===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 1998.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Transition Period From to
Commission file number 0-21504
QUAD SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 23-2180139
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2405 MARYLAND ROAD, WILLOW GROVE, PA 19090
(Address of principal executive offices)
(215) 657-6202
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
At May 13, 1998, 4,354,825 of the registrant's Common Stock $.03 par value were
outstanding.
<PAGE>
QUAD SYSTEMS CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
NUMBER
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1998 (Unaudited)
and September 30, 1997............................................3
Condensed Consolidated Statements of Operations (Unaudited)
for the three and six months ended March 31, 1998 and 1997........4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the three and six months ended March 31, 1998 and 1997........5
Notes to Condensed Consolidated Financial Statements......................6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................9
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders..................13
ITEM 6. Exhibits and Reports on Form 8-K.....................................13
Signature.....................................................................14
<PAGE>
<TABLE>
<CAPTION>
QUAD SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
ASSETS
March 31, September 30,
1998 1997
-------- --------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents .............................................. $ 2,259 $ 1,981
Accounts receivable, net ............................................... 20,944 20,234
Inventory .............................................................. 19,961 17,097
Deferred income taxes .................................................. 3,243 2,593
Other .................................................................. 1,556 983
-------- --------
Total current assets ......................................... 47,963 42,888
Equipment and leasehold improvements
at cost, less accumulated depreciation of $4,644
at March 31, 1998 and $3,937 at September 30, 1997 ..................... 3,425 3,205
Deferred income taxes ........................................................ 462 699
Goodwill, net ................................................................ 2,769 2,831
Other assets ................................................................. 476 414
-------- --------
$ 55,095 $ 50,037
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit ......................................................... $ 6,900 $ 4,920
Accounts payable ....................................................... 6,942 3,908
Accrued expenses ....................................................... 6,580 5,526
Customer deposits ...................................................... 525 696
Current portion of long-term debt ...................................... 634 620
Deferred service revenue ............................................... 1,247 1,035
Income taxes payable ................................................... 41 229
-------- --------
Total current liabilities .................................... 22,869 16,934
Long-term debt, less current portion ......................................... 2,079 2,325
Stockholders' equity:
Preferred Stock, par value $.01 per share; authorized shares:
1,000,000; no shares issued at March 31, 1998 and September 30, 1997 -- --
Common Stock, par value $.03 per share; authorized shares:
15,000,000; shares issued: 4,368,733 at March 31, 1998
and 4,337,467 at September 30, 1997 ................................ 131 130
Additional paid-in-capital ............................................. 24,510 24,345
Retained earnings ...................................................... 5,246 6,445
Foreign currency translation ........................................... 436 34
Less treasury stock, at cost, 13,908 shares at March 31, 1998
and September 30, 1997 ........................................... (176) (176)
-------- --------
Total stockholders' equity .................................. 30,147 30,778
-------- --------
$ 55,095 $ 50,037
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
QUAD SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
-------------------------- --------------------------
March 31, March 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales .................................... $ 21,909 $ 21,712 $ 41,558 $ 43,677
Cost of products sold ........................ 15,038 13,807 27,643 27,772
----------- ----------- ----------- -----------
Gross profit ....................... 6,871 7,905 13,915 15,905
Operating expenses:
Engineering, research and
development ........................ 1,850 1,905 3,742 3,466
Selling and marketing ................... 4,015 3,426 7,545 7,119
Administrative and general .............. 2,636 1,409 3,968 3,028
----------- ----------- ----------- -----------
8,501 6,740 15,255 13,613
----------- ----------- ----------- -----------
Income (loss) from operations ...... (1,630) 1,165 (1,340) 2,292
Interest expense, net ........................ 179 77 332 120
----------- ----------- ----------- -----------
Income (loss) before income taxes ............ (1,809) 1,088 (1,672) 2,172
Income tax expense (benefit) ................. (525) 381 (473) 760
----------- ----------- ----------- -----------
Net income (loss) ............................ $ (1,284) $ 707 $ (1,199) $ 1,412
=========== =========== =========== ===========
Net income (loss) per share:
Basic ................................... $ (0.29) $ 0.17 $ (0.28) $ 0.33
Diluted ................................. $ (0.29) $ 0.16 $ (0.28) $ 0.31
Weighted average number of shares outstanding:
Basic ................................... 4,354,794 4,278,577 4,344,518 4,262,428
Diluted ................................. 4,354,794 4,519,611 4,344,518 4,484,188
</TABLE>
<PAGE>
QUAD SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
------------------
March 31,
1998 1997
------- -------
Operating Activities
Net income (loss) ..................................... $(1,199) $ 1,412
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization ................... 862 809
Provision for losses on accounts receivable ..... 153 50
Benefit for deferred income taxes ............... (413) (9)
Stock option compensation ....................... -- 5
Changes in operating assets and liabilities, net:
Accounts receivable ........................ (863) (4,024)
Inventory .................................. (2,864) (2,458)
Other assets ............................... (412) 199
Accounts payable ........................... 3,034 2,248
Accrued expenses ........................... 1,054 291
Customer deposits .......................... (171) (911)
Deferred service revenue ................... 212 235
Income taxes payable ....................... (188) 143
------- -------
Net cash used in operating activities ................. (795) (2,010)
Investing Activities
Purchases of equipment and leasehold improvements ..... (761) (1,278)
------- -------
Net cash used in investing activities ................. (761) (1,278)
Financing Activities
Proceeds from line of credit .......................... 1,980 2,300
Common Stock issued under employee benefit plans ...... 166 301
Principal payments on long-term debt and capital lease
obligations ..................................... (312) (350)
------- -------
Net cash provided by financing activities ............. 1,834 2,251
------- -------
Net increase (decrease) in cash and cash equivalents .. 278 (1,037)
Cash and cash equivalents at beginning of period ...... 1,981 2,636
------- -------
Cash and cash equivalents at end of period ............ $ 2,259 $ 1,599
======= =======
<PAGE>
QUAD SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 Basis of Presentation
The accompanying condensed financial statements present the consolidated
financial position, results of operations and cash flows of Quad Systems
Corporation and its wholly-owned subsidiaries (the "Company") as of the dates
and for the periods indicated. All material intercompany accounts and
transactions have been eliminated in consolidation.
For ease of presentation, the Company has indicated its quarterly financial
reporting periods as ending on the last day of December, March, June and
September, whereas, in fact, the Company reports on a 52-53 week fiscal year
ending on the last Sunday in September, with quarterly period ends that may be
different than the above-indicated reporting dates.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended March 31,
1998 are not necessarily indicative of the results that may be expected for the
year ending September 30, 1998.
It is suggested that the Company's Annual Report on Form 10-K containing
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the financial statements for the fiscal year ended September 30,
1997, together with notes thereto, be read in conjunction with this document.
Note 2 Inventory
The components of inventory consist of the following (in thousands):
March 31, September 30,
1998 1997
------------ ------------
Raw materials $ 9,510 $ 8,478
Work in process 2,995 2,017
Finished products 7,456 6,602
============ ============
$ 19,961 $ 17,097
============ ============
Included in inventory at March 31, 1998 is approximately $1.0 million for
inventory reserves related to products being discontinued in order to redirect
the Company's focus on current market requirements.
Note 3 Line of Credit
The Company has a revolving line of credit agreement which permits borrowing up
to a maximum of $10,000,000. During the first quarter of fiscal 1998, the
Company had obtained an increase to its existing line of credit, whereby an
additional $2,500,000 was available, expiring on April 30, 1998. During April
1998, the Company obtained an extension, whereby the $2,500,000 available funds
expires on October 31, 1998.
<PAGE>
QUAD SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED) (UNAUDITED)
Note 4 Earnings (Loss) Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to fully
diluted earnings per share. All earnings (loss) per share amounts for all
periods have been presented, and where necessary, restated to conform to the
Statement 128 requirements.
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ------------------------
March 31, March 31,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) ..................... $ (1,284) $ 707 $ (1,199) $ 1,412
========== ========== ========== ==========
Denominator:
Denominator for basic earnings (loss)
per share-weighted average shares ... 4,354,794 4,278,577 4,344,518 4,262,428
Effect of dilutive securities:
Employee stock options .............. -- 238,935 -- 219,661
Employee stock purchase plan ........ -- 2,099 -- 2,099
---------- ---------- ---------- ----------
Dilutive potential Common Stock ....... -- 241,034 -- 221,760
Denominator for diluted earnings (loss)
per share-weighted average shares ... 4,354,794 4,519,611 4,344,518 4,484,188
========== ========== ========== ==========
Basic earnings (loss) per share ....... $ (0.29) $ 0.17 $ (0.28) $ 0.33
========== ========== ========== ==========
Diluted earnings (loss) per share ..... $ (0.29) $ 0.16 $ (0.28) $ 0.31
========== ========== ========== ==========
</TABLE>
Options to purchase 763,275 shares of Common Stock at prices ranging from $3.00
to $14.00 for the three and six months ended March 31, 1998 were not included in
the computation of diluted earnings (loss) per share because they were
antidilutive. Options to purchase 89,550 and 96,050 shares of Common Stock at
prices ranging from $11.50 to $14.00 and from $10.75 to $14.00 per share for the
three and six months ended March 31, 1997, respectively, were not included in
the computation of diluted earnings (loss) per share because they were
antidilutive.
Note 5 Supplemental Disclosures to Statements of Cash Flows
The following are supplemental disclosures to the statements of cash flows (in
thousands):
March 31,
1998 1997
------ ------
Schedule of noncash activity:
Equipment acquired under capital lease $ 80 $--
====== ======
Cash paid during the period for:
Interest ............................. $ 337 $ 154
====== ======
Income taxes ......................... $ 144 $ 654
====== ======
<PAGE>
QUAD SYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED) (UNAUDITED)
Note 6 License Agreement
In March 1998, the Company reached an agreement with MPM Corporation ("MPM") to
provide the Company with a paid-up, non-exclusive, non-transferable, perpetual
license for inventions covered by certain patents and other intellectual
property held by MPM. These inventions are currently used in certain of the
Company's screen printers. The Company agreed to pay to MPM a one-time license
fee of $1,000,000 for the right to use those inventions. The Company has
recognized the entire amount of this fee in the second quarter of fiscal 1998.
<PAGE>
QUAD SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
For ease of presentation, the Company has indicated its quarterly financial
reporting periods as ending on the last day of December, March, June and
September; whereas, in fact, the Company reports on a 52-53 week fiscal year
ending on the last Sunday in September, with quarterly period ends that may be
different than the above-indicated reporting dates. The following table sets
forth certain financial data as a percentage of net sales for the periods
indicated:
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
----- ----- ----- -----
Net sales ........................... 100.0% 100.0% 100.0% 100.0%
Gross margin ........................ 31.4 36.4 33.5 36.4
Engineering, research and development 8.4 8.8 9.0 7.9
Selling and marketing ............... 18.3 15.8 18.2 16.3
Administrative and general .......... 12.0 6.5 9.5 6.9
Income (loss) from operations ....... (7.4) 5.4 (3.2) 5.2
Income (loss) before income taxes ... (8.3) 5.0 (4.0) 5.0
Net income (loss) ................... (5.9) 3.3 (2.9) 3.2
Net sales of $21.9 million for the second quarter of fiscal 1998 increased
slightly compared to the second quarter of fiscal 1997, while for the first six
months of fiscal 1998, net sales decreased $2,119,000 or 4.9% compared to the
first six months of fiscal 1997. The following table sets forth certain product
lines sales for the periods indicated:
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
------- ------- ------- -------
Assemblers .... $13,656 $13,864 $25,177 $27,973
Screen printers 3,126 2,981 6,411 6,445
Reflow ovens .. 1,075 1,000 2,399 2,173
Sales continued to be flat in the second quarter as compared to the same quarter
last year but increased $2,260,000 or 11.5% compared to the first quarter of
fiscal 1998. This increase resulted from increased sales of newer products such
as the QSA-30, the APS-1 and the AVX 500 screen printer. The QSA-30 is a
relatively low-priced, high throughput assembler that is designed to provide
customers with a low cost per placement machine. The APS-1 assembler was
introduced to address the emerging requirements of both the SMT industry and
advanced packaging markets. The AVX 500 screen printer has a larger frame
capability, which has doubled the size of the available market that the Company
serves. International sales represented approximately 34.3% and 36.1% of net
sales for the second quarter of fiscal 1998 and 1997, respectively, and 35.3%
and 38.7% of net sales for the first six months of fiscal 1998 and 1997,
respectively. The decrease in international sales is primarily the result of
decreased sales in the Pacific Rim and in South America, reflecting a decrease
in the rate of orders from these markets.
Gross margin for the second quarter of fiscal 1998 decreased to 31.4% from 36.4%
and to 33.5% from 36.4% when comparing the three and six months periods ended
March 31, 1998 to March 31, 1997. The Company recorded approximately $1.0
million in inventory reserves related to the Company's decision to discontinue
sales of selected products in order to redirect the Company's focus on current
market requirements. Excluding this inventory reserve charge, gross margin for
the second quarter of fiscal 1998 was approximately 35.9%. The Company expects
that competitive pricing pressures and product mix will continue to exert
downward pressure on gross margin for the next few quarters. However, the
Company believes that if it is successful in increasing
<PAGE>
QUAD SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
operational efficiencies and refocusing its efforts on its core competencies,
while continuing to expand its sales of the recently introduced APS-1 assembler,
gross margin improvement could commence within the next several quarters. There
can be no assurance, however, that the Company will be successful in these
efforts, especially in view of the competitive nature of the SMT business, the
difficulties involved for the Company to improve its operational effectiveness
and the challenges of achieving continued penetration into the advanced
packaging markets.
Engineering, research and development expenses decreased $55,000 or 2.9% for the
second quarter of fiscal 1998 over the second quarter of the prior year but
increased $276,000 or 8.0% for the first six months of fiscal 1998 when compared
to the first six months of fiscal 1997. The increase in the first six months of
fiscal 1998, primarily reflects the addition of personnel to the engineering,
research and development departments as the Company has increased the research
and development efforts associated with various products such as the APS-1
assembler and the AVX 500 screen printer. Currently, the Company is developing
additional features for the APS-1 assembler to expand and increase the
functionality of this product. The Company believes that spending for R&D will
remain relatively constant in the third and fourth quarters of 1998 compared to
the second quarter.
Selling and marketing expenses increased $589,000 or 17.2% and $426,000 or 6.0%
for the second quarter and first six months of fiscal 1998, respectively,
compared to the same periods last year. The increase is mostly a result of
higher overall commission rates. The Company expects that for the third and
fourth quarters of 1998, overall selling and marketing expenses as a percentage
of sales will decrease, primarily as a result of reduced selling costs.
Administrative and general expenses increased $1,227,000 or 87.1% and $940,000
or 31.0% for the second quarter and first six months of fiscal 1998,
respectively, compared to the same periods last year. The increase is mostly due
to one-time costs incurred in fiscal 1998, including $1.0 million to obtain a
paid-up license of patented technology from MPM Corporation (see below for a
detailed explanation) and severance costs of $322,000 related to the resignation
of the Company's former president and other reductions in the workforce.
Excluding these costs, administrative and general expenses decreased
approximately $95,000 or 6.7% and $382,000 or 12.6% for the second quarter and
first six months of fiscal 1998, respectively, compared to the same periods last
year. The Company believes that spending for these expenses for the third and
fourth quarters of 1998 will be at levels approximately constant with the second
quarter after excluding these one-time costs.
Income tax benefit of $525,000 and $473,000 represented an effective tax rate of
29.0% and 28.3% for the second quarter of fiscal 1998 and first six months of
fiscal 1998, respectively, as compared to an effective tax rate of 38.0% in the
same periods of the prior year. Income tax for fiscal 1998 differs from the
amount that would result from applying the Federal statutory tax rate to the
results from operations primarily due to permanent differences in taxable income
versus book income and benefits realized from the Company's foreign sales
corporation. The Company expects its effective tax rate to remain at
approximately 28.3% for the remainder of the fiscal year.
Backlog
As of March 31, 1998, the Company's backlog of orders was $10.9 million,
compared to $11.3 million as of September 30, 1997 and $9.2 million as of March
31, 1997. Bookings for the second quarter of fiscal 1998 were $19.4 million as
compared to bookings of $21.8 million in the first quarter of fiscal 1998 and
$19.7 million in the fourth quarter of fiscal 1997. The Company continues to
experience soft bookings since the beginning of fiscal 1997, as quarterly
bookings for the last six quarters have averaged $20.3 million. The following
table sets forth certain backlog information by product line for the periods
indicated (in millions):
<PAGE>
QUAD SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
March 31,
1998 1997
---- ----
Assemblers $4.7 $5.4
Screen printers 2.3 .8
Reflow ovens .7 .8
The remainder of backlog consists of other products. 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.
Backlog therefore may not necessarily be indicative of future sales.
Liquidity and Capital Resources
The Company's working capital as of March 31, 1998 was approximately $25.1
million, including cash balances of approximately $2.3 million. At September 30,
1997, the Company had working capital of approximately $26.0 million, including
cash balances of approximately $2.0 million. During the first six months of
fiscal 1998, net cash used in operations amounted to $0.8 million, principally
due to a net loss and an increase in inventory of $2.9 million, partially offset
by increases in accounts payable of $3.0 million. Purchases of equipment and
cash used in operations was mostly financed by $2.0 million of incremental
borrowings under the Company's revolving line of credit.
The Company has a revolving line of credit agreement which permits borrowings up
to a maximum of $10,000,000 and bears interest at the bank's base rate of
interest or, at the Company's option, the bank's prime rate or LIBOR plus 1.30%,
when the outstanding balance is greater than $500,000. This line of credit is
secured by a pledge by the Company's English holding company, Quad Systems
Holdings Limited, of 65% of the outstanding shares of its two wholly-owned
English operating subsidiaries. The Company pays a fee on the unused portion of
the line of credit. This credit agreement expires in April 2000. This line of
credit also contains various customary operating and reporting covenants and
requires maintenance of certain financial ratios. As of March 31, 1998,
borrowings under this line of credit were $6,900,000.
During the first quarter of fiscal 1998, the Company obtained an increase to its
existing line of credit whereby an additional $2,500,000 is available. The
$2,500,000 increase expires on October 31, 1998.
The Company believes that existing cash balances and borrowing capacity will
provide adequate financing for the next year.
License Agreement
In March 1998, the Company reached an agreement with MPM Corporation ("MPM") to
provide the Company with a paid-up, non-exclusive, non-transferable, perpetual
license for inventions covered by certain patents and other intellectual
property held by MPM. These inventions are currently used in certain of the
Company's screen printers. The Company agreed to pay to MPM a one-time license
fee of $1,000,000 for the right to use those inventions. The Company has
recognized the entire amount of this fee in the second quarter of fiscal 1998.
<PAGE>
QUAD SYSTEMS CORPORATION
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Forward Looking Statements
The discussions above regarding the Company's expectations of future sales,
gross margins, operating expenses, scheduling of new product introductions and
expected shipment dates and the outlook for the SMT industry and advanced
packaging markets 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 and
advanced packaging markets and the intensity of competition, product development
delays or performance problems, difficulties or delays in software functionality
and performance, the timing of future software releases, failure to respond
adequately either to changes in technology or to customer preferences, risks of
nonpayment of accounts receivable and changes in forecasted costs, including
unexpected required additional engineering costs.
<PAGE>
QUAD SYSTEMS CORPORATION
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
On March 12, 1998, the Company held its Annual Meeting of Stockholders.
At the meeting, the stockholders voted upon the following matter:
1. Election of five directors.
In the election of directors, the holders of Common Stock voted as
follows:
Name Votes For Votes Withheld
David W. Smith ........... 3,552,683 153,527
David H. Young ........... 3,552,663 153,547
Lorin J. Randall ......... 3,552,683 153,527
Robert P. Pinkas ......... 3,552,683 153,527
Vahram V. Erdekian ....... 3,550,058 156,152
Item 6. Exhibits and Reports on Form 8-K.
a. The Company did not file any reports on Form 8-K during the period
covered by this report.
(a) Exhibits
10.1 License Agreement dated March 2, 1998 between the Registrant
and MPM Corporation for the license of patented technology.
10.2 1993 Stock Option Plan, as amended.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the period
covered by this report.
<PAGE>
QUAD SYSTEMS CORPORATION
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUAD SYSTEMS CORPORATION
Date: May 13, 1998 By: \s\ Anthony R. Drury
------------------------
Anthony R. Drury
Senior Vice President, Finance
and Chief Financial Officer
EXHIBIT 10.1
LICENSE AGREEMENT
THIS AGREEMENT, effective March 2, 1998 ("Effective Date") is entered
into by MPM Corporation ("MPM" or "Licensor"), having a place of business at 16
Forge Park, Franklin, Massachusetts, and Quad Systems Corporation ("Quad" or
"Licensee"), having a place of business at 2405 Maryland Road, Willow Grove,
Pennsylvania 19090-1710.
WHEREAS Licensor has the right to grant licenses to the patents and
patent applications attached hereto as Schedule A and any patents which may
issue thereon, including any continuations, divisions, reissues or
reexaminations thereof worldwide, hereinafter referred to as "Patent Rights";
WHEREAS Licensee wishes to obtain a nonexclusive license under the
Patent Rights upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto agree as follows:
1. License. The Licensor hereby grants to the Licensee, its divisions
and subsidiaries, and the Licensee hereby accepts from the Licensor, upon the
terms and conditions hereinafter specified, a paid-up, non-exclusive,
non-transferable license to practice the inventions covered by the Patent Rights
in the country or countries in which the Patent Rights are or hereafter become
effective, in the manufacture, have made, use, offer for sale, import, export
and sale of Licensed Products (meaning any and all products of Licensee covered
by one or more claims of the patents listed in Schedule A), to the full end of
the terms for which the Patent Rights are issued, unless sooner terminated as
hereinafter provided. No other, further, or different license (including the
right to sublicense) is granted or implied.
2. Payment. Licensee or its designee shall pay to Licensor the amount
of one million dollars ($1,000,000). The payments to Licensor by Licensee shall
be made in U.S. dollars by direct transfer to the Account of MPM, Account No.
93649-55829-00101 at Fleet Bank, Providence, RI (ABA #011500010) or such other
bank account designated by MPM in writing, as follows:
April 5, 1998 $250,000
July 5, 1998 250,000
October 5, 1998 250,000
December 30, 1998 250,000
3. Release. Licensor releases Licensee, and all purchasers, customers
and users of Licensed Products acquired from Licensee, from all claims, demands
and rights of action which Licensor may have on account of any infringement or
alleged infringement of any of the Patent Rights by the manufacture, use, sale,
offer for sale, importation or other disposition of Licensed Products which,
prior to the Effective Date of this Agreement, were manufactured, used, sold,
offered for sale, imported or otherwise disposed of by Licensee.
4. Marking. Licensee shall place in a conspicuous location on the
Licensed Products, a patent notice in accordance with 35 U.S.C. ss.287.
5. Miscellaneous Provisions.
5.1 Licensor does not give Licensee any indemnity against costs,
damages, expenses or royalties arising out of proceedings brought against
Licensee or any customer, purchaser or user of Licensed Products manufactured or
sold by Licensee, by any third party. Should Licensee be sued for infringement
of any patent or patents of a third party by reason of manufacture, use sale,
offer for sale or importation or other disposition of the Licensed Products,
Licensor shall, on request, assist Licensee in its defense to any such action to
the extent that in all of the circumstances it is reasonable to do so, but shall
otherwise be under no obligation in respect thereof. All costs of any such
action shall be borne by Licensee.
5.2 Upon any breach or default of this Agreement by either Licensee or
Licensor, the non-defaulting party may terminate this Agreement by providing 30
days written notice to the defaulting party. Said notice shall become effective
at the end of the notice period unless, during such notice period, the
defaulting party shall cure such breach or default. It is agreed that the
failure of Licensee to make any of the payments set forth in Paragraph 2 hereof
shall constitute a breach of this Agreement.
5.3 If Licensee shall become bankrupt or insolvent and/or if the
business of Licensee shall be placed in the hands of a receiver, assignee, or
trustee, whether by the voluntary act of the Licensee or otherwise, the license
granted as part of this Agreement shall immediately terminate.
5.4 Nothing in this Agreement shall be construed as:
(a) Requiring the filing of any patent application; or
(b) A warranty or representation as to the validity or scope of any
patent;or
(c) Conferring by implication, estoppel or otherwise, any license or
other right beyond those expressly provided above; or
(d) Creating any form of partnership, joint venture or any form of
mutual undertaking under which acts of either party are chargeable in any manner
to the other party; or
(e) Creating any form of license to the other party under any rights
not specifically granted herein.
5.5 Neither this Agreement, nor any license, in whole or in part, shall
be assignable except with the prior written permission of the other party.
5.6 Any statement, notice, request or other communication hereunder
shall be deemed sufficiently given to the addressee if delivered by hand or sent
by Federal Express or comparable overnight courier air service to a party at the
address set forth below for such party, or such other address as a party may
from time to time designate by written notice:
For MPM:
MPM Corporation
16 Forge Park
Franklin, MA 02038
Attention: Chief Executive Officer
Copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attention: A. Jason Mirabito
For Quad:
Quad Systems Corporation
2405 Maryland Road
Willow Grove, PA 19090-1710
Attention: Chief Executive Officer
5.7 No waiver of any default, express or implied, made by either party
hereto shall be binding upon the party making such waiver in the event of a
subsequent default.
5.8 This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter hereof and merges all prior
discussions between them, and neither of the parties shall be bound by any
conditions, definitions, warranties, understandings or representations with
respect to such subject matter other than as expressly provided herein, or in
any written agreement between the parties executed subsequent to the date of
execution hereof, and signed by a duly authorized representative of the party to
be bound thereby.
5.9 If any article or subpart thereof of this Agreement shall be held
invalid or unenforceable, it shall be deemed to be severed herefrom with the
remaining articles and subparts thereof remaining in full force and effect.
5.10 No changes or modifications are to be made to this Agreement
unless evidenced in writing and signed for and on behalf of the parties.
5.11 The headings in this Agreement are for convenience only and not
intended to have any legal effect.
5.12 The construction and performance of this Agreement shall be
governed by the laws of the Commonwealth of Massachusetts and of the United
States of America and the parties hereby submit to the jurisdiction of the
Commonwealth of Massachusetts for resolution of any dispute related to this
Agreement or the performance thereunder.
5.13 This Agreement may be executed in one or more counterparts, each
of which shall constitute one and the same document.
5.14 Any press releases must be approved by both parties.
Agreed to:
MPM Corporation (Licensor)
By: /s/ Gary Freeman Date: March 2, 1998
---------------------------- -------------
Title: CTO
----------------------------
Quad Systems Corporation (Licensee)
By: /s/ David W. Smith Date: March 2, 1998
---------------------------- -------------
Title: President & CEO
----------------------------
EXHIBIT 10.2
Adopted 3/23/93
Amended 11/11/93
Amended 12/22/93
Amended 1/14/94
Amended 2/16/94
Amended 3/6/96
Amended 7/24/97
Corrected 3/12/98
QUAD SYSTEMS CORPORATION
1993 STOCK OPTION PLAN
1. Purpose. Quad Systems Corporation (the "Company") hereby adopts the
Quad Systems Corporation 1993 Stock Option Plan (the "Plan"). The Plan is
intended to recognize the contributions made to the Company by employees
(including employees who are members of the Board of Directors) of the Company
or any Affiliate (as defined below) and certain consultants or advisors to the
Company or an Affiliate, to provide such persons with additional incentive to
devote themselves to the future success of the Company or an Affiliate, and to
improve the ability of the Company or an Affiliate to attract, retain, and
motivate individuals upon whom the Company's sustained growth and financial
success depend, by providing such persons with an opportunity to acquire or
increase their proprietary interest in the Company through receipt of rights to
acquire the Company's Common Stock, par value $.03 per Share (the "Common
Stock"). In addition, the Plan is intended as an additional incentive to certain
directors of the Company who are not employees of the Company or an Affiliate to
serve on the Board of Directors and to devote themselves to the future success
of the Company by providing them with an opportunity to acquire or increase
their proprietary interest in the Company through the receipt of Options to
acquire Common Stock.
2. Definitions. Unless the context clearly indicates otherwise, the
following terms shall have the following meanings:
(a) "Affiliate" means a corporation which is a parent corporation or a
subsidiary corporation with respect to the Company within the meaning of Section
424(e) or (f) of the Code.
(b) "Board of Directors" or "Board" means the Board of Directors of the
Company.
(c) "Change in Control" shall have the meaning as set forth in Section 10
of the Plan.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall have the meaning set forth in Section 3 of the Plan.
(f) "Company" means Quad Systems Corporation, a Delaware corporation.
(g) "Disability" shall have the meaning set forth in Section 22(e)(3) of
the Code.
(h) "Fair Market Value" shall have the meaning set forth in Subsection 8(b)
of the Plan.
(i) "ISO" means an Option granted under the Plan which is intended to
qualify as an "incentive stock option" within the meaning of Section 422 of the
Code.
(j) "Non-employee Director" means a member of the Board of Directors who is
not an employee of the Company or an Affiliate.
(k) "Non-qualified Stock Option" means an Option granted under the Plan
which is not intended to qualify, or otherwise does not qualify, as an
"incentive stock option" within the meaning of Section 422(b) of the Code.
(l) "Option" means either an ISO or a Non-qualified Stock Option granted
under the Plan.
(m) "Optionee" means a person to whom an Option has been granted under the
Plan, which Option has not been exercised and has not expired or terminated.
(n) "Option Document" means the document described in Section 8 or Section
9 of the Plan, as applicable, which sets forth the terms and conditions of each
grant of Options.
o) "Option Price" means the price at which Shares may be purchased upon
exercise of an Option, as calculated pursuant to Subsection 8(b) or Subsection
9(a) of the Plan, as applicable.
(p) "Rule 16b-3" means Rule 16b-3 promulgated under the Securities Exchange
Act of 1934, as amended.
(q) "Shares" means the shares of Common Stock of the Company which are the
subject of Options.
3. Administration of the Plan. The Plan shall be administered by the Board
of Directors of the Company; however, the Board of Directors may (i) designate a
committee composed of two or more directors who are "Non-Employee Directors" as
defined in Rule 16b-3 to operate and administer the Plan in its stead, (ii)
designate two committees to operate and administer the Plan in its stead, one of
such committees composed of two or more directors who are "Non-Employee
Directors" as defined in Rule 16b-3 to operate and administer the Plan with
respect to the Company's "Principal Officers" (as defined below) and directors,
and the other such committee composed of two or more directors (which may
include directors who are also employees of the Company) to operate and
administer the Plan with respect to persons other than Principal Officers and
directors or (iii) designate only one of the two committees referred to in
subparagraph (ii) and itself operate and administer the Plan with respect to
persons not within the jurisdiction of such committee. Any of such committees
designated by the Board of Directors, and the Board of Directors itself in its
administrative capacity with respect to the Plan, is referred to as the
"Committee." As used herein, the term "Principal Officers" means the Chairman of
the Board of Directors (if the Chairman of the Board of Directors is a payroll
employee), President, Executive Vice President, Senior Vice President, Vice
President, Treasurer, and any other person who is an "officer" within the
meaning of Rule 16a-1(f) promulgated under the Securities Exchange Act of 1934,
as amended, or any successor rule.
(a) Meetings. The Committee shall hold meetings at such times and places as
it may determine. Acts approved at a meeting by a majority of the members of the
Committee or acts approved in writing by the unanimous consent of the members of
the Committee shall be the valid acts of the Committee.
(b) Grants. Except with respect to Options granted to Non-employee
Directors pursuant to Section 9 of the Plan, the Committee shall from time to
time at its discretion direct the Company to grant Options pursuant to the terms
of the Plan. The Committee shall have plenary authority to (i) determine the
individuals to whom, the times at which, and the price at which Options shall be
granted, (ii) determine the type of Option to be granted and the number of
Shares subject thereto, and (iii) approve the form and terms and conditions of
the Option Documents; all subject, however, to the express provisions of the
Plan. In making such determinations, the Committee may take into account the
nature of the Optionee's services and responsibilities, the Optionee's present
and potential contribution to the Company's success and such other factors as it
may deem relevant. The interpretation and construction by the Committee of any
provisions of the Plan or of any Option granted under it shall be final, binding
and conclusive.
(c) Exculpation. No member of the Board of Directors shall be personally
liable for monetary damages for any action taken or any failure to take any
action in connection with the administration of the Plan or the granting of
Options under the Plan, provided that this Subsection 3(c) shall not apply to
(i) any breach of such member's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law, (iii) acts or omissions that would
result in liability under Section 174 of the General Corporation Law of the
State of Delaware, as amended, and (iv) any transaction from which the member
derived an improper personal benefit.
(d) Indemnification. Service on the Committee shall constitute service as a
member of the Board of Directors of the Company. Each member of the Committee
shall be entitled without further act on his or her part to indemnity from the
Company to the fullest extent provided by applicable law and the Company's
Certificate of Incorporation and/or By-laws in connection with or arising out of
any action, suit or proceeding with respect to the administration of the Plan or
the granting of Options thereunder in which he or she may be involved by reason
of his or her being or having been a member of the Committee, whether or not he
or she continues to be such member of the Committee at the time of the action,
suit or proceeding.
(e) Limitations on Grants of Options to Consultants and Advisors. With
respect to the grant of Options to consultants or advisors, bona fide services
shall be rendered by consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction.
4. Grants under the Plan. Grants under the Plan may be in the form of a
Non-qualified Stock Option, an ISO or a combination thereof, at the discretion
of the Committee.
5. Eligibility. All employees of the Company or an Affiliate (including
employees who are members of the Board of Directors), consultants or advisors to
the Company or an Affiliate who satisfy the requirements set forth in Subsection
3(e), and all Non-employee Directors shall be eligible to receive Options
hereunder. The Committee, in its sole discretion, shall determine whether an
individual is eligible to receive Options under the Plan.
6. Shares Subject to Plan. The aggregate maximum number of Shares for which
Options may be granted pursuant to the Plan is nine hundred thousand (900,000),
subject to adjustment as provided in Section 11 of the Plan. The Shares shall be
issued from authorized and unissued Common Stock or Common Stock held in or
hereafter acquired for the treasury of the Company. If an Option terminates or
expires without having been fully exercised for any reason, the Shares for which
the Option was not exercised may again be the subject of one or more Options
granted pursuant to the Plan.
7. Term of the Plan. The Plan is effective as of March 23, 1993, the date
on which it was adopted by the Board of Directors, subject to the approval of
the Plan on or before March 22, 1994 by a majority of the votes cast at a duly
called meeting of the stockholders at which a quorum representing a majority of
all outstanding voting stock of the Company is, either in person or by proxy,
present and voting. If the Plan is not so approved on or before March 22, 1994,
all Options granted under the Plan shall be null and void. No Option may be
granted under the Plan after March 22, 2003.
If the Reverse Split (as defined in Section 11) is not approved by
stockholders of the Company at the Annual Meeting of Stockholders on April 2,
1993 or any adjournment or postponement thereof, the Plan shall be terminated,
and any Options granted under the Plan shall be null and void.
8. Option Documents and Terms. Each Option granted under the Plan shall be
a Non-qualified Stock Option unless the Option shall be specifically designated
at the time of grant to be an ISO for Federal income tax purposes. If any Option
designated as an ISO is determined for any reason not to qualify as an incentive
stock option within the meaning of Section 422 of the Code, such Option shall be
treated as a Non-qualified Stock Option for all purposes under the provisions of
the Plan. Options granted pursuant to the Plan shall be evidenced by the Option
Documents in such form as the Committee shall from time to time approve, which
Option Documents shall comply with and be subject to the following terms and
conditions and such other terms and conditions as the Committee shall from time
to time require which are not inconsistent with the terms of the Plan. However,
the following provisions of this Section 8 shall not be applicable to Options
granted pursuant to Section 9, except as otherwise provided in Subsection 9(c).
(a) Number of Option Shares. Each Option Document shall state the number of
Shares to which it pertains. An Optionee may receive more than one Option, which
may include Options which are intended to be ISO's and Options which are not
intended to be ISO's, but only on the terms and subject to the conditions and
restrictions of the Plan. Effective February 17, 1994, the maximum number of
Shares for which Options may be granted to any eligible individual during any
fiscal year of the Company is one hundred thousand (100,000) Shares.
(b) Option Price. Each Option Document shall state the Option Price, which
shall be at least 100% of the Fair Market Value of the Shares on the date the
Option is granted; provided, however, that if an ISO is granted to an Optionee
who then owns, directly or by attribution under Section 424(d) of the Code,
shares possessing more than ten percent of the total combined voting power of
all classes of stock of the Company or an Affiliate, then the Option Price shall
be at least 110% of the Fair Market Value of the Shares on the date the Option
is granted. If the Common Stock is traded in a public market, then the Fair
Market Value per share shall be, if the Common Stock is listed on a national
securities exchange or included in the NASDAQ National Market System, the last
reported sale price thereof on the relevant date, or, if the Common Stock is not
so listed or included, the mean between the last reported "bid" and "asked"
prices thereof on the relevant date, as reported on NASDAQ or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or as
reported in a customary financial reporting service, as applicable and as the
Committee determines.
(c) Exercise. No Option shall be deemed to have been exercised prior to the
receipt by the Company of written notice of such exercise and payment in full of
the Option Price for the Shares to be purchased. Each such notice shall specify
the number of Shares to be purchased and shall (unless the Shares are covered by
a then current registration statement or a Notification under Regulation A under
the Securities Act of 1933, as amended (the "Act")), contain the Optionee's
acknowledgment in form and substance satisfactory to the Company that (a) such
Shares are being purchased for investment and not for distribution or resale
(other than a distribution or resale which, in the opinion of counsel
satisfactory to the Company, may be made without violating the registration
provisions of the Act), (b) the Optionee has been advised and understands that
(i) the Shares have not been registered undo the Act and are "restricted
securities" within the meaning of Rule 144 under the Act and are subject to
restrictions on transfer and (ii) the Company is under no obligation to register
the Shares under the Act or to take any action which would make available to the
Optionee any exemption from such registration, (c) such Shares may not be
transferred without compliance with all applicable federal and state securities
laws, and (d) an appropriate legend referring to the foregoing restrictions on
transfer and any other restrictions imposed under the Option Documents may be
endorsed on the certificates. Notwithstanding the foregoing, if the Company
determines that issuance of Shares should be delayed pending (A) registration
under federal or state securities laws, (B) the receipt of an opinion of counsel
acceptable to the Company that an appropriate exemption from such registration
is available, (C) the listing or inclusion of the Shares on any securities
exchange or an automated quotation system or (D) the consent or approval of any
governmental regulatory body whose consent or approval is necessary in
connection with the issuance of such Shares, the Company may defer exercise of
any Option granted hereunder until any of the events described in this
Subsection 8(c) has occurred.
(d) Medium of Payment. An Optionee shall pay for Shares (i) in cash, (ii)
by certified or cashier's check payable to the order of the Company, or (iii) by
such other mode of payment as the Committee may approve, including payment
through a broker in accordance with procedures permitted by Regulation T of the
Federal Reserve Board. Without limiting the foregoing, the Committee may provide
(and in the case of Options granted to Non-employee Directors, shall provide) in
an Option Document that payment may be made in whole or in part in shares of the
Company's Common Stock. If payment is made in whole or in part in shares of the
Company's Common Stock, then the Optionee shall deliver to the Company
certificates registered in the name of such Optionee representing the shares
owned by such Optionee, free of all liens, claims and encumbrances of every kind
and having an aggregate Fair Market Value on the date of delivery that is at
least as great as the Option Price of the Shares (or relevant portion thereof)
with respect to which such Option is to be exercised by the payment in shares of
Common Stock, accompanied by stock powers duly endorsed in blank by the
Optionee. In the event that certificates for shares of the Company's Common
Stock delivered to the Company represent a number of shares in excess of the
number of shares required to make payment for the Option Price of the Shares (or
relevant portion thereof) with respect to which such Option is to he exercised
by payment in shares of Common Stock, the stock certificate issued to the
Optionee shall represent (i) the Shares in respect of which payment is made, and
(ii) such excess number of shares. Notwithstanding the foregoing, the Committee
may impose from time to time such limitations and prohibitions on the use of
shares of the Common Stock to exercise an option as it deems appropriate.
(e) Termination of Options.
(i) No Option shall be exercisable after the first to occur of the
following:
(A) Expiration of the Option term specified in the Option
Document, which, in the case of an ISO, shall not occur after (1) ten
years from the date of grant, or (2) five years from the date of grant
of an ISO if the Optionee on the date of grant owns, directly or by
attribution under Section 424(d) of the Code, shares possessing more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of an Affiliate;
(B) Expiration of three months from the date the Optionee's
employment or service with the Company or its Affiliates terminates
for any reason other than Disability or death or as otherwise
specified in Subsection 8(e)(i)(D) or 8(e)(i)(E) below;
(C) Expiration of one year from the date such employment or
service with the Company or its Affiliates terminates due to the
Optionee's Disability or death;
(D) A finding by the Committee, after full consideration of the
facts presented on behalf of both the Company and the Optionee, that
the Optionee has breached his or her employment or service contract
with the Company or an Affiliate, or has been engaged in disloyalty to
the Company or an Affiliate, including, without limitation, fraud,
embezzlement, theft, commission of a felony or proven dishonesty in
the course of his employment or service, or has disclosed trade
secrets or confidential information of the Company or an Affiliate. In
such event, in addition to immediate termination of the Option, the
Optionee shall automatically forfeit all Shares for which the Company
has not yet delivered the share certificates upon refund by the
Company of the Option Price. Notwithstanding anything herein to the
contrary, the Company may withhold delivery of share certificates
pending the resolution of any inquiry that could lead to a finding
resulting in a forfeiture; or
(E) The date, if any, set by the Board of Directors as an
accelerated expiration date pursuant to Section 10 of the Plan. With
respect to Subsections 8(e) (i) (B) and (C) above, the only Options
which may be exercised during the three-month or one-year period, as
the case may be, following the date of Optionee's termination of
employment or service with the Company or its Affiliates are Options
which were exercisable on the last date of such employment or service
and not Options which, if the Optionee were still employed or
rendering service during such three-month or one-year period, would
become exercisable, unless the Option Document specifically provides
to the contrary.
(ii) Notwithstanding the foregoing, the Committee may extend the
period during which all or any portion of an Option may be exercised to a
date no later than the Option term specified in the Option Document
pursuant to Subsection 8(e)(i)(A), provided that any change pursuant to
this Subsection 8(e)(ii) which would cause an ISO to become a Non-qualified
Stock Option may be made only with the consent of the Optionee. The terms
of an executive severance agreement or other agreement between the Company
and an Optionee, approved by the Committee, whether entered into prior or
subsequent to the grant of an Option, which provide for Option exercise
dates later than those set forth in Subsection 8(e)(i) but permitted by
this Subsection 8(e)(ii) shall be deemed to be Option terms approved by the
Committee and consented to by the Optionee.
(f) Transfers. No Option granted under the Plan may be transferred, except
by will or by the laws of descent and distribution. During the lifetime of the
person to whom an Option is granted, such Option may be exercised only by such
person. Notwithstanding the foregoing, a Non-qualified Stock Option may be
transferred pursuant to the terms of a "qualified domestic relations order,"
within the meaning of Sections 401(a)(13) and 414(p) of the Code or within the
meaning of Title I of the Employee Retirement Income Security Act of 1974, as
amended. (g) Limitation on ISO Grants. In no event shall the aggregate Fair
Market Value of the Shares of Common Stock (determined at the time the ISO is
granted) with respect to which incentive stock options under all stock option
plans of the Company or its Affiliates are exercisable for the first time by the
Optionee during any calendar year exceed $100,000.
(h) Other Provisions. Subject to the provisions of the Plan, the Option
Documents shall contain such other provisions including, without limitation,
additional restrictions upon the exercise of the Option or additional
limitations upon the term of the Option, as the Committee shall deem advisable.
(i) Amendment. Subject to the provisions of the Plan, the Committee shall
have the right to amend Option Documents issued to an Optionee, subject to the
Optionee's consent if such amendment is not favorable to the Optionee, except
that the consent of the Optionee shall not be required for any amendment made
under Subsection 8(e)(i)(E) or Section 10 of the Plan, as applicable.
9. Special Provisions Relating to Grants of Options to Non-employee
Directors. Options granted pursuant to the Plan to Non-employee Directors shall
be granted, without any further action by the Committee, in accordance with the
terms and conditions set forth in this Section 9. Options granted pursuant to
this Section 9 shall be evidenced by Option Documents in such form as the
Committee shall from time to time approve, which Option Documents shall comply
with and be subject to the following terms and conditions and such other terms
and conditions as the Committee shall from time to time require which are not
inconsistent with the terms of the Plan.
(a) Timing of Grants; Number of Shares Subject to Options; Exercisability
of Options; Option Price. Each Non-employee Director on the effective date of
the Plan shall be granted, on May 19, 1993 (the date of the first closing of the
initial public offering of the Common Stock)(the "IPO Closing Date"), an Option
to purchase three thousand (3,000) Shares. Each Non-employee Director first
elected to the Board of Directors after the IPO Closing Date but on or before
July 24, 1997 (the "Increase Date") shall be granted an Option to purchase three
thousand (3,000) Shares on the date he or she becomes a director. Each
Non-employee Director first elected to the Board of Directors after the Increase
Date shall be granted an Option to purchase six thousand (6,000) Shares on the
date he or she becomes a director. (Any grant of Options to Non-employee
Directors pursuant to the preceding three sentences is hereinafter referred to
as the "Initial Grant"). Each Non-employee Director on the Increase Date shall
be granted an Option to purchase an additional three thousand (3,000) Shares (an
"Equalization Grant"). Subject to Section 10, each Option granted in the Initial
Grant and in the Equalization Grant shall be a Non-qualified Stock Option
becoming exercisable over a period of three (3) years, so that the Optionee
shall have the right to exercise the Option with respect to one third (1/3) of
the Shares covered thereby commencing on the first anniversary of the date of
grant with respect to the Initial Grant, and in 1997 on the anniversary of the
Initial Grant with respect to the Equalization Grant, and the right to exercise
the Option with respect to an additional one third (1/3) of such Shares
commencing on each of the following two anniversaries of the applicable first
vesting date. Each Non-employee Director who did not receive an Equalization
Grant shall be granted, after receipt of such person's Initial Grant, an Option
to purchase an additional two thousand (2,000) Shares on each anniversary of the
Initial Grant. Each person serving as a Non-employee Director who received an
Equalization Grant, shall be granted, commencing in 1998, an Option to purchase
an additional two thousand (2,000) Shares on each anniversary of the Initial
Grant. (The grants of Options to Non-employee Directors pursuant to the
preceding two sentences are hereinafter referred to as "Subsequent Annual
Grants"). Subject to Section 10, each Option granted in a Subsequent Annual
Grant shall be a Non-qualified Stock Option becoming exercisable with respect to
all such Shares commencing on the third anniversary of the date on which the
Subsequent Annual Grant is made. The Option Price of any Option granted under
this Section 9(a) shall be equal to the Fair Market Value of the Shares on the
date the Option is granted; provided, however, that if such date as determined
under this Section 9(a) would fall on a Saturday, Sunday or any other day on
which banks in the State of New York are required or authorized to close (a
"Non-Business Day"), the Option Price of any such Option shall be equal to the
Fair Market Value of the Shares on the first date succeeding such Non-Business
Day which is not a Non-Business Day."
(b) Termination of Options Granted Pursuant to Section 9.
All Options granted pursuant to this Section 9 shall be exercisable until
the first to occur of the following:
(i) Expiration of ten (10) years from the date of grant,
(ii) Expiration of three months from the date the Optionee's service
as a member of the Board terminates for any reason other than Disability or
death; or
(iii) Expiration of one year from the date the Optionee's service as a
member of the Board terminates due to the Optionee's Disability or death.
(c) Applicability of Provisions of Section 8 to Options Granted Pursuant to
Section 9. The following provisions of Section 8 shall be applicable to Options
granted pursuant to this Section 9: Subsection 8(a) (provided that all Options
granted pursuant to this Section 9 shall be Non-qualified Stock Options); the
last sentence of Subsection 8(b); Subsection 8(c); Subsection 8(d); subsection
8(f); and Subsection 8(i).
10. Change in Control. In the event of a Change in Control, the Committee
may take whatever action it deems necessary or desirable with respect to the
Options outstanding, including, without limitation, accelerating the expiration
or termination date in the respective Option Documents for Options to a date no
earlier than thirty (30) days after notice of such acceleration is given to the
Optionees.
A "Change of Control" shall be deemed to have occurred upon the earliest to
occur of the following events: (i) the date the stockholders of the Company (or
the Board of Directors, if stockholder action is not required) approve a plan or
other arrangement pursuant to which the Company will be dissolved or liquidated,
or (ii) the date the stockholders of the Company (or the Board of Directors, if
stockholder action is not required) approve a definitive agreement to sell or
otherwise dispose of substantially all of the assets of the Company, or (iii)
the date the stockholders of the Company (or the Board of Directors, if
stockholder action is not required) and the stockholders of the other
constituent corporation (or its board of directors if stockholder action is not
required) have approved a definitive agreement to merge or consolidate the
Company with or into such other corporation, other than, in either case, a
merger or consolidation of the Company in which holders of shares of the
Company's Common Stock immediately prior to the merger or consolidation will
hold at least a majority of the ownership of common stock of the surviving
corporation (and, if one class of common stock is not the only class of voting
securities entitled to vote on the election of directors of the surviving
corporation, a majority of the voting power of the surviving corporation's
voting securities) immediately after the merger or consolidation, which common
stock (and if applicable voting securities) is to be held in the same proportion
as such holders' ownership of Common Stock of the Company immediately before the
merger or consolidation, or (iv) the date any entity, person or group within the
meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act
of 1934, as amended (other than (A) the Company or any of its subsidiaries or
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any of its subsidiaries, or (B) any person who, on the date the Plan
is effective, shall have been the beneficial owner of or have voting control
over shares of Common Stock of the Company, possessing more than ten percent
(10%) of the aggregate voting power of the Company's Common Stock) shall have
become the beneficial owner of, or shall have obtained voting control over, more
than ten percent (10%) of the outstanding shares of the Company's Common Stock,
or (v) the first day after the date this Plan is effective when directors are
elected such that a majority of the Board of Directors shall have been members
of the Board of Directors for less than two (2) years, unless the nomination for
election of each new director who was not a director at the beginning of such
two (2) year period was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period.
11. Adjustments on Changes in Capitalization. The aggregate number of
Shares and class of shares as to which Options may be granted hereunder and to
any eligible individual hereunder, the number and class or classes of shares
covered by each outstanding Option and the Option Price thereof shall be
appropriately adjusted in the event of a stock dividend, stock split,
recapitalization or other change in the number or class of issued and
outstanding equity securities of the Company resulting from a subdivision or
consolidation of the Common Stock and/or, if appropriate, other outstanding
equity securities or a recapitalization or other capital adjustment (not
including the issuance of Common Stock on the conversion of other securities of
the Company which are convertible into Common Stock) affecting the Common Stock
which is effected without receipt of consideration by the Company. The Committee
shall have authority to determine the adjustments to be made under this Section,
and any such determination by the Committee shall be final, binding and
conclusive; provided, however, that no adjustment shall be made which will cause
an ISO to lose its status as such without the consent of the Optionee, except
for adjustments made pursuant to Section 10 hereof. Notwithstanding the
foregoing, the number of shares set forth in Section 6 already reflects a
one-for-three reverse stock split (the "Reverse Split") expected to be approved
by stockholders of the Company at the Annual Meeting of Stockholders on April 2,
1993 or any adjournment or postponement thereof; no adjustments will be made
pursuant to this Section 11 as a result of the Reverse Split.
12. Amendment of the Plan. The Board of Directors of the Company may
amend the Plan Pfrom time to time in such manner as it may deem advisable.
Nevertheless, the Board of Directors of the Company may not change the class of
individuals eligible to receive an ISO or increase the maximum number of Shares
as to which Options may be granted without obtaining stockholder approval,
within twelve months before or after such action. No amendment to the Plan shall
adversely affect any outstanding Option, however, without the consent of the
Optionee that holds such Option.
13. No Commitment to Retain. The grant of an Option pursuant to the Plan
shall not be construed to imply or to constitute evidence of any agreement,
express or implied, on the part of the Company or any Affiliate to retain the
Optionee in the employ of the Company or an Affiliate and/or as a member of the
Company's Board of Directors or in any other capacity.
14. Withholding of Taxes. Whenever the Company proposes or is required to
deliver or transfer Shares in connection with the exercise of an Option, the
Company shall have the right to (a) require the recipient to remit or otherwise
make available to the Company an amount sufficient to satisfy any federal, state
and/or local withholding tax requirements prior to the delivery or transfer of
any certificate or certificates for such Shares or (b) take whatever other
action it deems necessary to protect its interests with respect to tax
liabilities. The Company's obligation to make any delivery or transfer of Shares
shall be conditioned on the Optionee's compliance, to the Company's
satisfaction, with any withholding requirement.
15. Interpretation. The Plan is intended to enable transactions under the
Plan with respect to directors and officers (within the meaning of Section 16(a)
under the Securities Exchange Act of 1934, as amended) to satisfy the conditions
of Rule 16b-3; to the extent that any provision of the Plan, or any provisions
of any Option granted pursuant to the Plan, would cause a conflict with such
conditions or would cause the administration of the Plan as provided in Section
3 to fail to satisfy the conditions of Rule 16b-3, such provision shall be
deemed null and void to the extent permitted by applicable law.
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<NAME> QUAD SYSTEMS CORPORATION
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