TROY GROUP INC, S-1/A, 1998-06-30

TROY GROUP INC
S-1/A, 1998-06-30
COMPUTER & OFFICE EQUIPMENT

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1998

REGISTRATION NO. 333-51523

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

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------

AMENDMENT NO. 1
TO

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 33-0807798
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

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

2331 SOUTH PULLMAN STREET
SANTA ANA, CALIFORNIA 92705
(949) 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
(949) 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) 795-3000 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>
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
Common Stock, $0.01 par value per share............... $22,770,000 $6,720
</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 JUNE 30, 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>

2,200,000 SHARES

[TROY GROUP, INC. LOGO]

COMMON STOCK

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

All of the 2,200,000 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 $7.00 and $9.00 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 Cruttenden
Roth Incorporated and (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 $1,100,000.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
330,000 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 Cruttenden Roth Incorporated,
Irvine, California, on or about , 1998.

[CRUTTENDEN ROTH INCORPORATED LOGO]

THE DATE OF THIS PROSPECTUS IS , 1998

<PAGE>

[LOGO]

ON-DEMAND DISTRIBUTIVE
PRINTING SOLUTIONS

TROY'S FINANCIAL DOCUMENT PRINTERS

[picture of Troy's financial document printers]

FINANCIAL DOCUMENTS ON-DEMAND
Including checks and other
documents containing Magnetic
Ink Character Recognition (MICR)

[picture of a check illustrating the MICR line]

TROY'S PROPRIETARY RIBBONS AND TONERS

[picture of Troy's ribbon and toner products]

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

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 the growth of the on-demand
digital printing market; however, there can be no assurance that the growth rate
of the on-demand distributive printing market will be equal to or in excess of
the growth rate 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

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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 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 Mutual
Automobile Insurance Company ("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 (949) 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" 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........................ 2,200,000 shares
Common Stock to be outstanding after the
Offering.................................. 9,700,000 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>
MAY 31, 1998
---------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA(3) ADJUSTED(4)
--------- ------------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................................ $ 40 $ 40 $ 14,856
Working capital.......................................................... 5,951 4,951 20,791
Total assets............................................................. 13,480 13,870 28,446
Short-term notes payable................................................. 615 615 --
Current portion of long-term debt........................................ 402 402 59
Long-term debt, net of current portion................................... 771 771 428
Stockholders' equity..................................................... 7,252 6,442 22,385
</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 $390,000 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 $1.2
million paid or to be paid to existing stockholders after May 31, 1998. See
"S Corporation Distributions."

(4) Pro forma as adjusted balance sheet data give effect to: (i) an estimated
deferred tax asset of approximately $390,000 that will result from the
termination by the Company and the Subsidiary of their S corporation
elections; (ii) S corporation distributions in the estimated amount of
approximately $1.2 million paid or to be paid to existing stockholders after
May 31, 1998; and (iii) the sale of 2,200,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $8.00 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."

3
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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"). The HP Agreement appoints the Company as an authorized,
exclusive reseller in the United States and certain other countries for
Hewlett-Packard MICR LaserJet printers. 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 to resell
Hewlett-Packard MICR LaserJet printers. 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 six months ended May 31, 1998 and the fiscal year ended November 30,
1997, a reseller of the Company's consumable products accounted for 18.2% 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."

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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 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

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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."

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 six months ended May 31, 1998
and the fiscal years ended November 30, 1997 and 1996 represented 15.0%, 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 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 5,692,857 shares of Common Stock, representing 58.7% 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."

BENEFITS OF OFFERING TO CURRENT STOCKHOLDERS

The Offering will provide substantial benefits to current stockholders of
the Company. Consummation of the Offering is expected to: (i) create a public
market for the Common Stock; (ii) provide proceeds to pay a portion of the
Second Distributions; (iii) provide proceeds to repay amounts owed under the
Company's revolving line of credit and term loan which are guaranteed by Patrick
J. and Mary J. Dirk and the Dirk Family Trust u/d/t March 6, 1990, thus
releasing them from such guarantees; and (iv) permit current stockholders to
realize the appreciation in the value of the equity securities held by such
stockholders. Existing stockholders of the Company paid approximately $322,000
for 7,500,000 shares of Common Stock outstanding before the Offering. Assuming
an initial public offering price of $8.00 per share, the existing stockholders
of the Company will have unrealized gain of $59.7 million upon consummation of
the Offering. See "S Corporation Distributions," "Dilution" and "Certain
Transactions."

6
<PAGE>
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 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

7
<PAGE>
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."

BROAD MANAGEMENT DISCRETION IN USE OF PROCEEDS

The Company intends to use the net proceeds of the Offering to repay
indebtedness, to pay S corporation distributions and for working capital and
general corporate purposes, including possible acquisitions. The Company
currently has no other specific use for the remaining net proceeds of the
Offering. Accordingly, the Company will retain broad discretion to allocate a
substantial portion of the remaining net proceeds of the Offering. The Company
plans to invest the net proceeds in investment-grade, interest-bearing
securities. See "Use of Proceeds."

YEAR 2000 COMPLIANCE

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 completed its 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 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 9,700,000 shares of
Common Stock outstanding, of which the 2,200,000 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 Cruttenden Roth Incorporated. Following
expiration of these lock-up agreements, 1,265,358 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

8
<PAGE>
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."

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, the trustees of the Dirk 1998 Alaska 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 June 1998, the Boards of Directors of the Company and the Subsidiary paid
cash distributions to the Dirk Stockholders of approximately $695,000 (the
"First Distributions"). The Company and the Subsidiary also intend to pay cash
distributions to the Dirk Stockholders, on a pro rata basis, concurrent with the
completion of the Offering (the "Second Distributions"). The Second
Distributions are estimated to total approximately $505,000. 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 2,200,000 shares of
Common Stock offered hereby, at an assumed initial public offering price of
$8.00 per share, are estimated to be approximately $15.9 million (approximately
$18.4 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 currently has no other specific use for the
remaining net proceeds of the Offering. Accordingly, the Company will retain
broad discretion to allocate a substantial portion of the remaining net proceeds
of the Offering. 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 $686,000
as of May 31, 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 31, 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 $615,000 as of May 31, 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 31, 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, 1999,
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 May 31, 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
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 to reflect the receipt and the application of the estimated net proceeds
from the sale of 2,200,000 shares of Common Stock by the Company pursuant to the
Offering at an assumed initial public offering price of $8.00 per share. This
table should be read in conjunction with the Consolidated Financial Statements
and Notes appearing elsewhere in the Prospectus.

<TABLE>
<CAPTION>
MAY 31, 1998
---------------------------------------
PRO FORMA
AS
ACTUAL PRO FORMA(1) ADJUSTED(2)
--------- ------------- -------------
<S> <C> <C> <C>
(IN THOUSANDS)
Short-term notes payable................................................. $ 615 $ 615 $ --
--------- ------------- -------------
--------- ------------- -------------
Current portion of long-term debt........................................ $ 402 $ 402 $ 59
--------- ------------- -------------
--------- ------------- -------------
Long-term debt, net of current portion................................... $ 771 $ 771 $ 428

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;
9,700,000 shares issued and outstanding, pro forma as adjusted(3).... 75 75 97
Additional paid-in capital............................................. 247 247 16,168
Retained earnings...................................................... 6,930 6,120 6,120
--------- ------------- -------------

Total stockholders' equity........................................... 7,252 6,442 22,385
--------- ------------- -------------
Total capitalization............................................. $ 8,023 $ 7,213 $ 22,813
--------- ------------- -------------
--------- ------------- -------------
</TABLE>

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

(1) Pro forma data give effect to (i) an estimated deferred tax asset of
approximately $390,000 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 $1.2 million paid or
to be paid to existing stockholders after May 31, 1998. See "S Corporation
Distributions."

(2) Pro forma as adjusted data give effect to: (i) an estimated deferred tax
asset of approximately $390,000 that will result from the termination by the
Company and the Subsidiary of their S corporation elections; (ii) S
corporation distributions in the estimated amount of approximately $1.2
million paid or to be paid to existing stockholders after May 31, 1998; and
(iii) the sale of 2,200,000 shares of Common Stock offered hereby at an
assumed initial public offering price of $8.00 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 May 31, 1998
would have been approximately $6.2 million or $0.83 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 $8.00 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 May 31,
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 May 31, 1998 would have been approximately $22.4 million, or $2.31
per share. This represents an immediate increase in such pro forma net tangible
book value of $1.48 per share to existing stockholders and an immediate dilution
in pro forma net tangible book value of $5.69 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........................................ $ 8.00
Pro forma net tangible book value per share as of May 31, 1998....................... $ 0.83
Increase per share attributable to new investors..................................... 1.48
---------
Pro forma adjusted net tangible book value per share after the Offering(1)............. 2.31
---------
Dilution per share to new investors.................................................... $ 5.69
---------
---------
</TABLE>

The following table summarizes, as of May 31, 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 $8.00 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 77.3% $ 322,000 1.8% $ 0.04
New investors...................................... 2,200,000 22.7 17,600,000 98.2 8.00
------------ ----- ------------- -----
Totals(1)........................................ 9,700,000 100.0% $ 17,922,000 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</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 six months ended May 31, 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 six months
ended May 31, 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>
SIX MONTHS ENDED
FISCAL YEAR ENDED NOVEMBER 30, MAY 31,
----------------------------------------------------- --------------------
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 $ 17,112 $ 18,322
Cost of goods sold................................ 12,585 10,566 13,560 17,408 19,597 10,223 10,756
--------- --------- --------- --------- --------- --------- ---------
Gross profit...................................... 7,721 7,017 7,917 10,753 13,837 6,889 7,566
Selling, general and administrative expenses...... 4,857 5,058 5,594 5,234 6,622 3,303 3,424
Research and development expenses................. 1,345 1,378 1,748 2,041 2,521 1,245 1,228
--------- --------- --------- --------- --------- --------- ---------
Operating income.................................. 1,519 581 575 3,478 4,694 2,341 2,914
Interest expense.................................. 181 217 342 361 262 128 69
--------- --------- --------- --------- --------- --------- ---------
Income before state income taxes (credit)......... 1,338 364 233 3,117 4,432 2,213 2,845
State income taxes (credit)....................... 37 37 (80) 50 35 18 43
--------- --------- --------- --------- --------- --------- ---------
Net income........................................ $ 1,301 $ 327 $ 313 $ 3,067 $ 4,397 $ 2,195 $ 2,802
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma provision for income taxes(1)........... $ 535 $ 146 $ 93 $ 1,247 $ 1,773 $ 885 $ 1,138
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income(1)........................... $ 803 $ 218 $ 140 $ 1,870 $ 2,659 $ 1,328 $ 1,707
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma diluted net income per share(1)......... $ 0.11 $ 0.03 $ 0.02 $ 0.25 $ 0.34 $ 0.17 $ 0.22
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted-average diluted shares outstanding(2).... 7,500 7,500 7,500 7,500 7,759 7,735 7,810
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>

(SEE FOOTNOTES ON NEXT PAGE)

14
<PAGE>

<TABLE>
<CAPTION>
NOVEMBER 30, MAY 31,
----------------------------------------------------- --------------------
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 $ -- $ 40
Working capital............................ 1,575 955 1,426 3,910 5,173 4,502 5,951
Total assets............................... 7,771 8,312 9,597 11,324 11,749 10,794 13,480
Short terms notes payble................... 685 1,000 1,880 1,612 -- 2,117 615
Current portion of long-term debt.......... 753 1,305 990 688 754 129 402
Long-term debt, net of current portion..... 2,106 1,183 2,067 1,521 1,280 1,488 771
Stockholders' equity....................... 537 865 1,153 4,102 5,948 4,785 7,252
</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 six months ended May 31, 1998 and the fiscal year ended
November 30, 1997, a reseller of the Company's consumable products, Cannon IV
Inc., accounted for 18.2% 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 and significant enhancements of existing products,
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.

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 a 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. Condition (i)
will be satisfied upon the consummation of the Offering and the effect of the
vesting will be recorded as an expense of the Offering. The effect of the
warrants for conditions (ii) and (iii) will be recorded in the Company's
financial statements when the performance conditions are met, if ever, at the
then current fair value of the warrant vested. The recording of this effect
could materially impact the Company's financial statements. See "Description of
Capital Stock--Warrants" and "Note 8 to the Company's Consolidated Financial
Statements."

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

16
<PAGE>
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.

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>
SIX MONTHS ENDED
FISCAL YEAR
ENDED NOVEMBER 30, MAY 31,
------------------------------- --------------------
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 59.7 58.7
--------- --------- --------- --------- ---------
Gross profit....................................................... 36.9 38.2 41.4 40.3 41.3
Selling, general and administrative expenses....................... 26.1 18.6 19.9 19.3 18.7
Research and development expenses.................................. 8.1 7.2 7.5 7.3 6.7
--------- --------- --------- --------- ---------
Operating income................................................... 2.7 12.4 14.0 13.7 15.9
Interest expense................................................... 1.6 1.3 0.8 0.7 0.4
--------- --------- --------- --------- ---------
Income before state income taxes (credit).......................... 1.1 11.1 13.2 13.0 15.5
State income taxes (credit)........................................ (0.4) 0.2 0.1 0.1 0.2
--------- --------- --------- --------- ---------
Net income......................................................... 1.5% 10.9% 13.1% 12.9% 15.3%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma provision for income taxes............................... 0.4% 4.4% 5.3% 5.2% 6.2%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net income............................................... 0.7% 6.7% 7.9% 7.8% 9.3%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

SIX MONTHS ENDED MAY 31, 1998 COMPARED TO SIX MONTHS ENDED MAY 31, 1997

NET SALES. Net sales increased by $1,210,000 or 7.1% to $18.3 million in
the six months ended May 31, 1998 from $17.1 million in the six months ended May
31, 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. While the Company experienced an increase in impact printer sales in
the first half of 1998 from the first half of 1997, the Company believes that
impact printer sales will decline in future periods because of continuing
increases in print quality and speed and continuing reductions in prices of
non-impact printers. Net sales were not significantly affected by price changes.

COST OF GOODS SOLD. Cost of goods sold increased by $533,000 or 5.2% to
$10.8 million in the six months ended May 31, 1998 from $10.2 million in the six
months ended May 31, 1997. 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 58.7% in the first half of 1998 from 59.7%
in the first half of 1997.

GROSS PROFIT. As a result of the above factors, gross profit increased by
$677,000 or 9.8% to $7.6 million in the six months ended May 31, 1998 from $6.9
million in the six months ended May 31, 1997. Gross profit as a percentage of
net sales increased to 41.3% in the first half of 1998 from 40.3% in the first
half of 1997.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $121,000 or 3.7% to $3.4 million in the six
months ended May 31, 1998 from $3.3 million in the six months ended May 31,
1997. This increase was primarily due to an increase in the provision for bad
debts and sales taxes partially offset by a decrease in compensation expense.
Selling, general and administrative

17
<PAGE>

expenses as a percentage of net sales decreased to 18.7% in the first half of
1998 from 19.3% in the first half of 1997.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased by $17,000 or 1.4% to $1.2 million in the six months ended May 31,
1998 from $1.2 million in the six months ended May 31, 1997. This decrease was
primarily due to the reduction of research and development materials. Research
and development expenses as a percentage of net sales decreased to 6.7% in the
first half of 1998 from 7.3% in the first half of 1997.

OPERATING INCOME. As a result of the above factors, operating income
increased by $573,000 or 24.5% to $2.9 million in the six months ended May 31,
1998 from $2.3 million in the six months ended May 31, 1997. Operating income as
a percentage of net sales increased to 15.9% in the first half of 1998 from
13.7% in the first half of 1997.

INTEREST EXPENSE. Interest expense decreased by $59,000 to $69,000 in the
six months ended May 31, 1998 from $128,000 in the six months ended May 31,
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 $25,000 to $43,000 in
the six months ended May 31, 1998 from $18,000 in the six months ended May 31,
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. Of this increase, approximately $628,000 was due to
additional compensation for sales, marketing and management personnel and
increased sales commissions. This increase was also due to new product
introductions resulting from higher net sales, expenses associated with the
renovation of the Company's California and West Virginia facilities and an
increase in 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. Of this
increase, approximately $205,000 was due to the addition of research and

18
<PAGE>

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. 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.

19
<PAGE>
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 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

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 six months ended May 31, 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 NOV. 30
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <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 $ 8,843
Cost of goods
sold.............. 3,858 3,677 4,809 5,064 5,290 4,933 4,249 5,125
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit........ 2,511 2,595 2,612 3,035 3,536 3,353 3,230 3,718
Selling, general and
administrative
expenses.......... 1,281 1,313 1,287 1,353 1,527 1,776 1,645 1,674
Research and
development
expenses.......... 455 532 533 521 582 663 588 688
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income.... 775 750 792 1,161 1,427 914 997 1,356
Interest expense.... 105 90 84 82 58 70 59 75
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before state
income taxes...... 670 660 708 1,079 1,369 844 938 1,281
State income
taxes............. 11 11 11 17 11 7 7 10
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income.......... $ 659 $ 649 $ 697 $ 1,062 $ 1,358 $ 837 $ 931 $ 1,271
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------

1998
------------------------
FEB. 28 MAY 31
----------- -----------
<S> <C> <C>

Net sales........... $ 8,928 $ 9,394
Cost of goods
sold.............. 5,358 5,398
----------- -----------
Gross profit........ 3,570 3,996
Selling, general and
administrative
expenses.......... 1,578 1,846
Research and
development
expenses.......... 630 598
----------- -----------
Operating income.... 1,362 1,552
Interest expense.... 39 30
----------- -----------
Income before state
income taxes...... 1,323 1,522
State income
taxes............. 20 23
----------- -----------
Net income.......... $ 1,303 $ 1,499
----------- -----------
----------- -----------
</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 NOV. 30
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........... 100.0% 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 58.0
----- ----- ----- ----- ----- ----- ----- -----
Gross profit........ 39.4 41.4 35.2 37.5 40.1 40.5 43.2 42.0
Selling, general and
administrative
expenses.......... 20.1 20.9 17.3 16.7 17.3 21.4 22.0 18.9
Research and
development
expenses.......... 7.1 8.5 7.2 6.4 6.6 8.0 7.9 7.8
----- ----- ----- ----- ----- ----- ----- -----
Operating income.... 12.2 12.0 10.7 14.4 16.2 11.1 13.3 15.3
Interest expense.... 1.7 1.4 1.1 1.0 0.7 0.8 0.8 0.8
----- ----- ----- ----- ----- ----- ----- -----
Income before state
income taxes...... 10.5 10.6 9.6 13.4 15.5 10.3 12.5 14.5
State income
taxes............. 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1
----- ----- ----- ----- ----- ----- ----- -----
Net income.......... 10.3% 10.4% 9.4% 13.2% 15.4% 10.2% 12.4% 14.4%
----- ----- ----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- ----- ----- -----

1998
------------------------
FEB. 28 MAY 31
----------- -----------
<S> <C> <C>
Net sales........... 100.0% 100.0%
Cost of goods
sold.............. 60.0 57.5
----- -----
Gross profit........ 40.0 42.5
Selling, general and
administrative
expenses.......... 17.7 19.6
Research and
development
expenses.......... 7.1 6.4
----- -----
Operating income.... 15.2 16.5
Interest expense.... 0.4 0.3
----- -----
Income before state
income taxes...... 14.8 16.2
State income
taxes............. 0.2 0.2
----- -----
Net income.......... 14.6% 16.0%
----- -----
----- -----
</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 $1,708,000 in the six months ended
May 31, 1998 compared to $2,420,000 in the six months ended May 31, 1997 and
$5,572,000 in the fiscal year ended November 30, 1997. The cash flows from
operating activities in the six months ended May 31, 1998 were comparatively
lower than in fiscal 1997 due primarily to increases in accounts receivable and
inventories and a decrease in

21
<PAGE>

accrued expenses, partially offset by an increase in accounts payable. The
receivable increase resulted primarily from one new customer and higher sales in
April and May 1998. The new customer is a foreign government and the payment
processing was expected to have a longer payment period. The increase in
inventories and accounts payable resulted primarily from increased inventory
levels to meet future sales.

Cash flows used in investing activities were $279,000 in the six months
ended May 31, 1998 compared to $392,000 in the six months ended May 31, 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 $1,489,000 in the six months
ended May 31, 1998 compared to $2,070,000 in the six months ended May 31, 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 $1.2 million and pay approximately $1.3 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 $686,000
as of May 31, 1998 and currently bears interest at the rate of 8.50%. The
Company's revolving line of credit had an outstanding balance of approximately
$615,000 as of May 31, 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 31, 1998, the amount available under the line of credit was approximately
$3.7 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.

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 the growth of the on-demand
digital printing market, however, there can be no assurance that the growth rate
of the on-demand distributive printing market will be equal to or in excess of
the growth rate of the on-demand digital printing market.

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

23
<PAGE>
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.

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

24
<PAGE>
through the elimination of the requirement to purchase and maintain inventories
of pre-printed forms; and (iii) enhanced software, hardware and document
security.

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 Servers Papers
Data Conversion Kiosks Financial Transaction
Internet Forms Finishing Management & Services
Networking Forms Handling Film
Forms Design Imaging Services Hardware Maintenance
System Integration
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 a 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. Management believes that its current relationship with
Hewlett-Packard gives it a competitive advantage in marketing its products
primarily because of Hewlett-Packard's reputation as the leading provider of
laser printing solutions to companies throughout the world.

Since April 1, 1996, the Troy/Hewlett-Packard strategic alliance has been
governed by the HP Agreement, which (i) appoints the Company as an authorized,
exclusive reseller in the United States and 35 other countries for
Hewlett-Packard, MICR LaserJet printers; (ii) designates the Company as the
exclusive reseller in the United States of Hewlett-Packard MICR toner and a
custom, single inline memory module; and (iii) permits the Company to sell other
products designated by Hewlett-Packard on a non-exclusive basis, such as paper
trays. The HP Agreement expires on March 31, 1999, and has certain shipment
milestones in order for the Company to maintain exclusive rights to resell
Hewlett-Packard

29
<PAGE>

MICR LaserJet printers. If the milestones are not met by the dates specified,
the HP Agreement will remain in effect but the exclusivity granted to the
Company to resell MICR LaserJet printers may be removed at the discretion of
Hewlett-Packard. Either party may terminate the HP Agreement: (i) after the
expiration date upon 180 days written notice; (ii) by either party in the event
of certain events of bankruptcy or insolvency by the other party; and (iii) by
either party upon 30 days written notice in the event of a material breach of
any obligations under the HP Agreement by the other party that is not cured.

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.

30
<PAGE>
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 third parties 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 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.

31
<PAGE>
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. The Company believes
that its current relationship with Hewlett-Packard gives it a competitive
advantage in the MICR printing market primarily because of Hewlett-Packard's
reputation as the leading provider of laser printing solutions to companies
throughout the world. If the HP Agreement is terminated, the Company would be
required to purchase Hewlett-Packard printers through other sources and would
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. The Company would also likely experience increased
competition should such events occur.

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 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

32
<PAGE>
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 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 May 31, 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 former
employee is seeking damages in an unspecified amount, and has requested that the
amount of damages be determined by the courts. 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, sole 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, sole Director, 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, sole director, 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 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

34
<PAGE>
Representative and Purchasing Agent. 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.
Since June 1991, Mr. Zaepfel has been 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, RemedyTemp, Inc. 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 1980, 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. Since
1987, Mr. Bier has been 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

35
<PAGE>
Corporation, the 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 and
held various sales positions with the Subsidiary from September 1993 to December
1996. From August 1990 to August 1993, 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 and from August 1983 to August 1990 served as district sales
manager and a regional sales manager.

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 1992 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

36
<PAGE>
Company's independent auditors and the adequacy of internal controls for
compliance with corporate 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 148,096 113,925 5,400 8,289
Executive Vice President
Brian P. Dirk ................................ 1997 113,288 67,597 2,055 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. Represents
performance bonuses of $85,000, $70,000, $15,000 and $25,000 for Messrs.
Patrick Dirk, Messina, Brian Dirk and Conrad, respectively. Also includes
commissions payable in the amounts of $52,597 and $43,925 for Messrs. Brian
Dirk and Messina.

(2) Represents $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 -- $ 1,859,474
Brian P. Dirk....................... -- 81,967 -- 618,851
Del L. Conrad....................... -- -- -- --
</TABLE>

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

(1) Value is based on the difference between the fair market value of the shares
of Common Stock as of the date hereof (assuming an initial public offering
price of $8.00 per share) 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 May 31, 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 31, 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. The percentage ownership of the Dirk Stockholders in the Company did
not change as a result of the contribution of the stock of the Subsidiary.

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 proceeds of the Dirk
Note were used for working capital purposes. The Dirk Note bore 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. As of November 30, 1997 and May 31, 1998,
the aggregate amount outstanding under the Dirk Notes was approximately $375,000
and zero, 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.

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"). The
distributions were made as part of the Company's tax strategies and consisted of
Dirk Worldwide's income for the applicable period. Dirk Worldwide is
wholly-owned by individual retirement accounts of the Dirk Stockholders. The
Company intends to establish a new wholly-owned foreign sales corporation
shortly after the Offering and the relationship with Dirk Worldwide will be
terminated. The only payments to be made to Dirk Worldwide will be commissions
owing up to the consummation of the Offering.

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)............................................. 5,692,857 75.9% 58.7%
Mary J. Dirk(2)................................................ 5,692,857 75.9 58.7
Brian P. Dirk(3)............................................... 503,752 6.6 5.1
Suzanne M. Anderson(4)......................................... 421,786 5.6 4.3
Kristine L. Gigerich(4)........................................ 421,786 5.6 4.3
Lorrie A. Brown(4)............................................. 421,786 5.6 4.3
Robert S. Messina(5)........................................... 244,990 3.2 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)(6).................................................. 6,441,599 82.3 64.2
</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
2,200,000 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 5,692,857 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"), 187,143 shares of Common Stock held by the trustees of the Dirk
1998 Alaska Trust (the "Alaska 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 81,967 shares of Common Stock issuable upon exercise of
outstanding stock options held by Brian P. Dirk.

(3) Includes 81,967 shares issuable under Presently Exercisable Options and
46,785 shares of Common Stock held by Mr. Brian Dirk as a trustee under the
Alaska Trust.

(4) Includes 46,786 shares of Common Stock held by such person as a trustee
under the Alaska Trust.

(5) Includes 244,990 shares issuable under Presently Exercisable Options.

(6) Includes an aggregate of 326,957 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 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. The
warrant was issued to Broadland for providing the following services: (i)
assisting the Company in focusing its business plan and strategy in preparation
for a public offering; (ii) identifying and analyzing comparable companies;
(iii) identifying and conducting due diligence of potential investment

42
<PAGE>

bankers; (iv) assisting the Company in evaluating and negotiating with potential
underwriters; (v) assisting the Company in the public offering process,
including participating in drafting sessions, collecting information and
preparing road show strategies and materials; (vi) assisting the Company in
preparing to become a public company, including advising the Company regarding
investment community expectations and introducing the Company to potential
market makers and research analysts; (vii) assisting the Company in identifying
and negotiating with potential acquisition candidates; and (viii) providing such
other services in connection with the Offering as may be requested from time to
time. The warrant will vest at the rate of 33 1/3% upon the happening of three
separate performance conditions relating to the Company becoming publicly owned,
certain acquisition transactions and the Company's market value following the
Offering and will expire five years after they vest. In May 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. The warrant was issued for providing the following services: (i)
assisting in drafting offering and other legal documents in connection with an
initial public offering; (ii) assisting the Chief Executive Officer in the
completion of the underwriters due diligence investigation of the Company; (iii)
providing necessary legal opinions required by an underwriting agreement; and
(iv) providing such other services in connection with the Offering as requested
by the Chief Executive Officer from time to time.

REGISTRATION RIGHTS

The holder of a warrant to purchase 300,000 shares of Common Stock or the
holder's transferee 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 in connection with the issuance of shares upon
exercise.

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

The Company's Certificate of Incorporation limits the liability of its
directors to the fullest extent permitted under the Delaware General Corporation
Law. Specifically, the directors of the Company are not liable to the Company or
its stockholders for monetary damages for any breach of fiduciary duty by

43
<PAGE>

such a director, except for liability for (i) any breach of the director's duty
of loyalty to the Company or its stockholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) corporate distributions, including dividends, stock distributions and
redemptions, which are in contravention of restrictions in Delaware law, the
Company's Certificate of Incorporation or Bylaws, or any agreement to which the
Company is a party, and (iv) any transaction from which the director derives an
improper personal benefit. This provision will generally not limit liability
under state or federal securities laws.

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.

44
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 9,700,000 shares of
Common Stock outstanding, assuming no exercise of options or warrants after
February 28, 1998. Of these shares, the 2,200,000 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, 1,265,358 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.

45
<PAGE>
UNDERWRITING

The Underwriters named below, for which Cruttenden Roth Incorporated and
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>
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
330,000 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.

46
<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 Cruttenden Roth Incorporated, 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

47
<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 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.

48
<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
June 17, 1998

MCGLADREY & PULLEN, LLP

F-2
<PAGE>
TROY GROUP, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MAY 31,
NOVEMBER 30, 1998
---------------------------- MAY 31, PRO FORMA
1996 1997 1998 (NOTE 2)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
ASSETS

Current assets:
Cash.............................................. $ 42,000 $ 100,000 $ 40,000 $ 40,000
Accounts receivable, less allowance for doubtful
accounts 1996 $173,000; 1997 $164,000; 1998
$315,000........................................ 5,205,000 5,509,000 6,489,000 6,489,000
Inventories....................................... 4,235,000 3,831,000 4,625,000 4,625,000
Prepaid expenses and other........................ 129,000 254,000 254,000 454,000
------------- ------------- ------------- -------------
Total current assets.......................... 9,611,000 9,694,000 11,408,000 11,608,000

Equipment and leasehold improvements, net........... 1,600,000 1,180,000 1,259,000 1,259,000

Other assets........................................ 113,000 875,000 813,000 1,003,000
------------- ------------- ------------- -------------
Total assets.................................. $ 11,324,000 $ 11,749,000 $ 13,480,000 $ 13,870,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Checks issued not yet presented for payment....... $ 390,000 $ 173,000 $ 428,000 $ 428,000
Notes payable..................................... 1,612,000 -- 615,000 615,000
Current portion of long-term debt................. 688,000 754,000 402,000 402,000
Accounts payable.................................. 1,443,000 1,670,000 2,572,000 2,572,000
Accrued liabilities............................... 1,378,000 1,724,000 1,247,000 2,447,000
Deferred service revenue.......................... 190,000 200,000 193,000 193,000
------------- ------------- ------------- -------------
Total current liabilities..................... 5,701,000 4,521,000 5,457,000 6,657,000
------------- ------------- ------------- -------------
Long-term debt, net of current portion (including
1996 $780,000; 1997 $375,000; and 1998 $0 payable
to the majority stockholder)...................... 1,521,000 1,280,000 771,000 771,000
------------- ------------- ------------- -------------
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 6,930,000 6,120,000
------------- ------------- ------------- -------------
Total stockholders' equity.................... 4,102,000 5,948,000 7,252,000 6,442,000
------------- ------------- ------------- -------------
Total liabilities and stockholders' equity.... $ 11,324,000 $ 11,749,000 $ 13,480,000 $ 13,870,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-3
<PAGE>
TROY GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED NOVEMBER 30, MAY 31,
---------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Net sales............................... $ 21,477,000 $ 28,161,000 $ 33,434,000 $ 17,112,000 $ 18,322,000

Cost of goods sold, (including $144,000;
$158,000; $168,000; $102,000; and
$127,000 in rent paid to majority
stockholders)......................... 13,560,000 17,408,000 19,597,000 10,223,000 10,756,000
------------ ------------ ------------ ------------ ------------
Gross profit...................... 7,917,000 10,753,000 13,837,000 6,889,000 7,566,000
------------ ------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative... 5,594,000 5,234,000 6,622,000 3,303,000 3,424,000
Research and development.............. 1,748,000 2,041,000 2,521,000 1,245,000 1,228,000
------------ ------------ ------------ ------------ ------------
7,342,000 7,275,000 9,143,000 4,548,000 4,652,000
------------ ------------ ------------ ------------ ------------
Operating income.................. 575,000 3,478,000 4,694,000 2,341,000 2,914,000

Interest expense, (including $46,000;
$61,000; $33,000; $19,000; and $11,000
paid to majority stockholders)........ 342,000 361,000 262,000 128,000 69,000
------------ ------------ ------------ ------------ ------------
Income before state income taxes
(credit)........................ 233,000 3,117,000 4,432,000 2,213,000 2,845,000

State income taxes (credit)............. (80,000) 50,000 35,000 18,000 43,000
------------ ------------ ------------ ------------ ------------
Net income........................ $ 313,000 $ 3,067,000 $ 4,397,000 $ 2,195,000 $ 2,802,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Pro forma net income (unaudited):
Historical income before income
taxes............................... $ 233,000 $ 3,117,000 $ 4,432,000 $ 2,213,000 $ 2,845,000
Pro forma provision for income
taxes............................... 93,000 1,247,000 1,773,000 885,000 1,138,000
------------ ------------ ------------ ------------ ------------
Pro forma net income.............. $ 140,000 $ 1,870,000 $ 2,659,000 $ 1,328,000 $ 1,707,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Pro forma net income per share:
Basic................................. $ 0.02 $ 0.25 $ 0.35 $ 0.18 $ 0.23
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Diluted............................... $ 0.02 $ 0.25 $ 0.34 $ 0.17 $ 0.22
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
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 7,735,000 7,810,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</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)................. -- -- -- (1,498,000) (1,498,000)
Net income (unaudited)................ -- -- -- 2,802,000 2,802,000
----------- ------------- ------------- ------------- -------------
Balance, May 31, 1998
(unaudited)........................... 7,500,000 $ 75,000 $ 247,000 $ 6,930,000 $ 7,252,000
----------- ------------- ------------- ------------- -------------
----------- ------------- ------------- ------------- -------------
</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, SIX MONTHS ENDED
---------------------------------------- MAY 31,
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 $ 2,195,000 $ 2,802,000
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization.......... 637,000 680,000 617,000 307,000 262,000
Provision for doubtful accounts........ -- 209,000 65,000 49,000 151,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable................ (433,000) (1,738,000) (369,000) 766,000 (1,131,000)
Inventories........................ (448,000) (517,000) 404,000 (130,000) (794,000)
Prepaid expenses................... 14,000 (17,000) (125,000) (112,000) --
Increase (decrease) in:
Accounts payable................... (153,000) 616,000 227,000 (432,000) 902,000
Accrued expenses................... (287,000) (142,000) 346,000 (116,000) (477,000)
Deferred service revenue........... (73,000) (104,000) 10,000 (107,000) (7,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities............... (430,000) 2,054,000 5,572,000 2,420,000 1,708,000
------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchase of equipment and leasehold
improvements........................... (1,062,000) (301,000) (197,000) (147,000) (19,000)
(Increase) in other assets............... (112,000) (1,000) (561,000) (245,000) (260,000)
------------ ------------ ------------ ------------ ------------
Net cash (used in) investing
activities......................... (1,174,000) (302,000) (758,000) (392,000) (279,000)
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Borrowings on notes payable.............. 10,185,000 12,875,000 17,498,000 11,372,000 4,691,000
Payments on notes payable................ (9,305,000) (13,143,000) (19,110,000) (10,867,000) (4,076,000)
Proceeds from issuance of debt........... 1,876,000 -- 1,000,000 -- --
Principal payments on debt............... (1,457,000) (848,000) (1,175,000) (592,000) (861,000)
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) (471,000) 255,000
Dividends................................ -- (118,000) (2,551,000) (1,512,000) (1,498,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities............... 1,604,000 (1,710,000) (4,756,000) (2,070,000) (1,489,000)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash...... -- 42,000 58,000 (42,000) (60,000)
Cash, beginning of period.................. -- -- 42,000 42,000 100,000
------------ ------------ ------------ ------------ ------------
Cash, end of period........................ $ -- $ 42,000 $ 100,000 $ -- $ 40,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-6
<PAGE>
TROY GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INFORMATION WITH RESPECT TO THE SIX MONTHS ENDED MAY 31, 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

In May of 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 individual
retirement accounts of the stockholders. The FSC is included in these
consolidated financial statements because it provided an integral function in
the Troy Group's tax strategies 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 SIX MONTHS ENDED MAY 31, 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.

PRODUCT RETURNS AND WARRANTIES

The Company records a provision for estimated product returns and warranties
at the time the revenue is recognized.

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 fair value of the shares to be received 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 SIX MONTHS ENDED MAY 31, 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 235,000 shares and 310,000 shares in the six months ended May 31, 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 six
months ended May 31, 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 SIX MONTHS ENDED MAY 31, 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 $1,200,000.

- 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 asset of $390,000.

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

The condensed balance sheet of the Company as of May 31, 1998 (unaudited)
reflecting these pro forma adjustments is as follows:

<TABLE>
<CAPTION>
MAY 31,
MAY 31, PRO FORMA 1998
1998 ADJUSTMENTS PRO FORMA
------------- ------------- -------------
<S> <C> <C> <C>
Current assets...................................................... $ 11,408,000 $ 200,000 $ 11,608,000
Long-term assets.................................................... 2,072,000 190,000 2,262,000
------------- ------------- -------------
Total assets.................................................... $ 13,480,000 $ 390,000 $ 13,870,000
------------- ------------- -------------
------------- ------------- -------------
Current liabilities................................................. $ 5,457,000 $ 1,200,000 $ 6,657,000
Long-term liabilities............................................... 771,000 -- 771,000
------------- ------------- -------------
Total liabilities............................................... 6,228,000 1,200,000 7,428,000
------------- ------------- -------------
Common stock........................................................ 75,000 -- 75,000
Additional paid-in capital.......................................... 247,000 -- 247,000
Retained earnings................................................... 6,930,000 (810,000) 6,120,000
------------- ------------- -------------
Total stockholders' equity...................................... 7,252,000 (810,000) 6,442,000
------------- ------------- -------------
Total liabilities and stockholders' equity...................... $ 13,480,000 $ 390,000 $ 13,870,000
------------- ------------- -------------
------------- ------------- -------------
</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 six months ended May 31, 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 SIX MONTHS ENDED MAY 31, 1997 AND 1998 IS
UNAUDITED

NOTE 3. INVENTORIES

Inventories consisted of the following as of November 30, 1996 and 1997 and
May 31, 1998:

<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Raw materials....................................... $ 2,786,000 $ 2,188,000 $ 3,290,000
Work-in-process..................................... 266,000 470,000 494,000
Finished goods...................................... 1,183,000 1,173,000 841,000
------------ ------------ ------------
$ 4,235,000 $ 3,831,000 $ 4,625,000
------------ ------------ ------------
------------ ------------ ------------
</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 SIX MONTHS ENDED MAY 31, 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 SIX MONTHS ENDED MAY 31, 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% or 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 nonqualified 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 May 31, 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 May 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 SIX MONTHS ENDED MAY 31, 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
agreement expires in September 2000 and requires monthly payments of
approximately $21,200.

The majority stockholders guarantee, 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 a bank.

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., is
owned by the individual retirement accounts of the Company's stockholders and
makes distributions of its income to them. Total distributions in fiscal years
1995, 1996 and 1997 were $-0-, $57,000 and $286,000, respectively, and are
recorded as dividends in the consolidated statements of stockholders' equity.

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 SIX MONTHS ENDED MAY 31, 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.
The sales to foreign customers are all denominated in U.S. dollars therefore the
Company has not experienced any significant foreign currency gains or losses.

NOTE 14. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED NOVEMBER 30, MAY 31,
---------------------------------- --------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash paid during the period
for:

Interest................... $ 337,000 $ 345,000 $ 272,000 $ 128,000 $ 68,000
---------- ---------- ---------- ------------ ------------
---------- ---------- ---------- ------------ ------------
State income taxes......... $ -- $ 65,000 $ 185,000 $ 46,000 $ 10,000
---------- ---------- ---------- ------------ ------------
---------- ---------- ---------- ------------ ------------
</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.

MCGLADREY & PULLEN, LLP

Anaheim, California
June 17, 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>
[LOGO]

ON-DEMAND DISTRIBUTIVE
PRINTING SOLUTIONS

WHEELING, WV MANUFACTURING FACILITY

[picture of Troy's Wheeling, WV
manufacturing facility]

RESEARCH LAB
[picture of Troy's research facility]

TROY'S TONER MANUFACTURING EQUIPMENT

[picture of Troy's toner manufacturing line]

<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........................................... 45
Underwriting.............................................................. 46
Legal Matters............................................................. 47
Experts................................................................... 47
Additional Information.................................................... 48
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.

2,200,000 SHARES

[TROY GROUP, INC. LOGO]

COMMON STOCK

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

PROSPECTUS

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

[CRUTTENDEN ROTH INCORPORATED LOGO]

, 1998

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

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....................................................... $ 6,720
NASD fee................................................................... 2,777
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................................................................... 675,000
Miscellaneous.............................................................. 16,128
-----------------
Total...................................................................... $ 1,100,000
-----------------
-----------------
</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 May 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*
3.3 Certificate of Ownership and Merger dated May 18, 1998, between Troy Group
Newco, Inc. and Troy Systems, Inc.
3.4 Agreement and Plan of Merger dated May 18, 1998 between Troy Group Newco,
Inc. and Troy Systems, Inc.
4.1 Warrant dated October 1, 1997 issued to Broadland Capital Partners*
5.1 Opinion of Oppenheimer Wolff & Donnelly LLP
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*
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
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
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 Agreement Relating to S Corporation Distributions by and
between the Company and the Dirk Shareholders
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
10.24 Letter dated October 3, 1997 to RAGCO from the Company*
10.25 Third Amendment to Business Loan Agreement, First Amendment to Security
Agreement and First Amendment to each of Two Certain Promissory Notes
dated May 8, 1998 between the Company and Union Bank of California
10.26 Bill of Sale and Assignment and Assumption Agreement dated May 31, 1998
between Troy Group, Inc. and Troy Systems International, Inc.
10.27 Form of Subscription Agreement
10.28 Fourth Amendment to Business Loan Agreement and Second Amendment to One
Certain Promissory Note dated May 31, 1998 between the Company, the
Subsidiary and Union Bank of California
21.1 Subsidiaries of the Registrant*
</TABLE>

II-3

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
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
99.1 Consent of Brian P. Dirk
99.2 Consent of Norman B. Keider
99.3 Consent of John B. Zaepfel
99.4 Consent of William P. O'Reilly
99.5 Consent of Gene A. Bier
</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.

* Previously filed.

II-4
<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-5
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement on Form S-1
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Santa Ana, California on this 22nd day of June, 1998.

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

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

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated, on June 22, 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*.......................................................................

3.3 Certificate of Ownership and Merger dated May 18, 1998, between Troy Group Newco, Inc. and
Troy Systems, Inc..........................................................................

3.4 Agreement and Plan of Merger dated May 18, 1998 between Troy Group Newco, Inc. and Troy
Systems, Inc...............................................................................

4.1 Warrant dated October 1, 1997 issued to Broadland Capital Partners*..........................

5.1 Opinion of Oppenheimer Wolff & Donnelly LLP..................................................

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....................................................................

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 Agreement Relating to S Corporation Distributions by and between the Company and
the Dirk Shareholders......................................................................

10.16 Non-negotiable Promissory Note of the Company dated November 30, 1993, as amended November 1,
1995 and November 1, 1996*.................................................................
</TABLE>

II-7
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------- --------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
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............................................................

10.24 Letter dated October 3, 1997 to RAGCO from the Company*......................................

10.25 Third Amendment to Business Loan Agreement, First Amendment to Security Agreement and First
Amendment to each of Two Certain Promissory Notes dated May 8, 1998 between the Company and
Union Bank of California...................................................................

10.26 Bill of Sale and Assignment and Assumption Agreement dated May 31, 1998 between Troy Group,
Inc. and Troy Systems International, Inc...................................................

10.27 Form of Subscription Agreement...............................................................

10.28 Fourth Amendment to Business Loan Agreement and Second Amendment to One Certain Promissory
Note, dated May 31, 1998 between the Company, the Subsidiary and Union Bank of
California.................................................................................

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......................................................................

99.1 Consent of Brian P. Dirk.....................................................................

99.2 Consent of Norman B. Keider..................................................................

99.3 Consent of John B. Zaepfel...................................................................

99.4 Consent of William P. O'Reilly...............................................................

99.5 Consent of Gene A. Bier......................................................................
</TABLE>

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

(2) To be filed by amendment.

* Previously filed.

II-8

<PAGE>
EXHIBIT 3.3

CERTIFICATE OF OWNERSHIP
AND MERGER OF

TROY SYSTEMS, INC.
(A CALIFORNIA CORPORATION)

INTO

TROY GROUP NEWCO, INC.
(A DELAWARE CORPORATION)

Pursuant to Section 253 of the Delaware General Corporation Law and
Section 1110 of the California Corporations Code, Troy Systems, Inc., a
California corporation (the "California Parent"), the holder of 100% of the
outstanding Common Stock of Troy Group Newco, Inc., a Delaware corporation
(the "Delaware Subsidiary"), and the Delaware Subsidiary hereby adopt this
Certificate of Ownership and Merger for the purpose of merging the California
Parent with and into the Delaware Subsidiary (the "Merger") and do hereby
certify that:

FIRST: A copy of the resolutions of the California Parent's Board of
Directors and shareholders authorizing the Merger, adopted as of May 18,
1998, is attached to and incorporated into this Certificate of Ownership and
Merger, as Attachment A. The Merger has been adopted, approved, certified,
executed and acknowledged by the California Parent in accordance with the
laws of the State of California, the state of incorporation of the California
Parent.

SECOND: The resolution of the California Parent's Board of Directors
and shareholders includes a provision for the pro rata issuance of stock of
the surviving corporation (the Delaware Subsidiary) to the shareholders of
the California Parent on surrender of any certificates therefor.

THIRD: A copy of the resolutions of the Board of Directors of the
Delaware Subsidiary authorizing the merger, adopted April 21, 1998, is
attached to and incorporated into this Certificate of Ownership and Merger,
as Attachment B.

FOURTH: The proposed merger has been adopted, approved, certified,
executed and acknowledged by the subsidiary corporation (the Delaware
Subsidiary) in accordance with the laws of the State of Delaware.

FIFTH: Troy Group Newco, Inc., a Delaware corporation, shall be the
surviving corporation, and will hereby change its name to "Troy Group, Inc."

<PAGE>

IN WITNESS WHEREOF, the undersigned signatures shall constitute the
affirmation or acknowledgment of the signatory, under penalties of perjury,
that the instrument is the signatory's act and deed and that the facts stated
herein are true.

Dated: May 18, 1998 TROY SYSTEMS, INC.
a California corporation

By: /s/ Patrick J. Dirk
-----------------------------
Patrick J. Dirk
Chief Executive Officer
ATTEST:

By: /s/ Del Conrad
-------------------------
Del Conrad
Vice President of Finance
and Administration

Dated: May 18, 1998 TROY GROUP NEWCO, INC.
a Delaware corporation

By: /s/ Patrick J. Dirk
----------------------------
Patrick J Dirk
Chief Executive Officer
ATTEST:

By: /s/ Del Conrad
-----------------------
Del Conrad
Chief Financial Officer

<PAGE>

ATTACHMENT A
JOINT WRITTEN CONSENT RESOLUTIONS
OF THE SHAREHOLDERS AND
THE BOARD OF DIRECTORS OF
TROY SYSTEMS INC.

The undersigned, being all the Shareholders and all of the members of the
Board of Directors of Troy Systems Inc., a California corporation (the
"Company"), hereby adopt the following resolutions by written consent effective
as of May 18, 1998:

AGREEMENT AND PLAN OF MERGER

WHEREAS, The Board of Directors desires to effectuate a merger of Troy
Group Newco, Inc., a Delaware corporation ("Troy Group") into the Company in
order to reincorporate the Company in Delaware;

WHEREAS, The merger contemplated by the Merger Agreement, as defined below,
is intended to be a tax-free reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended;

RESOLVED, That the Board of Directors of the Company hereby approves and
adopts in all respects the proposed Agreement and Plan of Merger between the
Company and Troy Group in substantially the form attached hereto as Exhibit A
(the "Merger Agreement"), with such changes and additions as shall be approved
by the Chief Executive Officer and the Vice President of Finance and
Administration of the Company, or any of them, pursuant to which, among other
things, each share of capital stock of the Company issued and outstanding
immediately prior to the effective date of the merger shall be changed and
converted into fully paid and nonassessable shares of capital stock of Troy
Group in accordance with the terms of the Merger Agreement, and each share of
Common Stock of Troy Group issued and outstanding immediately prior to the
effective date of the merger shall be canceled and returned to the status of
authorized but unissued shares.

FURTHER RESOLVED, That the Chief Executive Officer and Vice President of
Finance and Administration of the Company, or any of them, are hereby authorized
and directed to execute and deliver the Merger Agreement, to make, execute,
acknowledge and file such certificates and other agreements or documents as may
be required by law with respect to the foregoing Resolutions, and to take such
other steps as are in their sole judgment necessary or appropriate, to give
effect to these Resolutions; and that all of the actions of any of such officers
that are consistent with the purpose and intent of these Resolutions are hereby
in all respects authorized, approved, ratified and confirmed.

FURTHER RESOLVED, That the Board of Directors understands that, as a result
of the merger contemplated by the Merger Agreement, Patrick J. Dirk would become
a person that in the absence of approval by this Board would be considered an
"interested stockholder" as defined in Section 203 of the Delaware General
Corporation Law, and the Board hereby approves the merger and transaction with
the intent that Mr. Dirk will not be considered to be an interested stockholder.

<PAGE>

ATTACHMENT B
CONSENT RESOLUTIONS OF THE
BOARD OF DIRECTORS OF
TROY GROUP NEWCO, INC.

The undersigned, being the sole member of the Board of Directors of Troy
Group Newco, Inc., a Delaware corporation (the "Company"), hereby adopts the
following resolutions by written consent effective as of April 21, :

AGREEMENT AND PLAN OF MERGER

WHEREAS, The Board of Directors desires to effectuate a merger of Troy
Systems, Inc., a California corporation ("Troy Systems") into the Company in
order to reincorporate Troy Systems in Delaware;

WHEREAS, The merger contemplated by the Merger Agreement, as defined below,
is intended to be a tax-free reorganization under Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended;

RESOLVED, That the Board of Directors of the Company hereby approves and
adopts in all respects the proposed Agreement and Plan of Merger between the
Company and Troy Systems in substantially the form attached hereto as Exhibit A
(the "Merger Agreement"), with such changes and additions as shall be approved
by the Chief Executive Officer and the Chief Financial Officer of the Company,
or any of them, pursuant to which, among other things, each share of capital
stock of Troy Systems issued and outstanding immediately prior to the effective
date of the merger shall be changed and converted into fully paid and
nonassessable shares of capital stock of the Company in accordance with the
terms of the Merger Agreement, and each share of Common Stock of the Company
issued and outstanding immediately prior to the effective date of the merger
shall be canceled and returned to the status of authorized but unissued shares.

FURTHER RESOLVED, That the Chief Executive Officer and Chief Financial
Officer of the Company, or any of them, are hereby authorized and directed to
execute and deliver the Merger Agreement, to make, execute, acknowledge and file
such certificates and other agreements or documents as may be required by law
with respect to the foregoing Resolutions, and to take such other steps as are
in their sole judgment necessary or appropriate, to give effect to these
Resolutions; and that all of the actions of any of such officers that are
consistent with the purpose and intent of these Resolutions are hereby in all
respects authorized, approved, ratified and confirmed.

<PAGE>
EXHIBIT 3.4

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER ("Merger Agreement") is made as of
this 18th day of May, 1998, by and between Troy Group Newco, Inc., a
corporation organized and governed under the laws of Delaware with a
principal place of business at 2331 South Pullman Street, Santa Ana,
California 92705 ("Troy Group") and Troy Systems, Inc., a corporation
organized and governed under the laws of California with a principal place of
business at 2331 South Pullman Street, Santa Ana, California 92705 ("Troy
Systems"). Troy Group and Troy Systems are sometimes referred to hereinafter
as the "Constituent Corporations."

WHEREAS, the directors of the Constituent Corporations deem it advisable
and to the advantage of such corporations that Troy Systems merge with and
into Troy Group upon the terms and conditions herein provided, and

WHEREAS, the parties intend that the merger contemplated hereby shall be
a tax-free reorganization under Section 368(a)(1)(F) of the Internal Revenue
Code of 1986, as amended;

NOW, THEREFORE, the parties hereby adopt the plan of merger encompassed
by this Merger Agreement and, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, do hereby agree
that Troy Systems shall merge with and into Troy Group on the following terms
and conditions:

ARTICLE
1.
TERMS AND CONDITIONS OF THE MERGER

1.1 MERGER. As soon as practicable following the fulfillment (or waiver, to
the extent permitted herein) of the conditions specified herein, Troy
Systems shall be merged with and into Troy Group (the "Merger"), and
Troy Group shall survive the Merger, and its name shall be changed as
set forth in Section 2.1 hereof.

1.2 EFFECTIVE DATE. The Merger shall be effective upon the filing of this
Merger Agreement, together with appropriate articles of merger or a
certificate of merger with respect thereto, with the Secretaries of
State of the States of Delaware and California, as provided by the
General Corporation Law of Delaware and the California General
Corporation Law (the "Effective Date").

1.3 SURVIVING CORPORATION. On the Effective Date, Troy Group, as the
surviving corporation (the "Surviving Corporation"), shall continue its
corporate existence under the laws of the State of Delaware and shall
succeed to all of the rights, privileges, powers and property of Troy
Systems in the manner of and as more fully set forth in Section 259 of
the Delaware General Corporation Law, and the separate corporate
existence of Troy Systems, except insofar as it may be continued by
operation of law, shall cease and be terminated.

<PAGE>

1.4 CAPITAL STOCK OF TROY SYSTEMS AND TROY GROUP. On the Effective Date, by
virtue of the Merger and without any further action on the part of the
Constituent Corporations or their shareholders:

(a) Each share of Common Stock of Troy Systems issued and outstanding
immediately prior thereto shall be changed and converted into one (1)
fully paid and nonassessable share of the Common Stock of Troy Group;
and

(b) Each share of Common Stock of Troy Group issued and outstanding
immediately prior thereto (one thousand (1,000) shares held by Troy
Systems) shall be canceled and returned to the status of authorized
but unissued shares.

1.5 STOCK CERTIFICATES. On and after the Effective Date, all of the outstanding
certificates that, prior to that time, represented shares of the capital
stock of Troy Systems shall be deemed for all purposes to evidence
ownership and to represent the number of shares of the capital stock of
Troy Group in accordance with Section 1.4 above and shall be so registered
on the books and records of Troy Group or its transfer agent. The
registered owner of any such outstanding stock certificate shall, until
such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to Troy Group or its transfer agent, have and be
entitled to exercise any voting and other rights with respect to, and to
receive any dividend or other distributions upon, the shares of Troy Group
evidenced by such outstanding certificate as above provided. After the
Effective Date, whenever certificates which formerly represented shares of
Troy Systems are presented for transfer or conversion, the Surviving
Corporation will cause to be issued in respect thereof a certificate or
certificates representing the appropriate number of shares of the capital
stock of Troy Group in accordance with Section 1.4 above.

1.6 FRACTIONAL SHARES. No fractional shares shall be issued upon conversion of
shares of capital stock of Troy Systems into shares of capital stock of
Troy Group.

1.7 STOCK OPTIONS AND WARRANTS. Troy Group will assume the right and
obligation of Troy Systems with respect to any and all options, warrants
or other rights to purchase shares of any class of common stock of Troy
Systems outstanding whether or not exercisable at the Effective Date
(collectively, the "Options"). Pursuant to such assumption, each holder
of Options shall be entitled to purchase from Troy Group the number of
shares of Troy Group common stock equal to the number of shares of Troy
Systems common stock subject to such Options immediately prior to the
Effective Date, at an exercise price per share of Troy Group common
stock equal to the exercise price per share specified with respect to
such Option. All of the terms and provisions of each such Option shall
remain the same as and shall continue all the terms and provisions of
such Option as outstanding immediately prior to the Effective Date,
except that shares of Troy Group common stock shall be substituted for
Troy Systems common stock, effective as of the Effective Date. As
promptly as practicable after the Effective Date, Troy Group shall issue
to each holder of any Option a written instrument evidencing Troy
Group's assumption of such Option.

2
<PAGE>

1.8 OTHER EMPLOYEE BENEFIT PLANS. Troy Group will assume all of the
obligations of Troy Systems under any and all other employee benefit
plans in effect as of the Effective Date or with respect to which
employee rights or accrued benefits are outstanding as of the Effective
Date.

ARTICLE
2.
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS

2.1 CERTIFICATE OF INCORPORATION. On the Effective Date, the Certificate of
Incorporation of Troy Group in effect immediately prior thereto shall be
amended in the following respect, and as amended in the form attached
hereto as Appendix A, and may be certified as the Certificate of
Incorporation of the Surviving Corporation until duly amended in
accordance with the provisions thereof and applicable law. Article I
shall be amended to read as follows:

The name of this Corporation is Troy Group, Inc. (the "Corporation").

2.2 BYLAWS. The Bylaws of Troy Group in effect on the Effective Date shall
continue to be the Bylaws of the Surviving Corporation without change or
amendment until further amended in accordance with the provisions thereof
and applicable law.

2.3 DIRECTORS. The directors of Troy Group immediately preceding the Effective
Date shall continue to be the directors of the Surviving Corporation on
and after the Effective Date to serve until their successors are duly
elected and qualified.

2.4 OFFICERS. The officers of Troy Group immediately preceding the
Effective Date shall continue to be the officers of the Surviving
Corporation on and after the Effective Date to serve until their
successors are duly elected and qualified.

ARTICLE
3.
MISCELLANEOUS

3.1 FURTHER ASSURANCES. From time to time and when required by the Surviving
Corporation or by its successors and assigns there shall be executed and
delivered on behalf of Troy Systems such deeds and other instruments and
there shall be taken or caused to be taken by it such further and other
action as shall be appropriate or necessary in order to vest or perfect in
or to confirm of record or otherwise, in the Surviving Corporation the
title to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of Troy Systems
and otherwise to carry out the purposes of this Merger Agreement, and the
officers and directors of the Surviving Corporation are fully authorized
in the name and on behalf of Troy Systems or otherwise to take any and all
such action and to execute and deliver any and all such deeds and other
instruments.

3
<PAGE>

3.2 AMENDMENT. At any time before the date of filing, this Merger Agreement
may be amended in any manner (except that any of the principal terms may
not be amended without the approval of the shareholders of Troy Systems
if such amendment would in the sole discretion of the Boards of
Directors of Troy Systems have a material adverse effect on the rights
of such shareholders) as may be determined in the judgment of the
respective Boards of Directors of Troy Systems and Troy Group to be
necessary, desirable or expedient in order to clarify the intention of
the parties hereto or to effect or facilitate the purpose and intent of
this Merger Agreement.

3.3 CONDITIONS OF MERGER. The respective obligations of the Constituent
Corporations to effect the transactions contemplated hereby is subject
to satisfaction of the following conditions (any or all of which may be
waived by either of the Constituent Corporations in its sole discretion
to the extent permitted by law):

(a) The Merger shall have been approved by the shareholders of Troy
Systems in accordance with the California General Corporation Law;

(b) The sole shareholder of Troy Group shall have approved the Merger in
accordance with the Delaware General Corporation Law; and

(c) Any and all consents, permits, authorizations, approvals and orders
deemed in the sole discretion of Troy Systems to be material to
consummation of the Merger shall have been obtained.

3.4 ABANDONMENT OR DEFERRAL. At any time before the date of filing, this
Merger Agreement may be terminated and the Merger may be abandoned by
the Board of Directors of either or both of the Constituent Corporations
notwithstanding the approval of this Merger Agreement by the
shareholders of Troy Systems and Troy Group, or the consummation of the
Merger may be deferred for a reasonable period of time if, in the
opinion of the Boards of Directors of the Constituent Corporations, such
action would be in the best interest of such Corporations. This Merger
Agreement may be terminated at any time by the Board of Directors of
Troy Systems in the event that the number of shares as to which
shareholders have properly exercised their rights under Section 1110 of
the California General Corporation Law is such that it is impracticable,
in the sole judgment and discretion of such Board of Directors, to
proceed with the consummation of the Merger. In the event of
termination of this Merger Agreement, this Merger Agreement shall become
void and of no effect and there shall be no liability on the part of
either Constituent Corporation or its Board of Directors or shareholders
with respect thereto, except that Troy Systems shall pay all expenses of
the Constituent Corporations incurred in connection with the Merger.

3.5 COUNTERPARTS. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in any number of
counterparts, each of which shall be deemed to be an original.

4
<PAGE>

IN WITNESS WHEREOF, the Merger Agreement, having first been duly approved
by the Boards of Directors of Troy Systems and Troy Group, is hereby executed
on behalf of each of such corporations and attested by their respective
officers thereunto duly authorized.

ATTEST: TROY SYSTEMS, INC.,
a California corporation

By: /s/ Del Conrad By: /s/ Patrick J. Dirk
------------------------- ------------------------
Del Conrad Patrick J. Dirk
Its: Vice President of Finance Its: Chief Executive Officer
and Administration

ATTEST: TROY GROUP NEWCO, INC.,
a Delaware corporation

By: /s/ Del Conrad By: /s/ Patrick J. Dirk
------------------------- ------------------------
Del Conrad Patrick J. Dirk
Its: Chief Financial Officer Its: President and Chief Executive Officer

<PAGE>

Exhibit 5.1

[LETTERHEAD OF OPPENHEIMER WOLFF & DONNELLY LLP]

June 30, 1998

Troy Group, Inc.
2331 South Pullman Street
Santa Ana, CA 92705

Re: Registration Statement on Form S-1
File No. 333-51523

Ladies and Gentlemen:

We have acted as counsel to Troy Group, Inc., a Delaware corporation (the
"Company"), in connection with the registration by the Company of 2,530,000
shares (including 330,000 shares subject to the Underwriters' over-allotment
option) of the Company's Common Stock, $.01 par value (the "Shares"), pursuant
to the Company's Registration Statement on Form S-1, filed with the Securities
and Exchange Commission on May 1, 1998, as amended (the "Registration
Statement").

In acting as counsel for the Company and arriving at the opinions expressed
below, we have examined and relied upon originals or copies, certified or
otherwise identified to our satisfaction, of such records of the Company,
agreements and other instruments, certificates or statements of officers of the
Company, certificates of public officials and other documents we have deemed
necessary or appropriate as a basis for the opinions expressed herein. As to
the various questions of fact material to such opinions, we have, when relevant
facts were not independently established, relied upon officers of the Company.
In connection with our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents tendered to us as originals, the
legal capacity of natural persons and the conformity to original documents of
all documents submitted to us as certified or photostatic copies.

Based on the foregoing, and subject to the qualifications and limitations stated
herein, it is our opinion that:

1. The Company has been duly incorporated and is an existing corporation in
good standing under the laws of the State of Delaware, with corporate power
and authority to own its

<PAGE>

properties and conduct its business as described in the Prospectus and to
issue the Shares in the manner and under the terms set forth in the
Registration Statement.

2. The certificates for the Shares to be delivered as described in the
Registration Statement are in due and proper form, and when duly
countersigned by the Company's transfer agent and delivered to the
Underwriters or upon the Underwriters' order against payment of the agreed
consideration therefor, the Shares represented thereby will be duly
authorized and validly issued, fully paid and nonassessable.

We express no opinion with respect to laws other than those of the State of
Minnesota, the General Corporation Law of Delaware and the federal laws of the
United States of America, and we assume no responsibility as to the
applicability thereto, or the effect thereon, of the laws of any other
jurisdiction.

We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement, to its use as part of the Registration Statement, and to
the use of our name under the caption "LEGAL MATTERS" in the Prospectus forming
a part of the Registration Statement. Subject to the foregoing, this opinion
may be relied on by you only in connection with the transactions contemplated by
the Registration Statement and it may not be used or relied on by you or any
other person.

We are furnishing this opinion to the Company solely for its benefit in
connection with the Registration Statement as described above. It is not to be
used, circulated, quoted or otherwise referred to for any other purpose. Other
than the Company, no one is entitled to rely on this opinion.

Very truly yours,

OPPENHEIMER WOLFF & DONNELLY LLP

/s/ Oppenheimer Wolff & Donnelly LLP

<PAGE>

Exhibit 10.7

TROY GROUP, INC.
1998 STOCK INCENTIVE PLAN

1. PURPOSE OF PLAN.

The purpose of the Troy Group, Inc. 1998 Stock Incentive Plan (the
"Plan") is to advance the interests of Troy Group, Inc. (the "Company") and
its stockholders by enabling the Company and its Subsidiaries to attract and
retain persons of ability to perform services for the Company and its
Subsidiaries by providing an incentive to such individuals through equity
participation in the Company and by rewarding such individuals who contribute
to the achievement by the Company of its economic objectives.

2. DEFINITIONS.

The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:

2.1 "BOARD" means the Board of Directors of the Company.

2.2 "BROKER EXERCISE NOTICE" means a written notice pursuant to which a
Participant, upon exercise of an Option, irrevocably instructs a broker or
dealer to sell a sufficient number of shares or loan a sufficient amount of
money to pay all or a portion of the exercise price of the Option and/or any
related withholding tax obligations and remit such sums to the Company and
directs the Company to deliver stock certificates to be issued upon such
exercise directly to such broker or dealer.

2.3 "CHANGE IN CONTROL" means an event described in Section 13.1 of the
Plan.

2.4 "CODE" means the Internal Revenue Code of 1986, as amended.

2.5 "COMMITTEE" means the group of individuals administering the Plan,
as provided in Section 3 of the Plan.

2.6 "COMMON STOCK" means the common stock of the Company, $.01 par
value, or the number and kind of shares of stock or other securities into
which such common stock may be changed in accordance with Section 4.3 of the
Plan.

2.7 "DISABILITY" means the disability of the Participant such as would
entitle the Participant to receive disability income benefits pursuant to the
long-term disability plan of the Company or Subsidiary then covering the
Participant or, if no such plan exists or is applicable to the Participant,
the permanent and total disability of the Participant within the meaning of
Section 22(e)(3) of the Code.

2.8 "ELIGIBLE RECIPIENTS" means all employees of the Company or any
Subsidiary and any non-employee directors, consultants and independent
contractors of the Company or any Subsidiary.

2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

2.10 "FAIR MARKET VALUE" means, with respect to the Common Stock, as of
any date (or, if no shares were traded or quoted on such date, as of the next
preceding date on which there was such a trade or quote) (a) the mean between
the reported high and low sale prices of the Common Stock if the

<PAGE>

Common Stock is listed, admitted to unlisted trading privileges or reported
on any foreign or national securities exchange or on the Nasdaq National
Market or an equivalent foreign market on which sale prices are reported; (b)
if the Common Stock is not so listed, admitted to unlisted trading privileges
or reported, the closing bid price as reported by the Nasdaq SmallCap Market,
OTC Bulletin Board or the National Quotation Bureau, Inc. or other comparable
service; or (c) if the Common Stock is not so listed or reported, such price
as the Committee determines in good faith in the exercise of its reasonable
discretion.

2.11 "INCENTIVE AWARD" means an Option, Stock Appreciation Right,
Restricted Stock Award, Performance Unit or Stock Bonus granted to an
eligible Recipient pursuant to the Plan.

2.12 "INCENTIVE STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section 422 of
the Code.

2.13 "NON-STATUTORY STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that does
not qualify as an Incentive Stock Option.

2.14 "OPTION" means an Incentive Stock Option or a Non-Statutory Stock
Option.

2.15 "PARTICIPANT" means an Eligible Recipient who receives one or more
Options under the Plan.

2.16 "PERFORMANCE UNIT" means a right granted to an Eligible Recipient
pursuant to Section 9 of the Plan to receive a payment from the Company, in
the form of stock, cash or a combination of both, upon the achievement of
established employment, service, performance or other goals.

2.17 "PREVIOUSLY ACQUIRED SHARES" means shares of Common Stock that are
already owned by the Participant or, with respect to any Option, that are to
be issued upon the exercise of such Option.

2.18 "RESTRICTED STOCK AWARD" means an award of Common Stock granted to
an Eligible Recipient pursuant to Section 8 of the Plan that is subject to
the restrictions on transferability and the risk of forfeiture imposed by the
provisions of such Section 8.

2.19 "RETIREMENT" means termination of employment or service pursuant to
and in accordance with the regular (or, if approved by the Board for purposes
of the Plan, early) retirement/pension plan or practice of the Company or
Subsidiary then covering the Participant, provided that if the Participant is
not covered by any such plan or practice, the Participant will be deemed to
be covered by the Company's plan or practice for purposes of this
determination.

2.20 "SECURITIES ACT" means the Securities Act of 1933, as amended.

2.21 "STOCK APPRECIATION RIGHT" means a right granted to an Eligible
Recipient pursuant to Section 7 of the Plan to receive a payment from the
Company, in the form of stock, cash or a combination of both, equal to the
difference between the Fair Market Value of one or more shares of Common
Stock and the exercise price of such shares under the terms of such Stock
Appreciation Right.

2.22 "STOCK BONUS" means an award of Common Stock granted to an Eligible
Recipient pursuant to Section 10 of the Plan.

<PAGE>

2.23 "SUBSIDIARY" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a
significant equity interest, as determined by the Committee.

2.23 "TAX DATE" means the date any withholding tax obligation arises
under the Code or other applicable tax statute for a Participant with respect
to an Incentive Award.

3. PLAN ADMINISTRATION.

3.1 THE COMMITTEE. The Plan will be administered by the Board or by a
committee of the Board. So long as the Company has a class of its equity
securities registered under Section 12 of the Exchange Act, any committee
administering the Plan will consist solely of two or more members of the
Board who are "non-employee directors" within the meaning of Rule 16b-3 under
the Exchange Act and, if the Board so determines in its sole discretion, who
are "outside directors" within the meaning of Section 162(m) of the Code.
Such a committee, if established, will act by majority approval of the
members (but may also take action with the written consent of all of the
members of such committee), and a majority of the members of such a committee
will constitute a quorum. As used in the Plan, "Committee" will refer to the
Board or to such a committee, if established. To the extent consistent with
corporate law, the Committee may delegate to any officers of the Company the
duties, power and authority of the Committee under the Plan pursuant to such
conditions or limitations as the Committee may establish; provided, however,
that only the Committee may exercise such duties, power and authority with
respect to Eligible Recipients who are subject to Section 16 of the Exchange
Act. The Committee may exercise its duties, power and authority under the
Plan in its sole and absolute discretion without the consent of any
Participant or other party, unless the Plan specifically provides otherwise.
Each determination, interpretation or other action made or taken by the
Committee pursuant to the provisions of the Plan will be final, conclusive
and binding for all purposes and on all persons, including, without
limitation, the Company, the shareholders of the Company, the participants
and their respective successors-in-interest. No member of the Committee will
be liable for any action or determination made in good faith with respect to
the Plan or any Incentive Award granted under the Plan.

3.2 AUTHORITY OF THE COMMITTEE.

(a) In accordance with and subject to the provisions of the Plan, the
Committee will have the authority to determine all provisions of Incentive
Awards as the Committee may deem necessary or desirable and as consistent
with the terms of the Plan, including, without limitation, the following:
(i) the Eligible Recipients to be selected as Participants; (ii) the nature
and extent of the Incentive Awards to be made to each Participant
(including the number of shares of Common Stock to be subject to each
Incentive Award, the exercise price and the manner in which Incentive
Awards will become exercisable) and the form of written agreement, if any,
evidencing such Incentive Award; (iii) the time or times when Incentive
Awards will be granted; (iv) the duration of each Incentive Award; and
(v) the restrictions and other conditions to which the Incentive Awards
may be subject. In addition, the Committee will have the authority under
the Plan in its sole discretion to pay the economic value of any Incentive
Award in the form of cash, Common Stock or any combination of both.

(b) The Committee will have the authority under the Plan to amend or
modify the terms of any outstanding Incentive Award in any manner,
including, without limitation, the authority to modify the number of shares
or other terms and conditions of an Incentive Award, extend the term of an
Incentive Award, accelerate the exercisability or otherwise terminate any
restrictions relating to an Incentive Award, accept the surrender of any
outstanding Incentive Award or, to the extent not previously exercised or
vested, authorize the grant of new Incentive Awards in substitution for
surrendered Incentive Awards; provided, however that the amended or

<PAGE>

modified terms are permitted by the Plan as then in effect and that any
Participant adversely affected by such amended or modified terms has
consented to such amendment or modification. No amendment or modification
to an Incentive Award, however, whether pursuant to this Section 3.2 or any
other provisions of the Plan, will be deemed to be re-grant of such
Incentive Award for purposes of this Plan.

(c) In the event of (i) any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock
split, combination of shares, rights offering, extraordinary dividend or
divestiture (including a spin-off) or any other change in corporate
structure or shares, (ii) any purchase, acquisition, sale or disposition of
a significant amount of assets or a significant business, (iii) any change
in accounting principles or practices, or (iv) any other similar change, in
each case with respect to the Company or any other entity whose performance
is relevant to the grant or vesting of an Incentive Award, the Committee
(or, if the Company is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation) may,
without the consent of any affected Participant, amend or modify the
conditions to the exercisability of any outstanding Incentive Award that
is based in whole or in part on the financial performance of the Company
(or any Subsidiary or division thereof) or such other entity so as
equitably to reflect such event, with the desired result that the criteria
for evaluating such financial performance of the Company or such other
entity will be substantially the same (in the sole discretion of the
Committee or the board of directors of the surviving corporation)
following such event as prior to such event; provided, however, that the
amended or modified terms are permitted by the Plan as then in effect.

4. SHARES AVAILABLE FOR ISSUANCE.

4.1 MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as
provided in Section 4.3 of the Plan, the maximum number of shares of Common
Stock that will be available for issuance under the Plan will be 1,200,000
shares of Common Stock, plus any shares of Common Stock which, as of the date
the Plan is approved by the stockholders of the Company, are reserved for
issuance under the Company's 1996 Stock Option Plan and which are not
thereafter issued or which have been issued but are subsequently forfeited
and which would otherwise have been available for further issuance under such
plan. Shares available for issuance may either be authorized but unissued
shares or shares held by the Company in its treasury. Notwithstanding any
other provisions of the Plan to the contrary, no Participant in the Plan may
be granted any Options or Stock Appreciation Rights, or any other Incentive
Awards with a value based solely on an increase in the value of the Common
Stock after the date of grant, relating to more than 200,000 shares of Common
Stock in the aggregate in any fiscal year of the Company (subject to
adjustment as provided in Section 4.3 of the Plan); provided, however, that a
Participant who is first appointed or elected as an officer, hired as an
employee or retained as a consultant by the Company or who receives a
promotion that results in an increase in responsibilities or duties may be
granted, during the fiscal year of such appointment, election, hiring,
retention or promotion, Options, Stock Appreciation Rights or such other
Incentive Awards relating to up to 300,000 shares of Common Stock (subject to
adjustment as provided in Section 4.3 of the Plan).

4.2 ACCOUNTING FOR INCENTIVE AWARDS. Shares of Common Stock that are
issued under the Plan or that are subject to outstanding Incentive Awards
will be applied to reduce the maximum number of shares of Common Stock
remaining available for issuance under the Plan. Any shares of Common Stock
that are subject to an Incentive Award that lapses, expires, is forfeited or
for any reason is terminated unexercised and any shares of Common Stock that
are subject to an Incentive Award that is settled or paid in cash or any form
other than shares of Common Stock will automatically again become available
for issuance under the Plan. Any shares of Common Stock that constitute the
forfeited portion of a Restricted Stock Award, however, will not become
available for further issuance under the Plan.

<PAGE>

4.3 ADJUSTMENTS TO SHARES AND INCENTIVE AWARDS. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend (including a spin-off) or any
other change in the corporate structure or shares of the Company, the
Committee (or, if the Company is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation) will make
appropriate adjustment (which determination will be conclusive) as to the
number and kind of securities or other property (including cash) available
for issuance or payment under the Plan and, in order to prevent dilution or
enlargement of the rights of Participants (a) the number and kind of
securities or other property (including cash) subject to outstanding
Incentive Awards, and (b) where applicable, the exercise price of outstanding
Incentive Awards.

5. PARTICIPATION.

Participants in the Plan will be those Eligible Recipients who, in the
judgment of the Committee, have contributed, are contributing or are expected
to contribute to the achievement of economic objectives of the Company or its
Subsidiaries. Eligible Recipients may be granted from time to time one or
more Incentive Awards as may be determined by the Committee in its sole
discretion. Incentive Awards will be deemed to be granted as of the date
specified in the grant resolution of the Committee, which date will be the
date of any related agreement with the Participant.

6. OPTIONS.

6.1 GRANT. An Eligible Recipient may be granted one or more Options
under the Plan, and such Options will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion. The Committee may
designate whether an Option is to be considered an Incentive Stock Option or
a Non-Statutory Stock Option. To the extent that any Incentive Stock Option
granted under the Plan ceases for any reason to qualify as an "incentive
stock option" for purposes of Section 422 of the Code, such Incentive Stock
Option will continue to be outstanding for purposes of the Plan but will
thereafter be deemed to be a Non-Statutory Stock Option.

6.2 EXERCISE PRICE. The per share price to be paid by a Participant
upon exercise of an Option will be determined by the Committee in its
discretion at the time of the Option grant; provided, however, that (a) such
price will not be less than 100% of the Fair Market Value of one share of
Common Stock on the date of grant with respect to an Incentive Stock Option
(110% of the Fair Market Value if, at the time the Incentive Stock Option is
granted, the Participant owns, directly or indirectly, more than 10% of the
total combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation of the Company), and (b) such price will not
be less than 85% of the Fair Market Value of one share of Common Stock on the
date of grant with respect to a Non-Statutory Stock Option.

6.3 EXERCISABILITY AND DURATION. An Option will become exercisable at
such times and in such installments as may be determined by the Committee in
its sole discretion at the time of grant; provided, however, that no Option
may be exercisable prior to three months from its date of grant (other than
in connection with a Participant's death or Disability) and no Incentive
Stock Option may be exercisable after 10 years from its date of grant (five
years from its date of grant if, at the time the Incentive Stock Option is
granted, the Participant owns, directly or indirectly, more than 10% of the
total combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation of the Company).

<PAGE>

6.4 PAYMENT OF EXERCISE PRICE. The total purchase price of the shares
to be purchased upon exercise of an Option must be paid entirely in cash
(including check, bank draft or money order); provided, however, that the
Committee, in its sole discretion and upon terms and conditions established
by the Committee, may allow such payments to be made, in whole or in part, by
tender of a Broker Exercise Notice, Previously Acquired Shares, a promissory
note (on terms acceptable to the Committee in its sole discretion) or by a
combination of such methods.

6.5 MANNER OF EXERCISE. An Option may be exercised by a Participant in
whole or in part from time to time, subject to the conditions contained in
the Plan and in the agreement evidencing such Option, by delivery in person,
by facsimile or electronic transmission or through the mail of written notice
of exercise to the Company (Attention: Chief Financial Officer) at its
principal executive office in Santa Ana, California and by paying in full the
total exercise price for the shares of Common Stock to be purchased in
accordance with Section 6.4 of the Plan.

6.6 AGGREGATE LIMITATION OF STOCK SUBJECT TO INCENTIVE STOCK OPTIONS.
To the extent that the aggregate Fair Market Value (determined as of the date
an Incentive Stock Option is granted) of the shares of Common Stock with
respect to which incentive stock options (within the meaning of Section 422
of the Code) are exercisable for the first time by a Participant during any
calendar year (under the Plan and any other incentive stock option plans of
the Company or any subsidiary or parent corporation of the Company (within
the meaning of the Code)) exceeds $100,000 (or such other amount as may be
prescribed by the Code from time to time), such excess Options will be
treated as Non-Statutory Stock Options. The determination will be made by
taking incentive stock options into account in the order in which they were
granted. If such excess only applies to a portion of an Incentive Stock
Option, the Committee, in its discretion, will designate which shares will be
treated as shares to be acquired upon exercise of an Incentive Stock Option.

7. STOCK APPRECIATION RIGHTS

7.1 GRANT. An Eligible Recipient may be granted one or more Stock
Appreciation Rights under the Plan, and such Stock Appreciation Rights will
be subject to such terms and conditions, consistent with the other provisions
of the Plan, as may be determined by the Committee in its sole discretion.

7.2 EXERCISE PRICE. The exercise price of a Stock appreciation Right
will be determined by the Committee, in its discretion, at the date of grant
but may not be less than 100% of the Fair Market Value of one share of Common
Stock on the date of grant.

7.3 EXERCISABILITY AND DURATION. A Stock Appreciation Right will
become exercisable at such time and in such installments as may be determined
by the Committee in its sole discretion at the time of grant; provided,
however, that no Stock Appreciation Right may be exercisable prior to three
months from its date of grant (other than in connection with a Participant's
death or disability) or after 10 years from its date of grant. A Stock
Appreciation Right will be exercised by giving notice in the same manner as
for Options, as set forth in Section 6.5 of the Plan.

8. RESTRICTED STOCK AWARDS.

8.1 GRANT. An Eligible Recipient may be granted one or more Restricted
Stock Awards under the Plan, and such Restricted Stock Awards will be subject
to such terms and conditions, consistent with the other provisions of the
Plan, as may be determined by the Committee in its sole discretion. The
Committee may impose such restrictions or conditions, not inconsistent with
the provisions of the Plan, to the vesting of such Restricted Stock Awards as
it deems appropriate, including,

<PAGE>

without limitation, that the Participant remain in the continuous employ or
service of the Company or a Subsidiary for a certain period or that the
Participant or the Company (or any Subsidiary or division thereof) satisfy
certain performance goals or criteria.

8.2 RIGHTS AS A STOCKHOLDER; TRANSFERABILITY. Except as provided in
Sections 8.1, 8.3 and 14.2 of the Plan, a Participant will have all voting,
dividend, liquidation and other rights with respect to shares of Common Stock
issued to the Participant as a Restricted Stock Award under this Section 8
upon the Participant becoming the holder of record of such shares as if such
Participant were a holder of record of shares of unrestricted Common Stock.

8.3 DIVIDENDS AND DISTRIBUTIONS. Unless the Committee determines
otherwise in its sole discretion (either in the agreement evidencing the
Restricted Stock Award at the time of grant or at any time after the grant of
the Restricted Stock Award), any dividends or distributions (including
regular quarterly cash dividends) paid with respect to shares of Common Stock
subject to the unvested portion of a Restricted Stock Award will be subject
to the same restrictions as the shares to which such dividends or
distributions relate. In the event the Committee determines not to pay such
dividends or distributions currently, the Committee will determine in its
sole discretion whether any interest will be paid on such dividends or
distributions. In addition, the Committee in its sole discretion may require
such dividends and distributions to be reinvested (and in such case the
Participants consent to such reinvestment) in shares of Common Stock that
will be subject to the same restrictions as the shares to which such
dividends or distributions relate.

8.4 ENFORCEMENT OF RESTRICTIONS. To enforce the restrictions referred
to in this Section 8, the Committee may place a legend on the stock
certificates referring to such restrictions and may require the Participant,
until the restrictions have lapsed, to keep the stock certificates, together
with duly endorsed stock powers, in the custody of the Company or its
transfer agent or to maintain evidence of stock ownership, together with duly
endorsed stock powers, in a certificateless book-entry stock account with the
Company's transfer agent.

9. PERFORMANCE UNITS.

An Eligible Recipient may be granted one or more Performance Units under
the Plan, and such Performance Units will be subject to such terms and
conditions, consistent with the other provisions of the Plan, as may be
determined by the Committee in its sole discretion. The Committee may impose
such restrictions or conditions not inconsistent with the provisions of the
Plan, to the vesting of such Performance Units as it deems appropriate,
including, without limitation, that the Participant remain in the continuous
employ or service of the Company or any Subsidiary for a certain period or
that the Participant or the Company for any subsidiary or division thereof)
satisfy certain performance goals or criteria. The Committee will have the
sole discretion to determine the form in which payment of the economic value
of vested Performance Units will be made to the Participant (i.e., cash,
Common Stock or any combination thereof) or to consent to or disapprove the
election by the Participant of the form of such payment.

10. STOCK BONUSES.

An Eligible Recipient may be granted one or more Stock Bonuses under the
Plan, and such Stock Bonuses will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee. The Participant will have all voting, dividend, liquidation and
other rights with respect to the shares of Common Stock issued to a
Participant as a Stock Bonus under this Section 10 upon the Participant
becoming the holder of record of such shares; provided, however,

<PAGE>

that the Committee may impose such restrictions on the assignment or transfer
of a Stock Bonus as it deems appropriate.

EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE.

11.1 TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. In the event a
Participant's employment or other service with the Company and all
Subsidiaries is terminated by reason of death, Disability or Retirement:

(a) All outstanding Options and Stock Appreciation Rights then held
by the Participant will remain exercisable, to the extent exercisable as
of the date of such termination, for a period of one year after such
termination (but in no event after the expiration date of any such Option
or Stock Appreciation Right);

(b) All Restricted Stock Awards then held by the Participant that
have not vested will be terminated and forfeited; and

(c) All Performance Units and Stock Bonuses then held by the
Participant will vest and/or continue to vest in the manner determined by
the Committee and set forth in the agreement evidencing such Performance
Units or Stock Bonuses.

11.2 TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR RETIREMENT.

(a) Unless otherwise provided by the Committee in its sole discretion
in the agreement evidencing an Incentive Award, in the event a
Participant's employment or other service is terminated with the Company
and all Subsidiaries for any reason other than death, Disability or
Retirement, or a Participant is in the employ or service of a Subsidiary
and the Subsidiary ceases to be a Subsidiary of the Company (unless the
Participant continues in the employ or service of the Company or another
Subsidiary), all rights of the Participant under the Plan and any
agreements evidencing an Incentive Award will immediately terminate without
notice of any kind, and no Options or Stock Appreciation Rights then held
by the Participant will thereafter be exercisable, all Restricted Stock
Awards then held by the Participant that have not vested will be terminated
and forfeited and all Performance Units and Stock Bonuses then held by the
Participant will vest and/or continue to vest in the manner determined by
the Committee set forth in the agreement evidencing the Performance Units
or Stock Bonuses; provided, however, that if such termination is due to any
reason other than termination by the Company or any Subsidiary for "cause,"
all outstanding Options or Stock Appreciation Rights then held by such
Participant will remain exercisable, to the extent exercisable as of such
termination, for a period of three months after such termination (but in no
event after the expiration date of any such Option or Stock Appreciation
Rights).

(b) For purposes of this Section 11.2, "cause" (as determined by the
Committee) will be as defined in any employment or other agreement or
policy applicable to the Participant or, if no such agreement or policy
exists, will mean (i) dishonesty, fraud, misrepresentation, embezzlement
or deliberate injury or attempted injury, in each case related to the
Company or any Subsidiary, (ii) any unlawful or criminal activity of a
serious nature, (iii) any intentional and deliberate breach of a duty or
duties that, individually or in the aggregate, are material in relation to
the Participant's overall duties, or (iv) any material breach of any
employment, service, confidentiality or non-compete agreement entered into
with the Company or any Subsidiary.

<PAGE>

11.3 MODIFICATION OF RIGHTS UPON TERMINATION. Notwithstanding the other
provisions of this Section 11, upon a Participant's termination of employment
or other service with the Company and all Subsidiaries, the Committee may, in
its sole discretion (which may be exercised at any time on or after the date
of grant, including following such termination), cause Options and Stock
Appreciation Rights (or any part thereof) then held by such Participant to
become or continue to become exercisable and/or remain exercisable following
such termination of employment or service and Restricted Stock Awards,
Performance Units and Stock Bonuses then held by such Participant to vest
and/or continue to vest or become free of transfer restrictions, as the case
may be, following such termination of employment or service in each case in
the manner determined by the Committee; provided, however, that no Option may
become exercisable prior to three months from its date of grant (other than
in connection with a Participant's death or Disability) or remain exercisable
beyond its expiration date.

11.4 EXERCISE OF INCENTIVE STOCK OPTIONS FOLLOWING TERMINATION. Any
Incentive Stock Option that remains unexercised more than one year following
termination of employment by reason of Disability or more than three months
following termination for any reason other than death or Disability will
thereafter be deemed to be a Non-Statutory Stock Option.

11.5 DATE OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE. Unless the
Committee otherwise determines in its sole discretion, a Participant's
employment or other service will, for purposes of the Plan, be deemed to have
terminated on the date recorded on the personnel or other records of the
Company or the Subsidiary for which the Participant provides employment or
other service, as determined by the Committee in its sole discretion based
upon such records.

12. PAYMENT OF WITHHOLDING TAXES.

12.1 GENERAL RULES. The Company is entitled to (a) withhold and deduct
from future wages of the Participant (or from other amounts that may be due
and owing to the Participant from the Company or a Subsidiary), or make other
arrangements for the collection of, all legally required amounts necessary to
satisfy any and all foreign, federal, state and local withholding and
employment-related tax requirements attributable to an Incentive Award,
including, without limitation, the grant or exercise of an Incentive Award or
a disqualifying disposition of stock received upon exercise of an Incentive
Stock Option, or (b) require the Participant promptly to remit the amount of
such withholding to the Company before taking any action, including issuing
any shares of Common Stock, with respect to an Incentive Award.

12.2 SPECIAL RULES. The Committee may, in its sole discretion and upon
terms and conditions established by the Committee, permit or require a
Participant to satisfy, in whole or in part, any withholding or
employment-related tax obligation described in Section 12.1 of the Plan by
electing to tender Previously Acquired Shares, a Broker Exercise Notice or a
promissory note (on terms acceptable to the Committee in its sole
discretion), or by a combination of such methods.

13. CHANGE IN CONTROL.

13.1 CHANGE IN CONTROL. For purposes of this Section 13, a "Change in
Control" of the Company will mean any of the following:

(a) 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;

<PAGE>

(b) the approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company;

(c) any person becomes after the effective date of the Plan the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of (i) 20% or more, but less than 50%, 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 (as defined in Section 13.2 below), or (ii) 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);

(d) 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 (i) less than 80%, but more than 50%, 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
(ii) 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); or

(e) the Continuity Directors cease for any reason to constitute at
least a majority of the Board.

Notwithstanding anything in this Section 13.1 to the contrary, the
transfer by a Dirk Stockholder (as defined below) of shares of Common Stock
or rights to acquire shares of Common Stock to the following persons or
entities, without consideration in money or money's worth (such as by gift,
bequest or devise), and the exercise or conversion of any such transferred
rights to acquire shares, will not, in and of itself, be deemed to constitute
a Change in Control for purposes of this Section 13: (i) transfers to any
spouse, child, heir, legate or successor of such Dirk Stockholder; (ii)
transfers to any trust created for the benefit of such Dirk Stockholder or
any such spouse, child, heir, legate or successor, and amendments of or
distributions from any such trust; or (iii) transfers to any other Dirk
Stockholder. A "Dirk Stockholder" will mean Patrick J. Dirk, Mary J. Dirk,
Brian P. Dirk, Suzanne M. Anderson, Kristine L. Gigerich, Lorrie A. Brown,
The Dirk 1997 Education Trust, The Dirk Family Trust UTD March 6, 1990 or The
Dirk 1998 Alaska Trust.

13.2 CONTINUITY DIRECTORS. For purposes of this Section 13, "Continuity
Directors" of the Company will mean any individuals who are members of the
Board on the effective date of the Plan and any individual who subsequently
becomes a member of the Board whose election, or nomination for election by
the Company's shareholders, 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).

13.3 ACCELERATION OF EXERCISABILITY. Without limiting the authority of
the Committee under Sections 3.2 and 4.3 of the Plan, if a Change in Control
of the Company occurs, then, unless otherwise provided by the Committee in
its sole discretion either in the agreement evidencing an Incentive Award at
the time of grant or at any time after the grant of an Incentive Award, (a)
all Options and Stock Appreciation Rights that have been outstanding for at
least three months will become immediately exercisable in full and will
remain exercisable for the remainder of their terms, regardless of whether
the

<PAGE>

Participant to whom such Options or Stock Appreciation Rights have been
granted remains in the employ or service of the Company or any Subsidiary;
(b) all outstanding Restricted Stock Awards will become immediately fully
vested and non-forfeitable; and (c) all outstanding Performance Units and
Stock Bonuses then held by the Participant will vest and/or continue to vest
in the manner determined by the Committee and set forth in the agreement
evidencing such Performance Units or Stock Bonuses.

13.4 CASH PAYMENT. If a Change in Control of the Company occurs, then
the Committee, if approved by the Committee in its sole discretion either in
an agreement evidencing an Incentive Award at the time of grant or at any
time after the grant of an Incentive Award, and without the consent of any
Participant effected thereby, may determine that some or all Participants
holding outstanding Options will receive, with respect to some or all of the
shares of Common Stock subject to such Options, as of the effective date of
any such Change in Control of the Company, cash in an amount equal to the
excess of the Fair Market Value of such shares immediately prior to the
effective date of such Change in Control of the Company over the exercise
price per share of such Options.

13.5 LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding anything
in Section 13.3 or 13.4 of the Plan to the contrary, if, with respect to a
Participant, the acceleration of the exercisability of an Incentive Award as
provided in Section 13.3 or the payment of cash in exchange for all or part
of an Incentive Award as provided in Section 13.4 (which acceleration or
payment could be deemed a "payment" within the meaning of Section 280G(b)(2)
of the Code), together with any other "payments" that such Participant has
the right to receive from the Company or any corporation that is a member of
an "affiliated group" (as defined in Section 1504(a) of the Code without
regard to Section 1504(b) of the Code) of which the Company is a member,
would constitute a "parachute payment" (as defined in Section 280G(b)(2) of
the Code), then the "payments" to such Participant pursuant to Section 13.3
or 13.4 of the Plan will be reduced to the largest amount as will result in
no portion of such "payments" being subject to the excise tax imposed by
Section 4999 of the Code; provided, however, that if a Participant is subject
to a separate agreement with the Company or a Subsidiary that expressly
addresses the potential application of Sections 280G or 4999 of the Code
(including, without limitation, that "payments" under such agreement or
otherwise will be reduced, that the Participant will have the discretion to
determine which "payments" will be reduced, that such "payments" will not be
reduced or that such "payments" will be "grossed up" for tax purposes), then
this Section 13.5 will not apply, and any "payments" to a Participant
pursuant to Section 13.3 or 13.4 of the Plan will be treated as "payments"
arising under such separate agreement.

14. RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS; TRANSFERABILITY.

14.1 EMPLOYMENT OR SERVICE. Nothing in the Plan will interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of any Eligible Recipient or Participant at any time,
nor confer upon any Eligible Recipient or Participant any right to continue
in the employ or service of the Company or any Subsidiary.

14.2 RIGHTS AS A STOCKHOLDER. As a holder of Incentive Awards (other
than Restricted Stock Awards and Stock Bonuses), a Participant will have no
rights as a shareholder unless and until such Incentive Awards are exercised
for, or paid in the form of, shares of Common Stock and the Participant
becomes the holder of record of such shares. Except as otherwise provided in
the Plan, no adjustment will be made for dividends or distributions with
respect to such Incentive Awards as to which there is a record date preceding
the date the Participant becomes the holder of record of such shares, except
as the Committee may determine in its discretion.

14.3 RESTRICTIONS ON TRANSFER. Except pursuant to testamentary will or
the laws of descent and distribution or as otherwise expressly permitted by
the Plan, unless approved by the Committee in its

<PAGE>

sole discretion, no right or interest of any Participant in an Incentive
Award prior to the exercise of such Incentive Award will be assignable or
transferable, or subjected to any lien, during the lifetime of the
Participant, either voluntarily or involuntarily, directly or indirectly, by
operation of law or otherwise. A Participant will, however, be entitled to
designate a beneficiary to receive an Incentive Award upon such Participant's
death, and in the event of a Participant's death, payment of any amounts due
under the Plan will be made to, and exercise of Options (to the extent
permitted pursuant to Section 11 of the Plan) may be made by, the
Participant's legal representatives, heirs and legatees.

14.4 BREACH OF CONFIDENTIALITY OR NON-COMPETE AGREEMENTS.
Notwithstanding anything in the Plan to the contrary, in the event that a
Participant materially breaches the terms of any confidentiality or
non-compete agreement entered into with the Company or any Subsidiary,
whether such breach occurs before or after termination of such Participant's
employment or other service with the Company or any Subsidiary, the Committee
in its sole discretion may immediately terminate all rights of the
Participant under the Plan and any agreements evidencing an Incentive Award
then held by the Participant without notice of any kind. In such event, the
Committee will also have the authority in its sole discretion to rescind the
exercise or vesting of any Incentive Awards of the Participant that has
occurred since a date commencing six months prior to the date of such
employment or service termination and require the Participant to disgorge any
profits (however defined by the Committee) made by the Participant relating
to such Incentive Awards or any shares issuable upon the exercise or vesting
of such Incentive Awards.

14.5 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to modify or rescind any previously approved compensation plans or
programs of the Company or create any limitations on the power or authority
of the Board to adopt such additional or other compensation arrangements as
the Board may deem necessary or desirable.

15. SECURITIES LAW AND OTHER RESTRICTIONS.

Notwithstanding any other provision of the Plan or any agreements
entered into pursuant to the Plan, the Company will not be required to issue
any shares of Common Stock under this Plan, and a Participant may not sell,
assign, transfer or otherwise dispose of shares of Common Stock issued
pursuant to Incentive Awards granted under the Plan, unless (a) there is in
effect with respect to such shares a registration statement under the
Securities Act and any applicable state or foreign securities laws or an
exemption from such registration under the Securities Act and applicable
state or foreign securities laws, and (b) there has been obtained any other
consent, approval or permit from any other regulatory body which the
Committee, in its sole discretion, deems necessary or advisable. The Company
may condition such issuance, sale or transfer upon the receipt of any
representations or agreements from the parties involved, and the placement of
any legends on certificates representing shares of Common Stock, as may be
deemed necessary or advisable by the Company in order to comply with such
securities law or other restrictions.

16. PLAN AMENDMENT, MODIFICATION AND TERMINATION.

The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the
Board may deem advisable in order that Incentive Awards under the Plan will
conform to any change in applicable laws or regulations or in any other
respect the Board may deem to be in the best interests of the Company;
provided, however, that no amendments to the Plan will be effective without
approval of the shareholders of the Company if shareholder approval of the
amendment is then required pursuant to Section 422 of the Code or the rules
of any stock exchange or Nasdaq or similar regulatory body. No termination,
suspension or amendment of the Plan may adversely affect any outstanding
Incentive Award without the consent of the affected

<PAGE>

Participant; provided, however, that this sentence will not impair the right
of the Committee to take whatever action it deems appropriate under Sections
3.2, 4.3 and 13 of the Plan.

17. EFFECTIVE DATE AND DURATION OF THE PLAN.

The Plan is effective as of June 1, 1998. The Plan will terminate at
midnight on June 1, 2008, and may be terminated prior to such time to by
Board action, and no Incentive Award will be granted after such termination.
Incentive Awards outstanding upon termination of the Plan may continue to be
exercised in accordance with their terms.

18. MISCELLANEOUS.

18.1 GOVERNING LAW. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in
accordance with the laws of the State of Delaware, notwithstanding the
conflicts of laws principles of any jurisdictions.

18.2 SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and the
Participants.

<PAGE>

EXHIBIT 10.12

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.

(b) "CHANGE IN CONTROL" means any of the following:

<PAGE>

(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) any person becomes after the effective date of the Plan the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of (i) 20% or more, but less than 50%, 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 (as defined in Section 13.2
below), or (ii) 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);

(4) 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 (i) less than 80%, but more than
50%, 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 (ii) 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); or

(5) the Continuity Directors cease for any reason to constitute
at least a majority of the Board.

Notwithstanding anything in this Section b to the contrary, the
transfer by a Dirk Stockholder (as defined below) of shares of Common
Stock or rights to acquire shares of Common Stock to the following
persons or entities, without consideration in money or money's worth
(such as by gift, bequest or devise), and the exercise or conversion
of any such transferred rights to acquire shares, will not, in and of
itself, be deemed to constitute a Change in Control for purposes of
this Section 13: (i) transfers to any spouse, child, heir, legate or
successor of such Dirk Stockholder; (ii) transfers to any trust
created for the benefit of such Dirk Stockholder or any such spouse,
child, heir, legate or successor, and amendments of or distributions
from any such trust; or (iii) transfers to any other Dirk Stockholder.
A "Dirk Stockholder" will mean Patrick J. Dirk, Mary J. Dirk, Brian P.
Dirk, Suzanne M. Anderson, Kristine L. Gigerich, Lorrie A. Brown, The
Dirk 1997 Education Trust, The Dirk Family Trust UTD March 6, 1990 or
The Dirk 1998 Alaska Trust.

(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.

2
<PAGE>

(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.

(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 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
<PAGE>

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 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

4
<PAGE>

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 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 Chief Executive Officer or Secretary of the
Company will promptly advise the Board in writing that the Indemnitee has
requested indemnification.

(b) 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:

5
<PAGE>

(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 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.

6
<PAGE>

(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.

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

7
<PAGE>

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
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.

(e) 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.

(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

<PAGE>
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

[Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment under Rule 406 of the Securities Act of 1933, as
amended. A copy of this Exhibit with the portions included has been filed
with the Securities and Exchange Commission.]

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 /trust) 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

3
<PAGE>

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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<PAGE>

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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<PAGE>

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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<PAGE>

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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<PAGE>

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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<PAGE>

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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<PAGE>

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

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<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

[Portions of this Exhibit A have been omitted pursuant to a request for
confidential treatment under Rule 406 of the Securities Act of 1933, as
amended. A copy of the Agreement with this Exhibit A intact has been filed
separately with the Securities and Exchange Commission]

Product Discount Schedule: Schedule A Schedule B Schedule C Schedule D
___% ___% ___% ________

Approved Product List:

- --------------------------------------------------------------------------------------------------
Discount Schedule Product Schedule Product Description Product Price List
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A C2037A #ABA LJ 4 Plus 120 volt CPL
A C2037A #ABB LJ 4 Plus 220 volt CPL
C C3130A 1 Mbyte SIMM CPL
C C3131A 2 Mbyte SIMM CPL
C C3132A 4 Mbyte SIMM CPL
C C3133A 8 Mbyte Simm CPL
C C3146A 16 Mbyte Simm CPL
C C3129A #ABA LJ 4 Plus PS SIMM CPL
C C2082B LJ 4 Plus Envelope Feeder CPL
C C2083D 500 sheet tray & assembly CPL
C C2084C 500 sheet tray CPL
C C2084D 500 sheet repl. tray CPL
C C2085D 250 sheet repl. tray CPL
C C2085E 250 sheet repl. tray CPL
C C2085F 250 sheet repl. tray CPL
C* 92298X MICR Toner $________
D* 36595A #115 2MB OTP SIMM Custom SIMM
B C3150A #ABA LJ 5P 120 volt CPL
B C3150A #ABB LJ 6P 220 volt CPL
B C3141A #ABA LJ 4V 120 volt CPL
B C3141A #ABB LJ 4V 220 volt CPL
B C3916A #ABA LJ 5 120 volt CPL
B C3916A #ABB LJ 5 220 volt CPL
B C3980A #ABA LJ 6P 120 volt CPL
B C3980A #ABB LJ 6P 220 volt CPL
B C3982A #ABA LJ 6MP 120 volt CPL
B C3982A #ABB LJ 6MP 220 volt CPL
B C3166A #ABA LJ 5SI 120 volt CPL
B C3166A #ABA LJ 5Si 220 volt CPL
C J2550A #ABA JetDirect/10BaseT CPL
C J2552A #ABA JetDirect/10BaseT, BNC, LocalTalk CPL
C C3903A LaserJet 5P Toner CPL
C 92291A LaserJet 4Si Toner CPL
C C3909A LaserJet 5Si Toner CPL
C C3909A LaserJet 5Si Toner CPL
C C2975A Printer Cabinet CPL
C C3762A Duplex Unit CPL
C C3763A 2,000-Sheet Input Tray CPL
C C3764A Multi-Bin Mailbox CPL
C C3765A Envelope Feeder CPL
C C3768A Paper-handling controller board CPL
C C2965A 420-Mbyte disk drive CPL
C C3920A Duplex-LJ5/5M/5N CPL
C C3921A 500-sht fdr-LJ5/SM/5N CPL
C C3927A Envelope fdr-LJ5 CPL
</TABLE>
* These are MICR products and are subject to exclusivity.

<PAGE>

Exhibit B

[Portions of this Exhibit B have been omitted pursuant to a request for
confidential treatment under Rule 406 of the Securities Act of 1933, as
amended. A copy of the Agreement with this Exhibit B intact has been filed
separately with the Securities and Exchange Commission.]

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Planning Month in Forecast: (Forecast is Month 1 Month 2 Month 3 Month 4 Month 5 Month 6
received in 0)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Maximum increase/Decrease: (vs. same _____% _____% _____% _____% _____% _____%
calendar month in previous forecast)
- ------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

Exhibit C

[Portions of this Exhibit C have been omitted pursuant to a request for
confidential treatment under Rule 406 of the Securities Act of 1933, as
amended. A copy of the Agreement with this Exhibit C intact has been filed
separately with the Securities and Exchange Commission.]

Distribution, US Reseller, and International Reseller Locations

WORLDWIDE DISTRIBUTION CENTERS
- ------------------------------

Troy
2331 S. Pullman Street
Santa Ana, CA 92705

3 Brian Drive
Wheeling, West Virginia 26003

11 C Valentia Avenue Lugarno, Australia

WORLDWIDE RESELLER OR SALES AGENTS
----------------------------------

WORLDWIDE STOCKING & RESELLER LOCATIONS
- ---------------------------------------

<PAGE>

Exhibit D

INTERNATIONAL COUNTRIES FOR EXPORT:

Argentina
Australia
Brazil
Canada
Chile
China
Colombia
Costa Rica
Ecuador
El Salvador
England
Finland
France
Germany
Hong Kong
India
Indonesia
Israel
Italy
Japan
Jordan
Korea
Mexico
Morocco
New Caledonia
New Zealand
Norway
Oman
Peru
Philippines
South Africa
Spain
Sweden
Thailand
Turkey
Venezuela

<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

[Portions of this Exhibit F have been omitted pursuant to a request for
confidential treatment under Rule 406 of the Securities Act of 1933, as
amended. A copy of the Agreement with this Exhibit F intact has been filed
separately with the Securities and Exchange Commission]

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 exclusivity sell
LaserJet printers, unless HP restores exclusivity to the VAR.

Milestone 1 - July 1, 1996 through June 30, 1997 ( printers)
-----------------------------------------------------------------
Milestone 2 - July 1, 1997 through June 30, 1998 ( printers)
-----------------------------------------------------------------
Milestone 3 - July 1, 1998 through March 31, 1999 ( printers)
-----------------------------------------------------------------

<PAGE>

Exhibit 10.14

[Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment under Rule 406 of the Securities Act of 1933,
as amended. A copy of this Exhibit with the portions included
has been filed with the Securities and Exchange Commission.]

MICR SUPPLIES AGREEMENT

BETWEEN

IBM PRINTING SYSTEMS COMPANY

AND

TROY SYSTEMS, INC.

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

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

- -------------------------------------------------------------------------------
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.

- -------------------------------------------------------------------------------
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.

- -------------------------------------------------------------------------------
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.

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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.

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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

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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.

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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

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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

[Portions of this Attachment 1 have been omitted pursuant to a request
for confidential treatment under Rule 406 of the Securities Act of 1933, as
amended. A copy of the Agreement with this Attachment 1 intact has been filed
separately with the Securities and Exchange Commission.]

PRODUCT DESCRIPTION VOLUME PRICE
(cartons (per carton)
<S> <C> <C>
MICR Toner, IBM P/N 1 to 149 $________
1402824, eight bottles per
carton, 1.5 kg per bottle

MICR Toner, IBM P/N 150 and up $________
1402824, eight bottles per
carton, 1.5 kg per bottle

MICR Developer, IBM P/N 1 and up $________
1402825, 2 bottles per carton,
3.5 kg per bottle
</TABLE>

Notes:

1. The prices set forth above are fixed for thirty-six (36) months from
the Commencement Date.

2. Seller and Buyer shall meet each year to review the latest volume
requirements together with opportunities for price reductions to
Products.

3. Terms as provided in Section 7.0.

4. Prices shall include the costs associated with packaging the
Products.

5. Prices specified shall apply to quantities ordered on a single
purchase order and shipped to a single receiving location.

6. Prices do not include carrier freight charges.

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15 February 6, 1998
<PAGE>

ATTACHMENT 2: PACKAGING SPECIFICATIONS

1. Seller shall package all Products in accordance with the IBM
Packaging and Handling Specifications, Document Number GA2 1-9261-10.

2. Toner and developer bottles will be individually labeled with IBM
labels. Buyer will supply Seller with the label artwork and related
specifications, and Seller will procure the labels as required to
meet production schedules.

3. Buyer will supply the artwork for the outer cartons.

4. If bar coding is required on the outer carton, Buyer will
incorporate the bar code into the artwork to be placed on outer
carton.

5. Seller will provide Buyer with an initial production sample for
approval prior to beginning large scale shipments.

6. Seller will palletize all toner and developer shipments to Buyer.
Each pallet will normally contain 24 cartons of toner or 50 cartons
of developer, except for one pallet in each shipment that may contain
less than the full number of cartons. Pallets will be wrapped in
plastic for protection.

7. Seller's name shall not appear on the Products, packaging or any
documentation contained within the packaging.

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16 February 6, 1998
<PAGE>

ATTACHMENT 3: PRODUCT SPECIFICATIONS

[Portions of this Attachment 3 have been omitted pursuant to a request
for confidential treatment under Rule 406 of the Securities Act of 1933, as
amended. A copy of the Agreement with this Attachment 3 intact has been filed
separately with the Securities and Exchange Commission.]

TONER SPECIFICATION

DEVELOPER SPECIFICATIONS

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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.

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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 10.15

FORM OF TAX AGREEMENT
RELATING TO S CORPORATION DISTRIBUTIONS

This Tax Agreement Relating to S Corporation Distributions (the
"AGREEMENT") is made effective as of June __, 1998 by and among Troy Group,
Inc., a Delaware corporation, formerly known as Troy Group Newco, Inc.
("TROY"), Troy Systems International, Inc., a Delaware corporation and
wholly-owned subsidiary of Troy (the "SUBSIDIARY") and Suzanne M. Anderson
("ANDERSON"), Brian P. Dirk ("B. DIRK"), Kristine L. Gigerich ("GIGERICH"),
Lorrie A. Brown ("BROWN"), Raymond F. Schuler, as trustee under The Dirk 1997
Education Trust (the "EDUCATION TRUST"), Patrick J. and Mary J. Dirk, as
trustees under the Dirk Family Trust UDT May 6, 1990 (the "FAMILY TRUST") and
Anderson, B. Dirk, Gigerich and Brown as trustees under the Dirk 1998 Alaska
Trust (the "ALASKA TRUST") (Anderson, B. Dirk, Gigerich, Brown, the Education
Trust, the Family Trust and the Alaska Trust are collectively referred to as
the "TROY SHAREHOLDERS").

A. In 1989, the Subsidiary, and in 1996, Troy Systems, Inc., a
California corporation ("TROY SYSTEMS") each elected to be taxed as S
Corporations under the Internal Revenue Code of 1986, as amended (the
"CODE"). In May 1998, Troy elected to be taxed as an S Corporation under the
Code.

B. In May 1998, as part of a tax-free reorganization, Troy Systems was
reincorporated in the State of Delaware, through the merger of Troy Group
Newco, Inc., a Delaware corporation and newly formed, wholly-owned subsidiary
of Troy Systems, with and into Troy Systems with Troy Group Newco, Inc.
surviving (the "REINCORPORATION"). Troy Group Newco, Inc. subsequently
changed its name to Troy Group, Inc.

C. Subsequent to the Reincorporation, in May 1998, each of Anderson,
B. Dirk, Gigerich, Brown, the Education Trust and the Family Trust, who were
also shareholders of the Subsidiary, contributed all of their respective
capital stock in the Subsidiary to Troy in exchange for shares of capital
stock of Troy. Simultaneously with such contribution, in May 1998, the
Subsidiary elected to be taxed as a "Qualified Subchapter S Subsidiary"
within the meaning of Code Section 1361(b)(3)(B).

D. In June 1998, the Family Trust contributed shares of capital stock
of Troy to the 1998 Alaska Trust.

E. Troy's S Corporation election will terminate upon the consummation
of its proposed initial public offering of Common Stock due to an increase in
the number of shareholders at the time of the public offering beyond that
permitted by the Code.

F. Pursuant to the elections of Troy and the Subsidiary to be taxed as
S Corporations, the Troy Shareholders have been paying federal and certain
state and local income taxes as a result of the "pass-through" to them of
Troy's and the Subsidiary's taxable income, and the Troy Shareholders will
continue paying or accruing such tax liability for such time period as Troy
remains an S Corporation and the Subsidiary remains a Qualified Subchapter S
Subsidiary.

G. Troy's, the Subsidiary's and the Troy Shareholders' intentions are
to distribute a portion of the earnings of Troy and the Subsidiary to the
Troy Shareholders approximately equal to the Troy Shareholders' unpaid
federal, state and local income taxes arising from the pass-through to them
of taxable income.

NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:

<PAGE>

1. Troy and the Subsidiary each hereby agree, jointly and severally,
that to the extent (a) an assumed federal, state and local income tax
liability computed using the highest combined federal, state and local income
tax rates applicable to any Troy Shareholder (which shall be determined using
the same estimated percentage tax rate for each Troy Shareholder,
irrespective of actual tax rates) as subsequently established in connection
with the filing of Troy's tax return for Troy's anticipated short S
Corporation tax year ended in 1998, exceeds (b) the amount of such Troy
Shareholder's previous distributions, if any, made with respect to taxable
income for the period from January 1, 1998 through the closing of the initial
public offering of the Company's capital stock, Troy will make a distribution
equal to such difference to each Troy Shareholder; PROVIDED, HOWEVER, that
(x) no distributions made hereunder will exceed Troy's (and the Subsidiary's)
combined "accumulated adjustments account" as defined in Code Section
1368(e)(1), and (y) each Troy Shareholder will be entitled to equal
distributions per share of capital stock owned by them, irrespective of their
actual tax rates. Any payment required pursuant to this Section 1 shall be
made promptly by Troy, in cash, during a "post-termination transaction
period" of Troy, as defined in Code Section 1377(b).

2. Troy and the Subsidiary hereby agree to indemnify, defend and hold
harmless each Troy Shareholder on an after-tax basis against additional
federal, state or local income taxes, interest or penalties resulting from
adjustments made (as a result of a final determination made by a competent
tax authority) to the taxable income reported by Troy and the Subsidiary as S
Corporations or a Qualified Subchapter S Subsidiary, as the case may be, for
taxable periods or portions thereof on or prior to the termination of Troy's
S Corporation status. Such indemnification will also include any losses,
costs or expenses (including reasonable attorneys' fees) arising out of a
claim for such tax liability.

3. Each Troy Shareholder will promptly notify Troy of any audit for
any period for which any Troy Shareholder believes that such Troy Shareholder
may be entitled to indemnity hereunder. Troy, at its option, will have the
obligation to defend such audit, at its own expense, for such periods,
utilizing advisors of Troy's choice, to the extent said audit involves issues
arising from a matter subject to indemnification hereunder. Each of the Troy
Shareholders will cooperate fully with Troy in the defense of such audits and
each Troy Shareholder will have the right, but not the obligation, to
participate in the same at such Troy Shareholder's own expense. Failure by
any Troy Shareholder to allow Troy to defend such audit in a timely manner,
with respect to issues subject to indemnity hereunder, will terminate Troy's
obligation hereunder to indemnify such Troy Shareholder, to the extent any
such failure or delay prejudices Troy's ability to defend any such claim.
Nothing hereunder will be construed to require Troy to defend or indemnify
any Troy Shareholder with respect to issues raised by any governmental
authority that are not related to the indemnification hereunder.

4. If Troy's S Corporation election is terminated, and, solely as a
result of such termination, any Troy Shareholders obtain a refund of federal,
state or local income taxes, such Troy Shareholders shall repay to Troy the
net amount of such refunds received by such Troy Shareholders, net of any
federal, state or local income tax liability imposed thereon on such Troy
Shareholders.

5. In the event all or part of any section or provision of this
Agreement is for any reason held to be illegal or invalid, or is at any time
inoperable by reason of any law, such illegality, invalidity, or
inoperability will not affect the remainder hereof or any other section or
provision of this Agreement.

6. This Agreement will inure to the benefit of and be binding upon the
parties hereto and their respective heirs, successors and assigns.

7. This Agreement is made under the laws of the State of Delaware and
will be governed by and construed in accordance with the laws of such state.

8. This Agreement may be amended or modified only by a written
instrument executed by the party or parties to be bound by such change or
modification. This Agreement contains the entire agreement of the parties
hereto with respect to the subject matter hereof.

<PAGE>

9. This Agreement may be executed in one or more counterparts, each of
which will be deemed an original, but all of which together will constitute
one and the same agreement.

IN WITNESS WHEREOF, Troy, the Subsidiary and each Troy Shareholder have
executed this agreement effective as of the date first above written.

TROY TROY SHAREHOLDERS

Troy Group, Inc.,
a Delaware corporation ------------------------------
Suzanne M. Anderson
By:
---------------------------------
Patrick J. Dirk ------------------------------
Its: President and Chief Executive Brian P. Dirk
Officer

SUBSIDIARY ------------------------------
Kristine L. Gigerich
Troy Systems International, Inc.,
a Delaware corporation
------------------------------
Lorrie A. Brown
By:
----------------------------------
Patrick J. Dirk
Its: President and Chief Executive The Dirk 1997 Education Trust
Officer
By:
---------------------------
Raymond F. Schuler
Its: Trustee

Dirk Family Trust UDT May 6, 1990

By:
---------------------------
Patrick J. Dirk
Its: Trustee

By:
---------------------------
Mary J. Dirk
Its: Trustee

<PAGE>

Dirk 1998 Alaska Trust

By:
---------------------------
Suzanne M. Anderson
Its: Trustee

By:
---------------------------
Brian P. Dirk
Its: Trustee

By:
---------------------------
Kristine L. Gigerich
Its: Trustee

By:
---------------------------
Lorrie A. Brown
Its: Trustee

<PAGE>

Exhibit 10.23
TROY GROUP, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN

1. PURPOSE.

The purpose of this 1998 Employee Stock Purchase Plan (the "Plan") is to
advance the interests of Troy Group, Inc. ("the Company") and its
stockholders by providing eligible employees of the Company and its
Participating Subsidiaries with an opportunity to acquire an ownership
interest in the Company through the purchase of Common Stock of the Company
on favorable terms through payroll deductions. The Company intends that the
Plan qualify as an "employee stock purchase plan" under Section 423 of the
Code. Accordingly, provisions of the Plan will be construed so as to extend
and limit participation in a manner consistent with the requirements of
Section 423 of the Code.

2. DEFINITIONS.

2.1 "BOARD" means the Board of Directors of the Company.

2.2 "CHANGE IN CONTROL" means an event described in Section 9.1 of the
Plan.

2.3 "CODE" means the Internal Revenue Code of 1986, as amended.

2.4 "COMMITTEE" means the group of individuals administering the Plan,
as provided in Section 3 of the Plan.

2.5 "COMMON STOCK" means the common stock, par value $.01 per share, of
the Company, or the number and kind of shares of stock or other securities
into which such common stock may be changed in accordance with Section 4.3 of
the Plan.

2.6 "COMPENSATION" means all gross cash compensation (including wage,
salary, incentive, bonus, commission and overtime earnings) paid by the
Company or any Participating Subsidiary to a Participant, including amounts
that would have constituted compensation but for a Participant's election to
defer or reduce compensation pursuant to any deferred compensation,
cafeteria, capital accumulation or any other similar plan of the Company;
provided, however, that the Committee, in its sole discretion, may expand or
limit the amounts that will be deemed compensation for purposes of the Plan
in such manner as it deems appropriate.

2.7 "ELIGIBLE EMPLOYEE" means any employee of the Company or a
Participating Subsidiary (other than an employee whose customary employment
with the Company or a Participating Subsidiary is for 20 hours or less per
week or five months or less per calendar year) who, with respect to any
Offering Period, has been continuously employed by the Company or a
Participating Subsidiary for at least one month prior to the Offering
Commencement Date for such Offering Period. With respect to a Subsidiary
that has been acquired by the Company and designated as a Participating
Subsidiary or a Subsidiary that is otherwise subsequently designated by the
Committee as a Participating Subsidiary, the period of employment of
employees of such Participating Subsidiary occurring prior to the time of
such acquisition or designation will be included for purposes of determining
whether an employee has been employed for the requisite period of time under
the Plan.

2.8 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

<PAGE>

2.8 "FAIR MARKET VALUE" means, with respect to the Common Stock, as of
any date (or, if no shares were traded or quoted on such date, as of the next
preceding date on which there was such a trade or quote) (a) the mean between
the reported high and low sale prices of the Common Stock if the Common Stock
is listed, admitted to unlisted trading privileges or reported on any foreign
or national securities exchange or on the Nasdaq National Market or an
equivalent foreign market on which sale prices are reported; (b) if the
Common Stock is not so listed, admitted to unlisted trading privileges or
reported, the closing bid price as reported by the Nasdaq SmallCap Market,
OTC Bulletin Board, National Quotation Bureau, Inc. or other comparable
service; or (c) if the Common Stock is not so listed or reported, such price
as the Committee determines in good faith in the exercise of its reasonable
discretion.

2.10 "OFFERING COMMENCEMENT DATE" means the first day of an Offering
Period.

2.11 "OFFERING PERIOD" means any of the offerings to Participants of
Options under the Plan, each continuing for one year, as described in Section
6 of the Plan.

2.12 "OFFERING TERMINATION DATE" means the last day of an Offering
Period.

2.13 "OPTION" means a right to purchase shares of Common Stock granted
to a Participant in connection with an Offering Period pursuant to Section 7
of the Plan

2.14 "OPTION PRICE" means, with respect to any Offering Period, the
lower of (a) 85% of the Fair Market Value of one share of Common Stock on the
Offering Commencement Date, or (b) 85% of the Fair Market Value of one share
of Common Stock on the Offering Termination Date.

2.15 "PARTICIPANT" means an Eligible Employee who elects to participate
in the Plan pursuant to Section 5 of the Plan.

2.16 "PARTICIPATING SUBSIDIARY" means a Subsidiary that has been
designated by the Committee from time to time, in its sole discretion, as a
corporation whose Eligible Employees may participate in the Plan.

2.17 "SECURITIES ACT" means the Securities Act of 1933, as amended.

2.18 "SUBSIDIARY" means any subsidiary corporation of the Company within
the meaning of Section 424(f) of the Code.

2.19 "TERMINATION OF EMPLOYMENT" means a Participant's complete
termination of employment with the Company and all Participating Subsidiaries
for any reason, including death, disability or retirement. In the event that
a Participant is in the employ of a Participating Subsidiary and the
Participating Subsidiary ceases to be a Participating Subsidiary of the
Company for any reason, such event will be deemed a termination of employment
unless the Participant continues in the employ of the Company or another
Participating Subsidiary.

3. ADMINISTRATION.

The Plan will be administered by the Board or by a committee of the
Board. So long as the Company has a class of its equity securities registered
under Section 12 of the Exchange Act, any committee administering the Plan
will consist solely of two or more members of the Board who are "non-employee
directors" within the meaning of Rule 16b-3 under the Exchange Act. Such a
committee,

2
<PAGE>

if established, will act by majority approval of the members (but may also
take action with the written consent of a majority of the members of such
committee), and a majority of the members of such a committee will constitute
a quorum. As used in the Plan, "Committee" will refer to the Board or to
such a committee, if established. To the extent consistent with corporate
law, the Committee may delegate to any officers of the Company the duties,
power and authority of the Committee under the Plan pursuant to such
conditions or limitations as the Committee may establish; provided, however,
that only the Committee may exercise such duties, power and authority with
respect to Participants who are subject to Section 16 of the Exchange Act.
The Committee may exercise its duties, power and authority under the Plan in
its sole discretion without the consent of any Participant or other party,
unless the Plan specifically provides otherwise. Each determination,
interpretation or other action made or taken by the Committee pursuant to the
provisions of the Plan will be final, conclusive and binding for all purposes
and on all persons, including, without limitation, the Company, the
stockholders of the Company, the participants and their respective
successors-in-interest. No member of the Committee will be liable for any
action or determination made in good faith with respect to the Plan or any
Option granted under the Plan.

4. SHARES AVAILABLE FOR ISSUANCE; ADJUSTMENTS FOR CERTAIN EVENTS.

4.1 MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as
provided in Section 4.3 of the Plan, the maximum number of shares of Common
Stock that will be available for issuance under the Plan will be 200,000
shares of Common Stock, which may either be authorized but unissued shares or
shares held by the Company in its treasury. If the total number of shares of
Common Stock that would otherwise be issuable upon the exercise of Options
granted pursuant to Section 7 of the Plan on any Offering Termination Date
exceeds the number of shares then available for issuance under the Plan, the
Committee will make a pro rata allocation of the shares of Common Stock
remaining available for issuance under the Plan in as uniform and equitable a
manner as it deems appropriate.

4.2 ACCOUNTING FOR OPTIONS. Shares of Common Stock that are issued
under the Plan or that are subject to outstanding Options will be applied to
reduce the maximum number of shares of Common Stock remaining available for
issuance under the Plan. Any shares of Common Stock that are subject to an
Option that is terminated unexercised will automatically again become
available for issuance under the Plan.

4.3 ADJUSTMENTS TO SHARES AND OPTIONS. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend (including a spin-off) or any
other change in the corporate structure or shares of the Company, the
Committee (or, if the Company is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation) will make
appropriate adjustment (which determination will be conclusive) as to the
number and kind of securities or other property (including cash) available
for issuance or payment under the Plan and, in order to prevent dilution or
enlargement of the rights of Participants, the number and kind of securities
or other property (including cash) subject to, and the exercise price of,
outstanding Options.

5. PARTICIPATION; PAYROLL DEDUCTIONS.

5.1 PARTICIPATION. Participation in the Plan is voluntary and is not a
condition of employment. Eligible Employees may elect to participate in the
Plan, beginning with the first Offering Period to commence after such person
becomes an Eligible Employee, by properly completing a subscription agreement
authorizing payroll deductions on the form provided by the Company and filing
the participation form with the Company's Human Resources Department not
later than the 15th day of

3
<PAGE>

the month immediately preceding the Offering Commencement Date of the first
Offering Period in which the Participant wishes to participate. An Eligible
Employee who elects to participate with respect to an Offering Period will be
deemed to have elected to participate in each subsequent Offering Period,
unless such Participant properly completes and files a notice of withdrawal
form in the manner described in Section 8.1 of the Plan.

5.2 LIMITATION ON PARTICIPATION. Notwithstanding any provisions of the
Plan to the contrary, an Eligible Employee may not participate in the Plan
and will not be granted an Option under the Plan if, immediately after the
grant of such Option, such Eligible Employee (or any other person whose stock
ownership would be attributed to such Eligible Employee pursuant to Section
424(d) of the Code) would own stock or options possessing 5% or more of the
total combined voting power or value of all classes of stock of the Company
or of its "parent" or "subsidiary" corporations (within the meaning of
Section 424 of the Code).

5.3 PAYROLL DEDUCTIONS.

(a) By completing and filing a participation form, a Participant
will elect to have payroll deductions made from such Participant's total
Compensation (in whole percentages from a minimum of 1% to a maximum of
15%, or such other minimum or maximum percentages as the Committee may
from time to time establish, but not to exceed 15%) on each payday
during the time he or she is a Participant in the Plan in such amount as
such Participant designates on the participation form.

(b) All payroll deductions authorized by a Participant will be
credited as of each payday to an account established under the Plan for
the Participant. Such account will be solely for bookkeeping purposes,
no separate fund, trust or other segregation of such amounts will be
established or made and the amounts represented by such account will be
held as part of the Company's general assets, usable for any corporate
purpose. A Participant may not make any separate cash payment or
contribution to such Participant's account. No interest will accrue on
amounts held in such accounts under the Plan.

(c) A Participant may increase or decrease the amount of his or
her payroll deductions under the Plan (subject to such limitations on
the frequency of such changes as may be imposed by rules adopted by the
Committee from time to time) by properly completing an amended
participation form and filing it with the Company's Human Resources
Department not less than 15 days prior to the commencement of the pay
period for which such change in payroll deductions is to be effective
or, with respect to commissions, bonuses or other Compensation that is
indeterminate and subject to performance goals or criteria, not less
than 10 days prior to the date that such performance related
Compensation is paid.

(d) A Participant may withdraw from participation in the Plan at
any time as provided in Section 8.1 of the Plan.

6. OFFERING PERIODS.

Options to purchase shares of Common Stock will be offered to
Participants under the Plan through a continuous series of Offering Periods,
each continuing for one year, and each of which will commence on December 1
of each year and will terminate on November 30 of the following year;
provided, however, that the first Offering Period will commence on the date
that the Company's

4
<PAGE>

registration statement on Form S-1 (File No. 333-51523) is declared effective
by the Securities and Exchange Commission and will terminate on November 30,
1998.

7. OPTIONS.

7.1 GRANT OF OPTIONS. With respect to any Offering Period, each
Participant participating in such Offering Period will be granted, by
operation of the Plan on the Offering Commencement Date for such Offering
Period, an Option to purchase (at the Option Price) as many full shares of
Common Stock as such Participant will be able to purchase with the
accumulated payroll deductions credited to such Participant's account during
such Offering Period plus the balance (if any) carried forward from the
Participant's payroll deduction account from the preceding Offering Period.

7.2 LIMITATIONS ON PURCHASE. Notwithstanding Section 7.1 or any other
provision of the Plan to the contrary, the number of shares of Common Stock
that may be purchased under the Plan will be limited as follows:

(a) No Participant may purchase more than 2,500 shares of Common
Stock under the Plan in any given Offering Period.

(b) No Participant may be granted an Option that permits such
Participant to purchase Common Stock under the Plan and any other
"employee stock purchase plans" (within the meaning of Section 423 of
the Code) of the Company and its Subsidiaries to accrue (i.e., become
exercisable) at a rate that exceeds $25,000 of the Fair Market Value of
such shares of Common Stock (determined at the time such Option is
granted) for each calendar year in which such Option is outstanding at
any time.

7.3 EXERCISE OF OPTIONS.

(a) Unless a Participant withdraws from the Plan as provided in
Section 8.1 of the Plan, the Participant's Option for the purchase of
shares of Common Stock granted with respect to an Offering Period will
be exercised automatically at the Offering Termination Date of such
Offering Period for the purchase of the number of full shares of Common
Stock that the accumulated payroll deductions in such Participant's
account as of such Offering Termination Date will purchase at the
applicable Option Price.

(b) A Participant may only purchase one or more full shares in
connection with the automatic exercise of an Option granted for any
Offering Period. The portion of any balance remaining in a
Participant's payroll deduction account at the close of business on the
Offering Termination Date of any Offering Period that is less than the
purchase price of one full share of Common Stock will be carried forward
into the Participant's payroll deduction account for the following
Offering Period. In no event, however, will the balance carried forward
be equal to or greater than the purchase price of one full share of
Common Stock on the Offering Termination Date of an Offering Period.

(c) No Participant (or any person claiming through such
Participant) will have any interest in any Common Stock subject to an
Option under the Plan until such Option has been exercised, at which
point such interest will be limited to the interest of a purchaser of
the Common Stock purchased upon such exercise pending the delivery of
such Common Stock.

5
<PAGE>

(d) As promptly as practicable after the Offering Termination Date
of each Offering Period, the Company will issue the shares of Common
Stock purchased upon exercise of such Participant's Option granted for
such Offering Period, registered in the name of the Participant or, if
the Participant so directs on his or her Participation Form, in the
names of the Participant and his or her spouse. The Committee may
determine, in its sole discretion, the manner of delivery of shares of
Common Stock purchased under the Plan, which may be by electronic
account entry into new or existing brokerage or other accounts, delivery
of physical stock certificates or such other means as the Committee
deems appropriate.

8. WITHDRAWAL FROM PLAN.

8.1 VOLUNTARY WITHDRAWAL. A Participant may, at any time on or before
5:00 p.m., California time, on the 15th day of the last month of an Offering
Period, terminate his or her participation in the Plan and withdraw all, but
not less than all, of the payroll deductions credited to such Participant's
account under the Plan by giving written notice to the Company's Human
Resources Department. Such notice must state that the Participant wishes to
terminate his or her participation in the Plan and request the withdrawal of
all of the Participant's payroll deductions held under the Plan. All of the
Participant's payroll deductions credited to his or her account will be paid
to such Participant as soon as practicable after receipt of the notice of
withdrawal, such Participant's Option for such Offering Period will
automatically be canceled and will no longer be exercisable, and no further
payroll deductions for the purchase of shares of Common Stock under the Plan
will be made.

8.2 TERMINATION OF EMPLOYMENT.

(a) Upon the Termination of Employment of a Participant at any
time, the payroll deductions credited to such Participant's account will
be paid to such Participant as soon as practicable after the effective
date of such Termination of Employment (or, in the case of death, to the
person or persons entitled thereto under Sections 10 and 11.3 of the
Plan), such Participant's Option for the current Offering Period will
automatically be canceled and will no longer be exercisable, and no
further payroll deductions for the purchase of shares of Common Stock
under the Plan will be made.

(b) Unless the Committee otherwise determines in its sole
discretion, a Participant's employment will, for purposes of the Plan,
be deemed to have terminated on the date recorded on the personnel or
other records of the Company or the Participating Subsidiary for which
the Participant provides employment, as determined by the Committee in
its sole discretion based upon such records.

8.3 EFFECT OF WITHDRAWAL. A Participant's withdrawal pursuant to
Section 8.1 of the Plan will not have any effect upon such Participant's
eligibility to participate in a subsequent Offering Period (so long as such
Participant completes and files a new Participation Form pursuant to Section
5 of the Plan) or in any similar plan that may hereafter be adopted by the
Company.

9. CHANGE IN CONTROL.

9.1 CHANGE IN CONTROL. For purposes of this Section 9, a "Change in
Control" of the Company will mean the following:

6
<PAGE>

(b) the approval by the stockholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company;

any person becomes after the effective date of the Plan the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of (i) 20% or more, but less than 50%, 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 (as defined in Section 9.2 below), or (ii) 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);

(d) a merger or consolidation to which the Company is a party if
the stockholders 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 (i) less than 80%, but more than 50%, 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 (ii) 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); or

(e) the Continuity Directors cease for any reason to constitute at
least a majority of the Board.

Notwithstanding anything in this Section 9.1 to the contrary, the
transfer by a Dirk Stockholder (as defined below) of shares of Common
Stock or rights to acquire shares of Common Stock to the following
persons or entities, without consideration in money or money's worth
(such as by gift, bequest or devise), and the exercise or conversion of
any such transferred rights to acquire shares, will not, in and of
itself, be deemed to constitute a Change in Control for purposes of this
Section 9: (i) transfers to any spouse, child, heir, legate or
successor of such Dirk Stockholder; (ii) transfers to any trust created
for the benefit of such Dirk Stockholder or any such spouse, child,
heir, legate or successor, and amendments of or distributions from any
such trust; or (iii) transfers to any other Dirk Stockholder. A "Dirk
Stockholder" will mean Patrick J. Dirk, Mary J. Dirk, Brian P. Dirk,
Suzanne M. Anderson, Kristine L. Gigerich, Lorrie A. Brown, The Dirk
1997 Education Trust, The Dirk Family Trust UTD March 6, 1990 or The
Dirk 1998 Alaska Trust.

9.2 CONTINUITY DIRECTORS. For purposes of this Section 9, "Continuity
Directors" of the Company will mean any individuals who are members of the
Board on the effective date of the Plan 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).

7
<PAGE>

9.3 ADJUSTMENT OF OFFERING PERIOD. Without limiting the authority of
the Committee under Sections 3, 4.3 and 13 of the Plan, if a Change in
Control of the Company occurs, the Committee, in its sole discretion, may (a)
accelerate the Offering Termination Date of the then current Offering Period
and provide for the exercise of Options thereunder by Participants in
accordance with Section 7.3 of the Plan, or (b) accelerate the Offering
Termination Date of the then current Offering Period and provide that all
payroll deductions credited to the accounts of Participants will be paid to
Participants as soon as practicable after such Offering Termination Date and
that all Options for such Offering Period will automatically be canceled and
will no longer be exercisable.

10. DESIGNATION OF BENEFICIARY.

A Participant may file with the Company's Human Resources Department a
written designation of a beneficiary who is to receive shares of Common Stock
and cash, if any, under the Plan in the event of such Participant's death
prior to delivery of such shares or cash to such Participant. Such
designation of beneficiary may be changed by the Participant at any time by
written notice the Company's Human Resources Department. In the event of the
death of a Participant in the absence of a valid designation of a beneficiary
who is living at the time of such Participant's death, (a) the Company will
deliver such shares of Common Stock and cash to the executor or administrator
of the estate of the Participant, or (b) if to the Company's knowledge no
such executor or administrator has been appointed, the Company, in its sole
discretion, may deliver such shares of Common Stock and cash to the spouse or
to any one or more dependents or relatives of the Participant or, if no
spouse, dependent or relative is known to the Company, to such other person
as the Company may designate.

11. RIGHTS OF ELIGIBLE EMPLOYEES AND PARTICIPANTS; TRANSFERABILITY.

11.1 NO RIGHT TO EMPLOYMENT. Nothing in the Plan will interfere with or
limit in any way the right of the Company or any Participating Subsidiary to
terminate the employment of any Eligible Employee or Participant at any time,
nor confer upon any Eligible Employee or Participant any right to continue in
the employ of the Company or any Participating Subsidiary.

11.2 RIGHTS AS A STOCKHOLDER. As a holder of an Option under the Plan,
a Participant will have no rights as a stockholder unless and until such
Option is exercised and the Participant becomes the holder of record of
shares of Common Stock. Except as otherwise provided in the Plan, no
adjustment will be made for dividends or distributions with respect to
Options as to which there is a record date preceding the date the Participant
becomes the holder of record of such shares, except as the Committee may
determine in its sole discretion.

11.3 RESTRICTIONS ON TRANSFER. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an Option
or to receive shares of Common Stock under the Plan may be assigned,
transferred, pledged or otherwise disposed of in any way (other than by will,
the laws of descent and distribution, or as provided in Section 10 of the
Plan) by the Participant. Any such attempt at assignment, transfer, pledge
or other disposition will be without effect, except that the Company may
treat such act as an election to withdraw from the Plan in accordance with
Section 8.1 of the Plan. During his or her lifetime, a Participant's Option
to purchase shares of Common Stock under the Plan is exercisable only by such
Participant.

12. SECURITIES LAW AND OTHER RESTRICTIONS.

Notwithstanding any other provision of the Plan or any agreements
entered into pursuant to the Plan, the Company will not be required to issue
any shares of Common Stock under the Plan, and a

8
<PAGE>

Participant may not sell, assign, transfer or otherwise dispose of shares of
Common Stock issued pursuant to Options granted under the Plan, unless (a)
there is in effect with respect to such shares a registration statement under
the Securities Act and any applicable state or foreign securities laws or an
exemption from such registration under the Securities Act and applicable
state or foreign securities laws, and (b) there has been obtained any other
consent, approval or permit from any other regulatory body that the
Committee, in its sole discretion, deems necessary or advisable. The Company
may condition such issuance, sale or transfer upon the receipt of any
representations or agreements from the parties involved, and the placement of
any legends on certificates representing shares of Common Stock, as may be
deemed necessary or advisable by the Company in order to comply with such
securities law or other restrictions.

13. AMENDMENT OR TERMINATION.

The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the
Board may deem advisable in order that Options under the Plan will conform to
any change in applicable laws or regulations or in any other respect the
Board may deem to be in the best interests of the Company; provided, however,
that no amendments to the Plan will be effective without approval of the
stockholders of the Company if stockholder approval of the amendment is then
required pursuant to Section 423 of the Code or the rules of any stock
exchange or Nasdaq or similar regulatory body. Upon termination of the Plan,
the Committee, in its sole discretion, may take any of the actions described
in Section 9.3 of the Plan.

14. EFFECTIVE DATE OF PLAN.

Subject to the closing of the Company's initial public offering of
shares of Common Stock registered pursuant to the registration statement on
Form S-1 (File No. 333-51523), the Plan will be effective as of June 1, 1998.
If the closing of such initial public offering does not occur prior to
October 1, 1998, the Plan will no longer be deemed effective, and all Options
will automatically be canceled and will no longer be exercisable. The Plan
will terminate at midnight on June 1, 2008 and may be terminated prior to
such time by Board action, and no Option will be granted after such
termination.

15. MISCELLANEOUS.

15.1 GOVERNING LAW. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in
accordance with the laws of the State of Delaware, notwithstanding the
conflicts of laws principles of any jurisdictions.

15.2 SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and the
Participants.

<PAGE>

EXHIBIT 10.25

THIRD AMENDMENT TO BUSINESS LOAN AGREEMENT, FIRST AMENDMENT TO SECURITY
AGREEMENT AND FIRST AMENDMENT TO EACH OF TWO CERTAIN PROMISSORY NOTES

THIS THIRD AMENDMENT TO BUSINESS LOAN AGREEMENT, FIRST AMENDMENT TO
SECURITY AGREEMENT AND FIRST AMENDMENT TO EACH OF TWO CERTAIN PROMISSORY NOTES
("Third Amendment"), made and entered into as of the 8th day of May, 1998, by
and among TROY SYSTEMS, INC., a California corporation ("TSI"), TROY GROUP
NEWCO, INC., a Delaware corporation ("Newco"), and UNION BANK OF CALIFORNIA,
N.A., a national banking association ("Bank"),

W I T N E S S E T H:

WHEREAS, Bank and TSI are parties to that certain Business Loan Agreement,
dated as of June 19, 1997 (as amended by those certain First and Second
Amendments to Loan Agreement, dated as of February 12, 1998 and April 27, 1998,
respectively, the "Loan Agreement"), which Loan Agreement governs (a) that
certain Promissory Note (Base Rate) in a principal amount not to exceed
$4,500,000.00, dated February 6, 1998, executed by TSI in favor of Bank, and (b)
that certain Promissory Note (Base Rate) in the original principal amount of
$1,000,000.00, dated June 20, 1997, executed by TSI in favor of Bank
(individually a "Promissory Note" and collectively the "Promissory Notes"); and

WHEREAS, TSI wishes to change its state of incorporation to the State of
Delaware and, in connection therewith, has caused Newco to be incorporated as a
corporation under Delaware law and, pursuant to the terms and conditions of that
certain Agreement and Plan of Merger, dated as of May 1, 1998, by and between
Newco and TSI, will merge with Newco, with Newco being the surviving corporation
(the "Merger"); and

WHEREAS, upon the consummation of the Merger, Newco shall change its name
to "Troy Group, Inc." and the existing Troy Group, Inc., a guarantor of the
obligations of TSI to Bank, shall change its name to "Troy Systems
International, Inc."; and

WHEREAS, under Section 4.14 of the Loan Agreement and under Section 3(d) of
that certain Security Agreement, dated April 5, 1996, executed by TSI in favor
of Bank's predecessor in interest, Union Bank (the "Security Agreement"), TSI
has agreed not to enter into any consolidation or merger, or to change its
composition as a business entity, without the prior written consent of Bank and,
accordingly, has requested that Bank provide its written consent to the Merger;
and

WHEREAS, Bank is willing to consent to the Merger, subject, however, to the
terms and conditions of this Third Amendment; and

WHEREAS, TSI, Newco and Bank desire to amend the Loan Agreement, the
Security Agreement and each of the Promissory Notes to reflect certain changes
effected by the Merger;

NOW, THEREFORE, for and in consideration of the premises hereof, and other
good and valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:

<PAGE>

1. All capitalized terms used in this Third Amendment shall, unless
otherwise defined herein or unless the context otherwise requires, have the
meanings given thereto in the Loan Agreement, the Security Agreement or the
Promissory Notes, as the context may require.

2. Bank hereby consents to the Merger upon the terms and subject to the
conditions of this Third Amendment.

3. From and after the date on which this Third Amendment becomes
effective as provided in Paragraph 5, below, each reference to "Troy Systems,
Inc.", "Borrower" or "Debtor" which is contained in the Loan Agreement, the
Security Agreement, either of the Promissory Notes or any other document,
instrument or agreement entered into in connection with the Loan Agreement, the
Security Agreement, either of the Promissory Notes or any transaction
contemplated by any of the same (including without limitation any application
and agreement relating to the issuance of a standby letter of credit under the
Loan Agreement) shall be and be deemed to be a reference to "Troy Group, Inc.
(formerly known as Troy Group Newco, Inc. and successor in interest to Troy
Systems, Inc.)". In connection therewith, (a) the Loan Agreement is amended by
deleting the name "Troy Systems, Inc." where it appears in the second line of
the introductory paragraph thereof and in the signature line thereof and by
substituting in lieu thereof in each such instance the name "Troy Group, Inc.
(formerly known as Troy Group Newco, Inc. and successor in interest to Troy
Systems, Inc.)", (b) the Security Agreement is amended by deleting the name
"Troy Systems, Inc." where it appears in the second line of the introductory
paragraph thereof and in the signature line thereof and by substituting in lieu
thereof in each such instance the name "Troy Group, Inc. (formerly known as Troy
Group Newco, Inc. and successor in interest to Troy Systems, Inc.)", and (c)
each of the Promissory Notes is amended by deleting the name "Troy Systems,
Inc." where it appears at the top of the first page thereof and in the signature
line thereof and by substituting in lieu thereof in each such instance the name
"Troy Group, Inc. (formerly known as Troy Group Newco, Inc. and successor in
interest to Troy Systems, Inc.)".

4. Upon the consummation of the Merger, Newco, under the name Troy Group,
Inc., agrees to, and shall, (a) assume all liabilities, duties and obligations
of TSI under the Loan Agreement, the Security Agreement, the Promissory Notes
and the other Loan Documents (including without limitation all liabilities,
duties and obligations arising under any application and agreement relating to
the issuance of a standby letter of credit under the Loan Agreement), and (b)
succeed to all rights of TSI under the Loan Agreement, the Security Agreement,
the Promissory Notes and the other Loan Documents.

5. The consent granted by Bank in Paragraph 2 of this Third Amendment and
the other provisions of this Third Amendment shall become effective upon the
satisfaction of the following conditions precedent:

(a) The Merger shall have been consummated in accordance with all
applicable laws, rules and regulations;

(b) Newco shall have changed its name to "Troy Group, Inc.";

(d) The Bank shall have received the following, each in form and
substance satisfactory to Bank and its counsel:

2
<PAGE>

(i) This Third Amendment, duly executed by TSI and Newco;

(ii) A Security Agreement on Bank's standard form, dated the
date the Merger is consummated (the "Closing Date"), duly executed by
"Troy Group, Inc. (formerly known as Troy Group Newco, Inc.)";

(iii) Such UCC-1 Financing Statements and UCC-2 Financing
Statement Change Forms (together with evidence that the same have been
filed and, in the case of UCC-1 Financing Statements, are subject to
no prior filings) as Bank may require to assure itself of the
continued perfection of the security interests heretofore granted to
Bank by TSI;

(iv) A Continuing Guaranty of the obligations of "Troy
Group, Inc. (formerly known as Troy Group Newco, Inc. and successor in
interest to Troy Systems, Inc.)" to Bank, on Bank's standard form,
dated the Closing Date, duly executed by "Troy Systems International,
Inc. (formerly known as Troy Group, Inc.)";

(v) Such UCC-2 Financing Statement Change Forms (together
with evidence that the same have been filed) as Bank may require to
assure itself of the continued perfection of the security interests
heretofore granted to Bank by Troy Group, Inc.;

(vi) A written opinion of Oppenheimer, Wolff & Donnelly LLP,
counsel to TSI, Newco and Troy Group, Inc., in the form appended
hereto as Exhibit I, dated the Closing Date and addressed to Bank; and

(vii) Such other documents, instruments and agreements as
Bank may reasonably require to effectuate the purposes of this Third
Amendment.

6. Except as expressly provided herein, the Loan Agreement, the Security
Agreement and the Promissory Notes are unchanged and shall remain in full force
and effect, and such Loan Agreement, such Security Agreement and such Promissory
Notes are hereby ratified and confirmed by TSI and Newco.

7. This Third Amendment shall be governed by and construed in accordance
with the laws of the State of California.

8. This Third Amendment may be executed in any number of identical
counterparts, any set of which signed by all parties hereto shall be deemed to
constitute a complete, executed original for all purposes.

3
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Third Amendment as of
the day and year first above written.

TROY SYSTEMS, INC. UNION BANK OF CALIFORNIA, N.A.

By: /s/ Patrick J. Dirk By: /s/ Margaret Furbank
---------------------------- ---------------------------
Title: Chief Executive Officer Title: Vice President
------------------------- ------------------------
By: /s/ Douglas Lambell
---------------------------
TROY GROUP NEWCO, INC. Title: Vice President
------------------------
By: /s/ Patrick J. Dirk
----------------------------
Title: Chief Executive Officer
-------------------------

<PAGE>
EXHIBIT 10.26
BILL OF SALE AND
ASSIGNMENT AND ASSUMPTION AGREEMENT

THIS BILL OF SALE AND ASSIGNMENT AND ASSUMPTION AGREEMENT, dated and
effective the close of business on May 31, 1998, is by and between Troy Systems
International, Inc., a Delaware corporation ("TROY SYSTEMS") and Troy Group,
Inc., a Delaware corporation ("TROY GROUP").

A. Troy Group desires to contribute to Troy Systems substantially all of
the assets and liabilities used in Troy Group's business and Troy Systems
desires to accept such assets and liabilities.

B. Troy Systems desires to contribute to Troy Group all of the assets and
liabilities set forth on the balance sheet attached hereto as Exhibit A (the
assets set forth on such balance sheet are hereinafter referred to as the "TROY
SYSTEMS ASSETS" and the liabilities set forth on such balance sheet are
hereinafter referred to as the "TROY SYSTEMS LIABILITIES") and Troy Group
desires to accept such assets and liabilities.

In consideration of the premises and the other valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Troy Systems and Troy
Group hereby agree as follows:

1. SALE OF ASSETS. Troy Group hereby sells, transfers, conveys, assigns and
delivers to Troy Systems, its successors and assigns, all right, title and
interest of Troy Group's assets, properties and rights used in or arising out of
the operation of its business, as a going concern, of every nature, kind and
description, tangible and intangible, real, personal or mixed, wheresoever
located and whether or not carried or reflected on the books and records of Troy
Group including, without limitation, the following:

(a) title to, or Troy Group's leasehold interests in, the real property
that is leased by Troy Group or in which it has any right or interest;

(b) personal property that is owned or leased by Troy Group or in which it
has any right or interest;

(c) logos, trademarks, trademark registrations and trademark applications
or registrations thereof, including the goodwill associated therewith;

(d) the goodwill of Troy Group's business;

(e) copyrights, copyright applications and copyright registrations,
patents and patent applications;

(f) rights under or pursuant to licenses by or to Troy Group;

<PAGE>

(g) development and prototype hardware, software, processes, formula,
trade secrets, inventories and royalties, including all rights to sue for past
infringements;

(h) leaseholds and other interest in land;

(i) inventory (materials, work in process, finished goods), equipment,
machinery, furniture, fixtures, motor vehicles and supplies;

(j) cash, money and deposits with financial institutions and others,
certificates of deposit, commercial paper, notes, evidences of indebtedness,
stocks, bonds and other investments;

(k) accounts receivables;

(l) prepaid expenses;

(m) all rights of Troy Group under or pursuant to all warranties,
representations and guarantees made by suppliers, manufacturers and contractors
in connection with products or services of Troy Group's business;

(n) insurance policies, contracts, purchase orders, customers, lists of
customers and suppliers, sales representative agreements, and all favorable
relationships, causes of action, judgments, claims and demands of whatever
nature;

(o) all credit balances of or inuring to Troy Group under any state
unemployment compensation plan or fund;

(p) employment contracts;

(q) obligations of the present and former officers and employees and of
individuals and corporations;

(r) rights under joint venture agreements or arrangements;

(s) files, papers and records relating to Troy Group's business and
assets; and

(t) all of the assets as reflected on the unaudited balance sheet attached
as Exhibit B dated May 31, 1998 (the "MAY BALANCE SHEET") as such assets are on
hand on the effective date hereof, or similar replacement assets acquired prior
to the effective date hereof (the foregoing are sometimes collectively called
the "TROY GROUP ASSETS").

Troy Group will cooperate with Troy Systems and take such further action as
may reasonably be requested by Troy Systems in order to vest in Troy Systems all
right, title and interest of Troy Group in and to the Troy Group Assets,
including, without limitation, the

2
<PAGE>

execution and delivery to Troy Systems of such further bills of sale,
assignments, deeds, title documents or other instruments as may reasonably be
requested by Troy Systems and obtaining of such consents or approvals as may be
necessary or appropriate to effect the transfers and assignments made hereby.

Troy Group hereby constitutes and appoints Troy Systems its true and lawful
attorney to do every act and thing whatsoever that Troy Group could lawfully do
in connection with the sale, transfer and assignment of the Troy Group Assets.

2. ASSUMPTION OF LIABILITIES. Troy Systems hereby accepts, assumes and agrees
to pay, perform and discharge any and all obligations and liabilities of Troy
Group, of every kind and description, directly related to the Troy Group Assets,
properties and rights, whether accrued, absolute or contingent, or whether in
existence on the date hereof or arising hereafter, including, without
limitation, all accounts payable.

3. SALE OF TROY SYSTEMS ASSETS. Troy Systems hereby sells, transfers,
conveys, assigns and delivers to Troy Group, its successors and assigns, all
right, title and interest of the Troy Systems Assets.

Troy Systems will cooperate with Troy Group and take such further action as
may reasonably be requested by Troy Systems in order to vest in Troy Group all
right, title and interest of Troy Systems in and to the Troy Systems Assets,
including, without limitation, the execution and delivery to Troy Group of such
further bills of sale, assignments, deeds, title documents or other instruments
as may reasonably be requested by Troy Systems and obtaining of such consents or
approvals as may be necessary or appropriate to effect the transfers and
assignments made hereby.

Troy Systems hereby constitutes and appoints Troy Group its true and lawful
attorney to do every act and thing whatsoever that Troy Systems could lawfully
do in connection with the sale, transfer and assignment of the Troy Systems
Assets.

4. ASSUMPTION OF LIABILITIES. Troy Group hereby accepts, assumes and agrees
to pay, perform and discharge the Troy Systems Liabilities, of every kind and
description, directly related to the Troy Systems Assets.

5. COUNTERPARTS. This Agreement may be executed in any number of separate
counterparts, all of which when executed and delivered, shall be deemed to be
one and the same instrument.

3
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Bill of Sale and
Assignment and Assumption Agreement to be executed by their duly authorized
representatives.

TROY SYSTEMS INTERNATIONAL, INC. TROY GROUP, INC.

By: /s/ Patrick J. Dirk By: /s/ Patrick J. Dirk
------------------- -------------------
Patrick J. Dirk Patrick J. Dirk
Its: Chief Executive Officer Its: Chief Executive Officer

<PAGE>
EXHIBIT 10.27
FORM OF
SUBSCRIPTION AGREEMENT AND
LETTER OF INVESTMENT INTENT

Troy Group Newco, Inc.
2331 South Pullman Street
Santa Ana, CA 92705

Ladies and Gentlemen:

The undersigned (the "Subscriber") hereby subscribes to acquire ___ shares
(the "Shares") of the common stock, $.01 par value (the "Common Stock"), of
Troy Group Newco, Inc., a Delaware corporation (the "Company"), in exchange for
the contribution by the undersigned of ____ shares of the outstanding common
stock of Troy Group, Inc., a Delaware corporation ("TG"), and upon the other
terms and conditions set forth below. Endorsed share certificates (or a
separate stock power separate from the certificates and the stock certificates)
of TG providing for the transfer to the Company of the TG shares free and clear
of any liens and encumbrances are enclosed and delivered herewith. The
Subscriber acknowledges that the Company is relying upon the accuracy and
completeness of the representations contained herein in complying with its
obligations under applicable securities laws and that a subscription for Shares
may be rejected for any reason.

The Subscriber acknowledges and represents as follows:

1. The Subscriber has received copies of all documents and any other
information requested from the Company and has had an opportunity to ask
questions of and receive answers from the management of the Company
concerning the terms and conditions of the offering and to obtain any
additional information desired or has elected to waive such opportunity. The
Subscriber confirms that the Subscriber is fully informed regarding the
financial condition of the Company, the administration of its business
affairs and its prospects for the future, and that the Company makes no
assurance whatsoever concerning the present and prospective value of the
Shares to be acquired.

2. The Subscriber realizes that the Shares, as an investment, are
speculative and involve a high degree of risk. The Subscriber believes that
an investment in the Shares is suitable for the Subscriber based upon the
Subscriber's investment objectives and financial needs, and the Subscriber
has the financial means to undertake the risks of an investment in the
Shares, to hold the Shares for an indefinite period of time, and to withstand
a complete loss of the Subscriber's investment in the Shares.

3. The Subscriber, either alone or with the assistance of professional
advisors, has such knowledge and experience in financial and business matters
that the Subscriber is capable of evaluating the merits and risks of an
investment in the Shares. The Subscriber has obtained, to the extent deemed
necessary, personal professional advice with respect to the risks inherent
in, and

<PAGE>

the suitability of, an investment in the Shares in light of the Subscriber's
financial condition and investment needs.

4. The Shares are being acquired by the Subscriber for investment
purposes in the Subscriber's name solely for Subscriber's own beneficial
interest and not as nominee for, or for the beneficial interest of, or with
the intention to transfer to, any other person, trust or organization.

5. The Subscriber acknowledges that (a) the Subscriber must bear the
economic risk of an investment in the Shares for an indefinite period of time
because the Shares have not been registered under the Securities Act of 1933
or any applicable state securities laws and therefore may not be sold,
transferred, assigned or otherwise disposed of unless such disposition is
subsequently registered under such laws or exemptions from such registrations
are available, and (b) a legend will be placed on the certificate evidencing
the Shares stating that the Shares have not been registered under the
Securities Act of 1933 and referencing the restrictions on the
transferability of the Shares.

6. The Subscriber is a bona fide resident of the State of _____________.

7. If the Subscriber is not an individual, (a) the Subscriber was not
organized for the specific purpose of acquiring the Shares, and (b) this
Subscription Agreement has been duly authorized by all necessary action on
the part of the Subscriber, has been duly executed by an authorized officer
or representative of the Subscriber and is a legal, valid, and binding
obligation of the Subscriber enforceable in accordance with its terms.

8. The Subscriber desires that the Shares be held in the name of:

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

Dated: , 1998
---------- ------------------------------

* * * * * * * *

This Subscription Agreement is accepted by the Company as of , 1998.
------
TROY GROUP NEWCO, INC.

By:
-----------------------------
Patrick J. Dirk
Its: President and Chief Executive Officer

<PAGE>
Exhibit 10.28

FOURTH AMENDMENT TO BUSINESS LOAN AGREEMENT
AND SECOND AMENDMENT TO ONE CERTAIN PROMISSORY NOTE

THIS FOURTH AMENDMENT TO BUSINESS LOAN AGREEMENT AND SECOND AMENDMENT TO
ONE CERTAIN PROMISSORY NOTE ("Fourth Amendment"), made and entered into as of
the 31st day of May, 1998, by and among TROY GROUP, INC., a Delaware corporation
(formerly known as Troy Group Newco, Inc. and successor in interest to Troy
Systems, Inc.) ("TGI"), TROY SYSTEMS INTERNATIONAL, INC., a Delaware corporation
(formerly known as Troy Group, Inc.) ("TSII"), and UNION BANK OF CALIFORNIA,
N.A., a national banking association ("Bank").

W I T N E S S E T H:
- - - - - - - - - -

WHEREAS, Bank and TGI are parties to that certain Business Loan Agreement,
dated as of June 19, 1997 (as amended by those certain First, Second and Third
Amendments to Loan Agreement, dated as of February 12, 1998, April 27, 1998 and
May 8, 1998, respectively, the "Loan Agreement"), which Loan Agreement governs
(a) that certain Promissory Note (Base Rate) of TGI in a principal amount not to
exceed $4,500,000.00, dated February 6, 1998 (the "Revolving Note"), and (b)
that certain Promissory Note (Base Rate) of TGI in the original principal amount
of $1,000,000.00, dated June 20, 1997 (the "Term Note"); and

WHEREAS, TSII has guarantied the payment and performance of TGI's
obligations to Bank pursuant to the terms and conditions of that certain
Continuing Guaranty, dated May 18, 1998, executed by TSII in favor of Bank (the
"Continuing Guaranty"); and

WHEREAS, TGI and TSII have entered into or will enter into a corporate
reorganization pursuant to which (a) the various shareholders of TSII have
exchanged or will exchange their stock in TSII for stock in TGI all as more
particularly provided in those certain Subscription Agreements and Letters of
Investment Intent entered into by and between such shareholders and TSII and, as
a consequence, TSII has become or will become a wholly owned subsidiary of TGI,
and (b) each of TGI and TSII has assigned and transferred or will assign and
transfer all of its business assets to the other, and each of TGI and TSII has
assumed or will assume all of the obligations and liabilities of the other, all
as more particularly provided in that certain Bill of Sale and Assignment and
Assumption Agreement, dated as of May 31, 1998, by and between TSII and TGI (the
"Reorganization"); and

WHEREAS, under Section 4.14 of the Loan Agreement and under Section 3(d) of
that certain Security Agreement, dated May 18, 1998, executed by TGI in favor of
Bank, TGI has agreed not to enter into any consolidation or merger, not to sell
all or the greater part of its assets or business, not to purchase all or the
greater part of the assets or business of another and not to change its
composition as a business entity, in each case without the prior written consent
of Bank, and, accordingly, has requested that Bank provide its written consent
to the Reorganization; and

WHEREAS, under Section 3(d) of that certain Security Agreement, date May
18, 1998, executed by TSII in favor of Bank, TSII has agreed not to change its
composition as a business entity without the prior written consent of Bank and,
accordingly, has requested that Bank provide its written consent to the
Reorganization; and

<PAGE>

WHEREAS, Bank is willing to consent to the Reorganization, subject,
however, to the terms and conditions of this Fourth Amendment; and

WHEREAS, TGI, TSII and Bank desire to amend the Loan Agreement and the Term
Note (a) to reflect certain changes effected by the Reorganization, (b) to
extend the maturity of the Borrowing Base Loan through and including June 30,
1999, and (c) to provide for certain other matters;

1. All capitalized terms used in this Fourth Amendment shall, unless
otherwise defined herein or unless the context otherwise requires, have the
meanings given thereto in the Loan Agreement or the Term Note, as the context
may require.

2. Bank hereby consents to the Reorganization upon the terms and subject
to the conditions of this Fourth Amendment.

3. From and after the date on which this Fourth Amendment becomes
effective as provided in Paragraph 6, below, each reference to "Troy Group, Inc.
(formerly known as Troy Group Newco, Inc. and successor in interest to Troy
Systems, Inc.)," "Borrower" or "Debtor" which is contained in the Loan
Agreement, the Term Note or any other document, instrument or agreement entered
into in connection with the Loan Agreement, the Term Note or any transaction
contemplated by either of the same (including without limitation any application
and agreement relating to the issuance of a standby letter of credit under the
Loan Agreement), shall be and be deemed to be a reference to "Troy Systems
International, Inc. (successor in interest to Troy Group, Inc."). In connection
therewith, (a) the Loan Agreement is amended by deleting the name "Troy Group,
Inc. (formerly known as Troy Group Newco, Inc. and successor in interest to Troy
Systems, Inc.)" where it appears in the second line of the introductory
paragraph thereof and in the signature line thereof and by substituting in lieu
thereof in each such instance the name "Troy Systems International, Inc.
(successor in interest to Troy Group, Inc.)", and (b) the Term Note is amended
by deleting the name "Troy Group, Inc. (formerly known as Troy Group Newco, Inc.
and successor in interest to Troy Systems, Inc.)" where it appears at the top of
the first page thereof and in the signature line thereof and by substituting in
lieu thereof in each such instance the name "Troy Systems International, Inc.
(successor in interest to Troy Group, Inc.)".

4. Upon the consummation of the Reorganization, (a) TSII agrees to, and
shall, (i) assume all liabilities, duties and obligations of TGI under the Loan
Agreement, the Revolving Note, the Term Note and the other Loan Documents
(including without limitation all liabilities, duties and obligations arising
under any application and agreement relating to the issuance of a standby letter
of credit under the Loan Agreement), and (ii) succeed to all rights of TGI under
the Loan Agreement, the Revolving Note, the Term Note and the other Loan
Documents, and (b) TGI agrees to, and shall, (i) assume all liabilities, duties
and obligations of TSII under the Continuing Guaranty and all other documents,
instruments and agreements entered into by TSII in connection with the
Continuing Guaranty and the transactions contemplated by the Loan Agreement, and
(ii) succeed to all rights of TSII under the Continuing Guaranty and such other
documents, instruments and agreements.

2
<PAGE>

5. The Loan Agreement is further amended as follows:

(a) By deleting the first sentence of the first paragraph of Section 1.2
and by substituting in lieu thereof the following:

An amount of the Loan equal to Four Million Five Hundred Thousand
Dollars ($4,500,000.00), evidenced by a separate Note, is a revolving loan
subject to a borrowing base ("Borrowing Base Loan").

(b) By deleting the date "June 30, 1998" where it appears in the last line
of the first paragraph of Section 1.2 and by substituting in lieu thereof
the date June 30, 1999;

(c) By deleting the name "Troy Group, Inc." where it appears in the third
line of Section 1.7 and by substituting in lieu thereof the name "Troy
Group, Inc. (successor in interest to Troy Systems International, Inc.)";
and

(d) By adding a new Section 1.9 to read as follows:

1.9 FEES. Without in any way limiting the rights and remedies of
Bank under this Agreement, including without limitation the right to
call a default, to accelerate the balance owing under the Note, and to
assess the default rate of interest on all or a portion of the
principal and interest due under the Note, Borrower agrees to pay to
Bank, in immediately available funds, a fee of Two Thousand Five
Hundred Dollars ($2,500.00) per violation for the violation of any of
the financial covenants set forth in Subsections 4.1(c), (d), (e), (f)
and (g) of this Agreement. For the purpose of this Section 1.9,
compliance with the covenants set forth in Subsections 4.19(c), (d),
(e) and (f) shall be measured as at the end of each fiscal quarter of
Borrower, and compliance with the covenant set forth in Subsection
4.1(g) shall be measured as at the end of each fiscal year of
Borrower.

6. The consent granted by Bank in Paragraph 2 of this Fourth Amendment
and the other provisions of this Fourth Amendment shall become effective upon
the satisfaction of the following conditions precedent:

(a) The Reorganization shall have been consummated in accordance with all
applicable laws, rules and regulations; and

(b) Bank shall have received the following, each in form and substance
satisfactory to Bank and its counsel;

(i) This Fourth Amendment, duly executed by TGI and TSII;

(ii) A replacement Revolving Note on Bank's standard form, dated the
date the Reorganization is consummated (the "Closing Date"), duly
executed by "Troy Systems International, Inc. (successor in interest
to Troy Group, Inc.)";

(iii) A Security Agreement on Bank's standard form, dated the
Closing Date, duly executed by "Troy Systems International, Inc.
(successor in interest to Troy Group, Inc.)";

3
<PAGE>

(iv) A Continuing Guaranty of the obligations of "Troy Systems
International, Inc. (successor in interest to Troy Group, Inc.)" to
Bank, on Bank's standard form, dated the Closing Date, duly executed
by "Troy Group, Inc. (successor in interest to Troy Systems
International, Inc.)";

(v) A Security Agreement on Bank's standard form, dated the Closing
Date, duly executed by "Troy Group, Inc. (successor in interest to
Troy Systems International, Inc.)";

(vi) A written opinion of Oppenheimer, Wolff & Donnelly LLP, counsel
to TGI and TSII, in the form appended hereto as Exhibit I, dated the
Closing Date and addressed to Bank;

(vii) A documentation fee in the amount of Four Thousand Five
Hundred Dollars ($4,500.00); and

(viii)Such other documents, instruments and agreements as Bank may
reasonably require to effectuate the purposes of this Fourth
Amendment.

7. Except as expressly provided herein, the Loan Agreement and the Term
Note are unchanged and shall remain in full force and effect, and such Loan
Agreement and such Term Note are hereby ratified and confirmed by TGI and TSII.

8. This Fourth Amendment shall be governed by and construed in accordance
with the laws of the State of California.

9. This Fourth Amendment may be executed in any number of identical
counterparts, any set of which signed by all parties hereto shall be deemed to
constitute a complete, executed original for all purposes.

IN WITNESS WHEREOF, the parties have executed this Fourth Amendment as of
the day and year first above written.

TROY SYSTEMS INTERNATIONAL, INC. UNION BANK OF CALIFORNIA, N.A.

By: /s/ Patrick J. Dirk By: /s/ Margaret Furbank
---------------------------- ----------------------------
Title: Chief Executive Officer Title: Vice President
------------------------- -------------------------

By: /s/ Lance Zediker
----------------------------
Title: Assistant Vice President
-------------------------

TROY GROUP, INC.

By: /s/ Patrick J. Dirk
----------------------------
Title: Chief Executive Officer
-------------------------

4
<PAGE>

EXHIBIT I

[Oppenheimer, Wolff & Donnelly LLP Letterhead]

______________________, 1998

Union Bank of California, N.A.
Orange County Commercial Portfolio Administration
500 South Main Street, Suite 201
Orange, California 92868
Attention: Ms. Margaret Y. Furbank

Re: Troy Group, Inc./Troy Systems International, Inc.

Ladies and Gentlemen:

We have acted as counsel for Troy Group, Inc., a Delaware corporation ("TGI"),
and Troy Systems International, Inc., a Delaware corporation ("TSII"), in
connection with the corporate reorganization effected by TGI and TSII pursuant
to which (a) the various shareholders of TSII exchanged their stock in TSII for
stock in TGI all as more particularly provided in those certain Subscription
Agreements and Letters of Investment Intent entered into by and between such
shareholders and TSII, and (b) each of TGI and TSII assigned and transferred all
of its business assets to the other, and each of TGI and TSII assumed all of the
obligations and liabilities of the other, all as more particularly provided in
that certain Bill of Sale and Assignment and Assumption Agreement, dated as of
May 31, 1998, by and between TSII and TGI (the "Reorganization"). This opinion
is furnished to Union Bank of California, N.A., a national banking association
("Bank"), in its capacity as a creditor of TGI pursuant to a Business Loan
Agreement (the "Loan Agreement"), dated as of June 19, 1997, as amended, and all
other documents, instruments and agreements delivered to Bank in connection with
the Loan Agreement (including without limitation the Continuing Guaranty of the
obligations of TGI to Bank, dated __________________, 1998, executed by TSII in
favor of Bank).

We have examined such documents, records and matters of law as we have deemed
necessary for purposes of this opinion, and based thereon we are of the opinion
that:

1. The Reorganization has been consummated in accordance with all
applicable laws, rules and regulations.

2. As a result of the Reorganization, TSII became a wholly owned
subsidiary of TGI.

3. Upon consummation of the Reorganization, TSII acquired all assets
and assumed all liabilities and obligations of TGI, and TGI acquired all
assets and assumed all liabilities and obligations of TSII.

5
<PAGE>

4. Upon consummation of the Reorganization, (a) all rights of Bank
against TGI were preserved unimpaired against TSII, and all debts,
liabilities and obligations of TGI to Bank attached to TSII and may be
enforced against TSII to the same extent as if such debts, liabilities and
obligations had originally been incurred or contracted by TSII rather than
by TGI, and (b) all rights of Bank against TSII were preserved unimpaired
against TGI, and all debts, liabilities and obligations of TSII to Bank
attached to TGI and may be enforced against TGI to the same extent as if
such debts, liabilities and obligations had originally been incurred or
contracted by TGI rather than by TSII.

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use in this Amendment No. 1 to the Registration
Statement on Form S-1 (No. 333-51523) of our report, dated June 17, 1998,
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
June 29, 1998

<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000

<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 MAY-31-1998
<CASH> 100 40
<SECURITIES> 0 0
<RECEIVABLES> 5,673 6,804
<ALLOWANCES> 164 315
<INVENTORY> 3,831 4,625
<CURRENT-ASSETS> 9,694 11,408
<PP&E> 6,249 6,590
<DEPRECIATION> 5,069 5,331
<TOTAL-ASSETS> 11,749 13,480
<CURRENT-LIABILITIES> 4,521 5,457
<BONDS> 0 0
0 0
0 0
<COMMON> 75 75
<OTHER-SE> 5,873 7,177
<TOTAL-LIABILITY-AND-EQUITY> 11,749 13,480
<SALES> 33,434 18,322
<TOTAL-REVENUES> 33,434 18,322
<CGS> 19,597 10,756
<TOTAL-COSTS> 9,143 4,652
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 65 151
<INTEREST-EXPENSE> 262 69
<INCOME-PRETAX> 4,432 2,845
<INCOME-TAX> 35 43
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,397 2,802
<EPS-PRIMARY> .95 .11
<EPS-DILUTED> .34 .10

</TABLE>

<PAGE>

EXHIBIT 99.1

CONSENT

I hereby consent to being named as a director nominee in Troy Group,
Inc.'s Registration Statement on Form S-1 (File No. 333-51523) and the
related Prospectus for the registration of its Common Stock, and any
amendments thereto.

/s/ BRIAN P. DIRK
--------------------------
June 22, 1998

<PAGE>

EXHIBIT 99.2

CONSENT

/s/ NORMAN B. KEIDER
--------------------------
June 19, 1998

<PAGE>

EXHIBIT 99.3

CONSENT

/s/ JOHN B. ZAEPFEL
--------------------------
June 19, 1998

<PAGE>

EXHIBIT 99.4

CONSENT

/s/ WILLIAM P. O'REILLY
--------------------------
June 18, 1998

<PAGE>

EXHIBIT 99.5

CONSENT

/s/ GENE A. BIER
--------------------------
June 24, 1998