FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: January 31, 1998
Commission File Number: 2-90422-C
Infinite Graphics Incorporated
(Exact Name of Registrant as Specified in Its Charter)
Minnesota 41-0956693
(State of Jurisdiction) (IRS Employer Identification)
4611 East Lake Street, Minneapolis, Minnesota 55406
(Address of Principal Executive Officer)
(Zip Code)
612-721-6283
(Registrant's Telephone Number, Including Area Code)
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 and 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 issuer's classes of
common stock, as of the latest practicable date.
2,652,525 common shares as of March 13, 1998
Total number of pages: 11
Exhibit index on page: 11
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INFINITE GRAPHICS INCORPORATED
BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
January 31,1998 April 30, 1997
--------------- --------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Accounts receivable, less allowance for doubtful accounts $ 1,029,321 $ 1,390,198
of $36,659 and $104,441, respectively
Inventories $ 154,406 $ 162,952
Prepaid assets and other $ 61,991 $ 36,312
----------- -----------
Total current assets $ 1,245,718 $ 1,589,462
Property, Plant and Equipment (net) $ 747,102 $ 691,002
Capitalized Software Costs, less accumulated amortization of $ 1,066,822 $ 1,022,628
$6,308,753 and $5,819,399, respectively
OTHER ASSETS $ 15,194 $ 30,025
----------- -----------
$ 3,074,836 $ 3,333,117
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit agreement $ 342,648 $ 427,291
Trade accounts payables $ 443,514 $ 317,451
Accrued salaries, vacations, and employee withholdings $ 287,738 $ 310,962
Other accrued expenses $ 238,680 $ 317,772
Deferred revenue $ 139,132 $ 259,308
Current portion long-term debt $ 39,764 $ 175,096
Current portion capitalized lease obligations $ 33,393 $ 43,054
----------- -----------
Total current liabilities $ 1,524,869 $ 1,850,934
LONG-TERM DEBT, less current portion $ 412,641 $ 7,395
CAPITAL LEASE OBLIGATIONS, less current $ 86,191 $ 111,465
STOCKHOLDERS' EQUITY:
Common stock, no par value, authorized 10,000,000 shares, $ 4,136,697 $ 4,112,947
issued and outstanding 2,652,575 and 2,462,575 at January
31, 1998 and April 30, 1997, respectively
Accumulated deficit ($3,085,562) ($2,749,624)
----------- -----------
Total stockholders' equity $ 1,051,135 $ 1,363,323
----------- -----------
$ 3,074,836 $ 3,333,117
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three Month Period Nine Month Period
Ended January 31 Ended January 31
1998 1997 1998 1997
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
REVENUES:
Net sales $ 1,171,703 $ 1,492,061 $ 3,782,748 $ 4,217,525
Other income $ 2,936 $ 5,489 $ 2,936 $ 68,489
--------------------------- ---------------------------
$ 1,174,639 $ 1,497,550 $ 3,785,684 $ 4,286,014
COSTS AND EXPENSES:
Cost of products sold $ 844,543 $ 872,547 $ 2,499,402 $ 2,548,281
Selling, general and administrative $ 435,134 $ 472,443 $ 1,337,059 $ 1,287,755
Research and development costs $ 86,669 $ 82,812 $ 215,125 $ 243,333
Interest $ 23,569 $ 30,551 $ 70,036 $ 85,762
--------------------------- ---------------------------
Total costs and expenses $ 1,389,915 $ 1,458,353 $ 4,121,622 $ 4,165,131
--------------------------- ---------------------------
OPERATING (LOSS) INCOME ($ 215,276) $ 39,197 ($ 335,938) $ 120,883
EQUITY IN INCOME OF JOINT VENTURE $ 3,678 $ 16,257
--------------------------- ---------------------------
NET (LOSS) INCOME ($ 215,276) $ 42,875 ($ 335,938) $ 137,140
=========================== ===========================
NET (LOSS) INCOME PER SHARE:
Basic ($ 0.08) $ 0.02 ($ 0.13) $ 0.06
--------------------------- ---------------------------
Diluted ($ 0.08) $ 0.02 ($ 0.13) $ 0.05
=========================== ===========================
WEIGHTED AVERAGE COMMON SHARES
AND SHARES ASSUMED OUTSTANDING:
Basic 2,625,727 2,382,575 2,516,959 2,363,097
--------------------------- ---------------------------
Diluted 2,625,727 2,761,041 2,516,959 2,704,957
--------------------------- ---------------------------
</TABLE>
See notes to financial statements.
<PAGE>
INFINITE GRAPHICS INCORPORATED
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended January 31
1998 1997
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ($335,938) $ 137,140
Adjustments to reconcile net (loss) income to net cash flows
provided by operating activities:
Depreciation and amortization $ 696,698 $ 698,135
Equity in income of joint venture ($ 16,257)
Changes in assets and liabilities:
Accounts receivable $ 360,877 $ 8,804
Inventories $ 8,546 ($ 38,114)
Prepaid expenses and other and other assets ($ 10,848) ($ 58,406)
Deferred revenue ($120,176) ($ 60,168)
Accounts payable, accruals and other accrued expense $ 23,747 $ 48,494
--------- ---------
$ 622,906 $ 719,628
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for capitalized software ($533,548) ($447,336)
Other capital expenditures ($263,444) ($132,508)
Purchase of joint venture interest, net of cash acquired ($ 52,500)
--------- ---------
($796,992) ($632,344)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in revolving credit borrowings ($ 84,643) $ 70,794
Payments on long-term principal and principal payments
on capital lease obligations ($215,469) ($164,078)
Proceeds from exercise of stock warrants and options $ 23,750 $ 6,000
Proceeds from long-term debt $ 450,448
--------- ---------
$ 174,086 ($ 87,284)
Net increase in cash and cash equivalents $ 0 $ 0
Cash and cash equivalents at beginning of period $ 0 $ 0
--------- ---------
Cash and cash equivalents at end of period $ 0 $ 0
========= =========
INVESTING ACTIVITIES NOT AFFECTING CASH:
Capitalized lease obligation incurred for lease of equipment $ 140,725
---------
</TABLE>
See notes to financial statements.
<PAGE>
PART 1 - FINANCIAL INFORMATION (CONTINUED)
NOTES TO FINANCIAL STATEMENTS
NOTE A:
The Balance Sheet as of January 31, 1998 and the Statements of Operations for
the three and nine months ended January 31, 1998 and 1997 and the Statements of
Cash Flows for the nine months ended January 31, 1998 and 1997 have been
prepared by Infinite Graphics Incorporated without audit. In the opinion of
management, these statements reflect all adjustments, consisting of only normal
accruals and adjustments, necessary for the fair statement of the periods
presented. The Balance Sheet as of April 30, 1997 has been derived from the
audited Balance Sheet included in the Company's April 30, 1997 Annual Report to
Shareholders. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes included in the
Company's April 30, 1997 Annual Report to Shareholders.
The financial statements have been prepared on a going-concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the Company's balance sheet as of
January 31, 1998, current liabilities exceed its current assets by $279,000.
During fiscal 1998, the Company will continue to emphasize its high-end
precision graphics services, including software for that application, and will
work with third parties and partners for a return on its software assets in
other markets.
NOTE B:
Effective December 15, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share." Net income per share
for the three and nine months ended January 31, 1998 have been restated for the
adoption of SFAS No. 128.
Basic net (loss) income per share is computed by dividing net (loss) income by
the weighted average number of common shares outstanding. Diluted net income per
share assumes the exercise of stock options and warrants using the treasury
stock method. Diluted net loss per share is the same as basic loss per share due
to the antidilutive effect of the assumed exercise of stock options and
warrants.
NOTE C:
On October 24, 1997, the Company entered into a revolving credit agreement (the
Agreement), a mortgage note (the Mortgage Note), and an equipment note (the
Equipment Note). The Agreement and Mortgage Note replaced existing financing
agreements.
The Agreement, at the lender's discretion, allows the Company to borrow 75% of
its eligible services receivable and a certain percentage of its eligible
software receivables, up to $750,000, as defined. The original advance rate
pertaining to eligible software receivables is 70% until January 30, 1998, when
the advance rate is based on the Company's operations for rolling six-month
periods. The advance rate range is from 0% to 70%. In addition the total of all
eligible software receivables outstanding at any one time shall not exceed
$500,000. Interest on outstanding borrowings is payable monthly and is the
greater of prime plus 4.5%, never to be readjusted below 10%, or a minimum
<PAGE>
monthly interest charge of $2,500. The interest rate as of January 31, 1998 is
13%. In the event of default, as determined at the lender's discretion, the
interest rate increases to the greater of prime plus 9.5%, never to be
readjusted below 15%, or a minimum monthly interest charge of $2,900. The
Agreement also requires payment of a $1,500 quarterly administrative fee. The
Agreement terminates the earlier of a date determined at the lender's
discretion, the Company terminates the Agreement, or October 12, 1999. If
approved by the lender and the Company, the termination date may be extended for
nine months. If the Agreement is terminated by the Company, the Company is
required to pay a prepayment charge of $2,500 multiplied by the number of
calendar months from the prepayment date to October 23, 1999, unless the funds
used to prepay the Agreement are borrowed from Riverside Bank then no prepayment
charge is due.
The Mortgage Note provided for a $250,000 term loan and interest payable at the
bank's reference rate, as defined, plus 2% (10.5% at January 31, 1998). The
Company is required to make monthly principal and interest payments in an amount
necessary to fully amortize the principal balance over a period of ten years.
The Mortgage Note matures on October 15, 2000. Monthly principal and interest
payments are currently $3,385. A portion of the Mortgage Note proceeds,
$112,000, was used to pay an existing mortgage.
The Equipment Note provides for a $700,000 line of credit for the purchase of
machinery, equipment, furniture, and fixtures and the balance outstanding as of
January 31, 1998 is $197,037. The term of the Equipment Note is from October 24,
1997 to October 24, 2004. Interest on borrowings under the Equipment Note is
payable at prime plus 2%, and is adjusted quarterly if the prime rate changes.
The bank writes individual term notes under the Equipment Note after purchases
are made and advances are requested and submitted by the Company. The individual
term notes require the Company to make monthly principal and interest payments
in an amount necessary to fully amortize the principal balance from the date of
the borrowings to October 24, 2004.
Borrowings under the Agreement, Mortgage Note, and Equipment Note are secured by
substantially all of the Company's assets and personally guaranteed by the
Company's Chief Executive Officer. The Agreement, Mortgage Note, and/or
Equipment Note contain various restrictive covenants relating to a net loss of
no more than $100,000 for each succeeding six month period beginning January 31,
1998, limitations on additional indebtedness and capital expenditures, prohibits
dividend payments, and other matters.
On October 29, 1997, the Company entered into an agreement with General Electric
Capital Corporation to lease equipment costing approximately $1,100,000. The
term of the lease will be for five years with an initial payment of $54,000 in
October 1997, $56,000 due upon acceptance of the equipment, and monthly payments
thereafter of $20,168. Firm acceptance of the equipment is planned for March or
April 1998.
NOTE D:
During the nine months ended January 31, 1998, stock warrants to purchase
190,000 shares of common stock were exercised at prices of $.125 per share.
<PAGE>
NOTE E:
On February 27, 1998, the Company sold an exclusive license to use, market and
distribute the Company's PAR/ICE, ParCAM, and CheckMate (PAR for Design)
software products; sold a nonexclusive license to certain other CAD/CAM
products, including those known as 2100, ProCADD, ProFLEX and ProCHEM; and sold
certain assets of its software systems business to Global MAINTECH Corporation
(Global MAINTECH). The Company, however, has retained the right to use all of
this software in its own business. The Company has also agreed that for a period
of five years it will not distribute, market, promote or provide to any third
parties software that is competitive with the software with respect to which
Global MAINTECH was granted an exclusive license. As consideration for the grant
of the license and the sale of the software systems division assets to Global
MAINTECH, the Company received $500,000 on February 27, 1998, and may receive
additional payments totaling not more than $3,500,000 on or before June 1999,
depending on the level of profit performance of the licensed software.
At the present time, management believes the above transaction will be
recognized as a disposal of a business in the fourth quarter of fiscal 1998. The
following summarizes certain financial information of the Company's system
software segment:
Nine Month Period Year Ended
Ended January 31, April 30,
1998 1997 1997 1996
-------------------------------------------------------------------
Net Sales $1,194,000 $1,349,000 $1,802,000 $1,883,000
<PAGE>
PART 1 - FINANCIAL INFORMATION (CONTINUED)
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1998 COMPARED TO THREE MONTHS ENDED JANUARY 31,
1997
Operations for the three months ended January 31, 1998 resulted in sales of
$1,172,000 compared to $1,492,000 for the same period last year or a 21 percent
decrease. Engineering Services accounted for $778,000 compared to sales of
$930,000 for the same period last year or a 16 percent decrease. Systems sales
were $394,000 compared to sales of $562,000 for the same period a year ago or a
30 percent decrease. The decrease in Engineering Services sales of $152,000 is
mainly attributable to a change in the PWB (printed wiring board) phototooling
marketplace. The decrease in System sales of $168,000 is attributable to delays
in repackaging and releasing the Company's CAM products.
The decrease in sales was the primary contributor to the gross margin decreasing
to 28 percent for the three months ended January 31, 1998 compared to 42 percent
for the same period last year.
The Company's total selling, general and administrative (S, G & A) expenses were
$435,000 and $472,000 for the three months ended January 31, 1998 and 1997,
respectively. S, G & A decreased because of salaries and related expenses,
reduced travel and general cost saving measures. Research and development costs
were $87,000 compared to $83,000, or a 5 percent increase. The increase is
primarily attributable to the development of a new CAM product. Interest expense
for three months ended January 31, 1998 was $24,000 compared to $31,000 for the
same period last year or a 23% decrease. The decrease in the interest expense is
primarily attributable to lower borrowings on the Company's line of credit.
The Company's portion of equity in joint venture for the three months ended
January 31, 1997 related to the operations of the Joint Venture, which was
acquired in November 1996. The operations of the former Joint Venture are now
included in the individual line items in the statements of operations.
The Company had a net loss of $215,000 for three months ended January 31, 1998,
compared to net income of $43,000 for the three months ended January 31, 1997.
The net loss is attributable to decreased sales.
<PAGE>
NINE MONTHS ENDED JANUARY 31, 1998 COMPARED TO NINE MONTHS ENDED JANUARY 31,
1997
Operations for the nine months ended January 31, 1998 resulted in sales of
$3,783,000 compared to $4,218,000 for the same period last year or a 10 percent
decrease. Engineering Services accounted for $2,589,000 compared to sales of
$2,869,000 for the same period last year or a 10 percent decrease. Systems sales
were $1,194,000 compared to sales of $1,349,000 for the same period a year ago
or a 12 percent decrease. The decrease in Engineering Services sales of $280,000
is attributable to two customers adding in house capabilities, a third customer
going out of business early in the year. The continued trend of doing routine
phototooling internally has and will continue to reduce this type of service
sales. System sales decreased due to late completion of new revisions of
software.
The decrease in sales was the primary contributor to the gross margin decreasing
to 34 percent for the nine months ended January 31, 1998 compared to 40 percent
for the same period last year.
The Company's total selling, general and administrative (S, G & A) expenses for
the nine months ended January 31, 1998 was $1,337,000 compared to $1,288,000 for
the same period last year, an increase of $49,000 or 4 percent. S, G & A
increased early in the year because of increases in salary, travel, and
promotion expenses related to additional employees. Research and development
costs were $215,000 compared to $243,000, or a 12 percent decrease. The decrease
is primarily attributable to the Company capitalizing costs relating to the
development of a new CAM product. Interest expense for nine months ended January
31, 1998 was $70,000 compared to $86,000 for the same period last year or an 18%
decrease. The decrease in the interest expense is primarily attributable to
lower borrowings on the Company's line of credit during nine months ended
January 31, 1998.
The Company's portion of equity in joint venture for the nine months ended
January 31, 1997 related to the operations of the Joint Venture, which was
acquired in November 1996. The operations of the former Joint Venture are now
included in the individual line items in the statements of operation.
The Company had a net loss of $336,000 for nine months ended January 31, 1998,
compared to net income of $137,000 for the nine months ended January 31, 1997.
The net loss of is attributable to decreased sales.
Liquidity. The Company's cash flow from operations was $623,000 for the nine
months ended January 31, 1998, compared to $720,000 for the same period last
year. The largest components of cash flow from operations for nine months ended
January 31, 1998 were depreciation and amortization of $697,000 and the decrease
in accounts receivable of $361,000. The largest component of cash flow from
operations for nine months ended January 31, 1997 was depreciation and
amortization of $698,000.
Cash provided from planned operations and availability under the Company's
revolving credit agreement are estimated to be sufficient to support the
Company's expected cash needs for the remainder of fiscal 1998 and through
fiscal 1999. On October 24, 1997 the Company entered into a revolving credit
agreement, a mortgage note, and an equipment note as described in Note C to the
Financial Statements. As of January 31, 1998, current liabilities exceed current
assets by $279,000.
<PAGE>
Capital Resources: The Company has invested primarily in equipment and
improvements essential for present operations in fiscal 1998, but plans to
increase its investment in capital resources for future operations over the next
two or three years by obtaining additional debt and/or equity financing. The
Company's capital expenditures for equipment, automation improvements and new
opportunities during fiscal 1998 are expected to be approximately $2,000,000 of
which the Company has secured financing of $1,938,000. The Company anticipates
that additional financing will be derived from planned operations, leases and
obtaining additional debt and/or equity financing. If the Company does not
achieve its operations plan it could restrict planned business growth.
The Company's cash flows used in investing activities was $797,000 and $632,000
for the nine months ended January 31, 1998 and 1997, respectively. For the nine
months ended January 31, 1998 it consisted primarily of expenditures for
capitalized software of $534,000 and $263,000 for other capital expenditures.
For the nine months ended January 31, 1997 it consisted primarily of
expenditures for capitalized software of $447,000 and $133,000 for other capital
expenditures and $52,000 relating to the purchase of the joint venture interest.
The Company's cash flows provided by financing activities was $174,000 for the
nine months ended January 31, 1998 compared to cash flows used by financing
activities of $87,000 during the same period last year. Cash flows provided by
financing activities for the nine months ended January 31, 1998 consisted of
proceeds from long-term debt of $450,000 partially offset by payments of
$215,000 on long-term debt and principal payments on capital lease obligations.
The largest components of cash flows used in financing activities for the nine
months ended January 31, 1997 consisted of payments on long-term debt and
principal payments on capital lease obligations of $164,000 and an increase of
$71,000 in the revolving credit agreement.
Other Items. Inflation has not had any significant impact upon the Company's
results of operation.
Securities Litigation Reform Act. Except for the historical information
contained herein, the matters discussed in this report are forward-looking
statements which involve risks and uncertainties, including but not limited to
economic, competitive, governmental and technological factors affecting the
Company's operations, markets, products, services and prices, and other factors
discussed in the Company's filings with the Securities and Exchange Commission.
<PAGE>
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Change in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matter to a Vote of Security Holders
None
Item 5. Other Information
On February 27, 1998, the Company sold an exclusive license to
use, market and distribute the Company's PAR/ICE, ParCAM, and
CheckMate (PAR for Design) software products; sold a nonexclusive
license to certain other CAD/CAM products, including those known
as 2100, ProCADD, ProFLEX and ProCHEM; and sold certain assets of
its software systems business to Global MAINTECH Corporation
(Global MAINTECH). The Company, however, has retained the right to
use all of this software in its own business. The Company has also
agreed that for a period of five years it will not distribute,
market, promote or provide to any third parties software that is
competitive with the software with respect to which Global
MAINTECH was granted an exclusive license. As consideration for
the grant of the license and the sale of the software systems
division assets to Global MAINTECH, the Company received $500,000
on February 27, 1998, and may receive additional payments totaling
not more than $3,500,000 on or before June 1999, depending on the
level of profit performance of the licensed software.
Item 6. Exhibits and Reports on Form 8-K
Exhibit 10.1, License and Asset Purchase Agreement dated 2/27/98
with Global MAINTECH Corporation
Exhibit 27 - Financial Data Schedule (for SEC use only)
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.
March 13,1998 by /s/ CLIFFORD F. STRITCH, JR.
----------------------------
Clifford F. Stritch, Jr.
Chief Executive Officer
Chief Financial Officer
EXHIBIT 10.1
- --------------------------------------------------------------------------------
GLOBAL MAINTECH CORPORATION
INFINITE GRAPHICS INCORPORATED
LICENSE AND ASSET PURCHASE
FEBRUARY 27, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Tab No.
-------
License and Asset Purchase Agreement 1
Bill of Sale and Assignment of Assets 2
License Agreement 3
Assignment of Assumed Contracts 4
Minnesota Long Form Good Standing Certificate of
Infinite Graphics Incorporated 5
Articles of Incorporation of Infinite Graphics Incorporated
Certified by the Secretary of State of Minnesota 6
Resolutions of the Board of Directors of
Infinite Graphics Incorporated 7
Resolutions of the Board of Directors of
Global MAINTECH Corporation 8
Opinion of Gray, Plant, Mooty, Mooty & Bennett, P.A. 9
Escrow Agreement 10
Addendum to Escrow Agreement 11
Cashier's Check for Purchase Price 12
Receipt 13
<PAGE>
LICENSE AND ASSET PURCHASE AGREEMENT
This LICENSE AND ASSET PURCHASE AGREEMENT (this "Agreement") is made
and entered into as of February 27, 1998 (the "Effective Date"), by and between
Global MAINTECH Corporation, a Minnesota corporation ("GMC"), and Infinite
Graphics Incorporated, a Minnesota corporation ("IGI").
WHEREAS, IGI owns all right, title and interest in and to those certain
software products known as PAR/ICE, ParCAM, CHECKMATE (PAR for Design) and four
additional CAD/CAM products known as 2100, ProCADD, ProFLEX and ProCHEM and
certain other software products known as Translators, in addition to certain
other assets (described more fully below); and
WHEREAS, GMC desires (1) to license the software products known as
PAR/ICE, ParCAM, CHECKMATE (PAR for Design) on an exclusive basis and (2) to
license the CAD/CAM products known as 2100, ProCADD, ProFLEX and ProCHEM and
certain other software products known as Translators, Extract, Gerb Edit and
Core Programs to such software on a nonexclusive basis and (3) to buy certain
assets related to the foregoing software products on the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained herein, and intending to be legally bound hereby, the
parties agree as follows:
Section 1. Definitions. As used herein, the following terms shall have
the following meanings:
"INTELLECTUAL PROPERTY RIGHTS" means all rights, title and interest in
and to all patents and patent applications, trade secret rights, copyrights and
know-how, all related filings, registrations, and the like in the United States
and all foreign countries.
"INVENTORY" means the finished goods inventory as identified on
Exhibit A for the Exclusive Software on the Closing Date (as hereinafter
defined), as well as shipping and packaging inventory for such software that
exists on the Closing Date.
"LIENS" means mortgages, deeds of trust, pledges, taxes, security
interests, liens, leases, licenses, liabilities, encumbrances, costs, charges
and claims of any nature whatsoever, direct or indirect, whether accrued,
absolute, contingent or otherwise (including, without limitation, any agreement
to give any of the foregoing).
"MARKETING MATERIALS" means substantially all of the following
materials pertaining to the Exclusive Software and the Nonexclusive Software:
(a) preexisting customer lists and databases, including all customer and
technical support (bug
<PAGE>
information) databases; (b) lists of IGI distributors and dealers authorized to
sell copies of the Exclusive Software and the Nonexclusive Software; (c)
training materials; and (d) advertising and promotional materials.
"MARKS" means all of IGI's rights in each of the PAR/ICE, ParCAM,
CHECKMATE (PAR for Design), 2100, ProCADD, ProFLEX and ProCHEM and Translator
names, and the business and goodwill of IGI associated with each such trademark.
"Marks" does not refer to any other trademark or name of IGI.
"EXCLUSIVE SOFTWARE" means IGI's software products known as PAR/ICE,
ParCAM, CHECKMATE (PAR for Design) in existence immediately prior to the Closing
Date and documentation therefor as more specifically described on ExhibitA,
including without limitation, all Intellectual Property Rights therein, all
documents, programs, processes, associated results and copies constituting,
describing or relating to such software programs, including without limitation,
descriptions, specifications, source and object code therefor, source materials
and the like.
"NONEXCLUSIVE SOFTWARE" means IGI's CAD/CAM products known as 2100,
ProCADD, ProFLEX and ProCHEM and certain other software products known as
Translators to such software in existence immediately prior to the Closing Date
and documentation therefor as more specifically described on ExhibitB, including
without limitation, all Intellectual Property Rights therein, all documents,
programs, processes, associated results and copies constituting, describing or
relating to such software programs, including without limitation, descriptions,
specifications, source and object code therefor, source materials and the like.
Without limiting the foregoing, the Exclusive Software and the Nonexclusive
Software shall include any and all modifications, enhancement and improvements
developed by or on behalf of IGI as of the Closing Date, including but not
limited to the source code thereof.
"LICENSED ASSETS" means the Exclusive Software, the Nonexclusive
Software and the Marks.
"TRANSFERRED ASSETS" means the Marketing Materials, Inventory, cash
relating to IGI's deferred revenue as of the Closing Date that relates to the
Exclusive Software, cash relating to the accrued vacation liability of the
Transition Team members and the other tangible assets described on Exhibit B.
The parties agree that the Transferred Assets are valued at $278,446, excluding
cash.
Section 2. License and Sale of Transferred Assets.
2.1 Agreement to Purchase and Sell. Subject to the terms and
conditions set forth in this Agreement, IGI hereby agrees to sell, grant,
transfer, convey, assign and deliver to GMC, and GMC agrees to purchase, on the
Closing Date, all of IGI's right, title and interest in and to the Transferred
Assets; provided,
<PAGE>
however, that IGI may, at its option, deliver cash in an amount equal to the
amount of the deferred revenue and vacation liability, which exists as of the
Closing Date, to GMC within 180 days after the Closing.
2.2 Closing. The closing of the license grant and the sale of
the Transferred Assets shall take place at the offices of Dorsey & WhitneyLLP,
220 South Sixth Street, Minneapolis, Minnesota, at 2:00 p.m., Minneapolis time,
on February 27,1998 (the "Closing Date") or at such other place or different
time or day as may be mutually acceptable to GMC and IGI. At the closing, IGI
shall execute and deliver to GMC the Bill of Sale and Assignment of Assets in
substantially the form of Exhibit C, and GMC shall deliver to IGI the Initial
Payment (as defined below), in immediately available funds by cashier's check,
pursuant to Section2.3.
2.3 Consideration.
(a) The aggregate purchase price to be paid in respect of the
transactions contemplated hereby shall be up to a maximum of $4,000,000
and shall consist of up to three payments: the Initial Payment, the
Escrow Payment (as defined below) and the Earn Out Payment (as defined
below) (the "Purchase Price"). These three payments shall be made as
follows:
(i) On the Closing Date, GMC shall pay $500,000,
which payment is referred to herein as the "Initial Payment."
(ii) On the Closing Date, GMC also shall deposit
$200,000 (the "Escrow Payment") into an escrow account managed
by BankWindsor (the "Escrow Agent"). The Escrow Payment shall
be disbursed as follows: (A) if the average monthly revenue
from the sale of the Exclusive Software and the Nonexclusive
Software (including all subsequent derivations thereof) and
maintenance and services with respect to such sales by GMC and
IGI that relate to the Exclusive Software line of business,
including sales of hardware, services, the Exclusive Software
and the Nonexclusive Software (including all subsequent
derivations thereof) exceeds $112,500 during the first four
full calendar months following the Closing Date, then the
Escrow Payment promptly shall be released to IGI; or (B)in the
event the contingency described in (A) is not satisfied upon
the expiration of the fourth full calendar month following the
Closing Date, then if the average monthly revenue from the
sale of the Exclusive Software and the Nonexclusive Software
(including all subsequent derivations thereof) and maintenance
and services with respect to such sales by GMC and IGI that
relate to the Exclusive Software line of business, including
sales of hardware, services, the Exclusive Software and the
Nonexclusive Software (including all subsequent derivations
thereof) exceeds $120,000 during any period consisting of the
first five, six, seven or eight full calendar months following
the Closing Date, then the
<PAGE>
Escrow Payment promptly shall be released to IGI; or (C) in
the event none of the contingencies described in (A) or (B)
are satisfied upon the expiration of the eighth full calendar
month following the Closing Date, then the Escrow Payment
promptly shall be released to GMC. Notwithstanding the
foregoing, all interest earned on the Escrow Payment shall be
paid to GMC upon disbursement of the principal amount of the
Escrow Payment.
(iii) Subject to the limit on the maximum purchase
price payable, GMC also shall pay IGI an amount equal to (A)
144 multiplied by the average monthly net income after taxes
derived from all sales by GMC and IGI that relate to the
Exclusive Software line of business, including sales of
hardware, services, the Exclusive Software and the
Nonexclusive Software (including all subsequent derivations
thereof) during the first 15 full calendar months following
the Closing Date (the "Earn Out Period"), (B) minus the amount
paid to IGI pursuant to the aggregate of the Initial Payment
and the Escrow Payment (e.g., $700,000 if the Escrow Payment
is ultimately disbursed to IGI) and (C) minus any deferred
revenue liability or vacation liability assumed by GMC
pursuant to Section 2.7 of this Agreement and not paid to GMC
by IGI. For purposes of this Agreement, such net income shall
be calculated in accordance with generally accepted accounting
principles, consistently applied, subject to the adjustments,
clarifications and exceptions listed on Exhibit D.
Furthermore, GMC shall provide a statement showing such net
income after taxes for each month during the Earn Out Period
to IGI within 30 days after the end of each month during such
period.
2.4 Allocation of Purchase Price. GMC and IGI have allocated
the Purchase Price among the Transferred Assets and the Licensed Assets as set
forth on Exhibit E hereto, which exhibit shall be updated as of the Closing Date
in such a manner as determined by GMC, subject to IGI's consent (which shall not
be unreasonably withheld) after taking into account any appraisals which may be
obtained by GMC, the applicable Treasury Regulations and the fair market value
of such items. GMC shall prepare for filing all federal and state tax returns
that may be required to be filed with respect to the transaction provided for
herein. IGI shall provide information that may be required by GMC for the
purpose of preparing such tax returns and tax information on a basis that is
consistent with such tax returns prepared by GMC.
2.5 License Agreement. Concurrent with the execution of this
Agreement and as a condition to its effectiveness, GMC and IGI shall enter into
a license agreement substantially in the form attached hereto as Exhibit F (the
"License Agreement").
2.6 Taxes. The Purchase Price is exclusive of, and GMC shall
pay all excise, sales, value-added, use, registration, stamp, transfer and other
like taxes
<PAGE>
imposed or levied by reason of this Agreement and the transactions contemplated
hereby.
2.7 Assumed Liabilities. GMC hereby assumes and agrees to pay,
perform and discharge, effective as of the Closing Date, all obligations and
liabilities arising on or after the Closing Date under only (a) those
liabilities relating to accrued vacation of Transition Team members; (b) those
liabilities relating to deferred revenue of IGI's Exclusive Software line of
business in existence on the Closing Date and (c) those software support and
license agreements relating to the Exclusive Software, which are identified on
ExhibitG (the "Assumed Contracts"). The foregoing assumed obligations and
liabilities are hereinafter referred to collectively as the "Assumed
Liabilities." Except for the Assumed Liabilities or as otherwise expressly
contemplated herein, GMC shall not assume or have any responsibility for any
liability, obligation or commitment of IGI of any nature, whether now or
hereafter existing and whether or not related to the Licensed Assets or the
Transferred Assets, and IGI shall retain all such liabilities, obligations or
commitments (the "Retained Liabilities").
2.8 Retained Assets. IGI shall retain, and GMC shall not
purchase, all cash, accounts receivable and capitalized software related to
IGI's Exclusive Software line of business and all of its Intellectual Property
Rights, which exists as of the Closing Date.
Section 3. Representations and Warranties of GMC. GMC represents and
warrants to IGI as follows:
3.1 Corporate Power. GMC has all requisite corporate power to
execute and deliver this Agreement and all agreements to be executed and
delivered by GMC pursuant to the terms hereof and to carry out and perform its
obligations under the terms of this Agreement and such other agreements.
3.2 Authorization. All corporate action on the part of GMC,
necessary for the authorization, execution, delivery and performance of this
Agreement and any other agreements contemplated hereby has been taken. This
Agreement and any other agreements contemplated hereby, when executed and
delivered by GMC, will constitute valid and binding obligations of GMC
enforceable in accordance with their respective terms.
Section 4. Representations and Warranties of IGI. IGI represents and
warrants to GMC as follows:
4.1 Organization and Standing; Articles and Bylaws. IGI is a
corporation duly organized and existing under, and by virtue of, the laws of the
state of Minnesota and is in good standing under such laws. IGI has the
requisite corporate power to own and operate its properties and assets and to
carry on its business as currently conducted and as proposed to be conducted.
IGI is duly
<PAGE>
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties.
4.2 Corporate Power. IGI has all requisite corporate power to
execute and deliver this Agreement and all agreements to be executed and
delivered by IGI pursuant to the terms hereof and to carry out and perform its
obligations under the terms of this Agreement and such other agreements.
4.3 Authorization. All corporate action on the part of IGI
necessary for the authorization, execution, delivery and performance of this
Agreement and any other agreements contemplated hereby has been taken and no
other proceedings on the part of the Company or the shareholders are necessary
to authorize the execution, delivery and performance of this Agreement and any
other agreements contemplated hereby. This Agreement and any other agreements
contemplated hereby, when executed and delivered by IGI, will constitute valid
and binding obligations of IGI enforceable in accordance with their respective
terms.
4.4 No Conflict. No consent of any person not a party to this
Agreement and no consent of any governmental authority is required to be
obtained on the part of IGI to permit the consummation of the transactions
contemplated by this Agreement (including without limitation the transfer to GMC
of all right, title and interest in and to the Transferred Assets and the
licensing of the Licensed Assets to GMC).
4.5 Litigation. There is no litigation, investigation,
arbitration or other proceeding pending or, to the knowledge of IGI, threatened
against IGI, the Licensed Assets or the Transferred Assets the result of which
would have a material adverse effect on the Licensed Assets or the Transferred
Assets.
4.6 Title. IGI has good and marketable title to all of the
Licensed Assets and the Transferred Assets, and all of the Licensed Assets and
the Transferred Assets are hereby transferred and licensed, respectively, to GMC
free and clear of restrictions on or conditions to transfer, license or assign
and free and clear of any Liens, other than the Assumed Contracts. The Licensed
Assets and the Transferred Assets constitute all the necessary assets to operate
the Exclusive Software line of business.
4.7 Copyrights, Trademarks and Patents. (a) IGI owns and
possesses all right, title and interest in and to the Licensed Assets and the
Transferred Assets free and clear of all Liens and has the full right to exploit
the Intellectual Property Rights associated with the Licensed Assets and the
Transferred Assets without payment of compensation to any other party; (b)
Schedule 4.7 describes all material agreements granting to third parties any
rights in the Intellectual Property Rights relating to the Exclusive Software;
(c) all licenses of such Intellectual Property Rights will be assumed by, and
will become valid agreements of, GMC without the
<PAGE>
requirement that any consent to assignment be obtained or any payment be made
(other than future royalties as provided in such agreements); (d) IGI, to its
knowledge, has taken all commercially reasonable steps to acquire, protect and
maintain the Intellectual Property Rights associated with the Licensed Assets
and the Transferred Assets; (e) IGI has not received any notice of, nor are
there any facts known to IGI which indicate a likelihood of, any infringement or
misappropriation by, or conflict from, any third party with respect to such
Intellectual Property Rights or any such Intellectual Property Rights that are
exclusively licensed to IGI; (f) no claim by any third party contesting the
validity of any such Intellectual Property Rights has been made, is currently
outstanding or, to the best knowledge of IGI, is threatened; (g) IGI has not
received any notice of any infringement, misappropriation or violation by IGI of
any intellectual property rights of any third parties and IGI, to its knowledge,
has not infringed, misappropriated or otherwise violated any such intellectual
property rights; (h) to the knowledge of IGI, no infringement, misappropriation
or violation of any intellectual property rights of any third parties has
occurred or will occur with respect to any of the Exclusive Software or the
Nonexclusive Software; and (i) IGI has not entered into any agreement
restricting IGI from selling, leasing or otherwise distributing any of its
current products or products under development to any class of customers, in any
geographic area, during any time period or in any segment of the market.
4.8 Compliance with Other Instruments. To the extent that any
of the following would have a material adverse effect on the ability of IGI to
consummate the transactions contemplated by this Agreement: (a) IGI is not in
violation of any term of its Articles of Incorporation or Bylaws, or in any
material respect of any term or provision of any mortgage, indebtedness,
indenture, contract, agreement, instrument, judgment or decree, order, statute,
rule or regulation applicable to IGI and (b) the execution, delivery and
performance of and compliance with this Agreement and any other agreements
contemplated hereby, have not resulted and will not result in any violation of,
or conflict with, or constitute a default under, or result in the creation of,
any Lien upon any of the properties or assets of IGI, and there is no such
violation or default that materially and adversely affects the business of IGI
as conducted or as proposed to be conducted, or any of the properties or assets
of IGI.
4.9 Bankruptcy Proceedings. No petition has been filed by or
against IGI for relief under any applicable bankruptcy, insolvency or similar
law; no decree or order for relief has been entered in respect of IGI,
voluntarily or involuntarily, under any such law; and no receiver, liquidator,
sequestrator, trustee, custodian or other officer has been appointed with
respect to IGI or its assets and liabilities pursuant to any such law. No
warrant of attachment, execution or similar process has been executed against
IGI or any of its assets or properties. IGI has not made any assignment for the
benefit of creditors.
4.10 Software. Each and every source code provided to GMC by
IGI pursuant to this Agreement for each of the current versions of the Exclusive
<PAGE>
Software and the Nonexclusive Software shall be true and correct and complete as
of the Closing Date.
4.11 Employees. To the best of IGI's knowledge, (a)no member
of the Transition Team (as defined in Section 6.3) has any plans to terminate
his or her employment; (b)IGI has complied, in all material respects, with all
laws relating to the employment of labor, including provisions thereof relating
to wages, hours, equal opportunity, collective bargaining and the payment of
social security and other taxes; (c)IGI has no labor relations problem pending,
and IGI's labor relations are, in its judgment, satisfactory; (d)there are no
workers' compensation claims pending against IGI nor is IGI aware of any facts
that would give rise to such a claim; (e)no member of the Transition Team is
subject to any secrecy or noncompetition agreement or any other agreement or
restriction of any kind that would impede in any way the ability of such
employee to carry out fully all activities of such employee in furtherance of
the business associated with the Licensed Assets and the Transferred Assets; and
(f)no employee or former employee of IGI has any claim with respect to any
Intellectual Property Rights contained in the Licensed Assets or the Transferred
Assets. The names and the position, title, remuneration (including any scheduled
salary or remuneration increases), date of employment and accrued vacation pay
of each member of the Transition Team, as of the Closing Date, is listed in the
attached Schedule 4.11. Such Schedule also contains a complete list of all
employee benefits to which such members are eligible as of the Closing Date.
4.12 Third Party Warranties. Except as disclosed on Schedule
4.12, with respect to the Licensed Assets and the Transferred Assets, IGI has
not given any warranty to any third party that provides greater rights than the
warranty it is giving to GMC in Section 5.
Section 5. No Warranty. GMC ACKNOWLEDGES THAT EXCEPT FOR THE EXPRESS
REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE 4 HEREOF, IGI TRANSFERS THE
TRANSFERRED ASSETS "AS IS" WITHOUT ANY REPRESENTATIONS OR WARRANTIES REGARDING
FUNCTIONALITY, PERFORMANCE, USE, OPERATION OR SPECIFICATIONS, AND WITHOUT
EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES OF ANY KIND INCLUDING BUT NOT
LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR NONINFRINGEMENT. EXCEPT AS PROVIDED IN ARTICLE 7, IN NO EVENT SHALL
IGI BE LIABLE TO GMC FOR LOSS OF PROFITS, COSTS OF PROCUREMENT OF SUBSTITUTE
GOODS, OR OTHER SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES.
<PAGE>
Section 6. Additional Agreements.
6.1 Confidentiality. Each of the parties hereto hereby agrees
to keep any information or knowledge obtained pursuant to any provision of this
Agreement, or the negotiation and execution hereof or the effectuation of the
transactions contemplated hereby, confidential; provided, however, that (a)
after the Closing Date, GMC shall have no obligation to keep confidential any
information or knowledge relating to the Transferred Assets, (b) after the
Closing Date, IGI shall have an obligation to keep confidential all information
and knowledge relating to the Transferred Assets, other than as is reasonably
necessary to permit IGI to continue operating its Precision Graphics business,
and (c)the foregoing shall not apply to information or knowledge which (i) a
party can demonstrate was already lawfully in its possession prior to the
disclosure thereof by the other party and not subject to a confidentiality
obligation, (ii) is generally known to the public and did not become so known
through any violation of law or this Agreement, (iii) became known to the public
through no fault of such party, (iv) is later lawfully acquired by such party
from other sources, (v) is required to be disclosed by order of court or
government agency with subpoena powers or pursuant to SEC public disclosure
requirements or (vi) is disclosed in the course of any litigation between any of
the parties hereto; provided, further, that confidentiality matters that arise
with respect to the Licensed Assets will be governed by the License Agreement.
The parties shall take reasonably steps to ensure that their respective
employees and consultants are aware of and abide by the confidentiality
obligation of this Section 6.1.
6.2 Transaction Costs. Each party shall be responsible for its
own costs, expenses and claims (including attorneys' and broker's fees) arising
out of its negotiation, execution and performance of this Agreement and all
transactions contemplated hereby.
6.3 Transition Period. On the Closing Date, the individuals
listed on Schedule 4.11 (the "Transition Team") shall become the employees of
GMC but shall continue to work at IGI's facility until further notice from GMC.
From the Closing Date until the earlier to occur of the expiration of the
15-month period described in Section 2.3(b), the 91st day after GMC's delivery
of written notice to IGI of GMC's intent to transfer all operations relating to
the Licensed Assets and the Transferred Assets to GMC or the mutual agreement of
the parties with respect to such transfer (the "Transition Period"), IGI shall
continue to manage the day-to-day operation of the business relating to the
Licensed Assets and the Transferred Assets, including marketing, sales, billing
and the development of enhanced versions of the Exclusive Software and the
Nonexclusive Software for the benefit and pursuant to the instructions of GMC.
Notwithstanding the foregoing, GMC shall provide IGI with commercially
reasonable assistance in its sales and marketing efforts with respect to the
Exclusive Software and the Nonexclusive Software and shall use its best efforts
to develop a graphical user interface (the "GUI") to be used in connection with
the Exclusive Software and the Nonexclusive Software by GMC and IGI.
<PAGE>
During the Transition Period, GMC shall reimburse IGI for its reasonable
expenses, which are of the type listed in Schedule 6.3.
6.4 Customer Transition. Both GMC and IGI will use
commercially reasonable efforts to implement a smooth transition of operations
to GMC with the intent that any customers who acquire any Exclusive Software or
Nonexclusive Software (including any subsequent derivations thereof) either
before or after the Closing Date will experience as little disruption or delay
in supply, support or service as is reasonably practicable; provided, however,
that (a) in the absence of willful misconduct or gross negligence on IGI's part,
no claim shall be made by GMC with respect to IGI's alleged noncompliance in
connection with this Section 6.5, and (b) in the absence of willful misconduct
or gross negligence on the part of GMC, no claim shall be made by IGI with
respect to GMC's alleged noncompliance in connection with this Section 6.5. At
the request of GMC, IGI will notify its dealers and distributors that IGI will
no longer offer the Exclusive Software, and that GMC will now offer the
Exclusive Software; provided, however, that IGI and/or the Transition Team will
fill orders for the Exclusive Software on behalf of GMC during the Transition
Period.
6.5 Confidentiality of Transition Team. Each Transition Team
member will execute a confidentiality agreement with GMC, in a form and
substance that is mutually acceptable to GMC and IGI, prior to becoming a member
of the Transition Team. IGI will be a third party beneficiary of such agreement
with respect to proprietary information obtained from IGI by Transition Team
members during the Transition Period. Concurrent with the execution of this
Agreement and as a condition to its effectiveness, IGI hereby waives and agrees
to use its best efforts to obtain a waiver from each member of the Transition
Team of any provision of the agreements described in Section 4.11(e) that is in
contravention with this Agreement and the transactions contemplated thereby.
6.6 Earn Out Payment Calculation and Payment. The parties will
agree as to the amount of the Earn Out Payment within 45 days after the Earn Out
Period based upon the calculations set forth in Section 2.3(iii) of this
Agreement. If the parties are unable to agree as to such amount within such
45-day period, either party may submit such dispute to arbitration which will be
decided within 60 days of the commencement of such arbitration pursuant to
Section 10.2 of this Agreement. GMC shall pay the Earn Out Payment to IGI within
30 days after determination of such amount, whether such determination is by
mutual agreement of the parties or pursuant to arbitration. If GMC does not pay
the Earn Out Payment to IGI within such 30-day period, then the License
Agreement shall automatically terminate, ownership of the Transferred Assets
will automatically revert to IGI without further action by either party and IGI
may seek specific enforcement of the arbitrator's decision regarding payment of
the Earn Out Payment in any court of competent jurisdiction, pursuant to Section
10.2 of this Agreement. Furthermore, in such event, GMC will execute such
agreements and other instruments and perform such acts as IGI may reasonably
request to vest all right, title and interest in the
<PAGE>
Transferred Assets in IGI. Notwithstanding the terms of this Section 6.7,
payment of the Earn Out Payment by GMC to IGI is subject to the terms of Section
10 of the License Agreement.
6.7 Subsequent Actions; Further Assurances. Each party agrees
to (a)cooperate fully with the other party, (b) execute such further
instruments, documents and agreements, (c) give such further written assurances
to evidence the transaction contemplated hereby and (d) make physical delivery
of any tangible Transferred Assets not already delivered or made reasonably
available to GMC as may be reasonably requested to evidence and reflect the
transactions described herein and contemplated hereunder; provided, however,
that any such request shall be at the expense of the party making such request
and shall be accomplished by the party making such request taking all necessary
action to minimize the effort required by the party receiving such request.
6.8 Bulk Sales. GMC hereby agrees to waive the requirement, if
any, that IGI comply with any bulk transfer law which may be applicable to the
transactions contemplated by this Agreement; provided, however, that IGI agrees
to indemnify and hold harmless GMC with respect to any noncompliance with such
laws and GMC's waiver with respect thereto.
Section 7. Indemnification.
7.1 Agreement to Indemnify. IGI agrees to, and hereby does,
indemnify and hold GMC harmless against and in respect of any loss, cost,
expense, claim, liability, deficiency, judgment or damage, including reasonable
legal fees and expenses (individually, a "GMC Loss"; and collectively, "GMC
Losses") incurred by GMC as a result of any inaccuracy in or breach of a
representation or warranty of IGI contained in this Agreement. Similarly, GMC
agrees to, and hereby does, indemnify and hold IGI harmless against and in
respect of any loss, cost, expense, claim, liability, deficiency, judgment or
damage, including reasonable legal fees and expenses (individually, an "IGI
Loss"; and collectively, "IGI Losses") incurred by IGI as a result of any
inaccuracy in or breach of a representation or warranty of GMC contained in this
Agreement.
7.2 Procedure for Indemnification.
(a) In the event that GMC or IGI shall incur or suffer a GMC
Loss or an IGI Loss, respectively, in respect of which indemnification
may be sought by such party pursuant to the provisions of this Article
7, such party shall assert a claim for indemnification by written
notice (a "Notice") to the other party briefly stating the nature and
basis of such claim. In the case of Losses arising by reason of any
third-party claim, the Notice shall be given within 30 days of the
filing or other written assertion of any such claim against the first
party.
<PAGE>
(b) In the case of third-party claims for which
indemnification is sought, the indemnifying party shall have the option
(i) to conduct any proceedings or negotiations in connection therewith,
(ii) to take all other steps to settle or defend any such claim and
(iii) to employ counsel to contest any such claim or liability in the
name of the indemnified party or otherwise; provided, however, that the
indemnifying party shall notify the indemnified party of its intentions
with respect to any of the foregoing within 30 days after receipt of
notice of any such claims. In any event, the indemnified party shall be
entitled to participate at its own expense with its own counsel in any
proceedings relating to any third-party claim, including without
limitation settlement negotiations. The parties agree to cooperate
reasonably with each other in connection with the defense of any claim.
IGI will have no liability to GMC for any breach of representations and
warranties based on (i)modification of the Exclusive Software and the
Nonexclusive Software or (ii) the combination or use of the Exclusive
Software and the Nonexclusive Software with software or any equipment
or process not furnished by IGI if such infringement would have been
avoided by the use of the Exclusive Software and the Nonexclusive
Software alone.
7.3 Sole Remedy. The provisions of this Article 7 and
Section10.2 constitute the sole remedy of a party for any breach of a
representation or warranty by the other party.
Section 8. Conditions to Closing. The obligations of GMC under Article
2 are subject to the fulfillment, on or before the Closing, of each of the
following conditions, unless GMC agrees in writing to waive such conditions:
8.1 Assignment of Assumed Contracts. IGI shall have caused the
Assumed Contracts to be assigned to GMC and shall deliver to GMC evidence of
such assignments, in form and substance satisfactory to GMC.
8.2 Approval of Transition Team. The proposed members of the
Transition Team shall be acceptable to GMC.
8.3 List of Transferred Assets and Employee Names. At the
closing, IGI shall deliver to GMC a true and complete list of the Transferred
Assets and an organizational chart describing the names and titles of all
employees of IGI's Exclusive Software line of business as of the Closing Date.
8.4 Source Codes. At the closing, IGI shall deliver to GMC on
electronic media a complete copy of the source codes for each of the current
versions of the Exclusive Software and the Nonexclusive Software.
8.5 Opinion of IGI's Counsel. GMC shall have received from
IGI's legal counsel a written opinion, dated as of the Closing Date, addressed
to GMC and satisfactory to GMC's legal counsel.
<PAGE>
8.6 Board Approval. The Boards of Directors of GMC and IGI
shall have approved this Agreement and the transactions contemplated hereby.
Such approvals shall not have been modified or rescinded.
8.7 License Agreement. GMC and IGI shall have entered into the
License Agreement pursuant to Section 2.5 of this Agreement.
Section 9. Noncompete Covenant. For a period of five years after the
Closing Date, IGI shall not, directly or indirectly, distribute, market, promote
or otherwise provide to any third parties any software that is competitive with
the business relating to the Exclusive Software, as such business exists
immediately after the Earn Out Period, unless GMC consents to the sale of such
software, except as may be otherwise provided in Section 3.1 of the License
Agreement.
Section 10. General Provisions.
10.1 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota, without regard
to its conflicts of law rules.
10.2 Arbitration.
(a) In General. Except as otherwise expressly set forth
herein, any controversy or claim arising out of or relating to this
Agreement, or breach thereof shall be settled by arbitration
administered by the American Arbitration Association under its
Commercial Arbitration Rules in effect on the date first written above
(the "Arbitration Rules"). The place of arbitration shall be
Minneapolis, Minnesota, U.S.A. The arbitration shall be conducted in
the English language by a sole arbitrator appointed in accordance with
the Arbitration Rules.
(b) Attorney's Fees. All reasonable attorney's fees and costs
incurred by the prevailing party in any arbitration pursuant to this
Agreement, and the cost of such arbitration, shall be paid by the other
party to the arbitration within five days after receipt of written
demand therefor from the prevailing party following the rendition of
the written decision of the arbitrator, or as otherwise ordered by the
arbitrator. On the application of such prevailing party before or after
the initial decision of the arbitrator, and proof of its attorneys'
fees and costs, the arbitrator shall order the other party to the
arbitration to make the payments provided for in the preceding
sentence; provided, however, that if neither party prevails entirely,
the arbitrator may, in his or her sole discretion, assess any part of
such attorneys' fees and costs against a specified party.
<PAGE>
(c) Binding Character. Any decision rendered by any arbitrator
pursuant to this Section 10.2 shall be final and binding on the parties
thereto, and judgment thereon may be entered by any court of competent
jurisdiction. The parties specifically agree that any arbitrator shall
be empowered to award and order equitable or injunctive relief with
respect to matters brought before it.
(d) Confidentiality. Neither party, nor the arbitrator shall
disclose the existence, content or results of any arbitration hereunder
without the prior written consent of both parties.
(e) Exclusivity. Except as provided in Section 10.2(f),
arbitration shall be the exclusive method available for resolution of
controversies and claims described in this Section 10.2, and the
parties stipulate that the provisions hereof shall be a complete
defense to any suit, action or proceeding in any court or before any
administrator or arbitrator with respect to any such controversy or
claim. The provisions of this Section 10.2 shall survive the
termination or expiration of this Agreement.
(f) Certain other Remedies. Notwithstanding the terms of this
Section 10.2 or any provision to the contrary in the Arbitration Rules,
at any time before and after arbitration is initiated pursuant to the
Arbitration Rules, the parties shall be free to apply to any court of
competent jurisdiction for interim or conservatory measures (including
temporary conservatory injunctions). The parties acknowledge and agree
that any such action by a party shall not be deemed to be a breach of
such party's obligation to arbitrate all disputes under this Section
10.2 or infringe upon the powers of any arbitrator. The parties hereby
consent to the non-exclusive jurisdiction of the U.S. District Court
for the District of Minnesota.
10.3 Successors and Assigns. The provisions hereof shall inure
to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto.
10.4 Entire Agreement; Amendment. This Agreement, including
the Exhibits hereto which are hereby incorporated by reference, constitutes the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof, and no party shall be liable or bound to any
other party in any manner by any representations, warranties or covenants except
as specifically set forth herein or therein. Except as expressly provided
herein, neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought.
10.5 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally (including
by
<PAGE>
commercial delivery service) or mailed by registered or certified mail (return
receipt requested) or sent via facsimile transmission (with acknowledgement of
complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
if to IGI, to: with a copy to:
Infinite Graphics Incorporated Gray, Plant, Mooty, Mooty & Bennett
4611 East Lake Street 3400 City Center
Minneapolis, Minnesota 55406 33 South Sixth Street
Attention: Clifford F. Stritch, Jr. Minneapolis, Minnesota 55402-3796
Facsimile No.: 612/721-3802 Attention: Robert P. Larson
Facsimile No.: 612/333-0066
if to GMC, to: with a copy to:
Global MAINTECH Corporation Dorsey & Whitney LLP
6468 City West Parkway 2200 South Sixth Street
Eden Prairie, Minnesota 55344 Minneapolis, Minnesota 55402
Attention: DavidH. McCaffrey Attention: Kenneth L. Cutler
Facsimile No.: 612/944-3311 Facsimile No.: 612/340-8738
Notice shall be deemed given upon personal delivery thereof or, if sent other
than by personal delivery, at the earlier of its receipt or 72 hours after
deposit postage prepaid in the U.S. mail or 72 hours after the complete
transmission thereof by facsimile transmission, as applicable.
10.6 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any party hereunder upon any breach or
default of GMC or IGI under this Agreement shall impair any such right, power or
remedy of such party, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any such holder, shall be
cumulative and not alternative.
10.7 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be enforceable against the parties
actually executing such counterparts and all of which together shall constitute
one instrument.
<PAGE>
10.8 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision, provided, however, that no such severability
shall be effective if it materially changes the economic benefit of this
Agreement to any party.
10.9 Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and shall not be considered in
construing or interpreting this Agreement.
<PAGE>
The parties hereto have caused this Agreement to be executed as of the
day and year first set forth above.
GLOBAL MAINTECH CORPORATION INFINITE GRAPHICS INCORPORATED
By /s/ illegible signature By /s/ illegible signature
----------------------------- ----------------------------
Its Chief Executive Officer Its Chief Executive Officer
EXHIBITS
- --------
Exhibit A Inventory and Exclusive Software
Exhibit B Marks, Nonexclusive Software and Transferred Assets
Exhibit C Bill of Sale and Assignment of Assets
Exhibit D Net Income after Taxes: Adjustments, Clarification and Exceptions
Exhibit E Allocation of Purchase Price
Exhibit F License Agreement
Exhibit G Assumed Contracts
SCHEDULES
Schedule 4.7
Schedule 4.11
Schedule 4.12
Schedule 6.3
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JAN-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,065,980
<ALLOWANCES> (36,659)
<INVENTORY> 154,406
<CURRENT-ASSETS> 1,245,718
<PP&E> 4,923,373
<DEPRECIATION> (4,176,271)
<TOTAL-ASSETS> 3,074,836
<CURRENT-LIABILITIES> 1,524,869
<BONDS> 0
<COMMON> 4,136,697
0
0
<OTHER-SE> (3,085,562)
<TOTAL-LIABILITY-AND-EQUITY> 3,074,836
<SALES> 3,782,748
<TOTAL-REVENUES> 3,785,684
<CGS> 2,499,402
<TOTAL-COSTS> 2,499,402
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,036
<INCOME-PRETAX> (335,938)
<INCOME-TAX> 0
<INCOME-CONTINUING> (335,938)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (335,938)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
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