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, 1999 0-13042
INFINITE GRAPHICS INCORPORATED
(Name of Small Business Issuer in its Charter)
MINNESOTA 41-0956693
(State or other jurisdiction of (IRS Employer Identification No.)
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, 1999: $5,207,000
Aggregate market value of voting stock held by non-affiliates of
registrant as of June 30, 1999: Approximately $2,602,541 (based on the average
of the high bid and asked prices ($2.125) on June 30, 1999. 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, 1999: 2,802,575 shares of
Common Stock, no par value.
Documents incorporated by reference: Portions of the registrant's
definitive Proxy Statement, for the 1999 Annual Meeting of Shareholders to be
filed with the Commission, are incorporated by reference in Part III of this
Form 10-KSB.
<PAGE>
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 the Electronics industry
in the area of interconnects, packaging, 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 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.
In 1975, the Company began developing computer software programs for
artwork generation. In 1981 the Company begin to develop and package the
software into a commercial product. In 1984 the Company introduced the product
as the IGI Desktop 2100 CAD/CAM system.
In 1995, the Company expanded its photoplotting operations to three
locations 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 decided to increase its activity in the Large Area
Mask (LAM) marketplace and agreed to acquire Heidelberg Instruments' Mask Write
DWH 800 laser direct imager for its Minneapolis facility. The Heidelberg
Instruments' Mask Write DWL-800 is a direct imager which allows the Company to
produce hard surface LAM phototools.
Prior to the fourth quarter of 1998, the Company had two divisions
focusing on distinct, but related business segments. The Engineering Service
Division, designed and produced computer generated precision graphics, normally
in 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,
developed and marketed software applications consisting primarily of CAD/CAM
software for 32 bit microcomputers.
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 shown
below:
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 netlist for graphics and has the capability to
compare it to other netlists. 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.
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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.
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 $410,000 in fiscal 1999. The Company has a
verbal agreement with Global MAINTECH that the total payment will be $3,000,000
in cash and $1,000,000 in stock of a new company to be formed by Global MAINTECH
that contains the Company's Software Division assets and licenses. The Company
and Global MAINTECH have agreed that the Company can collect the software
receivables as of May 31, 1999 and keep all collections as partial payment. The
Company expects these collections plus a cash payment in August 1999 will total
about $1,500,000.
Under the terms of the agreement with Global MAINTECH, the Company
continued to manage the day-to-day operation of the business relating to the
software products and assets licensed and sold to Global MAINTECH through May
31, 1999. During fiscal 1999, the Company estimates that approximately 33% of
the time spent by its management were devoted to the continued operation and
management of these assets. During that time, all software revenues generated by
the Company on these assets went to Global MAINTECH, and Global MAINTECH was
obligated to 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
substantially full-time attention to the Company's service business during
fiscal 2000.
The above transaction with Global MAINTECH was recognized as a disposal
of a business. At April 30, 1999, the Company had a $512,089 receivable from
Global MAINTECH. At the present time, the Company's management believes the
future payments in connection with the Global MAINTECH agreements will exceed
$512,089.
As of January 28, 1999, the Company acquired certain assets and assumed
certain liabilities of Photronics Colorado, Inc. ("PCI"), a Colorado
corporation, under the terms of an Asset Purchase Agreement dated January 28,
1999 among the Company, PCI and Photronics, Inc. for a total purchase price not
to exceed $2,000,000 in the aggregate. The Company paid $375,000 of the purchase
price in cash on January 28, 1999. In addition, the Company will pay or credit
PCI over a period of 36 months following January 28, 1999 at a rate not to
exceed
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$150,000 per quarter the following: 50% of all net invoices of certain large
area masks ("LAM") shipped to or for PCI; and 10% of the net invoice amount
received from the sale of LAM to identified PCI and new customers.
Prior to this transaction, PCI had no material relationship with the
Company or any of its affiliates, officers, directors or any associate of the
Company's officers and directors. The assets purchased by the Company relate to
PCI's LAM business; customer purchase orders, work in progress, spare parts,
customer relationships, all operating and other software used in the operation
of PCI's manufacturing and distribution of LAM; and related intellectual
property. Liabilities of PCI assumed by the Company under the Asset Purchase
Agreement include certain warranty obligations, the lease for the premises
located at 815 N. Wooten Road, Colorado Springs, Colorado and certain sublease
obligations, all as specified in the Asset Purchase Agreement. The Company is
using the purchased assets in the production of LAM.
Beginning in March 1999 the Company initiated operations in Hallsville,
Missouri. The facility utilizes the Heidelberg Mask Write DWL-400 imager to
produce photomasks primarily for a large Fortune 100 customer with an operation
nearby. The addition of the Hallsville facility has further built the portions
of the business serving the high density interconnect (HDI) and flex circuit
market segments.
(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 or direct
imager. 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 in various lithographic processes to reproduce the precision graphic
image on metal, glass, or plastic or other 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 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 images in digital form. The customer may then use the
digital data to produce its own film or product.
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 reticules and
graphics (a system of lines, dots, cross hairs, or wires in the focus of the
eyepiece of an optical instrument) and glass rings (called encoder disks) used
in the assembly of high precision machines such as CAT scanners 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 Company services it Printed Circuit market segments out of the
Minneapolis, Irvine and Salem facilities. The Large Area Mask (LAM) segments are
handled by Minneapolis, Hallsville and Colorado Springs. The acquisition of the
LAM operations of Photronics Colorado, Inc. in Colorado Springs supports the
expansion of the Company into the LAM segment and adds significant new customers
to the Company's business base. The Company opened a facility in Hallsville,
Missouri during fiscal 1999 for the production of LAM to support a nearby
Fortune 100 customer. The facility consists of 1,300 square feet and houses the
Mask Write DWL-400 imager along with associated processing and cleanroom
equipment.
EQUIPMENT AND PRODUCTION. In order to produce its precision graphics,
the Company uses some of the software licensed to Global MAINTECH, ProCADD (also
configured as ProFLEX), CAM, EXT, ICE, PAR and CheckMate; as well as hardware
and software from others. Using such Computer Aided Design (CAD) 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 for checking purposes, or more often for precision
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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: three Cymbolic Science Fire 9000 laser
photoplotters; three Optrotech 5008 imaging systems; one Heidelberg Systems Mask
Write DWL-800; one Heidelberg DWL-400; one Texas Instruments Laser Pattern
Generator; and one Large Area Stepper. 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 customers are generally in the business of
producing electronic products. The precision graphics and design services of the
Company are more frequently requested because of the increased need for precise
dimensional control and excellent image quality. Increasingly customers are
unwilling or unable to produce the desired graphics themselves.
The Company provided custom precision graphics and circuit board design
services to approximately 400 customers during fiscal 1999. During fiscal 1999,
one customer of the Company accounted for ten percent or more of the Company's
sales.
The Company's potential customers include some departments of virtually
all of the Electronics Companies in the United States. Additionally, the Company
has markets in the rapidly growing Flat Panel Display (FPD) and semiconductor
bump mask segments of the electronics industry.
MARKETING. During fiscal 1999, the Company added customers in the high
density interconnect (HDI) and flat panel display (FDP) markets, three segments
of the electronic manufacturers market, and continued focusing its marketing
activity on Flex circuit (Flex) designers and Flat Panel Display (FPD) and High
Density Interconnect (HDI) manufacturers. Market growth and the Company's
efforts are focused on high-end photomasks for liquid crystal display (LCD)
panels, multi-chip modules, flexible wiring boards and bump masks. This approach
continues to take advantage of the Company's 20-plus years' experience in
dealing with the precision graphics industry.
The distribution channels consists of four direct Company sales
personnel. These personnel are organized to address specific key customers and
segments within the precision graphics market.
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 1999, 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 1999, the Company continued to rely
upon Heidelberg Instruments, GmbH, 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 mask fine
line tooling, and the fourth is glass products.
In the photoplotting area, there are approximately 50 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 mask portion of the business has limited competition.
However, some of the competition has substantially greater financial resources
than the Company. Geographical location is a competitive factor for this market.
The glass products segment generally involves very diverse competition,
which includes internal capability at a customer as well as other merchant
service bureaus. All of the glass products are customer designed. The Company
does not have a proprietary line of glass products. The Company does, however,
believe that it is better able to produce artwork at the quality levels and
precision demanded by new applications than existing in-house capability.
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 57 full-time and four part-time employees
as of April 30, 1999. The number of employees is expected to vary during fiscal
2000 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.
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ITEM 2. DESCRIPTION OF PROPERTY.
(a) and (c) Location of Principal Plants and Property; Description
of Real Estate and Operating Data.
The business of the Company was conducted at the seven following
locations during fiscal 1999. The Company sold its Plymouth facility in December
1990 and is leasing back approximately 3,000 square feet.
The Company substantially utilizes the following facilities and
believes they are suitable for its needs.
<TABLE>
<CAPTION>
Approx. Square
Location Purpose Footage Terms
- -------- ------- ------- -----
<S> <C> <C> <C>
4611 East Lake St. Service operations 9,200 (1)
Minneapolis, MN
4621 East Lake St. Administration and sales 5,000 (2)
Minneapolis, MN
12855 Highway 55 Storage 3,000 (3)
Plymouth, MN
8 Industrial Way Service operations and sales 2,500 (4)
Salem, NH
17332 Von Karman Service operations and sales 3,400 (5)
Irvine, CA
815 N. Wooten Road Service operations and sales 27,000 (6)
Colorado Springs, CO
549 Route B Service operations 1,300 (7)
Hallsville, MO
</TABLE>
(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. The interest rate on the mortgage note is Riverside Bank's
reference rate, plus 2% (which is 9 3/4% as of April 30, 1999). 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, 2001 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 storage.
Currently, the Company is a month-to-month, at-will tenant of this
property and pays a monthly rent of $2,110.
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(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.
(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
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, 1999 is
$38,964 payable in monthly installments.
(6) Lease between the Company and Homburg Holdings (CO) Inc., a Colorado
corporation, for the facility. The current lease term is for five
years, expiring on January 31, 2002. The basic rent is currently
$96,000 per year payable in monthly installments of $8,000.
(7) Lease between the Company and TOWNSQUARE L.L.C., a Missouri Limited
Liability Corporation, for the facility. The current lease term is 38
months, expiring January 31, 2001, but is automatically renewable for
three successive terms of one year each. The basic rent is $2,700 per
month.
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.
(b) Investment Policies.
The Company does not make investments in real estate, real estate
interests, real estate mortgages or securities of or interests in persons
primarily engaged in real estate activities. The Company also does not acquire
assets primarily for possible capital gain or primarily for income.
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 1999.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is quoted in the over-the-counter market. At
June 30, 1999, the number of record holders of the Company's common stock was
205. The following table sets forth the range of high bid and low bid quotations
for each quarter of the fiscal years ended April 30, 1999 and April 30, 1998.
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.
<TABLE>
<CAPTION>
Year Ended April 30, 1999 Year Ended April 30, 1998
------------------------- -------------------------
Quarter Ended High Bid Low Bid High Bid Low Bid
- ------------- -------- ------- -------- -------
<S> <C> <C> <C> <C>
July 31 $ 7/8 $ 5/8 $ 3/4 $ 11/16
October 31 $ 7/8 $ 5/8 $ 13/16 $ 25/32
January 31 $ 1 5/16 $ 5/8 $ 3/4 $ 9/16
April 30 $ 1 7/8 $ 1 5/8 $ 7/8 $ 5/8
</TABLE>
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.
As of September 28, 1998, Clifford F. Stritch, Jr., the Company's Chief
Executive Officer, exercised outstanding options to purchase 100,000 shares of
common stock of the Company for a per share exercise price of $.309375 per
share. The $30,937.50 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.
As of May 1, 1999, Edwin F. Snyder, the Company's Executive Vice
President, exercised outstanding options to purchase 50,000 shares of common
stock of the Company for a per share exercise price of $.28125 per share. The
$14,062.50 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.
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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.
The operations discussion that follows is of results from continuing
operations.
RESULTS OF OPERATIONS. Net sales were $4,992,000 in fiscal 1999, an
increase of $1,380,000 or 38% when compared to net sales of $3,612,000 in fiscal
1998. The increase in sales is primarily due to new imaging equipment that
allowed the Company to enter new market segments and the acquisition of the
Colorado Springs facility in the last quarter of the year. Additional income was
related to sales commissions from the sale of equipment and service fees from
Global Maintech.
The gross margin in fiscal 1999 was 31%, compared to 27% in fiscal
1998. The $1,553,000 gross profit for fiscal 1999 compares to $990,000 for
fiscal 1998. The increases in sales were the primary contributor to the increase
in gross margin as a percentage of sales and gross margins.
The Company's total selling, general and administrative (S, G & A)
expenses increased by $531,000, or 57%, in fiscal 1999 due to increases in
selling and administrative costs related to the Colorado Springs facility and to
an increase in personnel. Total S, G & A expenses as a percentage of sales were
29% for fiscal 1999, up from 26% for fiscal 1998. S, G & A as a percentage of
revenues have increased, due to the increase in S, G & A costs related to the
Colorado Springs facility.
The Company's interest expense was $188,000 in fiscal 1999 and $30,000
in fiscal 1998. The increase in interest expense during fiscal 1999 when
compared to fiscal 1998 is primarily due to the interest expense associated with
the purchase of new equipment.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 2000, 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, and add a large area mask service center.
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 production, accounting,
management information systems and manufacturing resource planning.
LIQUIDITY. The Company had positive working capital of $391,000 as of
April 30, 1999 and positive working capital of $473,000 as of April 30, 1998. In
addition, the Company had $350,000 available on its revolving credit agreement
as of April 30, 1999. The Company's cash flow from operations was $11,000 for
fiscal 1999. The largest components of cash flow from operations were
depreciation and amortization of $451,000, an increase in accounts payable,
accruals and other accrued expenses of $168,000, and net income of $114,000,
offset by increases in accounts receivable and inventory of $510,000. In fiscal
1999, the Company invested cash of $459,000 in capital equipment, and $375,000
for the acquisition of the Colorado Springs facility. Additional capital
equipment was financed through accounts payable, capital leases and long-term
debt. Cash
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provided from planned operations, an expected payment in fiscal 2000 from Global
Maintech for the software license and asset sale, 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 2000. 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. 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 $2,384,000 in
fiscal 1999, an increase of $1,952,000 from capital expenditures of $432,000 in
fiscal 1998. The Company invested in equipment and improvements essential for
present operations and investment in capital resources for future operations.
The Company's capital expenditures for equipment, automation
improvement opportunities in fiscal 2000 are expected to be approximately
$2,000,000. The Company anticipates that financing for such expenditures will be
derived from planned operations, the $2,000,000 expected payment in fiscal 2000
from Global Maintech for the software license and asset sale, leases and
obtaining additional debt and/or equity financing. If the Company does not
achieve its operations plan, receive the $2,000,000 payment from Global Maintech
and additional financing is not obtained, it will restrict planned business
growth.
The Company's cash flow used in investing activities were $833,000 in
fiscal 1999. In fiscal 1999 cash used in investing activities consisted
primarily of expenditures for capital equipment and $375,000 for the purchase of
the Colorado Springs facility.
The Company's cash flow provided by financing activities were $625,000
in fiscal 1999, consisting of principal payments on long-term debt and capital
lease obligations of $236,000, partially offset by an increase of $111,000 in
the revolving credit agreement, $500,000 of borrowings from a mortgage note and
$45,000 from proceeds resulting from the exercise of stock options.
OTHER ITEMS. Inflation has not had any significant impact upon the
Company's results of operation.
YEAR 2000 COMPLIANCE
The year 2000 issue focuses on whether computer systems will properly
recognize date-sensitive information in the year 2000 and beyond. Many installed
computer systems and software products are coded to accept only two digit
entries in the date code field. As the year 2000 approaches, these code fields
will need to accept four digit entries to distinguish years beginning with "19"
from those beginning with "20." This inability to recognize or properly treat
the year 2000 may cause systems to process financial and operational information
incorrectly. As a result, in less than five months, computer systems and/or
software products used by many companies may need to be upgraded to comply with
such year 2000 requirements. The Company is dependent on computer processing in
its business activities and the year 2000 issue creates risk for the Company
from unforeseen problems in the Company's computer system and from third parties
with whom the Company does business. The failure of the Company's computer
systems and/or third parties computer systems from unforeseen problems could
have a material adverse effect on the Company's ability to conduct its business.
The Company has conducted a review of its computer systems to identify
those areas that could be affected by the year 2000 problem. The review showed
that the primary critical system with compliance problems is the Wang accounting
system. The accounting system is considered critical because its failure could
cause problems making timely reports of financial results. It is not considered
critical operationally as billing, order entry, inventory control and scheduling
are being run on year 2000 compliant systems. As of this date, the new
accounting hardware and software have been ordered.
The review also showed that we have year 2000 issues with non-critical
data preparation workstations. All are quite old and have been slated for
replacement because of performance and obsolescence. In all cases existing
maintenance contracts or already purchased upgrades cover the software and will
be provided and installed by the manufacturers after the hardware has been
delivered. We are placing orders for all the required workstations. These new
stations will be running both vendor supplied and IGI software. The IGI software
is already year 2000 compliant. Even without the new vendor software, year 2000
compliance will be achieved with the IGI new hardware systems. It is important
to note that these secondary systems are not involved with key IGI business
segments. Their main application is on printed circuit board applications.
A comprehensive year 2000 implementation plan has been developed and is
being implemented. Additionally, a contingency plan has been developed which
addresses alternative solutions in the event compliance is not achieved in the
planned timeframe. The Company currently estimates the cost to purchase and
implement the accounting system will not exceed $45,000. The Company intends to
finance the acquisition of the system through a multiple year lease arrangement.
The Company anticipates that the acquisition cost of the non-recurring
transition costs will be financed through the use of the Company's available
operating cash flow and advances under its line of credit.
The Company does not expect that its operations will be negatively
impacted in the future.
11
<PAGE>
The Company is currently working with its customers and suppliers to
certify year 2000 compliance. In the event that a significant number of
suppliers cannot, in a timely manner, provide the company with products and
services because of the year 2000 issue, the Company's operating results could
be materially affected.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective May 1, 1998, the Company adopted 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. For the
periods presented, comprehensive income (loss) is the same as net income (loss).
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES."
SFAS No. 133 requires companies to record derivatives on the balance sheet as
assets and liabilities, measure at fair value. Gains or losses resulting from
changes in the value of those derivatives would be accounted for depending upon
the use of the derivative and whether it qualifies as hedge accounting. In July
1999, the FASB issued SFAS No. 137, delaying the effective date of SFAS No. 133
for one year to fiscal years beginning after June 15, 2000. The Company has not
yet determined the effects of SFAS No. 133 will have upon its financial position
or the results of its operations.
12
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
13
<PAGE>
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, 1999 and 1998 and the related
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended April 30, 1999. 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, 1999 and 1998
and the results of its operations and its cash flows for each of the two years
in the period ended April 30, 1999 in conformity with generally accepted
accounting principles.
Minneapolis, Minnesota
August 13, 1999
14
<PAGE>
INFINITE GRAPHICS INCORPORATED
<TABLE>
<CAPTION>
BALANCE SHEETS
APRIL 30, 1999 AND 1998
- -----------------------------------------------------------------------------------------------------------
1999 1998
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 195,984
Accounts receivable, less allowance for doubtful accounts of
$117,900 and $43,420, respectively $ 1,081,601 735,870
Account receivable - other (Note 3) 512,089 200,000
Inventories (Note 4) 515,704 187,743
Prepaid expenses and other 126,175 44,723
----------- -----------
Total current assets 2,235,569 1,364,320
PROPERTY, PLANT, AND EQUIPMENT, net (Note 5) 2,716,335 758,076
PURCHASED SOFTWARE, less accumulated amortization
of $180,516 and $141,446, respectively 68,701 94,364
ACCOUNT RECEIVABLE - Other (Note 3) 313,254
OTHER ASSETS 28,353 31,183
----------- -----------
$ 5,048,958 $ 2,561,197
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Checks written in excess of bank balances $ 205,108
Revolving credit agreement (Note 6) 252,655 $ 141,324
Trade accounts payable 510,424 237,834
Accrued salaries, wages, vacations, and employee withholdings 228,326 198,762
Other accrued expenses 256,026 229,489
Deferred revenue 10,184
Current portion of long-term debt (Note 6) 112,467 38,855
Current portion of capitalized lease obligations (Note 7) 279,860 34,442
----------- -----------
Total current liabilities 1,844,866 890,890
LONG-TERM DEBT, less current portion (Note 6) 765,041 403,651
CAPITALIZED LEASE OBLIGATIONS, less current portion (Note 7) 1,089,916 76,795
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Note 8):
Common stock, no par value; authorized 10,000,000 shares,
issued and outstanding 2,802,575 and 2,652,575 shares, respectively 4,181,697 4,136,697
Accumulated deficit (2,832,562) (2,946,836)
----------- -----------
Total stockholders' equity 1,349,135 1,189,861
----------- -----------
$ 5,048,958 $ 2,561,197
=========== ===========
</TABLE>
See notes to financial statements.
15
<PAGE>
INFINITE GRAPHICS INCORPORATED
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
YEARS ENDED APRIL 30, 1999 AND 1998
- ------------------------------------------------------------------------------
1999 1998
<S> <C> <C>
REVENUES:
Net sales $ 4,992,246 $ 3,611,891
Other income 214,600
----------- -----------
Total revenues 5,206,846 3,611,891
COSTS AND EXPENSES:
Cost of products sold 3,439,712 2,621,660
Selling, general, and administrative 1,462,742 931,638
Interest 188,118 30,000
----------- -----------
Total costs and expenses 5,090,572 3,583,298
----------- -----------
INCOME BEFORE INCOME TAXES 116,274 28,593
INCOME TAXES (Note 9) 2,000 2,000
----------- -----------
INCOME FROM CONTINUING OPERATIONS 114,274 26,593
DISCONTINUED OPERATIONS - Loss from operations
of discontinued software division (Note 3) (223,805)
----------- -----------
NET INCOME (LOSS) $ 114,274 $ (197,212)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Basic 2,721,068 2,553,671
=========== ===========
Diluted 2,845,483 2,711,944
=========== ===========
BASIC NET INCOME (LOSS) PER SHARE:
Continuing operations $ .04 $ .01
Discontinued operations (.09)
----------- -----------
Net income (loss) $ .04 $ (.08)
=========== ===========
DILUTED NET INCOME (LOSS) PER SHARE:
Continuing operations $ .04 $ .01
Discontinued operations (.08)
----------- -----------
Net income (loss) $ .04 $ (.07)
=========== ===========
</TABLE>
See notes to financial statements.
16
<PAGE>
INFINITE GRAPHICS INCORPORATED
<TABLE>
<CAPTION>
STATEMENTS OF STOCKHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------
COMMON STOCK
---------------------------- ACCUMULATED
SHARES AMOUNT DEFICIT TOTAL
<S> <C> <C> <C> <C>
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
Options exercised 150,000 45,000 45,000
Net income 114,274 114,274
--------- ---------- ----------- ----------
BALANCES AT APRIL 30, 1999 2,802,575 $4,181,697 $(2,832,562) $1,349,135
========= ========== =========== ==========
</TABLE>
See notes to financial statements.
17
<PAGE>
INFINITE GRAPHICS INCORPORATED
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1999 AND 1998
- -------------------------------------------------------------------------------------------------------------------
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 114,274 $ (197,212)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 450,963 836,886
Capital expenditures financed through the reduction of accounts receivable (123,946)
Changes in assets and liabilities:
Accounts receivable (345,731) 654,328
Inventories (163,961) (24,791)
Prepaid expenses and other (81,452) (8,411)
Other assets 2,830 14,829
Accounts payable, accruals, and other accrued expenses 168,373 (281,926)
Deferred revenue (10,184) (140,194)
----------- -----------
Net cash provided by operating activities 11,166 853,509
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (458,753) (263,747)
Decrease (increase) in account receivable - other 1,165 (123,544)
Payment for acquisition (375,000)
Expenditures for capitalized software (524,302)
Proceeds from sale of discontinued operations 500,000
----------- -----------
Net cash used in investing activities (832,588) (411,593)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in checks written in excess of bank balances 205,108
Borrowings under revolving credit agreement 5,404,305 5,671,743
Payments under revolving credit agreement (5,292,974) (5,957,710)
Proceeds from issuance of long-term debt 499,552 250,000
Payments on long-term debt (64,550) (190,433)
Principal payments under capital lease obligations (171,003) (43,282)
Proceeds from issuance of common stock 45,000 23,750
----------- -----------
Net cash provided by (used in) financing activities 625,438 (245,932)
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (195,984) 195,984
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 195,984 -
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ - $ 195,984
=========== ===========
</TABLE>
See notes to financial statements.
18
<PAGE>
INFINITE GRAPHICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1999 AND 1998
- --------------------------------------------------------------------------------
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 is subject to insignificant
obligations on sales of CAD/CAM systems, the costs of performing
these insignificant obligations are accrued at the time revenue
on the sale of CAD/CAM systems is 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 amortized such costs over the
remaining economic life of the related products, which was
estimated to be three years for its internally developed
products. Amortization of capitalized software charged to loss
from operations of discontinued software division amounted to
$550,856 for the year ended April 30, 1998.
PURCHASED SOFTWARE - Certain acquired software technology
($68,701 and $94,364, net of accumulated amortization at April
30, 1999 and 1998, 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 geographic location
is determined to be impaired, the loss is measured as the amount
by which the
19
<PAGE>
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 were 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. To date
management has determined that no impairment of these assets
exists.
STOCK-BASED COMPENSATION - The Company has adopted SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. This Statement defined a
fair value-based method of accounting for an employee stock
option or similar equity instrument and encourages all entities
to adopt that method of accounting for all of their employee
stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the
intrinsic value-based method of accounting prescribed by
Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES. Under the fair value-based method,
compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period,
which is usually the vesting period. Under the intrinsic
value-based method, compensation cost is the excess, if any, of
the quoted market price of the stock at the grant date or other
measurement date over the amount an employee must pay to acquire
the stock. The Company accounts for stock option grants and
awards to employees in accordance with APB Opinion No. 25 and
related interpretations.
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:
1999 1998
Cash paid for interest $187,202 $95,041
Noncash investing and financing activities are as follows:
Accounts payable includes invoices for equipment purchases of
$108,569 and $25,343 at April 30, 1999 and 1998, 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 $1,429,542 and $0 were
incurred when the Company entered into leases for new equipment
in fiscal 1999 and 1998, respectively.
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,
except for sales to one customer that represented 14% of net
sales for the year ended April 30, 1999. In fiscal 1998, no
customers accounted for more than 10% of net sales.
20
<PAGE>
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.
NET INCOME (LOSS) PER SHARE - Basic income (loss) per share is
computed by dividing income (loss) 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 income (loss) per share is computed by dividing income
(loss) by the weighted average common and common equivalent
shares outstanding. For the years ended April 30, 1999 and 1998,
common stock equivalents (stock options and warrants) increased
the weighted average common and common equivalent shares
outstanding by 124,415 and 158,273 shares, respectively.
Options to purchase 138,310 shares of common stock at a weighted
average exercise price of $.96 per share were outstanding during
1999 but were not included in the computation of diluted income
(loss) per share because the options' exercise prices were
greater than the average market price of the common shares.
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 income
(loss) per share because the options' exercise prices were
greater than the average market price of the common shares.
COMPREHENSIVE INCOME - The Company has adopted 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.
Comprehensive income includes all changes in stockholders' equity
except those resulting from investments by and distributions to
owners. For each of the years ended April 30, 1999 and 1998 there
was no difference between net income (loss) and comprehensive
income (loss).
RECENTLY ISSUED ACCOUNTING STANDARDS - In June 1998, the
Financial Accounting Standards Board (FASB) issued SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES.
This Statement requires companies to record derivatives on the
balance sheet as assets and liabilities, measured at fair value.
Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. In July
1999, FASB issued SFAS No. 137, delaying the effective date of
SFAS No. 133 for one year, to fiscal years beginning after June
15, 2000. The Company has not yet determined the effects SFAS No.
133 will have on its financial position or the results of its
operations.
21
<PAGE>
2. ACQUISITION
The Company acquired certain assets and assumed certain
liabilities of Photronics Colorado, Inc. (PCI), a Colorado
corporation, effective as of January 28, 1999 under the terms of
an Asset Purchase Agreement dated January 28, 1999 between the
Company, PCI, and Photronics, Inc. for a total purchase price
not to exceed $2 million in the aggregate. The acquired assets
were used in the production of precision glass products. The
Company paid $375,000 of the purchase price in cash on January
28, 1999. In addition, the Company will pay or credit PCI over a
period of 36 months following January 28, 1999, at a rate not to
exceed $150,000 per quarter, the following: (a) 50% of all net
invoices of certain large area masks (LAM) shipped to or for PCI
and (b) 10% of the net invoice amount received from the sale of
LAM to existing and identified PCI customers.
Assets acquired:
Inventories $ 164,000
Equipment 288,092
---------
Total assets 452,092
Liabilities assumed -
Accrued expenses 77,092
---------
Cash consideration $ 375,000
=========
In fiscal 1999, the Company increased the value of the equipment
acquired by $123,946 for credit memos issued in accordance with
the Asset Purchase Agreement. The remaining purchase price, a sum
which is not certain, will be funded from certain LAM sales
specified in the Asset Purchase Agreement made by the Company
during the 36-month period following January 28, 1999. The
remaining purchase price will be recorded as property until the
acquired property is recorded at fair value and any excess will
be recorded as goodwill.
The acquisition has been accounted for using the purchase method
of accounting, and, accordingly, the statement of operations
includes the results of operations of the acquired business since
January 28, 1999. The following unaudited pro forma condensed
combined statements of operations reflect the combined operations
of the Company and the acquired business adjusted for related
financing costs, as if the acquisition and financing had occurred
at the beginning of fiscal 1998. The unaudited pro forma
condensed combined statements of operations may not necessarily
reflect the actual results of operations of the Company which
would have resulted had the acquisition and related financing
occurred as of May 1, 1997. The unaudited pro forma information
is not necessarily indicative of future results of operations.
Pro Forma Combined
Years Ended April 30
-------------------------
1999 1998
(Unaudited)
Revenues $6,647,000 $5,532,000
Net income (loss) $ 178,000 $ (71,000)
Net income (loss) per share:
Basic $ .07 $ (.03)
Diluted $ .06 $ (.03)
22
<PAGE>
3. 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 $3.5 million, depending on the level of profit
performance of the licensed software. The transaction was
recognized as a disposal of a business.
At April 30, 1999 and 1998, the Company has a receivable from
Global MAINTECH of $512,089 and $513,254, respectively. The
Company has only recorded a future receivable to the extent of
the realized loss resulting in no loss or 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.
In May 1999, the Company and Global MAINTECH verbally agreed the
final earnout would be $4 million. The earnout would be paid as
follows: $3 million in cash and an ownership interest in a
subsidiary of Global MAINTECH with a value, agreed to by both
parties, of $1 million. If the verbal agreement were finalized,
Global MAINTECH would owe the Company approximately $2.1 million
in cash in fiscal 2000.
4. INVENTORIES
<TABLE>
<CAPTION>
April 30
-------------------------
1999 1998
<S> <C> <C>
Raw materials $509,286 $160,371
Work-in-process and finished goods 6,418 27,372
-------- --------
$515,704 $187,743
======== ========
</TABLE>
5. PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
April 30
------------------------------
1999 1998
<S> <C> <C>
Land $ 20,000 $ 20,000
Buildings and improvements 520,468 520,468
Leasehold improvements 406,575 314,392
Machinery and equipment 6,155,350 3,879,397
Vehicles 42,705 42,705
Furniture and fixtures 171,693 169,677
---------- ----------
7,316,791 4,946,639
Less accumulated depreciation and amortization 4,600,456 4,188,563
---------- ----------
$2,716,335 $ 758,076
========== ==========
</TABLE>
23
<PAGE>
The above amounts include equipment under capital leases with a
cost of $1,670,725 and $161,950 and accumulated amortization of
$213,850 and $53,789 at April 30, 1999 and 1998, respectively.
6. REVOLVING CREDIT AGREEMENTS AND NOTES PAYABLE
April 30
-------------------------
1999 1998
Revolving credit agreements $252,655 $141,324
======== ========
Notes payable:
Mortgage note $225,668 $242,118
Equipment note and loan 651,840 200,388
-------- --------
877,508 442,506
Less current maturities 112,467 38,855
-------- --------
$765,041 $403,651
======== ========
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%, with a minimum monthly interest charge of $2,500. In
the event of default, the interest rate increases to the greater
of prime plus 9.5%, never to be readjusted below 15%, with 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, in which case no prepayment charge is due.
As of April 30, 1999, the amount outstanding relating to the
Revolver was $252,655 and the interest rate was 12.25%.
The Mortgage Note provided for a $250,000 term loan and interest
payable at the bank's reference rate, as defined, plus 2% (9.75%
at April 30, 1999). 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, 1999, the amount outstanding relating to this note
payable was $225,668.
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, 1999 was $651,840. 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% (9.75% at April 30, 1999), 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
24
<PAGE>
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 $12,864.
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. As of April 30, 1999, the Company was not in compliance
with certain covenants. The Company has obtained a waiver of
these defaults from the bank.
During fiscal 1996 the Company entered into an equipment loan,
which is collateralized by the equipment purchased. The balance
outstanding at April 30, 1998, $7,395, was paid in fiscal 1999.
Principal maturities on the notes outstanding at April 30, 1999
are payable as follows:
Years ending April 30:
2000 $112,467
2001 312,498
2002 115,135
2003 126,882
2004 139,817
Thereafter 70,709
--------
$877,508
========
The carrying amounts of notes payable and long-term debt
approximate fair market value at April 30, 1999. 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.
7. COMMITMENTS AND CONTINGENCIES
LEASES - The Company leases certain of its facilities and
equipment under operating leases (see Note 10). Rent expense
incurred on these leases was approximately $171,000 and $108,000
for the years ended April 30, 1999 and 1998, 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, 1999 are as follows:
<TABLE>
<CAPTION>
Capital Operating
<S> <C> <C> <C>
Years ending April 30:
2000 $ 382,092 $226,760
2001 382,092 145,344
2002 358,180 99,207
2003 346,224
2004 162,764
---------- --------
Total minimum lease payments 1,631,352 $471,311
========
Less amounts representing interest 261,576
----------
Present value of net minimum obligations 1,369,776
Less current portion 279,860
----------
Long-term obligations at April 30, 1999 $1,089,916
===========
</TABLE>
25
<PAGE>
8. 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 Nonqualified 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 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>
1999 1998
-------------------------- -------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 390,000 $ .63 370,000 $.52
Granted 520,000 1.53 240,000 .80
Exercised (150,000) .30
Expired/terminated (40,000) .88 (220,000) .63
-------- --------
Outstanding at end of year 720,000 $1.27 390,000 $.63
======== ===== ======== ====
Options exercisable at year end 48,000 $ .84 166,000 $.36
======== ===== ======== ====
Options available for future grant 30,000 550,000
======== ========
</TABLE>
Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant date for awards,
consistent with the provisions of SFAS No. 123, the Company's net
income (loss) and net income (loss) per share would have changed
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
--------------------------- -----------------------------
As Reported Pro forma As Reported Pro forma
<S> <C> <C> <C> <C>
Income from continuing operations $ 114,274 $66,552 $ 26,593 $ 14,222
Discontinued operations (223,805) (223,805)
--------- ------- ----------- ---------
Net income (loss) $ 114,274 $66,552 $ (197,212) $(209,583)
========= ======= ========== =========
Basic income (loss) per share:
Continuing operations $ .04 $ .02 $ .01 $ .01
Discontinued operations (.09) (.09)
--------- ------- ---------- ---------
Net income (loss) $ .04 $ .02 $ (.08) $ (.08)
========= ======= ========== =========
Diluted income (loss) per share:
Continuing operations $ .04 $ .02 $ .01 $ .00
Discontinued operations (.08) (.08)
--------- ------- ---------- ---------
Net income (loss) $ .04 $ .02 $ (.07) $ (.08)
========= ======= ========== =========
</TABLE>
26
<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:
1999 1998
Dividend yield None None
Expected volatility 102.49% 45.20%
Expected life of option 5 5
Risk free interest rate 4.68% 5.98%
Fair value of options on grant date $1.06 $.81
The following table summarizes information about stock options
outstanding at April 30, 1999:
<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>
$.69-$.88 250,000 3.54 $ .81 48,000 $.84
1.44 285,000 4.63 1.44
1.63 185,000 4.80 1.63
------- ------
$.69-$1.63 720,000 4.29 $1.27 48,000 $.84
======= ==== ===== ====== ====
</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.
9. INCOME TAXES
The majority of the income tax expense for fiscal 1999 has been
offset by a reversal of valuation allowance for deferred 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 years ended April 30, 1999 and 1998 relates to minimum
taxes due to various states in which the Company operates.
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:
1999 1998
Federal tax at statutory rate $ 40,000 $ 10,000
State taxes 2,000 2,000
Change in valuation allowances (49,000) 19,000
Other 9,000 (29,000)
-------- --------
$ 2,000 $ 2,000
======== ========
27
<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>
1999 1998
<S> <C> <C>
Current deferred tax assets (liabilities):
Allowance for doubtful accounts and other accruals $ 93,000 $ 69,000
Less valuation allowance (93,000) (69,000)
----------- -----------
Net current deferred tax assets (liabilities) $ - $ -
=========== ===========
Long-term deferred tax (liabilities) assets:
Unrealized gain on discontinued operations $ (331,000) $ (125,000)
Excess of tax over book depreciation (269,000) (368,000)
Tax net operating loss carryforward 1,133,000 1,099,000
General business credit 375,000 375,000
Less valuation allowance (908,000) (981,000)
----------- -----------
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, 1999, the Company has income tax net operating loss
carryforwards of approximately $3,018,000 for federal and
$1,654,000 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.
10. 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, 1999
and 1998, 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 $3,000 and $38,340, respectively, for
each of the years ended April 30, 1999 and 1998.
11. 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, 1999 or 1998. The Company also has a
discretionary cash bonus plan. No such discretionary
contributions were made for the years ended April 30, 1999 or
1998.
28
<PAGE>
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 during fiscal 1999
and fiscal 1998.
29
<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 information under the sections captioned
PROPOSAL 1: ELECTION OF DIRECTORS - Directors, Nominees for Directors and
Executive Officers" and "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE" contained in the Company's definitive proxy statement for its 1999
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 information under the section captioned
"EXECUTIVE COMPENSATION" contained in the Company's definitive proxy statement
for its 1999 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 information under the section captioned
"OUTSTANDING STOCK" contained in the Company's definitive proxy statement for
its 1999 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 information under the section captioned
"CERTAIN TRANSACTIONS" contained in the Company's definitive proxy statement for
its 1999 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 13 of this Form
10-KSB. For a list of Exhibits filed as part of this Form 10-KSB, see Exhibit
Index on page 33 of this Form 10-KSB.
(b) During the last quarter of the of the period covered by this Form
10-KSB, the Company filed on February 11, 1999, a Current Report on Form 8-K
with a date of report of January 28, 1999. This Current Report disclosed the
acquisition of certain assets and liabilities of Photronics Colorado, Inc. No
financial statements were filed with this report.
30
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 13, 1999 By: /s/ Clifford F. Stritch, Jr.
---------------------------------------
Clifford F. Stritch, Jr.
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
Date: August 13, 1999 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, 1999 By: /s/ Edwin F. Snyder
---------------------------------------
Edwin F. Snyder
Director
Date: August 13, 1999 By: /s/ Durwood L. Airhart
---------------------------------------
Durwood L. Airhart
Director
Date: August 13, 1999 By: /s/ Michael J. Evers
---------------------------------------
Michael J. Evers
Director
31
<PAGE>
INFINITE GRAPHICS INCORPORATED
INDEX TO EXHIBITS
Form 10-KSB (for the year ended April 30, 1999)
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 Intentionally omitted
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 (11)
10.17 Revolving Note dated October 24, 1997 in original principal amount of
$750,000 (11)
10.18 Term Loan Agreement dated as of October 24, 1997 between the Company
and Riverside Bank (11)
10.19 Mortgage Note dated October 24, 1997 in original principal amount of
$250,000 (11)
32
<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 (11)
10.21 Guaranty of Clifford F. Stritch, Jr. to Riverside Bank with respect to
$250,000 Mortgage Loan dated October 24, 1997 (11)
10.22 Guaranty of Clifford F. Stritch, Jr. to SPECTRUM Commercial Services
dated October 24, 1997 (11)
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 (11)
10.24 1997 Stock Option Plan of Infinite Graphics Incorporated# *
10.25 Lease Agreement dated as of November 23, 1998 between the Company and
TOWNSQUARE L.L.C. without exhibits*
10.26 Master Lease Agreement dated as of September 2, 1997 between the
Company and General Electric Capital Corporation, as amended as of
November 11, 1998, together with Exhibit A dated as of November 11,
1998, Schedule No. 001, Annex A to Schedule No. 001 dated as of October
16, 1998, Index Rate Addendum to Schedule No. 001 dated as of November
11, 1998, Buyer's Verification Report and Certificate of Acceptance to
Schedule No. 001 dated as of October 23, 1998, Schedule No. 002, Annex
A to Schedule No. 002 dated as of October 16, 1998, Index Rate Addendum
to Schedule No. 002 dated as of December 2, 1998 and Buyer's
Verification Report and Certificate of Acceptance to Schedule No. 002
dated as December 1, 1998*
10.27 Asset Purchase Agreement dated January 28, 1999 among Infinite Graphics
Incorporated, Photronics Colorado, Inc. and Photronics, Inc. without
exhibits or schedules (12)
10.28 Lease Agreement dated as of November 21, 1991 between Homburg Holdings
(CO) Inc. and Microphase Laboratories, Inc. together with Addendum to
Lease dated as of December 2, 1996 and December 12, 1996 between
Homburg Holdings (CO) Inc. and Photronics Colorado, Inc. (subsequently
assigned by Microphase Laboratories, Inc. to Photronics Colorado,
Inc.)*
10.29 Assignment dated as of January 28, 1999 between the Company and
Photronics Colorado, Inc., assigning the interest of Photronics
Colorado, Inc. under the Lease Agreement dated as of November 21, 1991
between Homburg Holdings (CO) Inc. and Microphrase Laboratories, Inc.,
as amended (listed above as Exhibit 10.28) 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 or Form 10-KSB.
* Filed herewith.
(1) Filed with the Company's Annual Report on Form 10-K for the year ended
April 30, 1989, and incorporated herein by reference.
(2) Filed with the Company's Annual Report on Form 10-K for the year ended
April 30, 1990, and incorporated herein by reference.
(3) Filed with the Company's Annual Report on Form 10-K for the year ended
April 30, 1991, and incorporated herein by reference.
(4) Filed with the Company's Annual Report on Form 10-K for the year ended
April 30, 1992, and incorporated herein by reference.
33
<PAGE>
(5) Filed with the Company's Annual Report on Form 10-K for the year ended
April 30, 1993, and incorporated herein by reference.
(6) Filed with the Company's Annual Report on Form 10-K for the year ended
April 30, 1994, and incorporated herein by reference.
(7) Filed with the Company's Annual Report on Form 10-K for the year ended
April 30, 1995, and incorporated herein by reference.
(8) Filed with the Company's Annual Report on Form 10-K for the year ended
April 30, 1996, and incorporated herein by reference.
(9) Filed with the Company's Annual Report on Form 10-K for the year ended
April 30, 1997, and incorporated herein by reference.
(10) Filed with the Company's Quarterly Report on Form 10-Q for the quarter
ended January 31, 1998, and incorporated herein by reference.
(11) Filed with the Company's Annual Report on Form 10-KSB for the year
ended April 30, 1998, and incorporated herein by reference.
(12) Filed with the Company's Current Report on Form 8-K with a date of
report of January 28, 1999, and incorporated herein by reference.
34
EXHIBIT 10.24
INFINITE GRAPHICS INCORPORATED
1997 STOCK OPTION PLAN
Article I. Establishment and Purpose
1.1 Establishment. Infinite Graphics Incorporated, a Minnesota
corporation ("Company"), hereby establishes a stock option plan for employees
and others providing services to the Company, as described herein, which shall
be known as the "1997 STOCK OPTION PLAN" ("Plan"). The Plan permits the granting
of Nonstatutory Stock Options and Incentive Stock Options.
1.2 Purpose. The purposes of this Plan are to enhance shareholder
investment by attracting, retaining, and motivating employees and consultants of
the Company and to encourage stock ownership by such employees and consultants
by providing them with a means to acquire a proprietary interest in the
Company's success.
Article II. Definitions
2.1 Definitions. Unless the context clearly requires otherwise, the
following terms shall have the respective meanings set forth below, and when
said meaning is intended, the term shall be capitalized.
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Committee, as specified in Article
IV hereof, appointed by the Board to administer the Plan, or
the Board if no Committee is appointed.
(d) "Company" means Infinite Graphics Incorporated, a Minnesota
corporation (including any and all subsidiaries).
(e) "Consultant" means any person or entity, including an officer
or director of the Company who provides services (other than
as an Employee) to the Company.
(f) "Date of Exercise" means the date the Company receives notice
by an Optionee of the exercise of an Option pursuant to
Section 8.1 of this Plan. Such notice shall indicate the
number of shares of Stock as to which the Optionee intends to
exercise an Option.
(g) "Employee" means any person, including an officer or director
of the Company, who is employed by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(i) "Fair Market Value" means the price per share determined as
follows: (a) if the security is listed for trading on one or
more national securities exchanges (including the NASDAQ
National Market System), the reported last sale price on such
principal exchange on the date in question, or if such
security shall not have been traded on such principal exchange
on such date, the reported last sale price on such principal
exchange on the first day prior thereto on which such security
was so traded; or (b) if the security is not listed for
trading on a national securities exchange (including the
NASDAQ National Market System) but is traded in the
over-the-counter market, the
-1-
<PAGE>
mean of the highest ask and lowest bid prices for such
security on the date in question, or if there are no such ask
and bid prices for such security on such date, the mean of the
highest ask and lowest bid prices on the first day prior
thereto on which such prices existed; or (c) if neither (a) or
(b) is applicable, by any means deemed fair and reasonable by
the Board of Directors or the Committee, which determination
shall be final and binding on all parties.
(j) "Incentive Stock Option" means an Option granted under this
Plan which is designated as an Incentive Stock Option and is
intended to qualify as an "incentive stock option" within the
meaning of Section 422 of the Code.
(k) "Insider" means a person who is, at the time of an Option
grant hereunder, an officer, director or holder of more than
ten percent of the outstanding shares of the Stock, as defined
in Section 16 of the Exchange Act.
(l) "Nonstatutory Option" means an Option granted under this Plan
which is not intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code. Except as
otherwise specified herein, Nonstatutory Options may be
granted at such times and subject to such restrictions as the
Board shall determine without conforming to the statutory
rules of Section 422 of the Code applicable to incentive stock
options.
(m) "Option" means the right, granted under this Plan, to purchase
Stock of the Company at the option price for a specified
period of time. For purposes of this Plan, an Option may be
either an Incentive Stock Option or a Nonstatutory Option.
(n) "Optionee" means a person to whom an Option has been granted
under the Plan.
(o) "Parent Corporation" shall have the meaning set forth in
Section 424(e) of the Code with the Company being treated as
the employer corporation for purposes of this definition.
(p) "Subsidiary Corporation" shall have the meaning set forth in
Section 424(f) of the Code with the Company being treated as
the employer corporation for purposes of this definition.
(q) "Significant Shareholder" means an individual who, within the
meaning of Section 422(b)(6) of the Code, owns Stock
possessing more than ten percent of the total combined voting
power of all classes of stock of the Company or of any Parent
Corporation or Subsidiary Corporation of the Company. In
determining whether an individual is a Significant
Shareholder, an individual shall be treated as owning Stock
owned by certain relatives of the individual and certain Stock
owned by corporations in which the individual is a
shareholder, partnerships in which the individual is a
partner, and estates or trusts of which the individual is a
beneficiary, all as provided in Section 424(d) of the Code.
(r) "Stock" means the common stock of the Company.
2.2 Gender and Number. Except when otherwise indicated by the context,
any masculine terminology when used in this Plan also shall include the feminine
gender, and the definition of any term herein in the singular also shall include
the plural.
2.3 Severability. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
-2-
<PAGE>
Article III. Eligibility and Participation
3.1 Eligibility. All Employees are eligible to participate in this Plan
and receive Incentive Stock Options and/or Nonstatutory Options hereunder. All
Consultants are eligible to participate in this Plan and receive Nonstatutory
Options hereunder.
3.2 Actual Participation. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all Employees and Consultants
those to whom Options shall be granted and shall determine the nature of and
number of shares of Stock subject to each such Option.
Article IV. Administration
4.1 The Committee. The Plan shall be administered by the Committee. If
the entire Board of Directors is not serving as the Committee, the Committee
appointed by the Board shall meet the requirements of Rule 16b-3 so that Options
granted under the Plan may be considered "exempt" under Rule 16b-3 and Section
16(b) of the Exchange Act. If for any reason the Committee does not qualify to
administer the Plan as contemplated by Rule 16b-3 of the Exchange Act, or as may
be required under applicable tax law to permit a deduction with respect to
certain Options issued under the Plan, the Board may appoint a new Committee so
as to comply with the requirements of Rule 16b-3 and such tax law.
4.2 Authority of the Committee. The Committee shall have full power
except as limited by law or by the Articles of Incorporation or Bylaws of the
Company, and subject to the provisions herein, to determine the size and types
of Options; to determine the terms and conditions of such Options in a manner
consistent with the Plan; to construe and interpret the Plan and any agreement
or instrument entered into under the Plan; to establish, amend, or waive rules
and regulations for the Plan's administration; and (subject to the provisions of
Article XII herein) to amend the terms and conditions of any outstanding Option
to the extent such terms and conditions are within the discretion of the
Committee as provided in the Plan. Further, the Committee shall make all other
determinations which may be necessary or advisable for the administration of the
Plan. As permitted by law, the Committee may delegate its authorities as
identified hereunder.
4.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders or
resolutions of the Board of Directors shall be final, conclusive, and binding on
all persons, including the Company, its shareholders, Employees, Consultants,
Optionees, and their respective successors.
Article V. Stock Subject to the Plan
5.1 Number. Subject to adjustment as provided in Section 5.3 below, the
total number of shares of Stock hereby made available for grant and reserved for
issuance under the Plan shall be 450,000. The aggregate number of shares of
Stock available under this Plan shall be subject to adjustment as provided in
Section 5.3 below. The total number of shares of Stock may be authorized but
unissued shares of Stock, or shares acquired by purchase as directed by the
Board from time to time in its discretion, to be used for issuance upon exercise
of Options granted hereunder.
5.2 Lapsed Options. If an Option shall expire or terminate for any
reason without having been exercised in full, the unpurchased shares of Stock
subject thereto shall (unless the Plan shall have terminated) become available
for other Options under the Plan.
5.3 Adjustment in Capitalization. In the event of any change in the
outstanding shares of Stock by reason of a stock dividend or split,
recapitalization, reclassification, or other similar corporate change, the
aggregate number of shares of Stock set forth in Sections 5.1 and 7.1 below
shall be appropriately adjusted by the Committee, whose determination shall be
conclusive; provided, however, that fractional shares shall be rounded to the
nearest whole share. In any such
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case, the number and kind of shares that are subject to any Option (including
any Option outstanding after termination of employment) and the Option price per
share shall be proportionately and appropriately adjusted without any change in
the aggregate Option price to be paid therefor upon exercise of the Option.
Article VI. Duration of the Plan
6.1 Duration of the Plan. Subject to shareholder approval, the Plan
shall be in effect for ten years from the date of its adoption by the Committee.
Any Options outstanding at the end of said period shall remain in effect in
accordance with their terms. The Plan shall terminate before the end of said
period, if all Stock subject to it has been purchased pursuant to the exercise
of Options granted under the Plan.
Article VII. Terms of Stock Options
7.1 Grant of Options. Subject to Section 5.1, Options may be granted to
Employees or Consultants at any time and from time to time as determined by the
Committee; provided, however, that Consultants may receive only Nonstatutory
Options, and may not receive Incentive Stock Options. The Committee shall have
complete discretion in determining the recipient of Options among the Employees
or Consultants, the number of shares of Stock subject to an Option and the
number of Options granted to each Optionee. In making such determinations, the
Committee may take into account the nature of services rendered by such
Employees or Consultants, their present and potential contributions to the
Company, and such other factors as the Committee in its discretion shall deem
relevant. The Committee also shall determine whether an Option is to be an
Incentive Stock Option or a Nonstatutory Option.
The aggregate Fair Market Value (determined at the date of grant) of
shares of Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Optionee during any calendar year under all plans of
the Company under which Incentive Stock Options may be granted (and all such
plans of any Parent Corporations and any Subsidiary Corporations of the Company)
shall not exceed $100,000.
The preceding paragraph shall not be deemed to prevent the grant of
Options in excess of the maximums established by the preceding paragraph where
such excess amount is treated as a Nonstatutory Option; provided, however, no
Optionee may be granted Options in any fiscal year to purchase an aggregate
number of shares of Stock in excess of 50,000 shares per Optionee, subject to
adjustment under Section 5.3 above.
The Committee is expressly given the authority to issue amended Options
with respect to shares of Stock subject to an Option previously granted
hereunder. An amended Option amends the terms of an Option previously granted
and thereby supersedes the previous Option.
No Options granted under the Plan may be exercisable before the
approval of the Plan by the shareholders of the Company pursuant to the Bylaws
of the Company ("Shareholder Approval"). The granting and vesting of an Option
under the Plan by the Committee and the exercise of such Option by the Optionee
shall be subject to Shareholder Approval at the 1997 Annual Meeting of the
Company. If Shareholder Approval of the Plan does not occur at the 1997 Annual
Meeting of the Company any Option or Options held by any Optionee under the Plan
shall terminate immediately and shall be unexercisable.
7.2 No Tandem Options. Where an Option granted under this Plan is
intended to be an Incentive Stock Option, the Option shall not contain terms
pursuant to which the exercise of the Option would affect the Optionee's right
to exercise another Option, or vice versa, such that the Option intended to be
an Incentive Stock Option would be deemed a tandem stock option within the
meaning of the regulations under Section 422 of the Code.
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7.3 Option Agreement. As determined by the Committee on the date of
grant, each Option shall be evidenced by an Option agreement (the "Option
Agreement") that includes the nontransferability provisions required by Section
10.2 hereof and specifies: whether the Option is an Incentive Stock Option or a
Nonstatutory Option; the Option price; the duration of the Option; the number of
shares of Stock to which the Option applies; any vesting or serial exercise
restrictions which the Committee may impose; and any other terms or conditions
which the Committee may impose.
All Option Agreements shall incorporate the provisions of this Plan by
reference, with certain provisions to apply depending upon whether the Option
Agreement applies to an Incentive Stock Option or to a Nonstatutory Option.
7.4 Option Price. No Incentive Stock Option granted pursuant to this
Plan shall have an Option price that is less than the Fair Market Value of Stock
on the date the Option is granted. Incentive Stock Options granted to
Significant Shareholders shall have an Option price of not less than 110 percent
of the Fair Market Value of Stock on the date of grant. The Option price for
Nonstatutory Options shall be equal to the Fair Market Value of Stock on the
date the Option is granted and shall not be subject to the restrictions
applicable to Incentive Stock Options.
7.5 Term of Options. Each Option shall expire at such time as the
Committee shall determine when it is granted, provided however that no Option
shall be exercisable later than the tenth anniversary date of its grant. By its
terms, an Incentive Stock Option granted to a Significant Shareholder shall not
be exercisable after five years from the date of grant.
7.6 Exercise of Options. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for all
Optionees.
7.7 Payment. Payment for all shares of Stock shall be made at the time
that an Option, or any part thereof, is exercised, and no shares shall be issued
until full payment therefor has been made. Payment shall be made (i) in cash, or
(ii) if acceptable to the Committee, in Stock having a Fair Market Value at the
time of the exercise equal to the exercise price (provided that, in the case of
an Insider, the Stock that is tendered as payment upon exercise of the Option
has been held by the Optionee for at least six months prior to its tender if
such restriction is necessary to maintain the exemption of the Option under Rule
16b-3), or in some other form, including a combination of the above; provided,
however, in the case of an Incentive Stock Option, that said other form of
payment does not prevent the Option from qualifying for treatment as an
"incentive stock option" within the meaning of the Code. In addition, the
Company may establish a cashless exercise program in accordance with Federal
Reserve Board Regulation T.
Article VIII. Written Notice, Issuance of
Stock Certificates, Stockholder Privileges
8.1 Written Notice. An Optionee wishing to exercise an Option shall
give written notice to the Chief Financial Officer of the Company, in the form
and manner prescribed by the Committee. Except for approved "cashless
exercises", full payment for the shares exercised pursuant to the Option must
accompany the written notice.
8.2 Issuance of Stock Certificates. As soon as practicable after the
receipt of written notice and payment, the Company shall deliver to the Optionee
or to a nominee of the Optionee a certificate or certificates for the requisite
number of shares of Stock. Such certificate may bear a legend restricting
transfer if required under Article XIV below.
8.3 Privileges of a Shareholder. An Optionee or any other person
entitled to exercise an Option under this Plan shall not have stockholder
privileges with respect to any Stock covered by the Option until the date of
issuance of a stock certificate for such stock.
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Article IX. Termination of Employment
9.1 Death. If an Optionee's employment in the case of an Employee, or
provision of services as a Consultant, in the case of a Consultant, terminates
by reason of death, the Option may thereafter be exercised at any time prior to
the expiration date of the Option or within 12 months after the date of such
death, whichever period is the shorter, by the person or persons entitled to do
so under the Optionee's will or, if the Optionee shall fail to make a
testamentary disposition of an Option or shall die intestate, the Optionee's
legal representative or representatives. The Option shall be exercisable only to
the extent that such Option was exercisable as of the date of death.
9.2 Termination Other Than For Cause Or Due to Death. Unless otherwise
determined by the Board, in the event of an Optionee's termination of
employment, in the case of an Employee, or termination of the provision of
services as a Consultant, in the case of a Consultant, other than by reason of
death or for cause (as defined in Section 9.3 below), the Optionee may exercise
such portion of his Option as was exercisable by the Optionee at the date of
such termination (the "Termination Date") at any time within three (3) months of
the Termination Date; provided, however, that where the Optionee is an Employee,
and is terminated due to disability within the meaning of Code Section
422(c)(6), such Optionee may exercise such portion of any Option as was
exercisable by such Optionee on Optionee's Termination Date within one year
after such Termination Date. In any event, the Option cannot be exercised after
the expiration of the term of the Option. Options not exercised within the
applicable period specified above shall terminate.
In the case of an Employee, a change of duties or position within the
Company or an assignment of employment in a Subsidiary Corporation or Parent
Corporation of the Company, if any, or from such a corporation to the Company,
shall not be considered a termination of employment for purposes of this Plan.
The Option Agreements may contain such provisions as the Committee shall approve
with reference to the effect of approved leaves of absence upon termination of
employment.
9.3 Termination for Cause. In the event of an Optionee's termination of
employment, in the case of an Employee, or termination of the provision of
services as a Consultant, in the case of a Consultant, which termination is by
the Company for cause (as defined below), any Option or Options held by such
Optionee under the Plan, to the extent not exercised before such termination,
shall terminate immediately.
The term "cause" means: (i) Optionee's conviction of a felony which
would materially damage the reputation of the Company, (ii) material
misappropriation by Optionee of the Company's property or other material acts of
dishonesty by Optionee against the Company or (iii) Optionee's gross negligence
or willful misconduct in the performance of Optionee's duties, which has a
material adverse effect on the Company.
Article X. Rights of Optionees
10.1 Service. Nothing in this Plan shall interfere with or limit in any
way the right of the Company to terminate any Employee's employment, or any
Consultant's services, at any time, nor confer upon any Employee any right to
continue in the employ of the Company, or upon any Consultant any right to
continue to provide services to the Company.
10.2 Nontransferability. Except as otherwise determined by the
Committee in the case of Nonstatutory Options, all Options granted under this
Plan shall be nontransferable by the Optionee, other than by will or the laws of
descent and distribution, and shall be exercisable during the Optionee's
lifetime only by the Optionee.
Article XI. Optionee-Employee's
Transfer or Leave of Absence
11.1 Optionee-Employee's Transfer or Leave of Absence. For Plan
purposes--
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<PAGE>
(a) A transfer of an Optionee who is an Employee from the Company
to a Subsidiary Corporation or Parent Corporation, or from one
such corporation to another, or
(b) a leave of absence for such an Optionee (i) which is duly
authorized in writing by the Company, and (ii) if the Optionee
holds an Incentive Stock Option, which qualifies under the
applicable regulations under the Code which apply in the case
of incentive stock options,
shall not be deemed a termination of employment. However, under no circumstances
may an Optionee exercise an Option during any leave of absence, unless
authorized by the Committee.
Article XII. Amendment,
Modification, and Termination of the Plan
12.1 Amendment, Modification, and Termination of the Plan. The Board
may at any time terminate, and from time to time may amend or modify the Plan,
provided, however, that no action of the Board, without approval of the
shareholders, may:
(a) increase the total amount of Stock which may be purchased
through Options granted under the Plan, except as provided in
Section 5.1 above; or
(b) change the class of Employees or Consultants eligible to
receive Options; or
(c) change the provisions of Section 7.1 above to allow an
Optionee to be granted Options in any fiscal year to purchase
an aggregate number of shares of Stock in excess of 50,000
shares per Optionee, subject to adjustment under Section 5.3
above.
12.2 Options Previously Granted. No amendment, modification, or
termination of the Plan shall in any manner adversely affect any outstanding
Option under the Plan without the consent of the Optionee holding the Option.
Article XIII. Merger, Consolidation or Acceleration Event
13.1 Merger, Consolidation.
(a) Subject to any required action by the shareholders, if the
Company shall be the surviving corporation in any merger or
consolidation, any Option granted hereunder shall pertain to
and apply to the securities to which a holder of the number of
shares of Stock subject to the Option would have been entitled
in such merger or consolidation.
(b) A dissolution or a liquidation of the Company or a merger and
consolidation in which the Company is not the surviving
corporation shall cause every Option outstanding hereunder to
terminate as of the effective date of such dissolution,
liquidation, merger or consolidation. However, unless the
Optionee is offered a firm commitment whereby the resulting or
surviving corporation in a merger or consolidation will tender
to the Optionee an option ("the Substitute Option") to
purchase its shares on terms and conditions as to number of
shares, exercisability and otherwise, which will substantially
preserve to the Optionee the rights and benefits of the Option
outstanding hereunder granted by the Company, then the
Optionee shall have the right immediately prior to such
merger, or consolidation to exercise any unexercised Options
whether or not then exercisable, subject to the provisions of
this Plan. The Board shall have absolute and uncontrolled
discretion to determine whether the Optionee has been offered
a firm commitment and whether
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<PAGE>
the tendered Substitute Option will substantially preserve to
the Optionee the rights and benefits of the Option outstanding
hereunder. In any event, any Substitute Option for an
Incentive Stock Option shall comply with the requirements of
Code Section 424(a).
13.2 Impact of Acceleration Event. Subject to Shareholder Approval of
the Plan, Options granted hereunder will become fully exercisable and vested in
the event of an "Acceleration Event" as defined in Section 13.3 or a "Potential
Acceleration Event" as defined in Section 13.4.
13.3 Definition of "Acceleration Event" For purposes of Section 13.2,
an "Acceleration Event" means the happening of any of the following:
(a) When any "person" as defined in Section 3(a) (9) of the
Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) of the
Exchange Act, but excluding the Company or any subsidiary or
parent or any employee benefit plan sponsored or maintained by
the Company or any subsidiary or parent (including any trustee
of such plan acting as trustee), directly or indirectly,
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act, as amended from time to time), of securities
of the Company representing 20 percent or more of the combined
voting power of the Company's then outstanding securities;
(b) When, during any period of 24 consecutive months during the
existence of the Plan, the individuals who, at the beginning
of such period, constitute the Board ("Incumbent Directors")
cease for any reason other than death to constitute at least a
majority thereof; provided, however, that a Director who was
not a Director at the beginning of such 24-month period will
be deemed to have satisfied such 24-month requirement (and be
an Incumbent Director) if such Director was elected by, or on
the recommendation of, or with the approval of, at least 60%
of the Directors who then qualified as Incumbent Directors
either actually (because they were Directors at the beginning
of such 24-month period) or by prior operation of this Section
13.3(b); or
(c) The approval by the shareholders of any sale, lease, exchange,
or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the
Company or the adoption of any plan or proposal for the
liquidation or dissolution of the Company.
13.4 Definition of "Potential Acceleration Event." For purposes of
Section 13.2, a "Potential Acceleration Event" means the approval by the Board
of an agreement by the Company the consummation of which would result in an
Acceleration Event of the Company as defined in Section 13.3.
Article XIV. Securities Registration
14.1 Securities Registration. In the event that the Company shall deem
it necessary or desirable to register under the Securities Act of 1933, as
amended, or any other applicable statute, any Options or any Stock with respect
to which an Option may be or shall have been granted or exercised, or to qualify
any such Options or Stock under the Securities Act of 1933, as amended, or any
other statute, then the Optionee shall cooperate with the Company and take such
action as is necessary to permit registration or qualification of such Options
or Stock.
Unless the Company has determined that the following representation is
unnecessary, each person exercising an Option under the Plan may be required by
the Company, as a condition to the issuance of the shares pursuant to exercise
of the Option, to make a representation in writing (a) that he or she is
acquiring such shares for his or her own account for investment and not with a
view to,
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<PAGE>
or for sale in connection with, the distribution of any part thereof,
(b) that before any transfer in connection with the resale of such shares, he or
she will obtain the written opinion of counsel for the Company, or other counsel
acceptable to the Company, that such shares may be transferred. The Company may
also require that the certificates representing such shares contain legends
reflecting the foregoing. The Company will only require the foregoing investment
representation from an Optionee, inscription of a legend on the Optionee's share
certificate and placement of a stop order with the Company's transfer agent if a
registration statement is not in effect with respect to the shares issued
pursuant to the Plan at the time the Optionee exercises the Option.
Article XV. Tax Withholding
15.1 Tax Withholding. The Company shall have the power and the right to
deduct or withhold, or require an Optionee to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes (including the Optionee's
FICA obligation) required by law to be withheld with respect to any grant,
exercise, or payment made under or as a result of the Plan.
15.2 Share Withholding. With respect to withholding required upon the
exercise of Options, or upon any other taxable event hereunder, Optionees may
elect, subject to the approval of the Committee, to satisfy the withholding
requirement, in whole or in part, by having the Company withhold shares having a
Fair Market Value, on the date the tax is to be determined, equal to the minimum
marginal tax which could be imposed on the transaction.
Share withholding upon the exercise of an Option will be done if the
Optionee makes a signed, written election and either of the following occurs:
(a) The Option exercise occurs during a "window period" and the
election to use such share withholding is made at any time
prior to exercise. For this purpose, "window period" means the
period beginning on the third business day following the date
of public release of the Company's quarterly financial
information and ending after the twelfth business day
following such date. An earlier election can be revoked up
until the exercise of the Option during the window period; or
(b) An election to withhold shares is made at least six months
before the Option is exercised. If this election is made, then
the Option can be exercised and shares may be withheld outside
of the window period.
Article XVI. Indemnification
16.1 Indemnification. To the extent permitted by law, each person who
is or shall have been a member of the Committee or of the Board shall be
indemnified and held harmless by the Company against and from any loss, cost,
liability, or expense that may be imposed upon or reasonably incurred by him or
her in connection with or resulting from any claim, action, suit, or proceeding
to which he or she may be a party or in which he or she may be involved by
reason of any action taken or failure to act under the Plan and against and from
any and all amounts paid by him or her in settlement thereof, with the Company's
approval, or paid by him or her in satisfaction of judgment in any such action,
suit, or proceeding against him or her, provided he or she shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he or she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
articles of incorporation or bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
Article XVII. Requirements of Law
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<PAGE>
17.1 Requirements of Law. The granting of Options and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules, and regulations, and to such approvals by any
governmental agencies or securities exchanges as may be required.
17.2 Governing Law. To the extent not preempted by federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Minnesota.
17.3 Compliance with the Code. Incentive Stock Options granted
hereunder are intended to qualify as "incentive stock options" under Code
Section 422. If any provision of this Plan is susceptible to more than one
interpretation, such interpretation shall be given thereto as is consistent with
Incentive Stock Options granted under this Plan being treated as incentive stock
options under the Code.
Article XVIII. Effective Date of Plan
18.1 Effective Date. Subject to Shareholder Approval of the Plan, the
Plan shall be effective as of August 1, 1997, the date of its adoption by the
Board.
Article XIX. No Obligation to Exercise Option.
19.1 No Obligation to Exercise. The granting of an Option shall impose
no obligation upon the holder thereof to exercise such Option.
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EXHIBIT 10.25
LEASE AGREEMENT
THIS LEASE is made and entered into by and between TOWNSQUARE L.L.C., a
Missouri Limited Liability Corporation (hereafter "Lessors") and Infinite
Graphics, Incorporated, a Minnesota Corporation (hereafter "Lessee").
WITNESSETH:
Lessors hereby lease unto Lessee, and Lessee leases from Lessors a
portion of building located in Townsquare Hallsville, 549 Rt. B., Hallsville,
Missouri, 65255, containing approximately 1335 square feet of the southwest wing
(hereafter "the premises") along with shared use of restrooms, coffee area and
waiting room of Townsquare Office Suites at 545 Rt. B, together with adjacent
parking stalls for two automobiles, under the following terms and conditions.
1. Term. The term of this lease shall be for thirty-eight months
commencing on December 1, 1998 and continuing through January 31, 2001. Such
lease shall automatically renew for three (3) successive one (1) year terms;
provided, however, Lessee may terminate this lease without liability or cause,
at the end of any lease term by giving not less than sixty (60) days prior
written notice of it's intent to terminate.
2. Rent. Lessee agrees to pay to lessors as rent for the premises the
sum of Twenty-Seven Hundred Dollars per month, payable in advance on the first
day of each month throughout the term of this lease with exception to the
initial 60 days of this lease which will be charged at a rate of Eight Hundred
Ninety Dollars per month for construction purposes unless lessor finishes
construction early at which time the full lease amount of $2,700.00 per month
will commence. One year renewal terms shall be charged as follows: Immediate
successive year (1st) $1,420.00 per month. Second successive year $1,485.00 per
month. Third successive year $1,550.00 per month.
Build Out. Lessee is entering into this lease on the condition that the
premises are built out under the terms and conditions set forth under the
Construction Agreement, a copy of which is attached as Exhibit A. Should Lessor
fail to complete the construction within sixty (60) days of the commencement of
this lease, Lessee shall have the right to make no further payment to Lessor
until the construction is completed per the Construction Agreement.
Build Out Change Order. All change orders shall be approved by both
Lessee and Lessor before the change order work is begun. Costs of change orders
shall be added to the monthly lease cost by amortizing over thirty-six (36) at
an interest rate of ten (10) percent.
3. Quiet Enjoyment. Lessors covenant that on paying rent and performing
the covenants herein, the Lessee shall peacefully hold and enjoy the premises
for the purposes of conducting Lessee's service bureau/plotting and printing
business. Lessor understands that the lease premises must be vibration-free in
order for the Lessee to conduct its business. Acceptable
<PAGE>
levels of vibration are more specifically set forth in Exhibit B, attached
hereto. Should Lessor fail to maintain the premises at an acceptable level of
vibration as identified in Exhibit B, Lessee must notify Lessor in writing of
excessive vibration from which time Lessor shall have 15 days to correct the
excessive vibration problem. Should the problem remain, Lessee shall have the
right to terminate this lease upon thirty (30) days written notice to Lessor.
4. Use of Premises. Lessee shall exclusively use the premises for the
purpose of operating a service bureau/plotting & printing business and other
related business operations without the written consent of the Lessor.
5. Alterations and Improvements. Lessee may make no alterations or
improvements to the premises without written consent of the Lessors. Any such
improvements, unless otherwise provided by written agreement between the
parties, shall be the property of Lessors and remain on the premises at the
termination of this lease.
6. Damage to Property. If the premises leased by the Lessor shall be
partially damaged by fire or other casualty the damage shall, at Lessors option,
be promptly repaired or replaced. Such option must be exercised in writing,
within ten (10) days. If the Lessor does elect to repair and replace the damaged
property, Lessor shall be obligated to complete such repairs within one hundred
twenty (120) days of the damage. Failure to complete repairs within the 120 days
shall give Lessee the right to terminate this lease. There shall be an abatement
of rent corresponding with the time during which, and to the extent which, the
portion of the premises leased by Lessee may have been untenantable. If the
damage be such that Lessors elect not to repair or replace, the term of this
lease shall end and any rentals due hereunder shall be prorated up to the time
of damage.
7. Maintenance and Repair. Lessee shall at Lessee's expense, keep and
maintain the premises in a clean and sanitary condition. Lessee shall be
responsible for maintaining extra "build-out" items including central vacuum and
extra HVAC and exhaust system. Lessors shall at Lessors expense otherwise
maintain the exterior of the premises and all common facilities located at 545
Route B.
8. Utilities. Lessee shall be responsible for payment of any utility
costs necessitated by its occupancy of the premises. Lessor will provide and pay
for water, sewage and trash pick-up. Lessor covenants that it shall install
electrical requirements per Exhibit A. Lessor shall be required to dispose of
all trash, with exception to hazardous wastes, in conformance with all local
ordinances, state and federal rules and regulations.
9. Assignment and Subletting. Without the prior written consent of
Lessors, Lessee shall not assign this lease or sublet or grant any concession or
license to use the premises or any part thereof. Any assignment, subletting,
concession or license without the prior written consent of Lessors, or an
assignment or subletting by operation of law, shall be void and, at Lessors
option, shall terminate this lease.
10. Right to Inspect. Lessors shall have the right to enter premises
for inspection purposes at reasonable times and after reasonable notice to
Lessee.
<PAGE>
11. Default. If any default is made in the payment of rent or any part
thereof, or if any default is made in the performance of or compliance with any
other term or condition of this lease, at the option of Lessors, this lease may
be terminated and forfeited and Lessors, in addition to any other remedies
available under this lease or law, may re-enter the premises and remove all
persons and property therefrom.
12. Persons Bound and Choice of Law. All of the provisions of this
lease shall extend to and inure to the benefit of and be binding on the parties
hereto, their heirs, successors, personal representatives and assigns. This
lease is made under and governed by the laws of the State of Missouri.
13. Notices. Any notices to be provided herein shall be delivered by
personal service or by U.S. Mail, first class prepaid, addressed as follows:
If to Lessors:
Townsquare Hallsville Manager
525 Route B Hwy
Hallsville, Missouri 65255
If to Lessee:
Dan Comero
Infinite Graphics, Incorporated
4611 East Lake Road
Minneapolis, Minnesota 55406
or to such other addresses as the parties may designate in writing from time to
time.
IN WITNESS WHEREOF, the parties have executed this lease by their duly
authorized representatives as of the dates below their respective signatures.
INFINITE GRAPHICS, INC.
/S/ Clifford F. Stritch
- -----------------------------------------
Signature
11/23/98
- -----------------------------------------
Date
TOWNSQUARE L.L.C.
/S/ John S. [last name not decipherable]
- -----------------------------------------
Signature
President
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Title
11/23/98
- -----------------------------------------
Date
EXHIBIT 10.26
MASTER LEASE AGREEMENT
Dated and effective as of SEPTEMBER 2, 1997, ("Effective Date"), this MASTER
LEASE AGREEMENT ("Agreement") is entered into by and between GENERAL CAPITAL
CORPORATION, a New York corporation with offices at 55 Federal Road, Danbury,
Connecticut 06810, (together with any successor or assignee, "Lessor") and the
Lessee indicated below (together with any successor or permitted assignee,
"Lessee"),
LESSEE: LEGAL NAME: INFINITE GRAPHICS INCORPORATED
TRADE NAME (IF ANY)
ADDRESS: 4511 EAST LAKE STREET
MINNEAPOLIS, MN 55406
CONTACT AND TELEPHONE: (612) 721-6283
LEGAL ENTITY TYPE: CORPORATION
STATE OF ORGANIZATION: MN
DATE OF ESTABLISHMENT: NOVEMBER 26, 1969
LEASE TERMS AND CONDITIONS:
1. LEASING. Subject to the terms of this Agreement, Lessor agrees to
lease to Lessee and Lessee agrees to lease from Lessor the equipment
(collectively, the "Equipment" and individually a "unit of Equipment") described
in any equipment schedule (a "Schedule") signed by Lessee and approved by
Lessor. Each Schedule will incorporate all the terms of this Agreement and will
constitute a separate agreement for lease of the Equipment (each, a "Lease").
With respect to each Lease, capitalized terms not defined in this Agreement will
have the meanings stated in the applicable Schedule. Unless it purchases the
Equipment under Section 14 ("Options"), Lessee does not have any right or
interest in the Equipment except as a lessee. This Agreement is effective from
the Effective Date, and will continue until all Leases have terminated or
expired.
2. NET LEASE. EACH LEASE IS A NET LEASE. LESSEE IS UNCONDITIONALLY
OBLIGATED TO PAY MONTHLY RENT AND OTHER AMOUNTS DUE UNDER SUCH LEASE REGARDLESS
OF ANY DEFECT OR DAMAGE TO EQUIPMENT, OR LOSS OF POSSESSION, USE OR DESTRUCTION
FROM ANY CAUSE WHATSOEVER, LESSEE'S OBLIGATIONS CONTINUE UNTIL SPECIFICALLY
TERMINATED AS PROVIDED IN SUCH LEASE. LESSEE IS NOT ENTITLED TO ANY ABATEMENT,
REDUCTION, RECOUPMENT, DEFENSE, OR SET-OFF AGAINST MONTHLY RENT OR OTHER AMOUNTS
DUE TO LESSOR OR ITS ASSIGNEE, WHETHER ARISING OUT OF SUCH LEASE OR OUT OF
LESSOR'S STRICT LIABILITY OR NEGLIGENCE, FROM ANY THIRD PARTY, OR OTHERWISE.
3. PURCHASE OF EQUIPMENT. Lessor is not obligated to purchase or lease
a unit of Equipment unless before the Last Funding Date: (i) Lessor receives
from Lessee a fully signed and completed Agreement, Schedule, Purchase Order
Assignment in the form of Annex A attached to the applicable Schedule and such
other documents as Lessor may require; (ii) Lessee has irrevocably accepted the
unit of Equipment for lease from Lessor by properly signing and delivering to
Lessor a Lease Commencement Certificate in the form of Annex B attached to the
applicable Schedule; (iii) Lessor has received from Supplier clear and
unencumbered title to the Equipment; and (iv) there is no Default (Section 13).
If Lessor has accepted a Purchase Order Assignment but the Lease does not
commence, Lessor may reassign the Purchase Order and the Equipment to Lessee
without recourse or warranty and Lessee will reimburse Lessor for all expenses
incurred, plus interest at the Overdue Rate (Section 15). So long as no Default
has occurred, Lessor appoints Lessee its agent to inspect and accept the
Equipment from Supplier simultaneously with acceptance of the Equipment for
lease. For each Schedule, Lessee irrevocably authorizes Lessor to adjust the
Equipment Price and Total Price by no more than fifteen percent (15%) to account
for equipment change orders or returns, invoicing errors and similar matters,
and agrees to any resulting adjustments in the TRANSACTION TERMS stated in the
applicable Schedule. Lessor will send Lessee a written notice stating the final
Equipment Price, Total Price and TRANSACTION TERMS, if different from those
stated in the applicable Schedule.
4. TERM AND RENT. (a) The Initial Term begins on the acceptance by the
Lessee of the Equipment (a "Lease Commencement Date"), and continues for the
Initial Term stated in the applicable Schedule.
<PAGE>
The Monthly Rent accrues from the Lease Commencement Date. Monthly Rent is
payable on the same day of each month as the Lease Commencement Date. If Monthly
Rent is not paid within ten (10) days of its due date, Lessee agrees to pay a
late charge of Ten cents ($0.10) per dollar on, and in addition to, such Monthly
Rent, but not exceeding the lawful maximum, if any. Advance Rent, if any, is
applied to the first Monthly Rent due and then to the final Monthly Rents or, at
Lessor's option, to the payment of any overdue obligation of Lessee. Lessor is
not required to: (i) refund any advance Rent or Monthly Rent; (ii) refund any
Advance Rent or Monthly Rent; (iii) pay any interest on Advance Rent; or (iv)
keep Advance Rent in a separate account.
(b) Lessee agrees that the Monthly Rent and Advance Rent have
been calculated on the assumption that the effective corporate income tax rate
(exclusive of any minimum tax rate) for Lessor will be 35%. If Lessor is not
taxed at such tax rate during the initial Term because of Congressional
enactment of any law, Lessor has the right to increase the Monthly Rent and
Advance Rent and adjust the Casualty Value (Section 8) in such a manner as will
both (i) take into account that such assumption is no longer correct and (ii)
preserve Lessor's after tax economic yields and cash flows. A change in the
Monthly Rent, Advance Rent, or Casualty Value is effective on the effective date
of such law.
(c) At the end of the term of a Lease, or in the event of a
Default, until Lessee has complied with Section 6(d) ("Use, Operation, Return of
Equipment") or has purchased the Equipment pursuant to Section 14 ("Option"),
Lessee shall pay Lessor Monthly Rent, as liquidated damages for lost rentals and
not as a penalty, such payment to be computed on a daily basis (with one day's
rent being 1/30th of the Monthly Rent) until the Equipment is returned or
purchased. Lessee's obligations and all other provisions of this Lease continue
until such time.
5. TAXES. Lessee agrees to pay promptly as additional rent all license
and registration fees and all taxes (excluding taxes on Lessor's net income)
together with penalties and interest (collectively, "Taxes") assessed against
Lessor, Lessee, the applicable Lease, the Equipment, the purchase (including
purchase by Lessee), sale, ownership, delivery, leasing, possession, use,
operation or return of the Equipment or its proceeds (such additional rent,
together with Monthly Rent and Advance Rent is hereinafter collectively referred
to as "Rent"). Where permitted by applicable law, except for Type A Leases,
Lessee will report all Taxes. Lessee will reimburse Lessor on demand for any
Taxes paid by Lessor.
6. USE, OPERATION, RETURN OF EQUIPMENT. (a) Lessee agrees at its own
expense to: (i) maintain the Equipment in condition suitable for certification
by the manufacturer (if certification is available) and in any event in good
operating condition; (ii) use the Equipment solely for business purposes, in the
manner for which it was intended and in compliance with all applicable laws and
manufacturer requirements or recommendations; (iii) pay all expenses, fines, and
penalties related to the use, operation, condition or maintenance of the
Equipment; and (iv) comply with all license and copyright requirements of any
software ("Software") used in connection with the Equipment.
(b) Lessee agrees not to attach to the Equipment any
accessory, equipment or device not leased from Lessor unless it is easily
removable without damaging the Equipment. Lessee agrees to pay all costs for
parts, alteration, and additions to the Equipment (including those required by
law), all of which will become the property of Lessor. Lessee agrees not to
install any Equipment or Software, if any, inside any other personal property.
Lessor and Lessee intend that the Equipment is to remain personal property of
Lessor.
(c) Provided that there is no Default (Section 13), Lessee is
authorized on behalf of Lessor to enforce in its own name (and at its own
expense) any warranty, indemnity or right to damages related to the Equipment
which Lessor has against the Supplier.
(d) At the end of the term of a Lease, or in the event of a
Default, Lessee agrees, at its own expense and risk, (i) to pay for any repairs
required to place the Equipment in the same condition as when received by
Lessee, reasonable wear and tear excepted; (ii) without unreasonable delay, to
cause the Equipment to be disassembled, deinstalled, inspected, tested and
crated in accordance with manufacturer recommendations, if any; and (iii) to
deliver the Equipment, freight prepaid, to a carrier selected by Lessor for
shipment to a location selected by lessor.
7. DISCLAIMER. LESSEE AGREES THAT: (1) LESSOR IS NOT THE MANUFACTURER
OR SUPPLIER OF THE EQUIPMENT OR SOFTWARE (IF ANY) OR THE REPRESENTATIVE OF
EITHER; (2) LESSOR IS NOT REQUIRED TO ENFORCE ANY MANUFACTURER'S WARRANTIES ON
BEHALF OF ITSELF OR OF LESSEE; (3) LESSOR IS NOT OBLIGATED TO INSPECT THE
EQUIPMENT OR SOFTWARE; (4) LESSOR DOES NOT MAKE, AND HAS NOT MADE, ANY WARRANTY
OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE DESIGN, COMPLIANCE WITH
SPECIFICATIONS, OPERATION OR CONDITION OF, OR AS TO THE QUALITY OF THE MATERIAL,
EQUIPMENT OR WORKMANSHIP OR SOFTWARE; (5) LESSOR DOES NOT MAKE ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF, OR AS TO TITLE TO, OR
ANY OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE
EQUIPMENT OR SOFTWARE. LESSEE FURTHER AGREES
<PAGE>
THAT LESSOR SHALL NOT BE LIABLE FOR ANY LIABILITY, LOSS OR DAMAGE CAUSED
DIRECTLY OR INDIRECTLY BY THE EQUIPMENT OR SOFTWARE OR BY ITS INADEQUACY OR BY
ANY EQUIPMENT OR SOFTWARE DEFECT, WHETHER OR NOT LESSOR HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH LIABILITY, LOSS OR DAMAGE. LESSOR SHALL NOT HAVE ANY
LIABILITY TO LESSEE OR ANY OTHER PERSON WITH RESPECT TO ANY OF THE FOLLOWING,
REGARDLESS OF ANY NEGLIGENCE OF LESSOR: (1) THE USE, OPERATION OR PERFORMANCE OF
THE EQUIPMENT OR SOFTWARE; (2) ANY INTERRUPTION OF SERVICE, LOSS OF BUSINESS OR
ANTICIPATED PROFITS OR LOSS OF GOODWILL OR ANY INDIRECT, INCIDENTAL, SPECIAL OR
CONSEQUENTIAL DAMAGES OR ANY OTHER COMMERCIAL OR ECONOMIC LOSSES OF ANY KIND
WHICH ARE ATTRIBUTABLE TO THE EQUIPMENT OR SOFTWARE; OR (3) THE DELIVERY,
SERVICING, MAINTENANCE, REPAIR, IMPROVEMENT OR REPLACEMENT OF THE EQUIPMENT OR
SOFTWARE.
8. LOSS OR DAMAGE; CASUALTY VALUE. Lessee assumes the risk of any
disappearance of or damage to any part of the Equipment from any cause
whatsoever. Within ten (10) days of learning of any condemnation or other
circumstance where the Equipment is, in Lessee's reasonable opinion, irreparably
damaged or permanently unfit for use ("Casualty") Lessee will provide Lessor
full details of the Casualty and will pay to Lessor an amount equal to (i) the
sum of all future Monthly Rents payable for the Equipment under the applicable
Lessee, with each such payment discounted to its net present value at a simple
interest rate equal to six percent (6) per annum (or if not permitted by
applicable law, the lowest permitted rate) from the due date of each such
payment to the Monthly Rent payment date immediately preceding the data of the
Casualty; plus an amount equal to the Casualty Value Percentage of the Total
Price of the Equipment ("Casualty Value"); plus (ii) any other amounts due under
the applicable Lease. Monthly Rent will continue to accrue without abatement
until Lessor receives the Casualty Value and all other amounts (including
Monthly Rent payments) then due under the applicable Lease, at which time the
Lease will terminate. At Lessor's request, Lessee agrees to sell the Equipment
on an "AS IS, WHERE IS" basis without representation or warranty, and to remit
to Lessor any sales or insurance proceeds received (less any sums paid by Lessee
as Casualty Value).
9. INSURANCE. Lessee agrees, as its own expense, to keep the Equipment
insured with companies acceptable to Lessor and to maintain primary coverage
consisting of (i) actual cash value all risk insurance on the Equipment, naming
Lessor as loss payee and (ii) single limit public liability and property damage
insurance of not less than $300,000 per occurrence (or such other amounts as
Lessor may require by notice to Lessee) naming Lessee as insured and Lessor as
additional insured. The insurance will provide for not less than thirty (30)
days notice to Lessor of material changes in or cancellation of the policy.
Premiums for all such insurance will be prepaid. Lessee will deliver evidence of
such insurance to Lessor upon request, and will promptly provide to Lessor all
information pertinent to any occurrence which may become the basis of a claim.
Lessee will not make claim adjustment with insurers except with Lessor's prior
written consent.
10. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee represents and
warrants to Lessor that as of the date of each Lease and of each Lease
Commencement Certificate:
(a) Lessee has adequate power and capacity to enter into the Lease, any
documents relate to the purchase of the Equipment leased under such Lease and
any other documents required to be delivered in connection with this Lease
(collectively, the "Documents"); the Documents have been duly authorized,
executed and delivered by Lessee and constitute valid, legal and binding
agreements, enforceable in accordance with their terms; there are no proceedings
presently pending or threatened against Lessee which will impair its ability to
perform under the Lease; and all information supplied to Lessor is accurate and
complete.
(b) Lessee's entering into the Lease and leasing the Equipment does not
and will not: (i) violate any judgment, order, or law applicable to the Lease,
Lessee or Lessee's certificate of incorporation or by-laws (if Lessee is a
corporation) or Lessee's partnership agreement (if Lessee is a partnership); or
(ii) result in the creation of any lien, security interest or other encumbrance
upon the Equipment.
(c) All financial data of Lessee or of any consolidated group of
companies of which Lessee is a member ("Lessee Group"), delivered to Lessor have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis with prior periods and fairly present the
financial position and results from operations of Lessee, or of the Lessee
Group, as of the stated data and period(s). Since the date of the most recently
delivered financial data, there has been no material adverse change in the
financial or operating condition of Lessee or of the Lessee Group.
(d) If Lessee is a corporation or partnership, it is and will be
validly existing and in good standing under laws of the state of its
incorporation or organization; the persons signing the Lease are acting with the
full
<PAGE>
authority of its board of directors or partners (if Lessee is a partnership) and
hold the offices indicated below their signatures, which are genuine.
11. LESSEE'S AGREEMENTS.
(a) Lessee agrees that it will keep the Equipment free and clear from
all claims, liens and encumbrances and will not assign, sublet, or grant a
security interest in the Equipment or in this Lease without Lessor's prior
written consent. If and to the extent that the Lease is deemed a security
agreement under the Uniform Commercial Code, and otherwise for precautionary
purposes only, Lessee grants Lessor a first priority security interest in its
interest in the Equipment and all Equipment leased pursuant to any Schedule.
Such security interest shall secure Lessee's obligations with respect to all
Schedules, Leases and agreements between Lessee and Lessor. Lessee will notify
Lessor in writing, with full particulars within ten (10) days after it learns of
the attachment of any lien to any Equipment and of the Equipment's location.
(b) Lessee will not relocate any unit of equipment from the Equipment
Location stated on a Schedule without the prior written approval of Lessor
(which shall not be unreasonably withheld). Lessee agrees to notify Lessor
immediately in writing of any change in Lessee's corporate or business name or
in the location of its chief executive office.
(c) If this is a Type A Lease, Lessee will not take or fail to take any
action which Lessor determines will result in the disqualification of any
Equipment for, or the recapture of, all or any portion of the accelerated cost
recovery deductions permitted by the Internal Revenue Code of 1986, as amended.
Lessee will indemnify Lessor for any loss in Lessor's after tax economic yields
and cash flows caused by Lessee's acts or failures to act.
(d) Lessor may inspect the Equipment during normal business hours. At
Lessor's request, Lessee will attach identifying labels supplied by Lessor
showing Lessor's ownership in a prominent position on each unit of Equipment.
(e) LESSOR MAY ASSIGN EACH LEASE. LESSEE WAIVES AND AGREES NOT TO
ASSERT AGAINST ANY ASSIGNEE ANY DEFENSE, SET OFF, RECOUPMENT, CLAIM OR
COUNTERCLAIM WHICH LESSEE HAS OR MAY AT ANY TIME HAVE AGAINST LESSOR FOR ANY
REASON WHATSOEVER.
(f) Within one hundred twenty (120) days of the close of each fiscal
year of Lessee, Lessee will deliver to Lessor Lessee's balance sheet and profit
and loss statement, certified by a recognized firm of certified public
accountants. Upon request, Lessee will deliver to lessor duplicate copies of
Lessee's most recent quarterly financial report.
12. INDEMNIFICATION. Lessee agrees to indemnify, defend and keep
harmless Lessor, its agents, successors and assigns, from and against any all
losses, damages, penalties, claims and action, including legal expenses, arising
out of or in connection with (i) the selection, manufacture, purchase,
acceptance or rejection of Equipment, the ownership of Equipment during the term
of a Lease, and the delivery, lease, possession, maintenance, use, condition,
return or operation of Equipment or (ii) the condition of Equipment sold or
disposed of after or as a result of use by Lessee or any permitted sublease of
Lessee.
13. DEFAULT. (a) Lessor may declare a Lease in default (a "Default")
if, with respect to such LEASE: (i) Lessor has not received Monthly Rent or any
other Rent (Section 5 and 15) within ten (10) days after its due date; or (ii)
Lessee or any guarantor violates any other term of a Lease or any term of a
guaranty and fails to correct such violation within ten (10) days after written
notice from Lessor; or (iii) Lessee violates the terms of any license or
agreement for Software; or (iv) Lessee or any guarantor becomes insolvent, is
liquidated or dissolved, stops doing business or assigns its rights or property
for the benefit of creditors; or (v) a petition is filed by or against Lessee or
any guarantor under Title 11 of the United States Code or any successor or
similar law or (vi) (for individuals) Lessee or any guarantor dies or a guardian
is appointed for Lessee's or guarantor's person; or (vii) Lessee (or any
affiliate) is in default of or fails to fulfill the terms of any other agreement
between Lessee and Lessor or any affiliate of either.
(b) At any time after a Default, Lessor may declare a default under any
other Lease or agreement between Lessee (and any affiliate) and Lessor or its
affiliate. Lessor may also enter, with or without legal process, any premises
and take possession of the Equipment. Immediately after a Default, Lessee will
pay to Lessor, as liquidated damages for loss of a bargain and not as a penalty,
an amount equal to the sum of (i) all Rents, including Monthly Rent, and other
sums (e.g. late charges, indemnification, liens) then due under each Lease; plus
(ii) the Casualty Value of the Equipment, calculated as of the Monthly Rent
payment date immediately preceding the Default; together with interest on such
sum accruing to the date of payment at the Overdue Rate (Section 15). Lessee
waives notice of intention to accelerate and notice of acceleration. After a
Default, at the request of Lessor, Lessee will return the Equipment as required
by Section 6. Lessor may, but is not required to, sell or lease the Equipment in
bulk or in individual pieces. If the Lessor intends to sell the Equipment, it
may do so in a public or private sale and is not required to give notice of such
sale. The Equipment need not be displayed at the sale. Lessor may, without
paying
<PAGE>
rent or providing insurance, use the Equipment Location to store the Equipment
or conduct any sale. The proceeds of any sale or lease will be applied in the
following order of priorities: (1) to pay all of Lessor's expenses in taking,
removing, holding, repairing and disposing of Equipment; then (2) to pay any
late charges and interest accrued at the Overdue Rate; then (3) to pay accrued
but unpaid Monthly Rent together with any unpaid Casualty Value, Rent, interest
and all other due but unpaid sums (including any indemnification and sums due
under other Leases or agreement in default). Any remaining proceeds will
reimburse Lessee for payments which it made to reduce the amounts owed to Lessor
in the preceding sentence. Lessor will keep any excess. If the proceeds of any
sale or lease are not enough to pay the amounts owed to Lessor under this
Section, Lessee will pay the deficiency.
(c) Lessor's remedies for Default may be exercised instead of or in
addition to each other or any other legal or equitable remedies. Lessor has the
right to set-off any sums received from any source (including insurance proceeds
against Lessee's obligations under each Lease. Lessee waives its right to object
to the notice of the time or place of sale or lease and to the manner and place
of any advertising. Lessee waives any defense based on statutes of limitations
or laches in actions for damages. Lessor's waiver of any Default is not a waiver
of its rights with respect to a different or later Default.
14. OPTION. (a) LEASE TYPE A ONLY: So long as no Default has occurred,
Lessee has the option (i) to purchase all but not less than all of the Equipment
under a Lease at the end of the initial Term on an AS-IS WHERE-IS basis without
representation or warranty, for a cash purchase price equal to the Equipment's
Fair Market Value (plus any applicable sales taxes) determined as of the end of
the Initial Term; or (ii) to extend the Initial Term of a Lease at the then Fair
Market Rental of the Equipment. Lessee must give irrevocable written notice at
least sixty (60) days before the end of the Initial Term to Lessor that it will
purchase the Equipment or extend the Initial Term. If the Lease is renewed, the
Lessee's obligations (other than the amount of Monthly Rent to be paid) will
remain unchanged. "Fair Market Value" or "Fair Market Rental" means the price or
rental which a willing buyer or lessee (who is neither a lessee in possession
nor a used equipment dealer) would pay for the Equipment in an arm's length
transaction to a willing seller or lessor who is under no compulsion to sell or
lease the Equipment. In determining "Fair Market Value" or "Fair Market Rental":
(i) the Equipment is assumed to have been maintained and returned as required by
the Lease; (ii) in the case of any installed Equipment, the Equipment will be
valued on an installed basis; and (iii) cost of removal from the Equipment's
current location will not be included.
(b) LEASE TYPE B, ONLY: So long as no Default has occurred, Lessee may
purchase all but not less than all the Equipment under a Lease on an "AS IS,
WHERE IS" basis, without representation or warranty, at the end of the Initial
Term for a price equal to the Option Price (plus applicable sales tax) stated on
a Schedule. Unless the Option Price is $1.00, Lessee must give Lessor
irrevocable written notice at least thirty (30) days before the end of the
Initial Term that it will purchase the Equipment.
15. MISCELLANEOUS. (a) LEASE TYPE B ONLY: Lessee agrees that for income
tax purposes only, Lessor is treating Lessee as owner of the Equipment and that
Lessee has not received tax advice from Lessor or the Supplier. By signing this
Lease, Lessee agrees to pay a lease charge and leased charge rate. The total
lease charge is equal to (i) the Monthly Rent multiplied by the number of months
in the Initial Term, plus (ii) the Option Price, minus (iii) the Total Price.
The lease charge portion of the Monthly Rent payments may be determined by
applying to the Total Price of the Equipment the rate which will amortize such
Total Price (adjusting for any Advance Rent) down to the Option Price at a
constant rate over the Initial Term by payment of the Monthly Rent. The lease
charge rate is the constant rate referred to in the preceding sentence. If this
transaction were re-characterized as a financing, no lease charge, late charge,
or post maturity interest charge is intended to exceed the maximum amount of
time price differential or interest, as applicable, permitted to be charged or
collected by applicable law. If this transaction were re-characterized as a
financing and one or more of such charges exceed such maximum, then such charges
will be reduced to the legally permitted maximum charge and any excess charge
will be used to reduce the initial value of the Equipment or refunded.
(b) Time is of the essence of each Lease. Lessor's failure at any time
to require that Lessee strictly perform its obligations under any Lease will not
prevent Lessor from later requiring such performance. Lessee agrees, upon
Lessor's request to sign any document presented by Lessor from time to time to
protect Lessor's rights in the Equipment. LESSEE AND LESSOR EACH WAIVE ALL
RIGHTS TO TRIAL BY JURY IN ANY LITIGATION ARISING FROM OR RELATED TO A LEASE.
Lessee also agrees to pay Lessor's attorneys' fees and out-of-pocket expenses in
protecting or enforcing its rights under a Lease. Lessee will pay attorney's
fees and costs of collection, up to the amount permitted by law. Lessor and
Lessee agree that legal fees and costs up to twenty percent (20%) of the amount
then due under this Lease are reasonable.
(c) All required notices will be considered to have been given if sent
by registered or certified mail or overnight courier service to the Lessor at
the address stated above and to the Lessee at its address stated in the Lease,
or at such other place as such addressee may have designated in writing.
(d) Each Lease constitutes the entire agreement of the parties with
respect to the lease of the Equipment and supersedes and incorporates all prior
oral or written agreements or statements. So long as there is no
<PAGE>
Default, Lessor shall not interfere with Lessee's quiet enjoyment of Equipment.
If a provision of a Lease is declared invalid under law, the affected provision
will be considered omitted or modified to conform to applicable law. All other
provisions will remain in full force and effect.
(e) If Lessee fails to comply with any provision of a Lease, Lessor has
the right, but is not obligated, to have such provision brought into compliance.
This right is in addition to the Lessor's right to declare a Default. All
expenses incurred by Lessor in bringing about such compliance will be considered
Rent which is due to Lessor within five (5) days after the date Lessor sends to
lessee a written request for payment.
(f) All overdue payments will bear interest at the Overdue Rate, which
is the lower of twenty percent (20%) per annum or the maximum rate allowed by
law. Interest will accrue daily until payment in full is received.
(g) All of Lessor's rights (including indemnity rights) under a Lease
survive the Lease's expiration or termination, and are enforceable by Lessor,
its successors and assigns.
THIS AGREEMENT AND ANY SCHEDULE AND ANNEXES THERETO CONSTITUTE THE
ENTIRE AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF. THIS
AGREEMENT IS EFFECTIVE AS OF THE EFFECTIVE DATE UPON SIGNING BY BOTH LESSOR AND
LESSEE. A LEASE MAY NOT BE CHANGED EXCEPT BY WRITTEN AGREEMENT SIGNED BY AN
AUTHORIZED REPRESENTATIVE OF THE PARTY AGAINST WHOM IT IS TO BE ENFORCED. LESSEE
IRREVOCABLY AUTHORIZES LESSOR TO PREPARE AND SIGN ON BEHALF OF LESSEE ANY
INSTRUMENT NECESSARY OR EXPEDIENT FOR FILING, RECORDING OR PERFECTING THE
INTEREST OF LESSOR IN EACH LEASE, THE RELATED EQUIPMENT AND THE PROCEEDS OF
BOTH.
LESSOR: GENERAL ELECTRIC CAPITAL LESSEE: INFINITE GRAPHICS INCORPORATED
CORPORATION
BY: /S/ Mark A. Malec BY /S/ Clifford F. Stritch
----------------------------------- -----------------------------------
Credit Manager Chief Executive Officer
- --------------------------------------- --------------------------------------
- --------------------------------------- --------------------------------------
Date of Execution: 11/11/98 Date of Execution: 10/29/97
-------------------- -------------------
Social Security Or Taxpayer ID No.
41-0956693
<PAGE>
F. ADDITIONAL TERMS (IF ANY):
AMENDMENTS TO AGREEMENT:
A. ARTICLE 2A: THIS LEASE IS A "FINANCE" LEASE AS DEFINED IN ARTICLE 2A
OF THE UNIFORM COMMERCIAL CODE. LESSEE AGREES THAT IT WILL KEEP THE EQUIPMENT
FREE AND CLEAR FROM ALL CLAIMS, LIENS AND ENCUMBRANCES AND WILL NOT ASSIGN,
SUBLET OR GRANT A SECURITY INTEREST IN THE EQUIPMENT OR IN ANY LEASE WITHOUT
LESSOR'S PRIOR WRITTEN CONSENT. To the extent permitted by applicable law,
Lessee hereby waives all rights and remedies conferred upon a Lessee by Article
2A (Sections 508-522) of the Uniform Commercial Code, including but not limited
to Lessee's rights to: (i) cancel or repudiate the Lease; (ii) reject, revoke
acceptance or accept partial delivery of the Equipment or "cover"; (iii) recover
damages from Lessor for any breach of warranty or for any other reason; and (iv)
grant a security interest in any Equipment in Lessee's possession. To the extent
permitted by applicable law, Lessee also hereby waives any rights now or
hereafter conferred by statute or otherwise limit or modify any of Lessor's
rights or remedies hereunder. Any action by Lessee against Lessor for any
default under any Lease, including breach of warranty or indemnity, shall be
commenced within one (1) year after any such cause of action accrues.
B. MISCELLANEOUS: (a) Notwithstanding anything to the contrary in the
Agreement, if and to the extent that any Taxes are reported or paid by Lessor,
Lessee will reimburse Lessor on demand for any such Taxes, or at Lessor's
option, Lessee shall pay a portion of estimated Taxes along with each payment of
Monthly Rent. If Lessee fails to provide any insurance required by the
Agreement, Lessor may but is not obligated to insure its own interest in the
Equipment and Lessee agrees to pay the direct or financed cost thereof (at the
highest annual rate permitted by applicable law) and charge for costs in
connection therewith promptly upon receipt of invoices.
(b) If at Lessee's request, Lessor agrees in its sole discretion to
permit the early termination of any Lease, Lessee agrees to pay Lessor a fee to
compensate Lessor for the privilege of so doing in an amount not greater than
permitted by applicable law.
(c) By signing a Lease with a fixed Purchase Option, Lessee agrees to
pay a lease charge rate. The lease charge portion of the Monthly Rent may be
determined by applying to the Capitalized Lessor's Cost [the rate which will
amortize such Equipment Total Cost or Software Total Cost (adjusting for any
Advance Rent)] down to the amount of the Purchase Option (for Equipment) at a
constant rate over the Initial Term by payment of the Monthly Rent. The lease
charge rate is the constant rate referred to. The lease charge (interest) rate
can also be calculated using the Principal as the present value, the purchase
option amount as the future value, the rent as the payment and the term as
stated herein. If this transaction were re-characterized as a financing, no
lease charge, late charge, or post maturity interest charge is intended to
exceed the maximum amount of interest (or time price differential) permitted to
be charged or collected by applicable law. If this transaction were
re-characterized as a financing and one or more of such charges exceed such
maximum, then such charges will be reduced to the legally permitted maximum
charge and any excess charge will be used to reduce the initial value of the
Equipment or refunded.
(d) THIS AGREEMENT SHALL BE BINDING AND EFFECTIVE WHEN ACCEPTED BY
LESSOR AS ITS OFFICES IN CONNECTICUT. THIS AGREEMENT SHALL BE DEEMED TO BE MADE
IN CONNECTICUT AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
CONNECTICUT LAW. LESSEE AGREES THAT ALL LEGAL ACTIONS IN CONNECTION WITH THIS
AGREEMENT MAY, AT LESSOR'S OPTION, TAKE PLACE IN CONNECTICUT.
LESSOR: GENERAL ELECTRIC CAPITAL LESSEE: INFINITE GRAPHICS INCORPORATED
CORPORATION
BY: /S/ Mark A. Malec BY /S/ Clifford F. Stritch
----------------------------------- -----------------------------------
Credit Manager Chief Executive Officer
- --------------------------------------- --------------------------------------
- --------------------------------------- --------------------------------------
Date of Approval: 11/11/98 Date of Execution: 10/29/97
--------------------- -------------------
Social Security Or Taxpayer ID No.:
41-0956693
<PAGE>
EXHIBIT "A"
EQUIPMENT LISTING
INFINITE GRAPHICS INCORPORATED
4611 EAST LAKE STREET
MINNEAPOLIS, MN 55406
Maskwrite 800 Direct Write Laser Imager 610mm x 813mm (24" x 32"), for Imaging
on silver halide-coated glass and resist-coated chrome-on-glass plates. Includes
laminar flowbox, precision staging, air gauge autofocus and metrology
hardware/software.
Start-up services for MaskWrite 800/1550. Includes 12-month parts labor and
software warranty of Imager and write heads (laser warranty specified
separately), installation/checkout of Laser Imager and up to 4 hours of Imager
operator training Buyer pac.
Laser for MaskWrite 800/1550 Imager, 20mw, 532nm pumped diode ND YAG for Imaging
silver halide emulsions. Includes 12 month parts and labor warranty.
Laser for MaskWrite 800/1550 Imager, 120mw, HeCD laser for imaging on
photoresist. Includes 6-month parts and labor warranty.
Dual Optics for use with two Lasers.
10mm WRITEHEAD for MaskWrite 800/1550. Resolution: 0.125 micrometer
interchangeable with 4mm, 20mm and/or 40mm writeheads.
20mm WRITEHEAD for MaskWrite 800/1550. Resolution: 0.25 micrometer
interchangeable with 4mm, 10mm and/or 40mm writeheads.
40mm WRITEHEAD for MaskWrite 800/1550. Resolution: 0.5 micrometer
interchangeable with 4mm, 10mm and/or 40mm writeheads.
Air cooling unit for MaskWrite 1550.
Sun Ultra 1/143 Color UNIX Workstation consisting of: 64MN RAM expandable to
256MB, Internal 2.1 GB disk; 20" monitor, Internet 3-1/2" floppy disk drive,
Internet CD ROM drive; 25' ethernet (thin) cable and adapter 10base T port; SCSI
bus adapter key.
RAM.64MB add-on for new 954X (Sun Ultra I Sparc) Workstations
LESSEE: LESSOR
Infinite Graphics Incorporated General Electric Capital Corporation
By: /S/ Clifford F. Stritch By: /S/ Mark A. Malec
Title: CEO Title: Credit Manager
Date: 10/29/97 Date: 11/11/98
<PAGE>
SCHEDULE NO. 001
Master Lease Agreement Effective Date: September 2, 1997
THIS SCHEDULE ("Schedule") incorporates all of the terms of the above
Master Lease Agreement ("Agreement"). This Schedule and the Agreement as it
relates to this Schedule constitutes a lease ("Lease") for the equipment
described below ("Equipment") between GENERAL ELECTRIC CAPITAL CORPORATION
("Lessor") and the Lessee indicated below. All terms used and not defined in
this Schedule have the definitions stated in the Agreement.
A. LESSEE: LEGAL NAME: Infinite Graphics Incorporated
TRADE NAME (if any):
ADDRESS: 4611 East Lake Street
Minneapolis, MN 55406
LEGAL ENTITY - Type: Corporation
State of Organization: MN
Date of Establishment: November 26, 1969
B. SUPPLIER: Gerber Systems Corporation
83 Gerber Road West
South Windsor, CT 06074
C. EQUIPMENT LOCATION:
Street Address: 4611 East Lake Street
County: Hennepin
City, State Zip: Minneapolis, MN 55406
D. DESCRIPTION OF EQUIPMENT: MaskWrite 800 Direct Write Imager
Equipment Type/Model/Serial/ID Numbers Number of Units Cost
- --------------------------------------- --------------- ----
Maskwrite 800 Direct Write Imager more
fully described on Exhibit "A" attached
hereto and made a part hereof. $1,100,000.00
Equipment Price: $1,100,000.00
----------------
Sales Tax:
----------------
Freight:
----------------
Installation:
----------------
Other:
----------------
Other:
----------------
Equipment Total Cost: $1,100,000.00
----------------
E. TRANSACTION TERMS:
Lease Type (check one); _X_ A (Tax Lease, _5_ year property; all Sections other
than 14(b) and 15(a) apply).
___ B (Lease Purchase all Sections other than 4(b),
11(c) and 14(a) apply).
_X_ Monthly ___ Quarterly ___ Annual Payments Advance Rent: $110,000.00
Rent: 1 at $110,000.00 Sales Tax: $7,700.00
59 at 20,168.69
at Total Advance Rent: $117,700.00
at
at Casualty Value Percentage: 25%
Lease Type B Option Price: $
Last Funding Date: October 30, 1997
<PAGE>
INDEX RATE ADDENDUM
This Addendum to the Master Lease Agreement dated September 2, 1997
("Master Lease Agreement") with respect to Schedule No. 001, is entered into by
Infinite Graphics Incorporated ("Lessee") and General Electric Capital
Corporation ("Lessor").
The Lessee and Lessor agree that Schedule No. 001, to the Master Lease
agreement dated September 2, 1997 is hereby amended to incorporate the following
language:
"The Lease Rate charged has been calculated, in part, using
an interest rate based on the 5 year U.S. Treasury Constant
Maturity of 6.07 ("Original Treasury Rate") as published in
THE WALL STREET JOURNAL on July 28, 1997. The rate will be
held to October 30, 1997 (Rate Expiration Date). If Lessee
does not accept the Equipment on or before the Rate
Expiration Date, the lease rate will be adjusted as follows:
If the rate of the 5 year U.S. Treasury Constant Maturity on
the Monday immediately preceding the Commencement Date of
Schedule No. 001, is the greater or lesser than the Original
Treasury Rate, Rental Payments under Schedule No. 001 will be
increased or decreased, as appropriate, by adjusting the
lease rate by approximately 0.00012 for each twenty-five (25)
basis point change from the Original Treasury Rate."
Lessee's obligation to pay and perform its obligations under the Master Lease
Agreement and Schedule No. 001, as amended herein, shall be absolute and
unconditional and shall not be subject to any offset, defense, counterclaim, or
recoupment for any reason whatsoever.
Except as amended herein, all other terms and conditions set forth in the Master
Lease Agreement and Schedule No. 001, shall remain in full force and effect.
In Witness Whereof, Lessee and Lessor have executed this Addendum as of the date
set forth below.
LESSEE: LESSOR
Infinite Graphics Incorporated General Electric Capital Corporation
By: /S/ Clifford F. Stritch By: /S/ Mark A. Malec
Title: CEO Title: Credit Manager
Date: 10/29/97 Date: 11/11/98
<PAGE>
ANNEX A - PURCHASE ORDER ASSIGNMENT
Annex A to Schedule No. 001 Effective Date: September 2, 1997 ("Schedule")
Master Lease Agreement Effective Date: September 2, 1997
(Schedule and Master Lease as it relates to the Schedule are referred to as the
"Lease")
A. ASSIGNOR: LEGAL NAME: Infinite Graphics Incorporated
TRADE NAME (if any):
ADDRESS: 4611 East Lake Street
Minneapolis, MN 55406
B. SUPPLIER: NAME: Gerber Systems Corporation
ADDRESS: 83 Gerber Road West
South Windsor, CT 06074
CONTACT and TELEPHONE:
C. EQUIPMENT LOCATION:
Street Address: 4611 East Lake Street
County: Hennepin
City, State Zip: Minneapolis, MN 55406
D. DESCRIPTION OF EQUIPMENT: MaskWrite 800 Direct Write Imager
Equipment Type/Model/Serial/ID Numbers Number of Units Cost
- --------------------------------------- --------------- ----
Maskwrite 800 Direct Write Imager more
fully described on Exhibit "A" attached
hereto and made a part hereof. $1,100,000.00
Equipment Price: $1,100,000.00
----------------
REVISED 11/4/97 Sales Tax:
----------------
THIS PURCHASE ORDER ASSIGNMENT IS ISSUED Freight:
----------------
CONTINGENT UPON 10% ADVANCE RENT OF Installation:
----------------
$110,000.00. 5% DUE UPON EXECUTION OF Other:
----------------
LEASE DOCUMENTS AND 5% DUE UPON DELIVERY Other:
----------------
OF EQUIPMENT. Equipment Total Cost: $1,100,000.00
----------------
Lease Term: 060
Effective Date of Assignment: , 19
----------------- --
PURCHASE AGREEMENT (Date signed by ASSIGNOR and SUPPLIER): , 19
-------------- --
Assignor assigns to General Electric Capital Corporation or its subsidiaries
("Assignee") and Assignee accepts assignment of all rights in the above Purchase
Agreement as it relates to the equipment described in the Lease ("Equipment").
The rights assigned include: (i) the right to be the purchaser and owner of the
Equipment; (ii) the right to receive all amounts due to Assignor under the
Purchase Agreement; and (iii) the right to take any action with respect to and
to enforce the Purchase Agreement and all warranty or other claims with respect
to the Equipment. Assignor agrees to remain liable to the Supplier under the
Purchase Agreement as if this Assignment had not occurred. This Assignment is
effective as of the effective date of the Schedule.
Assignor represents that: (i) the Purchase Agreement is enforceable by Assignee,
is in effect, and has not been ended, changed, or broken by Assignor or
Supplier; (ii) no other person or entity has the right to purchase the Equipment
under the Purchase Agreement; and (iii) Assignee is not required to enforce
payment of money due to Assignor under the Purchase Agreement. Assignor further
agrees that Assignee is not taking over Assignor's obligations under the
Purchase Agreement (except the obligation to pay for the Equipment once it is
accepted by Assignor under the Lease). Assignor also agrees that if a Default is
<PAGE>
declared (Section 13 of the Lease), prior to Assignor's acceptance of the
Equipment, Assignee automatically withdraws its acceptance of this Purchase
Order Assignment, and Assignor will remain liable to Supplier to honor the
purchaser's obligations under the Purchase Agreement.
THIS PURCHASE ORDER ASSIGNMENT WHEN SIGNED BY BOTH ASSIGNOR AND ASSIGNEE IS
EFFECTIVE AS OF THE EFFECTIVE DATE OF ASSIGNMENT.
ASSIGNEE: General Electric Capital ASSIGNOR: Infinite Graphics Incorporated
Corporation
By: By: /S/ Clifford F. Stritch
-------------------------------- ------------------------------------
Clifford F. Stritch
- ----------------------------------- ----------------------------------------
(Print or Type Name) (Print or Type Name)
October 16, 1998
- ----------------------------------- ----------------------------------------
(Print or Type Name) (Print or Type Name)
SUPPLIER'S CONSENT
The below named Supplier consents to the Purchase Order Assignment and agrees to
be bound by its terms. Supplier further agrees to give Assignee a bill of sale
or invoice transferring clear title of the Equipment to Assignee when the
Equipment has been delivered to and accepted by Assignor on behalf of Assignee.
Assignee shall have three (3) days to pay for the Equipment after its
acceptance, but Supplier agrees not to retain any security interest in the
Equipment following acceptance by Assignor.
SUPPLIER: Heidelberg Instruments Mikrotechnik Gmbh
By:
----------------------------------------------
Print Name:
--------------------------------------
Title:
-------------------------------------------
Date:
--------------------------------------------
Estimated Delivery Date:
-------------------------
<PAGE>
BUYER'S VERIFICATION REPORT AND CERTIFICATE OF ACCEPTANCE
Schedule 001 to Master Lease Agreement dated September 2, 1997
Customer/Lessee: Infinite Graphics Incorporated
Address: 4611 East Lake Street
Minneapolis, MN 55406
Equipment Location: 4611 East Lake Street
Minneapolis, MN 55406
Equipment Description: MaskWrite 800 Direct Write Imager
The Customer/Lessee Certifies that:
(a) All the Equipment has been delivered to and inspected by Lessee on the Lease
Commencement date specified below pursuant to the above Lease Agreement (the
"Lease");
(b) All the Equipment referenced above has been installed at the Lessee's
facility and has passed functional tests performed by a Gerber representative;
(c) Lessee irrevocably accepts the Equipment for lease under the Lease as of the
Lease Commencement Date; and
(d) No event which would allow the Lessor to declare a Default (Section 15 of
the Lease Agreement) has occurred, and all of the representations and warranties
made in the Lease are true as of the Lease Commencement Date.
Lessee:
Infinite Graphics Incorporated
By: /S/ Clifford F. Stritch, Jr.
Clifford F. Stritch, Jr.
---------------------------------------
(Signature Name)
X CEO
---------------------------------------
(Signature Name)
Date of Acceptance/
Lease Commencement Date: X 10-23-98
-------------------
<PAGE>
SCHEDULE NO. 002
Master Lease Agreement Effective Date: September 2, 1997
THIS SCHEDULE ("Schedule") incorporates all of the terms of the above
Master Lease Agreement ("Agreement"). This Schedule and the Agreement as it
relates to this Schedule constitutes a lease ("Lease") for the equipment
described below ("Equipment") between General Electric Capital Corporation
("Lessor") and the Lessee indicated below. All terms used and not defined in
this Schedule have the definitions stated in the Agreement.
A. LESSEE: LEGAL NAME: Infinite Graphics Incorporated
TRADE NAME (if any):
ADDRESS: 4611 East Lake Street
Minneapolis, MN 55406
LEGAL ENTITY - Type: Corporation
State of Organization:
Date of Establishment:
B. SUPPLIER: Heidelberg Instruments Mikrotachnik
Gmbh
Tullastrase2
Heidelberg, GE 69216
C. EQUIPMENT LOCATION:
Street Address: 549 Route B
County:
City, State Zip: Hallsville, MO 65255
D. DESCRIPTION OF EQUIPMENT:
Equipment Type/Model/Serial/ID Numbers Number of Units Cost
- --------------------------------------- --------------- ----
DWL 400 System $430,000.00
Equipment Price: $430,000.00
----------------
Sales Tax:
----------------
Freight:
----------------
Installation:
----------------
Other:
----------------
Other:
----------------
Equipment Total Cost: $430,000.00
----------------
E. TRANSACTION TERMS:
Lease Type (check one); ___ A (Tax Lease, ___ year property; all Sections other
than 14(b) and 15(a) apply).
_X_ B (Lease Purchase all Sections other than 4(b),
11(c) and 14(a) apply).
Monthly Rent: $9,148.93 Advance Rent: 0.00
Sales Tax: $569.52 Sales Tax:
Total Monthly Rent: $9,718.44 Total Advance Rent: 0.00
Initial Term (# of Months): 060
Casualty Value Percentage: %
Last Funding Date: December 31, 1998
Lease Type B Option Price: 1.00
<PAGE>
ANNEX A - PURCHASE ORDER ASSIGNMENT
Annex A to Schedule No. 002 Effective Date: October 4, 1998 ("Schedule")
Master Lease Agreement Effective Date: September 2, 1997
(Schedule and Master Lease as it relates to the Schedule are referred to as the
"Lease")
A. ASSIGNOR: LEGAL NAME: Infinite Graphics Incorporated
TRADE NAME (if any):
ADDRESS: 4611 East Lake Street
Minneapolis, MN 55406
B. SUPPLIER: NAME: Heidelberg Instruments Mikrotachnik
Gmbh
ADDRESS: Tullastrase2
Heidelberg, GE 69216
CONTACT and TELEPHONE:
C. EQUIPMENT LOCATION:
Street Address: 549 Route B
County:
City, State Zip: Hallsville, MO 65255
D. DESCRIPTION OF EQUIPMENT:
Equipment Type/Model/Serial/ID Numbers Number of Units Cost
- --------------------------------------- --------------- ----
DWL 400 System 1 $430,000.00
Equipment Price: $430,000.00
----------------
Sales Tax:
----------------
Freight:
----------------
Installation:
----------------
Other:
----------------
Other:
----------------
Equipment Total Cost: $430,000.00
----------------
Lease Term: 060
Effective Date of Assignment: 11/2 , 1998
-----------------
PURCHASE AGREEMENT (Date signed by ASSIGNOR and SUPPLIER): , 19
-------------- --
Assignor assigns to General Electric Capital Corporation or its subsidiaries
("Assignee") and Assignee accepts assignment of all rights in the above Purchase
Agreement as it relates to the equipment described in the Lease ("Equipment").
The rights assigned include: (i) the right to be the purchaser and owner of the
Equipment; (ii) the right to receive all amounts due to Assignor under the
Purchase Agreement; and (iii) the right to take any action with respect to and
to enforce the Purchase Agreement and all warranty or other claims with respect
to the Equipment. Assignor agrees to remain liable to the Supplier under the
Purchase Agreement as if this Assignment had not occurred. This Assignment is
effective as of the effective date of the Schedule.
Assignor represents that: (i) the Purchase Agreement is enforceable by Assignee,
is in effect, and has not been ended, changed, or broken by Assignor or
Supplier; (ii) no other person or entity has the right to purchase the Equipment
under the Purchase Agreement; and (iii) Assignee is not required to enforce
payment of money due to Assignor under the Purchase Agreement. Assignor further
agrees that Assignee is not taking over Assignor's obligations under the
Purchase Agreement (except the obligation to pay for
<PAGE>
the Equipment once it is accepted by Assignor under the Lease). Assignor also
agrees that if a Default is declared (Section 13 of the Lease), prior to
Assignor's acceptance of the Equipment, Assignee automatically withdraws its
acceptance of this Purchase Order Assignment, and Assignor will remain liable to
Supplier to honor the purchaser's obligations under the Purchase Agreement.
THIS PURCHASE ORDER ASSIGNMENT WHEN SIGNED BY BOTH ASSIGNOR AND ASSIGNEE IS
EFFECTIVE AS OF THE EFFECTIVE DATE OF ASSIGNMENT.
ASSIGNEE: General Electric Capital ASSIGNOR: Infinite Graphics Incorporated
Corporation
By: /S/ Michael Gusto By: /S/ Clifford F. Stritch
Michael Gusto CEO
- ------------------------------------- ----------------------------------------
(Print or Type Name) (Print or Type Name)
Senior Credit Manager October 16, 1998
- ------------------------------------- ----------------------------------------
(Print or Type Name) (Print or Type Name)
SUPPLIER'S CONSENT
The below named Supplier consents to the Purchase Order Assignment and agrees to
be bound by its terms. Supplier further agrees to give Assignee a bill of sale
or invoice transferring clear title of the Equipment to Assignee when the
Equipment has been delivered to and accepted by Assignor on behalf of Assignee.
Assignee shall have three (3) days to pay for the Equipment after its
acceptance, but Supplier agrees not to retain any security interest in the
Equipment following acceptance by Assignor.
SUPPLIER: Heidelberg Instruments Mikrotechnik Gmbh
By:
----------------------------------------------
Print Name:
--------------------------------------
Title:
-------------------------------------------
Date:
--------------------------------------------
Estimated Delivery Date:
-------------------------
<PAGE>
INDEX RATE ADDENDUM
This Addendum to the Master Lease Agreement dated September 2, 1997
("Master Lease Agreement") with respect to Schedule No. 7019851-002, is entered
into by Infinite Graphics Incorporated ("Debtor") and General Electric Capital
Corporation ("Secured Party").
The Debtor and Secured Party agree that Schedule No. 7019851-002, of
Master Lease Agreement dated September 2, 1997 is hereby amended to incorporate
the following language:
"The Lease Rate charged has been calculated, in part, using
an interest rate based on the 5 year U.S. Treasury Constant
Maturity of 4.09% ("Original Treasury Rate") as published in
THE WALL STREET JOURNAL on October 5, 1998. The rate will be
held to November 5, 1998 (Rate Expiration Date). If Debtor
does not accept the Equipment on or before the Rate
Expiration Date, the lease rate will be adjusted as follows:
If the rate of the 5 year U.S. Treasury Constant Maturity on
the Monday immediately preceding the Commencement Date of
Schedule No. 7019851-002, is the greater or lesser than the
Original Treasury Rate, Rental Payments under Schedule No.
7019851-002 will be increased or decreased, as appropriate,
by adjusting the lease rate by approximately 0.00012 for each
twenty-five (25) basis point change from the Original
Treasury Rate."
In Witness Whereof, Debtor and Secured Party have executed this Addendum as of
the date set forth below.
DEBTOR: SECURED PARTY:
Infinite Graphics Incorporated General Electric Capital Corporation
By: /S/ Clifford F. Stritch By: /S/ Signature not decipherable
Title: CEO Title: Sr. Credit Analyst
Date: October 16, 1998 Date: 12/2/98
<PAGE>
BUYER'S VERIFICATION REPORT AND CERTIFICATE OF ACCEPTANCE
Schedule 002 to Master Lease Agreement dated September 2, 1997
Customer/Lessee: Infinite Graphics Incorporated
Address: 4611 East Lake Street
Minneapolis, MN 55406
Equipment Location: 549 Route B
Hallsville, MO 65255
Equipment Description: DWL 400 System
The Customer/Lessee Certifies that:
(a) All the Equipment has been delivered to and inspected by Lessee on the Lease
Commencement Date specified below pursuant to the above Lease Agreement (the
"Lease");
(b) All the Equipment referenced above has been installed at the Lessee's
facility and has passed functional tests performed by a Gerber representative;
(c) Lessee irrevocably accepts the Equipment for lease under the Lease as of the
Lease Commencement Date; and
(d) No event which would allow the Lessor to declare a Default (Section 15 of
the Lease Agreement) has occurred, and all of the representations and warranties
made in the Lease are true as of the Lease Commencement Date.
Lessee:
Infinite Graphics Incorporated
By: X /S/ Clifford F. Stritch, Jr.
---------------------------------------
X Clifford F. Stritch, Jr.
---------------------------------------
(Signature Name)
X CEO
---------------------------------------
(Signature Name)
Date of Acceptance/
Lease Commencement Date: X 12-1-98
--------------------
EXHIBIT 10.28
LEASE AGREEMENT
THIS LEASE, dated as of the 21st day of November, of 1991, is between
Homburg Holdings (CO) Inc., owner, a Colorado corporation ("Landlord"), and
Microphase Laboratories, Inc., a New Mexico corporation ("Tenant"). Landlord
desires to lease to Tenant and Tenant desires to acquire a leasehold interest in
815 N. Wooten Road owned by Landlord and located in El Paso County, Colorado, as
described on Annex A attached (the "Property"), an existing building (the
"Building") located on the Property, other improvements located upon the
Property, and other fixtures and personal property used or useful in connection
with the foregoing. The building, Property, improvements, personal property and
fixtures are collectively referred to as the "Premises". Accordingly, and in
consideration of the covenants contained herein, the parties hereto agree as
follows:
Article 1. Lease of Premises
Landlord hereby leases to Tenant, and Tenant leases from Landlord, upon
the term and conditions hereinafter set forth, the Premises.
Article 2. Term
The rental term of this Lease shall commence on the 1st day of
November, 1991 (the "Commencement Date") and shall continue for a period of 5.25
years, expiring at 11:59 p.m. on the 31st day of January, 1997, unless sooner
terminated as provided herein.
Article 3. Rent, Utilities, Taxes and Security Deposit
3.1 Basic Rent. As annual base rent for the use of the Premises ("Base
Rent"), Tenant will pay Landlord, or Landlord's assigns, at the address set
forth in Article 22, and subject to the adjustment provisions of Section 3.3
below, Base Rent in the amount of $ See Annex B per year.
3.2 Additional Rent. Tenant shall also pay to Landlord (or other
parties as directed herein) as additional rent ("Additional Rent"), taxes,
utilities and other expenses as set forth in this Lease. Landlord shall have all
rights against Tenant for default in payment of Additional Rent as in the case
of arrears of Base Rent. Base Rent and Additional Rent are collectively referred
to herein as "Rent".
3.3. Base Rent Adjustment. Notwithstanding any provision of this Lease
to the contrary, the Base Rent provided in Section 3.1 shall be increased in the
following manner:
See Annex B
3.4 Manner of Payment. All Rent shall be paid to Landlord without
notice, deduction, abatement or setoff, in lawful money of the United States of
America, which shall be legal tender at the time of payment. Base Rent shall be
payable in advance in twelve equal monthly installments, due on the first day of
each month during the term of this Lease.
<PAGE>
Following any default in or later payment of any monetary obligation due
Landlord by Tenant, Landlord shall have the right to demand that future payment
by Tenant be made in the form of certified funds or cashier's check only.
3.5 Late Charge. If Rent due Landlord under this Lease is not received
ten (10) days after it is due, a late fee of five percent/month of the amount
due shall be due and payable by Tenant as Additional Rent. The parties agree
that calculation of the exact costs Landlord will incur if Tenant makes late
payments would be difficult to determine but would include, without limitation,
processing and accounting charges and late charges which may be imposed upon
Landlord by the terms of any mortgage or deed of trust constituting a lien upon
the Premises. The parties agree that the late fee provided herein is a fair and
reasonable estimate of the costs Landlord will incur.
3.6 Tax Payments. Tenant shall reimburse Landlord, if Landlord has paid
or shall directly pay, as Additional Rent, all Impositions (as hereinafter
defined), prior to the date upon which any installment of any Imposition shall
become delinquent, or within thirty (30) days of being billed by Landlord for
Impositions paid by Landlord. Landlord shall provide Tenant with copies of all
applicable tax bills received by Landlord.
3.7 Definition of Impositions. "Impositions" shall mean real estate
taxes and assessments, special district taxes and assessments, occupancy taxes,
landlord taxes or similar taxes, whether or not imposed on or measured by the
Rent payable by Tenant, and other governmental levies and charges, general and
special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind
and nature whatsoever, which are assessed, levied or imposed upon or in respect
of the Premises, any personal property (including trade fixtures) of any kind
in, upon or about the Premises or Tenant's operations at, occupancy of or
conduct of business at the Premises. If, by law, any Imposition is payable, or
may at the option of the taxpayer be paid, in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Tenant may, at
Tenant's option, pay such Imposition in installments and, in such event, any
accrued interest on the unpaid balance of such Imposition shall be deemed to be
an Imposition as defined herein. Any Imposition relating to a fiscal period of
the taxing authority in which the term of this Lease shall commence or end
(whether or not such Imposition shall be assessed, levied, confirmed, imposed or
become a lien upon the Premises, or any part thereof, or become payable in
respect thereto during the term of this Lease) shall be apportioned so that
Tenant shall pay only that proportion of such Imposition which corresponds with
the portion of such fiscal period as is within the term hereof. If any
Imposition billed to Landlord includes amounts for 817 N. Wooten Road, the
Imposition shall be apportioned sixty-two (62) percent to 815 N. Wooten Road and
thirty-eight (38) percent to 817 N. Wooten Road. Any Imposition billed directly
to Tenant shall not be apportioned, and any Imposition for personal property at
the premises shall be paid one-hundred (100) percent by Tenant.
3.8 Right to Contest. Tenant shall have the right to contest the amount
of validity, in whole or in part, of any Imposition by appropriate legal
proceedings diligently pursued if and for so long as the collection of the
Imposition so contested and the sale or any portion of the Premises to satisfy
the same shall be prevented or stayed by reason of such proceedings or
-2-
<PAGE>
pursuant to any statute or rule of law. Tenant shall indemnity and hold harmless
from and against any costs, fees or other liabilities accruing in or as a result
of any such proceedings, and Landlord shall indemnify and hold Tenant harmless
from any such liabilities incurred by Tenant as a result of Landlord's
contesting of Impositions.
3.9 Utilities. Tenant shall directly pay any and all costs, charges and
expense for utilities and services to or for the Premises, including, without
limitation, water, sewer, gas, electricity, lighting, heating, air conditioning,
power, telephone or other communication service and rubbish removal, and will
indemnify and hold Landlord harmless from and against any loss, cost or damage
with respect thereto. Tenant will be responsible for any tap or connection fees
charges for telephone service.
3.10 Security Deposit. Landlord acknowledges receipt of $8,000.00
security deposit from Tenant. The security deposit shall be held by Landlord and
may be used by Landlord, at it's sole discretion, as liquidation or damages
caused by Tenant's default under this Lease. Provided that no damages are
incurred, Landlord shall return the security deposit of $8,000.00 to Tenant
within sixty (60) days of termination on this Lease.
3.11 Net Lease. It is acknowledged by Tenant that the effect of this
Lease with respect to Landlord is intended to be absolute net, meaning that it
is intended that Tenant shall be responsible for paying all costs and expenses
of any kind with respect to the interior of Premises. To the extent that the
enumeration of Tenant's rental obligations contained in this Article 3 fails to
describe any costs or expenses directly related to the Premises, Tenant shall
nonetheless be obligated to pay such costs and expenses as Additional Rent
pursuant to the terms of this Lease.
Article 4. Use
4.1 Permitted Uses. Tenant shall use the premises for CAD, offices, and
manufacturing for mask and related services of Tenant, as permitted under
applicable zoning and other applicable rules and regulations.
4.2 Compliance with Laws. Tenant, at its own expense, will comply with
all federal, state, municipal and other laws, ordinances, rules and regulations
applicable to the Premises and the business conducted therein by Tenant.
Article 5. Repair and Maintenance
In addition to its other responsibilities under this Lease, Tenant
shall, throughout the term hereof and without costs to Landlord, take good care
of the Premises and shall keep and maintain the same in good order and condition
and shall make all necessary repairs to the interior of the Premises either for
damage caused by Tenant or as part of normal maintenance so as to preserve and
protect the premises.
Article 6. Additions and Fixtures
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6.1 Alterations. Tenant will make no alteration, change, improvement,
repair, replacement or addition to the Premises which costs more than $10,000
without the prior written consent of Landlord, which consent may not be
unreasonably withheld. If such prior written consent of Landlord is granted, the
work in such connection shall be at Tenant's expense.
6.2 Fixtures. Tenant and Landlord acknowledge that some personal
property currently installed in the premises has been installed by a party other
than Tenant or Landlord, and that Tenant may desire to install additional
personal property during the term of this lease. Personal property currently
installed in the Premises is listed on Annex C, attached hereto, and no personal
property currently fixed to the premises other than that listed on Annex C may
be removed by Tenant at the termination of this lease. Tenant agrees to remove
all personal property and, after removal of personal property, that the Premises
will be left in a broom clean and cosmetically finished condition, normal wear
and tear excluded.
Landlord's predecessor in interest has previously made some claim to
ownership or right to ownership of some of the personal property such as the
clean room. Tenant is buying this personal property from a creditor of the prior
tenant and the Landlord and Tenant agree this Landlord makes no claim of
ownership or right to ownership by virtue of any "fixture" laws regarding any of
the personal property set forth in Annex C or any additions or accessions to the
personal property by Tenant.
At the conclusion of this lease, Tenant agrees to remove the personal
property and to leave the areas of the premises from which the property is
removed in a clean, secure manner. For instance, all pipes shall be capped or
removed, all electrical service shall be safely terminated, etc.
If Tenant requests to not remove some personal property, written
permission must be first received from Landlord. Tenant agrees to not claim
title to any property not removed from the Premises (after written permission
from Landlord has been received) and all such property shall become the
possession of Landlord.
6.3 Lien of Tenants Furnishings. There shall be no lien except as is
created by a Court of competent Jurisdiction after notice upon hearing had.
Article 7. Mechanics' Liens
Tenant shall keep the Premises free from any liens arising out of any
work performed, materials furnished or obligations incurred by or on behalf of
Tenant. Tenant shall indemnify, hold harmless and defend Landlord from any liens
and encumbrances arising out of any work performed or materials furnished by or
at the direction of Tenant. Such indemnity shall include, without limitation,
all attorneys' fees and costs incurred by Landlord due to the filing of such
mechanic's lien or notice thereof. In the event that Tenant, within thirty (30)
days following the imposition of any such lien, shall not cause such lien to be
released of record by Payment or posting of a proper bond, in addition to all
other remedies provided herein and by law, Landlord shall have the right (but
not the obligation) to cause the same to be released by such means as it shall
deem proper, including bonding or payment of the claim giving rise to such lien.
All such
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sums paid by Landlord and all expenses incurred by it in connection therewith,
including attorneys fees and costs, shall be payable to Landlord by Tenant on
demand. Landlord shall have the right at all times to post and keep posted on
the Premises any notice permitted or required by law which Landlord shall deem
proper for the protection of Landlord and the Premises or any other party having
an interest therein from mechanics' and materialmen's liens. Under normal
circumstances Tenant shall give written notice to Landlord at least ten (10)
business days prior to the commencement of any work relating to alterations or
additions to the Premises and Landlord may post the Premises giving all such
persons notice of Landlord's nonliability for work performed or materials
supplied.
Article 8. Access by Landlord
Because of the nature of Tenant's business and the critical need to
maintain security, cleanliness and climate controls in certain areas, Landlord
and Landlord's agents and employees, except for emergency circumstances, shall
not enter the premises without prior notice to and escort by Tenant. Tenant
shall fully cooperate with Landlord to allow Landlord to perform needed
inspections or repairs, or evaluation by prospective tenants, lenders or
purchasers.
Article 9. Damage or Destruction
Article 9 is modified by the addition of the following:
The parties recognize that damage to certain critical areas such as the
clean room, Nikon II area, and KLA and Inspection areas would totally disrupt
Tenant's use of the Premises. Damage to these areas, not the fault of Tenant,
allows Tenant at its option to terminate this Lease. Whether there shall be the
alternative of partial abatement or temporary full abatement may be negotiated
by the parties, but absent agreement, Tenant may, within 30 days of the damage,
make its decision to terminate this Lease effective as of the date of damage.
The following provisions are subject to the preceding modifications.
9.1 Partial Destruction. If the Premises shall be partially damaged by
fire or other cause without the fault or neglect of Tenant, the damages shall be
repaired by and at the expense of Landlord and the Rent until such repairs are
made shall be apportioned according to the part of the Premises which is usable
by Tenant, If such partial damage is due to the fault or neglect of Tenant,
there shall be no apportionment or abatement of Rent, and the debris, if any,
shall be removed by, and at the expense of, Tenant. No penalty shall accrue for
reasonable delay which may arise by reason of adjustment of casualty insurance
on the part of Landlord or Tenant, for reasonable delay on account of shortages
of labor or materials, acts of God, or any other cause beyond Landlord's
control. Landlord shall not be obligated to restore fixtures, improvements or
other property of Tenant. Landlord's obligations to conduct the repairs
described above shall be conditioned upon the funds needed for accomplishing
such repairs being available by reason of payments from the casualty insurance
required to be carried by Tenant pursuant to Article 12 hereof. If any such
funds are not available by reason of Tenant's failure to strictly comply with
the term of Article 12, Tenant shall be liable for the full amount of insurance
benefit payments that would otherwise have been available to remedy such damage.
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9.2 Total Destruction. If the Premises are totally damaged or are
rendered wholly untenantable by fire or other cause, and Landlord shall decide
not to restore or rebuild the Premises, or if the Building shall be so damaged
that Landlord shall decide to demolish it or not to rebuild it, then in any of
such events Landlord may, within thirty days after such fire or other cause,
give Tenant notice of such decision, and thereupon the term of this Lease shall
expire by lapse of time upon the third day after such notice is given, and
Tenant shall vacate the Premises and surrender the same to Landlord. If this
Lease is so terminated, Landlord shall refund to Tenant any prepaid Rent
(unaccrued as of the date of damage or destruction), less any sums then owing to
Landlord by Tenant. Rent shall terminate as of the date of damage. If, however,
Landlord shall elect to restore the Building or the Premises, and shall so
notify Tenant in writing within thirty (30) days of the damage, then Tenant
shall have an additional thirty (30) days to decide whether to continue this
Lease or terminate this Lease as of the date of the damage, otherwise, this
Lease shall continue in full force and effect and such repairs and restoration
shall be made within a reasonable time after the damage shall have occurred,
subject to delays arising from shortages of labor or materials, delays in
insurance adjustment, acts of God, or any other cause beyond Landlord's control.
If such damage is without the fault or neglect of Tenant, and Landlord elects to
restore the Premises, then Rent shall be apportioned according to the portion of
the leased Premises which is usable by Tenant until such restoration is made.
Article 10. Condemnation
If all or any part of the critical portion or interest in the Premises
shall be taken as a result of the exercise of the power of eminent domain or
purchase in lieu thereof, Tenant may terminate at its option this Lease as of
the date of taking. If only a part of a noncritical area or interest in the
Premises or if a substantial portion of the Building is so taken, Tenant shall
have the right to terminate this Lease as to the balance of the Premises by
written notice to the other within thirty days after the date of taking;
provided, however, that a condition to the exercise by Tenant of such right to
terminate shall be that the portion of the Premises or Building taken shall be
of such extent and nature as to substantially handicap, impede, or impair
Tenant's use of the Premises, or the balance of the Premises remaining, for the
purposes for which they were leased. In the event of any taking, Landlord and
Tenant shall be entitled to compensation, damages, income, rent, and awards with
respect thereto except for an award, if any, specified by the condemning
authority for the fixtures and other property, that Tenant has the right to
remove upon termination of this Lease. Tenant shall have no claim against
Landlord for the value of any unexpired term. In the event of a partial taking
of the Premises which does not result in a termination of this Lease, the Rent
thereafter to be paid shall be equitably reduced.
Article 11. Liability and Indemnity
The other 11.1. General Indemnity. Each party agrees to indemnify and
hold the other harmless from all liabilities and claims (including costs,
expenses and attorneys' fees incurred in defending against such claims) arising
or alleged to arise from any act or omission of a party arising from any injury
or damage to any person or the property of any person occurring during the term
of this Lease in or about the Premises. Tenant agrees to use and occupy the
Premises and other facilities of the Building at its own risk and each party
hereby releases the other, its
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agents and employees, from all claims for any damage or injury to the full
extent permitted by law for damages not caused by negligence or breach of any
term of this Lease.
11.2 AND 11.3 WERE INTENTIONALLY OMITTED.
11.4 Security. Unless Landlord is responsible for actively breaching
Tenant's security measures, Landlord shall not be liable to Tenant or any other
person for any claim on account of any breach of security of the Premises, it
being understood and agreed that the security of the Premises is solely the
responsibility of the Tenant. In the event of damage to or destruction of the
Premises or repairs thereto made by Landlord pursuant to the provisions of this
Lease, Tenant shall make such arrangements as it shall deem necessary and
prudent to protect the security of the Premises and the contents thereof during
the period of repair, and Landlord shall have no responsibility whatsoever for
such arrangements.
11.5 Leasing of Adjacent Building. Landlord acknowledges that Tenant's
business can be critically impaired by vibration. Therefore, Landlord will not
lease to or permit the use of the adjoining building by a tenant whose activity
would generate strong earth vibrations which disrupt the operation of Tenant's
equipment.
Article 12. Insurance
12.1 Type of Insurance. During the term of this Lease, Tenant, at its
sole cost and expense, for the mutual benefit of Landlord and Tenant, shall
carry and maintain the following types of insurance, naming Landlord as an
additional insured:
(a) Casualty insurance covering the Premises against loss or
damage by fire, lightning, windstorm, explosion, riot, riot attending a
strike, civil commotion, damage from aircraft and vehicles, smoke
damage, and such other hazards as are embraced by standard extended
coverage endorsement, in an amount not less than the full replacement
value thereof. The proceeds of any such insurance otherwise payable to
Landlord or Tenant shall, at the direction of Landlord, be deposited
with a bank or trust company in an insurance proceeds trust, or be
subjected to such other form of control as Landlord may direct to
assure their use for the repair or rebuilding of the Premises as
permitted under Article 9 hereof.
(b) Comprehensive public liability insurance, including
property damage, insuring against liability for injury to persons or
damage to property occurring in or about the Premises or arising out of
the ownership, maintenance, use or occupancy thereof. Said insurance
shall be obtained in such amounts as reasonably approved by Landlord
for a combined single limit not less than $1 million per occurrence for
bodily injury and property damage.
(c) Worker's compensation insurance insuring Tenant from all
claims for personal injury and death in such amounts as may, from time
to time, be sufficient to pay the maximum accumulated award allowed by
applicable law.
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12.2 Proof of Insurance. Tenant shall furnish Landlord copies of said
insurance policies or certificates of insurance within ten days after the
execution hereof. Such policies shall provide that coverage may not be canceled
or reduced without at least fourteen days' written notice first being given to
Landlord. Tenant shall have the privilege of procuring and obtaining all such
insurance through its own sources; provided, that the Insurance carrier is
acceptable to Landlord, and further provided that if Tenant fails to procure and
maintain said insurance, Landlord may purchase the same at Tenant's cost, and
the cost thereof shall be Additional Rent which shall be due and payable to
Landlord on the data of the next monthly rental installment. Landlord may,
however, elect not to purchase such insurance for Tenant's benefit and, in lieu
thereof, declare Tenant's default hereunder.
Article 13. Assignment and Subletting
Tenant may assign this Lease to a successor subject to the prior
written approval of the Landlord, which shall not be unreasonably withheld.
Tenant may sublease only during the term of this Lease and only for rates and
charges the same as the rates and charges paid by Tenant. Tenant shall be solely
responsible for any sub-tenant.
Article 14. Right of Assignment by Landlord
The term "Landlord" shall mean only the owner, for the time being, of
the Building, and automatically upon the sale, assignment, transfer, or other
conveyance by such owner of its interest in the Building, such owner shall
thereupon be released and discharged from all covenants and obligations of the
Landlord, which discharge includes not only obligations that will accrue after
the date of discharge, but also obligations or liabilities that have accrued
before the date of discharge.
Article 15. Subordination
15.1 Subordination. This Lease and Tenant's rights hereunder are
subject and subordinate to any ground or underlying lease, easement, mortgage,
indenture, deed of trust or other encumbrance, together with any conditions,
renewals, extensions, modifications, consolidations and replacements thereof,
now or hereafter affecting or placed, charged or enforced against any such
ground or underlying lease or all or any portion of the Premises or any interest
of Landlord therein or Landlord's interest in this Lease and the leasehold
estate thereby created (except to the extent any such instrument shall expressly
provide that this Lease is superior thereto). This clause shall be
self-operative and no further instrument of subordination shall be required in
order to effectuate it. Nevertheless, Tenant shall execute, acknowledge and
deliver to Landlord, any time and from time to time, upon demand by Landlord,
such documents as may be requested by Landlord, any ground or underlying lessor
or any mortgagee, to confirm or effectuate any subordination hereunder. If
Tenant shall fail or refuse to execute, acknowledge and deliver any such
document within ten days after written demand therefor, Landlord, its successors
and assigns, shall be entitled to execute, acknowledge and deliver any and all
such documents for and on behalf of Tenant as attorney-in-fact for Tenant.
Tenant hereby constitutes and irrevocably appoints Landlord, its successors and
assigns as Tenant's attorney-in-fact to
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execute, acknowledge and deliver any and all documents described in this Section
15.1 for and on behalf of Tenant, as provided in this Section 15.1.
15.2 Attornment. Tenant agrees that in the event that any holder of any
mortgage, indenture, deed of trust or other encumbrance encumbering any part of
the Building becomes mortgagee in possession of the Premises, Tenant will pay to
such mortgagee all Rents subsequently payable hereunder. Further, Tenant agrees
that in the event of the enforcement by the trustee or the beneficiary under or
holder or owner of any such mortgage, deed of trust, land or ground lease of the
remedies provided for by law or by such mortgage, deed of trust, land or ground
lease, Tenant will, upon request of any person or party succeeding to the
interest of Landlord as a result of such enforcement, automatically become the
tenant of and attorn to such successor-in-interest without change in the terms
or provisions of this Lease. Upon request by such successor-in-interest and
without cost to Landlord or such successor-in-interest, Tenant shall execute,
acknowledge and deliver an instrument or instruments confirming the attornment
herein provided for.
Article 16. Quiet Enjoyment
Provided Tenant pays the Rent payable hereunder as and when due and
payable, keeps and fulfills all of the terms, covenants, agreements, and
conditions to be performed by Tenant hereunder, and is not in default under this
Lease, Tenant shall at all times during the Lease term peaceably and quietly
enjoy the leased Premises without any disturbance from Landlord or from any
other person claiming by, through, or under Landlord, subject to the terms,
provisions, covenants, agreements and conditions of this Lease and to the deeds
of trust, mortgages, ground leases, easements and encumbrances to which this
Lease is subject and subordinate.
Article 17. Default and Remedies
17.1 Events of Default. The occurrence or existence of any one or more
of the following events or circumstances shall constitute a default under this
Lease by Tenant:
(a) Tenant shall fail to pay within five days after receipt of
notice from Landlord stating that such amount is overdue, any
installment of Rent payable by Tenant under the terms of this Lease.
(b) Tenant shall make or attempt to make an assignment, sublet
or other transfer of the Lease mentioned in Article 13 without the
express prior written consent of Landlord.
(c) Tenant shall neglect or fail to perform or observe any of
the covenants herein contained on Tenant's part to be performed or
observed (other than those referred to in Sections 17.1(a) and 17.1(b)
above) and Tenant shall fail to remedy such default within ten days
after Landlord shall have given to Tenant written notice specifying
such neglect or failure (or within such period, if any, as may be
reasonably required to cure such default if it is of such nature that
it cannot be cured within such ten-day period, provided that Tenant
commences to
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remedy such default within such ten-day period and proceeds with
reasonable diligence thereafter to cure such default).
(d) This Lease or the Premises or any part thereof shall be
taken upon execution or by other process of law directed against
Tenant, or shall be taken upon or subject to any attachment at the
instance of any creditor of or claimant against Tenant, and such
attachment shall not be discharged or disposed of within fifteen days
after the levy thereof.
(e) Tenant shall vacate or abandon the Premises (which shall
be defined to include, but not be limited to, any absence by Tenant
from the Premises for five or more days) or lock them so as to prevent
the entry therein of Landlord or its representatives as permitted by
the terms of this Lease.
(f) Tenant or any guarantor of Tenant's obligations hereunder
shall (i) admit in writing its inability to pay its debts generally as
they become due; (ii) make an assignment of all or a substantial part
of its property for the benefit of creditors; (iii) apply for or
consent to or acquiesce in the appointment of a receiver, trustee or
liquidator of Tenant or such guarantor for all or a substantial part of
Tenant's or such guarantor's property or of the Premises or of Tenant's
interest in this Lease; or (iv) file a voluntary petition in bankruptcy
or a petition or an answer seeking reorganization under any bankruptcy
or insolvency law or an arrangement with creditors, or take advantage
of any insolvency law or file an answer admitting the material
allegations of a petition filed against Tenant or such guarantor in any
bankruptcy, reorganization or insolvency proceedings.
(g) The entry of a court order, judgment or decree without the
application, approval or consent of Tenant or any guarantor of Tenant's
obligations hereunder, as the case may be, approving a petition seeking
reorganization of Tenant or such guarantor under any bankruptcy or
insolvency law or appointing a receiver, trustee or liquidator of
Tenant or such guarantor or of all or a substantial part of Tenant's or
such guarantor's property or of the Premises or of Tenant's interest in
this Lease, or adjudicating Tenant or such guarantor a bankrupt or
insolvent, and such order, judgment or decree shall not be vacated, set
aside or stayed within thirty days from the date of entry.
17.2 Remedies. If Tenant shall default under this Lease as set forth in
Section 17.1, Landlord shall have the following rights and remedies, in addition
to all other remedies at law or equity, and none of the following, whether or
not exercised by Landlord, shall preclude the exercise of any other right or
remedy whether herein set forth or existing at law or equity, and all such
remedies shall be cumulative:
(a) Landlord shall have the right to terminate this Lease by
giving Tenant notice in writing at any time. No act by or on behalf of
Landlord, such as entry of the Premises by Landlord to perform
maintenance and repairs and efforts to relet the Premises, other than
giving Tenant written notice of termination, shall
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terminate this Lease. If Landlord gives such notice, this Lease and the
term hereof as well as the right, title and interest of Tenant under
this Lease shall wholly cease and expire in the same manner and with
the same force and effect (except as to Tenant's liability) on the date
specified in such notice as if such date were the expiration date of
the term of this Lease without the necessity of re-entry or any other
act on Landlord's part. Upon any termination of this Lease, Tenant
shall quit and surrender to Landlord the Premises as set forth in
Article 20. If this Lease is terminated, Tenant shall be and remain
liable to Landlord for damages as hereinafter provided and Landlord
shall be entitled to recover forthwith from Tenant as damages an amount
equal to the total of:
(i) the cost, including reasonable attorneys' fees,
of recovering the Premises;
(ii) all Rent accrued and unpaid at the time of
termination of the Lease, plus interest thereon at the rate
provided in Section 17.2(f); and
(iii) any other money and damages owed by Tenant to
Landlord.
In addition, Landlord shall also be entitled to recover from
Tenant as damages the amounts determined, at Landlord's election, under
(iv) or (v) below:
(iv) the amount of Rent that would have been payable
hereunder if the Lease had not been terminated, less the net
proceeds, if any, received by Landlord from any reletting of
the Premises, after deducting all costs incurred by Landlord
in finding a new tenant and reletting the space, including
costs of remodeling and refinishing space for a new tenant,
reasonable tenant inducements, reasonable brokerage
commissions or agents' commissions in connection therewith,
redecorating costs, attorneys' fees and ether costs and
expenses incident to the reletting of the Premises
(collectively referred to herein as "Reletting Costs");
provided, however, that Landlord shall have no obligation to
relet or attempt to relet the Premises. Tenant shall pay such
damages to Landlord on the days on which the Rent would have
been payable if the Lease had not terminated; or
(v) the present value (discounted at the rate of
eight percent per annum) of the balance of the Rent for the
remainder of the stated term of this Lease after the
termination date plus anticipated Reletting Costs, less the
present value (discounted at the same rate) of the fair market
rental value of the Premise for such period.
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No provision of this Lease shall limit or prejudice the right
of Landlord to prove and obtain as damages by reason of any termination
of this Lease, an amount equal to the maximum allowed by any statute or
rule of law in effect at the time when, and governing the proceedings
in which, such damages are to be proved, whether or not such amount be
greater, equal to, or less than the amounts referred to above.
(b) INTENTIONALLY OMITTED
(c) If Tenant shall default in making any payment required to
be made by Tenant (other than payments of Rent) or shall default in
performing any other obligations of Tenant under this Lease, Landlord
may, but shall not be obligated to, make such payment or, on behalf of
Tenant, expend such sum as may be necessary to perform such obligation.
All sums so expended by Landlord with interest thereon at the rate of
ten percent (10%) APR shall be repaid by Tenant to Landlord on demand.
No such payment or expenditure by Landlord shall be deemed a waiver of
Tenant's default nor shall it affect any other remedy of Landlord by
reason of such default.
(d) If Tenant shall default in making payment of any Rent due
under this Lease, Landlord may charge and Tenant shall pay, upon
demand, the late charges set forth in Section 3.3. Late payment
penalties are in addition to and shall not diminish or represent a
substitute for any or all of Landlord's rights or remedies under any
other provisions of this Lease.
(e) In any action of unlawful detainer commenced by Landlord
against Tenant by reason of any default hereunder, the reasonable
rental value of the Premises for the period of the unlawful detainer
shall be deemed to be the amount of Rent reserved in this Lease for
such period.
(f) Whenever Tenant shall be required to make payment to
Landlord of any sum with interest, interest on such sum shall be
computed from the date such sum is due until paid, at an interest rate
equal to ten percent per annum or, if such amount violates any then
applicable law with respect to interest rates, at the highest interest
rate otherwise allowable under then applicable law.
(g) As used in this Lease, the terms "re-enter," "re-entry,"
"take possession," "repossess" and "repossession" are not restricted to
their technical legal meaning.
Article 18. Nonwaiver
Waiver by Landlord of any right for any default of Tenant shall not
constitute a waiver of any right for either a subsequent default of the same
obligation or any other default. Receipt by Landlord of Tenant's keys to the
Premises shall not constitute an acceptance of surrender of the Premises.
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Article 19. Tenant's Remedies
If any act or omission by Landlord shall occur which would give Tenant
the right to damages from Landlord or the right to terminate this Lease by
reason of a constructive or actual eviction from all or part of the Premises or
otherwise, Tenant shall not sue for such damages or exercise any such right to
terminate until (i) it shall have given written notice of such act or omission
to Landlord and to holder(s) of the indebtedness or other obligations secured by
any mortgage or deed of trust affecting the Premises or the Building, if the
name and address of such holder(s) shall previously have been furnished to
Tenant, and (ii) a reasonable period of time for remedying such act or omission
shall have elapsed following the giving of such notice, during which time
Landlord and such holder(s), or either of them, their agents or employees, shall
be entitled to enter upon the Premises and do therein whatever may be necessary
to remedy such act or omission.
Article 20. End of Term
20.1 Condition of Return. Upon the expiration or other termination of
this Lease, Tenant shall vacate and surrender to Landlord the Premises, broom
clean, in good order and repair, ordinary wear and tear excepted. Tenant shall
remove all property of Tenant, as directed by Landlord. Any property left on the
Premises at the expiration or other termination of this Lease, or after the
occurrence of any default as set forth in Section 17.1, may, at the option of
Landlord, either be deemed abandoned or be placed in storage at a public
warehouse in the name of and for the account of and at the expense and risk of
Tenant. If such property is not claimed by Tenant within ten days after such
expiration, termination or the happening of an event of default, it may be sold
or otherwise disposed of by Landlord. Tenant expressly releases Landlord from
any and all claims and liability for damage to or loss of property left by
Tenant upon the Premises at the expiration or other termination of this Lease
and Tenant hereby indemnifies Landlord against any and all claims and liability
with respect thereto.
20.2 Hold-over. If Tenant holds over after the term of this Lease
including any option extension with the consent of Landlord, express or implied,
such tenancy shall be from month to month only and shall not be a renewal
hereof, and Tenant shall pay the Rent and all other charges at the rate most
recently charged under the Lease and also comply with all of the terms,
covenants, conditions, provisions and agreements of this Lease for the time
during which Tenant holds over. If Tenant holds over after the said term without
the consent of Landlord and shall fail to vacate the Premises after Tenant's
right to occupy the Premises ceases, thereafter, and notwithstanding anything to
the contrary contained elsewhere in this Lease, Tenant shall be liable to
Landlord for Rent and all other charges at twice the rate most recently charged
under the Lease. If the Premises are not surrendered at the end of the term,
Tenant shall be responsible to Landlord for all damage which Landlord shall
suffer by reason thereof, and Tenant hereby indemnifies Landlord against all
claims made by any succeeding tenant against Landlord, resulting from delay by
Landlord in delivering possession of the Premises to such succeeding tenant. If
the last day of the term of this Lease or any renewal hereof falls on Sunday or
a legal holiday, this Lease shall expire on the immediately preceding business
day. Tenant's obligation
-13-
<PAGE>
to observe or perform all of the terms, covenants, conditions, provisions and
agreements of this Article shall survive the expiration or other termination of
this Lease.
Article 21. Estoppel Certificate
Tenant will, at any time and from time to time, within ten days after
request by Landlord, execute, acknowledge, and deliver to Landlord a statement
in writing certifying that this Lease is unmodified and in full effect (or, if
there have been modifications, that this Lease is in full effect as modified,
and setting forth such modifications) and the dates to which the Rent has been
paid, and either stating that to the knowledge of the signer of the certificate
no default exists hereunder or specifying each such default of which the signer
may have knowledge. Such statement is understood to be intended to be relied
upon by any prospective purchaser or mortgagee of the Building, the Premises or
any portion thereof. Landlord shall prepare all estoppel certificates.
Article 22. Notice
Any notice which may or shall be given under the terms of this Lease
shall be in writing and shall be either delivered in person or sent by United
States registered or certified mail, return receipt requested, postage prepaid,
and addressed as follows:
To the Landlord at: 559 E. Pikes Peak Avenue, Suite 320
Colorado Springs, CO 80903
To the Tenant at: Premises
2820 D Broadbent Parkway NE
Albuquerque, NM 87107
A party may change such address from time to time by giving notice as provided
above. Notice shall be deemed given when delivered (if delivered by hand) or
three days after deposited in the United States mail, postage prepaid, as
provided above (if sent by mail). If the Premises is unoccupied, or if the
occupants of the Premises will not accept the hand delivery of any items, such
items will be deemed to be delivered to the Premises at the time that they are
taped to or otherwise attached to an exterior door of the Premises.
Article 23. Miscellaneous
23.1. Entire Agreement. This instrument and any attached addenda or
exhibits constitute the entire agreement between Landlord and Tenant; no prior
written nor prior or contemporaneous oral promises or representations shall be
binding. This Lease shall not be amended, changed or extended (except as
provided in Article 20) except by written instrument signed by both parties
hereto. Words of any gender shall include each other gender where appropriate.
The provisions of this instrument shall be binding upon and inure to the benefit
of the heirs, executors, administrators, successors, and assigns of the parties,
but this provision shall in no way alter the restrictions herein in connection
with assignment and subletting by Tenant.
-14-
<PAGE>
23.2. INTENTIONALLY OMITTED
23.3 Unenforceability. If any clause or provision of this Lease is
illegal, invalid or unenforceable under present or future laws effective during
the term of this Lease, then in such event it is the intention of the parties
hereto that the remainder of this Lease shall not be affected thereby, and it is
also the intention of the parties to this Lease that in lieu of each clause or
provision of this Lease that is illegal, invalid or unenforceable, there be
added as a part of this Lease a clause or provision similar in terms and effect
to such illegal, invalid or unenforceable clause or provision as may be possible
and would be legal, valid or enforceable. Each and every covenant and agreement
contained in this Lease is, and shall be construed to be, a separate and
independent covenant and agreement.
23.4 Construction. The language in all parts of this Lease shall be
construed according to its normal and usual meaning and not strictly for or
against either Landlord or Tenant.
23.5 Time. Time is of the essence with respect to the performance of
each and every provision of this Lease.
23.6 Recording. This Lease shall not be recorded without the prior
written consent of Landlord. Any such unauthorized recording shall give Landlord
the right to declare a default under this Lease and pursue the remedies provided
herein. A memorandum of this Lease shall be recorded.
23.7 Name Changes. If the name of Tenant or any successor or assign
shall be changed during the term of this Lease, such party shall promptly notify
Landlord thereof, which notice shall be accompanied by a certified copy of the
document effecting such change of name.
23.8 Applicable Law, Venue and Jurisdiction. This Lease shall be
governed by and construed in accordance with the laws of the State of Colorado.
Tenant hereby consents to the exclusive venue and jurisdiction of the courts of
the State of Colorado, or courts of the United States of America located in
Colorado, with respect to any proceedings related to this Lease.
23.9 Headings. Article and sections headings are for convenience only
and shall in no way define or limit the scope or context hereof.
23.10 Attorneys' Fees. In the event either party defaults in the
performance of any of the terms of this Lease and the other party employs an
attorney in connection therewith, the defaulting party agrees to pay the other
party's reasonable attorneys' fees.
23.11 Tenants' Representatives. At any place in this lease where
restrictions are placed on the actions of any party, such restrictions also
apply, with equal force and effect, to all of that party's employees, agents,
contractors, customers, licensees, invitees and other similar parties who have
access to the Premises.
Executed on this 21st day of November, 1991.
-15-
<PAGE>
LANDLORD:
Homburg Holdings (CO) Inc.
--------------------------------------------
By Homburg Realty (US) Inc., agent for owner
-----------------------------------------
/S/ Robert W. Harris
--------------------------------------------
Robert W. Harris, Manager of Operations
TENANT:
Attest: MICROPHASE LABORATORIES, INC.
By /S/ Signature not decipherable By /S/ Martin Boothman
------------------------------ -----------------------------------------
Martin Boothman
Title Attorney for Tenant Title: President
---------------------------
-16-
<PAGE>
Annex A
[Diagram of Premises]
-17-
<PAGE>
Annex B
November 01, 1991 - December 31, 1991 $5,000.00
January 1992 No Rent
February 01, 1992 - July 31, 1992 $4,545.00
August 01, 1992 - January 31, 1993 $5,045.00
February 01, 1993 - July 31, 1993 $6,500.00
August 01, 1993 - July 31, 1994 $7,000.00
August 01, 1994 - July 31, 1995 $7,500.00
August 01, 1995 - July 31, 1997 $8,000.00
Tenant pays:
------------
62% of property tax (approximately $10,000/year)
Insurance (approximately $1,800/year)
-18-
<PAGE>
Annex C
Equipment list dated 3/31/91
described as fixed assets of Rexotech, Inc.
-19-
<PAGE>
Annex D
1. Improvements. Landlord agrees to remodel front offices on the first
floor by removing all paneling, retexturing and repainting all walls,
doors, and trim, and to recarpet space with Landlord's building
standard carpet. Color scheme and quality shall be similar to that of
the Homburg Executive Suites. Landlord agrees to pay $ 5,000.00 toward
the cost of said Improvements. Tenant agrees to reimburse Landlord for
any excess amount expended by Landlord within 30 days of being billed
for same.
Landlord will replace the existing roof on the building, which work
will commence within 30 days of execution of this lease weather
permitting. Landlord agrees to keep inconvenience to Tenant's business
at a minimum during roof replacement.
2. Tenant is granted an option to renew this lease for one additional 5
year term at $8,000.00 per month basic rent.
3. Tenant is granted an option to purchase the building at 815 Wooten Road
at a price to be determined by the parties, subject only to the
approval of the Mortgagee, Canada Life Assurance Company.
The purchase price shall be determined by appraisal primarily based on
the income stream from rentals. If the parties do not agree on the
purchase price as determined by this appraiser, each shall select an
appraiser who will then select a third appraiser. The costs of the
appraisers shall be borne equally. The majority valuation of the
appraisers shall apply as the option price.
4. Early Termination. Tenant is acquiring the personal property and
equipment at 814 N. Wooten Road from David Maytag (or entities under
his control). Title to this property is not yet perfected in Maytag. If
at any time during the next six months Maytag is not able to convey
this property with clear title to Tenant, Tenant may exercise the
option to terminate this Lease.
-20-
<PAGE>
ADDENDUM TO LEASE
This Addendum is entered into by and between Homburg Holdings (CO)
Inc., a Colorado corporation (" Lessor") and Photronics Colorado, Inc., a
Colorado corporation ("Lessee") for the premises commonly known as 815 North
Wooten, Colorado Springs, Colorado. The original lease, dated November 21, 1991,
has been previously assigned to Lessee by Microphase Laboratories, Inc., the
original Lessee. Lessor consented to this assignment on June 16, 1995.
Subject to the terms and conditions of the Lease, Lessee has exercised
its rights to extend the term of the lease for five (5) years commencing
February 1, 1997 and expiring on January 31, 2002, at $8,000 per month basic
rent.
Lessor and Lessee, by this Addendum, now agree to grant to Lessee an
additional renewal option as follows:
(a) Option Period. So long as Lessee is not in default under this
lease, either at the time of exercise or at the time the extended term
commences, Lessee will have the option to extend the term of this lease for an
additional period of five (5) years (the "option period") on the same terms and
conditions of this lease, except that the monthly base rent will be determined
pursuant to paragraph (b), and Lessee's right to an earlier cancellation will be
as set forth in paragraph (c). Lessee will exercise its option by delivering to
Lessor written notice ("option notice") at least one hundred eighty days (180)
days but not more than three hundred and sixty (360) days prior to the present
expiration of the term of this lease. This lease now expires on January 31,
2002.
(b) Option Period Base Monthly Rental. The base monthly rent for the
option period will be as follows:
MONTHLY RENT/
PAYMENT SQ. FT.
------- -------
February 1, 2002 - January 31, 2003 $12,375 $5.50
February 1, 2003 - January 31, 2004 $13,500 $6.00
February 1, 2004 - January 31, 2005 $14,625 $6.50
February 1, 2005 - January 31, 2006 $15,750 $7.00
February 1, 2006 - January 31, 2007 $16,875 $7.50
(c) Lessee's Right to Cancel Lease During Option Period. Subject to the
provisions of this paragraph, Lessee may cancel this lease.
(i) To be effective, Lessee must give Lessor, at any time
during the option period, at least one (1) year prior written notice of Lessee's
election to cancel this lease.
(ii) Lessee may cancel this lease only as of the last day of a
month (the "cancellation date"). The cancellation date will be stated in
Lessee's notice and will be no less than three hundred and sixty-five (365) days
after the date of Lessee's notice.
-21-
<PAGE>
(iii) Lessor may reject Lessee's election to cancel this lease
if an event of default has occurred at the time of the election.
(iv) If Lessor does not reject Lessee's election to cancel
this lease, Lessee will cure any event of default under this lease that exists
on the cancellation date, and Lessee's obligation to cure any such default
within the period of time specified in this lease will survive the cancellation
date.
(v) On or prior to the cancellation date, Lessee will
surrender possession of the premises to Lessor in accordance with the provisions
of this lease, as if the cancellation date were the expiration date of this
lease.
(vi) Following surrender of possession and the cancellation
date, Lessor and Lessee will be relieved of their obligations under this lease,
except those accruing prior to the cancellation date.
Dated: December 16, 1996
LESSOR - HOMBURG HOLDINGS (CO), INC.
By: /S/ Signature not decipherable
------------------------------
Title: Manager of Operations
---------------------------
Dated: December 2, 1996
LESSEE - PHOTRONICS COLORADO, INC.
By: /S/ Jeffrey P. Moonan
------------------------------
Title: Senior Vice President
---------------------------
-22-
EXHIBIT 10.29
ASSIGNMENT
This Assignment is executed this 28th day of January, 1999, by and
among INFINITE GRAPHICS INCORPORATED, a Minnesota corporation, (the "Assignee"),
and PHOTRONICS COLORADO, INC., a Colorado corporation (the "Assignor").
WITNESSETH:
WHEREAS, Assignor and Assignee have executed that certain Asset
Purchase Agreement for the acquisition of certain assets of Assignor by Assignee
(the "Asset Purchase Agreement"); and
WHEREAS, Assignor has entered into a lease for the premises at 815 N.
Wooten Road, Colorado Springs, Colorado (the "Agreement"); and
WHEREAS, Assignor has agreed to assign the Agreement to Assignee; and
WHEREAS, Assignee has agreed to assume the Agreement on the terms
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and of the mutual
conditions and agreement herein contained, Assignor and Assignee hereto do
hereby agree as follows:
1) Assignment
Assignor does hereby assign, set over and transfer, all of its right,
title and interest in the Agreement unto Assignee, its successors and
assigns.
2) Assumption of Liabilities
Assignee hereby agrees to assume and to pay, perform and discharge
those liabilities, obligations and warranties of Assignor under the
Agreement to the extent those liabilities, obligations or warranties
arise after the date hereof. Notwithstanding anything to the contrary,
Assignee is not assuming any of Assignor's, obligations or liabilities
which arose before the date hereof and Assignor shall discharge such
obligations and liabilities and indemnify and hold Assignee harmless
therefrom, in accordance with the Asset Purchase Agreement.
3) Further Assurances
Each party to this Assignment hereby agrees to do, make, procure,
execute, and deliver such other acts, things, documents, and
assurances as may be reasonably necessary to consummate the
transactions contemplated by this Assignment.
<PAGE>
4) Successors and Assignors
This Assignment shall be binding upon and enforceable against Assignor
and its successors and assigns and shall inure to the benefit of and
be enforceable by Assignee and its successors and assigns.
5) Governing Law
This Assignment is made in and shall be governed by the laws of the
State of Colorado in all respects, including matters of construction,
validity, enforcement and performance.
6) Amendments/Waivers
This Assignment may not be amended nor may any of its terms be waived
except by written instrument signed by Assignee and Assignor.
7) Conflicts
In the event any provisions contained in this Assignment shall
conflict with any provisions contained in the Asset Purchase
Agreement, the provisions contained in the Asset Purchase Agreement
shall govern.
8) Survival Upon Enforceability
In the event any one or more of the provisions contained in this
Assignment shall for any reason be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not effect any other provision hereof.
9) Subject To Asset Purchase
This Assignment is executed in connection with, and all terms hereof
are expressly subject to the terms of, the Asset Purchase Agreement.
This Assignment shall only be effective if the transaction
contemplated by the Asset Purchase Agreement is consummated.
-2-
<PAGE>
IN WITNESS WHEREOF, this Assignment is executed as of the date first
above written.
PHOTRONICS COLORADO, INC.
By: /S/ Jeffrey P. Moonan
---------------------
Title: Executive Vice President
INFINITE GRAPHICS INCORPORATED
By: /S/ Robert P. Larson
--------------------
Title: Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> APR-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,199,501
<ALLOWANCES> (117,900)
<INVENTORY> 515,704
<CURRENT-ASSETS> 2,235,569
<PP&E> 7,316,791
<DEPRECIATION> 4,600,456
<TOTAL-ASSETS> 5,048,958
<CURRENT-LIABILITIES> 1,844,866
<BONDS> 1,854,957
0
0
<COMMON> 4,181,697
<OTHER-SE> (2,832,562)
<TOTAL-LIABILITY-AND-EQUITY> 5,048,958
<SALES> 4,992,246
<TOTAL-REVENUES> 5,206,846
<CGS> 3,439,712
<TOTAL-COSTS> 3,439,712
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 74,000
<INTEREST-EXPENSE> 188,118
<INCOME-PRETAX> 116,274
<INCOME-TAX> 2,000
<INCOME-CONTINUING> 114,274
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114,274
<EPS-BASIC> .04
<EPS-DILUTED> .04
</TABLE>
