SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File No.
APRIL 30, 1998 0-13042
INFINITE GRAPHICS INCORPORATED
(Name of Small Business Issuer in its Charter)
MINNESOTA 41-0956693
(State or other jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
4611 EAST LAKE STREET, MINNEAPOLIS, MN 55406
(Address of Principal Executive Offices) (Zip Code)
(612) 721-6283
(Issuer's Telephone Number including Area Code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes _X_ No___
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [ ].
Registrant's revenues for fiscal year ended April 30, 1998:
$3,611,891
Aggregate market value of voting stock held by non-affiliates of
registrant as of June 30, 1998: Approximately $1,261,725 (based on the
average of the high bid and asked prices ($0.75) on June 30, 1998. For this
purpose, shares held by all executive officers and directors have been excluded,
but without admitting all such persons are affiliates for other purposes).
Number of shares outstanding as of June 30, 1998: 2,716,150
shares of Common Stock, no par value.
Documents incorporated by reference: Portions of the registrant's
definitive Proxy Statement, for the 1998 Annual Meeting of Shareholders to be
filed with the Commission, are incorporated by reference in Part III of this
Form 10-KSB.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
(a) General Development of Business.
Infinite Graphics Incorporated ("IGI" or "the Company") is a
precision graphics company that serves the engineering and manufacturing
marketplace. The Company provides precision digital imaging services to printed
circuit, photo chemical manufacturing, liquid crystal display, flat panel
display, mapping, graphic arts, and other market places where exact size and
positioning of graphics are desired. The Company also resells software and other
precision graphics products to offer its customers a full service approach. The
Company was incorporated in Minnesota on November 26, 1969. On September 5,
1984, the Company became a public company as a result of a registered offering
of common stock.
The Company was organized in 1969 to provide graphic reproduction
services to architects and engineers. In 1973, the Company expanded its graphic
reproduction services primarily into the electronics industry. The precision
graphics produced by the Company are often that of an electronic circuit that
may be used to produce a printed circuit board, but may also include precision
graphics for other products. Prior to 1975, the technique used by the Company
for producing precision graphics involved the hand drafting of a large scale
model of the graphic image using precision drafting instruments. The drafting
image was then photographically reduced to the desired size. In 1975, the
Company began developing computer software programs for artwork generation. Also
in 1975 the Company began developing computeraided design (CAD) equipment that
enables faster and more accurate design of precision graphics. These computer
software programs enable the Company to more accurately and quickly produce most
of its precision graphics products. All of the precision graphics now generated
by the Company are produced through the use of CAD or computer-aided
manufacturing (CAM) systems.
In 1980, the Company acquired substantially all of the assets and
equipment of the printed circuit board design division of Data Graph, Inc. It
was at this time that the Company commenced designing printed circuit boards as
a service for others. In 1981, utilizing experience gained through designing its
own CAD/CAM software for its service operations, the Company began development
of a desktop CAD/CAM system to meet growing industry demand. In 1984, the IGI
Desktop 2100 CAD/CAM system was introduced to the marketplace. In March 1986,
the Company acquired a laser photoplotter that allowed the Company to provide
same day service to its customers. Due to increased demands, the Company
acquired additional laser photoplotters in 1988, 1992, 1995, and 1997. Some of
the photoplotters have scanning capability allowing the Company to generate a
CAD/CAM database from old hand drafted artwork. In 1990, the Company expanded
its operations by opening a sales and production facility in Salem, New
Hampshire. In 1993, the Company wrote software for one of its photoplotters that
allows the plotter to plot various shades of gray scale and has allowed the
Company to plot satellite images and orthophotos for the mapping industry. In
1995, the Company added a higher precision 1/16 mil laser photoplotter to its
Minneapolis facility and expanded its operations by purchasing out of bankruptcy
the assets of a California based precision graphics company and opening an
office in Irvine, California. In 1997, the Company added another laser
photoplotter to its California facility. In 1998, the Company agreed to acquire
a Gerber Systems Mask Write 800 laser photoplotter for its Minneapolis facility
with the vendor requiring payment for the laser photoplotter upon acceptance by
the Company. As is more fully described in Note 6 to the Financial Statements
contained in this Form 10-KSB, the Company has not yet accepted the laser
photoplotter because it does not yet operate within specified tolerances. In
addition, the Company is in the process of arranging financing of the purchase
of the laser photoplotter after its original financing arrangements were
terminated due to the delays in the Company's acceptance of the laser
photoplotter because of its failure to perform properly.
Prior to the fourth quarter of 1998, the Company had two divisions
focusing on distinct, but related, business segments. The first division, the
Engineering Services Division, designed and produced computer generated
precision graphics, normally on a custom basis and primarily for the electronics
industry. In addition, this division produced precision glass products, designed
printed circuit boards, and provided CAD/CAM services. The
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second division, the System Software Division, designed, assembled, and marketed
computeraided design and manufacturing software systems consisting primarily of
design/manufacturing software for 32 bit micro-computers.
In the fourth quarter of fiscal 1998, the Company determined that
the dual business focus of its Engineering Services Division and its System
Software Division was preventing it from capitalizing on the business
opportunities available to it. Therefore, the Company decided to eliminate one
of its divisions so that it could focus management's energy and skill, and the
Company's capital resources, on one business segment. On February 28, 1998 the
Company sold an exclusive, perpetual license to use, market and distribute the
Company's PAR/ICE, ParCAM, and CheckMate (PAR for Design) software products;
sold a nonexclusive, perpetual licenses to certain other CAD/CAM products,
including those known as 2100, ProCADD, ProFLEX and ProCHEM; and sold certain
assets of its System Software Division to Global MAINTECH Corporation ("Global
MAINTECH"). A brief description of each of these software products is contained
on page 5 of this Form 10-KSB. The license and sale of these software products
and assets eliminated the Company's System Software Division. 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. Although the Company still has the ability to market and
develop the software with respect to which Global MAINTECH was granted a
nonexclusive license and other software technology owned by the Company, the
Company does not have any intention at this time to market or develop this
software, except to the extent that the Company markets or develops these
products in conjunction with its service business. As consideration for the
grant of the licenses and the sale of the Software Systems Division assets to
Global MAINTECH, the Company received $500,000 on February 27, 1998, and is
eligible to 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. On June 2, 1998, the Company received $200,000 from Global MAINTECH as
an additional payment under its agreement with Global MAINTECH.
For a period of 15 months after February 28, 1998, the Company has
agreed to continue to manage the day-to-day operation of the business relating
to the software products and assets licensed and sold to Global MAINTECH.
Therefore, the Company anticipates that during fiscal 1999 approximately 25% of
the time spent by its management will be devoted to the continued operation and
management of these assets. During this time, all software revenues generated by
the Company's management of these assets will go to Global MAINTECH, and Global
MAINTECH will reimburse the Company for its reasonable expenses incurred in
connection with such management, including some general and administrative
expenses. Management of the Company anticipates that it will be able to devote
full time attention to the Company's service business beginning in fiscal 2000.
(b) Business.
SERVICES. Using the customer's data or design, the Company produces
a precision graphic image, in almost all cases, by using a laser plotter. The
precision graphic image produced by the Company is generally provided to the
customer on film or glass. The film or glass is then used by the customer to
reproduce the precision graphic image on metal, glass, or plastic material that
has been photographically sensitized. Through chemical etching, electroplating,
or some other processes, metal, glass, plastic, and other materials are then
manufactured by the
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Company's customer into the desired product, often in a mass production process.
The precision graphic images produced are often that of an electronic circuit
and are generally used to produce thin copper circuits to be assembled into
electronic circuit boards or packages for integrated circuits. However, the
images may be used to manufacture lead frames for integrated circuit chips,
photo chemically etched and plated parts, scales or liquid crystal displays
(LCD) and other flat panel displays. Other precision graphic services provided
by the Company involve the production of film or glass photographic images or
the production of precision graphics on paper or on a magnetic tape or disk. The
customer may then use the tape or disk to produce its own film or product. The
Company also assembles its precision graphics with other components to supply
subassemblies.
The Company's glass products all involve the generation of precision
graphics by the Company. These products include precision rulers and grids, and
other items produced to a customer's specifications, such as reticles (a system
of lines, dots, or cross hairs in the focus of the eyepiece of an optical
instrument) and gratings used in measuring general optical devices and laser
gyro directional devices. In contrast to its precision graphic imaging services,
the Company's glass products are often mass produced by the Company for direct
installation by the customer into the customer's product.
The design of printed circuit boards involves the conversion of the
customer's basic design of the circuit and its various electronic components
into an exact image of that circuit for a board of preestablished size. The
Company uses its computeraided design systems to supply printed circuit board
artwork.
The Company opened a sales and production facility in Salem, New
Hampshire, on January 3, 1990. It was established to service the Boston and
Northeastern U.S. marketplace. As of May 1, 1994, the Company entered into a
letter of intent to form a joint venture with a major New Hampshire customer of
the Company. By contributing substantially all of the assets of the Company's
New Hampshire operation, the Company owned 50 percent of the equity of the joint
venture and the customer owned the other 50 percent. From May 1, 1994 until
November 27, 1996, the New Hampshire operation was operated as a joint venture
pursuant to the letter of intent and the Company's investment in the joint
venture was recorded using the equity method of accounting. On November 27, 1996
the Company purchased from the joint venture partner a photoplotter and all of
the partner's interest in the joint venture for an aggregate purchase price of
approximately $119,000 (not including assumed liabilities of $128,884, including
$50,000 worth of services to be provided by the Company to the joint venture
partner). The acquisition was accounted for under the purchase method of
accounting. The Company's revenues and expenses include the results of
operations of the former joint venture beginning December 1, 1996. Prior to
December 1, 1996, the operations of the former joint venture were included in
equity in income of joint venture in the statements of operations. During fiscal
1998, the New Hampshire facility generated approximately $415,000 in revenue,
all of which were included in the Company's revenue. During fiscal 1997, the New
Hampshire facility generated approximately $447,000 in revenue, of which
$173,000 were included in the Company's revenue.
To service the Southern California marketplace, the Company acquired
the assets of Infinite Technologies, a California precision graphics service
company, from bankruptcy court on September 13, 1995 for $27,500 cash and a
$76,000 promissory note which bears interest at the prime rate plus 2 percent.
The promissory note was paid in fiscal 1998. The acquisition was accounted for
under the purchase method of accounting. The Company included the results of
operations of the California precision graphics company beginning September 13,
1995 and revenues were approximately $468,000 and $484,000 for fiscal 1998 and
1997, respectively.
EQUIPMENT AND PRODUCTION. In order to produce its precision
graphics, the Company uses its own software products: ProCADD (also configured
as ProFLEX), CAM, EXT, ICE, PAR and CheckMate; as well as hardware and software
from others. Using such computeraided design systems, the circuit or other
graphics are designed by the Company's personnel to the customer's
specifications. A graphic design produced on the CAD/CAM system can then be
stored electronically, and this information is then used to feed a plotting
device that draws the design. The plotting device can be a pen and ink plotter,
or more often for precision graphics, a photoplotting device. A photoplotting
device is a highly stable platform upon which film or glass is placed. The
motion of the light and/or platform is controlled by information stored on the
disk produced on the Company's CAM system. The Company owns or leases a number
of photoplotting devices. These photoplotters include a Gerber 1434 in which the
light pen positioning is laser controlled; three Cymbolic Science Fire 9000
laser photoplotters, three Optrotech 5008 imaging systems, and
<PAGE>
one Gerber Systems Mask Write 800. The Company also owns photographic equipment
used in photo reproduction, film processors, step and repeat equipment, custom
equipment, and various other photographic, measuring and computer equipment.
CUSTOMERS. The Company's Engineering Services Division customers are
generally in the business of producing electronic products. The precision
graphic and circuit board design services of the Company are sometimes requested
because of the needed precision, or because certain phases of the process
necessary to produce the required graphics are not within the customer's
capability. However, it is more often the case that some or all phases of such
production are within the customer's capability, but that the customer has made
a business decision to engage the services of the Company.
The Company provided custom precision graphics and circuit board
design services to approximately 400 customers during fiscal 1998. During fiscal
1998, no one customer in the Services Division accounted for ten percent or more
of the Company's sales.
The Company's potential customers include virtually all of the
approximately 650 captive and merchant printed circuit board fabrication
facilities in the United States.
MARKETING. During fiscal 1998, the Company added customers in the
interconnect and display markets, two segments of the electronic manufacturers
market, and continued focusing its marketing activity on printed circuit (PC)
designers and captive and merchant printed circuit board (PCB) manufacturers.
Market growth and the Company's efforts are focused on high-end phototools for
LCD panels, multi-chip modules, flexible wiring boards and photomasks. This
approach continues to take advantage of the Company's 20-plus years' experience
in dealing with the PCB industry.
The distribution channels include a combination of direct Company
sales personnel and independent sales agents. The Company's independent sales
agents are not exclusive agents of the Company. These personnel are organized to
address specific segments within the general PCB market. Historically, the
product responsibility of the Company's marketing efforts at a given account has
been split. Since 1992, the Company has combined product responsibilities, first
at printed circuit board manufacturing accounts and later at larger Fortune 500
and electronics companies.
SOURCES OF SUPPLY. The Company believes nearly all of the supplies
and equipment used in its precision graphics business are readily available from
a number of sources, except for the following items where replacement items are
available, but at a higher cost and greater lead time. During fiscal 1998, the
Company continued to receive photosensitive glass from Eastman Kodak, however,
this glass is not supplied to the Company pursuant to any written agreement
between Eastman Kodak and the Company. If Eastman Kodak ceases to provide the
Company with such glass, the Company would have to pay higher raw material
prices for higher quality materials from an alternative source that is available
to the Company. In addition, during fiscal 1998, the Company continued to rely
upon Gerber Scientific Instruments, Inc., Cymbolic Sciences and Orbotech, Inc.
to provide spare parts to repair the photoplotting instruments purchased from
them and used by the Company. The Company also relies on limited vendors for its
iron oxide and chrome glass blanks. Although the Company presently has no reason
to believe that the loss of any of these sources of supply will occur, the loss
of any such source of supply could adversely affect the Company's business.
COMPETITION. The precision graphics services that the Company offers
are composed of four main product areas. The first is photoplotting and its
associated processes, the second is design, the third is large area fine line
tooling, and the fourth is glass products.
In the photoplotting area, there are approximately 100 companies in
the U.S. which offer the same general services. The major differences between
the Company and the competitors are based on capabilities of photoplotting
equipment, programmers dedicated to automating work flows, and partnering with
our customers through installation of automation software which increases
efficiencies, quality and fast delivery.
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Based on these differences, the Company can enjoy certain
competitive advantages; however, it is possible that several competitors could
acquire the same equipment, eliminating the Company's competitive advantage in
photoplotting. It is also possible for a competitor to write automation software
and install it, which would reduce the Company's advantage.
The design services portion of the precision graphics business faces
a minimum of 100 competitors nationally, ranging from very small garage-type
operations to those that are several times the Company's size. Many of these
companies are totally focused on this market and are located near their
customers and therefore hold a competitive advantage.
The large area fine line tooling and glass products portion of the
business has limited competition; however, some of this competition has
substantially greater financial resources than the Company. Geographical
location is not generally a competitive factor for this market.
The Company must continue to maintain very high levels of service
and quality which permit it to differentiate itself from the competitors.
ENVIRONMENTAL COMPLIANCE. The Company believes it is in compliance
with all federal, state and local requirements with regard to air and waste
water emissions and has no plans to make significant capital expenditures for
environmental control facilities.
EMPLOYMENT. The Company had 37 full-time and 6 part-time employees
as of April 30, 1998. The number of employees is expected to vary during fiscal
1999 depending upon the Company's efforts to automate and expand. None of the
Company's employees are covered by a collective bargaining agreement, and the
Company believes its relations with employees are good.
SOFTWARE PRODUCT DESCRIPTIONS. Set forth below is brief description
of some of the software products of the Company: CAM, PAR, EXT, ICE, ProCADD
(also configured as ProFLEX) and CheckMate (PAR for Design), ParCAM, and
ProCHEM.
CAM A general product for making tooling for the printed wiring board
(PWB) fabricator.
PAR "Producibility Analysis Report" analyzes and presents to the user
design and manufacturing plans as well as possible design
modifications to increase yields and reduce costs.
EXT Generates electrical net list for graphics and has the capability to
compare it to other net lists. It also has full support of netlist
for bare board electrical test.
ICE "Interactive Conflict Editor" is used to automatically fix the
problems found by PAR.
PROCADD IGI's basic CAD package for general two dimensional applications.
PROFLEX IGI's extended CAD package, primarily packaged with special software
modules for flex circuit design and chemical milling.
CHECKMATE A type of PAR software product for verifying the manufacturability
of PWB designs.
PARCAM Software product combining the Company's PAR, ICE, and CAM software
products designed for use in the same markets as PAR, ICE, and CAM.
PROCHEM Graphic design and manufacturing package for the generation and
enhancement of precision graphics for the chemical milling industry.
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ITEM 2. DESCRIPTION OF PROPERTY.
The business of the Company was conducted at the five following
locations during fiscal 1998. The Company sold its Plymouth facility in December
1990 and is leasing back approximately 3,000 square feet for its micro
production (clean room facility) and some storage.
The Company substantially utilizes the following facilities and
believes they are suitable for its needs.
Approx. Square
Location Purpose Footage Terms
- ------------------ ---------------------------------- ------------ -----
4611 East Lake St. Service operations 9,200 (1)
Minneapolis, MN
4621 East Lake St. Systems operations and administration 5,000 (2)
Minneapolis, MN
12855 Highway 55 Service Operations 3,000 (3)
Plymouth, MN
8 Industrial Way Service Operations and Systems sales 2,500 (4)
Salem, NH
17332 Von Karman Service Operations and sales 3,400 (5)
Irvine, CA
- ----------
(1) Mortgage note between the Company and Riverside Bank for the 4611 East
Lake St. facility. The mortgage note is effective as of October 24, 1997
and has an original principal balance of $250,000. 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. Interest
on the mortgage note is at Riverside Bank's reference rate plus 2 percent
(currently 10.5%). The current monthly principal and interest payments are
$3,385.85. The mortgage note matures on October 15, 2000.
(2) Lease between the Company and Infinite Properties, a partnership of the
Company's Chairman of the Board, Clifford F. Stritch, Jr., and Daniel R.
Schultz, dated October 31, 1983. The original term of the lease expired on
October 31, 1988. The Company exercised its option to renew the lease for
an additional five year period. The lease was subsequently amended to
extend to April 30, 1997. The lease was subsequently amended by oral
agreement to extend to April 30, 1999 on the same terms and conditions as
the prior extension. The rent is currently $2,750 per month.
(3) Lease between the Company and Anchor Paper is for space for the Company's
clean room housing the Gerber 1434 photoplotter. The rent is $2,110 per
month plus $500 per month for utilities. The current lease terminates
December 31, 1998, but is cancelable any time with a ninety-day notice
from the Company.
(4) Lease between the Company and Harold J. Brooks, a real estate developer
who owns the property in which the Company's New Hampshire operation is
located. On January 24, 1996 the Company exercised its option to extend
the term of the lease for two years. The lease term is from January 1,
1996 through December 31, 1997. The basic rent is $15,000 and $15,625 for
the first and last year, respectively. The Company also pays real-estate
taxes, utilities and common-area maintenance fees under the terms of this
lease. Currently, the Company is a month-to-month at-will tenant of this
property and pays a monthly rent of $1,302.08. The Company is in the
process of negotiating a new lease.
(5) Lease between the Company and Superior Investment Company, L.P., a
California limited partnership, for the facility. The initial term of the
lease was September 1, 1995, for a term of 36 months expiring on
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August 31, 1998. The lease has subsequently been extended to August 31,
2000. The rent is currently $34,824 per year payable in monthly
installments. The rent for the year beginning September 1, 1998 is $37,740
payable in monthly installments. The rent for the year beginning September
1, 1999 is $38,964 payable in monthly installments.
The Company believes all of the above properties have unique
characteristics and significant improvements specific to the Company's business
and are of diminished value to a general commercial tenant. Identification and
development of comparable locations would require a significant investment on
the part of the Company.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending to which the Company
is currently a party or to which the property of the Company is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal 1997.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY STOCK AND RELATED STOCK HOLDER MATTERS.
The Company's common stock is quoted in the over-the-counter market.
At June 30, 1998, the number of record holders of the Company's common stock was
211. The following table sets forth the range of high bid and low bid
quotations for each quarter of the fiscal years ended April 30, 1998 and April
30, 1997. These quotations are from the over-the-counter market and reflect
inter-dealer prices without retail markups, markdowns, or commissions and may
not represent actual transactions.
Year Ended April 30, 1998 Year Ended April 30, 1997
---------------------- ---------------------
Quarter Ended High Bid Low Bid High Bid Low Bid
- ------------- -------- ------- -------- -------
July 31 $ 3/4 $ 11/16 $ 11/16 $ 7/16
October 31 $ 13/16 $ 25/32 $ 1 $ 9/16
January 31 $ 3/4 $ 9/16 $ 1-1/8 $ 13/16
April 30 $ 7/8 $ 5/8 $ 1 $ 11/16
The Company has paid no dividends to date and does not anticipate
the payment of dividends in the immediate future. The Company intends to retain
cash to fund future growth. The Company's General Credit and Security Agreement
with SPECTRUM Commercial Services prohibits the payment of dividends.
On November 6, 1997, Robert J. Fink exercised outstanding warrants
to purchase 190,000 shares of common stock of the Company for a per share
exercise price of $.125 per share. The $23,750 in proceeds received by the
Company from such exercise was used for general working capital purposes. The
securities were not registered under the Securities Act of 1933, as amended, in
reliance upon Section 4(2) promulgated thereunder.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
SECURITIES LITIGATION REFORM ACT. Except for the historical
information contained herein, the matters discussed in this Form 10-KSB 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.
Prior to the fourth quarter of 1998, the Company had two divisions
focusing on distinct, but related, business segments. The first division, the
Engineering Services Division, designed and produced computer generated
precision graphics, normally on a custom basis and primarily for the electronics
industry. In addition, this division produced precision glass products, designed
printed circuit boards, and provided CAD/CAM services. The second division, the
System Software Division, designed, assembled, and marketed computeraided design
and manufacturing software systems consisting primarily of design/manufacturing
software for 32 bit micro-computers.
On February 28, 1998, the Company sold an exclusive, perpetual
license to use, market and distribute the Company's PAR/ICE, ParCAM, and
CheckMate (PAR for Design) software products; sold a nonexclusive, perpetual
licenses to certain other CAD/CAM products, including those known as 2100,
ProCADD, ProFLEX and ProCHEM; and sold certain assets of its System Software
Division to Global MAINTECH Corporation ("Global MAINTECH"). The license and
sale of these software products and assets eliminated the Company's System
Software Division.
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The operations discussion that follows is of results from continuing
operations and results from discontinued operations.
RESULTS OF CONTINUING OPERATIONS. Net sales were $3,612,000 in
fiscal 1998, a decrease of $431,000 or 11% when compared to net sales of
$4,043,000 in fiscal 1997. The decrease in sales is primarily due to new imaging
equipment not meeting specifications and some customers adding in house
capabilities.
The gross margin in fiscal 1998 was 27%, compared to 30% in fiscal
1997. The $990,000 gross profit for fiscal 1998 compares to $1,223,000 for
fiscal 1997. The decreases in sales were the primary contributor to the decrease
in gross margin as a percentage of sales and gross margins. As revenues
decreased, gross margin as a percentage of revenues have decreased, due to the
majority of the cost of products sold being fixed costs.
The Company's total selling, general and administrative (S, G & A)
expenses increased by $43,000, or 5%, in fiscal 1998 due to increases in sales
personnel. Total S, G & A expenses as a percentage of sales were 26% for fiscal
1998, up from 22% for fiscal 1997. S, G & A as a percentage of revenues have
increased, due to the increase in S, G & A and the decrease in sales.
The Company's interest expense was $30,000 in fiscal 1998 and
$71,000 in fiscal 1997. The decrease in interest expense during fiscal 1998 when
compared to fiscal 1997 is primarily due to the interest expense associated with
sales and use tax audits in 1997.
RESULTS OF DISCONTINUING OPERATIONS. Net sales for the ten months
ended February 28, 1998 were $1,282,000 in fiscal 1998, compared to net sales of
$1,802,000 for fiscal 1997. Annualized sales for the ten months ended February
28, 1998 were less than fiscal 1997 sales due to late completion of new revision
of software.
Loss from operations of discontinued software division was $224,000
in fiscal 1998 when compared to $140,000 in fiscal 1997. The increase in loss
from discontinued operations is primarily due to the decrease in software sales.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1999, the Company intends to focus on services for the
precision graphics marketplace, primarily for the design and manufacture of
electronic products. The Company intends to expand its breadth of services to
include more high-precision graphics, resale software and other precision
graphics products, add at least one new precision graphics service, and open a
fourth production location in the U.S.
The Company will also continue its efforts to increase automation
and streamlining of operational support and overhead functions, while
maintaining high technical quality and quick service. The automation of
operational activities will be extended into such functions as accounting,
management information systems and manufacturing resource planning
LIQUIDITY. The Company had positive working capital of $473,000 as
of April 30, 1998 and a working capital deficit of $261,000 as of April 30,
1997. The Company's cash flow from operations was $854,000 for fiscal 1998. The
largest components of cash flow from operations was depreciation and
amortization of $837,000 and the capitalized software costs expensed in
connection with continued operations partially offset by the gain on sale of
discontinued operations. In fiscal 1998, the Company invested cash of $788,000
in software and capital equipment. Additional capital equipment was financed
through accounts payable and long-term debt. Cash provided from planned
operations, the obtaining of additional debt and/or equity financing, and
availability under the Company's line of credit are estimated to be sufficient
to support the Company's expected cash needs for fiscal 1999. Although the
Company is exploring additional funding possibilities, it has no agreements to
provide additional debt or equity capital and there can be no assurance that
additional funds will be available, or if available, available on terms
acceptable to the Company. If the Company is unable to obtain additional debt
and/or equity funding, it may not be able to expand its investment into new
operations.
<PAGE>
The Company's long-term expansion plan relies on the Company receiving a major
portion of the potential $3,300,000 payment in fiscal 2000 for the software
licenses and assets sold to Global MAINTECH.
CAPITAL RESOURCES. The Company's capital expenditure for equipment
and improvements, including capital leases and accounts payable, was $432,000 in
fiscal 1998, a decrease of $11,000 from capital expenditures of $443,000 in
fiscal 1997. The Company invested in equipment and improvements essential for
present operations in and investment in capital resources for future operations.
The Company's capital expenditures for equipment, automation
improvements opportunities in fiscal 1999 are expected to be approximately
$2,500,000, which include $1,100,000 of equipment ordered, delivered and not
accepted in fiscal 1998. The Company anticipates that financing for such
expenditures will be derived from planned operations, leases and obtaining
additional debt and/or equity financing. If the Company does not achieve its
operations plan and additional financing is not obtained, it will restrict
planned business growth.
The Company's cash flow used in investing activities were $412,000
in fiscal 1998. In fiscal 1998 cash used in investing activities consisted
primarily of expenditures for capitalized software of $524,000 and $264,000 for
other capital expenditures partially offset by net cash receipts of $376,000
from the purchaser of the System Software Division.
The Company's cash flow used in financing activities were $246,000
in fiscal 1998, consisting primarily of principal payments on long-term debt and
capital lease obligations of $234,000, A decrease of $286,000 in the revolving
credit agreement, $250,000 of borrowings from a mortgage note and $24,000 from
proceeds resulting from the exercise of stock warrants.
OTHER ITEMS. Inflation has not had any significant impact upon the
Company's results of operation.
YEAR 2000 COMPLIANCE
The Company has conducted a review of its computer systems to
identify those areas that could be affected by the Year 2000 problem and is
developing an implementation plan to resolve the issues identified. The
Company's accounting software is not Year 2000 compliant. The Company is
currently evaluating vendor software packages to meet its future needs. The
Company believes the Year 2000 problem will not pose any significant operational
concerns and is not anticipated to be material to the Company's financial
position or results of operations in any given year.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, REPORTING
COMPREHENSIVE INCOME, which establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The Company will be required to adopt SFAS no. 130 in
fiscal 1999.
In June 1997, the FASB also issued SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 redefines how
operating segments arc determined and requires disclosures of certain financial
and descriptive information about a company's operating segments. The Company
anticipates the adoption of SFAS no. 131 will result in the Company continuing
to operate in one segment The Company will be required to adopt SFAS in fiscal
1999.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Infinite Graphics Incorporated
Minneapolis, Minnesota
We have audited the accompanying balance sheets of Infinite Graphics
Incorporated (the Company) as of April 30, 1998 and 1997 and the related
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended April 30, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of April 30, 1998 and 1997
and the results of its operations and its cash flows for each of the two years
in the period ended April 30, 1998 in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Minneapolis, Minnesota
July 22, 1998
<PAGE>
INFINITE GRAPHICS INCORPORATED
BALANCE SHEETS
APRIL 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 195,984
Accounts receivable, less allowance for doubtful accounts of
$43,420 and $104,441, respectively 735,870 $ 1,390,198
Account receivable - other (Note 2) 200,000
Inventories (Note 3) 187,743 162,952
Prepaid expenses and other 44,723 36,312
----------- -----------
Total current assets 1,364,320 1,589,462
PROPERTY, PLANT, AND EQUIPMENT, net (Note 4) 758,076 691,002
PURCHASED SOFTWARE, less accumulated amortization
of $141,446 and $111,203, respectively 94,364 54,173
CAPITALIZED SOFTWARE COSTS, less accumulated amortization
of $5,708,196 968,455
ACCOUNT RECEIVABLE - other (Note 2) 313,254
OTHER ASSETS 31,183 30,025
----------- -----------
$ 2,561,197 $ 3,333,117
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving credit agreement (Note 5) $ 141,324 $ 427,291
Trade accounts payable 237,834 317,451
Accrued salaries, wages, vacations, and employee withholdings 198,762 310,962
Other accrued expenses 229,489 317,772
Deferred revenue 10,184 259,308
Current portion of long-term debt (Note 5) 38,855 175,096
Current portion of capitalized lease obligations (Note 6) 34,442 43,054
----------- -----------
Total current liabilities 890,890 1,850,934
LONG-TERM DEBT, less current portion (Note 5) 403,651 7,395
CAPITALIZED LEASE OBLIGATIONS, less current portion (Note 6) 76,795 111,465
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Note 7):
Common stock, no par value; authorized 10,000,000 shares,
issued and outstanding 2,652,575 and 2,462,575 shares, respectively 4,136,697 4,112,947
Accumulated deficit (2,946,836) (2,749,624)
----------- -----------
Total stockholders' equity 1,189,861 1,363,323
----------- -----------
$ 2,561,197 $ 3,333,117
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1998 AND 1997
- --------------------------------------------------------------------------------
1998 1997
REVENUES:
Net sales $ 3,611,891 $ 4,043,174
Other income 71,313
----------- -----------
Total revenues 3,611,891 4,114,487
COSTS AND EXPENSES:
Cost of products sold 2,621,660 2,820,201
Selling, general, and administrative 931,638 888,542
Interest 30,000 71,239
----------- -----------
Total costs and expenses 3,583,298 3,779,982
----------- -----------
OPERATING INCOME 28,593 334,505
EQUITY IN INCOME OF JOINT VENTURE (Note 11) 16,257
----------- -----------
INCOME BEFORE INCOME TAXES 28,593 350,762
INCOME TAXES (Note 8) 2,000 2,000
----------- -----------
INCOME FROM CONTINUING OPERATIONS 26,593 348,762
DISCONTINUED OPERATIONS - Loss from operations
of discontinued software division (Note 2) (223,805) (140,046)
----------- -----------
NET (LOSS) INCOME $ (197,212) $ 208,716
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Basic 2,553,671 2,380,778
=========== ===========
Diluted 2,711,944 2,717,006
=========== ===========
BASIC NET (LOSS) INCOME PER SHARE:
Continuing operations $ .01 $ .15
Discontinued operations (.09) (.06)
----------- -----------
Net (loss) income $ (.08) $ .09
=========== ===========
DILUTED NET (LOSS) INCOME PER SHARE:
Continuing operations $ .01 $ .13
Discontinued operations (.08) (.05)
----------- -----------
Net (loss) income $ (.07) $ .08
=========== ===========
See notes to financial statements.
<PAGE>
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
----------- -----------
<S> <C> <C> <C> <C>
BALANCES AT APRIL 30, 1996 2,350,575 $ 4,096,947 $(2,958,340) $ 1,138,607
Options exercised 32,000 6,000 6,000
Warrants exercised 80,000 10,000 10,000
Net income 208,716 208,716
----------- ----------- ----------- -----------
BALANCES AT APRIL 30, 1997 2,462,575 4,112,947 (2,749,624) 1,363,323
Warrants exercised 190,000 23,750 23,750
Net loss (197,212) (197,212)
----------- ----------- ----------- -----------
BALANCES AT APRIL 30, 1998 2,652,575 $ 4,136,697 $(2,946,836) $ 1,189,861
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
INFINITE GRAPHICS INCORPORATED
STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1998 AND 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (197,212) $ 208,716
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 836,886 927,950
Equity in income of joint venture (16,257)
Changes in assets and liabilities:
Accounts receivable 654,328 (384,361)
Inventories (24,791) (36,182)
Prepaid expenses and other (8,411) (14,850)
Other assets 14,829 (3,573)
Accounts payable, accruals, and other accrued expenses (281,926) 126,886
Deferred revenue (140,194) 34,824
----------- -----------
Net cash provided by operating activities 853,509 843,153
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for capitalized software (524,302) (598,899)
Other capital expenditures (263,747) (163,449)
Increase in account receivable - other (123,544)
Proceeds from sale of discontinued operations 500,000
Purchase of joint venture interest, net of cash acquired (52,500)
----------- -----------
Net cash used in investing activities (411,593) (814,848)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit agreement (5,957,710) 6,151,690
Payments under revolving credit agreement 5,671,743 (5,989,006)
Proceeds from issuance of long-term debt 250,000
Payments on long-term debt (190,433) (162,990)
Principal payments under capital lease obligations (43,282) (43,999)
Proceeds from issuance of common stock 23,750 16,000
----------- -----------
Net cash used in financing activities (245,932) (28,305)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 195,984 --
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR -- --
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 195,984 $ --
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
INFINITE GRAPHICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1998 AND 1997
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - The Company produces computer-generated
precision graphics on a custom basis primarily for the electronics
industry and designs printed circuit boards and produces precision glass
products. Prior to the sale of the software division in 1998, the Company
also designed, assembled, integrated, and marketed computer-aided
design/computer-aided manufacturing (CAD/CAM) systems and software.
CASH EQUIVALENTS - The Company considers all highly liquid investments
with original maturities of three months or less to be cash equivalents.
REVENUE RECOGNITION - Revenue on sales of precision graphics and CAD/CAM
systems is recognized when the products are shipped to the customer. If
the Company was subject to insignificant obligations on sales of CAD/CAM
systems, the costs of performing these insignificant obligations were
accrued at the time revenue on the sale of CAD/CAM systems was recognized.
Maintenance contract revenues are deferred and recognized as income over
the contract period.
INVENTORIES - Inventories are stated at the lower of cost (first-in,
first-out) or market.
PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment are
carried at cost less accumulated depreciation and amortization.
Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of five to twenty-five years for buildings
and improvements, five years for leasehold improvements, and three to ten
years for equipment.
CAPITALIZED SOFTWARE COSTS - Through February 27, 1998, the effective date
of the sale of the software division, the Company capitalized certain
costs incurred in developing and enhancing its software products in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED, and amortizes
such costs over the remaining economic life of the related products, which
is estimated to be three years for its internally developed products ($0
and $968,455, net of accumulated amortization at April 30, 1998 and 1997,
respectively). Amortization of capitalized software charged to loss from
operations of discontinued software division amounted to $550,856 and
$646,551 for the years ended April 30, 1998 and 1997, respectively.
PURCHASED SOFTWARE - Certain acquired software technology ($94,364 and
$54,173, net of accumulated amortization at April 30, 1998 and 1997,
respectively) is being amortized over its estimated remaining useful life
of three to five years.
RECOVERABILITY OF LONG-LIVED ASSETS - The Company reviews long-lived
assets for impairment whenever events or changes in circumstances indicate
the carrying value amount of an asset or group of assets may not be
recoverable. The Company considers a history of operating losses to be its
primary indicator of potential impairment. Assets are grouped and
evaluated for impairment at the lowest level for which there are
identifiable cash flows, geographic location. A geographic location is
deemed impaired if a forecast of undiscounted future cash flows directly
related to the geographic location, including disposal value, if any, is
less than its carrying amount. If a
<PAGE>
geographic location is determined to be impaired, the loss is measured as
the amount by which the carrying amount of the geographic location exceeds
its fair value. Fair value is based on quoted market prices in active
markets, if available. If quoted market prices are not available,
estimates of fair value are based on the best information available,
including prices for similar assets or the results of valuation techniques
such as discounted estimated future cash flows as if the decision to
continue to use the impaired geographic location was a new investment
decision. The Company generally measures fair value by discounting
estimated future cash flows. Considerable management judgment is necessary
to estimate discounted future cash flows. Accordingly, actual results
could vary significantly from such estimates.
INCOME TAXES - Income taxes are deferred for all temporary differences
between the financial statement and tax basis of assets and liabilities.
Deferred taxes are recorded using the enacted tax rates scheduled by tax
law to be in effect when the temporary differences are expected to be
settled or realized. Deferred tax assets are reduced by a valuation
allowance to the extent that the assets may not be realizable.
STATEMENTS OF CASH FLOWS - Supplemental disclosure of cash flow
information for the years ended April 30 is as follows:
1998 1997
Cash paid for interest $ 95,041 $ 115,359
Noncash investing and financing activities are as follows:
On November 27, 1996, the Company purchased from the joint venture partner
a photoplotter and all of the partner's interest in the joint venture. In
connection with the purchase, the assets acquired, liabilities assumed,
and consideration paid were as follows:
Assets acquired:
Cash $ 500
Accounts receivable 31,033
Inventories 12,287
Property and equipment 46,513
Other 6,399
Receivable from the Company 85,152
---------
181,884
Liabilities assumed:
Accounts payable 47,063
Accrued liabilities and compensation 31,821
Deferred revenue 50,000
---------
128,884
---------
Cash paid $ 53,000
=========
Accounts payable includes invoices for equipment purchases of $25,343 and
$42,340 at April 30, 1998 and 1997, respectively. In fiscal 1998, the
Company entered into an equipment loan to purchase $183,229 of equipment
and the payment of financing costs of $17,219. Capital lease obligations
of $0 and $156,091 were incurred when the Company entered into leases for
new equipment in fiscal 1998 and 1997, respectively.
<PAGE>
SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK - Most of the Company's
business activity is conducted with customers located within the United
States. Accounts receivable transactions are generally unsecured. A
provision for estimated doubtful accounts is provided for accounts
receivable. There are no concentrations of business transacted with a
particular customer or supplier nor concentrations of revenue from a
particular service or geographic area that could severely impact the
Company in the near future.
USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
RECLASSIFICATIONS - Certain amounts in the financial statements have been
reclassified for 1997 to conform with the 1998 presentation. These
reclassifications did not affect the net income or stockholders' equity as
previously reported.
NET (LOSS) INCOME PER SHARE - Effective December 15, 1997, the Company
adopted SFAS No. 128, EARNINGS PER SHARE. Per share amounts for the year
ended April 30, 1997 have been restated for the adoption of SFAS No. 128.
Basic (loss) income per share is computed by dividing (loss) income by the
weighted average number of common shares outstanding. Diluted income per
share assumes the exercise of stock options and warrants using the
treasury stock method, if dilutive.
Diluted (loss) income per share is computed by dividing (loss) income by
the weighted average common and common equivalent shares outstanding. For
the years ended April 30, 1998 and 1997, common stock equivalents (stock
options and warrants) increased the weighted average common and common
equivalent shares outstanding by 158,273 and 336,228 shares, respectively.
Options to purchase 240,000 shares of common stock at a weighted average
exercise price of $.84 per share were outstanding during 1998 but were not
included in the computation of diluted (loss) income per share because the
options' exercise prices were greater than the average market price of the
common shares.
RECENTLY ISSUED ACCOUNTING STANDARDS - In June 1997, the Financial
Accounting Standards Board (FASB) issued SFAS No. 130, REPORTING
COMPREHENSIVE INCOME, which establishes standards for reporting and
display of comprehensive income and its components in a full set of
general purpose financial statements. The Company will be required to
adopt SFAS No. 130 in fiscal 1999.
In June 1997, the FASB also issued SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 redefines
how operating segments are determined and requires disclosures of certain
financial and descriptive information about a company's operating
segments. The Company anticipates the adoption of SFAS No. 131 will result
in the Company continuing to operate in one segment. The Company will be
required to adopt SFAS No. 131 in fiscal 1999.
<PAGE>
2. DISCONTINUED OPERATIONS
Effective 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 agreements (the Agreements) 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.
The above transaction was recognized as a disposal of a business. The
software division had revenues of $1,282,000 for the ten months ended
February 28, 1998 and $1,801,585 for the year ended April 30, 1997. At
April 30, 1998, there are approximately $130,000 of assets and no
liabilities related to the software division.
At April 30, 1998, the Company has a $513,254 receivable from Global
MAINTECH. This receivable consists of $389,710 due in connection with the
Agreements, of which $200,000 was received in fiscal 1999, and $123,544
for amounts paid by the Company on behalf of Global MAINTECH.
The carrying value of the assets sold or expensed exceeded the proceeds
received in connection with the Agreements by $389,710 at June 30, 1998.
At the present time, management of the Company believes the future
payments in connection with the Agreements will exceed $389,710. The
Company has only recorded a future receivable to the extent of the
realized loss resulting in no loss gain on the sale of discontinued
operations. Future receipts in connection with the Agreements will be
recorded as a reduction of the Global MAINTECH receivable and any excess
will be recorded as gain on sale of discontinued operations.
3. INVENTORIES
April 30
------------------------
1998 1997
Raw materials $ 160,371 $ 147,252
Work-in-process and finished goods 27,372 15,700
--------- ---------
$ 187,743 $ 162,952
========= =========
<PAGE>
4. PROPERTY, PLANT, AND EQUIPMENT
April 30
--------------------------
1998 1997
Land $ 20,000 $ 20,000
Buildings and improvements 520,468 420,670
Leasehold improvements 314,392 300,672
Machinery and equipment 3,879,397 3,703,277
Vehicles 42,705 42,705
Furniture and fixtures 169,677 172,606
----------- -----------
4,946,639 4,659,930
Less accumulated depreciation and amortization 4,188,563 3,968,928
----------- -----------
$ 758,076 $ 691,002
=========== ===========
The above amounts include equipment under capital leases with a cost of
$161,950 and $215,745 and accumulated amortization of $53,789 and $62,246
at April 30, 1998 and 1997, respectively.
5. REVOLVING CREDIT AGREEMENTS AND NOTES PAYABLE
April 30
------------------------
1998 1997
Revolving credit agreements $ 141,324 $ 427,291
========= =========
Notes payable:
Mortgage note $ 242,118 $ 149,202
Equipment note and loan 200,388 15,619
Term loan, paid in 1998 17,670
--------- ----------
442,506 182,491
Less current maturities 38,855 175,096
--------- ----------
$ 403,651 $ 7,395
========= =========
On October 24, 1997, the Company entered into a revolving credit agreement
(the Revolver), a mortgage note (the Mortgage Note), and an equipment note
(the Equipment Note). The Revolver and Mortgage Note replaced existing
financing agreements.
The Revolver, at the lender's discretion, allows the Company to borrow 75%
of its eligible services receivable, up to $750,000, as defined. 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 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 Revolver also requires payment of a
$1,500 quarterly administrative fee. The Revolver terminates the earlier
of a date determined at the lender's discretion, the date the Company
terminates the Revolver, or October 12, 1999. If approved by the lender
and the Company, the termination date may be extended for nine months. If
the Revolver 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 Revolver are borrowed from Riverside Bank then no prepayment
charge is due. As of April 30, 1998, the amount outstanding relating to
the Revolver was $141,324 and the interest rate was 13%.
<PAGE>
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 April 30,
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. As of April 30, 1998, the amount outstanding relating to this
payable was $242,118.
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 April 30, 1998 was $192,993. 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% (10.5% at April 30,
1998), 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. Monthly
principal and interest payments are $3,460.
Borrowings under the Revolver, 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 Revolver,
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, prohibition of dividend payments,
and other matters.
During fiscal 1996, in connection with the Company's purchase of assets of
a California precision graphics service company from bankruptcy court, the
Company entered into a promissory note for $76,000 which had an interest
rate of prime plus 2% (payable in 24 equal monthly payments). The note was
secured by the assets acquired. The balance outstanding at April 30, 1997,
$17,202, was paid in fiscal 1998.
During fiscal 1996 the Company entered into an equipment loan, which is
collateralized by the equipment purchased. Principal borrowings on this
loan as of April 30, 1998 and 1997 total $7,395 and $15,619, respectively,
at an interest rate of 8.3%. As of April 30, 1998, the loan balance is
$7,395 and requires future monthly principal and interest payments
totaling $7,680 until February 1999.
Principal maturities on the notes outstanding at April 30, 1998 are
payable as follows:
Years ending April 30:
1999 $ 38,855
2000 35,361
2001 228,750
2002 21,823
2003 24,228
Thereafter 93,489
---------
$ 442,506
=========
The carrying amounts of notes payable and long-term debt approximate fair
market value at April 30, 1998. Rates currently available to the Company
for debt with similar terms and remaining maturities are used to estimate
the fair value of the existing debt.
<PAGE>
6. COMMITMENTS AND CONTINGENCIES
LEASES - The Company leases certain of its facilities and equipment under
operating leases (see Note 9). Rent expense incurred on these leases was
approximately $108,000 and $222,000 for the years ended April 30, 1998 and
1997, respectively.
Future minimum lease payments required under operating and capital leases
that have initial or remaining noncancelable lease terms in excess of one
year at April 30, 1998 are as follows:
Capital Operating
Years ending April 30:
1999 $ 44,356 $ 38,556
2000 35,868 12,998
2001 35,868
2002 11,956
--------- ---------
Total minimum lease payments 128,048 $ 51,544
=========
Less amounts representing interest 16,811
---------
Present value of net minimum obligations 111,237
Less current portion 34,442
---------
Long-term obligations at April 30, 1998 $ 76,795
=========
PURCHASE COMMITMENT - During 1998, the Company installed equipment costing
approximately $1,100,000. The Company is not required to pay for the
equipment until it is operating within specific tolerances. The vendor has
agreed to assist the Company in obtaining financing for the equipment. The
Company had reached an agreement with a financing company to lease the
equipment at the time of acceptance. However, the financing company
terminated its agreement due to delays in the Company accepting the
equipment caused by the equipment not operating within specific
tolerances. The Company has not accepted the equipment and is searching
for alternative financing.
7. STOCKHOLDERS' EQUITY
STOCK OPTIONS - Effective August 1, 1997, the Company established an
additional stock option plan, referred to as the 1997 Stock Option Plan.
This plan permits the granting of Nonstatutory Stock Options and Incentive
Options to employees and others providing services to the Company. With
the addition of this plan, the Company has three Incentive Stock Option
Plans (the Plans) for employees, directors, and company consultants. The
Company has reserved 1,150,000 shares of common stock for the Plans. The
option exercise price is to be not less than the fair market value of the
stock at the date of grant. The options are exercisable over a period not
to exceed ten years from the date of grant. The incentive options granted
are exercisable as follows: 20% after the first
<PAGE>
year, 40% after the second year, 60% after the third year, 80% after the
fourth year, and 100% after the fifth year. Activity under the Plans is as
follows:
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 370,000 $ .52 290,000 $ .33
Granted 240,000 .80 120,000 .88
Exercised (32,000) .19
Expired (220,000) .63 (8,000) .19
------- -------
Outstanding at end of year 390,000 $ .63 370,000 $ .52
======= ======= ======= =======
Options available for future grant 290,000 130,000
======= =======
</TABLE>
The Company applies Accounting Principles Board (APB) Opinion No. 25 and
related interpretations in accounting for the Plans. No compensation cost
has been recognized for options issued under the Plans when the exercise
prices of the options granted are at least equal to the fair value of the
common stock on the date of the grant. Had compensation cost for the
Company's stock option plans been determined based on the fair value at
the grant date for awards in 1998 and 1997, consistent with the provisions
of SFAS No. 123, the Company's net (loss) income and net (loss) income per
common share would have changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997
----------------------------- -----------------------------
As Reported Pro forma As Reported Pro forma
<S> <C> <C> <C> <C>
Income from continuing operations $ 26,593 $ 14,222 $ 348,762 $ 338,327
Discontinued operations (223,805) (223,805) (140,046) (140,046)
----------- ----------- ----------- -----------
Net (loss) income $ (197,212) $ (209,583) $ 208,716 $ 198,281
=========== =========== =========== ===========
Basic (loss) income per share:
Continuing operations $ .01 $ .01 $ .15 $ .14
Discontinued operations (.09) (.09) (.06) (.06)
----------- ----------- ----------- -----------
Net (loss) income $ (.08) $ (.08) $ .09 $ .08
=========== =========== =========== ===========
Diluted (loss) income per share:
Continuing operations $ .01 $ .00 $ .13 $ .12
Discontinued operations (.08) (.08) (.05) (.05)
----------- ----------- ----------- -----------
Net (loss) income $ (.07) $ (.08) $ .08 $ .07
=========== =========== =========== ===========
</TABLE>
<PAGE>
The fair value of each option grant was estimated on the grant date using
the Black-Scholes option-pricing model with the following assumptions and
results for the grants:
1998 1997
Dividend yield None None
Expected volatility 45.20% 43.94%
Expected life of option 5 5
Risk free interest rate 5.98% 6.33%
Fair value of options on grant date $.81 $.42
The following table summarizes information about stock options outstanding
at April 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ -----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Life Exercise Number Exercise
Prices Outstanding (Years) Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$.28-$.31 150,000 .50 $.30 150,000 $.30
.72-.84 160,000 4.66 .83 -- --
.88 80,000 4.00 .88 16,000 .88
------- ------- ----
$.28-$.88 390,000 2.92 $.63 166,000 $.36
======= ==== ==== ======= ====
</TABLE>
WARRANTS - In November 1992, warrants to purchase 350,000 shares of common
stock at an exercise price of $.125 per share were issued as part of a
debt restructuring. During fiscal 1998, 1997, and 1995, warrants to
purchase 190,000, 80,000, and 80,000 shares, respectively, of common stock
were exercised in each year.
8. INCOME TAXES
The income tax benefit for fiscal 1998 has been offset by a valuation
allowance because the Company's net operating loss could not be carried
back and future realization of the net operating loss carryforward was not
expected. Income tax expense for the year ended April 30, 1997 has been
primarily offset by a reduction in the valuation allowances for deferred
taxes. Income tax expense for the years ended April 30, 1998 and 1997
relates to minimum taxes due to various states the Company operates in.
For the years ended April 30, the provisions for income taxes relating to
continued operations differ from the expected income tax based on the
federal statutory tax rate as follows:
1998 1997
Federal tax at statutory rate $ 10,000 $ 123,000
State taxes 2,000 2,000
Change in valuation allowances 19,000 (135,000)
Other (29,000) 12,000
--------- ---------
$ 2,000 $ 2,000
========= =========
<PAGE>
Deferred tax assets and liabilities represent the tax impact of temporary
differences between the basis of assets and liabilities for financial
reporting purposes and income tax purposes.
Deferred taxes as of April 30 consist of the following:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Current deferred tax assets (liabilities):
Allowance for doubtful accounts and other accruals $ 69,000 $ 102,000
Less valuation allowance (69,000) (102,000)
----------- -----------
Net current deferred tax assets (liabilities) $ -- $ --
=========== ===========
Long-term deferred tax (liabilities) assets:
Software development costs $ -- $ (368,000)
Unrealized gain on discontinued operations (125,000)
Excess of tax over book depreciation (368,000) (467,000)
Tax net operating loss carryforward 1,099,000 1,326,000
General business credit 375,000 359,000
Less valuation allowance (981,000) (850,000)
----------- -----------
Net long-term deferred tax (liabilities) assets $ -- $ --
=========== ===========
</TABLE>
The Company has recorded valuation allowances to reduce the recorded net
deferred tax assets to zero after considering evidence regarding future
realization of the deferred amounts.
At April 30, 1998, the Company has income tax net operating loss
carryforwards of approximately $2,900,000 for federal and $1,600,000 for
Minnesota tax purposes. If not used, these carryforwards will begin to
expire in 2000 for federal and 2003 for state. The Company also has
federal general business credits of approximately $375,000 which will
begin to expire in 2003.
9. RELATED-PARTY TRANSACTIONS
The Company leases one of its facilities from a partnership which is 50%
owned by the Chairman of the Board of the Company. Monthly rentals under
this lease are $2,750. Rent expense incurred on this lease was $33,000 for
each of the years ended April 30, 1998 and 1997, respectively.
The Company leases production equipment from a partnership of which the
Chairman of the Board is a partner. Rent expense incurred on this lease
was $38,340 for each of the years ended April 30, 1998 and 1997.
10. DEFERRED SAVINGS PLANS
The Company has a defined contribution savings plan for employees who have
completed 30 days of service and attained the age of 21. The defined
contribution savings plan allows for employee compensation deferral
contributions under Section 401(k) of the Internal Revenue Code and
discretionary contributions by the Company. No such discretionary
contributions were made for the years ended April 30, 1998 or 1997. The
Company also has a discretionary cash bonus plan. The Company accrued
approximately $0 and $52,000 for the years ended April 30, 1998 and 1997,
respectively, relating to the discretionary cash bonus plan.
<PAGE>
11. INVESTMENT IN JOINT VENTURES
Effective May 1, 1994, the Company entered into a verbal agreement to form
a joint venture in which, upon contribution of substantially all of the
net assets of the Company's New Hampshire facility (approximately
$50,000), the Company would own 50% of the equity of the new corporation.
The assets were transferred at their historical carrying values.
The Company purchased from the joint venture partner, on November 27,
1996, a photoplotter and all of the partner's interest in the joint
venture. The Company agreed to continue payments totaling $66,000 to the
partner due in monthly installments of $5,500 (which includes $3,000 for a
monthly service agreement). The final payment was due on November 1, 1997,
at which time the partner transfered ownership of the photoplotter to the
Company. The Company also agreed to assume all the assets and liabilities
of the joint venture and pay the partner $53,000 in cash and to provide
the partner $50,000 of Engineering Services beginning on December 1, 1996
for the partner's interest in the joint venture. The Company assigned a
value of approximately $30,000 to the photoplotter, approximately the
future principal payments the Company will make. The acquisition was
accounted for under the purchase method of accounting.
Summarized financial information from the unaudited financial statements
of the joint venture, accounted for by the equity method, is as follows:
Period from
May 1, 1996 to
November 27, 1996
Net sales $ 273,766
Costs and expenses 241,253
Net income 32,513
The Company's share of net income of the joint venture for the year ended
April 30, 1997 was $16,257.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with the Company's
accountants on any accounting or financial disclosure matters.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSON;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Reference is made to the pertinent information contained in the
Company's definitive proxy statement for its 1998 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission, which information is
incorporated herein.
ITEM 10. EXECUTIVE COMPENSATION.
Reference is made to the pertinent information contained in the
Company's definitive proxy statement for its 1998 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission, which information is
incorporated herein.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Reference is made to the pertinent information contained in the
Company's definitive proxy statement for its 1998 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission, which information is
incorporated herein.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Reference is made to the pertinent information contained in the
Company's definitive proxy statement for its 1998 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission, which information is
incorporated herein.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8K.
(a) For Financial Statements filed as part of this Form 10-KSB,
reference is made to the Financial Statements beginning on page 11 of this Form
10-KSB. For a list of Exhibits filed as part of this Form 10-KSB, see Exhibit
Index on page 29 of this Form 10-KSB.
(b) During the last quarter of the of the period covered by this
Form 10-KSB, the Company did not file any reports on Form 8-K.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 13, 1998 By: _/s/ Clifford F. Stritch, Jr._______
Clifford F. Stritch, Jr.
Chairman of the Board
In accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Date: August 13, 1998 By: _/s/ Clifford F. Stritch, Jr._______
Clifford F. Stritch, Jr.
Chairman of the Board
Chief Executive Officer
Chief Financial Officer
Principal Accounting Officer
Date: August 13, 1998 By: _/s/ Edwin F. Snyder________________
Edwin F. Snyder
Director
Date: August 13, 1998 By: ____________________________________
Durwood L. Airhart
Director
Date: August 13, 1998 By: _/s/ Michael J. Evers_______________
Michael J. Evers
Director
<PAGE>
INFINITE GRAPHICS INCORPORATED
INDEX TO EXHIBITS
Form 10-KSB (for the year ended April 30, 1998)
3.1 Articles of Incorporation of Infinite Graphics Incorporated (1)
3.2 Bylaws of Infinite Graphics Incorporated (1)
4 Form of Certificate for Common Stock of Infinite Graphics Incorporated
(1)
10.1 Incentive Stock Option Plan of Infinite Graphics Incorporated* (5)
10.2 Lease between the Company and Infinite Properties, dated October 31,
1983, for property at 4621 East Lake Street, Minneapolis, Minnesota (1)
10.3 License agreement between the Company and Calos, Inc., dated December 21,
1984 (1)
10.4 Lease between the Company and Harold J. Brooks, dated November 15, 1989,
for the property at 8 Industrial Way, Salem, New Hampshire (2)
10.5 Lease between Company and Anchor Paper, dated December 20, 1990, for
3,000 square feet of space in the Plymouth building (3)
10.6 Settlement agreement between CIT and Company dated April 7, 1992 (4)
10.7 Robert J. Fink financing agreements dated November 17, 1992 (5)
10.8 Republic Acceptance Corporation financing agreements dated November 17,
1992 (5)
10.9 Amended lease between the Company and Infinite Properties dated
November 30, 1993 (6)
10.10 Amended lease between the Company and Anchor Paper Company dated
January 1, 1994 (6)
10.11 Extended lease between the Company and Harold J. Brooks dated January 31,
1995 (7)
10.12 Amended lease between the Company and Anchor Paper Company dated
January 1, 1996 (8)
10.13 Lease between the Company and Superior Investment Company dated
September 1, 1995 (8)
10.14 Amended lease between the Company and Anchor Paper Company dated
January 1, 1997 (9)
10.15 License and Asset Purchase Agreement dated February 27, 1998 between the
Company and Global MAINTECH Corporation (10)
10.16 General Credit and Security Agreement dated as of October 24, 1997
between the Company and SPECTRUM Commercial Services**
10.17 Revolving Note dated October 24, 1997 in original principal amount of
$750,000**
10.18 Term Loan Agreement dated as of October 24, 1997 between the Company and
Riverside Bank**
10.19 Mortgage Note dated October 24, 1997 in original principal amount of
$250,000**
<PAGE>
10.20 Combination Mortgage, Security Agreement, Fixture Financing Statement and
Assignment of Rents dated as of October 24, 1997 between the Company and
Riverside Bank**
10.21 Guaranty of Clifford F. Stritch, Jr. to Riverside Bank with respect to
$250,000 Mortgage Loan dated October 24, 1997**
10.22 Guaranty of Clifford F. Stritch, Jr. to SPECTRUM Commercial Services
dated October 24, 1997**
10.23 Subordination Agreement dated as of October 24, 1997 between SPECTRUM
Commercial Services and Robert J. Fink relating to loans by SPECTRUM
Commercial Services to the Company**
27 Financial data schedule.**
* Indicates management contracts or compensatory plan or arrangement
required to be filed is an exhibit to Form 10-K.
** Filed herewith.
(1) Filed with the Annual Report on Form 10K for the year ended April 30,
1989, and incorporated herein by reference.
(2) Filed with the Annual Report on Form 10-K for the year ended April 30,
1990, and incorporated herein by reference.
(3) Filed with the Annual Report on Form 10-K for the year ended April 30,
1991, and incorporated herein by reference
(4) Filed with the Annual Report on Form 10-K for the year ended April 30,
1992, and incorporated herein by reference.
(5) Filed with the Annual Report on Form 10K for the year ended April 30,
1993, and incorporated herein by reference
(6) Filed with the Annual Report on Form 10-K for the year ended April 30,
1994, and incorporated herein by reference.
(7) Filed with the Annual Report on Form 10-K for the year ended April 30,
1995, and incorporated herein by reference.
(8) Filed with the Annual Report on Form 10-K for the year ended April 30,
1996, and incorporated herein by reference.
(9) Filed with the Annual Report on Form 10-K for the year ended April 30,
1997, and incorporated herein by reference.
(10) Filed with the Quarterly Report on Form 10-Q for the quarter ended
January 31, 1998, and incorporated herein by reference.
GENERAL CREDIT AND SECURITY AGREEMENT
THIS AGREEMENT, dated as of October 24, 1997, between SPECTRUM
Commercial Services, a division of Lyon Financial Services, Inc., a Minnesota
corporation, having its mailing address and principal place of business at 7900
International Drive, Suite 890, Bloomington, Minnesota 55425-1581 (herein called
"Lender"), and Infinite Graphics Incorporated, a Minnesota corporation, having
the mailing address and principal place of business at 4611 East Lake Street,
Minneapolis, Minnesota 55406 (herein called "Borrower").
I. Agreement. This Agreement states the terms and conditions under
which Borrower may obtain certain loans and/or other credit extensions from
Lender.
II. Certain Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
"Acceptable Distributions" shall mean, with respect to Borrower, cash
distributions made to Borrower's shareholders during any period in which
Borrower has made an effective S Corporation election, in an amount equal to the
combined federal and state income tax liability of such shareholders arising
from their respective allocable share of the earnings and profit of Borrower,
with each shareholder's federal and state income tax liability, including any
minimum tax liability, to be computed on the basis of the applicable marginal
tax rate for individuals under the Code and relevant state law as such
applicable marginal tax rates are reduced by deductions for state income taxes
with respect to the Code and for federal income taxes with respect to the
relevant state law; provided, however, that no such distribution(s) shall be
made if and to the extent that, after giving effect thereto, the aggregate
amount distributed to all shareholders pursuant to this provision in any given
period exceeds an amount equal to the amount of regular state and federal income
tax that would be assessed against Borrower for such period if Borrower were
subject to the tax provisions applicable to a C Corporation but not including
any penalty tax provisions such as provisions for accumulated earnings taxes or
personal holding company taxes.
"Advance(s)" shall have the meaning provided in Paragraph 4(a).
"Affiliate" shall include, with respect to any party, any Person which
directly or indirectly controls, is controlled by, or is under common control
with such party and, in addition, in the case of Borrower, each officer,
director or shareholder of Borrower, and each joint venturer and partner of
Borrower.
"Borrower" shall have the meaning provided in the preamble hereto.
"Borrowing Base" shall mean the sum of (i) Seventy five percent (75%) of
the net amount of Eligible Service Receivables or such greater or lesser
percentage as Lender, in its sole discretion, shall deem appropriate, plus (ii)
a certain percentage of the net amount of Eligible Software Receivables due
wholly (but not partially) in 90 days or less or the first month of software
maintenance billings, as described here:
- ----------------- ---------------------------- ---------------
Net Income For Period Advance Rate
- ----------------- ---------------------------- ---------------
$50,000+ 2 Qtrs ending 1/31/98 70%
- ----------------- ---------------------------- ---------------
$75,000+ 2 Qtrs ending 4/30/98 70%
- ----------------- ---------------------------- ---------------
$100,000+ 2 Qtrs ending 7/31/98 and 70%
beyond in rolling 6 month
periods
- ----------------- ---------------------------- ---------------
Some Net Income 2 Qtrs ending 1/31/98, 50%
but less than 4/30/98 or beyond in
that listed rolling 6 month periods
above
- ----------------- ---------------------------- ---------------
Net Loss 2 Qtrs ending 1/31/98, 25%
4/30/98 or beyond in
rolling 6 month periods
- ----------------- ---------------------------- ---------------
Net Loss 2 Qtrs ending 1/31/98, 0%
4/30/98 or beyond in
rolling 6 month periods
- ----------------- ---------------------------- ---------------
or such greater or lesser percentage(s) as Lender, in its sole discretion, shall
deem appropriate ("Qtrs" are fiscal quarters and rolling 6 month periods). (New
Income or Net Loss is determined from the Net Income or Net Loss figures
reflected by the interim financial statements delivered to Lender or the audited
financial statements delivered to Lender pursuant to Paragraph 16(h) for fiscal
year ending financial statements and take effect immediately upon receipt. If
such financial statements are not received within the time periods required by
this agreement, then the advance rate will be deemed 0% thereafter.) The total
of all Eligible Software Receivables outstanding at any one time shall not
exceed Five Hundred
<PAGE>
Thousand and No/100ths Dollars ($500,000.00) or such greater or lesser amount
as, in its sole discretion, shall deem appropriate.
"Business Day" shall mean any day on which major commercial banks in
Minneapolis, Minnesota are open for the transaction of business of the kind
contemplated by this Agreement.
"Chattel Paper" shall have the meaning ascribed to such term in Article 9
of the Commercial Code.
"Closing Date" shall mean the day specified by Borrower on which all of the
conditions precedent specified in Paragraph 21 shall have been satisfied.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Commercial Code" shall mean the Uniform Commercial Code as enacted in the
State of Minnesota, as amended from time to time.
"Consolidated" shall, when used with reference to any financial information
pertaining to (or when used as a part of any defined term or statement
pertaining to the financial condition of) any Person, mean the accounts of such
Person and its subsidiaries, determined on a consolidated basis, all determined
as to principles of consolidation and, except as otherwise specifically required
by the definition of such term or by such statement as to such accounts, in
accordance with GAAP.
"Contingent Obligations" shall mean, with respect to any Person, all of
such Person's liabilities and obligations which are contingent upon and will not
mature unless and until the occurrence of some event or circumstance and which
are not included within the definition of Liabilities of such Person.
"Current Assets" shall have the meaning given to that term in accordance
with GAAP.
"Current Liabilities" shall have the meaning given to that term in
accordance with GAAP, except that the outstanding principal amount of the
Advance shall, in any event, be excluded.
"Customer(s)" shall have the meaning provided in Paragraph 7(a).
"Default" shall mean any event which, with the giving of notice or passage
of time, or both, would constitute an Event of Default.
"Eligible Inventory": None.
"Eligible Receivables" shall mean the dollar value of only such Receivables
of Borrower arising from the sale of Inventory or the rendition of services in
the ordinary course of business which has been fully performed by Borrower and
in which only Lender holds a senior security interest and as to which Lender, in
its sole discretion, shall from time to time determine to be Eligible
Receivables. Without limiting the discretion of Lender to consider any
Receivable not to be an Eligible Receivable, and by way of example only of types
of Receivables that Lender will consider not to be Eligible Receivables, Lender,
notwithstanding any earlier classification of eligibility may consider any
Receivable not to be an Eligible Receivable if: (i) any warranty is breached as
to the Receivable; (ii) the Receivable is not paid by the account debtor within
90 days from the date of the invoice relating to such Receivable; (iii) the
account debtor disputes liability or makes any claim with respect to the
Receivable; (iv) a petition in bankruptcy or other application for relief under
any insolvency law is filed with respect to the account debtor owing the
Receivable; (v) the account debtor on the Receivable makes an assignment for the
benefit of creditors, becomes insolvent, fails, suspends, or goes out of
business; (vi) the Receivable arises from a sale to an account debtor outside
the United States, unless the sale is on terms acceptable to Lender in its sole
discretion; (except for sales to an account debtor located in Canada which do
not exceed $10,000 outstanding in the aggregate); (vii) the Receivable is owed
by an account debtor who owes Receivables of which more than 10% are more than
90 days past the date of the invoices relating to such Receivables; (viii) the
account debtor is an Affiliate or employee of Borrower; (ix) the account debtor
is also a supplier or creditor of Borrower; (x) the account debtor is the United
States of America, or any department or any agency of any thereof, unless
Borrower has complied with the Assignment of Claims Act to Lender's
satisfaction; (xi) the Receivable is either a consignment Receivable or a bonded
Receivable or a retainage; (xii) In its reasonable discretion, Lender shall
become dissatisfied with the creditworthiness of an account debtor owing a
Receivable ; or (xiii) the portion by which the aggregate amount owing by an
account debtor exceeds $125,000.
"Eligible Service Receivables" shall mean those Eligible Receivables which
result from the sale of goods or services other than Software Receivables.
"Eligible Software Receivables": shall mean those Eligible Receivables
which result from the sale and delivery of computer software and programs along
with related training, documentation, service, support and other incidental or
related products and service, and also includes the sale of maintenance, service
or support of previously provided software programs.
"Equipment" shall have the meaning provided in Paragraph 3.
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
the same may from time to time be amended, and the rules and regulations
promulgated thereunder by any governmental agency or authority, as from time to
time in effect.
"ERISA Affiliate" shall mean, with respect to any Person, any trade or
business (whether or not incorporated) which is a member of a group of which
such Person is a member and which is under common control within the meaning of
Section 414 of the Code, as amended from time to time, and the regulations
promulgated and rulings issued thereunder.
"ERISA Event" shall mean: (a) a Reportable Event described in Section 4043
of ERISA and the regulations issued thereunder (other than a Reportable Event
not subject to the provision for 30-day notice to the PBGC under such
regulations); (b) the withdrawal of Borrower or any ERISA Affiliate from a Plan
during a plan year in which it was a "substantial employer" as defined in
Section 4001(a)(2) of ERISA; (c) the filing of a notice of intent to terminate a
Plan or the treatment of a Plan amendment as a termination under Section 4041 of
ERISA; (d) the institution of proceedings to terminate a Plan by the PBGC under
Section 4042 of ERISA; or (e) any other event or condition that might reasonably
be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
"Event of Default" shall have the meaning provided in Paragraph 20.
"GAAP" shall mean generally accepted accounting principles consistently
applied and maintained throughout the period indicated and consistent with the
audited financial statements delivered to Lender pursuant to Paragraph 16(h).
Whenever any accounting term is used herein which is not otherwise defined, it
shall be interpreted in accordance with GAAP.
"General Intangibles" shall have the meaning provided in Paragraph 3.
"Guarantor" shall mean Clifford Stritch, Jr. and any other Person who
enters into a Guaranty hereof.
"Guaranty(ies)" shall mean those certain Guaranties dated as of August 12,
1998, from Clifford Stritch, Jr. and any other agreement whereby a Person
guarantees the payment or performance of any of the Obligations.
"Independent Public Accountants" shall mean Deloitte & Touche, LLP or any
other firm of independent public accountants which is acceptable to Lender.
"Inventory" shall have the meaning provided in Paragraph 3.
"Liabilities" of any Person shall mean those items which, in accordance
with GAAP, appear as liabilities on a balance sheet.
"Line Maintenance Fee" shall have the meaning provided in Paragraph 17.
"Loan Administration Fee" shall have the meaning provided in Paragraph 17.
"Loan Document(s)" shall mean individually or collectively, as the case may
be, this Agreement, the Note, the Guaranty[ies], and any and all other documents
executed, delivered or referred to herein or therein, as originally executed and
as amended, modified or supplemented from time to time.
"Material Adverse Occurrence" shall mean any occurrence of whatsoever
nature (including, without limitation, any adverse determination in any
litigation, arbitration or governmental investigation or proceeding) which
Lender shall determine, in its sole discretion, could materially adversely
affect the present or prospective financial condition or operations of Borrower
or a Guarantor or impair the ability of Borrower or a Guarantor to perform its
obligations under this Agreement or any other Loan Document.
"Maturity Date" shall mean October 12, 1999, provided, however, that
Borrower shall have the option to extend the Maturity Date for subsequent six
month periods, unless Lender (in its sole and absolute discretion) notifies
Borrower at least sixty days prior to the then current Maturity Date that the
extension shall not be available and in that event, no extension shall occur. In
any event, the extension option shall not be available if, as of the then
current Maturity Date (i) an Event of Default has occurred and is continuing
(whether or not Lender has notified Borrower of such default), or (ii) this
Agreement has previously terminated as provided in Paragraph 23, or (iii) Lender
has, in its sole and absolute discretion, demanded payment of amounts owed
hereunder. Should Borrower have the option to extend the Maturity Date and
choose to do so, than Borrower shall notify Lender of its request for an
extension at least 15 days before the then current Maturity Date and, prior to
the then current Maturity Date, shall have executed a new promissory note
reflecting the extended Maturity Date and which contains substantially the same
terms as the Note then in effect.
"Maximum Principal Amount" shall mean, at any date, Seven Hundred Fifty
Thousand and No/100ths Dollars ($750,000.00).
"Monthly Payment Date" shall mean the first day of each month.
<PAGE>
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which Borrower is making or accruing an
obligation to make contributions, or has within any of the preceding three plan
years made or accrued an obligation to make contributions.
"Net Income" or "Net Loss" for any period shall mean net income or loss for
such period, determined in accordance with GAAP excluding, however, (i)
extraordinary gains (including but not limited to the conversion of debt to
equity, the forgiveness of debt and the like), and (ii) gains (whether or not
extraordinary) from sales or other dispositions of assets other than the sale of
Inventory in the ordinary course of Borrower's business.
"Note" shall mean Borrower's revolving or promissory note of even date
payable to the order of Lender to evidence the Advances, including any
replacements, substitutions or amendments thereof.
"Obligations" shall have the meaning provided in Paragraph 3.
"Origination Fee" shall have the meaning provided in Paragraph 17.
"Participant" shall mean each Person who purchases a participation interest
from Lender in the obligations.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
board, authority, agency, officer or official of the United States administering
the principal functions assigned on the date hereof to the Pension Benefit
Guaranty Corporation under ERISA.
"Person" shall mean any natural person, corporation, firm, partnership,
association, government, governmental agency or any other entity, whether acting
in an individual, fiduciary or other capacity.
"Plan" shall mean each employee benefit plan or other class of benefits
covered by Title IV of ERISA, in either case whether now in existence or
hereafter instituted, of Borrower or any of its Subsidiaries.
"Prime Rate" shall mean the publicly announced base rate (or other publicly
announced reference rate) charged by Norwest Bank Minnesota, National
Association; Borrower acknowledges that the Prime Rate may not be the lowest
rate made available by Lender to its customers and that Lender may lend to its
customers at rates that are at, above or below the Prime Rate.
"Receivables" shall have the meaning provided in Paragraph 3(a).
"Reportable Event" shall have the meaning given to that term in Title IV of
ERISA.
"Security Interest" shall mean any lien, pledge, mortgage, encumbrance,
charge or security interest of any kind whatsoever (including, without
limitation, the lien or retained security title of a conditional vendor) whether
arising under a security instrument or as a matter of law, judicial process or
otherwise or the agreement by Borrower to grant any lien, security interest or
pledge, mortgage or encumber any asset.
"Subordinated Debt" shall mean indebtedness of Borrower for borrowed money
which is subordinated to the Obligations on terms satisfactory to Lender in its
sole discretion.
"Subsidiary" of any Person shall mean any other corporation of which more
than 50% of the outstanding shares of capital stock having ordinary voting power
for the election of directors is owned directly or indirectly by such Person, by
such Person and one or more Subsidiaries, or by one or more other Subsidiaries.
"Termination Date" shall mean the earliest of (i) the Maturity Date or (ii)
the date upon which Lender's obligation to make Advances is terminated pursuant
to Paragraph 20, or (iii) the date upon which the obligations are declared to be
due and payable (or automatically become due and payable) upon the occurrence of
an Event of Default as provided in Paragraph 20 or otherwise, or (iv) the date
upon which this Agreement terminates as provided in Paragraph 23, or (v) upon
demand by Lender in its sole and absolute discretion.
"Withdrawal Liability" shall have the meaning given to that term in Title
IV of ERISA.
"Working Capital" at any date shall mean Current Assets at such date minus
Current Liabilities at such date.
I. Security. As security for all present and future sums loaned or
advanced by Lender to Borrower and for all other obligations now or hereafter
chargeable to Borrower's loan account hereunder, and all other obligations and
liabilities of any and every kind of Borrower to Lender, due or to become due,
direct or indirect, absolute or contingent, joint or several, howsoever created,
arising or evidenced, now existing or hereafter at any time created, arising or
incurred (herein called "Obligations'), Borrower hereby grants to Lender a
security interest in and to the following property:
A. All Receivables of Borrower now owned or hereafter acquired or
arising, together with all customer lists, original books and records,
ledger and account cards, computer tapes, discs, printouts and records,
whether now in existence or hereafter created. "Receivables" means all
rights of Borrower
<PAGE>
to the payment of money, whether or not earned and howsoever evidenced or
arising, including (without limitation) all present and future "Accounts",
accounts receivable, "Chattel Paper", "Instruments", and rights to payment
which are "General Intangibles" (as those terms are used in the Commercial
Code), all security therefor and all of Borrower's rights as an unpaid
seller of goods (including rescission, replevin, reclamation and stopping
in transit) and all of Borrower's rights to any goods represented by any of
the foregoing including returned or repossessed goods;
A. All Inventory of Borrower, whether now owned or hereafter acquired
and wherever located. "Inventory" includes all Goods (as defined in Article
9 of the Commercial Code) intended for sale or lease or to be furnished
under contracts of service, all raw materials and work in process therefor,
all finished goods thereof, all materials and supplies of every nature used
or usable or consumed or consumable in connection with the manufacture,
packing, shipping, advertising, selling, leasing or furnishing of such
Goods, and all accessories thereto and all documents of title therefor
evidencing the same;
A. All Equipment of Borrower, whether now owned or hereafter acquired
and wherever located. "Equipment" includes all of Borrower's Goods other
than Inventory, all replacements and substitutions therefor and all
accessions thereto, and specifically includes, without limitation, all
present and future machinery, equipment, vehicles, manufacturing equipment,
shop equipment, office and record keeping equipment, furniture, fixtures,
parts, tools and all other Goods (except Inventory) used or acquired for
use by Borrower for any business or enterprise;
A. All General Intangibles and Deposit Accounts (as defined in Article
9 of the Commercial Code) of Borrower, whether now owned or hereafter
acquired, including (without limitation) all present and future domestic
and foreign patents, patent applications, trademarks, trademark
applications, copyrights, trade names, trade secrets, patent and trademark
licenses (whether Borrower is licensor or licensee), shop drawings,
engineering drawings, blueprints, specifications, parts lists, manuals,
operating instructions, customer and supplier lists, licenses, permits,
franchises, the right to use Borrower's corporate name and the goodwill of
Borrower's business; and
A. All Investment Property (as defined in the Commercial Code)
including but not limited to stock and other securities evidencing
ownership of any other organization, company or entity as well as all
amendments, extensions, renewals and replacements of the above, together
with all certificates, other instruments, options, rights, interest, and
other distributions issued as an addition to, in substitution or in
exchange for, or on account of, the same, all whether now existing or
hereafter arising and whether now owned or hereafter acquired; and
A. All products and proceeds of any and all of the foregoing and all
products and proceeds of any other Collateral (as hereinafter defined)
including the proceeds of any insurance covering any of the Collateral, as
well as all Deposit Accounts (as defined in the Commercial Code), money,
cash, and the like.
All such Receivables, Inventory, General Intangibles, Investment Property,
Deposit Accounts, products and proceeds, together with all other assets and
properties of Borrower in or on which Lender is now or hereafter granted a
security interest, mortgage, lien or encumbrance pursuant to this Agreement or
otherwise, are hereinafter sometimes referred to as "Collateral".
I. Advances.
A. At the request of Borrower, Lender agrees, subject to the terms and
conditions hereinafter set forth, to make loans (each such loan being
herein sometimes called individually an "Advance" and collectively the
"Advances") to Borrower from time to time on any Business Day during the
period from the date hereof and ending on the Termination Date; provided,
however, that Lender shall not be required to make any Advance if, after
giving effect to such Advance, the aggregate unpaid principal amount of
Advances outstanding would exceed the lesser of the Borrowing Base or the
Maximum Principal Amount. The amount of each such Advance shall be charged
to Borrower's loan account. Borrower acknowledges that Lender may, but
shall not be obligated to, make an Advance at any time in an amount equal
to any overdraft in any account of Borrower maintained with Lender or any
Participant even if the aggregate unpaid principal amount of Advances
exceeds or would exceed the Borrowing Base or the Maximum Principal Amount.
A. In order to obtain an Advance, Borrower shall give written or
telephonic notice to Lender, by not later than 11:00 a.m. (Minneapolis
time) on the day before the requested Advance is to be made. Lender, shall
make such Advance by transferring the amount thereof in immediately
available funds for credit to Borrower's account
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(other than a payroll account), as specified in such notice. At the request
of Lender, Borrower shall confirm in writing any telephonic notice.
A. The obligation of Lender to make Advances shall terminate on the
Termination Date.
A. If at any time the sum of the aggregate outstanding principal
balance of the Advances exceeds the lesser of (i) the Maximum Principal
Amount or (ii) the Borrowing Base, then Borrower agrees to make, on demand,
a principal repayment on the Advances in an amount equal to such excess
together with accrued interest on the amount repaid to the date of
repayment. Borrower agrees that, on the Termination Date (or earlier upon
demand), it will repay the entire outstanding principal balance of the
Advances together with accrued interest thereon and all accrued fees
without presentment or demand for payment, notice of dishonor, protest or
notice of protest, all of which are hereby waived.
A. The Advances shall be evidenced by the Note made by Borrower
payable to the order of Lender in a principal amount equal to the Maximum
Principal Amount; subject, however, to the provisions of the Note to the
effect that the principal amount payable thereunder at any time shall not
exceed the then unpaid principal amount of all Advances made by Lender.
Borrower hereby irrevocably authorizes Lender to make or cause to be made,
at or about the time of each Advance made by Lender, an appropriate
notation on the records of Lender, reflecting the principal amount of such
Advance, and Lender shall make or cause to be made, on or about the time of
receipt of payment of any principal of the Note, an appropriate notation on
its records reflecting such payment. The aggregate amount of all Advances
set forth on the records of Lender shall be rebuttable presumptive evidence
of the principal amount owing and unpaid on the Note.
4A. Demand Facility. All interest, principal, Advances, and any other amounts
owing hereunder are due ON DEMAND and Lender specifically reserves the absolute
right to demand payment of all such amounts at any time, with or without advance
notice, for any reason or no reason whatsoever. Lender's right to make such
demand is not exclusive and Lender may coincidentally or separately from such
demand make further demand for payment pursuant to Paragraph 20 or otherwise
hereunder and, further, amounts may become due hereunder (pursuant to Paragraph
20 or otherwise) without a demand by Lender, as provided in this agreement.
I. Interest. Borrower agrees to pay interest on the outstanding
principal amount of the Note, at the close of each day at a fluctuating rate per
annum (computed on the basis of actual number of days elapsed and a year of 360
days) which is at all times equal to Four and One-Half Percent (4 1/2%) in
excess of the Prime Rate; each change in such fluctuating rate caused by a
change in the Prime Rate to occur simultaneously with the change in the Prime
Rate (the "Initial Rate"); provided, however, that (i) in no event shall the
Initial Rate, the Adjusted Rate or the Re-adjusted rate in effect hereunder at
any time be less than 10% per annum; and (ii) interest payable hereunder with
respect to each calendar month shall not be less than $2,500.00 regardless of
the amount of loans, Advances or other credit extensions that actually may have
been outstanding during the month. Interest accrued through the last day of each
month will be due and payable to Lender on the next Monthly Payment Date,
commencing November 1, 1997. Interest shall also be payable on the Maturity Date
or on any earlier Termination Date. Interest accrued after the Maturity Date or
earlier Termination Date shall be payable on Demand. Interest may be charged to
Borrower's loan account as an Advance at Lender's option, whether or not
Borrower then has the right to obtain an Advance pursuant to the terms of this
Agreement. In the event Borrower earns "Net Income" (as defined below) for the 6
months ended October 31, 1997 of at least Two Hundred Fifty Thousand Dollars
($250,000.00), and provided no Event of Default exists or has occurred, then the
Initial Rate shall be reduced to four and one quarter percent (4.25%) in excess
of the Prime Rate (the "Adjusted Rate") commencing with the next scheduled
Monthly Payment Date following Lender's receipt of Borrower's financial
statements for that period. Provided that Borrower obtains the Adjusted Rate
reduction described above, then in the further event Borrower earns Net Income
for the fiscal year ending April 30, 1998 of at least Five Hundred Thousand
Dollars ($500,000.00), and provided no Event of Default exists or has occurred,
then the Adjusted Rate shall be reduced to three and three-quarters percent
(3.75%) in excess of the Prime Rate (the "Re-adjusted Rate") commencing with the
next scheduled Monthly Payment Date following Lender's receipt of the audited
financial statements delivered to Lender pursuant to Paragraph 16(h) for fiscal
year ending April 30, 1998. (The Initial Rate, the Adjusted Rate and the
Re-adjusted Rate are sometimes hereinafter collectively referred to as the
"Interest Rate").
Notwithstanding the foregoing, after an Event of Default, the Note shall bear
interest until paid at 5% per annum in excess of the rate otherwise then in
effect, which rate shall continue to vary based on further changes in the Prime
Rate; provided, however, that after an Event of Default, (i) in no event shall
the interest rate in effect under the Note at any time be less than 15% per
annum; and (ii) interest payable under the Note with respect to each calendar
month shall not be less than $2,900 regardless of the amount of loans, Advances
or other credit extensions that actually may have been outstanding during the
month.. The undersigned shall also pay a late fee equal to 10%
<PAGE>
of any payment under the Note that is more than 10 days past due.
I. Set-Off etc. Upon the occurrence of a Default or an Event of
Default, Lender is hereby authorized at any time and from time to time, without
notice to Borrower (any such notice being expressly waived by Borrower), to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by Lender or any Participant to or for the credit or the account of Borrower,
including specifically any amounts held in any account maintained at Lender or
any Participant, against any and all amounts which may be owed to Lender or any
Participant by Borrower whether in connection with this Agreement or otherwise
and irrespective of whether Borrower shall have made any requests under this
Agreement.
I. Reports and Collections.
(a) Borrower agrees to furnish to Lender, at least weekly, schedules
describing Receivables created or acquired by Borrower (including
confirmatory written assignments thereof), including, copies of all
invoices to account debtors and other obligors (all herein referred to as
"Customers") and original shipping or delivery receipts for all goods sold,
but if Borrower fails to do so the rights of Lender as a secured party will
not be impaired. At any time after the occurrence of an Event of Default,
Lender may notify Customers at any time that Receivables have been assigned
to Lender and collect them directly in Lender's own name but unless and
until Lender does so or gives Borrower other instructions, Borrower shall
make collection for Lender at Borrower's sole cost and expense. Borrower
shall advise Lender promptly of any goods which are returned by Customers
or otherwise recovered involving an amount in excess of $5,000.00 and,
unless instructed to deliver such goods to Lender, Borrower shall resell
them for Lender and assign or deliver to Lender the resulting Receivables
or other proceeds. Borrower shall also advise Lender promptly of all
disputes and claims by Customers involving an amount in excess of $5,000.00
and settle or adjust them at no expense to Lender. At any time after the
occurrence and during the continuance of an Event of Default, Lender may at
all times settle or adjust such disputes and claims directly with the
Customers for amounts and upon terms which Lender considers advisable. If
Lender so directs at any time after an Event of Default, no discount,
credit or allowance shall be granted by Borrower to any Customer and no
return of goods shall be accepted by Borrower without Lender's written
consent.
(b) Upon Lender's request, Borrower agrees to furnish to Lender Inventory
certifications in accordance with Paragraph 17(a)(v) and a physical listing
of all Inventory, wherever located, at least once every twelve months or,
in either case, as more frequently requested by Lender.
(c) All full and partial payments arising from the sale, collection or
other disposition of Collateral (whether or not in the ordinary course of
business), including but not limited to the collection of accounts
receivable in the ordinary course of business and the ordinary sale of
inventory or services for cash, shall immediately be delivered by Borrower
to Lender IN THEIR ORIGINAL FORM (except for endorsement where necessary)
and UNCASHED (in the case of checks or other documents). Until such
payments are so delivered to Lender, such payments shall be held in trust
by Borrower for and as Lender's property and shall not be commingled with
any funds of Borrower. The net amount received by Lender as proceeds
arising from the sale or other disposition of Collateral will be credited
by Lender to Borrower's loan account (subject to final collection thereof)
after allowing the number of days required by the applicable bank for
collection of checks and other instruments
I. Warranty as to Collateral. Borrower warrants that:
(a) all Receivables listed in or reported on Borrower's schedules will,
when Borrower delivers the schedules to Lender, be bona fide existing
obligations created by the sale and actual delivery of goods or the
rendition of services to Customers in the ordinary course of business, not
subject to return, evaluation or other condition, and which Borrower then
owns free of any Security Interest except for the Security Interest in
favor of Lender created by this Agreement or Security Interests permitted
under Paragraph 18(d), and which are then unconditionally owing to Borrower
without defense, offset or counterclaim; and that all shipping or delivery
receipts, invoice copies and other documents furnished to Lender in
connection therewith will be genuine; and
(b) all Inventory and Equipment is and shall be owned by Borrower, free of
any Security Interest except for the Security Interest of Lender created by
this Agreement or Security Interests permitted by Paragraph 18(d).
Lender's rights to and security interest in the Collateral will not be impaired
by the ineligibility of any such Collateral for Advances and will continue to be
effective until all obligations
<PAGE>
chargeable to Borrower's loan account have been fully satisfied.
I. Power of Attorney. Borrower appoints Lender, or any of Lender's
officers, employees or agents whom Lender may from time to time designate, as
Borrower's attorney with power to: (a) to endorse Borrower's name on any checks,
notes, acceptances, drafts or other forms of payment or security that may come
into Lender's possession; (b) to sign Borrower's name on any invoice or bill of
lading relating to any Receivables, on drafts against Customers, on schedules
and confirmatory assignments of Receivables, on notices of assignment, financing
statements and amendments under the Commercial Code and other public records, on
verifications of accounts and on notices to Customers; (c) to notify the post
office authorities to change the address for delivery of Borrower's mail to an
address designated by Lender; (d) to receive, open and dispose of all mail
addressed to Borrower; (e) to send requests for verification of accounts to
Customers; (f) to obtain information from any bank, creditor, customer or other
Person regarding Borrower's relationship, account, history etc.; (g) to sign
lien waivers and other releases or satisfactions of claims or rights by Borrower
in exchange for payment or other consideration which Lender in its sole
discretion believes is appropriate under the circumstances ; (h) to directly
verify and/or confirm the existence, authenticity, accuracy or terms of any
Receivable (both in Lender's own name or in Borrower's name) without previously
notifying Borrower of its intention to do so and Borrower grants its consent to
Lender for Lender's employees and agents to represent themselves as employees or
agents of Borrower for these purposes; and (I) to do all things necessary to
carry out this Agreement; provided however, that the powers specified in clauses
(c) and (d) above may be exercised only after the occurrence of an Event of
Default. Borrower ratifies and approves all acts of the attorney. Neither Lender
nor the attorney will be liable for any acts of commission or omission nor for
any error in judgment or mistake of fact or law. This power, being coupled with
an interest, is irrevocable so long as any Receivable in which Lender has a
security interest or any Obligation remains unpaid. Borrower waives presentment
and protest of all instruments and notice thereof, notice of default and
dishonor and all other notices to which Borrower may otherwise be entitled.
I. Location of Collateral. Borrower warrants that its chief executive
office is at the address stated in the opening paragraph of this Agreement and
that its books and records concerning Receivables are located there. Borrower's
Inventory, Equipment and other goods are at the location or locations as
designated on Schedule A annexed hereto. Borrower shall immediately notify
Lender if any additional locations for Collateral are subsequently established.
Borrower shall not change the location of its chief executive office, the place
where it keeps its books and records, or the location of any Collateral (except
for sales of Inventory in the ordinary course of business) until Borrower has
obtained the written consent of Lender and all necessary filings have been made
and other actions taken to continue the perfection of Lender's Security Interest
in such new location. Lender's Security Interest attaches to all the Collateral
wherever located, and the failure of Borrower to inform Lender of the location
of any item or items of Collateral shall not impair Lender's Security Interest
therein.
I. Ownership and Protection of Collateral. Borrower warrants,
represents and covenants to Lender that the Collateral is now and, so long as
Borrower is obligated to Lender, will be owned by Borrower free and clear of all
Security Interests except for the Security Interest in favor of Lender created
by this Agreement and except the Security Interests, if any, permitted by
Paragraph 18(d), and that said Collateral, including the Receivables and
proceeds resulting from the collection, sale or other disposition thereof, will
remain free and clear of any and all Security Interests except for the Security
Interest in favor of Lender created by this Agreement and except the Security
Interests, if any, permitted under Paragraph 18(d). Borrower will not sell,
lease or otherwise dispose of the Collateral, or attempt so to do (except for
sales of Inventory in the ordinary course of business and sales of obsolete and
worn equipment not in excess of $25,000 in the aggregate in any calendar year)
without the prior written consent of Lender and unless the proceeds of any such
sale are paid to Lender for application on Borrower's Obligations. After the
occurrence of a Default or an Event of Default, Lender will at all times have
the right to take physical possession of any Inventory and Equipment
constituting Collateral and to maintain such possession on Borrower's premises
or to remove the same or any part thereof to such other places as Lender may
wish. If Lender exercises Lender's right to take possession of such Collateral,
Borrower shall on Lender's demand, assemble the same and make it available to
Lender at a place reasonably convenient to Lender. Borrower shall at all times
keep the Equipment constituting Collateral in good condition and repair. All
expenses of protecting, storing, warehousing, insuring, handling and shipping of
the Collateral, all costs of keeping the Collateral free of any Security
Interests prohibited by this Agreement and of removing the same if they should
arise, and any and all excise, property, sales and use taxes imposed by any
state, federal or local authority on any of the Collateral or in respect of the
sale thereof, shall be borne and paid by Borrower and if Borrower fails to
promptly pay any thereof when due, Lender may, at its option, but shall not be
required to, pay the same and charge Borrower's loan account therefor. Borrower
agrees to renew all insurance required by this Paragraph 11 or Paragraph 13 at
least 30 days prior to its expiration. Borrower agrees that, with respect to any
Inventory maintained in a public warehouse, (i) Borrower will ensure that any
warehouse receipts issued are not in a negotiable form, (ii) Borrower will, upon
request from Lender, deliver all warehouse receipts to Lender, and (iii)
Borrower will cause the public warehouseman to execute an agreement similar to
those delivered pursuant to Paragraph 21 and in form and substance satisfactory
to Lender.
I. Perfection of Security Interest. Borrower agrees to execute such
financing statements together
<PAGE>
with any and all other instruments or documents and take such other action,
including delivery, as may be required to create, evidence, perfect and maintain
Lender's Security Interest in the Collateral and Borrower shall not in any
manner do any act or omit to do any act which would in any manner impair or
invalidate Lender's Security Interest in the Collateral or the perfection
thereof.
I. Insurance. Borrower shall maintain insurance coverage on any
Collateral other than Receivables with such companies, against such hazards, and
in such amounts as may from time to time be acceptable to Lender and shall
deliver such policies or copies thereof to Lender with satisfactory lender's
loss payable endorsements naming Lender. Each policy of insurance shall contain
a clause requiring the insurer to give not less than 30 days prior written
notice to Lender in the event of any anticipated cancellation of the policy for
any reason and a clause that the interest of Lender shall not be impaired or
invalidated by any act or neglect of Borrower nor by the occupation of the
premises wherein such Collateral is located for purposes more hazardous than are
permitted by said policy. Borrower will maintain, with financially sound and
reputable insurers, insurance with respect to its properties and business
against such casualties and contingencies of such types (which may include,
without limitation, public and product liability, larceny, embezzlement, or
other criminal misappropriation insurance) and in such amounts as may from time
to time be required by Lender.
I. Borrower's Account. Lender may charge to Borrower's loan account at
any time the amounts of all Obligations (and interest, if any, thereon) owing by
Borrower to Lender, including (without limitation) loans, Advances, debts,
liabilities, obligations acquired by purchase, assignment or participation and
all other obligations, whenever arising, whether absolute or contingent and
whether due or to become due; also the amount of all costs and expenses and all
attorneys' fees and legal expenses incurred in connection with efforts made to
enforce payment of such obligations, or to obtain payment of any Receivables, or
the foreclosure of any Collateral or in the prosecution or defense of any
actions or proceedings relating in any way to this Agreement whether or not suit
is commenced, including reasonable attorneys' fees and legal expenses incurred
in connection with any appeal of a lower court's order or judgment; and also the
amounts of all unpaid taxes and the like, owing by Borrower to any governmental
authority or required to be deposited by Borrower, which Lender pays or deposits
for Borrower's account. All of Borrower's borrowings hereunder and (unless
otherwise specified) all other obligations which are chargeable to Borrower's
loan account shall be payable ON DEMAND; recourse to security will not be
required at any time. All sums at any time standing to Borrower's credit on
Lender's books and all of Borrower's property at any time in Lender's possession
or upon or in which Lender has a Security Interest, may be held by Lender as
security for all obligations which are chargeable to Borrower's loan account.
Subject to the foregoing, Lender, at Borrower's request, will remit to Borrower
any net balance standing to Borrower's credit on Lender's books. Lender will
account to Borrower monthly and each monthly accounting will be fully binding on
Borrower, unless, within thirty days thereafter, Borrower gives Lender specific
written notice of exceptions. All debit balances in Borrower's loan account will
bear interest as provided in Paragraph 5 of this Agreement. If Lender so
requests at any time, Borrower will immediately execute and deliver to Lender a
promissory note in negotiable form payable on demand to Lender's order in a
principal amount equal to the amount of the debit balance in Borrower's loan
account, with interest as provided in Paragraph 5 of this Agreement. In any
event, Borrower covenants to pay all Advances, debts, accounts and interest when
due.
I. Participations. If any Person shall acquire a participation in
Advances made to Borrower hereunder, Borrower hereby grants to Lender as well as
any such Person holding a participation, and Lender and such Person shall have
and are hereby given a continuing Security Interest in any money, securities and
other property of Borrower in the custody or possession of such Participant,
including the right of set-off as fully as if such Participant had lent directly
to Borrower the amount of such participation. Borrower hereby grants to Lender
its continuing authority and consent to release any and all financial and other
information related to Borrower's financial condition, performance, its
business, operations or any other matter whatsoever to any of Borrower's
creditors (both secured and unsecured), to any Participant, or to any other
Person for their consideration of a possible participation in Advances by that
Person.
I. General Representations and Warranties. To induce Lender to make
Advances hereunder, Borrower makes the following representations and warranties,
all of which shall survive the initial Advance:
A. Borrower is a corporation duly organized, existing, and in good
standing under the laws of the State of Minnesota, has corporate power to
own its property and to carry on its business as now conducted, and is duly
qualified to do business in all states in which the nature of its business
requires such qualification. During the past five years, Borrower has done
business solely under the names listed on Schedule B attached hereto.
Borrower does not own any capital stock of any corporation, except as set
forth on Schedule C attached hereto.
A. The execution and delivery of this Agreement and the other Loan
Documents and the performance by Borrower of its obligations hereunder and
thereunder do not and will not conflict with any provision of law, or of
the charter or bylaws of
<PAGE>
Borrower, or of any agreement binding upon Borrower.
A. The execution and delivery of this Agreement and the other Loan
Documents have been duly authorized by all necessary corporate action by
directors and shareholders of Borrower; and this Agreement and the other
Loan Documents have in fact been duly executed and delivered by Borrower
and constitute its lawful and binding obligations, legally enforceable
against it in accordance with their respective terms.
A. Except as disclosed to Lender on Schedule D attached hereto, there
is no action, suit or proceeding at law or equity, or before or by any
federal, state, local or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, pending or, to the
knowledge of Borrower, threatened against Borrower or any Guarantor or the
property of Borrower or any Guarantor which, if determined adversely, would
be a Material Adverse Occurrence, and neither Borrower nor any Guarantor is
in default with respect to any final judgment, writ, injunction, decree,
rule or regulation of any court or federal, state, local or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, where the effect of such default
would be a Material Adverse Occurrence.
A. The authorization, execution and delivery of this Agreement, and
the payment of the loans and interest hereon, is not, and will not be,
subject to the jurisdiction, approval or consent of any federal, state or
local regulatory body or administrative agency.
A. All of the assets of Borrower are free and clear of Security
Interests except those listed on Schedule E attached hereto.
A. Borrower has filed all federal, state and local tax returns which,
to the knowledge of Borrower, are required to be filed, and Borrower has
paid all taxes shown on such returns and all assessments which are due.
Borrower has made all required withholding deposits. Federal income tax
returns of Borrower have been examined and approved or adjusted by the
applicable taxing authorities or closed by applicable statutes for all
fiscal years prior to and including the fiscal year ended on April 30,
1997. Borrower does not have knowledge of any objections to or claims for
additional taxes by federal, state or local taxing authorities for
subsequent years which would be a Material Adverse Occurrence.
A. Borrower has furnished to Lender the financial statements listed on
Schedule G attached hereto. These statements were prepared in accordance
with GAAP and present fairly the financial condition of Borrower and its
Consolidated Subsidiaries. There has been no material adverse change in the
condition of Borrower and its Consolidated Subsidiaries, financial or
otherwise, since the date of the most recent of such financial statements.
A. The value of the assets and properties of Borrower at a fair
valuation and at their then present fair salable value is and, after giving
effect to any pending Advance and the application of the amount advanced,
will be materially greater than its total liabilities, including Contingent
Obligations, and Borrower has (and has no reason to believe that it will
not have) capital sufficient to pay its liabilities, including Contingent
Obligations, as they become due.
A. Borrower is in compliance with all requirements of law relating to
pollution control and environmental regulations in the respective
jurisdictions where Borrower is presently doing business or conducting
operations.
A. All amounts obtained pursuant to Advances will be used for
Borrower's working capital purposes.
A. Except for the trademarks, patents, copyrights and franchise rights
listed on Schedule F attached hereto, Borrower is not the owner of any
patent, trademark, copyright or franchise rights.
A. (i) Each Plan is in compliance in all material respects with all
applicable provisions of ERISA and the Code; (ii) the aggregate present
value of all accrued vested benefits under all Plans (calculated on the
basis of the actuarial assumptions specified in the most recent actuarial
valuation for such Plans) did not exceed as of the date of the most recent
actuarial valuation for such Plans the fair market value of the assets of
such Plans allocable to such benefits; (iii) Borrower is not aware of any
information since the date of such valuations which would materially affect
the information contained therein; (iv) no Plan which is subject to Part 3
of Subtitle B of Title I of ERISA or Section 412 of the Code has incurred
an accumulated funding deficiency, as that term is defined in Section 302
of ERISA or Section 412 of the Code (whether or not
<PAGE>
waived); (v) no liability to the PBGC (other than required premiums which
have become due and payable, all of which have been paid) has been incurred
with respect to any Plan, and there has not been any Reportable Event which
presents a material risk of termination of any Plan by the PBGC; and (vi)
Borrower has not engaged in a transaction which would subject it to tax,
penalty or liability for prohibited transactions imposed by ERISA or the
Code. Borrower does not contribute to any Multiemployer Plan.
A. No part of any Advance shall be used at any time by Borrower to
purchase or carry margin stock (within the meaning of Regulation U
promulgated by the Board of Governors of the Federal Reserve System) or to
extend credit to others for the purpose of purchasing or carrying any
margin stock. Borrower is not engaged principally, or as one of its
important activities, in the business of extending credit for the purposes
of purchasing or carrying any such margin stock. No part of the proceeds of
any Advance will be used by Borrower for any purpose which violates, or
which is inconsistent with, any regulations promulgated by the Board of
Governors of the Federal Reserve System.
A. Borrower is not an "investment company", or an "affiliated person"
of, or a "promoter" or "principal underwriter" for, an "investment
company", as such terms are defined in the Investment Company Act of 1940,
as amended. The making of the Advances, the application of the proceeds and
repayment thereof by Borrower and the performance of the transactions
contemplated by this Agreement will not violate any provision of said Act,
or any rule, regulation or order issued by the Securities and Exchange
Commission thereunder.
A. The number of shares and classes of the capital stock of Borrower
and the ownership thereof are accurately set forth on Schedule H attached
hereto. Borrower has not: (i) issued any unregistered securities in
violation of the registration requirements of Section 5 of the Securities
Act of 1933, as amended, or any other law; or (ii) violated any rule,
regulation or requirement under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended, in either case where the
effect of such violation would be a Material Adverse Occurrence. No
proceeds of the Advances will be used to acquire any security in any
transaction which is subject to Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended.
A. Except for Contingent Obligations shown on Schedule I attached
hereto, Borrower does not have any Contingent Obligations.
A. All factual information heretofore or herewith furnished by or on
behalf of Borrower to Lender for purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all other such
factual information hereafter furnished by or on behalf of Borrower to
Lender will be, true and accurate in every material respect on the date as
of which such information is dated or certified and no such information
contains any material misstatement of fact or omits to state a material
fact or any fact necessary to make the statements contained therein not
misleading.
A. Each representation and warranty shall be deemed to be restated and
reaffirmed to Lender on and as of the date of each Advance under this
Agreement except that any reference to the financial statements referred to
in Paragraph 16(h) shall be deemed to refer to the financial statements
then most recently delivered to Lender pursuant to Paragraphs 17(a)(i) and
(ii).
I. Affirmative Covenants. Borrower agrees that it will:
A. Furnish to Lender in form satisfactory to Lender:
1. Within 90 days after the end of each fiscal year of Borrower,
a complete audited financial report prepared and certified without
qualification or explanatory language by Independent Public
Accountants on a Consolidated and consolidating basis for Borrower and
any Consolidated Subsidiaries of Borrower; together with a copy of the
management letter or memorandum, if any, delivered by such independent
certified public accountant to Borrower and Borrower's response
thereto. If Borrower shall fail to supply the report within such time
limit, Lender shall have the right (but not the duty) to employ
certified public accountants acceptable to Lender to prepare such
report at Borrower's expense;
1. Within 45 days after the end of each month, a balance sheet
with operating figures as to that month, certified as correct by the
chief financial officer or treasurer of Borrower but subject to
adjustments as to inventories or other items
<PAGE>
to which an officer of Borrower directs attention in writing, together
with a reconciliation of any variances between the information
provided on such balance sheet and the information for that day
previously delivered to Lender pursuant to Paragraph 17(a)(v);
1. With the financial statements described in Paragraph 17(a)(i)
and (ii), a compliance certificate in the form attached as Exhibit A
certified as true and accurate by the chief financial officer or
treasurer of Borrower;
1. Within 10 days after the end of each month, an aging of
accounts receivable together with a reconciliation in a form
satisfactory to Lender and an aging of accounts payable in form
acceptable to Lender, both certified as true and accurate by an
officer of Borrower;
1. Upon Lender's request, within 10 days after the end of each
month, an inventory certification report for all Inventory locations
in form acceptable to Lender and certified as true and accurate by an
officer of Borrower; and
1. From time to time, at Lender's request, any and all other
material, reports, information, or figures reasonably required by
Lender.
A. Permit Lender and its representatives access to, and the right to
make copies of, the books, records, and properties of Borrower at all
reasonable times; and permit Lender and its representatives to discuss
Borrower's financial matters with officers of Borrower and with its
Independent Public Accountant (and, by this provision, Borrower authorizes
its Independent Public Accountant to participate in such discussions).
A. Pay when due all taxes, assessments, and other liabilities against
it or its properties except those which are being contested in good faith
and for which an adequate reserve has been established; Borrower shall make
all withholding payments when due; during any period for which Borrower has
made an effective S Corporation election, Borrower shall promptly provide
Lender with evidence of payment by Borrower's shareholders of estimated
income taxes.
A. Promptly notify Lender in writing of any substantial change in
present management or present business, of its intention to enter into a
new business or industry, or of its intention to wind down, liquidate or
close substantially all of its business;
A. Pay when due all amounts necessary to fund in accordance with its
terms any Plan;
A. Comply in all material respects with all laws, acts, rules,
regulations and orders of any legislative, administrative or judicial body
or official applicable to Borrower's business operation or Collateral or
any part thereof; provided, however, that Borrower may contest any such
law, act, rule, regulation or order in good faith by appropriate
proceedings so long as (i) Borrower first notifies Lender of such contest,
and (ii) such contest does not, in Lender's sole discretion, adversely
affect Lender's right or priority in the Collateral or impair Borrower's
ability to pay the Obligations when due;
A. Permit Lender and its representatives, at any time, to examine and
inspect any Collateral, and to examine, inspect and copy the Debtor's
records pertaining to the Collateral and the Debtor's financial condition,
business and property.
A. Loan Administration Fee. Pay Lender for the period commencing on
the date of this Agreement and continuing through the date of full payment
of all Obligations, a reasonable administration fee (herein called the
"Loan Administration Fee"), which shall be equal to the sum of $1,500.00
per calendar quarter (or any partial quarter), commencing as of the date
hereof and pro-rated for the balance of the current calendar quarter, plus
all ---- out-of-pocket expenses incurred by Lender in conducting
examinations. The Loan Administration Fee shall be non-refundable, shall be
deemed earned when paid, and shall be payable to Lender as of the date
hereof (for the balance of the current calendar quarter), and thereafter on
January 1, 1998 and on the first day of each subsequent 3 month
period/quarter. The existence or payment of the Loan Administration Fee,
Line Maintenance Fee or any other fee or charge, shall in no way alter or
diminish the obligation to pay interest, Lender's costs of collection and
attorneys' fees, or any other fees or charges imposed under this agreement
or any other agreement between Lender and Borrower or any Guarantor;
A. Origination Fee. Pay to Lender an origination fee (the "Origination
Fee") in the amount of Seven Thousand Five Hundred and No/100ths Dollars
($7,500.00). The entire amount of
<PAGE>
the Origination Fee shall be nonrefundable and shall be deemed to have been
earned upon execution of this Agreement. Lender acknowledges that Borrower
has previously a $5,000 survey fee which will be applied against the
Origination Fee.
A. Promptly notify Lender in writing of (x) any litigation which (i)
involves an amount in dispute in excess of $25,000.00 (ii) relates to the
matters which are the subject of this Agreement, or (iii) if determined
adversely to Borrower would be a Material Adverse Occurrence; and (y) any
adverse development in any litigation described in clause (x).
A. Promptly notify Lender of any Default or Event of Default.
A. Beginning January 31, 1998 and for each succeeding 6 calendar month
period (as determined monthly), Borrower shall achieve a positive Net
Income before income tax or a Net Loss of no more than $100,000.
I. Negative Covenants. Borrower agrees that it will not:
A. From October 1, 1997 to September 30, 1998, expend or contract to
expend an aggregate in excess of $1,000,000 for fixed assets whether by way
of purchase, lease or otherwise, and whether payable currently or in the
future as well as no more than $1.1 million for a Gerber Mask Write 800
direct write laser imager.
A. From October 1, 1998 to September 30, 1999 and in each subsequent
12 month period, expend or contract to expend an aggregate in excess of
$250,000 for fixed assets whether by way of purchase, lease or otherwise,
and whether payable currently or in the future.
A. Purchase or redeem any shares of Borrower's capital stock; or
declare or pay any dividends (other than dividends payable in capital
stock); or make any distribution to stockholders of any assets of Borrower;
(provided, however, that so long as no Default or Event of Default exists
or would result from such distributions, Borrower may make Acceptable
Distributions to be used by Borrower's shareholders solely to make required
income tax payments.
A. Incur or permit to exist any indebtedness, secured or unsecured,
for money borrowed, except: (i) borrowings under this Agreement; (ii)
borrowings, if any, which are existing on the date of this Agreement and
which are disclosed on Schedule J attached hereto; or (iii)
indebtedness,incurred to acquire fixed assets but only to the extent that
such fixed asset acquisition is permitted by Paragraph 18(a) and in
aggregate amounts no greater than the limits described in Paragraph 18(a).
A. Create or permit to exist any Security Interest on any assets now
owned or hereafter acquired except: (i) those created in Lender's favor and
held by Lender; (ii) liens of current taxes not delinquent or taxes which
are being contested in good faith for which an adequate reserve has been
established; (iii) purchase money security interests securing indebtedness
permitted by Paragraph 18(c)(iii); provided, however, that such Security
Interest extends only to the fixed assets acquired with the proceeds of
such indebtedness; and (iv) Security Interests disclosed on Schedule E
attached hereto, securing only debt outstanding on the date of this
Agreement and disclosed on Schedule J.
A. Effect any recapitalization; or be a party to any merger or
consolidation; or, except in the normal course of business, sell, transfer,
convey or lease all or any substantial part of its property; or sell or
assign (except to Lender), with or without recourse, any Receivables or
General Intangibles.
A. Enter into a new business or purchase or otherwise acquire any
business enterprise or any substantial assets of any person or entity; or
make any loans to any person or entity; or purchase any shares of stock of,
or similar interest in, or make any capital contribution to or investment
in, any entity.
A. Permit more than $50,000.00 to be owing at any one time to Borrower
by all of Borrower's employees, officers, directors, or shareholders, or
members of their families, as a result of any borrowings, purchases, travel
advances or other transactions or events;
A. Become a guarantor or surety or pledge its credit or its assets on
any undertaking of another, except for the Contingent Obligations shown on
Schedule I attached hereto;
A. In any fiscal year pay excessive or unreasonable salaries, bonuses,
fees, commissions, fringe benefits or other forms of compensation (such
salaries, bonuses, fees, commissions, fringe benefits or other forms of
compensation being "Compensation") to any of its officers or directors or
any Guarantor; or increase the Compensation of any officers or Guarantor by
more than ten percent (10%)
<PAGE>
or pay any such increases in Compensation of officers or Guarantors other
than from profits earned in the year of such payment;
A. Permit any default to occur under the terms of any Loan Document,
note, loan agreement, lease, mortgage, contract for deed, security
agreement, or other contractual obligation binding upon Borrower;
A. Make any substantial change in present ownership, management or
present business, enter into a new business or industry, or take actions to
wind down, liquidate or close substantially all of its business;
A. Enter into any agreement providing for the leasing by Borrower of
property which has been or is to be sold or transferred by Borrower to the
lessor thereof, or which is substantially similar in purpose to the
property so sold or transferred;
A. Change its fiscal year without Lender's prior written consent;
A. (i) Permit or suffer any Plan maintained for employees of Borrower
or any commonly controlled entity to engage in any transaction which
results in a liability of Borrower under Section 409 or 502(i) of ERISA or
Section 4975 of the Code; (ii) permit or suffer any such Plan to incur any
"accumulated funding deficiency" (within the meaning of Section 302 of
ERISA and Section 412 of the Code), whether or not waived; (iii) terminate,
or suffer to be terminated, any Plan covered by Title IV of ERISA
maintained by Borrower or any commonly controlled entity or permit or
suffer to exist a condition under which PBGC may terminate any such Plan;
or (iv) permit to exist the occurrence of any Reportable Event (as defined
in Title IV of ERISA) which represents termination by the PBGC of any Plan;
A. Enter into any transaction with any Affiliate of Borrower upon
terms and conditions less favorable to Borrower than the terms and
conditions which would apply in a similar transaction with an unrelated
third party;
A. Enter into any agreement containing any provision which would be
violated or breached by Borrower under any Loan Document or by the
performance by Borrower of its obligations under any Loan Document;
A. Amend or modify the provisions of any Subordinated Debt; or B.
Maintain any Inventory at a warehouse which issues negotiable warehouse
receipts with respect to such inventory.
I. Availability of Collateral. Lender may from time to time, for its
convenience, segregate or apportion the Collateral for purposes of determining
the amounts and maximum amounts of Advances which may be made hereunder.
Nevertheless, Lender's security interest in all such Collateral, and any other
collateral rights, interests and properties which may now or hereafter be
available to Lender, shall secure and may be applied to the payment of any and
all loans, Advances and other Obligations secured by Lender's security interest,
in any order or manner of application and without regard to the method by which
Lender determines to make Advances hereunder.
I. Default and Remedies. It shall be an Event of Default under this
Agreement if:
A. Borrower fails to make any payment required under this Agreement or
any present or future supplements hereto or under any other agreement
between Borrower and Lender when due, or if payable upon demand, upon
demand; or
A. Borrower fails to perform or observe any covenant, condition or
agreement contained in this Agreement or in any other Loan Document; or
A. Any warranty, representation or statement made or furnished to
Lender by or on behalf of Borrower or any Guarantor proves to have been
false, incorrect or misleading in a material respect when made; or
A. A proceeding seeking an order for relief under the Bankruptcy Code
is commenced by or against Borrower or any Guarantor, provided however,
that if such a proceeding is commenced against Borrower or any Guarantor on
an involuntary basis, then only if such action is not dismissed within 60
days of first being filed; or
A. Borrower or any Guarantor becomes insolvent or generally fails to
pay, or admit in writing its or his inability to pay, its or his debts as
they become due; or
A. Borrower or any Guarantor applies for, consents to, or acquiesces
in, the appointment of a trustee, receiver or other custodian for it or him
or for any of its or his property, or makes a general assignment for the
benefit of creditors; or, in the absence of such application, consent or
acquiescence,
<PAGE>
a trustee, receiver or other custodian is appointed for Borrower or for
Guarantor or for a substantial part of Borrower's or any Guarantor's
property; or
A. Any other reorganization, debt arrangement, or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding is commenced in respect of Borrower or any
Guarantor, provided however, that if such a proceeding is commenced against
any Guarantor on an involuntary basis, then only if such action is not
dismissed within 60 days of first being filed; or
A. Borrower or any Guarantor takes any action to authorize, or in
furtherance of, any of the events described in the foregoing clauses (d)
through (g); or
A. All or a substantial part of the assets of Borrower or any
Guarantor are sold, leased, or otherwise disposed of (whether in one
transaction or in a series of transactions) to one or more Persons;
A. Any judgments, writs or warrants of attachment, executions or
similar process (not covered by insurance) in the aggregate amount that
exceeds $10,000.00 is issued or levied against Borrower, any Guarantor or
any of its or his assets and is not released, vacated or fully bonded prior
to any sale and in any event within five days after its issue or levy; or
A. The issuance or levy of any garnishment, summons, writ of
attachment, writ, warrant, attachment, tax lien or tax levy, execution or
other process against any property of Borrower or any Guarantor; or
A. The attachment of any tax lien to any property of Borrower or any
Guarantor which is other than for taxes or assessments not yet due and
payable; or
A. Any Guarantor dies or attempts to revoke his or its guaranty; or
A. A Material Adverse Occurrence takes place.
Upon the occurrence of any Event of Default described in Paragraphs 20(d), (e),
(f), (g) or (h), all Obligations shall be and become immediately due and payable
without any declaration, notice, presentment, protest, demand or dishonor of any
kind (all of which are hereby waived by Borrower) and Borrower's ability to
obtain any additional credit extensions or Advances under this Agreement shall
be immediately and automatically terminated. Upon the occurrence of any other
Event of Default, Lender, without notice to Borrower, may terminate Borrower's
ability to obtain any additional credit extensions or Advances under this
Agreement and may declare all or any portion of the Obligations to be due and
payable, without notice, presentment, protest or demand or dishonor of any kind
(all of which are hereby waived), whereupon the full unpaid amount of the
obligations which shall be so declared due and payable shall be and become
immediately due and payable. Upon the occurrence of an Event of Default, Lender
shall have all the rights and remedies of a secured party under the Commercial
Code and may require Borrower to assemble the Collateral and make it available
to Lender at a place designated by Lender, and Lender shall have the right to
take immediate possession of the Collateral and may enter any of the premises of
Borrower or wherever the Collateral is located with or without process of law
and to keep and store the same on said premises until sold (and if said premises
be the property of Borrower, Borrower agrees not to charge Lender or a purchaser
from Lender for storage thereof for a period of at least 90 days). Upon the
occurrence of an Event of Default, Lender, without further demand, at any time
or times, may sell and deliver any or all of the Collateral at public or private
sale, for cash, upon credit or otherwise, at such prices and upon such terms as
Lender deems advisable, at its sole discretion. Any requirement under the
Commercial Code or other applicable law of reasonable notice will be met if such
notice is mailed to Borrower at its address set forth in the opening paragraph
of this Agreement at least ten days before the date of sale. Lender may be the
purchaser at any such sale, if it is public. The proceeds of sale will be
applied first to all expenses of retaking, holding, preparing for sale, selling
and the like, including attorneys' fees and legal expenses (whether or not suit
is commenced) including, without limitation, reasonable attorneys' fees and
legal expenses incurred in connection with any appeal of a lower court's order
or judgment, and second to the payment (in whatever order Lender elects) of all
other obligations chargeable to Borrower's loan account hereunder. Subject to
the provisions of the Commercial Code, Lender will return any excess to Borrower
and Borrower shall remain liable to Lender for any deficiency. Borrower agrees
to give Lender immediate notice of the existence of any Default or Event of
Default.
I. Conditions Precedent to Initial Advance. The obligation of Lender
to make the initial Advance is subject to the condition precedent that Lender
shall have received on or before the date of the initial Advance copies of all
of the following, unless waived by Lender:
A. UCC-1 Financing Statements in a form acceptable to Lender
appropriately completed and duly executed by Borrower;
A. Acceptable recent UCC, tax lien, judgment, and bankruptcy searches
from the filing offices in all states required by Lender;
<PAGE>
A. The Guaranties, in form and substance satisfactory to Lender in its
sole and absolute discretion, appropriately completed and duly executed by
each Guarantor;
A. Subordination Agreements relating to all notes payable under which
Borrower is obligated;
A. A certified copy of all documents evidencing any necessary consent
or governmental approvals (if any) with respect to the Loan Documents or
any other documents provided for in this Agreement;
A. A certificate by the Secretary or any Assistant Secretary of
Borrower certifying as to: (i) attached resolutions of Borrower's Board of
Directors authorizing or ratifying the execution, delivery and performance
of the Loan Documents to which Borrower is a party and any other documents
provided for by this Agreement, (ii) the names of the officers of Borrower
authorized to sign the Loan Documents together with a sample of the true
signature of such officers, and (iii) attached bylaws of Borrower;
A. Certificates of Good Standing for Borrower issued by its state of
incorporation and by those states requested by Lender;
A. A copy of the articles of incorporation of each Guarantor that is a
corporation certified by the Secretary of State;
A. Evidence of insurance for all insurance required by the Loan
Documents;
A. An officer certificate, in form and substance satisfactory to
Lender, executed by the President of Borrower;
A. The Note, in form and substance satisfactory to Lender in its sole
and absolute discretion, appropriately completed and duly executed by the
Borrower;
A. Appropriate collateral account agreements executed by Borrower and
the other parties thereto;
A. A collateral assignment of life insurance in the amount of Seven
Hundred Fifty Thousand and No/100ths Dollars ($750,000.00) on the life of
Clifford F. Stritch, Jr. in form and substance satisfactory to Lender; and
A. Such landlord lien waivers and mortgagee consents as Lender, in its
sole discretion, may require, in form and substance satisfactory to Lender
in its sole discretion, appropriately completed and duly executed;
A. Such other approvals, opinions or documents as Lender may require.
I. Conditions Precedent to All Advances. The obligation of Lender to
make any Advance (including the initial Advance) shall be subject to the
satisfaction of each of the following conditions, unless waived in writing by
Lender:
A. The representations and warranties of Borrower set forth in this
Agreement are true and correct on the date of the Advance (and after giving
effect to the Advance then being made);
A. No Default, no Event of Default and no Material Adverse Occurrence
shall then have occurred and be continuing on the date of the Advance or
result from the making of the Advance; and
B. No litigation, arbitration or governmental investigation or
proceeding shall be pending or, to the knowledge of Borrower or any
Guarantor, threatened against Borrower or any Guarantor or affecting its
business or operations or its ability to perform its obligations hereunder
which, if adversely determined to Borrower or any Guarantor, would
constitute a Material Advance Occurrence.
I. Termination. Subject to automatic termination of Borrower's ability
to obtain additional Advances or credit extensions under this Agreement upon the
occurrence of any Event of Default specified in Paragraphs 20(d), (e), (f), (g)
or (h) and to Lender's right to terminate Borrower's ability to obtain
additional credit extensions and Advances under this Agreement upon the
occurrence of any other Event of Default or upon demand, this Agreement shall
have a term ending on the Termination Date provided, however, that Borrower may
terminate this Agreement at any earlier time upon sixty days prior written
notice; provided further, however, that if Borrower terminates this Agreement at
any time prior to the then current Maturity Date, then Borrower shall pay to
Lender a prepayment charge equal to the product arrived at by multiplying
$2,500.00 times the number of calendar months (whole and fractional) from the
Termination Date to and including the then current Maturity Date; provided
further, that if Borrower terminates this Agreement prior to the then current
Maturity Date and repays all amounts owing to Lender hereunder completely from
funds borrowed from Riverside Bank (and not from any other source of funds),
then no
<PAGE>
prepayment charge shall be due. On the Termination Date, all obligations arising
under this Agreement shall become immediately due and payable without further
notice or demand. Lender's rights with respect to outstanding Obligations owing
on or prior to the Termination Date will not be affected by termination and all
of said rights including (without limitation) Lender's Security Interest in the
Collateral existing on such Termination Date or acquired by Borrower thereafter,
and the requirements of this Agreement that Borrower furnish schedules and
confirmatory assignments of Receivables and Inventory and turn over to Lender
all full and partial payments thereof shall continue to be operative until all
such Obligations have been duly satisfied.
I. Grant of License to Use Patents and Trademarks Collateral. For the
purpose of enabling Lender to exercise rights and remedies under this Agreement,
Borrower hereby grants to Lender an irrevocable, non-exclusive license
(exercisable without payment of royalty or other compensation to Borrower) to
use, license or sublicense any patent or trademark now owned or hereafter
acquired by Borrower and wherever the same may be located, and including in such
license reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer and automatic machinery software and
programs used for the compilation or printout thereof.
I. Miscellaneous.
(a) The performance or observance of any affirmative or negative covenant
or other provision of this Agreement and any supplement hereto may be
waived by Lender in a writing signed by Lender but not otherwise. No delay
on the part of Lender in the exercise of any remedy, power or right shall
operate as a waiver thereof, nor shall any single or partial exercise of
any remedy, power or right preclude other or further exercise thereof or
the exercise of any other remedy, power or right. Each of the rights and
remedies of Lender under this Agreement will be cumulative and not
exclusive of any other right or remedy which Lender may have hereunder or
as allowed by law.
(b) Any notice, demand or consent authorized by this Agreement to be given
to Borrower shall be deemed to be given when transmitted by telex or
telecopier (provided a confirmation copy thereof is sent by U.S. mail,
first class, within 24 hours of transmission) or personally delivered, or
three days after being deposited in the U.S. mail, postage prepaid, or one
day after delivery to Federal Express or other overnight courier service,
in each case addressed to Borrower at its address shown in the opening
paragraph of this Agreement, or at such other address as Borrower may, by
written notice received by Lender, designate as Borrower's address for
purposes of notice hereunder. Any notice or request authorized by this
Agreement to be given to Lender shall be deemed to be given when personally
delivered, or three business days after being deposited in the U.S. mail,
certified, return receipt requested, postage prepaid, or one business day
after delivery to and receipt by Federal Express or other overnight
courier, in each case addressed to Lender at its address shown in the
opening paragraph of this Agreement, or at such other address as Lender
may, by written notice received by Borrower, designate as Lender's address
for purposes of notice hereunder; provided, however, that any notice to
Lender given pursuant to Paragraph 4(b) shall not be deemed given until
received.
(c) This Agreement, including exhibits and schedules and other agreements
referred to herein, is the entire agreement between the parties, supersedes
and rescinds all prior agreements relating to the subject matter herein,
cannot be changed, terminated or amended orally, and shall be deemed
effective as of the date it is accepted by Lender.
(d) Borrower agrees to pay and will reimburse Lender on demand for all
out-of-pocket expenses incurred by Lender arising out of the origination or
duration of this transaction including without limitation filing and
recording fees and attorneys' fees and legal expenses, including costs of
in-house counsel (whether or not suit is commenced), whether incurred in
the negotiation and preparation of this Agreement, in the operation of cash
management, delivery/courier or other services including the operation of a
lockbox and wire transfer or advance fees, in the protection and perfection
of Lender's security interest in the Collateral, in the enforcement of any
of the provisions of this Agreement or of Lender's rights and remedies
hereunder and against the Collateral, in the defense of any claim or claims
made or threatened against Lender arising out of this transaction, or
otherwise including, without limitation, in each instance, all reasonable
attorneys' fees and legal expenses incurred in connection with any appeal
of a lower court's order or judgment. Lender is authorized to deduct any
such expenses from any amount due Borrower and/or to add such expenses to
Borrower's loan account hereunder.
Borrower acknowledges that Lender has certain responsibilities in
connection with the making of Advances and the administration of this
Agreement. Consequently, Borrower hereby indemnifies, exonerates and holds
Lender, and its officers, directors, employees and agents (the "Indemnified
Parties") free and harmless from and against any and
<PAGE>
all actions, causes of action, suits, losses, liabilities and damages, and
expenses in connection therewith including, without limitation, reasonable
attorneys' fees and disbursements (the 'Indemnified Liabilities"), incurred
by the Indemnified Parties or any of them as a result of, or arising out
of, or relating to:
1. any transaction financed or to be financed in whole or in part
directly or indirectly with proceeds of any Advance, or
1. the execution, delivery, performance or enforcement of this
Agreement or any document executed pursuant hereto by any of the
Indemnified Parties, except for any such Indemnified Liabilities
arising on account of any Indemnified Party's gross negligence or
willful misconduct.
If and to the extent that the foregoing undertaking may be unenforceable
for any reason, Borrower hereby agrees to make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities which
is permissible under applicable law. The provisions of this Paragraph shall
survive termination of this Agreement.
(e) This Agreement is made under and shall be governed by and interpreted
in accordance with the internal laws of the state of Minnesota, except to
the extent that the perfection of the Security Interest hereunder, or the
enforcement of any remedies hereunder with respect to any particular
Collateral, shall be governed by the laws of a jurisdiction other than the
State of Minnesota. Captions herein are for convenience only and shall not
be deemed part of this Agreement.
(f) This Agreement shall be binding upon Borrower and Lender and their
respective successors, assigns, heirs, and personal representatives and
shall inure to the benefit of Borrower, Lender and the successors and
assigns of Lender, except that Borrower may not assign or transfer its
rights hereunder without the prior written consent of Lender, and any
assignment or transfer in violation of this provision shall be null and
void. In connection with the actual or prospective sale by Lender of any
interest or participation in the obligations, Borrower authorizes Lender to
furnish any information in its possession, however acquired, concerning
Borrower or any of its Affiliates to any person or entity.
(g) Borrower hereby irrevocably consents and submits to the personal
jurisdiction of any Minnesota state court or federal court over any action
or proceeding arising out of or relating to the Agreement, and Borrower
hereby irrevocably agrees that all claims in respect of such action or
proceeding shall be venued (at the sole option of Lender) in either the
District Court of Dakota or Hennepin County, Minnesota, or the United
States District Court, District of Minnesota. Borrower hereby irrevocably
waives, to the fullest extent it may effectively do so, the defense of an
inconvenient forum to the maintenance of such action or proceeding.
Borrower irrevocably consents to the service of copies of the summons and
complaint and any other process which may be served in any such action or
proceeding by the mailing by United States certified mail, return receipt
requested, of copies of such process to Borrower's address stated in the
preamble hereto. Borrower agrees that judgment final by appeal, or
expiration of time to appeal without an appeal being taken, in any such
action or proceeding shall be conclusive and may be enforced in any other
jurisdictions by suit on the judgment or in any other manner provided by
law. Nothing in this Paragraph shall affect the right of Lender to serve
legal process in any other manner permitted by law or affect the right of
Lender to bring any action or proceeding against Borrower or its property
in the courts of any other jurisdiction. Borrower agrees that, if it brings
any action or proceeding arising out of or relating to this Agreement, it
shall bring such action or proceeding in the District Court of Hennepin
County, Minnesota.
(h) The provisions of this Agreement are severable, and in any action or
proceeding involving any State corporate law, or any State or Federal
bankruptcy, insolvency, reorganization or other law affecting the rights of
creditors generally, if the obligations of the Borrower hereunder would
otherwise be held or determined to be void, invalid, or unenforceable on
account of the grant of a security interest hereunder to secure Borrower's
contingent obligations, then, notwithstanding any other provision of this
Agreement to the contrary, the amount of such liability shall, without any
further action by Borrower, Lender or any other person, be automatically
limited and reduced to the highest amount which is valid and enforceable as
determined in such action or proceeding.
(i) A photocopy or other reproduction hereof may be filed as a financing
statement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
LENDER: SPECTRUM COMMERCIAL SERVICES
By _______________________________________
Its ________________________________
BORROWER: INFINITE GRAPHICS, INC.
By _______________________________________
Its ________________________________
Fed. Tax ID #: 41-0956693
<PAGE>
List of Exhibits
Exhibit A Compliance Certificate
Exhibit B Borrower's Financial Projections
List of Schedules
Schedule A Locations of Inventory and Equipment
(Paragraph 10)
Schedule B Names Under Which Borrower Has Done Business (Paragraph 16(a))
Schedule C Capital Stock of Corporations Owned by Borrower (Paragraph 16(a))
Schedule D Litigation (Paragraph 16(d))
Schedule E Security Interests (Paragraphs 16(f) and 18(d))
Schedule F Patents, Trademarks, Copyrights and Franchise Rights
(Paragraph 16(l))
Schedule G Financial Statements (Paragraph 16(h))
Schedule H Stock and Stock Ownership of Borrower (Paragraph 16(p))
Schedule I Contingent Obligations (Paragraph 16(q))
Schedule J Permitted Existing Indebtedness (Paragraphs 18(c) and (d))
REVOLVING NOTE
$750,000.00 October 24, 1997
Bloomington, Minnesota
FOR VALUE RECEIVED, the undersigned, INFINITE GRAPHICS INCORPORATED promises to
pay to the order of SPECTRUM COMMERCIAL SERVICES, a division of Lyon Financial
Services, Inc., (the "Lender") at its office in Bloomington, Minnesota, or at
such other place as any present or future holder of this Note may designate from
time to time, the principal sum of (i) Seven Hundred Fifty Thousand and 00/100
Dollars ($750,000.00), or (ii) the aggregate unpaid principal amount of all
advances and/or extensions of credit made by the Lender to the undersigned
pursuant to this Note as shown in the records of any present or future holder of
this Note, whichever is less, plus interest thereon from the date of each
advance in whole or in part included in such amount until this Note is fully
paid. Interest shall be computed on the basis of the actual number of days
elapsed and a 360-day year, at an annual rate equal to 4.5% per annum in excess
of the Prime Rate of Norwest Bank Minnesota, NA, and that shall change when and
as said Prime Rate shall change (the "Initial Rate"); provided, however, that
(i) in no event shall the interest rate in effect hereunder at any time be less
than 10% per annum; and (ii) interest payable hereunder with respect to each
calendar month shall not be less than $2,500.00 regardless of the amount of
loans, advances or other credit extensions that actually may have been
outstanding during the month.. Interest is due and payable on the first day of
each calendar month and at maturity. The term "Prime Rate" means the rate
established by Norwest Bank in its sole discretion from time to time as its
Prime or Base Rate, and the undersigned acknowledges that Norwest Bank and/or
Lender may lend to its customers at rates that are at, above or below the Prime
Rate.
In the event the undersigned earns "Net Income" (as defined in the General
Credit and Security Agreement dated October 24, 1997 ("Agreement")) for the 6
months ended October 31, 1997 of at least Two Hundred Fifty Thousand Dollars
($250,000.00), and provided no Event of Default exists or has occurred, then the
Initial Rate shall be reduced to four and one quarter percent (4.25%) in excess
of the Prime Rate (the "Adjusted Rate") commencing with the next scheduled
Monthly Payment Date (as defined in the Agreement) following Lender's receipt of
Borrower's financial statements for that period. Provided that Borrower obtains
the Adjusted Rate reduction described above, then in the further event Borrower
earns Net Income for the fiscal year ending April 30, 1998 of at least Five
Hundred Thousand Dollars ($500,000.00), and provided no Event of Default exists
or has occurred, then the the Adjusted Rate shall be reduced to three and
three-quarters percent (3.75%) in excess of the Prime Rate (the "Re-adjusted
Rate") commencing with the next scheduled Monthly Payment Date following
Lender's receipt of the audited financial statements delivered to Lender
pursuant to Paragraph 16(h) for fiscal year ending April 30, 1998. (the Initial
Rate, the Adjusted Rate and the Re-adjusted Rate are sometimes hereinafter
collectively referred to as the "Interest Rate").
Notwithstanding the foregoing, after an Event of Default, this Note shall bear
interest until fully paid at five percent (5%) per annum in excess of the rate
otherwise then in effect, which rate shall continue to vary based on further
changes in the Prime Rate; provided, however, that after an Event of Default,
(i) in no event shall the interest rate in effect hereunder at any time be less
than 15.0% per annum; and (ii) interest payable hereunder with respect to each
calendar month shall not be less than $2,900 regardless of the amount of loans,
advances or other credit extensions that actually may have been outstanding
during the month. The undersigned also shall pay the holder of this Note a late
fee equal to 10% of any payment under this Note that is more than 10 days past
due.
<PAGE>
All interest, principal, and any other amounts owing hereunder are due on
October 23, 1999 or earlier UPON DEMAND by Lender or any holder hereof, and
Lender specifically reserves the absolute right to demand payment of all such
amounts at any time, with or without advance notice, for any reason or no reason
whatsoever. Lender's right to make such demand is not exclusive and Lender may
coincidentally or separately from such demand make further demand for payment
pursuant to the terms hereof (including but not limited to upon the occurrence
of an Event of Default), and further, amounts may become due hereunder without a
demand by Lender.
All or any part of the unpaid balance of this Note may be prepaid upon sixty
days prior written notice, provided, however, that if this Note is fully
pre-paid prior to October 23, 1999, then there shall be a prepayment charge
equal to the product arrived at by multiplying $2,500.00 times the number of
calendar months (whole and fractional) from the date of complete prepayment to
and including October 23, 1999; provided further, however, that if all amounts
owing under this Note are paid completely from funds borrowed from Riverside
Bank (and not from any other source of funds), then no prepayment charge shall
be due. At the option of the then holder of this Note, any payment under this
Note may be applied first to the payment of other charges, fees and expenses
under this Note and any other agreement or writing in connection with this Note,
second to the payment of interest accrued through the date of payment, and third
to the payment of principal. Amounts may be advanced and readvanced under this
Note at the Lender's sole and absolute discretion, provided the principal
balance outstanding shall not exceed the amount first above written. Neither the
Lender nor any other person has any obligation to make any advance or readvance
under this Note.
The occurrence of any of the following events shall constitute an Event of
Default under this Note: (i) any default in the payment of this Note; or (ii)
any other default under the terms of any now existing or hereafter arising debt,
obligation or liability of any maker, endorser, guarantor or surety of this Note
or any other person providing security for this Note or for any guaranty of this
Note, including, but not limited to, that certain General Credit and Security
Agreement dated October 24, 1997; or (iii) the insolvency (other than the
insolvency of the undersigned), death dissolution, liquidation, merger or
consolidation of any such maker, endorser, guarantor, surety or other person; or
(iv) any appointment of a receiver, trustee or similar officer of any property
of any such maker, endorser, guarantor, surety or other person; or (v) any
assignment for the benefit of creditors of any such maker, endorser, guarantor,
surety or other person; or (vi) any commencement of any proceeding under any
bankruptcy, insolvency, dissolution, liquidation or similar law by or against
any such maker, endorser, guarantor, surety or other person, provided however,
that if such a proceeding is commenced against the maker hereof or any Guarantor
on an involuntary basis, then only if such action is not dismissed within 60
days of first being filed; or (vii) the sale, lease or other disposition
(whether in one transaction or in a series of transactions) to one or more
persons of all or a substantial part of the assets of any such maker, endorser,
guarantor, surety or other person; or (viii) any such maker, endorser,
guarantor, surety or other person dies or takes any action to revoke or
terminate any agreement, liability or security in favor of the Lender; or (ix)
the entry of any judgment or other order for the payment of money in the amount
of $10,000.00 or more against any such maker, endorser, guarantor, surety or
other person which judgment or order is not discharged or stayed in a manner
acceptable to the then holder of this Note within 10 days after such entry; or
(x) the issuance or levy of any writ, warrant, attachment, garnishment,
execution or other process against any property of any such maker, endorser,
guarantor, surety or other person; or (xi) the issuance or attachment of any tax
lien or tax levy against any property of any such maker, endorser, guarantor,
surety or other person which is other than for taxes or assessments not yet due
and payable; or (xii) any statement, representation or warranty made by any such
maker, endorser, guarantor, surety or other person (or any representative of any
such maker, endorser, guarantor, surety or other person) to any present or
future holder of this Note at any time shall be false,
<PAGE>
incorrect or misleading in any material respect when made; or (xiii) there is a
material adverse change in the condition (financial or otherwise), business or
property of any such maker, endorser, guarantor, surety or other person. Upon
the occurrence of any Event of Default described in subparagraphs (iii), (iv),
(v) or (vi) above, all amounts outstanding under this Note (including unpaid
principal, interest and other charges due or accruing hereunder) shall be and
become immediately due and payable without any declaration, notice, presentment,
protest, demand or dishonor of any kind (all of which are hereby waived by
Borrower) and Borrower's ability to obtain any additional credit extensions or
advances under this Note shall be immediately and automatically terminated. Upon
the occurrence of an Event of Default and at any time thereafter while an Event
of Default is continuing, the then holder of this Note may, at its option,
declare this Note to be immediately due and payable and thereupon this Note
shall become due and payable for the entire unpaid principal balance of this
Note plus accrued interest and other charges on this Note without any
presentment, demand, protest or other notice of any kind.
The undersigned: (i) waives demand, presentment, protest, notice of
protest, notice of dishonor and notice of nonpayment of this Note; (ii) agrees
to promptly provide all present and future holders of this Note from time to
time with financial statements of the undersigned and such other information
respecting the financial condition, business and property of the undersigned as
any such holder of this Note may reasonably request, in form and substance
acceptable to such holder of this Note; (iii) agrees that when or at any time
after this Note becomes due the then holder of this note may offset or charge
the full amount owing on this note against any account then maintained by the
undersigned with such holder of this Note without notice; (iv) agrees to pay on
demand all fees, costs and expenses of all present and future holders of this
Note in connection with this Note and any security and guaranties for this Note,
including but not limited to audit fees and expenses and reasonable attorneys'
fees and legal expenses, plus interest on such amounts at the rate set forth in
this Note; and (v) consents to the personal jurisdiction of the state and
federal courts located in the State of Minnesota in connection with any
controversy related in any way to this Note or any security of guaranty for this
Note, waives any argument that venue in such forums is not convenient, and
agrees that any litigation initiated by the undersigned against the Lender or
any other present or future holder of this Note relating in any way to this Note
or any security or guaranty for this Note shall be venued (at the sole option of
Lender or the holder hereof) in either the District Court of Dakota or Hennepin
County, Minnesota, or the United States District Court, District of Minnesota.
Interest on any amount under this Note shall continue to accrue, at the option
of any present or future holder of this Note, until such holder receives final
payment of such amount in collected funds in form and substance acceptable to
such holder. The maker agrees that, if it brings any action or proceeding
arising out of or relating to this Agreement, it shall bring such action or
proceeding in the District Court of Hennepin County, Minnesota.
No waiver of any right or remedy under this Note shall be valid unless in
writing executed by the holder of this Note, and any such waiver shall be
effective only in the specific instance and for the specific purpose given. All
rights and remedies of all present and future holders of this Note shall be
cumulative and may be exercised singly, concurrently or successively. The
undersigned, if more than one, shall be jointly and severally liable under this
Note, and the term "undersigned," wherever used in this Note, shall mean the
undersigned or any one or more of them. This Note shall bind the undersigned and
the successors and assigns of the undersigned. This Note shall be governed by
and construed in accordance with the laws of the State of Minnesota.
<PAGE>
THE UNDERSIGNED REPRESENTS, CERTIFIES, WARRANTS AND AGREES THAT THE UNDERSIGNED
HAS READ ALL OF THIS NOTE AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS NOTE.
THE UNDERSIGNED ALSO AGREES THAT COMPLIANCE BY ANY PRESENT OR FUTURE HOLDER OF
THIS NOTE WITH THE EXPRESS PROVISIONS OF THIS NOTE SHALL CONSTITUTE GOOD FAITH
AND SHALL BE CONSIDERED REASONABLE FOR ALL PURPOSES.
INFINITE GRAPHICS INCORPORATED
By ____________________________________
Clifford F. Stritch, Jr.
Chief Executive Officer
TERM LOAN AGREEMENT
THIS AGREEMENT, made as of the 24 day of October, 1997, by and between
Infinite Graphics Incorporated (the "Borrower"), Clifford F. Stritch, Jr.
("Guarantor") and Riverside Bank (the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower has requested the Bank to extend a Two Hundred Fifty
Thousand and no/100 Dollars ($250,000.00) term loan for the purpose of providing
refinancing of real estate located at 4611 East Lake Street, Minneapolis,
Minnesota (the "Property"); and
WHEREAS, the Bank is willing and prepared to extend such term loan to the
Borrower upon the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. TERM LOAN: On the date hereof the Bank has made a $250,000.00 term loan to
the Borrower ("Term Loan").
2. NOTE: The obligation of the Borrower to repay the Term Loan is evidenced by
that certain note of even date herewith executed by the Borrower in the original
principal amount of Two Hundred Fifty Thousand and no/100 Dollars ($250,000.00)
("Loan Amount") and payable to the order of the Bank ("Note"). Reference is
hereby made to the Note for the terms thereof relating to maturity, repayment
schedule, interest rate and other matters governing the repayment of the Term
Loan.
3. COLLATERAL DOCUMENTS: As a condition precedent to the agreement of the Bank
to make the Term Loan, the Borrower has executed and delivered to the Bank a
Combination Mortgage, Security Agreement, Fixture Financing Statement and
Assignment of Rents (the "Mortgage") pursuant to which the Borrower has granted
a first lien security interest to the Bank on the Property to secure payment of,
among other things, the Note.
To further secure the Note payment, the Guarantor has executed a Guaranty
Agreement ("Guaranty") in favor of the Bank.
This Agreement, Note, the Mortgage and Guaranty are hereinafter
collectively referred to as the "Borrower Documents".
<PAGE>
4. REPRESENTATIONS. In order to induce the Bank to make the Term Loan, the
Borrower hereby warrants and represents to the Bank as follows:
A. Authority. The Borrower has full power and authority to execute and
deliver the Borrower Documents, and to incur and perform his obligations
hereunder and thereunder; the execution, delivery and performance by the
Borrower of the Borrower Documents and any and all other documents and
transactions contemplated hereby and thereby will not result in the breach
of, constitute a default under, or create or give rise to any lien under
any indenture or other agreement or instrument to which the Borrower is
party or by which the Borrower or his property may be bound or affected.
B. Enforceability. The Borrower Documents each constitute the legal, valid
and binding obligations of the Borrower enforceable in accordance with
their respective terms (subject, as to enforceability, to limitations
resulting from bankruptcy, insolvency and other similar laws affecting
creditors' rights generally).
C. Financial Condition. The financial statements of the Borrower and
Guarantor heretofore furnished to the Bank are complete and correct in all
respects and fairly present the financial condition of the Borrower and
Guarantor at the date of such statement. Since the most recent set of
financial statements delivered by the Borrower to the Bank, there have
been no material adverse changes in the financial condition of the
Borrower.
D. Litigation. There is no action, suit or proceeding pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower
which, if adversely determined, would have a material adverse effect on
the condition (financial or otherwise), business, properties or assets of
the Borrower or which would question the validity or enforceability of the
Borrower Documents or any instrument, document or other agreement related
hereto or required hereby, or impair the ability of the Borrower to
perform his obligations under the foregoing agreements.
E. Licenses. The Borrower possesses adequate licenses, permits,
franchises, patents, copyrights, trademarks and trade names, or rights
thereto, to conduct its business as presently conducted and proposed to be
conducted.
F. Default. The Borrower is not in default of a material provision under
any material agreement, instrument, decree or order to which he is party
or by which his property is bound or affected.
G. Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any governmental
authority or any third party is required in connection with the execution
and delivery of this Agreement, or any of the agreements or instruments
herein mentioned or related hereto to which the Borrower is party or the
carrying out or performance of any of the transactions required or
contemplate hereby or thereby or, if required, such consent approval,
order or
<PAGE>
authorization has been obtained or such registration, declaration or
filing has been accomplished or such notice has been given prior to the
date hereof.
H. Taxes. The Borrower has filed all tax returns required to be filed and
either paid all taxes shown thereon to be due, including interest and
penalties, which are not being contested in good faith and by appropriate
proceedings, or provided adequate reserves for payment thereof, and the
Borrower has no information or knowledge of any objections to or excess
profits tax returns for prior years.
I. Titles, Etc. The Borrower has good title to the Property free and clear
of all mortgages, liens and encumbrances, except such liens and
encumbrances as may from time to time be consented to in writing by the
Bank (hereinafter collectively referred to as the "Permitted Interests").
J. Use of Loans. The Borrower is not engaged principally, nor as one of
important activities, in the business of extending credit for the purpose
of purchasing or carrying margin stock (within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System), and no part of
the proceeds of any loan hereunder will be used to purchase or carry any
such margin stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock.
5. COVENANTS OF THE BORROWER. On and after the date hereof and until the payment
in full of the Note and any and all of other indebtedness of the Borrower to the
Bank, the Borrower agrees that, unless the Bank shall otherwise consent in
writing, he shall:
A. Financial Information. From time to time, with reasonable promptness,
provide to the Bank such information and statements regarding the
business, operations, affairs and financial condition of the Borrower and
Guarantor as the Bank may request. Specifically, but not exclusively, the
Borrower and Guarantor shall provide to the Bank current financial
statements certified by Borrower and Guarantor as being true and correct
in all material respects, not later than August 1 of each calendar year
during the term hereof, along with a copy of their Federal Income Tax
Returns for such year, with all schedules attached to be delivered to the
Bank by January 31 of each year.
B. Taxes and Claims. Pay and discharge all taxes, assessments and
governmental charges or levies imposed upon him or upon the income or
profits, or upon any of his assets or properties, prior to the date on
which penalties attached thereto, and all lawful claims which, if unpaid,
might become a lien or charge upon the property or assets of the Borrower;
provided, however, that the Borrower shall not be required to pay any such
tax, assessment, charge, levy or claim the payment of which is being
contested in good faith and by proper proceedings and for which he shall
have set aside on his books adequate reserves therefor.
C. Insurance. Maintain insurance coverage with responsible insurance
companies licensed to do business in Minnesota in such amount and against
such risks as is required
<PAGE>
by the Mortgage or as required by law, naming the Bank as a loss payee,
and the Borrower shall furnish to the Bank upon written request, full
information and written evidence as to the insurance maintained by the
Borrower.
D. Compliance with Applicable Laws. Comply with the requirements of all
applicable state and federal laws, and of all rules, regulations and
orders of any governmental or other authority or agency, a breach of which
would materially and adversely affect his business or credit, except where
contested in good faith and by proper proceedings.
E. Litigation. Promptly give the Bank notice in writing of all litigation
and of all proceedings by or before any court or governmental or
regulatory agency affecting the Borrower, except litigation or proceedings
which, if adversely determined, would not materially affect the financial
condition of business of such party.
F. Liens. The Borrower shall not create, assume incur or suffer to exist
any assignment, mortgage, lease, pledge, security interest, lien, charge
or other encumbrance whatsoever upon the property which would assume
priority over the Mortgage granted herein or any document related hereto
to the Bank.
G. Access to Books and Inspection. Keep proper books of record and
accounts for himself, and, upon request of the Bank, provide any duly
authorized representative of the Bank, upon 48 hours notice, access during
normal business hours to, and permit such representative to examine, copy
or make extracts from, any and all books, records and documents relating
to the Property, the Borrower's affairs and to inspect any of his
facilities and properties. (The Bank shall be permitted to disclose the
information contained therein to its legal counsel, its independent public
accountants, any participating banks, or in connection with any action to
collect any indebtedness of the Borrower or to enforce this Agreement and
the documents related hereto, or as otherwise permitted or required by
law.)
H. Environmental Report. The Borrower shall provide the Bank with an
environmental report for the Property site and the building(s) located
thereon from an independent engineering or consulting firm acceptable to
the Bank, which report shall detail the following:
1. For the building:
The location and condition of any materials found to contain
asbestos, PCB's or other hazardous substances;
2. For the site:
Any evidence of hazardous materials, hazardous wastes, and/or
petroleum products having been disposed of, stored, released
on the site, or evidence that the site may have been
contaminated by other locations.
<PAGE>
I. Property Operating Account. Borrower shall maintain all operating bank
accounts for the Property and its business with the Bank and shall execute
appropriate authorization for the Bank to debit the operating accounts on
a monthly basis in an amount sufficient to make payment on the Note and
the Escrow Items hereafter deposited.
J. Funds for Taxes. Borrower shall pay to the Bank on the day monthly
payments are due under the Note, until the Note is paid in full, a sum
("Funds") for yearly taxes and assessments which may attain priority over
the Mortgage as a lien on the Property. These items are called "Escrow
Items."
The Funds shall be held by the Bank in an interest-bearing account.
The Bank shall apply the Funds to pay the Escrow Items.
6. NOTICES. All notices, consents, requests, demands and other communications
hereunder shall be given to or made upon the respective parties hereto at their
respective addresses specified below or, as to any party, at such other address
as may be designated by it in a written notice to the other party. All notices,
requests, consents and demands hereunder shall be effective when personally
delivered or duly deposited in the United States mail, certified or registered,
postage prepaid, or delivered to the telegraph company, addressed as aforesaid:
IF TO THE BANK: Riverside Bank
7760 France Avenue South
Bloomington, MN 55435
IF TO THE BORROWER AND GUARANTOR: Infinite Graphics Incorporated
Attn: Clifford F. Stritch, Jr.
4611 East Lake Street
Minneapolis, MN 55406
7. EVENTS OF DEFAULT. Each of the following shall be an "Event of Default"
hereunder:
A. Borrower defaults in any payment due hereunder or under the Note and
such default shall continue for a period of 15 days after written
notice thereof.
B. Any representation made by or on behalf of the Borrower in
connection with this Agreement or the transactions contemplated
hereby proves to have been materially false or misleading when made.
C. Borrower fails to comply with any covenant contained in this
Agreement which failure is not cured within 30 days after written
notice of such default from the Bank, provided that, if in the
opinion of the Bank, Borrower is diligently
<PAGE>
attempting to cure such default, the Bank will allow such Borrower
such additional time as is reasonably necessary to cure such default
in the opinion of the Bank.
D. An Event of Default, as therein defined, occurs under any of the
Borrower Documents.
Upon or after the occurrence of any Event of Default or event which, with
the giving of notice or passage of time, would be an Event of Default, the Bank
may demand payment in full of the principal of and interest on the Note and any
amounts owing under this Agreement and commence exercising its remedies under
any Borrower Documents.
8. MISCELLANEOUS.
A. Waivers, Etc. No failure on the part of the Bank to exercise, and no
delay in exercising, any right or remedy hereunder or under applicable law
or any document or agreement related hereto shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right or
remedy preclude any other or further exercise of any other right or
remedy. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
B. Expenses. The Borrower shall pay the Bank a loan fee of $2,500.00 and
shall reimburse the Bank for any and all costs and expenses, including,
without limitation, attorneys' fees paid or incurred by the Bank or any
participation in connection with (i) the preparation of this Agreement and
any other document or agreement related hereto or thereto of the
transactions contemplated hereby; (ii) the negotiation of any amendments,
modifications or extensions to any of the foregoing documents, instruments
or agreements, and the preparation of any and all documents necessary or
desirable to effect such amendments, modifications or extensions; and
(iii) the enforcement by the Bank during the term hereof or thereafter of
any of the right or remedies of the Bank under any of the foregoing
documents, instrument or agreements or under applicable law, whether or
not suit is filed with respect thereto.
C. Amendments, Etc. This Agreement and documents related hereto may not be
amended or modified, nor may any of its terms (including, without
limitation, terms affecting the maturity of or rate of interest on the
Note) be modified or waived, except by written instruments signed by the
Bank and the Borrower.
D. Successors. This Agreement shall be binding upon and inure to the
benefit of the Borrower and the Bank and their respective successors and
assigns.
E. Offsets. Nothing in this Agreement shall be deemed a waiver or
prohibition of the Bank's or any participant bank's right of banker's
lien, offset, or counterclaim, which right the Borrower hereby grants to
the Bank and each such participant.
<PAGE>
F. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement,
and any of the parties hereto may execute this Agreement by signing any
such counterpart.
H. Headings. The descriptive headings for the several sections of this
Agreement are inserted for convenience only and shall not define or limit
any of the terms or provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
RIVERSIDE BANK
By /s/ Robert G. O'Brien
--------------------------------
Robert G. O'Brien
Vice President
INFINITE GRAPHICS INCORPORATED
By /s/ Clifford F. Stritch Jr.
--------------------------------
Its CEO
--------------------------------
MORTGAGE NOTE
$250,000.00 October 24, 1997
Bloomington, Minnesota
FOR VALUE RECEIVED, the undersigned, Infinite Graphics Incorporated, a
Minnesota Corporation, (Obligor), promises to pay to the order of the Riverside
Bank, (Bank), the sum of Two Hundred Fifty Thousand and no/100, ($250,000.00)
Dollars together with interest on the unpaid principal balance at the rate
provided below.
The principal and interest on this Note are payable in installments due on
the 15th day of each month (or the next business day thereafter if the such day
is a holiday)("Payment Date") as follows:
1. Principal and Interest Payments
Commencing November 15, 1997, and on each monthly Payment Date
thereafter, the principal and interest payments shall be payable in an amount
necessary to fully amortize the principal balance of this Note plus accrued
interest thereon at the rate then in effect as provided herein, over a period of
10 years.
2. Interest Rates and Changes
(a) Interest Rate
The Interest rate of this Note shall be 2.00% above the Reference Interest Rate
as such rate shall fluctuate from time to time computed on the basis of actual
days elapsed in a year of 360 days.
(b) Reference Interest Rate
"Reference Interest Rate" shall mean the rate of interest
announced from time to time by the First Bank National Association of
Minneapolis as its reference rate.
(c) Initial Interest Rate
The Initial Interest Rate at which the Principal and Interest
Payments are computed is 10.50 percent per annum.
3. Application of Payments
All payments will be applied first to interest, with the balance to
principal reduction.
<PAGE>
4. Maturity Date
This Note shall be due and payable in full on October 15, 2000.
It is expressly agreed that if any default is made in the payment of all
or any part of the above installments, whether interest or principal, time being
of the essence hereof, and such default shall continue for a period of 15 days
after written notice thereof to Obligor, the Bank may, at its option, declare
the entire unpaid principal balance, and any accrued interest thereon,
immediately due and payable without notice. Failure to exercise this option
shall not constitute a waiver of the right to exercise the option at a later
date.
The Obligor hereby waives presentment for payment, notice of nonpayment,
protest and notice of protest, consents to the extension or renewal of this Note
without notice, and agrees to pay, in the event of default hereunder, the costs
of collection, including reasonable attorney's fees.
This Note is executed together with that certain Loan Agreement of even
date by and between the Obligor and the Bank, and this Note is subject to the
provisions and entitled to the benefits thereof.
This Note is secured by a first lien real estate mortgage on real estate
located at 4611 East Lake Street, Minneapolis, MN.
INFINITE GRAPHICS INCORPORATED
By: /s/ Clifford F. Stritch, Jr.
Clifford F. Stritch, Jr.
Its: Chief Executive Officer
- -------------------------------------------------------------------------------
COMBINATION MORTGAGE, SECURITY AGREEMENT
FIXTURE FINANCING STATEMENT AND
ASSIGNMENT OF RENTS
INFINITE GRAPHICS INCORPORATED,
a Minnesota Corporation
TO
RIVERSIDE BANK
7760 FRANCE AVENUE SOUTH
BLOOMINGTON, MN 55435
DATED AS OF
October 24, 1997
- -------------------------------------------------------------------------------
This Instrument Drafted By:
ORLINS LAW OFFICE
604 Richfield Bank Building
6625 Lyndale Avenue South
Richfield, Minnesota 55423-2390
(612) 861-3331
<PAGE>
COMBINATION MORTGAGE, SECURITY AGREEMENT,
FIXTURE FINANCING STATEMENT AND ASSIGNMENT OF RENTS
This Mortgage made as of the 24 day of October, 1997, between Infinite
Graphics Incorporated, a Minnesota Corporation, (herein called the "Mortgagor")
and RIVERSIDE BANK, a banking corporation organized under the laws of the State
of Minnesota having its office in the City of Bloomington, Minnesota (herein
called the "Mortgagee").
WITNESSETH:
WHEREAS, Mortgagor is or may become indebted to Mortgagee in the
principal sum of $250,000.00 pursuant to the terms of that certain Promissory
Note ("Note") of even date and all extensions, amendments and renewals thereof;
and
WHEREAS, the Mortgagee will advance the proceeds of said Note in
accordance with its terms; and
WHEREAS, the Mortgagee has required the execution and delivery hereof
as a condition in making any advances under the Note.
NOW THEREFORE, in consideration of the premises and the sum of
$250,000.00 to the Mortgagor paid, and for the purpose of securing (A) the
payment when and as due and payable of each and every advance now or hereafter
made by the Mortgagee under the Note together with all interest thereon, (B) the
payment of all other sums with interest thereon, as may be advanced by the
Mortgagee in accordance with this Mortgage (the indebtedness evidenced by the
Note and the other sums are hereinafter collectively referred to as the
"Indebtedness"), and (C) the performance of all the covenants, conditions and
agreements contained in a Loan Agreement of even date between the parties (the
"Loan Agreement"), the Mortgagor hereby mortgages, grants, bargains, sells,
releases and conveys unto the Mortgagee forever all the tracts or parcels of
land located in the City of Minneapolis, County of Hennepin, State of Minnesota
described in Exhibit A attached hereto and made a part hereof, together with (i)
all building materials, supplies and equipment now or hereafter located on the
Real Estate and suitable or intended to be incorporated in any building,
structure, or other improvement located or to be erected on the Real Estate;
(ii) all of the building, structures and other improvements now standing or at
any time hereafter constructed or placed upon the Real Estate; and (iii) all
heating, plumbing and lighting apparatus, motors, engines and machinery,
electrical equipment, incinerator apparatus, air conditioning equipment, water
and gas apparatus, pipes, faucets and all other fixtures of every description
which are now or may hereafter be placed or used upon the Real Estate or in any
building or improvement now or hereafter located thereon; (iv) all additions,
accessions, increases, parts, fittings, accessories, replacements,
substitutions, betterments, repairs and proceeds to any and all of the
foregoing; and (v) all hereditaments, easements, appurtenances, estates, rents,
issues, profits, condemnation awards and other rights and interest now or
hereafter belonging or in any way pertaining to the Real Estate or to any
building or improvement now or hereafter located thereon (all of the foregoing,
together with the Real Estate, being hereinafter referred to as the "Mortgaged
Property").
<PAGE>
To Have and To Hold the Mortgaged Property unto the Mortgagee forever.
Provided, nevertheless, that this Mortgage is upon the express
condition that if the principal of and interest on the Note and all other
indebtedness shall be paid as and when due, and the Mortgagor shall also keep
and perform all and singular the covenants herein contained on the part of the
Mortgagor to be kept and performed, then, this Mortgage and the estate hereby
granted shall cease and be and become void and shall be released of record at
the expense of the Mortgagor; otherwise this Mortgage shall be and remain in
full force and effect.
The Mortgagor represents, warrants and covenants to and with the
Mortgagee that he is lawfully seized of the Mortgaged Property in fee simple and
has good right and full power and authority to execute this Mortgage and to
mortgage the Mortgaged Property; that the Mortgaged Property is free from all
liens and encumbrances except as set forth on Exhibit B attached hereto and made
a part hereof; that the Mortgagor shall quietly enjoy and possess the Mortgaged
Property; that the Mortgagor will warrant and defend the title to the Mortgaged
Property against all claims, whether now existing or hereafter arising, not
hereinbefore expressly excepted; and that all buildings and improvements now or
hereafter located on the Real Estate are, to the best of its knowledge, located
entirely within its boundaries. The covenants and warranties of this paragraph
shall survive foreclosure of this Mortgage and shall run with the Real Estate.
The Mortgagor further covenants with the Mortgagee as follows:
1. Payment of Indebtedness. Mortgagor will duly and punctually pay the
principal of and interest on the Note and all other Indebtedness, when and as
due and payable. The Mortgagor shall promptly and faithfully observe all other
terms and provisions of this Mortgage and will permit no Event of Default, as
defined herein, to occur.
2. Application of Payments. All payments received by Mortgagee from
Mortgagor under the Note, the Loan Agreement or this Mortgage shall be applied
by Mortgagee in the following order or priority: (i) interest payable on
advances made pursuant to paragraph 11 hereof; (ii) principal of advances made
pursuant to paragraph 11 hereof; (iii) interest payable on the Note; (iv)
principal of the Note; (v) any other sums secured by this Mortgage, in such
order of application as Mortgagee may determine.
3. Funds for Taxes, Assessments and Other Charges. Mortgagor shall pay
to the Mortgagee on the day monthly payments are due under the Note, until the
Note is paid in full, a sum ("Funds") for yearly taxes and assessments which may
attain priority over the Mortgage as a lien on the Mortgaged Property. These
items are called "Escrow Items."
The Funds shall be held by the Mortgagee in an account. The Mortgagee
shall apply the Funds to pay the Escrow Items.
<PAGE>
If the amount of the Funds held by Mortgagee, together with the future
monthly installments of Funds payable prior to the due dates of taxes,
assessments, and insurance premiums shall exceed the amount required to pay said
taxes, assessments and insurance premiums as they fall due, such excess shall
be, at Mortgagor's option, either promptly repaid to Mortgagor or credited to
Mortgagor on monthly installments of Funds. If the amount of the Funds held by
Mortgagee shall not be sufficient to pay taxes, assessments as they fall due,
Mortgagor shall pay to Mortgagee any amount necessary to make up the deficiency
in one or more payments as Mortgagee may require.
Upon payment in full of all sums secured by this Mortgage, Mortgagee
shall promptly refund to Mortgagor any Funds held by Mortgagee.
4. Payment of Utility Charges. Subject to paragraph 7 relating to
contests, the Mortgagor shall pay all charges made by utility companies, whether
public or private, for electricity, gas heat, water, telephone, or sewer,
furnished or used in connection with the Mortgaged Property or any part thereof,
and will, upon written request of Mortgagee, furnish proper receipts evidencing
such payment.
5. Liens. Subject to paragraph 7 hereof relating to contests, the
Mortgagor shall not create, incur or suffer to exist any lien, encumbrance or
charge on the Mortgaged Property or any part thereof which might or could be
held to be equal or prior to the lien of this Mortgage, other than the lien of
current Real Estate taxes and installments of special assessments with respect
to which no penalty is yet payable. Mortgagor shall pay, when due, the claims of
all persons supplying labor or materials to or in connection with the Mortgaged
Property.
6. Compliance with Laws. Subject to paragraph 7 relating to contests,
Mortgagor shall comply with all present and future statutes, laws, rules,
orders, regulations and ordinances affecting the Mortgaged Property, any part
thereof or the use thereof.
7. Permitted Contests. The Mortgagor shall not be required to (i) pay
any tax, assessment or other charge referred to in paragraph 3 hereof, (ii) pay
any charge referred to in paragraph 4 hereof, (iii) discharge or remove any
lien, encumbrance or charge referred to in paragraph 5 hereof, or (iv) comply
with any statute, law, rule, regulation or ordinance referred to in paragraph 6
hereof, so long as Mortgagor shall (a) contest, in good faith, the existence,
amount or the validity thereof, the amount of damages caused thereby or the
extent of its liability therefor, by appropriate proceedings which shall operate
during the pendency thereof to prevent (A) the collection of, or other
realization upon the tax, assessment, charge or lien, encumbrance or charge so
contested, (B) the sale, forfeiture or loss of the Mortgaged Property or any
part thereof, and (C) any interference with the use or occupancy of the
Mortgaged Property or any part thereof, and Mortgagor shall give prompt written
notice to Mortgagee of the commencement of any contest referred to in this
paragraph 7.
<PAGE>
8. Insurance.
(a) Risks to be Insured. The Mortgagor, at his sole cost and expense,
will maintain insurance of the following character:
(i) Insurance on the buildings and other improvements,
including leasehold improvements, now existing or hereafter erected on the Real
Estate and on the fixtures and personal property included in the Mortgaged
Property against loss by fire, and other hazards covered by the so-called
"all-risk" form of policy for its full insurable value. While any building or
other improvement is in the course of being constructed or rebuilt on the Real
Estate, the Mortgagor shall provide the aforesaid hazard insurance in builder's
risk completed value form, including coverage available on the so-called
"all-risk" non-reporting form of policy for an amount equal to 100% of the
insurable replacement value of such building or other improvement.
(ii) If the Mortgaged Property includes steam boilers or other
equipment for the generation or transmission of steam, insurance against loss or
damage by explosion, rupture or bursting of steam boilers, pipes, turbines,
engines and other pressure vessels and equipment, in an amount satisfactory to
the Mortgagee, without a co-insurance clause.
(iii) If the Real Estate or any part thereof is located in a
designated official flood-hazardous area, flood insurance insuring the buildings
and improvements now existing or hereafter erected on Real Estate in an amount
equal to the lesser of the principal balance of the Note or the maximum limit of
coverage made available with respect to such buildings and improvements under
the Federal Flood Disaster Protection Act of 1973, as amended, and the
regulations issued thereunder.
(b) Policy Provisions. All insurance and renewals thereof maintained by
Mortgagor pursuant to subparagraphs (a)(i) through (a)(iii) above shall be
written by an insurance carrier reasonably satisfactory to the Mortgagee,
contain a standard mortgage clause in favor of and in form acceptable to
Mortgagee, contain an agreement of the insurer that it will not cancel the
policy except after 30 days' prior written notice to Mortgagee, and be
reasonably satisfactory to Mortgagee in all other respects.
(c) Delivery of Policy. Mortgagor will deliver to Mortgagee copies of
policies satisfactory to Mortgagee evidencing the insurance which is required
hereunder; and Mortgagor shall promptly furnish to Mortgagee all renewal notices
and all receipts of paid premiums received by it. At least 30 days prior to the
expiration date of a required policy, Mortgagor shall deliver to Mortgagee a
Certificate of Insurance in form satisfactory to Mortgagee.
(d) Delivery of Proceeds. If the Mortgaged Property is sold at a
foreclosure sale or if the Mortgagee shall acquire title to the Mortgaged
Property, the Mortgagee shall have all of the right, title and interest of
Mortgagor in and to any insurance proceeds resulting from any damage to the
Mortgaged Property prior to such sale or acquisition.
<PAGE>
(e) Notice of Damage or Destruction; Adjusting Loss. If the Mortgaged
Property or any part thereof shall be damaged or destroyed by fire or other
casualty, Mortgagor will promptly give written notice thereof to the insurance
carrier and Mortgagee, and will not adjust any damage or loss which is estimated
by Mortgagee in good faith to exceed $50,000 unless Mortgagee shall have joined
in such adjustment; but if there has been no adjustment of any such damage or
loss within four months from the date of occurrence thereof and if an Event of
Default shall exist at the end of such four-month period or at any time
thereafter, Mortgagee may alone, make proof of loss, adjust and compromise any
claim under the policies and appear in and prosecute any action arising from
such policies. In connection therewith, Mortgagor does hereby authorize, and
empower its Mortgagee to do any and all of the foregoing in the name and on
behalf of Mortgagor.
(f) Application of Insurance Proceeds. All insurance proceeds of any
insurance policy required herein so recovered by the Mortgagee on account of
damage or destruction to the Mortgaged Property, less the reasonable cost, if
any, to the Mortgagee of such recovery (including attorney's fees), shall be
applied to the restoration or repair of the Mortgaged Property so damaged or
destroyed provided Mortgagor is not then in default under the terms of the
Mortgage or Loan Agreement. In the event Mortgagor is then in default said
proceeds, may at the sole discretion of the Mortgagee, be also applied to the
reduction of the Indebtedness, in such order of application as the Mortgagee may
determine. Any application of insurance proceeds to the principal of the Note
shall not extend or postpone the due dates of the monthly installments payable
under the Note or change the amount of such installments.
(g) Reimbursement of Mortgagee's Expenses. Mortgagor shall promptly
reimburse Mortgagee upon demand for all of Mortgagee's reasonable expenses
incurred in connection with the collection of the insurance proceeds
necessitated by Mortgagor's failure to adequately prosecute its claims in the
reasonable opinion of Mortgagee; and all such expenses, together with interest
from the date of disbursement at the rate provided by the Note herein (unless
collection of interest from Mortgagor at such rate would be contrary to
applicable law, in which event such amounts shall bear interest at the highest
rate which may be collected from Mortgagor under applicable law) shall be
additional amount secured by this Mortgage.
9. Preservation and Maintenance of Mortgaged Property. Mortgagor (i)
shall keep the building and other improvements now or hereafter erected on the
premises in safe and good repair and condition, ordinary depreciation excepted;
(ii) shall, upon damage to or destruction of the Mortgaged Property or any part
thereof by fire or other casualty, restore, repair, replace or rebuild the
Mortgaged Property that is damaged or destroyed to the condition it was in
immediately prior to such damage or destruction, provided that insurance
proceeds are available or sufficient for such purpose; (iii) shall constantly
maintain the parking and landscaped areas of the Mortgaged Property in a
reasonable state of repair; (iv) shall not commit waste or permit impairment or
deterioration of the Mortgaged Property; (v) shall not alter the design or
structural character of any building now or hereafter erected on the Real Estate
or hereafter construct additions to existing buildings or additional buildings
on the Real Estate without the prior written consent of the Mortgagee; and (vi)
shall not remove from the Real Estate
<PAGE>
any of the fixtures included in the Mortgaged Property unless the same is
immediately replaced with property of at least equal value and utility, and this
Mortgage becomes a valid first lien on such property.
10. Inspection. The Mortgagee, or its agents, shall have the right at
all reasonable times, and upon reasonable notice, to enter upon the Mortgaged
Property for the purposes of inspecting the Mortgaged Property or any part
thereof. The Mortgagee shall, however, have no duty to make such inspection.
11. Protection of Mortgagee's Security. Subject to the rights of the
Mortgagor under paragraph 7 hereof, if the Mortgagor fails to perform any of the
covenants and agreements contained in this Mortgage or if any action or
proceeding is commenced which affects the Mortgaged Property or the interest of
the Mortgage therein, or the title thereto, then the Mortgagee, at Mortgagee's
option, upon 30 days written notice to Mortgagor may perform such covenants and
agreements, defend against or investigate such action or proceeding, and take
such other action as the Mortgagee deems necessary to protect the Mortgagee's
interest. Mortgagee shall be the sole judge of the legality, validity and
priority of any claim, lien, encumbrance, tax, assessment, charge and premium
paid by it and of the amount necessary to be paid in satisfaction thereof.
Mortgagee is hereby given the authority to enter upon the Mortgaged Property as
the Mortgagor's agent in the Mortgagor's name to perform any and all covenants
and agreements to be performed by the Mortgagor as herein provided. Any amounts
or expenses disbursed or incurred by the Mortgagee pursuant to this paragraph 11
with interest thereon, shall become additional Indebtedness of the Mortgagor
secured by this Mortgage and Mortgagee shall give notice to Mortgagor of such
additional Indebtedness in the most practicable manner. Unless Mortgagor and
Mortgagee agree in writing to other terms of repayment, such amounts shall be
immediately due and payable, and shall bear interest from the date of
disbursement at the rate provided by the Note herein, unless collection from
Mortgagor of interest at such rate would be contrary to applicable law, in which
event such amounts shall bear interest at the highest rate which may be
collected from Mortgagor under applicable law. Mortgagee shall, at its option,
be subrogated to the lien of any mortgage or other lien discharged in whole or
in part by the Indebtedness or by the Mortgagee under the provisions hereof, and
any such subrogation rights shall be additional and cumulative security for this
Mortgage. Nothing contained in this paragraph 11 shall require the Mortgagee to
incur any expense or do any act hereunder, and the Mortgagee shall not be liable
to the Mortgagor for any damages or claims arising out of action taken by the
Mortgagee pursuant to this paragraph 11.
12. Condemnation.
(a) Mortgagor hereby irrevocably assigns to the Mortgagee any award or
payment which become payable by reason of any taking of the Mortgaged Property,
or any part thereof, whether directly or indirectly or temporarily or
permanently, in or by condemnation or other eminent domain proceedings or by
reason of sale under threat thereof, or in anticipation of the exercise of the
right of condemnation or other eminent domain proceedings or by reason of sale
under threat thereof, or in anticipation of the exercise of the right of
condemnation or other eminent domain proceedings (hereinafter called "Taking").
Forthwith upon receipt by Mortgagor
<PAGE>
of notice of the institution of any proceedings or negotiations for a Taking,
Mortgagor shall give notice thereof to Mortgagee. Mortgagee may appear in any
such proceedings and participate in any such negotiations and may be represented
by counsel. Mortgagor, notwithstanding that Mortgagee may not be a party to any
such proceedings, will promptly give to Mortgagee copies of all notices,
pleadings, judgments, determinations and other papers received by Mortgagor
therein. Mortgagor will not enter into any agreement permitting or consenting to
the taking of the Mortgaged Property, or any part thereof, or providing for the
conveyance thereof in lieu of condemnation, with anyone authorized to acquire
the same in condemnation or by eminent domain unless Mortgagee shall first have
consented thereto in writing, which consent will not be unreasonably withheld.
All Taking awards shall be adjusted jointly by Mortgagor and Mortgagee. All
awards payable as a result of a Taking shall be paid to Mortgagee, which may, at
its option, apply them, after first deducting Mortgagee's and Mortgagor's
reasonable expenses incurred in the collection thereof, to the payment of the
Indebtedness, whether or not due and in such order of application as Mortgagee
may determine, or to the repair or restoration of the Mortgaged Property, in
such manner as Mortgagee may determine. Any application of taking awards to
principal of the Note shall not extend or postpone the due dates of the monthly
installments payable under the Note or change the amount of such installments.
(b) If the Taking involves a taking of any building or other
improvement now or hereafter located on the Land, Mortgagor shall proceed with
reasonable diligence, to demolish and remove any ruins and complete repair or
restoration of the Mortgaged Property as nearly as possible to its respective
size, type and character immediately prior to the Taking, provided that the
condemnation awards are available or adequate to complete such repair or
restoration. Mortgagor shall promptly reimburse Mortgagee upon demand for all of
Mortgagee's reasonable expenses (including reasonable attorneys' fees) incurred
in the collection of awards and its disbursement in accordance with this
paragraph, and all such expenses, together with interest from the date of
disbursement at the rate provided by the Note herein (unless collection of
interest from Mortgagor at such rate provided by the Note herein would be
contrary to applicable law, in which event such amounts shall bear interest at
the highest rate which may be collected from Mortgagor under applicable law)
shall be additional amounts secured by this Mortgagee.
13. Financial Statements and Other Information; Books and Records.
Mortgagor will prepare or cause to be prepared at its expense and
deliver to Mortgagee (in such number as may reasonably be requested);
(a) The Mortgagor shall furnish to the Bank annually unaudited
financial statements of its financial condition, together with all other reports
required by the Loan Agreement.
(b) Immediately upon becoming aware of the existence of any condition
or event which constitutes, or which after notice or lapse of time or both would
constitute, an Event of Default, written notice specifying the nature and period
of existence thereof and what action Mortgagor has taken, is taking or proposes
to take with respect thereto.
<PAGE>
Mortgagor shall keep and maintain at all times at Mortgagor's address
stated below or at such other place as Mortgagee may approve in writing,
complete and accurate books of accounts and records in sufficient detail to
reflect correctly the results of the operation of the Mortgaged Property and
copies of all written contracts, leases and other instruments which affect the
Mortgaged Property. Such books, records, contracts, leases and other instruments
shall be subject to examination and inspection by the Mortgagee or its
representative upon 48 hours notice during ordinary business hours. If the
Mortgagor fails to provide the operating statements specified in subparagraph
(a) above, the Mortgagee shall have the right to audit the Mortgagor's books and
records at the Mortgagor's expense.
14. Security Interest. This Mortgage shall constitute a security
agreement with respect to (and the Mortgagor hereby grants the Mortgagee a
security interest in) all personal property and fixtures included in the
Mortgaged Property as more specifically described in the granting clauses on
pages 1 and 2 of the Mortgage. The Mortgagor will from time to time, at the
request of the Mortgagee, execute any and all financing statements covering such
personal property and fixtures (in a form satisfactory to the Mortgagee) which
the Mortgagee may reasonably consider necessary or appropriate to perfect its
security interest.
15. Events of Default. Each of the following occurrences shall
constitute an event of default hereunder (herein called an "Event of Default"):
(a) Any installment of interest or of principal and interest payable
under the Note shall not be made when due and shall remain unpaid for 15
calendar days after written notice from the Mortgagee.
(b) Mortgagor shall fail duly to perform or observe any of the
covenants or agreements contained in this Mortgage (other than a default in the
performance, or breach, of any covenant of the Mortgagor in paragraph 1 or 14),
unless, in the opinion of the Bank, Mortgagor is dilgently attempting to cure
such failure, in which event Mortgagee shall provide to Mortgagor additional
time as is, in the opinion of the Bank, reasonably necessary to effect such
cure, and such failure shall continue for 30 days after the Mortgagee has given
written notice to the Mortgagor specifying such default or breach, except that
the grace period shall be 15 days in case of a default in performance, or a
breach of the covenants of Mortgagor contained in paragraph 8(a) hereof.
(c) Mortgagor shall make an assignment for the benefit of creditors, or
shall admit in writing his inability to pay his debts as they become due, or
shall file a petition in bankruptcy, or shall become or be adjudicated a
bankrupt or insolvent, however defined, or shall file a petition seeking any
reorganization, dissolution, liquidation, arrangement, composition, readjustment
or similar relief under any present or future bankruptcy or insolvency statute,
law or regulation or shall file an answer admitting to or not contesting the
material allegations of a petition filed against him in such proceedings, or
shall not, within 120 days after the filing of such petition against him, have
same dismissed or vacated, or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of a material part of his
properties or of the Mortgaged Property, have such appointment vacated.
<PAGE>
(d) A judgment, writ or warrant of attachment or execution, or similar
process shall be entered and become a lien or, issued or levied against, the
Mortgaged Property or any part thereof and shall not be released, vacated or
fully bonded within 60 days after its entry, issue or levy.
(e) Mortgagor shall sell or convey the Mortgaged Property or any part
thereof or any interest therein without obtaining in each instance the prior
written consent of the Mortgagee.
(f) An Event of Default shall occur in the Loan Agreement.
16. Acceleration; Foreclosure. On the occurrence of any Event of
Default or at any time thereafter until such Event of Default is cured to the
written satisfaction of the Mortgagee, the Mortgagee may, at its option,
exercise one or more of the following rights and remedies (and any other rights
and remedies available to it):
(a) Mortgagee may, by written notice to the Mortgagor, declare
immediately due and payable all principal of and interest on the Note and all
other unmatured Indebtedness secured by this Mortgage, and the same shall
thereupon be immediately due and payable, without further notice or demand.
(b) Mortgagee shall have and may exercise with respect to all personal
property and fixtures which are part of the Mortgaged Property all the rights
and remedies accorded upon default to a secured party under the Uniform
Commercial Code, as in effect in the State of Minnesota. If notice to the
Mortgagor of intended disposition of such property is required by law in
particular instance, such notice shall be deemed commercially reasonable if
given to Mortgagor (in the manner specified in paragraph 21 at least ten
calendar days prior to the date of intended disposition. Mortgagor shall pay on
demand all costs and expenses incurred by Mortgagee in exercising such rights
and remedies, including without limitation, attorneys' fees and legal expenses.
(c) Mortgagee may (and is hereby authorized and empowered to) foreclose
this Mortgage by action or advertisement, pursuant to the statutes of the State
of Minnesota in such case made and provided, power being expressly granted to
sell the Mortgaged Property at public auction and convey the same to the
purchaser in fee simple and, out of the proceeds arising from such sale, to pay
all Indebtedness secured hereby with interest, and all legal costs and charges
of such foreclosure and the maximum attorneys' fees permitted by law, which
costs, charges and fees the Mortgagor agrees to pay.
17. Estoppel Certificate. Mortgagor agrees at any time and from time to
time, upon not less than 15 days prior notice by Mortgagee, to execute,
acknowledge and deliver, without charge, to Mortgagee or to any person
designated by Mortgagee, a statement in writing certifying that this Mortgage is
unmodified (or if there have been modifications, identifying the same by the
date thereof and specifying the nature thereof), the principal amount then
secured hereby and the unpaid balance of the Note, that Mortgagor has not
received any notice of default or notice of
<PAGE>
acceleration or foreclosure of this Mortgage (or if Mortgagor has received such
a notice, that it has been revoked, if such be the case), that to the knowledge
of Mortgagor no Event of Default exists hereunder (or if any such Event of
Default does exist, specifying the same and stating that the same has been
cured, if such be the case), that Mortgagor to his knowledge has no claims or
offsets against Mortgagee (or if Mortgagor has any such claims, specifying the
same), and the dates to which the interest and the other sums and charges
payable by Mortgagor pursuant to the Note have been paid.
18. Forbearance Not a Waiver, Rights and Remedies Cumulative. No delay
by the Mortgagee in exercising any right or remedy provided herein or otherwise
afforded by law or equity shall be deemed a waiver of or preclude the exercise
of such right or remedy, and no waiver by the Mortgagee of any particular
provision of this Mortgage shall be deemed effective unless in writing signed by
the Mortgagee. All such rights and remedies provided for herein or which the
Mortgagee or the holder of the Note may have otherwise, at law or in equity,
shall be distinct, separate and cumulative and may be exercised concurrently,
independently or successively in any order whatsoever, and as often as the
occasion therefor arises. The Mortgagee's taking action pursuant to paragraph 11
or receiving proceeds, awards or damages pursuant to paragraphs 8 or 12 shall
not impair any right or remedy available to the Mortgagee under paragraph 16
hereof. Acceleration of maturity of the Note may, at the option of Mortgagee, be
rescinded by written acknowledgment to that effect by Mortgagee, but the tender
and acceptance of partial payments alone shall not in any way effect or rescind
such acceleration of maturity of the Note, provided that any such acceleration
shall be subject to Mortgagor's right of reinstatement as provided in Section
580.30, Minnesota Statutes.
19. Successors and Assigns Bound; Number; Gender; Agents; Captions. The
covenants and agreements herein contained shall bind, and the rights hereunder
shall inure to, the respective legal representatives, successors and assigns of
the Mortgagee and the Mortgagor. Wherever used, the singular number shall
include the plural, and plural the singular, and the use of any gender shall
apply to all genders. In exercising any rights hereunder or taking any actions
provided for herein, Mortgagee may act through its employees, agents or
independent contractors as authorized by Mortgagee.
20. Captions. The captions and headings of the paragraph of this
Mortgage are for convenience only and are not to be used to interpret or define
the provisions hereof.
21. Notices. Any notice from the Mortgagee to the Mortgagor under this
Mortgage shall be deemed to have been given by the Mortgagee and received by the
Mortgagor when mailed by certified mail by the Mortgagee to the Mortgagor at the
address set forth in paragraph 26 below or at such other address as the
Mortgagor may designate in writing to the Mortgagee.
22. Governing Laws; Severability. This Mortgage shall be governed by
the substantive laws of the State of Minnesota. In the event that any provision
or clause of this Mortgage conflicts with applicable law, such conflict shall
not affect other provisions of this Mortgage which can be given effect without
the conflicting provisions and to this end the provisions of the Mortgage are
declared to be severable.
<PAGE>
23. Counterparts. This Mortgage may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
24. Production of Documents. Mortgagor shall, while this Mortgage is in
full force and effect, furnish the Mortgagee with such documents, instruments
and papers as the Mortgagee may reasonably request from time to time in order
for the Mortgagee to effectuate a sale or a participation in the loan evidenced
by the Note and this Mortgage provided that the production of such documents
shall be at no cost to Mortgagor and will not alter the terms of any of the loan
documents executed in connection with this Mortgage.
25. Waiver of Marshalling. Mortgagor, any party who consents to this
Mortgage and any party who now or hereafter acquires a lien on the Mortgaged
Property and who has actual or constructive notice of this Mortgage hereby waive
any and all right to require the marshalling of assets in connection with the
exercise of any of the remedies permitted by applicable law or provided herein.
26. Fixture Filing. From the date of its recording, this Mortgage shall
be effective as a financing statement filed as a fixture filing with respect to
all goods constituting part of the Mortgaged Property (as more particularly
described in item (ii) of the granting clause of this Mortgage) which are to
become fixtures related to the Real Estate described herein. For this purpose,
the following information is set forth:
(a) Name and Address of Debtor:: Infinite Graphics Incorporated
4611 East Lake Street
Minneapolis, MN 55406
(b) Name and Address of Secured Party: Riverside Bank
7760 France Avenue South
Bloomington, MN 55435
(c) This document covers goods which are or are to become fixtures.
27. Environmental Warranties and Representations. In addition to all
representations, warranties and covenants hereinbefore made, Mortgagor
represents and warrants that to the best of its knowledge, except in the
ordinary course of business or when properly licensed by the appropriate
governmental agency, there does not exist on the Mortgaged Property any
substance or material which would constitute a hazardous substance, hazardous
waste, pollutants or contaminants as those terms are defined by M.S.A. 115B.02
of the "Environmental Response and Liability Act". Mortgagor warrants that
neither it nor, to the best of its knowledge, any previous owner or operator of
the Mortgaged Property used the property in violation of any State or Federal
Environmental Laws, and that no proceedings have been commenced or notices
received concerning any alleged violations of such Environmental Laws. Mortgagor
further warrants and covenants that all future uses of the Mortgaged Property
shall be in full compliance with any relevant Environmental Laws and any
clean-up measures required by such law will be completed
<PAGE>
by Mortgagor in the event of future violations by Mortgagor. The warranties and
representations made in this paragraph shall survive foreclosure of the Mortgage
and shall run with the Real Estate.
28. Assignment of Rents. Mortgagor does hereby sell, assign and
transfer unto Mortgagee (i) the immediate and continuing right to receive and
collect all rents, income, issues and profits now due and which may hereafter
become due under or by virtue of any lease or agreement (oral or written) for
the leasing, subleasing, use or occupancy of all or any part of the Mortgaged
Property now, heretofore or hereafter made or agreed to by Mortgagor, and (ii)
all of such leases and agreements, together with all guarantees therefor and any
renewals or extensions thereof, for the purpose of securing payment of the
indebtedness of Mortgagor under the Notes and the documents related thereto.
At any time after default by Mortgagor, Mortgagee, without in any way
waiving such default, may, in addition to any other rights and remedies
available to Mortgagee at law or in equity, sue for or otherwise collect and
receive all rents, income and profits from the Mortgaged Property to which
Mortgagor would otherwise be entitled, including those past due and unpaid with
full power to make from time to time all adjustments thereto, as may seem proper
to Mortgagee.
Mortgagee shall not be obligated to perform or discharge, nor does it
hereby undertake to perform or discharge, any obligation, duty or liability
under any leases, sublease or rental agreements relating to the Mortgaged
Property, and Mortgagor shall and does hereby agree to indemnify and hold
Mortgagee harmless from and against any and all liability, loss or damage which
it may or might incur under any such lease, sublease or agreement or under or by
reason of the assignment of the rents thereof and from and against any and all
claims and demands whatsoever which may be asserted against it by reason of any
alleged obligations or undertakings on its part to perform or discharge any of
the terms, covenants or agreements contained in any of such leases, provided
that Mortgagor shall not indemnify and hold harmless Mortgagee from any
liability, loss or damage resulting from acts or omissions of the Mortgagee
which occur on or after the date Mortgagee takes possession of the Mortgaged
Property.
Mortgagee or such agent or receiver, in the exercise of the rights and
powers conferred upon it by this Assignment of Leases and Rents shall have the
full power to use and apply the avails, rents, issues, income and profits of the
Mortgaged Property to which Mortgagor would otherwise be entitled to the payment
of or on account of the following in the order set forth in Minnesota Statutes,
Section 559.17: a) to payment of all reasonable fees of the receiver, if any,
approved by the court; b) to the repayment when due of all tenant security
deposits, with interest thereon, pursuant to the provisions of Minnesota
Statutes, Section 504.20; c) to payment of all delinquent or current Real Estate
taxes and special assessments payable with respect to the Mortgaged Property; d)
to payment of all premiums then due for the insurance required by the provisions
of the Mortgage; e) to payment of expenses incurred for normal maintenance of
the Mortgaged Property during the period of such receivership; f) to the
Mortgagee in payment of the obligations secured hereby in such order of
application as Mortgagee may elect.
<PAGE>
Although it is the intention of the parties that this assignment of
leases and rents shall be a present assignment, it is expressly understood and
agreed that, anything herein contained to the contrary notwithstanding,
Mortgagee shall not exercise any of the rights and powers conferred upon it
herein unless and until an event of default shall have occurred hereunder or
under the Note and nothing herein contained shall be deemed to affect or impair
any rights which Mortgagee may have under the Note, the Mortgage or any other
document or agreement related hereto or thereto.
Mortgagor does further specifically authorize and instruct each and
every present and future lessee, sublessee, tenant or subtenant of the whole or
any part of the Mortgaged Property to pay all unpaid rental agreed upon in any
lease or sublease to Mortgagee upon receipt of demand from the Mortgagee so to
pay the same.
IN WITNESS WHEREOF, the Mortgagor has caused this Mortgage to be duly
executed as of the day and year first-above written.
INFINITE GRAPHICS INCORPORATED
By /s/ Clifford F. Stritch, Jr.
Clifford F. Stritch, Jr.
Chief Executive Officer
STATE OF MINNESOTA )
)SS
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 24th day of
October, 1997, by Clifford F. Stritch, Jr., Chief Executive Officer of Infinite
Graphics Incorporated, a Minnesota Corporation, on behalf of the corporation.
/s/ Peter I. Orlins
----------------------------------
_____________________________
Notary Public
<PAGE>
EXHIBIT A
TO
COMBINATION MORTGAGE, SECURITY AGREEMENT,
FIXTURE FINANCING STATEMENT AND ASSIGNMENT OF RENTS
BY AND BETWEEN
INFINITE GRAPHICS INCORPORATED
and
RIVERSIDE BANK
7760 FRANCE AVENUE SOUTH
BLOOMINGTON, MN 55435
LEGAL DESCRIPTION OF MORTGAGED PROPERTY
The West 1/2 of the South 102.3 feet of the North 152.3 feet of the
West 322 feet of Government Lot 7, Section 5, Township 28 North, Range 23, West
of the Fourth Principal Meridian, according to the United States Government
Survey thereof.
Subject to easement for street purposes over the West 30 feet of said
premises, being the East 1/2 of 46th Avenue South;
Subject to an easement for part of the alley as now located, running
North and South along the Easterly side of said premises, as shown in deeds No.
327940 & 327941, Files of Registrar of Titles; Hennepin County, Minnesota
<PAGE>
EXHIBIT B
TO
COMBINATION MORTGAGE, SECURITY AGREEMENT,
FIXTURE FINANCING STATEMENT AND ASSIGNMENT OF RENTS
BY AND BETWEEN
INFINITE GRAPHICS INCORPORATED
and
RIVERSIDE BANK
7760 FRANCE AVENUE SOUTH
BLOOMINGTON, MN 55435
PERMITTED ENCUMBRANCES
None
GUARANTY
OF
CLIFFORD F. STRITCH, JR.
TO
RIVERSIDE BANK
7760 FRANCE AVENUE SOUTH
BLOOMINGTON, MN 55435
WITH RESPECT TO
$250,000.00 MORTGAGE LOAN
TO INFINITE GRAPHICS INCORPORATED
DATED: October 24 , 1997
THIS INSTRUMENT DRAFTED BY:
ORLINS LAW OFFICE
604 Richfield Bank Building
6625 Lyndale Avenue South
Richfield, MN 55423
(612)861-3331
<PAGE>
GUARANTY
In consideration of and in order to induce Riverside Bank, Bloomington,
Minnesota ("Bank") to make a Mortgage Loan of $250,000.00, (the "Note") to
Infinite Graphics Incorporated, ("Obligor"), the proceeds of which will be used
to refinance real estate located at 4611 East Lake Street, Minneapolis, MN,
Clifford F. Stritch, Jr. ("Guarantor") hereby:
1. Unconditionally and absolutely guarantees to the Bank:
(i) the full and prompt payment, when due, whether at the maturity date
specified therein or theretofore upon acceleration of maturity pursuant to the
provisions thereof, of principal, accrued interest, late charges and prepayment
premium, if any, on:
a) the Note, and any and all renewals thereof including Note taken
in substitution therefor; and
(b) Any and all other liability or indebtedness of Obligor to Bank
whether now existing or hereafter arising, joint or joint and several,
contingent or direct; and
(ii) the payment and performance by the Obligor of all of its obligations
under and pursuant to the Combination Mortgage, Security Agreement and Fixture
Financing Statement (the "Mortgage") (items (i) and (ii), collectively referred
to as "the Obligations");
2. Waives (i) presentment, demand, notice of nonpayment, protest and notice
of protest and dishonor on the Obligations; (ii) notice of acceptance of this
Guaranty by Bank; and (iii) notice of the creation or incurrence of the
Obligations by the Obligor or the indebtedness evidenced by the Note.
3. Agrees that Bank may not, without notice to, and the written consent of
Guarantor, extend, modify, renew or compromise the Obligations, in whole or in
part.
4. Agrees that Bank shall not be required to first resort for payment to
Obligor, or any other person, corporation or entity, or his properties or
estates, or any other right or remedy whatsoever, prior to enforcing this
Guaranty.
5. Agrees that this Guaranty shall be construed as a continuing, absolute,
and unconditional guaranty without regard to (i) the validity, regularity or
enforceability of the Obligations or the disaffirmance thereof in any insolvency
of bankruptcy proceeding relating to Obligor or (ii) any event or any conduct or
action of the Obligor, Bank or any other party which might otherwise constitute
a legal or equitable discharge of a surety or guarantor but for this provision.
6. Agrees that this Guaranty shall remain in full force and effect and be
binding upon Guarantor until the Obligations are paid in full.
<PAGE>
7. Agrees that Bank is expressly authorized to forward or deliver any or all
collateral and security which may at any time be placed with him by the Obligor,
and Guarantor or any other person, directly to Obligor for collection and
remittance or for credit, or to collect the same in any other manner and to
renew, extend, compromise, exchange, release, surrender or modify the terms of,
any or all of such collateral and security with or without consideration and
without notice to Guarantor and without in any manner affecting the absolute
liability of Guarantor hereunder; and that the liability of Guarantor hereunder
shall not be affected or impaired by any failure, neglect or omission on the
part of Bank to realize upon the Obligations, or upon any collateral or security
therefor, nor by the taking by Bank of any other guaranty or guaranties to
secure the Obligations or any other indebtedness of the Obligor or Bank, nor by
taking by Bank of collateral or security of any kind nor by any act or failure
to act whatsoever which but for this provision might or could in law or in
equity act to release or induce Guarantor's liability hereunder.
8. Agrees that so long as any portion of the Obligations are due and owing or
to become due and owing by the Obligor to Bank, Guarantor shall not, without the
prior written consent of Bank, collect or seek to collect from the Obligor the
claim, if any, by subrogation or otherwise, acquired by the Guarantor through
payment of any part or all of the Obligations.
9. Agrees that the liability of Guarantor hereunder shall not be affected or
impaired by the existence or creation from time to time, with or without notice
to Guarantor, which notice is hereby waived, of indebtedness from the Obligor to
Bank in addition to the indebtedness evidenced by the Note, the creation or
existence of such additional indebtedness being hereby consented to by
Guarantor.
10. Agrees that the possession of this instrument of guaranty by Bank shall be
conclusive evidence of due execution and delivery hereof by Guarantor.
11. Agrees that this Guaranty shall be binding upon the legal representatives,
successors and assigns of Guarantor, and shall inure to the benefit of Bank and
his successors, assigns and legal representatives; that notwithstanding the
forgoing Guarantor shall have no right to assign or otherwise transfer his
rights and obligations under this Guaranty to any third party without the prior
written consent of Bank; and that any such assignment or transfer shall not
release or affect the liability of Guarantor hereunder in any manner whatsoever.
12. Agrees that Guarantor may be joined in any action or proceeding commenced
against Obligor in connection with or based upon the Obligations and recovery
may be had against Guarantor in any such action or proceeding or in any
independent action or proceeding against Guarantor should the Obligor fail to
duly and punctually pay all Obligations including but not limited to any of the
principal of or interest on the Obligation without any requirement that Bank
first assert, prosecute or exhaust any remedy or claim against Obligor.
13. Agrees that Guarantor shall be liable to Bank for any deficiency remaining
after foreclosure of any mortgage in real estate or any security interest in
personal property granted by the Obligor, either Guarantor or any third party to
Bank to secure repayment of the Obligations
<PAGE>
and the subsequent sale by the Bank of the property subject thereto to a third
party (whether at a foreclosure sale or at a sale thereafter by Bank in the
event Bank purchases said property at the foreclosure sale) notwithstanding any
provision of applicable law which may prevent Bank from obtaining a deficiency
judgment against, or otherwise collecting a deficiency from, Obligor, including,
without limitation, Minnesota Statutes, Section 580.23.
14. Agrees that this Guaranty shall be deemed a contract made under and
pursuant to the laws of the State of Minnesota and shall be governed by and
construed under the laws of such state; and that, wherever possible, each
provision of this Guaranty shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Guaranty
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of this
Guaranty.
15. Agrees that no failure on the part of Bank to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as or constitute a
waiver thereof; nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof or the exercise of any
other right or remedy granted hereby or by any related document or by law.
Dated: October 24, 1997
/s/ Clifford F. Stritch Jr.
---------------------------------
Clifford F. Stritch, Jr.
Accepted by:
By /s/ Robert G. O'Brien
-------------------------
Robert G. O'Brien
Vice President
GUARANTY
Bloomington, Minnesota
October 24, 1997
For valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and in consideration of and to induce financial
accommodations of any kind, with or without security, given or to be given or
continued at any time and from time to time by SPECTRUM COMMERCIAL SERVICES, a
division of Lyon Financial Services, Inc. (hereinafter called the "Lender") to
or for the account of INFINITE GRAPHICS Incorporated, a Minnesota corporation,
(hereinafter called the "Borrower"), the undersigned absolutely and
unconditionally guarantees to the Lender the full and prompt payment when due,
whether at maturity or earlier by reasons of acceleration or otherwise, of any
and all indebtedness, obligations and liabilities of the Borrower (and any and
all successors of the Borrower) to the Lender and also to others to the extent
of their participations granted to or interests therein created or acquired for
them by the Lender, now or hereafter existing, absolute or contingent,
independent, joint, several or joint and several, secured or unsecured, due or
to become due, contractual or tortious liquidated or unliquidated, arising by
assignment or otherwise, including without limitation all indebtedness,
obligations and liabilities owed by the Borrower (and any and all successors of
the Borrower) as a member of any partnership, syndicate association or other
group, and whether incurred by the Borrower (or any successor of the Borrower)
as principal, surety, endorser, guarantor, accommodation party or otherwise
(hereinafter collectively referred to as the "Indebtedness"); and the
undersigned agrees to pay on demand all of the Lender's fees, costs, expenses
and reasonable attorneys' fees in connection with the Indebtedness, and security
therefor, and this guaranty, plus interest on such amounts at the highest rate
then applicable to any of the Indebtedness.
The Lender may at any time and from time to time, without consent of or
notice to the undersigned, without incurring responsibility to the undersigned,
without releasing, impairing or affecting the liability of the undersigned
hereunder, upon or without any terms or conditions, and in whole or in part: (1)
sell, pledge, surrender, compromise, settle, release, renew, subordinate,
extend, alter, substitute, exchange, change, modify or otherwise dispose of or
deal with in any manner and in any order any Indebtedness, any evidence thereof,
or any security or other guaranty therefor; (2) accept any security for or other
guarantor of any Indebtedness; (3) fail, neglect or omit to obtain, realize upon
or protect any Indebtedness or any security therefor, to exercise any lien upon
or right to any money, credit or property toward the liquidation of the
Indebtedness, or to exercise any other right against the Borrower, the
undersigned, any other guarantor or any other person; and (4) apply any payments
and credits to the Indebtedness in any manner and in any order. No act, omission
or thing, except full payment and discharge of the Indebtedness, which but for
this provision could act as a release or impairment of the liability of the
undersigned hereunder, shall in any way release, impair or otherwise affect the
liability of the undersigned hereunder, and the undersigned waives any and all
defenses of the Borrower pertaining to the Indebtedness, any evidence thereof,
and any security therefor, except the defense of discharge by payment. The
failure of any person or persons to sign this or any other guaranty shall not
release, impair or affect the liability of the undersigned hereunder. This
guaranty is a primary obligation of the undersigned and the Lender shall not be
required to first resort for payment of the Indebtedness to the Borrower or any
other person, their
<PAGE>
properties or estates, or any security or other rights or remedies whatsoever.
The undersigned shall be and remain liable for any deficiency remaining after
foreclosure of any mortgage or security interest securing the Indebtedness,
whether or not the liability of the Borrower or any other person for such
deficiency is discharged pursuant to statute, judicial decision or otherwise.
The liability of the undersigned under this guaranty is in addition to
and shall be cumulative with all other liabilities of the undersigned to the
Lender, as guarantor or otherwise, without any limitations as to amount, unless
the writing evidencing or creating such other liability specifically provides to
the contrary. If any payment applied by the Lender to the Indebtedness is
thereafter set aside, recovered, rescinded or required to be returned for any
reason (including without limitation the bankruptcy, insolvency or
reorganization of the Borrower or any other person), the Indebtedness to which
such payment was applied shall for the purpose of this guaranty be deemed to
have continued in existence, notwithstanding such application, and this guaranty
shall be enforceable as to such Indebtedness as fully as if such application had
never been made.
The undersigned waives: (1) notice of acceptance of this guaranty and
of the creation and existence of the Indebtedness; (2) presentment, demand for
payment, notice of dishonor, notice of nonpayment, and protest of any instrument
evidencing the Indebtedness; and (3) all other demands and notices to the
undersigned or any other person and all other actions to establish the liability
of the undersigned hereunder. The undersigned consents to the personal
jurisdiction of the state and federal courts located in the State of Minnesota
in connection with any controversy related to this guaranty, waives any argument
that venue in such forums is not convenient, and agrees that any litigation
initiated by the undersigned against the Lender in connection with this guaranty
shall be venued in either the District Court of Dakota or Hennepin County,
Minnesota, or the United States District Court, District of Minnesota.
All property of the undersigned, now or hereafter in the possession,
control or custody of or in transit to the Lender for any purpose, including
without limitation the balance of every account of the undersigned with and each
claim of the undersigned against the Lender, shall be subject to a lien and
security interest in favor of the Lender, as security for all liabilities of the
undersigned to the Lender, and shall be subject to be set off against any and
all such liabilities, and the Lender may at any time and from time to time at
its option and without notice appropriate and apply any such property toward the
payment of any and all such liabilities. The undersigned agrees to promptly
provide the Lender from time to time with financial statements of the
undersigned, in form and substance acceptable to the Lender, at least once every
12 months and as otherwise requested by the undersigned agrees to promptly
provide the Lender, from time to time with such other information respecting the
condition (financial and otherwise), business and property of the undersigned as
the Lender may request, in form and substance acceptable to the Lender.
The undersigned waives all claims, rights and remedies which the
undersigned may now have or hereafter acquire against any person at any time now
or hereafter liable for payment of any of the Indebtedness and as to any
collateral security, including but not limited to all claims, rights and
remedies of contribution, indemnification, exoneration, reimbursement, recourse
and subrogation, whether or not such claim, right or remedy arises in equity,
under contract, by statute, under common law or otherwise, until the
Indebtedness has been fully paid. No waiver of any rights hereunder, and no
modification or amendment of this guaranty shall be effective unless the same is
<PAGE>
in writing duly executed by the Lender, and each such waiver, if any, shall
apply only with respect to the specific instance involved and shall not impair
or affect the rights of the Lender or the provisions of this guaranty in any
other respect at any other time. This guaranty shall continue until written
notice of revocation of this guaranty, executed by the undersigned, has been
received by the Lender; provided, no revocation of this guaranty shall affect in
any manner any liability of the undersigned under this guaranty with respect to
Indebtedness arising before the Lender receives such written notice of
revocation, and the sole effect of revocation of this guaranty shall be to
exclude from this guaranty Indebtedness thereafter arising which is unconnected
with Indebtedness theretofore arising or transactions theretofore entered into.
Any invalidity or unenforceability of any provision or application of
this guaranty shall not affect other lawful provisions and applications hereof
and to this end the provisions of this guaranty are declared to be severable.
This guaranty shall bind the undersigned and the heirs, representatives,
successors and assigns of the undersigned, and of each of them respectively, and
shall benefit the Lender, its successors and assigns. This guaranty shall be
governed by and construed in accordance with the laws of the State of Minnesota.
THE UNDERSIGNED REPRESENTS, CERTIFIES, WARRANTS AND AGREES THAT THE
UNDERSIGNED HAS READ ALL OF THIS GUARANTY AND UNDERSTANDS ALL OF THE PROVISIONS
OF THIS GUARANTY. THE UNDERSIGNED ALSO AGREES THAT COMPLIANCE BY THE LENDER WITH
THE EXPRESS PROVISIONS OF THIS GUARANTY SHALL CONSTITUTE GOOD FAITH AND SHALL BE
CONSIDERED REASONABLE FOR ALL PURPOSES.
---------------------------------
Clifford F. Stritch, Jr.
SUBORDINATION AGREEMENT (By UCC Category)
THIS AGREEMENT, by and between SPECTRUM Commercial Services, 7900 International
Drive, Bloomington, MN 55425, a Minnesota corporation ("SPECTRUM" or "you"), and
the undersigned "Creditor", relates to the following described "Borrower":
================================================================================
Borrower's Full Name: Infinite Graphics Incorporated
================================================================================
Borrower's Full Address: 4611 East Lake Street, Minneapolis, MN 55406
================================================================================
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and to induce SPECTRUM from time to time at its discretion
to factor invoices with or make loans or extend credit to Borrower, the
undersigned hereby agrees that, regardless of any priority otherwise available
to the undersigned by law or by agreement, any security interest which the
undersigned may now hold or may at anytime hereafter acquire in the Collateral
(defined below) is, shall be and shall remain fully subordinate for all purposes
to any security interest now held or at any time hereafter granted to or
acquired by you in any or all of the Collateral. "Collateral" as used herein
refers to all property of Borrower whatsoever, including, without limitation:
(a) All of Debtor's inventory, whether now owned or hereafter acquired and
wherever located, including but not limited to raw materials, goods and work in
process, finished goods, and all merchandise returned by or reclaimed from
customers; (b) All of Debtor's chattel paper, purchase orders, purchase order
contracts, accounts and accounts receivable, whether now existing or hereafter
arising, and all other rights to payment of every type and description, whether
now existing or hereafter arising, including, but not limited to, any reserve or
reserve account, all rights to payment arising out of a loan or out of the
overpayment of taxes or other liabilities, whether such right to payment is
earned or not, and howsoever such right to payment may be evidenced, together
with all security interests, mortgages, mechanic's lien rights, and other rights
and interests Debtor may at any time have against any account debtor or other
obligor obligated to make such payment or against any property of any account
debtor or such obligor; (c) All of Debtor's general intangibles, whether now
owned or existing or hereafter acquired or arising, including, but not limited
to, purchase orders, purchase order contracts, applications for patents,
patents, copyrights, trademarks, service marks, trade secrets, tradenames,
goodwill, customer lists, permits, franchises, and the right to use Debtor's
name; (d) Proceeds (including insurance proceeds), products and accessions of
all of the above. The undersigned Creditor further agrees that:
1. Creditor will not exercise collection rights as to any
Collateral, will not take possession of, collect, sell or dispose of any
Collateral, and will not exercise or enforce any other right or remedy available
to the undersigned upon default, without your prior written consent which will
not be unreasonably withheld.
2. SPECTRUM may exercise collection rights, may take possession
of, and may sell, collect or dispose of Collateral, and/or may exercise and
enforce any other right or remedy available to you with respect to Collateral,
whether available prior to or after the occurrence of any default, all without
notice to or consent by anyone, except that notice will be provided to the
undersigned within a reasonable time after commencement of any material
collection effort or as otherwise specifically required by law. You may apply
the proceeds of Collateral to any indebtedness secured by your security
interest, in any order of application, and shall remit any excess proceeds or
any other sums or amounts to the undersigned without being obligated to assure
that any such proceeds or sums are applied to the satisfaction of the
undersigned's subordinated security interest in any Collateral, except as
specifically required by law.
3. SPECTRUM may make loans, factor invoices and/or purchase
orders, or extend other financial accommodations to Borrower in any amount and
at any time or from time to time, and you may otherwise create, or agree,
consent to or suffer the creation of, indebtedness secured by a security
interest in any Collateral, without notice to or consent by the undersigned and
without affecting or impairing the subordination effected hereby.
4. Neither the undersigned nor you (i) makes any representation or
warranty concerning the Collateral or the validity, perfection or (except as to
the subordination effected hereby) priority of any security interest therein; or
(ii) shall have any duty to preserve, protect, care for, insure, take possession
of, collect, dispose of or otherwise realize upon any Collateral.
5. The undersigned warrants that any purchaser or transferee of,
or successor to, any security interest of the undersigned in any or all of the
Collateral will be given written notice of the subordination effected hereby,
prior to the time of purchase, transfer or succession, and that any such
purchaser, transferee or successor will be in all respects subject to and bound
by this Agreement.
6. The undersigned waives any priority available to the
undersigned by law with respect to any security interest in the Collateral, but
the priority or parity of the rights and claims of the undersigned and of you as
general creditors of Borrower (rather than as secured parties) shall not be
affected or impaired by this Agreement. This Agreement is made under and shall
be interpreted under the laws of the State of Minnesota. It cannot be waived or
changed or ended, except by a writing signed by the party to be bound thereby.
This Agreement shall be binding upon the undersigned and the heirs,
representatives, successors and assigns of the undersigned and shall inure
solely to the benefit of and shall be enforceable by, you and your participants,
successors and assigns and otherwise neither Borrower nor any other secured
party nor any other person shall be entitled to rely on or enforce this
Agreement. The undersigned waives notice of your acceptance hereof. A
telecopied/facsimile signature hereon shall be as effective as an original.
================================================================================
print name] Robert J. Fink "Creditor" Date signed:
========================================= ===================================
By: [signature] Address:
=========================================
Its: [title]
================================================================================
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<CASH> 195,984
<SECURITIES> 0
<RECEIVABLES> 779,290
<ALLOWANCES> (43,420)
<INVENTORY> 187,743
<CURRENT-ASSETS> 1,364,320
<PP&E> 4,946,639
<DEPRECIATION> (4,188,563)
<TOTAL-ASSETS> 2,561,197
<CURRENT-LIABILITIES> 890,890
<BONDS> 480,446
0
0
<COMMON> 4,136,697
<OTHER-SE> (2,946,836)
<TOTAL-LIABILITY-AND-EQUITY> 2,561,197
<SALES> 3,611,891
<TOTAL-REVENUES> 3,611,891
<CGS> 2,621,660
<TOTAL-COSTS> 2,621,660
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,000
<INCOME-PRETAX> 28,593
<INCOME-TAX> 2,000
<INCOME-CONTINUING> 26,593
<DISCONTINUED> (223,805)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (197,212)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.07)
</TABLE>
