SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
[X] Annual report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
December 31, 1997 or
___ Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from___to___
Commission file number 0-15864
- -----------------------------------------------------------------
SCAN-GRAPHICS, INC.
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 95-4091769
- -----------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
649 North Lewis Road, Limerick, PA 19468
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code) 610-495-3003
- -----------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
- -----------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the Voting Stock held by
non-affiliates of the registrant computed by reference to the
closing price as reported on the NASDAQ system as of February 27,
1998 was $51,848,115.
The number of shares of the registrant's Common Stock issued and
outstanding as of February 27, 1998 was 18,642,019 shares.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE Company
The following table lists certain information with respect
to the Directors and Executive of the Company.
Name Age Since Position with the Company
- --------------------- --- ----- -------------------------
R. Barry Borden 58 1996 Chairman of the Board and
Director(1)(3)
Laurence L. Osterwise 50 1996 President, Chief
Executive Officer and
Director(3)
Michael A. Mulshine 58 1985 Secretary and Director(2)
David S. Hirsch 62 1992 Director(1)(2)
Jack A. Pellicci 59 1996 Director
James C. Sargent 82 1992 Director(2)
Andrew E. Trolio 68 1972 Director(3)
William K. Williams 56 Vice President and Chief
Financial Officer of the
Company
Bruce Downing 57 Vice President of the
Company and President,
The Technology Resource
Centers, Inc.
Robert J. Griffin 51 Vice President of the
Company and President,
Tangent Imaging Systems
Division
Colin B. Matthews 43 Vice President of the
Company and President,
Sedona GeoServices, Inc.
- -----------------------
(1) Member of the Compensation Committee of the Board of
Directors.
(2) Member of the Audit Committee of the Board of
Directors.
(3) Member of the Executive Committee of the Board of
Directors.
Background
The business experience, principal occupation and employment
of the Directors have been as follows:
R. Barry Borden was elected Chairman of the Board in April
1998, and has been a Director of the Company since June 1996.
Mr. Borden has founded and managed businesses in the computer
hardware and software industry for the past 30 years. Since
August 1997, he has served as President of Nettech Systems, Inc.,
a supplier of software for wireless data communications. Prior
to that he served as Chairman and CEO of Mergent International, a
supplier of software for data security on PC Desktops and
enterprise wide networks. Since 1984, Mr. Borden has been
President of LMA Group Inc., a general management consulting
firm. From 1968 to 1980, Mr. Borden was the founder, President
and CEO of Delta Data Systems, a CRT Terminal manufacturer, and
from 1981 to 1984 he was founder, Chairman and CEO of Franklin
Computer Corp., a manufacturer of microcomputers. In 1989 he
served as President and CEO of Cricket Software, Inc., a supplier
of graphics software. Mr. Borden received a BSEE degree from the
University of Pennsylvania in 1961.
Laurence L. Osterwise was appointed Chief Executive Officer,
President and a Director of the Company in April, 1997. Mr.
Osterwise began his employment with the Company on November 1,
1996, as its Chief Operating Officer and President of Sedona
GeoServices, Inc., a subsidiary. He was most recently President
of the $1.5+ billion Communications Division of General
Instruments Corporation. Prior to joining General Instruments
Corporation, Mr. Osterwise spent 25 years with IBM Corporation,
where he held positions as President of Production Industries,
U.S. Vice President and Corporate Director of Market Driven
Quality, and IBM Rochester General Manager and Director of
Application Business Systems. Under his leadership, IBM Rochester
was awarded the Malcomb Baldridge National Quality Award. Mr.
Osterwise received a BS in Mathematics from Duke University in
1969 and a MS in Computer Sciences from Syracuse University in
1973.
Andrew E. Trolio is a Director of the Company and
Past-Chairman of the Board of Directors. He founded the Company
in 1972. From 1961 to 1971 he was President, Director and Founder
of KDI Adtrol, Inc., a company which manufactured photo-optical
recording and reading devices for motion picture cameras. He is
also credited with several patents as inventor or co-inventor.
Mr. Trolio is a Trustee Emeritus of Cabrini College. Mr. Trolio
has served as Chairman of the Finance and Audit Committee and is
currently a Fellow of the International Society of Optical
Engineers. Mr. Trolio received an Honorary Doctor of Science
degree from Cabrini College in 1997.
Michael A. Mulshine has been a Director and Secretary of the
Company since May 1985 and has been associated with the Company
on a management consulting basis since 1979. He has been the
President of Osprey Partners, a management consulting firm, since
1977. Mr. Mulshine is a Director of Vasco Data Security
International, Inc., an OTC traded company and provider of
internet and computer network hardware and software security
products for financial institutions, industry and government.
Additionally, Mr. Mulshine is a Director of Prediction Systems,
Inc., a software engineering company specializing in the
technology of modeling and simulation, and a Director of Inresco,
Inc., a manufacturer of high-performance circuit protection
devices. Mr. Mulshine received a BSEE degree from the Newark
College of Engineering in 1961.
David S. Hirsch, a Director of the Company since January
1992, retired in 1991 from Schroder & Co., Incorporated and its
predecessor firms where he was a principal during the five years
preceding his retirement. Mr. Hirsch received a BA degree from
Cornell University in 1957 and a MBA degree from Harvard
University in 1959.
Jack A. Pellicci, a Director of the Company since October
1996, is Oracle Corporation's Vice President of Global Public
Sector "Government and Education". Prior to joining Oracle in
1992, Mr. Pellicci retired as a Brigadier General with 30 years
in the U.S. Army, where he was the Commanding General of the
Personnel Information Systems Command. Mr. Pellicci is a member
of the Board of Directors of the Open GIS Consortium (OGC), an
organization of over 70 commercial, governmental, and educational
entities dedicated to open systems approaches to geoprocessing.
He is the Vice Chairman of the High Performance Computing and
Communications Consortium (HPCCC). In addition, Mr. Pellicci
serves on the Armed Forces Communications and Electronics
Association (AFCEA) International Technical Committee, and is a
Corporate Fellow for the National Governors Association. He also
serves on the Board of Advisors for the Club of Rome. He is a
graduate of the U.S. Military Academy at West Point with a
Bachelor of Engineering degree, and received a Master of
Mechanical Engineering degree from Georgia Institute of
Technology.
James C. Sargent, a Director of the Company since January
1992, is Counsel to the law firm of Opton, Handler, Gottleib,
Fieler & Katz, and is counsel to Abel Noser Corporation, a member
of the New York Stock Exchange. He was previously a partner and
counsel to Whitman & Ransom. He was Regional Administrator from
1955 to 1956, and Commissioner from 1956 to 1960, of the
Securities and Exchange Commission.
William K. Williams was appointed Vice President and Chief
Financial Officer in April 1998. Mr. Williams has more than 27
years experience in corporate financial management and business
development. Prior to joining the Company, Mr. Willams was for 5
years an independent financial consultant working primarily with
emerging companies. He served for 5 years as Vice President of
Business Development at Intelligent Electronics, an information
technology products, services and solutions provider. In
addition, Mr. Williams served in a variety of financial
management positions in 17 years with DuPont, a leading worldwide
chemical and energy products manufacturer, including 4 years as
Director of Finance for operations in Japan. Mr. Williams
received an MBA degree in Finance from the University of
Maryland.
Bruce Downing has been the President of the Technology
Resource Centers, Inc. since July 1996 and was appointed a
Company Vice President in March 1998. Mr. Downing has more than
30 years experience in computer systems management and business
development. His computer industry experience includes positions
as a marketing manager and systems consultant for Systems and
Computer Technology Corporation, Director of Industry Marketing
for Commodore Computers covering education and government markets
and as a founding officer and Senior Vice President of
Intelligent Electronics. Prior to joining the Company, Mr.
Downing was involved in the startup of software and systems
consulting companies. Mr. Downing received a BA degree from
Grinnel College in 1962 and a MA and PhD degree from the
University of Colorado in 1966.
Robert J. Griffin was appointed a Company Vice President in
March 1998. He joined the Company as Senior Vice President of
Sales and Distribution in the Company's Tangent Imaging Systems
Division in September 1997 and in January 1998 Mr. Griffin was
appointed President of that unit. Prior to joining the Company,
Mr. Griffin directed a broad array of marketing and sales
initiatives with International Business Machines Corporation
including: market and brand management, customer satisfaction,
business partner recruitment and support, sales training and
field sales management. Most recently, Mr. Griffin served as
Director, Worldwide Competitive Marketing and Sales for IBM, a
position directly responsible to the CEO and senior executive
team.
Colin B. Matthews has been President of Sedona GeoServices,
Inc., since April 1997 and was appointed a Company Vice President
in March 1998. Prior to his joining the Company, Mr. Matthews was
President, COO and a Director of Denbridge Capital Corporation, a
Toronto Stock Exchange listed venture capital/merchant bank to
high technology and junior resource companies. Mr. Matthews
became a part of the Denbridge organization in 1994 when a
company he co-founded in 1992, RMSL Traffic Systems, Ltd., was
acquired by the Denbridge organization in a $50 million
transaction. Mr. Matthews received a BSC degree in Electronic
Engineering in 1975 from Robert Gordons University in Aberdeen,
Scotland.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain summary information
concerning compensation for services in all capacities awarded
to, earned by or paid to, the Company's Chief Executive Officer
and the other most highly compensated officers of the Company,
whose aggregate cash and cash equivalent compensation exceeded
$100,000 (the "Named Officers"), with respect to the last three
fiscal years.
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compen- ------------ All(1,2)
sation Option/War- Other
Name and -------------- rant Awards Compen-
Principal Position Year Salary Bonus (shares) sation
- ------------------ ---- ------ ----- ------------ -------
Andrew E. Trolio 1997 $152,000 - 50,000 $24,329
Past-Chairman of 1996 $188,500 - 74,000 $32,040
the Board 1995 $115,284 - 55,000 $ 8,445
Laurence Osterwise 1997 $121,154 - 250,000 -
Chief Executive 1996 $ 28,385 - 300,000 -
Officer & President
William C. Hubbard 1997 $114,231 - 50,000 -
Executive Vice 1996 $ 70,000 $25,157 65,000 -
President 1995 $ 40,923 - 144,000 -
Colin B. Matthews 1997 $119,385 - 200,000 -
Vice President of
the Company and
President of
Sedona GeoServices,
Inc.
- ----------------------------
(1) In 1997, no executive officer other than Mr. Trolio
received perquisites or other personal benefits, securities or
property which exceeded the lesser of $50,000 or 10% of such
executive officer's salary and bonus.
(2) The amounts disclosed in this column represent premiums
paid by the Company for an insurance annuity. As of December 31,
1997 this insurance policy had a cash surrender value of $45,085
to Mr. Trolio.
Certain Employment Agreements
On November 1, 1996, the Company entered into an Employment
Agreement with Laurence L. Osterwise, its Chief Executive Officer
and President (the "CEO Agreement"). The CEO Agreement has a
term of three years and two months and continues thereafter on a
year-to-year basis. Compensation during this period will be
$180,000 through December 31, 1997, $225,000 through December 31,
1998, and $250,000 through December 31, 1999, as base annual
salary plus additional compensation as directed by the Board of
Directors. In the event the Company is acquired during the term
of the CEO Agreement or any renewal term thereof, and the
acquirer chooses to terminate Mr. Osterwise, or fails to renew
the CEO Agreement for at least one year, the Company is obligated
to pay Mr. Osterwise a severance payment equal to one year's
annual salary, plus an amount equal to the accrued deferred
compensation, plus bonuses and commissions earned and unpaid, if
any. In addition, upon termination of employment by the Company,
Mr. Osterwise shall be deemed to have vested in any stock
options, and in such event, Mr. Osterwise may exercise his right
to purchase any such vested options at any time within one year
of termination. If such termination had occurred on December 31,
1997, the Company would have been obligated to pay Mr. Osterwise
$225,000. The termination remuneration described above is not
payable in the event of termination for cause. Effective
September 1, 1997, Mr. Osterwise agreed to forego the cash
portion of his compensation for one year. As a result of this
action, and with the approval of the Board of Directors, Mr.
Osterwise was granted warrants to purchase up to 250,000 shares
of the Company's Common Stock, at an exercise price 25% over the
closing bid of the stock on the date of approval, or $3.75 per
share. These warrants shall vest as of September 1, 1998.
Option/Warrant Grants
The following table sets forth certain information
concerning options/warrants granted to the Named Officers, and
additional information concerning such grants of stock
options/warrants during fiscal year 1997. No stock appreciation
rights have been granted by the Company.
Number Potential Real-
of Sec- Percentage lized Value at
urities of Total Annual Rates of
Under- Options/ Stock Price
lying Warrants Appreciation
Options/ Granted to for Options/
Warrants Employees Exercise Expir- Warrant Term
Granted in Fiscal Price ation -----------------
Name (shares) Year 1997 ($/Sh) Date 5%($) 10%($)
- --------- -------- --------- ------- ------ -----------------
Trolio 50,000 6.15% $3.125 4/22/07 101,171 263,204
Osterwise 250,000 30.75% $3.75 8/25/07 335,074 1,088,861
Hubbard 50,000 7.38% $3.25 3/31/02 46,890 101,724
Matthews 200,000 25.00% $3.00 4/01/02 173,746 376,372
Option Exercises and Fiscal Year-End Values
The following table sets forth certain information as of
December 31, 1997, regarding the number and year end value of
unexercised stock options held by each of the Named Officers. No
stock appreciation rights have been granted by the Company.
Number of
Securities Under-
lying Unexercised
Options/Warrants
Shares at December 31, 1997(#)
Acquired on Value -------------------------
Name Exercise(#) Realized($) Exercisable/Unexercisable
- --------- ----------- ----------- -------------------------
Trolio -0- -0- 429,000 -0-
Osterwise -0- -0- 200,000 350,000
Hubbard -0- -0- 110,000 -0-
Matthews -0- -0- -0- 200,000
(tabled continued)
Value of
Unexercised
In-the-Money
Options/Warrants
at December 31, 1997($)(1)
-------------------------
Name Exercisable/Unexercisable
- --------- -------------------------
Trolio $577,812 -0-
Osterwise -0- -0-
Hubbard $ 15,000 -0-
Matthews -0- -0-
- -----------------------
(1) Based on the closing price of the Common Stock as
reported on the Nasdaq SmallCap Market on that date ($2.50), net
of the option exercise price.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company's Board of
Directors (the "Compensation Committee") is responsible for
recommending compensation policies with respect to the Company's
executive officers, and for making decisions about awards under
the Company's stock-based compensation plans. Each member of the
Compensation Committee is a "non-employee director" within the
meaning of Rule 16b-3 under the Securities Act of 1934, as
amended (the "Act"), and an "outside director" within the meaning
of Section 162(m) of the Internal Revenue Code. This report
addresses the Company's compensation policies for 1997 as they
affected the Chief Executive Officer and the Company's other
executive officers, including the Named Officers.
Compensation Policies
The Compensation Committee's executive compensation policies
are designed to provide competitive compensation opportunities,
reward executives consistent with the Company's performance,
recognize individual performance and responsibility, underscore
the importance of shareholder value creation, and assist the
Company in attracting and retaining qualified executives. The
principal elements of compensation employed by the Compensation
Committee to meet these objectives are base salaries, annual cash
incentives, and long-term stock-based incentives.
All compensation decisions are determined following a review
of many factors that the Compensation Committee believes are
relevant, including external competitive data, the Company's
achievements over the past year, the individual's contributions
to the Company's success, any significant changes in role or
responsibility, and the internal equity of compensation
relationships.
In general, the Compensation Committee intends that the
overall total compensation opportunities provided to the
executive officers should reflect competitive compensation for
executives with corresponding responsibilities in comparable
firms providing similar products and services. To the extent
determined to be appropriate, the Compensation Committee also
considers general economic conditions, the Company's financial
performance, and the individual's performance in establishing the
compensation opportunities for the executive officers. Total
compensation opportunities for the executive officers are
adjusted over time as necessary to meet this objective. Actual
compensation earned by the executive officers reflects both their
contributions to the Company's actual shareholder value creation
and the Company's actual financial performance.
The competitiveness of the Company's total compensation
program - including base salaries, annual cash incentives, and
long-term stock-based incentives - is regularly assessed with the
assistance of the Compensation Committee's outside compensation
consultant. Data for external comparisons may be drawn from a
number of sources, including the publicly available disclosures
of selected comparable firms with similar products and national
compensation surveys of information technology firms of similar
size.
To present a reasonable comparison of the Company's
performance versus its peers, the Board of Directors has
determined that it would employ two indexes in the Comparative
Stock Performance section of this Proxy Statement; (i) the
NASDAQ-US Index, and (ii) the NASDAQ Computer & Data Processing
Index, since there is no one index that exactly matches the
Company's business. As the Company progresses with its business
development plans, many of the firms in these indexes will be
employed in the peer group to be used by the Compensation
Committee to assess the external competitiveness of compensation
levels.
While the targeted total compensation levels for the
executive officers are intended to be competitive, compensation
paid in any particular year may be more or less than the average,
depending upon the Company's actual performance.
Base Salary
Base salaries for all executive officers, including the
Chief Executive Officer, are reviewed by the Compensation
Committee on an annual basis. In determining appropriate base
salaries, the Compensation Committee considers external
competitiveness, the roles and responsibilities of the
individual, the internal equity of compensation relationships,
and the contributions of the individual to the Company's success.
Annual Cash Incentive Opportunities
The Compensation Committee believes that executives should
be rewarded for their contributions to the success and
profitability of the Company and, as such, approves the annual
cash incentive awards. Incentive awards are linked to the
achievement of revenue and net income goals by the Company and/or
specific business units, and the achievement by the executives of
certain assigned objectives. The individual objectives set for
executive officers of the Company are generally objective in
nature and include such goals as revenue, profit and budget
objectives, and increased business unit productivity. The
Compensation Committee believes that these arrangements tie the
executive's performance closely to key measures of success of the
Company or the executive's business unit. All executive
officers, including the Chief Executive Officer, are eligible to
participate in this program. There were no annual cash incentive
award payments made by the Company in 1997.
Long-Term Stock-Based Incentives
The Compensation Committee also believes that it is
essential to link executive and shareholder interests. As such,
from time to time the Compensation Committee grants stock options
to executive officers and other employees under the 1992 Plan.
In determining actual awards, the Compensation Committee
considers the externally competitive market, the contributions of
the individual to the success of the Company, and the need to
retain the individual over time. All executive officers,
including the Chief Executive Officer, are eligible to
participate in this program.
Section 162(m) of the Internal Revenue Code generally
disallows a tax deduction to public companies for compensation
over $1,000,000 paid to its Named Officers. Qualifying
performance-based compensation will not be subject to the
deduction limit if certain requirements are met. Although no
Named Officer received compensation exceeding this limit in 1997,
the Company has limited the number of shares of Common Stock
subject to options which may be granted to Company employees in a
manner that complies with the performance-based requirements of
Section 162(m). While the Compensation Committee does not
currently intend to qualify its annual incentive awards as a
performance-based plan, it will continue to monitor the impact of
Section 162(m) on the Company.
Respectfully submitted,
R. Barry Borden, Chairman
David S. Hirsch
Compensation Committee Interlocks and Insider Participation
The current members of the Company's Compensation Committee
are Messrs. R. Barry Borden and David S. Hirsch. No executive
officer of the Company has served as a director or member of the
Compensation Committee (or other committee serving an equivalent
function) of any other entity, whose executive officers served as
a director of or member of the Compensation Committee of the
Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information regarding the
ownership of the Company's voting securities as of April 30,
1998, assuming conversion of Series A Preferred Stock into one
share of Common Stock, and including options and warrants by (i)
each person known by the Company to be the beneficial owner of
more than five percent of any class of its voting securities,
(ii) each director and executive officer, and (iii) all directors
and executive officers as a group.
Percentage of
Amount & Nature of Outstanding
Beneficial Owner(1) Beneficial Ownership(2) Common Stock
- ------------------- ----------------------- --------------
Andrew E. Trolio 2,589,288(3) 13.0%
Laurence L. Osterwise 200,000 *
Michael A. Mulshine 829,727(4) 4.2%
David S. Hirsch 229,567(5) 1.2%
James C. Sargent 115,243 *
R. Barry Borden 51,780 *
Jack A. Pellicci 27,260 *
Bruce D. Downing 16,667 *
Robert J. Griffin 5,000 *
Colin B. Matthews 33,333 *
William K. Williams(6) -0- *
All Directors and
Executive Officers as
a group (11 persons) 4,097,865 19.5%
- -------------------
* Represents one percent or less.
(1) Unless otherwise indicated, the address of all persons
listed is c/o Scan-Graphics, Inc. 649 North Lewis Road, Limerick,
PA 19468.
(2) Unless otherwise indicated, each person possesses sole
voting and investment power with respect to the shares identified
as beneficially owned in the table.
(3) Includes 510,288 shares of Common Stock held by Mr.
Trolio's wife, as to all of such shares Mr. Trolio disclaims
beneficial ownership. Includes 500,000 shares of Series A
Preferred Stock owned by Mr. Trolio, representing all of the
outstanding shares of the Series A Preferred Stock.
(4) Includes warrants to purchase 70,000 shares issued to
Osprey Partners, a company owned by Mr. Mulshine.
(5) Includes 10,940 shares of Common Stock held by Mr.
Hirsch's wife, as to all of such shares Mr. Hirsch disclaims
beneficial ownership. Includes 51,100 shares of Common Stock
held by Mr. Hirsch's children, as to all of such shares Mr.
Hirsch disclaims beneficial ownership.
(6) Mr. Williams was elected Vice President and Chief
Financial Officer of the Company in April 1998.
The foregoing table also includes shares which the following
directors and executive officers have the right to acquire
within sixty days upon the exercise of options and warrants: Mr.
Trolio, 329,000 options, 350,000 warrants; Mr. Osterwise, 200,000
warrants; Mr. Mulshine, 42,845 options, 574,583 warrants; Mr.
Hirsch, 65,345 options; Mr. Sargent, 77,845 options; Mr. Borden,
51,780 options; Mr. Pellicci, 27,260 options; Mr. Downing, 16,667
options; Mr. Griffin, 5,000 options; Mr. Matthews, 33,333
options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company had leased its former principal office and
manufacturing facility through August 31, 1997, from Lin-Lea
Corporation, a company which is owned by Andrew E. Trolio. Rent
expense charged to operations was $64,000 for the portion of 1997
in which the Company operated out of that facility.
In January 1997, the Board of Directors approved a
Consulting Agreement with Osprey Partners, a company which is
owned by Michael A. Mulshine. Under the agreement, Osprey was
paid a $5,000 monthly retainer during 1997 for shareholder and
investor relations activities and for management consulting
services. In January 1998, Osprey's agreement with the Company
was adjusted, such that in lieu of cash compensation for 1998,
Osprey was issued warrants to purchase up to 70,000 shares of
Common Stock, with such warrants to vest at the rate of 5,833.33
shares on the first of each month for the twelve months starting
January 1, 1998, and such warrants to be exerciseable for up to
ten years at 25% above the closing bid ($3.36) on the effective
date of the agreement. In addition to the above-referenced
monthly retainer fee, the Company incurred commissions and
management consulting expenses in the amount of $180,708 for the
year ended December 31, 1997, to Osprey Partners. Management
believes that the levels of compensation for the services
provided by Osprey were at least as favorable as would be
available to the Company from a third party source.
Effective March 21, 1998, Andrew E. Trolio entered into a
Retirement Settlement Agreement with the Company ("Settlement
Agreement"). The Settlement Agreement was reviewed and ratified
by the Board of Directors. Under the Settlement Agreement, Mr.
Trolio agreed to step down as Chairman of the Company's Board of
Directors, effective upon the election of a new Chairman. As a
condition thereof, Mr. Trolio is expected to remain as a Director
of the Company for a minimum of three years. In addition, Mr.
Trolio agreed to surrender 500,000 shares of Common Stock that he
purchased at the end of 1996 from the Company, and certain
promissory notes relating to such purchase have been canceled.
In consideration of the preceding, Mr. Trolio was issued warrants
to purchase up to 250,000 shares of the Company's common stock,
exerciseable for ten years at the exercise price of $2.546875,
which was the average of the bid and asked prices at the closing
on March 20, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(c) Exhibits
23.1 Consent of Independent Accountants
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly
authorized.
SCAN-GRAPHICS, INC
Registrant
By: /s/ WILLIAM K. WILLIAMS
William K. Williams
Vice President and Chief
Financial Officer
April 30, 1998
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER ITEM PAGE NO.
- ------- ---------------------------------- --------
23.1 Consent of Independent Accountants
<PAGE>
Consent of Independent Certified Public Accountants
Scan-Graphics, Inc.
Limerick, Pennsylvania
We hereby consent to the incorporation by reference in this Post-
Effective Amendment No. 1 to the Registration Statement on Form
S-3 (No. 333-31983) of our report dated March 13, 1998, except
for Note 14 which is dated March 27, 1998, relating to the
consolidated financial statements and schedule of Scan-Graphics,
Inc. appearing in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
We also consent to the reference to us under the caption
"Experts" in the Prospectus.
BDO SEIDMAN, LLP
Philadelphia, Pennsylvania
April 30, 1998
