-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DsGqkrt7GvmXcKZpajwugaEEfFrhiVIMqf6hIR8kzJKPkjGJbyId0r1cYqx9c3yI gRV+yEd6iMFFqiPE3c5HzA== 0000891554-96-000190.txt : 19960402 0000891554-96-000190.hdr.sgml : 19960402 ACCESSION NUMBER: 0000891554-96-000190 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRESSTEK INC /DE/ CENTRAL INDEX KEY: 0000846876 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 020415170 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17541 FILM NUMBER: 96542051 BUSINESS ADDRESS: STREET 1: 8 COMMERCIAL STREET CITY: HUDSON STATE: NH ZIP: 03051-3907 BUSINESS PHONE: 6035957000 10-K 1 12/30/95 FORM 10-K 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 30, 1995 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 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 as of March 12, 1996 was approximately $1,279,000,000. As of March 12, 1996 there were 15,074,246 shares of the registrant's Common Stock outstanding. Documents Incorporated by Reference: None PART I Item 1. Business. General Presstek, Inc. (the "Company"), 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 (the "Direct Imaging" technologies), and non-photographic consumables primarily to the graphic arts and related imaging industries. The Company's current Direct Imaging technologies, referred to as PEARL(R) permit the direct digital imaging of printing plates and films which eliminates the need for photosensitive materials and the hazardous waste by-products usually associated with these processes. The Company's system accepts digital PostScript(R)* compatible files from digitally based electronic prepress systems and images the color separated pages directly on to the Company's proprietary non-photographic 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 "PEARLsetterTM"), both of which incorporate the Company's PEARL Direct Imaging technology. 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 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 - ---------- * PostScript is a registered trademark of Adobe Systems, Inc. -2- printed materials, with freedom from environmental concerns, 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 technology 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, have jointly developed the first Heidelberg Direct Imaging Printing Press (the "GTO-DI"). The Company and Heidelberg experienced a wider range of market applications, and greater market acceptance due to the improved image quality of a PEARL equipped GTO-DI press. As a result, the Company's relationship with Heidelberg has been expanded to include a new, four color, fully automated lithographic press, the Quickmaster DI 46-4 ("Quickmaster DI") which was jointly designed by the Company and Heidelberg to take full advantage of the Company's improved implementation of its Direct Imaging Technology. The press, which was introduced by Heidelberg in May 1995, has a smaller "footprint" than existing four color presses and employs the Company's recently developed automatic plate changing cylinder which eliminates the need for manually changing plates between jobs. This press also employs many other innovations 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 technology and allow a much broader 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 will result in the use of Company's direct imaging technologies on a larger format (19" x 26") multicolor press. This new, large format direct imaging press is being publicly displayed for the first time at the Graphic Communications Tradeshow in Philadelphia on March 28-30, 1996. The Company believes the availability of a -3- 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. Currently, the Company is engaged in discussions relating to additional strategic relationships and/or arrangements focused principally on the PEARLsetter, other Direct Imaging Printing Presses and the manufacture and distribution of the Company's consumables, for these and other applications. Background The Company believes that thermally based computer-to-press imaging devices and computer-to-plate printing systems, free of environmental concerns, will eventually replace photo chemically based imaging systems as 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 desktop computers, which outputs PostScript compatible digital data 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. In response to perceived market opportunities for more time and cost-effective color printing; (an opportunity that would encompass taking -4- 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 technology 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). The spark discharge technology, while lacking in some aspects, was viable enough to allow the Company to develop a business relationship with Heidelberg and apply the spark discharge technology on an initial product offering introduced in September 1991, the Heidelberg GTO-DI. The GTO-DI was initially introduced by Heidelberg at Print '91. In 1992, the Company began shipping to Heidelberg spark discharge based DI Kits for integration into GTO presses. The resultant GTO-DI's were used by Heidelberg distributors for customer sales as well as for shows and demonstrations worldwide. The Company realized that the use of a laser based imaging concept as a replacement for its spark discharge technology held the promise of significantly improved image quality. 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. In 1993, the Company introduced its PEARL Direct Imaging Technology. This second generation technology is based on the same concept as the spark discharge technology which, under computer control, burns away the surface of the plate material 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 kits necessary to install the PEARL Imaging System on the GTO-DI to Heidelberg in September 1993, with full production commencing in February 1994. The Company believes that its PEARL Direct Imaging technologies as implemented on the GTO-DI has been well accepted by the market, which includes commercial printers, color service bureaus, digital on-demand print shops and corporate in-house plants. The Company believes the radically different press design of the Quickmaster-DI, in concert with the Company's third generation of Direct Imaging technology targeted towards the growing short run process color print market has been well received by the print industry. The product won the 1995 Intertech New Technology award and in February 1996 two Seybold Editors' Awards at Seybolds -5- 16th Annual Boston Seminars Conference oriented towards the printing and publishing market. One award was made to the Company for it PEARL Direct Imaging Technology 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 Technology has 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: (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)* or a DEC Alpha(R)** 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 chiller systems. (iv) Consumables - consist of wet and 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 the chemical dampening solution and its required 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 - ---------- * Pentium is a registered trademark of Intel Corp. ** Alpha is a registered trademark of Digital Equipment Corporation. -6- installation of PEARL Imaging Systems (the "PEARL Kits") 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; 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 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 1995 the Company had shipped 211 of its PEARL Imaging Kits. 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 -7- increased the number, types and functional characteristics of its consumable products. These consumables currently include a polyester based dry printing plate, a polyester based wet 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 including a non-photosensitive film which may, in the future, provide new sources of consumable revenues. The Company has developed and is currently having manufactured by Rexham Industries Corp ("Rexham"), a custom maker of precision films based in North Carolina, both the polyester- 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. The Company has also developed a prototype non-photosensitive film that it believes has market applications imaged by its PEARL Direct Imaging technology. Although the Company believes that it can complete the development and commercialization of the polyester and aluminum based wet offset printing plates and its non-photosensitive film and other consumable products, there can be no assurances that it can do so. 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. During the fiscal year ended December 31, 1995, Catalina, a Subchapter S corporation, achieved net income of approximately $1,542,000 on revenues of approximately $5,400,000. The Company intends that Catalina, which operates as a subsidiary of the Company, will develop the equipment the Company needs to manufacture its PEARL thermal printing plates and films in a more cost effective manner than using currently available conventional technology. Even if Catalina commences manufacturing of PEARL thermal printing plates and films the Company 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 -8- 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. Pursuant to this series of related agreements, the Company and Heidelberg agreed to certain terms relating to the integration of the Direct Imaging technology into various presses manufactured by Heidelberg and certain of its related parties (the "Heidelberg Presses") and the manufacture of components for and the commercialization of such presses. The Master Agreement supersedes certain prior agreements between the Company and Heidelberg. Pursuant to the Heidelberg Agreements, the Company granted Heidelberg certain exclusive rights, relating to the Company's spark discharge technology subject to the satisfaction of certain conditions, for use of the Direct Imaging Technology in Heidelberg Presses. 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. Heidelberg's exclusive rights with respect to the different categories of Heidelberg Presses are conditioned upon Heidelberg undertaking specified development efforts on a timely basis, paying certain minimum royalties during specified initial periods and satisfying continuing product sale conditions. These original agreements have been modified by the parties from time to time. The Heidelberg Agreements further provided for the Company to supply D.I. Kits 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 and December 1995 in the case of the Supply Agreement. The Supply Agreement related primarily to the GTO-DI which is no longer manufactured. 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 -9- 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 has also subsequently granted Heidelberg a forty-five month exclusive license for the manufacture and sale of the Quickmaster -DI which uses PEARL technology. Certain other modifications have been made to the 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. On February 4, 1994, the Company announced an agreement with Heidelberg that provided for the Company to receive $4,180,000 during 1994 for engineering services performed by the Company for joint development projects during 1994. This agreement was subsequently modified and resulted in increasing the engineering services performed by the Company. This change resulted in Heidelberg agreeing to pay an additional $1,499,400 through June 1995 for these incremental services related to these joint development projects. PEARL Imaging Systems manufactured by the Company for Heidelberg, for the GTO-DI and the Quickmaster DI, represent additional revenue to the Company. Additionally, the Company receives a royalty payment for certain presses shipped by Heidelberg which contains Presstek's PEARL imaging technology. In November 1995 the Company and Heidleberg agreed 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. These arrangements were made as a result of a schedule change requested by Heidelberg for the PEARL imaging systems manufactured by the Company for Heidelberg. The Company also provided Heidelberg with a fixed royalty rate on the Quickmaster DI. The PEARL Platesetter The PEARL Platesetter, now referred to as the PEARLsetterTM is an additional application of the Company's PEARL Direct Imaging technology and consumables. The PEARLsetter is a computer-to-plate imaging device that will be able to image both the Company's wet and dry offset plates. The Company also anticipates that the PEARLsetter will have applications in the larger format -10- size markets as well and provides the product in both an A3 (2-up) and A2 (4-up) format size. The PEARLsetter directly accepts the digital page layout data 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 and Heidelberg Australia in Australia and New Zealand. Those agreements provide for the exclusive 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 and Heath Custom Press for the resale of its PEARLsetter product under private label by these companies. 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. To maximize the anticipated beneficial effects to it, 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 vast intellectual property portfolio. The Company also provides Heidelberg and its other licensees and distribution partners with worldwide marketing and sales support. -11- 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 announced the start of operations in a new 36,000 square foot manufacturing facility located adjacent to its existing headquarters and engineering offices. These increased facilities, which have now been completed, were required based on both existing and projected manufacturing requirements for PEARL Imaging Systems or other similar items which are or may be manufactured by the Company in the future. Given sufficient time, 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 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 manufacturing capabilities. The Company would still require the submounted "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 or ablated 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 characteristics of the consumable products it has under -12- development or which are currently being manufactured. These consumables currently include a polyester based dry printing plate, a polyester based wet printing plate, an aluminum based dry printing plate, an aluminum based wet printing plate and a non-photosensitive film. 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 Rexham. 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 Catalina. The Company anticipates that Catalina, which operates as a subsidiary of the Company, will develop the equipment the Company needs 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 Catalina 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. 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 introduce will achieve market acceptance or be commercially viable. Development Program During the years ended December 31, 1993, 1994, and December 30, 1995, the Company expended $5,647,000, $5,123,000 and $6,155,000 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 -13- Company, in conjunction with a strategic partner or independently, will successfully 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 March 1, 1996, the Company has been issued forty-three (43) U.S. patents, five (5) Canadian patents and one (1) European patent and has received notice of allowance for three (3) European patents. The Company has applied for twenty-two (22) additional U.S. patents and seventy-three (73) foreign patents and anticipates that it will apply for additional patents and for copyrights, as deemed appropriate. 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 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 -14- other press manufacturing companies and 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. Canon 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. The E-Print 1000 sells for approximately $450,000. Xeikon, N.V. of Belgium also introduced their digital, web-(roll)fed color printing product, the Xeikon DCP-1 in September, 1993. The Xeikon DCP-1, a version of which is also being marketed by Agfa Gevaert as the Chromopress, also utilizes an electrophotographic imaging technology with a dry toner and prints a variable dot density of 600 dots per inch. The Chromopress is reported to sell for between $350,000 and $400,000. Canon and Xerox Corp. are two major corporations 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 a color copier which it is currently marketing. Additionally, the Company is aware of two companies, XMX Corporation and Delphax that have publicly announced their intentions of developing their own proprietary technological solutions for digital color printing. 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 for single and multi-color applications. 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 -15- Ltd., Linotype-Hell, Kodak, Dai Nippon Screen, Crossfield, a Division of Dupont, Agfa-Gevaert, Polaroid Corp. and Sony Corp. 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 other graphic arts companies, such as those stated 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. 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-Gevaert, Polychrome Corp., a Division of Dai Nippon Ink & Chemicals, Inc., Toray, Howsen, a Division of Dupont, Horsell/Anitec, a Division of International Paper, Kodak, Polaroid Corp., Mitsubishi, Fuji Photo Film Co., Ltd. and Minnesota Mining & Mfg. Co. 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, Crossfield 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 February 29, 1996 the Company had a backlog of products under contract aggregating approximately $16,822,000 (including royalties payable to -16- the Company) compared to a backlog of $2,800,000 as of February 28, 1995 (including royalties payable to the Company). Employees As of February 29, 1996, the Company had one hundred and five (105) employees, fifty four (54) of whom, including Richard A. Williams and Robert E. Verrando, the Company's Chief Executive Officer and President, respectively, are engaged primarily in engineering, service and marketing; forty (40) of whom are engaged primarily in manufacturing, manufacturing engineering and quality control; and eleven (11) 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 at 8 Commercial Street, Hudson, New Hampshire. The lease of these premises, which expires in March 1996, subject to three one-year renewal options, provides for rent at the rate of $8,693 per month plus a pro rata share of real estate taxes, utilities and certain other expenses. During May 1994, the Company entered into a three year lease agreement (which was amended in December 1994, effective January 1, 1995) for approximately 36,000 square feet to accommodate its manufacturing facilities. The lease, as amended, specifies a fixed base monthly rent of $11,250, plus a pro rata share of real estate taxes, utilities, and certain other expenses. The lease contains an option to renew for an additional three years and a right of first refusal to purchase the property. The Company believes that its existing facilities are adequate for its existing operations. To the extent that the Company is required to increase its manufacturing capacity, the Company believes that additional space is readily available in the vicinity of its existing facilities. Item 3. Legal Proceedings. In April 1995 the Company commenced an action against Agfa-Gevaert, N.V. ("Agfa") in the U.S. District Court for the District of New Hampshire alleging that Agfa violated provisions of a confidentiality agreement and a manufacturing agreement (the "Manufacturing Agreement") between the parties and misappropriated certain trade secrets of the Company. In June 1995, Agfa commenced an arbitration proceeding against the Company in the International Chamber of Commerce in which it seeks arbitration of the disputes between the parties arising from the Manufacturing Agreement and also seeks to have the -17- trade secret issues determined in arbitration. In its request for arbitration Agfa has, among other things, charged Presstek with breaches of the Manufacturing Agreement, good faith and fair dealing, and is seeking damages in an amount alleged to be $2,000,000. The action commenced by the Company in District Court has been stayed to allow the arbitrators to determine the issues in dispute between the parties. The Company has vigorously pursued its claims against Agfa and intends to vigorously contest Agfa's assertions of breach of the Manufacturing Agreement and other claims. Although the Company and its counsel believes that an unfavorable outcome of the litigation and arbitration is unlikely, there can be no assurance as to the outcome of the proceedings. The Company has been advised that the Securities and Exchange Commission (the "Commission") has entered a formal order of private investigation with respect to certain activities by certain unnamed persons and entities in connection with the securities of the Company. In that connection, the Company has received subpoenas duces tecum requesting it to produce certain documents and has complied with the requests. 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. Item 4. Submission of Matters to a Vote of Security Holders. Not Applicable. 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. -18- Year Ended High Low December 31, 1994 ---- --- - ----------------- First Quarter $14 5/8 $10 5/8 Second Quarter 13 7 3/8 Third Quarter 25 12 3/4 Fourth Quarter 25 7/8 16 Year Ended December 31, 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 As of March 13, 1996, there were approximately 1,200 holders of record of the Company's Common Stock. The Company believes that, in addition, there are in excess of 500 beneficial owners of its Common Stock whose shares are held in "street name." 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 instead intends to retain all earnings, if any, for use in the Company's business operations. -19- 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, 1991 and 1992 and the balance sheet data at December 31, 1991, 1992 and 1993 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 five-for-four and two-for-one stock splits effected in the form of stock dividends. Statements of Operations Data:
Year Ended ------------------------------------------------------------------------------------ DEC 31 DEC 31 DEC 31 DEC 31 DEC 30 1991 1992 1993 1994 1995 ------------ ------------ ------------ ------------ ------------ Revenues $ 3,619,364 $ 12,558,434 $ 11,682,154 $ 16,517,858 $ 27,611,456 ------------ ------------ ------------ ------------ ------------ Costs and Expenses: Costs of products sold 476,000 1,762,688 754,700 6,944,268 14,923,968 Engineering and product development 5,898,673 4,695,370 5,647,562 5,123,439 6,155,421 Marketing 1,567,813 1,268,311 1,147,926 1,225,756 1,727,301 General and administrative 1,335,513 1,459,911 1,535,289 1,603,729 2,050,075 Nonrecurring charge -- -- 1,948,878 -- -- ------------ ------------ ------------ ------------ ------------ Total costs and expense 9,277,999 9,186,280 11,034,355 14,897,192 24,856,765 ------------ ------------ ------------ ------------ ------------ Other Income (Expense): Dividend and interest income 627,342 359,361 412,025 407,977 327,213 Interest expense -- -- -- -- -- Other 880,988 34,844 -- 166 (2,276) ------------ ------------ ------------ ------------ ------------ Other income (expense) 1,508,330 394,205 412,025 408,143 324,937 ------------ ------------ ------------ ------------ ------------ Income (Loss)Before Income Taxes (4,150,305) 3,766,359 1,059,824 2,028,809 3,079,628 Provision for Income Taxes -- (160,000) (100,000) (186,600) (220,000) ------------ ------------ ------------ ------------ ------------ Net Income (Loss) $ (4,150,305) $ 3,606,359 $ 959,824 $ 1,842,209 $ 2,859,628 ============ ============ ============ ============ ============ Net Income (Loss) per Common and Common Equivalent Share $ (.33) $ .25 $ .07 $ .12 $ .18 ============ ============ ============ ============ ============ Weighted Average Number of Common and Common Equivalent Shares 12,716,892 14,216,666 14,222,574 14,865,344 15,855,076 ============ ============ ============ ============ ============
-20- Balance Sheet Data:
DEC 31 DEC 31 DEC 31 DEC 31 DEC 30 1991 1992 1993 1994 1995 ------------ ------------ ------------ ------------ ------------ Working Capital $ 3,985,407 $ 7,647,449 $ 9,916,103 $ 7,675,713 $ 16,836,997 Total Assets 9,738,124 13,230,844 13,802,718 18,324,030 26,668,618 Short-Term Debt -- -- -- -- -- Long-Term Debt -- -- -- -- -- Stockholders' Equity 6,453,882 10,627,896 12,145,410 16,472,920 22,726,436 Cash Dividends -- -- -- -- --
-21- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 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, a patented, proprietary, nonphotographic, toxic-free, digital imaging and printing plate 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. PEARL has completely replaced the Company's spark discharge technology. The GTO-DI was re-introduced in September 1993, utilizing PEARL as its Direct Imaging technology and the Company is now building an installed base of customers which utilizes its proprietary consumable printing plates on PEARL equipped Heidelberg presses. The Company's relationship with Heidelberg has been expanded to include the development and manufacture of Direct Imaging Kits to be utilized in Heidelberg's new four color, fully automated lithographic press, the Quickmaster DI 46-4. This press was introduced in May of 1995 at DRUPA '95, the industry's largest trade show, and was well received. Shipments of production kits to Heidelberg for use in the Quickmaster commenced in the second quarter of 1995. This new press incorporates certain improvements to the Company's PEARL Direct Imaging technologies and employs the Company's recently developed automatic plate changing cylinder which eliminates the need for manually changing plates between jobs. 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, another manufacturer of sheet fed offset presses. This new agreement will result in the 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 will occur at an industry trade show to be held on March 28, 1996. 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 -22- December 31; accordingly, the 1995 fiscal year ended on December 30. Fiscal 1993, 1994, and 1995 each reflect 52 week periods. On August 2, 1994, the Company's Board of Directors authorized a five-for-four stock split, effected in the form of a 25% stock dividend, during the third quarter of 1994. The split resulted in the issuance of 1,410,235 new shares of common stock. On April 19, 1995, the Company's Board of Directors authorized a two-for-one stock split, effected in the form of a 100% stock dividend, during the second quarter of 1995. The split resulted in the issuance of 7,275,972 new shares of common stock. Revenues Revenues for the years ended December 30, 1995, and December 31, 1994 and 1993 of approximately $27,611,000, $16,518,000 and $11,682,000, respectively, consisted primarily of product sales, royalties, fees and other reimbursements earned under the Company's agreements with Heidelberg. Revenues increased $11,093,000 (67%) comparing 1995 with 1994. Product sales increased $10,567,000 over 1994, principally as a result of increased sales 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 royalty 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. Revenues from royalties and fees for the year ended December 31, 1994 decreased $3,499,000 compared to 1993, as a result of modifications to the Company's agreements with Heidelberg and in part because the majority of the early shipments of PEARL systems were to retrofit existing spark discharge technology GTO-DI machines which did not result in additional royalties to the Company. At this time, the Company relies on Heidelberg to generate substantially all of its revenues. Costs of Products Sold Costs of products sold for the years ended December 30, 1995, December 31, 1994 and 1993 of approximately $14,924,000, $6,944,000, $755,000, respectively, consisted of the material, labor, and overhead costs associated with product sales, as well as anticipated future warranty costs. Engineering and Product Development Engineering and product development expenses were $6,155,000 for the year ended December 30, 1995, as compared to -23- $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. Engineering and product development expenses totaled $5,123,000 for the year ended December 31, 1994, compared to $5,648,000 for 1993. This decrease in such expenses of $525,000 (9%) resulted principally from the reassignment of personnel from engineering and development functions to manufacturing functions in response to the commencement of shipments of the PEARL laser imaging systems. Marketing Marketing expenses were $1,727,000 for the year ended December 30, 1995, as compared to $1,226,000 for the year ended December 31, 1994, an increase of $501,000 (41%). The increase related principally to increased expenditures for additional personnel and related costs as well as various promotional activities which included one time DRUPA '95 trade show expenses incurred principally during the second quarter of 1995. Marketing expenses of $1,226,000 for 1994 increased by 7% when compared with 1993 primarily due to increased travel and related expenses of marketing personnel. General and Administrative For the year ended December 30, 1995, general and administrative expenses were $2,050,000, an increase of 28% over 1994. For the year ended December 31, 1994, general and administrative expenses increased by 5% over 1993 to $1,604,000. The increased expenses in 1995 and 1994 related principally to increased expenditures for salaries and other costs required to conduct various general and administrative functions for the Company. Nonrecurring Charge The 1993 results include a $1,949,000 nonrecurring charge associated with the Company's fundamental change from spark discharge technology to its newly developed PEARL technology. The termination of shipments of units incorporating the spark discharge technology dictated that certain assets associated with the earlier imaging process be written off, and that reserves be established for the transition to PEARL technology. The individual elements making up the charge consisted of write offs of property and equipment, inventory, and -24- patent application costs of $613,000, $546,000, and $294,000, respectively, and a reserve of $496,000 for certain estimated costs required to retrofit existing customer equipment. The reserve was fully utilized as of December 30, 1995. Net Income As a result of the foregoing, the Company had net income of $2,860,000 for the year ended December 30, 1995 compared to net income of $1,842,000 and $960,000 for the years ended December 31, 1994 and 1993, respectively. Liquidity and Capital Resources At December 30, 1995, the Company had working capital of $16,837,000, an increase of $9,161,000 as compared to working capital of $7,676,000 at December 31, 1994. This increase was primarily attributable to net income from operations of $2,860,000; noncash items of depreciation and amortization of $998,000, and the state tax benefit of disposition of stock options of $176,000; sales, maturities and reclassifications of noncurrent marketable securities of $5,004,000 and proceeds from issuances of common stock and sales of equipment of $3,022,000 and $76,000, respectively, offset by additions to property and equipment and other assets of $2,387,000 and $561,000, respectively. In February 1996 the Company raised $20,200,000 through the sale of approximately 283,000 shares of common stock, of which approximately $8,200,000 was used to acquire the Catalina Shares, $200,000 was used to pay for the non-compete and confidentiality covenants of two of Catalina's selling stockholders. Net cash used for operating activities of $234,000 for the year ended December 30, 1995, resulted principally from increases in accounts receivable and inventory of $3,759,000 and $3,165,000, respectively, offset by net income from operations of $2,860,000 plus noncash items of depreciation and amortization, the provision for warranty costs and the tax benefit of disposition of stock options of $998,000, $916,000, and $176,000, respectively, a decrease in other current assets of $407,000 and increases in accounts payable and accrued expenses totaling $1,333,000. Net cash used for investing activities of $693,000 for the year ended December 30, 1995, resulted principally from the additions to property and equipment used in the Company's business of $2,387,000 and increases in other assets of $561,000, offset by proceeds from the sales and maturities of marketable securities of $2,180,000 and the proceeds from the sale of equipment of $76,000. -25- Net cash provided by financing activities during the year ended December 30, 1995, consisted of $3,022,000 received from the sale of common stock incident to the exercise of various stock options and warrants. The Company's agreements with Heidelberg provide that during 1996 the Company will receive certain royalty payments and be reimbursed for certain engineering and development work provided to Heidelberg. The Company estimates that existing funds and the funds generated under its agreements with Heidelberg will be sufficient to satisfy its anticipated cash requirements for the foreseeable future. Effect of Inflation Inflation has not had, and is not expected to have, a material impact upon the Company's operations. Recently Issued Accounting Standards The Financial Accounting Standards Accounting Board ("FASB") has issued Statement of Financial Accounting Standards No. 121: "Accounting for the Impairment of Long-Lived Assets to be Disposed Of" ("SFAS 121") which is effective for fiscal years beginning after December 15, 1995. No write down of assets have been necessary through the fiscal year ended December 30, 1995 as a result of the Company's adoption of SFAS 121. See Note 2 of Notes to the Financial Statements. The FASB has also issued Financial Accounting Standards No. 123 (""SFAS 123"): "Accounting for Stock-Based Compensation" which is effective for transactions entered into in fiscal years beginning after December 15, 1995. The Company currently does not intend to adopt the fair value method of accounting for stock compensation plans as permitted by SFAS 123. Net Operating Loss Carryforwards As of December 30, 1995, the Company had net operating loss carryforwards totaling approximately $16,500,000 resulting from compensation deductions 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. -26- Item 8. Financial Statements and Supplementary Data. SELECTED QUARTERLY FINANCIAL DATA (unaudited) (in thousands except share and per share data) QUARTER ENDED 1994 MARCH 31 JUNE 30 SEPT. 30 DECEMBER 31 ---------- ---------- ---------- ----------- Total revenues $ 3,007 $ 3,887 $ 4,440 $ 5,184 Total costs & expenses 2,784 3,707 3,976 4,430 Net income 320 265 511 746 Net income per share $ 0.02 $ 0.02 $ 0.03 $ 0.05 Weighted average number of common and common equivalent shares 14,670,986 14,370,622 15,217,694 15,377,404 QUARTER ENDED 1995 MARCH 31 JULY 1 SEPT. 30 DECEMBER 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 $ .01 $ .01 $ .05 $ .10 Weighted average number of common and common equivalent shares 15,532,688 15,933,563 16,066,947 16,121,561 The per share data has been restated retroactively to reflect five-for-four and two-for-one stock splits effected in the form of stock dividends. 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. As previously reported by the Company on Forms 8-K, in January 1996 the Company engaged BDO Seidman LLP as its principal independent accountants to audit and report on the financial statements of the Company for the fiscal year ended December 30, 1995, replacing Deloitte & Touche LLP, the Company's former independent accountants whose services were terminated on December 28, 1995. -27- 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 72 Chairman of the Board and Director Dr. Lawrence Howard 43 Director Richard A. Williams 61 Chief Executive Officer, Secretary, Vice Chairman of the Board and Director Robert E. Verrando 62 President, Chief Operating Officer and Director Frank G. Pensavecchia 61 Senior Vice President - Engineering Glenn J. DiBenedetto 46 Chief Financial Officer Harold N. Sparks(1) 74 Director Bert DePamphilis(1) 63 Director John W. Dreyer 58 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 1994 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 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 -28- 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 July 1995 to the present Dr. Howard has been President of Howard Capital Partners, Inc., an investment and merchant 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. From July 1986 until June 1988, Dr. Howard was primarily engaged in the management of his personal investments. Dr. Howard was the Assistant Medical Director of the Pride of Judea mental health clinic in New York City from July 1985 to July 1986. Dr. Howard is a director of Resurgence Properties, Inc., a public company engaged in investments in and management of real estate and Cellular Technical Services Company, Inc. a public company engaged in the design, development marketing, installation and support of integrated billing and data processing for the cellular telephone industry. 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. -29- 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 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 -30- 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 Corporation ("Pitman"), 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 30, 1995 and for the only other executive officers of the Company whose salaries exceeded $100,000 for the Company's fiscal year ended December 30, 1995. The number of securities underlying options has been adjusted to give retroactive effect to the Company's five-for-four common stock split in the form of a 25% stock dividend effected in September 1994 and a two-for-one split in the form of a 100% split dividend effected in May 1995. Summary Compensation Table Long-Term Annual Compensation Compensation Awards Securities Name and Principal Salary Underlying Position Year ($) Options (#) - ------------------ ---- ------ ----------- Richard A. Williams 1995 134,000 -- Chief Executive Officer 1994 125,000 40,000 1993 115,000 50,000 Robert E. Verrando 1995 179,000 -- President and 1994 28,000 100,000 Chief Operating Officer Frank G. Pensavecchia 1995 114,000 -- Senior Vice President- 1994 105,000 40,000 Engineering 1993 95,000 37,500 No stock options were granted during fiscal 1995 to any of the named executive officers indicated in the Summary Compensation Table. -31- The following table sets forth information concerning the value of unexercised stock options held by the named executive officers as of December 30, 1995 and the options exercised during the fiscal year ended December 30, 1995.
Aggregated Option Exercises for Fiscal Year-Ended December 30, 1995 and Fiscal Year-End Option Values Number of Securities Underlying Value of Unexercised Unexercised Options In-the-Money Options at December 30, 1995 at December 30, 1995* -------------------- --------------------- Shares Acquired Value Name on Exercise Realized+ Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- --------- ----------- ------------- ----------- ------------- Richard A. Williams 62,500 $2,331,063 146,250 18,750 $12,585,187 $1,480,313 Robert E. Verrando - - 20,000 80,000 $1,500,000 $6,000,000 Frank G. Pensavecchia 15,000 $747,500 88,750 18,750 $ 8,897,062 $1,480,313 - ------------ + 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 $94.50 on December 29, 1995.
Compensation of Directors Directors received no cash compensation for serving on the Board during the year ended December 30, 1995. However, during such year, the Company paid Mr. Robert Howard, the Chairman of the Board, $110,000 for consulting services rendered to the Company. 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. 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 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, -32- 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 29, 1996, 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, 438,126 shares available for grant under the 1994 Plan and 92,500 shares of Common Stock available for grant under the Director Plan. Employment Arrangements The Company has an employment agreement dated August 23, 1988 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, 1997 and contains certain non-disclosure provisions. In February 1996, the Board increased Mr. Williams' annual salary to $155,000. 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, participated in the Board's deliberations concerning compensation of executive officers for the Company's fiscal year ended December 30, 1995. During the fiscal year ended December 30, 1995, none of the executive officers of the Company has served on the board of directors or the compensation committee of any other entity, any of whose officers has served on the Board of Directors of the Company. Item 12. Security Ownership of Certain Beneficial Owners and Management. The following table sets forth information at February 29, 1996, based on information obtained from the persons named below, with respect to the beneficial ownership of shares of Common Stock by (i) each person known by the Company to be the owner of more than 5% of the outstanding shares of Common Stock, (ii) each director, (iii) each of the persons named in response to Item 11 (Executive Compensation) that are currently employed by the -33- Company, and (iv) all executive officers and directors of the Company as a group. Amount and Nature Percentage Name of of Beneficial of Outstanding Beneficial Owner (1) Ownership (2) Shares Owned - -------------------- ----------------- ------------- Robert Howard (3) 1,469,224 9.5 Dr. Lawrence Howard (4) 1,397,736 9.2 Richard A. Williams (5) 321,250 2.1 Robert E. Verrando (6) 20,000 (7) Harold N. Sparks (8) 48,500 (7) Bert DePamphilis (9) 15,550 (7) John W. Dreyer -- -- John T. Oxley (10) 1,070,000 7.1 All executive officers and directors as a group (nine persons) (11) 3,371,010 21.2 - ---------- (1) The address of Dr. Lawrence Howard is 120 East End Avenue, New York, New York 10028. The address of Robert Howard is 303 East 57th Street, New York, New York 10022. (2) The Company believes that except as set forth herein, all persons referred to in the table have sole voting and investment power with respect to all shares of Common Stock reflected as beneficially owned by them. (3) Includes options to purchase 352,500 shares of Common Stock held by Mr. Howard which are currently exercisable. Also includes 12,000 shares owned by Mr. Howard's wife. Does not include shares owned by the son of Mr. Howard's wife, with respect to which Mr. Howard disclaims any beneficial interest. (4) Includes options to purchase 175,000 shares of Common Stock held by Dr. Howard which are currently exercisable. Also includes 17,500 shares owned by Dr. Howard's wife, 26,892 shares owned by Dr. Howard's wife as custodian for Dr. Howard's children and 22,500 shares owned by Dr. Howard as custodian for his children. (5) Includes options to purchase 165,000 shares of Common Stock held by Mr. Williams which are currently exercisable. (6) Represents options held by Mr. Verrando which are currently exercisable. (7) Less than 1%. -34- (8) Includes options to purchase 11,250 shares of Common Stock held by Mr. Sparks which are currently exercisable. (9) Includes options to purchase 11,250 shares of Common Stock held by Mr. DePamphilis which are currently exercisable. (10) The address of Mr. Oxley is One West 3rd Street, William Center Tower, Suite 1305, Tulsa, Oklahoma 74103. Includes 181,000 shares of Common Stock owned by the Oxley Foundation for which Mr. Oxley is Co-Trustee. The information with respect to Mr. Oxley's share ownership were based upon information contained in Amendment No. 3 to Mr. Oxley's Schedule 13D. (11) Includes options to purchase 352,500, 175,000, 146,250, 88,750, 11,250, 11,250, and 10,000 shares held by Robert Howard, Dr. Lawrence Howard, Richard Williams, Frank Pensavecchia, Bert DePamphilis, Harold Sparks and Glenn J. DiBenedetto, respectively, which are currently exercisable. Does not include options to purchase 18,750, 80,000, 18,750, 2,500, 2,500 and 10,000 shares of Common Stock held by Richard Williams, Robert E. Verrando, Frank Pensavecchia, Harold Sparks, Bert Depamphilis and John W. Dreyer, respectively, none of which are exercisable within 60 days from the date hereof. Dr. Lawrence Howard and Robert Howard may be deemed "parents" and "promoters" of the Company, as such terms are defined under the federal securities laws. Item 13. Certain Relationships and Related Transactions. The Company paid Mr. Howard $110,000 during 1995 for consulting services rendered to the Company. -35- PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a)(1) Financial Statements Page Report of Independent Certified Public Accountants F-2 Independent Auditors' Report F-3 Balance Sheets as of December 31, 1994 and F-4 December 30, 1995 Statements of Operations for the Years Ended December 31, 1993 and 1994 and December 30, 1995 F-5 Statement of Changes in Stockholders' Equity for the three years ended December 30, 1995 F-6-7 Statements of Cash Flows for the Years Ended December 31, 1993 and 1994 and December 30, 1995 F-8 Notes to Financial Statements F-9 (a)(2) Financial Statement Schedules Schedule II-Valuation and Qualifying Accounts and Reserves. All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. (a)(3) Exhibits Exhibit Number Description - ------ ----------- 2(a) Stock Purchase Agreement dated and effective as of January 1, 1996, among the Company and David G. Shaw, Marc G. Langlois and David G. Shaw and Lynn R. Shaw, as Trustees of the David and Lynn Shaw Charitable Remainder Unitrust, dated February 12, 1996 and John E. Madocks and Catalina. ** 2(b) Put and Call Option Agreement by and among the Company, David G. Shaw, Marc G. Langlois and John E. Madocks. ** -36- 2(c) Confidentiality and Non-Competition Agreement by and among the Company, David G. Shaw and Catalina. ** 2(d) Confidentiality and Non-Competition Agreement by and among the Company, Marc G. Langlois and Catalina. ** 2(e) Confidentiality and Non-Competition Agreement by and among the Company, John E. Madocks and Catalina. ** 2(f) Special Option Agreement, among the Company, Catalina, David G. Shaw, Marc G. Langlois and John E. Madocks. ** 3(a)(1) Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3(a)(1) of Registration Statement 33-27112, effective March 28, 1989. 3(a)(2) Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3(a)(2) of Registration Statement 33-27112, effective March 28, 1989. 3(a)(3) Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company filed June 3, 1994.+ 3(b) By-laws of the Company. 10(a) Employment Agreement dated August 23, 1988, by and between the Company and Richard Williams, incorpo- rated by reference to Exhibit 10(b) of Registra- tion Statement 33-27112, effective March 28, 1989. 10(b) 1988 Stock Option Plan, incorporated by reference to Exhibit 10(c) of Registration Statement 33- 27112, effective March 28, 1989. 10(c) 1988 Restricted Stock Purchase Plan, incorporated by reference to Exhibit 10(d) of Registration Statement 33-27112, effective March 28, 1989. 10(d) Confidentiality Agreement between the Company and Heidelberger Druckmaschinen A.G., effective December 7, 1989 as amended, incorporated by reference to Exhibit 10(i) of the Company's Annual Report on Form 10-K for the year ended December 31, 1989. 10(e) Development and Supply Agreement dated July 23, 1991, by and between the Company and Inx -37- Incorporated, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1991. 10(f) Master Agreement effective January 1, 1991 by and between Heidelberger Druckmaschinen Aktiengesellschaft and the Company, incorporated by reference to the Company's Form 8-K, dated January 1, 1991. 10(g) Technology License effective January 1, 1991 by and between Heidelberger Druckmaschinen Aktiengesellschaft and the Company, incorporated by reference to the Company's Form 8-K, dated January 1, 1991. 10(h) Supply Agreement effective January 1, 1991 by and between Heidelberger Druckmaschinen Aktiengesellschaft and the Company, incorporated by reference to the Company's Form 8-K, dated January 1, 1991. 10(i) Memorandum of Performance No. 3 dated April 27, 1993 to the Master Agreement, Technology License, and Supply Agreement between the Company and Heidelberger Druckmaschinen Aktiengesellschaft, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1993. 10(j) Modification to Memorandum of Performance No. 3 dated April 27, 1993 to the Master Agreement, Technology License, and Supply Agreement between the Company and Heidelberger Druckmaschinen Aktiengesellschaft.+ 10(k) Memorandum of Performance No. 4 dated November 9, 1995 to the Master Agreement and Technology License and Supply Agreement between the Comapany and Heidelberger Druckmaschinen Aktiengesellschaft. 10(l) Lease dated as of September 10, 1987, relating to real property located at 8 Commercial Street, Hudson, New Hampshire, incorporated by reference to Exhibit 10(e) of Registration Statement 33- 27112, effective March 28, 1989. 10(m) Amendment to Lease relating to real property located at 8 Commercial Street, Hudson, New Hampshire, incorporated by reference to Exhibit 10(k) of the Company's Annual Report on Form 10-K for the year ended December 31, 1989. -38- 10(n) Third Amendment to Lease, dated September 15, 1990, relating to real property located at 8 Commercial Street, Hudson, New Hampshire, incorporated by reference to Exhibit 10(o) of the Company's Annual Report on Form 10-K for the year ended December 31, 1990. 10(o) Fourth Amendment to Lease, dated as of March 16, 1993, relating to real property located at 8 Commercial Street, Hudson, New Hampshire, Incorporated by reference to Exhibit 10(m) of the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10(p) Development and Supply Agreement dated November 13, 1991 by and between the Company and Gans Ink & Supply Co., Inc.* 10(q) Amendment to Employment Agreement between the Company and Richard Williams.* 10(r) 1991 Stock Option Plan.* 10(s) 1994 Stock Option Plan.+ 10(t) Non Employee Director Stock Option Plan.+ 10(u) Lease dated as of May 9, 1994, as amended, relating to facilities located at 9 Commercial Street, Hudson, New Hampshire.+ 23(a) Consent of BDO Seidman LLP. 23(b) Consent of Deloitte & Touche LLP. 27 Financial Data Schedule (b) During the quarter ended December 30, 1995 no reports on Form 8-K were filed. However, during January 1996 the Company filed a Form 8-K with respect to the termination of its former independent accountants on December 28, 1995. (c) See Item 14(a)(3) above. (d) See Item 14(a)(2) above. - -------------------- * Incorporated by reference to the Company's Annual report on Form 10-K for the year ended December 31, 1991. ** Incorporated by reference to the exhibit filed with the Company's Form 8-K for the event dated February 15, 1996. -39- + Incorporated by reference to the exhibit of the corresponding number continued under Company's Annual report on Form 10-K for the year ended December 31, 1994 -40- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PRESSTEK, INC. Dated: March 26 , 1996 By: /s/ Richard A. Williams ----------------------- Richard A. Williams Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ Richard A. Williams Chief Executive Officer, March 26, 1996 - ----------------------- Secretary and Director, Richard A. Williams (Principal Executive Officer) /s/ Robert E. Verrando President, Chief Operating March 26, 1996 - ----------------------- Officer and Director Robert E. Verrando /s/ Robert Howard Chairman of the Board and March 26, 1996 - ----------------------- Director Robert Howard /s/ Lawrence Howard Director March 26, 1996 - ----------------------- Dr. Lawrence Howard /s/ Howard N. Sparks Director March 26, 1996 - ----------------------- Harold N. Sparks /s/ Bert DePamphilis Director March 26, 1996 - ----------------------- Bert DePamphilis - ----------------------- Director March 26, 1996 John Dreyer /s/ Glenn J. DiBenedetto Chief Financial Officer March 26, 1996 - ------------------------ (Principal Financial and Glenn J. DiBenedetto Accounting Officer) -41- INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Certified Public Accountants F-2 Independent Auditors' Report F-3 Balance Sheets as of December 31, 1994 and December 30, 1995 F-4 Statements of Operations for the Years Ended December 31, 1993 and 1994, and December 30, 1995 F-5 Statements of Changes in Stockholders' Equity for the Three Years Ended December 30, 1995 F-6-7 Statements of Cash Flows for the Years Ended December 31, 1993 and 1994, and December 30, 1995 F-8 Notes to Financial Statements F-9 Financial Statement Schedule: Schedule II - Valuation and qualifying accounts and reserves FS-1 F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors Presstek, Inc. Hudson, New Hampshire We have audited the accompanying balance sheet of PRESSTEK, INC. as of December 30, 1995 and the related statements of operations, changes in stockholders' equity, and cash flows for the year then ended. We have also audited the financial statement schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Presstek, Inc. at December 30, 1995 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Also, in our opinion, the schedule presents fairly, in all material respects, the information set forth therein. BDO SEIDMAN, LLP New York, New York February 16, 1996 F-2 INDEPENDENT AUDITORS' REPORT PRESSTEK, INC.: We have audited the accompanying balance sheet of Presstek, Inc. as of December 31, 1994, and the related statements of operations, changes in stockholders' equity, and cash flows for each of the two years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit and to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statement present fairly, in all material respects the financial position of Presstek, Inc. as of December 31, 1994, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 3 to the financial statements, the Company changed its method of accounting for certain investments in debt and equity securities, effective January 1, 1994, to conform with Statement of Financial Accounting Standards No. 115. DELOITTE & TOUCHE LLP Bedford, New Hampshire March 15, 1995 F-3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements PRESSTEK, INC. BALANCE SHEETS
December 31, December 30, 1994 1995 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 1,532,636 $ 3,628,021 Marketable securities 254,381 3,050,825 Accounts receivable 4,187,049 7,888,559 Inventory 2,796,165 5,861,743 Other current assets 756,592 350,031 ---------- ---------- Total current assets 9,526,823 20,779,179 ---------- ---------- MARKETABLE SECURITIES - NON CURRENT 4,807,821 - ---------- ---------- PROPERTY AND EQUIPMENT: Machinery and equipment 3,820,160 5,659,211 Furniture and fixtures 281,844 372,889 Leasehold improvements 956,574 1,247,803 Other 38,184 34,498 ---------- ---------- Total 5,096,762 7,314,401 Less accumulated depreciation and amortization ( 2,322,770) ( 3,023,089) ---------- ---------- Property and equipment, net 2,773,992 4,291,312 ---------- ---------- OTHER ASSETS: Patent application costs, net 685,044 1,012,147 Software development costs 530,350 585,980 ---------- ---------- Total other assets 1,215,394 1,598,127 ---------- ---------- TOTAL $ 18,324,030 $ 26,668,618 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,275,492 $ 2,392,846 Accrued expenses 226,834 1,091,036 Accrued salaries and employee benefits 348,784 458,300 ---------- ---------- Total current liabilities 1,851,110 3,942,182 ---------- ---------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; authorized 1,000,000 shares; no shares issued or outstanding - - Common stock, $.01 par value; authorized 25,000,000 shares; issued and outstanding 7,194,020 shares at December 31, 1994; 14,765,300 shares at December 30, 1995 71,940 147,653 Additional paid-in capital 18,437,839 21,559,856 Unrealized loss on investments available for sale ( 199,334) ( 3,176) Retained earnings (deficit) ( 1,837,525) 1,022,103 ---------- ---------- Stockholders' equity 16,472,920 22,726,436 ---------- ---------- TOTAL $ 18,324,030 $ 26,668,618 ========== ==========
See notes to financial statements F-4 PRESSTEK, INC. STATEMENTS OF OPERATIONS For the Years Ended
December 31, December 31, December 30, 1993 1994 1995 ------------ ------------ ------------ REVENUES: Product sales $ 1,126,818 $ 9,462,032 $ 20,028,548 Royalties and fees from licensees 10,555,336 7,055,826 7,582,908 ---------- ---------- ---------- Total revenues 11,682,154 16,517,858 27,611,456 ---------- ---------- ---------- COSTS AND EXPENSES: Cost of products sold 754,700 6,944,268 14,923,968 Engineering and product development 5,647,562 5,123,439 6,155,421 Marketing 1,147,926 1,225,756 1,727,301 General and administrative 1,535,289 1,603,729 2,050,075 Nonrecurring charge 1,948,878 - - ---------- ---------- ---------- Total costs and expenses 11,034,355 14,897,192 24,856,765 ---------- ---------- ---------- OTHER INCOME (EXPENSE): Dividend and interest income 412,025 407,977 327,213 Other - net - 166 ( 2,276) ---------- ---------- ---------- Other income - net 412,025 408,143 324,937 ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 1,059,824 2,028,809 3,079,628 PROVISION FOR INCOME TAXES ( 100,000) ( 186,600) ( 220,000) ---------- ---------- ---------- NET INCOME $ 959,824 $ 1,842,209 $ 2,859,628 ========== ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES 14,222,574 14,865,344 15,855,076 ========== ========== ========== NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE $ .07 $ .12 $ .18 === === ===
See notes to financial statements F-5 PRESSTEK, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Three Years Ended December 30, 1995
Common Stock Additional ------------ Paid-in Shares Amount Capital ------ ------ ------- BALANCE AT DECEMBER 31, 1992 5,260,248 $52,602 $15,214,852 January through December, 1993: Issuances of common stock relative to the exercise of incentive stock options at $1.50 per share 91,000 910 135,590 Issuances of common stock relative to the exercise of nonqualified stock options at $5.00 - $14.75 per share 34,300 343 320,327 November, 1993: Issuances of common stock relative to the exercise of underwriter's warrants and unit warrants for cash at $5.75 and $6.25 per share, respectively 3,420 35 20,485 Tax benefit of disposition of stock options 80,000 Net income for the year ----------- ---------- ----------- BALANCE AT DECEMBER 31, 1993 5,388,968 53,890 15,771,254 February through March 1994: Issuance of common stock relative to the exercise of warrants at $12.50 and $14.25 per share 50,000 500 668,250 August, 1994: Five for four stock split, effected in the form of a 25% stock dividend, net of fractional shares 1,410,235 14,102 (17,782) January through December, 1994: Issuances of common stock relative to the exercise of incentive stock options at: $1.50 per share 54,361 544 341,126 $1.20 per share 62,500 625 74,375 Issuances of common stock relative to the exercise of nonqualified stock options at $5.00 - $16.75 per share 74,856 748 612,963 Issuances of common stock relative to the exercise of underwriters' warrants and unit warrants for cash at: $5.75 and $6.25 per share, respectively 95,254 953 570,571 $4.60 and $5.00 per share, respectively 57,846 578 277,082 Tax benefit of disposition of stock options Unrealized loss on marketable securities 140,000 Net income for the year ----------- ---------- ----------- BALANCE AT DECEMBER 31, 1994 7,194,020 71,940 18,437,839 January through December, 1995: Issuance of common stock relative to the exercise of incentive stock options at $10.00 - $15.55 per share 112,877 1,129 1,628,242 Issuance of common stock relative to the exercise of non-qualified stock options at $4.00 - $19.20 per share 159,931 1,599 1,282,760 January through March, 1995: Issuance of common stock relative to the exercise of underwriters' warrants and unit warrants for cash at $4.60 and $5.00 per share, respectively 22,500 225 107,775 May, 1995: Two for One stock split effected in the form of a 100% stock dividend 7,275,972 72,760 (72,760) Tax benefit of disposition of stock options 176,000 Unrealized gain on investments available for sale Net income for the year ----------- ---------- ----------- BALANCE AT DECEMBER 30, 1995 14,765,300 $147,653 $21,559,856 =========== ========== =========== Unrealized Loss On Investments Retained Available Earning Stockholders' For Sale (Deficit) Equity -------- --------- ------ BALANCE AT DECEMBER 31, 1992 $ -- $(4,639,558) $10,627,896 January through December, 1993: Issuances of common stock relative to the exercise of incentive stock options at $1.50 per share 136,500 Issuances of common stock relative to the exercise of nonqualified stock options at $5.00 - $14.75 per share 320,670 November, 1993: Issuances of common stock relative to the exercise of underwriter's warrants and unit warrants for cash at $5.75 and $6.25 per share, respectively 20,520 Tax benefit of disposition of stock options 80,000 Net income for the year 959,824 959,824 ----------- ---------- ----------- BALANCE AT DECEMBER 31, 1993 -- (3,679,734) 12,145,410 February through March 1994: Issuance of common stock relative to the exercise of warrants at $12.50 and $14.25 per share 668,750 August, 1994: Five for four stock split, effected in the form of a 25% stock dividend, net of fractional shares (3,680) January through December, 1994: Issuances of common stock relative to the exercise of incentive stock options at: $1.50 per share 341,670 $1.20 per share 75,000 Issuances of common stock relative to the exercise of nonqualified stock options at $5.00 - $16.75 per share 613,711 Issuances of common stock relative to the exercise of underwriters' warrants and unit warrants for cash at: $5.75 and $6.25 per share, respectively 571,524 $4.60 and $5.00 per share, respectively 277,660 Tax benefit of disposition of stock options 140,000 Unrealized loss on marketable securities (199,334) (199,334) Net income for the year 1,842,209 1,842,209 ----------- ---------- ---------- BALANCE AT DECEMBER 31, 1994 January through December, 1995: (199,334) (1,837,525) 16,472,920 Issuance of common stock relative to the exercise of incentive stock options at $10.00 - $15.55 per share 1,629,371 Issuance of common stock relative to the exercise of non-qualified stock options at $4.00 - $19.20 per share 1,284,359 January through March, 1995: Issuance of common stock relative to the exercise of underwriters' warrants and unit warrants for cash at $4.60 and $5.00 per share, respectively 108,000 May, 1995: Two for One stock split effected in the form of a 100% stock dividend Tax benefit of disposition of stock options 176,000 Unrealized gain on investments available for sale 196,158 196,158 Net income for the year 2,859,628 2,859,628 ----------- ---------- ----------- BALANCE AT DECEMBER 30, 1995 $(3,176) $1,022,103 $22,726,436 =========== ========== ===========
See notes to financial statements F-6-7
PRESSTEK, INC. STATEMENTS OF CASH FLOWS For the Years Ended December 31, December 31, December 30, 1993 1994 1995 ------------ ------------ ------------ CASH FLOWS - OPERATING ACTIVITIES: Net income $ 959,824 $ 1,842,209 $ 2,859,628 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Noncash elements of nonrecurring charge 1,453,101 -- -- State tax benefit of disposition of stock options 80,000 140,000 176,000 Depreciation 657,475 601,197 819,507 Amortization -- 55,639 178,529 Provision for warranty and other costs 20,000 215,000 916,242 (Gain) on disposal of equipment (3,617) (28,388) (25,748) Loss on sale of marketable securities -- -- 28,024 (Increase) decrease in: Accounts receivable 655,483 (3,384,070) (3,759,012) Inventory (821,546) (1,562,606) (3,165,578) Other current assets (191,674) (532,375) 406,561 Increase (decrease) in: Accounts payable and accrued expenses 987,149 (126,332) 1,222,816 Accrued salaries and employee benefits 55,672 105,134 109,516 Accrued state income taxes (160,000) -- -- Deferred income (1,811,664) -- -- ----------- ----------- ----------- Net cash provided by (used for) operating activities 1,880,203 (2,674,592) (233,515) ----------- ----------- ----------- CASH FLOWS - INVESTING ACTIVITIES: Purchases of property and equipment (599,898) (1,746,470) (2,387,379) Proceeds from sale of equipment -- 31,017 76,300 Increase in other assets (210,194) (674,200) (561,261) Sales and maturities of marketable securities 175,000 5,157,394 2,179,510 Purchases of marketable securities (3,224,743) (2,095,152) -- ----------- ----------- ----------- Net cash provided by (used for) investing activities (3,859,835) 672,589 (692,830) ----------- ----------- ----------- CASH FLOWS - FINANCING ACTIVITIES: Net proceeds from sale of common stock and warrants 477,690 2,544,635 3,021,730 ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,501,942) 542,632 2,095,385 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 2,491,946 990,004 1,532,636 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 990,004 $ 1,532,636 $ 3,628,021 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid during the period for income taxes $ 160,000 $ 52,000 =========== ===========
See notes to financial statements F-8 PRESSTEK, INC. NOTES TO FINANCIAL STATEMENTS 1. NATURE OF BUSINESS Business - Presstek, Inc. ("the Company" or "Presstek") 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(R), a patented proprietary, nonphotographic, toxic-free, digital imaging and printing plate 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. PEARL has completely replaced the Company's spark discharge technology. The GTO-DI was re-introduced in September 1993, utilizing PEARL as its direct imaging technology. The Company is now building an installed base of customers which utilizes its proprietary consumable printing plates on PEARL equipped Heidelberg presses. During the second quarter of 1995, the Company commenced shipments of kits to be utilized on Heidelberg's recently introduced Quickmaster DI 46-4. Presstek is also engaged in the development of additional products and applications that incorporate its proprietary PEARL technologies and consumables, including both computer-to-plate and other direct-to-press applications. At this time, the Company relies on Heidelberg to generate substantially all of its revenues. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Fiscal Year - On January 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 1995 fiscal year ended December 30. Fiscal 1993, 1994, and 1995 each reflect 52 week periods. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Many of the Company's estimates and assumptions used in the financial statements relate to the Company's products, which are subject to rapid technological change. It is reasonably possible that changes may occur in the near term that would affect management's estimates with respect to inventories, equipment and software development costs. Revenue Recognition - The Company records revenues on product sales and related royalties at the time of shipment. Certain fees and other reimbursements are recognized as revenue when the related services have been performed or the revenue otherwise earned. Product Warranties - The Company warrants its products against defects in material and workmanship for a period of one year. Anticipated future F-9 warranty costs are accrued by a charge to expense as products are shipped and the related revenue recognized. At December 31, 1994 and December 30, 1995, accrued expenses included accrued warranty costs of $199,000 and $601,000 and product replacement reserves of $28,000 and $291,000, respectively. Property and Equipment - Property and equipment are stated at cost and are depreciated using a straight-line method for both financial reporting and for tax purposes over their estimated useful lives (ranging from 3 to 7 years). Leasehold improvements are amortized over the life of the lease for financial reporting purposes and a required longer period for tax purposes. Software Development Costs - Software development costs for products and certain product enhancements are capitalized subsequent to the establishment of their technological feasibility (as defined in Statement of Financial Accounting Standards No. 86) based upon the existence of working models of the products which are ready for initial customer testing. Costs incurred prior to such technological feasibility or subsequent to a product's general release to customers are expenses as incurred. Prior to 1994, the Company did not incur material costs subject to capitalization. During 1994 and 1995, the Company incurred and capitalized $530,350 and $154,129, respectively, of costs subject to capitalization. Amortization of these costs commenced during 1995 using the straight-line method. Amortization expense for the year ended December 30, 1995 was $98,500. Inventory - Inventory is valued at the lower of cost or market, with cost determined on the first-in, first-out method. At December 31, 1994, and December 30, 1995, inventory consisted of the following: 1994 1995 ---- ---- Raw materials $ 1,269,607 $ 3,476,713 Work in process 952,704 1,959,382 Finished goods 573,854 425,648 ----------- ----------- Total $ 2,796,165 $ 5,861,743 =========== =========== Patent Application Costs - Patent application costs represent the expense of preparing and filing applications to patent the Company's proprietary technologies. Such costs are amortized against income over a period of five years, beginning on the date the patents are issued. As of December 30, 1995, the Company had been issued 49 patents. Amortization expense for the years ended December 31, 1993 and 1994, and December 30, 1995 was $53,904, $55,639, and $72,530, respectively. (Also see Note 10.) Research and Development Costs - Research and development costs are expenses as incurred for financial reporting purposes. Cash Flow Information - For purposes of reporting cash flows, the Company considers all savings deposits, certificates of deposit, and money market funds and deposits purchased with a maturity of three months or less to be cash equivalents. At December 31, 1994 and December 30, 1995, cash and cash equivalents consisted of cash balances on deposit and money market funds. Reclassification - Various accounts in the prior years' balance sheet and statement of operations have been reclassified for comparative purposes to conform with the presentation in the current-year financial statements. F-10 Effect of New Accounting Pronouncements Long-Lived Assets - Long-lived assets, such as property and equipment, are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. When any such impairment exists, the related assets will be written down to fair value. This policy is in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of," which is effective for fiscal years beginning after December 15, 1995. No write downs have been necessary through December 30, 1995. Stock-Based Compensation - The Company does not presently intend to adopt the fair value based method for accounting for stock compensation plans, as permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," which is effective for transactions entered into in fiscal years that begin after December 15, 1995. 3. MARKETABLE SECURITIES Effective January 1, 1994, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Marketable Securities are classified as available for sale and consist of United States Treasury Bills and Notes having maturity dates of more than three months, and are stated at fair value. Marketable securities are classified based on expected realization which, as of December 31, 1994, was consistent with security maturity date. Accordingly, at that date such securities were classified as current where maturity dates were one year or less, or noncurrent where maturity dates exceed one year from the balance sheet date. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Aggregate net unrealized holding losses of $199,334 and $3,176 at December 31, 1994 and December 30, 1995, respectively, have been included as a separate component of stockholders' equity in the accompanying balance sheet. Certain information with respect to the Company's marketable securities as of December 31, 1994 and December 30, 1995 is presented below: 1994 1995 ----------------------------------------------------- Current Noncurrent Total Total ------- ---------- ----- ----- Amortized Cost $254,154 $ 5,007,382 $ 5,261,536 $ 3,054,001 Gross Unrealized Holding Gains 227 - 227 7,810 Gross Unrealized Holding Losses ( 199,561) ( 199,561) ( 10,986) ------- --------- --------- --------- Fair Value $254,381 $ 4,807,821 $ 5,062,202 $ 3,050,825 ======= ========= ========= ========= For the years ended December 31, 1994 and December 30, 1995, the Company received proceeds from the sale or maturity of available for sale securities of $5,157,394 and $2,179,510 and recorded net realized losses of $28,174 and $28,024. In computing such realized losses, cost was determined using the specific cost method. The change in net unrealized holding gain or loss on F-11 available for sale securities that has been included in the separate component of stockholders' equity for the years ended December 31, 1994 and December 30, 1995 was $199,334 and $3,176, respectively. 4. NET INCOME PER COMMON SHARE Net income per common share is computed by dividing net income by the weighted average number of Common Stock and Common Stock equivalent shares outstanding. Common Stock equivalents represent the dilutive effect of the assumed exercise of outstanding stock options and warrants. On August 2, 1994, the Company's Board of Directors authorized a five-for-four stock split, effected in the form of a 25% stock dividend, during the third quarter of 1994. The split resulted in the issuance of 1,410,235 shares of common stock. On April 19, 1995, the Company's Board of Directors declared a two-for-one stock split, effected in the form of a 100% stock dividend, during the second quarter of 1995. The split resulted in the issuance of 7,275,972 shares of common stock. All references to average number of shares outstanding and prices per share have been restated retroactively to reflect the splits. A summary of the calculations for the years ended December 31, 1993 and 1994, and December 30, 1995 follows: F-12 (In Thousands, Except Per Share)
1993 1994 1995 ----------------- ---------------- ----------------- Fully Fully Fully Primary Diluted Primary Diluted Primary Diluted ------- ------- ------- ------- ------- ------- Net income $ 960 $ 960 $ 1,842 $ 1,842 $ 2,860 $ 2,860 ====== ====== ====== ====== ====== ====== Weighted average common shares outstanding 13,255 13,472 14,026 14,388 14,562 14,562 Common equivalent shares from assumed conversion of outstanding options and warrants whose effect are not antidilutive on earnings per share 1,663 1,663 1,938 2,131 1,742 1,770 Less shares assumed repurchased using the treasury method for calculation of net shares outstanding ( 695) ( 684) ( 1,099) ( 917) ( 449) ( 239) ------ ------ ------ ------ ------ ------ Weighted average common and common equivalent shares outstanding 14,223 14,451 14,865 15,602 15,855 16,093 ====== ====== ====== ====== ====== ====== Net income per common and common equivalent shares $ .07 $ .07 $ .12 $ .12 $ .18 $ .18 === === === === === ===
5. INCOME TAXES The Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes," as of January 1, 1993. SFAS 109 requires that the Company utilize an asset and liability approach for financial accounting and reporting for income taxes. The primary objectives of accounting for taxes under SFAS 109 are to (a) recognize the amount of tax payable for the current year and (b) recognize the amount of deferred tax liability or asset for the future tax consequences of events that have been reflected in the Company's financial statements or tax returns. F-13 The components of the provision for income taxes for the years ended December 31, 1993 and 1994 and December 30, 1995 were as follows: 1993 1994 1995 ---- ---- ---- Current tax expense $ 70,000 $ 46,600 $ 44,000 State tax benefit of disposition 80,000 140,000 176,000 of stock options Change in deferred tax asset - net (50,000) - - -------- -------- -------- Total provision $100,000 $186,600 $220,000 ======== ======== ======== Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. These temporary differences are determined in accordance with SFAS 109. Deferred tax assets and liabilities consisted of the following at December 31, 1994 and December 30, 1995: 1994 1995 ---- ---- Deferred tax assets: NOL carryforwards $ 2,856,000 $5,600,000 Tax credits 300,000 350,000 Warranty provision and other accruals 258,000 640,000 --------- --------- Gross deferred tax assets 3,414,000 6,590,000 --------- --------- Deferred tax liabilities: Patent application costs 274,000 368,000 Accumulated depreciation 162,000 187,000 --------- --------- Gross deferred tax liabilities 436,000 555,000 --------- --------- 2,978,000 6,035,000 Less valuation allowance (2,928,000) (5,985,000) --------- --------- Deferred tax asset - net $ 50,000 $ 50,000 ========= ========= The $50,000 deferred tax asset was included in other current assets at December 31, 1994 and December 30, 1995. The valuation allowance increased $403,000, $195,000, and $3,057,000 in 1993, 1994, and 1995, respectively. The difference between income taxes at the United States federal income tax rate and the effective income tax rate was as follows for the years ended December 31, 1993 and 1994, and December 30, 1995: F-14 1993 1994 1995 ---- ---- ---- Computed at federal statutory rate 34% 34% 34% Increase (decrease) resulting from: Expenses producing no current tax benefit 17% 2% 11% State tax, net of federal benefit 7% 7% 7% Alternative minimum tax 2% 2% - Net operating loss carryforwards 19% 10% 98% Compensation relative to stock option plans -58% -38% -140% Deductions for tax purposes previously expenses for financial statement purposes - 7% - 7% - Patent perfection costs and other - 5% - 1% - 3% -- -- --- Effective rate, net 9% 9% 7% == == === As of December 30, 1995, the Company had net operating loss carryforwards totaling approximately $16,500,000 resulting from compensation deductions 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. The following is a breakdown of the net operating losses and their expiration dates: Expiration date Amount of remaining NOL 2005 $2,230,000 2006 $5,020,000 2007 $ 550,000 2008 $ 600,000 2009 $8,100,000 In addition, the Company has available tax credit carryforwards (adjusted to reflect provisions of the Tax Reform Act of 1986) of approximately $350,000, which are available to offset future taxable income and income tax liabilities, when earned or incurred. 6. RELATED PARTIES During the years ended December 31, 1993 and 1994 and December 30, 1995, the Company made various sales to Howtek totaling approximately $38,800, $114,500, and $23,250, respectively. Mr. Robert Howard, Chairman and a principal stockholder of the Company, is the Chairman of the Board of Directors and a principal stockholder of Howtek and the father of Dr. Lawrence Howard, who was the President and Chief Executive Officer of the Company through November 30, 1992, when he resigned as President and was appointed, by the Board of F-15 Directors, Vice Chairman of the Board. Dr. Lawrence Howard was a director of Howtek until May 30, 1989. The Company subleases certain of its office facilities from Mr. Robert Howard, Chairman, as a tenant-at-will. Payments totaled $33,352, $35,379, and $35,400, respectively, for the years ended December 31, 1993 and 1994 and December 30, 1995. Mr. Howard was paid $100,000 during each of 1993 and 1994 as a bonus for consulting services rendered. The Company paid Mr. Howard $110,000 for consulting services provided to the Company during 1995. 7. STOCKHOLDERS' EQUITY References herein to shares, options, warrants and the prices per share have been restated to the 1994 and 1995 stock splits, effected in the form of stock dividends, referred to in Note 4. Preferred Stock - The Company's certificate of incorporation empowers the Board of Directors, without stockholder approval, to issue up to 1,000,000 shares of $.01 par value preferred stock, with dividend, liquidation, conversion, and voting or other rights to be determined upon issuance by the Board of Directors. Restricted Stock Purchase Plan - On August 22, 1988, the Company adopted a Restricted Stock Purchase Plan ("the Purchase Plan") authorizing the sale of up to 125,000 shares of common stock to its employees at a price to be determined by the Board of Directors, but in no event to be less than $.01 per share or greater than 10% of the then fair market value. At December 30, 1995, after adjustment for the 1994 and 1995 splits 40,000 shares remained available for sale. Stock Option Plans - On August 22, 1988, the Company adopted the 1988 Stock Option Plan (the "1988 Plan"), and effective August 19, 1991, the Company adopted the 1991 Stock Option Plan (the "1991 Plan"), and effective April 8, 1994, the Company adopted the 1994 Stock Option Plan (the "1994 Plan"). Each plan originally provided for the aware, to key employees and other persons, options to purchase up to 500,000 shares of the Company's common stock. As a result of the 1994 and 1995 stock splits, the number of shares of common stock issuable upon exercise of outstanding options granted under the above plans and upon exercise of options available for future grants increased by 25% and 100%, respectively. Options granted under the plans may be either Incentive Stock Options ("ISOs") or Nonqualified Options. Generally, ISOs may only be granted to employees of the F-16 Company, at an exercise price of not less than fair market value of the stock at the date of grant. Nonqualified Options may be granted to any person, at any exercise price. Nonqualified Options may be granted to any person, at any exercise price not less than par value, within the discretion of the Board of Directors or a committee appointed by the Board of Directors ("Committee"). Any options granted will generally become exercisable in increments over a period not to exceed ten years from the date of grant, to be determined by the Board of Directors or Committee, and generally will expire not more than ten years from the date of grant. Information concerning incentive stock option activity under the 1988, 1991, and 1994 plans for the years ended December 31, 1993 and 1994, and December 30, 1995 is summarized as follows: Option Option price Options Shares per share Exercisable ------ --------- ----------- Outstanding at December 31, 1992 193,800 $ 1.20 - $ 1.50 118,799 ======= Granted 186,808 $10.00 - $25.00 Exercised (91,000) $ 1.50 Cancelled/Expired - ------- Outstanding at December 31, 1993 289,608 $ 1.20 - $25.00 289,608 ======= Granted 509,000 $15.55 - $19.50 Exercised (116,861) $ 1.20 - $20.00 Cancelled/Expired (14,844) $20.00 - $25.00 ------- Outstanding at December 31, 1994 666,903 $10.00 - $19.50 12,591 ======= Granted 34,500 $41.275 - $52.75 Exercised (112,877) $15.55 - $20.00 Cancelled/Expired - ------- Outstanding at December 30, 1995 588,526 $10.00 - $52.75 76,279 ======= ====== The proceeds to the Company from incentive stock options exercised during the years ended December 31, 1993 and 1994 and December 30, 1995 totaled $136,500, $416,670, and $1,629,371, respectively. Information concerning nonqualified stock option activity under the 1988, 1991, and 1994 Plans for the years ended December 31, 1993 and 1994 and December 30, 1995 is summarized as follows: F-17 Option Option price Options Shares per share Exercisable ------ --------- ----------- Outstanding at December 31, 1992 819,719 $ 2.00 - $16.75 487,219 ======= Granted 268,624 $ 7.10 - $21.00 Exercised (34,300) $ 5.00 - $14.75 Cancelled/Expired (64,250) $10.38 - $21.00 ------- Outstanding at December 31, 1993 989,793 $ 2.00 - $19.40 865,543 ======= Granted 421,687 $ 9.70 - $29.20 Exercised (74,856) $ 5.00 - $16.75 Cancelled/Expired (2,878) $11.80 - $29.20 ------- Outstanding at December 31, 1994 1,333,746 $ 2.00 - $25.00 878,802 ======= Granted 52,750 $22.313 - $62.00 Exercised (191,381)* $ 4.00 - $15.55 Cancelled/Expired (245) $12.20 - $18.40 --------- Outstanding at December 30, 1995 1,194,870 $ 4.00 - $62.00 802,800 ========= ======= * Includes 31,450 additional options arising from the 1995 stock split. The incentive and nonqualified stock options summarized in the tables above were granted under various vesting schedules ranging from immediate to five years, with termination dates ranging from five to six years from dates of grant and may be subject to earlier termination as provided in the Plans. The proceeds to the Company from nonqualified stock options exercised during the years ended December 31, 1993 and 1994 and December 30, 1995 totaled $320,670, $613,711, and $1,284,359, respectively. Director Stock Option Plan - Effective December 1993, the Company adopted its Nonemployee Director Stock Option Plan (the "Director Plan"). Only nonemployee 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, options to purchase 2,500 shares at fair market value. Pursuant to the terms of the Director Plan, options to purchase 3,125 shares, after adjustment for the five-for-four stock split, were automatically granted to each of two of the directors in January, 1994, and options to purchase F-18 5,000 shares, after adjustment for the two-for-one stock split, were automatically granted to each of two of the directors in January, 1995. Underwriter's Warrants - In connection with an initial public offering during 1989, the Company issued the underwriter warrants to purchase 260,000 shares of common stock. Through December 30, 1995, 138,034 shares of common stock at $5.75 per share and 138,034 shares of common stock at $6.25 ($4.60 and $5.00 for exercises after the four-for-five stock split) were issued to certain designees of the underwriter pursuant to their exercise of warrants and unit warrants. The proceeds to the Company from these transactions totaled $1,559,993. At December 30, 1995, there were no remaining warrants outstanding. Other - On January 20, 1992, in consideration of the payment by Union Bank of Switzerland (the "Bank") to the Company of $25,000, the Company issued to the Bank a warrant which, entitled the Bank or its assigns to purchase from the Company 25,000 shares of common stock at $26.00 per share, which was subsequently amended to $14.25 per share. The Warrant was exercised during March, 1994, generating proceeds to the Company of $356,250. On February 11, 1994, the Company issued 25,000 shares of common stock, at $12.50 per share, to a consultant, in consideration of payment of $312,000 pursuant to the exercise of a warrant granted on August 12, 1992. 8. LEASES Effective March 16, 1993, the Company entered into an agreement to amend and extend the basic lease for its operating facilities for an additional period of three years ending March 15, 1996 with three one-year renewal options. The amended lease specifies a fixed base monthly rent of $8,693, plus a pro rata share of real estate taxes and certain other expenses. The Company paid approximately $132,000 in 1993, $130,000 in 1994, and $131,000 in 1995 under the lease agreement and amendments. During May, 1994, the Company entered into an additional three year lease agreement (which was amended in December 1994) for approximately 36,000 square feet to accommodate its manufacturing facilities. The lease, as amended, specifies a fixed base monthly rent of $11,250, plus real estate taxes, utilities, and certain other expenses. The lease contains an option to renew for an additional three years and a right of first refusal to F-19 purchase the property. The Company paid approximately $71,500 in 1994 and $165,000 in 1995 under this lease agreement. As of December 30, 1995, future minimum lease payments under these agreements were as follows: 1996 $ 152,386 1997 45,000 --------- Total $ 197,386 ========= 9. HEIDELBERG AGREEMENTS 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. Pursuant to this series of related agreements, as amended, the Company and Heidelberg agreed to certain terms relating to the integration of the Company's proprietary Direct Imaging Technology into various presses manufactured by Heidelberg and certain of its related parties (the "Heidelberg Presses") and the manufacture of components for and the commercialization of such presses. Pursuant to the Heidelberg Agreements, the Company granted Heidelberg certain exclusive rights, subject to the satisfaction of certain conditions, for the use of the Direct Imaging Technology in Heidelberg Presses. In consideration of 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 also provide for the Company to furnish, among other things, engineering and development work based upon work projects and budgets agreed to by the Company and Heidelberg. 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 and December 1995 in the case of the Supply Agreement. The Heidelberg Agreements also contain, among other things, certain early termination provisions and extension provisions. 10. NONRECURRING CHARGE During the second quarter of 1993 the Company recorded a $1,949,000 nonrecurring charge associated with the Company's change from spark discharge technology to its PEARL technology. The termination of shipments of units incorporating the spark discharge technology dictated that certain assets associated with the earlier imaging process, including certain property and F-20 equipment, unamortized patent costs and inventory, be written off, and that reserves be established for the transition to PEARL technology. The individual elements making up the charge consisted of write-offs of property and equipment, inventory, and patent application costs of $613,000, $546,000, and $294,000, respectively, and a reserve of $496,000 for certain estimated costs required to retrofit existing customer equipment. The reserve was fully utilized during 1993, 1994, and 1995. 11. OTHER INFORMATION In April 1995 the Company commenced an action against Agfa-Gevaert, N.V. ("Agfa") in the U.S. District Court for the District of New Hampshire alleging that Agfa violated provisions of a confidentiality agreement and a manufacturing agreement (the "Manufacturing Agreement") between the parties and misappropriated certain trade secrets of the Company. In June 1995, Agfa commenced an arbitration proceeding against the Company in the International Chamber of Commerce in which it seeks arbitration of the disputes between the parties arising from the Manufacturing Agreement and also seeks to have the trade secret issues determined in arbitration. In its request for arbitration Agfa has, among other things, charged Presstek with breaches of the Manufacturing Agreement, good faith and fair dealing, and is seeking damages in an amount alleged to be $2,000,000. The action commenced by the Company in District Court has been stayed to allow the arbitrators to determine the issues in dispute between the parties. The Company has vigorously pursued its claims against Agfa and intends to vigorously contest Agfa's assertions of breach of the Manufacturing Agreement and other claims. Although the Company and its counsel believes that an unfavorable outcome of the litigation and arbitration is unlikely, there can be no assurance as to the outcome of the proceedings. The Company has been advised that the Securities and Exchange Commission (the "Commission") has entered a formal order of private investigation with respect to certain activities by certain unnamed persons and entities in connection with the securities of the Company. In that connection, the Company has received subpoenas duces tecum requesting it to produce certain documents and has complied with the requests. 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. F-21 12. SUBSEQUENT EVENTS During February, 1996, the Company completed private placements of an aggregate of 282,846 shares of its common stock for net proceeds of $20,208,758 to a limited number of domestic individual and institutional investors. A portion of the funds raised from the private placements were utilized to complete the acquisition referred to below, with the balance to be utilized for general working capital purposes. 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 vapor deposition process to coat moving webs of material at high rates. The Company intends to continue the business of Catalina which will operate 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 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 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 100,000 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. F-22 PRESSTEK, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Charged to Balance at Charged to Other Changes Balance Beginning Costs and Account - Add (Deduct) - at End Year Description of Year Expenses Describe Describe of Year - ---- ----------- ---------- ---------- ---------- ------------- -------- 1993 Warranty reserve $ 70,000 $ 20,000 $ - $(12,556) (1) $ 77,444 ======= ======= ======= ======= ======= Equipment replacement reserve - 495,880 - (94,900) (2) 400,980 ======= ======= ======= ======= ======= 1994 Warranty reserve 77,444 215,000 - (93,360) (1) 199,084 ======= ======= ======= ======= ======= Equipment replacement reserve 400,980 - - (373,230) (2) 27,750 ======= ======= ======= ======= ======= 1995 Warranty reserve 199,084 467,500 - (65,370) (1) 601,214 ======= ======= ======= ======= ======= Equipment replacement reserve 27,750 291,240 - (27,750) (2) 291,240 ======= ======= ======= ======= =======
- ---------- (1) Warranty expenditures (2) Equipment replacement expenditures FS-1 EXHIBIT INDEX Exhibit No. Description Page No. 2(a) Stock Purchase Agreement dated and effective as of January 1, 1996, among the Company and David G. Shaw, Marc G. Langlois and David G. Shaw and Lynn R. Shaw, as Trustees of the David and Lynn Shaw Charitable Remainder Unitrust, dated February 12, 1996 and John E. Madocks and Catalina. ** 2(b) Put and Call Option Agreement by and among the Company, David G. Shaw, Marc G. Langlois and John E. Madocks. ** 2(c) Confidentiality and Non-Competition Agreement by and among the Company, David G. Shaw and Catalina. ** 2(d) Confidentiality and Non-Competition Agreement by and among the Company, Marc G. Langlois and Catalina. ** 2(e) Confidentiality and Non-Competition Agreement by and among the Company, John E. Madocks and Catalina. ** 2(f) Special Option Agreement, among the Company, Catalina, David G. Shaw, Marc G. Langlois and John E. Madocks. ** 3(a)(1) Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3(a)(1) of Registration Statement 33-27112, effective March 28, 1989. 3(a)(2) Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company, incorporated by reference to Exhibit 3(a)(2) of Registration Statement 33-27112, effective March 28, 1989. 3(a)(3) Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Company filed June 3, 1994.+ 3(b) By-laws of the Company. 10(a) Employment Agreement dated August 23, 1988, by and between the Company and Richard Williams, incorpo- rated by reference to Exhibit 10(b) of Registra- tion Statement 33-27112, effective March 28, 1989. 10(b) 1988 Stock Option Plan, incorporated by reference to Exhibit 10(c) of Registration Statement 33- 27112, effective March 28, 1989. 42 Exhibit No. Description Page No. 10(c) 1988 Restricted Stock Purchase Plan, incorporated by reference to Exhibit 10(d) of Registration Statement 33-27112, effective March 28, 1989. 10(d) Confidentiality Agreement between the Company and Heidelberger Druckmaschinen A.G., effective December 7, 1989 as amended, incorporated by reference to Exhibit 10(i) of the Company's Annual Report on Form 10-K for the year ended December 31, 1989. 10(e) Development and Supply Agreement dated July 23, 1991, by and between the Company and Inx Incorporated, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1991. 10(f) Master Agreement effective January 1, 1991 by and between Heidelberger Druckmaschinen Aktiengesellschaft and the Company, incorporated by reference to the Company's Form 8-K, dated January 1, 1991. 10(g) Technology License effective January 1, 1991 by and between Heidelberger Druckmaschinen Aktiengesellschaft and the Company, incorporated by reference to the Company's Form 8-K, dated January 1, 1991. 10(h) Supply Agreement effective January 1, 1991 by and between Heidelberger Druckmaschinen Aktiengesellschaft and the Company, incorporated by reference to the Company's Form 8-K, dated January 1, 1991. 10(i) Memorandum of Performance No. 3 dated April 27, 1993 to the Master Agreement, Technology License, and Supply Agreement between the Company and Heidelberger Druckmaschinen Aktiengesellschaft, incorporated by reference to the Company's Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1993. 10(j) Modification to Memorandum of Performance No. 3 dated April 27, 1993 to the Master Agreement, Technology License, and Supply Agreement between the Company and Heidelberger Druckmaschinen Aktiengesellschaft.+ 43 Exhibit No. Description Page No. 10(k) Memorandum of Performance No. 4 dated November 9, 1995 to the Master Agreement and Technology License and Supply Agreement between the Comapany and Heidelberger Druckmaschinen Aktiengesellschaft. 10(l) Lease dated as of September 10, 1987, relating to real property located at 8 Commercial Street, Hudson, New Hampshire, incorporated by reference to Exhibit 10(e) of Registration Statement 33- 27112, effective March 28, 1989. 10(m) Amendment to Lease relating to real property located at 8 Commercial Street, Hudson, New Hampshire, incorporated by reference to Exhibit 10(k) of the Company's Annual Report on Form 10-K for the year ended December 31, 1989. 10(n) Third Amendment to Lease, dated September 15, 1990, relating to real property located at 8 Commercial Street, Hudson, New Hampshire, incorporated by reference to Exhibit 10(o) of the Company's Annual Report on Form 10-K for the year ended December 31, 1990. 10(o) Fourth Amendment to Lease, dated as of March 16, 1993, relating to real property located at 8 Commercial Street, Hudson, New Hampshire, Incorporated by reference to Exhibit 10(m) of the Company's Annual Report on Form 10-K for the year ended December 31, 1993. 10(p) Development and Supply Agreement dated November 13, 1991 by and between the Company and Gans Ink & Supply Co., Inc.* 10(q) Amendment to Employment Agreement between the Company and Richard Williams.* 10(r) 1991 Stock Option Plan.* 10(s) 1994 Stock Option Plan.+ 10(t) Non Employee Director Stock Option Plan.+ 10(u) Lease dated as of May 9, 1994, as amended, relating to facilities located at 9 Commercial Street, Hudson, New Hampshire.+ 23(a) Consent of BDO Seidman LLP. 23(b) Consent of Deloitte & Touche LLP. 27 Financial Data Schedule - ------------- * Incorporated by reference to the Company's Annual report on Form 10-K for the year ended December 31, 1991. ** Incorporated by reference to the exhibit filed with the Company's Form 8-K for the event dated February 15, 1996. + Incorporated by reference to the exhibit of the corresponding number continued under Company's Annual report on Form 10-K for the year ended December 31, 1994 44 EX-3.(II) 2 BY-LAWS BY-LAWS OF PRESSTEK, INC. (A Delaware corporation) ------------------------------------------ ARTICLE I Meetings of Stockholders SECTION 1. Annual Meeting. The annual meeting of the stockholders of PRESSTEK, INC. (hereinafter, the "Corporation") for the election of directors and for the transaction of such other proper business shall be held at such place, on such date and at such time as may be fixed by the Board of Directors. SECTION 2. Special Meetings. Special meetings of the stockholders, unless otherwise prescribed by statute, may be called at any time by the Board of Directors and shall be held, only for the purposes specified in the notice of the meeting, at such place, either within or without the State of Delaware, and at such hour as may be designated by the Board of Directors. SECTION 3. Notice of Meetings. Written notice of each meeting of the stockholders, which shall state the place, date and hour of the meeting and the purpose or purposes for which it is called, shall be given not less than ten nor more than fifty days before the date of such meeting to each stockholder entitled to vote at such meeting, and, if mailed, it shall be deposited in the United States mail, postage prepaid, directed to the stockholder at his/her address as it appears on the records of the Corporation. Any such notice for any meeting other than the annual meeting shall indicate that it is being issued at the direction of the Board. Whenever notice is required to be given, a written waiver thereof signed by the person entitled thereto, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. When a meeting is adjourned to another time or place, notice need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 4. Quorum. At any meeting of the stockholders the holders of the majority of the shares, issued and outstanding and entitled to vote, shall be present in person or represented by proxy in order to constitute a quorum for the transaction of any business. In the absence of a quorum, the holders of a majority of the shares present in person or represented by proxy and entitled to vote may adjourn the meeting from time to time. At any such adjourned meeting at which a quorum may be present, the Corporation may transact any business which might have been transacted at the original meeting. -2- SECTION 5. Organization. At each meeting of the stockholders, the Chairperson of the Board or, in his/her absence or inability to act, the Vice-Chairperson of the Board or, in his/her absence or inability to act, the President or, in his/her absence or inability to act, a Vice President or, in his/her absence of inability to act, any person chosen by the majority of those stockholders present in person or represented by proxy shall act as chairperson of the meeting. The Secretary or, in his/her absence or inability to act, any person appointed by the chairperson of the meeting shall act as secretary of the meeting and keep the minutes thereof. SECTION 6. Order of Business. The order of business at all meetings of the stockholders shall be as determined by the chairperson of the meeting. SECTION 7. Voting. Unless otherwise provided in the Certificate of Incorporation, and subject to statute, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder: (a) on the date fixed pursuant to the provisions of Section 5 of Article V of these By-Laws as the record date for the determination of the stockholders to be entitled to notice of or to vote at such meeting; or (b) if no record date is fixed, then at the close of business on the day next preceding the day on which notice is given. -3- Each stockholder entitled to vote at any meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him/her by proxy. Any such proxy shall be delivered to the secretary of such meeting at or prior to the time designated in the order of business for so delivering such proxies. Except as otherwise required by statute or by the Certificate of Incorporation, a majority of the votes cast at a meeting of the stockholders shall be necessary to authorize any corporate action to be taken by vote of the stockholders. Unless required by statute, or determined by the chairperson of the meeting to be advisable, the vote on any question other than the election of directors need not be by ballot. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his/her proxy if there be such proxy, and shall state the number of shares voted. SECTION 8. List of Stockholders. A list of the stockholders entitled to vote at any meeting shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 9. Inspectors. The Board may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof. If the inspectors shall not be so appointed or if any of them shall fail to appear or act, the chairperson of the meeting shall appoint inspectors. Each inspector, before entering upon the discharge -4- of his/her duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his/her ability. The inspectors shall determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the chairperson of the meeting or any stockholder entitled to vote thereat, the inspector shall make a report in writing of any challenge, question or matter determined by them and shall execute a certificate of any fact found by them. No director or candidate for the office of director shall act as an inspector of an election of directors. Inspectors need not be stockholders. SECTION 10. Action Without a Meeting. Any action required or permitted to be taken at any meeting of stockholders may be taken without a meeting if the holders of a majority of the issued and outstanding shares entitled to vote consent thereto in writing, the writing or writings are filed with the minutes of the stockholders, and the stockholders not consenting thereto are notified in accordance with the General Corporation Law of the State of Delaware. -5- ARTICLE II Board of Directors SECTION 1. General Powers. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors. The Board may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Certificate of Incorporation directed or required to be exercised or done by the stockholders. The Board shall determine officers compensation. SECTION 2. Number, Qualifications, Election and Term of Office. The Board of Directors shall consist of such number as may determined from time to time by a majority vote of the entire Board of Directors, which number may be increased and decreased as provided below. The Board of Directors, by the vote of a majority of the entire Board, may increase the number of Directors and may elect Directors to fill the vacancies created by any such increase in the number of Directors until the next annual meeting or until their successors are duly elected and qualify. The Board of Directors, by the vote of a majority of the entire Board, may decrease the number of Directors, but any such decrease shall not affect the term of office of any Director. Vacancies occurring by reason of any such increase or decrease shall be filled in accordance with Section 14 of this Article II. SECTION 3. Appointment of Chairperson and Vice- Chairperson. (a) The Board is empowered to appoint a Chairperson of the Board of Directors. The Chairperson shall act -6- as chairperson of all meetings of the Board of Directors and at all special and annual meetings of stockholders, and shall have control over the agenda of such meetings, all in accordance with the provisions of these By-laws and the Certificate of Incorporation. The Chairperson shall perform such other duties as may from time to time be assigned to him/her by the Board. (b) The Board is empowered to appoint a Vice- Chairperson of the Board of Directors. In the absence of the Chairperson, the Vice-Chairperson shall act as chairperson of all meetings of the Board of Directors and at all special and annual meetings of stockholders. The Vice Chairperson shall perform such other duties as may from time to time be assigned to him/her by the Board. SECTION 4. Place of Meeting. The Board of Directors shall hold its meetings at such place, within or without the State of Delaware, as it may from time to time determine or as shall be specified in the notice of any such meeting. SECTION 5. Annual Meeting. The Board shall meet for the purpose of organization, the election of officers and the transaction of other business as soon as practicable after each annual meeting of the stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. Such meeting may be held at any other time or place, within or without the State of Delaware, which shall be specified in a notice thereof given as hereinafter provided in Section 8 of this Article II. -7- SECTION 6. Regular Meetings. Regular meetings of the Board shall be held at such time as the Board may fix. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day. Notice of regular meetings of the Board need not be given except as otherwise required by statute or these By-Laws. SECTION 7. Special Meetings. Special meetings of the Board may be called by the Chairperson of the Board, the Vice- Chairperson of the Board, or by a majority of the entire Board. SECTION 8. Notice of Meetings. Notice of each special meeting of the Board (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 8, in which notice shall be stated the time and place of the meeting. Except as otherwise required by these By-laws, such notice need not state the purposes of such meeting. Notice of each such meeting shall be mailed, postage prepaid, to each director, addressed to him/her at his/her residence or usual place of business, by first-class mail, at least two (2) days before the day on which such meeting is to be held, or shall be sent addressed to him/her at such place by telegraph, telex, cable or wireless, or be delivered to him/her personally or by telephone, at least 24 hours before the time at which such meeting is to be held. A written waiver of notice, signed by the director entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to -8- notice. Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting without protesting, prior to or at its commencement, the lack of notice to him/her. SECTION 9. Quorum and Manner of Acting. Except as hereinafter provided, a majority of the entire Board shall be present in person or by means of a conference telephone or similar communications equipment which allows all persons participating in the meeting to hear each other at the same time at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting; and, except as otherwise required by statute or the Certificate of Incorporation, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board. In the absence of a quorum at any meeting of the Board, a majority of the directors present thereat may adjourn such meeting to another time and place. Notice of the time and place of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless such time and place were announced at the meeting at which the adjournment was taken, to the other directors. At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called. The directors shall act only as a Board and the individual directors shall have no power as such. -9- SECTION 10. Action Without a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board consent thereto in writing, and the writing or writings are filed with the minutes of the Board. SECTION 11. Telephonic Participation. Members of the Board of Directors may participate in a meeting of the Board by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation in such a meeting shall constitute presence in person at such meeting. SECTION 12. Organization. At each meeting of the Board, the Chairperson of the Board or, in his/her absence or inability to act, the Vice-Chairperson or, in his/her absence or inability to act, another director chosen by a majority of the directors present shall act as chairperson of the meeting and preside thereat. The Secretary or, in his/her absence or inability to act, any person appointed by the chairperson shall act as secretary of the meeting and keep the minutes thereof. SECTION 13. Resignations. Any director may resign at any time upon written notice to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. -10- SECTION 14. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If there are no directors in office, then a special meeting of stockholders for the election of directors may be called and held in the manner provided by statute. When one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office until the next election of directors and until their successors shall be elected and qualified. SECTION 15. Removal of Directors. Except as otherwise provided in the Certificate of Incorporation or in these By-laws, any director may be removed, either with or without cause, at any time, by the affirmative vote of the holders of record of a majority of the issued and outstanding stock entitled to vote for the election of directors of the Corporation given at a special meeting of the stockholders called and held for the purpose; and the vacancy in the Board caused by such removal may be filled by such stockholders at such meeting, or, if the stockholders shall fail to fill such vacancy, as in these By-Laws provided. SECTION 16. Compensation. The Board of Directors shall have authority to fix the compensation, including fees and -11- reimbursement of expenses, of directors for services to the Corporation in any capacity. ARTICLE III Executive and Other Committees SECTION 1. Executive and Other Committees. The Board may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of two or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the powers of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Each committee shall keep written minutes of its proceedings and shall report such minutes to the Board when required. All such proceedings shall be subject to revision or alteration by the Board; provided, however, that third parties shall not be prejudiced by such revision or alteration. -12- SECTION 2. General. A majority of any committee may determine its action and fix the time and place of its meetings, unless the Board shall otherwise provide. Notice of such meeting shall be given to each member of the committee in the manner provided for in Article II, Section 8. The Board shall have any power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee. Nothing herein shall be deemed to prevent the Board from appointing one or more committees consisting in whole or in part of persons who are not directors of the Corporation; provided, however, that no such committee shall have or may exercise any authority of the Board. SECTION 3. Action Without a Meeting. Any action required or permitted to be taken by any committee at a meeting may be taken without a meeting if all of the members of the committee consent in writing to the adoption of the resolutions authorizing such action. The resolutions and written consents thereto shall be filed with the minutes of the committee. SECTION 4. Telephone Participation. One or more members of a committee may participate in a meeting by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at the meeting. -13- ARTICLE IV Officers SECTION 1. Number and Qualifications. The officers of the Corporation shall include the Chief Executive Officer, Chief Operating Officer, President, one or more Executive Vice Presidents, one or more Vice Presidents, the Treasurer and the Secretary. Any number of offices may be held by the same person. Such officers shall be elected from time to time by the Board. Each officer shall hold his/her office until his/her successor is elected and qualified or until his/her earlier resignation or removal. The Board may from time to time elect, or delegate to the President or the Executive Vice President the power to appoint, such other officers (including one or more Assistant Treasurers and one or more Assistant Secretaries) and such agents as may be necessary or desirable for the business of the Corporation. Such other officers and agents shall have such duties and shall hold their offices for such terms as may be prescribed by the Board or by the appointing authority. SECTION 2. Resignations. Any officer may resign at any time upon written notice to the Corporation. Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 3. Removal. Any officer or agent of the corporation may be removed, either with or without cause, at any -14- time, by the Board at any meeting of the Board or, except in the case of an officer or agent elected or appointed by the Board, by the President, or the Executive Vice President. SECTION 4. Vacancies. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise, shall be filled for the unexpired portion of the term of the office which shall be vacant, in the manner prescribed in these By-laws for the regular election or appointment to such office. SECTION 5. The Chief Executive Officer. The Chief Executive Officer shall have general supervision and direction of the business and affairs of the Corporation, subject, however, to the direction and control of the Board. The Chief Executive Officer may sign and execute in the name of the Corporation deeds, mortgages, bond, contracts or other instruments. He shall perform all duties incident to the office of the Chief Executive Officer and shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as the Board may from time to time determine. SECTION 6. The Chief Operating Officer. The Chief Operating Officer shall have general supervision and direction of the business and affairs of the Corporation and shall have general and active supervision and direction over the business operations and affairs of the Corporation and over its several officers, agents and employees, subject, however, to the direction and control of the Board. The Chief Operating Officer may sign and execute in the name of the Corporation deeds, mortgages, bond, contracts or other instruments. He shall perform all duties -15- incident to the office of the Chief Operating Officer and shall, when requested, counsel with and advise the other officers of the Corporation and shall perform such other duties as the Board may from time to time determine. SECTION 7. The President. The President shall have such powers and perform such duties as from time to time may be assigned to him/her by the Board. SECTION 8. Executive Vice President. The Executive Vice President shall have such powers and perform such duties as from time to time may be assigned to him/her by the Board. SECTION 9. Vice Presidents. Each Vice President shall have such powers and perform such duties as from time to time may be assigned to him/her by the Board. SECTION 10. The Treasurer. The Treasurer shall: (a) have charge and custody of, and be responsible for, all the funds and securities of the Corporation; (b) keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation; (c) cause all monies and other valuables to be deposited to the credit of the Corporation in such depositories as may be designated by the Board; (d) receive, and give receipts for, monies due and payable to the Corporation from any source whatsoever; -16- (e) disburse the funds of the Corporation and supervise the investment of its funds as ordered or authorized by the Board, taking proper vouchers therefor; and (f) in general, have all the powers and perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him/her by the Board, the Chairperson of the Board or the President. SECTION 11. The Secretary. The Secretary shall: (a) record the proceedings of the meetings of the stockholders and directors in a minute book to be kept for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-laws and as required by law; (c) be custodian of the records and the seal of the Corporation and affix and attest the seal to all stock certificates of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal; -17- (d) see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and (e) in general, have all the powers and perform all the duties incident to the office of Secretary and such other duties a from time to time may be assigned to him/her by the Board, the Chairperson of the Board or the President. SECTION 12. Officers' Bonds or Other Security. The Board may secure the fidelity of any or all of its officers or agents by bond or otherwise, in such amount and with such surety or sureties as the Board may require. SECTION 13. Compensation. The compensation of the officers of the Corporation for their services as such officers shall be fixed from time to time by the Board; provided, however, that the Board may delegate to the Chairperson of the Board or the President the power to fix the compensation of officers and agents appointed by the Chairperson of the Board or the President, as the case may be. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the Corporation, but any such officer who shall also be a director (except in the event there is only one director of the Corporation) shall not have any vote in the determination of the amount of compensation paid to him/her. -18- ARTICLE V Shares. etc. SECTION 1. Stock Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairperson or Vice- Chairperson of the Board or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, certifying the number of shares owned by him/her in the Corporation. Any of or all the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may nevertheless be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 2. Books of Account and Record of Stockholders. The books and records of the Corporation may be kept at such places, within or without the State of Delaware, as the Board of Directors may from time to time determine. The stock record books and the blank stock certificate books shall be kept by the Secretary or by any other officer or agent designated by the Board of Directors. SECTION 3. Transfer of Shares. Transfers of shares of stock of the Corporation shall be made on the stock records of the Corporation only upon authorization by the registered holder thereof, or by his/her attorney thereunto authorized by power of -19- attorney duly executed and filed with the Secretary or with a transfer agent or transfer clerk, and on surrender of the certificate or certificates for such shares properly endorsed or accompanied by a duly executed stock transfer power and the payment of all taxes thereon. Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person in whose name any share or shares stand on the record of stockholders as the owner of such share or shares for all purposes, including, without limitation, the rights to receive dividends or other distributions, and to vote as such owner, and the Corporation may hold any such stockholder of record liable for calls and assessments and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in any such shares or shares on the part of any other person whether or not it shall have express or other notice thereof. Whenever any transfers of shares shall be made for collateral security and not absolutely, and both the transferor and transferee request the Corporation to do so, such fact shall be stated in the entry of the transfer. SECTION 4. Regulations. The Board may make such additional rules and regulations, not inconsistent with these By-laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation. It may appoint, or authorize any officer or officers to appoint, one or more transfer agents or one or more transfer clerks and one or more registrars and may require all certificates for shares of stock to bear the signature or signatures of any of them. -20- SECTION 5. Fixing of Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. SECTION 6. Lost, Stolen or Stock Certificates. The holder of any certificate representing shares of Stock of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of such certificate, and the Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Board may, in its discretion, require the owner of the lost, stolen or destroyed certificate, or his/her legal representative, to give the Corporation a bond sufficient, as the Board in its absolute discretion shall determine, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate. Anything herein to the contrary notwithstanding, the Board, in its absolute discretion, may refuse to issue any such new certificate, except -21- pursuant to judicial proceedings under the laws of the State of Delaware. ARTICLE VI Contracts, Checks, Drafts, Bank Accounts, Etc. SECTION 1. Execution of Contracts. Except as otherwise required by statute, the Certificate of Incorporation or these By- Laws, any contract or other instrument may be executed and delivered in the name and on behalf of the Corporation by such officer or officers (including any assistant officer) of the Corporation as the Board may from time to time direct and by the Corporation's Chairperson and Vice-Chairperson of the Board, if the Board so directs. Such authority may be general or confined to specific instances as the Board may determine. Unless authorized by the Board or expressly permitted by these By-Laws, no officer, director, or agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to tender it pecuniarily liable for any purpose or to any amount. SECTION 2. Loans. Unless the Board shall otherwise determine, the President or any Vice-President may effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes, bonds or other certificates or evidences of indebtedness of the Corporation, but no officer or officers shall mortgage, pledge, hypothecate or transfer any securities or -22- other property of the Corporation other than in connection with the purchase of chattels for use in the Corporation's operations, except when authorized by the Board. SECTION 3. Checks Drafts. etc. All checks, drafts, bills of exchange or other orders for the payment of money out of the funds of the Corporation, and all notes or other evidence of indebtedness of the Corporation, shall be signed in the name and on behalf of the Corporation by such persons and in such manner as shall from time to time be authorized by the Board. SECTION 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositaries as the Board may from time designate or as may be designated by any officer or officers of the Corporation to whom such power of designation may from time to time be delegated by the Board. For the purpose of deposit and for the purpose of collection for the account of the Corporation, checks, drafts and other orders for the payment of money which are payable to the order of the Corporation may be endorsed, assigned and delivered by any officer or agent of the Corporation. SECTION 5. General and Special Bank Accounts. The Board may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositaries as the Board may designate or as may be designated by any officer or officers of the Corporation to whom such power of designation may from time to time be delegated by the Board. The Board may make such special rules and regulations with respect to -23- such bank accounts, not inconsistent with the provisions of these By-Laws, as it may deem expedient. ARTICLE VII Offices SECTION 1. Registered Office. The registered office and registered agent of the Corporation will be as specified in the Certificate of Incorporation of the Corporation. SECTION 2. Other Offices. The Corporation may also have such offices, both within or without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE VIII Fiscal Year The fiscal year of the Corporation shall be as determined by the Board of Directors. ARTICLE IX Seal The seal of the Corporation shall be circular in form, shall bear the name of the Corporation and shall include the words and numbers "Corporate Seal", "Delaware" and the year of incorporation. ARTICLE X Indemnification SECTION 1. General. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to -24- any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, or by or in the right of the Corporation to procure a judgment in its favor, by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him/her in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, in accordance with and to the full extent permitted by statute and by the Certificate of Incorporation of the Corporation. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this section. The indemnification provided by this section shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under these By-Laws or any agreement or vote of stockholders or disinterested directors or otherwise, both as to action in his/her official capacity and as to action in another capacity while -25- holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 2. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him/her and incurred by him/her in any such capacity, or arising out of his/her status as such, whether or not the Corporation would have the power to indemnify him/her against such liability under the provisions of statute or of this section. ARTICLE XI Amendment The By-Laws may be amended, repealed or altered by vote of the holders of a majority of the shares of stock at the time entitled to vote in the election of directors, except as otherwise provided in the Certificate of Incorporation. The By-Laws may also be amended, repealed or altered by the Board of Directors, but any By-Law adopted by the Board of Directors may be amended, repealed or altered by the stockholders entitled to vote thereon as herein provided. -26- EX-10.K 3 MEMORANDUM OF UNDERSTANDING NO. 4 Confidential portions of this document as indicated by [*] have been omitted and filed separately with the Securities and Exchange Commission. HEIDELBERG MEMORANDUM OF UNDERSTANDING NO. 4 between PRESSTEK and HEIDELBERG on 9th day of Nov. 1995 Both parties agreed on following issues: 1. Defective Diodes replacement costs: Heidelberg's share of replacement costs of US-$[ * ] of defective diodes shall be divided. Heidelberg's share shall be US-$[ * ] to be paid prior to December 18, 1995. [ * ]. 2. Increase of kit price: From kit No. 81 the price will increase to US-$[ * ] each. This price will be valid until the diode price is lower than US-$[ * ] ea. With a diode price of US-$[ * ] ea the kit price will be US-[ * ]. 3. QM-Royalty payments in 1995: Until Dec. 31, '95, the invoice for the kit will also include the royalty, this amount will be paid with the invoice in the usual 45 days. This will be also applicable to the already delivered and billed kits (approx. [ * ] kits). Base of the royalty is the ex factory net price of DM [ * ], to be paid with the official exchange rate when debit note is issued. After Jan. 1, 1996 royalty will be billed with the kit shipment but will be paid in accordance with the terms of the royalty payment terms of the Technology license. Kit payments will be paid separately in 45 days. 4. Shipments until approximately Jan. '96: Scheduled shipments will be held at Presstek until the new diode with the confirmed improvements are available and assembled in the kit. Heidelberg accepts responsibility for these completed kits held for them at Presstek. - -------------------------------------------------------------------------------- Page 1 These units are stored by Presstek for Heidelberg. The insurance is covered by Presstek. Heidelberg will accept and prepay all invoices for the scheduled withheld deliveries. Ship when diodes are at latest engineering change order - we will have approximately 42 kits at the end of Jan. 1996. 5. Diode inspection and replacements on kits being at Heidelberg stock: Heidelberg will make an incoming inspection on all kits on stock (based on the agreed test procedure) and send rejected diodes to Presstek for exchange, free of charge. Presstek will replace the rejected diodes with 100% tested, either existing or new improved diodes. 6. US-$[ * ] payment from Heidelberg to Presstek: Heidelberg agrees to pay Presstek US-$[ * ] in 12 mth equal payments of US-$[ * ] during 1996. These payments will be sustaining engineering services. 7. QM-DI Royalty rate: All previous QM-DI exclusive Royalty rate agreements are superceded by this agreement to have a [ * ]% royalty rate for the current exclusive license. 8. Plate material in stock at Presstek: Presstek and Heidelberg will work out an arrangement about the use of the plate material on stock at Presstek. This material will be replaced for customer use by a still to be approved white material. A special price will be agreed to for this material if it is not acceptable for customer use. 9. Warranty of kits and components: Presstek agrees on a one year warranty from the date of shipping the press to the customer but not longer than 18 mths from Presstek shipments. This agreement does not modify the existing Master Agreement, Technology License, Supply Agreement and Memorandum of Performance No. 1-3 other than issue 7 and 9 in this agreement. Heidelberg, 8th Dec., 1995 /s/ Dr. Herbert Meyer /s/ Dietmar Kurz /s/ Richard A. Williams Dr. Herbert Meyer Dietmar Kurz Richard A. Williams Heidelberger Druckmaschinen AG Presstek - -------------------------------------------------------------------------------- Page 2 EX-23.A 4 CONSENT OF BDO SEIDMAN, LLP EXHIBIT 23 (A) CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Presstek, Inc. Hudson, New Hampshire We hereby consent to the incorporation by reference in the respective Prospectuses constituting part of the Registration Statements on Form S-8 (Nos. 33-80466, 33-61215 and 33-39337) and on Form S-3 (No. 33-48342), of our report dated February 16, 1996, relating to the financial statements and schedule of Presstek, Inc. appearing in the Company's Annual Report on Form 10-K for the year ended December 30, 1995. We also consent to the references to us under the caption "Experts" in the Prospectuses. BDO SEIDMAN, LLP New York, New York March 26, 1996 EX-23.B 5 INDEPENDENT AUDITORS' CONSENT INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-80466, 33-61215 and No. 33-39337 of Presstek, Inc. on Forms S-8 and in Registration Statement No. 33-48342 of Presstek, Inc. on Form S-3 of our report dated March 15, 1995, appearing in this Annual Report on Form 10-K of Presstek, Inc. for the year ended December 30, 1995. /s/ DELOITTE & TOUCHE LLP Bedford, New Hampshire March 25, 1996 EX-27 6 ART. 5 FDS FOR 1995 10-K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR DECEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-30-1995 DEC-30-1995 3,628,021 3,050,825 7,888,559 0 5,861,743 20,779,179 7,314,401 3,023,089 26,668,618 3,942,182 0 0 0 147,653 22,578,783 26,668,618 20,028,548 27,611,456 14,923,968 24,856,765 0 0 0 3,079,628 220,000 2,859,628 0 0 0 2,859,628 .18 .18
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