-----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, NS7oZ07DW1Aq2zXfj9je0RWULR2eMBapFiEqP0cPXKyWjHKj67IN6xse4DtVfJ7X nnL0+gf+H9S8WdMaC+gy3Q== 0000870345-98-000004.txt : 19980218 0000870345-98-000004.hdr.sgml : 19980218 ACCESSION NUMBER: 0000870345-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: QUALIX GROUP INC CENTRAL INDEX KEY: 0000870345 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 770261239 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22059 FILM NUMBER: 98540024 BUSINESS ADDRESS: STREET 1: 1900 S NORFOLK ST STREET 2: SUITE 224 CITY: SAN MATEO STATE: CA ZIP: 94403-1151 BUSINESS PHONE: 6505720200 MAIL ADDRESS: STREET 1: 1900 S NORFOLK ST STREET 2: SUITE 224 CITY: SAN MATEO STATE: CA ZIP: 94403-1151 10-Q 1 SECOND QUARTERLY REPORT FOR FISCAL YEAR 1998 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1997 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to ___________ Commission file number: 333-17529 Qualix Group, Inc. (Exact name of Registrant as specified in its charter) Delaware 77-0261239 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1900 S. Norfolk St., Suite 224 San Mateo, CA 94403-1151 (Address of principal executive offices) (Zip code) (650) 572-0200 (Registrant's telephone number including area code) Not applicable (Former name, former address, and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of December 31, 1997. Title Outstanding Common stock-par value $0.001 10,368,588 QUALIX GROUP, INC. INDEX PART I FINANCIAL INFORMATION PAGE Item 1. Financial Statements Condensed Consolidated Balance Sheets At December 31, 1997 and June 30, 1997...............................3 Condensed Consolidated Statements of Operations-Quarter and six months ended December 31, 1997 and 1996......................4 Condensed Consolidated Statements of Cash Flows Six months ended December 31, 1997 and 1996...........................................5 Notes to Condensed Consolidated Financial Statements.................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................8 PART II OTHER INFORMATION Item 1. Legal Proceedings....................................................22 Item 2. Changes in Securities................................................22 Item 3. Defaults Upon Senior Securities......................................22 Item 4. Submission of Matters to a Vote of Security Holders..................22 Item 5. Other Information....................................................23 Item 6. Exhibits and Reports on Form 8-K.....................................23 SIGNATURES....................................................................24 Exhibit Index.................................................................25 Part I. Financial Information Item 1. Financial Statements QUALIX GROUP, INC. Condensed Consolidated Balance Sheets (in thousands)
Dec 31, June 30, 1997 1997 --------------- --------------- (unaudited) Assets Current Assets: Cash and cash equivalents $ 3,264 $ 9,617 Temporary cash investments 12,178 9,541 Accounts receivable, net 7,995 5,147 Other current assets 583 470 --------------- --------------- Total current assets 24,020 24,775 --------------- --------------- Property and equipment, net 2,328 1,559 --------------- --------------- =============== =============== Total assets $ 26,348 $ 26,334 =============== =============== Liabilities and Stockholders' Equity Current Liabilities: Accounts payable and accrued liabilities $ 4,344 $ 4,119 Deferred revenue and advances 1,919 1,795 Current portion of long-term obligations 129 126 --------------- --------------- Total current liabilities 6,392 6,040 --------------- --------------- Long-term obligations 202 191 Stockholders' Equity 19,754 20,103 --------------- --------------- =============== =============== Total liabilities and stockholders' $ 26,348 $ 26,334 equity =============== ===============
See accompanying notes to condensed consolidated financial statements. QUALIX GROUP, INC. Condensed Consolidated Statements of Operations (in thousands, except per share amounts; unaudited)
Quarter Ended Six Months Ended December 31, December 31, ------------------------------ ------------------------------ 1997 1996 1997 1996 -------------- -------------- --------------- -------------- Revenue: Reliability software $ 5,541 $ 4,161 $ 10,047 $ 7,858 Other products 2,227 2,659 4,947 4,613 Support, maintenance and consulting 1,524 1,280 2,244 2,857 -------------- -------------- --------------- -------------- Total revenue 9,292 8,100 17,517 15,049 -------------- -------------- --------------- -------------- Cost of revenue: Cost of reliability software 2,457 438 916 502 Cost of other products 1,611 1,854 3,440 3,319 Cost of support, maintenance and consulting 516 492 999 833 -------------- -------------- --------------- -------------- Total cost of revenue 2,565 3,262 6,730 4,820 -------------- -------------- --------------- -------------- -------------- ---------------------------------------------- Gross profit 6,727 4,838 12,697 8,319 -------------- ---------------------------------------------- Operating expenses: Sales and marketing 5,507 2,659 4,801 9,826 General and administrative 1,158 1,264 783 2,172 Research and development 931 556 1,779 978 Merger expenses - - - 595 -------------- -------------- --------------- -------------- Total operating expenses 7,596 3,998 13,777 7,638 -------------- ---------------------------------------------- Income (Loss) from operations (869) 840 (1,080) 681 Other income, net 212 10 460 31 -------------- -------------- --------------- -------------- Income (loss) before income taxes (657) 850 (620) 712 Provision for income taxes - - - 1 -------------- -------------- --------------- -------------- ============== ============================================== Net income (loss) $ (657) $ 850 $ $ 711 (620) ============== ============================================== Net income (loss) per share, basic $ (0.06) $ 0.17 $ $ 0.16 (0.06) ============== ============================================== Shares used in per share computation 10,367 5,017 10,346 4,437 ============== ============== =============== ============== Net income (loss) per share, diluted $ (0.06) $ 0.10 $ $ 0.08 (0.06) ============== ============== =============== ============== Shares used in per share computation 10,491 8,381 10,604 8,370 ============== ============== =============== ==============
See accompanying notes to condensed consolidated financial statements. QUALIX GROUP, INC. Condensed Consolidated Statements of Cash Flows (in thousands, unaudited)
Six Months Ended December 31, ------------------------------- 1997 1996 -------------- -------------- Cash flows from operating activities: Net income (loss) $ (620) $ 711 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 343 85 Amortization of discount on long-term obligations 14 - Changes in: Accounts receivable (2,848) (1,452) Other current assets (113) (445) Accounts payable and accrued liabilities 1,220 225 Deferred revenue and advances 124 354 Liability under employment termination agreement - (98) -------------- -------------- Net cash provided by (used in) operating activities (2,875) 375 -------------- -------------- Cash flows from investing activities: Purchases of property and equipment, net (1,112) (508) Purchase of temporary cash investments (8,342) - Proceeds from maturity of temporary cash investments 5,737 - -------------- -------------- Net cash used in investing activities (3,717) (508) -------------- -------------- Cash flows from financing activities: Issuance of long-term obligations, net - 17 Proceeds from issuance of common stock, net 239 98 -------------- -------------- Net cash provided by financing activities 239 115 -------------- -------------- Net decrease in cash and cash equivalents (6,353) (18) Cash and cash equivalents, beginning of year 9,617 3,102 -------------- -------------- ============== ============== Cash and cash equivalents, end of period $ 3,264 $ 3,084 ============== ============== Noncash investing and financing activities: Net unrealized gain (loss) on investment (32) 375 ============== ============== Supplemental disclosure of cash flow information: Cash paid during the period for interest - - ============== ============== Cash paid during the period for income taxes 54 109 ============== ==============
See accompanying notes to condensed consolidated financial statements. QUALIX GROUP, INC. Notes to Condensed Consolidated Financial Statements 1. Basis of Presentation Effective February 12, 1997, the Company completed its initial public offering. The accompanying interim condensed unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. The interim financial information herein is not necessarily indicative of the results of any future period. The interim condensed financial statements should be read in conjunction with the June 30, 1997 consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K. The consolidated financial statements include the amounts of the Company and its wholly-owned subsidiary. Intercompany accounts and transactions have been eliminated in consolidation. 2. Net Income (Loss) Per Share The Company implemented Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128) during the current quarter and has restated all prior periods to conform with this statement. SFAS 128 replaces previous earnings per share reporting requirements and requires a dual presentation of basic and diluted earnings per share. Net income (loss) per basic share has been computed based upon the weighted average number of common shares outstanding for the periods presented. For diluted earnings per share, shares used in the per share computation include weighted average common and common equivalent shares outstanding. Common equivalent shares consist of shares issuable upon the assumed exercise of dilutive stock options and totaled 124,000 and 31,000 for the quarters ended December 31, 1997 and 1996, respectively, and 258,000 and 75,000 for the six months ended December 31, 1997 and 1996, respectively. Pursuant to the Securities and Exchange Commission's Staff Accounting Bulletins and staff policy, all outstanding preferred stock and warrants that were converted into common stock in the initial public offering are included in the computation as common equivalent shares when the effect is dilutive. Prior to the Company's initial public offering in February 1997, common equivalent shares include preferred stock and certain warrants (using the "if converted" method) totaling 3,043,000 and 3,570,000 shares for the quarter and for the six month period ended December 31, 1997, respectively. Additionally, all common and common equivalent shares issued within the 12 months preceding the initial filing date are included and totaled 288,000 shares both for the quarter and for the six month period ended December 31, 1996. 3. Effects of Recent Accounting Pronouncement In June 1997, the FASB adopted SFAS No.130, "Reporting Comprehensive Income", which requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from nonowner sources; and SFAS No.131, "Disclosures about Segments of an Enterprise and Related Information", which establishes annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas and major customers. Adoption of these statements will not impact the Company's consolidated financial position, results of operations or cash flows. Both statements are effective for the Company beginning July 1, 1998, with earlier application permitted. Item 2. Management's Discussion And Analysis of Financial Condition And Results of Operations This Form 10-Q contains forward-looking statements written in the meaning of section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve a number of risks and uncertainties. Such risks and uncertainties include, but are not limited to, those discussed under the heading "Risk Factors" contained herein and in the Company's other reports and filings with the Securities and Exchange Commission ("SEC"), including the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997. The actual results that the Company achieves may differ materially from any anticipated results described in the forward-looking statements due to such risks and uncertainties. The Company has used various sentences within this Form 10-Q which contain such forward-looking statements, and words such as "believes", "anticipates", "expects", "intends", and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of denoting the same. The Company undertakes no obligation to revise any forward-looking statements in order to reflect events or circumstances that may arise after the date of this report. Readers are urged to carefully review and consider various disclosures made by the Company in this report and in the Company's other reports filed with the SEC that attempt to advise interested parties of the risks and factors that may affect the Company's business. Overview Qualix is a leading provider of reliability software for UNIX and Windows NT applications and servers in distributed computing environments. The Company's reliability solutions are designed to minimize the impact of system failures on business-critical applications. The Company offers software products for high availability and storage management. Although a substantial majority of the Company's historical revenue has come from products licensed from third parties, the Company now focuses its sales and marketing efforts on higher margin internally developed or acquired products. See "Risk Factors - Recent Transition to New Business Model." The Company began operating primarily as a distributor, value-added reseller (VAR) and publisher of licensed third party client/server software products. In 1993, the Company focused on the reliability market by introducing QualixHA, its first high availability product for the UNIX operating environment. QualixHA was based on a licensed core software engine. In May 1996, the Company acquired substantially all of the assets and assumed certain liabilities of Anthill Incorporated ("Anthill"), including technology relating to a hierarchical storage management product under development. In August 1996, the Company merged with Octopus Technologies, Inc. ("Octopus Technologies") which had developed high availability and remote data mirroring products for the Windows NT operating environment. Additionally, the Company successfully completed an initial public offering in February 1997. In October 1996, the Company introduced QualixHA+, which is based on an internally developed core software engine. A key element of the Company's strategy is to increase substantially the percentage of revenues derived from internally developed or acquired products that typically have higher gross margins than licensed products. Pursuant to this strategy, the Company ceased marketing Qualix HA in February 1997. The Company is developing several additional systems management products. See "Risk Factors--Recent Transition to New Business Model," "--Uncertainty of Success of Recently Introduced and Planned Products" and "--Dependence on Licensed Products." Results of Operations Total Revenues Total revenues increased to $9,292,000 in the second quarter of fiscal 1998 from $8,100,000 for the same period of fiscal 1997, an increase of $1,192,000, or 15%. Total revenues for the six months ended December 31, 1997 increased $2,468,000, or 16% from the comparable prior year period. Reliability Software. Reliability software revenues increased to $5,541,000 in the second quarter of fiscal 1998, from $4,161,000 for the comparable period in the prior year, an increase of $1,380,000, or 33%; reliability software revenues for the six months ended December 31, 1997 increased to $10,047,000 from $7,858,000 for the six months ended December 31, 1996, an increase of 28%. These increases are primarily due to the Company's success in closing large licensing transactions during the quarter ended December 31, 1997, the increase in sales personnel and the expansion of the field sales and telemarketing organization. The Company recognized $1.1 million in product revenue for its QualixHA+ Unix high availability product as part of one enterprise license agreement. Such large transactions reflect the continuing broad market acceptance of high availability products for the UNIX and Windows NT operating environments and the focus of the Company's sales force on enterprise-wide license agreements and larger transaction sizes. The timing of large sales can cause significant fluctuations in the Company's operating results. See "Risk Factors--Risk of Significant Fluctuations in Quarterly Operating Results." Other Products. Revenue from the sale of other products decreased to $2,227,000 in the second quarter and $4,613,000 for the six months ended December 31, 1997 from $2,659,000 and $4,947,000, respectively, for the same periods of fiscal 1997, decreases of $432,000 or 16% and $334,000 or 7%, respectively. These decreases are attributable to Qualix Direct's continued focus on the sales of the Company's internally developed higher margin reliability products and to its de-emphasis on the sales of third party products. Support, Maintenance and Consulting. Support, maintenance and consulting revenue, primarily derived from annual maintenance agreements and training, increased to $1,524,000 in the second quarter of fiscal 1998 from $1,280,000 for the same period of fiscal 1997, an increase of $244,000, or 19%. Support, maintenance and consulting revenue increased to $2,857,000 in the first six months of fiscal 1998 from $2,244,000 for the same period in fiscal 1997, an increase of 27%. The increases in support, maintenance and consulting are primarily attributable to increased sales of support contracts into the Octopus installed base which historically had purchased minimal amounts of support. Cost of Revenues Cost of revenues decreased to $2,565,000 in the second quarter of fiscal 1998 from $3,262,000 for the same period of 1997, a decrease of $697,000, or 21%. Cost of revenues decreased to $4,820,000 in the first six months of fiscal 1998 from $6,730,000 for the same period of fiscal 1997, a decrease of 28%. Cost of Reliability Software. Cost of reliability software as a percentage of reliability software revenues decreased to 8% in the second quarter of fiscal 1998 from 22% in the second quarter of 1997 and to 5% from 31% for the first six months of the respective fiscal years. These decreases are primarily due to increased sales volumes of higher margin internally developed reliability products that have little or no royalty or licensing components. Cost of Other Products. Cost of other products as a percentage of other product revenues increased to 72% in the second quarter and in the first six months of fiscal 1998 from 70% in the second quarter and in the first six months of the prior year. These slight increases are attributable to the increased demand for lower margin products. In general, margins for resold products are decreasing, however these decreases were partially offset by the refocused efforts of the Qualix Direct telesales organization on the higher margin reliability products. Cost of Support, Maintenance and Consulting. Cost of support, maintenance and consulting as a percentage of support, maintenance and consulting revenues decreased to 34% for the second quarter of fiscal 1998 from 38% for the same period of 1997. Cost of support, maintenance and consulting decreased to 35% of support, maintenance and consulting revenues for the first six months of fiscal 1998 compared to 37% for the comparable period in 1997. These decreases are primarily the result of increased revenues while associated cost levels remained stable. Operating Expenses Sales and Marketing. Sales and marketing expenses increased to $5,507,000 in the second quarter of fiscal 1998 from $2,659,000 for the same period of 1997, an increase of $2,848,000, or 107%. Sales and marketing expenses increased to $9,826,000 in the first six months of fiscal 1998 from $4,801,000 for the same period of 1997, an increase of $5,025,000 or 105%. These expenses increased as a percentage of total net revenues to 59% in the second quarter of fiscal 1998 from 33% in the second quarter of 1997. This increase on an absolute and percentage basis was primarily a result of the expanded sales infrastructure, including the opening of eleven new sales offices worldwide, and the added personnel to expand the Company's marketing and distribution capabilities. The Company's sales and marketing head count has increased from 99 to 171 from December 31, 1996 to December 31, 1997, including an increase of 48 personnel in the first six months of fiscal 1998. Sales productivity levels declined in the first and second quarters of fiscal 1998 as a result of adding new sales personnel. The Company's ability to increase revenues and improve operating results depends significantly on improving sales productivity levels. The Company believes that sales and marketing expenses will increase during the remainder of fiscal 1998 as the Company continues to expand its sales and marketing staff. General and Administrative. General and administrative expenses increased to $1,158,000 in the second quarter of fiscal 1998 from $783,000 for the same period of 1997, an increase of $375,000, or 48%. These expenses increased to $2,172,000 in the first six months of fiscal 1998 from $1,264,000 for the same period of fiscal 1997, an increase of $908,000, or 72%. As a percentage of total net revenues, these expenses increased to 12% in the first six months of fiscal 1998 from 8% in the comparable period of 1997. The increase in absolute dollars is primarily a result of increased staffing and related costs required to manage and support the Company's operations as well as increases in depreciation expense and other costs associated with business expansion. The Company expects that general and administrative expenses will increase during the remainder of fiscal 1998 in direct correlation with the expansion of the Company's operations. Research and Development. Research and development expenses increased to $931,000 in the second quarter of fiscal 1998 from $556,000 for the same period of 1997, an increase of $375,000, or 67%. Research and development expenses increased to $1,779,000 in the first six months of fiscal 1998 from $978,000 in the first half of fiscal 1997, an increase of $801,000 or 82%. This increase was primarily attributable to increased staffing and related expenses required to support product development activities, including developing a future release of QualixHA+, version 3.1 of OctopusHA+, and version 1.4 of Qualix DataStar, the Company's UNIX remote data mirroring application. The Company believes that a significant level of research and development investment is required to remain competitive and expects such expenses will increase during the remainder of fiscal 1998. Merger Expenses. Merger expenses of $595,000 were incurred in connection with the acquisition of Octopus Technologies during the six months ended December 31, 1996. Merger expenses consisted primarily of investment banking, legal and accounting fees. Other Income and Expense, net. Other income (expense), net, increased to $212,000 in the second quarter of fiscal 1998 from $10,000 for the same period of 1997, an increase of $212,000, or 2,020%. This increase reflects higher average investment balances largely attributable to the proceeds from the Company's initial public offering in February 1997. Provision For Income Taxes. The Company recorded no provision for income taxes for the second quarter and first six months of fiscal 1998 and a minimal provision for the same periods in the prior fiscal year because the Company had taxable losses for which no significant benefit was recognized. Net Income(Loss). Net loss for the quarter was $(657,000) or $(0.06) per share, diluted, compared to net income of $850,000 or $0.10 per share, diluted, for the comparable period in the prior fiscal year. In addition to the increases in general and administrative expenses and research and development expenses associated with the Company's growth, the net loss reflects the full impact of the increase in headcount in the field sales force which occurred largely midway during the first quarter of fiscal 1998, and to a lesser extent, during the second quarter of fiscal 1998. Liquidity and Capital Resources At December 31, 1997, the Company had $15,442,000 in cash, cash equivalents and temporary cash investments, as compared to $19,158,000 at June 30, 1997, a decrease of $3,716,000, or 19%. At December 31, 1997, the Company had working capital of $17,628,000 compared to $18,735,000 at June 30, 1997. Cash Flows From Operating Activities. Cash used in operations was $2,875,000 during the first six months of fiscal 1998 which was a $3,250,000 increase from the comparable period of the prior year. This increase is attributed principally to the loss from operations plus increases in accounts receivable and other current assets and decreases in deferred revenues and advances and accounts payable and other accrued liabilities. During the comparable period of fiscal 1997, cash provided by operating activities was attributable to income from operations plus increases in accounts payable and accrued liabilities and deferred revenues and advances, offset by increases in accounts receivable and other current assets. The increases in deferred revenue and advances are attributable to payments under support, maintenance and consulting contracts for which revenue had not yet been recognized. Cash Flows From Investing Activities and Financing Activities. Net cash used for investing activities of $3,717,000 for the first six months of fiscal 1998 primarily consisted of $1,112,000 in purchases of property and equipment and $2,605,000 in net purchases of temporary cash investments. Net cash provided by financing activities was $239,00 for the first six months of fiscal 1998 primarily provided by proceeds from the issuance of common stock. The Company believes that cash flow from operations, existing cash balances and temporary cash investments will be sufficient to meet its working capital requirements for at least the next 12 months. However, if the available funds and cash generated from operations are insufficient to satisfy the Company's cash needs, the Company may be required to sell additional equity or convertible debt securities. There can be no assurance that the Company will be able to sell such securities. Moreover, the sale of additional equity or convertible debt securities could result in dilution to the Company's stockholders. Risk Factors Recent Transition to New Business Model. The Company originally began operating primarily as a distributor, value-added reseller ("VAR") and publisher of licensed third party client/server software products. In 1993, the Company focused on the reliability market by introducing QualixHA, its first high availability product for the UNIX operating environment. QualixHA was based on a core software engine licensed from Veritas. In August 1996, the Company merged with Octopus Technologies, which had developed high availability and remote data mirroring products for the Windows NT operating environment. In October 1996, the Company introduced QualixHA+, which is based on an internally developed core software engine. The Company's strategy is to increase substantially the percentage of revenues derived from internally developed or acquired products that typically have higher gross margins than licensed products. Pursuant to this strategy, the Company ceased marketing QualixHA in February 1997. There can be no assurance that the Company will successfully implement this strategy. The Company's future profitability, if any, will be heavily dependent on the successful development and/or acquisition, introduction and enhancement of its own reliability products. See "-- Dependence on Qualix Direct" and "--Uncertainty of Success of Recently Introduced and Planned Products." Risk of Significant Fluctuations in Quarterly Operating Results. The Company has experienced, and expects to continue to experience, significant fluctuations in operating results, on an annual and a quarterly basis, as a result of a number of factors, many of which are outside the Company's control, including the size and timing of orders; lengthy sales cycles; customer budget changes; introduction or enhancement of products by the Company or its competitors; expansion of the Company's field sales force; changes in pricing policy of the Company or its competitors; the mix of products sold, including particularly the mix of owned, licensed and resold products; increased competition; technological changes in computer systems and environments; the ability of the Company to timely develop or acquire, introduce and market new products; quality control of products sold; market readiness to deploy reliability products for distributed computing environments; market acceptance of new products and product enhancements; seasonality of revenue; customer order deferrals in anticipation of new products and product enhancements; the Company's success in expanding its sales and marketing programs; personnel changes; foreign currency exchange rates; mix of sales channels; acquisition costs or other nonrecurring charges in connection with the acquisition of companies, products or technologies; and general economic conditions. The Company's operating results have historically fluctuated significantly as a result of nonrecurring items, including $595,000 of nonrecurring merger expenses relating to the Octopus Technologies merger in the quarter ended September 30, 1996. The Company believes that operating results over at least the next few quarters will be particularly dependent upon achieving significant market acceptance of its OctopusHA+ and QualixHA+ products, improving the productivity of the Company's field sales force, the amount of any price reduction for such products, the timing of large orders for such products, the level of revenues from lower margin products resold through the Qualix Direct telesales organization, the level of research and development expenses in connection with the Company's ongoing and planned product development program and the level of sales and operating expenses. The Company's gross margin will be affected by a number of factors, including the mix of owned, licensed and resold products, the percentage of total revenue from service contracts, product pricing, the percentage of total revenue from direct sales and indirect distribution channels and the percentage of sales by the Qualix Direct telesales organization. Internally developed or acquired products generally have higher gross margins than licensed products because lower or no royalties must be paid. Service revenues generally have lower margins than revenues from sales of owned products because of the costs incurred to generate service revenues. Revenues from products resold by the Qualix Direct telesales organization generally have lower gross margins than revenues from owned and licensed products sold by the Company's other direct and indirect distribution channels. Large sales of certain reliability products, including QualixHA+, often have long cycles and are subject to a number of significant risks over which the Company has little or no control. The timing of large sales can cause significant fluctuations in the Company's operating results, particularly as the Company pursues larger licensing transactions, and delivery schedules may be canceled or delayed. Because sales orders are typically shipped shortly after receipt, order backlog as of any particular date is not necessarily indicative of the Company's future revenues. Accordingly, total revenues in any quarter are substantially dependent on orders booked and shipped during that quarter. Historically, the Company has often recognized a significant portion of its revenues in the last weeks, or even days, of a quarter. As a result, the magnitude of quarterly fluctuations may not become evident until late in, or after the close of, a particular quarter. In addition, the Company's expense levels are based in significant part on expectations as to future revenues and as a result are relatively fixed in the short run. If revenues are below expectations in any given quarter, net income is likely to be disproportionately affected, particularly because the Company relies heavily on a relatively high cost direct sales channel. Based upon all of the foregoing, the Company believes that the Company's annual and quarterly revenues, expenses and operating results are likely to vary significantly in the future, that period-to-period comparisons of its results of operations are not necessarily meaningful and that, in any event, such comparisons should not be relied upon as indications of future performance. In addition, it is likely that in future quarters the Company's operating results will be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock would be materially and adversely affected. Intense Competition. The market for reliability software for distributed computing environments is intensely competitive, fragmented and characterized by rapid technological developments, evolving standards and rapid changes in customer requirements. To maintain and improve its position in this market, the Company must continue to enhance current products and develop new products in a timely fashion. Although the Company believes that the reliability segment of the market is in the early stages of development, the Company competes, or may compete, with four types of vendors: (i) independent vendors that provide reliability products; (ii) host-based systems management software companies migrating their products to the distributed computing market; (iii) distributed computing systems management software companies that incorporate reliability products as a part of integrated systems management solutions; and (iv) hardware and operating system vendors, including Microsoft Corporation and Sun Microsystems, that incorporate high availability solutions into their products. Many of the Company's competitors have longer operating histories and have substantially greater financial, technical, sales, marketing and other resources, as well as greater name recognition and a larger customer base, than the Company. The Company's current and future competitors could introduce products with more features, higher scaleability, greater functionality and lower prices than the Company's products. These competitors could also bundle existing or new products with other, more established products in order to compete with the Company. The Company's focus on reliability software may be a disadvantage in competing with vendors that offer a broader range of products. Moreover, as the distributed systems management software market develops, a number of companies with significantly greater resources than those of the Company could attempt to increase their presence in this market by acquiring or forming strategic alliances with competitors or business partners of the Company. Because there are relatively low barriers to entry for the software market, the Company expects additional competition from other established and emerging companies. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any of which could materially and adversely affect the Company's business, operating results and financial condition. Any material reduction in the price of the Company's products would negatively affect gross margins and would require the Company to increase software unit sales in order to maintain gross profits. In addition, the distributed computing market is characterized by rapid technological advances, changes in customer requirements, frequent new product introductions and enhancements and evolving industry standards in computer hardware and software technology. The introduction of products embodying new technologies and the emergence of new industry standards may render the Company's existing or planned products obsolete or unmarketable, particularly because the market for reliability products is in an early stage of development. There can be no assurance that the Company will be able to compete successfully against current and future competitors, especially those with significantly greater financial, marketing, service, support, technical and other resources than the Company, and the failure to do so would have a material adverse effect upon the Company's business, financial condition and results of operations. Dependence on Qualix Direct. Through its Qualix Direct telesales organization, the Company has historically derived and expects to continue to derive a significant portion of its total revenue from reselling ancillary software and hardware products for distributed computing systems. Qualix Direct accounted for 24% and 33% of total revenue in the second quarter of fiscal 1998 and fiscal 1997, respectively. The Company's reliance on Qualix Direct entails a number of risks. Qualix Direct's product line is updated frequently in response to changes in vendor offerings. Qualix Direct has no long-term supply contracts with its vendors and many resold products are acquired pursuant to purchase orders or contracts that can be terminated with little or no notice. In addition, Qualix Direct generally has little or no control over the marketing, support and enhancement of its resold products by its vendors and faces significant competition from distributors and other distribution channels. Moreover, gross margins on products resold by Qualix Direct are generally lower than gross margins on owned and licensed products sold by the Company's field sales organization. In addition, the Company's net revenues may be adversely impacted if sales by Qualix Direct decline or do not grow at anticipated rates, even though the Company's gross margins may be less significantly impacted. Although the Company sells its lower priced reliability products through Qualix Direct telesales representatives, there can be no assurance that such efforts will be successful or that such activities will not create conflicts with the Company's other direct or indirect distribution channels. Any adverse development at Qualix Direct could have a material adverse impact on the Company's business, financial condition and results of operations. Uncertainty of Success of Recently Introduced and Planned Products. A key element of the Company's strategy is to increase substantially the percentage of revenues derived from higher margin owned reliability software products. In August 1996, the Company acquired and introduced high availability and remote data mirroring products for Windows NT based systems upon merging with Octopus Technologies. In October 1996 introduced QualixHA+, its high availability product for UNIX based systems, which is based on an internally developed core software engine. Version 2.0 of this product, which includes a GUI and additional clustering features, commenced shipping in October, 1997. In April, 1997 the Company introduced DataStar, a network-based data duplication and remote mirroring software for UNIX environments. In July, 1997 the Company began shipping version 3.0 of OctopusHA+, its high availability and remote mirroring product for Windows NT based systems. In addition, the Company is developing additional reliability products. There are a number of risks associated with the successful development or acquisition and introduction of the Company's existing and planned products. The Company needs to significantly expand and enhance its product development and engineering resources in order to successfully implement its product development program. See "--Need to Expand Product Development and Engineering Capability." The Company has in the past experienced delays in the development of new products and enhancements to existing products. There can be no assurance that the Company can successfully develop any additional products or enhance existing products. Even if developed or acquired, such products or enhancements may contain undetected difficulties or defects that are not discovered before they are released. See "--Risk of Software Defects." In addition, there can be no assurance that the Company can successfully market and sell any such products or enhancements or that they will achieve significant market acceptance. Failure of the Company to successfully develop, market and sell existing and planned products or enhancements would have a material adverse effect on the Company's business, financial condition and results of operations. Dependence on Licensed Products. The Company has historically derived a substantial majority, and expects to continue to derive a portion, of its total revenue from the sale of products that are licensed or incorporate a significant amount of technology that is licensed from third parties (collectively, "licensed products"). There are a number of disadvantages and risks associated with the sale of licensed products. The Company is frequently unable to obtain exclusive rights to sell a licensed product, in which case the Company competes against the licensor and potentially other third party licensees. The licenses are typically for a specified period. For example, the Company's right to sell FireWall-1 (and QualixHA+ for Firewalls, which incorporates FireWall-1) is subject to annual renewal. The Company must typically pay a significant per copy royalty that reduces gross margins realized by the Company from the sale of licensed products and may put the Company at a competitive disadvantage against the licensor or other third party licensees paying lower royalty rates. In addition, the Company may have little or no control over the timing, functionality and quality of enhancements and upgrades to the product and may be restricted in the method and manner, including distribution channels, by which the Company may sell the product. The Company may from time to time need to enforce its rights under licenses. See "--Legal Proceedings." Notwithstanding these factors, the Company anticipates it will derive a significant percentage of its revenues from licensed products for the foreseeable future. Any loss in the right to sell licensed products or any adverse change in the terms upon which it sells licensed products could have a material adverse effect on the Company's business, financial condition and results of operations. Product Concentration. The Company currently derives the majority of its revenues from the sale of reliability products and related services for distributing computing environments. Broad market acceptance of the Company's reliability products is therefore critical to the Company's future success. Demand for the Company's reliability products will depend in large part on increasing market acceptance of distributed computing systems, particularly for business-critical applications, and the need for reliability systems management software products and services for these computing systems. There can be no assurance that market acceptance of distributed computing systems will increase for business-critical applications or that market acceptance of reliability products and services will increase. If reliability products fail to achieve broad market acceptance in distributed computing environments, the Company's business, operating results and financial condition would be materially and adversely affected. During recent years, segments of the computer industry have experienced significant economic downturns characterized by decreased product demand, production overcapacity, price erosion, work slowdowns and layoffs. The Company's financial performance may in the future experience substantial fluctuations as a consequence of such industry patterns. There can be no assurance that such factors will not have a material adverse effect on the Company's business, financial condition and results of operations. Need to Expand Product Development and Engineering Capability. The Company's future success is critically dependent on expanding and integrating its product development and engineering capability. In order to maintain its market and technological leadership, the Company must maintain and upgrade its products and develop new products. To successfully implement its product development program, the Company must, among other things, hire additional software engineers, enhance its product development policies and procedures and substantially increase expenditures on product development and engineering. There can be no assurance that the Company's product development efforts will be successful or that future products will be available on a timely basis or at all or achieve market acceptance. Moreover, expansion of the Company's product development program will increase the Company's operating expenses, and there can be no assurance that actual spending increases will not exceed anticipated amounts or that such increases will result in sufficient revenues to justify such increases. Failure to successfully implement the Company's product development program would have a material adverse effect on its business, financial condition and results of operations. Dependence on Indirect Distribution Channels. An important element of the Company's sales and marketing strategy is to continue to sell its products and services through indirect distribution channels, including distributors, system integrators, VARs, systems management software vendors and OEMs. Selling through indirect channels may limit the Company's contacts with its customers. As a result, the Company's ability to accurately forecast sales, evaluate customer satisfaction and recognize emerging customer requirements may be hindered. Marketing products through the Company's field sales force and through indirect distribution channels may result in distribution channel conflicts. There can be no assurance that channel conflicts will not materially adversely affect its field sales efforts as well as its relationships with existing or future distributors, system integrators, VARs, systems management software vendors and OEMs. The Company's reliance on indirect distribution increases the risks associated with the introduction of new products, including risks of delays in adoption and the risk that resellers will evaluate and potentially adopt competitive products. There can be no assurance that the Company's current resellers will adopt or successfully market any of the Company's new products. In addition, these relationships are frequently terminable at any time without cause. Therefore, there can be no assurance that any such party will continue to represent the Company's products, which could have a material adverse effect on the Company's business, financial condition and results of operations. Integration of Acquisitions. The Company may make acquisitions in the future. Acquisitions of companies, products or technologies entail numerous risks, including an inability to successfully assimilate acquired operations and products, diversion of management's attention, loss of key employees of acquired companies and substantial transaction costs. Some of the products acquired may require significant additional development before they can be marketed and may not generate revenue at levels anticipated by the Company. There can be no assurance that the Company will not incur these problems in the future. Moreover, future acquisitions by the Company may result in dilutive issuances of equity securities, the incurrence of additional debt, large one-time write-offs and the creation of goodwill or other intangible assets that could result in amortization expense. Any such problems or factors could have a material adverse effect on the Company's business, financial condition and results of operations. Dependence on Key Personnel; Recent Management Changes; Management of Growth. The Company's future operating results depend significantly on the continued service of its key technical and senior management personnel and on its continuing ability to attract and retain highly qualified technical and managerial personnel. The Company's future success is particularly dependent on increasing its product development personnel. See "--Need to Expand Product Development and Engineering Capability." The Company has relied in the past on consultants as well as employees for its product development programs. Competition for such personnel is intense, and there can be no assurance that the Company will retain its key managerial and technical employees or that it will be successful in attracting or retaining other highly qualified technical and managerial employees and consultants in the future. The Company has at times experienced difficulty in recruiting qualified personnel, and there can be no assurance that the Company will not experience such difficulties in the future. If the Company were to experience such difficulties in the future, it may have a material adverse effect on the Company's business, financial condition and results of operations. The Company recently hired a Senior Vice President of Field Sales Operations and an acting Vice President of Marketing to replace senior management personnel who have left the Company. Additionally, the Company has hired a Vice President for Human Resources. If these new executives do not integrate effectively into the Company's management and operations it would have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the growth in the Company's business has placed, and is expected to continue to place, a significant strain on the Company's management and operations. To manage its future growth, if any, effectively, the Company must continue to strengthen its operational, financial and management information systems and expand, train and manage its employee work force. Failure to do so effectively and on a timely basis could have a material adverse effect upon the Company's business, financial condition and results of operations. Dependence on Proprietary Technology; Risks of Infringement. The Company's success depends in part upon its proprietary technology. The Company has no issued patents and relies on a combination of copyright, trademark and trade secret laws, confidentiality procedures and licensing arrangements to establish and protect its proprietary rights relating to its licensed and internally developed products. The Company's rights to market and sell licensed products are generally governed by license agreements of specified duration. See "--Dependence on Qualix Direct" and "--Dependence on Licensed Products." The Company has applied for a United States patent covering certain aspects of the technology included in its Octopus Technologies data mirroring product and has recently received the official Notice of Allowance regarding that application However, there can be no assurance that any issued patent will provide meaningful protection for the Company's technology, that any issued patent will provide the Company with any competitive advantages or will not be challenged by third parties. Moreover, there can be no assurance that the Company will develop additional proprietary products or technologies that are patentable or that the patents of others will not have an adverse effect on the Company's ability to do business. Furthermore, there can be no assurance that others will not independently develop similar products, duplicate the Company's products or, if patents are issued to the Company, design around the patents issued to the Company. As part of its confidentiality procedures, the Company generally enters into non-disclosure agreements with its employees, distributors and corporate partners, and license agreements with respect to its software, documentation and other proprietary information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use the Company's products or technology without authorization, or to develop similar technology independently. Policing unauthorized use of the Company's products is difficult and although the Company is unable to determine the extent to which piracy of its software products exists, software piracy can be expected to be a persistent problem. In selling its products, the Company relies on "shrink wrap" licenses for sales of certain products that are not signed by licensees and, therefore, may be unenforceable under the laws of certain jurisdictions. In addition, effective protection of intellectual property rights is unavailable or limited in certain foreign countries. There can be no assurance that the Company's protection of its proprietary rights, including any patent that may be issued, will be adequate or that the Company's competitors will not independently develop similar technology, duplicate the Company's products or design around any patents issued to the Company or other intellectual property rights. There can be no assurance that third parties will not claim infringement by the Company with respect to current or future products. In October 1996, the Company received correspondence from a French company asserting that it has registered "Octopus" as a trademark in France and that the Company's use of the mark "Octopus" infringes its trademark rights. The Company has not been successful in obtaining a license to use the Octopus mark in France and has determined that it must adopt a new trademark to replace the Octopus mark in France. Qualix does not believe that this action will have a material adverse effect on the Company's business, financial condition or results of operations. In addition, the Company expects that software product developers will increasingly be subject to such claims as the number of products and competitors in the Company's industry segment grows and the functionality of products in the industry segment overlaps. Any such claims, with or without merit, could result in costly litigation that could absorb significant management time, which could have a material adverse effect on the Company's business, operating results and financial condition. Such claims might require the Company to enter into royalty or license agreements. Such royalty or license agreements, if required, may not be available on terms acceptable to the Company or at all, which could have a material adverse effect upon the Company's business, financial condition and operating results. International Sales. Net revenue from customers outside the United States was 21% of total revenue for the three months ended December 31, 1997 and 1996. In the 1997 quarter, 3.6% of total revenue was generated in Asia. The Company intends to continue to expand its operations outside of the United States and enter additional international markets, which will require significant management attention and financial resources. There can be no assurance, however, that the Company will be able to maintain or increase international market demand for the Company's products. The Company's international revenues are currently denominated in U.S. dollars. An increase in the value of the U.S. dollar relative to foreign currencies could make the Company's products more expensive and, therefore, potentially less competitive in foreign markets. Additional risks inherent in the Company's international business activities generally include unexpected changes in regulatory requirements, tariffs and other trade barriers, costs and risks of localizing products for foreign countries, adverse tax consequences, restrictions on repatriating earnings and the burdens of complying with a wide variety of foreign laws. There can be no assurance that such factors will not have a material adverse effect upon the Company's future export revenues and, consequently, the Company's business, financial condition and results of operations. Although the company has been unaffected to date, economic volatility in Asia and other parts of the world may have a significant impact on future performance of the Company. Risk of Software Defects. Software products as complex as those offered by the Company frequently contain errors or defects, especially when first introduced or when new versions or enhancements are released. Despite testing by the Company and by current and potential customers, there can be no assurance that defects and errors will not be found in existing products or in new products, versions or enhancements after commencement of commercial shipments. Any such defects and errors could result in adverse customer reactions, particularly because the Company focuses on selling reliability products, delays in market acceptance, expensive product changes or loss of revenue, any of which could have a material adverse effect upon the Company's business, financial condition and results of operations. Product Liability. The Company's license agreements with customers typically contain provisions designed to limit the Company's exposure to potential product liability claims. A significant portion of the Company's products are licensed pursuant to "shrink wrap" licenses. To the extent the Company relies on "shrink wrap" licenses that are not signed by licensees and, therefore, may be unenforceable under the laws of certain jurisdictions, the limitation of liability provisions contained in such license agreements may not be effective. The Company's products generally provide systems management software that is used for business-critical applications, and, as a result, the sale and support of products by the Company may entail the risk of product liability claims. Although the Company maintains errors and omissions product liability insurance, a successful liability claim brought against the Company could have a material adverse effect upon the Company's business, financial condition and results of operations. Year 2000 Compliance. The Company has, and will continue to make certain investments in its software systems and applications to ensure the Company is year 2000 compliant. The financial impact to the Company has not been and is not anticipated to be material to its financial position or results of operations in any given year. Potential Volatility of Stock Price. The Company completed its initial public offering in February 1997. As a newly public company, the market price for the Company's stock has been subject to significant fluctuations and may experience significant volatility in the future. The Company believes that factors such as actual or anticipated fluctuations in the Company's results of operations, announcements of technological innovations, new products by the Company or its competitors, developments with respect to patents, copyrights or proprietary rights, conditions and trends in the distributed computing environment and other technology industries, general market conditions and other factors may affect the market price for the Company's stock. In addition, the stock market has from time to time experienced significant price and volume fluctuations that have particularly affected the market prices for the common stock of technology companies. These broad market fluctuations may adversely affect the market price of the Company's Common Stock. In the past, following periods of volatility in the market price of a particular company's securities, securities class action litigation has often been brought against that company. There can be no assurance that such litigation will not occur in the future with respect to the Company. Such litigation could result in substantial costs and a diversion of management's attention and resources, which could have a material adverse effect upon the Company's business, financial condition and results of operations. Control by Directors, Executive Officers and Principal Stockholders. The present directors, executive officers and principal stockholders, and their affiliates and related persons, beneficially own approximately 32% of the outstanding shares of the Company's Common Stock. These stockholders are able to elect all of the Company's directors, have the voting power to approve all matters requiring stockholder approval, and continue to exert significant influence over the affairs of the Company. Such concentration of ownership may have the effect of delaying, deferring or preventing a change in control of the Company. Part II. Other Information Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to Vote of Security Holders (a) The Annual Meeting of Stockholders was held on November 12, 1997. (b) The meeting included the election of the Board of Directors, submitted as Item No. 1, whose names are as follows: Richard G. Thau Jean A. Kovacs Louis C. Cole William Hart William D. Jobe Charles L. Minter Peter L. Wolken (c) Other matters voted upon at the stockholders meeting were: Item No. 2, Approval of amendment to 1997 Stock Option Plan; Item No. 3, Ratification of the appointment of Deloitte & Touche LLP as the company's independent public accountants for the fiscal year ending June 30, 1998. Shares of Common Stock were voted as follows:
Item No. 1 (Election of Board of Directors) Total Vote For Total Vote Withheld Each Director Each Director Richard G. Thau 8,900,495 232,698 Jean A. Kovacs 8,867,784 265,409 Louis C. Cole 8,897,495 235,698 William Hart 8,897,495 235,698 William D. Jobe 8,897,495 235,698 Charles L. Minter 8,892,923 240,270 Peter L. Wolken 8,897,495 235,698
For Against Abstain No Vote Item No. 2 Amendment to 1997 Stock Option Plan 8,744,244 266,009 79,867 43,073 Item No. 3 Ratification of Independent Public Accountants 9,109,659 7,000 16,534 0
Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.26 --Letter employment agreement between Registrant and David Malmstedt dated December 23, 1997. 10.27 --Letter employment agreement between Registrant and Dan Kingman dated December 24, 1997. 10.28+ --Enterprise License Agreement between the Company and Federal Express Corporation dated December 10, 1997. 27 --Financial Data Schedule. + Confidential treatment requested. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Qualix Group, Inc. February 13, 1998 By:_/S/___________________________________ Date Bruce C. Felt, Vice President, Finance and Chief Financial Officer (duly authorized officer and principal financial and accounting officer) EXHIBIT INDEX Exhibit No. Description 10.26 --Letter employment agreement between Registrant and David Malmstedt dated December 23, 1997. 10.27 --Letter employment agreement between Registrant and Dan Kingman dated December 24, 1997. 10.28+ --Enterprise License Agreement between the Company and Federal Express Corporation dated December 10, 1997. 27 --Financial Data Schedule. + Confidential treatment requested. EX-10 2 EXHIBIT 10.26 EXHIBIT 10.26 December 23, 1997 David R. Malmstedt 121 16th Street Manhattan Beach, CA 90266 Dear Dave: On behalf of Qualix Group, Inc., I am pleased to offer you the position of Senior Vice President of Field Operations. In this position you will report to me as the President & Chief Executive Officer of the Company. Your compensation will consist of a base salary and quarterly bonuses based on performance against your bonus plan. Your base salary will be $16,666.66 per month, equivalent to $200,000.00 per year, and subject to federal, state, and other applicable taxes. A bonus plan for your first twelve months of employment will be developed within sixty days of your start date, and agreed upon by you and me. As part of that plan, you will be eligible to receive up to $50,000.00 in bonuses for achieving 100% of your goal. This amount will be guaranteed for your first year of employment. In addition, it is our intent that you have the opportunity to earn up to $100,000.00 in additional performance bonuses for achieving 110% of your goal during your first twelve months of employment. The specific details of the plan will be worked out between us as part of the planning process. Upon your acceptance of employment with the Company, I will recommend to the Board of Directors that you be granted the option to purchase 200,000 shares of Qualix Group common stock. The exercise price of the options will be the closing price of Qualix common stock on your first day of employment with the Company. The options vest over a four year schedule with 25% becoming vested twelve months from the start date of your employment, with the remaining 75% vesting on a daily basis over the following three years. We are pleased to be able to offer you a one-time sign up bonus of $25,000.00. To assist you in relocation to the Bay Area, the Company will reimburse you for actual expenses upon receipt of invoices, up to a maximum of $75,000.00. In the event you voluntarily resign or are terminated for cause during the first twelve months of your employment, you will reimburse the Company for your sign on bonus and relocation expenses. You will be entitled to participate in all of the Company's employee benefit plans, beginning on your date of hire. Details will be sent to you under separate cover. When you report to work, you will be expected to execute the Company's standard agreement relative to patents, confidential information and non compete obligations. This is an offer for "at will" employment and does not constitute an offer or guarantee of employment for any period of time. Other than as specifically set forth herein, you will not be entitled to any other amounts from the Company. This letter constitutes the full offer of employment and supersedes any prior discussions. This offer is effective pending completion of reference checking and will expire if not accepted in writing by December 26, 1997. Dave, we look forward to your acceptance of this offer and are confident that with the addition of your sales capabilities and leadership, Qualix Group will become a highly valued and increasingly successful company. Sincerely, Rick Thau President & Chief Executive Officer Accepted by: Date Dave Malmstedt EX-10 3 EXHIBIT 10.27 EXHIBIT 10.27 December 24, 1997 Dan Kingman 1215 Los Trancos Road Portola Valley, CA 94028 Dear Dan, This is to confirm my verbal offer of employment to you as VP of Human Resources reporting directly to me. Your salary will be $10,417.00 monthly base. You will be eligible to receive a bonus of $25,000.00 annually based upon criteria that we will establish together after your start date. As we agreed upon, your start date will be January 12, with a phase in from MDL to Qualix. Qualix will receive a minimum of 50% of your time through this transition, through most of March, with some additional days through June. During "shared" time, salary and bonus will be prorated. Additional loans/notes as deferred or long-term compensation will be reviewed at a later date, and not part of this initial offer. Upon approval of the Board of Directors, you will be eligible to purchase 60,000 shares of the company's common stock, under the terms of the company's employee stock option or purchase agreement. You will also be eligible to participate in all standard employee benefits per our current Employee Handbook. You will be asked to sign the standard Non-Disclosure, and Proprietary Information Agreement before your start date. It should also be noted that this offer does not constitute a contract of employment for any specific period of time. If you have any questions regarding these items, please do not hesitate to contact me. Dan, we are looking forward to you joining us. Please sign and return one copy of this letter as an indication of your acceptance of the position and confirmation of your start date. Best regards, Richard G. Thau President and CEO RGT:eeb - --------------------------------------------------------- Accepted by Start Date EX-10 4 EXHIBIT 10.28 EXHIBIT 10.28 FEC Contract No. 98-0511 NON-EXCLUSIVE ENTERPRISE LICENSE AGREEMENT THIS NON-EXCLUSIVE ENTERPRISE LICENSE AGREEMENT (the "License Agreement") is entered into as of the ____ day of December, 1997 (the "Effective Date") by and BETWEEN QUALIX GROUP, INC. (the "Licensor" or "Qualix") and FEDERAL EXPRESS CORPORATION (which for purposes of this License Agreement shall mean Federal Express Corporation and its majority -owned subsidiaries and affiliates worldwide) (the "Licensee" or "Customer") who agree as follows: RECITALS WHEREAS, Licensee has previously licensed (the "Existing Licenses") certain computer software (the "Software) from Licensor for use in its business; WHEREAS, Licensee is desirous of obtaining a perpetual, non-exclusive, non-transferable, enterprise-wide license to enable it to use the Software within its business without restrictions as to the sites, number of copies thereof, or number of users thereof; WHEREAS, Licensor is willing to grant an enterprise license to Licensee subject to the terms and conditions of this License Agreement. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which the parties acknowledge, the parties agree as follows: GRANT OF NON-EXCLUSIVE ENTERPRISE LICENSE Grant of License. Subject to the terms and conditions of this License Agreement, Licensor hereby grants to Licensee a perpetual, non-exclusive, non-transferable (except as otherwise provided in Section 8.1 hereof), enterprise-wide right and license to install, use, copy, and distribute internally the Licensed Materials, as defined below, in machine-readable form (the "Enterprise License"). Licensee may install the Licensed Materials in any quantity on any number of computers (the "Licensed Computers") and/or at any number of locations throughout the world (the "Licensed Sites"), without restriction on the number of users or concurrent users. The Licensed Computers may consist of any of the computer platforms with respect to which Licensor makes the Software generally commercially available. Upon request by Licensee, Licensor shall promptly inform Licensee of any additional platforms which have been added by Licensor to its standard commercial list of available platforms on which any of the Software may be run. Licensee shall have no other license rights with respect to the Licensed Materials than those expressly provided in this License Agreement. Ownership. All patent rights, copyright rights, trade secret rights, trademark rights, and other proprietary rights in the Licensor's proprietary software and related materials delivered under this License Agreement, as more particularly specified in Exhibit A hereto (the "Licensed Materials") are and shall remain the sole and exclusive property of Licensor. Nothing herein shall be construed to grant to Licensee any ownership rights in the Licensed Materials. Any rights not expressly granted to Licensee hereunder are retained by Licensor. Deliverables. Licensor shall deliver the Licensed Materials to Licensee, in reproducible master format, during the term hereof as requested from time to time by Licensee. Licensee has evaluated the version of the Licensed Materials currently (as of the Effective Date) on site at Licensee's premises and hereby accepts said version. Proprietary Notices and Records. Licensee shall retain, and in no case delete, any and all of Licensor's proprietary notices in the Licensed Materials. PAYMENT TERMS License Fees. The total license fee for the Enterprise License shall be in the amount of [*] in the aggregate, of which Licensor hereby acknowledges that [*] has already been paid by Licensee to Licensor prior to the Effective Date hereof. The remaining [*] shall be payable in two installments. The first of said installments, which shall be in the amount of [*], shall be payable within thirty (30) days following the execution of this License Agreement by the parties and Licensee's receipt of Licensor's invoice therefor. The second and final of said installments, which shall be in the final remaining amount of [*], shall be payable within thirty (30) days following Licensee's receipt of Licensor's invoice for such final amount, provided that Licensor does not sent its invoice therefor to Licensee prior to July 1, 1998. Support and Maintenance Fee. The fee for the Support and Maintenance Services described in Exhibit B for a period of one (1) year commencing as of the Effective Date shall be in the total amount of [*] and shall be payable within thirty (30) days following the execution of this License Agreement by the parties and Licensee's receipt of Licensor's invoice therefor. On-Site Engineer Services Fee. The fee for the On-Site Engineer Services (hereinafter described in Section 6 hereof) for one (1) year shall be in the amount of [*], which amount shall be payable within thirty (30) days following the Start Date (as defined in Section 6 hereof) of the on-site engineer at Licensee's facility. WARRANTIES, INDEMNIFICATION AND LIMITED LIABILITY Warrant of Title. Licensor warrants that it has all right, title, and interest in all copyrights and all other proprietary rights in the Licensed Materials and that it has the right to grant the license granted hereunder. Indemnification. Licensor shall, at Licensor's expense, defend, indemnify and hold harmless Licensee from and against any and all damages, liabilities, and costs including attorney's fees arising from or relating to any breach of the foregoing Warranty of Title or any claim based on an allegation that any of the Licensed Materials, or the use by, or license to, Licensee of any of the Licensed Materials infringes any patent, copyright or other proprietary right. Licensor shall not be responsible for any compromise or other settlement made by Licensee without Licensor's written consent. Licensor's obligation to indemnify Licensee shall be conditioned upon Licensee's prompt notification to Licensor of any such claim, and upon Licensee's cooperation with Licensor, at Licensor's expense, in the defense of any such claim. Millennium Compliance. Licensor hereby warrants that the Licensed Materials are "Millennium Compliant" as defined in Exhibit D. This warranty shall be perpetual and shall survive any other expiration of warranty period or other termination of this License Agreement. Disclaimer. LICENSOR DISCLAIMS ALL EXPRESS WARRANTIES EXCEPT AS SET FORTH HEREIN, AND DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE. LICENSEE UNDERSTANDS AND AGREES THAT THE LICENSED MATERIALS ARE BEING DELIVERED "AS IS." Limitation of Liability. LICENSOR WILL NOT BE LIABLE FOR ANY CONSEQUENTIAL, INCIDENTAL, PUNITIVE OR EXEMPLARY DAMAGES OF ANY KIND, INCLUDING BUT NOT LIMITED TO ANY CLAIMS FOR LOST DATA, LOST PROFITS, LOSS OF USE, OR INTERRUPTION OF BUSINESS, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE AND WHETHER OR NOT LICENSOR HAS BEEN APPRISED OF THE LIKELIHOOD OF THE SAME. IN NO EVENT SHALL LICENSOR BE LIABLE FOR ANY DAMAGES EXCEEDING THE AMOUNTS PAID BY LICENSEE TO LICENSOR UNDER THIS LICENSE AGREEMENT. The foregoing limitations of liability shall not apply to personal injury or tangible property damage caused by Licensor's negligence or to Licensor's obligations under Sections 3.2 or 4 hereof. CONFIDENTIALITY Confidential Information. The use and disclosure by one party of the other party's confidential and proprietary information shall be governed by and subject to the provisions of that certain Mutual Nondisclosure Agreement between the parties dated November 26, 1997 (the "MNDA"). Public Announcements. Licensor shall in each instance obtain the prior written approval of Licensee concerning exact text and timing of news releases, articles, brochures, advertisements, prepared speeches and other information releases concerning this specific License Agreement, which approval shall not be unreasonably withheld. SUPPORT AND MAINTENANCE Licensor shall provide the Support and Maintenance Services described in Exhibit B to Licensee for a period of one (1) year from the Effective Date of this License Agreement, provided the fee for Support and Maintenance Services as set forth form in Section 2.2 hereof is paid to Licensor by Licensee in accordance with the terms thereof. Thereafter, Support and Maintenance Services may be purchased by Licensee from Licensor on an annual basis via issuance by Licensee of its standard purchase order therefor. Annual support fees shall not increase in any one (1) year by more five percent (5%) of the fee in the preceding year or the Consumer Price Index whichever is less. The annual fee for any renewal Support and Maintenance Services period shall be payable by Licensee within thirty (30) days following the commencement of such renewal period and receipt by Licensee of Licensor's invoice therefor. ON-SITE ENGINEERING On-Site Engineer Services. Licensor shall provide a full-time, on-site Qualix engineer to Licensee for a period of one (1) year to perform the On-Site Engineer Services described in Exhibit E, provided the fee for the On-Site Engineer Services as set forth in Section 2.3 hereof is paid to Licensor by Licensee in accordance with the terms thereof. The Qualix engineer shall be an individual deemed competent in UNIX system administration. The one-year period shall start on a date to be mutually determined by Licensor and Licensee (the "Start Date"), but in no event shall such Start Date exceed July 1, 1998. All travel expenses and daily meals incurred by the Qualix engineer in connection with his/her performance of services for Licensee while on travel from Licensee's initial designated domicile site, shall be the responsibility of Licensee, provided that the Qualix engineer adheres to Licensee's stated travel policies regarding said expenses (see Exhibit C attached hereto), as modified from time to time. The Qualix engineer will travel in accordance with Licensee's management's reasonable requirements. Licensor shall invoice Licensee at the end of each month for any such applicable reimbursables incurred during such month. Such invoices shall be payable by Licensee within thirty (30) days following Licensee's receipt thereof. General Indemnity. Licensor hereby agrees to indemnify and hold harmless Licensee, its officers, agents and employees from any and all liabilities, damages, losses, expenses, demands, suits, or judgments, including all attorneys' fees, costs, and expenses incidental thereto, for death of or injuries to any person and for the loss of, damage to or destruction of any property in any manner arising out of the negligent or intentional acts or omissions of Licensor, its agents, employees, or subcontractors. Licensor shall also indemnify Licensee against any liability or payment in connection with federal, state and local taxes or contributions imposed upon or required of Licensee under unemployment insurance, social security, income tax and workers' compensation statutes with respect to Licensor's services hereunder. TERM AND TERMINATION Term. This License Agreement shall become effective as of the Effective Date and, unless otherwise terminated as provided herein, shall terminate November 30, 2002, except for fully paid-up licenses which shall continue in perpetuity with full force and effect, unless otherwise terminated as provided herein. Default. It shall be a default hereunder on the part of a party hereto if (i) such party shall fail to perform when due any of its obligations under this License Agreement and such failure or breach is not remedied within thirty (30) days after receipt of written notice of such default from the other party, or (ii) a party hereto becomes insolvent or makes an assignment for the benefit of creditors or ceases to do business or if any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other proceedings under any bankruptcy or other law for the relief of debtors is instituted by or against such party. In the event of any such default by Licensee, Licensor shall have the right to terminate the license under this Agreement to the Licensed Materials and shall be entitled to exercise any and all other rights and remedies as shall be available to it at law or in equity. In the event of any such default by Licensor, Licensee shall have the right to terminate this License Agreement and shall be entitled to exercise any and all rights and remedies as shall be available to it at law or in equity. Either party's remedies may be exercised concurrently or separately, and the exercise of any one remedy shall not be deemed an election of such remedy or to preclude the exercise of any other remedy. In addition to the above remedies, if this License Agreement is terminated for default of Licensor, then Licensor shall refund the unused (pro rata) portion of any applicable Support and Maintenance Services fees. Effect of Termination by Licensor due to Material Breach. Upon termination of this License Agreement due to material breach, Licensee shall return to Licensor the Licensed Materials then in possession of Licensee and all versions thereof, together with all copies thereof and Licensee shall purge all copies from all Licensed Computers at all Licensed Sites and from all storage devices or media, and shall certify to Licensor in writing that it has done so. The foregoing shall not apply with respect to the copies of the Licensed Materials previously licensed by Licensee under the Existing Licenses, which copies shall be subject to the provisions of said Existing Licenses in the event of such termination of this License Agreement. GENERAL Assignment. This License Agreement may not be assigned by either party except upon reasonable written notice to and consent of the other party, which consent will not be unreasonably withheld; provided, however, Licensee may assign its rights and obligations under this License Agreement to any present or future parent corporation or sister corporations upon written notice to Licensor. In the event of any merger or sale of substantially all of the business assets of Licensor, Licensor shall notify Licensee in writing of such event promptly following same, and Licensee shall thereupon have the right, at its option, to terminate all or a portion of this Agreement, and if Licensee so terminates, Licensee shall have the right to receive a pro rata refund of any Support and Maintenance Service fees only. Severability. If any provision of this License Agreement shall be found to be unenforceable then, notwithstanding that term, all other terms shall remain in full force and effect. Governing Law, Venue, Jurisdiction. This License Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. Attorneys' Fees. The prevailing party in any dispute arising out of, related or connected to this License Agreement shall be entitled to reasonable attorney's and expert fees and costs. Taxes. (a) In addition to any other payments due hereunder, Licensee shall be responsible for all sales and other taxes, state or federal (other than any income taxes owed by Licensor or any taxes imposed upon Licensor for the privilege of doing business or exercising a franchise), that become due because of the transaction contemplated by this License Agreement. This is hidden text! Do not erase! (b) Licensor shall invoice Licensee for the sales or use Taxes it is responsible for collecting and paying under this Agreement by separately stating the amount and percent of such Taxes in each invoice for fees presented to Licensee for payment (or the final invoice, if agreed to by Licensor and Licensee). Licensee shall pay such Taxes to Licensor within thirty (30) days following Licensee's receipt of Licensor's invoice therefor, unless (i) the validity or application of the Taxes is contested by Licensee in good faith, or (ii) Licensee is permitted to make a direct payment of the Taxes to the taxing authority, and Licensee notifies Licensor of its intention to do so. (c) Licensor shall, upon Licensee's written request and at Licensee's expense, assist Licensee in contesting the validity or application of any Taxes. Licensor agrees that if it receives a refund of all or part of any Taxes (including interest and penalties) previously paid by Licensee, it shall promptly remit the refund to Licensee. Survivability. The provisions of subsections 1.2, 1.4, and 6.2 and Sections 3 (except subsection 3.3) and 4 shall remain in full force and effect following the effective date of termination of this License Agreement. Entire Agreement. This License Agreement, together with the MNDA, constitute the entire agreement among the parties relating to the subject matter hereof and may only be modified by a writing signed by both parties. No terms or conditions of any purchase order or other order document shall amend, modify, change, or add to this License Agreement unless such term or condition is expressly made part of this License Agreement by written amendment. Escrow Agreement. Contemporaneously with the execution of this License Agreement, Licensee and Licensor shall enter into a Source Code Escrow Agreement (the "Escrow Agreement") in substantially the form attached hereto as Exhibit F, pursuant to which Licensor shall deposit with the escrow agent named therein the source code for the Licensed Materials. Said source code to be delivered by Licensor shall consist of all of the source code of or relating to the Licensed Materials, including, without limitation, all architectural components and elements of the source code necessary to provide Licensee with a complete technical executable compilation thereof. Licensee shall have the right, at any time, to direct the escrow agent or an independent third party under nondisclosure obligations to audit the source code so deposited with the escrow agent to verify Licensor's compliance with this Section and to produce a file directory listing for each of the deposit materials. Licensor shall, at its sole expense, remedy within fifteen (15) days any verification issues identified by such audit. In the event Licensor fails to deliver the source code for the Licensed Materials and all future releases thereof to the escrow agent named in the Escrow Agreement by the delivery dates required in this License Agreement or in said Escrow Agreement, Licensee shall be entitled to specific performance of Licensor's obligation to so deliver the source code to the escrow agent. In the event Licensee seeks to enforce such specific performance and prevails, Licensor shall be responsible for all costs and expenses, including attorney's fees, incurred by Licensee in connection therewith. Notices. All notices hereunder shall be in writing and shall be deemed to have been given and received when delivered in person or upon receipt (or refusal) when mailed by United States registered or certified mail, return receipt requested, postage prepaid, or by Federal Express service, as follows: If to Licensee: Federal Express Corporation 3865 Airways Blvd., Module F-2 Memphis, TN 38116-8521 Attention: Michael Spano If to Licensor: Qualix Group, Inc. 1900 South Norfolk St., Suite 224 San Mateo, CA 94403-1151 Attention: Dave Fisher Compliance with Laws. Licensor agrees that it will comply with all applicable federal, state, and local laws, regulations, and codes in the performance of this License Agreement. To the extent applicable to Licensor, it agrees to comply with the affirmative action requirements applicable to contracts with government contractors, as set forth in Title 41 of the Code of Federal Regulations and incorporated into this License Agreement by reference. Independent Contractor Relationship. The parties intend that an independent contractor relationship will be created under this License Agreement. Nothing contained herein shall be construed as creating a joint venture, partnership or employment relationship between the parties, nor shall either party have the right, power or authority to create any obligation or duty, express or implied, on behalf of the other party. Additionally, Licensor shall be solely responsible for any liability resulting from the acts, omissions or negligence of Licensor or its agents, employees or subcontractors arising out of or occurring in the course of any services hereunder. Insurance. Licensor will, at its own expense, during the term of this License Agreement, maintain adequate coverage to insure its liabilities under this License Agreement, including but not limited to, comprehensive general liability, errors and omissions, and fire and theft with extended coverage. "Licensor": "Licensee": QUALIX GROUP, INC. FEDERAL EXPRESS CORPORATION By: By: Name/Title: Name/Title: E-10 EXHIBIT A SPECIFICATION OF LICENSED MATERIALS Licensor licenses to Licensee, under the terms and conditions set forth in the Non-exclusive Enterprise License Agreement, the following materials: QUALIX HA+ server software and related modules for the SUN Solaris, HP-UX, and IBM AIX platforms; and all related documents and manuals. EXHIBIT B Qualix Group, Inc. Support and Maintenance Services 1.0 DEFINITIONS "Operating System" means currently supported operating system by Qualix. "Product" means the binary executables and documentation for the Licensed Materials. "Documentation" means any Qualix product literature (provided in electronic and printed form), and descriptions relating to the Product (and any derivative versions of documentation created by Customer). "Release" means the addition by Qualix of a previously unincluded function or feature to the Product (designed sequentially by Qualix as "Release 1.0", "Release 2.0", etc.). "Version" means the addition by Qualix of a function or feature of the Product, or any change made by Qualix to the Product which upgrades its performance, including all Patches and Bug Fixes made to the Product since the last previous Version (designated sequentially by Qualix as "Version 1.1", "Version 1.2", etc.). "Patches and Bug Fixes" means any minor change made by Qualix to the Product, including changes made for purposes of maintaining Operating System and data base system compatibility, error correction, workarounds and patches (designated sequentially by Qualix as "Version 1.1.1", "Version 1.1.2", etc.). "Reproducible" means a repeatable test case which isolates a particular behavior on the Operating System. 2.0 CUSTOMER SUPPORT SERVICES Customer Support Service. Support for the Product and terms specified in this product will consist of technical assistance provided by Qualix support engineers to Customer for Customer's support of Product, for the term of the License Agreement. Qualix agrees to provide such support to Customer's sites for the terms stated above. For the severity of Product defect(s) described in Section 2.2 below, such support will consist of the services described in Section 2.3 below. Severity Level Designation. Problems, defects and malfunctions in a Qualix Product will be categorized as follows: B-1 (d) Severity Level 1. Severity Level 1 represents a mutually reproducible emergency condition which makes the use or continued use of any one or more functions impossible. The condition requires an immediate solution that is not already available. Response time: 2 hours from Customer's initial call. (e) Severity Level 2. Severity Level 2 represents a mutually reproducible condition. The software may be causing system failures or destroying data and the customer is unable to perform work-around and cannot proceed with the intended use of the software. Response time: 2 hours from Customer's initial call. (f) Severity Level 3. Severity Level 3 represents a mutually reproducible limited problem condition that is not critical in that no loss of data occurs and which may be circumvented or avoided on a temporary basis by the Customer. Response time: 5 to 10 hours from Customer's initial call. (g) Severity Level 4. Severity Level 4 represents minor problem conditions or documentation errors which are easily avoided or circumvented by the Customer. Additional requests for new feature suggestions, which are defined as new functionality in existing Product are also classified as Severity Level 4. Response time: 24 hours from Customer's initial call. Customer Support Services. Qualix shall provide the following Customer Support and Maintenance Services from a central site selected by Qualix: (h) Telephone, E-Mail and Fax Support. Qualix will maintain and make available to Customer telephone, UNIX electronic mail and fax support. Qualix's telephone support service center will be staffed by properly trained Qualix personnel during Qualix's support hours, which are between 7:00 a.m. and 6:00 p.m. Pacific Standard Time, Monday through Friday (excluding holidays listed below). Qualix will use commercially reasonable efforts to arrange for a qualified Qualix support engineer or support manager to return calls to Customer within two (2) Qualix's support hours of Customer's first call to Qualix. (i) Support Remedies. From time of receipt during Qualix's support hours of a documented report from Customer of a Product error, defect or malfunction that is reproducible by Qualix, Qualix will respond to Customer by telephone, electronic mail or fax as appropriate within the required responses times set forth in Section 2.2 above, depending on the severity of the problem. High severity problems will be given priority over fixes for low severity problems. Upon receipt of a report from Customer of a Severity Level 1 or 2 problem or condition, Qualix shall immediately and diligently commence resolution of the problem. (j) Versions. So long as Customer is in compliance with its obligations hereunder, Customer will be provided with Versions, Patches and Bug Fixes for the service term of this Agreement. (k) Premium Customer Support Services. This service includes the Services provided in subsections 2.3(a), (b) and (c) above. In addition, Severity Level 1 and 2 calls as defined in Section 2.2 are accessed at any hour of the day, seven days a week outside the hours identified above via an automated paging system and shall be responded to by Qualix within the required response times set forth in said Section 2.2. Annual Support Fees. For Customer Support and Maintenance Services provided by Qualix to Customer described in this Exhibit B, including without limitation, in Section 2.3 above, Customer will pay to Qualix, in full, the then-applicable annual support fees as described in Sections 2.2 and 5 of the License Agreement. Qualix will provide to Customer written notice of renewal forty-five (45) days prior to renewal. Support and Maintenance Services not renewed within 30 days after the expiration date of the then-current annual period will be subject to a reinstatement charge, consisting of the then-current renewal year's support fee and the prorated fee for the lapsed period calculated at 50% of the uncollected support fees for the lapsed period. If Customer is at any time not on support and requires new Versions, the following update costs will apply: 50% of product list price if new Version is requested in less than 6 months after the expiration of the then most recent annual Support and Maintenance Services period; 75% of product list price if new Version is requested in more than 6 months, but less than 12 months after the expiration of the then most recent annual Support and Maintenance Services period; 100% of product list price if new Version is requested in more than 12 months after the expiration of the then most recent annual Support and Maintenance Services period. 3.0 OTHER TERMS OF SERVICE SUPPORT Customer's Obligations. Customers will use reasonable efforts to fully document and isolate reported problems in the Product, and to eliminate other causes of the problem (such as application software errors, equipment incompatibility or Customer End-User modifications). Final Patch Fixes. Upon correcting an error, Qualix will internally conduct tests on the corrected Product. Binary forms of the Product, including the final fix for the reported error, will be delivered by Qualix to Customer when complete. For purposes of this Section, a "final fix" will consist of the final form of the fix for a reported error in a new patch or Version of the Product, including Documentation. Qualix shall use commercially reasonable efforts to provide final fixes to reported errors within the following time periods based upon the applicable level of severity of the problem: Severity Level 1 - 14 days; Severity Level 2 - 21 days; Severity Level 3 - with the next commercially available Release or Version; Severity Level 4 - with respect to minor problems or documentation errors, with the next Release or Version as commercially practicable. Prior Release Support. Qualix will provide hotline phone support and Patches and Bug Fixes for the prior Version of the Product for twelve (12) months after a new Version of the Product becomes available on Qualix's Operating System platform. B-3 Exhibit C EXCEPTIONS TO FEDEX TRAVEL POLICY (PROFIT SEC.5) FOR CONSULTANTS/CONTRACTORS FEDEX PROJECT MANAGEMENT (DIRECTOR LEVEL OR 1) May designate an em- ABOVE) ployee within the organ- ization as the Consultant Travel Coordinator(CTC)who will act as liaison be- tween consultant and corp- orate travel services. The CTC will have authority to approve travel requests of consultants. 2) If desired, may provide traveler profiles for consultant's employees in order to enroll consultant's employees in the "pre-approved" travel file. 3) If possible, provide Corporate Travel Services with a list of consultants expected to travel. CORPORATE TRAVEL SERVICES 1) Once approved, establishes consultant's travel pro- files in pre-approved travel file. 2) Provides a regular report to FedEx Project Management of consultant's travel activity. 3) Processes travel requests and distributes necessary documents (tickets, itineraries, etc.). CONSULTANT 1) If requested, completes FedEx traveler profile (either printed form or EMAIL). 2) If approved by FedEx Project Management (or CTC), requests airline and lodging by either completing a Domestic Business Travel Request form or through EMAIL Bulletin Board CORPTRAV-FORMS. The consultant company name must be noted in the employee number field. Travel requests must indicate preferred delivery: overnight letter toconsul- tant overnight letter to CTC pickup at Corporate Travel 2655 Dividend Dr. Ste. 117 Memphis, TN 38132 INFORMATION AND TIPS If traveling outside of Memphis, refer to Email Bulletin Board CORPTRAV-DOM-HOTELS for preferred lodging. Consultant's travel must comply with FedEx travel Policy (PROFIT Section 5). As a result, requests may be changed to comply. Documents should be reviewed upon receipt. Important resources Domestic Business Travel Request Form CORPTRAV-FORMS FedEx Preferred Domestic Hotels CORPTRAV-DOM-HOTELS Corporate Travel Information 901-395-7000 Corporate Travel Fax 901-395-7003 Generally, the Business Travel and Entertainment policies of FedEx as issued in the FedEx Finance Policies and Procedures (US) manual will govern consultant/contractor travel. Below are variations from standard policies in order to accommodate the special requirements of consultant/contractor travel. AIR TRAVEL FIRST CLASS TRAVEL - Determined by Corporate Travel Services based on parity between consultant's position and like positions within FedEx. GROUND TRANSPORTATION -- Due to insurance considerations, all rental cars must be contracted for by the Consultant directly with the rental agency. HOTEL/LODGING HOTELS - all lodging must be obtained through Corporate Travel Services in order to secure FedEx negotiated rates. APARTMENTS - On long-term assignments. apartments can be obtained in accordance with the following: Seniors and staff employees must share a two-bedroom apartment. Associate partners and managers may obtain a one-bedroom apartment. Maximum reimbursable amount (which includes furnishings, utilities, telephone service, cable service, cleaning and maintenance). Memphis one bedroom - $1,300 monthly, two bedroom - $1,600 monthly Orlando one bedroom - $1,400 monthly, two bedroom - $1,650 monthly Other Cities - determined by Corporate Travel Services on a case by case basis MEALS/INCIDENTALS PER DIEM -- In lieu of specific reimbursement for meals and incidentals, the following daily per diem is provided: Apartment domiciled - $21 per day Hotel domiciled - $26 per day (also for travel days to/from locations other than assigned location) The per diem allowance will be prorated for days of travel to/from assigned out-of-town location based on amount of time spent away from the individual's domicile. This proration is determined in 4 six hour increments. TEMPORARY ADVANCES - Will not be provided to consultants. CHARGE CARDS - Will not be provided to consultants. EXHIBIT D Millennium Compliance (l) For the purposes of this Agreement "Millennium Compliant" means: (m) the functions, calculations and other computing processes of each of the Licensed Materials (collectively, the "Processes") perform in a consistent manner regardless of the date in time on which the Processes are actually performed and regardless of the date input to the Licensed Materials, whether before, on or after January 1, 2000 and whether or not the dates are affected by leap years (collectively, the "Millennial Dates"); (n) the Licensed Materials accept, calculate, compute, compare, sort, extract, sequence, and otherwise process date inputs and date values (whether forward or backward), and return, generate, process and display date output and date values, accurately and in a consistent manner (without errors or omissions), regardless of the Millennial Dates used; (o) the Licensed Materials will function without interruptions, errors or omissions caused by the date in time on which the Processes are actually performed or by the Millennial Dates input to the Licensed Materials; (p) the Licensed Materials accept and respond to two-digit year-date input in a manner that resolves any ambiguities as to the century in a defined, predetermined, and appropriate manner; and (q) the Licensed Materials store, process and display date information (including, without limitation, in user interfaces and data fields) in ways that are unambiguous as to the determination of the century in a defined, predetermined and appropriate manner. (r) Licensor represents and warrants that the Licensed Materials have been tested by Licensor to determine that such Licensed Materials are Millennium Compliant. Upon Licensee's written request, Licensor shall deliver to Licensee documentation on the method of date manipulation, format of date elements, changes affecting previous coding practices, examples of current coding practices, test plans and the results of such tests with respect to the Licensed Materials, as well as any other related information reasonably requested by Licensee. Upon Licensee's reasonable written request, Licensor agrees to participate in additional tests of the Licensed Materials, at no charge to Licensee, to determine Millennium Compliance. Licensor shall notify Licensee immediately of the results of any tests or any claim or other information that indicates that any of the Licensed Materials are not Millennium Compliant. (s) In the event that any of the Licensed Materials are not in conformity to the warranties set forth in subsection (a) above, Licensor shall, within thirty (30) days after notification or discovery thereof and at no expense to Licensee, either (i) remedy such non-conformity or replace such non-conforming Licensed Materials with equivalent conforming Licensed Materials; or (ii) if such remedy is impossible or commercially impracticable, refund to Licensee on a depreciated basis all fees paid by Licensee for the non-conforming Licensed Materials, plus the unused portion of any maintenance fees paid by Licensee for such non-conforming Licensed Materials. EXHIBIT E On-Site Engineer Services The Qualix engineer shall be initially assigned to Licensee's facility in Orlando, FL, and shall perform the following services: installation, configuration and support of the Licensed Materials within Licensee's environment and such other services as may be reasonably requested by Licensee from time to time in connection with the Licensed Materials. Notwithstanding anything to the contrary contained in the License Agreement, in the event the Qualix on-site engineer's performance of services hereunder does not meet Licensee's requirements as determined by Licensee in its reasonable discretion, Licensee shall, in addition to any other remedies available to it, be entitled to terminate the On-Site Engineer Services and receive a refund of the On-Site Engineer Services fees paid by Licensee, such refund to be pro rated over a one-year basis from the date of termination. Exhibit F STANDARD ESCROW AGREEMENT BETWEEN PRODUCER, FORT KNOX AND FEDERAL EXPRESS This escrow agreement is intended for use by a Producer (Licensor), Federal Express (End User) and Fort Knox Escrow Services, Inc. Any number of escrow products may be stored in escrow for the Federal Express under the terms of this agreement. All parties sign the contract. Software Escrow Agreement This Escrow Agreement ("Agreement") is made as of this ____ day of _________, 1996, by and between Qualix Group, Inc. ("Producer"), Fort Knox Escrow Services, Inc. ("Fort Knox") and Federal Express Corporation ("Federal Express"). Preliminary Statement. Producer shall deliver to Fort Knox a sealed package containing magnetic tapes, disks, disk packs, or other forms of media, in machine readable form, and the written documentation prepared in connection therewith, and any subsequent updates or changes thereto (the "Deposit Materials") for the computer software products (the "System(s)"), all as identified from time to time on Exhibit B hereto. Producer desires Fort Knox to hold the Deposit Materials, and, only upon certain events, deliver the Deposit Materials (or a copy thereof) to Federal Express, in accordance with the terms hereof. Now, therefore, in consideration of the foregoing, of the mutual promises hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: Delivery by Producer and Acceptance of Deposit. (t) Producer shall be solely responsible for delivering to Fort Knox the Deposit Materials within thirty (30) days of execution of this Agreement. Such Deposit Materials shall be identified on Exhibit B of this Agreement, and Producer shall submit the Deposit Materials in accordance with the requirements of Exhibit D. Exhibit B is to be prepared and signed by Producer and Federal Express. Fort Knox shall hold the Deposit Materials in accordance with the terms hereof. When Fort Knox receives the Deposit Materials and the Exhibit B, Fort Knox will conduct a deposit inspection by visually matching the labeling of the tangible media containing the Deposit Materials to the item descriptions and quantity listed on the Exhibit B. In addition to the deposit inspection, Federal Express may elect to cause a verification of the Deposit Materials in accordance with Paragraph 10 below. Fort Knox shall have no further obligation to verify the completeness or accuracy of the Deposit Materials. (u) At completion of the deposit inspection, if Fort Knox determines that the labeling of the tangible media matches the item descriptions and quantity on Exhibit B, Fort Knox will sign the Exhibit B and mail a copy thereof to Producer and Federal Express. If Fort Knox determines the labeling does not match the item descriptions or quantity on the Exhibit B, Fort Knox will (i) note the discrepancies in writing on the Exhibit B; (ii) sign the Exhibit B with the exceptions noted; and (iii) provide a copy of the Exhibit B to Producer and Federal Express. Fort Knox's acceptance of the deposit occurs upon the signing of the Exhibit B by Fort Knox. Delivery of the signed Exhibit B to Federal Express is Federal Express's notice that the Deposit Materials have been received and accepted by Fort Knox. Duplication; Updates. (v) Fort Knox may duplicate the Deposit Materials by any means but only for purposes of complying with the terms and provisions of this Agreement, provided that Federal Express shall bear the expense of duplication. Alternatively, Fort Knox, by notice to Producer, may require Producer to reasonably promptly duplicate the Deposit Materials. (w) Producer shall deposit with Fort Knox any modifications, updates, new releases or documentation related to the Deposit Materials and required by any agreement between Producer and Federal Express by delivering to Fort Knox an updated version of the Deposit Materials ("Additional Deposit"), together with an updated Exhibit B identifying the Additional Deposit, no later than sixty (60) days after the modifications, updates, new releases and documentation are available for commercial distribution by Producer. Upon receipt of the Additional Deposit, Fort Knox will repeat the deposit inspection procedures outlined in Paragraph 1 above. Fort Knox shall have no further obligation to verify the accuracy or completeness of any Additional Deposit or to verify that any Additional Deposit is in fact a copy of the Deposit Materials or any modification, update, or new release thereof. Notification of Deposits. Simultaneous with the delivery to Fort Knox of the Deposit Materials or any Additional Deposit, as the case may be, Producer shall deliver to Fort Knox and to Federal Express a written statement specifically identifying all items deposited and stating that the Deposit Materials or any Additional Deposit, as the case may be, so deposited have been inspected by Producer and are complete and accurate. The Deposit Materials and any Additional Deposit are hereinafter collectively referred to as the "Deposit Materials." Delivery by Fort Knox. Delivery by Fort Knox to Federal Express. Fort Knox shall deliver the Deposit Materials, or a copy thereof, to Federal Express only upon the occurrence of one or more of the following release conditions ("Release Conditions"): (x) Producer notifies Fort Knox to effect such delivery to Federal Express at a specific address, the notification being accompanied by a check payable to Fort Knox in the amount of one hundred dollars ($100.00); or (y) Fort Knox receives from Federal Express: (z) written notification that (A) it has been construed that Producer has failed in a material respect (as evidenced by multiple instances of failure) to provide the level of support which meets the essential purpose or intent of the support requirements set forth in the applicable license and/or maintenance agreement ("License Agreement") between Federal Express and Producer, after the exhaustion of reasonable cure periods; (B) the obligation of Producer to support the applicable Systems in accordance with the License Agreement has been transferred or assigned in violation of the assignment provisions set forth in the License Agreement; (C) Producer has become insolvent, has made an assignment for the benefit of creditors, has ceased to do business in the ordinary course or any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or other proceedings under any bankruptcy or other law for the relief of debtors is instituted by or against Producer, or Producer no longer offers support and/or maintenance for the applicable Systems as required by the License Agreement (each a "Producer Default"); (aa) a copy of the written notice pursuant to which Federal Express has previously notified Producer of such Producer Default; (bb) a written demand that the Deposit Materials be released and delivered to Federal Express; (cc) specific instructions from Federal Express for this deliv- ery; and (dd) a check payable to Fort Knox in the amount of one hundred dollars ($100.00). (ee) If the provisions of paragraph 4.1(a) are satisfied, Fort Knox shall, within five (5) business days after receipt of the notification and check specified in paragraph 4.1(a), deliver the Deposit Materials in accordance with the applicable instructions. (ff) If the provisions of paragraph 4.1(b) are met, Fort Knox shall, within five (5) business days after receipt of all the documents specified in paragraph 4.1(b), send by certified mail, return receipt requested, or by Federal Express service, to Producer a photostatic copy of all such documents. Producer shall have ten (10) days from the date on which Producer receives such documents ("Objection Period") to notify Fort Knox by certified mail, return receipt requested, or by Federal Express Service that a Release Condition has not occurred or has been cured (the "Objection Notice") and to provide written proof that a Release Condition has not occurred or has been cured. Producer shall also request in such Objection Notice that the issue of Federal Express's entitlement to a copy of the Deposit Materials be submitted to arbitration in accordance with the following provisions (upon receipt of an Objection Notice, Fort Knox shall forward a copy of such notice to Federal Express by certified mail, return receipt requested, or by Federal Express service): (gg) If Producer shall send an Objection Notice to Fort Knox during the Objection Period, the matter shall be submitted to, and settled by arbitration by, a panel of three (3) arbitrators chosen by the Atlanta Regional Office of the American Arbitration Association in accordance with the rules of the American Arbitration Association. The arbitrators shall apply Tennessee law. At least one (1) arbitrator shall be reasonably familiar with the computer software industry. The decision of the arbitrators shall be binding and conclusive on all parties involved, and judgment upon their decision may be entered in a court of competent jurisdiction. All costs of the arbitration incurred by Fort Knox, including reasonable attorneys' fees and costs, shall be paid by the party which does not prevail in the arbitration; provided, however, if the arbitration is settled prior to a decision by the arbitrators, the Producer and Federal Express shall pay all such costs. (hh) Producer may, at any time prior to the commencement of arbitration proceedings, notify Fort Knox that Producer has withdrawn the Objection Notice. Upon receipt of any such notice from Producer, Fort Knox shall reasonably promptly deliver (no later than five (5) business days) the Deposit Materials to Federal Express in accordance with the instructions specified in paragraph 4.1 (b)(iv). (ii) If, at the end of the Objection Period, Fort Knox has not received an Objection Notice from Producer, then Fort Knox shall reasonably promptly deliver the Deposit Materials to Federal Express in accordance with the instructions specified in paragraph 4.1(b)(iv). (jj) Upon release of the Deposit Materials to Federal Express in accordance with this Paragraph 4, Federal Express shall have a non-exclusive, non-transferable, irrevocable perpetual right to use the Deposit Materials for the sole purpose of internally maintaining the Systems for the continued authorized use thereof as set forth in the License Agreement. Federal Express shall be obligated to maintain the confidentiality of the released Deposit Materials in accordance with the confidentiality requirement of the License Agreement. Delivery by Fort Knox to Producer. Fort Knox shall release and deliver the Deposit Materials to Producer upon termination of this Agreement in accordance with paragraph 7(a) hereof. Indemnity. Except as contained in Paragraph 12 (a) of this Agreement, Producer and Federal Express shall, jointly and severally, indemnify and hold harmless Fort Knox and each of its directors, officers, agents, employees and stockholders ("Fort Knox Indemnities") absolutely and forever, from and against any and all claims, actions, damages, suits, liabilities, obligations, costs, fees, charges, and any other expenses whatsoever, including reasonable attorneys' fees and costs, that may be asserted against any Fort Knox Indemnitee in connection with this Agreement or the performance of Fort Knox or any Fort Knox Indemnitee hereunder; provided, however, this indemnity shall not apply to any liability caused by the negligence or willful misconduct of any Fort Knox Indemnitee. Disputes and Interpleader. (kk) Except as provided in Section 4(d)(i), in the event of any dispute between Producer and/or Federal Express relating to delivery of the Deposit Materials by Fort Knox or to any other matter arising out of this Agreement, Fort Knox may submit the matter to any court of competent jurisdiction in an interpleader or similar action. Any and all costs incurred by Fort Knox in connection therewith, including reasonable attorneys' fees and costs, shall be borne by Producer or Federal Express, whichever is the non-prevailing party. (ll) Fort Knox shall perform any acts ordered by any court of competent jurisdiction, without any liability or obligation to any party hereunder by reason of such act. Term and Renewal. (mm) The initial term of this Agreement shall be one (1) year, commencing on the date hereof (the "Initial Term"). This Agreement shall be automatically extended for an additional term of one year ("Additional Term") at the end of the Initial Term and at the end of each Additional Term hereunder unless, on or before the end of the Initial Term or an Additional Term, as the case may be, (i) Federal Express and Producer both notify Fort Knox that they wish to terminate the Agreement at the end of such term or (ii) Federal Express does not renew annual support/maintenance within one (1) year following the expiration of the then most recent annual support/maintenance period, and Federal Express or Producer notifies Fort Knox thereof. (nn) In the event of termination of this Agreement by the joint instruction of Federal Express and Producer in accordance with paragraph 7(a) hereof, Federal Express or Producer shall pay all fees due Fort Knox up to the date of termination and Fort Knox shall return to Producer all copies of the Deposit Materials then in its possession. (oo) At no time shall Fort Knox return the Deposit Materials to Producer except as expressly provided in this Agreement. Fees. Federal Express shall pay to Fort Knox the applicable fees in accordance with Exhibit A as compensation for Fort Knox's services under this Agreement. The initialization fee is due upon receipt of the signed contract and the annual maintenance fee is due upon receipt of the Deposit Materials, and shall be paid in U.S. Dollars. (pp) Payment. Fort Knox shall issue an invoice to Federal Express following execution of this Agreement ("Initial Invoice"), on the commencement of any Additional Term hereunder, and in connection with the performance of any additional services hereunder. Payment is due within ten (10) days of receipt of invoice. All fees and charges are exclusive of, and Federal Express or Producer is responsible for the payment of, all sales, use and like taxes. Fort Knox shall have no obligations under this Agreement until the Initial Invoice has been paid in full by Federal Express. (qq) Nonpayment. In the event of non-payment of any fees or charges invoiced by Fort Knox, Fort Knox shall give notice of non-payment of any fee due and payable hereunder to Federal Express and, in such an event, the Federal Express shall have the right to pay the unpaid fee within ten (10) days after receipt of notice from Fort Knox. If Federal Express fails to pay in full all fees due during such ten (10) day period, Fort Knox shall give notice of non-payment of any fee due and payable hereunder to Producer and, in such event, Producer shall have the right to pay the unpaid fee within ten (10) days of receipt of such notice from Fort Knox. Upon payment of the unpaid fee by either the Producer or Federal Express, as the case may be, this Agreement shall continue in full force and effect until the end of the applicable term. Failure to pay the unpaid fee under this paragraph 8(b) by both Producer and Federal Express shall result in termination of this Agreement and the return of the Deposit Materials to Producer. Ownership of Deposit Materials. The parties recognize and acknowledge that ownership of the Deposit Materials shall remain with Producer at all times. Available Verification Services. Fort Knox will produce a file directory listing for each piece of magnetic media up to three disks, tapes or CDs and provide a copy to both the Producer and Federal Express within fifteen (15) business days of receiving the Deposit Material. Fort Knox will provide these listings without charge as long as the source code media is not created using back-up software and the media is: a 4mm tape (DDSI) or 8mm tape (DDSI) in AIX/Tar format, a 3.5" or 5.25" disk in MS-Dos format, a 3480 cartridge or 3490 cartridge in ASCII or EBCDIC languages, or a CD or 9 track round tape in ASCII or EBCDIC languages. For any pieces of media above three, Federal Express may request from Fort Knox a file directory for the fees set forth below: In-house Level 1 Technical Verification (See Exhibit C): $50.00/hour up to a maximum of $500.00 Verification, as described herein only, may also be conducted at the request of Federal Express by an independent auditing company such as KPMG Peat Marwick's Software Quality Center. Fort Knox shall obtain a price quotation from the independent auditing company, and, at the written direction of Federal Express, engage the company for its services. The independent auditing company will invoice Federal Express for the documented cost of all such services, provided such cost is not greater than the quotation received and approved in writing in advance by Federal Express. Producer shall reasonably cooperate with Fort Knox by providing its facilities, computer systems, and technical and support personnel for technical verification whenever reasonably necessary. If requested by Federal Express, Producer shall permit one employee of Federal Express to be present at Producer's facility during any such verification of the Deposit Materials. Bankruptcy. Producer and Federal Express acknowledge that this Agreement is an "agreement supplementary to" the License Agreement as provided in Section 365 (n) of Title 11, United States Code (the "Bankruptcy Code"). Producer acknowledges that if Producer as a debtor in possession or a trustee in Bankruptcy in a case under the Bankruptcy Code rejects the License Agreement or this Agreement, Federal Express may elect to retain its rights under the License Agreement and this Agreement as provided in Section 365 (n) of the Bankruptcy Code. Upon written request of Federal Express to Producer or the Bankruptcy Trustee, Producer or such Bankruptcy Trustee shall not interfere with the rights of Federal Express as provided in the License Agreement and this Agreement, including the right to obtain the Deposit Material from Fort Knox. Miscellaneous. (rr) Remedies. Except for actual fraud, negligence or intentional misconduct, Fort Knox shall not be liable to Producer or to Federal Express for any act, or failure to act, by Fort Knox in connection with this Agreement. Fort Knox will not be liable for special, indirect, incidental or consequential damages hereunder. (ss) Natural Degeneration; Updated Version. In addition, the parties acknowledge that as a result of the passage of time alone, the Deposit Materials are susceptible to loss of quality ("Natural Degeneration"). It is further acknowledged that Fort Knox shall have no liability or responsibility to any person or entity for any Natural Degeneration. For the purpose of reducing the risk of Natural Degeneration, Producer shall deliver to Fort Knox a new copy of the Deposit Materials at least once every three years. (tt) Permitted Reliance and Abstention. Fort Knox may rely and shall be fully protected in acting or refraining from acting upon any notice or other document believed by Fort Knox in good faith to be genuine and to have been signed or presented by the proper person or entity. Fort Knox shall have no duties or responsibilities except those expressly set forth herein. (uu) Independent Contractor. Fort Knox is an independent contractor, and is not an employee or agent of either the Producer or Federal Express. (vv) Amendments. This Agreement shall not be modified or amended except by another agreement in writing executed by the parties hereto. (ww) Entire Agreement. This Agreement, including all exhibits hereto, supersedes all prior discussions, understandings and agreements between the parties with respect to the matters contained herein, and constitutes the entire agreement between the parties with respect to the matters contemplated herein. All exhibits attached hereto are by this reference made a part of this Agreement and are incorporated herein. (xx) Counterparts; Governing Law. This Agreement may be executed in counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Agreement. This Agreement shall be construed and enforced in accordance with the laws of the State of Tennessee. (yy) Confidentiality. Fort Knox will hold and release the Deposit Materials only in accordance with the terms and conditions hereof, and will maintain the confidentiality of the Deposit Materials. (zz) Notices. All notices, requests, demands or other communications required or permitted to be given or made under this Agreement shall be in writing and shall be delivered by hand or by Federal Express overnight delivery service which provides for evidence of receipt, or mailed by certified mail, return receipt requested, postage prepaid. (aaa) If to Producer: to the address listed on the signature page hereof (bbb) If to Federal Express: to the address listed on the signature page hereof (ccc) If to Fort Knox: Fort Knox Escrow Services, Inc. 3539 A Church Street Clarkston, GA 30021-1717 Attn: Contract Administrator Copy: Richard Sheffield, Sales Manager If delivered personally or by Federal Express overnight delivery service, the date on which the notice, request, instruction or document is delivered shall be the date on which delivery is deemed to be made, and if delivered by mail, the date on which such notice, request, instruction or document is received shall be the date on which delivery is deemed to be made. Any party may change its address for the purpose of this Agreement by notice in writing to the other parties as provided herein. (ddd) Survival. Paragraphs 4.1(f), 5, 6, 8, 9 and 11 shall survive any termination of this Agreement. (eee) No Waiver. No failure on the part of any party hereto to exercise, and no delay in exercising any right, power or single or partial exercise of any right, power or remedy by any party will preclude any other or further exercise thereof or the exercise of any other right, power or remedy. No express waiver or assent by any party hereto to any breach of or default in any term or condition of this Agreement shall constitute a waiver of or an assent to any succeeding breach of or default in the same or any other term or condition hereof. (fff) Assignment. This Agreement shall inure to the benefit of and be binding upon each of the parties and their respective successors and assigns, but neither the rights nor the duties of any party under this Agreement may be assigned, transferred or delegated, without the prior written consent of the other parties. IN WITNESS WHEREOF each of the parties has caused its duly authorized officer to execute this Agreement as of the date and year first above written. Fort Knox Escrow Services, Inc. 3539A Church Street Phone: 1-800-875-5669 Clarkston, Georgia 30021-1717 Fax: 1-404-298-2010 Attn: Contracts Administrator Copy: Richard Sheffield, Sales Manager By: Title: Print Name: Producer: Qualix Group, Inc. By: Title: Print Name: Address: Phone: Fax: Federal Express Corporation By: Title: Print Name: Address: Phone: Fax: EXHIBIT A FEE SCHEDULE Fees to be paid by Federal Express or Producer shall be as follows: Initialization fee (one time only) $ 475 Surcharges: for significant modifications to this Agreement $ 200 Annual maintenance/storage fee includes two Deposit Material updates $ 800/product includes two cubic feet of storage space (foreign $900) International (Producer outside of U.S) -- $ 900/product Additional Updates (above two per year) $ 100 Additional Storage Space $ 150/cubic foot Payable by Federal Express or Producer: Due Upon Federal Express' or Producer's Request for Release of Deposit Materials$100 for initial 2 hrs $50/hour for additional hours initialization fee is due upon receipt of signed contract and the annual maintenance fee is due upon receipt of Deposit Material, and shall be paid in U.S. Dollars. After the Initial Term, fees shall be subject to their current pricing, provided that such prices shall not increase by more than 3% per year. EXHIBIT B B1. Product Name: Version #: Prepared and Confirmed by: Title: Date: Signature: Type of deposit: ____ Initial Deposit ____ Update Deposit to replace current deposits ____ Other (please describe) Items Deposited: Quantity Media Type Description of Material A) _____ B) _____ C) _____ B2. Product Name: Version #: Prepared and Confirmed by: Title: Date: Signature: Type of deposit: ____ Initial Deposit ____ Update Deposit to replace current deposits ____ Other (please describe) Items Deposited: Quantity Media Type Description of Material A) _____ B) _____ C) _____ For Producer, I certify that the above described Deposit For Fort Knox, I certify that the deposit inspection Materials have been transmitted to Fort Knox: has been completed (any exceptions are noted above): By: By: Title: Title: Date: Date: Acknowledged: Federal Express Corporation By: Title: Date: EXHIBIT C IN-HOUSE LEVEL 1 TECHNICAL VERIFICATION A. Comparative Inventory Report A physical inventory of the escrow deposit is conducted. The contents are compared to both our list of potential deposit materials and the technology partner's deposit description. B. File Directory After the necessary updates are made and the deposit is complete, a directory of all computer files generated and all software and hardware required for this process is documented. The generated file directory is then compared to the documentation of directory listings which is furnished in the escrow deposit. A report is issued to Federal Express outlining the Comparative Inventory Report and File Directory Listing. EXHIBIT D FEDERAL EXPRESS REQUIREMENTS FOR ESCROW DEPOSIT Federal Express requires the following materials to be supplied for the escrow agreement involving your company. However, other materials may be a requisite of this account. Consult your Federal Express contact with any questions. When prepared, please ship these materials to Fort Knox Escrow Services in Atlanta, GA (800-875-5669) to the attention of Lisa McKinney. Thank you. Your company name: Date: Product name: Version number: Two copies of the source code for each version of the licensed software, on magnetic media, in the original programming code language The source code media shall not be created using back-up software and the source code media shall be: a 4mm tape (DDSI) or 8mm tape (DDSI) in AIX/Tar format, a 3.5" or 5.25" disk in MS-DOS format, a 3480 cartridge or 3490 cartridge in ASCII or EBCDIC languages, or a CD or 9 track round tape in ASCII or EBCDIC languages Source code print out (on paper, microfilm, or CD-ROM) All manuals necessary for operation (i.e., installation, operator, user) Maintenance tools (test programs, program specification) Proprietary or third party system utilities (compiler & assembler descrip- tions) Descriptions of the system/program generation Necessary non-licensor proprietary software or a listing of such software if licensor rights do not allow deposit in escrow Menu and support programs and subroutine libraries in source and object form Compilation and execution procedures in human and machine readable form (may be supplemented with a video explanation by programming personnel) Names and phone numbers of key technical employees All other necessary and available information that would assist Federal Express in the reconstruction, maintenance or enhancement of the licensed material Please provide a listing of any required materials that cannot be provided to Federal Express along with a reason for the omission of these materials: 1. 2. 3. *Confidential portion has been omitted and filed separately with the Commission. EX-27 5 EXHIBIT 27.0 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. EXHIBIT 27.0
5 1,000 6-MOS JUN-30-1998 JUL-01-1997 DEC-31-1997 3,264 12,178 8,513 518 303 24,020 3,539 1,211 26,348 6,392 0 0 0 25,101 (5,347) 26,348 17,517 17,517 4,820 4,820 13,777 0 7 (620) 0 (620) 0 0 0 (620) (0.06) (0.06)
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