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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 28, 1996
OR
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______________ to
_______________.
0-17541
(Commission File No.)
PRESSTEK, INC.
(Exact name of registrant as specified in its charter)
Delaware 02-0415170
(State or other juris- (I.R.S. Employer
diction of incorporation or Identification No.)
organization)
8-9 Commercial Street, Hudson, New Hampshire 03051
(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (603) 595-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of February 28, 1997, was approximately
$640,000,000.
As of February 28, 1997, there were 15,393,996 shares of the registrant's Common
Stock outstanding.
Documents Incorporated by Reference: None
PART I
Item 1. Business.
Set forth below is a glossary of certain terms used in this report:
A2(4-up) a printing term referring to a standard paper size capable
of printing four 8.5" x 11" pages on a sheet of paper
A3(2-up) a printing term referring to a standard paper size capable
of printing two 8.5" x 11" pages on a sheet of paper
Ablation a controlled detachment/vaporization caused by a thermal
event. This process is used during the imaging of the
Company's PEARL(R) consumables
Bitmap a rasterized computer file containing picture elements that
define whether to image or not, a map of laser sites
Color a printing industry classification denoting prepress
service bureaus functions
Commercial a printing industry classification denoting print providers
printers offering general printing services
Computer-to-plate a general term referring to the exposure of
(direct-to-plate) lithographic plate material from a digital database,
off-press
Dampening solution traditional lithographic printing chemical bath
used to coat the non-image areas of a printing plate
Direct Imaging (DI) Digital Imaging systems that allow image carriers
technologies (film and plates) to be imaged from a digital
database, on-and off-press
Dots per inch (dpi) a measurement of the resolving power or the
addressability of an imaging device
-2-
Effluents waste materials that flow from photographic processing
equipment, which are often toxic in nature
Electrophotography an imaging and reproduction method similar to xerography in
which a corona charges and attracts a toner-based material
to image areas and then transfers the image to paper
GTO-DI the first generation of Direct Imaging, waterless presses
available in two, four and five printing station
configuration, a joint effort between Heidelberg and
Presstek
Heidelberg Heidelberger Druckmaschinen AG, the world's largest printing
press manufacturer, headquartered in Heidelberg, Germany
Imagesetter a graphic arts term referring to digital exposure of an
image carrier, most often used when referring to film
Imposition a graphic arts term referring to the positioning of pages on
a press sheet to ensure the correct order after the printed
sheet is folded and trimmed
Infrared lying outside of the visible spectrum at its red-end longer
wavelengths; used in the Company's thermal imaging process
Ink density a numerical reading from a densitometer (light measuring
tool) used to determine the proper ink coating on
a printed sheet
Large format a printing term referring to printing layouts that
include four or more pages on a single sheet of paper
Lithographic printing from a single plane surface under the principle
that image area carries ink and the nonimage area does not,
and that ink and water do not mix
-3-
On-demand a manufacturing philosophy when applied to printing provides
faster service, shorter run lengths and less inventory
PEARL(R) the name associated with Presstek's current laser imaging
technologies and related products and consumables
PEARL Imaging the Presstek components required to convert a conventional
systems printing press into a Direct Imaging press, including laser
diode arrays, computers, electronics
PEARLsetter(TM) the Company's product line of computer-to-plate, off-press
plate making equipment
Photosensitive silver halide emulsions exposed by a reaction to light
requiring a subsequent chemical development and
stabilization process
Platemaking the process of applying a printable image to a printing
plate
PostScript(R) a page description programming language developed by Adobe
Systems, Inc., a defacto standard in the printing industry
Prepress graphic arts operations and methodologies that occur prior
to the printing process; typically these include
photography, scanning, image assembly, exposure of image
carriers (film and/or plate), proofing
Quickmaster 46-4; the second generation of Direct Imaging, waterless
Quickmaster DI presses, highly automated with roll-fed PEARL plate
material, a joint effort between Heidelberg and Presstek
Semiconductor a high-powered, infrared imaging technology employed in
laser diode the PEARL imaging system
Separations the division of hues into discrete images with the standard
method being four-color process separations of cyan,
magenta, yellow and black
-4-
Short-run a graphic arts classification used to denote an
markets/printing emerging trend for lower print quantities
Spark Discharge the Company's first Direct Imaging technology in
Technology which a proprietary printing plate was
imaged by means of discharging an electrical spark
Subtractive primary Yellow, magenta and cyan; the hues used for
colors process color printing inks
Thermally-based a method of digitally exposing a material via the heat
generated from a laser beam
Vapor disposition a technology to accurately, uniformly coat substrates
process in a controlled environment
Waterless a lithographic printing method that uses dry offset printing
plates and inks thus it does not require a dampening system
General
Presstek, Inc. (the "Company" or "Presstek"), which was incorporated in the
State of Delaware in September 1987, continues to further develop and market its
proprietary, digital imaging technologies and system architectures, and
non-photographic consumables (the "Direct Imaging" technologies) primarily to
the graphic arts and related imaging industries. The Company's current Direct
Imaging technologies, referred to as PEARL, permit the direct digital imaging of
the Company's printing plates and films which eliminates the need for
photosensitive materials and the hazardous waste by-products and effluents
usually associated with these processes. The Company's system accepts
PostScript(R)(1) compatible files from digitally based electronic prepress
systems and images the color separated pages directly onto the Company's
proprietary thermal imaging based consumables.
PEARL is a high resolution, high powered semiconductor laser diode imaging
technology and is the result of significant past development efforts by the
Company. The Company believes that PEARL represents a technological breakthrough
for the worldwide printing and publishing industry and has several applications
for it and its consumables in the graphic arts industry: a printing press (the
"Direct Imaging Printing Press") and a stand-alone computer-to-plate imaging
device (the "PEARLsetter"), both of which incorporate the Company's PEARL Direct
Imaging technologies. PEARL uses its precision, high powered semiconductor laser
diode to ablate, or remove the materials from the surface of the Company's
plates to produce precisely positioned
- ----------
(1) PostScript is a registered trademark of Adobe Systems, Inc.
-5-
and formed laser dots at resolutions up to 2540 dots per inch. When these laser
dots are combined by the Company's proprietary system (software, firmware and
hardware) they form printers' dots from which high quality, lithographic color
print images are printed. The graphic arts industry recognizes that the
automation and simplification of the color printing process resulting from the
use of these types of computer direct-to-plate and direct-to-press devices will
provide significant reductions in the time and cost of multi-color lithographic
printing. Therefore, the Company believes the graphic arts industry will move
with ever increasing speed towards computer-to-plate imaging devices and
computer-to-press printing systems. The Company also believes that its PEARL
laser ablation imaging technology's ability to produce high quality printed
materials, with freedom from the environmental concerns found in traditional
chemically based imaging methods, represents a breakthrough in the expanding
market for computer-to-plate/press products. As a result, the Company believes
its past investments in its proprietary PEARL Direct Imaging technologies and
its years of experience in developing digital imaging systems (software,
firmware and hardware) places the Company in a significant position in the
markets it has chosen to serve.
Strategic Alliances/Proposed New Products
The Company continues to pursue a strategy based on alliances and
relationships with major corporations in the graphic arts and other industries
encompassing licensing, product development and commercialization,
manufacturing, marketing, distribution, sales and services. The Company and
Heidelberger Druckmaschinen AG ("Heidelberg"), the world's largest manufacturer
of printing presses and printing equipment, based in Germany, jointly developed
the first Heidelberg Direct Imaging Printing Press (the "GTO-DI") and its
successor, the four color, fully automated lithographic press, the Quickmaster
DI 46-4 ("Quickmaster DI") to take full advantage of the Company's improved
implementation of its Direct Imaging technologies. The Quickmaster DI press,
which was introduced by Heidelberg in May 1995 to replace the GTO-DI (which is
no longer being produced), has a smaller "footprint" than existing four color
presses and employs the Company's automatic plate changing cylinder which
eliminates the need for manually changing plates between jobs. This press also
contains other features which will result in reduced costs per printed page and
contains or employs nine of the Company's patented technologies, some of which
have been licensed to Heidelberg. The Company believes that the Quickmaster-DI
will be able to compete on jobs requiring as few as 200 sheets per job, while
also being able to produce runs in excess of 20,000 sheets at a cost that cannot
be equalled by any existing "on demand" four color printing system. Both
Heidelberg and the Company believe the Quickmaster-DI will greatly expand the
use of the Company's Direct Imaging technologies and allow a broad cross section
of the graphic arts market to experience the productivity and lower cost
benefits of direct-to-press digital, high quality lithographic printing. The
Company also has an agreement with the Adast-Adamov Company, a manufacturer of
offset lithographic presses. This agreement has resulted in the use of Company's
Direct Imaging technologies on a larger format (19" x 26") multicolor press. The
Company believes
-6-
the availability of a larger format Direct Imaging press will provide a
greater number of market applications and will strengthen the Company's position
in the direct-to-press market. The Company is currently pursuing additional
strategic relationships and/or arrangements focused on the use of the Company's
Direct Imaging technologies for a broader array of applications. In addition,
Nilpeter A/S of Denmark has announced the introduction of an offset label press
that utilizes the Company's technology. Moreover, other systems are under
development which will use the Company's imaging and plate technology in a
broader range of printing applications.
Background
The Company believes thermally based computer-to-press imaging devices and
computer-to-plate offline imaging systems, free of the environmental concerns
that are found in photo chemically based imaging systems, will eventually become
the preferred method for providing printing plates in the graphic arts industry.
The most current and widely used method for producing color printing plates for
the full-color printing process employs computers, which output PostScript files
to a film imaging device, known as a film recorder, or imagesetter. The film
recorder is used to expose four pieces of film, each representing a
corresponding color separation for yellow, cyan, magenta and black, the
subtractive primary colors used in combination to produce process color
printing. Each of these unprocessed films must then be developed utilizing
photographic chemical developing systems which generate waste effluents that are
difficult to dispose of in an environmentally sound manner. The four processed
films are then delivered to the printer for imposition, platemaking, and
printing. Imposition is a costly, time and labor intensive process preceding
platemaking, in which all of the image elements required to maximize the
available imaging area of the plate are manually assembled to make the most
efficient use of the plate material. Once the components of the press sheet are
imposed for each of the four separations, each is then exposed onto separate
plates, typically using ultra-violet light sources and vacuum frames to hold the
imposed image tightly against the plate material during its exposure cycle. To
produce the final printing plates, the exposed plates must then go through a
chemical development process similar to that which is used to develop the
separation films. This process also produces chemical wastes which must be
disposed of in an environmentally sound manner at an ever increasing cost to the
printer. The printer then brings the plates to the press, mounts the plates on
the press, registers or precisely aligns all four plates one to another, adjusts
the ink density and settings, and then begins the actual printing process on the
press. The complex nature of color printing utilizing a conventional press is
such that the quality of the printed materials are very dependent on the press
operators performing these highly skilled functions.
-7-
In response to perceived market opportunities for more time and
cost-effective color printing (an opportunity that would encompass taking better
advantage of the growing use of PostScript based digital prepress systems; one
that would be less reliant on operator skills and that would be free from
chemical processes and environmental concerns), the Company undertook
development of its proprietary Direct Imaging technologies.
The original implementation of the Company's Direct Imaging technologies
employed a complex system of software and hardware. This first generation
process imaged or etched the Company's proprietary printing plates by means of
discharging an electrical spark (the "spark discharge" technology). In 1992, the
Company began shipping to Heidelberg spark discharge based Direct Imaging
systems for integration into GTO presses.
In response to the market's demand for higher quality printed materials,
even in the short-run markets, the Company developed its high resolution
semiconductor laser diode based imaging technology, PEARL, which it introduced
in 1993. This second generation technology is based on the same concept as the
spark discharge technology except that it employs the use of an infrared
semiconductor laser in place of the spark discharge. This second generation
PEARL technology completely replaced the Company's prior spark discharge
technology.
The GTO-DI was reintroduced by Heidelberg with PEARL in September 1993. The
Company began shipping initial systems necessary to install the PEARL Imaging
System on the GTO-DI to Heidelberg in September 1993, with full production
commencing in February 1994. The GTO-DI has been replaced by the Quickmaster DI
which uses the Company's third generation of its Direct Imaging technologies.
The Company believes the radically different press design of the
Quickmaster-DI, in concert with the Company's third generation of Direct Imaging
technologies targeted towards the growing short run process color print market
has been well received by the print industry. The Quickmaster DI won the 1995
Intertech New Technology Award and in February 1996 two Seybold Editors' Awards.
One award was made to the Company for it PEARL Direct Imaging technologies and
one to Heidelberg for the Quickmaster DI. The Company also received the National
Association of Printers and Lithographers Award for the contribution its Direct
Imaging technologies have made to the printing industry.
The Company's PEARL Direct Imaging Technology System and Consumables
The Company's PEARL Direct Imaging technology is part of the PEARL imaging
system for producing imaged color printing plates and nonphotosensitive films in
a simple one-step process (the "PEARL Imaging System"). The primary elements of
the PEARL Imaging System are:
-8-
(i) DI Server Computer - which accepts, stores and allows for viewing
the bitmapped files of the digital page and then transmits that data to
implement the imaging function. The DI Server consists of either a
Pentium(R)(2) or a DEC Alpha(R)(3) based computer, image capture software,
viewing software and memory.
(ii) The Imaging Computer - communicates with the DI Server to
receive, store and implement the imaging function.
(iii) Imaging heads - consist of the semi-conductor laser diodes and
drivers, lens assembly, precision carriage assembly and related systems.
(iv) Consumables - consist of wet and/or dry aluminum based printing
plates and wet and dry polyester based printing plates.
The Direct Imaging Press
The Direct Imaging Printing Press automates or eliminates most of the
intermediate processes and steps necessary for full color printing, including
many of the highly skilled functions required to prepare the press. The plates
are imaged in register directly on the press. After the plates are wiped either
automatically or manually, an operator can begin the printing process. The use
of dry offset plates in the printing process eliminates the need for a chemical
dampening solution and its required water balancing. Proper ink density is
automatically pre-set by the computer. The Company and its licensees typically
jointly develop and/or work together on the development of the press. The
Company, as more fully described below, supplies hardware components and
subassemblies and software necessary for installation of PEARL Imaging systems
into two, four and five color presses. The advantages and features of the Direct
Imaging presses include:
o the ability to accept and buffer the bitmapped image data of fully
composed pages, particularly those utilizing PostScript interpreters;
o imaging on-press of all two, four or five plates simultaneously;
o imaging of the plates directly on the plate cylinders, in register
(i.e., the fitting of two or more printing images in precise alignment
with each other);
o elimination of the need for plate development processes, by-products
of which cause environmental concerns;
- ----------
(2) Pentium is a registered trademark of Intel Corp.
(3) Alpha is a registered trademark of Digital Equipment Corporation.
-9-
o the imaged plates are waterless, therefore eliminating the need of the
chemical dampening solution and its required balancing; and
o automatic pre-setting of the ink keys from the bitmap already resident
in the computer.
As a result, process color offset lithographic printing can be produced
with fewer complex steps and at a lower cost than in the case of other
conventional color printing methods. The time savings in producing four-color
work would permit a printer to perform a greater number of printing jobs per day
more cost effectively with less waste.
Further, by accepting the digital data directly from a prepress page layout
system, the user of a press equipped with the Company's Direct Imaging
technology benefits from the efficiency and cost advantages of electronic page
make up and, by extending the use of digital data to the printing process,
permits a closure of the digital loop in the production of color printing.
The Company believes that its PEARL based Direct Imaging computer-to-press
technology with PEARL has been well received by the industry. By the end of
1996, the Company had shipped 330 of its PEARL Imaging systems for Heidelberg's
Quickmaster DI presses, 115 of which were shipped in 1995.
Presstek Consumables
The Company has and continues to develop its proprietary, thermally based
consumables that are imaged by its PEARL semiconductor laser diode imaging
technology. As part of the PEARL laser diode development process, the Company
has increased the number, types and functional characteristics of its consumable
products. These consumables currently include a polyester based dry printing
plate, an aluminum based dry printing plate, and an aluminum based wet printing
plate. There are additional consumable products in various stages of development
which may, in the future, provide new sources of consumable revenues.
The Company has developed and is currently having manufactured by Rexam
Industries Corp ("Rexam"), a custom maker of precision films based in North
Carolina, both the polyester-based and aluminum-based dry and wet offset
printing plates. The Company believes that wet offset plates imaged by its PEARL
Direct Imaging technology have applications for use on the large installed base
of existing printing presses. This population of printing presses operates with
a dampening system which requires wet offset printing plates. Although the
Company believes that it can complete the development and commercialization of
the polyester and aluminum based wet offset printing plates and other consumable
products, there can be no assurance that it can do so.
-10-
The Company, realizing that sources for the Company's requirements for
current and new PEARL consumables, plates and films, would have to be found, in
February 1996 acquired 90% of the outstanding Common Stock (the "Purchased
Shares") of Catalina Coatings, Inc. ("Catalina"), an Arizona corporation engaged
in the development, manufacture, and sale of vacuum deposition coating equipment
and the licensing and sublicensing of patent rights with respect to a vapor
deposition process to coat moving webs of materials at high speeds. The
aggregate consideration paid by the Company pursuant to the stock purchase
agreement was $8,400,000, of which $8,200,000 represented the purchase price of
the Purchased Shares and $200,000 represented consideration for the
non-competition and confidentiality covenants of two of the principal
shareholders of Catalina who sold their shares to the Company.
Catalina, which operates as a subsidiary of the Company, is developing and
manufacturing the equipment the Company believes it will require to manufacture
its PEARL thermal printing plates in a more cost effective manner than using
currently available conventional technology. In September 1996, the Company
began construction of a new 100,000 square foot consumables manufacturing
facility located on a 60 acre site in Hudson, New Hampshire, approximately four
miles from the Company's existing offices. This new building will house the
Company's first Catalina manufactured thin film vacuum coating system along with
other manufacturing equipment needed to produce all or part of the Company's
thermal plate consumables products. The Company has already installed plate
converting and finishing equipment in its recently leased 33,200 square foot
facilities located in Hudson, New Hampshire. Even if the Company commences
manufacturing of PEARL thermal printing plates, it may still need to enter into
manufacturing arrangements with third parties. The Company is currently engaged
in discussions with certain other parties relating to entering into strategic
alliances, arrangements or relationships with respect to the manufacture and/or
the distribution of the Company's PEARL consumables. There can be no assurance
that the Company will be able to enter into any arrangements for the
manufacturing of its consumables, or that such arrangements will result in
successful commercial products. Additionally, there can be no assurance that the
Company through Catalina will be able to successfully complete the development
and undertake the manufacture of the PEARL consumables.
Direct Imaging Printing Press
In January 1991, the Company entered into a master agreement (the "Master
Agreement"), a technology license agreement (the "Technology License") and a
supply agreement (the "Supply Agreement") (the foregoing agreements being
sometimes collectively referred to herein as the "Heidelberg Agreements") with
Heidelberg. These relate to the integration of the Direct Imaging technology
into various presses manufactured by Heidelberg (the "Heidelberg Presses") and
the manufacture of components for and the commercialization of such presses.
-11-
Pursuant to the Heidelberg Agreements, the Company granted Heidelberg
certain exclusive rights, for use of the Direct Imaging technology for the
Quickmaster DI format size. In consideration for such rights, Heidelberg agreed
to pay to the Company royalties on the net sales prices of various specified
types of Heidelberg Presses.
The Heidelberg Agreements and amendments further provide for the Company to
supply Direct Imaging systems to Heidelberg at specified rates. The terms of the
Heidelberg agreements are for periods ending in December 2011 in the case of
each of the Master Agreement and Technology License. The Supply Agreement which
related primarily to the GTO-DI, which is no longer manufactured, expired
December 1995. The Heidelberg Agreements also contain, among other things,
certain early termination provisions and extension provisions.
On September 3, 1992, the Company and Heidelberg signed a contract
modification agreement that details arrangements with respect to the development
of additional products planned to be introduced in the future.
On April 27, 1993, the Company and Heidelberg signed a contract
modification agreement that details the arrangements with respect to
Heidelberg's licensing of the Company's PEARL Direct Imaging technology, which
was not otherwise encompassed within the prior arrangements.
The Company also granted Heidelberg a forty-five month exclusive license
expiring in January 1997 for the manufacture and sale of the Quickmaster DI
which uses PEARL technology. After the initial forty-five month period,
Heidelberg's rights remain exclusive subject to the Company's right to terminate
such exclusivity on three months' written notice to Heidelberg. Certain other
modifications have been made to certain exclusive arrangements under the
previous agreements between Heidelberg and the Company which provide for a
non-exclusive license for the balance of the term of the original agreement.
In November 1995, the Company and Heidelberg agreed (the "November
Agreement") to certain other arrangements whereby the Company was provided with
incremental engineering revenue, certain price increases, and modifications of
the Quickmaster DI royalty billing and payment terms by Heidelberg. The Master
Agreement was also modified by the November Agreement to provide Heidelberg with
a fixed royalty rate on the Quickmaster DI. These arrangements were made as a
result of a schedule change requested by Heidelberg in November 1995 to reduce
the number of PEARL imaging systems being manufactured by the Company each month
for Heidelberg from the amount then being produced. The production schedule for
Quickmaster DI imaging systems was subsequently increased by Heidelberg in
September 1996, requiring the Company to produce three systems per day (60 per
month) commencing in April 1997. In March 1997, the production schedule was
further increased, requiring the Company to manufacture four systems per day (80
per month) commencing in September 1997, and in March 1997 the Company and
Heidelberg agreed to a fixed royalty rate for the Direct Imaging systems,
subject to Heidelberg maintaining an exclusive license on the Quickmaster DI.
-12-
The PEARL Platesetter
The PEARL Platesetter, now referred to as the PEARLsetter, is an additional
application of the Company's PEARL Direct Imaging technology and consumables.
The PEARLsetter is a computer-to-plate imaging device that can image both the
Company's wet and dry offset plates in both an A3 (2-up) and A2 (4-up) format
size.
The PEARLsetter directly accepts a PostScript file from a prepress system
and utilizing its high powered semiconductor laser diodes, produces a precisely
shaped and located laser dot. The imaged plates require no further processing,
other than wiping the ablated debris from the imaging process off the plates,
and accordingly, do not create chemical waste which must be disposed of. The
plates can then be immediately mounted and registered on the press.
The Company has entered into distribution agreements with the Pitman
Company in the United States, KNP-BT in certain European countries, Heidelberg
Australia in Australia and New Zealand, and EAC (East Asiatic Company) in
certain Asian and Scandinavian countries. The Company has also entered into
distribution agreements covering Switzerland, Israel, Germany, and Greece. These
agreements provide for the distribution of the Company's PEARLsetter product
line and its PEARL based consumables. The Company has also entered into OEM
relationships with Sakurai Machinery Company for the resale of its PEARLsetter
product under private label by this company. The Company is also currently
engaged in additional discussions with certain other parties relating to
entering into strategic alliances and OEM arrangements or relationships with
respect to the PEARLsetter product line and its PEARL based consumables. In
addition, the Company has continued independent development and
commercialization of one or more PEARLsetter products. There can be no assurance
that the Company will be able to enter into any additional arrangements with
respect to, or that any such arrangements will result in, the successful
commercialization of additional PEARLsetter products. Additionally, there can be
no assurance that the Company will have the resources or otherwise be able to
successfully complete development and undertake the manufacture of, or
successfully commercialize, additional PEARLsetter products.
Manufacturing, Marketing Component Procurement
The Company engages in certain manufacturing, as described below, and also
is engaged in the distribution and sales of PEARL based offset printing plates,
which are manufactured exclusively for the Company by third parties. In
addition, the Company engages in certain marketing activities which include
informing the industry of the Company's products and capabilities; contacting
potential strategic partners; establishing relationships with potential
resellers including both OEM partners and dealers; establishing liaisons with
companies which manufacture and/or market products which may incorporate the
Company's PEARL Direct Imaging technology, or jointly develop new applications
of the Company's intellectual property portfolio. The Company also provides
Heidelberg and its other licensees and distribution partners with marketing and
sales support.
-13-
The Company's agreements provide, among other things, for it to supply its
PEARL Imaging Systems for integration into certain printing presses. In November
1994, the Company commenced manufacturing operations in a 36,000 square foot
facility located in Hudson, New Hampshire, adjacent to its existing facility. In
June 1996, the Company leased an additional 33,200 square foot facility at 18-20
Hampshire Drive in Hudson, New Hampshire. This building now houses the Company's
consumables development group and plate converting and finishing equipment.
These additional facilities were required based on both existing and projected
development and manufacturing requirements for PEARL Imaging Systems. The
Company believes that it has the available resources and personnel with the
knowledge and experience to further increase its manufacturing capacity to
satisfy any future product demand.
The Company obtains certain components and supplies used in production of
PEARL Imaging Systems from a number of suppliers. Although the Company believes
that there are available various sources for necessary components, parts and
disposable items (including printing plates and inks) for both the Company's
manufacturing activities and to support the market for products incorporating
the Company's PEARL Direct Imaging technology, sources for certain of such items
are limited and there can be no assurance that procurement or supply
arrangements will be available on satisfactory terms; any inability to establish
satisfactory manufacturing or procurement or supply arrangements or significant
delays in establishing such arrangements could have an adverse effect on the
Company and/or cause delays in the Company's ability to deliver products
incorporating its PEARL Direct Imaging technology.
The PEARL laser diode system includes semiconductor laser diodes. Although
the Company currently uses only one source for the laser diode devices, it
believes that there will be several sources available to manufacture the laser
diodes to the Company's specification, if required, in the future. Additionally,
the Company has "in-house", limited laser diode development and manufacturing
capabilities. The Company would still require the surmounted "diode chips," a
component of the laser diode, to be supplied by a third party. The Company
believes that several sources are available to supply this component, if
required. The Company's laser diode manufacturing capabilities currently
function principally for research and development, quality assurance and
manufacturing engineering. However, the Company believes that, if required, it
could expand these facilities in the future as a primary or secondary source.
The Company has developed and continues to develop proprietary consumables
that are imaged by its PEARL semiconductor laser diode imaging technology as
well as other thermally based direct-to plate systems. As part of the PEARL
laser diode development process the Company has increased the number, types and
functional
-14-
characteristics of the consumable products it has under development or which are
currently being manufactured. These consumables currently include a polyester
based dry printing plate, an aluminum based dry printing plate, and an aluminum
based wet printing plate. There are additional consumable products in various
stages of development which may, in the future, provide new sources of
consumable revenues. The Company's PEARL offset printing plates, both aluminum
and polyester based are being supplied by Rexam. The Company, realizing that
sources for the Company's requirements for current and new PEARL consumables,
plates and films, would have to be found, acquired Catalina in February 1996.
The Company anticipates that Catalina, which operates as a subsidiary of the
Company, will successfully complete the development and manufacture of the
equipment the Company believes it will require to manufacture its Pearl thermal
printing plates and films (which are currently manufactured by third parties) in
a more cost effective manner than using currently available conventional
technology. However, even if the Company commences manufacture of PEARL thermal
printing plates and consummables, additional sources to satisfy all of the
Company's requirements for current and new consumables, printing plates and
films, may have to be found. Therefore, the Company is actively pursuing these
additional sources at this time. However, there can be no assurance that the
Company will be able to enter into any arrangements for the volume manufacturing
of its consumables, or that any such arrangement will result in successful
commercial products. Additionally, there can be no assurance that the Company
through Catalina will be able to successfully complete the development and
undertake the manufacture of the PEARL consumables.
The Company currently anticipates that the PEARLsetter will continue to be
marketed through traditional graphic arts distribution sales channels and will
be positioned as an alternative to existing imagesetter or platesetter products.
Market acceptance for any products incorporating the Company's technology
will require substantial marketing efforts and expenditure of significant sums,
either by the Company, its strategic partners or both. There can be no assurance
that any existing products will continue to achieve market acceptance or that
any new product that may be introduced will achieve market acceptance or be
commercially viable.
Development Program
During the fiscal years ended December 31, 1994, December 30, 1995, and
December 28, 1996, the Company expended $5,123,000, $6,155,000, and $8,894,000,
respectively, on engineering and product development. The Company is currently
concentrating its development efforts on refining and improving the performance
of its current and future technologies, and proprietary printing plates and
anticipates that it will continue to do so, both independently and in
conjunction with strategic partners. The Company is also engaged in continuing
development efforts with respect to its PEARLsetter product line. There can be
no assurance that the Company, in conjunction with a strategic partner or
independently, will successfully
-15-
complete development of any additional marketable products, or that technical or
other problems will not occur in connection with the Company's development
program, products or technology.
Patents and Proprietary Rights
As of February 28, 1997, the Company has been issued fifty (50) U.S.
patents, of which the Company has elected to maintain forty-one (41) in force.
The Company has also been issued six (6) Canadian patents, five (5) European
patents registered in the following nine countries (Austria, Belgium, France,
Germany, Great Britain, Italy, the Netherlands, Sweden and Switzerland), and
three (3) Great Britain patents, two (2) German patents, one (1) Japanese
patent, and five (5) Australian patents, and has received notice of allowance
for an additional fifteen (15) patents, eight (8) in the U.S., two (2) in
Australia, one (1) in Canada, and five (5) European patents. The Company intends
to register these additional European patents in one or more of the following
countries: Austria, Belgium, France, Germany, Great Britain, Italy, the
Netherlands, Switzerland and Sweden. The Company has applied for and is pursuing
its applications for twenty (20) additional U.S. patents and sixty-nine (69)
foreign patents (consisting of 25 Japan, 17 Canada, 12 Europe, 9 Australia, and
2 in each of Belgium, France, and Italy. The Company anticipates that it will
apply for additional patents and for copyrights, as deemed appropriate. Catalina
has one (1) U.S. patent issued and one (1) U.S. patent pending. Catalina also
has seventeen (17) foreign applications pending. There can be no assurance as to
the issuance of any such patents or the breadth or degree of protection which
the Company's patents or copyrights may afford the Company. There is rapid
technological development in the computer and image reproduction industries,
resulting in extensive patent filings and a rapid rate of issuance of new
patents. Although the Company believes that its technology has been
independently developed and that the products it markets and proposes to market
will not infringe the patents or violate other proprietary rights of others, it
is possible that such infringement of existing or future patents or violation of
proprietary rights may occur. In such event the Company may be required to
modify its design or obtain a license. No assurance can be given that the
Company will be able to do so in a timely manner, upon acceptable terms and
conditions, or at all. The failure to do any of the foregoing could have a
material adverse effect on the Company. Furthermore, there can be no assurance
that the Company will have the financial or other resources necessary to
successfully defend a patent infringement or proprietary rights violation
action. Moreover, the Company may be unable, for financial or other reasons, to
enforce its rights under any of its patents.
The Company also intends to rely on proprietary know-how and to employ
various methods to protect the source codes, concepts, ideas and documentation
of its proprietary software, which methods may include copyrights. However, such
methods may not afford complete protection and there can be no assurance that
others will not independently develop such know-how or obtain access to the
Company's know-how or software codes, concepts, ideas and documentation.
Furthermore, although the Company has and expects to have confidentiality
agreements with its employees and appropriate vendors, there can be no assurance
-16-
that such arrangements will adequately protect the Company's trade secrets.
Competition
The Company believes that its developed and proprietary technologies, its
alliance with Heidelberg, the world's largest printing press manufacturer, and
other press manufacturing companies; the application of its imaging technology
to a broader array of uses its relationships with graphic arts distribution
organizations and its established presence in the Direct Imaging market provide
the Company with a competitive advantage.
The Company is aware of several companies employing electrophotography as
their imaging technology. Electrophotography, sometimes referred to as
xerography, is a technology which historically has been used primarily in black
and white copiers, and more recently in color copying. Canon Inc. was the first
company to successfully employ electrophotography in a full color copier
product, the CLC 500.
Indigo N.V., a company with research and development, and manufacturing
operations in Israel, introduced their digital, sheet-fed offset color press,
the E-Print 1000 in September 1993. The E-Print 1000 utilizes an
electrophotographic imaging technology, with a liquid toner, and prints at 800
dots per inch. Xeikon, N.V. of Belgium also introduced their digital,
web-(roll)fed color printing product, the Xeikon DCP-1 in September 1993, and an
improved model, the DCP-2, in late 1996. Versions of these products which are
being marketed by Agfa Gevaert, N.V. ("Agfa") as the Chromopress, also utilize
an electrophotographic imaging technology with a dry toner and print a variable
dot density of 600 dots per inch.
Canon and Xerox Corp. are two major corporations along with other
traditional copier manufacturers which have also developed and introduced color
electrophotographic copier products that could impact the very short-run digital
color printing markets. Canon has at least two color copier products which it
claims provide improved print quality even at their resolution limitation of 400
dots per inch. They also claim faster speeds. Xerox also has color copiers which
it is currently marketing. Scitex Corp. has also introduced its Spontane
xerographic based color imaging system which uses a xerographic color copier
engine supplied by Fuji Xerox.
The Company is also aware that there is a direction in the graphic arts
industry to create stand-alone computer-to-plate imaging devices. The Company
anticipates that most of the major corporations in the graphic arts industry
have or are considering a computer-to-plate imaging device. To date, these
devices, for the most part, utilize printing plates that require a post imaging
photochemical developing step, and in some cases, also require a heating
process. This is, nonetheless, an important step in the printing industry, as it
eliminates the use of films. Potential competitors in this area would include,
among others, Creo Products, Gerber Scientific Inc., Misomex, Optronics, a
Division of Intergraph Corporation, Komori, Krause, Scitex Corporation Ltd.,
Linotype-Hell, Dainippon Screen, Agfa, Polaroid Corp. and Fuji Photo Film
-17-
Co. Ltd. The Company's stand-alone computer-to-plate imagesetter is, in the
Company's opinion, a further technological advancement. The Company's
computer-to-plate imagesetter eliminates not only the films, but also the
post-imaging photochemical developing steps. The Company believes that some of
the graphic arts companies mentioned above are likely to be working on similar
plate imaging processes that would also eliminate the production of the
hazardous materials associated with the photochemical developing process. Others
of this group have expressed interest in (and are, in fact) using the Company's
thermally based consumable plate products in their systems.
The Company also anticipates competition from printing plate manufacturing
companies that either manufacture, or have the potential to manufacture digital
plates. Such companies include Agfa, Polychrome Corp., a Division of Dainippon
Ink & Chemicals, Inc., Toray, Howson, a Division of Dupont, Horsell/Anitec, a
Division of International Paper, Kodak, Polaroid Corp., Mitsubishi, Fuji Photo
Film Co., Ltd. and Imation Corp.
Products incorporating Direct Imaging technology can also be expected to
face competition from conventional presses and products utilizing existing
platemaking technology, as well as presses and other products utilizing new
technologies. Leading press manufacturers include Heidelberg, Komori Printing
Machinery Co., Ltd., Mitsubishi, and MAN Roland, and, in the single color and
two color press market, Ryobi Limited, Hamada and AB Dick. Companies marketing
conventional imagesetter equipment include Agfa, Linotype-Hell, ECRM, Optronics,
Crosfield and Scitex Corporation Ltd. Other companies, which may include such
major corporations as International Business Machines Corporation, Xerox
Corporation, Polaroid Corp., Canon and Kodak, are considered by the Company to
have the type of electronic and image reproduction expertise which could
encourage them to attempt to develop and market competitive products.
Most of the companies marketing competitive products or with the potential
to do so are well established, have substantially greater financial and other
resources than the Company and have established records in the development, sale
and service of products. There can be no assurance that the Company, any Company
product or any products incorporating the Company's technology will be able to
compete successfully in the future.
Backlog
As of March 27, 1997, the Company had a backlog of products under contract
aggregating approximately $56,297,000 (including royalties payable to the
Company) compared to a backlog of $16,822,000 as of February 29, 1996,
(including royalties payable to the Company). Substantially all of the backlog
of products under contract as of March 7, 1997, is expected to be shipped by the
Company in 1997.
-18-
Employees
As of February 28, 1997, the Company had one hundred eighty-three (183)
employees, seventy-seven (77) of whom are engaged primarily in engineering,
service and marketing; eighty-five (85) of whom are engaged primarily in
manufacturing, manufacturing engineering and quality control; and twenty-one
(21) of whom are engaged primarily in corporate management, administration and
finance. The Company considers its relationship with its employees to be good.
Item 2. Properties.
The Company leases approximately 24,000 square feet of space for its
research and development facilities at 8 Commercial Street, Hudson, New
Hampshire. The lease of these premises, which expires in March 1998, subject to
two one-year renewal options, provides for rent of $9,500 per month, adjusted
annually, plus a pro rata share of real estate taxes, utilities and certain
other expenses. The Company also leases approximately 36,000 square feet to
accommodate its manufacturing and administrative facilities at 9 Commercial
Street, Hudson, New Hampshire. The lease, as amended, specifies a base monthly
rent of $12,400, adjusted annually, plus a pro rata share of real estate taxes,
utilities, and certain other expenses. The lease expires on September 30, 2000,
subject to an option to renew for an additional three years and the Company's
right of first refusal to purchase the property.
In 1996, the Company entered into a lease for approximately 33,200 square
feet of space at 18-20 Hampshire Drive, Hudson, New Hampshire to allow for
expansion of its consumables development group and its current plate converting
and finishing equipment capabilities. The lease of these premises, which expires
in May 1999, subject to two one-year renewal options, provides for rent at the
rate of $9,683 per month, adjusted annually, plus a pro rata share of real
estate taxes, utilities, and certain other expenses.
Catalina also leases four suites totaling approximately 10,500 square feet
of space at 2555 North Coyote Drive in Tucson, Arizona which provides for rent
of $5,400 per month. The leases expire in May 1997, at which time Catalina
becomes a tenant-at-will subject to monthly renewals.
In June 1996, Catalina acquired a 13 acre parcel of land in Tucson,
Arizona. Construction of a new 60,000 square foot manufacturing facility on this
parcel began in September and is currently expected to be completed in May 1997.
This new building will house all of Catalina's operations and includes space for
future expansion.
In August 1996, the Company purchased a 60 acre site in Hudson, New
Hampshire. The first phase of construction for the Company's future facilities
commenced in September. This first phase will include construction of a 100,000
square foot consumables manufacturing operation that will house the first
Catalina
-19-
Coating system designed and developed exclusively for the manufacture of the
Company's PEARL based thermal plates. The Company believes that its existing
facilities and its facilities under construction will be adequate for its
current operations and future capacity increases.
Item 3. Legal Proceedings.
On October 15, 1996, the Company was notified that an arbitration panel of
the International Chamber of Commerce issued its Award in the arbitration
proceeding commenced against the Company by AGFA Gevaert, N.V. ("Agfa") in June
1995. The Award directs Agfa to transfer to the Company Agfa's U.S. Patent No.
5,378,580 including its underlying applications, return to the Company all
copies of confidential information that the Company provided to Agfa, and pay
the Company's legal expenses in the arbitration in the amount of $769,140. Agfa
has complied with the financial terms of the Award and has assigned to the
Company the foregoing patent and underlying applications. Agfa has also returned
to the Company the confidential documents which Agfa asserts contitutes full
compliance with its obligation to return such material as required by the Award.
The arbitrators rejected the request for affirmative relief sought by Agfa in
the arbitration.
The Company has been advised that the Securities and Exchange Commission
(the "Commission") has entered a formal order of private investigation with
respect to activities by certain unnamed persons and entities in connection with
the securities of the Company. The Company has been advised by its counsel that
the investigation includes, among other things, trading in the Company's
securities as well as the adequacy and accuracy of statements made by the
Company and others. In that connection, the Company and some of its officers,
directors and employees have received subpoenas duces tecum requesting them to
produce certain documents and testify, and have complied with those subpoenae.
The Company has not been advised by the Staff of the Commission that the Staff
intends to recommend to the Commission that it initiate a proceeding against the
Company in connection with the foregoing investigation.
As previously disclosed, seven class action lawsuits were filed against the
Company and others in either the United States District Court for the District
of New Hampshire or the Southern District of New York. By court orders, all of
such actions have been consolidated before the United States District Court,
District of New Hampshire, under the common caption Bill Berke, et al. v.
Presstek, Inc., et al. Following such consolidation, the plaintiffs jointly
filed and served a Consolidated
-20-
Amended Class Action Complaint naming as defendants (i) the Company; (ii) Robert
Howard, Lawrence Howard, Bert DePamphilis and Harold N. Sparks, who are
directors of the Company, Richard A. Williams, and Robert E. Verrando, who are
officers and directors of the Company, and Frank G. Pensavecchia and Glenn J.
DiBenedetto who are officers of the Company (sometimes hereinafter collectively
referred to as the "Officer and Director Defendants"); (iii) Cabot Heritage
Corp., Cabot Market Letter, Carlton G. Lutts, Timothy Lutts, Robert Lutts and
Cabot Money Management (sometimes hereinafter collectively referred to as the
"Cabot Defendants");(iv) Donald Chapman, Everen Securities, Inc., Mack Walker,
John T. Oxley, John C. Oxley and Thomas E. Oxley as co-executors of the estate
of John T. Oxley ("Oxley"), the Oxley Estate and the Oxley Foundation (sometimes
hereinafter collectively referred to as the "Individual Investor and Broker
Defendants"); and (v) BDO Seidman, LLP ("Seidman"), the Company's independent
auditors. The plaintiffs allege that the Company and the Officer and Director
Defendants, the Cabot Defendants, the Individual Investor and Broker Defendants
and Seidman violated Section 10(b) ("Sect. 10(b)") of the Securities Exchange
Act of 1934, (the "Exchange Act") and Rule 10b-5 ("Rule 10b-5") promulgated
thereunder, (ii) the Officer and Director Defendants, Timothy Lutts, Carlton
Lutts, Robert Lutts, Everen Securities and Oxley violated Section 20(a) ("Sect.
20(a)") of the Exchange Act, (iii) the Company, the Officer and Director
Defendants, the Cabot Defendants and Seidman committed common law negligent
misrepresentation, (iv) all defendants committed common law fraud and violated
the New Hampshire Blue Sky Laws. The alleged basis for the action against the
Company and/or the Officer and Director Defendants includes, among other things,
the Company's allegedly issuing false and misleading reports or failure to
disclose material facts including a misstatement of earnings in the Company's
financial statements for the years ending December 31, 1994, and December 30,
1995, and for the first quarter ending March 30, 1996, as a result of the
allegedly improper application of certain accounting principles relating to the
tax benefits received upon exercise of certain stock options previously granted
by the Company, the alleged failure to disclose to the public certain alleged
adverse information concerning the Company's patents and its proprietary
technology as well as patent and confidentiality issues involved in the
Company's arbitration with Agfa, the alleged failure to fully disclose the
nature and extent of the investigation into trading in the securities of the
Company being conducted by the Commission (the "SEC Investigation"), and alleged
material misstatements of the Company's backlog of orders from, supply contracts
with, and orders received by its principal customer. The Officer and Director
Defendants are alleged to have sold the Company's common stock at artificially
increased prices after allegedly causing an artificial inflation in the price of
the Company's common stock and helping maintain such increase while they were in
possession of material non-public information concerning the Company. The basis
for the plaintiffs' allegations against the Cabot Defendants includes, among
other things, the allegation that the Cabot Defendants were in possession of
material nonpublic information concerning the Company, that certain of the Cabot
Defendants issued false reports about the Company and its prospects in order to
artificially inflate the market price of the Company's common stock to benefit
themselves financially, while, at the same time, other Cabot Defendants were
privately
-21-
recommending to clients to sell stock of the Company, that certain of the Cabot
Defendants failed to timely file required disclosure documents with the
Commission regarding their ownership of the Company's common stock, and that the
Cabot Defendants together with the Individual Investor and Broker Defendants
engaged in an illegal plan and scheme to manipulate and artificially inflate the
price of Presstek common stock. The Investor and Broker Defendants are also
alleged to have manipulated the price of the Company's common stock by, among
other things, withdrawing common stock from availability to short sellers such
that the short sellers would be caught in a "short squeeze". The basis for
plaintiffs' allegations against Seidman is, among other things, the allegation
that Seidman gave false and misleading advice to the Company regarding the
application of certain accounting principles relating to the tax benefits
received upon exercise of certain stock options previously granted by the
Company. The plaintiffs seek unspecified compensatory and punitive damages,
attorney and expert fees and other costs and expenses incurred by the plaintiffs
in connection with the action.
On July 16, 1996, Richard Strauss commenced a derivative suit on behalf of
the Company in the Court of Chancery of the State of Delaware, New Castle
County, against Robert Howard, Lawrence Howard, Richard Williams, Robert
Verrando, Bert DePamphilis and Harold Sparks. The plaintiff alleges that the
defendants breached the fiduciary duties they each owed to the Company and its
other shareholders and wasted corporate assets by making false and misleading
statements of fact or concealing material facts concerning the viability of the
Company's "key" patent and its proprietary interest in its PEARL technology, its
failure to properly disclose the scope of the SEC Investigation, and its
misstatement of its financial results for the first quarter of 1996, and that
they used this information for their personal use by selling common stock of the
Company at artificially inflated prices. The plaintiff also alleges that these
actions by the defendants resulted in breaches of Sect. 10(b) and Rule 10b-5
which resulted in other lawsuits being commenced against the Company which will
require the Company to expend resources to defend. The plaintiff seeks to
recover against the defendants, on behalf of the Company, unspecified damages
allegedly sustained by the Company as a results of the defendants' alleged
breaches of fiduciary duty, a return to the Company of all salaries and the
value of other remuneration paid to the defendants by the Company during the
time they were in breach of their fiduciary duties, and accounting of and/or
constructive trust on the proceeds of defendants' trading activities in the
Company's common stock and recovery of costs and disbursements of the action.
On March 14, 1997, James P. Cassidy commenced a derivative suit on behalf
of the Company in the United States District Court for the District of New
Hampshire, against Robert Howard, Lawrence Howard, Richard Williams, Robert
Verrando, Bert DePamphilis, Harold Sparks and Seidman. The plaintiff alleges
that the individual defendants breached the fiduciary duties they each owed to
the Company and its other shareholders and wasted corporate assets by making
false and misleading statements of fact or concealing material facts concerning
the scope and viability of the Company's "key" patents and its proprietary
interest in PEARL(R) technology, causing the Company to issue false and
misleading reports or failure to disclose material facts including a
misstatement of earnings in the Company's financial statements for the year
ending December 30, 1995, and for the first quarter ending March 30,1996 as a
result of the allegedly improper application of certain accounting principles
relating to the tax benefits received upon exercise of certain stock options
previously granted by the Company, and that they sold securities of the Company
while they were in possession of material non-public information concerning the
Company. The plaintiff also alleges that these actions by the individual
defendants constituted violations of Section 10(b) and Rule 10b-5 which resulted
in other lawsuits being commenced against the Company to which will require the
Company to expend resources to defend, and also constituted gross negligence and
branches of these defendants' contractual obligations to the Company. The
plaintiff also alleges that Seidman negligently permitted the Company to issue
financial statements for 1995 and the first quarter of 1996 that were prepared
in violation of recognized accounting procedures. The plaintiff seeks to recover
against the defendants, on behalf of the Company, unspecified damages allegedly
sustained by the Company as a result of the defendants' actions as alleged, and
recovery of costs, disbursements, and fees of attorneys and experts by the
plaintiff.
The Company intends to vigorously defend all of the foregoing actions.
However, the outcome of any litigation is subject to uncertainty and a
successful claim against the Company, in any of the foregoing actions, could
have a material adverse effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
-22-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock has traded in the over-the-counter market on the
NASDAQ National Market System under the symbol PRST since July 18, 1990, and,
prior thereto, from May 11, 1990, to July 17, 1990, traded on the NASDAQ System.
Prior thereto, from the Company's initial public offering until May 11, 1990,
the principal redemption date of the Warrants, the Company's Units, Common Stock
and Warrants were traded on the NASDAQ System. The following table sets forth,
for the periods indicated, the high and low sales prices of the Company's Common
Stock as reported by NASDAQ and retroactively adjusted for the Company's five
for four stock split effected in the form a 25% stock dividend paid in September
1994 and the Company's two for one stock split effected in the form of a 100%
stock divided paid in May 1995.
Year Ended High Low
December 30, 1995 ---- ----
- -----------------
First Quarter $ 37 1/8 $21 1/2
Second Quarter 62 1/2 23 1/2
Third Quarter 63 49 1/2
Fourth Quarter 100 38 1/2
Year Ended
December 28, 1996
- -----------------
First Quarter $127 1/4 $76
Second Quarter 200 40
Third Quarter 75 1/2 44 3/4
Fourth Quarter 95 68 1/4
As of February 28, 1997, there were approximately 1,395 holders of record
of the Company's Common Stock.
Dividend Policy
To date, the Company has not paid any cash dividends on its Common Stock.
The payment of cash dividends, if any, in the future is within the discretion of
the Company's Board of Directors and will depend upon the Company's earnings,
its capital requirements and financial condition and other relevant factors. The
Board of Directors does not intend to declare any cash dividends in the
foreseeable future, but
-23-
instead intends to retain all earnings, if any, for use in the Company's
business operations.
-24-
Item 6. Selected Financial Data.
The following selected financial data of the Company has been derived from
the financial statements of the Company appearing elsewhere herein (except for
the statement of operations data for the years ended December 31, 1992, and
1993, and the balance sheet data at December 31, 1992, 1993, and 1994 which is
not included in such financial statements). All references to average number of
shares outstanding and per share data have been restated retroactively to
reflect the 1994 five-for-four and the 1995 two-for-one stock splits effected in
the form of stock dividends. The 1996 data includes the accounts of Catalina
Coatings, Inc., which was acquired as a subsidiary of the Company during 1996.
See Note 3 of Notes to Financial Statements.
Year Ended
------------------------------------------------------------------------------------
Statements of DEC 31 DEC 31 DEC 31 DEC 30 DEC 28
Income: 1992 1993 1994 1995 1996
---- ----- ----- ----- ----
Revenues $ 12,558,434 $ 11,682,154 $ 16,517,858 $ 27,611,456 $ 48,627,569
------------ ------------ ------------ ------------ ------------
Costs and Expenses:
Costs of products sold 1,762,688 754,700 6,944,268 14,923,968 21,825,697
Engineering and product
development 4,695,370 5,647,562 5,123,439 6,155,421 8,894,420
Marketing 1,268,311 1,147,926 1,225,756 1,727,301 2,587,490
General and administrative 1,459,911 1,535,289 1,603,729 2,050,075 4,739,951
Nonrecurring charge -- 1,948,878 -- -- --
------------ ------------ ------------ ------------ ------------
Total costs and expense 9,186,280 11,034,355 14,897,192 24,856,765 38,047,558
------------ ------------ ------------ ------------ ------------
Other Income (Expense):
Dividend and interest income 359,361 412,025 407,977 327,213 786,095
Other 34,844 -- 166 (2,276) (244,817)
------------ ------------ ------------ ------------ ------------
Other income - net 394,205 412,025 408,143 324,937 541,278
------------ ------------ ------------ ------------ ------------
Income Before Income Taxes 3,766,359 1,059,824 2,028,809 3,079,628 11,121,289
Provision for Income Taxes (160,000) (100,000) (186,600) (220,000) (4,000,000)
------------ ------------ ------------ ------------ ------------
Net Income $ 3,606,359 $ 959,824 $ 1,842,209 $ 2,859,628 $ 7,121,289
============ ============ ============ ============ ============
Net Income per Common
and Common Equivalent Share $ .25 $ .07 $ .12 $ .18 $ .43
============ ============ ============ ============ ============
Weighted Average Number of
Common and Common
Equivalent Shares 14,216,666 14,222,574 14,865,344 15,855,076 16,581,254
============ ============ ============ ============ ============
-25-
As of
---------------------------------------------------------------------------------------
DEC 31 DEC 31 DEC 31 DEC 30 DEC 28
Balance Sheet Data: 1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Working Capital $ 7,647,449 $ 9,916,103 $ 7,675,713 $16,836,997 $29,383,351
Total Assets 13,230,844 13,802,718 18,324,030 26,668,618 68,823,096
Short-Term Debt -- -- -- -- --
Long-Term Debt -- -- -- -- --
Stockholders' Equity 10,627,896 12,145,410 16,472,920 22,726,436 57,442,522
Cash Dividends -- -- -- -- --
-26-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995:
The statements which are not historical facts contained in this Item 7 and
elsewhere in this Form 10-K are forward looking statements that involve a number
of risks and uncertainties, including, but not limited to, the risks of
uncertainty of patent protection, the impact of supply and manufacturing
constraints or difficulties, possible technological obsolescence, increased
competition, litigation, and other risks detailed in the Securities and Exchange
Commission filings of the Company.
Results of Operations
The Company was organized as a Delaware corporation on September 3, 1987,
and was a development stage company through 1991. In September 1991,
Heidelberger Druckmaschinen A.G. ("Heidelberg"), the world's largest printing
press manufacturer introduced the Company's initial spark discharge based
imaging technology, in a jointly developed product, the Heidelberg GTO-DI. In
1993, after investing substantial effort and resources, the Company completed
the development of PEARL, its high resolution semiconductor laser diode based
imaging technology for the printing and graphic arts industries. PEARL's laser
diode technology is capable of imaging various types of Presstek printing plates
either off-press or on-press which may then be used to produce high-quality,
full-color lithographic printed materials at what the Company believes is a
lower cost than competitive processes. This second generation technology
replaced the Company's spark discharge technology. The GTO-DI was reintroduced
with PEARL in September 1993. The Company's relationship with Heidelberg has
been expanded to include the development and manufacture of Direct Imaging
systems utilized in Heidelberg's four color, fully automated lithographic press,
the Quickmaster DI 46-4. This press was introduced by Heidelberg in May 1995, to
replace the GTO-DI, which is no longer manufactured. Shipments of production
systems to Heidelberg for use in the Quickmaster commenced in the second quarter
of 1995. This press incorporates certain improvements to the Company's PEARL
Direct Imaging technologies and employs the Company's automatic plate changing
cylinder which eliminates the need for manually changing plates between jobs.
The Company is now building an installed base of customers which utilizes its
proprietary consumable printing plates on PEARL equipped Heidelberg presses.
The Company is also engaged in the development of additional products and
applications that incorporate the use of its proprietary technologies and
consumables, including both computer-to-plate and computer-to-press
applications. Some of these additional activities have resulted in an agreement
with the Adast Adamov Company, a manufacturer of sheet fed offset presses. This
agreement has resulted in the
-27-
availability of the Company's PEARL Direct Imaging technology on a larger format
Omni-Adast (19" x 26") multicolor press, the first showing of which took place
at an industry trade show during the first quarter of 1996. Shipments of the
Omni Adast Direct Imaging systems began in December 1996. Also, during the first
quarter of 1996, the Company began shipments of its PEARL platesetter, now
referred to as the PEARLsetter. The PEARLsetter is a computer-to-plate imaging
device that images both the Company's wet and dry offset plates. Another
agreement entered into with Nilpeter A/S of Denmark will result in the
utilization of the PEARL technology on a high-speed rotary label printing press
called the OFFSET 3300. Presstek will supply a special PEARL-based digital
imaging system which will image Presstek's thermal plates directly on the press
plate cylinder.
On February 15, 1996, the Company acquired 90% of the outstanding Common
Stock (the "Purchased Shares") of Catalina Coatings, Inc., an Arizona
corporation ("Catalina"). Catalina is engaged in the development, manufacture
and sale of vacuum deposition coating equipment and the licensing and
sublicensing of patent rights with respect to a vapor deposition process to coat
moving webs of material at high speeds. The Company has continued the business
of Catalina which operates as a subsidiary of the Company. The Purchased Shares
were acquired from the selling shareholders pursuant to a Stock Purchase
Agreement (the "Stock Purchase Agreement") dated and effective as of January 1,
1996. The aggregate consideration paid by the Company pursuant to the Stock
Purchase Agreement was $8,400,000, of which $8,200,000 represented the purchase
price of the Purchased Shares and $200,000 represented consideration for the
non-competition and confidentiality covenants of the selling shareholders.
Simultaneous with the closing of the acquisition, the Company entered into
a Put and Call Option Agreement (the "Option Agreement") which provides the
Company with the right, at any time after February 15, 2000, to acquire the
remaining 10% of the outstanding Common Stock of Catalina for an aggregate
consideration of $2,000,000. The Option Agreement also provides the selling
shareholders and another employee of Catalina with the right, at any time after
August 15, 2000, to cause the Company to purchase the remaining shares for an
aggregate consideration of $1,000,000. The Option Agreement will terminate if
Catalina consummates an initial public offering of its securities prior to
February 15, 2000.
The Company granted the selling shareholders and the other employee of
Catalina five-year non-qualified options to purchase an aggregate of 100,000
shares of the Company's Common Stock at an exercise price of $89.50 per share,
and Catalina granted to the same individuals an option to purchase an aggregate
5% of the issued and outstanding Common Stock of Catalina in the event that a
registration statement relating to an initial public offering of Catalina Common
Stock is declared effective by February 15, 2000.
-28-
The acquisition was accounted for as a purchase and, accordingly, the
results of Catalina's operations have been included in the Company's 1996
financial statements. Significant intercompany accounts and transactions have
been eliminated.
On June 19, 1995, the Company's Board of Directors determined to change its
fiscal year from a calendar year ending December 31 to a fiscal year ending on
the Saturday closest to December 31. Accordingly, the 1996 fiscal year ended on
December 28, 1996, and the fiscal years 1995 and 1994 ended on December 30,
1995, and December 31, 1994, respectively.
Revenues
Revenues for the years ended December 28, 1996, December 30, 1995, and
December 31, 1994, of $48,628,000 ( of which $1,950,000 related to sales by
Catalina), $27,611,000, and $16,518,000, respectively, consisted of product
sales, royalties, fees and other reimbursements. Product sales for 1996
increased $13,540,000 over 1995, primarily as a result of volume increases in
sales by the Company of products to be used in the Quickmaster DI 46-4, as well
as sales of the PEARLsetter, consumable printing plates, and spare parts.
Royalties and fees from licensees increased $7,475,000 in 1996 over 1995,
primarily as a result of increases in royalties of $946,000, of which $802,000
was earned on product sales to Heidelberg, and increases of $6,529,000 in
engineering fees and other revenues which are based primarily on amounts agreed
upon between the Company and Heidelberg. Revenues for the year ended December
30, 1995, totaled $27,611,000, an increase of $11,093,000 (67%) compared to
$16,518,000 recorded for the year ended December 31, 1994. Product sales for
1995 increased $10,567,000 over 1994, principally as a result of increased sales
volume of the Company's PEARL on-press direct imaging technology used in
Heidelberg's GTO-DI and Quickmaster DI 46-4, and consumable printing plates.
Revenues from royalties and fees for the year ended December 30, 1995, increased
$527,000, compared to 1994, as a result of an increase of $3,595,000 in
royalties earned on product sales and a decrease of $3,068,000 in engineering
fees and other revenues which are based primarily on amounts annually agreed
upon between the Company and Heidelberg. During 1996, revenues generated under
the Company's agreements with Heidelberg and revenues to Heidelberg's
distributors represented 73% of the Company's total revenues. Prior to 1996, the
Company relied on Heidelberg to generate substantially all of its revenues.
Cost of Products Sold
Costs of products sold for the years ended December 28, 1996, December 30,
1995, and December 31, 1994, of approximately $21,826,000 (of which $1,416,000
related to Catalina), $14,924,000, and $6,944,000, respectively, consisted of
the material, labor, and overhead costs associated with product sales, as well
as anticipated future warranty costs. The increases in such costs, comparing
1996 with 1995, and 1995 with 1994, relate primarily to increases in related
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product sales. Improvement in the percentage relationship between costs of
products sold and product sales, comparing 1996 with 1995, results primarily
from product mix and manufacturing efficiencies.
Engineering and Product Development
Engineering and product development expenses for the year ended December
28, 1996, totaled $8,894,000 compared to $6,155,000 for the year ended December
30, 1995. The increase of $2,739,000 (45%) resulted principally from increased
expenditures for parts, supplies, labor, and contracted services related to the
Company's continued development of products incorporating its PEARL technology,
as well as other product development efforts including the Company's PEARLwet
and PEARLdry plates.
Engineering and product development expenses were $6,155,000 for the year
ended December 30, 1995, as compared to $5,123,000 for the year ended December
31, 1994. The increase in such expenses of $1,032,000 (20%) resulted principally
from increased expenditures for parts, supplies and labor related to the
Company's PEARL technology as well as other product development efforts and
matters relating to the Company's technologies.
Marketing
Marketing expenses for the year ended December 28, 1996, totaled
$2,587,000, compared to $1,727,000 for the year ended December 30, 1995, an
increase of $860,000 (50%). Marketing expenses increased $501,000 (41%)
comparing 1995 with 1994. These increases related principally to increased
expenditures for additional personnel and related costs as well as various
promotional activities.
General and Administrative
General and administrative expenses for the year ended December 28, 1996,
totaled $4,740,000 (of which $588,000 related to Catalina), compared to
$2,050,000 for the year ended December 30, 1995. The increase of $2,690,000
(131%) related primarily to the addition in 1996 of Catalina's general and
administrative expenses in addition to the amortization of goodwill and other
assets acquired in the acquisition of Catalina of $416,000 and to increases in
legal fees incurred in connection with certain legal proceedings, regulatory,
and other matters of $1,055,000 and expenditures for salaries and other costs
required to conduct various general and administrative functions of the Company.
-30-
General and administrative expenses for 1995 increased $446,000 (28%) over
the $1,604,000 recorded for the year ended December 31, 1994. The increased
expenses in 1995 related principally to increased expenditures for salaries and
other costs required to conduct various general and administrative functions for
the Company.
Dividend and Interest Income
Dividend and interest income earned on the Company's cash and investments
increased $459,000 for the year ended December 28, 1996, compared to the year
ended December 30, 1995, principally as a result of the increased funds
available for investment.
Income Taxes
The provision for income taxes for the year ended December 28, 1996,
represents substantially the charge in lieu of income taxes arising during the
periods relating to the tax benefit of stock option deductions. The tax benefit
related to such stock options has been credited to stockholders' equity.
The provision for income taxes for the years ended December 30, 1995, and
December 31, 1994, represents substantially charges in lieu of state income
taxes arising during the periods relating to the tax benefit of stock option
deductions. No charges for federal income taxes were required for 1995 or 1994
due to the availability of federal net operating loss carryforwards for
accounting purposes.
Net Income
As a result of the foregoing, the Company had net income of $7,121,000 for
the year ended December 28, 1996, compared to net income of $2,860,000 and
$1,842,000 for the years ended December 30, 1995, and December 31, 1994,
respectively. The operations of Catalina did not have a material effect on net
income for the year ended December 28, 1996.
Liquidity and Capital Resources
At December 28, 1996, the Company had working capital of $29,383,000, an
increase of $12,546,000 as compared to working capital of $16,837,000 at
December 30, 1995. This increase was primarily attributed to the proceeds from
the issuances of Common Stock of $23,759,000, and net income from operations of
$7,121,000, plus non-cash items, including the tax benefit arising from stock
option deductions of $3,876,000, offset by the Company's investment in Catalina,
net of cash acquired, of $7,456,000 and additions to property, plant and
equipment of $16,390,000.
-31-
Net cash provided by operating activities of $4,231,000 for the year ended
December 28, 1996, resulted primarily from net income from operations of
$7,121,000 plus noncash items, including the tax benefit arising from stock
option deductions of $3,876,000 and an increase in accounts payable and accrued
expenses of $5,613,000, offset by increases in accounts receivable and inventory
of $9,470,000 and $5,036,000.
Net cash used for investing activities of $28,087,000 for the year ended
December 28, 1996, resulted primarily from the Company's investment in Catalina,
net of cash acquired, of $7,456,000, purchases of marketable securities net of
maturities of $3,456,000, and additions to property, plant and equipment used in
the Company's business of $16,390,000.
Net cash provided by financing activities during the year ended December
28, 1996, totaled $23,759,000, which included the private placements of an
aggregate of 282,846 shares of the Company's Common Stock for gross proceeds of
$20,209,000, net of costs of $33,500, and the sale of Common Stock incident to
the exercise of various stock options.
The Company is currently constructing two new facilities; a 60,000 square
foot facility in Tucson, Arizona for Catalina, and a 100,000 square foot
manufacturing facility in Hudson, New Hampshire. The Hudson manufacturing
facility is expected to accommodate the Company's new plate manufacturing
operations, which will utilize a new vacuum deposition coating system currently
being developed and built for the Company by Catalina, along with the necessary
plate finishing and packaging equipment. The Company estimates that the total
capital cost of these projects, including land purchases, to be approximately
$30,000,000.
During the year ended December 28, 1996, the Company expended approximately
$2,427,000 for the land purchases and approximately $3,875,000 for the land
improvements and construction of the two new facilities. As of December 28,
1996, the Company had outstanding purchase commitments of approximately
$7,280,000 with respect to the new facilities. In addition, the Company expended
approximately $7,809,000 for the new plate manufacturing and packaging
equipment. As of December 28, 1996, the Company had outstanding purchase
commitments of approximately $8,448,000 with respect to the plate manufacturing
and packaging equipment.
On December 18, 1996, the Company entered into an agreement with Citizens
Bank New Hampshire for a revolving line of credit loan under which the Company
may borrow a maximum of $10,000,000 for working capital requirements and general
corporate purposes. Borrowings are secured by substantially all of the Company's
assets and are guaranteed by the Company's subsidiary, Catalina Coatings, Inc.
and secured by its assets. Under the terms of the revolving credit agreement,
the Company is required to meet certain financial covenants on a quarterly and
annual
-32-
basis. Interest on the line of credit is payable at the LIBOR rate plus
1.75% (7.34% at December 28, 1996). The loan agreement terminates on July 31,
1997, at which date, the entire principal and accrued interest is due and
payable. As of December 28, 1996, the Company had $10,000,000 available under
the line.
The Company is currently exploring various long term funding options with
respect to financing the cost of its new facilities and plate manufacturing
equipment. Also, in order to fund increased production of Quickmaster DI Kits
during 1997, the Company will require additional working capital if its current
line of credit loan agreement is not renewed or replaced upon its expiration in
July 1997, or if the Company is unable to obtain long-term financing for its new
facilities. These can be no assurance that the Company can obtain long term
financing, or that the current line of credit loan agreement will be renewed.
During 1996 the Company received certain payments for engineering fees and
other revenue from Heidelberg based upon a previously negotiated amount. No such
amount has yet been negotiated for 1997.
In connection with the award issued by the International Chamber of
Commerce in the arbitration between Presstek and Agfa-Gevaert N.V., Agfa
reimbursed Presstek's legal expenses in the arbitration in the amount of
$769,140. These funds were recorded as an offset to general and administrative
expenses and are not included in revenues or other income.
Effect of Inflation
Inflation has not had, and is not expected to have, a material impact upon
the Company's operations.
Net Operating Loss Carryforwards
As of December 28, 1996, the Company had net operating loss carryforwards
totaling approximately $28,550,000 resulting from compensation deductions, for
tax purposes, relative to stock option plans. To the extent net operating losses
resulting from stock option plan compensation deductions become realizable, the
benefit will be credited directly to additional paid in capital. The amount of
the net operating loss carryforwards which may be utilized in any future period
may be subject to certain limitations, based upon changes in the ownership of
the Company's Common Stock.
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Item 8. Financial Statements and Supplementary Data.
SELECTED QUARTERLY FINANCIAL DATA (unaudited)
(in thousands except per share data)
QUARTER ENDED
1995 MAR 31 JUL 1 SEP 30 DEC 30
------ ----- ------ ------
Total revenues $5,084 $5,503 $7,629 $9,395
Total costs & expenses 4,972 5,435 6,740 7,709
Net income 160 177 872 1,650
Net income per share $0.01 $0.01 $.05 $0.10
Weighted average number of common and common
equivalent shares 15,533 15,934 16,067 16,122
QUARTER ENDED
1996 MAR 30 JUN 29 SEP 28 DEC 28
------ ------ ------ ------
Total revenues $11,005 $11,880 $12,366 $13,377
Total costs & expenses 9,141 9,070 9,680 10,157
Net income 1,289 1,647 1,831 2,354
Net income per share $0.08 $0.10 $0.11 $0.14
Weighted average number of common and common
equivalent shares 16,501 16,706 16,459 16,567
The audited financial statements appear in a separate section of this report
following Part IV.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The information required by this item has previously been reported in the
Company's Current Report on Form 8-K for the event dated December 28, 1995 and
Amendment No. 1 thereto, and its Current Report on Form 8-K for the event dated
January 11, 1996.
-34-
PART III
Item 10. Directors and Executive Officers of the Registrant.
The current directors and executive officers of the Company and their ages
and positions are as follows:
Name Age Position
---- --- --------
Robert Howard 73 Chairman of the Board and Director
Dr. Lawrence Howard 44 Director
Richard A. Williams 62 Chief Executive Officer, Secretary, Vice-Chairman of the Board and Director
Robert E. Verrando 63 President, Chief Operating Officer and Director
Frank G. Pensavecchia 62 Senior Vice President - Engineering
Glenn J. DiBenedetto 47 Chief Financial Officer
Harold N. Sparks(1) 75 Director
Bert DePamphilis(1) 64 Director
John W. Dreyer 59 Director
(1) Member of the Company's Audit Committee and 1991 and 1994 Stock Option Plan
Committees.
Robert Howard, a founder of the Company, has been Chairman since June 1988
and a director since September 1987. Mr. Howard served as President and
Treasurer of the Company from October 1987 until June 1988. Mr. Howard was the
founder of Howtek, Inc. ("Howtek"), a publicly-held company engaged in the
manufacture of electronic prepress equipment, and has served as Chairman of the
Board of Howtek since August 1984. Mr Howard served as the President of Howtek
from August 1984 through November 1987 and as its Chief Executive Officer from
August 1984 to December 1993. Mr. Howard, the inventor of the first impact dot
matrix printer, was the founder of Centronics Data Computer Corporation
("Centronics"), a manufacturer
-35-
of printers. From 1969 to April 1980, he served as President and Chairman of the
Board of Directors of Centronics, and he resigned from Centronics' Board of
Directors in 1983. From April 1980 until 1983, Mr. Howard was principally
engaged in the management of his personal investments. Mr. Howard devotes only a
limited portion of his business time to consulting with management concerning
the Company's affairs. In February 1994, Mr. Howard entered into a settlement
agreement in the form of a consent decree with the Securities and Exchange
Commission (the "Commission") in connection with the Commission's investigation
covering trading in the Common Stock of Howtek by an acquaintance of Mr. Howard
and a business associate of such acquaintance. Mr. Howard, without admitting or
denying the Commission's allegations of securities laws violations, agreed to
pay a fine and to the entry of a permanent injunction against future violations
of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934.
Dr. Lawrence Howard, a founder of the Company, has been a director of the
Company since November 1987 and served as Vice Chairman of the Company from
November 1992 to February 1996. He served as Chief Executive Officer and
Treasurer of the Company from June 1988 to June 1993; served as President from
June 1988 to November 1992; and was Vice President from October 1987 to June
1988. From March 1997 to the present, Dr. Howard has been a general partner of
Hudson Ventures, LP., a limited partnership that has prepared an application to
qualify as a small business investment company. From July 1995 to March 1997,
Dr. Howard was President of Howard Capital Partners, Inc., an investment banking
firm. From July 1994 to July 1995 Dr. Howard was Senior Managing Director of
Whale Securities Co. L.P., an NASD registered broker-dealer. From October 1992
through June 1994 Dr. Howard was President and Chief Executive Officer of LH
Resources, Inc., a management and financial consulting firm. Dr. Howard is a
director of Resurgence Properties, Inc., a public company engaged in investments
in and management of real estate. Dr. Howard is the son of Robert Howard.
Richard A. Williams has been Chief Executive Officer and Vice-Chairman of
the Board of the Company since February 1996. He has been Secretary of the
Company since June 1988 and a director of the Company since November 1987. From
June 1988 to February 1996, Mr. Williams served as Executive Vice President and
Chief Operating Officer of the Company. From November 1987 to June 1988, Mr.
Williams served as Vice President of the Company. From June 1985 to February
1987, Mr. Williams served as Vice President of Engineering for Centronics, where
he was responsible for line matrix, and laser printer development and
introduction.
Robert E. Verrando has been President and Chief Operating Officer of the
Company since February 1996, and a director of the Company since November 1994.
From October 1994 to February 1996, he served as Executive Vice President of the
Company. From July 1993 to October 1994, Mr. Verrando was employed as a
consultant to the graphic arts industry. From October 1986 through July 1993, he
was employed in a variety of executive positions with Compugraphic
Corporation/Agfa
-36-
Compugraphic/Agfa Division, Miles, Inc; most recently as Vice President, General
Manager Business Imaging Systems Group. From April 1981 through September 1986,
he was employed as Vice President-Business Development of A.B. Dick Company.
Frank G. Pensavecchia has served as Senior Vice President -Engineering
since October 1991 and was the Company's Vice President - Engineering from
August 1988 to October 1991. From September 1987 to August 1988, he served as
the Company's Director of Engineering. From October 1983 to September 1987, Mr.
Pensavecchia served as Director of Laser Printer Engineering for Centronics.
Glenn J. DiBenedetto has served as Chief Financial Officer since November
1990. Mr. DiBenedetto has been a principal with the firm of DiBenedetto &
Company, P.A., certified public accountants, since July 1989. From 1984 to July
1989, Mr. DiBenedetto was a principal with the firm of Newton & DiBenedetto,
P.A., certified public accountants. Under his arrangement with the Company, Mr.
DiBenedetto engages in other activities and is not required to devote his full
business time to the affairs of the Company.
Harold N. Sparks has been a director since February 1989. From 1971 to
September 1995, Mr. Sparks was the President and Chief Executive Officer of
Fashion Neckwear Co., Inc., a manufacturer of men's neckties. Mr. Sparks has
served as a consultant to Fashion Neckwear Co., Inc. since September 1995.
Bert DePamphilis has been a director since June 1990. Mr. DePamphilis has
been an independent consultant to the graphic arts industry since May 1995. From
September 1994 through April 1995 he was a consultant to Applied Graphics
Technology ("AGT"), the world's largest prepress service. Mr. DePamphilis was
the founder, and from 1976 through August 1994, a principal of PDR Royal, Inc.,
a color prepress service for advertising agencies and Fortune 100 companies that
ceased independent operations when it became a division of AGT in September
1994.
John Dreyer has been a director since February 1996. Mr. Dreyer has been
employed by Pitman Company, the largest graphic arts and image supplier in the
United States, since 1965. He has served as Pitman's President since 1977 and
has also served as its Chief Executive Officer since 1978.
Directors are elected annually by the stockholders. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
Item 11. Executive Compensation.
The following table discloses the compensation for the person who served as
the Company's principal executive officer during the fiscal year ended December
28, 1996, and for the only other executive officers of the Company whose
salaries
-37-
exceeded $100,000 for the Company's fiscal year ended December 28, 1996, (the
"Named Executive Officers"). The number of securities underlying options has
been adjusted to give retroactive effect to the Company's five-for-four Common
Stock split in the form of a 25% stock dividend effected in September 1994 and a
two-for-one split in the form of a 100% stock dividend effected in May 1995.
Summary Compensation Table
Long-Term
Annual Compensation
Compensation Awards
------------ -----------
Securities
Name and Principal Salary Underlying
Position Year ($) Options (#)
- ------------------------ ---- ------------ -----------
Richard A. Williams 1996 153,000 20,000
Chief Executive Officer 1995 134,000 --
1994 125,000 40,000
Robert E. Verrando 1996 179,000 20,000
President and 1995 179,000 --
Chief Operating Officer 1994 28,000 100,000
Frank G. Pensavecchia 1996 137,000 20,000
Senior Vice President- 1995 114,000 --
Engineering 1994 105,000 40,000
No stock options were granted during fiscal 1995 to any of the Named
Executive Officers.
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The following table provides information with respect to individual stock
options granted during fiscal 1996 to each of the Named Executive Officers.
Option Grants in Last Fiscal Year
Individual Grants
Potential Realizable
% of Value at Assumed
Total Annual Rates of
Options Stock Price
Shares Granted to Appreciation for
Underlying Employees Exercise Option Term (1)
Options in Fiscal Price Expiration ----------------------
Name Granted (#) Year (2) ($/sh) Date 5%($) 10%($)
---- ----------- -------- ------ ---- ------ ------
Robert E. Verrando 20,000 (3) 6.4 $71.00 12/2/01 $392,320 $866,924
Richard A. Williams 20,000 (3) 6.4 $71.00 12/2/01 $392,320 $866,924
Frank G. Pensavecchia 20,000 (3) 6.4 $71.00 12/2/01 $392,320 $866,924
- ----------------------
(1) The potential realizable value columns of the table illustrate values that
might be realized upon exercise of the options immediately prior to their
expiration, assuming the Company's Common Stock appreciates at the
compounded rates specified over the term of the options. These numbers do
not take into account provisions of certain options providing for
termination of the option following termination of employment or
nontransferability of the options and do not make any provision for taxes
associated with exercise. Because actual gains will depend upon, among
other things, future performance of the Common Stock, there can be no
assurance that the amounts reflected in this table will be achieved.
(2) The percentage has been calculated based upon total options granted to
employees in fiscal 1996 under the Company's 1988, 1991, and 1994 stock
option plans.
(3) Non-qualified stock options; all options were granted under the 1994 Stock
Option Plan and became exercisable on the date of grant, December 2, 1996.
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The following table sets forth information concerning the value of
unexercised stock options held by the Named Executive Officers as of December
28, 1996, and the options exercised by the Named Executive Officers during the
fiscal year ended December 28, 1996.
Aggregated Option Exercises for Fiscal Year-Ended December 28, 1996
and Fiscal Year-End Option Values
Number of Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
at December 28 1996 at December 28, 1996*
Shares ------------------- ---------------------
Acquired
on Value
Name Exercise Realized+ Exercisable Unexercisable Exercisable Unexercisable
---- -------- --------- ----------- ------------- ----------- -------------
Richard A. Williams 50,000 $3,700,526 122,500 12,500 $6,651,750 $ 724,375
Robert E. Verrando 10,000 $ 966,563 55,000 55,000 $1,940,000 $2,970,000
Frank G. Pensavecchia 17,500 $1,701,094 92,500 12,500 $4,667,750 $ 724,375
- ----------
+ Value realized represents the positive spread between the exercise price of
such options and the market value of the Common Stock on date of exercise.
* Year-end values for unexercised in-the-money options represent the positive
spread between the exercise price of such options and the year-end market
value of the Common Stock which was $73.50 on December 27, 1996.
Compensation of Directors
Directors received no cash compensation for serving on the Board during the
year ended December 28, 1996. However, during such year, the Company paid Mr.
Robert Howard, the Chairman of the Board, $125,000 for consulting services
rendered to the Company. In addition, in December 1996, Mr. Howard was granted a
five-year option under the Company's 1994 Plan (defined below) to purchase
20,000 shares of Common Stock at $71.00 per share.
Effective December 1993, the Company adopted its Non-Employee Director
Stock Option Plan (the "Director Plan"). Only non-employee directors of the
Company (other than Robert Howard or Dr. Lawrence Howard) are eligible to
receive grants under the Director Plan. The Director Plan provides that eligible
directors automatically receive a grant of options to purchase 5,000 shares of
Common Stock at fair market value upon first becoming a director and,
thereafter, an annual grant, in January of each year, of 2,500 options at fair
market value. In 1996, Messrs. DePamphilis and Sparks received options to
purchase 2,500 shares each of Common Stock under the Director Plan.
Since joining the Board in February 1996, in addition to the grants of
five-year options to purchase 7,500 shares of Common Stock that he received
pursuant to the Director Plan, Mr. Dreyer has been granted under the 1994 Plan
options to purchase 5,000, 2,500, and 10,000 shares of Common Stock,
respectively, at exercise prices of $94.75, $99.25, and $70.25, respectively.
Under each of the Company's 1988 Stock Option Plan ("1988 Plan"), 1991
Stock Option ("1991 Plan") and 1994 Stock Option Plan ("1994 Plan"), directors
who are not employees of the Company (other than directors who
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are members of the Stock Option Committee of the particular plan) are eligible
to be granted nonqualified options under such plan. The Board of Directors or
the Stock Option Committee (the "Committee") of each plan, as the case may be,
has discretion to determine the number of shares subject to each nonqualified
option (subject to the number of shares available for grant under the particular
plan), the exercise price thereof (provided such price is not less than the par
value of the underlying shares of Common Stock), the term thereof (but not in
excess of 10 years from the date of grant, subject to earlier termination in
certain circumstances), and the manner in which the option becomes exercisable
(amounts, intervals and other conditions). Directors who are employees of the
Company (but not members of the Committee of the particular plan) are eligible
to be granted incentive stock options or nonqualified options under such plans.
The Board or Committee of each plan, as the case may be, also has discretion to
determine the number of shares subject to each incentive stock option ("ISO"),
the exercise price and other terms and conditions thereof, but their discretion
as to the exercise price, the term of each ISO and the number of ISOs that may
vest may be in any year is limited by the Internal Revenue Code of 1986, as
amended. As of February 25, 1997, there were 4,382 shares of Common Stock
available for grant under the 1988 Plan, 6,016 shares of Common Stock available
for grant under the 1991 Plan, 224,976 shares available for grant under the 1994
Plan and 85,000 shares of Common Stock available for grant under the Director
Plan.
Employment Arrangements
The Company has an employment agreement with Mr. Richard A. Williams, which
provides for an annual salary which is subject to periodic review by the
Company's Board of Directors. The employment agreement expires on March 31,
1998, and contains certain non-disclosure provisions. Effective January 1997,
the Board increased Mr. Williams' annual salary to $175,000.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions
The Company does not have a Compensation Committee of its Board of
Directors. Decisions as to compensation are made by the Company's Board of
Directors. Mr. Richard A. Williams, and Mr. Robert E. Verrando, in their
capacity as a director, each participated in the Board's deliberations
concerning compensation of executive officers for the Company's fiscal year
ended December 28, 1996. During the fiscal year ended December 28, 1996, none of
the executive officers of the Company has served on the Board of Directors or
the compensation committee of any