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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO .
----------- -----------
COMMISSION FILE NUMBER 1-9341
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HOWTEK, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 02-0377419
- ------------------------------- -------------------------------
STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
21 PARK AVENUE, HUDSON, NEW HAMPSHIRE 03051
- ---------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:(603) 882-5200
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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9% CONVERTIBLE SUBORDINATED PHILADELPHIA STOCK EXCHANGE
DEBENTURES DUE 2001
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF CLASS
--------------
COMMON STOCK, $.01 PAR VALUE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing price for the registrant's stock on
December 29, 1995 was $47,348,284.
As of March 5, 1996 the Registrant had 7,964,218 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
The information required by Part III (Items 10, 11, 12, and 13) of this Annual
Report on Form 10-K is hereby incorporated by reference from the Company's
definitive Proxy Statement with respect to its 1996 Annual Stockholders' meeting
to be filed with the Securities and Exchange Commission pursuant to Regulation
14A.
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PART I
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ITEM 1. BUSINESS.
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GENERAL
Howtek, Inc. (the "Company"), a Delaware corporation located in Hudson, New
Hampshire, was formed in February 1984. The Company designs, engineers, develops
and manufactures digital image scanners, densitometers, film digitizers and
related software for applications in the graphic arts, medical imaging and life
sciences markets. The Company sells its products throughout the world through
various distributors, resellers, systems integrators and OEM's.
GENERAL DEVELOPMENTS OVER THE PAST FIVE YEARS
During the past five years the Company has expanded its product
offering and the markets into which it sells. In the graphic arts market, which
includes printers, publishers, trade shops, service bureaus, desktop publishers
and photo retouchers, the Company sells the Scanmaster 7500 and 4500 pmt
(photo-multiplier tube) drum scanners, the Scanmaster 2500 ccd (charge coupled
device) array flatbed scanner, and Trident[TRADEMARK], Aurora[TRADEMARK] and
Polaris[TRADEMARK] software applications. None of these products existed five
years ago and they service a broader range of the graphic arts market than the
Company's preceding product line. The Company has also expanded into the
medical imaging and life sciences markets. With the Scanmaster DX film
digitizer and Scanmaster Pro-G densitometer, the Company is able to address the
demand for reliable, fast, high quality and affordable methods of capturing
data from x-rays and DNA sequences.
SCANNER TECHNOLOGY
The Company's scanner products are based on charge coupled device ("ccd")
array technology and photomultiplier tube ("pmt") technology. CCD scanners use a
flatbed design and focus an array of light sensors across the width of the scan
area while pmt scanners focus a single scanning beam on a rotating drum.
CCD ARRAY SCANNERS
In 1995 the Company added to its family of desktop scanners with the
announcement of the Scanmaster[TRADEMARK] 2500 ccd flatbed scanner and
commenced customer shipments of the Scanmaster Pro-G ccd flatbed scanner.
The Scanmaster 2500, which is targeted at the graphic arts market, is a
flatbed scanner that utilizes a tri-linear array, the latest in ccd technology.
This array allows for greater accuracy and less noise as well as making the 2500
a faster
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scanner. The Scanmaster 2500 has the ability to scan both reflective and
transmissive, positive and negative, originals up to 13 x 18 inches. Additional
features include a 3.4 optical density, single pass scanning and a resolution of
600 x 1200 dpi native, with interpolation from 50 to 4800 total range. The
Scanmaster 2500 is suitable for scanning artboards, large maps, full size books,
sketches, and negatives or halftones. Shipment of the Scanmaster 2500 commenced
in April of 1995. In September 1995, the Scanmaster 2500 was selected as a
winner of Publish magazine's "Impact" award for innovation in the field of
electronic publishing.
The Scanmaster Pro-G and DX are targeted at the life sciences and medical
imaging markets respectively. Features of both scanners include: scanning areas
up to 13 x 18 inches, optical density of up to 3.4 and standard SCSI-2
interface. The Pro-G captures images over a resolution range of 64 to 1024 dpi.
The DX can digitize films with a 50 micron spot size. The Pro-G is used for
reproducing DNA/RNA protein samples captured in gels, radiographs and
photographs for applications ranging from forensics to genetic research. The DX
is an X-ray film digitizer and is also used for digitally reproducing
radiographs. This digitizer is ideal for PACS (Picture Archiving and
Communication System), clinical diagnosis and teleradiology. The DX received FDA
clearance to market at the end of January 1996.
PMT SCANNERS
PMT scanner products of the Company consist of the Scanmaster 7500 Pro
large format drum scanner and the Scanmaster 4500. The Scanmaster 7500 Pro and
the 4500 are sold under the Howtek label and are also sold to OEM's which sell
the scanner under their own names.
The Scanmaster 7500 Pro is a large format, high volume, production scanner.
Features include a scanning area of up to 18.5 x 24 inches, reflective,
transparent, positive and negative image scanning and enlargement capabilities
from 10% to 10.667%. The 7500 is targeted at large volume color separators,
trade shops and commercial printers.
The Scanmaster 4500 features a scanning area of 11.0 x 11.8 inches, the
ability to scan line art, grayscale and color on reflective or transparent
images, in both positives and negatives. Additional features include enlargement
capabilities ranging from 10% to 2400%, auto and manual focus with 12 aperture
settings, 12 bits of data per color, 4096 levels of grayscale, drum speed of 300
to 1200 rpm's, SCSI-2 interface, optical density of 0 to 3.8, operating on
Macintosh [registered trademark], Windows [trademark] and UNIX [trademark]
operating systems.
- ----------
Macintosh is a trademark of Apple Computer, Inc. Windows is a trademark of
Microsoft Corporation. UNIX is a trademark of AT&T Corporation. Scanmaster is a
trademark of Howtek, Inc.
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MATERIAL CONTRACTS
In early 1995 the Company entered into a Standard Configuration OEM
Agreement with Crosfield Electronics Limited. The effective date of the
Agreement was December 22, 1994 and has an initial term of 18 months with
automatic 12 month renewal terms. Under the Agreement the Company agreed to sell
its Scanmaster 4500 drum scanner to Crosfield for resale by Crosfield under its
own label. The Agreement is set forth as Exhibit 10(e) to this Report on Form
10-K.
SOURCES AND AVAILABILITY OF MATERIALS
The electronics industry is subject to periodic fluctuations in the
production capacity of integrated circuit manufacturers and other key suppliers.
Currently, the Company believes that there are adequate sources and availability
of the components necessary to manufacture its products.
COMPETITION
The Company faces competition in the graphic arts markets for CCD array and
PMT scanner markets as well as in the medical imaging and life sciences markets
for x-ray digitizers and densitometers. Among its competitors are numerous
foreign and domestic digital scanner companies. Many of these competitors are
well established, have financial, engineering, manufacturing and distribution
resources substantially greater than those of the Company, and have established
reputations for success in the development, sale and service of products that
will be competitive with those of the Company. The principal methods of
competition in these markets are price, performance, proprietary hardware and
software, and service. During 1995 the Company continued to experience
significant competition in these markets.
WORKING CAPITAL REQUIREMENTS
The principal working capital requirements of the Company are those
characteristic of any electronics manufacturing company with regard to the
management of the work in process and the inventory of finished goods arising
from such manufacturing activities. In addition, because a significant portion
of the Company's sales are derived from foreign sales (see Note 8 to Notes to
Financial Statements) the Company must carry the expense of the longer repayment
cycles accorded to foreign distributors and OEM's.
PATENTS
The Company has seventeen United States patents with respect to its
scanner, pre-press and phase change ink jet technology. Eleven of the patents
relate to the Company's ink jet
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technology which the Company is not currently using in any of its products, but
which it has licensed to a number of other companies. Six patents relate to the
Company's scanner and pre-press technology which is the basis of its current
business. These patents help the Company maintain a proprietary position in the
scanner market, but because of the pace of innovation in that market it is
difficult to determine the overall importance of these patents to the Company.
The Company has filed foreign patent applications on some of these patents
and plans to file additional domestic and foreign applications when it believes
such protection will benefit the Company.
There is no assurance that additional patents will be obtained either in
the United States or in foreign countries or that existing or future patents or
copyrights will provide substantial protection or commercial benefit to the
Company.
There is rapid technological development in the Company's markets with
concurrent extensive patent filings and a rapid rate of issuance of new patents.
Although the Company believes that its technologies have been independently
developed and do not infringe the patents of others, certain components of the
Company's products could infringe patents, either existing or which may be
issued in the future, in which event the Company may be required to modify its
designs or obtain a license. No assurance can be given that the Company will be
able to do so in a timely manner or upon acceptable terms and conditions; and
the failure to do either of the foregoing could have a material adverse effect
upon the Company's business.
In addition to protecting its technology and products by seeking patent
protection when deemed appropriate, the Company also relies on trade secrets,
proprietary know-how and continuing technological innovation to develop and
maintain its competitive position. The Company requires all of its employees to
execute confidentiality agreements. Insofar as the Company relies on
confidentiality arrangements, there is no assurance that others will not
independently develop similar technology or that the Company's confidentiality
agreements will not be breached.
All key officers and employees have agreed to assign to the Company certain
technical and other information and patent rights, if any, acquired by them
during their employment with the Company and after any termination of their
employment with the Company (if such information or rights arose out of
information obtained by them during their employment).
ENGINEERING AND PRODUCT AND SOFTWARE DEVELOPMENT
For the years ended December 31, 1995, 1994 and 1993 the
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Company spent $2,788,281, $2,890,182, and $3,162,252, respectively, on
engineering and product development. In addition, for the years ended December
31, 1995, 1994 and 1993 the Company spent $445,106, $709,505, and $839,829
respectively, on software development.
MANUFACTURING
The Company manufactures all of its hardware products at its Hudson, New
Hampshire facilities and sublicenses some of its software products from third
parties.
EMPLOYEES
On December 31,1995 the Company had 116 full-time employees.
CUSTOMERS
During 1995, 36% of the Company's sales were made to Techexport, Inc., a
foreign distributor of the Company's scanner product and 20% of sales were made
to Crosfield Electronics Limited, an original equipment manufacturer ("OEM")
which sells the Scanmaster 4500 under its own label. A reduction in purchases by
either company could have a material impact on the Company's sales, however, the
Company believes there are other channels of distribution and potential OEM
customers available.
BACKLOG
The dollar amount of the Company's backlog, or orders believed to be firm,
as of December 31, 1995 was approximately $740,000 as compared to approximately
$20,000 on the corresponding date in 1994.
ENVIRONMENTAL PROTECTION
Compliance with federal, state and local provisions which have been enacted
or adopted regulating the discharge of materials into the environment, or
otherwise relating to the protection of the environment, has not had a material
effect upon the capital expenditures, earnings (losses) and competitive position
of the company.
EXPORT SALES
Certain financial information about export sales is set forth in Note 8 to
Notes to Financial Statements accompanying this Report on Form 10-K.
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<TABLE>
EXECUTIVE OFFICERS OF THE COMPANY.
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David R. Bothwell 47 President, Chief Executive Officer,
Director
M. Russell Leonard 50 Executive Vice President, Chief
Operating Officer
Drew E. Woodworth 45 Vice President Operations
Robert A. Dusseault 58 Vice President, Sales and Marketing
Randal L. Herring 47 Vice President Sales and Marketing,
Medical Imaging Group
Robert J. Lungo 48 Vice President, Chief Financial
Officer
Michael Varanka 42 Senior Vice President, Technology
Anthony Finizio (1) 52 President, Chief Operating Officer
<FN>
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(1) Mr. Finizio resigned on May 30, 1995.
</TABLE>
David R. Bothwell rejoined the Company on December 8, 1993, as Chief
Executive Officer and Acting President after having left on February 26, 1993,
for health reasons. In April of 1994, he relinquished the position of President
to Mr. Finizio, and then, on May 30, 1995, he resumed the position of President.
Prior to his departure in 1993, Mr. Bothwell had served as President and Chief
Operating Officer of the Company since June 1988, and Director and Chief
Financial Officer since August 1988. From October 1985, to June 1988, Mr.
Bothwell served as Executive Vice President and Chief Operating Officer of
Daymarc Corporation, a manufacturer of automatic test handlers for the
semiconductor industry.
M. Russell Leonard joined the Company in April 1990 as Vice President
Programs & Administration. In December 1991 he was named Vice President,
Operations and Programs in February 1993 he was named Executive Vice
President and in May of 1995 he was named Chief Operating Officer. From
November 1987 to April 1990 he operated his own business in the water treatment
industry. From 1985 to 1987 Mr. Leonard worked as the Director of Program
Management for the Serial Computer Printer Group, at Dataproducts Corp.
Drew E. Woodworth joined the Company in December 1995 as Vice President of
Operations. Previously he worked for Nashua Corp., a manufacturer of various
computer memory and office products, since 1977 where he served in many
capacities including; Operations Manager from December 1993 to December 1995,
Manufacturing Manager
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of Duct and Masking Tape Operations from October 1988 to December 1993,
Corporate Purchasing Manager, Industrial Tape Division from May 1987 to October
1988, and Finishing Manager of Duct and Masking Tape Division from December
1985 to May 1987
Robert A. Dusseault joined the Company in August 1995 as Vice President of
Sales and Marketing. From August 1993 to May 1995 he was Vice President of Sales
and Customer Support for Iris Graphics, Inc., a high-end digital inkjet company.
From September 1992, to July 1993, Mr. Dusseault was Senior Director of Reseller
Operations for Iris Graphics. From 1988 to 1992 he was Director of Strategy and
Business Planning for Asia Operations of the Bull Worldwide Informations Systems
Inc., International Division.
Randal L. Herring joined the Company in January of 1996 as Vice President
Sales and Marketing, Medical Imaging Group. Previously he had spent 25 years at
General Electric Company in various positions, including from December 1994
until joining Howtek as Regional Product Manager of x-ray products, from June
1993 to June 1994 as Strategic Accounts Manager, from February 1992 to May 1993
as Regional Product Manager, CT products, and from April 1983 to February 1993
as Full Line Sales Representative, CT sales.
Robert J. Lungo joined the Company on April 11, 1994 as Vice President,
Chief Financial Officer. From August of 1992 to April 1994 he was Vice
President, Chief Financial Officer of Juno Enterprises, Inc., an electronics
company, in Minneapolis, MN. From June 1991 to August 1992 he was Program
Director at the Company. From September 1985 to June 1991 he was Vice President,
Chief Financial Officer at Daymarc Corporation in Waltham, MA.
Michael Varanka joined the Company in June 1989 and was appointed Vice
President, Engineering in January 1990. In December 1993 he was appointed Senior
Vice President, Technology. Previously he spent six years at Dataproducts Corp.,
a manufacturer of serial impact, thermal transfer and solid ink printers where
he held several key engineering positions including Director of Engineering and
Director of Solid Ink Engineering.
Mr. Anthony Finizio joined the Company as an employee in March 1994, and in
April 1994 was named President, Chief Operating Officer. He resigned on May 30,
1995. From June 1992 to the date of his joining the Company, he served as a
consultant to various companies. From January 1991 to June 1992 Mr. Finizio was
President of Houston Instrument which designed, manufactured and sold plotters
and computer aided design ("CAD") scanners. From 1980 to January 1991 he was a
Vice President of Howmet Corporation.
ITEM 2. PROPERTIES
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The Company's principal executive offices and research and development
laboratory are located at 21 Park Avenue, Hudson, New Hampshire. The facility
consists of approximately 21,000 square feet of office and research and
development space and is
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leased by the Company from Mr. Robert Howard, Chairman of the Board of Directors
of the Company, pursuant to a lease which expires September 30, 1996 at an
annual rent of $78,500. Additionally, the Company is required to pay real estate
taxes, provide insurance and maintain the premises.
The Company leases an additional 36,100 square feet of office,
manufacturing and warehouse space adjacent to its current facility which it
believes will be adequate to support its planned growth. If the Company decides
to seek additional or replacement facilities, it believes there is adequate
facilities available at commercially reasonable rates.
ITEM 3. LEGAL PROCEEDINGS.
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On June 7, 1994 the company filed a complaint in the United States District
Court, District of New Hampshire against TECO Electric & Machinery Co. Ltd.
("TECO"), several TECO subsidiaries, a TECO employee, and a number of
distributors of TECO products. The Company claims, inter alia, that TECO
breached an exclusive manufacturing contract it entered into with the Company to
manufacture digital color scanners exclusively for the Company by selling
scanners under its own labels and those of other companies. The Company's claim
is based upon misappropriation of trade secrets, civil conspiracy, unfair
competition, and breach of contract. The Company initially sought damages in its
complaint in the amount of $17 million, however, an expert retained by the
Company to testify at the trial has subsequently concluded that the Company's
damages, as a result of TECO's actions and omissions, are substantially in
excess of the amount alleged in the complaint. TECO has answered the complaint
and asserted various counterclaims, including misrepresentation and breach of
contract, and is claiming approximately $3,000,000 in payment for past due
services and breach of obligations by the Company to allow TECO to manufacture
other scanner products for the Company. The court has instructed the parties to
engage in alternative dispute resolution to attempt to resolve the dispute. A
date for trial has not been set. There can be no assurance that the Company will
be successful in the action, or if it is, as to the amount of damages it may be
awarded.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
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Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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<TABLE>
The Company's Common Stock is traded on the NASDAQ National Market
under the symbol "HOWT". Prior to July 13, 1995 the Company's Common Stock was
traded on the American Stock Exchange under the symbol "HTK". The following
table sets forth the range of high and low bid prices for each full quarterly
period and partial quarterly period during 1995, while the Company's Common
Stock was traded on NASDAQ and also sets forth the high and low sales prices
for each full quarterly period and partial quarterly period in 1995 and 1994,
while the Company's Common Stock was traded on the American Stock Exchange.
<CAPTION>
High Low
<S> <C> <C>
Fiscal year ended
December 31, 1994
First Quarter $ 9-1/8 $6-1/4
Second Quarter 8-1/2 6
Third Quarter 11-3/8 6-5/8
Fourth Quarter 10-3/8 8
Fiscal year ended
December 31, 1995
First Quarter 10-7/8 6-3/4
Second Quarter 10-5/8 8
Third Quarter (7/01-7/13/95) 10-3/8 7-5/8
Third Quarter (7/14-9/30/95) 11-1/2 7-1/2
Fourth Quarter 10-1/4 6-1/2
</TABLE>
As of February 12, 1996 there were approximately 357 holders of record of
the Company's Common Stock.
The Company has not paid any cash dividends on its Common Stock to date,
and the payment of cash dividends in the foreseeable future is not contemplated
by the Company. Future dividend policy will depend on the Company's earnings,
capital requirements, financial condition and other factors considered relevant
to the Company's Board of Directors. There are no non-statutory restrictions on
the Company's present or future ability to pay dividends.
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<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
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SELECTED STATEMENT OF OPERATIONS DATA
<CAPTION>
YEAR ENDED DECEMBER 31,
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1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Sales $20,603,654 $24,370,329 $20,550,105 $23,008,565 $11,877,999
Gross margin 6,619,835 9,237,115 7,506,127 11,374,615 4,257,628
Other expenses (income) - net 0 0 (570,025) 0 0
Restructuring charge 2,662,632 0 0 0 0
Total operating expenses 11,441,837 8,020,469 7,961,622 7,197,291 8,819,308
Income (loss) from operations (4,822,002) 1,216,647 (455,495) 4,177,324 (4,561,680)
Interest expense - net 433,045 259,227 329,461 369,653 474,864
Pre-tax income (loss) (5,255,047) 957,420 (784,956) 3,807,671 (5,036,544)
Provision for income taxes 0 77,000 4,903 35,000 0
Net Income (loss) (5,255,047) 880,420 (789,859) 3,772,671 (5,036,544)
Net Income (loss) per share (0.66) 0.11 (0.10) 0.49 (0.67)
</TABLE>
<TABLE>
SELECTED BALANCE SHEET DATA
<CAPTION>
AS OF ENDED DECEMBER 31,
---------------------------------------------------------------------------
1995 1994 1993 1992 1995
<S> <C> <C> <C> <C> <C>
Total current assets $14,137,204 $16,891,438 $13,834,468 $15,987,231 $11,941,542
Total assets 18,495,240 21,573,849 18,120,557 19,611,320 15,073,869
Total current liabilities 4,203,168 4,811,528 2,467,054 2,635,878 2,720,023
Loan payable to principal stockholder 3,578,604 1,000,000 1,000,000 2,100,000 2,000,000
Convertible Subordinated Debentures 2,181,000 2,181,000 2,181,000 2,181,000 2,181,000
Stockholders' equity 8,532,468 13,581,321 12,472,503 12,694,442 8,172,846
</TABLE>
<TABLE>
SELECTED QUARTERLY DATA
<CAPTION>
EARNINGS
GROSS ------------------------------------------
SALES MARGIN EARNINGS (LOSS) PER SHARE PRIMARY
----- ------ --------------- -----------------
<S> <C> <C> <C> <C>
1994 QUARTER ENDED:
- -------------------
March 31 $4,724,218 $1,606,100 ($480,414) $(0.06)
June 30 6,092,770 2,137,452 183,595 0.02
September 30 6,416,661 2,451,407 408,920 0.05
December 31 7,136,679 3,042,154 768,318 0.10
1995 QUARTER ENDED:
- -------------------
March 31 $5,851,750 $2,228,122 $152,658 $0.02
June 30 5,356,900 1,976,828 (2,821,001) (0.36)
September 30 4,303,024 1,363,434 (1,161,569) (0.15)
December 31 5,091,980 1,051,451 (1,425,135) (0.18)
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
-----------------------------------
RESULTS OF OPERATIONS
Year Ended December 31, 1995 compared to Year Ended December 31, 1994
- ---------------------------------------------------------------------
Sales for the year ended December 31, 1995 were $20,603,654 a decrease of
15% from sales during the year ended December 31, 1994 of $24,370,329.
The decrease in sales is due primarily to the general weakness of the
graphic arts market in North America which resulted in a lower level of sales of
the Scanmaster 7500. In an effort to increase demand of the Scanmaster 7500 in
1996, the Company entered into agreements with third party software vendors
during the fourth quarter of 1995 to make additional software options available
to customers.
The Company's gross margin decreased from 38% in 1994 to 32% in 1995. This
decrease resulted primarily from the increased percentage of OEM and
international sales at higher discounts causing lower overall gross margins.
Engineering and product development costs (net of capitalized software
development costs of $445,106 and $709,505 for 1995 and 1994 respectively)
decreased slightly from $2,890,182 in 1994 to $2,788,281 in 1995. The level of
engineering and product development spending is expected to decrease slightly in
1996.
General and administrative expense increased 20% from $2,210,204 in 1994 to
$2,651,905 in 1995. This increase was due primarily to the increase in legal
fees, of about $450,000 in 1995, in connection with a lawsuit against a former
contract manufacturer. See Note 11 of Notes to Financial Statements.
Marketing and sales expenses during 1995 were $3,339,019 which represents a
14% increase from $2,920,082 for 1994. The increase results from increases in
salaries, advertising, promotional and trade show expenses.
Net interest expense increased 67% from $259,227 in 1994 to $433,045 in
1995 due to the increase in the Company's loan with Robert Howard, its Chairman
and principal stockholder. See Note 4 of Notes to Financial Statements.
The Company reported a net loss of $5,255,047 for the year ended December
31, 1995 as compared to net income of $880,420 for the year ended December 31,
1994, which included a restructuring charge of $2,662,632. Additional reserves
totalling $500,000, for inventory and accounts receivable, were recorded in
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the fourth quarter of 1995. See Note 3 of Notes to Financial Statements.
Year Ended December 31, 1994 compared to Year Ended December 31, 1993
- ---------------------------------------------------------------------
Sales for the year ended December 31, 1994 were $24,370,329 an increase of
19% from sales during the year ended December 31, 1993 of $20,550,105.
The increase in sales in 1994 resulted from the shipment of the Scanmaster
7500 beginning in the first quarter of 1994 and the introduction and shipment of
the Scanmaster 4500 beginning in the third quarter of 1994, combined with
continuing shipments of the Company's ccd array flatbed scanner products.
The Company's gross margin increased slightly from 37% in 1993 to 38% in
1994 as a result of the Company bringing in-house the manufacture of all its
products. The Company recorded a 43% gross margin in the fourth quarter of 1994
resulting primarily from a cost reduction program on both the Scanmaster 7500
and Scanmaster 4500 product lines.
Engineering and product development costs (net of capitalized software
development costs of $709,505 and $839,829 for 1994 and 1993 respectively)
decreased 9% from $3,162,252 in 1993 to $2,890,182 in 1994.
General and administrative expense decreased slightly from $2,394,528 in
1993 to $2,210,204 in 1994. This decrease was due primarily to decreases in bad
debt provisions and legal fees.
Marketing and sales expenses during 1994 were $2,920,082 which represents a
2% decrease from $2,974,867 for 1993. The reason the Company was able to
increase sales by 19% without increasing marketing and selling expenses was
primarily because it used its promotional resources more efficiently by cutting
back on trade show expenditures and spending more on selective advertising.
Net interest expense decreased 21% from $329,461 in 1993 to $259,227 in
1994 due to the reduction in the Company's loan with Robert Howard, its Chairman
and principle stockholder. See Note 3 of Notes to Financial Statements.
The Company reported net profit of $880,420 for the year ended December 31,
1994 as compared to a net loss of $789,859 for the year ended December 31, 1993.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to generate cash adequate to meet its requirements
depends primarily on operating cash flow and the availability of the $8,000,000
credit line under the Revolving Loan Agreement with its Chairman, of which
$4,421,396 was available at December 31, 1995. The Company believes that these
sources are sufficient to satisfy its cash requirements for the foreseeable
future.
Working capital decreased $2,145,874 from $12,079,910 at December 31, 1994
to $9,934,036 at December 31, 1995. The ratio of current assets to current
liabilities decreased slightly from 3.5 at December 31, 1994 to 3.4 at December
31, 1995.
In 1995 the Company spent in excess of $4,400,000 for tooling and new
product development of which $1,646,570 was capitalized as additions to property
and equipment and software development with the balance expensed. Depending upon
the level of business as the year develops, the Company expects its capital
spending to increase moderately in 1996. The cash position decreased slightly
from $649,455 on December 31, 1994 to $574,647 on December 31, 1995 to support
growth of the Company.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
Long-Lived Assets
Long-lived assets, such as property and equipment, are evaluated for impairment
when events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through the estimated undiscounted future cash
flows from the use of these assets. When any such impairment exists, the related
assets will be written down to fair value. This policy is in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of,"
which is effective for fiscal years beginning after December 15, 1995. No
write-downs have been necessary through December 31, 1995.
Stock-Based Compensation
The Company does not presently intend to adopt the fair value based method for
accounting for stock compensation plans, as permitted by Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation," which is
effective for transactions entered into in fiscal years that begin after
December 15, 1995.
15
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------ -------------------------------------------
See Financial Statements and Schedule attached hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------ ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE.
-----------------------------------
Not applicable.
PART III
--------
The information required by Part III (Items 10, 11, 12, and 13) of this Report
on Form 10-K is hereby incorporated by reference from the Company's definitive
Proxy Statement to be filed with the Securities and Exchange Commission pursuant
to Regulation 14A.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- ------- ----------------------------------------------------------------
(a) The following documents are filed as part of this Annual Report on Form
10-K:
1. Financial Statements - See Index on page 20.
2. Financial Statement Schedule - See Index on page 20. All other
schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange are not required under the
related instructions or are not applicable and, therefore, have been
omitted.
3. The following documents are filed as exhibits to this Annual Report on
Form 10-K:
3(a) Certificate of Incorporation of the Registrant filed with the
Secretary of State of the State of Delaware on February 24, 1984
[incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-18 (Commission File No. 2-94097 NY),
filed on October 31, 1984]
3(b) Certificate of Amendment of Certificate of Incorporation of the
Registrant, filed with the Secretary of State of the State of Delaware
on May 31, 1984 [incorporated by reference to Exhibit 3.1(a) to the
Registrant's Registration Statement on Form S-18 (Commission File No.
2-94097-NY), filed on October 31, 1984].
16
<PAGE> 17
3(c) Certificate of Amendment of Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of Delaware
on August 22, 1984 [incorporated by reference to Exhibit 3.1(b) to
the Registrant's Registration Statement on Form S-18 (Commission
File No. 2-94097-NY), filed on October 31, 1984].
3(d) Certificate of Amendment of Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of Delaware
on October 22, 1987 [incorporated by reference to Exhibit 3(d) to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1988].
3(e) By-laws of Registrant [incorporated by reference to Exhibit 3.2 to
the Registrant's Registration Statement on Form S-18 (Commission
File No. 2-94097-NY), filed on October 31, 1984].
4(a) Form of Common Stock Certificate [incorporated by reference to the
Registrant's Form 8-A, filed on March 13, 1985].
4(b) Form of Indenture dated as of December 1, 1986 between Registrant and
Continental Stock Transfer and Trust Company, including Form of
Debenture [incorporated by reference to Exhibit 4(c) to the
Registrant's Registration Statement on Form S-1 (Commission File No.
33-8971), filed on 10/31/84].
10(a) Lease Agreement between the Registrant and its Chairman with respect
to premises located at 21 Park Avenue, Hudson, New Hampshire, dated
October 1, 1984, [incorporated by reference to Exhibit 10.2 to the
Registrant's Registration Statement to Form S-18 (Commission File No.
2-94097-NY), filed on October 31, 1984].
10(b) Renewal of Lease Agreement between the Registrant and its Chairman
with respect to premises located at 21 Park Avenue, Hudson, New
Hampshire.
10(c) Revolving Loan and Security Agreement, and Convertible Revolving
Credit Promissory Note between Robert Howard and Registrant dated
October 26, 1987 (the "Loan Agreement") [incorporated by reference to
Exhibit 10 to the Registrant's Report on Form 10-Q for the quarter
ended 9/30/87].
17
<PAGE> 18
10(d) Addendum No. 12 dated March 15, 1996 to the Revolving Loan and
Security Agreement, and Convertible Revolving Credit Promissory Note
between Robert Howard and Registrant dated October 26, 1987 (the
"Loan Agreement"). [incorporated by reference to Exhibit 10 to the
Registrant's Report on Form 10- Q for the quarter ended 9/30/87].
10(e) Form of Standard Configuration OEM Agreement between Howtek,Inc. and
Crosfield Electronics Limited, dated December 22, 1994.
23(a) Consent of BDO Seidman, LLP.
(b) During the last quarter of the period covered by this Annual Report
on Form 10-K the Company filed no reports on Form 8-K.
(c) Exhibits - See (a) 3 above.
(d) Financial Statement Schedule - See (a) 2 above.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HOWTEK, INC.
Date: March 25, 1996
By: /s/ David R. Bothwell
----------------------------------
David R. Bothwell,
President, Chief Executive Officer
and Director
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/Robert Howard Chairman of the March 25, 1996
- -------------------- Board, Director
Robert Howard
/s/David R. Bothwell Chief Executive March 25, 1996
- -------------------- Officer, Director
David R. Bothwell
/s/Robert J. Lungo Vice President, Chief March 25, 1996
- -------------------- Financial Officer,
Robert J. Lungo Principal Accounting
Officer
/s/Ivan Gati Director March 25, 1996
- --------------------
Ivan Gati
/s/Nat Rothenberg Director March 25, 1996
- --------------------
Nat Rothenberg
/s/Harvey Teich Director March 25, 1996
- --------------------
Harvey Teich
</TABLE>
19
<PAGE> 20
<TABLE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants 21
Balance Sheets
As of December 31, 1995 and 1994 22
Statements of Operations
For the years ended December 31, 1995,
1994 and 1993. 23
Statements of Changes in Stockholders' Equity
For the years ended December 31, 1995,
1994 and 1993. 24
Statements of Cash Flows
For the years ended December 31, 1995,
1994 and 1993. 25
Notes to Financial Statements 26-39
Schedule II - Valuation and Qualifying
Accounts and Reserves 40
</TABLE>
20
<PAGE> 21
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Howtek, Inc.
Hudson, New Hampshire
We have audited the accompanying balance sheets of Howtek, Inc. as of December
31, 1995 and 1994 and the related statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. We have also audited the financial statement schedule
listed in the accompanying index. These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our 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 and schedule
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements and schedule. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements and schedule.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Howtek, Inc. at December 31,
1995 and 1994, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
New York, New York
February 16, 1996
21
<PAGE> 22
<TABLE>
HOWTEK, INC.
BALANCE SHEETS
<CAPTION>
DECEMBER 31, DECEMBER 31,
------------ ------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 574,647 $ 649,455
Trade accounts receivable net of allowance
for doubtful accounts of $290,710 in 1995
and $130,000 in 1994 (note 8) 6,474,144 8,000,716
Inventory (note 1) 6,840,823 7,863,012
Prepaid and other (note 4) 247,590 378,255
------------ ------------
Total current assets 14,137,204 16,891,438
------------ ------------
Property and equipment: (note 1)
Equipment 10,281,296 9,094,067
Leasehold improvements 371,535 366,835
Furniture and fixtures 185,564 184,444
Motor vehicles 6,050 6,050
------------ ------------
10,844,445 9,651,396
Less accumulated depreciation and amortization 7,815,236 6,373,277
------------ ------------
Net property and equipment 3,029,209 3,278,119
------------ ------------
Other assets: (note 1)
Software development costs, net 1,191,265 1,244,114
Debt issuance costs, net 118,756 139,114
Patents, net 18,806 21,064
------------ ------------
Total other assets 1,328,827 1,404,292
------------ ------------
Total assets $ 18,495,240 $ 21,573,849
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,712,416 $ 3,986,330
Accrued expenses 490,752 825,198
------------ ------------
Total current liabilities 4,203,168 4,811,528
Loan payable to principal stockholder (note 4) 3,578,604 1,000,000
Convertible subordinated debentures (note 5) 2,181,000 2,181,000
------------ ------------
Total liabilities 9,962,772 7,992,528
------------ ------------
Commitments and contingencies (notes 4 and 9)
Stockholders' equity: (notes 4, 5 and 6)
common stock, $.01 par value: authorized
25,000,000 shares; issued 8,022,594 in 1995
and 7,985,794 shares in 1994; outstanding
7,954,718 in 1995 and 7,917,918 shares in 1994 80,225 79,858
Additional paid-in capital 43,966,282 43,760,455
Accumulated deficit (34,563,775) (29,308,728)
Treasury stock at cost (67,876 shares) (950,264) (950,264)
------------ ------------
Stockholders' equity 8,532,468 13,581,321
------------ ------------
Total liabilities and stockholders' equity $ 18,495,240 $ 21,573,849
============ ============
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 23
HOWTEK, INC.
<TABLE>
STATEMENTS OF OPERATIONS
<CAPTION>
For the Years Ended December 31,
-------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales (note 8) $20,603,654 $24,370,329 $20,550,105
Cost of sales 13,983,819 15,133,214 13,043,978
----------- ----------- -----------
Gross margin 6,619,835 9,237,115 7,506,127
----------- ----------- -----------
Operating expenses:
Engineering and product development 2,788,281 2,890,182 3,162,252
General and administrative 2,651,905 2,210,204 2,394,528
Marketing and sales 3,339,019 2,920,082 2,974,867
Restructuring charge (note 3) 2,662,632 -- --
Other -- net (note 2) -- -- (570,025)
----------- ----------- -----------
Operating expenses 11,441,837 8,020,468 7,961,622
----------- ----------- -----------
Income (loss) from operations (4,822,002) 1,216,647 (455,495)
Interest expense -- net 433,045 259,227 329,461
----------- ----------- -----------
Pre-tax income (loss) (5,255,047) 957,420 (784,956)
Provision for income taxes (note 7) 0 77,000 4,903
----------- ------------ -----------
Net income (loss) $(5,255,047) $ 880,420 $ (789,859)
=========== =========== ===========
Net income (loss) per share (note 1)
Primary $ (0.66) $ 0.11 $ (0.10)
Weighted average number of shares
used in computing earnings per share
Primary 7,934,654 7,934,525 7,830,168
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 24
<TABLE>
HOWTEK, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
Common Stock
-------------------------- Additional
Number of Paid-in Accumulated Treasury Stockholders'
Shares Issued Par Value Capital Deficit Stock Equity
------------- --------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 7,822,885 $78,229 $42,985,702 $(29,399,289) $(970,200) $12,694,442
Issuance of common stock pursuant
to incentive stock option plan 97,574 975 438,358 -- -- 439,333
Issuance of common stock for payment
of litigation settlement
(note 6(b) 20,135 202 128,385 -- -- 128,587
Net loss -- -- -- (789,859) -- (789,859)
--------- ------- ----------- ------------ --------- -----------
Balance at December 31, 1993 7,940,594 $79,406 $43,552,445 $(30,189,148) $(970,200) $12,472,503
========= ======= =========== ============ ========= ===========
Common Stock
-------------------------- Additional
Number of Paid-in Accumulated Treasury Stockholders'
Shares Issued Par Value Capital Deficit Stock Equity
------------- --------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 7,940,594 $79,406 $43,552,445 $(30,189,148) $(970,200) $12,472,503
Issuance of common stock pursuant
to incentive stock option plan 45,200 452 208,010 -- -- 208,462
Issuance of treasury stock -- -- -- -- 19,936 19,936
Net income -- -- -- 880,420 -- 880,420
--------- ------- ----------- ------------ --------- -----------
Balance at December 31, 1994 7,985,794 $79,858 $43,760,455 $(29,308,728) $(950,264) $13,581,321
========= ======= =========== ============ ========= ===========
Common Stock
-------------------------- Additional
Number of Paid-in Accumulated Treasury Stockholders'
Shares Issued Par Value Capital Deficit Stock Equity
------------- --------- ---------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 7,985,794 $79,858 $43,760,455 $(29,308,728) $(950,264) $13,581,321
Issuance of common stock pursuant
to incentive stock option plan 36,800 367 205,827 -- -- 206,194
Net loss -- -- -- (5,255,047) -- (5,255,047)
--------- ------- ----------- ------------ --------- -----------
Balance at December 31, 1995 8,022,594 $80,225 $43,966,282 $(34,563,775) $(950,264) $ 8,532,468
========= ======= =========== ============ ========= ===========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 25
<TABLE>
HOWTEK, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended December 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(5,255,047) $ 880,420 $ (789,859)
----------- ------------ -----------
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
Depreciation 1,446,044 1,179,233 1,029,226
Amortization 524,901 392,768 347,775
Restructuring charge 2,662,632 -- --
Asset writedowns and reserve increases 500,000 -- 3,546,688
Issuance of stock in exchange for services -- 19,936 --
Litigation settlement with stock issue -- -- 125.000
(Increase) decrease:
Accounts receivable 1,376,572 (3,518,346) 1,894,691
Inventory (1,990,443) (581,824) (1,511,679)
Other current assets 130,665 (63,929) 18,909
Increase (decrease):
Accounts payable (273,914) 2,193,939 (492,390)
Accrued expenses (334,446) 150,536 277,164
----------- ------------ -----------
Total adjustments 4,042,011 (227,687) 5,235,384
----------- ------------ -----------
Net cash provided (used) by
operating activities (1,213,036) 652,733 4,445,525
----------- ------------ -----------
Cash flows from investing activities:
Patents, software development and other (445,106) (716,007) (866,269)
Additions to property and equipment (1,201,464) (1,252,317) (1,413,846)
----------- ------------ -----------
Net cash used for investing activities (1,646,570) (1,968,324) (2,280,115)
----------- ------------ -----------
Cash flows from financing activities:
Issuance of common stock for cash 206,194 208,462 442,920
Proceeds of loan payable to principal stockholder 2,578,604 -- --
Repayment of loan payable to principal stockholder -- -- (1,100,000)
----------- ------------ -----------
Net cash provided (used) by financing activities 2,784,798 208,462 (657,080)
----------- ------------ -----------
Increase (decrease) in cash and equivalents (74,808) (1,107,129) 1,508,330
Cash and equivalents, beginning of year 649,455 1,756,584 248,254
----------- ------------ -----------
Cash and equivalents, end of year $ 574,647 $ 649,455 $ 1,756,584
=========== ============ ===========
Supplemental disclosure of cash flow information:
Interest paid $ 218,079 $ 210,415 $ 353,000
=========== ============ ===========
See accompanying notes to financial statements.
</TABLE>
25
<PAGE> 26
HOWTEK, INC.
Notes to Financial Statements
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF OPERATIONS AND USE OF ESTIMATES
Howtek, Inc. (the "Company") designs, engineers, develops and
manufactures digital image scanners, densitometers, film digitizers and
related software for applications in the graphic arts, medical imaging and
life sciences markets. The Company sells its products throughout the world
through various distributors, resellers, systems integrator and OEM's. See
Note 8 for geographical and major customer information
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. Many of the Company's estimates and assumptions used in the
preparation of the financial statements relate to the Company's products,
which are subject to rapid technological change. It is reasonably possible
that changes may occur in the near term that would affect management's
estimates with respect to inventories, equipment and software development
cost.
(b) INVENTORY
Inventory is valued at the lower of cost or market, with cost
determined by the first-in, first-out method. At December 31, inventory
consisted of raw material and finished goods of $4,096,000 and $2,745,000
for 1995, and raw material and finished goods of $5,671,000 and $2,192,000
for 1994.
(c) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method for financial reporting purposes (and accelerated
methods for income tax purposes) over the estimated useful lives of the
various classes of assets (ranging from 3 to 5 years).
26
<PAGE> 27
HOWTEK, INC.
Notes to Financial Statements (continued)
(d) DEBT ISSUANCE COSTS
Debt issuance costs, related to the outstanding Convertible
Subordinated Debentures, are being amortized over the 15-year term of the
Debentures using the straight-line method.
(e) PATENTS
The costs of patents are being amortized over the estimated useful
life of the respective assets using the straight-line method.
(f) SOFTWARE DEVELOPMENT COSTS
Software development costs for application software and application
software enhancements are capitalized subsequent to the establishment of
their technological feasibility (as defined in Statement of Financial
Accounting Standards No. 86). The Company capitalized $445,106, $709,505,
and $839,829 of internally developed and externally purchased software
costs during fiscal 1995, 1994 and 1993, respectively.
The capitalized software balances are presented net of accumulated
amortization, which was $1,208,886, and $710,931 at December 31, 1995, and
1994, respectively. Capitalized software costs are amortized using the
straight-line method over their estimated economic life, principally 3
years, commencing when each product is available for general release.
(g) REVENUE RECOGNITION
Revenues from product sales are recognized at the time the product is
shipped.
(h) COST OF SALES
Cost of sales consists of the costs of products purchased for resale,
any associated freight and duty, any costs associated with manufacturing,
warehousing, material movement and inspection costs, amortization of any
license rights, and amortization of capitalized software.
27
<PAGE> 28
HOWTEK, INC.
Notes to Financial Statements (continued)
(i) WARRANTY COSTS
The Company's products are generally under warranty against defects in
material and workmanship from a 90 to 365 day period, depending on the
product.
(j) ENGINEERING AND PRODUCT DEVELOPMENT
These costs relate to research and development costs which are
expensed as incurred, except for amounts related to software development
costs incurred after the establishment of technological feasibility
(see(f)above) which are capitalized.
(k) NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the daily weighted
average number of common shares outstanding during the period. The
conversion of the subordinated debentures and assumed exercise of options
have not been considered in the computation, since the effects on earnings
per share were determined to be anti-dilutive.
(l) CASH FLOW INFORMATION
For purposes of reporting cash flows, the Company defines cash and
equivalents as all bank transaction accounts, certificates of deposit,
money market funds and deposits, and other money market instruments
maturing in less than 90 days, which are unrestricted as to withdrawal.
(m) INCOME TAXES
The Company follows the liability method under Statement of Financial
Accounting Standards No. 109 (SFAS 109). The primary objectives of
accounting for taxes under SFAS 109 are to (a) recognize the amount of tax
payable for the current year and (b) recognize the amount of deferred tax
liability or asset for the future tax consequences of events that have been
reflected in the Company's financial statements or tax returns.
28
<PAGE> 29
HOWTEK, INC.
Notes to Financial Statements (continued)
(n) EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
Long-Lived Assets
Long-lived assets, such as property and equipment, are evaluated for
impairment when events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable through the estimated
undiscounted future cash flows from the use of these assets. When any such
impairment exists, the related assets will be written down to fair value.
This policy is in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets To Be Disposed Of," which is effective for fiscal
years beginning after December 15, 1995. No write-downs have been necessary
through December 31, 1995.
Stock-Based Compensation
The Company does not presently intend to adopt the fair value based method
for accounting for stock compensation plans, as permitted by Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation," which is effective for transactions entered into in fiscal
years that begin after December 15, 1995.
(2) OTHER - NET
During 1993 the Company received proceeds net of legal costs incurred
of $3,808,000 of which $2,975,000 was received and recorded in the fourth
quarter of 1993, in settlement and license fee payments related to
litigation. (See Note 11 to Notes to Financial Statements.)
The Company wrote-down in 1993 certain unrealizable assets in the
amount of $3,237,975, of which $2,490,769 was recorded in the fourth
quarter of 1993, the majority of which consisted of inventories, lease and
trade receivables. The inventory writedown resulted from discontinuation of
the marketing of certain products, as well as a determination of excess and
obsolete inventories.
29
<PAGE> 30
HOWTEK, INC.
Notes to Financial Statements (continued)
(3) RESTRUCTURING CHARGE AND CHANGE IN ESTIMATES
During the second quarter of 1995 the Company recorded a restructuring
charge of $2,662,632 as a result of management's decision to exit certain
markets in the graphic arts industry. Management intends to continue its
efforts in other graphic arts markets as well as to enter new markets,
including the medical imaging and life sciences markets. The restructuring
charge represents losses on inventories disposed of which related to the
markets exited. In the fourth quarter a $500,000 adjustment to inventory
and accounts receivable reserves was recorded. The adjustment to inventory
reflected a change in estimates in providing additional reserves for
out-of-production products.
(4) RELATED PARTY TRANSACTIONS
(a) LOAN PAYABLE TO PRINCIPAL STOCKHOLDER
The Company has a Convertible Revolving Credit Promissory Note ("the
Convertible Note") and Revolving Loan and Security Agreement (the "Loan
Agreement") with Mr. Robert Howard, Chairman of the Company, under which
Mr. Howard has agreed to advance funds, or to provide guarantees of
advances made by third parties in an amount up to $8,000,000. Such
outstanding advances are collateralized by substantially all of the assets
of the Company and bear interest at prime interest rate plus 2%. The
Convertible Note entitles Mr. Howard to convert outstanding advances into
shares of the Company's common stock at any time based on the outstanding
closing market price of the Company's common stock at the time each advance
is made.
As of December 31, 1995 and 1994, the Company owed Mr. Howard
$3,578,604 and $1,000,000, respectively, pursuant to the Loan Agreement,
which is due for repayment on January 4, 1997. The Company has $4,421,396
available for future borrowings under the Loan Agreement.
(b) PREMISES LEASE AND OTHER EXPENSES
The Company conducts its operations in premises owned by Mr. Howard,
covered by a lease which commenced October 1, 1984. The term of the lease
is 1 year and expires September 30, 1996. As of December 31, 1995, future
minimum lease payments under this lease are $78,500 for 1996.
30
<PAGE> 31
HOWTEK, INC.
Notes to Financial Statements (continued)
(c) RELATED PARTY SALES
During the year ended December 31, 1994 the Company sold equipment and
services totalling $51,752, to Presstek, Inc., which Mr. Howard is the
Chairman of the Board and a principal stockholder. There were no sales to
Presstek in 1995 or 1993.
(d) OTHER ASSETS - LOANS TO OFFICERS
As of December 31, 1995 and 1994, the Company had outstanding loans to
its officers in the aggregate amount of $48,760 and $52,833, respectively.
These amounts are included in Prepaid and other.
(5) CONVERTIBLE SUBORDINATED DEBENTURES
As of December 31, 1995 and 1994, the Company's outstanding balance on
its $8,000,000, 9% Convertible Subordinated Debentures (the "Debentures"),
which come due 2001, was $2,181,000. Interest on the Debentures is payable
semi-annually on June 1 and December 1. The Debentures are convertible into
common stock of the Company at the conversion price of $19.00 per share,
subject to adjustment in certain events. No Debentures were converted
during 1995 or 1994.
(6) STOCKHOLDERS' EQUITY
(a) STOCK OPTIONS
THE HOWTEK, INC. 1984 STOCK OPTION PLAN, AS AMENDED, ("THE 1984 PLAN") AND
THE HOWTEK, INC. 1993 STOCK OPTION PLAN, ("THE 1993 PLAN").
The Company has reserved 1,000,000 shares of common stock for issuance
under the 1984 Plan and 1,000,000 shares for issuance under the 1993 Plan.
The 1993 Plan was adopted in November 1993 to replace the 1984 Plan which
had no further stock available for grant. The 1984 and 1993 Plans are
hereinafter referred to as the "Plans". Each of the Plans provide for the
granting of non-qualifying and incentive stock options to employees and
other persons to purchase up to an aggregate of 1,000,000 shares of the
Company's common stock. The purchase price of each share for which an
option is granted shall be within the discretion of the Board of
31
<PAGE> 32
HOWTEK, INC.
Notes to Financial Statements (continued)
Directors or the Committee appointed by the Board of Directors provided
that the purchase price of each share for which an incentive option is
granted shall not be less than the fair market value of the Company's
common stock on the date of grant, except for options granted to 10%
holders for whom the exercise price shall not be less than 110% of the
market price. Incentive options granted under the Plan vest 100% over
periods extending from one to five years from the date of grant and expire
ten years after the date of grant, except for 10% holders whose options
shall expire five years after the date of grant. Non-qualifying options
granted under the Plan are generally exercisable over a ten year period,
vesting 1/3 each on the first, second, and third anniversaries of the date
of grant.
The Howtek, Inc. Director Incentive Plan
----------------------------------------
On September 21, 1993 the Company's Board of Directors adopted the
Director Incentive Plan (the "Director Plan"). The Company has reserved for
issuance 250,000 shares under the Director Plan. The Director Plan provides
for the award of (i) restricted and unrestricted stock, (ii) qualified
stock options, and (iii) non-qualified stock options. The Director Plan is
administered by a committee of at least one director or non-director
appointed by the Board. The term of the Director Plan is ten years and the
term of individual grants of stock options thereunder is ten years. Vesting
periods for exercise of options and restrictions on the transferability of
stock awards is determined by the committee administering the Director
Plan. During 1993 options to purchase a total of 80,000 shares were granted
to the Company's directors at the market price on the date of grant. No
options were granted under the plan during 1994 and 1995.
A summary of stock option (incentive and non-qualifying) activity is
as follows:
32
<PAGE> 33
HOWTEK, INC.
Notes to Financial Statements (continued)
<TABLE>
1984 STOCK OPTION PLAN AS AMENDED
- ---------------------------------
<CAPTION>
Shares Subject
to Options
-------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Outstanding, beginning of year 408,985 445,685 459,759
Granted 0 87,000 187,000
Exercised (29,350) (45,200) (97,574)
Cancelled (101,500) (78,500) (103,500)
-------- ------- --------
Outstanding, end of year 278,135 408,985 445,685
-------- ------- --------
Exercisable at December 31, 188,885 155,233 102,349
-------- ------- --------
</TABLE>
<TABLE>
Price range of Options:
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Outstanding $2.75-$14.00 $2.75-$14.00 $2.75-$14.00
Exercised $3.25-$ 8.75 $3.25-$ 6.13 $2.75-$ 9.50
Exercisable $2.75-$14.00 $2.75-$14.00 $4.50-$10.25
</TABLE>
<TABLE>
1993 STOCK OPTION PLAN
- ----------------------
<CAPTION>
Shares Subject
to Options
-------------------------
1995 1994 1993*
---- ---- ----
<S> <C> <C> <C>
Outstanding, beginning of year 180,700 0 N/A
Granted 233,500 180,700 N/A
Exercised (7,450) 0 N/A
Cancelled (81,100) (0) N/A
------- ------- ---
Outstanding, end of year 325,650 180,700 N/A
------- ------- ---
Exercisable at December 31, 35,150 0 N/A
------- ------- ---
</TABLE>
<TABLE>
Price range of Options:
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Outstanding $6.63-$8.25 $6.50-$8.25 N/A
Exercised $6.63-$8.25 $0.00-$0.00 N/A
Exercisable $6.63-$8.25 $0.00-$0.00 N/A
<FN>
*1993 Stock Option Plan not in effect until 5/25/94.
</TABLE>
33
<PAGE> 34
HOWTEK, INC.
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
DIRECTOR INCENTIVE PLAN Shares Subject
- ----------------------- to Options
----------
<S> <C>
Outstanding, January 1, 1993 0
Granted 80,000
Exercised 0
Cancelled (0)
------
Outstanding, December 31,1993, 1994 & 1995 80,000
------
Exercisable at December 31, 1995 80,000
------
</TABLE>
<TABLE>
<CAPTION>
Price range of Options: 1993, 1994 & 1995
-----------------
<S> <C>
Outstanding $6.50-$6.75
Exercisable $6.75
<FN>
*Director Incentive Plan not in effect until 9/22/93.
</TABLE>
(B) COMMON STOCK ISSUED IN PAYMENT OF LITIGATION SETTLEMENT
During 1993 the Company agreed to pay $125,000 to Bidco Manufacturing
Corp. in settlement of litigation. See Note 11 to Notes to Financial
Statements. By agreement between the parties, the Company issued 25,000
shares of its Common Stock, $.01 par value, to Bidco, then filed a
registration statement on Form S-3 which permitted Bidco to resell a
sufficient amount of stock to realize net proceeds of $125,000. Bidco
returned the balance, 4,865 shares, to the Company.
<TABLE>
(7) INCOME TAXES
The provision for income taxes charged was as follows:
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Current Tax Expense
U.S. federal $325,000 $(11,017)
State and local 82,000 15,920
-------- --------
Total Current $407,000 $ 4,903
======== ========
Deferred Tax Expense
U.S. federal $ 0 $ 0
State and local 0 0
-------- --------
Total Deferred $ 0 $ 0
======== ========
Benefit of NOL's
U.S. federal $310,000 $ 0
State and local 20,000 0
-------- --------
Total Benefit of NOL's $330,000 $ 0
======== ========
Total provision $ 77,000 $ 4,903
======== ========
</TABLE>
34
<PAGE> 35
HOWTEK, INC.
Notes to Financial Statements (continued)
(7) INCOME TAXES (continued)
As a result of the 1995 loss, no income tax expense was incurred for
that year.
<TABLE>
Deferred income taxes reflect the impact of "temporary differences"
between the amount of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws and regulations. These
"temporary differences" are determined in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Deferred tax liabilities (assets) are comprised of the following at
December 31:
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Inventory (Section 263A) $ (195,000) $ (118,000)
Inventory reserves (167,000) (98,600)
Receivable reserves (99,000) (44,200)
Other accruals (68,000) (78,200)
Tax credits (1,815,000) (1,285,461)
NOL carryforward (10,829,000) (9,490,000)
Tax overpayment (22,500) (27,017)
------------ ------------
Gross deferred tax assets $(13,195,500) $(11,141,478)
------------ ------------
Accumulated depreciation 270,000 125,100
Gross deferred tax liabilities 270,000 125,100
------------ ------------
Total tax(assets)liabilities $ 12,925,500) $(11,016,378)
Deferred tax assets valuation
allowance $(12,925,500) $(11,016,378)
============ ============
Net deferred tax assets $ 0 $ 0
</TABLE>
As of December 31, 1995 the Company has net operating loss carryforwards
totalling approximately $31,800,000. The amount of the net operating loss
carryforwards which may be utilized in any future period may be subject to
certain limitations, based upon changes in the ownership of the Company's common
stock. The following is a breakdown of the net operating loss expiration period:
35
<PAGE> 36
HOWTEK, INC.
Notes to Financial Statements (continued)
<TABLE>
(7) INCOME TAXES (continued)
<CAPTION>
Expiration date Amount of remaining NOL
<S> <C>
2000 1,200,000
2001 5,000,000
2002 8,900,000
2003 3,300,000
2004 4,200,000
2005 2,200,000
2006 2,200,000
2007 200,000
2008 600,000
2010 4,000,000
</TABLE>
In addition the Company has available tax credit carryforwards
(adjusted to reflect provisions of the Tax Reform Act of 1986) of
approximately $1,815,000, which are available to offset future taxable
income and income tax liabilities, when earned or incurred. These amounts
expire in various years through 2010.
(8) SALES INFORMATION
(a) GEOGRAPHIC INFORMATION
The Company's sales are made to U.S. and foreign distributors of
computer and related products. Total export sales, which includes sales
made to a U.S. based international distributor of computer and related
products, were $14,090,095 or 69% of total sales in 1995, $11,656,000 or
48% of total sales in 1994 and $8,123,000 or 40% of total sales in 1993.
The Company's principal concentration of export sales has been in
Europe which accounted for 67% of 1995 exports sales, 69% in 1994 and 53%
in 1993. The balance of the export sales were into the Far East, Mexico,
Central America, and Canada.
As of December 31, 1995 and 1994 the Company had outstanding
receivables of $4,191,000 and $4,136,000, respectively, from distributors
of its products outside of the United States.
36
<PAGE> 37
HOWTEK, INC.
Notes to Financial Statements (continued)
(b) MAJOR CUSTOMERS
<TABLE>
During the years ended December 31, 1995, 1994 and 1993 the Company
had two major customers, one of which operates as a U.S. based
international distributor of computer and related products and the other as
an OEM. The following represents the comparative sales and accounts
receivable:
<CAPTION>
1995 1994 1993
Sales Amount % Amount % Amount %
----- --------------- -------------- --------------
<S> <C> <C> <C>
Customer 1 $7,340,000 36 $5,260,000 22 $3,136,000 15
Customer 2 $4,179,000 20 $2,759,000 11 $2,267,000 11
Accounts Receivable
-------------------
Customer 1 $1,946,000 $1,522,000 $ 634,000
Customer 2 $ 826,000 $ 783,000 $ 158,000
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
As of December 31, 1995 the Company had two lease obligations for
facilities. The lease obligations for 1996 will be approximately $233,000.
One lease expires on September 30, 1996 and the other is a monthly lease.
(10) LEASE RECEIVABLES
During 1991, the Company provided financing through one and three year
sales-type leases for three Colorscan customers totalling $495,871. During
1992, the Company allowed a one year extension of terms on two of the
leases and the third lease was sent to collection. The Company provided a
reserve in 1992 for the estimated uncollectible amount. During 1993, it was
determined that all outstanding lease receivables were uncollectible and
were written off.
(11) LEGAL PROCEEDINGS
Howtek, Inc. v. Tektronix, Inc.
- -------------------------------
On March 24, 1993 the Company filed suit against Tektronix, Inc.
("Tektronix") in United States District Court for the District of New
Hampshire claiming infringement of certain of the Company's patents related
to ink jet printing. Tektronix denied the claims and counterclaimed for
unspecified damages.
37
<PAGE> 38
HOWTEK, INC.
Notes to Financial Statements (continued)
(11) LEGAL PROCEEDINGS (continued)
Howtek, Inc. v. Tektronix, Inc. (continued)
-------------------------------------------
On December 31, 1993 the Company entered into a Settlement and License
Agreement with Tektronix whereby the parties agreed to dismiss the lawsuit
and Howtek granted Tektronix a paid-up license to its ink jet technology in
exchange for a license fee of $3,000,000 which Tektronix has paid.
Howtek, Inc. v. Brother International Corporation
-------------------------------------------------
On April 26, 1993 Howtek filed suit against Brother International
Corporation ("Brother") in the United States District Court for the
District of New Hampshire claiming infringement of certain of the Company's
patents related to ink jet printing.
On September 27, 1993 the parties entered into a Settlement Agreement
and Covenant Not To Sue, whereby the Company agreed not to sue Brother and
its affiliates and suppliers for infringement of the Company's phase change
ink jet technology in exchange for the payment by Brother to the Company of
$1,000,000. Payment has been made and the lawsuit has been dismissed.
Bidco Manufacturing Corp. v. Howtek, Inc.
-----------------------------------------
This matter, which was disclosed in the Company's 1992 Annual Report
on Form 10-K, was concluded by a Stipulation Of Compromise And Settlement
And Order between the parties, dated August 30, 1993, whereby the Company
agreed to pay Bidco $125,000 in final settlement. Payment has been made and
the lawsuit has been dismissed.
38
<PAGE> 39
HOWTEK, INC.
Notes to Financial Statements (continued)
(11) LEGAL PROCEEDINGS (continued)
Howtek, Inc. v. TECO et al
--------------------------
On June 7, 1994 the company filed a complaint in the United States
District Court, District of New Hampshire against TECO Electric & Machinery
Co. Ltd. ("TECO"), several TECO subsidiaries, a TECO employee, and a number
of distributors of TECO products. The Company claims, inter alia, that TECO
breached an exclusive manufacturing contract it entered into with the
Company to manufacture digital color scanners exclusively for the Company
by selling scanners under its own labels and those of other companies. The
Company's claim is based upon misappropriation of trade secrets, civil
conspiracy, unfair competition, and breach of contract. The Company
initially sought damages in its complaint in the amount of $17 million,
however, an expert retained by the Company to testify at the trial has
subsequently concluded that the Company's damages, as a result of TECO's
actions and omissions, are substantially in excess of the amount alleged in
the complaint. TECO has answered the complaint and asserted various
counterclaims, including misrepresentation and breach of contract, and is
claiming approximately $3,000,000 in payment for past due services and
breach of obligations by the Company to allow TECO to manufacture other
scanner products for the Company. The court has instructed the parties to
engage in alternative dispute resolution to attempt to resolve the dispute
A date for trial has not been set. There can be no assurance that the
Company will be successful in the action, or if it is, as to the amount of
damages it may be awarded.
(12) FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, including cash and cash
equivalents, accounts receivable, accounts payable, loan payable to
principle stockholder and convertible debentures approximated fair value as
of December 31, 1995 and 1994.
39
<PAGE> 40
HOWTEK, INC.
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- -------------------------------------------------------------------------------------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS- AT END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE OF PERIOD
<S> <C> <C> <C> <C>
Year End December 31, 1995:
Allowance for Doubtful
Accounts................ $130,000 $ 200,820 $ 40,110(1) $290,710
Inventory Reserve......... $289,463 $3,012,632 $2,811,639(3) $490,456
Year End December 31, 1994:
Allowance for Doubtful
Accounts ................ $116,563 $ 72,595 $ 59,158(1) $130,000
Warranty Reserve ......... $ 96,287 $ 0 $ 96,287(2) $ 0
Inventory Reserve ........ $562,465 $ 0 $ 273,002(3) $289,463
Year End December 31, 1993:
Allowance for Lease
Receivables.............. $200,000 $ 141,113 $ 341,113 $ 0
Allowance for Doubtful
Accounts ................ $ 73,601 $ 647,625 $ 604,663(1) $116,563
Warranty Reserve ......... $ 49,885 $ 46,402 $ 0 $ 96,287
Inventory Reserve ........ $209,845 $2,569,861 $2,217,241(3) $562,465
Advance to Suppliers
Reserve.................. $175,000 $ 0 $ 175,000 $ 0
<FN>
(1) Represents the net of accounts charged off and provisioned for future
potential writeoff.
(2) Represents provision and cost of warranty expense.
(3) Represents inventory written off and disposed of.
</TABLE>
40
<PAGE> 1
EXHIBIT 10(b)
LEASE RENEWAL
Effective October 1, 1995, the Indenture of Lease (the "Lease") dated
October 1, 1984 between Robert Howard and Howtek, Inc., for the premises
located at 21 Park Avenue, Hudson New Hampshire is renewed for a term of
one (1) year, expiring September 30, 1996, at the base rent of $78,499.92
payable in twelve monthly installments of $6,541.66. All other terms and
conditions of the Lease remain in effect.
Dated: October 1, 1995
HOWTEK, INC.
By:
------------------------
Title:
---------------------------
Robert Howard
41
<PAGE> 1
EXHIBIT 10(d)
ADDENDUM NO.12
REVOLVING LOAN AND SECURITY AGREEMENT
CONVERTIBLE REVOLVING CREDIT PROMISSORY NOTE
DATED OCTOBER 26, 1987
For consideration given and received, Robert Howard and Howtek, Inc.,
hereby agree to extend the repayment date in Paragraph D of the above referenced
Convertible Revolving Credit Promissory Note, as amended,(the "Note") from
January 4, 1997 to January 4, 1998 and further the parties agree that Howtek,
Inc. may only repay the Note with the approval of Robert Howard, provided that
if Robert Howard does not give such approval, Howtek, Inc.may repay the Note on
the expiration of five (5) years from the date Howtek, Inc. first gave Robert
Howard written notice of its intent to repay the Note.
Effective the 19th day of March 1996.
HOWTEK, INC.
By:
------------------------ ---------------------------
Title: Robert Howard
<PAGE> 1
EXHIBIT 10(e)
12/13/94
STANDARD CONFIGURATION OEM AGREEMENT
THIS AGREEMENT is made and entered into on this day of December
19 , ("Effective Date") by and between Howtek, Inc., (hereinafter "Howtek"),
a Delaware corporation with a principal place of business at 21 Park Avenue,
Hudson, New Hampshire, 03051, and, Crosfield Electronics Limited, a United
Kingdom corporation, ("OEM") with a principal place of business at Three Cherry
Trees Lane, Hemel Hempstead, Herts, HP2 7RH, England.
WHEREAS Howtek engages in the development, manufacture and sale of a drum
scanner for both reflective and transmissive material which offers interfaces to
a number of computer platforms including, but not limited to, Macintosh and IBM
compatible computers (the "Product" more particularly described in the
"Specifications" set forth in Exhibit "A", attached hereto), which are marketed
to end users through a network of Original Equipment Manufacturers (OEM),
dealers and directly by Howtek; and
WHEREAS OEM engages in the development and marketing of Color Electronic
Pre-Press Systems; and
WHEREAS, OEM is ultimately owned by E.I. DuPont de Nemours and Company and Fuji
Photo Film Ltd., of the U.S.A. and Japan respectively, in equal shares; and
WHEREAS OEM intends to both sell the Product supplied by Howtek as a stand alone
item to third parties as well as to integrate the Product under this OEM
Agreement into it's own products and systems and offer in both cases warranty,
maintenance and services for the Products purchased hereunder and such sales to
be both direct from OEM and by way of intermediaries between OEM and end-users
of the Products;
ACCORDINGLY IT IS AGREED BETWEEN THE PARTIES AS FOLLOWS:
1. TERM Subject to the termination provisions of Article 15, the initial
term of this agreement is 12 months, beginning on the effective date, and shall
be renewed automatically at the end of the term for successive twelve month
terms. The expiration or termination of this Agreement shall not relieve the OEM
from making any payments then and thereafter due under the terms of this
Agreement nor from the obligation not to disclose or use trade secrets and any
proprietary or confidential information of Howtek.
2. ORDERS AND FORECASTS OEM shall order Howtek product, as described in
Exhibit "B" ("Product"), by issuing a written purchase order to Howtek at least
90 days prior to requested delivery date (or such shorter period as is
acceptable to Howtek) which authorizes shipment of product under this Agreement
and which specifies the quantity, model, description, price, requested shipment
date, destination, and shipping instructions. OEM shall be entitled to
reschedule delivery
<PAGE> 2
of ordered Product, on a one time basis per purchase order, for Product which is
scheduled to be delivered more than 30 days from date of giving notice of
rescheduling, provided that such delivery may only be rescheduled for a date not
to exceed 120 days from the date of the original purchase order. To enable
Howtek to assess future requirements, OEM shall provide to Howtek a twelve month
rolling forecast of Product OEM expects to purchase from Howtek on the signing
of this Agreement (see Exhibit "C") and OEM shall update this forecast quarterly
throughout the term of this Agreement and any renewals thereof. Such forecast
shall not require OEM to purchase nor Howtek to deliver the amount of Product
listed in the forecast. Provided OEM is in compliance with the terms of this
Agreement, Howtek will accept all OEM purchase orders which are consistent with
the volumes set forth in the forecasts it provides to Howtek. It is understood,
however, that the first three months of such forecast shall be based upon firm
purchase orders.
3. PRICE The OEM Purchase Prices and Discounts are set forth in Exhibit B.
The initial OEM Purchase Price to be paid by OEM after the signing of this
Agreement shall be based upon the Product purchase volumes forecast by the OEM
pursuant to Section 2 above. At the end of each three month period following the
commencement of this Agreement, if OEM's purchasing history and open orders of
Product are not at the forecasted rate, then the OEM Discount and OEM Purchase
Price shall be adjusted, up or down, to reflect the actual sales rate achieved
during said preceding three month period, on all open and succeeding purchase
orders until revised again in accordance with this provision. In order to
accomodate OEM's market development efforts during the initial term of this
Agreement OEM's Product purchases shall be aggregated over an eighteen month
period for purposes of calculating the appropriate purchase price discount in
Exhibit "B" and thereafter shall be aggregated over a twelve month period.
Quarterly price reviews will continue during the initial term, but the
quantities will be measured against an eighteen month term. The OEM Purchase
Price does not include sales, use or other applicable taxes. OEM agrees either
to furnish an appropriate exemption and/or resale certificate, or to pay Howtek,
upon presentation of invoices therefor, the amounts of any such taxes which
Howtek may be required to collect. Howtek shall endeavor throughout the term of
this Agreement to make, and OEM shall endeavor to suggest, improvements to the
Product and manufacturing processes to enable cost reductions to the Product to
take place to the benefit of both parties. The pricing set forth for the Product
in Exhibit "B", as may be amended from time to time, during each term, shall be
the maximum price for the duration of that period. The price may be reviewed at
twelve (12) monthly periods thereafter to assess whether it should be adjusted
from that agreed. Any change to the purchase price which is in excess of the
average United States of America inflation figure at the time of the annual
review will be justified in detail by Howtek and approved by the OEM before
coming into effect, such approval shall not be unreasonably withheld. Howtek
will endeavor to maintain prices at competitive levels against similar classes
of product produced by other manufacturers. If OEM considers that this is not
being maintained for any reason then this will be subject to discussion between
the Parties to resolve the matter. In the event that the U.S. list price of the
Product is reduced by Howtek at any time, Howtek shall notify OEM forthwith and
Exhibit B shall be amended accordingly. The prices as so altered shall apply to
all Products delivered on and after the applicable date of the price reduction,
including outstanding orders. Howtek shall credit OEM againstthe purchases of
future Products with amounts paid by OEM over and above the applicable reduced
price for all Products (excluding Product demonstration units) held in stock by
OEM for a period of not more than 60 days at the time of introduction of the
2
<PAGE> 3
said reduction".
4. PAYMENT Payment to Howtek by OEM for the purchase of Product shall be
due 50 days from date of invoice which date shall correspond to the date of
shipment of Product to OEM from Howtek's facility. Howtek shall send a copy of
the invoice by facsimile transmission to OEM on the date of shipment.
5. DELIVERY, TITLE, RISK OF LOSS Howtek shall endeavor to ship Products as
close to the requested order date as possible. However, Howtek shall not be
liable for delays in delivery or failure to manufacture due to causes beyond its
reasonable control, including, without limitation, acts of God, an inability to
obtain necessary labor, materials or manufacturing facilities. In the event of
any such delay, the date of delivery shall be extended for a period equal to the
time lost by reason of the delay. All Howtek Products purchased hereunder shall
be sold F.C.A. (Incoterms), common carrier, Howtek's facility, Hudson, New
Hampshire or other designated Howtek distribution facility, freight collect, and
title and risk of loss shall pass to OEM upon tender of delivery to a carrier.
Howtek shall retain a purchase money security interest in all Products until
paid for in full by OEM and OEM hereby authorizes Howtek to file and sign on
behalf of OEM any documents necessary to perfect or secure Howtek's security
interest in the Product. Products will be packaged at Howtek's expense in
accordance with standard commercial packaging for air freight. The fastest and
most economical means of shipment will be negotiated between Howtek and OEM. OEM
shall, at its own expense, obtain import licenses necessary for importing the
Products from the U.S.A. and Howtek will make its best efforts to assist OEM in
obtaining any necessary licenses for export of the Product and spare parts.
Howtek agrees to manufacture the Product to the applicable FCC standards and
obtain all related FCC certifications. OEM acknowledges that such certifications
are in Howtek's name, and agrees to take such action, if any, necessary to
maintain FCC compliance in OEM's name. On request, Howtek will provide OEM with
a copy of Howtek's certification of FCC compliance.
6. SPARE PARTS Howtek agrees to make available for purchase by OEM
spare parts for Products purchased hereunder during the term of this Agreement
and for a period of seven years from the date of termination of this Agreement
(excluding commercially available components conforming to industry standards),
on the terms and conditions of this Agreement and at Howtek's then standard
prices provided to comparable customers at comparable quantities and on
comparable terms and conditions. If, however, Product spare parts shall be
discontinued during the term of this Agreement, or thereafter, Howtek shall
provide OEM 120 days notice thereof and the opportunity to submit firm purchase
orders and take delivery of such spare parts up to 12 months from the date of
such notice. These spare parts may contain renovated components, however, they
will function and be warranted as new spare parts. Attached to the Agreement as
Schedule "F" is a Spare Parts Price List. OEM shall be entitled to a discount
off this Spare Parts Price List at the same level OEM is entitled to under
Schedule "B" for the purchase of Product.
7. DISCONTINUED PRODUCTS If, during the Term, Howtek discontinues the
Product, Howtek agrees to provide OEM with one hundred twenty (120) days notice
of Product discontinuance. OEM may place orders for discontinued Products during
the notification period, for
3
<PAGE> 4
delivery up to 12 months from the date of notice of Product discontinuance.
8. NON-DISCLOSURE (a) Except as provided below, OEM agrees not to disclose
to any third party, or to use or employ, except as may be expressly contemplated
by this Agreement, either during the performance thereof or for three years
thereafter, any information of whatever nature in any way pertaining or relating
to Howtek's Product technology, manufacturing methods, processes, strategies,
prices, customers or related affairs furnished by Howtek, or otherwise acquired
by OEM in connection with this Agreement ("Confidential Information"). Upon
termination or cancellation of this Agreement, OEM shall surrender to Howtek,
all written and descriptive matter, including but not limited to drawings,
blueprints, description, or other paper or documents which contain such
information. OEM shall be authorized to disclose to sales intermediaries
authorized by OEM any Confidential Information which is necessary for the
support, maintenance, promotion, marketing and sale of the Product provided such
intermediaries agree in writing to protect such Confidential Information under
terms substantially similar to this clause 8. The purpose of the foregoing
sentence is to provide OEM with flexibility in promoting, supporting, servicing
and selling the Product without disclosing the more sensitive types of
Confidential Information such as drawings, manufacturing data and software
source code.
(b) For the avoidance of doubt, OEM has substantial knowledge, experience
and expertise in color scanning technology and this undertaking in Section 8
shall be both without prejudice to OEM's rights thereto and be restricted to
information expressly connected with the Product Technology.
(c) Nothing in this Section 8 shall apply to Confidential Information:
(i) which is publicly available through no fault of OEM;
(ii) which was in possession of the OEM prior to the date of disclosure, as
shown by prior written records;
(iii) which is subsequently learned by the OEM from any third party which
was not restricted from disclosing it, as shown by its written records;
(iv) which is subsequently developed by OEM independently of disclosure
hereunder, as shown by prior written records;
(v) which the OEM can show in writing has been released for publication;
(vi) which is authorized for disclosure by subsequent written agreement
between the parties;
(vii) which Howtek designates in writing as non-confidential.
9. LIMITED WARRANTY AND REMEDY LIMITATIONS Howtek warrants to OEM that the
Product (other than spare parts) supplied hereunder shall be free from defects
in material and workmanship under normal use and maintenance in accordance with
the directions and cautions
4
<PAGE> 5
contained in the manuals accompanying the Product for a period of the lesser of
360 days from date of shipment by Howtek to OEM or 180 days from the date of
receipt by the end-user. Howtek warrants that spare parts shall be free from
defects in material and workmanship under normal use and maintenance for 180
days from date of shipment by Howtek. Howtek's obligation under this warranty is
limited to replacing or repairing, free of charge, any defective part returned
to Howtek, Hudson, New Hampshire, or its designated service depot. This warranty
is void if Product is abused, misused, is not operated in accordance with the
Specifications set forth in Exhibit "A", or is operated with parts that were not
manufactured or approved by Howtek. Howtek shall only be required to respond to
warranty claims submitted by the OEM. The OEM shall indemnify and hold Howtek
harmless from any warranty claims made directly to Howtek by persons purchasing
Howtek Products from the OEM..
During the warranty period OEM shall pay for the return to Howtek of any
faulty product. If the Product is found to be faulty due to poor design,
workmanship or materials then Howtek shall reimburse OEM for the transportation
costs incurred. Howtek shall also be responsible for freight charges, taxes and
insurance charges for the return of repaired Products to OEM.
During the warranty period if the Products require replacing or repairing
due to accident, misuse, neglect, wilful act, default, operator error or any
cause other than normal use, then OEM or the end user shall pay for labor and
parts and all other associated delivery costs.
THE FOREGOING WARRANTY IS EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES,
WHETHER WRITTEN, ORAL OR IMPLIED INCLUDING ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR PARTICULAR PURPOSE. HOWTEK SHALL NOT BE RESPONSIBLE FOR INCIDENTAL
OR CONSEQUENTIAL DAMAGES ARISING OUT OF PRODUCTS NOT BEING AS WARRANTED AND
OEM'S REMEDIES SHALL BE LIMITED TO THOSE ABOVE SET FORTH. Neither OEM nor any
other person, firm or corporation is authorized to make any other warranties on
behalf of Howtek or to assume for Howtek any other liabilities in connection
with Products purchased hereunder.
10. LIMITATION OF DAMAGES Howtek shall not be liable for any loss, damages,
either direct or consequential, arising from any cause whatsoever beyond its
reasonable control. IN NO EVENT WILL HOWTEK BE LIABLE FOR ANY COLLATERAL,
CONSEQUENTIAL, OR INDIRECT DAMAGES ARISING OUT OF OR RELATED TO THE TRANSACTIONS
WHICH ARE THE SUBJECT HEREOF, EVEN IF HOWTEK SHALL HAVE BEEN ADVISED OF SUCH
POTENTIAL DAMAGES, PROVIDED, HOWEVER, THAT THE FOREGOING SHALL NOT BE CONSTRUED
TO LIMIT HOWTEK'S LIABILITY FOR PERSONAL INJURY OR DEATH BY IMPOSITION OF STRICT
LIABILITY OR CAUSED BY HOWTEK'S SOLE NEGLIGENCE.
Whilst the parties acknowledge that any safety issue is unlikely to arise
in relation to the products, each of the parties hereto shall assume full
responsibility for and hold the other harmless from and against third party
actions, claims or expenses in respect of personal injury, death or damage to
property caused by its negligent act, or omission in relation to the products.
5
<PAGE> 6
11. INSTALLATION AND SERVICE OEM shall be responsible for the installation
and service of Products. Howtek agrees to provide the contents of the Product
manuals in electronic digital format which Howtek hereby licenses OEM to use and
modify in connection with its own documentation. Howtek authorizes OEM to
translate the manuals into any language.
Howtek will provide, at no cost to OEM, user training for the Product at
OEM's site. Installation instructions are set forth in the User Manual and the
Product is designed for end-user installation. Service training and support will
be provided for a fee, by Howtek.
12. PATENTS Howtek agrees to defend or to settle, at its own cost, any
action, suit or proceeding against OEM based upon a claim alleging that Product
infringes the U.S. or European patent, copyright or other intellectual property
rights of the complaining party, provided that: Howtek is notified promptly in
writing by OEM of the existence of the claim, OEM requests Howtek to undertake
its defense and gives Howtek the right to maintain sole control of the defense
and all negotiations for settlement or compromise of such claim, and OEM
customer cooperates with Howtek in such defense. Howtek shall not be liable to
OEM if the claim of infringement is based upon the use of Product supplied by
Howtek where any alteration to the Product has been made by OEM. Howtek shall
have the right to substitute for the infringing product another suitable product
or, at Howtek's option, obtain for OEM the right to continue the use of such
product or take back such product and refund any sums OEM has paid Howtek
therefore less a reasonable amount for use, damage, obsolescence and
depreciation based on five year straight line amortization. If infringement is
alleged prior to completion of delivery of the product, Howtek may decline to
make further shipments without being in breach of contract. THE FOREGOING STATES
HOWTEK'S ENTIRE LIABILITY AND OEM'S SOLE REMEDY WITH RESPECT TO CLAIMS OF
PATENT, COPYRIGHT OR OTHER INTELLECTUAL PROPERTY RIGHT INFRINGEMENT AND HOWTEK
SHALL NOT BE LIABLE FOR ANY COLLATERAL, CONSEQUENTIAL, INDIRECT OR INCIDENTAL
DAMAGES ARISING OUT OF ANY SUCH INFRINGEMENT.
13. WORK ON OEM CUSTOMER'S PREMISES In the event of any work by Howtek, its
employees or agents in the premises of OEM or its customers, OEM shall take (or
cause its customers to take) all necessary precautions to prevent the occurrence
of any injury to such persons or property, during the progress of such work.
Except for injury due solely and directly to the negligence of a Howtek employee
or agent while on the premises of OEM or its customers, OEM hereby indemnifies
Howtek against all claims, demands, liabilities or loss by Howtek employees or
agents which may result in any way from any act or omission of OEM, its
customers or their agents, employees or subcontractors.
14. SOFTWARE Howtek hereby grants to OEM a non-exclusive, non-assignable
license to the software supplied with the Product ("Software") pursuant to the
provisions of the Software License in Exhibit"D" for the OEM's internal use and
development in conjunction with the marketing, distribution and sale of the
Product. Until the expiration or termination of the Agreement the OEM is hereby
granted the right to sublicense the Softwareto persons in the chain of
distribution and to end-user customers, by contractually binding such persons or
end-users with terms substantially similar to the restrictions of Howtek's
Standard Software License Agreement in Exhibit "D". In
6
<PAGE> 7
addition, Howtek hereby agrees to make available to OEM all software development
tools which Howtek makes available to third party software developers, including
the SCSI Command Interface Specification HPF 082 (Rev.-1) dated July 14, 1994.
scanning functions for the Product and the source code to what Howtek calls the
"D4500 plug-in module" which is driver software that permits the Product to
operate with scanning application programs. The source code to the the Plug in
Module and any other development tools provided to OEM is licensed for OEM's
internal use only, may not be copied (except for archival purposes),
distributed, disclosed to third parties, or used for any purpose other than to
support the sale of Products purchased hereunder. Upon the expiration or
termination of this Agreement, OEM shall promptly return to Howtek all such
source code, including copies, and any related documentation. Any software which
OEM creates using this source code shall be the exclusive property of OEM,
including all copyright, trademark and patent rights thereto. Howtek does not
grant OEM a source code license to the operating software resident in firmware
in the Product which controlls the opersting functions of the Product and such
software remains the exclusive property of Howtek. Howtek's warranty for the
Product shall not cover any software generated by OEM and any faults or defects
occuring due to the modified software shall be corrected by OEM at OEM's
expense.
15. TERMINATION OR MODIFICATION Either party shall have the right to terminate
this Agreement immediately if the other ceases to function as a going concern,
becomes insolvent, makes an assignment for the benefit of creditors, files a
petition in bankruptcy or permits a petition to be filed against it. Either
party shall have the further right to terminate this agreement, and/or suspend
credit and delay delivery until payment is received, and/or otherwise alter
terms of payment, and/or treat orders as having been cancelled if either party
(i) fails to make payment when due or (ii) breaches any of its other obligations
hereunder and such violation or breach remains uncured for thirty (30) days
after notice by the non-breaching party to the other. Termination or expiration
of this Agreement shall not relieve either party from the obligation to honor
any commitments under this Agreement, including outstanding purchase orders,
outstanding accounts due and the confidentiality requirements.
16. INDEPENDENT CONTRACTOR OEM's relationship with Howtek shall be that of
an independent contractor and nothing contained herein shall be construed as
creating the relationship of partner, principal and agent, joint venturers or
legal representatives for any purpose. Neither party to this Agreement shall
have the authority to act for or bind the other.
17. CHANGE CONTROL Howtek agrees that there will be no change to the
Product which affects form, fit or function within the 90 day period between
order and shipment. Howtek will advise OEM of any change in form, fit or
function to the Product by means of a Howtek engineering change order ("ECO") at
least 90 days prior to implementation. If any change in the form, fit or
function of the Product is incompatible with OEM's products, then OEM may order
versions of the Product without the changes pursuant to Section 7 of this
Agreement. Howtek shall give at least 180 days advance notice of any scanner
which replaces the 4500 to OEM (where Howtek's development cycles allow). Notice
of Development shall never be less than 90 days before public announcement.
Howtek will offer any scanner which replaces the 4500 to OEM for test and
evaluation when available and prior to commercial shipment.
7
<PAGE> 8
18. CANCELLATION If OEM cancels a purchase order, Howtek shall make its
best efforts to minimize the costs of cancellation. OEM shall reimburse Howtek
for all such reasonable costs incurred.
19. FACTORY ACCEPTANCE TEST The Product is designed to meet the Factory
Acceptance Test Specification ("FAT Specification") provided in Exhibit "E".
Prior to shipment, all Products will be subject to the Factory Acceptance Test
by Howtek in accordance with Howtek's standard procedure for such Products. A
Factory Acceptance Test Certificate will be provided with all Products purchased
under this Agreement. Howtek shall, upon OEM request, permit technical
representatives of OEM to be present at such test and inspection, provided OEM
notifies Howtek in advance. Following receipt of the Product at the OEM
designated destination, OEM shall at its discretion, subject the Product to the
Factory Acceptance Test. If the Product does not meet this Factory Acceptance
Test it may be rejected by OEM and any payments due with regard to such Product
would be withheld by OEM until the Product meets the FAT Specification.
20. TRADEMARKS Howtek agrees to replace its trademarks and logos with OEM's
trademarks and logos, as provided by OEM, to the Product and packaging,
following approval by Howtek of such Trademarks and logos, which approval shall
not be unreasonably withheld. Howtek agrees to allow OEM to affix its own labels
and logos to the documentation OEM supplies with the Product and does not
require Howtek labels and logos to be applied thereto. OEM agrees to defend and
indemnify Howtek against any loss, expense or liability to third parties arising
directly or indirectly out of Howtek's compliance with OEM supplied trademarks
or logos attached to the Product or associated packaging. Howtek agrees to
deliver the product painted in the color specified by OEM at the time of
authorization of this Agreement and as modified from time to time by the OEM,
except that any such subsequent color modifications shall be made as part of an
engineering change order in accordance with this Agreement and any incremental
costs above the then current painting costs resulting from this change shall be
borne by OEM. In addition, any such changes shall not effect Product already
placed on order by OEM.
21. MANUFACTURING LICENSE (a) Howtek agrees that it will negotiate a
manufacturing license for the Product with OEM on terms and conditions to be
mutually agreeable to the Parties. The Manufacturing License shall be an
exclusive, non-assignable license to OEM for the manufacture of the Product in
Europe and will include the license to all related software necessary for the
successful manufacture and sale of the Product. The detailed operating
conditions of the Manufacturing License are to be determined under a separate
agreement between the Parties. Pursuant to such a Manufacturing License, Howtek
would endeavor to transfer all manufacturing knowledge and know-how to OEM, and
if OEM requires and at OEM's expense, provide trained support and technical
assistance during the set up phase for the manufacture of the Product at OEM's
production facility. The intellectual property rights in the manufacturing data
developed by Howtek shall remain Howtek's exclusive property. Nothing in this
clause shall be construed as transferring any intellectual property rights in
the Product or manufacturing data to OEM.
(b) In the event Howtek voluntarily or involuntarily is placed in
liquidation under the U.S.
8
<PAGE> 9
Bankruptcy laws, Howtek agrees to (i) allow OEM to purchase the Product directly
from Juno Enterprises, Inc. ("Juno"), the third party manufacturer of the
Product, and in the event the Product is unavailable from Juno in the quantities
previously forecasted by OEM then (ii) Howtek agrees to provide licensing rights
to OEM to manufacture the Product on
payment of a royalty (to be negotiated among the parties at such time) to Howtek
in such amount such that OEM shall be no worse off than if it was continuing to
buy the Product from Howtek.
(c) Howtek agrees to enter into an Escrow Agreement with OEM the purpose of
which is to enable OEM to obtain possession of the Product drawings and Software
source code in the event Howtek is voluntarily or involuntarily placed in
liquidation under the U.S. Bankruptcy laws pursuant to Subsection (b) above.
22. GENERAL PROVISIONS
------------------
A. GOVERNING LAW; JURISDICTION: COSTS OF LITIGATION This Agreement and any
transactions by and between Howtek and OEM hereunder shall be governed by,
construed and interpreted in accordance with the laws of the state of New
Hampshire. OEM expressly consents to the jurisdiction of any court of competent
jurisdiction located in New Hampshire for the disposition of any dispute
hereunder. Should legal action become necessary to enforce any of the terms and
conditions set forth herein, the losing party shall pay to the prevailing party
all out of pocket expenses incurred in connection with such action, including
reasonable attorney's fees.
B. ENTIRE AGREEMENT: AMENDMENT Howtek and OEM agree that the terms and
conditions set forth in this Agreement shall govern all purchases of product
during the initial and any renewal term of this Agreement. This Agreement
supersedes all proposals, oral or written, and all negotiations, conversations
or discussions between OEM and Howtek relating to the subject matter of this
Agreement. This Agreement shall not be amended or superseded except by an
agreement in writing signed by Howtek and OEM which specifically states that
such modification or amendment is made pursuant to this article.
C. NON-WAIVER OF DEFAULT Howtek's failure to insist upon strict performance
of any of the provisions contained herein shall in no way constitute a waiver of
its rights as set forth herein, at law or in equity, or a waiver by Howtek of
any other provisions of prior, concurrent or subsequent default by Howtek in the
performance of or compliance with any of the terms and conditions set forth
herein. Neither the acceptance of payments after the due date, nor acceptance of
adjustments, nor the acceptance of interest charges specified hereunder, nor the
failure of Howtek to enforce any other of its rights under this Agreement shall
be deemed a waiver of any of Howtek's rights or remedies.
D. SEVERABILITY If any provision herein shall be held to be invalid or
unenforceable for any reason such provision shall, to the extent of such
invalidity or unenforceability, be severed, but
9
<PAGE> 10
without in any way affecting the remainder of such provision or any other
provision contained herein, all of which shall continue in full force and
effect.
E. EXPORT OBLIGATION The equipment sold under this Agreement may be subject
to U.S. Government export regulations. To the extent required by law any
equipment delivered within the United States, that is subsequently exported by
the OEM must be licensed in accordance with the regulation of the U.S.
Department of Commerce or any other appropriate U.S. Government agency and it is
the responsibility of the OEM to obtain such license and approval.
F. ASSIGNMENT Neither party may assign or otherwise transfer its rights or
obligations under this agreement without first receiving the written consent of
the other, which consent shall not unreasonably withheld, except that either
party may assign its rights and obligations under this Agreement to any party
which acquires all or substantially all of the assets of such party related to
the Product without having to obtain the consent of the other party.
G. NOTICES All notices in connection with this Agreement shall be in
writing and sent registered mail, return receipt requested at the following
address:
If to LICENSOR:
General Counsel
Howtek, Inc.
21 Park Avenue
Hudson, NH 03031
If to LICENSEE:
Anthony Halker
Marketing Director
Crosfield Electronics Ltd.
Three Cherry Trees Lane
Hemel Hempstead
Herts HP2 7RH
England
H. HEADINGS The headings herein are for convenience only and shall not
affect the construction of any provision hereof.
10
<PAGE> 11
IN WITNESS WHEREOF, The parties have caused this Agreement to
be executed and do hereby warrant and represent their respective signatures that
they are duly authorized to enter into this Agreement.
HOWTEK, INC. CROSFIELD ELECTRONICS LIMITED
By: By:
------------------------------ ---------------------------
Title: Title:
------------------------------ ---------------------------
Date: Date:
------------------------------ ---------------------------
SUMMARY OF EXHIBITS
- -------------------
Exhibit A Product Specification
Exhibit B List of Products and Prices
Exhibit C Forecast and Purchasing Commitment
Exhibit D Software Licensing Agreement
Exhibit E Factory Acceptance Test
Exhibit F Spare Parts Price List
11
<PAGE> 12
EXHIBIT "A"
PRODUCT SPECIFICATIONS
12
<PAGE> 13
EXHIBIT "B"
LIST OF PRODUCTS AND PRICES
13
<PAGE> 14
EXHIBIT "C"
FORECAST
(to be provided by Crosfield)
14
<PAGE> 15
EXHIBIT "D"
SOFTWARE LICENSE AGREEMENT
This Software License Agreement is entered into between Howtek, Inc., 21
Park Avenue, Hudson New Hampshire ("LICENSOR"), and ____________________________
______________________, ("LICENSEE") on the following terms and conditions.
1. SOFTWARE REMAINS LICENSOR'S PROPERTY. Title to the software licensed
hereunder, which shall include all software listed or accompanying Products
listed in Exhibit A or included as firmware in products listed in Exhibit A,
related documentation, and all changes, modifications and/or enhancements
thereto ("Software") and all rights therein, including all rights in patents,
copyrights, and trade secrets applicable thereto, shall remain vested in
LICENSOR. Any copies of the Software made by LICENSEE, in whole or in part,
shall remain LICENSOR's property.
2. LICENSE. LICENSOR grants to LICENSEE a nonexclusive, worldwide license to
use, the object code version of the Software. No right to copy the Software, in
whole or in part, is granted except as hereinafter expressly provided. This
license may not be assigned, sublicensed, other than to a resellerauthorized by
Licensee or otherwise transferred by LICENSEE without prior written consent of
LICENSOR. LICENSEE is only authorized to use the Software and related
documentation in conjunction with the use by LICENSEE of the LICENSOR products
with which they were furnished.
3. RIGHT TO COPY; PROTECTION AND SECURITY
a. LICENSEE agrees to reproduce any LICENSOR copyright notice, and other
proprietary legend in the Software and to include the same on all copies of the
Software it makes in whole or in part. The LICENSOR copyright notice may appear
in any of several forms, including machine readable form within the Software,
and LICENSEE agrees to reproduce such notice in each form in which it appears.
b. LICENSEE shall be responsible for marking all Software with the
appropriate proprietary legends and copyright notices of the LICENSOR and any
other person with proprietary rights in the Software.
c. LICENSEE's obligations to protect LICENSOR's proprietary rights in the
Software shall survive the termination of this Agreement until such proprietary
Software enters the public domain through no fault of, or breach by LICENSEE, of
this License Agreement.
4. TERM
a. This Agreement will take effect as of the effective date of the
accompanying Agreement and shall run coterminously therewith.
b. This Agreement may be terminated by LICENSEE upon one month's prior
written notice.
15
<PAGE> 16
LICENSOR may terminate this
Agreement if LICENSEE is in default of any of the terms and conditions of this
Agreement, and termination is effective if LICENSEE fails to correct such
default within thirty (30) days after written notice thereof by LICENSOR.
c. Within one month after termination or expiration of the Agreement,
LICENSEE will furnish to LICENSOR a certificate certifying that through its best
effort, and to the best of its knowledge, the original and all copies, in whole
or in part, in any form of the connection with this Agreement (except copies for
which LICENSEE has paid a licensee fee for LICENSEE's own use), have been
destroyed, except that LICENSEE may retain one copy for archival or support
purposes.
5. USE OF LICENSOR'S NAME. The right granted by LICENSOR hereunder shall not be
construed, directly or indirectly, by implication, estoppel or otherwise, as
granting to LICENSEE the right to advertise the Software as a LICENSOR product.
6. DOCUMENTATION. LICENSEE may without charge make copies of the Software
documentation (user manuals, product data sheets, etc.) as are necessary for its
internal archival use only provided all of LICENSOR's and others' copyright and
proprietary legends are reproduced.
7. SOFTWARE LICENSED HEREUNDER IS WARRANTED TO CONFORM TO PUBLISHED
SPECIFICATIONS WITH NO ADDITIONAL WARRANTY WHETHER EXPRESS, IMPLIED OR
STATUTORY, INCLUDING FITNESS FOR PARTICULAR OR INTENDED PURPOSE AND
MERCHANTABILITY. IN NO EVENT SHALL LICENSOR BE LIABLE FOR INCIDENTAL OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) ARISING FROM USE OF THE SOFTWARE.
LICENSOR will endeavor to correct problems and/or bugs relevant to the software
as brought to the attention of LICENSOR by LICENSEE.
8. NONDISCLOSURE AND CONFIDENTIALITY. The Software licensed hereunder is
proprietary to and a trade secret of Howtek, and shall not be disclosed to any
person or entity not a party to this Agreement. Software which has been
independently developed by LICENSEE or is in the public domain without being
disclosed by LICENSEE in breach of this Agreement is not subject to the above
restriction. LICENSEE recognizes the valuable proprietary, trade secret nature
of the Software and agrees to indemnify Howtek for Howtek's damages in the event
of the unauthorized disclosure by LICENSEE, its affiliates, employees or
representatives of information related thereto. In addition, LICENSEE hereby
agrees not to disclose to any party other than Howtek, (to which it hereby
agrees to disclose) information regarding the performance or reliability of the
Software.
9. EXPORT LICENSES. LICENSEE shall not transmit, directly or indirectly, the
Software to any country in contravention of the U.S. Export Control Regulations.
To the extent LICENSOR has information regarding such countries it will make
such information available to LICENSEE.
10. NOTICES. All notices in connection with this Agreement shall be in writing
and sent registered mail, return receipt requested at the following address:
16
<PAGE> 17
If to LICENSOR:
General Counsel
Howtek, Inc.
21 Park Avenue
Hudson, NH 03031
If to LICENSEE:
Anthony Halker
Marketing Director
Crosfield Electronics Ltd.
Three Cherry Trees Lane
Hemel Hempstead
Herts HP2 7RH
England
11. LITIGATION. This Agreement and any transactions by and between Howtek and
OEM hereunder shall be governed by, construed and interpreted in accordance with
the laws of the state of New Hampshire. OEM expressly consents to the
jurisdiction of any court of competent jurisdiction located in New Hampshire for
the disposition of any dispute hereunder. Should legal action become necessary
to enforce any of the terms and conditions set forth herein, the losing party
shall pay to the prevailing party all out of pocket expenses incurred in
connection with such action, including reasonable attorney's fees. No legal
proceeding arising from any transaction hereunder may be instituted more than
two years after the cause of action arose.
12. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding between
the parties with respect to the subject matter herein, and merges and supersedes
all prior written agreements, discussions and understandings, express or
implied, concerning such matters and shall take precedence over any conflicting
terms which may be contained in LICENSEE's purchase order to LICENSOR's order
acknowledgement form.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first written above.
LICENSOR: LICENSEE:
By: By:
----------------------- ------------------------------
Title: Title:
-------------------- ---------------------------
Date: Date:
--------------------- ---------------------------
17
<PAGE> 18
EXHIBIT "E"
FACTORY ACCEPTANCE TEST
18
<PAGE> 19
EXHIBIT "F"
SPARE PARTS PRICE LIST
19
<PAGE> 1
EXHIBIT 23 (A)
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Howtek, Inc.
Hudson, New Hampshire
We hereby consent to the incorporation by reference in the respective
Prospectuses constituting part of the Registration Statements on Form S-8 (Nos.
33-14634 and 33-72534) of our report dated February 16, 1996, relating to the
consolidated financial statements and schedule of Howtek, Inc. appearing in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
We also consent to the references to us under the caption "Experts" in the
Prospectuses.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
New York, New York
February 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 574,647
<SECURITIES> 0
<RECEIVABLES> 6,764,854
<ALLOWANCES> 290,710
<INVENTORY> 6,840,823
<CURRENT-ASSETS> 14,137,204<F1>
<PP&E> 10,844,445
<DEPRECIATION> 7,815,236
<TOTAL-ASSETS> 18,495,240
<CURRENT-LIABILITIES> 4,203,168
<BONDS> 2,181,000
0
0
<COMMON> 80,225
<OTHER-SE> 8,452,243
<TOTAL-LIABILITY-AND-EQUITY> 18,495,240
<SALES> 20,603,654
<TOTAL-REVENUES> 20,603,654
<CGS> 13,983,819
<TOTAL-COSTS> 13,983,819
<OTHER-EXPENSES> 11,441,837
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 433,045
<INCOME-PRETAX> (5,255,047)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,255,047)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,255,047)
<EPS-PRIMARY> (0.66)
<EPS-DILUTED> 0
<FN>
<F1>ADDITIONAL CURRENT ASSET PREPAID AND OTHER $247,590
OTHER ASSETS OF $1,328,827
LOAN PAYABLE TO PRINCIPAL STOCKHOLDER $3,578,604
</FN>
</TABLE>
