UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10281
Smith Corona Corporation
(Exact name of registrant as specified in its charter)
Delaware 51-0286862
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
842 Bennie Road, Cortland, New York 13045
(Address of principal executive offices) (Zip Code)
(607) 753-6011
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
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.
Outstanding at
Class October 27, 1999
Common Stock, par value $.001 3,065,180
per share
SMITH CORONA CORPORATION AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
September 30, 1999 and June 30, 1999 1
Consolidated Statements of Operations - For the
three months ended September 30, 1999 and 1998 2
Consolidated Statement of Changes in Stockholders'
Equity - For the three months ended
September 30, 1999 3
Consolidated Statements of Cash Flows - For the
three months ended September 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 7-9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit Index 11
SMITH CORONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands)
September 30, June 30,
1999 1999
ASSETS (unaudited) (audited)
Current assets:
Cash and cash equivalents $ 3,195 $5,453
Accounts receivable (net of allowance
for doubtful accounts of $201 and
$253, respectively) 5,259 4,546
Inventories 8,091 9,356
Prepaid expenses and other current
assets 472 385
Total current assets 17,017 19,740
Property, plant and equipment, net 2,071 2,335
Other assets 160 160
TOTAL $19,248 $22,235
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade payables $ 3,531 $ 4,748
Accrued liabilities 4,301 4,936
Income taxes payable 848 782
Total current liabilities 8,680 10,466
Pension liability 4,704 4,748
Postretirement benefits 1,053 1,961
Other long-term liabilities 674 674
Total liabilities 15,111 17,849
Stockholders' equity:
Common stock 3,228,953 shares issued
and outstanding 3 3
Preferred stock, series A,
none outstanding - -
Additional paid-in capital 55,517 55,517
Deferred compensation (33) (99)
Accumulated deficit (51,350) (51,035)
Total stockholders' equity 4,137 4,386
TOTAL $19,248 $22,235
See accompanying notes to consolidated financial statements.
SMITH CORONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share amounts)
Three months ended
September 30
1999 1998
(unaudited)
Net sales $ 8,281 11,588
Cost of goods sold 5,905 10,049
Gross margin 2,376 1,539
Selling, general and
administrative expenses 2,652 5,997
Restructuring expense - 1,183
Operating loss (276) (5,641)
Interest income 6 7
Loss before income taxes (270) (5,634)
Income taxes 45 37
Net loss $ (315) $(5,671)
Net loss per common
share-basic and diluted $ (.10) $ (1.90)
Weighted average common
shares outstanding -
basic and diluted
(in thousands) 3,056 2,983
See accompanying notes to consolidated financial statements
<TABLE>
SMITH CORONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the three months ended September 30, 1999
($ in thousands)
(unaudited)
<S> <C> <C> <C> <C> <C>
Additional
Common Paid-In Deferred Accumulated
Stock Capital Compensation Deficit Total
Balance June 30, 1999 $ 3 $55,517 $ (99) $(51,035) $ 4,386
Net loss - - - (315) (315)
Amortization of deferred
compensation - - 66 - 66
Balance
September 30, 1999 $ 3 $55,517 $ (33) $(51,350) $ 4,137
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
SMITH CORONA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
Three months ended
September 30
1999 1998
(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (315) $(5,671)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 427 682
Changes in assets and liabilities:
Accounts receivable (713) 191
Inventories 1,265 (2,578)
Prepaid expenses and
other current assets (87) (546)
Other assets - 81
Trade payables (1,217) (756)
Accrued liabilities and income taxes
payable (569) 505
Postretirement benefits and pension
liability (952) (483)
Other long-term liabilities - (225)
Net cash used in
operating activities (2,161) (8,800)
CASH FLOWS FROM INVESTING ACTIVITIES -
Capital expenditures (97) (236)
Decrease in
cash and cash equivalents (2,258) (9,036)
Cash and cash equivalents:
Beginning of period 5,453 15,293
End of period $ 3,195 $ 6,257
</TABLE>
See accompanying notes to consolidated financial statements.
SMITH CORONA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
($ and shares in thousands, except per share amounts)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim consolidated financial statements, although not
necessarily indicative of results of operations for the entire fiscal year,
include all adjustments of a normal recurring nature which are, in the
opinion of management, necessary for a fair presentation of the results for
the periods covered. They have been prepared by Smith Corona Corporation
(the Company) without audit in accordance with the instructions to Form 10-Q
and should be read in conjunction with the consolidated financial statements
and the notes thereto for the fiscal year ended June 30, 1999 as contained
in the Company's Annual Report on Form 10-K.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
During the three-months ended September 30, 1999, the Company revised the
classification of certain customer promotion and advertising expenses.
These expenses, previously classified as reductions of net sales, have been
included in selling, general & administrative expenses (SG&A). Based on its
assessments of industry practice and the marketing-related nature of these
items, the company believes that the revised presentation is preferable.
The September 30, 1998 statement of operations has been similarly
reclassified to conform with the 1999 presentation. The effect of the 1998
reclassification was to increase SG&A and net sales by $474 as compared to
amounts previously reported.
NOTE 2 - CONTINGENCIES
Certain aspects of the Company's past handling and/or disposal of hazardous
substances have been the subject of investigation by federal and state
regulatory authorities, or have been the subject of lawsuits filed by such
authorities or by private parties. The Company was the owner and operator
of manufacturing facilities in Groton, New York (the "Groton Site") and
Cortlandville, New York (the "Cortlandville Site") and together, (the
"Owner/Operator Sites"). The Company's liability, if any, at the
Owner/Operator Sites stems from groundwater and soil contamination at the
Cortlandville Site and soil contamination at the Groton Site. The
remediation program at the Cortlandville Site consists of round-the-clock
pumping and filtering. In April 1999 the Company sold its Cortlandville
facility and as part of the sale agreement, the buyer agreed to continue and
complete the Company's responsibilities including the operation,
maintenance, monitoring, shutdown and post-shutdown activities of the
remediation system at the Cortlandville Site. Although the buyer agreed to
complete such remediation activities, the Company remains the primary
obligor with the environmental authorities and as such will continue to
carry the associated estimated liability for remediation activities on its
balance sheet. The remediation program at the Groton Site consists of
periodic soil and water sampling. A decommissioning plan for the Groton
Site was approved and decommissioning activities have been completed. To
the Company's knowledge, the only future costs that will be associated with
remediation of the Cortlandville and Groton Sites are for operation,
maintenance, monitoring, shutdown, and post-shutdown of the systems. At
September 30, 1999 and June 30, 1999, the Company had recorded a liability
of approximately $838 related to environmental matters. The Company
believes that it has set aside adequate reserves for the payment of expenses
for ongoing remediation programs at the Groton and Cortlandville Sites.
The Company is also a defendant or plaintiff in various other legal actions
that have arisen in the ordinary course of its business. It is the opinion
of management that the ultimate resolution of these matters and the
environmental matters discussed above will not have a material adverse
effect on the Company's financial position or results of operations.
NOTE 3 - INVENTORIES
A summary of inventories, by major classification and net of reserves is as
follows:
<TABLE>
September 30, June 30,
1999 1999
<S> <C> <C>
Raw materials $ 622 $ 783
Finished goods 8,914 11,769
Reserves (1,445) (3,196)
Total $ 8,091 $ 9,356
</TABLE>
Approximately $1,700 of the decrease in finished goods and reserves is
related to the Company's decision to scrap obsolete inventories.
NOTE 4 - EARNINGS (LOSS) PER SHARE
Dilutive securities had no impact on the earnings per share calculations in
any of the periods presented as their impact was antidilutive. There was no
change in the amount of potentially dilutive securities from June 30, 1999.
On October 5, 1999 certain executive officers and employees were granted
stock options totaling 51,909 shares. The exercise price is $1.1565 and the
options vest in equal amounts over a three-year period.
NOTE 5 - RESTRUCTURING
Effective September 28, 1998, the Company's Board of Directors approved a
restructuring program, which included: i.) the elimination of approximately
130 positions primarily located at the Company's Corporate Headquarters in
Cortland, New York, ii.) the sale or lease of the building in Cortland, New
York, iii.) relocation of the corporate Headquarters to more efficient
facilities. The Company completed the restructuring program by June 30,
1999. As a result of these actions, the Company recorded a pre-tax charge,
principally for severance payments, of $1,183 in the first quarter ended
September 30, 1998 and an additional $141 in the second quarter ended
December 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The forward-looking comments in this Management's Discussion and Analysis of
Results of Operations and Financial Condition are estimates by the Company's
management of future performance and are subject to a variety of risks and
uncertainties that could cause actual results to differ from management's
current expectations. These risks and uncertainties include, but are not
limited to, the ability of the Company to implement its business strategy,
the Company's access to financing, competitive conditions within the
Company's markets, including the acceptance of new products offered by the
Company, the Company's ability to achieve anticipated cost savings and
profitability targets and the ability of the Company's suppliers to meet
scheduled timetables for new product introductions.
Results of Operations
The Company continued its plans to expand and diversify its product
offerings with a renewed emphasis on building on the market's recognition of
the Smith Corona brand in printed document and data transmission products.
Late in the first quarter of the fiscal year ending June 30, 2000, the
Company introduced its Inkjet SolutionsTM, which represents inkjet cartridges
compatible with most major brand printers. The Company expects to introduce
an expanded line of commercial headsets in its second fiscal quarter. The
Company continues to negotiate with numerous suppliers to expand product
offerings and develop new products such as inkjet printer supplies,
commercial products, and introducing new models of typewriters and supplies.
The Company is intent on introducing products that drive consumable supplies
businesses.
On July 21, 1999, the Company announced that it signed a seven-year
licensing agreement with Office Depot, Inc. for various office products,
which will be sold under the Smith Corona brand name at Office Depot stores
throughout the world. The licensed product for Office Depot will be offered
independently of other products already marketed by the Company such as its
typewriters, commercial headsets, and related accessories and supplies.
Some of the Smith Corona licensed products may appear in Office Depot stores
as early as the third quarter. Office Depot will procure all products and
the Company expects significant marketing exposure and advertising support
for such products given Office Depot's large distribution capabilities. The
Company will be paid a royalty on sales made under the license agreement.
Net sales of $8.3 million for the quarter ended September 30, 1999 decreased
28 percent from last year's first quarter net sales of $11.6 million. The
prior period net sales include $1.8 million related to products, primarily
facsimile and telephony, that were discontinued during fiscal year 1999.
Unit sales of typewriters are lower than a year ago, as a result of a
declining market, although industry data indicates that the rate of decline
in the typewriters and related supplies market has been slowing. The
company is focused on building market share through expanded distribution
channels and various customer marketing programs.
Gross margin, as a percentage of net sales, was 29 percent for the first
quarter ended September 30, 1999, as compared to 13 percent for the
comparable period last year. The margin improvements are primarily due to a
proportionate increase in sales of higher margin typewriter supplies.
Additionally, prior year sales of discontinued facsimile and telephony
products were at little or no margin.
Selling, general and administrative expenses for the three months ended
September 30, 1999 declined 56 percent to $2.7 million (32 percent of net
sales) compared to $6.0 million (52 percent of net sales) last year. The
decrease in spending from the prior year was primarily associated with the
September 1998 restructuring action and the Company's ongoing efforts to
reduce costs.
Effective September 28, 1998, the Company's Board of Directors approved a
restructuring program, which included: i.) the elimination of approximately
130 positions primarily located at the Company's Corporate Headquarters in
Cortland, New York, ii.) the sale or lease of the building in Cortland, New
York, iii.) relocation of the corporate Headquarters to more efficient
facilities. The restructuring program was completed by June 30, 1999. As a
result of these actions, the Company recorded a pre-tax charge, principally
for severance payments, of $1.2 million in the first quarter ended September
30, 1998 and an additional $.1 million in the second quarter ended December
31, 1998.
The Company believes its products and major operating systems are year 2000
compliant. The Company continues to gather information concerning the year
2000 compliance status of its suppliers and based on information gathered to
date the Company is not aware of any non-compliance issues. In the event
that any of the Company's significant suppliers do not successfully and
timely achieve year 2000 compliance, the Company's business could be
adversely affected. Any significant disruption of the Company's ability to
communicate electronically with its business partners could negatively
impact the Company's business.
Financial Condition
Over the past several years, the Company has experienced losses from
operations, which have resulted in consumption of cash and a reduction of
stockholders' equity. The Company has taken a number of strategic and
tactical steps in an effort to reverse these trends. Included among these
is the reconfiguration of its executive management team, a restructuring of
the Company to better align its cost structure with its focus on operating
as a sales, marketing and distribution company and a market strategy which
re-emphasizes Smith Corona's core products and the introduction of new
products which are consistent with the Company's historical competencies and
brand equity. The Company believes that these actions coupled with its
operating plan will reverse the prior trend. The Company's current lender
has elected to extend its credit facility through February 26, 2001, which
provides the Company an important element of its business plan. Pursuant to
the provisions of the Loan and Security Agreement, the Company must maintain
an adjusted net worth of at least $2.0 million. The Company has maintained
an adjusted net worth in excess of $4.0 million. Management believes that
it has adequate flexibility and that this covenant should not impose an
undue restriction on the operations of the Company. The Company believes
that the execution of its plans will be accomplished and, accordingly, that
it will have sufficient liquidity to conduct its operations. No assurances
can be given, however, that its plans will be successful.
The Company's primary source of liquidity and capital resources, on both a
short- and long-term basis, are cash balances and available borrowing
capacity. The Company believes that its cash and borrowing capabilities
will be sufficient to meet its operating cash and capital expenditure
requirements in the foreseeable future.
During the three months ended September 30, 1999, the Company's operating
activities used $2.2 million of cash versus the prior year use of $8.8
million. This year's first quarter use of cash is primarily related to
reduction of liabilities, whereas, the prior year use of cash is primarily
related to the net loss. Earnings before interest, taxes, depreciation and
amortization was $.2 million for the first quarter ended September 30, 1999
versus a loss of $5.0 million in the prior year. The Company had no
material commitments for additional capital expenditures at September 30,
1999.
PART II - Other Information
Item 1. Legal Proceedings.
Information required by this item is incorporated by reference from "Note 2
- - Contingencies" in the Notes to the Consolidated Financial Statements
appearing in this Form 10-Q Quarterly Report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Exclusive license agreement between Smith Corona Corporation
and Office Depot, Inc. dated July 16, 1999.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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.
SMITH CORONA CORPORATION
November 3, 1999
By: /s/ Martin D. Wilson
Martin D. Wilson
Senior Vice President &
Chief Financial Officer
(Principal Financial and
Accounting Officer)
EXHIBIT INDEX
Exhibit No. Description
10.1 Exclusive license agreement between Smith Corona
Corporation and Office Depot, Inc. dated July 16, 1999.
(A)
27 Financial Data Schedule
(A) [*****] Confidential portions of this exhibit have been omitted and
filed separately with the Securities and Exchange Commission with a request
for confidential treatment pursuant to Rule 24b-2.
EXHIBIT 10.1
CONFIDENTIAL TREATMENT
EXCLUSIVE LICENSE AGREEMENT
BETWEEN OFFICE DEPOT, INC. AND SMITH CORONA CORPORATION
Confidential portions of this exhibit have been omitted and filed separately
with the Securities and Exchange Commission with a request for confidential
treatment pursuant to Rule 24b-2. The location of an omitted portion is
indicated by [*******].
EXCLUSIVE LICENSE AGREEMENT
This EXCLUSIVE LICENSE AGREEMENT ("Agreement") is made and entered
into effective as of July 16, 1999 (the "Effective Date"), between SMITH
CORONA CORPORATION, a Delaware corporation having its principal business
office at 842 Bennie Road PO Box 2090 Cortland, NY 13045-0990 ("Licensor"),
and OFFICE DEPOT, INC., a Delaware corporation having its principal place
of business at 2200 Old Germantown Road, Delray Beach, Florida 33445
("Licensee").
RECITALS
A. Licensor is the owner of the Registered and/or Unregistered Marks
and Property listed in Schedule A.
B. Licensee desires to secure the exclusive right and license to use
the Marks and Property in connection with the design, manufacture,
advertisement, promotion, distribution and sale of Licensed Products.
C. Licensor is willing to grant Licensee an exclusive license on the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the recitals, premises and mutual
covenants contained in this Agreement, the parties agree as follows:
AGREEMENT
Section 1. License
1.1. Grant and Territory. For the term and subject to the other terms
and conditions of this Agreement, Licensor hereby grants to Licensee an
exclusive right and license to use the Licensed Rights in connection with
(i) the design of Licensed Products in the Territory, (ii) the manufacture
of Licensed Products anywhere in the world for distribution in the
Territory, and (iii) the marketing, distribution and sale of Licensed
Products throughout the Territory. "Distribution" includes sales to
consumers/end users through Office Depot retail stores, Office Depot's
contract and commercial divisions, and electronically through the Internet.
The parties acknowledge that this license is exclusive to Licensee and for
the term of this Agreement, Licensor shall not grant to any person or
entity a license to use the Licensed Rights in connection with the design,
manufacture or distribution of Licensed Products in the Territory without
the prior written approval of Licensee. Licensee shall have the absolute
right to withhold such approval in its sole discretion.
1.2 Sublicenses. This Agreement confers upon Licensee the full and
complete right to sublicense the rights or licenses granted to Licensee
under this Agreement to any subsidiaries, foreign or domestic, of Licensee.
1.3. Use of Licensed Rights. Licensee shall conform its use of the
Marks and Property in accordance with the terms of this Agreement.
Licensee shall conduct all activities hereunder so as to not knowingly
violate any applicable laws in the Territory, and shall use its best
efforts to cause each person authorized by Licensee, or acting by authority
given another by or through Licensee, to make use of the Marks and Property
in accordance with the terms of this Agreement. There will be a
predetermined minimum sales level for each product in order to retain
exclusivity.
1.3.1(a) Product Introduction. In order for Licensee to maintain
exclusivity of each Product Category listed in Exhibit A, it shall
introduce product(s) in each Product Category into the Market no later than
the date on which product from the Product Category will be sold by
Licensee ("Market Date"), which date shall be no later than eighteen (18)
months from the Effective Date hereof. With respect to Product
Category(ies) added to Exhibit A after the Effective Date hereof, Licensee
shall introduce product(s) from such added Product Category(ies) no later
than the Market Date for each Product Category, which shall be no later
than eighteen (18) months from the date on which it was added to Exhibit A.
At the conclusion of the eighteen (18) month period set forth hereinabove,
if Licensee has failed to introduce product from any Product Category, then
the representatives for each party listed in Paragraph 10.3 shall meet to
discuss the status of the particular Product Category(ies) ("Status
Conference"). If Licensee is unable to verify at the Status Conference any
plans for introducing product from the particular Product Category(ies),
then its license shall be converted from exclusive to non-exclusive status
for the particular Product Category(ies). If, however, Licensee is able to
verify at the Status Conference its plans for introducing product from the
particular Product Category(ies), then the parties' representatives shall
negotiate a new time period in which to introduce product for the Product
Category(ies). For purpose of verification, items such as RFQs for
manufacturing, manufacturing forecasts, orders for tooling, or other
objectively verifiable items are to be relied upon by Licensee and
Licensor. The Market Dates for each Product Category are listed in the
following chart:
Product Category Market Date (anticipated first costs)
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1.3.1(b) Minimum Sales Levels. Beginning with the first introduction
of a product into the market pursuant to Paragraph 1.3.1(a), in order for
Licensee to maintain exclusivity of each Product Category listed in Exhibit
A, it MUST sell the minimum dollar volume quantity (first cost) of product
from each Product Category, as listed in the following chart. The parties
shall use seventy percent (70%) of the annual manufacturing forecast for
each Product Category as the minimum dollar volume quantity to be sold on
annual basis.
Product Category Minimum Annual Sales
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1.4. Relationship of Parties. The relationship between Licensor and
Licensee is that of licensor and licensee of intellectual property rights.
In its capacity as licensee, Licensee shall be acting only as an
independent contractor, and not as a partner, co-venturer, agent, employee
or representative of Licensor. Accordingly, neither party shall have
authority, either express or implied, to make any commitment or
representation on behalf of the other or incur any debt or obligation on
behalf of the other party. The parties acknowledge that this Agreement
does not constitute a franchise under United States federal or state law or
under any law of the Territory or any sovereignty within the Territory and
does not create a fiduciary relationship between the parties.
Section 2. Term
2.1. Initial Term. The term of this Agreement shall commence on the
Effective Date and shall continue until seven (7) years after the Effective
Date (the "Initial Expiration Date"), unless terminated earlier in
accordance with this Agreement ("Initial Term").
2.2. Extended Five-Year Term. This Agreement shall be extended for
one (1) successive five-year term upon the expiration of the Initial Term,
only upon the mutual consent of the parties which shall be given, if at
all, no fewer than thirty(30) days prior to the expiration of the
Agreement.
2.3. Annual Renewal Term. Following expiration of the Extended Five
Year Term, this Agreement shall be extended for additional one-year periods
upon the expiration of any preceding term (the last day of any extension
period shall be referred to as the "Annual Expiration Date"), only if
Licensor and Licensee agree to such extension in writing no more than six
(6) months prior to the Annual Expiration Date that they intend to extend
the term of this Agreement (the "Annual Renewal Term").
Section 3. Manufacturing
3.1. Manufacturing Standards. Licensee shall use its best efforts to
ensure that all of the Licensed Products are manufactured in accordance
with high quality standards. In this regard, Licensee shall cooperate with
Licensor at all times so that the Licensed Products are consistent with the
quality of other products sold under the Licensed Rights.
3.2. Conceptual Renderings. Within ten (10) days following initial
completion of conceptual renderings in drawing form of each product from a
Product Category, Licensee shall provide Licensor with one set of the same.
Within thirty (30) days following receipt of the conceptual renderings,
Licensor shall provide Licensee with its comments regarding reasonable
changes or corrections to be made prior to prototyping of the product.
3.3. Preproduction Samples. Prior to the commencement of production
of Licensed Products, Licensee shall furnish to Licensor up to five (5)
preproduction samples, as requested by Licensor, of each Licensed Product
that Licensee intends to manufacture or have manufactured under the
Licensed Rights. Licensor shall have the right to review the sample and
product labeling and packaging to confirm the Licensed Products are
manufactured in accordance with high quality standards by requesting in
writing within fifteen (15) days of the delivery of such preproduction
samples that Licensee make reasonable changes or corrections in such
preproduction samples as may reasonably be required, to maintain high
quality and design standards and Licensee shall make and incorporate any
such reasonable changes. If Licensee has not received a written request
for modification of the preproduction samples within fifteen 15 days of
delivery of such samples, it may assume that Licensor has no such changes
and may thereafter manufacture, market and sell Licensed Products
conforming to such preproduction samples. Licensee shall not make any
material changes to any preproduction sample after approval by Licensor
without resubmitting the sample for approval.
3.4. Production Samples. Once every quarter during the term of this
Agreement, Licensee shall furnish to Licensor up to three (3) production
samples, as requested by Licensor of each Licensed Product manufactured by
Licensee; provided if the Licensed Product has not been modified or no
additional Licensed Products have been manufactured since the previous
delivery pursuant to this Section 3.5, then Licensee shall notify Licensor
in writing and shall only be obligated to provide such samples if requested
in writing by Licensor. Licensor shall have the right to exercise quality
control over the Licensed Products manufactured for and sold by Licensee by
requesting in writing within fifteen (15) days of the delivery of such
production samples that Licensee make reasonable changes or corrections in
such production samples as may reasonably be required, in Licensor's
determination, to maintain the quality and design standards prescribed by
Licensor, and Licensee shall make and incorporate such changes or
corrections at Licensee's sole cost and expense. If Licensee has not
received a written request for modification of the production samples
within fifteen (15) days of delivery of such samples, it may assume that
Licensor has no such changes and may continue to manufacture, market and
sell Licensed Products conforming to such preproduction samples. Licensee
shall not make any material changes to any sample after approval by
Licensor without resubmitting the sample for approval. If Licensor requires
more than six (6) samples in any given quarter, Licensee shall provide such
excess additional samples to Licensor at Licensee's Standard cost.
Section 4. Duties of Parties
4.1. Compliance With Law. Licensee shall comply with all applicable
non-waivable laws and regulations in the Territory, including labeling and
advertising laws, and shall obtain and maintain any and all permits,
certificates or licenses necessary for the proper conduct of Licensee's
duties and obligations under this Agreement.
4.2. Notice of Proceedings. Licensee shall notify Licensor in writing
promptly once in receipt of documents commencing or threatening any action,
suit, proceeding or investigation or the issuance of any order, writ,
injunction, award, judgment or decree before or of any court, tribunal,
arbitration panel, agency or governmental instrumentality that relate to
the Licensed Rights or Licensed Products.
4.3. Records. Licensee shall maintain in reasonable detail and, where
applicable, in accordance with generally accepted accounting principles,
consistently applied, complete records of accounts including invoices,
production, shipping, sales and lease records, financial and other records
which pertain to the sale of Licensed Products. These records shall be
open for inspection, copying, extracting and audit by Licensor or its
employees, agents or representatives during normal business hours during
the term at a mutually agreed upon time and place and for two years
following termination or expiration of this Agreement and shall be retained
for at least two years after termination or expiration of this Agreement.
4.4. Manufacturing/Quality Control. Licensor agrees to provide
Licensee with reasonable assistance in the sourcing of manufacturers,
manufacturing audit and qualification, quality control and related matters.
4.5. Infringing Products. During the term of this Agreement, Licensor
agrees to promptly prosecute (or at its option to pay on a current basis
the costs of the prosecution of) claims for damages (and for appropriate
declaratory relief) against any and all parties that use the Licensed Marks
on products substantially similar to the Licensed Products other than
pursuant to the license granted pursuant to this Agreement. The parties
acknowledge that Licensee may make a significant investment in the
development and marketing of the Licensed Products and that Licensor's
willingness to prosecute those third-parties that infringe the Licensed
Marks is an important condition to such effort. Licensee agrees to give
prompt notice of any such infringement of which it becomes aware during the
term of the Agreement and Licensor agrees to commence such prosecution
promptly and diligently thereafter and notify Licensee of the progress of
any such action.
Section 5 Royalties and Other Fees
5.1. Royalties and Other Fees. Licensee agrees to pay Licensor, on a
quarterly basis within 45 days of the end of each quarter a royalty fee at
rates pursuant to the following table. The Royalty rates are based on the
first cost of the Licensed Product.
Contract Year Royalty Rate
1-2 *%
3-5 *%
6-7 ***%
Extensions ***%
Section 6 Ownership of the Licensed Rights
6.1 Warranty of Ownership. Licensor warrants and represents that it
owns all title, right, and authority to the Licensed Rights and has the
power to grant the Licensed Rights.
6.2 Ownership. Licensee acknowledges that nothing contained in this
Agreement shall give to Licensee any ownership interest in the Licensed
Rights.
6.3 Infringement Suits. Licensee shall notify Licensor of any known
infringements, claims or actions in derogation of any Licensed Rights by
any third parties. Licensor shall have the sole right to determine whether
any action shall be taken on account of such infringement, claim or action
and Licensee shall not take any action on account of such infringement,
claim or action without the prior written consent of Licensor; which
consent shall not be unreasonably withheld. If Licensor initiates any
legal proceedings on account of any such infringement, claim or action,
Licensee shall cooperate with and assist Licensor to the extent reasonably
necessary to protect the Licensed Rights, including without limitation,
being joined as a necessary or desirable party to such proceedings,
provided that Licensor shall reimburse Licensee for its reasonable out-of-
pocket costs incurred in connection therewith.
6.4 Survival. Notwithstanding anything in this Agreement to the
contrary, this Article 6 shall survive termination of this Agreement.
Section 7 Use and Display of the Marks
7.1 Use of Marks. The presentation and image of the Marks shall be
uniform and consistent with respect to all Licensed Products bearing the
Marks. All Licensed Products, labeling, packaging, business advertising
and promotional material used in connection with the Licensed Products
shall be in accordance with reasonable standards which may be prescribed by
Licensor.
7.2 Notice of Ownership of Marks and Copyrights. All advertising and
promotional materials attached to or delivered with the Licensed Products
shall state that the Marks are owned by Licensor, for example as follows:
All Rights Reserved.
(copy write) SMITH CORONA CORPORATION, INC.,
New York, U.S.A., 19__.
7.3 Prior Approval. All labeling, packaging, advertising and other
promotional plans and materials that Licensee desires to use to promote and
sell the LICENSED PRODUCTS shall be prepared in accordance with Licensor's
policy on the consistent use and appearance of marks, such policy being
annexed hereto as Exhibit D. Licensee shall provide Licensor with copies
of all labeling, packaging, and other promotional plans and material at
least twenty (20) days prior to their distribution date, and Licensor shall
provide Licensee with reasonable changes or corrections to be made to the
same no less than ten (10) days prior to the distribution date. Failure of
Licensee to conform to such policy shall result in termination of this
Agreement, unless the same is cured immediately following receipt of
written notice regarding the same.
Section 8 Termination
8.1 Licensor Termination. In the event Licensee breaches any
material provision of this Agreement, Licensor shall give written notice
specifying in reasonable detail the nature of the breach to Licensee and
specify a reasonable period of time within which Licensee is to cure the
breach. As used in the preceding sentence, a "reasonable period of time"
for curing a breach shall be at least thirty (30) business days in the case
of a payment default and shall be no more than forty-five (45) business
days for any other breach and shall be determined based upon commercial
circumstances existing at the time of the breach and the commercially
reasonable time necessary to cure such breach. If the breach is not cured
within the specified period, Licensor may terminate this Agreement
effective upon written notice to Licensee.
8.2 Licensee Termination. In the event Licensor breaches this
Agreement, Licensee may give written notice of the nature specifying in
reasonable detail the breach to Licensor and specify a reasonable period of
time within which Licensor is to cure the breach. As used in the preceding
sentence, a "reasonable period of time" for curing a breach shall be not
more than forty-five (45) business days for any other breach and shall be
determined based upon commercial circumstances existing at the time of the
breach and the commercially reasonable time necessary to cure such breach.
If the breach is not cured within the specified period, Licensee may
terminate this Agreement effective upon written notice to Licensor.
Notwithstanding anything in this Agreement to the contrary, Licensee may
terminate this Agreement at any time, with or without cause upon six (6)
months days prior written notice to Licensor.
8.3. Liability After Termination. Termination of this Agreement for
any reason shall not, unless otherwise expressly provided in this
Agreement, affect:
8.3.1. Obligations accrued prior to the effective date of
termination; or
8.3.2. Any obligations which, either expressly or from the
context of this Agreement, are intended to survive termination of this
Agreement.
8.4. Effects of Termination. Upon any termination of this Agreement:
8.4.1. Licensee shall furnish to Licensor a statement setting
forth (i) the inventory of Licensed Products manufactured or in the process
of manufacture, including the wholesale price thereof, (ii) the number of
orders received, accepted and approved, (iii) production and distribution
schedules. Licensor shall permit Licensee to continue manufacturing and
production of Licensed Products to fill any outstanding orders and to
continue marketing, advertising and selling Licensed Products until such
time as it has exhausted its inventory.
Section 9 Indemnification and Limitation on Liability
9.1. Indemnification by Licensee. Licensee shall indemnify, hold
Licensor and its officers, directors, shareholders, employees, agents,
independent contractors, representatives, and affiliates, harmless, and
defend Licensor and its officers, directors, shareholders, employees,
agents, independent contractors, representatives, and affiliates, from and
against any loss, damage, liability, or expense, including attorneys' fees
and disbursements arising in connection with any grossly negligent or
willful action by Licensee.
9.2. Indemnification by Licensor. Licensor shall defend, indemnify
and hold Licensee and all of Licensee's directors, officer, employees,
agents, affiliates, successors and assigns harmless from and against any
and all liabilities, losses, claims, causes of action, suits, damages, and
expenses, including reasonable attorneys' fees and expenses (collectively,
"Licensee's Claims"), for which Licensee may become liable or may incur or
be compelled to pay by reason of (i) the breach of any of the
representations and warranties of Licensor set forth in this Agreement and
(ii) Licensee's use of the Marks and Property provided that such use is
consistent with the terms of this Agreement; and (iii) claims of
infringement that are related to the Marks and Property.
9.3. Survival. The provisions of this Article 9 shall survive the
termination of this Agreement.
Section 10 General
10.1. Assignments, Successors and Assigns. Subject to Licensor's
prior, written approval, which shall not be unreasonably withheld, Either
party shall be permitted to assign its Licensed Rights under this Agreement
to a successor or other entity that purchases substantially all the assets
of such party . The rights granted by Licensor shall attach to the
Licensed Rights and shall transfer to any subsequent owner of the Licensed
Marks, including but not limited to any successor to the business or
purchaser of the assets of Licensor.
10.2. Bankruptcy. In the event Licensor becomes insolvent or
generally fails to pay, or admits in writing its inability to pay, its
debts as they become due or applies for, consents to, or acquiesces in the
appointment of, a trustee, receiver or other custodian for any of its
property, or makes a general assignment for the benefit of creditors; or,
in the absence of such application, consent or acquiescence, if a trustee,
receiver or other custodian is appointed for Licensor, or for a substantial
part of any of Licensor's property and is not discharged within 30 days; or
if any bankruptcy, reorganization, debt arrangement, or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding, is commenced in respect of Licensor, or any event
shall occur similar to any of the foregoing under the laws of any
jurisdiction, and if such case or proceeding is not commenced by Licensee,
it is consented to or acquiesced in by Licensee or remains for 30 days
undismissed, then, Licensor agrees to assign all rights and interests in
the Licensed Rights as they relate to the Licensed Products to a trustee,
receiver or other custodian, ("Assignee"), and Licensee shall continue to
abide by its responsibilities and obligations hereunder with payments and
reporting being made to such Assignee.
10.3. Notices. Any notice, request, demand, or other
communication required or permitted under this Agreement, shall be deemed
to be properly given by the sender and received by the addressee (i) if
personally delivered; (ii) 14 days after deposit in the mails if mailed by
certified or registered air mail, postage prepaid; (iii) 24 hours after
being sent by facsimile with confirmation sent as provided in (ii) above;
or (iv) 72 hours after being sent by commercial overnight mail, addressed
as follows, and in the case of facsimile transmission, to the appropriate
facsimile number shown below:
To Licensor: SMITH CORONA CORPORATION
842 Bennie Road
PO Box 2090
Cortland, New York 13045
Phone No.: (607) 758-5853
Facsimile No.: (607) 758-5786
Attention:John Bermingham, CEO
With a copy to: George R. McGuire
Hancock & Estabrook, LLP
1500 MONY Tower I
PO Box 4976
Syracuse, NY 13221-4976
Phone No. (315) 471-3151
Facsimile No. (315) 471-3167
To Licensee: OFFICE DEPOT, INC.
2200 Old Germantown Road
Delray Beach, Florida 33445
Phone No.: (561) 438-4800
Facsimile No.: (561) 265-4403
Attention: Charles Tyson, Vice President & GMM
Business Machines
With a copy to: OFFICE DEPOT, INC.
2200 Old Germantown Road
Delray Beach, Florida 33445
Phone No.: (561) 438-4800
Facsimile No.: (561) 265-4464
Attention: Brian D. Dan, Associate General
Counsel
Legal Department
or to such other address or facsimile number as from time to time may be
given in the manner permitted above.
10.4. Severability. If any provision of this Agreement is found
by any court of competent jurisdiction to be invalid or unenforceable, such
provision shall be deemed to be modified to the minimum extent necessary to
cause it to be valid and enforceable and the invalidity or unenforceability
of such provision prior to such modification shall not affect the other
provisions of this Agreement and all provisions not affected by the
invalidity or unenforceability shall remain in full force and effect.
10.5. Amendment and Modification. This Agreement may be amended
or modified only by a writing executed by all parties.
10.6. Governing Law and Choice of Forum.
10.6.1. This Agreement shall be construed and governed in
accordance with the internal laws of the State of New York. The parties
hereby submit to the jurisdiction of the state of New York.
10.6.2. In order to expedite the resolution of legal
disputes, Licensee, in its sole discretion, may elect to have such disputes
arising in connection with this Agreement finally settled under the
American Arbitration Association by one or more arbitrators appointed in
accordance with such rules, whose decision shall be binding upon the
parties.
10.7. Taxes. Licensee shall be responsible for collection,
remittance and payment of any and all taxes, charges, withholding
obligations, levies, assessments or other fees of any kind imposed by any
governmental authority with respect to the manufacture, sale, importation
or other disposition of the Licensed Products (other than taxes on the
income or gross receipts of Licensor).
10.8. Entire Agreement. This Agreement covers all contracts and
agreements between the parties relating to the subject matter of this
Agreement. All other contracts and agreements between the parties which
relate thereto are hereby terminated effective as of the effective date of
this Agreement.
10.9. Government Approvals and Remittances. In the event that any
approval with respect to this Agreement or any registration thereof will be
required, initially or at any time during the term, in order to give the
Agreement legal effect, each party agrees immediately to take whatever
steps may be necessary in this respect; and reasonable charges incurred in
connection therewith shall be borne by Licensee.
10.10. Authority to Make Agreement. Each party warrants and
represents that it has the power to enter into this Agreement and perform
in accordance with the provisions hereof and that the execution and
performance of the Agreement has been duly and validly authorized in
accordance with all applicable laws and governing instruments.
10.11. No Waiver. No waiver of any breach of any of the provisions
of this Agreement shall be construed to be a waiver of any succeeding
breach of the same or any other provision.
10.12. Limitation of Liability. To the fullest extent permitted by
law, neither party shall be liable to the other party for any indirect,
special, consequential, exemplary or incidental damages (including without
limitation, loss of anticipated revenues or profits relating to the same)
arising from any claim relating directly or indirectly to this agreement,
whether a claim for such damages is based on warranty, contract, tort
(including without limitation, negligence or strict liability), even if
such party has been advised of the likelihood or possibility of same.
10.13. Definitions. The following terms shall have the meanings
set forth below:
"Licensed Products" means solely the products of Licensor
specified on Exhibit "A" attached hereto and incorporated herein by
reference. Licensee shall have the right to increase the scope of Licensed
Products, subject to written approval by Licensor which shall not be
unreasonably withheld. Any increase in scope of Licensed Products will be
set forth in a revised Exhibit "A", which shall thereafter replace the then
existing Exhibit "A" and become a part of this Agreement.
"Licensed Rights" means collectively the Marks and Property.
"Marks" means the trademarks, tradenames, logos and/or
images as listed on Exhibit "C" attached hereto and incorporated herein by
reference, as amended from time to time pursuant to this Agreement.
"Property" means the intellectual property rights of
Licensor relating to the Licensed Products that Licensor determines, in its
sole and reasonable discretion, to be desirable or necessary for Licensee
to exercise the rights and license granted in this Agreement. Such
Property shall include, without limitation, certain product styles,
designs, samples, materials, titles, trademarks, names, logos, symbols,
copyrights, art work, inventions, trade secrets (patentable and
unpatentable), patents and pending patent applications; insofar as such
property relates directly to the Products listed in Exhibit A.
"Territory" means the geographic area designated
specifically on Exhibit "B" attached hereto and incorporated herein by
reference, as amended from time to time pursuant to this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
"LICENSOR":
SMITH CORONA CORPORATION
a Delaware corporation
By /s/ J. A. Bermingham
Name: John A. Bermingham
Title: President & C.E.O.
CORPORATE ACKNOWLEDGEMENT
STATE OF NEW YORK )
) SS:
COUNTY OF CORTLAND )
On this 19 day of July, 1999, before me personally came John
Bermingham to me known, who being by me duly sworn, did depose and say that
he is the CEO and President of Smith Corona Corporation, the Corporation
described in, and which executed the above instrument; and that he signed
his name thereto by order of the Board of Directors of said corporation.
/s/ Joslyn A. Bancroft
Notary Public
"LICENSEE":
OFFICE DEPOT, INC.,
a Delaware corporation
By /s/ Charles Tyson
Name: Charles Tyson
Title: Vice President
CORPORATE ACKNOWLEDGEMENT
STATE OF FLORIDA )
) SS:
COUNTY OF Palm Beach )
On this 16th day of July 1999, before me personally came Charles Tyson
to me known, who being by me duly sworn, did depose and say that he is the
Vice President/Divisional Merchandise Manager of Office Depot, Inc. the
Corporation described in, and which executed the above instrument; and that
he signed his name thereto by order of the Board of Directors of said
corporation.
/s/Teresa C. Walters
Notary Public
I:\SMITHCOR\smithcorona final.rtf
LIST OF EXHIBITS
Exhibit "A" Licensed Products
Exhibit "B" Territory
Exhibit "C" Marks
Exhibit "D" Licensor's Policy on Use and Appearance of
Marks
EXHIBIT "A"
LICENSED PRODUCTS
**************************************************
************************************************
**************************************************
*****************************************************
****************************************************
******************************************************
*****************************************************
****************************************************
EXHIBIT "B"
TERRITORY
All countries where OFFICE DEPOT, INC. and its
affiliates, subsidiaries, or Licensees currently, or in
the future, sell Licensed Products or distribute its
catalog of merchandise. OFFICE DEPOT TO PROVIDE LIST
OF ALL SUCH COUNTRIES.
EXHIBIT "C"
MARKS
SMITH CORONA TO PROVIDE SPECIFIC STYLIZED VERSIONS AND
LOGOS OF MARK.
EXHIBIT "D"
SMITH CORONA'S POLICY ON CONSISTENT USAGE OF MARKS
Smith Corona will provide.
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SMITH CORONA CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO OF THIS FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 3195
<SECURITIES> 0
<RECEIVABLES> 5460
<ALLOWANCES> 201
<INVENTORY> 8091
<CURRENT-ASSETS> 17017
<PP&E> 31917
<DEPRECIATION> 29846
<TOTAL-ASSETS> 19248
<CURRENT-LIABILITIES> 8680
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 4137
<TOTAL-LIABILITY-AND-EQUITY> 19248
<SALES> 8281
<TOTAL-REVENUES> 8281
<CGS> 5905
<TOTAL-COSTS> 5905
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6)
<INCOME-PRETAX> (270)
<INCOME-TAX> 45
<INCOME-CONTINUING> (315)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (315)
<EPS-BASIC> (.10)
<EPS-DILUTED> (.10)
</TABLE>
