-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I8ULFQftMbsntMKpsKo/8EH9f1jxd58NB2+b3w8ZBcbZWNguGkBME5id7fy/GYh1 6DUnf+Nh/judEcqA7zrTXQ== 0000889297-97-000016.txt : 19970416 0000889297-97-000016.hdr.sgml : 19970416 ACCESSION NUMBER: 0000889297-97-000016 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970415 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRIDGESTONE CORP CENTRAL INDEX KEY: 0000859914 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 841130227 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-12887 FILM NUMBER: 97580952 BUSINESS ADDRESS: STREET 1: 10639 ROSELLE STREET STREET 2: SUITE B CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 619-552-0001 MAIL ADDRESS: STREET 1: 303 EAST 17TH AVE STREET 2: STE 800 CITY: DENVER STATE: CO ZIP: 80203 10KSB 1 10KSB - INTELLECTUAL TECHNOLOGY, INC. 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 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. 1 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. 2 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. 3 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. 4 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. 5 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. 6 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. 7 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. 8 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 9 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 10 BRIDGESTONE CORP. (A Development Stage Company) BALANCE SHEET December 31, 1996 ASSETS 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
The accompanying notes are an integral part of the financial statements. 11 BRIDGESTONE CORP. (A Development Stage Company) STATEMENTS OF LOSS AND ACCUMULATED DEFICIT Period from December 1, 1989 (inception) to Year ended Year ended December 31, 1996 December 31, 1996 December 31, 1995 ----------------- ------------------ ----------------- 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
The accompanying notes are an integral part of the financial statements. 12 Bridgestone Corp (A Development Stage Company) STATEMENT OF STOCKHOLDERS' EQUITY Deficit Accumulated Common Additional During the Total Stock Number Paid-In Development Stockholders' of Shares Amount Capital Stage Equity -------------- ------ ----------- ----------- ------------- 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
The accompanying notes are an integral part of the financial statements. 13 BRIDGESTONE CORP. A Development Stage Company) STATEMENTS OF CASH FLOWS Period from December 1, 1989 (Inception) to Year Ended Year Ended December 31, 1996 December 31, 1996 December 31, 1995 ------------------------- ------------------- -------------------- 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
The accompanying notes are an integral part of the financial statements. 14 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 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 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 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 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 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 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 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 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 EX-10 2 EXHIBIT 10.1 - PURCHASE AND SALE AGREEMENT 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. 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. 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. 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: 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 EX-10 3 EXHIBIT 10.2 - ADDENDUM TO PURCHASE AND SALE AGR. 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:_____________________________ EX-10 4 EXHIBIT 10.3 - EQUIPMENT, LEASE, SUPPORT AGR. 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. 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. 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. 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. 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 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 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 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 INDIANA SSVRR THREE-YEAR PROGRAM WITH ONE OPTION YEAR 8/8/96 CONTRACT YEAR 1 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 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
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. EX-10 5 EXHIBIT 10.4 - SUBCONTRACTOR AGREEMENT 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. 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. 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. 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: 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. 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. 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. 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. 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. 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. 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. 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: 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% 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. 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.: 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 ________________ 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 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.)
EX-10 6 EXHIBIT 10.5 - EMPLOYMENT AGREEMENT 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 EX-11 7 EXHIBIT 11.1 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) EX-21 8 EXHIBIT 21.1 - LIST OF SUBSIDIARIES Subsidiaries of the Registrant 1. ITI Nevada EX-27 9 FDS -- ART. 5 FDS FOR 10-KSB
5 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 1 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 54,912 0 0 0 0 54,912 500 0 55,412 89 0 0 0 550 54,773 55,412 0 1,989 0 0 8,615 0 0 (6,626) 0 0 0 0 0 0 (0.001) (0.001)
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