SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
X ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1996
_____ TRANSITION REPORT PURSUANT TO SECTION 13 or
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-12887
INTELLECTUAL TECHNOLOGY, INC.
(Name of Small Business Issuer as specified in its charter)
Delaware 84-1130227
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorportion or Organization)
10639 Roselle Street, Suite B, San Diego, California 92121
(Address of Principal Executive Offices) (Zip Code)
(619) 552-0001
Registrant's Telephone Number, including Area Code
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.00001 par value
Class A Common Stock Purchase Warrants
Class B Common Stock Purchase Warrants
Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days. Yes X No ___.
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosures will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB X
The Registrant's revenues for the fiscal year ended December 31, 1996 were
$1,989.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of April 11, 1997 was $1,255,240. For purposes of this
computation, it has been assumed that the shares beneficially held by directors
and officers of Registrant were "held by affiliates;" this assumption is not to
be deemed to be an admission by such persons that they are affiliates of
Registrant.
As of April 11, 1997, the Registrant had outstanding 10,000,000 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Specified exhibits listed in Part III of this report are incorporated by
reference to the Registrant's Registration Statement No. 33-33092-D, effective
April 17, 1990, or to Registrant's Report on Form 8-K dated March 27, 1997.
Transitional Small Business Disclosure Format: Yes ___ No X
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PART I
ITEM 1. BUSINESS.
Historical Development
Intellectual Technology, Inc., a Nevada corporation based in San Diego,
California ("ITI Nevada") was formed on April 23, 1992 to engage in the design,
manufacture and sale of systems for the automated preparation and dispensing of
motor vehicle registration forms and license plate decals. On March 12, 1997,
the shareholders of ITI Nevada, in a transaction accounted for as a reverse
acquisition, exchanged all of the outstanding common stock of ITI Nevada for
450,000,000 shares of the common stock of Bridgestone Corp., a Delaware
corporation. As a result of this transaction, ITI Nevada shareholders acquired
collectively a 90% interest in Bridgestone Corp., and ITI Nevada became a
wholly-owned subsidiary of Bridgestone Corp. Bridgestone Corp., which was formed
on December 1, 1989, for the purpose of seeking out and acquiring a business
opportunity, had completed a public offering of common stock and warrants on
October 29, 1990, realizing net proceeds of $80,341. In April of 1997,
Bridgestone Corp. changed its name to Intellectual Technology, Inc. and effected
a 1 for 50 reverse stock split. References in this report to the Company are
references to Intellectual Technology, Inc., a Delaware corporation.
Pursuant to and as a result of the acquisition of ITI Nevada, the Company's
sole director resigned, a new Board of Directors designated by ITI Nevada
management was elected, and the Company's business focus and operations became
that of ITI Nevada.
Industry and Company Background
Vehicle registration services are operated by all 50 states, the District
of Columbia, and many foreign governmental authorities. Governments use vehicle
registration as a means of generating revenues and to provide an orderly method
of regulating the ownership and transfer of motor vehicles. Management of the
Company believes that traditional methods of motor vehicle registration have
resulted in delays experienced by members of the public, significant personnel
and facility costs, the waste of preprinted materials and a generally
inefficient disbursement process, as well as significant losses occasioned by
fraud and theft. Based upon discussions with law enforcement officials, the
Company believes that losses attributable to these problems are in the hundreds
of millions of dollars.
As early as 1987, ITI Nevada's founders envisioned streamlining the
distribution of motor vehicle registrations through the development of an
automated, self-service registration printing and dispensing device. From 1987
through 1991, the founders of ITI Nevada engaged in market research and product
development. Two patents resulting from these activities were assigned by their
inventors to American Registration Systems, Inc., an Indiana corporation
("ARS"). See Certain Relationships and Related Transactions." In 1992, ITI
Nevada was formed to continue this process and commercialize the concepts that
had been developed. One of the patents was acquired by ITI Nevada through the
enforcement of a pledge agreement, and in October 1995, the remaining patent was
assigned by ARS to ITI Nevada.
The ITI 2101A and Related Print Media
The result of the efforts of ITI Nevada and its founders is the ITI 2101A
printing system, which allows for the real time, on-site creation of vehicle
registration forms and license decals on blank stock, including the imprinting
of the vehicle license plate number on the decal. The Company believes that this
on demand printing capability will allow Departments of Motor Vehicles to
substantially reduce fraud and theft, increase revenue collection, and reduce
personnel, inventory, and facility costs as a consequence of increased
efficiencies. The ITI 2101A is designed to operate both as a stand alone unit in
a printer server environment within a Department of Motor Vehicles ("DMV")
office and as a self-service terminal which can be placed in locations remote
from DMV offices. Both versions include user interface hardware and software and
an operator panel to assist maintenance personnel while they load media, make
print adjustments, and perform routine servicing.
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The Company believes that the ITI 2101A resolves the problems described
above in "Industry and Company Background," in that it prints a vehicle
registration with an applied decal on blank stock, thereby eliminating the need
to dispose of preprinted stock at year end. Additionally, the ITI 2101A is
designed to satisfy the security demands of Departments of Motor Vehicles in
that it applies the vehicle license plate number to the decal, thus causing the
decal to become significantly less valuable to thieves. The ITI 2101A is also
equipped with a software system which accounts for all transactions effected
through the printer, which significantly reduces the likelihood of DMV employee
fraud or theft. Finally, when combined with the automated teller technology of
NCR Corporation ("NCR"), the ITI 2101A is capable of acting as a self service
terminal for motor vehicle registrations which can be established in locations
remote from DMV offices, thereby reducing personnel and facilities costs.
In the early 1990's, ITI Nevada worked with 3M Corporation of St. Paul,
Minnesota ("3M") to develop a specially coated validation sheeting to be used in
the printing of decals in real time at the point of issue. ITI Nevada's goal was
to provide a validation decal which accepted thermally transferred printing and
required no clear coating to meet industry standards for durability. This
product was developed, and, by a letter dated January 24, 1995, 3M acknowledged
that ITI Nevada would be 3M's exclusive distributor for the product. This
exclusivity extends only to the product developed for ITI Nevada's system.
Although 3M has on-going programs the objective of which are to develop other
products for the validation sticker market, it has expressed its intent to limit
its development of other distinct validation sheeting products to those which
will not interfere with the exclusive validation sheeting distribution plan of
the Company. This exclusivity permits the Company to serve as the sole source of
the media in situations where a DMV might elect to purchase the ITI 2101A,
rather than leasing it based on a per transaction pricing structure.
Marketing and Sales
The primary market for the Company's printing systems and services consists
of the Department of Motor Vehicles in each of the 50 U.S. states. The Company
believes that the decision-making authority to purchase the Company's products
is vested, as to any Department, in a limited number of administrative
personnel. Accordingly, the persons to be contacted by the Company in making
sales presentations and proposals are to be determined on a narrowly focused,
strategic basis.
The Company believes that the historical relationships which its Chairman,
Christ M. Rousseff, has maintained with various Departments of Motor Vehicles
and various administrators within those Departments, originating with Mr.
Rousseff's involvement in the photographic driver's license market (see
"Directors and Executive Officers - Business Experience"), afford the Company a
basis to address the vehicle registration-and-renewal market with significant
efficiencies and a limited marketing staff. As a result, the Company intends to
market its products and services primarily through an in-house marketing and
sales staff, led by Mr. Rousseff. This staff currently consists of 2 members,
and is anticipated to grow to 4 members in the coming 12-month period.
As new accounts with additional states are established, however, the
Company intends to supplement its sales staff to provide an expanded and ongoing
range of contacts with each customer or client DMV. The purpose of this expanded
sales coverage will be to allow developments in the Company's product line to be
brought to the attention of each client DMV in a timely fashion and to promote
customer satisfaction and loyalty.
The Company solicits interest in its products primarily through direct
contact with DMV officials and attendance at industry conferences. The initial
marketing package consists of brochures and color photographs, which are
supplemented with an explanation of the product's evolution and a videotaped
demonstration of its performance. References of DMV officials of states where
the Company has installed its products are supplied, along with an offer to
demonstrate the products.
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Once a state has accepted the concept of the real time, on-site printing of
motor vehicle registrations and license decals, it must then decide whether to
acquire the ITI 2101A in the form of self-service terminals or as stand alone
units operated by DMV personnel, or both. Indiana and Maryland have chosen to
acquire both types of units. The Company also offers its customers the
opportunity to acquire the ITI 2101A through an outright purchase or to lease
the device through a transaction-based pricing mechanism, in which the Company
is paid an amount which varies over time based upon the number of transactions
for which the printer is used. The Company believes that most jurisdictions will
choose to lease its products and pay for them through the transaction based
pricing system.
Contracts
In August 1996, ITI Nevada entered into an Equipment Lease, Support and
Maintenance Agreement (the "Indiana Contract") with the Indiana Bureau of Motor
Vehicles Commission (the "BMVC"). The Indiana Contract became effective by its
terms on November 1, 1996, and provides for the BMVC to lease from ITI Nevada
both self-service terminals and stand alone printers. It requires ITI Nevada to
install an initial group of 10 self-service terminals and 100 stand alone
printers in locations to be agreed upon by the BMVC and ITI Nevada with a view
to causing the installed terminals and printers to perform an estimated
1,400,000 vehicle registration transactions on an annual basis, based on vehicle
registration figures from 1995. Following this initial phase of the Indiana
Contract, the BMVC, at its option, may lease additional terminals and printers
beyond those leased as part of the initial phase. Generally, the Indiana
Contract provides for such additional terminals and printers to be leased in
blocks of five additional terminals and 39 additional printers and for five such
additional blocks. The BMVC has notified the Company of its agreement to lease
all five additional blocks and has directed that such additional blocks be
installed and implemented by November 1, 1997.
The Indiana Contract may be terminated only in the event of a breach by
either party which has not been cured after 60 days written notice or if the
Director of the Indiana State Budget Agency makes a written determination that
funds are not appropriated or otherwise available to support the continuation or
performance of the agreement. The pricing of the Indiana Contract is on a per
transaction basis, with the Company receiving an amount per transaction between
$1.22 and $.85, with the amount per transaction generally decreasing as
additional blocks of printers and self service terminals are leased but
increasing with the passage of time. Additionally, after installation of all of
the blocks, the BMVC, at its option, may lease additional terminals or printers.
Each such additional lease would result in an increase in the per transaction
fee for each installed terminal or printer.
The term of the Indiana Contract is for a period of three years, subject to
an option to renew on the part of the BMVC for an additional year. The Indiana
Contract provides that title to the leased equipment and risk of its loss will
remain with the Company. Shipping and delivery costs will be paid by the
Company, and delivery must be made pursuant to a schedule to be agreed upon by
the Company and the BMVC. Following delivery and installation of a printer or
terminal and the Company's certification that it has been successfully installed
and is ready for use, the BMVC is required to inspect the equipment and accept
or reject it. All equipment installed pursuant to the Indiana Contract through
the date of this Report has been accepted by the BMVC. The equipment may be
rejected only if it fails to conform to the requirements of the agreement,
including, but not limited to, the specifications of the Request for Proposal
upon which the Indiana Contract is based. The Company is required to keep the
leased equipment in good operating condition and provide support and maintenance
services. Also, the Company is required to provide periodic maintenance as
specified in its response to the BMVC Request for Proposal as well as remedial
maintenance which satisfies response times set forth in the Company's response
to the BMVC Request for Proposal. Generally, service and replacement parts are
to be provided without charge to the BMVC.
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To assist it in performing its obligations under the Indiana Contract,
effective as of August 1, 1996, ITI Nevada entered into a Subcontractor
Agreement with NCR (the "NCR Agreement"), which generally requires the Company
to provide the printers, printing media, facilities management, printer
installation, customer billing, and self-service terminal provisioning aspects
of the Indiana Contract, while NCR is responsible for providing the self service
terminals, program management, software development, software maintenance,
hardware maintenance, and self-service terminal installation. The NCR Agreement
requires NCR to provide both remedial and preventative maintenance services.
However, its pricing for maintenance of the Company's printers is based in part
upon the Company's assumptions regarding the quantity and duration of service
calls per printer per year. If actual failure rates exceed these estimates, the
Company will be charged an hourly rate per service call. Generally, the NCR
Agreement requires NCR to provide all of the support and service required for
use of the system by the BMVC, including that associated with hardware and
software designed or installed by the Company and third parties. However, the
Company and certain software subcontractors are required to provide support to
NCR in the servicing of components of the system contributed by them.
The NCR Agreement, as amended by the parties, provides that the Company
will pay NCR approximately $2,400,000 for its participation in the initial phase
of the Indiana Contract. $600,000 of this amount is to be paid at the end of the
contract term; $800,000 has been paid; and the remaining $1,000,000 is being
paid at the rate of $100,000 per month. The fixed price for the first phase
includes the costs of all hardware, software, maintenance, program management,
system development, associated back office hardware, and 11 self-service
terminals provided by NCR. The NCR Agreement also provides a schedule of fixed
prices for each of the remaining five blocks of printers and terminals which may
be leased by the Indiana BMVC. This pricing, which is identical for each block
and generally declines over time, includes pricing for five self-service
terminals and any associated hardware, software, installation and maintenance,
as well as maintenance for 39 of the Company's stand alone printers and 90 days
of program management. The NCR Agreement provides that the Company will be
invoiced by NCR for any such additional block after the equipment included
within that block has been installed and accepted by the BMVC. The NCR Agreement
also provides for the installation of additional terminals and standalone
printers, beyond those contained in the five blocks, the pricing of which is
consistent with the pricing for the five blocks.
The Department of Motor Vehicles of the State of Maryland has also entered
into an agreement to acquire self-service terminals from NCR and stand alone
printers and print media from the Company. On November 1, 1996, the Company
received its first order for 11 ITI 2101A printing systems to be installed by
NCR in self service terminals in the State of Maryland. The first self service
terminals incorporating the ITI 2101A printer are scheduled to be installed
there on April 17, 1997.
Manufacturing and Supply
The Company does not manufacture its products and instead uses vendors to
manufacture and supply all components and subassemblies of the ITI 2101A, to
perform final assembly of its product, and to provide the printing media used by
the ITI 2101A. The custom printing unit used for all ITI printing systems is
manufactured by Zebra Technologies, Inc., of Vernon Hills, Illinois. The custom
printers produced by Zebra Technologies are modified by Contract Manufacturing
Integration ("CMI") of Poway, California, which functions as a complete
manufacturing facility for the Company and provides various services, including
without limitation final assembly, firmware integration, final testing, and
quality control. CMI is responsible for employing the necessary manufacturing
personnel. The printing media used by the ITI 2101A is produced exclusively for
the Company by 3M Corporation of St. Paul, Minnesota (see "Business - The ITI
2101A and Related Print Media"). The Company has identified alternative vendor
sources for all materials and assemblies used in its products other than the 3M
printing media. The Company believes the use of vendors for its manufacturing
process has allowed it to limit the size of its fixed overhead and to respond
quickly to the volatility of its market which consists of a relatively small
number of significant customers who order products at irregular intervals.
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Competition
The Company believes that it possesses a strong competitive position in the
sale of the ITI 2101A and its related printing media. While the market is still
in its infancy, the Company has established a reputation for providing quality
products and is not aware of any active competitor within the market.
Nevertheless, a risk of new market entrance by domestic and foreign competitors
exists. While the Company believes that it possesses a significant lead time by
virtue of its proprietary position, initial installed base and reputation, there
can be no assurance that a better capitalized competitor will not successfully
establish itself in the market or develop a technology which renders the
Company's technology obsolete.
Patents
The ITI 2101A is based in part on technologies which are proprietary to the
Company and covered by two patents owned by ITI Nevada. The first patent, which
was issued in 1990 (the "1990 Patent), covers an automatic fee collecting and
receipt dispensing system particularly designed for vehicle registration
transactions, including a customer interface for displaying information and
receiving customer input and fee payments and a dispenser assembly for storing
forms having preprinted areas and blank areas for receiving information specific
to a transaction, a printer for printing information, and a dispensing device
for the delivery of printed forms to customers. The second patent, which was
issued in 1994 (the "1994 Patent"), covers an automatic form dispensing system
for a variety of transactions which has a housing with an operator interface and
form dispensing assembly and a roll of blank form stock and two rolls of carrier
web containing blank stickers retained thereon by a pressure sensitive adhesive.
The Company has filed for analogous patent protection in Canada, the United
Kingdom, France, and Germany. United States patents are valid for a period of 17
years from the date of issue. No assurance can be given that the Company's
patents will be enforceable or provide the Company with meaningful protection
from competitors. Even if a competitor's product infringed upon patents owned by
the Company, enforcement of the Company's rights under the patents in an
infringement action would be costly and would require the Company to divert
funds and resources from other uses. Furthermore, there can be no assurance that
the Company would be successful in enforcing such rights.
The 1994 Patent was acquired by ITI Nevada from ARS in a transaction which
originally required ITI Nevada to pay ARS $4,000,000 for the 1994 Patent by May
1997 (see "Business - Industry and Company Background" and "Certain
Relationships and Related Transactions"). The due date of that payment
obligation has been extended to May 1, 1999. If the Company is unable to pay
this amount when it comes due and consequently loses control of the 1994 patent,
such loss would have a material and adverse affect upon the business of the
Company.
Employees
The Company has nine full-time employees, of whom three are in executive or
administrative positions and two are in sales positions. None of the Company's
employees are currently represented by a union, and the Company believes that
its relations with its employees are good.
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ITEM 2. PROPERTIES
The Company occupies approximately 3,800 sq. ft. of office space in San
Diego, California. The space is subject to a five year lease expiring in the
year 2001. The Company currently pays monthly rent of approximately $1,900 for
this space. The Company's Vice President of Sales and Marketing shares have a
suite of offices in Dayton Ohio as to which the Company bears its share of
nominal expenses. The Company believes that these facilities are adequate to
meet its anticipated needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently the subject of or party to any legal
proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1996.
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Prior to the third quarter of 1996, there was no active market for the
Company's securities, with transfers occurring on an infrequent and sporadic
basis. The common stock of the Company commenced trading in the over the counter
market in September 1996. The following table sets forth, for the periods
indicated, the range of high and low bid quotations for the Company's common
stock as reported by a market maker in the Company's securities. The prices
reflected in the following table have not been adjusted to reflect the 1 for 50
reverse stock split in the Company's common stock which occurred in April 1997.
Quarter Ended High Bid Low Bid
September 30, 1996 $.01 $.01
December 31, 1996 $.01 $.01
The quotations which appear above reflect inter-dealer prices, without
retail mark-up, mark- down or commission and may not represent actual
transactions.
The Company has not paid any dividends on its common stock, and the Board
of Directors of the Company presently intends to retain earnings, if any, for
use in the Company's operations and to finance expansion of its business. The
declaration and payment of dividends in the future, of which there can be no
assurance, will be determined by the Board of Directors in light of conditions
then existing, including the Company's earnings, financial condition, capital
requirements and other factors.
As of March 31, 1997, the Company had approximately 48 shareholders of
record, which does not include shareholders whose shares are held in street or
nominee names.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Certain statements contained in this report, including statements
concerning the Company's future cash and financing requirements, the Company's
ability to obtain market acceptance of its products, and the market for sales of
the Company's products, and other statements contained herein regarding matters
that are not historical facts, are forward looking statements; actual results
may differ materially from those anticipated in the forward looking statements,
which statements involve risks and uncertainties. In particular, the Company is
subject to the following risks:
1. The Company's success to date has depended in large part of the skills
and efforts of Mr. Christ M. Rousseff, Chairman of the Board and Chief Executive
Officer of the Company. The business of the Company would be significantly and
adversely affected if it were to be deprived of the services of Mr. Rousseff.
The Company has not obtained key man life insurance coverage with regard to Mr.
Rousseff.
2. As a consequence of the Company's transaction base pricing structure, the
Company will be required to raise a significant amount of capital. See
"Management's Discussion and Analysis - Liquidity and Capital Resources."
There can be no assurance that the Company will be able to obtain such
capital on acceptable terms or at all.
3. As a consequence of its limited operating history and current working
capital deficit, there can be no assurance as to the future profitability
of the Company.
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4. Substantially all of the Company's revenues have been, and in the
foreseeable future will be, derived from contracts with a limited number of
state Departments of Motor of Vehicles. The inability to obtain or maintain
such contracts would have a material and adverse effect on the Company's
financial condition and prospects.
5. The Company's revenues currently depend upon a limited product line. While
the Company is seeking to develop, and will consider the acquisition of,
new and related products, there can be no assurance that the Company will
be successful in these efforts.
6. While the Company's products have been purchased by two jurisdictions,
there can be no assurance that its products will be accepted by a
significant number of additional jurisdictions.
7. The Company's printers, whether operating in a stand alone format or as
part of a self-service terminal, require periodic maintenance and repair.
If the rate of failure of its printers were to exceed current estimates,
such failures could increase the cost of the Company's operations and
potentially jeopardize existing and future contracts.
8. The sales price, lease payments, and service fees contained in the
Company's agreements are fixed. Therefore, the Company will not be able to
pass along any increases in its manufacturing and services costs during the
terms of these agreements.
Plan of Operations
The Company is a development stage enterprise the purpose of which is to
design, manufacture and sell systems for the automated preparation and
dispensing of motor vehicle registration forms and license plate decals. Since
its inception, the Company has been engaged principally in research and
development of its products. As a result, the Company has generated only limited
operating revenues to date and has incurred losses from such activities.
During the next 12 months, the Company intends to focus its efforts in the
following areas:
* To complete the installation of self service terminals which are part
of the initial phase of the Indiana Contract.
* To cause the installation of the additional stand alone printers and
self-service terminals called for by the Indiana Contract.
* To expand its sales and marketing staff and increase its marketing
efforts.
* To enter into agreements for the sale or lease of its products with
additional jurisdictions.
* To obtain the equity capital necessary to complete its performance of
its initial contracts and to repay the investment notes issued by it
as part of its initial capitalization.
* To initiate development of new opportunities in related areas, such as
driver records, voter registration, tax payments, electronic benefit
vouchers, driver's license extensions, traffic fine payments, fishing
and hunting licenses, and utility payments.
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Liquidity and Capital Resources
To date the Company has financed its activities primarily through equity
contributions and the incurrence of debt. The Company has only recently begun to
generate operating revenue as a consequence of the Indiana Contract and the sale
of printers to NCR in connection with the installation of self-service terminals
in the State of Maryland. The Company believes that it would have sufficient
liquidity from its existing stream of contractual lease payments from the
Indiana Contract to maintain a minimal level of continuing operations without
additional financing. However, to continue to deliver stand alone printers and
self-service terminals under lease arrangements, which requires significant
capital outlays, to repay its investment notes, and to increase its sales and
marketing efforts, the Company will be required to adopt one or more financing
alternatives, such as incurring additional debt, selling leases, or seeking
additional equity capital contributions. Should additional sources of financing
not be obtainable, the Company's liquidity would be adversely affected. Although
management of the Company believes that the Company will have sufficient funding
alternatives to finance its intended activities, there can be no assurance that
any such alternatives will be effected on satisfactory terms or at all.
Impact of Inflation
Inflation has not had any significant effect on the Company's expenses.
However, the sales price, lease payments and service fees contained and to be
contained in the Company's agreements with various jurisdictions are and will be
fixed, and the Company will be unable to pass along any increases in
manufacturing or service costs during the term of these agreements.
ITEM 7. FINANCIAL STATEMENTS.
INDEX TO FINANCIAL STATEMENTS
Page
Number
Report of Independent Accountants 10
Balance Sheet 11
Statements of Loss and Accumulated Deficit 12
Statement of Stockholders' Equity 13
Statements of Cash Flows 14
Notes to Financial Statements 15
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BRIDGESTONE CORP.
(A Development Stage Company)
REPORT OF CERTIFIED PUBLIC ACCOUNTANT
The Board of Directors
Bridgestone Corp.
We have audited the accompanying balance sheet of Bridgestone Corp. (a
development stage company), as of December 31, 1996 and 1995, and the related
statements of loss and accumulated deficit, cash flows, and stockholders' equity
for each of the two years then ended, and for the period from inception
(December 1, 1989) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Bridgestone Corp. as of December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the two years then ended, and for the period from inception (December 1,
1989) to December 31, 1996, in conformity with generally accepted accounting
principles.
Aurora, Colorado
March 18, 1997
COMISKEY & COMPANY
PROFESSIONAL CORPORATION
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BRIDGESTONE CORP.
(A Development Stage Company)
BALANCE SHEET
December 31, 1996
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalent $54,912
Total current assets 54,912
OTHER ASSETS
Organizational costs (net) 500
Total other assets 500
TOTAL ASSETS $55,412
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $40
Accounts payable - related party 49
Total current liabilities 89
STOCKHOLDERS' EQUITY
Preferred stock, $0.00001 par value;
20,000,000 shares authorized; no
shares issued and outstanding --
Common stock, $0.00001 par value;
500,000,000 shares authorized;
55,000,000 shares issued and
outstanding 550
Additional paid-in capital 89,791
Deficit accumulated during the
development stage (35,018)
Total stockholders' equity 55,323
TOTAL LIABILITY AND STOCKHOLDERS $55,412
</TABLE>
The accompanying notes are an integral part of the financial statements.
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BRIDGESTONE CORP.
(A Development Stage Company)
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT
<TABLE>
Period from
December 1, 1989
(inception) to Year ended Year ended
December 31, 1996 December 31, 1996 December 31, 1995
----------------- ------------------ -----------------
<S> <C> <C> <C>
REVENUES
Investment income $14,696 $1,989 $2,368
EXPENSES
General & Administrative 49,714 8,615 6,228
Total expenses 49,714 8,615 6,228
NET LOSS (35,018) (6,626) (3,860)
Accumulated deficit
Balance, beginning of year -- (28,392) (24,532)
Balance, end of year $(35,018) $(35,018) $(28,392)
NET LOSS PER SHARE $ (NIL) $ (NIL) $ (NIL)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 53,716,660 55,000,000 55,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Bridgestone Corp
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
Deficit
Accumulated
Common Additional During the Total
Stock Number Paid-In Development Stockholders'
of Shares Amount Capital Stage Equity
-------------- ------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Stock issued to officer/sole
director for cash,
$0.00022 per share 13,500,000 $135 $2,865 $ $3,000
Stock issued to related
parties for cash, $0.00022
per share 15,750,000 158 3,342 3,500
Stock issued to related
parties for cash, $0.00022
per share 15,750,000 157 3,343 3,500
Balance at Dec. 31, 1998 45,000,000 450 9,500 10,000
Stock issued upon closing
of public offering, Oct. 29,
1990 $0.01 per share 10,000,000 100 99,900 100,000
Deferred offering costs (19,659) (19,659)
Loss for the period ended
Dec. 31, 1990 (3,597) (3,597)
Balance at Dec. 31, 1990 55,000,000 550 89,791 (3,597) 86,744
Loss for the period ended
Dec. 31, 1991 (7,992) (7,992)
Balance at Dec. 31, 2991 55,000,000 550 89,791 (11,589) 78,752
Loss for the period ended
Dec. 31, 1992 (5,445) (5,445)
Balance at Dec. 31, 1992 55,000,000 550 89,791 (17,034) 73,307
Loss for the period ended
Dec. 31, 1993 (3,770) (3,770)
Balance at Dec. 31, 1993 55,000,000 550 89,791 (20,804) 69,537
Loss for the period ended
Dec. 31, 1994 (3,728) (3,728)
Balance at Dec. 31, 1994 55,000,000 550 89,791 (24,532) 65,809
Loss for the period ended
Dec. 31, 1995 (3,860) (3,860)
Balance at Dec. 31, 1995 55,000,000 550 89,791 (28,392) 61,949
Loss for the period ended
Dec. 31, 1996 (6,626) (6,626)
Balance at Dec. 31, 1996 55,000,000 550 89,791 (35,018) 55,323
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
BRIDGESTONE CORP.
A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
Period from December
1, 1989 (Inception) to Year Ended Year Ended
December 31, 1996 December 31, 1996 December 31, 1995
------------------------- ------------------- --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(35,018) $(6,626) $(3,860)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Decrease in accounts payable 40 (225) (158)
Decrease in accounts payable -
related party 49 49 (217)
Decrease in prepaid expenses -- 233 (233)
Net cash used by operating
activities (34,929) (6,569) (4,468)
CASH FLOWS FROM INVESTING
ACTIVITIES
Increase in organizational costs (500) -- --
Net cash used by investing
activities (500) -- --
CASH FLOWS FROM FINANCING
ACTIVITIES
Issuance of common stock 110,000 -- --
Deferred offering costs paid (19,659) -- --
Net cash provided by financing
activities 90,341 -- --
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS -- (6,569) (4,468)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD -- 61,481 65,949
CASH AND CASH EQUIVALENTS,
END OF PERIOD $54,912 $54,912 $61,481
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
BRIDGESTONE CORP.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. Summary of Significant Accounting Policies Development Stage
Company
Bridgestone Corp. (the "Company") was incorporated under the laws of the
State of Delaware on December 1, 1989. Its office is located at the office
of its President at 303 East 17th Avenue, Suite 800, Denver, Colorado
80203.
The Company is a new enterprise in the development stage as defined by
Statement No. 7 of the Financial Accounting Standards Board and has not
engaged in any business other than organizational efforts. The Company's
year end is December 31. It has no full-time employees and owns no real
property. The Company intends to seek out and take advantage of business
opportunities that may have potential for profit and, to that end, intends
to acquire properties or businesses, or a controlling interest therein.
Management of the Company will have virtually unlimited discretion in
determining the business activities in which the Company might engage.
On March 12, 1997, the Company acquired Image Technology, Inc. in the
transaction more fully described in Note 5.
Organization Costs
Organization costs will be amortized over a 60-month period commencing with
the date the Corporation begins business.
Loss per Share
Loss per share has been computed using the weighted average number of
shares outstanding.
Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity date of
three months or less to be cash equivalents.
Use of Estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ
from those estimates.
15
<PAGE>
2. Public Offering
On October 29, 1990, the Company completed its initial public offering
after selling 10,000,000 units. Each unit consists of one share of common
stock, one Class A warrant and one Class B warrant. Each Class A warrant
and each Class B warrant will be exercisable for one share of common stock
at a price of $0.25 per share for a period commencing with the date of the
offering and terminating April 17, 1997 and may be transferred separately
from the common stock. The Company may redeem the warrants at a price of
$0.00001 per warrant upon thirty days' written notice, reduce the exercise
price, or indefinitely extend the exercise period of the warrants. At
December 31, 1996, no warrants have been exercised.
The Company received net proceeds from the offering of $80,341 after
deducting offering costs of $19,659.
3. Related Party Transactions
Heather Zane Anderson, P.C., a law firm, provided legal services for the
Company, and was paid $32 and $2,069 during each of the two years ended
December 31, 1996 and 1995, respectively. The amount paid in 1996
represents residual office expenses and was not a result of legal counsel
provided. The sole principal of Heather Zane Anderson, P.C. owned 185,000
shares of the Company's common stock during the entire fiscal year.
As of December 31, 1996, the Company's officer and sole director owned
12,500,000 shares of common stock during the entire 1996 fiscal year,
representing approximately 23% of the Company's issued and outstanding
common stock.
The Company maintains its offices at the office of its President and
Treasurer, for which it pays no rent.
4. Income Taxes
The Company has net operating loss carryforwards of approximately $34,500
expiring between 2005 and 2011. The carryforward may be limited or
prohibited upon a reorganization or change in corporate ownership. The
approximate income tax benefit from these carryforwards, totaling $6,641,
has been offset by a valuation allowance. This valuation allowance
increased by $1,216 during the year ended December 31, 1996.
5. Subsequent Event
On March 7, 1997, the Company entered into a plan of agreement of
reorganization among the Company, Image Technology, Inc. ("ITI"), a Nevada
Corporation, and the shareholders of ITI.
The transaction was designed to qualify as a reorganization under Section
368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. The
agreement provided that the Company would acquire all 25,000 of the
outstanding shares of ITI in exchange for the issuance to ITI's
shareholders of 450,000,000 restricted shares of the common stock, par
value $0.00001 per share, of the Company, such restricted shares being
sufficient to invest the ITI shareholders with a 90% ownership interest in
the Company. The agreement also contemplated that a 1 for 50 reverse stock
split of the outstanding common stock of the Company would be implemented
within 10 days following the closing of the transaction.
16
<PAGE>
The agreement provided that finders working on behalf of the Company and
ITI, respectively, would be issued stock in consideration for their
pre-closing services. The agreement provided that the finder working on
behalf of ITI would be issued shares of ITI stock, while the finder working
on behalf of the Company would be issued not more than 1,000,000 shares of
Company common stock. Neither finder is a principal stockholder of the
Company within the meaning of SFAS No. 24, paragraph 24e.
The agreement provided also that the Company or ITI would enter into a
consulting agreement with both Robert Neece, the Company's president, and
Ronald J. Miller, a principal stockholder of the Company.
The transactions contemplated by the agreement were consummated on March
12, 1997, as a result of which ITI became the wholly owned subsidiary of
the Company, and the sole officer and director of the Company resigned in
favor of ITI designees.
ITI has its headquarters in San Diego, California, and provides systems for
the automated preparation and dispensing of motor vehicle registration
forms and license plate sticker decals.
17
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Directors and Executive Officers of the Company
The directors and executive officers of the Company, their ages, and their
positions held in the Company are as follows:
Name Age Position
Christ M. Rousseff 76 Chairman and Chief Executive Officer
Nicholas Litchin 69 Vice Chairman
Walter G. Fuller 55 President and Director
Janice L. Welch 55 Secretary/Treasurer and Director
John F. Grim 40 Vice President Sales/Marketing and
Director
Family Relationships
Mr. Rousseff is the father of Ms. Welch. No other family relationships
exist between any directors or executive officers.
Business Experience
The following is a brief account of the business experience during at least
the past five years of each director and executive officer, including his or her
principal occupation and employment during that period, and the name and
principal business of the organization in which such occupation and employment
were carried out.
Christ M. Rousseff is the Chairman of the Board and Chief Executive Officer
of the Company and ITI Nevada, positions which he has held since March 12, 1997
and the formation of ITI Nevada in April 1992, respectively. From 1987 to 1992
he was the President of American Registration Systems, Inc., an Indiana
corporation. From 1990 to 1992, he was the President of Advanced Identification
Management Systems, Inc., a California corporation involved in the production of
photographic driver's licenses for the State of New Hampshire. From 1985 to
1987, Mr. Rousseff was a consultant to Polaroid Corporation. From 1957 to 1970,
Mr. Rousseff was the Chairman and Chief Executive Officer of DEK Processes,
Inc., an Indiana corporation engaged in the production of photographic driver's
licenses. In 1970, DEK was sold to Scott and Fetzer, a New York Stock Exchange
Company, and Mr. Rousseff remained the President of DEK until 1977, at which
time he repurchased DEK from Scott and Fetzer. He was the Chief Executive
Officer of DEK until 1982, when that company was sold Mohawk Data Sciences, for
which he consulted until 1984. In 1967 Mr. Rousseff founded the Industry
Advisory Support Committee, a private industry group formed to assist and advise
Departments of Motor Vehicles. He was the Chairman of that Committee from 1967
to 1977.
18
<PAGE>
Nicholas Litchin is the Vice Chairman of the Board of Directors of the
Company and ITI Nevada, positions which he has held since March 12, 1997 and the
formation of ITI Nevada in April 1992, respectively. From 1988 through 1992 Mr.
Litchin was in retirement. Prior to that time from 1980 to 1989, Mr. Litchin was
the President of Mercer Beverage Company of St. Henry, Ohio, an Ohio corporation
engaged in beverage distribution. From 1973 to 1987, he was the Chairman of ABC
Distributing Company of Defiance, Ohio, an Ohio corporation engaged in the
distribution of beer, wine and soft drinks. From 1982 to 1991 Mr. Litchin was a
Vice President of WMCR corporation of Altena, Michigan, an owner/operator of 53
KFC outlets.
Walter G. Fuller is the President and a Director of the Company and ITI
Nevada, positions which he has held since March 12, 1997 and the formation of
ITI Nevada in 1992, respectively. He is also the President of M&S Steel Co.,
Inc., an Indiana corporation, which is a supplier of structural steel to the
construction industry.
Janice L. Welch is the Secretary/Treasurer and a Director of the Company
and ITI Nevada. She has held her position with the Company since March 12, 1997
and with ITI Nevada since its formation on April 23, 1992.
John F. Grim is the Vice President - Sales and Marketing of the Company and
ITI Nevada. He has held his position with the Company since March 12, 1997 and
with ITI Nevada since October 1, 1995. Prior to his employment with ITI Nevada
and for a period of five years. Previous to this employment Mr. Grim worked for
NCR Corporation for over fourteen years in various sales, marketing, and
management capacities related to networking products and the Public Sector
industry. Prior to departing NCR Mr. Grim was the head of NCR's Public Sector
worldwide marketing organization.
ITEM 10. EXECUTIVE COMPENSATION
During the fiscal year ended December 31, 1996, no officer or director of
the Company received cash compensation or compensation of any type pursuant to
any stock option or other similar plan.
Compensation of Directors
The Company has recently adopted a policy of paying non-employee directors
$250 per meeting plus expenses.
Employment Agreements
Mr. Grim has entered into an agreement with the ITI Nevada to serve as its
Vice President Sales/Marketing. This agreement became effective on October 1,
1995 and has a term of two years. It provides for monthly compensation of $8,333
and an annual bonus of $25,000.
Termination of Employment and Change of Control Arrangements
None.
19
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of April 11, 1997, other than certain of its officers and directors, no
person was known by the Company to own or control beneficially more than five
percent of its outstanding voting stock. The table below sets forth the total
number of shares of the Company's outstanding voting stock owned by each
director and officer of the Company and of all officers and directors as a
group. The amounts set forth below reflect the 1 for 50 reverse stock split,
which occurred in April 1997.
Number of Shares
Name and Address of Owned Beneficially
Beneficial Owner Title of Class and of Record Percent of Class
Janice L. Welch(1) Common Stock 4,269,960 42.7%
10639 Roselle Street
Suite B
San Diego, CA 92121
Walter G. Fuller Common Stock 2,999,880 30.0%
10639 Roselle Street
Suite B
San Diego, CA 92121
Nicholas Litchin (2) Common Stock 1,294,920 12.9%
10639 Roselle Street
Suite B
San Diego, CA 92121
John F. Grim Common Stock 180,000 1.8%
10639 Roselle Street
Suite B
San Diego, CA 92121
Christ M. Rousseff (3) Common Stock 574,920 9.7%
10639 Roselle Street
Suite B
San Diego, CA 92121
All Officers and
Directors as a Group
(5 persons) Common Stock 8,744,760 87.4%
(1) Includes 3,499,290 shares held of record by Ms. Welch as the Trustee
of the J&S Trust.
(2) Includes 214,920 shares held of record by L&R Realty, an Indiana
general partnership, of which Mr. Litchin is a partner, 699,840 shares
held of record by the Litchin Family Partnership, of which Mr. Litchin
is a general partner, and 360,000 shares held of record by Mercer
Beverage Co., an Ohio corporation, of which Mr. Litchin is the
President and a principal shareholder.
(3) Consists of 214,920 shares held of record by L&R Realty, of which Mr.
Rousseff, is a partner, and 360,000 shares, held of record by Mercer
Beverage Co. of which Mr. Rousseff's wife is a principal shareholder.
Mr. Rousseff disclaims beneficial ownership of such shares.
20
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 31, 1995, ITI Nevada and American Registration Systems, Inc.
("ARS"), an Indiana corporation owned and controlled by Mr. Rousseff, entered
into a Purchase and Sale Agreement with regard to the 1994 Patent. In
consideration of the transfer of the 1994 Patent, ITI Nevada agreed to pay to
ARS the sum of $4,000,000 on or before May 1, 1997 and to assume ARS' royalty
obligation to Mr. Rousseff of $.01 per transaction effected through any device
incorporating the subject matter of the 1994 Patent. Failure by ITI to pay the
purchase consideration would constitute an event of default, which under the
contract would entitle ARS to terminate ITI's rights to the 1994 Patent. On
March 11, 1997, this Agreement was amended to provide that ITI Nevada will have
no payment obligation to ARS until May 1, 1999.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Financial Statements
The following Financial Statements are filed as part of this report:
Report of Independent Certificate Public Accountants
Balance Sheets - December 31, 1996 and 1995
Statements of Operations for the years ended December 31, 1996,
December 31, 1995, and for the period from inception to December 31,
1996
Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1996, December 31, 1995, and for the period from
inception to December 31, 1996
Statements of Cash Flows for the years ended December 31, 1996,
December 31, 1995, and the period from inception to December 31, 1996
Notes to Financial Statements
(b) Reports on Form 8-K:
None.
(c) Exhibits
3.1(a) Certificate of Incorporation (1).
3.1(b) Amendment to Certificate of Incorporation (2).
3.2 Bylaws 4(i). Specimen Stock Certificate(1).
4.2 Specimen Class A Warrant Certificate (1).
4.3 Specimen Class B Warrant Certificate (1).
4.4 Unit Warrant Agreement (1).
10.1 Purchase and Sale Agreement, dated October 31, 1995, by and
between American Registration Systems, Inc. and Image
Technology, Inc.
10.2 Addendum to Purchase and Sale Agreement dated as of March
11, 1997.
21
<PAGE>
10.3 Equipment Lease, Support and Maintenance Agreement,
effective November 1, 1996, by and between Indiana Bureau of
Motor Vehicles Commission and Image Technology, Inc.
10.4 Subcontractor Agreement, effective as of August 1, 1996, by
and between NCR Corporation and Image Technology, Inc.
10.5 EmploymentEmployment Agreement between Intellectual
Technology and John F. Grim.
11. Statement re Computation of Pre-Share Earnings.
21. Subsidiaries of Registrant.
(1) Incorporated by reference to Registrant's Registration Statement
No. 33-33092-D, effective April 17, 1990.
(2) Incorporated by reference to Registrant's Registration on Form 8-A, filed
April 10, 1997.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTELLECTUAL TECHNOLOGY, INC.
By: /s/ Christ M. Rousseff
----------------------------------
Christ M. Rousseff, Chairman
Date: April 15, 1997
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
By:/s/Christ M. Rousseff Chairman and Chief Executive April 15, 1997
Christ M. Rousseff Officer (Principal Executive
Officer)
By:/s/Janice L. Welch Secretary/Treasurer and April 15, 1997
Janice L. Welch Director
(Principal Financial Officer)
By:/s/Nicholas Litchin Director April 15, 1997
Nicholas Litchin
By:/s/Walter G. Fuller Director April 15, 1997
Walter G. Fuller
By:/s/John F. Grim Director April 15, 1997
John F. Grim
23
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT ("Agreement") is made and entered into
this 31st day of October 1995, by and between AMERICAN REGISTRATION SYSTEMS,
INC., an Indiana corporation ("ARS") and IMAGE TECHNOLOGY, INC., a Nevada
corporation ("ITI") on the following terms and conditions:
RECITALS
A. Christ M. Rousseff ("Rousseff") is an original inventor and owner of two
United States Patents referable to the design and development of digital imaging
and automated form dispensing machines for the automation of the process of
issuing and renewing motor vehicle licenses; these patents, previously issued by
the United States Patent and Trademark Office, more particularly are:
1. Patent No. 4,970,655 dated November 13, 1990 (Automatic Fee
Collecting And Receipt Dispensing System); and
2. Patent No. 5,349,534 dated September 20, 1994 (Automatic Form
Dispensing System).
B. By written assignments in proper form, Rousseff has previously
transferred Patent No. 4,970,655 and Patent No. 5,349,534 to ARS.
C. By Security and Pledge Agreement dated October 26, 1992, ARS previously
pledged to ITI, as security for a $1,250,000 indebtedness, (1) all of its then
issued and outstanding shares of common capital stock, and (2) the
above-described Patent No. 4,970,655 together with all ancillary intellectual
property pertaining thereto, including but not limited to all "know-how" trade
secrets, other trade secrets, trade names, trademarks, and related intellectual
property rights of any and every nature and description.
D. Subsequent to the execution of the afore-described Security and Pledge
Agreement, ARS defaulted in the payment of the underlying indebtedness secured
by such Security and Pledge Agreement, and pursuant to pledge sale effectuated
in compliance with all relevant requirements of the California Uniform
Commercial Code, ITI became, and now remains, the owner of all ARS stock as well
as the hereinabove described U. S. Patent No. 4,970,655. Following the
aforementioned pledge sale and at the insistence of ITI, ARS executed, in proper
form, a written assignment to ITI of U.S. Patent No. 4,970,655.
E. As a part of the assignment by Rousseff to ARS of Patent No. 5,349,534,
the parties entered into a Royalty Agreement whereby Rousseff is to be paid one
(sent per transaction during a period coextensive with the duration of Patent
No. 4,970,655.
F. ARS now desires to sell, assign and transfer to ITI all intellectual
property rights appurtenant or in any way pertaining to the above-described
Patent No. 5,349,534, and subject to the Royalty Agreement hereinabove
described.
NOW, THEREFORE, in consideration of the agreements and covenants and upon
the conditions set forth herein, the parties agree as follows:
1. Incorporation By Reference. The Recitals set forth hereinabove are
incorporated herein as though fully set forth.
2. Sale And Assignment Of Patent. Upon full payment by ITI to ARS of the
purchase price hereinbelow described, ARS hereby sells, assigns and transfers to
ITI all right, title and interest in and to U.S. Patent No. 5,349,534. ARS
intends by this sale transaction to accord to ITI all property rights pertaining
to such patent, including without limitation the right to utilize in such manner
as ITI may deem proper or expedient, all of the above-described intellectual
property rights, including the right to grant exclusive licenses and sublicenses
thereof, and the right to manufacture, have manufactured, use and sell any and
all equipment which may be produced under said patent, in the United States and
such other Countries or places in the world as ITI may select. Such use rights
shall include the entitlement of ITI to license or otherwise authorize the use
by franchisees, licensees, and/or sub-licensees for the remaining term of said
patent.
<PAGE>
2.1 Termination Of Agreement. This Agreement and the rights of ITI
thereunder as set forth in 2 immediately hereinabove, may be terminated only in
accordance with Paragraph 6.1.1 below.
3. Purchase Consideration. In consideration for the sale by ARS of U.S.
Patent No. 5,349,534 to ITI, ITI shall pay to ARS the sum of Four Million
Dollars ($4,000,000). ITI shall pay this purchase consideration to ARS in cash
on October 31, 1996. Upon written request accompanied by evidence of
demonstrated need therefor, ITI may obtain reasonable extensions of this time
for payment of this purchase consideration, such time for payment, however, in
no event to extend beyond May 1, 1997. In addition to the cash consideration
above, ITI agrees immediately to assume all obligations under the Royalty
Agreement between Rousseff and ARS.
4. Warranty of Patent Rights. ARS hereby represents, covenants and warrants
to ITI that the patents identified in the Recitals above have been duly issued
and assigned as hereinabove set forth, and that all proprietary property rights
pertaining to U.S. Patent No. 5,349,534 are transferable to ITI without the
consent or approval of any person or entity other than ARS.
4.1 No Infringement. The use by ITI of the intellectual property
rights granted hereunder will not infringe upon any patent, trademark or
proprietary rights of any person or entity other than ARS.
5. Prosecution of Infringement Actions. Upon the effective date of this
Agreement, ARS authorizes ITI to file, and agrees to co-operate with ITI in the
prosecution of, such patent infringement and/or trade secret misappropriation
actions as may be necessary to protect from infringement the patent and other
proprietary rights granted hereunder. ARS agrees to join as a party plaintiff or
provide such other cooperation as may be necessary or reasonably required to
successfully pursue any such actions. ITI agrees to pay all such legal fees and
costs which are reasonably and necessarily incurred in the pursuit of any such
actions.
6. Term. This Agreement shall commence and become effective on the date of
its execution. Use, license and all other rights granted hereunder shall be
perpetual, for the term of U.S. Patent No. 5,349,534 unless terminated pursuant
to Paragraph 6.1 below, or otherwise limited by this Agreement.
6.1 Termination. Failure by ITI to pay the purchase consideration
specified in Paragraph 3 hereinabove, on or after October 31, 1996, and in no
event later than May 1, 1997, shall constitute an event of default subjecting
ITI to termination of all rights under this Agreement, and shall entitle ARS to
ai immediate re-assignment of U.S. Patent No. 5,349,534. On the occurrence of an
event of default as set forth above, ARS shall send notice of default and demand
for payment to ITI specifying the event(s) of default and notifying ITI that
failure to cure any such default(s) by payment of the full amount due will
result in termination of the sales transaction and all use, license and other
rights granted to ITI hereunder. Said notice of default shall be sent by Federal
Express, other overnight mail delivery service or by prepaid first-class US.
Mail, receipt requested, to the address for notice to ITI identified below. Said
notice of default shall be deemed served on the date of delivery to the
overnight delivery service or date of posting. ITI shall have thirty (30) days
from the date of service of notice of default in which to cure the event(s) of
default by payment in full of any and all amounts due to ARS. If cure is not
made in such time, the Agreement shall terminate without further action by ARS.
6.2 Result Of Termination. If the Agreement is terminated in
accordance with the provisions of Paragraph 6.1 above, ITI shall no longer have
any right, title or interest in or to U.S. Patent No. 5,349,534, nor any
entitlement to use, license, or otherwise utilize such patent and/or rights
pertaining thereto in any respect. By its execution of this Agreement, ITI
covenants and agrees that after any such termination and upon written demand by
ARS, ITI will execute and deliver, in proper form, a written re-assignment of
U.S. Patent No. 5,349,534 to ARS or its designee.
<PAGE>
7. Assignment of Royalty Agreement. ARS hereby assigns to ITI that certain
Royalty Agreement previously entered into by ARS and Rousseff, whereby Rousseff
is to be paid one cent per transaction during a period co-existensive with the
duration of Patent No. 5,349,534.
7.1 Covenant of Further Assurance. The parties agree to execute and
deliver, or cause to be executed and delivered to the other party, such other
instruments and documents which may reasonably be requested or required to
effectuate the terms and provisions of this Agreement.
7.2 Notices. Any notice or document required or permitted to be served
hereunder by either party hereto may be served by mailing the same postpaid,
first-class mail to the other party at the party's last known address. Until
otherwise notified, the addresses for the parties hereto for the purpose of such
notice are as follows:
ARS: American Registration Systems, Inc.
4407 Manchester Avenue, Suite 103
Encinitas, CA 9202
Rousseff: Christ M. Rousseff
7688 St. Andrews Road
San Diego, CA
ITI: Image Technology, Inc.
4407 Manchester Avenue, Suite 103
Encinitas, CA 92024
7.3 Governing Law. This Agreement shall be interpreted and construed
in accordance with the laws of the State of California.
7.4 Entire Agreement; Amendments and Waivers. This Agreement
constitutes the entire agreement between the parties hereto and supersedes in
all respects any prior agreement and understanding of the parties relating to
the subject matter hereof. No supplement, modification or waiver of the
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereto (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
7.5 Severability. If any one or more of the provisions contained in
this Agreement or in any instrument referred to herein shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, (i) such provision
will be deemed amended to conform to applicable laws or such jurisdiction so as
to be valid and enforceable, or if it cannot be so amended without materially
altering the intention of the parties, it will be stricken, (ii) the validity,
legality and enforceability of such provisions will not in any way be affected
or impaired thereby in any other jurisdiction, (iii) such invalidity, illegality
or unenforceability shall not affect any other provision of this Agreement or
any other such instrument, and (iv) the remainder of this Agreement will remain
in full force and effect.
7.6 Headings. The headings of the Paragraphs herein are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
7.7 No Assignments. This Agreement may not be assigned by operation of
law or otherwise without the written consent of the other party hereto.
<PAGE>
7.8 Attorneys' Fees. In the event either party hereto brings an action
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to his or its reasonable attorneys' fees and court costs reasonably
incurred in connection therewith.
7.9 Confidentiality. Each of the parties hereto shall maintain as
confidential, and shall not disclose to any third party, any confidential or
non-public information concerning the aforementioned patents, "know-how" trade
secrets, other trade secrets and/or intellectual property or other proprietary
rights appurtenant to the digital imaging and automated form dispensing machines
which constitute the subject of such intellectual proprietary rights, without
the prior written consent of the other party hereto. Any such disclosure to
agents, contractors, subcontractors of and purchasers from ITI which is
permitted with the written consent of ARS shall be accompanied by appropriate
confidentiality or non-disclosure agreements executed by any such third party
persons or entities.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date and year first above written.
AMERICAN REGISTRATION SYSTEMS,
INC., an Indiana corporation
By:
IMAGE TECHNOLOGY, INC., a Nevada
corporation
By:
By:
<PAGE>
ACCEPTANCE OF ASSIGNMENT OF ROYALTY AGREEMENTS
ITI hereby accepts the assignment by ARS of the two Royalty Agreements with
Rousseff hereinabove described, and agrees to be fully bound by and to perform
all terms, conditions and covenants thereof for the benefit of Rousseff.
IMAGE TECHNOLOGY, INC., a Nevada
corporation
By:
CONSENT TO ASSIGNMENT OF ROYALTY AGREEMENTS
Rousseff hereby consents to the assignment to ITI of his two Royalty
Agreements with ARS. AMERICAN REGISTRATION SYSTEMS, INC., an Indiana corporation
By:
CHRIST M. ROUSSEFF
ADDENDUM TO
PURCHASE AND SALE AGREEMENT
DATED OCTOBER 31, 1995
THIS ADDENDUM TO PURCHASE AND SALE AGREEMENT DATED OCTOBER 31, 1995 is made
and entered into this 11th day of March 1997, by and between American
Registration Systems, Inc., an Indiana corporation ("ARS") and Image Technology,
Inc., a Nevada corporation ("ITI"), as follows:
Paragraphs 3.1 and 6.2 are each amended by deleting from each thereof the
date "May 1, 1997" and inserting in its place the date "May 1, 1999."
Paragraphs 3.1 and 6.2 are each hereby further amended to provide that ITI
shall have no payment obligation prior to May 1, 1998, and that ARS shall not be
entitled to place ITI in default with respect to such payment obligation prior
to May 1, 1998.
All other terms and conditions of said Purchase and Sale Agreement remain
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the date and year first above written.
AMERICAN REGISTRATION SYSTEMS, IMAGE TECHNOLOGY, INC., a Nevada
INC., an Indiana corporation corporation
By:__________________________ By:_____________________________
EQUIPMENT, LEASE, SUPPORT AND MAINTENANCE AGREEMENT
THIS EQUIPMENT LEASE, SUPPORT AND MAINTENANCE AGREEMENT ("Agreement") is by
and between the Indiana Bureau of Motor Vehicles Commission, a body corporate
and politic, created by statute under Indiana Code 9-15-1-1 et seq. ("BMVC"),
and Image Technology, Inc., a Nevada corporation, d/b/a in Indiana as Image
Technology of Indiana Corporation, an Indiana corporation ("Lessor").
WHEREAS, BMVC is seeking to procure a Self-Service Vehicle Registration
System ("SSVRS") to process motor vehicle registration transactions as outlined
in that certain Request for Proposals #1 ("RFP") dated April 1, 1996; and
WHEREAS, Lessor provided the only response to the RFP in that certain
response ("RFP Response") dated May 16, 1996, a copy of which is attached as
Exhibit A hereto and made a part hereof, that met the specifications and other
requirements set forth in the RFP; and
WHEREAS, BMVC now desires to lease a SSVRS from Lessor and Lessor desires
to lease, support and maintain a SSVRS on behalf of BMVC;
NOW, THEREFORE, in consideration of the foregoing Recitals and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
AGREEMENTS
1. Equipment To Be Leased/Pricing.
a. BMVC, at its sole option in accordance with the provisions of this
Section I of this Agreement, agrees to lease from Lessor NCR 5665 Self-Service
Terminals (each of which shall hereinafter be singularly referred to as a
"Terminal"), and stand-alone ITI AP2100 Registration Decal Printers/Applicators/
Dispensers (each of which shall hereinafter be singularly referred to as a
"Printer").
b. No later than February 1, 1997, Lessor shall install in the manner
provided in the RFP Response so as to be fully operational, ten (10) Terminals
and one hundred (100) Printers ("Phase I") in locations to be determined in an
implementation plan ("Plan") to be agreed upon by BMVC and Lessor. The Plan will
be designed to utilize the Terminals and Printers to perform an estimated
1,400,000 vehicle registration transactions on an annual basis based on vehicle
registration figures in 1995. BMVC and Lessor agree that these figures are
estimates only and no actual transaction volume can be guaranteed. During Phase
I, BMVC shall pay Lessor $1.22 for each vehicle registration transaction using a
Terminal or a Printer.
c. Thereafter, BMVC, at its option, may lease additional Terminals and
Printers beyond those leased as a part of Phase I. Attached as Exhibit B hereto
and made a part hereof is a matrix of pricing per vehicle registration
transaction based on the number of Terminals and Printers leased and the date
upon which the Terminals and Printers are actually leased. Each numbered "Block"
represents the lease of five (5) additional Terminals and thirty-nine (39)
additional Printers. At such time as a new Block is leased, the cost per
transaction for each vehicle registration processed using a Terminal or a
Printer (including those using a Terminal or Printer installed as a part of
Phase I or an earlier Block) will be adjusted according to the matrix. For
purposes of this Agreement the date upon which a Block is considered leased is
the earlier of either the date upon which the Block is fully installed by Lessor
and an acceptance certification as provided in Section 8 of this Agreement is
delivered by BMVC to Lessor or sixty (60) days after the date of written notice
from BMVC to lessor that it agrees to lease a Block.
<PAGE>
d. Notwithstanding anything in this Agreement to the contrary, no
later than October 31, 1997, BMVC agrees to notify Lessor of its agreement to
lease all five (5) Blocks unless this Agreement is canceled or terminated
pursuant to the terms and provisions of Section 12 or 13 of this Agreement.
Provided BMVC has provided written notice of its agreement to lease all five (5)
Blocks by such date, BMVC shall pay $0.85 ("Plate Year Pricing") for each
vehicle registration transaction performed beginning November 1, 1997, and
ending October 31, 1998. Beginning November, 1, 1998, the Plate Year Pricing
shall no longer apply and BMVC shall thereafter pay the appropriate amount per
vehicle registration transaction as provided for in the matrix attached as
Exhibit B hereto.
e. BMVC, at its option, can, after installation of all Blocks lease
one or more Terminal(s) or Printer(s). The applicable figures on the matrix
represent the additional cost per transaction for the lease of each additional
Terminal or Printer.
f. Lessor shall provide all related software and services as described
in the RFP Response at no additional cost to BMVC. BMVC shall have no obligation
to make any other payments under this Agreement than the cost per vehicle
registration transaction for Phase I provided in subsection b. above or any
other appropriate amount as shown on the matrix in the attached Exhibit B.
2. Payments. All payment obligations are subject to the encumbrance of
monies and shall be made in arrears in accordance with Indiana law and state
fiscal policies and procedures and in this regard the Lessor agrees to execute
such state payment (invoice) forms not inconsistent herewith. BMVC will submit
Lessor's vouchers to the State Auditor's Office promptly so that payment will be
made within thirty (30) days unless due to events beyond the control of BMVC.
3. Term. The term of this Agreement shall be for a period of three (3)
years, effective November 1, 1996, and terminating October 31, 1999, subject to
the option for renewal contained in Section 16 below.
4. Initial Condition of Equipment. Any equipment leased hereunder shall be
new or remanufactured as new and subject to the same warranties as new
equipment.
5. Title. The Terminals and Printers are and shall at all times remain the
sole property of Lessor. BMVC shall have or acquire no rights, title or interest
to any such equipment leased hereunder except as provided in this Agreement.
Lessor shall retain risk of loss for such equipment.
6. Delivery. Shipping and delivery costs shall be paid by Lessor. Delivery
will be made to BMVC according to the Plan and any other subsequent delivery
schedule for an additional Block as agreed upon by Lessor and BMVC.
7. Installation.
a. Lessor shall install the Terminals and Printers ready for use in
accordance with the RFP Response and the Plan.
b. BMVC agrees to have the site prepared in accordance with Lessor's
written minimum site and environmental requirements. Such requirements, if any,
have been provided in writing to BMVC by Lessor prior to the execution of this
Agreement.
c. Installation shall be performed in accordance with the provisions
of the RFP Response in a professional and workmanlike manner and conform with
all recommendations of the manufacturer, and good construction and engineering
practices.
<PAGE>
d. During the period of installation, the locations in which the
Terminals and Printers are to be installed will be in use by BMVC. Lessor shall
schedule and coordinate the work wit BMVC to cause the least possible
interference without interruption of BMVC's activities in and around such
locations. It is intended that work be performed during normal working hours of
BMVC, unless BMVC directs other-wise in writing.
8. Acceptance of Equipment. Following the delivery and installation of the
equipment described herein and the Lessor's certification that the equipment has
been successfully installed and is ready for use, BMVC shall inspect the same
and shall provide written acceptance of such equipment within ten (10) business
days following the Lessor's certification of the equipment being ready for use.
The failure of BMVC to issue written acceptance within such ten (10) business
day period shall not constitute acceptance. The Lessor may, upon the failure of
BMVC to issue timely acceptance, demand a written acceptance and BMVC will be
deemed to have accepted the equipment if it has not accepted or rejected the
equipment within ten (10) days receipt of the Lessor's written demand for
acceptance.
If the equipment fails to conform to the requirements of this Agreement,
including, but not limited to, the specification of the RFP and the
representations contained in the RFP Response the equipment may be rejected.
9. Support and Maintenance of Equipment.
a. Lessor shall keep the equipment in good operating condition in
accordance with the requirements contained in the RFP and the representations
made in the RFP Response. For this purpose, Lessor shall have full and free
access to the security policies and procedures of BMVC. Support and maintenance
of equipment shall be provided by Lessor as specified in the RFP Response.
Lessor specifically acknowledges and agrees that its response to specification
3.5.S.15.b regarding SSVRS 98% availability refers to database file availability
and not license branch hours of operation.
b. Preventive maintenance shall be performed as specified in the RFP
Response.
c. All remedial maintenance shall be performed as specified in the RFP
Response. Lessor shall meet the response times provided in the RFP Response.
d. There will be no charge for travel expenses associated with any
maintenance service under this agreement.
e. BMVC agrees to pay, at Lessor's applicable time and material rate
then in effect, all charges for parts and maintenance and other service
activities caused by: (1) misuse by BMVC employees, or (2) unauthorized
alterations and attachments.
f. There will be no extra charge for any replacement parts, except as
provided in paragraph e. above.
10. Taxes. BMVC is exempt from state, federal and local taxes. BMVC will
not be responsible for any taxes levied on Lessor as a result of this Agreement.
11. Patents. Lessor agrees to defend at its own expense, the State of
Indiana and BMVC and to hold them harmless, with respect to any claims that the
equipment furnished by the Lessor under this Agreement infringes or allegedly
infringes any patents issued by the United States and with respect to any and
all suits, controversies, demands and liabilities arising out of such claim.
<PAGE>
12. Default.
a. If BMVC, after sixty (60) days written notice, fails to correct or
cure any breach of this Agreement, then Lessor may cancel and terminate this
Agreement.
b. If Lessor, after sixty (60) days written notice, fails to correct
or cure any breach of this Agreement, BMVC may cancel and terminate this
Agreement and thereafter owe no further monies for equipment usage beyond the
termination date.
13. Multi-Term Funding Cancellation Clause. When the Director of the State
Budget Agency makes a written determination that funds are not appropriated or
otherwise available to support continuation of performance of this Agreement,
this Agreement shall be canceled. A determination by the Budget Director that
funds are not appropriated or otherwise available to support continuation of
performance shall be final and conclusive.
14. [INTENTIONALLY DELETED].
15. Assignment. Lessor may, with prior approval of BMVC, which approval
shall not unreasonably be withheld, assign its rights to receive payments
hereunder, provided, that such assignments shall not relieve Lessor of its
responsibility to perform any duty imposed upon it herein. No waiver of any
rights held by BMVC or the State, including rights of set-off or counterclaim
will be granted to any assignee.
16. Renewal. This Agreement may be renewed upon the same terms and
conditions contained herein for a period of one (1) year by written notice from
BMVC to Lessor. The total term of this Agreement, including all renewals, shall
not exceed four (4) years.
17. Nondiscrimination. Pursuant to I.C. 22-9-1-10, Lessor and any
subcontractor thereof, if any, shall not discriminate against any employee or
applicant for employment, to be employed in the performance of this Agreement,
with respect to his hire, tenure, terms, conditions or privileges of employment
or any matter directly or indirectly related to employment, because of his race,
color, religion, sex, handicap, national origin or ancestry. Breach of this
covenant may be regarded as a material breach of this Agreement.
18. [INTENTIONALLY DELETED].
19. Alterations and Attachments. An alteration or attachment to equipment
may be made only upon approval by Lessor, which approval shall not be
unreasonably withheld. BMVC agrees to remove any alteration or attachment and to
restore equipment to its normal, unaltered condition, ordinary wear and tear
excepted, prior to its return to Lessor, or upon notice from Lessor that the
alteration or attachment creates a safety hazard or renders maintenance of the
equipment impractical.
20. Authority to Bind Lessor. The signature of the representative of Lessor
to this Agreement represents that he or she has been authorized to execute
contracts on behalf of Lessor designated above, and has filed proof of such
authority with BMVC.
21. Independent Contractor. Both parties hereto, in the performance of this
Agreement, will be acting in an individual capacity and not as agents,
employees, partners, joint ventures or associates of one another. The employees
or agents of one party shall not be deemed or construed to be the employees or
agents of the other party for any purposes whatsoever. Neither party will assume
any liability for any injury (including death) to any persons, or any damage to
any property arising out of the acts or omissions of the agents, employees or
subcontractors of the other party.
<PAGE>
22. Penalties/Interest/Attornev's Fees. BMVC will in good faith perform its
required obligations hereunder but does not agree to pay any penalties,
interest, liquidated damages, or attorney's fees, whether as a result of
termination of this Agreement or for any other reason.
23. Compliance with Laws. Lessor agrees to comply with all applicable
federal state and local laws, rules, regulations, or ordinances, and all
provisions required thereby to be included herein, and hereby incorporated by
reference. The enactment of any state or federal statute or the promulgation of
regulations thereunder after execution of this Agreement shall be reviewed by
the Attorney General and Lessor to determine whether the provisions of the
contract require formal amendment.
24. Hold Harmless Indemnification. Lessor agrees to indemnify, defend and
hold harmless the State of Indiana, BMVC, and their agents, officers, and
employees from all claims and suits including court costs, attorney's fees, and
other expenses, caused by any act or omission of Lessor and/or sub-contractors.
25. Possession and Quiet Enjoyment. Lessor hereby covenants to provide BMVC
during the term of this Agreement the quiet use and enjoyment of the Terminals
and Printers, and BMVC shall during the term of the Agreement peaceably and
quietly have and hold and enjoy such equipment, without suit, trouble or
hindrance, except as expressly set forth in this Agreement.
26. Maintaining a Drug-Free Workplace.
a. Lessor hereby covenants and agrees to make a good faith effort to
provide and maintain during the term of this Agreement a drug-free workplace,
and that it will give written notice to the contracting state agency and the
Indiana Department of Administration within ten (10) days after receiving actual
notice that an employee of Lessor has been convicted of a criminal drug
violation occurring in Lessor's Workplace.
b. In addition to the provisions of subparagraph (a) above, if the
total contract amount set forth in this Agreement is in excess of $25,000.00,
Lessor hereby further agrees that this Agreement is expressly subject to the
terms, conditions and representations contained in the Drug-Free Workplace
certification executed by Lessor in conjunction with this Agreement and which is
appended as an Attachment hereto.
c. It is further expressly agreed that the failure of Lessor to in
good faith comply with the terms of subparagraph (a) above, or falsifying or
otherwise violating the terms of the certification referenced in sub-paragraph
(b) above shall constitute a material breach of this Agreement, and shall
entitle the State to impose sanctions against the Lessor including, but not
limited to, suspension of contract payments, termination of this Agreement
and/or debarment of Lessor from doing further business with the State for up to
three (3) years.
27. Notices. All notices to be made under the terms and provisions of this
Agreement shall be in writing and sent by certified or registered mail,
addressed to Lessor at:
Image Technology, Inc.
Christ Rousseff, Chairman of the Board
4407 Manchester Avenue, Suite 103
Encinitas, California 92024
and addressed to BMVC at:
Gilbert L. Holmes, Chairman
Bureau of Motor Vehicles Commission
Indiana Government Center North
100 North Senate Avenue, Room N440
Indianapolis, Indiana 46204
<PAGE>
28. General.
a. This Agreement embodies the entire agreement between the parties.
It may not be modified or terminated except as provided herein or by written
agreement signed by all authorized and required parties.
b. To the extent that the terms and provisions of this Agreement and
the RFP Response are not consistent, the terms and provisions of this Agreement
shall govern and supersede the RFP Response. Specifically, the terms and
provisions of this Agreement regarding pricing and any payments to be made by
BMVC shall govern and supersede all related terms and provisions of the RFP
Response.
c. This Agreement shall be construed in accordance with and governed
by the laws of the State of Indiana and suit, if any, must be brought in the
State of Indiana.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
and agreed to the terms and provisions thereof, effective November 1, 1996.
LESSOR: BMVC:
Image Technology, Inc., a Indiana Bureau of Motor Vehicles
Nevada corporation, doing Commission, a body corporate and
business in Indiana as Image politic, created by statute under
Technology of Indiana Indiana Code 9-15-1-1 et seq.
Corporation, an Indiana
Corporation
By:___________________________ By:________________________________
Christ M. Rousseff Gilbert L. Holmes, Chairman
Chairman of the Board
<PAGE>
NON-COLLUSION AFFIDAVIT
STATE OF INDIANA )
) SS:
COUNTY OF MARION )
The undersigned, being duly sworn to oath says, that he is the contracting
party, or that he is the representative, agent, member, or officer of the
contracting party, that he has not, or has any other member, representative,
agency or officer of the firm, company, corporation or partnership represented
by him, directly or indirectly, entered into or offered to enter into any
combination, collusion or agreement to receive or pay, and that he has not
received or paid, any sum of money or other consideration for the execution of
the annexed contract other than that which appears upon the face of the
contract.
/s/Christ M. Rousseff
Before me, a Notary Public, personally appeared before me and acknowledged
the truth of the statement in this Non-Collusion Affidavit, this 8th day of
August, 1996.
/s/Bradford E. Shockney
Signature of Notary Public
Bradford E. Shockney
Printed Name
My Commission Expires: My County of Residence is:
October 1996 Marion
<PAGE>
STATE OF INDIANA
DRUG-FREE WORKPLACE CERTIFICATION
Pursuant to Executive Order No. 90-5, April 12, 1990, issued by Governor
Evan Bayh, the Indiana Department of Administration requires the inclusion of
this certification in all contracts with and grants from the State of Indiana in
excess of $25,000. No award of a contract or grant shall be made, and no
contract, purchase order or agreement, the total amount of which exceeds
$25,000.00 shall be valid unless and until this certification has been fully
executed by the Contractor or Grantee and attached to the contract or agreement
as part of the contract documents. False certification or violation of the
certification may result in sanctions, including, but not limited to, suspension
of contract payments, termination of the contract or agreement and/or debarment
of contracting opportunities with the State for up to three (3) years.
The Contractor/Grantee certifies and agrees that it will provide a
drug-free workplace by:
(a) Publishing and providing to all of its employees a statement notifying
employees that the unlawful manufacture, distribution, dispensing,
possession or use of a controlled substance is prohibited in the
Contractor's workplace and specifying the actions that will be taken
against employees for violations of such prohibition; and
(b) Establishing a drug-free awareness program to inform employees about
(1) the dangers of drug abuse in the workplace; (2) the Contractor's
policy of maintaining a drug-free workplace; (3) any available drug
counseling, rehabilitation and employee assistance programs; and (4)
the penalties that may be imposed upon an employee for drug abuse
violations occurring in the workplace;
(c) Notifying all employees in the statement required by subparagraph (a)
above that as a condition of continued employment the employee will
(1) abide by the terms of the statement; and (2) notify the employer
of any criminal drug statute conviction for a violation in the
workplace no later than five (5) days after such conviction;
(d) Notifying in writing the contracting State Agency and the Indiana
Department of Administration within ten (10) days after receiving
notice from an employee under subdivision (c)(2) above, or otherwise
receiving actual notice of such conviction;
(e) Within thirty (30) days after receiving notice under subdivision
(c)(2) above of a conviction, imposing the following sanctions or
remedial measures on any employee who is convicted of drug abuse
violations occurring in the workplace: (1) take appropriate personnel
action against the employee, up to and including termination; or (2)
require such employee to satisfactorily participate in a drug abuse
assistance or rehabilitation program approved for such purposes by a
federal, state or local health, law enforcement, or other appropriate
agency; and
(f) Making a good faith effort to maintain a drug-free workplace through
the implementation of subparagraphs (a) through (e) above.
THE UNDERSIGNED AFFIRMS, UNDER PENALTIES OF PERJURY, THAT HE OR SHE IS
AUTHORIZED TO EXECUTE THIS CERTIFICATION ON BEHALF OF THE DESIGNATED
ORGANIZATION.
________________________________
NAME OF ORGANIZATION
________________________________
SIGNATURE OF AUTHORIZED
REPRESENTATIVE
________________________________ _____________________________
PRINTED NAME AND TITLE DATE
<PAGE>
INDIANA SSVRR
THREE-YEAR PROGRAM WITH ONE OPTION YEAR 8/8/96
<TABLE>
CONTRACT YEAR 1
<S> <C> <C> <C> <C>
11/1-2/1 2/1-5/1 5/1-8/1 8/1-11/1
PHASE ONE $1.22 $1.22 $1.22 $1.22
BLOCK 1 $1.08 $1.10 $1.12 $1.14
BLOCK 2 $0.98 $0.992 $1.007 $1.022
BLOCK 3 $0.916 $0.934 $0.953 $0.972
BLOCK 4 $0.877 $0.895 $0.913 $0.931
BLOCK 5 $0.851 $0.868 $0.885 $0.903
ADD'L 5665 $0.006 $0.006 $0.006 $0.006
ADD'L AP2100 $0.001 $0.001 $0.001 $0.001
INDIANA SSVRR
CONTRACT YEAR 2
11/1-2/1 2/1-5/1 5/1-8/1 8/1-11/1
PHASE ONE N/A N/A N/A N/A
BLOCK 1 N/A N/A N/A N/A
BLOCK 2 N/A N/A N/A N/A
BLOCK 3 N/A N/A N/A N/A
BLOCK 4 N/A N/A N/A N/A
BLOCK 5 $0.986 N/A N/A N/A
ADD'L 5665 $0.007 $0.007 $0.008 $0.008
ADD'L AP2100 $0.002 $0.002 $0.002 $0.002
<PAGE>
INDIANA SSVRR
CONTRACT YEAR 3
11/1-2/1 2/1-5/1 5/1-8/1 8/1-11/1
PHASE ONE N/A N/A N/A N/A
BLOCK 1 N/A N/A N/A N/A
BLOCK 2 N/A N/A N/A N/A
BLOCK 3 N/A N/A N/A N/A
BLOCK 4 N/A N/A N/A N/A
BLOCK 5 N/A N/A N/A N/A
ADD'L 5665 $0.01 $0.012 $0.015 $0.018
ADD'L AP2100 $0.003 $0.003 $0.003 $0.003
INDIANA SSVRR
CONTRACT YEAR 4
11/1-2/1 2/1-5/1 5/1-8/1 8/1-11/1
PHASE ONE N/A N/A N/A N/A
BLOCK 1 N/A N/A N/A N/A
BLOCK 2 N/A N/A N/A N/A
BLOCK 3 N/A N/A N/A N/A
BLOCK 4 N/A N/A N/A N/A
BLOCK 5 N/A N/A N/A N/A
ADD'L 5665 $0.02 $0.045 $0.07 N/A
ADD'L AP2100 $0.004 $0.006 $0.008 N/A
</TABLE>
THE FOLLOWING ARE THE DEFINITIONS ASSOCIATED WITH THE PHASE ONE, BLOCKS, ADD'L
5665, AND ADD-L AP2100 ITEMS.
PHASE ONE INCLUDES TEN SELF-SERVICE TERMINALS, 100 MAILROOM AND BRANCH AP2100s,
ALL REQUIRED SOFTWARE AND NETWORK SUPPORT, AND INSTALLATION AND MAINTENANCE
SERVICE.
EACH BLOCK CONSISTS OF AN OPTION TO PROCURE 39 AP2100s AND FIVE SELF-SERVICE
TERMINALS WITH ALL ASSOCIATED SOFTWARE AND SERVICES AS DEFINED IN BMVC RFP #1
PROPOSAL SUBMITTED ON MAY 17,1996.
AN ADDITIONAL 5665 INCLUDES THE WHOLE SYSTEM UNIT (i.e., 5665 TERMINAL, AP2100,
ENCLOSURE, ALL SOFTWARE AND SERVICES).
AN ADDITIONAL AP2100 REFERS TO A STAND ALONE PRINTER/DISPENSER ATTACHED TO A LAN
WHILE INTERFACING WITH THE BOSS SERVER AND INCLUDES ALL NECESSARY SOFTWARE,
INTERFACE UNIT, AND SERVICES.
IMAGE TECHNOLOGY INC.
Subcontractor Agreement
This agreement is entered into and made effective as of August 1, 1996, by
and between Image Technology Inc. (prime contractor), a corporation organized
under the laws of the State of Nevada and having its principal place of business
in Encinitas, California and NCR Corporation (subcontractor) having its
principal place of business at Dayton, Ohio.
1. Definitions.
1.1 "Computer hardware" or "Hardware" shall mean the computer hardware
and devices listed on Schedule One, attached hereto and made a part hereof, or
such other computer hardware and devices as may be substituted.
1.2 "User Documentation" shall mean all documentation normally made
available relating to the use of the computer hardware by customer personnel.
1.3 "Maintenance Documentation" shall mean all documentation related
to the maintenance or servicing of the computer hardware, including, but not
limited to, maintenance manuals, diagnostic and other maintenance software,
schematics, interfaces, and communication operation.
1.4 "Installation Services" shall mean the installation, set-up, test
and related services for the computer hardware which are required to make the
computer hardware usable by the customer.
1.5 "Project Management" shall mean the activities normally associated
with coordination and execution of computer hardware projects including, but not
limited to, prepared project plans, status reporting, escalation procedures, and
appropriate communication methods required for successful project completion.
1.6 "Kiosk Enclosure" shall mean the computer hardware housing
supplied to produce a device usable by the public including, but not limited to,
the frame structure, associated electrical and environmental supports, related
signage and paint, and internal storage facilities.
1.7 "Customer" shall mean Image Technology Inc.'s end user customer
intended to operate the agreement's related computer hardware.
2. Term of Agreement. The term of this agreement is for thirty-nine months,
starting upon the agreement's effective date, with an option to extend the
relationship for an additional one years upon the discretion of Image Technology
Inc.
3. Cancellation Clause. This agreement may be canceled by Image Technology
Inc. in the event that subcontractor performance associated with Schedule One
activities is deemed, through written notice, by the customer as being
unsatisfactory and jeopardizes the customer's continuation of their relationship
with Image Technology Inc. Subcontractor shall have forty five days following
notice from the prime contractor to correct or cure performance of activities
deemed to be unsatisfactory. This agreement may also be canceled should the
customer discontinue funding for the contract held by Image Technology Inc.
which is related to this agreement.
<PAGE>
4. Payments. Image Technology Inc. shall make payment to the subcontractor
for activities completed upon customer acceptance of activities related to
Schedule One and within 45 days following receipt of such notification from the
customer. In the event of cancellation of this agreement pursuant to section 3,
the prime contractor will not be responsible for payment related to specifically
documented activities with unsatisfactory performance related to Schedule One or
any future Schedule One activities. Billing is to be in accordance with Section
11 of the attached Schedule One.
5. Insurance. Subcontractor shall maintain insurance for their equipment
and personnel related to the performance of this agreement.
6. Shipment and Delivery. Subcontractor shall utilize industry standard
methods for shipment of computer hardware. Packaging should be consistent with
requirements for readily usable computer hardware upon delivery. Delivery shall
be coordinated with prime contractor's project manager or designee and should
not be disruptive to the customer.
7. Documentation. Subcontractor shall supply all related user documentation
and maintenance documentation associated with their activities on Schedule One.
This documentation shall be delivered upon commencement of Schedule One
activities. Electronic and paper versions shall be delivered and quantities will
be appropriate for the related activities (i.e. three copies for central
locations versus one per customer branch location).
8. Installation Services. Subcontractor shall perform installation services
consistent with customer and prime contractor direction. Personnel shall perform
in a professional and work man like manner such that minimal disruption to the
customer occurs.
9. Compliance with Laws. Subcontractor shall perform Schedule One
activities consistent with existing Federal and State regulations. This
includes, but is not limited to, related certifications (UL, FCC, etc.),
maintaining a drug free workplace, and operating their business with regard to
nondiscrimination of employees. Direct or indirect discrimination includes race,
color, religion, sex, handicap, and national origin or ancestry elements
associated with subcontractor's employment practices. Notification of violation
of any of these laws or regulations shall be made immediately to the prime
contractor.
10. Indemnification.
10.1 Subcontractor shall defend or settle, at its own expense, any
cause of action or proceeding brought against the prime contractor or the
customer which is based on a claim that the computer hardware, kiosk enclosure,
or provided services infringes any patent, copyright, trade secret, or other
proprietary right and shall indemnify and hold the prime contractor and the
customer harmless against any and all costs, expenses and judgments, including
an award of attorneys' fees, that may be awarded against the prime contractor or
the customer as a result of the foregoing. Prime contractor will provide
(1) prompt written notice of the claim; (2) all requested information that prime
contractor possesses about the claim; (3) reasonable cooperation and assistance;
and (4) sole authority to defend or settle the claim. Subcontractor is not
obligated to indemnify prime contractor if the alleged infringement is based on
the use of the product with other products not furnished directly by
subcontractor or if anyone other than subcontractor has modified the product.
<PAGE>
10.2 Subcontractor agrees to indemnify, defend and hold harmless the
prime contractor and the customer, their officers and employees from all claims
and suits including court costs, attorneys' fees, and other expenses caused by
any act or omission of subcontractor or its employees.
11. Warranty.
11.1 Subcontractor warrants that computer hardware, kiosk enclosure,
and services will, under normal use and service, be free from defects in
material and workmanship for a period of 90 days following customer acceptance
and will meet currently published or mutually agreed specifications during the
term of this agreement. Should the computer hardware, kiosk enclosure, or
services fail to meet the warranties of paragraph 11.1, the prime contractor
will provide written notice during the applicable warranty period and
subcontractor shall correct such failure by repair, replacement, or adjustment
in a timely manner. Subcontractor shall bear all associated costs related to
this repair, replacement, or adjustment.
11.2 THE WARRANTIES STATED ARE IN LIEU OF ALL OTHER WARRANTIES,
WHETHER EXPRESSED, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO, THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN
NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES UNDER THIS AGREEMENT.
12. Confidentiality. The terms of this agreement between the prime
contractor and the subcontractor are considered confidential. The subcontractor
shall not disclose to any private or public concern information concerning this
agreement without prior written consent from the other party. Related
information includes prices, customer identification, computer hardware
supplied, services supplied, or kiosk enclosures supplied relative to this
agreement.
13. Notices. All notices to be made under this agreement shall be in
writing and sent to subcontractor:
Mr. Michael Zeitschel
NCR Corporation
2 Choke Cherry Rd.
Rockville, MD 20850
and addressed to Image Technology Inc
Image Technology Inc.
4407 Manchester Ave. Suite 103
Encinitas, CA 92024
14. Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS, ARISING OUT OF
OR RELATED TO THIS AGREEMENT OR THE PERFORMANCE OR BREACH THEREOF, EVEN IF
RESPECTIVE PARTIES HAVE BEEN ADVISED OF THE POSSIBILITY THEREOF.
15. General.
15.1 This agreement is the sole agreement between the parties relating
to the subject matter hereof and supersedes all prior understandings, writings,
proposals, representations or communications, oral or written, of either party.
This agreement may only be amended by an instrument executed by the authorized
representatives of both parties.
<PAGE>
15.2 This agreement shall be interpreted in accordance with the
substantive laws of the State of California. Both parties agree to use good
faith efforts to resolve any dispute promptly and fairly. If the parties are
unable to resolve a dispute by negotiation, both parties agree to submit it to
non-binding mediation conducted by a mutually selected mediator or, at the
option of either party, by the American Arbitration Association ("AAA").
15.3 Neither this agreement nor any right or obligations it governs
may be assigned or delegated by the subcontractor without the prior written
consent of the prime contractor, which consent shall not unreasonably be
withheld.
15.4 Neither party is liable for failing to fulfill its obligations
due to acts of God, civil or military authority, war, riots, strikes, fire, or
other causes beyond its reasonable control, except for the obligation to make
payments.
IMAGE TECHNOLOGY INC.
By:
Title:
Date:
NCR Corporation
By:
Title:
Date:
<PAGE>
Schedule One
Subcontractor Agreement dated August 1, 1996
1. SCOPE. This schedule is related to supplying computer hardware and
services for the State of Indiana BWC RFP #1 Self Service Vehicle registration
Renewal program. Unless defined elsewhere in this Schedule One, the terms and
conditions within the associated subcontractor agreement shall govern the
delivery of the requested computer hardware and services.
1.1 Under the terms and conditions of this Agreement, and in
accordance with the provisions of the ITI/NCR proposal (the "Proposal") dated
May 17, 1996, and in response to the State of Indiana Bureau of Motor Vehicles
Commission ("Customer") Request for Proposal #1 ("The RFP"), NCR Corporation
("NCR") and ITI Corporation ("ITI") will provide the hardware, software,
supplies and services as specified herein.
1.2 Deliverables Matrix.
Deliverable Responsibility
Printers ITI
Media ITI
Program Management NCR
All S/W development NCR
Facilities Management ITI
S/W Maintenance NCR
H/W Maintenance NCR
SST installation NCR
Printer installation phase 1-2 ITI
Printer installation phase 3 ITI
Customer billing ITI
SST/Field office provisioning ITI
Financing N/A
2. TERM.
2.1 The initial term of this Agreement ("Initial Term") will begin on
the date of execution of the ITI Subcontractor Agreement., and will run
concurrent with the period of performance of ITI's contract with the Customer
unless extended by mutual written agreement of the parties.
3. HARDWARE, SOFTWARE, SUPPLIES AND SERVICES.
3.1 Hardware. All Hardware deliverables shall be as set forth in
Section 11.
3.1.1 Delivery Schedule. All NCR equipment will be shipped by NCR
in accordance with ITI instructions through the designated program manager and
consistent with the RFP requirements, or as the parties may otherwise agree in
writing. Respective parties will be responsible for freight, shipping and
insurance charges.
3.1.2 Hardware Integration. ITI will be responsible for providing
all decal printers for this effort. ITI will perform all necessary hardware
integration activities needed to integrate the ITI printer and the NCR 5665
including:
1. Obtain U/L/FCC and any other applicable approvals for the
ITI printer.
<PAGE>
2. Supply facia enclosure which surrounds the ITI printer
and NCR 5665 which meets with NCR hardware operating minimum requirement. ITI
will make any necessary engineering changes needed to maintain published 5665
operating environment.
3. Supply environmental control unit to be installed in
facia enclosure to maintain published 5665 operating environment requirements
for the 5665 as noted above.
4. Jointly develop site preparations documentation for
installation of the combined ITI printer and 5665.
5. Develop user operator manuals for the ITI printer.
6. Develop technical field engineering manual/training guide
for hardware maintenance.
7. Supply final technical documentation.
3.2 Software. NCR will be responsible for all S/W development as
described in the RFP SOW and includes:
1. Managing third party subcontractors to develop S/W
deliverables.
2. Develop S4 interface.
3. Develop SST enclosure software interface.
4. S/W testing/pilot acceptance testing.
5. Provide pricing to cover S/W development/royalty costs.
6. ITI is responsible for software escrow and all associated
costs.
3.3 Media. ITI will supply all Printer and 5665 SST consumable
media for this project.
3.4 Communications. ITI will be responsible for the installation
and costs for all network communications. ITI will be responsible for the all
monthly communications costs. The NCR program manager will be responsible for
the ordering of SST communications lines for phases I of the program and for
each of the 5 blocks requested by the State.
4. FACILITIES.
4.1 Facility Operation. ITI will use Professional Data Dimensions
( PDD) (or other qualified personnel) and be responsible for all server
facilities operation. ITI server operation activities will include:
1. performing routine reports generation.
2. network management.
3. reconfiguring network as devices are added.
4. resolving network communications problems.
<PAGE>
5. performing downstream terminal loads/software updates as
required.
6. updating server software as required.
7. general server operation.
8. generate customer reports.
9. maintain consumable inventory.
10. Monitor Gasper or an equivalent network monitor service.
4.1.1 Leases. ITI will be responsible for negotiating leasing
arrangements with non Customer owned/leased sites where SST/printers are to be
installed.
5. INSTALLATION.
5.1 NCR Responsibilities. NCR will be responsible for the installation
of all NCR equipment to operate the proposed system required for Phase I and any
other future NCR supplied equipment. NCR will complete all installations in
accordance with Customer requirements and ITI instructions, or as the parties
may otherwise agree in writing. A site installation is complete once the
equipment has been fully installed, tested, and certified operational by
Customer personnel.
5.2 Components of NCR Installation. Installation will be limited to
the following functions:
5.2.1 Scheduling the installation.
5.2.2 Unboxing the equipment (assist ITI rigger)
5.2.3 Verifying the equipment is not damaged.
5.2.4 Install equipment.
5.2.5 Set up the equipment and run hardware diagnostics.
5.2.6 Cleaning up and removing packing materials.
5.2.7 Documenting all work.
5.2.8 Notifying ITI Manager of progress and completion.
Installation does not include Field upgrades to equipment, installation or
assembling of component parts (except as described above), or custom
modification of equipment.
Installation assumes that Factura has performed all ALCT activities at
their staging location including software loading and assembling of the 5665,
and integration with the ITI printer within the Factura enclosure. Hardware
installation quoted is a level of effort for 2 hours in addition to the bundled
5665 installation pricing. ITI agrees to renegotiate installation pricing with
the Customer if the size of the integrated SST/printer requires additional
installation time due to site physical constraints such as narrow door ways etc.
ITI will subcontract with a rigger who will move the integrated SST/printer to
its installation location.
<PAGE>
ITI will be responsible for installation and supplying of all standalone
printer related hardware during all phases of the program. NCR will bundle
installation services costs into the price for additional SSTs that may be
optionally purchased as referenced in the RFP.
5.3 Field Implementation. ITI will be responsible for ensuring that
all prerequisite work is completed by Customer five days prior to the scheduled
installation date. The NCR Program Manager will be responsible for
notifications, equipment demand orders, exception planning, and contingencies
relating to site surveys, equipment deliveries, equipment conditions,
installations and necessary paperwork.
5.4 Site Surveys. Site surveys will be co-developed by ITI, NCR, and
the Customer personnel from the various site locations NCR will conduct site
surveys for all SST/printer installations. Site surveys will not be required by
NCR for those sites which require only over the counter printer installation.
5.5 ITI Responsibilities. ITI will deliver the fully integrated
equipment from the ITI staging facility to the Customer sites in accordance with
the RFP requirements and the NCR installation delivery schedule. The NCR program
manager will manage the site preparation activities performed by the Customer
and by ITI identified contractors for non customer locations during all phases
of the contract. ITI is responsible for installation of all standalone printers
and all user training for system components delivered during the term of the
contract.
6. TRAINING. All NCR field personnel will be fully trained at the Technical
Education Center in Dayton, Oh. ITI will provide NCR a printer, environmental
control unit and all required media and consumables at no charge to be installed
at TEC for field engineering training. NCR will also supply a 5665 for training
purposes. NCR will provide ITI with a training course template to assist ITI in
developing courseware to train NCR technicians. ITI agrees to train the
designated NCR trainers in the installation, troubleshooting, preventative
maintenance and operation of ITI supplied components and provide all required
documentation and all future training required to accommodate changes or
retrofits.
6.1 ITI Requirements.
6.1.1 Service Manual. ITI will supply NCR with sufficient copies
of the printer service manual (SAMM) and any required updates to meet the
specified documentation requirements for training and maintenance.
6.1.2 Printer. ITI will provide training on the printer on a
mutually agreed upon Implementation/Installation team. This training will
include a complete service manual and any related documentation necessary to
fully train the Field personnel. The level of training will designed to enable
the support people to effectively manage Customer support calls and transfer the
knowledge to other members of the support team; and to enable the Technical
Education person to develop a standard training class of NCR Customer Engineers
who will support the Customer, and to enable the Implementation/Installation
team members to successfully install the equipment at the Customer sites
(including trouble shooting and problem resolution) and to train the other
members of the Implementation/Installation team.
<PAGE>
6.1.2.1 Hardware to NCR. Upon completion of the Training
program and Customer acceptance, ITI will deliver to the Rockville NCR Support
organization one complete printer assembly This equipment will be retained by
the Rockville NCR Support organization for the life of the project.
6.1.2.2 Hardware to CTEC. ITI will deliver to the NCR
Technical Education organization one printer assembly to be retained by the NCR
Technical Education (CTEC) organization for on-going training during the life of
the project.
7. MAINTENANCE.
7.1 Remedial and Preventative Maintenance.
7.2 ITI Printer Maintenance Pricing. Printer maintenance will be based
on MTBF information provided by ITI. NCR has developed the yearly maintenance
rates contained herein based on the RFP response requirements and ITI MTBF
assumptions expressed in terms of quantity and duration of service calls per
unit per year. If actual experienced failure rates exceed this basis of estimate
as computed for all of the units installed, ITI will be charged on an T&M basis
at an hourly rate per service call over the mutually agreed upon basis of
estimate rate consistent with the following formula. Additional hourly costs
will be calculated and billed to ITI quarterly. NCR will deliver up to 4 hours
of maintenance per printer per year. As an example, if two printer units are
installed, and only one unit consumes 6 hours of service in one year, ITI would
not be billed for 2 hours additional service, as the 8 hour (2 units x 4 hours )
maintenance threshold had not been exceeded. Maintenance hours not utilized in
their quoted year do not carry over as maintenance credits towards other years.
All maintenance services will be. governed by the provisions of Section 13 of
this schedule.
7.3 NCR at it's sole discretion may propose to negotiate fixed
hardware maintenance pricing upon further evaluation as actual reliability data
becomes available.
7.4 Required Field Retrofits. ITI will provide NCR with all parts and
documentation required to complete any field retrofits that may be necessary
during the contract period ITI will be billed the agreed upon hourly rate to
have NCR complete the retrofits.
7.5 Spare Consignment Parts Processing.
7.5.1 NCR will provide all necessary spare parts for NCR supplied
equipment at a level sufficient to maintain the contract requirements for
response times.
7.5.2 ITI will provide NCR with spare parts and required
components on a consignment basis at mutually agreed upon sparing levels for all
ITI supplied equipment.
7.5.3 Spare parts kits will be replenished by ITI with parts as
they are re- ordered. ITI will bear all shipping and rework expenses.
7.5.4 Zebra Printers and all spare components requiring rework
will be shipped back to ITI for repair. ITI will bear all shipping and rework
expenses.
7.5.5 Emergency spare parts shall be made available by ITI if
rework times fall behind the field requirements to meet the contract repair
response times ITI will bear all expedited shipping and rework expenses.
<PAGE>
7.5.6 NCR will maintain inventory records of all consigned parts
and provide tracking of field repair incidents and reporting to ITI on a
quarterly basis. This report will be utilized to make periodic revisions to the
sparing levels.
7.5.7 Spare Parts Kit Definition. A fully configured ITI printer
will be located in the Indianapolis sparing facility in addition to two complete
spare parts kits. The remaining three sparing locations (Evansville, Ft. Wayne,
Cocamo/Gary) will be supplied with one spare parts kit each. The spare parts kit
definition will be reevaluated as required with State of Indiana input and with
consideration for latest engineering version of the ITI printer. ITI spare parts
kits will contain the following parts:
Zebra printer assembly
Applicator module
Power supply
Cables
Environmental control unit
Additional major subassemblies as mutually agreed upon
Valley printer interface units
8. SERVICE.
8.1 General Requirements. NCR will provide Level I and Level II
support and service as required to support the Customer for the System. This
support and service shall be for all hardware and software including that of
ITI, NCR and third parties. NCR will also service the operating system and all
application software. This includes hardware replacement, subsequent reload of
software and confirmation that the application software is again operating
properly.
The Application development subcontractors for this program will
provide all Level III support and service as well as any additional support and
service required. Level III support activities will include developing fixes for
identified software "bugs", assisting in problem diagnosis, and supplying
interim work around solutions until permanent fixes are installed. Additionally,
ITI Level III support will include assisting in problem diagnosis and supplying
interim work around solutions for all ITI provided hardware. An ITI Level III
analyst will respond to trouble calls initiated by NCR personnel in a time frame
which will allow NCR to meet the Customer's response time requirements. Any
delays due to ITI's failure to respond to NCR in a timely manner or time
utilized by ITI which is excessive when compared to the other subcontractors
response times to resolve the trouble call shall not be assessed against the NCR
response time requirement.
8.2 Specific Support Components.
8.2.1 Service calls will be generated by State of Health messages
automatically through the Gasper network management system or server software
module with equivalent network management functionality as described in the RFP.
State of Health error messages requiring the dispatch of an NCR field engineer
will be documented and mutually agreed upon. Over the counter printer
maintenance calls will be placed by the customer or by the facilities management
point of contact who will contact NCR dispatch for field engineering support if
a dispatch is needed.
NCR will provide all tier II call service support including
troubleshooting and diagnostics via a manual toll-free service help desk. All
other help desk support shall be in accordance with normal Customer business
hours. NCR will internally rotate calls to the Level II/Level III resources who
will in turn dispatch Field engineers or escalate the problem to ITI Level III
for resolution.
<PAGE>
8.2.2 NCR will provide all on-site remedial and preventive
maintenance for all equipment. The Field engineer will obtain necessary service
parts from the NCR parts logistics system, coordinate response with the customer
including estimated time of arrival on site, resolve the problem and close the
call.
8.2.3 NCR will provide all necessary spare parts planning,
logistics support, and computerized accountability systems to support the
necessary parts deployment. ITI will approve all inventory levels for these
depots. NCR will provide procedures governing the ordering and return of parts
so as to ensure accountability.
8.2.4 NCR will provide all NCR supplied spare parts at no
additional cost to ITI and ensure that proper stock levels at the depots are
maintained. ITI will supply and consign to NCR all required ITI parts.
8.2.5 NCR will provide all necessary training and documentation
to support the Field engineers and Level I/II support engineers. NCR will
maintain the necessary documentation as required. ITI will provide necessary ITI
technical and hardware updates to NCR.
8.2.6 NCR will participate in periodic reviews to report and
discuss service performance. These reports shall include. but be limited to,
number of calls received by each service location, response time, repair time,
and parts used in effecting repairs. The frequency of these reviews will be
mutually agreed upon.
9. CHANGE CONTROL PROCEDURE.
9.1 Change Control Process. The "Change Control Process" governs
changes to the Project scope and deliverables during the life of the Project.
The purpose of this process is to coordinate and properly document the
development, installation and evaluation of new features and functionality
during the Project. The process will apply to new Project components and to
enhancements of existing Project components. The Change Control Process will be
implemented from the start of the Project and will continue throughout the
Project's duration.
9.2 Change Request. A "Change Request" will be the vehicle for
communicating any desired changes to the Project Manager for the other party in
the format identified in Attachment A attached hereto.
9.2.1 Review. Both NCR and ITI will review the proposed Change
Request and either approve it for further study or reject it. The amount and
payment of the costs of further study, if any, will be agreed upon by both NCR
and ITI. The results of the study will be used to determine the effect that the
implementation of the Change Request will have on the Project cost and schedule.
9.2.2 Sign. Once the parties have evaluated the Change Request,
NCR and ITI will complete and sign a Change Request Evaluation Response Form in
the format identified in Attachment B attached hereto.
9.2.3 Presentation to Customer. ITI will submit the agreed
changes to Customer for approval.
<PAGE>
10. MANPOWER.
10.1 Program Management. NCR will provide level of effort Program
management for both phase I and each of the 5 blocks requested by the Customer
as specified below:
1 Technical program manager for 6 months to manage S/W development
effort.
Program manager for .75 man years to manage Pilot and phase I rollout.
1 Program manager for .25 man years to manage the implementation of
systems identified in each of 5 purchase blocks, additional program
management services may be purchased from NCR upon request.
11. RATES AND PAYMENT.
1. NCR agrees to not to participate in transaction revenue splitting
for the base contract deliverables and will invoice ITI according to the
following terms. The transaction revenue sharing split described in Section 11.1
will be used for incremental revenue opportunities that may be realized over the
course of the contract. Incremental revenue opportunities refers only to
opportunities related to the self service vehicle registration renewal project
scope within the ITI/State of Indiana contract.
2. NCR will invoice ITI for the total Phase I price in three equal
33.333% increments. Invoices will be submitted to ITI on, September 30, 1996,
November 30, 1996 and upon Customer acceptance during Ql 1997.
3. Phase I pricing includes all hardware, software, maintenance,
program management, system development, associated back office hardware, 11
NCR/ITI SSTs, and maintenance for 100 ITI stand alone printers as set forth in
this document. Please refer to attached price matrix (Rev 4) for Phase I prices.
4. Pricing has also been provided for each of the 5 blocks of
equipment. This pricing includes pricing for 5 NCR/ITI SSTs associated hardware,
software, installation and maintenance, in addition to maintenance for 39 ITI
stand alone printers and 90 days of program management to manage the
implementation of these systems. Block pricing has been established for the
quarter that the equipment is to be installed. ITI will be invoiced after the
systems have been installed and accepted by the Customer. Please refer to
attached price matrix (Rev 4) for Block 1-5 prices.
5. Pricing for additional 5665/ITI SSTs over the 36 units specified
has been submitted based on the quarter that the unit is installed. This pricing
is consistent with the pricing submitted for the 5 blocks. Price includes NCR
hardware, software, maintenance, installation and program management to perform
the implementation. ITI will be invoiced upon system acceptance.
6. Pricing for additional stand alone ITI printer maintenance over the
306 units required has been submitted based on the quarter that the unit is
installed. This pricing is consistent with the pricing submitted for the 5
blocks. Price includes NCR hardware maintenance pricing only. ITI will be
invoiced upon system implementation.
7. All hardware and software maintenance will be billed one quarter
(90 days) in advance on the first day of each quarter of the current year.
Maintenance billing for products installed during a quarter will be billed on
the first day of the following quarter. For example, for a printer installed
during February, an invoice for 5 months of maintenance would be generated on
April 1, and consist of two months maintenance in arrears plus 3 months prepaid
maintenance.
11.1 Optional Transaction Revenue Opportunities Proposed Transaction
Revenue Split terms for additional revenue beyond the scope of the current
contract for incremental revenue opportunities described in 11.0.1 are set forth
below. Paragraphs 11.1.1-4 will be used only if NCR is to participate in revenue
sharing on a per transaction basis; otherwise, payment terms specified in this
Schedule apply:
<PAGE>
1. NCR will provide to ITI a firm fixed bid price for all NCR
deliverables provided under this agreement expressed as a revenue percentage of
each transaction for the minimum number of guaranteed transactions and as a
price per minimum number of guaranteed transactions. The revenue percentage will
be used in case the price is different after the minimum number of transactions
is reached. and will be calculated according to the formula set forth in item 4
below.
2. Resulting revenue % or fixed price per transaction will be
credited to each team member as part of any customer billable transaction. For
example:
3. If the NCR firm fixed price quote for the optional work is
valued at $6 million and the total proposal value is $10 million, and 10 million
is the minimum guaranteed number of transactions as described in the Customer
submitted pricing volume. Then 10/6 = 60% of each transaction revenue generated
is due to NCR or $.60 per transaction for the 10 million minimum number of
transactions. If the minimum guaranteed number of transactions bid is 10 million
transactions, this would yield $1.00 price per transaction to the customer and
$.60 revenue per transaction to NCR.
4. The following calculation will be used to calculate the
revenue split ratio to NCR, for any add-on revenue marketed through this
contract (beyond the scope of work priced in this in this schedule as set forth
in Section 11).
If Actual revenue contribution % is = 30 Adjusted revenue split
credit % = 5 * (30%-Actual revenue contribution %) + Actual
revenue contribution % Else Adjusted revenue split credit % =
Actual revenue contribution %.
Please reference the following table for adjusted revenue split
credit % values:
Actual Revenue Contribution % Adjusted Revenue Split Credit %
1.00% 15.50%
2.00% 16.00%
3.00% 16.50%
4.00% 17.00%
5.00% 17.50%
6.00% 18.00%
7.00% 18.50%
8.00% 19.00%
9.00% 19.50%
10.00% 20.00%
11.00% 20.50%
12.00% 21.00%
13.00% 21.50%
14.00% 22.00%
15.00% 22.50%
16.00% 23.00%
17.00% 23.50%
18.00% 24.00%
19.00% 24.50%
20.00% 25.00%
21.00% 25.50%
22.00% 26.00%
23.00% 26.50%
24.00% 27.00%
25.00% 27.50%
26.00% 28.00%
27.00% 28.50%
28.00% 29.00%
29.00% 29.50%
30.00% 30.00%
31.00% 31.00%
32.00% 32.00%
33.00% 33.00%
34.00% 34.00%
35.00% 35.00%
100.00% 100.00%
<PAGE>
Add-on NCR revenue will be credited at a prorated rate of .5% for each 1% of
actual add on revenue contribution that the NCR participates in. For example:
* For a 0% actual revenue contribution the NCR will receive 15% of any
add-on revenue per transaction.
* For a 15% actual contribution, the NCR will receive 22.5% of any
add-on revenue per transaction as a prorated adjusted revenue split
credit.
* For a 30% (prorated revenue credit split break-even point), or
greater actual contribution, the NCR will receive revenue credit as Is
normally calculated,
* Add-on revenue pricing ratios will be determined as described in
items 2 and 4.
11.1.1 Contact Extension Contingency. The parties agree that they
will negotiate in good faith to arrive at a mutually agreeable contract
modification in the event that the Customer contract is extended and that The
State of Maryland elects to acquire ITI AP 2000 Printers for the MD MVA SST
program. The Schedule One modification would provide a revenue bonus to NCR in
addition to the quoted transactional price for the add-on effort.
11.2 Payment. Payment terms will be in accordance with the billing
procedure as set forth in Section .11 and Section 4 of the Subcontractor
Agreement.
12. FINANCING ARRANGEMENT AND RESPONSIBILITIES.
12.1 Both parties will be responsible for obtaining financing for
their respective areas of responsibility and will maintain adequate insurance on
the capitol equipment while title is vested with them.
13. WARRANTY.
13.1 NCR will perform its obligations under this Agreement in a
professional and workmanlike manner. NCR's liability to Customer resulting from
the performance of, or failure to perform, maintenance service will be limited
to restoring the equipment covered by this Agreement to Good Operating
Condition. If NCR is unable to so restore that equipment, NCR will refund
Customer's most recent advance maintenance payment for the equipment or, in the
case of NCR Designated Equipment, NCR may in its discretion elect to replace
that NCR Designated Equipment. NCR DISCLAIMS ALL WARRANTIES, EXPRESS AND
IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE AND ANY IMPLIED WARRANTIES ARISING FROM A COURSE OF
PERFORMANCE, A COURSE OF DEALING, OR TRADE USAGE. NCR DOES NOT WARRANT THAT THE
OPERATION OF THE EQUIPMENT MAINTAINED BY NCR WILL BE UNINTERRUPTED OR ERROR FREE
OR THAT ALL MALFUNCTIONS WILL BE CORRECTED.
<PAGE>
ATTACHMENT A
CHANGE REQUEST FORM
(Insert Project Name)
Requester Name:
Requester Company Name:
Date Requested:
Response Requested By:
Change Requested:
(The Requester should insert a detailed description of the change
requested, the are of the project plan/schedule being modified, and the
benefits of making the change.)
Estimated Schedule Impact:
(The Requester should provide an estimate of how the requested change will
impact the Project schedule.)
Estimated Cost Impact:
(The Requester should provide an estimate of how the requested will impact
Project costs.)
Change Request Received:
By:
Company:
Date:
Change Request Noh.:
<PAGE>
ATTACHMENT B
CHANGE REQUEST FORM
EVALUATION RESPONSE FORM
Change Request No.:
Requester Name:
Review Date:
Request No. _____ has been: _____ accepted without changes
_____ accepted with modifications (see below)
_____ rejected
Modifications to Change Request:
(Insert any changes that are made to the original Change Request. Ensure
that, whether or not modified, the Change Request as accepted identifies,
in detail, the changes to the Project scope, deliverables, schedule and
costs.)
Schedule Revision:
(Insert new dates or attach revised project plan/schedule which show the
impact of the Change Request, if any.)
Cost Revision:
Additional Cost: $________________
Party Responsible for Cost: ________________
Additional Cost Payment Due Date: ________________
Acceptance Criteria/Deliverables ________________
<PAGE>
<TABLE>
Year 1 Year 1 Year 1 Year 1 Year 2 Year 2 Year 2 Year 2
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLIN .........5/1-11/1 11/1-2/1 2/1-5/1 5/1-8/1 8/1-11/1 11/1-2/1 2/1-5/1 5/1-8/1
Phase 1
QsRemain QsRemain QsRemain QsRemain QsRemain QsRemain QsRemain QsRemain
Block 1 ...... 16 15 14 13 12 11 10 9
Block 2 ...... 16 15 14 13 12 11 10 9
Block 3 ...... 16 15 14 13 12 11 10 9
Block 4 ...... 16 15 14 13 12 11 10 9
Block 5 ...... 16 15 14 13 12 11 10 9
Addl 5665 .... 16 15 14 13 12 11 10 9
Addl Ap2100 .. 16 15 14 13 12 11 10 9
Year 1 Year 1 Year 1 Year 1 Year 2 Year 2 Year 2 Year 2
CLIN ..... 5/1-11/1 11/1-2/1 2/1-5/1 5/1-8/1 8/1-11/1 11/1-2/1 2/1-5/1 5/1-8/1
Phase 1 .. 2,451,349
Block 1 .. 365,757 357,052 348,337 339,622 334,033 325,318 316,603 307,888
Block 2 .. 365,757 357,052 348,337 339,622 334,033 325,318 316,603 307,888
Block 3 .... 365,757 357,052 348,337 339,622 334,033 325,318 316,603 307,888
Block 4 .... 365,757 357,052 348,337 339,622 334,033 325,318 316,603 307,888
Block 5 ..... 365,757 357,052 348,337 339,622 334,033 325,318 316,603 307,888
Addl 5665 ... 47,582 46,582 45,778 44,973 44,169 43,364 42,659 41,755
Addl Ap2100 ... 2,208 2,070 1,952 1,794 1,656 1,518 1,380 1,242
(H/W maint.)
Year 3 Year 3 Year 3 Year 3 Year 4 Year 4 Year 4 Year 4
CLIN .........8/1-11/1 1/1-2/1 2/1-5/1 5/1-8/1 8/1-11/1 11/1-2/1 2/1-5/1 5/1-8/1
Phase 1
QsRemain QsRemain QsRemain QsRemain QsRemain QsRemain QsRemain QsRemain
Block 1 ...... 8 7 6 5 4 3 2 1
Block 2 ...... 8 7 6 5 4 3 2 1
Block 3 ...... 8 7 6 5 4 3 2 1
Block 4 ...... 8 7 6 5 4 3 2 1
Block 5 ...... 8 7 6 5 4 3 2 1
Addl 5665 .... 8 7 6 5 4 3 2 1
Addl Ap2100 .. 8 7 6 5 4 3 2 1
Year 3 Year 3 Year 3 Year 3 Year 4 Year 4 Year 4 Year 4
CLIN ..... 8/1-11/1 11/1-2/1 2/1-5/1 5/1-8/1 8/1-11/1 11/1-2/1 2/1-5/1 5/1-8/1
Phase 1 ..
Block 1 .. 302,454 293,739 285,024 276,309 271,039 262,324 253,610 244,895
Block 2 .. 302,454 293,739 285,024 276,309 271,039 262,324 253,610 244,895
Block 3 .... 302,454 293,739 285,024 276,309 271,039 262,324 253,610 244,895
Block 4 .... 302,454 293,739 285,024 276,309 271,039 262,324 253,610 244,895
Block 5 ..... 302,454 293,739 285,024 276,309 271,039 262,324 253,610 244,895
Addl 5665 ... 40,950 40,146 39,341 38,537 37,732 36,927 36,123 35,315
Addl Ap2100 ... 1,104 966 828 690 552 414 278 138
(H/W maint.)
</TABLE>
Image Technology, Inc.
4407 Manchester Avenue - Suite 103 - Encinitas, CA 92024
(619) 436-1313 - FAX (619) 436-4175
This constitutes an Employment Agreement between Image Technology Inc.
(ITI) and John F. Grim.
It is Image Technology's Inc. understanding that John Grim is leaving his
employment at AT&T on his own volition, and there are no terms or conditions
that would prevent John Grim from being employed by Image Technology, Inc. John
Grim agrees to hold Image Technology, Inc. harmless from any actions that AT&T
would take against Image Technology, Inc.
The Terms of this Employment Agreement are as follows:
(a) John Grim will be paid a salary of $8,333.00 per month.
(b) All travel expenses will be reimbursed by Image Technology, Inc.
(c) Medical and Dental coverage will also be available (as all ITI
employees have now).
(d) A $25,000.00 yearly bonus will be paid thirty (30) days after the first
anniversary employment date. In the event the cash flow would not permit the
paying of the $25,000.00 bonus, it will then accrue into the second year.
Image Technology, Inc. will offer 2% of the shares in ITI for $1.00 per
share. The shares of ITI stock will be held in Trust by Walter G. Fuller until
such time as the company has gone public or merged into another company. These
shares that are being held in John Grim's name will be turned over before any of
the above actions were taken. Should John Grim leave the employment of Image
Technology, Inc. before the company has gone public or merged, the stock will be
transferred back to Image Technology, Inc.
Image Technology, Inc. will offer John Grim a seat on the Board of
Directors.
I believe this Includes all of our discussions. Until such time as Image
Technology, Inc. has all the legal documents of the company finalized, this will
act as a legal and binding Agreement between Image Technology, Inc. and John
Grim for a period of two (2) years.
By: Date: August 22, 1995
Christ M. Rousseff, Chairman
By: Date: August 22, 1995
John F. Grim
Intellectual Technologies, Inc.
Form 10K-SB
Statement Re: Computation of Per Share Earnings
For the Year Ended For the Year Ended
December 31, 1995 December 31, 1996
Net loss $(3,860) $(6,626)
Weighted average number of 55,000 55,000,000
Common stock shares outstanding
Net loss per share $(Nil) $(Nil)
Subsidiaries of the Registrant
1. ITI Nevada
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEET AND STATEMENTS
OF LOSS AND ACCUMULATED DEFICIT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH 10KSB FOR THE
YEAR ENDED DECEMBER 31, 1996
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 54,912
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 54,912
<PP&E> 500
<DEPRECIATION> 0
<TOTAL-ASSETS> 55,412
<CURRENT-LIABILITIES> 89
<BONDS> 0
0
0
<COMMON> 550
<OTHER-SE> 54,773
<TOTAL-LIABILITY-AND-EQUITY> 55,412
<SALES> 0
<TOTAL-REVENUES> 1,989
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 8,615
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,626)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (0.001)
<EPS-DILUTED> (0.001)
</TABLE>
