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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996 COMMISSION FILE NUMBER: 0-27302
SPACETEC IMC CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
MASSACHUSETTS 3577 04-3116697
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
THE BOOTT MILL, 100 FOOT OF JOHN STREET, LOWELL, MASSACHUSETTS 01852-1126
(Address of principal executive offices including zip code)
(508) 970-0330
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO______
----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of voting stock held by non-affiliates of the
registrant as of June 24, 1996 was: $55,563,480
There were 7,350,708 shares of registrant's Common Stock outstanding as of June
24, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement of the Registrant for the
Registrant's 1996 Annual Meeting of Shareholders to be held on September 11,
1996 which definitive proxy statement will be filed with the Securities and
Exchange Commission not later than 120 days after the registrant's fiscal year
of March 31, 1996, are incorporated by reference into Part III of this
Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Spacetec IMC Corporation ("Spacetec IMC" or the "Company") was incorporated
in Massachusetts in April 1991. The Company's principal executive offices are
located at The Boott Mill, 100 Foot of John Street, Lowell Massachusetts, 01852-
1126. The Company's main telephone number is (617) 970-0330.
Spacetec IMC is a leading provider of three-dimensional ("3D") interactive
motion control input hardware controllers and software systems for use with 3D
graphical applications used on workstations and personal computers ("PCs").
Unlike 2D input controllers, such as mice or trackballs, the Company's products
are designed to enable a user to intuitively manipulate 3D graphical images in
real time as if the user were moving actual objects or moving through actual
scenes in the real world. The Company has been selling a UNIX workstation
controller and integrated software for use with UNIX computer-aided design,
manufacturing and engineering ("CAD/CAM/CAE") applications and 3D visualization
and simulation applications since 1991. Since late 1994, the Company has also
sold a PC systems controller and integrated software for Microsoft DOS- and
Windows- based 3D applications. End-users of these products are found in
automotive, aerospace and other manufacturing industries.
The Company believes that 3D user interfaces will become increasingly prevalent
in personal computing and other consumer electronics systems within the next
several years. Based on the strengths of its proprietary products, the Company's
mission is to be the supplier of choice of 3D graphic and digital video user
interface solutions. The Company's current products are the Spaceball 2003 and
the Spaceball 3003 and associated SpaceWare software for UNIX based
workstations, the Spaceball SpaceController and associated SpaceWare software,
including the SpaceWare 3D-I Always add-on application software for AutoCAD, for
the industrial PC market, and the Spaceball Avenger hand-held 3D controller for
3D PC Consumer game applications. In 1996 the Company began marketing the
ergonomically improved, cost reduced version of the Spaceball Avenger, the
SpaceOrb 360 for this market. The Company also believes that its technology may
be applicable to other 3D markets, including those accessed through PCs, home
game and entertainment console systems, arcade game systems, set-top boxes and
3D Internet web site browsers.
INDUSTRY BACKGROUND
The "user interface," which defines how a user interacts with computers,
has evolved dramatically over the past two decades. From the reliance on
computer punch cards, to the use of text-based key-stroke commands, to the
current use of mouse-operated, 2D graphical user interfaces ("GUIs", such as the
Apple Macintosh or Microsoft Windows operating systems), each evolutionary step
has increased the user's ease of interaction with the computer. As a result, the
practical use of computers has been enhanced, helping to significantly increase
the penetration of computers into business and the home.
It is widely believed that 3D graphics will transform the face of today's
popular two-dimensional computing to a more intuitive 3D environment. 3D
graphics can create user interfaces that have a "real world" look and feel,
resulting in interactive environments that are familiar to users
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from their everyday lives. This will make the use of a computer more intuitive
and practical for a broad group of users, and offer software developers
increased design options for their applications.
More powerful and faster microprocessors have become available on a low-cost
basis, resulting in a significant increase in the number of computers capable of
taking advantage of 3D graphics beyond the traditional workstations. At the same
time 3D graphics is gaining acceptance in many markets, including CAD/CAM/CAE,
multimedia, animation, graphic arts, simulation, visualization, educational
products, presentation and training information, Internet web browsers, and
games for PCs and advanced performance console systems.
The Company's hardware and software products permit the user to interact in
3D graphical or digital video applications on a natural, intuitive, real-time
basis, and represent a solution to the need for a more advanced 3D interactive
motion control input interface for 3D manipulation and interaction.
COMPANY STRATEGY
The Company's strategy includes the following key elements:
INCREASE PENETRATION IN THE INDUSTRIAL MARKET. The Company intends to
further its expansion into the growing industrial market for 3D graphics
interactive motion control interfaces. The Company also intends to market its
products to the emerging industrial multimedia market for authoring, animation
and digital video production applications.
ENTER SELECTED CONSUMER MARKETS. The Company intends to enter selected
high volume consumer PC systems and other consumer electronics markets, in order
to create a diversified revenue base for the Company and optimize the potential
of its proprietary products and technologies.
FOCUS ON 3D INTERACTIVE MOTION CONTROL SOFTWARE SOLUTIONS. The Company has
organized its proprietary software code into a systematic framework (the
"SpaceWare A3D-I Framework") in order to simplify and accelerate future
development and integration of 3D software applications across industry standard
graphical and digital video systems platforms. It is the intent of the Company
to build upon the SpaceWare A3D-I Framework through investment in software
solutions for optimized interactive motion control which could be applied across
hardware platforms, including various input devices beyond the Company's
proprietary hardware products.
MAINTAIN TECHNOLOGICAL LEADERSHIP. The Company will continue to enhance
and expand the functionality of its SpaceWare A3D-I Framework software to
optimize the intuitive 3D interactive motion control and display speed
performance of an application. In addition, the Company will continue to invest
in its core component Spaceball PowerSensor hardware input technology to provide
additional functionality, improved performance and lower power requirements at a
substantially reduced cost of manufacturing, to permit the Company to adapt its
software and hardware products to a variety of environments, including video
game console systems, set-top boxes and portable computers.
MAINTAIN AND EXPAND STRATEGIC ALLIANCES. The Company intends to maintain
its OEM relationships with IBM and Hewlett-Packard, and has expanded its
distribution channels to other platform manufacturers including Digital
Equipment and Sun Express. The Company also is exploring future alliances
involving licensing of core components and technology to producers of 3D game
systems, PCs, 3D graphics boards, game controllers and advanced console game
systems. In addition, the Company intends to continue the expansion of its
distribution alliances in Europe, Asia and the Pacific Rim.
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PRODUCTS
The Company's products include a line of Spaceball Advanced 3D-I
interactive motion control input hardware controllers incorporating the patented
Spaceball PowerSensor combined with SpaceWare interfacing and application
software designed to optimize 3D interactive motion control in 3D applications
or programs.
SPACEBALL CONTROLLER PRODUCTS. The Company currently manufactures and
sells four models of its Advanced 3D-I controllers: the Spaceball 2003 and 3003
for the UNIX-based workstation markets; the Spaceball SpaceController for 3D PC
multimedia and CAD applications; and the Spaceball Avenger, being test marketed
for the 3D PC consumer games market. The Spaceball 2003 and 3003 and the
SpaceController are compact desktop peripheral units, while the Spaceball
Avenger is a hand-held unit. The Company has announced plans to commence
shipping of the SpaceOrb 360, an ergonomically improved, cost-reduced version of
the Spaceball Avenger, in the second quarter of fiscal 1997, and the SpaceOrb
360 Desktop 3D multimedia controller, in the third quarter of fiscal 1997.
The primary component of the controllers is the Spaceball PowerSensor,
which is the shape and size of a tennis ball. The Spaceball PowerSensor permits
the user to cause movements of 3D images on the screen, as if the user were
holding the 3D graphic image in his or her hand or moving through the 3D
graphical scene. In addition, the Spaceball PowerSensor may be used to provide
physics control, allowing the application to reflect the forces of gravity,
pressure or acceleration as an integral part of the motion control.
SPACEWARE SOFTWARE PRODUCTS. The Company's SpaceWare Software products
provide the link between the Company's Spaceball Advanced 3D-I controllers and
the application or title. These products are the SpaceWare A3D-I Interface
Software (the "SpaceWare Software") and SpaceWare Application Software (the
"Application Software"), of which there are currently two shipping products, the
SpaceWare A3D-I Always for DOS and the SpaceWare A3D-I Always for Windows
applications for AutoCAD. The Company has announced plans to commence shipping
of the SpaceWare AniMotion ("AniMotion") application for 3D Studio Max in July
1996.
The SpaceWare Software handles the data integration and communications
between the controller and the operating environment and application, making
the controllers plug-and-play compatible in specific operating environments and
platforms. The Company integrates its SpaceWare Software into independent
software vendors' applications and titles.
The SpaceWare 3D-I Always products are add-on applications that enhance the
3D capabilities of AutoCAD, marketed by Autodesk, Inc., by providing real-time
interactive 3D designing capability in AutoCAD on the PC platform. The planned
AniMotion product is an add-on software application to 3D Studio Max, marketed
by Kinetix, a division of Autodesk. In conjunction with the SpaceController,
AniMotion is designed to give animators real-time 3D control of objects,
cameras and light sources, similar to operating within a live studio
environment.
PANACEA PERFORMANCE GRAPHICS SOFTWARE PRODUCTS. In addition to the above,
the Company markets a suite of patented and proprietary display list software
drivers, known as the Panacea products, that optimize the graphics display
performance of standard PC display systems.
The Company's plans to commence shipments of new hardware and software
products are forward-looking statements. The timing and completion of such plans
depends on numerous factors, including the continued technical development of
such products; the successful transition of the prototype products to volume
production; and the successful development of sufficient market demand for such
products. There can be no assurance that any new product introduction will occur
as planned, or that such introduction will prove to be of financial benefit to
the Company.
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MARKETS
The Company operates in one industry segment: the manufacturing and
marketing of real time 3D Interactive Motion Control (IMC) hardware input
devices and IMC software for the technical, scientific, and consumer electronics
market. The Company addresses markets where it believes the rapid emergence of
enhanced performance graphics and digital video technologies, including real-
time interactive 3D graphics and full motion digital video, will create a demand
for advanced 3D interactive input controllers and performance software. The
Company divides the markets it serves into industrial and consumer sectors.
THE INDUSTRIAL MARKET
The industrial market is comprised of both UNIX-based workstation systems
and PC systems that serve CAD/CAM/CAE market segments as well as other
visualization and simulation fields, including science and medicine, and the
emerging professional multimedia market segment.
The CAD/CAM/CAE Market. This market segment consists of numerous
applications, including industrial design, manufacturing and analysis,
architectural engineering and construction and geographic information systems.
The Company's business in this market segment is further divided into UNIX-based
workstation and the PC systems applications.
The UNIX-Based Workstation CAD/CAM/CAE Market. The Company believes
that the UNIX-based workstation CAD/CAM/CAE field has adopted real-time
interactive 3D graphics as a standard technology approach. The foundations
of the Company's business were established in this area of business, and
the Company believes that sales to this field will continue to represent a
core part of its business in the future.
The Company serves this market with its Spaceball 2003 and 3003 and
Interface Software customized to the leading CAD/CAM/CAE applications,
including Parametric Technology Corporation's Pro/Engineer, EDS's
Unigraphics, Computervision's CADDS5, Matra Datavision's Euclid3 and
Strim100 and Hewlett-Packard's, SolidDesigner. Industrial end users of the
Company's products include BMW, Chrysler, Eastman Kodak, Ford, General
Dynamics, General Electric, General Motors, Jaguar, John Deere, Lockheed-
Martin, McDonnell Douglas, Motorola, Opel, Pratt & Whitney Aircraft,
Rockwell, Saab, Siemens, 3M, Toyota, TRW, Volvo, Whirlpool, and Yamaha.
PC Systems CAD/CAM/CAE Market. Although used for many of the same
tasks as high-end UNIX-based workstation applications, PC-based CAD/CAM/CAE
applications do not incorporate all of the functionality of UNIX-based
applications, but are substantially less expensive. Until recently, PC-
based CAD/CAM/CAE applications have been primarily 2D. The Company's
products are integrated to work with the PC-based CAD/CAM/CAE applications
from Autodesk, Inc., Bentley Systems and Cadkey, Inc., and serves this
market with the Spaceball SpaceController input device, its SpaceWare
Software customized to the Cadkey and MicroStation applications and the
SpaceWare 3D-I Always application software for AutoCAD.
THE PROFESSIONAL MULTIMEDIA MARKET. The industrial multimedia market spans
a broad spectrum of market segments that includes presentation graphics, film
and video production, animation creation and authoring programs. The Animotion
product will be the Company's initial entry into this market.
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THE CONSUMER MARKET
The Company believes that the consumer market will present an important
opportunity for future sales of the Company's products as high performance
graphics on PC and other entertainment systems penetrate the home. The Company
is initially targeting those consumer market segments where interactive 3D
graphics is already available, or is expected to soon emerge.
PC-Based Games. The Company believes that the recent successful
introduction of several 3D game titles indicates that a demand for enhanced 3D
interactive motion control exists in the game marketplace. In 1995, the Company
began consumer market testing of these products and introduced its improved
version of the Spaceball Avenger, SpaceOrb 360, to the OEM market in January
1996. The Company's input devices are fully supported in Microsoft's game
development environment, and its Interface Software has been integrated into
several of the recent leading 3D PC games, including Doom and DoomII by id
Software, Descent, Descent II, WinDescent, and WinDescent II by
Interplay/Parallax, Heretic and Heretic II by Raven Software, Dark Forces by
Lucas Arts, Strife by Velocity and Duke Nukem by Apogee Software.
Console Games and Entertainment. To date, the majority of this market has
been served by games and applications which are not capable of supporting
interactive 3D graphics, although several manufacturers have recently announced
or released products to support interactive 3D. The Company is engaged in
preliminary discussions with the leading vendors serving the console video game
market to license its technology and provide core components for use with these
advanced 32- and 64-bit systems. There can be no assurance that such discussions
will result in the Company entering into a definitive agreement with any such
companies or that any such agreement entered into will prove to be of financial
benefit to the Company.
Other Potential Markets. The Company is currently exploring potential uses
for its products in 3D graphic educational and information markets and in 3D on-
line Internet web browsers where easy to use, intuitive and highly interactive
3D user interfaces are being sought. The Company is currently in the process of
developing standalone edutainment software titles demonstrating advanced 3D
interactivity without requiring the use of the Company's hardware devices. There
can be no assurance that such markets may develop for the Company's products or
that the Company will pursue opportunities in such markets.
SALES AND MARKETING
The Company's primary marketing strategy is to aggressively cause its
SpaceWare Software to be integrated into the leading industrial and consumer 3D
software applications written by independent software vendors ("ISVs").
The Company has organized its sales and marketing force into two distinct
groups to separately address the industrial market and the consumer market. The
Company also has a distribution and market development arrangement with Sumisho
Electronic Devices Corporation, a wholly owned subsidiary of Sumitomo
Corporation, for the development of all its business in Japan.
The Company sells its 3D workstation controller systems to industrial OEMs,
value added resellers ("VARs") and end-users. The Company has OEM product
distribution agreements with IBM and Hewlett-Packard, and distribution
agreements with Digital Equipment Corporation, Sun Express, Electronic Data
Systems Corporation, Accel Graphics as well as other VARs. In addition, the
Company sells directly to large end-users in automotive, aerospace and other
manufacturing industries. The Company sells its industrial PC controller systems
primarily through VARs. In
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the future, the Company expects to shift the sales mix more towards OEM and
distributor channels to take advantage of the larger volumes generally
available through these channels.
The Company intends to reach the consumer marketplace through three
channels strategies: (i) retail sell-through, (ii) sales of turnkey product or
core components to OEMs, and (iii) technology licensing and component sales to
producers of hardware platforms, such as console game systems and PCs. There can
be no assurance that the Company will be successful in implementing any of these
marketing strategies in the consumer marketplace or in launching any new
products into these markets, or that any negotiations with leading
manufacturers, OEMs or distributors in this marketplace will be successfully
completed on terms favorable to the Company.
TECHNOLOGY
The Company's proprietary technology has both hardware and software
components, reflecting the Company's strategy to offer fully integrated
solutions to 3D control requirements.
HARDWARE TECHNOLOGY
The core component of the Company's hardware products is the Spaceball
PowerSensor. The Spaceball PowerSensor incorporates the Company's patented opto-
mechanical multi-axis input technology and patented opto-electronic technology
to convert user fingertip pressure and twists to electronic signals. This
conversion is accomplished by a combination of patented 3D force and torque
converter mechanisms and proprietary optical electronic analog to digital
conversion technology.
In the current controller products offered by the Company, specific product
design approaches and features have been developed for each of the different 3D
controllers offered by Spacetec IMC to suit specific market needs. All the
controllers have built-in programmable capabilities which allow customization of
specific functions in an application or title.
The Company is currently completing development of a new generation of
PowerSensor technology which was designed to result in an appreciable reduction
in the cost of manufacturing under volume production. The Company anticipates
starting volume production of the new technology in the second quarter of fiscal
1997. Such new technology includes a proprietary ASIC chip which incorporates
much of the PowerSensor's electronic circuitry. There can be no assurance that
unanticipated development issues will not arise with respect to this new
technology as the Company initiates volume production.
SOFTWARE TECHNOLOGY
While the Spaceball controllers provide the physical hardware input
capability for a user, it is the specialized proprietary SpaceWare and
application software that provides the life-like motion control as well as the
real time interactive display performance in an application or title. The
Company's software is divided into the categories described below.
SpaceWare Software. This software relies on two technologies. The
first technology is a set of device drivers that handle the data integration,
communications and event handling operations between specific Spaceball
controllers and operating systems, and between controllers and applications,
making the controllers plug-and-play compatible in various operating
environments and platforms. The second technology is a set of callable libraries
and routines which perform the complex mathematics that provide the advanced 3D-
I motion control capabilities in an application.
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APPLICATION SOFTWARE. In order to simplify and accelerate future
development and integration of 3D applications, the Company has organized its
proprietary software code into a systematic framework, called the A-3DI
Framework. The A-3DI Framework consists of two core categories: IntentWare and
TurboWare. IntentWare, which consists of a collection of various library calls
and other software routines, translates basic user 3D motion input into user
intended motion control over 3D graphical objects or images on the computer
screen. TurboWare, which consists of a 3D display list and pipeline which
permits optimized 3-D graphical display speed for real time interaction. To
date, the Company has released two application software programs, SpaceWare 3D-I
Always for AutoCAD DOS and Windows, expects to release AniMotion in the second
quarter of fiscal 1997, and is in the process of developing other
add-on and standalone applications.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts consist of enhancing the
features and performance of its core technologies and applying these
enhancements to existing products and the development of new products. The
Company's research and development functions are divided into hardware
development and software development groups. The software development group is
further divided into high-end systems, PC products and consumer product teams.
The overall goals of the hardware development group are to continually
enhance the performance, functionality, built-in features and ease-of-use
characteristics of the Company's controllers, while reducing the cost of
manufacturing key components. These enhancements are designed to allow the
production of PowerSensors that do not have to be spherical and can be made
in different sizes, all at a lower cost of manufacturing. An important step in
this process has been the streamlining of the Company's electronic circuitry
into a proprietary ASIC chip. The Company is also developing new controller
products for the edutainment and other segments of the consumer market.
The overall goals of the software development group are to enhance the
features and functionality of SpaceWare software, increase the ease of porting
the SpaceWare software to applications on all popular operating systems across
all market segments and develop a range of stand-alone or add-on application
software, such as 3D-I Always to make interactive 3D more practical and easy to
use. Underlying software research and development is the enhancement of the 3D-I
Framework supporting the Company's applications software.
There can be no assurance that the Company will successfully complete the
development efforts described above or that these product developments will
achieve market acceptance.
PATENTS AND PROPRIETARY RIGHTS
The Company relies on a combination of patents, copyrights and trade
secrets to establish and protect its proprietary rights.
The Company has received eleven patents in the United States, Canada,
Australia, Japan, and certain European countries covering its core technology
relating to the PowerSensor. The Company further has one issued United States
patent and three pending United States patent applications, as well as five
pending international patent applications, covering input sensing technology not
yet incorporated into the Company's products. The Company has granted a paid-up,
perpetual, irrevocable, royalty-free license to its core PowerSensor and
graphics controller technologies and certain trademarks to Spatial Systems Ltd.
for exclusive use in Australia and New Zealand. The License Agreement expressly
permits the Company to authorize OEMs and/or VARs to integrate the
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Company's products as components in such third parties' own merchandise and
market such merchandise in Australia and New Zealand.
The status of patents involves complex legal and factual questions and the
breadth of claims allowed is uncertain. Accordingly, there can be no assurance
that patent applications filed by the Company will result in patents being
issued or that its patents, and any patents that may be issued to it in the
future, will afford protection against competitors with similar technology. In
addition, patent applications filed in foreign countries are subject to laws,
rules and procedures which differ from those of the United States, and thus
there can be no assurance that foreign patent applications related to issued
United States patents will issue. Furthermore, if these patent applications
issue, some foreign countries provide significantly less patent protection than
the United States. No assurances can be given that patents issued to the Company
will not be infringed upon or designed around by others or that others will not
obtain patents that the Company would need to license or design around. If
existing or future patents containing broad claims are upheld by the courts, the
holders of such patents could require companies to obtain licenses. Although the
Company believes that its products and other proprietary rights do not infringe
the proprietary rights of third parties, there can be no assurance that other
third parties will not assert infringement claims against the Company or that
such claims will not be successful. If the Company is found to be infringing
third party patents, there can be no assurance that licenses that might be
required for the Company's products would be available on reasonable terms, if
at all.
The Company's SpaceWare Software is protected by copyright laws, which
offer only limited protection for the Company's software. However, because the
software development industry is characterized by rapid technological change,
the Company believes that factors such as the technological and creative skills
of its personnel, new product developments, frequent product enhancements, name
recognition and reliable product maintenance are more important to establishing
and maintaining a technology leadership position than the various legal
protections available for its software.
In addition to the protection afforded by patent registrations and
copyright laws, each employee of the Company has executed a proprietary
information agreement designed to protect the trade secrets of the Company,
inventions created in the course of employment with the Company and other
proprietary information of the Company.
MANUFACTURING
The Company contracts its hardware manufacturing requirements to outside
sources and expects to continue to do so in the future. The Company currently
uses several United States contractors and one overseas contractor in the
People's Republic of China, for its primary manufacturing requirements. Final
functional testing, calibration and quality control, as well as final packing
and shipping, are performed by the Company. The Company's production engineering
and manufacturing staff are responsible for establishing and managing all
manufacturing procedures and processes, and for procurement, production
planning, quality assurance and quality control of all of the Company's
products.
Generally, standard parts and components are used in the manufacturing of
the Company's products with supplies sourced from multiple vendors. To date, the
Company has been able to obtain adequate supplies of all components in its
products in a timely manner from existing sources.
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COMPETITION
The markets for computer hardware and software are highly competitive and
are characterized by continual change and technological improvement. The
Company's products currently compete with traditional 2D input devices, such as
the mouse, trackball and joystick, and with the dial box, which has been the
traditional high precision 3D graphic input device used in the technical and
scientific fields. The Company recognizes that the market for 3D input devices
and technologies is likely to become more competitive as the volume of 3D
applications increases, encouraging more companies to enter the market.
There are currently several alternative 3D input devices available that
provide various degrees of interactive 3D control capabilities. These devices
include head positioning trackers and products marketed under the names Flying
Mouse, the Bird and the DataGlove. In addition, Logitech Corporation, a leading
mouse manufacturer using technology licensed from a German company, has released
a product called Magellan with similar broad functionality as the Company's
products, but which operates on a different design approach.
Many developers of alternative 3D input device technologies have
substantially greater name recognition and financial, research and development,
manufacturing and marketing resources than the Company, and these developers of
alternative 3D input device technologies have made and continue to make
substantial investments in improving their technologies. In addition, the
Company will face competition for the same customers in its markets from both
hardware and software companies which may develop products compatible with the
Company's hardware and software products. The Company currently competes
principally on the basis of product performance, the breadth of product
compatibility with existing 3D applications, the speed with which software is
developed for new 3D applications, company reputation, relationships with
distributors and quality of professional services. To the extent that the
Company enters consumer retail markets in the future, the Company anticipates
that it will compete on the basis of price in addition to these other factors.
While the Company believes it compares favorably with its competitors in these
areas, there can be no assurance that the Company will be able to compete
successfully against current and future competitors or that competitive
pressures faced by the Company will not materially adversely affect its business
and results of operations.
EMPLOYEES
As of March 31, 1996, the Company had 56 full-time employees and 3 part-
time employees, of whom 24 were engaged in research and development, 19 in sales
and marketing, 8 in administration and finance and 8 in manufacturing control.
The Company's employees are not covered by a collective bargaining agreement.
The Company has never experienced employment-related work stoppages and believes
that it has satisfactory employee relations.
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ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company are as follows:
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NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dennis T. Gain...................53 Director, President, Chief Executive
Officer and Chairman of the
Board
Linda S. Linsalata...............51 Director, Chief Financial Officer,
Senior Vice President of Finance,
Director of Strategic Planning
John A. Hilton...................36 Senior Vice President, Chief
Technology Officer - Hardware
James J. Wick....................35 Senior Vice President, Chief
Technology Officer - Software
Joyce A. Ouellette...............38 Senior Vice President of Sales and
Marketing
</TABLE>
Each officer's term of office extends until the first meeting of the Board
of Directors following the next annual meeting of stockholders and until a
successor is elected and qualified.
Dennis T. Gain has been a director of the Company and has served as
President and Chief Executive Officer of the Company since its incorporation in
1991. Prior to joining the Company, Mr. Gain was President of Focus North
America since 1989 and President of Woolrest North America from 1986 until 1989.
Mr. Gain is also a director and stockholder of Spatial Systems Ltd. which is an
Australian public company that is a shareholder of the Company. Mr. Gain has a
B.E. degree and Post Graduate Associate degree in Metallurgy from the University
of Otago, New Zealand and a B. Comm. degree in Finance from the University of
Auckland, New Zealand.
Linda S. Linsalata has been a director of the Company since January 1994
and has served as Chief Financial Officer, Senior Vice President of Finance and
Director of Strategic Planning since September 1995 and prior to that, was
providing consulting services to the Company since 1992. As a consultant to the
Company, she had been acting in the capacity of Chief Financial Officer. Ms.
Linsalata was formerly President of Weston Corporate Development. Prior to this,
she was a General Partner with I.O.N., an international venture capital firm
based in Boston, and a Marketing Manager with International Business Machines,
Inc. Ms. Linsalata holds a B.A. degree in mathematics from Vassar College, and
an M.B.A. from Harvard University Graduate School of Business.
John A. Hilton has served as Senior Vice President of Research and
Development of the Company since its incorporation in 1991. Mr. Hilton was a
director of the Company from April 1991 through January 1994. Prior to joining
the Company, Mr. Hilton was Vice President of Research and Development of
Spatial Systems Ltd. since 1988, where he developed the core technology used in
the Company's advanced 3D-I products. Mr. Hilton holds a B.S. degree in Computer
Science, and B.E. and M.E. degrees in mechanical engineering from the University
of Sydney, Australia.
11
<PAGE>
James J. Wick has served as Senior Vice President since September 1995 and
Vice President of Software Engineering since April 1993 and prior to that, was
the Company's Director of SpaceWare Development and Engineering Services since
its incorporation in 1991. Prior to joining the Company, he was a Regional
Support Manager of Spatial Systems Ltd. since June 1989. Prior to joining
Spatial Systems Ltd., Mr. Wick was Manager of Graphics Development at Polygen
Corporation. Mr. Wick holds a B.S. degree in Applied Computer Science from the
University of Wisconsin.
Joyce A. Ouellette has served as Senior Vice President of Sales and
Marketing since September 1995 and as Vice President of Sales and Marketing -
Commercial Markets since June, 1993. Prior to that, Ms. Ouellette was the
Company's Director of Strategic Sales and Director of Channel marketing since
incorporation. Prior to 1991, Ms. Ouellette was the Marketing Manager at Spatial
Systems Ltd. since July 1990. Prior to joining Spatial Systems Ltd., Ms.
Ouellette was Marketing Manager for Digital Techniques Inc. since early mid-1989
and held various industry marketing positions at Prime Computer, Inc. from 1985
through 1989. Ms. Ouellette holds a B.S. degree in Business from North Adams
State College.
ITEM 2. PROPERTIES
The Company's corporate offices are in an approximately 33,300 square foot
facility located in Lowell, Massachusetts. The Company occupies the Lowell
facility under a Sublease which terminates on July 3, 2000, subject to two
successive one year renewal terms at the option of the Company. The Company
believes that its existing facilities, together with additional office space
available to it pursuant to an option under its Lowell lease, are sufficient to
meet its requirements for the near term.
ITEM 3. LEGAL PROCEEDINGS
As of March 31, 1996, the Company is not party to any legal proceedings and
is not aware of any material threatened litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock commenced trading on December 6, 1995 on the
Nasdaq National Market System under the symbol "SIMC". As of June 24, 1996 there
were 135 holders of record of the Company's common stock.
The following table sets forth for the fiscal periods indicated, the range
of high and low closing prices for the Company's Common Stock on the Nasdaq
National Market System.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
YEAR ENDED MARCH 31, 1996
Third Quarter (beginning December 6, 1995) $ 12 3/4 $ 11 1/4
Fourth Quarter $ 17 1/4 $ 10 1/4
</TABLE>
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently anticipates that it will retain all future
earnings, if any, to fund the development and growth of its business and does
not anticipate paying any cash dividends on its Common Stock in the foreseeable
future.
13
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
----------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME:
Revenues........................................... $8,132 5,536 3,198 $1,920 $1,006
Income from operations............................. 705 686 467 256 26
Net income......................................... 628 526 327 182 26
Net income per share............................... $ 0.10 $ 0.09 $ 0.07 $ 0.07 $ 0.05
Weighted average shares outstanding................ 6,562 6,004 4,680 2,545 481
BALANCE SHEET DATA:
Working capital.................................... 17,503 2,142 2,357 823 353
Total assets....................................... 21,108 4,507 3,342 1,195 575
Long term liabilities, less current portion........ 320 220 99 255 0
Total stockholders' equity......................... 19,301 3,339 2,667 703 483
</TABLE>
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company was formed in April 1991, and from its inception through March
31, 1996, has cumulative revenues and net income of $19,793,000 and $1,689,000,
respectively, with profitable operations in each quarter.
Beginning in 1991, the Company has marketed advanced 3D interactive motion
control hardware and software products for the industrial CAD/CAM/CAE
workstation market. Historically, the Company has generated revenues from sales
of bundled hardware and software, and such sales have depended upon prior
incorporation of the Company's software into 3D applications developed by
independent software vendors ("ISVs"). Product revenues generated by the
incorporation of the Company's software into a specific ISV application may lag
six to eighteen months after the incorporation activity is completed. The
Company also generates revenues from maintenance services, although historically
these revenues have been immaterial. In fiscal 1995, the Company launched its
first hardware and software products aimed at the industrial PC marketplace.
Early in fiscal 1996, the Company began marketing its first stand-alone software
product for the PC CAD marketplace, and commenced limited test-marketing of its
first consumer product, targeted at PC games. In late fiscal 1996, the Company
began marketing the ergonomically improved, cost-reduced version of the consumer
product to the OEM marketplace as the initial step into its goal of achieving
long-term growth in the consumer sector.
For reasons of manufacturing and volume efficiencies, the Company contracts
all of its hardware manufacturing to outside sources. Primary manufacturing of
its products has been through multiple domestic contract manufacturers, with
final functional testing and quality control performed by the Company. Late in
fiscal 1996, the Company began directing a portion of its manufacturing to
offshore contract manufacturers to further reduce the cost of goods through high
volume manufacturing.
The Company utilizes a multi-tiered distribution strategy to reach end-
users. The Company's first target customers were domestic users of
EDS/Unigraphics, which were sold by the Company's direct sales force.
Subsequently, the Company augmented its distribution capabilities by forming OEM
relationships with IBM and Hewlett Packard to market its products, and
establishing marketing arrangements with major VARs, and master distributors. In
fiscal 1995, an international sales department was established to expand the
marketing focus to Europe and the Far East. In fiscal 1996, the Company further
enhanced its distribution capabilities through marketing and distribution
agreements with Digital Equipment Corporation, Sun Express and Access Graphics
Europe.
Research and development comprises both hardware and software activities.
Hardware development has focused on creating products utilizing the Company's
core hardware technology, but designed for specific end-use markets, and
engineering these components to reduce manufacturing costs. This has resulted in
products for the workstation, PC and consumer markets, and significant cost
reductions in the core technology. In late fiscal 1996, the Company began
sampling its new low-cost Eclipse-1 ASIC chip, which is planned for use in its
own proprietary controllers, as well as exploring the license of the PowerSensor
to manufacturers of computer systems, peripheral devices and console game
systems. The primary activity in software development has been the creation of
specialized 3D motion control software and software tools to enable the
Company's products to be
15
<PAGE>
integrated into specific application software, as well as enhancement of the
Company's standalone product for the PC CAD marketplace. Software development
activities have increased as the number of 3D applications into which the
Company's software has been integrated has increased, and as the Company
prepares to enter the professional PC multimedia animation market and consumer
multimedia edutainment market with 3D interactive software programs.
Costs incurred in the development of new software products are expensed as
incurred until technological feasibility has been established, and then
capitalized on an individual product basis in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86. Since inception through fiscal
1996, the Company has capitalized $867,000 of software development expenditures,
which represents approximately 19.4% of the $4,464,000 cumulative research and
development expenditures. Amortization expenses since inception through fiscal
1996 were $172,000.
In this section, the Company makes forward-looking statements, such as
statements concerning the expected future revenues, expenses or earnings or
concerning projected plans, performance, product development and
commercialization. The Company wishes to caution readers not to place undue
reliance on these forward-looking statements which speak only as of the date on
which they are made. In addition, the Company wishes to advise readers that the
factors listed below, as well as other factors not currently identified by
management, could affect the Company's financial or other performance and could
cause the Company's actual results for future periods to differ materially from
any options or statements expressed with respect to future periods or events in
any current statement.
The electronics industry in general, and the markets for the Company's
products in particular, are characterized by rapidly changing technology,
evolving industry standards, frequent new product introductions, short product
life cycles and significant competition. The introduction of products embodying
new technologies and the emergence of new industry standards present
opportunities for current and potential competitors of the Company to gain
market share and can quickly render the Company's products less attractive or
obsolete and unmarketable. Within the next year, the Company plans to introduce
products designed for the Consumer marketplace. The Company has little
experience in marketing its products to consumers. The entry into the Consumer
market creates considerable risks for the Company, some of which are outside of
the Company's control. Although the Company has been profitable in each year
since its inception, there can be no assurance that revenue growth or profitable
operations can be sustained on a quarterly or annual basis in the future.
RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEAR ENDED MARCH 31, 1996 TO THE FISCAL YEAR ENDED MARCH
31, 1995
Revenues. Revenues increased 46.9% to $8,132,000 for the fiscal year ended
March 31, 1996 ("1996 Fiscal Year") from $5,536,000 for the fiscal year ended
March 31, 1995 ("1995 Fiscal Year"). This growth represented increased sales to
new and existing customers in the domestic marketplace as well as increased
sales to international customers. The Company had two customers representing
24.3% and 9.8% of the Company's revenues for the 1996 Fiscal Year as compared to
two customers representing 24.3% and 16.8% of sales for the 1995 Fiscal Year.
International sales increased 67.8% to $2,913,000 for the 1996 Fiscal Year from
$1,736,000 for the 1995 Fiscal Year. In the industrial sector, international
sales are expected to continue to increase at a faster rate than the domestic
market. Increased revenues reflect, among other factors, the overall growth in
the market
16
<PAGE>
for 3D software, greater market availability due to the release of new
applications in which the Company's software is incorporated, and wider
acceptance of the Company's products by end-users.
Gross Profit. Gross profit, representing revenues less cost of revenues
(including costs of materials, costs of manufacturing overhead, royalties and
amortization of capitalized software), increased 42.8% to $5,903,000 for the
1996 Fiscal Year from $4,133,000 for the 1995 Fiscal Year and represented 72.6%
and 74.7% of revenues, respectively. The increase in gross profit was primarily
due to increases in revenues, as well as reductions in the cost of materials and
savings resulting from efficiencies in manufacturing operations. The decrease in
gross profit as a percentage of revenues was primarily due to amortization of
capitalized software expense amounting to $136,000 for the 1996 Fiscal Year
versus $33,000 for the 1995 Fiscal Year. As the Company shifts its sales mix
from direct to OEM channels for industrial products, and increases the
percentage of sales from consumer products which have lower gross margins, it is
expected that the gross profit percentage will continue to decline. This decline
should be partially offset by reduced sales and marketing expenses associated
with the higher volumes eventually expected to go through these channels.
Selling and Marketing Expenses. Selling and marketing expenses, which
include personnel costs, advertising costs, sales commissions and trade show
expenses, increased 57.3% to $2,711,000 for the 1996 Fiscal Year from $1,723,000
for the 1995 Fiscal Year and represented 33.3% and 31.1% of revenues,
respectively. During the year the Company added major new distribution
agreements with Digital Equipment Corporation and Sun Express, and continued to
increase the number of VARs, especially for the PC CAD and Multimedia
marketplace. The increase in expenses reflect, among other factors, the
expansion of activities in existing markets, investments in market development
and sales and marketing infrastructure necessary to penetrate new markets,
especially the PC CAD, Multimedia and Consumer markets. The Company does not
expect selling and marketing to decline as a percentage of revenues in the
fiscal year ending March 31, 1997 due to major expenditures in market awareness,
advertising and promotion, product packaging and the hiring of sales and
administrative personnel to establish and manage the distribution channels for
these markets.
General and Administrative Expenses. General and administrative expenses,
which include the costs of the Company's corporate, finance, human resources and
administrative functions, decreased 3.7% to $803,000 for the 1996 Fiscal Year
from $834,000 for the 1995 Fiscal Year, and represented 9.9% and 15.1% of sales
respectively. This reduction reflects increasing economies of scale in
administrative infrastructure, and the reduction of non-recurring financial
consulting expenses, and the reduction of legal expenses due to non-recurring
costs associated with the settlement of a lawsuit. These expenses are expected
to increase in the future reflecting an overall increase in administrative and
support activities within the Company, legal fees in connection with
distribution and marketing agreements especially for the Consumer marketplace,
and other professional fees resulting from becoming a public company.
Research and Development Expenses. Research and development expenses, which
consist primarily of personnel and equipment costs required to conduct the
Company's software and engineering development efforts, increased 89.2% to
$1,684,000 for the 1996 Fiscal Year from $890,000 for the 1995 Fiscal Year and
represented 20.7% and 16.1% of revenues, respectively. The increase in expenses
reflect investments in the personnel necessary to expand software product
development, and engineering efforts designed to lower the cost of manufacturing
the Company's hardware componentry. Capitalized software costs amounted to
$425,000 for the 1996 Fiscal Year in comparison to $269,000 for the 1995 Fiscal
Year. The Company plans on continuing to expand the
17
<PAGE>
development of software for the consumer as well as the industrial marketplaces,
and expects that research and development expenses will continue to increase in
the future.
Provision for Income Taxes. The Company's effective tax rate is 36.1% for
the 1996 Fiscal Year versus 31.9% for the 1995 Fiscal Year. The tax rate was
below the statutory rate in both years due to tax benefits resulting from
research and development credits, which were eliminated at the federal level at
the end of June 1995. The Company utilized all carryforwards related to the
research and development credit in 1996. While the Company's effective tax rate
is expected to increase because of the elimination of the research and
development credit, the Company expects that the effective rate will continue to
be lower than the statutory rate due to the tax benefit attributed to foreign
sales and research and development credits available at the state level.
COMPARISON OF FISCAL YEAR ENDED MARCH 31, 1995 TO THE FISCAL YEAR ENDED
MARCH 31, 1994
Revenues. Revenues increased 73.1% to $5,536,000 in the 1995 Fiscal Year
from $3,198,000 in the year ended March 31, 1994 ("1994 Fiscal Year"). This
increase represented increased sales to new and existing customers in the
domestic marketplace, as well as an increase in international sales as a result
of the establishment of an international sales department. Sales in the 1995
Fiscal Year were favorably impacted by an increase three to eight in the number
of applications produced by ISV's in which the Company's software had been
integrated. The Company had two customers representing 24.3% and 16.8% of the
Company's revenues for the 1995 Fiscal Year as compared to three customers
representing 35.3%, 29.1% and 10.2% of revenues for the 1994 Fiscal Year.
Although sales to each of these customers declined as a percentage of total
revenues, the Company expects that these customers will continue to represent a
significant percentage of its revenues for the foreseeable future. International
sales increased 205.6% from $568,000 in the 1994 Fiscal Year to $1,736,000 in
1995 Fiscal Year.
Gross Profit. Gross profit increased 75.8% to $4,133,000 in the 1995 Fiscal
Year from $2,351,000 in the 1994 Fiscal Year, primarily due to increases in
revenue. As a percentage of revenues, gross profits increased to 74.7% in the
1995 Fiscal Year from 73.5% in the 1994 Fiscal Year, primarily due to reductions
in the cost of materials and savings resulting from increased efficiencies in
manufacturing operations. Amortization of capitalized software costs amounted to
$33,000 and $3,000 in the 1995 Fiscal Year and 1994 Fiscal Year, respectively.
Selling and Marketing Expenses. Selling and marketing expenses increased
110.4% to $1,723,000 in the 1995 Fiscal Year from $819,000 in the 1994 Fiscal
Year, which represented 31.1% and 25.6% of revenues, respectively. The increase
in expenses as a percentage of revenues is attributable in part to investments
made by the Company in establishing an international sales operation with
associated personnel additions. Further, the Company invested in additional
sales and marketing personnel and incurred associated promotional and seminar
expenses in anticipation of entering new PC-based CAD/CAM/CAE and Consumer
markets.
General and Administrative Expenses. General and administrative expenses
increased 49.7% to $834,000 in the 1995 Fiscal Year from $557,000 in the 1994
Fiscal Year, primarily due to the hiring of additional staff during the 1995
Fiscal Year. General and administrative expenses decreased as a percentage of
sales to 15.1% in the 1995 Fiscal Year from 17.4% in the 1994 Fiscal Year.
Research and Development Expenses. Research and development expenses
increased 75.2% to $890,000 in the 1995 Fiscal Year from $508,000 in the 1994
Fiscal Year, and increased as a
18
<PAGE>
percentage of revenues to 16.1% in the 1995 Fiscal Year from 15.9% in the 1994
Fiscal Year. This increase in expenses was primarily due to additions in the
Company's development personnel during the 1995 Fiscal Year, reflecting
continued investment in software product development for the workstation market,
and software and hardware development for the PC and Consumer markets.
Capitalized development costs amounted to $269,000 in the 1995 Fiscal Year and
$173,000 in the 1994 Fiscal Year.
Provision for Income Taxes. The Company's effective tax rate was 31.9% for
the 1995 Fiscal Year and 32.2% for 1994 Fiscal Year. The effective tax rate was
below the statutory rate for both fiscal years due to research and development
tax credits. In 1994 the Company adopted SFAS No. 109, Accounting for Income
Taxes. The adoption of this Statement did not have a material effect on the
Company's financial position or results of operations.
19
<PAGE>
QUARTERLY OPERATING RESULTS
The following table sets forth certain consolidated quarterly financial
information of the Company, for the 1995 Fiscal Year and 1996 Fiscal Year. This
information has been derived from the quarterly financial statements of the
Company which are unaudited but which, in the opinion of management, have been
prepared on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, that management
considers necessary for a fair presentation. This information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing in Item 8. Financial Statements and other Supplementary Data.
<TABLE>
<CAPTION>
Three Month Period Ended
June 30, Sept 30, Dec 31, Mar 31, June 30, Sept 30, Dec 31, Mar 31,
1994 1994 1994 1995 1995 1995 1995 1996
---- ---- ---- ---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues....................................... $1,192 $1,100 $1,336 $1,908 $1,786 $2,030 $2,047 $2,269
Gross Profit................................... 855 866 1,002 1,410 1,391 1,429 1,496 1,587
Income from operations......................... 285 158 161 82 225 195 216 71
Net income..................................... $199 $123 $127 $77 $151 $134 $178 $167
Net income per common share.................... $0.03 $0.02 $0.02 $0.01 $0.03 $0.02 $0.03 $0.02
</TABLE>
The Company expects that it will continue to experience fluctuations in its
quarterly operating revenues and gross profit. This variability has been caused
by factors such as the timing of new product introductions and upgrades, the
timing of significant orders, the mix of products sold, and the mix of OEM and
direct sales to end-users.
20
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has funded its operations and capital expenditures
primarily through cash generated from operations and the proceeds of equity
financing arrangements. As of March 31, 1996 the Company had cash and cash
equivalents and available-for-sale securities of $16,037,000 and working capital
of $17,503,000 versus $1,507,000 and $2,142,000 at March 31, 1995. The Company
has no outstanding line of credit or other indebtedness for borrowed money. For
the year ending March 31, 1996, the Company had a positive cash flow of $452,000
from operating activities. The principal factors contributing to this operating
cash flow were net income of $628,000, non-cash expenses of $557,000 for
depreciation and amortization, and an increase in accounts payable and accrued
expenses of $599,000. These factors were partially offset by an increase in
accounts receivable of $910,000, an increase in inventories of $215,000, and an
increase in prepaid and other assets of $288,000. As the Company enters the
consumer marketplace, it expects that there will be a significant increase in
inventories on a quarterly basis to meet the seasonality requirements of this
market. As a consequence, the Company has committed to purchase material amounts
of inventory to meet anticipated sales.
The Company used $15,308,000 in investing activities during the 1996 Fiscal
Year. The Company's primary investing activities during the 1996 Fiscal Year
were the purchase of investment securities which consisted primarily of
$14,120,000 of government securities and short-term capital market assets,
$633,000 for the purchase of property and equipment, and $425,000 of capitalized
software development. The Company anticipates that capital expenditures for the
fiscal year ending March 31, 1997 ("1997 Fiscal Year") will exceed capital
expenditures for the 1996 Fiscal Year, but it has no commitments or specific
plans for any significant capital expenditures, other than property and
equipment associated with the hiring of additional staff and investing in
tooling for low cost, high volume manufacturing.
During the 1996 Fiscal Year, the Company generated $17,250,000 from
financing activities which primarily consisted of the proceeds from the issuance
of Common Stock to the public. The proceeds were offset by $1,207,000 paid to
the underwriters of the public offering, $709,000 of offering costs, $65,000 to
repay a line of credit incurred by Panacea, and $3,000 to repay capital lease
obligations.
The Company believes that the proceeds from the sale of its Common Stock,
together with existing sources of liquidity and anticipated funds from
operations, will satisfy its projected working capital and other cash
requirements though the end of its fiscal year ending March 31, 1998.
Substantial funds will be required to continue software and hardware
development, as well as to develop the sales and marketing infrastructure,
distribution channels and market awareness to enter the PC Multimedia and
Consumer marketplaces. The Company believes the level of financial resources
available to it is an important competitive factor in its industry and may seek
additional capital prior to the end of that period. In addition, the Company may
consider potential acquisitions of technologies and businesses complementary to
the Company's business. There are no present agreements or commitments with
respect to any such acquisition; however, any such transaction may affect the
Company's future capital needs.
The Company's capital requirements will depend on many factors, including
the rate at which the Company can develop its products, the market acceptance of
such products, the levels of promotion and advertising required to launch such
products and attain a competitive position in the marketplace,
21
<PAGE>
the response of competitors to the products based on the Company's technology,
and capital necessary for potential acquisitions. Changes in technology or a
growth of sales beyond currently established capabilities will also require
further investment. To the extent that the Company's current financial resources
are insufficient to fund the Company's operating requirements, it may be
necessary for the Company to seek additional funding through public or private
financing. There can be no assurance that additional financing will be available
on acceptable terms or at all. If additional funds are raised by issuing equity
securities, further dilution to the existing stockholders may result. If
adequate funds are not available, the Company's business would be materially
adversely affected, and, as a result, the Company may be required to curtail its
operations significantly.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
-----------------------------
PAGE(S)
-------
<TABLE>
<S> <C>
Report of Independent Auditors.......................................................... 24
Consolidated Balance Sheets as of March 31, 1996 and 1995............................... 25
Consolidated Statements of Income for the years ended March 31, 1996, 1995, and 1994.... 26
Consolidated Statements of Stockholders' Equity for the years ended March 31, 1996, 1995,
and 1994.......................................................................... 27
Consolidated Statements of Cash Flows for the years ended March 31, 1996, 1995, and 1994 28
Notes to Consolidated Financial Statements.............................................. 29
</TABLE>
Financial statement schedules have been omitted
since they are not required or are not applicable
23
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Spacetec IMC Corporation
We have audited the accompanying consolidated balance sheets of Spacetec IMC
Corporation as of March 31, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended March 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Spacetec IMC Corporation at March 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
March 31, 1996 in conformity with generally accepted accounting principles.
Ernst & Young LLP
Boston, Massachusetts
May 30, 1996
24
<PAGE>
Spacetec IMC Corporation
Consolidated Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION>
March 31,
---------------------------------
1996 1995
---------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 417 $ 7
Securities available-for-sale 15,620 1,500
Accounts receivable, less allowance for doubtful accounts of $80
and $10 at March 31, 1996 and 1995, respectively 2,112 1,272
Inventories 409 194
Prepaid expenses 260 62
Receivable from employees and officer 72 5
Deferred income taxes 100 50
---------------------------------
Total current assets 18,990 3,090
Furniture and equipment, net of accumulated depreciation of $373 and $111
at March 31, 1996 and 1995, respectively 870 499
Intangible assets, net of accumulated amortization of $303 and $144
at March 31, 1996 and 1995, respectively 516 498
Software development costs, net of accumulated amortization of $172
and $36 at March 31, 1996 and 1995, respectively 695 406
Other assets 37 14
---------------------------------
2,118 1,417
---------------------------------
Total assets $ 21,108 $ 4,507
=================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,475 $ 829
Deferred revenue 12 51
Line of credit - 65
Current portion of obligation under capital lease - 3
---------------------------------
Total current liabilities 1,487 948
Deferred income taxes 320 220
Shareholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized
at March 31, 1996 - -
Convertible Preferred Stock, $0.10 par value; 0 and 2,075,954
authorized shares at March 31, 1996 and 1995, respectively:
Series A; 1,262,001 shares issued and outstanding at March 31, 1995 - 126
Series B; 813,953 shares issued and outstanding at March 31, 1995 - 81
Common stock, voting, $.01 par value; 20,000,000 authorized shares;
7,240,908 and 574,000 shares issued and outstanding at March 31,
1996 and 1995, respectively 72 6
Class B Common Stock, non-voting, no par value; 0 and 415,000 authorized
shares at March 31, 1996 and 1995, respectively; 395,000 shares issued
and outstanding at March 31, 1995 - 114
Additional paid-in capital 17,540 1,951
Retained earnings 1,689 1,061
---------------------------------
Total shareholders' equity 19,301 3,339
---------------------------------
Total liabilities and shareholders' equity $ 21,108 $ 4,507
=================================
</TABLE>
See accompanying notes
25
<PAGE>
Spacetec IMC Corporation
Consolidated Statements of Income
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended March 31,
----------------------------------------------
1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
Revenues $ 8,132 $ 5,536 $ 3,198
Cost of revenues 2,229 1,403 847
----------------------------------------------
Gross profit 5,903 4,133 2,351
Operating expenses:
Selling and marketing 2,711 1,723 819
General and administrative 803 834 557
Research and development 1,684 890 508
----------------------------------------------
Total operating expenses 5,198 3,447 1,884
----------------------------------------------
Income from operations 705 686 467
Interest income (278) (95) (26)
Interest expense - 9 11
----------------------------------------------
Income before income taxes 983 772 482
Income tax provision 355 246 155
----------------------------------------------
Net income $ 628 $ 526 $ 327
==============================================
Net income per share $ 0.10 $ 0.09 $ 0.07
==============================================
Weighted average common shares outstanding 6,562 6,004 4,680
==============================================
</TABLE>
See accompanying notes
26
<PAGE>
Spacetec IMC Corporation
Consolidated Statements of Shareholders' Equity
(in thousands, except per share data)
<TABLE>
<CAPTION>
Series A Series B
Preferred Stock Preferred Stock Common Stock
------------------- ----------------- -------------------
Shares Amount Shares Amount Shares Amount
------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993 1,100,001 $ 110 - $ - 435,000 $ 4
Issuance of Series B Preferred Stock,
net of interest paid on convertible
debenture of $15 and issuance
costs of $98 - - 813,953 81 - -
Issuance of Common Stock - - - - 115,000 1
Repurchase and retirement of Common
Stock - - - - (25,000) -
Net income - - - - - -
------------------ ----------------- -------------------
Balance at March 31, 1994 1,100,001 110 813,953 81 525,000 5
Issuance of Series A Preferred Stock
upon exercise of options 162,000 16 - - - -
Issuance of Class B Common Stock upon
exercise of options - - - - - -
Repurchase and retirement of Common
Stock - - - - (1,000) -
Issuance of Common Stock in exchange
for shares of Panacea, Inc. - - - - 50,000 1
Net income - - - - - -
------------------ ----------------- -------------------
Balance at March 31, 1995 1,262,001 126 813,953 81 574,000 6
Issuance of Common Stock upon public
offering, net of underwriters'
discount and issuance costs of
$1,207 and $709, respectively - - - - 1,725,000 17
Conversion of Preferred Stock and
Class B Common Stock upon public
offering (1,262,001) (126) (813,953) (81) 4,941,908 49
Net Income - - - - - -
------------------ ----------------- -------------------
Balance at March 31, 1996 - $ - - $ - 7,240,908 $ 72
================== ================= ===================
<CAPTION>
Class B
Common Stock Additional Total
------------------ Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
------------------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1993 350,000 $ 97 $ 284 $ 208 $ 703
Issuance of Series B Preferred Stock,
net of interest paid on convertible
debenture of $15 and issuance
costs of $98 - - 1,571 - 1,652
Issuance of Common Stock - - - - 1
Repurchase and retirement of Common
Stock (16) (16)
Net income - - - 327 327
------------------ ---------- ----------- -------------
Balance at March 31, 1994 350,000 97 1,839 535 2,667
Issuance of Series A Preferred Stock
upon exercise of options - - 42 - 58
Issuance of Class B Common Stock upon
exercise of options 45,000 17 - - 17
Repurchase and retirement of Common
Stock - - - - -
Issuance of Common Stock in exchange
for shares of Panacea, Inc. - - 70 - 71
Net income - - - 526 526
------------------ ---------- ----------- -------------
Balance at March 31, 1995 395,000 114 1,951 1,061 3,339
Issuance of Common Stock upon public
offering, net of underwriters'
discount and issuance costs of
$1,207 and $709, respectively - - 15,317 - 15,334
Conversion of Preferred Stock and
Class B Common Stock upon public
offering (395,000) (114) 272 - -
Net Income - - - 628 628
------------------ ---------- ----------- -------------
Balance at March 31, 1996 - $ - $17,540 $1,689 $19,301
================== ========== =========== =============
</TABLE>
See accompanying notes
27
<PAGE>
Spacetec IMC Corporation
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-------------------------------
1996 1995 1994
-------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITES
Net income $ 628 $ 526 $ 327
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 557 189 53
Deferred income taxes 50 90 80
Changes in operating assets and liabilities:
Accounts receivable, net (840) (436) (485)
Inventories (215) (59) (12)
Prepaid expenses and other assets (221) (57) 1
Due from employees and officer (67) 1 (5)
Accounts payable and accrued expenses 598 130 339
Deferred revenue (39) 51 -
-------------------------------
Net cash provided by (used in) operating activities 451 435 298
INVESTING ACTIVITIES
Purchase of securities available-for-sale (14,120) (500) (1,000)
Purchase of furniture and equipment (633) (255) (108)
Purchase of intangible assets (129) (452) (45)
Software development costs (425) (269) (173)
-------------------------------
Net cash provided by (used in) investing activities (15,307) (1,476) (1,326)
FINANCING ACTIVITIES
Proceeds from shareholder for previously issued stock - - 36
Proceeds from issuance of Common stock 17,250 - 1
Underwriters' discount (1,207) - -
Offering costs (709) - -
Proceeds from issuance of Class B Common Stock - 17 -
Proceeds from issuance of Preferred stock - 58 1,402
Payments to aquire Common stock - - (16)
Repayment of line of credit (65) - -
Repayment of capital lease obligation (3) (5) (3)
-------------------------------
Net cash provided by (used in) financing activities 15,266 70 1,420
-------------------------------
Net increase in cash and cash equivalents 410 (971) 392
Cash and cash equivalents at beginning of period 7 978 586
-------------------------------
Cash and cash equivalents at end of period $ 417 $ 7 $ 978
===============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 220 $ 242 $ -
===============================
Interest paid $ 15 $ 9 $ 15
===============================
</TABLE>
See accompanying notes
28
<PAGE>
Spacetec IMC Corporation
Notes to Consolidated Financial Statements
Years Ended March 31, 1996 and 1995
1. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Spacetec IMC
Corporation (the "Company") and its wholly-owned subsidiary, Panacea, Inc.
("Panacea"). Upon consolidation, all significant intercompany accounts have been
eliminated. Effective March 31, 1996, the Board of Directors of the Company
approved a merger of Panacea into the Company.
DESCRIPTION OF BUSINESS
The Company is a Massachusetts corporation, organized in April 1991. The Company
manufactures and markets three dimensional ("3D") interactive motion control
input hardware controllers and integration software for the industrial
CAD/CAM/CAE and consumer markets in the domestic and international arenas.
REVENUE RECOGNITION
The Company accounts for software revenue in accordance with Statement of
Position 91-1, Software Revenue Recognition, issued by the American Institute of
Certified Public Accountants. Specifically, revenue from licenses to end-users
is recognized upon product shipment, provided post-sale vendor obligations are
insignificant. If vendor obligations are significant, revenue is deferred until
the obligations are fulfilled. Revenue from maintenance agreements is recognized
ratably over the term of the agreement.
The Company provides customers with a twelve month warranty from the date of
sale. Estimated warranty obligations are provided at the time of sale of the
Company's products based on historical and anticipated warranty costs. Warranty
costs during 1996, 1995 and 1994 were immaterial. The Company provides no
exchange rights for unsold software, price protection or upgrade policies to
foreign and domestic resellers.
29
<PAGE>
Spacetec IMC Corporation
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred. Software development
costs incurred after the establishment of technological feasibility and until
the product is available for general release are capitalized, provided
recoverability is reasonably assured.
Technological feasibility is defined as the establishment of a working prototype
or a detail program design. Amortization of software development costs is the
greater of the amount computed using (i) the ratio of current gross revenues to
the total of current and anticipated future gross revenues of each product or
(ii) the straight-line method over the expected useful life of the product,
which generally does not exceed three years. Amortization of software
development costs in 1996, 1995 and 1994 were approximately $136,000, $33,000
and $3,000, respectively, and are included in cost of sales.
RISKS AND UNCERTAINTIES
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash equivalents, securities available-for-
sale and trade receivables. Cash equivalents and securities available-for-sale
consist of temporary investments in money market funds with maturity dates of
three months when purchased and treasury notes backed by the U.S. government
with maturity dates of six months when purchased, respectively, and have limited
credit exposure.
Concentrations of credit risk with respect to trade receivables arise as a
significant portion of the Company's customer base is comprised of high
technology manufacturers. The Company had three customers representing 35% and
29% and 10% of 1994 sales, two customers representing 24% and 17% of 1995 sales
and two customers representing 24% and 10% of 1996 sales. Although the Company's
exposure to credit risk associated with nonpayment by high technology
manufacturers is affected by conditions or occurrences within the high
technology industry, trade receivables from the high technology manufacturers
were current at March 31, 1996. The Company's losses related to the collection
of trade accounts receivable amounted to $27,000 in 1996 and were immaterial in
1995 and 1994.
Significant Estimates and Assumptions
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make significant estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates and assumptions by
management affect the Company's allowance for doubtful accounts, reserve for
30
<PAGE>
Spacetec IMC Corporation
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
inventory obsolescence and certain accrued expenses. Actual results could differ
from those estimates.
SECURITIES AVAILABLE-FOR-SALE
Effective April 1, 1994, the Company adopted Statement of Financial Accounting
Standards No., 115, OAccounting for Certain Investments in Debt and Equity
Securities" (OSFAS No. 115O). SFAS No. 115 established the accounting and
reporting requirements for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. All
affected investment securities must be classified as either held-to-maturity,
trading or available-for-sale. Held-to-maturity securities are carried at
amortized cost basis. Trading securities are carried at fair value with
unrealized gains and losses included in the determination of net income.
Available-for-sale securities are carried at fair value with unrealized gains
and losses reported as a component of shareholders' equity. At the date of
adoption, all of the Company's investments were recorded at cost which
approximated fair value. All of the Company's investments have been classified
as available-for-sale securities at March 31, 1996 and March 31, 1995. These
securities consist principally of debt securities maturing within one year or
less. The estimated fair value of the securities approximated cost. The adoption
of SFAS No. 115 had no material impact on the Company's financial position.
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is determined
using the first in, first out (FIFO) method.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated on the basis of cost and are depreciated and
amortized over the estimated useful lives by the straight-line method.
Depreciation is generally computed based on useful lives of five to seven years
for furniture and fixtures and office equipment, three to seven years for trade
show equipment and three to five years for computer equipment.
INTANGIBLE ASSETS
Intangible assets consist of acquired technology, patents, non-compete
agreements and goodwill. Acquired technology and patents are amortized on a
straight-line basis over a five-year period. Non-compete agreements pertain to
payments in fiscal 1995 of $325,000 to certain former employees of Panacea.
These payments are being amortized over the terms of the respective agreements,
which are one and five years. Goodwill is being amortized on a straight line
basis over seven years.
31
<PAGE>
Spacetec IMC Corporation
Notes to Consolidate Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
On an ongoing basis, management reviews the carrying value and period of
amortization of goodwill. During this review process, the Company reevaluates
the assumptions used in determining the original cost of acquired businesses and
related goodwill. Although the assumptions used may vary from transaction to
transaction, they generally include revenue growth, operating results, cash
flows and other indicators of value. Management then determines whether there
has been a permanent impairment of the carrying value of goodwill based upon
events or circumstances which have occurred since acquisition.
INCOME TAXES
Effective April 1, 1995, the Company accounts for income taxes using the
liability method as required by Statement of Financial Accounting Standards No.
109 Accounting for Income Taxes. Under this method, deferred income taxes are
recognized for the future tax consequences of differences between the tax and
financial accounting of assets and liabilities at each year end. Deferred income
taxes are based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income. A
valuation allowance is established when necessary to reduce deferred tax assets
to the amounts expected to be realized. Income tax expense is the tax payable
for the period and the change during the period in deferred tax assets and
liabilities.
STOCK BASED COMPENSATION
The Company grants stock option for a fixed number of shares to employees and
consultants with an exercise price equal to the Fair Market Value of the shares
at the date of grant. The Company accounts for stock based compensation in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and intends to continue to do so.
NET INCOME PER SHARE
Net income per share is computed using net income and the weighted average
number of common and dilutive common stock equivalent shares. Common stock
equivalents are attributable to stock options determined using the treasury
stock method and convertible preferred shares assuming conversion at the date of
issuance. Primary and fully diluted pro-forma net income per share are the same
for all periods presented.
RECLASSIFICATIONS
Certain amounts in the financial statements for the year ended March 31, 1995
and 1994 have been reclassified to conform with 1996 classifications.
32
<PAGE>
Spacetec IMC Corporation
Notes to Consolidated Financial Statements (continued)
2. ACQUISITION
On January 1, 1995, the Company issued 50,000 shares of its Common Stock to a
former shareholder of Panacea in exchange for all outstanding shares of Panacea.
This transaction has been accounted for as a purchase. The fair value of the
issued shares totaled $71,000 and has been allocated to the fair market value of
the assets acquired and liabilities assumed with any excess applied to goodwill
(approximately $23,000). The results of operations of Panacea has been included
in the consolidated financial statements from the date of acquisition. During
the year ended March 31, 1996, the Company adjusted the purchase price by
approximately $48,000 for liabilities that were underestimated at the date of
acquisition.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
1996 1995
---------------------------
(in thousands)
<S> <C> <C>
Materials $190 $145
Work-in-process 136 26
Finished goods 123 43
---------------------------
449 214
Less reserve for obsolescence (40) (20)
---------------------------
$409 $194
===========================
</TABLE>
4. LINE OF CREDIT
Panacea had a demand line of credit of $75,000 with a bank under a revolving
credit agreement which the Company terminated in fiscal 1996 upon repayment of
the balance outstanding at March 31, 1995.
33
<PAGE>
Spacetec IMC Coporation
Notes to Consolidated Financial Statements (continued)
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
MARCH 31
---------------------------
1996 1995
---------------------------
(in thousands)
<S> <C> <C>
Trade payables $1,124 $456
Commission and royalties 247 132
Accrued compensation - 263
Income taxes 80 (22)
Other 24 -
---------------------------
$1,475 $829
===========================
</TABLE>
6. COMMITMENTS
OPERATING LEASES
The Company leases an automobile, various office equipment and certain office
space under various agreements which expire through the fiscal year 2001. The
agreement pertaining to office space is subject to rent escalation clauses.
Future minimum lease payments under these noncancelable operating lease
agreements are as follows:
<TABLE>
<S> <C>
1997 $ 225,000
1998 266,000
1999 283,000
2000 282,000
2001 71,000
---------------
$ 1,127,000
===============
</TABLE>
Rent expense for the year ended March 31, 1996, 1995 and 1994 amounted to
approximately $136,000, $79,000 and $47,000, respectively.
ROYALTY AGREEMENTS
In May 1991, the Company entered into a royalty agreement (the "Agreement") with
a shareholder of the Company. Pursuant to the Agreement, the Company is obliged
to pay one-half of one percent of all net revenues received by the Company with
respect to technology covered by certain existing patents which relate to the
Company's hardware products. The Agreement will remain in effect until the last
of such patents expires.
34
<PAGE>
Spacetec IMC Corporation
Notes to Consolidated Financial Statements (continued)
6. COMMITMENTS (CONTINUED)
Pursuant to the acquisition of Panacea (Note 2), the Company is obligated to pay
royalties on net revenues received by the Company with respect to certain
technology acquired from Panacea.
The Company incurred royalty expenses of approximately $67,000, $24,000 and
$12,000 under these agreements in fiscal years 1996, 1995 and 1994,
respectively.
7. SEGMENT INFORMATION AND EXPORT SALES
The Company operates in one industry segment: the manufacturing and marketing of
real time 3D Interactive Motion Control (IMC) hardware input devices and IMC
software for the technical, scientific, and consumer electronics market.
International sales, as a percentage of total sales, were approximately 36%, 31%
and 18% for the years ended March 31, 1996, 1995 and 1994, respectively.
8. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
-----------------------------------
1996 1995 1994
-----------------------------------
DEFERRED LIABILITY METHOD
METHOD
(in thousands)
<S> <C> <C> <C>
Currently payable:
Federal $265 $132 $ 65
State 40 24 10
-----------------------------------
305 156 75
Deferred:
Federal 42 68 68
State 8 22 12
-----------------------------------
50 90 80
-----------------------------------
$355 $246 $155
===================================
</TABLE>
35
<PAGE>
Spacetec IMC Corporation
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
A reconciliation of the federal statutory rate to the effective income tax rate
follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
----------------------------
1996 1995 1994
----------------------------
<S> <C> <C> <C>
Tax at federal statutory rate 34.0% 34.0% 34.0%
State taxes, net of federal benefit 6.3 6.3 6.3
Research and development credits (4.7) (8.4) (8.5)
Other, net .5 - .4
----------------------------
36.1% 31.9% 32.2%
============================
</TABLE>
Significant components of the Company's deferred tax liabilities and assets are
as follows:
<TABLE>
<CAPTION>
MARCH 31
----------------------------
1996 1995
----------------------------
(in thousands)
<S> <C> <C>
Deferred tax liabilities:
Software development costs $274 $152
Patents 79 46
Tax over book depreciation 17 22
Uniform capitalization (16) -
Covenant not to compete (31) -
Other (3) -
----------------------------
Total deferred tax liabilities $320 $220
============================
Deferred tax assets:
Allowance for doubtful accounts $32 $4
Inventory obsolescence reserve 31 25
Book over tax accrual 37 21
----------------------------
Total deferred tax assets $100 $50
============================
</TABLE>
36
<PAGE>
Spacetec IMC Corporation
Notes to Consolidated Financial Statements (continued)
9. NON CASH INVESTING AND FINANCING ACTIVITIES
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------
1996 1995 1994
-----------------------------
(in thousands)
<S> <C> <C> <C>
Issuance of Preferred Stock upon
conversion of debenture $250
=========
Acquisition of Panacea, Inc. in
for common stock $71
=========
Adjustment of Panacea, Inc.
purchase price $48
=========
</TABLE>
10. RELATED PARTY TRANSACTIONS
During the fiscal years 1996, 1995, and 1994, the Company sold its products to
Spatial Systems, Limited, a shareholder of the Company whose Chairman is also a
Director of the Company. Sales to Spatial Systems, Limited for the years ended
March 31, 1996, 1995, and 1994, amounted to approximately $140,000, $110,000,
and $25,000, respectively. Accounts receivable at March 31, 1996 and 1995 from
Spatial Systems Limited were approximately $79,000 and $28,000, respectively.
11. CAPITAL STOCK
The Company's authorized capital included 1,262,001 shares of Series A Preferred
Stock, par value $0.10 ("Series A Preferred"); 813,953 shares of Series B
Preferred Stock, par value $0.10 ("Series B Preferred"); 2,900,000 shares of
Class A Common Stock, voting, no-par value ("Class A Common"); and 415,000
shares of Class B Common Stock, non-voting, no-par value ("Class B Common").
On March 31, 1995, the Board of Directors approved a two-for-one stock split in
the form of a dividend to Class A Common shareholders on record on March 31,
1995. Also, on October 6, 1995, shareholders approved an amendment to the
Company's Articles of Organization to (I) auth- orize 8,500,000 shares of Common
Stock, $0.01 par value ("Common Stock"); (ii) convert each outstanding share of
Class A Common to a share of Common Stock; (iii) eliminate the authorized shares
of Class A Common and (iv) to provide for the automatic conversion of each share
of nonvoting Class B Common Stock to two shares of Common Stock and eliminate
the authorized shares of Class B Common Stock upon the CompanyOs initial public
offering. All references to capital stock, shares and per share amounts have
been restated to retroactively reflect the stock split and terms of the
amendment.
37
<PAGE>
Spacetec IMC Corporation
Notes to Consolidated Financial Statements (continued)
11. CAPITAL STOCK (CONTINUED)
In September 1995, the Company's Board of Directors approved an amendment to the
articles of organization to replace the authorized capital stock with 20,000,000
shares of common stock, $0.01 par value and 1,000,000 shares of preferred stock,
$0.01 par value. This amendment was approved by the CompanyOs shareholders on
October 6, 1995 and became effective at the closing of the Company's initial
public offering.
Concurrent with the effective date of the Company's public offering, each share
of the Company's Series A Preferred and Series B Preferred Stock automatically
converted into two shares of the Company's Common stock and the authorized
shares associated with the Series A and B Preferred Stock were eliminated. In
December 1995, the Company completed its initial public offering in which
1,725,000 shares of common stock were sold at a per share price of $10. Net
proceeds, after deduction of $1,916,000 for underwriters' fees and other
offering costs, amounted to $15,334,000.
12. STOCK OPTIONS
Options to purchase 162,000 shares of Series A Preferred and 40,000 shares of
Class B Common Stock were issued in fiscal 1992 at a purchase price of $0.36 per
share. Options to purchase 20,000 shares of Class B Common were issued in fiscal
1993 at a purchase price of $0.54 per share. All options were exercisable
immediately and due to expire in December 1994. All outstanding options to
purchase shares of Series A Preferred and 45,000 options to purchase shares of
Class B Common were exercised during fiscal 1995. The remaining 15,000 options
to purchase shares of Class B Common expired in December 1994.
Options to purchase 50,000 shares of Common Stock were issued in fiscal 1993 at
a purchase price of $0.50 per share. These options vest ratably over a 5 year
period and are due to expire in August 2003. No options were exercised during
1994, 1995 or 1996.
In September 1995, the Company approved a Director Stock Option Plan in which
all directors who are not employees of the Company (the "Eligible Directors")
participate. The Company has reserved for issuance 75,000 shares of common stock
under the Director Plan. Options under the Director Plan will be automatically
granted upon initial election or reelection of Eligible Directors, commencing
with the Company's 1996 annual meeting of stockholders. Each Eligible Director
receives an option to purchase 2,000 shares of common stock for each year of the
term of office to which the director is elected (6,000 shares for election to a
three-year term of office). In addition, upon the election of an Eligible
Director other than at an annual meeting, such director is automatically granted
an option to purchase 2,000 shares of common stock for each year of portion
thereof of the term of office to which he or she is elected. Options become
exercisable with respect to 2,000 shares on the date of grant and on each annual
meeting date following the date of grant, so long as the optionee is then a
director of the Company. The options have a term of ten years and en exercise
price equal to the fair market value of the common stock on the date of grant.
38
<PAGE>
Spacetec IMC Corporation
Notes to Consolidated Financial Statements (continued)
12. STOCK OPTIONS (CONTINUED)
The Company's Amended and Restated 1993 Stock Option Plan (the "1993 Plan") was
readopted by the Board of Directors on September 29, 1995. The 1993 Plan
authorized the grant of incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended ("ISO's") and non-qualified
stock options for the purchase of an aggregate of 1,600,000 shares (subject to
adjustment for stock splits and similar capital changes) of common stock to
employees of the Company and, in the case of non-qualified stock options, to
consultants of the Company or any Affiliate (as defined in the 1993 Plan)
capable of contributing to the Company's performance. Grants of options under
the 1993 Plan and all questions of interpretation with respect to the 1993 Plan
are determined by a committee appointed by the Board of Directors of the
Company. The Board of Directors has appointed the Compensation Committee (the
"Committee") to administer the Plan.
The purchase price per share of stock deliverable upon the exercise of a stock
option is determined by the Board of Directors provided that the exercise price
be at least 100% (incentive) and 50% (nonstatutory) of the fair market value of
the stock at the time of grant. Each option granted under the Plan is
exercisable either in full or in installments as set forth in each recipient's
option agreement. All options expire ten years after the date of grant.
The following schedule summarizes the activity of the 1993 Plan. At March 31,
1996, there were 162,800 options exercisable, and there were 799,950 available
for grant.
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE
PRICE
INCENTIVE NONQUALIFIED PER SHARE
----------------------------------------------------
<S> <C> <C> <C>
Outstanding at March 31, 1994
Granted 83,000 50,000 $0.05 - $1.00
----------------------------------------------------
Outstanding at March 31, 1995 83,000 50,000 0.05 - 1.00
Granted 664,550 44,000 2.84 - 11.00
Terminated (21,500) - -
----------------------------------------------------
Outstanding at March 31, 1996 726,050 94,000 $0.05 - $11.00
====================================================
</TABLE>
13. EMPLOYEE STOCK PURCHASE PLAN
In September 1995, the Company approved an Employee Stock Purchase Plan (the
"Purchase Plan") under which employees may purchase shares of common stock at a
discount from fair market value. There are 100,000 shares of common stock
reserved for issuance under the Purchase Plan. To date, no shares of common
stock have been issued under the Plan. The Purchase Plan is intended to qualify
as an employee stock purchase plan within the meaning of Section 423 of the
Code. Rights to purchase common stock under the Purchase Plan are granted at
39
<PAGE>
Spacetec IMC Corporation
Notes to Consolidated Financial Statements (continued)
13. EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
the discretion of the Compensation Committee, which determines the frequency and
duration of individual offerings under the Plan and the dates when stock may
purchased. Eligible employees participate voluntarily and may withdraw from any
offering at any time before stock is purchased. Participation terminates
automatically upon termination of employment. The purchase price per share of
common stock in an offering is 85% of the lesser of its fair market value at the
beginning of the offering period or on the applicable exercise date and may be
paid through payroll deductions, periodic lump sum payments or a combination of
both. The Purchase Plan terminates on September 29, 2005.
40
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this item is contained in part under the caption "Executive
Officers of the Registrant" in Part I, Item 1A hereof and the remainder is
incorporated herein by reference from the discussion responsive thereto under
the caption "Election of Directors" in the Company's Proxy Statement relating to
its Annual Meeting of Stockholders scheduled for September 11, 1996 (the "Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION
The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Executive Compensation" in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption "Share ownership" in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item is incorporated herein by reference from the
discussion responsive thereto under the caption, "Compensation Committee
Interlocks and Insider Participation" in the Proxy Statement.
41
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The financial statements are listed under Item 8 of this report.
2. FINANCIAL STATEMENT SCHEDULES
The financial statement schedules are listed under Item 8 of this
report.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of fiscal 1996.
(C) EXHIBITS
<TABLE>
<CAPTION>
Number Footnote Description
- --------------------------------------------------------------------------------
<C> <C> <S>
3.1 1 Restated Articles of Organization.
3.3 2 Restated By-Laws of Registrant.
4.1 3 Specimen certificate for shares of Common
Stock of the Registrant.
10.1 3 Amended and Restated Stock Option Plan.
10.2 3 1995 Director Stock Option Plan.
10.3 3 1995 Employee Stock Purchase Plan
10.4 4 Real Estate Lease Agreement between the
Registrant and Wannalancit Office and
Technology Center Trust dated April 19,
1991, as amended.
10.5 Sublease Agreement between the Registrant
and TRC Environmental Corporation dated
December 26, 1995. Filed herewith.
10.6 Recognition, Non-Disturbance and
Attornment Agreement between the
Registrant and Historic Boott Mill
Limited Partnership dated December 26,
1995. Filed herewith.
10.7 3 Royalty Agreement dated May 29, 1991
between the Registrant and John A.
Hilton.
</TABLE>
42
<PAGE>
<TABLE>
<C> <C> <S>
10.8 3 License Agreement dated May 29, 1991
between the Registrant and Spatial
Systems Ltd.
10.9 3 Form of indemnification agreement between
the Registrant and each of its directors.
10.10 3,5 Resale Agreement dated as of May 1, 1991
between the Registrant and Electronic
Data Systems Corporation (as successor to
McDonnell Douglas Corporation), as
amended by Amendment No. 1 dated December
23, 1993 and Amendment No. 2 dated
October 6, 1994.
10.11 3,5 Distribution and Marketing Agreement
dated April 28, 1994 between the
Registrant and Sumisho Electronic Devices
Corporation.
10.12 3 Adoption Agreement for Aetna Life
Insurance and Annuity Company
Standardized 401(k) Profit Sharing Plan
and Trust (Spacetec IMC Corporation
401(k) Plan) dated June 7, 1995.
10.13 3 Form of Confidentiality and Inventions
Agreement between the Registrant and its
employees.
10.14 3 Form of Non-Disclosure Agreement between
the Registrant and its consultants.
10.15 3 Guaranty by Dennis T. Gain dated April
19, 1991 of the Registrant under the real
estate lease filed as Exhibit 10.4.
10.16 5 Basic Order Agreement between the
Registrant and Digital Equipment
Corporation dated March 19, 1996. Filed
herewith.
21.1 Subsidiary of the Registrant.
23.1 Consent of Ernst & Young LLP. Filed
herewith.
27.1 Financial Data Schedule. Filed herewith.
99.1 Important Factors Regarding Forward-
Looking Statements. Filed herewith.
</TABLE>
_____________________________________
(1) Filed as Exhibit 3.2 to the Spacetec IMC Corporation Registration Statement
on Form S-1 (Commission File No. 33-98064) and incorporated herein by reference.
43
<PAGE>
(2) Filed as Exhibit 3.4 to the Spacetec IMC Corporation Registration Statement
on Form S-1 (Commission File No. 33-98064) and incorporation herein by
reference.
(3) Filed as an exhibit with the same number to the Spacetec IMC Corporation
Registration Statement on Form S-1 (Commission File No. 33-98064) and
incorporated herein by reference.
(4) Filed as Exhibit 10.5 to the Spacetec IMC Corporation Registration
Statement on Form S-1 (Commission File No. 33-98064) and incorporation herein by
reference.
(5) Certain confidential material contained in the document has been omitted
and filed separately with the Securities and Exchange Commission pursuant to
Rule 406 of the Securities Act of 1933, as amended, and Rule 24b-2 of the
Securities Exchange Act of 1934, as amended.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Act
of 1934, the Registrant has duly caused this report to be signed on behalf of
the undersigned.
SPACETEC IMC CORPORATION
Dated: June 28, 1996
By: /s/ Dennis T. Gain
-------------------------
Dennis T. Gain, President
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Dennis T. Gain President, Chief Executive Officer June 28, 1996
- -----------------------
Dennis T. Gain and Chairman of the Board of
Directors (Principal Executive Officer)
/s/ Linda S. Linsalata Chief Financial Officer, Senior June 28, 1996
- -----------------------
Linda S. Linsalata Vice President of Finance and Director
(Principal Financial and Accounting
Officer)
/s/ Morton E. Goulder Director June 28, 1996
- -----------------------
Morton E. Goulder
/s/ J. Grant Jagelman Director June 28, 1996
- -----------------------
J. Grant Jagelman
/s/ Jerry H. Loyd Director June 28, 1996
- -----------------------
Jerry H. Loyd
</TABLE>
45
<PAGE>
EXHIBIT 10.5
SUBLEASE
This Sublease is entered into this 26th day of December, 1995, between TRC
Environmental Corporation, a Connecticut corporation, whose address is Boott
Mills South, Foot of John Street, Lowell, Massachusetts 01852 (herein called
"Sublessor"), and Spacetec IMC Corporation, a Massachusetts corporation, whose
address prior to the Commencement Date of this Sublease is 600 Suffolk Street,
Lowell, Massachusetts 01854, (herein called "Sublessee"), both hereafter called
the Parties.
1. DEMISE
------
Sublessor hereby sublets to Sublessee and Sublessee subleases from Sublessor
the Premises described in Paragraph 2 herein, which constitutes a portion of
the Premises leased by Sublessor, as Tenant, from Historic Boott Mill Limited
Partnership (Landlord) under that certain Lease dated February 9, 1990, as
later amended by the First Amendment To Lease dated July 27, 1994, and by the
Second Amendment To Lease dated December 29, 1995, such Lease, First Amendment
and Second Amendment all together referred to hereinafter as the "Lease," and
all three of which are incorporated herein by reference.
Sublessor hereby represents and warrants that: (a) Sublessor is Tenant under
the Lease; (b) the Lease is in full force and effect, Sublessor has asked the
Landlord to submit to Sublessee a true and complete copy of the Lease,
inclusive of all amendments, riders, exhibits and related agreements; the Lease
is the entire agreement between Sublessor and Landlord (or any other party)
relating to the use and occupancy of the Premises demised under the Lease and
there are no amendments, modifications, supplements, arrangements or side
agreements, oral or written, that modify, amend, alter, supplement or change
the terms of the Lease between Landlord and Sublessor; (c) Sublessor has not
received any notice of default under the Lease from Landlord; (d) Sublessor is
not insolvent and is able to pay its debts and other obligations as they come
due; it has not declared bankruptcy or filed a petition to take advantage of
any law relating to bankruptcy, insolvency, reorganization, winding up or
composition or adjustment of debts, and it has no present intention of doing
so; no such proceeding has been commenced against Sublessor seeking such relief
and Sublessor has no knowledge that any such proceeding is threatened; (e) to
the best of Sublessor's knowledge and belief, the Premises and their
electrical, mechanical, plumbing, heating, ventilating, air-conditioning, and
sewage disposal systems are in good working order and repair; (f) Sublessor
has not released or discharged or disposed of any hazardous materials and/or
toxic substances (including asbestos) on the Premises in any concentrations
that would be reportable (or would require remediation) under the Massachusetts
Contingency Plan, and (g) Sublessor shall not do or permit to be done, anything
that would cause the Lease to be canceled, terminated or forfeited. Sublessor
agrees that the rights granted to the Sublessee under this Sublease shall not
be diminished, nor shall any of Sublessee's monetary obligations under the
Sublease be increased, by or through any subsequent amendment of the Lease.
Sublessee hereby represents and warrants that (a) Sublessee is not insolvent
and is able to pay its debts and other obligations as they come due; it has not
declared bankruptcy or filed a petition to take advantage of any law relating
to bankruptcy, insolvency, reorganization, winding up or composition or
adjustment of debts, and it has no present intention of doing so; no such
proceeding has been commenced against Sublessor seeking such relief and
Sublessor has no knowledge that any such proceeding is threatened; (b)
Sublessee shall not at any time during the term of the Sublease do or permit to
be done, anything that would cause the Lease to be canceled, terminated or
forfeited; (c) to be best of Sublessee's knowledge, it is not now a party to
any lawsuit which might jeopardize Sublessee's abilities to fully comply with
its obligations under the Sublease; and (d) to the best of its knowledge, and
within the past six months, Sublessee has not received any notice of default
under any real estate lease under which Sublessee is currently a tenant, and no
event of default now exists which would cause Sublessee to receive any notice
of default under any existing real estate lease under which Sublessee is
currently a tenant.
2. DESCRIPTION OF SPACE
--------------------
The Premises sublet pursuant to this Sublease consists of approximately 33,323
square feet of rentable area, with 20,870 rentable square feet located on the
third floor and 12,453 rentable square feet located on the fourth floor of
Sublessor's building known as Boott Mills South (the "Building") as
approximately set forth and outlined in yellow on Exhibits A-1 and A-2 attached
hereto and made part hereof.
Included as part of the Premises sublet hereunder are all of Sublessor's
appurtenant rights under the Lease to use the common areas and facilities of
the Building and the property on which the
<PAGE>
Building is situated, but not including any portion of the Premises set out
under the Lease which are not specifically made a part of this Sublease and
specifically not including Sublessor's loading dock facilities.
Sublessor hereby acknowledges and understands that pursuant to the terms of a
certain Recognition, Non-Disturbance and Attornment Agreement dated as of
December 26, 1995, between Sublessee and Landlord (the "Recognition Agreement")
Landlord has granted Sublessee certain rights of first offer on additional
space that hereafter becomes available for lease in the Building. Sublessor
hereby agrees that its rights of first offer on space in the Building set forth
in the Lease are and shall be fully subject and subordinate to the right of
first offer rights of Sublessee under the Recognition Agreement. Any space
leased by Sublessee by way of its first offer rights shall be included in a
separate direct lease between Landlord and Sublessee as Tenant, and shall not
be included in the Lease or this Sublease.
3. TERM OF SUBLEASE
----------------
The Term of this Sublease shall be for the period commencing February 1, 1996,
the "Commencement Date," and expiring July 3, 2000, the "Expiration Date."
4. SUBLEASE RENT
-------------
Sublessee agrees to pay monthly rent to Sublessor in accordance with the
following Rent Schedule, as Base Rent for the Premises, which shall be payable
monthly in advance on or before the first (1st) day of each calendar month of
the term of this sublease, and which shall be pro rated for any portion of a
month based on the number of days in such month. Notwithstanding, Sublessor
agrees that the Base Rent, but not charges for electricity or for other
services not intended to be included in the rent, if any, shall be abated for
the first three months of Term. Sublessee shall prepay the Base Rent for the
months of May 1996 and June 1996 upon execution of this Sublease.
2
<PAGE>
<TABLE>
<CAPTION>
FROM TO MONTHLY RENT
---- -- ------------
<S> <C> <C>
02/01/96 04/30/96 $ 0.00
05/01/96 04/30/97 $19,438.42
05/01/97 04/30/98 $22,215.33
05/01/98 07/03/00 $23,500.00
</TABLE>
Sublessee has specifically requested and Sublessor and Landlord have agreed
that Sublessee shall arrange to provide its own janitor service to the
Premises. Sublessee understands that Sublessor already contracts for such
services during the Term of its Lease and Sublessor shall discontinue such
arrangements for the Premises.
5. HOLDOVER
--------
Sublessee understands that it has no right or option whatsoever to renew this
Sublease after the Expiration Date. The Second Amendment To Lease provides
that so long as Sublessee is not then in default under the terms of this
Sublease, Sublessor waives its right to renew its Lease with respect to the
Premises sublet pursuant to this Sublease. In the event Sublessee desires to
continue its occupancy of the Premises, it shall do so only under the terms of
a separate direct lease to be negotiated between Landlord and Sublessee, as
tenant. There shall be absolutely no holdover permitted by Sublessee after the
expiration of this Sublease. Any holdover at the expiration of this Sublease
shall be on a month-to-month basis, which tenancy may thereafter be terminated
as provided by the laws of the state in which the Premises are located.
Notwithstanding, the Base Rent during the period of any holdover shall increase
to 150% times the rent Sublessor is required to pay Landlord during the
holdover period, under the terms of the Lease.
6. SUBLESSEE TO COMPLY WITH LEASE AGREEMENT TERMS, INDEMNITY TO LANDLORD
---------------------------------------------------------------------
Sublessee agrees to perform and observe the covenants, conditions, and terms
set forth in the Lease on the part of the Tenant to be performed and observed
with respect only to the Premises leased pursuant to this Sublease and not with
respect to any portion of the Premises demised under the Lease but not included
within the Premises, except (a) the covenant for the payment of Rent and
Additional Rent reserved in the Lease, and (b) the covenants of Paragraph 11 of
the Lease regarding assignment and subletting (since Sublessee's subletting and
assignment rights are set forth in Paragraph 19 of this Sublease), and to
indemnify the Tenant/Sublessor against all claims, damages, and expenses
arising out of nonperformance or nonobservance thereof. In the event of any
conflict between the terms of this Sublease and the Lease, the terms of this
Sublease shall apply.
7. SERVICES AND UTILITIES
----------------------
In addition to the Base Rent, Sublessee shall be responsible for the cost of
electricity used in the Premises for lighting and receptacles. Such cost shall
vary directly with Sublessor's actual usage. Sublessor shall arrange to
install, at its own cost, a separate meter or a sub-meter on the Sublease
Premises to determine Sublessee's actual electricity usage and will either (i)
arrange for Sublessee to pay for such electricity directly to the utility
company or (ii) invoice Sublessee for its monthly share as additional rent if
(i) is not possible.
8. USE FOR BUSINESS PURPOSES
-------------------------
The Premises are to be used for the business purposes set out in the Lease and
for no other purpose without first obtaining the written consent of both
Sublessor and Landlord.
9. ALTERATIONS
-----------
Sublessee may perform alterations to the Premises without Sublessor's consent
so long as it first obtains the written consent of Landlord for such
alterations, and so long as such alterations maintain the value of the existing
leasehold improvements in the Premises, meet all local building codes, and use
the same quality of materials, workmanship and design criteria existing in the
Premises.
3
<PAGE>
10. WAIVER OF ONE BREACH NOT WAIVER OF OTHERS
-----------------------------------------
Waiver of one breach of a term, condition, or covenant of this Sublease by
either party hereto shall be limited to the particular instance and shall not
be deemed to be a waiver of future breaches of the same or other terms,
conditions, or covenants.
11. TERMINATION AND REENTRY BY SUBLESSOR ON SUBLESSEE'S DEFAULT
-----------------------------------------------------------
For the purposes of this Sublease, Paragraph 17 of the Lease is hereby
incorporated into and made a part of this Sublease, except that all references
in such clauses to "Landlord," "Tenant," "herein," and "hereunder,"
respectively, shall be deemed to refer to Sublessor, Sublessee, "in this
Sublease" and "under this Sublease," respectively. Upon the occurrence of any
of such events of default, Sublessee shall be liable to Sublessor for all
damages suffered by reason of such default. Such damages shall include, but
shall not be limited to, the following: (1) all actual expenses incurred in
attempting to relet; (2) the difference between the rent received when the
Premises are relet and the rent reserved under this Sublease.
Until the Premises have been relet, Sublessee agrees to pay Sublessor, on the
same days as the rental payments are due under this Sublease, the actual
damages suffered by Sublessor since the last payment, either rent or damages,
was made.
After the Premises have been relet, Sublessee agrees to pay Sublessor, on the
last day of each rental period, the difference between the rent received for
the period from reletting and the rent reserved under this sublease for that
period.
12. LITIGATION COSTS
----------------
If any legal action is filed to enforce this Sublease, or any part thereof, the
prevailing party shall be entitled to recover reasonable attorney fees, to be
fixed by the court, and costs of the action.
13. APPLICABLE LAW, VENUE, AND SERVICE
----------------------------------
In interpreting this Sublease and in determining the right of the Parties under
it, the laws of the state in which the Premises are located shall apply.
Personal service either within or without such state shall be sufficient to
give personal jurisdiction to any court in which an action is filed for
litigation of rights under this Sublease.
14. SURRENDER OF PREMISES AND KEYS
------------------------------
Sublessee agrees that at the expiration of this Sublease, it will quit and
surrender the Premises in the condition required under Paragraph 19 of the
Lease, without notice, and will deliver to Sublessor all keys belonging to the
Premises.
15. REMOVAL OF PROPERTY BY SUBLESSOR
--------------------------------
If Sublessor reenters the Premises or takes possession of them before normal
expiration of this Sublease, in accordance with its terms, he shall have the
right, but not the obligation, to remove from the Premises all personal
property located therein and may place it in storage in a public warehouse at
Sublessee's expense and risk.
16. SUBLESSEE'S INSOLVENCY, BANKRUPTCY, RECEIVERSHIP, OR ASSIGNMENT FOR
-------------------------------------------------------------------
CREDITORS
- ---------
If Sublessee becomes insolvent, voluntarily or involuntarily bankrupt, or if a
receiver, assignee for creditors, or other liquidating officer is appointed for
Sublessee's business, Sublessor may terminate this Sublease at its option.
4
<PAGE>
17. NOTICES
-------
Except where otherwise required by statute, all notices given pursuant to the
provisions of this Sublease shall be in writing, addressed to the party to whom
the notice is given, using the addresses provided above, as such addresses may
from time to time be changed by the Parties by written notice under the terms
of this provision.
18. SUBLEASE APPLICABLE TO HEIRS, SUCCESSORS AND ASSIGNS
----------------------------------------------------
The terms, conditions, and covenants of this Sublease shall inure to and be
binding on the heirs, successors, and administrators, executors, and assigns of
the Parties hereto, except as otherwise herein provided.
19. NO ASSIGNMENT OR SECOND SUBLEASE WITHOUT CONSENT
------------------------------------------------
Sublessee shall not sell or assign this Sublease or any part thereof, or any
interest therein, or further sublease the same without the written consent of
both Sublessor and Lessor, which consent shall not be unreasonably withheld or
delayed by Sublessor. Any attempt to do so without such consent shall be
deemed sufficient grounds for dispossession and shall entitle Sublessor to
proceed pursuant to Paragraph 11 of this Sublease if he so elects. In the
event of any sublease or assignment by Sublessee, then thereafter, no
alterations may be performed by any party in the Premises without first
obtaining Sublessor's consent, which consent shall not be unreasonably withheld
or delayed.
5
<PAGE>
20. CONDITION OF THE PREMISES
-------------------------
The Premises are delivered to Sublessee in an "as-is" condition, with all
existing leasehold improvements in place, clean and empty of any debris.
Sublessee agrees that no leasehold improvements will be performed by, or at the
cost of, Sublessor.
21. PARKING
-------
Sublessor grants to Sublessee the right to parking privileges at the same terms
and conditions granted to Sublessor under the terms of the Lease. Sublessor
receives three parking spaces for each 1,000 rentable square feet under Lease.
Any excess over and above this amount used by Sublessee shall be at the expense
of Sublessee. Sublessor's parking is currently provided by Landlord in the
John Street City Garage, although Landlord has the right to provide a portion
of the parking in another nearby garage. Sublessee agrees to follow Landlord's
standard procedures regarding such parking, and to pay any costs, if any,
imposed by Landlord for the transfer or assignment of such parking rights.
Sublessee agrees that Sublessor is under no obligation to provide any parking
or parking privileges to Sublessee other than a pro rata portion of the parking
to which it is entitled under the Lease.
22. ADJUSTMENT OF BASE RENT
-----------------------
In addition to Base Rent payable by Sublessee under Paragraph 4 of this
Sublease, Sublessee shall pay to Sublessor, as additional rent, Sublessee's Pro
Rata Share of (i) the Adjusted Operating Expense Excess and (ii) the Adjusted
Tax Excess each year. For purposes of this Sublease:
Sublessee's Pro Rata Share shall mean a fraction, the numerator of which is the
rentable square footage of the Premises subleased hereunder, and the
denominator of which is the rentable square footage of the premises leased by
Sublessor under the Lease.
Adjusted Operating Expense Excess shall be the amount equal to Tenant's Pro
Rata Share of the Operating Expense Excess (as defined in Paragraph 4(b) of the
Lease), calculated as if the Base Operating Expenses were the Operating
Expenses incurred by Landlord under the Lease for calendar year 1995.
Adjusted Tax Excess shall be the amount equal to Tenant's Pro Rata Share of the
Tax Excess (as defined in Paragraph 4(b) of the Lease), calculated as if the
Base Taxes were the Taxes assessed on the Building for fiscal year 1995 (i.e.
the fiscal year that ended on June 30, 1995).
Sublessee shall pay its Pro Rata Share of such Adjusted Operating Expense
Excess and Adjusted Tax Excess at the times and in the manner set forth in the
Lease for payments of estimated and actual Additional Rent, as if Sublessor
were Landlord under the Lease and Sublessee were Tenant. Any invoice from
Sublessor to Sublessee shall include reasonable detail of the Operating
Expenses and Taxes for the appropriate base years and for the year for which
Sublessee's payment is required, together with a calculation of Sublessor's and
Sublessee's respective Pro Rata Shares thereof.
6
<PAGE>
23. SECURITY DEPOSIT
----------------
Sublessee shall pay to Sublessor, upon execution of this Lease, a Security
Deposit equal to $22,215.33, to be held by Sublessor without liability for
interest as a security for the performance by Sublessee of Sublessee's
covenants and obligations under this Sublease, including, without limitation,
the surrender of possession of the Premises to Sublessor as herein provided.
It is expressly understood that, except as provided for herein, the Security
Deposit shall not be considered an advance payment of rental or a measure of
Sublessor's damages in case of default by Sublessee. Sublessor may commingle
the Security Deposit with Sublessor's other funds and Sublessor may, from time
to time, without prejudice to any other remedy, use the Security Deposit to the
extent necessary to made good any arrearage of Base Rent or to satisfy any
other covenant or obligation of Sublessee hereunder. Not later than May 15,
2000, Sublessor shall meet with Landlord and Sublessee to thoroughly inspect
the Sublease Premises and its condition. If Sublessee is not then in default
under this Sublease, and if it can be reasonably determined what, if any,
damage has been done to the Premises which requires repair using funds from the
Security Deposit, then Landlord and Sublessor shall reasonably make such
determination, shall notify Sublessee in writing of such determination, and the
balance of the Security Deposit remaining after any such application, if any,
shall be applied as a partial payment of the Base Rent payable by Sublessee for
the month of June, 2000.
24. PERSONAL PROPERTY
-----------------
Sublessor agrees to sell to Sublessee what Sublessor determines are excess and
unneeded furniture and open office partitions located with the Premises.
Sublessor will use its best efforts to determine what materials will be made
available to Sublessee as soon as possible, and then to offer them to Sublessee
at a price which is heavily discounted from their original value.
25. COMMUNICATIONS SYSTEMS
----------------------
Sublessor agrees to cooperate with Sublessee regarding the potential reuse by
Sublessee of any telephone, data and security system wiring and shall give
Sublessee the names of all of its vendors providing those specific services to
the Premises. Sublessor also agrees to explore the possibility of sharing
certain existing systems on some mutually and financially advantageous basis to
the extent that such sharing would not result in anticipated problems or
additional costs of any type for Sublessor. Sublessee recognizes that
Sublessor's communications and data wiring pass through an interior room
("Telephone Room") on the third floor within the Sublease Premises. To the
extent that (i) Sublessee and Sublessor arrange to use the same vendors, and
(ii) there is sufficient space in the room for mounting Sublessee's equipment
as well, then Sublessor and Sublessee agree that each shall have access to the
room and they shall cooperate to restrict access to the room to a limited
number of personnel. If (i) and (ii) are both not achievable, then (iii)
Sublessee agrees that that room shall remain secure and private to Sublessor
during the Term, and (iv) Sublessor and Sublessee agree to cooperate to
determine if it is practical to divide the room for their separate uses.
Sublessee further agrees that it shall not disrupt, destroy or relocate any of
Sublessor's wiring passing from the Telephone Room to the eastern half of the
third floor to which space Sublessor is relocating.
7
<PAGE>
26. CONTINGENCY
-----------
This Sublease is expressly contingent (i) upon Landlord and Sublessor, on or
before Friday, December 29, 1995, entering into a Second Amendment To Lease
described above in Paragraph 1, providing for the relocation of Sublessor to
another location within the Building, (ii) upon Landlord and Sublessee entering
into the Recognition Agreement described above in Paragraph 2, and (iii) upon
Landlord's granting of its consent to this Sublease below.
Executed in quadruplicate this 26th day of December, 1995.
SUBLESSOR:
TRC ENVIRONMENTAL CORPORATION
By: /s/ Peter Russo
--------------------------
Sr. VP, Fin, CFO
SUBLESSEE:
SPACETEC IMC CORPORATION
By: /s/ Linda S. Linsalata
--------------------------
Sr. VP Finance, CFO
Landlord hereby grants its consent to this Sublease this 26th day of December,
1995.
LANDLORD
HISTORIC BOOTT MILL LIMITED PARTNERSHIP
By: /s/ Bob Foley
--------------
8
<PAGE>
EXHIBIT 10.6
RECOGNITION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
-----------------------------------------------------
This Agreement is made as of this 26th day of December, 1995, between
HISTORIC BOOTT MILL LIMITED PARTNERSHIP, a Massachusetts limited partnership
("Landlord"), and SPACETEC IMC CORPORATION, a Massachusetts corporation
("Sublessee").
Reference is made to the following facts:
A. Pursuant to a certain Lease (the "Original Lease") dated as of
February 9, 1990, Boott Mills Limited Partnership ("BMLP"), as landlord, leased
to Alliance Technologies Corporation ("Alliance"), as tenant, certain premises
(the "Leased Premises") containing approximately 54,425 rentable square feet of
space in the building known as the Boott Mill South Building (the "Building")
located at 100 Foot of John Street, Lowell, Massachusetts.
B. Landlord is successor to BMLP as owner of the Building and landlord
under the Original Lease.
C. TRC Environmental Corporation ("Sublessor") is the successor by merger
to Alliance and is the current holder of the tenant's interest under the
Original Lease.
D. Pursuant to a certain First Amendment to Lease dated July 27, 1994,
and a certain Second Amendment to Lease dated December 15, 1995, Landlord and
Sublessor have amended the Original Lease (the Original Lease, as so amended, is
hereinafter referred to as the "Lease").
E. Pursuant to a certain Sublease (the "Sublease") dated as of December
26, 1995, Sublessor is subleasing to Sublessee a portion of the Leased Premises
containing approximately 33,323 rentable square feet of space consisting of
approximately 20,870 rentable square feet on the third floor of the Building and
12,453 rentable square feet on the fourth floor of the Building (the "Subleased
Premises").
F. As an inducement for Sublessee to enter into the Sublease, Sublessee
has requested, and Landlord has agreed to provide, the recognition and non-
disturbance protections set forth below, and Sublessee has agreed to attorn to
Landlord in the event Landlord succeeds to the interest of Sublessor under the
Sublease on the terms and conditions set forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
set forth below, the parties agree as follows:
1. Landlord hereby consents to the Sublease and agrees that, except as
otherwise expressly permitted by the terms of the Sublease and notwithstanding
any conflicting provisions of the Lease, in the event of any termination or
cancellation of the Lease for any reason whatsoever, the Sublease shall not be
terminated and shall continue in full force and effect, nor shall the
Sublessee's use, possession, or enjoyment of the Subleased Premises in
accordance with the terms of the Sublease (including, without limitation,
Sublessee's rights under Paragraph 19 of the Sublease with respect to the
assignment and subletting) and this Agreement be interfered with, nor shall the
leasehold estate or the rights or privileges granted by the Sublease be
adversely affected in any other manner pursuant to the exercise of any rights or
remedies of Landlord as a result of any such termination or cancellation of the
Lease. Without limiting the generality of the foregoing, Landlord agrees that
the rights and obligations of the Sublessee with respect to the Subleased
Premises are and shall be as set forth in the Sublease and in this Agreement and
not in the
<PAGE>
Lease, and that Sublessee's rights under the Sublease shall not be
limited, nor shall its obligations thereunder be enhanced, by the terms of the
Lease.
2. Landlord hereby agrees that upon the expiration, cancellation or other
termination of the Lease for any reason whatsoever, Landlord will recognize and
give effect to the Sublease and shall succeed to the interest of Sublessor
thereunder as if the Sublease were a direct sublease between Landlord, as
sublessor thereunder, and Sublessee, as sublessee thereunder, provided, however,
that in such case Landlord's obligations to Sublessee and Landlord's obligations
with respect to services to the Subleased Premises and the Common Areas (as
defined below) for the benefit of Sublessee shall be those obligations set forth
in the Lease and this Agreement, and not those set forth in the Sublease.
Furthermore, in the event that Landlord recognizes and gives effect to the
Sublease and succeeds to the interest of Sublessor thereunder, Sublessee shall
attorn to and recognize Landlord as its sublessor for the remainder of the
unexpired term of the Sublease upon the provisions contained in the Sublease and
in this Agreement to be performed and observed by Sublessee (and not upon the
terms and provisions contained in the Lease to be performed by Tenant);
provided, however, that Sublessee shall be under no obligation to pay rent to
Landlord until Sublessee receives written notice from Landlord that Landlord is
entitled to receive the rents payable under the Sublease and Landlord hereby
agrees to indemnify Sublessee and hold Sublessee harmless from all liability,
costs and expenses, including, without limitation, reasonable attorneys' fees,
arising out of any claims made by Sublessor with respect to any rents paid by
Sublessee to Landlord at Landlord's direction. Such recognition and attornment
shall be self-operative and shall be effective without the execution of any
further instrument on the part of either party; however, Sublessee and Landlord
shall execute, upon the written request of either party, an instrument
confirming such recognition and attornment. For purposes of this Agreement, the
terms and conditions of Sublessee's rights to use and occupy the Subleased
Premises and Landlord's obligations with respect thereto pursuant to any
recognition and attornment in accordance with this Paragraph 2 are hereinafter
referred to as the "Attorned Sublease".
3. Landlord agrees to give to Sublessee notice of any default by
Sublessor in the performance of any obligations of Sublessor under the Lease
that would entitle Landlord, under the terms of the Lease or by law, to be
relieved of its obligations with respect to the Subleased Premises or to
terminate the Lease. Furthermore, Landlord agrees that it will take no steps to
terminate the Lease on account of any default by Sublessor thereunder without
first affording Sublessee a reasonable opportunity to cure, or to commence to
cure and diligently proceed to complete to cure, any such default by Sublessor,
but Sublessee will not be under any obligation to do so. The provisions of this
Section 3 are in addition to, and not in limitation of, the rights and benefits
which Sublessee derives from the Sublease and other sections of this Agreement.
4. Landlord hereby agrees that it will promptly and faithfully perform
all of its obligations under the Lease with respect to or otherwise affecting
the Subleased Premises and those common areas and facilities of the Building and
Property (as defined in the Lease) which Sublessee is entitled to use as
appurtenant to its use and occupancy of the Subleased Premises, including,
without limitation, the obligation to provide repairs, replacements,
maintenance, utilities, and other services. Landlord agrees to perform all such
obligations directly for the benefit of Sublessee arising from and after the
commencement date ("Commencement Date") of the Sublease and Landlord further
agrees that Sublessee may (a) look directly to Landlord for performance of such
obligations and (b) exercise any and all remedies granted to Sublessor (as
tenant under the Lease) arising as a result of the failure of Landlord to
perform any of such obligations. Notwithstanding the foregoing recognition,
Landlord hereby agrees that Sublessee shall not be liable for any act or
omission of Sublessor, nor shall Sublessee be subject to any claim which
Landlord might have against Sublessor. Landlord further agrees that it shall
look solely to Sublessor (and not Sublessee), with respect to any claims,
losses, liabilities and damages suffered by Landlord and which (c) arose out of
or in connection
2
<PAGE>
with the Lease and/or the Subleased Premises and (d) occurred or accrued prior
to the Commencement Date. In the event Landlord succeeds to the interest of
Sublessor under the Sublease as provided in this Agreement, Landlord agrees to
continue to perform such obligation.
5. Landlord hereby consents to the exercise of any rights or remedies
granted to Sublessee under the Sublease and/or this Agreement as a result of any
failure by Landlord or Sublessor to perform their respective obligations under
the terms of the Lease or the Sublease or the terms of this Agreement.
6. Landlord agrees that whenever its consent or approval is required
under the terms of the Sublease, such consent or approval shall not be
unreasonably withheld or delayed.
7. Landlord hereby acknowledges that under the Sublease, Sublessor has
agreed that the rights granted to the Sublessee under the Sublease shall not be
diminished, nor shall any monetary obligations of Sublessee accruing under the
Sublease be increased, by or through any subsequent amendment of the Lease.
8. Landlord hereby certifies to Sublessee as follows:
(a) The Lease as described in Recital Paragraphs A through D above,
is the entire agreement between Landlord (or any affiliated
party) and Sublessor (or any affiliated party) pertaining to the
Leased Premises and the use and occupancy thereof. There are no
other amendments, modifications, supplements, arrangements, side
letters of understanding, oral or written of any sort, modifying,
amending, altering, supplementing or changing the terms of the
Lease or otherwise between Landlord and Sublessor that relate to
the Leased Premises, the use and occupancy thereof, or the Lease.
(b) Landlord is not in default in the performance of any of its
obligations under the Lease, and to Landlord's best knowledge,
Sublessor is not in default in the performance of any of its
obligations under the Lease; Landlord has not given Sublessor any
notice of a default on the part of the tenant under the Lease
which has not been cured; and Landlord has not received from
Sublessor any notice of a default on the part of Landlord under
the Lease which has not been cured.
(c) Landlord hereby represents and warrants to Sublessee that
Landlord is not insolvent and is able to pay its debts and other
obligations as they come due; it has not declared bankruptcy or
filed a petition to take advantage of any law relating to
bankruptcy, insolvency, reorganization, winding-up or composition
or adjustment of debts; it has no present intention of doing so;
no such proceeding has been commenced against Landlord seeking
such relief; and Landlord has no knowledge that any such
proceeding is threatened.
9. Notwithstanding any provision in the Lease or Sublease to the
contrary, Landlord hereby agrees for the benefit of Sublessee as follows:
(a) Sublessee is hereby granted the options to extend its right to use and
occupy the Subleased Premises beyond the scheduled expiration date of
the Sublease, for two successive periods
3
<PAGE>
of one year each (each, an "Extended Term") provided that, at the time
of exercise of each such option and at the time of commencement of
each such Extended Term, Sublessee is not then in default of any of
its obligations under the Sublease or this Agreement continuing beyond
any applicable notice, grace or cure period. To exercise each such
option, Sublessee shall give written notice thereof (an "Extension
Notice") to Landlord not more than nine (9) nor less than three (3)
full calendar months prior to the scheduled expiration of the term of
the Sublease or the first Extended Term, as the case may be. Upon such
exercise, Sublessee shall automatically be entitled to use and occupy
the Subleased Premises for the applicable Extended Term on the terms
and conditions of the Attorned Sublease; except that following
Sublessee's exercise of its option for the second Extended Term,
Sublessee shall have no additional option or right to further extend
the term.
(b) (i) Sublessee is hereby granted a right of first offer to enter
into a direct lease for any First Offer Space (as defined in
the Lease) that hereinafter becomes available in the Building
on the same terms and conditions as if Paragraphs 36 and 38 of
the Lease were incorporated into and made a part of this
Agreement, except that all references in such Paragraphs 36 and
-----------
38 to "Landlord", "Tenant", "Lease" and "Premises",
respectively, shall be deemed to refer to Landlord, Sublessee,
Attorned Sublease and Subleased Premises, respectively.
(ii) Landlord further acknowledges and agrees that Sublessee's right
of first offer rights under this Paragraph 9(b) shall be
superior to any and all right of first offer rights of
Sublessor as tenant under the Lease.
(c) Sublessee, its agents, contractors, employees and invitees, shall have
access to the Subleased Premises 24 hours per day, seven days per
week, subject only to Landlord's security arrangements in effect from
time outside of Building Operating Hours (as defined in the Lease).
(d) Landlord hereby agrees that without Landlord's consent, Sublessee may,
at its expense, make interior non-structural alterations to the
Subleased Premises which satisfy the standards set forth in the last
two lines of Paragraph 9 of the Sublease.
(e) Landlord hereby represents that no mortgage, deed of trust or other
instrument in the nature of a security interest or lien currently
encumbers the Property. Sublessee shall not be required to subordinate
its interests under the Sublease, this Agreement or the Attorned
Sublease to any future mortgage or similar lien unless Sublessee
receives from the lender a nondisturbance and attornment agreement
reasonably satisfactory to Sublessee.
(f) Sublessee shall have the right to install exterior signage, subject
only to Landlord's reasonable approval of the design thereof, and
provided that Sublessee complies with all applicable zoning and
signage regulations of the City of Lowell and all requirements of the
National Trust for Historic Preservation.
(g) Landlord shall provide Sublessee, at no cost to Sublessee, not less
than 1,000 square feet of storage space at a location within the
Building reasonably accessible to Sublessee.
4
<PAGE>
(h) (i) Landlord hereby grants to Sublessee the exclusive right to use,
at no cost to Sublessee, twenty (20) surface parking spaces on
the Property (the "Landlord Surface Parking Spaces"); such
Landlord Surface Parking Spaces are in addition to those
parking spaces to which Sublessee is entitled pursuant to the
Sublease (i.e., 100 spaces; the "Sublease Parking Spaces"
Landlord hereby agrees that such 100 Sublease Parking Space
shall be located in the John Street Garage). In addition to the
Landlord Surface Parking Spaces and the Sublease Parking
Spaces, Landlord shall, at Sublessee's request from time to
time, provide Sublessee with additional parking spaces in
either the John Street Garage or the Aoyette Garage on French
Street, provided, however, that Sublessee shall reimburse
Landlord for Landlord's actual out-of-pocket costs (i.e.,
without overhead or any administrative fee) of renting such
additional garage spaces.
(ii) Landlord hereby further agrees that Sublessee's parking rights
under this Paragraph 9(h) shall be superior to the parking
rights of any new tenants of the Building; and that Landlord
shall use its first efforts to ensure that all of the Sublease
Parking Spaces and the additional municipal spaces requested by
Sublessee shall be located in the so-called John Street Garage.
(i) Landlord hereby agrees to cooperate fully with Sublessor in order to
facilitate Sublessor's moving out of the fourth floor of the Building
prior to January 24, 1996, and thereby to enable a limited number of
Sublessee's employees to begin occupancy of a portion of the Subleased
Premises on January 24.
(j) In addition to the 1,000 square feet of storage space described in
Paragraph 9(g) above, Sublessee shall be entitled to use the space
next to the loading dock of the Building for storage purposes, at no
cost to Sublessee, provided, however, that Sublessee may not use such
space for storage purposes in any way that would block reasonable
access through such space.
(k) Landlord hereby agrees that so long as Sublessee is not in default
under the Sublease or this Agreement beyond any applicable notice,
grace or cure period, Sublessee may, without Landlord's prior consent,
sublease portions of the Sublease Premises to third parties so long as
the business conducted by such third parties is similar or
substantially similar to the Sublessee's use of the Subleased
Premises.
10. All notices, demands, or requests, and responses thereto required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be delivered by hand, by facsimile, sent postage prepaid by certified mail,
return receipt requested or by any recognized overnight mail delivery service,
addressed as follows:
If to Landlord: Historic Boott Mill Limited Partnership
200 Foot of John Street
Lowell, Massachusetts 01852-1126
Attention: President
Fax: (508) 452-6189
5
<PAGE>
If to Sublessee: Spacetec IMC Corporation
600 Suffolk Street
Lowell, Massachusetts 01854
Attention: Chief Financial Officer
FAX: (508) 970-0199
6
<PAGE>
From and after Commencement Date:
---------------------------------
Spacetec IMC Corporation
Boott Mill South
100 Foot of John Street
Lowell, Massachusetts 01852
Attention: Chief Financial Officer
Fax: (508) 970-0199
with a copy to: Lynnette Fallon, Esquire
Palmer & Dodge
One Beacon Street
Boston, MA 02108
or to such other address as Landlord or Sublessee may designate in writing. All
such notices shall be deemed delivered upon the earlier to occur of (a) the date
when actually received or refused by the other party; (b) the third business day
after deposit in the United States mail; (c) the next business day after
delivery to a recognized overnight delivery service; or (d) upon the facsimile
transmission thereof during normal business hours provided such transmission
provides evidence of receipt.
11. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, executors, administrators,
personal representatives, successors, and assigns.
12. This Agreement and the Sublease contain the entire understanding
between the parties hereto with respect to the matters covered hereby and may
not be modified except by a written instrument duly executed by the party
against which such modification is sought to be enforced.
13. This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
7
<PAGE>
EXECUTED UNDER SEAL as of the day and year first above written.
Sublessee: SPACETEC IMC CORPORATION
By /s/ Linda S. Linsalata
-----------------------
Its CFO
Landlord: HISTORIC BOOTT MILL LIMITED PARTNERSHIP
By Historic Boot Mill, Inc.
Its General Partner
By /s/ Robert Foley
-----------------
Its President
8
<PAGE>
EXHIBIT 10.16
BASIC ORDER AGREEMENT
BETWEEN
DIGITAL EQUIPMENT CORPORATION
(BUYER)
AND
SPACETEC IMC CORPORATION
(SELLER)
Contract # 22839
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. BASIC ORDER AGREEMENT............................................4
2. PURCHASE ORDERS..................................................4
3. PURCHASE PERIOD..................................................5
4. PRICING..........................................................5
5. DELIVERY/LEADTIME/FLEXIBILITY....................................6
6. QUALITY, INSPECTION, AND ACCEPTANCE..............................7
7. PAYMENT AND SET-OFF..............................................8
8. WARRANTY.........................................................8
9. LIMITATION OF LIABILITY..........................................8
10. CONFIDENTIAL INFORMATION AND ADVERTISING.........................9
11. INTELLECTUAL PROPERTY INDEMNITY..................................9
12. CHANGES..........................................................9
13. TERM OF AVAILABILITY........................................... 10
14. U.S. CUSTOMS, MARKING, AND DUTY DRAWBACK....................... 11
15. FORCE MAJEURE.................................................. 11
16. COMPLIANCE WITH LAWS........................................... 11
17. TERMINATION FOR CAUSE.......................................... 13
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
18. NOTICES........................................................ 13
19. DOCUMENTATION, TRAINING & TECH SUPPORT......................... 14
20. BUYER OWNED MATERIAL........................................... 14
21. RIGHTS AND ASSISTANCE TO REPAIR................................ 14
22. SIMILAR PRODUCTS............................................... 15
23. SURVIVAL....................................................... 15
24. ENVIRONMENTAL REQUIREMENTS..................................... 15
25. GENERAL........................................................ 15
EXHIBIT A. PRODUCTS, PRICING, AND LEADTIME.................... 17
EXHIBIT B. QUALIFICATION AND QUALITY REQUIREMENTS............. 18
EXHIBIT C. CLEAN AIR & WATER CERTIFICATION.................... 21
EXHIBIT D. EEO CERTIFICATION.................................. 22
EXHIBIT E. SPACETEC TRADEMARKS................................ 23
EXHIBIT F. SOFTWARE LICENSE AGREEMENT......................... 24
</TABLE>
3
<PAGE>
1. BASIC ORDER AGREEMENT
A. This Basic Order Agreement and all attachments (called the "Agreement") is
made by Digital Equipment Corporation ("Buyer") and Spacetec IMC Corporation
("Seller"). Buyer's worldwide subsidiaries may place Purchase Orders under this
Agreement per Section 0A. The Terms and Conditions herein exclusively govern the
purchase and sale of the Material, Spare Parts, Repair Parts, and Expendable
Parts more fully described in Exhibit A, Products, Pricing, and Leadtime, and in
applicable specifications, attached hereto and incorporated herein by
("Material, Spares, Repairs and Expendables").
B. This Agreement does not specify a quantity of Material, Spares, Repairs, and
Expendables to be procured by Buyer, NOR DOES THIS AGREEMENT OBLIGATE BUYER TO
PURCHASE ANY MATERIAL, SPARES, REPAIRS, AND EXPENDABLES. All such quantities
will be specified on Buyer's Purchase Orders as defined in Clause A of Section
0, PURCHASE ORDERS, issued under the provisions of this Agreement and
incorporated herein by reference.
C. If any term of this Agreement conflicts with any term of an issued Purchase
Order, this Agreement shall take precedence.
D. It is understood by the Seller that Material, Spares, Repairs, and
Expendables listed in Exhibit A of this Agreement may relate to products that
are under development by Buyer. Except as expressly provided otherwise, Buyer
accepts no responsibility for any expenses, losses or action incurred or
undertaken by Seller as a result of work performed in anticipation of purchases
of said Material, Spares, Repairs, and Expendables by Buyer.
E. Notwithstanding the requirement in Section 0, GENERAL, for two signatures to
amend this Agreement, Buyer may add products of Seller to the list of Material,
Spares, Repairs, and Expendables available for purchase hereunder by adding such
products on a Purchase Order which is accepted by Seller. Such added products
shall be deemed "Material, Spares, Repairs, and Expendables" as defined herein
as though listed in Exhibit A, Products, Pricing, and Leadtime, at the time of
execution of this Agreement. The price for which such added products shall be
available for purchase under this Agreement shall be as stated on such accepted
Purchase Order, subject to the provisions of this Agreement. The Buyer shall
subsequently memorialize the addition to this Agreement of the added products in
an amendment pursuant to Section 25 GENERAL.
F. Seller grants buyer all necessary rights and licenses for Buyer to market,
promote, resell, distribute and service the Material and including without
limitation, rights and licenses under any applicable patents, copyrights,
trademarks, trade secrets, mask works, and other intellectual property rights.
Buyer shall have the right to use Seller's name or trademarks, as defined in
Exhibit E - Trademarks, in connection with any distribution of the Material
under this agreement. For purposes of this agreement, software is deemed to be
a part of the Material and shall be subject to the terms of this agreement.
Software is licensed in accordance with Seller's Software License Agreement
(Exhibit F).
2. PURCHASE ORDERS
A. The term "Purchase Order" shall mean Buyer's written Purchase Order form
and any documents incorporated therein by reference.
B. Buyer will order Goods by issuing telex, facsimile, or telephonic orders or
Purchase Orders. For Purchase Orders with a total value in excess of five
thousand dollars ($5,000), unless otherwise requested by Seller, Buyer will
issue confirming written Purchase Orders within ten (10) days after issuing
such telex,
4
<PAGE>
facsimile, or telephonic orders. Each Purchase Order will specify items such as:
Goods, quantity, delivery schedule, destination, total price of the Purchase
Order. Each Purchase Order issued under this Agreement shall be made part of,
and be incorporated into this Agreement, and shall reference this Agreement
number on the face of each Purchase Order issued pursuant to this Agreement.
Seller shall have five (5) days after receipt to reject the Purchase Order. By
not rejecting the Purchase Order within five (5) days, Seller will have accepted
the Purchase Order. Acceptance by Seller is limited to the provisions of the
Agreement and the Purchase Order. No additional or different provisions proposed
by Seller shall apply. In addition, the parties agree that this Agreement and
issued Purchase orders constitute a Contract for the Sale of Goods and/or
Services and satisfy all statutory and legal formalities of a contract.
C. If Buyer's Purchase Order specifies export after passage of title, Seller
shall furnish Buyer with all necessary Export/Import documentation. If Buyer's
Purchase Order specifies export before passage of title, Seller shall prepare
all export/import documentation and furnish a copy to Buyer. Export/Import
documentation shall be in accordance with the INCOTERMS then in force.
D. If Seller has more than one (1) geographic location which could supply
Spares and/or Repairs, Seller shall make such Spares and/or Repairs available to
Buyer from Seller's closest location to Buyer's ship to location. Any of Buyer's
locations outside the United States may place orders with Seller's specified
United States and/or foreign facilities for such Spares and Repairs.
3. PURCHASE PERIOD
A. The period during which Buyer may issue Purchase Orders for Material, under
this Agreement (Purchase Period) shall last * (*) years, beginning on * and
expiring on *.
B. The period during which Buyer may issue Purchase Orders for Spares,
Repairs, and Expendables under this Agreement (Spares Purchase Period) shall
last * (*) years beginning on * and expiring on *, or * years from the date of
termination if this agreement is terminated before *.
C. The Purchase Period may be extended for * (*) * upon mutual written consent
of the parties hereto.
4. PRICING
A. The prices set forth in Exhibit A, Products, Pricing, and Leadtime, shall
remain fixed for the period set forth therein (Pricing Period). Sixty (60) days
prior to the end of the then current Pricing Period, Buyer and Seller shall meet
to review the pricing and Material, Spares, Repairs, and Expendables for the
next Pricing Period. If Buyer and Seller reach agreement, a new Exhibit A.,
shall be generated for the next Pricing Period and shall be added by amendment
to this Agreement. If Buyer and Seller fail to reach agreement on pricing and
for the next Pricing Period, this Agreement may be terminated at the end of the
then current Pricing Period. Buyer's sole liability to Seller for such
termination shall be to pay Seller any unpaid balance due for conforming
material:
1. Delivered against Buyer's Purchase Order(s) before receipt of Buyer's
termination notice; or
2. Ordered by Buyer and scheduled for delivery within the cancellation notice
period specified in Section 0, DELIVERY/LEADTIME/FLEXIBILITY, Reschedule and
Cancellation Notice Period.
* Confidential treatment has been requested for marked portion
5
<PAGE>
B. Prices include all charges such as packaging, packing, customs duties
imposed before passage of title, and all taxes except sales, use, and other such
taxes imposed upon the sale or transfer of Material, Spares, Repairs and
Expendables for which Buyer is solely responsible under applicable law and for
which Buyer is properly invoiced by Seller.
C. Seller represents that prices established herein, to be paid by Buyer,
shall not exceed the prices charged to any other customer of Seller for
materials which are the same or substantially similar to the Material, Spares,
Repairs, and Expendables, taking into account the quantities and the Terms and
Conditions of this Agreement, and Seller will forthwith refund any excess
amounts paid by Buyer .
5. DELIVERY/LEADTIME/FLEXIBILITY
A. Buyer's Purchase Orders shall state Seller's committed delivery dates for
Material, Spares, Repairs, and Expendables. TIME AND RATE OF DELIVERY ARE OF
THE ESSENCE OF ALL PURCHASES MADE UNDER THIS AGREEMENT. The minimum agreed
period between Buyer's issuance of a Purchase Order and the scheduled delivery
date ("Leadtime") shall be as stated in Exhibit A, Products, Pricing, and
Leadtime.
B. All deliveries shall be FOB Origin. Buyer shall select the carrier and
shall pay transportation charges on a "freight collect" basis.
C. If Seller delivers Material, Spares, Repairs, and Expendables more than
three (3) days in advance of the scheduled delivery date, Buyer may either
return such Material Spares, Repairs, and Expendables at Seller's expense for
subsequent delivery on the original delivery date or retain such Material,
Spares, Repairs, and Expendables and postpone payment until it would have been
due if Seller had delivered Material Spares, Repairs, and Expendables as
scheduled. Without limiting any of Buyer's rights and remedies in equity or at
law, if Seller is late in meeting the scheduled delivery date, Buyer may
require that Seller ship the Material Spares, Repairs, and Expendables via
premium means at Seller's expense, or may cancel the order for such Material,
Spares, Repairs, and Expendables without liability to the Buyer.
D. Seller shall deliver the exact quantity of Material, Spares, Repairs, and
Expendables scheduled. If Seller delivers less than the scheduled requirement,
Seller shall correct the shortage within a five (5) day period. If Seller fails
to correct such shortage within this period, without limiting any of Buyer's
rights and remedies in equity or at law, Buyer may cancel and/or return all or
part of the order without cost or liability. If Seller delivers more than the
quantity ordered, Buyer may return any excess Material, Spares, Repairs, and
Expendables at Seller's expense.
E. Buyer may without cost or liability: reschedule delivery of any Material,
Spares, Repairs, and Expendables and/or cancel Purchase Orders, or parts of
them, by giving notice as specified below, Reschedule and Cancellation Notice
Period:
Reschedule and Cancellation Period. Material, Spares and Repairs .
- ------------------------------------------------------------------
Reschedule Notice: 10 Days prior to ship date
Cancellation Notice 30 Days prior to ship date
6
<PAGE>
(all or partial)
Buyer may reschedule or cancel orally provided written notification issued to
Seller within 5 days.
F. Buyer may require that shipments of Material, Spares and/or repairs under
this Agreement be shipped by Seller to various destinations. The Purchase Order
will clearly specify the "SHIP TO" location for each order placed with Seller.
G. Buyer will measure Seller's performance against commitments, for the
purpose of establishing Seller's rate of timely delivery and leadtime
improvement against Buyer's requirements. Timely delivery shall mean delivery of
scheduled quantities no more than three (3) days early, or zero (0) days late.
Leadtime, as defined in Exhibit A, will apply to the measurement of delivery
performance.
H. Buyer may, without cost or liability, increase or decrease the Quantity of
Material, Spares and/or Repairs ordered under this Agreement in accordance with
the following schedule.
<TABLE>
<CAPTION>
Leadtime Before % Increase % Decrease
Delivery Shipment Shipment
<S> <C> <C>
0 to 10 calendar days 25% 0%
11 to 20 calendar days 100% 0%
21 to 30 calendar days 200% 25%
</TABLE>
I. A copy of Seller's packing list shall accompany all Material, Spares,
Repairs, and Expendables shipments and shall indicate Buyer's Purchase Order
Number, Part Number, and Serial Number.
6. QUALITY, INSPECTION, AND ACCEPTANCE
A. Prior to delivery Seller shall insure that all Material, Spares, Repairs,
and Expendables are in accordance with the provisions of this Agreement,
including but not limited to Buyer's Purchase Specification and Exhibit B,
Qualification and Quality Requirements, and all other quality requirements
specified in the Purchase Specifications for Material, Spares, Repairs, and
Expendables purchased under this Agreement, are incorporated herein by
reference.
B. Seller authorizes and agrees to assist Buyer in performing source
inspection and quality assurance reviews at Seller's manufacturing facilities,
but this shall in no way relieve Seller of its obligation to deliver conforming
Material, Spares, Repairs, and Expendables nor waive Buyer's right of
inspection; nor does said right of inspection waive any rights under the
warranty provisions.
C. During the Inspection Period of thirty (30) days after Buyer's receipt of
the shipment of Material or Spares, Repairs and Expendables Buyer will return
Material Spares, Repairs, and Expendables which fails to pass inspection, for,
at Buyer's option, credit, refund of purchase price, or repair/replacement
within five (5) days of Buyer's notice to Seller of nonconformance. Seller shall
designate carrier and pickup of rejected Material, Spares, Repairs, and
Expendables and the pickup shall occur within five (5) days of notice, or Buyer
may select a carrier and return rejected Material, Spares, Repairs, and
Expendables COD, and risk of loss will pass to Seller for rejected Material,
Spares, Repairs, and Expendables FOB Buyer's dock.
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<PAGE>
7. PAYMENT AND SET-OFF
A. Buyer shall issue payment net thirty (30) calendar days after the later of
the scheduled delivery date and receipt of a correct packing list, correct
invoice, and conforming Material, Spares, Repairs, and Expendables.
B. Amounts owed to Buyer due to rejections of Material, Spares, Repairs, and
Expendables, or discrepancies on paid invoices will be, at Buyer's option, fully
credited against future invoices payable by Buyer, or paid by Seller within
thirty (30) calendar days from Seller's receipt of a debit memo or other written
request for payment from Buyer.
C. Buyer shall have the right at any time to set-off any amount owed from
Seller to Buyer or its subsidiaries or affiliates against any amount payable by
Buyer pursuant to this Agreement and/or any Purchase Order issued hereunder,
provided such set-off does not contravene applicable exchange control laws or
any other applicable statute.
8. WARRANTY
A. Seller warrants Material and Spares for fifteen (15) months from date of
acceptance of Material, Spares, Expendables by Buyer or Buyer's customer and
Seller warrants Repairs for the balance of the original warranty, and Seller
warrants that all Material, Spares, Repairs, and Expendables, shall be free from
defects in material, workmanship, and design, shall conform to applicable
specifications, drawings, samples, and descriptions referred to in this
Agreement, and shall be suitable for the purpose for which intended. Seller
warrants it has the right to convey the Material, Spares, Repairs, and
Expendables that the Material, Spares, Repairs, and Expendables are free of all
liens and encumbrances, and do not infringe on any intellectual property
interest.
These warranties shall survive any inspection, delivery, payment, and
termination of this Agreement, and shall run to Buyer, its customers,
successors, and assigns. Seller agrees to date code with the expiration date of
warranty, on all Spares.
Buyer shall have the right to enforce these warranties on behalf of any of its
customers.
B. Seller shall correct defects in Material, Spares, Repairs, and Expendables
at its facility. Seller shall repair or replace, at Seller's option, all
defective Material, Spares, Repairs, and Expendables within thirty (30) days of
receipt of such Material, Spares, Repairs, and Expendables. Seller shall bear
all warranty costs such as labor, material, inspection, and shipping to and from
Buyer's facility or Buyer's customer's facility, whichever is the location of
the Material, Spares, Repairs, and Expendables. If Buyer or Buyer's customer
incurs any such costs, Buyer may either recover them directly from Seller or
deduct them from any amounts due Seller. Seller agrees to date code with
expiration date of warranty on all Spares.
9. LIMITATION OF LIABILITY
Except as otherwise provided in this Agreement, neither party shall be liable
for special, indirect, incidental, or consequential damages. The foregoing
limitation shall not limit Seller's liability for any costs, expenses, and
damages arising out of or in connection with: claims brought by third-parties;
Seller's unauthorized disclosure of Buyer's confidential information; or any
indemnification (including Section 0, INTELLECTUAL PROPERTY INDEMNITY) granted
by Seller in connection with this Agreement.
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<PAGE>
10. CONFIDENTIAL INFORMATION AND ADVERTISING
A. Both parties shall maintain as confidential and shall not disclose to any
person outside their employ, nor use for purposes other than performance of this
Agreement, any specifications, drawings, blueprints, data, business information,
or other confidential information which each party learns by virtue of this
Agreement, except as required by law, and after written notice to the other
party. Upon termination of this Agreement, both parties shall promptly return
all confidential material and all copies.
B. Without Buyer's prior written consent, except as required by law, Seller
shall not in any manner disclose, advertise, or publish the existence or terms
of transactions under this Agreement. Buyer and seller agree to issue a mutually
acceptable joint press release announcing this agreement. The joint press
release, and any future joint publicity, shall be approved in writing by Buyer
before being released by Seller.
C. Buyer may reproduce and use Seller's manuals, schematics, and merchandising
literature provided by Seller under this Agreement, provided that all copyright
and trademark notices remain intact, for Buyer's internal documentation
purposes.
11. INTELLECTUAL PROPERTY INDEMNITY
Seller shall defend, at its expense, any claim against Buyer alleging that
Material, Spares, Repairs, or Expendables, or any part thereof infringes any
patent, copyright, trademark, trade secret, mask work, or other intellectual
property interest in any country and shall pay all costs and damages awarded,
if Seller is notified promptly in writing of such a claim. If an injunction
against Buyer's or Buyer's customer's use, sale, lease, license, or other
distribution of the Material, Spares, Repairs, or Expendables or any part
thereof results from such a claim (or if Buyer reasonably believes such an
injunction is likely), Seller shall, at its expense, (and in addition to the
Seller's other obligations, hereunder) and as Buyer requests: obtain for Buyer
and/or Buyer's customers the right to continue using, selling, leasing,
licensing, or otherwise distributing the Material, Spares, Repairs, or
Expendables, or replace or modify it so it becomes noninfringing but
functionally equivalent. The provisions of this Section shall not apply to any
claim for infringement resulting solely from Seller's compliance with Buyer's
detailed written design specifications, where provided.
12. CHANGES
A. Buyer must be advised in writing of ANY and ALL product or process changes
which materially affect form, fit, or function, or change of manufacturing
site, sixty (60) days prior to the planned implementation. Seller shall make no
changes during the Purchase Period for Material, Spares, Repairs, and
Expendables which affect design, form, fit, or function, appearance,
reliability, place and process manufacture, or packing and packaging specified
by this Agreement without Buyer's prior written approval. Buyer will review
Seller's written request for such changes within thirty (30) days of Buyer's
receipt of such request and whatever documentation Buyer reasonably requires to
evaluate such request, which shall include all maintenance related information
and samples which incorporate the proposed change(s). Buyer agrees to use
reasonable efforts to issue to Seller, Buyer's final acceptance or rejection of
Seller's proposed change within an additional thirty (30) day period.
B. As a part of Seller's internal engineering process, prior to release of any
change, Seller shall demonstrate, to Buyer's satisfaction, that the change has
not affected the operation and functional performance of the Material, Spares,
Repairs, and Expendables listed in Exhibit A, hereto.
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<PAGE>
C. A "Mandatory" Change as used herein shall be defined as: any change
required to insure that the Material, Spares, Repairs, and Expendables, (1)
meets the applicable Product Purchase Specification(s), (2) is safe, and
(3)complies with all applicable laws.
1. After written Seller notification of change to Buyer, and Buyer review of
change and written approval to Seller, Seller shall start implementation of
Mandatory Changes to the Material, Spares, Repairs, and Expendables, per a
mutually agreed upon schedule(s) and shall not ship said Material, Spares and
Repairs until brought into conformance, unless authorized by Buyer to do
otherwise.
2. For implementing Mandatory Change(s) to product already delivered to Buyer,
Seller shall supply to Buyer material which contains such Mandatory Change(s)
("Seed Stock" ), which shall be delivered to Buyer per the schedule following:
3. Seller is to allocate, at no charge to Buyer, Seed Stock equal to ten
percent (10%) of the total product delivered to Buyer to date in which Seller
requires Mandatory Change(s), Product so replaced with Seed stock will be
repaired by Seller to comply with Mandatory Change(s) and delivered again to
Buyer as Seed Stock. The percentage represents what is required to implement the
Mandatory Change(s) in one (1) year after receipt by Seller of Buyer's approval
of such Mandatory Change(s). At end of one (1) year period, or upon completion
of such Mandatory Change(s) to all units delivered to Buyer, which ever comes
later, Buyer will return remaining Seed Stock to Seller.
4. Seller shall deliver the Seed Stock within thirty (30) days after having
implementing the Mandatory Change(s) in manufactured units. Seller shall deliver
Seed Stock pursuant to the Buyer's Purchase Order form which shall be consistent
to this Agreement. Purchase Order number may be provided via telephone, with
facsimile transmission within twenty four (24) hours.
D. Change Notices: Any notice given under this Section shall be initially
transmitted by means agreed to between the parties, to addressees specified in
Section ref 0, NOTICES herein.
13. TERM OF AVAILABILITY
A. In consideration for Buyer's purchase of any Material, Spares, Repairs, and
Expendables, hereunder, Seller grants to Buyer the option to purchase Material,
Spares, Repairs, and Expendables, at the last revision level purchased under
this Agreement, for the period of two (2) years after the expiration date of
this Agreement or any extension thereof, or for as long as said Material,
Spares, Repairs, and Expendables, are made available to any of Seller's other
customers, whichever is the later.
B. Thereafter, Seller may discontinue availability of Material, Spares,
Repairs, and Expendables, by giving Buyer twelve (12) months prior written
notice, provided that, at Buyer's option, Seller shall:
1. Sell Buyer sufficient quantities of Material, Spares, Repairs, and
Expendables Buyer deems necessary.
2. Offer Buyer the opportunity to obtain successor products offering
substantially similar form, fit, and function under the terms of this agreement.
Pricing for successor products shall not exceed the then current price for
Material.
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<PAGE>
14. U.S. CUSTOMS, MARKING, AND DUTY DRAWBACK
A. Country of Origin
1. "Country of Origin" Marking: The Seller shall mark, in English, all
Material, Spares, Expendables, Repairs with the Country of Origin (manufacture),
in compliance with Section 304 of the United States Tariff Act. Both the
Material, Spares, Expendables, Repairs and its container must be conspicuously
marked with the Country of Origin. If the Material, Spares, Repairs, and
Expendables, itself cannot be marked legibly due to size, then its immediate
container must be marked.
2. For each delivery against purchases made under this Agreement, Seller shall
furnish Buyer with a signed certificate stating Country of Origin (manufacture)
by quantity and part number (Buyer's and Seller's).
B. Duty Drawback
In the event that Seller begins shipping completed products directly to Buyer
from a location outside the United States, such that the products are subject
to U.S. Customs import duties paid by Buyer, Seller shall implement the
following "Duty Drawback" provisions:
1. For each purchase under this Agreement, and for each item of Material,
Spares, Repairs, Expendables delivered hereunder for which U.S. Customs import
duties have been paid upon importation, or for Materials, that contain parts for
which import duties have been paid, Seller shall furnish Buyer with a signed
"MANUFACTURING DRAWBACK ENTRY and/or CERTIFICATE" (U.S. Customs Form #CF331 or
its successor). Seller warrants that information contained in such Form #CF33
shall be accurate and shall comply with United States Duty Drawback and Customs
laws and regulations. Seller shall indemnify and hold Buyer harmless from and
against any claims, costs, or damages resulting from or arising out of Buyer's
reliance on such information and/or Form #CF331.
2. Seller shall provide such required Form(s) #CF331, and/or information, at
the end of each fiscal quarter, unless otherwise agreed in writing by both
parties.
3. Buyer reserves its first right to claim Duty Drawback on all purchases made
under this Agreement.
15. FORCE MAJEURE
Neither party shall be liable for failure to perform any of its obligations
under this Agreement during any period in which such party cannot perform due
to fire, flood, or other natural disaster, war, embargo, riot, or the
intervention of any government authority, provided that the party so delayed
immediately notifies the other party of such delay. If Seller's performance is
delayed for these reasons for a cumulative period of sixty (60) days or more,
Buyer may terminate this Agreement and/or any Purchase Order hereunder by
giving Seller written notice, which termination shall become effective upon
receipt of such notice. If Buyer terminates, its sole liability under this
Agreement or any Purchase Orders issued hereunder will be to pay any balance
due for conforming Material (1) delivered by Seller before receipt of Buyer's
termination notice; and (2) ordered by Buyer for delivery and actually
delivered within fifteen (15) days after receipt of Buyer's termination notice.
16. COMPLIANCE WITH LAWS
A. All Material, Spares, Repairs, and Expendables supplied and work performed
under this Agreement shall comply with all applicable United States and foreign
laws and regulations including, but not limited to, emission and safety
standards, the Occupational Safety and Health Act (29 U.S.C. Sections 651 et
seq.), the Fair Labor Standards Act of 1938 (29 U.S.C. Sections 201-219), the
Toxic Substance Control Act of 1976
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(15 U.S.C. Section 2601), all laws restraining the use of convict labor, and
Worker's Compensation Laws. Upon request, Seller agrees to certify compliance
with any applicable law or regulations. Seller's failure to comply with any of
the requirements of this Section may result in a material breach of this
Agreement.
B. The following provisions and clauses of the Federal Acquisition Regulation
(FAR), 48 CFR Chapter 1, are hereby incorporated by reference, with the same
force and effect as if they were given in full text and are hereby made binding
upon the subcontractor or vendor. Where the clauses or provisions say
"Contractor", substitute "subcontractor or vendor."
1) Nonexempt Subcontracts and Purchase Orders over $2,500:
52.222-36 Affirmative Action for Handicapped Workers (APR 1984)
2) Nonexempt Subcontracts and Purchase Orders over $10,000 or subcontracts and
purchase orders the aggregate value of which in any twelve month period exceeds
or can be expected to exceed $10,000:
52.222-26 Equal Opportunity (APR 1984)
3) Nonexempt Subcontracts and Purchase Orders over $10,000:
52.222-21 Certification of Nonsegregated Facilities (APR 1984)
52.222-35 Affirmative Action for Special Disabled and Vietnam Era Veterans (APR
1984)
4) Subcontracts and Purchase Orders over the small purchase limitation, $25,000:
52.219-13 Utilization of Women-Owned Small Business (AUG 1986)
5) Subcontracts over $500,000, except for small business concerns:
52.219-8 Utilization of Small Business Concerns and Small Disadvantaged Business
Concerns (FEB 1990)
A copy of the Filing Standard Form 100 (EEO-1) and Development of Affirmative
Action Compliance Program is attached as an Exhibit to this Agreement, and
incorporated herein by reference.
C. The provisions of the Clean Air Act (42 U.S.C. Sections 7401 et seq.) and
the Clean Water Act (33 U.S.C. Sections 1251 et seq.) are made a part of this
Agreement. A copy of the Certification required under these statutes is
attached as an Exhibit to this Agreement and incorporated herein by reference.
D. The provisions of any applicable State "Right-to-Know" laws and regulations
are made a part of this Agreement. A copy of the applicable Material Safety
Data Sheets as required under such laws and regulations shall be provided by
Seller upon delivery of Material, Spares, Repairs, and Expendables and updated
as necessary.
E. This Agreement is subject to all applicable United States laws and
regulations relating to exports and to all administrative acts of the U.S.
Government pursuant to such laws and regulations.
All Material, Spares, Repairs, and Expendables supplied and work performed
under this Agreement shall comply with all applicable laws and regulations.
Without limiting the foregoing, Seller shall comply with the Occupational
Safety and Health Act ("OSHA") 29 C.F.R. Sections 1910, 1200(b), and (g)(8);
the Toxic
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Substance Control Act ("TSCA") 15 U.S.C. Section 2612(a); and laws restraining
the use of convict labor: 18 U.S.C. Sections 1761 and 1762. Seller's failure to
comply with any of the requirements of this Section may result in a material
breach of this Agreement.
F. Seller agrees to comply with the United Stated Federal requirements
contained at Title 40, Code of Federal Regulations Part 82 "Protection of
Stratospheric Ozone; Labeling".
Moreover, Seller shall not supply to Buyer any product or part that contains or
has been manufactured using a Class 1 ozone depleting substance, as that term
is defined in the Regulations, unless Seller has provided prior written notice
to Buyer.
G. The 1980 United Nations Convention on contracts for the international sale
of goods shall not apply to this agreement or any order issued under this
agreement.
17. TERMINATION FOR CAUSE
A. The occurrence of any of the following constitutes a breach and is cause
for Buyer's termination of this Agreement and or/its Purchase Orders.
1. Seller fails to deliver Material, Spares, Repairs, and Expendables on time.
2. Material, Spares, Repairs, and Expendables, do not conform to the
applicable descriptions or specifications.
3. Seller fails to perform any material provision of this Agreement.
4. Seller assigns this Agreement, or any obligation or right hereunder, except
to an entity controlling, controlled by, or under common control with Seller,
without written permission from Buyer. (The word "assign" to include, without
limitation, a transfer of major interest in Seller.)
5. Seller merges with a third-party (not a parent or subsidiary company),
without the prior written consent of Buyer.
6. Seller becomes insolvent or makes an assignment for the benefit of
creditors, or a receiver or similar officer is appointed to take charge of all
or part of Seller's assets.
B. Seller must cure any of the above breaches except late delivery pursuant to
Clause A., paragraph 1 above, for which there shall be no cure period, and
notify Buyer of such cure within ten (10) days from receipt of a notice to cure
from Buyer. If Seller fails to so cure, Buyer may terminate this Agreement
and/or any Purchase Orders under it by giving Seller written notice. Buyer
shall have no liability except for payment of any balance due for conforming
Material, Spares, Repairs, and Expendables delivered before the date of Buyer's
notice to cure.
18. NOTICES
Any notice given under this Agreement shall be written or sent by telex or
facsimile. Written notice shall be sent by registered mail or certified mail,
postage prepaid, return receipt requested, or by any other overnight delivery
service which delivers to the noticed destination, and provides proof of
delivery to the
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sender. Any telex or facsimile notice must be followed within three (3) days by
written notice. All notices shall be effective when first received at the
following addresses:
If to Seller: With copies to:
Name Spacetec IMC Corporation Spacetec IMC Corporation
---------------------------- ------------------------------
Title Vice President, Sales General Counsel
---------------------------- ------------------------------
Address The Boott Mill The Boott Mill
---------------------------- ------------------------------
100 Foot of John Street 100 Foot of John Street
Lowell, MA 01852-1126 Lowell, MA 01852-1126
If to Buyer: With copies to:
Name Donald A. Brouillet Robert F. Ducey
---------------------------- ------------------------------
Title Acquisition Consultant Product Manager
Systems Business Unit, Workstation Business Segment
---------------------------- ------------------------------
Digital Equipment Corporation Digital Equipment Corporation
---------------------------- ------------------------------
Address 129 Parker Street PKO2/J10 129 Parker Street PKO3-
Maynard, MA 01754 Maynard, MA 01754
---------------------------- ------------------------------
19. DOCUMENTATION, TRAINING & TECH SUPPORT
During the Purchase Period, Seller shall to Buyer supply documentation, training
and technical support. Seller hereby grants to Buyer the right to reproduce, in
whole or in part, all documentation and training material provided to Buyer in
order for Buyer to effectively service Seller's products. Seller shall place all
appropriate copyrights and trademarks on all reproducible material.
20. BUYER OWNED MATERIAL
If any Material, Spares, Repairs, and Expendables ( "Buyer Owned Material" ) is
returned to Seller, it will be identified in Buyer's accompanying Shipping and
Billing Authorization form ( "SBA"). Buyer will retain title to all such items.
While Buyer Owned Material is in Seller's care, custody, and control, Seller
shall insure it at Seller's own expense in the amount of the Buyer Owned
Material's full replacement value against all risks of physical loss excluding
nuclear risks or acts of war. Seller shall keep such material separate and
identified as Buyer Owned Material and shall use such material solely under the
terms of this Agreement. Upon request from Buyer, Seller shall promptly return
all Buyer Owned Material.
21. RIGHTS AND ASSISTANCE TO REPAIR
Seller shall provide repair services at its facility. Seller shall accept
return of Material using its standard "return material authorization" process.
For warranty repairs, Seller shall pay all shipping costs, including insurance
and other related costs, to return such Material to Seller's designated
receiving facility. For out-of-warranty repairs, Seller shall repair Material
for a charge of 50% of Buyer's original purchase price.
Buyer shall use reasonable means to verify that Material returned for repair is
inoperable before returning Material. If Buyer returns more than five (5)
units per month which prove to be not defective in any way, Seller reserves the
right to assess a retesting charge for any additional non-defective units
returned in that
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month. Buyer and Seller agree to meet and develop a test correlation plan prior
to the assessment of any retesting charge. Seller shall not assess a retesting
charge without prior written notification to Buyer.
22. SIMILAR PRODUCTS
Seller understands that Buyer designs, develops and acquires hardware and
software for use with its own computer system products, and that existing or
planned hardware and software independently developed or acquired by Buyer may
contain ideas and concepts similar or identical to those contained in the
Seller's product. Seller agrees that entering this Agreement shall not preclude
Buyer in any way, from using such ideas and concepts to develop or acquire
similar hardware and software for any purpose, without obligation to the
Seller, provided Buyer:
1. does not copy for such use, in whole or in part, the Seller's product;
2. does not make use of any information divulged under non-disclosure
agreements to develop or have developed by third parties any similar
products.
23. SURVIVAL
The provisions of this Agreement dealing with Delivery, Payment and Set-off,
Warranty, Limitation of Liability, Confidential Information and Advertising,
Intellectual Property Indemnity, Changes, Term of Availability, U.S. Customs,
Marking, and Duty Drawback Requirements, Compliance with Laws, General, and
Exhibit(s) E and F shall survive termination or expiration of this Agreement.
The terms, provisions, representations, and warranties contained in the
Agreement shall survive expiration or earlier termination of this Agreement
notwithstanding delivery, acceptance of and/or payment for the Material, Spares,
Repairs, and Expendables ordered hereunder.
24. ENVIRONMENTAL REQUIREMENTS
Packaging Materials - Seller certifies that all packaging materials and
packaging components supplied to Buyer under this Agreement, including those
supplied in connection with any materials or goods, shall meet the following
standard: The sum of the concentration levels of lead, mercury, haxavalent
chromium and cadmium shall not exceed 100 parts per million (PPM) by weight.
25. GENERAL
A. This Agreement is the complete and entire understanding between the parties
on this subject matter and supersedes all prior agreements, proposals,
representations, statements, or understandings whether written or oral on this
subject between them. The provisions of this Agreement may be amended or waived
only by a writing executed by the authorized representatives of the parties
hereto.
B. In the event that either party to this Agreement shall, on any occasion,
fail to perform any provision of this Agreement, and the other party does not
enforce that provision, the failure to enforce shall not prevent enforcement of
the provision on any other occasion.
C. As used in this Agreement, except where otherwise noted, the term "days"
shall mean business days.
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D. Seller, including its servants, agents, and employees, is an independent
contractor and not an agent or employee of Buyer. Without limiting the
generality of the foregoing, Seller is not authorized to represent or make any
commitments on behalf of Buyer, and Buyer expressly disclaims any liability
therefore.
E. Supplemental terms are included in Exhibit A through Exhibit F and are
incorporated herein by reference.
F. All rights and remedies conferred by this Agreement, by any other
instrument, or by law are cumulative and may be exercised singularly or
concurrently. If any provision of this Agreement is held invalid by any law or
regulation of any government or by any court, such invalidity shall not effect
the enforceability of any other provisions hereof. This Agreement and any
Purchase Orders issued hereunder shall be governed by and interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the authorized representatives of the parties have executed
this Agreement under seal as of the date(s) set forth below.
DIGITAL EQUIPMENT CORPORATION SPACETEC IMC CORPORATION
- ----------------------------- -------------------------------
(Buyer) (Seller)
By /s/ Phillipe Riberve By /s/ Linda S. Linsalata
- ----------------------- -------------------------
(Signature (Signature)
Phillipe Riberve Linda S. Linsalata
- ----------------------------- -------------------------
(Printed Name) (Printed Name)
V.P. Workstations CFO
- ----------------------------- -------------------------
(Title) (Title)
March 19, 1996 March 19, 1996
- ----------------------------- -------------------------
(Date) (Date)
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Exhibit A
PRODUCTS, PRICING, AND LEADTIME
<TABLE>
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Digital Part Spacetec Part Description Price Leadtime Pricing
# # Period
- -----------------------------------------------------------------------------------------------------
PBXWA-AA 30032 2 button Spaceball and * 4 weeks ARO *
Spaceware software
- -----------------------------------------------------------------------------------------------------
</TABLE>
Pricing is based on the expectation that Buyer will eventually purchase
quantities greater than * (*) units per year. If an average monthly run rate
that meets this volume target is not achieved after * (*) months, Buyer and
Seller will meet to renegotiate pricing for the next pricing period. The first *
(*) months of purchases shall be considered a start-up period.
Seller shall use its best efforts to develop and implement a Cost Reduction
program. The objective of this program is to achieve a minimum of *% reduction
per quarter in the price paid by the Buyer during the term of the Agreement and
any extension. The program may address, but shall not be limited to, the
following:
1. Value Engineering alternatives.
2. Manufacturing process improvements.
3. Quality Control improvements.
4. Tool cost reductions.
5. Packaging improvements.
6. Delivery channel cost reductions.
7. Quantity/volume discounts.
Price reductions shall be dependent upon Buyer achieving mutually agreed
production volume targets.
* Confidential treatment has been requested for marked portion
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Exhibit B
QUALIFICATION AND QUALITY REQUIREMENTS
1.0 INTRODUCTION
This exhibit sets forth and defines the standards for quality and reliability
performance pertaining to the products as listed in Exhibit A and detailed in
Buyer's Purchase Specification.
2.0 QUALITY AND RELIABILITY ASSURANCE
2.1 CONFORMANCE TO THE PRODUCT SPECIFICATION
Seller shall assure conformance to Buyer's Purchase Specification. This shall
include but not be limited to all environmental, safety, and regulatory
requirements contained therein. Seller shall, upon Buyer's request, provide any
test results or agency reports that the Buyer may require, for review and
concurrence.
Seller shall acquire all materials and manufacture said materials
in such a manner that the agency certifications and ratings are maintained in
the Seller's finished product. Seller shall provide to Buyer copies of all
regulatory and safety agency submittal reports and approvals upon request.
2.3 PRODUCT TRACEABILITY
Seller shall assure that adequate records are maintained for traceability of all
regulatory controlled parts as required by regulatory agencies.
Finished product shipped to the Buyer shall be serialized in accordance with the
requirements of the Buyer's Purchase/Engineering specification. Barcode labels
shall conform to industry standard Code 39 format, with size and location as
specified in Buyer's Product (Purchase/ Engineering) specification.
2.4 WORKMANSHIP
Seller shall be responsible to assure that all product provided to Buyer meets
all requirements of the Seller's internal workmanship standards and practices.
Seller's standards and practices shall assure that the product provided to the
buyer meets all quality, reliability, safety and regulatory agency requirements.
2.5 QUALITY SYSTEM PLAN
Seller shall submit to the Buyer for review and concurrence a Quality Manual and
a Quality Control Plan, no later than sixty 60 days prior to the Seller's first
scheduled production build. The plans shall define the Seller's overall Quality
Assurance system elements, and detail inspection, test and audit points for
manufacture of Buyer's material. If ISO 9000 registration has been achieved, the
plan shall identify the level achieved (9001, 9002, 9003) by Seller facility and
location.
2.6 PRODUCT ACCEPTANCE REQUIREMENTS
Seller shall demonstrate to buyer's satisfaction that its process control
systems and assurance processes deliver product that meets these acceptance
requirements.
Seller shall insure that product delivered to buyer meets all the requirements
of:
. Product specification (Buyer's Purchase/Engineering Specification) and all
recognized standards and requirements referenced therein.
. Product marking per external agency requirements.
. Product protection against damage and loss.
. Compliance to then current European Economic Community standards and
application of "CE" mark to product marking, as applicable.
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Seller shall make all product acceptance data available to Buyer for review,
upon request.
2.7 RELIABILITY ACCEPTANCE REQUIREMENTS
Seller shall provide reliability data upon buyer's request. This data may
include, but not be limited to, MTBF predictions and associated environmental
parameters, acceleration factors, component derating factors, stress test
parameters, test conditions, test failures, number of unit hours, time to
failure, failure modes and symptoms, root cause failure analysis, and resultant
corrective actions.
Seller shall assure that the manufacturing process does not degrade the inherent
design reliability.
Seller shall further assure that any changes to the product design as a result
of engineering change, vendor change, or process change do not adversely affect
the reliability of the product as delivered to Buyer.
2.8 CONTINUOUS IMPROVEMENT PROCESS
It is expected that Seller will continuously improve product performance, cost,
quality, and reliability, which may require changes to design, materials, and/or
processes. prior to implementing any such changes, seller shall notify buyer as
set forth in Section 0, CHANGES.
2.9 CORRECTIVE ACTION
If at any time data from either the seller's or Buyer's control and measurement
systems indicates that product quality and/or reliability has fallen below the
minimum agreed-to levels, corrective action shall commence immediately and will
continue until the problems are resolved.
Seller shall:
. promptly notify buyer of the problem, its manifestations, symptoms, and an
initial assessment of the problem severity and impact;
. Perform root cause failure analysis;
. Communicate corrective action to the Buyer within a mutually agreeable time
frame.
. Take whatever actions are deemed necessary until the problem is resolved to
mutual satisfaction;
. Instruct Buyer in dispositioning product if product in Buyer's possession or
at buyer's customers' sites is affected or suspect.
. If required, discontinue shipment to Buyer until the corrective action has
been proven to be satisfactory to the Buyer and Seller.
2.10 FAILURE ANALYSIS REPORTING
Seller shall provide a failure analysis of product returned for repair at
buyer's request. Unverified failures shall be promptly identified to Buyer.
Buyer and Seller agree to work together to resolve cases of unverified failures
if returned product continues to fail in Buyer's manufacturing process or field
repair facilities.
2.11 AUDITS
The Buyer reserves the right to engage in audits of the product at the Seller's
site, audits of the Seller's manufacturing process, and audits of the Seller's
business or plant support processes at any time during the effective term of
this agreement. Buyer shall notify Seller at least seven (7) working days in
advance of its desire to perform an audit and shall identify areas to be covered
by the audit.
19
<PAGE>
3.0 PRODUCT SPECIFIC REQUIREMENTS
3.1 QUALITY ACCEPTANCE REQUIREMENTS
3.1.1 Average Outgoing Quality Levels (AOQL} shall be measured and
monitored by Seller. if the quality falls below the minimum acceptable level,
the corrective action process (sec. 2.9) shall commence immediately. Minimum
performance levels by product shall be agreed to by Buyer and Seller, and listed
in Buyer's Purchase Specification. Seller shall make available a mutually
agreeable data reporting format.
20
<PAGE>
Exhibit C
Clean Air & Water Certification
The undersigned Contractor as a supplier of materials or services to Digital
Equipment Corporation agrees and certifies as follows:
1. any facility to be utilized in the performance of this proposed order or
subcontract is not listed on the Environmental Protection Agency List of
Violating Facilities;
2. it will promptly notify Digital, prior to award, of the receipt of any
communication from the Director, Office of Federal Activities, U.S.
Environmental Protection Agency, indicating that any facility which it
proposes to use for the performance of a purchase order or subcontract is
under consideration to be listed on the Environmental Agency List of
Violating Facilities; and
3. it will comply with the applicable provisions of the Clean Air Act (42 U.S.C.
7401 et. seq.) and the Clean Water Act (331251 et. seq.); and
4. it will include substantially this certification, including this Paragraph
(IV), in every non-exempt subcontract.
or
5. compliance with the provisions of the Clean Air Act (42 U.S.C. et seq.) and
the Clean Water Act (33 U.S.C. 1251 et seq.) is not applicable.
21
<PAGE>
Exhibit D
EEO CERTIFICATION
EQUAL EMPLOYMENT OPPORTUNITY
FILING STANDARD FORM 100 (EEO-1) AND DEVELOPMENT OF AFFIRMATIVE ACTION
COMPLIANCE PROGRAM
Contractor agrees and certifies that, if the value of any contract or purchase
order is $50,000 or more and the Contractor has 50 or more employees, Contractor
shall be bound by and agree to:
A. File a complete and accurate report on Standard From 100 (EEO-1) with the
appropriate Federal Agency within thirty (30) days after either the signing of
this instrument, or the award of the contract or purchase order, as the case may
be (unless such a report has been filed in the last twelve (12) months), and
will continue to otherwise comply with and file such reports annually as may be
required under Executive Order 11246, as amended, and the regulations in 41 CFR
60-1.40 and 60-2.
B. Certify to the maintenance of a written and signed Affirmative Action Plan as
specified in Section 60-1.40 of Rules and Regulations, Office of Federal
Contract Compliance (EEO), Department of Labor, for each of its establishments,
and certifies further the requirement of a similar certification from each of
its nonexempt Contractors, and if no such Affirmative Action Plan is maintained,
contractor agrees to develop and maintain a written Affirmative Action
Compliance Program within 120 days for each of its facilities unless at such
time it is not required by law or regulation to develop such a program.
22
<PAGE>
Exhibit E
DEC - TRADEMARK EXHIBIT TRADEMARKS
====================================================================
----------------------------------------------------------------
TYPE Complete Term
----------------------------------------------------------------
HARDWARE Spaceball(R) 3003(TM)
Advanced 3D-I(TM) Controller
----------------------------------------------------------------
Spaceball(R) Powersensor(R)
----------------------------------------------------------------
Spaceball(R) Space Controller(R)
Advanced 3D-I(TM) Six-Axis
Control Device
----------------------------------------------------------------
================================================================
SOFTWARE Advanced 3D-I(TM)
----------------------------------------------------------------
Advanced 3D-I interface(TM)
----------------------------------------------------------------
3D-I(TM)
----------------------------------------------------------------
SpaceWare(R)
----------------------------------------------------------------
SpaceWare(R) 3D-I Always(TM)
----------------------------------------------------------------
SpaceWare(R) IMC(TM)
----------------------------------------------------------------
SpaceWare Library and Toolkit(TM)
====================================================================
====================================================================
----------------------------------------------------------------
Type Complete Term
----------------------------------------------------------------
CORPORATE Spacetec IMC Corporation
----------------------------------------------------------------
Note:"IMC" stands for Interactive Motion Control
and is not trademarked when used in the Company
name.
====================================================================
====================================================================
RULES FOR USING SPACETEC IMC CORPORATION TRADEMARKS
All terms listed above MUST APPEAR AS ABOVE. However, there are a couple of
modification rules that can be used.
1 Trademark symbols must always be used on FIRST USAGE of Spacetec IMC
Corporation trademarks. Trademark symbols may be dropped for subsequent
usages, if desired.
2 The COMPLETE PRODUCT NAME or TERM (both regular & bold type shown above with
appropiate trademark symbols) must always be used on the first usage. Product
names may be shortened to their approved simplified form (shown above in just
--------
bold) for subsequent usages. For example SPACEWARE(R) 3D-I ALWAYS(TM) must be
used for the first usage and then "simplified" to just 3D-I ALWAYS(TM) in
subsequent usages. Where no approved "simplified" term is indicated above,
the complete product name or term must be specified.
3 Bold and italics should be used on all PRODUCT NAMES OR TERMS whenever
possible. SEE THE EXAMPLE AT RIGHT.
4 Spacetec IMC Corporation must be given appropriate credit for usage of its
trademarks in any printed or published usage of these trademarks. For
example, a typical credit line would be:
SpaceWare, Spaceball and SpaceController are registered trademarks and 3D-I
and 3D-I Always are trademarks of Spacetec IMC Corporation.
EXAMPLE:
- ------------------------------------------
With the SPACEBALL(R) 2003(TM)
ADVANCED 3D-I CONTROLLER, moving
in 3D is easy. Lightly twist the
SPACEBALL(R) POWERSENSOR(R) ball and
your model will move intuitively. Using
the SPACEBALL(R) 2003(TM) is so easy,
you'll never go back to the mouse or
dials again. To order the SPACEBALL
2003, simply call us. To evaluate the
SPACEBALL 2003, just write us.
- -------------------------------------------
<PAGE>
Exhibit F
SPACEWARE SOFTWARE LICENSE AGREEMENT (RESELLER)
1) The Spacetec IMC Corporation Software ("software") is protected by United
States and International copyright law.
2) Spacetec IMC Corporation retains all title to and interest in this
SpaceWare IMC software and grant the reseller the right to pass through to
the original end use purchaser, a personal, non-transferable, non-exclusive
license to use this copy solely with the Spaceball 3003/TM/ hardware
supplied. You may not rent or lease the SpaceWare IMC software in any form,
or make copies of the SpaceWare IMC software except an archival copy for
the sole purpose of backing up your software and protecting your investment
from loss. All archival copies must include any copyright notice on or in
the SpaceWare IMC software.
3) Except as described above, you may not transfer or disclose or otherwise
make available the software or any portion of it to a third party for any
reason without the written permission of Spacetec IMC Corporation. You may
not reverse compile or disassemble the Software.
4) This software is licensed solely for use with the Spaceball 3003 Hardware
supplied and the supported system software referenced in the documentation.
Spacetec IMC Corporation does not give any assurance that the software will
work other than with the stated hardware and system software.
5) Spacetec IMC Corporation may terminate/cancel this license upon your
failure to comply with any of the terms and conditions of this agreement.
GENERAL
1) This agreement is the complete and exclusive statement of terms and
conditions between you and Spacetec IMC Corporation
2) This agreement shall be governed by the substantive laws of the
Commonwealth of Massachusetts, USA.
SPACETEC IMC CORPORATION
THE BOOTT MILL
100 FOOT OF JOHN STREET
LOWELL, MA 01852-1126, USA
TEL: (508) 970-0330
- --------------------------------------------------------------------------------
FAX: 508) 970-0199
<PAGE>
EXHIBIT 21.1
Spacetec IMC Securities Corporation, incorporated in Massachusetts.
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8, No. 333-04991) pertaining to the 1995 Director Stock Option Plan, the
Registration Statement (Form S-8, No. 333-04991) pertaining to the Amended and
Restated 1993 Stock Option Plan and the Registration Statement (Form S-8, No.
333-04991) pertaining to the 1995 Employee Stock Purchase Plan, of our report
dated May 30, 1996, with respect to the consolidated financial statements of
Spacetec IMC Corporation included in this Annual Report (Form 10-K) for the year
ended March 31, 1996.
ERNST & YOUNG LLP
Boston, Massachusetts
June 25, 1996
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 417
<SECURITIES> 15,620
<RECEIVABLES> 2,192
<ALLOWANCES> 80
<INVENTORY> 409
<CURRENT-ASSETS> 18,990
<PP&E> 1,243
<DEPRECIATION> 373
<TOTAL-ASSETS> 21,108
<CURRENT-LIABILITIES> 1,487
<BONDS> 0
0
0
<COMMON> 72
<OTHER-SE> 19,229
<TOTAL-LIABILITY-AND-EQUITY> 21,108
<SALES> 8,132
<TOTAL-REVENUES> 8,132
<CGS> 2,229
<TOTAL-COSTS> 2,229
<OTHER-EXPENSES> 5,198
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 983
<INCOME-TAX> 355
<INCOME-CONTINUING> 628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 628
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
<PAGE>
EXHIBIT 99.1
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
June 1996
From time to time, Spacetec IMC through its management may make forward-
looking public statements, such as statements concerning then expected future
revenues or earnings or concerning projected plans, performance, product
development and commercialization as well as other estimates relating to future
operations. Forward-looking statements may be in reports filed under the
Securities Exchange Act of 1934, as amended, in press releases or in oral
statements made with the approval of an authorized executive officer. The words
or phrases "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," or similar expressions are intended to
identify "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933,
as enacted by the Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on these
forward-looking statements which speak only as of the date on which they are
made. In addition, the Company wishes to advise readers that the factors listed
below, as well as other factors not currently identified by management, could
affect the Company's financial or other performance and could cause the
Company's actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods or events in any
current statement.
The Company will not undertake and specifically declines any obligation to
publicly release the result of any revisions which may be made to any forward-
looking statements to reflect events or circumstances after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events
which may cause management to re-evaluate such forward-looking statements.
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby filing cautionary
statements identifying important factors that could cause the Company's actual
results to differ materially form those projected in forward-looking statements
of the Company made by or on behalf of the Company.
Reliance on 3D Graphical Interface Market. The Company's future success
will continue to depend on sales of its hardware and software products designed
to be used with 3D graphical user interfaces. The Company's ability to increase
sales of its products depends in part on the continued growth of the development
of products incorporating a 3D graphical interface. There can be no assurance
that the market for such user interfaces will continue to grow or that the
Company will be able to respond effectively to the evolving requirements of such
market.
Rapid Technological Change; Dependence on New Product Development. The
electronics industry in general, and the markets for the Company's products in
particular, are characterized by rapidly changing technology, evolving industry
standards, frequent new product introductions, short product life cycles and
significant competition. The introduction of products embodying new technologies
and the emergence of new industry standards present opportunities for current
and potential competitors of the Company to gain market share and can quickly
render the Company's products less attractive or obsolete and unmarketable. In
order to keep pace with this rapidly changing market environment, the Company
must continually develop and incorporate into its products new technological
advances and features desired by the marketplace at acceptable prices. The
successful development and commercialization of new products involves many
risks, including the identification of new product opportunities, the timely
completion of the development process, the control and recoupment of development
and production costs and acceptance by customers of the Company's products.
There can be no assurance that the Company will be successful in identifying,
developing, manufacturing and marketing new products in a timely and cost
effective manner, that the Company's products will be accepted in the
marketplace, or that products or technologies developed by others will not
render the Company's products or technologies uncompetitive.
<PAGE>
Reliance on Large Customers. The Company had two customers representing
24.3% and 16.8% of revenues for the fiscal year ended March 31, 1995 and two
customers representing 24.3%and 9.8% of revenues for the fiscal year ended March
31, 1996. The Company expects that these customers will continue to represent a
significant percentage of its revenues for the foreseeable future, although its
expects that sales to them will generally decline as a percentage of total
revenues. None of these customers is obligated to purchase any specific amount
of the Company's products. There can be no assurance that the Company will be
able to retain any of these companies as customers or, in the event of a
reduction or loss of business with any such customer, that the Company could
establish other satisfactory relationships for sales of its products. Purchases
by these customers are governed by the terms of purchase orders submitted to the
Company and by written agreements covering other terms of the sale, including
pricing, shipping, quality and warranty. Generally, a customer has the right to
cancel or modify quantities and deliveries, without cost, subject to notice
requirements. In the event of a cancellation or rescheduling of orders by any
customer, the Company may not be able to replace such orders with other sales.
The occurrence of any such events could have a material adverse effect on the
Company's operating results.
Reliance on Third-Party Distribution Channels. While the Company currently
markets and sells a significant portion of its products directly to end-users,
the Company expects that the portion of its product sales through third- party
distribution channels, including original equipment manufacturers ("OEMs"),
value added resellers ("VARs"), system integrators and distributors, will
increase as its products gain market acceptance. Such OEMs and VARs are not
under the control of the Company. Although these customers in turn sell to a
wide variety of end-users, the Company is subject not only to the risk that its
customers will discontinue selling and marketing its products, but also to the
risk that the end-users supplied by the Company's customers will alter their
preferences in a manner that has a material adverse effect on the Company's
operations. There can be no assurance that the Company will be able to retain
its current resellers or expand its distribution channels by entering into
arrangements with new resellers.
Entry into Consumer Marketplace. During the next year, the Company plans to
market products designed for the consumer marketplace. The Company has little
experience in marketing its products to consumers. The entry into the consumer
market creates considerable risks for the Company, some of which are outside of
the Company's control. Delays or difficulties associated with new product
introductions could have a material adverse effect on the Company's business,
operating results and financial condition. Once introduced, the Company's
products will represent new technology to the consumer marketplace, and there is
a substantial risk that the marketplace may not accept the Company's products.
Market acceptance of the Company's products will depend to a certain extent upon
the ability of the Company to demonstrate the advantages of its products over
other types of products. There can be no assurance that either existing or new
competitors will not develop products that are superior to the Company's
products or achieve greater market acceptance. Even if there is initial demand
for the Company's products in the consumer marketplace, there can be no
assurance that the Company will be able to identify, develop, manufacture,
market or support new products and services that will respond to evolving
consumer requirements and maintain market acceptance. Any failure by the Company
to anticipate or respond adequately to technological developments and customer
requirements or any significant delays in product development or introductions
could result in a material loss of market share or revenues. In addition, new
products, when released by the Company, may contain unexpected errors or
"bugs" that, despite testing by the Company, are discovered only after a
product has been installed and used by customers. Although the Company has not
experienced material adverse effects from any such errors to date, there can be
no assurance that errors will not be discovered in the future, causing delays in
product introduction and shipments or requiring design modifications
2
<PAGE>
that could materially adversely affect the Company's competitive position and
operating results. There can be no assurance that announcements of competing new
product offerings by others will not cause customers to defer purchasing the
Company's products or to not purchase them at all.
Expansion into Retail Distribution Channels. The Company expects to
commence retail shipments of its SpaceOrb 360 during fiscal 1996. Retail
distribution channel sales typically require significantly greater marketing and
sales expenditures and post-sale support costs. Penetration of this market is
also dependent to a significant extent on building relationships with
distributors and retailers. An increasing number of vendors compete for access
to these distributors and retailers, which generally offer products of several
different companies, including products competitive with the Company's products.
The Company expects to commit substantial resources to the penetration of this
distribution channel. There can be no assurance that the Company's efforts to
commence sales through retail distribution sales channels will be successful,
and the inability of the Company to penetrate this sales channel could have a
material adverse effect on its operating results.
If the Company is successful in penetrating this sales channel, the Company
believes that its gross margins would decrease due to the anticipated prices for
the Company's products in the retail market, where the Company believes it must
price its products below certain levels to penetrate this market, and
anticipated cost of revenues in the retail market. The Company further
anticipates that its results from sales to retail channels will be significantly
affected by seasonality due primarily to the increased demand for 3D game and
entertainment applications and related products during the year-end holiday
buying season. Retail distributors typically expect that they will be permitted
to return inventory to the Company for credit against other purchases on
negotiated terms. In addition, the Company anticipates that retail distributors
will require price protection clauses in agreements with the Company pursuant to
which the Company will be obligated to grant credits if the Company reduces
selling prices on products previously purchased by the distributor. Moreover, to
the extent the Company generates significant sales to retail distribution
channels relative to its sales to OEMs, there is a greater risk of increased
product returns and warranty claims. The Company has established reserves for
product returns and warranty claims based on its previous experiences and future
expectations. If the Company is successful in penetrating retail distribution
channels, there can be no assurance that these reserves will be adequate or that
product returns and warranty claims and price protection adjustments will not
have a material adverse effect on future operating results.
Competition. The market for computer products is intensely competitive and
rapidly changing. The Company's products currently compete against established
products and no assurance can be given that the Company's products will not be
rendered obsolete by technological advances of others. The Company expects that
competition from existing competitors will increase and that new competitors
will enter the 3D motion control market. Many of the existing and potential
competitors have experienced management, larger technical staffs, more
established and larger marketing and sales organizations, better developed
distribution systems and significantly greater financial resources than the
Company. The Company anticipates that its competitors will ultimately develop
hardware products based on technology that does not infringe on the patent
rights of the Company, which may provide capabilities similar or superior to
those of the Company's products. Increased competition could result in price
reductions and loss of market share for the Company. There can be no assurance
that the Company will be able to compete successfully or that competition will
not have a material adverse effect on the Company's business, operating results
and financial condition.
3
<PAGE>
Expansion of Operations and Management of Growth. The Company has recently
experienced a period of rapid growth and has added new personnel in various
areas of its business. Due to the level of technical and management expertise
necessary to support growth, the Company must recruit and retain highly
qualified and well- trained personnel. The number of available persons with the
requisite skills to serve in these positions may be limited, and it may become
increasingly difficult for the Company to hire such personnel over time. The
Company's expansion may also significantly strain operational, management,
financial and other resources. To manage growth effectively, the Company must
continue to enhance its systems and controls and successfully expand, train and
manage its employee base. There can be no assurance that the Company will be
able to manage this expansion effectively, including providing a satisfactory
level of customer service and technical support under the stresses exerted by
continued growth. There can be no assurance that the Company will be able to
recruit, train and retain sufficient additional customer service employees to
improve its service and satisfactorily respond to the support requests of an
increased customer base. Any failure to manage the Company's future growth
properly could have a material adverse effect on the Company's operating
results.
Limited Operating History; Variability of Quarterly Operating Results. The
Company was incorporated in April 1991 and began commercial shipments of its
products in June 1991. Although the Company has been profitable in each year
since its inception, there can be no assurance that revenue growth or profitable
operations can be sustained on a quarterly or annual basis in the future. The
Company may experience fluctuations in quarterly operating results due to
factors such as competition, variations in customer demand, changes in average
selling prices due to volume discounts, entering new markets and international
operations, changes in the mix of products sold, unforeseen production
difficulties and the introduction of new products. The Company anticipates that
its planned entry into the consumer marketplace will likely result in increasing
seasonality of its revenues, reflecting consumer purchasing patterns. In view of
the Company's significant growth in the past fiscal years, the Company believes
that period-to-period comparisons of its financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
Patents and Proprietary Technology. The Company's success is heavily
dependent upon its proprietary hardware and software technology. The Company
relies on a combination of patent, trade secret, copyright and trademark law,
software license agreements, non-disclosure agreements, and technical measures
to protect its rights pertaining to its products. Such protection may not
preclude competitors from developing products with features similar to the
Company's products. The Company's success will depend in part on its ability to
obtain and defend United States and foreign patent protection for its products
and preserve its trade secrets. There can be no assurance that the Company's
issued patents, or any future patents, will provide the Company with significant
protection against competitive products or otherwise be commercially valuable.
Moreover, there can be no assurance that any patents issued to or licensed by
the Company will not be infringed upon by others. In the case of infringement of
the Company's technologies, there can be no assurance that the Company would be
able to afford the expense of any litigation that may be necessary to enforce
its proprietary rights.
In addition to seeking patent protection, in some cases the Company may
rely on contractual arrangements or trade secrets to protect its proprietary
technology. There can be no assurance that trade secrets will be developed and
maintained, that secrecy obligations will be honored, or that others will not
independently develop similar or superior technology. Disputes as to the
ownership of such information may arise if consultants, key employees, or other
third parties apply technological information independently developed by them or
by others to Company projects, and such disputes may not be resolved in favor of
the Company. Due to the importance of patent and trade secret protections and
the competitive nature of its industry, the Company may
4
<PAGE>
also be subject to claims that its technologies infringe on the propriety rights
of other companies. There can be no assurance that such claims will not arise,
that the company will have sufficient resources to pursue any resulting
litigation to a final judgement, or that the Company will prevail in such
litigation.
Dependence on Suppliers. The Company relies on outside suppliers for
substantially all of its parts, components and manufacturing supplies. The
microprocessor currently used in the manufacture of one of the Company's
hardware products is obtained from a single source supplier. The disruption or
termination of the supply of microprocessors from this source would have a
material adverse effect on the Company's operations and could cause delays in
the delivery of such products. Further, even with respect to "off- the-shelf"
components which are available from a large number of suppliers, there can be no
assurance that the Company's suppliers will continue to meet all of the
Company's needs on a timely basis.
Dependence on Contract Manufacturers, Including Overseas Manufacturers. The
Company has and will continue to rely on outside vendors to manufacture hardware
devices among the Company's products. Although the Company's hardware devices
are relatively simple devices to manufacture, and the Company has not
encountered any delays in obtaining adequate products from its outside
contracting organizations, there can be no assurance that delays incurred or
quality problems caused by any of the contract manufacturing organizations will
not have a material adverse effect on the Company's ability to fill customer
orders. In 1996, the Company entered into a manufacturing contract with a entity
located in the People's Republic of China. The Company's reliance on outside
manufacturers involves several risks, including a potential inability to obtain
an adequate supply of required products, and reduced control over the price,
timeliness of delivery, reliability and quality of finished products. Certain of
the Company's contract manufacturers have relatively limited financial and other
resources. Any inability to obtain timely deliveries of products and services
having acceptable qualities or any other circumstance that would require the
Company to seek alternative sources of contract manufacturing services or to
manufacture its own hardware devices internally, could delay the Company's
ability to ship its products. Any such delay could damage relationships with
customers and such delay could have a material adverse effect on the Company.
The use of a foreign manufacturer, most significantly in a country with an
emerging commercial base, subjects the Company to additional risks, including
unexpected changes in regulatory requirements and tariffs and difficulties in
communications with such foreign entity. Finally, the laws of certain countries
do not protect the Company's products and intellectual property rights to the
same extent as do the laws of the United States. There can be no assurance that
these factors will not have a material adverse effect on the Company. Finally,
to the extent that such foreign manufacturer fails to perform in accordance with
its contract with the Company or to the extent the Company has other claims
against such manufacture, it may be difficult to enforce such claims in the
Peoples Republic of China.
Attraction and Retention of Key Employees. The Company is dependent on the
principal members of its management, including Dennis Gain, President and Chief
Executive Officer, John Hilton, Senior Vice President and Chief Technology
Officer, Hardware, and James Wick, Senior Vice President and Chief Technology
Officer, Software. The loss of the services of one or more key employees could
have a material adverse effect on the Company. The Company believes that its
future success will be affected by its ability to attract and retain skilled
technical, managerial and marketing personnel. Although the Company has not
experienced difficulty to date, there can be no assurance that the Company will
be successful in attracting or retaining the personnel it requires to continue
to grow and operate profitably. The Company maintains life insurance on the
5
<PAGE>
lives of Messrs. Gain, Hilton and Wick in the amounts of $2,250,000, $500,000
and $500,000, respectively.
Future Capital Needs. The Company's capital requirements will depend on
many factors, including the rate at which the Company can develop its products,
the market acceptance of such products, the levels of promotion and advertising
required to launch such products and attain a competitive position in the
marketplace, the response of competitors to the products based on the Company's
technology, and capital necessary for potential acquisitions. Changes in
technology or a growth of sales beyond currently established capabilities will
also require further investment. To the extent that the net proceeds of this
offering and internally generated funds are insufficient to fund the Company's
operating requirements, it may be necessary for the Company to seek additional
funding through public or private financing. There can be no assurance that
additional financing will be available on acceptable terms or at all. If
additional funds are raised by issuing equity securities, further dilution to
the existing stockholders may result. If adequate funds are not available, the
Company's business would be materially adversely affected, and, as a result, the
Company may be required to curtail its operations significantly.
Risks Associated with International Operations. International sales
accounted for 35.8% and 31.4% of revenues for the fiscal years ended March 31,
1996 and 1995 respectively, and the Company expects that international sales
will continue to represent a significant portion of its net sales. While most of
the Company's international sales are U.S. dollar-denominated, decreases in the
value of foreign currencies relative to the U.S. dollar could make the Company's
products less price competitive. International sales and operations may also be
materially adversely affected by the imposition of government controls, export
license requirements, restrictions on the export of critical technology,
political and economic instability, trade restrictions, changes in tariffs and
taxes, difficulties in staffing and managing international operations and
general economic conditions. Any inability to meet foreign regulatory approvals
on a timely basis could have a material adverse effect on the Company's
operating results. In addition, the Company's business may be affected by lower
sales levels which typically occur during the summer months in Europe and other
parts of the world.
6
