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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(AMENDMENT NO. 2)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
TRANSITION PERIOD FROM ________ TO ________.
COMMISSION FILE NUMBER 0-18708
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MICROGRAFX, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1952080
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1303 E. ARAPAHO ROAD, RICHARDSON, TEXAS 75081
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 234-1769
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Securities Registered Pursuant to Section 12(b) of the Act: NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not 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-K or any amendment to this
Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant at October 31, 1998, was approximately $97,746,111.
On October 31, 1998, there were 11,005,073 shares outstanding of the
registrant's Common Stock.
<PAGE> 2
The item numbers and responses thereto are in accordance with the
requirements of Form 10-K. All capitalized terms used and not otherwise defined
herein shall have the meaning specified in the Company's Annual Report on Form
10-K.
The Company hereby amends and restates in its entirety each of the
following items of the Company's Annual Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Micrografx, Inc. was founded in 1982 and incorporated in 1984 in the State of
Texas. Micrografx is a global graphics software leader focused on three business
categories: process management graphics, corporate graphics, and network design.
Additionally, the Company seeks to leverage its strong technology base by
partnering with organizations to maximize the distribution and value of its
intellectual property. The Company sells and distributes its products directly
and through a network of distributors, value-added resellers, OEM customers.
For the fiscal year ended June 30, 1998, the Company reported net revenues of
$71.8 million, an increase of 11 percent from the $64.9 million for the year
ended June 30, 1997. Net income for the year ended June 30, 1998 was $0.6
million, or $0.05 per diluted share. This compares to a net loss of $6.2
million, or $0.60 per diluted share, which includes the in-process research and
development charge of $2.3 million, for fiscal 1997.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net revenues of certain items in the Company's Consolidated
Statements of Operations. Historical results and percentage relationships are
not necessarily indicative of operating results for any future period.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net revenues 100% 100% 100%
Cost of revenues 30% 31% 24%
Gross profit 70% 69% 76%
Operating expenses:
Sales and marketing 48% 53% 49%
General and administrative 10% 12% 11%
Research and development 12% 11% 10%
In-process research and development charge -- 3% --
Restructuring charges -- 3% --
Acquisition charges -- -- 5%
Total operating expenses 70% 82% 75%
Income (loss) from operations -- (13%) 1%
Non operating (income) expense (1%) (1%) (1%)
Income (loss) before income taxes 1% (12%) 2%
Income taxes -- (2%) 1%
Net income (loss) 1% (10%) 1%
</TABLE>
<PAGE> 3
FISCAL 1998 COMPARED TO FISCAL 1997
NET REVENUES
Net revenues for fiscal 1998 were $71.8 million, compared to net revenues for
fiscal 1997 of $64.9 million.
The following table sets forth net revenues by product category and the
percentage relationship to total net revenues. The process management category
includes Micrografx FlowCharter(R), Micrografx EnterpriseCharter(TM), Micrografx
ISOCharter(TM), and Optima(R). The corporate graphics category includes
Micrografx Graphics Suite(TM), Webtricity(TM), Simply3D(TM), Picture
Publisher(R), Micrografx Designer(R), Designer Power Pack, and Small Business
Graphics and Print Studio(R). The personal creativity category includes American
Greetings(R) CreataCard(R) Plus(TM), American Greetings(R) CreataCard(R)
Gold(TM), Crayola(TM)Art Studio(TM), and Hallmark Connections(TM) Card
Studio(TM). Revenues from Windows Draw(R) are categorized as either corporate
graphics or personal creativity depending on the Company's assessment of the
market or channel into which the product is sold. The technology category
results from the Company's use of its library of graphics software in selective
licensing. For fiscal 1998, the technology category consists of licensing of
certain personal creativity software source code to Cendant.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------------
1998 % 1997 %
---------------------------------------------
<S> <C> <C> <C> <C>
Process management $ 15,786 22% $ 15,069 23%
Corporate graphics 31,310 44% 32,723 51%
Personal creativity 21,671 30% 17,070 26%
Technology 3,025 4% - 0%
---------------------------------------------
Total revenues $ 71,792 100% $ 64,862 100%
</TABLE>
PROCESS MANAGEMENT
The five percent increase in process management revenues resulted from the
increasing focus the Company has placed on this area. To this end, the Company
started selling the Optima product at the beginning of the 1998 fiscal year,
which was acquired in the acquisition of AdvanEdge Technologies, Inc.
("AdvanEdge") on June 30, 1997. In the second half of the fiscal year, the
Company introduced EnterpriseCharter and ISOCharter, FlowCharter-based products
which are suited to fill specific needs in growing niches of the process
management market. Revenues from FlowCharter were down slightly from fiscal 1997
to fiscal 1998, however, during the second half of fiscal 1998 revenues from
FlowCharter grew more than 10 percent over the comparable period for the prior
year. Initial acceptance of the new products, the increase in multi-user
licensing, and the second-half growth of FlowCharter revenues all result from
the Company's decision to focus on corporate customers and their graphical
needs.
CORPORATE GRAPHICS
Corporate graphics declined four percent due to the continued decline of
products the Company no longer develops. During fiscal 1997, the Company
discontinued marketing activities for products such as Designer, Designer Power
Pack, Small Business Graphics and Print Studio, as well as products developed by
Visual Software, which merged with the Company in fiscal 1996. The Company chose
to focus its efforts on fewer products, resulting in new releases in fiscal 1998
of Simply3D, Picture Publisher, and Webtricity, all of which resulted in revenue
increases during the year. Further, the Company benefited from OEM agreements
signed at the end of fiscal 1997 and throughout 1998 for these products with
companies such as Hewlett-Packard and Matrox Graphics. An updated version of
Graphics Suite was released during the year with changes geared toward the
corporate customer. With the Company's focus on the corporate customers, the
Company's objective is to increase
<PAGE> 4
sales of multi-user licensing to corporate customers. However, the selling cycle
to corporate accounts is longer as new releases of the product do not appeal to
the impulse buyer in a retail computer software store, but rather, to larger,
multi-national companies that undergo a stringent and lengthier evaluation
process in order to make intelligent software choices regarding their graphical
needs.
PERSONAL CREATIVITY
The 27 percent growth in this category resulted from the continued growth of the
greeting card software market. The Company's CreataCard products continued its
market share leadership against stiff competition from products published by
Microsoft and Broderbund. The Company also released a new version of Windows
Draw resulting in a significant sales increase. These gains were partially
offset by declines in legacy products such as those licensed under the Crayola
brand name, for which the Company's license expired in the third quarter of
fiscal 1997.
In light of recent consolidation in the consumer software arena, as well as
extremely aggressive retail programs, the Company determined that for a company
with the size and resources of Micrografx, it was growing increasingly difficult
to compete effectively in the consumer retail product category. As a result, the
Company formed a strategic relationship with Cendant Software Corporation
("Cendant") effective June 30, 1998, whereby Micrografx has licensed Cendant a
series of core graphics technologies, information relating to the customers who
have purchased products based on the aforementioned technologies, marketing
information related to those products, and certain associated intellectual
property rights. Additionally, Micrografx has entered into a combination of
worldwide publishing and distribution agreements with Cendant for its personal
creativity software, including Windows Draw Print Studio and Micrografx
SnapShot, which was to be Micrografx's new entry into the consumer digital
imaging arena. The agreements also included the Windows Draw product sold into
corporate channels (shown in the corporate graphics category) which represented
revenue of $6.1 million and $5.4 million in fiscal 1998 and 1997, respectively.
The agreements with Cendant allow the Company to make significant progress in
de-empasizing the consumer software market.
Effective August 31, 1998, Micrografx entered into an agreement that assigns the
Company's distribution rights to American Greetings CreataCard Gold and
CreataCard Plus to TLC. This assignment of rights to TLC concluded all
contractual responsibilities and settles all contractual issues between
Micrografx and American Greetings. With this assignment, the Company has
completed its de-emphasis from the consumer marketplace in order to focus on its
higher value business graphics software.
TECHNOLOGY
The technology category contains the portion of the revenue recognized to date
related to the previously discussed Cendant and TLC relationships. The Company
expects to recognize additional revenue of approximately $18 million from the
relationships spread over the four quarters of fiscal 1999 based on contractual
obligations and risks assumed, with a higher proportion of the revenue to be
recognized in the first half of fiscal 1999. The impact on net income varies
each quarter depending on the costs to the Company of those obligations and
risks.
Net revenues by geographic region and as a percentage of total revenues are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------------
1998 % 1997 %
---------------------------------------------
<S> <C> <C> <C> <C>
Americas $ 39,737 55% $ 33,287 51%
Europe 24,772 35% 20,839 32%
Asia Pacific 7,283 10% 10,736 17%
---------------------------------------------
Total net revenues $ 71,792 100% $ 64,862 100%
</TABLE>
<PAGE> 5
The revenue increase in the Americas resulted from the growth in personal
creativity, most of which is U.S. based. The growth in Europe resulted from the
focus on sales to corporate customers with more than 60 percent growth in
multi-user licenses, primarily from sales of Graphics Suite and FlowCharter. The
Asia Pacific decline resulted from the dramatic decline in the retail sector of
the Japanese economy.
COST OF REVENUES AND GROSS PROFIT
Cost of revenues includes the cost of documentation, diskettes or compact disks
(CDs), packaging and production overhead for the Company's application software
products; amortization of capitalized software development costs and acquired
product rights; and external product royalties. Cost of revenues in fiscal 1998
were $21.5 million, or 30 percent of net revenues, compared to $19.8 million or
31 percent of net revenues in fiscal 1997. The decrease in cost of revenues as a
percentage of net revenues for fiscal 1998 is attributable to the technology
category revenues which have no direct costs associated with them, partially
offset by the accelerated amortization of costs capitalized related to the
development of the personal creativity titles as well as increased royalties due
from the personal creativity revenues. Also contributing to the decline in cost
of revenues as a percent of revenues was a favorable shift in product mix from
boxed products which contain typical content (packaging, manuals, CDs or floppy
disks) to OEM and multi-user license revenues which require substantially less
content.
Regardless of revenue category, the cost to produce each of the Company's
software titles is relatively equal -- each product has CDs, manuals, and
packaging. Due to the specialized functionality in the process management and
corporate graphics titles, their unit prices are significantly higher than the
volume-driven personal creativity titles. As a result, the Company expects the
cost of revenues to continue to decline as a percent of revenue.
SALES AND MARKETING EXPENSE
Sales and marketing expenses include the cost of advertising, promotions,
cooperative and incentive programs with distributors, trade shows, marketing,
technical support, and the Company's sales force. Sales and marketing expenses
in fiscal 1998 were $34.0 million, or 48 percent of net revenues, compared to
$34.1 million, or 53 percent of net revenues, in fiscal 1997. The Company was
able to reduce expenses in absolute dollars despite growing revenue and adding a
significant number of corporate sales people. The additional cost of the sales
people was more than offset by reductions in variable marketing funds spent in
retail channels as well as reduced spending in Japan due to the continuing
economic decline there. The Company expects that sales and marketing expenses
will continue to decline as a percentage of revenue.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expenses include the costs of the Company's
information systems, human resources, finance, and administrative functions.
General and administrative expenses in fiscal 1998 were $7.4 million, or 10
percent of net revenues, compared to $7.9 million, or 12 percent of net
revenues, in fiscal 1997. The decline resulted from savings realized following
the restructuring in fiscal 1997, partially offset by outside legal and
professional fees resulting from the Cendant transaction. The Company expects
general and administrative expenses to remain at the current level for the near
term.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expenses include compensation, benefits, and incentives
paid to developers. In accordance with Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," the Company capitalizes certain software development costs incurred
after technological feasibility is achieved. These costs are amortized over the
estimated economic life of the products, generally 12 to 18 months. Amortization
of capitalized software development costs is included in cost of revenues.
Research and development expenses (net of amounts capitalized) in fiscal 1998
were $8.5 million, or 12 percent of net revenues, compared to $7.2 million, or
11 percent of net revenues, in fiscal 1997. Gross research and development
expenses, before capitalization, for fiscal 1998 were $12.7 million, or 18
percent of net revenues, compared to $11.0 million, or 17 percent of revenues
for fiscal 1997. The increased spending resulted from an increase in the number
of development employees as well as the ongoing development expenses resulting
from the acquisitions of AdvanEdge Technologies, Inc. ("AdvanEdge") on June 30,
1997, and WebKnight, Inc.
<PAGE> 6
("WebKnight"), on December 31, 1997. The Company expects research and
development expenses to continue to increase in absolute dollars in the near
term.
During fiscal 1998, the Company capitalized approximately $4.3 million in
software development costs and amortized $4.4 million in software development
costs. This compares to capitalization of $3.8 million and amortization of $4.0
million for fiscal 1997.
IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE
On June 30, 1997, the Company acquired AdvanEdge for approximately $3.7 million.
The purchase price consisted of $1 million in cash paid on June 30, 1997, $2.5
million to be paid in cash or Company stock over the subsequent 30 months, and
the assumption of certain liabilities. The acquisition was effected by a merger
of a wholly owned subsidiary of the Company into AdvanEdge Technologies, Inc. A
substantial portion of the purchase price was allocated to in-process research
and development based on an independent valuation study as technological
feasibility had not been established and no alternative commercial use had been
identified. The purchase price allocated to in-process research and development
resulted in a $2.3 million charge to expense, with no related tax benefit in
fiscal 1997. The technology acquired will be utilized in future products. The
Company allocated the total purchase price as follows (in thousands):
<TABLE>
<S> <C>
Tangible and intangible assets $ 1,016
Purchased in-process research and development 2,250
Goodwill 481
--------
Total $ 3,747
</TABLE>
RESTRUCTURING CHARGES
Effective December 31, 1996, J. Paul Grayson resigned as Chairman of the Board
and Chief Executive Officer of the Company. An evaluation of the Company's
organization and operations resulted in the decision to make certain
organization changes. These changes resulted in a charge of $1.8 million for the
termination of seven members of management. The Company also recorded a $0.2
million charge related to the termination of commitments made by the previous
management for which no future benefit will be received. As of June 30, 1998,
the Company has paid approximately $1.7 million in termination benefits under
this restructuring. Approximately $0.2 million of this charge remains classified
as an accrued liability as of June 30, 1998. The Company expects that the
remaining liability will be paid out over the next six months.
EFFECT OF EXCHANGE RATES
Exchange rates during fiscal 1998 had an unfavorable impact on net revenues
reported by the Company. If exchange rates had not changed from their 1997
rates, the Company would have reported approximately $3.0 million more in net
revenues in fiscal 1998. This decrease resulted from the change in exchange
rates of European currencies and the Japanese yen versus the U.S. dollar. Since
European manufacturing costs and European and Japanese operating expenses are
also incurred in those local currencies, the relative translation impact of
exchange rates on net income (loss) is less than on revenues.
The Company periodically enters into foreign exchange contracts to hedge against
certain exposure to changes in foreign currency exchange rates. This exposure
results from the Company's foreign operations in countries including Germany,
France, the United Kingdom, the Netherlands, and Japan that are denominated in
currencies other than the U.S. dollar. See "Foreign Forward Exchange Contracts"
under "Summary of Significant Accounting Policies" in Notes to Consolidated
Financial Statements.
NONOPERATING (INCOME) EXPENSE
Nonoperating (income) expense includes interest income, interest expense, and
other (income) expense. Other (income) expense, net includes the gain or loss
resulting from revaluation of receivables and payables denominated in foreign
currency, and gains or losses when receivables and payables denominated in
foreign currency are settled.
<PAGE> 7
Interest income decreased from $0.8 million in fiscal 1997 to $0.6 million in
fiscal 1998, while unfavorable exchange rate variations charged $0.1 million to
other expense in fiscal 1998 and $0.5 million in 1997.
INCOME TAXES
The Company recognized a tax provision of $0.3 million in fiscal 1998, compared
to a tax benefit of $1.9 million in fiscal 1997. For further information on
income taxes, see Notes to Consolidated Financial Statements.
FISCAL 1997 COMPARED TO FISCAL 1996
NET REVENUES
Net revenues for fiscal 1997 were $64.9 million, compared to net revenues for
fiscal 1996 of $72.9 million.
The following table sets forth net revenues by product category and the
percentage relationship to total net revenues. The process management category
includes Micrografx FlowCharter(R). The corporate graphics category includes
Micrografx Graphics Suite(TM), Micrografx Designer(R), Designer Power Pack,
Webtricity(TM), Simply3D(TM), Picture Publisher(R), Small Business Graphics and
Print Studio(R), PhotoMagic(R), Instant 3D(TM) and Visual Reality(R). The
personal creativity category includes American Greetings(R) CreataCard(R)
Plus(TM), American Greetings(R) CreataCard(R) Gold(TM), Crayola(TM) Amazing Art
Adventure(TM), Crayola(TM) Art Studio(TM), Crayola(TM)Art Studio(TM)2,
Crayola(TM)Art(TM), and Hallmark Connections(TM) Card Studio(TM). Revenues from
Windows Draw(R) are categorized as either corporate graphics or personal
creativity depending on the Company's assessment of the market or channel into
which the product is sold. Optima(R) was acquired on June 30, 1997 through the
acquisition of AdvanEdge and therefore did not contribute revenue in either
year.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------------
1997 % 1996 %
---------------------------------------------
<S> <C> <C> <C> <C>
Process management $ 15,069 23% $ 18,750 25%
Corporate graphics 32,723 51% 37,654 52%
Personal creativity 17,070 26% 16,515 23%
---------------------------------------------
Total revenues $ 64,862 100% $ 72,919 100%
</TABLE>
PROCESS MANAGEMENT
The 20 percent decline in process management resulted from the timing of the
product release cycle as well as the Company's focus on the personal creativity
market. Due to the rapid change in technology related to personal computers and
software, the majority of sales for a version of a software product occur within
the first year following its release. During the first quarter of fiscal 1997,
the Company decided to shift the release of its process management and corporate
graphics software to the third quarter of fiscal 1997, after the close of the
Christmas season. The Company did release FlowCharter English version 7 in
January 1997 and localized versions followed one to two quarters behind. As a
result, the Company had between three and six months during the fiscal year to
generate revenue from the new release of FlowCharter.
CORPORATE GRAPHICS
The 13 percent decline in corporate graphics revenues resulted from the decline
in sales relating to products that the Company no longer actively marketed,
which was not fully offset by growth in the sales of products that the Company
continued to actively market. The lack of growth in sales of products the
Company actively marketed was also the result of the delayed product release
cycle in fiscal 1997. While the Company did release new versions
<PAGE> 8
of Graphics Suite, Simply3D, and Picture Publisher and introduced Webtricity
during the third and fourth quarters of fiscal 1997, the delay in introducing
these products meant that older titles such as Designer Power Pack, Instant 3D,
Visual Reality, and PhotoMagic had lost their prior year sales momentum. The
decline in revenue is also attributable to the delay in corporations adopting
Windows 95 and Windows NT, the operating systems for which the Company's
principal business products are designed. Additionally, the Company released the
Small Business Graphics and Print Studio in the first quarter and revenues for
Windows Draw sold through international corporate channels almost doubled
compared to the prior year.
PERSONAL CREATIVITY
The revenue growth in the Company's personal creativity products resulted from
the release of two new greeting card products partially offset by the
discontinuance of two products. The Company introduced American Greetings(R)
CreataCard(R) Plus(TM) and American Greetings(R) CreataCard(R) Gold(TM) in the
first and third fiscal quarters, respectively, while the Company's agreements to
market the Hallmark and Crayola products expired in the first and third
quarters, respectively. Revenues from the CreataCard products exceeded prior
year sales of the Company's Hallmark product despite lower prices and the
introduction and intense competition from Microsoft's Hallmark Greetings
Workshop. Fiscal 1997 revenues for Windows Draw remained constant with the prior
year. For the year, the CreataCard products represented more than half of the
Company's consumer product revenues. In this category, the Company also bundles
products with those of OEMs. See "Licensing Agreements" under "Trends and Risk
Factors."
Net revenues by geographic region and as a percentage of total revenues are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------------
1997 % 1996 %
---------------------------------------------
<S> <C> <C> <C> <C>
Americas $ 33,287 51% $ 35,671 49%
Europe 20,839 32% 25,196 34%
Pacific Rim 10,736 17% 12,052 17%
---------------------------------------------
Total net revenues $ 64,862 100% $ 72,919 100%
</TABLE>
Revenue declines were across all geographic regions and resulted from the change
in the product release schedule as discussed earlier and the lack of localized
versions of personal creativity products. The effect of delaying the release
schedule approximately two quarters had a more severe impact on international
locations because of the effort required to "localize" the product. Localization
consists of modifying and translating the software, as well as the box and its
contents, to a suitable product for another market such as Germany, France, or
Japan. This additional work usually results in an international version of a
product being released the quarter following the product's English release.
COST OF REVENUES AND GROSS PROFIT
Cost of revenues includes the cost of documentation, diskettes or compact disks
(CDs), packaging and production overhead for the Company's application software
products, amortization of capitalized software development costs and acquired
product rights, and external product royalties. Cost of revenues in fiscal 1997
were $19.8 million, or 31 percent of net revenues, compared to $17.5 million, or
24 percent of net revenues in fiscal 1996. The increase in cost of revenues as a
percentage of net revenues for fiscal 1997 is attributable to lower selling
prices on the Company's greeting card software products, increased amortization
of acquired product rights, and increased external royalties. Also contributing
to the rise in cost of revenues as a percentage of revenues was an unfavorable
shift in product mix to boxed products, which contain typical content
(packaging, manuals, CDs or floppy disks), from OEM and license revenues, which
require substantially less content.
<PAGE> 9
SALES AND MARKETING EXPENSE
Sales and marketing expenses include the cost of advertising, promotions,
co-operative, rebate, and incentive programs with distributors, trade shows,
marketing, technical support, and the Company's sales force. Sales and marketing
expenses in fiscal 1997 were $34.1 million, or 53 percent of net revenues,
compared to $35.1 million, or 49 percent of net revenues, in fiscal 1996. The
decrease in sales and marketing expense in absolute dollars reflects the
efficiencies gained by eliminating duplicate costs subsequent to the acquisition
of Visual, the reduction in executive overhead and management layers, and cost
control measures. The rise in sales and marketing expenses as a percentage of
revenue was due primarily to the increased promotional costs related to selling
product through retail channels in conjunction with the rise of personal
creativity revenues. The effect of the retail promotions coupled with an overall
retail slowdown during the fiscal fourth quarter resulted in lower revenues with
relatively higher costs.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expenses include the costs of the Company's
information systems, human resources, finance, and administrative functions.
General and administrative expenses in fiscal 1997 were $7.9 million, or 12
percent of net revenues, compared to $8.2 million, or 11 percent of net
revenues, in fiscal 1996.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expenses include compensation, benefits, and incentives
paid to developers. In accordance with Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed," the Company capitalizes certain software development costs incurred
after technological feasibility is achieved. These costs are amortized over the
estimated economic life of the products, generally 12 to 18 months. Amortization
of capitalized software development costs is included in cost of revenues.
Research and development expenses (net of amounts capitalized) in fiscal 1997
were $7.2 million, or 11 percent of net revenues, compared to $7.6 million, or
10 percent of net revenues, in fiscal 1996. Gross research and development
expenses, before capitalization, for fiscal 1997 were $11.0 million, or 17
percent of net revenues, compared to $10.9 million, or 15 percent of revenues
for fiscal 1996.
During fiscal 1997, the Company capitalized approximately $3.8 million in
software development costs and amortized $4.0 million in software development
costs. This compares to capitalization of $3.3 million and amortization of $3.3
million for fiscal 1996.
IN-PROCESS RESEARCH AND DEVELOPMENT CHARGE
On June 30, 1997, the Company acquired AdvanEdge resulting in a $2.3 million
charge to expense as previously discussed.
RESTRUCTURING CHARGES
Effective December 31, 1996, the Company restructured, resulting in a charge of
$2.0 million as previously discussed.
<PAGE> 10
ACQUISITION CHARGES
In fiscal 1996, Micrografx acquired all of the issued and outstanding capital
stock and options of Visual Software, Inc. ("Visual"), which was accounted for
as a pooling of interests. As a result of this acquisition, the Company incurred
charges for professional services, the write-off of costs related to certain
software products that were no longer actively marketed, exit costs, and costs
to eliminate excess personnel and duplicate leases of approximately $3,379,000,
of which $1,359,000 was non-cash. Components of the acquisition related charges
consisted of the following (in thousands):
<TABLE>
<S> <C>
Acquisition transaction costs $ 1,115
Asset write-downs:
Inventory and accounts receivable 840
Acquired product rights 158
Fixed assets 241
Severance and other 1,025
--------
Total acquisition charges $ 3,379
</TABLE>
The severance charges resulted from the closing of Visual's general and
administrative support office and the related termination of 21 Visual
employees. None of this charge remained as an accrued liability as of June 30,
1997.
EFFECT OF EXCHANGE RATES
Exchange rates during fiscal 1997 had an unfavorable impact on net revenues
reported by the Company. If exchange rates had not changed from their 1996
rates, the Company would have reported approximately $2.6 million more in net
revenues in fiscal 1997. This decrease resulted from the change in exchange
rates of European currencies and the Japanese yen versus the U.S. dollar. Since
European manufacturing costs and European and Japanese operating expenses are
also incurred in those local currencies, the relative translation impact of
exchange rates on net income (loss) is less than on revenues.
The Company periodically enters into foreign exchange contracts to hedge against
certain exposure to changes in foreign currency exchange rates. This exposure
results from the Company's foreign operations in countries including Germany,
France, the United Kingdom, the Netherlands, and Japan that are denominated in
currencies other than the U.S. dollar. See "Foreign Forward Exchange Contracts"
under "Summary of Significant Accounting Policies" in Notes to Consolidated
Financial Statements.
NONOPERATING (INCOME) EXPENSE
Non operating (income) expense includes interest income, interest expense and
other (income) expense. Other (income) expense, net includes the gain or loss
resulting from revaluation of receivables and payables denominated in foreign
currency, and gains or losses when receivables and payables denominated in
foreign currency are settled. Interest income decreased from $0.9 million in
fiscal 1996 to $0.8 million in fiscal 1997, while unfavorable exchange rate
variations charged $0.5 million to other expense in fiscal 1997 and $0.4 million
in 1996.
INCOME TAXES
The Company recognized a tax benefit of $1.9 million in fiscal 1997, compared to
a tax provision of $0.5 million in fiscal 1996. For further information on
income taxes, see Notes to Consolidated Financial Statements.
<PAGE> 11
QUARTERLY RESULTS OF OPERATIONS
The following table presents selected financial results for each of the last
eight quarters through June 30, 1998 (in thousands). These financial results are
unaudited. In the opinion of management, however, they have been prepared on the
same basis as the audited financial information and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the information for the periods presented when read in
conjunction with the accompanying Consolidated Financial Statements and notes
thereto.
<TABLE>
<CAPTION>
QUARTERS ENDED
- -------------------------------------------------------------------------------------------------------
9/30/97 12/31/97 3/31/98 6/30/98
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 15,531 $ 19,357 $ 17,262 $ 19,642
Gross profit 10,825 13,849 12,508 13,144
Income (loss) from operations (919) 631 291 370
Net income (loss) (547) 558 224 372
Basic and diluted income
(loss) per share $ (.05) $ .05 $ .02 $ .03
Shares used in computing income
(loss) per share:
Basic 10,472 10,539 10,636 10,783
Diluted 10,472 11,068 11,513 11,424
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
- -------------------------------------------------------------------------------------------------------
9/30/96 12/31/96 3/31/97 6/30/97
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Net revenues $ 16,589 $ 16,113 $ 17,124 $ 15,036
Gross profit 11,987 10,774 11,990 10,327
Income (loss) from operations 265 (4,069)(1) 213 (4,814)(2)
Net income (loss) 334 (2,734)(1) 121 (3,908)(2)
Basic and diluted income
(loss) per share $ 0.03 $ (0.27)(1) $ 0.01 (0.37)(2)
Shares used in computing income
(loss) per share:
Basic 10,223 10,239 10,235 10,427
Diluted 10,443 10,239 10,241 10,427
</TABLE>
(1) The financial results for the quarter ended December 31, 1996, include
the restructuring-related charge of $2.0 million. See Notes to
Consolidated Financial Statements.
(2) The financial results for the quarter ended June 30, 1997, include the
AdvanEdge related in-process research and development charge of $2.3
million. See Notes to Consolidated Financial Statements.
<PAGE> 12
TRENDS AND RISK FACTORS
The following discusses trends and risk factors inherent in the Company's
business environment.
CHANGE IN COMPANY FOCUS
During fiscal 1998 and in prior years, the Company has generated a significant
portion of its business from the personal creativity software market. Due to
aggressive competition and the Company's belief that its products are well
suited to various high-growth corporate markets, the Company has chosen to
pursue corporate customers. The Company's future financial performance will
depend on the successful transition of internal resources away from its strength
in the retail market while moving toward solving problems currently experienced
by corporations. In order to accomplish its objective, the Company has hired
employees with skills required for the Company's new direction, and is training
existing employees on how to make this change, but there is no assurance that
management's efforts will be successful. In order to succeed, the Company will
have to convince corporations that its products are able to solve their
problems, the Company will have to identify and develop features which corporate
customers desire, and the Company will have to ensure that it has a sales force
and customer support system sufficient in size and expertise to service
corporate customers. In light of the difficulties associated with the transition
of its business focus from consumer retail products to business product sales to
corporate accounts, the Company may confront unanticipated risks and
uncertainties. Therefore, there can be no assurance that the Company's new
business strategy will be successful, and it is possible that the Company's
future results from operations and financial condition will be adversely
affected if it is unable to effectively implement its new business focus.
NEW PRODUCT INTRODUCTIONS
The Company's future financial performance will depend in significant part upon
the successful development and introduction of new and enhanced versions of its
products and customer acceptance of these products, of which there can be no
assurance. Additionally, the timing of new product introductions, which are
updates of previously released products, can have a significant impact on
profitability of the older version of the product. To the extent that the
distributors were unable to sell the older version at the rate they anticipated
when they purchased the product, additional marketing expenditures are generally
required to promote the older version in order to reduce stocking levels in
anticipation of the release of the new version of the product.
LICENSING AGREEMENTS
During fiscal 1998, the Company's business strategy included entering into
licensing agreements with third parties in an effort to increase brand awareness
for the Company's products by associating the Micrografx name with products and
services that customers already know. During fiscal 1998, the Company had a
licensing agreement with American Greetings Corporation relating to American
Greetings CreataCard Plus and the American Greetings CreataCard Gold products.
The agreement was to expire on August 31, 1999. The Company and American
Greetings agreed not to renew the agreement and effective August 31, 1998, the
Company assigned its rights under the licensing agreement to The Learning
Company.
The Company has entered into a licensing agreement with ImageNet, Inc.
("ImageNet") for Network Design products NetworkCharter and NetworkCharter Pro.
The Company has the right to distribute the products to end users and resellers
but the Company does not own the source code. The Company pays ImageNet a
quarterly fee for the right to distribute the software based upon sales of the
NetworkCharter products, with provisions for certain minimum payments regardless
of sales volume. The Company and ImageNet have also agreed to make a good faith
effort to develop NetworkCharter products that utilize the Company's FlowCharter
graphics engine. The agreement expires on April 30, 2001, and automatically
renews for successive terms of one year each, unless terminated by either party
prior to the expiration of the initial term.
TECHNOLOGICAL CHANGE
The personal computer industry is subject to rapid technological change and
continuing development of new and enhanced operating environments. The success
of the Company's products will depend to a large extent upon the Company's
ability to continue to develop and introduce innovative and competitive products
on a cost-effective and timely basis, of which there can be no assurance.
<PAGE> 13
COMPETITION
The personal computer applications software market is highly competitive. The
Company's competitors include many companies that have larger technical staffs,
more established and larger marketing and sales organizations, and significantly
greater financial resources than does the Company. Additionally, merger activity
in the applications software market serves to strengthen the merging companies'
ability to compete.
INTERNATIONAL OPERATIONS
The Company anticipates that international net revenues will continue to account
for a significant portion of total net revenues, which will result in a
significant portion of the Company's net revenues being subject to the risks
inherent in international operations. These risks include unexpected changes in
regulatory requirements, exchange rates, tariffs and other barriers,
difficulties in staffing and managing foreign subsidiary operations, and
potentially adverse tax consequences.
The Company's revenue generated from its Asia Pacific sales offices has declined
more than 30 percent from fiscal 1997 to fiscal 1998 and the Company expects an
additional decline in sales for fiscal 1999. This decline resulted from the
economic uncertainty and recession in Japan, which resulted in a significant
decline in the retail sector of the Japanese economy. The Company has announced
that it will no longer concentrate its efforts on the retail distribution
channel, its strength historically, but will focus on corporate customers in
keeping with the Company's overall strategy. There is no assurance that this
strategy will be successful.
CHANGES IN DISTRIBUTION CHANNELS
The Company is focusing on corporate customers and has de-empasized its personal
creativity business. In doing such, it has to transition its relationships with
the distribution channels to match the change. While the Company does not
anticipate a significant change in the channels used, it must change its sales
and marketing programs to suit the corporate customers buying through those
channels. The Company's success depends in part on the ability to identify and
respond to changes in the distribution channel.
SEASONALITY
Historically, the Company's results of operations are subject to significant
quarterly variations. Causes of these variations include seasonality of the
retail software market, delays in the introduction of new or enhanced versions
of the Company's products, timing and cost of new product upgrades and
introductions, reduced distribution channel sales preceding the introduction of
updated products, and large distribution channel sales following the
introduction of new or updated products. Historically, as is typical in the
retail software industry, the Company has experienced some seasonal variations
in demand, with sales declining somewhat in the summer months and increasing
somewhat during the fourth and first calendar quarters. The Company expects the
seasonality to decline somewhat as it changes its focus from serving the retail
market to selling to corporate customers.
UPGRADES
Product upgrades, which enable users to upgrade from earlier versions of the
Company's products, or from competitors' products, typically have lower prices
than new products, resulting in lower gross profit margins. The Company plans to
continue upgrading successful products in the future.
INTERNET
The Company provides products for use in the Internet market. The Internet
market is rapidly evolving and is characterized by an increasing number of
market entrants. As is typical in the case of a new and evolving industry,
demand and market acceptance for recently introduced products and services are
subject to a high level of uncertainty. Critical issues concerning the
commercial use of the Internet (including security, reliability, cost, ease of
use and access, and quality of service) remain unresolved and may impact the
growth of Internet use, together with the software standards and electronic
media employed in such markets.
<PAGE> 14
GROSS PROFIT
Product margins vary according to product mix and the geographical region in
which the products are sold. Changes in product mix, including the mix of boxed
product (full and upgrade product versions) relative to the amount of non-boxed
product (OEM and multi-user licenses), the transition away from personal
creativity products (which carry lower margins), the transition to "suite"
products accompanied with value-pricing, as well as changes in the components of
direct costs, have in the past and may in the future affect the Company's gross
profit.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company's principal sources of liquidity consisted of cash
and cash equivalents of $26.5 million and short-term investments of $1.6
million. Additionally, the Company obtained a $5 million line of credit
effective April 1, 1998, which expires March 30, 1999. Commitment fees related
to the line of credit are 0.25 percent of the unused line of credit per year. At
June 30, 1998, no borrowings on the line were outstanding.
As of September 30, 1998, the Company received approximately $19.5 million from
the Cendant and TLC agreements, approximately $14 million of which was received
on June 30, 1998, with the remainder received during the quarter ended September
30, 1998. The Company expects to receive an additional $1.5 million from these
transactions by December 31, 1998.
CASH FLOWS DURING FISCAL 1998
For the year ended June 30, 1998, cash provided by operating and financing
activities exceeded cash used in investing activities, resulting in an increase
in cash and cash equivalents of $15.3 million. Cash flows from operating
activities generated $18.4 million in cash during fiscal 1998. The cash received
resulting from the Cendant transaction, offset by transactional expenses,
coupled with the adjustment for depreciation and amortization, were partially
offset by the increase in accounts receivable. Accounts receivable allowances
decreased primarily due to the reduced need for rebates and co-op funds
typically associated with personal creativity products.
Cash flows from investing activities used $6.2 million during fiscal 1998 and
consisted primarily of additions to capitalized software development costs and
acquired product rights and purchases of property and equipment. Expenditures
for property and equipment during fiscal 1998 were $1.2 million and consisted
primarily of computer and equipment upgrades. Investments of $6.6 million were
also made in capitalized software development costs and acquired product rights
related to the development of new and enhanced versions of the Company's
products. Cash flows from financing activities provided $3.3 million in cash
during fiscal 1998, due primarily to proceeds received from employee stock
programs. As discussed in the footnotes to the financial statements,
approximately $0.2 million of the $2.0 million restructuring charge remains
classified as an accrued liability as of June 30, 1998.
The Company expects to pay this amount during the next six months.
CAPITAL RESOURCES
As of June 30, 1998, the Company had no significant commitments for capital
expenditures.
The Company believes that cash flow from operations and existing cash will be
sufficient to meet the Company's capital requirements in the short term. The
Company believes that thereafter its liquidity requirements could be met with
cash flow from operations, and existing cash and short-term investment balances.
YEAR 2000 COSTS
The Company is aware of and is addressing a broad range of issues associated
with the programming code in existing computer systems as the year 2000
approaches. The year 2000 problem is complex, as many computer systems will be
affected in some way by the rollover of the two-digit year value to 00. Systems
that do not properly recognize such information could generate erroneous data or
cause a system to fail. The year 2000 issue creates risk for the Company from
unforeseen problems in its own computer systems and from third parties with whom
the Company deals on financial and other transactions worldwide. Failures of the
Company's and/or third parties' computer systems could have a material impact on
the Company's ability to conduct its business.
<PAGE> 15
The Company's financial information system is SAP. This system is believed to be
year 2000 compliant. The Company is analyzing its remaining computer systems to
identify any potential year 2000 issues and will take appropriate corrective
action based on the results of such analysis. Management believes that any costs
that may arise to ensure functionality in the year 2000 would not be material.
In addition, the year 2000 issue could affect the products that the Company
sells. The Company believes that the current versions of its products are year
2000 compliant. The Company's products are subject to ongoing analysis and
review.
OTHER MATTERS
The assets and liabilities of non-U.S. operations are translated into U.S.
dollars at exchange rates in effect as of the respective balance sheet dates,
and revenue and expense accounts of these operations are translated at average
exchange rates during the month the transactions occurred. Unrealized
translation gains and losses are included as an adjustment to shareholders'
equity. The Company has mitigated a portion of its currency exposure through
decentralized sales, marketing and administrative operations. When necessary,
the Company may also hedge to prevent material exposure.
LITIGATION
The Company is party to various legal proceedings arising from the normal course
of business activities, none of which, in management's opinion, is expected to
have a material adverse impact on the Company's results of operations or its
financial position.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income" (SFAS
130), which is effective for fiscal years beginning after December 15, 1997.
SFAS 130 establishes standards for reporting and displaying comprehensive income
and its components in the financial statements. This standard does not, however,
require a specific format for the statement, but requires the Company to display
an amount representing total comprehensive income for the period in that
financial statement. The effect of SFAS 130 on the Company has not been
determined.
In June 1997, the FASB issued SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131), which is effective for fiscal
years beginning after December 15, 1997. SFAS 131 establishes standards for the
manner in which public business enterprises report information about operating
segments in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to stockholders. The effect of SFAS 131 on the Company has not been
determined.
In February 1998, the FASB issued SFAS 132, "Employers' Disclosure about
Pensions and Other Postretirement Benefits -- an amendment of FASB Statements
No. 87, 88, and 106" (SFAS 132), which is effective for fiscal years beginning
after December 15, 1997. The Company does not provide pension or other
postretirement benefits, thus SFAS 132 has no impact on the Company.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), which is effective for fiscal years
beginning after June 15, 1999. SFAS 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
effect of SFAS 133 on the Company has not yet been determined.
<PAGE> 16
FORWARD-LOOKING STATEMENTS
The Company notes that, with the exception of historical information, the
matters discussed above are forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in these forward-looking statements. Factors that could cause
or contribute to such differences include, without limitation, changes in the
market, new products and announcements from other companies, changes in
technology, and competition from larger, more established competitors as
discussed in the "Trends and Risk Factors" of this item.
<PAGE> 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
3. Exhibits
The following documents are filed or incorporated by reference as
exhibits to this report. The exhibit numbers in the exhibit list
correspond to the numbers assigned to such exhibits in the Exhibit
Table of Item 601 of Regulations S-K.
* 10.13 License Agreement between Micrografx, Inc. and Cendant Software
Corporation (Exhibit 10.1)
* 10.14 Noncompetition Agreement between Micrografx, Inc. and Cendant
Software Corporation (Exhibit 10.2)
10.17 Asset Purchase and License Agreement dated September 3, 1998,
between the Company and Learning Company Properties, Inc.
* Incorporated by reference to the exhibit shown in parenthesis files
in the Company's Current Report on Form 8-K/A dated June 30, 1998
<PAGE> 18
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Form 10-K/A-2 to be
signed on its behalf by the undersigned, thereunto duly authorized.
MICROGRAFX, INC.
By /s/ John M. Carradine
--------------------------------
John M. Carradine
Chief Financial Officer
and Treasurer
Date: November 25, 1998
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NO. DESCRIPTION
-------- -----------
<S> <C>
* 10.13 License Agreement between Micrografx, Inc. and Cendant Software
Corporation (Exhibit 10.1)
* 10.14 Noncompetition Agreement between Micrografx, Inc. and Cendant
Software Corporation (Exhibit 10.2)
10.17 Asset Purchase and License Agreement dated September 3, 1998,
between the Company and Learning Company Properties, Inc.
* Incorporated by reference to the exhibit shown in parenthesis files
in the Company's Current Report on Form 8-K/A dated June 30, 1998
</TABLE>
<PAGE> 1
EXHIBIT 10.17
ASSET PURCHASE AND LICENSE AGREEMENT
This Asset Purchase and License Agreement (this "AGREEMENT") is made and
entered into as of September 3, 1998, by and between Learning Company Properties
Inc. a Delaware corporation (the "BUYER") and Micrografx, Inc., a Texas
corporation (the "SELLER").
Preliminary Statement
The Buyer desires to acquire the rights to, and the Seller desires to
license and transfer, certain of the assets of the Seller related to Seller's
CreataCard product line, for the consideration set forth below, subject to the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Sale and License of the Assets
1.1 Assets to be Licensed.
(a) Subject to and upon the terms and conditions of this Agreement at the
closing of the transactions contemplated by this Agreement (the "CLOSING"), the
Seller shall license the following properties to Buyer:
(i) License of Software Programs. Subject to the terms of this
Agreement, effective as of the Closing Date, Seller hereby grants to Buyer the
exclusive (other than existing OEM agreements), fully paid-up (when the Seller
receives the payment called for by Section 1.7(a)), perpetual right and license
to publish, use, reproduce, sublicense, translate and distribute the Software
Programs (defined below), including all documentation associated therewith.
Buyer shall have the exclusive (other than existing OEM agreements), fully
paid-up (when the Seller receives the payment called for by Section 1.7(a)),
perpetual right and license to publish, use, reproduce, sublicense, translate
and distribute the Software Programs in any media, for sale, resale and/or
license to end users, throughout the world, in all channels of trade unless
otherwise restricted under the Assumed Agreements (as hereinafter defined),
including, without limitation, (a) sales directly to end users, (b) sales
through resellers, dealers and distributors, (c) sales through arrangements with
original equipment manufacturers ("OEMS"), (d) sales through on-line services,
the Internet and other online channels and (e) sales in the educational channel.
Subject to the terms of this Agreement, the rights granted hereunder include all
marketing, production, retail, wholesale, television offer, direct mail and
telesales rights, and all other sales and distribution rights (other than
existing OEM agreements) for the Software Programs. The License granted is
granted subject to all the rights of American Greetings Corporation contained in
the Assumed Agreements and the obligations of the Seller thereunder are hereby
assumed by the Buyer. The "SOFTWARE PROGRAMS" shall mean Micrografx's rights in
the one or more software application programs now known as "CreataCard" and
related family of programs using
<PAGE> 2
the CreataCard name listed in Schedule 1.1 including the Windows, MAC and all
other platform and foreign language versions thereof (including, without,
limitation, the Carleton Cards product), and all related documentation. The
rights licensed herein shall expressly exclude the right to prepare derivative
works to the source code based on this license. Buyer shall however have the
right to prepare derivative works that do not require modifications to the
source code such as to create derivative versions based upon modifications to
screens, packaging, manuals, collateral materials, modifications to the E-reg
program, modifications to the "unlockables" programs, and OEM and other similar
derivative versions.
(ii) a non-exclusive, fully paid-up (when the Seller received the
payment called for by Section 1.7(a)), perpetual license to publish, use and
distribute any and all product content owned by Seller, demos, golden masters,
film, translation kits, and localized versions relating to the Software
Programs, any and all promotional and advertising materials, and a
non-exclusive, fully paid-up, perpetual license to use any confidential
information (to the extent owned by Seller) which has been reduced to writing
relating to the Software Programs;
(iii) a non-exclusive, perpetual, fully paid-up (when the Seller
receives the payment called for by Section 1.7(a)), license to publish, use and
distribute any and all web site materials relating to the Software Programs to
the extent owned by Seller; and
(iv) a non-exclusive, perpetual, fully paid-up (when the Seller
receives the payment called for by Section 1.7(a)) license to use in any manner
the list of all registered end users for each and every version of the Software
Program. For a period of 18 months following the Closing Date, within 30 days of
the end of each calendar quarter, Seller shall provide Buyer with an updated
electronic list of new registered end users with the names and other information
described in Section 4(j) below.
1.2 Assets to be Purchased.
(a) Subject to and upon the terms and conditions of this Agreement, at
the Closing, the Seller shall transfer, convey, assign, deliver, and the Buyer
shall receive from the Seller, the following properties, assets and other
claims, rights and interests of the Seller:
(i) all executory contracts and agreements listed on Schedule 1.2(a)(i)
attached hereto including the Master Agreement with American Greetings
Corporation dated February 9, 1996, as amended April 1, 1997 and Subagreements
A, B, D, and E, as amended, entered into thereunder as amended, and in their
entirety (collectively, the "ASSUMED AGREEMENTS"), which an affiliate of Buyer
(Mindscape, Inc.) hereby agrees to assume by execution hereof; and
(ii) all rights in and to the gold master CD and film for each version
of the Software Programs (including any collateral materials required for Buyer
to manufacture the Software Programs), the packaging, manuals, CD ROM inserts,
other inserts, the "unlockable" collateral materials, and transkits for each
version of the software and any rights of the Seller in the trade dress to the
Software Programs (collectively, the "INTANGIBLE PROPERTY").
<PAGE> 3
(b) The Software Programs, Intangible Property and other properties, assets
and business of the Seller described in paragraph (a) above shall be referred to
collectively as the "ASSETS."
(c) Buyer shall have the right to modify any of the Assets, to the extent
owned by Seller (except as provided in the last two sentences of Section
1.1(a)(i)).
1.3 Inventory, Purchase and Sale of Inventory by Buyer, and Returns.
(a) Effective as of September 1, 1998, Seller and its distributors
(other than under the existing OEM agreements) shall have ceased fulfilling any
and all unfulfilled purchase orders it receives for the Software Programs and
Seller shall forward to Buyer all such open purchase orders at the Closing. On
the Closing Date, Seller shall assign to Buyer any and all inventory of the
Software Programs identified on Schedule 2.5. Promptly following the Closing
Date, Seller shall ship, at Buyer's expense, such inventory to Buyer pursuant to
Buyer's written instructions. Buyer shall remove Seller's "MICROGRAFX" logos
from such inventory as soon as commercially practicable. It is however expressly
agreed that Buyer may market and sell such inventory and sell sheets with the
"MICROGRAFX" logo for a commercially practicable period of time.
(b) The channel inventory as of the Closing Date and wholesale costs
are set forth by account on Schedule 2.5 attached hereto. Seller shall be liable
to Buyer for returns to the extent that channel inventory of the Software
Programs sold by Seller exceed a maximum of $3.4 million of channel inventory as
set forth in Schedule 2.5 as of the Closing Date. Seller shall indemnify Buyer
for any and all Software Program channel inventory, but only if and to the
extent that channel inventory is in excess of the amounts described in Schedule
2.5. Any indemnification payments under this Section 1.3(b) shall be made by
Seller to Buyer within sixty (60) days from the date of such excess channel
returns or, at Buyer's option, Buyer may take a credit against any of the
payments owing to Seller hereunder including those set forth in Section 1.7
hereof, provided such sums are not in dispute.
(c) Buyer shall be responsible for all product returns associated with
the Software Programs arising from and after the Closing Date, including, stock
balances, defective product returned pursuant to the published warranty, price
protection related returns. Seller shall remain liable for any bad debt relating
to the Software Programs shipped prior to the Closing Date. Buyer shall be
responsible for marketing development funds ("MDF") presently existing for
versions 1.0, 2.0 and 3.0 of the CreataCard Software Program not to exceed
$165,000 as set forth on Schedule 1.3(c), and all MDF commitments initiated by
the Seller arising after the Closing Date for CreataCard Software Programs
shipped prior to the Closing Date not to exceed $425,000 as set forth on
Schedule 1.3(c). Seller shall be liable for MDF in excess of such respective
$165,000 and $425,000 amounts and shall indemnify Buyer for such amounts. Any
such indemnification payments under this Agreement shall be paid to Buyer within
sixty (60) days of demand.
(d) Seller shall retain all responsibility for redeeming coupon rebates
for the Software Programs in connection with the promotional program being
administered by Continental Promotions or any other party for sales of the
Software Programs into the retail channel prior to the Closing Date.
(e) Notwithstanding any other provision in any other agreement, Seller
hereby acknowledges and agrees that Buyer has full discretion with respect to
the marketing of the Software Programs, subject however to the approval rights
of American Greetings Corporation contained in separate agreements which
<PAGE> 4
the Buyer hereby acknowledges, and that any approval or review rights that
Seller may have under any agreement are hereby waived and terminated.
1.4 No Liabilities. Except as set forth in Sections 1.1(a)(i), 1.2(a)(i) and
1.3 above, the Buyer shall assume no liabilities, obligations or agreements of
the Seller whatsoever and the Seller shall remain responsible for, and shall
indemnify the Buyer against, all such liabilities, obligations and agreements,
as set forth in Section 6 hereof.
1.5 Excluded Assets. Notwithstanding anything in Section 1.1 or 1.2 to the
contrary, the Assets shall not include (i) any assets associated with Seller's
other software products or (ii) the assets identified on Schedule 1.5 attached
hereto or (iii) ownership of source code and other code and intellectual
property rights in the underlying Software Programs not explicitly licensed or
transferred hereunder (the "EXCLUDED ASSETS").
1.6 Further Assurances. At any time and from time to time after the Closing,
at the Buyer's request and without further consideration, the Seller promptly
shall execute and deliver such instruments of sale, transfer, conveyance,
assignment and confirmation, and take such other action, as the Buyer may
reasonably request to more effectively transfer, convey and assign to the Buyer,
and to confirm the Buyer's rights herein granted to, all of the Assets, to put
the Buyer in actual possession and operating control thereof, to assist the
Buyer in exercising all rights with respect thereto and to carry out the purpose
and intent of this Agreement. Without limiting the foregoing, from the date of
execution of this Agreement until the Closing Date, the Buyer and Seller shall
each use reasonable best efforts to obtain all required consents and approvals,
including the consent of American Greetings Corporation, required in order for
Seller to consummate the transactions contemplated by this Agreement.
1.7 Purchase Price.
(a) The purchase price for the Assets shall be Seven Million U.S.
Dollars ($7,000,000) (the "PURCHASE PRICE"). The Purchase Price shall be paid to
Seller on January 5, 1999 in cash by wire transfer.
(b) Seller may assign its rights to receive payment of the Purchase
Price and the rights of enforcement to a third party without notice or Buyer's
consent. Buyer agrees to reasonably cooperate with Seller in order to facilitate
such a "factoring" transaction. Buyer and Seller agree to expressly pay 50% of
all discounts and transaction related costs associated with respect to a
factoring transaction with Sanwa Bank (or another mutually agreed upon financial
institution).
1.8 The Closing. The Closing shall take place at the offices of Buyer on or
before September 3, 1998 or at such other place, time or date (in person or by
fax) as may be mutually agreed upon in writing by the parties hereto. The
transfer of the Assets by the Seller to the Buyer shall be deemed to occur at
1:30 p.m., Boston time, on the date of the Closing (the "CLOSING DATE"). Except
as required by law, neither party shall make a public announcement of said asset
transfer until the other party approves in writing the timing and text of such
announcement.
<PAGE> 5
1.9 Press Releases. Either party may issue a press release relating to the
transactions contemplated under this Agreement, subject to the approval of the
other party which shall not be unreasonably withheld.
2. Representations and Warranties of the Seller
The Seller represents and warrants to the Buyer as follows:
2.1 Organization. The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and has all requisite power and authority (corporate and other) to own its
properties, to carry on its business as now being conducted, to execute and
deliver this Agreement and the agreements contemplated herein, and to consummate
the transactions contemplated hereby. The Seller is qualified to do business and
is in good standing in all jurisdictions in which its ownership of property or
the character of its business requires such qualification.
2.2 Authorization.
(a) The execution and delivery of this Agreement by the Seller, and the
agreements provided for herein, and the consummation by the Seller of all
transactions contemplated hereby, have been duly authorized by all requisite
corporate action. This Agreement and all such other agreements and obligations
entered into and undertaken in connection with the transactions contemplated
hereby to which the Seller is a party constitute the valid and legally binding
obligations of the Seller, enforceable against the Seller in accordance with
their respective terms. The execution, delivery and performance by the Seller of
this Agreement and the agreements provided for herein, and the consummation by
the Seller of the transactions contemplated hereby and thereby, will not, with
or without the giving of notice or the passage of time or both, (a) violate the
provisions of any law, rule or regulation applicable to the Seller; (b) violate
the provisions of the Certificate of Incorporation or By-laws of the Seller; (c)
violate any judgment, decree, order or award of any court, governmental body or
arbitrator; or (d) conflict with or result in the breach or termination of any
term or provision of, or constitute a default under, or cause any acceleration
under, or cause the creation of any lien, charge or encumbrance upon the
properties or assets of the Seller pursuant to, any indenture, mortgage, deed of
trust or other instrument or agreement to which the Seller is a party or by
which the Seller or any of its properties is or may be bound; provided, however,
assignment of the Assumed Agreements with American Greetings Corporation to
Buyer requires the consent of American Greetings Corporation.
(b) Schedule 2.2(b)(i) attached hereto sets forth a true, correct and
complete list of (i) all material contracts which relate to the Software
Programs, (ii) all consents and approvals of third parties that are required in
connection with the consummation by the Seller of the transactions contemplated
by this Agreement (it being understood that Buyer shall not be bound from and
after the Closing by any agreements to which Seller is a party other than those
agreements listed on Schedule 1.2(a)(i)), and (iii) all royalties, advances
against royalties and other fees or amounts owed to third parties relating to
the Software Programs except amounts payable to American Greetings Corporation.
<PAGE> 6
(c) Schedule 2.2(c) attached hereto sets forth a true, correct and
complete list of all OEM, license and distribution agreements or other similar
agreements of any kind with respect to the Software Programs. Seller has not
entered into any OEM, license or distribution agreement or other similar
agreements of any kind with respect to the Software Programs except as
specifically identified on Schedule 2.2(c) attached hereto. Seller has not
entered into any OEM, license or distribution agreement that grants a third
party any exclusive or worldwide distribution rights in any channel to the
Software Programs other than (i) the rights of American Greetings Corporation
under the Assumed Agreements, (ii) a distribution agreement with Cendant
Corporation which Seller agrees to terminate on or before the Closing date, and
(iii) the OEM Agreements listed on Schedule 2.2(c).
2.3 Ownership of the Assets. Schedule 2.3 attached hereto sets forth a true,
correct and complete list of all claims, liabilities, liens, pledges, charges,
encumbrances and equities of any kind affecting the Assets (collectively, the
"ENCUMBRANCES"). The Seller is, and at the Closing will be, the true and lawful
owner of the Assets, and will have the right to sell and transfer to the Buyer
good, clear, record and marketable title to the Assets, free and clear of all
Encumbrances of any kind. The delivery to the Buyer of the instruments of
transfer of ownership contemplated by this Agreement will vest good and
marketable title to the Assets in the Buyer, free and clear of all liens,
mortgages, pledges, security interests, restrictions, prior assignments,
encumbrances and claims of any kind or nature whatsoever.
2.4 Litigation and Claims. Except as disclosed on Schedule 2.4 attached
hereto, the Seller is not a party to, or to the Seller's best knowledge
threatened with, and none of the Assets are subject to, any litigation, suit,
action, investigation, proceeding or controversy before any court,
administrative agency or other governmental authority relating to or affecting
the Assets. The Seller is not in violation of or in default with respect to any
judgment, order, writ, injunction, decree or rule of any court, administrative
agency or governmental authority or any regulation of any administrative agency
or governmental authority relating to the Assets.
2.5 Inventory. Schedule 2.5 attached hereto sets forth a true, correct and
complete list of the inventory of the Software Programs (including quantities of
each SKU thereof) as of the Closing Date, separated into one list for Seller's
inventory on hand and a another list for field inventory, by customer and SKU.
2.6 Trade Names and Other Intangible Property.
(a) Schedule 2.6 attached hereto sets forth a true, correct and complete
list and, where appropriate, a description of, all Intangible Property. True,
correct and complete copies of all licenses and other agreements relating to the
Intangible Property have been previously delivered by the Seller to the Buyer.
(b) Except for material licensed to Seller under the Assumed Agreements
and the Excluded Assets, the Seller is the sole and exclusive owner of the
Software Programs and the Intangible
<PAGE> 7
Property and all designs, permits, labels and packages used on or in connection
therewith, and no third party has, or has asserted, any rights to the Software
Programs or the Intangible Property (except to the extent the underlying
technology has been licensed to others) or which may adversely affect the rights
of the Buyer. To the best of Seller's knowledge, the Software Programs and the
Intangible Property do not infringe on any United States trademark, trade name,
copyright or other proprietary right of any third party. The Seller has no
disputes with or claims against any third party for infringement by such third
party of any trade name or other Intangible Property of the Seller included in
the Assets. The Seller has taken all steps reasonably necessary to protect its
right, title and interest in and to the Intangible Property.
2.7 Regulatory Approvals. All consents, approvals, authorizations and other
requirements prescribed by any law, rule or regulation which must be obtained or
satisfied by the Seller and which are necessary for the execution and delivery
by the Seller of this Agreement and the documents to be executed and delivered
by the Seller in connection herewith have been obtained and satisfied.
2.8 Version 3.0 of CreataCard Gold and CreataCard Plus. Seller represents
and warrants to Buyer that Version 3 of CreataCard Gold and Version 3 of
CreataCard Plus Programs have been delivered to American Greetings and that such
programs will perform according to the attached specifications.
3. Representations and Warranties of the Buyer
The Buyer represents and warrants to the Seller as follows:
3.1 Organization. The Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the state of its corporation,
and has the requisite power and authority (corporate and other) to own its
properties and to carry on its business as now being conducted.
3.2 Authorization. The Buyer has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement by
the Buyer, and the agreements provided for herein, and the consummation by the
Buyer of all transactions contemplated hereby, have been duly authorized by all
requisite corporate action. This Agreement and all such other agreements and
written obligations entered into and undertaken in connection with the
transactions contemplated hereby constitute the valid and legally binding
obligations of the Buyer, enforceable against the Buyer in accordance with their
respective terms. The execution, delivery and performance of this Agreement and
the agreements provided for herein, and the consummation by the Buyer of the
transactions contemplated hereby and thereby, will not, with or without the
giving of notice or the passage of time or both, (a) violate the provisions of
any law, rule or regulation applicable to such party; (b) violate the provisions
of the Certificate of Incorporation or By-laws of Buyer; (c) violate any
judgment, decree, order or award of any court, governmental body or arbitrator;
or (d) conflict with or result in the breach or termination of any term or
provision of, or constitute a default under, or cause any acceleration under, or
cause the creation of any lien, charge or encumbrance upon the properties or
assets of the Buyer pursuant to, any indenture, mortgage, deed of trust or other
agreement or instrument to which it or its properties is a party or by which the
Buyer is or may be bound.
<PAGE> 8
3.5 Regulatory Approvals. All consents, approvals, authorizations and other
requirements prescribed by any law, rule or regulation which must be obtained or
satisfied by the Buyer and The Learning Company and which are necessary for the
consummation of the transactions contemplated by this Agreement have been
obtained and satisfied.
3.6 Disclosure. No representation or warranty by the Buyer in this Agreement
contains or will contain any untrue statement of a material fact known by Buyer
on the Closing Date or omits or will omit any material fact known by Buyer on
the Closing Date necessary in order to make the statements contained therein and
herein not misleading.
4. Conditions to Obligations of the Buyer
The obligations of the Buyer under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each of
which may be waived in writing in the sole discretion of the Buyer:
4.1 Continued Truth of Representations and Warranties of the Seller;
Compliance with Covenants and Obligations. The representations and warranties of
the Seller shall be true on and as of the Closing Date as though such
representations and warranties were made on and as of such date, except for any
changes permitted by the terms hereof or consented to in writing by the Buyer.
The Seller shall have performed and complied with all terms, conditions,
covenants, obligations, agreements and restrictions required by this Agreement
to be performed or complied with by it prior to or at the Closing Date.
4.2 Corporate Proceedings. All corporate and other proceedings required to
be taken on the part of the Seller to authorize or carry out this Agreement and
to convey, assign, transfer and deliver the Assets shall have been taken.
4.3 Governmental Approvals. All governmental agencies, departments, bureaus,
commissions and similar bodies, the consent, authorization or approval of which
is necessary under any applicable law, rule, order or regulation for the
consummation by the Seller of the transactions contemplated by this Agreement
and the operation of the Seller's business as it relates to the Assets by the
Buyer shall have consented to, authorized, permitted or approved such
transactions.
4.4 Consents of Lenders, Lessors, Licensors and Other Third Parties. The
Seller shall have received all requisite consents and approvals of American
Greetings Corporation, all lenders, lessors, Licensors and other third parties
whose consent or approval is required in order for the Seller to consummate the
transactions contemplated by this Agreement, including, without limitation,
those set forth on Schedule 2.2(b)(ii) attached hereto.
4.5 Adverse Proceedings. No action or proceeding by or before any court or
other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of the Buyer to own or use the Assets after the Closing.
<PAGE> 9
4.6 The Assets. At the Closing the Buyer shall receive good, clear, record
and marketable title to the Intangible Property, free and clear of all liens,
liabilities, security interests and encumbrances of any nature whatsoever other
than as contemplated by the Assumed Agreements.
4.7 Closing Deliveries. The Buyer shall receive within five (5) business
days of the Closing Date each of the following:
(a) the assignments of the Assumed Agreements identified on Schedule
1.2(a)(i), in form reasonably satisfactory to the Buyer;
(b) technical data, product literature and other documentation relating
to the Seller's greeting card software business as it relates to the Assets;
(c) such contracts, files and other data and documents pertaining to the
Assets as the Buyer may reasonably request;
(d) a certificate of the Secretary of the Seller attesting to the
incumbency of the Seller's officers, respectively, and the authenticity of the
resolutions authorizing the transactions contemplated by the Agreement;
(e) required consents from those parties identified on Schedules 2.2;
(f) masters of the Software Programs and related collateral materials
including artwork for packaging and marketing materials, film, translation kits,
website materials via an electronic media transfer; and
(g) a list of "frequently asked questions" to technical support and
customer support relating to the Software Programs;
(h) a list on electronic tape of all registered end users for each and
every version of the Software Programs, including all biographical, product and
credit card related information; and
(i) such other documents, instruments or certificates as the Buyer may
reasonably request.
5. Conditions to Obligations of the Seller
The obligations of the Seller under this Agreement are subject to the
fulfillment, at the Closing Date, of the following conditions precedent, each of
which may be waived in writing at the sole discretion of the Seller:
5.1 Continued Truth of Representations and Warranties of the Buyer;
Compliance with Covenants and Obligations. The representations and warranties of
the Buyer in this Agreement shall be true on and as of the Closing Date as
though such representations and warranties were made on and as of such date,
except for any changes consented to in writing by the Seller. The Buyer shall
have performed and complied with all terms, conditions, obligations, agreements
and restrictions required by this Agreement to be performed or complied with by
it prior to or at the Closing Date.
<PAGE> 10
5.2 Corporate Proceedings. All corporate and other proceedings required to
be taken on the part of the Buyer to authorize or carry out this Agreement shall
have been taken.
5.3 Governmental Approvals; Consents. All governmental agencies,
departments, bureaus, commissions and similar bodies, the consent, authorization
or approval of which is necessary under any applicable law, rule, order or
regulation for the consummation by the Buyer of the transactions contemplated by
this Agreement shall have consented to, authorized, permitted or approved such
transactions. All consents from those parties listed on Schedule 2.2 shall have
been obtained. The parties listed on Schedule 1.2(a)(i) shall have released
Seller from all obligations under the Assumed Agreements, including without
limitation, American Greetings Corporation shall have terminated Seller's
obligations to it under all Assumed Agreements.
5.4 Adverse Proceedings. No action or proceeding by or before any court or
other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the rights of Seller contemplated by this Agreement.
5.5 Adverse Proceedings. No action or proceeding by or before any court or
other governmental body shall have been instituted or threatened by any
governmental body or person whatsoever which shall seek to restrain, prohibit or
invalidate the transactions contemplated by this Agreement or which might affect
the right of the Seller to transfer the Assets.
5.6 Closing Deliveries. The Seller shall have received at the Closing each
of the following documents:
(a) such documents, instruments or certificates as the Seller may
reasonably request; and
(b) the payment from Buyer of the Purchase Price shall have been
received by Seller.
6. Indemnification
6.1 Scope. For a period of five (5) years from the Closing Date, Seller
hereby indemnifies and holds harmless Buyer against all claims, damages, losses,
liabilities, costs and expenses (including, without limitation, settlement costs
and any reasonable legal, accounting or other expenses for defending any actions
or threatened actions) reasonably incurred by Buyer in connection with each and
all of the following:
(a) Any breach by the Seller of any representation or warranty in this
Agreement;
(b) Any breach of any covenant, agreement or obligation of the Seller
contained in this Agreement or any other agreement, instrument or document
contemplated by this Agreement;
<PAGE> 11
(c) Any liabilities or obligations of the Seller or relating to the
Assets not disclosed herein;
(d) The failure of the Buyer to obtain the protections afforded by
compliance with the notification and other requirements of the bulk sales laws
in force in the jurisdictions in which such laws may be applicable to either the
Seller or the transactions contemplated by this Agreement;
(e) Any intellectual property or other proprietary claim relating to
Software Programs;
(f) Any tax liabilities or obligations of the Seller; and
(g) any claim brought by Cendant Corporation or any of its affiliates or
successors relating to the Software Programs or the distribution rights thereto.
6.2 Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder the Buyer (the "INDEMNIFIED PARTY"), shall promptly
notify the Seller (the "INDEMNIFYING PARTY") of the claim and, when known, the
facts constituting the basis for such claim. In the event of any such claim for
indemnification hereunder resulting from or in connection with any claim or
legal proceedings by a third party, the notice to the Indemnifying Party shall
specify, if known, the amount or an estimate of the amount of the liability
arising therefrom. The Indemnified Party shall not settle or compromise any
claim by a third party for which it is entitled to indemnification hereunder
without the prior written consent of the Indemnifying Party, which shall not be
unreasonably withheld.
6.3 Defense by Indemnifying Party. In connection with any claim giving rise
to indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this Agreement, the Indemnifying
Party at its sole cost and expense may, upon written notice to the Indemnified
Party, assume and control the defense of any such claim or legal proceeding. The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom within 30 days after the date such claim is made, (a) the
Indemnified Party may defend against such claim or litigation, in such manner as
it may deem appropriate, including, but not limited to, settling such claim or
litigation, after giving notice of the same to the Indemnifying Party, on such
terms as the Indemnified Party may deem appropriate, and (b) the Indemnifying
Party shall be entitled to participate in (but not control) the defense of such
action, with its counsel and at its own expense.
7. Post-Closing Agreements
7.1 Non-Competition Agreement.
(a) Following the Closing Date neither the Seller nor any affiliate
thereof shall develop, market or sell any product containing any content from
American Greetings or under the American Greetings trademark and brand, the
CreataCard trademark, the John Sands trademark or any confusingly similar brand
or name that competes with the Software Programs. Buyer agrees that (i) the
development, licensing, marketing or selling, or (ii) the licensing of any of
Seller's technology to a third party for use in connection with the
<PAGE> 12
development, marketing or selling, of a greeting card or social expression
product that does not violate the foregoing will not be a violation of this
Section 7.1.
(b) The parties hereto agree that the duration and geographic scope of
the non-competition provision set forth in this Section 7.1 are reasonable. In
the event that any court determines that the duration or the geographic scope,
or both, are unreasonable and that such provision is to that extent
unenforceable, the parties hereto agree that the provision shall remain in full
force and effect for the greatest time period and in the greatest area that
would not render it unenforceable. The parties intend that this non-competition
provision shall be deemed to be a series of separate covenants, one for each and
every county of each and every state of the United States of America and each
and every political subdivision of each and every country outside the United
States of America where this provision is intended to be effective. The Seller
agrees that damages are an inadequate remedy for any breach of this provision
and that the Buyer shall, whether or not it is pursuing any potential remedies
at law, be entitled to equitable relief in the form of preliminary and permanent
injunctions without bond or other security upon any actual or threatened breach
of this non-competition provision.
7.2 Sharing of Data.
(a) The Buyer shall have the right for a period of four (4) years
following the Closing Date to have reasonable access, at Buyer's expense and
during normal business hours, to those books, records and accounts, including
financial and tax information, correspondence, production records, and other
records which are retained by the Seller pursuant to the terms of this Agreement
to the extent that any of the foregoing relates to the Assets of the Seller
transferred to the Buyer hereunder or is otherwise needed by the Buyer in order
to comply with its obligations under applicable securities, tax, or other laws
and regulations.
(b) The Seller and the Buyer agree that from and after the Closing Date
they shall cooperate fully with each other to facilitate the transfer of the
Assets from the Seller to the Buyer and the operation thereof by the Buyer.
7.3 Use of Names and Trade Dress. The Seller agrees not to use the names
"CREATACARD" and "AMERICAN GREETINGS" or any confusingly similar derivation
thereof or any confusingly similar trade dress from any of the Software Programs
after the Closing Date in connection with any business related to, or
competitive with the greeting card software application business conducted by
the Seller on the date hereof. Except as specifically permitted by this
Agreement, the Buyer agrees not to use the name "MICROGRAFX" after the Closing
Date in connection with any business related to, competitive with, or an
outgrowth of, the business conducted by the Seller on the date hereof.
7.4 Training. The Seller shall provide 40 hours of training and transition
engineering to Buyer at no charge prior to December 1, 1998. Any training in
excess of 40 hours will be at the mutual agreement of the parties and shall be
at an hourly rate to be determined by dividing the employee's documented annual
salary and benefits by the documented number of hours that such employee works
on the project. If Buyer desires to have the training identified in this Section
7.6 performed at Buyer's site, Buyer shall be responsible for all reasonable
transportation, lodging and meal costs for Seller's employees, except that
Seller agrees that Buyer shall not be obligated
<PAGE> 13
to pay any such costs if such training occurs within fifty (50) miles of
Seller's location. At Buyer's request, Seller shall perform modifications to any
of the versions of the source code of the Software Programs, including, without
limitation, an OEM v2.3 version, and modifications to the "unlockables" in the
Software Programs or other reasonable requests up to said 40 hours.
7.5 End User Support. The Seller shall provide all technical support and
customer service support to the end Users of the Software Programs until
September 30, 1998, irrespective of whether Buyer or Seller sold such Software
Programs. Commencing October 1, 1998, Buyer shall provide all technical support
and customer service support to the end Users of the Software Programs. Seller
shall provide at least five (5) days of training to the Buyer in the areas of
such support. In the event that Buyer desires to have the training identified in
this Section 7.5 be performed at Buyer's site, then Buyer shall be responsible
for reasonable transportation costs and allocable out-of-pocket portion of the
salary of its technical support personnel providing the training contemplated
under this Section 7.5. After October 1, 1998, Seller agrees to forward all such
technical and customer support calls to Buyer pursuant to Buyer's written
instructions.
7.6 Non-Solicitation. For a period of twelve (12) months from the Closing
Date, neither Buyer nor Seller (including such parties' affiliates or partners)
shall not solicit for employment or employ any employee of the other party.
7.7 Management of CREATACARD.COM Web Site. The Seller shall continue to
manage the creatacard.com web site until September 30, 1998 at which time Seller
transfer management of this web site to Buyer and Buyer shall commence
management of the site. At Buyer's request, Seller shall establish one or more
links from such creatacard.com site to site(s) designated by Buyer.
7.8 "Unlockable" Revenue. All revenue received by Seller from the content
"unlockables" shall be paid to Buyer within 30 days of the quarter in which such
amounts are received (other than any such revenue from the existing OEM
agreements which shall belong to Seller.)
8. Transfer and Sales Tax
Notwithstanding any provisions of law imposing the burden of such taxes on
the Seller or the Buyer, as the case may be, the Seller shall be responsible for
and shall pay (a) all sales, use and transfer taxes, and (b) all governmental
charges, if any, upon the transfer of any of the Assets hereunder.
9. Brokers
9.1 For the Seller. The Seller represents and warrants that it has not
engaged any broker or finder or incurred any liability for brokerage fees,
commissions or finder's fees in connection with the transactions contemplated by
this Agreement. The Seller agrees to indemnify and hold harmless the Buyer
against any claims or liabilities asserted against it by any person acting or
claiming to act as a broker or finder on behalf of the Seller.
<PAGE> 14
9.2 For the Buyer. The Buyer agrees to pay all fees, expenses and
compensation owed to any person, firm or corporation who has acted in the
capacity of broker or finder on its behalf in connection with the transactions
contemplated by this Agreement. The Buyer agrees to indemnify and hold harmless
the Seller against any claims or liabilities asserted against it by any person
acting or claiming to act as a broker or finder on behalf of the Buyer.
10. Miscellaneous.
10.1 Notices
Any notices or other communications required or permitted hereunder shall be
sufficiently given if delivered personally or sent by telex, federal express,
registered or certified mail, postage prepaid, addressed as follows or to such
other address of which the parties may have given notice:
If to Seller: If to Buyer:
Attention: Douglas Richard Attention: John Moore,
Chief Executive Officer Chief Executive Officer
Micrografx, Inc. Mindscape, Inc.
1303 E. Arapaho Road 88 Rowland Way
Richardson, TX 75081 Novato, CA 94945
Telephone: (972) 994-6114 Telephone: (415) 895-2000
Facsimile: (972) 994-6868 Facsimile: (415) 895-2108
Copy of Notices to: Copy of Notices to:
Legal Department Legal Department
Fax: (972) 994-6030 The Learning Company
Fax: (617) 494-5660
Unless otherwise specified herein, such notices or other communications
shall be deemed received (a) on the date delivered, if delivered personally; or
(b) five business days after being sent, if sent by registered or certified
mail.
10.1 Successors and Assigns
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, except that the
Buyer and the Seller may not assign any or all their respective rights or
obligations hereunder without the prior written consent of the other party;
provided, however, that the Buyer may assign this Agreement, and its rights and
obligations hereunder, to a subsidiary or affiliate provided, the Buyer should
remain liable for the payment obligations under Section 1.7(a), or by either
Buyer or Seller upon the merger of the party or the sale of all or substantially
all of Buyer's business, all without the consent of Seller, upon providing
notice to Seller. Any assignment in contravention of this provision shall be
void.
<PAGE> 15
10.2 Entire Agreement; Amendments; Attachments
(a) This Agreement, all Schedules and Exhibits hereto, and all agreements
and instruments to be delivered by the parties pursuant hereto represent the
entire understanding and agreement between the parties hereto with respect to
the subject matter hereof and supersede all prior oral and written and all
contemporaneous oral negotiations, commitments and understandings between such
parties. The Buyer and the Seller, by the consent of their respective Boards of
Directors, or officers authorized by such Boards, may amend or modify this
Agreement, in such manner as may be agreed upon, by a written instrument
executed by the Buyer and the Seller.
(b) If the provisions of any Schedule or Exhibit to this Agreement are
inconsistent with the provisions of this Agreement, the provision of the
Agreement shall prevail. The Exhibits and Schedules attached hereto or to be
attached hereafter are hereby incorporated as integral parts of this Agreement.
10.3 Expenses
Except as otherwise expressly provided herein, the Buyer and the Seller
shall each pay their own expenses in connection with this Agreement and the
transactions contemplated hereby.
10.4 Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of Delaware.
10.5 Section Headings
The section headings are for the convenience of the parties and in no way
alter, modify, amend, limit, or restrict the contractual obligations of the
parties.
10.6 Severability
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
10.7 Counterparts
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall be one and the same
document.
10.8 Confidentiality of Agreement
The terms of this Agreement shall be kept confidential and shall not be
disclosed to any third party (except for the Press Release contemplated above or
unless such disclosure is required by law).
<PAGE> 16
IN WITNESS WHEREOF the parties hereto have caused this Agreement to
be signed under seal as of the date first set forth above.
LEARNING COMPANY PROPERTIES INC. MICROGRAFX, INC.
By: /s/ R. Scott Murray By: /s/ Douglas Richard
------------------------------ -----------------------------
R. Scott Murray Name: Douglas Richard
Executive Vice President and Title: Chief Executive Officer
Chief Financial Officer
As to Section 1.2(a)(i)
MINDSCAPE, INC.
By: /s/ R. Scott Murray
------------------------------
R. Scott Murray
Executive Vice President and
Chief Financial Officer
<PAGE> 17
SCHEDULE 1.1
CREATACARD PRODUCT LIST
The Software Programs shall include the entire CreataCard software product
line consisting of each and every version and derivative of the software
programs now known as CreataCard, including, without limitation, the attached
list of programs.
<PAGE> 18
<TABLE>
<CAPTION>
CREATACARD PRODUCT LISTING
- -----------------------------------------------------------------------------------------------------------------------------------
PRODUCT SHIP DATE PRIMARY DISTRIBUTION COUNTRY NOTES UNLOCK PACKS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AG CreataCard Plus Version 1.0
International Sep-96 Retail Outside US/Canada None
AG CreataCard Gold Version 1.0
English Mar-97 Retail US, Canada None
AG CreataCard Gold Version 1.0
International Mar-97 Retail Outside US/Canada None
AG CreataCard Plus Version 2.0
English Sep-97 Retail US, Canada 16 packs
AG CreataCard Gold Version 2.0
English Sep-97 Retail US, Canada 16 packs
Carlton CreataCard Gold Version 2.0 Sep-97 Retail UK 7 packs
International
AG CreataCard Gold Version 2.0
International Sep-97 Retail Outside US/Canada 7 packs
AG CreataCard Gold Version 2.0 Walmart Sep-97 Walmart US, Canada Box Change Only 16 packs
AG CreataCard Plus Version 2.0 Walmart Sep-97 Walmart US, Canada Box Change Only 16 packs
AG CreataCard Plus Version 2.1 English Mar-98 Retail US, Canada 22 packs
AG CreataCard Gold Version 2.1 English Mar-98 Retail US, Canada 22 packs
Carlton CreataCard Gold Version 2.1 Mar-98 Retail UK 11 packs
International
AG CreataCard Gold Version 2.1
International Mar-98 Retail Outside US/Canada 11 packs
AG CreataCard Gold Version 2.1 Walmart Mar-98 Walmart US, Canada Box Change Only 22 packs
AG CreataCard Plus Version 2.1 Walmart Mar-98 Walmart US, Canada Box Change Only 22 packs
AG CreataCard Plus 2.1 Upgrade Mar-98 Current 2.0 Customers US, Canada 22 packs
AG CreataCard Gold 2.1 Upgrade Mar-98 Current 2.0 Customers US, Canada 22 packs
AG CreataCard Internet Edition Version 1.0 Jan-97 Internet - Free 0 packs
AG CreataCard Internet Edition Version 2.0 Oct-97 Internet - Free Spring/Fall 0 packs
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
PROPOSED PRODUCT SHIP DATE PRIMARY DISTRIBUTION COUNTRY NOTES UNLOCK PACKS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AG CreataCard Plus Version 3.0 English Sep-98 Retail US, Canada 31 packs
AG CreataCard Gold Version 3.0 English Sep-98 Retail US, Canada 30 packs
Carlton CreataCard Gold Version 3.0 Sep-98 Retail UK 18 packs
International
AG CreataCard Gold Version 3.0 International Sep-98 Retail Outside US/Canada 18 packs
AG CreataCard Gold Version 3.0 Walmart Sep-98 Walmart US, Canada Box Change Only 30 packs
AG CreataCard Plus Version 3.0 Walmart Sep-98 Walmart US, Canada Box Change Only 30 packs
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: Seller shall only be required to deliver the version 3.0 Golden Master
at the closing. Seller shall deliver any other versions upon request of
Buyer.
<PAGE> 19
SCHEDULE 1.2(a)(i)
ASSUMED AGREEMENTS
1. Master Agreement between American Greetings Corporation ("AG") and Seller,
dated February 9, 1996, as amended April 1, 1997.
2. Centerpiece Product, Subagreement A, between American Greetings Corporation
("AG") and Seller, dated February 9, 1996, as amended April 1, 1997.
3. Design Packs, Subagreement B, between American Greetings Corporation ("AG")
and Seller, dated February 9, 1996, as amended April 1, 1997.
4. Micrografx Remote Fulfillment Software, Subagreement D, between American
Greetings Corporation ("AG") and Seller, dated April 1, 1997.
5. Centerpiece Japan Product, Subagreement E, between American Greetings
Corporation ("AG") and Seller, dated April 1, 1997.
<PAGE> 20
SCHEDULE 1.2(c)
MDF Commitments
To be provided by Seller.
<TABLE>
<CAPTION>
CAC PHASE OUT COMMITMENTS
Customer Amount Techs Take Promo Date Activity Products Agreement Comments Add'l Comments
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Business Depot $ 8,400.00 65.00 08/01/98 End Cap AG CAC Plus V2.0 Yes Phase Out/ Agreed to per
AG CAC Gold V2.0 Signed contract
TOTAL $ 8,400.00 65.00
Future Shop $ 18,700.00 08/01/98 End Cap AG CAC Plus V2.0 Yes Phase Out/ Agreed to by
Signed Deron Dampster,
Canadian Rep
Future Shop $ 10,000.00 08/01/98 Instant AG CAC Plus V2.0 Yes Agreed to by
Rebate Deron Dampster,
Canadian Rep
TOTAL $ 28,700.00
Office Depot $ 15,000.00 500.00 08/01/98 Insert AG CAC Plus V2.0 Yes Phase Out/ Agreed to per
AG CAC Gold V2.0 Signed contract
AG CAC Budget
TOTAL $ 15,000.00 500.00
Best Buy $ 16,200.00 200.00 07/01/98 AD CAC Plus Yes Signed Agreed to per
contract
TOTAL $ 16,200.00 200.00
Staples $ 25,000.00 Ingram 07/01/98 Insert AG CAC Plus V2.0 Yes Phase Out/ Agreed to per
contract
Staples $ 25,000.00 Ingram 08/01/98 Insert AG CAC Plus V2.1 Yes Phase Out/ Agreed to per
Signed contract
Staples $ 25,000.00 Ingram 09/01/98 Insert All new product Yes Signed
TOTAL $ 75,000.00
Price Costco Canada $ 5,700.00 Merisel 07/01/98 Endcap Carlton Cards Yes Phase Out
TOTAL $ 5,700.00
OfficeMax $ 25,000.00 Ingram 07/01/98 Insert AG CAC Plus V2.0 Yes Signed
OfficeMax $ 2,500.00 Ingram 07/01/98 Rebates AG CAC Plus V2.1 Yes Signed
TOTAL $ 27,500.00
Grand Total $ 176,500.00
</TABLE>
<PAGE> 21
CAC 3 LAUNCH
COMMITMENTS
<TABLE>
<CAPTION>
Customer Amount Promo Date Activity Products Agreement Comments
<S> <C> <C> <C> <C> <C> <C>
Business Depot $ 8,400.00 10/01/98 End Cap AG CAC Plus V3.0 Yes
AG CAC Gold V3.0
TOTAL $ 8,400.00
CompUSA, Inc. $ 150,000.00 Nov-Dec EC W/Radio AG CAC Gold V3 Yes
CompUSA, Inc. $ 21,985.00 09/01/98 Insert AG CAC Gold V3 Yes
CompUSA, Inc. $ 21,985.00 09/01/98 Insert AG CAC Plus V3 Yes
CompUSA, Inc. $ 21,985.00 10/01/98 Insert All Products Yes
CompUSA, Inc. $ 21,985.00 10/11/98 Insert AG CAC Plus V3 Yes
CompUSA, Inc. $ 21,985.00 11/08/98 Insert AG CAC Plus V3 Yes
CompUSA, Inc. $ 21,985.00 12/01/98 Insert AG CAC Gold V3 Yes
CompUSA, Inc. $ 21,985.00 12/27/98 Insert AG CAC Plus V3 Yes
TOTAL $ 281,910.00
Office Depot $ 15,000.00 Nov-Dec End Cap AG CAC Plus V3.0 Yes
AG CAC Gold V3.0
Office Depot $ 15,000.00 09/01/98 Insert AG CAC Plus V3.0 Yes Signed
AG CAC Gold V3.0
Office Depot $ 15,000.00 10/01/98 Insert AG CAC Plus V3.0 Yes
AG CAC Gold V3.0
Office Depot $ 15,000.00 11/01/98 Insert AG CAC Plus V3.0 Yes
AG CAC Gold V3.0
Office Depot $ 15,000.00 12/01/98 Insert AG CAC Plus V3.0 Yes
AG CAC Gold V3.0
TOTAL $ 75,000.00
OfficeMax $ 25,000.00 10/01/98 Insert AG CAC Plus V3 Yes
OfficeMax $ 25,000.00 11/01/98 Insert AG CAC Gold V3 Yes
OfficeMax $ 50,000.00 12/01/98 End Cap/Red Rack AG CAC Plus V3.0 Yes
AG CAC Gold V3.0
TOTAL $ 100,000.00
Staples $ 50,000.00 Oct-Dec 98 Pop Display All new product Yes
Staples $ 25,000.00 09/01/98 Insert All new product Yes Signed
Staples $ 25,000.00 12/01/98 Insert AG CAC Plus V3 Yes
TOTAL $ 100,000.00
Hastings $ 11,105.00 6/1 & 7/1 Ad/Display AG CAC Plus V3.0 Yes Signed
AG CAC Gold V3.0
TOTAL $ 11,105.00
Sam's Club $ 50,000.00 10/01/98 Display AG CAC Gold V3 Yes
TOTAL $ 50,000.00
GRAND TOTAL $ 626,415.00
</TABLE>
<PAGE> 22
SCHEDULE 1.5
EXCLUDED ASSETS
1. CreataCard J-Version based on Micrografx Windows Draw
2. Standard OEM License Agreement between Avery Dennison Corporation
("Distributor") and Seller, dated March 15, 1997.
3. Standard OEM License Agreement between Avery Dennison UK Limited
("Distributor") and Seller, dated August 5, 1997.
4. Amended and Restated License Agreement between Canon Computer Systems, Inc.
("Distributor") and Seller, dated March 31, 1997, as further amended
May ___, 1998.
5. Promotional Program Software Distribution Agreement between Canon Computer
Systems, Inc. ("CCSI") and Seller, dated May 22, 1998.
6. Standard OEM License Agreement between Epson America, Inc. ("Distributor")
and Seller, dated April 15, 1998.
7. License to Incorporate Copyrighted Works between Lexmark International,
Inc. ("Lexmark") and Seller, dated March 31, 1998.
8. Standard OEM License Agreement between Mindscape, Inc. ("Distributor") and
Seller, dated July 31, 1997.
9. All Micrografx trade names, logos, service marks and trade dress.
10. The agreements listed as items #8-12 on Schedule 2.2(c).
<PAGE> 23
SCHEDULE 2.2(b)(i)
AGREEMENTS AND CONSENTS
(i) All contracts which relate to the Software Programs (Section 2.2(b)
(i):
1. Master Agreement between American Greetings Corporation ("AG") and
Seller, dated February 9, 1996, as amended April 1, 1997.
2. Centerpiece Product, Subagreement A, between American Greetings
Corporation ("AG") and Seller, dated February 9, 1996, as amended April
1, 1997.
3. Design Packs, Subagreement B, between American Greetings Corporation
("AG") and Seller, dated February 9, 1996, as amended April 1, 1997.
4. On-Line and Internet Special Products, Subagreement C, between American
Greetings Corporation ("AG") and Seller, dated February 9, 1996.
5. Micrografx Remote Fulfillment Software, Subagreement D, between
American Greetings Corporation ("AG") and Seller, dated April 1, 1997.
6. Centerpiece Japan Product, Subagreement E, between American Greetings
Corporation ("AG") and Seller, dated April 1, 1997.
7. Bitstream Inc. License Agreement between Bitstream Inc. ("Bitstream")
and Seller, dated December 17, 1992, as amended. For licensed fonts.
8. Bitstream Inc. TrueDoc(R) License Agreement between Bitstream Inc.
("Bitstream") and Seller, dated May 30, 1997. For licensed fonts.
9. Leadtools Windows Based Products License Agreement between Lead
Technologies, Inc. ("Licensor") and Seller, dated June 8, 1995, as
amended. For licensed filters.
10. Pretty Simple Master OEM Agreement between Pretty Good Privacy, Inc.
("PGP") and Seller, dated June 30, 1997. Licensed encryption.
11. LZW Software Patent License Agreement between Unisys Corporation
("Unisys") and Seller, dated December 14, 1995. License of LZW
technology.
12. Standard OEM License Agreement between Avery Dennison Corporation
("Distributor") and Seller, dated March 15, 1997.
13. Standard OEM License Agreement between Avery Dennison UK Limited
("Distributor") and Seller, dated August 5, 1997.
14. Amended and Restated License Agreement between Canon Computer Systems,
Inc. ("Distributor") and Seller, dated March 31, 1997, as further
amended May ___, 1998.
<PAGE> 24
15. Promotional Program Software Distribution Agreement between Canon
Computer Systems, Inc. ("CCSI") and Seller, dated May 22, 1998.
16. Standard OEM License Agreement between Epson America, Inc.
("Distributor") and Seller, dated April 15, 1998.
17. License to Incorporate Copyrighted Works between Lexmark International,
Inc. ("Lexmark") and Seller, dated March 31, 1998.
18. Standard OEM License Agreement between Mindscape, Inc. ("Distributor")
and Seller, dated July 31, 1997.
(ii) Consents and approvals.
BANK BOSTON - REVOLVING CREDIT AGREEMENT AMERICAN GREETINGS CORPORATION
- ASSUMED AGREEMENTS
(iii) All Royalties, Advances and other Fees relating to the Software
Programs (Section 2.2(b)(iii): None except for those due American
Greetings Corporation pursuant to the various Assumed Agreements.
<PAGE> 25
SCHEDULE 2.2(c)
OEM AND LICENSING AGREEMENTS
(a) OEM Agreements:
1. Standard OEM License Agreement between Avery Dennison Corporation
("Distributor") and Seller, dated March 15, 1997.
2. Standard OEM License Agreement between Avery Dennison UK Limited
("Distributor") and Seller, dated August 5, 1997.
3. Second Amended and Restated License Agreement between Canon Computer
Systems, Inc. ("Distributor") and Seller, dated May 29, 1998.
4. Promotional Program Software Distribution Agreement between Canon
Computer Systems, Inc. ("CCSI") and Seller, dated May 22, 1998.
5. Standard OEM License Agreement between Epson America, Inc.
("Distributor") and Seller, dated April 15, 1998.
6. License to Incorporate Copyrighted Works between Lexmark International,
Inc. ("Lexmark") and Seller, dated March 31, 1998.
7. Standard OEM License Agreement between Mindscape, Inc. ("Distributor")
and Seller, dated July 31, 1997.
(B) License Agreements:
8. Bitstream Inc. License Agreement between Bitstream Inc. ("Bitstream")
and Seller, dated December 17, 1992, as amended.
9. Bitstream Inc. TrueDoc(R)License Agreement between Bitstream Inc.
("Bitstream") and Seller, dated May 30, 1997.
10. Leadtools Windows Based Products License Agreement between Lead
Technologies, Inc. ("Licensor") and Seller, dated June 8, 1995, as
amended.
11. Pretty Simple Master OEM Agreement between Pretty Good Privacy, Inc.
("PGP") and Seller, dated June 30, 1997.
12. LZW Software Patent License Agreement between Unisys Corporation
("Unisys") and Seller, dated December 14, 1995.
<PAGE> 26
SCHEDULE 2.3
ENCUMBRANCES
None
<PAGE> 27
SCHEDULE 2.4
LITIGATION AND CLAIMS
Micrografx, Inc. v. Corel Corporation, Corel Corporation and Michael
C.J. Cowpland, in the United States District Court for the Northern
District of Texas, Dallas Division, Case No. 3-98CV0050-R
American Greetings has asserted claims against Micrografx for violation of the
Assumed Agreements. Seller shall obtain a release of Buyer and Seller from any
such claims.
<PAGE> 28
SCHEDULE 2.5
INVENTORY
The attached list represents all of the existing inventory.
<TABLE>
<CAPTION>
AG CAC PLUS V2.0
MGX AM1L20ENG # Stores Last Month Q4
IM 372748 TECH 471331 5/11/98 TOTAL TOTAL WE 4-Jul 11-Jul 18-Jul 25-Jul 1-Aug TOTAL
--------- --------- ------- -------- ------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BABBAGE'S 467 142 473 25 26 28 38 18 135
BEST BUY 284 969 2,865 2,237 462 400 352 397 3,848
CIRCUIT CITY 443 196 571 59 60 60 179
COMPUSA 166788 157 3,213 6,479 333 447 1,296 472 261 2,809
COMPUTER CITY 59-10605 89 269 1,002 48 52 66 68 58 292
COMPUTER CITY/CANADA 59-80253 7 7 30 1 0 1 0 0 2
COSTCO 206 6,556 20,930 1,498 2,006 1,875 1,738 1,569 8,686
ELECTRONICS BOUTIQUE 465 166 473 29 21 14 13 12 89
FUTURE SHOP 100 31 109 14
FUTURE SHOP/CANADA 49 188 44
HASTINGS 107 22 63 0
MUSICLAND/ON CUE 224 0 388 121
OFFICE DEPOT 566 990 3,608 277 300 954 NA 1,531
OFFICEMAX 725 546 566 101 105 124 377 108 815
STAPLES 715 662 2,307 130 126 107 133 117 613
TARGET (AMIW20ENG) 1,200 286 1,310 74 79 79 63 89 384
WALMART (AMIW20ENG) 2,200 2,218 8,667 389 395 444 413 435 2,076
BJ'S WHOLESALE CLUB 89 1,573 5,495 0
PC CONNECTION 1 4 3
TECH DATA
INGRAM
------ ------ ----- ----- ----- ----- ----- ------
TOTAL 17,873 55,528 5,201 4,079 5,448 3,667 3,064 21,641
====== ====== ===== ===== ===== ===== ===== ======
</TABLE>
<TABLE>
<CAPTION>
AG CAC PLUS V2.0
MGX AM1L20ENG % Chg. % Chg. QUARTER
IM 372748 TECH 471331 Last Month 8-Aug 15-Aug 22-Aug 29-Aug TOTAL Last Month TOTAL
---------- ----- ------ ------ ------ ----- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BABBAGE'S (5)% 33 30 63 (53)% 198
BEST BUY 297% 0 (100)% 3,848
CIRCUIT CITY (9)% 0 (100)% 179
COMPUSA 166788 (13)% 262 254 516 (82)% 3,325
COMPUTER CITY 59-10605 9% 50 43 93 (68)% 385
COMPUTER CITY/CANADA 59-80253 (71)% 0 3 3 50% 5
COSTCO 32% 1,504 1,268 2,772 (68)% 11,458
ELECTRONICS BOUTIQUE (46)% 22 22 44 (51)% 133
FUTURE SHOP (55)% 0 (100)% 14
FUTURE SHOP/CANADA (10)% 0 (100)% 44
HASTINGS (100)% 0 #DIV/0! 0
MUSICLAND/ON CUE #DIV/0! 0 (100)% 121
OFFICE DEPOT 55% 0 (100)% 1,531
OFFICEMAX 49% 0 (100)% 815
STAPLES (7)% 122 170 292 (52)% 905
TARGET (AMIW20ENG) 34% 88 35 123 (68)% 507
WALMART (AMIW20ENG) (6)% 461 443 904 (56)% 2,980
BJ'S WHOLESALE CLUB (100)% 0 #DIV/0! 0
PC CONNECTION 200% 0 (100)% 3
TECH DATA
INGRAM
------ ----- ----- ----- ----- ----- ----- -------
TOTAL 21% 2,542 2,268 0 0 4,810 (78)% 26,451
====== ===== ===== ===== ===== ===== ===== =======
</TABLE>
<TABLE>
<CAPTION>
AG CAC PLUS V2.0 %Chg.
MGX AM1L20ENG Last Ave. Sales UNITS UNITS
IM 372748 TECH 471331 Quarter per Store OH OO
------- ---------- ----- -----
<S> <C> <C> <C> <C>
BABBAGE'S (58)% 0.4 477
BEST BUY 34% 13.5 3,504
CIRCUIT CITY (69)% 0.4 631
COMPUSA 166788 (49)% 21.2 5,667
COMPUTER CITY 59-10605 (62)% 4.3 509
COMPUTER CITY/CANADA 59-80253 0.7 84
COSTCO (45)% 55.6 3,077
ELECTRONICS BOUTIQUE (72)% 0.3 308
FUTURE SHOP 0.1 97
FUTURE SHOP/CANADA 1,078
HASTINGS (100)% 0.0 164 32
MUSICLAND/ON CUE (69)% 0.5 338 13
OFFICE DEPOT (58)% 2.7 1,837 817
OFFICEMAX 44% 1.1 2,055 637
STAPLES (61)% 1.3 3,612 90
TARGET (AMIW20ENG) (61)% 0.4
WALMART (AMIW20ENG) (66)% 1.4
BJ'S WHOLESALE CLUB (100)% 0.0 3,305 620
PC CONNECTION (25)% 2
TECH DATA 3,776
INGRAM 3,800
------ ------ -----
TOTAL (52)% 34,311 2,209
====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
AG CAC PLUS V2.0
MGX AM1L20ENG # Stores Last Month Q4
IM 372748 TECH 471332 5/11/98 TOTAL TOTAL WE 4-Jul 11-Jul 18-Jul 25-Jul 1-Aug TOTAL
--------- --------- ------- -------- ------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BABBAGE'S 467 103 389 19 24 25 15 19 102
BEST BUY 284 1,724 7,893 409 371 398 317 311 1,806
CIRCUIT CITY 443 417 1,120 122 123 123 368
COMPUSA 172300 157 1,224 5,077 292 274 272 228 252 1,318
COMPUTER CITY 59-10604 89 379 1,624 152 76 106 86 66 486
COMPUTER CITY/CANADA 71-80158 7 19 44 3 1 1 5 0 10
COSTCO/CANADA West (AD1020ENG) 26 34 458 0
ELECTRONICS BOUTIQUE 465 101 334 24 23 25 13 16 101
FUTURE SHOP 100 21 89 31
FUTURE SHOP/CANADA 63 211 55
HASTINGS 107 0 52 0
MUSICLAND 68 0 183 54
OFFICE DEPOT 566 834 3,064 190 178 147 NA 515
OFFICEMAX 725 688 2,209 137 151 142 130 138 698
SAMS CLUB (AD1520ENG) 437 4,159 15,291 1,033 838 888 869 879 4,507
STAPLES 715 947 3,331 212 184 191 165 185 937
TARGET ((AD1W20ENG) 1,200 430 1,458 85 89 73 109 115 471
WALMART (AD1W20ENG) 2,200 1,750 6,136 373 422 531 529 536 2,391
MICRO WAREHOUSE 3 17 10
PC CONNECTION 3 24 4
TECH DATA
INGRAM
------ ------ ----- ----- ----- ----- ----- ------
TOTAL 12,896 49,001 3,051 2,754 2,922 2,466 2,517 13,864
====== ====== ===== ===== ===== ===== ===== ======
</TABLE>
<TABLE>
<CAPTION>
AG CAC PLUS V2.0 %Chg.
MGX AM1L20ENG % Chg. %Chg . QUARTER Last
IM 372748 TECH 471332 Last Month 8-Aug 15-Aug 22-Aug 29-Aug TOTAL Last Month TOTAL Quarter
---------- ----- ------ ------ ------ ----- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BABBAGE'S (1)% 24 23 47 (54)% 149 (62)%
BEST BUY 5% 0 (100)% 1,806 (77)%
CIRCUIT CITY (12)% 0 (100)% 368 (67)%
COMPUSA 172300 8% 349 230 579 (56)% 1,897 (63)%
COMPUTER CITY 59-10604 28% 77 63 140 (71)% 626 (61)%
COMPUTER CITY/CANADA 71-80158 (47)% 10 4 14 40% 24
COSTCO/CANADA West (AD1D2OENG) (100)% 0 #DIV/0! 0
ELECTRONICS BOUTIQUE 0% 12 20 32 (68)% 133 (60)%
FUTURE SHOP 48% 0 (100)% 31
FUTURE SHOP/CANADA (13)% 0 (100)% 55
HASTINGS #DIV/0! 0 #DIV/0! 0 (100)%
MUSICLAND #DIV/0! 0 (100)% 54 (70)%
OFFICE DEPOT (38)% 0 (100)% 515 (83)%
OFFICEMAX 1% 0 (100)% 698 (68)%
SAMS CLUB (AD1520ENG) 8% 612 693 1,305 (71)% 5,812 (62)%
STAPLES (1)% 175 189 364 (61)% 1,301 (61)%
TARGET (AD1W20ENG) 10% 96 46 142 (70)% 613 (58)%
WALMART (AD1W20ENG) 37% 593 567 1,160 (51)% 3,551 (42)%
MICRO WAREHOUSE 233% 0 (100)% 10 (41)%
PC CONNECTION 33% 0 (100)% 4 (83)%
TECH DATA
INGRAM
-- ----- ----- -- -- ----- ----- ------- ----
TOTAL 8% 1948 1,835 0 0 3,783 (73)% 17,647 (64)%
== ===== ===== == == ===== ===== ======= ====
</TABLE>
<TABLE>
<CAPTION>
AG CAC PLUS V2.0
MGX AM1L20ENG Ave. Sales UNITS UNITS
IM 372748 TECH 471332 per Store OH OO
---------- ----- -----
<S> <C> <C> <C>
BABBAGE'S 0.3 507
BEST BUY 6.4 3,180 1,078
CIRCUIT CITY 0.8 1,537
COMPUSA 172300 12.1 5,590
COMPUTER CITY 59-10604 7.0 1,283
COMPUTER CITY/CANADA 71-80158 3.4 71
COSTCO/CANADA West (AD1020ENG) 0.0
ELECTRONICS BOUTIQUE 0.3 338
FUTURE SHOP 0.3 100
FUTURE SHOP/CANADA 422
HASTINGS 0.0 192 33
MUSICLAND 0.8 99
OFFICE DEPOT 0.9 2,202 178
OFFICEMAX 1.0 2,590 319
SAMS CLUB (AD1520ENG) 13.3 5,267 13
STAPLES 1.8 3,538
TARGET (AD1520ENG) 0.5
WALMART (AD1520ENG) 1.6
MICRO WAREHOUSE
PC CONNECTION 3
TECH DATA 14,850
INGRAM 10,500
------ ------
TOTAL 51,922 1,621
====== ======
</TABLE>
<PAGE> 29
<TABLE>
<CAPTION>
AG CAC SE HANG PACK
MGX CD60331 # Stores Last1Month Q4
IM 372766 5/11/98 TOTAL TOTAL WE 4-Jul 11-Jul 18-Jul 25-Jul 1-Aug TOTAL
--------- ---------- ------- -------- ------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMPUTER CITY 87-10119 89 592 2,693 106 106 88 78 72 450
OFFICEMAX 725 1 1 12 28 57 60 68 225
TECH DATA
INGRAM
------ ------ ----- ----- ----- ----- ----- ------
TOTAL 593 2,694 106 106 88 78 72 450
====== ====== ===== ===== ===== ===== ===== ======
</TABLE>
<TABLE>
<CAPTION>
AG CAC SE HANG PACK
MGX CD60331 % Chg. % Chg. QUARTER
IM 372766 Last Month 8-Aug 15-Aug 22-Aug 29-Aug TOTAL Last Month TOTAL
----------- ----- ------ ------ ------ ----- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMPUTER CITY 87-10119 (24)% 102 80 182 (60)% 632
OFFICEMAX 22,400% (100)% 225
TECH DATA
INGRAM
------- ----- ------ ------ ------ ----- ------ ------
TOTAL (24)% 102 80 0 0 182 (60)% 632
======= ===== ====== ====== ====== ===== ====== ======
</TABLE>
<TABLE>
<CAPTION>
AG CAC SE HANG PACK %Chg.
MGX CD60331 Last Ave. Sales UNITS UNITS
IM 372766 Quarter per Store OH OO
------- ---------- ----- -----
<S> <C> <C> <C> <C>
COMPUTER CITY 87-10119 (77)% 7.1 3,471
OFFICEMAX 22,400% 0.3 3,471 4329
TECH DATA 463
INGRAM 1,942
------ ------ -----
TOTAL 9,347
====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
AG CAC SE JEWEL CASE
MGX CD60246
IM 372753 (20 pk) # Stores Last Month Q4
MM 372799 5/11/98 TOTAL TOTAL WE 4-Jul 11-Jul 18-Jul 25-Jul 1-Aug TOTAL
--------- ---------- ------- -------- ------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ELECTRONICS BOUTIQUE 465 505 2,031 127 128 95 108 108 566
MUSICLAND 68 0 406 93
TECH DATA
INGRAM
------ ------ ----- ----- ----- ----- ----- -----
TOTAL 505 2,437 127 128 95 108 108 659
====== ====== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
AG CAC SE JEWEL CASE
MGX CD60246
IM 372753 (20 pk) % Chg. % Chg. QUARTER
MM 372799 Last Month 8-Aug 15-Aug 22-Aug 29-Aug TOTAL Last Month TOTAL
---------- ----- ------ ------ ------ ----- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ELECTRONICS BOUTIQUE 12% 117 86 203 (64)% 769
MUSICLAND 0 (100)% 93
TECH DATA
INGRAM
------ ----- ----- ------ ------ ----- ------ --------
TOTAL 117 86 0 0 203 (69)% 862
====== ===== ===== ====== ====== ===== ====== ========
</TABLE>
<TABLE>
<CAPTION>
AG CAC SE JEWEL CASE
MGX CD60246 %Chg.
IM 372753 (20 pk) Last Ave. Sales UNITS UNITS
MM 372799 Quarter per Store OH OO
------- ---------- ------ -----
<S> <C> <C> <C> <C>
ELECTRONICS BOUTIQUE (62)% 1.7 3,033
MUSICLAND 1.4 175
TECH DATA
INGRAM 211
------- ------ -----
TOTAL (65)% 3,419
======= ====== =====
</TABLE>
2
<PAGE> 30
RETAIL SELL THROUGH CONSUMER GRAPHICS - OLD VERSIONS
Q1 July - September 1998
<TABLE>
<CAPTION>
AG CAC PLUS V1.0
MGX AM1L10ENG
IM 372718 LAST MONTH Q4 WE % CHG.
TECH 471306 TOTAL TOTAL 4-JUL 11-JUL 18-JUL 25-JUL 1-AUG TOTAL LAST MONTH
---------- ------ ------ ------ ------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BEST BUY 0 3 0
CIRCUIT CITY 1 6 0
COMPUSA 132405 34 119 12 1 2 2 6 23 (32)%
COMPUTER CITY 2 3 1 0 1 0 2 0%
ELECTRONICS BOUTIQUE 46 400 7 13 9 6 4 39 (15)%
HASTINGS 0 56 0 #DIV/0!
OFFICE DEPOT 1,137 2,995 260 261 250 215 206 1,192 5%
OFFICEMAX 0 11 0 0 1 0 1 2 #DIV/0!
STAPLES 1 7 0 0 0 0 0 0 (100)%
TECH DATA
INGRAM
------ ------ ------ ------ ------ ------ ------ ------ -----
TOTAL 1,221 3,600 280 275 263 223 217 1,258 3%
====== ====== ====== ====== ====== ====== ====== ====== =====
<CAPTION>
AG CAC PLUS V1.0
MGX AM1L10ENG
IM 372718 % CHG.
TECH 471306 8-AUG 15-AUG 22-AUG 29-AUG TOTAL LAST MONTH 5-SEP 12-SEP 19-SEP
----- ------ ------ ------ ------- ---------- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BEST BUY 0 #DIV/0!
CIRCUIT CITY 0
COMPUSA 132405 6 2 8 (65)%
COMPUTER CITY 0
ELECTRONICS BOUTIQUE 8 3 11 (72)%
HASTINGS 0 #DIV/0!
OFFICE DEPOT 231 230 461 (61)%
OFFICEMAX 0 (100)%
STAPLES 0 #DIV/0!
TECH DATA
INGRAM
----- ------ ------ ------ ------- ---------- ----- ----- -----
TOTAL 245 235 0 0 480 (62)% 0 0 0
===== ====== ====== ====== ======= ========== ===== ===== =====
<CAPTION>
AG CAC PLUS V1.0
MGX AM1L10ENG
IM 372718 % CHG. QUARTER % CHG. UNITS UNITS
TECH 471306 26-SEP TOTAL LAST MONTH TOTAL LAST QUARTER OH OO
------ ----- ----------- ------- ------------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
BEST BUY 0 #DIV/0! 0 1
CIRCUIT CITY 0 #DIV/0! 0 (100)% 24
COMPUSA 132405 0 100% 31 (74)% 67
COMPUTER CITY 0 #DIV/0! 2 (33)% 1
ELECTRONICS BOUTIQUE 0 100% 50 (88)% 36
HASTINGS 0 0 (100)% 132 21
OFFICE DEPOT 0 100% 1,653 (45)% 1,802 2,722
OFFICEMAX 0 #DIV/0! 2 (82)% 6
STAPLES 0 #DIV/0! 0 (100)% 19
TECH DATA
INGRAM 184
----- ----- ----- ----- ----- ----- -----
TOTAL 0 0 (100)% 1,738 (52)% 2,272 2,743
===== ===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
AG CAC GOLD V1.0
MGX AD1L20ENG
IM 372740 Last Month Q4 WE % Chg.
TECH 471326 TOTAL TOTAL 4-Jul 11-Jul 18-Jul 25-Jul 1-Aug TOTAL Last Month 8-Aug
---------- ----- ----- ------ ------ ------ ----- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CIRCUIT CITY 3 3 0
COMPUTER CITY 59-10599 7 8 0 0 10 1 0 11 0
HASTINGS 0 7 0 #DIV/0!
OFFICEMAX 2 16 0 0 1 0 2 3 50%
STAPLES 1 7 0 0 0 0 0 0 (100)% 0
TECH DATA
INGRAM
--------- ----- ----- ------ ------ ------ ----- ----- -------- -----
TOTAL 13 41 0 0 11 1 2 14 8% 0
========= ===== ===== ====== ====== ====== ===== ===== ======== =====
<CAPTION>
AG CAC GOLD V1.0
MGX AD1L20ENG
IM 372740 % Chg.
TECH 471326 15-Aug 22-Aug 29-Aug TOTAL Last Month 5-Sep 12-Sep 19-Sep 26-Sep TOTAL
------ ------ ------ ----- ---------- ----- ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CIRCUIT CITY 0 0
COMPUTER CITY 59-10599 0 0 (100)% 0
HASTINGS 0 #DIV/0! 0
OFFICEMAX 0 (100)% 0
STAPLES 3 3 #DIV/0! 0
TECH DATA
INGRAM
------ ------ ------ ----- -------- ------ ------ ------- ------ -----
3 0 0 3 (79)% 0 0 0 0 0
====== ====== ====== ===== ======== ====== ====== ======= ====== =====
<CAPTION>
AG CAC GOLD V1.0
MGX AD1L20ENG
IM 372740 % Chg. QUARTER % Chg. UNITS UNITS
TECH 471326 Last Month TOTAL Last Quarter OH OO
---------- ------- ------------ -- --
<S> <C> <C> <C> <C> <C>
CIRCUIT CITY 0 (100)% 19
COMPUTER CITY 59-10599 11 38%) 7
HASTINGS 0 (100)% 149 12
OFFICEMAX #DIV/0! 3 (81)% 34
STAPLES (100)% 3 (57)% 52
TECH DATA
INGRAM 98
------- ------ ------- ---- -----
(100)% 17 (59)% 359 12
======= ====== ======= ==== =====
</TABLE>
1
<PAGE> 31
INVENTORY AT MGX RICHARDSON
<TABLE>
<CAPTION>
Part Number Description Quantity
- -----------------------------------------------------------------------------
<S> <C> <C>
AD1L10ENG AM CREATE-A-CARD GOLD CDROM LIVE 1.0 ENG 93
AM1A10ENG AM CREATACARD UK CDROM LIVE 1.0 ENG 6
AM1C10ENG AM CREATACARD INT'L CDROM LIVE 1.0 ENG 9
AM1W20ENG CAC PLUS CD 2.0 ENG WALMART 319
AM20CDOEM AM 1.0 CREATACARD 20 "OEM" CD DISPLAY 9
<CAPTION>
Part Number Description Quantity
- -----------------------------------------------------------------------------
<S> <C> <C>
AD1A20ENG CAC GOLD UK LIVE 2.0 ENG 2,300
</TABLE>
INVENTORY AT SOFTBANK
<TABLE>
<CAPTION>
Part Number Description Quantity
- -----------------------------------------------------------------------------
<S> <C> <C>
AD1FU21ENG CAC GOLD CD Upgrade Pack 2.1 ENG 674
AD1L10ENG AM CREATE-A-CARD GOLD CDROM LIVE 1.0 ENG 798
AD1L20ENG CAC GOLD CD LIVE 2.0 ENG 1,967
AD1W20ENG CAC GOLD CD 2.0 ENG WALMART 16
AM1L20ENG CAC PLUS CD LIVE 2.0 ENG 533
AM1W20ENG CAC PLUS CD 2.0 ENG WALMART 2
</TABLE>
INVENTORY AT MGX VENLO
<TABLE>
<CAPTION>
Part Number Description Quantity
- -----------------------------------------------------------------------------
<S> <C> <C>
AD1A20ENG CAC GOLD UK LIVE 2.0 ENG 1,852
AD1C20ENG CAC GOLD CD INT'L LIVE 2.0 ENG 42
AM1A10ENG AM CREATACARD UK CDROM LIVE 1.0 ENG 302
AM1C10ENG AM CREATACARD INT'L CDROM LIVE 1.0 ENG 36
</TABLE>
<PAGE> 32
SCHEDULE 2.6
INTANGIBLE PROPERTY
1. Trademarks: None (all owned by American Greetings)
2. Registered Trademarks or Pending Applications: None
3. Registered Copyrights:
<TABLE>
<CAPTION>
Program/Version Registration # Date
--------------- -------------- ----
<S> <C> <C>
CREATACARD GOLD 1.0 TX4-574-621 10/20/1997
CreataCard Gold 2.0 TX4-574-620 10/20/1997
CreataCard Gold 2.1 TXu-814-555 02/10/1998
CreataCard Plus 1.0 TX4-574-623 10/20/1997
CreataCard Plus 2.0 TX4-574-622 10/20/1997
CreataCard Plus 2.1 TXu-814-556 02/10/1998
CreataCard Japanese version 1.0 TX-576-71 01/20/1996
CreataCard Studio Source Code TX4-321-216 08/23/1996
</TABLE>
1. Unregistered Copyrights:
<TABLE>
<CAPTION>
Program/Version Date
--------------- ----
<S> <C>
CreataCard Gold 3.0
CreataCard Plus 3.0
</TABLE>
Note: Buyer's rights to registered and unregistered copyrights relate
only to packaging, trade dress and other collateral materials identified in
Section 1.2(a)(ii).
<PAGE> 33
SPECIFICATIONS
CreataCard Program Features
o Card Rack Browsing
o Find-A-Card Browsing
o ForgetMeNot Address Book & Calendar
o Greeting Card Generation
o Print
o E-mail
o Personal Delivery
o Creative Workshop
o Art Book
o Message Book
o Drawing Tools
o All project templates
o Themed Projects
o Multi-media Greetings
o Add-A-Photo Greetings
Content Project Types
o Greeting Cards
o Invitations
o Announcements
o Add-A-Photo Cards
o Signs/Certificates and Stationery
o Postcards
o Business Cards
o Envelopes
o Labels & Gift Tags
o Stickers
o Banners
o Calendar
o Labels
o Multimedia Greeting Cards (e-mail only)
