TROY GROUP INC, S-1, 1998-05-01

TROY GROUP INC
S-1, 1998-05-01

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
--------------------------

TROY GROUP, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 3570 33-0699672
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

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2331 SOUTH PULLMAN STREET
SANTA ANA, CALIFORNIA 92705
(714) 250-3280

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

------------------------------

PATRICK J. DIRK
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
TROY GROUP, INC.
2331 SOUTH PULLMAN STREET
SANTA ANA, CALIFORNIA 92705
(714) 250-3280

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------

COPIES TO:

<TABLE>
<S> <C>
THOMAS C. THOMAS, ESQ. OBY T. BREWER III, ESQ.
KRISTINE L. GABEL, ESQ. MICHAEL S. WACHHOLZ, ESQ.
Oppenheimer Wolff & Donnelly LLP Morris, Manning & Martin, L.L.P.
10 Almaden Boulevard, Suite 600 1600 Atlanta Financial Center
San Jose, California 95113-2237 3343 Peachtree Road, N.E.
(408) 275-8790 Atlanta, Georgia 30326
(404) 233-7000
</TABLE>

--------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.01 par value per share....... $28,750,000 $8,485
</TABLE>

(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(a).
--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>
SUBJECT TO COMPLETION, DATED , 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
2,500,000 Shares

[Logo]

TROY GROUP, INC.

Common Stock
------------------

All of the 2,500,000 shares of Common Stock offered hereby are being sold by
Troy Group, Inc. (the "Company"). Prior to this offering (the "Offering"), there
has been no public market for the common stock, $0.01 par value (the "Common
Stock") of the Company. It is currently estimated that the initial public
offering price will be between $8.00 and $10.00 per share. See "Underwriting"
for the factors to be considered in determining the initial public offering
price. Application has been made for quotation of the Common Stock on the Nasdaq
National Market under the symbol "TROY."

See "Risk Factors" beginning on page 4 for a discussion of certain factors
that should be considered by prospective purchasers of the Common Stock offered
hereby.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Public Discount(1) Company(2)
<S> <C> <C> <C>
Per Share.......................................... $ $ $
Total(3)........................................... $ $ $
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting." The Company has agreed to sell to
Interstate/Johnson Lane Corporation and Cruttenden Roth Incorporated (the
"Representatives"), for nominal consideration, a five-year warrant (the
"Representatives' Warrant") to purchase 100,000 shares of Common Stock,
exercisable at a price per share equal to 120% of the per share Price to
Public.

(2) Before deducting expenses payable by the Company estimated at $1,250,000.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
375,000 additional shares of Common Stock solely to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
------------------------

The shares of Common Stock are offered by the Underwriters, subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that delivery of the certificates representing such
shares will be made available at the offices of Interstate/Johnson Lane
Corporation, Charlotte, North Carolina, on or about , 1998.

The date of this Prospectus is , 1998
<PAGE>
[INSIDE FRONT COVER ART TO COME]

------------------------

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SYNDICATE SHORT-POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, AND THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE SPECIFIED HEREIN,
ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF THE UNDERWRITERS'
OVER-ALLOTMENT OPTION, SEE "UNDERWRITING," AND (II) REFLECTS CHANGES TO THE
COMPANY'S CAPITAL STRUCTURE EFFECTED PRIOR TO THE CONSUMMATION OF THE OFFERING,
INCLUDING A 910.7468-FOR-ONE STOCK SPLIT AND A SHARE EXCHANGE IN CONNECTION WITH
THE REINCORPORATION OF THE COMPANY IN DELAWARE. ALL REFERENCES IN THIS
PROSPECTUS TO "TROY" OR THE "COMPANY" REFER COLLECTIVELY TO TROY GROUP, INC. AND
ITS WHOLLY-OWNED SUBSIDIARY.

THE COMPANY

The Company provides on-demand distributive printing solutions to Fortune
1000 and other large and mid-sized domestic and international businesses. Troy's
current product offering consists of proprietary laser printers, impact
printers, related consumables, including toners and ribbons, and services. The
Company's products enable businesses to distribute and print magnetic ink
character recognition ("MICR") encoded financial documents such as checks, money
orders, payment coupons and deposit and withdrawal slips.

Businesses have traditionally purchased pre-printed financial document forms
from commercial printers and maintained inventories of these forms until needed
for printing and distribution. These inventories are expensive to maintain,
subject companies to security risk associated with storing, printing and
delivering financial document forms and are subject to obsolescence. The advent
and growth of client server computing, cross platform computing, networks, team
workgroups, database sharing and intranets have effectively enabled
organizations to electronically distribute financial documents and print the
documents at the required locations. At the same time, printer manufacturers
have introduced significant technological advancements in the speed, quality and
finishing options of laser printers at drastically reduced costs. The merger of
these technological enhancements in computing and printing has created a new
opportunity termed on-demand distributive printing.

On-demand distributive printing gives an enterprise the ability to
electronically distribute and print documents on a cost-effective basis at
locations where the documents are required, when they are needed and in the
actual quantities needed. The movement to on-demand distributive printing has
revolutionized the entire printing industry. As a result, there has been a
significant transition away from the use of commercial printers to corporate
in-house printing. On-demand distributive printing represents a market segment
within the on-demand digital printing market. In a 1997 report, INTERQUEST
projected that the market for on-demand digital printing would grow at a rate of
19% to 21% per year from 1995 to 2000. CAP VENTURES, a leading research and
consulting organization for the printing industry, projected that this market
would grow from approximately $2.6 billion in 1995 to approximately $8.6 billion
in 2000. Management believes that the market for on-demand distributive printing
will continue to grow at rates consistent with that of the on-demand digital
printing market.

The Company was the first to develop desktop, laser financial document
printers and has developed products that take advantage of this growth in
on-demand distributive printing. On-demand distributive printing has served as a
catalyst for increased sales of the Company's current solutions and created an
opportunity for new products and solutions such as forms design and management,
forms finishing and Internet related products. The Company's current solutions
offer: (i) convenience and flexibility through the ability to print financial
documents where they are required, when they are needed and in the actual
quantities needed; (ii) cost savings through the elimination of the requirement
to purchase and maintain inventories of pre-printed forms; and (iii) enhanced
software, hardware and document security.

Through an exclusive original equipment manufacturing ("OEM") relationship
with Hewlett-Packard Company ("Hewlett-Packard"), Troy purchases Hewlett-Packard
laser printers and installs various proprietary hardware, firmware and software
into the printers. The Company then repackages and relabels the printers and
sells them as MICR-enabled financial document printers under the
Troy-Registered Trademark- name. Hewlett-Packard assists the Company in the
marketing of Troy's MICR-enabled printers by introducing the

1
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Company to Hewlett-Packard's customers who may require a MICR printing solution.
In addition, the Company has a relationship with International Business Machines
Company ("IBM"), whereby IBM has agreed to purchase from Troy all of IBM's
requirements of MICR toner and developer for the IBM 3900 and InfoPrint 4000
family of high speed laser printers.

The Company markets its products to Fortune 1000 companies through its
direct sales force, while it markets to other large and mid-sized businesses
through a network of dealers and value-added resellers. The Company markets
internationally in 55 countries primarily through a distributor network. Troy
has sold its printing systems and related consumables to more than 9,000
customers including AT&T Corporation, BankAmerica Corporation, Farmer's
Insurance Group, Ford Motor Company, Manpower, Inc. State Farm Insurance and
Wells Fargo & Company.

The Company's objective is to become the leading worldwide provider of
on-demand distributive printing and imaging solutions. In order to achieve this
objective, the Company will continue to implement the following strategies: (i)
expand solutions for Hewlett-Packard based products; (ii) expand existing and
seek new OEM relationships; (iii) leverage strategic alliances; (iv) maintain
its technological leadership position; (v) expand distribution channels to
increase its focus on selling to smaller businesses; and (vi) seek acquisitions
of products, technologies and businesses in the on-demand distributive printing
and imaging market in areas such as forms design management, forms finishing,
networking, the Internet, financial software and service.

The Company, originally incorporated in California in 1996, was
reincorporated in Delaware in May 1998. The Company is the result of various
mergers and acquisitions through a company originally founded in 1982 by the
existing stockholders. The Company's principal executive offices are located at
2331 South Pullman Street, Santa Ana, California 92705, and its telephone number
at that location is (714) 250-3280. "TROY-Registered Trademark-,"
"CHECKTRACE-TM-," "MICRTONE-Registered Trademark-,"
"MULTITONE-Registered Trademark-," "MICROSS-Registered Trademark-" and
PERMABOND-TM-" are trademarks of the Company.

THIS PROSPECTUS CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS, WHICH INVOLVE RISKS AND UNCERTAINTIES
AND WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS
"MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE
THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE INCLUDED IN SUCH FORWARD-LOOKING STATEMENTS
DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.

2
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THE OFFERING

<TABLE>
<S> <C>
Common Stock offered........................ 2,500,000 shares
Common Stock to be outstanding after the
Offering.................................. 10,000,000 shares(1)
Use of proceeds............................. To repay indebtedness, to pay S corporation
distributions and for working capital and
general corporate purposes, including possible
acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol...... TROY
</TABLE>

SUMMARY CONSOLIDATED AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FEBRUARY 28, 1998
---------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA(3) ADJUSTED(4)
--------- ------------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................ $ -- $ -- $ 19,356
Working capital.......................................................... 5,723 4,113 24,198
Total assets............................................................. 12,416 12,796 32,152
Current portion of long-term debt........................................ 634 634 292
Long-term debt, net of current portion................................... 957 957 528
Stockholders' equity..................................................... 6,681 5,071 25,585
</TABLE>

- ------------------------------
(1) Excludes: (i) 1,564,298 shares of Common Stock reserved for issuance under
the Company's stock option plans, of which options to acquire 326,957 shares
are outstanding at a weighted average exercise price of $0.42 per share and
options to acquire 470,000 shares will be granted upon completion of the
Offering at an exercise price equal to the price per share to the public in
the Offering; (ii) up to 350,000 shares of Common Stock issuable upon
exercise of outstanding warrants at an exercise price of $3.50 per share;
and (iii) 100,000 shares of Common Stock issuable upon exercise of the
Representatives' Warrants. See "Management--Stock Option and Incentive
Plans," "Description of Capital Stock" and "Underwriting."

(2) Pro forma net income and pro forma diluted net income per share data give
effect to the conversion by the Company and its wholly-owned subsidiary,
Troy Systems International, Inc. (the "Subsidiary"), from S corporations to
C corporations for federal and state income tax purposes and assume that the
Company and the Subsidiary were subject to corporate income taxes at an
effective combined federal and state income tax rate of 40.0%. See "S
Corporation Distributions" and Note 2 of the Notes to Consolidated Financial
Statements.

(3) Pro forma balance sheet data give effect to (i) an estimated deferred tax
asset of approximately $380,000 that will result from the termination by the
Company and the Subsidiary of their S corporation elections and (ii) S
corporation distributions in the estimated amount of approximately $2.0
million paid or to be paid to existing stockholders after February 28, 1998.
See "S Corporation Distributions."

(4) Pro forma as adjusted balance sheet data give effect to the sale of
2,500,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $9.00 per share and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."

3
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY BY PROSPECTIVE INVESTORS
IN EVALUATING THE COMPANY AND ITS BUSINESS AND BEFORE PURCHASING ANY OF THE
SHARES OF COMMON STOCK OFFERED HEREBY.

DEPENDENCE ON HEWLETT-PACKARD AND OTHER SINGLE SOURCE SUPPLIERS

The Company is dependent on Hewlett-Packard as a single source provider of
laser printers used in the manufacture of all of the Company's laser printing
solutions. The Company and Hewlett-Packard are parties to the U.S. LaserJet MICR
Solution Reseller Agreement and a Value-Added Reseller Addendum (collectively
the "HP Agreement"). Pursuant to the HP Agreement, the Company purchases
Hewlett-Packard laser printers and modifies and enhances the printers. Troy then
repackages and relabels the printers and sells them as MICR-enabled financial
document printers under the Troy name. The HP Agreement is an extension of the
initial agreement with Hewlett-Packard entered into in October 1993 and has an
expiration date of March 31, 1999. If the HP Agreement expires or is otherwise
terminated in accordance with its terms, the Company would be required to
purchase Hewlett-Packard printers through other sources, such as authorized
distributors. The Company would also lose the benefit of Hewlett-Packard's
assistance in marketing Troy's MICR-enabled printers to Hewlett-Packard's
customers who may require a MICR printing solution. In addition, the HP
Agreement imposes certain shipment milestones that must be met in order for the
Company to retain its exclusive rights. Although the Company has achieved these
milestones to date, there can be no assurance that the Company will continue to
satisfy milestones imposed by the HP Agreement. If the Company loses its
exclusive rights under the HP Agreement, Hewlett-Packard will be free to grant
rights to other vendors to sell MICR-enabled Hewlett-Packard laser printers.
Such an event would result in increased competition and could have a material
adverse effect on the Company. In addition to its relationship with
Hewlett-Packard, the Company is also dependent on single source suppliers for a
component used in its impact printing products and for a component used in its
ribbons. If the Company were to lose its component supplier for its impact
printing products, it would be required to identify a new supplier and
substantially reengineer its products for use with an alternative component. If
the Company were to lose its component supplier for ribbons, the Company would
be required to identify a new supplier. While the Company maintains business
interruption insurance policies (including a policy that specifically covers the
loss of the component supplier for its impact printing products), the loss of
the component supplier of its impact printer products or ribbons would interrupt
the manufacture of the Company's impact printers or ribbons, respectively, which
could have a material adverse effect on the Company. There can be no assurance
that alternative component suppliers would be available on a timely basis or at
all. See "Business--Strategic Relationships" and "--Manufacturing Capabilities."

CUSTOMER CONCENTRATION

In the three months ended February 28, 1998 and the fiscal year ended
November 30, 1997, a reseller of the Company's consumable products accounted for
19.4% and 16.6%, respectively, of the Company's net sales, of which the Company
believes a significant portion was sold to a single customer. There can be no
assurance that either this reseller or its customer will continue to purchase
products from the Company. The loss of either this reseller or its customer
would have a material adverse effect on the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Overview."

TECHNOLOGICAL OBSOLESCENCE

The market for the Company's products is characterized by rapid
technological advances, obsolescence and large fluctuations in product demand.
The introduction of products embodying new technologies could render the
Company's existing products and products currently under development obsolete
and unmarketable. The Company's continued success will depend upon its ongoing
ability to enhance its

4
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products as well as to develop and introduce new products that keep pace with
technological developments and achieve market acceptance. Any failure by the
Company to anticipate or respond adequately to technological developments or
end-user requirements, or any significant delays in product development or
introduction, could have a material adverse effect on the Company. The Company
believes that impact printing solutions are approaching the end of their life
cycles because of advanced functionality offered by new non-impact products from
the Company as well as companies such as Oce Printing Systems USA, Inc. ("Oce")
and IBM. The Company anticipates a continuing decline in sales of its impact
printers and intends to minimize the effect of this decline by offering a
broader range of faster, lower cost laser printers, by offering consumables for
high speed laser printers and by pursuing certain specialty impact printing
markets, such as multi-part forms. There can be no assurance, however, that
sales of laser printers and consumables will increase sufficiently to offset
anticipated declines in sales of impact printing systems or that the Company
will successfully enter other specialty printing markets. See
"Business--Business Strategy" and "--Research and Development."

RISKS ASSOCIATED WITH GROWTH THROUGH ACQUISITIONS

As part of its growth strategy, the Company intends to pursue acquisitions
of technologies, product lines and businesses that are complementary to the
Company's business and which management believes will enable the Company to
achieve its objective of becoming the leading worldwide provider of on-demand
distributive printing and imaging solutions. The Company's ability to grow
through such acquisitions will be dependent upon the availability of suitable
acquisition candidates at an acceptable cost, the Company's ability to compete
effectively for these acquisition candidates and the availability of capital to
complete such acquisitions. Management has limited experience in identifying,
negotiating and completing acquisitions. Completed acquisitions also involve
numerous risks, including difficulties in the assimilation of the operations and
products of the acquired business, delays in realizing the benefits of the
Company's strategies for an acquired business, dependence on new products and
processes, the diversion of management's attention from the Company's business,
risks of entering markets in which the Company has no or limited direct prior
experience and the inability to retain key employees necessary to manage such
acquisitions. In addition, gross margins of any acquired products, technologies
or businesses, expenditures for necessary product or technology development and
other factors related to any such acquisitions could result in dilution to the
Company's earnings. Future acquisitions also could have a significant impact on
the Company's financial position and capital needs and could cause substantial
fluctuations in the Company's quarterly and annual results of operations.
Furthermore, future acquisitions by the Company could result in the use of a
portion of the proceeds from the Offering, dilutive issuances of equity
securities, the incurrence of additional debt and the amortization of the costs
of goodwill and intangible assets and significant write-offs of in-process
product development. All of the foregoing risks, either individually or in the
aggregate, could have a material adverse effect on the Company. See
"Business--Business Strategy."

DEMAND FOR PRINTED FINANCIAL DOCUMENTS

The market for the Company's products currently depends entirely on the
demand for printed financial documents. There can be no assurance that
competition from alternative methods of financial document delivery (e.g.,
electronic banking, electronic commerce, on-line services and other electronic
media) will not erode the demand for printed financial documents. While part of
the Company's growth strategy is to diversify its business into additional
market segments of the on-demand distributive printing and imaging market such
as electronic payment systems, there can be no assurance that the Company will
be successful in implementing this diversification strategy and failure to do so
could have a material adverse effect on the Company. See "Business--Industry
Overview" and "--Business Strategy."

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COMPETITION

The on-demand distributive printing industry is highly competitive. Troy's
primary competitors are domestic and foreign printer manufacturers and
value-added resellers. Some of the Company's competitors have advantages over
the Company with respect to labor and component costs and have substantially
greater resources than the Company. The Company also faces competition from
current and prospective customers and distributors who may decide to design and
manufacture their financial document printing solutions internally. To remain
competitive, management believes that the Company must continue to compete
favorably on the basis of value by providing technologically advanced financial
printing solutions that satisfy the demands of customers and by offering
superior customer service, enhanced quality and reliability levels and flexible
and reliable delivery schedules. There can be no assurance that the Company will
be able to compete successfully against its current and future competitors.
Increased competition may result in price reductions, lower gross margins and
loss of market share, any of which would have a material adverse effect on the
Company. See "Business--Competition."

INTERNATIONAL OPERATIONS

Shipments to international customers in the three months ended February 28,
1998 and the fiscal years ended November 30, 1997 and 1996 represented 17.5%,
13.7% and 14.3%, respectively, of the Company's net sales and are expected to
continue to account for a material portion of net sales. Sales and operations
outside of the United States are subject to certain inherent risks, including
fluctuations in the value of the U.S. dollar relative to foreign currencies,
tariffs, quotas, taxes, political and economic instability, restrictions on the
export or import of technology, potentially limited intellectual property
protection, difficulties in staffing and managing international operations,
difficulties in collecting receivables and potentially adverse tax consequences.
Because the Company's international sales are denominated primarily in U.S.
dollars, currency fluctuations in countries where the Company does business may
render the Company's products less price competitive than those of foreign
manufacturers. There can be no assurance that any of these factors will not have
a material adverse effect on the Company.

CONTROL OF THE COMPANY BY PATRICK J. DIRK

Upon completion of the Offering, Patrick J. Dirk, the Company's Chairman of
the Board, President and Chief Executive Officer, will beneficially own an
aggregate of 5,880,000 shares of Common Stock, representing 58.8% of the
Company's outstanding Common Stock. As a result, Mr. Dirk will be able to
control the Company through the power to elect the Company's Board of Directors.
See "Principal Stockholders."

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company's quarterly operating results are subject to fluctuation due to
various factors, including the mix of products between laser printers, impact
printers and consumables, the stage of each product in its life cycle, the
availability and costs of components and materials, the rate of addition and
magnitude of new products and the timing of orders from and shipments to
customers. Because of these factors, quarterly operating results are likely to
vary in the future. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

INTELLECTUAL PROPERTY

Certain equipment, processes, information and knowledge developed by the
Company and used in the design and manufacture of its products are regarded as
proprietary or confidential by the Company. The Company relies on a combination
of patents, trademarks, trade secrets and other intellectual property law,
non-disclosure agreements with employees and internal confidentiality measures
to protect its intellectual property rights and confidential information. Such
protection, however, may not preclude competitors

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<PAGE>
from developing products similar to the Company's products. In addition, the
laws of certain foreign countries may not protect the Company's intellectual
property rights and confidential information to the same extent as the laws of
the United States. Although the Company continues to evaluate and implement
protective measures, there can be no assurance that these efforts will be
successful or that third parties will not assert intellectual property
infringement claims against the Company. No such claims or litigation related to
any such matter are currently pending against the Company. However, there can be
no assurance that none will be initiated, that the Company would prevail in any
such litigation seeking damages or an injunction against the sale of the
Company's products or that the Company would be able to obtain any necessary
licenses on reasonable terms or at all. See "Business--Patents and Proprietary
Rights."

DEPENDENCE ON KEY PERSONNEL

The Company is dependent to a significant extent upon the efforts and
talents of Patrick J. Dirk and its other executive officers. The loss of Mr.
Dirk or any of these other executive officers could have a material adverse
effect on the Company. The Company does not have employment or noncompete
agreements with its key employees, except for Robert S. Messina, the Company's
Executive Vice President. See "Management."

GOVERNMENT REGULATION

The Company is subject to numerous federal, state and local laws and
regulations, including regulations promulgated by the Environmental Protection
Agency and similar state agencies with respect to storing, shipping, disposing,
discharging and manufacturing hazardous materials and hazardous and
non-hazardous waste. Although the Company believes that its operations are in
material compliance with current environmental and other laws and regulations,
there can be no assurance that regulatory requirements will not change,
unforeseen environmental incidents will not occur or past contamination or non-
compliance with environmental laws will not be discovered on properties on which
the Company is or has been located. See "Business--Environmental and Regulatory
Matters."

S CORPORATION STATUS

Beginning in December 1989 and continuing until the consummation of the
Offering, the Company and the Subsidiary have elected to be treated as S
corporations under the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"). As a result, during this period the stockholders of the Company
and the Subsidiary were directly subject to tax on the income of the Company for
federal and state income tax purposes, except that the Subsidiary elected to be
taxed as a C corporation for California state income tax purposes. The Company
will use a portion of the net proceeds of the Offering to make a distribution to
its existing stockholders in connection with the termination of the S
corporation election. In addition, while the Company believes that it and the
Subsidiary have met the S corporation requirements, as of the date of this
Prospectus, the Internal Revenue Service (the "IRS") has not challenged the S
corporation status of either entity. If for any reason either the Company or the
Subsidiary were subsequently determined by the IRS not to have met S corporation
requirements, the Company could be liable to pay federal and state income taxes
on its income at the effective federal and state income tax rate for all or a
part of the period from December 1989 through the consummation of the Offering,
plus interest and possible penalties. See "S Corporation Distributions," "Use of
Proceeds" and "Certain Transactions."

YEAR 2000 COMPLIANCE

7
<PAGE>
The Company has performed a preliminary assessment of the Year 2000 compliance
of existing software products offered or used by the Company and believes that
no corrective action will be required. Consequently, the Company does not
anticipate incurring significant additional costs to achieve Year 2000
compliance, although no assurance can be given that the Company's preliminary
assessment has identified all potential Year 2000 issues. In addition, it is
currently unknown whether the Company's vendors, distributors, OEMs or other
third parties with which the Company conducts business will successfully achieve
Year 2000 compliance with respect to their own computer software and products.
The failure of the Company or its vendors, distributors, OEMs or other third
parties with which the Company conducts business to successfully achieve Year
2000 compliance could have a material adverse effect on the Company.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of Common Stock in the public market after the Offering (including
sales of shares issued upon the exercise of outstanding options and warrants)
could have a material adverse effect on the market price of the Common Stock.
Such sales also could make it more difficult for the Company to sell equity
securities in the future at a time and price that the Company deems appropriate.
Upon the completion of the Offering, the Company will have 10,000,000 shares of
Common Stock outstanding, of which the 2,500,000 shares offered hereby will be
freely tradable (unless held by affiliates of the Company) and the remaining
7,500,000 shares (the "Restricted Shares") may be sold in the public market only
if registered or pursuant to an exemption from registration such as Rule 144,
144(k) or 701 under the Securities Act of 1933, as amended (the "Securities
Act"). All of the existing stockholders of the Company have entered into lock-up
agreements under which they have agreed not to sell, directly or indirectly, any
shares owned by them for a period of 180 days after the date of this Prospectus
without the prior written consent of Interstate/Johnson Lane Corporation.
Following expiration of these lock-up agreements, 1,125,000 of the Restricted
Shares will be eligible for sale in the public market without restriction and
the balance will be eligible for sale subject to the volume limitations and
other conditions of Rule 144. In addition, approximately 90 days after
completion of the Offering, the Company intends to file a Registration Statement
on Form S-8 covering shares issuable under the Company's stock option plans,
thus permitting the resale of such shares by non-affiliates in the public market
without restriction under the Securities Act. See "Shares Eligible for Future
Sale."

POSSIBLE ISSUANCES OF PREFERRED STOCK; ANTI-TAKEOVER MEASURES

Pursuant to the Company's Certificate of Incorporation, the Board of
Directors is authorized to issue up to 5,000,000 shares of preferred stock (the
"Preferred Stock") and fix the rights, preferences, privileges and restrictions,
including voting rights, of such shares without any further vote or action by
the stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of any shares of Preferred
Stock may result in significant dilution of the interest in the Company of the
holders of Common Stock at that time. While the Company has no present intention
to issue shares of Preferred Stock, any such issuance could make it more
difficult for a third party to acquire a majority of the outstanding voting
power of the Company. The Company's stockholders also do not have the right of
cumulative voting for the election of directors. In addition, the Company is
subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law (the "DGCL"), which could have the effect of delaying or
preventing a change of control of the Company. The beneficial ownership and
voting control held by Patrick J. Dirk, the ability of the Board of Directors to
issue shares of Preferred Stock without further vote or action by the
stockholders, Section 203 of the DGCL and provisions in the Company's
Certificate of Incorporation will serve to prevent or delay a change of control
of the Company, which in turn could adversely affect the market price of the
Common Stock. See "Description of Capital Stock."

8
<PAGE>
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or, if
one does develop, that it will be maintained. The initial public offering price,
which will be established by negotiations between the Company and the
Representatives, may not be indicative of prices that will prevail in the
trading market. The stock market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Company's Common Stock. In addition, the market price of the
shares of Common Stock is likely to be highly volatile. Factors such as
fluctuations in the Company's operating results, announcements of technological
innovations or new products by the Company or its competitors, regulatory
actions, developments with respect to patents or proprietary rights, changes in
stock market analyst recommendations regarding the Company, other comparable
companies or the technology industry generally and general market conditions may
have a significant effect on the market price of the Common Stock. See
"Underwriting."

DILUTION

The initial public offering price of the Common Stock offered hereby is
substantially higher than the pro forma net tangible book value per share of
Common Stock. Investors purchasing shares of Common Stock in the Offering will
therefore incur immediate and substantial dilution. Additional dilution is
likely to occur upon exercise of outstanding stock options and warrants. See
"Dilution."

DIVIDEND POLICY

The Company intends to use any earnings that may be generated to finance
future growth of the Company's business and does not intend to pay dividends in
the foreseeable future other than dividends described in "S Corporation
Distributions." See "Dividend Policy."

9
<PAGE>
S CORPORATION DISTRIBUTIONS

The Company was incorporated in the State of California in March 1996. The
Subsidiary was incorporated in Minnesota in 1982 and was reincorporated in
Delaware on September 2, 1987. Prior to May 1998, the Company and the Subsidiary
were under common control. In May 1998, the Company and the Subsidiary completed
a reorganization whereby: (i) the Company was reincorporated in Delaware; (ii)
the Subsidiary became a wholly-owned subsidiary of the Company; (iii) the
Company transferred all of its operating assets to the Subsidiary; and (iv) the
Company effected a 910.7468-for-one stock split resulting in 7,500,000 shares of
Common Stock outstanding prior to the Offering. Prior to the Offering, the
Company was wholly-owned by Patrick J. and Mary J. Dirk as trustees under The
Dirk Family Trust UTD March 6, 1990 (the "Family Trust"), the trustee of The
Dirk 1997 Education Trust, Brian P. Dirk and Patrick J. Dirk's other three
children (the "Dirk Stockholders").

The Company and the Subsidiary have each elected, under the Internal Revenue
Code, to be treated as S corporations for federal and state income tax purposes,
except that the Subsidiary has elected to be taxed as a C corporation for
California state income tax purposes. As a result, earnings of the Company and
the Subsidiary have been taxed for federal and state income tax purposes (other
than California for the Subsidiary) directly to the Dirk Stockholders rather
than to the Company. Upon consummation of the Offering, the Company and the
Subsidiary will terminate their S corporation elections and thereafter will be
taxed as C corporations.

In past years, the Company and the Subsidiary paid pro rata distributions to
the Dirk Stockholders. In the fiscal years ended November 30, 1995, 1996 and
1997, these distributions totaled $0, $118,000 and $2.6 million, respectively.

In March and April 1998, the Boards of Directors of the Company and the
Subsidiary paid cash distributions to the Dirk Stockholders of approximately
$805,000 (the "First Distributions"). The Company and the Subsidiary also intend
to pay cash distributions to the Dirk Stockholders, on a pro rata basis, in June
1998 and concurrent with the completion of the Offering (the "Second
Distributions"). The Second Distributions are estimated to total approximately
$1.2 million. Purchasers of the Common Stock in the Offering will not receive
any of these distributions.

The Company and the Dirk Stockholders are parties to a Tax Allocation and
Indemnification Agreement (the "Tax Agreement") relating to their respective
income tax liabilities. The Tax Agreement indemnifies the Dirk Stockholders for
any adjustments causing an increase in the Dirk Stockholders' federal and state
income tax liability (including interest and penalties) related to tax years
prior to the consummation of the Offering, unless such adjustments result in or
are related to a corresponding decrease in the Dirk Stockholders' federal and
state income tax liability with respect to another S corporation taxable year.
Subject to certain limitations, the Tax Agreement also provides that the Dirk
Stockholders will reimburse the Company for any amounts refunded to them as a
result of the loss of the S corporation status of the Company or the Subsidiary.
Any payment made by the Company to the Dirk Stockholders pursuant to the Tax
Agreement may be considered by the Internal Revenue Service or the state taxing
authorities to be nondeductible by the Company or the Subsidiary for income tax
purposes. See Note 2 of Notes to Consolidated Financial Statements.

10
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,500,000 shares of
Common Stock offered hereby, at an assumed initial public offering price of
$9.00 per share, are estimated to be approximately $20.5 million (approximately
$23.6 million if the Underwriters' over-allotment option is exercised in full)
after deducting the underwriting discount and estimated offering expenses.

The net proceeds from the Offering will be used to repay indebtedness under
the Company's term loan and revolving line of credit with Union Bank of
California, to pay any unpaid portion of the Second Distributions and for
working capital and general corporate purposes, including possible acquisitions
of other technologies, product lines or businesses that are complementary to the
Company's business. The Company has no agreements or understandings to acquire
any technologies, product lines or businesses. Pending the uses described above,
the Company intends to invest the net proceeds of the Offering in short-term,
interest-bearing securities.

The Company's term loan had an outstanding balance of approximately $715,000
as of May 1, 1998 and bears interest at a rate, based on an index selected by
the Company, which is 2.50% per annum in excess of the bank's adjusted
treasuries rate. All principal outstanding under the term loan which is not
bearing interest at a base interest rate bears interest at a rate of 0.75% above
the bank's reference rate. As of May 1, 1998, the interest rate on the Company's
term loan was 8.50%. The Company's revolving line of credit had an outstanding
balance of approximately $500,000 as of May 1, 1998 and bears interest at a
rate, based on an index selected by the Company, which is 2.25% per annum in
excess of the bank's LIBOR-rate. All principal outstanding under the revolving
line of credit which is not bearing interest at a base interest rate bears
interest at a rate of 0.50% above the bank's reference rate. As of May 1, 1998,
the interest rate on the Company's revolving line of credit was 9.00%. The term
loan and line of credit mature on May 2, 2000 and June 30, 1998, respectively.
The proceeds from the term loan and the revolving line of credit were used for
working capital.

DIVIDEND POLICY

Other than the dividends described in "S Corporation Distributions," the
Company has not declared any cash dividends. Following the completion of the
Offering, the Company's Board of Directors intends to retain the earnings of the
Company, if any, to support the Company's operations and to finance expansion,
and it does not intend to declare or pay cash dividends on the Common Stock in
the foreseeable future. Any future determination as to the payment of dividends
will be at the discretion of the Board of Directors and will depend on the
Company's financial condition, results of operations, capital requirements and
such other factors as the Board of Directors may deem relevant. In addition, the
Company's current revolving credit facility prohibits the payment of cash
dividends by the Company except for distributions for tax payments and pro rata
adjustments thereto.

11
<PAGE>
CAPITALIZATION

The following table sets forth the short-term obligations and capitalization
of the Company as of February 28, 1998: (i) on an actual basis; (ii) on a pro
forma basis to reflect the termination of the S corporation status of the
Company and the Subsidiary to be effective upon completion of the Offering and
the payment of the Distributions; and (iii) on a pro forma as adjusted basis to
reflect the receipt and the application of the estimated net proceeds from the
sale of 2,500,000 shares of Common Stock by the Company pursuant to the Offering
at an assumed initial public offering price of $9.00 per share. This table
should be read in conjunction with the Consolidated Financial Statements and
Notes appearing elsewhere in the Prospectus.

<TABLE>
<CAPTION>
FEBRUARY 28, 1998
---------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA(1) ADJUSTED(2)
--------- ------------- -------------
<S> <C> <C> <C>
(IN THOUSANDS)
Current portion of long-term debt......................................... $ 634 $ 634 $ 292
--------- ------ -------------
--------- ------ -------------
Long-term debt, net of current portion.................................... $ 957 $ 957 $ 528

Stockholders' equity:
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized;
no shares issued and outstanding...................................... -- -- --
Common stock, $0.01 par value per share, 50,000,000 shares authorized;
7,500,000 shares issued and outstanding, actual and pro forma;
10,000,000 shares issued and outstanding, pro forma as adjusted(3).... 75 75 100
Additional paid-in capital.............................................. 247 247 20,736
Retained earnings....................................................... 6,359 4,749 4,749
--------- ------ -------------

Total stockholders' equity............................................ 6,681 5,071 25,585
--------- ------ -------------
Total capitalization.............................................. $ 7,638 $ 6,028 $ 26,113
--------- ------ -------------
--------- ------ -------------
</TABLE>

- ------------------------

(1) Pro forma data give effect to (i) an estimated deferred tax asset of
approximately $380,000 that will result from the termination by the Company
and the Subsidiary of their S corporation elections and (ii) S corporation
distributions in the estimated amount of approximately $2.0 million paid or
to be paid to existing stockholders after February 28, 1998. See "S
Corporation Distributions."

(2) Pro forma as adjusted data give effect to the sale of 2,500,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$9.00 per share and the application of the estimated net proceeds therefrom.
See "Use of Proceeds."

(3) Excludes: (i) 1,564,298 shares of Common Stock reserved for issuance under
the Company's stock option plans, of which options to acquire 326,957 shares
are outstanding at a weighted average exercise price of $0.42 per share and
options to acquire 470,000 shares will be granted upon completion of the
Offering at an exercise price equal to the price per share to the public in
the Offering; (ii) up to 350,000 shares of Common Stock issuable upon
exercise of outstanding warrants at an exercise price of $3.50 per share;
and (iii) 100,000 shares of Common Stock issuable upon exercise of the
Representatives' Warrants. See "Management--Stock Option and Incentive
Plans," "Description of Capital Stock" and "Underwriting."

12
<PAGE>
DILUTION

The pro forma net tangible book value of the Company as of February 28, 1998
would have been approximately $5.1 million or $0.68 per share, after giving pro
forma effect to the termination of the S corporation elections of the Company
and the Subsidiary to be effective upon completion of the Offering and the
payment of the Distributions. Pro forma net tangible book value per share is
determined by dividing the Company's net tangible book value (tangible assets
less total liabilities) by the number of shares of Common Stock outstanding.

Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the Offering and the pro forma adjusted net tangible book value per
share of the Common Stock immediately after completion of the Offering. After
giving effect to the sale of the shares of Common Stock offered by the Company
hereby at an assumed initial public offering price of $9.00 per share and the
application of the estimated net proceeds therefrom after deducting the
underwriting discount and estimated expenses of the Offering, and without taking
into account any other changes in such net tangible book value after February
28, 1998 other than the termination of the S corporation elections of the
Company and the Subsidiary to be effected upon completion of the Offering and
the payment of the Distributions, the pro forma net tangible book value of the
Company as of February 28, 1998 would have been approximately $25.6 million, or
$2.56 per share. This represents an immediate increase in such pro forma net
tangible book value of $1.88 per share to existing stockholders and an immediate
dilution in pro forma net tangible book value of $6.44 per share to purchasers
of Common Stock in the Offering, as illustrated in the following table:

<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share........................................ $ 9.00
Pro forma net tangible book value per share as of February 28, 1998.................. $ 0.68
Increase per share attributable to new investors..................................... 1.88
---------
Pro forma adjusted net tangible book value per share after the Offering(1)............. 2.56
---------
Dilution per share to new investors.................................................... $ 6.44
---------
---------
</TABLE>

The following table summarizes, as of February 28, 1998, the number of
shares of Common Stock purchased from the Company by existing stockholders and
by new investors in the Offering, the total consideration reflected in the
accounts of the Company and the average price paid per share. The table assumes
an initial public offering price of $9.00 per share and that no shares are
purchased in the Offering by existing stockholders. To the extent existing
stockholders purchase shares in the Offering, their percentage ownership, total
consideration and average consideration per share will be greater than is shown.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)........................... 7,500,000 75.0% $ 322,000 1.4% $ 0.04
New investors...................................... 2,500,000 25.0 22,500,000 98.6 9.00
------------ ----- ------------- -----
Totals(1)........................................ 10,000,000 100.0% $ 22,822,000 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>

- ------------------------

(1) Excludes: (i) 1,564,298 shares of Common Stock reserved for issuance under
the Company's stock option plans, of which options to acquire 326,957 shares
are outstanding at a weighted average exercise price of $0.42 per share and
options to acquire 470,000 shares will be granted upon completion of the
Offering at an exercise price equal to the price per share to the public in
the Offering; (ii) up to 350,000 shares of Common Stock issuable upon
exercise of outstanding warrants at an exercise price of $3.50 per share;
and (iii) 100,000 shares of Common Stock issuable upon exercise of the
Representatives' Warrants. See "Management--Stock Option and Incentive
Plans," "Description of Capital Stock" and "Underwriting."

13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below as of and in the
fiscal years ended November 30, 1995, 1996 and 1997 are derived from and should
be read in conjunction with the consolidated financial statements and related
notes thereto audited by McGladrey & Pullen, LLP, independent auditors, which
are included elsewhere in this Prospectus. The selected consolidated financial
data presented below as of and in the fiscal years ended November 30, 1993 and
1994 are derived from the audited consolidated financial statements of the
Company which are not included in this Prospectus. The selected consolidated
financial data as of and in the three months ended February 28, 1998 and 1997
have been derived from the Company's unaudited consolidated financial statements
included elsewhere in this Prospectus. Such unaudited consolidated financial
statements have been prepared by the Company on a basis consistent with the
Company's annual audited consolidated financial statements and, in the opinion
of management of the Company, contain all normal recurring adjustments necessary
for a fair presentation of the consolidated financial position and the results
of operations for the applicable periods. Operating results in the three months
ended February 28, 1998 are not necessarily indicative of the results that may
be expected in the entire fiscal year ending November 30, 1998, or any
subsequent period. The information set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Company's Consolidated Financial Statements and related Notes
and other financial information included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED NOVEMBER 30, FEBRUARY 28,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Net sales........................................... $ 20,306 $ 17,583 $ 21,477 $ 28,161 $ 33,434 $ 8,826 $ 8,928
Cost of goods sold.................................. 12,585 10,566 13,560 17,408 19,597 5,290 5,358
--------- --------- --------- --------- --------- --------- ---------
Gross profit........................................ 7,721 7,017 7,917 10,753 13,837 3,536 3,570
Selling, general and administrative expenses........ 4,857 5,058 5,594 5,234 6,622 1,527 1,578
Research and development expenses................... 1,345 1,378 1,748 2,041 2,521 582 630
--------- --------- --------- --------- --------- --------- ---------
Operating income.................................... 1,519 581 575 3,478 4,694 1,427 1,362
Interest expense.................................... 181 217 342 361 262 58 39
--------- --------- --------- --------- --------- --------- ---------
Income before state income taxes (credit)........... 1,338 364 233 3,117 4,432 1,369 1,323
State income taxes (credit)......................... 37 37 (80) 50 35 11 20
--------- --------- --------- --------- --------- --------- ---------
Net income.......................................... $ 1,301 $ 327 $ 313 $ 3,067 $ 4,397 $ 1,358 $ 1,303
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma provision for income taxes(1)............. $ 535 $ 146 $ 93 $ 1,247 $ 1,773 $ 548 $ 529
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income(1)............................. $ 803 $ 218 $ 140 $ 1,870 $ 2,659 $ 821 $ 794
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma diluted net income per share(1)........... $ 0.11 $ 0.03 $ 0.02 $ 0.25 $ 0.34 $ 0.11 $ 0.10
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted-average diluted shares outstanding(2)...... 7,500 7,500 7,500 7,500 7,759 7,713 7,812
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>

(SEE FOOTNOTES ON NEXT PAGE)

14
<PAGE>

<TABLE>
<CAPTION>
NOVEMBER 30, FEBRUARY 28,
----------------------------------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 759 $ -- $ -- $ 42 $ 100 $ -- $ --
Working capital............................ 1,575 955 1,426 3,910 5,173 5,232 5,723
Total assets............................... 7,771 8,312 9,597 11,324 11,749 12,277 12,416
Current portion of long-term debt.......... 753 1,305 990 688 754 229 634
Long-term debt, net of current portion..... 2,106 1,183 2,067 1,521 1,280 1,516 957
Stockholders' equity....................... 537 865 1,153 4,102 5,948 5,397 6,681
</TABLE>

- --------------------------

(1) Pro forma net income and pro forma diluted net income per share data give
effect to the conversion by the Company and its wholly-owned Subsidiary from
S corporations to C corporations for federal and state income tax purposes
and assume that the Company and the Subsidiary were subject to corporate
income taxes at an effective combined federal and state income tax rate of
40.0%. See "S Corporation Distributions" and Note 2 of the Notes to
Consolidated Financial Statements.

(2) Excludes: (i) 1,564,298 shares of Common Stock reserved for issuance under
the Company's stock option plans, of which options to acquire 326,957 shares
are outstanding at a weighted average exercise price of $0.42 per share and
options to acquire 470,000 shares will be granted upon completion of the
Offering at an exercise price equal to the price per share to the public in
the Offering; (ii) up to 350,000 shares of Common Stock issuable upon
exercise of outstanding warrants at an exercise price of $3.50 per share;
and (iii) 100,000 shares of Common Stock issuable upon exercise of the
Representatives' Warrants. See "Management--Stock Option and Incentive
Plans," "Description of Capital Stock" and "Underwriting."

15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the Company's results of operations and its
liquidity and capital resources should be read in conjunction with "Selected
Consolidated Financial Data" and the Consolidated Financial Statements of the
Company and related Notes thereto appearing elsewhere in this Prospectus. This
Prospectus contains certain "forward-looking statements" within the meaning of
the federal securities laws, which involve risks and uncertainties and which can
be identified by the use of forward-looking terminology such as "may," "will,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. Actual results could differ
materially from those projected in such forward-looking statements due to a
number of factors, including those set forth under "Risk Factors" and elsewhere
in this Prospectus.

OVERVIEW

Net sales are generated from the sale of the Company's laser printers,
impact printers, related consumables and services. The Company recognizes
revenue from the sale of its products when the goods are shipped to the customer
and it recognizes service revenue over the period of the contract on a straight-
line basis. In the three months ended February 28, 1998 and the fiscal year
ended November 30, 1997, a reseller of the Company's consumable products
accounted for 19.4% and 16.6%, respectively, of the Company's net sales, of
which the Company believes a significant portion was sold to a single customer.

Cost of goods sold includes direct material and labor, warranty expenses,
license fees and manufacturing and service overhead. Inventories are stated at
the lower of cost (first-in, first-out) or market. Equipment is depreciated
using the straight-line method over the estimated useful life of the equipment.
Improvements to leased property are amortized over the lesser of the life of the
lease or life of the improvements.

Selling, general and administrative expenses include the costs of the sales,
marketing and customer support staffs, other marketing expenses, management and
administrative personnel costs, professional services, legal and accounting fees
and administrative operating costs. The Company expenses all of these costs when
incurred.

Research and development expenses include costs associated with the
development of new products, enhancements of existing products and quality
assurance activities, and consist primarily of employee salaries, benefits,
consulting expenses and the costs of software development tools. The Company
expenses research and development costs as they are incurred.

Prior to the Offering, the Company and the Subsidiary elected to be treated
for federal and state income tax purposes as S corporations, except that the
Subsidiary elected to be taxed as a C corporation under California income tax
laws. Upon completion of the Offering, the Company and the Subsidiary will
terminate their S corporation elections. The statements of operations data for
all periods discussed below include a provision for federal and state income
taxes as if the Company were subject to federal and state corporate income taxes
for all such periods. This pro forma provision is computed using an effective
combined federal and state income tax rate of 40.0%. See "S Corporation
Distributions" and Note 2 of Notes to Consolidated Financial Statements.

16
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain
information derived from the Company's Consolidated Statements of Operations
expressed as a percentage of net sales:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR
ENDED NOVEMBER 30, FEBRUARY 28,
------------------------------- --------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.......................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................................. 63.1 61.8 58.6 59.9 60.0
--------- --------- --------- --------- ---------
Gross profit....................................................... 36.9 38.2 41.4 40.1 40.0
Selling, general and administrative expenses....................... 26.1 18.6 19.9 17.3 17.7
Research and development expenses.................................. 8.1 7.2 7.5 6.6 7.1
--------- --------- --------- --------- ---------
Operating income................................................... 2.7 12.4 14.0 16.2 15.2
Interest expense................................................... 1.6 1.3 0.8 0.7 0.4
--------- --------- --------- --------- ---------
Income before state income taxes (credit).......................... 1.1 11.1 13.2 15.5 14.8
State income taxes (credit)........................................ (0.4) 0.2 0.1 0.1 0.2
--------- --------- --------- --------- ---------
Net income......................................................... 1.5% 10.9% 13.1% 15.4% 14.6%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma provision for income taxes............................... 0.4% 4.4% 5.3% 6.2% 5.9%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net income............................................... 0.7% 6.7% 7.9% 9.3% 8.9%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO THREE MONTHS ENDED FEBRUARY 28,
1997

NET SALES. Net sales increased by $102,000 or 1.2% to $8.9 million in the
three months ended February 28, 1998 from $8.8 million in the three months ended
February 28, 1997. This increase was due primarily to an increase in sales of
impact and laser printers, partially offset by a reduction in sales of
consumables and services. It is the Company's experience that new customers
often generate significant initial stocking orders, which are followed by
reduced ongoing resupply order levels. In the three months ended February 28,
1997, the Company was beginning a relationship with a significant new customer.
Sales for this customer in the three months ended February 28, 1997 were
significant, and a substantial portion represented orders for initial stocking.
In the three months ended February 28, 1998, sales from this customer were at
reduced resupply order levels. While the Company experienced an increase in
impact printer sales in the first quarter of 1998 from the first quarter of
1997, the Company believes that impact printer sales will decline in future
periods. Net sales were not significantly affected by price changes.

COST OF GOODS SOLD. Cost of goods sold increased by $68,000 or 1.3% to $5.4
million in the three months ended February 28, 1998 from $5.3 million in the
three months ended February 28, 1997. Cost of goods sold as a percentage of net
sales remained relatively constant at approximately 60.0% in the first quarter
of 1998 and 1997.

GROSS PROFIT. As a result of the above factors, gross profit increased by
$34,000 or 1.0% to $3.6 million in the three months ended February 28, 1998 from
$3.5 million in the three months ended February 28, 1997. Gross profit as a
percentage of net sales remained relatively constant at approximately 40.0% in
the first quarter of 1998 and 1997.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $51,000 or 3.3% to $1.6 million in the
three months ended February 28, 1998 from $1.5 million in the three months ended
February 28, 1997. This increase was primarily due to an increase in personnel
and legal expenses. Selling, general and administrative expenses as a percentage
of net sales increased to 17.7% in the first quarter of 1998 from 17.3% in the
first quarter of 1997.

17
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $48,000 or 8.2% to $630,000 in the three months ended February 28,
1998 from $582,000 in the three months ended February 28, 1997. This increase
was primarily due to the addition of research and development personnel for
software development projects. Research and development expenses as a percentage
of net sales increased to 7.1% in the first quarter of 1998 from 6.6% in the
first quarter of 1997.

OPERATING INCOME. As a result of the above factors, operating income
decreased by $65,000 or 4.6% to $1.4 million in the three months ended February
28, 1998 from $1.4 million in the three months ended February 28, 1997.
Operating income as a percentage of net sales decreased to 15.2% in the first
quarter of 1998 from 16.2% in the first quarter of 1997.

INTEREST EXPENSE. Interest expense decreased by $19,000 to $39,000 in the
three months ended February 28, 1998 from $58,000 in the three months ended
February 28, 1997. This decrease was due to reduced borrowings under the
Company's line of credit, the early retirement of debt and lower negotiated
interest rates.

STATE INCOME TAXES. State income taxes increased by $9,000 to $20,000 in
the three months ended February 28, 1998 from $11,000 in the three months ended
February 28, 1997.

FISCAL YEAR ENDED NOVEMBER 30, 1997 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1996

NET SALES. Net sales increased by $5.3 million or 18.7% to $33.4 million in
the fiscal year ended November 30, 1997 from $28.2 million in the fiscal year
ended November 30, 1996. This increase was due primarily to increased sales of
the Company's proprietary consumables (including significant initial stocking
orders for a new customer) and to a lesser extent to an increase in sales of
higher speed laser printers. This increase was offset slightly by a decrease in
sales of the Company's impact printers and services. Net sales were not
significantly affected by price changes.

COST OF GOODS SOLD. Cost of goods sold increased by $2.2 million or 12.6%
to $19.6 million in the fiscal year ended November 30, 1997 from $17.4 million
in the fiscal year ended November 30, 1996. This increase was primarily due to
increased net sales partially offset by more favorable economies of scale,
primarily in the manufacturing of the Company's proprietary consumables. Cost of
goods sold as a percentage of net sales decreased to 58.6% in fiscal 1997 from
61.8% in fiscal 1996.

GROSS PROFIT. As a result of the above factors, gross profit increased by
$3.1 million or 28.7% to $13.8 million in the fiscal year ended November 30,
1997 from $10.8 million in the fiscal year ended November 30, 1996. This
increase was also attributable to increased sales of higher speed laser
printers, which tend to have more favorable margins. Gross profit as a
percentage of net sales increased to 41.4% in fiscal 1997 from 38.2% in fiscal
1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.4 million or 26.5% to $6.6 million in
the fiscal year ended November 30, 1997 from $5.2 million in the fiscal year
ended November 30, 1996. This increase was due to the addition of sales,
marketing and management personnel, new product introductions and increased
sales commissions resulting from higher net sales. This increase was also due to
expenses associated with the renovation of the Company's California and West
Virginia facilities and an increase in incentive compensation and rental expense
at its West Virginia facility. Selling, general and administrative expenses as a
percentage of net sales increased to 19.9% in fiscal 1997 from 18.6% in fiscal
1996.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $480,000 or 23.5% to $2.5 million in the fiscal year ended November
30, 1997 from $2.0 million in the fiscal year ended November 30, 1996. This
increase was due primarily to the addition of research and development
personnel. In addition, the Company engaged in significant development
activities relating to its higher speed laser printers and provided certain
specialized impact printer services to one of its customers.

18
<PAGE>
Research and development expenses as a percentage of net sales increased to 7.5%
in fiscal 1997 from 7.2% in fiscal 1996.

OPERATING INCOME. As a result of the above factors, operating income
increased by $1.2 million or 35.0% to $4.7 million in the fiscal year ended
November 30, 1997 from $3.5 million in the fiscal year ended November 30, 1996.
Operating income as a percentage of net sales increased to 14.0% in fiscal 1997
from 12.4% in fiscal 1996.

INTEREST EXPENSE. Interest expense decreased by $99,000 to $262,000 in the
fiscal year ended November 30, 1997 from $361,000 in the fiscal year ended
November 30, 1996. This decrease was due to reduced borrowings under the
Company's line of credit and a lower negotiated interest rate.

STATE INCOME TAXES. State income taxes decreased by $15,000 to $35,000 in
the fiscal year ended November 30, 1997 from $50,000 in the fiscal year ended
November 30, 1996.

FISCAL YEAR ENDED NOVEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED NOVEMBER 30,
1995

NET SALES. Net sales increased by $6.7 million or 31.1% to $28.2 million in
the fiscal year ended November 30, 1996 from $21.5 million in the fiscal year
ended November 30, 1995. This increase was due primarily to increased sales of
the Company's proprietary consumables and to a lesser extent to an increase in
its laser printer and impact printer sales, primarily the Company's higher speed
laser printers. This increase was offset slightly by a decrease in service
revenue. Net sales were not significantly affected by price changes.

COST OF GOODS SOLD. Cost of goods sold increased by $3.8 million or 28.4%
to $17.4 million in the fiscal year ended November 30, 1996 from $13.6 million
in the fiscal year ended November 30, 1995. This increase was primarily due to
increased net sales partially offset by more favorable economies of scale,
primarily in the manufacturing of the Company's proprietary consumables. Cost of
goods sold as a percentage of net sales decreased to 61.8% in fiscal 1996 from
63.1% in fiscal 1995.

GROSS PROFIT. As a result of the above factors, gross profit increased by
$2.8 million or 35.8% to $10.8 million in the fiscal year ended November 30,
1996 from $7.9 million in the fiscal year ended November 30, 1995. This increase
was also attributable to increased sales of higher speed laser printers, which
tend to have more favorable margins. Gross profit as a percentage of net sales
increased to 38.2% in fiscal 1996 from 36.9% in fiscal 1995.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased by $360,000 or 6.4% to $5.2 million in the
fiscal year ended November 30, 1996 from $5.6 million in the fiscal year ended
November 30, 1995. This decrease was primarily due to a reduction in legal fees
in fiscal 1996 as a result of settling a lawsuit in late fiscal 1995 and the
outsourcing of marketing and advertising services. These decreases were
partially offset by increased selling activity and an increase in compensation
expense, the result of hiring additional personnel. Selling, general and
administrative expenses as a percentage of net sales decreased to 18.6% in
fiscal 1996 from 26.1% in fiscal 1995.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased by $293,000 or 16.8% to $2.0 million in the fiscal year ended November
30, 1996 from $1.7 million in the fiscal year ended November 30, 1995. This
increase was due to the hiring of additional research and development personnel,
the increased research and development activity relating to the Company's
proprietary consumables, and increased research and development activities
relating to upgrading its impact printing line. Research and development
expenses as a percentage of net sales decreased to 7.2% in fiscal 1996 from 8.1%
in fiscal 1995.

OPERATING INCOME. As a result of the above factors, operating income
increased by $2.9 million or 504.9% to $3.5 million in the fiscal year ended
November 30, 1996 from $575,000 in the fiscal year ended

19
<PAGE>
November 30, 1995. Operating income as a percentage of net sales increased to
12.4% in fiscal 1996 from 2.7% in fiscal 1995.

INTEREST EXPENSE. Interest expense increased by $19,000 to $361,000 in the
fiscal year ended November 30, 1996 from $342,000 in the fiscal year ended
November 30, 1995. This increase was due to increased borrowings under the
Company's line of credit.

STATE INCOME TAXES. State income taxes increased by $130,000 to $50,000 in
the fiscal year ended November 30, 1996 from an $80,000 credit in the fiscal
year ended November 30, 1995.

BACKLOG

The Company sells its products on a purchase order basis rather than through
long-term contracts. Because the Company typically ships product within 30 days
of order and customers may cancel or reschedule deliveries, the Company does not
consider backlog to be a reliable indicator of future financial results.

COMPLIANCE WITH YEAR 2000

Many computer systems and applications currently use two-digit date fields
to designate a year. As a result, on or near the turn of the century,
date-sensitive computing systems will recognize the year 2000 as 1900, or not at
all, which may cause systems to process financial and operational information
incorrectly. The Company has performed a preliminary assessment of the Year 2000
compliance of existing software products offered or used by the Company and
believes that no corrective action will be required. Consequently, the Company
does not anticipate incurring significant additional costs to achieve Year 2000
compliance, although no assurance can be given that the Company's preliminary
assessment has identified all potential Year 2000 issues. In addition, it is
currently unknown whether the Company's vendors, distributors, OEMs or other
third parties with which the Company conducts business will successfully achieve
Year 2000 compliance with respect to their own computer software and products.
The failure of the Company or its vendors, distributors, OEMs or other third
parties with which the Company conducts business to successfully achieve Year
2000 compliance could have a material adverse effect on the Company.

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth the Company's unaudited consolidated
quarterly results of operations for each of the quarters in the fiscal years
ended November 30, 1996 and 1997 and the three months ended February 28, 1998.
This quarterly information is unaudited, but has been prepared on the same basis
as the audited consolidated financial statements and, in the opinion of
management, reflects all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
quarters presented when read in conjunction with the audited consolidated
financial statements and

20
<PAGE>
notes thereto included elsewhere in this Prospectus. The results of operations
for any quarter are not necessarily indicative of the results of any future
period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
1996 1997
-------------------------------------------------- -------------------------------------
FEB. 28 MAY 31 AUG. 31 NOV. 30 FEB. 28 MAY 31 AUG. 31
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Net sales..................... $ 6,369 $ 6,272 $ 7,421 $ 8,099 $ 8,826 $ 8,286 $ 7,479
Cost of goods sold............ 3,858 3,677 4,809 5,064 5,290 4,933 4,249
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit.................. 2,511 2,595 2,612 3,035 3,536 3,353 3,230
Selling, general and
administrative expenses..... 1,281 1,313 1,287 1,353 1,527 1,776 1,645
Research and development
expenses.................... 455 532 533 521 582 663 588
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income.............. 775 750 792 1,161 1,427 914 997
Interest expense.............. 105 90 84 82 58 70 59
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before state income
taxes....................... 670 660 708 1,079 1,369 844 938
State income taxes............ 11 11 11 17 11 7 7
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income.................... $ 659 $ 649 $ 697 $ 1,062 $ 1,358 $ 837 $ 931
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------

1998
-----------
NOV. 30 FEB. 28
----------- -----------
<S> <C> <C>

Net sales..................... $ 8,843 $ 8,928
Cost of goods sold............ 5,125 5,358
----------- -----------
Gross profit.................. 3,718 3,570
Selling, general and
administrative expenses..... 1,674 1,578
Research and development
expenses.................... 688 630
----------- -----------
Operating income.............. 1,356 1,362
Interest expense.............. 75 39
----------- -----------
Income before state income
taxes....................... 1,281 1,323
State income taxes............ 10 20
----------- -----------
Net income.................... $ 1,271 $ 1,303
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
-----------------------------------------------------------------------------------------
1996 1997
-------------------------------------------------- -------------------------------------
FEB. 28 MAY 31 AUG. 31 NOV. 30 FEB. 28 MAY 31 AUG. 31
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............ 60.6 58.6 64.8 62.5 59.9 59.5 56.8
----- ----- ----- ----- ----- ----- -----
Gross profit.................. 39.4 41.4 35.2 37.5 40.1 40.5 43.2
Selling, general and
administrative expenses..... 20.1 20.9 17.3 16.7 17.3 21.4 22.0
Research and development
expenses.................... 7.1 8.5 7.2 6.4 6.6 8.0 7.9
----- ----- ----- ----- ----- ----- -----
Operating income.............. 12.2 12.0 10.7 14.4 16.2 11.1 13.3
Interest expense.............. 1.7 1.4 1.1 1.0 0.7 0.8 0.8
----- ----- ----- ----- ----- ----- -----
Income before state income
taxes....................... 10.5 10.6 9.6 13.4 15.5 10.3 12.5
State income taxes............ 0.2 0.2 0.2 0.2 0.1 0.1 0.1
----- ----- ----- ----- ----- ----- -----
Net income.................... 10.3% 10.4% 9.4% 13.2% 15.4% 10.2% 12.4%
----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- -----

1998
-----------
NOV. 30 FEB. 28
----------- -----------
<S> <C> <C>
Net sales..................... 100.0% 100.0%
Cost of goods sold............ 58.0 60.0
----- -----
Gross profit.................. 42.0 40.0
Selling, general and
administrative expenses..... 18.9 17.7
Research and development
expenses.................... 7.8 7.1
----- -----
Operating income.............. 15.3 15.2
Interest expense.............. 0.8 0.4
----- -----
Income before state income
taxes....................... 14.5 14.8
State income taxes............ 0.1 0.2
----- -----
Net income.................... 14.4% 14.6%
----- -----
----- -----
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary source of liquidity has been through cash generated
from operations and borrowings under its revolving credit facility.

Cash flows from operating activities were $252,000 in the three months ended
February 28, 1998 compared to $978,000 in the three months ended February 28,
1997 and $5,572,000 in the fiscal year ended November 30, 1997. The cash flows
from operating activities in the three months ended February 28, 1998 were
comparatively lower in fiscal 1997 due primarily to increases in accounts
receivable and net decreases in operating liabilities. The receivable increase
resulted primarily from one existing customer whose receivable balance had not
been paid in accordance with its terms and one new customer. Since February 28,
1998, the one customer's balance has been reduced and is now consistent with the
aging of other customers. The new customer is a foreign government and the
payment processing was expected to

21
<PAGE>
have a longer payment period. The net decrease in operating liabilities
primarily results from reductions in accrued compensation, including year end
bonuses.

Cash flows used in investing activities were $21,000 in the three months
ended February 28, 1998 compared to $148,000 in the three months ended February
28, 1997 and $758,000 in the fiscal year ended November 30, 1997. Fiscal 1998
included less than historical levels of property and equipment purchases. For
the balance of the fiscal year ending November 30, 1998, the Company plans to
spend approximately $1.0 million on additional purchases of equipment.

Cash flows used in financing activities were $331,000 in the three months
ended February 28, 1998 compared to $872,000 in the three months ended February
28, 1997 and $4,756,000 in the fiscal year ended November 30, 1997. Fiscal 1997
included approximately $2.6 million of S Corporation distributions and net debt
reductions of approximately $2 million. For the balance of the fiscal year
ending November 30, 1998, the Company plans to make additional S Corporation
distributions of approximately $2 million and pay approximately $1.1 million of
debt from the proceeds of the Offering. See "S Corporation Distributions" and
"Use of Proceeds".

The Company's term loan had an outstanding balance of approximately $715,000
as of May 1, 1998 and currently bears interest at the rate of 8.50%. The
Company's revolving line of credit had an outstanding balance of approximately
$500,000 as of May 1, 1998 and currently bears interest at a rate of 9.00%. The
term loan and line of credit mature on May 2, 2000 and June 30, 1998,
respectively. Under the line of credit, the Company is permitted to borrow
between 80% and 85% of eligible accounts receivable and between 25% and 50% of
eligible inventories (up to a maximum of $700,000 for eligible inventories). As
of May 1, 1998, the amount available under the line of credit was approximately
$3.5 million. See "Use of Proceeds."

The Company believes that cash generated by operating activities, the net
proceeds from the Offering and funds available under its credit facility will be
sufficient to finance its operating activities for at least the next 12 months.
To the extent that the funds generated from these sources are insufficient to
finance the Company's operating activities, the Company would need to raise
additional funds through public or private financing. No assurance can be given
that additional financing will be available on terms favorable to the Company,
or at all.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1997, the FASB issued SFAS No. 130 REPORTING COMPREHENSIVE INCOME,
and SFAS No. 131 DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. SFAS No. 130 requires that an enterprise report, by major
components and as a single total, the change in its net assets during the period
from non-owner sources; and SFAS No. 131 establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
Adoption of these statements will not impact the Company's financial position,
results of operations or cash flows and any effect will be limited to the form
and content of its disclosures. Both statements are effective for fiscal years
beginning after December 15, 1997, with earlier application permitted.

22
<PAGE>
BUSINESS

The Company provides on-demand distributive printing solutions, primarily to
Fortune 1000 and other large and mid-sized domestic and international
businesses. Troy's current product offering consists of high-quality laser
printers, impact printers, related consumables, including toners and ribbons,
and services. The Company's products provide proprietary solutions that enable
businesses to distribute and print magnetic ink character recognition encoded
financial documents such as checks, money orders, payment coupons and deposit
and withdrawal slips.

INDUSTRY OVERVIEW

ON-DEMAND DISTRIBUTIVE PRINTING

Traditional document printing used a "print-and-distribute" approach.
Pursuant to this approach, pre-printed or blank forms were printed and stored
for later use, or completed documents were printed, copied and distributed.
According to data provided by INTERQUEST, 15% to 20% of all pre-printed forms
are never used because of obsolescence. In addition, shipping and storage costs
are rising and there is a trend away from mass marketing to one-to-one
marketing. Because of these and other issues, this print-and-distribute approach
is generally proving to be too inefficient to meet today's business demands for
convenient, flexible, cost-effective and secure printing solutions.

The benefits of database sharing, team workgroups and improved customer
service drove the advent and growth of client server computing, cross platform
computing, networks, workgroups and intranets. These technological advances
enabled businesses to cost effectively place computing equipment throughout an
enterprise. At the same time, significant improvements in the cost, quality,
speed and finishing options of laser and other non-impact printing technologies
occurred. The merging of these technological developments created a new
opportunity termed on-demand distributive printing.

While the growth of the Internet, intranets and other electronic media are
changing the way information and documents are distributed internally and
externally, industry studies do not predict a decline in the annual quantity of
financial documents until at least the year 2010 due to the continued expansion
of the volume and the continued preference for paper checks and other financial
documents. In addition, the Company believes that the electronic transmission of
financial documents will not become widespread until industry standards are
adopted and businesses possess the necessary hardware and software to conduct
electronic transactions.

FINANCIAL DOCUMENT PRINTING

One of the most important applications of on-demand distributive printing
involves the printing of financial documents. Financial documents are
increasingly being perceived as standard business forms in the same manner as
purchase orders and invoices. Accordingly, businesses are increasingly insisting
on convenient, flexible, cost-effective and secure printing solutions for all
business documents.

23
<PAGE>
Unlike purchase orders and invoices, the printing of financial documents
presents a number of unique challenges. Perhaps the most significant challenge
is the printing of MICR lines, the unique characters on the bottom of a check.
The MICR line is printed with magnetic ink or toner that, when magnetized, emits
a magnetic signal that identifies each unique character. Financial documents are
processed on special MICR reader/sorter machines. The reader/sorter machines
first magnetize the MICR line and then read the magnetic signals. Each
character, if printed correctly and with the appropriate amount of magnetics
(ferrous oxide) in the ink or toner, will give off a magnetic signal unique and
identifiable to that character. The magnetic signal is developed from two key
elements (i) the character's shape--the horizontal and vertical attributes and
(ii) the magnetic content--the amount and distribution of magnetic material in
the ink or toner from which the character is formed. If the shape and/or
magnetics of the characters do not meet specified standards, the reader/sorter
machine will reject the document, which will then require costly manual
handling.

Financial documents have historically been printed with offset or
lithographic printing processes and impact ribbon printing techniques. These
printing technologies provide an estimated 1000 x 1000 dots per inch ("DPI")
print quality resolution. Because of the cost of such printers, only large
companies, primarily commercial printers, use these types of printers to print
high volumes of financial documents, generally for third parties. These costs
traditionally prohibited small to mid-sized companies from printing financial
documents in-house.

Today, laser printing provides an enormous amount of flexibility without a
serious degradation in print quality. Laser printing involves an imaging
technique, similar to photocopying, that lays down tiny particles of a black
powder (toner) onto the paper in the form of characters (or graphics) that are
then fused to the paper, typically with a heat and pressure process. Today's
popular laser printers now reach image resolutions of 1200 x 1200 DPI and
provide high quality visual images.

Because of the unique requirements of the MICR line, laser printing
techniques have traditionally been difficult to implement for financial
documents. The laser imaging, developing and fusing processes affect not only
the shape of the printed MICR line but also the magnetic properties of the toner
and the magnetic signal. The quality of the paper also affects the print quality
of the MICR line and the laser process can treat the paper harshly. Even subtle
changes to the printer, paper, toner and operation can produce unacceptable
MICR. This, in turn, creates rejects which result in additional processing
costs.

Security is another significant challenge of any enterprises' printing of
financial documents, which essentially involves printing "money" in a check
form. Security must be implemented in some form to reduce the potential for
fraud and illicit use of the equipment. Some or all of the following security
features are necessary when printing financial documents: hardware security
(e.g., key locks, passwords and restricted environments), software security
(e.g., multi-level passwords, restricted access, log and audit reports) and
document traceability (e.g., identifiable print locations).

THE TROY SOLUTION

Troy currently offers on-demand distributive printing solutions that enable
businesses to distribute and print MICR-encoded financial documents. Over the
past 27 years, Troy and its predecessor companies have developed an expertise in
MICR printing systems and consumables and were the first to develop a desktop,
laser financial document printer. The Company's printing systems incorporate
proprietary firmware and software and its consumable products incorporate
proprietary chemical formulations that together enable its customers to print
financial documents in the on-demand distributive printing environment, thereby
offering: (i) convenience and flexibility through the ability to print financial
documents where they are required, when they are needed and in the actual
quantities needed; (ii) cost savings through the elimination of the requirement
to purchase and maintain inventories of pre-printed forms; and (iii) enhanced
software, hardware and document security.

24
<PAGE>
BUSINESS STRATEGY

The Company's objective is to become the leading provider of on-demand
distributive printing and imaging solutions throughout the world. In order to
achieve this objective, the Company will continue to implement the following
strategies:

EXPAND SOLUTIONS FOR HEWLETT-PACKARD BASED PRODUCTS. The Company intends to
continue to develop and expand its strategic relationship with Hewlett-Packard.
The Company believes that this relationship provides it with the opportunity to
expand its market share of MICR-enabled laser printers and consumables and
maintain and enhance its technological position and expertise. In addition, the
Company intends to expand its product offerings in conjunction with the
introduction of new Hewlett-Packard printers, as well as provide additional
services to Hewlett-Packard and its customers.

EXPAND EXISTING AND SEEK NEW OEM RELATIONSHIPS. The Company intends to
aggressively expand existing OEM relationships and seek new relationships. The
Company intends to expand its relationship with IBM and other existing OEMs by
expanding its offering of consumables to the OEMs. In addition, the Company
intends to develop new OEM and private label arrangements for the distribution
of its proprietary consumables. The Company believes that this strategy provides
it with the opportunity to expand its market share of consumables and maintain
and enhance its technological position and expertise.

LEVERAGE STRATEGIC ALLIANCES. Troy currently partners with various
hardware, software and firmware companies as well as consulting firms that offer
solutions which assist the Company in meeting its customers' on-demand
distributive printing needs. The Company intends to continue to aggressively
pursue new strategic alliances, which the Company believes will enable it to
enter new markets, expand its channels of distribution and enhance its product
and service offerings.

MAINTAIN TECHNOLOGICAL LEADERSHIP POSITION. Since entering the financial
document printing market in 1971, the Company has achieved a technological
leadership position in MICR laser printing technology and MICR proprietary
consumable formulation. The Company has done so by investing heavily in research
and development, developing higher quality products and focusing on satisfying
the needs of both its OEM customers and end users. The Company intends to
continue to invest heavily in research and development to enhance its MICR laser
printers and propriety consumables.

EXPAND DISTRIBUTION CHANNELS. The Company intends to further expand its
distribution channels to increase its focus on selling to smaller businesses,
such as local and regional banks and insurance companies, payroll services
companies, credit unions and temporary employment agencies. The Company believes
that an increasing number of such smaller businesses will bring their financial
document printing needs in-house as they are made aware of the benefits of
on-demand distributive printing.

COMPLEMENT INTERNAL GROWTH THROUGH ACQUISITIONS. Troy intends to acquire
products, technologies and businesses in related areas such as forms management,
forms finishing, networking, the Internet, financial software and service
fields. Possible acquisitions candidates may include businesses that the Company
is either currently working with or aware of that address segments of the
on-demand distributive printing market. The Company believes that this
acquisition strategy will provide it with an opportunity to become a leading
provider of on-demand distributive printing and imaging solutions. In addition,
potential acquisition candidates may enable the Company to provide enhanced and
new solutions for its current and prospective customer base, exposure to new
markets and customers and increased opportunities for strategic alliances in the
on-demand distributive printing and imaging market.

25
<PAGE>
The following diagram depicts segments of the on-demand distributive
printing and imaging market:

[Circle diagram with the center circle stating "TROY On-Demand Distributive
Printing & Imaging Solution." The next circle depicts "software," "hardware" and
"consumables and services." The last circle includes the following business
segments:]

<TABLE>
<CAPTION>
SOFTWARE HARDWARE CONSUMABLES AND SERVICES
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
CHECK WRITING SOFTWARE PRINTERS TONERS, RIBBONS & PARTS
Connectivity Print Papers
Data Conversion Kiosks Financial Transaction
Internet Forms Finishing Management & Services
Forms Design Forms Handling Film
Security Imaging Devices Hardware Maintenance
Forms Management
Payment Systems
</TABLE>

The Company's ability to successfully implement the foregoing strategies is
dependent upon the vision and ability of its management team. The Company has
assembled a management team which combines expertise and experience in the areas
of strategic planning, sales and marketing, operations, finance, acquisitions
and numerous engineering specialties such as electrical, chemical, mechanical
and software.

PRODUCTS AND SERVICES

The Company's current product offering consists of laser printers, impact
printers, related consumables, including toner and ribbons, and services.

LASER PRINTERS

Through an exclusive OEM relationship with Hewlett-Packard, Troy purchases
Hewlett-Packard laser printers and modifies and enhances the printers. Troy then
repackages and relabels the printers and sells them as MICR-enabled financial
document printers under the Troy name.

All of the Company's laser printers offer the following key features:

- ability to print financial documents from blank paper meeting certain
minimum quality standards;

- ability to print checks and money orders from multiple accounts directly
from the keyboard without any loading and unloading of pre-printed stock;

- automatic detection by the Company's proprietary sensors of low MICR
toner;

- automatic toner density adjustments and automatic shut-down on low-toner
events;

- automatic jam recovery processing designed to prevent duplicate check
printing;

- ability to print customized images on financial documents, such as logos
and signatures;

- MICR toner detection functions; and

- ability to print checks complete with MICR line, signatures, logos and
check overlay, all in one pass.

26
<PAGE>
The Company offers the following laser printers with the following key
features:

<TABLE>
<CAPTION>
<S> <C> <C>
PRODUCT DESCRIPTION KEY FEATURES
TROY 512 Plus A 12 page-per minute - Produces up to 2,800 checks per hour
laser printer for - Prints four different checks on a single page
corporate environments, and from separate accounts
based on the HP LaserJet - Prints different-sized checks from three
5 separate 850 sheet paper trays
- Contains an audit function that uses an
electronic circuit board to capture and store
data for future report generation (optional)
TROY 524 A 24 page-per minute - Produces up to 5,700 checks per hour
laser printer for medium - Prints different-sized checks from three
and large office separate 1,000 sheet paper trays
environments, based on - Prints up to four different checks on a single
the HP LaserJet 5Si page
- Sorts checks into any one of eight different
mail slots (optional)
- Contains an audit function that uses an
electronic circuit board to capture and store
data for future report generation (optional)
TROY 540 A 40 page-per minute - Produces up to 9,600 checks per hour
laser printer for high - Prints different-sized checks from three
volume office separate 500 sheet paper trays
environments, especially
data centers, based on
the HP D640
TROY 608 An eight page-per minute - Produces up to 1,920 checks per hour
laser printer for small - Prints different-sized checks from two separate
office environments and trays
corporate departments, - Contains an instant-on fuser that virtually
particularly where eliminates warm-up waiting time, allowing the
employees in workgroups first page to print in less than 20 seconds
of two-to-five persons
share higher-volume
network printers with
other departments and
personnel, based on the
HP LaserJet 6P
TROY 617 A 17 page-per-minute, - Produces up to 4,080 checks per hour
medium-volume, midrange, - Prints different-sized checks from multiple
laser printer for paper trays
workgroup environments,
based on the HP LaserJet
4000
</TABLE>

IMPACT PRINTERS

The Company offers two lines of impact printing systems. The first line is a
stand alone printer that contains two separate print drums, one with
alphanumeric characters and one with MICR characters. Through its dual drums,
this printer has the capability to print both standard and MICR documents. This
printer is sold under the Company's name, primarily in international markets.

27
<PAGE>
The second line is an impact printing module that is incorporated into a
print line consisting of IBM, Xerox or other high speed laser printers. This
system permits organizations to print high volumes of MICR-encoded documents
in-house while maintaining the flexibility to print non-MICR documents. As part
of this printing line, Troy's impact printing module, through its proprietary
software and sensors, is either enabled or disabled depending on the particular
print job. This enabling/disabling permits efficient use of MICR ribbons, which
are significantly more expensive than standard ribbons.

The Company's impact printers provide the following unique benefits:

- ability to embed the MICR characters onto the paper so that the characters
are actually removed from the printer's ribbon and placed on the paper, a
technique called "full or total character transfer;"

- fixed impact fonts that are etched into the print drum, providing font
character consistency;

- ability to place MICR characters only where MICR information is required;

- fixed consistency of the magnetic properties within the MICR line through
total character transfer;

- continuous form output compared to cut sheet paper offered by most of the
Company's competitors; and

- ability to print at high speeds of up to 310 pages per minute.

RELATED CONSUMABLES

Both the Company's laser and impact printing solutions require ongoing
consumables, sales of which represent the largest portion of the Company's
revenue. The Company's impact systems require MICR ribbons for operation, while
its laser systems require toner cartridges. The Company is the only authorized
MICR toner manufacturer for Hewlett-Packard LaserJet printers and is the only
authorized MICR toner manufacturer for the IBM 3900 and InfoPrint 4000 family of
high speed laser printers. See "--Sales and Marketing."

In addition to the Company's MICR toner and ribbons, which support the
Company's hardware, the Company also offers other ribbons, toners and
accessories for use by other printing devices, including:

- fluorescent and indelible ribbons;

- post-encoding equipment (used to add the amount information to checks
prior to processing);

- jumbo rolls (large rolls of MICR ribbon, typically 42" wide, manufactured
to precise specifications);

- MICR toner (designed to match the specifications of the particular printer
engine);

- standard toner (for selected manufacturers of printers and fax machines);

- paper trays;

- paper handling accessories;

- memory upgrades;

- networking and custom options; and

- check security paper.

SERVICES

Troy offers technical support, maintenance and on-site services, portions of
which are provided by third parties. Troy provides its technical support through
an 800 line from 7:00 am to 5:00 pm (pst) and through its web-site
(http://[email protected]). The Company also provides on-site service for its
new

28
<PAGE>
printers as well as upgrades and offers on-site service through yearly
maintenance contracts or on a time and material basis after the expiration of
the applicable warranty period.

In addition to the Company's technical support, maintenance and on-site
services, for over five years, the Company has maintained a research group
dedicated to providing solutions for MICR document processing problems, the MICR
Technology Center ("MTC"). Members of the MTC testing facility have the ability
to examine all aspects of the MICR printing process to pinpoint where
improvements can be made and to ensure the highest quality MICR line. An
analysis of the printing process entails examining four critical factors--MICR
font, toner, paper and printer. The MTC offers testing services for all these
factors, including:

- consulting services;

- customized testing and evaluation;

- document testing services;

- state-of-the-art paper test lab;

- ANSI specification evaluation;

- fraud prevention;

- quality control programs;

- signal level testing;

- document imaging;

- comprehensive document design analysis; and

- forms design and construction.

SALES AND MARKETING

The Company markets its products to Fortune 1000 companies through its
direct sales force of ten persons (eight domestically and two internationally),
while it markets its products to large-to-mid sized businesses through its
network of over 80 dealers and value-added resellers. The Company markets its
products in 55 countries, primarily through a distributor network. The Company
promotes its products through trade shows and direct marketing materials as well
as referrals from its business partners, including Hewlett-Packard and IBM.

STRATEGIC RELATIONSHIPS

For over five years, the Company has maintained an exclusive strategic
relationship with Hewlett-Packard whereby the Company purchases Hewlett-Packard
laser printers and modifies and enhances the printers. Troy then repackages and
relabels the printers and sells them as MICR-enabled financial document printers
under the Troy name. In addition, the Company is the exclusive authorized
provider of MICR toner for Hewlett-Packard and is exploring other strategic
product relationships with Hewlett-Packard.

Since April 1, 1996, the Troy/Hewlett-Packard strategic alliance has been
governed by the HP Agreement, which appoints the Company as an authorized,
exclusive reseller in the United States and certain other countries for
Hewlett-Packard's LaserJet MICR Solution Products. The HP Agreement allows the
Company to sell select MICR products under the Troy name on an exclusive basis
in the United States and other products designated by Hewlett-Packard, such as
paper trays.

29
<PAGE>
Pursuant to the agreement between the Company and IBM, dated February 6,
1998 (the "IBM Agreement"), IBM has agreed to purchase from the Company all of
its requirements of MICR toner for the IBM 3900 and InfoPrint 4000 family of
high speed laser printers, and the Company has agreed not to sell such IBM toner
to any other parties. IBM is not obligated to purchase any minimum amount of
such toner. The IBM Agreement expires on February 5, 2001, but may be extended
for an additional year upon mutual written consent. Either party may terminate
the IBM Agreement (i) upon certain events of insolvency or bankruptcy or (ii)
upon a material breach that has not been cured within 30 days.

MANUFACTURING CAPABILITIES

FACILITIES

The Company's existing headquarters is located in Santa Ana, California and
consists of approximately 37,000 square feet. This facility accommodates
manufacturing of the Company's impact printers, research and development, sales,
finance, administration and operations, customer support and marketing. The
Company leases this facility pursuant to a lease expiring on April 30, 2001.
This lease provides for rent of $13,794 per month. The Company also has a
facility, primarily for manufacturing its laser printers and proprietary
consumables, located in Wheeling, West Virginia that consists of approximately
77,000 square feet. The Company leases this facility from an affiliate of the
Dirk Stockholders pursuant to a lease expiring on September 1, 2000. This lease
provides for rent of $21,200 per month. See "Certain Transactions." The Company
believes that it has sufficient capacity in its West Virginia and California
facilities to accommodate its growth plans for the foreseeable future.

OPERATIONS

LASER PRINTERS. Through an exclusive OEM relationship with Hewlett-Packard,
Troy purchases Hewlett-Packard laser printers and installs various proprietary
hardware, firmware and software components into the printers. After the
Company's quality control team tests these printers, the Company repackages and
relabels the printers and sells them as MICR-enabled financial document printers
under the Troy name.

IMPACT PRINTERS. The Company manufactures print drums, drum arms and
ancillary components for its impact printers and purchases most of the remaining
hardware components and subassemblies. The Company also sub-contracts portions
of its circuit board assembly. All software and hardware is configured by the
Company and tested by the Company's quality control team prior to installation.
Each printer is manufactured by highly skilled technicians on a made-to-order
system.

CONSUMABLES. Troy's consumable products are produced in its facility in
West Virginia. Troy manufactures its ribbons through a four step process of
formulation, coating, drying and packaging. The first step in the manufacturing
process is formulation of the ink used to coat the ribbons. The formulations are
specifically designed for a family of printers. Certain pigments and resins,
including the necessary magnetics for the MICR line, are mixed in a proprietary
formulation. Through a coating and drying process, the ink is then applied to a
large roll of polyethylene substrate. Once dry, the ribbons are then packaged to
customer specifications. These large rolls are either sold as is or are
converted into smaller rolls or cartridges for sale.

Troy manufacturers its toner through a five step batch process consisting of
formulation/compounding, pulverizing, classifying, mixing and packaging. Troy
begins by formulating the resins, magnetics and pigments and shipping the
materials to a third party for compounding. In the compounding process, the
resins are melted and then various pigments and magnetics are blended into the
resins through a large mixing machine. The materials are then dropped onto two
steel rollers that form the material into a thin sheet. Once the sheet has been
cooled and hardened, it is ground into small particles a little larger than
coffee grounds. This ground-up material is then shipped to Troy for further
processing. Troy then combines

30
<PAGE>
additives and completes its other proprietary processes. Once mixed, the toner
is packaged to customer specifications and sold either in bulk, bottles or
cartridges.

The Company has designed its computer-controlled, modern toner manufacturing
operation to provide quality, consistency and flexibility. Batch processing
enables the Company to produce multiple high-quality toner formulations during
the same production shift. In addition, each product is developed as a unique
formulation for a specific family of printers.

RESEARCH AND DEVELOPMENT

Troy's success is in part dependent on its ability to continue to design and
develop on-demand distributive printing solutions that meet customer
requirements with respect to functionality, performance, technology and
reliability. The Company's principal research and development activities consist
of: (i) developing proprietary MICR solutions and new products for
Hewlett-Packard laser printers; (ii) developing financial document impact
printing systems; (iii) creating specialty toners (e.g., MICR, fluorescent,
color); (iv) developing specially formulated toners for select OEMs; and (v)
developing connectivity solutions for its printers. The Company seeks customer
feedback in the product design process in order to meet changing requirements
and is committed to developing functional and integrated printing solutions in a
rapid and efficient manner.

The Company has assembled a highly trained staff of chemical, software,
electrical and mechanical engineers. In addition, the Company invests
significantly in highly sophisticated research and development equipment. For
example, the Company operates pilot toner and ribbon lines which mimic Troy's
actual production line, thereby enabling the Company to produce and test its
consumable products in order to ensure consistent and high quality products
prior to mass production. The Company currently employs 37 persons in its
research and development efforts.

CUSTOMERS

Troy has sold its printing systems and related consumables to more than
9,000 customers, including financial institutions, insurance companies, payroll
processing companies, corporations and government agencies. AT&T Corporation,
BankAmerica Corporation, Farmer's Insurance Group, Ford Motor Company, Manpower,
Inc., State Farm Insurance and Wells Fargo & Company are among the Company's
customers, each of whom purchased products during the last 12 months.

COMPETITION

The market for the Company's products is highly competitive and subject to
rapid technological change. The Company currently competes principally on the
basis of the quality, flexibility, convenience and security of its printing
solutions. The Company believes that it competes favorably with respect to these
factors as a result of: (i) the breadth of its products' features; (ii) the
Company's knowledge, technical exposure and professionalism developed over time;
and (iii) a historical commitment to quality. Although the prices of the
Company's products are generally higher than those of its competitors, the
Company has been able to maintain these prices as a result of advanced
technological features (including security), higher levels of quality and
value-added services.

In the printer market, the Company's primary competitors are ACOM Computer,
Inc., Bottomline Technologies, Inc., Check Technology Corporation, Delphax
Systems, IBM, Lexmark International, Inc., Oce, Source Technologies, The
Standard Register Company and Xerox. Troy also competes with companies who
provide a MICR font and toner solution without a printer.

Troy competes in the toner and ribbon market primarily on the basis of
quality and service. Color Image is the Company's most significant competitor
with respect to toner products. Troy's significant competitors with respect to
ribbons are Nu-Kote International, Commander Imaging Products Inc. and

31
<PAGE>
Fuji Copian Corporation. The Company positions itself with a pricing strategy
that reflects its quality, reliability, precision of formulation and available
customer support. Many small companies also offer remanufactured MICR cartridges
which are typically lower priced but less reliable than new MICR cartridges,
such as those offered by the Company.

The Company also has several indirect competitors that offer certain
products as an alternative to financial document printing solutions, such as
pre-printed checks, check printing services and electronic payment systems,
outsourcing for payroll, on-line banking and payment systems for their clients.
These companies tend to provide an alternative to internal printing of checks
and other financial documents.

PATENTS AND PROPRIETARY RIGHTS

The Company considers as proprietary certain printing system components,
manufacturing processes, information, knowledge, trademarks and tradenames. The
Company relies on a combination of patent, trademark, trade secret and other
intellectual property laws, nondisclosure agreements with employees and internal
confidentiality measures to protect its intellectual property rights and
confidential information. The Company seeks patents from time to time on its
products and processes. The decision to seek additional patents is based on the
Company's analysis of various business considerations such as the cost of
obtaining a patent, the likely scope of patent protection and the benefits of
patent protection relative to relying on trade secrets and other protection. The
Company also relies on know-how and continuing technological innovations to
develop and maintain its competitive position.

As of February 28, 1998, the Company held seven United States patents and
one United Kingdom patent. The Company's existing patents primarily cover
components of the Company's impact printing systems. The Company has also filed
applications for four additional United States patents, which are pending. There
can be no assurance that the Company's issued patents will provide meaningful
protection of the Company's products and technologies. In addition, patent
applications can be denied or significantly reduced before issuance. Moreover,
there can be no assurance that third parties will not assert intellectual
property infringement claims against the Company or that, if asserted, that the
Company would prevail or be able to obtain any necessary licenses.

The Company also relies on proprietary manufacturing processes and
techniques, materials expertise and trade secrets applicable to the manufacture
of its products. The Company believes that these proprietary rights may provide
it with a competitive advantage as important, if not more important, than patent
protection. The Company seeks to maintain the confidentiality of this
proprietary information by requiring employees who have access to proprietary
information to sign confidentiality agreements and by limiting access by outside
parties to such proprietary information. There can be no assurance, however,
that these measures will provide the Company with adequate protection of its
proprietary information or with adequate remedies in the event of unauthorized
use or disclosure. In addition, there can be no assurance that the Company's
competitors will not independently develop or otherwise gain access to
processes, techniques or trade secrets that are similar or superior to the
Company's. Finally, as with patent rights, legal action to enforce trade secret
rights can be lengthy and costly, with no guarantee of success.

ENVIRONMENTAL AND REGULATORY MATTERS

The Company's operations are subject to numerous domestic and international
laws and regulations, particularly relating to environmental matters that impose
limitations on the discharge of pollutants into the air, water and soil and
establish standards for the treatment, storage and disposal of solid and
hazardous wastes. The Company is also required to have permits from a number of
governmental agencies in order to conduct various aspects of its business.
Compliance with these laws and regulations is not expected to have a material
adverse effect on the capital expenditures, earnings or competitive position of
the Company. There can be no assurance, however, that future changes in
environmental laws or

32
<PAGE>
regulations, or in the criteria required to obtain or maintain necessary
permits, will not have a material adverse effect on the Company's operations.

EMPLOYEES

At February 28, 1998, the Company employed approximately 150 persons in the
areas of research and development, manufacturing, management and administration.
None of the Company's employees are represented by a labor union or covered by a
collective bargaining agreement. The Company has a proactive communication
policy that includes regular meetings, discussions and question and answer/
feedback sessions. The Company has not experienced any work stoppages and
considers its relations with its employees to be good.

LEGAL PROCEEDINGS

From time to time, the Company is subject to litigation in the ordinary
course of its business. In February 1998, a former employee of the Company filed
suit in the Circuit Court of Ohio County, West Virginia, alleging, among other
things, sexual harassment by another former employee of the Company. The Company
denies any liability in this matter and intends to vigorously defend this
litigation. However, this litigation is in its early stages and the outcome of
the litigation is inherently uncertain and an adverse resolution of this
litigation could result in a monetary judgment against the Company. The Company
is not presently a party to any other material litigation.

33
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS, DIRECTOR, DIRECTOR NOMINEES AND OTHER KEY EMPLOYEES

The executive officers, director and director nominees of the Company and
their ages as of February 28, 1998 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Patrick J. Dirk...................................... 58 Chairman of the Board, President and Chief Executive
Officer of the Company and Chairman of the Board and
Chief Executive Officer of the Subsidiary
Robert S. Messina.................................... 48 Executive Vice President of the Company and President
and Chief Operating Officer of the Subsidiary
Brian P. Dirk(1)..................................... 34 Vice President and Director Nominee and Vice
President International Sales of the Subsidiary
Del L. Conrad........................................ 52 Chief Financial Officer, Treasurer and Secretary of
the Company
Norman B. Keider(1)(2)............................... 66 Director Nominee
John B. Zaepfel(1)(3)................................ 61 Director Nominee
William P. O'Reilly(1)(2)............................ 52 Director Nominee
Gene A. Bier(1)(3)................................... 59 Director Nominee
</TABLE>

- ------------------------

(1) Will become a director upon completion of the Offering.

(2) Member of the Compensation Committee upon completion of the Offering.

(3) Member of the Audit Committee upon completion of the Offering.

EXECUTIVE OFFICERS, DIRECTOR AND DIRECTOR NOMINEES

PATRICK J. DIRK has been the Chairman of the Board, President and Chief
Executive Officer since he co-founded the Company with his wife in May 1982. Mr.
Dirk is also the founder, Chairman of the Board and Chief Executive Officer of
the Subsidiary. From March 1984 to present, Mr. Dirk has served as a Director of
Eltrax Systems, Inc. ("Eltrax"), a provider of managed network services, which
he co-founded in March 1984 and served as Chairman of the Board from February
1995 until August 1995. From 1973 until 1982, Mr. Dirk was employed in various
capacities by Kroy Inc., a corporation involved in manufacturing automated
lettering machines and related products, serving most recently as President and
a member of the Board of Directors. Mr. Dirk also serves as a member of the
Board of Directors and advisory boards of several private companies.

ROBERT S. MESSINA has been the Executive Vice President of the Company since
April 1998 and the President and Chief Operating Officer of the Subsidiary since
December 1996. From December 1995 through December 1996, Mr. Messina served as
the Executive Vice President and General Manager of the Subsidiary and from July
1994 through December 1995 as the Vice President Sales and Marketing. From
January 1992 through March 1994, he was the General Manager of Omninote, a
division of Telautograph Corp., a network communications company.

BRIAN P. DIRK has been the Vice President of the Company and Vice President
International Sales of the Subsidiary since April 1998 and will become a
director of the Company upon completion of the Offering. Mr. Dirk's primary
responsibility is to the Company's Subsidiary where he has served as Vice
President International Sales since August 1995. Since joining the Company in
1987, Mr. Dirk has held various training and management positions in the Company
including Director of Business Development, International Sales Manager, Special
Projects Manager, Telesales Representative and Purchasing Agent.

34
<PAGE>
Mr. Brian Dirk is the son of Mr. Patrick Dirk, the Chairman of the Board,
President and Chief Executive Officer of the Company.

DEL L. CONRAD has been the Chief Financial Officer, Treasurer and Secretary
of the Company since April 1998 and was the Vice President of Finance and
Administration of the Subsidiary from March 1995 to April 1998. From August 1991
to March 1995, he served as a consultant to companies on mergers and
acquisitions, bank financing and operations. From June 1981 to July 1991, Mr.
Conrad was a partner with McGladrey & Pullen, LLP, a public accounting firm.

DIRECTOR NOMINEES

NORMAN B. KEIDER will become a director upon completion of the Offering.
Since August 1993, Mr. Keider has been a self employed management consultant.
Mr. Keider served as a managing director of A.T. Kearney, an executive search
consulting firm from January 1989 to August 1993. From April 1986 to January
1989, he was a partner with Keider-Zupsic Associates, an executive search
consulting company. Mr. Keider also served as a partner for Arthur Young &
Company, an executive search consulting company from December 1979 to April
1986. From January 1978 to December 1979, he was a self employed consultant for
acquisition searches. From December 1972 to January 1978, Mr. Keider was the
President and Chief Executive Officer of Atlas Powder Company, a manufacturer of
commercial explosives.

JOHN B. ZAEPFEL will become a director upon completion of the Offering. Mr.
Zaepfel is a Managing Partner of the Zaepfel Group, a middle market consulting
firm, specializing in strategic facilitation and planning. Mr. Zaepfel has
served as Chief Executive Officer of several companies and is currently serving
as a director for ten companies, including two publicly traded companies, Remedy
Corporation and Pro-Dex, Inc. From January 1985 to May 1989, Mr. Zaepfel was the
founder and Chief Executive Officer of CPG International, Inc., a manufacturer
and marketer of fine art, graphic art, engineering, drafting and media supplies.
From 1974 to 1984, Mr. Zaepfel was President and Chief Executive Officer of
Chartpak and Pickett Industries, wholly-owned subsidiaries of Times Mirror. Mr.
Zaepfel was General Manager of Chartpak, a division of Avery International from
1990 to 1993.

WILLIAM P. O'REILLY will become a director upon completion of the Offering.
Mr. O'Reilly has been the Chief Executive Officer of Eltrax since January 1997.
Mr. O'Reilly has also been the Chairman of the Board of Directors of Eltrax
since August 1995 and a director of Eltrax since July 1995. For the past 15
years, Mr. O'Reilly has been a private investor and entrepreneur who has managed
several business ventures. In 1989, Mr. O'Reilly formed a group of investors to
acquire Military Communications Center, Inc., where he served as Chairman of the
Board and Chief Executive Officer from 1989 to 1994. In 1986, Mr. O'Reilly
founded Digital Signal, Inc., a provider of fiber optic capacity to long
distance carriers in the telecommunications industry, where he served as Chief
Executive Officer from 1986 to 1989. In 1981, Mr. O'Reilly founded Lexitel
Corporation, a long distance carrier (which was subsequently acquired by ALC
Communications, Inc.), where he served as Chairman of the Board and Chief
Executive Officer from 1980 to 1984. Mr. O'Reilly is also a director of two
public companies, Charter Communications, Inc., a builder and operator of
international communication networks which provides voice, video and data
services, and World Access, Inc., a value added reseller of telecommunications
equipment.

GENE A. BIER will become a director upon completion of the Offering. Mr.
Bier is currently the President and Chief Executive Officer of XCORP Business
Development, Inc., a consulting and investment company. From July 1986 to
February 1996, Mr. Bier was a director of Eltrax and from September 1989 to
March 1990, he was Chairman of the Board. From June 1983 to January 1987, Mr.
Bier was Chief Executive Officer of U.S. West Communications, formerly Minnesota
Northwestern Bell. From September 1978 to June 1983, he was Vice President and
from August 1963 to September 1978, he held various positions in the Bell
System. Mr. Bier has served on the boards of many local organizations, including
the Minnesota Business Partnership, Inc., the Greater Minneapolis Metropolitan
Housing Corporation, the

35
<PAGE>
United Way of Minneapolis and the Metropolitan Medical Center. Mr. Bier was
Chairman of the Greater Minneapolis Chamber of Commerce, the Governor's Jobs
Training Council, the Minnesota State Lottery Board and the Urban Coalition.

OTHER KEY EMPLOYEES

THOMAS O. TULOWITZKI has been the Subsidiary's Senior Vice President
Engineering since March 1996. From February 1991 to March 1996, Mr. Tulowitzki
served as a Manager of Sustaining Engineering for Danka Business Systems PLC
("Danka"), an independent supplier of photocopiers, facsimiles and other related
automated office equipment. From September 1989 to January 1991, he was self
employed. From August 1964 to August 1989, Mr. Tulowitzki served in various
technical and management positions for Xerox Corporation, a manufacturer of
office products and supplies.

LEE C. MARTIN, JR. has been the Subsidiary's Vice President Domestic Sales
since December 1996. From August 1990 to August 1992, Mr. Martin served as
Director of Sales of Emulex Corporation, a designer and manufacturer of
high-performance network connectivity products including fiber channel, printer
servers and network access products. From August 1992 to September 1992, Mr.
Martin served as a sales associate of Litton Industries, Inc., an aerospace,
defense and commercial electronics company.

MARK D. CHAPMAN has been the Subsidiary's Vice President Marketing since
December 1996 and Director of Marketing from August 1994 to December 1996. From
March 1994 to August 1994, Mr. Chapman was the Director of Marketing of Omnifax
Corp, a division of Danka and a manufacturer of facsimile machines. From
November 1991 to March 1994, he served as Manager of Marketing Services of
Telautograph Corporation, a manufacturer of specialized communications equipment
utilized by hospitals, hotels and Fortune 500 corporations. From August 1983 to
November 1992, Mr. Chapman held various sales and marketing positions with
Siemens Energy and Automation, a manufacturer of electrical distribution
equipment.

LARRY D. LANDTISER has been the Subsidiary's Vice President Manufacturing
since October 1996 and from October 1984 to January 1996. From January 1996 to
July 1996, Mr. Landtiser served as Manager of Purchasing for PAC Clay Products,
a manufacturer of clay products. From July 1996 to September 1996, he served as
the Director of Materials of ICEE Corp., a manufacturer of fountain products.

BOARD OF DIRECTORS COMPENSATION

Directors of the Company are elected annually and serve until the next
annual meeting of stockholders or until their successors are duly elected and
qualified. The Company does not currently pay fees to the members of the Board
of Directors.

Effective upon completion of the Offering, non-employee directors will
receive $1,500 for each regular meeting of the Board of Directors, $750 for each
special meeting of the Board of Directors and $750 for each meeting of the Audit
Committee and Compensation Committee. In addition, directors are reimbursed for
travel expenses for attending meetings of the Board and any Board or advisory
committees. Upon the completion of the Offering, each non-employee director will
be granted a ten-year option to purchase an aggregate of 30,000 shares of Common
Stock at the initial public offering price. Each option will vest 10,000 shares
90 days after the Offering and 5,000 shares per year over the next four years.

COMMITTEES

The Board of Directors has established an Audit Committee and a Compensation
Committee which will take effect upon completion of the Offering. The Audit
Committee provides assistance to the Board in satisfying its fiduciary
responsibilities relating to accounting, auditing, operating and reporting
practices of the Company and reviews the annual financial statements of the
Company, the selection and work of the Company's independent auditors and the
adequacy of internal controls for compliance with corporate

36
<PAGE>
policies and directives. The Compensation Committee reviews general programs of
compensation and benefits for all employees of the Company and makes
recommendations to the Board concerning such matters as compensation to be paid
to the Company's officers and directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to the commencement of the Offering, the Company had no Compensation
Committee but the Board of Directors performed equivalent functions. Of the
members of the Board of Directors, Mr. Patrick Dirk served as the Company's
Chairman and Chief Executive Officer and set the compensation of the executive
officers. Upon completion of the Offering, Messrs. Keider and O'Reilly will
become members of the Compensation Committee. Messrs. O'Reilly and Patrick Dirk,
the Company's Chairman of the Board, President and Chief Executive Officer, are
both members of the Board of Directors of Eltrax Systems, Inc. Mr. Patrick Dirk
serves as a member of the Audit Committee for Eltrax Systems, Inc.

EXECUTIVE COMPENSATION

The following table describes the compensation earned during the fiscal year
ended November 30, 1997 by the Chief Executive Officer of the Company and each
of the Company's other executive officers whose salary and bonus exceeded
$100,000 (the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) COMPENSATION(3)
- ---------------------------------------------- --------- ---------- ---------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Patrick J. Dirk .............................. 1997 $ 200,000 $ 85,000 $ 9,070 $ 7,454
Chairman of the Board, President and Chief
Executive Officer
Robert S. Messina ............................ 1997 148,096 70,000 49,325 8,289
Executive Vice President
Brian P. Dirk ................................ 1997 113,288 15,000 54,652 5,405
Vice President
Del L. Conrad ................................ 1997 120,077 25,000 -- 7,987
Chief Financial Officer, Treasurer and
Secretary
</TABLE>

- ------------------------

(1) Cash bonuses for services rendered have been included as compensation for
the year earned, even though such bonuses were paid in 1998.

(2) Represents commissions payable in the amounts of $52,597 and $43,925 for
Messrs. Brian Dirk and Messina. Also includes $5,775, $5,400 and $2,055 for
automobile usage for Messrs. Patrick Dirk, Messina and Brian Dirk and $3,295
for reimbursement of social club membership fees for Mr. Patrick Dirk.

(3) Includes $4,750, $3,611, $3,330 and $3,441 for Messrs. Patrick Dirk,
Messina, Brian Dirk and Conrad, respectively, for matching contributions
under the Company's 401(k) Plan and $2,704, $4,678, $2,075 and $4,546 as the
value of insurance premiums paid by the Company on behalf of Messrs. Patrick
Dirk, Messina, Brian Dirk and Conrad, respectively, under a medical
insurance arrangement.

No stock options were granted to any Named Executive Officer during the
fiscal year ended November 30, 1997. The following table summarizes the value of
options held at November 30, 1997 by the Named Executive Officers. There were no
option exercises by the Named Executive Officers during fiscal 1997.

37
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT FISCAL
FISCAL YEAR END YEAR END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Patrick J. Dirk..................... -- -- -- --
Robert S. Messina................... -- 244,990 -- $ 533,677
Brian P. Dirk....................... -- 81,967 -- 181,967
Del L. Conrad....................... -- -- -- --
</TABLE>

- ------------------------

(1) Value is based on the difference between the fair market value of the shares
of Common Stock at November 30, 1997 ($2.67), as determined by the Board of
Directors, and the exercise price of the options ranging from $0.41 to $0.45
per share. Options are in-the-money if the market value of the shares
exceeds the option exercise price.

EMPLOYMENT AGREEMENTS

On November 27, 1996, the Company entered into a non-competition agreement
with Robert Messina (the "Messina Agreement") providing for Mr. Messina's
service as President and Chief Operating Officer of the Subsidiary. As part of
the Messina Agreement, Mr. Messina was granted an option to purchase 244,990
shares of Common Stock at an exercise price of $0.41 per share. This option is
fully vested and terminates on November 25, 2006. The Messina Agreement contains
provisions providing for the maintenance of confidentiality of proprietary
information of the Company and a three year non-competition clause in the event
of termination of employment. If Mr. Messina's service with the Company is
terminated without cause, whether actual or constructive, the Company must pay
Mr. Messina (i) $200,000 in the event Mr. Messina is terminated during either
fiscal year 1997 or 1998, or (ii) $300,000 in the event Mr. Messina is
terminated during either fiscal year 1999 or 2000. Such payment is payable in 36
equal monthly installments.

The Company generally enters into confidentiality and non-disclosure
agreements with its technical personnel. Pursuant to the terms of these
agreements, employees agree to confidentiality restrictions and to assign to the
Company any reports, blueprints, data, writings and technical information
prepared by them during their employment that relate to Troy's business.

STOCK OPTION AND INCENTIVE PLANS

In April 1998, the Board of Directors and stockholders of the Company
adopted the 1998 Stock Incentive Plan (the "1998 Plan"), and reserved a maximum
of 1,200,000 shares of Common Stock for issuance under the 1998 Plan, plus any
shares (37,341 as of the date of this Prospectus) that are not issued under the
Company's 1996 Stock Option Plan (the "1996 Plan"). The 1998 Plan provides for
the grant to eligible recipients of: (i) options to purchase Common Stock that
qualify as "incentive stock options" ("Incentive Options"), within the meaning
of Section 422 of the Internal Revenue Code; (ii) options to purchase Common
Stock that do not qualify as Incentive Options ("Non-Qualified Options"); (iii)
awards of shares of Common Stock that are subject to certain forfeiture and
transferability restrictions that lapse after specified employment periods
("Restricted Stock Awards"); (iv) rights entitling the recipient to receive a
payment from the Company, in the form of shares of Common Stock, cash or a
combination of both, upon the achievement of established performance or other
goals ("Performance Units"); (v) awards of shares of Common Stock ("Stock
Bonuses"); and (vi) rights entitling the recipient to receive a payment from the
Company, in the form of shares of Common Stock, or a combination of both, equal
to the difference between the market value of one or more shares of Common Stock
and the exercise price of such shares under the terms of such right ("Stock
Appreciation Rights"). Incentive Options and Non-Qualified Options are
collectively referred to herein as "Options," and Options, Restricted Stock
Awards, Performance Units, Stock Bonuses and Stock Appreciation Rights are
collectively referred to herein as

38
<PAGE>
"Awards." The 1998 Plan provides for the granting of Options at an exercise
price that is not less than 100% of the fair market value of one share of the
Company's Common Stock on the date of grant for Incentive Options, and 85% of
the fair market value of one share of the Company's Common Stock on the date of
grant for Non-Qualified Options.

In the event a "change in control" of the Company occurs, then, if approved
by the Compensation Committee of the Board of Directors (the "Committee"): (i)
all outstanding Options and Stock Appreciation Rights held at least six months
will become immediately exercisable in full and will remain exercisable for the
remainder of their terms, regardless of whether the participant remains in the
employ or service of the Company or any subsidiary; (ii) all outstanding
Restricted Stock Awards held at least six months will become immediately fully
vested; and (iii) all outstanding Performance Units and Stock Bonuses will vest
and/or continue to vest in the manner determined by the Committee and reflected
in the award agreement. In addition, the Committee, without the consent of any
affected participant, may determine that some or all participants holding
outstanding Options will receive cash in an amount equal to the excess of the
fair market value immediately prior to the effective date of such change in
control over the exercise price per share of the Options.

For purposes of the 1998 Plan, a "change in control" of the Company will be
deemed to have occurred, among other things, upon: (i) the sale or other
disposition of substantially all of the assets of the Company; (ii) the approval
by the Company's shareholders of a plan or proposal for the liquidation or
dissolution of the Company; (iii) a merger or consolidation to which the Company
is a party if the Company's shareholders immediately prior to the merger or
consolidation beneficially own, immediately after the merger or consolidation,
securities of the surviving corporation representing (A) more than 50%, but not
more than 80%, of the combined voting power of the surviving corporation's then
outstanding securities unless such transaction was approved in advance by the
directors as of the effective date of the 1998 Plan or by any persons who
subsequently become directors and whose election or nomination was approved by a
majority vote of the directors comprising the Board as of the effective date of
the 1998 Plan (the "Incumbent Directors"), or (B) 50% or less of the combined
voting power of the surviving corporation's then outstanding securities
(regardless of any approval by the Incumbent Directors); (iv) any person
becoming, after the effective date of the 1998 Plan, the beneficial owner of (A)
20% or more, but less than 50%, of the combined voting power of the Company's
outstanding securities (unless such transaction was approved in advance by the
Incumbent Directors), or (B) 50% or more of the combined voting power of the
Company's outstanding securities (regardless of any approval by the Incumbent
Directors); (v) the Incumbent Directors cease for any reason to constitute at
least a majority of the Board; or (vi) any other change in control of the
Company of a nature that would be required to be reported pursuant to Section 13
or 15(d) of the Exchange Act.

The terms of the 1996 Plan are substantially similar to those of the 1998
Plan, including the pricing of Options, although the 1996 Plan does not provide
for the grant of Performance Units, Restricted Stock Awards or Stock Bonuses or
the acceleration of any vesting of Options upon a "change in control."

As of February 28, 1998, the Company had outstanding options to purchase an
aggregate of 326,957 shares of Common Stock at a weighted average exercise price
of $0.42 per share. These options are exercisable in full at various times
through November 25, 2006. Upon consummation of the Offering, the Company
intends to grant options to purchase an aggregate of 470,000 shares of Common
Stock to certain key employees and directors. Such options will have an exercise
price equal to the price per share to the public in the Offering.

39
<PAGE>
CERTAIN TRANSACTIONS

For information concerning the Distributions paid to the Dirk Stockholders
and the Tax Agreement, see "S Corporation Distributions."

Prior to April 1998, Troy Group and the Subsidiary were 100% beneficially
owned by the Dirk Stockholders. Effective May 1, 1998, the Dirk Stockholders
contributed the stock of the Subsidiary beneficially owned by them to the
Company in exchange for an aggregate of 1,124,772 shares of Common Stock of the
Company.

In November 1993, the Company borrowed, pursuant to a non-negotiable
promissory note (the "Dirk Note"), an aggregate of approximately $1.6 million
from Patrick J. Dirk and Mary J. Dirk, as trustees of the Dirk Family Trust
U/D/T March 6, 1990 (the "Family Trust"), as amended. The Dirk Note matures on
November 30, 1998 and bears interest at a rate of 7.0% per annum. The Company
made payments to the Family Trust for the years ended November 30, 1995, 1996
and 1997 in the amounts of $174,000, $163,000 and $349,000, respectively.

The Company leases a total of 77,000 square feet at its West Virginia
facility from Dirk Investments, Inc. ("Dirk Investments"). Dirk Investments is
wholly-owned by the Dirk Stockholders. This lease expires on September 1, 2000
and provides for rent, effective as of December 1997, of approximately $21,200
per month. Total rental payments made by the Company for the years ended
November 30, 1995, 1996 and 1997 were approximately $144,000, $158,000, and
$168,000, respectively. Dirk Investments secured loans (the "West Virginia
Loans") to acquire the West Virginia facility. One loan, which had a principal
balance of $ , bears interest at a rate of % and is repayable in
installments. The other loan, has a principal balance of $ , bears interest
at a rate of % and is repayable in installments. The Subsidiary and
Patrick and Mary Dirk have guaranteed repayment of the amounts outstanding under
the West Virginia Loans.

On February 6, 1998, Patrick J. and Mary J. Dirk and the Family Trust
guaranteed, to a maximum liability of $800,000, the Company's obligations under
its $4.5 million revolving line of credit and its term loan with Union Bank of
California. The Company intends to use a portion of the proceeds of the Offering
to repay amounts owed under the line of credit and the term note. The guarantees
will be released upon completion of the Offering.

During the fiscal years ended November 30, 1995, 1996 and 1997, the Company
made cash distributions of $0, $57,000 and $286,000, respectively, to Dirk
Worldwide, Inc., a foreign sales corporation ("Dirk Worldwide"). Dirk Worldwide
is wholly-owned by an individual retirement account of Patrick J. Dirk.

All future transactions, including any loans from the Company to its
officers, directors, principal shareholders or affiliates, will be on terms no
less favorable to the Company than could be obtained from unaffiliated third
parties.

40
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth information as of the date hereof, and as
adjusted to reflect the sale of the shares offered hereby, with respect to the
beneficial ownership of the shares of the Company's Common Stock by: (i) each
person who is known by the Company to own beneficially more than 5% of the
Common Stock; (ii) each director and director nominee; (iii) each Named
Executive Officer; and (iv) all directors and executive officers as a group.

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OWNERSHIP(1)
BENEFICIALLY ----------------------------------
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
- --------------------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Patrick J. Dirk(2)............................................. 5,880,000 78.4% 58.8%
Mary J. Dirk(2)................................................ 5,880,000 78.4 58.8
Brian P. Dirk(3)............................................... 466,967 6.2 4.6
Suzanne M. Anderson............................................ 375,000 5.0 3.8
Kristine L. Gigerich........................................... 375,000 5.0 3.8
Lorrie A. Brown................................................ 375,000 5.0 3.8
Robert S. Messina(4)........................................... 254,990 3.3 2.5
Del L. Conrad.................................................. -- -- --
Norman B. Keider............................................... -- -- --
John B. Zaepfel................................................ -- -- --
William P. O'Reilly............................................ -- -- --
Gene A. Bier................................................... -- -- --
All directors and executive officers as a group (4
persons)(5).................................................. 6,651,957 84.2 64.0
</TABLE>

- ------------------------

(1) For the purpose of calculating the percentage beneficially owned, the number
of shares of Common Stock deemed outstanding "Before Offering" includes: (i)
7,500,000 shares of Common Stock outstanding as of May 1, 1998; and (ii)
shares of Common Stock subject to options held by the person or group that
are currently exercisable or exercisable within 60 days from the date of
this Prospectus ("Presently Exercisable Options"). The number of shares of
Common Stock deemed outstanding after the Offering includes an additional
2,500,000 shares offered hereby. Except as otherwise indicated in the
footnotes of this table, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock listed as
beneficially owned by them. The address of the beneficial owners is 2331
South Pullman Street, Santa Ana, California 92705.

(2) Includes 5,880,000 shares of Common Stock held by Patrick J. and Mary J.
Dirk as trustees under the Family Trust. Excludes 120,000 shares of Common
Stock held by the trustee of The Dirk 1997 Education Trust (the "Education
Trust"), 375,000 shares of Common Stock held by each of Brian P. Dirk and
the three other adult children of Patrick J. and Mary J. Dirk and 91,967
shares of Common Stock issuable upon exercise of outstanding stock options
held by Brian P. Dirk.

(3) Includes 91,967 shares issuable under Presently Exercisable Options.

(4) Includes 254,990 shares issuable under Presently Exercisable Options.

(5) Includes an aggregate of 396,957 shares issuable under Presently Exercisable
Options.

41
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company will consist of 50,000,000
shares of Common Stock, $0.01 par value per share and 5,000,000 shares of
preferred stock, undesignated as to series (the "Preferred Stock"). The
following summary of the terms and provisions of the Company's capital stock
does not purport to be complete and is qualified in its entirety by reference to
the Company's Certificate of Incorporation and applicable law.

COMMON STOCK

As of May 1, 1998, there were 7,500,000 shares of Common Stock issued and
outstanding, held of record by six stockholders. The holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of stockholders and are not entitled to cumulate votes. The holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. Upon
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets that are legally available for
distribution after payment of all debts and other liabilities and subject to the
prior rights of any holders of preferred stock then outstanding. The holders of
Common Stock have no preemptive, subscription, redemption, sinking fund or
conversion rights. All outstanding shares of Common Stock are fully paid and
nonassessable and the shares of Common Stock to be issued upon completion of
this Offering will be fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors has the authority, without action by the
stockholders, to designate and issue any authorized but unissued shares of
Preferred Stock in one or more series and to designate the rights, preferences
and privileges of each such series, any or all of which may be greater than the
rights of Common Stock. It is not possible to state the actual effect of the
issuance of any shares of Preferred Stock upon the rights of holders of the
Common Stock until the Board of Directors determines the specific rights of the
holders of such shares. However, the effects might include, among other things,
restricting dividends on the Common Stock, diluting the voting power of the
Common Stock, impairing the liquidation rights of the Common Stock and delaying
or preventing a change in control of the Company without further action by the
stockholders. The Company has no present plans to issue any shares of Preferred
Stock.

OPTIONS

As of May 1, 1998, the Company had outstanding options to purchase an
aggregate of 326,957 shares of Common Stock at a weighted average exercise price
of $0.42 per share. These options are exercisable in full at various times
through November 25, 2006. All outstanding options provide for antidilution
adjustments in the event of certain mergers, consolidations, reorganizations,
recapitalizations, stock dividends, stock splits or other changes in the
corporate structure of the Company. Upon consummation of the Offering, the
Company intends to grant options to purchase an aggregate of 470,000 shares of
Common Stock to certain key employees. Such options will have an exercise price
equal to the price per share to the public in the Offering.

WARRANTS

Effective as of October 1, 1997, in connection with a consulting agreement
(the "Broadland Consulting Agreement") between the Company and Broadland Capital
Partners ("Broadland"), the Company issued to Broadland a warrant to purchase up
to 300,000 shares of Common Stock at an exercise price of $3.50 per share. In
April 1998, in connection with legal services provided to the Company, the
Company issued a warrant to purchase up to 50,000 shares of Common Stock at an
exercise price of $3.50 per share.

42
<PAGE>
REGISTRATION RIGHTS

The holder of a warrant to purchase 300,000 shares of Common Stock or the
holder's transferee, upon demand, is entitled to have such shares registered
under the Securities Act if registration is required by any governmental
authority under any federal or state law.

ANTI-TAKEOVER PROVISIONS OF THE DELAWARE GENERAL CORPORATION LAW

The Company is subject to Section 203 of the Delaware General Corporation
Law. In general, Section 203 prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years following the date the person became an interested
stockholder, unless (with certain exceptions) the "business combination" or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. Generally, a "business combination" includes a merger,
asset or stock sale, or other transaction resulting in a financial benefit to
the interested stockholder. Generally, an "interested stockholder" is a person
who, together with affiliates and associates, owns (or, in the case of
affiliates or associates of the corporation, within three years prior to the
determination of interested stockholder status, did own) 15% or more of a
corporation's voting stock. The existence of this provision would be expected to
have anti-takeover effects with respect to transactions not approved in advance
by the Board of Directors, such as discouraging takeover attempts that might
result in a premium over the market price of the Common Stock.

The Company's Certificate of Incorporation eliminates the right of
stockholders to act by written consent without a meeting unless such written
consent is unanimous. In addition, stockholders are not entitled to cumulative
voting in the election of directors. The authorization of Preferred Stock makes
it possible for the Board of Directors to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to
change control of the Company. The foregoing provisions of the Company's
Certificate of Incorporation and the Delaware General Corporation Law may have
the effect of deferring hostile takeovers or delaying changes in control of
management of the Company.

LIMITATION ON LIABILITY OF DIRECTORS AND INDEMNIFICATION

Delaware law and the Company's Certificate of Incorporation provide that the
Company shall, under certain circumstances and subject to certain limitations,
indemnify any person made or threatened to be made a party to a proceeding by
reason of that person's former or present official capacity with the Company
against judgments, penalties, fines, settlements and reasonable expenses. Any
such person is also entitled, subject to certain limitations, to payment or
reimbursement of reasonable expenses in advance of the final disposition of the
proceeding.

The Company has also entered into indemnification agreements with all of the
directors and executive officers of the Company whereby the Company has agreed
to indemnify and hold harmless the directors and executive officers from and
against any claims, liability, damages or expenses incurred by them in or
arising out of their status, capacities and activities with respect to the
Company to the maximum extent permitted by Delaware law. The Company believes
that these agreements are necessary to attract and retain qualified persons as
directors and executive officers.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is U.S. Stock Transfer
Corporation.

43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 10,000,000 shares of
Common Stock outstanding, assuming no exercise of options or warrants after
February 28, 1998. Of these shares, the 2,500,000 shares sold in the Offering
will be freely tradable without restriction under the Securities Act, except for
shares held by "affiliates" of the Company, as defined under the Securities Act.
The remaining 7,500,000 shares of Common Stock held by existing stockholders
(the "Restricted Shares") were issued and sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act. The
Restricted Shares may be sold in the public market only if registered, or
pursuant to an exemption from registration such as Rule 144, 144(k) or 701 under
the Securities Act. Holders of all of the Restricted Shares have entered into
lock-up agreements under which they have agreed not to offer, sell or otherwise
dispose of, or directly or indirectly cause or permit the offer, sale or other
disposition of, any Common Stock of the Company owned of record or beneficially
and of which such stockholder has the power to control the disposition for a
period of 180 days after the date of this Prospectus (the "Lock-Up Period"),
without the prior written consent of the Representatives. The Representatives
may, in their sole discretion at any time without notice, release any portion of
the shares subject to the lock-up agreements during the Lock-Up Period.
Following expiration of the Lock-Up Period, 1,125,000 of the Restricted Shares
will be eligible for sale in the public market without restriction and the
balance will be eligible for sale subject to the volume limitations and other
conditions of Rule 144 described below. In addition, approximately 90 days after
completion of the Offering, the Company intends to file a Registration Statement
on Form S-8 covering shares issuable under the Company's 1998 Plan and 1996
Plan, thus permitting the resale of such shares by non-affiliates in the public
market without restriction under the Securities Act.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year (including the holding period of any prior owner, except an affiliate) is
entitled to sell within any three-month period commencing 90 days after the date
of this Prospectus, a number of shares that does not exceed the greater of (i)
one percent of the number of shares of Common Stock then outstanding
(approximately 100,000 shares immediately after the Offering) or (ii) the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the required filing of a Form 144 with respect to such sale. Sales
under Rule 144 are generally subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
the Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, is entitled to sell such shares without having to comply with the manner
of sale, public information, volume limitation or notice provisions of Rule 144.
Under Rule 701 under the Securities Act, persons who purchase shares upon
exercise of options granted prior to the effective date of the Offering are
entitled to sell such shares 90 days after the effective date of the Offering in
reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice provisions of
Rule 144.

Because there has been no public market for shares of the Company's Common
Stock, the Company is unable to predict the effect that sales made under Rule
144, pursuant to future registration statements, or otherwise, may have on any
then prevailing market price for shares of the Common Stock. Nevertheless, sales
of a substantial amount of Common Stock in the public market, or the perception
that such sales could occur, could adversely affect market prices.

44
<PAGE>
UNDERWRITING

The Underwriters named below, for which Interstate/Johnson Lane Corporation
and Cruttenden Roth Incorporated are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase from the Company the respective
numbers of shares of Common Stock set forth opposite their names below, at the
initial public offering price less the underwriting discount set forth on the
cover page of this Prospectus. The Underwriting Agreement provides that the
Underwriters are obligated to purchase all the shares of Common Stock, subject
to certain legal matters and various other conditions.

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Interstate/Johnson Lane Corporation........................................
Cruttenden Roth Incorporated...............................................

-----------------
Total......................................................................
-----------------
-----------------
</TABLE>

The Representatives have advised the Company that the Underwriters initially
propose to offer the Common Stock to the public at the offering price set forth
on the cover page of this Prospectus. The Underwriters may allow selected
dealers (who may include the Underwriters) a concession not in excess of $
per share, and the Underwriters and such dealers may reallow a discount of not
in excess of $ per share to other dealers. After the initial public offering,
the public offering price and the concession and discount to dealers and other
selling terms may be changed by the Representatives. The Common Stock is offered
subject to receipt and acceptance by the Underwriters, and to certain other
conditions, including the right to reject orders in whole or in part.

The Company has granted to the Underwriters an option to purchase up to
375,000 additional shares of Common Stock at the initial public offering price,
less the underwriting discount, set forth on the cover page of this Prospectus.
This option is exercisable for 30 days from the date of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
be committed, subject to certain conditions, to purchase such additional shares
in approximately the same proportion as set forth in the above table. The
Underwriters may exercise such option solely to cover over-allotments, if any,
in the sale of the shares.

The Company has agreed to sell to the Representatives, for nominal
consideration, the Representatives' Warrant which represents the right to
purchase 100,000 shares of Common Stock at an exercise price per share equal to
120% of the price per share to the public in the Offering. The Representatives'
Warrant is exercisable during the period commencing one year following from the
date of this Prospectus and ending on the fifth anniversary of the date of this
Prospectus. The Representatives' Warrant includes a net exercise provision
pursuant to which the holder may exercise this warrant by, in effect, paying the
exercise price using shares of Common Stock issuable upon exercise of such
warrants valued at the fair market value at the time of the exercise. For a
period of one year from the date of this Prospectus, the Representatives'
Warrant is not transferable, except to officers and stockholders of the
Representatives. The Representatives' Warrant grants to the holders thereof
certain limited rights or registration of the Common Stock issuable upon
exercise of such warrant. Any profits realized by the Representatives upon the
sale of the Representatives' Warrant or the securities issuable upon exercise
thereof may be deemed to constitute additional underwriting compensation.

45
<PAGE>
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act of 1933, or
will contribute to payments the Underwriters may be required to make in respect
thereof.

The Company and each of its existing stockholders have agreed that they will
not, without the prior written consent of Interstate/Johnson Lane Corporation,
directly or indirectly, sell, offer, contract or grant any option to sell
(including without limitation any short sale), pledge, transfer, establish an
open "put equivalent position" within the meaning of Rule 16a-1(h) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares of
Common Stock or securities exchangeable or exercisable for or convertible into
shares of Common Stock, currently or hereafter owned either of record or
beneficially (as defined in Rule 13d-3 under the Exchange Act) by such party, or
publicly announce such party's intention to do any of the foregoing, for a
period of 180 days after the date of this Prospectus.

The Representatives have advised the Company that the Underwriters do not
intend to confirm sales of Common Stock offered by this Prospectus to any
account on which they exercise discretionary authority in excess of 5% of the
number of shares of Common Stock offered hereby.

In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the Offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
the Common Stock in the open market. The Underwriters may also reclaim selling
concessions allowed to an underwriter or a dealer for distributing the Common
Stock in the Offering, if the Underwriters repurchase previously distributed
Common Stock in transactions to cover their short positions, in stabilization
transactions or otherwise. Finally, the Underwriters may bid for, and purchase,
shares of the Common Stock in market making transactions and impose penalty
bids. These activities may stabilize or maintain the market price of the Common
Stock above market levels that may otherwise prevail. These transactions may be
effected on the Nasdaq National Market, in the over-the-counter market or
otherwise, and if commenced, may be discontinued at any time. The Underwriters
are not required to engage in these activities, and may end any of these
activities at any time.

Prior to the Offering, there has been no public market for the Company's
Common Stock. The initial public offering price for the Common Stock will be
determined by negotiations among the Company and the Representatives of the
Underwriters. The factors to be considered in determining the initial public
offering price will include the history of and the prospects for the Company and
the industry in which it operates, the past and present operating results of the
Company and the trends of such results, the future prospects of the Company, an
assessment of the Company's management, the general condition of the securities
markets at the time of the Offering and the prices for similar securities of
comparable companies.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Oppenheimer Wolff & Donnelly LLP, San Jose, California. Certain legal
matters relating to this Offering will be passed upon for the Underwriters by
Morris, Manning & Martin, L.L.P., Atlanta, Georgia.

EXPERTS

The financial statements of the Company as of November 30, 1996 and 1997,
and for each of the three years in the period ended November 30, 1997 included
in this Prospectus and Registration Statement have been audited by McGladrey &
Pullen, LLP, independent auditors, as set forth in their report appearing

46
<PAGE>
elsewhere herein and in the Registration Statement, and are included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement under the Securities Act with respect to
the shares of Common Stock offered hereby. This Prospectus does not contain all
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement and
to the exhibits and schedules filed therewith. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement may be inspected without charge
at the offices of the Commission at 450 Fifth Street, N.W., Washington D.C.
20549, and at the Commission's regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300,
New York, New York 10048. Copies of all or any part of the Registration
Statement may be obtained from the Public Reference Section of the Commission in
Washington D.C., upon the payment of the fees prescribed by the Commission. The
Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy statements and other information that has been or will be filed by the
Company.

The Company intends to furnish holders of the Common Stock with annual
reports containing audited financial statements certified by independent
auditors, and quarterly reports for each of the first three quarters of each
year containing unaudited financial information.

47
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent auditor's report on the consolidated financial statements...................................... F-2
Consolidated balance sheets................................................................................ F-3
Consolidated statements of operations...................................................................... F-4
Consolidated statements of stockholders' equity............................................................ F-5
Consolidated statements of cash flows...................................................................... F-6
Notes to consolidated financial statements................................................................. F-7
Independent auditor's report on the schedule............................................................... F-16
Schedule II--valuation and qualifying account.............................................................. F-17
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON THE
CONSOLIDATED FINANCIAL STATEMENTS

To the Board of Directors
Troy Group, Inc.
Santa Ana, California

We have audited the accompanying consolidated balance sheets of Troy Group,
Inc. and subsidiary as of November 30, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended November 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Troy Group,
Inc. and subsidiary as of November 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
November 30, 1997, in conformity with generally accepted accounting principles.

Anaheim, California
April , 1998

------------------------

The above form of auditor's report represents the form of report that
McGladrey & Pullen, LLP would be willing to issue assuming the consummation of
the reorganization as described in Note 1 had taken place and the finalization
of the 1998 Stock Incentive Plan and the warrants as described in Note 8. The
reorganization is expected to occur prior to the effective date of the Company's
planned offering of 2,500,000 common shares.

MCGLADREY & PULLEN, LLP

F-2
<PAGE>
TROY GROUP, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
FEBRUARY 28,
NOVEMBER 30, 1998
---------------------------- FEBRUARY 28, PRO FORMA
1996 1997 1998 (NOTE 2)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
ASSETS

Current assets:
Cash.............................................. $ 42,000 $ 100,000 $ -- $ --
Accounts receivable, less allowance for doubtful
accounts 1996 $173,000; 1997 $164,000; 1998
$171,000........................................ 5,205,000 5,509,000 6,402,000 6,402,000
Inventories....................................... 4,235,000 3,831,000 3,797,000 3,797,000
Prepaid expenses and other........................ 129,000 254,000 302,000 682,000
------------- ------------- ------------- -------------
Total current assets.......................... 9,611,000 9,694,000 10,501,000 10,881,000

Equipment and leasehold improvements, net........... 1,600,000 1,180,000 1,354,000 1,354,000

Other assets........................................ 113,000 875,000 561,000 561,000
------------- ------------- ------------- -------------
Total assets.................................. $ 11,324,000 $ 11,749,000 $ 12,416,000 $ 12,796,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Checks issued not yet presented for payment....... $ 390,000 $ 173,000 $ 468,000 $ 468,000
Notes payable..................................... 1,612,000 -- 313,000 313,000
Current portion of long-term debt................. 688,000 754,000 634,000 634,000
Accounts payable.................................. 1,443,000 1,670,000 1,915,000 1,915,000
Accrued liabilities............................... 1,378,000 1,724,000 1,238,000 3,228,000
Deferred service revenue.......................... 190,000 200,000 210,000 210,000
------------- ------------- ------------- -------------
Total current liabilities..................... 5,701,000 4,521,000 4,778,000 6,768,000
------------- ------------- ------------- -------------
Long-term debt, net of current portion (including
1996 $780,000; 1997 $375,000; and 1998 $318,000
payable to the majority stockholder).............. 1,521,000 1,280,000 957,000 957,000
------------- ------------- ------------- -------------
Commitments and contingencies

Stockholders' equity:
Common stock, par value $.01 per share; authorized
50,000,000 shares, issued 7,500,000 shares...... 75,000 75,000 75,000 75,000
Preferred stock, no par value, authorized
5,000,000 shares, issued none................... -- -- -- --
Additional paid-in capital........................ 247,000 247,000 247,000 247,000
Retained earnings................................. 3,780,000 5,626,000 6,359,000 4,749,000
------------- ------------- ------------- -------------
Total stockholders' equity.................... 4,102,000 5,948,000 6,681,000 5,071,000
------------- ------------- ------------- -------------
Total liabilities and stockholders' equity.... $ 11,324,000 $ 11,749,000 $ 12,416,000 $ 12,796,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-3
<PAGE>
TROY GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED NOVEMBER 30, FEBRUARY 28,
---------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Net sales............................... $ 21,477,000 $ 28,161,000 $ 33,434,000 $ 8,826,000 $ 8,928,000

Cost of goods sold, (including $144,000;
$158,000; $168,000; $42,000; and
$64,000 in rent paid to majority
stockholders)......................... 13,560,000 17,408,000 19,597,000 5,290,000 5,358,000
------------ ------------ ------------ ------------ ------------
Gross profit...................... 7,917,000 10,753,000 13,837,000 3,536,000 3,570,000
------------ ------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative... 5,594,000 5,234,000 6,622,000 1,527,000 1,578,000
Research and development.............. 1,748,000 2,041,000 2,521,000 582,000 630,000
------------ ------------ ------------ ------------ ------------
7,342,000 7,275,000 9,143,000 2,109,000 2,208,000
------------ ------------ ------------ ------------ ------------
Operating income.................. 575,000 3,478,000 4,694,000 1,427,000 1,362,000

Interest expense, (including $46,000;
$61,000; $33,000; $11,000; and $6,000
paid to majority stockholders)........ 342,000 361,000 262,000 58,000 39,000
------------ ------------ ------------ ------------ ------------
Income before state income taxes
(credit)........................ 233,000 3,117,000 4,432,000 1,369,000 1,323,000

State income taxes (credit)............. (80,000) 50,000 35,000 11,000 20,000
------------ ------------ ------------ ------------ ------------
Net income........................ $ 313,000 $ 3,067,000 $ 4,397,000 $ 1,358,000 $ 1,303,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Pro forma net income (unaudited):
Historical income before income
taxes............................... $ 233,000 $ 3,117,000 $ 4,432,000 $ 1,369,000 $ 1,323,000
Pro forma provision for income
taxes............................... 93,000 1,247,000 1,773,000 548,000 529,000
------------ ------------ ------------ ------------ ------------
Pro forma net income.............. $ 140,000 $ 1,870,000 $ 2,659,000 $ 821,000 $ 794,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Pro forma net income per share:
Basic................................. $ 0.02 $ 0.25 $ 0.35 $ 0.11 $ 0.11
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Diluted............................... $ 0.02 $ 0.25 $ 0.34 $ 0.11 $ 0.10
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Weighted-average shares outstanding:
Basic................................. 7,500,000 7,500,000 7,500,000 7,500,000 7,500,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Diluted............................... 7,500,000 7,500,000 7,759,000 7,713,000 7,812,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-4
<PAGE>
TROY GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 1)

<TABLE>
<CAPTION>
COMMON STOCK
-------------------------- ADDITIONAL
NUMBER PAID-IN RETAINED
OF SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, November 30, 1994.............. 7,500,000 $ 75,000 $ 247,000 $ 518,000 $ 840,000
Net income............................ -- -- -- 313,000 313,000
----------- ------------- ------------- ------------- -------------
Balance, November 30, 1995.............. 7,500,000 75,000 247,000 831,000 1,153,000
Dividends............................. -- -- -- (118,000) (118,000)
Net income............................ -- -- -- 3,067,000 3,067,000
----------- ------------- ------------- ------------- -------------
Balance, November 30, 1996.............. 7,500,000 75,000 247,000 3,780,000 4,102,000
Dividends............................. -- -- -- (2,551,000) (2,551,000)
Net income............................ -- -- -- 4,397,000 4,397,000
----------- ------------- ------------- ------------- -------------
Balance, November 30, 1997.............. 7,500,000 75,000 247,000 5,626,000 5,948,000
Dividends (unaudited)................. -- -- -- (570,000) (570,000)
Net income (unaudited)................ -- -- -- 1,303,000 1,303,000
----------- ------------- ------------- ------------- -------------
Balance, February 28, 1998
(unaudited)........................... 7,500,000 $ 75,000 $ 247,000 $ 6,359,000 $ 6,681,000
----------- ------------- ------------- ------------- -------------
----------- ------------- ------------- ------------- -------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-5
<PAGE>
TROY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FISCAL YEAR ENDED NOVEMBER 30, THREE MONTHS ENDED
------------------------------------- FEBRUARY 28,
1995 1996 1997 --------------------------
----------- ----------- ----------- 1997 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 313,000 $ 3,067,000 $ 4,397,000 $ 1,358,000 $ 1,303,000
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization........... 637,000 680,000 617,000 154,000 161,000
Provision for doubtful accounts......... -- 209,000 65,000 (5,000) 3,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable................. (433,000) (1,738,000) (369,000) (564,000) (896,000)
Inventories......................... (448,000) (517,000) 404,000 (415,000) 34,000
Prepaid expenses.................... 14,000 (17,000) (125,000) (18,000) (48,000)
Increase (decrease) in:
Accounts payable.................... (153,000) 616,000 227,000 610,000 245,000
Accrued expenses.................... (287,000) (142,000) 346,000 (190,000) (560,000)
Deferred service revenue............ (73,000) (104,000) 10,000 48,000 10,000
----------- ----------- ----------- ------------ ------------
Net cash provided by (used in)
operating activities................ (430,000) 2,054,000 5,572,000 978,000 252,000
----------- ----------- ----------- ------------ ------------
Cash flows from investing activities:
Purchase of equipment and leasehold
improvements............................ (1,062,000) (301,000) (197,000) (117,000) (15,000)
(Increase) in other assets................ (112,000) (1,000) (561,000) (31,000) (6,000)
----------- ----------- ----------- ------------ ------------
Net cash (used in) investing
activities.......................... (1,174,000) (302,000) (758,000) (148,000) (21,000)
----------- ----------- ----------- ------------ ------------
Cash flows from financing activities:
Net borrowings (payments) on notes
payable................................. 880,000 (268,000) (1,612,000) (114,000) 313,000
Proceeds from issuance of debt............ 1,876,000 -- 1,000,000 -- --
Principal payments on debt................ (1,457,000) (848,000) (1,175,000) (464,000) (443,000)
Proceeds/(payments) from/on life insurance
loans................................... 201,000 -- (201,000) -- --
Increase (decrease) in checks issued not
presented for payment................... 104,000 (476,000) (217,000) (269,000) 295,000
Dividends................................. -- (118,000) (2,551,000) (25,000) (496,000)
----------- ----------- ----------- ------------ ------------
Net cash provided by (used in)
financing activities................ 1,604,000 (1,710,000) (4,756,000) (872,000) (331,000)
----------- ----------- ----------- ------------ ------------
Net increase (decrease) in cash....... -- 42,000 58,000 (42,000) (100,000)
Cash, beginning of period................... -- -- 42,000 42,000 100,000
----------- ----------- ----------- ------------ ------------
Cash, end of period......................... $ -- $ 42,000 $ 100,000 $ -- $ --
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-6
<PAGE>
TROY GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED FEBRUARY 28, 1997 AND 1998 IS
UNAUDITED

NOTE 1. NATURE OF BUSINESS, REORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

The Company provides on-demand distributive printing solutions, primarily to
Fortune 1000 and other large and mid-sized domestic and international
businesses. The Company's current product offering consists of high-quality
laser printers, impact printers, related consumables, including toners and
ribbons, and services. The Company's products provide proprietary solutions that
enable businesses to distribute and print magnetic ink character recognition
("MICR") encoded financial documents such as checks, money orders, payment
coupons and deposit and withdrawal slips.

REORGANIZATION

Effective May , 1998, the Company and Troy Systems International, Inc.
entered into a restructuring and reorganization arrangement. Prior to that date,
these two companies had common ownership. As a result of the restructuring and
reorganization; (i) the Company reincorporated in Delaware; (ii) Troy Systems
International, Inc. became a wholly-owned subsidiary of Troy Group, Inc. and the
former stockholders of Troy Systems International, Inc. received shares of Troy
Group, Inc.; and (iii) the Company effected a 910.7468-for-one stock split. This
reorganization has been accounted for as if it occurred as of the beginning of
the earliest period presented in these consolidated financial statements. The
reporting entity previously included the combined financial statements of Troy
Group, Inc., Troy Systems International, Inc. (the "Subsidiary") and Dirk
Worldwide, Inc., a foreign sales corporation (FSC) owned by the majority
stockholder. The FSC is included in these consolidated financial statements and
the Company intends to establish a wholly-owned subsidiary FSC.

A SUMMARY OF THE COMPANY'S SIGNIFICANT ACCOUNTING POLICIES FOLLOWS:

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiary and the FSC referred to above. All
material intercompany balances and transactions are eliminated in consolidation.

CHECKS ISSUED NOT YET PRESENTED FOR PAYMENT

Through the use of concentration accounts, the Company's cash is accumulated
daily and applied to the outstanding balance of the revolving line of credit
(Note 5). Under this program, idle funds are minimized. The Company's liquidity
is thereby maintained in the form of its ability to draw funds against the
revolving line of credit. All checks issued not yet presented for payment are
classified as a liability.

F-7
<PAGE>
TROY GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED FEBRUARY 28, 1997 AND 1998 IS
UNAUDITED

NOTE 1. NATURE OF BUSINESS, REORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out) or market.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements are stated at cost. Equipment is
depreciated using the straight-line method over their estimated useful lives,
currently five years. Improvements to leased property are amortized over the
lesser of the life of the lease or life of the improvements.

REVENUE RECOGNITION

The Company recognizes revenue when goods are shipped to the customer.
Service revenue is recognized over the period of the contract on a straight-line
basis.

ADVERTISING POLICY

The Company expenses the production costs of advertising the first time the
advertising takes place. Advertising expense was approximately $297,000,
$164,000 and $94,000 in fiscal years 1995, 1996 and 1997, respectively, net of
marketing development funds received from a supplier of $120,000 and $30,000 in
fiscal years 1995 and 1996, respectively. There were no marketing development
funds received in fiscal year 1997.

RESEARCH AND DEVELOPMENT POLICY

The Company expenses research and development costs as they are incurred.
The Company incurs research and development costs in developing new products.

INCOME TAXES

The Company and its wholly-owned subsidiary file separate federal and state
income tax returns. The Company, with the consent of its stockholders, has
elected to be taxed under sections of federal and certain state income tax laws,
which provide that, in lieu of corporation income taxes, the stockholders
separately account for their pro rata shares of the Company's items of income,
deductions, losses and credits. The Company anticipates paying dividends to the
stockholders for their estimated income tax liabilities.

STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation under the
requirements of Accounting Principles Board (APB) Opinion No. 25, which does not
require compensation to be recorded if the consideration to be received is at
least equal to the fair value at the measurement date. Nonemployee stock-based
transactions are accounted for under the requirements of Statement No. 123
"Accounting for Stock Based Compensation" which requires compensation to be
recorded based on the fair value of the securities issued or the services
received, whichever is more reliably measurable.

F-8
<PAGE>
TROY GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED FEBRUARY 28, 1997 AND 1998 IS
UNAUDITED

NOTE 1. NATURE OF BUSINESS, REORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash, accounts receivable,
accounts payable and notes payable. The book value of these instruments are
considered to be representative of their fair value.

EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128 EARNINGS PER SHARE
(EPS). SFAS No. 128 requires dual presentation of basic EPS and diluted EPS on
the face of all income statements issued after December 15, 1997 for all
entities with complex capital structures. Basic EPS is computed as net income
divided by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur from common
shares issuable through stock options (none in the fiscal years ended November
30, 1995 and 1996; 259,000 shares in the fiscal year ended November 30, 1997;
and 213,000 shares and 312,000 shares in the three months ended February 28,
1997 and 1998, respectively). Diluted EPS does not include contingently issuable
shares because the conditions for issuance have not been met.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 130 Reporting Comprehensive Income
and SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 130 requires that an enterprise report, by major
components and as a single total, the change in its net assets during the period
from nonowner sources; and SFAS No. 131 establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas and major customers. Adoption of these
statements will not impact the Company's financial position, results of
operations or cash flows and any effect will be limited to the form and content
of its disclosures. Both statements are effective for fiscal years beginning
after December 15, 1997, with earlier application permitted.

UNAUDITED INTERIM FINANCIAL INFORMATION

The interim financial information presented herein as of and in the three
months ended February 28, 1997 and 1998 reflect all adjustments which are, in
the opinion of management, necessary for a fair presentation for the periods
presented. Such adjustments are of a normal recurring nature. The interim
financial information is not intended to be a complete presentation in
accordance with generally accepted accounting principles.

NOTE 2. PRO FORMA INFORMATION (UNAUDITED)

The Company plans to terminate the S corporation elections for itself and
its Subsidiary in connection with a planned public stock offering. The objective
of the pro forma financial information included in these financial statements is
to show what the significant effects might have been on the historical balance
sheet for these planned terminations and on the historical statements of
operations had the Company and its Subsidiary not been treated as S corporations
for income tax purposes.

F-9
<PAGE>
TROY GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED FEBRUARY 28, 1997 AND 1998 IS
UNAUDITED

NOTE 2. PRO FORMA INFORMATION (UNAUDITED) (CONTINUED)
THE FOLLOWING PRO FORMA BALANCE SHEET ADJUSTMENTS HAVE BEEN MADE:

- DISTRIBUTIONS--The Company intends to make an S corporation distribution
to its current stockholders. The pro forma adjustments reflect a liability
for an estimated distribution of $1,990,000.

- DEFERRED INCOME TAXES--The Company will record a deferred income tax asset
that will result from the termination of the Company's and its
Subsidiary's S corporation elections. The pro forma adjustments reflect
the projected current asset of $380,000.

- RETAINED EARNINGS--The net effect of the above entries will reduce
retained earnings.

The condensed balance sheet of the Company as of February 28, 1998
(unaudited) reflecting these pro forma adjustments is as follows:

<TABLE>
<CAPTION>
FEBRUARY 28,
FEBRUARY 28, PRO FORMA 1998
1998 ADJUSTMENTS PRO FORMA
------------- ------------- -------------
<S> <C> <C> <C>
Current assets...................................................... $ 10,501,000 $ 380,000 $ 10,881,000
Long-term assets.................................................... 1,915,000 -- 1,915,000
------------- ------------- -------------
Total assets.................................................... $ 12,416,000 $ 380,000 $ 12,796,000
------------- ------------- -------------
------------- ------------- -------------
Current liabilities................................................. $ 4,778,000 $ 1,990,000 $ 6,768,000
Long-term liabilities............................................... 957,000 -- 957,000
------------- ------------- -------------
Total liabilities............................................... 5,735,000 1,990,000 7,725,000
------------- ------------- -------------
Common stock........................................................ 75,000 -- 75,000
Additional paid-in capital.......................................... 247,000 -- 247,000
Retained earnings................................................... 6,359,000 (1,610,000) 4,749,000
------------- ------------- -------------
Total stockholders' equity...................................... 6,681,000 (1,610,000) 5,071,000
------------- ------------- -------------
Total liabilities and stockholders' equity...................... $ 12,416,000 $ 380,000 $ 12,796,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

THE FOLLOWING PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS HAVE BEEN MADE:

- INCOME TAXES--The pro forma information presented on the statements of
operations reflect a provision for income taxes at an effective rate of
40.0% in the fiscal years ended November 30, 1997, 1996 and 1995 and in
the three months ended February 28, 1998 and 1997.

- PRO FORMA NET INCOME PER SHARE--The pro forma net income per share is
based on the weighted-average number of shares of common stock outstanding
during the period.

F-10
<PAGE>
TROY GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED FEBRUARY 28, 1997 AND 1998 IS
UNAUDITED

NOTE 3. INVENTORIES

Inventories consisted of the following as of November 30, 1996 and 1997 and
February 28, 1998:

<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Raw materials....................................... $ 2,786,000 $ 2,188,000 $ 2,628,000
Work-in-process..................................... 266,000 470,000 809,000
Finished goods...................................... 1,183,000 1,173,000 360,000
------------ ------------ ------------
$ 4,235,000 $ 3,831,000 $ 3,797,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

NOTE 4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consisted of the following as of
November 30, 1996 and 1997:

<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Machinery and equipment........................................... $ 4,547,000 $ 4,743,000
Furniture and fixtures............................................ 307,000 304,000
Leasehold improvements............................................ 1,202,000 1,202,000
------------ ------------
6,056,000 6,249,000
Less accumulated depreciation and amortization.................... 4,456,000 5,069,000
------------ ------------
$ 1,600,000 $ 1,180,000
------------ ------------
------------ ------------
</TABLE>

NOTE 5. NOTES PAYABLE

The Company has a $4,500,000 line of credit agreement with a bank. As of
November 30, 1997, there were no borrowings outstanding against the line of
credit. Borrowings bear interest at the bank's LIBOR rate (5.97% at November 30,
1997) plus 2.25% and are limited to 80% of certain eligible accounts receivable
plus 85% of certain specified accounts. Included in certain specified accounts
is inventory up to $700,000. The agreement expires June 30, 1998. In connection
with the line of credit agreement, the Company has a $400,000 standby letter of
credit agreement. This line of credit is secured by substantially all of the
Company's assets and is guaranteed by the majority stockholders in the amount of
$800,000. In connection with its borrowing arrangements, the Company is subject
to certain financial covenants (see Note 8). As of November 30, 1997, the
Company had approximately $4,400,000 in availability under this line of credit.

In addition, the Company has a separate $500,000 standby letter of credit
facility that expires in June 1999. The total amount of letters of credit
outstanding as of November 30, 1997 was $300,000.

F-11
<PAGE>
TROY GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED FEBRUARY 28, 1997 AND 1998 IS
UNAUDITED

NOTE 6. LONG-TERM DEBT

Long-term debt consisted of the following as of November 30, 1997:

<TABLE>
<CAPTION>
<S> <C>
Notes payable, bank............................................................. $ 1,142,000
7% unsecured note payable to stockholder, due November 1998..................... 375,000
4% economic development note payable............................................ 404,000
5% industrial and business development note payable............................. 113,000
------------
2,034,000
Less current maturities......................................................... 754,000
------------
$ 1,280,000
------------
------------
</TABLE>

Notes payable, bank, bear interest based on the bank's reference rate (8.50%
as of November 30, 1997) plus 1.25% and 2.50% in excess of the bank's adjusted
treasuries rate (7.00% as of November 30, 1997); mature through 2004; and are
secured by substantially all assets. One note is secured by a third trust deed
on real property owned by a company related through common ownership to the
majority stockholders and is personally guaranteed by the majority stockholders
in the amount of $286,000 each. Another note is subject to certain financial
covenants (see Note 8).

The economic, industrial and business development notes payable mature
through 2005. The notes are secured by certain equipment and the personal
guarantees of the majority stockholders of the Company. One of the notes is
secured by a fourth trust deed on real property owned by a Company related
through common ownership to the majority stockholders.

As of November 30, 1997, future maturities of long-term debt are as follows:
1998 $754,000; 1999 $663,000; 2000 $299,000; 2001 $67,000; 2002 $70,000;
thereafter $181,000 (total $2,034,000).

NOTE 7. ACCRUED EXPENSES

Accrued expenses consisted of the following as of November 30, 1996 and
1997:

<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Compensation...................................................... $ 1,091,000 $ 1,539,000
Other............................................................. 287,000 185,000
------------ ------------
$ 1,378,000 $ 1,724,000
------------ ------------
------------ ------------
</TABLE>

NOTE 8. STOCKHOLDERS' EQUITY

PREFERRED STOCK

The Board of Directors has the authority, without action by the
stockholders, to designate and issue any authorized but unissued shares of
preferred stock in one or more series and to designate the rights, preferences
and privileges of each such series.

F-12
<PAGE>
TROY GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED FEBRUARY 28, 1997 AND 1998 IS
UNAUDITED

NOTE 8. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLAN

The Company has reserved 1,564,298 shares for issuance under the Company's
1998 Stock Incentive Plan and 1996 Stock Option Plan, of which 326,957 shares
are subject to outstanding options as of November 30, 1997. Option prices for
the incentive stock options will be 100% of the fair market value of the stock
on the date the option is granted. For incentive options granted to 10% of more
stockholders, the option price is 110% of the fair market value of the stock on
the date the option is granted. Option prices for the nonstatutory stock options
shall not be less than 85% of the fair market value of the stock on the date the
options are granted. In fiscal year 1996, Troy granted options to acquire
326,957 shares at a weighted-average option price of $0.42 per share. The
options vest over five to ten years from the grant date. Vesting will accelerate
upon the sale of more than 51% of the issued and outstanding shares of the
Company's voting common stock or upon the conversion of Troy to a public
company. There were no options granted in fiscal year 1997 and no options have
been exercised or expired in fiscal years 1997 or 1996.

As permitted under generally accepted accounting principles, grants under
these plans are accounted for following APB Opinion No. 25 and related
interpretations. Accordingly, no compensation cost has been recognized for
grants under the stock option plan. Had compensation cost been determined based
on the minimum fair value method prescribed in FASB Statement No. 123, reported
historical net income before income taxes and pro forma net income per share for
fiscal year 1996 would not have changed and fiscal year 1997 net income before
income taxes, and basic and diluted pro forma net income per share would have
been reduced to $4,391,000, $0.59 and $0.57, respectively. In determining the
pro forma amounts above, the value of each grant is estimated at the grant date
using the minimum fair value method prescribed in Statement No. 123, with the
following weighted-average assumptions for grants in fiscal year 1996: no
dividends for all years, risk-free interest rate of 5.86% and 5.98%, expected
lives of 5 and 10 years, and expected amounts to be exercised of 100%. The
weighted average fair value of the options granted in fiscal year 1996 was $0.16
per share.

STOCK WARRANTS

On October 1, 1997, the Company issued warrants to a consultant to purchase
up to 300,000 shares of common stock of the Company at $3.50 per share. The
warrants vest at the rate of 33 1/3% each upon the occurrence of three separate
performance conditions relating to: (i) becoming publicly owned; (ii) certain
acquisition transactions; and (iii) the Company's market value. As of November
30, 1997 and February 28, 1998, none of these events have occurred and no
expense has been recorded. The effects of the warrants will be recorded as the
performance conditions are met at the then current fair value of the warrants
vested. The warrants expire five years after they vest. Effective in April 1998,
in connection with legal services being provided in connection with an offering
of the Company's common stock, the Company issued a warrant to purchase up to
50,000 shares of common stock of the Company at $3.50 per share. The effect of
the warrants will be recorded when the performance condition is met at the then
current fair value of the warrant vested. The warrant expires five years after
it vests.

F-13
<PAGE>
TROY GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED FEBRUARY 28, 1997 AND 1998 IS
UNAUDITED

NOTE 8. STOCKHOLDERS' EQUITY (CONTINUED)
RETAINED EARNINGS

The Company and its subsidiary are limited by the terms of certain debt
agreements to pay dividends up to the amount necessary for the stockholders to
pay their pro rata share of income taxes on the Company's income.

NOTE 9. COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS AND RENT EXPENSE

The Company leases its operating facilities under noncancelable operating
lease agreements, one of which is with a company related through common
ownership (Note 10). Rent expense in fiscal years 1995, 1996 and 1997 was
approximately $294,000, $288,000 and $352,000, respectively. Future minimum
rental commitments under these leases in the fiscal years ending November 30 are
as follows: 1998 $420,000; 1999 $420,000; 2000 $356,000; and 2001 $69,000 (total
$1,265,000 of which $700,000 is to the related party).

LEGAL PROCEEDINGS

From time to time, the Company is subject to litigation in the ordinary
course of its business. In February 1998, the Company was served with a
complaint by a former employee alleging, among other things, sexual harassment
by another former employee of the Company. The Company denies any liability in
this matter and intends to vigorously defend this litigation. However, this
litigation is in its early stages and the outcome of the litigation is
inherently uncertain and an adverse resolution of this litigation could result
in a monetary judgment against the Company. No amounts have been recorded in the
financial statements for this matter.

NOTE 10. RELATED PARTY TRANSACTIONS AND GUARANTEE OF INDEBTEDNESS

In fiscal year 1993, the Company entered into an agreement to lease
operating facilities from a company related through common ownership. The
Company has guaranteed the debt of the related company that was incurred in
connection with the related company's purchase of this facility. As of November
30, 1997, the outstanding balance on this debt was approximately $1,057,000.

In fiscal years 1995, 1996 and 1997, the Company made principal payments on
the notes payable to stockholders of $345,000, $175,000 and $373,000,
respectively.

The FSC included in these financial statements, Dirk Worldwide, Inc., makes
distributions of its income to an individual retirement account of the Company's
majority stockholder. Total distributions in fiscal years 1995, 1996 and 1997
were $-0-, $57,000 and $286,000, respectively.

NOTE 11. STATE INCOME TAXES

State income taxes in fiscal years 1995, 1996 and 1997 differ from the
computed "expected" taxes due to enterprise zone and other tax credits
generated.

F-14
<PAGE>
TROY GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED FEBRUARY 28, 1997 AND 1998 IS
UNAUDITED

NOTE 12. MAJOR VENDORS

One of the key components of certain of the Company impact products are
purchased from one vendor. If the Company were to lose its component supplier
for its impact printing products, it would be required to identify a new
supplier and substantially reengineer its products for use with an alternative
component. Net purchases from this vendor in fiscal years 1995, 1996 and 1997
were approximately $403,000, $255,000 and $255,000, respectively. Accounts
payable to this vendor as of November 30, 1996 and 1997 were approximately
$25,000 and $32,000, respectively.

The Company also purchases other key components from one vendor. Net
purchases from this vendor in fiscal years 1995, 1996 and 1997 were
approximately $1,000,000, $3,600,000 and $3,800,000, respectively. Accounts
payable to this vendor as of November 30, 1996 and 1997 were approximately
$340,000 and $540,000, respectively.

NOTE 13. MAJOR CUSTOMERS AND FOREIGN SALES

In fiscal year 1997, the Company had sales to a customer that individually
accounted for 16.6% of the Company total net sales and as of November 30, 1997
the trade receivables from this customer were $326,000. Sales to this customer
in fiscal years 1995 and 1996 were less than 10% of the Company's net sales.

In fiscal years 1995, 1996 and 1997, the Company had shipments to foreign
customers that accounted for 12.3%, 14.3%, and 13.7% of the Company's net sales.

NOTE 14. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED NOVEMBER 30, FEBRUARY 28,
---------------------------------- --------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash paid during the period
for:

Interest................... $ 337,000 $ 345,000 $ 272,000 $ 63,000 $ 39,000
---------- ---------- ---------- ------------ ------------
---------- ---------- ---------- ------------ ------------
State income taxes......... $ -- $ 65,000 $ 185,000 $ 22,000 $ --
---------- ---------- ---------- ------------ ------------
---------- ---------- ---------- ------------ ------------
</TABLE>

F-15
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON THE SCHEDULE

To the Board of Directors
Troy Group, Inc.
Santa Ana, California

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplemental Schedule II
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
consolidated financial statements taken as a whole.

Anaheim, California
April , 1998

F-16
<PAGE>
TROY GROUP, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNT
FISCAL YEARS ENDED NOVEMBER 30, 1995, 1996 AND 1997

<TABLE>
<CAPTION>
BALANCE AT PROVISIONS
BEGINNING CHARGED TO BALANCE AT
OF YEAR EXPENSE CHARGE-OFFS END OF YEAR
---------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:

1995....................................................... $ 111,000 $ -- $ (4,000) $ 107,000
---------- ----------- ----------- -------------
---------- ----------- ----------- -------------

1996....................................................... $ 107,000 $ 209,000 $(143,000) $ 173,000
---------- ----------- ----------- -------------
---------- ----------- ----------- -------------

1997....................................................... $ 173,000 $ 65,000 $ (74,000) $ 164,000
---------- ----------- ----------- -------------
---------- ----------- ----------- -------------
</TABLE>

F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

No dealer, salesperson or other person is authorized to give any information
or to make any representations in connection with this Offering other than those
contained in this Prospectus and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or any Underwriter. This Prospectus does not constitute an offer to buy by
anyone in any jurisdiction in which such offer or solicitation is not
authorized, or in which the person making such offer is not qualified to do so
or to any person to whom it is unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company or that the information is correct as of any time
subsequent to its date.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 4
S Corporation Distributions............................................... 10
Use of Proceeds........................................................... 11
Dividend Policy........................................................... 11
Capitalization............................................................ 12
Dilution.................................................................. 13
Selected Consolidated Financial Data...................................... 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 16
Business.................................................................. 23
Management................................................................ 34
Certain Transactions...................................................... 40
Principal Stockholders.................................................... 41
Description of Capital Stock.............................................. 42
Shares Eligible for Future Sale........................................... 44
Underwriting.............................................................. 45
Legal Matters............................................................. 46
Experts................................................................... 46
Additional Information.................................................... 47
Index to Consolidated Financial Statements................................ F-1
</TABLE>

------------------------

Until , 1998, (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock offered hereby, whether or
not participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligations of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

2,500,000 SHARES

[LOGO]

TROY GROUP, INC.

Common Stock

---------------------

PROSPECTUS

---------------------

[LOGO]

, 1998

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Company in connection with the sale of
Common Stock being registered. All of the amounts shown are estimates, except
the SEC registration fee, the NASD filing fees and the Nasdaq listing fee.

<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
SEC registration fee....................................................... $ 8,485
NASD fee................................................................... 3,375
Nasdaq listing fee......................................................... 78,875
Blue Sky fees and expenses................................................. 2,000
Legal fees and expenses.................................................... 100,000
Accounting fees and expenses............................................... 150,000
Printing expenses.......................................................... 65,000
Transfer agent fees........................................................ 3,500
Warrants................................................................... 825,000
Miscellaneous.............................................................. 13,765
-----------------
Total...................................................................... $ 1,250,000
-----------------
-----------------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Delaware Law and the Company's Certificate of Incorporation provide that the
Company shall, under certain circumstances and subject to certain limitations,
indemnify any director, officer, employee or agent of the corporation made or
threatened to be made a party to a proceeding, by reason of the former or
present official capacity (as defined) of the person, against judgments,
penalties, fines, settlements and reasonable expenses incurred by the person in
connection with the proceeding if certain statutory standards are met. Any such
person is also entitled, subject to certain limitations, to payment or
reimbursement of reasonable expenses in advance of the final disposition of the
proceeding. "Proceeding" means a threatened, pending or completed civil,
criminal, administrative, arbitration or investigative proceeding, including one
by or in the right of the corporation.

The Company also maintains a directors and officers insurance policy
pursuant to which directors and officers of the Company are insured against
liability for certain actions in their capacity as directors and officers.

Reference is also made to Section 6 of the Underwriting Agreement contained
in Exhibit 1.1 hereto, indemnifying officers and directors of the Registrant
against certain liabilities.

II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

During the three year period ending February 28, 1998, the Company issued
the following shares of its Common Stock without registration under the
Securities Act:

1. On November 27, 1996, the Company granted options to purchase an
aggregate of 326,957 shares of the Company's Common Stock to two executive
officers of the Company.

2. Effective as of October 1, 1997, the Company issued a warrant to
purchase up to a maximum of 300,000 shares of Common Stock of the Company to
an investor in exchange for providing certain consulting services to the
Company.

3. In April 1998, the Company issued a warrant to purchase up to a
maximum of 50,000 shares of Common Stock of the Company to an attorney in
exchange for providing legal services to the Company in connection with the
Offering.

4. Effective as of May 31, 1998, the Company will issue an aggregate
1,124,772 shares of Common Stock to six existing stockholders in exchange
for the contribution of all of the outstanding capital stock of the
Subsidiary to the Company.

5. Concurrently with the consummation of the Offering, the Company
intends to grant options to purchase an aggregate of 470,000 shares of
Common Stock of the Company to certain officers and directors of the
Company.

All of the above sales were made in reliance on Rule 701, Regulation D and
Section 4(2) under the Securities Act. With regard to the reliance by the
Company upon the exemptions set forth in the previous sentence, certain
inquiries were made by the Company to establish that such sales qualified for
such exemptions from the registration requirements. In particular, the Company
confirmed that: (i) all offers of sales and sales were made by personal contact
from officers or directors of the Company or other persons closely associated
with the Company; (ii) each investor made representations that he or she was
sophisticated in relation to this investment (and the Company has no reason to
believe such representations were incorrect); (iii) each purchaser gave
assurance of investment intent and the certificates for the shares bear a legend
accordingly; and (iv) offers and sales within any offering were made to a
limited number of persons.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement(2)
1.2 Form of Representatives' Warrant(2)
3.1 Certificate of Incorporation of the Company
3.2 Bylaws of the Company
4.1 Warrant dated October 1, 1997 issued to Broadland Capital Partners
5.1 Opinion of Oppenheimer Wolff & Donnelly LLP(2)
10.1 Lease dated March 16, 1995 between the Company and Ragco
10.2 Lease dated July 28, 1993 between Dirk Investments, Inc. and the Company
10.3 Lease Amendment to Lease dated July 28, 1993 between Dirk Investments,
Inc. and the Company
10.4 Addendum to Lease dated March 16, 1995 between Dirk Investments, Inc. and
the Company
</TABLE>

II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.5 Lease Amendment to Lease dated September 1, 1996 between Dirk Investments,
Inc. and the Company
10.6 1996 Stock Option Plan
10.7 1998 Stock Incentive Plan(2)
10.8 Incentive Stock Option Agreement dated November 27, 1996 in favor of
Robert Messina
10.9 Incentive Stock Option Agreement dated November 27, 1996 in favor of Brian
Dirk
10.10 Non-Competition Agreement dated November 27, 1996 between Robert Messina
and the Company
10.11 Consulting Agreement dated October 1, 1997 between the Company and
Broadland Capital Partners
10.12 Form of Indemnification Agreement for directors and executive officers of
the Company
10.13 Reseller Agreement dated April 1, 1996 between the Company and
Hewlett-Packard Company(1)
10.14 MICR Supplies Agreement dated February 6, 1998 between the Company and IBM
Printing Systems Company(1)
10.15 Form of Tax Allocation and Indemnification Agreement by and between the
Company and Stockholders(2)
10.16 Non-negotiable Promissory Note of the Company dated November 30, 1993, as
amended November 1, 1995 and November 1, 1996
10.17 Loan Agreement dated June 19, 1997 between the Company and Union Bank of
California
10.18 First Amendment to Loan Agreement dated February 12, 1998 between the
Company and Union Bank of California
10.19 Promissory Note dated February 6, 1998 in favor of Union Bank of
California
10.20 Promissory Note dated June 1997 in favor of Union Bank of California
10.21 Security Agreement dated February 6, 1998 by the Subsidiary
10.22 Second Amendment to Loan Agreement dated April 27, 1998 between the
Company and Union Bank of California
10.23 1998 Employee Stock Purchase Plan(2)
10.24 Letter dated October 3, 1997 to RAGCO from the Company.
21.1 Subsidiaries of the Registrant
23.1 Consent of McGladrey & Pullen, LLP, Independent Auditors
23.2 Consent of Oppenheimer Wolff & Donnelly LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on pages II-4 and II-5 hereto)
27.1 Financial Data Schedule
</TABLE>

- ------------------------

(1) Confidential treatment has been requested with respect to designated
portions contained within such document. Such portions have been omitted and
filed separately with the Commission pursuant to Rule 406 of the Securities
Act of 1933, as amended.

(2) To be filed by amendment.

II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES.

The following financial statement schedule is included herein and should be
read in conjunction with the financial statements referred to above:

Independent Auditors' Report on Financial Statement Schedule

Schedule II. Valuation and Qualifying Accounts

All other schedules are omitted as the required information is unapplicable
or the information is presented in the financial statements or related notes.

ITEM 17. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or Bylaws of the Registrant, the Underwriting Agreement, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) It will provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.

(2) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(3) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in Santa Ana, California
on this 1st day of May, 1998.

<TABLE>
<S> <C> <C>
TROY GROUP, INC.

By: /s/ PATRICK J. DIRK
-----------------------------------------
Patrick J. Dirk
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Patrick J. Dirk and Del Conrad and each one of
them, individually, as his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any additional
Registration Statements filed pursuant to Rule 462(b) under the Securities Act
of 1933, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated, on May , 1998.

NAME AND SIGNATURE TITLE
- ------------------------------ --------------------------

Chairman of the Board,
/s/ PATRICK J. DIRK President and Chief
- ------------------------------ Executive Officer
Patrick J. Dirk (Principal Executive
Officer)

Chief Financial Officer,
/s/ DEL L. CONRAD Treasurer and Secretary
- ------------------------------ (Principal Financial and
Del L. Conrad Accounting Officer)

II-6
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- --------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1 Underwriting Agreement(2)....................................................................
1.2 Form of Representatives' Warrant(2)..........................................................
3.1 Certificate of Incorporation of the Company..................................................
3.2 Bylaws of the Company........................................................................
4.1 Warrant dated October 1, 1997 issued to Broadland Capital Partners...........................
5.1 Opinion of Oppenheimer Wolff & Donnelly LLP(2)...............................................
10.1 Lease dated March 16, 1995 between the Company and Ragco.....................................
10.2 Lease dated July 28, 1993 between Dirk Investments, Inc. and the Company.....................
10.3 Lease Amendment to Lease dated July 28, 1993 between Dirk Investments, Inc. and the
Company....................................................................................
10.4 Addendum to Lease dated March 16, 1995 between Dirk Investments, Inc. and the Company........
10.5 Lease Amendment to Lease dated September 1, 1996 between Dirk Investments, Inc. and the
Company....................................................................................
10.6 1996 Stock Option Plan.......................................................................
10.7 1998 Stock Incentive Plan(2).................................................................
10.8 Incentive Stock Option Agreement dated November 27, 1996 in favor of Robert Messina..........
10.9 Incentive Stock Option Agreement dated November 27, 1996 in favor of Brian Dirk..............
10.10 Non-Competition Agreement dated November 27, 1996 between Robert Messina and the Company.....
10.11 Consulting Agreement dated October 1, 1997 between the Company and Broadland Capital
Partners...................................................................................
10.12 Form of Indemnification Agreement for directors and executive officers of the Company........
10.13 Reseller Agreement dated April 1, 1996 between the Company and Hewlett-Packard Company(1)....
10.14 MICR Supplies Agreement dated February 6, 1998 between the Company and IBM Printing Systems
Company(1).................................................................................
10.15 Form of Tax Allocation and Indemnification Agreement by and between the Company and
Stockholders(2)............................................................................
10.16 Non-negotiable Promissory Note of the Company dated November 30, 1993, as amended November 1,
1995 and November 1, 1996..................................................................
10.17 Loan Agreement dated June 19, 1997 between the Company and Union Bank of California..........
10.18 First Amendment to Loan Agreement dated February 12, 1998 between the Company and Union Bank
of California..............................................................................
10.19 Promissory Note dated February 6, 1998 in favor of Union Bank of California..................
10.20 Promissory Note dated June 1997 in favor of Union Bank of California.........................
</TABLE>

II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- --------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
10.21 Security Agreement dated February 6, 1998 by the Subsidiary..................................
10.22 Second Amendment to Loan Agreement dated April 27, 1998 between the Company and Union Bank of
California.................................................................................
10.23 1998 Employee Stock Purchase Plan(2).........................................................
10.24 Letter dated October 3, 1997 to RAGCO from the Company.......................................
21.1 Subsidiaries of the Registrant...............................................................
23.1 Consent of McGladrey & Pullen, LLP, Independent Auditors.....................................
23.2 Consent of Oppenheimer Wolff & Donnelly LLP (included in Exhibit 5.1)........................
24.1 Power of Attorney (included on pages II-4 and II-5 hereto)...................................
27.1 Financial Data Schedule......................................................................
</TABLE>

- ------------------------

(2) To be filed by amendment.

II-8

<PAGE>

EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
TROY GROUP NEWCO, INC.

ARTICLE I.

The name of this corporation is Troy Group Newco, Inc. (the "Company").

ARTICLE II.

The address of its registered office in the State of Delaware is 1209
Orange Street, in the City of Wilmington, County of New Castle. The name of its
registered agent is The Corporation Trust Company.

ARTICLE III.

The purpose of the Company is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of
Delaware.

ARTICLE IV.

The aggregate number of shares of stock which the Company shall have
authority to issue is fifty-five million (55,000,000) shares, consisting of
fifty million (50,000,000) shares of common stock, $0.01 par value (the "Common
Stock"), and five million (5,000,000) shares of preferred stock, $0.01 par value
(the "Preferred Stock"). The Board of Directors is authorized to establish,
from the authorized shares of Preferred Stock, one or more classes or series of
shares, to designate each such class and series, and to fix the rights and
preferences of each such class and series. Without limiting the authority of
the Board of Directors granted hereby, each such class or series of Preferred
Stock shall have such voting powers (full or limited or no voting powers), such
preferences and relative, participating, optional or other special rights, and
such qualifications, limitations or restrictions as shall be stated and
expressed in the resolution or resolutions providing for the issue of such class
or series of Preferred Stock as may be adopted from time to time by the Board of
Directors prior to the issuance of any shares thereof. Except as provided in
the resolution or resolutions of the Board of Directors creating any series of
Preferred Stock, the shares of Common Stock shall have the exclusive right to
vote for the election and removal of directors and for all other purposes. Each
holder of Common Stock shall be entitled to one vote for each share held.

<PAGE>

ARTICLE V.

The name and mailing address of the incorporator is:

Name Mailing Address
---- ---------------

Deanna Counsell Oppenheimer Wolff & Donnelly LLP
45 South Seventh Street
Suite 3400
Minneapolis, MN 55402

ARTICLE VI.

Any action required or permitted to be taken at any annual or special
meeting of stockholders of the Company may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding voting
stock of the Company having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
Company by delivery to its registered office in Delaware, its principal place of
business, or an officer or agent of the Company having custody of the book in
which proceedings of meetings of stockholders are recorded.

ARTICLE VII.

In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, amend or repeal the
bylaws of the Company.

ARTICLE VIII.

The Company shall indemnify, to the fullest extent authorized or permitted
by law, as the same exists or may hereafter be amended, any person who was or is
made or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that such person is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of any other company, partnership, joint
venture, trust, employee benefit plan or other enterprise; provided, however,
that the Company shall not indemnify any director or officer in connection with
any action by such director or officer against the Company unless the Company
shall have consented to such action. The Company may, to the extent authorized
from time to time by the Board of Directors, provide rights to indemnification
to employees and agents of the Company similar to those conferred in this
Article VIII to directors and officers of the Company. No amendment or repeal
of this Article VIII shall apply to or have any

2
<PAGE>

effect on any right to indemnification provided hereunder with respect to any
acts or omission occurring prior to such amendment or repeal.

ARTICLE IX.

No director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty by such a
director as a director, except to the extent provided by applicable law (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
General Corporation Law of Delaware, or (iv) for any transaction from which such
director derived an improper personal benefit. If the General Corporation Law
of Delaware is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Company shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of Delaware as so amended. No amendment to or
repeal of this Article IX shall apply to or have any effect on the liability or
alleged liability of any director of the Company for or with respect to any acts
or omissions of such director occurring prior to such amendment or repeal.

ARTICLE X.

The Company reserves the right to amend, alter, change, or repeal any
provisions contained in this Certificate of Incorporation in the manner now or
hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.

ARTICLE XI.

Elections of directors need not be by written ballot unless the bylaws of
the Company shall so provide.

The undersigned being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, does hereby make this Certificate, hereby declaring
and certifying that this is the undersigned's act and deed and the facts
herein stated are true, and accordingly has hereunto set the undersigned's
hand this 21st day of April, 1998.

/s/ Deanna Counsell
--------------------------------------
Deanna Counsell, Incorporator

<PAGE>

EXHIBIT 3.2

BYLAWS
OF
TROY GROUP NEWCO, INC.
(hereinafter called the "Corporation")

ARTICLE I
OFFICES

SECTION 1. REGISTERED OFFICE. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.

SECTION 2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.

ARTICLE II
MEETINGS OF STOCKHOLDERS

SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.

SECTION 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders
shall be held on such date and at such time as shall be designated from time to
time by the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting.
Written notice of the Annual Meeting stating the place, date and hour of the
meeting shall be given to each stockholder entitled to vote at such meeting not
less than ten nor more than sixty days before the date of the meeting.

SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or
by the Certificate of Incorporation, Special Meetings of Stockholders, for any
purpose or purposes, may be called by either (i) the Chairman, if there be one,
or (ii) the President and/or the Chief Executive Officer, and shall be called by
any such officer at the request in writing of a majority of the Board of
Directors or at the request in writing of stockholders owning a majority of the
capital stock of the Corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting.
Written notice of a Special Meeting stating the place, date and hour of the
meeting and the purpose or purposes for which the meeting is called shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.

SECTION 4. QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to

<PAGE>

vote thereat, present in person or represented by proxy, shall constitute a
quorum at all meetings of the stockholders for the transaction of business. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder entitled to vote at the meeting.

SECTION 5. VOTING. Unless otherwise required by law, the
Certificate of Incorporation or these Bylaws, any question brought before any
meeting of stockholders shall be decided by the vote of the holders of a
majority of the stock represented and entitled to vote. Each stockholder
represented at a meeting of stockholders shall be entitled to cast one vote for
each share of the capital stock entitled to vote held by such stockholder. Such
votes may be cast in person or by proxy but no proxy shall be voted on or after
three years from its date, unless such proxy provides for a longer period. The
Board of Directors, in its discretion, or the officer of the Corporation
presiding at a meeting of stockholders, in his or her discretion, may require
that any votes cast at such meeting shall be cast by written ballot.

SECTION 6. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.

SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of
the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.

SECTION 8. STOCK LEDGER. The stock ledger of the Corporation shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by

2
<PAGE>

Section 7 of this Article II or the books of the Corporation, or to vote in
person or by proxy at any meeting of stockholders.

ARTICLE III
DIRECTORS

SECTION 1. NUMBER AND ELECTION OF DIRECTORS. The Board of
Directors shall consist of not less than one nor more than fifteen members, the
exact number of which shall initially be fixed by the Incorporator and
thereafter from time to time by the Board of Directors. Except as provided in
Section 2 of this Article, directors shall be elected by a plurality of the
votes cast at Annual Meetings of Stockholders, and each director so elected
shall hold office until the next Annual Meeting and until his or her successor
is duly elected and qualified, or until his or her earlier resignation or
removal. Any director may resign at any time upon notice to the Corporation.
Directors need not be stockholders.

SECTION 2. VACANCIES. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and
qualified, or until their earlier resignation or removal.

SECTION 3. DUTIES AND POWERS. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.

SECTION 4. MEETINGS. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, the President and/or the Chief Executive Officer
or any two directors. Notice thereof stating the place, date and hour of the
meeting shall be given to each director either by mail not less than forty-eight
(48) hours before the date of the meeting, by telephone, facsimile or telegram
on twenty-four (24) hours' notice, or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.

SECTION 5. QUORUM. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these Bylaws, at all
meetings of the Board of Directors, a majority of the entire Board of Directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.

3
<PAGE>

SECTION 6. ACTIONS OF BOARD. Unless otherwise provided by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.

SECTION 7. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Certificate of Incorporation or these Bylaws, members
of the Board of Directors of the Corporation, or any committee designated by the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this Section 7 shall
constitute presence in person at such meeting.

SECTION 8. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members present at any meeting and not disqualified from voting,
whether or not he, she or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board if Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.

SECTION 9. COMPENSATION. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.

SECTION 10. INTERESTED DIRECTORS. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his, her or their
votes are counted for such purpose if (i) the material facts as to his, her or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or

4
<PAGE>

committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his, her or their relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.

ARTICLE IV
OFFICERS

SECTION 1. GENERAL. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President and Chief Executive
Officer, a Secretary and a Chief Financial Officer. The Board of Directors, in
its discretion, may also choose a Chairman of the Board of Directors (who must
be a director) and one or more Vice Presidents, Assistant Secretaries, Assistant
Financial Officers and other officers. Any number of offices may be held by the
same person, unless otherwise prohibited by law, the Certificate of
Incorporation or these Bylaws. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board of Directors, need such officers be directors of the Corporation.

SECTION 2. ELECTION. The Board of Directors at its first meeting
held after each Annual Meeting of Stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.

SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President and Chief Executive Officer or
any Vice President and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to vote
in person or by proxy at any meeting of security holders of any corporation in
which the Corporation may own securities and at any such meeting shall possess
and may exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have exercised
and possessed if present. The Board of Directors may, by resolution, from time
to time confer like powers upon any other person or persons.

SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, if there be one, shall reside at all meetings of the
stockholders and of the Board of Directors. He or she shall be the chief
executive officer of the Corporation, and except where by

5
<PAGE>

law the signature of the President and Chief Executive Officer is required, the
Chairman of the Board of Directors shall possess the same power as the President
and Chief Executive Officer to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President and Chief
Executive Officer, the Chairman of the Board of Directors shall exercise all the
powers and discharge all the duties of the President and Chief Executive
Officer. The Chairman of the Board of Directors shall also perform such other
duties and may from time to time exercise such other powers as from time to time
may be assigned to him or her by these Bylaws or by the Board of Directors.

SECTION 5. PRESIDENT AND CHIEF EXECUTIVE OFFICER. The President
and Chief Executive Officer shall, subject to the control of the Board of
Directors and, if there be one, the Chairman of the Board of Directors, have
general supervision of the business of the Corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect. He
or she shall execute all bonds, mortgages, contracts and other instruments of
the Corporation requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed and
except that the other officers of the Corporation may sign and execute documents
when so authorized by these Bylaws, the Board of Directors or the President and
Chief Executive Officer. In the absence or disability of the Chairman of the
Board of Directors, or if there be none, the President and Chief Executive
Officer shall preside at all meetings of the stockholders and the Board of
Directors. If there be no Chairman of the Board of Directors, the President and
Chief Executive Officer shall be the chief executive officer of the Corporation.
The President and Chief Executive Officer shall also perform such other duties
and may exercise such other powers as from time to time may be assigned to him
or her by these Bylaws or by the Board of Directors.

SECTION 6. VICE PRESIDENTS. At the request of the President and
Chief Executive Officer or in his or her absence or in the event of his or her
inability or refusal to act (and if there be no Chairman of the Board of
Directors), the Vice President or the Vice Presidents if there is more than one
(in the order designated by the Board of Directors) shall perform the duties of
the President and Chief Executive Officer, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the President and
Chief Executive Officer. Each Vice President shall perform such other duties
and have such other powers as the Board of Directors from time to time may
prescribe. If there be no Chairman of the Board of Directors and no Vice
President, the Board of Directors shall designate the officer of the Corporation
who, in the absence of the President and Chief Executive Officer or in the event
of the inability or refusal of the President and Chief Executive Officer to act,
shall perform the duties of the President and Chief Executive Officer, and when
so acting, shall have all the powers of and be subject to all the restrictions
upon the President and Chief Executive Officer.

SECTION 7. SECRETARY. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President and Chief Executive Officer, under whose supervision he or she
shall be. If the Secretary shall be unable or shall refuse to

6
<PAGE>

cause to be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, and if there be no Assistant Secretary, then
either the Board of Directors or the President and Chief Executive Officer may
choose another officer to cause such notice to be given. The Secretary shall
have custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his or her signature. The
Secretary shall see that all books, reports, statements, certificates and other
documents and records required by law to be kept or filed, are properly kept or
filed, as the case may be.

SECTION 8. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall have the custody of the corporate funds and securities and shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. The Chief Financial Officer shall disburse the funds
of the Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the President and Chief
Executive Officer and the Board of Directors, at its regular meetings, or when
the Board of Directors so requires, an account of all his or her transactions as
Chief Financial Officer and of the financial condition of the Corporation. If
required by the Board of Directors, the Chief Financial Officer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his or her office and for the restoration to the Corporation, in case
of his or her death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his or her
possession or under his or her control belonging to the Corporation.

SECTION 9. ASSISTANT SECRETARIES. Except as may be otherwise
provided in these Bylaws, Assistant Secretaries, if there be any, shall perform
such duties and have such powers as from time to time may be assigned to them by
the Board of Directors, the President and Chief Executive Officer, any Vice
President, if there be one, or the Secretary, and in the absence of the
Secretary or in the event of his or her disability or refusal to act, shall
perform the duties of the Secretary, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Secretary.

SECTION 10. ASSISTANT FINANCIAL OFFICERS. Assistant Financial
Officers, if there be any; shall perform such duties and have such powers as
from time to time may be assigned to them by the Board of Directors, the
President and Chief Executive Officer, any Vice President, if there be one, or
the Chief Financial Officer, and in the absence of the Chief Financial Officer
or in the event of his or her disability or refusal to act, shall perform the
duties of the Chief Financial Officer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Chief Financial
Officer. If required by the Board of Directors, an Assistant Financial Officers
shall give the Corporation a bond in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties of his or her office and for the restoration to the Corporation,
in case of his or her death, resignation, retirement or

7
<PAGE>

removal from or her office, of all books, papers, vouchers, money and other
property of whatever kind in his or her possession or under his or her control
belonging to the Corporation.

SECTION 11. OTHER OFFICERS. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.

ARTICLE V
STOCK

SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President and
Chief Executive Officer or a Vice President and (ii) by the Chief Financial
Officer or an Assistant Financial Officer, or the Secretary or an Assistant
Secretary of the Corporation, certifying the number of shares owned by him, her
or it in the Corporation.

SECTION 2. SIGNATURES. Where a certificate is countersigned by (i)
a transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he, she or it were such officer, transfer agent or registrar
at the date of issue.

SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his, her or its legal representative, to advertise the same in
such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.

SECTION 4. TRANSFERS. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these Bylaws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by his, her or its attorney lawfully constituted in writing
and upon the surrender of the certificate therefor, which shall be cancelled
before a new certificate shall be issued.

SECTION 5. RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment

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<PAGE>

thereof, or entitled to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty days nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.

SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.

ARTICLE VI
NOTICES

SECTION 1. NOTICES. Whenever written notice is required by law,
the Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his or her
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States mail. Written notice may also be given
personally or by facsimile, telegram, telex, e-mail or cable.

SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by
law, the Certificate of Incorporation or these Bylaws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.

ARTICLE VII
GENERAL PROVISIONS

SECTION 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.

9
<PAGE>

SECTION 2. DISBURSEMENTS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.

SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall
be fixed by resolution of the Board of Directors.

SECTION 4. CORPORATE SEAL. The Corporation may, but need not,
have a corporate seal. In the event the Corporation has a seal, the seal
need not be affixed for any contract, resolution or other document executed
by or on behalf of the Corporation to be valid and duly authorized.

ARTICLE VIII
INDEMNIFICATION

SECTION 1. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS
OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of
this Article VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he or she is or was a director, officer, employee or
agent of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her in connection with such action, suit or proceeding if he or she
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
any criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.

SECTION 2. POWER TO INDEMNIFY IN ACTIONS, SUITS OR PROCEEDINGS BY
OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII,
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he or she is or was a director, officer, employee or
agent of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection with the defense or
settlement of such action or suit if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation; except that no

10
<PAGE>

indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.

SECTION 3. AUTHORIZATION OF INDEMNIFICATION. Indemnification under
this Article VIII (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection therewith, without the necessity of
authorization in the specific case.

SECTION 4. GOOD FAITH DEFINED. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Corporation, or, with respect to any criminal
action or proceeding, to have had no reasonable cause to believe his or her
conduct was unlawful, if his or her action is based on the records or books of
account of the Corporation or another enterprise, or on information supplied to
him or her by the officers of the Corporation or another enterprise in the
course of their duties, or on the advice of legal counsel for the Corporation or
another enterprise or on information or records given or reports made to the
Corporation or another enterprise by an independent certified public accountant
or by an appraiser or other expert selected with reasonable care by the
Corporation or another enterprise. The term "another enterprise" as used in
this Section 4 shall mean any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise of which such person
is or was serving at the request of the Corporation as a director, officer,
employee or agent. The provisions of this Section 4 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth in Sections 1 or
2 of this Article VIII, as the case may be.

SECTION 5. INDEMNIFICATION BY A COURT. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director, officer, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of
such indemnification by a court shall be a determination by such court that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he or she has met the applicable standards of

11
<PAGE>

conduct set forth in Sections 1 or 2 of this Article VIII, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article VIII nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director, officer, employee
or agent seeking indemnification has not met any applicable standard of conduct.
Notice of any application for indemnification pursuant to this Section 5 shall
be given to the Corporation promptly upon the filing of such application. If
successful, in whole or in part, the director, officer, employee or agent
seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.

SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding, upon receipt of an
undertaking by or on behalf of such director, officer, employee or agent to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the Corporation as authorized in this Article
VIII.

SECTION 7. NONEXCLUSIVITY OF INDEMNIFICATION AND ADVANCEMENT OF
EXPENSES. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of any
court of competent jurisdiction or otherwise, both as to action in his or her
official capacity and as to action in another capacity while holding such
office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by law. The provisions of this Article VIII shall not
be deemed to preclude the indemnification of any person who is not specified in
Sections 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware, or otherwise.

SECTION 8. INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Corporation would have the power or the
obligation to indemnify him or her against such liability under the provisions
of this Article VIII.

SECTION 9. CERTAIN DEFINITIONS. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was a director or officer or such constituent corporation serving at the request
of such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other

12
<PAGE>

enterprise, shall stand in the same position under the provisions of this
Article VIII with respect to the resulting or surviving corporation as he or she
would have with respect to such constituent corporation if its separate
existence had continued. For purposes of this Article VIII, references to
"fines" shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or agent
of the Corporation which imposes duties on, or involves services by, such
director, officer, employee or agent with respect to an employee benefit plan,
its participants or beneficiaries; and a person who acted in good faith and in a
manner he or she reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VIII.

SECTION 10. SURVIVAL OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES.
The Indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VIII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.

ARTICLE IX
AMENDMENTS

SECTION 1. These Bylaws may be altered, amended or repealed, in
whole or in part, or new Bylaws may be adopted by the stockholders or by the
Board of Directors; provided, however, that notice of such alteration,
amendment, repeal or adoption of new Bylaws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. All such
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.

SECTION 2. ENTIRE BOARD OF DIRECTORS. As used in this Article IX
and in these Bylaws generally, the term "entire Board of Directors" means the
total number of directors which the Corporation would have if there were no
vacancies.

<PAGE>

EXHIBIT 4.1

WARRANT

TO PURCHASE COMMON STOCK OF

TROY SYSTEMS INC.

This is to certify that Broadland Capital Partners or registered assigns,
is entitled to purchase from Troy Systems Inc., a California corporation, up to
300,000 Stock Units, in whole or in part, at the purchase prices per Stock Unit
and, all on the terms and conditions and pursuant to the provisions hereinafter
provided, and pursuant to the provisions of a certain Consulting Agreement dated
effective as of October 1, 1997 between Broadland Capital Partners and Troy
Systems Inc. (the "Consulting Agreement").

This Warrant is granted pursuant to the Consulting Agreement in order to
incentivise Broadland Capital Partners, through its principal, Morgan Payne, to
perform significant services in assisting the Company in achieving three
important corporate goals (collectively hereinafter referred to as the "Goals")
as follows:

(a) To become a publicly owned company either through an initial public
offering of shares (the "IPO") or a merger with an already public
entity, (or otherwise) within twelve (12) months after the date of
this Agreement (the "First Goal");
(b) to successfully increase the value of its shares when publicly owned
to a point where, in any ten day period within twenty-four (24) months
after the shares of the Company become publicly owned, the average
price per share of the publicly owned shares over such ten (10) day
period is two hundred percent (200%) of the initial public price of
such shares (the "Second Goal"); and
(c) within twenty-four (24) months after the shares of the Company become
publicly owned, to acquire entities having an aggregate annual revenue
of Fifteen Million Dollars ($15,000,000) (the "Third Goal").

N.B. The Second and Third Goals are not sequential and have no
chronological priority between them, though it obviously would be
preferable to have the stock price as high as possible prior to
engaging in acquisitions.

The nature of this Warrant is as follows:

(i) The Warrant shall be to purchase shares of the Company's common stock
at a price of $3.50 per share (the "Warrant Price").

(ii) NUMBER OF STOCK UNITS SUBJECT TO WARRANT: This Warrant grants to
Broadland the right to purchase up to 210,000 shares of the Company's
common stock at the Warrant Price if the aggregate outstanding number
of shares equals three (3) million to five (5) million shares at the
time the Company becomes a publicly owned entity and up to 300,000
shares if the aggregate outstanding number of shares exceeds five (5)
million shares at such time.

(iii) THE WARRANT SHALL VEST AS FOLLOWS:

EXHIBIT A

<PAGE>

(a) This Warrant shall first have force, life and effect at the time
when the Company shall first become a publicly owned entity
either through the closing of an IPO or the closing of a merger
with an already public entity or otherwise;
(b) At the time the Company achieves its First Goal, one-third (1/3)
of the Warrant, or a Warrant to purchase 66,666 or 100,000 Stock
Units, (as the case may be subject to subsection (ii) above)
shall vest immediately;
(c) at the time the Company achieves its Second Goal, an additional
one-third (1/3) of the Warrant, or a Warrant to purchase an
additional 66,666 or 100,000 Stock Units, as the case may be,
shall vest immediately; and
(d) at the time the Company achieves its Third Goal, an additional
one-third (1/3) of the Warrant or a Warrant to purchase an
additional 66,667 or 100,000 Stock Units, as the case may be,
shall vest immediately.

(iv) The Warrants must be exercised within five (5) years after they vest
or, thereafter, they shall expire and become null and void.

DEFINITIONS

The terms defined in this Section, whenever used in this Warrant, shall, unless
the context otherwise requires, have the respective meanings hereinafter
specified.

"Commission" shall mean the Securities and Exchange Commission, or any
federal agency then administering the Securities Act.

"Common Stock" shall mean the Company's authorized Common Stock as
constituted on the date the Company first becomes an publicly owned entity,
and any stock into which such Common Stock may thereafter be changed, and
shall also include stock of the Company of any other class, which is not
preferred as to dividends or assets over any other class of stock of the
Company and which is not subject to redemption, issued to the holders of
shares of Common Stock upon any reclassification thereof.

"Company" shall mean Troy Systems Inc., a California corporation, and any
successor corporation by merger, consolidation or otherwise.

"Consultant" shall mean Broadland Capital Partners.

"Consulting Agreement" shall mean the Consulting Agreement dated effective
as of October 1, 1997 between the Company and the Consultant pursuant to
which this Warrant has been issued.

"Current Warrant Price" per share of Common Stock, for the purpose of any
provision of this Warrant at the date herein specified, shall mean the
amount equal to the quotient resulting from dividing the purchase price per
Stock Unit as provided above by the number of shares (including any
fractional share) of Common Stock comprising a Stock Unit on such date.

"Fair Market Value" means, with respect to the Company's Common Stock, as
of any date:

(a) if the Common Stock is listed or admitted to unlisted trading
privileges on any national securities exchange or is not so
listed or admitted but transactions in the Common Stock are
reported on the Nasdaq National Market System, the reported

2
<PAGE>

closing price of the Common Stock on such exchange or by the
Nasdaq National Market System as of such date (or, if no shares
were traded on such day, as of the next preceding day on which
there was such a trade); or

(b) if the Common Stock is not so listed or admitted to unlisted
trading privileges or reported on the Nasdaq National Market
System, and bid and asked prices therefor in the
over-the-counter market are reported by Nasdaq or National
Quotation Bureau, Inc. (or any comparable reporting service),
the mean of the closing bid and asked prices as of such date, as
so reported by Nasdaq, or, if not so reported thereon, as
reported by National Quotation Bureau, Inc. (or such comparable
reporting service); or

(c) if the Common Stock is not so listed or admitted to unlisted
trading privileges, or reported on the Nasdaq National Market
System, and such bid and asked prices are not so reported by
Nasdaq or National Quotation Bureau, Inc. (or any comparable
reporting service), such price as the Company's Board of
Directors determines in good faith in the exercise of its
reasonable discretion.

"Outstanding" when used with reference to Common Stock shall mean, at any
date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for
the account of the Company.

"Person" shall mean an individual, a corporation a partnership, a trust, an
unincorporated organization or a government or any agency or political
subdivision thereof.

"Securities Act" shall mean the Securities Act of 1933, or any similar
federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.

"Stock Unit" shall mean one share of Common Stock as such stock was
constituted on the date that the Company shall first become a publicly
owned entity, and thereafter shall mean such number of shares (including
any fractional shares) of Common Stock as shall result from the adjustments
specified in Section III hereof.

"Warrants" shall mean this Warrant dated effective as of October 1, 1997,
originally issued by the Company, and all Warrants issued upon transfer,
division or combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and conditions and
date, and any Warrant issued in exchange or substitution for any other
Warrant shall bear the same expiration date as such other Warrant.

"Warrant Price" shall mean $3.50 per share.

"Warrant Stock" shall mean the shares of Common Stock purchasable by the
holders of the Warrants upon the exercise thereof.

SECTION I
EXERCISE OF WARRANT

A. MANNER OF EXERCISE. The rights represented by this Warrant may be exercised
by the holder, in whole or in part (but not as to a fractional share), by
written notice of exercise delivered to the

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<PAGE>

Company accompanied by the surrender of this Warrant (properly endorsed if
required) at the principal office of the Company and upon payment to it, by
cash, certified check or bank draft, of the Warrant Price for such shares.
In addition, the holder may elect to pay the full purchase price by
receiving a number of shares of Common Stock computed using the following
formula:

X = Y(A-B)
------
A

Where: X = the number of shares of Common Stock to be issued to the
holder.

Y = the number of shares of Common Stock as to which this
Warrant is being exercised.

A = the Fair Market Value of one share of Common Stock.

B = Warrant Price.

The Company agrees that the Warrant Stock so purchased shall be and are
deemed to be issued as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such Warrant Stock
as aforesaid. Certificates for the shares of the Warrant Stock so
purchased shall be delivered to the holder within 15 days after the rights
represented by this Warrant shall have been so exercised, and, unless this
Warrant has expired, a new Warrant representing the number of Warrant
Stock, if any, with respect to which this Warrant has not been exercised
shall also be delivered to the holder within such time.

B. PAYMENT OF TAXES, ETC. All shares of Warrant Stock issuable upon the
exercise of this Warrant shall be validly issued, fully paid and
nonassessable, and the Company shall pay all expenses in connection with,
and all taxes and other governmental charges that may be imposed in respect
of, the issue or delivery thereof. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for shares of Warrant
Stock in any name other than that of the registered holder of this Warrant,
and in such case the Company shall not be required to issue or deliver any
stock certificate until such tax or other charge has been paid or it has
been established to the Company's satisfaction that no such tax or other
charge is due.

C. FRACTIONAL SHARES. The Company shall not be required to issue a fractional
share of stock upon any exercise of any Warrant. As to any final fraction
of a share which the holder of one or more Warrants, the rights under which
are exercised in the same transaction, would otherwise be entitled to
purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to the same fraction of
the Current Warrant Price per share of Common Stock on the business day
which next precedes the day of exercise.

SECTION II
TRANSFER, DIVISION AND COMBINATION

This Warrant and all rights hereunder are transferable, in whole or in
part, on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at its office in the City of

4
<PAGE>

Santa Ana, State of California, or elsewhere in the State of California
maintained for the purpose pursuant to Section VIII, together with a written
assignment of this Warrant duly executed by the holder hereof or his agent or
attorney and payment of funds sufficient to pay any stock transfer taxes payable
upon the making of such transfer. Upon such surrender and payment the Company
shall, execute and deliver a new Warrant or Warrants in the name of the assignee
or assignees and in the denominations specified in such instrument of
assignment, and this Warrant shall promptly be canceled. If and when this
Warrant is assigned in blank, the Company may (but shall not be obliged to)
treat the bearer hereof as the absolute owner of this Warrant for all purposes
and the Company shall not be affected by any notice to the contrary. A Warrant
may be exercised by a new holder for the purchase of shares of Common Stock
without having a new Warrant issued.

This Warrant may be divided or combined with other Warrants upon
presentation hereof at the principal executive office of the Company, or at the
aforesaid office or agency of the Company together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the holder hereof or his agent or attorney. Subject to compliance with
the preceding paragraph as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.

The Company shall pay all expenses, taxes (other than stock transfer taxes)
and other charges payable in connection with the preparation, issue and delivery
of Warrants under this Section.

The Company agrees to maintain, at its aforesaid office, books for the
registration and transfer of the Warrants.

SECTION III
ADJUSTMENT OF STOCK UNIT OR EXERCISE PRICE

Adjustments contemplated by this Section III will only be made with respect
to such events occuring after the closing of the IPO or the merger, as the case
may be. The number of shares of Common Stock comprising a Stock Unit of Warrant
Stock, or the price at which a Stock Unit of Warrant Stock may be purchased upon
exercise of this Warrant, shall be subject to adjustment from time to time as
set forth in this Section.

A. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In case at any time or from
time to time the Company shall

(1) take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend payable in, or other
distribution of, Common Stock, or
(2) subdivide its outstanding shares of Common Stock into a larger number
of shares of Common Stock, or
(3) combine its outstanding shares of Common Stock into a smaller number
of shares of Common

then the number of shares of Common Stock comprising a Stock Unit of
Warrant Stock immediately after the happening of any such event shall
be adjusted so as to consist of the number of shares of Common Stock
which a record holder of the number of shares Common Stock comprising
a Stock Unit immediately prior to the happening of such event would
own or be entitled to receive after the happening of such event.

5
<PAGE>

B. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION. The
following provisions shall be applicable to the making of adjustments of
the number of shares of Common Stock comprising a Stock Unit hereinbefore
provided for in this Section:

(1) TREASURY STOCK. The sale or other disposition of any issued shares of
Common Stock owned or held by or for the account of the Company shall
not be deemed an issuance thereof for any purpose of this Section
except in the case of a dividend payable in, or other distribution
of, such shares to holders of Common Stock of the Company, in which
case an adjustment shall be made under Subsection A of this Section.

(2) FRACTIONAL INTERESTS. In computing adjustments under this Section,
fractional interests in Common Stock shall be taken into account to
the nearest one-thousandth of a share.

C. MERGER, CONSOLIDATION OR DISPOSITION OF ASSETS. In case the Company shall
merge or consolidate into another corporation, or shall sell, transfer or
otherwise dispose of all or substantially all of its property, assets or
business to another corporation and pursuant to the terms of such merger,
consolidation or disposition of assets, shares of common stock of the
successor or acquiring corporation are to be received by or distributed to
the holders of Common Stock of the Company, then each holder of a Warrant
shall have the right thereafter to receive, upon exercise of such Warrant,
Stock Units each comprising the number of shares of common stock of the
successor or acquiring corporation receivable upon or as a result of such
merger, consolidation or disposition of assets by a holder of the number of
shares of Common Stock comprising a Stock Unit immediately prior to such
event. If pursuant to the terms of such merger, consolidation or
disposition of assets, any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription
or purchase rights) are to be received by or distributed to the holders of
Common Stock of the Company in addition to common stock of the successor or
acquiring corporation, there shall be a reduction of the purchase price per
Stock Unit equal to the amount applicable to the number of shares of Common
Stock then comprising a Stock Unit of any such cash and of the fair value
(as determined in good faith by the Board of Directors of the Company) of
any and all such shares of stock or other securities or property to be
received by or distributed to the holders of Common Stock of the Company.
In case of any such merger, consolidation or disposition of assets, the
successor or acquiring corporation shall expressly assume the due and
punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and
all of the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined by resolution of
the Board of Directors of the Company) in order to provide for adjustments
of Stock Units which shall be as nearly equivalent as practicable to the
adjustments provided for in this Section. For the purposes of this Section
"common stock of the successor or acquiring corporation" shall include
stock of such corporation of any class, which is not preferred as to
dividends or assets over any other class of stock of such corporation and
which is not subject to redemption, and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible
into or exchangeable for any such stock, either immediately or upon the
arrival of a specified date or the happening of a specified event, and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Subsection shall similarly apply to successive
mergers, consolidations or dispositions of assets.

D. OTHER ACTION AFFECTING COMMON STOCK. In case at any time or from time to
time the Company shall take any action affecting its Common Stock, other
than an action described in any of the foregoing

6
<PAGE>

Subsections A to C, inclusive, of this Section, then, unless in the opinion
of the Board of Directors of the Company such action will not have a
materially adverse effect upon the rights of the holders of the Warrants,
the number of shares of Common Stock or other stock comprising a Stock
Unit, or the purchase price thereof, shall be adjusted in such manner and
at such time as the Board of Directors of the Company may in good faith
determine to be equitable in the circumstances.

SECTION IV
NOTICES TO WARRANT HOLDERS

NOTICE OF ADJUSTMENT OF STOCK UNIT OR EXERCISE PRICE. Whenever the number of
shares of Common Stock comprising a Stock Unit, or the price at which a Stock
Unit may be purchased upon exercise of the Warrants, shall be adjusted pursuant
to Section III, the Company shall forthwith obtain a certificate signed by the
Company setting forth, in reasonable detail, the event requiring the adjustment
and the method by which such adjustment was calculated (including a description
of the basis on which the Board of Directors of the Company determined the fair
value of any evidences of indebtedness, shares of stock or, other securities
specifying the number of shares of Common Stock comprising a Stock Unit and (if
such adjustment was made pursuant to Section IIIC or Section IIID) describing
the number and kind of any other shares of stock comprising a Stock Unit, and
any change in the purchase price or prices thereof, after giving effect to such
adjustment or change. The Company shall promptly, and in any case within 45 days
after the making of such adjustment, cause a signed copy of such certificate to
be delivered to each holder of a Warrant in accordance with Section IX. The
Company shall keep at its office in Santa Ana, State of California, or elsewhere
in the State of California, maintained for the purpose pursuant to Section VIII,
copies of all such certificates and cause the same to be available for
inspection said office during normal business hours by any holder of a Warrant
or any prospective purchaser of a Warrant designated by a holder thereof.

SECTION V
RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL
AUTHORITY

The Company shall at all times reserve and keep available for issue upon
the exercise of Warrants such number of its authorized but unissued shares of
Common Stock as will be sufficient to permit the exercise in full of all
outstanding Warrants. All shares of Common Stock, which shall be so issuable,
shall, when issued upon exercise of any Warrant, be duly and validly issued and
fully paid and nonassessable.

Before taking any action which would result in an adjustment in the number
of shares of Common Stock comprising a Stock Unit or in the current Warrant
Price per share of Common Stock, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.

If any shares of Common Stock required to be reserved for issue upon
exercise of Warrants require registration with any governmental authority under
any federal or state law before such shares may be so issued, the Company will
in good faith and as expeditiously as possible endeavor to cause such shares to
be duly registered.

7
<PAGE>

SECTION VI
TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS

In the case of all dividends or other distributions by the Company to the
holders of its Common Stock with respect to which any provision of Section III
refers to the taking of a record of such holders, the Company will in each such
case take such a record and will take such record as of the close of business on
a business day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.

SECTION VII
LOSS OR MUTILATION

Upon receipt by the Company of evidence satisfactory to it (in the exercise
of reasonable discretion) of the ownership of and the loss, theft, destruction
or mutilation of this Warrant and (in case of loss, theft or destruction) of
indemnity satisfactory to it (in the exercise of reasonable discretion), and in
case of mutilation upon surrender and cancellation hereof, the Company will
execute and deliver in lieu hereof a new Warrant of like tenor.

SECTION VIII
OFFICE OF THE COMPANY

As long as any of the Warrants remain outstanding, the Company shall
maintain an office in the City of Santa Ana, State of California, or elsewhere
in the State of California, where the Warrants may be presented for exercise,
transfer, division or combination as in this Warrant provided. Such office shall
be the principal executive office of the Company specified in Section IX unless
and until the Company shall designate and maintain some other office for such
purposes and give written notice thereof to the holders of all outstanding
Warrants.

SECTION IX
NOTICES GENERALLY

Any notice, demand or delivery pursuant to the provisions hereof shall be
sufficiently given or made if sent by first class mail, postage prepaid,
addressed to any holder of a Warrant at his last known address appearing on the
books of the Company, or, except as herein otherwise expressly provided, to the
Company at its principal executive office, 2331 Pullman Street, Santa Ana,
California 92705, Attention: Patrick J. Dirk, Chief Executive Officer, or such
other address as shall have been furnished to the party giving or making such
notice, demand or delivery.

SECTION X
LIMITATION OF LIABILITY

No provision hereof, in the absence of affirmative action by the holder
hereof to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give

8
<PAGE>

rise to any liability of such holder for the purchase price or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.

SECTION XI

This Warrant shall be governed by the laws of the State of Delaware.

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and its corporate seal to be impressed hereon and attested by its Secretary or
an Assistant Secretary.
Dated:

TROY SYSTEMS INC.

BY: /s/Patrick J. Dirk
----------------------------------------
Patrick J. Dirk, Chief Executive Officer
Attest:

/s/Mary Dirk
- ------------------------------
Secretary
[Seal]

9
<PAGE>

SUBSCRIPTION FORM

(To be executed only upon exercise of Warrant)

The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for and purchases _________ of the number of Stock Units of TROY SYSTEMS
INC., purchasable with this Warrant, and herewith makes payment therefor, all at
the price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to ________________________________ whose address is
_______________________ and, if such Stock Unites shall not include all of the
Stock Units issuable as provided in this Warrant, that a new Warrant of like
tenor and date for the balance of the Stock Units issuable thereunder be
delivered to the undersigned.

Dated:
----------------------------

-----------------------------------
(Signature of Registered Owner)

-----------------------------------
(Street Address)

-----------------------------------
(City) (State) (Zip Code)

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<PAGE>

ASSIGNMENT FORM

FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of Stock Units
set forth below:

Name and Address of Assignee No. of Stock Units
- ---------------------------- ------------------

and does hereby irrevocably constitute and appoint _____________________
Attorney to make such transfer on the books of TROY SYSTEMS INC., maintained for
the purpose, with full power of substitution in the premises.

Dated:
----------------------

-----------------------------------
(Signature)

-----------------------------------
(Witness)

NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.

The signature to this assignment must be guaranteed by a bank or
trust company having an officer or correspondent in Santa Ana, California, or by
a firm having membership on a national securities exchange.

<PAGE>

Exhibit 10.1

CALIFORNIA CHAPTERS OF THE
SOCIETY OF INDUSTRIAL AND OFFICE REALTORS,-Registered Trademark- INC.

INDUSTRIAL REAL ESTATE LEASE
(SINGLE-TENANT FACILITY)

ARTICLE ONE: BASIC TERMS

This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of
the Lease referred to in this Article One explain and define the Basic Terms
and are to be read in conjunction with the Basic Terms.

Section 1.01. DATE OF LEASE: March 16, 1995

Section 1.02. LANDLORD (INCLUDE LEGAL ENTITY): Ragco, a general
partnership

Address of Landlord: 881 Dover Dr., Suite 14, Newport Beach, CA 92663

Section 1.03. TENANT (INCLUDE LEGAL Entity): Troy Division - Pierce
Companies, Inc.

Attn: Brian Dirk

Address of Tenant: 2331 S. Pullman Ave., Santa Ana, CA 92705

Section 1.04. PROPERTY: (include street address, approximate square
footage and description) 2331 S. Pullman Ave., Santa Ana, CA 92705;
consisting of approximately 37,181 Sq. Ft. - sprinklered

Section 1.05. LEASE TERM: THREE years NO months BEGINNING ON MAY 1,
1995 or such other date as is specified in this Lease, and ENDING ON April 30,
1998

Section 1.06. PERMITTED USES: (See Article Five) Electrical and Machine
Assembly, Engineering, and Systems Marketing and other lawful uses or other
similar uses.

Section 1.07. TENANT'S GUARANTOR: (If none, so state) None

Section 1.08. BROKERS: (See Article Fourteen) (If none, so state)
Landlord's Broker: None
Tenant's Broker: None

Section 1.09. COMMISSION PAYABLE TO LANDLORD'S BROKER: (See Article
Fourteen) $ N/A

<PAGE>

Section 1.10. INITIAL SECURITY DEPOSIT: (See Section 3.03) $ n/a

Section 1.11. VEHICLE PARKING SPACES ALLOCATED TO TENANT: All surrounding
parking.

Section 1.12. RENT AND OTHER CHARGES PAYABLE BY TENANT:

(a) BASE Rent: Thirteen Thousand Thirteen Dollars and Thirty-Five Cents
($13,013.35) per month for the first thirty-six months, as provided in Section
3.01.

(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes (See Section 4.02);
(ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See Section 4.04);
(iv) Impounds for Insurance Premiums and Property Taxes (See Section 4.07); (\v)
Maintenance, Repairs and Alterations (See Article Six).

Section 1.13. LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR SUBLEASE: (See
Section 9.05) 0 percent ( 0 %) of the Profit (the "Landlord's Share").

Section 1.14. Riders: The following Riders are attached to and made a part
of this Lease: (If none, so state)
I. Option to Extend Term

ARTICLE TWO: LEASE TERM

Section 2.01. LEASE OF PROPERTY FOR LEASE TERM. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and shall
begin and end on the dates specified in Section 1.05 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.05 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.

Sections 2.02 and 2.03 - Deleted.

Section 2.04. HOLDING OVER. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the Property. If Tenant does not vacate the
Property upon the expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall be
a "month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent then in effect shall be
increased by ten percent (10%).

ARTICLE THREE: BASE RENT

Section 3.01. TIME AND MANNER OF PAYMENT. Upon execution of this Lease,
Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph
1.12(a) above for the first

2
<PAGE>

month of the Lease Term. On the first day of the second month of the Lease
Term and each month thereafter, Tenant shall pay Landlord the Base Rent, in
advance, without offset, deduction or prior demand. The Base Rent shall be
payable at Landlord's address or at such other place as Landlord may
designate in writing.

Section 3.02, Section 3.03 and Section 3.04 - Deleted.

ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT

Section 4.01. ADDITIONAL RENT. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.

Section 4.02. PROPERTY TAXES.

(a) REAL PROPERTY TAXES. Tenant shall pay all real property taxes on the
Property (including any fees, taxes or assessments against, or as a result of,
any tenant improvements installed on the Property by or for the benefit of
Tenant) during the Lease Term. Subject to Paragraph 4.02(c) and Section 4.07
below, such payment shall be made at least ten (10) days prior to the
delinquency date of the taxes. Within such ten (10) -day period, Tenant shall
furnish Landlord with satisfactory evidence that the real property taxes have
been paid. Landlord shall reimburse Tenant for any real property taxes paid by
Tenant covering any period of time prior to or after the Lease Term. If Tenant
fails to pay the real property taxes when due, Landlord may pay the taxes and
Tenant shall reimburse Landlord for the amount of such tax payment as Additional
Rent.

(b) DEFINITION OF "REAL PROPERTY TAX." "Real property tax" means: (i) any
fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property; (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against Landlord's business of leasing
the Property; (iii) any tax or charge for fire protection, streets, sidewalks,
road maintenance, refuse or other services provided to the Property by any
governmental agency; and (v) any charge or fee replacing any tax previously
included within the definition of real property tax. "Real property tax" does
not, however, include Landlord's federal or state income, franchise, inheritance
or estate taxes.

Section 4.02(b)(iv) deleted.

Section (c) deleted.

(d) PERSONAL PROPERTY TAXES.

3
<PAGE>

(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the Property.

(ii) If any of Tenant's personal property is taxed with the Property,
Tenant shall pay Landlord the taxes for the personal property within fifteen
(15) days after Tenant receives a written statement from Landlord for such
personal property taxes.

(e) TENANT'S RIGHT TO CONTEST TAXES. Tenant may attempt to have the
assessed valuation of the Property reduced or may initiate proceedings to
contest the real property taxes. If required by law, Landlord shall join in the
proceedings brought by Tenant. However, Tenant shall pay all costs of the
proceedings, including any costs or fees incurred by Landlord. Upon the final
determination of any proceeding or contest, Tenant shall immediately pay the
real property taxes due, together with all costs, charges, interest and
penalties incidental to the proceedings. If Tenant does not pay the real
property taxes when due and contests such taxes, Tenant shall not be in default
under this Lease for nonpayment of such taxes if Tenant deposits funds with
Landlord or opens an interest-bearing account reasonably acceptable to Landlord
in the joint names of Landlord and Tenant. The amount of such deposit shall be
sufficient to pay the real property taxes plus a reasonable estimate of the
interest, costs, charges and penalties which may accrue if Tenant's action is
unsuccessful, less any applicable tax impounds previously paid by Tenant to
Landlord. The deposit shall be applied to the real property taxes due, as
determined at such proceedings. The real property taxes shall be paid under
protest from such deposit if such payment under protest is necessary to
prevent the Property from being sold under a "tax sale" or similar
enforcement proceeding.

Section 4.03. UTILITIES. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.

Section 4.04. INSURANCE POLICIES.

(a) Liability Insurance. During the Lease Term, Tenant shall maintain a
policy of commercial general liability insurance (sometimes known as broad form
comprehensive general liability insurance) insuring Tenant against liability for
bodily injury, property damage (including loss of use of property) and personal
injury arising out of the operation, use or occupancy of the Property. Tenant
shall name Landlord as an additional insured under such policy. The initial
amount of such insurance shall be One Million Dollars ($1,000,000) per
occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.04(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.05, if the matters giving rise to the indemnity
under Section 5.05 result from the

4
<PAGE>

negligence of Tenant. The amount and coverage of such insurance shall not
limit Tenant's liability nor relieve Tenant of any other obligation under
this Lease. Landlord may also obtain comprehensive public liability insurance
in an amount and with coverage determined by Landlord insuring Landlord
against liability arising out of ownership, operation, use or occupancy of
the Property. The policy obtained by Landlord shall not be contributory and
shall not provide primary insurance.

Sections (b) and (c) deleted.

(d) GENERAL INSURANCE PROVISIONS.

(i) Any insurance which Tenant is required to maintain under this
Lease shall include a provision which requires the insurance carrier to give
Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.

(ii) If Tenant fails to deliver any policy, certificate or renewal
to Landlord required under this Lease within the prescribed time period or if
any such policy is cancelled or modified during the Lease Term without
Landlord's consent, Landlord may obtain such insurance, in which case Tenant
shall reimburse Landlord for the cost of such insurance within fifteen (15)
days after receipt of a statement that indicates the cost of such insurance.

(iii) Tenant shall maintain all insurance required under this Lease
with companies holding a "General Policy Rating" of A-8 or better, as set
forth in the most current issue of "Best Key Rating Guide". Landlord and
Tenant acknowledge the insurance markets are rapidly changing and that
insurance in the form and amounts described in this Section 4.04 may not be
available in the future. Tenant acknowledges that the insurance described in
this Section 4.04 is for the primary benefit of Landlord. If at any time
during the Lease Term, Tenant is unable to maintain the insurance required
under the Lease, Tenant shall nevertheless maintain insurance coverage which
is customary and commercially reasonable in the insurance industry for
Tenant's type of business, as that coverage may change from time to time.
Landlord makes no representation as to the adequacy of such insurance to
protect Landlord's or Tenant's interests. Therefore, Tenant shall obtain any
such additional property or liability insurance which Tenant deems necessary
to protect Landlord and Tenant.

(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control for such loss or damage is covered by
any insurance policy in force (whether or not described in this Lease) at the
time of such loss or damage. Upon obtaining the required policies of
insurance, Landlord and Tenant shall give notice to the insurance carriers of
this mutual waiver of subrogation.

Section 4.05. LATE CHARGES. Tenant's failure to pay rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but
are not limited to, processing and accounting

5
<PAGE>

charges and late charges which may be imposed on Landlord by any ground
lease, mortgage or trust deed encumbering the Property. Therefore, if
Landlord does not receive any rent payment within ten (10) days after written
notice to Troy Div. Pierce Companies, Inc., Tenant shall pay Landlord a late
charge equal to five percent (5%) of the overdue amount. The parties agree
that such late charge represents a fair and reasonable estimate of costs
Landlord will incur by reason of such late payment.

Section 4.06. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by Tenant
to Landlord which is not paid when due shall bear interest at the rate of five
percent (5%) per annum from the due date of such amount upon days written notice
to Troy Div. Pierce Companies, Inc. However, interest shall not be payable on
late charges to be paid by Tenant under this Lease. The payment of interest on
such amounts shall not excuse or cure any default by Tenant under this Lease.
If the interest rate specified in this Lease is higher than the rate permitted
by law, the interest rate is hereby decreased to the maximum legal interest rate
permitted by law.

Section 4.07 - Deleted

ARTICLE FIVE: USE OF PROPERTY

Section 5.01. PERMITTED USES. Tenant may use the Property only for the
Permitted Uses set forth in Section 1.06 above.

Section 5.02. MANNER OF USE. Tenant shall not cause or permit the Property
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
other tenants of Landlord, or which constitutes a nuisance or waste. Tenant
shall obtain and pay for all permits, including a Certificate of Occupancy,
required for Tenant's occupancy of the Property and shall promptly take all
actions necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act.

Section 5.03. HAZARDOUS MATERIALS. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition
of "hazardous substances", "hazardous wastes", "hazardous materials" or
"toxic substances" now or subsequently regulated under any applicable
federal, state or local laws or regulations, including without limitation
petroleum-based products, paints, solvents, lead, cyanide, DDT, printing
inks, acids, pesticides, ammonia compounds and other chemical products,
asbestos, PCBs and similar compounds, and including any different products
and materials which are subsequently found to have adverse effects on the
environment or the health and safety of persons. Tenant shall not cause or
permit any Hazardous Material to be generated, produced, brought upon, used,
stored, treated or disposed of in or about the Property by Tenant, its
agents, employees, contractors, sublessees or invitees without the prior
written consent of Landlord, provided tenant may use any hazardous material
if done so with compliance of the law and no consent of landlord is
necessary. Landlord shall be entitled to take into account such

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other factors or acts as Landlord may reasonably determine to be relevant in
determining whether to grant or withhold consent to Tenant's proposed
activity with respect to Hazardous Material. In no event, however, shall
Landlord be required to consent to the installation or use of any storage
tanks on the Property.

Section 5.04. SIGNS AND AUCTIONS. Tenant shall not place any signs on
the Property without Landlord's prior written consent. Tenant shall not
conduct or permit any auctions or sheriff's sales at the Property.

Section 5.05. INDEMNITY. Tenant shall indemnify Landlord against and
hold Landlord harmless from any and all costs, claims or liability arising
from: (a) Tenant's use of the Property; (b) the conduct of Tenant's business
or anything else done or permitted by Tenant to be done in or about the
Property, including any contamination of the Property or any other property
resulting from the presence or use of Hazardous Material caused or permitted
by Tenant; (c) any breach or default in the performance of Tenant's
obligations under this Lease; (d) any misrepresentation or breach of warranty
by Tenant under this Lease; or (e) other acts or omissions of Tenant. Tenant
shall defend Landlord against any such cost, claim or liability at Tenant's
expense with counsel reasonably acceptable to Landlord or, at Landlord's
election Tenant shall reimburse Landlord for any legal fees or costs incurred
by Landlord in connection with any such claim subject to Section 7.01(a). As
a material part of the consideration to Landlord, Tenant assumes all risk of
damage to property or injury to persons in or about the Property arising from
any cause, and Tenant hereby waives all claims in respect thereof against
Landlord, except for any claim arising out of Landlord's gross negligence or
willful misconduct. As used in this Section, the term "Tenant" shall include
Tenant's employees, agents, contractors and invitees, if applicable.

Section 5.06. LANDLORD'S ACCESS. Provided Landlord gives Tenant
Reasonable notice, Landlord or its agents may enter the Property at all
reasonable times to show the Property to potential buyers, investors or
tenants or other parties; to do any other act or to inspect and conduct tests
in order to monitor Tenant's compliance with all applicable environmental
laws and all laws governing the presence and use of Hazardous Material or for
any other purpose Landlord deems necessary, provided that no such test shall
interrupt Tenant's business, and if Tenant's business is interrupted,
Landlord shall hold Tenant harmless and reimburse Tenant for costs and
damages arising from such interruption. Landlord shall give Tenant prior
notice of such entry, except in the case of an emergency. Landlord may place
customary "For Sale" or "For Lease" signs on the Property; provided that
Tenant must give prior written approval to number, size and location of any
such signs.

Section 5.07. QUIET POSSESSION. If Tenant pays the rent and complies
with all other terms of this Lease, Tenant may occupy and enjoy the Property
for the full Lease Term, subject to the provisions of this Lease.

ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS

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Section 6.01. EXISTING CONDITIONS. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein, Tenant acknowledges that neither Landlord nor any agent of Landlord
has made any representation as to the condition of the Property or the
suitability of the Property for Tenant's intended use. Tenant represents and
warrants that Tenant has made its own inspection of and inquiry regarding the
condition of the Property and is not relying on any representations of
Landlord or any Broker with respect thereto. If Landlord or Landlord's Broker
has provided a Property Information Sheet or other Disclosure Statement
regarding the Property, a copy is attached as an exhibit to the Lease.

Section 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. Subject to Section
7.01(a) hereof, Landlord shall not be liable for any damage or injury to the
person, business (or any loss of income therefrom), goods, wares, merchandise
or other property of Tenant, Tenant's employees, invitees, customers or any
other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas or rain;
(b) the breakage, leakage, obstruction or other defects of pipes, sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures or any
other cause; (c) conditions arising in or about the Property or from other
sources or places; or (d) any act or omission of any other tenant of
Landlord. The provisions of this Section 6.02 shall not, however, exempt
Landlord from liability for Landlord's gross negligence or willful
misconduct. See attached 6.02.1.

SECTION 6.02.1 Provided, however, that Landlord shall indemnify,
defend, and hold Tenant harmless from all costs, expenses and liability from
toxic waste problems generated by tenants prior to September 4, 1987 or
Landlord or prior owners or toxic wastes migrating from other premises.

Section 6.03 - deleted.

Section 6.04. TENANT'S OBLIGATIONS. (a) Except as provided in
Article Seven (Damage or Destruction) and Article Eight (Condemnation),
Tenant shall keep all portions of the Property (including structural,
nonstructural, interior, exterior, and landscaped areas, portions, systems
and equipment) in good order, condition and repair (including interior
repainting and refinishing, as needed). If any portion of the Property or any
system or equipment in the Property which Tenant is obligated to repair
cannot be fully repaired or restored, Tenant shall promptly replace such
portion of the Property or system or equipment in the Property, regardless of
whether the benefit of such replacement extends beyond the Lease Term; but if
the benefit or useful life of such replacement extends beyond the Lease Term
(as such term may be extended by exercise of any options), the useful life of
such replacement shall be prorated over the remaining portion of the Lease
Term (as extended), and Tenant shall be liable only for that portion of the
cost which is applicable to the Lease Term (as extended). If any part of the
Property is damaged by any act or omission of Tenant, Tenant shall pay
Landlord the cost of repairing replacing such damaged property, whether or
not Landlord would otherwise be obligated to pay the cost of maintaining or
repairing

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such property. It is the intention of Landlord and Tenant that at all times
Tenant shall maintain the portions of the Property which Tenant is obligated
to maintain in an attractive, first-class and fully operative condition.

(b) Tenant shall fulfill all of Tenant's obligations under this Section
6.04 at Tenant's sole expense. If Tenant fails to maintain. repair or replace
the Property as required by this Section 6.04, Landlord may, upon ten (10)
days prior notice to Tenant (except that no notice shall be required in the
case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.

Section 6.05. ALTERATIONS, ADDITIONS, AND IMPROVEMENTS.

(a) Tenant shall not make any alterations, additions, or improvements to
the Property without Landlord's prior written consent, except for
non-structural alterations which do not exceed Ten Thousand Dollars ($10,000)
in cost cumulatively over the Lease Term and which are not visible from the
outside of any building of which the Property is part. Landlord may require
Tenant to provide demolition and/or lien and completion bonds in form and
amount satisfactory to Landlord. Tenant shall promptly remove any
alterations, additions, or improvements constructed in violation of this
Paragraph 6.05(a) upon Landlord's written request. All alterations,
additions, and improvements shall be done in a good and workmanlike manner,
In conformity with all applicable laws and regulations, and by a contractor
approved by Landlord. Upon completion of any such work, Tenant shall provide
Landlord with "as built" plans, copies of all construction contracts, and
proof of payment for all labor and materials.

(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20)
days' prior written notice of the commencement of any work on the Property,
regardless of whether Landlord's consent to such work is required. Landlord
may elect to record and post notices of non-responsibility on the Property.

Section 6.06. CONDITION UPON TERMINATION. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in
the same configuration as approved by Landlord from time to time as received,
except for ordinary wear and tear which Tenant was not otherwise obligated to
remedy under any provision of this Lease. However, Tenant shall not
obligated to repair any damage which Landlord is required to repair under
Article Seven (Damage or Destruction). In addition, All alterations,
additions and improvements which Landlord has not required Tenant to remove
shall become Landlord's property and shall be surrendered to Landlord upon
the expiration or earlier termination of the Lease, except that Tenant may
remove any of Tenant's machinery or equipment which can be removed without
material damage to the Property. Tenant shall repair, at Tenant's expense,
any damage to the Property caused by the removal of any such machinery or
equipment. In no event, however, shall Tenant remove any of the following
materials or equipment (which shall be deemed Landlord's property) without
Landlord's prior written consent: any power wiring or power panels; lighting
or lighting fixtures; wall coverings; drapes, blinds or other window
coverings; carpets or other

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floor coverings; heaters, air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operating equipment and decorations.

ARTICLE SEVEN: DAMAGE OR DESTRUCTION

Section 7.01. PARTIAL DAMAGE TO PROPERTY.

(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. See attached 7.01(a).

SECTION 7.01(a) If the Property is damaged so as to materially adversely
affect the Troy Business of the Tenant, in the sole judgment of the Tenant,
Tenant, at its sole election, may (a) terminate this Lease immediately or (b)
require Landlord to repair the Property to the satisfaction of Tenant, Tenant
may take over such repairs at the expense of Landlord and Landlord shall
promptly pay such cost on the basis of bids and not bills for completed work.
If Landlord does not make such payment promptly, Landlord shall remain liable
for such costs of repair and, in addition to such right to payment, Tenant may
offset such costs against rent.

Section (b) deleted.

(c) If the damage to the Property occurs during the last twelve (12)
months of the Lease Term and such damage will, require more than thirty (30)
days to repair, either Landlord or Tenant may elect to terminate this Lease as
of the date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.

Section 7.02. SUBSTANTIAL OR TOTAL DESTRUCTION. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred.

Section 7.03. TEMPORARY REDUCTION OF RENT. If the Property is destroyed
or damaged and Landlord or Tenant repairs or restores the Property pursuant to
the provisions of this Article Seven, any rent payable during the period of such
damage, repair and/or restoration shall be reduced according to the degree, if
any, to which Tenant's use of the Property is impaired. However, the reduction
shall not exceed the sum of one year's payment of Base Rent, insurance premiums
and real property taxes. Except for such possible reduction in Base Rent,
insurance premiums and real property taxes, Tenant shall not be entitled to any
compensation, reduction, or reimbursement from Landlord as a result of any
damage, destruction, repair, or restoration of or to the Property.

Section 7.04. WAIVER. Tenant agrees that the provisions of Section 7.02
above shall govern the rights and obligations of Landlord and Tenant in the
event of any substantial or total destruction to the Property.

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ARTICLE EIGHT: CONDEMNATION

If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are
called "Condemnation"), this Lease shall terminate as to the part taken or
sold on the date the condemning authority takes title or possession,
whichever occurs first. If more than twenty percent (20%) of the floor area
of the building in which the Property is located, or which is located on the
Property, is taken, either Landlord or Tenant may terminate this Lease as of
the date the condemning authority takes title or possession, by delivering
written notice to the other within ten (10) days after receipt of written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority takes title or possession). If neither
Landlord nor Tenant terminates this Lease, this Lease shall remain in effect
as to the portion of the Property not taken, except that the Base Rent and
Additional Rent shall be reduced in proportion to the reduction in the floor
area of the Property. Any Condemnation award or payment shall be distributed
in the following order: (a) first, to any ground lessor, mortgagee or
beneficiary under a deed of trust encumbering the Property, the amount of its
interest in the Property; (b) second, to Tenant, only the amount of any award
specifically designated for loss of or damage to Tenant's trade fixtures or
removable personal property; and (c) third, to Landlord, the remainder of
such award, whether as compensation for reduction in the value of the
leasehold, the taking of the fee, or otherwise. If this Lease is not
terminated, Landlord shall repair any damage to the Property caused by the
Condemnation, except that Landlord shall not be obligated to repair any
damage for which Tenant has been reimbursed by the condemning authority. If
the severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this lease or make
such repair at Landlord's expense.

ARTICLE NINE: ASSIGNMENT AND SUBLETTING.

Section 9.01. LANDLORD'S CONSENT. As long as Tenant remains completely
responsible for compliance of Tenant's obligations and duties under this
Lease, including, but not limited to, the payment of rent, Tenant may assign
or sublet under this Lease without Landlord's consent.

Section 9.02. TENANT AFFILIATE. In addition to Section 9.01 Tenant
expressly may assign this Lease including the attached "Option to Extend
Term" or sublease the Property, without Landlord's consent, to any
corporation which controls, is controlled by or is under common control with
Tenant, or to an corporation resulting from the merger of or consolidation
with Tenant ("Tenant's Affiliate"). In such case, any Tenant's Affiliate
shall assume In writing all of Tenant's obligations under this Lease.

Section 9.03. NO RELEASE OF TENANT. No transfer permitted by this
Article Nine, whether with or without Landlord's consent, shall release
Tenant or change Tenant's primary liability to pay the rent and to perform
all other obligations of Tenant under this Lease.

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Landlord's acceptance of rent from any other person is not a waiver of any
provision of this Article Nine. If Tenant's transferee defaults under this
Lease, Landlord may proceed directly against Tenant without pursuing remedies
against the transferee. Landlord may consent to subsequent assignments or
modifications of this Lease by Tenant's transferee, without notifying Tenant
or obtaining its consent. Such action shall not relieve Tenant's liability
under this Lease.

Section 9.04. OFFER TO TERMINATE. If Tenant desires to assign the
Lease or sublease the Property, Tenant shall have the right to offer, in
writing, to terminate the Lease as of a date specified in the offer. If
Landlord elects in writing to accept the offer to terminate within twenty
(20) days after notice of the offer, the Lease shall terminate as of the date
specified and all the terms and provisions of the Lease governing termination
shall apply. If Landlord does not so elect, the Lease shall continue in
effect until otherwise terminated and the provisions of Section 9.05 with
respect to any proposed transfer shall continue to apply.

Section 9.05 - deleted.

Section 9.06. NO MERGER. No merger shall result from Tenant's sublease
of the Property under this Article Nine, Tenant's surrender of this Lease or
the termination of this Lease in any other manner. In any such event,
Landlord may terminate any or all subtenancies or succeed to the interest of
Tenant as sublandlord under any or all subtenancies.

ARTICLE TEN: DEFAULTS; REMEDIES

Section 10.01. COVENANTS AND CONDITIONS. Tenant's performance of each
of Tenant's obligations under this Lease is a condition as well as a
covenant. Tenant's right to continue in possession of the Property is
conditioned upon such performance.

Section 10.02. DEFAULTS. Tenant shall be in material default under this
Lease: upon ten days prior written notice.

(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section
4.04;

(b) If Tenant fails to pay rent or any other charge when due;

(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of thirty (30) days after written notice from
Landlord; provided that if more than thirty (30) days are required to
complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30)-day period and thereafter diligently
pursues its completion. The notice required by this Paragraph is intended to
satisfy any and all notice requirements imposed by law on Landlord and is not
in addition to any such requirement.

(d) (i) If Tenant makes a general assignment or general arrangement for
the benefit of creditors; (ii) if a petition for adjudication of bankruptcy
or for reorganization or rearrangement is filed by or against Tenant and is
not dismissed within thirty (30) days; (iii) if a trustee or

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receiver is appointed to take possession of substantially all of Tenant's
assets located at the Property or of Tenant's interest in this Lease and
possession is not restored to Tenant within thirty (30) days; or (iv) if
substantially all of Tenant's assets located at the Property or of Tenant's
interest in this Lease is subjected to attachment, execution or other
judicial seizure which is not discharged within thirty (30) days. If a court
of competent jurisdiction determines that any of the acts described in this
subparagraph (d) is not a default under this Lease, and a trustee is
appointed to take possession (or if Tenant remains a debtor in possession)
and such trustee or Tenant transfers Tenant's interest hereunder, then
Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or
sublease over the rent payable by Tenant under this Lease.

(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion
of Tenant's obligations under the Lease. Unless otherwise expressly provided,
no guaranty of the Lease is revocable.

Section 10.03. REMEDIES. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or
demand and without limiting Landlord in the exercise of any right or remedy
which Landlord may have:

(a) Terminate Tenant's right to possession of the Property by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Property to Landlord. In such event, Landlord
shall be entitled to recover from Tenant all damages incurred by Landlord by
reason of Tenant's default, including (i) the worth at the time of the award
of the unpaid Base Rent, Additional Rent and other charges which Landlord had
earned at the time of the termination; (ii) the worth at the time of the
award of the amount by which the unpaid Base Rent, Additional Rent and other
charges which Landlord would have earned after termination until the time of
the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of
the amount by which the unpaid Base Rent, Additional Rent and other charges
which Tenant would have paid for the balance of the Lease term after the time
of award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; and (iv) any other amount necessary to
compensate Landlord for all the detriment proximately caused by Tenant's
failure to perform its obligations under the Lease or which in the ordinary
course of things would be likely to result therefrom, including, but not
limited to, any costs or expenses Landlord incurs in maintaining or
preserving the Property after such default, the cost of recovering possession
of the Property, expenses of reletting, including necessary renovation or
alteration of the Property, Landlord's reasonable attorneys' fees incurred in
connection therewith, and any real estate commission paid or payable. As
used in subparts (i) and (ii) above, the "worth at the time of the award" is
computed by allowing interest on unpaid amounts at the rate of lowest rate of
cost of money to Landlord or such lesser amount as may then be the maximum
lawful rate. As used in subpart (iii) above, the "worth at the time of the
award" is computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (1%). If Tenant has abandoned the Property, Landlord shall have the
option of (i) retaking possession of the Property and recovering from Tenant
the amount specified in this Paragraph 10.03(a), or (ii) proceeding under
Paragraph 10.03(b);

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(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant has abandoned the Property.
In such event, Landlord shall be entitled to enforce all of Landlord's rights
and remedies under this Lease, including the right to recover the rent as it
becomes due;

(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.

Section 10.04 - deleted.

Section 10.05. AUTOMATIC TERMINATION. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the occurrence
of any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful
detainer action against Tenant. On such termination, Landlord's damages for
default shall include all costs and fees, including reasonable attorneys'
fees that Landlord incurs in connection with the filing, commencement,
pursuing and/or defending of any action in any bankruptcy court or other
court with respect to the Lease; the obtaining of relief from any stay in
bankruptcy restraining any action to evict Tenant; or the pursuing of any
action with respect to Landlord's right to possession of the Property. All
such damages suffered (apart from Base Rent and other rent payable hereunder)
shall constitute pecuniary damages which must be reimbursed to Landlord prior
to assumption of the Lease by Tenant or any successor to Tenant in any
bankruptcy or other proceeding.

Section 10.06. CUMULATIVE REMEDIES. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.

ARTICLE ELEVEN: PROTECTION OF LENDERS

Section 11.01. SUBORDINATION. Landlord shall have the right to
subordinate this Lease to any ground lease, deed of trust or mortgage
encumbering the Property, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded. Tenant shall cooperate with Landlord and any
lender which is acquiring a security interest in the Property or the Lease.
Tenant shall execute such further documents and assurances as such lender may
require, provided that Tenant's obligations under this Lease shall not be
increased in any material way (the performance of ministerial acts shall not
be deemed material), and Tenant shall not be deprived of its rights under
this Lease. Tenant's right to quiet possession of the Property during the
Lease Term shall not be disturbed if Tenant pays the rent and performs all of
Tenant's obligations under this Lease and is not otherwise in default. If any
ground lessor, beneficiary or mortgagee elects to have this Lease prior to
the lien of its ground lease, deed of trust or mortgage and gives written
notice thereof to Tenant, this Lease shall be deemed prior to such ground
lease, deed of trust or mortgage whether this Lease is dated prior or
subsequent to the date of said ground lease, deed of trust or mortgage or the
date of recording thereof.

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Section 11.02. ATTORNMENT. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee,
or purchaser at a foreclosure sale, Tenant shall attorn to the transferee of
or successor to Landlord's interest in the Property and recognize such
transferee or successor as Landlord under this Lease. Tenant waives the
protection of any statute or rule of law which gives or purports to give
Tenant any right to terminate this Lease or surrender possession of the
Property upon the transfer of Landlord's interest.

Section 11.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such
attornment or subordination or agreement to do so. If Tenant fails to do so
within ten (10) days after written request, Tenant hereby makes, constitutes
and irrevocably appoints Landlord, or any transferee or successor of
Landlord, the attorney-in-fact of Tenant to execute and deliver any such
instrument or document.

Section 11.04. ESTOPPEL CERTIFICATES.

(a) Upon Landlord's written request, Tenant shall execute, acknowledge
and deliver to Landlord a written statement certifying: (i) that none of the
terms or provisions of this Lease have been changed (or if they have been
changed, stating how they have been changed); (ii) that this Lease has not
been cancelled or terminated; (iii) the last date of payment of the Base Rent
and other charges and the time period covered by such payment; (iv) that
Landlord is not in default under this Lease (or, if Landlord is claimed to be
in default, stating why); and (v) such other representations or information
with respect to Tenant or the Lease as Landlord may reasonably request or
which any prospective purchaser or encumbrancer of the Property may require.
Tenant shall deliver such statement to Landlord within ten (10) days after
Landlord's request. Landlord may give any such statement by Tenant to any
prospective purchaser or encumbrancer of the Property. Such purchaser or
encumbrancer may rely conclusively upon such statement as true and correct.

(b) If Tenant does not deliver such statement to Landlord within such
ten (10) -day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts: (i)
that the terms and provisions of this Lease have not been changed except as
otherwise represented by Landlord; (ii) that this Lease has not been
cancelled or terminated except as otherwise represented by Landlord; (iii)
that not more than one month's Base Rent or other charges have been paid in
advance; and (iv) that Landlord is not in default under the Lease. In such
event, Tenant shall be estopped from denying the truth of such facts.

Section 11.05 - deleted.

ARTICLE TWELVE: LEGAL COSTS

Section 12.01 LEGAL PROCEEDINGS. If Tenant or Landlord shall be in breach
or default under this Lease, such party (the "Defaulting Party") shall reimburse
the other party (the "Nondefaulting Party") upon demand for any costs or
expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs

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incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the court in such action shall award
to the party in whose favor a judgment is entered, a reasonable sum as
attorneys' fees and costs. The losing party in such action shall pay such
attorneys' fees and costs. Tenant shall also indemnify Landlord against and
hold Landlord harmless from all costs, expenses, demands and liability
Landlord may incur if Landlord becomes or is made a party to any claim or
action (a) instituted by Tenant against any third party, or by any third
party against Tenant, or by or against any person holding any interest under
or using the Property by license of or agreement with Tenant; (b) for
foreclosure of any lien for labor or material furnished to or for Tenant or
such other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
proceeding under Title 11 of the United States Code, as amended. Tenant
shall defend Landlord against any such claim or action at Tenant's expense
with counsel reasonably acceptable to Landlord or, at Landlord's election,
Tenant shall reimburse Landlord for any legal fees or costs Landlord incurs
in any such claim or action.

Section 12.02. LANDLORD'S CONSENT. Tenant shall pay Landlord's
reasonable attorneys' fees incurred in connection with Tenant's request for
Landlord's consent under Article Nine (Assignment and Subletting), or in
connection with any other act which Tenant proposes to do and which requires
Landlord's consent.

ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS

Section 13.01. NON-DISCRIMINATION. Tenant promises, and it is a
condition to the continuance of this Lease, that there will be no
discrimination against, or segregation of, any person or group of persons on
the basis of race, color, sex, creed, national origin or ancestry in the
leasing, subleasing, transferring, occupancy, tenure or use of the Property
or any portion thereof.

Section 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES.

(a) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or the leasehold estate
under a ground lease of the Property at the time in question. Each Landlord
is obligated to perform the obligations of Landlord under this Lease only
during the time such Landlord owns such interest or title. Any Landlord who
transfers its title or interest is relieved of all liability with respect to
the obligations of Landlord under this Lease to be performed on or after the
date of transfer. However, each Landlord shall deliver to its transferee all
funds that Tenant previously paid if such funds have not yet been applied
under the terms of this Lease.

(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor, mortgagee or beneficiary) fails to cure such non-performance
within thirty (30)

16
<PAGE>

days after receipt of Tenant's notice. However, if such non-performance
reasonably requires more than thirty (30) days to cure, Landlord shall not be
in default if such cure is commenced within such thirty (30) -day period and
thereafter diligently pursued to completion.

(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property, and neither the
Landlord nor its partners, shareholders, officers or other principals shall
have any personal liability under this Lease.

Section 13.03. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal
or unenforceable shall not cancel or invalidate the remainder of such
provision or this Lease, which shall remain in full force and effect.

Section 13.04. INTERPRETATION. The captions of the Articles or Sections
of this Lease are to assist the parties in reading this Lease and are not a
part of the terms or provisions of this Lease. Whenever required by the
context of this Lease, the singular shall include the plural and the plural
shall include the singular. The masculine, feminine and neuter genders shall
each include the other. In any provision relating to the conduct, acts or
omissions of Tenant, the term "Tenant" shall include Tenant's agents,
employees, contractors, invitees, successors or others using the Property
with Tenant's expressed or implied permission.

Section 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This
Lease is the only agreement between the parties pertaining to the lease of
the Property and no other agreements are effective. All amendments to this
Lease shall be in writing and signed by all parties. Any other attempted
amendment shall be void.

Section 13.06. NOTICES. All notices required or permitted under this
Lease shall be in writing and shall be personally delivered or sent by
certified mail, return receipt requested, postage prepaid. Notices to Tenant
shall be delivered to the address specified in Section 1.03 above, except
that upon Tenant's taking possession of the Property, the Property shall be
Tenant's address for notice purposes. Notices to Landlord shall be delivered
to the address specified in Section 1.02 above. All notices shall be
effective upon delivery. Either party may change its notice address upon
written notice to the other party.

Section 13.07. WAIVERS. All waivers must be in writing and signed by
the waiving party. Landlord's failure to enforce any provision of this Lease
or its acceptance of rent shall not be a waiver and shall not prevent
Landlord from enforcing that provision or any other provision of this Lease
in the future. No statement on a payment check from Tenant or in a letter
accompanying a payment check shall be binding on Landlord. Landlord may, with
or without notice to Tenant, negotiate such check without being bound to the
conditions of such statement.

Section 13.08. NO RECORDATION. Tenant shall not record this Lease without
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form"

17
<PAGE>

memorandum of this Lease executed by both parties be recorded. The party
requiring such recording shall pay all transfer taxes and recording fees.

Section 13.09. BINDING EFFECT; CHOICE OF LAW. This Lease binds any party
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.

Section 13.10. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation.

Section 13.11. JOINT AND SEVERAL LIABILITY. All parties signing this Lease
as Tenant shall be jointly and severally liable for all obligations of Tenant.

Section 13.12. FORCE MAJEURE. If Landlord or Tenant cannot perform any of
its obligations due to events beyond Landlord's or Tenant's control, the time
provided for performing such obligations shall be extended by a period of time
equal to the duration of such events. Events beyond Landlord's control include,
but are not limited to, acts of God, war, civil commotion, labor disputes,
strikes, fire, flood or other casualty, shortages of labor or material,
government regulation or restriction and weather conditions.

Section 13.13. EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.

Section 13.14. SURVIVAL. All representations and warranties of Landlord
and Tenant shall survive the termination of this Lease.

ARTICLE FOURTEEN - Deleted.

ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO OR
IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE DRAW
A LINE THROUGH THE SPACE BELOW.

(The remainder of this page intentionally left blank)

18
<PAGE>

Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialled all Riders
which are attached to or incorporated by reference in this Lease.

"LANDLORD"
Signed on March 16, 1995 Ragco
--------------------------- --------------------------------
at Costa Mesa, CA
---------------------------------- --------------------------------

By: /s/ John Garrison
---------------------------------- -----------------------------
John Garrison

Its: General Partner
----------------------------
By:
-----------------------------
Its:
----------------------------

"TENANT"
Signed on March 16, 1995 Pierce Companies, Inc.
--------------------------- --------------------------------
at Costa Mesa, CA Troy Division
---------------------------------- --------------------------------
By: /s/ Brian P. Dirk
---------------------------------- -----------------------------
Brian P. Dirk

Its: Vice President
----------------------------
By:
-----------------------------
Its:
----------------------------

IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH A
PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.

THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION
OF THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS,-Registered Trademark- INC., NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS, INC., ITS LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR
THEIR EMPLOYEES OR AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX
CONSEQUENCES OF THIS LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT SHOULD
RETAIN LEGAL COUNSEL TO ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON THE
ADVICE OF SUCH LEGAL COUNSEL.

19
<PAGE>

OPTION TO EXTEND TERM

LEASE RIDER

This Rider is attached to and made part of that certain Lease (the
"Lease") dated MARCH 16, 1995 between RAGCO, A GENERAL PARTNERSHIP, as
Landlord, and TROY DIVISION - PIERCE COMPANIES, INC., as Tenant, covering the
Property commonly known as 2331 S. PULLMAN AVE., SANTA ANA, CA 92705 (the
"Property"). The terms used herein shall have the same definitions as set
forth in the Lease. The provisions of this Rider shall supersede any
inconsistent or conflicting provisions of the Lease.

A. OPTION(s) TO EXTEND TERM.

1. Landlord hereby grants to Tenant ONE option(s) (the "Option(s)")
to extend the Lease Term for additional term(s) of THREE years each (the
"Extension(s)"), on the same terms and conditions as set forth in the Lease.
Each Option shall be exercised only by written notice delivered to Landlord
at least one hundred twenty (120) days before the expiration of the Lease
Term or the preceding Extension of the Lease Term, respectively. If Tenant
fails to deliver Landlord written notice of the exercise of an Option within
the prescribed time period, such Option and any succeeding Options shall
lapse, and there shall be no further right to extend the Lease Term. Each
Option shall be exercisable by Tenant on the express conditions that (a) at
the time of the exercise, Tenant shall not be in default under any of the
provisions of this Lease. All options to extend shall run with this Lease
for benefit of Tenant's successors in interest, assignees and subtenants.

20
<PAGE>

THIS IS AN ADDENDUM TO THE AIR INDUSTRIAL/COMMERCIAL SINGLE-LESSEE- NET LEASE
DATED JANUARY 27,1995 BY AND BETWEEN RAGCO, A GENERAL PARTNERSHIP, AS "LESSOR",
AND PIERCE COMPANIES, INC., A DELAWARE CORPORATION, AS "LESSEE", FOR THE
PROPERTY COMMONLY KNOWN AS 2331 S. PULLMAN AVENUE, SANTA ANA, CALIFORNIA 92705.

1. LEASE TERM AND The new lease and term shall be for thirty-
COMMENCEMENT: six (36) months, commencing May 1, 1995 and
terminating April 30, 1998.

2. BASE RENTAL The base rent shall be $0.35 NNN
STRUCTURE: ( $ 13,013.35) per month throughout the
entire lease term.

3. RENTAL ABATEMENT: Lessor shall grant to Lessee six (6) months
of abated rent as compensation for
improvements to be made to the facility on
behalf of Lessee. Such abated rent shall
occur in months 1, 2, 3, 13, 14, and 15 of
the lease term.

4. TENANT Lessee shall contract to have the following
IMPROVEMENTS: improvements made to the facility:

A. Demolish stock room, add chain link
fence.
B. Remove low wall area in warehouse.
C. Remove walls in 1st and 2nd floor
office areas to create an open
"bullpen" environment consisting of
a total of approximately 9,000
square feet.
D. Install two (2) wind turbines on the
roof.

5. NEW ROOF: Lessor, at its sole cost and expense, shall
use its best efforts to install a new roof
on the facility prior to the commencement
of the new lease term. In the event Lessor
is unable to install new roof prior to
lease commencement, and provided there have
not been any unforeseen delays out of
control of Lessor to abate or remove, i.e.,
weather, Lessee shall have the ability to
install new roof at its sole cost and
expense and deduct such expense from future
rental obligation.

6. OPTION TO RENEW: Lessee shall have one (1) three (3) year
option to renew the lease with a minimum
120 days prior written notice. The rental
rate for the option period shall be at the
then fair market value, with a maximum
increase of six percent (6%) over the last
years rental rate of the new lease term
under the same terms and conditions of the
original lease and this Addendum. In no
event shall the new lease rate under this
option be less than $0.35 NNN per square
foot, per month.

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<PAGE>

7. BROKERAGE Lessor recognizes CB Commercial Real Estate
COMMISSION: G r o up, Inc. for its effort in this
agreement, and therefore agrees to pay CB
Commercial Real Estate Group, Inc., --
David T. Desper, a commission of three
percent (3%) of the total lease value of
this Agreement. This commission shall be
due and payable upon execution of this
lease and Addendum by both parties.

AGREED AND ACCEPTED:

Lessee: Pierce Companies, Inc. Lessor: Ragco, a General
A Delaware Corporation Partnership

By: /s/ Brian P. Dirk By: /s/ John Garrison
------------------------------ ------------------------------
Brian P. Dirk John Garrison

Its: Vice President Its: General Partner
------------------------------ ------------------------------
Date: 3-16-95 Date:
----------------------------- -----------------------------

<PAGE>

LEASE AGREEMENT

THIS Lease made and entered into this 28th day of July, 1993, by and
between DIRK INVESTMENTS, INC., a Delaware corporation with its principal office
located 2331 S. Pullman, Santa Anna, California 92705 (hereinafter referred to
as "Lessor"), and MICROSS DIVISION OF PIERCE COMPANIES, INC., a corporation duly
organized and existing under the laws of the State of Delaware, with its
principal office at 1 Bryan Drive, Wheeling, West Virginia 26003 (hereinafter
referred to as "Lessee").

WITNESSETH: That Lessor does hereby let, lease and demise unto Lessee the
premises located in the City of Wheeling, County of Ohio, State of West
Virginia, described as follows, to-wit:

DESCRIPTION OF PREMISES

All of the office area containing 9,100 square feet and warehouse space
containing 3,750 square feet of attached warehouse and an additional
warehouse containing 67,150 square feet, including all improvements
therein, as outlined in red on the plot plan dated July 21, 1993 attached
hereto and made a part hereof, "Exhibit A", hereinafter referred to as the
"Demised Premises". Said Demised Premises are a part of a distribution
center complex situated on 43.342 acres of land as shown on the plot plan
dated 7/21/93 attached hereto and made a part hereof, "Exhibit B",
hereinafter referred to as the "Building", designated by street address as
one Bryan Drive, Wheeling, West Virginia 26003, together with the right in
common with Lessor to use and to have ingress and egress on, over and
across and to permit Lessee's employees, invitees and customers to use and
to have ingress and egress on, over and across all the parking, driving,
walking and other common areas of the Building as shown on Exhibit B;
provided, however, that Lessee shall comply with the parking restrictions
set forth in Paragraph 26 of this Lease and shall not block the driveway or
otherwise interfere with the ingress and egress to and from the building;

in consideration of the following mutual covenants, agreements, terms and
conditions hereby agreed to by and between Lessor and Lessee, to-wit:

1. TERM: The term of this Lease and Lessee's obligation to pay rent
hereunder shall commence upon September 1, 1993 and shall thereafter continue
for a period of seven (7)

<PAGE>

consecutive years ending on the last day of the seventh (7th) full lease year as
said term lease year is hereinafter defined.

The first lease year shall begin on the date of the commencement of the
term hereof, if the date of commencement of the term hereof shall occur on the
first (1st) day of a calendar month. If not, then the first lease year shall
commence upon the first (1st) day of the calendar month next following the date
of commencement of the term hereof. Each succeeding lease year shall commence
upon the anniversary date of the first lease year without notice by either
Lessor or Lessee any custom, usage, practice, law, statute or ordinance to the
contrary notwithstanding.

2. RENT: Lessee agrees to pay the sum of Twelve Thousand Three Hundred
Eighty-Eight Dollars ($12,388.00) per month as rent, which payments shall be
made without demand by checks made payable to Lessor and mailed by United States
Mail addressed to Lessor or to the address or to whom Lessor may designate in
writing on the first day of every month to be received by the fifth (5th)
business day of every month for which rent is due hereunder.

3. USE: The Demised Premises may be used and occupied by Lessee only for
the manufacture of magnetic ink character recognition ribbons and other office
supplies and the storage and warehousing of same.

4. ASSIGNMENT AND SUBLET: This Lease shall not be assigned nor the
premises sublet in whole or in part by Lessee without the prior written consent
of Lessor. Lessor hereby agrees not to withhold or delay unreasonably Lessor's
consent to assignment or subletting in the event Lessee requests said consent.
Lessor's consent shall not be required for: (a) an assignment or subletting to
the parent or subsidiary company of Lessee; (b) the merger with or consolidation
into any other corporation, or the reorganization or redistribution of the
manner by which Lessee is held, owned or operated; or (c) any other transfer of
the Demised Premises, this

2
<PAGE>

Lease, or any part of either, occasioned by a consolidation, merger,
reorganization or other sale or similar event involving all or substantially all
of the assets or stock of Lessee, provided that in each instance the successor
to Lessee's interest assumes in full, for the benefit of Lessor, all of the
obligations of Lessee under this Lease. As used herein, the phrase "withhold or
delay unreasonably Lessor's consent" shall not entitle Lessor to demand or
receive in exchange therefore or as a condition thereto an amount or sum of rent
or other financial consideration not expressly required pursuant to the terms of
this Lease.

Any assignment or subletting (including, without limitation, an assignment
or subletting which does not require Lessor's consent) shall not affect or
limit, in any way, the liability of Lessee under the terms of this Lease.
Lessee shall not mortgage, pledge or otherwise encumber the Demised Premises
without the prior written consent of Lessor (which consent shall not be
unreasonably withheld).

Lessor reserves the right to assign its right to receive rents under the
terms of this Lease as collateral for loans from time to time.

5. SIGNS: Lessee, with Lessor's approval (which approval shall not be
unreasonably withheld), shall have the right to construct, erect, place, put,
maintain and control on the Demised Premises and in common areas at points of
ingress and egress to the Building any sign or signs which may be removed by
Lessee at any time provided that: (a) said sign or signs are constructed,
erected and removed in a workmanlike manner and comply with the rules,
regulations, laws, statutes and ordinances of the city and state in which the
Demised Premises are located; and (b) the location, dimensions, design,
appearance and construction of such sign or signs are approved by Lessor in
writing (which approval shall not be unreasonably withheld).

3
<PAGE>

Prior to the termination of this Lease, Lessee shall remove such sign or signs
and shall repair any damage to the Demised Premises caused by such removal.

6. LESSEE'S EQUIPMENT: Lessee shall have the right to install and
maintain in and on the Demised Premises such equipment as is necessary to the
conduct of its business, all of which shall remain the property of Lessee and
may be removed by Lessee at any time. Prior to the termination of this Lease,
Lessee shall remove Lessee's equipment from the Demised Premises and shall
repair any damage to the Demised Premises which shall have resulted from
removing Lessee's equipment.

Lessee's equipment shall mean fixtures, machinery, equipment, furniture and
furnishings (whether or not affixed to the Demised Premises) installed and
maintained by Lessee for use in connection with the operation of its business
as distinguished from the operation of the Demised Premises as a real estate
unit.

7. ALTERATIONS: Lessee shall have the right to make any interior,
non-structural alterations, additions, changes or improvements on the Demised
Premises at Lessee's cost, provided that said alterations, additions, changes,
or improvements do not cost in excess of One Thousand Dollars ($1,000.00) in
each instance and do not impair the value of the Demised Premises. All other
alterations, additions, changes or improvements on or to the Demised Premises
shall require the prior written consent of Lessor, which consent shall not be
unreasonably withheld. Any alterations, additions, changes or improvements
made by Lessee of the type permitted in this paragraph (including, without
limitation those requiring the prior written consent of Lessor), excluding
Lessee's equipment, shall become a part of the Demised Premises and, at the
expiration or earlier termination of this Lease, Lessee, upon written request by
Lessor, may be required, with the exception of normal wear and tear, to restore
the Demised

4
<PAGE>

Premises to the condition they were in prior to the making of any said
alterations, additions, changes or improvements.

Lessee shall pay, when due, all claims for labor or materials furnished
to or for Lessee and shall keep the Building free and clear of any mechanics'
or materialmen's liens arising from any alterations, additions, changes or
improvements performed by or for Lessee.

8. REPAIRS: Lessor agrees to maintain in good repair, at Lessor's cost,
the roof, outer walls (which will include the bulkheads under plate glass
windows), downspouts, underground plumbing, exterior lighting, fire protection
(dry system), electrical wiring, ceilings (when damage is due to roof leakage or
failure of Lessor to make repairs Lessor is obligated to make), support of
floors, and structural portions of the Building and Demised Premises, unless
such repairs are required because of the negligence or willful misconduct of
Lessee or Lessee's employees, agents, invitees or contractors (in which event
Lessee shall make such repairs at its sole cost and expense). Lessee agrees to
make repairs to the interior of the Demised Premises including, without
limitation, repairs and seasonal servicing to the air conditioning and heating
equipment serving the Demised Premises. Lessee shall not be required or
obligated to make any repairs to the Demised Premises when the repairs or
replacements are made necessary by reason of fire, flood, windstorm, earthquake
or other casualty covered by standard fire and extended coverage insurance sold
in West Virginia. Lessee agrees to surrender the Demised Premises at the
expiration or earlier termination of this Lease in as good a condition as at the
commencement of the term of this Lease, except Lessee shall not be responsible
for the repair or condition of those portions of the Building and Demised
Premises which Lessor agrees to maintain, nor damage by dry rot, termites,
sinking of floors, ordinary wear and tear, fire, flood, earthquake, windstorm or
other casualty.

5
<PAGE>

9. WARRANTY: Lessor represents and warrants that Lessor has the
authority to enter into this Lease as Lessor. Lessee represents and warrants
that Lessee has the authority to enter into this Lease as Lessee.

10. FIRE CLAUSE: In the event the Building or the Demised Premises shall
be damaged by fire, flood, windstorm, earthquake or any other casualty to such
an extent that, in the written opinion (certified as such) of a mutually
acceptable licensed architect, they cannot be restored to as good a condition as
they were prior to such damage within one hundred fifty (150) days after the
date of such casualty, Lessor and Lessee shall each have the right to cancel and
terminate this Lease by delivering written notice of such termination to the
other party within thirty (30) days after receipt of such architect's opinion
(with the rental obligation being reduced from the date of such damage to the
date of such termination in such proportion as will compensate Lessee for any
space not usable by Lessee). If Lessor or Lessee does not exercise such right
to cancel this Lease within such thirty (30) day period or if such architect
shall have certified that such repairs can be made within a period of one
hundred fifty (150) days, Lessor agrees to repair the Building and the Demised
Premises with due diligence and, in the meantime, the rent shall be reduced in
such proportion as will compensate Lessee for the space not in proper condition
during such repair period. Notwithstanding any terms to the contrary in this
Lease, Lessor and Lessee may each terminate this Lease if the damage is not
covered by the insurance policies that Landlord must maintain, pursuant to
Paragraph 23 of this Lease.

It is further provided that in the event the Demised Premises is
substantially destroyed by fire, flood, windstorm, earthquake or any other
casualty within one (1) year prior to the expiration or earlier termination of
the lease term, both Lessor and Lessee shall have the mutual right to terminate
this Lease as of the date of such damage with written notice to the other party.

6
<PAGE>

11. EMINENT DOMAIN: In the event the entire Building is acquired by the
exercise of the power of eminent domain, Lessee shall be relieved, after
possession is required to be surrendered, of all rent payments and other
obligations provided for herein and any rent which has been paid in advance
shall be prorated and a refund made by Lessor for any unexpired period for which
Lessee does not have possession and for which rent has been paid in advance.

In the event only a portion of the Building or Demised Premises (including
parking area which Lessee has the right to use hereunder) is acquired by the
exercise of the power of eminent domain but, in the reasonable opinion of
Lessee, Lessee can no longer satisfactorily operate its business in the space
and/or with the amount of parking area remaining, Lessee shall have the right to
terminate and cancel this Lease effective at the time possession of such portion
of the Building or Demised Premises must be surrendered. To exercise its right
to cancel under this paragraph, Lessee must notify Lessor by written notice,
mailed to Lessor at the address designated for the forwarding of rent payments
due hereunder, not later than fifteen (15) days prior to the time when
possession must be surrendered. In the event Lessee elects to remain, after the
taking of a portion of the Building or Demised Premises through the power of
eminent domain, Lessor agrees to make promptly all necessary alterations,
changes and repairs needed for Lessee's continued occupancy (but only to the
extent funds designated therefore are received by Lessor from the condemning
authority) and the rent due hereunder is to be reduced pro rata in proportion to
the ratio of the number of square feet of space taken to the original number of
square feet.

The rights of Lessee, as set forth in this paragraph, shall in no way
prejudice or interfere with any claim which Lessee may have against the
authority exercising the power of eminent

7
<PAGE>

domain for damages or otherwise and Lessee specifically reserves its right to
damages against the authority exercising the power of eminent domain.

12. VACATION: In the event Lessee vacates the Demised Premises before the
expiration of the term of this Lease or any extension thereof, which Lessee
shall have the right to do, Lessee shall not thereby be relieved from the
payment of rent or any other of its duties or obligations under this Lease
during the remaining term or any extension thereof.

13. HOLDING OVER: In the event Lessee shall hold over after the
expiration or termination of the term of this Lease or any extension thereof
with prior written consent from Lessor, said holding over shall not be deemed to
be a renewal or extension of this Lease or any extension thereof or the exercise
of any option to extend or renew this Lease, but said holding over shall be
deemed a tenancy from calendar month to calendar month at a monthly rent equal
to the rent for the last month under this Lease. A month to month tenancy
arising by holding over under this paragraph may be terminated by either Lessor
or Lessee giving written notice thirty (30) days in advance to the other party
hereto.

14. QUIET ENJOYMENT: Lessor covenants and agrees that Lessee, on payment
of the rent and the performance of all of the covenants and agreements of this
Lease, shall and may peaceably and quietly have, hold and enjoy the Demised
Premises.

15. RULES OF PUBLIC OFFICERS: Lessee agrees to comply with the rules,
regulations, orders, laws, statutes and ordinances of the duly constituted
public authorities governing the use and occupancy of the Demised Premises, but
Lessee shall not be required to make any repairs, alterations, changes and/or
improvements to the Demised Premises or the appurtenances thereto because of any
requirements of the public authorities (unless such repairs, alterations,
changes and/or improvements are required as a result of or in connection with
any

8
<PAGE>

business conducted by Lessee on the Demised Premises or any alterations, changes
or improvements which Lessee elects to make to the Demised Premises). In the
event of such requirements by the public authorities which, under this
paragraph, are the responsibility of Lessor, Lessor agrees to make promptly, at
its cost, such required repairs, alterations, changes and/or improvements.

16. LESSEE'S BREACH OF COVENANT: In the event Lessee shall: (a) fail to
make any payment of rent as herein provided when it becomes due, which failure
continues uncorrected for a period of ten (10) days or more after written notice
thereof from Lessor to Lessee; or (b) fails to perform or otherwise violates any
of the covenants, agreements and conditions of this Lease, which violation
continues uncorrected for a period of thirty (30) days or more after notice
thereof from Lessor to Lessee (unless such failure or violation, if it is
curable, requires work to be performed or acts to be done or remedies which by
their nature cannot be performed, done or remedied within such thirty (30) day
period and Lessee shall continue to pursue such cure, it shall have such
additional period of time as may be reasonably necessary to cure same), then in
either of such events, Lessor shall have the right, in addition to all other
rights and remedies available to Lessor at law or in equity, to re-enter the
Demised Premises, repossess said Demised Premises, evict Lessee and/or others
therein, remove the property of Lessee and others therein and in the discretion
of Lessor, relet the Demised Premises. Repossession made by Lessor, as provided
for in this paragraph, shall not relieve Lessee from the payment of rent during
the unexpired portion of the term of this Lease or the unexpired portion of any
extension thereof, but in the event Lessor relets the Demised Premises after
such repossession and prior to the expiration of this Lease or any extension
thereof, Lessee's liability for rent under this paragraph shall be credited
monthly (except Lessee shall receive no surplus

9
<PAGE>

over and above its liability for rent) with all rent received by Lessor from
said reletting (after deducting from such rent all reasonable costs and expenses
incurred by Lessor in connection with such reletting) from the time of reletting
to the expiration of this Lease or any extension thereof.

Unpaid installments of rent and other unpaid monetary obligations of Lessee
under this Lease shall bear interest from the date due at a rate equal to the
lesser of twelve percent (12%) per annum or the maximum rate then allowable by
law. In addition to the payment of such interest, if any installment of rent or
any other sum due from Lessee is not received by Lessor within ten (10) days
after written notice thereof from Lessor to Lessee that such amount is due, then
Lessee shall pay to Lessor a late charge equal to five percent (5%) of such
overdue amount.

17. LESSOR'S BREACH OF COVENANT: In the event Lessor shall fail to
perform the covenants and/or agreements of this Lease which are required to be
performed by Lessor and/or there is a breach of any express warranty made herein
by Lessor, then Lessee may require Lessor to remedy said default or defaults by
the service of written notice on Lessor or Lessor's agent at the address to
which rent payments due under this Lease are forwarded and, if at the expiration
of thirty (30) days from the receipt of said notice from Lessee to Lessor
(unless such failure or violation, if it is curable, requires work to be
performed or acts to be done or remedies which by their nature cannot be
performed, done or remedied within such thirty (30) day period and Lessor shall
continue to pursue such cure, it shall have such additional period of time as
may be reasonably necessary to cure same), then in either of such events,
Lessee, in addition to its rights under state and local laws, shall have the
right to remedy said breach of covenants, agreements, and/or warranties and the
cost of such action shall be deducted by Lessee from the unpaid rents which
shall accrue under the unexpired term of this Lease or any extension thereof.

10
<PAGE>

18. INSPECTION BY LESSOR: Lessor and Lessor's agents, servants and
employees shall have the right to enter the Demised Premises at all reasonable
times to inspect and examine the Demised Premises and to make alterations,
changes or repairs to the Demised Premises and/or to make repairs for the
preservation or maintenance of the Demised Premises. During the last ninety
(90) days of the term of this Lease or any extension thereof, Lessor shall have
the right to post "For Rent" and/or "For Sale" signs on the Demised Premises
and, during said period, Lessor and Lessor's agents, servants and employees
shall have the right to show the Demised Premises to prospective tenants or
purchasers at all reasonable times.

19. ZONING: In the event, during the term of this Lease or any extension
thereof, the Demised Premises may not be used for the operation of the business
which is conducted by Lessee on the Demised Premises on the date of the Sales
Agreement, Lessee shall have the right to terminate this Lease by giving Lessor
at least ten (10) days written notice of its election so to do, the notice to
set forth the termination date selected by Lessee.

20. TAXES: Lessee shall pay all taxes assessed against or by reason of
property which it owns and has the right to remove from the Demised Premises and
all licenses and other fees charged against it by reason of its business
conducted in the Demised Premises (including, without limitation, any service
fees imposed by any local governing authority). Lessor shall pay all real
estate taxes assessed against the subject property.

21. UTILITIES: Lessee agrees to pay for all gas, water, sewerage,
electricity, telephone and other utilities and services used and consumed by
Lessee in the Demised Premises. Lessor, at its sole cost, shall be
responsible for utility service modifications necessary and shall provide
metered billing for Lessee. In the event Lessee should install outside of
the Demised Premises an approved addition, alteration, change, improvement or
a sign that

11
<PAGE>

serves the Demised Premises, as provided for in Paragraphs 7 and 5 respectively,
Lessee shall be responsible for all costs associated with any additional utility
service necessary to service the addition, alteration, change, improvement or
sign.

22. INSURANCE AND INDEMNITY:

(a) LESSEE'S INSURANCE - Lessee shall, at its sole cost and expense,
procure and keep in full force and effect during the term of this Lease: (i)
comprehensive general liability insurance with respect to the Demised Premises
and the operations of or on behalf of Lessee in, on or about the Demised
Premises, which policies) shall be written on an "occurrence" basis and for not
less than Two Million Dollars ($2,000,000) combined single limit per occurrence
for bodily injury, death, and property damage liability, or the current limit of
liability carried by Lessee, whichever is greater (subject to such increases in
amounts as may be deemed reasonable and appropriate under the circumstances
within the insurance industry); (ii) workers' compensation insurance coverage as
required by law, together with employers' liability insurance coverage; and
(iii) insurance against fire, vandalism, malicious mischief and such other
additional perils as may be included in a standard "all risk" form in general
use in Wheeling, West Virginia, insuring Lessee's furniture, fixtures,
equipment, improvements and personal property in an amount equal to not less
than ninety percent (90%) of their actual replacement cost. In no event shall
the limits of any policy be considered as limiting the liability of Lessee under
this Lease.

(b) POLICY REQUIREMENTS - All policies of insurance required to be carried
by Lessee pursuant to this paragraph shall be written by responsible insurance
companies authorized to do business in the State of West Virginia and shall be
reasonably acceptable to Lessor. Lessee shall provide Lessor with a certificate
of insurance evidencing such coverage provided for herein, together with
satisfactory evidence of renewal at least thirty (30) days prior to the
expiration of

12
<PAGE>

coverage. Each insurance policy required to be carried by Lessee pursuant to
this Lease shall contain the following provisions and/or clauses: (i) a
provision that the policy and the coverage provided shall be primary and that
any coverage carried by Lessor shall be noncontributory with respect to any
policies carried by Lessee; (ii) a provision including Lessor and any other
parties in interest designated by Lessor an additional insured, except as to
workers, compensation insurance; (iii) a waiver by the insurer of any right to
subrogation against Lessor, its directors, officers, employees, agents and
representatives which arises or might arise by reason of any payment under the
policy or by reason of any act or omission of Lessor, its directors, officers,
employees, agents or representatives; and (iv) a provision that the insurer will
not cancel or change the coverage provided by the policy without first giving
Lessor thirty (30) days prior written notice.

(c) INDEMNITY - Lessee shall indemnify, defend, protect and hold harmless
Lessor and Lessor's directors, officers, employees, agents and representatives
(individually referred to as an "Indemnitee") from and against any and all
claims, demands, liabilities, damages, losses, costs and expenses, collectively
referred to as "Claims" (including, without limitation, attorneys' fees),
arising from or relating to (i) any accident, injury or damage occurring on or
about the Demised Premises; (ii) any accident, injury or damage occurring on or
about any other portions of the Building when such accident, injury or damage
has been caused by any act or omission of Lessee or any of Lessee's officers,
employees, agents, representatives, contractors, licensees, invitees or
subtenants; (iii) the conduct of Lessee's business or Lessee's use or occupancy
of the Demised Premises or the Building; (iv) any activity, work or thing done,
permitted or suffered by Lessee in or about the Demised Premises or the
Building; or (v) any default by Lessee under the terms of this Lease. The
preceding indemnity shall not apply to any Claims arising from Lessor's

13
<PAGE>

negligent acts or failure to perform any of its obligations under this Lease.
In the event that any action or proceeding is brought against an Indemnitee for
a matter covered by this indemnity, Lessee, at the request of such Indemnitee,
shall defend such action or proceeding by counsel reasonably satisfactory to
such Indemnitee. The provisions of this paragraph shall survive the expiration
or earlier termination of this Lease.

23. GENERAL LIABILITY AND FIRE AND EXTENDED COVERAGE: Lessor agrees to
carry fire and extended coverage insurance on the Building, including the
Demised Premises, in an amount not less than ninety percent (90%) of the
replacement value of said Building and Demised Premises in some good and solvent
insurance company, and Lessor will pay all premiums on said insurance policy or
policies when due. In addition, Lessor shall maintain comprehensive general
liability insurance with respect to the portion of the building and parking
occasioned by Lessor. Said policy shall be written on a per occurrence basis
and for not less than Two Million Dollars ($2,000,000.00) combined single limit
per occurrence. Lessor shall furnish to Lessee a certificate of insurance
evidence the coverage as provided for herein. Lessor's insurance shall not
cover Lessee's furniture, fixtures, equipment improvements and/or personal
property.

24. ESTOPPEL CERTIFICATE: Both Lessor and Lessee each agree that at any
time and from time-to-time, upon not less than ten (10) days prior written
request by the other party to this Lease Agreement to execute, acknowledge and
deliver to the requesting party an estoppel certificate. It is intended that
any statements made in such estoppel certificate may be relied upon by any
lender of either Lessor or Lessee, or such lender's successors or assigns, or by
any transferee or assignee of Lessor or Lessee's interest (or any part thereof)
in the Building or the

14
<PAGE>

Demised Premises or by any other party providing any form of financing
(including by sale of stock, debt, or otherwise) to either Lessor or Lessee.

25. COMMON AREA MAINTENANCE: Lessor agrees to maintain at all times
during the term of this Lease or any extension thereof, the common areas located
adjacent to the building, including parking areas, driveways, sidewalks and
landscaped areas, in good repair, serviceable, clean, neat and sanitary by the
maintenance of a reasonably smooth all weather surface on all paved areas and
the removal of snow, ice, dirt and trash from parking areas, driveways and
sidewalks.

26. ATTORNMENT/NON-DISTURBANCE: RIGHT TO CURE LESSOR DEFAULTS: This Lease
is and shall be subject and subordinate to the lien of any existing deed of
trust or mortgage (collectively called the "Mortgage") or any future Mortgage
placed upon the Demised Premises provided that, in each such case the mortgagee
shall have executed and delivered to Lessee, in recordable form, a
non-disturbance agreement which provides that, so long as Lessee is not in
default under this Lease beyond any applicable cure period, no default under the
Mortgage and no proceeding to foreclose the same, deed in lieu of foreclosure,
or the exercise or attempted exercise of any right or remedy under the Mortgage
will disturb Lessee's possession or other rights under the Lease (including any
right of Lessee to renew or extend the term thereof) and the Lease will not be
affected or cut off thereby. Lessee shall execute from time to time such
subordination, attornment and other agreements as Lessor or any mortgagee may
reasonably require to effectuate the terms of this paragraph (which agreements
may contain terms and conditions customarily required by institutional lenders),
subject to the reasonable approval of Lessee.

15
<PAGE>

27. CANCELLATION BY LESSEE: Provided that Lessee is not in default under
this Lease, any time after the first N/A years of the primary term hereof
or after the first year of any renewal period as provided for herein, Lessee
shall have the right and option to terminate the remaining term of the Lease or
any renewal period as the case may be by providing to Lessor sixty (60) days
prior written notice of Lessee's election so to do. In consideration of
Lessee's right of termination as provided for herein, Lessee shall pay to Lessor
concurrently with the delivery of such notice, fifty percent (50%) of the
remaining lease liability calculated from the date of the termination of the
Lease to the original expiration date of the Lease or any renewal period as the
case may be.

28. CANCELLATION BY LESSOR: In the event that Lessor requires the space
contained in the Demised Premises for the purpose of expanding its business
operation or the business operation of any affiliated company of Lessor or
partnership in which Lessor is a partner, then Lessor shall have, at any time
after the expiration of the N/A lease year of the primary term hereof, the
option to terminate the remaining primary term of the Lease or any renewal
period as the case may be, by providing Lessee with one (1) year prior written
notice of Lessor's election to do so.

29. HAZARDOUS MATERIALS: Lessee shall not, without the prior written
consent of Lessor, use, store, manufacture, release, generate, dispose of or
transport any Hazardous Material (as defined in the Sales Agreement) on, under,
about or near the Demised Premises or the Building; provided, however, that
Lessee may, without Lessor's prior written consent, use and store on the Demised
Premises commonly used cleaning materials and the substances described in
attached Exhibit "D" (provided that such cleaning materials and substances are
used and stored in a manner that prevents contamination of the Demised Premises

16
<PAGE>

and the Building). Any Hazardous Materials used, stored, manufactured,
released, generated, disposed of or transported on, under, about or near the
Demised Premises or the Building by Lessee shall be done so in accordance with
all applicable laws, statutes, codes, ordinances, rules and regulations.

In the event Lessee causes any contamination of the Demised Premises or the
Building, Lessee shall, upon demand of Lessor and at Lessee's sole cost and
expense, promptly take all actions reasonably required by Lessor to remedy any
such contamination. Lessee shall indemnify, defend (with counsel reasonably
acceptable to Lessor), protect and hold harmless Lessor (and Lessor's directors,
officers, shareholders, partners, affiliates, employees, attorneys, agents and
representatives, the foregoing being collectively referred to as "Lessor's
Representatives") from and against any and all claims, demands, liabilities,
obligations, damages, causes of action, judgments, losses, penalties, fines,
costs and expenses (including, without limitation, reasonable attorney's fees)
which Lessor or any of Lessor's Representatives may incur or suffer by reason of
or in connection with any use, storage, manufacture, release, generation,
disposal or transport of any Hazardous Materials on, under, about or near the
Demised Premises or the Building by Lessee or any of Lessee's officers,
employees, agents, representatives, contractors, licensees, invitees or
subtenants. The provisions of this paragraph shall survive the expiration or
earlier termination of this Lease.

30. TIME OF ESSENCE: Time is of the essence with respect to the
performance of all obligations to be performed or observed by the parties under
this Lease.

31. CUMULATIVE REMEDIES: No remedy or election hereunder shall be deemed
exclusive but shall, whenever possible, be cumulative with all other remedies at
law or in equity.

17
<PAGE>

32. ATTORNEY'S FEES: If either party brings an action or a proceeding to
enforce the terms hereof or declare the rights hereunder, the prevailing party
shall be entitled to reasonable attorneys' fees. Lessor shall be entitled to
reasonable attorneys' fees, costs and expenses incurred in the preparation and
service of any notices of default for payment of rent, whether or not a legal
action is subsequently commenced.

33. NOTICE: By the terms of this Lease, whenever notice shall or may be
given either to Lessor or Lessee, such notice shall be in writing and shall be
delivered in hand or sent by Certified Mail, Return Receipt Requested, postage
prepaid:

If intended for Lessor, addressed to it at the then current address for
making rental payments or at such other address as may from time to time be
designated by Lessor by like notice; and

If intended for Lessee, addressed to 1 BRYAN DRIVE, WHEELING, WV 26003 or
at such other addresses as may from time to time be designated by Lessee by like
notice.

34. SUCCESSORS: Subject to the terms of Paragraph 4 of this Lease, the
covenants, agreements, terms, conditions and warranties of this Lease shall be
binding upon and inure to the benefit of Lessor and Lessee and their respective
heirs, executors, administrators, successors and assigns.

IN WITNESS WHEREOF, the parties hereto have signed and sealed the foregoing
Lease Agreement on the day and year first written above.

DIRK INVESTMENTS, INC. (Lessor)

Attest: By: /s/ Patrick J. Dirk
--------------------------------

/s/ Mary J. Dirk (Title) Chairman
- ------------------------------ -----------------------
(Title) Secretary
------------------

18
<PAGE>

MICROSS DIVISION OF PIERCE
COMPANIES, INC. (Lessee)

Attest: By: /s/ C. Wieczorek
--------------------------------

/s/ Mary J. Dirk (Title) Corporate Treasurer
- ------------------------------ -----------------------
Secretary

STATE OF CALIFORNIA,

COUNTY OF ORANGE, to-wit:

The foregoing Lease was acknowledged before me this 22nd day of July, 1993,
by Patrick J. Dirk, Chairman, and Mary J. Dirk, Secretary and C. Wieczorek,
Corporate Treasurer of Dirk Investments, Inc., a Delaware corporation, on behalf
of the corporation.

/s/ Teresa Petrichella
------------------------------
Notary Public

My Commission Expires:

April 28, 1995
- -------------------------

STATE OF WEST VIRGINIA,

COUNTY OF OHIO, to-wit:

The foregoing Lease was acknowledged before me this 30th day of July, 1993,
by C. Weiczorek, Corporate Treasurer of Micross Division of Pierce Companies,
Inc., a corporation, on behalf of the corporation.

/s/ Karen Sue Berg
------------------------------
Notary Public

My Commission Expires:

May 19, 2002
- -------------------------

This Lease prepared by:
Terry Rieman Camillch
Schrader, Byrd, Byrum & Companion
1000 Hawley Bldg.
Wheeling, WV 26003

19
<PAGE>

EXHIBIT "A"
July 21, 1993

Copy of plat map.

20
<PAGE>

EXHIBIT "B" (7/21/93)

FIRST

ALL that certain tract of land situate on the westerly side of the Greggsville
Clinton and Potomac Road, partially in the City of Wheeling and partially in
Richland - Washington District (formerly Richland District), Ohio County, West
Virginia, and being more particularly bounded and described as follows:

BEGINNING at a point in the Greggsville, Clinton and Potomac Road at a common
corner to Lot No. 1, Map of Washington Acres, said map being recorded in the
Office of the Clerk of the County Court of Ohio County, West Virginia, in Deed
Book Volume 309, page 118, and the most southerly corner of the 14 and 111/1000
acre tract of land which was conveyed by Lawrence Washington Farms, Inc., to
John E. Griffith and Norma V. Griffith, by deed dated October 30, 1978 and
recorded in said County Clerk's Office in Deed Book Volume 586, page 399; thence
from said beginning point with said Greggsville, Clinton and Potomac Road, South
21 degrees 46 minutes 40 seconds West 325 and 72/100 feet to a point at the most
easterly corner of the 3 and 276/1000 acre tract of land that was conveyed by
Emma Landmyer to the Wheeling Dollar Savings and Trust Company by deed dated
June 15, 1960 and recorded in said County Clerk's Office in Deed Book Volume
418, page 440; thence leaving said road and with lines of the said 3 and
276/1000 acre tract the following three (3) bearings and distances: North 71
degrees 51 minutes 40 seconds West 334 and 91/100 feet to a point; thence North
71 degrees 47 minutes West 146 and 17/100 feet to a point; thence North 67
degrees 27 minutes West 722 and 61/100 feet to a point in lands now or formerly
owned by August Schafer; thence with said Schafer tract the following six (6)
bearings and distances: North 86 degrees 14 minutes 20 seconds East 391 and
42/100 feet to a point; thence North 29 degrees 36 minutes 20 seconds West 403
and 75/100 feet to a point; thence North 19 degrees 41 minutes West 214 and 5/10
feet to a point; thence North 11 degrees 11 minutes West 1567 feet to a point;
thence North 09 degrees 19 minutes East 660 feet to a point; thence South 81
degrees 41 minutes East 165 feet to a point in lines of Lawrence Washington
Farms, Inc.; thence with said Lawrence Washington Farms, Inc., the following two
(2) bearings and distances: South 11 degrees 55 minutes 10 seconds East 412 and
5/10 feet to a point; thence South 21 degrees 55 minutes 10 seconds East (at 550
feet passing the most westerly corner of the 50 and 671/1000 acre tract of land
which was conveyed by Lawrence Washington Farms, Inc., to County Estates, Inc.,
by deed dated April 12, 1979 and recorded in said County Clerk's Office in Deed
Book Volume 589, page 273, and 2,162 and 1/100 feet passing the division line
between the said 50 and 671/1000 acre tract of land and the 14 and 111/1000 acre
tract of land) 2,442 feet to a point; thence continuing with said 14 and
111/1000 acre tract, South 39 degrees 25 minutes 10 seconds East 257 and 4/100
feet to the place of beginning, containing 42.037 acres, more or less, and as
shown on the map prepared by Stegman and Schellhase, Inc., Civil Engineers and
Surveyors, dated February 24, 1981.

SECOND

ALL that certain tract of land situate in Richland District, Ohio County, and
State of West Virginia, being more particularly bounded and described as
follows:

21
<PAGE>

BEGINNING at a point in the Greggsville, Clinton and Potomac Road at the most
easterly corner of the 3 and 276/1000 acre tract of land that was conveyed by
Emma Landmyer to the Wheeling Dollar Savings & Trust Company by deed dated June
15, 1960 and recorded in the office of the Clerk of the County Court of Ohio
County, West Virginia, in Deed Book 418, at page 440; thence from said beginning
point and with said road, South 23 degrees 38' 20" West, 100 and 46/100 feet to
a point; thence leaving said road and with the northerly lines of D.M.
Alexander's Second Addition, a copy of said plat being on file in said Clerk's
office in Plat Book 1, at page 86 and the easterly and westerly extensions of
same the following two (2) bearings and distances: North 71 degrees 51' 40"
West, 329 and 12/100 feet to a point; thence North 71 degrees 47' West, 146 and
28/100 feet to a point; thence crossing through said 3 and 276/1000 acre tract,
North 18 degrees 13' East, 100 feet to a concrete monument in a northerly line
of said 3 and 276/1000 acre tract; thence with same the following two (2)
bearings and distances: South 71 degrees 47' East, 146 and 17/100 feet to an
iron pin; thence South 71 degrees 51' 40" East, (at 271 and 69/100 feet passing
an iron pin) 338 and 68/100 feet to the place of beginning, containing 1 1/10
acres, more or less, as compiled from surveys by Stegman & Schellhase, Inc.,
Civil Engineers and Surveyors.

22
<PAGE>

State of West Virginia, County of Ohio, to-wit:

I, Chester W. Kloss, Clerk of the County Commission of said County, do
certify that the forgoing document was admitted to record in this office on the
2nd day of August 1993 at 3:04 P.M.

/s/ Chester W. Kloss
-----------------------------------
Clerk of County Commission

<PAGE>

Exhibit 10.3

LEASE AMENDMENT
(as of July 28, 1993)

The Lease (hereinafter "the Lease") entered into as of July 28, 1993
between Dirk Investments, Inc. (hereinafter referred to as "Lessor") and MICROSS
Division of Pierce Companies, Inc. (hereinafter referred to as "Lessee") is
hereby amended as follows:

(1) The reference to "MICROSS Division of Pierce Companies, Inc." in the
preamble and signature block (p.19) incorrectly refers to the MICROSS division
and should, instead, have referred to Pierce Companies, Inc. as Lessee, the
original intention of the parties; accordingly, the preamble and signature block
is hereby amended to show the Lessee as "Pierce Companies, Inc."

(2) The description of the Demised Premises on Page 1 of the Lease
incorrectly does not reflect the original intention of the parties to exclude
from this Lease the portion of the Demised Premises leased by Dirk Investments,
Inc. to Tire America, Inc. by Lease dated July 21, 1993 of office space
consisting of approximately 9,100 square feet and warehouse space of
approximately 3,750 square feet together with parking privileges; accordingly,
the description of the Demised Premises is hereby amended so as to delete the
first four lines of the description and insert instead the words: "All of the
warehouse space containing 67,150 square feet, including all improvements
therein, as. . ."

(3) The last sentence of Paragraph 20 of the Lease incorrectly imposes on
the Lessor the obligation to pay all real estate taxes, contrary to the original
intention of the parties; accordingly, the Lease is hereby amended so that the
last sentence of Paragraph 20 of the Lease shall read: "Lessee shall pay all
real estate taxes assessed against the subject property."

(4) Paragraph 25 of the Lease incorrectly omits to state that Lessor and
Lessee shall be financially responsible for maintenance of the common areas on a
pro rata basis, the original

<PAGE>

intention of the parties; accordingly, the first two lines of Paragraph 25 of
the Lease are hereby amended to read: "Lessor and Lessee agree to maintain on a
pro rata basis at all times during the term of this Lease or any extension
thereof, . . ."

IN WITNESS WHEREOF, the parties hereto have signed and sealed the foregoing
Lease Amendment on the 22nd day of March 1994.

DIRK INVESTMENTS, INC. (Lessor)

Attest: By: /s/ Patrick J. Dirk
--------------------------------

/s/ Mary J. Dirk (Title) Chairman
- ------------------------------------- ----------------------------

(Title) Secretary
--------------------------

PIERCE COMPANIES, INC. (Lessee)

Attest: By: /s/ Patrick J. Dirk
--------------------------------

/s/ Mary J. Dirk (Title) CEO
- -------------------------------- ---------------------------
Secretary

This instrument prepared by:

Raymond F. Schuler, Esq.
Kindel & Anderson
5 Park Plaza, Suite 1000
Irvine, CA 92714
Tele: (714) 752-0777

<PAGE>

NOTARIAL ACKNOWLEDGMENT

STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )

The foregoing instrument was acknowledged before me this March 22, 1994 by
Patrick J. Dirk, Chairman of Dirk Investments, Inc., a Delaware corporation, on
behalf of the corporation.

/s/ Teresa Petrichella
--------------------------------
Notary Public

STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )

The foregoing instrument was acknowledged before me this March 22, 1994 by
Patrick J. Dirk, CEO of Pierce Companies, Inc., a Delaware corporation, on
behalf of the corporation.

/s/ Teresa Petrichella
--------------------------------
Notary Public

State of West Virginia, County of Ohio, to-wit:

I, Chester W. Kloss, Clerk of the County Commission of said County, do
certify that the foregoing document was admitted to record in this office on the
25th day of March 1994 at 2:25 P.M.

/s/ Chester W. Kloss
--------------------------------
Clerk of County Commission

<PAGE>

EXHIBIT 10.4

ADDENDUM DATED AS OF MARCH 16, 1995
TO LEASE AGREEMENT
DATED JULY 28, 1993 AS AMENDED ("LEASE")
BETWEEN
DIRK INVESTMENTS, INC. and PIERCE COMPANIES, INC.

For good and valuable consideration, the receipt of which is hereby
acknowledged by Dirk Investments, Inc. ("Lessor") from the Pierce Companies,
Inc. ("Lessee") Lessor and Lessee agree to amend the Lease as follows:

A. The reference to "Pierce Companies, Inc." in the preamble and in the
signature block (p.19) should be amended and changed back to read "Micross
Division of Pierce Companies, Inc."

B. Paragraph 2 of the Lease is hereby amended by adding the following
sentence to the end thereof. "Upon thirty days prior written notice to Lessee,
Lessor may once in each lease year, (measured from September 1 through August
30) increase the monthly rent for the balance of such lease year, and
thereafter, commencing with the next full month after the sending of such
notice, up to a maximum of six percent (6%) over the immediately preceding
month's rental rate."

C. Paragraph 8 of the Lease is hereby amended so that the obligations,
duties and economic burden of Lessor under such Paragraph are hereby transferred
to and assumed by Lessee.

D. Paragraph 15 of the Lease is hereby amended so that the obligations,
duties and economic burden of Lessor as referred to in the last sentence of such
Paragraph are hereby transferred to and assumed by Lessee.

<PAGE>

E. Paragraph 21 of the Lease is hereby amended so that the obligations,
duties and economic burden of Lessor as referred to in the second sentence of
such Paragraph are hereby transferred to and assumed by Lessee.

F. Paragraph 23 of the Lease is hereby amended so that the obligations,
duties and economic burden of Lessor under such Paragraph are hereby transferred
to and assumed by the Lessee.

G. Paragraph 25 of the Lease is hereby amended so that the obligations,
duties and economic burden of Lessor under such Paragraph are hereby transferred
to and assumed by the Lessee.

IN WITNESS WHEREOF, the parties hereto have signed and sealed the foregoing
Addendum to Lease Agreement on the 16th day of March 1995.

DIRK INVESTMENTS, INC. (Lessor)

Attest: By: /s/ Patrick J. Dirk
--------------------------------

/s/ Mary J. Dirk (Title) Chairman
- ------------------------------ ----------------------------
Mary J. Dirk, Secretary

MICROSS DIV. OF
PIERCE COMPANIES, INC. (Lessee)

Attest: By: /s/ Patrick J. Dirk
--------------------------------

/s/ Mary J. Dirk (Title) Chairman
- ------------------------------ ----------------------------
Mary J. Dirk, Secretary

<PAGE>

Exhibit 10.5

LEASE AMENDMENT
(AS OF SEPTEMBER 1, 1996)

The Lease (hereinafter referred to as "the Lease") entered into as of July
28, 1993 between DIRK INVESTMENTS, INC., a Delaware corporation (hereinafter
referred to as "Lessor") and the MICROSS DIVISION OF PIERCE COMPANIES, INC.
(hereinafter referred to as "Lessee") is hereby amended to reflect the fact that
the Lessee has now taken over the portion of the Demised Premises formerly
leased by the Lessor to Tire America Inc. by Lease dated July 21, 1993 of office
space consisting of approximately 9,100 square feet and warehouse space of
approximately 3,750 square feet together with parking privileges; accordingly,
the description of the Demised Premises in the Lease is hereby amended so that
the first sentence reads as follows:

IN WITNESS WHEREOF, the parties hereto have signed and sealed the foregoing
Lease Amendment on the 29th day of December 1997.

DIRK INVESTMENTS, INC. (Lessor) MICROSS DIVISION OF TROY
GROUP, INC. (formerly known as
PIERCE COMPANIES, INC.)
(Lessee)

BY:/s/ Patrick J. Dirk BY: /s/ Patrick J. Dirk
-------------------------------- --------------------------------
Patrick J. Dirk, Chairman Patrick J. Dirk, Chairman

<PAGE>

Exhibit 10.6
TROY SYSTEMS INC.
1996 STOCK OPTION PLAN
ADOPTED NOVEMBER 26, 1996

1. PURPOSES.

(a) The Company, by means of the Plan, seeks to provide incentives
for present and new Employees, Directors and Consultants to the Company to exert
maximum efforts for the success of the Company and the achievement of its
business and financial goals.

(b) The Company intends that the Options issued under the Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3 (c), be
either Incentive Stock Options or Nonstatutory Stock Options. All Options shall
be separately designated Incentive Stock Options or Non statutory Stock Options
at the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.

2. DEFINITIONS.

(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
sections 424 (e) and (f) respectively, of the Code.

(b) "BOARD" means the Board of Directors of the Company.

(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3 (c) of the Plan.

(e) "COMPANY" means Troy Systems Inc., a California corporation.

(f) "CONSULTANT" means any person, including an advisor, engaged by
the Company or an Affiliate to render services and who is compensated for such
services, provided that the term "Consultant" shall not include Directors who
are paid only a director's fee by the Company or who are not compensated by the
Company for their services as Directors.

(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the employment or relationship as a Director or Consultant is not interrupted or
terminated by the Company or any Affiliate. The Board, in its sole discretion,
may determine whether Continuous Status as an Employee, Director or Consultant
shall be considered interrupted in the case of: (i) any leave of absence
approved by the Board, including sick leave, military leave, or any other
personal leave; provided, however, that for purposes of Incentive Stock Options,
any such leave

<PAGE>

may not exceed ninety (90) days, unless reemployment upon the expiration of such
leave is guaranteed by contract (including certain Company policies) or statute;
or (ii) transfers between locations of the Company or between the Company,
Affiliates or its successor.

(h) "DIRECTOR" means a member of the Board.

(i) "DISABILITY" means total and permanent disability as defined in
Section 22 (e) (3) of the code.

(j) "DISINTERESTED PERSON" means a Director: (i) who was not during
the one year prior to service as an administrator of the Plan granted or awarded
equity securities pursuant to the Plan or any other plan of the Company or any
of its Affiliates entitling the participants therein to acquire equity
securities of the Company or any of its affiliates except as permitted by Rule
16b-3 (c) (2) (i); or (ii) who is otherwise considered to be a "disinterested
person" in accordance with Rule 16b-3 (c) (2) (i), or any other applicable
rules, regulations or interpretations of the Securities and Exchange Commission.

(k) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director' s fee by the Company shall be sufficient to
constitute "employment" by the Company.

(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

(m) "FAIR MARKET VALUE" means, as of any date, the value of the
common stock of the Company determined as follows:

(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;

(ii) If the common stock is quoted on the NASDAQ system (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a share of common stock shall be the mean between the high bid
and high asked prices for the common stock on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;

(iii) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.

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<PAGE>

(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.

(p) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

(q) "OPTION" means a stock option granted pursuant to the Plan.

(r) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.

(s) "OPTIONED STOCK" means the common stock of the Company subject to
an Option.

(t) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.

(u) "PLAN" means this 1996 Stock Option Plan of Troy Systems Inc.

(v) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

3. ADMINISTRATION.

(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3 (c).

(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:

(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Options; when and how the Option shall
be granted; whether the Option will be an Incentive Stock Option or a
Nonstatutory Stock Option; the provisions of each Option granted (which need not
be identical), including the time or times such Option may be exercised in whole
or in part; and the number of shares for which an Option shall be granted to
each such person.

3
<PAGE>

(2) To construe and interpret the Plan and Options granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.

(3) To amend the Plan as provided in Section 11.

(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be disinterested persons, if required and as defined by
the provisions of subsection 3 (d). If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee at
any time and revest in the Board the administration of the Plan. Additionally,
prior to the date of the first registration of an equity security of the Company
under Section 12 of the Exchange Act, and notwithstanding anything to the
contrary contained herein, the Board may delegate administration of the Plan to
any person or persons and the term "Committee" shall apply to any person or
persons to whom such authority has been delegated.

(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or the Committee expressly declares that such
requirement shall not apply. Any Disinterested Person shall otherwise comply
with the requirements of Rule 16b-3.

4. SHARES SUBJECT TO THE PLAN.

(a) Subject to the provisions of Section 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to Options shall not
exceed in the aggregate four hundred (400) shares of the Company's common stock.
If any Option shall for any reason expire or otherwise terminate without having
been exercised in full, the stock not purchased under such Option shall again
become available for the Plan.

(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.

5. ELIGIBILITY.

(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees, Directors or
Consultants.

4
<PAGE>

(b) A Director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of the Director
as a person to whom Options may be granted, or in the determination of the
number of shares which may be covered by Options granted to the Director: (i)
the Board has delegated its discretionary authority over the Plan to a Committee
which consists solely of Disinterested Persons; or (ii) the Plan otherwise
complies with the requirements of Rule 16b-3. The Board shall otherwise comply
with the requirements of Rule 16b-3. This subsection 5 (b) shall not apply (i)
prior to the date of the first registration of an equity security of the Company
under Section 12 of the Exchange Act, or (ii) if the Board or Committee
expressly declares that it shall not apply.

(c) No person shall be eligible for the grant of any Option if, at
the time of grant, such person owns (or is deemed to own pursuant to Section 424
(d) of the Code) stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any of its
Affiliates unless the exercise price of such Option is at least one hundred ten
percent (110%) of the Fair Market Value of such stock at the date of grant and
the Option is not exercisable after the expiration of five (5) years from the
date of grant.

6. OPTION PROVISIONS.

Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:

(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.

(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the option on the date the
option is granted.

(c) CONSIDERATION. The purchase price of stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the option is exercised, or (ii) at
the discretion of the Board or the Committee, either at the time of the grant or
exercise of the Option, (A) by delivery to the Company of other common stock of
the Company, (B) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
common stock of the Company) with the person to whom the Option is granted or to
whom the Option is transferred pursuant to subsection 6(d), or (C) in any other
form of legal consideration that may be acceptable to the Board.

In the case of any deferred payment arrangement, interest shall be payable
at least annually and shall be charged at the minimum rate of interest necessary
to avoid the treatment as

5
<PAGE>

interest, under any applicable provisions of the Code, of any amounts other than
amounts stated to be interest under the deferred payment arrangement.

(d) TRANSFERABILITY. An Option shall not be transferable except by
will or by the laws of descent and distribution, and shall be exercisable during
the lifetime of the person to whom the Option is granted only by such person. No
interest of any Optionee under this Plan shall be subject to attachment,
execution, garnishment, sequestration, the laws of bankruptcy or any other legal
or equitable process.

(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. During the remainder of the term of the Option (if its term extends
beyond the end of the installment periods), the option may be exercised from
time to time with respect to any shares then remaining subject to the Option.
The provisions of this subsection 6(e) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.

(f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee,
or any person to whom an Option is transferred under subsection 6(d), as a
condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Option; and (2) to give written assurances satisfactory to the
Company stating that such persons is acquiring the stock subject to the Option
for such person's own account and not with any present intention of selling or
otherwise distributing the stock. These requirements, and any assurances given
pursuant to such requirements, shall be inoperative if (i) the issuance of the
shares upon the exercise of the Option has been registered under a then
currently effective registration statement under the Securities act, or (ii) as
to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws.

(g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
Disability), the Optionee may exercise his or her Option, but only within such
period of time as is determined by the Board, and only to the extent that the
Optionee was entitled to exercise it as the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the case of an Incentive Stock Option, the Board shall determine
such period of time (in no event to exceed three (3) months from the date of
termination) when the Option is granted. If at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the shares
covered

6
<PAGE>

by the unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her Option within the time
specified in the Option Agreement, the Option shall terminate, and the shares
covered by such Option shall revert to the Plan.

(h) DISABILITY OF OPTIONEE. In the event an Optionee's continuous
status as an Employee, Director or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option, but only
within twelve (12) months following the date of death (or such shorter period
specified in the Option Agreement) (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement), by the
Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent the Optionee was
entitled to exercise the Option at the date of death. If, at the time of
death, the Optionee was not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after death, the Optionee's estate or a person who acquired the
right to exercise the Option by bequest or inheritance does not exercise the
Option within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to the Plan.

(j) WITHHOLDING. Unless varied by the terms of an Option Agreement,
the Company may, in its sole discretion, elect to require the Optionee to
satisfy any federal, state or local tax withholding obligation relating to the
exercise of such Option by any of the following means or by a combination of
such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold shares from the shares of the common stock otherwise issuable to the
participant as a result of the exercise of the Option; or (3) delivering to the
Company owned and unencumbered shares of the common stock of the Company.

7. COVENANTS OF THE COMPANY.

(a) During the terms of the Options, the Company shall keep available
at all times the number of shares of stock required to satisfy such Options.

(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Options; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Option or any stock issued or issuable
pursuant to any such Option. If, after reasonable efforts, the Company is unable
to obtain from any such regulatory commission or agency the authority which
counsel for the Company deems necessary for the lawful issuance and sale of
stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless and until
such authority is obtained.

8. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant
to Options shall constitute general funds of the Company.

7
<PAGE>

9. MISCELLANEOUS.

(a) Neither an Optionee nor any person to whom an Option is
transferred under subsection 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
Option unless and until such person has satisfied all requirements for exercise
of the Option pursuant to its terms.

(b) Throughout the term of any Option, the Company shall deliver to
the holder of such Option, not later than one hundred twenty (120) days after
the close of each of the Company's fiscal years during the Option term, such
financial and other information regarding the Company as comprises the annual
report to the stockholders of the Company provided for in the bylaws of the
Company.

(c) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the employ of the Company or any Affiliate (or
to continue acting as a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment or relationship as a
Director or consultant of any Employee, Director, Consultant or Optionee with or
without cause.

(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.

10. ADJUSTMENTS UPON CHANGES IN STOCK.

(a) If any change is made in the stock subject to the Plan, or
subject to any Option (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Plan and outstanding Options will be
proportionately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding Options.

(b) In the event of: (1) a merger or consolidation in which the
Company is not the surviving corporation or (2) a reverse merger in which the
Company is the surviving corporation but the shares of the company's common
stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities, cash or
otherwise, then to the extent permitted by applicable law: (i) any surviving
corporation shall assume any Options outstanding under the Plan or shall
substitute similar Options for those outstanding under the Plan, or (ii) such
Options shall continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such Options, or to substitute similar
options for those outstanding under the Plan, then such Options shall be

8
<PAGE>

terminated if not exercised prior to such event. In the event of a dissolution
or liquidation of the Company, any Options outstanding under the Plan shall
terminate if not exercised prior to such event.

11. AMENDMENT OF THE PLAN.

(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 10 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:

(i) Increase the number of shares reserved for options under
the Plan;

(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of the
Code); or

(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.

(b) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.

(c) Rights and obligations under any Option granted before amendment
of the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Option was
granted and (ii) such person consents in writing.

12. TERMINATION OR SUSPENSION OF THE PLAN.

(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on November 25, 2006 which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Options may be
granted under the Plan while the Plan is suspended or after it is terminated.

(b) Rights and obligations under any Option granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Option was granted.

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<PAGE>

13. NO RIGHTS AS A SHAREHOLDER. No Optionee shall have any rights as a
shareholder with respect to any shares subject to Options prior to the date of
issuance to him or her of a certificate for such shares and as provided in the
Option Agreement.

14. NO RIGHT TO CONTINUED EMPLOYMENT. Neither this Plan nor any Option
granted under this Plan shall confer upon any Optionee or any other person any
right to continued employment by the Company, or any Affiliate, nor shall it
interfere in any way with the right of his or her employer to terminate his or
her employment at any time.

15. TAX OR LEGAL ADVICE. The Board, the Committee, the Directors, the
officers of the Company and the employees of the Company shall not be under any
duty to provide to any Optionee tax or legal advice concerning any Option or any
other matter.

16. NON-LIABILITY. No member of the Board, the Committee and no Director
or Officer of the Company shall be personally liable for any action,
determination or interpretation made in good faith with respect to this Plan or
any Option, and such persons shall be fully protected by the Company to the full
extent that the Company is permitted to provide such protection, in respect to
any such action, determination or interpretation.

17. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined
by the Board, but no Options granted under the Plan shall be exercised unless
and until the Plan has been approved by the stockholders of the Company, and, if
required, an appropriate permit has been issued by the Commissioner of
Corporations of the State of California.

SIGNED AT Santa Ana, California.

TROY SYSTEMS INC.

BY: /s/ Patrick J. Dirk
--------------------------
President

<PAGE>

Exhibit 10.8

IT IS UNLAWFUL TO CONSUMMATE A SALE
OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE
ANY CONSIDERATION THEREFORE,
WITHOUT PRIOR WRITTEN CONSENT OF
THE COMMISSIONER OF CORPORATIONS OF
THE STATE OF CALIFORNIA, EXCEPT AS
PERMITTED IN THE COMMISSIONER'S
RULES.

INCENTIVE STOCK OPTION
AGREEMENT

ROBERT MESSINA, Optionee:

Troy Systems Inc. (the "Company"), pursuant to its 1996 Stock Option Plan
("The Plan"), has this day granted to you the optionee named above, an option to
purchase shares of the common stock of the Company ("Common Stock"). This option
is intended to qualify as an "incentive stock option" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").

This option is granted to you solely in order to incentivise you as a
senior executive in the Company to exert your maximum efforts to position the
Company (hopefully within thirty-six (36) months after the date of this
option) either for a sale of more than fifty-one percent (51%) of the issued
and outstanding shares of the Company's voting Common Stock on terms
satisfactory to the Board of Directors and the Shareholders of the Company,
in their respective sole discretions, or for a conversion of the Company to a
public Company, as determined by the Board of Directors and Shareholders of
the Company in their respective sole discretions. Anything herein to the
contrary notwithstanding, this option shall not vest any beneficial or legal
rights in you as an Optionee with respect to the Company's stock until the
sale of more than fifty-one (51%) percent of the issued and outstanding shares
of the Company' s voting Common stock or until the conversion of the Company
to a public Company. The Company makes no representation that any such sale
or conversion will ever take place. The grant hereunder is intended to comply
with the provisions of Rule 701 promulgated by the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"). The
Board of Directors of the Company may decide to grant vested legal and
beneficial status to the options granted in this Agreement in the event of a
substantial recapitalization of the Company.

The details of your option are as follows:

<PAGE>

1. The total number of shares of Common Stock subject to this option is
two hundred sixty-nine (269). Subject to the limitations contained herein, this
option shall be one hundred percent exercisable after the date of vesting as
described above.

2. (a) The exercise price of this option is Three Hundred Seventy-One
Dollars and Forty-Three Cent ($371.43) per share, being not less than the fair
market value of the Common Stock on the date of grant of this option.

(b) The Company may, at the discretion of the Board of Directors,
permit financing with respect to the payment of the exercise price.

3. The minimum number of shares with respect to which this option may be
exercised at any one time is one hundred (100).

4. Notwithstanding anything to the contrary contained herein, this option
may not be exercised unless the shares issuable upon exercise of this option are
then registered under the Act, or, if such shares are not then so registered,
the Company has determined that such exercise and issuance would be exempt from
the registration requirements of the Act.

5. The term of this option commences on the date hereof and, unless
sooner terminated as set forth below or in the Plan, terminates on November 25,
2006 (which date shall be no more than ten (10) years from date this option is
granted). In no event may this option be exercised on or after the date on which
it terminates. This option shall terminate prior to the expiration of its term
as follows thirty (30) days after the termination of your employment with the
Company or an affiliate of the Company (as defined in the Plan) for any reason
or for no reason unless:

(a) such termination of employment is due to your permanent and total
disability (within the meaning of Section 422 (c) (6) of the Code), in which
event the option shall terminate on the earlier of the termination date set
forth above or twelve (12) months following such permanent and total disability;
or

(b) such termination of employment is due to your death, in which
event the option shall terminate on the earlier of the termination date set
forth above or twelve (12) months after your death; or

(c) during any part of such thirty (30) day period the option is not
exercisable solely because of the condition set forth in paragraph 4 above, in
which event the option shall not terminate until the earlier of the termination
date set forth above or until it shall have been exercisable for an aggregate
period of thirty (30) days after the termination of employment; or

(d) exercise of the option within thirty (30) days after termination
of your employment with the Company or with an affiliate would result in
liability under section 16 (b) of the Securities Exchange Act of 1934, in which
case the option will terminate on the earlier of (i) the thirtieth (30th) day
after the last date upon which exercise would result in such liability or (ii)

<PAGE>

six (6) months and thirty (30) days after the termination of your employment
with the Company or an Affiliate.

However this option may be exercised following termination 9f employment only as
to that number as shares as to which it was exercisable on the date of
termination of employment under the provisions of paragraph 1 of this option.

6. (A) This option may be exercised, to the extent specified above, by
delivering a notice of exercise (in a form designated by the Company) together
with the exercise price to the Secretary of the Company, or to such other person
as the Company may designate, during regular business hours, together with such
additional documents as the Company may then require pursuant to subparagraph
6(f) of the Plan.

(B) By exercising this option you agree that:

(i) the Company may require you to enter an arrangement
providing for the payment by you to the Company of any tax withholding
obligation of the Company arising by reason of (1) the exercise of this option;
(2) the lapse of any substantial risk of forfeiture to which the shares are
subject at the time of exercise; or (3) the disposition of shares acquired upon
such exercise;

(ii) you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of this option that occurs within two (2) years after
the date of this option grant or within one (1) year after such shares of Common
stock are transferred upon exercise of this option; and

(iii) the Company (or a representative of the underwriters)
may, in connection with the first underwritten registration of the offering of
any securities of the Company under the Act, require that you not sell or
otherwise transfer or dispose of any shares of Common Stock or other securities
of the Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters; provided, however, that such
restriction shall apply only if, on the Effective Date, you are an officer,
director, or owner of more than one percent (1%) of the outstanding securities
of the Company. For purposes of this restriction you will be deemed to own
securities which (i) are owned directly or indirectly by you, including
securities held for your benefit by nominees, custodians, brokers or pledgees;
(ii) may be acquired by you within sixty (60) days of the Effective Date; (iii)
are owned directly or indirectly, by or for your brothers or sisters (whether by
whole or half blood) spouse, ancestors and lineal descendants; or (iv) are
owned, directly or indirectly, by or for a corporation, partnership, estate or
trust of which you are a shareholder, partner or beneficiary, but only to the
extent of your proportionate interest therein as a shareholder, partner or
beneficiary thereof. You further agree that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period.

<PAGE>

7. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.

8. This option is not an employment contract and nothing in this option
shall be deemed to create in any way whatsoever any obligation on your part to
continue in the employ of the Company, or of the Company to continue your
employment with the Company.

9. Any notices provided for in this option or the Plan shall be given in
writing and shall be deemed effectively given upon receipt or, in the case of
notices delivered by the Company to you, five (5) days after deposit in the
United States mail, postage prepaid, addressed to you at the address specified
below or at such other address as you hereafter designate by written notice to
the Company.

10. This option is subject to all the provisions of the Plan, a copy of
which is attached hereto and its provisions are hereby made a part of this
option, including without limitation the provisions of paragraph 6 of the Plan
relating to option provisions, and is further subject to all interpretations,
amendments, rules and regulations which may from time to time be promulgated and
adopted pursuant to the Plan. In the event of any conflict between the
provisions of this option and those of the Plan, the provisions of the Plan
shall control.

Dated the 27th day of November, 1996.

Very truly yours,

By /s/ Patrick J. Dirk
--------------------------------
President
Duly authorized on behalf of the
Board of Directors

<PAGE>

OPTIONEE RECEIPT

The undersigned:

(a) Acknowledges receipt of the foregoing option and the attachments below
and understands that all rights and liabilities with respect to this option are
set forth in the option and the Plan; and

(b) Acknowledges that as of the date of grant of this option, it sets
forth the entire understanding between the undersigned optionee and the Company
and its affiliates regarding the acquisition of stock in the Company and
supersedes all prior oral and written agreements on that subject with the
exception of a certain non-competition agreement.

/s/ Robert S. Messina
------------------------------
ROBERT MESSINA

Attachments:

TROY SYSTEMS INC. 1996 Stock Option Plan
Regulation 260.141.11

<PAGE>
Exhibit 10.9

IT IS UNLAWFUL TO CONSUMMATE A SALE OR
TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE
COMMISSIONER'S RULES.

INCENTIVE STOCK OPTION
AGREEMENT

BRIAN DIRK, Optionee:

Troy Systems Inc. (the 'Company"), pursuant to its 1996 Stock Option Plan
("The Plan"), has this day granted to you, the optionee named above, an option
to purchase shares of the common stock of the Company ("Common Stock"). This
option is intended to qualify as an "incentive stock option" within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").

This option is granted to you solely in order to incentivise you as a
senior executive in the Company to exert your maximum efforts to position the
Company within thirty-six (36) months after the date of this option either for a
sale of more than fifty-one percent (51%) of the issued and outstanding shares
of the Company's voting Common Stock on terms satisfactory to the Board of
Directors and the Shareholders of the Company, in their respective sole
discretions, or for a conversion of the Company to a public Company, as
determined by the Board of Directors and Shareholders of the Company in their
respective sole discretions. Anything herein to the contrary notwithstanding,
this option shall not vest any beneficial or legal rights in you as an Optionee
with respect to the Company's stock until the sale of more than fifty-one (51%)
percent of the issued and outstanding shares of the Company's voting Common
stock or until the conversion of the Company to a public Company. The Company
makes no representation that any such sale or conversion will ever take place.
The grant hereunder is intended to comply with the provisions of Rule 701
promulgated by the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Act").

The details of your option are as follows:

1. The total number of shares of Common Stock subject to this option is
ninety (90). Subject to the limitations contained herein, this option shall be
one hundred percent exercisable after the date of vesting as described above.

<PAGE>

2. (a) The exercise price of this option is Four Hundred Eight Dollars
and Fifty-Six Cents ($408.56) per share, being not less than the fair market
value of the Common Stock on the date of grant of this option.

(b) The Company may, at the discretion of the Board of Directors,
permit financing with respect to the payment of the exercise price.

3. The minimum number of shares with respect to which this option may be
exercised at any one time is ten (10).

5. The term of this option commences on the date hereof and, unless
sooner terminated as set forth below or in the Plan, terminates on November 25,
2001 (which date shall be no more than ten (10) years from date this option is
granted). In no event may this option be exercised on' or after the date on
which it terminates. This option shall terminate prior to the expiration of its
term as follows thirty (30) days after the termination of your employment with
the Company or an affiliate of the Company (as defined in the Plan) for any
reason or for no reason unless:

(b) such termination of employment is due to your death, in which
event the option shall terminate on the earlier of the termination date set
forth above or twelve (12) months after your death; or

(d) exercise of the option within thirty (30) days after termination
of your employment with the Company or with an affiliate would result in
liability under section 16 (b) of the Securities Exchange Act of 1934, in which
case the option will terminate on the earlier of (i) the tenth (10th) day after
the last date upon which exercise would result in such liability or (ii) six (6)
months and ten (10) days after the termination of your employment with the
Company or an Affiliate.

<PAGE>

However this option may be exercised following termination of employment only as
to that number as shares as to which it was exercisable on the date of
termination of employment under the provisions of paragraph 1 of this option.

(B) By exercising this option you agree that:

(ii) you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of this option that occurs within two (2) years after the
date of this option grant or within one (1) year after such shares of Common
stock are transferred upon exercise of this option; and

(iii) the Company (or a representative of the underwriters) may,
in connection with the first underwritten registration of the offering of any
securities of the Company under the Act, require that you not sell or otherwise
transfer or dispose of any shares of Common Stock or other securities of the
Company during such period (not to exceed one hundred eighty (180) days)
following the effective date (the "Effective Date") of the registration
statement of the Company filed under the Act as may be requested by the Company
or the representative of the underwriters; provided, however, that such
restriction shall apply only if, on the Effective Date, you are an officer,
director, or owner of more than one percent (1%) of the outstanding securities
of the Company. For purposes of this restriction you will be deemed to own
securities which (i) are owned directly or indirectly by you, including
securities held for your benefit by nominees, custodians, brokers or pledgees;
(ii) may be acquired by you within sixty (60) days of the Effective Date; (iii)
are owned directly or indirectly, by or for your brothers or sisters (whether by
whole or half blood) spouse, ancestors and lineal descendants; or (iv) are
owned, directly or indirectly, by or for a corporation, partnership, estate or
trust of which you are a shareholder, partner or beneficiary, but only to the
extent of your proportionate interest therein as a shareholder, partner or
beneficiary thereof. You further agree that the Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such period.

7. This option is not transferable, except by will or by the laws of
descent and distribution, and is exercisable during your life only by you.

<PAGE>

Dated the 27th day of November, 1996.

Very truly yours,

By /s/ Patrick J. Dirk
--------------------------------
President
Duly authorized on behalf of the
Board of Directors

<PAGE>

OPTIONEE RECEIPT

The undersigned:

(a) Acknowledges receipt of the foregoing option and the attachments below
and understands that all rights and liabilities with respect to this option are
set forth in the option and the Plan; and

/s/ Brian P. Dirk
-----------------------------------
BRIAN DIRK

Attachments:

TROY SYSTEMS INC. 1996 Stock Option Plan
Regulation 260.141.11

<PAGE>

Exhibit 10.10
NON-COMPETITION AGREEMENT

This Agreement made as of November 27, 1996 by and between Troy Systems
Inc. (the "Company") and Robert Messina ("Mr. Messina").

WHEREAS: The Company wishes to enter into this non-competition agreement
(the "Agreement") with Mr. Messina in exchange for and in recognition of: (a)
its promotion of Mr. Messina to the positions of President and Chief Operating
Officer ("COO") of the Company and (b) the granting to Mr. Messina
contemporaneously herewith of certain options to acquire shares of the Company's
common stock;

WHEREAS: The Company believes that the access to marketing, manufacturing,
sales, technical, customer related, strategic planning and other information
which Mr. Messina will naturally and necessarily have by virtue of his new
position as President and COO of the Company makes it necessary for the Company
to have this Agreement with Mr. Messina as a precondition for such promotion and
the benefits that flow from it, as well as a precondition to the granting of the
aforementioned options; and

WHEREAS: Mr. Messina understands and agrees that the aforementioned
options are intended to replace and cancel Mr. Messina's participation in, and
any benefits or claims, accrued, contingent or otherwise, in or under the
Company's Phantom Stock Plan and any other compensation or benefit plan,
arrangement or understanding of or with the Company or any of its executives,
express or implied.

NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, as well as principally the severance obligation of the
Company as reflected in Section 5 hereof, Mr. Messina and the Company agree as
follows:

1. The above recitals are hereby made part of this Agreement;

2. Mr. Messina hereby waives and relinquishes any choate or inchoate
interest in any participation in, or any benefits or claims, accrued, contingent
or otherwise, in or under, the Company's Phantom Stock Plan and any other
compensation or benefit plan, arrangement or understanding of or with the
Company or any of its executives, express or implied.

3. Mr. Messina represents and warrants that there has been no assignment
or other transfer of any interest in any claim which he may have against the
Company with respect to the Company's Phantom Stock Plan or any other
compensation or benefit plan, arrangement or understanding and agrees to
indemnify the Company from any liabilities, claims, damages, costs or expenses,
including attorney's fees incurred by the Company as a result of any person
asserting such assignment or transfer.

4. (a) Mr. Messina understands and agrees that, in the course of his
employment with the Company, he has and will acquire privileged information and
trade secrets concerning,

<PAGE>

among other things, the Company's operations, its relationship with the
printing groups of Hewlett Packard Company ("HP"), Siemens and IBM and the
Company's customers, distributors, suppliers and co-venturers, and its future
plans and its methods of doing business (collectively, "Proprietary
Information"). Mr. Messina understands and agrees that it would be extremely
damaging to the Company, if any Proprietary Information were disclosed to a
competitor or any other person, firm or enterprise, and that all Proprietary
Information has been obtained by him in confidence. Mr. Messina agrees to
continue to keep all Proprietary Information secret and confidential and not
to use it for his own benefit, directly or indirectly.

(b) Mr. Messina agrees not to, directly or indirectly, either for
his own benefit or for the benefit of any other person, firm or enterprise,
(i) solicit or attempt to direct or entice away any employee of the Company
who has knowledge of any Proprietary Information or even to retain the
services of or hire any such employee, even though such employee may have
voluntarily terminated his relationship with the Company; or (ii) solicit,
call on, interfere with, accept any business from, attempt to divert or
entice away any person, firm or enterprise who is a customer, supplier,
distributor or co-venturer or other business associate of the Company,
including the printing groups of HP, Siemens or IBM pursuant to or in
connection with any Competitive Activity as defined in subsection (c) below.

(c) Mr. Messina acknowledges that his knowledge of computers and
related products enables him to make a satisfactory living in that industry,
and thus, during his employment with the Company and for a period of three
(3) years after the date of termination of his employment with the Company
(such period to be extended to include any period of violation of this
Section 4(c) by Mr. Messina), Mr. Messina agrees not to engage in any
Competitive Activity (as defined below) in the United States. For purposes
of this Agreement, the term "Competitive Activity" shall mean any
participation in, engagement, assistance to, promotion or organization of,
any person, firm or enterprise by Mr. Messina which is directly engaged in
the business of MICR check printing, MICR toners and ribbons and other MICR
related products, supplies and solutions that either Troy or Micross is
currently engaged in or will be engaged in during his employment with the
Company.

(d) Mr. Messina hereby acknowledges and agrees that it would be
difficult to fully compensate the Company for damages resulting from the
breach or threatened breach of the provisions of this Section 9 and,
accordingly, that the Company, without being required to post any bond, shall
be entitled to specific performance and injunctive relief (including, without
limitation, temporary restraining orders, preliminary injunctions and
permanent injunctions) to enforce such provisions. This provision with
respect to specific performance and injunctive relief shall not, however,
diminish the Company's right to claim and recover damages. Mr. Messina hereby
submits to the jurisdiction and venue of the Superior Court, Orange County,
California with respect to any litigation under this document.

5. In the event of the termination of the employment of Mr. Messina,
whether actual or constructive, without cause (constructive termination
meaning a substantial reduction of his benefits or authority) Mr. Messina will
be entitled to receive, as long as he honors the non-competition and other
obligations under this Agreement, as full recompense for any damages

2
<PAGE>

which he might sustain as a consequence of such employment and termination,
including actual, specific, consequential, personal injury or otherwise,
payment in thirty-six (36) equal monthly installments subject to withholding
(and no benefits) of the following amounts: $200,000 in the event he is
terminated during either of the fiscal years 1997 or 1998 or $300,000 in the
event he is terminated during either of the fiscal years 1999 or 2000.

6. This Agreement represents the entire agreement and understanding
between the Company and Mr. Messina concerning Mr. Messina's use of Proprietary
Information and non-competition with the Company. This Agreement may only be
amended in a writing signed by Mr. Messina and the Chief Executive Officer of
the Company.

7. If any provision of this Agreement is determined to be invalid or
unenforceable, in whole or in part, this determination will not affect any other
provision of this Agreement.

8. If any action is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees,
costs, and necessary disbursements in addition to any other relief to which that
party may be entitled.

9. This Agreement shall be construed according to the laws of the State
of California as applied to contracts entered into and to be performed entirely
within such state by residents thereof.

10. This Agreement may be executed in several counterparts each of which
so executed shall be deemed to be an original, and such counterparts shall
together constitute but one in the same release.

IN WITNESS WHEREOF, the parties execute this Agreement on this 27th day of
November, 1996.

/s/ Robert S. Messina
-------------------------------------
ROBERT MESSINA

TROY SYSTEMS INC.

By: /s/ Patrick J. Dirk
----------------------------------
Patrick J. Dirk
Chief Executive Officer

<PAGE>

Exhibit 10.11

CONSULTING AGREEMENT

AGREEMENT made effective as of October 1, 1997 (the "Agreement") between
Broadland Capital Partners ("Broadland") having an office at 13000 Sawgrass
Village Circle, Ponte Verdra Beach, Florida 32004 and Troy Systems Inc. (the
"Company") having an office at 2331 South Pullman Street, Santa Ana, California
92705 as follows:

WHEREAS, in entering into this Agreement, the Company intends to enhance
its ability greatly to achieve three important corporate goals (collectively
hereinafter referred to as the "Goals") as follows:

(a) to become a publicly owned company either through an initial public
offering of shares (the "IPO") or a merger with an already public
entity, (or otherwise) within twelve (12) months after the date of
this Agreement (the "First Goal");

(b) to successfully increase the value of its shares when publicly owned
to a point where, in any ten day period within twenty-four (24) months
after the shares of the Company become publicly owned, the average
price per share of the publicly owned shares over such ten (10) day
period is two hundred percent (200%) of the initial public price of
such shares (the "Second Goal"); and

(c) within twenty-four (24) months after the shares of the Company become
publicly owned, to acquire entities having an aggregate annual revenue
of Fifteen Million Dollars ($15,000,000) (the "Third Goal").

WHEREAS, Broadland, through its principal, Morgan Payne, has the capability
and experience to significantly contribute to the achievement of the Company's
Goals;

WHEREAS, in view of such capability and experience, the Company wishes to
engage the services of Broadland, and, therefore, through Broadland its
principal, Morgan Payne, upon the following terms and conditions;

NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged by the parties hereto, Broadland and
the Company agree as follows:

1. Broadland, through its principal, Morgan Payne, will provide the
following services (the "Services") to the Company and its Chief
Executive Officer:

SERVICES

<PAGE>

- Identify and assist the Chief Executive Officer in the selection of
appropriate investment banking firms.
- Assist the Chief Executive Officer with the IPO Project Management
Process.
- Introduce additional market makers and research analysts subsequent to
the IPO.
- Assist the Chief Executive Officer with selection of; the building of
relationships, and the negotiations with potential acquisitions.
- Continue other services as requested by the Chief Executive Officer.

2. COMPENSATION TO BROADLAND FOR THE SERVICES:

PRE IPO (OR OTHER MANNER OF GOING PUBLIC)

From October 1, 1997 until the Company becomes a publicly owned entity,
Broadland shall receive a monthly fee of Five Thousand Dollars ($5,000) payable
on the last day of each month together with reimbursement of out-of-pocket
expenses (hotel, airfare, etc.) approved in writing in advance by the Chief
Executive Officer of the Company. The Five Thousand Dollar ($5,000) fee shall
cease when the Company becomes a publicly owned entity, and this Agreement as
well as said fee may be canceled upon thirty (30) days written notice by the
Company to Broadland at any time in the Company's sole discretion prior to the
Company becoming a publicly owned entity.

SUBSEQUENT TO IPO (OR OTHER MANNER OF GOING PUBLIC)

Providing that this Agreement has not been canceled and that Broadland, through
its principal, Morgan Payne, has performed the Services, and, in particular, has
significantly contributed to the Company's becoming a publicly owned entity
within twelve (12) months after the date of this Agreement, Broadland shall
receive the following compensation from the Company:

(a) CASH: an advisory fee of Three Thousand Dollars ($3,000) per month
payable on the last day of each month after the Company has become a
publicly owned entity until the fourth anniversary of this Agreement
for continuing to provide the Services and, in particular, for
significantly participating in the effort to achieve the Second and
Third Goals. In addition, Broadland will continue to receive
reimbursement of out-of-pocket expenses (hotel, airfare, etc.)
approved in writing in advance by the Chief Executive Officer of the
Company.

(b) WARRANTS:
(i) In addition to the monthly advisory fee, warrants, in the form
of Exhibit A attached hereto (the "Warrants") to purchase shares
of the Company's common stock at an exercise price of $3.50 per
share (the "Warrant Price").

(iii) NUMBER OF WARRANTS: This Warrant grants to Broadland the right
to purchase up to 210,000 shares of the Company's common stock
at the Warrant Price if the aggregate outstanding number of
shares equals three

<PAGE>

(3) million to five (5) million shares at the time the Company
becomes a publicly owned entity and up to 300,000 shares if the
aggregate outstanding number of shares exceeds five (5) million
shares at such time.

(iii) THE WARRANTS SHALL VEST AS FOLLOWS:
(a) This Warrant shall first have force, life and effect at the
time when the Company shall first become a publicly owned
entity either through an IPO or a merger with an already
public entity or otherwise;
(b) At the time the Company achieves its First Goal, one-third
(1/3) of the Warrant, or a Warrant to purchase 66,666 or
100,000 Stock Units, (as the case may be subject to
subsection (ii) above) shall vest immediately;
(c) at the time the Company achieves its Second Goal, an
additional one-third (1/3) of the Warrant, or a Warrant to
purchase an additional 66,666 or 100,000 Stock Units, as
the case may be, shall vest immediately; and
(d) at the time the Company achieves its Third Goal, an
additional one-third (1/3) of the Warrant or a Warrant to
purchase an additional 66,667 or 100,000 Stock Units, as
the case may be, shall vest immediately.

(iv) The Warrants must be exercised within five (5) years after they
vest or, thereafter, they shall expire and become null and void.

4. TERM:
After the date that the Company first becomes a publicly owned entity, this
Agreement shall terminate automatically upon the first to occur of the
following:

(a) The date October 1, 2001;
(b) if Broadland ceases to provide the Company with the
services of Morgan Payne;
(c) the death of Morgan Payne; or
(d) the commencement of the permanent disability of Morgan
Payne.

For purposes of the foregoing, the term "permanent disability" shall mean
the inability of Morgan Payne due to illness, accident or any other
physical or mental impairment to perform his duties hereunder (which
include limited and reasonable services requested by the Company) in a
normal manner for a period of three (3) months, whether or not consecutive,
in any twelve (12) month period during the term of this Agreement.

Warrants which shall have vested shall be exercisable by Morgan Payne or in
the event of his death by the estate or heirs of Morgan Payne, despite the
termination of this Agreement. Upon the termination of this Agreement, any
Warrants remaining unvested shall expire and become null and void.

3
<PAGE>

4. INDEPENDENT CONTRACTOR:
The Company and Broadland agree and acknowledge that in the
performance of this Agreement, or any part thereof, Broadland and
Morgan Payne shall together act as an independent contractor and not
as the agent, servant, employee or representative of the Company. No
other direction or control, except as specifically set forth herein,
shall be exercised by the Company over the performance of the work of
Broadland or Morgan Payne. Neither Broadland nor Morgan Payne shall
have any right in, or claim to, any Company employee benefits and
neither is a Company employee. Except as authorized in advance by the
Chief Executive Officer of the Company, neither Broadland nor Morgan
Payne shall have any authority to bind or obligate the Company in any
manner, nor shall Broadland or Morgan Payne commence negotiations on
behalf of the Company with any third party.

5. NON ASSIGNMENT:
Broadland may not assign its rights or delegate its duties under this
Agreement without the prior written consent of the Chief Executive
Officer of the Company and any assignment or delegation in
contravention of this obligation shall be void.

6. DISCLOSURES:
Neither Broadland nor Morgan Payne shall disclose to any one outside
of the Company nor use for any purpose other than the business of the
Company, any confidential information, inventions, trade secrets, or
materials, without first obtaining the written permission of the Chief
Executive Officer of the Company during the term of this Agreement and
at all times thereafter.

7. MISCELLANEOUS:
This Agreement contains the entire understanding of the parties, and
there are no representations, warranties, promises, covenants or
agreements except as specifically set forth herein.

8. GOVERNING LAW:
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware without regard to
its conflict of law rules. The parties hereby agree to submit
themselves to the exclusive jurisdiction and venue of the Superior
Court of Orange County with respect to any dispute or interpretation
arising out of or in connection with this Agreement.

Broadland Capital Partners Troy Systems Inc.

BY: /s/ Morgan Payne BY: /s/ Patrick J. Dirk
------------------------------------- --------------------------------
Morgan Payne, President Chief Executive Officer

/s/ Morgan Payne
- ----------------------------------------

4
<PAGE>

Morgan Payne, Individually

5
<PAGE>

WARRANT

[Included as Exhibit 4.1 of this Registration Statement]

EXHIBIT A

<PAGE>

EXHIBIT 10.12

FORM OF

INDEMNIFICATION AGREEMENT

THIS AGREEMENT is made and entered into effective as of ____________,
1998 between Troy Group, Inc., a Delaware corporation (the "Company"), and
____________ (the "Indemnitee").

RECITALS

A. The Company is concerned with the retention of qualified, competent
persons to serve as directors and officers of the Company.

B. Highly competent persons are becoming increasingly reluctant to serve
publicly-held corporations as directors and officers or in other capacities
unless they are provided with adequate protection through insurance and/or
adequate indemnification against risks of claims and actions against them
arising out of their service to and activities on behalf of the Company.

C. As an inducement for the Indemnitee to serve or continue to serve
as a director or officer of the Company, the Indemnitee requires substantial
protection against personal liability for the Indemnitee's actions in serving
as a director or officer of the Company.

D. The Company's Certificate of Incorporation and Bylaws currently
provide for mandatory indemnification of officers and directors of the
Company to the fullest extent permitted under Delaware law.

E. In order to provide the Indemnitee with specific contractual
assurance that the protection provided by the Company's Certificate of
Incorporation and Bylaws will be available to the Indemnitee (regardless of,
among other things, any amendment to or revocation of such Certificate of
Incorporation and Bylaws or any change in the composition of the Company's
Board of Directors or acquisition transaction relating to the Company), the
Company wishes to provide for the indemnification of, and the advancing of
expenses to, the Indemnitee to the fullest extent (whether partial or
complete) permitted by law and as set forth in this Agreement.

F. In addition, to the extent insurance is maintained, the Company
wishes to provide for the continued coverage of the Indemnitee under the
Company's directors' and officers' liability insurance policies.

AGREEMENT

NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Company and the Indemnitee do hereby agree as follows:

1. DEFINITIONS. For the purposes of this Agreement, capitalized terms
have the following meaning:

(a) "BOARD" means the Board of Directors of the Company.

<PAGE>

(b) "CHANGE IN CONTROL" means the following:

(1) the sale, lease, exchange or other transfer,
directly or indirectly, of substantially all of the assets of the
Company (in one transaction or in a series of related transactions)
to a person or entity that is not controlled by the Company;

(2) the approval by the shareholders of the Company of
any plan or proposal for the liquidation or dissolution of the
Company;

(3) a merger or consolidation to which the Company is a
party if the shareholders of the Company immediately prior to
effective date of such merger or consolidation have "beneficial
ownership" (as defined in Rule 13d-3 under the Exchange Act),
immediately following the effective date of such merger or
consolidation, of securities of the surviving corporation
representing (A) more than 50%, but less than 80%, of the combined
voting power of the surviving corporation's then outstanding
securities ordinarily having the right to vote at elections of
directors, unless such merger or consolidation has been approved in
advance by the Continuity Directors, or (B) 50% or less of the
combined voting power of the surviving corporation's then
outstanding securities ordinarily having the right to vote at
elections of directors (regardless of any approval by the
Continuity Directors);

(4) any person becomes, after the Effective Date, the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of (A) 20% or more, but not 50% or
more, of the combined voting power of the Company's outstanding
securities ordinarily having the right to vote at elections of
directors, unless the transaction resulting in such ownership has
been approved in advance by the Continuity Directors, or (B) 50% or
more of the combined voting power of the Company's outstanding
securities ordinarily having the right to vote at elections of
directors (regardless of any approval by the Continuity Directors);
or

(5) the Continuity Directors cease for any reason to
constitute at least a majority of the Board.

(c) "CORPORATE STATUS" describes the status of a person who is or
was a director, officer, employee, agent or fiduciary of the Company or
is or was serving at the request of the Company as a director, officer,
employee or agent of any Other Enterprise.

(d) "DISINTERESTED DIRECTOR" means a director of the Company who
is not and was not a party to the Proceeding in respect of which
indemnification is sought by the Indemnitee.

(e) "EFFECTIVE DATE" means the date first set forth above.

(f) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

(g) "EXPENSES" include all reasonable attorneys' fees, retainers,
court costs, transcript costs, expert fees, witness fees, travel
expenses, duplicating and printing costs and all other disbursements or
expenses of the type customarily incurred in connection with
prosecuting, defending, preparing to prosecute or defend, investigating,
or being or preparing to be a witness in any Proceeding.

2
<PAGE>

(h) "GOOD FAITH" means the Indemnitee having acted in good faith
and in a manner that the Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any
criminal Proceeding, having had no reasonable cause to believe that the
Indemnitee's conduct was unlawful.

(i) "CONTINUITY DIRECTOR" means any individual who is a member of
the Board on the Effective Date and any individual who subsequently
becomes a member of the Board whose election, or nomination for election
by the Company's stockholders, was approved by a vote of at least a
majority of the Continuity Directors (either by specific vote or by
approval of the Company's proxy statement in which such individual is
named as a nominee for director without objection to such nomination).

(j) "INDEPENDENT COUNSEL" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to
represent: (i) the Company or the Indemnitee in any matter material to
either such party, or (ii) any other party to the Proceeding giving rise
to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" does not include any person
who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Company or the Indemnitee in an action to determine the Indemnitee's
rights under this Agreement.

(k) "OTHER ENTERPRISE" means the Company and any other
corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise of which the Indemnitee is or was serving at the
request of the Company as a director, officer, employee, agent or
fiduciary.

(l) "PROCEEDING" includes any action, suit, arbitration,
alternative dispute resolution mechanism, investigation, administrative
hearing or any other actual, threatened or completed proceeding whether
civil, criminal, administrative or investigative, other than one
initiated by the Indemnitee. For purposes of the foregoing sentence, a
"Proceeding" will not be deemed to have been initiated by the Indemnitee
where the Indemnitee seeks pursuant to Section 8 of this Agreement to
enforce the Indemnitee's rights under this Agreement.

2. TERM OF AGREEMENT. This Agreement will continue until and
terminate upon the later of (i) 10 years after the date that the Indemnitee
has ceased to serve as a director, officer, employee, agent or fiduciary of
the Company or any Other Enterprise, or (ii) the final termination (as to
which all rights of appeal have been exhausted or lapsed) of all pending
Proceedings in respect of which the Indemnitee is granted rights of
indemnification or advancement of Expenses hereunder and of any proceeding
commenced by the Indemnitee pursuant to Section 8 of this Agreement.

3. AGREEMENT TO SERVE; NOTICE OF PROCEEDINGS. The Indemnitee
agrees to serve as a director or officer of the Company for so long as the
Indemnitee is duly appointed or elected and qualified or until such time as
the Indemnitee resigns from such position; provided, however, that nothing
contained in this Agreement is intended to create on the part of the
Indemnitee any right to continued employment or service with the Company or
any Other Enterprise. The Indemnitee agrees promptly to notify the Company
in writing upon being served with any summons, citation, subpoena, complaint,
indictment, information or other document relating to any Proceeding or
matter that may be subject to indemnification or advancement of Expenses
under this Agreement; provided, however, that failure of the Indemnitee to
give such notice promptly will not relieve the Company from any liability
that it may have to the Indemnitee otherwise than

3
<PAGE>

under this Agreement and will relieve the Company from liability under this
Agreement only to the extent that the Company has been prejudiced.

4. INDEMNIFICATION.

(a) IN GENERAL. In connection with any Proceeding, the Company
agrees to indemnify, and advance Expenses, to the Indemnitee as provided
in this Agreement and to the fullest extent permitted by applicable law
in effect on the date hereof and to such greater extent as applicable
law may thereafter from time to time permit.

(b) PROCEEDINGS OTHER THAN PROCEEDINGS BY OR IN THE RIGHT OF THE
COMPANY. If, by reason of the Indemnitee's Corporate Status, the
Indemnitee is, or is threatened to be made, a party to any Proceeding,
other than a Proceeding by or in the right of the Company, the Company
will indemnify the Indemnitee against Expenses, judgments, penalties,
fines and amounts paid in settlement actually and reasonably incurred by
the Indemnitee or on the Indemnitee's behalf in connection with such
Proceeding or any claim, issue or matter therein, if the Indemnitee
acted in Good Faith.

(c) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. If, by reason
of the Indemnitee's Corporate Status, the Indemnitee is, or is
threatened to be made, a party to any Proceeding brought by or in the
right of the Company to procure a judgment in its favor, the Company
will indemnify the Indemnitee against Expenses, judgments, penalties,
and amounts paid in settlement, actually and reasonably incurred by the
Indemnitee or on the Indemnitee's behalf in connection with such
Proceeding or any claim, issue or matter therein, if the Indemnitee
acted in Good Faith. Notwithstanding the foregoing, no such
indemnification will be made if applicable law prohibits such
indemnification; provided, however, that, if applicable law so permits,
indemnification will nevertheless be made by the Company in such event
if and only to the extent that the Court of Chancery of the State of
Delaware (or the court in which such Proceeding has been brought or is
pending) determines.

(d) INDEMNIFICATION OF A PARTY WHO IS WHOLLY OR PARTLY SUCCESSFUL.
Notwithstanding any other provision of this Agreement, to the extent
that the Indemnitee is, by reason of the Indemnitee's Corporate Status,
a party to and is successful, on the merits or otherwise, in any
Proceeding, the Indemnitee will be indemnified to the maximum extent
permitted by applicable law against all Expenses, judgments, penalties,
fines, and amounts paid in settlement, actually and reasonably incurred
by the Indemnitee or on the Indemnitee's behalf in connection with such
Proceeding or any claim, issue or matter therein. If the Indemnitee is
not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues
or matters in such Proceeding, the Company will indemnify the Indemnitee
to the maximum extent permitted by applicable law against all Expenses,
judgments, penalties, fines, and amounts paid in settlement, actually
and reasonably incurred by the Indemnitee or on the Indemnitee's behalf
in connection with each successfully resolved claim, issue or matter.
For purposes of this Section 4(d), and without limitation, the
termination of any claim, issue or matter in such a Proceeding by
dismissal, with or without prejudice, will be deemed to be a successful
result as to such claim, issue or matter.

(e) INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding
any other provision of this Agreement, to the extent that the Indemnitee
is, by reason of the Indemnitee's Corporate Status, a witness in any
Proceeding, the Indemnitee will be indemnified against all Expenses

4
<PAGE>

actually and reasonably incurred by the Indemnitee or on the Indemnitee's
behalf in connection with such Proceeding or any claim, issue or matter
therein.

5. ADVANCEMENT OF EXPENSES. Notwithstanding any provision to the
contrary in Section 6 of this Agreement, the Company will advance all
reasonable Expenses that, by reason of the Indemnitee's Corporate Status,
were incurred by or on behalf of the Indemnitee in connection with any
Proceeding, within 20 days after the receipt by the Company of a statement or
statements from the Indemnitee requesting such advance or advances, whether
prior to or after final disposition of such Proceeding. Such statement or
statements must reasonably evidence the Expenses incurred by the Indemnitee
and must include or be preceded or accompanied by an undertaking by or on
behalf of the Indemnitee to repay any Expenses if it is ultimately determined
(as to which all rights of appeal have been exhausted or lapsed) that the
Indemnitee is not entitled to be indemnified against such Expenses. Any
advance and undertakings to repay pursuant to this Section 5 will be
unsecured and interest free.

6. PROCEDURES FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.

(a) INITIAL REQUEST. To obtain indemnification under this
Agreement, the Indemnitee must submit to the Company a written request,
including therein or therewith such documentation and information as is
reasonably available to the Indemnitee and is reasonably necessary to
determine whether and to what extent the Indemnitee is entitled to
indemnification under this Agreement. The President and/or Secretary of
the Company will promptly advise the Board in writing that the
Indemnitee has requested indemnification.

(a) METHOD OF DETERMINATION. A determination (if required by
applicable law) with respect to the Indemnitee's entitlement to
indemnification will be made as follows:

(1) If a Change in Control has occurred, unless the
Indemnitee requests in writing that such determination be made in
accordance with clause (2) of this Section 6(b), the determination
will be made by Independent Counsel in a written opinion to the
Board, a copy of which will be delivered to the Indemnitee.

(2) If a Change of Control has not occurred, and subject
to Section 6(e) of this Agreement, the determination will be made
by the Board by a majority vote of a quorum consisting of
Disinterested Directors. In the event that a quorum of the Board
consisting of Disinterested Directors is not obtainable or, even if
obtainable, such quorum of Disinterested Directors so directs, the
determination will be made by Independent Counsel in a written
opinion to the Board, a copy of which will be delivered to the
Indemnitee.

(c) SELECTION, PAYMENT AND DISCHARGE OF INDEPENDENT COUNSEL. In
the event that the determination of entitlement to indemnification is to be
made by Independent Counsel pursuant to Section 6(b) of this Agreement, the
Independent Counsel will be selected, paid and discharged in the following
manner:

(1) If a Change of Control has not occurred, the
Independent Counsel will be selected by the Board, and the Company
will give written notice to the Indemnitee advising the Indemnitee
of the identity of the Independent Counsel so selected.

(2) If a Change of Control has occurred, the Independent
Counsel will be selected by the Indemnitee (unless the Indemnitee
requests that such selection be made by

5
<PAGE>

the Board, in which event clause (1) of this Section 6(c) applies),
and the Indemnitee must give written notice to the Company advising
it of the identity of the Independent Counsel so selected.

(3) Following the initial selection described in clauses
(1) and (2) of this Section 6(c), the Indemnitee or the Company, as
the case may be, may, within seven days after such written notice
of selection has been given, deliver to the other party a written
objection to such selection. Such objection may be asserted only
on the ground that the Independent Counsel so selected does not
meet the requirements of "Independent Counsel" as defined in
Section 1(j) of this Agreement, and the objection must set forth
with particularity the factual basis of such assertion. Absent a
proper and timely objection, the person so selected will act as
Independent Counsel. If such written objection is made, the
Independent Counsel so selected may not serve as Independent
Counsel unless and until a court has determined that such objection
is without merit.

(4) Either the Company or the Indemnitee may petition the
Court of Chancery of the State of Delaware if the parties have been
unable to agree on the selection of Independent Counsel within 20 days
after submission by the Indemnitee of a written request for
indemnification pursuant to Section 6(a) of this Agreement. Such
petition will request a determination whether an objection to the
party's selection is without merit and/or seek the appointment as
Independent Counsel of a person selected by the Court or by such other
person as the Court may designate. A person so appointed will act as
Independent Counsel under Section 6(b) of this Agreement.

(5) The Company will pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent
Counsel in connection with acting pursuant to this Agreement, and
the Company will pay all reasonable fees and expenses incident to
the procedures of this Section 6(c), regardless of the manner in
which such Independent Counsel was selected or appointed.

(6) Upon the due commencement of any judicial proceeding
or arbitration pursuant to Section 8(a)(3) of this Agreement,
Independent Counsel will be discharged and relieved of any further
responsibility in such capacity (subject to the applicable
standards of professional conduct then prevailing).

(d) COOPERATION. The Indemnitee agrees to cooperate with the
person, persons or entity making the determination with respect to the
Indemnitee's entitlement to indemnification under this Agreement,
including providing to such person, persons or entity upon reasonable
advance request any documentation or information that is not privileged
or otherwise protected from disclosure and that is reasonably available
to the Indemnitee and reasonably necessary to such determination. Any
costs or expenses (including attorneys' fees and disbursements) incurred
by the Indemnitee in so cooperating with the person, persons or entity
making such determination will be borne by the Company (irrespective of
the determination as to the Indemnitee's entitlement to
indemnification), and the Company hereby indemnifies and agrees to hold
the Indemnitee harmless therefrom.

(e) PAYMENT. If it is determined that the Indemnitee is
entitled to indemnification, payment to the Indemnitee must be made
within 10 days after such determination.

6
<PAGE>

7. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.

(a) BURDEN OF PROOF. In making a determination with respect
to entitlement to indemnification hereunder, the person or persons or
entity making such determination will presume that the Indemnitee is
entitled to indemnification under this Agreement if the Indemnitee has
submitted a request for indemnification in accordance with Section 6(a)
of this Agreement, and the Company will have the burden of proof to
overcome that presumption in connection with the making by any person,
persons or entity of any determination contrary to that presumption.

(b) EFFECT OF OTHER PROCEEDINGS. The termination of any
Proceeding or of any claim, issue or matter therein, by judgment, order,
settlement or conviction, or upon a plea of NOLO CONTENDERE or its
equivalent, will not (except as otherwise expressly provided in this
Agreement) of itself adversely affect the right of the Indemnitee to
indemnification or create a presumption that the Indemnitee did not act
in Good Faith.

(c) RELIANCE AS SAFE HARBOR. For purposes of any
determination of Good Faith, the Indemnitee will be deemed to have acted
in Good Faith if the Indemnitee's action is based on the records or
books of account of the Company or any Other Enterprise, including
financial statements, or on information supplied to the Indemnitee by
the officers of the Company or any Other Enterprise in the course of
their duties, or on the advice of legal counsel for the Company or any
Other Enterprise or on information or records given or reports made to
the Company or any Other Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable
care by the Company or any Other Enterprise. The provisions of this
Section 7(c) will not be deemed to be exclusive or to limit in any way
the other circumstances in which the Indemnitee may be deemed to have
met the applicable standard of conduct set forth in this Agreement.

(d) ACTIONS OF OTHERS. The knowledge and/or actions, or failure
to act, of any director, officer, agent or employee of the Company or any
Other Enterprise will not be imputed to the Indemnitee for purposes of
determining the right of indemnification under this Agreement.

8. RIGHTS OF THE INDEMNITEE.

(a) APPLICATION TO DISPUTES. This Section 8 applies in the
event of a Dispute. For purposes of this Section, a "Dispute" means any
of the following events: (i) a determination is made pursuant to
Section 6 of this Agreement that the Indemnitee is not entitled to
indemnification under this Agreement; (ii) advancement of Expenses is
not timely made pursuant to Section 5 of this Agreement; (iii) the
determination of entitlement to indemnification to be made pursuant to
Section 6(b) of this Agreement has not been made within 90 days after
receipt by the Company of the request for indemnification; or (iv)
payment of indemnification is not made within 10 days after a
determination has been made that the Indemnitee is entitled to
indemnification or such determination is deemed to have been made
pursuant to Section 6 of this Agreement.

(b) ADJUDICATION. In the event of a Dispute, the Indemnitee
is entitled to an adjudication in any court of competent jurisdiction of
the Indemnitee's entitlement to such indemnification or advancement of
Expenses. Alternatively, the Indemnitee, at the Indemnitee's option, may
seek an award in arbitration to be conducted by a single arbitrator
pursuant to the rules of the American Arbitration Association. The
Indemnitee must commence such proceeding seeking an adjudication or an
award in arbitration within 180 days following the date on which the
Indemnitee first has the

7
<PAGE>

right to commence such proceeding pursuant to this Section 8(b). The
Company will not oppose the Indemnitee's right to seek any such
adjudication or award in arbitration.

(c) DE NOVO REVIEW. In the event that a determination has
been made pursuant to Section 6 of this Agreement that the Indemnitee is
not entitled to indemnification, any judicial proceeding or arbitration
commenced pursuant to this Section 8 will be conducted in all respects
as a de novo trial, or arbitration, on the merits, and the Indemnitee
will not be prejudiced by reason of that adverse determination. In any
such proceeding or arbitration, the Company has the burden of proving
that the Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be.

(d) COMPANY BOUND. If a determination has been made or is
deemed to have been made pursuant to Section 6 of this Agreement that
the Indemnitee is entitled to indemnification, the Company will be bound
by such determination in any judicial proceeding or arbitration absent
(i) a misstatement by the Indemnitee of a material fact, or an omission
of a material fact necessary to make the Indemnitee's statement not
materially misleading, in connection with the request for
indemnification, or (ii) a prohibition of such indemnification under
applicable law.

(d) PROCEDURES VALID. The Company is precluded from
asserting in any judicial proceeding or arbitration commenced pursuant
to this Section 8 that the procedures and presumptions of this Agreement
are not valid, binding and enforceable and must stipulate in any such
court or before any such arbitrator that the Company is bound by all the
provisions of this Agreement.

(f) EXPENSES OF ADJUDICATION. In the event that the
Indemnitee, pursuant to this Section 8, seeks a judicial adjudication or
an award in arbitration to enforce the Indemnitee's rights under, or to
recover damages for breach of, this Agreement, the Indemnitee will be
entitled to recover from the Company, and will be indemnified by the
Company against, any and all expenses (of the types described in the
definition of Expenses in Section 1(g) of this Agreement) actually and
reasonably incurred by the Indemnitee in such adjudication or
arbitration, but only if the Indemnitee prevails therein. If it is
determined in such adjudication or arbitration that the Indemnitee is
entitled to receive part but not all of the indemnification or
advancement of Expenses sought, the expenses incurred by the Indemnitee
in connection with such adjudication or arbitration will be
appropriately pro-rated.

9. NON-EXCLUSIVITY; INSURANCE; SUBROGATION; DUPLICATION OF PAYMENTS.

(a) NON-EXCLUSIVITY. The rights of the Indemnitee are not
exclusive of any rights to which the Indemnitee may be entitled under
the Company's Certificate of Incorporation or Bylaws, any agreement, any
vote of stockholders or Disinterested Directors, applicable law or
otherwise both as to action in the Indemnitee's Corporate Status and as
to action in any other capacity while holding such office. No
amendment, alteration, rescission or replacement of this Agreement or
any provision hereof will be effective as to the Indemnitee with respect
to any action taken or omitted by such the Indemnitee in the
Indemnitee's Corporate Status prior to such amendment, alteration,
rescission or replacement.

(b) LIABILITY INSURANCE. To the extent the Company maintains
an insurance policy or policies for directors' and officers' liability,
the Indemnitee will be covered by such policy or

8
<PAGE>

policies, in accordance with its or their terms, to the maximum extent of
the coverage available for any Company director or officer.

(c) SUBROGATION. In the event of payment under this
Agreement, the Company will be subrogated to the extent of such payment
to all of the rights of recovery of the Indemnitee against any person or
organization, and the Indemnitee will execute all papers and take all
actions necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to
enforce such rights.

(d) NO DUPLICATION OF PAYMENTS. The Company will not be
liable under this Agreement to make any payment of amounts otherwise
indemnifiable hereunder if and to the extent that the Indemnitee has
otherwise actually received payment under any insurance policy, the
Certificate of Incorporation or Bylaws or otherwise.

10. MISCELLANEOUS.

(a) AMENDMENTS AND WAIVER. No supplement, modification or
amendment of this Agreement will be binding unless executed in writing
by both of the parties hereto. No waiver of any of the provisions of
this Agreement will be deemed or will constitute a waiver of any other
provisions hereof (whether or not similar) nor will such waiver
constitute a continuing waiver.

(b) SUCCESSORS AND ASSIGNS. This Agreement will be binding
upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns (including any direct
or indirect successor by purchase, merger, consolidation or otherwise to
all or substantially all of the business and/or assets of the Company),
spouses, heirs and personal and legal representatives. The Company will
require and cause any such successor, by written agreement in form and
substance satisfactory to the Indemnitee, to assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform if no such succession had taken
place. This Agreement will continue in effect regardless of whether
Indemnitee continues to serve as a director or officer of the Company or
of any Other Enterprise.

(c) SEVERABILITY. The provisions of this Agreement will be
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) are held by a
court of competent jurisdiction to be invalid, void or otherwise
unenforceable, and the remaining provisions will remain enforceable to
the fullest extent permitted by law.

(d) NOTICE. All notices, requests, demands and other
communications under this Agreement must be in writing and will be
deemed to have been duly given (i) if delivered by hand and receipted
for by the party to whom such notice or other communication was
directed, on the date of delivery, or (ii) if mailed by certified or
registered mail or by express mail, postage prepaid and properly
addressed, on the third business day after the date on which it is so
mailed. Unless subsequently modified as provided herein, notice to the
Company will be directed to Troy Group, Inc., 2331 South Pullman Street,
Santa Ana, California 92705 (Attn: Chief Executive Officer), and notice
to the Indemnitee will be directed to the address set forth with the
Indemnitee's signature below.

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<PAGE>

(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which will for all purposes be deemed an
original but all of which together will constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence
of this Agreement.

(f) GOVERNING LAW. This Agreement will be governed by and
construed and enforced in accordance with the law of the State of
Delaware applicable to contracts made to be performed in such state
without giving effect to the principles of conflicts of laws.

The parties have executed this Agreement on the day and year first above
written.

TROY GROUP, INC.

By:
------------------------------------
Patrick J. Dirk

Its: Chief Executive Officer
------------------------------------

INDEMNITEE

------------------------------------
(Signature)

------------------------------------
(Name)

------------------------------------
(Address)

------------------------------------

<PAGE>

Exhibit 10.13

HEWLETT-PACKARD COMPANY
U.S. AGREEMENT FOR AUTHORIZED RESELLERS
TABLE OF CONTENTS AND SIGNATURE PAGE

TROY SYSTEMS, INC.
- ------------------------------- --------------------------------------------
Company Name (Including DBA's) Agreement

2331 SOUTH PULLMAN STREET
- -------------------------------------------------------------------------------
Address

SANTA ANA CA 92705 (714) 250-3280
- --------------------------------- -----------------------------------------
City State Zip (Area Code) Telephone #

(714) 250-8972
- ---------------------------------
Fax #

BY THEIR SIGNATURE BELOW, THE PARTIES AGREE TO THE TERMS OF THE AGREEMENTS,
ADDENDA, EXHIBITS AND APPLICATlONS INDICATED, ALL TERMS OF WHICH ARE INCLUDED BY
THIS REFERENCE.

AGREEMENTS:
X U.S. RESELLER - LASERJET MICR SOLUTION
- ----

(AVAR) SOFTWARE LICENSE AGREEMENT
- ----

AGENDA:
X U.S. DIRECT VALUE-ADDED RESELLER- LASERJET MICR SOLUTION
- ----

STATEMENT OF OWNERSHIP

Name of Company: TROY, A DIVISION OF PIERCE COMPANIES, INC.
--------------------------------------------------------------

Form of Organization (e.g. Corporation, General Partnership, Limited
Partnership, Sole Proprietor):
For a Corporation, specify whether: Publicly Held or Privately Held
XX
---- ----
State of Incorporation/ Organization: Delaware
----------------------------------------

Identify Company ownership and management structure as follows (attach
additional pages, if necessary):

Sole proprietor: Identify all owners, officers and ownership percentages
held
Partnership: Identify all General Partners, Limited Partners, Officers and
ownership percentages held (Specify Dollar Investment of Limited Partners)
Privately held corporation: Identify all shareholders, (With class and
percentage ownership), Officers and Board of Director Members
Publicly held corporation: Identify owners of 20% or more of each class of
shares (with class and percentage ownership), Officers and Board of
Director Members
Trust: Identify Trustee (s) (administrators if /tryst) and Beneficiaries
of Trust.

Name: Title(s): Ownership Interest
Percentage Ownership Type of Ownership
(Dollar Investment Interest (Assets,
for Limited Common or Preferred
Partners) Shares)
Dirk Family Trust
- ----------------- ---------------- -------------- --------------
Patrick J. Dirk Chairman
- ----------------- ---------------- -------------- --------------

- ----------------- ---------------- -------------- --------------
Robert S. Messina General Manager
- ----------------- ---------------- -------------- --------------

- ----------------- ---------------- -------------- --------------

---------------- -------------- --------------

<PAGE>

*If Company is 100% owned by another corporation, identify the parent
corporation's ownership and management structure above and the identity of the
parent corporation below:

- -------------------------------------------------------------------------------
Parent/Owner (including DBA's)

- -------------------------------------------------------------------------------
Address

- -------------------------------- ----------- --------------------------
City State Zip (Area Code) Telephone #

- ------------------------------------- --------------------------
State of Parent/Owner's Incorporation (Fax#)

AUTHORIZED SIGNATURES

DIRK FAMILY TRUST
- -------------------------------------------------------
Parent/Owner

/S/ PATRICK J. DIRK
- -------------------------------------------------------
Authorized Signature

ROBERT S. MESSINA /S/ ROBERT S. MESSINA
- -------------------------------------------------------
Typed Name

GENERAL MANAGER
- -------------------------------------------------------
Title

HEWLETT-PACKARD COMPANY

/S/ WALT SLEDZIESKI 10-1-96
- -------------------------------------------------------
Walt Sledzieski
Hardcopy Marketing Center Manager

Effective Date: APRIL 1, 1996
-------------

Expiration Date: MARCH 31, 1999
--------------

2
<PAGE>

U.S. AGREEMENT FOR AUTHORIZED DIRECT LaserJet MICR Solution VALUE-ADDED
RESELLERS

TABLE OF CONTENTS

U.S. LaserJet MICR Solution RESELLER AGREEMENT

1. APPOINTMENT
2. STATUS CHANGE
3. PRICES
4. PAYMENT
5. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES
6. PRICE ADJUSTMENTS; PRICE PROTECTION
7. STOCK ADJUSTMENTS
8. DEFECTIVE UNITS & CUSTOMER SATISFACTION RETURNS
9. USER WARRANTY
10. LIMITATION OF REMEDIES AND LIABILITY
11. INDEMNITY
12. RELATIONSHIP
13. RESELLER RECORD-KEEPING
14. TRADEMARK
15. SOFTWARE
16. PATENT INDEMNITY
17. TERMINATION
18. AMENDMENT
19. GENERAL
20. NOTICES

U.S. DIRECT LaserJet MICR Solution VALUE-ADDED RESELLER ADDENDUM

1. APPOINTMENT
2. APPROVED LOCATIONS
3. RESELLER SALES
4. END-USER SALES
5. VAR RESPONSIBILITIES
A. FACE TO FACE SUPPORT
B. TRAINING
C. PRIMARY CONTACT
D. NEW PRODUCT INTRODUCTIONS
E. PRODUCT SERVICE AND CUSTOMER SUPPORT
F. ADVERTISING
6. POLICIES AND PROGRAMS
7. NONBINDING FORECASTING
8. BINDING FORECASTING
9. INDEPENDENT SOURCING
10. TOOLS AND DEVELOPMENT ENVIRONMENT
11. PRODUCT SUPPORT LIFE
12. PRIVATE LABELING & LOSS OF HP PRODUCT IDENTITY
13. ADVANTAGE AND PROMOTIONAL FUNDS
14. PROMOTION AND EXCLUSIVITY

EXHIBITS

A. APPROVED PRODUCT EXHIBIT
B. FORECASTS
C. APPROVED US AND INTERNATIONAL DISTRIBUTlON AND RESELLER LOCATIONS
D. APPROVED INTERNATIONAL COUNTRIES FOR EXPORT
E. DEFINITION OF VAR'S VALUE ADD
F. MILESTONES

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U. S. LaserJet MlCR Solution RESELLER AGREEMENT

TROY SYSTEMS, INC.
- ------------------------------- --------------------------------------------
Company Name (Including DBA's) Agreement

2331 SOUTH PULLMAN STREET
- -------------------------------------------------------------------------------
Address

SANTA ANA CA 92705 (714) 250-3280
- --------------------------------- -----------------------------------------
City State Zip (Area Code) Telephone #

(714) 250-8972
---------------------------------
Fax #

1. APPOINTMENT

A. Hewlett-Packard Company ("HP") appoints the company named above
("Reseller") as an authorized, exclusive United States reseller for
the HP LaserJet MICR Solution Products. This contract entitles
Reseller to offer for sale the select MICR products (identified as
such on the product Exhibit A) on an exclusive basis in the United
States and the other products listed on the Product Exhibits or
designated in writing by HP as being subject to this Agreement on a
non-exclusive basis. To encourage aggressive promotion of HP MICR
products, Reseller agrees to not offer for sale MICR products
competitive with the HP LaserJet 4 Plus and LaserJet 5 printers or
subsequent LaserJet brand printers for the duration of this contract.
Unless otherwise indicated the provisions in this Agreement for "HP
Products" apply with equal effect to Reseller private-labeled versions
of HP Products.

B. Reseller's appointment is subject to the terms of this U.S. LaserJet
MICR Solution Reseller Agreement and the associated Addenda and
Product exhibits (collectively, "Agreement") for the period from the
effective date through the expiration date specified. Reseller
accepts appointment on these terms.

2. STATUS CHANGE

A. If Reseller wishes to:

1) Change its name or that for any approved location;
2) Add, close or change an approved location; or
3) Undergo a significant change in control of Reseller operations;

then Reseller shall notify HP in writing prior to the intended date of
change.

B. HP must approve proposed Reseller changes prior to any obligation of
HP to perform under this Agreement with Reseller as changed.

C. HP agrees to promptly notify Reseller of its approval or disapproval
of any proposed change, provided that Reseller has given HP all
requested information and documents reasonably required by HP.

3. PRICES

A. HP's corporate price lists are internal data bases indicating current
list prices for HP Products ("list prices"). In addition, HP offers
products to customers and resellers that are not on HP's corporate
price lists. Whether listed or unlisted, HP reserves the right to
change list prices and discounts upon reasonable notice to Reseller.
If Reseller is unsure of the list price to use in calculating net
Reseller price for any HP Product. Reseller should contact its HP
sales representative.

B. Price changes on listed or unlisted products will be communicated in
writing to the reseller at least 30 days prior to the price change
taking effect.

C. Net Reseller price for HP Products purchased under this Agreement will
be the list price at the time of Reseller's orders, less the discounts
based on Reseller's volume or other commitments or elections specified
in the Product Exhibits. Please note that LaserJet
signature/font/macro cartridge kits shall be available to Reseller at
net kit prices available to other authorized custom product third
parties with similar volumes. Net kit prices are not listed on
product exhibit.

D. Net Reseller price includes shipment arranged by HP. HP reserves the
right to charge Reseller for any special routing, handling or
insurance requested by Reseller and agreed to by HP. Orders shipped
special routing shall be F.O.B. Origin. Requests for proof of
delivery are subject to limitations and service charges.

E. Net Reseller price excludes State and local taxes. HP will invoice
Reseller for these taxes, based on point of delivery, unless the
appropriate resale exemption certificates are on file at HP's order
entry point or HP agrees the sale is otherwise exempt.

4. PAYMENT

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A. Reseller will pay all invoices in full within 30 days after date of
invoice unless other terms are specified in its HP flooring agreement.
HP reserves the right to specify cash in advance or other terms for
credit reasons.

B. Claims for adjustment of any invoice will be waived if Reseller fails
to present them within 90 days from date of HP invoice. No claims,
credits or offsets may be deducted from any invoice.

5. ORDERS; SHIPMENTS; CANCELLATIONS AND CHANGES

A. HP will honor written, fax and telephone orders from Reseller's
approved Selling Locations. Reseller's orders must comply with the
minimum order, release, ship-to and other requirements specified in
this Agreement. Reseller is responsible for ensuring that only
authorized employees place, change or delete orders and that the
orders conform to all requirements of this Agreement.

B. Reseller's requested date for shipment must be within 90 days after
order dates. HP reserves the right to schedule and re-schedule any
order, at HP's discretion, and to decline any order for credit reasons
or because the order specifies an unreasonably large quantity or makes
an unreasonable shipment request.

C. HP will use reasonable efforts to meet scheduled shipment dates.
However, HP will not be liable for delay in meeting a scheduled
shipment date.

D. Shipments are subject to availability. If HP Products are in short
supply, HP will allocate them equitably at HP's discretion.

E. Reseller may cancel a shipment or request changes in a scheduled
shipment date at no charge up to 5 working days before scheduled
shipment. Any later cancellation or change will be subject to a
charge of 5% of the shipment's list price value. If in transit, it
will be subject also to applicable freight charges.

F. If HP makes a purchase of unique material (such as SIMM kits) at
Reseller's request and such unique material is not utilized due to
cancellation of orders by Reseller, then HP may invoice Reseller for
the cost of the unique material and Buyer shall pay the invoice in
accordance with the payment terms of this agreement.

G. Title to HP Products and risk of loss and damage will pass to Reseller
F.O.B. Destination.

6. PRICE ADJUSTMENTS; PRICE PROTECTION

A. If HP raises Net Reseller prices (either through list price increases
or Product Exhibit discount reductions), HP will invoice Reseller
based on the old list price or discount for affected HP Product orders
placed by Reseller within one month after the effective date of the
increase. Limited quantity restrictions may apply.

B. If HP reduces Net Reseller prices (either through a list price
reduction or a combination of list price and discount changes) then HP
will invoice Reseller based on the reduced Net Reseller price for
affected HP Products shipped on or after the effective date of the
reduction.

C. If HP offers a limited time promotional HP product discount to all
Resellers (excluding rebates and spiffs of all forms), HP will invoice
Reseller based on the Net Reseller price less the promotional discount
for orders conforming to and shipments made pursuant to the terms and
conditions of the promotion.

D. If HP reduces Net Reseller prices and the HP Products are eligible for
price protection as designated on the Product Exhibits then HP will
grant Reseller a price protection credit calculated by one of the two
following methods at HP's discretion:

1) The credit will equal the total reduction in Net Reseller price
(less any previous promotional discount available from HP) for
those HP products in Reseller's inventory and in transit to
Reseller on the effective date of the reduction, using a
verification process determined by HP; or

2) The credit will equal 100% of the total reduction in Net Reseller
price (less any previous promotional discount available from HP)
for those HP Products shipped within 30 days before the effective
date of the reduction, or 75% of the reduction for those HP
Products shipped within 60 days before that date, whichever is
greater.

E. If HP offers a limited time promotional HP Product discount to all
Resellers (excluding rebates and spiffs of all forms) and the HP
Products are eligible for price protection as designated on the
Product Exhibits, then HP will grant Reseller a price protection
credit calculated by one of the two following methods, at HP's
discretion:

1) The credit will equal the promotional discount for those HP
Products in Reseller's inventory and in transit to Reseller on
the effective date of the

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promotion, using a verification process determined by HP; or

2) The credit will equal 100% of the promotional discount for
Products shipped within 30 days before the effective date of the
promotion or 75% of the promotional discount for those HP
Products shipped within 60 days before that date, whichever is
greater.

F. To receive a price protection credit by the inventory method, Reseller
upon notification of a change in price from HP and upon request, will
complete, sign and return to HP a form showing the number of units in
inventory and in transit to Reseller on the effective date of the
reduction. The format for the form may be defined by Reseller but
must meet the approval of HP. If Reseller fails to submit the form
within 30 days of the effective date of the reduction, Reseller will
receive no price protection for eligible products.

G. In all cases, HP may require that Reseller accumulate a minimum credit
of $200 in a particular month before HP extends price protection to
Reseller for that month.

H. HP reserves the right to offer Reseller obsolete, used or refurbished
HP Products and to offer Reseller HP Products through special
promotions at discounts different from those in the Product Exhibits
and on terms which may not include rights to price protection, stock
adjustment, promotional funds allowance or count towards Reseller's
volume commitment levels, if any.

7. STOCK ADJUSTMENTS

A. HP and Reseller agree that there shall be no stock adjustment for HP
Products which have been relabelled as reseller's products or on MICR
toner or on bootable SIMM kits.

B. HP Products eligible for stock adjustment are designated on the
Product Exhibits. To be eligible for stock adjustment, at the time of
return the HP Products must still be listed on HP's then current
Product Exhibits returned in their unopened, original packaging, and
marketable as new merchandise. Ineligible items will be returned at
Reseller's expense.

C. Eligible HP Products may be returned for stock adjustment in one
consolidated shipment from each approved location, freight prepaid,
once each month during the term of this Agreement. Total returns in
any one quarter may not exceed 5% of, the invoiced amount of HP
shipments during the previous quarter. Quarters will be calculated as
follows: February through April, May through July, August through
October and November through January. At the time of the return,
Reseller must have outstanding orders for HP Products of equal or
greater value scheduled for shipment.

D. In any one quarter, restocking charges will apply to cumulative
returns of HP Products exceeding 5% of shipments to Reseller during
the previous Quarter. Restocking charges are indicated on the Product
Exhibits.

E. Reseller must obtain a Notice of Return number (NOR) for each shipment
of hardware and a separate NOR for each shipment of software returned
for stock adjustment. If a NOR does not appear on the outside of all
boxes returned to HP the shipment will be ineligible for stock
adjustment and will be returned to Reseller at Reseller's expense.

F. Reseller will receive a credit for eligible HP Products returned for
stock adjustment at the Net Reseller price in effect when HP receives
them, less the return charges indicated above, and any promotional or
other discounts, and any price protection or other credit extended to
Reseller by HP for the HP Products. In no event will credits be
extended by HP which would result in a negative outstanding balance
owed by Reseller.

8. DEFECTIVE UNITS & CUSTOMER SATISFACTION RETURNS

A. Reseller and HP agree that the procedure provided below for return and
repair, replacement or credit will be Reseller's exclusive remedy for
any claim relating to any dissatisfaction, defect or nonconformity in
HP Products.

B. At HP's discretion, HP will repair, replace or provide credit to
Reseller for any HP Product found defective by Reseller within 180
days of its shipment to Reseller and within 30 days of purchase by the
customer and no later than 210 days after original shipment by HP to
Reseller. HP and Reseller agree that HP is under no obligation to
accept product which has been relabelled as Reseller's product for
replacement or credit. HP shall only be responsible for repairs to
such product if the defect is solely attributable to HP's
manufacturing or handling.

1) Reseller must first notify HP that the unit is being returned,
identify the reason for return (defect or customer
dissatisfaction) and obtain a separate Notice of Return number
(NOR) for each return.

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2) The HP Product may then be returned freight collect, marked with
the assigned NOR on the outside of the box. Boxes not marked
with the assigned NOR may be returned by HP to Reseller at its
expense (FOB Reseller).

3) HP may inspect each unit returned as a defective HP Product to
verify that it is eligible for repair, replacement or credit. HP
will not be obligated to repair, replace or provide credit for
units returned as defective and damaged from abuse or misuse
(including improper storage), from attempted repair by an
unauthorized service center or during repossession or shipment to
HP. Reseller will reimburse HP for freight for HP Products
returned as defective units which are found not to be defective
or for customer satisfaction returns exceeding the three percent
limitation for total returns.

4) Units repaired by local HP repair personnel may be repaired with
remanufactured parts.

5) HP's credit to Reseller will be the lowest Net Reseller price
(less promotional HP Product discounts) in effect on the date of
the shipment by Reseller to HP.

9. USER WARRANTY

A. No other warranty for the products shown on the Product Exhibit will
be offered (except as set forth in Section 8 of this agreement).

B. NO OTHER WARRANTIES, WRITTEN OR ORAL, EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE ARE OFFERED.

C. Some HP Products may contain selected remanufactured parts equivalent
to new in performance.

D. Reseller

1) shall be solely responsible for and indemnify HP from and against
all warranties extended by Reseller to any third party other than
an end-user, including VARs, resellers, independent sales
representatives, distributors and Reseller;

2) shall include in all shipments of Reseller labeled products
purchased under this Agreement an end-user warranty card no more
extensive in coverage, or time or less protective in terms of
limitations of remedies, damages or exclusions than is in effect
for corresponding, standard, HP-labeled Products on the date of
shipment by Reseller to its customer; and

3) Reseller's independent sales representatives shall be instructed,
as well as any other 3rd party distributor, VAR, reseller or
subsidiary to the extent Reseller is able to control their resale
practice, to extend a hardware warranty for Reseller products in
conformity with that warranty authorized by Section 9D2 above.

4) The warranty specified in the Reseller private labeled products
purchased under the Agreement at current U.S. domestic price is
return to HP in the United States only. Any HP local country
service requested of HP by Reseller in the destination country
will be on a time and materials basis or as otherwise negotiated
between Reseller and HP's international subsidiaries.

10. LIMITATION OF REMEDIES AND LIABILITY

A. THE REMEDIES PROVIDED IN THIS AGREEMENT, INCLUDING THE PROCEDURE FOR
RETURN OF DEFECTIVE GOODS, ARE RESELLER'S SOLE AND EXCLUSIVE REMEDIES
FOR HP PRODUCTS PURCHASED UNDER THIS AGREEMENT. HP WILL NOT BE LIABLE
FOR ANY DIRECT, INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER LEGAL THEORY.

B. The foregoing limitation of liability will not apply in the event that
any HP Product sold hereunder is determined by a court of competent
jurisdiction to be defective and to have directly caused bodily
injury, death or property damage, provided that in no event will HP's
liability for property damage exceed the greater of $50,000 or the
purchase price of the specific HP Product that caused such damage.

11. INDEMNITY

A. Each party agrees to indemnify the other party from and against any
claim, demand, or liability brought by a third party and based upon
the acts or omissions of the first party in performance of its
responsibilities under this agreement.

12. RELATIONSHIP

A. Reseller's relationship to HP will be that of an independent
contractor in purchasing HP

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Products for resale to Reseller's customers. Reseller and HP agree
that this Agreement does not establish a franchise, joint venture or
partnership.

B. Unless expressly authorized by HP in writing in advance, any
commitment made by Reseller to its customers with respect to price,
quantities, delivery, specifications, warranties, modifications,
interfacing capability or suitability will be Reseller's sole
responsibility, and Reseller will indemnify HP from liability for any
such commitment by Reseller.

C. List prices are suggested prices for resale to Reseller's customers
and a basis for calculating Net Reseller price. Reseller has the
right to determine its own resale prices, and no HP representative
will require that any particular resale price be charged by Reseller
or grant or withhold any treatment to Reseller based on Reseller's
resale pricing policies. Reseller agrees that it will promptly report
any effort by HP personnel to interfere with its pricing policies
directly to an HP officer or manager.

D. This Agreement applies only to the HP Products listed on the Product
Exhibits or otherwise designated in writing by HP as being HP Products
sold pursuant to this Agreement. Reseller acknowledges that HP may
market other products, including products in competition with those
listed on the Product Exhibits without making them available to
Reseller. HP reserves the right to advertise, promote and sell any
product, including HP Products, in competition with Reseller.
However, nothing in this paragraph shall be construed as diminishing
the distribution rights granted in paragraph 1 of this Agreement.

13. RESELLER RECORDKEEPING

A. For purposes of contract compliance verification, product safety
information, operational problems correction and the like, Reseller
must maintain records of customer purchases of printers, plotters,
scanners and computers for one year. Records must include customer
name, address, phone number, serial number and date of sale of the
above products. Reseller is the only authorized purchaser under this
Amendment, the recordkeeping requirements of this Section do not apply
to resale by any of Reseller's subsidiaries or international
distributors, although Reseller agrees to maintain data for all HP and
Reseller-labeled product purchased from HP under this Agreement
identifying the model number, quantity, date of shipment and country
of shipment from Reseller to its international subsidiary and
distributor customers.

B. At HP's discretion and upon reasonable notice to Reseller, HP or HP's
designate will be given prompt access, either on site or through other
means specified by HP, to Reseller's customer records, inventory
records and other books and records of accounts HP believes are
reasonably necessary to verify and audit Reseller's compliance with
this Agreement. The intent of this paragraph is to allow HP to audit
Reseller records reasonably pertaining to the sale of HP Products.

Failure to promptly comply with HP's request will be considered a
repudiation of this Agreement justifying HP's termination of this
Agreement on 30 days' notice without further cause.

C. HP may require Reseller to provide HP or its designate with HP Product
inventory and sales data including but not limited to, information
such as total units of selected HP Products sold and held in inventory
by month for each approved location in a format specified by HP
(including Use Of Electronic Data Interchange reporting methods). HP
may require monthly reporting incorporating the previous month's data
for each approved location.

14. TRADEMARK

A. From time to time, HP may authorize Reseller to display one or more
designated HP trademarks. Reseller may display the trademarks solely
to promote HP Products. Any display of the trademarks must be in good
taste, in a manner that preserves heir value as HP trademarks, and in
accordance with standards provided by HP for their display. Reseller
will not use any name or symbol in a way which may imply that Reseller
is an agency or branch of HP; Reseller will discontinue nay such use
of a name or mark as requested by HP. Any rights or purported rights
in any HP trademarks acquired through Reseller's Use belong solely to
HP.

B. Reseller grants HP the non-exclusive, royalty free right to display
Reseller's trademarks in advertising and promotional material solely
for directing prospective purchasers of HP Products to Resellers
Selling Locations. Reseller may only indicate in such advertisements
or promotional materials that HP supplied components were used. Any
display of the trademarks must be in good taste, in a manner that
preserves their value as Reseller's trademarks, and in accordance with
standards provided by Reseller for their display. Any rights or
purported rights in any Reseller trademarks acquired through HP's Use
belong solely to Reseller.

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C. HP authorizes and licenses Reseller to modify and market HP Products
as private labeled Reseller MICR solution products and as HP labeled
products under the terms and conditions called out in the U.S.
LaserJet MICR Direct Value-Added Reseller Addendum, and to distribute
them in conformance with the distribution authorization and other
terms in this Agreement.

15. SOFTWARE

Reseller is granted the right to use or distribute software materials
supplied by HP only in accordance with the terms of the software license
agreement executed in conjunction with this Agreement.

16. PATENT INDEMNITY

A. HP will, except as otherwise provided below, defend or settle any
claim made or proceeding brought against Reseller so far as it is
based on an allegation that any HP Product sold under this Agreement
infringes a U.S. patent, trademark or copyright, provided HP is
notified promptly in writing and given information, assistance and
sole authority to defend or settle same at HP's expense; and HP will
pay all damages and costs finally awarded therein against Reseller.
If any such HP Product is held to infringe and its use is enjoined, or
in case of a settlement; HP will have the option at HP's expense to
replace same with a non-infringing product, or modify same so it
becomes non-infringing; or repurchase same from Reseller at net
Reseller price, provided it is new and in its unopened, original
packaging.

B. The foregoing states HP's entire liability for intellectual property
infringement by products furnished under this Agreement.

C. Reseller will defend or settle any claim made or proceeding brought
against HP so far as it is based on an allegation that Reseller's
modification of any HP product sold under this Agreement infringes a
U.S. Patent, trademark or copyright, provided Reseller is notified
promptly in writing and given information, assistance and sole
authority to defend or settle at Reseller's expense; and Reseller will
pay all damages and costs finally awarded therein against HP.

17. TERMINATION

A. This Agreement may be terminated as follows:

1) On the expiration date of this Agreement or with mutual agreement
of the parties. If the parties agree in writing to continue this
Agreement after the expiration date, the Agreement may then be
terminated at any time provided that the terminating party gives
180 days notice, in writing, of the intent to terminate. During
this 180 day period, neither party shall be bound by the
exclusivity provisions set forth in paragraph 1 of this Agreement
and referred to elsewhere in this Agreement.

2) by either party at any time in the event the other party, ceases
to do business, becomes or is declared insolvent or bankrupt, is
the subject of any proceeding relating to this liquidation or
insolvency which is not dismissed within thirty (30) days, or
makes an assignment for the benefit of its creditors;

3) by either party upon thirty (30) days written notice in the event
of a material breach of any obligations under this Agreement by
the other party; provided, however that the party in breach shall
have an opportunity to cure such breach during the thirty (30)
day period, and if so cured to the reasonable satisfaction of the
other party, no termination will be deemed to have occurred. For
purposes of this agreement, material breach shall be defined as
a) material and repeated breach of any payment or delivery term
of this agreement not otherwise excused in the agreement or by
the agreement, c) failure to comply with warranty provisions of
the Agreement, d) any intentional or reckless infringement of
intellectual property rights of either company (including but not
limited to rights in confidential information, patent, trademark,
trade secret, copyright or software rights granted pursuant to
license), e) intentional or reckless behavior resulting in
violation of law, f) sale of product not consistent with the
intent of this Agreement (e.g. Troy sale of printers without
appropriate value added or HP disregard of exclusivity
provisions), or g) consistent failure to fulfill support
obligations set out in the Agreement.

B. Neither party will be liable to the other for delays in the
performance of or completion of this Agreement if the delay is caused
by strike, riots, wars, government regulations, acts of God, fire,
flood, or other causes beyond its reasonable control. If the delay
continues 90 days or longer, or it becomes obvious that the delay will
continue for 90 days, then either party shall have the option,
exercisable by written notice, to cancel all or any portion of orders
placed hereunder without charge or liability.

C. If either party gives the other notice of termination or advises the
other of its intent not

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to renew this Agreement, HP may require that Reseller pay cash in
advance for additional shipments during the remaining term,
regardless of Reseller's previous credit status, and may withhold
all such shipments until Reseller pays its outstanding balance.

D. Upon termination or expiration of this Agreement for any reason,
Reseller will immediately cease to be an authorized HP Reseller and
will refrain from representing itself as such and from using any HP
trademark or trade name.

E. Upon any termination or expiration, either party may required that HP
repurchase from Reseller any HP Products on HP's then current Product
Exhibits, which are in their unopened, original packaging and
marketable as new merchandise. The repurchase price shall be the
lower of either the Net Reseller Price on the date of termination or
expiration or Reseller's original purchase price, in each case less
any promotional or other discounts or price protection or other credit
extended by HP to Reseller for the Product. Reseller should contact
its HP sales representative for information about the items eligible
for repurchase and instructions for their return at HP's expense.

F. The indemnities provided in this Agreement will survive termination or
expiration of this Agreement.

18. AMENDMENT

A. HP may, from time to time, add products to or delete them from the
product Exhibits, change its list prices and discounts, or implement
promotional or other programs, at HP's discretion, upon reasonable
notice to Reseller.

B. Each party agrees that the other has made no commitments regarding the
duration or renewal of this Agreement beyond those expressly stated in
this Agreement.

19. GENERAL

A. Neither party may assign any rights or obligations in this Agreement
without the prior written consent of the other party. Any attempted
assignment will be deemed void.

B. Neither party's failure to enforce any provision of this Agreement
will be deemed a waiver of that provision or of the right to enforce
it in the future.

C. This Agreement including the attached Addenda and associated Product
Exhibits, and any associated software license contains the entire
understanding between the parties relating to its subject matter. HP
hereby gives notice of objection to any additional or inconsistent
terms set forth in any purchase order or other document issued by
Reseller. No modification of this Agreement will be binding on either
party unless made in writing and signed by both parties.

D. If all or any part of a term of this Agreement is held invalid, the
balance of the Agreement shall remain in effect as stated.

E. No U.S. Government procurement regulations will be deemed included in
this Agreement or binding on either party unless specifically accepted
in writing and signed by both parties.

F. This Agreement will be governed by the laws of the State of
California.

20. NOTICES

All notices and demands under the terms of this agreement shall be in writing,
delivered by fax, personal, first class mail postage prepaid, or registered
mail to a location set forth in this Agreement or to HP at 5301 Sevens
Creek Boulevard, P.O. Box 58059, Santa Clara, California 95052-059 or to
the assigned local HP sales representative.

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U.S. LaserJet MICR Solution DIRECT
VALUE-ADDED RESELLER ADDENDUM

TROY SYSTEMS, INC.
- ------------------------------- --------------------------------------------
Company Name (Including DBA's) Agreement

2331 SOUTH PULLMAN STREET
- -------------------------------------------------------------------------------
Address

SANTA ANA CA 92705 (714) 250-3280
- --------------------------------- -----------------------------------------
City State Zip (Area Code) Telephone #

(714) 250-8972
---------------------------------
Fax #

1. APPOINTMENT

HP appoints the reseller named above as an exclusive LaserJet MICR Solution
Value-Added Reseller ("VAR") for the length of this contract period.

2. APPROVED LOCATIONS

A. VAR's distribution center location(s) are listed on Exhibit C. VAR
must own more than forty percent of its business at each approved
location. Any additions to this list will be promptly provided to HP.

B. All VAR's, sales, advertising, and promotional activities for HP
Products must be conducted from Selling Locations listed on Exhibit C.

3. RESELLER SALES

A. VAR may sell HP Products through the company names and selling
locations set out on Exhibit C.

B. VAR may not sell HP Product to other resellers for stock balancing.

C. VAR may sell HP Products internationally to the countries set out on
Exhibit D as part of a MICR configuration to authorized international
resellers subject to the following conditions:
1. VAR will purchase the international version HP Products from HP
under its US LaserJet MICRO Solution Direct Value-Added Reseller
Agreement existing on the date of order at HP's applicable US
domestic price.
2. VAR must remanufacture any international version HP Product to be
exported outside the United States in a MICR configuration.
3. Re-manufacture will be performed at VAR's remanufacture facility
based in the United States.
4. VAR will export the re-manufactured configuration discussed here
only to the countries listed on Exhibit D.
5. VAR shall be responsible for export permit requirements, export
reporting, costs, duties, taxes, and freight, and for conforming
to US export regulations. Customer will not export products or
technical data in violation of applicable export regulations.
6. HP shall have the right to inspect the records of VAR to verify
such information on reasonable notice, not to be less than two
business days.
7. VAR agrees to extend product warranty as required by law.
8. VAR agrees that international product purchases will not be
entitled to accrual of co-op or MDF funds. All parties agree
such purchases are not eligible for stock adjustment or price
protection.
9. VAR agrees to promptly notify HP of any additions or deletions to
the list of countries set out on Exhibit D.

4. END-USER SALES

A. VAR may sell HP Products only through the company names and selling
locations set out on Exhibit C to end-user customers (including
government and corporate users as well as individual users).

B. All HP Products purchased by VAR will be incorporated into a complete
MICR system, marketed as such, and sold only with substantial value
added in one of the following ways:

1) a. Through the integration of the HP Products into a complete
system providing a total solution to customers in a specific
market recognized and agreed to by HP, where sale of the
system depends on VAR's specialized knowledge of those
customers and their needs.

b. Through addition of a substantial amount of other software
and/or hardware that VAR manufactures, or develops, or
acquires added value in this form must represent a
significant functional enhancement to the HP Products
included in the system. If the added value consists
exclusively

11
<PAGE>

of the software it must solve a major application need of
the end-user.

c. As an addition or consumable to any product or system sold
under conditions specified in sections a or b, above.

2) VAR will not sell standard HP LaserJet printers into the general
office printer market without their MICR value added solution.
The VAR value added is reflected in this agreement and set out in
Exhibit E.

5. VAR RESPONSIBILITIES

A. FACE TO FACE SUPPORT
VAR must sell value added HP Products on a face-to-face basis and must
provide pre-sale and post-sale support for its customers sufficient to
ensure a high level of customer satisfaction with VAR's value added
support capabilities.

B. TRAINING
VAR will ensure that its employees complete any required training
courses designated by HP.

C. PRIMARY CONTACT
VAR will identify and keep current a primary and secondary support
contact for both marketing communications and post-sales technical
support at each approved location.

D. NEW PRODUCT INTRODUCTIONS
VAR will not sell, advertise, promote, display, or disclose the
features, availability or price of any new HP product before HP's
public announcement of that product.

E. PRODUCT SERVICE AND CUSTOMER SUPPORT
1) VAR assumes responsibility for repairs and all support of VAR
private labelled products within end user customer locations.

2) HP may, at its discretion, require VAR to qualify to perform
in-warranty repairs for HP Products in order to remain eligible
to carry them. However, VAR is not authorized to establish,
market or promote themselves as service providers, authorized or
otherwise, for HP labelled products. Service of HP labelled
products is understood to be authorized only as an adjunct to
authorized sales under this Agreement.

3) VAR assumes full responsibility for warranty and service of any
existing end user installed LaserJet printer upgraded by the VAR
to their value added product solution unless otherwise expressly
agreed to in writing by HP's marketing manager for Boise Printer
Division.

4) VAR agrees to offer and provide to its end-users customers
adequate support for its value-added solution(s). This support
must be offered in a format that ensures a high level of customer
satisfaction with the VAR's value-added support capabilities.

F. ADVERTISING
VAR may advertise its value-added solutions using HP Products
nationwide. Each advertisement must focus on VAR's value-added
solution. Such advertisements may, however, refer to the use of HP
component parts.

6. POLICIES AND PROGRAMS

A. From time to time, HP may offer or change HP policies and VAR
Programs.

7. NONBINDING FORECASTING

A. Regular monthly 18 month rolling forecasts will be expected of VAR on
all product listed in the associated Product Exhibit. These are
nonbinding forecasts except as set forth below.

8. BINDING FORECASTING ON MICR TONER PRODUCT

A. VAR will not be held to a binding forecast for the first six months of
this agreement. During that 6 month period, VAR agrees to work with
HP to provide accurate forecasts. After the first 6 months VAR is
required to purchase amounts set out in six month rolling forecasts,
which are subject to the flexibility percentage set out in the
attached Exhibit B. Changes outside these parameters must be agreed
to in writing by HP.

9. INDEPENDENT SOURCING

A. At HP's discretion, technical schematics will be provided to VAR upon
written request for sourcing by VAR from independent technology
sources. However, HP reserves the right to limit what technical
schematics are provided.

10. TOOLS AND DEVELOPMENT ENVIRONMENT

A. HP will share information about development environment with VAR.

B. HP will provide VAR with support for HP customer developed products
and development tools from date of product release until three

12
<PAGE>

years after HP discontinues the custom products and development tools.

11. PRODUCT SUPPORT LIFE

A. HP is expected to provide technical and service part support for HP
products from date from first procurement for HP until three years
after product is discontinued by HP.

B. VAR is expected to provide technical and service part support to Var's
customer for HP products from date of first procurement from HP until
three years after product is discontinued by HP.

12. PRIVATE LABELING & LOSS OF HP PRODUCT IDENTITY

A. The product purchased hereunder are for OEM purposes. VAR will
replace HP product identity (except as otherwise required in Exhibit
E) with VAR's product identity. Identity loss will include, but not
be limited to, HP product front panel printer brand and model names,
and HP product serial numbers on HP product rear panel serial number
tags and all reference to HP in documentation (except as otherwise
required to identify intellectual property rights). VAR may advertise
"HP components" but VAR may not advertise that HP products are offered
for sale.

13. ADVANTAGE AND PROMOTIONAL FUNDS

A. VAR shall not be entitled to Advantage funds or promotional
allowances, facilities or services from HP in connection with this
Agreement.

14. PROMOTION AND EXCLUSIVITY

A. VAR recognizes that HP expects VAR to actively promote HP products
sold under this agreement. To ensure such promotion, VAR agrees that
as set forth in Paragraph 1 of this Agreement, VAR shall not offer for
sale products competitive with the HP products described in the
Product Exhibit. VAR also agrees to meet the Shipment Milestones as
set out in Exhibit F.

13
<PAGE>

Exhibits to the MICR Solution Reseller Agreement

Exhibit A

[This Exhibit has been omitted pursuant to a request for confidentiality
under Rule 406 of the Securities Act of 1933, as amended. A copy of the
Agreement with the Section intact has been filed separately with the
Securities and Exchange Commission]

<PAGE>

Exhibit B

<PAGE>

Exhibit C

Distribution, US Reseller, and International Reseller Locations

<PAGE>

Exhibit D

INTERNATIONAL COUNTRIES FOR EXPORT:

<PAGE>

Exhibit E

Value-added by Troy FOR THE LASERJET 4 PLUS is in the following areas:
warranty, service, two tier distribution, software and hardware customization,
Troy identify on products, product liability responsibilities assumed, Troy will
conduct product testing on each printer with a MICR configuration before the
solution is shipped, Troy manuals, Troy will provide pre/post sale consulting on
MICR technology, and Troy will maintain product inventory sufficient to fulfill
customer needs.

VALUE-ADDED BY TROY FOR THE LASERJET 4P. 5P. 4V. 5. AND 5SI IS IN THE FOLLOWING
AREAS: (1) WARRANTY AND SERVICE FOR ALL MICR TONER AND TECHNOLOGY RELATED
PROBLEMS THAT AFFECT PRINTER PERFORMANCE, (2) WARRANTY AND SERVICES FOR MICR
TONER CARTRIDGES AND SOFTWARE CUSTOMIZATION, (3) TROY SERVICE LABEL ON PRINTERS
AND IN USER'S GUIDE MANUAL, (4) TROY WILL PROVIDE PRE/POST SALES CONSULTING ON
MICR TECHNOLOGY.

<PAGE>

Exhibit F

SHIPMENT MILESTONES

The following shipment milestones (VAR will have taken delivery of said
quantities by the established dates) will be in effect in order for VAR to
maintain exclusive rights to resell HP MICR LaserJet printers. If milestones
are not met by the dates specified, the Agreement will remain in effect but the
exclusivity granted to the VAR to sell MICR LaserJet printers may be removed at
the discretion of HP. If HP chooses to withdraw exclusivity under the Agreement
then the VAR will no longer be bound to exclusively sell LaserJet printers,
unless HP restores exclusivity to the VAR.

[Portions of this Exhibit F have been omitted pursuant to a request for
confidentiality under Rule 406 of the Securities Act of 1933, as amended.
A copy of the Agreement with the Section intact has been filed separately
with the Securities and Exchange Commission]

<PAGE>

Exhibit 10.14

MICR SUPPLIES AGREEMENT

BETWEEN

IBM PRINTING SYSTEMS COMPANY

AND

TROY SYSTEMS, INC.

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February 6, 1998
<PAGE>

TABLE OF CONTENTS

1.0 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 "Custom Material". . . . . . . . . . . . . . . . . . . . . .1
1.2 "End User" . . . . . . . . . . . . . . . . . . . . . . . . .1
1.3 "Engineering Change" . . . . . . . . . . . . . . . . . . . .1
1.4 "Epidemic Failure" . . . . . . . . . . . . . . . . . . . . .1
1.5 "General Availability" . . . . . . . . . . . . . . . . . . .1
1.6 "Invention". . . . . . . . . . . . . . . . . . . . . . . . .1
1.7 "Months" or "months", "Quarters" or "quarters",
or "Days" or "days" . . . . . . . . . . . . . . . . . . . .2
1.8 "Printing System". . . . . . . . . . . . . . . . . . . . . .2
1.9 "Product" or "Products". . . . . . . . . . . . . . . . . . .2
1.10 "Product Specifications" . . . . . . . . . . . . . . . . . .2
1.11 "Reseller" . . . . . . . . . . . . . . . . . . . . . . . . .2
1.12 "Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . .2
1.13 "Term" . . . . . . . . . . . . . . . . . . . . . . . . . . .2

2.0 AGREEMENT PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . .2
2.1 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.2 AGREEMENT EXTENSIONS . . . . . . . . . . . . . . . . . . . .2

3.0 PRICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
3.1 PRODUCT PRICES . . . . . . . . . . . . . . . . . . . . . . .3
3.2 COMPETITIVE PRICES . . . . . . . . . . . . . . . . . . . . .3
3.3 PRICING ASSUMPTIONS. . . . . . . . . . . . . . . . . . . . .3
3.4 REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . .3
3.5 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
3.6 MOST FAVORED CUSTOMER. . . . . . . . . . . . . . . . . . . .3

4.0 ORDERING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
4.1 FORECASTS. . . . . . . . . . . . . . . . . . . . . . . . . .4
4.2 ORDERS . . . . . . . . . . . . . . . . . . . . . . . . . . .4
4.3 ORDER ACCEPTANCE . . . . . . . . . . . . . . . . . . . . . .5
4.4 ORDER CHANGES. . . . . . . . . . . . . . . . . . . . . . . .5
4.5 CANCELLATION . . . . . . . . . . . . . . . . . . . . . . . .5

5.0 PACKAGING, SHIPMENT AND DELIVERY. . . . . . . . . . . . . . . . . .5
5.1 PACKAGING. . . . . . . . . . . . . . . . . . . . . . . . . .5
5.2 DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . .5
5.3 TITLE AND RISK OF LOSS . . . . . . . . . . . . . . . . . . .5
5.4 TRANSPORTATION . . . . . . . . . . . . . . . . . . . . . . .5

6.0 INSPECTION AND ACCEPTANCE . . . . . . . . . . . . . . . . . . . . .5
6.1 INSPECTION . . . . . . . . . . . . . . . . . . . . . . . . .5

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February 6, 1998
<PAGE>

6.2 REJECTION OF NON-CONFORMING PRODUCTS . . . . . . . . . . . .5
6.3 EFFECT OF REJECTION. . . . . . . . . . . . . . . . . . . . .5
6.4 EFFECT OF PAYMENT. . . . . . . . . . . . . . . . . . . . . .6

7.0 PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
7.1 INVOICING PROCEDURES . . . . . . . . . . . . . . . . . . . .6
7.2 TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . .6

8.0 PRODUCT CHANGES . . . . . . . . . . . . . . . . . . . . . . . . . .6
8.1 SELLER REQUESTED CHANGES . . . . . . . . . . . . . . . . . .6
8.2 BUYER REQUESTED CHANGES. . . . . . . . . . . . . . . . . . .6
8.3 MANDATORY CHANGES. . . . . . . . . . . . . . . . . . . . . .6
8.4 PRODUCT ENHANCEMENTS . . . . . . . . . . . . . . . . . . . .7
8.5 NEW PRODUCTS . . . . . . . . . . . . . . . . . . . . . . . .7

9.0 QUALITY ASSURANCE . . . . . . . . . . . . . . . . . . . . . . . . .7
9.1 QUALITY PROCESS. . . . . . . . . . . . . . . . . . . . . . .7
9.2 ISO 9002 . . . . . . . . . . . . . . . . . . . . . . . . . .7

10.0 WARRANTIES AND REPRESENTATIONS. . . . . . . . . . . . . . . . . . .7
10.1 PRODUCT WARRANTY . . . . . . . . . . . . . . . . . . . . . .7
10.2 CLAIM WARRANTY . . . . . . . . . . . . . . . . . . . . . . .8
10.3 LICENSE WARRANTY . . . . . . . . . . . . . . . . . . . . . .8
10.4 REMEDIES FOR BREACH OF PRODUCT WARRANTY. . . . . . . . . . .8
10.5 EPIDEMIC FAILURES. . . . . . . . . . . . . . . . . . . . . .8
10.6 LIMITATION OF WARRANTIES . . . . . . . . . . . . . . . . . .9

11.0 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . .9
11.1 PATENT, COPYRIGHT, MASK WORK, TRADE SECRET AND
TRADEMARK INDEMNIFICATION. . . . . . . . . . . . . . . . . .9
11.2 PRODUCT INDEMNIFICATION. . . . . . . . . . . . . . . . . . .9

12.0 PRODUCT SUPPORT . . . . . . . . . . . . . . . . . . . . . . . . . .9
12.1 TECHNICAL SUPPORT. . . . . . . . . . . . . . . . . . . . . .9
12.2 TONER INTERLOCK SYSTEM . . . . . . . . . . . . . . . . . . 10
12.3 MATERIAL SAFETY DATA SHEETS. . . . . . . . . . . . . . . . 10

13.0 INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . 10
13.1 PATENT LICENSE . . . . . . . . . . . . . . . . . . . . . . 10
13.2 TRADEMARKS . . . . . . . . . . . . . . . . . . . . . . . . 10
13.3 PATENT AND COPYRIGHT CLEARANCE INVESTIGATION . . . . . . . 10

14.0 CONFIDENTIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . 11

- -------------------------------------------------------------------------------
February 6, 1998
<PAGE>

15.0 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
15.1 MATERIAL BREACH. . . . . . . . . . . . . . . . . . . . . . 11

16.0 GENERAL 12
16.1 AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . 12
16.2 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . 12
16.3 LIMITATION OF ACTIONS. . . . . . . . . . . . . . . . . . . 12
16.4 FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . 12
16.5 WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . 12
16.6 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . 12
16.7 INDEPENDENT CONTRACTORS. . . . . . . . . . . . . . . . . . 12
16.8 LOST PROFITS/CONSEQUENTIAL DAMAGES . . . . . . . . . . . . 12
16.9 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . 13
16.10 MODIFICATIONS. . . . . . . . . . . . . . . . . . . . . . . 14
16.11 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . 14
16.12 CONTROLLING LAW. . . . . . . . . . . . . . . . . . . . . . 14
16.13 FORUM. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16.14 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . 14
16.15 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.16 ORDER OF PRECEDENCE. . . . . . . . . . . . . . . . . . . . 15
16.17 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.18 PUBLICITY. . . . . . . . . . . . . . . . . . . . . . . . . 15
16.19 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . 15

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February 6, 1998
<PAGE>

LIST OF ATTACHMENTS

Attachment 1: Products and Prices. . . . . . . . . . . . . . . . . . . . 16
Attachment 2: Packaging Specifications . . . . . . . . . . . . . . . . . 17
Attachment 3: Product Specifications . . . . . . . . . . . . . . . . . . 18
Attachment 4: Quality Plan . . . . . . . . . . . . . . . . . . . . . . . 19
Attachment 5: Technical Support. . . . . . . . . . . . . . . . . . . . . 20
Attachment 6: Warranty Return Process. . . . . . . . . . . . . . . . . . 21

- -------------------------------------------------------------------------------
February 6, 1998
<PAGE>

AGREEMENT

This Agreement ("Agreement") is entered into as of this 6th day of February,
1998 ("Commencement Date") between International Business Machines
Corporation, a New York corporation with its principal office at Old Orchard
Rd., Armonk, New York 10504 ("Buyer") and Troy Systems, Inc., a California
corporation with its principal office at 2331 South Pullman Street, Santa
Ana, California ("Seller").

Buyer agrees to purchase from Seller and Seller agrees to sell to Buyer the
Products in accordance with the terms and conditions of this Agreement.

1.0 DEFINITIONS

1.1 "Custom Material" shall mean any modifications or enhancements to
Products made by Seller that are funded by Buyer.

1.2 "End User" shall mean a person or other entity that acquires Products
and/or Printing Systems from Buyer or a Reseller for its own use.

1.3 "Engineering Change" shall mean any mechanical, chemical, material,
process, specification or documentation change which, if made to the Products
to be delivered hereunder, would affect the performance, function,
reliability, availability, serviceability, appearance, manufacturability,
dimensions, tolerances, safety, testing or price of the Products.

1.4 "Epidemic Failure" shall mean a condition whereby five percent (5%) or
more of all units of Product delivered by Buyer to its Resellers and End
Users in any single month, or three percent (3%) or more of the total field
population of a Product in any quarter demonstrate defects in design,
materials and/or workmanship including, but not limited to, use of components
with inherent or latent defects, and such defects result from the same or
substantially the same cause.

1.5 "General Availability" shall mean the date upon which Buyer makes
Products generally available for shipment to End Users.

1.6 "Invention" shall mean any idea, design, concept, technique, invention,
discovery or improvement, whether or not patentable, that is (a) incorporated
in the Custom Materials, whether or not made solely by Seller or one or more
Seller employees or made jointly by Seller and/or Seller's employees with
Buyer or one or more employees of Buyer or (b) not incorporated in the Custom
Materials, but made jointly by Seller and/or Seller's employees with one or
more employees of Buyer during the Term and in the performance of this
Agreement.

1.7 "Months" or "months", "Quarters or quarters", or "Days" or "days" shall,
unless otherwise specified, respectively mean calendar months, calendar
quarters or calendar days.

1.8 "Printing System" shall mean a printing device that contains one (1) or
more Products.

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1 February 6, 1998
<PAGE>

1.9 "Product" or "Products" shall mean any or all of the items acquired by
Buyer from Seller under this Agreement.

1.10 "Product Specifications" shall mean the specifications set forth in
Attachment 3.

1.11 "Reseller" shall mean a person or other entity that acquires Products
from Buyer for eventual resale or lease to End Users.

1.12 "Subsidiary" or "Subsidiaries" shall mean a corporation, company or other
entity:

(a) more than fifty percent (50%) of whose outstanding shares or
securities (representing the right to vote for the election of
directors or other managing authority) are now or hereafter owned or
controlled, directly or indirectly, by a party hereto, but such
corporation, company or other entity shall be deemed to be a
Subsidiary only so long as such ownership or control exists; or

(b) which does not have outstanding shares or securities, as may be
the case in a partnership, joint venture, or unincorporated
association, but more than fifty percent (50%) of whose ownership
interest representing the right to make the decisions for such
corporation, company or other entity is now or hereafter owned or
controlled, directly or indirectly, by a party hereto, but such
corporation, company or other entity shall be deemed to be a
Subsidiary only so long as such ownership or control exists.

1.13 "Term" shall mean the period of time from the Commencement Date until the
termination or expiration of the Agreement.

2.0 AGREEMENT PERIOD

2.1 TERM. This Agreement shall begin on the Commencement Date and shall
continue in effect for three (3) years.

2.2 AGREEMENT EXTENSIONS. This Agreement can be extended for additional one (1)
year terms by mutual written agreement that is entered into no later than ninety
(90) days from the expiration of the current Term.

3.0 PRICES

3.1 PRODUCT PRICES. Prices of the Products are specified in Attachment 1.

3.2 COMPETITIVE PRICES. Buyer and Seller agree to work together, commencing at
the end of the third year of the contract during which the prices specified in
Attachment 1 are fixed, to maintain competitive Product prices and to implement
cost reduction programs and other pricing actions required to maintain
competitiveness. Commencing at the end of the third year of the contract: (a)
Buyer and Seller will meet periodically to review marketing survey information

- -------------------------------------------------------------------------------
2 February 6, 1998
<PAGE>

concerning prices of equivalent products and to determine the actions
required to keep the Products in a leadership position; (b) Seller also
agrees to use its best efforts to provide the Buyer with competitive prices
for the Products; and (c) Seller and Buyer agree to cooperate in putting in
place action plans to improve the life, reliability and cost of the Products.

3.3 PRICING ASSUMPTIONS. Unless otherwise noted, prices shall include the
costs associated with packaging the Products in accordance with the packaging
specifications set forth in Attachment 2. Except as provided in Sections 3.2
and 3.6, all prices shall remain firm as specified in Attachment 1.

3.4 REQUIREMENTS. For the first three (3) years of this Agreement, Buyer
agrees to purchase its requirements necessary to satisfy End User demand for
MICR toner and developer for the IBM 3900 and InfoPrint 4000 family of high
speed laser printers exclusively from Seller provided that, as determined in
IBM's sole discretion, (i) the Products are readily available to Buyer and
(ii) the Products satisfy the Product Specifications as described in
Attachment 3. In exchange for this commitment by Buyer, Seller agrees that
Seller will not sell the Products, which were developed by Seller according
to Buyer's specification, other than to Buyer.

3.5 TAXES. All prices for Products are exclusive of excise, sales, value
added, use and similar taxes. Buyer shall be responsible for the payment of
all such taxes, except those taxes imposed on the Products prior to delivery
to the carrier and taxes based on Seller's net income. Buyer hereby certifies
that it holds a valid reseller's exemption certificate in each applicable
taxing jurisdiction for Products purchased for resale. Where required by
state or local law, Buyer shall provide Seller with a valid reseller's
exemption certificate for each taxing jurisdiction to which Seller will ship
Products.

3.6 MOST FAVORED CUSTOMER. Seller warrants that the prices for the Products
under this Agreement do not now exceed prices offered by Seller to any other
customer purchasing the same or substantially similar Products in like or
lesser quantities upon similar terms and conditions. Commencing at the end of
the third year of this Agreement: (a) Seller warrants that the prices for
the Products under this Agreement will not exceed prices offered by Seller to
any other customer purchasing the same or substantially similar Products in
like or lesser quantities upon similar terms and conditions; and (b) in the
event Seller offers to sell any such Products at a price that is lower than
the price that Buyer is being charged, Seller shall immediately advise Buyer
of such lower price and Buyer shall, with respect to deliveries occurring
after the date of such offer, receive the benefit of such lower prices.

4.0 ORDERING

4.1 FORECASTS. During the last week of each month Buyer shall supply to
Seller a rolling six (6) month forecast of its anticipated requirements for
Products. Such forecasts shall be used by Seller for planning purposes only
and shall not be construed as a purchase commitment.

Both Buyer and Seller understand and agree that the Agreement does not
obligate Buyer to purchase a minimum amount of Products.

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3 February 6, 1998
<PAGE>

4.2 ORDERS. Purchase orders shall serve as Buyer's sole commitment to purchase.
All purchase orders shall reference this Agreement, and include the following:

a) the Products being purchased,

b) the quantity requested,

c) the price,

d) the receiving location,

e) the requested delivery dates, and

f) the carrier and mode of transportation.

During the last week of each calendar month, Buyer shall update its purchase
orders by confirming the quantity of Products to be purchased for the first
month following the update and also confirming its requirements for the second
and third months following the update. The first calendar month after such
update shall be considered the "Frozen Zone" in which no alternations,
modifications or cancellations can be made to the quantity of Products on order
unless mutually agreed to by the Buyer and Seller.

All purchases hereunder shall be solely pursuant to the terms and conditions of
this Agreement, notwithstanding any preprinted terms and conditions on an order
or order acceptance.

4.3 ORDER ACCEPTANCE. Seller shall provide Buyer with a written or electronic
notice of acceptance or rejection of a purchase order no later than seven (7)
days after receipt of the order. If Buyer fails to receive such notice within
seven (7) days, the purchase order shall be deemed to have been accepted by
Seller. Any rejection shall include the reasons for rejection. Seller may reject
a purchase order only if it fails to comply with the terms and conditions of
this Agreement.

4.4 ORDER CHANGES. Except during the "Frozen Zone" Buyer may, upon written or
electronic notice to Seller, change the quantity, delivery locations or delivery
dates of the Products.

4.5 CANCELLATION. Buyer may cancel an order by giving Seller written notice of
cancellation prior to the scheduled delivery date of the Products, except that
purchase orders for Products scheduled to be delivered during the "Frozen Zone"
may not be canceled, unless mutually agreed to by Buyer and Seller.

5.0 PACKAGING, SHIPMENT AND DELIVERY

5.1 PACKAGING. Seller shall, at its expense, package Products for shipment in
accordance with the packaging specifications set forth in Attachment 2.

- -------------------------------------------------------------------------------
4 February 6, 1998
<PAGE>

5.2 DELIVERY. Delivery of Products shall be F.O.B. Seller's location
("Delivery").

5.3 TITLE AND RISK OF LOSS. Title to Products and all risk of loss shall
pass to Buyer upon Delivery.

5.4 TRANSPORTATION. The carrier and mode of transportation shall be selected
by the Buyer.

6.0 INSPECTION AND ACCEPTANCE

6.1 INSPECTION. Products delivered by Seller shall be subject to inspection
by Buyer at any time prior to acceptance by an End User to determine whether
such Products are in compliance with the Product Specifications and free from
defects in design, material and workmanship.

6.2 REJECTION OF NON-CONFORMING PRODUCTS. Buyer may reject any Product that
is not in compliance with the Product Specifications or that has defects in
design, material or workmanship.

6.3 EFFECT OF REJECTION. Any nonconforming Product that has been rejected by
Buyer can, at Buyer's option after consultation with Seller:

a) be returned to Seller for repair, replacement or a refund of the
original purchase price, freight collect,

b) be repaired by Seller at Buyer's designated facility, or

c) be repaired by Buyer at Seller's expense.

6.4 EFFECT OF PAYMENT. Payment by Buyer shall not constitute acceptance of the
Products or impair Buyer's remedies for non-conformance.

7.0 PAYMENT

7.1 INVOICING PROCEDURES. Seller shall issue individual invoices to Buyer for
each shipment no earlier than the Delivery date of the Products.

7.2 TERMS OF PAYMENT. Buyer shall pay Seller in full in U.S. dollars within
thirty (30) days of receipt of Seller's invoice.

8.0 PRODUCT CHANGES

8.1 SELLER REQUESTED CHANGES. Seller shall provide Buyer with the earliest
possible notice and a written evaluation of the anticipated effect of any Seller
requested Engineering

- -------------------------------------------------------------------------------
5 February 6, 1998
<PAGE>

Change. Seller shall not make an Engineering Change to the Products without
Buyer's prior written consent.

8.2 BUYER REQUESTED CHANGES. Buyer may propose Engineering Changes to the
Products by providing Seller with written notification. Seller agrees to
respond to Buyer's request in writing within thirty (30) days of receipt of
such notification. Seller's response shall include an evaluation of the
impact of the proposed Engineering Changes on the price, performance and
delivery of the Products. Once Buyer agrees in writing to accept the impact
of such proposed Engineering Change as specified by Seller, Seller agrees to
incorporate into the Products any Engineering Changes.

8.3 MANDATORY CHANGES. In the event an Engineering Change is required to
comply with the Product Specifications or in order to comply with
governmental regulations or judicial decisions in order to satisfy
governmental standards, including safety and environmental laws and
regulations, Seller shall issue a mandatory Engineering Change upon
reasonable written notification to Buyer. Seller shall also provide the
required parts, materials, documentation, detailed installation instructions
and any special tools, equipment, or media to Buyer at no charge and shall
reimburse Buyer for the expenses it incurs in implementing the mandatory
Engineering Change.

8.4 PRODUCT ENHANCEMENTS. If during the Term Seller offers any improvement,
additional function, or other enhancement to any Product, Seller shall offer
such improvement, additional function or other enhancement to Buyer at prices
that do not exceed those charged to any other of Seller's customers.

8.5 NEW PRODUCTS. If during the Term Seller develops any new or successor
product which may reasonably be considered as a functional replacement for
any Products, such new or successor products shall be included in this
Agreement at a mutually agreed upon price and shall be considered "Products"
for the purposes of this Agreement.

9.0 QUALITY ASSURANCE

9.1 QUALITY PROCESS. Seller shall maintain a quality assurance program and
adhere to the quality inspection and acceptance testing procedures described
in Attachment 4.

Seller shall subject all Products to quality inspection testing procedures
prior to Delivery to Buyer.

Buyer shall have the right to make periodic, on-site, typical quality
assurance reviews to ensure Seller's compliance with its quality assurance
program and quality inspection procedures.

Seller shall provide Buyer with access to its quality inspection testing
results upon request.

9.2 ISO 9002. Seller agrees to use the practices and procedures required by
ISO 9002 certification.

- -------------------------------------------------------------------------------
6 February 6, 1998
<PAGE>

10.0 WARRANTIES AND REPRESENTATIONS

10.1 PRODUCT WARRANTY. Seller warrants that title to all Products delivered
to Buyer under this Agreement will be free and clear of all liens,
encumbrances, security interests or other claims. Seller also warrants that
the Products will conform to the Product Specifications for twelve (12)
months following Delivery of the Products at an End User's location provided
that the proper handling and storage procedures and conditions are
continuously complied with throughout such period. Buyer's inspection or
acceptance of, or payment for, any Products shall not constitute a waiver of
any breach of warranty. The procedure to be followed by Buyer and Seller in
the event Buyer needs to return Products under this warranty is set forth in
Attachment 7.

Seller warrants that none of the Products contain and none of the Products
will be manufactured using ozone depleting substances including, without
limitation, chloroflouocarbons, halons, methyl chloroform, carbon
tetrachloride, PCB and trichlorethylene.

In addition, Seller represents and warrants that all Products provided to
Buyer hereunder are made of new parts, new components and new subassemblies.
In the event that Seller has a desire to provide Buyer with Products that are
not made from new parts, new components and new subassemblies, Seller shall
(1) immediately notify Buyer in writing; and (2) seek written approval from
Buyer to do so.

10.2 CLAIM WARRANTY. Seller hereby represents and warrants that it has not
received and knows of no claim made or proceeding brought by a third party on
the basis that any Product infringes or utilizes a patent, copyright, mask
work, trade secret or trademark of a third party and that no patent,
copyright, mask work, trade secret or trademark of a third party has been
used without permission in or to manufacture, assemble or integrate, any
Product.

10.3 LICENSE WARRANTY. Seller hereby represents and warrants that it has the
full power and right to grant to Buyer each of the licenses set forth in
Section 13 of this Agreement.

10.4 REMEDIES FOR BREACH OF PRODUCT WARRANTY. In the event of a breach of the
warranty set forth in the first paragraph of Subsection 10.1, the
nonconforming Products shall be remedied in accordance with any of the
following options as mutually agreed upon by Buyer and Seller:

a) the nonconforming Products or any parts thereof shall be returned to
Seller for repair, replacement, or a refund or credit in the amount of the
original purchase price, freight collect;

b) Seller shall make the necessary repairs.

c) Buyer shall make the necessary repairs, with Seller furnishing the
necessary parts and reimbursing Buyer for its cost of labor at Buyer's then
current labor rates; or

- -------------------------------------------------------------------------------
7 February 6, 1998
<PAGE>

d) Seller shall refund the Products equivalent price to the Buyer for all
Products replaced during the warranty period and Buyer shall scrap the
replaced Products.

10.5 EPIDEMIC FAILURES. In the event of an Epidemic Failure, Seller shall at
its expense repair the defective Products, replace the defective Products or
reimburse Buyer for the actual costs it incurs correcting the defect;
provided, however, Buyer agrees to use reasonable efforts to mitigate such
costs it incurs. Any Products returned to Seller shall be returned freight
collect.

10.6 LIMITATION OF WARRANTIES

There is NO WARRANTY, representation or condition of ANY KIND, expressed or
implied (INCLUDING NO WARRANTY OF MERCHANTABILITY OR FITNESS OF THE PRODUCT FOR
THE USE CONTEMPLATED BY IBM) concerning the Product sold hereunder or containers
in which it is shipped and none shall be implied by law.

11.0 INDEMNIFICATION

11.1 PATENT, COPYRIGHT, MASK WORK, TRADE SECRET AND TRADEMARK
INDEMNIFICATION. Seller shall, at its own expense, indemnify, defend and hold
harmless Buyer, its Subsidiaries, its and their successors and assigns,
officers, employees, agents, End Users and Resellers from and against all
damages, costs or expenses incurred as a result of any claim that a Product
provided hereunder infringes a patent, copyright, mask work, trade secret or
trademark. Buyer shall promptly notify Seller of any such claim, and
cooperate fully with Seller. Seller shall have control of the defense against
such claim, except that Buyer shall have the right to retain counsel and
participate in the defense or settlement, at Buyer's expense.

In the event that a claim is made against the use or sale of a Product,
Seller may, or in the event that an injunction is obtained against the use or
sale of a Product, Seller shall, at its own expense, either:

a) procure for Resellers or End Users the right to continue using the
Product,

b) replace or modify the Product so that it is noninfringing, so long as it
continues to conform to the specifications, or

c) accept the return of the Product and refund the purchase price to Buyer.

Notwithstanding the foregoing, Seller shall not be obligated to indemnify
Buyer if the infringement is caused by Buyer's modification of the Product
after delivery by Seller and such infringement would not have occurred but
for such Buyer modification.

11.2 PRODUCT INDEMNIFICATION Seller shall indemnify and hold Buyer, its
Subsidiaries, its and their successors and assigns, officers, employees,
agents, End Users and Resellers harmless from any claims for personal injury
or property damage caused by any defect

- -------------------------------------------------------------------------------
8 February 6, 1998
<PAGE>

in design or manufacture of the Products or by Seller's negligent act,
omission or willful misconduct.

12.0 PRODUCT SUPPORT

12.1 TECHNICAL SUPPORT Seller shall provide Buyer and Resellers with
telephone technical support at no charge to Buyer or Resellers as set forth
in Attachment 5. If a technical problem cannot be resolved by telephone
technical support, Seller shall provide on site technical support to Buyer or
Resellers at the rates specified in Attachment 5 provided, however, that
Buyer or Resellers shall not be required to make any payments to Seller for
on site technical support if the technical problem is due to a defect in
design, materials or workmanship, or failure of the Products to conform to
the Product Specifications.

12.2 TONER INTERLOCK SYSTEM In consideration of the exclusivity arrangement,
Seller will design a toner interlock system that will prevent the accidental
introduction of non-MICR toner into the MICR version of the IBM 3900 or
InfoPrint 4000. Seller will have all right, title, and interest in such
design. Seller hereby grants Buyer 1) an irrevocable, nonexclusive,
worldwide, paid-up license to use, reproduce, distribute (internally and
externally) copies of, and prepare derivative works based on such design and
2) the right to authorize others to do any of the former.

12.3 MATERIAL SAFETY DATA SHEETS. Seller agrees to provide for all Products
all relevant Material Safety Data Sheet (MSDS) Notices, as well as a letter
of compliance with Toxic Substance Control Act (TSCA) Regulations.

13.0 INTELLECTUAL PROPERTY

13.1 PATENT LICENSE. Seller hereby grants Buyer a worldwide, non-exclusive
non-transferable, fully paid-up and royalty-free patent license to all
patents owned or licensable by Seller that cover or relate to use of the
Products only to the extent necessary to allow Buyer to market, distribute
and sell the Product purchased by Buyer from Seller hereunder. Seller also
grants Buyer the right to sublicense its End Users to use, and to sublicense
its Subsidiaries and its and their agents, Resellers, and distributors to use
and sublicense End Users to use Products.

13.2 TRADEMARKS. Except to the extent permitted by local law, neither party
shall have the right to use the trademarks, trade names or logos of the other
party in connection with any product, promotion or publication without the
prior written approval of the other party.

13.3 PATENT AND COPYRIGHT CLEARANCE INVESTIGATION. Subject to Section 14 of
this Agreement, Seller will disclose to Buyer in writing, within thirty (30)
days of Buyer's request thereof, sufficient technical information necessary
to enable Buyer to conduct a patent and copyright clearance investigation
with respect to Products to be delivered hereunder, or Seller will provide
Buyer with adequate assurances to Buyer's satisfaction that Seller has
sufficiently investigated the Products for possible patent and copyright
infringement and cleared the Products for sale to Buyer. Seller shall also
promptly notify Buyer in writing of any patents

- -------------------------------------------------------------------------------
9 February 6, 1998
<PAGE>

or copyrights of third parties which pertain to the Products which come to
the attention of Seller, and of any suits or claims of patent or copyright
infringement which have made against Seller with respect to the Products.

14.0 CONFIDENTIAL INFORMATION

Seller understands that Buyer does not wish to receive from Seller any
information which may be considered confidential or proprietary to Seller or
to any third party. Seller represents and warrants that no information has
been provided that is confidential or proprietary to Seller or any third
party and Buyer will not be obligated to retain in confidence or restrict
Buyer's use of any information received from Seller. Buyer understands that
Seller does not wish to receive from Buyer any technical information which
may be considered confidential or proprietary to Buyer or to any third party.
Buyer represents and warrants that no technical information has been provided
that is confidential or proprietary to Buyer or any third party and Seller
will not be obligated to retain in confidence or restrict Seller's use of any
technical information received from Buyer. Seller agrees that Buyer will,
during the course of this Agreement, disclose certain of its business plans
and projected sales of Products which Buyer considers confidential to Buyer,
and Seller agrees to use the same care and discretion to avoid disclosure of
such information as Seller uses with its own similar information which it
does not wish to disclose. Other than such business plans and projected
sales, in the event it becomes necessary to provide or exchange information
that is deemed confidential or proprietary to either party, such provision or
exchange shall not take place prior to execution of an Agreement for Exchange
of Confidential Information.

15.0 TERMINATION

15.1 MATERIAL BREACH. Either party may terminate this Agreement or any
purchase order issued hereunder effective immediately upon written notice of
termination to the other party in the event the other party materially
breaches this Agreement and such breach is not cured within thirty (30) days
after receipt of written notice of breach from the terminating party or a
plan to cure such breach is not accepted by the non-breaching party within
such thirty (30) day period. If this Agreement is terminated by Seller due to
Buyer's breach, Buyer's sole obligation to Seller for such breach shall be
payment to Seller for all Products shipped to and accepted by Buyer prior to
the effective date of such termination.

15.2 INSOLVENCY. Buyer can terminate this Agreement if:

a) Seller becomes insolvent,

b) a petition or proceeding, voluntary or involuntary, for relief under
bankruptcy, insolvency, reorganization, dissolution, winding-up,
receivership, liquidation or similar law is filed or commenced by or against
Seller, or

c) a trustee, custodian, receiver or similar officer is appointed to take
charge of all or part of Seller's business.

- -------------------------------------------------------------------------------
10 February 6, 1998
<PAGE>

In the event of termination for a), b) or c) above, Seller shall provide to
Buyer any and all Requisite Documentation.

16.0 GENERAL

16.1 AUTHORITY. Each party represents that it has the authority to enter into
and perform all of the obligations set forth in this Agreement.

16.2 COMPLIANCE WITH LAWS. Each party shall comply with all applicable laws,
regulations and ordinances including, but not limited to, the regulations of
the United States Department of Commerce relating to the export of products
or technical data.

16.3 LIMITATION OF ACTIONS. Neither party may bring an action, regardless of
form, arising out of this Agreement, more than two (2) years after the cause
of action has arisen.

16.4 FORCE MAJEURE. Neither party shall be responsible for failure to fulfill
its obligations under this Agreement due to causes beyond its control
including, but not limited to, accidents, labor disputes, military conflicts,
insurrections, riots, explosions, lightning, earthquakes, fires, storms and
floods. In addition, neither party shall be responsible for failure to meet
its obligations under this Agreement due to non-delivery or lateness of its
suppliers as long as such lateness or non-delivery is due to reasons
described in the sentence immediately above.

16.5 WAIVER. Failure of either party to enforce any provision of this
Agreement shall not be deemed a waiver of future enforcement of that or any
other provision.

16.6 ASSIGNMENT. Neither party can assign its rights or delegate its
obligations under this Agreement without the prior written consent of the
other party, except that Buyer can assign its rights and delegate its
obligations hereunder to the successor in interest of the business unit of
IBM currently known as The IBM Printing Systems Company.

16.7 INDEPENDENT CONTRACTORS. Both parties are independent contractors.
Nothing in this Agreement shall be deemed to create an agency, partnership,
joint venture, or employer/employee relationship.

16.8 LOST PROFITS/CONSEQUENTIAL DAMAGES. In no event shall either party be
liable for any lost profits, consequential damages, indirect damages, special
damages or punitive damages arising out of, or relating to this Agreement.

16.9 NOTICES. Any notice which may be or is required to be given under this
Agreement shall be in writing, and shall be deemed to have been received:

a) when delivered personally,

b) when sent by confirmed facsimile,

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11 February 6, 1998
<PAGE>

c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or

d) one (1) day after deposit with a commercial overnight carrier with
written verification of receipt.

All notices shall be sent to the addresses set forth below:

Notices regarding technical information:

BUYER: SELLER:

Gary Lorgan Gerard Rioux
Business Line Manager Troy Systems, Inc.
IBM Printing Systems Company 3 Bryan Drive
6300 Diagonal Highway Wheeling, WV 26003
Boulder, CO 80301 (304) 232-0899
(303) 924-8341
Backup:
Michael Riley
Technical Product Manager
Troy Systems, Inc.
3 Bryan Drive
Wheeling, WV 26003
(304) 232-0899

Notices regarding Agreement Administration:

BUYER: SELLER:

Gregory F. Flemming Michael Stewart
Director, Business Alliances Director of Consumable Sales
IBM Printing Systems Company Troy Systems, Inc.
6300 Diagonal Highway 3 Bryan Drive
Boulder, CO 80301 Wheeling, WV 26003
(303) 924-8800 (304) 232-0899

Backup:

Linda Korber
Sales Administrator
Troy Systems, Inc.
3 Bryan Drive
Wheeling, WV 26003
(304) 232-0899

- -------------------------------------------------------------------------------
12 February 6, 1998
<PAGE>

16.10 MODIFICATIONS. This Agreement can be modified only by a written
amendment signed by the authorized representatives of the parties.

16.11 SEVERABILITY. If any provision of this Agreement or the application
thereof is held by any court of competent jurisdiction to be invalid, illegal or
unenforceable, such invalidity shall not affect the other provisions of this
Agreement, the enforceability of this Agreement as a whole or the enforceability
of such provision in other jurisdictions to the extent permitted by law.

16.12 CONTROLLING LAW. This agreement shall be governed and construed in all
respects in accordance with the laws and regulations of the State of New York,
without reference to choice of law principles. The Nations Convention on
Contracts for the International Sale of Goods does not apply.

16.13 FORUM. Any action or proceeding brought by Seller to enforce or
resolve disputes relating to this Agreement shall be brought before a court of
competent jurisdiction in the city of New York in the State of New York,
including a Federal District Court sitting within such city. Any action or
proceeding brought by Buyer to enforce or resolve disputes relating to this
Agreement shall be brought before a court of competent jurisdiction in Orange
County in the State of California, including the Federal District Court sitting
within such county. Neither party shall attest that such court lacks
jurisdiction over such party or the subject matter hereof.

16.14 WAIVER OF JURY TRIAL. The parties expressly waive any right they may
have to a jury trial.

16.15 SURVIVAL. All provisions which by their nature extend beyond the
termination or expiration of this Agreement shall remain in effect beyond any
termination or expiration.

16.16 ORDER OF PRECEDENCE. To the extent any terms and conditions of this
Agreement conflict with the terms and conditions of any invoice, purchase order
or purchase order acknowledgment, the terms and conditions of this Agreement
shall control. In addition, to the extent any terms and conditions of the main
body of this Agreement conflict with the terms and conditions of any attachment,
the terms and conditions of the main body of the Agreement shall control.

16.17 HEADINGS. The headings and titles of the provisions of this Agreement
are inserted for convenience only and shall not affect the construction or
interpretation of any provision.

16.18 PUBLICITY. Neither party shall publicly disclose the existence of this
Agreement, any information concerning this Agreement or the terms and conditions
of this Agreement, except as required by law, without the prior written consent
of the other party; provided, however, either party may communicate the fact of
the relationship to current or potential mutual customers without obtaining the
other party's consent. In the event that disclosure is required by law, the
disclosing party agrees to provide the non-disclosing party with prior written
notice of such disclosure.

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13 February 6, 1998
<PAGE>

16.19 ENTIRE AGREEMENT. This Agreement is the complete and exclusive
statement of the agreement between the parties and supersedes any and all
prior oral or written communications between the parties relating to the
subject matter hereof.

IN WITNESS WHEREOF, both Buyer and Seller have executed this Agreement by their
respective authorized representatives.

TROY SYSTEMS, INC. INTERNATIONAL BUSINESS
MACHINES CORPORATION

By: /s/ Robert S. Messina By: /s/ Gregory F. Flemming
------------------------------ ------------------------------
Robert S. Messina (Signature)
President and Chief Operating
Officer Name: Gregory F. Flemming
----------------------------

Title: Director Business Alliances
---------------------------

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14 February 6, 1998
<PAGE>

ATTACHMENT 1: PRODUCTS AND PRICES

[This Attachment has been omitted pursuant to a request for confidentiality
under Rule 406 of the Securities Act of 1933, as amended. A copy of the
Agreement with the Section intact has been filed separately with the Securities
and Exchange Commission.]

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15 February 6, 1998
<PAGE>

ATTACHMENT 2: PACKAGING SPECIFICATIONS

- -------------------------------------------------------------------------------
16 February 6, 1998
<PAGE>

ATTACHMENT 3: PRODUCT SPECIFICATIONS

- -------------------------------------------------------------------------------
17 February 6, 1998
<PAGE>

ATTACHMENT 4: QUALITY PLAN

Seller shall provide a Quality Plan to Buyer within four (4) months of the
Commencement Date.

- -------------------------------------------------------------------------------
18 February 6, 1998
<PAGE>

ATTACHMENT 5: TECHNICAL SUPPORT

TELEPHONE TECHNICAL SUPPORT

Seller will maintain a toll-free telephone number so as to provide
technical assistance to Buyer or its customers for any MICR related issue for
IBM 3900 and InfoPrint 4000 printers utilizing Seller's Products. Telephone
support will be available between the hours of 8 a.m. to 5 p.m., Pacific time.

FIELD SUPPORT

Buyer may request field support from Seller to address Customer concerns
with Products, and Seller agrees to use best efforts to comply. If the field
problem is found to be caused by Products supplied by Seller, Seller agrees to
cover all expenses incurred by Seller in addressing such concern. If the field
problem is not caused by Products supplied by Seller, then Buyer agrees to
reimburse Seller for all reasonable travel expenses incurred, plus $500.00 per
day.

PAPER TESTING

Seller will initially provide for each new IBM 3900 and InfoPrint 4000 MICR
customer, upon request by Buyer, analysis of the customer's check paper stock to
determine whether it meets ANSI standards for check processing. Seller will
provide a written report to Buyer that contains an analysis of paper
characteristics, plus any appropriate recommendations to insure acceptable check
processing quality.

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19 February 6, 1998
<PAGE>

ATTACHMENT 6: WARRANTY RETURN PROCESS

Should it become necessary to return any Product to the Seller under the terms
of the warranty, the Buyer should contact the Director of Sales in Wheeling, WV
(Mike Stewart) at 1-800-633-2266. Seller will issue a return goods authorization
(RGA) number to Buyer along with shipping instructions. Seller will test the
returned Product to confirm that it is defective, and that the defect is a
design or quality defect. Upon confirmation that Seller is responsible for the
defect that was the reason for its return, Seller will arrange to replace or
repair the defective Product.

Seller will use best efforts to accomplish such repair or replacement within ten
(10) days of receipt of defective Products at Seller's plant of manufacture.

Seller shall maintain a small inventory of Product for replacement if Seller's
manufacturing facility cannot meet the specified replacement delivery
commitment.

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20 February 6, 1998

<PAGE>
Exhibit 10.16
NON-NEGOTIABLE PROMISSORY NOTE

$1,633,416.80 November 30, 1993

FOR VALUE RECEIVED, PIERCE COMPANIES, INC., a Delaware corporation
("Maker") promises to pay to PATRICK J. AND MARY J. DIRK, AS TRUSTEES OF THE
DIRK FAMILY TRUST U/D/T MARCH 6, 1990, the principal sum of One Million Six
Hundred Thirty-Three Thousand Four Hundred Sixteen Dollars and Eighty Cents
($1,633,416.80), and to pay interest on the unpaid principal balance from this
date at the annual rate of four percent (4%).

Principal shall be payable in one installment on November 30,1996, on which
date any unpaid principal balance shall be paid in full. Accrued interest shall
be payable annually, commencing on November 30, 1994, and continuing thereafter
on the same day in each succeeding year to and including November 30, 1996, on
which date any unpaid interest shall be paid in full.

Each payment shall be credited first to accrued but unpaid interest and the
balance to principal, and interest shall cease to accrue on the amount of
principal so paid. Interest shall be computed on the basis of a year of 365 days
for the actual number of days elapsed. Interest not paid when due shall
thereafter bear like interest as the principal.

Maker reserves the right to prepay this Note, in whole or in part, at any
time or from time to time without penalty or premium. Any prepayments shall be
credited first to accrued but unpaid interest and then to principal remaining
unpaid. In the event of prepayment in part, interest after prepayment shall
accrue only on the unpaid balance of principal.

All payments under this Note shall be made in lawful currency of the United
States of America at 2331 South Pullman Street, Santa Ana, California 92705.

Payments of principal and interest on this Note are subordinated to all
present and future debt of Maker to Union Bank.

If Maker defaults in any payment due under this Note, which default is not
cured within 30 days after delivery of written notice by the holder of this Note
of such default to Maker, the entire unpaid principal and accrued but unpaid
interest shall, at the option of the holder, become immediately due and payable.

Maker waives diligence, presentment, protest, demand and notice of protest,
demand, dishonor and nonpayment of this Note, and expressly agrees that this
Note, or any payment under it, may be extended by the holder from time to time
without in any way affecting the liability of Maker.

<PAGE>

Maker agrees to reimburse the holder of this Note for all costs of
collection or enforcement of this Note, whether or not suit is filed (including,
but not limited to, reasonable attorneys' fees), incurred by the holder.

This Note shall be governed by and construed in accordance with the laws of
the State of California.

EXECUTED at Santa Ana, California.

PIERCE COMPANIES, INC.,
a Delaware corporation

By /s/ Patrick J. Dirk
---------------------------------
Its Chairman
---------------------------
11/30/93

First amendment dated 11/1/95

WHEREAS the parties hereto, agree as follows:

1. The Note due date shall be extended for a one year period to November
30,1997.

2. In consideration for the above extension the annual interest rate shall
increase to 7% effective December 1, 1995.

/s/ Patrick J. Dirk
/s/ Mary J. Dirk /s/ Patrick J. Dirk
- ------------------------------------- ---------------------------------------
Shareholder Pierce Companies, Inc.

DATE 10/23/95 DATE 10/23/95
------------------------------- ----------------------------------

<PAGE>

Second amendment dated 11/1/96

WHEREAS the parties hereto, agree as follows:

The note due date shall be extended for a one year period to November
30, 1998.

/s/ Patrick J. Dirk /s/ Patrick J. Dirk
- -------------------------------------- ---------------------------------------
Shareholder Pierce Companies, Inc.

DATE Feb 4, 1997 DATE Feb 4, 1997
-------------------------------- ----------------------------------

<PAGE>

Second amendment dated 11/1/96

WHEREAS the parties hereto, agree as follows:

The note due date shall be extended for a one year period to November
30, 1998.

/s/ Mary J. Dirk /s/ Patrick J. Dirk
- -------------------------------------- --------------------------------------
Shareholder Pierce Companies, Inc.

DATE 2/4/97 DATE Feb. 4, 1997
-------------------------------- ---------------------------------

<PAGE>

EXHIBIT 10.17

BUSINESS LOAN AGREEMENT

This Business Loan Agreement (this "Agreement") is entered into as of the date
set forth below between Union Bank of California, N.A. ("Bank") and Troy Systems
Inc. ("Borrower") with respect to each and every extension of credit (whether
one or more, collectively referred to as the "Loan") from Bank to Borrower.
This Agreement amends and restates in its entirety that certain loan agreement
dated September 16, 1996 between Bank and Borrower. In consideration of the
Loan, Bank and Borrower agree to the following terms and conditions:

1. THE LOAN.

1.1. THE NOTE. The Loan is evidenced by one or more promissory notes
or other evidences of indebtedness, including each amendment, extension,
renewal or replacement thereof, which are incorporated herein by this
reference (whether one or more, collectively referred to as the "Note").

1.2. BORROWING BASE. An amount of the Loan equal to $3,500,000,*
evidenced by a Note dated May 28, 1997 is a revolving loan subject to a
borrowing base ("Borrowing Base Loan"). Notwithstanding any other
provision of this Agreement or any other Loan Document, Bank shall not be
obligated to advance funds under the Borrowing Base Loan, if the principal
amount of such Borrowing Base Loan including such advance exceeds 80% of
Borrower's Eligible Accounts plus 85% of Specified Accounts. In no event,
however, shall the aggregate amount of the advances based on Eligible
Inventory exceed, at any time, the sum of $500,000. As a sublimit to the
Borrowing Base Loan, Bank shall issue, for the account of Borrower, one or
more irrevocable, standby letters of credit (individually, an "L/C" and
collectively, the "L/Cs"). All such standby L/Cs shall be drawn on such
terms and conditions as are acceptable to Bank. The aggregate amount
available to be drawn under all outstanding L/Cs and the aggregate amount
of unpaid reimbursement obligations under drawn L/Cs shall not exceed Four
Hundred Thousand Dollars ($400,000) and shall reduce, dollar for dollar,
the maximum amount available under the Borrowing Base Loan. Each L/C shall
be governed by the terms of (and Borrower agrees to execute) Bank's
standard form for standby L/C applications and reimbursement agreements.
No L/C shall expire after May 1, 1998.

* Wherever "N/A" appears in a blank in this Agreement, it means the
Subsection in which it appears is deemed deleted from this Agreement.

The term "Accounts" means all presently existing and hereafter arising
accounts receivable, contract rights, chattel paper, and all other forms of
obligations owing to Borrower, payable in U.S. Dollars, arising out of the
sale or lease of goods, or the rendition of services by Borrower, whether
or not earned by performance, and any and all credit insurance, guaranties
and other security, as well as all merchandise returned to or reclaimed by
Borrower and Borrower's books and records relating to any of the foregoing.

The term "Eligible Accounts" means those Accounts, net of finance charges,
which are due and payable within ninety (90) days, or less, from the date
of the invoice, have been validly assigned to Bank and strictly comply with
all of Borrower's warranties and representations to Bank. Eligible
Accounts shall also include those accounts which have extended terms to
Borrower's

<PAGE>

international distributors evidencing the purchase of parts and supplies in
an amount not to exceed Thirty Five Thousand Dollars ($35,000) provided,
however, the aggregate amount of these accounts shall not exceed Four
Hundred Thousand Dollars ($400,000). Eligible Accounts shall also include
Specified Accounts, which are approved by the Bank in its sole discretion
and are more fully described in Exhibit I herein. Total Eligible Accounts
shall be reduced by $300,000 as long as monies are owed by Borrower to its
affiliate, Pierce Companies, Inc. ("Pierce") and these monies are
considered eligible accounts up to $300,000 under Pierce's line of credit
with Bank. Eligible Accounts shall not include the following:

(a) Any Account with respect to which the account debtor is an
officer, shareholder, director, employee or agent of Borrower;

(b) Any Account with respect to which the account debtor is a
subsidiary of, related to, or affiliated or has common officers
or directors with Borrower;

(c) Any Account with respect to which goods are placed on
consignment, guaranteed sale or other terms by reason of which
the payment by the account debtor may be conditional;

(d) Except as provided above, any Account with respect to which the
account debtor is not a resident of the United States or Canada
unless such debtor account is supported by a letter of credit;

(e) Any Account with respect to which the account debtor is the
United States or any department, agency or instrumentality of the
United States;

(f) Any Account with respect to which Borrower is or may become
liable to the account debtor for goods sold or services rendered
by the account debtor to Borrower;

(g) Any Account with respect to which there is asserted a defense,
counterclaim, discount or setoff, whether well-founded or
otherwise, except for those discounts, allowances and returns
arising in the ordinary course of Borrower's business;

(h) Any Account with respect to which the account debtor becomes
insolvent, fails to pay its debts as they mature or goes out of
business or is owed by an account debtor which has become the
subject of a proceeding under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency law, including, but not limited to, assignments for
the benefit of creditors, formal or informal moratoriums,
compositions or extensions with all or substantially all of its
creditors;

(i) Any Account owed by any account debtor with respect to which 25%
or more of the aggregate dollar amount of its Accounts is not
paid within 90 days from the date of the invoice;

(j) Any Account that is not paid by the account debtor within 90 days
of the date of invoice;

(k) Any Account that is not paid by the account debtor and for which
a credit memo has been issued which is over 90 days old;

2
<PAGE>

(l) That portion of any Account owed by any single account debtor
which exceeds 20% of all of the Accounts, provided, however
Accounts owed by International Business Machines cannot exceed
thirty-five percent (35%);

(m) Any Account which Bank deems not to be an Eligible Account.

1.3. ELIGIBLE INVENTORY. The term "Eligible Inventory" means and
includes: (a) 50% of total purchased inventory of Standard Desktop Laser
Printers plus (b) 25% of the sum of finished goods inventory, excluding
Desktop Laser Printers, plus raw materials less the general ledger
obsolescence reserve, less finished goods returned, less demonstration
inventory, less any finished foods subject to consignment sales not to
exceed $500,000.

1.4. TERM LOAN AVAILABILITY PERIOD. For any portion of the Loan which
is a term loan, loan proceeds shall be available for a single disbursement
from June 1, 1997, through June 30,1997, only.

1.5. THE STANDBY LETTERS OF CREDIT. Bank shall issue, for the account
of Borrower, one or more irrevocable, standby letters of credit
(individually, an "L/C" and collectively, the "L/Cs"). All such standby
L/Cs shall be drawn on such terms and conditions as are acceptable to Bank.
The aggregate amount available to be drawn under all outstanding L/Cs and
the aggregate amount of unpaid reimbursement obligations under drawn L/Cs
shall not exceed Five Hundred Thousand Dollars ($500,000). Each L/C shall
be governed by the terms of (and Borrower agrees to execute) Bank's
standard form for standby L/C applications and reimbursement agreements. No
L/C shall expire after May 1, 1998.

1.6. COLLATERAL. The payment and performance of all obligations of
Borrower under the Loan Documents is and shall be during the term of the
Loan secured by a perfected security interest in such real or personal
property collateral as is required by Bank and each security interest shall
rank in first priority unless otherwise specified in writing by Bank.

1.7. GUARANTY. The payment and performance of all obligations of
Borrower under the Loan Documents are and shall be during the term of the
Loan guaranteed by: Patrick Dirk, Mary Dirk, and The Dirk Family Trust, in
the amount of Five Hundred Thousand Dollars ($500,000).

1.8. SUBORDINATION. Certain other obligations of Borrower are and
shall be during the term of the Loan subordinated, to the repayment of the
Loan and all other obligations of Borrower to Bank, pursuant to one or more
subordination agreement(s) in favor of Bank executed and delivered by:
N/A.

3
<PAGE>

2. CONDITIONS TO AVAILABILITY OF THE LOAN. Before bank is obligated to
disburse all or any portion of the loan, bank must have received (a) the Note
and every other document required by Bank in connection with the Loan, each of
which must be in form and substance satisfactory to Bank (together with this
Agreement, referred to as the "Loan Documents"), (b) confirmation of the
perfection of its security interest in any collateral for the Loan, and (c)
payment of any fee required in connection with the Loan.

3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants (and
each request for a disbursement of the proceeds of the Loan shall be deemed a
representation and warranty made on the date of such request) that:

3.1. Borrower is an individual or Borrower is duly organized and
existing under the laws of the state of its organization and is duly
qualified to conduct business in each jurisdiction in which its business is
conducted;

3.2. The execution, delivery and performance of the Loan Documents
executed by Borrower are within Borrower's power, have been duly
authorized, are legal, valid and binding obligations of Borrower, and are
not in conflict with the terms of any charter, bylaw, or other organization
papers of Borrower or with any law, indenture, agreement or undertaking to
which Borrower is a party or by which Borrower is bound or affected;

3.3. All financial statements and other financial information
submitted by Borrower to Bank are true and correct in all material
respects, and there has been no material adverse change in Borrower's
financial condition since the date of the latest of such financial
statements;

3.4. Borrower is properly licensed and in good standing in each state
in which Borrower is doing business, and Borrower has complied with all
laws and regulations affecting Borrower, including without limitation, each
applicable fictitious business name statute;

3.5. There is no event which is, or with notice or lapse of time or
both would be, an Event of Default (as defined in Article 5);

3.6. Borrower is not engaged in the business of extending credit for
the purpose of, and no part of the Loan will be used, directly or
indirectly, for purchasing or carrying margin stock within the meaning of
Federal Reserve Board Regulation U; and

3.7. Borrower is not aware of any fact, occurrence or circumstance
which Borrower has not disclosed to Bank in writing which has, or could
reasonably be expected to have, a material adverse effect on Borrower's
ability to repay the Loan or perform its obligations under the Loan
Documents.

4. COVENANTS. Borrower agrees, so long as the Loan or any commitment to
make any advance under the Loan is outstanding and until full and final payment
of all sums outstanding under any Loan Document, that borrower will:

4.1. MAINTAIN:

(a) Working Capital equal to at least $ N/A . As used
herein, "Working Capital" means the excess of current assets over
current liabilities);

4
<PAGE>

(b) A ratio of current assets to current liabilities of at least N/A
:1.00;

(c) A quick ratio of cash, accounts receivable and marketable
securities to current liabilities of at least .65:1.0 as of May
31, 1997, .70:1.0 as of August 31, 1997, and .75:1.0 as of
November 30, 1997 and thereafter;

(d) Tangible Net Worth of at least $2,500,000 as of May 31, 1997,
$2,700,000 as of August 31, 1997, and $3,000,000 as of November
30, 1997 and thereafter (As used herein "Tangible Net Worth"
means net worth increased by indebtedness of Borrower
subordinated to Bank and decreased by patents, licenses,
trademarks, trade names, goodwill and other similar intangible
assets, organizational expenses, and monies due from affiliates
including officers, shareholders and directors);

(e) A ratio of total liabilities to Tangible Net Worth of not greater
than 2.0:1.0 as of May 31, 1997, 1.75:1.0 as of August 31, 1997,
and 1.5:1.0 as of November 30, 1997 and thereafter (As used
herein "Tangible Net Worth" means net worth increased by
indebtedness of Borrower subordinated to Bank and decreased by
patents, licenses, trademarks, trade names, goodwill and other
similar intangible assets, organizational expenses, and monies
due from affiliates including officers, shareholders and
directors);

(f) A profit after taxes of not less than $1, to be measured as of
the end of each fiscal quarter of Borrower for the three month
period immediately preceding the date of measurement;

(g) A ratio of Cash Flow to Debt Service of 1.75:1.00. Compliance
with this subsection to be measured as of the end of each fiscal
year of Borrower. (As used herein, "Debt Service" means that
portion of long-term liabilities and capital leases coming due
within twelve months of the date of calculation, and "Cash Flow"
means net profit after taxes, to which depreciation, amortization
and other non-cash expenses are added and shareholder
distributions or loans to shareholders are subtracted for the
twelve month period immediately preceding the date of
calculation); and

All accounting terms used in this Agreement shall have the definitions given
them by generally accepted accounting principles, unless otherwise defined
herein.

4.2. Give written notice to Bank within 15 days of the following:

(a) Any litigation or arbitration proceeding affecting Borrower where
the amount in controversy is $200,000 or more;

(b) Any material dispute which may exist between Borrower and any
government regulatory body or law enforcement body;

(d) Any other matter which has resulted or is likely to result in a
material adverse change in Borrower's financial condition or
operation; and

5
<PAGE>

(e) Any change in Borrower's name or the location of Borrower's
principal place of business, or the location of any collateral
for the Loan, or the establishment of any new place of business
or the discontinuance of any existing place of business.

4.3. Furnish to Bank an income statement, balance sheet, and statement
of retained earnings, with supportive schedules ("Financial Statement"),
and any other financial information requested by Bank, prepared in
accordance with generally accepted accounting principles and in a form
satisfactory to Bank as follows:

(a) Within 30 days after the close of each quarter except for the
final quarter of each fiscal year, Borrower's Financial Statement
as of the close of such period;

(b) Within 90 days after the close of each fiscal year, a copy of
Borrower's annual Financial Statement prepared by an independent
certified public accountant on an audited basis. Any independent
certified public accountant who prepares Borrower's Financial
Statement shall be selected by Borrower and reasonably
satisfactory to Bank;

(d) If any portion of the Loan is a Borrowing Base Loan, within 30
days after each calendar month end, a copy of Borrower's monthly
accounts receivable, inventory listing, and accounts payable
agings, and a certification of compliance with the borrowing base
described in Section 1.2 above, executed by Borrower, which
certificate shall accurately report Borrower's Accounts and
Eligible Accounts, and Eligible Inventory; and

(e) Promptly upon request, any other financial information requested
by Bank.

4.4. Furnish to Bank, on Bank's request, a copy of each guarantor's
most recently filed federal income tax return with all accompanying
schedules.

4.5. Pay or reimburse Bank for all costs, expenses and fees incurred
by Bank in preparing and documenting this Agreement and the Loan, and all
amendments and modifications thereof, including but not limited to all
filing and recording fees, costs of appraisals, insurance and attorney's
fees, including the reasonable estimate of the allocated costs and expenses
of in-house legal counsel and staff.

4.6. Maintain and preserve Borrower's existence, present form of
business and all rights, privileges and franchises necessary or desirable
in the normal course of its business, and keep all of Borrower's properties
in good working order and condition.

4.7. Maintain and keep in force insurance with companies acceptable to
Bank and in such amounts and types, including without limitation fire and
public liability insurance, as is usual in the business carried on by
Borrower, or as Bank may reasonably request. Such insurance policies must
be in form and substance satisfactory to Bank.

4.8. Maintain adequate books, accounts and records and prepare all
financial statements required hereunder in accordance with generally
accepted accounting principles, and in compliance with the regulations of
any governmental regulatory body having jurisdiction over Borrower or
Borrower's business and permit employees or agents of Bank at any
reasonable time

6
<PAGE>

to inspect Borrower's assets and properties, and to examine or audit
Borrower's books, accounts and records and make copies and memoranda
thereof.

4.9. At all times comply with, or cause to be complied with, all laws,
statutes, rules, regulations, orders and directions of any governmental
authority having jurisdiction over Borrower or Borrower's business, and all
material agreements to which Borrower is a party.

4.10. Except as provided in this Agreement, or in the ordinary course
of its business as currently conducted, not make any loans or advances,
become a guarantor or surety, pledge its credit or properties in any
manner, or extend credit.

4.11. Not purchase the debt or equity of another person or entity
except for savings accounts and certificates of deposit of Bank, direct
U.S. Government obligations and commercial paper issued by corporations
with top ratings of Moody's or Standard & Poor's, provided that all such
permitted investments shall mature within one year of purchase.

4.12. Not create, assume or suffer to exist any mortgage, encumbrance,
security interest, pledge or lien ("Lien") on Borrower's real or personal
property, whether nor owned or hereafter acquired, or upon the income or
profits thereof except the following: (a) Liens in favor of Bank, or (b)
Liens for taxes or other items not delinquent or contested in good faith.

4.13. Not sell or discount any account receivable or evidence of
indebtedness, except to Bank or not borrow any money or become contingently
liable for money borrowed, except pursuant to agreements made with Bank.

4.14. Neither liquidate, dissolve, enter into any consolidation,
merger, partnership, or other combination; nor convey, sell or lease all or
the greater part of its assets or business; nor purchase or lease all or
the greater part of the assets or business of another.

4.15. Not engage in any business activities or operations substantially
different from or unrelated to present business activities and operations.

4.16. Not, in any single fiscal year of Borrower, expend or incur
obligations of more than $500,000 for the acquisition of fixed or capital
assets.

4.17. Not, in any single fiscal year of Borrower, enter into any lease
of real or personal property which would cause Borrower's aggregate annual
obligations under all such real and personal property leases to exceed
$N/A.

4.18. Borrower will promptly, upon demand by Bank, take such further
action and execute all such additional documents and instruments in
connection with this Agreement as Bank in its reasonable discretion deems
necessary, and promptly supply Bank with such other information concerning
its affairs as Bank may request from time to time.

4.19. Not declare or pay any dividends, other than a dividend payable
in its own common stock, or authorize or make any other distribution with
respect to any of its stock now or hereafter outstanding; except to the
extent necessary to satisfy Subchapter S tax liabilities of Borrower's
shareholders.

7
<PAGE>

5. EVENTS OF DEFAULT. The occurrence of any of the following events
("Events of Default") shall terminate any obligation on the part of Bank to make
or continue the Loan and automatically, unless otherwise provided under the Loan
Documents, shall make all sums of interest and principal and any other amounts
owing under the Loan immediately due and payable, without notice of default,
presentment or demand for payment, protest or notice of nonpayment or dishonor,
or any other notices or demands:

5.1. Borrower shall default in the due and punctual payment of the
principal of or the interest on the Note or any of the Loan Documents;

5.2. Any default shall occur under the Note;

5.3. Borrower shall default in the due performance or observance of
any covenant or condition of the Loan Documents;

5.4. Any guaranty or subordination agreement required hereunder is
breached or becomes ineffective, or any guarantor or subordinating creditor
dies or disavows or attempts to revoke or terminate such guaranty or
subordination agreement; or

5.5. There is a change in ownership or control of 10% or more of the
issued and outstanding stock of Borrower or any guarantor, or (if the
Borrower is a partnership) there is a change in ownership or control of any
general partner's interest.

6. MISCELLANEOUS.

6.1. The rights, powers and remedies given to Bank hereunder shall be
cumulative and not alternative and shall be in addition to all rights,
powers, and remedies given to Bank by law against Borrower or any other
person, including but not limited to Bank's rights of setoff or banker's
lien.

6.2. Any forbearance or failure or delay by Bank in exercising any
right, power or remedy hereunder shall not be deemed a waiver thereof and
any single or partial exercise of any right, power or remedy shall not
preclude the further exercise thereof. No waiver shall be effective unless
it is in writing and signed by an officer of Bank.

6.3. The benefits of this Agreement shall inure to the successors and
assigns of Bank and the permitted successors and assignees of Borrower, and
any assignment by Borrower without Bank's consent shall be null and void.

6.4. This Agreement and all other agreements and instruments required
by Bank in connection herewith shall be governed by and construed according
to the laws of the State of California.

6.5. Should any one or more provisions of this Agreement be determined
to be illegal or unenforceable, all other provisions nevertheless shall be
effective. In the event of conflict between the provisions of this
Agreement and the provisions of any note or reimbursement agreement
evidencing any indebtedness hereunder, the provisions of such note or
reimbursement agreement shall prevail.

8
<PAGE>

6.6 Except for documents and instruments specifically referenced
herein, this Agreement constitutes the entire agreement between Bank and
Borrower regarding the Loan and all prior communications, verbal or
written, between Borrower and Bank shall be of no further effect or
evidentiary value.

6.7. The section and subsection headings herein are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

6.8. This Agreement may be amended only in writing signed by all
parties hereto.

6.9. Borrower and Bank may execute one or more counterparts to this
Agreement, each of which shall be deemed an original, but taken together
shall be one and the same instrument.

6.10. Any notices or other communications provided for or allowed
hereunder shall be effective only when given by one of the following
methods and addressed to the respective party at its address given with the
signatures at the end of this Agreement and shall be considered to have
been validly given: (a) upon delivery, if delivered personally; (b) upon
receipt, if mailed, first class postage prepaid, with the United States
Postal Service; (c) on the next business day if sent by overnight courier
service of recognized standing; and (d) upon telephoned confirmation of
receipt, if telecopied.

7. ADDITIONAL PROVISIONS. The following additional provision, if any,
are hereby made part of this Agreement:

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
June 19, 1997.

Union Bank of California, Troy Systems Inc. ("Borrower")
N.A. ("Bank")

By: /s/ Margaret Furbank By: /s/ Patrick J. Dirk
-------------------------------- --------------------------------
Title: Vice President Title: CEO
----------------------------- -----------------------------
Printed Name: Margaret Furbank Printed Name: Patrick J. Dirk
---------------------- ----------------------

By: /s/ Burt Yans By:
-------------------------------- --------------------------------
Title: Vice President Title:
----------------------------- -----------------------------
Printed Name: Burt Yans Printed Name:
---------------------- ----------------------

Address where notices to Bank are to Address to where notices to Borrower are
be sent: to be sent:

500 S. Main St. Ste. 201 2331 S. Pullman St.
Orange, CA 92868 Santa Ana, CA 92705

Fax Number: (714) 565-5770 Fax Number: (714) 250-8972

9
<PAGE>

EXHIBIT 1
SPECIFIC ACCOUNTS'

Automatic Data Processing N.Y. Life Insurance
Bank of New York National Bank of Detroit
Bank of America National Casualty Co.
Banker's Life & Casualty North American Reinsurance
Blue Cross/Blue Shield Northrop Corp.
Blue Cross/Blue Shield of TX Norwest Bank of MN
Canada Life Ohio Bureau Employment Svcs
Chase Manhattan Bank Penn Mutual Life Ins.
Chase Bankcard Services Philadelphia Electric Co.
Coca Cola Bottling Proctor & Gamble
Colgate Palmolive Corp. Progressive Insurance
Commerce Bank of Kansas City Q.M.S. Inc.
Commonwealth of PA Quaker Oats Co.
Commonwealth of VA Rand McNally
Del Monte Foods Seafirst Bank
Dept. of the Treasury Sears, Roebuck & Co.
Dfas-Columbus Shawmut Bank CT
Dillards Dept. Stores Shell Oil
Equitable Life Assurance Siemens Nixdorf Info Systems
Farmers Insurance Exchange State Farm Insurance
First Nat'l Bank of Maryland State of Louisiana
Fisher-Price Toys State of Arkansas
Ford Motor Co. State of Idaho (Auditor's Office)
GTE Bill Distribution State of New Jersey
Hewlett Packard Target Stores
Home Mutual Insurance Co. Tennessee Community Bank
IBM Corp. U.S. Treasury
IBM Canada U.S. West Communications
IBM Credit Corp. Union Carbide Corp.
Isuzu Motors of America, Inc. Unisys Corp.
L.A. Dept. Water & Power Unum
Loral Aerospace Venture Stores
Mellon Bank Wal-Mart Stores
Mitsubishi Corp. Wawanesa Mutual Ins. Co.
Mobil Oil Wells Fargo Bank
Motorola Corp. Woolworth Corp.
N.Y. Central Mutual

<PAGE>

EXHIBIT 10.18

FIRST AMENDMENT
TO LOAN AGREEMENT

THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "First Amendment") dated as of
February 12, 1998, is made and entered into by and between Troy Systems Inc., a
California Corporation ("Borrower"), and UNION BANK OF CALIFORNIA, N.A.
("Bank").

RECITALS:

A. Borrower and Bank are parties to that certain Loan Agreement dated June 19,
1998 (the "Agreement"), pursuant to which Bank agreed to extend credit to
Borrower.

B. Borrower and Bank desire to amend the Agreement subject to the terms and
conditions of this First Amendment.

AGREEMENT:

In consideration of the above recitals and of the mutual covenants and
conditions contained herein, Borrower and Bank agree as follows:

1. DEFINED TERMS. Initially capitalized terms used herein which are not
otherwise defined shall have the meanings assigned thereto in the Agreement.

2. AMENDMENTS TO THE AGREEMENT.

(a) 1.2 Borrowing Base. The first paragraph shall be deleted in its
entirety and replaced with the following:

An amount of the Loan equal to $4,500,000,* evidenced by a Note dated
February 6, 1998 is a revolving loan subject to a borrowing base
("Borrowing Base Loan"). Notwithstanding any other provision of this
Agreement or any other Loan Document, Bank shall not be obligated to
advance funds under the Borrowing Base Loan, if the principal amount of
such Borrowing Base Loan including such advance exceeds 80% of Borrower's
Eligible Accounts plus 85% of Specified Accounts. In no event, however,
shall the aggregate amount of the advances based on Eligible Inventory
exceed, at any time, the sum of $700,000. As a sublimit to the Borrowing
Base Loan, Bank shall issue, for the account of Borrower, one or more
irrevocable, standby letters of credit (individually, an "L/C" and
collectively, the "L/Cs"). All such standby L/Cs shall be drawn on such
terms and conditions as are acceptable to Bank. The aggregate amount
available to be drawn under all outstanding L/Cs and the aggregate amount
of unpaid reimbursement obligations under drawn L/Cs shall not exceed Four
Hundred Thousand Dollars ($400,000) and shall reduce, dollar for dollar,
the maximum amount available under the Borrowing Base Loan. Each L/C shall
be governed by the terms of (and Borrower agrees to execute) Bank's
standard form for standby L/C applications and reimbursement agreements. No
L/C shall expire after June 30, 1998.

<PAGE>

(b) 1.2 Borrowing Base. The third paragraph, prior to (a), shall be
deleted in its entirety and replaced with the following:

"The term "Eligible Accounts" means those Accounts, net of finance charges,
which are due and payable within ninety (90) days, or less, from the date
of the invoice, have been validly assigned to Bank and strictly comply with
all of Borrower's warranties and representations to Bank. Eligible Accounts
shall also include those accounts which have extended terms to Borrower's
international distributors evidencing the purchase of parts and supplies in
an amount not to exceed Thirty Five Thousand Dollars ($35,000) provided,
however, the aggregate amount of these accounts shall not exceed Five
Hundred Thousand Dollars ($500,000). Eligible Accounts shall also include
Specified Accounts, which are approved by the Bank in its sole discretion
and are more fully described in Exhibit I herein. Eligible Accounts shall
not include the following:"

"The term "Eligible Inventory" means inventory owned by Borrower and Troy
Group, Inc. and includes: (a) 50% of total purchased inventory of Standard
Desktop Laser Printers plus (b) 40% of total purchased inventory of toner
cartridges plus bulk toner for the toner product line plus (c) 10% of toner
cartridge finished goods for Troy Printers plus (d) 25% of the sum of
finished goods inventory, excluding Desktop Laser Printers, plus raw
materials less the general ledger obsolescence reserve, less finished goods
returned, less demonstration inventory, less any finished foods subject to
consignment sales not to exceed $700,000."

(d) 1.5 The Standby Letters of Credit. The last sentence of the paragraph
shall be deleted and replaced with the following:

"No L/C shall expire after June 30, 1998."

(e) 1.7 Guaranty. Delete the entire section and replace with the
following:

"The payment and performance of all obligations of Borrower under the Loan
Documents are and shall be during the term of the Loan guaranteed by:
Patrick Dirk, Mary Dirk, and The Dirk Family Trust, in the amount of Eight
Hundred Thousand Dollars ($800,000), and Troy Group, Inc. in the amount of
Five Million Dollars ($5,000,000)."

3. EFFECTIVENESS OF THE FIRST AMENDMENT. This First Amendment shall become
effective as of the date hereof when, and only when, Bank shall have received
all of the following, in form and substance satisfactory to Bank:

(a) The counterpart of this First Amendment, duly executed by Borrower;

(b) The Promissory Note, duly executed by Borrower;

(d) Such other documents, instruments or agreements as Bank may reasonably
deem necessary.

<PAGE>

4. RATIFICATION. Except as specifically amended hereinabove, the Agreement
shall remain in full force and effect and is hereby ratified and confirmed.

5. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as
follows:

(a) Each of the representations and warranties contained in the Agreement,
as may be amended hereby, is hereby reaffirmed as of the date hereof, each
as if set forth herein;

(b) The execution, delivery and performance of the First Amendment and any
other instruments or documents in connection herewith are within Borrower's
power, have been duly authorized, are legal, valid and binding obligations
of Borrower, and are not in conflict with the terms of any charter, bylaw,
or other organization papers of Borrower or with any law, indenture,
agreement or undertaking to which Borrower is a party or by which Borrower
is bound or affected;

(c) No event has occurred and is continuing or would result from this
First Amendment which constitutes or would constitute an Event of Default
under the Agreement.

6. GOVERNING LAW. This First Amendment and all other instruments or documents
in connection herewith shall be governed by and construed according to the laws
of the State of California.

7. COUNTERPARTS. This First Amendment may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.

WITNESS the due execution hereof as of the date first above written.

TROY SYSTEMS INC. UNION BANK OF CALIFORNIA, N.A.

By: /s/ Patrick J. Dirk By: /s/ Margaret Furbank
-------------------------------- --------------------------------

Title: CEO Title: Vice President
----------------------------- -----------------------------

By:
--------------------------------

Title:
-----------------------------

<PAGE>

Exhibit 10.19
UNION
BANK OF
CALIFORNIA

PROMISSORY NOTE
(BASE RATE)

- --------------------------------------------------------------------------------
Borrower Name TROY SYSTEMS INC.
- --------------------------------------------------------------------------------
Borrower Address Office 45062 Loan Number 9323415414 0080-00-0-000
2331 SOUTH PULLMAN STREET
LOS ANGELES, CA 92705
- --------------------------------------------------------------------------------
Maturity Date JUNE 30, 1998 Amount $4,500,000.00
- --------------------------------------------------------------------------------

$4,500,000.00 Date FEBRUARY 6, 1998

FOR VALUE RECEIVED, on JUNE 30, 1998, the undersigned ("Debtor") promises to pay
to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated below, the
principal sum of FOUR MILLION FIVE HUNDRED THOUSAND AND NO/100 Dollars
($4,500,000.00), or so much thereof as is disbursed, together with interest on
the balance of such principal from time to time outstanding, at the per annum
rate or rates and at the times set forth below.

1. INTEREST PAYMENTS. Debtor shall pay interest on the LAST day of each MONTH
(commencing FEBRUARY 28, 1998). Should interest not be paid when due, it shall
become part of the principal and bear interest as herein provided. All
computations of interest under this note shall be made on the basis of a year of
360 days, for actual days elapsed.

a. BASE INTEREST RATE. At Debtor's option, amounts outstanding hereunder
in minimum amounts of at least $100,000.00 shall bear interest at a rate,
based on an index selected by Debtor, which is 2.25% per annum in excess of
Bank's LIBOR-Rate for the Interest Period selected by Debtor, acceptable to
Bank.

No Base Interest Rate may be changed, altered or otherwise modified until
the expiration of the Interest Period selected by Debtor. The exercise of
interest rate options by Debtor shall be as recorded in Bank's records,
which records shall be prima facie evidence of the amount borrowed under
either interest option and the interest rate; provided, however, that
failure of Bank to make any such notation in its records shall not
discharge Debtor from its obligations to repay in full with interest all
amounts borrowed. In no event shall any Interest Period extend beyond the
maturity date of this note.

To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing, and on
the expiration of any Interest Period with respect to principal outstanding
on which a Base Interest Rate has been accruing, select an index offered by
Bank for a Base Interest Rate Loan and an Interest Period by telephoning an
authorized lending officer of Bank located at the banking office identified
below prior to 10:00 a.m., Pacific time, on any Business Day and advising
that officer of the selected index, the Interest Period and the Origination
Date selected (which Origination Date, for a Base Interest Rate Loan based
on the LIBOR-Rate, shall follow the date of such selection by no more than
two (2) Business Days).

-1-

<PAGE>

Bank will mail a written confirmation of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at the rate
selected. If, on the date of the selection, the index selected is
unavailable for any reason, the selection shall be void. Bank reserves the
right to fund the principal from any source of funds notwithstanding any
Base Interest Rate selected by Debtor.

b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is
not bearing interest at a Base Interest Rate shall bear interest at a rate
per annum of 0.50% in excess of the Reference Rate, which rate shall vary
as and when the Reference Rate changes.

At any time prior to the maturity of this note, subject to the provisions
of paragraph 4, below, of this note, Debtor may borrow, repay and reborrow
hereon so long as the total outstanding at any one time does not exceed the
principal amount of this note. Debtor shall pay all amounts due under this
note in lawful money of the United States at Bank's ORANGE COUNTY
COMMERCIAL BANKING Office, or such other office as may be designated by
Bank, from time to time.

2. LATE PAYMENTS. If any payment required by the terms of this note shall
remain unpaid ten days after same is due, at the option of Bank, Debtor shall
pay a fee of $100 to Bank.

3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of
Bank, and, to the extent permitted by law, interest shall be payable on the
outstanding principal under this note at a per annum rate equal to five percent
(5%) in excess of the interest rate specified in paragraph 1.b, above,
calculated from the date of default until all amounts payable under this note
are paid in full.

4. PREPAYMENT.

a. Amounts outstanding under this note bearing interest at a rate based on
the Reference Rate may be prepaid in whole or in part at any time, without
penalty or premium. Debtor may prepay amounts outstanding under this note
bearing interest at a Base Interest Rate in whole or in part provided
Debtor has given Bank not less than five (5) Business Days prior written
notice of Debtor's intention to make such prepayment and pays to Bank the
liquidated damages due as a result. Liquidated Damages shall also be paid,
if Bank, for any other reason, including acceleration or foreclosure,
receives all or any portion of principal bearing interest at a Base
Interest Rate prior to its scheduled payment date. Liquidated Damages shall
be an amount equal to the present value of the product of: (i) the
difference (but not less than zero) between (a) the Base Interest Rate
applicable to the principal amount which is being prepaid, and (b) the
return which Bank could obtain if it used the amount of such prepayment of
principal to purchase at bid price regularly quoted securities issued by
the United States having a maturity date most closely coinciding with the
relevant Base Rate Maturity Date and such securities were held by Bank
until the relevant Base Rate Maturity Date ("Yield Rate"); (ii) a fraction,
the numerator of which is the number of days in the period between the date
of prepayment and the relevant Base Rate Maturity Date and the denominator
of which is 360; and (iii) the amount of the principal so prepaid (except
in the event that principal payments are required and have been made as
scheduled under the terms of the Base Interest Rate Loan being prepaid,
then an amount equal to the lesser of (A) the amount prepaid or (B) 50% of
the sum of (1) the amount prepaid and (2) the amount of principal scheduled
under the terms of the Base Interest Rate Loan being prepaid to be
outstanding at the relevant Base Rate Maturity Date). Present value under
this note is determined by discounting the above product to present value
using the Yield Rate as the annual discount factor.

-2-

<PAGE>

so prepaid and shall be applied to payment of interest before application
to principal. A determination by Bank as to the prepayment fee amount, if
any, shall be conclusive.

c. Bank shall provide Debtor a statement of the amount payable on account
of prepayment. Debtor acknowledges that (i) Bank establishes a Base
Interest Rate upon the understanding that it apply to the Base Interest
Rate Loan for the entire Interest Period, and (ii) any prepayment may
result in Bank incurring additional costs, expenses or liabilities; and
Debtor agrees to pay these liquidated damages as a reasonable estimate of
the costs, expenses and liabilities of Bank associated with such
prepayment.

5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall include, but not
be limited to, any of the following: (a) the failure of Debtor to make any
payment required under this note when due; (b) any breach, misrepresentation or
other default by Debtor, any guarantor, co-maker, endorser, or any person or
entity other than Debtor providing security for this note (hereinafter
individually and collectively referred to as the "Obligor") under any security
agreement, guaranty or other agreement between Bank and any Obligor; (c) the
insolvency of any Obligor or the failure of any Obligor generally to pay such
Obligor's debts as such debts become due; (d) the commencement as to any Obligor
of any voluntary or involuntary proceeding under any laws relating to
bankruptcy, insolvency, reorganization, arrangement, debt adjustment or debtor
relief; (e) the assignment by any Obligor for the benefit of such Obligor's
creditors; (f) the appointment, or commencement of any proceeding for the
appointment of a receiver, trustee, custodian or similar official for all or
substantially all of any Obligor's property; (g) the commencement of any
proceeding for the dissolution or liquidation of any Obligor; (h) the
termination of existence or death of any Obligor; (i) the revocation of any
guaranty or subordination agreement given in connection with this note; (j) the
failure of any Obligor to comply with any order, judgment, injunction, decree,
writ or demand of any court or other public authority; (k) the filing or
recording against any Obligor, or the property of any Obligor, of any notice of
levy, notice to withhold, or other legal process for taxes other than property
taxes; (l) the default by any Obligor personally liable for amounts owed
hereunder on any obligation concerning the borrowing of money; (m) the issuance
against any Obligor, or the property of any Obligor, of any writ of attachment,
execution, or other judicial lien; or (n) the deterioration of the financial
condition of any Obligor which results in Bank deeming itself, in good faith,
insecure. Upon the occurrence of any such default, Bank, in its discretion, may
cease to advance funds hereunder and may declare all obligations under this note
immediately due and payable; however, upon the occurrence of an event of default
under d, e, f, or g, all principal and interest shall automatically become
immediately due and payable.

6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note are
not paid when due, Debtor promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the collection or enforcement of
this note. Debtor and any endorsers of this note, for the maximum period of time
and the full extent permitted by law, (a) waive diligence, presentment, demand,
notice of nonpayment, protest, notice of protest, and notice of every kind; (b)
waive the right to assert the defense of any statute of limitations to any debt
or obligation hereunder; and (c) consent to renewals and extensions of time for
the payment of any amounts due under this note. If this note is signed by more
than one party, the term "Debtor" includes each of the undersigned and any
successors in interest thereof; all of whose liability shall be joint and
several. Any married person who signs this note agrees that recourse may be had
against the separate property of that person for any obligations hereunder. The
receipt of any check or other item of payment by Bank, at its option, shall not
be considered a payment on account until such check or other item of payment is
honored when presented for payment at the drawee bank. Bank may delay the credit
of such payment based upon Bank's schedule of funds availability, and interest
under this note shall accrue until the funds are deemed collected. In any action
brought under or arising out of this note, Debtor and any Obligor, including
their successors and assigns, hereby consent to the jurisdiction of any
competent court within the State of California, as provided in any alternative
dispute resolution agreement executed between Debtor and Bank, and consent to
service of process by any means authorized by said state's law. The term "Bank"
includes, without limitation, any holder of this note. This note shall be
construed in accordance with and

-3-

<PAGE>

governed by the laws of the State of California. This note hereby incorporates
any alternative dispute resolution agreement previously, concurrently or
hereafter executed between Debtor and Bank.

7 DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "BASE INTEREST RATE" means a rate of interest
based on the LIBOR-Rate. "BASE INTEREST RATE LOAN" means amounts outstanding
under this note that bear interest at a Base Interest Rate. "BASE RATE MATURITY
DATE" means the last day of the Interest Period with respect to principal
outstanding under a Base Interest Rate Loan. "BUSINESS DAY" means a day on
which Bank is open for business for the funding of corporate loans, and, with
respect to the rate of interest based on the LIBOR Rate, on which dealings in
U.S. dollar deposits outside of the United States may be carried on by Bank.
"INTEREST PERIOD" means with respect to funds bearing interest at a rate based
on the LIBOR Rate, any calendar period of one, three, six, nine or twelve
months. In determining an Interest Period, a month means a period that starts on
one Business Day in a month and ends on and includes the day preceding the
numerically corresponding day in the next month. For any month in which there
is no such numerically corresponding day, then as to that month, such day shall
be deemed to be the last calendar day of such month. Any Interest Period which
would otherwise end on a non-Business Day shall end on the next succeeding
Business Day unless that is the first day of a month, in which event such
Interest Period shall end on the next preceding Business Day. "LIBOR RATE"
means a per annum rate of interest (rounded upward, if necessary, to the nearest
1/100 of 1%) at which dollar deposits, in immediately available funds and in
lawful money of the United States would be offered to Bank, outside of the
United States, for a term coinciding with the Interest Period selected by Debtor
and for an amount equal to the amount of principal covered by Debtor's interest
rate selection, plus Bank's costs, including the costs, if any, of reserve
requirements. "ORIGINATION DATE" means the first day of the Interest Period.
"REFERENCE RATE" means the rate announced by Bank from time to time at its
corporate headquarters as its Reference Rate. The Reference Rate is an index
rate determined by Bank from time to time as a means of pricing certain
extensions of credit and is neither directly tied to any external rate of
interest or index nor necessarily the lowest rate of interest charged by Bank at
any given time.

TROY SYSTEMS INC.

By /s/ Patrick J. Dirk
-------------------------------------

Title CEO
----------------------------------

-4-

<PAGE>

Exhibit 10.20
UNION
BANK OF
CALIFORNIA

PROMISSORY NOTE
(BASE RATE)

- -------------------------------------------------------------------------------
BORROWER NAME TROY SYSTEMS INC.
- -------------------------------------------------------------------------------
BORROWER ADDRESS 2331 S. PULLMAN ST., OFFICE LOAN NUMBER 9323415414
SANTA ANA, CA. 92705 45061
- -------------------------------------------------------------------------------
MATURITY DATE AMOUNT
MAY 2, 2000 $1,000,000.00
- -------------------------------------------------------------------------------

$ 1,000,000.00 Date________________________

FOR VALUE RECEIVED, on MAY 2. 2000, the undersigned ("Debtor") promises to pay
to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated below, the
principal sum of ONE MILLION AND NO/100 Dollars ($1,000,000.00) or so much
thereof as is disbursed, together with interest on the balance of such
principal from time to time outstanding, at the per annum rate or rates and at
the times set forth below.

1. PAYMENTS.

PRINCIPAL PAYMENTS. Debtor shall pay principal in installments of TWENTY
EIGHT THOUSAND FIVE HUNDRED SEVENTY ONE AND 43/100 Dollars ($28,571.43)
each on the 2ND day of each MONTH, commencing JULY 2, 1997. The
availability under this note shall be reduced on the same day and in the
same amount as each scheduled principal payment.

INTEREST PAYMENTS. Debtor shall pay interest on the 2ND day of each MONTH
(commencing JULY 2, 1997). Should interest not be paid when due, it shall
become part of the principal and bear interest as herein provided. All
computations of interest under this note shall be made on the basis of a
year of 360 days, for actual days elapsed.

a. BASE INTEREST RATE. At Debtor's option, amounts outstanding hereunder
in increments of at least $100,000 shall bear interest at a rate, based on
an index selected by Debtor, which is 2.50% per annum in excess of Bank's
Adjusted Treasuries Rate for the Interest Period selected by Debtor.

-1-

<PAGE>

Any Base Interest Rate may not be changed, altered or otherwise modified
until the expiration of the Interest Period selected by Debtor. The
exercise of interest rate options by Debtor shall be as recorded in Bank's
records, which records shall be prima facie evidence of the amount borrowed
under either interest option and the interest rate; provided, however, that
failure of Bank to make any such notation in its records shall not
discharge Debtor from its obligations to repay in full with interest all
amounts borrowed. In no event shall any Interest Period extend beyond the
maturity date of this note.

Bank will mail a written confirmation of the terms of the selection in
writing by mail to Debtor promptly after the selection is made. Failure to
send such confirmation shall not effect Bank's rights to collect interest
at the rate selected. If, on the date of the selection, the index selected
is unavailable for any reason, the selection shall be void. Bank reserves
the right to fund the principal from any source of funds notwithstanding
any Base Interest Rate selected by Debtor.

b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is
not bearing interest at a Base Interest Rate shall bear interest at a rate
per annum of .75% in excess of the Reference Rate, which rate shall vary as
and when the Reference Rate changes.

Debtor shall pay all amounts due under this note in lawful money of the
United States at Bank's ORANGE COUNTY COMMERCIAL BANKING Office, or such
other office as may be designated by Bank, from time to time.

2. LATE PAYMENTS. If any payment required by the terms of this note shall
remain unpaid ten days after same is due, at the option of Bank, Debtor shall
pay a fee of $100 to Bank.

3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of
Bank, and, to the extent permitted by law, interest shall be payable on the
outstanding principal under this note at a per annum rate equal to five percent
(5%) in excess of the interest rate specified in paragraph 1 .b, above,
calculated from the date of default until all amounts payable under this note
are paid in full.

4. PREPAYMENT.

a. Amounts outstanding under this note bearing interest at a rate based on
the Reference Rate may be prepaid in whole or in part at any time, without
penalty or premium. Amounts outstanding under this note bearing interest at
a Base Interest Rate may only be prepaid, in whole or in part provided Bank
has received not less than five (5) Business Days prior written notice of
an intention to make such prepayment and Debtor pays a prepayment fee to
Bank in an amount equal to the present value of the product of: (i) the
difference (but not less than zero) between (a) the Base Interest Rate
applicable to the principal amount which Debtor intends to prepay, and (b)
the return which Bank could obtain if it used the amount of such prepayment
of principal to purchase at bid price regularly

-2-

<PAGE>

quoted securities issued by the United States having a maturity date most
closely coinciding with the relevant Base Rate Maturity Date and such
securities were held by Bank until the relevant Base Rate Maturity Date
("Yield Rate"); (ii) a fraction, the numerator of which is the number of
days in the period between the date of prepayment and the relevant Base
Rate Maturity Date and the denominator of which is 360; and (iii) the
amount of the principal so prepaid (except in the event that principal
payments are required and have been made as scheduled under the terms of
the Base Interest Rate Loan being prepaid, then an amount equal to the
lesser of (A) the amount prepaid or (B) 50% of the sum of (1) the amount
prepaid and (2) the amount of principal scheduled under the terms of the
Base Interest Rate Loan being prepaid to be outstanding at the relevant
Base Rate Maturity Date). Present value under this note is determined by
discounting the above product to present value using the Yield Rate as the
annual discount factor.

b. In no event shall Bank be obligated to make any payment or refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim against
Bank, should the return which Bank could obtain under the above prepayment
formula exceed the interest that Bank would have received if no prepayment
had occurred. All prepayments shall include payment of accrued interest on
the principal amount so prepaid and shall be applied to payment of interest
before application to principal. A determination by Bank as to the
prepayment fee amount, if any, shall be conclusive. In the event of partial
prepayment, such prepayments shall be applied to principal payments in the
inverse order of their maturity.

c. Such prepayment fee, if any, shall also be payable if prepayment occurs
as the result of the acceleration of the principal of this note by Bank
because of any default hereunder. If, following such acceleration, all or
any portion of a Base Interest Rate Loan is satisfied, whether through sale
of property encumbered by any security agreement or other agreement
securing this note, at a foreclosure sale held thereunder or through the
tender of payment at any time following such acceleration, but prior to
such a foreclosure sale, then such satisfaction shall be deemed an evasion
of the prepayment conditions set forth above, and Bank shall, automatically
and without notice or demand, be entitled to receive, concurrently with
such satisfaction the prepayment fee set forth above, and the amount of
such prepayment fee shall be added to the principal. DEBTOR HEREBY
ACKNOWLEDGES AND AGREES THAT BANK WOULD NOT MAKE THE LOAN TO DEBTOR
EVIDENCED BY THIS NOTE WITHOUT DEBTOR'S AGREEMENT, AS SET FORTH ABOVE, TO
PAY BANK A PREPAYMENT FEE UPON THE SATISFACTION OF ALL OR ANY PORTION OF
THE PRINCIPAL BEARING INTEREST AT A BASE INTEREST RATE FOLLOWING THE
ACCELERATION OF THE MATURITY DATE HEREOF BY REASON OF A DEFAULT.
DEBTOR HAS CAUSED THOSE PERSONS SIGNING THIS NOTE ON ITS BEHALF TO
SEPARATELY INITIAL THE AGREEMENT CONTAINED IN THIS PARAGRAPH BY PLACING
THEIR INITIALS BELOW:

INITIALS: P. J. Dirk
---------- ----------

-3-

<PAGE>

pay such Obligor's debts as such debts become due; (d) the commencement as to
any Obligor of any voluntary or involuntary proceeding under any laws relating
to bankruptcy, insolvency, reorganization, arrangement, debt adjustment or
debtor relief; (e) the assignment by any Obligor for the benefit of such
Obligor's creditors; (f) the appointment, or commencement of any proceeding for
the appointment of a receiver, trustee, custodian or similar official for all or
substantially all of any Obligor's property: (g) the commencement of any
proceeding for the dissolution or liquidation of any Obligor; (h) the
termination of existence or death of any Obligor; (i) the revocation of any
guaranty or subordination agreement given in connection with this note; (j) the
failure of any Obligor to comply with any order, judgment, injunction, decree,
writ or demand of any court or other public authority; (k) the filing or
recording against any Obligor, or the property of any Obligor, of any notice of
levy, notice to withhold, or other legal process for taxes other than property
taxes; (l) the default by any Obligor personally liable for amounts owed
hereunder on any obligation concerning the borrowing of money; (m) the issuance
against any Obligor, or the property of any Obligor, of any writ of attachment,
execution, or other judicial lien; or (n) the deterioration of the financial
condition of any Obligor which results in Bank deeming itself, in good faith,
insecure. Upon the occurrence of any such default, Bank, in its discretion, may
cease to advance funds hereunder and may declare all obligations under this note
immediately due and payable; however, upon the occurrence of an event of default
under d, e, f, or g, all principal and interest shall automatically become
immediately due and payable.

7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "ADJUSTED TREASURIES RATE" shall mean a per annum
rate of interest based on the percentage yield on U.S. Treasury securities, plus
a margin, set by Bank in its discretion, related to the general cost of
corporate borrowing for a term comparable to the term of Bank's loan to Debtor,
plus Bank's costs, including the costs, if any, of reserve requirements and FDIC
assessments. "BASE INTEREST RATE" shall mean a rate of interest based on the
Adjusted Treasuries Rate. "BASE INTEREST RATE LOAN" shall mean amounts
outstanding under this note that bear interest at a Base Interest Rate. "BASE
RATE MATURITY DATE" shall mean the last day of the Interest Period with respect
to principal outstanding under a Base Interest

-4-

<PAGE>

Rate Loan. "BUSINESS DAY" shall mean a day which is not a Saturday or Sunday
which Bank is open for business in the state identified in paragraph 6, above.
"INTEREST PERIOD" shall mean any period of not less than 360 days. In
determining an Interest Period, a month mean a period that starts on one
business Day in a month and ends on and includes the day preceding the
numerically corresponding day in the next month. For any month in which there is
no such numerically corresponding day, then as to that month, such day shall be
deemed to be the last calendar day of such month. Any Interest Period which
would otherwise end on a non-Business Day shall end on the next succeeding
Business Day unless that is the first day of a month, in which event such
Interest Period shall end on the next preceding Business Day. "ORIGINATION DATE"
shall mean the Business Day on which funds are made available to Debtor relating
to Debtor's selection of a Base Interest Rate. "REFERENCE RATE" shall mean the
rate announced by Bank from time to time at its corporate headquarters as its
"Reference Rate." The Reference Rate is an index rate determined by Bank from
time to time as a means of pricing certain extensions of credit and is neither
directly tied to any external rate of interest or index nor necessarily the
lowest rate of interest charged by Bank at any given time.

TROY SYSTEMS INC.

By /s/ Patrick J. Dirk
-------------------------

Title CEO
-------------------------

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<PAGE>
Exhibit 10.21

UNION
BANK OF SECURITY AGREEMENT
CALIFORNIA

This Agreement executed at SANTA ANA, CA, on FEBRUARY 6, 1998
--------------- ---------------------------------
by TROY GROUP, INC. (herein called "Debtor"),
--------------------------------------------------
OWNER(S) OF COLLATERAL
As security for the payment and performance of all of Debtor's obligations to
UNION BANK OF CALIFORNIA, N.A., (herein called "Bank"), irrespective of the
manner in which or the time at which such obligations arose or shall arise, and
whether direct or indirect, alone or with others, absolute or contingent, Debtor
does hereby grant a continuing security interest to Bank in all personal
property (herein called "Collateral"), whether now or hereafter owned or in
existence described as

A. MOTOR VEHICLES:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR TRADE NAME BODY TYPE SERIAL NUMBER NEW OR USED NUMBER OF CYLINDERS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>

- ----------------------------------------------------------------------------------------------
</TABLE>

B. OTHER:
- --------------------------------------------------------------------------------
ALL ACCOUNTS, DEPOSIT ACCOUNTS, INSTRUMENTS, CHATTEL PAPER, DOCUMENTS, GENERAL
INTANGlBLES, INVENTORY, EQUIPMENT, FURNITURE, AND FIXTURES, NOW OR HEREAFTER
OWNED OR ACQUIRED BY DEBTOR, ALL PROCEEDS AND INSURANCE PROCEEDS OF THE
FOREGOING, ALL GUARANTEES AND OTHER SECURITY THEREFOR, AND ALL OF DEBTOR'S
PRESENT AND FUTURE BOOKS AND RECORDS RELATING THERETO (INCLUDING COMPUTER-STORED
INFORMATION AND ALL SOFTWARE RELATING THERETO) AND ALL CONTRACT RIGHTS WITH
THIRD PARTIES RELATING TO THE MAINTENANCE OF ANY SUCH BOOKS, RECORDS AND
INFORMATION.

- --------------------------------------------------------------------------------

The Collateral described above will be maintained at 2331 SOUTH PULLMAN, SANTA
ANA, CA; THREE BRYAN DR., WHEELING, WEST VIRGINIA AND 13 BRYAN DR., WHEELING,
WEST VIRGINIA *
- -----------------------------------------------------------------------------
*and any other location(s)

C. ALL PERSONAL PROPERTY OF ANY KIND WHICH IS DELIVERED TO OR IN THE
POSSESSION OR CONTROL OF BANK OR ITS AGENTS;

D. PROCEEDS OF ANY OF THE ABOVE-DESCRIBED PROPERTY. The grant of a security
interest in proceeds does not imply the right of Debtor to sell or dispose of
any Collateral described herein without the express consent in writing by Bank.
The maximum amount of indebtedness to be secured at any one time is unlimited
unless an amount is inserted N/A
($ N/A ). MAXIMUM AMOUNT
(To be completed only if an accommodation) N/A
OWNER(S) OF COLLATERAL

is executing this Agreement as an Accommodation Debtor only and his liability is
limited to the security interest created in Collateral described herein. The
Debtor being accommodated is N/A

All terms and conditions on the reverse side hereof are incorporated herein as
though set forth in full.

TROY GROUP, INC.

By:/s/ Patrick J. Dirk CEO
-------------------------------- ----------------------------------
TITLE

By:
-------------------------------- ----------------------------------
TITLE

- ----------------------------------- ----------------------------------

<PAGE>

AGREEMENT

1. The term credit is used throughout this Agreement in its broadest and most
comprehensive sense. Credit may be granted at the request of any one Debtor
without further authorization or notice to any other Debtor, including an
Accommodation Debtor. Collateral shall be security for all obligations of Debtor
to Bank in accordance with the terms and conditions herein.

2. Debtor will: (a) execute such Financing Statement and other documents and do
such other acts and things, all as Bank may from time to time require, to
establish and maintain a valid security interest in Collateral, including
payment of all costs and fees in connection with any of the foregoing when
deemed necessary by Bank; (b) pay promptly when due all indebtedness to Bank;
(c) furnish Bank such information concerning Debtor and Collateral as Bank may
from time to time request, including but not limited to current financial
statements; (d) keep Collateral separate and identifiable and at the location
described herein and permit Bank and its representatives to inspect Collateral
and/or records pertaining thereto from time to time during normal business
hours; (e) not sell, assign or create or permit to exist any lien on or security
interest in Collateral in favor of anyone other than the Bank unless Bank
consents thereto in writing and at Debtor's expense upon Bank's request remove
any unauthorized lien or security interest and defend any claim affecting the
Collateral; (f) pay all charges against Collateral prior to delinquency
including but not limited to taxes, assessments, encumbrances, insurance and
diverse claims, and upon Debtor's failure to do so Bank may pay any such charge
as it deems necessary and add the amount paid to the indebtedness of Debtor
hereunder; (g) reimburse Bank for any expenses including but not limited to
reasonable attorneys' fees and legal expenses incurred by Bank in seeking to
protect, collect or enforce any rights in Collateral; (h) when required, provide
insurance in form and amounts and with companies acceptable to Bank and when
required assign the policies or the rights thereunder to Bank; (i) maintain
Collateral in good condition and not use Collateral for any unlawful purpose;
(j) at its own expense, upon request of Bank, notify any parties obligated to
Debtor on any Collateral to make payment to Bank and Debtor hereby irrevocably
grants Bank power of attorney to make said notifications and collections; (k)
and does hereby authorize Bank to perform any and all acts which Bank in good
faith deems necessary for the protection and preservation of Collateral or its
value or Bank's security interest therein, including transferring any Collateral
into its own name and receiving the income thereon as additional security
hereunder. Bank may not exercise any right under any corporate security which
might constitute the exercise of control by Bank so as to make any such
corporation an affiliate of Bank within the meaning of the banking laws until
after default.

3. The term default shall mean the occurrence of any of the following events:
(a) non-payment of any indebtedness when due or non-performance of any
obligation when due, whether required hereunder or otherwise; (b) deterioration
or impairment of the value of Collateral; (c) non-performance by Debtor under
this Agreement, default by Debtor of any other agreements with Bank dealing with
the extension of credit or with debt owing Bank or any misrepresentation of
Debtor or its representative to Bank whether or not contained herein; (d) a
change in the composition of any Debtor which is a business entity; or (e)
belief by Bank in good faith that there exists, or the actual existence of, any
deterioration or impairment in the ability of Debtor to meet its obligations to
Bank.

4. Whenever a default exists, Bank, at its option may: (a) without notice
accelerate the maturity of any part or all of the secured obligations and
terminate any agreement for the granting of further credit to Debtor; (b) sell,
lease or otherwise dispose of Collateral at public or private sale; unless
Collateral is perishable and threatens to decline speedily in value or is a type
customarily sold on a recognized market, Bank will give Debtor at least five (5)
days prior written notice of the time and place of any public sale or of the
time after which any private sale or any other intended disposition may be made;
(c) transfer any Collateral into its own name or that of its nominee; (d) retain
Collateral in satisfaction of obligations secured hereby, with notice of such
retention sent to Debtor as required by law; (e) notify any parties obligated on
any Collateral consisting of accounts, instruments, chattel paper, chooses in
action or the like to make payment to Bank and enforce collection of any
Collateral herein; (f) require Debtor to assemble and deliver any Collateral to
Bank at a reasonable convenient place designated by Bank; (g) apply all sums
received or collected from or on account of Collateral including the proceeds of
any sales thereof to the payment of the costs and expenses incurred in
preserving and enforcing rights of Bank including but not limited to reasonable
attorneys' fees, and indebtedness secured hereby in such order and manner as
Bank in its sole discretion determines; Bank shall account to Debtor for any
surplus remaining thereafter, and shall pay such surplus to the party entitled
thereto, including any second secured party who has made a proper demand upon
Bank and has furnished proof to Bank as requested in the manner provided by law;
in like manner, Debtor, unless an Accommodation Debtor only, agrees to pay to
Bank without demand any deficiency after any Collateral has been disposed of and
proceeds applied as aforesaid; and (h) exercise its banker's lien or right of
setoff in the same manner as though the credit were unsecured, Bank shall have
all the rights and remedies of a secured party under the Uniform Commercial Code
of California in any jurisdiction where enforcement is sought, whether in
California or elsewhere, All rights, powers and remedies of Bank hereunder shall
be cumulative and not alternative, No delay on the part of Bank in the exercise
of any right or remedy shall constitute a waiver thereof and no exercise by Bank
of any right or remedy shall preclude the exercise of any other right or remedy
or further exercise of the same remedy.

<PAGE>

5. Debtor waives: (a) all right to require Bank to proceed against any other
person including any other Debtor hereunder or to apply any Collateral Bank may
hold at any time or to pursue any other remedy; Collateral, endorsers or
guarantors may be released, substituted or added without affecting the liability
of Debtor hereunder; (b) the defense of the Statute of Limitations in any action
upon any obligations of Debtor secured hereby; (c) if he is an Accommodation
Debtor, all rights under Uniform Commercial Code Section 9112; and (d) any right
of subrogation and any right to participate in Collateral until all obligations
hereby secured have been paid in full.

6. Debtor warrants: (a) that it is or will be the lawful owner of all
Collateral free of all claims, liens or encumbrances whatsoever, other than the
security interest granted pursuant hereto; (b) all information, including but
not limited to financial statements furnished by Debtor to Bank heretofore or
hereafter, whether oral or written, is and will be correct and true as of the
date given; and (c) if Debtor is a business entity, the execution, delivery and
performance hereof are within its powers and have been duly authorized.

7. The right of Bank to have recourse against Collateral shall not be affected
in any way by the fact that the credit is secured by a mortgage, deed of trust
or other lien upon real property.

8. Debtor may terminate this Agreement at any time upon written notice to Bank
of such termination; provided however, that such termination shall not affect
his obligations then outstanding, any extensions or renewals thereof, nor the
security interest granted herein which shall continue until such outstanding
obligations are satisfied in full. Such termination shall not affect the
obligations of other Debtors if more than one executes this Agreement.

9. If more than one Debtor executes this Agreement, the obligations hereunder
are joint and several, All words used herein in the singular shall be deemed to
have been used in the plural when the context and construction so require. Any
married persons who sign this Agreement expressly agree that recourse may be had
against his/her separate property for all of his/her obligations to Bank.

10. This Agreement shall inure to the benefit of and bind Bank, its successors
and assigns and each of the undersigned, their respective heirs, executors,
administrators and successors in interest, Upon transfer by Bank of any part of
the obligations secured hereby, Bank shall be fully discharged from all
liability with respect to Collateral transferred therewith.

11. Whenever possible each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but, if any
provision of this Agreement shall be prohibited or invalid under applicable law,
such provisions shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such or the remaining
provisions of this Agreement.

<PAGE>

Exhibit 10.22

April 27, 1998

Patrick Dirk
Chairman
Troy Systems, Inc.
2331 S. Pullman St.
Santa Ana, CA 92705

Re: Second Amendment ("Amendment") to the Loan Agreement dated June 19,
1997 (all prior Amendments, this Amendment, and the Loan Agreement
together called the "Agreement")

Dear Mr. Dirk:

In reference to the Agreement between Union Bank of California, N.A.
("Bank") and Troy Systems, Inc. ("Borrower"), the Bank and Borrower desire to
amend the Agreement. Capitalized terms used herein which are not otherwise
defined shall have the meaning given them in the Agreement.

Amendments to the Agreement

(a)1.5 The Standby Letters of Credit. The last sentence of the paragraph
shall be deleted and replaced with the following:

"No L/C shall expire after June 30, 1999."

Except as specifically amended hereby, the Agreement shall remain in full
force and effect and is hereby ratified and confirmed. This Amendment shall not
be a waiver of any existing or future default or breach of a condition or
covenant unless specified herein.

This Amendment shall become effective when the Bank shall have received the
acknowledgment copy of this Amendment executed by the Borrower, all of which
must be received before April 30, 1998.

Very truly yours,

UNION BANK OF CALIFORNIA, N.A.

By: /s/ Margaret Furbank
--------------------------------
Title: Vice President
-----------------------------

By: /s/Jack Lenhof
--------------------------------
Title: Vice President
-----------------------------

<PAGE>

Agreed and Accepted to this 27th day of
April, 1998.

Troy Systems, Inc.

By: /s/ Patrick J. Dirk
--------------------------------
Title: Chief Executive Officer
-----------------------------

<PAGE>

Exhibit 10.24

[TROY SYSTEMS INC. LETTERHEAD]

October 3, 1997

Mr. John Garrison
RAGCO
250 Newport Center Drive
Suite 102
Newport Beach, CA 92660

RE: 2331 Pullman Street
Santa Ana, California

Dear John:

On behalf of Troy Systems, Inc. I am pleased to inform you that Troy Systems
Inc. will exercise its Options to Extend its Lease for an additional three
(3) years per the terms of the March 16, 1995 executed lease for the property.

Sincerely,

/s/ Del Conrad

Del Conrad
V.P. Finance & Administration

<PAGE>
Exhibit 21.1

SUBSIDIARIES OF THE REGISTRANT:
- ------------------------------

- - Troy Systems International, Inc.

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use in this Registration Statement on Form S-1 of
the form of our report, to be issued, relating to the consolidated financial
statements of Troy Group, Inc. and Subsidiary. We also consent to the
reference to our Firm under the captions "Experts" and "Selected Financial
Data" in the Prospectus.

MCGLADREY & PULLEN, LLP

Anaheim, California
May 1, 1998

<PAGE>
<ARTICLE> 5
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<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> NOV-30-1997 NOV-30-1998
<PERIOD-START> DEC-01-1996 DEC-01-1997
<PERIOD-END> NOV-30-1997 FEB-28-1998
<CASH> 100 0
<SECURITIES> 0 0
<RECEIVABLES> 5,673 6,573
<ALLOWANCES> 164 171
<INVENTORY> 3,831 3,797
<CURRENT-ASSETS> 9,694 10,501
<PP&E> 6,249 6,584
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0 0
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<INCOME-PRETAX> 4,432 1,323
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<EPS-DILUTED> .34 .10

</TABLE>