United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 23, 1996.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From to
Commission file number 0-21504
QUAD SYSTEMS CORPORATION
DELAWARE 23-2180139
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TWO ELECTRONIC DRIVE, HORSHAM, PA 19044
----------------------------------------
(Address of principal executive offices)
(215) 657-6202
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No | |
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
As of August 6, 1996, 4,240,848 shares of the registrant's Common Stock, $.03
par value, were outstanding.
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at June 23, 1996 (Unaudited)
and September 24, 1995........................................3
Condensed Consolidated Statements of Income (Unaudited) for the
three- and nine-month periods ended June 23, 1996
and June 25, 1995............................................4
Condensed Consolidated Statements of Cash Flows (Unaudited) for the
nine-month periods ended June 23, 1996
and June 25, 1995............................................5
Notes to Condensed Consolidated Financial Statements.................6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K...............................11
SIGNATURES..............................................................12
<PAGE>
QUAD SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
ASSETS
Jun. 23, Sept.24,
1996 1995
------- -------
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents ............................ $ 2,088 $ 1,454
Accounts receivable, net ............................. 16,055 17,330
Inventories .......................................... 15,411 12,950
Deferred income taxes ................................ 2,213 2,230
Other ................................................ 950 610
------- -------
Total current assets ....................... 36,717 34,574
Equipment and leasehold improvements
at cost, less accumulated depreciation of $4,386
at June 23, 1996 and $3,661 at September 24, 1995 .... 2,671 2,181
Deferred income taxes ...................................... 716 730
Goodwill, net .............................................. 3,157 3,537
Other assets ............................................... 150 153
------- -------
$43,411 $41,175
======= =======
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $ 4,904 $ 5,146
Accrued expenses ................................. 1,797 1,730
Accrued warranty and product installation costs .. 1,372 1,133
Accrued commissions .............................. 1,052 1,142
Employee compensation and related taxes .......... 1,391 1,118
Securities litigation settlement payable ......... 1,353 --
Customer deposits ................................ 1,060 487
Current portion of long-term debt ................ 700 700
Deferred service revenue ......................... 433 277
Income taxes payable ............................. 259 612
-------- --------
Total current liabilities .............. 14,321 12,345
Long-term debt, less current portion ................... 1,925 2,450
Common stockholders' equity:
Common Stock, par value $.03 per share;
authorized shares: 15,000,000;
shares issued: 4,254,423 at June 23, 1996
and 4,210,858 at September 24, 1995 ......... 127 126
Additional paid-in-capital ....................... 23,700 23,435
Retained earnings ................................ 3,672 2,966
Foreign currency translation ..................... (158) 29
Less treasury stock, at cost, 13,908 shares
at June 23, 1996 and September 24, 1995 .... (176) (176)
-------- --------
Total common stockholders' equity ...... 27,165 26,380
-------- --------
$ 43,411 $ 41,175
======== ========
<PAGE>
<TABLE>
QUAD SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three-Month Period Ended Nine-Month Period Ended
----------------------- -----------------------
Jun. 23, Jun. 25, Jun. 23, Jun. 25,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales ......................... $ 18,382 $ 16,734 $ 51,100 $ 45,465
Cost of products sold ............. 11,054 10,450 31,412 28,374
---------- ---------- ---------- ----------
Gross profit ............ 7,328 6,284 19,688 17,091
Operating expenses:
Engineering, research and
development ............. 1,565 1,430 4,508 3,413
Selling and marketing ........ 3,102 2,921 8,766 7,650
Administrative and general ... 1,365 1,082 3,811 2,917
---------- ---------- ---------- ----------
6,032 5,433 17,085 13,980
---------- ---------- ---------- ----------
Income from operations ............ 1,296 851 2,603 3,111
Interest expense, net ............ 24 49 177 70
Settlement of securities litigation 1,137 40 1,287 40
---------- ---------- ---------- ----------
Income before income taxes ........ 135 762 1,139 3,001
Income tax expense ................ 51 198 433 780
---------- ---------- ---------- ----------
Net income ........................ $ 84 $ 564 $ 706 $ 2,221
========== ========== ========== ==========
Net income per share .............. $ 0.02 $ 0.13 $ 0.16 $ 0.51
========== ========== ========== ==========
Weighted average common and
common equivalent shares ..... 4,327,578 4,334,345 4,309,619 4,316,749
========== ========== ========== ==========
</TABLE>
<PAGE>
QUAD SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine-Month Period Ended
------------------
Jun.23, Jun.25,
1996 1995
------- -------
Operating Activities
Net income ............................................ $ 706 $ 2,221
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ................... 1,017 775
Provision for losses on accounts receivable ..... (2) 159
Provision for deferred income taxes ............. 31 (488)
Stock option compensation ....................... 9 16
Changes in operating assets and liabilities, net:
Accounts receivable ....................... 1,229 (811)
Inventories ............................... (2,509) (2,083)
Prepaid expenses and other assets ......... (337) (151)
Accounts payable .......................... (242) 1,184
Accrued expenses and litigation settlement 1,569 (530)
Employee compensation and related taxes ... 273 (75)
Customer deposits ......................... 573 (26)
Deferred service revenue .................. 156 75
Income taxes payable ...................... (353) (57)
------- -------
Net cash provided by operating activities ............. 2,120 209
Investing Activities
Net purchases of equipment and leasehold improvements . (1,239) (974)
Purchase of SMTech Limited, net of cash acquired ...... -- (3,308)
------- -------
Net cash used by investing activities ................. (1,239) (4,282)
Financing Activities
Common Stock issued under employee benefit plans ...... 257 188
Proceeds from issuance of debt ........................ -- 3,500
Principal payments on long-term debt .................. (525) (175)
------- -------
Net cash provided (used) by financing activities ...... (268) 3,513
Effect of exchange rate changes on cash ............... 21 (33)
------- -------
Net increase (decrease) in cash and cash equivalents .. 634 (593)
Cash and cash equivalents at beginning of period ...... 1,454 2,592
------- -------
Cash and cash equivalents at end of period ............ $ 2,088 $ 1,999
======= =======
<PAGE>
QUAD SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 Basis of Presentation
The accompanying financial statements present the consolidated financial
position, results of operations and cash flows of Quad Systems Corporation and
its wholly-owned subsidiaries (the "Company") as of the dates and for the
periods indicated. All material intercompany accounts and transactions have been
eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. It is suggested that the Company's Annual Report on Form
10-K containing the Management's Discussion and Analysis of Financial Condition
and results of operations and the financial statements and notes thereto for the
fiscal year ended September 24, 1995 be read in conjunction with this current
document.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary to present fairly the consolidated financial
position as of June 23, 1996, the consolidated results of operations for the
three- and nine-month periods ended June 23, 1996 and June 25, 1995 and the
consolidated cash flows for the nine-month periods ended June 23, 1996 and June
25, 1995 have been made.
Note 2 Inventories
The components of inventory consist of the following (in thousands):
Jun.23, Sept.24,
1996 1995
------- -------
Raw materials ............................ $ 7,937 $ 7,404
Work in process .......................... 3,563 1,510
Finished products ........................ 3,911 4,036
------- -------
$15,411 $12,950
======= =======
Note 3 Supplemental Disclosures to Statements of Cash Flows
The following are supplemental disclosures to the statements of cash flows (in
thousands):
Jun.23, Jun.25,
1996 1995
------ ------
Schedule of noncash activity:
Common Stock issued in purchase of SMTech Limited ......... $-- $ 567
===== ======
Restricted common stock issued upon conversion
of notes- 83,333 shares ............................... $-- $ 500
===== ======
Cash paid during the year:
Interest paid ............................................. $ 247 89
===== ======
Income taxes paid ......................................... $ 646 $1,328
===== ======
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
Note 4 Litigation
The Company has reached an agreement and executed final settlement documents
with the plaintiffs in the securities litigation against the Company and certain
other defendants pending in the U.S. District Court for the Eastern District of
Pennsylvania. Under this agreement, the Company, together with its directors and
officers liability insurer, will pay a $2,450,000 settlement. The agreement is
subject to final court approval. Total cost (including legal fees) to the
Company, net of the amount to be paid by such insurer, will be $1.5 million, of
which $.2 million was expensed in fiscal year 1995. For the three- and
nine-month periods ended June 1996, the Company recorded a provision of
$1,137,000 ($.16 per share, net of tax) and $1,287,000 ($.19 per share, net of
tax), respectively.
The Company has been named a defendant in a patent infringement lawsuit filed in
Munich, Germany. The complaint alleges that the Company infringed on the
plaintiff's patents relating to pick and place assemblers. The Company has
responded with an action against the plaintiff in Munich, Germany seeking to
have such plaintiff's patents invalidated. The Company believes the lawsuit to
be without merit or that the Company has meritorious defenses and intends to
defend itself against the lawsuit vigorously.
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The following table sets forth certain financial data as a percentage of net
sales for the periods indicated:
Three-Month Period Nine-Month Period
Ended Ended
Jun.23, Jun.25, Jun.23, Jun.25,
1996 1995 1996 1995
------ ------ ------ ------
Net sales .......................... 100.0% 100.0% 100.0% 100.0%
Gross margin ....................... 39.9 37.6 38.5 37.6
Engineering, research and
development ........................ 8.5 8.5 8.8 7.5
Selling and marketing .............. 16.9 17.5 17.2 16.8
Administrative and general ......... 7.4 6.7 7.5 6.5
Income from operations ............. 7.1 4.8 5.1 6.8
Settlement of securities
litigation ......................... 6.2 0.2 2.5 0.1
Income before income taxes ......... 0.7 4.6 2.2 6.6
Net income ......................... 0.5 3.4 1.4 4.9
Net sales for the three- and nine-month periods ended June 1996 increased 9.8%
and 12.4% as compared to the same periods of the prior year. Sales of the "Q"
Series of products represented approximately 31.4% and 21.0% of net sales for
the three-month periods ended June 1996 and 1995, respectively, and 32.4% and
16.4% of net sales for the nine-month periods ended June 1996 and 1995,
respectively. Sales of the "C" Series of products represented approximately
33.0% and 42.1% of net sales for the three-month periods ended June 1996 and
1995, respectively, and 31.3% and 44.8% of net sales for the nine-month periods
ended June 1996 and 1995, respectively. The Company believes that sales of the
"C" Series declined due to increased sales of "Q" series products, combined with
an overall decrease in the Company's market share for such products as the
performance of competitors' products has improved. International sales
represented approximately 46.9% and 40.9% for the three- and nine-month periods
ended June 1996, respectively and approximately 45.1% and 36.0% for the three-
and nine-month periods ended June 1995, respectively.
Gross margins for the three-and nine-month periods ended June 1996 increased to
39.9% from 37.6% and to 38.5% from 37.6%, respectively, as compared to the same
periods of the prior year. The improvement in gross margins was due to higher
margins in the sale of peripherals and spare parts and in the printer and oven
product lines, offset somewhat by a decrease in gross margins of the "Q" Series
as a result of expanded sales to contract manufacturers which in turn has
resulted in lower average configured selling prices. The Company anticipates
that gross margins may decrease in the next fiscal quarter due to higher unit
costs associated with anticipated shipments of new products and pricing
pressures that could result from softening market conditions in the electronics
industry.
Engineering, research and development expenses increased $135,000 or 9.4% and
$1,095,000 or 32.1% for the three- and nine-month periods ended June 1996 over
the comparable periods of the prior year. Expenses as a percentage of sales in
the third quarter of fiscal 1996 remained constant at 8.5% as compared to the
same period of the prior year. The overall increase in engineering, research and
development expenses for the first nine months of fiscal 1996 reflects increased
spending to support product development activities related to an expanded "Q"
Series product line, the AVX 400 screen printer and the new "Profile" Series of
reflow ovens. Engineering, research and development expenses are expected to
decrease moderately in the three-month period ended September 1996.
Selling and marketing expenses increased $181,000 or 6.2% and $1,116,000 or
14.6% for the three- and nine-month periods ended June 1996 over the comparable
periods of the prior year. Expenses as a percentage of sales in the third
quarter of fiscal 1996 decreased to 16.9% from 17.5% as compared to the same
period of the prior year. This decrease is largely due to decreased customer
service costs related to supporting the "Q" Series during the product
transition. The increases in selling and marketing expenses for the nine-month
period ended June 1996 were primarily due to higher sales volume, higher
advertising and trade show costs, a change in the Company's sales management
structure and expenses incurred by the Company's subsidiary SMTech Ltd., which
was acquired in January 1995. Commission rates are expected to increase in the
next quarter as sales force personnel approach higher sales quota levels.
Administrative and general expenses increased $283,000 or 26.2% and $894,000 or
30.6% for the three- and nine-month periods ended June 1996 as compared to the
same periods last year. Administrative and general expenses reflect overall
expense increases associated with higher sales levels and increased expenses
incurred by SMTech. The Company anticipates a moderate increase in spending for
administrative and general expenses in the fourth quarter of fiscal 1996.
Income taxes of $51,000 and $433,000 amounted to an effective tax rate of 38.0%
for the three- and nine-month periods ended June 1996 as compared to an
effective tax rate of 26.0% in the same periods of the prior year. Income tax
expense differs from the amount that would result from applying the Federal
statutory tax rate to pretax income primarily due to the effect of state income
taxes. The effective tax rates in the prior periods reflect the benefit of
reductions in the valuation allowance associated with net operating loss and tax
credit carryforwards.
Backlog
As of June 23, 1996, the Company's backlog of orders, based on purchase orders
received and accepted by the Company, was $11.3 million compared to $8.4 million
as of September 24, 1995 and $11.7 million as of June 25, 1995. Included in the
June 25, 1995 backlog was approximately $1.7 million of orders from Samsung
Aerospace Industries Ltd. which was not expected to repeat. It has been the
Company's experience that purchasers of capital equipment have not issued
purchase orders calling for delivery of products over an extended period of time
and, therefore, backlog may not necessarily be indicative of future sales.
Settlement of Securities Litigation
The Company has reached an agreement and executed final settlement documents
with the plaintiffs in the securities litigation against the Company and certain
other defendants pending in the U.S. District Court for the Eastern District of
Pennsylvania. Under this agreement, the Company, together with its directors and
officers liability insurer, will pay an aggregate of $2,450,000 in settlement of
all claims. The agreement is subject to final court approval of the fairness of
the settlement terms. Total cost (including legal fees) to the Company, net of
the amount to be paid by such insurer, will be $1.5 million, of which $.2
million was expensed in fiscal year 1995. For the three- and nine-month periods
ended June 1996, the Company recorded a provision of $1,137,000 ($.16 per share,
net of tax) and $1,287,000 ($.19 per share, net of tax), respectively.
Liquidity and Capital Resources
The Company's working capital as of June 23, 1996 was approximately $22.4
million, including cash balances of $2.1 million. At September 24, 1995, the
Company had working capital of $22.2 million, including cash balances of $1.5
million. During the nine-month period ended June 1996, net cash provided by
operations amounted to $2.1 million, principally due to revenues generated as
part of net income, a decrease in accounts receivable and an increase in accrued
expenses including the accrual for the litigation settlement payable, partially
offset by an increase in inventories.
The Company has an unsecured revolving line of credit which permits borrowing up
to a maximum of $8,000,000 and bears interest at the bank's base rate of
interest or at LIBOR plus 1.40% when the outstanding balance is greater than
$1,000,000. The Company pays a fee on the unused portion of the line of credit.
This line of credit, which expires in February 1998, requires compliance with
various customary operating and reporting covenants and the maintenance of
certain financial ratios. As of June 23, 1996, there were no borrowings
outstanding under this line of credit.
Samsung Agreement
Near the end of the third fiscal quarter, the Company reached an agreement with
Samsung Aerospace Industries, Ltd. ("Samsung"). Under the terms of this
agreement, Samsung has been licensed to become the sole supplier of component
tape feeders, which are currently used on all of the Company's placement
systems. The contract covers a six year period and requires Quad to purchase a
minimum of 40,000 component tape feeders with the value of at least $6.8 million
during the first two years of the contract. The number of tape feeders to be
purchased during the remainder of the contract is to be negotiated. Samsung is
to pay to Quad a total of $300,000 representing a combination of licensing fees
and a reimbursement for expenses incurred in transferring technology to Samsung
for use in production of the component tape feeders.
Patent Infringement Lawsuit
The Company has been informed that The Zevatech Group ("Zevatech") has filed a
patent infringement lawsuit against the Company with the District Court of
Munich, Germany. The complaint alleges infringement of German patents of
Zevatech concerning pick and place assemblers made by the Company. The Company
has responded with an action against Zevatech in the District Court in Munich,
Germany, seeking to have such Zevatech patents invalidated. The Company believes
the Zevatech's lawsuit to be without merit or that the Company has meritorious
defenses and intends to defend itself against the lawsuit vigorously.
Forward Looking Statements
The discussions above includes certain forward looking statements regarding the
Company's expectations of future sales, gross margins, operating expenses,
product introductions and the settlement of securities litigation. As such,
actual results may vary materially from such expectations. Among the meaningful
factors that may affect realization of such expectations are variations in the
level of order bookings which can be affected by general economic conditions and
growth rates in the SMT circuit manufacturing industry, difficulties or delays
in development or improvement of software functionality and performance, the
timing of future software releases, product development delays, failure to
respond adequately either to changes in technology or to customer preferences,
risks of nonpayment of accounts receivable and inability to obtain court
approval of the securities litigation settlement.
<PAGE>
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
10.1Agreement dated June 20, 1996 between the Registrant and Samsung
Aerospace Industries, Ltd.
b. The Company did not file any reports on Form 8-K during the
three-month period ended June 23, 1996.
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUAD SYSTEMS CORPORATION
Date: August 6, 1996 By: \s\ Anthony R. Drury
------------------------------
Anthony R. Drury
Senior Vice President, Finance
and Chief Financial Officer
EXHIBIT 10.1
** THIS EXHIBIT HAS BEEN REDACTED AND IS THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST. REDACTED MATERIAL IS STARRED AND HAS BEEN FILED SEPARATELY WITH THE
SECURITIES AND EXHCHANGE COMMISSION.
AGREEMENT
OF
TECHNOLOGY LICENSE, MANUFACTURE AND SUPPLY
FOR
TAPE FEEDERS
This Agreement made and entered into on this 20th day of June 1996 by and
between SAMSUNG AEROSPACE INDUSTRIES, LTD., a corporation organized and existing
under the laws of the Republic of Korea, having its principal place of business
at 15th Fl., Samsung Life Insurance Bldg., 142-43 Samsung-Dong, Kangnam-Gu,
Seoul, Korea (hereinafter referred to as "SSA") and QUAD SYSTEMS CORPORATION, a
corporation organized and existing under the laws of the State of Delaware, USA,
having its principal place of business at Two Electronic Drive, Horsham, PA
19044, USA (hereinafter referred to as Quad).
WITNESSETH
WHEREAS, Quad manufactures, distributes and sells accessories and parts of chip
mounters, including, among others, tape feeders;
WHEREAS, SSA wishes to manufacture, distribute, repair, upgrade and sell tape
feeders using the technology, technical information, know-how and technical
assistance of Quad necessary for SSA to conduct such manufacturing, distribution
and sales;
WHEREAS, Quad is willing to provide SSA with the technology, technical
information, know-how and technical assistance necessary for the manufacture,
distribution, repair, upgrade and sale of tape feeders and to purchase tape
feeders manufactured by SSA using such technology, technical information,
know-how and technical assistance for resale.
NOW, THEREFORE, to effect the above purposes, and in consideration of the
covenants and premises set forth herein, SSA and Quad hereby agree as follows:
ARTICLE I. Definitions
The terms defined in this Article I shall, for all purposes of this Agreement,
have the meanings herein below specified:
1.1 "Acceptance Test" shall mean the test to be performed by SSA and
Quad based on the acceptance criteria attached hereto as Exhibit
"E", after the completion of the pre-production of the Products
using the Technical Information and technical assistance provided to
SSA hereunder. The Acceptance Test shall be deemed successfully
completed if and when both SSA and Quad sign a certificate of the
Acceptance Test upon the completion of the successful pre-production
of the Products meeting the acceptance criteria set forth in Exhibit
"E".
1.2 "Deliverables" shall mean all drawings for the "Products" as defined
in Article 1.6 below, Tooling and Fixtures, manuals, specifications,
diagrams, inspection procedures, list of jigs for assembly and
adjustment, list of measurement equipment and any other documents or
things to be delivered by Quad to SSA, which are listed in Exhibit
"C" attached hereto, and which are necessary for the manufacture,
distribution, repair, upgrade and sale of Products using the
Technical Information and pursuant to the terms of this Agreement.
1.3 "Effective Date" shall mean (i) the date of the execution of this
Agreement by both parties or (ii) the date on which all the required
governmental approvals of this Agreement, if any, are obtained,
whichever occurs later. If Korean governmental approval(s) is (are)
required, SSA hereto shall make efforts in order to obtain such
approval(s) prior to July 15th, 1996
1.4 "Machines" shall mean chip mounting systems of all models which are
sold or may be sold by either SSA or Quad.
1.5 "Price" shall mean the price of each Product to be paid by Quad to
SSA, which is listed in Exhibit "B" attached hereto.
1.6 "Products" shall mean the 8mm, 12mm, 16mm, 24mm, 32mm, and 44mm tape
feeders currently being manufactured by Quad on the date of this
Agreement and which are currently used in Quad's Machines, as more
fully described in Exhibit "A", which meet the Specifications and
represent Quad's current line of self-contained, motor driven, tape
feeder apparatuses with a multiple gear train (the "Existing
Technology") and all upgrades and improvements on such tape feeders,
but only to the extent such upgrades and improvements are based on
the Existing Technology.
1.7 "Purchase Order" shall have the meaning ascribed to it in Article
10.1 hereof.
1.8 "Quad's Customers" shall have the meaning ascribed to it in Article
17.1 hereof.
1.9 "SSA's Customers" shall have the meaning ascribed to it in Article
17.2 hereof.
1.10 "Supply Term" shall mean the six (6) year period commencing from the
successful completion of the Acceptance Test and any extension
thereof to be made by mutual agreement between SSA and Quad,
provided that SSA and Quad shall determine the minimum quantities
and prices of the Products for each succeeding two (2) year period
after the first two (2) year period of the Supply Term in accordance
with Articles 9.3 and 11.2 hereof.
1.11 "Technical Information" shall mean all the proprietary and
confidential, technical data and processes, know-how and
specifications which Quad provides to SSA pursuant to the terms of
this Agreement, but only such data, processes, know-how and
specifications that are included in and are based upon the Existing
Technology and which are used in the manufacture, repair, upgrading
and sales of the Products and the use of the Tooling and Fixtures
and the development and use of any upgrades and improvements on the
Products, but only to the extent such upgrades and improvements are
based on the Existing Technology.
1.12 "Tooling and Fixtures" shall have the meaning ascribed to it in
Article 18.1 hereof.
1.13 "Warranty Period" shall have the meaning ascribed to it in Article
15.2 hereof.
1.14 "Specifications" shall mean the specifications to produce the
Products, using the Technical Information, as such specifications
are attached, referred to and included in Exhibit "A".
ARTICLE II. License Grant
2.1 Quad hereby grants to SSA a perpetual, paid-up, exclusive (except as
to Quad) right and license, with no right to sub-license (except as
described in the last sentence of this Section 2.1), to manufacture
the Products, using the Technical Information, in any part of the
world; provided, however, that Quad retains the right to continue to
manufacture the Products, using the Technical Information, for its
own use or for resale in Quad's Machines or other products, to
Quad's Customers, at any time during the term of this Agreement, if
SSA fails to meet Quad's requirements of delivery, quantity and
quality. After completion of the Acceptance Test, Quad retains the
right to repair any of the Products on any of Quad's machines,
either for its own use (including the production, sale and
distribution of products other than the Products) or to provide
service to Quad's Customers. SSA's rights under this Article 2.1
shall include the right to sub-license the piece part subassembly of
Products to subcontractors, subsidiaries and affiliates of SSA, and
the right to sub-license final assembly or testing of the Products,
provided SSA submits a prior written notification to Quad. Quad's
retained rights to use, make and sell the Products under this
Article 2.1 shall not affect Quad's minimum purchase requirements
for Products under Article IX.
2.2 Quad hereby grants to SSA a perpetual, paid-up, exclusive right and
license, with no right to sub-license (except as described in the
last sentence of this Article 2.2), to distribute and sell the
Products using the Technical Information, to SSA's Customers. SSA's
rights under this Section 2.2 shall include the right to make such
distribution and sales of the Products through SSA's distributors
and sales agents.
2.3 Upon a termination of the Supply Term pursuant to the terms of
Article XXI, SSA's rights and licenses granted under this Article II
shall automatically convert into a perpetual, paid-up, non-exclusive
right and license, with no right to sub-license (except as described
in the last sentences of each of Articles 2.1 and 2.2), to
manufacture, distribute and sell the Products using the Technical
Information in any part of the world and Quad shall thereupon retain
a similar non-exclusive right.
ARTICLE III. Transfer of Deliverables
Quad shall deliver Deliverables listed in Exhibit "C" attached hereto to SSA in
accordance with the delivery schedule set forth in Exhibit "C".
ARTICLE IV. Technical Assistance; Training
4.1 SSA shall be entitled to dispatch its personnel to Quad to receive
training at Quad's facilities from time to time which includes
training during the mass-production period. The training and
assistance under this Article 4.1 shall include, but shall not be
limited to, training on the use of the Technical Information,
Deliverables, and quality control. The stay period, number, content
of training and other details of the dispatch of SSA's personnel
shall be determined by mutual agreement between SSA and Quad prior
to each dispatch. Quad shall not charge any fee to SSA for such
training conducted at Quad's facilities. The air fares and living
expenses of SSA's personnel during their stay in the USA shall be
borne by SSA.
4.2 Upon SSA's request, Quad shall dispatch a reasonable number of its
personnel to SSA to train SSA's personnel at SSA's facilities in
Korea. The number of Quad's personnel to be dispatched to SSA, their
stay period, details of their training and any other content of the
dispatch shall be determined by mutual agreement between SSA and
Quad prior to each dispatch. However, the number of Quad personnel
to be dispatched to SSA shall not at any time exceed three (3) and
this shall mean four (4) weeks x three (3) people = 12 manweeks. The
training by Quad personnel under this Article 4.2 shall be free of
charge up to a total of four (4) weeks. The number of Quad's
personnel to be dispatched to SSA in order to provide the above
mentioned free training shall be determined by mutual agreement
between SSA and Quad. For the training hereunder beyond the
above-mentioned four (4) weeks, SSA shall pay fifty United States
dollars (US$50) per hour as a labor charge. For Quad's personnel who
are dispatched to Korea under this Article 4.2, SSA shall bear their
round trip air-fares and expenses for lodging and meals during their
stay in Korea.
4.3 Quad shall support SSA in SSA's efforts to upgrade the current tape
feeders for CP-30. Such support of Quad shall consist of technical
reviews and recommendations and Quad's assignment of at least one
(1) engineer to the development and upgrading of tape feeders for
CP-30. Such engineer shall devote at least one-half of his/her time
to the development and upgrading of tape feeders for CP-30 for SSA.
Quad's support under this Article 4.3 shall last for one (1) year,
and thereafter SSA shall be responsible for the development and
upgrading of tape feeders for CP-30. Improvements created jointly by
SSA and Quad become the intellectual property of Quad, and of SSA,
and improvements made solely by each party shall become the
intellectual property of that party, and are automatically licensed
to the other party. Both SSA and Quad shall promptly notify each
other of any such improvements and shall provide amendments to the
documentation and Deliverables for the Products, as applicable, to
reflect such improvements.
ARTICLE V. License Fee
5.1 In consideration of the license and the rights granted, Deliverables
to be delivered and technical assistance provided herein, SSA shall
pay Quad a license fee of three hundred thousand United States
dollars (US$300,000.) (the "License Fee"). The License Fee shall be
paid in three (3) installments as follows:
(a) **
(b) **
(c) **
5.2 All taxes and any similar charges which may be imposed by the Korean
Government with respect to payments to be made under this Article V
shall be borne by Quad. If SSA is required to withhold tax from the
payment made under this Article V under the pertinent law, SSA shall
withhold such amount from the payments to be made to Quad, pay it to
the pertinent tax authorities on behalf of Quad and deduct the sum
from the payment to be made to Quad. SSA shall provide the evidence
of the payment of such tax to Quad so that Quad may receive credit
under the pertinent law of the USA. SSA shall provide all
cooperation to Quad in reducing Quad's tax liability hereunder to
the maximum extent permissible under the relevant laws of the US and
Korea.
ARTICLE VI. Indemnification
6.1 In the event that SSA receives notice, or is informed, of any claim,
suit or demand by a third party against SSA alleging SSA's
infringement upon any intellectual property rights of the third
party, relating to the use of the Technical Information, SSA shall
promptly notify Quad of any such claim, suit, or demand. Thereupon,
Quad shall promptly take such action as may be necessary to protect
and defend SSA against any such claim, suit, or demand by any third
party and shall indemnify SSA against any loss, cost or expense
incurred in connection therewith.
6.2 SSA shall indemnify Quad from any and all claims, suits, demands and
liabilities against Quad which might arise out of SSA's manufacture
of the Products and which is not caused by any defect in the
Technical Information or Deliverables provided to SSA or furnished
to SSA by Quad hereunder. Quad shall promptly notify SSA of any such
claim, suit, demand or liability and thereupon, SSA shall promptly
take such action as may be necessary to protect and defend Quad
against any such claim, suit, demand or liability and shall
indemnify Quad against any loss, cost or expense incurred by Quad in
connection therewith.
6.3 SSA, its agents and employees waive any said claims against Quad.
6.4 SSA shall indemnify Quad for any losses arising from alleged
infringement of any third party intellectual property rights by the
use of any SSA components included in the Products by SSA in its
manufacturing techniques. Quad, its agents and employees waive any
such claims against SSA.
ARTICLE VII. Representation and Warranty
7.1 Quad hereby represents and warrants that the Technical Information
and Deliverables are sufficient for the manufacture of the Products
with the quality being the same as or better than that of tape
feeders which are currently manufactured by Quad as of the date of
this Agreement.
7.2 EXCEPT AS PROVIDED IN ARTICLE 7.1 ABOVE, QUAD HEREBY EXCLUDES ANY
OTHER WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE PRODUCTS OR
THE TECHNICAL INFORMATION, INCLUDING, WITHOUT LIMITATION ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7.3 Any information disclosed by one party to the other party hereunder
or disclosed by one party to the other party prior to the Effective
Date of this Agreement, which is proprietary or confidential to the
disclosing party, including, but not limited to the Technical
Information, shall be so marked or otherwise designated
conspicuously as confidential. (Such confidential information shall
be referred to hereinafter as "Confidential Information").
7.4 Each party shall use any Confidential Information disclosed or
provided to the other party, whether orally, in writing, by
demonstration, in models or otherwise, only as permitted under this
Agreement and shall maintain such Confidential Information in
confidence and not disclose or divulge such Confidential Information
to any third party, or to any of its own personnel not having a need
to know, without the written permission of the disclosing party;
provided that the receiving party shall not be obligated to maintain
in confidence that information which:
(a) can be demonstrated by reasonably documented proof to have
been in the possession of the receiving party prior to receipt
thereof from the disclosing party or to have been developed in
the course of work entirely independent of any disclosure made
hereunder or the subject matter of this Agreement;
(b) is or becomes a part of the public domain other than through
breach of this Agreement or through the fault of the
disclosing party;
(c) is necessarily disclosed in any Products sold or shipped by
any party hereto;
(d) is or becomes available to the receiving party from a source
other than the disclosing party which source has no obligation
to the disclosing party in respect thereof;
(e) is made available by the disclosing party in written form
to a third party on an unrestricted basis;
(f) is transmitted to the receiving party after the disclosing
party has received written notice from the receiving party
that it does not desire to receive any further confidential
information from the disclosing party; or
(g) is disclosed pursuant to court order or pursuant to an order
or agreement of secrecy as part of an arbitration proceedings
between the parties.
7.5 Each party shall insure that suitable undertakings of secrecy are
imposed, with respect to such information provided to it by the
other party, upon its present employees, as well as upon its future
employees, both for the period of their employment and for a period
of time thereafter, sufficient to satisfy the confidentiality
obligations set forth in this Article VII.
7.6 The obligations under this Article VII shall survive any termination
or expiration of this Agreement for a period of five years, except
as they apply to Confidential Information covered by any patent
obtained pursuant to Section 8.2, in which case the obligations
under Article VII will continue for the life of the patent related
thereto.
7.7 Upon termination of this Agreement each party, at the request of the
other, within 30 days after notice of such request, at the
requesting party's option, return or destroy all materials, copies
and extracts that contain any Confidential Information.
ARTICLE VIII Improvements
8.1 The license and rights granted hereby by Quad to SSA with respect to
improvements and upgrades on the Products shall extend only to
improvements and upgrades on the current Products that use the
Technical Information. Quad shall promptly notify SSA of any such
improvements on the Products that use the Technical Information and
shall make such improvements available to SSA for use for the
manufacture of the Products without charge.
8.2 SSA and Quad shall apply for patents in their joint names for the
inventions and technology relating to such improvements in the
Products which are jointly developed and/or improved by Quad and
SSA, unless either party notifies the other of its intention to
waive its right to the joint ownership prior to filing of the
pertinent patent application in any country. Each party may apply
for patents for the inventions and technology relating to the
Products developed and/or improved by each party in each party's
name.
ARTICLE IX. Supply of the Products to Quad by SSA; Minimum Purchase
Requirement
9.1 During the Supply Term, Quad shall purchase and SSA shall sell the
Products manufactured by SSA in accordance with the Specifications
provided by Quad hereunder at the specified prices.
9.2 Quad shall purchase a minimum of forty thousand (40,000) units of
the Products during the first two (2) years of the Supply Term.
However, if Quad fails to purchase the said forty thousand (40,000)
units of the Products during the said two (2) year period of the
Supply Term, Quad shall be allowed to make up the deficient number
within the following nine (9) month period. In such case, the third
year of the Supply Term shall begin on the day on which the last
shipment of the said forty thousand (40,000) units is made by SSA to
Quad.
9.3 After eighteen (18) months from the beginning of the Supply Term and
after eighteen (18) months from the beginning of the third year of
the Supply Term, SSA and Quad shall determine the minimum quantity
to be purchased by Quad for the relevant next two (2) year period.
SSA and Quad shall negotiate in good faith to determine such
quantity; however, such determination shall be made based upon the
then current needs of Quad and the parties acknowledge and agree
that such amount may be any amount of units substantially greater or
less than 40,000 notwithstanding the 40,000 unit commitment for the
first two years of the Supply Term. However, in case the minimum
quantity to be purchased by Quad for the relevant next two (2) year
period is less than 40,000, the price of the Products in Exhibit B
will be re-determined by negotiations.
9.4 In the event that Quad fails to meet the minimum purchase
requirement in the first thirty three (33) months of the Supply
Term, Quad shall pay SSA ** per one unit of the difference between
the minimum purchase requirement (i.e. 40,000 units) and the number
of the units purchased by Quad during the said thirty three (33)
months by telegraphic transfer to a bank account to be designated by
SSA within two (2) weeks after the expiration of the said thirty
three (33) month period. For any succeeding two (2) year period, the
compensation for the difference between the relevant minimum
purchase requirement and the purchased quantity shall be based on
the applicable price of the Product of 8mm.
9.5 The calculation of the units purchased by Quad for the purpose of
determining whether or not the minimum purchase requirement is met
for any two (2) year period shall be based on the shipment date
stated in the relevant bill of lading, and in the case of a direct
delivery from the inventory at Quad's facilities under Article 16.3
hereof, the calculation shall be based on the shipment date stated
in the acceptance notice of the relevant Purchase Order sent by SSA
to Quad pursuant to Article 10.2 hereof.
ARTICLE X. Rolling Forecast; Purchase Orders
10.1 Quad shall, on a quarterly basis during the Supply Term, provide SSA
with a rolling forecast for four (4) quarters. Within one (1) week
after the completion of the Acceptance Test, Quad shall issue a firm
Purchase Order for the first quarter and, simultaneously, provide a
forecast for the second, third and fourth quarters to SSA.
Thereafter, by no later than six (6) weeks prior to the end of each
quarter, Quad shall issue a firm Purchase Order for the next quarter
(the "Purchase Order") and, simultaneously, provide a forecast for
the fourth (4th) quarter from that quarter to SSA. The Purchase
Order shall state the quantity, the description, the desired
shipping dates (with intervals of approximately six (6) weeks) and
any particular shipping instructions.
10.2 SSA shall confirm acceptance of the Purchase Order within ten (10)
business days after the date of receipt of the Purchase Order.
10.3 The shipment by SSA pursuant to any Purchase Order by Quad shall be
expressly conditioned on the terms and conditions contained herein
and the terms and conditions provided in the relevant Purchase Order
accepted by SSA. In the case of inconsistency between this Agreement
and the Purchase Order, this Agreement shall prevail over the
Purchase Order.
ARTICLE XI. Price and Payment
11.1 The price of each Product purchased during the first two (2) year
period of the Supply Term shall be set forth in Exhibit "B" attached
hereto (the "Price"). The Price shall include the price of reel arms
for each Product and shall be based on CIF Philadelphia port, USA
according to INCOTERMS 1990.
11.2 After eighteen (18) months from the beginning of the Supply Term,
SSA and Quad shall determine by mutual agreement the price of each
product to be purchased for the third and the fourth years of the
Supply Term, taking into account a yearly labor cost increase;
provided that the price of each Product shall be increased by no
more than six percent (6%) for the third year and by no more than
nine percent (9%) for the fourth year, of the price for the first
two (2) year period. After eighteen (18) months from the beginning
of the third year of the Supply Term, SSA and Quad shall determine
by mutual agreement the price of each Product to be purchased for
the fifth and sixth year of the Supply Term, taking into account a
yearly labor cost increase. The price of the Products for the fifth
and sixth (5th) & (6th) year shall increase by no more than 16% of
the price of the first two year period; provided, that by mutual
agreement between Quad and SSA, such increase may be greater.
11.3 Quad shall pay the Price to SSA by telegraphic transfer at least two
(2) weeks prior to the relevant shipping date.
ARTICLE XII. Shipment: Inspection
12.1 Under normal conditions, SSA shall ship by sea from any Korean port
in twenty foot (20ft) containers. However, in case of an urgent
request by Quad for shipment not covered by the relevant forecast,
SSA may ship such products by air, but the cost exceeding that of
the normal shipping by sea shall be borne by Quad. The minimum
shipment quantity of each twenty foot (20ft) container is set forth
in Exhibit "F" attached hereto.
12.2 Quad shall conduct an inspection of the Products upon their arrival
at Quad's premises and notify the result thereof to SSA within two
(2) weeks of their arrival at Quad's premises.
ARTICLE XIII. Quality; Identification System
13.1 The Products to be supplied to Quad hereunder shall be manufactured
by SSA in accordance with the production methods, techniques,
formulae, specifications, directions, samples, patterns, drawings
and standards to be provided by Quad as part of the Technical
Information.
13.2 SSA shall maintain proper quality control procedures during the
manufacturing, packaging and shipping processes in connection with
this Agreement.
13.3 SSA shall select the identification system to be used for the
Products, which shall contain, among others, serial number, date of
production and rework history. The Products supplied by SSA to Quad
hereunder shall carry indelible identification.
ARTICLE XIV. (article intentionally deleted, as subject is covered by
CIF provision)
ARTICLE XV. Warranties of the Products: Service after the Warranty Period
15.1 SSA warrants that the Products will conform to their relevant
Specifications provided by Quad to SSA and will be free of defect in
material and workmanship at the time of shipment.
15.2 Quad shall inform or notify SSA upon the discovery of any defects
with evidence of such defects. Upon being informed of a defect in
any Product (a "Defective Product"), SSA shall authorize Quad to
replace the Defective Product with a new one from the inventory kept
by Quad under Article 16.1 hereof and/or send a new Product to
replace the Defective Product to Quad, free of charge, provided that
the notice of defect is given by Quad to SSA within fifteen (15)
months from the date of the relevant shipment ("Warranty Period").
Quad shall have the option to purchase from SSA any Defective
Products for which replacements have been supplied by SSA at a price
equivalent to fifty percent (50%) or lower of the regular price to
Quad. Any such purchase by Quad of any such Defective Product shall
be counted toward the minimum purchase requirement of Article IX.
15.3 Notwithstanding any provisions of this Agreement to the contrary,
Quad shall not be liable for any defect in the Products arising out
of a defect in the Technical Information or Specification of any
Product provided by Quad to SSA after the successful completion of
the Acceptance Test. Upon mutual agreement by Quad and SSA regarding
a list of exceptions, Quad may agree to be liable for such
exceptions after the successful completion of the Acceptance Test.
SSA shall not be liable for any defect in the Products arising out
of mishandling or carelessness of the Products by carriers, Quad or
operators/users.
15.4 SSA HEREBY EXCLUDES ALL WARRANTIES NOT HEREIN STATED, WHETHER
EXPRESS OR IMPLIED BY OPERATION OF LAW, COURSE OF DEALING, TRADE
USAGE, REPRESENTATION, STATEMENT OR OTHERWISE, INCLUDING BUT NOT
LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE. SSA SHALL NOT BE LIABLE TO QUAD OR ANYONE FOR
ANY INCIDENTAL OR CONSEQUENTIAL LOSS, DAMAGE OR EXPENSE, DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATED TO THE USE OF ANY PRODUCT.
ARTICLE XVI. Inventory at Quad as Consignment
16.1 SSA shall stock the Products at approximately five percent (5%) of
the annual minimum purchase (e.g. approximately 1,000 units for the
first year) at Quad's facilities as consignments. The inventory will
be exchanged approximately every six (6) weeks with newly
manufactured Products to keep the stock in good condition.
16.2 SSA's obligation to stock the inventory at Quad's facilities under
Article 16.1 above shall expire, by mutual agreement between SSA and
Quad, nine (9) months after the commencement of mass-production of
the Products, provided that the defect rate for the said nine (9)
month period was five percent (5%) or less and that the shipments
during the said nine (9) month period were made in accordance with
the shipment schedule (with the allowance of seven (7) days grace
period.) Thereafter Quad shall be obligated to keep a sufficient
number of the Products as inventory at its own account. Quad may
also maintain an inventory of Products, separate from that supplied
by SSA, using Quad's retained manufacturing rights under Article
2.1.
16.3 With the prior written authorization from SSA, Quad may use the
Products from the inventory at Quad's facilities supplied by SSA
only to replace Defective Products and to fill the Purchase Orders
that have been accepted by SSA, but which SSA has failed to ship
timely. By the tenth (10th) day of each month, Quad shall pay SSA
the price of the Products used from the inventory, excluding the
Products used for warranty replacement. Quad may also maintain, use
and sell to Quad's Customers from, an inventory of Products,
separate from that supplied by SSA, using Quad's retained
manufacturing rights under Article 2.1.
ARTICLE XVII. Sales Restriction
17.1 During the Supply Term, Quad shall resell the Products purchased
from SSA hereunder as well as the tape feeders manufactured by Quad
using its rights under Article II, only to Quad's customers ("Quad's
Customers") that have or will acquire the Machines from Quad or
Quad's agents.
17.2 During the Supply Term, SSA shall sell the Products manufactured by
SSA only to Quad and to SSA's customers ("SSA's Customers") that
have or will acquire Machines from SSA or SSA's agents.
17.3 Neither Quad nor SSA is obligated to identify Quad's Customers and
SSA's Customers to the other. If an existing customer of the other
approaches Quad or SSA, each party agrees to refer such customer to
Quad or SSA as appropriate.
ARTICLE XVIII. Tooling and Fixtures
18.1 SSA will purchase tooling and fixtures that are required for the
manufacture of the Products ("Tooling and Fixtures") and Quad will
assist with advice and review in the purchase of Tooling and
Fixtures. SSA may use Quad's vendors and/or vendors of SSA's choice,
as SSA may elect. Quad will provide assistance to SSA for SSA to
ensure itself of the quality of the Tooling and Fixtures. Quad will
assist SSA in its efforts to obtain the technical know-how for SSA
to use the Tooling and the Fixtures correctly. The parties expect
that SSA will make required Tooling in Korea, with Quad assisting
SSA regarding piece parts obtained from the Tooling created in Korea
and inspection of the first Product production. The parties also
expect that SSA will purchase Fixtures from Quad, on a purchase
order and on terms and conditions separate from this Agreement,
which will provide SSA with Quad's specifications and
representations regarding the Fixtures.
18.2 SSA will receive at no charge, all Quad's tooling for the
manufacture of tape feeder reel arms.
ARTICLE XIX. Exclusive Supplier; Parts Inventory
19.1 During the Supply Term, subject to the terms and conditions of this
Agreement, SSA shall be the sole and exclusive supplier of the
Products to Quad, subject to Quad's retained manufacturing rights
under Article II.
19.2 If the defect rate of the Products supplied by SSA to Quad for the
first one (1) year period of the Supply Term is ** or less, within
six months after such first one (1) year period of the Supply Term,
Quad shall stop manufacturing the Products by Quad itself and shall
purchase all of Quad's requirements of the Products from SSA during
the remaining period of the Supply Term and any additional period
extended by mutual agreement of SSA and Quad. If SSA breaches its
obligations under this Agreement, or if an event of Force Majeure
comes into effect, Quad is entitled to resume the manufacture of the
Products.
19.3 When Quad stops manufacturing the Products, SSA shall then purchase
the remaining parts inventory of the Products from Quad. The prices
of these parts shall be the actual cost as listed in Quad's
accounting records. Such parts shall be those that are used for the
current Products using the Technical Information and those that meet
the Specifications. Quad shall provide to SSA the exact description
and quality of the parts that will be purchased by SSA from Quad and
Quad shall periodically provide SSA, at SSA's request, information
regarding the amounts, types and Quad's cost of such inventory at
the times of such requests.
19.4 Quad shall provide reasonable support to SSA so that SSA may begin
the manufacture and supply of all of Quad's requirements (subject to
Quad's retained rights under Article II) in the earliest possible
time.
ARTICLE XX. Supply of Parts and Consumables
SSA shall manufacture and supply parts and consumables of the Products to Quad
at SSA's manufacturing costs plus fifteen percent (15%) thereof. The supply
Parts and Consumables to be supplied by SSA to Quad hereunder shall be listed in
Exhibit "G" attached hereto.
ARTICLE XXI. Termination of the Supply Term
21.1 Either party may terminate the Supply Term earlier than its natural
expiration date upon the delivery of written notice of termination
to the other party if any of the following events occurs:
(a) Subject to Article 21.2 below, if the other party fails to
fulfill any of its obligations under this Agreement and does
not cure the breach within thirty (30) days after receiving a
notice of default from the other party, or
(b) If any action involving bankruptcy, rights of creditors, or
insolvency is brought against the other party; if the other
party makes an assignment for the benefit of its creditors; or
if a court-appointed person is designated to operate the other
party.
21.2 Either party may immediately terminate this Agreement if the other
party violates the confidentiality provisions of Article 7.
21.3 Upon any termination of the Supply Term the provisions of Article
2.3 shall apply.
ARTICLE XXII. Assignment
Without the prior written consent of the other party, neither party may assign
this Agreement, any part thereof or interest therein to a third party.
ARTICLE XXIII. Force Majeure
Neither party shall be liable for damages or otherwise to the other for any
delay or default in performance under this Agreement where such delay or default
is due to any cause beyond its control, including, but not limited to, wars,
riots, fires, floods, public calamities, transportation difficulties or any act
or omission of any governmental authority.
ARTICLE XXIV. Arbitration
In the event of any controversy arising out of or relating to this Agreement,
the parties shall use their best efforts to resolve the controversy. In the
event that the parties are unable to arrive at a resolution, such controversy
shall be determined by arbitration held in the City of San Francisco,
California, USA, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association or any organization that is the successor
thereto (the "AAA") using arbitrators knowledgeable with respect to the Products
and who will follow substantive rules of law. The Commercial Arbitration Rules
shall be supplemented by the AAA's Supplementary Procedures for International
Commercial Arbitration. The dispute shall be determined by an arbitrator
acceptable to the parties who shall be selected within fifteen (15) days of
filing notice of intention to arbitrate. Otherwise, the dispute shall be
determined by a panel of three arbitrators selected as follows: Within fifteen
(15) days of filing notice of intention to arbitrate, the party filing the
notice, within fifteen (15) days thereafter, shall name an arbitrator. The other
party, within fifteen (15) days thereafter, shall name an arbitrator. Within
fifteen (15) days thereafter, the two arbitrators so named will then name a
third arbitrator to preside over the panel. If either party fails to appoint an
arbitrator within fifteen (15) days, either party may request the AAA to appoint
the necessary arbitrator(s) pursuant to Rule 13 of the Commercial Arbitration
Rules and Rule 1 of the Supplementary Procedures for International Commercial
Arbitration regarding appointment of a neutral arbitrator who is a national of a
country other than the United States or Korea. No arbitrators may be affiliated
or employed by either party and the arbitrator(s) shall have full authority,
including authority to grant specific performance, injunctive or other equitable
relief to maintain the status quo in aid of the arbitration in any court of
competent jurisdiction. Arbitrators shall be compensated for their services at
the standard hourly rate charged in their private professional activities. All
testimony shall be transcribed. The prevailing party in any such situation will
be entitled to recover from the other party all of its expenses, including,
without limitation, all expenses due and payable to the AAA and such party's
fees and expenses for witnesses, the arbitrators and its attorney's fees
incurred in the conduct of such arbitration but in no event will the recovery of
its attorney's fees be in excess of the actual cost of the other party's
attorney's fees. The award of the panel shall be accompanied by findings of fact
and a statement of reasons for the decision. All parties agree to be bound by
the results of this arbitration and such arbitration decision shall constitute
an "award" by the arbitrators within the meaning of the AAA rules and applicable
law; judgment upon the award so rendered may be entered and enforced in any
court of competent jurisdiction. The arbitration shall be conducted in the
English language. Relevant documents in other languages shall be translated into
English if the arbitrators so direct. In arriving at their award, the
arbitrators shall make every effort to find a solution to the dispute in the
provisions of the Agreement and shall give full effect to all parts thereof.
However, if a solution cannot be found in the provisions of the Agreement, the
arbitrators shall be governed by Article XXV. To the extent reasonably
practicable, both parties agree to continue performing their respective
obligations under this Agreement while the dispute is being resolved.
ARTICLE XXV. Governing Law
The validity, performance and all matters relating to the interpretation and
effect of this Agreement and any amendment thereof shall be governed by and
shall be construed in accordance with the local, domestic law of the
Commonwealth of Pennsylvania, USA, including its provisions of the Uniform
Commercial Code, with the intention that the rules of the United Nations
Convention on International Sales of Goods shall not apply and without the
application of any conflict of laws principles.
ARTICLE XXVI. Entire Agreement
This Agreement contains the entire agreement and understanding between the
parties hereto concerning the subject matter hereof and supersedes all prior
negotiations, understandings and agreements on the subject matter hereof.
ARTICLE XXVII. Severability
If any provision of this Agreement or any document executed in connection
herewith shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired.
ARTICLE XXVIII. Notices
28.1 Any and all notices and communications in connection with this
Agreement shall be written in the English language and shall be sent
by (i) personal delivery, (ii) registered airmail, postage pre-paid
or (iii) facsimile (with a confirmation being followed) to the
parties at the following addresses:
TO SSA: TO Quad:
15th Fl., Samsung Life Insurance Bldg. 2 Electronic Drive
142-43 Samsung-Dong, Kangnam-Gu Horsham, PA 19044 USA
Seoul, Korea Tel: 215-657-6202
Tel: 02-528-8313 Fax: 215-657-4107
Fax: 02-528-6909
28.2 Any notice shall be deemed to have been given on the date of receipt
if sent by personal delivery, on the tenth (10th) day after posting
if sent by registered airmail, and on the date of transmission if
sent by Fax. Any party may change its address for the purposes
hereof by written notice to the other party.
ARTICLE XXIX. Amendment
No provision of this Agreement may be amended, modified, waived or rescinded,
except by a written agreement executed mutually by the parties hereof.
ARTICLE XXX. Language
This Agreement, all notices delivered hereunder and all documents to be
delivered in connection with this transaction shall be in the English language,
and in the event of any conflict between the English language version and
aversion of any other language of this Agreement, such notices or documents, the
English language version shall prevail.
ARTICLE XXIX. No Waiver
Failure by either party at any time to require the other party's performance of
any obligation under this Agreement shall not affect the right to subsequently
require performance of that obligation. Any waiver for any breach of any
provision of this Agreement shall not be construed as a waiver for any
continuing or succeeding breach of such provision or as a waiver for, or
modification of, the provision.
ARTICLE XXXI. Subject Headings
The subject headings of the Articles of this Agreement are included for the
purposes of convenience only and shall not affect the construction or
interpretation of any of its provisions.
- # -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives on the date first written above.
SAMSUNG AEROSPACE INDUSTRIES LTD. QUAD SYSTEMS CORPORATION
By: /s/ Young-Hong Bae By: /s/ David W. Smith
---------------------------------- ---------------------------
Name: Young-Hong Bae Name: David W. Smith
Title: Director Title: President & CEO
Micro-Electronics System Div.
Exhibit A
Product Definition and Specifications
The Products are Electronic Tape Feeders designated as 8mm, 12mm, 16mm, 24mm,
32mm, and 44mm. Products conform to Quad Tapefeeder Product Specifications Part
Number 07-22647. Rev C. Each product includes its appropriate size reel arm. A
Product may have a one-piece design that has a built-in reel arm.
<PAGE>
Exhibit B
Prices of Tape Feeders
Feeder prices to be paid by Quad are all CIF to receipt at a Philadelphia, PA,
USA port. Feeder prices include an appropriate reel arm for each feeder.
8mm 12mm 16mm 24mm 32mm 44mm
** ** ** ** ** **
These prices shall hold for at least two years, beginning with the start of
production quantity deliveries to Quad. The prices may be adjusted in
consideration of labor cost changes after two years, as specified in Article
11.2.
<PAGE>
Exhibit C
Deliverables
Deliverables are described in section 1.2 of Article I (Definitions) as below
listed:
1. BOM list
a. Parts list
b. Buy cards
c. Catalogs
2. Drawings (8-44mm)
3. Assembly procedures
a. 8/12mm 10-21755
b. 16/24mm 10-21756
c. 32/44mm 10-21757
4. Q C check list
a. 8/12mm QA-2006
b. 16/24mm QA-2007
c. 32/44mm QA-2008
5. Design Verification procedures
a. QA-22700 rev A
b. QA-22862 rev B
c. QA-22707 rev B
d. QA-22775 rev B
6. Production fixture list and documents
7. Delivery schedule
To be delivered to SSA no later than one month from the effective date.
<PAGE>
Exhibit D
(intentionally deleted)
<PAGE>
Exhibit E
Acceptance Test, Definition and Criteria
A complete set of documents has been delivered to and accepted by SSA. These
documents describe the Acceptance Test and the Criteria. They are:
Doc. No. QA-22893 Rev. No. A dated 8 Feb 96 3 pages.
Tapefeeder Product Specification p/n 07-22647 rev C 8 sheets
<PAGE>
Exhibit F
Minimum Shipment Quantities
SSA states that the 20ft container to be used for sea shipments of the Product
will contain:
20 sets x 16 boxes x 8 wooden crates of 8mm and 12mm tape feeders. =
2500 (2560) units
12 sets x 16 boxes x 3 wooden crates of 16mm and 24mm tape feeders =
500 (576) units
8 sets x 16 boxes x 1 wooden crate of 32mm and 44mm tape feeders =
100 (128) units
<PAGE>
Exhibit G
Supply Parts and Consumables
The complete list of Tape Feeder Spare and Repair Parts has been provided by
Quad to SSA and received by SSA on 19 Dec 1995. Prices will be determined 30
days after the end of the Acceptance Test.
- -------------------------------------------------------------------
PART NUMBER DESCRIPTION PRICE
- -------------------------------------------------------------------
** **
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<NAME> Quad Systems Corporation
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