-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IvhtEYCHRaAos2H/xqpZfoc7iTaAqS8/vI4L636k8v88jgB3DTGxE70f8cZw+JwR D5kEuGOSGq2++pq+PMixYw== 0001045969-98-000328.txt : 19980401 0001045969-98-000328.hdr.sgml : 19980401 ACCESSION NUMBER: 0001045969-98-000328 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBAL MAINTECH CORP CENTRAL INDEX KEY: 0000783738 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 411523657 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-14692 FILM NUMBER: 98582098 BUSINESS ADDRESS: STREET 1: 6468 CITY WEST PARKWAY CITY: EDEN PRAIRIE STATE: MN ZIP: 55344 BUSINESS PHONE: 612-944-04 MAIL ADDRESS: STREET 1: 6468 CITY WEST PKY CITY: EDEN PRAIRIE STATE: MN ZIP: 55344-3245 FORMER COMPANY: FORMER CONFORMED NAME: MIRROR TECHNOLOGIES INC /MN/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTER AIDED TIME SHARE INC DATE OF NAME CHANGE: 19900122 10KSB 1 FORM 10KSB 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 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 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 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 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 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 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 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 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 GLOBAL MAINTECH CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, December 31 1997 1996 ------------ ------------ 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 =========== ===========
The accompanying notes are an integral part of these consolidated statements. 10 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 GLOBAL MAINTECH CORPORATION AND SUBSIDIARY STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1997 AND 1996
Preferred stock Common stock Additional Notes -------------------- --------------------- paid-in receivable- Accumulated Shares Amount Shares Amount capital officers defict Total - ------------------------------------------------------------------------------------------------------------------------------------ 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
The accompanying notes are an integral part of these consolidated statements. 12 GLOBAL MAINTECH CORPORATION SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, -------------------------- 1997 1996 ----------- ----------- 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 =========== ===========
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 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 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 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 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 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:
1997 1996 ---------------------- --------------------- Interest Interest Amount rate Amount rate ---------------------- -------------------- 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 ============= ===========
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 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:
Incentive Stock Options Nonqualified Options ---------------------------------- ----------------------------- Shares Weighted average Shares Weighted average exercise price exercise price ------------- ---------------- ----------- ----------------- 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 ================================== =============================
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 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 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 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 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 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 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 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.
NAME TITLE DATE ---- ----- ---- /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
26 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 EX-10.14 2 LICENSE & ASSET PURCHASE AGREEMENT 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 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, -2- 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- 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- 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- 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- 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- 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- 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. -9- 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 -10- 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. -11- (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. -12- 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. -13- (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 -14- 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. -15- 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. -16- 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 -17- 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 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 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 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 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 C-1 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 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 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 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 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 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 ========= E-1 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. F-1 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 F-2 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 F-3 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 F-4 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. F-5 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 F-6 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 F-7 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. F-8 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 F-9 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. F-10 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. F-11 (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 F-12 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 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 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 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 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 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. 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. SCHEDULE 4.12 THIRD PARTY WARRANTIES [NONE] 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- EX-23 3 CONSENT OF KPMG PEAT MARWICH LLP 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 EX-27 4 FINANCIAL DATA SCHEDULE (YEAR 1997)
5 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. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 1,727 0 603 0 797 3,566 308 0 5,863 683 1,900 0 114 5,001 (1,835) 5,863 3,003 3,003 762 1,970 22 0 91 158 0 158 70 0 0 228 0.014 0.012
EX-27.1 5 RESTATED FINANCIAL DATA SCHEDULE (YEAR 1996)
5 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. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 33 0 473 0 218 751 31 0 1,352 1,151 17 0 329 1,919 (2,064) 1,352 2,130 2,130 626 1,113 3 0 61 328 18 310 0 0 0 310 0.026 0.022
EX-27.2 6 RESTATED FINANCIAL DATA SCHEDULE (3 QUARTERS 1997)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 3-MOS 3-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1997 APR-01-1997 JUL-01-1997 MAR-01-1997 JUN-30-1997 SEP-30-1997 254 2,987 2,597 0 0 0 960 1,230 1,652 0 0 0 257 282 373 1,521 4,530 4,704 67 101 152 0 0 0 2,373 5,716 6,018 869 434 484 0 2,000 2,000 0 0 0 171 160 121 3,180 4,757 4,831 (1,847) (1,635) (1,418) 2,373 5,716 6,018 707 869 1,181 707 869 1,181 121 217 304 420 423 576 0 0 11 0 0 0 17 17 73 149 212 217 2 0 0 147 212 217 70 0 0 0 0 0 0 0 0 217 212 217 0.016 0.015 0.014 0.013 0.012 0.012
EX-27.3 7 RESTATED FINANCIAL DATA SCHEDULE (3 QUARTERS 1996)
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 3-MOS 3-MOS DEC-31-1996 DEC-31-1996 DEC-31-1996 JAN-01-1996 APR-01-1996 JUL-01-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 26 115 45 0 0 0 549 230 483 0 0 0 187 327 253 787 708 822 9 10 33 0 0 0 796 718 1,171 1,589 1,296 1,319 0 0 0 0 0 0 406 406 406 1,071 1,076 1,191 (2,270) (2,059) (1,745) 796 718 1,171 492 712 802 492 712 802 199 223 225 165 283 228 0 2 0 0 0 0 25 (7) 16 103 211 333 0 0 19 103 211 314 0 0 0 0 0 0 0 0 0 103 211 314 0.011 0.022 0.032 0.010 0.015 0.021
EX-99 8 CAUTIONARY STATEMENT 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: 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 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. 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. -----END PRIVACY-ENHANCED MESSAGE-----