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 [FEE REQUIRED]
For the fiscal year ended September 29, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________________ to ___________________
Commission file number 0-21504
QUAD SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-2180139
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(State or other jurisdiction of (I. R. S. Employer Identification Number)
incorporation or organization)
Two Electronic Drive, Horsham, Pennsylvania 19044
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 657-6202
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.03 par value
(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of December 18, 1996, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $38,683,107.*
As of December 18, 1996, 4,257,654 shares of common stock, $.03 par value, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
- ----------
* Calculated by excluding all shares that may be deemed to be beneficially owned
by executive officers and directors of the Registrant, without conceding that
all such persons are "affiliates" of the Registrant for purposes of the federal
securities laws.
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PART I
ITEM 1. BUSINESS
General
Quad Systems Corporation (the "Company" or "Quad") designs, manufactures,
markets and supports surface mount technology ("SMT") equipment used in the
manufacture of printed circuit boards, primarily in low to medium volume
production environments. The Company's assembly equipment facilitates and
controls the handling and positioning of printed circuit boards and the
precision placement of a broad range of electronic components. In conjunction
with the Company's assembly equipment, the Company also offers component
feeders, machine vision systems, and other peripherals. In addition, the Company
sells turnkey systems incorporating the major elements of a complete surface
mount production line: namely, a screen printer, an assembly system, a reflow
oven and material handling conveyors. The Company designs and manufactures its
own assembly systems, reflow ovens and screen printers and supplies material
handling conveyors purchased from third party sources. From time to time, the
Company examines the products it manufactures and those produced by third
parties to determine whether the mix of products to be offered by the Company
and those to be purchased from third party sources should be changed.
In SMT, printed circuit boards are prepared by screen-printing small quantities
of solder paste on the numerous contact pads at the termination of each printed
circuit board trace. Components are added to the printed circuit board by an
assembly system that picks a component and precisely places it on trace
terminations that have been so prepared with solder paste. Leads from each
component, of which there may be as few as two or as many as several hundred,
must be aligned with the contact pad to assure proper electrical connection.
After the components are placed, the entire printed circuit board is heated to a
temperature just above the melting point of the solder in the solder paste. The
resulting reflow of the solder provides a permanent physical and electrical bond
between each lead of each component and the pads and traces of the printed
circuit board.
Products and Services
The Company offers a line of SMT process equipment and related services for the
electronics manufacturing market. The products offered by the Company are sold
as part of a turnkey system marketed by the Company under the "QuadLine" name or
are sold separately and integrated with products offered by third parties into
an SMT production line. Most of the Company's currently marketed SMT equipment
is compatible with the Company's software and component handling subsystems and
the Company attempts to provide suitable upgrade paths for its products.
Primary Surface Mount Assembly Equipment
<TABLE>
<CAPTION>
Product Capabilities Market Focus Introduced
- ------------------- -------------------------------------------- ------------------- ------------
<S> <C> <C> <C>
Quad QSP-2 Limited range of fine pitch capability Medium to 1994
(part of the "Q" "QuadAlign" component centering high volume market
Series) Placement rates of up to 14,000 components per
hour ("cph")
Quad QSX-1 Full range of fine pitch capability Medium volume 1996
(part of the "Q" Expandable to ultra-fine pitch capability market and high
Series) High accuracy placement accuracy segment of
"QuadAlign" component centering the high volume
Placement rates of up to 7,000 cph market
<PAGE>
Quad IVcMk2 (part of Full range of fine pitch capability Low to medium 1994
the "C" Series) High accuracy placement volume market
"QuadAlign" component centering
Placement rates of up to 3,600 cph per head
Quad IIc Limited range of fine pitch capability Low to medium 1994
(part of the "C" "QuadAlign" component centering volume market
Series) Placement rates of up to 3,600 cph
Entry level system
</TABLE>
"Q" Series of Products
Quad QSP-2
The QSP-2 is a high speed assembler with a limited range of fine pitch
capabilities. The QSP-2 is the first Quad production assembler to utilize
"QuadAlign", a component processing alignment system. QuadAlign allows the
assembler to process fine pitch components "on-the-fly." The QSP-2's ability to
place a large range of components provides flexibility in production line
balancing, allowing easier optimization of production. All standard Quad
component feeder systems and accessories are compatible with the QSP-2 and can
be used in combination with the Company's docking feeder carts. The Quad QSP-2
is designed for applications with placement rates, depending upon customer
applications, of up to 14,000 components per hour, while placing components
ranging in size from very small passive components to large non-fine pitch
components. Approximately 34% of the Company's fiscal 1996 net sales were
attributable to sales of the "Q" Series including accessories.
Quad QSX-1
The Quad QSX-1 is a high-speed fine pitch component assembler, capable of
placing ultra-fine pitch components. This precision system combines an advanced
mechanical platform, direct linear drive motor system, coupled with an
easy-to-use Windows(TM) based graphical user interface. Advanced features of the
Quad QSX-1 include adaptive process control and QuadAlign. The Company began
full production and shipments of the QSX-1 during the fourth fiscal quarter of
1996.
"C" Series of Products
Quad IVcMk2
The Quad IVcMk2 is a high-accuracy assembler, providing a full range of fine
pitch capability, which incorporates QuadAlign. The Quad IVcMk2 is a modular
assembly system that can be configured with a wide variety of accessories,
designed to meet the specific processing requirements of Quad's customers. The
Company believes that this modular design is also attractive to many SMT
customers, who prefer an initial high capability system that can be upgraded as
their production requirements change. The Quad IVcMk2 replaced the Quad IVc and
the Quad IIIc (which were formerly part of the "C" Series). Approximately 30% of
the Company's fiscal 1996 net sales were attributable to sales of the current
"C" Series and its predecessors, including accessories.
The Quad IVcMk2 is designed to be configured as a single unit, with placement
rates of up to 3,600 components per hour, or as a multiple headed system
(usually with up to three heads), with placement rates increasing up to 9,600
components per hour, depending upon customer applications. The Company markets
its two-headed and three-headed systems under the names Quad IVcMk2/136 and Quad
IVcMk2/204, respectively. The Quad IVcMk2 is compatible with all accessories
offered by the Company, including vision systems, software and a variety of
feeders. The Company believes that the Quad IVcMk2 provides advantages from the
standpoint of accuracy of its component positioning system and its superior
vision system, as well as its ease and speed of programming, setup and
changeover.
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Quad IIc
The Quad IIc is an entry level system, providing a limited range of fine pitch
capability. The Quad IIc is based on the original Quad IVc and uses QuadAlign.
The Quad IIc includes a belt-driven system for positioning of the X and Y axes,
while it maintains the precision advantage of linear glass scale encoders for
positional accuracy.
The Quad IIc is a modular, mid-range assembly system, which can be configured
with a wide variety of accessories designed to meet the specific processing
requirements of Quad's customers. Components placed by the Quad IIc range from
very small passive components, to multi-leaded, fine pitch component parts with
lead spacing down to 15 mil. All of the Company's standard accessories and
QuadVu vision systems are available as options for the Quad IIc. The Quad IIc
offers large board capacity that may be configured in a standard workholder, an
in-line board transport or a side shuttle configuration.
Reflow Ovens
Profile Series of Ovens
During fiscal 1996, the Company introduced a new series of high performance
"Profile" reflow ovens, which features what the Company believes is an advanced
airflow and thermal dynamics technology. Quad Profile Ovens feature cutting-edge
QuadThermTM heating modules, designed to generate highly accurate thermal
profiles. A carefully balanced airflow velocity and volume uniformity are used
to maintain a repeatable and stable process. The resulting thermal stability
allows for the high speed reflow of advanced multi-layer printed circuit boards
that incorporate ball grid arrays, multi-chip-modules and fine pitch technology.
The Profile Series production rates match up to the current highest pick and
place placement rates, equating to a 60% increase in thermal transfer rates over
conventional forced air reflow ovens. Each oven in the Profile Series offers a
modular, expandable design intended to respond to customers' continually
changing production needs. Plug-in heating modules can be configured and
re-configured to accommodate up to 14 independently controlled heating zones
within an oven enclosure. The oven's flexibility is further increased through
each heating module's built-in exhaust capability. Ease of operation is further
enhanced by the adoption of a light pen operator interface.
ZCR Ovens
The Company also sells convection dominant reflow ovens manufactured by its
wholly-owned subsidiary Quad Europe Limited ("QEL"). These reflow ovens
incorporate forced hot air, convection heat, utilizing recirculated hot air.
Oven features include a passive pre-heat section and an integrated thermal
profiling system. Based on a modular frame design, Quad's high mass, forced hot
air, convection reflow ovens are available in three models.
All Quad reflow ovens feature high mass heating modules, automatic start up with
zonal power up, closed loop conveyor speed control, four channel PCB thermal
profiling, automatic data logging, pneumatic powered hood lift, powered exhaust
system, signal light tower, computer system with easy-to-use graphic display
operating software, Multi level password protection, computer controlled rail
width adjustment for edge rail and combination belt/rail oven configurations.
Additional process enhancing options such as battery backup power supply, top
side cooling module, off load annunciator and UV curing module are available.
Screen Printers
The Company also sells screen printers manufactured by SMTech Limited
("SMTech"), a subsidiary of Quad, acquired in 1995 and located in Dorchester,
England. These screen printers offer high precision, repeatable application of
solder paste onto printed circuit boards. The Company offers screen printers in
a range of products, starting with a basic, benchtop screen printer for use in
small contract manufacturing. Quad also offers semi-automatic screen printers
that have motorized conveyer rails, programmable stencil cleaners, and
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other options. In fiscal 1996, Quad introduced a new in-line screen printer, the
AVX 400TM, which utilizes vision robotic roving cameras, under-screen cleaners,
automatic paste dispensers and a Windows(TM) control system.
Material Handling Conveyors
Quad sells material handling conveyors manufactured by third parties. Such
conveyors include circuit board loaders and unloaders, manual inspection
stations and other conveyor systems. Conveyor systems automate the material
transfer steps throughout the SMT assembly processing system.
QuadLine
The Company provides its customers with the major elements of turnkey SMT
production lines, under the name "QuadLine," a service that integrates its full
line of assembly equipment. The Company believes that offering the major
elements of a turnkey production line system complements the Company's primary
business of selling surface mount assemblers. The Company also believes that
QuadLine enhances the Company's overall market position by providing customers a
sole source of responsibility and service for, and increased compatibility
among, the equipment in customers' assembly production lines. During fiscal
1996, sales of such systems accounted for approximately 30% of net sales.
Peripherals and Service
Component Feeders and Adhesive Dispensers
The Company manufactures a variety of tape, vibratory and waffle tray feeders.
The Company's electronic tape feeders are available in 8mm, 12mm, 16mm, 24mm,
32mm, 44mm and 56mm formats and are compatible with all Quad assemblers. In
addition, the Company offers a docking feeder cart that can be loaded with tape
feeders off-line and rolled into place at the assembler when ready to use. This
feature can greatly reduce the time involved in changing over the assembler from
one printed circuit board to another.
The Company's waffle tray handler can present up to twenty different waffle
trays to the assembler and is compatible with the Quad QSP-2, QSX-1, the Quad
IVcMk2 and its predecessors and the Quad IIc. The Company's vibratory feeders
are compatible with all of its assembly systems.
The Company also markets adhesive dispensers for the Quad IVcMk2. These
dispensers enable components to be held in place prior to soldering.
QuadCare
QuadCare is the Company's integrated service and support program, offering
complete coverage for preventive and unscheduled maintenance, including parts
and labor, software and firmware upgrades, telephone consultations, application
engineering support and periodic retraining. The provision of software and
firmware upgrades under QuadCare permits existing customers to benefit from the
Company's development activities both to improve the operation of the assembler
and to provide support for additional peripheral equipment and modular
enhancements.
Manufacturing
The Company's principal manufacturing activities consist of sub-assembly, final
assembly and testing of the Company's products in Horsham, Pennsylvania, of
reflow ovens in High Wycombe, England and of screen printers in Dorchester,
England. Virtually all of the Company's printed circuit board and machine parts
and some of the Company's sub-assemblies are manufactured by third parties.
Logistical and sourcing assistance, technical training for testing and debugging
and quality and assurance coordination is provided to the Company's
subcontractors on an ongoing basis to ensure quality and low cost production.
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The Company believes it is advantageous to use multiple sources for printed
circuit boards, fabricated parts and other essential components and generally
attempts to maintain more than one qualified vendor for the manufacture of each
fabricated part used in production of the Company's products. Certain parts,
however, currently are available from or have been subcontracted out to only one
source. The Company purchases components from suppliers pursuant to standard
purchase orders. Should the Company experience interruptions in any of these
supplies, or increases in costs of essential components, production delays or
cost increases could result, which might have a materially adverse effect on the
Company's business. On occasion, the Company has experienced delays due to
supply shortages, but such delays have not had a material adverse effect on the
Company.
The Company provides its customers with a one year warranty on parts and labor
on all products.
Sales and Marketing
The Company markets its products and services through a combination of a direct
sales force, regional sales managers and manufacturers' representatives in the
United States. At the end of fiscal 1996, the Company employed 33 people in
sales and marketing, including 9 in direct sales and 13 manufacturers'
representatives in the United States. In addition to the sales and service
personnel located at the Company's headquarters in Horsham, Pennsylvania, the
Company has sales or service personnel at 25 other locations in the United
States.
Outside of the United States, the Company has a direct sales force in the United
Kingdom and has sales representative arrangements with firms located in Brazil,
Korea, Singapore (also covering Malaysia and Thailand), Hong Kong, China,
Philippines, Australia and New Zealand, Israel and in several Western European
countries. In connection with the SMTech acquisition, the Company also entered
into a five-year consulting agreement with Mr. Dominique Henry, under which Mr.
Henry advises the Company about prospective customers for the Company's
products, principally in countries that comprised the former USSR or former
member countries of the Warsaw Pact, which agreement expires in 1999.
Sales to customers outside of the United States represented approximately 43%,
39% and 33% of net sales in fiscal 1996, 1995 and 1994, respectively. The
acquisition of QEL in fiscal 1993 enhanced the Company's presence in Europe,
since QEL's manufacturing facilities are in England. The Company further
expanded its activities in Europe with the acquisition of SMTech in 1995. The
Company continues to increase its international selling efforts. During fiscal
1996, the Company penetrated the Japanese market with sales of the AVX 400
screen printer. For financial information on the Company's foreign operations,
see Note 8 of Notes to Consolidated Financial Statements, incorporated herein.
Backlog
At the end of fiscal 1996, the Company's backlog of orders, based on purchase
orders received and accepted, was $12.5 million, as compared to $8.4 million at
the end of fiscal 1995. Backlog includes $5.8 million and $3.2 million of "Q"
Series and "C" Series orders, respectively, at the end of fiscal 1996 and $3.3
million and $1.6 million of "Q" Series and "C" Series orders, respectively, at
the end of fiscal 1995. The remainder of backlog consists of other products. The
Company expects to ship all backlog orders outstanding at the end of fiscal 1996
during fiscal 1997. 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 and since 1993, the Company has experienced a
decrease in the lead times requested by customers. Therefore, backlog may not
necessarily be indicative of future sales.
Engineering, Research and Development
The Company's product development activities focus on improving system features,
including accuracy, reliability and flexibility, while increasing placement
rates and yield. These efforts include improvement of
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manufacturing techniques and enhancement and development of software used in the
Company's products. In addition, the Company seeks to develop process systems
that support advances in component packaging and device design technologies.
These efforts produced QuadAlign, a component processing alignment system used
in many of the Company's products; new products such as the QSV-1 assembler (a
"Q" series product, which will begin shipping during fiscal 1997); enhanced
software functionality in "Q" series products and third party product
integration software. These efforts may include obtaining additional research
and development support from third parties.
Engineering, research and development is currently conducted at the Company's
headquarters in Horsham, Pennsylvania, at QEL's headquarters in High Wycombe,
England and SMTech's headquarters in Dorchester, England. Engineering, research
and development expenses for fiscal 1996, 1995 and 1994 were approximately $6.2
million, $4.8 million and $4.3 million, respectively. This represented
approximately 8.6%, 7.7% and 8.5% of net sales, for fiscal 1996, 1995 and 1994,
respectively.
Competition
The markets in which the Company competes are characterized by intense
competition, rapid technological and product changes, changing market
requirements and significant expenditures for product and market development.
The Company has a number of present and potential competitors in its markets,
many of whom have more diverse product lines and greater financial, marketing
and other resources than the Company. The Company's major domestic competitors
are Amistar Corp., BTU International, Inc., Conceptronic, Inc., Contact Systems,
Inc., Heller Industries, MPM Corporation, Universal Instruments, Inc. and
Vitronics Corp. The Company's principal foreign competitors are DeK Printing
Machines, Inc., Fuji Heavy Machinery Company; Mydata Automation, Inc.; Panasonic
Factory Automation Division of Matsushita Electric Corporation of America;
Phillips SMD Technology, Inc.; Siemens Factory Automation Inc.; and Zevatech,
Inc.
The Company believes that the principal competitive factors in the segments of
the surface mount assembly market in which it competes are price, performance,
accuracy, flexibility, reliability, enabling technology, throughput and the
ability to meet demand in a timely manner. The Company believes that it
addresses these issues through its emphasis on quality control and investments
in product development and production capacity.
Patents and Licenses
The Company holds two United States patents and expects to apply for additional
patents for protection of technology under development by the Company, although
there can be no assurance that any such patents will be issued or will be
sufficient to protect the Company's competitive position. One patent, which
expires in 2008, covers the Company's component centering system utilized on the
Quad IIIc and the Quad 1000. The other patent, which was granted in 1996, covers
the Company's non-contact component alignment subsystems, such as that used in
most of the "C" Series and all of the "Q" Series products. Although the current
patents and any other patents that may be obtained are considered valuable
intellectual property, the Company believes that they are not determinative of
any success the Company enjoys, which the Company believes depends principally
upon engineering, marketing, service and manufacturing skills.
The Company enters into technology licensing arrangements with others when it
believes it is appropriate to do so. In June 1996, the Company reached an
agreement with Samsung Aerospace Industries, Ltd. ("Samsung"). Under the terms
of this agreement, the Company granted an exclusive license (subject to certain
exceptions as to the Company) to Samsung for Samsung to become the Company's
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 a value of at
least $6.8 million during the first two years of the contract. The number of
tape feeders to be purchased during
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the remainder of the contract term is to be negotiated. Samsung is required 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. The Company expects Samsung
to begin to supply component tape feeders to the Company during fiscal 1997.
The Company believes that much of its important technology resides in its
proprietary software and trade secrets. Insofar as the Company relies on trade
secrets and unpatented knowledge to maintain its competitive position, there is
no assurance that others may not independently develop similar technologies. In
addition, although the Company executes non-disclosure agreements with its
employees, selected vendors and others, there can be no assurance that secrecy
obligations will not be breached. Any loss of such know-how or breach of such
agreements could have a material adverse effect on the Company.
The Company owns a registered trademark for the name "Quad" in both the United
States and Canada.
Employees
At the end of fiscal 1996, the Company employed 402 persons on a full-time
basis. None of the Company's employees are represented by a labor union, and the
Company has experienced no labor actions, although the Company has laid off
personnel from time to time. Management considers its relations with its
employees to be good.
ITEM 2. PROPERTIES
The Company maintains its headquarters and principal manufacturing facility in a
leased 40,000 square foot facility in Horsham, Pennsylvania. In August 1996, the
Company entered into a ten-year lease for a 106,000 square foot facility located
near its current headquarters. The move, which is expected to be completed in
January 1997, will provide the Company increased capacity to allow for continued
growth and the opportunity for increased efficiencies in its manufacturing
operations. The facility is leased for a term ending November 2006, and the
monthly rental for the space is approximately $65,000 plus taxes, insurance and
maintenance costs, as opposed to approximately $22,000 per month for the
Company's current location. The Company also leases an additional 20,000 square
foot facility in Horsham for the service and training departments and assembly
of component delivery systems. This lease expires in December 1996 and will not
be renewed, as the functions will be consolidated at the Company's new
facilities.
QEL occupies a 9,600 square foot facility in High Wycombe, England, for a term
of 25 years with a current monthly rental of approximately $7,000 (at current
exchange rates), plus taxes, insurance, maintenance and utilities. SMTech
occupies a 19,000 square foot facility in Dorchester, England, for a term of 15
years with a current monthly rental of approximately $6,000 (at current exchange
rates), plus taxes, insurance, maintenance and utilities. The Company believes
that its existing facilities are adequate to meet its current needs.
ITEM 3. LEGAL PROCEEDINGS
In March 1995, a shareholder of the Company filed a complaint in the United
States District Court for the Eastern District of Pennsylvania (the "Action")
against the Company, two of its executive officers and two of its directors (one
of which was also sued as an executive officer) alleging that, during the period
December 23, 1994 through March 7, 1995, the defendants knowingly or recklessly
misrepresented or omitted material information about the Company, its prospects
and earnings, and knowingly or recklessly misrepresented or omitted information
about the status and operation of certain software used in the Company's
products in violation of Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934, as amended, and common law. During fiscal 1996, the Company, to avoid
the uncertainties of litigation and without admitting any wrongdoing with
respect to any of the claims alleged in the Action, entered into a settlement
agreement and related documents, which has received court approval. Under this
agreement, the Company, together with its directors and officers liability
insurer, paid an aggregate of $2,450,000 in settlement of all claims. Total cost
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(including legal fees) to the Company, net of the amount paid by such insurer,
was $1,467,000. During fiscal 1996 and 1995, the Company recorded a total of
$1,287,000 and $180,000 of expenses, respectively, relating to the settlement of
this litigation.
In July 1996, the Company was named a defendant in a patent infringement lawsuit
filed by The Zevatech Group in Munich, Germany. The complaint alleges that the
Company infringed on the plaintiff's German patents relating to pick and place
assemblers. Management 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 vigorously defend itself against the
lawsuit. Accordingly, no provision for this lawsuit was recorded during fiscal
1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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EXECUTIVE OFFICERS, OTHER OFFICERS AND DIRECTORS
The executive officers, other officers and directors of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David W. Smith 54 President, Chief Executive Officer and Director
Joseph L. Gasper 49 Senior Vice President, Operations
Anthony R. Drury 54 Senior Vice President, Finance and Chief Financial Officer
Ian H. Henderson 40 Senior Vice President, European Operations
George M. Berkin 76 Vice President, Technology and Contracts
Stanley R. Luboda, Jr. 41 Vice President, Sales and Strategic Planning
Elmer A. O'Brien, Jr. 45 Vice President, Manufacturing
Craig C. Ramsey 43 Vice President, Product Assurance and Marketing
Steven R. Solometo 41 Vice President, Engineering
James R. Bergman 54 Director
Vahram V. Erdekian 48 Director
Robert P. Pinkas 43 Director
Lorin J. Randall 53 Director
David H. Young 49 Director
</TABLE>
Directors hold office until the next annual meeting of the stockholders, or
until their successors are duly elected and qualified. Officers are elected by
and serve at the pleasure of the Board of Directors.
Mr. Smith has been President and Chief Executive Officer of the Company since
May 1992. From February 1992 until May 1992, he was President and Chief
Operating Officer of the Company, and from August 1991 until February 1992 he
was Vice President, Engineering and Chief Operating Officer of the Company. He
has been a member of the Board of Directors of the Company since October 1992.
Mr. Gasper has been Senior Vice President, Operations of the Company since
October 1992. From October 1987 until October 1992, he was Vice President,
Operations of the Company.
Mr. Drury has been Senior Vice President, Finance of the Company since December
1993. From January 1990 until December 1993, he was Vice President, Finance of
the Company. Mr. Drury has also been Chief Financial Officer of the Company
since January 1990.
Mr. Henderson was named the Company's Senior Vice President, European Operations
in November 1996. Prior to November 1996, he was the Managing Director of Quad
Europe Limited, a subsidiary of the Company.
Mr. Berkin was named Vice President, Technology and Contracts of the Company in
July 1996. From November 1993 until July 1996, he was the Senior Staff
Consultant to the President of the Company. Prior to November 1993, Mr. Berkin
was the Vision System Consultant with the Company.
Mr. Luboda has been the Vice President, Sales and Strategic Planning since March
1996. From March 1994 until March 1996, he was the Director, Sales of MPM
Corporation ("MPM"), a leading manufacturer of screen printers used in the SMT
industry and a competitor of the Company. From March 1992 until March 1994, Mr.
Luboda was MPM's Western Regional Sales Manager. Prior to March 1992, Mr. Luboda
was Product Manager of Zevatech, Inc., a leading manufacturer of SMT assemblers
and a competitor of the Company.
Mr. O'Brien has been Vice President, Manufacturing since October 1996. From June
1996 until October 1996, he was Vice President, Materials and Technical Support.
From April 1995 until June 1996, Mr. O'Brien was Vice President, Manufacturing
Services and Support. From August 1994 until April 1995, he was the Company's
Vice President, Materials. From July 1993 until August 1994, Mr. O'Brien was
Vice President,
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Production of the Company. From July 1992 until July 1993, he served as the
Company's Director of Manufacturing. Prior to July 1992, he was the Company's
Manufacturing Manager.
Mr. Ramsey has been Vice President, Product Assurance and Marketing since
January 1996. From November 1994 until January 1996, he was the Company's Vice
President, Product Assurance. From July 1993 until November 1994, he was the
Company's Vice President, Engineering. Prior to July 1993, he was the Company's
Director of Engineering.
Mr. Solometo has been Vice President, Engineering since September 1995. From
April 1995 until September 1995, he was the Company's Acting Vice President,
Engineering. From November 1994 until April 1995, Mr. Solometo was an
Engineering Manager of the Company. From January 1993 until November 1994, he
was a Staff Software Engineer of the Company. From January 1991 until January
1993, Mr. Solometo was a Staff Software Engineer for Kulicke & Soffa Industries,
Inc. ("K&S"). Prior to January 1991, he was a Senior Software Engineer for K&S.
Mr. Bergman has served on the Board of Directors of the Company since 1982. He
has been a general partner responsible for venture capital investments of DSV
Partners III and DSV Partners IV, venture capital firms, for more than five
years. Since August 1996, Mr. Bergman has been a limited partner of Brantley
Venture Management, Ltd. Since December 1996, he has also been the Vice
President of Brantley Capital Corporation. Mr. Bergman is also a director of
Maxim Integrated Products, Inc.
Mr. Erdekian has served on the Board of Directors of the Company since July
1996. Since October 1994, he has been Vice President, Manufacturing Product
Operations of Bay Networks, a leader in the computer network industry. From
September 1993 until October 1994, Mr. Erdekian was the Vice President,
Manufacturing Operations of Wellfleet Communications, which merged with
Synoptics Corporation to from Bay Networks in August 1994. Prior to September
1993, he was an operations consultant to private and public corporations.
Mr. Pinkas has served on the Board of Directors of the Company since 1982. Mr.
Pinkas has been a general partner of Brantley Venture Partners, a venture
capital firm, for more than five years. Since August 1996, Mr. Pinkas has been a
general partner of Brantley Venture Management, Ltd. Mr. Pinkas is also a
director of Gliatech, Inc. and Pediatric Services of America, Inc. Since
December 1996, Mr. Pinkas has also been the Chairman of the Board, Chief
Executive Officer, Chief Financial Officer, Treasurer and Director of Brantley
Capital Corporation. Mr. Pinkas was the Company's Treasurer from March 1982
until October 1987.
Mr. Randall has served on the Board of Directors of the Company since January
1988. Since January 1995, he has been the Vice President, Finance and Chief
Financial Officer of CFM Technologies, Inc. From May 1994 until June 1995, Mr.
Randall was the President and Chief Executive Officer of Greenwich
Pharmaceuticals Incorporated ("GPI") (now known as Boston Life Sciences, Inc.).
From September 1991 until May 1994, he was the Chief Financial Officer and Vice
President of GPI. Mr. Randall was the Company's President and Chief Executive
Officer from August 1988 until January 1990 and was the Company's Vice
President, Operations and Chief Financial Officer from May 1985 until July 1988.
Mr. Young is the founder of the Company and has served on the Company's Board of
Directors since its inception. Mr. Young has been the President of Two
Technologies, Inc., a company which manufactures hand-held computers, for more
than five years. Mr. Young served as the Company's President from its inception
until October 1985.
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Price Range of Common Stock
The Company's Common Stock trades on The Nasdaq Stock Market under the symbol
"QSYS". The quarterly range of high and low sales prices for fiscal 1996 and
1995 are set forth below.
Fiscal 1996 High Low
- ----------- ---- ---
First Quarter $ 9.75 $ 6.50
Second Quarter $ 8.00 $ 5.88
Third Quarter $ 9.88 $ 6.38
Fourth Quarter $10.00 $ 7.00
Fiscal 1995
First Quarter $14.50 $10.00
Second Quarter $14.13 $ 7.38
Third Quarter $11.25 $ 7.50
Fourth Quarter $11.00 $ 8.50
Number of Holders of Common Stock
At December 18, 1996, there were approximately 123 stockholders of record of the
Company's Common Stock. Based on information obtained from the Company's
transfer agent, the Company believes that the number of beneficial owners of its
Common Stock is approximately 2,200.
Dividends
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain earnings for use in its business and, therefore,
does not anticipate paying cash dividends on its Common Stock in the foreseeable
future.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended September 30, (1)
----------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- --------- --------- ---------
Statement of Operations Data: (In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Net sales $ 71,591 $ 62,591 $ 50,776 $ 34,773 $ 20,029
Cost of products sold 43,912 39,537 29,721 19,964 12,915
-------- -------- -------- -------- --------
Gross profit 27,679 23,054 21,055 14,809 7,114
Operating expenses:
Engineering, research and development 6,153 4,844 4,300 2,966 2,034
Selling and marketing 12,076 10,276 8,313 5,947 3,038
Administrative and general 5,561 3,997 3,026 2,182 821
-------- -------- -------- -------- --------
Total operating expenses 23,790 19,117 15,639 11,095 5,893
-------- -------- -------- -------- --------
Income from operations 3,889 3,937 5,416 3,714 1,221
Interest (income) expense, net 195 124 (103) 22 48
Settlement of securities litigation 1,287 180 -- -- --
-------- -------- -------- -------- --------
Income before income taxes 2,407 3,633 5,519 3,692 1,173
Income tax expense (benefit) 915 945 1,336 (399) 167
-------- -------- -------- -------- --------
Net income $ 1,492 $ 2,688 $ 4,183 $ 4,091 $ 1,006
======== ======== ======== ======== ========
Net income per share (2) $ 0.35 $ 0.62 $ 0.98 $ 1.23 $ 0.46
======== ======== ======== ======== ========
Weighted average common and
common equivalent shares (2) 4,321 4,329 4,269 3,313 2,209
Balance Sheet Data:
Working capital $ 23,317 $ 22,229 $ 19,074 $ 15,035 $ 3,756
Total assets 43,823 41,175 29,919 23,969 9,159
Note payable and current portion of long-term debt 700 700 200 6 978
Long-term debt 1,750 2,450 300 502 502
Redeemable preferred stock -- -- -- -- 13,606
Common stockholders' equity (deficit) 28,091 26,380 22,171 17,647 (9,505)
</TABLE>
- ----------
(1) For ease of presentation, the Company has indicated its fiscal year as
ending on September 30; whereas, in fact, the Company reports on a 52-53
week fiscal year ending on the last Sunday in September. Fiscal 1996,
which ended on September 29, 1996, included 53 weeks and fiscal 1995
through 1992 which ended on September 24, 1995, September 25, 1994,
September 26, 1993 and September 27, 1992, respectively, each included 52
weeks.
(2) Net income per share and weighted average common and common equivalent
shares were calculated assuming that the Preferred Stock and accrued
dividends were converted into Common Stock for all periods presented prior
to the Company's initial public offering in May 1993. All outstanding
Preferred Stock and accrued dividends in fact were converted into Common
Stock on May 19, 1993.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
For ease of presentation, the Company has indicated its fiscal year as ending on
September 30; whereas, in fact, the Company reports on a 52-53 week fiscal year
ending on the last Sunday in September 30. Fiscal 1996, which ended on September
29, 1996, included 53 weeks and fiscal 1995 and 1994, which ended on September
24, 1995 and September 25, 1994, respectively, each included 52 weeks. The
following table sets forth for the years indicated certain financial data as a
percentage of net sales:
Year Ended September 30,
-----------------------------
1996 1995 1994
------ ------ ----
Net sales 100.0% 100.0% 100.0%
Gross margin 38.7 36.8 41.5
Engineering, research and development 8.6 7.7 8.5
Selling and marketing 16.9 16.4 16.4
Administrative and general 7.8 6.4 6.0
Income from operations 5.4 6.3 10.7
Income before income taxes 3.4 5.8 10.9
Net income 2.1 4.3 8.2
Net Sales. The Company derives net sales from the sale of its assembly products
and peripherals, reflow ovens, screen printers, the resale of products
manufactured by third-parties and from services. Product sales are recorded upon
shipment of products configured to meet customer application requirements. Net
sales increased $9,000,000 or 14.4% in 1996 and $11,815,000 or 23.3% in 1995
over net sales in the respective preceding fiscal years. The increase in net
sales was primarily attributable to increased total unit volumes and sales of
newer products with higher average selling prices. The "Q" Series of products
(QSP-2 and QSX-1) have higher average selling prices than the "C" Series of
products (Quad IVcMk2, Quad IVc, Quad IIIc and Quad IIc). Net sales for 1996
included sales for a full year of the QSP-2 and sales of the QSX-1, for which no
sales were recognized during the same period of the prior year. Sales of the "Q"
Series of products represented approximately 34.4% and 16.6% of net sales in
1996 and 1995, respectively. The increase of the "Q" Series to 34.4% of net
sales reflects increased market penetration and market acceptance of the QSP-2
and commencement of shipment of the QSX-1 product. Sales of the "C" Series of
products represented approximately 30.0% and 43.4% of net sales in 1996 and
1995, respectively. The Company believes that the decrease in sales of the "C"
Series is due to sales of the QSP-2 product and increased competition. The
Company began shipments of another new product, the QSV-1, during fiscal 1997
and expects further decreases to sales of the "C" Series of products upon such
introduction.
Net sales also included increased sales of screen printers and reflow ovens as
the sales under "QuadLine" have continued to expand. "QuadLine" is the Company's
marketing program offering the major elements of SMT production lines on a
turnkey basis, including screen printers, assemblers and reflow ovens. During
fiscal 1996, sales of such systems accounted for approximately 30% of net sales.
The Company continues to experience significant international growth. The
Company derives its international sales from two wholly-owned foreign
subsidiaries in the United Kingdom that both manufacture and sell product and
from its U.S. operations. International sales increased to $30.6 million in 1996
from $24.2 million in 1995, an increase of 26.4%. International sales accounted
for 42.8%, 38.6% and 32.5% of the Company's net sales for the years 1996, 1995
and 1994, respectively. The Company believes that international sales will
continue to be a significant percentage of net sales.
13
<PAGE>
In 1995, net sales increased $11,815,000 or 23.3% over 1994. The growth in net
sales during 1995 was due to sales of the QSP-2, for which no sales were
recognized during the same period of the prior year. Sales of the "Q" Series of
products represented approximately 16.6% of net sales in 1995. Sales of the "C"
Series of products represented approximately 43.4% of net sales in 1995 and
61.8% of net sales in 1994. The decrease in sales of the "C" Series, the Company
believes, is due to the introduction of the "Q" Series and increased
competition. 1995 net sales also included increased sales of screen printers
resulting from the acquisition of SMTech Limited ("SMTech") in early 1995. In
addition, sales of screen printers and reflow ovens also increased as sales
under "QuadLine" expanded.
Sales results for any particular year may not be indicative of results for
future years. The rate of technological change in the SMT industry, including
advances in component packaging, device design technologies and required
software development, together with intense competition, represent continuous
pressures on the Company. Failure by the Company to respond in a timely fashion
to such changes and competition, with enhanced products and marketing, would
have a material adverse effect on the Company. The Company believes, based on
press releases from the Company's competitors and information current in the
marketplace, that the SMT industry is recently experiencing a softening in order
bookings. With respect to the Company's near-term expectations, order quote
activity to date in the first quarter of fiscal 1997 has been satisfactory, but
consistent with the results announced by other competitors in the marketplace,
the Company has experienced a softening in the rate of order bookings since the
beginning of fiscal 1997. This recent softening in the rate of order bookings
could adversely affect net sales and gross margins in the short-term as
competition increases for those orders.
Gross Margin. Gross margin (gross profit as a percentage of net sales) increased
to 38.7% in 1996 from 36.8% in 1995. Gross margin improved as a result of higher
margins from sales of the "C" Series, screen printers and the absence of a
provision for product returns and allowances relating to the "Q" Series,
partially offset by lower margins on the "Q" Series. The Company believes the
improvements on "C" Series gross margins are due to fewer sales of higher
discounted multiple-headed "C" Series products. Gross margins on screen printer
sales have improved, since the Company is no longer a reseller of screen
printers after the acquisition of SMTech. "Q" Series gross margins decreased as
a result of expanded sales to contract manufacturers, which in turn has resulted
in lower average configured selling prices and due to low margins on the
recently introduced QSX-1. The Company has historically experienced low margins
on new product introductions pending establishment of initial market penetration
and attainment of production levels to achieve economies of scale. The Company
expects that increased shipments of new products, coupled with a softening of
market conditions, will result in a decrease in gross margins during the first
half of fiscal 1997 from the fourth quarter of 1996.
In 1995, gross margin decreased 4.7% to 36.8% from 41.5% in 1994. Gross margin
was principally affected by additional warranty and retrofit costs and increased
reserve provisions for product returns and allowances associated with the "Q"
Series.
Engineering, Research and Development Expenses. Engineering, research and
development expenses increased $1,309,000 or 27.0% in 1996 over the comparable
year as a result of 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.
During 1995, engineering, research and development expenses increased $544,000
or 12.7% over the preceding year due to the inclusion of R&D expenses incurred
by SMTech, which was acquired in January 1995. However, expenses as a percentage
of net sales decreased to 7.7% in 1995.
Selling and Marketing Expenses. Selling and marketing expenses increased
$1,800,000 or 17.5% in 1996 as compared to last year. This increase was
primarily due to expenses associated with higher sales volume, higher
advertising and trade show costs, a change in the Company's sales and service
management structure,
14
<PAGE>
increased hiring of personnel in support of international sales and higher
spending in support of customer demonstrations.
During 1995, selling and marketing expenses increased $1,963,000 or 23.6% over
the preceding year due principally to increased customer service costs related
to increased sales volume, continued field support for the "Q" Series and from
expenses incurred by SMTech subsequent to its acquisition. However, expenses as
a percentage of sales remained constant at 16.4%.
Administrative and General Expenses. Administrative and general expenses
increased $1,564,000 or 39.1% in 1996 over the preceding year reflecting
increased employee compensation, a full year of expenses after the acquisition
of SMTech, costs incurred in connection with the Company's planned relocation
and consolidation to a new operating and manufacturing facility located near its
current headquarters, increased operating costs associated with the expansion of
SMTech into larger facilities, and legal costs associated with the patent
litigation discussed below.
In 1995, administrative and general expenses increased $971,000 or 32.1% over
the preceding year. Increased administrative and general expenses are primarily
attributable to costs incurred by SMTech and overall increases associated with
higher sales levels.
Income Tax Expense. The Company's effective income tax rate was 38.0%, amounting
to $915,000 in 1996, 26.0%, amounting to $945,000 in 1995 and 24.2%, amounting
to $1,336,000 in 1994. Income tax expense differs from the amount that would
result from applying the Federal statutory tax rate to pretax income primarily
due to permanent differences in taxable income versus book income, partially
offset by benefits realized from the Company's foreign sales corporation. The
income tax expense in 1995 and 1994 was reduced due to the effect of a reversal
of the valuation allowance associated with net operating loss and tax credit
carryforwards. The Company expects an effective tax rate of approximately 35%
for 1997.
Liquidity and Capital Resources
The Company has financed its operations and capital purchases through cash flows
from operations. During 1996, the Company generated approximately $3.2 million
of cash flows from operations, despite the payment of approximately $1.3 million
to settle the securities litigation lawsuit as described in Item 3. The primary
factors contributing to the cash generated from operations were net income and a
decrease in accounts receivable offset somewhat by an increase in inventory.
Days sales outstanding decreased, despite increased sales, as the Company was
able to collect certain receivables for which customers withheld payments
pending satisfactory resolution of issues regarding the "Q" Series product
software in the year of introduction. The Company's working capital increased to
$23.3 million as of September 30, 1996, including cash balances of $2.6 million.
At the end of fiscal year 1995, the Company had working capital of $22.2
million, including cash balances of $1.5 million.
The Company has an unsecured revolving line of credit agreement which permits
borrowing up to a maximum of $8,000,000 and bears interest at the bank's base
rate of interest (8.25% as of September 30, 1996) or, at the Company's option,
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 credit
agreement expires in February 1998. This line of credit agreement also contains
various operating and reporting covenants and requires maintenance of certain
financial ratios. There were no amounts outstanding on the line as of September
30, 1996 and 1995.
The Company invested $1,559,000 in equipment and leasehold improvements in 1996
as compared to $1,077,000 in 1995. Significant expenditures included costs
associated with a new operating facility at its SMTech subsidiary in England and
upgraded computer hardware and software at its Horsham facility. In August 1996,
the Company entered into a ten year lease for an office and manufacturing
facility located near
15
<PAGE>
its Horsham facility. The move, which is expected to be completed in January
1997, will provide the Company additional capacity to allow for continued growth
and the opportunity for increased efficiencies in its manufacturing operations.
The Company therefore expects that 1997 capital additions will be somewhat
higher than the 1996 level.
The Company believes that funds generated from operations, existing cash
balances and borrowing capacity will be sufficient for the Company to meet its
working capital needs through fiscal 1997.
To finance the SMTech acquisition in 1995, the Company obtained a $3,500,000
term loan under a Term Loan Agreement (the "Loan Agreement") with CoreStates
Bank, N.A. ("CoreStates") and Summit Bank ("Summit") (formerly known as United
Jersey Bank). The Loan Agreement provides for a five-year term, with principal
payments of $175,000 to be made quarterly. The loan covenants under the Loan
Agreement conform to the terms of the covenants applicable to the $8,000,000
line of credit agreement described above. The term loan is unsecured and bears
interest at varying rates selected by the Company, either CoreStates' prime
rate, CD rate or an applicable margin above LIBOR.
Backlog
As of September 30, 1996, the Company's backlog of orders, based on purchase
orders received and accepted, was $12.5 million, as compared to $8.4 million as
of September 30, 1995. Backlog includes $5.8 million and $3.2 million of "Q"
Series and "C" Series orders, respectively, as of September 30, 1996 and $3.3
million and $1.6 million of "Q" Series and "C" Series orders, respectively, as
of September 30, 1995. The remainder of backlog consists of other products. The
Company expects to ship all backlog orders outstanding at September 30, 1996
during fiscal 1997. 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 and since 1993, the Company has experienced a
decrease in the lead times requested by customers. Therefore, backlog may not
necessarily be indicative of future sales.
Settlement of Securities Litigation
In March 1995, a shareholder of the Company filed a complaint in the United
States District Court for the Eastern District of Pennsylvania (the "Action")
against the Company, two of its executive officers and two of its directors (one
of which was also sued as an executive officer) alleging that, during the period
December 23, 1994 through March 7, 1995, the defendants knowingly or recklessly
misrepresented or omitted material information about the Company, its prospects
and earnings, and knowingly or recklessly misrepresented or omitted information
about the status and operation of certain software used in the Company's
products in violation of Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934, as amended, and common law. During the year ended September 30, 1996,
the Company, to avoid the uncertainties of litigation and without admitting any
wrongdoing with respect to any of the claims alleged in the Action, entered into
a final settlement agreement and related documents, which has received court
approval. Under this agreement, the Company, together with its directors and
officers liability insurer, paid an aggregate of $2,450,000 in settlement of all
claims. Total cost (including legal fees) to the Company, net of the amount paid
by such insurer, was $1,467,000. During the years ended September 30, 1996 and
1995, the Company recorded $1,287,000 ($0.19 per share, net of tax) and $180,000
($0.03 per share, net of tax) of expenses, respectively, relating to the
settlement of this litigation.
Samsung Agreement
In June 1996, the Company reached an agreement with Samsung Aerospace
Industries, Ltd. ("Samsung"). Under the terms of this agreement, the Company
granted an exclusive license (subject to certain exceptions as to the Company)
to Samsung for Samsung to become the Company's 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
16
<PAGE>
and requires Quad to purchase a minimum of 40,000 component tape feeders with a
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 term
is to be negotiated. Samsung is required 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. The Company expects Samsung to begin to supply component
tape feeders to the Company during fiscal 1997.
Patent Infringement Litigation
In July 1996, the Company was named a defendant in a patent infringement lawsuit
filed by The Zevatech Group in Munich, Germany. The complaint alleges that the
Company infringed on the plaintiff's German 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 vigorously defend itself against the
lawsuit.
Accordingly, no provision for this lawsuit was recorded during fiscal 1996.
Forward Looking Statements
The discussions above regarding the Company's expectations of future sales,
gross margins, operating expenses, facilities relocation, product introductions,
quote activity, order bookings, expected shipment dates, research and
development, administration expenses and supply of tape feeders include certain
forward-looking statements on these subjects. As such, actual results may vary
materially from such expectations. Among the meaningful factors that may affect
the 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 manufacturing industry, difficulties or delays in software
functionality and performance, the timing of future software releases, product
development delays or performance problems, failure to respond adequately either
to changes in technology or to customer preferences, risks of nonpayment of
accounts receivable, changes in budgeted costs, failures in sources of supply
for tape feeders or failure to successfully defend itself against the patent
infringement litigation.
Quarterly Result of Operations
The following is a summary of the quarterly results of operations for the years
ended September 30, 1996 and 1995. This information is derived from unaudited
financial statements of the Company that include, in the opinion of the Company,
all adjustments, consisting of normal recurring accruals necessary for a fair
presentation when read in conjunction with the financial statements of the
Company.
17
<PAGE>
<TABLE>
<CAPTION>
Fiscal 1996 Quarter Ended Fiscal 1995 Quarter Ended
----------------------------------------- --------------------------------------------------
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31,
1996 1996 1996 1995 1995 1995 1995 1994
---- ---- ---- ---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $20,491 $18,382 $15,834 $16,884 $17,126 $16,734 $14,277 $14,454
Gross profit 7,991 7,328 6,472 5,888 5,963 6,284 5,216 5,591
Engineering, research and
development 1,645 1,565 1,528 1,415 1,431 1,430 1,178 805
Selling and marketing 3,310 3,102 2,930 2,734 2,626 2,921 2,340 2,389
Administrative and general 1,750 1,365 1,358 1,238 1,080 1,082 965 870
Income from operations 1,286 1,296 656 501 826 851 733 1,527
Net income 786 84 354 268 467 564 590 1,067
Net income per share $0.18 $0.02 $0.08 $0.06 $0.11 $0.13 $0.14 $0.25
Weighted average common and
common equivalent shares 4,362 4,328 4,289 4,310 4,360 4,334 4,320 4,287
</TABLE>
The following table sets forth for the quarters indicated the percentage of net
sales represented by the indicated items:
<TABLE>
<CAPTION>
Fiscal 1996 Quarter Ended Fiscal 1995 Quarter Ended
------------------------------------------ --------------------------------------------
Sept. 30, June 30, Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31, Dec. 31,
1996 1996 1996 1995 1995 1995 1995 1994
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin 39.0% 39.9% 40.9% 34.9% 34.8% 37.6% 36.5% 38.7%
Engineering, research and
development 8.0% 8.5% 9.7% 8.4% 8.4% 8.5% 8.3% 5.6%
Selling and marketing 16.2% 16.9% 18.5% 16.2% 15.3% 17.5% 16.4% 16.5%
Administrative and general 8.5% 7.4% 8.6% 7.3% 6.3% 6.5% 6.8% 6.0%
Income from operations 6.3% 7.1% 4.1% 3.0% 4.8% 5.1% 5.1% 10.6%
Net income 3.8% 0.5% 2.2% 1.6% 2.7% 3.4% 4.1% 7.4%
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company required by this item are
filed as exhibits hereto, are listed under Item 14(a)(1) and are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is contained in Part I of the Form 10-K, and is hereby
incorporated by reference thereto.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information regarding compensation paid
and accrued during each of the last three fiscal years to the Company's Chief
Executive Officer and each of the other persons serving as the Company's three
other executive officers as of the end of the Company's last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
------------------------ ------------ All Other
Salary Bonus Compensation
Name and Principal Position Year ($) ($) Options (#) ($) (1)
--------------------------- ---- --- --- ----------- -------
<S> <C> <C> <C> <C> <C>
David W. Smith 1996 190,000 154,875 20,000 1,000
President and Chief Executive 1995 169,731 22,500 10,000 1,000
Officer 1994 158,210 148,000 7,500 300
Joseph L. Gasper 1996 130,000 88,500 10,000 1,000
Senior Vice President, 1995 119,885 20,000 5,000 1,000
Operations 1994 115,402 85,000 3,750 300
Anthony R. Drury 1996 125,000 88,500 10,000 1,000
Senior Vice President, Finance 1995 113,885 11,000 5,000 1,000
and Chief Financial Officer 1994 109,287 85,000 3,750 300
Stanley R. Luboda, Jr. (2) 1996 64,423 40,000 35,000 38,236
Vice President, Sales and
Strategic Planning
</TABLE>
- ----------
(1) Consists of the Company's matching payments under its 401(k) Plan, except
for Mr. Luboda, for whom the amount shown represents relocation benefits
paid to him in connection with his joining the Company.
(2) Mr. Luboda joined the Company in March 1996, and his annualized base salary
was expected to be approximately $125,000. In March 1996, Mr. Luboda was
also granted 30,000 options in connection with his acceptance of employment
with the Company.
19
<PAGE>
Stock Option Grants
The following table sets forth certain information with respect to individual
grants of stock options during the year ended September 30, 1996 to the
Company's Chief Executive Officer and each of the Company's three other
executive officers.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term (1)
----------------- -------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Granted in Fiscal Price Expiration
Name (#) (2) Year ($/SH) Date 5% ($) 10%($)
---- ------- ---- ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
David W. Smith 10,000 4.4% $ 9.00 11/2/05 $ 56,600 $143,437
10,000 4.4% $ 7.50 7/18/06 $ 47,167 $119,531
20,000 8.8% $103,767 $262,968
Joseph L. Gasper 5,000 2.2% $ 9.00 11/2/05 $ 28,300 $ 71,718
5,000 2.2% $ 7.50 7/18/06 $ 23,584 $ 59,765
10,000 4.4% $ 51,884 $131,483
Anthony R. Drury 5,000 2.2% $ 9.00 11/2/05 $ 28,300 $ 71,718
5,000 2.2% $ 7.50 7/18/06 $ 23,584 $ 59,765
10,000 4.4% $ 51,884 $131,483
Stanley R. Luboda, Jr. 30,000 13.3% $ 6.63 3/19/06 $124,993 $316,756
5,000 2.2% $ 7.50 7/18/06 $ 23,584 $ 59,765
35,000 15.5% $148,577 $376,521
</TABLE>
- ----------
(1) Potential realizable value is based on the assumed annual growth rates
compounded annually for the ten-year option term. The dollar amounts set
forth under this heading are the result of calculations at the 5% and 10%
assumed rates set by the Securities and Exchange Commission and are not
intended to forecast possible future appreciation, if any, of the stock
price of the Company.
(2) The options granted in November 1995 and July 1996, with terms of 10 years,
vest and become exercisable on November 2, 2000 and July 18, 2001,
respectively. The 30,000 options granted to Mr. Luboda in March 1996 vest
in five annual installments beginning one year after the date of grant.
20
<PAGE>
Stock Option Exercises and Holdings
The following table sets forth information relating to options exercised during
the year ended September 30, 1996 by the Company's Chief Executive Officer and
each of the Company's three other executive officers and presents the value of
unexercised options held by such individuals as of September 30, 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options at
Year End (#) Fiscal Year End ($) (2)
------------ -----------------------
Shares Value
Acquired on Realized
Name Exercise ($) (1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David W. Smith - $ - 121,667 85,833 $500,419 $182,081
Joseph L. Gasper - $ - 42,167 36,083 $159,544 $ 62,331
Anthony R. Drury 5,000 $ 18,750 42,300 38,750 $160,375 $ 79,000
Stanley R. Luboda, Jr. - - - 35,000 $ - $ 87,500
</TABLE>
- ----------
(1) Value realized is based upon the difference between the last sale price of
the Company's Common Stock on The Nasdaq Stock Market on the dates of
exercise and the exercise price of the options, multiplied by the number of
shares acquired on exercise of the option.
(2) Total value of "in-the-money" unexercised options is based upon the
difference between the last sale price of the Company's Common Stock on The
Nasdaq Stock Market on September 30, 1996 ($9.25 per share) and each
exercise price of the various "in-the-money options" held by such person,
multiplied by the number of "in-the-money" option shares.
Compensation of Directors
Non-employee directors of the Company are paid a $1,000 fee for attendance at
each meeting and a $250 fee for each telephonic meeting of the Board of
Directors. The directors are also reimbursed for their out-of-pocket expenses
incurred in connection with the meetings. Pursuant to the terms of the Company's
1993 Stock Option Plan (the "Plan"), each non-employee director, upon first
being elected to the Board of Directors, is granted an option to purchase 3,000
shares of Common Stock, exercisable in three equal installments on the first
three anniversary dates of the date of grant, at an exercise price equal to the
fair market value of the shares on the date of grant, and each such director
receives a grant of 1,000 shares with an exercise price determined on the same
basis every year thereafter, which options becomes exercisable on the third
anniversary of the date of grant. To date, each of Messrs. Bergman, Pinkas,
Randall and Young has received under the Plan 6,000 options for their service as
directors, at exercise prices ranging from $7.00 to $11.25. Upon the election of
Mr. Erdekian to the Board of Directors, pursuant to the terms of the Plan, Mr.
Erdekian was granted 3,000 options at an exercise price of $7.50.
21
<PAGE>
Board Compensation Committee Report on Executive Compensation
REPORT OF THE STOCK OPTION AND COMPENSATION COMMITTEE
The Company's compensation policy with respect to its executive officers
reflects two basic principles. First, compensation should, to a significant
extent, reflect the financial performance of the Company. Second, a portion of
an executive officers' compensation should provide long-term incentives that
will tie long-term rewards for the executive officers to increases in
stockholder values. The Company has traditionally attempted to effect its
compensation policy through three separate components: salary, bonus and stock
options.
During July 1996, upon Mr. Erdekian's election to the Board, Mr. Pinkas resigned
from the Committee and Mr. Erdekian was elected to fill the resulting vacancy.
Annual salary increases were determined by the Committee consisting of Messrs.
Bergman and Pinkas and bonus awards were determined after July 1996 by the
committee consisting of Messrs. Bergman and Erdekian.
Annual Compensation
Annual cash compensation is comprised of a base salary and a bonus award. The
Committee establishes annual salaries by evaluating individual performances and
the level of the executive's responsibility and experience. In addition, the
Committee considers marketplace valuations of comparable executives of other
companies in the industry, comparable in size with the Company, although salary
determinations have not been based upon any specific criteria of compensation.
Nevertheless, the members of the Stock Option and Compensation Committee, who
either are affiliated with venture capital firms (Messrs. Bergman and Pinkas) or
a NYSE company (Mr. Erdekian) and have experience in setting compensation for
companies in similar stages of development, believe that salaries of the
executive officers in fiscal 1996 were modest, considering the scope of the
Company's operations and the respective responsibilities and achievements of the
executive officers. Annual adjustments in base salaries typically are made
effective at the beginning of the fiscal year for which they are intended to
apply and therefore reflect in large part prior year's business and individual
performance achievements. During fiscal 1996, David W. Smith, President and
Chief Executive Officer of the Company, received a salary increase of
approximately twelve percent. Among the factors considered by the Committee were
the following: the Company's recent improved results of operations; comparable
compensation information from other public company CEO's, which indicated that
Mr. Smith's salary was significantly below market; and the absence of any
significant increase in Mr. Smith's base salary in the several preceding years.
During fiscal 1996, salary increases for the other executive officers were
between eight and ten percent, based on factors similar to those mentioned
above.
Bonus awards are made pursuant to criteria established toward the beginning of
each fiscal year. A portion of the bonus, which comprised approximately 70% of
the maximum bonus payable during the 1996 fiscal year, is non-discretionary and
in 1996 is based upon the Company's achievement of specified levels of net
income determined by the Committee in the relevant fiscal year. The amount of
bonus is subject to minimum and maximum specified levels of net income. The
Company's net income was slightly less than the maximum net income level
determined by the Committee; accordingly, approximately 90% of non-discretionary
bonus levels were paid to the executives.
The remaining portion of the bonus is discretionary and is based on the
Committee's judgment concerning the achievement by the executive officer of
certain stated objectives specifically related to that executive's functional
responsibilities. The executive officers received a range from 85% to 100% of
the discretionary bonuses, based upon the Committee's assessment of the level of
achievement with respect to the stated objectives. If maximum bonuses are
awarded, the amounts are reduced by the amount of the Company's contributions to
its 401(k) and profit sharing plans for the employee. The discretionary bonus
for Mr. Smith was based on criteria that included, among others, (i) completion
of new product developments; (ii) completion of a marketing and distribution
restructuring strategic plan and (iii) improvement of working capital.
22
<PAGE>
Long Term Compensation - Stock Options
The stock option component of the executive officers' compensation package is
designed to provide incentive for the enhancement of stockholder value, since
the full benefit of stock option grants will not be realized unless there has
been appreciation in per share values over several years. In this regard,
options have been granted at fair market value on the date of grant and vest in
five years. The increase in options during fiscal 1996 was due to a change in
the timing of the grant of options to the executive officers. Historically, the
Committee had granted options annually in November. The options previously
granted in November for 1996 were granted in July 1996.
Deferred Compensation Plan
The Company maintains a deferred compensation plan, pursuant to which certain
executive officers may elect to defer a portion of their annual compensation.
The participant's funds are invested among various investment vehicles
designated by the plan administrators. Upon the death or retirement of a
participant, the funds attributable to the participant (including any earnings
on contributions) are distributed to the participant or the participant's
beneficiary in a lump sum or in annual installments over various selected
periods.
Qualifying Executive Compensation for Deductibility Under Provisions of the
Internal Revenue Code
The Internal Revenue Code of 1986, as amended (the "Code"), provides that a
publicly held corporation generally may not deduct compensation for its chief
executive officer or each of certain other executive officers to the extent that
such compensation exceeds $1,000,000 for the executive. The Committee intends to
take such actions as are possible and appropriate to qualify compensation paid
to executives for deductibility under the Code. In this regard, the Committee
notes, however, that base salary and bonus levels are expected to remain well
below the $1,000,000 limitation in the foreseeable future.
JAMES R. BERGMAN ROBERT P. PINKAS VAHRAM V. ERDEKIAN
Performance Graph
The graph below compares the cumulative total stockholder return of the Company
with the cumulative total return on the S & P 500 Stock Index and the Hambrecht
& Quist Technology Index. Information relating to the Company begins on May 12,
1993 (the first date on which the Company's Common Stock was publicly traded).
COMPARISON OF 41 MONTH CUMULATIVE TOTAL RETURN*
AMONG QUAD SYSTEMS CORPORATION, THE S & P 500 INDEX AND THE
HAMBRECHT & QUIST TECHNOLOGY INDEX
5/12/93 9/93 9/94 9/95 9/96
------- ---- ---- ---- ----
Quad Systems Corporation 100 197 200 126 128
S & P 100 104 108 140 169
H & Q TECHNOLOGY 100 104 119 199 220
- ----------
* $100 invested on 5/12/93 in stock or on 4/30/93 in index-including
reinvestment of dividends.
23
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Management and Principal Stockholders
The table below sets forth certain information as of December 18, 1996 regarding
the beneficial ownership (as defined in regulations of the Securities and
Exchange Commission) of Common Stock of (i) each director and executive officer
of the Company; (ii) each nominee for director; (iii) all directors and
executive officers as a group; and (iv) each person known to the Company to own
beneficially 5% or more of its Common Stock. Unless otherwise specified, the
named beneficial owner has sole voting and investment power. The information in
the table below was furnished by the owners listed. Shares issuable pursuant to
the exercise of stock options are included in the table below if such options
are currently exercisable or exercisable by February 16, 1997 (60 days after the
date above).
Number of Percent
Name Shares of Class
---- ------ --------
James R. Bergman(1) 52,254 1.2%
Anthony R. Drury(1) 65,556 1.5%
Vahram V. Erdekian 1,000 *
Joseph L. Gasper(1) 48,159 1.1%
Ian H. Henderson(1) 13,334 *
Stanley R. Luboda,Jr. - *
Lorin J. Randall(1) 31,338 *
Robert P. Pinkas(1) 37,890 *
David W. Smith(1) 148,684 3.5%
David H. Young(1) 45,000 1.1%
All Directors and Executive 443,215 10.4%
Officers as a group(1)(10 persons)
FMR Corp.(2,4) 421,700 9.9%
82 Devonshire Street
Boston, MA 02109
Cowen & Company (3,4) 227,000 5.3%
Financial Square
New York, NY 10005
- ----------
* Less than 1%.
1. The amounts shown include shares covered by options exercisable within 60
days of December 18, 1996, as follows: 3,000 shares each, Messrs. Bergman,
Randall, Pinkas and Young; 49,300 shares, Mr. Drury; 47,833 shares, Mr.
Gasper; 10,001 shares, Mr. Henderson; 138,333 shares, Mr. Smith; and
257,467 shares, all directors and executive officers as a group.
2. FMR Corp., as the parent holding company of Fidelity Management and
Research Company, its wholly-owned subsidiary, owns the shares reported.
FMR Corp. has sole dispositive power with respect to all of the shares
reported.
3. Cowen and Company has both shared dispositive and voting power with respect
to all of the shares reported.
4. Based solely on information contained in filings with the Securities and
Exchange Commission pursuant to Section 13(d) or 13(g) of the 1934 Act and
other information available to the Company from The Nasdaq Stock Market.
24
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1996, the Company purchased from Two Technologies, Inc. ("Two
Technologies") certain hand-held computers used in the Company's products. David
H. Young, a director of the Company, is the President of Two Technologies. The
Company paid a total of $82,208. Also during fiscal 1996, Two Technologies
purchased SMT process equipment from the Company in amounts totaling $11,570.
The Company's transactions with Two Technologies were made at prices and on
terms comparable to other arms'-length purchases and sales by the Company and
the Company believes that such was also the case with respect to Two
Technologies' transactions with the Company.
During fiscal 1996, the Company received general contracting services for
leasehold improvements at its Horsham facilities from a son of Joseph L. Gasper,
the Senior Vice President, Operations of the Company. The amount paid in fiscal
1996 totaled $72,310. Mr. Gasper has informed the Company that, other than his
familial relationship with his son, who does not reside in Mr. Gasper's
household, Mr. Gasper has no direct or indirect interest in the services
provided by his son to the Company.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements
Report of Independent Auditors.
Consolidated Balance Sheets as of September 30, 1996 and 1995.
Consolidated Statements of Income for the Years Ended September 30, 1996,
1995 and 1994. Consolidated Statements of Common Stockholders' Equity for
the Years Ended September 30, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
2. Consolidated Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts.
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions, are inapplicable or the required
information is given in the Consolidated Financial Statements or Notes
thereto, and therefore have been omitted.
3. Exhibits
Exhibit No.
- -----------
3.1 Certificate of Incorporation of the Registrant, as amended -
Incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the
Registrant's Registration Statement on Form S-1 (No. 33-60588) filed
with the Securities and Exchange Commission on May 7, 1993.
3.2 By-Laws of the Registrant, as amended - Incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 (No.
33-60588) filed with the Securities and Exchange Commission on April 5,
1993.
* 10.1 1986 Stock Option Plan, as amended - Incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-8 (No.
33-71590) filed with the Securities and Exchange Commission on November
12, 1993.
* 10.2 1993 Stock Option Plan, as amended - Incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-8 (No.
333-04755) filed with the Securities and Exchange Commission on May 30,
1996.
*10.3.1 Deferred Compensation Agreement dated September 30, 1994, between the
Company and David W. Smith Incorporated by references to Exhibit 10.3.1
filed under the Company's Annual Report on Form 10-K for the fiscal
year ended September 24, 1995.
26
<PAGE>
*10.3.2 Deferred Compensation Agreement dated September 30, 1994, between the
Company and Anthony R. Drury - Incorporated by reference to Exhibit
10.3.2 filed under the Company's Annual Report on Form 10-K for the
fiscal year ended September 24, 1995.
10.4.1 Agreement relating to the acquisition of capital shares in SMTech
Limited, dated January 27, 1995, among the Company, Investech SA and
Messrs. David Wheatley and Richard Willshere - Incorporated by
reference to Exhibit 2.1 filed under the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on January
27, 1995.
10.4.2 Consulting agreement dated January 27, 1995, among the Company, Mr.
Dominique Henry, Quad Europe Limited, Quad Holdings Limited and SMTech
Limited - Incorporated by reference to Exhibit 2.2 filed under Current
Report on Form 8-K filed with the Securities and Exchange Commission on
January 27, 1995.
10.4.3 Term loan agreement dated January 24, 1995, among the Company,
CoreStates Bank, N.A. and United Jersey Bank - Incorporated by
reference to Exhibit 2.3 filed under Current Report on Form 8-K filed
with the Securities and Exchange Commission on January 27, 1995.
10.4.4 Amendment to Term Loan Agreement dated as of December 4, 1995, between
the Company and CoreStates Bank, N.A. and United Jersey Bank (now
Summit Bank).
10.5.1 Lease dated May 23, 1989, between the Registrant and F.I.A. Profile
Fund I, as amended Incorporated by reference to Exhibit 10.3 to the
Registrant's Registration Statement on Form S-1 (No. 33-60588) filed
with the Securities and Exchange Commission on April 5, 1993.
10.5.2 Lease dated August 27, 1996, between the Registrant and Marave
Associates, L.P.
10.6 Agreement dated March 19, 1993, among the Registrant, A.S.Z. de
Ferranti and Ferranti Limited, relating to the Registrant's acquisition
of ZCR Limited (now Quad Europe Limited) - Incorporated by reference to
Exhibit 10.5.1 to the Registrant's Registration Statement on Form S-1
(No. 33-60588) filed with the Securities and Exchange Commission on
April 5, 1993.
10.7.1 Loan Agreement dated as of December 4, 1995, between the Company and
United Jersey Bank (now Summit Bank) and CoreStates Bank, N.A.
10.7.2 Amendment to Loan Agreement dated as of September 29, 1996, between the
Company and Summit Bank and CoreStates Bank, N.A.
10.7.3 Revolving Credit Loan Agreement dated as of February 23, 1994, between
the Company and United Jersey Bank/South, N.A. - Incorporated by
reference to Exhibit 10.5 filed under the Company's Annual Report on
Form 10-K for the fiscal year ended September 25, 1994.
*10.8 401(k) Salary Reduction Plan and Trust dated October 1, 1989, as
amended - Incorporated by reference to Exhibit 10.8 to the Registrant's
Registration Statement on Form S-1 (No. 33- 60588) filed with the
Securities and Exchange Commission on April 5, 1993.
10.9 Agreement dated November 1, 1993, between the Registrant and Samsung
Aerospace Industries, Ltd. - Incorporated herein by reference to
Exhibit 10.9 filed under the Company's Annual Report on Form 10-K for
the fiscal year ended September 26, 1993.
27
<PAGE>
10.10 Agreement dated June 20, 1996 between the Registrant and Samsung
Aerospace Industries, Ltd.- Incorporated herein by reference to Exhibit
10.1 filed under Form 10-Q for the period ended June 23, 1996 (portions
redacted pursuant to SEC order granting confidential treatment to
certain provisions).
*10.11 Quad Systems Corporation Employee Stock Purchase Plan, as amended -
Incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-8 (No. 33-93436) filed with the
Securities and Exchange Commission on June 13, 1995.
o 11 Statement regarding computation of per share earnings.
o 22 Subsidiaries of the registrant
o 23 Consent of Ernst & Young LLP.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the last quarter of the fiscal year
covered by this report.
- ----------
* Constitutes compensatory plan or arrangement required to be filed as an
exhibit to this form.
o Filed herewith
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
QUAD SYSTEMS CORPORATION
By: /s/ David W. Smith
-----------------------------
David W. Smith, President
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.
/s/ David W. Smith Principal Executive December 20, 1996
- --------------------------- Officer and Director
David W. Smith
/s/ Anthony R. Drury Principal Financial December 20, 1996
- --------------------------- and Accounting Officer
Anthony R. Drury
/s/ James R. Bergman Director December 20, 1996
- ---------------------------
James R. Bergman
/s/ Vahram V. Erdekian Director December 20, 1996
- --------------------------
Vahram V. Erdekian
/s/ Robert P. Pinkas Director December 20, 1996
- ---------------------------
Robert P. Pinkas
/s/ Lorin J. Randall Director December 20, 1996
- ---------------------------
Lorin J. Randall
/s/ David H. Young Director December 20, 1996
- ---------------------------
David H. Young
29
<PAGE>
QUAD SYSTEMS CORPORATION
INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors.....................................F-2
Consolidated Balance Sheets as of September 30,
1996 and 1995......................................................F-3
Consolidated Statements of Income for the
Years Ended September 30, 1996, 1995 and 1994......................F-4
Consolidated Statements of Common Stockholders'
Equity for the Years Ended
September 30, 1996, 1995 and 1994..................................F-5
Consolidated Statements of Cash Flows for the
Years Ended September 30, 1996, 1995 and 1994......................F-6
Notes to Consolidated Financial Statements.........................F-7
F-1
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Quad Systems Corporation
We have audited the accompanying consolidated balance sheets of Quad Systems
Corporation as of September 30, 1996 and 1995, and the related consolidated
statements of income, common stockholders' equity, and cash flows for each of
the three years in the period ended September 30, 1996. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements 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, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Quad
Systems Corporation at September 30, 1996 and 1995, and the consolidated results
of its operations and cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
November 1, 1996
F-2
<PAGE>
QUAD SYSTEMS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
ASSETS
<TABLE>
<CAPTION>
September 30,
-------------
1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,636 $ 1,454
Accounts receivable, net of allowance for doubtful accounts-
$633 and $818 at September 30, 1996 and 1995, respectively 15,076 17,330
Inventory:
Raw materials 7,951 7,404
Work in process 3,400 1,510
Finished goods 4,961 4,036
-------- --------
16,312 12,950
Deferred income taxes 2,450 2,230
Prepaid expenses and other current assets 825 610
-------- --------
Total current assets 37,299 34,574
Equipment and leasehold improvements:
Machinery, equipment, and software 5,333 4,318
Furniture and fixtures 964 829
Leasehold improvements 1,055 695
-------- --------
7,352 5,842
Less accumulated depreciation and amortization (4,865) (3,661)
-------- --------
2,487 2,181
Deferred income taxes 673 730
Goodwill, net of accumulated amortization 3,115 3,537
Other assets 249 153
-------- --------
$ 43,823 $ 41,175
======== ========
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,770 $ 5,146
Accrued expenses 1,511 1,730
Accrued warranty 1,488 1,133
Accrued commissions 1,169 1,142
Employee compensation and related taxes 1,861 1,118
Customer deposits 1,301 487
Current portion of long-term debt 700 700
Deferred service revenue 732 277
Income taxes payable 450 612
-------- --------
Total current liabilities 13,982 12,345
Long-term debt, less current portion 1,750 2,450
Common stockholders' equity:
Preferred Stock, par value $.01 per share; authorized shares:
1,000,000; no shares issued at September 30, 1996 and 1995 - -
Common Stock, par value $.03 per share; authorized shares:
15,000,000; shares issued: 4,255,022 and 4,210,858 at
September 30, 1996 and 1995, respectively 128 126
Additional paid-in-capital 23,713 23,435
Retained earnings 4,458 2,966
Foreign currency translation (32) 29
Less treasury stock, at cost, 13,908 shares at September 30, 1996
and 1995 (176) (176)
-------- --------
Total common stockholders' equity 28,091 26,380
-------- --------
$ 43,823 $ 41,175
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
QUAD SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 71,591 $ 62,591 $ 50,776
Cost of products sold 43,912 39,537 29,721
-------- -------- --------
Gross profit 27,679 23,054 21,055
Operating expenses:
Engineering, research and
development 6,153 4,844 4,300
Selling and marketing 12,076 10,276 8,313
Administrative and general 5,561 3,997 3,026
-------- -------- --------
23,790 19,117 15,639
-------- -------- --------
Income from operations 3,889 3,937 5,416
Interest expense 304 234 48
Interest income (109) (110) (151)
Settlement of securities litigation 1,287 180 --
-------- -------- --------
Income before income taxes 2,407 3,633 5,519
Income tax expense 915 945 1,336
-------- -------- --------
Net income $ 1,492 $ 2,688 $ 4,183
======== ======== ========
Net income per share $ 0.35 $ 0.62 $ 0.98
======== ======== ========
Weighted average common and
common equivalent shares 4,321,177 4,328,974 4,269,011
========= ========= =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
QUAD SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF COMMON
STOCKHOLDERS' EQUITY
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
Common Stock
---------------------- Additional Foreign Common
Shares Paid-in Retained Currency Treasury Stockholders'
Outstanding Amount Capital Earnings Translation Stock Equity
----------- ------ ------- -------- ----------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1993 3,952,368 $ 119 $21,535 $(3,905) $ (32) $ (70) $17,647
Net income -- -- -- 4,183 -- -- 4,183
Compensation expense related
to the issuance of stock options -- -- 34 -- -- -- 34
Common Stock issued under
employee benefit plans 33,701 1 118 -- -- -- 119
Exercise of warrants 35,227 1 105 -- -- -- 106
Tax benefit related to stock
options exercised -- -- 107 -- -- -- 107
Foreign currency translation adjustment -- -- -- -- 81 -- 81
Treasury shares acquired (8,995) -- -- -- -- (106) (106)
---------- ----- ------- ------ ------- ------ -------
Balance at September 30, 1994 4,012,301 121 21,899 278 49 (176) 22,171
Net income -- -- -- 2,688 -- -- 2,688
Compensation expense related
to the issuance of stock options -- -- 20 -- -- -- 20
Restricted Common Stock issued
in purchase of SMTech Limited 50,372 1 566 -- -- -- 567
Restricted Common Stock issued upon
conversion of convertible notes issued
in purchase of Quad Europe Limited 83,333 2 498 -- -- -- 500
Common Stock issued under
employee benefit plans 50,944 2 187 -- -- -- 189
Tax benefit related to stock
options exercised -- -- 265 -- -- -- 265
Foreign currency translation adjustment -- -- -- -- (20) -- (20)
---------- ----- ------- ------ ------- ------ -------
Balance at September 30, 1995 4,196,950 126 23,435 2,966 29 (176) 26,380
Net income -- -- -- 1,492 -- -- 1,492
Compensation expense related
to the issuance of stock options -- -- 11 -- -- -- 11
Common Stock issued under
employee benefit plans 44,164 2 259 -- -- -- 261
Tax benefit related to stock
options exercised -- -- 8 -- -- -- 8
Foreign currency translation adjustment -- -- -- -- (61) -- (61)
========== ====== ======= ======= ======= ====== =======
Balance at September 30, 1996 4,241,114 $ 128 $23,713 $ 4,458 $ (32) $ (176) $28,091
========== ====== ======= ======= ======= ====== =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
QUAD SYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating Activities
Net income $ 1,492 $ 2,688 $ 4,183
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 1,643 1,078 682
Provision (recovery) for losses on accounts receivable (153) 260 252
Provision (recovery) for sales returns and allowances (288) 643 (36)
Provision for deferred income taxes (163) (1,065) (520)
Stock option compensation 11 20 34
Changes in operating assets and liabilities, net:
Accounts receivable 2,419 (3,561) (6,211)
Inventory (3,350) (2,686) (2,405)
Prepaid expenses and other assets (311) 54 (187)
Accounts payable (376) 2,031 682
Accrued expenses 451 (224) 540
Employee compensation and related taxes 743 175 327
Customer deposits 814 54 192
Deferred service revenue 455 (1) (60)
Income taxes payable (154) 411 (104)
------- ------- -------
Net cash provided (used) by operating activities 3,233 (123) (2,631)
Investing Activities
Net purchases of equipment and leasehold improvements (1,559) (1,077) (906)
Purchase of SMTech Limited, net of cash acquired -- (3,307) --
Maturities of short-term investments -- -- 3,949
------- ------- -------
Net cash provided (used) by investing activities (1,559) (4,384) 3,043
Financing Activities
Proceeds from term loan incurred to purchase
SMTech Limited -- 3,500 --
Principal payments on long-term debt (700) (350) (8)
Common Stock issued under employee benefit plans 261 189 119
------- ------- -------
Net cash provided (used) by financing activities (439) 3,339 111
Effect of exchange rate changes on cash and
cash equivalents (53) 30 (18)
------- ------- -------
Increase (decrease) in cash and cash equivalents 1,182 (1,138) 505
Cash and cash equivalents at beginning of year 1,454 2,592 2,087
------- ------- -------
Cash and cash equivalents at end of year $ 2,636 $ 1,454 $ 2,592
======= ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
QUAD SYSTEMS CORPORATION
Notes to Consolidated Financial Statements
September 30, 1996, 1995 and 1994
1. Description of the Business
The Company designs, manufactures, markets and supports surface mount technology
(SMT) equipment, related peripherals and services used in the manufacture of
printed circuit boards, predominantly in low to medium volume production
environments.
2. Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Quad Systems
Corporation and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation. Certain
reclassifications have been made to the 1995 and 1994 financial statements to
conform with the 1996 financial statements.
Fiscal Year
For ease of presentation, the Company has indicated its fiscal year as ending on
September 30; whereas, in fact, the Company reports on a 52-53 week fiscal year
ending on the last Sunday in September. Fiscal 1996, which ended on September
29, 1996, included 53 weeks and fiscal 1995 and 1994, which ended on September
24, 1995 and September 25, 1994, respectively, each included 52 weeks.
Cash Flows
The Company considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
Supplemental disclosure of cash flow information (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Schedule of noncash activity:
Restricted Common Stock issued in purchase of
SMTech Limited $ -- $ 567 $ --
======== ====== ======
Restricted Common Stock issued upon conversion
of convertible notes issued in purchase of
Quad Europe Limited -- 83,333 shares $ -- $ 500 $ --
======== ====== ======
Tax benefit related to stock options exercised $ 8 $ 265 $ 107
======== ====== ======
Treasury stock acquired in connection with
warrant exercise $ -- $ -- $ 106
======== ====== ======
Cash paid during the year for:
Interest $ 316 $ 152 $ 48
======== ====== ======
Income taxes $ 1,183 $1,600 $1,973
======== ====== ======
</TABLE>
F-7
<PAGE>
QUAD SYSTEMS CORPORATION
Notes to Consolidated Financial Statements (Continued)
September 30, 1996, 1995 and 1994
Inventory
The Company values its inventory at the lower of cost (first-in, first-out
method) or market.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Depreciation on assets
is provided using the straight-line method over the estimated useful lives of
the related assets.
Goodwill
Goodwill is amortized on a straight-line basis over ten years. The carrying
value of goodwill will be reviewed if the facts and circumstances suggest that
it may be impaired. If such review would indicate that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the carrying value of the
goodwill will be reduced by the estimated shortfall of cash flows. Accumulated
amortization was $828,000, $438,000 and $151,000 for the years ended September
30, 1996, 1995 and 1994, respectively.
Product Warranty
The financial statements reflect accruals for potential product warranty claims
based on the Company's claim experience. Such costs are accrued at the time
sales are recognized.
Revenue Recognition
Revenue from the sale of products is generally recognized upon shipment. Service
and support revenues are recognized over the life of the relevant contract on a
straight-line basis. Such revenues were $1,276,000, $934,000 and $766,000 for
the years ended September 30, 1996, 1995 and 1994, respectively.
Income Taxes
The Company accounts for income taxes under the liability method, whereby,
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using enacted tax rates and laws that will be in effect when the differences are
expected to reverse. No provision is made for U.S. income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely reinvested
in foreign operations.
Foreign Currency Translation
The financial statements of the Company's United Kingdom subsidiaries are
translated into U. S. dollars in accordance with SFAS No. 52, "Foreign Currency
Translation." Net assets are translated at current rates of exchange. Income and
expense items are translated at the average exchange rate during the year. The
resulting translation adjustments are recorded directly into a separate
component of shareholders' equity. Gains and losses resulting from foreign
currency transactions are included in the income statement. Net foreign currency
transaction gains or losses are not material in any of the years presented.
F-8
<PAGE>
Net Income per Share
Net income per share is calculated by dividing net income by the weighted
average number of common and common equivalent shares (stock options, warrants
and stock purchase plan shares) outstanding during the period.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Impact of Recently Issued Accounting Standards
In October 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" which will be effective for the Company's 1997 fiscal year. SFAS
No. 123 allows companies which have stock-based compensation arrangements with
employees to adopt a new fair-value basis of accounting for stock options and
other equity instruments, or to continue to apply the existing accounting rules
under APB Opinion 25 "Accounting for Stock Issued to Employees" but with
additional financial statement disclosure. The Company expects to continue to
account for stock-based compensation arrangements under APB Opinion 25 and
therefore does not expect SFAS No. 123 to have a material impact on its
financial position, results of operations and cash flows.
3. Debt Obligations
Long-term debt consists of the following (in thousands):
September 30,
-------------
1996 1995
---- ----
Term loan, requiring quarterly principal payments of
$175,000, bears interest at the bank's prime rate or
an applicable margin above LIBOR or the bank's CD
rate (7.625% as of September 30, 1996) and matures
in January 2000. The term loan contains various
covenants and requires maintenance of certain ratios
as defined in the loan agreement $2,450 $3,150
------ ------
2,450 3,150
700 700
------ ------
Less current portion $1,750 $2,450
====== ======
Maturities of long-term debt outstanding at September 30, 1996 are as follows:
$700,000-1997; $700,000-1998; $700,000-1999; $350,000-2000.
F-9
<PAGE>
Since December 1995, the Company has had an unsecured revolving line of credit
agreement which permits borrowing up to a maximum of $8,000,000 and bears
interest at the bank's base rate of interest (8.25% as of September 30, 1996) or
at LIBOR plus 1.40% when the outstanding balance is greater than $1,000,000. The
Company pays a fee of .25% on the unused portion of the line of credit. This
credit agreement expires in February 1998. The line of credit agreement
restricts the payment or declaration of any dividends on an annual basis in
excess of 50% of such years pre-tax income. This line of credit agreement also
contains various operating and reporting covenants and requires maintenance of
certain financial ratios. There were no amounts outstanding as of September 30,
1996. The weighted average interest rates on short-term borrowings for the years
ended September 30, 1996 and 1995 were 8.69% and 8.75%, respectively.
Outstanding letters of credit, principally related to back an overdraft facility
and medical insurance policy, amounted to approximately $279,000 at September
30, 1996.
4. Commitments
As of September 30, 1996, the Company has the following commitments for future
minimum lease payments under various operating leases for real estate and
equipment (in thousands):
1997 $1,041
1998 1,016
1999 969
2000 960
2001 and thereafter 5,830
Rent expense was $692,000, $497,000 and $401,000 for the years ended September
30, 1996, 1995 and 1994, respectively.
In June 1996, the Company reached an agreement with Samsung Aerospace
Industries, Ltd. ("Samsung"). Under the terms of this agreement, the Company
granted an exclusive license (subject to certain exceptions in favor of the
Company) to Samsung for Samsung to become the Company's 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 term will be
negotiated. Samsung is required to pay to Quad a total of $300,000, representing
a combination of licensing fees and a reimbursement for expenses incurred in
transferring the Company's technology to Samsung for use in the production of
the component tape feeders. The Company expects Samsung to begin to supply
component tape feeders to the Company during fiscal 1997.
F-10
<PAGE>
5. Income Taxes
For financial reporting purposes, income before income taxes includes the
following components (in thousands):
Year Ended September 30,
------------------------
1996 1995 1994
---- ---- ----
Pretax income:
United States $2,279 $2,817 $4,863
Foreign 128 816 656
====== ====== ======
$2,407 $3,633 $5,519
====== ====== ======
Income tax expense for the fiscal years ended September 30, 1996, 1995 and 1994
consists of (in thousands):
Year Ended September 30,
------------------------
1996 1995 1994
---- ---- ----
Current:
Federal $ 688 $ 1,619 $ 1,851
State -- 211 353
Foreign 358 389 28
------- ------- -------
1,046 2,219 2,232
Deferred:
Federal (57) (1,106) (986)
State 19 (135) (59)
Foreign (93) (33) 149
------- ------- -------
(131) (1,274) (896)
======= ======= =======
Income tax expense $ 915 $ 945 $ 1,336
======= ======= =======
A reconciliation of the Company's effective income tax rate to the federal
statutory rate is as follows:
Year Ended September 30,
------------------------
1996 1995 1994
---- ---- ----
Federal statutory rate 34.0% 34.0% 34.0%
Change in valuation allowance for
deferred tax assets 2.1% (14.6%) (14.0%)
State taxes, net of federal benefit (1.0%) 1.8% 3.5%
Permanent- goodwill 5.5% 2.7% 0.6%
Permanent- other 2.0% 1.3% 0.4%
Foreign sales corporation benefit (5.8%) (1.3%) --
Research and development tax credit (2.1%) -- --
Other 3.3% 2.1% (0.3%)
===== ===== =====
Effective tax rate 38.0% 26.0% 24.2%
===== ===== =====
F-11
<PAGE>
Significant components of the Company's deferred tax assets and liabilities are
as follows (in thousands):
September 30,
------------------
1996 1995
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 372 $ 656
Research and development tax credit carryforwards 407 357
Investment tax credit carryforwards 55 55
Alternative minimum tax credit carryforwards 29 29
Inventory and accounts receivable reserves 1,447 1,334
Warranty accruals 374 228
Deferred service revenue 331 105
Commission accruals 12 207
Deferred compensation 84 --
Other 133 68
------- -------
Total deferred tax assets 3,244 3,039
Valuation allowance for deferred tax assets (50) --
------- -------
Deferred tax assets, net 3,194 3,039
Deferred tax liability:
Prepaid expenses 71 79
======= =======
Net deferred tax assets $ 3,123 $ 2,960
======= =======
At September 30, 1996, the Company has the following net operating loss and tax
credit carryforwards (in thousands):
Amount Expiration Date
------ ---------------
Federal net operating loss $ 948 2001 to 2005
State net operating loss 760 1997
Research and development tax credit 407 2002 to 2005
Foreign net operating loss 3 indefinite
Investment tax credit 55 1997 to 2001
Alternative minimum tax credit 29 indefinite
The initial public offering in May 1993 resulted in an "ownership change" as
defined in Internal Revenue Code Section 382 that resulted in the Company being
subject to an annual limitation on the benefits that can be realized through the
use of its pre-offering net operating loss and tax credit carryforwards. The net
operating loss and other tax credit carryforwards are limited to offset only the
taxes that otherwise would be due on approximately $1,120,000 of taxable income
per year.
6. Common Stockholders' Equity
Stock Option Plans
The Company has adopted stock option plans, as amended (the "Plans"), under
which incentive stock options and non-incentive stock options may be granted to
employees and other qualified individuals. The Plans provide that the option
price shall not be less than the fair market value of the shares on the date of
grant and that no portion of the option may be exercised beyond ten years from
that date. Options vest as determined by the Committee. The Plans provide for
full vesting of the
F-12
<PAGE>
option in the event there is a Change of Control (as defined in the Plans). The
Stock Option and Compensation Committee of the Board of Directors (the
"Committee") has the authority to determine the number, terms and type of stock
options to be granted. In fiscal 1996, the 1986 Stock Option Plan expired.
Changes in the number of outstanding options and number of available shares for
grant under the Plans are summarized as follows:
Number of shares
------------------------
Under Option price
Available option per share
--------- ------ ---------
Outstanding, October 1, 1993 43,013 534,822 $3.00-$9.25
Additional shares reserved for
issuance 300,000 -- --
Granted (84,200) 84,200 10.25-14.00
Exercised -- (33,701) 3.00-9.25
Canceled 1,500 (1,500) 9.25
-------- -------- -----------
Outstanding, September 30, 1994 260,313 583,821 3.00-14.00
Granted (147,250) 147,250 8.00-13.75
Exercised -- (50,944) 3.00-10.25
Canceled 35,580 (35,580) 3.00-13.75
-------- -------- -----------
Outstanding, September 30, 1995 148,643 644,547 3.00-14.00
Additional shares reserved for
issuance 300,000 -- --
Granted (232,000) 232,000 6.63-9.00
Exercised -- (11,064) 3.00-7.00
Canceled 81,213 (81,213) 3.00-13.75
Shares expired from 1986 plan (32,331) -- --
======== ======== ============
Outstanding, September 30, 1996 265,525 784,270 $3.00-$14.00
======== ======== ============
At September 30, 1996, options to purchase 301,797 shares at prices ranging from
$3.00 to $14.00 per share were exercisable.
Employee Stock Purchase Plan
The Company has adopted an employee stock purchase plan under which the sale of
150,000 shares of its Common Stock has been authorized. The stock purchase plan
is based on six-month offering periods and no more than 30,000 shares of Common
Stock are available for purchase during each offering period. Shares are
purchased at the end of each offering period at 85% of the fair market value of
the shares on the first or last day of the offering period, whichever is lower.
Eligible employees may authorize payroll deductions not to exceed the lesser of
10% of their compensation or $2,500 during each six-month offering period. Under
the plan, 33,100 shares were issued at an average price of $6.85 during the year
ended September 30, 1996.
Preferred Stock
Under the Company's Certificate of Incorporation, the Company may issue up to
1,000,000 shares of preferred stock with such rights, designations and
preferences as the Company's Board of Directors may determine, prior to issuance
of any shares of such preferred stock. The Company to date has not issued any
shares of its authorized preferred stock.
F-13
<PAGE>
7. Employee Benefit Plan
The Company sponsors an employee savings plan that provides for eligible
employees to make pre-tax contributions up to 15% of eligible compensation,
subject to certain limitations imposed by Section 401(k) of the Internal Revenue
Code. The Company matches 50% of the first 4% of the employee's compensation, up
to a maximum of $1,000 per year. In addition, the Company made discretionary
contributions representing 2% of net income to the plan in each of the three
years in the period ended September 30, 1996. The Company's total contributions
were approximately $184,000, $168,000 and $127,000 for the years ended September
30, 1996, 1995 and 1994, respectively.
8. Segment Reporting
The Company, operating in a single industry segment, designs, manufactures,
markets and supports SMT assembly equipment and related peripherals. The
Company's operations by geographic area are as follows (in thousands):
<TABLE>
<CAPTION>
United
States Europe Eliminations Consolidated
------ ------ ------------ ------------
<S> <C> <C> <C> <C>
Year ended September 30, 1996:
Total net sales:
Unaffiliated customers $50,448 $21,143 $ -- $71,591
Interarea transfers 12,541 5,780 (18,321) --
=======
Total $62,989 $26,923 $(18,321) $71,591
======= ======= ======== =======
Income from operations $ 5,048 $ 329 $ (1,488) $ 3,889
======= ======= ======== =======
Total assets $44,925 $10,355 $(11,457) $43,823
======= ======= ======== =======
Year ended September 30, 1995:
Total net sales:
Unaffiliated customers $48,301 $14,290 $ -- $62,591
Interarea transfers 8,780 3,734 (12,514) --
======= ======= ======== =======
Total $57,081 $18,024 $(12,514) $62,591
======= ======= ======== =======
Income from operations $ 3,232 $ 889 $ (184) $ 3,937
======= ======= ======== =======
Total assets $41,746 $ 9,423 $ (9,994) $41,175
======= ======= ======== =======
Year ended September 30, 1994:
Total net sales:
Unaffiliated customers $42,194 $ 8,582 $ -- $50,776
Interarea transfers 5,124 1,165 $ (6,289) --
------- ------- --------- -------
Total $47,318 $ 9,747 $ (6,289) $50,776
======= ======= ========= =======
Income from operations $ 4,943 $ 704 $ (231) $ 5,416
======= ======= ========= =======
Total assets $28,381 $ 3,365 $ (1,827) $29,919
======= ======= ========= =======
</TABLE>
Interarea transfers primarily represent sales to and from the Company's United
Kingdom subsidiaries. These transfers are made at prices to recover cost, plus
an appropriate markup for profit, and have been eliminated from consolidated net
sales.
F-14
<PAGE>
Sales by geographic area made by the Company's United States operations are as
follows (in thousands):
Year Ended September 30,
------------------------
1996 1995 1994
---- ---- ----
United States $40,944 $38,433 $34,273
Pacific 5,644 5,043 4,992
Canada and Latin
America 3,860 4,568 2,527
Other -- 257 402
------- ------- -------
$50,448 $48,301 $42,194
======= ======= =======
9. Litigation
In March 1995, a shareholder of the Company filed a complaint in the United
States District Court for the Eastern District of Pennsylvania (the "Action")
against the Company, two of its executive officers and two of its directors (one
of which was also sued as an executive officer) alleging that, during the period
December 23, 1994 through March 7, 1995, the defendants knowingly or recklessly
misrepresented or omitted material information about the Company, its prospects
and earnings, and knowingly or recklessly misrepresented or omitted information
about the status and operation of certain software used in the Company's
products in violation of Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934, as amended, and common law. During the year ended September 30,1996,
the Company, to avoid the uncertainties of litigation and without admitting any
wrongdoing with respect to any of the claims alleged in the Action, entered into
a final settlement agreement and related documents, which has received court
approval. Under this agreement, the Company, together with its directors and
officers liability insurer, paid an aggregate of $2,450,000 in settlement of all
claims. Total cost (including legal fees) to the Company, net of the amount paid
by such insurer, was $1,467,000. During the years ended September 30, 1996 and
1995, the Company recorded $1,287,000 and $180,000 of expenses, relating to the
settlement of this litigation, respectively.
In July 1996, the Company was named a defendant in a patent infringement lawsuit
filed by The Zevatech Group in Munich, Germany. The complaint alleges that the
Company infringed on the plaintiff's German 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. Management
believes the lawsuit to be without merit or that the Company has meritorious
defenses and intends to vigorously defend itself against the lawsuit.
Accordingly, no provision for this lawsuit has was recorded during fiscal 1996.
10. Acquisition of SMTech Limited
In January 1995, the Company acquired all of the outstanding capital stock of
SMTech Limited ("SMTech"), a manufacturer of screen printers located in the
United Kingdom. The Company paid $2,500,000 in cash, paid off approximately
$599,000 of SMTech debt and issued 50,370 restricted shares of the Company's
Common Stock with an aggregate value of approximately $567,000. The Company
recorded goodwill of $3,066,000 related to the acquisition that is being
amortized over ten years. The acquisition was financed with a $3.5 million term
loan (See Note 3).
F-15
<PAGE>
The Company acquired SMTech from Investech SA ("Investech"), a French company,
which owned 75% of the equity in SMTech, and from Messrs. David Wheatley and
Richard Willshere, who owned an aggregate of 25% of the equity of SMTech. In
connection with the SMTech acquisition, the Company also entered into a
five-year consulting agreement with Mr. Dominique Henry, the controlling
stockholder of Investech. The Company makes quarterly payments to Mr. Henry
under the consulting agreement totaling $500,000 over a five year period. Under
the consulting agreement, Mr. Henry advises the Company about prospective
customers for the Company's products, principally located in countries that
comprised the former USSR or former member countries of the Warsaw Pact.
F-16
<PAGE>
Quad Systems Corporation
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
COL.A COL.B COL. C COL. D COL. E
--------- -------------- ------------------------------ ------------- ------------
Additions
------------------------------
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts Deductions End of
Description of Period Expenses -Describe Describe Period
----------- --------- -------- --------- -------- ------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $ 344,000 $ 252,000 $ -- $ 38,000 (1) $ 558,000
Reserve for inventory
obsolescence 170,000 524,000 -- 329,000 (2) 365,000
---------- ---------- ------- ---------- ----------
Total $ 514,000 $ 776,000 $ -- $ 367,000 $ 923,000
========== ========== ======= ========== ==========
Product Warranty Liability $ 697,000 $1,369,000 $ -- $1,430,000 (3) 636,000
========== ========== ======= ========== ==========
Reserve for product returns and
allowances $ 156,000 $ (36,000) $ -- $ -- $ 120,000
========== ========== ======= ========== ==========
Year ended September 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $ 558,000 $ 260,000 $ -- $ -- $ 818,000
Reserve for inventory
obsolescence 365,000 535,000 -- 20,000 (2) 880,000
---------- ---------- ------- ---------- ----------
Total $ 923,000 $ 795,000 $ -- $ 20,000 $1,698,000
========== ========== ======= ========== ==========
Product Warranty Liability $ 636,000 $2,508,000 $ -- $2,011,000 (3) $1,133,000
========== ========== ======= ========== ==========
Reserve for product returns and
allowances $ 120,000 $ 643,000 $ -- $ -- $ 763,000
========== ========== ======= ========== ==========
Year ended September 30, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts $ 818,000 $ (153,000) $ -- $ 32,000 $ 633,000
Reserve for inventory
obsolescence 880,000 744,000 -- 886,000 (2) 738,000
---------- ---------- ------- ---------- ----------
Total $1,698,000 $ 591,000 $ -- $ 918,000 $1,371,000
========== ========== ======= ========== ==========
Product Warranty Liability $1,133,000 $2,866,000 $ -- $2,511,000 (3) $1,488,000
========== ========== ======= ========== ==========
Reserve for product returns and
allowances $ 763,000 $ (288,000) $ -- $ -- $ 475,000
========== ========== ======= ========== ==========
</TABLE>
- ----------
(1) Uncollectible accounts written off, net of recoveries.
(2) Disposals of obsolete inventory.
(3) Warranty costs paid during the year.
S-1
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. No.
--- ---
3.1 Certificate of Incorporation of the Registrant, as amended -
Incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the
Registrant's Registration Statement on Form S-1 (No. 33-60588) filed
with the Securities and Exchange Commission on May 7, 1993.
3.2 By-Laws of the Registrant, as amended - Incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 (No.
33-60588) filed with the Securities and Exchange Commission on April 5,
1993.
*10.1 1986 Stock Option Plan, as amended - Incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-8 (No.
33-71590) filed with the Securities and Exchange Commission on November
12, 1993.
*10.2 1993 Stock Option Plan, as amended - Incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-8 (No.
333-04755) filed with the Securities and Exchange Commission on May 30,
1996.
*10.3.1 Deferred Compensation Agreement dated September 30, 1994, between the
Company and David W. Smith Incorporated by references to Exhibit 10.3.1
filed under the Company's Annual Report on Form 10-K for the fiscal
year ended September 24, 1995.
*10.3.2 Deferred Compensation Agreement dated September 30, 1994, between the
Company and Anthony R. Drury Incorporated by reference to Exhibit
10.3.2 filed under the Company's Annual Report on Form 10-K for the
fiscal year ended September 24, 1995.
10.4.1 Agreement relating to the acquisition of capital shares in SMTech
Limited, dated January 27, 1995, among the Company, Investech SA and
Messrs. David Wheatley and Richard Willshere - Incorporated by
reference to Exhibit 2.1 filed under the Company's Current Report on
Form 8-K filed with the Securities and Exchange Commission on January
27, 1995.
10.4.2 Consulting agreement dated January 27, 1995, among the Company, Mr.
Dominique Henry,Quad Europe Limited, Quad Holdings Limited and SMTech
Limited - Incorporated by reference to Exhibit 2.2 filed under Current
Report on Form 8-K filed with the Securities and Exchange Commission on
January 27, 1995.
10.4.3 Term loan agreement dated January 24, 1995, among the Company,
CoreStates Bank, N.A. and United Jersey Bank - Incorporated by
reference to Exhibit 2.3 filed under Current Report on Form 8-K filed
with the Securities and Exchange Commission on January 27, 1995.
o10.4.4 Amendment to Term Loan Agreement dated as of December 4, 1995,
between the Company and CoreStates Bank, N.A. and United Jersey Bank
(now Summit Bank).
- ----------
* Constitutes compensatory plan or arrangement required to be filed as an
exhibit to this form.
o Filed herewith
<PAGE>
Exhibit Page
No. No.
- ------ ----
10.5.1 Lease dated May 23, 1989, between the Registrant and F.I.A. Profile
Fund I, as amended Incorporated by reference to Exhibit 10.3 to the
Registrant's Registration Statement on Form S-1 (No. 33-60588) filed
with the Securities and Exchange Commission on April 5, 1993.
o10.5.2 Lease dated August 27, 1996, between the Registrant and Marave
Associates, L.P.
10.6 Agreement dated March 19, 1993, among the Registrant, A.S.Z. de
Ferranti and Ferranti Limited, relating to the Registrant's acquisition
of ZCR Limited (now Quad Europe Limited) - Incorporated by reference to
Exhibit 10.5.1 to the Registrant's Registration Statement on Form S-1
(No. 33-60588) filed with the Securities and Exchange Commission on
April 5, 1993.
o10.7.1 Loan Agreement dated as of December 4, 1995, between the Company and
United Jersey Bank (now Summit Bank) and CoreStates Bank, N.A.
o10.7.2 Amendment to Loan Agreement dated as of September 29, 1996, between the
Company and Summit Bank and CoreStates Bank, N.A.
10.7.3 Revolving Credit Loan Agreement dated as of February 23, 1994, between
the Company and United Jersey Bank/South, N.A. - Incorporated by
reference to Exhibit 10.5 filed under the Company's Annual Report on
Form 10-K for the fiscal year ended September 25, 1994.
*10.8 401(k) Salary Reduction Plan and Trust dated October 1, 1989, as
amended - Incorporated by reference to Exhibit 10.8 to the Registrant's
Registration Statement on Form S-1 (No. 33- 60588) filed with the
Securities and Exchange Commission on April 5, 1993.
10.9 Agreement dated November 1, 1993, between the Registrant and Samsung
Aerospace Industries, Ltd. - Incorporated herein by reference to
Exhibit 10.9 filed under the Company's Annual Report on Form 10-K for
the fiscal year ended September 26, 1993.
10.10 Agreement dated June 20, 1996 between the Registrant and Samsung
Aerospace Industries, Ltd.- Incorporated herein by reference to Exhibit
10.1 filed on Form 10-Q for the period ended June 23, 1996 (portions
redacted pursuant to SEC order granting confidential treatment to
certain provisions).
*10.11 Quad Systems Corporation Employee Stock Purchase Plan, as amended -
Incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-8 (No. 33-93436) filed with the
Securities and Exchange Commission on June 13, 1995.
o11 Statement regarding computation of per share earnings.
o22 Subsidiaries of the registrant
o23 Consent of Ernst & Young LLP.
- ----------
o Filed herewith
EXHIBIT 10.4.4
AMENDMENT TO TERM LOAN AGREEMENT
This Amendment to Term Loan Agreement ("Amendment") is made this Fourth day
of December, 1995 among QUAD SYSTEMS CORPORATION, a Delaware corporation (the
"Borrower"), CORESTATES BANK, N.A., a national banking association and UNITED
JERSEY BANK ("UJB"), a New Jersey state bank (individually a "Bank" and
collectively the "Banks") and CORESTATES BANK, N.A., as agent for the Banks
hereunder (in such capacity the "Agent").
WHEREAS, the Borrower and the Banks entered into a Term Loan Agreement
dated as of January 24, 1995 (the "Agreement");
WHEREAS, the Borrower and the Banks desire to amend certain provisions of
the Agreement.
NOW THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
1. All capitalized words used herein shall have the meaning ascribed
to them in the Agreement unless such terms are defined herein in which case
they shall have the meaning ascribed to them herein.
2. The Agreement is hereby amended by adding the definition of
"Capital Leases" under Section 1.01 to read as follows:
"`Capital Leases' means all leases which have been or should be
capitalized on the books of the lessee in accordance with GAAP".
3. The Agreement is hereby amended by adding the definition of
"Domestic Subsidiaries" under Section 1.01 to read as follows:
"`Domestic Subsidiaries' means all Subsidiaries of the Borrower,
all Subsidiaries of the Borrower's Subsidiaries, and all Subsidiaries
of the Subsidiaries of the Borrower's Subsidiaries organized and
existing under the laws of a state of the United States of America."
4. The Agreement is hereby amended by adding the definition of
"Foreign Subsidiaries" under Section 1.01 to read as follows:
<PAGE>
"`Foreign Subsidiaries' means Quad Foreign Sales Corporation,
Quad Systems Holding Limited, SM Tech Limited and Quad Europe Limited
and any other Subsidiaries of Quad, Subsidiaries of the Borrower's
Subsidiaries and Subsidiaries of the Subsidiaries of the Borrower's
Subsidiaries organized under the laws of any country or subdivision
thereof other than the laws of the United States of America or any
state thereof."
5. The Agreement is hereby amended by adding the definition of
"Guarantor" under Section 1.01 to read as follows:
"`Guarantor(s)' means Hitech Finance Company, Trimark Investment
Corp. And Quad Leasing Corp."
6. The Agreement is hereby amended by adding the definition of
"Guaranty Agreement" to Section 1.01 to read as follows:
"`Guaranty Agreements' means the unconditional guarantee of each
Guarantor of the obligations of the Borrower to the Banks
substantially in the form of Exhibit B hereto".
7. The Agreement is amended by changing the definition of Loan
Document(s) under Section 1.01 to read in its entirety as follows:
"`Loan Document(s)' means this Agreement, the Notes, and the
Guaranty Agreements."
8. The Agreement is hereby amended by deleting the definition of
"Pledgor" under Section 1.01.
9. Clause (3) of Section 2.19 ("Prepayment Indemnification" ) is
hereby restated to correct two typographical errors.
"(3) Any payment or prepayment of the Term Loans (including a
Term Loan made pursuant to Section 2.22 hereof) on a date or in an
amount other than on the installment dates and in the amounts provided
for herein and in the Term Notes including but not limited to any
payment or prepayment pursuant to acceleration of said Loan by the
Banks under Section 8.01."
10. Section 2.21 of the Agreement ("Security for the Loans") is hereby
amended to read in its entirety as follows:
2
<PAGE>
"SECTION 2.21. Security for the Loans. As security for the Loans and
for all amounts payable hereunder and under the Notes as well as for
all other existing and future liabilities, whether absolute or
contingent, due or to become due of the Borrower to the Bank under any
other loans or extensions of credit by the Banks to the Borrower,
including without limitation, the Loan Agreement dated December 4, 1995
between the Borrower and the Guarantors and the Banks, with United
Jersey Bank Acting as agent for the Banks, ("UJB Loan Agreement"), for
the Banks shall have the unlimited guarantees of the Guarantors.
To the foregoing ends, the Borrower will contemporaneously with the
execution and delivery of the Amendment procure the execution and
delivery of the Guaranty Agreement by the Guarantors."
11. New Section 2.22 ("Fixed Rate Term Loans") is added to the
Agreement to read as follows:
"SECTION 2.22. Fixed Rate Term Loans. Upon the request of the Borrower
and agreement of the Banks, all outstanding types of Loans may be
converted to two Term Loans which bear interest at a per annum fixed
rate of interest agreed to by the Borrower and the Banks and such Term
Loans shall be evidenced by and repaid in accordance with replacement
Term Notes substantially in the form of Exhibit A attached hereto."
12. Section 4.04. ("Financial Statements; Accuracy of Information") is
hereby amended to read in its entirety to read as follows:
"(1) The consolidated and consolidating balance sheet of the
Borrower and its Domestic and Foreign Subsidiaries as of September 30,
1994, and the related consolidated and consolidating statements of
income and retained earnings and cash flows of the Borrower and its
Domestic and Foreign Subsidiaries for the fiscal year then ended, and
the accompanying footnotes, together with the opinion thereon, dated
September 30, 1994 of Ernst & Young, independent certified public
accountants, copies of which have been furnished to each Bank, fairly
present the financial condition of the Borrower and its Domestic and
Foreign Subsidiaries as of such date and the results of the operations
of the Borrower and its Domestic and Foreign Subsidiaries for the
periods covered by such statements, all in accordance with GAAP
consistently applied, and since September 30, 1994, there has been no
material adverse change in the financial condition, business, or
operations of the Borrower and its Domestic and Foreign Subsidiaries.
There are no liabilities of the Borrower and its Domestic and Foreign
Subsidiaries, fixed or contingent, which are material but are not
reflected in the financial statements or in the notes thereto, other
than liabilities arising in the ordinary course of business since
September 30, 1994.
3
<PAGE>
(2) All information, financial statements, exhibits and reports
furnished by the Borrower and the Guarantors to the Banks in
connection with this Agreement and the borrowings contemplated hereby
are, and all such information, financial statements, exhibits and
reports hereafter furnished by the Borrower and the Guarantors to the
Banks in such connection will be true and correct in every material
respect on the date furnished to the Banks, and no such information,
financial statements, exhibits or reports contain or will contain any
material misstatement of fact or omit or will omit to state a material
fact or any fact necessary to make the statement contained therein not
materially misleading."
13. Paragraphs (1) and (2) under Section 5.08 ("Reporting
Requirements") are hereby amended to read in their entirety to read as
follows:
"(1) As soon as available and in any event within sixty (60) days
after the end of each quarter of each fiscal year of the Borrower,
consolidated and consolidating balance sheets of the Borrower as of
the end of such quarter, Consolidated and Consolidating statements of
income and retained earnings of the Borrower for the period commencing
at the end of the previous fiscal year and ending with the end of such
quarter, a consolidated statement of cash flow of the Borrower for the
portion of the fiscal year ended with the last day of such quarter,
and an accounts receivable aging report for the Borrowers and the
Guarantors, all in reasonable detail and stating in comparative form
the respective consolidated and consolidating figures for the
corresponding date and period in the previous fiscal year and all
prepared in accordance with GAAP consistently applied and certified by
the chief financial officer of the Borrower (subject to year-end
adjustments);
(2) As soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Borrower, a consolidated and
consolidating balance sheet of the Borrower as of the end of such
fiscal year, a consolidated and consolidating statement of income and
retained earnings of the Borrower for such fiscal year, and a
consolidated statement of cash flow of the Borrower for such fiscal
year, all in reasonable detail and stating in comparative form the
respective consolidated and consolidating figures for the
corresponding date and period in the prior fiscal year and all
prepared in accordance with GAAP consistently applied and as to the
consolidated statements accompanied by an opinion thereon acceptable
to the Banks by Ernst & Young or other independent accountants
selected by the Borrowers and acceptable to the Agent;"
4
<PAGE>
14. Sections 7.01 through 7.06 are hereby amended to read in their
entirety as follows:
"Article VIIA
Financial Covenants of Consolidated Group
So long as either of the Notes shall remain unpaid:
SECTION 7A.01. Minimum Tangible Net Worth. Quad and its Domestic and
Foreign Subsidiaries will maintain at all times a Consolidated Tangible Net
Worth of not less than:
Period Amount
------ ------
9/30/95 - 9/29/96 $20 million
9/30/96 - 9/29/97 $23 million
9/30/97 and thereafter $28 million
SECTION 7A.02. Capital Expenditures. Quad and its Domestic and Foreign
Subsidiaries will not permit any Consolidated expenditures for fixed or capital
assets, including additional Capital Leases which would cause the aggregate of
all such expenditures when added to investments permitted under Section 6.8
(excluding investments under 6.08(1) - (4) to exceed One Million Five Hundred
Thousand Dollars ($1,500,000) during any fiscal year.
SECTION 7A.03. Leverage Ratio. Quad and its Domestic and Foreign
Subsidiaries will maintain at all times (as tested quarterly) a ratio of
Consolidated Total Liabilities to Consolidated Tangible Net Worth of not greater
than 1.00 to 1.00.
SECTION 7A.04. Cash Flow Ratio. Quad and its Domestic and Foreign
Subsidiaries will maintain at all times (as tested quarterly) a ratio of the sum
of earnings before taxes, depreciation, amortization and interest expense to the
sum of all current maturities of indebtedness for borrowed money and interest
expense (including Capital Lease payments of not less than 1.75 to 1.00 for the
prior four quarters.
SECTION 7A.05. Current Ratio. Quad and its Domestic and Foreign
Subsidiaries will maintain at all times (as tested quarterly) a current ratio of
2.00 to 1.00.
5
<PAGE>
SECTION 7A.06. Intercompany Transfers. Notwithstanding anything to the
contrary contained herein, net transfers from the Borrower and the Guarantors to
Non-Borrower Subsidiaries shall not exceed Two Million Dollars ($2,000,000)
during any twelve month period.
ARTICLE VIIB
Financial Covenants of Borrower Group
So long as either of the Notes shall remain unpaid:
Section 7B.01. Minimum Tangible Net Worth. The Borrower and the Guarantors
will maintain at all times (as test quarterly) a Tangible Net Worth excluding
investments in and receivables from non-Guarantor Subsidiaries of not less than:
Period Amount
------ ------
9/30/95 - 9/29/96 $15 million
9/30/96 - 9/29/97 $17 million
9/30/97 and thereafter $19 million
Section 7B.02. Minimum Working Capital. The Borrower and the Guarantors
will maintain at all times (as tested quarterly) Working Capital excluding from
current assets all receivables from non-Guarantor Subsidiaries of not less than:
Period Amount
------ ------
9/30/95 - 9/29/96 $15 million
9/30/96 - 9/29/97 $16 million
9/30/97 and thereafter $17.5 million
Section 7B.03. Cash Flow Ratio. The Borrower and the Guarantors will
maintain at all times (as tested quarterly) a ratio of the sum of earnings
before taxes, depreciation, amortization and interest expense to the sum of all
current maturities of indebtedness for borrowed money and interest expense
(including Capital Lease payments) of not less than 1.5 and 1.0 for the prior
four quarters."
15. Subsection (3) of Section 8.01 ("Events of Default") is hereby amended
to read in its entirety as follows:
6
<PAGE>
"(3) The Borrower or any Guarantor shall fail to perform or observe
any term, covenant, or agreement contained in any Loan Document (other than
the Notes) to which it is a party on its part to be performed or observed;"
Subsection (6) of Section 8.01 ("Events of Default") is hereby
amended in its entirety to read as follows:
"(F) One or more judgments, decrees, or orders for the
payment of money in excess of One million Dollars ($1,000,000) in
the aggregate shall be rendered against the Borrower or any
Guarantor and such judgments, decrees, or orders shall continue
unsatisfied and in effect for a period of sixty (60) consecutive
days without being vacated, discharged, satisfied or bonded
pending appeal; or"
16. Subsection (8) of Section 8.01 ("Events of Default") is hereby amended
to read in its entirety as follows:
"(8) Any Guaranty Agreements shall, at any time after its execution
and delivery and for any reason, cease to be in full force and effect or
shall be declared null and void, or the validity or enforceability thereof
shall be contested by any Pledgor, or any Pledgor shall deny it has any
further liability or obligation under or shall fail to perform its
obligations under a Collateral Pledge Agreement; or"
17. Section 10.2 ("Notice, Etc.") under the caption if to CoreStates Bank
is amended to read as follows:
"If to CoreStates Bank, N.A.: 2240 Butler Pike
or the Agent at: Suite 300
Plymouth Meeting, PA l9462
Attn: William F. Dohmen
Vice President
Fax# (215) 834-2069"
18. This Amendment shall become effective as of the date first above
written.
19. The execution of this Amendment by the duly authorized officers of the
Borrower shall be deemed to represent and warrant the following to the Bank:
(a) The representations and warranties set forth in Article IV of the
Term Loan Agreement are true and correct as of the date of this Amendment
(references to financial statements of the Borrower shall be deemed to be
references to the latest financial statements of the Borrower and
references to the Pledgors shall be deemed to be references to the
Guarantors);
7
<PAGE>
(b) No Event of Default under the Term Loan Agreement, as amended, and
no event which with the giving of notice or the passage of time or both,
would become such an Event of Default, has occurred as of such date;
(c) Except as previously disclosed to the Bank there has been no
material adverse change in the financial condition, business or prospects
of the Borrower since the date of the Term Loan Agreement; and
(d) Borrower has full corporate power and authority to execute,
deliver and perform this Amendment to Term Loan Agreement and all necessary
approvals have been obtained authorizing the execution, delivery and
performance of this Amendment to Term Loan Agreement.
20. Borrower shall deliver to the Bank on or before the date hereof:
(a) This Amendment duly executed;
(b) The Guaranty Agreement of each Guarantor;
(c) A certified copy of resolutions of the Board of Directors of
Borrower authorizing the execution, delivery and performance of this
Amendment;
(d) A certificate of the Secretary or Assistant Secretary of Borrower
as to the incumbency and specimen signatures of the officers signing this
Amendment;
(e) A certified copy of resolutions of the Board of Directors each
Guarantor authorizing the Guaranty Agreement of each Guarantor;
(f) A certificate of the Secretary or Assistant Secretary of each
Guarantor as to the incumbency and specimen signatures of the officers
signing each Guaranty Agreement;
(g) A favorable written opinion of outside counsel the Guarantors
dated as of the date hereof and substantially in the form of Exhibit C
hereto; and
(h) Bank agrees, subject to compliance by the Borrower with the
conditions contained in Section 20 hereof, to cancel the Intercreditor
Agreement dated January 24, 1995 among CoreStates Bank, N.A., United Jersey
Bank and Quad Systems Corporation and to cancel the Collateral Pledge
Agreement and return the shares pledged pursuant thereto to Borrower.
21. Except as expressly modified and amended hereby, the Term Loan
Agreement is and shall remain in full force and effect.
8
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
QUAD SYSTEMS CORPORATION
By: _____________________________________________
UNITED JERSEY BANK
By: _____________________________________________
CORESTATES BANK, N.A. for itself and as Agent
By: _____________________________________________
9
EXHIBIT 10.5.2
AGREEMENT OF LEASE
BETWEEN
MARAVE ASSOCIATES, L.P.
AS LANDLORD
AND
QUAD SYSTEMS CORPORATION
AS TENANT
<PAGE>
OFFICE AND MANUFACTURING SPACE
LEASE made this 27th day of August, 1996, by and between MARAVE ASSOCIATES,
L.P. (hereinafter called "Landlord"), and QUAD SYSTEMS CORPORATION, a
Pennsylvania Corporation (hereinafter called "Tenant").
WITNESSETH, THAT:
1. DEMISED PREMISES. Landlord, for the term and subject to the
provisions and conditions hereof, leases to Tenant, and Tenant accepts from
Landlord, the space (hereinafter referred to as the "Demised Premises") and more
particularly described by the cross-hatched area on the floor plans annexed
hereto as Exhibit "A" consisting of approximately 106,000 rentable square feet
on the ground & upper floor of the building (hereinafter referred to as the
"Building") known as the 2405 Maryland Avenue located in Willow Grove,
Pennsylvania to be used by Tenant for the purpose of Administrative Office and
Manufacturing and for no other purpose, together with the parking area shown on
Exhibit "A" which when striped shall contain a minimum of four hundred (400)
full size parking spaces, including without limitation, handicapped parking
spaces and van parking spaces in an amount sufficient to comply with applicable
laws; and together with the basement space consisting of approximately 3500
square feet which may be used for storage ancillary to Tenant's operations.
Title to the Demised Premises is expressly subject to those matters of record
title set forth on Exhibit "A" attached hereto (the "Permitted Title
Exceptions") and none other, there is no mortgage existing on the property at
the time of execution. Once Landlord acquires financing there will also be
documents of public record customarily required by Landlord's lender in
connection with Landlord's financing for the Building. Landlord warrants and
represents to Tenant that there are no encumbrances to title now nor will any
others exist during the term except for mortgages which comply with Section 15
hereof. Landlord warrants and represents that the Premises are zoned for
Manufacturing and Administrative Office uses permitted hereunder. Landlord
warrants and represents that Tenant shall have suitable exclusive access to
Maryland Avenue to permit it to conduct its manufacturing operations and
business.
2. TERM. Tenant shall use and occupy the Demised Premises for a term of
ten (10) years and zero (0) months commencing on the first day of December,
1996, and ending on the thirtieth day of November, 2006 unless sooner terminated
as herein provided. Tenant shall have the right to extend the term of this Lease
for two (2) additional five (5) year periods for the Minimum Rent as shown on
Schedule A attached hereto upon the following terms and conditions:
a. the lease shall be in full force and effect and no default shall
exist beyond any applicable grace or cure period;
b. and Tenant shall have given Landlord nine (9) months written notice
of its intention to exercise the right to extend the Lease; provided,
however, in the event Tenant fails to notify Landlord of its intention to
exercise any renewal option (1) such renewal option shall not be rendered
ineffective until Landlord provides Tenant with a reminder notice which
shall provide Tenant with ten (10) days in which to render the renewal
notice. In the event Tenant fails to respond to the reminder notice within
the ten (10) days period, the renewal option and any succeeding renewal
option shall no longer be applicable.
1
<PAGE>
3. MINIMUM RENT.
A. Minimum Rent shall be in accordance with the Rider attached hereto
as Schedule A. Minimum Rent and any other Rent due under this Lease shall
commence thirty (30) days after Substantial Completion of Landlord's Work
(as hereinafter defined), but no earlier than December 19, 1996.
B. All rent and other sums due to Landlord hereunder (hereinafter
called "Rent") shall be made payable to Marave Associates, L.P. and mailed
to the office of Landlord at P. O. Box 13700 Philadelphia, Pennsylvania,
19191-1062 or to such other party or at such other address as Landlord may
designate, from time to time, by written notice to Tenant, without demand
and without deduction, set-off or counterclaim (except to the extent demand
or notice shall be expressly provided for herein).
C. If Landlord, at any time or times, shall accept Rent or any other
sum due to it hereunder after the same shall become due and payable, such
acceptance shall not excuse delay upon subsequent occasions, or constitute
or be construed as, a waiver of any of Landlord's rights hereunder.
D. If the term of this Lease begins on a day other than the first day
of a month, rent from such day until the first day of the following month
shall be prorated at the rate of one-thirtieth of the fixed monthly rental
for each day of the first full calendar month of the term hereof (and, in
such event, the installment of rent paid at execution hereof shall be
applied to the rent due for the first full calendar month of the term
hereof).
E. This Lease is entered into by the parties hereto conditioned upon
and subject to (i) Landlord's acquisition of the building where Tenant's
principal manufacturing operations and administrative offices are currently
located at 2 Electronic Drive, Horsham, Pennsylvania (the "Current
Facility"), and (ii) Landlord canceling Tenant's existing lease ("Existing
Lease") at the Current Facility on or before October 15th, 1996. In the
event that Landlord fails to acquire the Current Facility and cancel
Tenant's Lease at the Current Facility on or before October 15, 1996, the
Landlord shall have the option to either (i) terminate the lease effective
October 15, 1996, whereupon the Lease shall terminate and become null and
void, or (ii) affirm the lease, whereupon the Minimum Rent shall be reduced
by the monthly minimum rental under its Existing Lease until such time that
the Existing Lease is terminated. In addition to the Minimum Rent
reduction, Tenant shall deduct from Minimum Rent and Rent all other costs
and expenses which it shall incur pursuant to its Existing Lease, including
without limitation, maintenance, cleaning, repairs, and taxes..
4. PAYMENT OF TAXES, OPERATING COSTS, COST OF ELECTRICITY.
A. Definitions. As used in this Section 4, the following terms shall be
defined as hereinafter set forth:
(1) "Taxes" shall mean all real estate taxes and assessments, general and
special, ordinary or extraordinary, foreseen or unforeseen, imposed upon the
Building or with respect to the ownership thereof and the parcel of land
appurtenant thereto. If, due to a future change in the method of taxation, any
franchise, income, profit or other tax, however designated, shall be levied or
imposed in substitution, in whole or in part, for (or in lieu of) any tax which
would otherwise be included within the definition of Taxes, such other tax shall
be deemed to be included within Taxes as defined herein.
(2) "Tenant's Fraction" shall be 106,000/106,000
(3) Operating Expenses
(A) Operating Expenses shall mean, except as hereinafter limited,
Landlord's actual out-of-pocket expenses in respect of the operation,
maintenance and management of the Building (after deducting any
reimbursement, discount, credit, reduction or other allowance received by
Landlord) and shall include, without limitation: (1) wages and salaries
(and taxes imposed upon employers with respect to such employees) for
rendering service in the normal operation, cleaning, maintenance, and
repair of the Building; (2) contract costs of contractors hired for the
operation, maintenance and repair of the Building; (3) the cost of steam,
electricity, water and sewer and other utilities (except for electricity
and any other utility, which is separately charged by Landlord to the
Demised Premises as herein provided) chargeable to the operation and
maintenance of the Building; (4) cost of insurance for the Building,
including fire and extended coverage, elevator, boiler, sprinkler leakage,
water damage, public liability and property damage, plate glass, and rent
protection, but excluding any charge for increased premiums due to acts or
omissions of other occupants of the Building or because of extra risk which
are reimbursed to Landlord by such other occupants; (5) supplies; (6) legal
and accounting expenses; (7) taxes; and (8) management fees.
The term "Operating Expenses" shall not include: (1) the cost of
redecorating or repairing not provided on a regular basis to tenants of the
Building; (2) the cost of any repair or replacement items which, by
standard accounting practice, should be capitalized; (3) any charge for
depreciation, interest or rents paid or incurred by Landlord; (4) any
charge for Landlord's income tax, excess profit taxes, franchise taxes or
similar taxes on Landlord's business; and (5) commissions.
(4) "Demised Rentable Square Feet" shall mean 106,000 square feet.
(5) "Rentable Square Feet in the Building" shall mean 106,000 square feet.
B. Payment of Operating Expenses and Taxes.
(1) For and with respect to each calendar year of the term of this
Lease (and any renewals or extensions thereof) there shall accrue, as
additional rent, an amount equal to the product obtained by multiplying the
Tenant's Fraction by the amount of Operating Expenses and Taxes for such
year (appropriately pro-rated for any partial calendar year included within
the beginning or end of the term).
(2) Landlord shall furnish to Tenant as soon as reasonably possible
after the beginning of each calendar year of the term hereof:
(a) A statement (the "Expense Statement") setting forth (1)
Operating Expenses for the previous calendar year, and (2) Tenant's
Fraction of the Operating Expenses for the previous calendar year; and
(b) A statement of Landlord's good faith estimate of Operating
Expenses for the current calendar year, and the amount of Tenant's
Fraction thereof (the "Estimated Share"), for the current calendar
year.
(3) Beginning with the next installment of minimum rent due after
delivery of the foregoing statements to Tenant, Tenant shall pay to
Landlord, on account of its share of Operating Expenses :
(a) One-twelfth of the Estimated Share multiplied by the number
of full or partial calendar months elapsed during the current calendar
year up to and including the month payment is made, plus any amounts
due from Tenant to Landlord on account of Operating Expenses for prior
periods of time, less:
(b) The amount, if any, by which the aggregate of payments made
by Tenant on account of Operating Expenses for the previous calendar
year exceed those actually due as specified in the Expense Statement.
(4) On the first day of each succeeding month up to the time Tenant
shall receive a new Expense Statement and statement of Tenant's Estimated
Share, Tenant shall pay to Landlord, on account of its share of Operating
Expenses, one-twelfth of the then current Estimated Share. Any payment due
from Tenant to Landlord, or any refund due from Landlord to Tenant, on
account of Operating Expenses not yet determined as of the expiration of
the term hereof shall be made within twenty (20) days after submission to
Tenant of the next Expense Statement.
C. Audit. Tenant shall have the right upon reasonable notice to Landlord to
audit the books and records upon which the Expense Statements are based. In the
event of any discrepancy, Landlord or Tenant shall pay to one another any sums
required. In the event the audit discloses that Tenant has been overcharged by
more than three percent (3%) in any calendar year, Landlord shall pay for the
cost and expense of the audit.
D. Landlord's Obligation. Landlord shall clean and maintain the Demised
Premises including the parking lot in a first class condition and in a manner
suitable and compatible with Tenant's operations. Landlord acknowledges that
Tenant manufactures sophisticated, complex and delicate machinery and will use
best efforts to insure that its maintenance and cleaning shall not affect such
manufacturing operations or work in progress.
E. At any time hereunder, upon thirty (30) days written notice from Tenant
to Landlord, Tenant may elect to provide either the services contemplated
hereunder with respect to the interior of the building, or any portion thereof,
the exterior premises or both. In the event such notice or notices are rendered,
Landlord and Tenant shall adjust the Operating Expenses upon the provision of a
statement from Landlord to Tenant.
F. Landlord warrants and represents that the Demised Premises consist of a
separately assessed tax parcel. Tenant may either contest any tax assessment or
direct Landlord to contest any tax assessment or direct Landlord to contest
expeditiously use its best efforts to contest the applicable assessment.
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5. UTILITIES SEPARATELY CHARGED TO DEMISED PREMISES. Tenant shall be
responsible for all utilities (including gas and electric) which are consumed
within the Demised Premises. All utilities serving the Demised Premises shall be
separately metered.. Utility bills shall be paid by Tenant within)thirty (30)
days after the receipt and non-payment or late payment of such bills shall be
considered a default under this Lease. Landlord warrants and represents that the
utility services are or by the time of Substantial Completion will be adequate
to provide the complete utility needs of Tenant in order to conduct its
manufacturing business and conduct its operations in the Demised Premises.
6. DELETED.
7. CARE OF DEMISED PREMISES.
Tenant agrees, on behalf of itself, its employees and agents, that it
shall:
(A) Comply at all times with any and all Federal, state, and local
statutes, regulations, ordinances, and other requirements of any of the
constituted public authorities relating solely to its use and occupancy of
the Demised Premises and only with respect to the non-structural elements
thereof.
(B) Give Landlord access to the Demised Premises at all reasonable
times, without charge or diminution of rent, to enable Landlord (i) to
examine the same and to make such repairs, additions and alterations as
Landlord may be permitted to make hereunder or as Landlord may deem
advisable for the preservation of the integrity, safety and good order of
the Building or any part thereof; and (ii) upon reasonable notice, to show
the Demised Premises to prospective mortgagees and purchasers and, during
the six (6) months prior to expiration of the term, to prospective tenants;
provided, however, Landlord shall use best efforts not to interfere with
Tenant's manufacturing and business operations with respect to Landlord's
conduct under this sub-section.
(C) Keep the Demised Premises in good order and condition and replace
all glass broken by Tenant, its agents, employees or invitees with glass of
the same quality as that broken, except for glass broken by fire and
extended coverage type risks, and commit no waste in the Demised Premises;
(D) Upon the termination of this Lease in any manner whatsoever,
remove Tenant's goods effects and those of any other person claiming under
Tenant, and quit and deliver up the Demised Premises to Landlord peaceably
and quietly in as good order and condition at the inception of the term of
this Lease or as the same hereafter may be improved by Landlord or Tenant,
reasonable use and wear thereof, damage from fire and extended coverage
type risks, and repairs which are Landlord's obligation excepted. Goods and
effects not removed by Tenant at the termination of this Lease, however
terminated, shall be considered abandoned and Landlord may dispose of
and/or store the same as it deems expedient, the cost thereof to be charged
to Tenant; provided, however, upon the expiration of the Lease, Tenant
shall not be required to repair any holes in the floor or wall necessitated
by the removal of its machinery and equipment, and Tenant shall be
permitted upon termination of the Lease to remove its trade fixtures.
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(F) Not overload, damage or deface the Demised Premises or do any act
which might make void or voidable any insurance on the Demised Premises or
the Building or which may render an increased or extra premium payable for
insurance (and without prejudice to any right or remedy of Landlord
regarding this subparagraph, Landlord shall have the right to collect from
Tenant, upon demand, any such increase or extra premium) provided, however,
Tenant shall be permitted to make alterations to the Demised Premises as it
may deem necessary, in its sole discretion, in connection with its
manufacturing operations, subject to Landlord's reasonable approval. Tenant
shall maintain at its own sole cost adequate insurance coverage for all of
its equipment, furniture, supplies and fixtures and provide Landlord with
certificates evidencing such coverage;
(G) Not make any alteration of or addition to the structural elements
or the exterior of the Demised Premises without the prior written approval
of Landlord (except for work of a decorative nature);
(H) Not install or authorize the installation of any coin operated
vending machines, except for pay phones and the dispensing of cigarettes,
coffee, and similar items to the employees of Tenant for consumption upon
the Demised Premises;
(I) Observe the rules and regulations annexed hereto as Exhibit "B",
as the same may from time to time be amended by Landlord for the general
safety, comfort and convenience of Landlord, occupants and tenants of the
Building; and
(J) Keep the Demised Premises heated at a level of at least forty-five
degrees (45 degrees) to keep the sprinkler system and plumbing from
freezing.
7.5. REPAIRS. Landlord, at its expense will make, or cause to be made,
structural repairs to exterior walls, structural columns, roof penetrations, and
structural floors (excluding, however, doors, door frames, windows and glass)
and repair to all items covered by warranty; provided Tenant shall give Landlord
notice of the necessity for such repairs.
8. SUBLETTING AND ASSIGNING. Tenant shall not assign this Lease without
first obtaining Landlord's prior written consent, which consent may not be
unreasonably withheld or delayed; provided, however, that Tenant shall at all
times remain primarily liable to perform the obligations required under the
Lease. Tenant shall have the right to sub-lease all or any portion of the
Demised Premises in its sole discretion. In addition to the uses permitted under
this Lease, Tenant may sub-lease all or any portion of the Demised Premises to
be used as a warehouse or storage facility provided such use has no
environmental impact on the building. Notwithstanding the foregoing, Tenant
shall have the right to assign this Lease without Landlord's consent if such an
assignment is to (a) another corporation, in connection with the merger of Quad
Systems Corporation with another entity, or (b) any corporation controlling,
controlled by or under common control with Tenant. For the purposes hereof,
"control" shall mean the ownership of a majority of the outstanding voting stock
of a corporation or other majority equity or control interest if not a
corporation, and the power to direct the management and policy of such
corporation or such other entity.
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9. DELAY IN POSSESSION. If Landlord is unable to substantially complete
Landlord's Work on or before December 1, 1996, then, upon Rent Commencement,
Tenant shall be excused from paying rental for an equivalent number of days
between December 1 and the date Landlord substantially completes the Landlord
Work until December 31, 1996. Provided however that if plans are not agreed upon
by August 31st then the work completion deadlines will be extended one day for
each additional day beyond August 31st until the plans are agreed upon.
Notwithstanding the foregoing, if the plans are not agreed to by September 15th,
1996 this lease can be terminated by either party., If Landlord is unable to
substantially complete Landlord's Work on or before December 31, then in
addition to the day for day rent abatement, Tenant shall be excused for paying
rent for a number of days equal to twice the number of days between December 31
and the date Landlord substantially completes Landlord Work. Substantial
Completion shall have the meaning set forth in Section 19.H of this Lease.
Furthermore, if Landlord does not complete Landlord's Work on or before February
28th, 1997, then Tenant may cancel this lease unless such delay is caused by
Tenant changes or delays
10. FIRE OR CASUALTY. Tenant shall give prompt notice to Landlord in case
of any fire or other damage to the Leased Premises or the Building. If, at any
time during the Term (including the construction period) the Leased Premises
shall be partially damaged by fire or other insured casualty, Landlord, except
as otherwise provided herein, shall proceed promptly and with due diligence, and
at its sole cost and expense, to restore the building and Landlord's Work in
conformity with all requirements set forth herein, in connection with the
performance thereof. If:
(a) the Building shall be damaged to the extent of fifty (50%) percent
or more of the cost of replacement thereof;
(b) the Building shall be destroyed or substantially damaged as a
result of a risk which is not covered by Landlord's insurance,
notwithstanding Landlord's compliance with its obligations in respect of
insurance provided herein; or
(c) the Building shall be damaged to the extent of thirty (30%)
percent or more of the cost of replacement thereof during the last two (2)
years of the Term, then, in any such events, Landlord may elect either to
repair the damage as aforesaid, or to cancel this Lease by written notice
of cancellation (the "Fire Termination Notice") given to the Tenant within
ninety (90) days after the date of an occurrence specified in this Section
10. If Landlord elects to repair the damage but doesn't commence
restoration within 90 days of the casualty and diligently prosecute such
work, then the Tenant may cancel this Lease. If Landlord shall give a Fire
Termination Notice to Tenant in the circumstances hereinbefore set forth,
then subject to the provisions hereof, , this Lease shall cease and expire
thirty (30) days after the date upon which Tenant shall receive or refuse
delivery of the same, with such force and effect as though the date of
Tenant's receipt or refusal of the Fire Termination Notice were the
Expiration Date, and Tenant shall vacate and surrender the Leased Premises
to Landlord. Upon the termination of this Lease as aforesaid, Tenant's
liability for the rents and other charges and sums payable hereunder shall
cease as of the date of such damage or destruction, and Landlord shall make
an equitable refund of any rents and other charges paid by Tenant in
advance and not earned. Unless this Lease is terminated by Landlord, as
aforesaid, this Lease shall remain in full force and effect (the parties
hereby waive the provisions of any law to the contrary), and Landlord shall
repair and restore the Leased Premises as provided in this Section 10.
Tenant shall continue the operation of Tenant's business in the part of the
Building not so damaged during any such period to the extent reasonably
practicable from the standpoint of prudent business management. Tenant's
obligation to pay rent shall abate during such period as the Leased
Premises remain unable to be occupied due to damage.
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11. LIABILITY. Deleted.
12. EMINENT DOMAIN.
12.1 If the whole of the Demised Premises, or such part thereof as will
render the remainder unusable for the permitted use hereunder, or otherwise
materially and adversely affect Tenants business shall be acquired or taken by
eminent domain or similar proceedings for any public or quasi-public use or
purpose or by private purchase in lieu thereof; then this Lease and the Term
hereof shall automatically cease and terminate as of the earlier to occur of (a)
the date of title vesting in such proceedings or (b) the date Tenant is ordered
to vacate the Demised Premises and in fact vacates and ceases to use the Demised
Premises. In addition, if thirty (30%) percent or more of the Parking Area shall
be taken within the last two (2) years of the Term, then Tenant may cancel this
Lease effective as of the earlier to occur of (a) and (b) above.
12.2 If fifty (50%) percent or more of the square footage of the Building
and/or fifty (50%) percent or more of the Parking Area shall be so taken, or if
vehicular access to the Parking Area shall be taken without provision being made
for reasonable equivalent substitute access, then Tenant shall have the right to
terminate this Lease by thirty (30) days' prior notice given to the other within
sixty (60) days after earlier to occur of (a) the date of title vesting in such
proceeding or (b) the date Tenant is ordered to vacate the Demised Premises and
in fact vacates and ceases to use the Demised Premises and upon the expiration
of such thirty (30) day period this Lease shall cease and terminate with the
same force and effect as though the date set forth in the said notice were the
date herein fixed for the expiration of the Term.
12.3 All rents payable hereunder:
(a) with respect to the taken portion of the Demised Premises, shall
be paid by the Tenant up to the earlier of the date of title vesting in
such proceeding or the actual taking of possession; and
(b) with respect to the untaken portion of the Demised Premises, shall
be paid by Tenant up to the date this Lease is terminated.
If any part of the Demised Premises shall be so taken and this Lease
shall not be terminated, as aforesaid, then this Lease and all of the terms
and provisions hereof shall continue in full force and effect, except that
the Fixed Net Rent, and all Additional Rent shall each be equitably
apportioned and Landlord shall, upon receipt of the award in condemnation,
diligently and in good faith make all necessary repairs and alterations
(exclusive of Tenant's trade and lighting fixtures, furniture, furnishings,
personal property, decorations, signs and contents) to restore the portion
of the Demised Premises remaining to as near its former condition as the
circumstances will permit, provided, however, that Landlord, in any event,
shall not be required to spend for such repairs and alterations an amount
in excess of the amount received by Landlord as condemnation damages for
the portion of the Demised Premises no so taken, and Tenant, at Tenant's
expense, shall, at its option, make all necessary repairs and alterations
to Tenant's trade and lighting fixtures, furniture, furnishings, personal
property, decorations, signs and contents. Tenant's obligation to pay rent
shall abate during such period as the Leased Premises remain unable to be
occupied due to condemnation.
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13. INSOLVENCY.
(a) The appointment of a receiver or trustee to take possession of all
or a portion of the assets of Tenant, or (b) an assignment by Tenant for
the benefit of creditors, or (c) the institution by or against Tenant of
any proceedings for bankruptcy or reorganization under any state or federal
law (unless, in the case of involuntary proceedings, the same shall be
dismissed within thirty (30) days after institution), or (d) any execution
issued against Tenant which is not stayed or discharged within fifteen (15)
days after issuance of any execution sale of the assets of Tenant, shall
constitute a breach of this Lease by Tenant. Landlord, in the event of such
a breach, shall have, without need of further notice, the rights enumerated
in Section 14 herein.
14. DEFAULT.
A. If Tenant shall fail to pay rent or any other sum payable to
Landlord hereunder within ten (10) days after rent is due, or if Tenant
shall fail to perform or observe any of the other covenants, terms or
conditions contained in this Lease within fifteen (15) days of written
notice from Landlord to Tenant (or such longer period as is reasonably
required to correct any such default, provided Tenant promptly commences
and diligently continues to effectuate a cure or if any of the events
specified in Section 13 occur, or if Tenant vacates or abandons the Demised
Premises during the term hereof or removes or manifests an intention to
remove any of Tenant's goods or property therefrom other than in the
ordinary and usual course of Tenant's business or in the event of an
assignment pursuant to Section 8, then and in any of said cases
(notwithstanding any former breach of covenant or waiver thereof in a
former instance), Landlord, in addition to all other rights and remedies
available to it by law or equity or by any other provisions hereof, may at
any time thereafter:
(1) upon three (3) days notice to Tenant, declare to be
immediately due and payable, on account of the rent and other charges
herein reserved for the balance of the term of this Lease (taken
without regard to any early termination of said term on account of
default), a sum equal to the Accelerated Rent Component (as
hereinafter defined), and Tenant shall remain liable to Landlord as
hereinafter provided; and/or
(2) whether or not Landlord has elected to recover the
Accelerated Rent Component, terminate this Lease on at least fifteen
(15) days notice to Tenant and, on the date specified in said notice,
this Lease and the term hereby demised and all rights of Tenant
hereunder shall expire and terminate and Tenant shall thereupon quit
and surrender possession of the Demised Premises to Landlord in the
condition elsewhere herein required and Tenant shall remain liable to
Landlord as hereinafter provided.
B. For purposes herein, the Accelerated Rent Component shall mean the
aggregate of:
(1) all rent and other charges, payments, costs and expenses due
from Tenant to Landlord and in arrears at the time of the election of
Landlord to recover the Accelerated Rent Component;
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(2) the rent reserved for the then entire unexpired balance of
the term of this Lease (taken without regard to any early termination
of the term by virtue of any default), plus all other charges,
payments, costs and expenses herein agreed to be paid by Tenant up to
the end of said term which shall be capable of precise determination
at the time of Landlord's election to recover the Accelerated Rent
Component; and reduced by the net present value of the net rental
after leasing and fitout costs associated with any lease executed for
the Demised Premises for the same term as the remaining term of the
lease by a discount rate equal to the federal reserve discount rate at
the time of the default. Tenant will be entitled to be reimbursed for
such net rental proceeds if Tenant has already paid the Accelerated
Rent Component prior to such releasing.
(C) In any case in which this Lease shall have been terminated, or in
any case in which Landlord shall have elected to recover the Accelerated
Rent Component and any portion of such sum shall remain unpaid, Landlord
may, without future notice, enter upon and repossess the Demised Premises,
by force, summary proceedings, ejectment or otherwise, and may dispossess
Tenant and remove Tenant and all other persons and property from the
Demised Premises and may have, hold and enjoy the Demised Premises and the
rents and profits therefrom. Landlord may, in its own name, as agent for
Tenant, if this Lease has not been terminated, or in its own behalf, if
this Lease has been terminated, relet the Demised Premises or any part
thereof for such term or terms (which may be greater or less than the
period which would otherwise have constituted the balance of the term of
the this Lease) and on such terms (which may include concessions of free
rent) as Landlord in its sole discretion may determine. Landlord may, in
connection with any such reletting, cause the Demised Premises to be
redecorated, altered, divided, consolidated with other space or otherwise
changed or prepared for reletting. No reletting shall be deemed a surrender
and acceptance of the Demised Premises.
(D) Tenant shall, with respect to all periods of time up to and
including the expiration of the term of this Lease (or what would have been
the expiration date in the absence of default or breach) remain liable to
Landlord as follows:
(1) In the event of termination of this Lease on account of
Tenant's default or breach, Tenant shall remain liable to Landlord for
damages equal to the rent and other charges payable under this Lease
by Tenant as if this Lease were still in effect, less the net proceeds
of any reletting after deducting all costs incident thereto (including
without limitation all repossession costs, brokerage and management
commissions, operating and legal expenses and fees, alteration costs
and expenses of preparation for reletting) and to the extent such
damages shall not have been recovered by Landlord by virtue of payment
by Tenant of the Accelerated Rent Component (but without prejudice to
the right of Landlord to demand and receive the Accelerated Rent
Component), such damages shall be payable to Landlord monthly upon
presentation to Tenant of a bill for the amount due.
(2) In the event and so long as this Lease shall not have been
terminated after default or breach by Tenant, the rent and all other
charges payable under this Lease shall be reduced by the net proceeds
of any reletting by Landlord (after deducting all costs incident
thereto as above set forth) and by any portion of the Accelerated Rent
Component paid by Tenant to Landlord, and any amount due to Landlord
shall be payable monthly upon presentation to Tenant of a bill for the
amount due.
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(E) In the event Landlord shall, after default or breach by Tenant,
recover the Accelerated Rent Component from Tenant and it shall be
determined at the expiration of the term of this Lease (taken without
regard to early termination for default) that a credit is due Tenant
because the net proceeds of reletting, as aforesaid, plus amounts paid to
Landlord by Tenant exceed the aggregate of rent and other charges accrued
in favor of Landlord to the end of said term, Landlord shall refund such
excess to Tenant, without interest, promptly after such determination.
(F) Landlord shall in no event be responsible or liable for any
failure to relet the Demised Premises or any part thereof, or for any
failure to collect any rent due upon a reletting.
(G) As an additional and cumulative remedy of Landlord in the event of
termination of this Lease by Landlord following any breach or default by
Tenant, Landlord, at its option, shall be entitled to recover damages for
such breach in an amount equal to the Accelerated Rent Component
(determined from and after the date of Landlord's election under this
subsection (G) less the fair rental value of the Demised Premises for the
remainder of the term of this Lease (taken without regard to the early
termination) and such damages shall be payable by Tenant upon demand.
Nothing contained in this Lease shall limit or prejudice the right of
Landlord to prove and obtain as damages incident to a termination of this
Lease, in any bankruptcy, reorganization or other court proceedings, the
maximum amount allowed by any statute or rule of law in effect.
(H) In the event of any default occurrence by which Landlord shall
have the rights and remedies specified in this Section 14:
(ii) For the purpose of obtaining possession of the Demised
Premises, Tenant hereby authorizes and empowers any prothonotary or
attorney of any court of record to appear for Tenant and to file in
any court an agreement for entering an amicable action and judgment in
ejectment for recovery of possession, and/or to confess judgment for
possession against Tenant and those claiming by, through or under
Tenant in favor of Landlord by Complaint to Confess Judgment or
otherwise, and Tenant agrees that upon such entry or judgment a writ
of possession for the Demised Premises may forthwith issue; and
(J) If rent or any other sum due from Tenant to Landlord shall be
overdue for more than five (5) business days after notice from Landlord, it
shall thereafter bear interest at the rate of three percent (3%) over the
Prime Rate existing for CoreStates bank at that time per annum (or, if
lower, the highest legal rate) until paid.
(K) In the event Landlord fails to perform any of its obligations
under this Lease Agreement, in addition to any remedy which may be
available to Tenant under law or equity, Tenant shall be entitled to
utilize self-help and perform the action for which Landlord is responsible
and offset the cost of such action provided it is a component of operating
expenses or is a structural repair which without repairing threatens the
health, safety and welfare of the tenants employees and pursue all remedies
available to it at law to recover such expenses Tenant to Landlord;
provided, however, that Tenant shall have first provided Landlord with
written notice of Landlord's failure to perform its obligations, which
notice shall specify in particular those failures alleged by Tenant and a
period of thirty (30) days from such notice for Landlord to cure such
failure of performance.
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15. SUBORDINATION. This Lease is and shall be subject and subordinate to
all the terms and conditions of all underlying mortgages and to all ground or
underlying leases of the entire Building which may now or hereafter be secured
upon the Building, and to all renewals, modifications, consolidations,
replacements and extensions thereof; provided, however, the subordination
provided for hereunder shall only be effective if the mortgagees or superior
lessees shall have delivered a subordination, non-disturbance and attorment
agreement ("SNDA") which provides that so long as Tenant is not in monetary
default under the terms and conditions of the Lease, that such mortgagee or
superior lessee shall not take steps to terminate this Lease in any foreclosure
or ejectment proceeding; and provides that such mortgage or superior lessee
shall be bound by the terms and conditions of this Lease. Tenant shall execute,
within fifteen (15) days after request, any certificate that Landlord may
reasonably require acknowledging such subordination. Notwithstanding the
foregoing, the party holding the instrument to which this Lease is subordinate
shall have the right to recognize and preserve this Lease in the event of any
foreclosure sale or possessory action, and in such case this Lease shall
continue in full force and effect at the option of the party holding the
superior lien, and Tenant shall attorn to such party and shall execute,
acknowledge and deliver any instrument that has for its purpose and effect the
confirmation of such attornment. Landlord further agrees that it will obtain
from any mortgagee of a mortgage in effect the time of execution of the Lease
and from any superior lessee of any ground or underlying lease in effect at the
time of execution of this Lease an SNDA containing the conditions set forth in
this Section 15 within thirty (30) days of execution of this Lease or in the
case of a new mortgage within 5 days of closing the new mortgage.
16. NOTICES. All bills, statements, notices or communications which either
party may desire or be required to give to Landlord or Tenant shall be deemed
sufficiently given or rendered if in writing and either delivered to an officer
of Landlord or Tenant or sent by registered or certified mail addressed to
Landlord or Tenant, and the time of the giving of such notice or communication
shall be deemed to be the time when the same is delivered to Tenant or deposited
in the mail, as the case may be..
17. HOLDING-OVER. Should Tenant continue to occupy the Demised Premises
after expiration of the term of this Lease or any renewal or renewals thereof,
or after a forfeiture incurred, such tenancy shall (without limitation of any of
Landlord's rights or remedies therefor) be one at sufferance from month to month
at a minimum monthly rental equal to twice the rent payable for the last month
of the term of this Lease.
18. MISCELLANEOUS.
A. Tenant represents and warrants that it has not employed any broker
or agent as its representative in the negotiation for or the obtaining of
this Lease, and agrees to indemnify and hold Landlord harmless from any and
all cost or liability for compensation claimed by any broker or agent with
whom it has dealt.
B. The word "Tenant" as used in this Lease shall be construed to mean
tenants in all cases where there is more than one tenant, and the necessary
grammatical changes required to make the provisions hereof apply to
corporations, partnerships or individuals, men or women, shall in all cases
be assumed as though in each case fully expressed.. Subject to the
foregoing limitation, each provision hereof shall extend to and shall, as
the case may require, bind and inure to the benefit of Tenant and its
heirs, legal representatives, successors and assigns.
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C. The term "Landlord" as used in this Lease means the fee owner of
the Building or, if different, the party holding and exercising the right,
as against all others (except space tenants of the Building) to possession
of the entire Building. Landlord above-named represents that it is the
holder of such rights as of the date of execution hereof. In the event of
the voluntary transfer of such ownership or right to a
successor-in-interest of Landlord, Landlord shall be freed and relieved of
all liability and obligation hereunder which shall thereafter accrue (and,
as to any unapplied portion of Tenant's security deposit, Landlord shall be
relieved of all liability therefor upon transfer of such portion to its
successor in interest) and Tenant shall look solely to such successor in
interest for the performance of the covenants and obligations of the
Landlord hereunder which shall thereafter accrue. . Subject to the
foregoing, the provisions hereof shall be binding upon and inure to the
benefit of the successors and assigns of Landlord. Notwithstanding anything
to the contrary contained in this Lease, any liability of Landlord, its
agents, partners or employees, arising out of or in respect of this Lease,
the Demised Premises or the Building, and, if Landlord shall default in the
performance of Landlord's obligation under this Lease or otherwise, Tenant
shall look solely to the equity of Landlord in its interest in the
Building.
D. The Tenant agrees to execute a memorandum of this Lease in the form
attached to this Lease, shall be recorded by Landlord. Tenant also agrees
to execute any assignment of this Lease by Landlord, evidencing its consent
to such assignment.
19. LANDLORD IMPROVEMENTS.
A. Landlord shall, in a good and workmanlike manner, using only new
materials shall cause the Demised Premises to be improved in accordance
with the space plan shown on Exhibit "C" and the specifications to be
agreed to by Landlord and Tenant ("Landlord's Work"). Landlord shall comply
with all requirements of public authorities including without limitation,
the requirements of the Americans with Disabilities Act and shall comply
with all covenants, conditions and restrictions affecting the Demised
Premises and the Permitted Encumbrances.
B. Landlord shall cause to be prepared and submitted to Tenant for its
approval specifications in accordance with the space plan that provides
Tenant with a "turnkey" space ready to be occupied except for installation
of furnishings and Tenant equipment. The turnkey improvements shall
include, without limitation, natural gas fired heating systems and electric
air conditioning for the entire Demised Premises, individually designed to
meet the needs of each Tenant's departments, as determined by Tenant in its
sole discretion. Tenant shall promptly respond to any question or request
of Landlord in order to facilitate the development of the plans and
specifications for Landlord's Work. Landlord may develop the plans and
specifications in parts so long as each part is a complete plan and
specification for an integral unit or department of Tenant's operations.
Landlord shall use its best efforts to complete the plans and
specifications for Landlord's Work within twenty one (21) days after the
execution of this Lease. Upon completion of the plans and specifications
(or any part thereof), Landlord shall submit the completed work to Tenant
who shall either approve the plans and specifications within ten (10) days
of their submission to it or shall within the same time frame disapprove
all or a portion of the plans and specifications indicating with
specificity the reasons for its disapproval. Thereafter, Landlord shall
revise the plans to correct the disapproved items in Tenant's submittal
within five (5) business days of receipt of Tenant's submission. Each
submission thereafter of Landlord and Tenant shall be responded to within
five (5) days of submission from one to the other until a full set of plans
and specifications for Landlord's Work is fully approved by both parties.
C. Landlord shall construct Landlord's Work in accordance with the
approved plans and specifications.
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D. Landlord has prepared a budget for Landlord's Work which is
attached hereto and made a part hereof in which Landlord has estimated that
Landlord's Work shall cost $1,750,000. Within 15 days of completion of the
plans and specifications, Landlord shall provide Tenant with the cost of
Landlord's Work. To the extent the cost of Landlord's Work shall exceed
$1,750,000, Landlord and Tenant shall use good faith efforts to reduce the
cost to $1,750,000 or less. If the costs are greater than $2,050,000, then
Tenant may cancel this lease with three (3) days notice unless Landlord can
reduce such costs less than $2,050,000 by using mutually accepted
alternative designs or specifications. The budget ("Budget") shall become
the amount for which Landlord agrees to complete the work except as a
result of change orders approved in scope and amount by Tenant or force
majeure; provided, however, in the event of a force majeure, Landlord shall
give Tenant reasonable prior notice of such excess of costs detailing to
Tenant's reasonable satisfaction the causes thereof.
E. Within fifteen (15) days after completion of Landlord's Work,
Landlord shall accumulate the cost of Landlord's work and shall certify
such costs to Tenant, providing Tenant with a certificate of an independent
certified public accountant. To the extent that the cost of Landlord's Work
is less than $1,750,000, Landlord shall pay to Tenant within ten (10) days
thereafter, ninety percent (90%) of the difference between $1,750,000 and
certified cost of Landlord's Work. To the extent the cost of Landlord's
Work shall exceed $1,750,000 but shall be less than $1,850,000, Tenant
shall repay Landlord by adding to the Minimum Rent an amount equal to the
monthly amount required to amortize the amount of such excess cost at an
annual interest rate of nine percent (9%) in one hundred twenty equal (120)
payments. Any costs for Landlord's Work in excess of $1,850,000 shall be
reimbursed to Landlord by Tenant within thirty (30) days of receipt of the
certified costs. Notwithstanding anything contained in this subsection,
Tenant shall be required to pay no more than the amount specified in the
Budget, except as a result of change orders approved in scope and amount by
Tenant or force majeure.
F. During the course of the performance of Landlord's Work, either
party may request a change order to the plans and specifications for
Landlord's Work. In such event, Landlord promptly shall cause the change
order to be reflected in the plans and specifications; provided, however,
in the event the performance of the change order shall be requested by
Tenant and shall necessitate extra time in the performance of Landlord's
Work, Landlord may refuse to perform the change order unless Tenant excused
Landlord day-for-day in the time limit imposed in Section 9 hereof; and
provided, further, that if the change order shall be requested by Tenant
and shall require an increase in the cost of Landlord's Work, Landlord may
refuse to permit the change unless Tenant agrees to pay for the cost of the
change order without regard to the arrangements reflected in sub-section E.
hereof.
G. Landlord shall provide Tenant with all warranties with respect to
Landlord's Work. All warranties shall be for one (1) year with the
following exceptions:
Roof: seven (7) years
Parking Lot Paving: seven (7) years
HVAC: one (1) year on parts and labor and
five (5) years on the compressors.
H. The Leased Premises shall be deemed to be "Substantially Complete"
for purposes of this Lease on the date on which all of the following
criteria shall be satisfied:
(a) Landlord's Work has been substantially completed in
compliance with the provisions of 19.A;
14
<PAGE>
(b) all permits, fire underwriter's certificates and certificates
of occupancy (which term may include a temporary certificate of
occupancy, provided any and all conditions specified in the temporary
certificate of occupancy do not materially and unreasonably interfere
with Tenant's use of the Leased Premises) required for the use and
occupancy of the Leased Premises) have been issued by the appropriate
governmental authority;
(c) all facilities, systems and utilities (exclusive of
telephones) servicing the Leased Premises are in good working order so
as to permit the Leased Premises to be used and occupied for its
intended purposes;
(d) all common areas, including the lobbies, stairs, restrooms,
walkways, roadways and the Parking Area have been completed (paved,
striped and lighted) and are available for use;
(e) the warranties and representations of Landlord set forth in
this Lease shall be true and correct in all material respects or, if
the same shall not be correct in all material respects, Landlord has
duly cured such breach; and
(f) A certificate of substantial completion shall have been
issued by Landlord's architect for the Building (the "Building
Architect").
Landlord's Work shall be considered to be substantially completed
notwithstanding the fact that minor or insubstantial details of
construction, mechanical adjustment or decoration remain to be performed,
which details Landlord shall promptly thereafter perform at Landlord's sole
cost and expense. Prior to the Commencement Date, or within a reasonable
period of time after Landlord's receipt of the same (if after the
Commencement Date), Landlord shall provide to Tenant at least one copy of
all applicable warranties from manufacturers, all maintenance manuals, all
guarantees and warranties specified in the specifications to Landlord's
Working Drawings and Specifications, keys, project site documents including
as built drawings, change orders, inspection certificates and
manufacturers' certificates and manuals. Notwithstanding anything contained
herein to the contrary, Substantial Completion of Landlord's Work shall be
considered to have occurred on the date that would have occurred but for
changes or delays caused by the Tenant.
20. WAIVER OF SUBROGATION. Each party hereto waives any and every claim
which arises or which may arise in its favor and against the other party hereto
during the term of this Lease, or any extension or renewal thereof, for any and
all loss of, or damage to, any of its property located within or upon or
constituting a part of the Building, to the extent that such loss or damage is
recovered under an insurance policy or policies and to the extent such policy or
policies contain provisions permitting such waivers of claims. Each party agrees
to request its insurers to issue policies containing such provisions and if any
extra premium is payable therefor, the party which would benefit from the
provision shall have the option to pay such additional premium in order to
obtain such benefit.
21. RENT TAX. If, during the term of this Lease or any renewal or extension
thereof, any tax is imposed upon the privilege of renting or occupying the
Demised Premises or upon the amount of rentals collected therefor, Tenant will
pay each month, as additional rent, a sum equal to such tax or charge that is
imposed for such month, but nothing herein shall be taken to require Tenant to
pay any income, estate, inheritance or franchise tax imposed upon Landlord.
15
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22. PRIOR AGREEMENT, AMENDMENTS. Neither party hereto has made any
representations or promises except as contained herein or in some further
writing signed by the party making such representation or promise. No agreement
hereinafter made shall be effective to change, modify, discharge or effect an
abandonment of this Lease, in whole or in part, unless such agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
23. CAPTIONS. The captions of the paragraphs in this Lease are inserted and
included solely for convenience and shall not be considered or given any effect
in construing the provisions hereof.
24. MECHANIC'S LIEN. Tenant shall, within ten (10) days after notice from
Landlord, discharge any mechanic's lien for materials or labor claimed to have
been furnished to the Demised Premises on Tenant's behalf (except for work
contracted for by Landlord) and shall indemnify and hold harmless Landlord from
any loss incurred in connection therewith.
25. LANDLORD'S RIGHT TO CURE. Landlord may (but shall not be obligated), on
five (5) days notice to Tenant (except that no notice need be given in case of
emergency) cure on behalf of Tenant any default hereunder by Tenant, and the
cost of such cure (including any attorney's fees incurred) shall be deemed
additional rent payable upon demand.
26. PUBLIC LIABILITY INSURANCE.
(a). Tenant shall at all times during the term hereof maintain in full
force and effect with respect to the Demised Premises and Tenant's use
thereof, comprehensive public liability insurance, naming Landlord as an
additional insured, covering injury to persons in amounts at least equal to
One Million ($1,000,000.00) Dollars combined single limit bodily injury and
property. Tenant shall lodge with Landlord duplicate originals or
certificates of such insurance at or prior to the Commencement Date of the
term hereof, together with evidence of paid-up premiums, and shall lodge
with Landlord renewals thereof at least fifteen (15) days prior to
expiration. Tenant's insurance shall only be required to be primary
insurance with regards to claims arising out of Tenant's use of the Lease
Premises.
(b). Landlord Coverage. Landlord shall purchase and maintain, at its
cost and expense, hazard insurance on the Building. Such coverage shall be
written on an "all risks" of physical loss or damage basis, in an amount
not less than the full replacement cost of the Building and on a form and
in such amounts as shall not be subject to any co-insurance penalty. It is
understood that a portion of such insurance may provide for reasonable
deductibles in amounts reasonably determined by Landlord. All proceeds of
such insurance shall be payable directly and solely to Landlord, its
assigns or mortgagees, and Tenant shall have no interest therein or rights
with respect thereto. Landlord is entitled to carry up to a $10,000
deductible amount from Landlord's insurance coverage.
16
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Landlord also shall purchase and maintain, at its cost and expense,
comprehensive public liability insurance, naming Tenant as an additional
insured, with respect to accidents occurring in or about the Building and
on the Land, affording coverage in the case of personal injury to or death
of any person or persons, of not less than One Million Dollars ($1,000,000)
for each occurrence of injury or death to one person and affording coverage
of not less than One Million Dollars ($1,000,000) in the case of property
in any one occurrence. Without limiting the generality of the foregoing,
Landlord also shall purchase and maintain, at its cost and expense,
liability insurance covering the activities of any contractors, laborers,
suppliers or materialmen retained by Landlord in order to satisfy its
maintenance and repair obligations pursuant to this Lease.
27. ESTOPPEL STATEMENT. Tenant shall from time to time, within ten (10)
days after request by Landlord, execute, acknowledge and deliver to Landlord a
statement certifying that this Lease is unmodified and in full force and effect
(or that the same is in full force and effect as modified, listing any
instruments or modifications), the dates to which rent and other charges have
been paid, and whether or not, to the best of Tenant's knowledge, Landlord is in
default or whether Tenant has any claims or demands against Landlord (and, if
so, the default, claim and/or demand shall be specified).
28. ENVIRONMENTAL COMPLIANCE.
A. Tenant hereby covenants and agrees to use and occupy the Demised
Premises and to conduct its business and operations thereupon in full compliance
with all applicable statutes, codes, rules, regulations, and ordinances as they
may change from time to time pertaining to the protection of the environment and
to hazardous substances and hazardous wastes as those terms may be defined from
time to time in such statutes, codes, rules, regulations, and ordinances
("Environmental Laws").
B. Tenant shall promptly provide Landlord with copies of all correspondence
from or to the U.S. Environmental Protection Agency, the Pennsylvania Department
of Environmental Resources or any other federal, state or local governmental
agency which pertains to the Demised Premises regarding but not limited to the
following: (1) Tenant's compliance with the Environmental Laws; (2) any permits
which Tenant may be required to obtain pursuant to the Environmental Laws; (3)
any release or threat of release of a hazardous substance or hazardous waste
which has occurred in the Demised Premises.
C. Tenant shall immediately notify Landlord of its receipt of any notices
of alleged violations of the Environmental Law from any other party including
but not limited to governmental agencies including requests for information.
D. Tenant shall promptly provide Landlord with copies of any documents
required to be kept or prepared by Tenant or maintained at the Demised Premises
pursuant to the Pennsylvania Worker Right to Know Act, 35 P.S. 7301 et seq., and
the regulations promulgated thereunder.
17
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E. Tenant shall promptly supply to Landlord true and complete copies of all
sampling and test results obtained from any samples and tests taken at or around
the Demised Premises.
F. In the event of any "release" of a "hazardous substance" or "hazardous
waste" as those terms are defined in any of the Environmental Laws, which
release requires notification of any governmental agency, Tenant shall
immediately notify Landlord of the release and provide a full, true and complete
description of the release, the substances involved and the remedial efforts
taken.
G. At any time during the term hereof, Landlord shall have a right to enter
upon the Demised Premises to inspect the Demised Premises and to evaluate
Tenant's compliance with the Environmental Laws. Such right of access shall
include a right to review Tenant's records pertaining to compliance with the
Environmental Laws. Tenant hereby agrees to cooperate with Landlord in any such
inspection and evaluation.
H. Tenant hereby agrees to indemnify, defend and hold Landlord harmless
from and against any and all claims, demands, judgments, suits, liens, actions,
and other proceedings, arising out of or relating to the removal, remediation,
corrective action or clean up of any hazardous waste or hazardous substance as
defined in the Environmental Laws or any other proceedings or actions
threatened, or brought for the enforcement of any Environmental Laws now or
hereafter applicable to the Demised Premises and resulting from or arising out
of Tenant's use, operation, and occupation thereof during the term of this
Lease. Such indemnification shall include but not be limited to costs of
investigation, engineering fees, attorneys fees, costs of remediation and clean
up and future site maintenance.
I. Deleted.
J. All of the terms and conditions of this Section shall survive the
termination of this Lease Agreement for so long as any liability may arise under
the Environmental Laws with respect to the Demised Premises.
K. Landlord warrants represents and covenants, that, at the time of the
execution of this Lease, the Demised Premises are in compliance with the
Environmental Laws and Landlord has no knowledge of any condition which with the
passage of time, will result any change to this warranty and representation.
Landlord agrees to indemnify, defend and hold Tenant harmless from and against
any and all claims, demands, judgments, suits, liens, actions or other
proceedings, arising out of any breach of the foregoing representation, warranty
and covenant including reasonable attorney's fees and disbursements.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Lease or caused
this Lease to be executed by their duly authorized representatives the day and
year first above written.
LANDLORD:
MARAVE ASSOCIATES, L.P.
BY:___________________________
DATE:____/____/____
TENANT:
QUAD SYSTEMS CORPORATION
BY:_________________________
DATE:____/____/____
Exhibits & Schedules:
Schedule A: Rent Rider
Exhibit A: Plot Plan
Exhibit A-1: Permitted Title Exceptions
Exhibit B: Building Rules and Regulations
19
<PAGE>
EXHIBIT A
PLOT PLAN
20
<PAGE>
EXHIBIT A-1
PERMITTED TITLE EXCEPTIONS
1. Rights granted to Philadelphia Electric Company as in Deed Book 4907
page 343.
2. Rights granted to PECO Energy Company as in Deed Book 5106 page 225.
3. Stream of water flows through premises hereon, subject to the riparian
right of owners of grounds bounding thereon.
4. Conditions disclosed on Plan recorded in Plan Book A7 page 120, shows
the following: 20 feet wide drainage easement and 20 feet wide sanitary sewer
easement with 12 inch V.C.P. through premises.
21
<PAGE>
SCHEDULE "A"
RENT RIDER
PERIOD MONTHLY ANNUALLY
------ ------- --------
Year 1 $64,925 $779,100
Year 2 $64,925 $779,100
Year 3 $67,133 $805,600
Year 4 $67,133 $805,600
Year 5 $70,225 $842,700
Year 6 $70,225 $842,700
Year 7 $72,875 $874,500
Year 8 $72,875 $874,500
Year 9 $75,966 $911,600
Year 10 $75,966 $911,600
OPTION TERMS:
Years 11 - 15 $87,000 $1,044,100
Years 16 - 20 $99,375 $1,192,500
22
<PAGE>
EXHIBIT "B"
BUILDING RULES AND REGULATIONS
1. Deleted.
2. Deleted.
3. No sign, advertisement or notice shall be inscribed, painted or affixed
on any part of the inside or outside of the Building unless of such color, size
and style and in such place upon or in the Building as shall first be designated
by Landlord; there shall be no obligation or duty on Landlord to allow any sign,
advertisement or notice to be inscribed, painted or affixed on any part of the
inside or outside of the Building except as specified in a tenant's lease. Signs
on or adjacent to doors shall be in color, size and style approved by Landlord,
the cost to be paid by the tenants. A directory in a conspicuous place, with the
names of tenants, will be provided by Landlord; any necessary revision in this
will be made by Landlord within a reasonable time after notice from the tenant
of an error or of a change making revision necessary. No furniture shall be
placed in front of the Building or in any lobby or corridor without written
consent of Landlord.
4. No tenant shall do or permit anything to be done in its leased premises,
or bring to keep anything therein, which will in any way increase the rate of
fire insurance on the Building, or on property kept therein, or obstruct or
interfere with the rights of other tenants, or in any way injure or annoy them,
or conflict with the laws relating to fire prevention and safety, or with any
regulations of the fire department, or with any insurance policy upon the
Building or any part thereof, or conflict with any rules or ordinances of any
Board of Health or other governing bodies having jurisdiction over the Building.
5. The janitor of the Building may at all times keep a pass-key, and he and
other agents of the Landlord shall at all times be allowed admittance to the
leased premises for purposes permitted in Tenant's lease.
6. No additional locks shall be placed upon any doors without the written
consent of the Landlord. All necessary keys shall be furnished by the Landlord,
and the same shall be surrendered upon the termination of this Lease, and the
Tenant shall then give the Landlord or his agents explanation of the combination
of all locks upon the doors of vaults.
7. The water closets and other water fixtures shall not be used for any
purpose other than those for which they were constructed, and any damage
resulting to them from misuse or abuse by a tenant or its agents, employees or
invitees, shall be borne by the Tenant.
8. Deleted.
9. Deleted.
10. Nothing shall be thrown out the windows of the building or down the
stairways or other passages.
11. Tenants shall not be permitted to use or to keep in the Building any
kerosene, camphene, burning fluid or other illuminating materials.
23
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12. If any tenant desires telegraphic, telephonic or other electric
connections, Landlord or its agents will direct the electricians as to what and
how the wires may be introduced, and without such directions no boring cutting
for wires will be permitted.
13. If a tenant desires shades, they must be of such shape, color,
materials and make as shall be prescribed by Landlord. No outside awning shall
be permitted.
14. No portion of the Building shall be used for the purposes of lodging
rooms or for any immoral or unlawful purposes.
24
LOAN AGREEMENT
Dated December 4, 1995
among
QUAD SYSTEMS CORPORATION
HITECH FINANCE COMPANY
TRIMARK INVESTMENT CORP.
QUAD LEASING CORP.
collectively, the Borrowers
UNITED JERSEY BANK
CORESTATES BANK, N.A.
collectively, the Banks
UNITED JERSEY BANK
the Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Page
----
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS................................................................................ 1
SECTION 1.1 Certain Defined Terms................................................................... 1
SECTION 1.2 Accounting Terms........................................................................ 10
ARTICLE II
THE LOANS....................................................................................................... 10
SECTION 2.1 The Commitments......................................................................... 10
SECTION 2.2 Making the Loans........................................................................ 10
SECTION 2.3 The Note................................................................................ 12
SECTION 2.4 Fees.................................................................................... 12
SECTION 2.5 Repayment............................................................................... 12
SECTION 2.6 Interest................................................................................ 13
SECTION 2.7 Computation of Interest and Fees........................................................ 13
SECTION 2.8 Payments................................................................................ 13
SECTION 2.9 Payment on Non-Business Days............................................................ 14
SECTION 2.10 Reimbursement to the Banks for Cost
Increases Imposed by Law............................................................... 14
SECTION 2.11 Reimbursement to the Banks for Increased Costs Due to Capital
Adequacy Requirements................................................................... 15
SECTION 2.12 Illegality............................................................................. 16
SECTION 2.13 Interest and Commissions After Default.................................................. 16
SECTION 2.14 Special Provisions for LIBO Loans....................................................... 17
SECTION 2.15 Availability of Rate Quotations......................................................... 18
SECTION 2.16 Prepayment.............................................................................. 19
SECTION 2.17 Letters of Credit....................................................................... 19
SECTION 2.18 Letter of Credit Cash Collateral Account................................................ 27
ARTICLE III
CONDITIONS OF LENDING........................................................................................... 27
SECTION 3.1 Conditions Precedent to the Initial Disbursement........................................ 27
SECTION 3.2 Conditions Precedent to All Disbursements............................................... 29
SECTION 3.3 Conditions to Letters of Credit......................................................... 30
ARTICLE IV
REPRESENTATIONS AND WARRANTIES.................................................................................. 31
SECTION 4.1 Incorporation, Good Standing, and Due Qualification..................................... 31
SECTION 4.2 Corporate Power and Authority........................................................... 31
SECTION 4.3 Legally Enforceable Agreement........................................................... 31
SECTION 4.4 Financial Statements; Accuracy of Information........................................... 31
SECTION 4.5 Labor Disputes and Acts of God.......................................................... 32
SECTION 4.6 Other Agreements........................................................................ 32
1
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SECTION 4.7 Litigation.............................................................................. 33
SECTION 4.8 No Defaults on Outstanding Judgments or Orders.......................................... 33
SECTION 4.9 Ownership and Liens..................................................................... 33
SECTION 4.10 Subsidiaries and Ownership of Stock..................................................... 33
SECTION 4.11 ERISA................................................................................... 33
SECTION 4.12 Operation of Business................................................................... 34
SECTION 4.13 Taxes................................................................................... 34
SECTION 4.14 Debt.................................................................................... 34
SECTION 4.15 Environmental Matters................................................................... 34
ARTICLE V
AFFIRMATIVE COVENANTS........................................................................................... 35
SECTION 5.1 Maintenance of Existence................................................................ 35
SECTION 5.2 Maintenance of Records.................................................................. 35
SECTION 5.3 Maintenance of Properties............................................................... 35
SECTION 5.4 Conduct of Business; Permits and Approvals; Compliance with Laws........................ 35
SECTION 5.5 Maintenance of Insurance................................................................ 35
SECTION 5.6 Payment of Debt; Payment of Taxes, Etc.................................................. 36
SECTION 5.7 Right of Inspection..................................................................... 36
SECTION 5.8 Reporting Requirements.................................................................. 36
SECTION 5.9 Further Assurances...................................................................... 38
ARTICLE VI
NEGATIVE COVENANTS.............................................................................................. 39
SECTION 6.1 Liens................................................................................... 39
SECTION 6.2 Debt.................................................................................... 40
SECTION 6.3 Mergers, Etc............................................................................ 41
SECTION 6.4 Leases.................................................................................. 41
SECTION 6.5 Sale and Leaseback...................................................................... 42
SECTION 6.6 Dividends............................................................................... 42
SECTION 6.7 Sale of Assets.......................................................................... 42
SECTION 6.8 Investments............................................................................. 42
SECTION 6.9 Guaranties, Etc......................................................................... 43
SECTION 6.10 Transaction With Affiliate.............................................................. 43
SECTION 6.11 Stock of Subsidiary, Etc................................................................ 43
SECTION 6.12 Hazardous Materials; Indemnification.................................................... 44
ARTICLE VIIA
FINANCIAL COVENANTS OF CONSOLIDATED GROUP....................................................................... 44
SECTION 7A.1 Minimum Tangible Net Worth.............................................................. 44
SECTION 7A.2 Capital Expenditures.................................................................... 44
SECTION 7A.3 Leverage Ratio.......................................................................... 45
SECTION 7A.4 Cash Flow Ratio......................................................................... 45
SECTION 7A.5 Current Ratio........................................................................... 45
SECTION 7A.6 Intercompany Transfers.................................................................. 45
ARTICLE VIIB
FINANCIAL COVENANTS OF BORROWER GROUP........................................................................... 45
SECTION 7B.1 Minimum Tangible Net Worth.............................................................. 45
SECTION 7B.2 Minimum Working Capital................................................................. 45
2
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SECTION 7B.3 Cash Flow Ratio......................................................................... 46
ARTICLE VIII
EVENT OF DEFAULT................................................................................................ 46
SECTION 8.1 Events of Default....................................................................... 46
ARTICLE IX
AGENCY PROVISIONS............................................................................................... 48
SECTION 9.1 Authorization and Action................................................................ 48
SECTION 9.2 Liability of Agent...................................................................... 48
SECTION 9.3 Rights of Agent as a Bank............................................................... 49
SECTION 9.4 Independent Credit Decisions............................................................ 49
SECTION 9.5 Indemnification......................................................................... 50
SECTION 9.7 Sharing of Payments, Etc................................................................ 50
ARTICLE X
MISCELLANEOUS................................................................................................... 51
SECTION 10.1 Amendments, Etc......................................................................... 51
SECTION 10.2 Notices, Etc............................................................................ 51
SECTION 10.3 No Waiver; Remedies..................................................................... 52
SECTION 10.4 Successors and Assigns.................................................................. 52
SECTION 10.5 Fees, Costs, Expenses, and Taxes........................................................ 53
SECTION 10.6 Right of Setoff......................................................................... 53
SECTION 10.7 Governing Law........................................................................... 53
SECTION 10.8 Severability of Provisions.............................................................. 53
SECTION 10.9 Survival of Agreement .................................................................. 54
SECTION 10.10 Counterparts............................................................................ 54
SECTION 10.11 Headings................................................................................ 54
SECTION 10.12 JURISDICTION AND VENUE.................................................................. 54
SECTION 10.13 WAIVER OF JURY TRIAL.................................................................... 54
SECTION 10.14 Appointment of Quad as Agent for Borrowers.............................................. 54
SECTION 10.15 Borrowers' Obligations.................................................................. 54
</TABLE>
3
<PAGE>
<PAGE>
LOAN AGREEMENT, dated December 4, 1995, among QUAD SYSTEMS CORPORATION, a
Delaware corporation ("Quad"), HITECH FINANCE COMPANY, a Delaware corporation
("HiTech"), TRIMARK INVESTMENT CORP., a Delaware corporation ("TriMark"), and
QUAD LEASING CORP., a Delaware corporation ("Leasing"; Quad, HiTech, TriMark and
Leasing shall be referred to herein individually as a "Borrower" and
collectively as the "Borrowers"), UNITED JERSEY BANK, a banking corporation of
the State of New Jersey ("UJB"), CORESTATES BANK, N.A., a national banking
association ("CoreStates"; UJB and CoreStates shall be referred to herein
individually as a "Bank and collectively as the "Banks") and UJB, as agent for
the Banks (UJB, in its capacity as agent for the Banks, shall be referred to
herein as the "Agent").
BACKGROUND
Quad and UJB were parties to a Loan Agreement dated as of February 23, 1994
(the "Original Credit Agreement"). Quad has requested that the Original Credit
Agreement be replaced and terminated in its entirety, that all security granted
by Quad with respect thereto or any other loan from the Banks to Quad be
released and that the Banks provide to the Borrowers an unsecured revolving
credit facility in the amount of Eight Million Dollars ($8,000,000.00) (the
"Revolving Credit"). The Banks have agreed to release such security, terminate
and replace the Original Credit Agreement and provide such Revolving Credit on
the terms and conditions herein contained. The purpose of the Revolving Credit
is to finance working capital, provide letters of credit and for general
corporate purposes. Quad, the Banks and CoreStates, as agent for the Banks, are
parties to a Term Loan Agreement dated as of January 24, 1995 (as amended by an
Amendment to Term Loan Agreement dated as of the date hereof and from time to
time hereafter, the "Term Loan Agreement") pursuant to which each Bank made
available to Quad a $1,750,000.00 term loan (the "Term Loans"). Quad is
obligated to repay the Term Loans under and in accordance with the Term Loan
Agreement.
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
2.1 Certain Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Adjusted LIBO Rate" means the LIBO Rate plus 1.4%.
4
<PAGE>
"Affiliate" of a Person (identified in this definition as "Z") means any
other Person, except for any Subsidiary of Z, directly or indirectly controlling
or controlled by or under direct or indirect common control with Z. For the
purposes of this definition, "control" when used with respect to any Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have the meanings
correlative to the foregoing.
"Agent" has the meaning given to such term in the introductory paragraph
hereof.
"Agent's Fee" has the meaning given to such term in Section 2.4 hereof.
"Agreement" means this Loan Agreement, as such document may be modified,
supplemented or amended from time to time.
"Bank" and "Banks" have the meanings given to such terms in the
introductory paragraph hereof.
"Base Rate" means for each day, the base rate in effect on that date, as
set by the Agent from time to time for purposes of establishing interest rates
on various categories of loans which the Agent determines are to be tied to such
base rate. The Base Rate is not necessarily the lowest rate of interest which
the Agent charges any of its customers.
"Base Rate Loan" means a Loan to which the Base Rate applies.
"Borrower" and "Borrowers" have the meanings given to such terms in the
introductory paragraph hereof.
"Business Day" means any day other than a Saturday, Sunday, or other day on
which commercial banks in Camden County, New Jersey are authorized or required
to close under the laws of the State of New Jersey or federal law.
"Capital Asset" means any property or asset (real, personal or mixed,
tangible or intangible) which is of a kind subject to an allowance for
depreciation or amortization under GAAP.
"Capital Expenditures" means any expenditures made or cost incurred by the
Borrowers whether paid or due and owing, for the acquisition, purchase,
alteration or improvement of any Capital Asset and shall include, without
limitation, all capital expenditures within the meaning of Section 263 of the
Code and the regulations promulgated thereunder.
"Capital Leases" means all leases which have been or should be capitalized
on the books of the lessee in accordance with GAAP.
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<PAGE>
"Closing Date" means the date on which all of the conditions precedent
contained in Section 3.1 are satisfied or waived.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment" has the meaning given to such term in Section 2.1 hereof.
"Commitment Fee" has the meaning given to such term in Section 2.4 hereof.
"Commitment Termination Date" means the earlier of (A) February 28, 1998 or
(B) the date on which the Banks' obligation to make Loans and extend Letters of
Credit hereunder is terminated in whole pursuant to the terms of this Agreement.
"Consolidated" refers to the consolidation of the accounts of Quad and its
Domestic and Foreign Subsidiaries in accordance with GAAP, including principles
of consolidation.
"Consolidating" refers to the separate entity reporting and consolidation
of the accounts of Quad and its Domestic and Foreign Subsidiaries in accordance
with GAAP.
"Current Assets" means those assets that are reasonably expected to be
realized in cash in the ordinary course of business within twelve months
excluding any and all receivables due from Foreign Subsidiaries.
"Current Liabilities" means those obligations included in Total Liabilities
which are due or will become due within the following twelve months.
"Debt" means (A) indebtedness or liability for borrowed money, or for the
deferred purchase price of property or services (including trade obligations);
(B) obligations as lessee under Capital Leases; (C) current liabilities in
respect of unfunded vested benefits under any Plan; (D) obligations under
letters of credit issued for the account of any Person; (E) all obligations
arising under acceptance facilities; (F) all guarantees, endorsements (other
than for collection or deposit in the ordinary course of business), and other
contingent obligations to purchase, to provide funds for payment, to supply
funds to invest in any Person, or otherwise to assure a creditor against loss;
and (G) obligations secured by any Lien on property owned by any Person, whether
or not the obligations have been assumed.
"Default" means and refers to any event, act or occurrence, which with the
passing of time or the giving of notice or both, would constitute an Event of
Default.
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"Default Rate" with respect to each Loan, means the higher of (A) 2 1/2%
plus the per annum Interest Rate in effect immediately prior to an Event of
Default, or (B) the Base Rate plus 2 1/2%.
"Documentary Letter of Credit" means a documentary Letter of Credit issued
by the Agent at the request of the Borrowers pursuant to Section 2.17 for the
sole purpose of securing the Borrowers' payment obligation owed for the purchase
of Inventory.
"Dollars" and "$" mean lawful money of the United States of America.
"Domestic Subsidiaries" means all Subsidiaries of Quad, all Subsidiaries of
Quad's Subsidiaries, and all Subsidiaries of the Subsidiaries of Quad
Subsidiaries organized and existing under the laws of a state of the United
States of America.
"Effective Date" means the date the Borrowers designate as the date on
which a LIBO Interest Period is to commence pursuant to Sections 2.2 or 2.6
hereof.
"Environmental Law" means any presently existing or hereafter enacted or
decided federal, state or local statutory or common laws relating to pollution
or protection of the environment, including without limitation, any common law
nuisance or trespass, and any law or regulation relating to emissions,
discharges, releases or threatened release of pollutants, contaminants or
chemicals or industrial, toxic or hazardous substances or wastes into the
environment (including without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants or chemicals, or industrial,
toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations thereunder.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
which together with any Borrower would be treated as a single employer under
ss.4001 of ERISA.
"Eurocurrency Reserve Requirement" means, for any LIBO Loan for any LIBO
Interest Period relating thereto, the daily average of the stated maximum rate
(expressed as a decimal) at which reserves (including any marginal,
supplemental, or emergency reserves) are required to be maintained during such
LIBO Interest Period under Regulation D by a member bank of the Federal Reserve
System against "Eurocurrency liabilities" (as such term is used in Regulation D)
but without benefit of or credit for proration, exemptions, or offsets that
might otherwise be available to such member bank from time to time under
Regulation D. Without limiting the effect of the foregoing, the Eurocurrency
Reserve Requirement shall reflect any other reserves required to be maintained
by such member bank against any category of liabilities which includes deposits
by reference to which the LIBO Interest Rate for LIBO Loans is to be determined
or any category of extension of credit or other assets that include LIBO Loans.
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"Event of Default" has the meaning given to such term in Section 8.1.
"Facility Fee" has the meaning given to such term in Section 2.4.
"Fees" means all payments except for interest and principal which the
Borrowers are required to make to the Banks or the Agent hereunder and shall
include, without limitation, amounts owing in connection with any prepayment
under any LIBO Loan, the Facility Fee, the Agent's Fee, the Commitment Fee, any
fees payable pursuant to Section 2.17 and any amounts payable pursuant to
Section 10.5.
"Foreign Subsidiaries" means Quad Foreign Sales Corporation, Quad Systems
Holding Limited, SM Tech Limited and Quad Europe Limited and any other
Subsidiaries of Quad, Subsidiaries of Quad's Subsidiaries and Subsidiaries of
the Subsidiaries of Quad's Subsidiaries organized under the laws of any country
or subdivision thereof other than the laws of the United States of America or
any state thereof.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Governmental Approvals" means all authorizations, consents, approvals,
licenses and exemptions of, registrations and filings with, and reports to all
governmental bodies having jurisdiction over the Borrowers or any of their
respective assets.
"Hazardous Materials" means any contaminants, hazardous substances,
regulated substances, hazardous materials or hazardous wastes which may be the
subject of liability or regulation pursuant to any Environmental Law.
"Indemnified Parties" has the meaning given to such term in Section 6.12.
"Interest Period" means any period during which the Interest Rate is the
Base Rate, or any LIBO Interest Period, as appropriate.
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<PAGE>
"Interest Rate" means the Base Rate, the Adjusted LIBO Rate or the Default
Rate, as appropriate.
"Inventory" means goods held by a Person who holds them for sale or lease
or to be furnished under contracts of service or if he has so furnished them, or
raw materials, work in process or materials used or consumed in a business.
"Letter of Credit" means a Documentary Letter of Credit or a Stand-by
Letter of Credit, including without limitation, any Prior Letters of Credit.
"Letter of Credit Cash Collateral Account" has the meaning given to such
term in Section 2.18.
"Letter of Credit Commitment" has the meaning given to such term in Section
2.17.
"Letter of Credit Liability" means, at any date of determination, the sum
of (A) the maximum aggregate amount which is or at any time thereafter may
become available for drawing under all Letters of Credit then outstanding plus
(B) the aggregate amount of all drawings under Letters of Credit which have not
theretofore been reimbursed by the Borrowers. For purposes hereof, Letters of
Credit on which a draw has not been received shall be deemed outstanding for a
period of 15 Business Days after the expiration date thereof.
(A) Total Liabilities to (B) Tangible Net Worth.
"LIBO Interest Period" means for each LIBO Loan a period of time, beginning
on an Effective Date, of one, two, three or six months in length (as such
periods are commonly used), selected by a Borrower by telephone or in writing
(and if by telephone, confirmed by such Borrower promptly thereafter in
writing), during which the Interest Rate is the Adjusted LIBO Rate. If a LIBO
Interest Period would otherwise end on a day that is not a Business Day, such
LIBO Interest Period shall be extended to the next Business Day, unless such
Business Day would fall in the next calendar month, in which event such LIBO
Interest Period shall end on the immediately preceding Business Day.
"LIBO Loan" means any Loan to which the Adjusted LIBO Rate is applicable
having the same LIBO Interest Period.
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"LIBO Rate" means, for each LIBO Loan, the rate per annum (rounded upwards,
if necessary, to the nearest 1/16th of 1%) determined by the Agent according to
the following formula:
R = X
---
1-Y
where R = LIBO Rate
X = London Interbank Offered Rate for such
LIBO Loan for the applicable LIBO
Interest Period
Y = Eurocurrency Reserve Requirement for such
LIBO Loan for the applicable LIBO
Interest Period
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement or preferential
arrangement, charge, or encumbrance of any kind of nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the recording of any mortgage or deed of trust or the filing of
any financing statement under the UCC or comparable law of any jurisdiction to
evidence any of the foregoing).
"Loan" means each advance under the Revolving Credit and shall refer to
each Base Rate Loan and each LIBO Loan.
"Loan Documents" means this Agreement and the Notes.
"London Business Day" means any Business Day on which commercial banks are
open for international business (including dealing in Dollar deposits) in
London, England, Camden, New Jersey and New York, New York.
"London Interbank Offered Rate" applicable to any elected LIBO Interest
Period for a LIBO Loan means the rate per annum (rounded upwards, if necessary,
to the nearest 1/16th of 1%) quoted at approximately 11:00 a.m. London time, by
the principal London branch of the Agent two London Business Days prior to the
first day of such LIBO Interest Period for the offering to leading banks in the
London interbank market of Dollar deposits in immediately available funds for a
period, and in an amount, comparable to the LIBO Interest Period and principal
amount of the LIBO Loan which shall be outstanding during such LIBO Interest
Period.
"Majority Banks" means, at any time, the Banks holding at least 100% of the
then aggregate unpaid principal amount of the Notes held by the Banks.
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<PAGE>
"Margin Stock" has the same meaning that Regulation U of the Board of
Governors of the Federal Reserve System gives to that term.
"Material Adverse Effect" means a material adverse effect on the assets,
properties, financial condition, operations, or business of the Borrowers taken
as a whole, or on the ability of the Borrowers taken as a whole to comply with
their obligations under any of the Loan Documents.
"Multiemployer Plan" has the meaning given to such term in ss.4001(a)(3) of
ERISA.
"Non-Borrower Subsidiary" means any Domestic or Foreign Subsidiary not a
Borrower hereunder.
"Notes" has the meaning given to such term in Section 2.3 hereof.
"Operating Account" has the meaning given to such term in Section 2.2
hereof.
"Original Credit Agreement" has the meaning given to such term in the
Background section hereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means any individual, corporation, partnership, joint venture,
joint-stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof, or other entity of whatever nature.
"Plan" means any plan established, maintained or to which contributions
have been made by a Borrower or any ERISA Affiliate.
"Prior Letters of Credit" means Letters of Credit outstanding on the date
hereof issued by the Agent and listed on Exhibit 1.1 attached hereto and made a
part hereof.
"Pro Rata Shares" of a Bank means a fraction, the numerator of which is
such Bank's Commitment and the denominator of which is the aggregate Commitment
of all of the Banks.
"Prohibited Transaction" has the meaning given to such term in ss.406 of
ERISA, ss.4975(c) of the Code and any Treasury regulations issued thereunder.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as amended or supplemented from time to time.
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<PAGE>
"Reimbursement Date" has the meaning given to such term in Section 2.17
hereof.
"Reportable Event" has the meaning given to such term in ss.4043(b) of
ERISA.
"Revolving Credit" has the meaning given to such term in the Background
section hereof.
"Stand-by Letter of Credit" means a stand-by Letter of Credit issued by the
Agent at the request of the Borrowers pursuant to Section 2.17.
"Subsidiary" of a Person means any corporation or other entity, more than
50% of the voting capital stock or other ownership interests of which is owned,
directly or indirectly, by such Person.
"Tangible Net Worth" means (a) the aggregate amount of all assets as may be
properly classified as such, other than (i) all assets which are properly
classified as intangible assets including, without limiting the generality of
the foregoing, franchises, licenses, permits, patents, patent applications,
copyrights, trademarks, trade names, goodwill, experimental or organizational
expense and other like intangibles, including the excess paid for assets
acquired over their respective book values on the books of the corporation from
which acquired, and (ii) all loans to shareholders, officers and employees, less
(b) Total Liabilities, all determined in accordance with GAAP, consistently
applied.
"Term Loan Agreement" has the meaning given to such term in the Background
section hereof.
"Term Loans" has the meaning given to such term in the Background section
hereof.
"Total Liabilities" means the sum of (A) all liabilities that would, in
accordance with GAAP, be classified as liabilities plus (B) all obligations with
respect to contingent liabilities not otherwise classified as liabilities
pursuant to (A), above.
"Total Outstanding Credit" has the meaning given to such term in Section
2.1 hereof.
"UCC" means the New Jersey Uniform Commercial Code as in effect from time
to time.
"Working Capital" means the excess of Current Assets over Current
Liabilities.
2.2 Accounting Terms. All accounting terms not specifically defined herein
shall be construed, and all financial data submitted pursuant to this Agreement
shall be prepared, in accordance with GAAP.
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ARTICLE II
THE LOANS
2.3 The Commitments. Subject to the terms and conditions hereinafter
provided, each Bank, for itself only, agrees to lend to the Borrowers, from time
to time during the period from the date hereof to and including the Commitment
Termination Date, such sums as the Borrowers may request provided that the
aggregate outstanding principal amount thereof at any time shall not exceed the
amount set forth opposite such Bank's name as follows (such respective amounts
being the "Commitment" of each Bank):
Amount Percentage
------ ----------
UJB $4,000,000.00 50%
CoreStates $4,000,000.00 50%
------------- ----
$8,000,000.00 100%
Each Loan shall be from and of the Banks ratability according to their
respective Commitments. Each Base Rate Loan shall be in an aggregate amount of
at least $150,000.00; each LIBO Loan shall be in an aggregate amount of at least
$250,000.00, provided that, at all times while such LIBO Loan is outstanding
there must also be outstanding a LIBO Loan in the principal amount of at least
$1,000,000.00. The Borrowers may borrow, repay and reborrow under this Section
2.1 until the Commitment Termination Date subject to the terms and conditions of
this Agreement; provided that the sum of (i) the total outstanding principal
under the Revolving Credit plus (ii) the aggregate face amount of all Letters of
Credit outstanding, plus (iii) the unreimbursed amount of any draws under
Letters of Credit previously outstanding (such sum is hereinafter referred to as
the "Total Outstanding Credit") shall not at any time exceed Eight Million
Dollars ($8,000,000.00). If the Total Outstanding Credit at any time exceeds
Eight Million Dollars ($8,000,000.00), the Borrowers shall repay no later than
24 hours after notice from the Agent, the amount of the excess. The Borrowers
shall use the Loans for the purposes set forth in the Background Section hereof.
2.4 Making the Loans. The Borrowers shall notify the Agent by telephone no
later than 11:00 A.M. the day of the requested borrowing of each proposed Base
Rate Loan, specifying the date and amount of the proposed Base Rate Loan. The
Agent in turn shall promptly notify each other Bank of the proposed Base Rate
Loan. The Borrowers shall notify the Agent by telephone no later than 11:00 A.M.
at least three London Business Days in advance of each proposed LIBO Loan,
specifying the date and the
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<PAGE>
amount of the proposed LIBO Loan and the length of the proposed LIBO Interest
Period, and the Agent shall in turn notify each other Bank of the proposed LIBO
Loan by 11:00 A.M. on the second London Business Day preceding the proposed LIBO
Loan. Such telephonic notice shall be made by an authorized officer of the
Borrowers listed on Exhibit 2.2 hereto or in a written notice from the Borrowers
submitted in accordance with Section 10.2. The Borrowers will confirm any
telephonic notice of a proposed Loan the same day by facsimile copy. Each such
notice (whether or not actually confirmed by facsimile copy) shall constitute a
representation by the Borrowers that, at the time thereof and giving effect to
the Loan requested thereby: (1) no Event of Default or Default has occurred
hereunder; (2) the representations and warranties contained in this Agreement
are reaffirmed and are correct as of the date of such notice; (3) the Total
Outstanding Credit plus the requested Loan will not exceed $8,000,000.00; and
(4) the conditions precedent for such Loan as set forth in Section 3.2 hereof
have all been satisfied. Upon notice from the Agent of the proposed Loan, each
Bank shall wire transfer to the Agent, at the Agent's office at 210 Main Street,
Hackensack, New Jersey 07602, in immediately available funds, which funds shall
be in Dollars, prior to 2:00 P.M. on the date of the proposed Loan, an amount
equal to such Bank's Pro Rata Share of such Loan. Upon receipt of such funds by
the Agent and upon the Agent's determination that the applicable conditions set
forth in Article III hereof have been fulfilled, the Agent will make such funds
available to the Borrowers by depositing the amount thereof into an operating
account which the Borrowers shall maintain with the Agent while the Loans are
outstanding (the "Operating Account"). The Borrowers agree to hold the Agent
harmless from any liability for any loss resulting from the Agent's reliance on
any writing, facsimile copy or telephonic notice purportedly made by an
authorized officer of the Borrowers, provided that the Agent has acted in good
faith in doing so. The Agent may assume that telephonic notice of a request for
a Loan is from an authorized officer of the Borrowers, absent manifest error.
The Agent shall have no obligation to make funds available to the Borrowers in
excess of amounts received by it from the Banks, provided that if one or more
Banks fail to make available to the Agent such Bank's Pro Rata Share of a Loan
and the Agent elects to advance the full amount of the Loan requested by the
Borrowers, the Borrowers shall be obligated to repay to the Agent for the
Agent's account the amount, with interest, so advanced by the Agent and not
advanced by the Bank(s) in amounts and at the times the Borrowers otherwise
would be obligated to repay such Loan. Unless the Agent receives notice from a
Bank prior to the date such Bank's Pro Rata Share of any Loan is to be made that
such Bank does not intend to make its Pro Rata Share of such Loan available to
the Agent, the Agent may (but shall not be obligated to) assume that such Bank
has made such proceeds available to the Agent on such date, and the Agent, in
reliance upon such assumption, may (but shall not be obligated to) make
available to the Borrowers a
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<PAGE>
corresponding amount. If such corresponding amount is not, in fact, made
available to the Agent by such Bank on the date the Loan is made, the Agent
shall be entitled to recover such amount on demand from such Bank (or, if such
Bank fails to pay such amount immediately upon demand, from the Borrower)
together with interest thereon at a rate per annum equal to the Interest Rate
applicable to the Loan for each day during the period between the date that the
Agent advances the Loan and the date on which the Bank makes its Pro Rata Share
of the Loan available to the Agent.
2.5 The Note. The obligation of the Borrowers to repay the Loans shall
be evidenced by promissory notes of the Borrower (the "Notes"), dated the date
of this Agreement, each payable to the order of a Bank in the principal amount
equal to such Bank's Commitment and otherwise substantially in the form of
Exhibit 2.3 attached hereto.
2.6 Fees. (A) The Borrowers shall pay to the Agent for the benefit of
each Bank a facility fee (the "Facility Fee") computed at the rate of 1/4% per
year on the average daily unused portion of such Bank's Commitment from the date
hereof to and including the Commitment Termination Date and payable (1)
quarterly in arrears on the 30th day of April, July, October and January in each
year during the term of the Revolving Credit, commencing January 30, 1996, and
(2) on the Commitment Termination Date. Each installment of the Facility Fee
shall be deemed fully earned and non-refundable when due.
(A) The Borrowers shall pay to the Agent for the Agent's
account and not for the account of any Bank an annual fee (the "Agent's Fee") of
Five Thousand Dollars ($5,000.00). Such fee shall be due and payable on the
Closing Date and on each anniversary thereof and shall be deemed fully earned
and non-refundable when due.
(B) The Borrowers shall pay to each Bank a commitment fee (the
"Commitment Fee") at the rate of .25% of such Bank's maximum Commitment, (1)
.125% of which was due prior to the date hereof, receipt of which is hereby
acknowledged and (2) .125% of which is due and payable on the date of execution
of this Agreement. The Commitment Fee shall be deemed fully earned and
non-refundable when due.
2.7 Repayment. On the Commitment Termination Date, the Borrowers shall
repay in full (A) the aggregate principal amount of all Loans, and (B) all other
amounts then outstanding under any Loan Document.
2.8 Interest. (A) Base Rate Loans. The Borrowers shall pay to the
Agent for the account of each Bank interest in arrears on the unpaid principal
amount of each Base Rate Loan, from the date on which such Base Rate Loan is
disbursed until such principal amount has been repaid in full, or converted to a
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<PAGE>
LIBO Loan, as the case may be, (1) monthly on the first day of each month
commencing with the first day of the first month after this Agreement is
executed, and (2) on the Commitment Termination Date, at an annual rate equal to
the Base Rate. The Base Rate shall change simultaneously each time the Agent
changes its base rate as announced from time to time.
(A) Conversions to LIBO Loans. Subject to subsection (D) hereof, by
notifying the Agent at least three London Business Days prior to an
Effective Date, the Borrowers may convert into a LIBO Loan any Base Rate
Loans in an aggregate principal amount of at least $250,000.00, provided
that at all times while such LIBO Loan is outstanding, there must also be
outstanding a LIBO Loan in the principal amount of at least $1,000,000.00.
At the end of the applicable LIBO Interest Period, each LIBO Loan will
convert back to a Base Rate Loan unless the Borrowers notify the Agent at
least one Business Day before the end of the existing LIBO Interest Period
that the Borrowers are electing to continue the Loan as a LIBO Loan and are
selecting a new LIBO Interest Period.
(B) LIBO Loans. The Borrowers shall pay to the Agent for the account
of each Bank interest in arrears on the unpaid principal amount of each
LIBO Loan on the last day of the applicable LIBO Interest Period.
(C) Limitation on LIBO Loans. The Borrowers shall not have more than 5
LIBO Loans outstanding at any one time. The Adjusted LIBO Rate shall not be
available as an Interest Rate hereunder unless at the time a LIBO Loan is
requested or after the making of a requested LIBO Loan there is at least
one outstanding LIBO Loan in the principal amount of $1,000,000.00.
2.9 Computation of Interest and Fees. All interest on the Loans, the
Facility Fee and other sums payable hereunder shall be computed on the basis of
a year of 360 days for the actual number of days elapsed.
2.10 Payments. (A) The Borrowers hereby authorize the Agent to charge
directly any account, maintained by the Borrowers for any payments of principal
of the Loans, interest and any other amounts owing under any Loan Document, as
and when due. The Agent agrees to notify the Borrowers after any such charge,
provided however that, the failure of the Agent to so notify the Borrowers shall
not relieve the Borrowers' obligation to make any and all payments due hereunder
as and when such payments are due. In the event that the Borrowers maintain
insufficient funds in such account(s) to meet the Borrowers' obligations
hereunder when due, the Borrowers will make all payments of principal of the
Loans, all payments of interest on the Loans and any other amounts owing under
this Agreement and/or under any of the Loan Documents to the Agent, for the
account of the Agent and/or the Banks as appropriate not later than 1:00 P.M. on
the applicable due date, in immediately available funds and in Dollars.
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<PAGE>
(A) Prior to an Event of Default and the acceleration of the Loans as
set forth in Section 8.1 hereof, and provided that the Borrowers have paid
all amounts which come due on or prior to such applicable due date, the
Agent will, by wire transfer (or other means mutually acceptable to the
Agent and the Banks), immediately distribute to each Bank in immediately
available funds such Bank's Pro Rata Share of the amounts in which such
Bank has an interest, so received by the Agent.
(B) After the occurrence of an Event of Default and the acceleration
of the Loans as set forth in Section 8.1 hereof, or if the Borrowers shall
have failed to pay all amounts which have come due on or prior to such
applicable due date, the Agent shall apply all payments and collections
received by it as follows: first, to all of the Agent's costs and expenses
incurred in connection with the collection of such payments (including,
without limitation, reasonable attorneys' fees and expenses) then due and
outstanding; second, to interest on and principal of any amounts funded by
the Agent in excess of its Pro Rata Share as contemplated by Section 2.2
hereof; third, to the accrued and unpaid Fees (other than attorneys' fees
and expenses already paid pursuant to "first" above); fourth, to all other
amounts (other than principal or interest) which shall have come due
hereunder and/or under any of the Loan Documents; fifth, to accrued and
unpaid interest on the outstanding Loans or any Fees; sixth, to the
principal amount of the outstanding Loans; and seventh, to the Letter of
Credit Cash Collateral Account.
2.11 Payment on Non-Business Days. Whenever any payment to be made
hereunder or under the Notes shall be stated to be due on a day that is not a
Business Day, such payment shall be made on the next succeeding Business Day,
and, except as otherwise specifically provided herein, such extension of time
shall in such case be included in the computation of payment of interest
hereunder or under the Notes or the Fees, as the case may be.
2.12 Reimbursement to the Banks for Cost Increases Imposed by Law. If any
change in existing law or regulation, any new law, change in regulatory
interpretation or any other factor having the force of law applicable to banks
in general shall impose or change any tax (other than taxes on income in
general), reserve, insurance, special deposit or similar requirements or charges
with respect to funds obtained by any Bank to make or maintain any Loan during
any Interest Period, and the result is to increase the cost to such Bank of
obtaining or maintaining such funds or to reduce the return to such Bank on the
Loan to which such Interest Period applies, then such Bank shall so notify the
Agent and the Borrowers in writing, certifying the amount of and reasons for
such increased costs or reduced return, and the Borrowers shall promptly pay to
such Bank an amount sufficient to compensate such Bank in full for such
increased costs or such reduced return.
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<PAGE>
2.13 Reimbursement to the Banks for Increased Costs Due to Capital Adequacy
Requirements. If any law or regulation or the interpretation thereof by any
court or administrative or governmental authority charged with the
administration thereof, or compliance by any Bank with any request or directive
(whether or not having the force of law) of any such authority, applicable from
time to time now or after the date hereof to banks in general, shall (A) impose,
modify, deem applicable or result in the application of any capital maintenance,
capital ratio or similar requirements against loan commitments or other
facilities made by any Bank and the result thereof shall be to impose upon any
Bank a fee or a requirement to increase any capital requirement applicable as a
result of the making or maintenance of the Revolving Credit (which imposition of
or increase in capital requirements may be determined by any Bank's reasonable
allocation of the aggregate of such capital impositions or increases), or (B)
subject any Bank to any tax, duty or other charge with respect to the Loans, the
Note which it holds, or its obligation to advance the Revolving Credit, or
change the basis of taxation of payments to any Bank of the principal of or
interest on the Loans or any other amounts due under this Agreement in respect
of the Loans or its obligation to advance the Revolving Credit (except for
changes in the rate of tax on the overall net income of such Bank imposed by any
jurisdiction in which such Bank is obligated to pay taxes), then, upon demand by
the Agent, the Borrowers shall promptly pay to such Bank from time to time as
specified by such Bank, such additional amounts or fees which shall be
sufficient to compensate such Bank for such impositions of or increases in
capital requirements or taxes from the date of such change, together with
interest on each such amount from the date demanded until payment in full
thereof at the Default Rate with respect to amounts or fees not paid when due.
Upon the occurrence of any event referred to above, a certificate setting forth
in reasonable detail the amounts necessary to compensate such Bank as a result
of an imposition of or increase in capital requirements or taxes submitted by
such Bank to the Borrower shall be conclusive, absent manifest error or bad
faith, as to the amount thereof. For purposes of the application of this Section
2.11, and in calculating the amount necessary to compensate such Bank for any
imposition of or increase in capital requirements or taxes hereunder, such Bank
shall determine the applicability of this provision and calculate the amount
payable to it hereunder in a manner consistent with the manner in which it shall
apply and calculate similar compensation payable to it by other borrowers having
provisions in their credit agreements comparable to this Section 2.11. If any of
the events which entitle such Bank to demand additional payments, under this
Section 2.11 occur during the term of the Loans and such Bank demands that the
Borrower make such additional payments, the Borrowers shall be entitled to repay
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the Loans in full without being obligated to pay (1) any prepayment compensation
otherwise required under Section 2.14(D) excluding costs or expenses actually
incurred as a result of such prepayment and (2) any additional payments required
to compensate such Bank for any imposition of or increase in capital
requirements or taxes under this Section 2.11 or any default rate of interest
with respect thereto, provided however that (a) such prepayment and termination
occurs within ninety (90) days of the Borrowers' receipt of such Bank's demand
for payment and after three (3) days notice of prepayment to the Agent, (b) the
Borrowers shall not be entitled to prepay the Loans in part, and (c) the
Borrowers shall pay simultaneously with such prepayment and termination any
other sums which the Borrowers shall be obligated to pay in the event of
prepayment, including without limitation accrued interest, fees, costs, charges
and indemnifications.
2.14 Illegality. Notwithstanding any other provision in this Agreement, if
the adoption of any applicable law, rule, or regulation, or any change therein,
or any change in the interpretation or administration thereof by any
governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
lending office) with any request or directive (whether or not having the force
of law) of any such authority, central bank, or comparable agency shall make it
unlawful or impossible for the Bank (or its lending office) to maintain its
Commitment, then upon notice to the Borrower by the Bank, the Commitment of such
Bank shall terminate.
2.15 Interest and Commissions After Default. After the occurrence of any
Event of Default, (i) the Interest Rate then in effect on each outstanding Loan
shall be immediately converted to the Default Rate, and (ii) any Loans made or
other money advanced hereunder after the occurrence of an Event of Default
(unless and until cured or waived in writing by the Bank) shall earn interest at
a per annum rate equal to the Base Rate plus 2 1/2%. Notwithstanding the
foregoing, the Banks shall have no obligation to make any Loans after the
occurrence of any Event of Default.
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2.16 Special Provisions for LIBO Loans.
(A) Unavailability of Funds and Indeterminate Interest Rates. If on or
before the date the Banks are to make any LIBO Loan or on or before any
Effective Date (1) the Agent determines in good faith that it is unable to
obtain funds at the LIBO Rate for the elected Interest Period for any reason,
including, but not limited to the unavailability of funds at such rate, any
change in existing law, any new law, the length of such Interest Period, or
otherwise or (2) the Agent determines in good faith that no adequate means
exists to determine the LIBO Rate for such Interest Period, then the Agent shall
so notify the Borrowers on or before the Effective Date and the Borrowers shall
have one Business Day after notice to withdraw their request for a Loan, and if
the Borrowers fail to so withdraw their request, then, at the Agent's option,
the Borrowers shall be deemed to have requested a Loan at the Base Rate or shall
be required to elect an Interest Period of a length for which the Agent may
obtain funds at the rate the adjustment of which determines the LIBO Rate.
(B) Changes Affecting Ability to Maintain Funds. If, during any Interest
Period, any change in existing law, any new law, or any other factor beyond the
control of any Bank prevents such Bank in its good faith determination from
maintaining funds at the rate the adjustment of which determines the LIBO Rate
for such Interest Period and requires such Bank to cease so maintaining funds
actually so maintained prior to termination of such Interest Period, then on the
date of such required cessation, the Borrowers shall be required to specify a
different Interest Rate for such Interest Period or, in the alternative, to
elect an Interest Period of a length for which all Banks may maintain funds at
the rate the adjustment of which determines the LIBO Rate. In addition, within
five days after the Agent notifies the Borrowers of such required conversion,
the Borrowers shall reimburse each Bank (to the extent not otherwise reimbursed
pursuant to Section 2.10 hereof) for any loss or expense such Bank has certified
in writing to the Borrowers and the Agent that such Bank has incurred as a
result of any such required cessation.
(C) Ineligible Interest Periods. If, on any date the Banks are to make a
LIBO Loan or on any Effective Date, the period of time from such date or such
Effective Date to the Commitment Termination Date or final repayment date is
less than an Interest Period which the Borrowers could otherwise elect, the
Borrowers will elect a LIBO Loan whose Interest Period will end on or before the
Commitment Termination Date or the final repayment date, as necessary. If an
appropriate Interest Period is not available, then the Loan shall be made at the
Adjusted Base Rate.
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(D) Certain Compensation. In the event that the Borrowers prepay any LIBO
Loan prior to the expiration of its Interest Period, whether voluntarily or as
required hereunder, the Borrowers shall pay to the Agent for the account of each
Bank, upon the request of such Bank through the Agent, such amount or amounts as
shall be sufficient (In the reasonable opinion of such Bank) to compensate it
for any loss, cost or expense which such Bank determines is attributable to:
(i) any payment, prepayment, conversion or renewal of a LIBO Loan made
by such Bank on a date other than the last day of an Interest Period for
such Loan (whether by reason of acceleration or otherwise); or
(ii) any failure by the Borrowers to borrow, convert into or renew a
LIBO Loan to be made, converted into or renewed by such Bank on the date
specified therefor pursuant to a Borrower's prior election.
Without limiting the foregoing, such compensation shall include an amount
equal to the excess, if any, of: (i) the amount of interest which otherwise
would have accrued on the principal amount so paid, prepaid, converted or
renewed or not borrowed, converted or renewed for the period from and including
the date of such payment, prepayment, conversion or renewal, or failure to
borrow, convert or renew to but excluding the last day of the then current
Interest Period for such LIBO Loan (or, in the case of a failure to borrow,
convert or renew, to but excluding the last day of the Interest Period for such
LIBO Loan which would have commenced on the date specified therefor in the
relevant notice) at the applicable rate of interest for such LIBO Loan provided
for herein; over (ii) the amount of interest (as reasonably determined by such
Bank) such Bank would have bid in the London interbank market for Dollar
deposits for amounts comparable to such principal amount and maturities
comparable to such Interest Period. A determination of any Bank as to the
amounts payable pursuant to this Section 2.14(D) shall be conclusive absent
manifest error.
(E) Discretion of Banks as to Manner of Funding. Notwithstanding any other
provision of this Agreement, each Bank may fund or maintain its funding of all
or any part of the Loans in any legal manner it chooses.
2.17 Availability of Rate Quotations. Notwithstanding anything herein to
the contrary, if the Agent reasonably determines (which determination shall be
conclusive) that quotations of interest rates for the relevant deposits referred
to in the definition used to calculate the LIBO Rate are not being provided in
the relevant amounts or for the relevant maturities for purposes of determining
the rate of interest on a LIBO Loan as provided in this Agreement, then the
Agent shall forthwith given notice thereof to the Banks and the Borrowers,
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whereupon until the Agent notifies the Banks and the Borrowers that the
circumstances giving rise to such suspension no longer exist, (A) the obligation
of the Banks to make LIBO Loans shall be suspended; and (B) the Borrowers shall
repay in full the then outstanding principal amount of each LIBO Loan, together
with accrued interest thereon, on the last day of the then current Interest
Period applicable to such Loan by remitting sufficient funds to the Agent or by
conversion to a Base Rate Loan.
2.18 Prepayment. (A) The Borrowers may prepay the Base Rate Loans in whole
or in part at any time and from time to time.
(A) Provided that the Borrowers have not given the Agent written
instructions to the contrary, the Banks and the Agent shall apply any voluntary
principal prepayment first, to repayment of the Base Rate Loans then
outstanding, second, to repayment of any LIBO Loans in such a manner as to
minimize the Borrower's obligation to pay prepayment compensation under Section
2.14(D).
2.19 Letters of Credit.
(A) Letters of Credit. In addition to the Borrowers requesting that the
Banks make Loans pursuant to Section 2.2, the Borrowers may request, in
accordance with the provisions of this Section 2.17, that on and after the date
on which all of the conditions set forth in Section 3.1 are satisfied to and
excluding the Commitment Termination Date, the Agent issue and the Agent shall
issue, subject to the terms and conditions hereof, Letters of Credit for the
account of a Borrower or any Borrowers in an aggregate amount up to the Letter
of Credit Commitment; provided, that (1) in no event shall any Letter of Credit
have an expiration date later than the Commitment Termination Date, (2) in no
event shall any Letter of Credit have an expiration date later than one year
after its issue date, and (3) the Borrowers shall not request any Letter of
Credit if, after giving effect to such issuance, the Letter of Credit Liability
would exceed the lesser of (a) $8,000,000.00 minus the amount of the Loans then
outstanding, or (b) $1,000,000.00 (the "Letter of Credit Commitment"). The
issuance of any Letter of Credit in accordance with the provisions of this
Section 2.17 shall require the satisfaction of each condition set forth in
Sections 3.1, 3.2 and 3.3. Immediately upon the issuance of each Letter of
Credit, and upon execution hereof with respect to each Prior Letter of Credit,
each Bank shall be deemed to have, and hereby agrees to have irrevocably
purchased from the Agent a participation in such Letter of Credit and all
drawings thereunder in an amount equal to the amount of such Letter of Credit
multiplied by such Bank's Pro Rata Share.
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(B) Evergreen Letters of Credit. Notwithstanding the provisions of Section
2.17(A), the Banks hereby agree that the Agent may issue upon the Borrowers'
request, one or more Letter(s) of Credit which by its terms may be extended for
additional periods of up to one year each provided that (1) renewal of such
Letters of Credit, at the Agent's discretion, shall be available upon written
request from the Borrower to the Agent at least 30 days before the date upon
which notice of renewal is otherwise required, and (2) the final expiration date
of each such Letter of Credit shall not be later than the Commitment Termination
Date.
(C) The Agent's Reporting Obligations. The Agent agrees to provide the
Banks with biannual reports of all outstanding Letters of Credit issued by the
Agent. Such reports shall be delivered within 15 days of the end of each June
and December, commencing with the period ending December 31, 1995, and shall
specify the following with respect to each outstanding Letter of Credit: (1) the
letter of credit number for such Letter of Credit, the beneficiary for such
Letter of Credit, (2) the date of issuance of such Letter of Credit, (3) the
original face amount of such Letter of Credit, and (4) the then current
available amount and expiration date of such Letter of Credit.
(D) Notice of Issuance or Amendment. Whenever a Borrower desires the
issuance of a Letter of Credit or the amendment of a Letter of Credit, the
Borrowers shall deliver to the office of the Agent at 210 Main Street,
Hackensack, New Jersey 07602 a written notice no later than 11:00 A.M. at least
three (3) Business Days, or in each case such shorter period as may be agreed to
by the Agent in any particular instance, in advance of the proposed date of
issuance. That notice shall specify (1) the proposed date of issuance (which
shall be a Business Day), (2) the face amount of the Letter of Credit, (3) the
expiration date of the Letter of Credit, (4) the purpose of the Letter of
Credit, (5) whether such Letter of Credit is to be a Documentary Letter of
Credit or a Stand-by Letter of Credit; and (6) the name and address of the
beneficiary. On the proposed date of issuance of any Letter of Credit, the Agent
shall determine to the best of its knowledge whether the proposed Letter of
Credit, when added to the then outstanding Letter of Credit Liability, would be
within the Letter of Credit Commitment and, when added to the then outstanding
Letter of Credit Liability and outstanding Loans, would be equal to or less than
$8,000,000.00. Unless both such criteria are satisfied, the Agent shall not
issue the requested Letter of Credit. The Banks and the Borrowers shall hold the
Agent harmless for any miscalculations or other errors in making such
determinations. In the event that, upon issuance of such proposed Letter of
Credit, the Letter of Credit Commitment is exceeded, the Borrowers shall
immediately establish with the Agent, if not already so established, and deposit
into, the Letter of Credit Cash Collateral Account the amount of such excess.
Prior to the date of issuance, the Borrowers shall deliver to the Agent an
executed application for such Letter of Credit in the form customarily required
by the Agent for the issuance of letters of
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credit (the current version of such form is attached hereto as Exhibit 2.17),
and specify a precise description of the documents and the verbatim text of any
certificate to be presented by the beneficiary which, if presented by the
beneficiary prior to the expiration date of the Letter of Credit, would require
the Agent to make payment under the Letter of Credit; provided, that the Agent,
in its reasonable judgment, may require changes in any such documents and
certificates; and provided, further, that no Letter of Credit shall require
payment against a conforming draft to be made hereunder on the same Business Day
that such draft is presented if such presentation is made after 11:00 A.M. on
such Business Day. In determining whether to pay under any Letter of Credit, the
Agent shall be responsible only to determine that the documents and certificates
required to be delivered under the Letter of Credit have been delivered and that
they comply on their face with the requirements of that Letter of Credit. Within
one Business Day after receipt of a request for issuance of a Letter of Credit,
the Agent shall notify each other Bank of the proposed issuance and the amount
of each such Bank's respective participation therein determined in accordance
with this Section 2.17 and shall send each Bank a copy of each Letter of Credit.
(E) Payment of Amounts Drawn Under Letters of Credit. In the event of any
request for drawing under any Letter of Credit by the beneficiary thereof, the
Agent shall immediately notify the Borrowers on the day on which such drawing is
honored and the Borrowers shall reimburse the Agent on the next Business Day in
an amount in same day funds equal to the amount of such drawing; provided that
(1) if sufficient funds are then in the Letter of Credit Cash Collateral Account
to reimburse the Agent in full for the amount of such drawing, the Agent shall
reimburse itself by debiting such amount necessary to reimburse the Agent from
the Letter of Credit Cash Collateral Account, (2) if the funds then in the
Letter of Credit Cash Collateral Account are insufficient to reimburse the Agent
in full for the amount of such drawing, the Agent shall debit the Letter of
Credit Cash Collateral Account in the amount thereof and the unreimbursed
balance of such drawing shall be reimbursed in accordance with clause (3) below,
and (3) if there are no funds then in the Letter of Credit Cash Collateral
Account then unless the Borrowers shall have notified the Agent prior to 11:00
A.M. on the next Business Day after the date of such drawing that the Borrowers
intend to reimburse the Agent for the amount of such drawing with funds other
than the proceeds of the Loans, the Borrowers shall be deemed to have given
notice to the Agent requesting the Banks to make Base Rate Loans in accordance
with Section 2.2 on the day on which such drawing is honored (the "Reimbursement
Date") in an aggregate amount equal to the amount of such drawing less the
amount, if any, remitted to the Agent pursuant to clause (2) above, and subject
to satisfaction or waiver of the conditions specified in Section 3.2, the Banks
shall, on the Reimbursement Date, make a Base Rate Loan in an
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aggregate amount equal to the amount of such drawing less the amount, if any,
withdrawn from the Letter of Credit Cash Collateral Account pursuant to clause
(2) above, the proceeds of which shall be applied directly by the Agent to
reimburse the Agent for such drawing; and provided, further, that if for any
reason the proceeds of such Loan are not received by the Agent on the next
Business Day after the Reimbursement Date in an aggregate amount equal to the
amount of such drawing, the Borrowers shall reimburse the Agent on the day two
days after the Reimbursement Date, in same day funds, in an amount equal to the
excess of the amount of such drawing over the aggregate amount of such Loan, if
any, which are so received plus accrued interest on such amount at the rate set
forth in Section 2.17(G)(1) less the amount, if any, withdrawn by the Agent
pursuant to clause (2) above. The Borrowers shall reimburse any amounts drawn
under any Letter of Credit by paying such amount to the Agent in accordance with
this subsection (E) as if such Letter of Credit had been issued by the Agent.
(F) Payment By the Banks. In the event that the Borrowers shall fail to
reimburse the Agent as provided in Section 2.17(E) in an amount equal to the
amount of any drawing honored by it under a Letter of Credit issued by it, the
Agent shall promptly notify each Bank of the unreimbursed amount of such drawing
and of such Bank's respective participation therein in an amount equal to such
Bank's Pro Rata Share of such unreimbursed amount. Each Bank shall make
available to the Agent for payment to the Agent an amount equal to its
respective participation therein (including without limitation its Pro Rata
Share of accrued but unpaid interest thereon), in same day funds, at the office
of the Agent specified in such notice, not later than 11:00 A.M. on the Business
Day after the date the Agent notifies each Bank. In the event that any Bank
fails to make available to the Agent the amount of such Bank's participation in
such unreimbursed amount as provided herein, the Agent shall be entitled to
recover such amount on demand from such Bank together with interest thereon at a
rate per annum equal to the Base Rate for each day during the period between the
Reimbursement Date and the date on which such Bank makes available its
participation in such unreimbursed amount. The failure of any Bank to make
available to the Agent its Pro Rata Share of any such unreimbursed amount shall
not relieve any other Bank of its obligations hereunder to make available to the
Agent its Pro Rata Share of such unreimbursed amount on the date such
unreimbursed amount is to be reimbursed. The Agent shall distribute to each Bank
which has paid all amounts payable by it under this Section 2.17(F) with respect
to the unreimbursed amount of any drawing under any Letter of Credit issued by
the Agent, such other Bank's Pro Rata Share of all payments received by the
Agent from the Borrowers in reimbursement of drawings honored by the Agent under
such Letter of Credit when such payments are received. Notwithstanding anything
to the contrary herein, each Bank which has paid all amounts payable by it under
this Section 2.17(F) shall have a direct right to reimbursement of such amounts
from the Borrowers subject to the procedures for reimbursing Banks set forth in
this Section 2.17.
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(G) Compensation. The Borrowers agree to pay the following amounts to the
Agent:
(1) with respect to each Documentary Letter of Credit issued by the
Agent, a fee equal to the standard fee then being charged by the Agent for
the issuance of Documentary Letters of Credit;
(2) with respect to each Stand-by Letter of Credit issued by the
Agent, a fee equal to the sum of (a) 1.4% per annum of the maximum amount
available to be drawn under such Stand-by Letter of Credit, plus (b)
$350.00;
(3) with respect to drawings made under any Letter of Credit,
interest, payable on demand, on the amount paid by the Agent in respect of
each such drawing from the date of the drawing to the date such amount is
reimbursed by the Borrowers (including any such reimbursement out of the
proceeds of Loans or out of the Letter of Credit Cash Collateral Account)
at a rate equal to the Base Rate for the period from the date of such
drawing to and including the first Business Day after the date of such
drawing and thereafter at a rate which is at all times equal to the Default
Rate; and
(4) with respect to the issuance, amendment, transfer, administration,
cancellation or conversion of each Letter of Credit and each drawing made
thereunder, documentary and processing charges in accordance with the
Agent's standard schedule for such charges in effect at the time of such
issuance, amendment, transfer, administration, cancellation or drawing, as
the case may be, or as otherwise agreed to by the Agent.
Within thirty (30) days of receipt by the Agent of any amount described in
clause (1) or (2) of this Section 2.17(G), the Agent shall distribute to each
Bank its Pro Rata Share of such amount less the Agent's fee for issuance of each
such Letter of Credit which shall be an amount equal to the greater of (i) the
Agent's minimum charge then in effect, as published, for documentary letters of
credit generally, or (ii) 1% of the face amount of such Letter of Credit with
respect to fees under clause (2). Within 30 days of the execution of this
Agreement, the Agent shall distribute to each Bank its pro rata share, if any,
of the fees, if any, collected from the date of this Agreement until the
expiration of such Letters of Credit. The Agent shall be entitled to retain for
its own account payments made pursuant to clauses (3) and (4) above.
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(H) Obligations Absolute. The obligation of the Borrowers to reimburse the
Agent for drawings made under the Letters of Credit issued by it, and the
obligations of each Bank under Section 2.71(F), shall be unconditional and
irrevocable and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances including, without limitation, the following
circumstances:
(1) any lack of validity or enforceability of any Letter of Credit;
(2) the existence of any claim, set-off, defense or other right which
the Borrowers may have at any time against a beneficiary or any transferee
of any Letter of Credit (or any persons or entities for whom any such
transferee may be acting), the Agent or any other Person, whether in
connection with this Agreement, the transactions contemplated herein or any
unrelated transaction (including any underlying transaction between the
Borrower or one of its Subsidiaries and the beneficiary for which the
Letter of Credit was procured);
(3) any draft, demand, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(4) payment by the Agent under any Letter of Credit against
presentation of a demand, draft or certificate or other document which does
not comply with the terms of such Letter of Credit; provided, that such
payment does not constitute willful misconduct or gross negligence on the
part of the Agent;
(5) any breach of this Agreement or any document delivered in
connection herewith by any party hereto or thereto;
(6) the fact that an Event of Default or a Default shall have occurred
and be continuing.
(I) Indemnification; Nature of the Agent's Duties. In addition to amounts
payable as elsewhere provided in this Section 2.17, the Borrowers hereby agree
to protect, indemnify and save the Agent and each Bank harmless from and against
any and all claims, demands, liabilities, damages, losses, costs, charges and
expenses (including reasonable attorneys' fees and allocated costs of internal
counsel) which the Agent and each Bank may incur or be subject to as a
consequence, direct or indirect, of (1) the issuance of any Letter of Credit, or
(2) the failure of the Agent to honor a drawing under any Letter of Credit as a
result of any act or omission, whether rightful or wrongful, of any present or
future de jure or de facto government or governmental authority. Without
limiting the foregoing, the Agent shall not have any obligation to ascertain
whether the stated purpose of any requested Letter of Credit is permitted by
this Agreement and shall not be liable for the Borrower's use of a Letter of
Credit issued pursuant to the terms hereof in violation of the Borrowers'
covenants contained herein.
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(a) the form, validity, sufficiency, accuracy, genuineness or legal
effect of any document submitted by any party in connection with the
application for and issuance of such Letters of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer or assign
any such Letter of Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, which may prove to be invalid or ineffective
for any reason; (iii) failure of the beneficiary of any such Letter of
Credit to comply fully with conditions required in order to draw upon such
Letter of Credit, unless (a) such failure is material and substantive, and
(b) the Agent's payment on such Letter of Credit constitutes gross
negligence or willful misconduct; (iv) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise, whether or not they be in cipher; (v) errors
in interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a
drawing under any such Letter of Credit or of the proceeds thereof; (vii)
the misapplication by the beneficiary of any such Letter of Credit; or
(viii) any consequences arising from causes beyond the control of the Agent
or the Banks. None of the above shall affect, impair, or prevent the
vesting of any of the Bank's rights or powers hereunder.
(b)
(i) taken or omitted in good faith and (b) substantially in accordance
with the terms thereof, shall not put the Agent under any resulting
liability to the Borrowers.
As between the Agent and the Banks, the Agent agrees that it will take the
same care as it takes in connection with letters of credit in which it alone is
interested. However, neither the Agent nor any of its directors, officers,
agents or employees shall be liable for any action taken or omitted to be taken
by it or them hereunder or in connection herewith except for its or their own
gross negligence or willful misconduct.
With respect to its Commitment (if any) and its portion of the Loans and
Letter of Credit Liability (if any), the Agent shall have the same rights and
powers hereunder as any Bank and may exercise the same as though it were not the
Agent. The Agent may accept deposits from, lend money to and generally engage in
any kind of banking or trust business with any Borrower and any Subsidiaries or
Affiliates of such Borrower as if the Agent were not the Agent unless otherwise
prohibited by the terms of this Agreement.
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It is expressly understood and agreed that the obligations of the Agent
hereunder are only those expressly set forth in this Agreement and that the
Agent shall be entitled to assume that no Event of Default or Default has
occurred and is continuing unless the Agent has actual knowledge of such fact or
has received written notice from a Bank or the Borrowers that such Bank or
Borrower considers that an Event of Default or Default has occurred and is
continuing and specifying the nature thereof.
So long as the Agent shall be entitled, pursuant to the immediately
preceding paragraph, to assume that no Event of Default or Default, has occurred
and is continuing, the Agent shall be entitled to use its discretion with
respect to exercising or refraining from exercising any rights that may be
vested in it by, or with respect to taking or refraining from taking any action
or actions that it may be able to take under or in respect of, this Agreement.
The Agent shall incur no liability under or in respect of this Agreement by
acting upon any notice, consent, certificate, warranty or other paper or
instrument believed by it to be genuine or authentic or to be signed by the
proper party or parties, or with respect to anything that it may do or refrain
from doing in the reasonable exercise of its judgment.
The Banks agree to indemnify the Agent (to the extent not reimbursed by the
Borrowers), ratably according to their Pro Rata Share, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever that
may be imposed on, incurred by or asserted against the Agent in any way relating
to or arising out of this Agreement or any action taken or omitted by the Agent
under this Agreement, provided that no Bank shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Agent's gross
negligence or willful misconduct.
2.20 Letter of Credit Cash Collateral Account. At the request of the
Borrowers or upon delivery of cash collateral pledged by the Borrowers pursuant
to this Agreement, the Agent shall establish a deposit account for the Borrowers
over which the Agent shall have sole control (the "Letter of Credit Cash
Collateral Account") into which the Borrowers may deposit cash. The Borrowers
hereby grant, bargain, convey and set over to the Agent for the benefit of the
Agent and each Bank a security interest in and lien upon the Letter of Credit
Cash Collateral Account and all cash and any other assets at any time hereafter
contained therein as security for the payment and performance of all of the
Borrowers' obligations now or hereafter incurred hereunder, under the Note or
otherwise in connection herewith.
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The Borrowers shall take such action and execute and deliver such documents,
including financing statements, as the Agent may determine necessary or
desirable to further the security interest hereby created. Cash collateral held
in the Letter of Credit Cash Collateral Account shall be applied in accordance
with Section 2.17(E) except as otherwise set forth herein. After the occurrence
of an Event of Default and acceleration of the Loans as set forth in Section 8.2
hereof, or if the Borrowers shall have failed to pay all amounts which have come
due on or prior to such applicable due date, the Bank shall apply all funds held
in the Letter of Credit Cash Collateral Account in the manner provided in
Section 2.8. On the Commitment Termination Date, all monies in the Letter of
Credit Cash Collateral Account in excess of the amount required to repay Loans,
the Letter of Credit Liability, and any other amount then owing hereunder shall
be returned to the Borrowers.
ARTICLE III
CONDITIONS OF LENDING
2.21 Conditions Precedent to the Initial Disbursement. The obligation of
each Bank to make disbursement of its portion of the initial Loans hereunder is
subject to the conditions precedent that each Bank shall have received on or
before the Closing Date all of the following, in form and substance satisfactory
to each Bank:
(A) a copy, certified in writing as of the Closing Date by the
Secretary or Assistant Secretary of each Borrower, of resolutions of the
Board of Directors of each Borrower evidencing approval of this Agreement
and the Note and other matters contemplated hereby;
(B) a favorable opinion of outside counsel for the Borrowers dated as
of the Closing Date on such matters as the Banks shall require and in form
and substance satisfactory to the Banks;
(C) a certificate dated the date hereof by the Secretary or an
Assistant Secretary of each Borrower as to the names and signatures of the
officers of each Borrower authorized to sign this Agreement, the Notes and
the other documents or certificates of the Borrowers to be executed and
delivered pursuant hereto;
(D) a Note payable to the order of each Bank;
(E) copies of the Certificate of Incorporation and Bylaws of each
Borrower, certified as true, correct and complete by each Borrower's
Secretary or Assistant Secretary and, with respect to charter documents, by
the appropriate governmental official of the jurisdiction where such
Borrower was formed;
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(F) certificates dated within thirty (30) days of the Closing Date,
issued by the Secretary of State (or similar official) of each jurisdiction
in which each Borrower is incorporated or is qualified as a foreign
corporation to do business, stating that such Borrower is a corporation
duly incorporated or authorized to do business, as the case may be, and in
good standing under the laws of such jurisdiction;
(G) evidence that the Borrowers have opened the Operating Account;
(H) unless this Agreement is executed on the Closing Date, a
certificate of the Borrowers dated the Closing Date (with supporting
evidence if required by the Banks) representing to the Banks that (1) the
Borrowers have complied in all material respects with all applicable
federal, state and local laws and regulations, including without limitation
all Environmental Laws with which the failure to comply would have a
Material Adverse Effect; (2) there is no pending or, to the Borrowers'
knowledge, threatened litigation which in the aggregate, if decided against
a Borrower, would result in a Material Adverse Effect; (3) other than as
previously disclosed to the Banks in writing, no material adverse change
has occurred in the financial condition of a Borrower since September 26,
1994; (4) the representations and warranties of the Borrowers contained in
this Agreement and in the other Loan Documents to which the Borrowers are a
party are correct and accurate on and as of the Closing Date as though made
on and as of the Closing Date; and (5) no Default or Event of Default has
occurred or will result from the making of the Loans;
(I) the following evidence of insurance coverage:
(1) a certificate evidencing all risk casualty insurance coverage
in an amount equal to 100% of the replacement value of all
improvements on the Borrowers' real estate and inventory, fixtures and
equipment, in form and substance satisfactory to the Banks; and
(2) a certificate of insurance issued to the Agent evidencing
workmen's compensation and public liability insurance, insuring the
interest of the Borrowers in amounts and in form and substance
satisfactory to the Banks.
Each policy of insurance must be issued by an insurance company
satisfactory to the Banks, must have premiums therefor prepaid to not earlier
than through the first quarter ending after the date of this Agreement, and must
provide that it will not be terminated or otherwise modified adversely to the
Banks without at least 30 days' prior written notice to the Banks;
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(J) a lien search prepared by a search company acceptable to the
Banks showing no perfected liens against any property of the Borrowers
except for Permitted Encumbrances;
31102000004.(11)..a copy of each and every Governmental Approval
which is required to be obtained or made by the Borrowers for the due
execution, delivery and performance of this Agreement, the other Loan
Documents, or a certificate of an officer of the Borrowers dated the
Closing Date that no such Governmental Approvals are required;
(L) payment of all fees required hereunder including without
limitation under Section 10.5 hereof; and
(M) the Borrowers' September 26, 1994 audited financial
statements and projections for the next three years.
2.22 Conditions Precedent to All Disbursements. The obligation of each Bank
to make any disbursement of the Loans (including the initial disbursement) and
the rights of the Borrowers to select Interest Rates under Section 2.6 are
subject to the further conditions precedent that:
(A) the representations and warranties contained in Article IV
hereof shall be accurate on and as of the date of such disbursement or
selection as though made on and as of such date;
(B) no Event of Default or Default shall have occurred and be
continuing or will result from the making of such disbursement or
selection;
(C) there shall have occurred no material adverse change in the
financial condition, operations or business of the Borrowers taken as
a whole since the most recent financial statements reviewed by the
Banks;
(D) there shall not have occurred any casualty or condemnation
that has a Material Adverse Effect; and
(E) there shall be no pending or threatened litigation which if
decided against a Borrower would have a Material Adverse Effect.
2.23 Conditions to Letters of Credit. The obligation of the Agent to issue
any Letter of Credit hereunder is subject to the prior or concurrent
satisfaction of all of the following conditions:
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(A) On or before the date of issuance of the initial Letter of
Credit, each of the conditions set forth in Section 3.1 shall have
been satisfied or waived;
(B) On or before the date of issuance of each Letter of Credit,
the Agent in respect of such Letter of Credit shall have received in
accordance with the provisions of Section 2.17, a notice requesting
the issuance of such Letter of Credit, an executed application for
such Letter of Credit in the form customarily required by the Agent
for the issuance of letters of credit, all other information specified
in Section 2.17, and such other documents as the Agent may reasonably
require in connection with the issuance of such Letter of Credit;
(C) On the date of issuance of each Letter of Credit, all
conditions precedent described in Sections 3.2 shall be satisfied to
the same extent as though the issuance of such Letter of Credit were
the making of a Loan, and each request by the Borrowers to the Agent
to issue a Letter of Credit shall constitute a representation by the
Borrowers that at the time thereof (1) all conditions precedent
described in Section 3.2 have been satisfied and (2) the sum of the
proposed Letter of Credit plus the Letter of Credit Liability plus the
Loans then outstanding would not exceed $8,000,000.00; and
(D) On or before the date of issuance of such Letter of Credit,
the Borrowers shall have paid the fees therefor required under Section
2.17.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrowers represent and warrant to each Bank that:
2.24 Incorporation, Good Standing, and Due Qualification. Each of Quad and
its Domestic and Foreign Subsidiaries is a corporation duly incorporated,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation; has the corporate power and authority to own its assets and to
transact the business in which it is now engaged or proposes to be engaged; and
is duly qualified as a foreign corporation and in good standing under the laws
of each other jurisdiction in which the absence of such qualification would have
a Material Adverse Effect.
2.25 Corporate Power and. The execution, delivery, and performance by
each Borrower of the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action and do not and will not (A) require
any consent or approval of the shareholders of such corporation; (B) contravene
such corporation's charter or bylaws; (C) violate any provision
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of or cause or result in a breach of or constitute a default under any law,
rule, regulation (including, without limitation, Regulation U of the Board of
Governors of the Federal Reserve System), order or writ, judgment, injunction,
decree, determination, or award presently in effect having applicability to such
corporation; (D) cause or result in a breach of or constitute a default under
any indenture or loan or credit agreement or any other agreement, lease, or
instrument to which such corporation is a party or by which it or its properties
may be bound or affected which is material to the Borrowers taken as a whole; or
(E) cause or result in or require the creation or imposition of any Lien, upon
or with respect to any of the properties now owned or hereafter acquired by such
corporation.
2.26 Legally Enforceable. This Agreement is, and each of the other Loan
Documents when duly executed and delivered under this Agreement will be, legal,
valid, and binding obligations of each Borrower enforceable against each
Borrower in accordance with their respective terms, except to the extent that
such enforcement may be limited by applicable bankruptcy, insolvency, and other
similar laws affecting creditor's rights generally.
2.27 Financial Statements; Accuracy of Information.
(A) The Consolidated balance sheet of Quad and its Domestic and Foreign
Subsidiaries as of September 26, 1994, and the related Consolidated statements
of income and retained earnings and cash flows of Quad and its Domestic and
Foreign Subsidiaries for the fiscal year then ended, and the accompanying
footnotes, together with the opinion thereon, dated September 26, 1994 of Ernst
& Young, independent certified public accountants, copies of which have been
furnished to each Bank, fairly present the financial condition of Quad and its
Domestic and Foreign Subsidiaries as of such date and the results of the
operations of Quad and its Domestic and Foreign Subsidiaries for the periods
covered by such statements, all in accordance with GAAP consistently applied,
and since September 26, 1994, there has been no material adverse change in the
financial condition, business, or operations of Quad and its Domestic and
Foreign Subsidiaries. There are no liabilities of Quad and its Domestic and
Foreign Subsidiaries, fixed or contingent, which are material but are not
reflected in the financial statements or in the notes thereto, other than
liabilities arising in the ordinary course of business since September 26, 1994.
(B) All information, financial statements, exhibits and reports furnished
by the Borrowers to the Banks in connection with this Agreement and the
borrowings contemplated hereby are, and all such information, financial
statements, exhibits and reports hereafter furnished by the Borrowers to the
Banks in such connection will be true and correct in every material respect
under applicable GAAP rules on the date furnished to the Banks, and no such
information, financial statements, exhibits or reports contain or will contain
any material misstatement of fact or omit or will omit to state a material fact
or any fact necessary to make the statement contained therein not materially
misleading.
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2.28 Labor Disputes and Acts of. Neither the business nor the properties of
any Borrower are affected by any fire, explosion, accident, strike, lockout or
other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of
the public enemy, or other casualty (whether or not covered by insurance)
materially and adversely affecting such business or properties or the operation
of the Borrowers taken as a whole.
2.29 Other Agreements. No Borrower is a party to any indenture, loan, or
credit agreement, or to any lease or other agreement or instrument, or subject
to any charter or corporate restriction which could have a material adverse
effect on the business, properties, assets, operations, or conditions, financial
or otherwise, of the Borrowers taken as a whole, or the ability of the Borrowers
to carry out their obligations under the Loan Documents. No Borrower is in
default in any respect in the performance, observance, or fulfillment of any of
the obligations, covenants, or conditions contained in any agreement or
instrument material to the business of the Borrowers taken as a whole.
2.30 Litigation. There is no pending or threatened action or proceeding
against or affecting any Borrower before any court, governmental agency, or
arbitrator which would, in any one case or in the aggregate, if decided against
such Borrower materially adversely affect the financial condition, operations,
properties, or business of the Borrowers taken as a whole or the ability of the
Borrowers taken as a whole to perform any of their obligations under the Loan
Documents except for the pending case against Quad styled Pozzi v. Smith, et al.
pending in the United States District Court for the Eastern District Of
Pennsylvania.
2.31 No Defaults on Outstanding Judgments or. The Borrowers have satisfied
all judgments, and no Borrower is in default with respect to any judgment, writ,
injunction, decree, rule, or regulation of any court, arbitrator, or federal,
state, municipal, or other governmental authority, commission, board, bureau,
agency, or instrumentality, domestic or foreign the failure to comply with which
would have a Material Adverse Effect.
2.32 Ownership and Liens. Each Borrower has title to, or valid leasehold
interests in, all of its material properties and assets, real and personal,
including the properties and assets and leasehold interests reflected in the
financial statements referred to in Section 4.4 (other than any properties or
assets disposed of in the ordinary course of business), and none of the
properties and assets owned by any Borrower and none of their leasehold
interests is subject to any Lien, except such as may be permitted pursuant to
Section 6.1 of this Agreement.
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2.33 Subsidiaries and Ownership of Stock. Set forth in Exhibit 4.10 is a
complete and accurate list of the Domestic and Foreign Subsidiaries of Quad,
showing the jurisdiction of incorporation of each and showing the ownership of
the outstanding stock of each such Domestic and Foreign Subsidiary. All of the
outstanding capital stock of each Domestic and Foreign Subsidiary has been
validly issued, is fully paid and nonassessable, and the shares owned by the
Borrowers or their Subsidiaries are free and clear of all Liens.
2.34 ERISA. Each Borrower is in compliance in all material respects with
all applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited
Transaction has occurred and is continuing with respect to any Plan; no notice
of intent to terminate a Plan has been filed nor has any Plan been terminated;
no circumstances exist which constitute grounds under ss.4042 of ERISA entitling
the PBGC to institute proceedings to terminate, or appoint a trustee to
administrate, a Plan, nor has the PBGC instituted any such proceedings; no
Borrower nor any ERISA Affiliate has completely or partially withdrawn under
ss.ss.4201 or 4204 of ERISA from a Multiemployer Plan; each Borrower and ERISA
Affiliate have met their minimum funding requirements under ss.412 of the
Internal Revenue Code, the regulations thereunder and ss.302 of ERISA with
respect to all of their Plans and the present fair market value of all Plan
assets exceeds the present value of all vested benefits under each Plan, as
determined on the most recent valuation date of the Plan and in accordance with
the provisions of ERISA and the regulations thereunder for calculating the
potential liability of any Borrower or ERISA Affiliate to PBGC or the Plan under
Title IV of ERISA; and no Borrower or ERISA Affiliate has incurred any liability
to the PBGC under ERISA.
2.35 Operation of Business. Each Borrower possesses all licenses, permits,
franchises, patents, copyrights, trademarks, and trade names, or rights thereto,
necessary to conduct their respective business substantially as now conducted
and as presently proposed to be conducted the failure to possess any of which
would not have a Material Adverse Effect, and no Borrower is in violation of any
valid rights of others with respect to any of the foregoing which would cause a
Material Adverse Effect.
2.36 Taxes. Each Borrower has filed all tax returns (federal, state, and
local) required to be filed and have paid all taxes, assessments, and
governmental charges and levies thereon to be due, including interest and
penalties, except the filing of tax returns or the payment of taxes, if any,
being contested by a Borrower as permitted by Section 5.6 and disclosed to the
Banks on Exhibit 4.13.
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2.37 Debt. No Borrower is indebted in excess of $100,000.00 under any
credit agreement, indenture, purchase agreement, guaranty, Capital Lease, or
other investment, agreement or arrangement except as disclosed in the financial
statements referred to in Section 4.4 or as disclosed to the Banks on Exhibit
4.14. Such Exhibit 4.14 shall disclose as of the date of this Agreement all
credit facilities available to the Borrowers and amounts owing under each such
credit agreement or facility.
2.38 Environmental Matters. To the best of the Borrowers' knowledge, no
real property owned or leased by a Borrower is in violation of any Environmental
Laws, the failure to comply with which would have a Material Adverse Effect, no
Hazardous Materials are present on said real property and no Borrower has been
identified in any litigation, administrative proceedings or investigation as a
responsible party for any liability under any Environmental Laws.
ARTICLE V
AFFIRMATIVE COVENANTS
So long as either Note shall remain unpaid, each Borrower will:
2.39 Maintenance of Existence. Preserve and maintain, and cause each
Non-Borrower Subsidiary to preserve and maintain, its corporate existence and
good standing in the jurisdiction of its incorporation, and qualify and remain
qualified, and cause each other Non-Borrower Subsidiary to qualify and remain
qualified, as a foreign corporation in each jurisdiction in which the failure to
maintain such qualification would have a Material Adverse Effect.
2.40 Maintenance of Records. Keep, and cause each Non-Borrower Subsidiary
to keep, accurate records and books of account, in which complete entries will
be made in accordance with GAAP consistently applied.
2.41 Maintenance of. Maintain, keep, and preserve, and cause each
Non-Borrower Subsidiary to maintain, keep, and preserve, all of the properties
(tangible and intangible) necessary or useful in the proper conduct of its
business in good working order and condition, ordinary wear and tear excepted
and material to the Borrowers taken as a whole.
2.42 Conduct of Business; Permits and Approvals; Compliance with Laws.
Continue, and cause each Non-Borrower Subsidiary to continue, to engage in a
business of the same general type as conducted by it on the date of this
Agreement; maintain, and cause each Non-Borrower Subsidiary to maintain, in full
force and effect its franchises and all licenses, patents, trademarks,
tradenames, contracts, permits, approvals and other rights necessary to the
profitable conduct of its business the failure to maintain of which would not
have a Material Adverse Effect; and comply, and cause each Non-Borrower
Subsidiary to comply, in all respects with all applicable laws, rules,
regulations, and orders the failure to comply with which would have a Material
Adverse Effect.
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2.43 Maintenance of. Maintain, and cause each Non-Borrower Subsidiary to
maintain, insurance with financially sound and reputable insurance companies or
associations in such amounts and covering such risks as are usually carried by
companies engaged in the same or a similar business and similarly situated,
which insurance may provide for reasonable deductibility from coverage thereof
the failure to maintain of which would not have a Material Adverse Effect.
2.44 Payment of Debt; Payment of Taxes,. Promptly pay and discharge, and
cause each Non-Borrower Subsidiary to promptly pay and discharge,
(A) all of its Debt in accordance with the terms thereof;
(B) all taxes, assessments, and governmental charges or levies
imposed upon it or upon its income and profits, upon any of its
property, real, personal or mixed, or upon any part thereof, before
the same shall become in default;
(C) all lawful claims for labor, materials and supplies or
otherwise, which, if unpaid, might become a lien or charge upon such
property or any part thereof;
provided, however, that so long as the Borrowers first notify the Agent of its
intention to do so, the Borrowers shall not be required to pay and discharge (or
to cause such Non-Borrower Subsidiary to pay and discharge) any such Debt, tax,
assessment, charge, levy or claim so long as the failure to so pay or discharge
does not constitute or result in a Default or an Event of Default under Section
8.1(D) or (F) and so long as no foreclosure or other similar proceedings shall
have been commenced against such property or any part thereof and so long as the
validity thereof shall be contested in good faith by appropriate proceedings
diligently pursued and the Borrowers shall have set aside adequate reserves with
respect thereto.
2.45 Right of Inspection. At any reasonable time and from time to time,
permit a Bank or any agent or representative thereof to examine and make copies
of and abstracts from the records and books of account of, and visit the
properties of, the Borrowers or any Non-Borrower Subsidiary, and to discuss the
affairs, finances, and accounts of the Borrowers and any Non-Borrower Subsidiary
with any of their respective officers and directors and the Borrowers'
independent accountants.
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2.46 Reporting. Furnish to each of the Banks:
(A) As soon as available and in any event within sixty (60) days after
the end of each quarter of each fiscal year of Quad, Consolidated and
Consolidating balance sheets of Quad as of the end of such quarter,
Consolidated and Consolidating statements of income and retained earnings
of Quad for the period commencing at the end of the previous fiscal year
and ending with the end of such quarter, a Consolidated statement of cash
flow of Quad for the portion of the fiscal year ended with the last day of
such quarter, and an accounts receivable aging report for the Borrowers,
all in reasonable detail and stating in comparative form the respective
Consolidated and Consolidating figures for the corresponding date and
period in the previous fiscal year and all prepared in accordance with GAAP
consistently applied and certified by the chief financial officer of Quad
(subject to year-end adjustments);
(B) As soon as available and in any event within ninety (90) days
after the end of each fiscal year of Quad, a Consolidated and Consolidating
balance sheet of Quad as of the end of such fiscal year, a Consolidated and
Consolidating statement of income and retained earnings of Quad for such
fiscal year, and a Consolidated statement of cash flow of Quad for such
fiscal year, all in reasonable detail and stating in comparative form the
respective Consolidated and Consolidating figures for the corresponding
date and period in the prior fiscal year and all prepared in accordance
with GAAP consistently applied and as to the Consolidated statements
accompanied by an opinion thereon acceptable to the Banks by Ernst & Young
or other independent accountants selected by the Borrowers and acceptable
to the Agent;
(C) Promptly upon receipt thereof, copies of any reports submitted to
the Borrowers by independent certified public accountants in connection
with examination of the financial statements of the Borrowers made by such
accountants;
(D) Within sixty (60) days after the end of each quarters of each
fiscal year of Quad, a certificate of the chief financial officer of Quad,
(1) certifying that to the best of his knowledge no Default or Event of
Default has occurred and is continuing or, if a Default or Event of Default
has occurred and is continuing, a statement as to the nature thereof and
the action which is proposed to be taken thereto; and (2) with computations
demonstrating compliance with the covenants contained in Article VIIA and
VIIB;
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(E) Within thirty (30) days prior to the expiration of any and all
insurance policies required hereunder but, in no event less often than once
per year, proof that the insurance required hereunder is in full force and
effect and has been renewed;
(F) Promptly after the commencement thereof, notice of all actions,
suits, and proceedings before any court or governmental department,
commission, board, bureau, agency, or instrumentality, domestic or foreign,
affecting any Borrower which, if determined adversely to such Borrower,
would have a Material Adverse Effect;
(G) As soon as possible after the occurrence of each Default or Event
of Default, and in any event within five (5) days after a Borrower's
knowledge, a written notice setting forth the details of such Default or
Event of Default and the action which is proposed to be taken by the
Borrowers with respect thereto;
(H) Promptly after the filing or receiving thereof, copies of all
reports, including annual reports, and notices which any Borrower files
with or receives from PBGC or the U.S. Department of Labor under ERISA; and
as soon as possible and in any event within fifteen (15) days after any
Borrower knows or has reason to know that any Reportable Event or
Prohibited Transaction has occurred with respect to any Plan or that the
PBGC or any Borrower has instituted or will institute proceedings under
Title IV of ERISA to terminate any Plan, the Borrowers will deliver to the
Agent a certificate of the chief financial officer of the Borrowers setting
forth details as to such Reportable Event or Prohibited Transaction or Plan
termination and the action the Borrowers propose to take with respect
thereto;
(I) Promptly after the furnishing thereof, copies of any statement or
report furnished to any other party pursuant to the terms of any material
indenture, loan, or credit or similar agreement and not otherwise required
to be furnished to the Banks pursuant to any other clause of this Section
5.8;
(J) Promptly after the sending or filing thereof, copies of all proxy
statements, financial statements, and reports which any Borrower sends to
its shareholders, and copies of all regular, periodic, and special reports,
and all registration statements which any Borrower files with the
Securities and Exchange Commission or any governmental authority which may
be substituted therefor, or with any national securities exchange including
without limitation annual reports, 10K reports and 10Q reports; and
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(K) Such other information respecting the condition or operations,
financial or otherwise, of the Borrowers or any Non-Borrower Subsidiary as
the Agent or a Bank may from time to time reasonably request.
2.47 Further Assurances. Do such further acts and things and execute and
deliver to the Agent such additional assignments, agreements, powers and
instruments, as the Agent may reasonably require or reasonably deem advisable to
carry into effect the purposes of this Agreement or to better assure and confirm
unto the Banks its rights, powers and remedies hereunder.
ARTICLE VI
NEGATIVE COVENANTS
So long as either Note shall remain unpaid, each Borrower will not:
2.48 Liens. Create, incur, assume, or suffer to exist, or permit any
Non-Borrower Subsidiary to create, incur, assume, or suffer to exist, any Lien
upon or with respect to any of its properties, now owned or hereafter acquired,
except:
(A) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or, if due and payable, if they are being
contested in good faith by appropriate proceedings promptly initiated and
diligently conducted and for which appropriate reserves are maintained and
so long as no foreclosure, distraint, sale or other similar proceedings
shall have been commenced with respect thereto;
(B) Liens imposed by law, such as mechanics', materialmen's,
landlords', warehousemen's, and carriers' Liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are
not past due for more than thirty (30) days or which are being contested in
good faith by appropriate proceedings promptly initiated and diligently
conducted and for which appropriate reserves have been established and so
long as no foreclosure, distraint, sale or other similar proceedings shall
have been commenced with respect thereto;
(C) Liens under workers' compensation, unemployment insurance, Social
Security, or similar legislation;
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(D) Liens, deposits, or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), or public or statutory
obligations; surety, indemnity, performance, or other similar bonds; or
other similar obligations arising in the ordinary course of business;
(E) Liens existing on the date hereof and listed on Exhibit 6.1
securing amounts not in excess of the amounts set forth on Exhibit 6.1, but
not the extension of the Lien to other property, or the granting of the
Lien to secure the extension of the maturity, refunding, or modification of
such obligation, in whole or in part;
(F) Judgment and other similar Liens arising in connection with court
proceedings, provided the execution or other enforcement of such Liens is
effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings promptly initiated
and diligently conducted and for which appropriate reserves have been
established;
(G) Easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use, and enjoyment by any Borrower or any Non-Borrower
Subsidiary of the property or assets encumbered thereby in the normal
course of its business or materially impair the value of the property
subject thereto;
(H) Liens securing obligations of any Non-Borrower Subsidiary to a
Borrower or another Non-Borrower Subsidiary; and
(I) Purchase-money Liens on any property hereafter acquired or the
assumption of any Lien on property existing at the time of such
acquisition, or a Lien incurred in connection with any conditional sale or
other title retention agreement or a Capital Lease; provided that
(a) Any property subject to any of the foregoing is acquired by
any Borrower or any Non-Borrower Subsidiary in the ordinary course of
its respective business and the Lien on any such property is created
contemporaneously with such acquisition;
(b) The obligation secured by a Lien so created, assumed, or
existing shall not exceed one hundred percent (100%) of the lesser of
cost or fair market value as of the time of acquisition of the
property covered thereby to the Borrower or Non-Borrower Subsidiary
acquiring the same;
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(c) Each such Lien shall attach only to the property so acquired
and fixed improvements thereon;
(d) The Debt secured by all such Liens shall not exceed Five
Hundred Thousand Dollars ($500,000.00) at any time outstanding in the
aggregate; and
(e) The expenditure related to such Lien is permitted under
Section 7A.3.
2.49 Debt. Create, incur, assume, or suffer to exist, or permit any
Non-Borrower Subsidiary to create, incur, assume, or suffer to exist, any Debt,
except:
(A) Debt of the Borrowers to the Banks;
(B) Debt existing on the date hereof and disclosed in the financial
statements referred to in Section 4.4 or otherwise disclosed to the Banks
on Schedule 4.14, but no renewals, extensions, or refinancings thereof
excluding renewal of the debt available from the Banks;
(C) Debt of the Borrowers of up to $2,000,000.00 in the aggregate
including Debt in respect of letters of credit issued for the account of
any Borrower or any Non-Borrower Subsidiary and debt incurred in connection
with acceptances of any Non-Borrower Subsidiary;
(D) Debt of any Borrower to any Non-Borrower Subsidiary or of any
Non-Borrower to another Non-Borrower Subsidiary;
(E) Accounts payable to trade creditors for goods or services which
are not aged more than ninety (90) days from billing date and current
operating liabilities (other than for borrowed money) which are not more
than ninety (90) days past due, in each case incurred in the ordinary
course of business and paid within the specified time, unless contested in
good faith and by appropriate proceedings; and
(F) Debt of any Borrower or Non-Borrower Subsidiary secured by
purchase-money Liens permitted by Section 6.1(I).
2.50 Mergers, Etc. Merge or consolidate with, or sell, assign, lease, or
otherwise dispose of (whether in one transaction or in a series of transactions)
all or substantially all of its assets (whether now owned or hereafter
acquired), to any Person, or acquire all or substantially all of the assets or
the business of any Person, or permit any Non-Borrower Subsidiary to do so,
except that (A) any Domestic or Foreign Subsidiary may merge into or transfer
assets to any Borrower and (B) any Non-Borrower Subsidiary may merge into or
consolidate with or transfer assets to any other Domestic or Foreign Subsidiary.
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2.51 Leases. Create, incur, assume, or suffer to exist, or permit any
Non-Borrower Subsidiary to create, incur, assume, or suffer to exist, any
obligation as lessee for the rental or hire of any real or personal property,
except (A) Capital Leases permitted by Section 6.1; (B) leases existing on the
date of this Agreement and any extensions or renewals thereof; (C) leases (other
than Capital Leases) which do not in the aggregate require the Borrowers and the
Non-Borrower Subsidiaries to make payments (including taxes, insurance,
maintenance, and similar expenses) in any fiscal year of Quad in excess of
$500,000.00; and (D) leases between any Borrower and any other Domestic or
Foreign Subsidiary or between any Domestic or Foreign Subsidiary and another
Domestic or Foreign Subsidiary.
2.52 Sale and Leaseback. Sell, transfer, or otherwise dispose of, or permit
any Non-Borrower Subsidiary to sell, transfer, or otherwise dispose of, any real
or personal property to any Person and thereafter directly or indirectly lease
back the same or similar property.
2.53 Dividends. Declare or pay any dividends; or purchase, redeem, retire,
or otherwise acquire for value any of its capital stock now or hereafter
outstanding; or make any distribution of assets to its shareholders as such
whether in cash, assets, or obligations of the Borrowers; or allocate or
otherwise set apart any sum for the payment of any dividend or distribution on,
or for the purchase, redemption, or retirement of, any shares of its capital
stock; or make any other distribution by reduction of capital or otherwise in
respect of any shares of its capital stock; or permit any of the Domestic or
Foreign Subsidiaries to purchase or otherwise acquire for value any stock of any
Borrower or any other Domestic or Foreign Subsidiary, except that (A) a Borrower
may declare and deliver dividends and make distributions payable solely in
common stock of such Borrower; (B) a Borrower may purchase or otherwise acquire
shares of its capital stock by exchange for or out of the proceeds from a
substantially concurrent issue of new shares of its capital stock; and (C) so
long as no Default or Event of Default has occurred and is continuing or would
be caused or created thereby, a Borrower may declare and pay dividends on an
annual basis not in excess of 50% of such year's pre-tax GAAP income.
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2.54 Sale of Assets. Sell, lease, assign, transfer, or otherwise dispose
of, or permit any Non-Borrower Subsidiary to sell, lease, assign, transfer, or
otherwise dispose of, any of its now owned or hereafter acquired assets
(including, without limitation, shares of stock and indebtedness of
Subsidiaries, receivables, and leasehold interests), except (A) for inventory
disposed of in the ordinary course of business; (B) the sale or other
disposition of assets no longer used or useful in the conduct of its business or
not material to the Borrowers taken as a whole; and (C) any Non-Borrower
Subsidiary may sell, lease, assign or otherwise transfer its assets to a
Borrower or any other Non-Borrower Subsidiary; provided that, assets disposed of
under clause (B) above shall not exceed $500,000.00 in aggregate value during
any twelve (12) month period during the term of this Agreement without the
Banks' prior consent.
2.55 Investments. Make, or permit any Non-Borrower Subsidiary to make, any
loan or advance to any Person, or purchase or otherwise acquire, or permit any
Non-Borrower Subsidiary to purchase or otherwise acquire, any capital stock,
assets, obligations, or other securities of, make any capital contribution to,
or otherwise invest in or acquire any interest in any Person which when added to
capital expenditures permitted under Section 7.2 hereof would exceed in the
aggregate One Million Five Hundred Thousand Dollars ($1,500,000.00) in any
fiscal year, except (A) either directly owned or shares held in any mutual fund
which invests solely in, obligations of the United States or any agency thereof
with maturities of one year or less from the date of acquisition including those
acquired under standard repurchase agreements; (B) commercial paper of a
domestic issuer rated at least "A-1" by Standard & Poor's Corporation or "P-1"
by Moody's Investors Services, Inc.; (C) certificates of deposit with maturities
of one year or less from the date of acquisition issued by any commercial bank
having capital and surplus in excess of One Hundred Million Dollars
($100,000,000); and (D) stock, obligations, or securities received in settlement
of debts (created in the ordinary course of business) owing to any Borrower or
any Non-Borrower Subsidiary.
2.56 Guaranties, Etc. Assume, guarantee, endorse, or otherwise be or become
directly or contingently responsible or liable, or permit any Non-Borrower
Subsidiary to assume, guarantee, endorse, or otherwise be or become directly or
contingently responsible or liable (including, but not limited to, an agreement
to purchase any obligation, stock, assets, goods, or services, or to supply or
advance any funds, assets, goods, or services, or to maintain or cause such
Person to maintain a minimum working capital or net worth, or otherwise to
assure the creditors of any Person against loss) for obligations of any Person,
except (A) guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business, (B)
guaranties of any obligations of any Domestic or Foreign Subsidiary in an
aggregate amount not to exceed $1,000,000.00 or (C) guarantees executed by a
Borrower in connection with the Term Loans.
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2.57 Transaction With. Enter into any transaction, including, without
limitation, the purchase, sale, or exchange of property or the rendering of any
service, with any Affiliate, or permit any Non-Borrower Subsidiary to enter into
any transaction, including, without limitation, the purchase, sale, or exchange
of property or the rendering of any service, with any Affiliate, except in the
ordinary course of and pursuant to the reasonable requirements of such
Borrower's or Non-Borrower Subsidiary's business and upon fair and reasonable
terms no less favorable to such party than it would obtain in a comparable arm's
length transaction with a Person not an Affiliate or consistent with past
practice.
2.58 Stock of Subsidiary, Etc. Sell or otherwise dispose of or permit any
Non-Borrower Subsidiary to sell or dispose of any shares of capital stock of any
Domestic or Foreign Subsidiary, except in connection with a transaction
permitted under Section 6.3, or permit any Non-Borrower Subsidiary to issue any
additional shares of its capital stock, except director's qualifying shares.
2.59 Hazardous Materials; Indemnification. Use, generate, treat, store,
dispose of or otherwise introduce, or permit any Non-Borrower Subsidiary to use,
generate, treat, store, dispose of or otherwise introduce, any Hazardous
Materials into or on any real property owned or leased by any of them and will
not, and will not permit any Non-Borrower Subsidiary to, cause, suffer, allow or
permit anyone else to do so, except in an environmentally safe manner through
methods which have been approved by and meet all of the standards of the federal
Environmental Protection Agency or any other federal, state or local agency with
authority to enforce Environmental Laws. Each Borrower hereby agrees to
indemnify, reimburse, defend and hold harmless the Banks and the Agent and their
respective directors, officers, agents and employees ("Indemnified Parties")
for, from and against all demands, liabilities, damages, costs, claims, suits,
actions, legal or administrative proceedings, interest, losses, expenses and
reasonable attorney's fees (including any such fees and expenses incurred in
enforcing this indemnity) asserted against, imposed on or incurred by any of the
Indemnified Parties, directly or indirectly pursuant to or in connection with
the application of any Environmental Law to acts or omissions occurring at any
time on or in connection with any real estate owned or leased by any Borrower or
any Non-Borrower Subsidiary or any business conducted thereon.
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ARTICLE VIIA
FINANCIAL COVENANTS OF CONSOLIDATED GROUP
So long as either of the Notes shall remain unpaid:
2.60 Minimum Tangible Net. Quad and its Domestic and Foreign Subsidiaries
will maintain at all times a Consolidated Tangible Net Worth of not less than:
Period Amount
------ ------
9/30/95 - 9/29/96 ......... $20 million
9/30/96 - 9/29/97 ......... $23 million
9/30/97 and thereafter..... $28 million.
2.61 Capital. Quad and its Domestic and Foreign Subsidiaries will not
permit any Consolidated expenditures for fixed or capital assets, including
additional Capital Leases which would cause the aggregate of all such
expenditures when added to investments permitted under Section 6.8 (excluding
investments under 6.8(A) - (D)) to exceed One Million Five Hundred Thousand
Dollars ($1,500,000) during any fiscal year.
2.62 Leverage Ratio. Quad and its Domestic and Foreign Subsidiaries will
maintain at all times (as tested quarterly) a ratio of Consolidated Total
Liabilities to Consolidated Tangible Net Worth of not greater than 1.00 to 1.00.
2.63 Cash Flow Ratio. Quad and its Domestic and Foreign Subsidiaries will
maintain at all times (as tested quarterly) a ratio of the sum of earnings
before taxes, depreciation, amortization and interest expense to the sum of all
current maturities of indebtedness for borrowed money and interest expense
(including Capital Lease payments) of not less than 1.75 to 1.00 for the prior
four quarters.
2.64 Current Ratio. Quad and its Domestic and Foreign Subsidiaries will
maintain at all times (as tested quarterly) a Current Ratio of 2.00 to 1.00.
2.65 Intercompany Transfers. Notwithstanding anything to the contrary
contained herein, net transfers from the Borrowers to Non-Borrower Subsidiaries
shall not exceed Two Million Dollars ($2,000,000) during any twelve month
period.
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ARTICLE VIIB
FINANCIAL COVENANTS OF BORROWER GROUP
So long as either of the Notes shall remain unpaid:
2.66 Minimum Tangible Net. The Borrowers will maintain at all times (as
tested quarterly) a Tangible Net Worth excluding investments in and receivables
from Non-Borrower Subsidiaries of not less than:
Period Amount
------ ------
9/30/95 - 9/29/96 ......... $15 million
9/30/96 - 9/29/97 ......... $17 million
9/30/97 and thereafter..... $19 million.
2.67 Minimum Working. The Borrowers will maintain at all times (as tested
quarterly) Working Capital of not less than:
Period Amount
------ ------
9/30/95 - 9/29/96 ......... $15 million
9/30/96 - 9/29/97 ......... $16 million
9/30/97 and thereafter..... $17.5 million.
2.68 Cash Flow Ratio. The Borrowers will maintain at all times (as
tested quarterly) a ratio of the sum of earnings before taxes, depreciation,
amortization and interest expense to the sum of all current maturities of
indebtedness for borrowed money and interest expense (including Capital Lease
payments) of not less than 1.5 to 1.0 for the prior four quarters.
ARTICLE VIII
EVENT OF DEFAULT
2.69 Events of Default. If any of the following events ("Events of
Default") shall occur:
(A) The Borrowers shall fail to pay the principal of, or interest on,
either Note or any amount of a commitment fee or any other amount due
hereunder, as and when due and payable;
(B) Any representation or warranty made or deemed made by the
Borrowers in this Agreement or which is contained in any certificate,
document, opinion, or financial or other statement furnished at any time
under or in connection with any Loan Document shall prove to have been
incorrect in any material respect on or as of the date made or deemed made;
(C) The Borrowers shall fail to perform or observe any term, covenant,
or agreement contained in any Loan Document (other than the Notes) to which
it is a party on its part to be performed or observed;
(D) Any Borrower shall (1) fail to pay any indebtedness for borrowed
money individually or in the aggregate with an outstanding balance due in
excess of $100,000.00 (other than the Notes) in the of such Borrower
including without limitation the Term Loans, or any interest or premium
thereon, when due (whether by scheduled maturity, required prepayment,
acceleration, demand, or otherwise), or (2) fail to perform or observe any
term, covenant, or condition on its part to be
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performed or observed under any agreement or instrument relating to any
such indebtedness including without limitation the Term Loan Agreement,
when required to be performed or observed, if the effect of such failure to
perform or observe is to accelerate, or to permit the acceleration after
the giving of notice or passage of time, or both, of the maturity of such
indebtedness, unless such failure to perform or observe shall be waived by
the holder of such indebtedness; or any such indebtedness including without
limitation the Term Loans shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof;
(E) Any Borrower (1) shall generally not, or shall be unable to, or
shall admit in writing its inability to pay its debts as such debts become
due; or (2) shall make an assignment for the benefit of creditors, petition
or apply to any tribunal for the appointment of a custodian, receiver, or
trustee for it or a substantial part of its assets; or (3) shall commence
any proceeding under any bankruptcy, reorganization, arrangements,
readjustment of debt, dissolution, or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect; (4) shall have any such
petition or application filed or any such proceeding commenced against it,
in which an order for relief is entered or adjudication or appointment is
made and which remains undismissed for a period of sixty (60) days or more;
or (5) by any act or omission shall indicate its consent to, approval of,
or acquiescence in any such petition, application, or proceeding, or order
for relief, or the appointment of a custodian, receiver, or trustee for all
or any substantial part of its properties; or (6) shall suffer any such
custodianship, receivership, or trusteeship to continue undischarged for a
period of sixty (60) days or more;
(F) One or more judgments, decrees, or orders for the payment of money
in excess of One Million Dollars ($1,000,000.00) in the aggregate shall be
rendered against any Borrower and such judgments, decrees, or orders shall
continue unsatisfied and in effect for a period of sixty (60) consecutive
days without being vacated, discharged, satisfied or bonded pending appeal;
or
(G) Any of the following events occur or exist with respect to any
Borrower or ERISA Affiliate (a) any Prohibited Transaction involving any
Plan; (b) any Reportable Event with respect to any Plan; (c) the filing
under Section 4041 of ERISA of a notice of intent to terminate any Plan or
the termination of any Plan; (d) any event or circumstance that might
constitute grounds entitling the PBGC to institute proceedings under
Section 4042 of ERISA for the termination of, or for the appointment of a
trustee to administer, any Plan, or the institution by the PBGC of any such
proceedings; (e) complete or partial withdrawal under Section 4201 or 4204
of ERISA
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from a Multiemployer Plan or the reorganization, insolvency, or termination
of any Multiemployer Plan; and in each case above, such event or condition,
together with all other events or conditions, if any, could in the opinion
of any Bank subject a Borrower to any tax, penalty, or other liability to a
Plan, a Multiemployer Plan, the PBGC, or otherwise (or any combination
thereof) which in the reasonable determination of the Banks may have a
Material Adverse Effect.
then, and the outstanding Notes and all interest thereon and all other
amounts payable under this Agreement shall become and be immediately due
and payable upon declaration to such effect delivered by the Agent to the
Borrowers; provided that upon the happening of a Default specified in
Section 8.1(E), the outstanding Notes and all interest thereon and all
other amounts payable under this Agreement shall be immediately due and
payable without declaration or other notice to the Borrowers. Thereupon,
the Banks shall have the right to charge and accrue interest at the default
rate of interest provided for in this Agreement and shall have all of the
rights and remedies available to them under the Loan Documents or otherwise
at law or in equity. Each Borrower expressly waives any presentment,
demand, protest or further notice of any kind.
ARTICLE IX
AGENCY PROVISIONS
2.70 Authorization and ActionAuthorization and Action. Each Bank hereby
irrevocably appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement and the other Loan
Documents as are delegated to the Agent by the terms hereof, together with such
powers as are reasonably incidental thereto. The duties of the Agent shall be
mechanical and administrative in nature and the Agent shall not by reason of
this Agreement be a trustee or fiduciary for any Bank. The Agent shall have no
duties or responsibilities except those expressly set forth in the Loan
Documents. As to any matters not expressly provided for by this Agreement or the
other Loan Documents (including, without limitation, enforcement or collection
of the Notes), the Agent shall not be required to exercise any discretion or
take any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of the Majority Banks, and such instructions shall be binding upon
the Banks and all holders of Notes; provided, however, that the Agent shall not
be required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or the other Loan Documents or applicable
law.
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2.71 Liability of Agent. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable for any action taken or omitted to
be taken by it or them under or in connection with any Loan Documents in the
absence of its or their own gross negligence or wilful misconduct. Without
limitation of the generality of the foregoing, the Agent (A) may treat the payee
of any Note as the holder thereof until the Agent receives written notice of the
assignment or transfer thereof signed by such payee and in form satisfactory to
the Agent; (B) may consult with legal counsel (including counsel for the
Borrowers), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts; (C)
makes no warranty or representation to any Bank and shall not be responsible to
any Bank for any statements, warranties or representations made in or in
connection with any Loan Document; (D) shall not have any duty to ascertain or
to inquire as to the performance or observance of any of the terms, covenants or
conditions of any Loan Document on the part of the Borrowers or any other Person
or to inspect the property (including the books and records) of the Borrowers;
(E) shall not be responsible to any Bank for the due execution, legality,
validity, enforceability, genuineness, perfection, sufficiency or value of any
of the Loan Documents or any other instrument or document furnished pursuant
thereto; and (F) shall incur no liability under or in respect of any Loan
Document by acting upon any notice, consent, certificate or other instrument or
writing (which may be by telegram, cable or telex) believed by it to be genuine
and signed or sent by the property party or parties.
2.72 Rights of Agent as a. With respect to the Loans made by it and the
Note issued to it, the Agent shall have the same rights and powers under the
Loan Documents as any other Bank and may exercise the same as though it were not
the Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly
indicated, include the Agent in its individual capacity. The Agent and its
Affiliates may accept deposits from, lend money to, act as trustee under
indentures of, and generally engage in any kind of business with, the Borrowers,
any of their Subsidiaries and any Person who may do business with or own
securities of the Borrowers or any Domestic or Foreign Subsidiary, all as if the
Agent were not the Agent and without any duty to account therefor to the Banks.
2.73 Independent Credit. Each Bank acknowledges that it has, independently
and without reliance upon the Agent or any other Bank and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Bank also acknowledges
that it will, independently and without reliance upon the Agent or any other
Bank and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under the Loan Documents. Except for notices, reports and other documents
and information expressly required to be furnished to the Banks by the Agent
under the terms of any of the Loan Documents, the Agent shall have no duty or
responsibility to provide any Bank with any credit or other information
concerning the affairs, financial condition or business of the Borrowers or any
Domestic or Foreign Subsidiary (or any of their Affiliates) which may come into
the possession of the Agent or any of its Affiliates.
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2.74 Indemnification. The Banks agree to indemnify the Agent (to the extent
not reimbursed by the Borrowers), ratably according to the respective amounts of
their Loans, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by, or
asserted against the Agent in any way relating to or arising out of any of the
Loan Documents or any action taken or omitted by the Agent under any of the Loan
Documents, provided that no Bank shall be liable for any portion of any of the
foregoing resulting from the Agent's gross negligence or wilful misconduct.
Without limitation of the foregoing, each Bank agrees to reimburse the Agent (to
the extent not reimbursed by the Borrowers) promptly upon demand for its ratable
share of any out-of-pocket expenses (including counsel fees) incurred by the
Agent in connection with the preparation, administration, or enforcement of, or
legal advice in respect of rights or responsibilities under, any of the Loan
Documents.
2.75 Successor Agent. The Agent may resign at any time by giving at least
60 days prior written notice thereof to the Banks and the Borrowers and may be
removed at any time with or without cause by the Majority Banks. Upon any such
resignation or removal, the Majority Banks shall have the right to appoint a
successor Agent which shall be CoreStates unless CoreStates declines. If no
successor Agent shall have been so appointed by the Majority Banks, and shall
have accepted such appointment, within 30 days after the retiring Agent's giving
of notice of resignation or the Majority Banks' removal of the retiring Agent,
then the retiring Agent may, on behalf of the Banks, appoint a successor Agent,
which shall be a commercial bank organized under the laws of the United States
of America or of any State thereof and having a combined capital and surplus of
at least One Hundred Million Dollars ($100,000,000.00). Upon the acceptance of
any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Article IX shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under any of the Loan Documents.
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2.76 Sharing of Payments. If any Bank shall obtain any payment (whether
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) on account of the Notes held by all the Banks, such Bank shall
purchase from the other Banks such participations in the Notes held by them as
shall be necessary to cause such purchasing Bank to share the excess payment
ratably with each of them, provided, however, that if all or any portion of such
excess payment is thereafter recovered from such purchasing Bank, such purchase
from each Bank shall be rescinded and each Bank shall repay to the purchasing
Bank the purchase price to the extent of such recovery together with an amount
equal to such Bank's ratable share (according to the proportion of (A) the
amount of such Bank's required repayment to (B) the total amount so recovered
from the purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. The Borrowers agree
that any Bank so purchasing a participation from another Bank pursuant to this
Section 9.7 may, to the fullest extent permitted by law, exercise all its rights
of payment (including the right of set-off) with respect to such participation
as fully as if such Bank were the direct creditor of the Borrowers in the amount
of such participation.
ARTICLE X
MISCELLANEOUS
2.77 Amendments, Etc. No amendment, modification, termination, or waiver of
any provision of any Loan Document to which any Borrower is a party, nor consent
to any departure by any Borrower from any Loan Document to which it is a party,
shall in any event be effective unless the same shall be in writing and signed
by the Majority Banks, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given, provided,
however, that no amendment, waiver or consent, shall, unless in writing and
signed by all Banks, do any of the following: (A) waive any of the conditions
precedent specified in Article III; (B) subject the Banks to any additional
obligations; (C) reduce the principal of, or interest on, the Notes or any fees
hereunder; (D) postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees hereunder; or (E) change the percentage of
the aggregate unpaid principal amount of the Notes which shall be required for
the Banks or any of them to take any action hereunder, and, provided, further,
that no amendment, waiver or consent shall, unless in writing and signed by the
Agent in addition to the Banks required above to take such action, affect the
rights or duties of the Agent under any of the Loan Documents.
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2.78 Notices, Etc. All notices and other communications provided for under
this Agreement and under the other Loan Documents to which any Borrower is a
party shall be in writing (including telex and facsimile transmissions, if
subject to pre-established verification procedures) and mailed or transmitted or
delivered,
if to the Borrowers at: Quad Systems Corporation
Two Electronic Drive
Horsham, PA 19044
Attn: Anthony R. Drury
Senior Vice President,
Finance
FAX # (215) 657-5013
if to CoreStates Bank: CoreStates Bank, N.A.
FC 3-90-1-1
Suite 300
2240 Butler Pike
Plymouth Meeting, PA 19462
Attn: William F. Dohmen, Vice
President
Fax # (610) 834-2069
if to UJB or the Agent at: United Jersey Bank
1800 Chapel Avenue West
Cherry Hill, NJ 08002
Attn: Adrian M. Marquez, Vice
President
FAX # (609) 486-3716
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section 10.2. Except as otherwise provided in this Agreement all such
notices and communications shall be effective, if sent via United States mail
when deposited in the mails or, if sent via courier, private mail service or
telex or facsimile transmission, when received, respectively, addressed as
aforesaid, except that notices to the Agent pursuant to the provisions of
Article II shall not be effective until received by the Agent.
2.79 No Waiver; Remedies. No failure on the part of any Bank or the Agent
to exercise, and no delay in exercising, any right, power, or remedy under any
Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under any Loan Documents preclude any other or
further exercise thereof or the exercise of any other right. The remedies
provided in the Loan Documents are cumulative and not exclusive of any remedies
provided by law.
2.80 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Borrowers, each Bank and the Agent and their respective
successors and assigns, except that the Borrowers may not assign or transfer any
of their rights under any Loan Document to which the Borrowers are a party
without the prior written consent of the Banks.
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2.81 Fees, Costs, Expenses, and Taxes. The Borrowers agree to pay within
ten days of demand all costs and expenses in connection with the preparation,
execution, delivery, filing, recording, administration, enforcement and
collection of any of the Loan Documents, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Agent or the
Banks, and local counsel who may be retained by said counsel, with respect
thereto and with respect to advising the Agent or any of the Banks as to its
rights and responsibilities under any of the Loan Documents. In addition, the
Borrowers shall pay any and all stamp and other taxes and fees payable or
determined to be payable in connection with the execution, delivery, filing, and
recording of any of the Loan Documents and the other documents to be delivered
under any such Loan Documents, and agrees to save the Agent and each of the
Banks harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and fees.
2.82 Right of Setoff. Upon the occurrence and during the continuance of any
Event of Default, each Bank is hereby authorized at any time and from time to
time, without notice to the Borrowers (any such notice being expressly waived by
the Borrowers), to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by such Bank to or for the credit or the account of any Borrower
against any and all of the obligations of the Borrowers now or hereafter
existing under this Agreement or that Bank's Note or any other Loan Document,
irrespective of whether or not the Agent or such Bank shall have made any demand
under this Agreement or such Bank's Note or such other Loan Document and
although such obligations may be unmatured. Each Bank agrees promptly to notify
the Borrowers (with a copy to the Agent) after any such setoff and application,
provided that the failure to give such notice shall not affect the validity of
such setoff and application. The rights of each Bank under this Section 10.6 are
in addition to other rights and remedies (including, without limitation, other
rights of setoff) which each such Bank may have.
2.83 Governing Law. This Agreement and the Notes shall be governed by, and
construed in accordance with, the laws of the State of New Jersey.
2.84 Severability of Provisions. Any provision of any Loan Document which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of such Loan
Document or affecting the validity or enforceability of such provision in any
other jurisdiction.
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2.85 Survival of Agreement. All covenants, agreements, representations and
warranties made herein and in the certificates delivered pursuant hereto shall
survive the making by the Banks of the Loans and the execution and delivery to
the Banks of the Notes and shall continue in full force and effect so long as
the Notes or any amounts due hereunder are outstanding and unpaid.
2.86 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties to this Agreement in separate
counterparts, each which when so executed shall be deemed to be an original and
all of which taken together shall constitute one and the same agreement.
2.87 Headings. Article and Section headings in the Loan Documents are
included in such Loan Documents for the convenience of reference only and shall
not constitute a part of the application Loan Documents for any other purpose.
2.88 JURISDICTION AND. IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
RELATIONSHIP ESTABLISHED HEREUNDER, EACH BORROWER HEREBY IRREVOCABLY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN ANY
COUNTY IN THE STATE OF NEW JERSEY WHERE THE AGENT MAINTAINS AN OFFICE AND AGREES
NOT TO RAISE ANY OBJECTION TO SUCH JURISDICTION OR TO THE LAYING OR MAINTAINING
OF THE VENUE OF ANY SUCH PROCEEDING IN SUCH COUNTY. THE BORROWERS AGREES THAT
SERVICE OF PROCESS IN ANY SUCH PROCEEDING MAY BE DULY EFFECTED UPON IT BY
MAILING A COPY THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO THE BORROWERS.
2.89 WAIVER OF JURY. EACH PARTY HERETO HEREBY WAIVES TRIAL BY JURY IN ANY
JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER
SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO
THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE BANKS AND THE AGENT TO ENTER INTO THIS AGREEMENT.
2.90 Appointment of Quad as Agent for Borrowers. Each Borrower hereby
irrevocably appoints and authorizes Quad to act as its agent hereunder and under
any other Loan Document with the powers to take any and all actions that may be
taken by Borrowers, including without limitation, the power to request Loans or
the issuance of Letters of Credit and to receive notice and accept service on
behalf of all Borrowers, together with such other powers as are reasonably
incidental thereto.
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2.91 Borrowers' Obligations. All obligations of Borrowers hereunder and
under the other Loan Documents are joint and several.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
HITECH FINANCE COMPANY QUAD SYSTEMS CORPORATION
By: /S/ Anthony R. Drury By: /S/ Anthony R. Drury
--------------------------------- --------------------------------
Anthony R. Drury
Title: V.P. Senior Vice President - Finance
------------------------------ and Chief Financial Officer
TRIMARK INVESTMENT CORP. QUAD LEASING CORP.
By: /S/ Anthony R. Drury By: /S/ Anthony R. Drury
--------------------------------- --------------------------------
Title: V.P. Title: V.P.
------------------------------ -----------------------------
UNITED JERSEY BANK CORESTATES BANK, N.A.
By: /S/ Adrian Marquez By: /S/ William F. Dohmen
--------------------------------- --------------------------------
Adrian M. Marquez William F. Dohmen
Vice President Vice President
57
EXHIBIT 10.7.2
AMENDMENT TO LOAN AGREEMENT
THIS AMENDMENT TO LOAN AGREEMENT, (this "Amendment") is made as of the 29th
day of September, 1996, among QUAD SYSTEMS CORPORATION ("Quad"), a Delaware
corporation, HITECH FINANCE COMPANY ("HiTech"), a Delaware corporation, TRIMARK
INVESTMENT CORP. ("TriMark"), a Delaware corporation, and QUAD LEASING CORP.
("Leasing"), a Delaware corporation (Quad, HiTech, TriMark and Leasing are each
hereinafter referred to as a "Borrower" and collectively as the "Borrowers"),
SUMMIT BANK (formerly known as United Jersey Bank) ("Summit"), a banking
corporation of the State of New Jersey, CORESTATES BANK, N.A. ("CoreStates"), a
national banking association (CoreStates and Summit shall be referred to
individually herein as a "Bank" and collectively as the "Banks"), and Summit, as
agent for the Bank (Summit, in its capacity as agent for the Banks shall be
referred to herein as the "Agent").
BACKGROUND
A. The Banks, the Agent and the Borrowers executed a Loan Agreement dated
as of December 4, 1995 (the "Original Loan Agreement"), pursuant to which the
Banks made available to the Borrowers a revolving credit facility in the maximum
principal amount of Eight Million Dollars ($8,000,000.00) (the "Revolving
Credit").
B. The Revolving Credit is evidenced by two Revolving Credit Notes each in
the face amount of Four Million Dollars ($4,000,000.00) (the "Note"). The
Original Loan Agreement as amended herein and from time to time hereafter shall
be referred to herein as the "Loan Agreement."
C. The Banks and the Agent presently hold the Loan Agreement, the Notes and
the other Loan Documents (as such term is defined in the Loan Agreement) and is
legally entitled to enforce collection of the indebtedness evidenced thereby in
accordance with the terms thereof.
D. The Borrowers have asked that the Banks and the Agent make Loans in
certain foreign currencies and otherwise amend the Loan Agreement. Subject to
the terms and conditions set forth herein, the Banks and the Agent have agreed
to amend the Original Loan Agreement as set forth herein.
E. All terms capitalized but not defined herein shall have the meanings
given to such terms in the Loan Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and
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intending to be legally bound, the parties hereto agree as follows:
1. The Borrowers, the Banks and the Agent agree to modify the terms and
conditions of Borrowers' obligations to the Banks and the Agent and the
obligations of each Bank to the Borrowers under the Loan Agreement in accordance
with the terms and conditions set forth herein. The parties hereto agree that
all the terms and conditions of the Loan Agreement shall continue unchanged and
remain in full force and effect except as amended herein as follows
a. The following definitions in Section 1.1 of the Loan Agreement are
hereby amended to read as follows:
"LIBO Interest Period" means, for each LIBO Loan or Foreign Currency
Loan, a period of time, beginning on an Effective Date, of one, two,
three or six months in length (as such periods are commonly used),
selected by a Borrower by telephone or in writing (and if by telephone,
confirmed by such Borrower promptly thereafter in writing), during
which the Interest Rate is the Adjusted LIBO Rate. If a LIBO Interest
Period would otherwise end on a day that is not a Business Day, such
LIBO Interest Period shall be extended to the next Business Day, unless
such Business Day would fall in the next calendar month, in which event
such LIBO Interest Period shall end on the immediately preceding
Business Day.
"LIBO Loan" means any Loan denominated in Dollars to which the Adjusted
LIBO Rate is applicable having the same LIBO Interest Period.
"LIBO Rate" means, with respect to each Interest Period pertaining to a
LIBO Loan or a Foreign Currency Loan, the rate per annum (rounded
upward, if necessary, to the nearest 1/16 of 1%) determined by the
Agent equal to the quotient of either:
(a) in the case of a LIBO Loan, the rate of interest per annum
determined by the Agent in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the
average of London interbank offered rates set forth on the "LIBO" page
of Telerate (or appropriate successor or, if Telerate or its successor
ceases to provide such quotes, a comparable replacement determined by
the Agent) at approximately 11:00 a.m., London time, or
(b) in the case of a Foreign Currency Loan, the rate quoted by
Telerate (for Loans denominated in Yen, Francs,
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Deutsche Marks or Sterling) for deposits in the relevant Foreign
Currency, two London Business Days prior to the beginning of such
Interest Period at approximately 11:00 a.m., London time,
in each case for delivery on the first day of such Interest Period for
the number of days comprised therein and in an amount equal to the
amount of such Loan, divided by (b) a number equal to 1.00 minus the
Eurocurrency Reserve Requirement on the day which is two London
Business Days prior to the beginning of such Interest Period.
"Loan" means each advance under the Revolving Credit and shall refer
to each Base rate Loan, LIBO Loan and Foreign Currency Loan.
"London Business Day" means any Business Day on which dealings in the
interbank market between banks may be carried on in London, England,
in Camden, New Jersey, and in New York, New York, and, if in respect
of a Foreign Currency Loan, at the place at which a Foreign Currency
Loan is funded.
b. Section 1.1 of the Loan Agreement is hereby amended to incorporate
the following definitions which shall read as follows:
"Foreign Currency" means Deutsche Marks, French Francs, Japanese Yen
and Sterling.
"Foreign Currency Loan" means any Loan denominated in the same Foreign
Currency to which the Adjusted LIBO Rate is applicable having the same
LIBO Interest Period.
"Sterling" means the lawful currency of the United Kingdom of Great
Britain and Northern Ireland.
c. Section 2.1 of the Loan Agreement is hereby amended in its entirety
to read as follows:
SECTION 2.1 The Commitments. Subject to the terms and conditions
hereinafter provided, each Bank, for itself only, agrees to lend to
the Borrowers, from time to time during the period from the date
hereof to and including the Commitment Termination Date, such sums as
the Borrowers may request provided that the aggregate outstanding
principal amount thereof at any time shall not exceed the amount set
forth opposite such Bank's name as follows (such respective amounts
being the "Commitment" of each Bank):
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Amount Percentage
------ ----------
UJB $4,000,000.00 50%
CoreStates $4,000,000.00 50%
------------- ---
$8,000,000.00 100%
Each Loan shall be from and of the Banks ratably according to their
respective Commitments. Each Base Rate Loan shall be in an aggregate
amount of at least $150,000.00. Each LIBO Loan shall be in an aggregate
amount of at least $250,000.00, provided that, at all times while such
LIBO Loan is outstanding there must also be outstanding a LIBO Loan in
the principal amount of at least $1,000,000.00. Each Foreign Currency
Loan shall be in an aggregate amount of at least the equivalent in the
relevant Foreign Currency of $250,000.00. The Borrowers may borrow,
repay and reborrow under this Section 2.1 until the Commitment
Termination Date subject to the terms and conditions of this Agreement;
provided that the sum of (i) the total outstanding principal under the
Revolving Credit (including the Dollar equivalent of any Foreign
Currency Loans) plus (ii) the aggregate face amount of all Letters of
Credit outstanding, plus (iii) the unreimbursed amount of any draws
under Letters of Credit previously outstanding (such sum is hereinafter
referred to as the "Total Outstanding Credit") shall not at any time
exceed Eight Million Dollars ($8,000,000.00). If the Total Outstanding
Credit at any time exceeds Eight Million Dollars ($8,000,000.00), the
Borrowers shall repay no later than 24 hours after notice from the
Agent, the amount of the excess. The Borrowers shall use the Loans for
the purposes set forth in the Background Section hereof.
d. Section 2.2 of the Loan Agreement is hereby amended in its entirety
to read as follows:
SECTION 2.2 Making the Loans. The Borrowers shall notify the
Agent by telephone no later than 11:00 A.M. the day of the requested
borrowing of each proposed Base Rate Loan, specifying the date and
amount of the proposed Base Rate Loan. The Agent in turn shall promptly
notify each other Bank of the proposed Base Rate Loan. The Borrowers
shall notify the Agent by telephone no later than 11:00 A.M. at least
three London Business Days in advance of each proposed LIBO Loan,
specifying the date and the amount of the proposed LIBO Loan and the
length of the proposed LIBO Interest Period, and the Agent shall in
turn notify each other Bank of the proposed LIBO Loan by 11:00 A.M. on
the second London Business Day preceding the proposed LIBO Loan. The
Borrowers shall notify the Agent by telephone no later than 11:00 A.M.
at least three London Business Days in advance of each proposed Foreign
Currency Loan, specifying
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<PAGE>
the date, the Foreign Currency in which the Loan is to be made, the
amount of the proposed Foreign Currency Loan, the length of the
proposed LIBO Interest Period, and the directions for making available
the Foreign Currency Loan and the Agent shall in turn notify each
other Bank of the proposed Foreign Currency Loan by 11:00 A.M. on the
second London Business Day preceding the proposed Foreign Currency
Loan. Such telephonic notice shall be made by an authorized officer of
the Borrowers listed on Exhibit 2.2 hereto or in a written notice from
the Borrowers submitted in accordance with Section 10.2. The Borrowers
will confirm any telephonic notice of a proposed Loan the same day by
facsimile copy. Each such notice (whether or not actually confirmed by
facsimile copy) shall constitute a representation by the Borrowers
that, at the time thereof and giving effect to the Loan requested
thereby: (1) no Event of Default or Default has occurred hereunder;
(2) the representations and warranties contained in this Agreement are
reaffirmed and are correct as of the date of such notice; (3) the
Total Outstanding Credit (including the Dollar equivalent of any
Foreign Currency Loans) plus the requested Loan (including the Dollar
equivalent of such Loan if it is a Foreign Currency Loan) will not
exceed $8,000,000.00; and the conditions precedent for such Loan as
set forth in Section 3.2 hereof have all been satisfied. Upon notice
from the Agent of the proposed Loan, each Bank shall wire transfer to
the Agent, at the Agent's office at 210 Main Street, Hackensack, New
Jersey 07602, in immediately available funds, which funds shall be in
Dollars, prior to 2:00 P.M. on the date of the proposed Loan, an
amount equal to such Bank's Pro Rata Share of such Loan or, if the
Loan is a Foreign Currency Loan, each bank shall wire transfer
immediately available funds of the Foreign Currency in accordance with
the Agent's instructions. Upon receipt of such funds by the Agent and
upon the Agent's determination that the applicable conditions set
forth in Article III hereof have been fulfilled, the Agent will make
such funds available to the Borrowers by depositing the amount thereof
into an operating account which the Borrowers shall maintain with the
Agent while the Loans are outstanding (the "Operating Account") or, in
the case of a Foreign Currency Loan, will make such funds available in
accordance with the Borrower's directions for such Loan. The Borrowers
agree to hold the Agent harmless from any liability for any loss
resulting from the Agent's reliance on any writing, facsimile copy or
telephonic notice purportedly made by an authorized officer of the
Borrowers, provided that the Agent has acted in good faith in doing
so. The Agent may assume that telephonic notice of a request for a
Loan is from an authorized officer of the Borrowers, absent manifest
error. The Agent shall
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<PAGE>
have no obligation to make funds available to the Borrowers in excess
of amounts received by it from the Banks, provided that if one or more
Banks fail to make available to the Agent such Bank's Pro Rata Share
of a Loan and the Agent elects to advance the full amount of the Loan
requested by the Borrowers, the Borrowers shall be obligated to repay
to the Agent for the Agent's account the amount, with interest, so
advanced by the Agent and not advanced by the Bank(s) in amounts and
at the times the Borrowers otherwise would be obligated to repay such
Loan. Unless the Agent receives notice from a Bank prior to the date
such Bank's Pro Rata Share of any Loan is to be made that such Bank
does not intend to make its Pro Rata Share of such Loan available to
the Agent, the Agent may (but shall not be obligated to) assume that
such Bank has made such proceeds available to the Agent on such date,
and the Agent, in reliance upon such assumption, may (but shall not be
obligated to) make available to the Borrowers a corresponding amount.
If such corresponding amount is not, in fact, made available to the
Agent by such Bank on the date the Loan is made, the Agent shall be
entitled to recover such amount on demand from such Bank (or, if such
Bank fails to pay such amount immediately upon demand, from the
Borrower) together with interest thereon at a rate per annum equal to
the Interest Rate applicable to the Loan for each day during the
period between the date that the Agent advances the Loan and the date
on which the Bank makes its Pro Rata Share of the Loan available to
the Agent.
e. Section 2.6 of the Loan Agreement is hereby amended to incorporate
subsection (E) and (F) which shall read as follows:
(E) Foreign Currency Loans. The Borrowers shall pay to the Agent
for the account of each Bank interest in arrears on the unpaid
principal amount of each Foreign Currency Loan on the last day of the
applicable LIBO Interest Period.
(F) Limitation on Foreign Currency Loans. The Borrowers shall not
have more than 3 Foreign Currency Loans outstanding at any one time.
f. Section 2.8 of the Loan Agreement is hereby amended in its entirety
to read as follows:
SECTION 2.8 Payments. (A) The Borrowers hereby authorize the
Agent to charge directly any account, maintained by the Borrowers for
any payments of principal of the Base Rate Loans or LIBO Loans,
interest and any other amounts owing under any Loan Document, as and
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<PAGE>
when due. The Agent agrees to notify the Borrowers after any such
charge, provided however that, the failure of the Agent to so notify
the Borrowers shall not relieve the Borrowers' obligation to make any
and all payments due hereunder as and when such payments are due. In
the event that the Borrowers maintain insufficient funds in such
account(s) to meet the Borrowers' obligations hereunder when due, the
Borrowers will make all payments of principal of the Loans, excluding
any Foreign Currency Loans, all payments of interest on the Loans,
excluding interest on Foreign Currency Loans, and any other amounts
owing under this Agreement and/or under any of the Loan Documents to
the Agent, for the account of the Agent and/or the Banks as appropriate
not later than 1:00 P.M. on the applicable due date, in immediately
available funds and in Dollars.
(B) Each payment under this Agreement on account of a Foreign
Currency Loan shall be made in immediately available funds, in the
Foreign Currency in which such Foreign Currency Loan is denominated,
not later than 11:30 a.m., local time, on the day such payment is due,
at the office of a correspondent bank designated by the Agent from
time to time for receipt of payments in that Foreign Currency. The
Agent will direct such correspondent to remit to each Bank, subject to
collection, its ratable share of each such payment on the same day as
received if received by the time specified in the preceding sentence,
and otherwise on the next Business Day.
(C) Prior to an Event of Default and the acceleration of the
Loans as set forth in Section 8.1 hereof, and provided that the
Borrowers have paid all amounts which come due on or prior to such
applicable due date, the Agent will, by wire transfer (or other means
mutually acceptable to the Agent and the Banks), immediately
distribute to each Bank in immediately available funds such Bank's Pro
Rata Share of the amounts in which such Bank has an interest, so
received by the Agent.
(D) After the occurrence of an Event of Default and the
acceleration of the Loans as set forth in Section 8.1 hereof, or if
the Borrowers shall have failed to pay all amounts which have come due
on or prior to such applicable due date, the Agent shall apply all
payments and collections received by it as follows: first, to all of
the Agent's costs and expenses incurred in connection with the
collection of such payments (including, without limitation, reasonable
attorneys' fees and expenses) then due and outstanding; second, to
interest on and principal of any amounts funded by the Agent in excess
of its Pro Rata Share as contemplated by Section 2.2 hereof; third, to
the accrued
7
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and unpaid Fees (other than attorneys' fees and expenses already paid
pursuant to "first" above); fourth, to all other amounts (other than
principal or interest) which shall have come due hereunder and/or
under any of the Loan Documents; fifth, to accrued and unpaid interest
on the outstanding Loans or any Fees; sixth, to the principal amount
of the outstanding Loans; and seventh, to the Letter of Credit Cash
Collateral Account.
g. Sections 2.14 and 2.15 of the Loan Agreement are hereby amended in
their entirety to read as follows:
SECTION 2.14 Special Provisions for LIBO Loans and Foreign Currency Loans.
(A) Unavailability of Funds and Indeterminate Interest Rates. If on or
before the date the Banks are to make any LIBO Loan or Foreign Currency
Loan or on or before any Effective Date (1) the Agent determines in good
faith that it is unable to obtain funds at the LIBO Rate for the elected
Interest Period for any reason, including, but not limited to the
unavailability of funds at such rate, any change in existing law, any new
law, the length of such Interest Period, or otherwise or (2) the Agent
determines in good faith that no adequate means exists to determine the
LIBO Rate for such Interest Period, then the Agent shall so notify the
Borrowers on or before the Effective Date and the Borrowers shall have one
Business Day after notice to withdraw their request for a Loan, and if the
Borrowers fail to so withdraw their request, then, at the Agent's option,
the Borrowers shall be deemed to have requested a Loan at the Base Rate or
shall be required to elect an Interest Period of a length for which the
Agent may obtain funds at the rate the adjustment of which determines the
LIBO Rate.
(B) Changes Affecting Ability to Maintain Funds. If, during any
Interest Period, any change in existing law, any new law, or any other
factor beyond the control of any Bank prevents such Bank in its good faith
determination from maintaining funds at the rate the adjustment of which
determines the LIBO Rate for such Interest Period and requires such Bank to
cease so maintaining funds actually so maintained prior to termination of
such Interest Period, then on the date of such required cessation, the
Borrowers shall be required to specify a different Interest Rate for such
Interest Period or, in the alternative, to elect an Interest Period of a
length for which all Banks may maintain funds at the rate the adjustment of
which determines the LIBO Rate. In addition, within five days after the
Agent notifies the Borrowers of such required conversion, the Borrowers
shall reimburse each Bank (to the extent not
8
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otherwise reimbursed pursuant to Section 2.10 hereof) for any loss or
expense such Bank has certified in writing to the Borrowers and the Agent
that such Bank has incurred as a result of any such required cessation.
(C) Ineligible Interest Periods. If, on any date the Banks are to make
a LIBO Loan or Foreign Currency Loan or on any Effective Date, the period
of time from such date or such Effective Date to the Commitment Termination
Date or final repayment date is less than an Interest Period which the
Borrowers could otherwise elect, the Borrowers will elect a LIBO Loan or
Foreign Currency Loan whose Interest Period will end on or before the
Commitment Termination Date or the final repayment date, as necessary. If
an appropriate Interest Period is not available, then the Loan shall be
made at the Base Rate.
(D) Certain Compensation. In the event that the Borrowers prepay any
LIBO Loan prior to the expiration of its Interest Period, whether
voluntarily or as required hereunder, the Borrowers shall pay to the Agent
for the account of each Bank, upon the request of such Bank through the
Agent, such amount or amounts as shall be sufficient (In the reasonable
opinion of such Bank) to compensate it for any loss, cost or expense which
such Bank determines is attributable to:
(1) any payment, prepayment, conversion or renewal of a LIBO Loan
made by such Bank on a date other than the last day of an Interest
Period for such Loan (whether by reason of acceleration or otherwise);
or
(2) any failure by the Borrowers to borrow, convert into or renew
a LIBO Loan to be made, converted into or renewed by such Bank on the
date specified therefor pursuant to a Borrower's prior election.
Without limiting the foregoing, such compensation shall include
an amount equal to the excess, if any, of: (i) the amount of interest
which otherwise would have accrued on the principal amount so paid,
prepaid, converted or renewed or not borrowed, converted or renewed
for the period from and including the date of such payment,
prepayment, conversion or renewal, or failure to borrow, convert or
renew to but excluding the last day of the then current Interest
Period for such LIBO Loan (or, in the case of a failure to borrow,
convert or renew, to but excluding the last day of the Interest Period
for such LIBO Loan which would have commenced on the date specified
therefor in the relevant notice) at the applicable rate of interest
for such LIBO Loan provided for herein; over (ii) the amount of
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interest (as reasonably determined by such Bank) such Bank would have
bid in the London interbank market for Dollar deposits for amounts
comparable to such principal amount and maturities comparable to such
Interest Period. A determination of any Bank as to the amounts payable
pursuant to this Section 2.14(D) shall be conclusive absent manifest
error.
(E) Discretion of Banks as to Manner of Funding. Notwithstanding any
other provision of this Agreement, each Bank may fund or maintain its
funding of all or any part of the Loans in any legal manner it chooses.
SECTION 2.15 Availability of Rate Quotations. Notwithstanding anything
herein to the contrary, if the Agent reasonably determines (which determination
shall be conclusive) that quotations of interest rates for the relevant deposits
referred to in the definition used to calculate the LIBO Rate are not being
provided in the relevant amounts, the relevant Foreign Currencies or for the
relevant maturities for purposes of determining the rate of interest on a LIBO
Loan or a Foreign Currency Loan as provided in this Agreement, then the Agent
shall forthwith given notice thereof to the Banks and the Borrowers, whereupon
until the Agent notifies the Banks and the Borrowers that the circumstances
giving rise to such suspension no longer exist, (A) the obligation of the Banks
to make LIBO Loans and/or Foreign Currency Loans shall be suspended; and (B) the
Borrowers shall repay in full the then outstanding principal amount of each LIBO
Loan or Foreign Currency Loan, together with accrued interest thereon, on the
last day of the then current Interest Period applicable to such Loan by
remitting sufficient funds to the Agent or correspondent bank, as applicable,
or, with respect to a LIBO Loan, by conversion to a Base Rate Loan.
h. Section 2.16(B) of the Loan Agreement is hereby amended to read as
follows:
(B) Provided that the Borrowers have not given the Agent written
instructions to the contrary, the Banks and the Agent shall apply any
voluntary principal prepayment first, to repayment of the Base Rate Loans
then outstanding, second, to repayment of any LIBO Loans or Foreign
Currency Loans in such a manner as to minimize the Borrower's obligation to
pay prepayment compensation under Section 2.14(D) and 2.19.
i. The Loan Agreement is hereby amended to incorporate Section 2.19,
2.20 and 2.21 which shall read as follows:
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SECTION 2.19 Funding Loss and Currency Hedge Indemnification. (A) The
Borrowers shall pay to the Agent for the account of the Banks, upon the request
of the Agent, such amount or amounts as shall be sufficient (in the reasonable
opinion of the Banks) to compensate the Banks for any loss, cost, or expense
(including, without limitation, costs or losses associated with prepaying or
redeploying deposits (whether or not any Bank shall have actually funded a
Foreign Currency Loan with corresponding deposits) and, in the case of Foreign
Currency Loans, costs or losses associated with closing hedge transactions in
respect of Foreign Currency Loans) incurred as a result of:
(1) Any payment of a Foreign Currency Loan on a date other than
the last day of the Interest Period pertaining to such Loan including,
but not limited to, any such payment made in violation hereof or made
as a result of any Event of Default occasioning a change in applicable
interest rate and/or of acceleration by the Banks; or
(2) Any failure by the Borrowers to borrow a Foreign Currency
Loan on the date for borrowing specified in the relevant notice.
(B) The Bank's determination of the amount so due, and a description
of the calculation thereof, shall be set forth in the request for such
amount or amounts; such determination and calculation shall be conclusive
absent manifest error.
SECTION 2.20 Currency Provisions. (A) An Advance may be denominated in a
Foreign Currency only if the Agent is satisfied in its sole discretion that
deposits in such currency for a period comparable to the relevant Interest
Period and for an amount comparable to the amount of the Loan which shall be
outstanding during such Interest Period will be available to the Banks in the
normal course of business at the beginning of such Interest Period. If the Agent
is not so satisfied, such Advance shall (unless the Borrower cancels a request
pursuant to Section 2.14) be denominated in Dollars and accrue interest at the
Base Rate for such Interest Period.
(B) For purposes of the provisions of this Agreement, (1) the
equivalent in Dollars of a Foreign Currency shall be determined by using
the average spot rate quoted to the Agent or the commercial market rate of
exchange, as determined by the Agent for the exchange of Dollars for the
relevant Foreign Currency, in New York City at 9:00 a.m. New York City time
two London Business Days
11
<PAGE>
prior to the date on which such equivalent is to be determined and (2) the
equivalent in a Foreign Currency of Dollars shall be determined by using
the average spot rate quoted to the Agent or the commercial market rate of
exchange, as determined by the Agent for the exchange of the relevant
Foreign Currency for Dollars in New York City at 9:00 a.m. New York City
time two London Business Days prior to the date on which such equivalent is
to be determined.
(C) The Agent's determination of each rate of exchange pursuant to
this Agreement shall be conclusive in the absence of manifest error.
SECTION 2.21 Judgment Currency. The currency in which each Loan made
hereunder is denominated and the place of payment designated therefor is of the
essence. The payment obligation of each Borrower hereunder in any designated
currency and designated place of payment shall not be discharged by an amount
paid in another currency or in another place, whether pursuant to a judgment or
otherwise, to the extent that the amount so paid on prompt conversion to the
currency in which the Loan is denominated and transfer to the designated place
of payment under normal banking procedures does not yield the amount owing
hereunder at the designated place of payment. In the event that any payment by
any Borrower, whether pursuant to a judgment or otherwise, upon such conversion
and transfer does not result in payment of such amount in the currency in which
such Loan is denominated at the designated place of payment, the appropriate
Bank shall be entitled to demand immediate payment of, and shall have a separate
cause of action against the Borrowers for, the additional amount necessary to
yield the amount of such currency owing hereunder.
j. Section 5.8(A) of the Loan Agreement is hereby amended to read as
follows:
(A) As soon as available and in any event within sixty (60) days
after the end of each quarter of each fiscal year of Quad,
Consolidated and Consolidating balance sheets of Quad as of the end of
such quarter, Consolidated and Consolidating statements of income and
retained earnings of Quad for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, a
Consolidated statement of cash flow of Quad for the portion of the
fiscal year ended with the last day of such quarter, all in reasonable
detail and stating in comparative form the respective Consolidated and
Consolidating figures for the corresponding date and period in the
previous fiscal year and all prepared in accordance with GAAP
consistently
12
<PAGE>
applied and certified by the chief financial officer of Quad (subject
to year-end adjustments);
k. Section 7A.1 of the Loan Agreement is hereby amended in its
entirety to read as follows:
SECTION 7A.1 Minimum Tangible Net Worth. Quad and its Domestic and Foreign
Subsidiaries will maintain at all times a Consolidated Tangible Net Worth of not
less than:
Period Amount
------ ------
9/30/95 - 9/30/96 $20 million
10/1/96 - 9/30/97 $23 million
10/1/97 and thereafter $26 million.
l. Section 7B.1 of the Loan Agreement is hereby amended in its
entirety to read as follows:
SECTION 7B.1 Minimum Tangible Net Worth. Quad and its Domestic and
Foreign Subsidiaries will maintain at all times (as tested quarterly) a
Tangible Net Worth excluding investments in and receivables from
non-Borrower Subsidiaries of not less than:
Period Amount
------ ------
9/30/95 - 9/30/97 $15 million
10/1/97 and thereafter $16 million.
m. Section 7B.2 of the Loan Agreement is hereby amended in its
entirety to read as follows:
SECTION 7B.2 Minimum Working Capital. From and after September 30,
1996, the Borrowers will maintain at all times (as tested quarterly)
Working Capital of not less than $14,000,000.00.
2. This Amendment is an acknowledgement of the outstanding indebtedness
presently owed by Borrowers, and reaffirmation by Borrowers to pay the
indebtedness to the Banks in full according to the terms of the Loan Agreement.
3. Each Borrower represents and warrants to the Agent and the Banks that:
a. the representations and warranties of Borrowers contained in the
Loan Agreement as amended hereby are true and correct as of the date
hereof;
13
<PAGE>
b. the Borrowers are in compliance with the covenants contained in the
Loan Documents as amended herein; and
c. there is no Default or Event of Default under the Loan Agreement
after giving effect to this Amendment.
4. The obligation of the Agent and the Banks hereunder is conditioned upon
satisfaction of the following conditions precedent:
a. the Borrowers deliver to the Agent this Amendment duly executed by
the Borrowers;
b. the Borrowers deliver to the Agent all other amendment and
modification documents requested by the Agent in connection herewith,
including without limitation, certified copies of resolutions of each
Borrower authorizing the execution of this Amendment and all modification
documents to which the Borrowers are parties and all transactions
contemplated herein and incumbency certificates of each Borrower; and
c. the Borrowers pay to Lender all costs and out-of-pocket expenses
(including, without limitation, reasonable attorneys' fees and costs) of
the Agent in connection with this Amendment, which includes, among other
things, the preparation of this Amendment and expenses incurred in
connection with the above.
5. This Amendment contains all of the modifications to the Loan Agreement.
No further modifications shall be deemed effective, unless in writing executed
by both parties.
6. This Amendment shall be binding upon the parties hereto, their
successors and assigns.
7. Except as expressly modified and amended herein, the Loan Agreement and
all documents executed in connection with the Loan Agreement, will remain in
full force and effect in accordance with their respective terms.
8. Pursuant to Section 7A.2 of the Loan Agreement, the capital expenditures
of Quad and its Domestic and Foreign Subsidiaries are not permitted to exceed
$1,500,000.00 in any fiscal year. Quad and its Domestic and Foreign Subsidiaries
had capital expenditures of $1,600,000.00 in the fiscal year ending September
29, 1996. The Banks hereby waive any Default arising from Quad's failure to
comply with Section 7A.2 of the Loan Agreement in the fiscal year ending
September 29, 1996. Except for the waiver set forth above, Section 7A.2 of the
Loan Agreement shall remain in full force and effect.
14
<PAGE>
9. The execution, delivery and effectiveness of this Amendment shall not
operate as a waiver of any right, power or remedy of the Banks or the Agent
under the Loan Agreement, nor constitute a waiver of any Event of Default or any
provision of the Loan Agreement except as specifically set forth in Section 8
hereof.
10. This within Amendment shall be construed and enforced in accordance
with the laws of the State of New Jersey.
HITECH FINANCE COMPANY QUAD SYSTEMS CORPORATION
By:____________________________ By:____________________________
Dominique Badel Anthony R. Drury
Vice President and Treasurer Senior Vice President
Finance and Chief Financial
Officer
TRIMARK INVESTMENT CORP. QUAD LEASING CORP.
By:____________________________ By:____________________________
Dominique Badel Anthony R. Drury
Vice President and Treasurer President
SUMMIT BANK CORESTATES BANK, N.A.
(formerly known as United
Jersey Bank)
By:____________________________ By:____________________________
Adrian M. Marquez William F. Dohmen
Vice President Vice President
15
Exhibit 11
Quad Systems Corporation
Statement Regarding Computation of
Per Share Earnings
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Primary
Average shares outstanding 4,221,888 4,130,482 3,980,443
Net effect of dilutive options and
warrants based on the treasury method 97,432 195,971 288,568
Net effect of dilutive stock purchase plan
shares based on the treasury method 1,857 2,521 --
---------- ---------- ----------
Total 4,321,177 4,328,974 4,269,011
========== ========== ==========
Net income $ 1,492 $ 2,688 $ 4,183
========== ========== ==========
Net income per share $ 0.35 $ 0.62 $ 0.98
========== ========== ==========
</TABLE>
- ----------
The calculation of fully diluted earnings per share is the same as the
calculation of primary earnings per share.
Exhibit 22
Quad Systems Corporation
Subsidiaries of the Registrant
1. Quad Europe Limited, an English company
2. SMTech Limited, an English company
3. HiTech Finance Company, a Delaware corporation
4. TriMark Investment Corp., a Delaware corporation
5. Quad Foreign Sales Corporation, a Barbados company
6. Quad Systems Holdings Limited, an English company
7. Quad Leasing Corporation, a Delaware corporation
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
pertaining to the Quad Systems Corporation 1986 Stock Option Plan and Quad
Systems Corporation 1993 Stock Option Plan (Form S-8 No. 333-04755) and the Quad
Systems Corporation Employee Stock Purchase Plan (Form S-8 No. 33-93436) of our
report dated November 1, 1996, with respect to the consolidated financial
statements and schedule of Quad Systems Corporation included in the Annual
Report (Form 10-K) for the year ended September 30, 1996.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
December 18, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Sep-29-1996
<PERIOD-START> Sep-25-1995
<PERIOD-END> Sep-29-1996
<CASH> 2,636
<SECURITIES> 0
<RECEIVABLES> 15,076
<ALLOWANCES> 633
<INVENTORY> 16,312
<CURRENT-ASSETS> 37,299
<PP&E> 2,487
<DEPRECIATION> 4,865
<TOTAL-ASSETS> 43,823
<CURRENT-LIABILITIES> 13,982
<BONDS> 0
0
0
<COMMON> 128
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 28,091
<SALES> 71,591
<TOTAL-REVENUES> 71,591
<CGS> 43,912
<TOTAL-COSTS> 43,912
<OTHER-EXPENSES> 23,790
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 304
<INCOME-PRETAX> 2,407
<INCOME-TAX> 915
<INCOME-CONTINUING> 3,889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,492
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
