UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.001 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock and non-voting common
equity of the registrant held by non-affiliates of the registrant as of
August 13,1999: $3,009,146(Such amount has been computed as described in
"Market for Registrant's Common Equity and Related Stockholder Matters.")
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 Section 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
Number of shares of Common Stock outstanding as of August 13, 1999:
3,056,406.
Documents Incorporated by Reference
Document Part of Form 10-K
Portions of the Proxy Statement relating to registrant's Part III
1999 Annual Meeting of Stockholders, to be filed with the
Commission within 120 days after the close of the
registrant's fiscal year
TABLE OF CONTENTS
PART I...............................................................3
Item 1 Business.................................................3
General..................................................3
Recent Events............................................3
Fiscal Year 1999 Events..................................3
History of the Business..................................4
Products.................................................5
Marketing, Sales and Distribution........................6
Service..................................................7
Seasonality..............................................7
Competition..............................................8
Patents, Trademarks and Licenses.........................8
Employees................................................8
Product Development......................................8
Item 2. Properties...............................................9
Item 3. Legal Proceedings........................................9
Item 4. Submission of Matters to a Vote of Security Holders.....10
Executive Officers of the Registrant............................10
PART II.............................................................11
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..................................11
Item 6. Selected Financial Data.................................11
Item 7. Management's Discussion and Analysis of Results of
Operations andd Financial Condition..................13
Item 8. Financial Statements and Supplementary Data.............18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................18
PART III............................................................19
Item 10. Directors and Executive Officers of the Registrant.....19
Item 11. Executive Compensation.................................19
Item 12. Security Ownership of Certain Beneficial Owners and
Management..........................................19
Item 13. Certain Relationships and Related Transactions.........19
PART IV.............................................................19
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.........................................19
Index to Consolidated Financial Statements and Financial Statement Schedule 23
PART I
Item 1. Business The Company
General
Smith Corona Corporation (the "Company") has a century-old
reputation as a provider of typewriters, supplies and various
office products. The Company ceased manufacturing in late
1997 and has since been transitioning to a sales and
marketing organization. Today, the Company sources products
from suppliers in North America, the Pacific Rim, and Europe.
Among the Company's current products are electronic
typewriters and related supplies, commercial headsets, and
inkjet replacement cartridges. Smith Corona products are
distributed through the Company's extensive global
distribution network.
Recent Events
On July 21, 1999 the Company announced that it had 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 products for Office Depot will be
offered independently of other products already marketed by
the Company such as its typewriters, headsets, and related
accessories and supplies. Some of the Smith Corona licensed
products will begin to appear in Office Depot stores around
the world as early as this fall. 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.
Fiscal Year 1999 Events
A number of significant events occurred during the twelve
months ended June 30, 1999, as the Company continued its
transition from a manufacturing organization to a sales and
marketing organization.
On July 17, 1998 Peter N. Parts, Chairman of the Board of
Directors assumed the post of President and Chief Executive
Officer. Mr. Parts replaced W. Michael Driscoll, who retired
as the Company's President and Chief Executive Officer.
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, and iii) relocation of the Corporate Headquarters
to more efficient facilities. The restructuring program was
completed as of June 30, 1999. As a result of these actions,
the Company recorded a pre-tax charge, principally for
severance payments, of approximately $1.3 million.
On October 1, 1998, Martin D. Wilson was appointed as the
Company's Senior Vice President, Chief Financial Officer and
Assistant Secretary. Mr. Wilson, who previously served as
Vice President/Controller replaced John A. Piontkowski, who
resigned as the Company's Executive Vice President, Chief
Financial Officer and Assistant Secretary. Mr. Wilson was
elected Treasurer on May 11, 1999.
On November 4, 1998, John A. Bermingham joined the Company as
the Company's President and Chief Executive Officer. Mr.
Bermingham replaced Peter Parts, who resigned as President
and Chief Executive Officer, but remains Chairman of the
Board of Directors.
On December 14, 1998, Vincent A. Abbatiello joined the
Company as Vice President of Sales. Mr. Abbatiello is
responsible for Sales, which was previously under Michael J.
Murray, Executive Vice President, Sales and Marketing. Mr.
Murray, who assumed the senior sales and marketing position
on an interim basis in March 1999, remains a director of the
Company.
On March 8, 1999, the Company moved its Corporate
Headquarters to 842 Bennie Road in Cortland, New York. The
new 27,700 square foot office is better suited for the
Company's sales and marketing focus. The new office replaces
a 422,000 square foot plant where the Company had previously
manufactured and produced typewriters and related supplies
for more than 30 years. On April 1, 1999, the 422,000 square
foot plant was sold. A net gain of $.4 million was recorded
in fiscal 1999 as a result of this transaction.
During the last six months of fiscal year 1999 the Company
continued to refine its business plan which calls for the
expansion and diversification of its product lines with a
renewed emphasis on building on the market's recognition of
the Smith Corona brand in printed document and data
transmission products.
See "Product", "Marketing, Sales and Distribution", and
"Management's Discussion and Analysis of Results of
Operations and Financial Condition" sections of this Form 10-
K.
History of the Business
The Company was incorporated in 1985 in the State of
Delaware. Prior to 1986, the businesses of the Company were
operated by SCM Corporation ("SCM") which was acquired by
Hanson PLC ("Hanson") in March 1986. At the time it was
acquired, SCM consisted of a number of businesses, including
the manufacture and sale of typewriters, personal word
processors and supplies and accessories and businesses in the
chemical, paper and food industries. On August 3, 1989, the
Company completed a registered public offering of 14,750,000
shares of common stock, par value $.01 per share (the "Old
Common Stock").
The Company's typewriter and personal word processor business
traces its origins back to the 1880's with the development of
office typewriters. Smith Corona introduced the world's
first portable electric typewriter in 1957 and, for the next
decade, had the only portable electric typewriter in the
marketplace. In 1973, the Company introduced its
revolutionary cartridge ribbon system, which is still used
today. In 1979, the Company moved into electronics with major
research and development efforts and, in 1981, introduced its
first electronic typewriter product to the marketplace.
In 1985, the Company developed and introduced one of the
industry's first personal word processors, and, in 1989, the
Company introduced the industry's first laptop personal word
processor.
During the year ended June 30, 1995, the Company sold
substantially all of the assets and liabilities of two of its
wholly-owned subsidiaries. The results of operations and
related gain on sale are presented as discontinued operations
(see Item 6, Selected Financial Data). Business operations
of these two entities primarily consisted of the manufacture
and distribution of office supplies and customized printed
products.
By early 1995, the Company had experienced sales declines and
operating losses, had extended payment of obligations owed to
its trade vendors, and needed additional financing to meet
operating requirements and fund the restructuring activities.
As a result, on July 5, 1995 (the "Petition Date"), the
Company filed a voluntary petition for relief under Chapter
11 of the United States Bankruptcy Code in the United States
Bankruptcy Court. On January 27, 1997 the Bankruptcy Court
entered an order confirming the Company's Plan of
Reorganization (the "Confirmation Order"). The Confirmation
Order was subject to satisfaction of certain conditions
precedent to the effective date. The Company satisfied the
conditions and emerged from the Bankruptcy Proceedings on
February 28, 1997 (the "Effective Date").
Under the Confirmation Order, all allowed general unsecured
claims were satisfied through the distribution to holders of
such claims of (i) the unsecured class cash of approximately
$11.3 million (less any amounts paid to holders of allowed
convenience class claims discussed below), and (ii) 85
percent of the Common Stock (determined on a fully diluted
basis, not including the effect of the exercise of any of the
below described warrants). Each holder of an allowed general
unsecured claim received one share of common stock, par value
$.001 per share (the "Common Stock") for each ten dollars in
allowed claim value. All allowed claims senior to allowed
general unsecured claims were satisfied by the payment in
full in cash or notes or the assumption of all such claims.
In addition, allowed convenience class claims (general
unsecured claims of one thousand five hundred dollars or
less) received payment in cash in an amount equal to 60
percent of the amount of such claims. Registered holders as
of August 15, 1996 of the Old Common Stock received warrants
to purchase one share of Common Stock for each twenty shares
of Old Common Stock. The warrants expired March 1, 1999.
On November 24, 1997, the Company sold its sole remaining
manufacturing operations which were located in Mexico (the
"Sale"). In addition, the Company entered into a long-term
manufacturing agreement pursuant to which the purchaser of
the manufacturing facility agreed to manufacture certain
Smith Corona brand name products, including typewriters and
related supplies. The Sale included (i) certain property,
plant and equipment used in the manufacturing operations,
(ii) all the outstanding common stock of Smith Corona de
Mexico, S.A. de C.V., the Company's Mexican subsidiary, and
(iii) raw material and work-in-process inventories.
Subsequent to the Sale, the Company has operated as a sales
and distribution company.
Products
The Company's business plan calls for the expansion and
diversification of its product lines with a renewed emphasis
on building on the market's recognition of the Smith Corona
brand in printed document and data transmission products. As
a result of this strategy and continued losses from pricing
pressures, the Company has discontinued its domestic
telephony and facsimile products. The Company believes it
can strengthen its global business in typewriters and related
supplies and headsets by expanding its sales capabilities and
developing appropriate marketing strategies. Independent
industry research reports indicate that the rate of decline
in typewriter and related supplies sales is flattening or
slowing to single digit levels. Additionally, industry data
suggests that the domestic typewriters and related supplies
market alone, is as high as $200 million.
In keeping with its history of marketing products related to
printed document production, the Company is also negotiating
with numerous suppliers to expand existing product lines and
develop new product lines such as inkjet compatible
cartridges, and introducing new models of typewriters and
supplies. The Company is intent on introducing products that
drive consumable supplies businesses.
Additionally, the Company is developing and expanding its
commercial headset product offerings. According to a
competitor's estimate the commercial headset industry is $500
million and growing at a rate of 20 percent annually. The
Company's business plan calls for expansion of the commercial
products offerings.
The Company anticipates introducing twenty-two inkjet
replacement cartridges in the first quarter of fiscal 2000
followed by additional headset product offerings and new
models of typewriters in the second quarter. Independent
industry research reports indicate that in 1998 domestic
sales of ink jet cartridges were $6.5 billion and will be
$8.7 billion by the year 2002.
The Company relies on outside manufactures to provide its
products. The Company intends to increase its product
offerings by entering into strategic alliances with third
parties in North America, Europe and the Far East to provide
products or services. In that respect, the Company's efforts
are focused on forging new and expanding existing alliances
with companies that provide technologically advanced products
that fit the Company's business plan strategy. In many cases
these sourcing partners presently do not have a substantial
market penetration in the United States or in other markets
around the world of their products, and are intent on
increasing market penetration by selling their products
through the Company's distribution channels under the well-
known "Smith Corona" name.
As a result of the Company's sourcing strategy to use third-
party manufacturers the Company's results of operations are
subject to risks of doing business abroad such as economic
and political uncertainty. Additionally, there can be no
assurance that a significant disruption of a third-party
manufacturer would not have a negative impact on the
Company's business. The success of the Company depends, in
part, on its ability to source, market and sell new products
while continuing to maintain cost controls to keep expenses
in line with revenues.
The products or classes of similar products that accounted
for 10 percent or more of net sales of the Company in any of
the Company's last three fiscal years were (i) portable and
compact electronic typewriters, which accounted for 44.6
percent, 49.4 percent and 45.1 percent of net sales in the
fiscal years ended June 30, 1999, 1998 and 1997,
respectively, (ii) personal word processors, which accounted
for 11.5 percent of net sales in the fiscal year ended June
30, 1997 and (iii) typewriters and personal word processor
supplies and accessories, which accounted for 38.2 percent,
35.4 percent and 36.5 percent of net sales in fiscal years
ended June 30, 1999, 1998 and 1997, respectively.
Marketing, Sales and Distribution
In the United States, the Company markets and promotes its
products through national print media, both consumer and
trade. The Company also supports local advertising campaigns
of its customers, if the campaigns comply with certain
standards set by the Company. Advertisements focus on the
key features and benefits of the various products.
The Company makes available various point-of-sale materials
and other in-store visual supports for its customers. In
addition, the Company provides training support for its
customers' sales staffs conducted by the Company's sales
support representatives.
Beginning in the last half of the year ended June 30, 1999,
the Company has focused efforts on expansion of its sales and
distribution capabilities and has entered into agreements
with distributors and independent manufacturers'
representatives for distribution of its products. The
manufacturers' representative organizations increased the
sales force from six to a sales force of approximately 100.
Some of these representatives provide access to new channels
of retail distribution. New channels of distribution include
food and drugstore chains, commercial channels, government
channels, and educational channels.
In the United States, the Company distributes its products
through outlets in all major retail channels of distribution,
including (i) national retail chain stores, such as Wal-Mart;
(ii) warehouse clubs, such as Sam's (iii) national and
regional office supply wholesalers such as United Stationers
and S.P. Richards; (iv) office superstores, such as Office
Depot, Inc., OfficeMax and Staples; (v) office equipment
dealers; and (vi) United States military exchanges. The
Company does not enter into long-term contracts with its
customers and therefore, there can be no assurance that the
Company will continue to receive sales revenues from any
particular source.
Internationally, the Company distributes its products in
Canada, European Community countries, Latin America, South
America, Caribbean markets and other international markets.
The channels of distribution in the international markets are
similar to those in the United States market and include
national retail chains, catalog merchandisers, department
stores, office equipment dealers, discount stores, stationers
and direct mail accounts. The Company relies primarily on
distributors for sales of its products in international
markets. The Company's results of operations are subject to
the risks of doing business abroad, including currency
exchange rate fluctuations, nationalization, expropriation,
limits on repatriation of funds and other risks associated
with economic or political uncertainty. See the footnotes to
the Consolidated Financial Statements in this Form 10-K
Annual Report for information regarding the Company's
business operations within and outside the United States.
Payment terms granted to customers reflect general practices
in the industry. Terms vary with product and competitive
conditions, but generally require payment within 30 to 90
days. Historically, bad debts have been insignificant. Wal-
Mart Stores, Inc., one of the Company's largest customers,
was responsible for 27 percent of consolidated net sales in
the year ended June 30, 1999. Wal-Mart Stores, Inc. was the
only customer responsible for more than 10 percent of net
sales. All of the Company's sales are made to customers who
are not affiliated with the Company.
Service
The Company's products are serviced in the United States
principally by an independent service center located in
Cortland, New York in addition to other independent service
stations domestically and internationally. The service center
and stations employ trained technicians, maintain parts
inventory, and perform warranty and other repairs.
Seasonality
The Company believes that its business in the aggregate is
not seasonal, although certain of its products sell more
heavily in gift-giving seasons such as the winter holidays
and school graduation periods.
Competition
The portable and compact electronic typewriter business is a
competitive market. The Company faces competition primarily
from Brother International Corporation, and Olivetti Lexikon
S.p.A., which distribute portable and compact electronic
typewriters. Inkjet compatible cartridges compete with
original manufacturers and other compatible brands such as
NCR and Dataproducts. Headsets compete with brands such as
Plantionics and GN Netcom. Some of the competitors may have
greater financial resources than the Company. Telephony
products competed against brands such as Lucent, Sony, Uniden
and Panasonic. Facsimile products competed against brands
such as Brother, Canon and Sharp. In the fourth quarter of
the Company's 1998 fiscal year competitors began reducing
market prices for the low-end telephony and facsimile
products. These sharp price declines resulted in the Company
having to reduce its low-end telephony and facsimile product
pricing as well as take charges for new product inventory
writedowns and ultimately led to the discontinuance of these
products.
Patents, Trademarks and Licenses
The Company owns or licenses a number of patents and patent
applications, which are valuable to its typewriters and
supplies and accessories business. The Company is the owner
of a number of trademarks and U.S. and foreign registrations
thereof, the most important of which is the trademark, "Smith
Corona".
Employees
As of June 30, 1999, the Company employed approximately 94
people. Management considers its employee relations to be
good.
Product Development
The Company sources its products from outside manufacturers
and relies on such manufacturers, as well as other third
parties, for assistance with its research and development
activities.
The Company's expenditures for product development activities
were approximately $1.9 million, $4.8 million and $1.9
million for the fiscal years ended June 30, 1999, 1998 and
1997, respectively. Product development expenses were
concentrated primarily in the development of new products and
the enhancement of existing products.
Item 2. Properties
Information with respect to the principal facilities used by the
Company is set forth below:
<TABLE>
<CAPTION>
Approximate
Square Owned/
Location Primary Use Footage Leased
<S> <C> <C> <C>
Cortland, NY...... Headquarters 27,700 Leased
San Diego, CA..... Warehousing/Office 77,000 Leased
All other locations Warehousing/
Sales/Service 20,400 Leased
Total............. 125,100
</TABLE>
The Company subleases approximately 12,600 square feet of the
77,000 square feet of warehousing and office space in the San
Diego facility.
Item 3. Legal Proceedings
Description of Legal Proceedings
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 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. 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
June 30, 1999 and June 30, 1998, the Company had recorded
liabilities of approximately $.8 million and $1.9 million,
respectively, primarily related to these environmental
matters. The Company believes that it has set aside adequate
reserves for the payment of expenses for the ongoing
remediation programs at the Groton and Cortlandville Sites.
On April 12, 1999, the Company filed a summons and complaint
in the Supreme Court in the County of Cortland in the State of
New York against Tele-Art, Ltd. and certain affiliates that
had supplied the Company with telecommunications products
during 1997 and 1998. In the complaint, the Company makes
several claims, including that the products delivered by Tele-
Art were defective, not in accordance with specifications and
that Tele-Art refused to replace or repair the defective and
non-conforming products. In addition, the Company claims that
Tele-Art breached various warranties and representations made
to the Company and made false representations, which
constitute a fraud upon the Company. The Company is seeking
damages in the amount of $13.5 million plus punitive damages
and costs and expenses. On June 18, 1999, Tele-Art filed a
motion to dismiss the claims against them and/or to stay
further proceedings and compel the Company to arbitrate such
claims. Although management believes the Company is entitled
to the damages claimed, it is the opinion of management that
failure to recover full damages will not have a material
adverse effect on the Company's financial position or results
of operations.
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.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The officers of the Company are elected by and serve at the
direction of the Board of Directors. The executive officers
of the Company and their respective positions, ages at August
23, 1999 and backgrounds are as follows:
<TABLE>
<CAPTION>
Name Position Age
<S> <C> <C>
John A. Bermingham President and Chief Executive 54
Officer
Martin D. Wilson Senior Vice President, 39
Chief Financial Officer
Treasurer and Assistant Secretary
Vincent T. Abbatiello Vice President of Sales 38
J. Thomas Malatesta Vice President/Product 56
Development
</TABLE>
Mr. Bermingham was elected President, Chief Executive Officer
and Director on November 4, 1998. Prior to joining the
Company, Mr. Bermingham was a Principal in Solutions Plus, a
management consulting firm from June 1997 until November 1998.
Mr. Bermingham served as the President and Chief Executive
Officer of Rolodex Corporation from March 1996 to May 1997.
He served as President and Chief Executive Officer of AT&T,
Smart Card Systems and Solutions, and as Group Vice President
for AT&T's New Business Ventures group from January 1993 until
January 1996. From 1982 until 1993 Mr. Bermingham held
various executive positions at Sony Corporation of America the
most recent being President of Sony Magnetic Products Group.
Mr. Wilson was named Senior Vice President, Chief Financial
Officer and Assistant Secretary on October 1, 1998 and
Treasurer on May 11, 1999. Mr. Wilson served as Vice
President/Controller of the Company from May 1996 to September
1998. Prior to that time, he served as Controller from July
1995 to May 1996, Assistant Controller from April 1995 to July
1995, and as Director/Accounting and Financial Reporting from
January 1994 to April 1995. Prior to joining the Company, he
served as Financial Reporting Manager for Fisher-Price Inc.,
an international manufacturer, marketer and distributor of
infant and preschool toys and juvenile products, from November
1991 through December 1993.
Mr. Abbatiello has served as Vice President of Sales for the
Company since December 1998. Prior to joining the Company,
Mr. Abbatiello served as National Accounts Manager for Lucent
Technologies from March 1993 to December 1998. From 1983
until February 1993 Mr. Abbatiello held numerous sales
management positions with Sony Corporation of America's
Magnetic Products Group.
Mr. Malatesta was named Vice President/New Market Development
on August 3, 1998 and was named Vice President/Product
Development on August 11, 1999. Prior to August 1998 Mr.
Malatesta was President of Global Marketing Services
Incorporated, a strategic marketing consulting firm serving
multinational companies. In August 1994, Mr. Malatesta filed
for personal bankruptcy under Chapter 11 of the United States
Bankruptcy Code. The filing was converted to Chapter 7 and
upon appeal was dismissed.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Common Stock (NASDAQ symbol: SCCO) trades on the Nasdaq
SmallCap Market.
The following table sets forth the range of high and low bid
prices of the Common Stock.
<TABLE>
Year Ended Year Ended
June 30, 1999 June 30, 1998
High Low High Low
<S> <C> <C> <C> <C>
First quarter $5.69 $2.50 $4.88 $3.13
Second quarter 3.13 1.25 8.13 4.31
Third quarter 2.41 .63 7.00 4.38
Fourth quarter 2.25 .75 6.88 5.00
</TABLE>
As of August 13, 1999, there were approximately 450 holders of
record of Common Stock.
The Company's Transfer Agent and Registrar is HSBC, Corporate
Trust Services, 140 Broadway, New York, NY 10005-1180.
The Company is prohibited from paying dividends by the terms
of its Loan and Security Agreement (as hereinafter defined),
except for non-cash dividends pursuant to the Rights
Agreement. The Company did not pay any cash dividends in the
fiscal years ended June 30, 1999 and 1998.
The calculation of the number of shares of Common Stock held
by non-affiliates shown on the cover page of this Form 10-K
Annual Report was made on the assumption that there were no
affiliates other than the executive officers and directors of
the Company, the Pension Benefit Guaranty Corporation (the
"PBGC") and Peter Parts Electronics, Inc.
Item 6. Selected Financial Data
The following table summarizes certain historical financial
information derived from the Consolidated Financial Statements
of the Company. This information should be read in
conjunction with the consolidated financial statements and
related notes and Management's Discussion and Analysis of
Results of Operations and Financial Condition, all of which
are contained in this form 10-K annual report.
SELECTED FIVE-YEAR FINANCIAL DATA
<TABLE>
For the year ended June 30,
<S> <C> <C> <C> <C> <C>
(Dollars in thousands
except per share amounts) 1999 1998 1997 1996 1995
Net sales $ 43,707 $58,924 $77,313 $112,548 $196,309
Gross margin 1,193 13,542 17,910 9,193 15,350
Loss from
continuing operations(1)$(15,886) $(7,778) $ (795) $(11,122) $(62,245)
Income from discontinued
Operations, primarily
gain on disposal
(net of income taxes) - - - - 9,798
Loss before
extraordinary gain (15,886) (7,778) (795) (11,122) (52,447)
Extraordinary gain(2) - 1,174 8,122 - -
Net income (loss) $(15,886) $(6,604) $ 7,327 $(11,122) $(52,447)
Earnings (loss) per common
Share:
Loss from
continuing operations $ (5.27) $ (2.78) $ (.32) $ (4.50) $ (25.19)
Income from discontinued
Operations, primarily
gain on disposal - - - - 3.96
Loss before
extraordinary gain (5.27) (2.78) (.32) (4.50) (21.23)
Extraordinary gain - .42 3.28 - -
Net income (loss)
per common share
(basic & diluted) $ (5.27) $ (2.36) $ 2.96 $ (4.50) $ (21.23)
Weighted average common
shares(000's omitted)(3) 3,015 2,793 2,471 2,471 2,471
Working capital $ 9,274 $25,907 $27,045 $54,117 $ 27,116
Total assets 22,235 50,087 60,629 83,872 136,066
Bank loans - - - - 17,400
Stockholders' equity 4,386 20,040 26,390 9,128 20,250
Cash dividends declared
per common share(4) $ - $ - $ - $ - $ .10
</TABLE>
(1) Includes a $364 gain from sale of facilities and $1,324
restructuring charge in 1999, a $3,902 gain from the
sale of manufacturing operations in 1998, a $3,400
pension curtailment gain and a $6,500 postretirement
curtailment gain in 1997; $19,500 restructuring income
in 1996 and a $14,900 restructuring provision in 1995.
(2) Includes a $1,174 and $8,122 pre-tax and post-tax
extraordinary gain for debt forgiveness associated with
emergence from the Bankruptcy Proceedings.
(3) For all periods prior to June 30, 1997 the weighted
average common and common equivalent shares outstanding
are based on the weighted average number of common
shares outstanding from the Effective Date until June
30, 1997.
(4) Based on 30,250,000 shares of Old Common Stock,
outstanding as of June 30, 1995. Pursuant to the terms
of its existing loan and security agreement, the
Company is prohibited from paying cash dividends.
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Forward Looking Statements
The forward-looking statements 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 suppliers to meet scheduled timetables for new
product introductions.
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998
Results of Operations
A number of significant events occurred during the twelve
months ended June 30, 1999, as Smith Corona continued its
transition from a manufacturing company to a sales and
marketing organization. In October 1998, Martin D. Wilson
began serving as Senior Vice President and Chief Financial
Officer of the Company. In November, the Company appointed
John A. Bermingham, an executive experienced in consumer
electronics and office product management, to the position of
President and Chief Executive Officer. In December 1998,
Vincent T. Abbatiello was named Vice President of Sales.
During the second, third, and fourth quarters, the management
team continued implementing the restructuring plan announced
in late September. Staff streamlining in conjunction with the
60-day notice period began in late November and continued
through the fourth quarter, resulting in the elimination of
approximately 130 positions. During the second quarter, the
Company also executed a lease for a 27,700 square-foot office
site located in Cortland, New York and the relocation of
headquarters occurred in March of 1999.
During the last six months of the year ended June 30, 1999,
the Company continued to refine its business plan which calls
for the expansion and diversification of its product lines
with a renewed emphasis on building on the market's
recognition of the Smith Corona brand in printed document and
data transmission products. As a result of this strategy and
continued losses from pricing pressures, the Company has
discontinued its domestic telephony and facsimile products.
The Company believes it can strengthen its global business in
typewriter and related supplies and headsets by expanding its
sales capabilities and developing appropriate marketing
strategies.
In keeping with its history of marketing products related to
printed document production, the Company is also negotiating
with numerous suppliers to expand product lines and develop
new product lines, such as inkjet printer supplies and
introducing new models of typewriters and supplies. The
Company is intent on introducing products that drive
consumable supplies businesses.
Additionally, the Company is developing and expanding its
commercial headset product offerings. According to a
competitor's estimate the commercial headset industry is $500
million and growing at a rate of 20 percent annually. The
Company's business plan calls for expansion of the commercial
product offerings.
The Company anticipates introducing twenty-two inkjet
replacement cartridges in the first quarter of fiscal 2000
followed by additional headset product offerings and new
models of typewriters in the second quarter. Independent
industry research reports indicate that in 1998 domestic sales
of ink jet cartridges were $6.5 billion and will be $8.7
billion by the year 2002. The Company intends to rely on its
existing distribution network to market its products and is
expanding to new channels of distribution which includes
increasing its emphasis on international markets. The
Company's success depends on its ability to successfully
source, market and sell its products while continuing to
maintain cost controls to keep expenses in line with revenues.
Net sales of $43.7 million for the year ended June 30, 1999
decreased 25.8 percent from net sales for the year ended June
30, 1998 of $58.9 million. Unit sales of typewriters and
related accessories and supplies are lower than a year ago,
both domestically and internationally, as a result of a slowly
declining market. Industry data indicates that the rate of
decline in the typewriters and related supplies market is
flattening or slowing to single digit levels. Additionally,
independent industry research reports indicate that the
domestic typewriters and related supplies market alone, is as
high as $200 million. The lower volumes are partially offset
by newly sourced product net sales of $6.0 million and $3.8
million in the year ended June 30, 1999 and 1998,
respectively. Included in newly sourced product net sales are
discontinued telephony and facsimile products of $4.1 million
and $2.8 million in the years ended June 30, 1999 and 1998,
respectively.
Gross margin as a percentage of net sales was 2.7 percent for
the year ended June 30, 1999 compared with 23.0 percent for
the same period last year. Gross margins in the year ended
June 30, 1999 were negatively affected by clearance sales of
low-end telephony and facsimile products and charges for
inventory related writedowns. Sharp price declines for low-
end telephony and facsimile products resulted in inventory
writedowns at the end of fiscal year 1998 and during the
twelve months of fiscal year 1999. The twelve months ended
June 30, 1999 were adversely impacted by a charge of
approximately $3.0 million for additional inventory related
writedowns. In the third quarter of the year ended June 30,
1999, a substantial portion of the remaining low-end telephony
and facsimile products inventory were sold and therefore,
gross margins going forward are expected to increase.
Included in gross margin for the year ended June 30, 1998 are
$.8 million related to favorable results of remediation
activities at the Company's environmental sites and $1.9
million for inventory related writedowns primarily associated
with low-end telephony and facsimile products.
The Company's current procurement contract for typewriters and
related supplies and accessories provides for retroactive
price increases in certain circumstances including shortfalls
in actual purchases versus those forecasted. Due to
shortfalls from forecasted purchases, the Company has incurred
approximately $2.4 million in retroactive price increases for
the twelve months ended June 30, 1999. The Company continues
discussions with its supplier to eliminate, along with other
contractual items, the retroactive price provisions of the
contract.
Selling, general and administrative expenses for the year
ended June 30, 1999 were $18.8 million or 42.9 percent of net
sales as compared to $26.4 million or 44.8 percent in the
comparable prior period. The decrease in spending of $7.6
million was primarily associated with sharp declines in
spending to support development and advertising of newly
sourced products along with reduced expenses resulting from
the September 1998 restructuring action.
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,
and 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 approximately $1.3 million.
On November 24, 1997, the Company completed the sale of its
manufacturing operations (the "Sale"). The Sale generated
total net proceeds of $14.9 million and resulted in a gain of
$3.9 million. In addition, the Company entered into a long-
term manufacturing agreement pursuant to which the purchaser
will manufacture certain Smith Corona brand name products,
including typewriters and related supplies and accessories.
For the twelve months ended June 30, 1998 the Company recorded
an extraordinary gain of $1.2 million for the favorable
resolution of bankruptcy claims. During 1999 the Company
completed the liquidation of its Singapore subsidiary which
resulted in a nonrecurring $2.6 million tax benefit.
Financial Condition
Over the past several years, the Company has experienced
losses from operations, which has 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 its 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
secures for the Company an important element of its plans.
Pursuant to the provisions of the Loan and Security Agreement,
the Company must maintain an adjusted net worth of at least
$2.0 million. Subsequent to June 30, 1999 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 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.
On February 28, 1997, the Company entered into a loan and
security agreement, which was amended on February 19,1999 and
April 1, 1999 ("Loan and Security Agreement"). The Loan and
Security Agreement provides for extensions of revolving credit
loans, term loans and letters of credit, limited to a
percentage of eligible accounts receivable and inventories in
the amount not to exceed $25.0 million through the February
28, 2000 expiration date. The lender may at its sole
discretion, extend the Loan and Security Agreement to February
26, 2001. On September 1, 1999 the lender exercised its
option to extend. Interest is .75 percent over the Prime Rate
or 3 percent over the Adjusted Eurodollar rate. Payment of
dividends is prohibited by the terms of the Loan and Security
Agreement, except for non-cash dividends pursuant to the
Rights Agreement. The Loan and Security Agreement is secured
by all of the Company's assets. There were no borrowings
under the Loan and Security Agreement as of June 30, 1999.
During the twelve months ended June 30, 1999 the Company's
operating activities used $11.6 million of cash, primarily as
a result of the net loss. Accounts receivable decreased $4.9
million, which corresponds with the sales activity levels.
The net decrease in inventories of $3.0 million was primarily
due to the clearing out of low-end telephony and facsimile
products. The decrease in prepaid and other assets and other
liabilities primarily relates to the settlement of an income
tax refund which was applied by the Internal Revenue Service
to an outstanding tax note payable. Accrued liabilities and
income taxes payable decreased $5.6 million primarily as a
result of the tax benefit of $2.6 million associated with
finial liquidation of the Company's Singapore subsidiary and a
$1.2 million reduction in promotional expenses. Capital
expenditures for the twelve months ended June 30, 1999 were
$.5 million compared to $3.2 million in the prior year.
Capital expenditures are comprised primarily of new product
tooling of $.3 million for the year ended June 30, 1999.
Capital expenditures for the year ended June 30, 1998 were
primarily comprised of $1.3 million for new product tooling
and $1.7 million for new information system hardware and SAP
R/3 software. The Company had no material commitments for
additional capital expenditures at June 30, 1999.
On April 2, 1999, the Company completed the sale of its
422,000 square-foot former manufacturing facility and tool
room equipment and operations. Additionally, the buyer agreed
to complete operation, maintenance, monitoring, shutdown and
post-shutdown activities of the remediation systems 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 net cash
proceeds from the sale were approximately $2.0 million and the
Company recorded a pre-tax and post-tax gain of approximately
$.4 million from the transaction.
The Company's products and major operating systems are year
2000 compliant. The Company is in the process of gathering
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. Additionally,
any significant disruption of the Company's ability to
communicate electronically with its business partners could
negatively impact the Company's business.
The Company does not have any market rate financial
instruments.
New Financial Accounting Standards Board Releases: Statement
of Financial Accounting Standard No. 130 "Reporting
Comprehensive Income" ("SFAS 130"), and No. 131, "Disclosures
About Segments of an Enterprise and Related Information"("SFAS
131"), were issued in June, 1997 and Statements of Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), was issued
in June 1998.
SFAS 130 established standards for reporting and display of
comprehensive income and its components in a full set of
general purpose financial statements. It requires that all
items that are required to be recognized under accounting
standards as components of comprehensive income be reported in
a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive
income is defined as "the change in equity of a business
enterprise during a period from transactions and other events
and circumstances from non-owner sources. It includes all
changes in equity during a period, except those resulting from
investments by owners and distributions to owners". This
statement is effective for fiscal years beginning after
December 15, 1997. The Company is presently not affected by
this new standard.
SFAS 131 established the way that public business enterprises
report information about operating segments in annual
financial statements and requires that those enterprises
report selected information about operating segments in
interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products
and services, geographic areas, and major customers. This
statement is effective for financial statement for periods
beginning after December 15, 1997. Information regarding SFAS
131 is presented in the footnotes to the consolidated
financial statements.
SFAS 133 addresses the accounting for derivative instruments,
including certain derivative instruments embedded in other
contracts, and hedging activities. This statement is
effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company does not expect
that it will be affected by this new standard.
Year Ended June 30, 1998 Compared to Year Ended June 30, 1997
Results of Operations
Net sales of $58.9 million for the year ended June 30, 1998
decreased 23.8 percent from net sales for the year ended June
30, 1997 of $77.3 million, primarily due to lower volumes.
Unit sales of typewriters, personal word processors and
related accessories and supplies are lower than a year ago,
both domestically and internationally. The lower volumes are
partially offset by telephony and facsimile product net sales
of $3.8 million. In June 1997, due to substantial volume
reductions, the Company ceased the manufacture of personal
word processors; servicing and customer support, however, is
continuing.
In the fourth quarter of the Company's 1998 fiscal year
competitors began reducing market prices for the low-end
telephony and facsimile products. These sharp price declines
resulted in the Company reducing its low-end telephony and
facsimile product pricing as well as taking charges for
inventory writedowns for those products.
Gross margin as a percentage of net sales, was 23.0 percent
for the year ended June 30, 1998 compared with 23.2 percent
for the comparable period in the prior year. Included in cost
of goods sold for the year ended June 30, 1998 are $.8 million
related to favorable results of remediation activities of the
Company's environmental sites. Additionally, cost of goods
sold for the year ended June 30, 1998 includes inventory
writedowns of approximately $1.9 million primarily associated
with telephony and facsimile products inventories. The gross
margin has been favorably impacted as a result of a reduction
in sales of personal word processors for which sales in the
prior year had a negative impact on margins. Included in cost
of goods sold for the year ended June 30, 1997 are writedowns
of inventories of $1.9 million.
Selling, general and administrative expenses for the year
ended June 30, 1998 were $26.4 million or 44.8 percent of net
sales as compared to $12.7 million or 16.5 percent in the
comparable prior period. For the twelve months ended June 30,
1998, selling, general and administrative expenses include
increased spending of $7.7 million to support development,
introduction and sell-through of newly sourced products offset
by $4.0 million overall reductions in employee-related costs.
Selling, general and administrative expenses for the twelve
months ended June 30, 1997 includes a pension plan curtailment
gain of $3.4 million and a postretirement curtailment gain of
$6.5 million.
On November 24, 1997, the Company completed the sale of its
manufacturing operations (the "Sale"). The Sale generated
total net proceeds of $14.9 million and resulted in a gain of
$3.9 million. In addition the Company entered into a long-
term manufacturing agreement pursuant to which the purchaser
will manufacture certain Smith Corona brand name products,
including typewriters and related supplies and accessories.
For the twelve months ended June 30, 1998 the Company recorded
an extraordinary gain of $1.2 million for the favorable
resolution of bankruptcy claims. Included in the twelve
months ended June 30, 1997 is an extraordinary gain of $8.1
million (pre-tax and after-tax)as a result of the Company's
emergence from Chapter 11 on February 28, 1997 for debt
forgiveness.
Item 8. Financial Statements and Supplementary Data
See Consolidated Financial Statements in this Form 10-K Annual
Report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
The Smith Corona Corporation Board of Directors and audit
committee approved KPMG LLP as its independent public
accountants for the fiscal year ending June 30, 1999. KPMG
LLP replaced Deloitte & Touche LLP upon completion of the
audit of the Company's consolidated financial statements for
the fiscal year ended June 30, 1998.
The audit reports of Deloitte & Touche LLP on the Company's
consolidated financial statements for the two fiscal years
ended June 30, 1998 and 1997 did not contain an adverse or
disclaimer of opinion. The report for the year ended June 30,
1997, did contain an emphasis of a matter paragraph relating
to the successful implementation of the Company's
reorganization plan upon emergence from bankruptcy.
In connection with the audits of the Company's consolidated
financial statements for the fiscal years ended June 30, 1998
and 1997, and the subsequent interim period through September
28, 1998, there were no disagreements with Deloitte & Touche
LLP on matters of accounting principles or practices,
financial statement disclosure, or auditing scope and
procedures.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is incorporated by
reference from Part I of this Form 10-K Annual Report and the
Company's definitive Proxy Statement for the 1999 Annual
Meeting of Stockholders, to be filed with the Securities and
Exchange Commission on or about September 22, 1999.
Item 11. Executive Compensation
The information required by this item is incorporated by
reference from the Company's definitive Proxy Statement for
the 1999 Annual Meeting of Stockholders, to be filed with the
Securities and Exchange Commission on or about September 22,
1999.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this item is incorporated by
reference from the Company's definitive Proxy Statement for
the 1999 Annual Meeting of Stockholders, to be filed with the
Securities and Exchange Commission on or about September 22,
1999.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated by
reference from the Company's definitive Proxy Statement for
the 1999 Annual Meeting of Stockholders, to be filed with the
Securities and Exchange Commission on or about September 22,
1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements. See Consolidated Financial Statements in
this Form 10-K Annual Report.
(a)(2) Financial Statement Schedules. Financial
Statement Schedule II is included in this
Form 10-K Annual Report immediately following
the consolidated financial statements. All
other schedules are omitted because they
are not applicable or the required
information is shown in the financial
statements or notes thereto.
(b) Reports on Form 8-K.
None
(c) Exhibits (filed herewith or incorporated by
reference; see index to exhibits).
2.1 Debtors' Third Amended Second Joint Plan of Reorganization
under Chapter 11 of the United States Bankruptcy Code
(incorporated by reference to Exhibit 2.1 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1996 (File No. 1-10281)
(see Exhibit A included therein).
2.2 Motion to Approve Technical Amendments to the
Debtors' Third Amended Second Joint Plan of
Reorganization, as approved by the United States
Bankruptcy Court for the District of Delaware
(incorporated by reference to Exhibit 2 to the
Registrant's Registration Statement on Form 8-A dated
January 30, 1997 (File No. 1-10281)).
3.1 Restated Certificate of Incorporation of Smith Corona
Corporation (incorporated by reference to Exhibit 3.1
to the Registrant's Form 8-K Current Report dated
February 28, 1997 (File No. 1-10281)).
3.2 Certificate of Designation, Preferences and Rights of
Preferred Stock, Series A (incorporated by reference
to Exhibit 3.2 to the Registrant's Form 8-K Current
Report dated February 28, 1997 (File No. 1-10281)).
3.3 By-Laws of Smith Corona Corporation (incorporated by
reference to Exhibit 3.3 to the Registrant's Form 8-K
Current Report dated February 28, 1997 (File No. 1-
10281)).
4.1 Rights Agreement between Smith Corona Corporation and
Marine Midland Bank, as Rights Agent, dated as of
February 28, 1997 (incorporated by reference to
Exhibit 4.1 to the Registrant's Form 8-K Current
Report dated February 28, 1997 (File No. 10281)).
10.1 Smith Corona Corporation Retirement Savings and
Investment Plan adopted effective July 1, 1989, as
amended and restated effective January 1, 1997.
(incorporated by reference to exhibit 10.1 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997).
10.2 The CORPORATE plan for Retirement, The Profit
Sharing/401(K) Plan, Fidelity Basic Plan Document No.
07 effective July 1, 1997 (incorporated by reference
to exhibit 10.2 for the fiscal year ended June 30,
1997).
10.3 Adoption Agreement - Article 1 between Smith Corona
Corporation and Fidelity Management Trust Company, as
Trustee effective July 1, 1997 (incorporated by
reference to exhibit 10.3 for the fiscal year ended
June 30, 1997).
10.4 Stockholders' Agreement between Smith Corona
Corporation and HM Holdings, Inc. dated as of June 2,
1989 (incorporated by reference to Exhibit 10.17 to
the Company's Registration Statement on file with the
Commission (Registration No. 33-29101).
10.5 Amended and Restated Cross-Indemnification Agreement
between Smith Corona Corporation and HM Holdings,
Inc. dated as of July 14, 1989 (incorporated by
reference to Exhibit 10.18 to the Company's
Registration Statement on file with the Commission
(Registration No. 33-29101).
10.6 Amended and Restated Tax Sharing and Indemnification
Agreement between Smith Corona Corporation and HM
Holdings, Inc. dated as of June 2, 1989 (incorporated
by reference to Exhibit 10.19 to the Company's
Registration Statement on file with the Commission
(Registration No. 33-29101).
10.7 Smith Corona Corporation Salaried Employees
Retirement Plan, as amended and restated as of
January 1, 1994 (incorporated by reference to Exhibit
10.32 to the Company's Form 10-K Annual Report for
the fiscal year ended June 30, 1995, which is on file
with the Commission).
10.8 Lease Agreement between Turnberry Associates and
Smith Corona Corporation dated May 5, 1993
(incorporated by reference to Exhibit 10.49 to the
Company's Form 10-K Annual Report for the fiscal year
ended June 30, 1993, which is on file with the
Commission).
10.9 Stock Purchase Agreement among Smith Corona
Corporation and W. Michael Driscoll, as Sellers and
the MATCO Electronics Group, Inc. and U.S. Assemblies
San Diego, Inc., as Buyers dated of November 24, 1997
(incorporated by reference to Exhibit 10.1 to the
Company's Form 8-K Current Report dated November 17,
1997 which is on the file with the Commission).
10.10 Asset Purchase Agreement among Smith Corona
Corporation, as Seller, U.S. Assemblies San Diego,
Inc, as Buyer, and the MATCO Electronics Group, Inc.,
as Guarantor dated as of November 14, 1997
(incorporated by reference to Exhibit 10.2 to the
Company's Form 8-K Current Report dated November 17,
1997 which is on file with the Commission).
10.11 Contract manufacturing Agreement, The MATCO
Electronics Group, Inc., and Smith Corona Corporation
dated November 24, 1997 (incorporated by reference to
Exhibit 10.3 to the Company's Form 8-K Current Report
dated November 17, 1997 which is on file with the
Commission).
10.12 Loan and Security Agreement by and between Congress
Financial Corporation, as Lender, and Smith Corona
Corporation, as Borrower, dated February 28, 1997
(incorporated by reference to Exhibit 10 to the
Company's Form 10-Q Quarterly Report for the
quarterly period ended March 31, 1997, which is on
file with the Commission).
10.13 First Amendment to Loan and Security Agreement dated
July 2, 1997 (incorporated by reference to Exhibit
10.27 to the Company's Form 10-K Annual Report for
the fiscal year ended June 30, 1997, which is on file
with the Commission).
10.14 Waiver and Amendment to Financing Agreement dated
February 10, 1999(incorporated by reference to
exhibit 10.1 to the Company's Form 10-Q Quarterly
Report for the quarterly period ended March 31, 1999,
which is on file with the Commission)
10.15 Amendment to Loan and Security Agreement dated April
1, 1999 incorporated by reference to Exhibit 10.27 to
the Company's Form 10-K Annual Report for the fiscal
year ended June 30, 1997, which is on file with the
Commission).
*10.16 Employment Agreement between Smith Corona Corporation
and John A. Bermingham dated as of November 4, 1998.
*10.17 Employment Agreement between Smith Corona Corporation
and Martin D. Wilson dated as of October 1, 1998.
*10.18 Employment Agreement between Smith Corona Corporation
and Vince A. Abbatiello dated as of November 20,
1998.
10.19 Smith Corona Corporation Stock Incentive Plan
(incorporated by reference to exhibit 10.18 to the
Company's Form 10-K Annual Report for the fiscal year
ended June 30, 1998, which is on file with the
Commission)
10.20 Smith Corona Corporation Deferred Compensation Plan
for Outside Directors.
16 Letter from Deloitte & Touche LLP regarding change in
Certifying Accountants (incorporated by reference to
exhibit 16 to the Company's Form 8-K Current Report
dated September 29, 1998, which is on file with the
Commission)
*21 Schedule of Subsidiaries of the Registrant
*23.1 Consent of KPMG LLP
*23.2 Consent of Deloitte & Touche LLP
*27 Financial Data Schedule
* Filed herewith
Stockholders may, upon payment of a fee therefor, obtain
copies of any of the exhibits to this Form 10-K Annual Report
by writing to the Secretary, Smith Corona Corporation, 842
Bennie Road, Cortland, New York 13045.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SMITH CORONA CORPORATION
September 16, 1999 By /s/ Peter N. Parts
Peter N. Parts
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
Signature Title Date
<S> <C> <C>
/s/ Peter N. Parts
....................... Chairman of the Board
(Peter N. Parts) September 16, 1999
/s/ John A. Bermingham President and Chief
....................... Executive Officer September 16, 1999
(John A. Bermingham)
/s/ Martin D. Wilson
........................ Senior Vice President and September 16, 1999
(Martin D. Wilson) Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Jerome A. Colletti
........................ Director September 16, 1999
(Jerome A. Colletti)
/s/ William J. Morgan
........................ Director September 16, 1999
(William J. Morgan)
/s/ Michael J. Murray
........................ Director September 16, 1999
(Michael J. Murray)
/s/ Dr. Richard N. Rosett
........................ Director September 16, 1999
(Dr. Richard N. Rosett)
</TABLE>
Index to Consolidated Financial Statements Page
and Financial Statement Schedule
Independent Auditors' Reports................................ 24
Consolidated Balance Sheets as of June 30, 1999 and 1998..... 26
Consolidated Statements of Operations for the Years
Ended June 30, 1999,
1998 and 1997..............................................27
Consolidated Statements of Changes in Stockholders'
Equity for the Years
Ended June 30, 1999, 1998 and 1997......................... 28
Consolidated Statements of Cash flows for the Years
Ended June 30, 1999,
1998 and 1997.............................................. 29
Notes to Consolidated Financial Statements.....................31
Schedule II - Valuation and Qualifying Accounts................46
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Smith Corona Corporation:
We have audited the accompanying consolidated balance sheet
of Smith Corona Corporation and subsidiaries as of June 30,
1999 and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for the year
then ended. In connection with our audit of the consolidated
financial statements we have also audited the related
financial statement schedule, as listed in the accompanying
index, as of and for the year ended June 30, 1999. These
consolidated financial statements and financial statement
schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Smith Corona Corporation and
subsidiaries at June 30, 1999 and the results of their
operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedule
as of and for the year ended June 30, 1999, when considered
in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects,
the information set forth therein.
/s/ KPMG LLP
- -------------------------
August 11, 1999, except as to note 7
which is as of September 1, 1999
Syracuse, New York
INDEPENDENT AUDITORS'REPORT
We have audited the accompanying consolidated balance sheet
of Smith Corona Corporation and subsidiaries (the "Company")
as of June 30, 1998 and the related consolidated statements
of operations, statements of changes in stockholders' equity
and statements of cash flows for each of the two years in the
period ended June 30, 1998. Our audits also included the
financial statement schedule for each of the two years ended
June 30, 1998 listed in the Index to Consolidated Financial
Statements and Financial Statement Schedule. These financial
statements and financial statement schedule are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements
present fairly, in all material respects, the financial
position of Smith Corona Corporation and subsidiaries at June
30, 1998 and the results of their operations and their cash
flows for each of the two years in the period ended June 30,
1998 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement
schedule for each of the two years ended June 30, 1998, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
August 21, 1998
Stamford, Connecticut
Smith Corona Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
June 30,
(Dollars in thousands) 1999 1998
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,453 $ 15,293
Accounts receivable (net of allowance
for doubtful accounts of $253 and
$638 for 1999 and 1998, respectively) 4,546 9,492
Inventories 9,356 15,399
Prepaid expenses and other current
assets 385 3,090
Total current assets 19,740 43,274
Property, plant and equipment-net 2,335 6,511
Other assets 160 302
Total $ 22,235 $ 50,087
Liabilities and stockholders' equity
Current liabilities:
Trade payables $ 4,748 $ 6,025
Accrued liabilities 4,936 7,356
Income taxes payable 782 3,986
Total current liabilities 10,466 17,367
Postretirement benefits 1,961 3,846
Pension liability 4,748 4,827
Other long-term liabilities 674 4,007
Total liabilities 17,849 30,047
Stockholders' equity:
Common stock- 3,228,953 shares and
3,141,665 shares issued
and outstanding, respectively 3 3
Preferred stock, series A, none
outstanding - -
Additional paid-in capital 55,517 55,512
Deferred compensation (99) (326)
Accumulated deficit (51,035) (35,149)
Total stockholders' equity 4,386 20,040
Total $ 22,235 $ 50,087
</TABLE>
See accompanying notes to consolidated financial statements.
Smith Corona Corporation and Subsidiaries
Consolidated Statements of Operations
<TABLE>
For the year ended June 30,
(Dollars in thousands,
except per share amounts) 1999 1998 1997
<S> <C> <C> <C>
Net sales $ 43,707 $ 58,924 $77,313
Cost of goods sold 42,514 45,382 59,403
Gross margin 1,193 13,542 17,910
Selling, general and administrative
expenses 18,757 26,371 12,754
Gain on sale of facilities (364) (3,902) -
Reorganization (income) costs - (280) 5,864
Restructuring expense 1,324 - -
Other (income)expense - (150) 150
Interest income 384 1,063 326
Loss before income
taxes and extraordinary gain (18,140) (7,434) (532)
Income tax benefit (expense) 2,254 (344) (263)
Loss before extraordinary gain (15,886) (7,778) (795)
Extraordinary gain - 1,174 8,122
Net income (loss) $(15,886) $ (6,604) $ 7,327
Earnings (loss) per common share
(basic and diluted):
Loss before extraordinary gain $ (5.27) $ (2.78) $( .32)
Extraordinary gain - .42 3.28
Net income (loss) $ (5.27) $ (2.36) $ 2.96
</TABLE>
See accompanying notes to consolidated financial statements.
Smith Corona Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the years ended June 30, 1999, 1998 and 1997
<TABLE>
Additional Deferred (Accumu-
Common Paid-In Compens- lated
Stock Capital ation Deficit) Total
<S> <C> <C> <C> <C> <C>
Balance June 30, 1997 $ 3 $55,164 $(232) $(28,545) $26,390
Net loss - - - (6,604) (6,604)
Deferred compensation - 345 (345) - -
Amortization of deferred
compensation - - 251 - 251
Exercise of warrants - 3 - - 3
Balance June 30, 1998 3 55,512 (326) (35,149) 20,040
Net loss - - - (15,886) (15,886)
Deferred compensation - 273 (273) - -
Forfeiture of
restricted stock - (272) 272 - -
Amortization of deferred
compensation - - 228 - 228
Exercise of warrants - 4 - - 4
Balance June 30, 1999 $ 3 $55,517 $ (99) $(51,035) $ 4,386
</TABLE>
See accompanying notes to consolidated financial statements.
Smith Corona Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
For the year ended June 30,
(Dollars in thousands) 1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(15,886) $(6,604) $7,327
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,350 2,289 3,534
Gain on sale of facilities (364) (3,902) -
Loss (gain) on disposition of other
property, plant and equipment (169) 192 (450)
Inventory provisions 3,009 1,056 2,364
Pension curtailment gain - - (3,394)
Extraordinary gain - (1,174) (8,122)
Postretirement curtailment gain - - (6,534)
Other noncash items - - (132)
Changes in assets and liabilities:
Accounts receivable 4,946 1,654 5,947
Inventories 3,035 (7,980) 1,882
Prepaid expenses and other
current assets 2,735 (1,170) 2,646
Other assets 142 36 (102)
Trade payables (1,277) 974 1,696
Accrued liabilities and income
taxes payable (5,579) (3,220) (158)
Postretirement benefits and
pension liability (1,964) (2,008) (1,270)
Other long-term liabilities (2,554) 1,362 (217)
Net cash (used in) provided by
operating activities (11,576) (18,495) 5,017
Cash flows from investing activities:
Proceeds from sale of facilities 2,088 14,903 -
Proceeds from the sale of other property,
plant and equipment 169 100 512
Capital expenditures (520) (3,200) (999)
Net cash provided by (used in)
investing activities 1,737 11,803 (487)
</TABLE>
Smith Corona Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Continued
<TABLE>
For the year ended June 30,
<S> <C> <C> <C>
(Dollars in thousands) 1999 1998 1997
Cash flows from financing activities:
Payments made to settle
liabilities subject to
compromise - - (12,474)
Net cash used in financing activities - - (12,474)
Decrease in cash and
cash equivalents (9,839) (6,692) (7,944)
Cash and cash equivalents:
Beginning of year 15,293 21,985 29,929
End of year $ 5,454 $15,293 $21,985
Cash paid during the year for:
Interest $ - $ - $ -
Income taxes $ 313 $ 185 $ 610
</TABLE>
See accompanying notes to consolidated financial statements.
Smith Corona Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
June 30, 1999, 1998 and 1997
1. Operations and Significant Accounting Policies
Description of the Business: Smith Corona Corporation (the
"Company") has a century-old reputation as a provider of
typewriters, supplies and various office products. The
Company ceased manufacturing in late 1997 and has since been
transitioning to a sales and marketing organization. Today,
the Company sources products from suppliers in North America,
Pacific Rim, and Europe.
Among the Company's current products are electronic
typewriter and related supplies, commercial headsets, and
inkjet replacement cartridges. The Company's products are
distributed through its extensive global distribution
network.
Over the past several years, the Company has experienced
losses from operations, which has 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 its 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
secures for the Company an important element of its plans.
Pursuant to the provisions of the Loan and Security
Agreement, the Company must maintain an adjusted net worth of
at least $2,000. 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.
Basis of Consolidation and Presentation: The consolidated
financial statements include the accounts of Smith Corona
Corporation and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated.
Management Estimates: The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and 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.
Statement of Cash Flows: All highly liquid investments
purchased with a maturity of three months or less are
considered to be cash equivalents.
Fair Value: The carrying amounts reflected in the
consolidated balance sheets for cash and cash equivalents,
accounts receivable, and accounts payable approximate fair
value due to the short maturities of these instruments.
Inventories: Inventories are stated at the lower of cost or
market. Cost is determined principally by the first-in,
first-out (FIFO) method.
Property, Plant and Equipment: Property, plant and equipment
are stated at cost. Depreciation is provided on the
straight-line basis at rates based on estimated useful lives.
Lives used in computing depreciation range from two to
twelve years for equipment and up to forty years for
buildings. Leasehold improvements are amortized over the
lease term. Maintenance and repairs are charged against
operations as incurred. Expenditures that materially
increase capacities or extend useful lives of property, plant
and equipment are capitalized.
The Company periodically reviews the carrying value of its
long-lived assets to identify and assess impairment.
Retirement Plans: During the year ended June 30, 1997, the
Company terminated its defined benefit pension plan for
hourly employees and froze the benefits of its defined
benefit pension plan for salaried employees (see Note 10).
The Company's policy, domestically, has been to fund, at a
minimum, the amount necessary on an actuarial basis to
provide for benefits in accordance with requirements of the
Employee Retirement Income Security Act of 1974 ("ERISA").
Outside of the United States, costs are accrued and paid in
accordance with local requirements.
Postretirement Plans: The Company provides for the expected
cost of postretirement benefits over the employee's years of
active service. In June 1997, the Company implemented a new
premium structure for retiree health care benefits whereby
retired employees will absorb the total cost of health care
premiums phased in over three years (see Note 10).
Revenue Recognition: Net sales are recognized when products
are shipped. Accruals for customer discounts and rebates, and
defective returns are recorded as the related revenue is
recognized.
Advertising Costs: Costs incurred in producing media
advertising are expensed the first time the advertising takes
place. Advertising expense for the years ended June 30,
1999, 1998, and 1997 was $1,564, $6,030, and $1,209,
respectively.
Research and Development: The Company's product development
costs are expensed as incurred. Product development expense
was $1,883, $4,805 and $1,915 for the years ended June 30,
1999, 1998 and 1997, respectively.
Foreign Currency: The functional currency of the Company's
foreign operations is deemed to be the United States dollar.
Consequently, all translation gains and losses are included
in income.
Environmental Remediation Costs: The Company accrues for
losses associated with environmental remediation obligations
when such losses are probable and reasonably estimable.
Costs of future expenditures for environmental remediation
obligations are not discounted to their present value.
Income Taxes: Deferred income taxes are determined based on
the difference between the financial statement and tax bases
of assets and liabilities and loss and credit carry forwards
using enacted tax rates in effect for the year in which the
differences are expected to reverse.
Stock-Based Compensation - The Company adopted the
disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"), in the first quarter of the year
ended June 30, 1997. The Company, as provided for by FAS
123, is continuing to apply Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees"
for employee stock compensation measurement.
Earnings (Loss) Per Common Share: In the second quarter of
the year ended June 30, 1998, the Company adopted Statement
of Financial Accounting Standards No. 128 " Earnings per
Share" ("SFAS 128"). Accordingly, all periods have been
restated to present basic and diluted earnings (loss) per
common share. Earnings (loss) per common share for the
twelve months ended June 30, 1997 are based on the weighted
average number of common shares outstanding from February 28,
1997 until June 30, 1997
(see note 2).
Dilutive securities (see Note 8) had no impact on the
earnings per share calculations in any of the years presented
as their impact was antidilutive.
New Financial Accounting Standards Board Releases: Statement
of Financial Accounting Standard No. 130 "Reporting
Comprehensive Income" ("SFAS 130"), and No. 131, "Disclosures
About Segments of an Enterprise and Related
Information"("SFAS 131"), were issued in June, 1997 and
Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), was issued in June 1998.
SFAS 130 established standards for reporting and display of
comprehensive income and its components in a full set of
general purpose financial statements. It requires that all
items that are required to be recognized under accounting
standards as components of comprehensive income be reported
in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive
income is defined as "the change in equity of a business
enterprise during a period from transactions and other events
and circumstances from non-owner sources. It includes all
changes in equity during a period, except those resulting
from investments by owners and distributions to owners".
This statement is effective for fiscal years beginning after
December 15, 1997. The Company is presently not affected by
this new standard.
SFAS 131 established the way that public business enterprises
report information about operating segments in annual
financial statements and requires that those enterprises
report selected information about operating segments in
interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products
and services, geographic areas, and major customers. This
statement is effective for financial statement for periods
beginning after December 15, 1997. Information regarding SFAS
131 is presented in Note 9.
SFAS 133 addresses the accounting for derivative instruments,
including certain derivative instruments embedded in other
contracts, and hedging activities. This statement is
effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The Company does not expect
that it will be affected by this new standard.
2. Petition for Reorganization Under Chapter 11
On July 5, 1995 (the "Petition Date"), the Company filed
a voluntary petition for relief under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code") in the
United States Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court").
On January 27, 1997 the Bankruptcy Court entered an
order confirming the Company's Third Amended Second Joint
Plan of Reorganization (the "Confirmation Order"). The
Confirmation Order was subject to satisfaction of certain
conditions precedent to the effective date. The Company
satisfied the conditions and emerged from the Bankruptcy
Proceedings on February 28, 1997 (the "Effective Date").
Under the Confirmation Order, all allowed general
unsecured claims were satisfied through the distribution to
holders of such claims of (i) the unsecured class cash of
approximately $11,330 (less any amounts paid to holders of
allowed convenience class claims discussed below), and (ii)
85 percent of the reorganized company's common stock to be
issued pursuant to the Plan of Reorganization (determined on
a fully diluted basis not including the effect of the
exercise of any of the below described warrants). Each holder
of an allowed general unsecured claim received one share of
the reorganized company's common stock for each ten dollars
in allowed claim value. All allowed claims senior to allowed
general unsecured claims were satisfied by the payment in
full in cash or notes (as provided for by the Bankruptcy
Code) or the assumption of all such claims. Allowed
convenience class claims (general unsecured claims of one
thousand five hundred dollars or less) received payment in
cash in an amount equal to 60 percent of the amount of such
claims. In addition, registered holders as of August 15,
1996, of the Company's common stock, par value $.01 per
share, which was outstanding prior to the Effective Date (the
"Old Common Stock") received warrants to purchase one share
of common stock, par value $.001 per share (the "Common
Stock"), in the reorganized company for each twenty shares of
Old Common Stock. The warrants expired March 1, 1999.
During the quarter ended March 31, 1997, the Company
made a disbursement of $12,474 to the distribution agent for
payment of allowed general unsecured claims and claims senior
to such claims. On February 28, 1997 the Company recorded a
value of approximately $9,900 for 85 percent of the Common
Stock. The Company recorded certain reorganization costs
relating to its Bankruptcy Proceedings aggregating $5,864 for
the year ended June 30, 1997. In connection with the Plan of
Reorganization going effective, certain liabilities recorded
as subject to compromise were retained by the Company and
approximately $30,496 of such liabilities were settled which
resulted in a pre-tax and after-tax extraordinary gain of
approximately $8,122 for the year ended June 30, 1997. An
additional gain of $1,174 (pre-tax and after-tax) was
recorded for the year ended June 30, 1998 as a result of
favorable resolutions of bankruptcy claims. As of June 30,
1999 and 1998, 2,983,022 shares of common stock were issued
to allowed general unsecured claim holders.
3. Inventories
A summary of inventories, by major classification and
net of reserves, is as follows:
<TABLE>
June 30,
1999 1998
<S> <C> <C>
Raw materials $ 783 $ 1,187
Finished goods 11,769 19,223
Reserves (3,196) (5,011)
Total $ 9,356 $15,399
</TABLE>
4. Property, Plant and Equipment
A summary of property, plant and equipment, by major
classification, is as follows:
<TABLE>
June 30,
1999 1998
<S> <C> <C>
Land $ - $ 730
Buildings and improvements 301 1,430
Machinery and other equipment 31,519 39,009
Total 31,820 41,169
Accumulated depreciatio (29,485) (34,658)
Total $ 2,335 $ 6,511
</TABLE>
5. Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
June 30,
1999 1998
<S> <C> <C>
Promotional expenses $ 966 $ 2,198
Payroll and related expenses 1,702 1,981
Other 2,268 3,177
Total $4,936 $ 7,356
</TABLE>
6. Leases
The Company leases certain facilities, equipment and
vehicles for various periods through 2003 under
non-cancelable operating leases. Rental expense under these
operating leases was $986, $1,493, and $3,461 for the years
ended June 30, 1999, 1998 and 1997, respectively.
The future minimum rental commitments for the operating
leases are as follows:
Year Ending
June 30, Amount
2000 $ 665
2001 501
2002 8
2003 8
Total $1,166
The Company subleases a portion of its San Diego
distribution facility. Rental income under this sublease was
$81 and $38 for the years ended June 30, 1999 and 1998,
respectively and will be approximately $81 each year until
sublease expiration in May 2001.
7. Bank Loans
On February 28, 1997, the Company entered into a loan
and security agreement, which was amended on February 19,
1999 and April 1, 1999(the "Loan and Security Agreement").
The Loan and Security Agreement provides for extensions of
revolving credit loans, term loans and letters of credit,
limited to a percentage of eligible accounts receivable and
inventories in the amount not to exceed $25,000 through the
February 28, 2000 expiration date. The lender may, at its
sole discretion, extend the Loan and Security Agreement to
February 26, 2001. On September 1, 1999 the lender exercised
its option to extend. Interest is .75 percent over the Prime
Rate or 3 percent over the Adjusted Eurodollar Rate. Payment
of dividends is prohibited by the terms of the Loan and
Security Agreement, except for non-cash dividends pursuant to
the Rights Agreement (as described in Note 8). Pursuant to
the provisions of the Loan and Security Agreement the Company
must maintain an adjusted net worth of at least $2,000.
Management believes that it has adequate flexibility and that
this covenant should not impose an undue restriction on the
operations of the Company. The Loan and Security Agreement
is secured by all of the Company's assets.
There were no borrowings under the Company's credit
facilities during the years ended June 30, 1999, 1998, and
1997.
8. Stockholders' Equity
Common Stock
The Company has authorized 100,000,000 shares of Common
Stock, par value $.001 per share.
Preferred Stock
The Company has authorized 10,000,000 shares of preferred
stock, par value of $.001 per share. The Company has
reserved for issuance 10,000 shares of Preferred Stock,
Series A, whose terms are fixed by the Rights Agreement.
Rights Agreement
On February 28, 1997, pursuant to the Plan of Reorganization,
the Board of Directors of the Company declared a dividend
distribution of one Right for each outstanding share of
Common Stock, payable to stockholders of record at the close
of business on such date and payable with respect to Common
Stock issued thereafter. Each right, when it becomes
exercisable, entitles the registered holder to purchase from
the Company one one-thousandth of a share (a "Unit") of
Preferred Stock, Series A at a purchase price of $25.50 per
Unit, subject to adjustment. The Rights, which do not have
voting rights, will expire on February 28, 2007 unless
extended or earlier redeemed by the Company.
The Rights will separate from the Common Stock and will be
exercisable in the event of certain attempts to acquire the
Company. Upon the occurrence of such a triggering event,
each holder of a Right will generally be entitled to receive
Common Stock having a value equal to two times the exercise
price of the Right or, in certain circumstances, common stock
of the acquiring company.
The Rights may be redeemed by the Company at a price of $.001
per Right under certain conditions.
Warrants
Also on the Effective Date, the Company issued warrants to
stockholders of record as of August 15, 1996 of the Old
Common Stock. The warrants expired on March 1, 1999. Warrants
in the amount of 325 and 350 were exercised in the twelve
months ended June 30, 1999 and 1998, respectively.
Common Stock Awards and Options
The Company has two arrangements under which employees may be
awarded stock or stock options. The restricted stock plan
may award up to 175,471 shares of Common Stock, to certain of
the Company's senior officers in the form of restricted
shares. The employee stock incentive plan may award up to
350,944 shares of Common Stock in the form of either
restricted shares or stock options. Restricted stock becomes
available to the recipient under a vesting schedule
established by the Compensation Committee of the Board of
Directors.
Restricted shares and stock option activity for each of the
past three fiscal years is as follows:
<TABLE>
Shares of
Restricted Stock Options to
Senior Purchase
Officers Employees Shares
<S> <C> <C> <C>
Outstanding, June 30, 1997 93,894 - -
Awards 41,388 23,000 144,625
Outstanding, June 30, 1998 135,282 23,000 144,625
Awards 40,189 132,358 -
Forfeitures (70,188) (7,800) (38,459)
Vesting of Restricted Shares (65,094) (15,200) -
Outstanding, June 30, 1999 40,189 132,358 106,166
</TABLE>
Rights to 8,774 shares, 150,000 shares, 5,000 shares and
8,773 shares vest on October 1, 1999, November 4, 1999,
December 14, 1999, and October 1, 2000, respectively or upon
a change in control. The market value of these shares at the
date of award is reflected as deferred compensation in
Stockholders' Equity and is being amortized over the vesting
period. During the twelve months ended June 30, 1999 and 1998
$228 and $251, respectively of compensation expense was
recorded.
All outstanding options were granted on January 15, 1998 at
an exercise price of $6.125, the fair market value of the
Common Stock at that date. At June 30, 1999, 42,466 stock
options are exercisable and the remaining stock option grants
become exercisable at a rate of twenty percent on January 15,
2000, 2001 and 2002, respectively. The options expire seven
years after the date of grant. The weighted average fair
value of options granted in the twelve months ended June 30,
1998 was $555 and was estimated by using the Black Scholes
pricing model. The assumptions used in determining the
weighted average fair value of options included (i) expected
life of four years, (ii) risk-free interest rate of 5.5
percent, (iii) volatility factor of .813 and (iv) dividend
yield of zero percent. Had compensation cost for the stock
option grants been determined based on their estimated fair
market value at the date of grant and charged to expense over
the vesting period, the Company's net loss for the twelve
months ended June 30, 1999 and 1998 would have increased by
$138 and $64, respectively or $.03 and $.02, respectively per
basic and diluted share.
9. Geographic Area Information
The Company operates predominantly in one industry
segment which includes marketing and distribution of
typewriters and related supplies and accessories as well as
offerings in the telephony and facsimile categories. The
Company distributes its products through a variety of
distribution channels, domestically and internationally.
Information
regarding the Company's sales in different geographic
locations is shown below:
<TABLE>
For the year ended June 30,
1999 1998 1997
<S> <C> <C> <C>
Net sales to customers:
United States $ 40,017 $ 53,306 $67,918
Outside the United States 3,690 5,618 9,395
Total $ 43,707 $ 58,924 $77,313
Long-lived assets:
United States $ 2,478 $ 6,738 $12,482
Outside the United States 17 75 189
Total $ 2,495 $ 6,813 $12,671
</TABLE>
Sales to one of the Company's largest customers, Wal-
Mart Stores, Inc., amounted to 27.0 percent, 29.7 percent and
19.8 percent of consolidated net sales during 1999, 1998 and
1997, respectively. The above customer was the only customer
responsible for more than 10 percent of net sales in the
periods noted.
10. Pension Plans and Postretirement Benefits
On September 1, 1996, the Company discontinued future
benefit accruals under its salaried defined benefit pension
plan (the "Salaried Plan") and as of October 6, 1996
terminated the hourly defined benefit pension plan (the
"Hourly Plan") and subsequently distributed its assets.
The net periodic pension cost (income) for the years
ended June 30, 1999,1998,and 1997 is comprised of the following
components:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Service cost $ 286 $ 393 $ 512
Interest cost 2,943 2,929 4,185
Return on plan assets:
Actual (3,817) (4,657) (8,845)
Unrecognized gain 509 1,385 4,162
Settlement gain - - (8,598)
Net curtailment gain - - (3,394)
Pension cost (income) $ (79) $ 50 $(11,978)
</TABLE>
The net curtailment gain for 1997 was a result of the
freezing of benefit accruals. The settlement gain in 1997
was a result of termination of the Hourly Plan and is
included as a component of the extraordinary gain recorded in
1997.
The assumptions used in the development of these amounts
were:
<TABLE>
1999 1998 1997
<S> <C> <C> <C>
Discount rate 6.75% 6.75% 7.50%
Rates of increase in
compensation levels 4.50% 4.50% 4.50%
Rate of return on
plan assets 9.00% 9.00% 9.25%
</TABLE>
The following table sets forth the funded status of the
Salaried Plan and amounts recognized in the Company's
consolidated balance sheets:
<TABLE>
June 30,
1999 1998
<S> <C> <C>
Projected benefit obligation $45,263 $45,623
Fair value of assets
(principally publicly traded
securities) $42,362 $42,841
Funded status $ 2,901 $ 2,782
Unrecognized gains 1,847 2,045
Net accrued pension liability $ 4,748 $ 4,827
</TABLE>
Summary information on the Company's Salaried Plan in the
years ended June 30, 1999 and 1998 and Salaried Plan and
Hourly Plan in the year ended June 30, 1997 is as follows:
<TABLE>
Year ended June 30,
<S> <C> <C> <C>
1999 1998 1997
Change in Projected Benefit Obligation:
Benefit obligation at the
beginning of the year $45,623 $41,221 $78,822
Service cost 286 393 512
Interest cost 2,943 2,929 4,185
Assumption change - 5,588 (4,077)
Curtailment and Settlement - - (33,419)
Actuarial (gains) loss 707 (395) 1,361
Benefits paid (4,296) (4,113) (6,163)
Benefit obligation at the end
of the year $45,263 $45,623 $41,221
Year ended June 30,
1999 1998 1997
Change in Plan Assets:
Fair value of plan assets at
the beginning of the year $42,841 $42,297 $68,766
Actual return on plan assets 3,817 4,657 8,845
Employer contributions - - 904
Benefits paid (4,296) (4,113) (6,163)
Settlement - - (30,055)
Fair value of plan assets at
the end of the year $42,362 $42,841 $42,297
</TABLE>
The Company also has defined contribution savings plans
covering its domestic and certain of its foreign employees,
under which the Company matches a portion of the
contributions made by participating employees. The Company's
costs for matching contributions under savings plans totaled
$161, $241 and $254 for the years ended June 30, 1999, 1998
and 1997, respectively.
The Company also provides health care and life insurance
benefits for certain retired employees. Substantially all of
the Company's domestic employees, and certain employees in
foreign countries, may become eligible for such benefits if
they reach a specified retirement age while working for the
Company.
Effective January 1, 1998 retired employees were
required to absorb incremental increases in the total cost of
health care premiums. By January 1, 2000, retired employees
will absorb 100 percent of the health care premium.
Furthermore, the Company decided to terminate life insurance
benefits for retired employees effective January 1, 2000.
These changes resulted in a net curtailment gain of $6,534
which was recorded in selling, general and administrative
expenses during the fourth quarter of the year ended June 30,
1997.
Summary information on the Company's postretirement
benefit plans, which are unfunded, is as follows:
<TABLE>
Year ended June 30,
1999 1998 1997
<S> <C> <C> <C>
Change in Benefit Obligation:
Benefit obligation at the
beginning of the year $ 519 $1,248 $9,573
Service cost - - 83
Interest cost 23 68 687
Participants' contributions 570 489 609
Curtailment gain - - (6,534)
Actuarial gains - (223) (1,896)
Benefits paid (814) (1,063) (1,274)
Benefit obligation at the end
of the year $ 298 $ 519 $1,248
</TABLE>
<TABLE>
June 30,
1999 1998
<S> <C> <C>
Financial status of plans:
Accumulated postretirement
benefit obligation (APBO):
Retirees $ 298 $519
Unrecognized gains 1,663 3,327
Accrued postretirement
benefit cost $1,961 $3,846
</TABLE>
The components of net periodic postretirement benefit
income are as follows:
<TABLE>
Year ended June 30,
1999 1998 1997
<S> <C> <C> <C>
Service cost $ - $ - $ 84
Interest cost 23 68 687
Amortization of gains (1,663) (1,552) (164)
Net curtailment gain - - (6,534)
Net periodic postretirement benefit
income $(1,640) $(1,484) $(5,927)
</TABLE>
The net curtailment gain was primarily the result of the
change in postretirement benefits in the year ended June 30,
1997.
The discount rate used in determining the APBO was 6.75
percent in 1999 and 1998. The assumed health care cost trend
rate used in measuring the accumulated postretirement benefit
obligation was 9.0 percent and 9.5 percent in 1999 and 1998,
respectively, declining to an ultimate rate of 5.5 percent to
the year 2005 and beyond.
The impact of changing the health care cost trend rate
assumptions by 1.0 percent is not material to the plans.
11. Income Taxes
The components of loss from continuing operations before
income taxes are as follows:
<TABLE>
Year ended June 30,
1999 1998 1997
<S> <C> <C> <C>
United States $(15,955) $(4,922) $3,124
Foreign (2,185) (2,512) (3,656)
Total $(18,140) $(7,434) $ (532)
The components of income tax expense (benefit) consist of:
Year ended June 30,
1999 1998 1997
United States:
Current $ - $ - $ -
Deferred - - -
Foreign (2,465) 158 104
State 211 186 159
Total $(2,254) $ 344 $ 263
</TABLE>
The provisions for income taxes differ from the amounts
computed by applying the federal income tax statutory rate. The
following is a summary of the reasons for these differences:
<TABLE>
Year Ended June 30,
1999 1998 1997
<S> <C> <C> <C>
Loss from continuing
operations before income taxes $(18,140) $(7,434) $ (532)
Statutory tax rate 34% 34% 34%
Tax computed at statutory rate (6,167) (2,527) (181)
Increase (reduction):
State income taxes,
net of federal benefit (475) (40) 2,980
Adjustment of foreign tax liability (236) 1,059 1,661
Change in valuation allowance 4,140 2,235 (6,956)
Other adjustments (484) (383) (2,759)
Total $ (2,254) $ 344 $ 263
</TABLE>
The other adjustments of $2,759 for the year ended June
30, 1997 resulted primarily from permanent capitalization of
certain professional services related to the Bankruptcy
Proceedings for income tax purposes.
The components of deferred taxes were as follows:
<TABLE>
June 30,
<S> <C> <C>
1999 1998
Deferred tax assets:
Accounts receivable $ 554 $ 664
Inventory 1,400 2,076
Prepaid and other current assets 2,090 2,038
Post-retirement benefits
other than pensions 1,580 1,470
Pension 1,815 1,845
Other liabilities 1,012 3,902
Property, plant and equipment 1,543 1,936
Net operating loss carryforwards 35,189 27,253
Capital loss carryforwards 7,493 7,494
Miscellaneous 2,305 2,163
Valuation allowances (54,981) (50,841)
Net deferred tax assets $ - $ -
</TABLE>
All U.S. income tax returns through June 30, 1996 have
been examined by the Internal Revenue Service. Additionally,
the New York State tax authority completed its examination of
all returns through June 30, 1995. The New York State income
tax return for the years ended June 30, 1997 and 1998 are
currently under examination by the State of New York.
Management does not expect a material adjustment to result
from this examination.
For U.S. federal income tax purposes the Company has a
net operating loss carryforward of approximately $51,246 of
which $15,058 will expire on June 30, 2012, $14,760 on June
30, 2013, and $21,428 on June 30, 2019. At June 30, 1999, the
Company had state net operating loss carryforwards of
approximately $56,317 which expire at various dates through
June 30, 2014. In addition, the Company has net operating
losses attributable to its foreign subsidiaries of
approximately $34,754 of which approximately $29,583 may be
carried forward indefinitely and the remaining amount will
expire in five to seven years.
12. Commitments and Other Matters
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 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 June 30, 1999
and June 30, 1998, the Company had recorded liabilities of
approximately $838 and $1,889, respectively, related to
environmental matters. The Company believes that it has set
aside adequate reserves for the payment of expenses for the
ongoing remediation programs at the Groton and Cortlandville
Sites.
The Company is also engaged 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 will not have a material adverse
effect on the Company's financial position or results of
operation.
13. Restructuring 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 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 $1,324.
14. Quarterly Financial Data (Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Fiscal Year Ended First Second Third Fourth
June 30, 1999 Quarter(1)Quarter Quarter Quarter(2)
Net sales $11,114 $12,768 $11,893 $ 7,932
Gross margin 1,065 (780) (326) 1,234
Net income (loss)(3) $(5,671) $(6,252) $(4,584) $ 621
Earnings (loss)per
common share - basic $ (1.90) $ (2.10) $ (1.51) $ .20
Weighted average common
shares basic(000's omitted) 2,983 2,983 3,028 3,062
Earnings (loss)per
common share - diluted $ (1.90) $ (2.10) $ (1.51) $ .15
Weighted average common
shares diluted(000's omitted) 2,983 2,983 3,028 3,325
Fiscal Year Ended First Second Third Fourth
June 30, 1998 Quarter Quarter(4) Quarter Quarter(4)
Net sales $14,792 $17,005 $15,096 $12,031
Gross margin 3,251 4,786 4,496 1,009
Income (loss) before
extraordinary gain (1,459) 1,725 (2,907) (5,137)
Extraordinary gain (5) - 460 - 714
Net income (loss) $(1,459) $ 2,185 $(2,907) $(4,423)
Earnings (loss)per
common share - basic:
Income (loss) before
extraordinary gain $ (.55) $ .63 $ (1.02) $ (1.75)
Extraordinary gain - .17 - .24
Net income (loss) $ (.55) $ .80 $ (1.02) $ (1.51)
Weighted average common
shares basic (000's omitted) 2,677 2,708 2,845 2,935
Earnings (loss)per
common share - diluted:
Income (loss) before
extraordinary gain $ (.55) $ .62 $ (1.02) $ (1.75)
Extraordinary gain - .16 - .24
Net income (loss) $ (.55) $ .78 $ (1.02) $ (1.51)
Weighted average common
shares diluted (000's omitted) 2,677 2,793 2,845 2,935
</TABLE>
(1) Includes restructuring expenses of $1,324.
(2) Includes gain on sale of facilities of $364.
(3) Includes tax benefit of $2,600 from final tax
liquidation of the Company's Singapore subsidiary.
(4) Includes gain on sale of facilities for $3,700 and $202
in the second and fourth quarters, respectively.
(5) Extraordinary gain resulted from the Company's Plan of
Reorganization (see footnote 2)
15. Subsequent Event (unaudited)
On July 21, 1999 the Company announced that they 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 products for Office Depot will be
offered independently of other products already marketed by
the Company such as its typewriters, headsets, and related
accessories and supplies. Some of the Smith Corona licensed
products will begin to appear in Office Depot stores as early
as this fall. 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 licensed agreement.
Financial Statement Schedule II
SMITH CORONA CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the years ended June 30, 1999, 1998 and 1997
(In thousands)
<TABLE>
Balance at
Beginning Costs and Reductions- End of
of Period Expenses Writeoffs Period
<S> <C> <C> <C> <C>
Year ended June 30, 1999:
Allowance for doubtful
trade receivables $ 638 $ 272 $ 657 $ 253
Allowance for inventory
obsolescence and shrinkage $ 5,011 $ 3,009 $ 4,824 $ 3,196
Year ended June 30, 1998:
Allowance for doubtful
trade receivables $ 931 $ 51 $ 344 $ 638
Allowance for inventory
obsolescence and shrinkage $ 5,415 $ 1,056 $ 1,460 $ 5,011
Year ended June 30, 1997:
Allowance for doubtful
trade receivables $ 1,576 $ 394 $ 1,039 $ 931
Allowance for inventory
obsolescence and shrinkage $ 7,552 $ 2,364 $ 4,501 $ 5,415
</TABLE>
EXHIBIT INDEX
EXHIBIT #
10.16 Employment Agreement between Smith Corona
Corporation and John A. Bermingham dated as of
November 4, 1998.
10.17 Employment Agreement between Smith Corona
Corporation and Martin D. Wilson dated as of
October 1, 1998.
10.18 Employment Agreement between Smith Corona
Corporation and Vince A. Abbatiello dated as of
November 20, 1998.
10.20 Smith Corona Corporation Deferred Compensation Plan
for Outside Directors
21 Schedule of Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
23.2 Consent of Deloitte & Touche LLP
27 Financial Data Schedule (Edgar Filing Only)
Exhibit 10.18
EMPLOYMENT AGREEMENT
Agreement made as of the 20th day of November, 1998,
between Smith Corona Corporation, a Delaware corporation
(the "Company"), and Vincent T. Abbatiello (the
"Executive").
WHEREAS, the Company desires to employ the Executive,
and the Executive desires to accept employment with the
Company, but only on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements hereinafter set forth, the Company
and the Executive hereby agree as follows:
1.The Company shall employ the Executive, and
the Executive shall serve the Company, beginning on December
15, 1998.
2 The Executive shall serve the Company as its
Vice President of Sales. The Executive shall, except during
vacation or sick leave, devote the whole of his time,
attention and skill during usual business hours (and outside
those hours when reasonably necessary to his duties
hereunder) to his duties hereunder; faithfully and
diligently perform such duties and exercise such powers as
may be from time to time assigned to or vested in him; and
use his best efforts to promote the interests of the
Company. The Executive may be required in pursuit of his
duties hereunder to perform services for any company
controlling (assuming the Executive declines to exercise any
resignation right pursuant to Section 4(d) hereof),
controlled by or under common control with the Company (such
companies hereinafter collectively called "Affiliates") and
to accept such offices in any Affiliates as may be required.
The Executive shall obey all policies of the Company and
applicable policies of its Affiliates.
3 a The Company shall pay the Executive a
salary at an annual rate of one hundred twenty-five thousand
dollars ($125,000.00), which shall be payable in accordance
with the Company's then prevailing payroll practices.
b During the period of the Executive's
employment, the Executive shall be eligible to receive a
bonus at the end of each fiscal year based upon the
Company's performance for such fiscal year. Such bonus
shall be determined in accordance with the Company's bonus
plan for the Vice President of Sales then in effect. For
each of the years the Executive is employed with the Company
pursuant to this Agreement, the target bonus rate will be
40% of the Executive's annual salary.
c.Upon execution of this Agreement, the
Company will grant the Executive five thousand (5,000)
shares of common stock of the Company which will vest on the
one (1) year anniversary of the Date of Hire provided that
the Executive has been continuously employed by the Company
for such period.
d.For one year following the Date of Hire,
the Company will reimburse the Executive for (i) reasonable
expenses incurred for living accommodations within proximity
of the Company's corporate headquarters and (ii) commuting
costs incurred by the Executive commuting to and from the
Company's corporate headquarters in accordance with the
Company's standard policies and practices.
e.During the period of the Executive's
employment, the Executive shall be entitled to be reimbursed
up to seven thousand two hundred dollars ($7,200.00) per
year for car expenses.
f.The Executive shall be entitled to four
(4) weeks of vacation per calendar year with any unused
vacation time carried over to the next calendar year per the
current Corporate Policy.
g.The Executive shall be entitled to such
expense accounts, sick leave, perquisites of office, fringe
benefits, insurance coverage (including the Company's
Medical and Life Insurance Programs), and other terms and
conditions of employment as the Company generally provides
to its employees having rank and seniority at the Company
comparable to the Executive.
4.Unless terminated in accordance with the
following provisions of this Section 4, the Company shall
continue to employ the Executive and the Executive shall
continue to work for the Company.
a.This Agreement shall terminate
automatically upon the death of the Executive.
b.The Company may terminate the
Executive's employment if the Executive suffers from a
physical or mental disability to an extent that renders it
impracticable for the Executive to continue performing his
duties hereunder. The Executive shall be deemed to be so
disabled if a physician selected by the Company but
reasonably acceptable to the Executive (i) advises the
Company that the Executive's physical or mental condition
will render the Executive unable to perform his duties for a
period exceeding three consecutive months or (ii) determines
the Executive has not substantially performed his duties
hereunder for a period of three consecutive months due to a
physical or mental condition. The Company will provide the
Executive with long-term disability insurance.
c.The Company may terminate the
Executive's employment at any time for cause; cause shall
mean (i) a material default or material breach by the
Executive of his obligations under Sections 1, 2, 5, 6, 8
and 18 of this Agreement, (ii) misconduct, dishonesty,
insubordination or other act by the Executive materially
detrimental to the good will of the Company or materially
damaging to the Company's relationships with its customers,
suppliers or employees, or (iii) the conviction of a felony.
d.The Company may terminate the
Executive's employment at any time without cause. The
Executive may resign from his employment at any time. In
the event that the Executive is (a) terminated without cause
within 3 years from date of agreement or (b) the Executive
is deemed terminated following a "Change of Control" (as
hereinafter defined), the Company shall (i) continue to pay
the Executive at a rate equivalent to his regular base
salary until the date one (1) year from the date of
termination, (ii) pay the Executive any accrued but unused
vacation time for the current year and any accrued but
unused vacation time carried over from any prior year and
(iii) only in the event of the Executive's Termination under
4(b)(d), cause any shares of common stock granted to the
Executive pursuant to Section 3(c) of this Agreement to
immediately vest if said shares have not already vested but
in no event shall the shares of common stock referred to
herein vest before March 1, 1999. Notwithstanding the
foregoing, in the event that the Executive receives
comparable health and welfare benefits from any other
employment (including, without limitation, self-employment)
then the Company shall no longer be obligated to provide
coverage under its plans. Such payments to the Executive by
the Company will be in full and complete satisfaction
(except as provided in subsection (e) below) of any and all
obligations owing to the Executive pursuant to this
Agreement. "Change of Control" shall mean (i) a stock
purchase by any "person" or a "group" (as such terms are
used in Sections 13(d) and 14(d)(2) of the Securities and
Exchange Act of 1934, as amended) who then owns or by virtue
of such purchase becomes the beneficial owner of, directly
or indirectly, voting securities of the Company representing
51% or more of the combined voting power of the Company's
then outstanding voting securities, (ii) an acquisition of
at least fifty-one percent (51%) of the Company's assets by
any person(s), firm(s) or entity(ies) whether or not
affiliated with the Company (for cash or property including,
without limitation, stock in any corporation, indebtedness
or any combination thereof), (iii) a merger or consolidation
of the Company with another corporation regardless of
whether the Company is the survivor, (iv) any substantial
equivalent of any such redemption, purchase, exchange,
transaction or series of transactions, acquisition, merger
or consolidation or (v) any change in the composition of the
Company's Board of Directors in any one year which involves
a majority of such directors and which is not recommended by
the Board. For purposes of this Section, the Executive
shall be deemed terminated from employment with the Company
if he resigns within the one (1) year period following the
Change of Control as a result of (i) any reduction in the
Executive's compensation package, (ii) any assignment of new
duties that requires the Executive to relocate his business
location more than fifty (50) miles away from the
Executive's then current place of business or (iii) any
significant reduction or diminution in the duties,
responsibilities or position of the Executive from that in
effect immediately prior to the Change of Control other than
the change in the Company's status as a result of the
transaction itself such as, but not limited to, the
Company's becoming a division of a privately held
corporation.
e.Upon termination pursuant to (a), (b),
(c) or (d), above, the Company shall pay the Executive or
his estate any salary earned and unpaid to the date of
termination, and any outstanding funds advanced by the
Company to or on behalf of the Executive shall become
immediately due and payable.
5.The Executive shall not divulge or
communicate to any person (except in performing his duties
under this Agreement) or use for his own purposes trade
secrets, confidential commercial information, or any other
information, knowledge or data of the Company or of any of
its Affiliates which is not generally known to the public
and shall use his best efforts to prevent the publication or
disclosure by any other person of any such secret,
information, knowledge or data. All documents and objects
made, compiled, received, held or used by the Executive
while employed by the Company in connection with the
business of the Company shall be and remain the Company's
property and shall be delivered by the Executive to the
Company upon the termination of employment or at any earlier
time requested by the Company.
6.The Executive agrees that during his
employment and for a period of one year after termination of
his employment (except for a termination without cause or
resignation upon a Change of Control pursuant to Section
4(d) above), he will not directly or indirectly, whether or
not for compensation and whether or not as an employee, be
engaged in or have any financial interest in any business
competing with the business of the Company (or with any
business of any Affiliate for which the Executive performed
services hereunder) within any state, region or locality in
which the Company or such Affiliate is then doing business
or marketing its products, as the business of the Company or
such Affiliate may then be constituted. For purposes of
this Agreement, the Executive shall be deemed to be engaged
in or to have a financial interest in such a business if he
is an employee, officer, director, or partner, of any
person, partnership, corporation, trust or other entity
which is engaged in such a business, or if he directly or
indirectly performs services for such entity or if he or any
member of his immediate family beneficially owns an equity
interest, or interest convertible into equity, in any such
entity, unless the Board otherwise approves. The foregoing
shall not prohibit the Executive or a member of his
immediate family from owning, for the purpose of passive
investment, less than 5% of any class of securities of a
publicly held corporation.
7.The Executive agrees that he shall not, for a
period of two years termination, employ any person who was
employed by the Company in the six months prior to the
Executive's date of termination or induce such person to
accept employment other than with the Company and its
Affiliates.
8.The Executive hereby agrees that any and all
improvements, inventions, discoveries, formulae, processes,
methods, know-how, confidential data, trade secrets and
other proprietary information (collectively, "Work Product")
within the scope of any business of the Company or any
Affiliate which the Executive may conceive or make or have
conceived or made during his employment with the Company
shall be and are the sole and exclusive property of the
Company, and that the Executive shall, whenever requested to
do so by the Company, at its expense, execute and sign any
and all applications, assignments or other instruments and
do all other things which the Company may deem necessary or
appropriate (i) in order to apply for, obtain, maintain,
enforce, or defend letters patent of the United States or
any foreign country for any Work Product or (ii) in order to
assign, transfer, convey or otherwise make available to the
Company the sole and exclusive right, title and interest in
and to any Work Product.
9.The Company and the Executive each agree to
waive trial by jury in any action arising under or in
connection with this Agreement or the employment
relationship between the Company and the Executive.
10.Any notice or other communication required or
permitted under this Agreement shall be effective only if it
is in writing and delivered personally or sent by registered
or certified mail, postage prepaid, addressed as follows:
If to the Company:
Smith Corona Corporation
P.O. Box 2090
839 Route 13
Cortland, NY 13045-0990
If to the Executive:
Mr. Vincent T. Abbatiello
463 Wyckoff Avenue
Ramsey, NJ 07446
or to such other address as either party may designate by
notice to the other, and shall be deemed to have been given
upon receipt.
11.This Agreement constitutes the entire
agreement between the parties hereto with respect to the
Executive's employment by the Company, and supersedes and is
in full substitution for any and all prior understandings or
agreements with respect to the Executive's employment with
the Company.
12.This Agreement may be amended only by an
instrument in writing signed by the parties hereto, and any
provision hereof may be waived only by an instrument in
writing signed by the party or parties against whom or which
enforcement of such waiver is sought. The failure of either
party hereto at any time to require the performance by the
other party hereto of any provision hereof shall in no way
affect the full right to require such performance at any
time thereafter, nor shall the waiver by either party hereto
of a breach of any provision hereof be taken or held to be a
waiver of any succeeding breach of such provision or a
waiver of the provision itself or a waiver of any other
provision of this Agreement.
13.This Agreement is binding on and is for the
benefit of the parties hereto and their respective
successors, heirs, executors, administrators and other legal
representatives. Neither this Agreement nor any right or
obligation hereunder may be assigned by the Company (except
to an Affiliate) or by the Executive.
14.If any provision of this Agreement, or
portion thereof, is so broad, in scope or duration, so as to
be unenforceable, such provision or portion thereof shall be
interpreted to be only so broad as is enforceable.
15.a.This Agreement shall be governed by and
construed in accordance with the laws of the State of New
York.
b.Any judicial proceeding brought with
respect to this Agreement must be brought in any state or
federal court of competent jurisdiction located in the State
of New York, and, by execution and delivery of this
Agreement, each party (i) accepts, generally and
unconditionally, the exclusive jurisdiction of such courts
and any related appellate courts, and irrevocably agrees to
be bound by any judgment rendered thereby in connection with
this Agreement and (ii) irrevocably waives any objection it
may now or hereafter have as to the venue of any such suit,
action or proceeding brought in such a court or that such
court is an inconvenient forum. THE PARTIES HEREBY WAIVE
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH THEY ARE
BOTH PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
THIS AGREEMENT.
16.This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same instrument.
17.The Executive represents and warrants that he
is not a party to any agreement which would prohibit him
from entering into this Agreement or performing fully his
obligations hereunder.
18.The obligations of the Executive set forth in
Sections 5, 6, 7, 8 and 10 of this Agreement represent
independent covenants by which the Executive is and will
remain bound notwithstanding any breach by the Company, and
shall survive the termination of this Agreement.
19.The Executive recognizes that a breach or
threatened breach by him of his obligations under Sections
5, 6, 7 or 8 of this Agreement would cause irreparable
injury to the Company, and the Company shall be entitled to
preliminary and permanent injunctions enjoining him from
violating Sections 5, 6, 7 or 8 of this Agreement in
addition to any other remedies which may be available.
IN WITNESS WHEREOF, the Company and the Executive
have executed this Agreement as of the date first written
above.
SMITH CORONA CORPORATION
By:/s/ John A. Bermingham
John A. Bermingham
President and CEO
/s/ Vincent T. Abbatiello
Vincent T. Abbatiello
Exhibit 10.17
EMPLOYMENT AGREEMENT
Agreement made as of the first day of October, 1998, between
SMITH CORONA CORPORATION, a Delaware corporation (the "Company"),
and Martin D. Wilson (the "Executive").
WHEREAS, the Company desires to continue to employ the
Executive, and the Executive desires to accept continued
employment with the Company, but only on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, the Company and the Executive
hereby agree as follows:
1.The Company shall employ the Executive, and the
Executive shall serve the Company, for the period beginning on
October 1, 1998 and expiring on October 1, 2001, unless sooner
terminated pursuant to the provisions of Section 4 hereof (the
"Employment Period").
2.During the Employment Period, the Executive shall serve
the Company as its Senior Vice President and Chief Financial
Officer. During the Employment Period, the Executive shall,
except during vacation or sick leave, devote the whole of his
time, attention and skill during usual business hours (and
outside those hours when reasonably necessary to his duties
hereunder) to his duties hereunder; faithfully and diligently
perform such duties and exercise such powers as may be from time
to time assigned to or vested in him by the Company's Board of
Directors (the "Board"); obey the directions of the Board; and
use his best efforts to promote the interests of the Company.
The Executive may be required in pursuit of his duties hereunder
to perform services for any company controlling (assuming the
Executive declines to exercise any resignation right pursuant to
Section 4(d) hereof), controlled by or under common control with
the Company (such companies hereinafter collectively called
"Affiliates") and to accept such offices in any Affiliates as the
Board may require. The Executive shall obey all policies of the
Company and applicable policies of its Affiliates.
3.a.During the Employment Period, the Company shall pay
the Executive a salary at an annual rate of $150,000 subject to
increase by the Board in its sole discretion, which shall be
payable periodically in accordance with the Company's then
prevailing payroll practices.
b.The Company shall award the Executive NewSCC
Common Stock (as defined in the Third Amended Second Joint Plan
of Reorganization Under Chapter 11 of the United States
Bankruptcy Code, as modified by the Technical Amendments to the
Debtors' Third Amended Second Joint Plan of Reorganization (the
"Plan") pursuant to Section 6.3 of the Plan in an aggregate
amount which shall at all times constitute .5% of the total
shares of NewSCC Common Stock which are issued pursuant to the
Plan, determined on a fully-diluted basis, not including the
effect of the exercise of any of the NewSCC Warrants (as defined
in the Plan). The Executive's rights to such shares shall vest
50% on the first anniversary of this agreement and 50% on the
second anniversary of this agreement; provided, however, at the
Executive's option, that such shares may vest earlier at the time
of a Change in Control (as defined in Section 4(d) hereof). The
Executive shall be eligible to participate in the employee stock
incentive or other similar plan described in Section 6.2 of the
Plan in accordance with the provisions thereof. The Executive
also shall be eligible to participate in such other incentive
compensation programs as may be established by the Board that the
Company generally provides to its employees having rank and
seniority at the Company comparable to the Executive.
c.The Executive shall be entitled to four (4) weeks
of vacation per calendar year with any unused vacation time
carried over to the first quarter of the next calendar year. If
the prior year's vacation time is not used by the end of said
first quarter, the Company shall pay the Executive for the unused
time at his regular annual rate thereby discharging its
obligation with respect to the unused time.
d.The Executive shall be entitled to such expense
accounts, sick leave, perquisites of office, fringe benefits,
insurance coverage (including the Company's Executive Medical and
Life Insurance Programs), and other terms and conditions of
employment as the Company generally provides to its employees
having rank and seniority at the Company comparable to the
Executive. In addition, the Executive shall have annual physical
examinations at the Company's expense.
4.Unless terminated in accordance with the following
provisions of this Section 4, the Company shall continue to
employ the Executive and the Executive shall continue to work for
the Company, during the Employment Period.
a.This Agreement shall terminate automatically upon
the death of the Executive.
b.The Company may terminate the Executive's
employment if the Executive suffers from a physical or mental
disability to an extent that renders it impracticable for the
Executive to continue performing his duties hereunder. The
Executive shall be deemed to be so disabled if (i) a physician
selected by the Company advises the Company that the Executive's
physical or mental condition will render the Executive unable to
perform his duties for a period exceeding three consecutive
months, or (ii) due to a physical or mental condition, the
Executive has not substantially performed his duties hereunder
for a period of three consecutive months. The Company will
provide the Executive with long-term disability insurance.
c.The Company may terminate the Executive's
employment at any time for cause; cause shall mean (i) a default
or other breach by the Executive of his obligations under
Sections 1, 2, 5, 6, 8 and 17 of this Agreement, (ii) misconduct,
dishonesty, insubordination or other act by the Executive
detrimental to the good will of the Company or damaging to the
Company's relationships with its customers, suppliers or
employees, (iii) the conviction of a felony, or (iv) any act of
disloyalty or breach of trust by the Executive.
d.The Company may terminate the Executive's
employment at any time without cause. The Executive may resign
from his employment at any time. In the event that the Executive
is terminated without cause, or resigns within thirty (30) days
following a Change of Control (as hereinafter defined), (i) the
Company shall continue to pay the Executive at a rate equivalent
to his regular base salary until the date one (1) year from the
date of termination or resignation; (ii) the Company shall
continue to provide medical insurance to the Executive until the
date one (1) year from the date of termination or resignation;
and (iii) the Company shall pay the Executive any accrued but
unused vacation time for the current year and any accrued but
unused vacation time carried over from any prior year. Such
payments to the Executive by the Company will be in full and
complete satisfaction (except as provided in subsection (e)
below) of any and all obligations owing to the Executive pursuant
to this Agreement. "Change of Control" shall mean (i) a stock
purchase by any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the Securities and Exchange Act of 1934, as
amended) who then owns or by virtue of such purchase becomes the
beneficial owner of, directly or indirectly, voting securities of
the Company representing 51% or more of the combined voting power
of the Company's then outstanding voting securities or (ii) any
change in the composition of the Company's Board in any one year
which involves a majority of such directors and which is not
recommended by the Board.
e.Upon termination pursuant to (a), (b), (c) or (d),
above, the Company shall pay the Executive or his estate any
salary earned and unpaid to the date of termination, and any
outstanding funds advanced by the Company to or on behalf of the
Executive shall become immediately due and payable.
5.The Executive shall not divulge or communicate to any
person (except in performing his duties under this Agreement) or
use for his own purposes trade secrets, confidential commercial
information, or any other information, knowledge or data of the
Company or of any of its Affiliates which is not
generally known to the public and shall use his best efforts to
prevent the publication or disclosure by any other person of any
such secret, information, knowledge or data. All documents and
objects made, compiled, received, held or used by the Executive
while employed by the Company in connection with the business of
the Company shall be and remain the Company's property and shall
be delivered by the Executive to the Company upon the termination
of the Employment Period or at any earlier time requested by the
Company.
6.The Executive agrees that during the Employment Period
and for a period of two years after the termination of the
Employment Period (except for a termination without cause or
resignation upon a Change of Control pursuant to Section 4(d)
above), he will not directly or indirectly, whether or not for
compensation and whether or not as an employee, be engaged in or
have any financial interest in any of the entities set forth on
Exhibit A hereto or in any business competing with or which may
compete with the business of the Company (or with any business of
any Affiliate for which the Executive performed services
hereunder) within any state, region or locality in which the
Company or such Affiliate is then doing business or marketing its
products, as the business of the Company or such Affiliate may
then be constituted. For purposes of this Agreement, the
Executive shall be deemed to be engaged in or to have a financial
interest in such a business if he is an employee, officer,
director, or partner, of any person, partnership, corporation,
trust or other entity which is engaged in such a business, or if
he directly or indirectly performs services for such entity or if
he or any member of his immediate family beneficially owns an
equity interest, or interest convertible into equity, in any such
entity; provided, however, that the foregoing shall not prohibit
the Executive or a member of his immediate family from owning,
for the purpose of passive investment, less than 5% of any class
of securities of a publicly held corporation.
7.The Executive agrees that he shall not, for a period of
two years after the Employment Period, employ any person who was
employed by the Company or any of its Affiliates or induce such
person to accept employment other than with the Company and its
Affiliates.
8.The Executive hereby agrees that any and all
improvements, inventions, discoveries, formulae, processes,
methods, know-how, confidential data, trade secrets and other
proprietary information (collectively, "Work Product") within the
scope of any business of the Company or any Affiliate which the
Executive may conceive or make or have conceived or made during
his employment with the Company shall be and are the sole and
exclusive property of the Company, and that the Executive shall,
whenever requested to do so by the Company, at its expense,
execute and sign any and all applications, assignments or other
instruments and do all other things which the Company may deem
necessary or appropriate (i) in order to apply for, obtain,
maintain, enforce, or defend letters patent of the United States
or any foreign country for any Work Product, or (ii) in order to
assign, transfer, convey or otherwise make available to the
Company the sole and exclusive right, title and interest in and
to any Work Product.
9.The Company and the Executive each agree to waive trial
by jury in any action arising under or in connection with this
Agreement or the employment relationship between the Company and
the Executive.
10.Any notice or other communication required or permitted
under this Agreement shall be effective only if it is in writing
and delivered personally or sent by registered or certified mail,
postage prepaid, addressed as follows:
If to the Company:
Smith Corona Corporation
P.O. Box 2090
839 Route 13
Cortland, NY 13045-0990
Attention: President
If to the Executive:
Mr. Martin D. Wilson
423 Ferguson Road
Freeville, NY 13068
or to such other address as either party may designate by notice
to the other, and shall be deemed to have been given upon
receipt.
11.This Agreement constitutes the entire agreement between
the parties hereto with respect to the Executive's employment by
the Company, and supersedes and is in full substitution for any
and all prior understandings or agreements with respect to the
Executive's employment with the Company.
12.This Agreement may be amended only by an instrument in
writing signed by the parties hereto, and any provision hereof
may be waived only by an instrument in writing signed by the
party or parties against whom or which enforcement of such waiver
is sought. The failure of either party hereto at any time to
require the performance by the other party hereto of any
provision hereof shall in no way affect the full right to require
such performance at any time thereafter, nor shall the waiver by
either party hereto of a breach of any provision hereof be taken
or held to be a waiver of any succeeding breach of such provision
or a waiver of the provision itself or a waiver of any other
provision of this Agreement.
13.This Agreement is binding on and is for the benefit of
the parties hereto and their respective successors, heirs,
executors, administrators and other legal representatives.
Neither this Agreement nor any right or obligation hereunder may
be assigned by the Company (except to an Affiliate) or by the
Executive.
14.If any provision of this Agreement, or portion thereof,
is so broad, in scope or duration, so as to be unenforceable,
such provision or portion thereof shall be interpreted to be only
so broad as is enforceable.
15.a.This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
b. Any judicial proceeding brought with respect to
this Agreement must be brought in any state or federal court of
competent jurisdiction located in the State of New York, and, by
execution and delivery of this Agreement, each party (i) accepts,
generally and unconditionally, the exclusive jurisdiction of such
courts and any related appellate courts, and irrevocably agrees
to be bound by any judgment rendered thereby in connection with
this Agreement and (ii) irrevocably waives any objection it may
now or hereafter have as to the venue of any such suit, action or
proceeding brought in such a court or that such court is an
inconvenient forum. THE PARTIES HEREBY WAIVE TRIAL BY JURY IN
ANY JUDICIAL PROCEEDING TO WHICH THEY ARE BOTH PARTIES INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS AGREEMENT.
16. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
17. The Executive represents and warrants that he is not a
party to any agreement which would prohibit him from entering
into this Agreement or performing fully his obligations
hereunder.
18.The obligations of the Executive set forth in
paragraphs 5, 6, 7, 8 and 9 represent independent covenants by
which the Executive is and will remain bound notwithstanding any
breach by the Company, and shall survive the termination of this
Agreement.
19.The Executive recognizes that a breach or threatened
breach by him of his obligations under Sections 5, 6, 7 or 8
would cause irreparable injury to the Company, and the Company
shall be entitled to preliminary and permanent injunctions
enjoining him from violating Sections 5, 6, 7 or 8 in addition to
any other remedies which may be available.
IN WITNESS WHEREOF, the Company and the Executive have
executed this Agreement as of the date first written above.
SMITH CORONA CORPORATION
By:/s/ Peter Parts
Name:Peter Parts
Title:Chairman of the Board
/s/ Martin D. Wilson
Martin D. Wilson
EXHIBIT A
Brother
V. Tech
Uniden
Sony
Panasonic
Cobra
Platronics
NuKote
AT&T
Exhibit 10.16
EMPLOYMENT AGREEMENT
Agreement made as of the 4th day of November, 1998,
between Smith Corona Corporation, a Delaware corporation
(the "Company"), and John A. Bermingham (the "Executive").
WHEREAS, the Company desires to employ the Executive,
and the Executive desires to accept employment with the
Company, but only on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the mutual
covenants and agreements hereinafter set forth, the
Company and the Executive hereby agree as follows:
1.The Company shall employ the Executive, and the
Executive shall serve the Company, for the period
beginning on November 4, 1998 (the "Date of Hire") and
expiring on the date three (3) years from the Date of
Hire, unless sooner terminated pursuant to the provisions
of Section 4 hereof (the "Employment Period").
2.During the Employment Period, the Executive
shall serve the Company as its President and Chief
Executive Officer and the Executive shall serve as a
director on the Company's Board of Directors (the
"Board"). During the Employment Period, the Executive
shall, except during vacation or sick leave, devote the
whole of his time, attention and skill during usual
business hours (and outside those hours when reasonably
necessary to his duties hereunder) to his duties
hereunder; faithfully and diligently perform such duties
and exercise such powers as may be from time to time
assigned to or vested in him by the Board; and use his
best efforts to promote the interests of the Company. The
Executive may be required in pursuit of his duties
hereunder to perform services for any company controlling
(assuming the Executive declines to exercise any
resignation right pursuant to Section 4(d) hereof),
controlled by or under common control with the Company
(such companies hereinafter collectively called
"Affiliates") and to accept such offices in any Affiliates
as the Board may require. The Executive shall obey all
policies of the Company and applicable policies of its
Affiliates.
3.a.During the Employment Period, the Company
shall pay the Executive a salary at an annual rate of
three hundred thousand dollars ($300,000.00), which shall
be payable in accordance with the Company's then
prevailing payroll practices. The Board will review the
rate annually and make such increases as it may deem
appropriate but shall not be obligated to do so.
b.During the term of this Agreement, the
Executive shall be eligible to receive a bonus at the end
of each fiscal year based upon the Company's performance
for such fiscal year. Such bonus shall be determined in
accordance with the Company's bonus plan for the President
and Chief Executive Officer then in effect. For each of
the years the Executive is employed with the Company
pursuant to this Agreement, the target bonus rate will be
60% of the Executive's annual salary. A part of the bonus
for fiscal year 1999 equal to 30% of the Executive's
annual salary will be guaranteed. For fiscal year 1999,
this bonus will be prorated for the Executive's term of
employment. Additional bonus eligibility will be based on
reasonable criteria to be established by the Board.
c.Upon execution of this Agreement, the
Executive will be entitled to receive a signing bonus of
fifty thousand dollars ($50,000.00) which will be payable
within fifteen (15) days of the Date of Hire. The bonus
referred to in this Section will be in addition to any
annual bonus to which the Executive may be entitled to
receive pursuant to Section 3(b) of this Agreement.
d.The Executive will be entitled to an
additional bonus of fifty thousand dollars ($50,000.00)
180 days after he has established residency within a fifty
mile radius of the Company's headquarters or December 1,
1999, whichever is sooner.
e.Upon execution of this Agreement, the
Company will grant the Executive one hundred fifty
thousand (150,000) shares of common stock of the Company
which will vest on the one (1) year anniversary of the
Date of Hire provided that the Executive has been
continuously employed by the Company for such period.
f.For one year following the Date of Hire,
the Company will reimburse the Executive for (i)
reasonable expenses incurred for living accommodations
within proximity of the Company's corporate headquarters
and (ii) commuting costs incurred by the Executive
commuting to and from the Company's corporate headquarters
in accordance with the Company's standard policies and
practices.
g.During the term of this Agreement, the
Executive shall be entitled to be reimbursed up to fifteen
thousand dollars ($15,000.00) per year for car expenses.
h.The Executive shall be entitled to four (4)
weeks of vacation per calendar year with any unused
vacation time carried over to the next calendar year.
i.The Executive shall be entitled to such
expense accounts, sick leave, perquisites of office,
fringe benefits, insurance coverage (including the
Company's Executive Medical and Life Insurance Programs),
and other terms and conditions of employment as the
Company generally provides to its employees having rank
and seniority at the Company comparable to the Executive.
The Company shall maintain for the benefit of the
Executive or his designee(s) (i) a term life insurance
policy for the benefit of the Executive in the amount
equal to two times his base salary and (ii) an accidental
life insurance policy in the amount of one million dollars
($1,000,000.00) provided the Executive is insurable at the
normal rate for his age and sex. In the event the
insurance is only obtainable at a higher rate, the
Executive will pay the differential between the higher
rate and the normal rate if he elects coverage. In
addition, the Executive shall have annual physical
examinations at the Company's expense.
4.Unless terminated in accordance with the
following provisions of this Section 4, the Company shall
continue to employ the Executive and the Executive shall
continue to work for the Company, during the Employment
Period.
a.This Agreement shall terminate
automatically upon the death of the Executive.
b.The Company may terminate the Executive's
employment if the Executive suffers from a physical or
mental disability to an extent that renders it
impracticable for the Executive to continue performing his
duties hereunder. The Executive shall be deemed to be so
disabled if a physician selected by the Company but
reasonably acceptable to the Executive (i) advises the
Company that the Executive's physical or mental condition
will render the Executive unable to perform his duties for
a period exceeding three consecutive months or (ii)
determines the Executive has not substantially performed
his duties hereunder for a period of three consecutive
months due to a physical or mental condition. The Company
will provide the Executive with long-term disability
insurance.
c.The Company may terminate the Executive's
employment at any time for cause; cause shall mean (i) a
material default or material breach by the Executive of
his obligations under Sections 1, 2, 5, 6, 8 and 18 of
this Agreement, (ii) misconduct, dishonesty,
insubordination or other act by the Executive materially
detrimental to the good will of the Company or materially
damaging to the Company's relationships with its
customers, suppliers or employees, or (iii) the conviction
of a felony.
d.The Company may terminate the Executive's
employment at any time without cause. The Executive may
resign from his employment at any time. In the event that
the Executive is terminated without cause or the Executive
is deemed terminated following a "Change of Control" (as
hereinafter defined), the Company shall (i) continue to
pay the Executive at a rate equivalent to his regular base
salary until the date one (1) year from the date of
termination, (ii) continue to provide medical insurance to
the Executive until the date one (1) year from the date of
termination, (iii) pay the Executive any accrued but
unused vacation time for the current year and any accrued
but unused vacation time carried over from any prior year
and (iv) cause any shares of common stock granted to the
Executive pursuant to Section 3(e) of this Agreement to
immediately vest if said shares have not already vested
but in no event shall the shares of common stock referred
to herein vest before March 1, 1999. Notwithstanding the
foregoing, in the event that the Executive receives
comparable health and welfare benefits from any other
employment (including, without limitation, self-
employment) then the Company shall no longer be obligated
to provide coverage under its plans. Such payments to the
Executive by the Company will be in full and complete
satisfaction (except as provided in subsection (e) below)
of any and all obligations owing to the Executive pursuant
to this Agreement. "Change of Control" shall mean (i) a
stock purchase by any "person" or a "group" (as such terms
are used in Sections 13(d) and 14(d)(2) of the Securities
and Exchange Act of 1934, as amended) who then owns or by
virtue of such purchase becomes the beneficial owner of,
directly or indirectly, voting securities of the Company
representing 51% or more of the combined voting power of
the Company's then outstanding voting securities, (ii) an
acquisition of at least fifty-one percent (51%) of the
Company's assets by any person(s), firm(s) or entity(ies)
whether or not affiliated with the Company (for cash or
property including, without limitation, stock in any
corporation, indebtedness or any combination thereof),
(iii) a merger or consolidation of the Company with
another corporation regardless of whether the Company is
the survivor, (iv) any substantial equivalent of any such
redemption, purchase, exchange, transaction or series of
transactions, acquisition, merger or consolidation or (v)
any change in the composition of the Company's Board of
Directors in any one year which involves a majority of
such directors and which is not recommended by the Board.
For purposes of this Section, the Executive shall be
deemed terminated from employment with the Company if he
resigns within the one (1) year period following the
Change of Control as a result of (i) any reduction in the
Executive's compensation package, (ii) any assignment of
new duties that requires the Executive to relocate his
business location more than fifty (50) miles away from the
Executive's then current place of business or (iii) any
significant reduction or diminution in the duties,
responsibilities or position of the Executive from that in
effect immediately prior to the Change of Control other
than the change in the Company's status as a result of the
transaction itself such as, but not limited to, the
Company's becoming a division of a privately held
corporation.
e.Upon termination pursuant to (a), (b), (c)
or (d), above, the Company shall pay the Executive or his
estate any salary earned and unpaid to the date of
termination, and any outstanding funds advanced by the
Company to or on behalf of the Executive shall become
immediately due and payable.
5.The Executive shall not divulge or communicate
to any person (except in performing his duties under this
Agreement) or use for his own purposes trade secrets,
confidential commercial information, or any other
information, knowledge or data of the Company or of any of
its Affiliates which is not generally known to the public
and shall use his best efforts to prevent the publication
or disclosure by any other person of any such secret,
information, knowledge or data. All documents and objects
made, compiled, received, held or used by the Executive
while employed by the Company in connection with the
business of the Company shall be and remain the Company's
property and shall be delivered by the Executive to the
Company upon the termination of the Employment Period or
at any earlier time requested by the Company.
6.The Executive agrees that during the Employment
Period and for a period of one year after the termination
of the Employment Period (except for a termination without
cause or resignation upon a Change of Control pursuant to
Section 4(d) above), he will not directly or indirectly,
whether or not for compensation and whether or not as an
employee, be engaged in or have any financial interest in
any business competing with the business of the Company
(or with any business of any Affiliate for which the
Executive performed services hereunder) within any state,
region or locality in which the Company or such Affiliate
is then doing business or marketing its products, as the
business of the Company or such Affiliate may then be
constituted. For purposes of this Agreement, the
Executive shall be deemed to be engaged in or to have a
financial interest in such a business if he is an
employee, officer, director, or partner, of any person,
partnership, corporation, trust or other entity which is
engaged in such a business, or if he directly or
indirectly performs services for such entity or if he or
any member of his immediate family beneficially owns an
equity interest, or interest convertible into equity, in
any such entity, unless the Board otherwise approves. The
foregoing shall not prohibit the Executive or a member of
his immediate family from owning, for the purpose of
passive investment, less than 5% of any class of
securities of a publicly held corporation.
7.The Executive agrees that he shall not, for a
period of two years after the Employment Period, employ
any person who was employed by the Company in the six
months prior to the Executive's date of termination or
induce such person to accept employment other than with
the Company and its Affiliates.
8.The Executive hereby agrees that any and all
improvements, inventions, discoveries, formulae,
processes, methods, know-how, confidential data, trade
secrets and other proprietary information (collectively,
"Work Product") within the scope of any business of the
Company or any Affiliate which the Executive may conceive
or make or have conceived or made during his employment
with the Company shall be and are the sole and exclusive
property of the Company, and that the Executive shall,
whenever requested to do so by the Company, at its
expense, execute and sign any and all applications,
assignments or other instruments and do all other things
which the Company may deem necessary or appropriate (i) in
order to apply for, obtain, maintain, enforce, or defend
letters patent of the United States or any foreign country
for any Work Product or (ii) in order to assign, transfer,
convey or otherwise make available to the Company the sole
and exclusive right, title and interest in and to any Work
Product.
9.After one year from the Date of Hire, the
Company shall consider granting additional shares of stock
or options to the Executive consistent with its stock
program. Also, within 90 days of the Date of Hire, the
Company and the Executive shall enter into an agreement
providing the Executive with an incentive bonus in the
event of a Change in Control or a similar transaction
occurring after one (1) year form the Date of Hire.
10.The Company and the Executive each agree to
waive trial by jury in any action arising under or in
connection with this Agreement or the employment
relationship between the Company and the Executive.
11.Any notice or other communication required or
permitted under this Agreement shall be effective only if
it is in writing and delivered personally or sent by
registered or certified mail, postage prepaid, addressed
as follows:
If to the Company:
Smith Corona Corporation
P.O. Box 2090
839 Route 13
Cortland, NY 13045-0990
If to the Executive:
Mr. John A. Bermingham
6 Round Hill Road
Kinnelon, NJ 07405
or to such other address as either party may designate by
notice to the other, and shall be deemed to have been
given upon receipt.
12.This Agreement constitutes the entire agreement
between the parties hereto with respect to the Executive's
employment by the Company, and supersedes and is in full
substitution for any and all prior understandings or
agreements with respect to the Executive's employment with
the Company.
13.This Agreement may be amended only by an
instrument in writing signed by the parties hereto, and
any provision hereof may be waived only by an instrument
in writing signed by the party or parties against whom or
which enforcement of such waiver is sought. The failure
of either party hereto at any time to require the
performance by the other party hereto of any provision
hereof shall in no way affect the full right to require
such performance at any time thereafter, nor shall the
waiver by either party hereto of a breach of any provision
hereof be taken or held to be a waiver of any succeeding
breach of such provision or a waiver of the provision
itself or a waiver of any other provision of this
Agreement.
14.This Agreement is binding on and is for the
benefit of the parties hereto and their respective
successors, heirs, executors, administrators and other
legal representatives. Neither this Agreement nor any
right or obligation hereunder may be assigned by the
Company (except to an Affiliate) or by the Executive.
15.If any provision of this Agreement, or portion
thereof, is so broad, in scope or duration, so as to be
unenforceable, such provision or portion thereof shall be
interpreted to be only so broad as is enforceable.
16.a.This Agreement shall be governed by and
construed in accordance with the laws of the State of New
York.
b.Any judicial proceeding brought with
respect to this Agreement must be brought in any state or
federal court of competent jurisdiction located in the
State of New York, and, by execution and delivery of this
Agreement, each party (i) accepts, generally and
unconditionally, the exclusive jurisdiction of such courts
and any related appellate courts, and irrevocably agrees
to be bound by any judgment rendered thereby in connection
with this Agreement and (ii) irrevocably waives any
objection it may now or hereafter have as to the venue of
any such suit, action or proceeding brought in such a
court or that such court is an inconvenient forum. THE
PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING TO WHICH THEY ARE BOTH PARTIES INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT
OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT.
17.This Agreement may be executed in several
counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same
instrument.
18.The Executive represents and warrants that he is
not a party to any agreement which would prohibit him from
entering into this Agreement or performing fully his
obligations hereunder.
19.The obligations of the Executive set forth in
Sections 5, 6, 7, 8 and 10 of this Agreement represent
independent covenants by which the Executive is and will
remain bound notwithstanding any breach by the Company,
and shall survive the termination of this Agreement.
20.The Executive recognizes that a breach or
threatened breach by him of his obligations under Sections
5, 6, 7 or 8 of this Agreement would cause irreparable
injury to the Company, and the Company shall be entitled
to preliminary and permanent injunctions enjoining him
from violating Sections 5, 6, 7 or 8 of this Agreement in
addition to any other remedies which may be available.
IN WITNESS WHEREOF, the Company and the
Executive have executed this Agreement as of the date
first written above.
SMITH CORONA CORPORATION
By:/s/ Peter Parts ____
Name:Peter Parts
Title:Chairman of the Board
/s/ John A. Bermingham
John A. Bermingham
Exhibit 21
<TABLE>
SUBSIDIARIES OF
SMITH CORONA CORPORATION
<S> <C> <C>
Jurisdiction Name Doing
Name of Incorporation Business Under
Smith Corona United Kingdom Smith Corona
(UK)Holdings Limited (UK) Holdings
Limited
Smith Corona Ontario, Canada Smith Corona
(Canada) Limited (Canada) Limited
Smith Corona (France) Paris, France Smith Corona
S.A.R.L. (France) S.A.R.L.
Smith Corona GmbH Dusseldorf, Germany Smith Corona GmbH
Smith Corona S.A. Waterloo, Belgium Smith Corona S.A.
Smith Corona Ansterdam - Holland Smith Corona
International B.V. Internatonal B.V.
</TABLE>
Exhibit 23.1
Consent of Independent Accountants
The Board of Directors and Shareholders
Smith Corona Corporation
We consent to the incorporation by reference in the
registration statement (No.333-73195) on Form S-8 of Smith
Corona Corporation of our report dated August 11, 1999,
except as to note 7 which is as of September 1, 1999,
relating to the consolidated balance sheet of Smith Corona
Corporation and subsidiaries as of June 30, 1999, and the
related consolidated statements of operations, changes in
shareholders' equity, and cash flows for the year then
ended and the related schedule as of and for the year
ended June 30, 1999, which report appears in the June 30,
1999 annual report on Form 10-K of Smith Corona
Corporation.
/s/ KPMG LLP
- ------------------
September 13, 1999
Syracuse, New York
Exhibit 23.2
Independent Auditors' Consent
We consent to the incorporation by reference in
registration statement No.333-73195 on Form S-8 of our
report dated August 21, 1998, appearing in the Annual
Report on Form 10-K of Smith Corona Corporation for the
year ended June 30, 1999.
/s/ Deloitte & Touche LLP
- -------------------------
September 14, 1999
Stamford, Connecticut
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM SMITH CORONA CORPORATION CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO OF THIS FORM 10-k AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-1-1998
<PERIOD-END> JUN-30-1999
<CASH> 5453
<SECURITIES> 0
<RECEIVABLES> 4799
<ALLOWANCES> 253
<INVENTORY> 9356
<CURRENT-ASSETS> 19740
<PP&E> 31820
<DEPRECIATION> 29485
<TOTAL-ASSETS> 22235
<CURRENT-LIABILITIES> 10466
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 4473
<TOTAL-LIABILITY-AND-EQUITY> 22235
<SALES> 43707
<TOTAL-REVENUES> 43707
<CGS> 42514
<TOTAL-COSTS> 42514
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (384)
<INCOME-PRETAX> (18140)
<INCOME-TAX> (2254)
<INCOME-CONTINUING> (15886)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15886)
<EPS-BASIC> (5.27)<EPS-DILUTED> (5.27)
</TABLE>
SMITH CORONA CORPORATION
DEFERRED COMPENSATION PLAN
FOR OUTSIDE DIRECTORS
Section 1. Effective Date
The effective date of the Plan is January 1, 1999.
Section 2. Eligibility
Any member of the Board of Directors ("Director") of Smith Corona
Corporation (the "Corporation") who is not an officer or employee
of the Corporation, a subsidiary or affiliate thereof is eligible
to participate in the Plan (a "Participant"), provided the
Participant is eligible to receive fees for the Participant's
services as a Director.
Section 3. Deferred Compensation Account
There shall be established on the books of the Corporation for
each Participant a deferred compensation account in the
Participant's name. A Participant's deferred compensation
account shall be 100% vested and nonforfeitable at all times.
Section 4. Amount of Deferral
A Participant may elect to defer receipt of any or all of the
compensation payable for serving as a Director by filing the
appropriate form pursuant to Section 9.
Section 5. Computation of Deferred Accounts
All deferred compensation shall be credited to an account for the
Participant on the books of the Corporation as of the date
payment would have been made but for the deferral election. At
the time of the election to defer, a Participant may also elect
to have part (in increments of 10%) or all of the deferred
compensation deemed to be invested in full and fractional shares
of the Corporation's common stock, par value $.001 per share
("Common Stock"). Such deemed investment shall be made at the
fair market value of such Common Stock on the date the deferral
is credited to the Participant's account. Such deemed investment
in Common Stock shall be credited with an amount equal to the
dividends, if any, declared on the Common Stock from time to time
and such dividend equivalent amounts shall be deemed to be
reinvested in Common Stock at fair market value on the dividend
payment date. In the event of any change in the outstanding
shares of Common Stock by reason of stock split, reverse stock
split, combination of shares, stock dividend or similar
transaction, the Common Stock deemed held in a Participant's
account shall be proportionably adjusted in an equitable manner
similar to that of an actual stockholder. The value of the
portion of a Participant's deferred account deemed invested in
hypothetical Common Stock shall be determined by the fair market
value of such Common Stock on the date of determination. The
fair market value of a share of Common Stock as of any date shall
be equal to the last bid for such share recorded on the NASDAQ
Small-Cap Issues index for such date as reported in the Wall
Street Journal. Notwithstanding the foregoing, the portion of a
Participant's deferred account deemed invested in Common Stock
shall be payable in cash. The deemed investment in Common Stock
shall cease on the date the last payment of amounts deemed so
invested is made from the Participant's account. At the time of
the election to defer, a Participant may also elect to have the
portion of his deferred compensation which he did not elect to be
deemed invested in Common Stock credited with interest monthly as
of the last day of each month. Interest shall be credited at the
average long-term rate that the Corporation is paying its lenders
which rate shall be determined as of the first day of each
calendar quarter and shall be maintained for that quarter. The
crediting of interest shall cease on the date the last payment
subject to interest crediting is made from the Participant's
account.
Section 6. Payment of Deferred Compensation
A Participant may elect to defer receipt of compensation until
termination of service as a Director of the Corporation for any
reason including death. In the absence of an earlier Plan
termination, payment will be made or will commence within thirty
(30) days after termination of service as a Director of the
Corporation.
Section 7. Form of Payment
A Participant may elect at the time of deferral to receive the
compensation deferred under the Plan in either (1) a single lump
sum or (2) a number of annual installments as specified by the
Participant, not to exceed ten annual installments.
Where a Participant has elected to receive the balance of such
Participant's account in annual installments of deferred
compensation, each annual installment shall be a fraction of the
value of the remaining balance of the deferred compensation and
interest credited to the Participant's account, as the case may
be, on the date of such payment, the numerator of which fraction
is one (1) and the denominator of which is the number of
installments (including the then current installment) remaining
to be paid at that time. For purposes of installment
calculation, the balance in a Participant's deferred compensation
account shall be determined (i) with regard to the first
installment, as of the payment due date and (ii) with regard to
each other installment, as of the immediately preceding
December 31.
Section 8. Death Prior to Receipt
In the event that a Participant dies prior to receipt of any or
all of the amounts payable pursuant to this Plan, any amounts
remaining in the Participant's deferred compensation account
shall be paid to the Participant's beneficiary in a lump sum
following notification to the Corporation of the Participant's
death. For this purpose, each Participant shall file with the
Chief Financial Officer of the Corporation a beneficiary
designation form approved by the Corporation. In the absence of
a designation or where the beneficiary predeceases the
Participant, payment shall be made to the Participant's estate.
Section 9. Manner of Electing Deferral
During the month of December of each year a Director may elect to
defer compensation for the following year by giving written
notice to the Chief Financial Officer of the Corporation on the
Form of Election provided by the Corporation. At that time, a
Director who elects to participate in the Plan shall indicate the
amount of compensation to be deferred and the form of payment of
deferred compensation (whether lump sum or annual installments).
An election, once made, shall be irrevocable after December 31st.
A separate election may be made for each year a Director wishes
to defer compensation.
Section 10. Participant's Rights Unsecured
The right of any Participant to receive future payments from his
deferred compensation account under the provisions of the Plan
shall be that of an unsecured general creditor with a claim
against the general assets of the Corporation.
Section 11. Statement of Account
A statement will be sent to each Participant each year as to the
value of such Participant's deferred compensation account as of
the end of the preceding year.
Section 12. Assignability
To the maximum extent permitted by applicable law, no right to
receive payments under the Plan shall be transferable or
assignable by a Participant or shall be subject to seizure or
attachment for the payment of the Participant's debts and at the
death of a Participant any remaining unpaid amount shall be paid
as provided in Section 8.
Section 13. Administration
This Plan will be administered by the Chief Financial Officer of
the Corporation who shall have the authority to adopt rules and
regulations for carrying out the Plan and to interpret, construct
and implement the provisions of the Plan. All expenses of
administering the Plan shall be borne by the Corporation.
Section 14. Amendment
This Plan may at any time or from time to time be amended,
modified or terminated by the Board of Directors of the
Corporation without prior notice to the Participants.
Termination of the Plan can be at the Corporation's option,
either a discontinuance of all future deferrals or total
discontinuance of the Plan and a pay out to Participants the
balance in their deferred compensation account as of the
termination date. No amendment or modification shall, without
the consent of the Participant, adversely affect or decrease any
deferred compensation then in the Participant's deferred
compensation account at the date of amendment or modification.
Section 15. Incapacity of Participant or Beneficiary
If the Chief Financial Officer determines that a Participant or
beneficiary is unable to care for his affairs and a legal
representative has not been appointed for such person, the Chief
Financial Officer of the Corporation may in his sole and absolute
discretion (i) suspend payment to such Participant or beneficiary
until such a legal representative has been appointed or (ii)
direct that any benefits payable hereunder shall be paid to a
spouse, child, parent, or other blood relative of such person, or
to any other person or entity, so long as such payment is
permitted under applicable law and discharges completely all
liability of the Corporation under the Plan.
Section 16. Validity
In the event any provision of this Plan is held invalid, void or
unenforceable, the same shall not affect, in any respect
whatsoever, the validity of any other provision of this Plan.
Section 17. Governing Law
This Plan shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York without regard
to principles of conflicts of law.
