019321
SERIAL NUMBER: 4045, MODEL NUMBER 2010 019373, 019417, 019500
KIT OF ELECTRICAL COMMISSIONING SPARES 019639
2 MOUNTING ADAPTORS SV 30790 MODEL 1060 019587
2 FUSE BLOCKS GK1-DF 019587
VENDOR: ENERGY SCIENCES INC.
42 INDUSTRIAL WAY
WILMINGTON, MA 01887
QUANTITY EQUIPMENT DESCRIPTION INVOICE NO.
- -------- --------------------- -----------
1 ESI E-BEAM CURING UNIT 07976A-00, 07976A-01
150/120/900 ELECTROCURE SYSTEM 07976A-02, 07976A-03
3. Trade Names: None.
4. Discount Rate. Any provision of the Master Security Agreement or other
Loan Documents to the contrary notwithstanding, all present value calculations
to be made with respect to the Equipment described on this Collateral Schedule
shall be made using a discount rate equal to three percent (3%).
5. Additional Representation and Warranty. Borrower has conducted a
comprehensive review and assessment of the Borrower's computer applications and
made inquiry of the Borrower's key suppliers, vendors and customers with respect
- --------------------------------------------------------------------------------
Form No: MSA Rev. 012999
<PAGE>
to the "year 2000 problem" (that is, the risk that computer applications may not
be able to properly perform date-sensitive functions after December 31, 1999)
and based on that review and inquiry, the Borrower does not believe the year
2000 problem will result in a material adverse change in the Borrower's business
condition (financial or otherwise), operations, properties or prospects, or
ability to perform the obligations of Borrower under this Agreement
(Signatures follow on next page)
- --------------------------------------------------------------------------------
Form No: R96-501m.o98
<PAGE>
6. Power of Attorney; UCC's. BORROWER HEREBY APPOINTS KCL, OR ITS ASSIGNEE,
AND ANY OF KCL'S OR ASSIGNEE'S OFFICERS OR EMPLOYEES AS ITS TRUE AND LAWFUL
ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO EXECUTE AND FILE
ON BEHALF OF BORROWER ALL UCC FINANCING STATEMENTS WHICH IN KCL'S SOLE
DISCRETION ARE NECESSARY OR PROPER TO SECURE KCL'S INTEREST IN THE COLLATERAL IN
ALL APPLICABLE JURISDICTIONS. Borrower hereby ratifies, to the extent permitted
by law, all that KCL shall lawfully and in good faith do or cause to be done by
reason of and in compliance with this paragraph.
This Collateral Schedule is effective as of the date first above written.
Borrower: KCL:
PRESSTEK, INC. KEYCORP LEASING, A DIVISION
OF KEY CORPORATE CAPITAL INC.
By: /s/ Robert Hallman By: /s/ Lou Sombat
-------------------------- --------------------------
Name: Robert Hallman Name: Lou Sombat
Title: CEO, President Title: Regional Business
Unit Manager
This is Originally Executed Copy No. 1 of 1 originally executed copies. Only
transfer of possession by KCL of Originally Executed Copy No. 1 shall be
effective for purposes of perfecting an interest in this Collateral Schedule by
possession.
- --------------------------------------------------------------------------------
Form No: R96-501m.o98
<PAGE>
Amendment No. 01
To Master Security Agreement
THIS AMENDMENT dated as of September 27, 1999 amends that certain Master
Security Agreement dated as of September 27, 1999 (the "Agreement") between
KEYCOR.P LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC., as lender, and
PRESSTEK,INC., as Borrower. Unless otherwise specified herein, all capitalized
terms shall have the meanings ascribed to them in the Agreement.
BORROWER'S FINANCIAL COVENANTS. Borrower hereby covenants with Lender as
follows:
1. On a continuing basis, from the date of the Master Lease until the date on
which Lessee's obligations thereunder are fully paid and performed, Lessee
hereby covenants and agrees that:
1. Tangible Capital Base; Lessee shall maintain a Tangible Capita] Base of not
less than $65,000,000 as of January 2, 1999, to be increased at the end of
each fiscal quarter by 75% of net income (no decreases for quarterly net
losses as may occur plus 100% of all equity capital proceeds from issuance
of capital Stock calculated at end of each fiscal quarter.
2. Debt/Tangible Net Worth Ratio: Lessee shall maintain a ratio of Debt to
Tangible Net Worth of less than .50 to 1.00; calculated at end of each
fiscal quarter.
3. Quick Ratio: Lessee shall maintain a ration of Total Liquid Assets to
current liabilities in excess of 2.0 to l~0; calculated at end of each
fiscal quarter.
4. Minimum Liquidity: Lessor shall maintain a minimum liquidity of not less
than $ 5,000,000 as cash or cash equivalents.
5. Calculation: Unless otherwise noted the financial covenants contained
herein shall be computed based on the consolidated financial statements of
Presstek, inc. and subsidiaries.
DEFINITIONS:
a) "Current Liabilities" shall be defined by GAAP.
b) "Debt" means all of the lessee's liabilities
c) "Subordinated Debt" means indebtedness and liabilities of Lessee which have
been subordinated by written agreement to indebtedness owned by Lessee to
Lessor in form and substance acceptable to Lessor.
Page 5 of 5
<PAGE>
d) "Tangible Capital Base" means Tangible Net Worth plus Subordinated Debt,
e) "Tangible Net Worth" means Lessee's total assets excluding all intangible
assets (i.e. goodwill, trademarks, patents, copyrights, organizational
expenses, and similar intangible items, but including leaseholds and
leasehold improvements) less total Debt.
f) "Total Liquid Assets" means Lessee's cash on hand plus Lessee's readily
marketable securities, plus Lessee's net trade accounts receivable.
EXCEPT AS EXPRESSLY MODIFIED HEREBY, ALL OF THE TERMS, COVENANTS AND CONDITIONS
OF THE GREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT AND ARE IN ALL RESPECTS
HEREBY RATIFIED AND AFFIRMED.
IN WITNESS WHEREOF; Lender and Borrower have executed this Amendment as of the
date first written above.
Lender: Borrower:
KEYCORP LEASING, PRESSTEK, INC.
A DIVISION OF KEY CORPORATE CAPITAL, INC.
By: /s/ Lou Sombat By: /s/ Robert Hallman
------------------------------ ------------------------------
Name: Lou Sombat Name: Robert Hallman
Title: Regional Business Title: CEO, President
Unit Manager
By:
Name;
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from form 10-Q at
October 2, 1999 and is qualified in its entirety by reference to such financial
information
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> OCT-02-1999
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<CURRENT-LIABILITIES> 12,758,000
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0
0
<COMMON> 323,000
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<TOTAL-REVENUES> 37,937,000
<CGS> 24,510,000
<TOTAL-COSTS> 24,510,000
<OTHER-EXPENSES> 12,574,000
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<INTEREST-EXPENSE> (409,000)
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<INCOME-TAX> 0
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<DISCONTINUED> (10,948,000)
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<CHANGES> 0
<NET-INCOME> (18,751,000)
<EPS-BASIC> (0.58)
<EPS-DILUTED> (0.58)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> OCT-03-1998
<CASH> 10,809,000
<SECURITIES> 16,029,000
<RECEIVABLES> 19,088,000
<ALLOWANCES> 655,000
<INVENTORY> 12,349,000
<CURRENT-ASSETS> 58,966,000
<PP&E> 46,796,000
<DEPRECIATION> 8,407,000
<TOTAL-ASSETS> 114,498,000
<CURRENT-LIABILITIES> 14,035,000
<BONDS> 0
0
0
<COMMON> 322,000
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<TOTAL-REVENUES> 60,362,000
<CGS> 34,416,000
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (403,000)
<INCOME-PRETAX> 6,367,000
<INCOME-TAX> 2,090,000
<INCOME-CONTINUING> 4,277,000
<DISCONTINUED> (1,173,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,104,000
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.09
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> JAN-02-1999
<CASH> 2,950,000
<SECURITIES> 16,107,000
<RECEIVABLES> 22,811,000
<ALLOWANCES> 2,185,000
<INVENTORY> 9,724,000
<CURRENT-ASSETS> 50,375,000
<PP&E> 48,251,000
<DEPRECIATION> 8,754,000
<TOTAL-ASSETS> 106,670,000
<CURRENT-LIABILITIES> 13,295,000
<BONDS> 0
0
0
<COMMON> 323,000
<OTHER-SE> 87,130,000
<TOTAL-LIABILITY-AND-EQUITY> 106,670,000
<SALES> 60,833,000
<TOTAL-REVENUES> 74,165,000
<CGS> 46,606,000
<TOTAL-COSTS> 46,606,000
<OTHER-EXPENSES> 15,413,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (623,000)
<INCOME-PRETAX> (1,587,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,587,000)
<DISCONTINUED> (1,094,000)
<EXTRAORDINARY> 0
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<NET-INCOME> (2,681,000)
<EPS-BASIC> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
