<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
Commission File Number 0-14692
GLOBAL MAINTECH CORPORATION
MINNESOTA 41-1523657
State of Incorporation I.R.S. Employer Identification No.
6468 City West Parkway
Eden Prairie, MN 55344
(612) 944-0400
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK, NO
PAR VALUE
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes [X] No [_]
Check if disclosure of delinquent filers in response to Item 405 of Regulations
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The Company's revenues for the Fiscal Year Ended December 31, 1997 totaled
$3,003,000
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 5, 1998 was approximately $31,230,000 based upon the
closing bid price on the OTC Bulletin Board on that date. The number of shares
of the Company's no par value common stock outstanding as of March 5, 1998 was
17,104,691.
Transitional Small Business Disclosure Format (Check One):
Yes [_] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the Annual Meeting of Shareholders
for the year ended December 31, 1997 are incorporated by reference in part III
COPIES OF THE COMPANY'S FORMS 10-KSB, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, MAY BE OBTAINED FREE OF CHARGE FROM JAMES GEISER AT THE COMPANY,
6468 CITY WEST PARKWAY, EDEN PRAIRIE, MINNESOTA 55344, PHONE 612-944-0400
<PAGE>
SAFE HARBOR STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report on Form 10-KSB contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties that may cause the
Company's actual results to differ materially from the results discussed in the
forward-looking statements. Factors that might cause such differences include,
but are not limited to, the uncertainty in the Company's ability to continue to
operate profitably in the future; failure of the Company to meet its future
additional capital requirements; loss of key personnel; failure of the Company
to respond to evolving industry standards and technological changes; inability
of the Company to compete in the industry in which it operates; lack of market
acceptance of the Company's products; failure of the Company to secure adequate
protection for the Company's intellectual property rights; and the Company's
exposure to product liability claims. The forward-looking statements are
qualified in their entirety by the cautions and risk factors set forth in
Exhibit 99, under the caption "Cautionary Statement," to this Annual Report on
Form 10-KSB for the year ended December 31, 1997.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
The Company, through its wholly owned subsidiary Global MAINTECH, Inc.,
designs, develops and markets a computer system, consisting of hardware and
software, which monitors and controls diverse computers in a data center from a
single, master console. The Virtual Command Center ("VCC" or "VCC Unit") can
simultaneously manage mainframes, mid-range computers (e.g., UNIX, Microsoft and
Windows NT platforms) and networks. The VCC is designed to perform three primary
functions: (a) consolidate consoles (computer terminal with access to the
internal operation of a computer) into one monitor, a "virtual console" or
single point of control: (b) monitor and control the computers connected to the
virtual console; and (c) automate most, if not all, of the routine processes
performed by computer platforms and operating systems. It is an external system
that monitors and controls the subject mainframe and other data center computers
from a workstation-quality reduced instruction set computer ("RISC") which is
housed separately from the computers it controls. VCC users are able to reduce
staffing levels, consolidate all data center operations and technical support
functions to a single location regardless of the physical location of the data
center(s) and achieve improved levels of operational control and system
availability.
In 1995, the Company installed it first three VCC Units in the data centers
of a large industrial and financial company. In 1996, the Company sold or leased
seven additional VCC Units and added two new customers. As of December 31, 1997,
the Company had sold or leased a cumulative total of twenty-one VCC Units to a
total of eight customers and had shipped four VCC Units for evaluation purposes
to three prospective customers. The Company's customers include: General
Electric Capital Corporation, Burlington Northern Santa Fe Railroad, Storage
Technology Corporation, Systems Management Specialists, Inc., Ferntree Computer
Corp. (Australia), SAP America, Inc., Deluxe Corporation, Bank One Services
Corp., BMC Software, Frontier Information Technologies, Inc. and Merrill Lynch &
Co. Inc.
Systems Management Software
The VCC competes with internal monitoring software, which monitors certain
pieces of hardware and software applications in the computer in which such
internal software is installed, sold by other companies. Annual sales of
systems-management software were estimated to be $3 billion as of November 1996.
It is believed this market will grow to almost $9 billion by 2000, which would
represent a compound annual growth rate of approximately 30%.
The Company believes the VCC also is well suited for use in enterprise
computing applications. Enterprise computing is the term associated with the
hardware and software which enables computer that contain different processors
to be linked together. The VCC has its own proprietary software and hardware
which allow it to form an enterprise computing management system. The VCC can be
used to monitor and control desktops, mid-range servers and mainframes. Sales of
all such UNIX-based systems in 1995 were approximately $19 billion.
The Company is engaged solely in the business of manufacturing and selling
VCC Units. This line of business generated all of the Company's revenue in 1996
and 1997. Certain of the revenues represent maintenance service revenue and
consulting revenue from its customer base.
2
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The Company was incorporated under the laws of the State of Minnesota in
1985 under the name Computer Aided Time Share, Inc. In 1995, the Company changed
its name to Global MAINTECH Corporation. As of December 31, 1997 the Company had
no employees and its operating subsidiary, Global MAINTECH, Inc., had 26
employees.
See also "Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent Developments."
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's headquarters is located at 6468 City West Parkway, Eden
Prairie, MN 55344, with additional office space located at 6542 City West
Parkway, Suite 200, Eden Prairie, MN 55344. The leases for each of these
locations terminate on July 31, 1998. The Company is currently negotiating a new
20 month lease for 10,500 square feet at 7574 Market Place Drive, Eden Prairie,
MN 55344 with a term beginning August 1, 1998. The Company anticipates
consolidating its headquarters into this office space at such time. In August
1996 the Company entered into an office lease with 1,545 square feet at 17310
Redhill Avenue, Suite 115, Irvine, CA 92714 and has a smaller office at 599 N.
Mathilda Ave., Sunnyvale, CA 94086. These leases provide for monthly payments
through July 31 and August 31, 1998, respectively and are used as sales and
technical development offices. The Company is responsible for utilities,
insurance, and other operating expenses at all locations.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the Company's shareholders
during the quarter ended December 31, 1997.
3
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on the OTC Bulletin Board under the
symbol "GLBM". Prior to November 12, 1996, the Company's common stock traded
under the symbol "GBMT." The Company effected a 1-for-5 reverse split of its
common stock on November 12, 1996.
The following are the high and low bid quotations for the Company's
common stock as reported on the OTC Bulletin Board during each quarter of the
fiscal years ended December 31, 1997 and 1996. These quotations represent prices
quoted between dealers as if the 1-for-5 reverse stock split had occurred on
January 1, 1996, without retail mark-up, mark-down or commission, and may not
necessarily represent actual transactions.
YEAR ENDED DECEMBER 31, 1997
COMMON STOCK
QUARTER LOW HIGH
--------------------------------------
First $ 1.44 $ 2.56
Second 1.50 2.75
Third 1.69 2.38
Fourth 1.94 2.88
YEAR ENDED DECEMBER 31, 1996
COMMON STOCK
QUARTER LOW HIGH
--------------------------------------
First $ 0.30 $ 0.75
Second 0.40 1.60
Third 0.65 1.30
Fourth 0.90 1.81
As of March 5, 1998, the Company had approximately 2,617 shareholders of
record. The Company has not paid cash dividends on its common stock and does not
anticipate paying cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations
The consolidated financial statements that accompany this discussion show
the operating results of the Company for the years ended December 31, 1997 and
1996. These results include the operations of Global MAINTECH, Inc., the
Company's wholly owned subsidiary.
Sales from continuing operations for the year ended December 31, 1997 were
approximately $3,003,000 compared to sales from continuing operations of
$2,130,000 in the year ended December 31, 1996. Sales of the Virtual Command
Center or VCC were approximately $2,138,000 in 1997 compared to approximately
$1,797,000 in 1996. Maintenance fees were approximately $702,000 in 1997 on
previously sold systems. Revenue in 1997 also included approximately $132,000 of
consulting revenue and $30,000 from sales of miscellaneous computer parts.
Revenue in 1996 related to maintenance, consulting, and other activities totaled
approximately $332,000. These revenue activities reflect the installation of a
cumulative total of 21 VCC units with eight customers compared to a cumulative
total of 10 VCC units with three customers in 1996. The gross margin on sales
was approximately 75% in 1997 compared to 71% in the year ended December 31,
1996. The increase in gross margin in 1997 is primarily related to the increase
in maintenance fees in 1997.
Selling, general and administrative costs for the year ended December 31,
1997 were approximately $1,649,000 compared to approximately $962,000 for the
same period in the prior year. This $687,000 increase is related to a $235,000
increase in salary expense which reflects an increase in paid employees which
grew during the year from 16 to 26. Advertising, travel and entertainment costs
increased $134,000 and $97,000, respectively in the year ended
1997 versus 1996. This reflects the increased activities in the business:
marketing and travel expenses are directly related to increased selling
activities. Nearly all the other "S,G&A" costs increased by amounts ranging from
$84,000 to $15,000 including professional and technical costs, depreciation
expense, and supplies, insurance, rent
4
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and utilities costs. These increases are all primarily related to increased
business activities of the Company. Professional and technical expenses which
include legal, accounting and investor relations expenses increased due to
additional governance costs and a recovery of reserves which offset such
expenses in 1996. There were no new litigation expenses in either 1997 or 1996.
Depreciation expense increased as a function of the increase in equipment
purchases for new employees. Office and warehouse supplies, insurance, rent and
utilities all increased due to additional employees and additional offices.
Insurance expense in 1996 was also unusually low due to an insurance refund
received in 1996. Research and development expenses in 1997 and 1996 relate to
the ongoing maintenance of existing software and comprise salaries and
consulting fees for technical expertise. In 1997 this cost reflects fees paid of
nearly $100,000 to a technical search firm hired to find additional technical
employees.
Non-operating expenses in the year ended December 31, 1997 consisted of
interest expense, interest income and amortization of deferred debt issue costs
indicated as "Other". In the last six months of 1997 interest expense includes
only the cost of the $2,000,000 of subordinated debt issued by the Company on
June 19, 1997. In the prior year interest expense represented the costs of the
Company's convertible subordinated debentures, notes payable to vendors, a bank,
and individuals, the principal amount of which totaled approximately $380,000 at
December 31, 1996. Interest income in 1997 is the result of short-term
investments of excess cash. Amortization ($44,294 annually on a straight-line
basis over five years) of deferred debt issue costs of $221,470 relates to the
issuance of $2,000,000 of subordinated debt.
Net cash used in operating activities for the year ended December 31, 1997
was approximately $302,000 compared to approximately $163,000 provided by such
activities in the year ended December 31, 1996. During the year ended December
31, 1997 operating funds of approximately $662,000 were provided by net income
prior to depreciation/amortization. This increase was more than offset by a use
of operating funds for assets including inventory, accounts receivable, and
prepaid expenses of approximately $760,000 and for short-term liabilities of
approximately $204,000.
Cash used for investing activities in the year ended December 31, 1997 of
approximately $2,270,000 reflects investments of approximately $780,000 in
capitalized computer software development costs, which represent costs incurred
after technological feasibility has been established in connection with the
development of enhancements to one or more particular software programs, and
approximately $109,000 in software licenses and patent costs. Additionally, the
Company invested approximately $780,000 in sales-type leases covering the
Company's products, purchased approximately $362,000 of property and equipment
and invested approximately $163,000 in operating leases covering the Comapny's
products. The Company also invested $75,000 in a software company due in 1998.
In 1996 the Company invested approximately $473,000 in capitalized computer
software development costs, $68,000 in patent costs and purchased $37,000 of
property and equipment.
Net cash of approximately $4,266,000 was provided by financing activities
in the year ended December 31, 1997. This is the result of net proceeds from the
issuance of common stock of $2,768,000 primarily through two separate private
placements at per share prices of $0.75, $1.40, and a net issuance of long-term
notes payable of $2,000,000. These proceeds were partially offset by payments of
short-term notes payable of $320,000 and disbursements of approximately $212,000
for the issuance of new debt in the year ended December 31, 1997. In the year
ended December 31, 1996 cash was provided by financing activities of
approximately $516,000. This is the result of approximately $675,000 of proceeds
from the issuance of common stock offset by decreases in short-term and long-
term notes payable of approximately $159,000.
Liquidity and Capital Resources
As of December 31, 1997, the Company had positive working capital of
approximately $2,884,000 compared to negative working capital of approximately
$400,000 as of December 31, 1996. The positive working capital as of December
31, 1997 is primarily due to the issuance of common stock and five-year
subordinated debt and the Company's profitability during 1997. As of December
31, 1996, the Company was delinquent in principal payments of $283,000 of debt.
The Company resolved such delinquencies during 1997.
Presently, the Company believes it has sufficient working capital to pay
its current liabilities. In addition to the proceeds received from the debt and
equity issuances discussed above, the Company believes its working capital will
continue to improve as the Company's profitability improves. This depends on the
Company's ability to collect its accounts receivable and to make sales
sufficient to realize the full value of its current inventory. Since the Company
has recently achieved gross margins of approximately 70% on its sales and has
not experienced any bad debts on its accounts receivable, management believes
the Company's financial health will continue to improve as additional sales are
realized. To that end, the Company has continued to purchase additional
inventory in anticipation of
5
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additional sales. Such profitability also has improved the Company's access to
the capital markets. Nevertheless, the Company can provide no assurance as to
its continued profitability and access to the capital markets.
During the year ended December 31, 1997, the Company's liquidity and
capital resources were substantially improved. The Company's operating plan for
the year ending December 31, 1998 anticipates a substantial increase in sales
over the year ended December 31, 1997 with a commensurate increase in net
income. As a result this operating plan projects a significant increase in the
liquidity and capital resources of the Company. While the Company believes in
the viability of its operating plan and currently anticipates that its operating
plan will be achieved, there can be no assurances to that effect.
Year 2000 Issue
The Company has analyzed the potential effect of the year 2000 issue on
both the system software included in the Company's equipment and on application
software licensed or purchased by the Company and used in its internal
operations. The Company has tested all of the system software included in its
products and determined that it will not be affected. In addition, the Company
has requested and received documentation from vendors supplying software for its
primary business application addressing year 2000 compliance. In all cases,
vendors responses indicated that their applications were either currently year
2000 compliant or that they would be compliant by the end of 1998, although the
Company has not independently tested these applications for compliance. Based on
this analysis, the Company does not anticipate a material cost associated with
its systems relative to the year 2000 issue.
Recent Developments
On February 27, 1998 the Company purchased certain software and other
assets relating to the system software business of Infinite Graphics
Incorporated ("IGI"), a Minnesota corporation based in Minneapolis. The
acquisition will be recorded as an asset purchase. The acquisition agreement
provides for an initial payment of $500,000 and additional payments of up to
$3,500,000. The payment of up to $3,300,000 of this additional payment is
contingent on the future net income of this business segment and is determinable
as of May 31, 1999. In the twelve months ended December 31, 1997 the unaudited
revenue of IGI's software segment was $1,683,000 and the gross margin was
$621,000.
The acquired software and assets will be used by the Company to design,
assemble and market computer-aided design and manufacturing software systems
that operate on a variety of mid-range and personal computer platforms.
Assets purchased in the acquisition include inventory, machinery and
equipment, furniture and fixtures, a perpetual exclusive software license of a
majority of the IGI software products used in the system software business and a
non-exclusive license of certain software used in IGI's remaining business
segment. IGI will reimburse the Company for the liabilities of IGI explicitly
assumed by the Company in connection with the acquisition. The Company also
agreed to satisfy IGI's unrecorded service obligations to the software end users
in return for which the Company expects to receive support payments from such
end users.
In addition, in February 1998 the Company began a 400,000 share private
placement of common stock at $1.90 per share and had issued 221,000 shares as
of March 23, 1998. Maven Securities, Inc. acted as the placement agent wherein
the Company agreed to pay the placement agent a 10% commission, a 3% fee for
expenses and to issue to such agent a warrant to purchase up to 10% of the
number of shares of common stock issued in connection with such offering at an
exercise price of $1.90 per share. The shares of common stock issued pursuant to
this issuance are exempt from registration under Rule 506 of Regulation D of the
Securities Act of 1933, as amended.
6
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ITEM 7. FINANCIAL STATEMENTS.
Index to Financial Data
PAGE
Independent Auditors' Report 8
Consolidated balance sheets 9
Consolidated statements of operations 11
Consolidated statements of stockholders' equity (deficit) 12
Consolidated statements of cash flows 13
Notes to consolidated financial statements 14
7
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders of Global MAINTECH Corporation:
WE HAVE AUDITED THE ACCOMPANYING CONSOLIDATED BALANCE SHEETS OF GLOBAL MAINTECH
CORPORATION AND SUBSIDIARY AS OF DECEMBER 31, 1997 AND 1996, AND THE RELATED
CONSOLIDATED STATEMENTS OF OPERATIONS, STOCKHOLDERS' EQUITY, AND CASH FLOWS FOR
THE YEARS THEN ENDED. THESE CONSOLIDATED FINANCIAL STATEMENTS ARE THE
RESPONSIBILITY OF THE COMPANY'S MANAGEMENT. OUR RESPONSIBILITY IS TO EXPRESS AN
OPINION ON THESE CONSOLIDATED FINANCIAL STATEMENTS BASED ON OUR AUDITS.
WE CONDUCTED OUR AUDITS IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING
STANDARDS. THOSE STANDARDS REQUIRE THAT WE PLAN AND PERFORM THE AUDIT TO OBTAIN
REASONABLE ASSURANCE ABOUT WHETHER THE FINANCIAL STATEMENTS ARE FREE OF MATERIAL
MISSTATEMENT. AN AUDIT INCLUDES EXAMINING, ON A TEST BASIS, EVIDENCE SUPPORTING
THE AMOUNTS AND DISCLOSURES IN THE FINANCIAL STATEMENTS. AN AUDIT ALSO INCLUDES
ASSESSING THE ACCOUNTING PRINCIPLES USED AND SIGNIFICANT ESTIMATES MADE BY
MANAGEMENT, AS WELL AS EVALUATING THE OVERALL FINANCIAL STATEMENT PRESENTATION.
WE BELIEVE THAT OUR AUDITS PROVIDE A REASONABLE BASIS FOR OUR OPINION.
IN OUR OPINION, THE CONSOLIDATED FINANCIAL STATEMENTS REFERRED TO ABOVE PRESENT
FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL POSITION OF GLOBAL MAINTECH
CORPORATION AND SUBSIDIARY AS OF DECEMBER 31, 1997 AND 1996, AND THE RESULTS OF
THEIR OPERATIONS AND THEIR CASH FLOWS FOR THE YEARS THEN ENDED, IN CONFORMITY
WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 23, 1998
8
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GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, December 31,
1997 1996
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $1,726,889 $ 32,890
Accounts receivable, less allowance for
doubtful accounts of $15,000 576,573 451,599
Other receivables 26,111 21,519
Inventories 797,435 217,943
Prepaid expenses and other 77,308 26,706
Notes receivable 75,000 --
Current portion of investment in
sales-type leases 286,997 --
---------- ----------
Total current assets 3,566,313 750,657
Property and equipment, net 308,347 31,221
Leased equipment 209,033 82,377
Software development costs, net 955,835 425,519
Net investment in sales-type leases,
net of current portion 492,918 --
Other assets, net 331,003 61,779
---------- ----------
TOTAL ASSETS $5,863,449 $1,351,553
========== ==========
The accompanying notes are an integral part of these consolidated statements.
9
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GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, December 31
1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 396,159 $ 396,004
Current portion of subordinated notes payable 100,000 211,613
Convertible subordinated debentures -- 151,750
Accrued liabilities
Compensation and payroll taxes 123,605 79,655
Interest -- 13,960
Other 10,588 38,325
Deferred revenue 52,443 259,747
----------- -----------
Total current liabilities 682,795 1,151,054
----------- -----------
Subordinated notes payable, less current portion 1,900,000 16,600
----------- -----------
Total liabilities 2,582,795 1,167,654
STOCKHOLDERS' EQUITY (DEFICIT)
Voting, convertible preferred stock - Series A,
convertible into one common stock share for
each preferred share, no par value; 887,980
shares authorized; 244,113 shares in 1997 and
700,667 shares in 1996 issued and outstanding;
total liquidation preference of outstanding
shares-$458,000 114,489 328,601
Common stock, no par value; 49,112,020 shares
authorized; 17,084,587 shares in 1997 and
13,260,533 shares in 1996 issued and outstanding -- --
Additional paid-in-capital 5,295,829 2,243,438
Notes receivable-officers (294,500) (324,500)
Accumulated deficit (1,835,164) (2,063,640)
----------- -----------
Total stockholders' equity 3,280,654 183,899
----------- -----------
$ 5,863,449 $ 1,351,553
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
10
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GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
December 31,
1997 1996
------------ -------------
Net sales
Systems $ 2,138,323 $ 1,797,295
Maintenance, consulting and other 864,184 332,208
------------ ------------
Total net sales 3,002,507 2,129,503
Cost of sales
Systems 417,225 538,803
Maintenance, consulting and other 344,808 86,664
------------ ------------
Total cost of sales 762,033 625,467
------------ ------------
Gross profit 2,240,474 1,504,036
Operating expenses
Selling, general and administrative 1,649,394 962,398
Research and development 319,859 150,273
------------ ------------
Income from operations 271,221 391,365
Other income (expense):
Interest expense (183,004) (60,746)
Interest income 92,406 --
Other (22,147) (2,554)
------------ ------------
Total other expense, net (112,745) (63,300)
------------ ------------
Income from continuing operations before
income taxes 158,476 328,065
------------ ------------
Provision for income taxes -- 18,500
------------ ------------
Income from continuing
operations 158,476 309,565
Gain from discontinued operations 70,000 --
------------ ------------
Net income $ 228,476 $ 309,565
============ ============
Basic earnings per common share:
Continuing operations $ 0.010 $ 0.026
Discontinued operations 0.004 --
------------ ------------
Net earnings $ 0.014 $ 0.026
============ ============
Diluted earnings per common share:
Continuing operations $ 0.008 $ 0.022
Discontinued operations 0.004 --
------------ ------------
Net earnings $ 0.012 $ 0.022
============ ============
Shares used in calculations:
Basic 15,918,047 11,988,189
Diluted 19,555,417 14,268,610
The accompanying notes are an integral part of these consolidated statements.
11
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GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Preferred stock Common stock Additional Notes
-------------------- --------------------- paid-in receivable- Accumulated
Shares Amount Shares Amount capital officers defict Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 865,207 $ 405,770 10,487,695 $ -- $ 906,658 $ -- $(2,373,206) $(1,060,778)
Net income -- -- -- -- -- -- 309,566 309,566
Common stock issued -- -- 1,609,965 -- 777,545 -- -- 777,545
Stock issue costs -- -- -- -- (119,434) -- -- (119,434)
Voluntary stock reduction -- -- (1,340,000) -- -- -- -- --
Conversion of notes payable -- -- 200,000 -- 150,000 -- -- 150,000
Conversion of subordinated
debentures -- -- 168,333 -- 110,000 -- -- 110,000
Common stock options and
warrants exercised -- -- 1,970,000 -- 341,500 -- -- 341,500
Exercise officer stock
options -- -- -- -- -- (324,500) -- (324,500)
Converted preferred shares (164,540) (77,169) 164,540 -- 77,169 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 700,667 $ 328,601 13,260,533 $ -- $2,243,438 $(324,500) $(2,063,640) 183,899
Net income -- -- -- -- -- -- 228,476 228,476
Common stock issued -- -- 2,752,800 -- 2,779,600 -- -- 2,779,600
Stock issue costs -- -- -- -- (312,278) -- -- (312,278)
Common stock options and
warrants exercised -- -- 614,970 -- 300,957 -- -- 300,957
Stock options exercised in
conjunction wtih retirement
of note payable -- -- -- -- 60,000 -- -- 60,000
Receipt of payment of officer
note receivable related to
stock options exercised in 1996 -- -- -- -- -- 30,000 -- 30,000
Warrants issued in conjunction
with issuance of notes
payable -- -- -- -- 10,000 -- -- 10,000
Converted preferred shares (456,554) (214,112) 456,554 -- 214,112 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 244,113 $ 114,489 17,084,857 $ -- $5,295,829 $(294,500) $(1,835,164) $3,280,654
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
12
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GLOBAL MAINTECH CORPORATION SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 228,476 $ 309,566
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 433,981 101,215
Changes in operating assets and liabilities:
Increase in accounts
and other receivables (129,566) (111,848)
Increase in inventory (579,492) (31,131)
Increase in prepaid expenses (50,602) (5,702)
Increase (decrease) in accounts payable 155 (412,426)
Increase in accrued expenses 2,253 53,630
Increase (decrease) in deferred revenue (207,304) 259,747
----------- -----------
Cash provided (used) by operating
activities (302,099) 163,051
----------- -----------
Cash flows from investing activities:
Net increase in investment in sales-type leases (779,915) --
Purchase of property and equipment (361,869) (37,173)
Investment in leased equipment (162,548) (107,140)
Investment in software development costs (781,516) (473,719)
Investment in other intangible's (108,900) (67,779)
Investment in note receivable (75,000) --
----------- -----------
Cash used by investing activities (2,269,748) (685,811)
----------- -----------
Cash flows from financing activities:
Disbursements for deferred debt costs (212,470) --
Proceeds from issuance of common stock 2,768,279 675,111
Payments of notes payable and convertible
subordinate debentures (319,963) (158,825)
Payments received on officers note receivable 30,000 --
Proceeds from issuance of notes payable 2,000,000 --
----------- -----------
Cash provided by financing
activities 4,265,846 516,286
----------- -----------
Net increase (decrease) in cash 1,693,999 (6,474)
Cash and cash equivalents at beginning of year 32,890 39,364
----------- -----------
Cash and cash equivalents at end of year $ 1,726,889 $ 32,890
=========== ===========
</TABLE>
Supplemental disclosures of cash flow information:
Cash paid during the year for: Interest $ 200,584 $ 62,686
Income taxes 9,999
Supplemental disclosure of noncash investing and financing activities:
During 1997, warrants to purchase shares of common stock were issued in
connection with the issuance of notes payable. The estimated value of
warrants ($10,000) was capitalized related to this transaction (Note 7).
During 1997, options held by a vendor were exercised in connection with the
retirement of $60,000 of outstanding notes payable.
The accompanying notes are an integral part of these consolidated statements.
13
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS: Global MAINTECH, Inc., the Company's principal operating
subsidiary, produces and assembles a computer software and hardware product that
it sells as a console consolidation and console management solution to the
systems and network management marketplace primarily in the United States. The
product is called the Virtual Command Center ("VCC").
The VCC is a tool designed to do three functions: the first is to consolidate
consoles (computer terminals with access to the internal operation of a
computer) into one monitor, a "virtual console" or single point of control; the
second is to monitor and control the computers connected to the virtual console;
and, the third is to automate most, if not all, of the routine processes
performed by computer operators in data centers. The VCC can be operated from a
remote location and accepts multiple different computer platforms and operating
systems. It is an external system that monitors and controls the subject
mainframe and other data center computers from a workstation quality RISC
computer, which is housed separately from the computers it controls. VCC users
are able to reduce staffing levels, consolidate all data center operations and
technical support functions to a single location regardless of the physical
location of the data center(s) and achieve improved levels of operational
control and system availability.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of Global MAINTECH Corporation and its operating subsidiary, Global
MAINTECH, Inc. All significant intercompany accounts and transactions have been
eliminated.
NEW ACCOUNTING PRONOUNCEMENTS: Effective for 1997, the Company implemented SFAS
No. 128, Earnings Per Share, and SFAS No. 129, Disclosure of Information about
Capital Structure. The effect of SFAS 128 is described below. SFAS 129
incorporated several existing disclosure requirements on capital structure into
a single accounting standard and had no effect on the Company's reporting.
SFAS No. 130, Reporting Comprehensive Income, is effective for the Company for
all periods reported after December 31, 1997. This standard prescribes a new way
of reporting and displaying the balances of and changes in certain equity
accounts. SFAS 130 does not affect the measurement or accounting for these
accounts. By its nature, SFAS 130 will, when implemented, have no effect on the
Company's reported operations or financial position. The Company is considering
alternative presentations to meet the new requirements.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
INVENTORY: Inventory is stated on a first in, first out (FIFO) basis at the
lower of cost or market.
PROPERTY AND EQUIPMENT: Property and equipment is recorded at cost and comprised
primarily of computer and office equipment. Depreciation is provided for
principally using the double declining balance method, based on the estimated
useful lives of the respective assets which generally have lives of three years.
Maintenance and repairs are charged to expense as incurred.
REVENUE RECOGNITION: Revenue from product sales is recognized upon the latter of
shipment or final acceptance. Deferred revenue is recorded when the Company
receives customer payments before shipment or acceptance or before maintenance
revenues are earned. The Company sells maintenance agreements which require
minor updates of software to be delivered to the customers free of charge. New
versions of the Company's software representing a major upgrade are not a part
of the maintenance agreements. The Company expenses the costs of minor updates
to its software as incurred.
The Company recogizes revenue from leasing activities in accordance with SFAS
No. 13, Accounting for Leases. Accordingly, leases that transfer substantially
all the benefits and risks of ownership are accounted for as sales-type leases.
All other leases are accounted for as operating leases.
Under the sales-type method, profit is recognized at lease inception by
recording revenue and cost. Revenue consists of the present value of the future
minimum leae payments discounted at the rate implicit in the lease. Cost
consists of the equipment's book value. The present value of the estimated value
of the equipment at lease termination (the residual value), which is generally
not material, and the present value of the fudture minimum lease
14
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
payments are recorded as assets. In each period, interest income is recognized
as a percentage return on asset carrying values.
The Company is the lessor of equipment under operating leases expiring in
various years. The cost of equipment subject to such leases is recorded as
leased equipment and is depreciated on a straight-line basis over the estimated
service life of the equipment. Operating lease revenue is recognized as earned
over the term of the underlying lease.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS: Under the criteria set forth in SFAS No.
86, Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed, capitalization of software development costs begins upon the
establishment of technological feasibility of the software. The establishment of
technological feasibility and the ongoing assessment of the recoverability of
these costs require considerable judgment by management with respect to certain
external factors, including, but not limited to, anticipated future gross
product revenues, estimated economic life, and changes in software and hardware
technology. Capitalized software development costs are amortized utilizing the
straight-line method over the estimated economic life of the software not to
exceed three years.
The carrying value of a software development asset is regularly reviewed by the
Company and a loss is recognized when the unamortized costs are not recoverable
based on the estimated cash flows to be generated from the applicable software.
OTHER ASSETS: Other assets is comprised of patents, capitalized software license
fees, and capitalized debt issuance costs. Patents and capitalized software
license fees are stated at costs and are amortized over three years or over the
useful life of the license using the straight-line methods. Capitalized debt
issuances costs are stated at cost and are amortized over the term of the
related debt agreement. Recorded amounts for patents and license fees are
regularly reviewed and recoverability assessed. The review considers factors
such as whether the amortization of these capitalized amounts can be recovered
through forecasted undiscounted cash flows.
RESEARCH AND DEVELOPMENT: Research and development costs are expensed as
incurred.
STOCK BASED COMPENSATION: The Company has adopted the disclosure requirements
SFAS No. 123, Accounting and Disclosure of Stock-Based Compensation. As
permitted under SFAS No. 123, the Company applies Accounting Principles Board
Opinion No. 25 (APB No. 25), Accounting for Stock Issued to Employees and
related interpretations in accounting for is plans. Accordingly, no compensation
expense has been recognized for its stock-based compensation plans.
EARNINGS PER SHARE: SFAS 128 Earnings per Share, became effective to the
Company for the year ended December 31, 1997 and requires restatement of all
earnings per share amounts presented for prior periods. Under the new standard,
primary earnings per share will no longer be presented. Basic earnings per share
will represent earnings, reduced by any dividends on preferred stock, divided by
the weighted average number of common shares outstanding for the reporting
period. Diluted earnings per share (formerly called "fully diluted") will
represent earnings divided by the sum of the weighted average number of common
shares outstanding plus shares derived from other potentially dilutive
securities. For the Company, potentially dilutive securities include "in the
money" stock options and warrants for the purchase of shares of common stock
and the amount of common shares which would be added by conversion of the
outstanding convertible preferred stock. The number of shares added for stock
options and warrants is determined by the treasury stock method, which assumes
exercise of these securities and the use of any proceeds from these actions to
repurchase a portion of these shares at the average market price for the period.
When the results of continuing operations are a loss, other potentially dilutive
securities will not be included in the calculation of loss per share.
15
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AND SUBSIDIARY
- --------------------------------------------------------------------------------
The weighted average shares and total dilutive shares used in the calculation of
basic and diluted earnings per share are as follows:
Years Ended December 31,
1997 1996
---------------------------------
BASIC EARNINGS PER SHARE
Weighted average shares 15,918,047 11,988,189
DILUTED EARNINGS PER SHARE
Weighted average shares 15,918,047 11,988,189
Stock options 2,765,174 1,416,352
Warrants 628,083 163,402
Conversion of preferred stock 244,113 700,667
---------------------------------
Total dilutive shares 19,555,417 14,268,610
=================================
Antidilutive stock options excluded 83,000 83,000
Antidilutive warrants excluded 600,000 -
No adjustments to net income presented on the Consolidated Statements of
Operations were made in the determination of earnings per share.
INCOME TAXES: Deferred taxes are provided on liability method for temporary
differences and operating loss and tax credit carryforwards. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment.
FAIR VALUE OF INSTRUMENTS: All financial instruments are carried at amounts that
approximate estimated fair values.
USE OF ESTIMATES: Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.
RECLASSIFICATIONS: Certain amounts previously reported in 1996 have been
reclassified to conform to the 1997 presentation.
NOTE 2. RECOVERY FROM DISCONTINUED OPERATION
The Company's Board of Directors made the decision to discontinue that portion
of the operations which brokered and sold parts for IBM mainframe computers in
1995. Effective December 31, 1995 these operations were sold to Norcom
Resources, Inc. ("Norcom") for $123,000. A portion of the sale included a
$70,000 note receivable from Norcom which the Company treated as uncollectible.
However, in March 1997 the Company collected the full amount of such note
receivable and recorded a recovery related to the discontinued operation.
16
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. INVENTORIES
Inventory consists of the following:
December 31,
--------------------------------
1997 1996
------------ ------------
Raw materials $526,379 $108,484
Completed systems 271,056 109,459
Total Inventories $797,435 $217,943
======== ========
NOTE 4. NET INVESTMENT IN SALES-TYPE LEASES
The Company began leasing equipment as lessor under sales-type leases in 1997.
The components of net investment in sales-type leases as of December 31, 1997
are as follows:
Minimum lease payments receivable $ 892,323
Less: Unearned revenue (112,408)
-------------
779,915
Less: current portion (286,997)
-------------
Investment in sales-type lease, net of current portion $ 492,918
Future minimum lease payments to be received under sales-type leases are
$328,361, $328,361, and $235,601 in 1998, 1999, and 2000, respectively.
NOTE 5. CAPITAL ASSETS
Certain of the Company's capital assets are comprised of the following:
December 31,
-----------------------
1997 1996
-------- --------
PROPERTY AND EQUIPMENT
Computer and office equipment $ 400,192 $ 166,656
Accumulated depreciation (91,845) (135,435)
---------- ----------
Property and equipment, net $ 308,347 $ 31,221
LEASED EQUIPMENT
Leased equipment $ 269,688 $ 107,140
Accumulated depreciation (60,655) (24,763)
---------- ----------
Leased equipment, net $ 209,033 $ 82,377
SOFTWARE DEVELOPMENT COSTS
Software development costs $1,255,235 $ 473,719
Accumulated amortization (299,400) (48,200)
----------- ----------
Software development costs, net $ 955,835 $ 425,519
OTHER ASSETS
Patents $ 101,680 $ 67,779
Software licenses 75,000 --
Other 221,470 --
----------- ----------
398,150 67,779
Accumulated amortization (67,147) (6,000)
----------- ----------
Other assets, net $ 331,003 61,779
17
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. CONVERTIBLE SUBORDINATED DEBENTURES
The Company's 11% convertible subordinated debentures were due July 1, 1996,
with interest due semi-annually, and prior to maturity were redeemable by the
Company or convertible at the option of the holder into 41,880 common shares at
a price per share of $6.25. During the year ended December 31, 1996, debentures
valued at $110,000 converted to equity pursuant to conversion terms other than
the original $6.25 per share. In 1997, the Company paid all of the principal
outstanding to debentureholders along with interest payments calculated at 11%
per year. Expenses associated with the original issuance of the unconverted
debentures were fully amortized as of July 1, 1996.
NOTE 7. NOTES PAYABLE
Notes payable at December 31, 1997 and 1996 are comprised of the following:
<TABLE>
<CAPTION>
1997 1996
---------------------- ---------------------
Interest Interest
Amount rate Amount rate
---------------------- --------------------
<S> <C> <C> <C> <C>
Subordinated notes payable to
Mezzanine Capital Partners and
Marquette Bancshares, Inc. due
in installments of various
amounts as described below
through June 30, 2002 $2,000,000 14.00% - -
Notes payable to First Bank,
paid in 1997 - - 83,000 10.25%
Note payable to related party,
paid in 1997 - - 16,667 13.00%
Note payable to vendor, paid in 1997 - - 108,532 16.50%
Note payable to officer, paid in 1997 - - 15,000 18.00%
Note payable to vendor, paid in 1997 - - 5,014 6.00%
------------- -----------
2,000,000 228,213
Less current portion (100,000) (211,613)
------------- -----------
$1,900,000 $16,600
============= ===========
</TABLE>
The Company issued subordinated notes payable in the form of two $1,000,000
notes payable to Mezzanine Capital Partners, Inc. and Marquette Bancshares,
Inc., respectively. The interest rate of 14% is fixed for the term of the notes.
Installments of $100,000, $200,000, $300,000, $300,000, and $1,100,000 are due
for the years 1998 through 2002, respectively. The notes are subject to a 5%
prepayment penalty through June 30, 1998 and 4% prepayment penalty from July 1,
1998 through June 30, 1999 and may be prepaid without penalty thereafter. The
Company incurred costs related to the issuance of this debt in the amount of
$221,470 which includes the estimated fair value of warrants to purchase a total
of 530,000 shares of common stock at $1.80 per share that were issued in
connection with the issuance of notes payable. These costs are being amortized
on a straight-line basis over the five year term of such debt.
NOTE 8. STOCKHOLDERS' EQUITY
COMMON STOCK WARRANTS: The Company issued warrants in 1997 in conjunction with
common stock issued pursuant to the Private Placement Memorandum dated November
25, 1996. These warrants are exercisable at $0.75 per share and expire on
February 28, 2002. During 1997 the Company also issued warrants pursuant to a
subsequent private placement of common stock in June 1997, which are exercisable
at $1.40 and expire on June 6, 2002. An additional 530,000 warrants were issued
in 1997, which are exercisable at a per share price of $1.80 and expire in the
year 2002. These warrants were issued in connection with the $2,000,000 of
subordinated debt issued in June 1997. The total warrants outstanding as of
December 31, 1997 was 1,724,298. Such warrants are exercisable at a weighted
average price of $1.94 per share and expire in 2000 through 2004.
COMMON STOCK OPTIONS: The Company's stock option plan ("Plan"), provides for
granting to the Company's employees, directors and consultants, qualified
incentive and nonqualified options to purchase common shares of stock. The Plan
was amended during 1995 to increase the number of aggregate options that can be
issued to
18
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10,000,000 shares of common stock. Qualified incentive options must be granted
with exercise prices equal to the fair market value of the stock at the date of
grant. Nonqualified options must be granted with exercise prices equal to at
least 85% percent of the fair market value of the stock at the date of grant.
The Company applies APB No. 25, Accounting for Stock Issued to Employees, and
related interpretations in accounting for its stock options. As a result no
compensation expense has been recognized for stock-based compensation plans. Had
the Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS No. 123, Accounting and Disclosure of
Stock-Based Compensation, the Company's net income and earnings per share would
have been reduced by approximately $18,000 in 1997 and by an immaterial amount
in 1996. The Company made this calculation using the Black-Scholes option
pricing model with the following assumptions: volatility of 113%, risk-free
interest rate of 5.5%, and an expected life of 5 years.
This pro-forma effect does not include the compensation cost of stock options
currently issued but which do not vest until future years nor does it include
the compensation cost of stock options issued prior to 1995. Therefore, the full
impact of calculating compensation cost for stock options under SFAS No. 123 is
not reflected in the pro-forma net income amounts presented above.
Information with respect to stock options under the plan are summarized as
follows:
<TABLE>
<CAPTION>
Incentive Stock Options Nonqualified Options
---------------------------------- -----------------------------
Shares Weighted average Shares Weighted average
exercise price exercise price
------------- ---------------- ----------- -----------------
<S> <C> <C> <C> <C>
Total outstanding at December 31, 1995 4,232,000 $0.35 83,000 $5.87
Granted 941,000 $0.59 -- --
Canceled (620,000) $0.30 -- --
Exercised (1,938,000) $0.17 -- --
-------------- --------------- ----------- ----------------
Total outstanding at December 31, 1996 2,615,000 $0.49 83,000 $5.87
Granted 1,432,000 $1.51
Canceled (75,000) $1.00
Exercised (455,000) $0.40
---------------------------------- -----------------------------
Total outstanding at December 31, 1997 3,517,000 $0.79 83,000 $5.87
================================== =============================
</TABLE>
Options for 2,152,000 shares of common stock were exercisable at a weighted
average exercise price of $0.54 as of December 31, 1997.
COMMON STOCK ISSUED: In 1997 the Company issued a total of
approximately 2,752,800 shares of common stock. These shares were issued
pursuant to two separate private placement issues: one ending February 1997; and
one ending July 1997. In addition, 456,554 and 164,540 shares of common stock
were issued to holders of preferred stock series A on a one-for-one exchange
conversion in accordance with terms of the preferred stock in 1997 and 1996,
respectively.
Specifically, during 1997, the Company issued 1,652,800 and 653,500 shares of
common stock in 1997 and 1996, respectively at $0.75 per share pursuant to the
private placement memorandum dated November 1996. During 1997 the Company also
issued 1,100,000 shares of common stock at $1.40 per share pursuant to a private
placement dated June 1997. In addition, 455,000 shares of common stock were
issued due to the exercise of qualified stock options by certain non-officer
employees or former employees of the Company and 159,970 shares of common stock
were issued to converting warrantholders. Stock issue costs were $312,278 and
$119,434 in 1997 and 1996, respectively.
19
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. INCOME TAXES
At December 31, 1997, the Company had a net operating loss carryforward of
approximately $3.3 million. The net operating loss carryforward will be subject
to an annual limitation as defined by Section 382 of the Internal Revenue Code
of approximately $200,000.
Future equity transactions could further limit the net operating losses
available in any one year.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities as of December 31, 1997 and 1996 are
shown as follows:
Year Ended Year Ended
December 31, December 31,
1997 1996
------------------ -------------------
Deferred tax assets
Allowance for doubtful accounts $5,000 $5,000
Net operating loss carryforward 1,360,000 1,454,000
------------------ -------------------
Subtotal 1,365,000 1,459,000
Less valuation allowance for deferred
tax asset (1,212,000) (1,306,000)
------------------ -------------------
153,000 153,000
Deferred tax liabilities (153,000) (153,000)
------------------ -------------------
Net deferred tax assets $0 $0
================== ===================
The provision for income taxes consists of the following for the years ended
December 31, 1997 and 1996:
Year Ended Year Ended
December 31, December 31,
1997 1996
------------------ -------------------
Current
Federal $ - $9,500
- 9,000
State
------------------ -------------------
Total - 18,500
Deferred - -
------------------ -------------------
Total $ - $18,500
================== ===================
20
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The income tax expense (benefit) differed from the amounts computed by applying
the U. S. federal income tax rate of 34% as a result of the following:
Year Ended Year Ended
December 31, December 31,
1997 1996
------------------ -------------------
Expense (benefit) at statutory rate $ 77,000 $112,000
State income tax benefit,
net of federal 13,000 6,000
Change in valuation allowance (94,000) (139,000)
Effect of change in ownership on
net operating loss carryforward - -
Other 4,000 39,500
------------------ -------------------
Actual tax expense (benefit) - $18,500
================== ===================
NOTE 10. OPERATING LEASES
COMPANY AS LESSOR: The Company leases equipment, primarily VCC units, under
noncancelable operating leases expiring in various years. The cost of equipment
subject to such leases is recorded as leased equipment.
The operating lease payment stream related to leases initiated in 1996 was
assigned to a third party, on a non-recourse basis, for a lump sum payment to
the Company in 1996. The present value of the cash received was recorded as
deferred revenue and is being recognized into revenue over the term of the
underlying leases. These underlying leases terminate in 1997 and 1998. Deferred
revenue recorded by the Company related to these leases as of December 31, 1997
and 1996 was approximately $20,000 and $116,000, respectively. Future minimum
lease payments to be received for operating leases in which the payment stream
has not been assigned to a third party are $15,192, $15,192 and $11,224 for
1998, 1999, and 2000, respectively.
COMPANY AS LESSEE: The Company has operating leases for certain development
related IBM computers, office equipment and its office premises. The rental
payments under these leases are charged to expense as incurred. All the leases
provide that the Company pay taxes, maintenance, insurance, and other operating
expenses applicable to the leases. Lease expense in 1997 and 1996 was
approximately $112,000 and $103,000, respectively. The future minimum lease
payments are approximately $94,000, $22,000 and $2,000 for the years 1998, 1999
and 2000, respectively.
NOTE 11. SUBSEQUENT EVENT
On February 27, 1998 the Company purchased certain software and other assets
relating to the system software business of Infinite Graphics Incorporated
("IGI"), a Minnesota corporation based in Minneapolis. The acquisition will be
recorded as an asset purchase. The acquisition agreement provides for an initial
payment of $500,000 and additional payments of up to $3,500,000. The payment of
up to $3,300,000 of this additional payment is contingent on the future net
income of this business segment and is determinable as of May 31, 1999. In the
twelve months ended December 31, 1997 the unaudited revenue of IGI's software
segment was $1,683,000 and the gross margin was $621,000.
The acquired software and assets will be used by the Company to design, assemble
and market computer-aided design and manufacturing software systems that operate
on a variety of mid-range and personal computer platforms. Assets purchased in
the acquisition include inventory, machinery and equipment, furniture and
fixtures, a perpetual exclusive software license of a majority of the IGI
software products used in the system software business and a non-exclusive
21
<PAGE>
GLOBAL MAINTECH CORPORATION AND SUBSIDIARY
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
license of certain software used in IGI's remaining business segment. IGI will
reimburse the Company for the liabilities of IGI explicitly assumed by the
Company in connection with the acquisition. The Company also agreed to satisfy
IGI's unrecorded service obligations to the software end users in return for
which the Company expects to receive support payments from such end users.
In addition, in February 1998 the Company began a 400,000 share private
placement of common stock at $1.90 per share and had issued 221,000 shares as of
March 23, 1998. Maven Securities, Inc. acted as the placement agent wherein the
Company agreed to pay the placement agent a 10% commission, a 3% fee for
expenses and to issue to such agent a warrant to purchase up to 10% of the
number of shares of common stock issued in connection with such offering at an
exercise price of $1.90 per share. The shares of common stock issued pursuant to
this issuance are exempt from registration under Rule 506 of Regulation D of the
Securities Act of 1933, as amended.
22
<PAGE>
PART III
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not applicable.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information with respect to Directors of the Company under the caption
"Election of Board of Directors" contained in the Company's Proxy Statement
relating to the Annual Meeting of Shareholders for the year ending December 31,
1997 is incorporated herein by reference.
The information with respect to the Executive Officers of the Company under
the caption "Executive Officers" contained in the Company's Proxy Statement
relating to the Annual Meeting of Shareholders for the year ending December 31,
1997 is incorporated herein by reference.
The information contained under the caption "Compliance with Section 16(a)
of the Securities Exchange Act of 1934" contained in the Company's Proxy
Statement relating to the Annual Meeting of Shareholders for the year ending
December 31, 1997 is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information contained under the caption "Executive Compensation" in the
Company's Proxy Statement relating to the Annual Meeting of Shareholders for the
year ending December 31, 1997 is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's Proxy Statement relating to
the Annual Meeting of Shareholders for the year ending December 31, 1997 is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the caption "Related Transactions" in the
Company's Proxy Statement relating to the Annual Meeting of Shareholders for the
year ending December 31, 1997 is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Index of Exhibits (Not included herein.)
EXHIBIT
DESCRIPTION NUMBER
- ----------- -------
Agreement and Plan of Merger dated December 6, 1994, 2
as amended, among the Company, Mirror Consolidation Company, and
MAINTECH Resources, Inc. (the Articles of Merger are attached
thereto as Exhibit A) (incorporated herein by reference to the
Registrant's Form 8-K filed with the Commission on January 19,
1995).
Bylaws of the Company, as amended (incorporated herein 3.2
by reference to the Registrant's Form S-1 (File No. 33-34894)).
Restated Articles of Incorporation of the Company, as amended in 3.3
May 15, 1995 annual meeting of common stockholders (corporate name
change and increase in authorized stock) (incorporated herein by
23
<PAGE>
reference to the Registrant's Form 10-KSB for the year ended
December 31, 1995).
Amendment to Amended and Restated Articles of Incorporation of 3.4
the Company, filed November 12, 1996 (incorporated herein by
reference to the Registrant's Form 10-KSB for the year ended
December 31, 1997).
Form of 11% Convertible Subordinated Debenture due 4.2
July 1, 1996 (incorporated herein by reference to the Registrant's
Form 10-KSB for the year ended March 31, 1991.)
Form of Registration Agreement between the Company and 4.3
holders of the Company's 11% Convertible Subordinated Debentures
Due July 1, 1996 (incorporated herein by reference to the
Registrant's Form 10-K for the year ended March 31, 1991).
Form of Certificate of the Company's Series A 4.4
Convertible Preferred Stock (incorporated herein by reference to
the Registrant's Form 10-KSB for the year ended December 31, 1994).
Form of Certificate of the Company's Common Stock 4.5
following change of corporate name (incorporated herein by
reference to the Registrant's Form 10-KSB for the year ended
December 31, 1995).
The Company's 1989 Stock Option Plan (incorporated 10.1
herein by reference to Exhibit 28 to the Registrant's Registration
Statement on Form S-8, (File 33-33576)).
Amendments No. 1 and 2, dated October 17, 1991 and April 24, 10.2
1992, respectively, to the Company's 1989 Stock Option Plan
(incorporated herein by reference to the Registrant's Form 10-K for
the year ended March 31, 1992).
Mirror Technologies, Incorporated 401(K) Plan effective 10.3
April 1, 1992 (incorporated herein by reference to the Registrant's
Form 10-K for the year ended March 31, 1992).
Lease Agreement dated April 22, 1993 between the Company and 10.4
Opus Corporation (incorporated by reference to the Registrant's
Form 10-KSB for the year ended March 31, 1993).
Sales Agency Agreement dated January 6, 1994 between the 10.5
Company and MacUSA, Inc. (incorporated by reference to the
Registrant's Form 8-K filed on January 21, 1994).
Office Lease Agreement between the Company and Jason Bassett 10.6
Creek Plaza dated March 28, 1994 (incorporated herein by reference
to the Registrant's Form 10-KSB for the fiscal year ended March 31,
1994).
Office Lease Agreement between the Company and Physician's 10.7
and Surgeon's Capital Corporation dated October 1, 1994
(incorporated herein by reference to the Registrant's Form 10-KSB
for the year ended December 31, 1994).
Office and Warehouse Lease Agreement between MAINTECH 10.8
Resources, Inc. and David D. Heinen dated December 20, 1994
(incorporated herein by reference to the Registrant's Form 10-KSB
for the year ended December 31, 1994).
24
<PAGE>
Exclusive Distributor and Licensing Agreement between 10.9
Yutaka Takagi and Circle Corporation and MAINTECH Resources, Inc.
and Global MAINTECH, Inc. dated December 20, 1994 (incorporated
herein by reference to the Registrant's Form 10-KSB for the year
ended December 31, 1994).
Office Lease Agreement between the Company and Charles and 10.10
Sharron Mills dated December 12, 1995 (incorporated herein by
reference to the Registrant's Form 10-KSB for the year ended
December 31, 1995).
Brokerage Asset Purchase Agreement between Norcom Resources, 10.11
Inc. and Global MAINTECH, Inc. dated December 31, 1995
(incorporated herein by reference to the Registrant's Form 10-KSB
for the year ended December 31, 1995).
Amendment No. 3, dated May 15, 1995 to the Company's 1989 10.12
Stock Option Plan (incorporated herein by reference to the
Registrant's Form 10-KSB for the year ended December 31, 1995).
Sale contract between Burlington Northern Railroad Company and 10.13
Global MAINTECH, Inc. dated March 21, 1996 (incorporated herein by
reference to the Registrant's Form 10-KSB for the year ended
December 31, 1995).
License and Asset Purchase Agreement between Infinite Graphics 10.14
Incorporated and the Company dated February 27, 1998.
Subsidiaries of the Registrant (incorporated herein by reference to 21
the Registrant's Form 10-KSB for the year ended December 31, 1994).
Consent of KPMG Peat Marwick LLP 23
Financial Data Schedule 27
Cautionary Statement 99
(b) Reports on Form 8-K
No Form 8-K was filed in the last quarter of the twelve month period ended
December 31, 1997.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Global MAINTECH Corporation
Dated: March 31, 1998 By /S/ JAMES GEISER
---------------------------
James Geiser
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/S/ DAVID MCCAFFREY Chief Executive Officer March 31, 1998
- --------------------------------- (Principal Executive Officer) and
David McCaffrey Director
/S/ JAMES GEISER Chief Financial Officer and Secretary March 31, 1998
- --------------------------------- (Principal Financial and Accounting
James Geiser Officer)
/S/ ROBERT E. DONALDSON Director March 31, 1998
- ---------------------------------
Robert E. Donaldson
/S/ JOHN E. HAUGO Director March 31, 1998
- ---------------------------------
John E. Haugo
</TABLE>
26
<PAGE>
Exhibit Index
EXHIBIT
DESCRIPTION NUMBER
- ----------- -------
License and Asset Purchase Agreement between Infinite Graphics 10.14
Incorporated and the Company dated February 27, 1998.
Consent of KPMG Peat Marwick LLP 23
Financial Data Schedule 27
Cautionary Statement 99
<PAGE>
EXHIBIT 10.14
LICENSE AND ASSET PURCHASE AGREEMENT
This LICENSE AND ASSET PURCHASE AGREEMENT (this "Agreement") is made
and entered into as of February 27, 1998 (the "Effective Date"), by and between
Global MAINTECH Corporation, a Minnesota corporation ("GMC"), and Infinite
Graphics Incorporated, a Minnesota corporation ("IGI").
WHEREAS, IGI owns all right, title and interest in and to those certain
software products known as PAR/ICE, ParCAM, CHECKMATE (PAR for Design) and four
additional CAD/CAM products known as 2100, ProCADD, ProFLEX and ProCHEM and
certain other software products known as Translators, in addition to certain
other assets (described more fully below); and
WHEREAS, GMC desires (1) to license the software products known as
PAR/ICE, ParCAM, CHECKMATE (PAR for Design) on an exclusive basis and (2) to
license the CAD/CAM products known as 2100, ProCADD, ProFLEX and ProCHEM and
certain other software products known as Translators, Extract, Gerb Edit and
Core Programs to such software on a nonexclusive basis and (3) to buy certain
assets related to the foregoing software products on the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained herein, and intending to be legally bound hereby, the
parties agree as follows:
Section 1. DEFINITIONS. As used herein, the following terms shall have
the following meanings:
"INTELLECTUAL PROPERTY RIGHTS" means all rights, title and interest in
and to all patents and patent applications, trade secret rights, copyrights and
know-how, all related filings, registrations, and the like in the United States
and all foreign countries.
"INVENTORY" means the finished goods inventory as identified on
EXHIBIT A for the Exclusive Software on the Closing Date (as hereinafter
defined), as well as shipping and packaging inventory for such software that
exists on the Closing Date.
"LIENS" means mortgages, deeds of trust, pledges, taxes, security
interests, liens, leases, licenses, liabilities, encumbrances, costs, charges
and claims of any nature whatsoever, direct or indirect, whether accrued,
absolute, contingent or otherwise (including, without limitation, any agreement
to give any of the foregoing).
"MARKETING MATERIALS" means substantially all of the following
materials pertaining to the Exclusive Software and the Nonexclusive Software:
(a) preexisting customer lists and databases, including all customer and
technical support (bug
<PAGE>
information) databases; (b) lists of IGI distributors and dealers authorized to
sell copies of the Exclusive Software and the Nonexclusive Software; (c)
training materials; and (d) advertising and promotional materials.
"MARKS" means all of IGI's rights in each of the PAR/ICE, ParCAM,
CHECKMATE (PAR for Design), 2100, ProCADD, ProFLEX and ProCHEM and Translator
names, and the business and goodwill of IGI associated with each such trademark.
"Marks" does not refer to any other trademark or name of IGI.
"EXCLUSIVE SOFTWARE" means IGI's software products known as PAR/ICE,
ParCAM, CHECKMATE (PAR for Design) in existence immediately prior to the Closing
Date and documentation therefor as more specifically described on EXHIBIT A,
including without limitation, all Intellectual Property Rights therein, all
documents, programs, processes, associated results and copies constituting,
describing or relating to such software programs, including without limitation,
descriptions, specifications, source and object code therefor, source materials
and the like.
"NONEXCLUSIVE SOFTWARE" means IGI's CAD/CAM products known as 2100,
ProCADD, ProFLEX and ProCHEM and certain other software products known as
Translators to such software in existence immediately prior to the Closing Date
and documentation therefor as more specifically described on EXHIBIT B,
including without limitation, all Intellectual Property Rights therein, all
documents, programs, processes, associated results and copies constituting,
describing or relating to such software programs, including without limitation,
descriptions, specifications, source and object code therefor, source materials
and the like. Without limiting the foregoing, the Exclusive Software and the
Nonexclusive Software shall include any and all modifications, enhancement and
improvements developed by or on behalf of IGI as of the Closing Date, including
but not limited to the source code thereof.
"LICENSED ASSETS" means the Exclusive Software, the Nonexclusive
Software and the Marks.
"TRANSFERRED ASSETS" means the Marketing Materials, Inventory, cash
relating to IGI's deferred revenue as of the Closing Date that relates to the
Exclusive Software, cash relating to the accrued vacation liability of the
Transition Team members and the other tangible assets described on EXHIBIT B.
The parties agree that the Transferred Assets are valued at $278,446, excluding
cash.
Section 2. LICENSE AND SALE OF TRANSFERRED ASSETS.
2.1 AGREEMENT TO PURCHASE AND SELL. Subject to the terms and
conditions set forth in this Agreement, IGI hereby agrees to sell, grant,
transfer, convey, assign and deliver to GMC, and GMC agrees to purchase, on the
Closing Date, all of IGI's right, title and interest in and to the Transferred
Assets; provided,
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<PAGE>
however, that IGI may, at its option, deliver cash in an amount equal to the
amount of the deferred revenue and vacation liability, which exists as of the
Closing Date, to GMC within 180 days after the Closing.
2.2 CLOSING. The closing of the license grant and the sale of
the Transferred Assets shall take place at the offices of Dorsey & Whitney LLP,
220 South Sixth Street, Minneapolis, Minnesota, at 2:00 p.m., Minneapolis time,
on February 27,1998 (the "Closing Date") or at such other place or different
time or day as may be mutually acceptable to GMC and IGI. At the closing, IGI
shall execute and deliver to GMC the Bill of Sale and Assignment of Assets in
substantially the form of EXHIBIT C, and GMC shall deliver to IGI the Initial
Payment (as defined below), in immediately available funds by cashier's check,
pursuant to Section 2.3.
2.3 CONSIDERATION.
(a) The aggregate purchase price to be paid in respect of the
transactions contemplated hereby shall be up to a maximum of $4,000,000
and shall consist of up to three payments: the Initial Payment, the
Escrow Payment (as defined below) and the Earn Out Payment (as defined
below) (the "Purchase Price"). These three payments shall be made as
follows:
(i) On the Closing Date, GMC shall pay $500,000, which
payment is referred to herein as the "Initial Payment."
(ii) On the Closing Date, GMC also shall deposit $200,000
(the "Escrow Payment") into an escrow account managed by
BankWindsor (the "Escrow Agent"). The Escrow Payment shall be
disbursed as follows: (A) if the average monthly revenue from
the sale of the Exclusive Software and the Nonexclusive
Software (including all subsequent derivations thereof) and
maintenance and services with respect to such sales by GMC and
IGI that relate to the Exclusive Software line of business,
including sales of hardware, services, the Exclusive Software
and the Nonexclusive Software (including all subsequent
derivations thereof) exceeds $112,500 during the first four
full calendar months following the Closing Date, then the
Escrow Payment promptly shall be released to IGI; or (B)in the
event the contingency described in (A) is not satisfied upon
the expiration of the fourth full calendar month following the
Closing Date, then if the average monthly revenue from the sale
of the Exclusive Software and the Nonexclusive Software
(including all subsequent derivations thereof) and maintenance
and services with respect to such sales by GMC and IGI that
relate to the Exclusive Software line of business, including
sales of hardware, services, the Exclusive Software and the
Nonexclusive Software (including all subsequent derivations
thereof) exceeds $120,000 during any period consisting of the
first five, six, seven or eight full calendar months following
the Closing Date, then the
-3-
<PAGE>
Escrow Payment promptly shall be released to IGI; or (C) in
the event none of the contingencies described in (A) or (B)
are satisfied upon the expiration of the eighth full calendar
month following the Closing Date, then the Escrow Payment
promptly shall be released to GMC. Notwithstanding the
foregoing, all interest earned on the Escrow Payment shall be
paid to GMC upon disbursement of the principal amount of the
Escrow Payment.
(iii) Subject to the limit on the maximum purchase price
payable, GMC also shall pay IGI an amount equal to (A) 144
multiplied by the average monthly net income after taxes
derived from all sales by GMC and IGI that relate to the
Exclusive Software line of business, including sales of
hardware, services, the Exclusive Software and the Nonexclusive
Software (including all subsequent derivations thereof) during
the first 15 full calendar months following the Closing Date
(the "Earn Out Period"), (B) minus the amount paid to IGI
pursuant to the aggregate of the Initial Payment and the Escrow
Payment (e.g., $700,000 if the Escrow Payment is ultimately
disbursed to IGI) and (C) minus any deferred revenue liability
or vacation liability assumed by GMC pursuant to Section 2.7 of
this Agreement and not paid to GMC by IGI. For purposes of this
Agreement, such net income shall be calculated in accordance
with generally accepted accounting principles, consistently
applied, subject to the adjustments, clarifications and
exceptions listed on EXHIBIT D. Furthermore, GMC shall provide
a statement showing such net income after taxes for each month
during the Earn Out Period to IGI within 30 days after the end
of each month during such period.
2.4 ALLOCATION OF PURCHASE PRICE. GMC and IGI have allocated
the Purchase Price among the Transferred Assets and the Licensed Assets as set
forth on EXHIBIT E hereto, which exhibit shall be updated as of the Closing Date
in such a manner as determined by GMC, subject to IGI's consent (which shall not
be unreasonably withheld) after taking into account any appraisals which may be
obtained by GMC, the applicable Treasury Regulations and the fair market value
of such items. GMC shall prepare for filing all federal and state tax returns
that may be required to be filed with respect to the transaction provided for
herein. IGI shall provide information that may be required by GMC for the
purpose of preparing such tax returns and tax information on a basis that is
consistent with such tax returns prepared by GMC.
2.5 LICENSE AGREEMENT. Concurrent with the execution of this
Agreement and as a condition to its effectiveness, GMC and IGI shall enter into
a license agreement substantially in the form attached hereto as EXHIBIT F (the
"License Agreement").
2.6 TAXES. The Purchase Price is exclusive of, and GMC shall
pay all excise, sales, value-added, use, registration, stamp, transfer and other
like taxes
-4-
<PAGE>
imposed or levied by reason of this Agreement and the transactions contemplated
hereby.
2.7 ASSUMED LIABILITIES. GMC hereby assumes and agrees to pay,
perform and discharge, effective as of the Closing Date, all obligations and
liabilities arising on or after the Closing Date under only (a) those
liabilities relating to accrued vacation of Transition Team members; (b) those
liabilities relating to deferred revenue of IGI's Exclusive Software line of
business in existence on the Closing Date and (c) those software support and
license agreements relating to the Exclusive Software, which are identified on
EXHIBITG (the "Assumed Contracts"). The foregoing assumed obligations and
liabilities are hereinafter referred to collectively as the "Assumed
Liabilities." Except for the Assumed Liabilities or as otherwise expressly
contemplated herein, GMC shall not assume or have any responsibility for any
liability, obligation or commitment of IGI of any nature, whether now or
hereafter existing and whether or not related to the Licensed Assets or the
Transferred Assets, and IGI shall retain all such liabilities, obligations or
commitments (the "Retained Liabilities").
2.8 RETAINED ASSETS. IGI shall retain, and GMC shall
not purchase, all cash, accounts receivable and capitalized software related to
IGI's Exclusive Software line of business and all of its Intellectual Property
Rights, which exists as of the Closing Date.
Section 3. REPRESENTATIONS AND WARRANTIES OF GMC. GMC represents and
warrants to IGI as follows:
3.1 CORPORATE POWER. GMC has all requisite corporate power to
execute and deliver this Agreement and all agreements to be executed and
delivered by GMC pursuant to the terms hereof and to carry out and perform its
obligations under the terms of this Agreement and such other agreements.
3.2 AUTHORIZATION. All corporate action on the part of GMC,
necessary for the authorization, execution, delivery and performance of this
Agreement and any other agreements contemplated hereby has been taken. This
Agreement and any other agreements contemplated hereby, when executed and
delivered by GMC, will constitute valid and binding obligations of GMC
enforceable in accordance with their respective terms.
Section 4. REPRESENTATIONS AND WARRANTIES OF IGI. IGI represents and
warrants to GMC as follows:
4.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. IGI is a
corporation duly organized and existing under, and by virtue of, the laws of the
state of Minnesota and is in good standing under such laws. IGI has the
requisite corporate power to own and operate its properties and assets and to
carry on its business as currently conducted and as proposed to be conducted.
IGI is duly
-5-
<PAGE>
qualified to transact business and is in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on its
business or properties.
4.2 CORPORATE POWER. IGI has all requisite corporate power to
execute and deliver this Agreement and all agreements to be executed and
delivered by IGI pursuant to the terms hereof and to carry out and perform its
obligations under the terms of this Agreement and such other agreements.
4.3 AUTHORIZATION. All corporate action on the part of IGI
necessary for the authorization, execution, delivery and performance of this
Agreement and any other agreements contemplated hereby has been taken and no
other proceedings on the part of the Company or the shareholders are necessary
to authorize the execution, delivery and performance of this Agreement and any
other agreements contemplated hereby. This Agreement and any other agreements
contemplated hereby, when executed and delivered by IGI, will constitute valid
and binding obligations of IGI enforceable in accordance with their respective
terms.
4.4 NO CONFLICT. No consent of any person not a party to this
Agreement and no consent of any governmental authority is required to be
obtained on the part of IGI to permit the consummation of the transactions
contemplated by this Agreement (including without limitation the transfer to GMC
of all right, title and interest in and to the Transferred Assets and the
licensing of the Licensed Assets to GMC).
4.5 LITIGATION. There is no litigation, investigation,
arbitration or other proceeding pending or, to the knowledge of IGI, threatened
against IGI, the Licensed Assets or the Transferred Assets the result of which
would have a material adverse effect on the Licensed Assets or the Transferred
Assets.
4.6 TITLE. IGI has good and marketable title to all of the
Licensed Assets and the Transferred Assets, and all of the Licensed Assets and
the Transferred Assets are hereby transferred and licensed, respectively, to GMC
free and clear of restrictions on or conditions to transfer, license or assign
and free and clear of any Liens, other than the Assumed Contracts. The Licensed
Assets and the Transferred Assets constitute all the necessary assets to operate
the Exclusive Software line of business.
4.7 COPYRIGHTS, TRADEMARKS AND PATENTS. (a) IGI owns and
possesses all right, title and interest in and to the Licensed Assets and the
Transferred Assets free and clear of all Liens and has the full right to exploit
the Intellectual Property Rights associated with the Licensed Assets and the
Transferred Assets without payment of compensation to any other party; (b)
SCHEDULE 4.7 describes all material agreements granting to third parties any
rights in the Intellectual Property Rights relating to the Exclusive Software;
(c) all licenses of such Intellectual Property Rights will be assumed by, and
will become valid agreements of, GMC without the
-6-
<PAGE>
requirement that any consent to assignment be obtained or any payment be made
(other than future royalties as provided in such agreements); (d) IGI, to its
knowledge, has taken all commercially reasonable steps to acquire, protect and
maintain the Intellectual Property Rights associated with the Licensed Assets
and the Transferred Assets; (e) IGI has not received any notice of, nor are
there any facts known to IGI which indicate a likelihood of, any infringement or
misappropriation by, or conflict from, any third party with respect to such
Intellectual Property Rights or any such Intellectual Property Rights that are
exclusively licensed to IGI; (f) no claim by any third party contesting the
validity of any such Intellectual Property Rights has been made, is currently
outstanding or, to the best knowledge of IGI, is threatened; (g) IGI has not
received any notice of any infringement, misappropriation or violation by IGI of
any intellectual property rights of any third parties and IGI, to its knowledge,
has not infringed, misappropriated or otherwise violated any such intellectual
property rights; (h) to the knowledge of IGI, no infringement, misappropriation
or violation of any intellectual property rights of any third parties has
occurred or will occur with respect to any of the Exclusive Software or the
Nonexclusive Software; and (i) IGI has not entered into any agreement
restricting IGI from selling, leasing or otherwise distributing any of its
current products or products under development to any class of customers, in any
geographic area, during any time period or in any segment of the market.
4.8 COMPLIANCE WITH OTHER INSTRUMENTS. To the extent that any
of the following would have a material adverse effect on the ability of IGI to
consummate the transactions contemplated by this Agreement: (a) IGI is not in
violation of any term of its Articles of Incorporation or Bylaws, or in any
material respect of any term or provision of any mortgage, indebtedness,
indenture, contract, agreement, instrument, judgment or decree, order, statute,
rule or regulation applicable to IGI and (b) the execution, delivery and
performance of and compliance with this Agreement and any other agreements
contemplated hereby, have not resulted and will not result in any violation of,
or conflict with, or constitute a default under, or result in the creation of,
any Lien upon any of the properties or assets of IGI, and there is no such
violation or default that materially and adversely affects the business of IGI
as conducted or as proposed to be conducted, or any of the properties or assets
of IGI.
4.9 BANKRUPTCY PROCEEDINGS. No petition has been filed by or
against IGI for relief under any applicable bankruptcy, insolvency or similar
law; no decree or order for relief has been entered in respect of IGI,
voluntarily or involuntarily, under any such law; and no receiver, liquidator,
sequestrator, trustee, custodian or other officer has been appointed with
respect to IGI or its assets and liabilities pursuant to any such law. No
warrant of attachment, execution or similar process has been executed against
IGI or any of its assets or properties. IGI has not made any assignment for the
benefit of creditors.
4.10 SOFTWARE. Each and every source code provided to GMC by
IGI pursuant to this Agreement for each of the current versions of the Exclusive
-7-
<PAGE>
Software and the Nonexclusive Software shall be true and correct and complete as
of the Closing Date.
4.11 EMPLOYEES. To the best of IGI's knowledge, (a) no member
of the Transition Team (as defined in Section 6.3) has any plans to terminate
his or her employment; (b) IGI has complied, in all material respects, with all
laws relating to the employment of labor, including provisions thereof relating
to wages, hours, equal opportunity, collective bargaining and the payment of
social security and other taxes; (c) IGI has no labor relations problem pending,
and IGI's labor relations are, in its judgment, satisfactory; (d) there are no
workers' compensation claims pending against IGI nor is IGI aware of any facts
that would give rise to such a claim; (e) no member of the Transition Team is
subject to any secrecy or noncompetition agreement or any other agreement or
restriction of any kind that would impede in any way the ability of such
employee to carry out fully all activities of such employee in furtherance of
the business associated with the Licensed Assets and the Transferred Assets; and
(f) no employee or former employee of IGI has any claim with respect to any
Intellectual Property Rights contained in the Licensed Assets or the Transferred
Assets. The names and the position, title, remuneration (including any scheduled
salary or remuneration increases), date of employment and accrued vacation pay
of each member of the Transition Team, as of the Closing Date, is listed in the
attached SCHEDULE 4.11. Such Schedule also contains a complete list of all
employee benefits to which such members are eligible as of the Closing Date.
4.12 THIRD PARTY WARRANTIES. Except as disclosed on SCHEDULE
4.12, with respect to the Licensed Assets and the Transferred Assets, IGI has
not given any warranty to any third party that provides greater rights than the
warranty it is giving to GMC in Section 5.
Section 5. NO WARRANTY. GMC ACKNOWLEDGES THAT EXCEPT FOR THE
EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN ARTICLE 4 HEREOF, IGI
TRANSFERS THE TRANSFERRED ASSETS "AS IS" WITHOUT ANY REPRESENTATIONS OR
WARRANTIES REGARDING FUNCTIONALITY, PERFORMANCE, USE, OPERATION OR
SPECIFICATIONS, AND WITHOUT EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES OF
ANY KIND INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT. EXCEPT AS PROVIDED IN
ARTICLE 7, IN NO EVENT SHALL IGI BE LIABLE TO GMC FOR LOSS OF PROFITS, COSTS OF
PROCUREMENT OF SUBSTITUTE GOODS, OR OTHER SPECIAL, INDIRECT OR CONSEQUENTIAL
DAMAGES.
-8-
<PAGE>
Section 6. ADDITIONAL AGREEMENTS.
6.1 CONFIDENTIALITY. Each of the parties hereto hereby agrees
to keep any information or knowledge obtained pursuant to any provision of this
Agreement, or the negotiation and execution hereof or the effectuation of the
transactions contemplated hereby, confidential; provided, however, that (a)
after the Closing Date, GMC shall have no obligation to keep confidential any
information or knowledge relating to the Transferred Assets, (b) after the
Closing Date, IGI shall have an obligation to keep confidential all information
and knowledge relating to the Transferred Assets, other than as is reasonably
necessary to permit IGI to continue operating its Precision Graphics business,
and (c) the foregoing shall not apply to information or knowledge which (i) a
party can demonstrate was already lawfully in its possession prior to the
disclosure thereof by the other party and not subject to a confidentiality
obligation, (ii) is generally known to the public and did not become so known
through any violation of law or this Agreement, (iii) became known to the public
through no fault of such party, (iv) is later lawfully acquired by such party
from other sources, (v) is required to be disclosed by order of court or
government agency with subpoena powers or pursuant to SEC public disclosure
requirements or (vi) is disclosed in the course of any litigation between any of
the parties hereto; provided, further, that confidentiality matters that arise
with respect to the Licensed Assets will be governed by the License Agreement.
The parties shall take reasonably steps to ensure that their respective
employees and consultants are aware of and abide by the confidentiality
obligation of this Section 6.1.
6.2 TRANSACTION COSTS. Each party shall be responsible for its
own costs, expenses and claims (including attorneys' and broker's fees) arising
out of its negotiation, execution and performance of this Agreement and all
transactions contemplated hereby.
6.3 TRANSITION PERIOD. On the Closing Date, the individuals
listed on SCHEDULE 4.11 (the "Transition Team") shall become the employees of
GMC but shall continue to work at IGI's facility until further notice from GMC.
From the Closing Date until the earlier to occur of the expiration of the
15-month period described in Section 2.3(b), the 91st day after GMC's delivery
of written notice to IGI of GMC's intent to transfer all operations relating to
the Licensed Assets and the Transferred Assets to GMC or the mutual agreement of
the parties with respect to such transfer (the "Transition Period"), IGI shall
continue to manage the day-to-day operation of the business relating to the
Licensed Assets and the Transferred Assets, including marketing, sales, billing
and the development of enhanced versions of the Exclusive Software and the
Nonexclusive Software for the benefit and pursuant to the instructions of GMC.
Notwithstanding the foregoing, GMC shall provide IGI with commercially
reasonable assistance in its sales and marketing efforts with respect to the
Exclusive Software and the Nonexclusive Software and shall use its best efforts
to develop a graphical user interface (the "GUI") to be used in connection with
the Exclusive Software and the Nonexclusive Software by GMC and IGI.
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<PAGE>
During the Transition Period, GMC shall reimburse IGI for its reasonable
expenses, which are of the type listed in SCHEDULE 6.3.
6.4 CUSTOMER TRANSITION. Both GMC and IGI will use commercially
reasonable efforts to implement a smooth transition of operations to GMC with
the intent that any customers who acquire any Exclusive Software or Nonexclusive
Software (including any subsequent derivations thereof) either before or after
the Closing Date will experience as little disruption or delay in supply,
support or service as is reasonably practicable; provided, however, that (a) in
the absence of willful misconduct or gross negligence on IGI's part, no claim
shall be made by GMC with respect to IGI's alleged noncompliance in connection
with this Section 6.5, and (b) in the absence of willful misconduct or gross
negligence on the part of GMC, no claim shall be made by IGI with respect to
GMC's alleged noncompliance in connection with this Section 6.5. At the request
of GMC, IGI will notify its dealers and distributors that IGI will no longer
offer the Exclusive Software, and that GMC will now offer the Exclusive
Software; provided, however, that IGI and/or the Transition Team will fill
orders for the Exclusive Software on behalf of GMC during the Transition Period.
6.5 CONFIDENTIALITY OF TRANSITION TEAM. Each Transition Team
member will execute a confidentiality agreement with GMC, in a form and
substance that is mutually acceptable to GMC and IGI, prior to becoming a member
of the Transition Team. IGI will be a third party beneficiary of such agreement
with respect to proprietary information obtained from IGI by Transition Team
members during the Transition Period. Concurrent with the execution of this
Agreement and as a condition to its effectiveness, IGI hereby waives and agrees
to use its best efforts to obtain a waiver from each member of the Transition
Team of any provision of the agreements described in Section 4.11(e) that is in
contravention with this Agreement and the transactions contemplated thereby.
6.6 EARN OUT PAYMENT CALCULATION AND PAYMENT. The parties will
agree as to the amount of the Earn Out Payment within 45 days after the Earn Out
Period based upon the calculations set forth in Section 2.3(iii) of this
Agreement. If the parties are unable to agree as to such amount within such
45-day period, either party may submit such dispute to arbitration which will be
decided within 60 days of the commencement of such arbitration pursuant to
Section 10.2 of this Agreement. GMC shall pay the Earn Out Payment to IGI within
30 days after determination of such amount, whether such determination is by
mutual agreement of the parties or pursuant to arbitration. If GMC does not pay
the Earn Out Payment to IGI within such 30-day period, then the License
Agreement shall automatically terminate, ownership of the Transferred Assets
will automatically revert to IGI without further action by either party and IGI
may seek specific enforcement of the arbitrator's decision regarding payment of
the Earn Out Payment in any court of competent jurisdiction, pursuant to Section
10.2 of this Agreement. Furthermore, in such event, GMC will execute such
agreements and other instruments and perform such acts as IGI may reasonably
request to vest all right, title and interest in the
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Transferred Assets in IGI. Notwithstanding the terms of this Section 6.7,
payment of the Earn Out Payment by GMC to IGI is subject to the terms of Section
10 of the License Agreement.
6.7 SUBSEQUENT ACTIONS; FURTHER ASSURANCES. Each party agrees
to (a) cooperate fully with the other party, (b) execute such further
instruments, documents and agreements, (c) give such further written assurances
to evidence the transaction contemplated hereby and (d) make physical delivery
of any tangible Transferred Assets not already delivered or made reasonably
available to GMC as may be reasonably requested to evidence and reflect the
transactions described herein and contemplated hereunder; provided, however,
that any such request shall be at the expense of the party making such request
and shall be accomplished by the party making such request taking all necessary
action to minimize the effort required by the party receiving such request.
6.8 BULK SALES. GMC hereby agrees to waive the requirement, if
any, that IGI comply with any bulk transfer law which may be applicable to the
transactions contemplated by this Agreement; provided, however, that IGI agrees
to indemnify and hold harmless GMC with respect to any noncompliance with such
laws and GMC's waiver with respect thereto.
Section 7. INDEMNIFICATION.
7.1 AGREEMENT TO INDEMNIFY. IGI agrees to, and hereby does,
indemnify and hold GMC harmless against and in respect of any loss, cost,
expense, claim, liability, deficiency, judgment or damage, including reasonable
legal fees and expenses (individually, a "GMC Loss"; and collectively, "GMC
Losses") incurred by GMC as a result of any inaccuracy in or breach of a
representation or warranty of IGI contained in this Agreement. Similarly, GMC
agrees to, and hereby does, indemnify and hold IGI harmless against and in
respect of any loss, cost, expense, claim, liability, deficiency, judgment or
damage, including reasonable legal fees and expenses (individually, an "IGI
Loss"; and collectively, "IGI Losses") incurred by IGI as a result of any
inaccuracy in or breach of a representation or warranty of GMC contained in this
Agreement.
7.2 PROCEDURE FOR INDEMNIFICATION.
(a) In the event that GMC or IGI shall incur or suffer
a GMC Loss or an IGI Loss, respectively, in respect of which
indemnification may be sought by such party pursuant to the provisions
of this Article 7, such party shall assert a claim for indemnification
by written notice (a "Notice") to the other party briefly stating the
nature and basis of such claim. In the case of Losses arising by reason
of any third-party claim, the Notice shall be given within 30 days of
the filing or other written assertion of any such claim against the
first party.
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(b) In the case of third-party claims for which indemnification
is sought, the indemnifying party shall have the option (i) to conduct
any proceedings or negotiations in connection therewith, (ii) to take
all other steps to settle or defend any such claim and (iii) to employ
counsel to contest any such claim or liability in the name of the
indemnified party or otherwise; provided, however, that the
indemnifying party shall notify the indemnified party of its intentions
with respect to any of the foregoing within 30 days after receipt of
notice of any such claims. In any event, the indemnified party shall be
entitled to participate at its own expense with its own counsel in any
proceedings relating to any third-party claim, including without
limitation settlement negotiations. The parties agree to cooperate
reasonably with each other in connection with the defense of any claim.
IGI will have no liability to GMC for any breach of representations and
warranties based on (i) modification of the Exclusive Software and the
Nonexclusive Software or (ii) the combination or use of the Exclusive
Software and the Nonexclusive Software with software or any equipment
or process not furnished by IGI if such infringement would have been
avoided by the use of the Exclusive Software and the Nonexclusive
Software alone.
7.3 SOLE REMEDY. The provisions of this Article 7 and
Section 10.2 constitute the sole remedy of a party for any breach of a
representation or warranty by the other party.
Section 8. CONDITIONS TO CLOSING. The obligations of GMC under
Article 2 are subject to the fulfillment, on or before the Closing, of each of
the following conditions, unless GMC agrees in writing to waive such conditions:
8.1 ASSIGNMENT OF ASSUMED CONTRACTS. IGI shall have caused the
Assumed Contracts to be assigned to GMC and shall deliver to GMC evidence of
such assignments, in form and substance satisfactory to GMC.
8.2 APPROVAL OF TRANSITION TEAM. The proposed members of the
Transition Team shall be acceptable to GMC.
8.3 LIST OF TRANSFERRED ASSETS AND EMPLOYEE NAMES. At the
closing, IGI shall deliver to GMC a true and complete list of the Transferred
Assets and an organizational chart describing the names and titles of all
employees of IGI's Exclusive Software line of business as of the Closing Date.
8.4 SOURCE CODES. At the closing, IGI shall deliver to GMC on
electronic media a complete copy of the source codes for each of the current
versions of the Exclusive Software and the Nonexclusive Software.
8.5 OPINION OF IGI'S COUNSEL. GMC shall have received from
IGI's legal counsel a written opinion, dated as of the Closing Date, addressed
to GMC and satisfactory to GMC's legal counsel.
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<PAGE>
8.6 BOARD APPROVAL. The Boards of Directors of GMC and IGI
shall have approved this Agreement and the transactions contemplated hereby.
Such approvals shall not have been modified or rescinded.
8.7 LICENSE AGREEMENT. GMC and IGI shall have entered into the
License Agreement pursuant to Section 2.5 of this Agreement.
Section 9. NONCOMPETE COVENANT. For a period of five years
after the Closing Date, IGI shall not, directly or indirectly, distribute,
market, promote or otherwise provide to any third parties any software that is
competitive with the business relating to the Exclusive Software, as such
business exists immediately after the Earn Out Period, unless GMC consents to
the sale of such software, except as may be otherwise provided in Section 3.1 of
the License Agreement.
Section 10. GENERAL PROVISIONS.
10.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota, without regard
to its conflicts of law rules.
10.2 ARBITRATION.
(a) IN GENERAL. Except as otherwise expressly set forth herein,
any controversy or claim arising out of or relating to this Agreement,
or breach thereof shall be settled by arbitration administered by the
American Arbitration Association under its Commercial Arbitration Rules
in effect on the date first written above (the "Arbitration Rules").
The place of arbitration shall be Minneapolis, Minnesota, U.S.A. The
arbitration shall be conducted in the English language by a sole
arbitrator appointed in accordance with the Arbitration Rules.
(b) ATTORNEY'S FEES. All reasonable attorney's fees and costs
incurred by the prevailing party in any arbitration pursuant to this
Agreement, and the cost of such arbitration, shall be paid by the other
party to the arbitration within five days after receipt of written
demand therefor from the prevailing party following the rendition of
the written decision of the arbitrator, or as otherwise ordered by the
arbitrator. On the application of such prevailing party before or after
the initial decision of the arbitrator, and proof of its attorneys'
fees and costs, the arbitrator shall order the other party to the
arbitration to make the payments provided for in the preceding
sentence; provided, however, that if neither party prevails entirely,
the arbitrator may, in his or her sole discretion, assess any part of
such attorneys' fees and costs against a specified party.
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(c) BINDING CHARACTER. Any decision rendered by any arbitrator
pursuant to this Section 10.2 shall be final and binding on the parties
thereto, and judgment thereon may be entered by any court of competent
jurisdiction. The parties specifically agree that any arbitrator shall
be empowered to award and order equitable or injunctive relief with
respect to matters brought before it.
(d) CONFIDENTIALITY. Neither party, nor the arbitrator shall
disclose the existence, content or results of any arbitration hereunder
without the prior written consent of both parties.
(e) EXCLUSIVITY. Except as provided in Section 10.2(f),
arbitration shall be the exclusive method available for resolution of
controversies and claims described in this Section 10.2, and the
parties stipulate that the provisions hereof shall be a complete
defense to any suit, action or proceeding in any court or before any
administrator or arbitrator with respect to any such controversy or
claim. The provisions of this Section 10.2 shall survive the
termination or expiration of this Agreement.
(f) CERTAIN OTHER REMEDIES. Notwithstanding the terms of this
Section 10.2 or any provision to the contrary in the Arbitration Rules,
at any time before and after arbitration is initiated pursuant to the
Arbitration Rules, the parties shall be free to apply to any court of
competent jurisdiction for interim or conservatory measures (including
temporary conservatory injunctions). The parties acknowledge and agree
that any such action by a party shall not be deemed to be a breach of
such party's obligation to arbitrate all disputes under this Section
10.2 or infringe upon the powers of any arbitrator. The parties hereby
consent to the non-exclusive jurisdiction of the U.S. District Court
for the District of Minnesota.
10.3 SUCCESSORS AND ASSIGNS. The provisions hereof shall inure
to the benefit of, and be binding upon, the successors, assigns, heirs,
executors and administrators of the parties hereto.
10.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement, including the
Exhibits hereto which are hereby incorporated by reference, constitutes the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any representations, warranties or covenants except as
specifically set forth herein or therein. Except as expressly provided herein,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
10.5 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally (including
by
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commercial delivery service) or mailed by registered or certified mail (return
receipt requested) or sent via facsimile transmission (with acknowledgement of
complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
IF TO IGI, TO: WITH A COPY TO:
------------- --------------
Infinite Graphics Incorporated Gray, Plant, Mooty, Mooty & Bennett
4611 East Lake Street 3400 City Center
Minneapolis, Minnesota 55406 33 South Sixth Street
Attention: Clifford F. Stritch, Jr. Minneapolis, Minnesota 55402-3796
Facsimile No.: 612/721-3802 Attention: Robert P.Larson
Facsimile No.: 612/333-0066
IF TO GMC, TO: WITH A COPY TO:
-------------- ---------------
Global MAINTECH Corporation Dorsey & Whitney LLP
6468 City West Parkway 2200 South Sixth Street
Eden Prairie, Minnesota 55344 Minneapolis, Minnesota 55402
Attention: David H. McCaffrey Attention: Kenneth L. Cutler
Facsimile No.: 612/944-3311 Facsimile No.: 612/340-8738
Notice shall be deemed given upon personal delivery thereof or, if sent other
than by personal delivery, at the earlier of its receipt or 72 hours after
deposit postage prepaid in the U.S. mail or 72 hours after the complete
transmission thereof by facsimile transmission, as applicable.
10.6 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to any party hereunder upon any breach or
default of GMC or IGI under this Agreement shall impair any such right, power or
remedy of such party, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any such holder, shall be
cumulative and not alternative.
10.7 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be enforceable against the parties actually
executing such counterparts and all of which together shall constitute one
instrument.
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10.8 SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision, provided, however, that no such severability
shall be effective if it materially changes the economic benefit of this
Agreement to any party.
10.9 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and shall not be considered in
construing or interpreting this Agreement.
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<PAGE>
The parties hereto have caused this Agreement to be executed as of the
day and year first set forth above.
GLOBAL MAINTECH CORPORATION INFINITE GRAPHICS INCORPORATED
By /s/ David H. McCaffrey By /s/Clifford F. Stritch, Jr.
----------------------------- ------------------------------
Its Chief Executive Officer Its Chief Executive Officer
EXHIBITS
Exhibit A Inventory and Exclusive Software
Exhibit B Marks, Nonexclusive Software and Transferred Assets
Exhibit C Bill of Sale and Assignment of Assets
Exhibit D Net Income after Taxes: Adjustments, Clarification and Exceptions
Exhibit E Allocation of Purchase Price
Exhibit F License Agreement
Exhibit G Assumed Contracts
SCHEDULES
Schedule 4.7
Schedule 4.11
Schedule 4.12
Schedule 6.3
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EXHIBIT A
INVENTORY AND EXCLUSIVE SOFTWARE
The Inventory shall include the following:
product manuals
blank CD ROMs
blank computer tapes
miscellaneous supplies
The Exclusive Software shall include the following:
PAR (Producibility Analysis Report) provides printed circuit board (PCB)
designers and manufacturers with a tool to dramatically increase productivity.
This software program, which runs prior to CAM, reads customer data immediately
and gives a complete analysis as to manufacturability and design intent. Any
potential problems can then be communicated with the internal or external
customer. With PAR, this entire cycle takes minutes instead of days with
conventional tools.
ICE (Interactive Conflict Editor) is an automated editing and DFM tool that is
used in conjunction with PAR to greatly improve the PCB editing process. ICE
takes the industry standard PAR analysis and allows the user to automatically
correct design and potential manufacturing problems. This is the "Autofix"
portion of ICE. Autofix will suggest a fix and give a list of repair options
and/or combinations from which the user may choose. Choices are to repair to
typical value, manufacturing requirements, customer specification, arbitrate
between objects, or an override value. ICE is netlist, geometric and DFM based
so that no new errors can be created while you optimize manufacturability.
PAR/ICE combines the feature of the two software packages mentioned above.
ParCAM is a complete panelization system that lets you quickly and accurately
generate a printed wiring board (PWB) manufacturing package. Using the
information in a PWB database, ParCAM takes your panel requirements, corrected
and compensated 1-up, from PAR (Producibility Analysis Report) and ICE
(Interactive Conflict Editor) and easily generates the required production
tolling package. ParCAM also includes panel and process definition modules.
CHECKMATE is a combination of PAR and ICE configured in a way to perform the
desired checking and output for the PCB design market and has significantly less
functionality than PAR/ICE.
A-1
<PAGE>
EXHIBIT B
NONEXCLUSIVE SOFTWARE AND TRANSFERRED ASSETS
The Nonexclusive Software shall include the following:
CAD/CAM is a general purpose computer aided design and manufacturing system
designed primarily for the mechanical industry.
ProCADD is a general purpose graphical creation and editing program that has
been customized with features to make it appropriate for the precision graphics
marketplace. You would consider it a full featured two dimensional computer
aided drafting package.
ProFLEX is a customized version of ProCADD with a few additional commands,
inputs and outputs to customize it for the flex circuit industry.
IGI/CAM is a complete panelization system that lets you quickly and accurately
generate a printed wiring board (PWB) manufacturing package. Using the
information in a PWB database, IGI/CAM takes your panel requirements, corrected
and compensated 1-up, from PAR and ICE and easily generates the required
production tooling package. IGI/CAM also includes panel and process definition
modules.
ProCHEM is a group of IGI modules arranged in a way to make it a productive
graphical design and editing program for the chemical milling industry including
automatic etch compensation.
B-1
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EXHIBIT B, continued
EXT is a program that generates electrical netlist from precision graphics data
and drill files. It is used in the electrical test marketplace, usually as a
data generation module for a fixture program. Fixture programs generate the
actual mechanical interface between a tester and the device being tested. IGI
doesn't make software for this application.
Gerb Edit is a general purpose viewer and editor for precision graphics. It is
almost never sold alone as a product but imbedded in other products to do the
basic editing and viewing.
Core Programs are used to perform basic functions while designing precision
graphics or assembling a product. When grouped together for a specific function,
they are referred to as libraries.
The Transferred Assets shall include all right, title and interest in and
to the following tangible assets used to operate IGI's Exclusive Software line
of business as of the Closing Date:
1) Furniture and fixtures $10,000
9 Desks
11 Chairs
20 Modular partitions with 2 desk units
2 File cabinets
2 Storage cabinets
1 Table
2) Equipment and Machinery
includes computers) 40,000
1 HP 720 workstation with monitor
1 Sun ELC workstation with monitor
2 Sun Sparc II workstations with monitors
1 Dell Notebook
4 Pentium PCs with monitors
1 HP laser printer
1 Miscellaneous office equipment to support item 1 and 2
(value less than $250)
B-2
<PAGE>
EXHIBIT B, continued
3) Cash related to the accrued
vacation of transitioned
employees 32,517
4) Cash related to deferred
revenue that relates to the
Exclusive Software
line of business 95,929
5) Inventory related to the
Exclusive Software 0
6) Customer List, Prospect
List, and Assignment of
Agreements 100,000
--------
Total $278,446
========
B-3
<PAGE>
EXHIBIT C
BILL OF SALE AND ASSIGNMENT OF ASSETS
Infinite Graphics Incorporated, a Minnesota corporation ("Transferor"),
for good and valuable consideration, receipt of which is hereby acknowledged, by
these presents do sell, assign, transfer and convey unto Global MAINTECH
Corporation, a Minnesota corporation (hereinafter called "Transferee"), its
successors and assigns, all right (whether at common law or otherwise), title
and interest in and to the Transferred Assets (as defined in the Asset Purchase
Agreement, dated February 27, 1998.
IN WITNESS WHEREOF, Transferor has executed this Bill of Sale on this
27th day of February, 1998.
INFINITE GRAPHICS INCORPORATED
By /s/ Clifford F. Stritch, Jr.
--------------------------------
Its Chief Executive Officer
ACCEPTED:
GLOBAL MAINTECH CORPORATION
By /s/ David H. McCaffrey
-----------------------------
Its Chief Executive Officer
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EXHIBIT D
NET INCOME AFTER TAXES: ADJUSTMENTS, CLARIFICATION AND EXCEPTIONS
For purposes of this Exhibit D, such expenses to be allocated and payable
by GMC will include only those expenses that relate to the Exclusive Software
line of business, the Transferred Assets and the salespersons selling Exclusive
Software products.
(1) Net income will be calculated as follows:
Contribution margin before software assets capitalized and software
assets amortized (as such figure is and has been calculated on IGI's books and
financial records, a sample of which, as modified, is attached to this Exhibit
D) (a) plus software assets capitalized, (b) minus amortization of software
assets capitalized, (c) minus "allocated" marketing and sales expenses, (d)
minus "allocated" general and administrative expense, (e) minus other additional
expenses and (f) income tax (at the agreed upon rate by IGI and GMC of 31% of
pre-tax income).
(2) Software assets capitalized includes (a) $500,000 not otherwise
allocated to Transferred Assets which will be amortized over a 60-month period
of time on a straight-line basis, (b) $200,000, if such amount is paid to IGI,
which amount will be amortized over a 60-month period of time on a straight-line
basis, (c) cash relating to deferred revenue and vacation liability that is not
paid to GMC within 180 days of the Closing Date to be amortized over a 24-month
period of time on a straight-line basis, (d) software assets will be capitalized
equal to 90% of the salary and benefits of six developers and 100% of the salary
and benefits of one outside contractor as such expense is incurred, which may be
increased in the future as IGI and GMC may agree in writing and which amount
will be amortized over a 36-month period of time on a straight-line basis and
(e) any other software costs as agreed upon by IGI and GMC may be capitalized
that are not specifically described above which capitalized costs will be
amortized over a 36-month period of time on a straight-line basis.
(3) Sales & Marketing Expenses of IGI generally consist of the
following and shall be allocated as set forth below:
Operating expenses:
Salaries exempt - Expenses payable with respect to (a) base pay of
55% of salary for each of four IGI salespersons
during each of the first 3 months of the
Transition Period, (b) base pay of 45% of salary
for each of such salespersons during each of the
second 3 months of the Transition Period, and
(c) subsequent periods will be allocated by
D-1
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EXHIBIT D, continued
agreement between IGI and GMC; provided however,
that in the absence of such an agreement, base
pay of 45% of base salary will remain in effect.
Expenses will also include salaries for other
salespersons hired in the Exclusive Software
line of business; provided however, that no
salesperson will behired without the consent of
GMC and IGI.
* Payroll taxes * Actual expense payable to salespersons selling
Exclusive Software products at the base
percentage rate of 55% during each of the first
3 months of the Transition Period, 45% during
each of the second 3 months of the Transition
Period and, unless agreed upon otherwise by GMC
and IGI, 45% during the period following the
Transition Period.
* Vacation pay
* Workman's
compensation
* Group health/life
+ Rent + Expenses will not exceed $3,300 per month as
billed by IGI to GMC; provided, however, that,
to the extent that GMC transfers all operations
from IGI facilities pursuant to Section 6.3 of
this Agreement, such amount will no longer be
payable as a rent expense to IGI, but will
remain a rent expense of GMC to be allocated on
a pro rata basis. + Natural Gas/Water
Telephone - Expenses will not exceed $3,000 per month billed
by IGI to GMC; provided, however, that, to the
extent that GMC transfers all operations from
IGI facilities pursuant to Section 6.3 of this
Agreement, such amount will no longer be payable
as a telephone expense to IGI, but will remain a
telephone expense of GMC.
D-2
<PAGE>
EXHIBIT D, continued
++ General supplies ++ No allocations with respect to these expenses
from GMC or IGI.
++ Equipment
maintenance &
repair
++ Equipment rental
++ Equipment under
$500
** Advertising ** Expenses allocated limited to those incurred
with respect to salepersons and Exclusive
Software products and relating to the Exclusive
Software line of business
** Seminars & T/S
** Travel/lodging
** Meals and entertainment
** Auto expense
? Auto lease/rent ? No allocations with respect to these expenses
unless approved by both parties.
? Sub contractor fees
*** Comm in/house *** Actual expenses will be allocated; provided,
however, to the extent that GMC transfers all
operations from IGI facilities pursuant to
Section 6.3 of this Agreement, postage expenses
will no longer be payable as a postage expense
to IGI, but will remain a postage expense of
GMC.
*** Comm reps
*** Postage
+++ Dues and
subscriptions +++ No allocations with respect to these
expenses unless approved by both parties.
+++ Employee
procurement
+++ Depreciation
equipment
+++ Amort license
+++ Misc expense
D-3
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EXHIBIT D, continued
(4) General & Administrative Expenses of IGI generally consist of the
following and shall be allocated as set forth below:
Operating expenses:
General and admin:
* Salaries exempt
Salary officers - No expenses will be payable with respect to
officers' salaries except that which is paid to
IGI for Clifford Stritch's salary, which will be
$3,000 per month billed to GMC by IGI. This
amount may decrease, but will not increase
during the Transition Period.
* Payroll taxes
* Vacation pay
* Workman's compensation
* Group health/life
* Cash Bonus Plan
* Emples welfare
* Rent
* Electric
* Natural Gas/Water
* Telephone
* General supplies
* Equipment maintenance & repair
* Equipment rental
* Equipment under $500
* Equipment sales tax
* Building maint
* Advertising
* Seminars & T/S
* Travel/lodging
* Meals and entertainment
* Auto expense
* Auto lease/rent
* Sub contractor fees
* Postage
* Bad debt expense
* Dues and subscriptions
* Emp procurement
* Public expense
* Property taxes
* Legal expense
* Audit fees
* Depreciation building
D-4
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EXHIBIT D, continued
* Depreciation equipment
* Depreciation furniture & fixtur
* Amort LHI
* Amort license
* Contributions
* Casualty insurance
* Misc expense
* Conta alloc G&A
* Excluded from "allocated" general & administrative expenses.
(5) Additional expenses shall include the following:
(a) GMC is responsible for developing a graphical user
interface ("GUI"). Such costs relating to the development of the GUI
will be capitalized and amortized over a 24-month period;
(b) Capital expenditures will not exceed $5000 during the
Transition Period, unless approved by both parties;
(c) No expense category used to calculate net income can exceed
the last 12-month average by more than 20% unless approved by both
parties; and
(d) No allocations will be given with respect to expenses
incurred from GMC to the "purchased business" except rent, if no longer
paid to IGI, and special projects with the approval of both parties. A
special project, for example, would include a marketing project which
would take more than 5 hours of time on an hourly cost basis.
All symbols on this Exhibit D in the left hand column correspond with and should
be read in conjunction with the symbols and text in the right hand column.
D-5
<PAGE>
EXHIBIT E
ALLOCATION OF PURCHASE PRICE
The Purchase Price shall be allocated as follows:
Transferred Assets $278,446
Licensed Assets 221,554
---------
Total Purchase Price $500,0000
=========
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EXHIBIT F
LICENSE AGREEMENT
LICENSE AGREEMENT
This LICENSE AGREEMENT (this "Agreement") is made and entered into as
of February 27, 1998 (the "Effective Date"), by and between Global MAINTECH
Corporation, a Minnesota corporation ("GMC"), and Infinite Graphics
Incorporated, a Minnesota corporation ("IGI").
WHEREAS, GMC and IGI are parties to that certain License and Asset
Purchase Agreement entered into between the parties of even date herewith (the
"Purchase Agreement"), pursuant to which IGI sold to GMC, and GMC purchased from
IGI, all of IGI's right, title and interest in and the Transferred Assets (as
defined in the Purchase Agreement); and
WHEREAS, GMC desires to license from IGI, and IGI desires to license to
GMC, the Exclusive Software, Nonexclusive Software and Marks (as such terms are
defined in the Purchase Agreement), pursuant to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, representations and warranties contained herein, the parties hereby
agree as follows:
Section 1. DEFINITIONS.
"LICENSED SOFTWARE" means the Source Code, Object Code and Source
Documentation of the Exclusive Software and Nonexclusive Software that is in
existence as of the Effective Date.
"MODIFICATIONS" means any modifications, translations or derivative
works made of the Source Code, which are created after the Effective Date.
"OBJECT CODE" means machine executable code resulting from the
compilation of each of the Source Codes.
"SOURCE CODE" means the source code for each of the software programs
comprising the Exclusive Software and Nonexclusive Software.
"SOURCE DOCUMENTATION" means the documentation accompanying each of the
Source Codes.
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Section 2. LICENSE.
2.1 SOURCE CODE.
(a) IGI hereby grants to GMC a nonexclusive, nontransferable
(except as provided in Section 11.3), irrevocable (except as provided
in Section 10.3), fully-paid, worldwide license to use and copy the
Source Code for the Nonexclusive Software in order to prepare and have
prepared Modifications, and to use and copy the Source Documentation to
support such efforts.
(b) IGI hereby grants to GMC an exclusive, nontransferable
(except as provided in Section 11.3), irrevocable (except as provided
in Section 10.3), fully-paid, worldwide license to use and copy the
Source Code for the Exclusive Software in order to prepare and have
prepared Modifications, and to use and copy the Source Documentation to
support such efforts.
2.2 MODIFICATIONS.
(a) Subject to the terms and conditions of this Agreement, IGI
shall only use and copy the Source Code for the Exclusive Software in
order to prepare or have prepared Modifications. IGI shall deliver to
GMC all new Modifications for the Source Code to the Exclusive Software
and Nonexclusive Software that IGI prepares or has prepared during the
Earn Out Period (as defined in the Purchase Agreement) at least once
during each three (3) month period during the term of the Earn Out
Period. IGI hereby grants to GMC an exclusive, nontransferable (except
as provided in Section 11.3), irrevocable (except as provided in
Section 10.3), fully-paid, worldwide license to use and copy such
Modifications; provided, however, that the foregoing license to the
Modifications for the Nonexclusive Software shall be nonexclusive.
(b) GMC shall deliver to IGI all new Modifications that GMC
prepares or has prepared during the Earn Out Period for the
Nonexclusive Software and Exclusive Software at least once during each
three (3) month period during such Earn Out Period. Subject to the
terms and conditions of this Agreement, GMC hereby grants to IGI a
nonexclusive, nontransferable (except as provided in Section 11.3),
fully-paid, worldwide license to use and copy such Modifications,
solely for IGI's internal purposes, including use by IGI's employees in
IGI's precision graphics business.
2.3 OBJECT CODE.
(a) IGI hereby grants to GMC a nonexclusive, nontransferable
(except as provided in Section 11.3), irrevocable (except as provided
in Section 10.3), fully-paid, worldwide license to use, copy, display
and perform the Object Code for the Nonexclusive Software, and to
distribute and have
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distributed the Object Code for the Nonexclusive Software in accordance
with the terms of Section 3.2 below.
(b) IGI hereby grants to GMC an exclusive, nontransferable
(except as provided in Section 11.3), irrevocable (except as provided
in Section 10.3), fully-paid, worldwide license to use, copy, display
and perform the Object Code for the Nonexclusive Software, and to
distribute and have distributed the Object Code for the Exclusive
Software in accordance with the terms of Section 3.2 below.
(c) The parties expressly agree that IGI shall use, copy,
display, perform and distribute the Object Code for the Exclusive
Software only for (i) the internal purposes of IGI, including use by
IGI's employees in IGI's precision graphics business, or (ii)
distribution to third parties as expressly provided in Section 3.1
below.
2.4 OWNERSHIP. Subject to Section 6.4 of the Purchase
Agreement, GMC acknowledges that the Licensed Software and all Modifications
that IGI prepares or has prepared are the proprietary information of IGI and
that IGI owns all right, title and interest in and to the Licensed Software and
such Modifications, including without limitation all copyrights and other
intellectual property rights, subject to the licenses granted to GMC hereunder.
Subject to Section 10.3(b) below, GMC hereby retains all right, title and
interest in and to any Modifications that GMC prepares or has prepared,
including without limitation all copyrights and other intellectual property
rights, subject to the license granted to IGI hereunder.
2.5 AUTHORIZED PERSONNEL. GMC agrees to restrict access
to the Source Code, Source Documentation and Modifications for the Nonexclusive
Software to those employees and, subject to the provisions of Section 2.7,
consultants and independent contractors of the parties who are directly involved
with development of its' products based on such Source Code and Modifications.
Until the date the Earn Out Payment is made pursuant to the Purchase Agreement,
GMC agrees to restrict access to the Source Code, Source Documentation and
Modifications for the Exclusive Software to those employees and, subject to the
provisions of Section 2.7, consultants and independent contractors of the
parties who are directly involved with development of its' products based on
such Source Code and Modifications. IGI agrees to restrict access to the Source
Code, Source Documentation and Modifications for the Exclusive Software to those
employees and, subject to the provisions of Section 2.7, consultants and
independent contractors of the parties who need to be directly involved the use
of such materials as part of IGI's precision graphics business.
2.6 RESTRICTIONS. GMC may not use, modify, reproduce,
sublicense, distribute or otherwise provide to third parties the Licensed
Software and any Modifications, in whole or in part, other than as expressly
permitted under this Agreement. IGI may not use, modify, reproduce, sublicense,
distribute or otherwise
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provide to third parties the Source Code, Source Documentation and Modifications
for the Exclusive Software, in whole or in part, other than as expressly
permitted under this Agreement. IGI may use the Source Code, Source
Documentation, Modifications and Object Code for the Nonexclusive Software in
any manner it sees fit unless expressly prohibited hereunder. Without limiting
the generality of the foregoing, (a) until the date the Earn Out Payment is made
pursuant to the Purchase Agreement, GMC shall have no right to distribute or
otherwise provide to third parties the Source Code, Source Documentation or
Modifications for the Exclusive Software except as provided in Section 2.7, (b)
GMC shall have no right to distribute or otherwise provide to third parties the
Source Code, Source Documentation or Modifications for the Nonexclusive Software
except as provided in Section 2.7, (c) IGI shall have no right to distribute or
otherwise provide to third parties the Source Code, Source Documentation or
Modifications for the Exclusive Software except as provided in Section 2.7, and
(d) IGI shall have no right to sublicense or distribute the Object Code for the
Exclusive Software except as provided in Section 3.1.
2.7 CONSULTANTS. GMC may use consultants and independent
contractors to create Modifications for the Nonexclusive Software as expressly
permitted by this Section 2, provided, however, that, prior to the commencement
of such work, such consultants and independent contractors execute a
confidentiality agreement in a form reasonably acceptable to IGI. GMC may use
consultants and independent contractors to create Modifications for the
Exclusive Software as expressly permitted by this Section 2, provided, however,
that until the date the Earn Out Payment is made pursuant to the Purchase
Agreement, prior to the commencement of such work, such consultants and
independent contractors execute a confidentiality agreement in a form reasonably
acceptable to IGI. IGI may use consultants and independent contractors to create
Modifications for the Exclusive Software as expressly permitted by this Section
2, provided, however, that, prior to the commencement of such work, such
consultants and independent contractors execute a confidentiality agreement in a
form reasonably acceptable to GMC.
2.8 DELIVERY AND COOPERATION. IGI shall deliver the Licensed
Software to IGI in a mutually acceptable format on the Effective Date. Each
party agrees to cooperate fully with the other party and to execute such further
instruments, documents and agreements as are needed hereunder.
Section 3. END USER LICENSE RESTRICTIONS.
3.1 IGI RESTRICTIONS. During each calendar year during the term
of this Agreement, and subject to the non-competition requirements in Section 9
of the Purchase Agreement, IGI may distribute to third parties solely as part of
IGI's precision graphics business (a) up to three (3) copies, in whole or in
part, of the Object Code for any of the programs that constitute the Exclusive
Software, and (b) an unlimited number of copies of the Object Code for the
programs that constitute the Nonexclusive Software. If IGI desires to distribute
to third parties any copies of
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the Object Code for the Exclusive Software in addition to the three (3)
permitted copies in a particular calendar year, IGI shall obtain GMC's prior
written consent to such distribution, in GMC's sole discretion. For purposes of
this Section 3.1, a "copy" of the Object Code for the Exclusive Software shall
only include the particular version distributed, and shall not include any
subsequent updates, new versions or new releases of such version, each of which
shall constitute a additional "copy" hereunder. All copies of the Object Code
for the Exclusive Software shall be distributed by IGI hereunder pursuant to a
software license agreement between IGI and such third party in a form that
reasonably protects GMC's intellectual property rights therein. IGI agrees to
provide to GMC for review a copy of each version of such software license
agreement for the Object Code for the Exclusive Software prior to its first use.
IGI agrees to use its best efforts to enforce the obligations of such end user
software license agreements and to inform GMC promptly of any known breach of
such obligations.
3.2 GMC RESTRICTIONS. All copies of the Object Code for the
Exclusive Software distributed by GMC or its agents to a third party shall be
distributed pursuant to a software license agreement that reasonably protects
IGI's intellectual property rights therein, provided that such requirement shall
terminate upon the date the Earn Out Payment is made pursuant to the Purchase
Agreement. All copies of the Object Code for the Nonexclusive Software
distributed by GMC or its agents to a third party shall be distributed pursuant
to a software license agreement that reasonably protects IGI's intellectual
property rights therein. GMC agrees to provide to IGI for review a copy of each
version of all such software license agreements, which are proposed for use
until the Earn Out Payment is made pursuant to the Purchase Agreement, prior to
its first use. GMC agrees to use its best efforts to enforce the obligations of
such end user software license agreements and to inform IGI promptly of any
known breach of such obligations related to the Object Code.
Section 4. CONSIDERATION. The consideration for the rights and licenses
granted to GMC herein consists of (a) the consideration set forth in Section 2
of the Purchase Agreement, and (b) the license to the Modifications granted to
IGI hereunder.
Section 5. DISCLAIMER OF WARRANTIES.
5.1 IGI'S DISCLAIMER OF WARRANTIES. IGI licenses the Licensed
Software and Modifications to GMC hereunder on an "AS IS" basis. IGI MAKES AND
GMC RECEIVES NO WARRANTIES OR CONDITIONS, EXPRESS, IMPLIED OR STATUTORY,
INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, REGARDING THE LICENSED SOFTWARE OR
MODIFICATIONS OWNED BY IGI OR THEIR USE OR OPERATION.
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5.2 GMC'S DISCLAIMER OF WARRANTIES. GMC licenses the
Modifications to IGI hereunder on an "AS IS" basis. GMC MAKES AND IGI RECEIVES
NO WARRANTIES OR CONDITIONS, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT
LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, REGARDING THE MODIFICATIONS OWNED BY GMC OR THEIR USE OR
OPERATION.
Section 6. LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS
AGREEMENT OR THE USE OR DISTRIBUTION OF LICENSED SOFTWARE, MODIFICATIONS OR
OBJECT CODE BY GMC, IGI OR ANY THIRD PARTY, WHETHER UNDER THEORY OF CONTRACT,
TORT (INCLUDING NEGLIGENCE) OR OTHERWISE. EXCEPT AS SPECIFICALLY PROVIDED IN
SECTION 9, IN NO EVENT SHALL EITHER PARTY'S LIABILITY TO THE OTHER PARTY EXCEED
THE TOTAL AMOUNT PAID BY GMC TO IGI FOR THE LICENSED SOFTWARE.
Section 7. LABELLING.
7.1 NOTICES. GMC shall not remove any copyright notices or
proprietary legends contained within the Licensed Software or Modifications
licensed to GMC by IGI hereunder. GMC shall also include a copyright notice in
the Licensed Software and Modifications reflecting the copyright ownership of
IGI and/or GMC, as applicable. IGI shall not remove any copyright notices or
proprietary legends contained within the Modifications licensed to IGI by GMC
hereunder.
7.2 TRADEMARKS.
(a) LIMITATION. Except as specifically provided in this
Section 7.2, neither party may use any trademarks, service marks, trade
names or logos of the other party.
(b) LICENSE TO GMC. IGI hereby grants to GMC, and GMC hereby
accepts from IGI, a nonexclusive, nontransferable (except as provided
in Section 11.3), and royalty-free license to use the Marks, solely in
connection with IGI's and its agent's permitted use and distribution of
the Licensed Software and Modifications during the term hereof. All
such usage of the Marks shall be in accordance with the standards,
specifications and instructions of IGI as of the Effective Date, and
IGI may inspect and monitor the activities of GMC to ensure that such
use of the Marks is in accordance with such standards, specifications
and instructions. GMC is not granted any right, title or interest in
the Marks other than the foregoing limited license, and GMC shall not
use, nor permit a third party to use, the Marks except as
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expressly permitted hereunder, including, without limitation, as part
of its corporate or trade name.
(c) LICENSE TO IGI. GMC hereby grants to IGI, and IGI hereby
accepts from GMC, a nonexclusive, nontransferable (except as provided
in Section 11.3), and royalty-free license to use the trademarks
(excluding the Marks) owned and/or licensed by GMC which are used in
connection with the Modifications licensed to IGI hereunder, solely in
connection with IGI's permitted use and distribution of such
Modifications during the term hereof. All such usage of the GMC
trademarks shall be in accordance with the standards, specifications
and instructions of GMC, and GMC may inspect and monitor the activities
of IGI to ensure that such use is in accordance with such standards,
specifications and instructions. IGI is not granted any right, title or
interest in such trademarks other than the foregoing limited license,
and IGI shall not use, nor permit a third party to use, such trademarks
except as expressly permitted hereunder, including, without limitation,
as part of its corporate or trade name.
(d) INFRINGEMENTS. Each party shall promptly notify the other
party in writing of any unauthorized use of the other party's
trademarks licensed hereunder, or any similar marks, which may
constitute an infringement or passing off of such trademarks. Each
party reserves the right in its sole discretion to institute any
proceedings related to its own trademarks against such third party
infringers, and the other party shall refrain from doing so. Each party
shall cooperate fully in any legal action taken against such third
parties infringers, provided that the party instituting such action
shall pay all expenses related to such action and all damages which may
be awarded or agreed upon in settlement shall accrue to the party
instituting such action.
Section 8. CONFIDENTIALITY.
8.1 CONFIDENTIAL INFORMATION. Each party acknowledges that
information that is disclosed to it (the "Receiving Party") by the
other party (the "Disclosing Party") in a tangible form and which is
marked "Confidential" or "Proprietary" (or with a similar legend), or
that is disclosed orally and confirmed in writing as confidential
within a reasonable time, all constitute the proprietary and
confidential information of the Disclosing Party ("Confidential
Information"). Subject to Section 8.2 below, even if not so marked the
parties agree that the Licensed Software and all Modifications shall be
"Confidential Information" hereunder.
8.2 USE AND DISCLOSURE. Each party, as a Receiving Party,
agrees not to use, disclose, distribute or disseminate Confidential
Information received from the Disclosing Party except as expressly
permitted under this Agreement, and agrees to keep such Confidential
Information in strict confidence. Notwithstanding the foregoing, after
the Effective Date (a) GMC shall have no obligation to keep
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confidential any information or knowledge relating to the Exclusive
Software, provided that it shall have an obligation to keep
confidential the Source Code, Source Documentation and Modifications
for the Exclusive Software only until the date the Earn Out Payment is
made pursuant to the Purchase Agreement, (b) GMC shall have an
obligation to keep confidential any information relating to the
Nonexclusive Software, including the Source Code, Source Documentation
and Modifications therefor, (c) IGI shall have an obligation to keep
confidential all information and knowledge relating to the Exclusive
Software (including, without limitation, the Source Code, Source
Documentation and Modifications thereto), other than as is reasonably
necessary to permit IGI to continue operating its precision graphics
business.
8.3 REMEDIES. Each party, as a Receiving Party, acknowledges
that any material breach of the foregoing confidentiality obligation
could cause irreparable harm to the Disclosing Party, the extent of
which would be difficult to ascertain. Accordingly, each party, as a
Receiving Party, agrees that the Disclosing Party may seek immediate
injunctive relief in the event of a breach of the provisions of this
Section 8 by the Receiving Party, in addition to any other remedies
available a law or in equity. In addition, the Receiving Party shall
indemnify the Disclosing Party for all losses, damages and reasonable
costs and expenses which the Disclosing Party may sustain or incur as a
result of such breach by the Receiving Party.
8.4 NOTIFICATION. Each party, as a Receiving Party, agrees to
notify the Disclosing Party promptly in the event of any breach of its
security under conditions in which it would appear that the Disclosing
Party's Confidential Information were prejudiced or exposed to loss.
Each party, as a Receiving Party, shall, upon request of the Disclosing
Party, take all other reasonable steps necessary to recover any
compromised Confidential Information disclosed to or placed in the
Disclosing Party's possession by virtue of this Agreement. All
reasonable costs of taking such steps shall be borne solely by the
Receiving Party, except for the value of the time of the Disclosing
Party's employees.
8.5 EXCEPTIONS. The foregoing restrictions will not apply to
information that the Receiving Party can demonstrate: (i) was known to
the Receiving Party at the time of disclosure as shown by the files of
the Receiving Party in existence at the time of disclosure; (ii) has
become publicly known through no wrongful act of the Receiving Party;
(iii) has been rightfully received from a third party authorized by the
Disclosing Party to make such disclosure without restriction; (iv) has
been approved for release by written authorization of the Disclosing
Party; (v) is required to be disclosed pursuant to subpoena or other
action of a court or government agency provided that the Disclosing
Party is given prior notice of such disclosure and a reasonable
opportunity to seek a protective order or other confidential treatment
or (vi) has been independently developed by the Receiving Party without
any use of the Disclosing Party's Confidential Information.
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Section 9. INDEMNIFICATION.
9.1 INDEMNIFICATION BY GMC. GMC shall indemnify, hold harmless
and, at IGI's request, defend IGI from and against any and all losses,
costs, liabilities and expenses (including reasonable attorneys' fees)
arising out of or in connection with (a) GMC's use or distribution of
the Licensed Software and Modifications licensed to GMC hereunder
(except any infringement claim covered by item (c) in Section 9.2), (b)
IGI's use of the GMC trademarks as permitted hereunder, or (c) any
claim that the Modifications licensed to IGI hereunder, which results
from use in accordance with the licenses granted by GMC hereunder,
infringe any patent, copyright or other rights of any third party.
9.2 INDEMNIFICATION BY IGI. IGI shall indemnify, hold harmless
and, at GMC's request, defend GMC from and against any and all losses,
costs, liabilities and expenses (including reasonable attorneys' fees)
arising out of or in connection with (a) IGI's use or distribution of
the Modifications licensed to IGI by GMC hereunder (except any
infringement claim covered by item (c) in Section 9.1), (b) GMC's use
of the Marks as permitted hereunder, or (c) any claim that the Licensed
Software and Modifications licensed to GMC hereunder, which results
from use in accordance with the licenses granted by IGI hereunder,
infringe any patent, copyright or other rights of any third party.
Section 10. TERM AND TERMINATION.
10.1 TERM. This Agreement shall continue in full force and
effect unless and until terminated as provided in Section 10.2.
10.2 TERMINATION. A party may terminate this Agreement as
follows:
(a) If during the Earn Out Period either party materially
defaults in the performance of any material provision of this
Agreement, then the other party may give written notice to defaulting
party that if the default is not cured within 30 days, or if
substantial and continuing efforts to cure such default are not made
within 30 days, the Agreement will be terminated. If either party gives
such notice during the Earn Out Period and the default is not cured, or
if substantial and continuing efforts to cure are not made, during the
30-day period, then the Agreement will terminate immediately upon
written notice from the non-defaulting party to the defaulting party;
(b) Either party may terminate this Agreement immediately upon
notice to the other party if any of the foregoing events occur during
the Earn Out Period, (i) upon the institution by the other party of
insolvency, receivership or bankruptcy proceedings or any other
proceedings for the settlement of the other party's debts (ii) upon the
institution against the other party of insolvency, receivership or
bankruptcy proceedings or other proceedings for the settlement of the
other party's debts, which proceedings
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are not dismissed within 60 days, (iii) upon the other party's making
an assignment for the benefit of creditors, or (iv) in the event of the
other party's dissolution or insolvency; or
(c) IGI may terminate this Agreement immediately upon written
notice to GMC if the Earn Out Payment is not paid by GMC in accordance
with the terms of the Purchase Agreement.
10.3 EFFECT OF TERMINATION. Upon any termination of this
Agreement pursuant to Section 10.2, the parties shall have the following rights
and obligations:
(a) GMC and IGI shall continue to have the right to use the
Licensed Software, Modifications, Marks and the GMC trademarks licensed
for its use hereunder, as applicable, for (30) days after the effective
date of the termination of this Agreement, and upon the end of such
30-day period all licenses granted hereunder shall terminate without
any further action by the parties;
(b) If IGI terminates this Agreement pursuant to Section
10.2(c), then GMC shall assign and transfer to IGI all right, title and
interest it has or may have in all Modifications then owned by GMC;
(c) If GMC terminates this Agreement pursuant to Section
10.2(a) or 10.2(b), then GMC shall not be required to make the Earn Out
Payment to IGI notwithstanding anything to the contrary in Section 6.7
or any other provision of the Purchase Agreement; and
(d) If IGI terminates this Agreement pursuant to Section
10.2(a) or 10.2(b), then GMC shall be required to make the Earn Out
Payment pursuant to the Purchase Agreement.
10.4 SURVIVAL. The parties' rights and obligations under
Sections 2.4, 5, 6, 8, 9 and 11 shall survive any termination of this Agreement.
All end user licenses granted by GMC or IGI prior to the termination date shall
also survive, and GMC shall assign to IGI all its rights and obligations under
such end user licenses; provided, that the parties shall determine in good faith
the amount that GMC is entitled to receive from IGI as compensation for all
services provided to end users prior to termination of such end user licenses.
10.5 EFFECT OF BANKRUPTCY. The parties agree that the Licensed
Software and Modifications are "intellectual property" hereunder, as such term
is defined in Section 365(n) of the United States Bankruptcy Code, 11 U.S.C.
ss.101 et seq, and that both GMC and IGI, as licensees hereunder, are entitled
to the protections of such section.
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10.6 OTHER REMEDIES. The rights of IGI and GMC to terminate
this Agreement under this Section 10 are in addition to any other rights and
remedies provided in law or equity or under this Agreement.
Section 11. GENERAL PROVISIONS.
11.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota, without regard
to its conflicts of law rules.
11.2 ARBITRATION.
(a) IN GENERAL. Except as otherwise expressly set forth herein,
any controversy or claim arising out of or relating to this Agreement,
or breach thereof shall be settled by arbitration administered by the
American Arbitration Association under its Commercial Arbitration Rules
in effect on the date first written above (the "Arbitration Rules").
The place of arbitration shall be Minneapolis, Minnesota, U.S.A. The
arbitration shall be conducted in the English language by a sole
arbitrator appointed in accordance with the Arbitration Rules.
(b) ATTORNEY'S FEES. All reasonable attorney's fees and costs
incurred by the prevailing party in any arbitration pursuant to this
Agreement, and the cost of such arbitration, shall be paid by the other
party to the arbitration within five days after receipt of written
demand therefor from the prevailing party following the rendition of
the written decision of the arbitrator, or as otherwise ordered by the
arbitrator. On the application of such prevailing party before or after
the initial decision of the arbitrator, and proof of its attorneys'
fees and costs, the arbitrator shall order the other party to the
arbitration to make the payments provided for in the preceding
sentence; provided, however, that if neither party prevails entirely,
the arbitrator may, in his or her sole discretion, assess any part of
such attorneys' fees and costs against a specified party.
(c) BINDING CHARACTER. Any decision rendered by any arbitrator
pursuant to this Section 11.2 shall be final and binding on the parties
thereto, and judgment thereon may be entered by any court of competent
jurisdiction. The parties specifically agree that any arbitrator shall
be empowered to award and order equitable or injunctive relief with
respect to matters brought before it.
(d) CONFIDENTIALITY. Neither party, nor the arbitrator shall
disclose the existence, content or results of any arbitration hereunder
without the prior written consent of both parties.
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(e) EXCLUSIVITY. Except as provided in Section 11.2(f),
arbitration shall be the exclusive method available for resolution of
controversies and claims described in this Section 11.2, and the
parties stipulate that the provisions hereof shall be a complete
defense to any suit, action or proceeding in any court or before any
administrator or arbitrator with respect to any such controversy or
claim.
(f) CERTAIN OTHER REMEDIES. Notwithstanding the terms
of this Section 11.2 or any provision to the contrary in the
Arbitration Rules, at any time before and after arbitration is
initiated pursuant to the Arbitration Rules, the parties shall be free
to apply to any court of competent jurisdiction for interim or
conservatory measures (including temporary conservatory injunctions).
The parties acknowledge and agree that any such action by a party shall
not be deemed to be a breach of such party's obligation to arbitrate
all disputes under this Section 11.2 or infringe upon the powers of any
arbitrator. The parties hereby consent to the non-exclusive
jurisdiction of the U.S. District Court for the District of Minnesota.
11.3 ASSIGNMENT. This Agreement may not be assigned in whole
or in part by either party, whether by operation of law or otherwise, without
the prior written consent of a duly authorized representative of the other party
and any purported assignment without such consent shall be void. Notwithstanding
the foregoing, as needed in connection with the sale of all or any portion of
GMC's assets or business to a third party, GMC may assign the licenses related
to the Exclusive Software (which are granted in Section 2.1(b), 2.2(a), 2.3(b)
hereof) and the Marks (which is granted in Section 7.2(b) hereof) to the
purchaser without the consent of IGI. Subject to the foregoing, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto.
11.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes
the full and entire understanding and agreement between the parties with regard
to the subjects hereof, and no party shall be liable or bound to any other party
in any manner by any representations, warranties or covenants except as
specifically set forth herein. Except as expressly provided herein, neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the party against whom enforcement
of any such amendment, waiver, discharge or termination is sought. If any terms
of this Agreement are in conflict with the terms of the Purchase Agreement, this
Agreement shall control.
11.5 NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally (including
by commercial delivery service) or mailed by registered or certified mail
(return receipt requested) or sent via facsimile transmission (with
acknowledgement of complete
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transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
IF TO IGI, TO: WITH A COPY TO:
-------------- ---------------
Infinite Graphics Incorporated Gray, Plant, Mooty, Mooty & Bennett
4611 East Lake Street 3400 City Center
Minneapolis, Minnesota 55406 33 South Sixth Street
Attention: Clifford F. Stritch, Jr. Minneapolis, Minnesota 55402-3796
Facsimile No.: 612/721-3802 Attention: Robert P. Larson
Facsimile No.: 612/333-0066
IF TO GMC, TO: WITH A COPY TO:
Global MAINTECH Corporation Dorsey & Whitney LLP
6468 City West Parkway 2200 South Sixth Street
Eden Prairie, Minnesota 55344 Minneapolis, Minnesota 55402
Attention: David H. McCaffrey Attention: Kenneth L. Cutler
Facsimile No.: 612/944-3311 Facsimile No.: 612/340-8738
Notice shall be deemed given upon personal delivery thereof or, if sent other
than by personal delivery, at the earlier of its receipt or 72 hours after
deposit postage prepaid in the U.S. mail or 72 hours after the complete
transmission thereof by facsimile transmission, as applicable.
11.6 NO WAIVER. The failure of either party to enforce any
provision of this Agreement shall not be deemed a waiver of such provision or of
any other provision.
11.7 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be enforceable against the parties actually
executing such counterparts and all of which together shall constitute one
instrument.
11.8 SEVERABILITY. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision, provided, however, that no such severability
shall be effective if it materially changes the economic benefit of this
Agreement to any party.
11.9 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and shall not be considered in
construing or interpreting this Agreement.
F-13
<PAGE>
11.10 DISCLAIMER OF AGENCY. This Agreement shall not be
construed as creating an agency, partnership or any other form of legal
association between the parties.
11.11 EXPORT CONTROLS. Each parties hereby acknowledge that it
will not export or reexport, directly or indirectly, any of the Licensed
Software, Modifications, related documentation or technical data (which
includes, among other things, any technical information relating to the Licensed
Software or Modifications, written or otherwise), or any product incorporating
any Licensed Software, Modifications, related documentation or technical data,
in violation of U.S. export control laws, including the U.S. Export
Administration Regulations.
The parties hereto have caused this Agreement to be executed as of the
day and year first set forth above.
GLOBAL MAINTECH CORPORATION INFINITE GRAPHICS INCORPORATED
By /s/ David H. McCaffrey By /s/ Clifford F. Stritch, Jr.
------------------------------- --------------------------------
Its Chief Executive Officer Its Chief Executive Officer
F-14
<PAGE>
EXHIBIT G
ASSUMED CONTRACTS
GMC has agreed to assume the following contracts referenced below:
(1) License agreements to which IGI is a party with the following vendors:
Hummingbird 4 licenses of Exceed
Hewlett Packard HPUX operating system for each HP workstation
C++ compiler
SUN Solaris operating system for each SUN
workstation C++ compiler
Microsoft 4 visual C licenses
Watcom 4 C compiler licenses
Parasoft Purify (NT and UNIX) DDTS (10 user license)
IGI and GMC acknowledge and agree that such license agreements
(a) are physically located on IGI's premises and (b) are in
the standard form of software license agreements which are a
part of the media in which the vendors' products are shipped.
(2) IGI's standard license agreements with end users.
(3) Liability of IGI as of the Closing Date that exists with respect to
standard customer maintenance and service fees that relate to the Exclusive
Software.
(4) Liability recorded in the books and financial records of IGI
as of the Closing Date that exists with respect to deferred revenue in
connection with customer prepaid maintenance and service fees that relate to the
Exclusive Software as follows:
Customer Name Deferred Revenue
---------------- ----------------
Details Inc. $ 189.62
Northern Telecom 216.63
Celestica 625.00
Coors 909.99
Aerojet 2,500.00
Protype 1,733.36
Power Circuits 2,730.00
Bayer 406.25
Litchfield 1,000.00
Hamilton Stnd. 650.00
Universal Circ. 3,737.08
G-1
<PAGE>
PTC Systems 208.30
Innovative Test 991.69
3M 166.64
Circuit Science 1,956.64
VTC 300.00
Circuitest Svc. 1,406.25
Motorola 3,900.00
Nat'l Semi-Con. 2,979.16
Raytheon 4,170.85
PC Boards 1,219.47
Hadco 2,337.47
Adflex 868.60
Lockheed Martin 3,791.65
M-Tron 163.35
Carboloy 656.25
IBM/Pough 1,083.31
Microcontact 1,327.34
LocKeed Martin 5,403.00
Comp Devices 3,875.02
HV Test 3,730.00
Lancaster 260.00
MIT Lincoln 2,100.00
R&D Consult 562.50
Honeywell 975.01
Cerprobe 2,381.26
Rockwell 758.31
Advance Flex 1,950.00
IBM 5,156.24
Integraph 4,485.00
ITL 1,364.99
Innovative Test 795.69
Textron 4,351.50
Compunetics 3,575.33
Circo Craft 568.77
Power Circuits 1,365.00
Compunetics 7,150.67
NW Etch. Tech. 1,191.67
AMP Circuits 1,704.60
-----------
Total Deferred Revenue $ 95,929.46
===========
(5) Agreements with Jadason covering distribution arrangements
with respect to Hong Kong and Singapore and Jensyo covering distribution
arrangements with respect to Taiwan.
G-2
<PAGE>
EXHIBIT G, continued
(5) Accrued vacation liability of the Transition Team as of the Closing
Date:
Vacation Earned Vacation Vacation
Employee Name as of Feb., 1998 Maximum Earned
- ---------------- ----------------- -------- -----------
Dossett, Devon 60.05 hours 2 weeks $808.27
Fuller, Robin 36.05 2 571.95
Kaas, Joe 253.00 4 10,384.62
Losness, Thomas 130.00 3 3,437.50
Pontinen, Gary 92.00 3 2,432.69
Shand, Sherman 42.00 3 1,009.62
Kaske, Andrew 138.00 3 3,330.58
Martin, Jeff 102.00 3 2,373.48
Koosman, Ron 66.70 2 850.43
Jacobs, Ron 116.00 3 2,989.23
Purcell, Mike 109.44 2 3,662.03
Ryynanen, Jill 36.02 2 686.72
===========
$32,517.080
G-3
<PAGE>
SCHEDULE 4.7
COPYRIGHTS, TRADEMARKS AND PATENTS
1. IGI has entered into IGI's standard form of license agreement with
various customer that are located on a customer list database and within IGI's
internal customer files on IGI's permises.
2. IGI's standard form of license agreement which is a part of the
media in which IGI's product relating to the Transferred Assets is shipped.
3. IGI's standard form of license agreement which is a part of IGI's
software reference manual.
4. License agreements with customers that vary in immaterial ways from
IGI's standard forms.
As to these items, both GMC and IGI agree not to list all customers who are
subject to these agreements.
<PAGE>
SCHEDULE 4.11
EMPLOYEES
The Transition Team, which includes employees associated with IGI's software
segment is as follows:
Hire Base Vacation Earned Vacation
Employee Name Date Salary as of Feb., 1998 Maximum
- -------------- ------- ------ ----------------- ---------
* Dossett, Devon 6/13/94 $ 13.46/hr. 60.05 hours 2 weeks
* Fuller, Robin 12/9/96 33,000/yr. 36.05 2
* Kaas, Joe 2/22/83 75,000 253.00 4
* Losness, Thomas 6/1/89 55,000 130.00 3
* Pontinen, Gary 6/1/87 55,000 92.00 3
* Shand, Sherman 6/1/97 50,000 42.00 3
+ Kaske, Andrew 1/26/87 50,200 138.00 3
+ Martin, Jeff 11/30/92 48,400 102.00 3
+ Koosman, Ron 4/21/97 26,520 66.70 2
++ Jacobs, Ron 5/9/90 53,600 116.00 3
++ Purcell, Mike 7/5/95 69,600 109.44 2
** Ryynanen, Jill 8/11/97 38,500/yr. 36.02 2
** James, Bill 30.00/hr. N/A N/A
** Ditter, Mary 15-20.00/hr. N/A N/A
Function within the software segment:
* Development
+ Customer Service/Tech Support
++ Application Engineers (sales business)
** Technical Writer
Such members of the Transition Team are eligible for all of such employee
benefit plans of IGI in effect as of the Closing Date as consistent with
similarly situated employees.
<PAGE>
SCHEDULE 4.12
THIRD PARTY WARRANTIES
[NONE]
<PAGE>
SCHEDULE 6.3
TRANSITION PERIOD
Such reasonable expenses for which GMC will reimburse IGI are as follows:
See Exhibit D, items (3) and (4) to the License and Asset Purchase Agreement.
-1-
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Global MAINTECH Corporation:
We consent to incorporation by reference in the registration statement (No.
33-33576) on Form S-8 of Global MAINTECH Corporation of our report dated March
23, 1998, relating to the consolidated balance sheets of Global MAINTECH
Corporation and subsidiary as of December 31, 1997 and 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended, which report appears in the December 31, 1997 annual
report on Form 10-KSB of Global MAINTECH Corporation.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 31, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1997 FORM KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,727
<SECURITIES> 0
<RECEIVABLES> 603
<ALLOWANCES> 0
<INVENTORY> 797
<CURRENT-ASSETS> 3,566
<PP&E> 308
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,863
<CURRENT-LIABILITIES> 683
<BONDS> 1,900
0
114
<COMMON> 5,001
<OTHER-SE> (1,835)
<TOTAL-LIABILITY-AND-EQUITY> 5,863
<SALES> 3,003
<TOTAL-REVENUES> 3,003
<CGS> 762
<TOTAL-COSTS> 1,970
<OTHER-EXPENSES> 22
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91
<INCOME-PRETAX> 158
<INCOME-TAX> 0
<INCOME-CONTINUING> 158
<DISCONTINUED> 70
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 228
<EPS-PRIMARY> 0.014
<EPS-DILUTED> 0.012
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1997 FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 33
<SECURITIES> 0
<RECEIVABLES> 473
<ALLOWANCES> 0
<INVENTORY> 218
<CURRENT-ASSETS> 751
<PP&E> 31
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,352
<CURRENT-LIABILITIES> 1,151
<BONDS> 17
0
329
<COMMON> 1,919
<OTHER-SE> (2,064)
<TOTAL-LIABILITY-AND-EQUITY> 1,352
<SALES> 2,130
<TOTAL-REVENUES> 2,130
<CGS> 626
<TOTAL-COSTS> 1,113
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 328
<INCOME-TAX> 18
<INCOME-CONTINUING> 310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 310
<EPS-PRIMARY> 0.026
<EPS-DILUTED> 0.022
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 APR-01-1997 JUL-01-1997
<PERIOD-END> MAR-01-1997 JUN-30-1997 SEP-30-1997
<CASH> 254 2,987 2,597
<SECURITIES> 0 0 0
<RECEIVABLES> 960 1,230 1,652
<ALLOWANCES> 0 0 0
<INVENTORY> 257 282 373
<CURRENT-ASSETS> 1,521 4,530 4,704
<PP&E> 67 101 152
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 2,373 5,716 6,018
<CURRENT-LIABILITIES> 869 434 484
<BONDS> 0 2,000 2,000
0 0 0
171 160 121
<COMMON> 3,180 4,757 4,831
<OTHER-SE> (1,847) (1,635) (1,418)
<TOTAL-LIABILITY-AND-EQUITY> 2,373 5,716 6,018
<SALES> 707 869 1,181
<TOTAL-REVENUES> 707 869 1,181
<CGS> 121 217 304
<TOTAL-COSTS> 420 423 576
<OTHER-EXPENSES> 0 0 11
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 17 17 73
<INCOME-PRETAX> 149 212 217
<INCOME-TAX> 2 0 0
<INCOME-CONTINUING> 147 212 217
<DISCONTINUED> 70 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 217 212 217
<EPS-PRIMARY> 0.016 0.015 0.014
<EPS-DILUTED> 0.013 0.012 0.012
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 APR-01-1996 JUL-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 26 115 45
<SECURITIES> 0 0 0
<RECEIVABLES> 549 230 483
<ALLOWANCES> 0 0 0
<INVENTORY> 187 327 253
<CURRENT-ASSETS> 787 708 822
<PP&E> 9 10 33
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 796 718 1,171
<CURRENT-LIABILITIES> 1,589 1,296 1,319
<BONDS> 0 0 0
0 0 0
406 406 406
<COMMON> 1,071 1,076 1,191
<OTHER-SE> (2,270) (2,059) (1,745)
<TOTAL-LIABILITY-AND-EQUITY> 796 718 1,171
<SALES> 492 712 802
<TOTAL-REVENUES> 492 712 802
<CGS> 199 223 225
<TOTAL-COSTS> 165 283 228
<OTHER-EXPENSES> 0 2 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 25 (7) 16
<INCOME-PRETAX> 103 211 333
<INCOME-TAX> 0 0 19
<INCOME-CONTINUING> 103 211 314
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 103 211 314
<EPS-PRIMARY> 0.011 0.022 0.032
<EPS-DILUTED> 0.010 0.015 0.021
</TABLE>
<PAGE>
Exhibit 99
CAUTIONARY STATEMENT
The Company, or persons acting on behalf of the Company, or outside
reviewers retained by the Company making statements on behalf of the Company, or
underwriters, from time to time, may make, in writing or orally, "forward-
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. When used in conjunction with an identified forward-looking statement,
this Cautionary Statement is for the purpose of qualifying for the "safe harbor"
provisions of such sections and is intended to be a readily available written
document that contains factors which could cause results to differ materially
from such forward-looking statements. These factors are in addition to any
other cautionary statements, written or oral, which may be made or referred to
in connection with any such forward-looking statement.
The following matters, among others, may have a material adverse effect on
the business, financial condition, liquidity, results of operations or
prospects, financial or otherwise, of the Company. Reference to this Cautionary
Statement in the context of a forward-looking statement or statements shall be
deemed to be a statement that any or more of the following factors may cause
actual results to differ materially from those in such forward-looking statement
or statements:
<PAGE>
Liquidity and Capital Resources. As of December 31, 1997, the Company had
working capital of approximately $2,884,000. The Company believes it has
sufficient working capital to pay its current liabilities. In addition to the
proceeds received from recent debt and equity issuances, the Company believes
its working capital will continue to improve as the Company's profitability
improves. Nevertheless, the Company can provide no assurance as to its continued
profitability and access to the capital markets.
Reliance Upon Key Personnel. The Company will be relying heavily upon the
abilities of key personnel, in particular, two technicians. Jeff Jensen and
Norm Freedman, and division head Bob Donaldson, to further develop the VCC. If
any of these employees should cease to be employed by the Company or for any
reason be unable to continue in their respective capacities as employees of the
Company, the Company would be required to hire a comparable employee. There can
be no assurance that it would be able to do so quickly and at an affordable
compensation rate. While these four employees have incentive options and are
bound by a confidentiality requirement, the Company does not have "key man"
insurance for them and cannot guarantee their continued employment.
Competitive Conditions. The Company's industry is characterized by rapidly
evolving technology and intense competition. The Company is aware of several
other competitors. These competitors have substantially greater resources and
experience in research and development and marketing than the Company and may
therefore represent significant competition for the Company. However, unlike
the Company, no competitor produces a complete enterprise computing system, but
rather components that could be combined to form such a system. The Company's
management believes that the Company's ability to produce an integrated whole
gives the Company a competitive advantage. Nevertheless, there can be no
assurance that the Company's competitors will not succeed in developing or
marketing technologies and products that are more effective than those developed
or marketed by the Company or that would render the Company's technology and
products obsolete or noncompetitive.
New Product with Uncertain Demand. The concept of an external monitor and
control system for computer hardware is relatively new, and the demand for the
product is not yet fully know. It is difficult to project the overall size of
the future market for such a product. The Company estimates the market size for
internal systems to be several billion dollars per year. The Company believes
the market for an external system could be much larger based upon the fact that
external control systems also soon could be used to solve networking problems
associated with linking computers containing different processors together, a
process commonly called enterprise computing. Based on recent feedback from the
Company's current and potential customers, management believes the demand for
<PAGE>
the VCC is large. However, to date, the Company has sold to only eight
customers, and there is no certainty that additional customers will purchase the
Company's products.
Product Under Development. The Company currently is developing a software
product which monitors networking and communication devices used by mainframes.
Although preliminary tests indicate that this product will perform as intended
and can be integrated with the VCC, there can be no assurance that it will do so
or, even if it does, that the Company will be able to establish a market for
such a product.
Future Capital Requirements; No Assurance Future Capital Will Be Available.
If the current capital of the Company is insufficient to meet its operating and
working capital needs the Company may be required to raise additional funding
through public or private financings, including equity financings. Any
additional equity financings may be dilutive to the shareholders of the Company,
and debt financing, if available, may involve restrictive covenants. Adequate
funds for the Company's operations, whether from financial markets or from other
sources, may not be available when needed on terms attractive to the Company, or
at all. Whether the Company would be able to secure such financing and, if so,
whether such financing would be available at reasonable rates and terms is
uncertain. Failure to secure such additional financing could adversely affect
the Company.
Intellectual Property Rights. The Company holds no patents. However,
applications are being prepared, and the Company believes the VCC will be
protected by a patent that is currently under review by the U.S. Patent and
Trademark Office. This patent was filed by Circle Corporation, a Japanese
corporation, on December 28, 1993 and the Company licenses the product from
Circle Corporation. The license agreement provides the Company with exclusive
distribution rights outside of Japan.
Dependence on Diversification of Product Offerings. The Company currently
has a limited number of product offerings, and none of the existing customers of
the Company's products are required to purchase additional products.
Accordingly, a significant portion of the Company's revenues are generated from
non-recurring revenue sources, and the success of the Company is dependent, in
part, on its ability to develop sustained demand for its current products and to
develop and sell additional products. There can be no assurance that the Company
will be successful in developing and maintaining such demand or in developing
and selling additional products.
<PAGE>
Fluctuations in Operating Results. The Company's future operating results
may vary substantially from quarter to quarter. At its current stage of
operations, the Company's quarterly revenues and results of operations may be
materially affected by the timing of the development and market acceptance of
the Company's products. Generally, operating expenses will be higher during
periods in which product development costs are incurred and marketing efforts
are commenced. Due to these and other factors, including the general economy,
stock market conditions and announcements by the Company or its competitors, the
market price of the Company's securities may be highly volatile.
Lack of Product Liability Insurance. The Company may face a risk of
exposure to product liability claims in the event that use of its products is
alleged to have resulted in damage to its customers. The Company does not
currently carry product liability insurance. There can be no assurance that
such insurance will be available on commercially reasonable terms, or at all, or
that such insurance, even if obtained, would adequately covers any product
liability claim. A product liability or other claim with respect to uninsured
liabilities or in excess of insured liabilities could have a material adverse
effect on the business and prospects of the Company.
