SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996
[ ] 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 0-16055
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XSCRIBE CORPORATION
(Exact name of registrant as specified in its charter)
California 95-3267788
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Employer Identification No.)
6285 Nancy Ridge Drive,
San Diego, California 92121
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(619) 457-5091
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock
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 such shorter period that the registrant was
Page 1 of 161 <PAGE>
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 (Section 229.405 of
this chapter) is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in
definitive proxy or information statement incorporated hereby
by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.
Yes X No
--- ---
The aggregate market value of the voting stock held by
nonaffiliates of the registrant as of June 10, 1996, based on
the average of the highest and lowest prices of such stock on
that date was $5,179,000. The number of shares of common
stock of Xscribe outstanding as of June 10, 1996, was
5,715,000.
DOCUMENTS INCORPORATED BY REFERENCE:
-----------------------------------
1) Annual Report to Shareholders - Fiscal Year 1996 ("1996
Annual Report") -- Parts I, II and IV. With the
exception of the -- information from the 1996 Annual
Report specifically incorporated by reference in
Parts I, II and IV, the Registrant's 1996 Annual Report
to Shareholders is not deemed filed as a part of this
report.
2) Proxy Statement dated June 21, 1996 ("1996 Proxy
Statement") -- Part III.
Page 2 of 161 <PAGE>
PART I
------
Item 1. Business
GENERAL
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Incorporated by reference to Xscribe's 1996 Annual Report,
page 1, under the heading "Company Description General."
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Incorporated by reference to Xscribe's 1996 Annual Report,
pages 20 through 21, under the heading "Notes to Consolidated
Financial Statements - Note 3 - Segment Information."
PRINCIPAL PRODUCTS
------------------
Incorporated by reference to Xscribe's 1996 Annual Report,
pages 1 through 3, under the heading "Products."
MARKETING AND DISTRIBUTION
--------------------------
Imaging Products
----------------
Xscribe Corporation's ("Xscribe") subsidiary, Photomatrix
Corporation ("Photomatrix") markets its line of document
scanners and its Vision QC image processing software to
service bureaus via its direct sales force and also to
high-volume end users through integrators and value-added
resellers. In addition, effective February 1996, Photomatrix
sells its document scanners to Bell & Howell Limited under an
exclusive original equipment manufacturing (OEM) arrangement
under which Bell & Howell Limited resells those scanners in
Europe, Africa, the Indian sub-continent and the Middle East.
Effective June 1996, Photomatrix also resells its document
scanners to Bell & Howell under a separate OEM agreement
under which Bell & Howell resells those scanners in the
United States and Canada. The international agreement
guarantees 35 units in the period from September 1995 to June
30, 1997 and the domestic agreement contains no minimum
requirement. Generally, both Bell & Howell agreements
preclude Photomatrix from selling document scanners to
dealers or distributors who represent Bell & Howell scanners.
Photomatrix distributes its aperture card scanning products
primarily to systems integrators and value-added resellers
("VARs") who package the Photomatrix scanners with other
software and hardware products for sale to end users. Because
Photomatrix aperture card scanners are peripheral products
which must be integrated with other products for end users,
Photomatrix maintains close working relationships with major
systems integrators and VARs. Photomatrix relies heavily on
Page 3 of 161 <PAGE>
the sales efforts of its systems integrators and VARs to
generate sales of aperture card scanners. Within this
integrator and VAR distribution channel, Photomatrix sells
its aperture card scanners under subcontracts to PRC, Inc.
("PRC") under a contract to provide electronic imaging
systems to the Department of Defense. PRC is not obligated to
order any minimum quantities and the timing and amount of the
orders are not predictable. Photomatrix also sells, through
its direct sales force, aperture card scanning systems to
service bureaus which provide scanning services to
engineering drawing end users.
Photomatrix generally provides a 90-day warranty on its
products and offers, for sale, annual maintenance contracts
thereafter. The warranty and maintenance work is typically
provided through Photomatrix field service employees who are
located throughout the United States. Photomatrix also
performs repair services for and supplies replacement parts
to Eastman Kodak Company (which previously sold Photomatrix
product under a private-label agreement).
Computer-Aided Transcription (CAT) Systems
------------------------------------------
Xscribe Legal Systems, Inc. ("Legal Systems") currently
markets its CAT products in the United States and Canada
through a telesales staff located at the Company's
headquarters and through independent commissioned sales
representatives located throughout the United States. The
independent sales representatives primarily cover major
metropolitan areas and the telesales effort covers customers
located outside these major metropolitan areas. The telesales
group also provides marketing support for the independent
sales representatives.
Legal Systems' CAT sales efforts target the court reporting
industry as a whole, including existing Legal Systems' CAT
system users, existing users of competitors' products, new
court reporters, court reporting firms and court reporting
schools. Legal Systems offers each customer the option of
purchasing CAT systems for cash, or if the customer
qualifies, financing the purchase through a lease between the
customer and a third party finance company. Leases typically
are non-recourse to Legal Systems and have a five-year term
and an option to buy the system at the end of the lease.
Legal Systems' line of writers is serviceable under a
one-year warranty for parts and labor. Warranty work is
performed at the Xscribe's headquarters or subcontracted to a
network of independent authorized service providers. Service
extension contracts are available. Personal computers and
printers sold by Legal Systems are generally serviceable by
the manufacturer under a one-year warranty for parts and
labor. Legal Systems provides customer software support by
Page 4 of 161 <PAGE>
telephone under semi-annual maintenance contracts subject to
semi-annual renewal.
GROUPWARE
---------
Xscribe's subsidiary, Lexia Systems, Inc. ("Lexia")
distributes International Computers Limited's ("ICL", a
subsidiary of Fujitsu) OfficePower groupware systems in the
United States through a direct sales force of four
individuals currently located on the East coast and supported
by a pre-sales support staff of one individual who handles
demonstration and technical requirements. Currently this
sales force focuses on the upgrade of the OfficePower
installed base to the recent release of OfficePower and on
the opportunity to add new functionality to these
installations (e.g. document management). This direct sales
group will also focus on the sale of OfficePower and TeamWARE
to new installations, primarily in the commercial markets.
ICL provides a 90-day warranty on its software and hardware
products which Lexia passes on to its customers. ICL and
Lexia have arrangements with a third party maintenance
organization which provides hardware warranty work and sells
annual hardware and mainframe operating system support
contracts to Lexia's customers. Lexia provides application
software support services to its customers by telephone,
primarily under month-to-month contracts.
RAW MATERIALS AND MANUFACTURING
-------------------------------
Imaging Products
----------------
Photomatrix manufactures its aperture card scanners and
document scanners at its manufacturing facilities in Culver
City, California. Photomatrix's operations consist of
procurement, kit packaging, assembly of circuit boards,
wiring and assembly and quality control testing of all parts,
components, subassemblies and final assemblies of all
products. Photomatrix manufactures its own boards, including
32 bit, EISA-bus technology image processing and compression
boards used in its Series 6000 scanning products.
Photomatrix's products incorporate electronic, imaging and
mechanical components purchased from various vendors. The
electronic components, including the computer chips, are
generally available from multiple sources. Photomatrix
currently uses Fairchild, Kodak and Sony CCD's in the
Photomatrix cameras in its aperture card and document
scanning products. However, other commercially available CCD
cameras could be substituted if necessary. Photomatrix
copies, labels and packages its software products.
Page 5 of 161 <PAGE>
Photomatrix's products contain numerous mechanical components
that are machined specially for Photomatrix's products.
Photomatrix relies upon several specific vendors as the sole
source of its custom-machined parts. Although many vendors
can provide this machine work, tools and molds needed for
this process are in the possession of (and in some cases,
owned by) its machine-shop vendors, and Photomatrix could
experience supply disruption if one of these vendors failed
to meet its supply obligations.
Photomatrix also bundles its aperture card scanners and
document scanners with commercially available personal
computers, work stations, high-resolution monitors, optical
disk drives and other compatible peripherals and with
Microsoft Windows, Novell NetWare and other commercially
available software.
CAT SYSTEMS
-----------
Legal Systems assembles its proprietary line of writers at
its manufacturing facility in San Diego, California. Legal
Systems' operations consist of procurement, kit packaging,
assembly and quality control testing of all parts,
components, subassemblies and final assemblies of products.
Contractors assemble printed circuit boards and mechanical
components which are then individually tested by Legal
Systems. Once integrated, all systems are subjected to a
continuous burn-in cycle while undergoing diagnostic tests.
Legal Systems develops, copies, labels and packages its
software products.
Legal Systems' writer products contain numerous mechanical
components that are machined specially for Legal Systems'
products. Legal Systems relies upon several specific vendors
as the sole source of its custom-machined parts. Although
many vendors can provide this machine work, tools and molds
needed for this process are in the possession of (and in some
cases, owned by) its machine-shop vendors, and Legal Systems
could experience supply disruption if one of these vendors
failed to meet its supply obligations.
There is a risk that one or more of the components included
in writers may be discontinued by the manufacturer due to
lack of demand for palm-top computers with miniaturized parts
or for other reasons or that other StenoRam or Vision 486
components may become obsolete. Legal Systems intends to
monitor closely the availability of the components and to
engineer alternative components into the product when
necessary. However, Legal Systems could experience supply
disruptions and/or price increases for these components and
the re-engineering costs could exceed costs justified by the
expected returns on the products.
Page 6 of 161 <PAGE>
GROUPWARE
---------
Lexia resells products manufactured by ICL and others. Lexia
does not develop or manufacture any software or hardware
products. Lexia relies on ICL and others to provide quality
products that meet the needs of U.S. customers. There is a
risk that ICL will not adequately support the U.S. market for
its products by not supplying Lexia with quality product
upgrades, enhancements and bug fixes or by not providing
warranty services and other support. If this occurs, Lexia's
marketing efforts and customer relations may be adversely
affected.
INTELLECTUAL PROPERTY RIGHTS AND LICENSES
-----------------------------------------
Electronic Image Management Products Photomatrix relies upon
copyright and trade secret laws to protect its software and
firmware used in its aperture card scanner and document
scanner products. Photomatrix has registered under Federal
law design documents for its document scanner and certain of
its product maintenance manuals, operations manuals and parts
catalogues.
Photomatrix holds a perpetual nonexclusive license to use,
manufacture, and distribute aperture card scanners,
microfiche scanners, single and double sided document
scanners that scan documents no greater than 12 inches in
width and 24 inches in length and multiformat scanners
provided that the manufacturer's net invoice price is not
less than $7,000 for document scanners and $10,000 for all
scanners that use certain imaging technology of
Scan-Graphics, Inc., subject to United States Patent No.
4,972,273. Photomatrix is obligated to pay Scan-Graphics a
royalty of 12% of Photomatrix's net sales price for all
aperture card scanners manufactured, sold and delivered by
Photomatrix until December 31, 1998. Photomatrix is not
obligated to pay any royalties with respect to document
scanners, whole fiche scanners, roll film scanners and/or
multiformat scanners even if the scanners use the patented
technology or any derivative of such technology. If
Photomatrix discontinues its manufacturing of aperture card
scanners, then it is obligated to negotiate with
Scan-Graphics to sell Scan-Graphics a nonexclusive right to
manufacture and sell the aperture card scanners.
Photomatrix is a party to a nonexclusive reseller agreement
with Image Machines Corporation for a Windows driver for
Photomatrix's aperture card scanners and for viewing and
editing software. Under the reseller agreement, Photomatrix
purchases the software for resale on a per copy basis. The
Image Machines software is not bundled with aperture card
scanners sold through PRC or Intergraph who have developed
their own software for use with the scanners. Photomatrix
Page 7 of 161 <PAGE>
offers with its scanners a SCSI developers' tool kit for
writing a Photomatrix scanner driver.
Photomatrix also purchases and resells as part of the Series
6000 document scanner a board manufactured by Seaport Imaging
that enables the scanning of bar codes.
Photomatrix holds a nonexclusive license which expires in
March 1998 from Educational Testing for an algorithm used for
gray scaling images in Series 6000 document scanner and pays
a $20 per unit royalty on sales of its dual-sided scanners
and $10 per unit on its single sided
4000 document scanner.
Photomatrix holds a non-exclusive, perpetual, paid-up license
to use and sublicense its Vision QC software to end-users,
and Photomatrix owns the trademark Vision QC. The software
and its source code are owned by Eureka Software Solutions,
Inc., and Eureka and NightRider, a service bureau, have the
right to sublicense the software to third parties.
Photomatrix bundles its Series 6000 document scanner with
Microsoft DOS and Windows which it purchases on a per copy
basis.
COMPUTER-AIDED TRANSCRIPTION SYSTEMS
------------------------------------
Legal Systems relies upon federal and common law copyright
laws, trade secret laws, trademark laws, patents and
contracts to protect proprietary rights in the CAT products.
Legal Systems holds a patent, that expires in August 2005,
for the design of the housing for its StenoRam writers. Legal
Systems also holds a patent, expiring in October 6, 2009, for
a note marker assembly used in its writers that enables the
simultaneous marking in ink of steno notes on paper and the
electronic marking of the steno notes stored in the writer's
memory, and a patent, expiring in February 2010, for a
compact and disposable ribbon cartridge system used in its
writers. Legal Systems only has one significant competitor in
the manufacturer of writers, and does not view its patents as
a material barrier to competition. However, Legal Systems'
patents for certain features may give Legal Systems a
marketing advantage in selling its writers.
Xscribe has registered, under Federal law, the trademarks
Xscribe, StenoRam, XEC-2001, and Vision 486. Legal Systems
relies upon copyright and trade secret laws to protect its
proprietary rights in its CAT software and firmware. Legal
Systems registered under federal law its copyright to its
XEC-2001 software. Legal Systems also uses security devices
to prevent unauthorized copying of its software.
Page 8 of 161 <PAGE>
Legal Systems holds a perpetual nonexclusive license to
manufacture, use, sell or lease stenotype writers with
mechanical components designed under a patent that expires in
the year 2000 and pays the inventor a per unit royalty. Legal
Systems purchases from American Megatrends, Inc. and resells
on a per unit basis end-user licenses for a keyboard BIOS and
a system BIOS used in the Vision 486 machine.
Legal Systems also holds a nonexclusive, perpetual (subject
to termination) and nontransferable license from Microlytics
to distribute and sublicense a spellchecker software module
along with Black's legal and Stedman's medical dictionary
modules integrated with Legal Systems' PC-based software
programs.
Legal Systems bundles its CAT products with third party
software packages, including Microsoft DOS and Quarterdeck's
Desqview, that it purchases through its computer vendors.
LEXIA GROUPWARE PRODUCTS
------------------------
Subject to a proposed settlement agreement described below,
Lexia holds a minimum five-year exclusive right to distribute
ICL's OfficePower and TeamOffice groupware products to the
United States legal marketplace and to certain specified
commercial and governmental accounts that were former
customers of the North American Sales Division of ICL Inc.
and nonexclusive rights to distribute these products to other
customers in the United States and Canada. Lexia also has a
nonexclusive right to resell hardware manufactured by ICL.
The distribution agreement does not confer any rights or
licenses in and to the proprietary rights of ICL or its
affiliates other than the right to sublicense the software
programs to end-users, and Lexia does not control any of the
product engineering or manufacturing.
Under the distribution agreement, ICL supplies the products
to Lexia against purchase orders, and Lexia pays ICL a
royalty based upon its license fee for direct resales of the
products, which is payable 60 days after delivery. Lexia is
not obligated to purchase any minimum quantities from ICL.
ICL has a security interest in the proceeds of Lexia's
product sales.
ICL has the option to convert the exclusive rights granted to
Lexia into nonexclusive rights during the 60 days following a
Change of Control Transaction affecting Xscribe or Lexia. A
Change in Control Transaction is defined as a transaction or
series of transactions that results in a significant
competitor of ICL or its Affiliates beneficially owning more
than 50% of the outstanding voting power of Xscribe or Lexia
or results in a significant competitor replacing a majority
of the board of directors of Xscribe or Lexia.
Page 9 of 161 <PAGE>
ICL and Xscribe have reached a settlement in principal
related to certain disagreements between the parties whereby,
among other things, Xscribe will forfeit the majority of the
exclusivity rights described above. Lexia would continue as
a non-exclusive reseller of ICL groupware products to end
users. This proposed settlement is more fully described in
the Annual Report incorporated herein by reference.
SEASONAL BUSINESS
-----------------
The Company (collectively defined as Xscribe and its
subsidiaries) does not consider its business to be seasonal.
WORKING CAPITAL
---------------
Incorporated by reference to Xscribe's 1996 Annual Report,
pages 7 through 8, under the heading "Liquidity and Capital
Resources."
SIGNIFICANT CUSTOMERS
---------------------
One customer (Eastman Kodak) accounted for 21 percent of the
Company's total revenues for fiscal year 1994. No other
customer accounted for more than 10 percent of the Company's
total revenues during fiscal years 1996, 1995 or 1994.
BACKLOG
-------
The Company generally does not have a material order backlog
at any time because the Company normally fills orders within
the delivery schedules requested by customers (generally
within 30 days).
GOVERNMENT SALES
----------------
The Company (through Photomatrix) has a subcontract to
PRC's contract with the U.S. Department of Defense (see
"Competition"). Photomatrix is not guaranteed any orders
under the subcontract which provides that PRC will issue
purchase orders for products when the purchase orders are
fully funded. Purchase orders are subject to termination if
the government terminates the prime contract 25 days prior to
the delivery date for the product.
COMPETITION
-----------
IMAGING PRODUCTS
----------------
Photomatrix's document scanners compete in the
medium-to-high-speed paper scanner market with Kodak,
Fujitsu, Bell and Howell, and BanTec Technologies (formerly
Page 10 of 161 <PAGE>
Terminal Data Corporation). Competition in this segment is
based upon price, image quality, paper handling capabilities,
throughput speeds, ease of use, reliability and quality and
speed of maintenance services. Photomatrix believes that its
primary competitive advantages in this segment of the market
are its price-performance relationship, including its
relative speed, image quality, reliability and rugged build.
All of its primary competitors, however, have substantially
greater resources than Photomatrix for marketing and
distribution and for purchasing and maintaining market share.
There is no assurance that Photomatrix will be able to
maintain a competitive position in this market.
Photomatrix's competitors in the aperture scanning market are
Wicks & Wilson, a United Kingdom company, and Vidar Systems
Corporation, a subsidiary of Sweden's Yggdrasil. Photomatrix
is not able to estimate the size of this market but believes
that it is currently limited due to the cost constraints of
converting engineering backfiles of aperture cards and the
related systems into electronic storage and retrieval
systems. Photomatrix is the only approved aperture card
vendor for the United States Department of Defense
Engineering Data Management Information and Control System
("EDMIC") contract awarded to PRC in 1989 and the EDMIC's
program currently is a significant source of demand for this
product. The principal competitive advantages of the
Photomatrix aperture card scanners are its image
enhancement features, high speed accurate conversion features
and reliability. Photomatrix's products are higher-end
products and are priced higher than other currently marketed
products.
CAT SYSTEMS
-----------
The CAT industry in which Legal Systems operates is highly
competitive, based upon product features, performance,
reliability, speed, and service capabilities.
Based upon marketing information gathered by Legal Systems,
the Company believes that industry-wide revenues from sales
of CAT systems and writers to court reporters and related
customer support, maintenance and training services are
approximately $30 to $35 million per year. The Company
believes that industry revenues will decline significantly in
the future. Industry revenues are significantly dependent
upon new reporters entering the market and the replacement
market because most court reporters now use CAT systems.
Market saturation and competition in a shrinking market
continue to cause industry-wide price erosion on CAT systems.
Legal Systems considers its primary competition in CAT
software to be Stenograph Corporation, a subsidiary of Heico
Corporation. Other competitors include StenoCAT, Cheetah
Page 11 of 161 <PAGE>
Systems, Advantage Software and Advanced Translations. In
the market for stenographic writers, Legal Systems' only
substantial competitor is Stenograph Corporation. In
addition to its direct sales of writers to customers, Legal
Systems also sells its writers to other CAT software
competitors for use with their CAT software systems.
Regarding industry-wide revenues, Stenograph has a market
share of approximately 50% to 60% which is significantly
greater than Legal Systems' share of about 20%. Four other
competitors, StenoCAT, Cheetah Systems, Advantage Software
and Advanced Translations share the majority of the remaining
20% to 30% market share.
Legal Systems views its primary competitive advantage to be
the technological superiority of its line of writers, the
diversity in the features and capabilities of its CAT
software, the quality of its customer support and the
compatibility of its PC-based CAT software with Legal
Systems' previous proprietary systems.
GROUPWARE
---------
The U.S. groupware market in which Lexia competes is
dominated by industry leaders including Lotus Development (a
subsidiary of IBM), Microsoft and Novell. These companies
have substantially greater product development and marketing
resources than does Lexia. Further, although the ICL products
that Lexia resells are well known in Europe, these products
are generally not known in the U.S. ICL has not committed
substantial resources to the U.S. market.
Lexia believes that its primary competitive advantage with
respect to OfficePower is its ability to handle Windows-based
PC's or character terminals as the user interface. Few
competitors market a product that offers this mixed user
interface advantage with the functionality and X.400 mail
capabilities of OfficePower. However, host-based groupware
systems like OfficePower that support character terminals
have become less popular in recent years because of the
increased power and affordability of PC's. Alternative
systems that capitalize on the increased power of PC's using
client/server architecture and distributed processing
technology have become more popular. As a result, Lexia's
market for new OfficePower customers is likely limited to the
declining number of opportunities where the customer already
owns a large number of character terminals and is reluctant
to migrate to PC's.
Because of the declining market for OfficePower, Lexia's
future growth potential is heavily dependent on Lexia's
ability to market TeamWare, ICL's client/server groupware
offering. Lexia views its TeamWare competitive advantages to
Page 12 of 161 <PAGE>
be its scalability, its X.400 mail capabilities and its
balance between its out-of-the-box functionality and
customization possibilities. However, the U.S. client/server
groupware market is dominated by industry leaders including
Lotus, Microsoft and Novell. These companies may have greater
product development resources than ICL and have substantially
greater marketing resources than does Lexia. Accordingly,
Lexia's ability to market TeamWare is heavily dependent on
ICL's and Fujitus's success in creating market momentum for
TeamWare in the U.S. Although TeamWare is well known in
Europe, ICL has not committed substantial resources to the
U.S. market and, as a result, the TeamWare product is not
well known in this market. Accordingly, there can be no
assurance that Lexia will be successful in its efforts to
market TeamWare in the U.S. market.
RESEARCH AND DEVELOPMENT
------------------------
During the last three fiscal years, the Company expended
$1,546,000 (fiscal year 1996), $1,245,000 (fiscal year 1995),
and $1,733,000 (fiscal year 1994) on company-sponsored
research and development projects, including projects
performed by consultants for the Company and including
capitalized software development costs.
The Company is currently engaged in the development of
competitive enhancements to the Photomatrix line of scanners
and Legal Systems' writers and CAT software. There is no
assurance that the Company will successfully complete current
or planned development projects or will do so within the time
parameters and budgets established by the Company, and there
is no assurance that a market will develop for any product
successfully developed.
The Company works closely with independent user groups in an
attempt to develop enhancements and new products in response
to customer needs.
The Company's management expects that consolidated research
and development expenditures (including capitalized software
development costs) will total about $1 million for the coming
year.
ENVIRONMENTAL LAWS
------------------
Compliance with Federal, state and local laws enacted for the
protection of the environment have not had a material effect
upon the Company's capital expenditures, earnings or
competitive position to date. The Company does not anticipate
that it will have to incur any material expenses in the
future in order to comply with Federal, state or local laws
because of the nature of its products and manufacturing
operations.
Page 13 of 161 <PAGE>
EMPLOYEES
---------
At June 1, 1996, the Company had about 130 employees, none of
whom is subject to a collective bargaining agreement. The
Company considers its relationship with its employees to be
good.
FOREIGN AND DOMESTIC OPERATIONS AND GEOGRAPHIC DATA
---------------------------------------------------
Incorporated by reference to Xscribe's 1996 Annual Report,
pages 20 through 21, under the heading "Notes to Consolidated
Financial Statements - Note 3 - Segment Information."
EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES OF THE COMPANY
-----------------------------------------------------------
Set forth below is certain information about the executive
officers of Xscribe and its subsidiaries as of June 1, 1996.
Mr. Suren G. Dutia has been a director and has served as the
President and Chief Executive Officer of the Company since
January 1989. He was elected to be the Chairman of the Board
of the Company in September 1990. He also serves as the chief
executive officer of each of Xscribe's subsidiaries. Prior to
January 1989, Mr. Dutia was associated from 1981 to December
1988 with Dynatech Corporation, a diversified high-technology
company headquartered in Burlington, Massachusetts. From 1986
to 1988, Mr. Dutia was a Division Manager and Vice President.
Mr. Dutia was responsible for several subsidiaries, including
one operating subsidiary for which he acted as president. He
directed turnaround/divestiture activities for Dynatech and
handled investor relations.
Mr. Bruce C. Myers joined Xscribe as Vice President Finance
and Administration, Chief Financial Officer and Secretary on
June 12, 1989. In February 1994, Mr. Myers assumed the
additional responsibility of Chief Operating Officer. From
December 1977 to June 1989, Mr. Myers worked for Arthur
Andersen & Co., most recently as a senior audit manager. At
Arthur Andersen & Co., Mr. Myers supervised audits and
performed financial consulting services for high-technology
companies.
Set forth below is certain information about significant
employees of the Company as of June 1, 1996.
Mr. Del Glover joined Photomatrix in February 1996 as Vice
President of Sales and Marketing. For the eight years prior
to that, Mr. Glover was Director, Peripheral Products
Division of Ricoh Corporation.
Page 14 of 161 <PAGE>
Mr. William Sheppard joined Photomatrix in July 1985 as Vice
President of Engineering. Prior to that, Mr. Sheppard served
in various engineering management positions with Planning
Research Corporation, the U.S. Naval Ocean Systems Center
and as president of Saguaro Systems Corporation, a
consulting firm.
Mr. Jay Zimmet joined Lexia as its Vice President of Sales in
October 1993. Prior to joining Lexia, Mr. Zimmet served as
the Director of Sales and in other sales management positions
for ICL's North American Sales Division and its predecessor
business, CCI.
Item 2. Property
------- --------
Incorporated by reference to Xscribe's 1996 Annual Report,
page 3, under the heading "Facilities."
Item 3. Legal Proceedings
------- -----------------
Incorporated by reference to Xscribe's 1996 Annual Report,
page 4, under the heading "Legal Proceedings." In addition,
the Company is involved in routine litigation incidental to
its business.
Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
None.
PART II
-------
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
------- -------------------------------------------------
Incorporated by reference to Xscribe's 1996 Annual Report,
page 27, under the heading "Securities Data."
Item 6. Selected Financial Data
------- -----------------------
Incorporated by reference to Xscribe's 1996 Annual Report,
page 4, under the heading "Selected Financial Data."
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
------- -------------------------------------------------
Incorporated by reference to Xscribe's 1996 Annual Report,
pages 5 through 10 under the heading "Management's Discussion
and Analysis of Financial Condition and Results of
Operations."
Page 15 of 161 <PAGE>
Item 8. Financial Statements and Supplementary Data
------- -------------------------------------------
Incorporated by reference to the Consolidated Financial
Statements of Xscribe together with the report thereon of
KPMG Peat Marwick LLP on pages 11 through 26 of the 1996
Annual Report and the "Quarterly Financial Data (Unaudited)"
on page 27 of Xscribe's Annual Report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
------- ------------------------------------------------
None.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
-------- --------------------------------------------------
Incorporated by reference to Xscribe's 1996 Proxy Statement
pages 3 through 5 under the heading "Election of Directors."
See also Part I, Item 1, under the heading "Executive
Officers and Significant Employees of the Company."
Item 11. Executive Compensation
-------- ----------------------
Incorporated by reference to Xscribe's 1996 Proxy Statement,
pages 7 through 9 under the headings "Executive
Compensation."
Item 12. Security Ownership of Certain Beneficial Owners and
Management
------- ---------------------------------------------------
Incorporated by reference to Xscribe's 1996 Proxy Statement,
pages 2 through 3, under the heading "Beneficial Ownership of
Company Securities," and page 7 under the heading "Stock
Ownership by Directors and Executive Officers."
Item 13. Certain Relationships and Related Transactions
-------- ----------------------------------------------
Incorporated by reference to Xscribe's 1996 Proxy Statement,
page 6, under the heading "Certain Transactions."
PART IV
-------
Item 14. Exhibits, Financial Statements, Schedule and
Reports on Form 8-K
Page 16 of 161 <PAGE>
(a) (1) The Consolidated Financial Statements together with
the report thereon of KPMG Peat Marwick LLP dated
June 3, 1996, incorporated by reference to
Xscribe's 1996 Annual Report are as follows:
1996 Annual
Report Page
Independent Auditors' Report 11
Consolidated Balance Sheets 12
Consolidated Statements of Operations 13
Consolidated Statements of Shareholders' Equity 14
Consolidated Statements of Cash Flows 15
Notes to Consolidated Financial Statements 16-26
(2) Schedule
The Consolidated Financial Statement Schedule listed under
Item 14(d) is filed as part of this Annual Report on Form
10-K. All other schedules have been omitted since the
required information is not present in amounts sufficient to
require submission of the schedule, or because the
information required is included in the consolidated
financial statements or notes thereto.
(3) Exhibits
The exhibits listed under Item 14(c) are filed as part of
this Annual Report on Form 10-K. Executive Compensation Plans
and Arrangements:
10.8 1992 Xscribe Stock Option Plan and sample agreement.
10.11 Executive Employment Agreement between the Company and
Suren G. Dutia dated December 20, 1988.
10.24 Description of executive bonus arrangements and
executive severance plan.
10.25 1994 Xscribe Stock Option Plan and sample agreements.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by Xscribe during
the fiscal quarter ended March 31, 1996.
Page 17 of 161 <PAGE>
(c) Exhibits
3.1 Amended and Restated Articles of
Incorporation, as amended
3.3 Bylaws
10.1 Proprietary Rights Agreement dated April 28, 1988
between Photomatrix Corporation and Eastman Kodak
Corporation (ii)
10.2 Settlement Agreement dated January 11, 1993 between
Photomatrix Corporation and Scan-Graphics, Inc. (iii)
10.3 Lease Agreement between Photomatrix and Buckingham
Heights Business Park dated May 12, 1987 along with
the First Amendment dated May 26, 1993 (iii)
10.4 Lease Agreement between Photomatrix and EVB Limited
Partnership-I dated December 17, 1987 (iii)
10.5 Lease Agreement between Photomatrix Limited and Bermer
Limited dated May 31, 1989 (iii)
10.6 Promissory Notes dated April 30, 1993 in the aggregate
principal amount of $776,607 payable to the following
members of the Wyly family and affiliates: Sam Wyly,
Charles Wyly, Jr., Evan Wyly, Donald Miller, First
Dallas International, Ltd., and Premier Partners (iii)
10.7 Subcontract dated March 31, 1991 between PRC, Inc. and
Photomatrix (iii)
10.8 1992 Xscribe Stock Option Plan and Sample Agreement
(iii)
10.9 Fifth and Sixth Amendments to Lease Agreement between
Carroll Vista Associates and Xscribe dated December 1,
1992 and March 23, 1993, respectively (iii)
10.10 Lease between The Boone Family Trust and the Company
dated March 19, 1992 (i)
10.11 Executive Employment Agreement between the Company and
Suren G. Dutia dated December 20, 1988
10.15 Lease between Carroll Vista Associates, a California
Limited Partnership, and the Company dated November 2,
1990, as amended by First Amendment to Lease dated
February 26, 1991, and Second Amendment to Lease dated
April 2, 1991 (ii)
Page 18 of 161 <PAGE>
10.18 Purchase Agreement dated October 22, 1993, among
Xscribe Corporation, Xscribe Acquisition, Inc. (n.k.a.
Lexia Systems, Inc.) and ICL, Inc. (iv)
10.19 Distribution and License Agreement dated October 25,
1993, between Xscribe Acquisition, Inc. and
International Computers Limited (iv)
10.21 Standard Sublease dated May 3, 1994 between
Photomatrix Corporation and Antares Corporation (v)
10.22 Settlement Agreement dated September 1, 1992 among
Xscribe Corporation, Quixote Corporation, Bennie C.
Fulkerson and Michael A. Smith (v)
10.24 Description of executive bonus arrangements and
executive severance plan (v)
10.25 1994 Xscribe Stock Option Plan and Sample Agreements
(vi)
10.26 Amendment (dated May 6, 1994) to the Supply Agreement
dated March 12, 1986 between Eastman Kodak Company and
Photomatrix Corporation (vii)
10.27 Software Development and License Agreement dated
September 24, 1994 among Eureka Software Solutions,
Inc. and NightRider and Xscribe Corporation (vii)
10.30 Security and Loan Agreement between Imperial Bank and
Xscribe Corporation dated June 17, 1996 and related
documents.
10.31 OEM Purchase Agreement for Photomatrix Scanners dated
February 8, 1996 between Bell & Howell Limited and
Photomatrix Corporation. (This exhibit subject to
request for confidential treatment.)
10.32 OEM Purchase Agreement for Photomatrix Scanners dated
June 12, 1996 between Bell & Howell Operating Company
and Photomatrix Corporation. (This exhibit subject to
request for confidential treatment.)
13.1 1996 Annual Report to Shareholders
21.1 Subsidiaries of the registrant as of March 31, 1996:
- Photomatrix Corporation, Nevada
- Lexia Systems, Inc., California
- Xscribe Imaging, Inc., California
- Xscribe Legal Systems, Inc., California
23.1 Independent Auditors' Report on Schedule
Page 19 of 161 <PAGE>
23.2 Independent Auditors' Consent
24.1 Power of Attorney (see signature pages)
(i) Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1992, filed with the Securities
and Exchange Commission on June 26, 1992.
(ii) Incorporated by reference to exhibits filed with the
Company's Post Effective Amendment No. 2 to its
Registration Statement on Form S-2 (No. 33-43036)
filed with the Securities and Exchange Commission on
June 14, 1993.
(iii) Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1993, filed with the Securities
and Exchange Commission on June 29, 1993.
(iv) Incorporated by reference to exhibits filed with the
Company's Current Report on Form 8-K dated October 25,
1993, filed with the Securities and Exchange
Commission on November 5, 1993.
(v) Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1994, filed with the Securities
and Exchange Commission on June 29, 1994.
(vi) Incorporated by reference to exhibits filed with
Company's Registration Statement on Form S-8
(No. 33-61951) with the Securities and Exchange
Commission on August 18, 1995.
(vii) Incorporated by reference to exhibits filed with the
Company's Annual Report on Form 10-K for the fiscal
year ended March 31, 1995, filed with the Securities
and Exchange Commission on June 29, 1995.
(d) Schedule
Schedule II Valuation and Qualifying Accounts
Page 20 of 161 <PAGE>
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 on June 25, 1996.
XSCRIBE CORPORATION
by /s/ Suren G. Dutia
--------------------------
Suren G. Dutia, President,
Chief Executive Officer
and Chairman of the Board
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Suren G.
Dutia and Bruce C. Myers, jointly and severally, his
attorney-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any amendment to the
Report on Form 10-K and file the same with the exhibits
thereto and any other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or a
substitute or substitutes, may do or cause to be done by
virtue thereof. 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 indicated.
Page 21 of 161 <PAGE>
Signature Capacity Date
--------- -------- ----------
/s/ Suren G. Dutia President, Chief 6/25/96
--------------------- Executive Officer
Suren G. Dutia and Chairman of
the Board President,
Chief Executive
Officer
/s/ Bruce C. Myers Chief Operating Officer 6/25/96
--------------------- Officer and Chief
Bruce C. Myers Financial Officer
/s/ Peter B. Harker Principal Accounting 6/25/96
--------------------- Officer
Peter B. Harker
/s/ Donald R. Miller, Jr. Director 6/24/96
---------------------
Donald R. Miller, Jr.
/s/ Patrick W. Moore Director 6/24/96
---------------------
Patrick W. Moore
/s/ Ira H. Sharp Director 6/24/96
---------------------
Ira H. Sharp
/s/ John F. Staley Director 6/24/96
---------------------
John F. Staley
/s/ Jukka V. Norokorpi Director 6/24/96
---------------------
Jukka V. Norokorpi
/s/ Evan A. Wyly Director 6/24/96
---------------------
Evan A. Wyly
Page 22 of 161 <PAGE>
XSCRIBE CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
XSCRIBE CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance, Balance,
Beginning End
Description of Year Expense Acquired Write-Off of Year
----------- --------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Fiscal Year 1996
----------------
Allowance for
Uncollectible
Accounts Receivable $227,000 $235,000 $ - $244,000 $218,000
======== ======== ======== ======== ========
Inventory Excess and
Obsolescence Reserve $414,000 $394,000 $ - $150,000 $658,000
======== ======== ======== ======== ========
Warranty Reserve $ 60,000 $ 32,000 $ - $ 31,000 $ 61,000
======== ======== ======== ======== ========
Fiscal year 1995
----------------
Allowance for
Uncollectible
Accounts Receivable $305,000 $103,000 $ - $181,000 $227,000
======== ======== ======== ======== ========
Inventory Excess and
Obsolescence Reserve $303,000 $188,000 $ - $ 77,000 $414,000
======== ======== ======== ======== ========
Warranty Reserve $ 63,000 $ 22,000 $ - $ 25,000 $ 60,000
======== ======== ======== ======== ========
Fiscal year 1994
----------------
Allowance for
Uncollectible
Accounts Receivable $220,000 $ 90,000 $ 8,000 $ 13,000 $305,000
======== ======== ======== ======== ========
Inventory Excess and
Obsolescence Reserve $376,000 $ 21,000 $550,000 $644,000 $303,000
======== ======== ======== ======== ========
Warranty Reserve $ 48,000 $ 43,000 $ 31,000 $ 59,000 $ 63,000
======== ======== ======== ======== ========
</TABLE>
Page 23 of 161 <PAGE>
EXHIBIT INDEX
-------------
No. Description Page
-----------------------------------------------------------
3.1 Amended and Restated Articles of
Incorporation 25
3.3 Bylaws 30
10.11 Executive Employment Agreement 52
10.30 Security and Loan Agreement 58
10.31 Purchase Agreement 73
10.32 Purchase Agreement 95
13.1 Annual Report 110
21.1 Subsidiaries of the Registrant 157
23.1 Independent Auditors' Report
on Schedule 158
23.2 Independent Auditors' Consent 159
24.1 Power of Attorney 160
27 Financial Data Schedule 161
Page 24 of 161 <PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
XSCRIBE CORPORATION,
a California corporation
Suren G. Dutia and Bruce C. Meyers certify that:
1. They are the duly elected and acting President and
Secretary, respectively, of the corporation named above.
2. The Articles of Incorporation of the corporation
shall be amended and restated to read in full as follows:
ARTICLE I:
The name of the corporation is Xscribe Corporation.
ARTICLE II:
The purpose of the corporation is to engage in any lawful
activity for which a corporation may be organized under the
General Corporation Law of California other than the banking
business, the trust company business or the practice of a
profession permitted to be incorporated by the California
Corporation Code.
ARTICLE III:
The name and complete business address and the state of
the corporation's agent for service of process is Xscribe
Corporation, c/o Suren G. Dutia, 6285 Nancy Ridge Drive, San
Diego, California 92121.
ARTICLE IV:
The Corporation is authorized to issue two classes of
shares of capital stock to be designated respectively Common
Stock and Preferred Stock. The number of shares of Common Stock
authorized is 30,000,000. The number of shares of Preferred
Stock authorized is 3,173,275. The Preferred Stock may be issued
in one or more series. The Board of Directors is authorized to
fix the number of any such series of Preferred Stock and to
determine the designation of any such series. The Board of
Directors is further authorized to determine or alter the rights,
preferences, privileges, and restrictions granted to or imposed
upon any wholly unissued series of Preferred Stock, and within
the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the
number of shares constituting any series, to increase or decrease
Page 25 of 161 <PAGE>
(but not below the number of shares of such series then
outstanding) the number of shares of any such series subsequent
to the issue of shares of that series.
ARTICLE V:
The liability of directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible
under California law.
ARTICLE VI:
The Corporation is authorized to provide, whether by
bylaw, agreement or otherwise, indemnification of agents (as
defined in Section 317 of the General Corporation Law of
California) in excess of that expressly permitted by said Section
317 for those agents of the Corporation for breach of duty to the
Corporation and its stockholders; provided, however, that such
provision may not provide for indemnification of any agent for
any acts or omissions or transactions from which a director may
not be relieved of liability as set forth in the exception to
paragraph (10) of subdivision (a) of Section 204 of the General
Corporation Law of California or as to circumstances in which
indemnity is expressly prohibited by said Section 317.
ARTICLE VII:
Any repeal or modification of Article V or Article VI by
the stockholders of the Corporation shall not adversely affect
any right or protection of an agent of the Corporation existing
at the time of such repeal or modification.
3. The foregoing Amended and Restated Articles and this
Certificate have been approved by the Board of Directors of the
Corporation.
4. The foregoing Amended and Restated Articles was
approved by the required vote of the shareholders of the
corporation in accordance with Section 903 of the California
Corporation Code; the total number of outstanding shares of each
class entitled to vote with respect to the foregoing Amended and
Restated Articles was 8,646,509 shares of Xscribe common stock;
and the number of shares of common stock voting in favor of the
foregoing Amended and Restated Articles equaled or exceeded the
vote required, such required vote being a majority of the
outstanding shares of common stock.
Page 26 of 161 <PAGE>
WE FURTHER DECLARE under penalty of perjury and the laws
of this State of California that the matter set forth above are
true and correct of our own knowledge.
Dated: April 27, 1993 Dated: April 27, 1993
/s/ Suren G. Dutia /s/ Bruce C. Myers
By -------------------------- By ------------------------
Suren G. Dutia, Bruce C. Meyers,
President Secretary
Page 27 of 161 <PAGE>
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
XSCRIBE CORPORATION
Suren G. Dutia and Bruce C. Myers certify that:
1. We are, respectively, the President and Secretary of
Xscribe Corporation, a California corporation (the
"Corporation").
2. Article III of the Articles of Incorporation of the
Corporation is amended to read as follows:
ARTICLE III
-----------
The Corporation is authorized to issue two classes
of shares of capital stock to be designated
respectively Common Stock and Preferred Stock. The
number of shares of Common Stock authorized is
30,000,000. The number of shares of Preferred
Stock authorized is 3,173,275. The Preferred Stock
may be issued in one or more series. The Board of
Directors is authorized to fix the number of any
such series of Preferred Stock and to determine the
designation of any such series. The Board of
Directors is further authorized to determine or
alter the rights, preferences, privileges, and
restrictions granted to or imposed upon any wholly
unissued series of Preferred Stock, and within the
limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally
fixing the number of shares constituting any
series, to increase or decrease (but not below the
number of shares of such series then outstanding)
the number of shares of any such series subsequent
to the issue of shares of that series. Upon
amendment of Article III of these Articles of
Incorporation to read as herein set forth, every
three outstanding shares of Common Stock shall be
combined and converted into one share of Common
Stock;
and
3. The foregoing amendment of Article III of the
Articles of Incorporation has been duly approved by the Board of
Directors of the Corporation.
Page 28 of 161 <PAGE>
4. The foregoing amendment to Article III was approved
by the required vote of the shareholders of the Corporation in
accordance with Section 903 of the California Corporation Code;
the total number of outstanding shares of each class entitled to
vote with respect to the foregoing amendment was 17,048,338
shares of Xscribe common stock; and the number of shares of
common stock voting in favor of the foregoing amendment equaled
or exceeded to vote required, such required vote being a majority
of the outstanding shares of common stock.
WE FURTHER DECLARE under penalty of perjury and the laws
of this State of California that the matter set forth above are
true and correct of our own knowledge.
Dated: August 15, 1994 Dated: August 12, 1994
-- --
By /s/ Suren G. Dutia By /s/ Bruce C. Myers
------------------------ ------------------
Suren G. Dutia, Bruce C. Myers
President Secretary
Page 29 of 161 <PAGE>
EXHIBIT 3.3
BYLAWS
OF
XSCRIBE CORPORATION
Article 1.
OFFICES
Section 1.1 PRINCIPAL OFFICES. The board of directors
shall fix the location of the principal executive office of the
corporation at any place within or outside the State of
California. If the principal executive office is located outside
this state, and the corporation has one or more business offices
in this state, the board of directors shall likewise fix and
designate a principal business office in the State of California.
Section 1.2 OTHER OFFICES. The board of directors may at
any time establish branch or subordinate offices at any place or
places whore the corporation is qualified to do business.
Article 2.
MEETINGS OF SHAREHOLDERS
Section 2.1 PLACE OF MEETINGS. Meetings of shareholders
shall be hold at any place within or outside the State of
California designated by the board of directors. In the absence
of any such designation, shareholders' meetings shall be hold at
the principal executive office of the corporation.
Section 2.2 ANNUAL MEETINGS OF SHAREHOLDERS. The annual
meeting of shareholders shall be hold each year on a date and at
a time designated by the board of directors. At each annual
meeting, directors shall be elected and any other proper business
may be transacted.
Section 2.3 SPECIAL MEETINGS. A special meeting of
shareholders may be called at any time by the board of directors,
or by the chairman of the board, or by the president, or by one
or more shareholders holding shares in the aggregate entitled to
cast not less than 10% of the votes at any such meeting.
If a special meeting is called by any person or persons
other than the board of directors, the request shall be in
Page 30 of 161 <PAGE>
writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic
or other facsimile transmission to the chairman of the board, the
president, any vice president or the secretary of the
corporation. The officer receiving such request forthwith shall
cause notice to be given to the shareholders entitled to vote, in
accordance with the provisions of Sections 2.4 and 2.5 of this
Article II, that a meeting will be hold at the time requested by
the person or persons calling the meeting, not less than thirty-
five (35) nor more than sixty (60) days after the receipt of the
request. If the notice is not given within twenty (20) days
after the receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing contained in
this paragraph of this Section 2.3 shall be construed as
limiting, fixing or affecting the time when a meeting of
shareholders called by action of the board of directors may be
held.
Section 2.4 NOTICE OF SHAREHOLDERS' MEETINGS. All
notices of meetings of shareholders shall be sent or otherwise
given in accordance with Section 2.5 of this Article 11 not less
than ten (10) nor more than sixty (60) days before the date of
the meeting being noticed. The notice shall specify the place,
date and hour of the meeting and (i) in the case of a special
meeting, the general nature of the business to be transacted, or
(ii) in the case of the annual meeting, those matters which the
board of directors, at the time of giving the notice, intends to
present for action by the shareholders. The notice of any
meeting at which directors are to be elected shall include the
name of any nominee or nominees which, at the time of the notice,
the board of directors intends to present for election.
If action is proposed to be taken at any meeting for
approval of (i) a contract or transaction in which a director has
a direct or indirect financial interest, pursuant to Section 310
of the Corporations Code of California, (ii) an amendment of the
articles of incorporation, pursuant to Section 902 of such Code,
(iii) a reorganization of the corporation, pursuant to
Section 1201 of such Code, (iv) a voluntary dissolution of the
corporation, pursuant to Section 1900 of such Code, or (v) a
distribution in dissolution other than in accordance with the
rights of outstanding preferred shares, pursuant to Section 2007
of such Code, the notice shall also state the general nature of
such proposal.
Section 2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE.
Notice of any meeting of shareholders shall be given either
personally or by first-class mail or telegraphic or other written
communication, charges prepaid, addressed to the shareholder at
the address of such shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for
the purpose of notice. if no such address appears on the
Page 31 of 161 <PAGE>
corporation's books or is given, notice shall be deemed to have
been given if sent by mail or telegram to the corporation's
principal executive office, or if published at least once in a
newspaper of general circulation in the county where this office
is located. Notice shall be deemed to have been given at the
time when delivered personally or deposited in the mail or sent
by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of
such shareholder appearing on the books of the corporation is
returned to the corporation by the United States Postal Service
marked to indicate that the United States Postal Service is
unable to deliver the notice to the shareholder at such address,
all future notices or reports shall be deemed to have been duly
given without further mailing if the same shall be available to
the shareholder upon written demand of the shareholder at the
principal executive office of the corporation for a period of one
year from the date of the giving of such notice.
An affidavit of the mailing or other means of giving any
notice of any shareholders' meeting shall be executed by the
secretary, assistant secretary or any transfer agent of the
corporation giving such notice, and shall be filed and maintained
in the minute book of the corporation.
Section 2.6 QUORUM. The presence in person or by proxy
of the holders of a majority of the shares entitled to vote at a
meeting of shareholders shall constitute a quorum for the
transaction of business. The shareholders present at a duly
called or held meeting at which a quorum is present may continue
to do business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority
of the shares required to constitute a quorum.
Section 2.7 ADJOURNED MEETING AND NOTICE THEREOF. Any
shareholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the
majority of the shares represented at such meeting, either in
person or by proxy, but in the absence of a quorum, no other
business may be transacted at such meeting, except as provided in
Section 2.6 of this Article II.
When any meeting of shareholders, either annual or
special, is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof
are announced at a meeting at which the adjournment is taken,
unless a new record date for the adjourned meeting is fixed, or
unless the adjournment is for more than forty-five (45) days from
the date set for the original meeting, in which case the board of
directors shall set a new record date. Notice of any such
adjourned meeting shall be given to each shareholder of record
entitled to vote at the adjourned meeting in accordance with the
Page 32 of 161 <PAGE>
provisions of Sections 2.4 and 2.5 of this Article II. At any
adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting.
Section 2.8 VOTING. The shareholders entitled to vote at
any meeting of shareholders shall be determined in accordance
with the provisions of Section 2.11 of this Article II, subject
to the provisions of Sections 702 to 704, inclusive, of the
Corporations Code of California (relating to voting shares hold
by a fiduciary, in the name of a corporation or in joint
ownership). Such vote may be by voice vote or by ballot;
provided, however, that all elections for directors must be by
ballot upon demand by a shareholder at any election and before
the voting begins. Any shareholder entitled to vote on any
matter (other than elections of directors) may vote part of the
shares in favor of the proposal and refrain from voting the
remaining shares or vote them against the proposal, but, if the
shareholder fails to specify the number of shares such
shareholder is voting affirmatively, it will be conclusively
presumed that the shareholder's approving vote is with respect to
all shares such shareholder is entitled to vote. Except as
provided in Section 2.6 of this Article II, the affirmative vote
of a majority of the shares represented and voting at a duly hold
meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required
quorum) shall be the act of the shareholders, unless the vote of
a greater number or voting by classes is required by the
California General Corporation Law or the articles of
incorporation.
At a shareholders' meeting involving the election of
directors, no shareholder shall be entitled to cumulate votes
(i.e., cast for any candidate a number of votes greater than the
number of votes which such shareholder normally is entitled to
cast) unless such candidate or candidates' names have been placed
in nomination prior to the voting and a shareholder has given
notice at the meeting prior to the voting of the shareholder's
intention to cumulate votes. if any shareholder has given such
notice, then every shareholder entitled to vote may cumulate'
such shareholder's votes for candidates in nomination and give
one candidate a number of votes equal to the number of directors
to be elected multiplied by the number of votes to which such
shareholder's shares are normally entitled, or distribute the
shareholder's votes on the same principle among any or all of the
candidates, as the shareholder thinks fit. The candidates
receiving the highest number of affirmative votes up to the
number of directors to be elected, shall be elected. Votes
against a director and votes withheld shall have no legal effect.
Section 2.9 WAIVER OF NOTICE OR CONSENT BY ABSENT
SHAREHOLDERS. The transactions at any meeting of shareholders,
either annual or special, however called and noticed, and
wherever held, shall be as valid as though had at a meeting duly
Page 33 of 161 <PAGE>
hold after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the
meeting, each person entitled to vote, not present in person or
by proxy, signs a written waiver of notice or a consent to a
holding of the meeting, or an approval of the minutes thereof.
The waiver of notice, consent to the holding of the meeting or
approval of the minutes thereof need not specify either the
business to be transacted or the purpose of any annual or special
meeting of shareholders, except that if action is taken or
proposed to be taken for approval of any of those matters
specified in the second paragraph of Section 2.4 of this
Article II, the waiver of notice, consent to the holding of the
meeting or approval of the minutes thereof shall state the
general nature of such proposal. All such waivers, consents or
approvals shall be filed with the corporate records or made a
part of the minutes of the meeting.
Attendance of a person at a meeting shall also constitute
a waiver of notice of and presence at such meeting, except when
the person objects, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is
not a waiver of any right to object to the consideration of
matters required by the General Corporation Law to be included in
the notice but which were not included in the notice, if such
objection is expressly made at the meeting.
Section 2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT
WITHOUT A MEETING. Any action which may be taken at any annual
or special meeting of shareholders may be taken without a meeting
and without prior notice, if a consent in writing, setting forth
the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and
voted. In the case .of election of directors, such consent shall
be effective only if signed by the holders of all outstanding
shares entitled to vote for the election of directors; provided,
however, that a director may be elected at any time to fill a
vacancy not filled by the directors by the written consent of the
holders of a majority of the outstanding shares entitled to vote
for the election of directors. All such consents shall be filed
with the secretary of the corporation and shall be maintained in
the corporate records. Any shareholder giving a written consent,
or the shareholder's proxy holders, or a transferee of the shares
or a personal representative of the shareholder or their
respective proxy holders, may revoke the consent by a writing
received by the secretary of the corporation prior to the time
that written consents of the number of shares required to
authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have
not been solicited in writing, and if the unanimous written
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consent of all such shareholders shall not have been received,
the secretary shall give prompt notice of the corporate action
approved by the shareholders without a meeting. Such notice
shall be given in the manner specified in Section 2.5 of this
Article II. In the case of approval of (i) contracts or
transactions in which a director has a direct or indirect
financial interest, pursuant to Section 310 of the Corporations
Code of California, (ii) indemnification of agents of the
corporation, pursuant to Section 317 of such Code, (iii) a
reorganization of the corporation, pursuant to Section 1201 of
such Code, and (iv) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares,
pursuant to Section 2007 of such Code, such notice shall be given
at least ten (10) days before the consummation of any such action
authorized by any such approval.
Section 2.11 RECORD DATE FOR SHAREHOLDER NOTICE, VOTING,
AND GIVING CONSENTS. For purposes of determining the
shareholders entitled to notice of any meeting or to vote or
entitled to give consent to corporate action without a meeting,
the board of directors may fix, in advance, a record date, which
shall not be more than sixty (60) days nor less than ten (10)
days prior to the date of any such meeting nor more than
sixty (60) days prior to such action without a meeting, and in
such case only shareholders at the close of business on the
record date so fixed are entitled to notice and to vote or to
give consents, as the case may be, notwithstanding any transfer
of any shares on the books of the corporation after the record
date fixed as aforesaid, except as otherwise provided in the
California General Corporation Law.
If the board of directors does not so fix a record date:
(a) The record date for determining shareholders entitled
to notice of or to vote at a meeting of shareholders shall be
at the close of business on the business day next preceding the
day on which notice is given or, if notice is waived, at the
close of business on the business day next preceding the day on
which the meeting is hold.
(b) The record date for determining shareholders
entitled to give consent to corporate action in writing without
a meeting, (i) when no prior action by the board his been
taken, shall be the day on which the first written consent is
given, or (ii) when prior action of the board has been taken,
shall be at the close of business on the day on which the board
adopts the resolution relating thereto, or the sixtieth (60th)
day prior to the date of such other action, whichever is later.
Section 2.12 PROXIES. Every person entitled to vote for
directors or on any other matter shall have the right to do so
either in person or by one or more agents authorized by a written
proxy signed by the person and filed with the secretary of the
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corporation. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual
signature, typewriting, telegraphic transmission or otherwise) by
the shareholder or the shareholder's attorney in fact. A validly
executed proxy which does not state that it is irrevocable shall
continue in full force and effect unless (i) revoked by the
person executing it, prior to the vote pursuant thereto, by a
writing delivered to the corporation stating that the proxy is
revoked or by a subsequent proxy executed by the person executing
the prior proxy and presented to the meeting, or as to any
meeting by attendance at such meeting and voting in person by the
person executing the proxy; or (ii) written notice of the death
or incapacity of the maker of such proxy is received by the
corporation before the vote pursuant thereto is counted;
provided, however, that no such proxy shall be valid after the
expiration of eleven (11) months from the date of such proxy,
unless otherwise provided in the proxy. The revocability of a
proxy that states on its face that it is irrevocable shall be
governed by the provisions of Section 705(e) and (f) of the
Corporations Code of California.
Section 2.13 INSPECTORS OF ELECTION. Before any meeting
of shareholders, the board of directors may appoint any persons
other than nominees for office to act as inspectors of election
at the meeting or its adjournment. If no inspectors of election
are so appointed, the chairman of the meeting may, and on the
request of any shareholder or a shareholder's proxy shall,
appoint inspectors of election at the meeting. The number of
inspectors shall be either one (1) or three (3). If inspectors
are appointed at a meeting on the request of one or more
shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether
one (1) or three (3) inspectors are to be appointed. If any
person appointed as inspector fails to appear or fails or refuses
to act, the chairman of the meeting may, and upon the request of
any shareholder or a shareholder's proxy shall, appoint a person
to fill such vacancy.
The duties of these inspectors shall be as follows:
(a) Determine the number of shares outstanding and
the voting power of each, the shares represented at the
meeting, the existence of a quorum, and the authenticity,
validity and effect of proxies;
(b) Receive votes, ballots or consents;
(c) Hear and determine all challenges and questions
in any way arising in connection with the right to vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close;
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(f) Determine the result; and
(g) Do any other acts that may be proper to conduct
the election or vote with fairness to all shareholders.
Article 3.
DIRECTORS
Section 3.1 POWERS. Subject to the provisions of the
California General Corporation Law and any limitations in the
articles of incorporation and these bylaws relating to action
required to be approved by the shareholders or by the outstanding
shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under
the direction of the board of directors.
Without prejudice to such general powers, but subject to
the same limitations, it is hereby expressly declared that the
directors shall have the power and authority to:
(a) Select and remove all officers, agents, and
employees of the corporation, prescribe such powers and duties
for them as may not be inconsistent with law, with the articles
of incorporation or these bylaws, fix their compensation, and
require from them security for faithful service.
(b) Change the principal executive office or the
principal business office in the State of California from one
location to another; cause the corporation to be qualified to
do business in any other state, territory, dependency, or
foreign country and conduct business within or outside the
State of California; designate any place within or without the
State of California for the holding of any shareholders'
meeting, or meetings, including annual meetings; adopt, make
and use a corporate seal, and prescribe the forms of
certificates of stock, and alter the form of such seal and of
such certificates from time to time as in their judgment they
may deem best, provided that such forms shall at all times
comply with the provisions of law.
(c) Authorize the issuance of shares of stock of the
corporation from time to time, upon such terms as may be
lawful, in consideration of money paid, labor done or services
actually rendered, debts or securities cancelled or tangible or
intangible property actually received.
(d) Borrow money and incur indebtedness for the
purposes of the corporation, and cause to be executed and
delivered therefor, in the corporate name, promissory notes,
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bonds, debentures, deeds of trust, mortgages, pledges,
hypothecations, or other evidences of debt and securities
therefor.
Section 3.2 NUMBER AND QUALIFICATION OF DIRECTORS. The
authorized number of directors of the corporation shall not be
less than four (4) nor more than seven (7). The exact number of
directors shall be five (5) until changed, within the limits
specified above, by a bylaw amending this Section 3.2, duly
adopted by the board of directors or by the shareholders. The
indefinite number of directors may be changed, or a definite
number fixed without provision for an indefinite number, by a
duly adopted amendment to the articles of incorporation or by an
amendment to this bylaw adopted by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote
or written consent of holders of a majority of the outstanding
shares entitled to vote. No amendments may change the stated
maximum number of authorized directors to a number greater than
two times the stated minimum number of directors minus one.
Section 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS.
Directors shall be elected at each annual meeting of the
shareholders to hold office until the next annual meeting. Each
director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which elected
and until a successor has been elected and qualified.
Section 3.4 VACANCIES. Vacancies on the board of
directors may be filled by a majority of the remaining directors,
though less than a quorum, or by a sole remaining director,
except that a vacancy created by the removal of a director by the
vote or written consent of the shareholders or by court order may
be filled only by the vote of a majority of the shares
represented and voting at a duly held meeting at which a quorum
is present (which shares voting affirmatively also constitute at
least a majority of the required quorum) or by the written
consent of holders of a majority of the outstanding shares
entitled to vote. Each director so elected shall hold office
until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be
deemed to exist in the case of the death, resignation or removal
of any director, or if the board of directors by resolution
declares vacant the office of a director who has been declared of
unsound mind by an order of court or convicted of a felony, or if
the authorized number of directors be increased, or if the
shareholders fail at any meeting of shareholders at which any
director or directors are elected, to elect the full authorized
number of directors to be voted for at that meeting.
The shareholders may elect a director or directors at any
time to fill any vacancy or vacancies not filled by the
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directors, but any such election by written consent shall require
the consent of a majority of the outstanding shares entitled to
vote.
Any director may resign effective upon giving written
notice to the chairman of the board, the president, the secretary
or the board of directors, unless the notice specifies a later
time for the effectiveness of such resignation. If the
resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the
resignation becomes effective.
No reduction of the authorized number of directors shall
have the effect of removing any director prior to the expiration
of his term of office.
Section 3.5 PLACE OF MEETINGS AND TELEPHONIC MEETINGS.
Regular meetings of the board of directors may be held at any
place within or without the State of California that has been
designated from time to time by resolution of the board. In the
absence of such designation, regular meetings shall be hold at
the principal executive office of the corporation. Special
meetings of the board shall be held at any place within or
without the State of California that has been designated in the
notice of the meeting or, if not stated in the notice or there is
no notice, at the principal executive office of the corporation.
Any meeting, regular or special, may be hold by conference
telephone or similar communication equipment, so long as all
directors participating in such meeting can hear one another, and
all such directors shall be deemed to be present in person at
such meeting.
Section 3.6 ANNUAL MEETING. Immediately following each
annual meeting of shareholders, the board of directors shall hold
a regular meeting for the purpose of organization, any desired
election of officers and the transaction of other business.
Notice of this meeting shall not be required.
Section 3.7 OTHER REGULAR MEETINGS. Other regular
meetings of the board of directors shall be hold without call at
such time as shall from time to time be fixed by the board of
directors. Such regular meetings may be held without notice.
Section 3.8 SPECIAL MEETINGS. Special meetings of the
board of directors for any purpose or purposes may be called at
any time by the chairman of the board or the president or any
vice president or the secretary or any two directors.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by
first-class mail or telegram, charges pre-paid, addressed to each
director at his or her address as it is shown upon the records of
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the corporation. In case such notice is mailed, it shall be
deposited in the United states mail at least four (4) days prior
to the time of the holding of the meeting. In case such notice
is delivered personally, or by telephone or telegram, it shall be
delivered personally or by telephone or to the telegraph company
at least forty-eight (48) hours prior to the time of the holding
of the meeting. Any oral notice given personally or by telephone
may be communicated to either the director or to a person at the
office of the director who the person giving the notice has
reason to believe will promptly communicate it to the director.
The notice need not specify the purpose of the meeting nor the
place if the meeting is to be held at the principal executive
office of the corporation.
Section 3.9 QUORUM. A majority of the authorized number
of directors shall constitute a quorum for the transaction of
business, except to adjourn as hereinafter provided. Every act
or decision done or made by a majority of the directors present
at a meeting duly hold at which a quorum is present shall be
regarded as the act of the board of directors, subject to the
provisions of Section 310 of the Corporations Code of California
(approval of contracts or transactions in which a director has a
direct or indirect material financial interest), Section 311 of
that Code (appointment of committees), and Section 317(e) of that
Code (indemnification of directors). A meeting at which a quorum
is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken
is approved by at least a majority of the required quorum for
such meeting.
Section 3.10 WAIVER OF NOTICE. Notice of a meeting need
not be given to any director who signs a waiver of notice or a
consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or who attends the
meeting without protesting, prior thereto or at its commencement,
the lack of notice. The waiver of notice or consent need not
specify the purpose of the meeting. All such waivers, consents
and approvals shall be filed with the corporate records or made a
part of the minutes of the meeting.
Section 3.11 ADJOURNMENT. A majority of the directors
present, whether or not constituting a quorum, may adjourn any
meeting to another time and place.
Section 3.12 NOTICE OF ADJOURNMENT. Notice of the time
and place of holding an adjourned meeting need not. be given,
unless the meeting is adjourned for more than twenty-four hours,
in which case notice Of such time and place shall be given prior
to the time of the adjourned meeting, in the manner specified in
Section 3.8 of this Article III, to the directors who were not
present at the time of the adjournment.
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Section 3.13 ACTION WITHOUT MEETING. Any action required
or permitted to be taken by the board of directors may be taken
without a meeting, if all members of the board shall individually
or collectively consent in writing to such action. Such action
by written consent shall have the same force and effect as a
unanimous vote of the board of directors. Such written consent
or consents shall be filed with the minutes of the proceedings of
the board.
Section 3.14 FEES AND COMPENSATION OF DIRECTORS.
Directors and members of committees may receive such
compensation, if any, for their services, and such reimbursement
of expenses, an may be fixed or determined by resolution of the
board of directors. Nothing contained herein shall be construed
to preclude any director from serving the corporation in any
other capacity an officer, agent, employee, or otherwise, and
receiving compensation for such services.
Article 4.
COMMITTEES
Section 4.1 COMMITTEES OF DIRECTORS. The board of
directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees,
each consisting of two or more directors, to serve at the
pleasure of the board. The board may designate one or more
directors as alternate members of any committee, who may replace
any absent member at any meeting of the committee. The
appointment of members or alternate members of a committee
requires the vote of a majority of the authorized number of
directors. Any such committee, to the extent provided in the
resolution of the board, shall have all the authority of the
board, except with respect to:
(a) the approval of any action which, under the
General Corporation Law of California, also requires
shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of
directors or in any committee;
(c) the fixing of compensation of the directors for
serving on the board or on any committee;
(d) the amendment or repeal of bylaws or the
adoption of now bylaws;
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(e) the amendment or repeal of any resolution of the
board of directors which by its express terms is not so
amendable or repealable;
(f) a distribution to the shareholders of the
corporation, except at a rate or in a periodic amount or within
a price range determined by the board of directors; or
(g) the appointment of any other committees of the
board of directors or the members thereof.
Section 4.2 MEETINGS AND ACTION OF COMMITTEES. Meetings
and action of committees shall be governed by, and held and taken
in accordance with, the provisions of Article III of these
bylaws, Sections 3.5 (place of meetings), 3.7 (regular meetings),
3.8 (special meetings and notice), 3.9 (quorum), 3.10 (waiver of
notice), 3.11 (adjournment), 3.12 (notice of adjournment) and
3.13 (action without meeting), with such changes in the context
of those bylaws as are necessary to substitute the committee and
its members for the board of directors and its members, except
that the time of regular meetings of committees may be determined
by resolution of the board of directors as well as by resolution
of the committee; special meetings of committees may also be
called by resolution of the board of directors; and notice of
special meetings of committees shall also be given to all
alternate members, who shall have the right to attend all
meetings of the committee. The board of directors may adopt
rules for the government of any committee not inconsistent with
the provisions of these bylaws.
Article 5.
OFFICERS
Section 5.1 OFFICERS. The officers of the corporation
shall be a president, a secretary and a chief financial officer.
The corporation may also have, at the discretion of the board of
directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be appointed in
accordance with the provisions of Section 5.3 of this Article V.
Any number of offices may be held by the same person.
Section 5.2 ELECTION OF OFFICERS. The officers of the
corporation, except such officers as may be appointed in
accordance with the provisions of Section 5.3 or Section 5.5 of
this Article V, shall be chosen by the board of directors, and
each shall serve at the pleasure of the board, subject to the
rights, if any, of an officer under any contract of employment.
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Section 5.3 SUBORDINATE OFFICERS, ETC. The board of
directors may appoint, and may empower the president to appoint,
such other officers as the business of the corporation may
require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in the
bylaws or as the board of directors may from time to time
determine.
Section 5.4 REMOVAL AND RESIGNATION OF OFFICERS. subject
to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without
cause, by the board of directors, at any regular or special
meeting thereof, or, except in case of an officer chosen by the
board of directors, by any officer upon whom such power of
removal may be conferred by the board of directors.
Any officer may resign at any time by giving written
notice to the corporation. Any such resignation shall take
effect at the date of the receipt of such notice or at any later
time specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make
it effective. Any such resignation is without prejudice to the
rights, if any, of the corporation under any contract to which
the officer is a party.
Section 5.5 VACANCIES IN OFFICES. A vacancy in any
office because of death, resignation, removal, disqualification
or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to such office.
Section 5.6 CHAIRMAN OF THE BOARD. The chairman of the
board, if such an officer be elected, shall, if present, preside
at all meetings of the board of directors and exercise and
perform such other powers and duties as may be from time to time
assigned to him by the board of directors or prescribed by the
bylaws. If there is no president, the chairman of the board
shall in addition be the chief executive officer of the
corporation and shall have the powers and duties prescribed in
Section 5.7 of this Article V.
Section 5.7 PRESIDENT. Subject to such supervisory
powers, if any, as may be given by the board of directors to the
chairman of the board, if there be such an officer, the president
shall be the chief executive officer of the corporation and
shall, subject to the control of the board of directors, have
general supervision, direction and control of the business and
the officers of the corporation. He shall preside at all
meetings of the shareholders and, in the absence of the chairman
of the board, or if there be none, at all meetings of the board
of directors. He shall have the general powers and duties of
management usually vested in the office of president of a
corporation, and shall have such other powers and duties as may
be prescribed by the board of directors or the bylaws.
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Section 5.8 VICE PRESIDENTS. In the absence or
disability of the president, the vice presidents, if any, in
order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors,
shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all restrictions
upon, the president. The vice presidents shall have such other
powers and perform such other duties as from time to time may be
prescribed for them respectively by the board of directors or the
bylaws, the president or the chairman of the board.
Section 5.9 SECRETARY. The secretary shall keep or cause
to be kept, at the principal executive office or such other place
as the board of directors may order, a book of minutes of all
meetings and actions of directors, committees of directors and
shareholders, with the time and place of holding, whether regular
or special, and, if special, how authorized, the notice thereof
given, the names of those present at directors' and committee
meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the
board of directors, a share register, or a duplicate share
register, showing the names of all shareholders and their
addresses, the number and classes of shares held by each, the
number and date of certificates issued for the same, and the
number and date of cancellation of every certificate surrendered
for cancellation.
The secretary shall give, or cause to be given, notice of
all meetings of the shareholders and of that board of directors
required by the bylaws or by law to be given, and he shall keep
the seal of the corporation, if one be adopted, in safe custody,
and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or by the bylaws.
Section 5.10 CHIEF FINANCIAL OFFICER. The chief
financial officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of
accounts Of the properties and business transactions of the
corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, 103308, capital, retained
earnings and shares. The books of account shall at all
reasonable times be open to inspection by any director.
The chief financial officer shall deposit all moneys and
other valuables in the name and to the credit of the corporation
with such depositories an may be designated by the board of
directors. He shall disburse the funds of the corporation as may
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be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of
all of his transactions as chief financial officer and of the
financial condition of the corporation, and shall have such other
powers and perform such other duties as may be prescribed by the
board of directors or the bylaws.
Section 5.11 REIMBURSEMENT OF CORPORATION. Any payments
made to an officer of the corporation such as a salary,
Commission, bonus, interest, or rent, or entertainment expense
incurred by him, which shall be disallowed in whole or in part as
a deductible expense by the Internal Revenue Service, shall be
reimbursed by such officer to the corporation to the full extent
of such disallowance. Notwithstanding the above, no officer
shall be liable to reimburse the corporation for the 20%
disallowance of meals and entertainment expenses pursuant to
Section 274(n) of the Internal Revenue Code of 1986. It shall be
the duty of the board to enforce payment of each such amount
disallowed. In lieu of payment by the officer, subject to the
determination of the board, proportionate amounts may be withhold
from his future compensation payments until the amount owed to
the corporation has been recovered.
Article 6.
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
Section 6.1 INDEMNIFICATION. The corporation shall, to
the maximum extent permitted by the General Corporation Law of
California, indemnify each of its directors and officers against
expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any
proceeding arising by reason of the fact any such person is or
was a director or officer of the corporation and shall advance to
such director or officer expenses incurred in defending any such
proceeding to the maximum extent permitted by such law. For
purposes of this section, a "director" or "officer" of the
corporation includes any person who is or was a director or
officer of the corporation, or is or was serving at the request
of the corporation as a director or officer of another
corporation, or other enterprise, or was a director or officer of
a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such
predecessor corporation. The board of directors may in its
discretion provide by resolution for such indemnification of, or
advance of expenses to, other agents of the corporation, and
likewise may refuse to provide for such indemnification or
advance of expenses except to the extent such indemnification is
mandatory under the California General Corporation law.
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Article 7.
RECORDS AND REPORTS
Section 7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER.
The corporation shall keep at its principal executive office, or
at the office of its transfer agent or registrar, if either be
appointed and as determined by resolution of the board of
directors, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of shares
hold by each shareholder.
A shareholder or shareholders of the corporation holding
at least five percent (5%) in the aggregate of the outstanding
voting shares of the corporation may (i) inspect and copy the
records of shareholders' names and addresses and shareholdings
during usual business hours upon five days prior written demand
upon the corporation, and/or (ii) obtain from the transfer agent
of the corporation, upon written demand and upon the tender of
such transfer agent's usual charges for such list, a list of the
shareholders' names and addresses, who are entitled to vote for
the election of directors, and their shareholdings, as of the
most recent record date for which such list has been compiled or
as of a date specified by the shareholder subsequent to the date
of demand. Such list shall be made available by the transfer
agent on or before the later of five (5) days after the demand is
received or the date specified therein as the date as of which
the list is to be compiled. The record of shareholders shall
also be open to inspection upon the written demand of any
shareholder or holder of a voting trust certificate, at any time
during usual business hours, for a purpose reasonably related to
such holder's interests as a shareholder or as the holder of a
voting trust certificate. Any inspection and copying under this
Section may be made in person or by an agent or attorney of the
shareholder or holder of a voting trust certificate making such
demand.
Section 7.2 MAINTENANCE AND INSPECTION OF BYLAWS. The
corporation shall keep at its principal executive office, or if
its principal executive office is not in the State of California
at its principal business office in this state, the original or a
copy of the bylaws an amended to date, which shall be open to
inspection by the shareholders at all reasonable times during
office hours. If the principal executive office of the
corporation is outside this State and the corporation has no
principal business office in this state, the Secretary shall,
upon the written request of any shareholder, furnish to such
shareholder a copy of the bylaws as amended to date.
Page 46 of 161 <PAGE>
Section 7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE
RECORDS. The accounting books and records and minutes of
proceedings of the shareholders and the board of directors and
any committee or committees of the board of directors shall be
kept at such place or places designated by the board of
directors, or, in the absence of such designation, at the
principal executive office of the corporation. The minutes shall
be kept in written form and the accounting books and records
shall be kept either in written form or in any other form capable
of being converted into written form. Such minutes and
accounting books and records shall be open to inspection upon the
written demand of any shareholder or holder of a voting trust
certificate, at any reasonable time during usual business hours,
for a purpose reasonably related to such holder's interests as a
shareholder or as the holder of a voting trust certificate. Such
inspection may be made in person or by an agent or attorney, and
shall include the right to copy and make extracts. The foregoing
rights of inspection shall extend to the records of each
subsidiary of the corporation.
Section 7.4 INSPECTION BY DIRECTORS. Every director
shall have the absolute right at any reasonable time to inspect
all books, records, and documents of every kind and.the physical
properties of the corporation and each of its subsidiary
corporations. This inspection by a director may be made in
person or by an agent or attorney and the right of inspection
includes the right to copy and make extracts of documents.
Section 7.5 ANNUAL REPORT TO SHAREHOLDERS. Provided the
corporation has one hundred (100) shareholders or less, the
annual report to shareholders referred to in section 1501 of the
General Corporation Law is expressly dispensed with, but nothing
herein shall be interpreted as prohibiting the board of directors
from issuing annual or other periodic reports to the shareholders
of the corporations they deem appropriate. Should the
corporation have one hundred (100) shareholders or more, such
annual report must big furnished not later than one hundred
twenty (120) days after the end of each fiscal year.
Section 7.6 FINANCIAL STATEMENTS. A copy of any annual
financial statement and any income statement of the corporation
for each quarterly period of each fiscal year, and any
accompanying balance short of the corporation as of the and of
each such period, that has been prepared by the corporation shall
be kept on file in the principal executive office of the
corporation for twelve (12) months and each such statement shall
be exhibited at all reasonable times to any shareholder demanding
an examination of any such statement or a copy shall be mailed to
any such shareholder.
If no annual report for the last fiscal year has been sent
to shareholders, the corporation shall, upon the written request
of any shareholder made more than 120 days after the close of
Page 47 of 161 <PAGE>
such fiscal year, deliver or mail to such shareholder, within
thirty (30) days after such request a balance sheet as of the end
of such fiscal year and an income statement and statement of
changes in financial position for such fiscal year.
If a shareholder or shareholders holding at least five
percent (5%) of the outstanding shares of any class of stock of
the corporation make a written request to the corporation for an
income statement of the corporation for the three-month, six-
month or nine-month period of the then current fiscal year ended
more than thirty (30) days prior to the date of the request and a
balance sheet of the corporation as of the end of such period
and, in addition, if no annual report for the last fiscal year
has boon sent to shareholders, a balance sheet as of the end of
such fiscal year and an income statement and statement of changes
in financial position for such fiscal year, then, the chief
financial officer shall cause such statements to be prepared, if
not already prepared, and shall deliver personally or mail such
statement or statements to the person making the request within
thirty (30) days after the receipt of such request.
The income statements and balance shoots referred to in
this section shall be accompanied by the report thereon, if any,
of any independent accountants engaged by the corporation or the
certificate of an authorized officer of the corporation that such
financial statements wore prepared without audit from the books
and records of the corporation.
Section 7.7 ANNUAL STATEMENT OF GENERAL INFORMATION. The
corporation shall file annually with the Secretary of State of
the State of California, on the prescribed form, a statement
setting forth the names and complete business or residence
addresses of all incumbent directors, the number of vacancies on
the board of directors, if any, the names and complete business
or residence addresses of the chief executive officer, secretary
and chief financial officer, the street address of its principal
executive office or principal business office in this state and
the general type of business constituting the principal business
activity of the corporation, together with a designation of the
agent of the corporation for the purpose of service of process,
all in compliance with Section 1502 of the Corporations Code of
California.
Article 8.
GENERAL CORPORATE MATTERS
Section 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE
AND VOTING. For purposes of determining the shareholders
entitled to receive payment of any dividend or other distribution
or allotment of any rights or entitled to exercise any rights in
Page 48 of 161 <PAGE>
respect of any other lawful action (other than action by
shareholders by written consent without a meeting), the board of
directors may fix, in advance, a record date, which shall not be
more than sixty (60) days prior to any such action, and in such
case only shareholders of record on the date so fixed are
entitled.to receive the dividend, distribution or allotment of
rights or to exercise the rights, an the case may be,
notwithstanding any transfer of any shares on the books of the
corporation after the record date fixed an aforesaid, except as
otherwise provided in the California General Corporation Law.
If the board of directors does not so fix a record date,
the record date for determining shareholders for any such purpose
shall be at the close of business on the day on which the board
adopts the resolution relating thereto, or the sixtieth (60th)
day prior to the date of such action, whichever is later.
Section 8.2 CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS.
All checks, drafts or other orders for payment of money, notes or
other evidences of indebtedness, issued in the name of or payable
to the corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be
determined by resolution of the Board of Directors.
Section 8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW
EXECUTED. The board of directors, except as otherwise provided
in these bylaws, may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in
the name of and on behalf of the corporation, and such authority
may be general or confined to specific instances; and, unless so
authorized or ratified by the board of directors or within the
agency power of an officer, no officer, agent or employee shall
have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit or to render it
liable for any purpose or for any amount.
Section 8.4 CERTIFICATES FOR SHARES. A certificate or
certificates for shares of the capital stock of the corporation
shall be issued to each shareholder when any such shares are
fully paid, and the board of directors may authorize the issuance
of certificates for shares as partly paid provided that such
certificates shall state the amount of the consideration to be
paid therefor and the amount paid thereon. All certificates
shall be signed in the name of the corporation by the chairman of
the board or vice chairman of the board or the president or a
vice president and by the chief financial officer or an assistant
treasurer or the secretary or any assistant secretary, certifying
the number of shares and the class or series of shares owned by
the shareholder. Any or all of the signatures on the certificate
may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has boon
placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it
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may be issued by the corporation with the same affect as if such
person were an officer, transfer agent or registrar at the date
of issue.
Section 8.5 LOST CERTIFICATES. Except as hereinafter in
this Section provided, no new certificates for shares shall be
issued in lieu of an old certificate unless the latter is
surrendered to the corporation and cancelled at the same time.
The board of directors may in case any share certificate or
certificate for any other security is lost, stolen or destroyed,
authorize the issuance of a now certificate in lieu thereof, upon
such terms and conditions as the board may require including
provision for indemnification of the corporation secured by a
bond or other adequate security sufficient to protect the
corporation against any claim that may be made against it,
including any expense or liability, on account of the alleged
loss, theft or destruction of such certificate or the issuance of
such now certificate.
Section 8.6 REPRESENTATION OF SHARES OF OTHER
CORPORATIONS. The chairman of the board, the president, or any
vice president, or any other person authorized by resolution of
the board of directors by any of the foregoing designated
officers, is authorized to vote on behalf of the corporation any
and all shares of any other corporation or corporations, foreign
or domestic, standing in the name of the corporation. The
authority herein granted to said officers to vote or represent on
behalf of the corporation any and all shares hold by the
corporation in any other corporation or corporations may be
exercised by any such officer in person or by any person
authorized to do so by proxy duly executed by said officer.
Section 8.7 CONSTRUCTION AND DEFINITIONS. Unless the
context requires otherwise, the general provisions, rules of
construction, and definitions in the California General
Corporation Law shall govern the construction of these bylaws.
Without limiting the generality of the foregoing, the singular
number includes the plural, the plural number includes the
singular, and the term "Person" includes both a corporation and a
natural person.
Article 9.
AMENDMENTS
Section 9.1 AMENDMENT BY SHAREHOLDERS. Now bylaws may be
adopted or those bylaws may be amended or repealed by the vote or
written consent of holders of a majority of the outstanding
shares entitled to vote; provided, however, that if the articles
of incorporation of the corporation set forth the number of
authorized directors of the corporation, the authorized number of
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directors may be changed only by an amendment of the articles of
incorporation.
Section 9.2 AMENDMENT BY DIRECTORS. Subject to the
rights of the shareholders as provided in Section 9.1 of this
Article IX, bylaws, other than a bylaw or an amendment thereof
changing the authorized number of directors, may be adopted,
amended or repeated by the board of directors.
CERTIFICATE
-----------
I, the undersigned, Secretary of Xscribe Corporation, do
hereby certify that the foregoing is a complete, true and correct
copy of the amended and restated bylaws of tho Corporation duly
adopted by the Board of Directors of said Corporation at a
Meeting duly and regularly called and hold on May 14, 1987 at
which a quorum was present and acting throughout and that said
bylaws have not been amended, rescinded, annulled or revoked but
are still in full force and effect.
Date: June 12, 1987 /s/ Kirk A. Mitchell
----------------------------
Kirk A. Mitchell, Secretary
Page 51 of 161 <PAGE>
EXHIBIT 10.11
EXECUTIVE EMPLOYMENT AGREEMENT
______________________________
This Employment Agreement ("Agreement") is made as of this 20th
day of December, 1988 by and between Xscribe Corporation, a
California corporation ("Xscribe" or the "Company"), and Suren G.
Dutia, an individual ("Mr. Dutia").
The parties agree as follows:
1. POSITION AND DUTIES. Effective January 2, 1989, Mr.
Dutia shall be appointed the President and Chief Executive
Officer of Xscribe and a member of its Board of Directors.
During the Term, Mr. Dutia shall have such responsibilities,
duties and authority as are reasonably accorded to and expected
of a president and chief executive officer and as may from time
to time be prescribed by or pursuant to the Company's Bylaws.
2. TERM OF EMPLOYMENT. The term of Mr. Dutia's
employment (the "Term") shall commence on the date set forth
above and shall continue until January 1, 1991, unless further
extended or sooner terminated as hereinafter provided.
3. COMPENSATION AND BENEFITS. During the Term, Xscribe
shall pay or provide to Mr. Dutia the following compensation and
benefits:
a. SALARY. Xscribe shall pay to Mr. Dutia a base
salary ("Base Salary") of no less than $140,000 per year, payable
bi-weekly.
b. PERFORMANCE REVIEW AND BONUS. The Board of
Directors shall review Mr. Dutia's performance as often as the
Board of Directors deems appropriate, but not less than once
every twelve months. In connection with each such annual review,
the Board of Directors shall consider whether to award him bonus
compensation, in addition to the Base Salary, based on his
performance during the preceding year. Whether a bonus is
awarded and the amount of any bonus shall be in the sole
discretion of the Board of Directors.
c. STOCK OPTION. Xscribe grants to Mr. Dutia an
option to acquire up to 200,000 shares of common stock of
Xscribe.
(1) The exercise price per share shall be
$1.25, the fair market value of Xscribe stock on the date hereof.
(2) The option shall become exercisable as to
66,667 shares on January 2, 1990, as to 66,667 shares on January
Page 52 of 161 <PAGE>
2, 1991, and as to 66,666 on January 2, 1992, in each case
provided Mr. Dutia is employed by Xscribe on such date; provided,
however, the option shall specify that it becomes exercisable,
regardless of whether it has otherwise become exercisable in
accordance with the foregoing schedule, in the event of any sale,
exchange or other disposition of all or substantially all the
assets of the Company; any merger or consolidation of the Company
with or into another corporation in which shareholders of Xscribe
immediately before such merger or consolidation do not hold at
least a majority of the total voting power of the surviving
corporation; or the acquisition of a majority of the outstanding
common shares, directly or indirectly, by one corporation or
other person.
(3) The option shall have other terms and
conditions the same as those contained in agreements entered into
pursuant to the Company's 1983 Common Stock Option Plan ("1983
Plan") and as are not inconsistent with the foregoing provisions.
d. AUTOMOBILE. An automobile allowance of $500 per
month, beginning with acquisition of the automobile, shall be
provided to Mr. Dutia. Expenses related to the use of such
automobile, whether or not in the course of Company business,
shall be the sole responsibility of Mr. Dutia; provided, however,
a car phone shall be provided to Mr. Dutia and he shall be
reimbursed upon substantiation in accordance with Xscribe policy
for variable costs incurred in connection with use of the car
phone on Company business.
e. RELOCATION PACKAGE. In connection with
Mr. Dutia's relocation from Burlington, Massachusetts, and his
present employment to San Diego, California, and his employment
pursuant to this Agreement:
(1) In lieu of any payment or reimbursement to
Mr. Dutia for any and all expenses incurred in (i) moving his
household goods and personal effects to the San Diego area and
(ii) traveling (including meals and lodging) from his current
residence to his new residence in San Diego in connection with
moving his household goods and personal effects, Xscribe (a)
shall pay to Mr. Dutia the sum of $10,000 and (b) shall pay or
reimburse to Mr. Dutia the costs of one-and-one-half round trips
by air between San Diego, California, and Burlington,
Massachusetts.
(2) Xscribe shall pay or reimburse Mr. Dutia
for the 4-1/2% real estate broker's commission and closing costs
associated with disposition of Mr. Dutia's current residence.
The total amount of such payments and reimbursements shall not
exceed $22,000. Mr. Dutia shall provide copies of the commission
agreement and closing statements relating to payment of the
commission closing costs.
Page 53 of 161 <PAGE>
(3) For a period ending no later than March 31,
1989, Xscribe shall pay or reimburse Mr. Dutia for expenses of
lodging while occupying temporary quarters in San Diego and auto
rental until he is able to acquire an automobile. The total
amount of such payments and reimbursements shall not exceed
$7,500.
(4) During the period ending June 30, 1989,
Xscribe shall permit Mr. Dutia to travel to Burlington,
Massachusetts, or other business locations of his current
employer to the extent reasonably necessary in order to wind up
affairs for which Mr. Dutia was responsible on behalf of his
current employer; provided, such travel shall be at the expense
of his current employer and shall not prevent or unreasonably
interfere with the performance of Mr. Dutia's duties under this
Agreement.
f. VACATION AND SICK LEAVE. Mr. Dutia shall be
entitled to paid vacation and to all paid holidays and personal
days afforded by the Company from time to time to its executives
generally.
g. SERVICES FURNISHED. Xscribe shall furnish Mr.
Dutia with office space, stenographic assistance and such other
facilities and administrative support as shall be necessary and
suitable to Mr. Dutia's position and adequate for the performance
of his duties under this Agreement.
h. OTHER BENEFITS. Mr. Dutia shall be entitled to
participate in all employee benefit plans and arrangements,
(including the reimbursement of expenses incurred in the course
of carrying out duties as an executive or employee) made
available by the Company from time to time during the Term to the
Company's executives or employees generally, subject to and on a
basis consistent with the terms, conditions and overall
administration of such plans and arrangements.
i. WITHHOLDING. Xscribe is authorized to withhold
from any compensation or other amounts as may be owed by Xscribe
to Mr. Dutia from time to time such amounts as Xscribe is
required by law so to withhold or which at the time payment by
Xscribe is required Mr. Dutia owes to Xscribe.
4. TERMINATION. The Term shall cease only under the
following circumstances:
a. DEATH OR DISABILITY. The Term shall
automatically terminate upon the disability (unless otherwise
agreed in writing by Xscribe and Mr. Dutia) and upon the death of
Mr. Dutia. Disability shall mean a physical or mental disability
of Mr. Dutia which is reasonably likely to continue for a period
of at least thirty days and which would prevent him from
Page 54 of 161 <PAGE>
performing his duties under this Agreement in all substantial
respects during such period.
b. TERMINATION BY XSCRIBE WITHOUT CAUSE. Xscribe
shall be entitled to terminate Mr. Dutia's employment under this
Agreement without cause; provided, however, Xscribe shall
continue to pay the Base Salary and health insurance costs to Mr.
Dutia during the remainder of the Term.
c. TERMINATION BY XSCRIBE WITH CAUSE. Xscribe
shall be entitled to terminate Mr. Dutia's employment under this
Agreement for cause, in which case neither Base Salary nor other
compensation or benefits shall be payable to Mr. Dutia after such
termination. "Cause" means (i) gross negligence in the
performance or nonperformance of any material responsibilities to
Xscribe; (ii) the commission of any material criminal act or
fraud with respect to the Company or which may affect adversely
the reputation of the Company; (iii) dishonesty; (iv) gross
misconduct; or (v) violation of a material condition of
employment by the Company if such violation continues for ten
days after notice by Xscribe to Mr. Dutia specifying the
violation. The fact Xscribe may not terminate such employment
when it has cause shall not constitute waiver of Xscribe's rights
to terminate Mr. Dutia at a later time pursuant to this
Agreement.
d. TERMINATION BY MR. DUTIA. Mr. Dutia shall be
entitled to terminate his employment under this Agreement at any
time upon 30 days' prior written notice to Xscribe, in which
event Xscribe shall have no further obligations under this
Agreement.
5. CONFIDENTIALITY, EXCLUSIVITY, AND PROHIBITION AGAINST
SOLICITATION OF EMPLOYEES. At the time this Agreement is signed,
Mr. Dutia also shall execute an Agreement of Confidentiality in
the form of Exhibit "A" and such other documents and instruments
as Xscribe requires new executives and employees generally to
execute.
6. MISCELLANEOUS.
a. ARBITRATION. Any dispute or controversy between
the parties hereto involving the construction or application of
any terms, covenants or conditions of this Agreement, or any
claim arising out of or relating to this Agreement, or any claim
arising out of or relating to Mr. Dutia's employment by Xscribe
that is not resolved within ten (10) days by the parties shall be
settled by arbitration in San Diego, California in accordance
with the rules of the American Arbitration Association then in
effect, and judgment upon the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof. Xscribe
and Mr. Dutia agree that the arbitrator(s) shall have no
authority to award punitive or exemplary damages. Any decision
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of the arbitrators shall be final and binding upon the parties.
Either party may request that the arbitrator(s) submit written
findings of fact and conclusions of law.
b. AMENDMENT. This agreement shall not be
released, discharged, changed or modified in any manner, except
by an instrument signed by the party or parties to be bound.
c. CONTROLLING LAW. This Agreement shall be
controlled and interpreted pursuant to California law (excluding
choice or conflict of law provisions).
d. ENTIRE AGREEMENT. This Agreement contains the
entire agreement and understanding between the parties as to the
subject matter hereof, and supersedes all contemporaneous
agreements (whether written or oral) and commitments in respect
thereto.
e. NOTICES. Any notices required or permitted to
be sent under this Agreement shall be delivered by hand or mailed
by United States registered or certified mail, return receipt
requested, and addressed as follows:
If to Xscribe:
Xscribe Corporation
6160 Cornerstone Court East
San Diego, California 92121
Attention:_________________________
with a copy to:
Sheppard, Mullin, Richter & Hampton
701 B Street, 10th Floor
San Diego, California 92101
Attention: John R. Bonn
If to Mr. Dutia:
___________________________________
___________________________________
___________________________________
Either party may change its address for receiving notices by
giving notice to the other party in the manner prescribed above.
f. CAPTIONS. The headings and captions to sections
and paragraphs of this Agreement are for convenience of reference
Page 56 of 161 <PAGE>
only and shall not constitute a part of the Agreement nor be used
in its construction or interpretation.
g. SEVERABILITY. The provisions of this Agreement
are severable. Should any provision or application of this
Agreement be held invalid, the invalidity shall not affect other
provisions or applications which can be given effect without the
invalid provision or application.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first set forth above.
XSCRIBE CORPORATION, a California
corporation
By: /s/_____________________
Its: /s/____________________
/s/ Suren G. Dutia
----------------------------
Suren G. Dutia
Page 57 of 161 <PAGE>
EXHIBIT 10.30
IMPERIAL BANK
Member FDIC
SECURITY AND LOAN AGREEMENT
---------------------------
(ACCOUNTS RECEIVABLE)
This Agreement is entered into between XSCRIBE CORPORATION, a -
------------------------ corporation (herein called "Borrower")
and IMPERIAL BANK (herein called "Bank").
1. Bank hereby commits, subject to all the terms and
conditions of this Agreement and prior to the termination
of its commitment as hereinafter provided, to make loans
to Borrower from time to time in such amounts as may be
determined by Bank up to, but not exceeding in the
aggregate unpaid principal balance, the following
Borrowing Base: 80.000% of Eligible Accounts and in no
event more than $1,000,000.00
2. The amount of each loan made by Bank to Borrower hereunder
shall be debited to the loan ledger account of Borrower
maintained by Bank (herein called "Loan Account") and Bank
shall credit the Loan Account with all loan repayments
made by Borrower. Borrower promises to pay Bank (a) the
unpaid balance of Borrower's Loan Account on demand and
(b) on or before the tenth day of each month, interest on
the average daily unpaid balance of the Loan Account
during the immediately preceding month at the rate of One
and 250/1000ths percent (1.250%) per annum in excess of
the rate of interest which Bank has announced as its prime
lending rate ("Prime Rate") which shall vary concurrently
with any change in such Prime Rate. Interest shall be
computed at the above rate on the basis of the actual
number of days during which the principal balance of the
loan account is outstanding divided by 360, which shall
for interest computation purposes be considered one year.
Bank at its option may demand payment of any or all of the
amount due under the Loan Account including accrued but
unpaid interest at any time. Such notice may be given
verbally or in writing and should be effective upon
receipt by Borrower. The amount of interest payable each
month by Borrower shall not be less than a minimum monthly
charge of $250.00. Bank is hereby authorized to charge
Borrower s deposit account(s) with Bank for all sums due
Bank under this Agreement.
3. Requests for loans hereunder shall be in writing duly
executed by Borrower in a form satisfactory to Bank and
shall contain a certification setting forth the matters
referred to in Section 1, which shall disclose that
Page 58 of 161 <PAGE>
Borrower is entitled to the amount of loan being
requested.
4. As used in this Agreement, the following terms shall have
the following meanings:
A. "Accounts" means any right to payment for goods sold
or leased, or to be sold or to be leased, or for
services rendered or to be rendered no matter how
evidenced, including accounts receivable, contract
rights, chattel paper, instruments, purchase orders,
notes, drafts, acceptances, general intangibles and
other forms of obligations and receivables.
B. "Collateral" means any and all personal property of
Borrower which is assigned or hereafter is assigned
to Bank as security or in which Bank now has or
hereafter acquires a security interest.
C. "Eligible Accounts" means all of Borrower s Accounts
excluding, however, (1) all Accounts under which
payment is not received within 90 days from any
invoice date, (2) all Accounts against which the
account debtor or any other person obligated to make
payment thereon asserts any defense, offset,
counterclaim or other right to avoid or reduce the
liability represented by the Account and (3) any
Accounts if the account debtor or any other person
liable in connection therewith is insolvent, subject
to bankruptcy or receivership proceedings or has made
an assignment for the benefit of creditors or whose
credit standing is unacceptable to Bank and Bank has
so notified Borrower. Eligible Accounts shall only
include such accounts as Bank in its sole discretion
shall determine are eligible from time to time.
5. Borrower hereby assigns to Bank all Borrower's present and
future Accounts, including all proceeds due thereunder,
all guaranties and security therefor, and hereby grants to
Bank a continuing security interest in all moneys in the
Collateral Account referred to in Section 6 hereof, as
security for any and all obligations of Borrower to Bank,
whether now owing or hereafter incurred and whether
direct, indirect, absolute or contingent. So long as
Borrower is indebted to Bank or Bank is committed to
extend credit to Borrower, Borrower will execute and
deliver to Bank such assignments, including Bank's
standard forms of Specific or General Assignment covering
Individual Accounts, notices, financing statements, and
other documents and papers as Bank may require in order to
affirm, effectuate or further assure the assignment to
Bank of the Collateral or to give any third party,
Page 59 of 161 <PAGE>
including the account debtors obligated on the Accounts,
notice of Bank's interest in the Collateral.
6. Until Bank exercises its rights to collect the Accounts
pursuant to paragraph 10, Borrower will collect with
diligence all Borrower s Accounts, provided that no legal
action shall be maintained thereon or in connection
therewith without Bank s prior written consent. Any
collection of Accounts by Borrower, whether in the form of
cash, checks, notes, or other instruments for the payment
of money (properly endorsed or assigned where required to
enable Bank to collect same), shall be in trust for Bank,
and Borrower shall keep all such collections separate and
apart from all other funds and property so as to be
capable of identification as the property of Bank and
deliver said collections daily to Bank in the identical
form received. The proceeds of such collections when
received by Bank may be applied by Bank directly to the
payment of Borrower s Loan Account or any other obligation
secured hereby. Any credit given by Bank upon receipt of
said proceeds shall be conditional credit subject to
collection. Returned items at Bank s option may be
charged to Borrower s general account. All collections of
the Accounts shall be set forth on an itemized schedule,
showing the name of the account debtor, the amount of each
payment and such other information as Bank may request.
7. Until Bank exercises its rights to collect the Accounts
pursuant to paragraph 10, Borrower may continue its
present policies with respect to returned merchandise and
adjustments. However, Borrower shall immediately notify
Bank of all cases involving returns, repossessions, and
loss or damage of or to merchandise represented by the
Accounts and of any credits, adjustments or disputes
arising in connection with the goods or services
represented by the Accounts and, in any of such events,
Borrower will immediately pay to Bank from its own funds
(and not from the proceeds of Accounts or inventory) for
application to Borrower s Loan Account or any other
obligation secured hereby the amount of any credit for
such returned or repossessed merchandise and adjustments
made to any of the Accounts.
8. Borrower represents and warrants to Bank: (1) If Borrower
is a corporation, that Borrower is duly organized and
existing in the State of its incorporation and the
execution, delivery and performance hereof are within
Borrower's corporate powers, have been duly authorized and
are not in conflict with law or the terms of any charter,
by-law or other incorporation papers, or of any indenture,
agreement or undertaking to which Borrower is a party or
by which Borrower is found or affected; (ii) Borrower is,
or at the time the Collateral becomes subject to Bank s
Page 60 of 161 <PAGE>
security interest will be, the true and lawful owner of
and has, or at the time the Collateral becomes subject to
Bank s security interest will have, good and clear title
to the Collateral, subject only to Bank's rights therein;
(iii) Each Account is, or at the time the Account comes
into existence will be, a true and correct statement of a
bona fide indebtedness incurred by the debtor named
therein in the amount of the Account for either
merchandise sold or delivered (or being held subject to
Borrower s delivery instructions) to, or services
rendered, performed and accepted by, the account debtor;
(iv) That there are or will be no defenses, counterclaims,
or setoffs which may be asserted against the Accounts; and
(v) any and all financial information, including
information relating to the Collateral, submitted by
Borrower to Bank, whether previously or in the future, is
or will be true and correct.
9. Borrower will: (i) Furnish Bank from time to time such
financial statements and information as Bank may
reasonably request and inform Bank immediately upon the
occurrence of a material adverse change therein;
(ii) Furnish Bank periodically, in such form and detail
and at such times as Bank may require, statements showing
aging and reconciliation of the Accounts and collections
thereon; (iii) Permit representatives of Bank to inspect
the Borrower s books and records relating to the
Collateral and make extracts therefrom at any reasonable
time and to arrange for verification of the Accounts,
under reasonable procedures, acceptable to Bank, directly
with the account debtors or otherwise at Borrower's
expense; (iv) Promptly notify Bank of any attachment or
other legal process levied against any of the Collateral
and any information received by Borrower relative in the
Collateral, including the Accounts, the account debtors or
other persons obligated in connection therewith, which may
in any way affect the value of the Collateral or the
rights and remedies of Bank in respect thereto;
(v) Reimburse Bank upon demand for any and all legal
costs, including reasonable attorneys' fees, and other
expense incurred in collecting any sums payable by
Borrower under Borrower s Loan Account or any other
obligation secured hereby, enforcing any term or provision
of this Security Agreement or otherwise or in the
checking, handling and collection of the Collateral and
the preparation and enforcement of any agreement relating
thereto; (vi) Notify Bank of each location and of each
office of Borrower at which records of Borrower relating
to the Accounts are kept; (vii) Provide, maintain and
deliver to Bank policies insuring the Collateral against
loss or damage by such risks and in such amounts, forms
and companies as Bank may require and with loss payable
solely to Bank, and, in the event Bank takes possession of
Page 61 of 161 <PAGE>
the Collateral, the insurance policy or policies and any
unearned or returned premium thereon shall at the option
of Bank become the sole property of Bank, such policies
and the proceeds of any other insurance covering or in any
way relating to the Collateral, whether now in existence
or hereafter obtained, being hereby assigned to Bank; and
(viii) in the event the unpaid balance of Borrower s Loan
Account shall exceed the maximum amount of outstanding
loans to which Borrower is entitled under Section 1
hereof, Borrower shall immediately pay to Bank, from its
own funds and not from the proceeds of Collateral, for
credit to Borrower s Loan Account the amount of such
excess.
10. Bank may at any time, without prior notice to Borrower,
collect the Accounts and may give notice of assignment to
any and all account debtors, and Borrower does hereby
make, constitute and appoint Bank its irrevocable, true
and lawful attorney with power to receive, open and
dispose of all mail addressed to Borrower, to endorse the
name of Borrower upon any checks or other evidences of
payment that may come into the possession of Bank upon the
Accounts to endorse the name of the undersigned upon any
document or instrument relating to the Collateral; in its
name or otherwise, to demand, sue for, collect and give
acquittances for any and all moneys due or to become due
upon the Accounts; to compromise, prosecute or defend any
action, claim or proceeding with respect thereto; and to
do any and all things necessary and proper to carry out
the purposes herein contemplated.
11. Until Borrower s Loan Account and all other obligations
secured hereby shall have been repaid in full, Borrower
shall not sell, dispose of or grant a security interest in
any of the Collateral other than to Bank, or execute any
financing statements covering the Collateral in favor of
any secured party or person other than Bank.
12. Should: (i) Default be made in the payment of any
obligation, or breach be made in any warranty, statement,
promise, term or condition, contained herein or hereby
secured; (ii) Any statement or representation made for the
purpose of obtaining credit hereunder prove false;
(iii) Bank deem the Collateral inadequate or unsafe or in
danger of misuse; (iv) Borrower become insolvent or make
an assignment for the benefit of creditors; or (v) Any
proceeding be commended by or against Borrower under any
bankruptcy, reorganization, arrangement, readjustment of
debt or moratorium law or statute; then in any such event,
Bank may, at its option and without demand first made and
without notice to Borrower, do any one or more of the
following: (a) Terminate its obligation to make loans to
Borrower as provided in Section 1 hereof; (b) Declare all
Page 62 of 161 <PAGE>
sums secured hereby immediately due and payable;
(c) Immediately take possession of the Collateral wherever
it may be found, using all necessary force so to do, or
require Borrower to assemble the Collateral and make it
available to Bank at a place designated by Bank which is
reasonably convenient to Borrower and Bank, and Borrower
waives all claims for damages due to or arising from or
connected with any such taking; (d) Proceed in the
foreclosure of Bank s security interest and sale of the
Collateral in any manner permitted by law, or provided for
herein; (e) Sell, lease or otherwise dispose of the
Collateral at public or private sale, with or without
having the Collateral at the place of sale, and upon terms
and in such manner as Bank may determine, and Bank may
purchase same at any such sale; (f) Retain the Collateral
in full satisfaction of the obligations secured thereby;
(g) Exercise any remedies of a secured party under the
Uniform Commercial Code. Prior to any such disposition,
Bank may, at its option, cause any of the Collateral to be
repaired or reconditioned in such manner and to such
extent as Bank may deem advisable, and any sums expended
therefor by Bank shall be repaid by Borrower and secured
hereby. Bank shall have the right to enforce one or more
remedies hereunder successively or concurrently, and any
such action shall not estop or prevent Bank from pursuing
any further remedy which it may have hereunder or by law.
If a sufficient sum is not realized from any such
disposition of Collateral to pay all obligations secured
by this Security Agreement, Borrower hereby promises and
agrees to pay Bank any deficiency.
13. If any writ of attachment, garnishment, execution or other
legal process be issued against any property of Borrower,
or if any assessment for taxes against Borrower, other
than real property, is made by the Federal or State
government or any department thereof, the obligation of
Bank to make loans to Borrower as provided in Section 1
hereof shall immediately terminate and the unpaid balance
of the Loan Account, all other obligations secured hereby
and all other sums due hereunder shall immediately become
due and payable without demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery
receipts, reports and other types of documents and records
submitted to Bank in connection with the transactions
contemplated herein at any time subsequent to four months
from the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the
conditions set forth in any other security or other
agreement executed by Borrower, but each and every
condition hereof shall be in addition thereto.
Page 63 of 161 <PAGE>
*16. Additional Provisions: SEE "EXHIBIT A" ATTACHED
Executed this 17th day of June, 1996
IMPERIAL BANK XSCRIBE CORPORATION
-------------------------
(Name of Borrower)
By: /s/ Jed Harris By: /s/ Suren G. Dutia,
--------------------
RVP President/CEO
----------------- -------------
Title (Authorized Signature and Title)
By: -----------------------
(Authorized Signature and Title)
*If none, insert "None"
Page 64 of 161 <PAGE>
IMPERIAL BANK
Member FDIC
ITEMIZATION OF AMOUNT FINANCED
------------------------------
DISBURSEMENT INSTRUCTIONS
-------------------------
Name(s): XSCRIBE CORPORATION Date: June 17, 1996
$ paid to you directly by Cashiers Check No.
$ 805,000.00 credited to deposit account No. 11-059-147
when advances are requested
$ 195,000.00 paid on Loan(s) No. 11-1491-0003
$ amounts paid to Bank for:
Amounts paid to others on your behalf:
$ to Title Insurance Company
$ to Public Officials
$ to
$ to
$ to
$ to
$ 1,000,000.00 SUBTOTAL (NOTE AMOUNT)
LESS $ 0.00 Prepaid Finance Charge (Loan fee(s))
$ 1,000,000.00 TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also
serve as the authorization for Imperial Bank to disburse the loan
proceeds as stated above.
XSCRIBE CORPORATION
By /s/ Suren G. Dutia
---------------------- ---------------------------
Signature Signature
---------------------- ---------------------------
Signature Signature
Page 65 of 161 <PAGE>
"EXHIBIT A"
ADDENDUM TO SECURITY AND LOAN AGREEMENT
BETWEEN XSCRIBE CORPORATION AND
IMPERIAL BANK
DATED June 17, 1996
-------------
This Addendum is made and entered into as of JUNE 17, 1996,
between XSCRIBE CORPORATION ("Borrower") and IMPERIAL BANK
("Bank"). This Addendum amends and supplements the Security and
Loan Agreement. In the event of any inconsistency between the
terms herein and the terms of the Security and Loan Agreement,
the terms herein shall in all cases govern and control. All
capitalized terms herein, unless otherwise defined herein, shall
have the meaning set forth in the Security and Loan Agreement.
1. Any commitment of Bank, pursuant to the terms of the
Security and Loan Agreement, to make advances against Eligible
Accounts shall expire on August 15, 1997, subject to Bank's right
to renew said commitment in its sole discretion. Any such
renewal of the commitment shall not be binding upon Bank unless
it is in writing and signed by an officer of the Bank.
2. Borrower represents and warrants that:
a. LITIGATION. Except as already disclosed to the Bank
[CHANGE IS INITIALED], there is no litigation or other proceeding
pending or threatened against or affecting Borrower, and Borrower
is not in default with respect to any order, writ, injunction,
decree or demand of any court or other governmental or regulatory
authority.
b. FINANCIAL CONDITION. The balance sheet of Borrower of
March 31, 1996 and the related profit and loss statement on that
date, a copy of which has heretofore been delivered to Bank by
Borrower, and all other statements and data submitted in writing
by Borrower to Bank in connection with this request for credit
are true and correct, and said balance sheet and profit and loss
statement truly present the financial condition of Borrower as of
the date thereof and the results of the operations of Borrower
for the period covered thereby, and have been prepared in
accordance with generally accepted accounting principles on a
basis consistently maintained. Since such date, there have been
no materially adverse changes. Borrower has no knowledge of any
liabilities, contingent or otherwise, at such date not reflected
in said balance sheet, and Borrower has not entered into any
special commitments or substantial contracts which are not
reflected in said balance sheet, other than in the ordinary and
normal course of its business, which may have a materially
Page 66 of 161 <PAGE>
adverse effect upon its financial condition, operations or
business as now conducted.
c. TRADEMARKS, PATENTS. Borrower, as of the date hereof,
possesses all necessary trademarks, trade names, copyrights,
patents, patent rights, and licenses to conduct its business as
now operated, without any known conflict with valid trademarks,
trade names, copyrights, patents and license rights of others.
d. TAX STATUS. Borrower has no liability for any delinquent
state, local or federal taxes, and, if Borrower has contracted
with any government agency, Borrower has no liability for
renegotiation of profits.
3. Borrower agrees that so long as it is indebted to Bank, it
will not, without Bank's written consent:
a. TYPE OF BUSINESS. MANAGEMENT. Make any substantial
change in the character of its business; or make any change in
its executive management.
b. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness for borrowed moneys other than loans from
Bank except obligations now existing as shown in financial
statement dated March 31, 1996, excluding those being refinanced
by Bank; or sell or transfer, either with or without recourse,
any accounts or notes receivable or any moneys due to become due.
c. LIENS AND ENCUMBRANCES. Create, incur, assume any
mortgage, pledge, encumbrance, lien or charge of any kind
(including the charge upon property at any time purchased or
acquired under conditional sale or other title retention
agreement) upon any asset now owned or hereafter acquired by it,
other than liens for taxes not delinquent and liens in Bank's
favor.
d. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans
or advances to any person or other entity other than in the
ordinary and normal course of its business as now conducted or
make any investment in the securities of any person or other
entity other than the United States Government; or guarantee or
otherwise become liable upon the obligation of any person or
other entity, except by endorsement of negotiable instruments for
deposit or collection in the ordinary and normal course of its
business.
e. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION.
Purchase or otherwise acquire the assets or business of any
person or other entity; or liquidate, dissolve, merge or
consolidate, or commence any proceedings therefore; or sell any
assets except in the ordinary and normal course of its business
or fixed assets, or any property or other assets necessary for
the continuance of its business as now conducted, including
Page 67 of 161 <PAGE>
without limitation the selling of any property or other asset
accompanied by the leasing back of the same. The sale of any
subsidiary or division will cause the following to immediately be
done: (1) the Term Loan will be paid off in its entirety by
proceeds of sale; (2) the covenants contained herein will be
reset by Bank; (3) Borrower will provide pro forma balance
sheet(s) to Bank illustrating the effect(s) of said sale(s).
f. DIVIDENDS, STOCK PAYMENTS. Declare or pay any dividend
(other than dividends payable in common stock of Borrower) or
make any other distribution on any of its capital stock now
outstanding or hereafter issued, or purchase, redeem or retire
any of such stock.
4. Should there be a default under the Security and Loan
Agreement, the General Security Agreement or under the Note, all
obligations, loans and liabilities of Borrower to Bank, due or to
become due, whether now existing or hereafter arising, shall, at
the option of Bank, become immediately due and payable without
notice or demand, and Bank shall thereupon have the right to
exercise all of its default rights and remedies. The default
rate of interest shall be five percent per year in excess of the
rate otherwise charged. If any interest payment, principal
payment or principal balance payment due from Borrower is
delinquent ten or more days, Borrower agrees to pay Bank a late
charge in the amount of 5% of the payment so due and unpaid, in
addition to the payment; but nothing in this provision is to be
construed as any obligation on the part of Bank to accept payment
of any payment past due or less than the total unpaid principal
balance after maturity. All payments shall he applied first to
any late charges owing, then to interest and the remainder, if
any, to principal.
5. As a condition precedent to Bank's obligation to make any
advances to Borrower, Borrower shall, among other things, cause
continuing guarantees to be executed by Lexia Systems, Inc.,
Photomatrix Corporation, U.S. Transcan Technologies, Inc. and
Xscribe Imaging, Inc., each in the amount of $2,000,000, such
guarantees in form satisfactory to Bank.
6. In addition to the provisions in the Security and Loan
Agreement, Eligible Accounts shall only include such accounts as
Bank in its sole discretion shall determine are eligible from
time to time. "Eligible Accounts" shall also NOT include any of
the following:
a. Accounts with respect to which the account debtor is an
officer, director, shareholder, employee, subsidiary or affiliate
of Borrower.
b. Accounts with respect to which 25% or more of the account
debtor's total accounts or obligations outstanding to Borrower
are more than 90 days from invoice date.
Page 68 of 161 <PAGE>
c. Salesmen's accounts for promotional purposes.
d. For accounts representing more than 20% of total accounts
receivable, the balance in excess of the 20%. However, the Bank
may deem, at its sole discretion, the entire amount eligible.
e. Accounts with respect to international transactions unless
insured by an insurance company acceptable to the Bank or covered
by letters of credit issued or confirmed by a bank acceptable to
the Bank.
f. Credit balances greater than 90 days from invoice date.
g. U.S. Government receivables, unless formally assigned to
the Bank.
h. Accounts over 90 days from invoice date.
i. Accounts where the account debtor is a seller to borrower,
whereby a potential offset exists.
j. Consignment or guaranteed sales.
k. Contract receivables; bill and hold accounts.
7. All financial covenants and financial information
referenced herein shall be interpreted and prepared in accordance
with generally accepted accounting principles applied on a basis
consistent with previous years. Compliance with financial
covenants shall be calculated and monitored on a quarterly basis.
8. Borrower affirmatively covenants that so long as any
loans, obligations or liabilities remain outstanding or unpaid to
Bank, it will:
a. Have and maintain a minimum tangible net worth (meaning
the excess of all assets, over its liabilities, less subordinated
debt) of not less than $4,000,000.
b. Have and maintain a ratio of total liabilities to tangible
net worth of not greater than 1.50 to 1.0.
c. Have and maintain working capital of $3,000,000. Working
capital is defined as Current Assets minus Current Liabilities.
d. Have an maintain a Current Ratio of 1.5 to 1.0. Current
Ratio is defined as Current Assets divided by Current
Liabilities.
e. Maintain all significant bank accounts and banking
relationship with Bank.
Page 69 of 161 <PAGE>
f. Within 10 days from each month-end, deliver to Bank an
accounts receivable aging reconciled to the general ledger of
Borrower, a detailed accounts payable aging reconciled to the
Borrower's general ledger and setting forth the amount of any
book overdraft or the amount of checks issued but not sent. All
the foregoing will be in a form and with such detail as Bank may
request from time to time.
g. Within 30 days after the end of each month, deliver to
Bank a profit and loss statement and a balance sheet in form
satisfactory to Bank all certified by an officer of Borrower, and
a letter certifying compliance with all loan covenants signed by
the Chief Financial Officer of Borrower.
h. Within 120 days after the end of Borrower's fiscal year,
deliver to Bank the same financial statements as otherwise
provided monthly together with Changes in Financial Position
Statement, prepared on an audited basis by an independent
certified public accountant selected by Borrower, but acceptable
to Bank.
i. RIGHTS AND FACILITIES. Maintain and preserve all rights,
franchises and other authority adequate for the conduct of its
business; maintain its properties, equipment and facilities in
good order and repair; conduct its business or partnership,
maintain and preserve its existence.
j. INSURANCE. Maintain public liability, property damage and
workers compensation insurance and insurance on all its insurable
property against fire and other hazards with responsible
insurance carriers to the extent usually maintained by similar
businesses. Borrower shall provide evidence of property
insurance in amounts and types acceptable to the Bank. Bank to
be named as Loss Payee.
k. TAXES AND OTHER LIABILITIES. Pay and discharge, before
the same become delinquent and before penalties accrue thereon,
all taxes, assessments and governmental charges upon or against
it or any of its properties, and any of its other liabilities at
any time existing, except to the extent and so long as:
(a) The same are being contested in good faith and by
appropriate proceedings in such manner as not to
cause any materially adverse affect upon its
financial condition or the loss of any right of
redemption from any sale thereunder; and
(b) It shall have set aside on its books reserves
(segregated to the extent required by generally
accepted accounting practice) deemed by it adequate
with respect thereto.
Page 70 of 161 <PAGE>
l. RECORDS AND REPORTS. Maintain a standard and modern
system of accounting in accordance with generally accepted
accounting principles or a basis consistently maintained; permit
Bank's representatives to have access to, and to examine its
properties, books and records at all reasonable times.
9. The extensions of credit under the Security and Loan
Agreement shall be available as follows:
a. Up to $1,000,000 in direct advances
b. The outstanding balance of the existing Term Loan of
$812,500 shall be considered outstanding to Borrower for purposes
of calculation of availability under the Borrowing Base.
10. FEES AND INTERESTS:
a. The rate of interest applicable to the Line of Credit Loan
Account shall be 1.25% per year in excess of the rate of interest
which Bank has announced as its prime lending rate ("Prime Rate")
which shall vary concurrently with any change in such Prime Rate.
A non utilization fee of three quarters of one percent (0.75%)
shall be charged on the average daily unused portion of the line,
payable quarterly in arrears.
b. The rate of interest applicable to the Term Loan shall be
1.50% per year in excess of the rate of interest which Bank has
announced as its prime lending rate ("Prime Rate") which shall
vary concurrently with any change in such Prime Rate. A
documentation fee of $250 shall be due upon execution of
documents.
c. Interest shall be computed at the above rates on the basis
of the actual number of days during which the principal balance
of the loan or loan account is outstanding divided by 360, which
shall for interest computation purposes be considered one year.
11. MISCELLANEOUS PROVISIONS. Failure or Indulgence Not
Waiver. No failure or delay on the part of your Bank or any
holder or Notes Issued hereunder, in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise thereof or of any other
right, power or privilege. All rights and remedies existing
under this agreement or any not issued in connection with a loan
that your Bank may make hereunder, are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
Page 71 of 161 <PAGE>
12. This addendum is executed by and on behalf of the parties
as of the date first above written.
XSCRIBE CORPORATION "BORROWER"
By /s/ Suren G. Dutia
--------------------
President & CEO
--------------------
Title
June 21, '96
--------------------
Date
IMPERIAL BANK "BANK"
By /s/ Jed Harris
RVP
----------------------------------
Title
Page 72 of 161 <PAGE>
EXHIBIT 10.31
-------------
BELL & HOWELL LIMITED
---------------------
OEM PURCHASE AGREEMENT FOR PHOTOMATRIX SCANNERS
-----------------------------------------------
THIS AGREEMENT, dated 8th February 1996 between Bell &
-----------------
Howell Limited ("Buyer") having its principal place of business
at 33-35 Woodthorpe Road, Ashford, Middlesex, TW15 2RZ, England
and Photomatrix Limited having its principal place of Business at
5 Colne Way Business Centre, Brookside, Watford, Herts, WD2 4NE
("Seller") sets out the terms on which Buyer will buy and Seller
will sell the products listed herein.
WHEREAS
-------
(1) Seller imports into the Territory high performance
image scanners manufactured by its parent corporation Photomatrix
Corporation of Culver City, California.
(2) Seller wishes to procure the distribution of the
Products throughout the Territory.
(3) Buyer imports into the Territory (from its parent
Corporation Bell & Howell Inc of Chicago and from other
manufacturers) and distributes throughout the Territory a range
of image scanners not including scanners such as the Products and
Buyer has invested substantial funds in establishing a network of
distributors throughout the Territory supported by training,
sales support, service and maintenance personnel and substantial
advertising of the Bell & Howell brand.
(4) Buyer wishes to distribute the Products as part of
the Bell & Howell range of products in the Territory.
(5) The Products consist of complex scanning and paper
handling equipment, requiring expert installation and
configuration for the end users' environment and business system.
The effective sale of the Products will involve distributors in
maintaining staff with technical skill and substantial training
on the Products to install and configure and to provide pre-
sales and post-sales consultancy and support. Where practical,
distributors will normally have to purchase one of the Products
for demonstration purposes in addition to the appropriate spares
inventory and promotional and sales support materials and all
other necessary investments in order to distribute and support
the Products. Distributors in Buyer's distribution network will
be required by Buyer to invest in this staffing and training and
the appropriate equipment cost (in this Agreement together called
"the Distributor Qualification")
Page 73 of 161 <PAGE>
(6) The parties agree that the reputation of and market
for Products (whether sold as Bell and Howell products or
Photomatrix products) will be substantially prejudiced if
Products are sold without sufficient expert support as referred
to in recital (5) above.
(7) The market for the Products is such that it would not
be economic for Buyer or distributors in Buyer's distribution
network to acquire Distributor Qualification unless Seller agrees
to the provisions as to exclusivity contained in this Agreement.
THE PARTIES HERETO AGREE AS FOLLOWS:
------------------------------------
1. Definitions
-- -----------
In this Agreement and its Schedules the following terms
shall have the following meanings:.
Territory Buyer's "Europe" region, namely the area
designated with a red line on the attached plan.
Products The Products described in the Schedule and such
other ranges of high end image scanner as may be
sold by Seller in the Territory during the
continuance of this Agreement, together with
(where the context admits) all accessories and
spare parts for them.
Bell & Howell
Distributor The distributors listed in paragraph 6 of the
Schedule and such other distributors.
2. Commitment
-- ----------
2.1 Subject to the terms of this Agreement Buyer commits
to buy from Seller for resale Products in accordance with the
quantity, delivery, pricing, minimum purchase and payment details
set out in this Agreement and the Schedule. The minimum purchase
of Products in the first year (as defined below) will be 35 units
of the Products (but excluding accessories and spare parts),
including all those purchased by Buyer on or after 1st
September 1995.
2.2 Seller commits to sell to Buyer Products in
accordance with this Agreement and the Schedule and undertakes
that the Original Equipment Manufacturer rights of Buyer to
distribute the Products in the Territory shall be exclusive to
the following extent namely that Seller shall not market, sell or
distribute or permit to be marketed, sold or distributed for
resale the Products in the Territory other than by way of sales
which comply with all of the following, namely (a) are of
Page 74 of 161 <PAGE>
Products under the brand name "Photomatrix", and (b) are to
distributors who are not Bell & Howell Distributors, and (c) are
to distributors who possess the Distributor Qualification
2.3 In the event of Seller supplying direct to end users,
Seller will provide facilities equivalent to the Distributor
Qualification.
3. Products, spare parts and manuals
-- ---------------------------------
3.1 For the purpose of this Agreement, Products shall
mean certain scanner products and their accessories as specified
in the schedule hereto. Seller undertakes that Products supplied
to Buyer hereunder will:
3.1.1. conform to Seller's specifications as
published and revised from time, and
3.1.2 all operate at 220-230 voltage, and
3.1.3 conform with all relevant EU Product Standards
and bear the CE marking and have a Declaration of Conformity
supplied for each of the Products sold to Buyer, and
3.1.4 be inspected at Seller's premises prior to
delivery to Buyer so as to eliminate the delivery by Seller to
Buyer of any Products having visible defects or faults.
3.2 Buyer commits to use best efforts to buy from Seller
sufficient spare parts to service in accordance with Buyer's
service policies from time to time all Products resold by Bell &
Howell Distributors and installed with end users. The range of
spare parts will be such as Seller reasonably recommends from
time to time. Buyer will provide a monthly spares order for
delivery within 28 days after the date of order. Buyer shall
have the right to raise additional orders on Seller for spares
and designate them as "urgent" in which case Seller will use best
efforts to deliver such spares within 48 hours of order.
3.3 Seller shall forthwith upon each manual or other
technical or user support document being prepared by Seller
provide it to Buyer and Seller now authorises Buyer to copy
and/or translate such materials and to sell or distribute the
copies and translations for the duration of this Agreement and so
long after its termination as Buyer may require to do so in order
to support its customers or maintain Products.
4. Standard Terms and Conditions
-- -----------------------------
The Standard Terms and the Terms of Purchase annexed are
deemed to be incorporated in this Agreement and to apply to all
orders placed hereunder save as varied by or inconsistent with
the other terms of this Agreement and the Schedule.
Page 75 of 161 <PAGE>
5. Prices
-- ------
Seller undertakes not to vary the prices set out in the
Schedule during the first 90 days of the duration of this
Agreement. Thereafter Seller may, by giving Buyer 60 days
written notice, vary the pricing except for Buyer's orders
already placed by Buyer.
6. Payment
-- -------
Payment shall be due 60 days after delivery to Buyer's
premises.
7. Term
-- ----
7.1 Subject to the following provisions in this paragraph
7 this Agreement shall remain in force from the commencement date
specified in the Schedule until 30th June 1999 but so that in
this Agreement the expression "the first year" shall mean the
period from the commencement date until 30th June 1997, "the
second year" shall mean the period 1st July 1997 to 30th
June 1998 and "third year" shall mean the period 1st July 1998 to
30th June 1999.
7.2. At any time within the last 2 months of the first
year Buyer may provide a written commitment ("a minimum purchase
undertaking") to Seller to buy from Seller 40 units of the
Products (but excluding accessories and spare parts). If Buyer
does not serve such a minimum purchase undertaking prior to the
second year either Buyer or Seller may serve notice on the other
terminating this Agreement.
7.3. The provisions of Clause 7.2 shall apply again in
the 2 months prior to the end of the second year with the minimum
purchase undertaking being 40 units for the third year.
7.4. After the third year of this Agreement the Agreement
shall continue in force until terminated by either party by
serving written notice of termination to the other party at least
90 days in advance of the effective termination date.
8. Termination
-- -----------
8.1 In the event that Products are supplied to end users
by either party or the distribution network of either party
without facilities equivalent to the Distributor Qualification
being provided with the Products then the provisions of Clause 2
concerning minimum purchase and exclusivity shall cease to have
effect for the purposes of the then current year of the Agreement
and this Agreement (without such provisions of Clause 2) shall
continue in force (subject to earlier termination for different
cause) until the end of that year of the Agreement at which time
it will terminate.
Page 76 of 161 <PAGE>
8.2 In case either party shall breach or default in the
performance of any of the terms of this Agreement, unless
otherwise provided for the other party may give written notice of
such breach or default, and if the breaching or defaulting
party does not cure breach or default within 90 days after the
date of dispatch of the notice, the other party may terminate
this Agreement in writing with immediate effect.
8.3 Termination either under Clause 8.1 or 8.2 or under
Clause 7 or for any other cause shall be without prejudice to the
accrued rights of each party. Notwithstanding termination for
any cause all provisions of this Agreement expressed or intended
to continue in effect (including without limitation the
provisions for warranty and the supply by Seller of spares,
accessories and training requisite to fulfil Buyer's commitments
to customers) shall remain in full force and effect.
9. In the event that any provision of this Agreement is
declared by any judicial or other competent authority to be void
voidable illegal or otherwise unenforceable or indications of the
same are received by either of the parties from any relevant
competent authority or legal advice to such effect is received by
either of the parties and agreed by the legal advisors of the
other party the parties shall amend that provision in such
reasonable manner as achieves the intention of the parties
without illegality and in default of Agreement on such amendment
either party may by notice in writing to the other declare that
the provisions of Clause 2 concerning minimum purchase and
exclusivity shall cease to have effect for the purposes of the
then current year of the Agreement and this Agreement (without
such provisions of Clause 2) shall continue in force (subject to
earlier termination for different cause) until the end of that
year of the Agreement at which time it will terminate.
10. Governing Law
-- -------------
This Agreement shall be governed by the laws of England
and both parties submit to the jurisdiction of the Courts of
England.
IN WITNESS WHEREOF the parties have caused this Agreement
to be executed by their duly authorised representatives on the
date first above written.
For Seller /s/ Robert Burton For Buyer /s/ M.P. Muller
----------------- ---------------
Position Managing Position Managing Director
Director
Buyer Bell & Howell
Seller Photomatrix, Ltd. Ltd.
Page 77 of 161 <PAGE>
TERMS OF PURCHASE
-----------------
1. TERMS AND VARIATION
-- -------------------
This Order contains all the terms of purchase. Any waiver or
substitution of or exception or modification or addition to the
terms contained in this Order must, to be valid, be agreed in
writing between the Buyer and the Seller.
2. DOCUMENTS
-- ---------
The Seller shall:
1) clearly mark the outside of each consignment or package
with the Seller's name and full details of the destination
in accordance with the Order and include a Packing Note
stating the contents thereof.
2) on despatch of each consignment send to the Buyer at the
address for delivery of each of the Goods an Advice Note
specifying the means of transport, the weight, number or
volume and the point and date of despatch.
3) send to the Buyer detailed priced invoice in duplicate as
soon as is reasonably practicable after the despatch of
each consignment.
4) state on every such Packing Note, Advice Note,
Invoice or other document relating to the Order the
Order Number and Code Number (if any).
3. ACCEPTANCE
-- ----------
Delivery of any part of the Goods ordered hereunder constitutes
acceptance of all the terms of this Order without reservation
regardless of whether the Seller has signed the acknowledgement
sheet or not.
4. QUALITY AND DESCRIPTION
-- -----------------------
Subject to Clauses 10 and 11 the Goods shall:
(i) conform as to quantity, quality and description with the
particulars stated in the Order.
(ii) be of sound materials and workmanship.
(iii) be equal in all respects to the samples, patterns or
any technical description of the Goods contained or
referred to in the Order ("the Specification").
Page 78 of 161 <PAGE>
(iv) be capable of any standard of performance specified
in the Order.
(v) if the purpose for which they are required is indicated in
the Order either expressly or by implication or is
otherwise known to the Seller, be fit for that purpose.
5. DELIVERY
-- --------
(i) The Goods, properly packed and secured in such a manner as
to reach their destination in good condition (under normal
conditions of transport) shall be delivered by the Seller
at, or despatched for delivery to, the place or places and
in the manner specified in the Order or as subsequently
agreed in writing.
6. PASSING OF PROPERTY
-- -------------------
(i) The property in the Goods shall pass to the Buyer on
delivery without prejudice to any right of rejection which
may accrue to the Buyer under these terms.
7. TIME
-- ----
(a) The Seller shall deliver the Goods on the date and at the
place specified in the Order. Except with the written
consent of the Buyer the Seller shall not deliver the
Goods in advance of the delivery date. If as a result of
force majeure the Seller is unable to deliver the Goods on
the specified date then provided that the Buyer shall have
received written notice on or before the specified date of
such inability to deliver and shall have received back
from the Seller all things of value received by it from
the Buyer, the Buyer shall at its option either grant to
the Seller such extension of time for delivery as may be
reasonable or cancel this Order by written notice to the
Seller whereupon this Order shall terminate without
liability of either party to the other.
(b) If any delivery is made which is not in all respects in
accordance with the terms of sub-clause (a) above and the
other provisions of this Order, the Buyer reserves the
right within 14 days of such delivery to reject the Goods
so delivered and in addition, the Buyer may at its
election treat this Order as repudiated by the Seller and
cancel any outstanding deliveries hereunder without
prejudice to the Buyer's right to claim damages or to
enforce any other remedy provided by law.
(c) All costs incurred by the Buyer as a result of rejections
made under the provisions hereof shall be for the account
of the Seller.
Page 79 of 161 <PAGE>
(d) For the purposes of this Clause "force majeure" means an
Act of God, act or omission of a sovereign state, civil or
armed conflict.
8. CANCELLATION BY BUYER
-- ---------------------
Without prejudice to the Buyer's right to terminate the
Agreement under any other terms hereof the Buyer shall have the
right at its option forthwith to cancel this Order in whole or in
part at any time and without assigning any reason therefor by
delivering or serving by registered post to the Seller a written
notice of cancellation specifying the nature and extent thereof.
Within (4) weeks of such cancellation pursuant to this Clause the
Buyer shall pay to the Seller the following sums: (1) the
contract price for all the Goods already delivered by the Seller
and accepted by the Buyer in terms of this Order for which
payment has not been made (2) the costs incurred by the Seller in
implementing exclusively the conditions of this Order to the
point of its cancellation by the Buyer less a reasonable
allowance in respect of other uses to which any machinery or
other equipment or other items whatsoever purchased by the Seller
may be put and (3) the reasonable loss of profits sustained by
the Seller in respect of the Goods (if any) comprised in this
Order which shall not have been delivered to and accepted by the
Buyer prior to the cancellation of the Order.
9. GUARANTEE
-- ---------
(i) If within the period after delivery named in the Order
(hereinafter called "the Guarantee Period") the Buyer
gives notice in writing to the Seller of any defect in the
Goods which shall arise under proper use from faulty
design (other than a design made, furnished, or specified
by the Buyer for which the Seller has in writing
disclaimed responsibility), materials or workmanship, then
the Seller shall with all possible speed replace or repair
the Goods so as to remedy the defects without cost to the
Buyer.
(ii) The Buyer shall, as soon as practicable after
discovering any such defect or failure, return the
defective Goods or parts thereof to the Seller and at
the Seller's risk and expense unless it has been
agreed between the Parties that the necessary
replacement or repair shall be carried out by the
Seller on the Buyer's premises.
10. DAMAGE OR LOSS IN TRANSIT
--- -------------------------
The Seller will repair or replace, free of charge, Goods
damaged or lost in transit provided the Buyer, having been
notified by the Seller in good time of the despatch, shall give
the Seller written notification of such damage or loss within
Page 80 of 161 <PAGE>
such time as will enable the Seller to comply with the carrier's
conditions of carriage, as affecting loss or damage in transit,
or where delivery is made by the Seller's own transport, within a
reasonable time.
11. PAYMENT
--- -------
Payment of the Price shall be made within the period after
delivery specified in the Order.
12. CARE AND RETURN OF PATTERNS, DIES, ETC.
--- ---------------------------------------
(i) All patterns, dies, drawings, moulds or other tooling
supplied by the Buyer or prepared or obtained by the
Seller for and at the sole cost of the Buyer and all
consigned materials provided by the Buyer without charge
to the Seller for the purposes of this Order shall be and
remain the property of the Buyer.
(ii) The Seller shall maintain all such items in good
order and condition and insure them against all risks
whilst in its custody and on completion of the
contract or as otherwise directed by the Buyer shall
return them to the Buyer in good order and condition.
Should the Seller fail so to return them the Buyer
may either withhold payment until they are so
returned or withhold such part of the payment due as
may be required to replace them or to restore them to
good order and condition, whichever may be the less
expensive.
(iii) The Seller shall not use such items, nor shall it
authorize or knowingly permit them to be used by
anyone else for, or in connection with, any purpose
other than the supply of the Goods to the Buyer
unless such use is expressly authorized by the Buyer,
previously and in writing.
(iv) The Seller shall insure any material or property sent
to the Seller by the Buyer for any purpose in
connection with any contract of which this Order
forms part ("the Contract") against any damage which
may occur to it whilst in its custody.
13. STATUTORY REQUIREMENTS
--- ----------------------
The Seller warrants that the design, construction and
quality of the Goods to be supplied under the Contract comply
in all respects with all relevant requirements of any Statute,
Statutory Rule or Order or other instrument having the force of
law which may be in force at the time when the same are
supplied.
Page 81 of 161 <PAGE>
14. PATENTS
--- -------
(i) The Seller shall fully indemnify the Buyer against any
action, claim, demand, costs, charges and expenses arising
from or incurred by reason of any infringement or alleged
infringement of any letters patent, registered design,
trade mark, or trade name protected in the United Kingdom
by the use or sale of the Goods and against all costs and
damages which the Buyer may incur in any action for such
infringement or for which the Buyer may become liable in
any such action. Provided always that this indemnity
shall not apply to any infringement which is due to the
Seller having followed a design furnished by the Buyer for
which the Seller has in writing disclaimed responsibility
(or to the use of the Goods in a manner or for a purpose
not reasonably to be inferred by the Seller or disclosed
to the Seller prior to the making of the Contract).
(ii) In the event of any claim being made or action
brought against the Buyer arising out of the matters
referred to in this clause, the Seller shall be
promptly notified thereof and may at its own expense
conduct all negotiations for the settlement of the
same, and any litigation that may arise therefrom.
(The Buyer shall not, unless and until the Seller
shall have failed to take over the conduct of the
negotiations or litigation, make any admission which
might be prejudicial thereto). The conduct by the
Seller of such negotiations or litigation shall be
conditional upon the Seller having first given to the
Buyer such reasonable security as shall from time to
time be required by the Buyer to cover the amount
ascertained or agreed or estimated, as the case may
be, of any compensation, damages, expenses, and costs
for which the Buyer may become liable. The Buyer
shall at the request of the Seller, afford all
available assistance for any such purpose and shall
be repaid any expenses incurred in so doing.
(iii) The Buyer on its part warrants that any design
furnished by it shall not be such as will cause the
Seller to infringe any letters patent, registered
design, trade mark, or trade name in the performance
of the Contract.
15. ASSIGNMENT AND SUB-CONTRACTING
--- ------------------------------
(i) The Seller shall not without the consent in writing of the
Buyer assign or transfer the Contract or any part of it to
any other person.
(ii) The Seller shall not without the consent in writing
of the Buyer sub-let the Contract or any part thereof
Page 82 of 161 <PAGE>
other than for materials, minor details or for any
part of the Goods of which the makers are named in
the Order or the Specification, but this shall not
prevent the Seller sub-letting part of the Contract
to any company which is a member of the group to
which the Seller belongs (or a company with which the
Seller is associated). Any such consent shall not
relieve the Seller of any of his obligations under
the Contract.
16. BANKRUPTCY OR LIQUIDATION
--- -------------------------
(i) If the Seller being an individual (or, when the Seller is
a firm, any partner in that firm) shall at any time become
bankrupt, or shall have a receiving order or
administration order made against him or shall make any
composition or arrangement with, or for the benefit of his
creditors, or shall make any conveyance or assignment for
the benefit of his creditors or shall purport to do so, or
if in Scotland, he shall become insolvent or notour
bankrupt, or any application shall be made under any
Bankruptcy Act for the time being in force for
sequestration of his estate, or a trust deed shall be
granted by him on behalf of his creditors or if the
Seller, being a Company, shall pass a resolution, or the
Court shall make an order that the Company shall be wound
up (not being a Members' winding up for the purpose of
reconstruction or amalgamation) or if a receiver or
manager on behalf of a creditor shall be appointed, or if
circumstances shall arise which entitle the Court or a
creditor to appoint a receiver or manager, or which
entitle the Court to make a winding up order, then the
Buyer shall be at liberty:
(a) to cancel the Order summarily by notice in writing
without compensation to the Seller, or
(b) to give any such receiver or liquidator or other
person the option of carrying out the contract.
(ii) The exercise of any of the rights granted to the
Buyer under paragraph (i) hereof shall not prejudice
or affect any right of action or remedy which shall
have accrued or shall accrue thereafter to the Buyer.
17. ADVANCE MANUFACTURE
--- -------------------
The Buyer shall not be responsible for any goods
(including parts and components therefor) tools or materials
manufactured by the Seller in advance of time in order to meet
anticipated demands.
18. ARBITRATION
Page 83 of 161 <PAGE>
--- -----------
All disputes, differences or questions at any time arising
between the parties as to the construction of the Contract or
as to any matter or thing arising out of the Contract or in any
way connected therewith shall be referred to the arbitration of
a single arbitrator who shall be agreed between the parties or
who failing such agreement shall be appointed at the request of
either party by the President for the time being of the Law
Society. The arbitration shall be in accordance with the
Arbitration Act 1950 or any statutory modification or re-
enactment thereof.
19. GOVERNING LAW
--- -------------
The provisions of this Order and the rights of the parties
hereto shall be governed and construed in all respects
according to the law of England.
Page 84 of 161 <PAGE>
SCHEDULE
--------
1. Products:
-- ---------
PHOTOMATRIX 5000 Series and 6000 Series Scanners and all
accessories for those scanners offered for sale by Seller at any
time
2. Buyer's Purchase Price
-- ----------------------
The transfer price from Seller to Buyer is to be ___%
(Confidential treatment has been requested for this percentage.)
of Seller's list price from time to time, to include delivery and
insurance in transit to . Prices will be quoted and payment made
in US Dollars.
3. Purchase Orders and Forecast:
-- -----------------------------
By the third working day of every month Buyer will send
Seller a firm purchase order for the first month following which
is accompanied by a forecast for the second and third months
following.
4. Delivery
-- --------
Time:
-----
Products will be delivered within 28 days after the date
of order in the case of orders previously forecast and within 56
days after the date of order in the case of unforecast orders but
so that Seller will use best efforts to deliver sooner if
reasonably practicable.
Place:
------
Delivery will be to Buyer's warehouse in Ashford or such
other address in UK as notified from time to time, but for the
purposes of remedies of a buyer arising under this Agreement or
by statute, delivery shall be deemed to be delivery to enduser.
5. The Territory:
-- --------------
All the countries wholly or partly in Europe, Africa, the
Indian Sub-Continent and the Middle East as edged red on the
attached map.
6. Bell and Howell Distributors:
-- -----------------------------
See attached
Page 85 of 161 <PAGE>
DISTRIBUTOR & OEM LIST
----------------------
UK*
--
IRELAND*
-------
GERMANY*
-------
FRANCE*
------
BELGIUM*
-------
HOLLAND*
-------
ITALY*
-----
SPAIN*
-----
AUSTRIA & EASTERN EUROPE*
------------------------
SWITZERLAND*
-----------
GREECE*
------
CYPRUS*
------
RUSSIA*
------
Page 86 of 161 <PAGE>
POLAND*
------
S. AFRICA*
---------
ISRAEL*
------
PORTUGAL*
--------
MIDDLE EAST*
-----------
*Confidential treatment has been requested for the Distributor
List.
Page 87 of 161 <PAGE>
PHOTOMATRIX PRODUCT PRICE LIST
------------------------------
Product B&H LIST
(OEM)
5010: Single sided straight thru ** $34,100
5015: Single sided w/inverter. ** $34,930
5020: Double sided straight thru ** $37,142
5025: Double sided w/inverter ** $43,624
6020: Double sided system* ** $76,800
* Includes Photomatrix imaging boards (4) P.I.C.S. operating
software
486 x 100 Mhz PC, tape back up, high res monitor.
6150: A3 Automatic feeder ** $7,080
6151: Small document feeder ** $7,080
6155: Documents endorsing module* ** $5,695
6161: Grey scale image module ** $6,720
6163: Seaport barcode module ** $7,974
6170: Intelligent foot switch ** $620
6171: Standard base cabinet ** $620
6172: Large volume base cabinet ** $1,866
6191: Autobatch s/ware license ** $12,375
6193: Socket I/face S/ware license ** $4,860
6192: Vision QC s/ware license ** $20,000
* Currently available on the 6000 scanner only.
** Confidential treatment has been requested for this column.
Page 88 of 161 <PAGE>
Graphic
Annexed to the Schedule is a one-dimensional map of the
world shaded to show the outline of the Territory.
Page 89 of 161 <PAGE>
Standard Terms Applicable to OEM Purchase Agreement
---------------------------------------------------
1. Applicability
-- -------------
These terms and Conditions are deemed to be incorporated
in OEM Purchase Agreement entered into between Seller and Buyer,
and to apply fully to any orders placed by customers in
connection with such Agreement.
2. Relationship
-- ------------
The relationship between Seller and Buyer is that of
vendor and purchaser. Buyer is in no way the legal
representative or agent of Seller for any purpose whatsoever and
has no right or authority to create, in writing or otherwise, any
obligation of any kind expressed or implied in the name of or on
behalf of Seller.
4. Warranty
-- --------
Warranties by Seller are provided in accordance with the
Warranty Conditions attached hereto.
5. Changes or Improvements
-- -----------------------
Seller may at any time upon giving Buyer not less than six
months notice in writing introduce significant product changes.
In such cases Seller shall consult with Buyer regarding orders,
deliveries or commitments thereunder which may be affected by
such changes. Changes which have no effect on sale price,
performance, or cost or provision of maintenance services may be
made at any time without notice to Buyer.
6. Maintenance and Repair Service
-- ------------------------------
Buyer undertakes that it will provide or procure the
provision of a maintenance and repair service for Products sold
by Seller under this Agreement and installed with end users for a
period of 5 years from the date of sale to Buyer's customer or
the end user. Buyer shall maintain or procure the maintenance of
such stock of spare parts, repair facilities and qualified
engineers as may be needed for the prompt and effective
maintenance of these Products. Seller shall upon the terms
specified in this Agreement supply Buyer with assemblies and
component parts necessary for repair and maintenance for a period
of five years after discontinuation (for any reason whatever) of
sale of Products to Buyer (or for a period of five years after
termination of this Agreement if later). Seller shall when
requested by Buyer provide free of cost to Buyer one technical
training course per annum relating to maintenance and field
servicing of the products for qualified engineers employed by
Buyer or its appointee at Seller's training facility in Watford
Page 90 of 161 <PAGE>
or Culver City, provided that Buyer bears all travelling and
hotel expenses incurred by such trainees and that the time and
period of the training shall be subject to agreement between the
parties.
7. Confidentiality
-- ---------------
Seller or Buyer may have access to information
reciprocally which is considered to be confidential. Any
commercially sensitive information or other information
designated by Seller or Buyer as "confidential" shall not be
disclosed to any third party by either one without the prior
written consent of the other party. Upon termination of this
Agreement both Seller and Buyer shall return all such
confidential information in possession and the duty of confidence
shall continue until the relevant information is lawfully in the
public domain.
8. Waiver
-- ------
The failure of either party at any time to exercise its
rights under this Agreement shall not be deemed a waiver thereof,
nor shall such failure in any way prevent said party from
subsequently asserting or exercising such rights.
10. Force Majeure
--- -------------
Neither party shall be liable for any default under this
Agreement due to causes beyond its reasonable control and without
its fault or negligence including but not limited to acts of God
or a public enemy, fire, flood, shipwreck, strikes, freight and
shipping embargo, or government order, regulation or action. In
order to excuse its default hereunder for any one or more of the
events defined above, the defaulting party shall upon the
occurrence thereof notify the other of the occurrence and effect
of any such event. In any case where enforcement of its
obligations by either party would be delayed for more than sixty
days because of any such event, the other party may elect to
serve notice of termination thereunder by registered mail without
acknowledgement of receipt by the other party, termination being
deemed to take effect without indemnity at the end of a thirty
day period following such notice.
11. Trademarks and branding
--- -----------------------
11.1 Unless otherwise agreed by the party, the other
party shall not use, adopt or register any trademark, name, trade
name, trading style or commercial designation which includes or
similar to the whole or any part of any trademark, name, trade
name, trading style or commercial designation used by the party.
11.2 Buyer is entitled to alter the appearance of the
Products in any way it considers suitable including alteration of
Page 91 of 161 <PAGE>
the packaging, removal of Seller's trademarks or other commercial
designations from Products and the application of Buyer's name
trademarks or commercial designations to the Products except for
such changes which would alter the technical characteristics or
violate any safety regulatory agency approvals.
11.3 Seller agrees to change the marking of the
containers of the Products and to repack the Products including
Buyer's manuals and similar materials all in accordance with
Buyer's reasonable requests from time to time.
12. Intellectual Property Rights
--- ----------------------------
Seller warrants and Buyer acknowledges any and all of
Seller's trademarks, trade names, copyrights, designs, patents
and other intellectual property rights including unpatented
technical knowhow, used or embodied in the Products are now and
shall remain the sole properties of Seller and Seller is not
aware of any rights of any third party which would or might
render the distribution sale or other disposal or the use of the
Products unlawful by reason of infringement of intellectual
property rights or otherwise.
Seller grants to Buyer in respect of all such rights all
licences (with right to sub-license) which are requisite for
Buyer to have full benefit of and to perform fully this Agreement
(both before and after termination of the Agreement).
If Buyer discovers that Seller's trademarks, trade names,
copyrights, designs, patents or other intellectual property
rights are disputed or infringed upon by a third party, Buyer
shall promptly inform Seller thereof and reasonably assist Seller
to take steps necessary to protect its rights at Seller's cost
when requested so by Seller.
Seller acknowledges that any and all of Buyer's
trademarks, tradenames, copyrights, designs, patents and other
intellectual property rights including unpatented technical
knowhow, are now and shall remain Buyer's sole property and that
no right to use any of these is granted by of to be implied in
this Agreement.
Buyer's obligations in respect of third party infringement
or dispute of Seller's intellectual property rights shall apply
mutatis mutandis to Seller.
Seller indemnifies and will indemnify Buyer against any
claim against Buyer by a third party that the manufacture,
marketing, use, sale or other disposal of any Product infringes
such third party's intellectual property rights or other rights
of whatever nature.
Page 92 of 161 <PAGE>
13. Assignment
--- ----------
Neither party shall assign or transfer any right or
obligation thereunder to any third party except that (a) Seller
may assign or transfer any such right or obligation to
Photomatrix Corporation, or to any company which is effectively
controlled by its parent Xscribe Corporation and (b) subject only
to written approval by Buyer (which Buyer shall not unreasonably
withhold) Seller may transfer its written obligations under this
Agreement to any entity acquiring ownership or a controlling
interest in Photomatrix Corporation or Xscribe Corporation.
14. Limitation of Liability
--- -----------------------
Notwithstanding anything to the contrary in this
Agreement, Seller shall not, except in respect of death or
personal injury caused by the negligence of Seller, be liable to
Buyer in respect of any claim under this Agreement for an amount
exceeding the total of all sums paid by Buyer to Seller under
this Agreement during the twelve months immediately prior to the
circumstance which gives rise to such claim.
15. Notice
--- ------
Any notice served under this Agreement shall be in writing
in the English language and shall be delivered by hand or by
facsimile or be sent by registered mail, receipt requested, to
the recipient's address as set out in any current agreement or as
may subsequently have been notified. Notice to Seller will also
be served on its parent company Xscribe Corporation for the
attention of Surin G Dutia.
16. Disputes
--- --------
All disputes arising in connection with this Agreement or
further agreements between the parties resulting therefrom, shall
be finally settled by arbitration conducted in England in
accordance with the Arbitration Acts 1950 to 1979 by an
arbitrator appointed by agreement between the parties or in
default of agreement appointed by the President of the Law
Society.
Page 93 of 161 <PAGE>
WARRANTY CONDITIONS
-------------------
Subject as herein provided the Seller warrants to Buyer
that:
1 All Products supplied hereunder will be of
satisfactory quality and, without limitation, will be free from
defects of material or workmanship and will comply with any
specification agreed for them. The term of this Warranty is the
period of twelve months from the date of delivery of the relevant
Product to the end user.
2 The above warranty is given by the Seller subject to
the following conditions:
2.1 Seller shall be under no liability in respect of
any defect arising from fair wear and tear, wilful damage,
working environments for the Products contrary to Seller's
written specifications, failure to follow the Seller's written
instructions as to use of the Products, misuse or alteration or
repair of the Goods without Seller's approval;
2.2 Any warranty claim by Buyer shall be notified to
Seller within a reasonable time after discovery of the defect
or failure (which will be after delivery to end-user). If
delivery is not refused, and the Buyer does not notify the
Seller accordingly, the Buyer shall not be entitled to reject
the Goods.
3. In the event of any breach of Seller's warranty in
clause 1 Seller shall replace the Product in question (or, with
the agreement of Buyer, provide parts requisite for its repair)
but Seller shall be under no liability for the cost of labour in
repairing the Product.
Page 94 of 161 <PAGE>
EXHIBIT 10.32
OEM PURCHASE AGREEMENT
----------------------
THIS AGREEMENT is entered into on this the 12th of June,
1996, by and between BELL & HOWELL OPERATING COMPANY, a Delaware
corporation ("Buyer") with a principal place of business located
at 6800 McCormick Road, Chicago, IL and PHOTOMATRIX CORPORATION,
a Nevada Corporation ("Seller) with a principal place of business
located at 5700 Buckingham Parkway, Culver City, CA 92230.
WITNESSETH:
-----------
WHEREAS, Buyer desires to purchase Products and
Accessories (as defined below) from Seller, and Seller desires to
sell Products and Accessories to Buyer on the terms and
conditions set forth herein:
NOW, THEREFORE, in consideration of the mutual covenants
and promises contained herein, Buyer and Seller do hereby agree
as follows:
1. TERMS OF SALE AND PURCHASE
-- --------------------------
1.1 Buyer agrees to purchase seller s products listed on
Exhibit 1.1(a) hereto (collectively "Products") and spare parts,
options and accessories ("Accessories"), as specified herein,
during the term of this Agreement. All Products and Accessories
shall meet the specifications ("Specifications") set forth in
Exhibit 1.1(b) attached hereto. Buyer may market and sell the
Products and Accessories under its trademarks and own name. If
Seller develops improvements, extensions or product lines related
to network, production or desktop scanners or scanner systems,
Buyer shall have an option to include such products as Products
to be sold pursuant to this Agreement.
1.2 Seller agrees that during the term of this Agreement
it will not make any changes in any Products or Accessories to be
delivered to Buyer which would affect the form, fit, function,
performance, appearance, electrical or mechanical interface and
interchangeability of the parts of the Products and/or
Accessories without prior written notification to Buyer and
Buyer's acceptance. If such change is not acceptable to Buyer,
Buyer shall have the right to receive the outstanding quantity of
items ordered to be delivered in accordance with Seller's
original Specifications.
1.3 The purchase price of the Products and Accessories
shall be the prices which are a percentage of the LDP (as defined
below) as set forth in Exhibit 1.3 attached hereto for units
shipped to Buyer during the term of this Agreement. All prices
to Buyer shall be the same or better than prices offered by
Page 95 of 161 <PAGE>
Seller to its other purchasers of Products or products similar to
the Products. All such prices shall be F.O.B. Culver City,
California. Prices shall include packaging and packing, and
shall be exclusive of all excise, sales, use and similar taxes
imposed by any governmental authority. As used in this section,
the "LDP" shall mean the lowest price (after taking into account
all discounts, allowances, rebates and the like) quoted by Seller
to its distributors of like products, excluding temporary pricing
adjustments of a promotional nature as long as these promotions
(i) are not more than one month in duration, (ii) do not offer
pricing more than 10% off the distributor prices, and (iii) do
not occur more than once per distributor per year. Buyer will
pay all properly tendered invoices within thirty (30) days of
date of receipt of the product or invoice, whichever is later.
Buyer may, at its option, agree to other promotions by Seller
from time to time.
1.4 Buyer shall issue written purchase orders for
Products and Accessories hereunder by means of telephone and
facsimile or letter purchase orders followed by the delivery of
written purchase orders on Buyer's standard purchase order form.
For purposes of calculating lead times specified herein, Seller
shall be deemed to have received a purchase order on the date of
receipt of facsimile or order. Acceptance of all purchase orders
shall be presumed unless rejected within two days from receipt.
Purchase orders may be rejected if they fail to conform to this
Agreement.
1.5 Seller shall deliver Products and Accessories within
30 days of Buyer's purchase order. Any delay or anticipated
delay in delivery shall be reported at once to Buyer by Seller.
1.6 Buyer shall provide Seller with an annual non-binding
forecast for the Products at the beginning of each year. Buyer
shall provide Seller with a rolling 120 day forecast of orders
for Products by the 10th day of each month (the "Forecast"). The
Forecast shall be binding as to the first 30 days, and the
remainder of the forecast shall be non-binding. Buyer will use
its best efforts to maintain actual orders within 25% of the
Forecast for the next 90 days. By mutual agreement, Exhibit 1.6
shall be considered the Product quantities for the time period as
defined.
2. PACKAGING AND SHIPPING
-- ----------------------
Unless Buyer specifies otherwise by written submission of
general specifications or written instructions on a particular
purchase order, all Products and Accessories are to be prepared
and packed for shipment to secure safe delivery, the lowest
transportation rates, and to meet the applicable carrier s
requirements. External containers will be plain and not marked
with Seller's name or logo and otherwise suitable for re-shipping
by Buyer. All Products and Accessories shall be shipped at
Page 96 of 161 <PAGE>
Buyer s risk by the method of transportation selected by the
Buyer.
3. TERM AND TERMINATION
-- --------------------
3.1 This Agreement is valid for three years from the date
hereof and shall thereafter be extended for an unlimited number
of annual terms unless either party gives the other party notice
of termination no later than 90 days before the end of the
initial period or any renewal period.
3.2 This Agreement may be terminated by either party upon
written notice to the other (i) in the event of a breach by the
other party of any terms or conditions of this Agreement or any
purchase order hereunder and the failure to cure such breach
within sixty (60) days after written notice, (ii) in the event of
any breach by either party of its representations and warranties
hereunder, (iii) in the event that performance of this Agreement
by either party shall have been rendered impossible or
impractical for a period of four (4) consecutive months by reason
of the happening of one or more events referred to in Section 3.4
hereof, or (iv) at any time upon or after the filing by the other
party of a petition in bankruptcy or insolvency, or upon or after
any adjudication that the other party is insolvent, or upon or
after the filing by the other party of any petition or answer
seeking reorganization, readjustment or arrangement of the
business of the other party under any law relating to bankruptcy
or insolvency, or upon or after the appointment of a receiver for
all or substantially all the property of the other party, or upon
or after the making by the other party of any assignment or
attempted assignment for the benefit of creditors, or upon or
after the institution of any proceedings for the liquidation or
winding up of the other party s business or for the termination
of its corporate charter.
3.3 The termination of this Agreement shall not affect or
impair the rights and obligations of either party under any
purchase order regarding the Products or Accessories in existence
prior to such termination, nor relieve any party of any
obligation or liability accrued hereunder or thereunder prior to
such termination or expiration nor affect or impair the rights of
either party arising under this Agreement prior to such
termination, except as expressly provided herein, without
limiting the generality of the foregoing sentence, the
provisions of Sections 5, 6, 71 8 and 12 shall survive the
termination of this Agreement.
3.4 Neither party shall be liable for any act, condition
or omission reasonably caused by or resulting from circumstances,
persons or entities unrelated to and beyond the control of such
party. Included in this provision but not by way of limitation,
are acts and conditions of nature, social upheaval, strikes or
Page 97 of 161 <PAGE>
labor disputes, or any law, order, proclamation, demand or
requirement of any governmental agency.
4. RESCHEDULING AND CHANGE ORDERS
-- ------------------------------
4.1 Buyer may reschedule Products and Accessories ordered
hereunder without canceling such orders and reorder Products
and/or Accessories for later delivery by issuing Seller a change
order pursuant to Section 4.2 hereof. Buyer may not reschedule
Products and Accessories that are scheduled for delivery within
thirty (30) days from the change order date. The rescheduled
delivery shall not be more than thirty (30) days from the
original scheduled date of delivery.
4.2 Buyer may amend purchase orders issued under this
Agreement only by written change order. Buyer may, by issuing a
written change order, amend existing purchase orders without
incurring any penalty or cancellation charge hereunder with
respect to matters which were at Buyer's option at the time the
original purchase order was issued.
5. WARRANTIES
-- ----------
5.1 Subject to the terms and conditions provided in this
Agreement, and except for parts specified in Exhibit 5.1 hereof,
Seller warrants that the parts originally incorporated in or
attached to each Product and Accessory sold to Buyer will be free
from defects of material and workmanship. The term of this
warranty is limited to a period of twelve (12) months from the
date of the shipment by Seller of the Products.
5.2 The foregoing warranty shall not apply:
(a) If, as from the date of shipment, the Products
were subject to neglect, accident, abuse or improper use,
maintenance, repair or installation, or unauthorized
modification by Buyer.
(b) To defects resulting from the end-user s
location not meeting environmental conditions and electricity
requirements within the range of conditions set forth in the
Specifications.
(c) To insignificant defects such as scratches which
are not prominent.
5.3 Buyer may, at its option, perform warranty service on
the Products and/or ship defective Products to Seller s service
center for warranty repairs at Seller s expense. The use or sale
of commercially available spare parts by Buyer shall not void or
otherwise affect the warranty of Seller set forth in this
Section 5. Should any defect in materials and workmanship be
found frequently or in more than 2% of the Products within a
Page 98 of 161 <PAGE>
moving six month period, Seller will compensate Buyer in the form
of a credit against future purchases for Buyer's reasonable
labor, out-of-pocket and other expenses in providing on site
repairs.
6. SPARE PARTS AND EMERGENCY STOCK
-- -------------------------------
6.1 Seller agrees to provide to Buyer on a timely basis,
at no charge, such illustrations, recommended spare parts lists
or other suitable materials as Buyer may require
for spare parts identification.
6.2 Seller shall from time to time during the term of
this Agreement and for five years after the last delivery of
units hereunder, (the Spare Parts Period"), sell to Buyer upon
the issuance by Buyer of its purchase order, spare parts at __%
(Confidential treatment has been requested for this percentage)
of the list price as established by Seller and set forth in
Exhibit 6.2; provided, however, that price changes for spare
parts will be tied to the cost of manufacturing. All prices to
Buyer shall be the same or better than prices offered by Seller
to its other purchasers of spare parts similar to those in the
Exhibit 6.2. After the expiration of the spare Parts Period,
Seller shall grant to Buyer access to any vendors able to supply
any spare parts no longer being used in any other Product being
manufactured by Seller. In addition, Seller shall provide
accessibility to all drawings and other information necessary for
Buyer to manufacture, or have manufactured, such discontinued
spare parts.
6.3 Buyer shall use its best efforts to maintain
sufficient quantities of parts on hand to meet reasonable
demands. Nonetheless, Seller agrees to provide to Buyer any
replacement parts on an emergency basis. Emergency delivery will
be accomplished by the most expedient method to a location
specified by Buyer. Parts ordered on an emergency basis will be
shipped by Seller within 24 hours after receipt of Buyer s
purchase order. In the event that an emergency ordered part is
temporarily out of stock, Seller shall immediately notify Buyer.
If Buyer has ordered a Product which is still in production, by
mutual consent of both parties, parts may be re-moved from such
production to fill emergency needs, whereupon shipping dates of
affected product shall be adjusted to the mutual satisfaction of
the parties.
6.4 Normal spare parts orders will be fulfilled within
thirty (30) days of Buyer's order.
7. WARRANTIES INDEMNIFICATION
-- --------------------------
7.1 Seller and Buyer represent and warrant that each of
them shall comply in all material respects with all applicable
permits and licenses and all requirements of applicable laws,
Page 99 of 161 <PAGE>
orders, regulations and standards in their respective performance
of this Agreement. Seller further represents and warrants that
the actions contemplated hereby and the subject matter of this
Agreement (i) will not violate or infringe any rights of third
parties and (ii) are not in conflict with any agreements by which
it is bound.
7.2 Seller shall indemnify, defend and hold Buyer
harmless against all claims, demands, causes of action,
judgments, damages, expenses, costs and attorney's fees of every
kind and character including without limitation for damage to or
loss of property, or for injury to or death of persons, arising
directly or indirectly, from the use or operation of the Products
and Accessories, either on & standalone basis or as a component
of a product or system, save for such claims, demands, causes of
action to the extent they arise out of the negligence or willful
conduct of Buyer.
7.3 Seller shall indemnify, defend and hold Buyer, its
affiliates, its customers, and its directors, officers,
employees, agents and their respective heirs, successors and
assigns and their customers ("Indemnitees") harmless from and
against any claims that the marketing, distribution, sale, lease,
rent, operation, importation or use of the Products or the
Accessories by any Indemnitee infringes any U.S. or foreign
patent, trade secrets, copyrights or other right of a third
party. Buyer shall provide Seller reasonably prompt notice of
such claim filed against Buyer or any other Indemnitee. In the
event that the marketing, distribution, sale, lease, rent,
operation or use of the Products or any Accessory shall be
enjoined or shall be held by a final judgment from which no
appeal has been taken or the time to appeal from which has
expired to not permit Seller to perform under this Agreement or
for Buyer to receive the full benefits contemplated by this
Agreement (an "Event"), then Buyer, at its sole election, may
terminate this Agreement and recover damages from Seller.
7.4 Seller shall vigorously pursue any parties infringing
any of the proprietary rights which are the subject of this
Agreement, including rights evidenced by any patents which now
exist or hereafter issue. If Buyer becomes aware of any such
infringement, it shall provide notice to Seller of the
infringement, if within sixty (60) days from receipt of Buyer s
notice, or within any applicable statute of limitations if less
than sixty days, the unlicensed infringement has not ceased or
Seller has not commenced legal action against the infringer,
Buyer shall have the right to file suit against the infringer and
Seller shall assist Buyer, as reasonably requested, including
agreeing to be joined as parties, if necessary. If Buyer files
suit against the infringer, Seller shall not have any further
right to commence such an action without the consent of Buyer.
If Buyer commences such an action, Buyer shall bear all costs of
suit; but all damages or other awards shall inure to the benefit
Page 100 of 161 <PAGE>
of Buyer. Further, Buyer shall have the authority, in the name
of and on behalf of Seller, to enter into a licensing arrangement
in settlement of the infringement dispute with royalties and any
other payments being for the account of Buyer.
8. CONFIDENTIALITY AND CERTAIN RIGHTS
-- ----------------------------------
Either party may disclose that it has entered into a
distribution agreement or arrangement with the other party with
respect to the Products, but neither party shall disclose the
specific provisions or obligations set forth in this Agreement or
any proprietary information of the other related to the marketing
and distribution of the Products, without prior written approval
from the other party, except as permitted by this Agreement or as
may be required by law; provided however, that each party may
from time to time disclose the specific provisions and
obligations of this Agreement to its financial advisors and to
persons or entities which have made, or are
considering making, loans to, investments in or a purchase of a
substantial portion of the business of that party.
9. PASSING OF TITLE AND RISK
-- -------------------------
The risk of any (i) loss, (ii) damage to, or
(iii) deterioration in Products or Accessories, howsoever
arising, shall be borne by Buyer once the Products or Accessories
have been delivered to the carrier.
10. TRADING; TECHNICAL SUPPORT
--- --------------------------
10.1 Seller shall provide, at no cost to Buyer, training
to Buyer s technical support personnel at Seller's facility in
Culver City, California or other location by mutual agreement.
The training shall be in sufficient depth and detail to allow the
trainees to in turn train Buyer's technical support staff. Each
trainee shall receive at least two copies of all training
materials, and Buyer shall have the right to reproduce such
training materials for its internal use. No special tools are
require for Buyer's technical staff to service the Product,
however, the oscilloscope should be rated at 100MZ.
10.2 Seller shall provide, at no cost to Buyer, ongoing
telephone technical and emergency support to Buyer's personnel.
Seller's technical support desk shall be staffed on a 5 day
basis, and shall field calls between the hours of 8 am and 5 pm
PST.
11. TECHNICAL MANUALS AND TEST EQUIPMENT
--- ------------------------------------
11.1 Seller will furnish two (2)complete sets of manuals
at no charge to Buyer, which shall include a parts manual,
service manual, programming manual (if appropriate), user's
Page 101 of 161 <PAGE>
manual, and other such manuals as may be necessary for the proper
operation of the Products and Accessories.
11.2 Seller hereby grants to Buyer the right to
reproduce, in whole or in part, any of the data presented in the
foregoing manuals for use in technical manuals under Buyer's
cover and for use with the Products and Accessories sold
hereunder.
11.3 With each user s manual and service manual delivered
hereunder and as a part hereof, Seller shall provide a list of
the equipment required for the maintenance of such Products and
Accessories and the testing thereof. Seller shall provide, at no
cost to Buyer, all diagnostic software necessary to service the
Products, and Buyer shall have the right to make copies of such
software for its internal use.
12. MISCELLANEOUS
--- -------------
12.1 All notices, requests and demands given to or made
upon the parties hereto shall, except as otherwise specified
herein, be in writing and may be personally delivered or mailed
to the party at its address which:
(1) In the case of Seller shall be:
Photomatrix Corporation
5700 Buckingham Parkway
Culver City, CA 90230
Attention: Vice President, Sales and Marketing
Xscribe Corporation
6285 Nancy Ridge Drive
San Diego, CA 921211
Attention: President and CEO
(2) In the case of Buyer shall be:
Scanner Division
Bell & Howell Document Management
Products Company
6800 McCormick Road
Lincolnwood, Illinois 60645
Attention: General Manager
Bell & Howell Company
5215 Old Orchard Road
Skokie, Illinois 60077-1076
Attention: Corporate Counsel
Page 102 of 161 <PAGE>
Any party may, by notice hereunder to all parties,
designate a changed address for such party. Any notice, if
mailed and properly addressed, postage prepaid, by registered or
certified mail, shall be deemed received on the registered date
stamped on the certified mail receipt.
12.2 The various headings in this Agreement are inserted
for convenience only and shall not affect the meaning or
interpretation of this Agreement or any Section or provision
hereof. References in this Agreement to any Section are to the
applicable Section of this Agreement.
12.3 This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors
and assigns, but neither party shall assign this Agreement or any
rights or obligations hereunder without the express written
consent of the other provided, however, that a successor in
interest by merger, consolidation, operation of law, assignment,
purchase, or otherwise, of the entire business of either party,
shall acquire all interests of such party hereunder without the
written consent of the other. All subsidiaries or affiliates of
Buyer may purchase Products and Accessories hereunder and are
entitled to the benefits of this Agreement as if they were
signatories hereto.
12.4 This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and
all of which shall constitute together one and the same
Agreement. Each and every person named a party hereto may
execute this Agreement by signing any such counterpart.
12.5 This Agreement and all matters relating hereto shall
be governed by the procedural and substantive laws of the State
of Nevada, conflict of law rules notwithstanding.
12.6 Wherever possible, each provision of this Agreement
and each related document shall be interpreted in such a manner
as to be effective and valid under applicable law. However, if
any provision of this Agreement or any related document shall be
prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement or such related
document.
12.7 No failure on the part of either party to exercise
any right, power or privilege under this Agreement, or under any
instrument executed pursuant hereto, shall operate as a waiver.
No single or partial exercise of any right, power or privilege
shall preclude any other, or further exercise of any other right,
power or privilege. All rights and remedies granted herein shall
be in addition to other rights and remedies to which the parties
Page 103 of 161 <PAGE>
may be entitled at law or in equity. No waiver of any of the
provisions hereof shall be affected unless in writing and signed
by the party charged with such waiver. No waiver shall be deemed
a continuing waiver, or a waiver in respect of any breach of
default whether similar or different in nature unless expressly
so stated in writing.
12.8 This Agreement cannot be, and shall not be deemed or
construed to have been, modified, amended, rescinded, canceled or
waived, in whole or in part, except by written instrument signed
by the parties hereto.
12.9 It is understood and agreed that if Buyer purchases
Products under this Agreement the terms and conditions of this
Agreement shall govern the items ordered under said purchase
order. This Agreement constitutes and expresses the entire
Agreement and understanding between the parties hereto in
reference to all the matters herein. This Agreement supersedes
all other quotations, proposals, prior agreements or
representations, oral or written and all other communications
between the parties related to the subject matter of this
Agreement, and same are merged herein.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above
written.
SELLER:
PHOTOMATRIX CORPORATION
By: /s/ Dell D. Glover 6/12/96
--------------------------
Dell D. Glover
Title: Vice President, Sales and Marketing
BUYER:
BELL & HOWELL OPERATING COMPANY
By: /s/ Bruce W. Rennecker
------------------------
Bruce W. Rennecker
Title: General Manager, Scanner Division
Page 104 of 161 <PAGE>
Exhibit 1.3
-----------
Products and Pricing
--------------------
Model List Price LDP B&H B&H % of
Number LDP
------ ---------- --- --- --------
Scanner
-------
VisionSeries 5124 47900 (Confidential treatment
Duplex Scanner has been requested for
w/Power Inverter these three columns.)
Vision Series 5104 39900
Duplex Scanner
w/Power Inverter
Vision Series 5025 32400
Duplex Scanner
w/Power Inverter
Options
-------
Speed Upgrade Kit 6166 12000
(5104 to 5124)
ADF Regular 6150 6785
ADF Small 6151 7965
Endorser Module 6155 6370
Bar Code Module 6163 10300
Foot Switch 6170 398
Scanner Stand 6172 1208
NOTE: Vision Series 5124 is rated at 120 PPM (200 dpi, 8.5" X
11" document, landscape).
Vision Series 5104 is rated at 100 PPM (200 dpi, 8.5" X
11" document, landscape).
Speed Upgrade Kit, 6166 allows the Vision Series 5104 to
be field upgraded to Vision Series 5124 performance.
Vision Series 5025 is not upgradable to any other model.
Page 105 of 161 <PAGE>
Exhibit 1.6
-----------
Product Forecast
----------------
Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Total
--- --- --- --- --- --- --- --- --- --- -----
Visions 2 3 3 4 6 6 8 8 10 50
Series 5XXX
Options are to be forecasted as a percentage of the base scanner.
Page 106 of 161 <PAGE>
Exhibit 6.2
-----------
Spare Parts List and Pricing
----------------------------
Vision Series 5124 Scanner
--------------------------
PART NUMBER DESCRIPTION LIST PRICE
----------- ----------- ----------
100051 BELT OUTER $15.17
100057 BELT, MAIN DRIVE (INSIDE TIMING) $14.94
100058 BELT, MAIN DRIVE $13.19
100494 FUSE, 10A $2.57
100609 LAMP, GREEN READY $12.24
100908 SENSOR, ENCODER $30.69
101087 SWITCH INTERLOCK $24.84
101271 RECTIFIER, BRIDGE $14.27
103670 REGULATOR, 5V & 8V $56.07
103871 CABLE, TOP CAMERA $262.40
103887 CABLE, RIBBON LINK $88.61
103968 LATCHES, BOTH PIECES $11.97
103994 FUSE, 1.5A $1.58
104006 POWER SUPPLY, PC $1,581.41
104011 TRAY, EXIT $462.42
104016 MIRROR ASSY, 11 INCH $2,345.00
104020 SOLENOID $59.36
104030 MIRROR 11" $343.85
104031 MIRROR ASSY, 5 INCH LOWER CAMERA $422.10
104035 MIRROR ASSY, 5 INCH UPPER CAMERA $283.23
104036 MIRROR ASSY, 8 INCH $160.97
104037 VACUUM GATE $57.33
104038 VACUUM FLAPPER PLATE $8.42
104039 VACUUM FLAPPER SHAFT $82.53
104043 PAPER GUIDE BAR $178.47
104045 FIELD FLATTEN BRACKET $9.81
104046 BRACKET, TOWER LATCHES $7.83
104051 GEARBOX, 46N7-5KA $278.01
104052 ROLLER, DRIVE LOWER TRANSPORT $464.40
104053 ROLLER, DRIVE INVERTER TRANSPORT $525.87
104054 ROLLER, DRIVE UPPER TRANSPORT $425.12
104055 MOTOR, VACUUM (GAST) 60HZ $1,184.04
104056 BEARING $27.14
104057 BEARING $15.98
104058 BEARING, NYLON SHAFT, VACUUM FLAPPER $3.38
104059 ROLLER, IDLE ADJUSTABLE $302.04
104060 ROLLER, IDLE FIXED $335.70
104063 BELT, DOUBLE SIDED $36.86
104066 PULLEY, 18T-375 BORE $22.46
104074 LEVELING FOOT $1.89
104075 SPRING $1.58
104078 SPACER, NYLON $7.56
104079 PULLEY $22.50
104091 TOP CAMERA MIRROR $59.49
Page 107 of 161 <PAGE>
104095 PLUG, LAMP FLUORESCENT $4.32
104098 SOCKET, LAMP FLUORESCENT $1.00
104099 LAMP, GREEN FLUORESCENT $58.41
104101 ROLLER, IDLER $257.31
104102 ROLLER, PRESSURE $233.55
104122 BELT, 24 INCH $32.18
104123 BELT, 29 INCH $32.40
104124 BELT, 30 INCH $34.74
104128 TRANSFORMER, 28V $95.67
104129 TRANSFORMER 29V $73.58
104131 CAPACITOR, 56,000MF $72.81
104138 LENS, MOUNT $180.36
104139 LENS, ADAPTER $133.65
104144 SHAFT, SHORT IDLER $47.52
104145 SHAFT, LONG IDLE $47.52
104149 BUSHING, PIVOT $20.16
104154 PULLEY, 20T $123.75
104158 CLAMP, MIRROR ROD $33.62
104165 SHAFT PIVOT $33.57
104181 ANCHOR, SOLENOID SPRING $27.99
104363 CABLE ASSY, 6000 INTER CONNECT $152.55
104460 FIELD FLATTENER $31.05
104493 BEARING BLOCK $47.93
104494 ROLLER, IDLE $391.59
104565 CABLE, 4 EMITTER $9.63
104639 LAMP POWER SUPPLY ASSY (6000) $1,599.40
104640 MOSAIC CCD ASSY (6000) $1,814.05
104642 BAR, GUIDE $288.99
104645 BELLY PLATE W/ANTI-STATIC BRUSH $495.50
104653 SOCKET, PHOTO DIODE $4.95
104654 DIODE, PHOTO $6.75
104655 CABLE, EMITTER $94.82
104656 CABLE, 4 EMITTER $90.72
104657 CABLE, PAPER PRESENT ADF $116.24
104673 DEFUSER ASSY $68.09
104682 SWITCH, KILL $7.70
104782 CABLE, CAMERA POWER/CLOCK TP $130.68
104783 CABLE, VIDEO BLACK TP $136.40
104784 CABLE, YELLOW TP $136.40
104817 CABLE, CONTRAST POT $271.13
104818 POWER SUPPLY 4 OUTPUT $1,729.39
104855 PULLEY, 18T $71.33
104878 PULLEY, 18T 50 BORE $22.68
104879 SPRING, SOLENOID $3.42
104961 INTERLOCK OVERRIDE CAP $82.22
105011 ADF GEAR $16.65
105017 MOTOR, MAIN DRIVE W/CONTROLLER $1,584.45
105030 ROLLER, PRESSURE $385.65
105273 POWER SUPPLY, 300W P/S FOR PC $890.64
105344 TRANSFORMER T1 A41-130-28 $147.65
105438 CLAMPS, CAMERA CABLE $22.37
105457 LEVELING FOOT MOUNT $38.16
105462 POWER SWITCH $1,896.83
Page 108 of 161 <PAGE>
105512 CARTRIDGE INK, HP51604A FOR ENDORSER $42.66
105638 TRANSFORMER STEP DOWN T3 M4-2-3 $497.84
105662 TRANSFORMER T1B A41-130-20 $178.97
105676 LAMP POWER SUPPLY ASSY (5000) $1,571.85
105678 CABLE, BLACK VIDEO $136.40
105679 CABLE, YELLOW VIDEO (LOWER) $136.40
105680 CABLE, YELLOW VIDEO (UPPER) $145.53
105681 CABLE, BLACK VIDEO $145.53
105682 VACUUM PUMP (FUJI) 50HZ $1,465.29
105689 MOTOR AND CONTROLLER $3,588.55
105966 MOSAIC II CCD ASSY WITH BEZEL $1,935.43
105981 TRANSFORMER T2 A41-175-20 $169.97
106062 FUSE 0.5A 250V (F9,F10,F11,F12) $1.49
106064 FUSE HOLDER $6.08
106065 FUSE, 1.0A 250V (F6,F13,F14) $1.00
106066 FUSE, 5.0A 250V (F7,F8,@250V) $1.62
106067 FUSE, 10A 250V (F5,F7,F8@25OV) $2.52
106068 FUSE, 6.3A 250V (F2,Fl) $1.62
106069 FUSE 1.6A 250V (F3,F4) $45.81
1229111 STATIC MODULE $1,086.03
1229131 SAIL BOARD $802.67
1229141 TEAC $1,455.66
1229151 MOM BOARD $681.30
1229161 CHIP BOARD $5,694.78
1229201 ECFI BOARD $2,096.57
1229251 SENSOR BOARD $710.10
1229261 SAMO BOARD $1,248.98
1229321 ADF SENSOR BOARD $154.17
1229331 EFIP BOARD $2,330.65
1229351 DFIP BOARD $4,550.14
1229391 POWER I/O BOARD $752.90
1229411 CFIP BOARD $4,489.56
6020080 LENS $1,004.81
7420150 SOCKET, REGULATOR 8V & 5V $12.47
Page 109 of 161 <PAGE>
EXHIBIT 13.1
XSCRIBE CORPORATION AND SUBSIDIARIES
ANNUAL REPORT TO SHAREHOLDERS
FISCAL YEAR ENDED MARCH 31, 1996
Page 110 of 161 <PAGE>
XSCRIBE CORPORATION
1996 ANNUAL REPORT TO SHAREHOLDERS
TABLE OF CONTENTS
Page
COMPANY DESCRIPTION 3
General 3
Products 7
Facilities 7
Legal Proceedings 8
SELECTED FINANCIAL DATA 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
Results of Operations 9
Liquidity and Capital Resources 13
Trends and Uncertainties 15
INDEPENDENT AUDITORS' REPORT 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 24
QUARTERLY FINANCIAL DATA (UNAUDITED) 39
SECURITIES DATA 39
Page 111 of 161 <PAGE>
COMPANY DESCRIPTION
-------------------
GENERAL
-------
Xscribe Corporation ("Xscribe" or the "Company"), through its
subsidiaries, develops, manufactures, sells and services
high-technology products and information management solutions.
Xscribe's Imaging Products segment manufactures, sells and
services high-speed document and aperture-card scanners for
legal, financial, government and commercial enterprises.
Xscribe's Information Management Solutions segment provides
sophisticated office automation systems (groupware) and
litigation support systems, including workgroup, department, and
enterprise-wide communication, document management, X.400
electronic mail, calendaring, workflow, computer-aided
transcription and imaging systems to the legal marketplace and
major U.S. corporations.
Xscribe was incorporated and commenced business in 1978.
PRODUCTS
--------
Xscribe products are organized into two industry segments:
Imaging Products and Information Management Solutions, as more
fully described below.
IMAGING PRODUCTS
----------------
In fiscal year 1996, Xscribe derived about 49% of its
consolidated revenues from its Imaging Products ("Imaging")
segment, primarily from the sale and service of Photomatrix
document scanners and Photomatrix aperture card scanners, as more
fully described below.
DOCUMENT SCANNERS
-----------------
Xscribe's Photomatrix subsidiary offers a line of medium and
high-speed paper document scanners that serve as input devices
for image management systems used in office automation and
litigation support applications. All Photomatrix scanners are
constructed for rugged, high volume use, offering higher duty
cycles and reliability than most competitive models.
The complete image capture system among the Photomatrix
document scanner line is the Series 6000, a high-speed (4,200
dual-sided pages per hour at 200 dots per inch [dpi] resolution),
rugged, single or dual-sided, 200 to 400 dpi, automatic-feeding
document scanning system. Series 6000 includes the scanner, a
486/100 or Pentium PC, high-resolution display, Windows 3.1
application software and two circuit boards (using 32-bit EISA
Page 112 of 161 <PAGE>
bus technology) that enhance the scanner's speed and performance.
One board processes (or cleans up) the scanned images and the
other board compresses the images for storage. Photomatrix Image
Capture Software ("PICS"), which operates in Microsoft Windows
and supports Novell Netware, controls the scanning and PC
hardware, displays images and manages the workflow of the image
capture process (including indexing, scanning and formatting).
PICS supports Windows' Dynamic Link Libraries, allowing the user
to develop custom applications to use with Series 6000. Because
the Series 6000 scanner, boards and PICS were designed to work as
one tightly-integrated system, this configuration offers the best
efficiency among Photomatrix scanners.
Photomatrix also sells the Series 5000, a simplex or duplex,
high-resolution, 5000-element CCD scanner which captures
double-sided documents at speeds in excess of 7,000 dual sided
pages per hour. These rugged, high-duty-cycle machines differ
from the Series 6000 in that the Series 5000 is not bundled with
the Photomatrix image processing board, compression board, or
PICS. Instead, Series 5000 is plug compatible with
industry-leading interface (processing and compression) boards
from Kofax, Xionics, Seaport Imaging, and Image Machines.
To complement its line of document scanners, Photomatrix offers
Vision QC, a production and quality-control imaging software
solution. The Vision QC is a high-volume, production-level,
image-input and processing application with quality control,
indexing, optical character recognition (OCR), and data
reorganization features. Specifically designed to handle high
volumes of images, Vision QC reduces production time, increases
quality, enhances productivity, and lowers operating costs.
Photomatrix markets Series 5000 document scanners, Series 6000
image capture systems, and Vision QC image processing software to
service bureaus via its direct sales force and also to
high-volume end users through integrators and value-added
resellers. In addition, effective February 1996, Photomatrix
sells its document scanners to Bell & Howell Limited under an
exclusive original equipment manufacturing (OEM) arrangement
under which Bell & Howell Limited resells those scanners in
Europe, Africa, the Indian subcontinent and the Middle East.
Effective June 1996, Photomatrix also sells its document scanners
to Bell & Howell under a separate OEM agreement under which Bell
& Howell resells those scanners in the United States and Canada.
The international agreement guarantees 35 units in the period
from September 1995 to June 30, 1997 and the domestic agreement
contains no minimum requirement. Generally, both Bell & Howell
agreements preclude Photomatrix from selling document scanners to
dealers or distributors who represent Bell & Howell scanners.
Photomatrix's primary competitors in the medium- to high-speed
document scanner market include Kodak, Fujitsu, Bell and Howell
and BancTec Technologies. Management believes that Photomatrix
Page 113 of 161 <PAGE>
scanners compete successfully because their design features
provide an attractive price/performance ratio for medium- to
high-volume service organizations and end users.
APERTURE CARD SCANNERS
----------------------
Photomatrix aperture card scanners are used to scan microfilm
images of engineering drawings for storage in a digital format.
In addition to crisper images, the digital format permits users
to electronically store, retrieve, distribute and print
engineering documents in a local or enterprise wide environment.
Photomatrix aperture card scanners offer a wide range of
automation, throughput speed and image enhancement features.
Photomatrix sells aperture card scanners primarily to corporate
in-house and third-party service bureaus who scan microfilmed
engineering drawings for the end users of those drawings.
Photomatrix also sells a limited number of aperture card scanners
under subcontracts to provide electronic-imaging systems to the
Department of Defense.
INFORMATION MANAGEMENT SOLUTIONS
--------------------------------
Xscribe's Information Management Solutions ("Solutions") segment
consists of groupware systems distributed and supported by Lexia
Systems, Inc. ("Lexia") and computer-aided transcription systems
developed, manufactured, distributed and supported by Xscribe
Legal Systems, Inc. ("Legal Systems"). In fiscal year 1996,
Xscribe derived about 51% of its consolidated revenues from its
Solutions segment.
COMPUTER-AIDED TRANSCRIPTION ("CAT") SYSTEMS
--------------------------------------------
A CAT system computerizes the process of taking dictation and
preparing transcripts of testimony given during a deposition or
courtroom proceeding. The system includes two primary components,
a writer and a computer with application software. The writer is
used by a court reporter to take and store in memory the
stenotyped notes of the proceedings as they occur. The computer
and application software are used to translate the stenotyped
notes into English, either as the notes are taken ("real-time")
or later, to communicate to other networked litigation support
applications, and to edit and print a final document.
The Company manufactures and sells a leading-edge line of
stenographic writers. The high end product in this line is the
Vision 486, a combination stenographic writer and portable PC.
The Vision 486 combines Legal Systems' writer technology
(described below in the description of the StenoRam(R) ULTRA)
with a full-functioning Intel 486/33-based portable PC,
all-in-one lightweight package. This unique combination gives
Legal Systems' court reporting customers the ability to provide
real-time services at the attorney's or judge's offices without
Page 114 of 161 <PAGE>
carrying several separate pieces of equipment. Further, Vision
486 users can run DOS or Windows-based software on the PC
included within the Vision 486.
Legal Systems also offers StenoRam ULTRA, a stand-alone
electronic stenographic writer that communicates with an external
PC via cable or disk. This writer stores notes on a 3.5 inch disk
and in its RAM memory. The ULTRA has a rechargeable battery, an
optional modem for transmitting notes over telephone lines, an
LCD display from which notes can be read back, and a
time-stamping feature for video synchronization.
Legal Systems also sells XEC-2001, a PC-based translating and
editing system designed for real-time reporting and litigation
support. This software accepts input from most steno-writers,
translates the steno to English in real-time or after the fact,
communicates the English to networked PC's running litigation
support applications used by judges, attorneys and other
litigants, and edits and prints the final document. Because most
court reporters now use a PC based CAT system like XEC-2001,
Legal Systems' sales of XEC-2001 have declined steadily over
recent years.
GROUPWARE
---------
The majority of Xscribe's groupware (office automation) revenues
are derived from Lexia's resale, integration and support of
OfficePower, a groupware system developed by International
Computers Limited, Inc. ("ICL"). OfficePower is a Unix-based
system that currently operates on the ICL or Sun version of the
Unix operating system.
The backbone of OfficePower is electronic mail which allows users
within workgroups, divisions and entire enterprises to
communicate electronically. OfficePower also includes word
processing and calendaring capabilities that allow users to
create and edit documents, schedule meetings and manage time.
OfficePower options include workflow systems that control the
flow of information among users, imaging systems that enable the
electronic mail and workflow systems to handle images as well as
word-processed documents, and document management systems that
allow users to search through databases of documents to locate
specified information.
Primarily because OfficePower is a host-based system, future
sales will be limited primarily to the upgrade of existing
installations because most buyers of new groupware solutions
desire client-server architected systems. OfficePower sales have
declined in recent years as the existing installed base
transitions to other solutions, and this trend is likely to
continue.
Page 115 of 161 <PAGE>
To replace the revenues lost from the continuing decline in
OfficePower sales, Lexia intends to resell ICL's and Fujitsu's
TeamWARE brand of client-server architected groupware systems
which operate on OS/2, Windows NT, Novell Netware and Unix
platforms. Although TeamWARE is a leader in international market
share, few installations have been sold to date in the United
States. ICL and its parent company Fujitsu have introduced
TeamWARE in the U.S. where TeamWARE competes with powerful
competition from Novell, Lotus Development and Microsoft.
Although TeamWARE may offer competitive advantages such as better
scalability, modularity, and open systems, its future success in
the U.S. is very difficult to predict.
FACILITIES
----------
The Company leases its corporate headquarters located in San
Diego, California. The Company first occupied this facility in
November 1990. This facility consists of approximately 16,000
square feet which houses Xscribe's corporate offices and Legal
Systems' manufacturing, sales and administrative offices. The
lease expires in November 1998.
The Company also leases facilities in Culver City, California;
Chandler, Arizona; Reston, Virginia; and London, England. These
facilities house the Photomatrix operations, Photomatrix product
development, Lexia operations, and Photomatrix European
operations, respectively. The Culver City facility consists of
49,000 square feet (of which 15,000 square feet has been
subleased to third-party tenants), and the lease expires in May
1997. The Chandler facility consists of 5,100 square feet and the
lease expires in June 1997. The London facility consists of
2,400 square feet and the lease expires in May 2013. Xscribe
subleases 6,000 square feet in Reston, Virginia for its Lexia
operations from ICL, which sublease expires in August 1997.
Xscribe believes that its facilities are sufficient to
accommodate the Company's current needs and does not anticipate
leasing additional space during the current fiscal year.
LEGAL PROCEEDINGS
-----------------
The Company is a defendant in three products liability cases
pending in the United States District Court, Eastern District of
New York (Bernhart v. Xscribe et al. (92 Civ. 3931), Galfin v.
Xscribe (92 Civ. 2582), and Hagipadelis v. Xscribe (95 Civ.
1977)). Each of the complaints contends that the keyboards on
writers or proprietary court-reporting computers sold in the
1980s were defectively designed and the Company failed to provide
adequate warnings about how the equipment could be used to avoid
arm, wrist and hand injuries, including carpel tunnel syndrome.
The three cases seek a total of $4 million in compensatory
Page 116 of 161 <PAGE>
damages and $40 million in punitive damages. Xscribe has
tendered these claims to its insurance carriers, St. Paul Fire
and Marine Insurance, and Federal Insurance Company, and St. Paul
has assumed the Company's defense without reservation of right
and Federal has agreed to share defense costs, subject to a
reservation of rights. The Galfin and Hagipadelis cases are
pending before the same judge and have been consolidated with
unrelated repetitive stress injury cases pending against
Stenograph Corporation (an Xscribe competitor) for discovery and
trial on liability issues. These cases are set for a jury trial
to begin in September 1996, which is subject to change. The third
case is currently inactive pending an expected decision by a New
York state appellate court on the accrual of statues of
limitations. It may take several years before this litigation is
ultimately resolved. The Company believes that there is no merit
to any of the three pending cases and further believes that if
any liability results from these claims, the liability (excluding
punitive damages, if any) will be covered by its insurance
policies. However, depending upon the outcome of these cases,
Xscribe may be served in the future with additional claims or be
subject to liability in excess of insurance policy limits.
SELECTED FINANCIAL DATA
-----------------------
Following are selected operating and balance sheet data as of and
for each of the five years in the period ended March 31, 1996.
Amounts are stated in thousands, except percents, ratios and per
share data:
Page 117 of 161 <PAGE>
<TABLE>
<CAPTION>
For the years
ended March 31,
-----------------
---------------------------
1996199519941993
1992
-----------------
---
<S> <C><C><C><C><C>
OPERATING DATA
Revenues $ 18,401$ 21,149$
21,477 $ 9,479 $ 7,751
Gross profit percent 30%35%39%43%34%
Net income (loss)
from continuing
operations before
extraordinary item $ (1,689)$ 238$
1,462 $ 857 $ 271
Net income (loss) $ (1,704)$
(133) $ 1,222 $ 662$ 271
Income (loss) per
share from
continuing
operations before
extraordinary item $ (0.29)$ 0.04$
0.27 $ 0.27 $ 0.11
Net income (loss)
per share $ (0.30)$
(0.02) $ 0.23 $ 0.21$ 0.11
Dividends per share $ --$ --$ --$ --$
--
BALANCE SHEET DATA
Working capital $ 3,504$ 4,135$
4,203 $ 2,141 $ 1,514
Current ratio 1.74 1.98
2.05 2.49 1.92
Total assets $ 14,457$ 15,153$
15,092 $ 5,352 $ 4,974
Total long-term debt
and obligations $ 1,148$ 699$
827 $ 9 $ 58
</TABLE>
Page 118 of 161 <PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
-----------------------------------------------------------
Management's discussion and analysis of financial condition and
results of operations should be read in conjunction with the
selected financial data and consolidated financial statements and
notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
---------------------
Following is a comparative discussion by fiscal year of the
results of operations for the last three fiscal years ended March
31, 1996. The Company believes that inflation has not had a
material effect on its operations to date.
Fiscal year 1996 ended March 31, 1996 compared to fiscal year
1995 ended March 31, 1995
-------------------------------------------------------------
Consolidated revenues for the year ended March 31, 1996 decreased
by $2,748,000 (13%) to $18,401,000 from $21,149,000 for the year
ended March 31, 1995. Revenues in the Solutions Segment decreased
$2,127,000 (19%) to $9,309,000 in the current year from
$11,436,000 in the prior year. This decrease was due primarily to
decreased CAT sales volumes and continued price erosion in this
very competitive and shrinking market. Also contributing to the
decline in Solutions Segment revenue was a $630,000 (16%)
decrease in groupware sales caused primarily by decreased sales
of OfficePower. Revenues in the Imaging Segment decreased
$621,000 (6%) to $9,092,000 in the year ended March 31, 1996 from
$9,713,000 in the year ended March 31, 1995. This decrease was
due to a 42% ($1,658,000) expected decrease in COM duplicator
revenues, somewhat offset by an 18% ($1,037,000) increase in
scanner product and service revenue.
Consolidated gross margins for the year ended March 31, 1996
decreased $1,889,000 (25%) to $5,519,000 from $7,408,000 in the
year ended March 31, 1995. Gross margin in the Solutions Segment
decreased $1,765,000 (41%) to $2,586,000 in the current year from
$4,351,000 in the prior year. The decrease in gross margin was
due to declining prices and sales volumes in the CAT marketplace,
coupled with the decrease in groupware sales. Gross margin as a
percent of sales in the Solution Segment decreased from 38% in
the prior year to 28% in the current year due to continued CAT
price erosion and product-mix issues. Gross margin in the Imaging
Segment decreased $124,000 (4%) to $2,933,000 in the year ended
March 31, 1996 from $3,057,000 in the year ended March 31, 1995.
Gross margin as a percent of sales in the Imaging Segment
remained relatively constant at about 32%.
Page 119 of 161 <PAGE>
Sales, general and administrative expenses decreased $105,000
(2%) from $6,320,000 in the prior year to $6,215,000 in the
current year. The net decrease includes a $426,000 increase at
Photomatrix to develop its sales and marketing channels for
scanners, offset by $531,000 of cost reductions in the Solutions
Segment and corporate headquarters. As a percent of sales, SG&A
increased from 30% in the prior year to 34% in the current year,
primarily due to the decreased revenues in the current year.
Product development expenses increased $52,000 (7%) from $706,000
in the year ended March 31, 1995 to $758,000 in the year ended
March 31, 1996. Product development expenditures that were
capitalized because they related to technologically feasible
projects were $788,000 in the current year compared to $539,000
in the prior year. Total development spending increased $301,000
from $1,245,000 in the prior year to $1,546,000 in the current
year primarily because of increased scanner development activity
at Photomatrix.
Other income (expense), which consists primarily of interest
expense, increased $106,000 from $122,000 in the prior year to
$228,000 in the current year. This increase was due to increased
borrowings under the Company's credit facility, primarily used to
finance increased inventory levels.
The Company's provisions for income taxes were $7,000 and $22,000
in the years ended March 31, 1996 and 1995, respectively. These
amounts are substantially different from provisions calculated
using the statutory rates because of the effects of net operating
losses and related carryforwards, net of valuation allowances.
The decreases in revenues and gross margin, and the increased
product development and interest expenses, offset slightly by the
reduction in SG&A costs, resulted in a loss from continuing
operations of $1,689,000 ($0.29 per share) for the year ended
March 31, 1996. This compares to income from continuing
operations of $238,000 ($0.04 per share) for the year ended
March 31, 1995.
In the prior year, the Company operated a scanning service
bureau. Subsequent thereto, this service bureau was
discontinued. Including the loss from discontinued operations of
$371,000 and $15,000 in the prior and current years,
respectively, net loss increased from $133,000 ($0.02 per share)
in the year ended March 31, 1995 to $1,704,000 ($0.30 per share)
in the year ended March 31, 1996.
Fiscal year 1995 ended March 31, 1995 compared to fiscal year
1994 ended March 31, 1994
-------------------------------------------------------------
Two of Xscribe's businesses (Photomatrix and Lexia) were acquired
during the fiscal year ended March 31, 1994. Because of the
Page 120 of 161 <PAGE>
timing of these acquisitions, the fiscal year 1994 results
include only eleven months of Photomatrix operations and only
five months of Lexia operations. This explains much of the
difference in results of operations between fiscal years 1995 and
1994.
Revenues for the year ended March 31, 1995 were $21,149,000
compared to revenues of $21,477,000 in the prior year. These
total revenues did not increase in spite of the prior year
acquisitions because increases resulting from these acquisitions
and internal growth were offset by an approximate $4.5 million
decline in microfiche duplicator and CAT revenues. Revenues in
the Imaging Segment were $9,713,000 in fiscal year 1995 and
$9,742,000 in fiscal year 1994. These revenues reflect a $3
million decline in microfiche duplicator revenues offset by an
additional month of Photomatrix operations and a 127% increase in
scanner revenues. Revenues in the Solutions Segment were
$11,436,000 in fiscal year 1995 compared to $11,735,000 in fiscal
year 1994. The decrease of $298,000 (3%) was primarily a result
of a 16% decrease in CAT revenues which were partially offset by
the additional seven months of revenues at Lexia. The decrease
in CAT revenues resulted primarily from continuing software price
and unit declines in a very competitive and shrinking market. In
addition, although reported revenues at Lexia increased as a
result of the additional seven months of operations, on an
annualized basis Lexia revenues decreased by 40% compared to the
prior year five-month annualized results. This decrease in the
run rate of groupware revenues was due to declines in sales to
existing customers which have not been replaced by sales to new
customers.
Gross margin for the year ended March 31, 1995 decreased by 11%
to $7,408,000 (35% of revenue) compared to $8,355,000 (39% of
revenue) in the prior year. Gross margin in the Imaging Segment
decreased by 10% from $3,391,000 (35% of related revenue) in
fiscal year 1994 to $3,057,000 (31% of related revenue) in fiscal
year 1995. This decrease was the result of microfiche duplicator
volume inefficiencies, learning curve inefficiencies related to
scanners, increases in the quantity of low margin PC's sold with
scanners, and increases in support personnel made to prepare for
the anticipated continuation in the growth of scanner sales.
Gross margin in the Solutions Segment decreased by 12% from
$4,964,000 (42% of related revenue) in fiscal year 1994 to
$4,351,000 (38% of related revenue) in fiscal year 1995. This
decrease resulted from a decline in CAT gross margins from 42% of
revenue to 35% of revenue (primarily because of price erosion)
offset partially by the incremental seven months of sales at
Lexia. Lexia gross margin as a percent of revenue remained
relatively constant at about 44%.
Selling, general and administrative expenses ("SG&A") increased
by $565,000 or by 10%, from $5,755,000 (27% of revenues) in
Page 121 of 161 <PAGE>
fiscal year 1994 to $6,320,000 (30% of revenues) in fiscal year
1995. The increase in SG&A spending resulted almost entirely from
the incremental seven months of operations at Lexia. The increase
as a percent of revenues resulted primarily from the decreased
run rate in revenues at Lexia.
Product development expenses decreased by $301,000 or 30% from
$1,007,000 in the year ended March 31, 1994 to $706,000 in the
year ended March 31, 1995. Product development expenditures that
were capitalized because they related to technologically feasible
projects were $539,000 in fiscal year 1995 compared to $726,000
in fiscal year 1994. The $488,000 (28%) decrease in development
spending (from $1,733,000 to $1,245,000) was primarily the result
of decreases at Legal Systems because of the prior year
completion of the Vision 486 project.
Net other expense increased by $22,000, from $100,000 in 1994 to
$122,000 in 1995, primarily because of increased utilization of
the Company's line of credit.
The Company's provision for income taxes was $22,000 and $31,000
in 1995 and 1994, respectively. These amounts are substantially
less than the provision calculated using the statutory rates
because of the effects of net operating loss carryforwards, net
of valuation allowances.
The decreased revenues and gross margins and the increased SG&A
and interest expenses offset slightly by the decreased product
development expenses, resulted in income from continuing
operations for the year ended March 31, 1995 of $238,000 or $0.04
per share. This compares to income from continuing operations of
$1,462,000 or $0.27 per share for the year ended March 31, 1994.
Xscribe discontinued and sold its microfilming service bureau in
fiscal year 1994, and it discontinued its imaging service bureau
in fiscal year 1995. Including losses from the discontinued
operations of $371,000 and $240,000 in 1995 and 1994,
respectively, net income decreased from $1,222,000 ($0.23 per
share) in 1994 to a net loss of $133,000 ($0.02 per share) in
1995.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Following is a discussion of Xscribe's recent and future sources
of and demands on liquidity as well as an analysis of liquidity
levels.
RECENT AND FUTURE SOURCES OF AND DEMANDS ON LIQUIDITY AND CAPITAL
RESOURCES
---------------------------------------------------------
Page 122 of 161 <PAGE>
During fiscal year 1996, the Company's primary sources of
liquidity were income before depreciation and amortization of
$224,000, reductions in the Company's accounts receivable of
$200,000, increases in customer deposits of $702,000, net
proceeds from the Company's credit facility of $524,000, and cash
reserves. Primary uses of cash in the year ended March 31, 1996
were to increase inventories ($477,000), reduce accounts payable
and accruals ($116,000), capital expenditures ($1,242,000), and
to repay notes payable ($108,000). In the year ended March 31,
1996, the Company's cash balance decreased $92,000 from $311,000
to $219,000.
The Company has a line of credit with a bank to borrow a total
of $1 million of which $170,000 was outstanding at March 31,
1996. This line of credit accrues interest on outstanding
borrowings at prime plus 1-1/4% per annum. The Company also has a
term loan with the same bank for an additional $854,000 as of
March 31, 1996. Monthly principal payments on this term note are
$21,000 and interest accrues at prime plus 1-1/2% per annum.
Outstanding borrowings under this combined credit facility are
collateralized by all of the Company's assets.
As of March 31, 1996, the Company was in violation of certain
financial covenants required by the combined credit facility. In
June 1996, the Company renegotiated the facility to cure these
defaults and to extend the term of the agreement. Total
borrowings under the combined credit facility are now limited to
the lesser of 1) the balance on the term loan plus $1 million or
2) 80% of eligible accounts receivable (as defined). Total
borrowings are limited to $1.5 million as of April 30, 1996. The
Company is now required to 1) maintain a minimum tangible net
worth of $4,000,000, 2) maintain a ratio of total liabilities to
tangible net worth of not greater than 1.5 to 1.0, 3) maintain
working capital of $3,000,000, and 4) maintain a current ratio of
1.5 to 1.0. The new combined credit facility expires in August
1997.
The Company is obligated under a series of unsecured notes
payable totaling $668,000 as of March 31, 1996. These notes bear
interest at a rate of 8% per annum and mature in May 2000.
Interest and principal payments totaling $16,000 are due monthly.
The Company' assured sources of future short-term liquidity as of
March 31, 1996 are its cash balance of $219,000 and the unused
portion of its line of credit of $830,000. Availability under the
line of credit can be further limited based on the balance of
eligible accounts receivables as described above.
The Company is currently obligated to pay approximately $40,000
per month in lease payments. Aside from these commitments, the
Company has not made any material capital commitments.
ANALYSIS OF LIQUIDITY LEVELS
Page 123 of 161 <PAGE>
----------------------------
Following is an analysis of liquidity levels that may affect the
Company's businesses within its two industry segments. The
discussion contains forward-looking information which is subject
to certain risks, as disclosed below.
The Company expects that the capital expenditures required to
maintain and grow its consolidated operations will approximate $1
million for the coming year. The capital expenditures required in
future periods will consist primarily of software development
costs needed to maintain products at competitive levels and
demonstration equipment needed to sell the Company's products.
However, the Company may be required to reallocate or increase
its capital expenditures due to competitive conditions or other
unforeseen circumstances and the Company reserves the right to
change its strategy and to reallocate or change the amount of its
capital expenditures. Future additional working capital
requirements will depend on future growth rates, if any, and will
stem from the need to finance increased inventory and accounts
receivable levels commensurate with the growth rate. The Company
believes that the future capital expenditures and working capital
increases will be financed from internally generated funds (i.e.
profits before depreciation and amortization). Accordingly, the
Company believes that it currently has sufficient liquidity to
fund its consolidated operating needs for at least the next year,
assuming that Xscribe can improve profitability and reduce
inventory levels at Photomatrix.
TRENDS AND UNCERTAINTIES
------------------------
Following is a discussion of trends and uncertainties that may
affect the Company's businesses within its two industry segments.
The discussion contains forward-looking information which is
subject to certain risks as disclosed below.
IMAGING PRODUCTS
----------------
Xscribe's growth strategy with respect to Photomatrix is
dependent upon Photomatrix's ability to market successfully its
document scanners. In this regard, Photomatrix is currently
focusing on expanding its indirect distribution channels through
OEM arrangements, such as the new OEM agreements with Bell &
Howell, and through resellers. At this time, the indirect
distribution channels are not well developed and there is no
assurance that these channels will lead to increased sales.
Photomatrix's direct sales efforts were disrupted during the
fourth quarter of the fiscal year ended March 31, 1996 due to the
departure of its direct sales force, and this trend of
direct-sales disruption is expected to continue through the
second quarter of fiscal 1997. There is no assurance that
Photomatrix's marketing efforts will be successful. Competitors
Page 124 of 161 <PAGE>
of Photomatrix have substantially greater resources and may be
able to compete more effectively on technology, price or product
features. Photomatrix is also constrained by limits on its
marketing budget and ability to create brand recognition.
Further, Photomatrix's products are relatively high-priced
durable goods and economic conditions that adversely affect the
market for durable goods could have an adverse effect on
Photomatrix's orders.
INFORMATION MANAGEMENT SOLUTIONS
--------------------------------
Xscribe believes that industry-wide revenues from the sale of CAT
systems will continue to decline significantly in the future, and
that the industry is likely to consolidate. Xscribe's primary
competitor for stenographic writers, Stenograph Corporation, was
recently sold to a private company that specializes in purchasing
mature niche businesses in which the company has a dominant
market share. The CAT market is extremely competitive and average
sales prices for both software and writers have declined in
recent years. Xscribe's strategy is to invest in this industry to
the extent necessary to maintain competitive products and sustain
positive cash flow from the business. However, further reductions
in market size or market prices or the development of new
products by competitors could have an adverse effect on Xscribe's
revenues, cash flow and earnings.
Lexia's revenues have declined due to the limits on its sale of
ICL's OfficePower products and the failure of ICL to establish a
market for TeamWARE products in the United States. Lexia's
existing installed customer base of OfficePower users (about 70
entities) is comprised of entities that have already made a major
financial commitment to use host-based systems for
enterprise-wide computing. Lexia expects that new sales of
OfficePower will be limited primarily to existing customers who
desire to upgrade their existing OfficePower systems.
Due to the limitations on the OfficePower market, Lexia's ability
to sustain current revenue levels and to grow is dependent upon
its ability to resell TeamWARE, ICL's and Fujitsu's client/server
architected groupware/office automation products. Lexia's efforts
to resell TeamWARE have been hampered by ICL and Fujitsu's
failure to establish 1) market recognition in the United States
for the products and 2) distribution channels in the United
States, both of which are essential due to market competition. A
number of large U.S. software companies, including Lotus
Development Corporation (a subsidiary of IBM), Microsoft
Corporation and Novell Corporation, have developed groupware
products that compete with TeamWARE. Lexia intends to concentrate
its resale efforts on niche markets, including the legal market.
Due to limitations on Lexia's resources, its ability to resell
TeamWARE is dependent upon ICL's and Fujitsu's financial
Page 125 of 161 <PAGE>
commitment to establish TeamWARE in the United States and upon
TeamWARE's market acceptance, neither of which are within Lexia's
control. Accordingly, there is no assurance that Lexia will be
able to resell TeamWARE in the United States.
Further, Xscribe and ICL have had certain disagreements relating
to ICL's alleged breach of its obligations under the 1993
strategic alliance and reseller agreement and under the
cooperative marketing agreement for TeamWARE that became
effective November 1, 1995. Since March 1996, Xscribe and ICL
have been engaged in negotiations to settle these disagreements
and restructure the agreements without litigation. Under the
terms of the settlement reached in principle, the cooperative
marketing agreement would terminate effective March 31, 1996, the
exclusive distribution and licensing agreement for OfficePower
and TeamWARE in the United States and Canada would be
restructured as a non-exclusive reseller agreement (with sales
limited to end users), and the strategic alliance between ICL and
Lexia would be terminated. In exchange for the restructuring, ICL
would return to Xscribe for cancellation 666,666 shares of
Xscribe common stock owned by ICL. Due to these negotiations and
the disagreements that led to the negotiations, Xscribe
discontinued its efforts under the cooperative marketing
agreement to establish a TeamWARE reseller network in the United
States. Due to the protracted nature of the negotiations and the
disagreements, there is no assurance that Xscribe and ICL will
settle their current disagreements or that a settlement will be
reached on the same general terms and conditions as the existing
settlement in principle. If these disagreements are not settled,
Xscribe may be forced to litigate its claims against ICL, and
there is no assurance that litigation would be successful.
NEW ACCOUNTING STANDARDS
------------------------
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. ("SFAS") 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," effective for fiscal years
beginning after December 15, 1995. SFAS 121 requires impairment
losses to be recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less
than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed
of. The Company does not believe, based on current circumstances,
the effect of adoption of SFAS 121 will have a material impact on
its financial condition or results of operations.
In October 1995, the Financial Accounting Standards Board issued
SFAS 123, "Accounting for Stock-Based Compensation," effective
for fiscal years beginning after December 15, 1995. SFAS 123
establishes the fair value based method of accounting for
stock-based compensation arrangements, under which compensation
Page 126 of 161 <PAGE>
cost is determined using the fair value of the stock option at
the grant date and the number of options vested, and is
recognized over the periods in which the related services are
rendered. If the Company were to retain its current intrinsic
value based method, as allowed by SFAS 123, it will only be
required to disclose the pro forma effect of adopting the fair
value based method.
Page 127 of 161 <PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and
Shareholders of Xscribe Corporation:
We have audited the accompanying consolidated balance sheets of
Xscribe Corporation and subsidiaries as of March 31, 1996 and
1995, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in the
three-year period ended March 31, 1996. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Xscribe Corporation and subsidiaries as of March 31,
1996 and 1995, and the results of their operations and their cash
flows for each of the years in the three-year period ended March
31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat
Marwick LLP
San Diego, California
June 3, 1996, except for the last paragraph of Note 6, which is
as of June 17, 1996
Page 128 of 161 <PAGE>
<TABLE>
<CAPTION> XSCRIBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995 1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 219,000 $ 311,000
Accounts receivable, net of allowance
of $218,000 and $227,000 3,423,000 3,623,000
Inventories 4,374,000 3,897,000
Prepaid expenses and other 232,000 400,000
Net assets of discontinued operations (Note 2) -- 109,000
----------- -----------
Total current assets 8,248,000 8,340,000
----------- -----------
Property and equipment, at cost 4,776,000 4,616,000
Less accumulated depreciation and amortization (2,638,000) (2,125,000)
----------- -----------
Net property and equipment 2,138,000 2,491,000
----------- -----------
Intangible assets, net of accumulated
amortization of $5,720,000 and $4,634,000
(Notes 1 and 2) 3,823,000 4,127,000
Other assets 248,000 195,000
----------- -----------
$14,457,000 $15,153,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,119,000 $ 2,182,000
Accrued liabilities and other (Note 8) 682,000 735,000
Customer deposits (Note 8) 1,382,000 680,000
Line of credit (Note 6) 170,000 500,000
Current maturities of term note (Note 6) 250,000 --
Current maturities of notes payable
to related parties (Note 5) 141,000 108,000
----------- -----------
Total current liabilities 4,744,000 4,205,000
----------- -----------
Notes payable to related parties (Note 5) 527,000 668,000
Other non-current liabilities (Note 6) 621,000 31,000
Commitments and contingencies (Note 10)
Shareholders' equity (Note 4):
Common stock, no par value; 30 million
shares authorized, 5,715,000 and
5,719,000 issued and outstanding 20,093,000 20,132,000
Accumulated deficit (11,591,000) (9,887,000)
Cumulative translation adjustment 63,000 4,000
----------- -----------
Total shareholders' equity 8,565,000 10,249,000
----------- -----------
$14,457,000 $15,153,000
=========== ===========
</TABLE>
Page 129 of 161 <PAGE>
The accompanying notes are an
integral part of these consolidated
balance sheets.
Page 130 of 161 <PAGE>
<TABLE>
XSCRIBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
1996 1995 1994
------------ ------------
- - ------------
<S> <C> <C> <C>
Revenues:
Equipment and software $ 14,245,000 $ 16,793,000
$18,034,000
Services 4,156,000 4,356,000
3,443,000
------------ ------------
- - ------------
Total revenues 18,401,000 21,149,000
21,477,000
------------ ------------
- - ------------
Cost of revenues:
Equipment and software 10,082,000 10,835,000
10,675,000
Services 2,800,000 2,906,000
2,447,000
------------ ------------
- - ------------
Total cost of revenues 12,882,000 13,741,000
13,122,000
------------ ------------
- - ------------
Gross profit 5,519,000 7,408,000
8,355,000
------------ ------------
- - ------------
Operating costs and expenses:
Selling, general and administrative 6,215,000 6,320,000
5,755,000
Research and development 758,000 706,000
1,007,000
------------ ------------
- - ------------
Total operating costs and 6,973,000 7,026,000
6,762,000
expenses ------------ ------------
- - ------------
Operating income (loss) (1,454,000) 382,000
1,593,000
------------ ------------
- - ------------
Other income (expense), net:
Interest expense (Notes 5 and 6) (228,000) (122,000)
(105,000)
Other, net -- --
5,000
------------ ------------
- - ------------
Net other income (expense) (228,000) (122,000)
(100,000)
------------ ------------
- - ------------
Income (loss) from continuing
operations before taxes (1,682,000) 260,000
1,493,000
Provision for income taxes (Note 7) 7,000 22,000
31,000
------------ ------------
- - ------------
Income (loss) from continuing
operations (1,689,000) 238,000
1,462,000
Loss from discontinued operations
(Note 2) (15,000) (371,000)
(240,000)
------------ ------------
- - ------------
Net income (loss) $ (1,704,000) $ (133,000) $
1,222,000
============ ============
============
Net income (loss) per share:
Continuing operations $ (0.29) $ 0.04 $
0.27
============ ============
============
Discontinued operations $ -- (0.06)
(0.04)
============ ============
============
Net income (loss) $ (0.30) $ (0.02) $
0.23
============ ============
============
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
Page 131 of 161 <PAGE>
<TABLE>
<CAPTION> XSCRIBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
Common Stock Cumulative
------------------ Accumulated Translation
Shares Amount
Deficit Adjustment Total
------ ------
------------ ----------- -----
<S> <C><C> <C>
<C> <C>
Balance,
March 31, 1993 2,867,000 $14,885,000 $(10,976,000) $ $
3,909,000
Common stock
issued to
acquire
Phomatrix
(Note 2) 921,000 1,386,000
1,386,000
Common stock
issued to
acquire net
assets of Lexia
(Note 2) 667,000 2,072,000
2,072,000
Common stock
issued in
private
placements
(Note 4) 743,000 1,250,000
1,250,000
Exercise of
warrants and
options
(Note 4) 487,000 488,000
488,000
Other (2,000) (1,000) (58,000)
(59,000)
Net income 1,222,000
1,222,000
--------- ----------- ------------ ----------
- - -----------
Balance,
March 31, 1994 5,683,000 20,080,000 (9,754,000) (58,000)
10,268,000
Exercise of
warrants and
options 36,000 46,000
46,000
(Note 4)
Other 6,000 62,000
68,000
Net loss (133,000)
(133,000)
--------- ----------- ------------ ----------
- - -----------
Balance,
March 31, 1995 5,719,000 20,132,000 (9,887,000) 4,000
10,249,000
Other (4,000) (39,000) 59,000
20,000
Net loss (1,704,000)
(1,704,000)
--------- ----------- ------------ ----------
- - -----------
Balance,
March 31, 1996 5,715,000 $20,093,000 $(11,591,000) $ 63,000 $
8,565,000
========= =========== ============ ==========
===========
Page 132 of 161 <PAGE>
</TABLE>
The accompanying notes are an
integral part of these consolidated
statements.
Page 133 of 161 <PAGE>
<TABLE> XSCRIBE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
1996 1995 1994
------------ ------------
- - ------------
<S> <C> <C> <C>
Operations:
Income (loss) from continuing $ (1,689,000) $ 238,000 $
1,462,000
operations
Adjustments:
Depreciation and amortization 1,913,000 1,712,000
1,530,000
------------ ------------
- - -----------
Changes in assets and liabilities:
Accounts receivable 200,000 (33,000)
(842,000)
Inventories (477,000) (293,000)
(338,000)
Prepaid expenses and other 168,000 (56,000)
(9,000)
Accounts payable (63,000) (209,000)
535,000
Accrued liabilities and other (53,000) (286,000)
(799,000)
Customer deposits 702,000 95,000
457,000
------------ ------------
- - -----------
Cash provided by continuing
operations 701,000 1,168,000
1,996,000
Cash provided by (used in)
discontinued operations 9,000 (480,000)
(5,000)
------------ ------------
- - -----------
Cash provided by operations 710,000 688,000
1,991,000
------------ ------------
- - -----------
Investing activities:
Acquisition of Photomatrix
(Note 2) - -
(2,686,000)
Acquisition of Lexia (Note 2) - -
(305,000)
Purchase of property and (454,000) (976,000)
(956,000)
equipment (788,000) (539,000)
(726,000)
Product development additions (53,000) (13,000)
(27,000)
Increase in other assets ------------ ------------
- - -----------
(1,295,000) (1,528,000)
(4,700,000)
Cash used in investing activities ------------ ------------
- - -----------
Financing activities:
Issuance of common stock 26,000 52,000
1,737,000
Proceeds from credit facility,
net (Note 6) 524,000 500,000
- - -
Repayment of notes payable to
related parties (Note 5) (108,000) -
- - -
Other (8,000) (20,000)
(10,000)
------------ ------------
- - -----------
Cash provided by financing activities 434,000 532,000
1,727,000
------------ ------------
- - -----------
Effects of exchange rates on cash 59,000 62,000
(58,000)
------------ ------------
- - -----------
Decrease in cash and cash equivalents (92,000) (246,000)
(1,040,000)
Cash, beginning of year 311,000 557,000
1,597,000
------------ ------------
- - -----------
Cash, end of year $ 219,000 $ 311,000 $
557,000
============ ============
===========
</TABLE>
Page 134 of 161 <PAGE>
The accompanying notes are an integral part of
these consolidated statements.
Page 135 of 161 <PAGE>
XSCRIBE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include
the financial statements of Xscribe
Corporation and its majority-owned
subsidiaries (the consolidated entity referred
to as the "Company"). All significant
intercompany accounts and transactions have
been eliminated in consolidation.
BUSINESS
The Company develops, manufactures, sells and
services high-technology products and image
and information management systems. The
Company's Information Management Solutions
Segment ("Solutions Segment") provides
sophisticated groupware (office automation)
and litigation support systems to the legal
marketplace and certain major U.S.
corporations. The Company's Imaging Products
and Services Segment ("Imaging Segment")
provides microfiche duplicators and
high-performance scanners to legal, financial,
government and commercial enterprises.
INTANGIBLE ASSETS (INCLUDING SOFTWARE
DEVELOPMENT COSTS)
Software development costs incurred to
establish technological feasibility are
expensed when incurred. Subsequent costs are
capitalized and amortized beginning when the
related product is available for general
release to customers. The amortization
recorded for such products each year equals
the greater of (i) the amount computed using
the ratio that current revenues bear to total
current and anticipated revenues, or (ii) the
amount computed using the straight-line method
over the remaining useful life of the product
not to exceed a total life of five years.
Unamortized computer software costs, included
in intangible assets, were $1,510,000 and
$1,307,000 as of March 31, 1996 and 1995,
respectively. Amortization expense for
Page 136 of 161 <PAGE>
capitalized software development costs was
$555,000, $365,000 and $562,000 for fiscal
years 1996, 1995 and 1994, respectively.
Management periodically assesses the
realizability of all intangible assets, based
upon internal projections of future cash flows
to be realized from those intangible assets,
and records impairment allowances when
appropriate. No such allowances were recorded
in the years presented.
FOREIGN CURRENCY TRANSLATION
The accounts of the Company's foreign
subsidiary are measured using local currency
as the functional currency; assets and
liabilities are translated into U.S. dollars
at period-end exchange rates, and income and
expense accounts are translated at average
monthly exchange rates. Net exchange gains or
losses resulting from such translation are
excluded from net income and accumulated in a
separate component of shareholders' equity
("cumulative translation adjustment"). Gains
and losses from foreign currency transactions
are not significant and are included in
selling, general and administrative expenses
in the consolidated statements of operations.
INVENTORIES
Inventories include material, labor and
overhead valued at the lower of cost
(first-in, first-out) or market, and consist
of the following as of March 31, 1996 and
1995:
1996 1995
-------
----- ------------
Raw
materials $
2,203,000 $ 2,321,000
Work in
process 748,000
956,000
Finished
goods
1,423,000 620,000
-------
----- ------------
Page 137 of 161 <PAGE>
$
4,374,000 $ 3,897,000
============ ============
REVENUE RECOGNITION
Equipment and software sale revenues are
recognized upon transfer of the risk of
ownership to the customer which typically
occurs upon shipment from either the Company's
or its agent's distribution location. The
Company has no significant obligations related
to software sales subsequent to delivery and
subsequent to management's assessment that the
collectibility of the related receivable is
probable. Service revenues are recognized over
the related contract period for maintenance
contracts, or as the services are rendered.
PROPERTY AND EQUIPMENT
Substantially all property and equipment is
demonstration equipment, manufacturing
equipment and personal computers used in the
Company's assembly, product development, sales
and administrative activities. These items
are stated at cost. Depreciation and
amortization are provided over the estimated
useful lives, typically three to five years,
using the straight-line method.
INCOME TAXES
Income taxes are accounted for under the asset
and liability method. Deferred tax assets and
liabilities are recognized for the future tax
consequences attributable to differences
between the financial statement carrying
amounts of existing assets and liabilities and
their respective tax basis and operating loss
and tax credit carryforwards. Deferred tax
assets and liabilities are computed using
enacted tax rates expected to apply to taxable
income in the years in which temporary
differences are expected to be recovered or
settled. The effect on deferred tax assets and
liabilities from a change in tax rates is
recognized in income in the period that
includes the enactment date.
NET INCOME (LOSS) PER COMMON SHARE
Page 138 of 161 <PAGE>
Net income (loss) per common share has been
computed based on the weighted average number
of common shares and common equivalent shares
(the dilutive effect of stock options and
warrants) outstanding during the year. The
weighted average number of common shares and
common equivalent shares used in computing
earnings (loss) per share is 5,742,000,
5,959,000 and 5,416,000 in fiscal years 1996,
1995 and 1994, respectively. Primary and fully
diluted earnings (loss) per share are the same
for all periods presented.
STOCK OPTIONS
The Company accounts for stock options under
the intrinsic value based method whereby
compensation expense is recognized on the
difference between the quoted market price of
the Company stock at the date of grant and the
option price.
SIGNIFICANT CUSTOMERS
One customer (Eastman Kodak) accounted for 21
percent of the Company's total revenues for
fiscal year 1994. No other customer accounted
for more than 10 percent of the Company's
total revenues during the years presented.
PRODUCT WARRANTY COSTS
The Company provides product warranties and
software support services to customers as part
of its standard sales agreement. The
warranties cover the service costs associated
with hardware and software defects and range
in term from 90 days to one year from date of
sale. The Company accrues the expected
warranty and support costs at the time of
revenue recognition on product sales.
SUPPLEMENTAL CASH FLOW INFORMATION
Interest and income taxes paid approximate the
amounts expensed in all years presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards
No. 107, "Disclosures About Fair Value of
Financial Instruments," requires that the fair
Page 139 of 161 <PAGE>
values be disclosed for the Company's
financial instruments. The carrying amount of
cash, accounts receivable, prepaid expenses
and other, other assets, accounts payable,
accrued liabilities and other, and customer
deposits approximate fair values because of
the short-term nature of these instruments.
The carrying amounts reported for the line of
credit, notes payable to related parties, and
other non-current liabilities approximate fair
values because the underlying instruments bear
interest at rates that are comparable to rates
available to the Company for similar debt
instruments.
USE OF ESTIMATES
Management of the Company has made a number of
estimates and assumptions relating to the
reporting of assets and liabilities and
disclosure of contingent assets and
liabilities at the date of the consolidated
financial statements and the reported amounts
of revenues and expenses during the reporting
period to prepare these consolidated financial
statements in conformity with generally
accepted accounting principles. Actual results
could differ from those estimates.
RECLASSIFICATIONS
Certain prior-year amounts have been
reclassified to conform to the current-year
presentation.
2. ACQUISITIONS AND DIVESTITURE
----------------------------
LEXIA SYSTEMS, INC.
In October 1993, the Company formed Lexia
Systems, Inc. ("Lexia") for the purpose of
acquiring certain assets and the primary
business of the North American Sales Division
of ICL, Inc. ("NAS"). In accordance with the
related purchase and other agreements, the
Company issued 666,666 shares of its
unregistered common stock, valued at
$2,072,000. In exchange, the Company received,
among other things, exclusive and
non-exclusive product distribution rights,
various operations, various support services
Page 140 of 161 <PAGE>
and favorable reseller prices, collectively
valued at $1,546,000. This amount is included
in intangible assets and is being amortized
over a period of five years. In addition, the
Company received certain tangible assets
valued at $526,000. This transaction has been
accounted for using the purchase method of
accounting. The accounts of Lexia are included
in the accompanying consolidated financial
statements from the date of the acquisition
(October 25, 1993).
The fiscal year 1994 initial investment in
Lexia's working capital of $262,000 (accounts
receivable of $1,073,000 less accounts payable
of $589,000 and accrued liabilities of
$222,000) plus acquisition costs of $43,000
have been reflected as investing activities in
the accompanying consolidated 1994 statement
of cash flows.
Xscribe and ICL have had certain disagreements
relating to ICL's alleged breach of its
obligations under the 1993 strategic alliance
and reseller agreement and under the
cooperative marketing agreement for TeamWARE
that became effective November 1, 1995. Since
March 1996, Xscribe and ICL have been engaged
in negotiations to settle these disagreements
and restructure the agreements without
litigation. Under the terms of the settlement
reached in principle, the cooperative
marketing agreement would terminate effective
March 31, 1996, the exclusive distribution and
licensing agreement for OfficePower and
TeamWARE in the United States and Canada would
be restructured as a non-exclusive reseller
agreement (with sales limited to end users),
and the strategic alliance between ICL and
Lexia would be terminated. In exchange for
the restructuring, ICL would return to Xscribe
for cancellation 666,666 shares of Xscribe
common stock owned by ICL. Due to these
negotiations and the disagreements that led to
the negotiations, Xscribe discontinued its
efforts under the cooperative marketing
agreement to establish a TeamWARE reseller
network in the United States. Due to the
protracted nature of the negotiations and the
disagreements, there is no assurance that
Xscribe and ICL will settle their current
disagreements or that a settlement will be
reached on the same general terms and
Page 141 of 161 <PAGE>
conditions as the existing settlement in
principle. If these disagreements are not
settled, Xscribe may be forced to litigate its
claims against ICL, and there is no assurance
that litigation would be successful. The
settlement with ICL will be recorded if and
when it is finalized and will result in no
material gain or loss to the Company.
PHOTOMATRIX CORPORATION
Effective April 30, 1993, the Company acquired
all of the outstanding common stock of
Photomatrix Corporation ("Photomatrix") in
exchange for 920,833 unregistered shares of
Xscribe common stock valued at about
$1,386,000 plus acquisition costs of $110,000.
This transaction has been accounted for using
the purchase method of accounting. The
purchase price has been allocated to net
tangible assets in the amount of a negative
$691,000 (i.e. liabilities assumed exceeded
tangible assets) and to Photomatrix technology
in the amount of $2,187,000. This latter
amount is included in intangible assets and is
being amortized over a period of ten years.
The accounts of Photomatrix are included in
the accompanying consolidated financial
statements from the date of the acquisition
(April 30, 1993).
In addition to the acquisition costs described
above, the subsequent repayment of past due
Photomatrix liabilities ($651,000), short-term
debt ($710,000), severance costs ($204,000)
and customer advance ($1,214,000) less cash
acquired ($203,000) have been reflected as
investing activities in the accompanying
fiscal year 1994 consolidated statement of
cash flows.
DISCONTINUED OPERATIONS
In fiscal year 1994, the Company discontinued
its microfilming service bureau, and in fiscal
year 1996, the Company discontinued its
imaging service bureau. The accompanying
consolidated financial statements reflect
these businesses as discontinued operations.
Revenues from these discontinued businesses
were $51,000, $177,000 and $662,000 in fiscal
years 1996, 1995 and 1994, respectively.
Page 142 of 161 <PAGE>
3. SEGMENT INFORMATION
The Company operates in two industry segments:
Solutions and Imaging as more fully described
in Note 1 and elsewhere in this document.
Segment information follows for 1996, 1995,
and 1994:
INDUSTRY SEGMENTS 1996 1995 1994
----------------- ------------ ------------ ------------
REVENUE:
Solutions $ 9,309,000 $ 11,437,000 $ 11,735,000
Imaging 9,092,000 9,712,000 9,742,000
------------ ------------ ------------
Total $ 18,401,000 21,149,000 $ 21,477,000
============ ============ ============
OPERATING INCOME
(LOSS):
Solutions $ (931,000) $ 149,000 $ 964,000
Imaging (523,000) 233,000 629,000
------------ ------------ ------------
Total $ (1,454,000) $ 382,000 $ 1,593,000
============ ============ ============
DEPRECIATION AND
AMORTIZATION:
Solutions $ 1,196,000 $ 1,012,000 $ 972,000
Imaging 682,000 681,000 522,000
Corporate 35,000 19,000 36,000
------------ ------------ ------------
Total $ 1,913,000 $ 1,712,000 $ 1,530,000
============ ============ ============
PURCHASE OF PROPERTY
AND EQUIPMENT:
Solutions $ 194,000 $ 288,000 $ 235,000
Imaging 221,000 622,000 682,000
Corporate 39,000 66,000 39,000
------------ ------------ ------------
Total $ 454,000 $ 976,000 $ 956,000
============ ============ ============
IDENTIFIABLE ASSETS:
Solutions $ 4,946,000 $ 6,372,000 $ 7,041,000
Imaging 9,063,000 8,316,000 7,385,000
Corporate 448,000 356,000 666,000
Discontinued
operations, net -- 109,000 --
------------ ------------ ------------
Total $ 14,457,000 $ 15,153,000 $ 15,092,000
============ ============ ============
Page 143 of 161 <PAGE>
GEOGRAPHIC AREAS 1996 1995 1994
----------------- ------------ ------------ ------------
REVENUE:
United States:
Domestic and
export customers $ 16,226,000 $ 19,397,000 $ 20,143,000
Inter-area 1,399,000 646,000 427,000
------------ ------------ ------------
Total United States 17,625,000 20,043,000 20,570,000
Foreign 2,175,000 1,752,000 1,334,000
Eliminations (1,399,000) (646,000) (427,000)
------------ ------------ ------------
Total $ 18,401,000 $ 21,149,000 $ 21,477,000
============ ============ ============
OPERATING INCOME
(LOSS):
United States $ (1,288,000) $ 150,000 $ 1,399,000
Foreign (97,000) 232,000 207,000
Eliminations (69,000) -- (13,000)
------------ ------------ ------------
Total $ (1,454,000) $ 382,000 $ 1,593,000
============ ============ ============
IDENTIFIABLE ASSETS:
United States $ 12,495,000 $ 14,098,000 $ 14,096,000
Foreign 2,031,000 1,075,000 1,029,000
Eliminations (69,000) (20,000) (33,000)
------------ ------------ ------------
Total $ 14,457,000 $ 15,153,000 $ 15,092,000
============ ============ ============
4. SHAREHOLDERS' EQUITY
--------------------
In connection with the Company's acquisition
of Photomatrix (see Note 2), the former
majority shareholders of Photomatrix and
certain of their affiliates purchased 666,666
shares of the Company's unregistered common
stock for $1 million in cash. The Company
incurred costs of $50,000 related to this
transaction.
In a March 1994 private placement, the Company
sold 76,667 shares of its unregistered common
stock for $300,000 in cash. Additionally, in
1994, warrants to acquire 476,667 shares of
the Company's common stock were exercised for
net cash proceeds of $485,000.
Page 144 of 161 <PAGE>
The Company has two existing common stock
option plans under which an aggregate of
699,999 shares of the Company's common stock
may be issued through qualified incentive
stock options or non-qualified stock options.
The Company has a third plan which expired in
fiscal 1994 with approximately 164,500 options
still outstanding. Under the terms of the
existing plans, incentive stock options are
granted at an exercise price which is not less
than 100 percent of the fair market value of
the Company's common stock at the date of
grant; non-qualified options are granted at
not less than 85 percent of the fair value at
the date of grant. Options are exercisable
within the period and in the increments as
determined by the Company's Board of Directors
or plan administration committee appointed by
the Board of Directors. Additional information
with respect to the options under the plans
follows:
Price per
Shares Share Total
------------ ------------ ------------
Options outstanding,
March 31, 1993 471,167 $0.18 - $3.56 $ 581,800
Options granted 93,667 $2.34 - $3.94 269,600
Options exercised (10,000) $0.18 - $0.48 (3,200)
Options canceled (3,334) $2.34 (7,800)
------------ ------------- ------------
Options outstanding,
March 31, 1994 551,500 $0.18 - $3.94 840,400
Options granted 339,000 $1.69 - $4.13 1,000,100
Options exercised (30,833) $0.38 - $2.16 (44,000)
Options canceled (142,800) $2.16 - $4.12 (507,900)
------------ ------------- ------------
Options outstanding,
March 31, 1995 716,867 $0.18 - $4.13 1,288,600
Options granted 760,665 $ .69 - $1.25 633,812
Options exercised -- - --
Options canceled (649,034) $0.88 - $4.13 (1,260,465)
------------ ------------- ------------
Options outstanding,
March 31, 1996 828,498 $0.18 - $3.56 $ 661,947
============ ============= ============
Options exercisable,
March 31, 1996 164,500 $0.18 - $3.56 $ 76,261
============ ============= ============
Page 145 of 161 <PAGE>
In June 1995, the Company canceled employee
stock options to acquire 41,667 shares at an
exercise price of $4.13 per share and granted
new replacement options to acquire 41,667
shares at an exercise price of $1.69 per
share. In November 1995, the Company canceled
stock options to acquire 628,999 shares
(including options to acquire 85,000 shares
held outside the Plans described above) at
exercise prices ranging from $1.31 to $2.91
per share and granted new replacement options
to acquire 628,999 shares at an exercise price
of $0.88 per share.
In addition to the options described above and
in Note 2, the Company has outstanding
warrants and other options to acquire common
shares as follows:
Shares
Exercise Price
Expiration
-------------- -------
------- --------------
33,333
$0.42 December 2003
75,000
$1.00 August 2005
The Company is authorized to issue 3,173,275
shares of its preferred stock. No preferred
shares were outstanding in the three years
ended March 31, 1996.
5. RELATED PARTY TRANSACTIONS
--------------------------
In connection with the acquisition of
Photomatrix (see Note 2), $777,000 of amounts
due to affiliates of Photomatrix's
then-majority shareholders (presently
shareholders of the Company) were converted
into seven year notes payable which mature in
April 2000. These notes bear interest at a
rate of 8% per annum. Interest-only payments
were due monthly during the first two years.
Interest and principal are due in equal
monthly installments (beginning in May 1995)
for years three through seven. Interest
expense related to these notes was $59,000 in
1996, $62,000 in 1995 and $57,000 in 1994.
Page 146 of 161 <PAGE>
6. CREDIT FACILITY
---------------
The Company has a line of credit with a bank
to borrow a total of $1 million of which
$170,000 was outstanding at March 31, 1996.
This line of credit accrues interest on
outstanding borrowings at prime plus 1-1/4%
per annum. The Company also has a term loan
with the same bank for an additional $854,000
as of March 31, 1996. Monthly principal
payments on this term note are $21,000 and
interest accrues at prime plus 1-1/2% per
annum. Outstanding borrowings under this
combined credit facility are collateralized by
all of the Company's assets.
Line of credit activity for 1996, 1995 and
1994 was as follows:
1996 1995 1994
------------ ------------ ------------
Interest expense $ 46,000 $ 49,000 $ 3,000
Average interest
rate 8.5% 7.5%
Average month-end 9.1%
balance outstanding $ 536,000 $ 16,000
Maximum month-end $ 520,000
balance outstanding $ 1,170,000 $ 200,000
$ 940,000
The balance outstanding on the term note as of
March 31, 1996 was $854,000, and no amounts
were outstanding as of March 31, 1995 and
1994. Interest expense on the term note during
the year ended March 31, 1996 was $61,000.
As of March 31, 1996, the Company was in
violation of certain financial covenants
required by the combined credit facility. In
June 1996, the Company renegotiated the
facility to cure these defaults and to extend
the term of the agreement. Total borrowings
under the combined credit facility are now
limited to the lesser of 1) the balance on the
term loan plus $1 million or 2) 80% of
eligible accounts receivable (as defined).
Total borrowings are limited to $1.5 million
as of April 30, 1996. The Company is now
required to 1) maintain a minimum tangible net
worth of $4,000,000, 2) maintain a ratio of
Page 147 of 161 <PAGE>
total liabilities to tangible net worth of not
greater than 1.5 to 1.0, 3) maintain working
capital of $3,000,000, and 4) maintain a
current ratio of 1.5 to 1.0. The new combined
credit facility expires in August 1997.
7. INCOME TAXES
------------
The components of income before income taxes
are as follows:
1996 1995 1994
------------ ------------ ------------
U.S. continuing
operations $ (1,579,000) $ 217,000 $ 1,488,000
U.S. discontinued
operations (15,000) (371,000) (240,000)
Foreign (103,000) 43,000 5,000
------------ ------------ ------------
$ (1,697,000) $ (111,000) $ 1,253,000
============ ============ ============
The provision for taxes on income consists of
the following for fiscal years 1996, 1995 and
1994:
1996 1995 1994
------------ ------------ ------------
Current:
Federal $ -- $ 6,000 $ 51,000
State 7,000 16,000 35,000
Foreign -- -- 2,000
------------ ------------ ------------
7,000 22,000 88,000
Deferred -- -- (57,000)
------------ ------------ ------------
$ 7,000 $ 22,000 $ 31,000
============ ============ ============
A reconciliation from the Federal income tax
provision computed at the statutory rate to
the actual provision for taxes on income for
fiscal years 1996, 1995 and 1994 is as
follows:
1996 1995 1994
------------ ------------ ------------
Page 148 of 161 <PAGE>
Tax at statutory
Federal tax rate $ (577,000) $ (38,000) $ 426,000
State income taxes
(net of Federal
benefit) 5,000 10,000 23,000
Change in valuation
allowance 579,000 -- (418,000)
Other -- 50,000 --
------------ ------------ ------------
$ 7,000 $ 22,000 $ 31,000
============ ============ ============
Deferred tax assets and liabilities result
from differences between the financial
statement carrying amounts and the tax bases
of existing assets and liabilities. The
significant components of the deferred income
tax assets and deferred income tax liabilities
as of March 31, 1996 and 1995 are as follows:
1996 1995
--------- ----------
Deferred tax assets:
Tax operating loss
carryforward $ 3,944,000 $ 3,827,000
Inventory and other
reserves 559,000 272,000
Tax basis of intangible
assets greater than
book basis 174,000 126,000
Other 211,000 51,000
----------- -----------
Less valuation allowance 4,888,000 4,276,000
(3,793,000) (3,151,000)
----------- -----------
1,095,000 1,125,000
Deferred tax liabilities:
Book basis of intangible
assets greater than
tax basis (537,000) (615,000)
Software capitalization (414,000) (401,000)
Other (41,000) (52,000)
----------- -----------
(992,000) (1,068,000)
Net deferred tax asset
(included in other assets) $ 103,000 $ 57,000
=========== ===========
Page 149 of 161 <PAGE>
The Company has recorded net tax assets in an
amount approximately equal to net tax
liabilities because management believes that
these items will offset in future periods,
considering statutory carryforward periods and
limitations. Subject to future reassessment of
future income potential, the Company has
reserved substantially all deferred tax assets
in excess of deferred tax liabilities.
As of March 31, 1996, the Company has
available for Federal income tax purposes a
net operating loss ("NOL") carryforward of
approximately $9,600,000 which can offset
future consolidated taxable income and which
begins to expire in fiscal year 2004. The
utilization of about $7,100,000 of this NOL is
subject to an annual limitation of about
$700,000. The remainder of $2,500,000 is
currently available.
As of March 31, 1996, Photomatrix (the
Company's wholly owned subsidiary) has
available for Federal income tax purposes an
NOL carryforward of about $2,000,000 which can
offset future taxable income of Photomatrix
and which begins to expire in fiscal year
2000. The utilization of about $1,600,000 of
this NOL is subject to an annual limitation of
about $100,000. The remainder of about
$400,000 is currently available.
8. ACCRUED LIABILITIES AND CUSTOMER DEPOSITS
-----------------------------------------
Accrued liabilities and other consist of the
following as of March 31, 1996 and 1995:
Page 150 of 161 <PAGE>
19961995
-------
------ ------------
Compensation and
related items $
423,000 $ 455,000
Other
259,000 280,000
-------
------ ------------
$
682,000 $ 735,000
============= ============
In November 1995, the Company settled certain
disagreements with Eastman Kodak whereby Kodak
discontinued its purchases of Photomatrix COM
duplicators and guaranteed certain future
annual levels of spare-parts purchases. In
calendar year 1995, Kodak did not meet its
annual obligations. In December 1995, Kodak
advanced to the Company $608,000 (the entire
calendar-year 1995 shortfall) as a prepayment
against future spare-parts purchases. Of this
total prepayment, $309,000 remained at March
31, 1996 and is included in customer deposits
in the accompanying consolidated balance
sheet.
9. EMPLOYEE BENEFIT PLANS
----------------------
The Company maintains defined contribution
savings and investment plans for the benefit
of all full-time employees. The Company's
expense related to the plans was $103,000,
$85,000 and $35,000 in 1996, 1995 and 1994,
respectively. The Company has no significant
post-employment or post-retirement obligations
that would require accrual under SFAS 106 or
112.
10. COMMITMENTS AND CONTINGENCIES
-----------------------------
OPERATING LEASES
The Company's operations are conducted in
facilities which are occupied under operating
Page 151 of 161 <PAGE>
leases. The leases require payment of taxes,
maintenance expenses and insurance. Rental
expense (net of rents under sublease of
$150,000 and $93,000 in 1996 and 1995,
respectively) incurred under operating leases
(including leases which have expired) was
$466,000, $414,000 and $453,000, in 1996, 1995
and 1994, respectively.
Future minimum cash lease commitments (net of
minimum rents receivable under sublease of
$160,000 and $23,000 in 1997 and 1998,
respectively) as of March 31, 1996, are as
follows:
1997$
413,000
1998
227,000
1999
126,000
2000
42,000
2001
42,000
2002 and
thereafter 511,000
-------
-----
$
1,361,000
============
LEGAL PROCEEDINGS
The Company is a defendant in three products
liability cases pending in the United States
District Court, Eastern District of New York
(BERNHART V. XSCRIBE ET AL. (92 Civ. 3931),
GALFIN V. XSCRIBE (92 Civ. 2582), and
HAGIPADELIS V. XSCRIBE (95 Civ. 1977)). Each
of the complaints contends that the keyboards
on writers or proprietary court-reporting
computers sold in the 1980s were defectively
designed and the Company failed to provide
adequate warnings about how the equipment
could be used to avoid arm, wrist and hand
injuries, including carpel tunnel syndrome.
The three cases seek a total of $4 million in
compensatory damages and $40 million in
punitive damages. Xscribe has tendered these
claims to its insurance carriers, St. Paul
Page 152 of 161 <PAGE>
Fire and Marine Insurance, and Federal
Insurance Company, and St. Paul has assumed
the Company's defense without reservation of
right and Federal has agreed to share defense
costs, subject to a reservation of rights. The
GALFIN and HAGIPADELIS cases are pending
before the same judge and have been
consolidated with unrelated repetitive stress
injury cases pending against Stenograph
Corporation (an Xscribe competitor) for
discovery and trial on liability issues. These
cases are set for a jury trial to begin in
September 1996, which is subject to change.
The third case is currently inactive pending
an expected decision by a New York state
appellate court on the accrual of statues of
limitations. It may take several years before
this litigation is ultimately resolved. The
Company believes that there is no merit to any
of the three pending cases and further
believes that if any liability results from
these claims, the liability (excluding
punitive damages, if any) will be covered by
its insurance policies. However, depending
upon the outcome of these cases, Xscribe may
be served in the future with additional claims
or be subject to liability in excess of
insurance policy limits.
In the ordinary course of business, the
Company is subject to claims and from
time-to-time is named as a defendant in legal
proceedings. In the opinion of management, the
amount of ultimate liability, if any, with
respect to these actions will not materially
affect the present or future financial
position of the Company or its future
operations.
<TABLE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
FISCAL 1996 June September December March Total
Revenues $4,337 $ 4,697 5,025 4,342 $18,401
Gross profit 1,330 1,654 1,678 857 5,519
Loss from continuing
operations (432) (189) (88) (980) (1,689)
Net loss (447) (189) (88) (980) (1,704)
Loss from continuing
operations per share (0.08) (0.03) (0.02) (0.17) (0.29)
Net loss per share (0.08) (0.03) (0.02) (0.17) (0.30)
Average shares
outstanding 5,754 5,750 5,742 5,724 5,742
Page 153 of 161 <PAGE>
FISCAL 1995
Revenues $5,404 $ 4,862 $ 5,974 $4,909 $21,149
Gross profit 2,128 1,778 2,134 1,368 7,408
Income (loss) from
continuing operations 352 124 405 (643) 238
Net income (loss) 287 19 301 (740) (133)
Income (loss) from
continuing operations
per share 0.06 0.02 0.07 (0.11) 0.04
Net income (loss)
per share 0.05 0.00 0.05 (0.13) (0.02)
Average shares 6,074 5,987 5,931 5,913 5,959
outstanding
</TABLE>
SECURITIES DATA
---------------
Xscribe is traded in NASDAQ Stock Market Small Cap Tier under
the symbol XSCR. On June 10, 1996, there were 5,715,279
shares outstanding and there were approximately 1,000
shareholders of record.
Following is information regarding Xscribe common stock
market prices:
Fiscal Year 1996 Fiscal Year 1995 Fiscal Year
1994
---------------- ----------------
----------------
Fiscal Quarter
Ended Low Bid High Bid Low Bid High Bid Low Bid High Bid
------------------ ------- -------- ------- -------- ------- --------
-
June 30 - 1st 7/8 1-1/2 3-9/16 4-19/32 1-7/8 2-17/32
September 30 - 2nd 13/16 1-1/2 2-1/4 3-15/16 2-5/32 4-11/16
December 31 - 3rd 3/4 1-1/16 1-13/16 2-11/16 3-9/16 5-5/8
March 31 - 4th 9/16 1-3/64 1-1/4 2-5/16 3-9/16 4-7/8
The Company has not paid a cash dividend on its common stock
and it is not anticipated that the Company will pay any
dividends in the foreseeable future.
Page 154 of 161 <PAGE>
BOARD OF DIRECTORS
_____________________________________________________________
Suren G. Dutia (3) Ira H.
Sharp (2)
President, Chief Executive Owner,
Chief Executive
Officer and Chairman of
Officer and General
the Board
Counsel of Alderson
Reporter
Donald R. Miller, Jr. (2) John F.
Staley (2)(3)
Vice President Market
Partner in Staley,
Development and Director Jobson
and Wetherell
of Michaels Stores, Inc.
Director, Sterling Software, Inc.
Patrick Moore (1) Evan A.
Wyly (1)(3)
President of IPAC
Managing Director,
Manufacturing, Inc.
Maverick Capital, Inc.
Director, Michaels
Jukka V. Norokorpi (1)
Stores, Inc.
Vice President, Client
Director, Sterling
Server Products of
Commerce, Inc.
ICL Volume Products
Director, Sterling
Software, Inc.
(1)
Audit Committee Member
(2)
Compensation Committee Member
(3)
Nominating Committee Member
EXECUTIVE OFFICERS
_____________________________________________________________
Suren G. Dutia Bruce C.
Myers
President, Chief Executive Chief
Operating Officer,
Officer and Chairman of the Chief
Financial Officer
Page 155 of 161 <PAGE>
Board and
Secretary
HEADQUARTERS
_____________________________________________________________
Xscribe Corporation
6285 Nancy Ridge Drive
San Diego, California 92121
(619) 457-5091
INDEPENDENT AUDITORS
_____________________________________________________________
KPMG Peat Marwick LLP
750 B Street
San Diego, California 92101
TRANSFER AGENT AND REGISTRAR
_____________________________________________________________
American Stock Transfer and Trust Company
40 Wall Street
New York, New York 10005
ANNUAL REPORT ON FORM 10-K
_____________________________________________________________
A copy of the Company's Forms 10-K report to the Securities
and Exchange Commission, excluding exhibits, will be
furnished to shareholders without charge upon written request
to Peter B. Harker, Controller, Xscribe Corporation, 6285
Nancy Ridge Drive, San Diego, California, 92121. A copy of
any exhibit will be furnished to any shareholder upon written
request and payment to the Company of a copying charge of 25
cents per page. Requests for copies should also be directed
to the above address.
TRADEMARKS
_____________________________________________________________
Windows (Microsoft), Netware (Novell), OfficePower (ICL),
TeamOffice (ICL), OS/2 (IBM), Windows NT (Microsoft), Pentium
(Intel), Stenoram (Xscribe), Vision 486 (Xscribe), and XEC
2001 (Xscribe) are registered trademarks of the indicated
companies.
Page 156 of 161 <PAGE>
EXHIBIT 21.1
Subsidiaries of the registrant as of March 31, 1996
- Photomatrix Corporation, Nevada
- Lexia Systems, INc., California
- Xscribe Imaging, Inc., California
- Xscribe Legal Systems, Inc., California
Page 157 of 161 <PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors of Xscribe Corporation:
Under date June 3, 1996, except for the last paragraph of
Note 6, which is as of June 17, 1996, we reported on the
consolidated balance sheets of Xscribe Corporation and
subsidiaries as of March 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity,
and cash flows for each of the years in the three-year period
ended March 31, 1996, as contained in the 1996 Annual Report
to Shareholders. These consolidated financial statements and
our report thereon are incorporated by reference in the
Annual Report of Form 10-K for the year 1996. In connection
with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated
financial statement schedule in the Form 10-K. This
consolidated financial statement schedule is the
responsibility of the Company's management. Our
responsibility is to express an opinion on this consolidated
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG
Peat Marwick LLP
San Diego, California
June 3, 1996
Page 158 of 161 <PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors of Xscribe Corporation:
We consent to incorporation by reference in the registration
statements (No.'s 33-18896 and 33-72122 and 33-61951) on Form
S-8 of Xscribe Corporation of our report dated June 3, 1996,
except for the last paragraph of Note 6, which is as of
June 17, 1996, relating to the consolidated balance sheets of
Xscribe Corporation and subsidiaries as of March 31, 1996 and
1995, and the related consolidated statements of operations,
shareholders' equity , and cash flows for each of the years
in the three-year period ended March 31, 1996, and the
related schedule, which reports appear in the March 31, 1996
Annual Report to Shareholders of Xscribe Corporation and
subsidiaries.
/s/ KPMG
Peat Marwick LLP
San Diego, California
June 25, 1996
Page 159 of 161 <PAGE>
EXHIBIT 24.1
(See Page 21)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 219,000
<SECURITIES> 0
<RECEIVABLES> 3,423,000
<ALLOWANCES> 218,000
<INVENTORY> 4,374,000
<CURRENT-ASSETS> 8,248,000
<PP&E> 4,776,000
<DEPRECIATION> 2,638,000
<TOTAL-ASSETS> 14,457,000
<CURRENT-LIABILITIES> 4,744,000
<BONDS> 1,148,000
0
0
<COMMON> 20,093,000
<OTHER-SE> (11,528,000)
<TOTAL-LIABILITY-AND-EQUITY> 8,565,000
<SALES> 0
<TOTAL-REVENUES> 18,401,000
<CGS> 0
<TOTAL-COSTS> 12,882,000
<OTHER-EXPENSES> 6,973,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 228,000
<INCOME-PRETAX> (1,682,000)
<INCOME-TAX> 7,000
<INCOME-CONTINUING> (1,689,000)
<DISCONTINUED> (15,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,704,000)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
