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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED MARCH 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO ___________
Commission File Number 000-23119
KOFAX IMAGE PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 33-0114967
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16245 Laguna Canyon Rd, Irvine, California 92618
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(Address of principal executive offices) (Zip Code)
(949) 727-1733
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(Registrant's telephone number, including area code)
3 Jenner Street, Irvine, California 92618
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(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practical date.
Class Outstanding at April 30, 1999
- ----------------------------- -----------------------------
Common Stock, $.001 par value 5,303,701 shares
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KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
ITEM PAGE
NUMBER NUMBER
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<S> <S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets - March 31, 1999
(unaudited) and June 30, 1998................................ 3
Condensed Consolidated Statements of Operations (unaudited) -
Three Months Ended March 31, 1999 and 1998
and Nine Months Ended March 31, 1999 and 1998................ 4
Condensed Consolidated Statements of Cash Flows (unaudited) -
Nine Months Ended March 31, 1999 and 1998.................... 5
Notes to Condensed Consolidated Financial
Statements (unaudited)....................................... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 8
PART II. OTHER INFORMATION
ITEM 3. Legal Proceedings................................................ 15
ITEM 6. Exhibits and Reports on Form 8-K................................. 15
Signatures....................................................... 16
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
--------- --------
(unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 19,851 $ 16,522
Short-term investments 5,467 4,343
Accounts receivable, net 5,106 5,261
Inventory (Note 2) 1,769 1,565
Prepaid expenses and other current assets 1,519 948
-------- --------
Total current assets 33,712 28,639
Property and equipment, net 1,485 1,740
Deferred income taxes 1,343 1,343
Other assets 104 393
-------- --------
Total assets $ 36,644 $ 32,115
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,254 $ 1,207
Accrued liabilities:
Compensation 1,623 1,237
Deferred revenue 880 588
Other 2,246 1,458
-------- --------
Total current liabilities 6,003 4,490
Stockholders' equity
Common stock, $.001 par value, 40,000,000 shares authorized;
5,332,876 and 5,307,416 shares issued and outstanding at
March 31, 1999 and June 30, 1998 17,156 17,125
Retained earnings 14,040 11,136
Treasury stock, 87,865 and 100,000 shares at cost at
March 31, 1999 and June 30, 1998 (555) (636)
-------- --------
Total stockholders' equity 30,641 27,625
-------- --------
Total liabilities and stockholders' equity $ 36,644 $ 32,115
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY
Condensed Consolidated Statement of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 9,824 $ 8,509 $28,091 $24,434
Cost of sales 2,173 1,945 6,384 5,781
------- ------- ------- -------
Gross profit 7,651 6,564 21,707 18,653
Operating expenses:
Sales and marketing 3,030 2,667 8,572 7,785
Research and development 2,175 2,052 6,461 5,742
General and administrative 786 721 2,315 1,943
------- ------- ------- -------
Total operating expenses 5,991 5,440 17,348 15,470
------- ------- ------- -------
Income from operations 1,660 1,124 4,359 3,183
Other income, net 247 232 809 477
------- ------- ------- -------
Income before provision for income taxes 1,907 1,356 5,168 3,660
Provision for income taxes 648 522 1,821 1,409
------- ------- ------- -------
Net income $ 1,259 $ 834 $ 3,347 $ 2,251
======= ======= ======= =======
Basic net income per share (Note 3)
$ 0.24 $ 0.16 $ 0.63 $ 0.59
======= ======= ======= =======
Basic weighted average common shares
(Note 3) 5,306 5,367 5,282 3,830
======= ======= ======= =======
Diluted net income per share (Note 3) $ 0.23 $ 0.15 $ 0.62 $ 0.45
======= ======= ======= =======
Diluted weighted average common shares
(Note 3) 5,474 5,486 5,412 4,957
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-------------------------
1999 1998
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(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,347 $ 2,251
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,018 1,153
Changes in operating assets and liabilities:
Accounts receivable 155 (1,046)
Inventory (204) 149
Other current assets (571) (135)
Accounts payable 47 59
Other current liabilities 1,466 1,196
-------- --------
Net cash provided by operating activities 5,258 3,627
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (649) (899)
Decrease in other assets 175 99
Purchase of short-term investments (1,124) (294)
-------- --------
Net cash used in investing activities (1,598) (1,094)
-------- --------
Cash flows from financing activities:
Principal payments on notes payable -- (821)
Net proceeds from issuance of common stock 644 12,643
Repurchase of common stock (975) --
-------- --------
Net cash provided by (used in) financing
activities (331) 11,822
-------- --------
Net increase in cash and cash equivalents 3,329 14,355
Cash and cash equivalents, beginning of period 16,522 801
-------- --------
Cash and cash equivalents, end of period $ 19,851 $ 15,156
======== ========
Supplemental disclosure of cash flow information:
Interest paid $ 0 $ 27
======== ========
Income taxes paid $ 1,146 $ 865
======== ========
</TABLE>
Noncash Activity - During the nine months ended March 31, 1998, the Company
converted 2,667,002 shares of outstanding convertible redeemable preferred stock
into common stock which resulted in a $4,090 increase in common stock and the
reversal of $3,140 of previously accreted cumulative dividends in arrears.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated financial statements of Kofax Image Products, Inc.
and subsidiary (the "Company") presented herein have been prepared pursuant to
the rules of the Securities and Exchange Commission for quarterly reports on
Form 10-Q and do not include all of the information and note disclosures
required by generally accepted accounting principles. These statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto for the year ended June 30, 1998, included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1998.
The condensed consolidated financial statements and notes herein are unaudited,
but in the opinion of management, include all the adjustments (consisting only
of normal, recurring adjustments) necessary to present fairly the consolidated
financial position, results of operations and cash flows of the Company and its
subsidiary. The results of operations for the interim periods shown herein are
not necessarily indicative of the results to be expected for any future interim
period or for the entire year.
2. INVENTORIES
Inventories, which include material, labor and manufacturing overhead, are
stated at the lower of cost (first-in, first-out) or market and consist of the
following:
<TABLE>
<CAPTION>
MARCH 31, 1999 JUNE 30, 1998
-------------- -------------
<S> <C> <C>
Raw materials $ 648 $ 827
Work-in-process 791 511
Finished goods 330 227
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$1,769 $1,565
====== ======
</TABLE>
3. NET INCOME PER SHARE AND DILUTED NET INCOME PER SHARE
Effective December 27, 1997, the Company adopted SFAS No. 128, "Earnings per
Share," which changes the method used to calculate earnings per share. The new
requirements include a calculation of basic earnings per share, from which the
dilutive effect of stock options is excluded, and a calculation of diluted
earnings per share. Prior period quarterly earnings per share have been restated
in accordance with SFAS No. 128.
The Company believes that diluted net income per share provides the most
meaningful comparison between periods.
4. CHANGES IN ACCOUNTING PRINCIPLES
Effective July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". This statement requires
that all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
statement also requires that an entity classify items of other comprehensive
earnings by their nature in an annual financial statement. Annual financial
statements for prior periods will be restated, as required. There is no
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KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
difference between net income and comprehensive income for the third quarter and
nine months ended March 31, 1999.
Effective July 1, 1998, the Company adopted Statement of Position 97-2,
"Software Revenue Recognition". In prior periods the Company recognized software
revenue in accordance with AICPA Statement of Position 91-1. Statement of
Position 97-2 has not had a material effect on the Company's revenue recognition
policies.
5. RECENT ACCOUNTING PRONOUNCEMENTS
For the years beginning after July 1, 1998, the Company will adopt SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 established standards for the manner in which public companies report
information about operating segments in annual financial statements issued to
shareholders. The Company does not currently have separate operating segments,
and has not yet determined the manner in which it will present the information
required by SFAS No. 131.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for all fiscal years
beginning after June 15, 1999. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. Under SFAS 133, certain
contracts that were not formerly considered derivatives may now meet the
definition of a derivative. The Company intends to adopt SFAS 133 July 1, 1999.
Management does not expect the adoption of SFAS 133 to have a significant impact
on the financial position or results of operations of the Company because the
Company does not have any current derivative activity.
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KOFAX IMAGE PRODUCTS, INC. AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion in this Form 10-Q contains trend analysis and other
forward-looking statements regarding the Company, its business, prospects and
results of operations that are subject to certain risks and uncertainties posed
by many factors and events that could cause the Company's actual business,
prospects and results of operations to differ materially from those that may be
anticipated by such forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, (i) uncertainty
of future operating results, (ii) fluctuations in quarterly operating results,
(iii) dependence on a limited number of products for current and future
operating results, (iv) dependence on imaging, workflow and document management
market and component software strategy, (v) rapid technological change, (vi) the
impact of competition, (vii) dependence on intellectual property and proprietary
rights, (viii) risks associated with international sales, (ix) dependence on
scanner manufacturers, (x) risks associated with acquisitions, and (xi) the
ability to recruit and retain qualified personnel, as well as those discussed
under the caption "Factors That May Affect Future Operating Results" in the
Company's Annual Report on Form 10-K for the year ended June 30, 1998. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this report. Readers are urged to carefully
review and consider the various disclosures made by the Company in this report
and in the Company's other reports filed with the Securities and Exchange
Commission that attempt to advise interested parties of the risks and factors
that may affect the Company's business.
OVERVIEW
Kofax Image Products was founded in 1985 to develop image processing accelerator
boards for personal computers to facilitate high-speed scanning, compression,
manipulation and printing of document images. The products were targeted at the
emerging market of document image processing.
Today Kofax develops, markets and supports three product lines for imaging,
workflow and document management applications. The fastest growing products are
the Ascent software applications which manage the capture and long-term storage
of documents for production level workflow and document management systems.
Substantially all of the Company's revenue growth in fiscal years 1998 and 1997
was generated from the Company's Ascent software business. The original image
processing hardware and development tools business, which is in its fourth
generation, currently generates gross margins of approximately 70% and continues
to generate a significant portion of the Company's profits. Revenue from the
Company's family of image processing boards and development tools has grown
modestly over the past two years, and the Company expects that to continue for
the foreseeable future. The Company believes that the accelerator board and
development tools business will continue to account for a majority of the
Company's net sales for the next two to three years. The Company also expects
that its Ascent software products will contribute an increasing share of the
Company's net sales in the future.
The Company sells its products primarily through a two-tier channel of stocking
distributors and solution providers, such as system integrators and value-added
resellers (VARs). The Company typically ships its products within
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a short period after acceptance of purchase orders from distributors and other
customers. Accordingly, the Company typically does not have a material backlog
of unfilled orders at the end of any quarter. Revenues from hardware and
software sales are currently recognized at the time of shipment in accordance
with AICPA Statement of Position 97-2, Software Revenue Recognition.
Distributors have certain rights of return and exchange privileges. The
Company's distributors generally do not stock significant amounts of inventory
of the Company's products, as these products are typically incorporated by
resellers into complete imaging and document management systems which are
configured shortly before scheduled delivery to end-user customers. The Company
records estimates for such rights of return and exchange privileges based on
historical experience. The Company provides a warranty for its products against
defects in materials and workmanship. A provision for estimated warranty costs
is recorded at the time of sale. Payments under maintenance contracts are due at
the beginning of the contract; however, revenue is recognized ratably over the
term of the contract which is typically twelve months.
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998, AND
THE NINE MONTHS ENDED MARCH 31, 1999 AND 1998
The following table sets forth certain income and expense items as a percentage
of net sales for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ ------------------
1999 1998 1999 1998
---- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 22.1 22.9 22.7 23.7
----- ----- ----- -----
Gross profit 77.9 77.1 77.3 76.3
Operating expenses:
Sales and marketing 30.9 31.3 30.6 31.9
Research and development 22.1 24.1 23.0 23.5
General and administrative 8.0 8.5 8.2 7.9
----- ----- ----- -----
Total operating expenses 61.0 63.9 61.8 63.3
----- ----- ----- -----
Income from operations 16.9 13.2 15.5 13.0
Other income, net 2.5 2.7 2.9 2.0
----- ----- ----- -----
Income before provision for income taxes 19.4 15.9 18.4 15.0
Provision for income taxes 6.6 6.1 6.5 5.8
----- ----- ----- -----
Net income 12.8% 9.8% 11.9% 9.2%
===== ===== ===== =====
</TABLE>
Net Sales. Net sales represent gross sales less discounts, returns and
adjustments. Net sales were $9.8 million and $8.5 million in the quarters ended
March 31, 1999 and 1998, respectively, an increase of 15.5%. This revenue
increase was primarily attributable to increased sales of the Company's Ascent
application software products, increased sales of the SCSI versions of the
Company's Adrenaline family of image processing accelerator boards and initial
sales of our new OEM VirtualReScan product. Revenues from Ascent software
increased 30% in the March quarter over the same period last year. However,
software revenue associated with our image processing products declined 32%
compared to the same period last year. As a result, total software revenue in
the third quarter increased 16% in absolute dollars, and total software
represented 35% of total revenues for both periods. For the nine months ended
March 31, 1999 and 1998, net sales were $28.1 million and $24.4 million,
respectively, representing an increase of 15.0%. The year-to-date revenue
increase was also attributable to increased sales of the Company's Ascent
application software products and increased sales of the SCSI versions of the
Company's Adrenaline image processing boards.
International sales (primarily to Western European countries) accounted
for 30.7% and 34.4% of net sales in the quarters ended March 31, 1999 and 1998,
respectively, and 31.9% and 34.1% in the nine months ended March 31, 1999 and
1998, respectively. International sales increased 3.0% and 7.5%, in absolute
dollars, over the same quarter and nine-month periods last year, respectively.
Management expects that the Company's international operations will continue to
provide a significant portion of total net sales; however, international sales
could be adversely affected if the U.S. dollar continues to strengthen against
international currencies. To date the Company has not had any exposure to
foreign currency fluctuations. The adoption of the "Euro" by the European
community in January 1999 may lead the Company to transact its European sales in
Euros, which may result in the realization of foreign exchange gains or losses
in the future.
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Gross Profit. Cost of sales primarily consist of the costs of
components and subassemblies, labor and manufacturing overhead and, with respect
to the Company's software products, software duplication and royalty expenses.
The Company believes that its relatively high gross margins reflect the
increasing percentage of total software revenue in the Company's product mix as
well as the high content of proprietary firmware in the Company's hardware
accelerator boards. Gross profit was 77.9% and 77.1% of net sales in the
quarters ended March 31, 1999 and 1998, respectively, and 77.3% and 76.3% of net
sales in the nine months ended March 31, 1999 and 1998, respectively.
Substantially all of the increase in gross profit percentage in the March
quarter was attributable to a combination of reduction in manufacturing costs
and increased sales volumes allowing fixed manufacturing costs to be spread over
a higher level of production. For the nine months ended March 31, 1999, the
increase in gross profit percentage was attributable to increased sales of the
Company's Ascent software products, the declining costs of components used in
the Company's accelerator boards, and increased overhead absorption as a result
of the improved manufacturing efficiencies mentioned above.
Sales and Marketing. Sales and marketing expenses, which consist
primarily of salaries and commissions, customer support, trade shows,
advertising and other promotional expenses, were $3.0 million and $2.7 million,
and 30.9% and 31.3% of net sales, in the quarters ended March 31, 1999 and 1998,
respectively. Sales and marketing expenses were $8.6 million and $7.8 million,
and 30.6%, and 31.9% of net sales, in the nine months ended March 31, 1999 and
1998, respectively. The increases in absolute dollar amounts in fiscal 1999 were
primarily attributable to increased marketing personnel, and increased marketing
expenses related to the launch of the Version 4 release of Ascent Storage, and
the launch of the Version 3 release of Ascent Capture. The Company expects that
sales and marketing expenses will continue to increase in absolute dollar
amounts and will fluctuate as a percentage of net sales.
Research and Development. Research and development expenses, which
consist primarily of personnel costs and related occupancy expenses, were $2.2
million and $2.0 million, and 22.1% and 24.1% of net sales, in the quarters
ended March 31, 1999 and 1998, respectively. Research and development expenses
were $6.5 million and $5.7 million, and 23.0% and 23.5% of net sales, in the
nine months ended March 31, 1999 and 1998, respectively. The increase in
absolute dollars in both periods of fiscal 1999 was primarily attributable to
increased engineering staffing, and related compensation expense. The Company
expects that research and development expenses will continue to increase in
absolute dollar amounts and will fluctuate as a percentage of net sales,
depending upon the timing of material research and product development projects.
General and Administrative. General and administrative expenses consist
of personnel costs for administration, finance, information systems, human
resources and general management, as well as professional services. General and
administrative expenses were $0.8 million and $0.7 million, and 8.0% and 8.5% of
net sales, in the quarters ended March 31, 1999 and 1998, respectively. General
and administrative expenses were $2.3 million and $1.9 million, and 8.2% and
7.9% of net sales, in the nine months ended March 31, 1999 and 1998,
respectively. The increases in both periods of fiscal 1999 were primarily
attributable to increased staffing and related compensation expenses and the
increased expenses related to the administrative requirements of being a public
company. The Company anticipates that it will continue to incur
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increased general and administrative costs in the future related to the
additional insurance and administrative requirements of a public company.
Other Income, net. Other Income, net consists primarily of interest
income earned on the Company's cash and cash equivalents and short-term
investments less interest expense on the Company's note payable. As a result of
the initial public offering of the Company's stock in the December 1997 quarter,
interest expense on bank borrowing was eliminated due to repayment of the
previously outstanding bank term loan. Interest income increased compared to the
same periods last year, as a result of investing the net proceeds from the
offering and investing the net cash flows generated from the Company's
operations.
Provision for Income Taxes. The Company's effective tax rate was 34%
for the quarter ended March 31, 1999 compared to 38.5% for the same quarter in
1998. The decline in the effective tax rate results from the recent extension of
the federal R&D tax credit through June 30, 1999. The Company expects the
effective tax rate to approximate 35% for the fiscal year June 30, 1999. The
Company also expects the effective tax rate to return to historical levels of
approximately 38% in fiscal year 2000, unless the current R&D tax credit is
extended in its current form.
Year 2000 Issues. It is possible that the currently installed computer
systems, software products or other business systems of the Company's
distributors, resellers, suppliers, manufacturers or customers, working either
alone or in conjunction with other software systems, will not accept input of,
store, manipulate and output dates in the Year 2000 or thereafter without error
or interruption (the "Year 2000 Problem"). The Company has tested its software
products and is unaware of any material Year 2000 Problems. In addition, the
Company has completed a review of its business systems, including its computer
systems, and based on information gathered to date, believes that such systems
are also not subject to any material Year 2000 Problems. The Company is querying
its distributors, resellers, suppliers, manufacturers and customers as to their
progress in identifying and addressing Year 2000 Problems. The Company's primary
distributors, resellers, suppliers, manufacturers, and customers have indicated
that they are Year 2000 compliant. Based on the Company's review of its products
and business systems and responses from its significant third party vendors, the
Company believes that total costs due to the Year 2000 Problem will not exceed
$100,000. The failure of the Company or its distributors, resellers, suppliers,
manufacturers and customers to complete the conversions or upgrades necessary to
fully address the Year 2000 Problem in a timely manner could have material
adverse effect on the Company's business, results of operations, cash flows and
financial condition.
The Company's past operating results have been, and its future operating results
will be, subject to fluctuations due to a number of factors, including the
timing of orders from, and shipments to, major customers; the timing of new
product introductions by the Company or its competitors; variations in the mix
of products sold by the Company; changes in pricing policies by the Company, its
competitors or suppliers, including possible decreases in average selling prices
of the Company's products in response to competitive pressures; product returns
or price protection charges from customers; market acceptance of new and
enhanced versions of the Company's products; the availability and cost of key
components; the availability of manufacturing capacity; delays in the
introduction of new products or product enhancements by the Company, the
Company's competitors or other providers of hardware, software and components
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for the imaging, workflow and document management market; dependence upon
capital spending budgets; and fluctuations in general economic conditions. As a
result, the Company believes that period-to-period comparisons of its results of
operations should not be relied upon as indications of future performance.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, combined cash, cash equivalents, and short-term
investments totaled $25.3 million, an increase of $4.5 million from June 30,
1998. Net cash provided by operating activities was $5.3 million, and was
generated primarily from net income, depreciation and amortization, and an
increase in other current liabilities. Net cash used in investing activities was
$1.6 million for capital expenditures and additions to short term investments.
Net cash used in financing activities was $0.3 million, primarily as a result of
the repurchase of 150,000 shares of the Company's common stock.
The Company financed its operations and capital requirements from 1986 through
1989 from the sale of approximately $4.0 million of preferred stock and,
thereafter, through cash flow from operations. In October 1997, the Company
completed its initial public offering selling 1,300,000 shares of its common
stock, and received net proceeds, after subtracting expenses incurred in the
offering, of approximately $12.6 million, $0.7 million of which was used to
repay outstanding indebtedness.
The Company has an unsecured $2.0 million revolving credit line with Silicon
Valley Bank (the "Bank") and as of March 31, 1999 had no outstanding balance
under the revolving line of credit. In January, 1999, the Company entered into
an agreement with the Bank to extend the line of credit through January, 2000.
The line of credit agreement requires the Company to maintain its primary
banking relationship with the Bank while any obligations to the Bank remain
outstanding, prohibits the incurrence of additional debt from sources other than
the Bank, except for purchases or leases of equipment up to $700,000, requires
the Company to maintain certain tangible net worth levels, and profitability
levels, and restricts the payment of dividends without the Bank's prior
approval.
On April 24, 1998, the Company's board of directors authorized a program for
repurchase of up to 500,000 shares, or approximately 9.5%, of Kofax's
outstanding common stock, to be used to fund stock option exercises, employer
equity compensation plans, and an employee stock purchase plan. As of March 31,
1999, the Company has repurchased 250,000 shares of its common stock to date,
for approximately $1.6 million. Aside from this program, the Company currently
has no significant capital spending or purchase commitments other than normal
purchase commitments and commitments under facilities leases.
The Company believes that its existing cash balances, its available bank
financing and the cash flows generated from operations, if any, will be
sufficient to meet its anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. A portion of the Company's cash
could be used to acquire or invest in complementary businesses or products or
obtain the right to use complementary technologies. The Company is currently
evaluating, in the ordinary course of business, potential investments such as
businesses, products or technologies.
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Quantitative and Qualitative Disclosures about Market Risk
At March 31, 1999, the Company had an investment portfolio of fixed income
securities, including those classified as cash equivalents, of approximately
$24.5 million. These securities are subject to interest rate fluctuations. An
increase in interest rates could adversely affect the market value of the
Company's fixed income securities.
As of March 31, 1999, the weighted average maturity of the Company's portfolio
was 139 days. The market value changes for increases in short-term treasury
security yields are not material due to the overall short-term maturity of the
Company's portfolio.
The Company limits its exposure to interest rate and credit risk by establishing
and strictly monitoring clear policies and guidelines for its fixed income
portfolios. At the present time, the maximum average maturity of the Company's
overall investment portfolio is limited by policy to 36 months. The guidelines
also establish credit quality standards, limits on exposure to one issue,
quality standards for issuers, as well as the type of instrument. Due to the
limited duration and credit risk criteria established in the Company's
guidelines, the exposure to market and credit risk is not expected to be
material. The Company does not use derivative financial instruments in its
investment portfolio to manage interest rate risk.
14
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 3. LEGAL PROCEEDINGS
On September 26, 1997, VisionShape, Inc. ("VisionShape") filed suit against the
Company in the Superior Court of Orange County, California. VisionShape claims
that the Company's Adrenaline accelerator boards prevent the use of software
other than the Company's software, which, the complaint alleges, creates a
monopoly or otherwise constitutes a tying arrangement in violation of state and
federal antitrust laws. VisionShape seeks unspecified monetary damages and costs
as well as equitable remedies, including an order enjoining the Company from
selling its Adrenaline accelerator boards. VisionShape also seeks treble damages
and attorneys' fees. On May 27, 1998, the Superior Court held that VisionShape
failed to state a cause of action against the Company and ordered the suit
dismissed on July 15, 1998. VisionShape filed an appeal on March 31, 1999. Based
upon information currently available to the Company, the Company believes
VisionShape's claims are without merit and intends to contest vigorously any
action against the Company. However, it is too early to determine the outcome of
such appeal and there can be no assurance as to the eventual outcome of such
actions. Any determination against the Company in the litigation or the
settlement of such claims could have a material adverse effect on the Company's
business, results of operation, cash flows and financial condition. The Company
is not a party to any other material legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.32 Silicon Valley Bank Amendment to Loan and Security Agreement dated
January 6, 1999.
10.33 OEM Purchase Agreement, dated January 27, 1999, between the
Company and Fujitsu Computer Products of America, Inc.
11.1 Computation of diluted net income per share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
Items 1, 2, 4, and 5 are not applicable and have been omitted.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
KOFAX IMAGE PRODUCTS, INC.
Dated: May 14, 1999 /s/ Ronald J. Fikert
----------------------------
Ronald J. Fikert
Chief Financial Officer
(principal financial and
accounting officer and
duly authorized officer)
16
<PAGE> 17
EXHIBIT INDEX
-------------
EXHIBIT
INDEX DESCRIPTION
- ------- -----------
10.32 Silicon Valley Bank Amendment to Loan and Security Agreement
dated January 6, 1999.
10.33 OEM Purchase Agreement, dated January 27, 1999, between the
Company and Fujitsu Computer Products of America, Inc.
11.1 Computation of diluted net income per share
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.32
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
AMENDMENT TO LOAN AND SECURITY
AGREEMENT
BORROWER: KOFAX IMAGE PRODUCTS, INC.
ADDRESS: 3 JENNER STREET
IRVINE, CALIFORNIA 92718
DATED AS OF: JANUARY 6, 1999
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower"). The Parties
agree to amend the Loan and Security Agreement between them, dated February 28,
1992, as amended by that certain Amendment to Loan Agreement dated March 9,
1993, as amended by that certain Amendment to Loan Agreement dated October 10,
1994, as amended by that certain Amendment to Loan Agreement dated October 5,
1995, as amended by that certain Amendment to Loan Agreement dated January 20,
1996, as amended by that certain Amendment to Loan Agreement dated October _,
1996, as amended by that Amendment to Loan and Security Agreement dated
September 18, 1997 and as amended by that Amendment to Loan and Security
Agreement dated January 6, 1998 (as so amended and as otherwise amended from
time to time, the "Loan Agreement"), as follows, effective on the date hereof.
(Capitalized terms used but not defined in this Amendment, shall have the
meanings set forth in the Loan Agreement.)
1. AMENDED MATURITY DATE. Section 5.1 of The Maturity Date as set
forth in the Schedule to Loan Agreement is amended effective as of the date
hereof, to read as follows:
"MATURITY DATE (Section 5.1): JANUARY 5, 2000."
2. REVISED NEGATIVE COVENANT EXCEPTIONS. . The section of the
Schedule to the Loan Agreement entitled "Negative Covenant-Exceptions (Section
4.6)" is hereby replaced with the following:
"NEGATIVE COVENANTS-EXCEPTIONS
(Section 4.6): Without Silicon's prior written consent,
Borrower may do the following, provided that,
after giving effect thereto, no Event of Default
has occurred and no event has occurred which,
with notice or passage of time or both, would
constitute an Event of Default, and provided
that the following are done in compliance with
all applicable laws, rules and regulations: (i)
repurchase shares of Borrower's stock provided
that the aggregate amount of any such other
repurchase shall not exceed $3,500,000; (ii)
make loans to, or enter into loan guaranties on
behalf of, employees in an aggregate amount not
exceeding $200,000 at any one time
-1-
<PAGE> 2
Silicon Valley Bank Amendment to Loan and Security Agreement
- --------------------------------------------------------------------------------
outstanding; and (iii) make loans to employees
in connection with computer purchases ("Employee
Computer Loans") provided that the Employee
Computer Loans shall not exceed $300,000 in the
aggregate at any one time outstanding."
3. AMENDED FINANCIAL COVENANTS. The section of the Schedule to Loan
Agreement entitled "Financial Covenants" is amended to read as follows:
"FINANCIAL COVENANTS
(Section 4.1): Borrower shall comply with all of the following
covenants. Compliance shall be determined as of
the end of each quarter, except as otherwise
specifically provided below:
TANGIBLE NET WORTH: Borrower shall maintain a tangible net worth of
not less than $25,000,000.
PROFITABILITY: Borrower shall not incur a loss (after taxes)
for any fiscal quarter.
DEFINITIONS: "Tangible net worth" means the excess of total
assets over total liabilities, determined in
accordance with generally accepted accounting
principles, excluding however all assets which
would be classified as intangible assets under
generally accepted accounting principles,
including without limitation goodwill, licenses,
patents, trademarks, trade names, copyrights,
and franchises.
SUBORDINATED DEBT: "Liabilities" for purposes of the foregoing
covenants do not include indebtedness which is
subordinated to the indebtedness to Silicon
under a subordination agreement in form
specified by Silicon or by language in the
instrument evidencing the indebtedness which is
acceptable to Silicon."
4. NEGATIVE PLEDGE AGREEMENT. Without limitation of any other term
or provision of the Loan Agreement that restricts liens on the assets of the
Borrower, Borrower shall not incur any liens or encumbrances on any of is
property or assets, whether now owned or hereafter acquired, other than security
interests or liens on equipment leased or purchased in connection with such
lease or purchase transaction as otherwise permitted under the Loan Agreement.
5. FACILITY FEE. The Borrower shall pay Silicon concurrently
herewith a facility fee in the amount of $5,000, which shall be in addition to
all interest and all other fees payable to Silicon and shall be non-refundable.
6. REPRESENTATIONS TRUE. Borrower represents and warrants to
Silicon that all representations and warranties set forth in the Loan Agreement,
as amended hereby, are true and correct as of the date hereof.
-2-
<PAGE> 3
Silicon Valley Bank Amendment to Loan and Security Agreement
- --------------------------------------------------------------------------------
7. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any
prior written amendments to the Loan Agreement signed by Silicon and the
Borrower, and the other written documents and agreements between Silicon and the
Borrower set forth in full all of the representations and agreements of the
parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and understandings between the parties
with respect to the subject hereof. Except as herein expressly amended, all of
the terms and provisions of the Loan Agreement, and all other documents and
agreements between Silicon and the Borrower shall continue in full force and
effect and the same are hereby ratified and confirmed.
BORROWER: SILICON:
KOFAX IMAGE PRODUCTS, INC. SILICON VALLEY BANK
By /s/ DAVID S. SILVER By /s/ MARLA JOHNSON
-------------------------------- -----------------------------------
President or Vice President Title Vice President
--------------------------------
By /s/ RONALD J. FIKERT
--------------------------------
Secretary or Ass't Secretary
-3-
<PAGE> 1
EXHIBIT 10.33
OEM PURCHASE AGREEMENT
BETWEEN
FUJITSU COMPUTER PRODUCTS OF AMERICA, INC.
AND
KOFAX IMAGE PRODUCTS, INC.
This Agreement is made and entered as of January 27, 1999 ("Effective Date") by
and between KOFAX IMAGE PRODUCTS, INC. ("KOFAX") located at 3 Jenner Street,
Irvine, CA 92618 and FUJITSU COMPUTER PRODUCTS OF AMERICA, INC.
("FCPA") located at 2904 Orchard Parkway, San Jose, CA 95134.
WHEREAS, KOFAX has developed VRS Products ("Products") as described in Exhibit A
and FCPA wishes to purchase Products and incorporate such Products into FCPA's
M-series scanner line to be resold to FCPA's customers, which include original
equipment manufacturer ("OEM") and Distribution customers. KOFAX and FCPA,
therefore, desire to enter into an OEM purchase agreement (The "Agreement") for
the VRS Products.
In consideration of the mutual promises and covenants of the parties hereto and
other valuable consideration, the parties hereby agree with each other as
follows:
1. DEFINITIONS
As used in this Agreement, the following words shall have only the
following meanings:
(a) "Product(s)" shall mean the VRS Products, conforming to the
specifications ("Specifications") attached hereto as
Exhibit A.
(b) "Order" shall mean a written purchase Order signed by FCPA and
sent by FCPA to KOFAX by mail or facsimile.
(c) "Deliver" and "Delivery" shall mean to transfer by KOFAX to
FCPA's, designated carrier.
2. TERM
This Agreement shall be effective as of the Effective Date and shall
continue in effect for an initial term of one (1) year. Thereafter, it
will renew in one (1) year increments unless terminated pursuant to the
provisions herein.
3. PURCHASE ORDERS
(a) FCPA shall purchase the Products pursuant to written Orders that
will be submitted by FCPA by the twentieth (20th) day of each
month.
Page 1 of 28
<PAGE> 2
(b) The Terms of this Agreement prevail over any pre-printed
conditions appearing on any form. The printed conditions
appearing on any pre-printed form or purchase Order shall not be
applied if they are incompatible with the provisions of this
Agreement. Each written Order placed by FCPA pursuant to this
Agreement shall state that it is subject to the terms of this
Agreement, shall identify the Products Ordered and shall include
the following information:
(i) Description of the Products Ordered using FCPA's
assigned Product number and KOFAX's assigned part
number;
(ii) Quantities and requested Delivery schedule;
(iii) Shipping instructions including assigned carrier and
destination address;
(c) If an Order is sent by facsimile, the Order shall be followed by
the original sent by mail.
(d) KOFAX shall deliver Products to FCPA pursuant to a written Order
accepted and acknowledged by KOFAX in accordance with the
requested Delivery schedule. Lead time required for Delivery is
sixty (60) days from the date of KOFAX's acceptance of each
Order for normal Orders. FCPA shall have three (3) business days
in which to notify KOFAX that the acknowledged Delivery dates
not meet FCPA's requirements and KOFAX shall use commercially
reasonable efforts to reschedule the Order for an earlier date
as mutually agreed between the parties. FCPA may cancel, without
penalty any Order delayed in excess of sixty (60) days beyond
the acknowledged Delivery date.
(e) Any Order given by FCPA will be deemed accepted by KOFAX unless
it is rejected by KOFAX within two (2) working days after KOFAX
receives it. KOFAX shall be obligated to accept Orders that
conform to, but do not exceed by twenty-five percent (25%) any
forecast provided by FCPA. Upon such acceptance, each Order
shall constitute an individual contract for the transaction of
Products Ordered. KOFAX shall provide a written acknowledgement
for each Order showing acknowledged Delivery dates, quantities
and pricing.
(f) In the case of Orders that do exceed by twenty-five percent
(25%) any forecast provided by FCPA, the agreement of KOFAX is
required before such Order shall be deemed to be accepted.
(g) Unless mutually agreed, Orders for Products shall not exceed the
rolling forecast by more than twenty-five percent (25%).
(h) If KOFAX expects to ship Products late, Products shall be
shipped via next day airfreight. The difference between
airfreight and normal freight charges will be paid for by
KOFAX, if Products arrive at KOFAX on or before the Order due
date. However, if the Products arrive at KOFAX after the Order
due date, the expense for air freight shall be paid for by
KOFAX.
Page 2 of 28
<PAGE> 3
4. BUFFER STOCK
KOFAX will maintain a buffer stock amount of Products to be ordered
under this Agreement equal to two (2) weeks in inventory and one (1)
week in transit according to the then current rolling forecast. This
buffer stock will be considered consigned for FCPA and will be purchased
upon termination of this Agreement as defined in Section 30.
5. EMERGENCY ORDERS
KOFAX shall maintain a stock of Product for emergency Product Orders at
a quantity to be determined mutually between KOFAX and FCPA.
Emergency Orders of Products shall be delivered within twenty-four (24)
hours of receipt of such Order, provided such Products are available
from KOFAX. If necessary KOFAX may pull Product for emergency Orders
from the buffer stock provided KOFAX uses reasonably commercial efforts
to replenish the buffer stock immediately. Emergency Orders are deemed
to be those Orders in which a Product is needed immediately because of a
service related issue and not for fulfillment purposes.
6. FORECAST
By the twentieth (20th) day of each month, FCPA will provide a
non-binding six (6) month rolling forecast to KOFAX.
7. CHANGE/CANCELLATION OF ORDER
(a) Orders accepted by KOFAX may be modified or cancelled by FCPA
with written notice to KOFAX thirty (30) calendar days prior to
the acknowledged date of shipment. If such Orders cancelled less
than sixty (60) days prior to the acknowledged ship date may be
subject to reimbursement of the raw materials that are
associated with the Product that cannot be re-used or re-sold by
KOFAX, and provided such cost for raw materials do not exceed
the then current price of the Product. Should KOFAX develop and
sell other VRS products that also use the raw materials listed
below, KOFAX will identify and remove those raw materials from
the list. The list of raw materials subject to reimbursement at
the time of execution of this Agreement are as follows:
Part Number Description
12000162-000 PCB FUJI INTERNAL SCA
14001018-000 CAP .33uF 50V 20% 805
14350045-000 RES 22 OHM, 1/8W 5% 8
14350047-000 RES NTWK 2.2K OHM 1/8
14350048-000 RES NTWK 22 OHM 1/8W
15250764-000 IC 74FCT162245 SSOP 4
15501009-000 IC DS229S TRNSM/RCVR
15603037-000 IC PROG QUAIL 3 MACH 1
Page 3 of 28
<PAGE> 4
15701022-000 IC FIFO MEM 5Kx8 SOIC
15701023-000 IC FIFO MEM 10Kx8 TSO
15701025-000 IC SDRAM 4X16 TSOP 54
15701030-000 IC PROG FLASH ROM 256
15800046-001 IC DS1233DZ-10 SOT
15800050-002 IC RISK CNTLR MCF5206
15801029-000 IC FPGA 10K30A 208PQF
15801028-000 IC ALTERA 6024A 3.3V
15901005-000 IC ASIC DESKEW 208PQF
16100008 CONN 37 PIN FEMALE DS
16100063-002 HEADER2X5SMT
16100066-000 CONN 44 PIN DIN MALE
16120005 SHUNT JUMPER
There will be no cancellation or reimbursement fees applicable
to orders cancelled more than sixty (60) days prior to the
acknowledged ship date.
(b) Deliveries may be rescheduled one time per Order up to 100% with
fifteen (15) days written notice from FCPA.
8. DELIVERY TERMS
Delivery terms shall be FOB Irvine, California. KOFAX shall use its best
effort to ship the Product according to FCPA's then current freight
routing guide, a copy of which is attached as Exhibit G. Title to and
risk of loss of all Products purchased by FCPA hereunder shall pass from
KOFAX to FCPA upon Delivery.
9. PACKAGING
All packaging materials and methods shall be KOFAX's standard commercial
materials and/or the methods set forth in Exhibit B. If FCPA requests
any special packaging materials or methods different from those noted
above, and if KOFAX agrees to use such special materials or methods, the
additional cost thereof shall be paid by FCPA. If FCPA and KOFAX agree
that the standard packaging is inadequate, then KOFAX will implement
improved packaging at no extra cost to FCPA.
10. LABELING
Labeling shall be designed in accordance with the specifications set
forth in Exhibit B entitled Product Requirements.
11. PRICES
(a) The price to be paid by FCPA to KOFAX for the Product is
attached as Exhibit C.
Page 4 of 28
<PAGE> 5
(b) KOFAX warrants that the price and terms set forth herein do not
exceed those charged or imposed on any other customer
purchasing the same Product for like quantities, terms and
conditions.
(c) If KOFAX lowers its prices for the Product that meet the pricing
requirements summarized in paragraph 11 (b) during the term of
the Agreement; KOFAX shall immediately extend such lower prices
to FCPA. If KOFAX decreases the price of any Product purchased
by FCPA and still in FCPA's inventory, FCPA will be entitled to
a credit on Products delivered to and paid for by Distributor,
less any prior credits granted by FCPA, in the amount of the
purchase price less the new decreased price for the Products
multiplied by the quantity of such Products in FCPA's inventory
on the effective date of the price decrease. Similar price
adjustment will also be made on (i) all such Products in transit
to FCPA on the effective date of such price decrease, and (ii)
all Orders for such Products previously accepted by KOFAX but
remaining unshipped on the effective date of such price
decrease.
(d) Upon reasonable notice and during normal working hours, FCPA may
appoint an independent auditor to review KOFAX records to
determine if FCPA is receiving pricing as agreed to hereunder
and that KOFAX is complying with the terms of this Agreement.
KOFAX shall allow such independent auditor access to all
applicable records of KOFAX for the purpose of conducting such
audit. The independent auditor shall only report to FCPA whether
KOFAX is complying with the terms of this Agreement.
(e) KOFAX will engage in ongoing cost reduction efforts, and where
practicable, KOFAX will pass price reductions on to FCPA.
12. PAYMENT
(a) All payment for the Products shall be made in U.S. Dollars.
(b) Payment will be Net 45 days from date of invoice.
(c) FCPA shall be responsible for the payment of all taxes, tax
levies, or tax assessments imposed on the subject transactions
or Products. FCPA shall be responsible for providing in a timely
manner all documentation, in the nature of exemption
certificates or otherwise, necessary to allow KOFAX to refrain
from collections, such as sales tax, it is otherwise obligated
to make. FCPA's obligations shall survive the termination of
this Agreement.
13. STOCK ROTATION
FCPA shall be eligible to rotate Product stock in its inventory for new
Product which has been upgraded to a new version of VRS, provided such
new version of the Product affects the form, fit or function of the
preceding version, under the following terms:
Page 5 of 28
<PAGE> 6
(a) FCPA shall be eligible for, subject to full compliance with
Subsections (b) and (c) below, stock rotation privileges for a
dollar amount of Product not to exceed ten percent (10%) of the
then current dollar value of Product shipped to FCPA, less any
credits or returns, for the three month period immediately prior
to the stock rotation months of April, July, October and
January. No percentage of rotation allowable shall accrue from
one period to the next. Credit shall be at the net current value
of the Product, which is the price paid by FCPA, less any
credits granted to FCPA.
(b) An off-setting, non-cancelable Order for the same dollar amount
in different Products than those rotated, must be submitted with
request for stock rotation. Delivery dates scheduled under this
purchase order shall not exceed thirty (30) days.
(c) Product returned for stock rotation must have been purchased
from KOFAX during the previous six (6) months, be new, unused
and in factory sealed containers, and be returned to KOFAX
freight prepaid.
14. TRADEMARK
(a) All Products purchased by FCPA from KOFAX under this Agreement
shall be used, leased, rented, licensed or sold by FCPA only
under trademarks and/or trade names of FCPA or those of FCPA's
customers or their customers. FCPA shall not use KOFAX's
trademarks or trade names on or in connection with Products
except as required by law or governmental regulation or as
expressly authorized by KOFAX.
(b) FCPA grants KOFAX the right and KOFAX agrees to apply FCPA's
trademarks or those of FCPA's customers to which FCPA has the
right to have KOFAX apply to the Products (excluding any third
party software which KOFAX may be licensed to use) to be
manufactured and delivered to FCPA according to this Agreement,
but at the expense of FCPA.
(c) FCPA agrees to defend KOFAX against any claim of trademark
infringement by reason of the use upon the Products and/or upon
any printed material in connection therewith of FCPA's trademark
and trade names or those of FCPA's customers when so directed by
FCPA. FCPA shall indemnify and hold harmless against any damages
and cost reasonably incurred by KOFAX in any such claim to the
extent attributable to such claim. FCPA's obligations with
respect to such claims are expressly conditioned upon KOFAX
giving FCPA prompt notice of any such claim and granting FCPA in
writing exclusive control over its defense or settlement and
cooperation with FCPA in the defense of such claim at FCPA's
expense.
(d) KOFAX agrees to defend FCPA against any claim of copyright or
trademark
Page 6 of 28
<PAGE> 7
infringement by reason of the use upon the Products and/or upon
any printed material in connection therewith of KOFAX's
software, trademark and trade names or those of KOFAX's
customers when so directed by KOFAX. KOFAX shall indemnify and
hold harmless against any damages and cost reasonably incurred
by FCPA in any such claim to the extent attributable to such
claim. KOFAX's obligations with respect to such claims are
expressly conditioned upon FCPA giving KOFAX prompt notice of
any such claim and granting KOFAX in writing exclusive control
over its defense or settlement and cooperation with KOFAX in the
defense of such claim at KOFAX's expense.
15. SOFTWARE LICENSE
(a) Object License. KOFAX grants FCPA a non-exclusive,
non-transferable worldwide license to reproduce and distribute
each Licensed Software (object code form only), for which the
Licensed Software is to be integrated or adapted, as described
in Exhibit B.
(b) Internal Copies. FCPA may use the Licensed Software internally
for testing, demonstrating, training, customer support, and
promotional purposes. No royalty shall be due KOFAX for copies
of the Licensed Software which have been distributed for
testing, training, demonstration and promotional purposes.
16. DOCUMENTATION
KOFAX hereby grants FCPA the royalty-free right to reproduce,
use, distribute and sell in FCPA's name all documentation
associated with the Product under this Agreement. These rights
with respect to documentation shall extend solely to FCPA.
17. SHIPPING INSPECTION/ACCEPTANCE
(a) KOFAX shall cause inspection of each lot of the Products, prior
to shipment of such lot to FCPA, and shall provide to FCPA the
records of such inspection upon written request by FCPA. KOFAX
at FCPA's request will supply a Certificate of Conformance on
each lot shipping to FCPA.
(b) FCPA may attend and witness or participate in such inspection of
the Products at the source as made by or for KOFAX, in order to
determine that the Products conform with the Specifications,
prior to acceptance of Delivery.
(c) FCPA shall have twenty (20) days from the date of receipt of the
Products to perform incoming inspection and acceptance testing
on the Products to determine whether the Product performs in
accordance with the Product Specifications as set forth in
Exhibit A and in accordance with procedures agreed to between
the parties.
Page 7 of 28
<PAGE> 8
(d) In the event that any Products delivered by KOFAX fail to pass
such incoming inspection, FCPA shall notify KOFAX of such
failure specifying the nature of the failure within the twenty
(20) day acceptance period.
(e) Within five (5) business days after receipt of the notice of
such defective Products, KOFAX shall:
(i) Replace such defective Products at KOFAX's expense,
(ii) Replace any service parts at KOFAX's own cost, including
labor.
18. WARRANTY/DEFECTIVE PRODUCTS
(a) KOFAX warrants that all Products shall meet the Product
Specifications set forth in Exhibit A and that all Products
shall be free from material defects in design and workmanship.
(b) KOFAX further represents and warrants that KOFAX Products
purchased under this Agreement will be Year 2000 compliant as
set forth in Exhibit H and therefore will process date/time data
during the transition from, into, and between the 20th and 21st
centuries, provided that the computer system(s) to which the
Products are connected accurately process the transition from,
into, and between the 20th and 21st centuries. This warranty
does not apply to any third-party branded products that may be
bundled with Products or otherwise distributed by KOFAX.
(c) If a Product is found to be defective within ninety (90) days
from date of Delivery to FCPA, FCPA may return the defective
Product to KOFAX for credit utilizing the then current RMA
procedure as set forth in Exhibit D, in the container specified
by KOFAX, transportation prepaid. Any revisions to the RMA
Procedure shall be reasonably agreed to by both parties and
shall be deemed incorporated into this Agreement upon its
acceptance by FCPA.
(d) After the initial ninety (90) day period, should any material
defect in the Products be discovered by FCPA within the next
twenty-four (24) months following the Delivery of such Products,
FCPA shall notify KOFAX in writing of such defect promptly after
discovery of such defect. In such case, KOFAX shall, within ten
(10) business days after receipt of the notices of such
defective Products specifying the nature of the defect, take
appropriate measures including but not limited to the following
as reasonably agreed to between FCPA and KOFAX.
(i) To supply to FCPA, free of charge, at KOFAX's discretion
repair and/or replacement Product of such material
defective Products. FCPA will ship back defective
Products to a location designated by KOFAX at KOFAX's
expense.
Page 8 of 28
<PAGE> 9
(ii) To replace such defective Products at KOFAX's expense.
(iii) To modify the design of any Products (either delivered
or undelivered to FCPA) at KOFAX's expense so as to make
them non-defective Products.
(e) In the case of Epidemic Failure, KOFAX shall repair or replace
any Product which does not conform to the foregoing warranties
set forth herein, including reimbursement of labor incurred by
FCPA. FCPA will ship back defective parts to a location
designated by KOFAX in connection with repairing such Products
at KOFAX's expense and pursuant to its then current RMA
procedures. Epidemic Failure means any out of specification
Product or Part failure, resulting from the same cause or
phenomena, which can be found (i) on a minimum of 5 units per
shipment and (ii) affects at least 5% of the total shipments
received by FCPA.
(f) The Warranty hereunder shall not apply to any Product:
(i) Which has not been operated in accordance with the
applicable operators manual, or
(ii) Which has not been maintained in accordance with the
Product Specifications.
19. TRAINING
For a period of ninety (90) days from the Effective Date of this
Agreement, KOFAX will provide at no charge a reasonable amount of
initial training, but no less than forty (40) hours of training, to
corporate FCPA training personnel, sales persons, engineers, and all
FCPA personnel necessary at the discretion of FCPA. After the initial
training, FCPA and KOFAX will mutually agree on a training schedule,
cost and location and FCPA will reimburse for actual per diem expenses
of KOFAX Personnel. Training shall be adequate and sufficient to acquire
all necessary information for the Product. Training shall include, at
KOFAX's expense, the most current Product information, training
materials updates, upgrades or enhancements to the Product.
20. PRODUCTS LIABILITY AND INDEMNITY
(a) KOFAX will defend at its own expense any suit brought against
FCPA to the extent that it is based on a claim that Product made
for FCPA in the form delivered to FCPA, caused damages to
tangible property or personal injury, including death, of third
parties provided that (i) FCPA shall notify KOFAX promptly in
writing of any claim, (ii) KOFAX shall have sole control of the
defense of any claim and all negotiations for its settlement or
compromise, and (iii) FCPA shall provide complete authority,
information, and assistance to KOFAX and its counsel for the
defense of such claim Subject to subsection (b)
Page 9 of 28
<PAGE> 10
hereof, KOFAX shall indemnify and hold harmless FCPA against any
damages finally awarded against FCPA in any such suit to the
extent attributable to such claim.
(b) KOFAX shall have no liability or obligation to FCPA hereunder
with respect to such claims if the Product was used for other
than its intended use or if the damages resulted from the gross
negligence or willful misconduct by the end user. Neither Party
nor its affiliates shall be liable for indirect, special or
consequential damages.
(c) THE FOREGOING STATES THE ENTIRE LIABILITY OF KOFAX AND ITS
AFFILIATES WITH RESPECT TO PRODUCTS LIABILITY FOR ANY PRODUCTS
DELIVERED UNDER THIS AGREEMENT.
21. REGULATORY AGENCY COMPLIANCE
KOFAX shall be responsible for obtaining certification of approvals from
agencies listed in the Specification attached hereto.
22. INDEPENDENT CONTRACTOR
KOFAX is an independent contractor, and is not and shall not be deemed
to be the legal representative or agent of FCPA for any purpose
whatsoever, and KOFAX is not authorized by FCPA to transact business,
incur obligations (express or implied), bill goods, or otherwise act in
any manner in the name or on behalf of FCPA, or to make any promise,
warranty or representation with respect to the Products or any other
matter in the name or on behalf of FCPA. FCPA shall have no control over
the manner of performance of KOFAX except as expressly provided herein.
23. EXPORT LICENSES
FCPA agrees that it will not export, directly or indirectly, any
Products or technical data obtained under this Agreement to any country
without first obtaining proper governmental licenses and/or approvals.
24. SUPPORT
(a) KOFAX will provide technical information (including technical
bulletins and tips) to FCPA for support of Products and Parts.
KOFAX hereby grants FCPA the right to duplicate and distribute
technical information regarding Products which is not
proprietary or confidential on an as needed basis with the prior
approval of KOFAX. If available, KOFAX will provide to FCPA any
user documentation and/or software (including technical
information) for Products or similar KOFAX Products so that FCPA
may use the contents, where applicable and allowable, in
creating FCPA's user documentation. This does not imply any
transfer of, and does not expressly transfer any ownership of
intellectual
Page 10 of 28
<PAGE> 11
property rights from KOFAX to FCPA.
(b) KOFAX will provide reasonable program assistance and technical
support capable of answering questions and resolving purchasing,
shipment, billing and technical issues at the KOFAX location
that processes FCPA's Orders.
(c) KOFAX agrees to provide Repair Service for Product during the
term of this Agreement at a mutually agreed upon price and for a
minimum period of five (5) years following the last shipment of
Product hereunder based on raw material availability at the
price in effect at the time of last shipment. Product provided
to FCPA under repair service shall be covered by a ninety (90)
day warranty when the warranty period on the Product has passed.
KOFAX shall have the option of not repairing Product one (1)
year after last shipment to FCPA, however, if KOFAX elects to
exercise this option FCPA will be provided with an alternative
that is acceptable to FCPA, which such acceptance shall not be
unreasonably withheld.
(d) Product returned to KOFAX for repair shall be repaired and
updated to the specifications of the original Product and
updated with the latest Engineering Changes. KOFAX shall use
commercially reasonable efforts to repair and ship the repaired
Product back to FCPA within ten (IO) business days from receipt.
(e) The VRS Problem Escalation Process, as set forth in the attached
Exhibit E, will be used as a communication tool between FCPA and
KOFAX to discuss Product problems and Product enhancement
requests.
25. PROPRIETARY INFORMATION
(a) During the term of this Agreement each party may acquire
valuable trade secrets and/or confidential and proprietary
information of the other party or its affiliates. Confidential
Information means all confidential and proprietary information
which is disclosed by one party to the other party, which is
marked confidential or which is identified in writing to be
confidential within thirty (30) days after disclosure to the
receiving party ("Confidential Information").
(b) Each party agrees not to use the Confidential Information for
any purpose whatsoever except for the purpose set forth herein.
Each party agrees not to disclose the Confidential Information
to any third person or to its employees or those of its
affiliates except those employees who have a legitimate need to
know and who agree to keep such information confidential. Each
party agrees that it shall protect the confidentiality of, and
take reasonable steps to prevent disclosure or unauthorized use
of, the Confidential Information in order to prevent it from
falling into the public domain or the possession of persons not
legally bound to maintain its confidentiality, provided that in
no event shall such party's obligations exceed the standard of
care taken to protect its own
Page 11 of 28
<PAGE> 12
confidential information of like importance. Each party will
promptly advise the other party in writing of any
misappropriation or misuse by any person of such Confidential
Information and provide assistance to the injured party in any
lawsuit related thereto. Each party acknowledges that its
obligations hereunder survive in accordance with the terms
hereof, notwithstanding the termination of the business
relationship of the parties, for a period of five (5) years
following the last disclosure of Confidential Information by the
other party hereunder.
(c) No copies of any Confidential Information may be made except to
implement the purposes of this Agreement. Any materials,
documents, notes, memoranda, drawings, sketches and other
tangible items containing, consisting of or relating to the
Confidential Information of a party which are furnished to the
other party in connection with this Agreement, or are in the
possession of the other party, and all copies thereof, remain
the property of the party to which the Confidential Information
is proprietary and shall be promptly returned to the party
supplying the same upon a party's request therefor. Nothing
contained in this Agreement shall be construed as granting any
rights, by license or otherwise, in any Confidential Information
except as specified in this Agreement.
(d) Each party's obligations under this Agreement shall not apply to
information which: (a) is known by that party or is publicly
available at the time of disclosure by the disclosing party to
the receiving party; (b) becomes publicly available after
disclosure by the disclosing party to the receiving party
through no act of either party; (c) is hereafter rightfully
furnished to the receiving party by a third party without
restriction as to use or disclosure; (d) is disclosed with the
prior written consent of the disclosing party; (e) is
information that was independently developed by the receiving
party; or (f) is required to be disclosed pursuant to any
judicial or administrative proceeding, provided that the
receiving party immediately after receiving notice of such
action notifies the disclosing party of such action to give the
disclosing party the opportunity to seek any other legal
remedies to maintain such information in confidence.
26. INFRINGEMENT
(a) KOFAX warrants that to its knowledge all of the Products
furnished hereunder do not infringe any patent or copyright or
other industrial property rights, trademark or tradename of a
third party. KOFAX shall defend, indemnify and save FCPA and
it's customers harmless from any loss, damage, cost or liability
incurred by FCPA as a result of any action or suit based on a
claim which, if true, would constitute a breach of the foregoing
warranties (hereinafter "Infringement Claims"), provided,
however, that KOFAX's said obligation shall be conditioned upon:
(i) FCPA's notifying KOFAX of the existence of such action
or suit promptly;
(ii) FCPA's giving KOFAX full control of the conduct,
including settlement
Page 12 of 28
<PAGE> 13
of such action or suit;
(iii) FCPA's cooperating with KOFAX, at KOFAX's expense.
(b) Following the notification of FCPA defined under Subsection
26(a)(i), KOFAX will at its own expense, either (i) procure for
FCPA the right to continue using such Products royalty free,
(ii) replace such Products to FCPA's reasonable satisfaction
with non-infringing Products or equivalent quality and
performance, or (iii) modify such Products so that they become
non-infringing Products of equivalent quality and performance.
If KOFAX is unable to provide any of the above alternatives,
KOFAX must pay FCPA for all units sold to FCPA and then may
terminate this Agreement by giving a written notice to FCPA. The
foregoing constitutes the sole remedies available to FCPA and
it's customers in the event of any such infringement.
27. INTELLECTUAL PROPERTY RIGHTS
KOFAX claims all rights, title and interest in the Products delivered by
KOFAX under this Agreement and in all of KOFAX's patents, trademarks,
trade names, inventions, copyrights, know-how and trade secrets relating
to the design and operation of that Product. FCPA agrees that the
execution of this Agreement does not in any way give FCPA rights to any
KOFAX' intellectual property or patents. However, should there be any
work product developed during the term of the Agreement which is a
result of any intellectual property provided by FCPA, it shall be
licensed subject to the terms of a separate agreement to be mutually
agreed upon between the parties at a later date.
28. ENGINEERING CHANGE NOTICES/PRODUCT CHANGES
(a) KOFAX shall give FCPA at least ninety (90) days advance written
notice of engineering changes that will affect the form, fit or
function of any Product in FCPA's inventory.
(b) KOFAX shall not make any form, fit, or function changes to the
Product without the approval of FCPA. Subject to KOFAX's Quality
Procedure, as set forth in the attached Exhibit F, KOFAX will
document all proposed engineering changes as an Engineering
Review Order ("ERO"). If applicable, sample of the proposed
product change shall be provided with each ERO. FCPA shall have
fifteen (15) business days to accept or reject such engineering
change.
(c) Following FCPA's approval of the ERO, KOFAX shall follow with an
Engineering Change Order ("ECO") for FCPA's formal acceptance of
the change. FCPA shall have eight (8) business days from ECO
delivery for approval. FCPA's failure to approve the ECO within
this stipulated time, shall deem the ECO officially accepted.
(d) Accepted changes will be cut-in with the next production build
of the Product or Product delivery. If FCPA rejects a change
which affects the form, fit or
Page 13 of 28
<PAGE> 14
function, rendering the Product unusable by FCPA, the parties
shall work together to determine a reasonable resolution to the
problem. Any safety related ECO's shall be corrected under
warranty.
(e) The implementation of KOFAX's Design and Change Control
Procedure shall commence with initial production shipments to
FCPA.
29. END OF LIFE PRODUCTS
Should Products be discontinued or should an ECN create modifications to
the Product that require KOFAX to assign a new Product number to the
affected Product then FCPA shall be entitled to make an End-of-Life
("EOL") buy or return the Product for credit as specified below. Should
FCPA decide to make an EOL buy the Order must be within thirty (30) days
of the date of notice and FCPA agrees to take Delivery of that Product
within thirty (30) days of the date EOL Order is placed.
FCPA shall use commercially reasonable efforts to sell any Product which
have been deemed EOL'd during the EOL notice period. Any EOL Products
remaining unsold and in FCPA's inventory, which was returned to FCPA by
its OEM's and Distributors upon the date the Product is EOL'd may be
returned for credit subject to the following terms:
(a) All EOL'd Product returns must be made within sixty (60) days
from the date the Product is EOL'd.
(b) FCPA shall receive a credit for all such EOL'd Products
returned, provided the EOL'd Product being returned was
purchased and paid for by FCPA within six (6) months of the date
of EOL notice.
(c) Credit shall be based on the then current list price for the
EOL'd Product as noted on the last version of KOFAX' price list
containing the EOL'd Product, less any previously given credits
or returns.
(d) FCPA shall return the EOL'd Products utilizing KOFAX's then
current RMA procedure.
(e) Products returned must be new, unused and in factory sealed
containers.
(f) KOFAX shall pay freight charges provided that the choice of
carrier remains solely with KOFAX.
30. TERMINATION
Page 14 of 28
<PAGE> 15
(a) Either Party may terminate this Agreement in whole or in part
for any reason and without liability for that termination by
giving a written ninety (90) day notice of termination to the
other party.
(b) Either party may terminate this Agreement, effective upon
written notice to the other, if any one of the following events
occur: (i) the other files a voluntary petition in bankruptcy;
(ii) the other is adjudicated bankrupt; (iii) the other makes an
assignment for the benefit of its creditors; (iv) a court
assumes jurisdiction of the assets of the other under a federal
bankruptcy or reorganization act; (v) a trustee or receiver is
appointed by a court for all or a substantial portion of the
assets of the other; (vi) there is a substantial change in the
financial conditions of the other; or (vii) the other is unable
to pay its debts as they become due.
(c) Either party may terminate this Agreement upon written notice if
the other party breaches this Agreement and fails to correct the
breach within thirty (30) days following the receipt to a
written notice specifying the breach.
(d) Upon termination FCPA's inventory will be repurchased as
follows: (i) KOFAX shall buy back FCPA inventory of KOFAX
Products purchased and paid for during the previous six (6)
months and on hand at FCPA's location as of the effective date
of termination, and KOFAX shall have the option to buy back FCPA
inventory of KOFAX Products purchased more than six (6) months
previously and on hand at FCPA location as of the effective date
of the termination. All Products returned by FCPA to KOFAX shall
comply with the following conditions: (1) be returned freight
prepaid within sixty (60) days of receipt of notification by
KOFAX, (2) be shipped in the original shipping container to
eliminate Product damage during shipment, and (3) be received at
KOFAX's facility new, unused, undamaged and in good working
condition.
(e) Upon the giving by KOFAX or FCPA of notice of election to
terminate this Agreement, excluding termination as provided in
subsection (b) above, KOFAX agrees to accept Orders on cash
terms, or such other terms as may be mutually agreed, for
Products which FCPA is contractually obligated to furnish prior
to termination and does not have in its inventory, provided that
FCPA within ten (10) days after the expiration of this Agreement
or termination, as hereinabove provided, furnishes evidence to
KOFAX's satisfaction of the existence of the contractual
obligation; and provided further that KOFAX has a sufficient
number of Products in stock and available for distribution to
supply the same to FCPA.
(f) BOTH PARTIES ACKNOWLEDGE THAT IN THE EVENT OF TERMINATION OF
THIS AGREEMENT NEITHER PARTY SHALL HAVE ANY RIGHT TO DAMAGES OR
INDEMNIFICATION OF ANY NATURE, WHETHER BY WAY OF LOSS OF
GOODWILL, FUTURE PROFITS, OR REVENUE, ON ACCOUNT OF
EXPENDITURES, INVESTMENTS,
Page 15 of 28
<PAGE> 16
LEASES, OR OTHER COMMITMENTS IN CONNECTION WITH THE BUSINESS OR GOODWILL
OF EITHER PARTY, OR OTHERWISE
31. MARKET DEVELOPMENT
(a) KOFAX agrees to cooperatively work with FCPA in developing joint
marketing programs for KOFAX VRS Ready scanners. KOFAX will
offer cooperative marketing funds as well as supplement joint
efforts with its own marketing programs.
(b) KOFAX will terminate current plans to market a KOFAX VRS
configuration for Fujitsu M-Series video scanners through the
FCPA channel and will allow FCPA to OEM several VRS components
for inclusion in new FCPA VRS Ready scanners.
(c) KOFAX will not allow the shipment of non Fujitsu VRS enabled
scanners prior to the first customer ship date of the KOFAX VRS
Ready M3097DE scanner. For purposes of this Section, first
customer ship shall be defined to mean no sooner than twenty
(20), but no more than sixty (60), days KOFAX delivery of the
initial purchase order issued by FCPA ("FCS").
(d) KOFAX agrees to not allow the inclusion of the VRS Auto
Adjustment brightness and contrast features in non-Fujitsu VRS
scanners prior to six (6) months after the first shipment by
FCPA of a mutually agreed upon version 1.03 of the Product.
(e) FCPA will include a VRS logo, as approved by KOFAX, which will
be installed by FCPA in a prominent location on the front of
each scanner.
(f) FCPA agrees to create an additional part number consisting of
the three VRS components (VRS Grayscale Scanner Adapter, VRS
cable, VRS software) which can be sold by FCPA for use with
existing M-Series video scanners in the field as an upgrade kit.
(g) FCPA agrees to use commercially reasonable efforts to
participate in cooperative marketing efforts in conjunction with
KOFAX's VRS marketing efforts.
(h) A Shockwave version of the VRS interactive demo CD presentation
will be provided to FCPA for use on the FCPA website.
32. PUBLICITY
Both parties agree not to disclose the terms and conditions of this
Agreement, except as may be required by law or government regulation,
including, without limitation, federal securities laws, and except to a
party's accountants and attorneys without the prior written consent of
the other party. The foregoing notwithstanding, either party may
disclose that an Agreement has been signed by the parties for supply of
Products by KOFAX to FCPA on an OEM basis.
Page 16 of 28
<PAGE> 17
33. FORCE MAJEURE
Neither FCPA nor KOFAX shall be liable to the other for delays in the
performance of this Agreement if such delay is caused by strike, riots,
wars, government regulations, acts of God, fire, flood, or other causes
beyond its control; provided, however, if any such delay by KOFAX
continues thirty (30) days or more, then FCPA shall have the option,
exercisable by written notice to cancel all or any portion of Orders
placed hereunder and to cancel this Agreement without charge or
liability.
34. GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of California.
35. NOTICES
Written notices are to be sent to FCPA at
Fujitsu Computer Products of America, Inc.
2904 Orchard Parkway
San Jose, CA 95134
Attn: Manager, Contracts Administration
Written notices are to be sent to the KOFAX at:
3 Jenner
Irvine, CA 92618
Attn: Manager, Contracts Administration
36. ASSIGNMENT
Neither this Agreement nor any of the rights and obligations arising
from it may be assigned or transferred in whole or in part to any third
party without the prior written consent of the other party and any
attempted assignment in violation of this Section shall be void.
Notwithstanding the aforementioned, FCPA may assign this Agreement to
its subsidiary or parent companies without prior notice to KOFAX and
either party may assign this Agreement in connection with the sale of
the business to which this Agreement relates. However, FCPA shall
provide notice of such assignment to KOFAX within thirty (30) days after
assignment.
37. RELATIONSHIP
This Agreement does not make either party the employee, agent, joint
venture, partner or legal representative of the other for any purpose
whatsoever. In fulfilling its obligations under this Agreement, each
party shall be deemed to be an independent contractor.
Page 17 of 28
<PAGE> 18
38. WAIVER
No failure by either party to assert any right hereunder shall be deemed
to be a waiver of such right in the event of the continuation or
repetition of the circumstances giving rise to such right. The exercise
of any right or remedy by either party shall not be deemed a waiver of
any other right or remedy granted under this Agreement or available at
law.
39. AMENDMENT
This Agreement may not be amended, except by written agreement signed by
both parties.
40. SURVIVAL
(a) Even when this Agreement is terminated, cancelled or expires,
any individual contract according to this Agreement of which the
fulfillment date is beyond the termination, cancellation or
expiration date shall survive this Agreement until the date of
its final fulfillment.
(b) The rights and obligations of the parties hereto accrued at the
time of termination, cancellation or expiration of this
Agreement and under Sections 12, 14, 15, 18, 20, 23, 24, 25, 26,
27, 30, 34, 41, 42 and 43 shall survive any termination,
cancellation or expiration of this Agreement.
41. RIGHTS UPON TERMINATION OF AGREEMENT
The parties recognize that termination of this Agreement in accordance
with its terms or its failure to be renewed or extended may result in
loss or damage to either party but hereby expressly agree that neither
party shall be liable to the other by reason of any loss of damage
resulting from such termination of this Agreement by the other or the
failure of the Agreement to be renewed or extended (including, without
limitation, any loss of prospective profits or any damage occasioned by
loss of goodwill) or by reason of any expenditures, investments, leases
or commitments made in anticipation of the continuance of this
Agreement. The foregoing, however, shall not in any way relieve either
party from liability to the other for damages arising out of any
violation or breach of this Agreement.
42. LIMITATION OF LIABILITY
EXCEPT AS STATED HEREIN, KOFAX DISCLAIMS ALL OTHER WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. KOFAX SHALL NOT BE LIABLE FOR
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES RESULTING FROM ANY USE,
LEASE OR SALE OF THE PRODUCTS BY FCPA.
EXCEPT AS EXPRESSLY PROVIDED HEREIN, IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR INDIRECT, INCIDENTAL, PUNITIVE, SPECIAL OR
Page 18 of 28
<PAGE> 19
CONSEQUENTIAL DAMAGES ARISING IN CONNECTION WITH THIS AGREEMENT, ITS
NEGOTIATION, FORMATION, BREACH, EXPIRATION OR TERMINATION.
43. DISPUTE RESOLUTION
Any controversy arising out of or relating to this Agreement, any
modifications or extension hereof, or any Order, sale or performance
hereunder, including any claim for damages or rescission, or both, shall
be settled, by three arbitrators in Santa Clara County, California, if
instituted by KOFAX, or Orange County, California if initiated by FCPA
in accordance with the Commercial Rules then obtaining of the American
Arbitration Association. Judgment on the award may be entered in any
Court of competent jurisdiction. The parties consent that any process or
notice of motion or other application to either of said courts, and any
paper in connection with arbitration, may be served by certified mail,
return receipt requested, or by personal service or in such other manner
as may be permissible under the rules of the applicable court or
arbitration tribunal, provided a reasonable time for appearance is
allowed. The parties further agree that arbitration proceedings must be
instituted within eighteen (18) months after the claimed breach
occurred, and that the failure to institute arbitration proceedings
within such period shall constitute an absolute bar to the institution
of any proceedings and a waiver of all such claims. The prevailing party
in any arbitration or other legal proceedings shall be entitled, in
addition to any other rights or remedies it may have, to reimbursement
for its expenses incurred thereby and in any subsequent enforcement of a
judgment including court and arbitration costs, reasonable attorneys'
fees, arbitrator's fees, and witness fees including those of expert
witnesses.
44. ENTIRE AGREEMENT
This Agreement, including the attachments, constitutes the entire
agreement of the parties with respect to the subject matter hereof, and
supersedes all previous agreements by and between the parties, as well
as all proposals, oral or written, and all negotiations, conversation,
and understandings heretofore had between the parties related to the
subject matter of the Agreement. This Agreement supersedes any terms and
conditions stated in any Order, acceptance or confirmation of Order to
the extent they are inconsistent with this Agreement or purport to
create obligations or rights additional to those set forth in this
Agreement.
45. HEADING
Headings used in this Agreement are for convenience only and shall not
be used in interpreting the provisions of this Agreement.
Page 19 of 28
<PAGE> 20
IN WITNESS WHEREOF, this Agreement has been executed by duly authorized
representatives of both parties hereto as of the date first written above.
KOFAX IMAGE PRODUCTS, INC. FUJITSU COMPUTER PRODUCTS OF AMERICA, INC.
Signature: /s/ RICHARD M. MURPHY Signature: /s/ K. T. PARKER
------------------------ -----------------------------
Name: Richard M. Murphy Name: KEVIN T. PARKER
----------------------------- ----------------------------------
Title: V.P. SALES Title: V.P. FINANCE AND ADMINISTRATION
-------------------------- ---------------------------------
Date: 2/5/99 Date: 2/1/99
----------------------------- -----------------------------------
Page 20 of 28
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF DILUTED NET INCOME PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 1999 MARCH 31, 1999
---------------------- ------------------------
<S> <C> <C> <C> <C>
CALCULATION OF DILUTED NET INCOME PER SHARE AT MARCH 31, 1999
Weighted average common shares 5,306,042 5,282,278
Common stock options outstanding using the treasury stock method 167,794 130,127
---------- ----------
Total diluted weighted average common shares outstanding 5,473,836 5,412,405
Net income $1,258,994 $3,347,286
Diluted net income per share 0.23 0.62
========== ==========
Weighted Common Stock Options 477,187 413,723
Weighted average outstanding exercise price $ 5.56 $ 5.06
---------- ----------
Gross proceeds 2,651,442 2,092,404
Repurchase price $ 8.57 $ 7.38
---------- ----------
Shares repurchased 309,393 283,596
---------- ----------
Net shares 167,794 130,127
========== ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1998
---------------------- -----------------------
<S> <C> <C> <C> <C>
CALCULATION OF DILUTED NET INCOME PER SHARE AT MARCH 31, 1998
Weighted average common shares 5,367,122 3,829,589
Conversion of Preferred Stock to Common Stock 992,826
Common stock options outstanding using the treasury stock method 118,804 134,874
---------- ----------
Total diluted weighted average common shares outstanding 5,485,926 4,957,289
Net income $ 834,180 $2,251,381
Diluted net income per share 0.15 0.45
========== ==========
Weighted Common Stock Options 355,825 355,825
Weighted average outstanding exercise price $ 4.03 $ 4.03
---------- ----------
Gross proceeds 1,433,975 1,433,975
Repurchase price $ 6.05 $ 6.49
---------- ----------
Shares repurchased 237,021 220,951
---------- ----------
Net shares 118,804 134,874
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 19,851
<SECURITIES> 5,467
<RECEIVABLES> 5,670
<ALLOWANCES> 564
<INVENTORY> 1,769
<CURRENT-ASSETS> 33,712
<PP&E> 6,342
<DEPRECIATION> 4,857
<TOTAL-ASSETS> 36,644
<CURRENT-LIABILITIES> 6,003
<BONDS> 0
0
0
<COMMON> 16,601
<OTHER-SE> 14,040
<TOTAL-LIABILITY-AND-EQUITY> 36,644
<SALES> 0
<TOTAL-REVENUES> 28,091
<CGS> 0
<TOTAL-COSTS> 6,384
<OTHER-EXPENSES> 17,348
<LOSS-PROVISION> 95
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,168
<INCOME-TAX> 1,821
<INCOME-CONTINUING> 3,347
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,347
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.62
</TABLE>
