FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended MARCH 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _____________________ to ________________________
Commission file number 0-24030
THE PANDA PROJECT, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0323354
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5201 CONGRESS AVENUE, C100
BOCA RATON, FLORIDA 33487
(Address of principal executive offices) (Zip Code)
(407) 994-2300
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.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 to Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate Market value of the voting stock held by nonaffiliates of the
Registrant based on the last sale price for such stock at June 20, 1996:
$88,116,528
Number of shares of Common Stock, $.01 par value, outstanding at June 20, 1996.
8,923,675
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III is incorporated by reference to the
Company's definitive Proxy Statement for its 1996 Annual Meeting of Shareholders
which will be filed pursuant to Regulation 14A not later than July 29, 1996.
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11 THE PANDA PROJECT, INC.
FORM 10-K
INDEX
PART I
PAGE
Item 1. Business.................................................. 1
Item 2. Properties................................................ 9
Item 3. Legal Proceedings......................................... 10
Item 4. Submission of Matters to a Vote of
Security Holders......................................... 10
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.......................... 10
Item 6. Selected Financial Data................................... 11
Item 7. Management's Discussion and Analysis of
Financial Condition and Results
of Operations............................................ 12
Item 8. Financial Statements and Supplementary
Data..................................................... 21
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosures.................. 21
PART III
Item 10. Directors and Executive Officers of
Registrant............................................... 21
Item 11. Executive Compensation.................................... 23
Item 12. Security Ownership of Certain Beneficial
Owners and Management.................................... 23
Item 13. Certain Relationships and Related
Transactions............................................. 23
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K.................................. 23
Signatures............................................................. 26
<PAGE>
PART I
ITEM 1. BUSINESS
The Panda Project, Inc. (the "Company") is a computer technology
company engaged in the development, manufacture and sale of products
incorporating the Company's proprietary semiconductor packaging and printed
circuit board ("PCB") technology (the "Archistrat Technology Products") and a
line of powerful, modular computers (the "Archistrat Computers"). The Archistrat
Technology Products have been developed to increase the efficiency and
functionality and reduce the size of semiconductor packages in PCBs. The
Archistrat Computers are designed to accommodate a variety of microprocessors
and peripheral devices configured in separate modules, permitting the user to
upgrade or reconfigure the computer quickly and at minimal cost by plugging PCBs
to the computer. The Company believes that its products will satisfy rapidly
evolving customer requirements in the computer, telecommunications, automotive
and other electronics industries by facilitating the use of new generations of
more powerful and complex microprocessors and other devices. The Company
operates in two divisions: its Archistrat Technologies Division, which is
responsible for the development, manufacture and marketing of the Archistrat
Technology Products and related technologies, and its Archistrat Systems
Division which is responsible for the development, manufacture and marketing of
the Archistrat Computers.
ARCHISTRAT TECHNOLOGIES
The proliferation of increasingly comprehensive and sophisticated
computer operating systems and applications software and the increased use of
the Internet have created the need for substantially greater, more complex and
faster data transmission throughout the computer. While advances in
semiconductor design have been responsible for much of the increase in computing
functionality and speed over the last three decades, the Company believes that
comparable advances can be made by improving the way in which the individual
components of a computer are connected. The Company's Archistrat Technology
Products incorporate designs which the Company believes will have significant
advantages over currently available semiconductor packaging and interconnect
devices, including:
HIGHER DENSITY OF ELECTRICAL CONNECTIONS. The Archistrat Technology
Products embody proprietary geometries that allow the placement of a greater
number of conductive leads (as many as 1,184 contacts per square inch in certain
configurations) than is possible with conventional designs, permitting them to
access and transport the increased volume of information generated by today's
powerful microprocessors.
REDUCED SIZE. Due to their higher contact density, the Archistrat
Technology Products require less surface area than is required by conventional
semiconductor packages and interconnect devices to accommodate the same number
of leads, which improves the performance and portability of computers and other
electronic equipment that incorporate such products.
SUPERIOR ELECTRICAL AND THERMAL CHARACTERISTICS. The Archistrat
Technology Products are designed to provide faster electrical connections while
minimizing the interference (inductance) which can occur in a high density
electrical environment. The products are also constructed of materials which
dissipate heat better than conventional designs and, the Company believes, will
withstand the rigors of automotive and other high-heat applications.
COMPATIBILITY; REDUCED COST OF MANUFACTURE. The Archistrat Technology
Products are intended to be compatible with existing industry standards. Thus,
for example, while the Company's VSPA product incorporates a proprietary array
of electrical leads, the space (pitch)
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between such leads, which is of critical importance in the computer
manufacturing process, is no smaller than that of conventional packages. In
addition, because the integration of Archistrat Technology Products with
microprocessors and other peripherals requires fewer steps than conventional
technologies, the Company believes manufacturers utilizing Archistrat Technology
Products will experience reduced production costs.
CONVENTIONAL SEMICONDUCTOR PACKAGING AND INTERCONNECT TECHNOLOGY
Semiconductor packages are ceramic or plastic packages that house and
protect the small silicon components (each referred to as a "die") responsible
for performing a computer's functions, such as the microprocessor, memory or
other devices that perform specialized tasks. They also provide conductive leads
through which electric signals containing data processed by the die can be
accessed at various contact points on the die. Once a die is encased in a
semiconductor package (the integrated package is referred to as a "module"), its
leads, typically along with those of several other devices, are connected to a
multi-layered PCB. Generally, the leads in currently available semiconductor
packages either emerge from the package's perimeter in a single layer
("peripherally-leaded packages") or they emerge and extend perpendicularly from
the bottom of the package in several rows ("pin-grid-array packages" or "PGAs").
The leads extending from peripherally-leaded packages are usually mounted
directly to the surface layer of the PCB (using surface mounted technology or
"SMT"), while the leads extending from pin-grid-array packages are either
plugged into a base mounted on the PCB or inserted directly into holes (known as
"through-holes") drilled through each of the PCB's layers. Copper traces (copper
lines capable of carrying electric current) imprinted on several of the PCB's
layers transport electric signals traveling through the leads to various other
components within the computer, such as leads for other modules or hard disk
drives.
Expensive dies, such as the Intel Pentium and Pentium Pro
microprocessors, are usually packaged in PGAs. The leads of PGAs can be plugged
into a socket, which in turn may be mounted onto the PCB using either SMT or
through-hole techniques. The use of a socket and a PGA allows the PCB or module
to be repaired, tested or upgraded independently, reducing damage and allowing
for simplified changes in function or configuration.
The complexity of a PCB increases as the number of leads which it must
accommodate increases. Even though the PCB may carry the copper traces making up
its circuits at a number of levels, the spacing required between the copper
trace circuits and the space taken up by the through-holes and other contact
points limit the number of connections which can be made in any given area on
the PCB (the "density"). Therefore, if more leads are required, the surface area
of the PCB needed to accommodate the leads increases and/or the amount of PCB
space available to provide for proper routing and clearance for traces
decreases. Larger boards not only mean that signals travel farther, require more
power and provide more opportunity for signal distortion, they also mean that
existing systems must be assembled into larger packages and that fewer
components can be packaged into existing enclosures. Larger boards also cost
more to produce.
Most computers available today are made up of many PCBs boards on which
are mounted a variety of devices which must interact with each other for the
computer to function according to its specifications. A typical Intel-based
computer might have up to six different PCBs, each containing dozens of chips.
Electronic interconnect devices link the various PCBs and must simultaneously
provide hundreds of discrete connections to transfer signals between them. With
the proliferation of comprehensive and sophisticated computer operating systems
and applications software and the increased use of the Internet, growth and
demand for higher density electrical connections can be expected to continue.
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DESCRIPTION OF PRODUCTS.
The Archistrat Technology Products currently under development or being
produced by the Company are described below:
VSPA.
The Company has developed and manufactured prototypes for a 264-pin and
360-pin model of VSPA, a high-density peripherally-leaded semiconductor package.
VSPA is being developed primarily for SMT use and is meant to extend the
capability of the Quad Flat Pack ("QFP") family of packages to higher pin
counts. QFPs are also typically SMT-mounted and are currently the most widely
used type of peripherally-leaded package, with 1995 annual sales estimated by
VLSI Technology at approximately ten billion units. The VSPA prototypes are
currently undergoing qualification and characterization testing. The Company
anticipates that the 264-pin model of VSPA will be available in the third
quarter of 1996 and the 360-pin model will be available in the fourth quarter of
1996. The Company believes that its VSPA products can be marketed effectively
not only in the computer industry, but also in other sectors where sophisticated
data transmission is required, including the telecommunications, automotive,
consumer electronics and wireless markets.
Unlike the QFP or other conventional peripherally-leaded semiconductor
packages, VSPA packages are fabricated by inserting pre-formed individual metal
leads into a pre-molded plastic platform, typically in multiple layers around
the perimeter of the package. By stacking the leads (providing for additional
rows of leads stacked and staggered above each other), the Company believes that
its proposed VSPA package can significantly reduce module size, while increasing
the module's efficiency and functionality. Utilizing VSPA technology, the
Company believes that a microprocessor module can be created which would be as
much as 70% smaller than comparable IBM Motorola PowerPC chips that are
currently available in a QFP package.
The limitations of current QFP package technology have resulted in the
emergence of ball grid array ("BGA") semiconductor packages. Although BGA
packages have favorable density and size characteristics, their disadvantages
include a higher cost of production, reliability problems associated with power
and temperature cycling and the lack of visibility of the solder joint, which
necessitates quality inspection by X-ray rather than the visual inspection
possible with existing QFP packages. Because the VSPA package avoids these
limitations while at the same time extending the capabilities of QFP technology
to higher pin counts, the Company believes that VSPA is a more desirable
alternative to BGA packages.
By contrast to current industry standards, VSPA leads are pre-formed
and are processed and inserted into a plastic platform before the die is
attached. Because the leads are pre-formed, they are undisturbed by additional
procedures performed after the die is attached to the semiconductor package.
Final fabrication is accomplished by encapsulating and sealing the package after
it has undergone preliminary testing. Although both conventional and VSPA
fabrication processes involve molding, bending and related cleanup, in the
fabrication of VSPA packages, all of these processes occur before the die is
attached to the package. As a result, the assembler saves numerous steps in the
manufacturing process; moreover, because VSPA is completely tested for plating,
mechanical integrity and dimensional characteristics before it is attached to
the die, the die would only be attached to packages meeting acceptable quality
standards. In the event there is a manufacturing problem with the semiconductor
package, the die would not have to be discarded, and scrap costs would be
significantly reduced.
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COMPASS CONNECTOR.
The Compass Connector, which is currently being manufactured for
incorporation in Archistrat 4s computers, consists of insulator posts
constructed of a highly stable liquid crystal polymer surrounded by four leads
which are mated with related sockets mounted on a PCB. This configuration allows
multiple leads to be connected in one area, permitting a reduction in size of
the semiconductor package and the space it occupies on a PCB, while permitting
up to 368 contacts per linear inch.
While providing a strong electrical contact, the proprietary Compass
design is pluggable and compatible with SMT processes. The Company believes this
will provide numerous benefits, such as ease of manufacture and servicing,
flexibility in configuring computer systems and upgradeability.
COMPASS PGA.
The Company is also developing a family of high-density semiconductor
pin-grid-array packages ("Compass PGA") primarily designed to package expensive
microprocessing units such as the Intel Pentium and Pentium Pro products, in
single or multichip modules. In contrast to conventional pin-grid-array
packages, the Compass PGA, which exploits Compass Connector technology, employs
multiple leads and, as a result, requires less surface area than conventional
pin-grid-array packages to accommodate the same number of leads. If the design
is successfully developed, it will significantly reduce the size of the
pin-grid-array package, increase the efficiency of the chip and free additional
PCB space on which other chips and devices can be mounted. The Company believes
that one of the Compass PGA versions being designed can provide up to 1,184 die
contacts per square inch, as compared to the 400 die contacts provided by the
most dense semiconductor package currently available.
Using the Compass PGA, the Company believes that the Intel Pentium die
could be mounted into a package approximately the size of a dime. This
represents more than a 90% reduction in the amount of PCB surface area occupied
by existing chips. It is also anticipated that one of the proposed Compass PGA
models will provide over 60 more leads than the typical Intel Pentium chip.
MARKETING AND STRATEGIC RELATIONSHIPS
To introduce the Archistrat Technology Products on a significant
commercial scale, the Company's strategy is to actively seek third parties to
manufacture and market such products and their related technologies, through
direct licensing arrangements, joint ventures, strategic alliances or otherwise.
In June 1996, the Company entered into a license agreement with AMP Incorporated
under which AMP is granted the right to manufacture and market the Company's
VSPA product. Under this agreement, AMP has exclusive rights to the VSPA product
in the ATM switch and Fast Ethernet fields until three years from AMP's first
sale of a product under the agreement or June 2001, whichever occurs first, and
non-exclusive rights in all other fields for the term of the patents included in
the license agreement. The Company is entitled to receive royalties on sales by
AMP or its affiliates of VSPA packages, including payment of an aggregate
minimum royalty of at least $250,000 by June 2001.
The Company has an arrangement with Cirrus Logic Inc. ("Cirrus Logic")
under which the Company's VSPA product is being qualified for use with Cirrus
Logic's graphic accelerator chips.
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As of May 31, 1996, the VSPA package had successfully passed
temperature/humidity bias, temperature cycling and temperature shock tests and
was scheduled to complete remaining qualification testing in June 1996. In
addition, the Company has conducted development work for Cirrus Logic on a
multichip configuration of Compass PGA.
ARCHISTRAT SYSTEMS
The Company's Archistrat Systems Division designs and manufactures
computer systems which incorporate a 256-bit passive backplane architecture (as
opposed to the less powerful 64 and 128-bit designs available in competing
products) and the Company's Compass Connector technology. These systems are
capable of accommodating a variety of microprocessor and peripheral devices. The
Archistrat Computers are intended to offer customers an alternative to the
"cycle of obsolescence," whereby computer systems viewed as state of the art
upon purchase are soon surpassed in performance by systems which incorporate
more advanced microprocessors or peripheral devices. The Company believes the
modular design of the Archistrat Computers, coupled with the Company's pluggable
Compass Connector technology, will increase the flexibility and usable life of
its computers, and reduce the purchaser's information systems costs. Rather than
having to purchase a new computer system, if higher or alternative
functionalities are required, the purchaser can simply replace the
microprocessors and peripheral devices incorporated in the computer as desired.
In addition, while other computer system designs are often constrained due to
limitations on the number of microprocessor interconnects, the Compass Connector
technology incorporated in the Archistrat 4s computers allows the systems to
exploit the more powerful 256-bit passive backplane architecture. This design
facilitates scaleability and expandability of the systems.
The Company also believes that the modular design of its Archistrat
Computers will significantly reduce development costs and lead times for new
products because the Company can achieve new functionalities and performance
levels by developing, licensing or purchasing new PCBs without having to rework
the entire computer design. Although initial versions of the Archistrat 4s
servers operate Intel Pentium chips, the Company believes its computers will not
be reliant on any particular microprocessor design.
The Company believes the server and workstation markets offer the most
promising market for the Archistrat Computers and is focusing its initial
development and commercialization efforts on those markets with the following
product offerings:
ARCHISTRAT 4S SERVER. The Archistrat 4s server incorporates the Intel
Pentium microprocessor but can also support upgraded processors and peripheral
devices. The Archistrat 4s server can run the Windows NT or Windows 95 operating
systems, as well as Novell Netware and other systems. This product is
commercially available and the Company has currently sold approximately 100
units.
ARCHISTRAT ALPHA NT SERVER. This product is designed to operate the
Microsoft Windows NT operating system utilizing the Alpha 21164 microprocessor
manufactured by Digital Equipment Corporation. The Archistrat Alpha NT server is
currently undergoing beta testing and is expected to be available in the
third quarter of 1996.
ARCHISTRAT 4S NXS GRAPHICS WORKSTATION. This product is designed
specifically for the CAD/graphics workstation market. The Archistrat 4s NXS
Graphics Workstation is designed to handle multimedia, imaging and animation
applications. This product is currently undergoing beta testing and is expected
to be available in the third quarter of 1996.
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The Company is also developing a line of personal computers which can
stand alone or be networked with the Archistrat 4s servers. These products, to
be known as Archistrat 4b computers, will utilize a 64 or 128-bit architecture,
and will also be upgradeable and expandable. The Archistrat 4b products are
currently undergoing testing and are scheduled for commercial introduction in
the second quarter of 1997.
There can be no assurance that the Company's computers will be
introduced by the dates set forth above.
The Archistrat Computers are housed in a specially designed cabinet
which the Company believes significantly enhances cooling, functionality and
serviceability. Because of the size of the connectors running between the PCBs
and peripherals, current cabinets frequently do not contain unblocked corridors
through which air can flow and so fail to take into account the additional
cooling requirements demanded by advanced microprocessors. The modular nature of
the Archistrat 4s and 4b computers permits them to be designed to provide
passages though which air can flow through all of their critical components.
MARKETING AND STRATEGIC RELATIONSHIPS
To address the growing market for departmental and work group servers,
the Company will seek to sell its Archistrat 4s computers through end users,
distributors, system integrators, original equipment manufacturers and VARs. The
Company has entered into VAR agreements with 11 companies, located in the United
States, Brazil and Australia. Since December 1995, when commercial sales of the
Archistrat 4s Servers commenced, the Company has sold approximately 100 units.
The Company believes the expandability and upgradeability features of the
Archistrat 4s servers can provide a significant differentiating characteristic
in the marketplace and is working to expand its distribution network.
In February 1996, the Company and Siemens Nixdorf Information Systems,
Inc. ("Siemens") announced a preliminary agreement for the distribution of
Archistrat 4s and Archistrat 4b products. The preliminary agreement, which is
subject to execution of a definitive reseller agreement, grants Siemens the
exclusive right to sell the systems to Siemens affiliates and a non-exclusive
worldwide right to sell the products to other customers. The Company will sell
the products to Siemens at specified discounts from the Company's list prices
and will negotiate additional discounts for volume orders.
In March 1996, the Company entered into a strategic alliance with
Parametric Technology Corporation ("Parametric") a developer of CAD/CAM
software, under which Parametric will certify the Archistrat 4s computers for
use with Parametric's Pro/Engineer products family, include the Company's
products in its marketing literature and jointly market Archistrat 4s computers
with the Company to Parametric's five largest customers.
RESEARCH AND DEVELOPMENT
The Company's principal efforts to date have been devoted to the design
and development of VSPA, Compass PGA and the Archistrat 4s computers and related
technologies. During the fiscal years ended March 31, 1994, 1995 and 1996, the
Company spent approximately $887,000, $3,494,000 and $7,955,000, respectively,
on research and development.
The Company currently anticipates that its activities over the next
year will focus on completing testing and qualification of its VSPA and Compass
PGA products and related
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technologies and development of new versions of its Archistrat computers. In
addition, the Archistrat Technologies Division has under development a PCB
manufacturing technology ("Well Tech PCB") which the Company believes will allow
more efficient use of both the surface area and inner layers of the PCB. Well
Tech PCB is being designed to permit the leads of a semiconductor package to
access directly a copper trace located on a specific layer of a PCB without
having to drill through all of the PCB's layers. By directly accessing traces on
the inner layer, Well Tech PCB technology is intended to more fully utilize PCB
surface area and eliminate complicated signal routing associated with the use of
through-holes. In addition, the Archistrat Systems Division is developing an
advanced multiprocessor unit known as the Archistrat 5 and a multimedia product.
PATENTS; PROPRIETARY INFORMATION
As of May 31, 1996, the Company has pending a total of 21 United
States and 27 foreign patent applications with respect to VSPA, Compass PGA,
Well Tech PCB, the Archistrat 4 computer design and in connection with the use
of the Compass Connector in Compass PGA semiconductor packages and Archistrat 4
computers. In addition, the Company had obtained two United States design
patents and an aggregate of 28 foreign utility and design patents and
registrations with respect to Compass PGA and the Archistrat 4 computers in
several foreign countries including the Republic of China (Taiwan), Germany, the
United Kingdom, Ireland and France. The Company also intends to file
applications in several other foreign jurisdictions to secure protection in
those jurisdictions in accordance with the Patent Cooperation Treaty and the
Paris Convention for the Protection of Industrial Property (which allows such
filings to relate back to the original filing date in the United States)
covering the Company's technology and proposed products. To the extent possible,
the Company also intends to file patent applications with respect to products
and technology that it may develop in the future. The failure by the Company to
obtain any patents for which applications are pending could have a material
adverse effect on the Company's ability to successfully commercialize its
technology and proposed products.
The Company relies on confidentiality and nondisclosure arrangements
with its employees, consultants and others involved with the Company's product
and technological development efforts. There can be no assurance that these
agreements will provide meaningful protection to the Company or that other
companies will not acquire information which the Company considers to be
proprietary. Moreover, there can be no assurance that other companies will not
independently develop know-how comparable or superior to that of the Company.
The Company has registered the Archistrat(TM) and VSPA(TM) trademarks
with the U.S. Patent and Trademark Office and has applied for appropriate
trademark, copyright and other legal protection for its product names, logos and
other identifications. There can be no assurance that the Company will not be
precluded by others from using any of such identifications or creating
proprietary rights with respect to them.
MANUFACTURING
The Company has developed the capability to manufacture VSPA as well as
the Compass Connectors required for its Archistrat Computers and is currently
assembling the Compass Connector in limited quantities in its own facility. The
Company intends to expand its capacity to manufacture the Archistrat Technology
Products. In addition, the Company has contracted with Sun Precision Co., an
assembly company located in Bangalore, India for production of the male
connectors used in the Compass Connector. The Company expects that significant
commercialization of the Archistrat Technology Products will require it to enter
into direct licensing arrangements, joint ventures or strategic alliances with
respect to the manufacture of
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certain of its Archistrat Technology Products. If the Company is unsuccessful in
developing such manufacturing capabilities or in licensing certain products and
technology being developed by its Archistrat Technologies Division or in
developing relationships with manufacturers and suppliers, its lack of
manufacturing capabilities could limit its ability to otherwise commercialize
such products.
The Company currently has the capability to manufacture limited
quantities of the Archistrat 4s servers; however, in the event the Archistrat
Computers become more widely commercialized, the Company anticipates that it
will be dependent on third parties for the manufacture and/or assembly of the
PCBs, frame, exterior, base fabrication and other subassemblies, as well as for
the supply of various components, incorporated into the Archistrat servers, and
for performing the final assembly configuration, certain quality control testing
and delivery of such servers. The Company has entered into an agreement with
Group Technologies Corporation to manufacture and assemble the Company's
Archistrat 4s servers and has identified certain other potential manufacturers
and suppliers for its subassembly and component needs. The Company believes it
will be able to negotiate satisfactory additional manufacturing and supply
contracts; however, the failure to do so could have a material adverse effect on
the Company. While the Company believes that the components for its Archistrat
Computers are available from multiple sources, the Company anticipates that it
will obtain certain of them from a single or limited number of sources of
supply. In the event that certain of such suppliers are unable or unwilling to
provide the Company with components to be used in the Archistrat Computers on
commercially reasonable terms, or at all, delays in securing alternative sources
of supply would result and would have a material adverse effect on the Company's
operations.
COMPETITION
The markets that the Company intends to enter are characterized by
intense competition. In introducing and marketing the Archistrat Technology
Products, the Company will compete with many well established companies which
design, manufacture and/or market semiconductor packages, PCBs and other related
components.
Many of the Company's potential competitors offer peripherally-leaded
SMT packages, pin grid arrays and ball grid arrays which can be used as
alternatives to the products being developed by the Company. Although the
Company believes that VSPA (and Compass PGA, when fully developed) will offer
significant performance advantages over currently available semiconductor
packages, no assurance can be given that the advantages anticipated by the
Company with respect to VSPA or Compass PGA will be realized or, if realized,
gain market acceptance.
The Archistrat Computers compete with various products produced and
marketed by a large number of companies and products. The Archistrat 4s server
and workstation will compete with "midrange" systems (server systems having
prices and performance characteristics between mainframe and desktop computers
and typically utilizing a proprietary operating system), such as the
Hewlett-Packard Net Server, Compaq 1500 and Compaq 4500. The related Archistrat
4b personal computer (which may stand alone or be networked with the Archistrat
4s server) is expected to compete with personal computers, such as those
produced by IBM, Apple Computer, Inc., Compaq Computer Corporation, Digital
Equipment Corp., Hewlett-Packard Co., Gateway 2000, Inc. and Dell Computer Corp.
The Company believes that the Archistrat Computers are the only
computers currently available capable of utilizing various microprocessors and
other devices in a modular fashion,
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which may enable the Company to compete successfully. However, no assurance can
be given that the modularity and design of the Archistrat Computers will be
widely accepted or accepted at all, that it will be recognized as being
sufficiently desirable to allow the Company to compete successfully with
existing products, or that it will not be duplicated by other companies.
All of these companies have substantially greater financial, technical,
personnel and other resources than the Company and have established reputations
for success in the development, licensing, sale and servicing of their products
and technology. Certain of these competitors dominate their industries and have
the financial resources necessary to enable them to withstand substantial price
competition or downturns in the market for semiconductor packages, related
technology and/or computers. In addition, certain companies may be developing
technologies or products of which the Company is unaware which may be
functionally similar, or superior, to some or all of those being developed by
the Company. The markets for the technology and products being developed by the
Company are characterized by rapid changes and evolving industry standards often
resulting in product obsolescence or short product life cycles. Accordingly, the
ability of the Company to compete will depend on its ability to complete
development and introduce to the marketplace in a timely and cost-competitive
manner its proposed products and technology, continually to enhance and improve
such products and technology, to adapt its proposed products to be compatible
with specific products manufactured by others, and successfully to develop and
market new products and technology. There can be no assurance that the Company
will be able to compete successfully, that its competitors or future competitors
will not develop technologies or products that render the Company's products and
technology obsolete or less marketable or that the Company will be able
successfully to enhance its proposed products or technology or adapt them
satisfactorily.
EMPLOYEES
At May 31, 1996, the Company had 139 full-time employees and no
part-time employees. Mr. Crane divides his time between product research,
development and testing and general management. Of the remaining 138 employees,
46 are employed in the Technology Division, 71 in the Systems Division and 21 in
administration. The Company considers its relations with its employees to be
good. None of the Company's employees is represented by labor unions.
ITEM 2. PROPERTIES
The Company leases its principal offices in Boca Raton, Florida, which
are used to house substantially all of the Company's operations, including
research and development, product testing and other operations. Pursuant to the
lease relating to such facility, the Company is obligated to make monthly rental
payments of approximately $30,000. This lease expired in September 1995. The
Company is currently a month-to-month tenant and expects to remain in its
current offices through August 1996. The Company has entered into a lease for
new office space beginning June 1, 1996 and terminating March 31, 2001. Under
the terms of the new lease, the Company is required to make monthly rental
payments of approximately $67,000 during the first year of the lease, increasing
to approximately $87,000 during the last year of the lease. The Company is
seeking to sublease some portion of this space. The Company also leases three
nearby facilities totaling approximately 11,000 square feet, which house the
Company's machining operations and the product assembly operations related to
the Archistrat Technologies Division. The leases with respect to these
facilities require total monthly rental payments of approximately $7,300. The
Company considers that its properties are generally in good condition, are well
maintained and are generally suitable and adequate to carry on the Company's
business.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On June 3, 1994, Direct Target Marketing, Inc., a Delaware corporation
("DTM"), filed a suit (Case No. 94-94006666) against the Company, Stanford W.
Crane, Jr., Drew L. Taylor, Maria Portuondo, Joseph A. Sarubbi, Cowen & Co.,
Whale Securities Co., L.P. (the Underwriter of the Company's initial public
offering), and William Walters in the Circuit Court of the 17th Judicial Circuit
in Broward County, Florida. The suit alleged that DTM was owed certain finder's
fees under a Brokers Agreement, dated as of May 20, 1993, between DTM and the
Company (the "Brokers Agreement") in connection with the consummation of the
Company's private placement bridge financing (as hereinafter defined) in January
and February 1994 and the consummation of the Company's initial public offering
in May 1994, which were placed and underwritten, respectively, by the
Underwriter.
On June 27, 1994, the Company filed a motion to dismiss DTM's
complaint. The Company's motion to dismiss was granted on August 8, 1995.
However, on August 10, 1995, DTM filed an amended complaint (the "Amended
Complaint") alleging a breach of contract claim, naming only the Company as a
defendant and alleging that under the Brokers Agreement, DTM was entitled to a
fee equal to 10% of an unspecified amount of financing received by the Company.
The Amended Complaint seeks unspecified damages, pre-judgment interest,
attorney's fees and costs. No discovery regarding this suit has taken place. At
this time, the Company cannot determine the liability, if any, that may be
assessed in this matter. The Company believes that DTM's Amended Complaint is
without merit and intends to defend the suit vigorously.
In April 1996, William J. Sarubbi, the Company's former Vice President
of Sales, filed a suit against the Company and Melissa Crane (Mr. Crane's wife)
in the Circuit Court of the 15th Judicial Circuit in Palm Beach County, Florida.
The suit alleges that Mr. Sarubbi is entitled to certain sales commissions from
the Company and that certain misrepresentations were made to Mr. Sarubbi by Ms.
Crane which prevented him from selling stock of the Company. At this time the
Company cannot determine the liability, if any, that may be assessed in this
matter. The Company believes Mr. Sarubbi's claims are without merit and intends
to defend the suit vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been traded since May 1994 on the Nasdaq
Stock Market under the symbol "PNDA." Prior to that time, there was no public
market for the Common Stock. The following table sets forth the range of high
and low closing sale prices for the Common Stock as reported on the Nasdaq Stock
Market during each of the quarters presented. The quotations set forth below are
inter-dealer quotations, without retail mark-ups, mark-downs or commissions and
do not necessarily represent actual transactions.
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COMMON STOCK
------------
QUARTERLY PERIOD ENDED HIGH LOW
- - ---------------------- ---- ---
1996
- - ----
March 31, 1996 $23.50 $15.75
1995
- - ----
December 31, 1995 $35.50 $19.79
September 30, 1995 $49.00 $28.00
June 30, 1995 $30.75 $20.00
March 31, 1995 $24.25 $11.25
1994
- - ----
December 31, 1994 $11.25 $8.38
September 30, 1994 $ 8.50 $6.63
June 30, 1994 $ 8.13 $5.25
(Commencing May 17, 1994)
As of June 20, 1996, there were approximately 282 holders of record of
the Company's Common Stock. This number does not include beneficial owners of
the Common Stock whose shares are held in the names of various dealers, clearing
agencies, banks, brokers and other fiduciaries.
The Company has never declared or paid any cash dividends. The Company
currently intends to retain any future earnings to finance the growth and
development of its business and future operations, and therefore does not
anticipate paying any cash dividends in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
FISCAL YEAR ENDED MARCH 31,
---------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net Sales $ 870,658 $ - $ -
Research and Development Costs 7,954,924 3,494,260 887,318
Selling, General and Administrative Expenses 17,066,012 3,744,914 934,487
Other income 43,680 14,216 21,465
Interest Income 953,962 293,612 -
Net loss (23,894,426) (6,931,346) (1,800,340)
Net loss per common share (3.07) (1.25) (0.54)
Weighted average number of shares outstanding 7,786,426 5,531,941 3,306,532
</TABLE>
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BALANCE SHEET DATA:
AS OF MARCH 31,
---------------
1996 1995
---- ----
Working capital $ 9,704,345 7,893,071
Total assets 18,557,681 10,245,133
Total liabilities 3,690,090 1,069,810
Accumulated (deficit) (33,041,800) (9,147,374)
Stockholders' equity 14,867,591 9,175,323
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Panda Project, Inc. (the "Company") was incorporated in April 1992
to design, develop and license products incorporating the Company's proprietary
semiconductor packaging and interconnect technology (the "Archistrat Technology
Products") and to develop, manufacture and market a line of powerful, modular
computers (the "Archistrat Computers"). The Company's fiscal year ends on March
31. Prior to January 1, 1996, the Company was considered a "development stage
enterprise" as defined by Statement of Financial Accounting Standards No. 7 (FAS
7), ACCOUNTING AND REPORTING BY DEVELOPMENT STAGE ENTERPRISES, and the Company's
financial statements for all periods prior to that date were prepared on the
basis specified in FAS 7. The Company emerged from development stage status as
of January 1, 1996. Accordingly, the financial statements of the Company,
included elsewhere in this Annual Report, are presented to reflect that change
in status.
This Annual Report on Form 10-K contains forward-looking statements.
For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes", "anticipates", "plans", "expects" and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the Company's actual results
to differ materially from those indicated by such forward looking statements.
These factors include, without limitation, those set forth below under the
caption "Certain Factors That May Affect Future Results."
RESULTS OF OPERATIONS
FISCAL YEAR 1996 VERSUS FISCAL YEAR 1995
The Company began recognizing revenue from the shipment of production
units of its first commercially available product, the Archistrat Computer in
its server configuration, during fiscal 1996. As a result, net sales for fiscal
year 1996 amounted to $870,658. Because the Company was in the development stage
in fiscal 1995, no revenues from operations were realized during that year.
Gross profit for fiscal 1996 was approximately $129,000 or 15% of net sales.
However, the Company believes this level of gross profit percentage is not
necessarily indicative of future gross profit percentages because it is based on
the initial, limited number of units of Archistrat 4s servers sold during fiscal
1996. The revenue and gross profit amounts for fiscal 1996 do not include the
effects of any licensing arrangements related to the Company's Archistrat
Technologies. On June 10, 1996, the Company announced that AMP Incorporated had
licensed the Company's VSPA
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product. The Company expects to realize licensing revenue in an amount not yet
quantified during fiscal 1997 under the terms of this arrangement.
Selling, general and administrative expenses for fiscal 1996 increased
approximately $13.4 million to $17.1 million, as compared to $3.7 million for
fiscal 1995. The significant increase in selling, general and administrative
expenses for fiscal 1996 is due principally to the costs incurred in connection
with the introduction of the Archistrat 4s server, the creation and expansion of
distribution channels including agreements with several resellers, continued
efforts to expand geographic markets, including the Latin American market, and
greater emphasis on establishing comprehensive programs for advertising,
customer service, and technical support. In addition, the Company significantly
increased the number of employees from 43 at March 31, 1995 to 150 at March 31,
1996. As a result, employee compensation and related expenses, such as state and
federal unemployment taxes, health insurance premiums and other fringe benefits,
amounted to $5.6 million for fiscal 1996, as compared with $1.1 million for
fiscal 1995. As of June 1, 1996, the Company had reduced its number of full-time
employees to 139 and does not expect to significantly increase that number
during the next two fiscal quarters. Increased sales of the Company's Archistrat
Computers, additional licensing arrangements related to the Company's Archistrat
Technologies, or both, may require the hiring of additional employees in the
later months of fiscal 1997. In addition, selling, general and administrative
expenses in fiscal 1996 reflect the cost of continued preparation and filing of
patent applications with respect to proposed products and technologies.
Research and development expenses totaled approximately $8.0 million
for fiscal 1996, representing an increase of 128% as compared to $3.5 million
for fiscal 1995. The increase is due principally to the Company's continuing
efforts to design and develop VSPA, Compass PGA and the Archistrat 4s computers
and related technologies. During fiscal 1996, research and development
activities included testing and qualification of VSPA; development of initial
production tooling for VSPA; conceptual development of Compass PGA; assembly of
working prototypes of the Archistrat workstation and the initiation of the beta
testing of such prototypes; and the development of a new processor board
utilizing DEC's Alpha microprocessor.
Depreciation expense increased to $560,717 in fiscal 1996 from $54,882
in fiscal 1995. This increase is primarily due to the acquisition of office
furniture and equipment resulting from the hiring of additional full-time
personnel, and the acquisition of machinery and equipment necessary to develop
the capability and capacity to manufacture VSPA as well as the Compass
Connectors.
Interest and other income for fiscal 1996 increased to $997,642 from
$307,828 in fiscal 1995. Average outstanding balances in cash and cash
equivalents increased significantly following the July 1995 private placement in
which the Company received net proceeds of approximately $28.4 million from the
sale of 1,197,627 shares of common stock and the issuance of warrants to
purchase 399,209 shares of common stock.
FISCAL YEAR 1995 VERSUS FISCAL YEAR 1994
In fiscal 1995 and 1994, the Company was in the development stage and
had not yet generated any revenues from operations.
Selling, general and administrative expenses for fiscal 1995 amounted
to approximately $3.7 million as compared to $934,000 for fiscal 1994. The 300%
increase in selling, general, and administrative expenses for fiscal 1995 is due
principally to the initial development of a marketing program, including public
relations and the formulation of advertising and promotional materials
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<PAGE>
and strategies in order to establish awareness of the Company in the computer
industry and to educate major OEMs, VARs and end-users in the distinct
characteristics and anticipated benefits of the Company's technologies and
products. The increase in selling, general and administrative expenses during
fiscal 1995 also reflects the effects of an increase in the number of full-time
employees from 7 at March 31, 1994 to 43 at March 31, 1995.
Research and development expenses totaled approximately $3.5 million in
Fiscal 1995, representing an increase of 294% as compared to $887,000 for fiscal
1994. The increase is due principally to the Company's expanded efforts to
design and develop VSPA and the Archistrat 4s computers and related
technologies. During fiscal 1995, research and development costs primarily
consisted of salaries and benefits for full-time personnel and costs incurred
for outside consultants and engineers engaged to assist in the Company's
research and development efforts.
Interest and other income for fiscal 1995 increased to $308,000 from
$21,000 in fiscal 1994. Average outstanding balances in cash and cash
equivalents increased following the completion of the May 1994 initial public
offering and the December 1994 exercise of outstanding redeemable common stock
purchase warrants. Pursuant to the initial public offering of 2,000,000 shares
of the Company's common stock and redeemable warrants to purchase 1,150,000
shares of common stock, the Company received net proceeds of approximately $9.3
million. Pursuant to the exercise of redeemable common stock purchase warrants,
the Company received additional net proceeds of approximately $6.8 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements in connection with its operations
and development activities have been and will continue to be significant. During
the year ending March 31, 1997, the Company expects to continue development of
its Archistrat Technology Products and complete the work necessary to
commercially introduce several of its Archistrat Computers. As stated
previously, the Company emerged from development stage status during the fourth
quarter of the fiscal year ended March 31, 1996, in part, by virtue of having
generated revenue through the sale of a limited number of its Archistrat 4s
server. The Company expects the shipment of additional units of its Archistrat
4s server and the planned commercial introduction of the Archistrat Alpha NT
Server and the Archistrat 4s NTX Graphics Workstation to result in recording of
related revenue during the fiscal year ending March 31, 1997. However, there can
be no assurance that such increased shipments or commercial introduction will in
fact occur on the timetable anticipated by the Company. In addition, the Company
expects to realize licensing revenue from the arrangement announced on June 10,
1996 under which AMP Incorporated licensed the Company's VSPA product. However,
the amount of such revenue has not been quantified and is not likely to be
realized earlier than the third or fourth quarter of the Company's fiscal year
ending March 31, 1997.
The Company has been dependent upon the proceeds of sales of its
securities to fund its activities since inception. The Company expects that the
increased shipments of Archistrat Computers and the related revenue, as well as
licensing revenue from the arrangement with AMP Incorporated will provide
additional resources to partially fund its activities during fiscal year 1997.
However, the Company is dependent upon additional financing to expand its
marketing activities in order to obtain additional orders for its Archistrat
Computers, to continue efforts that may lead to the commercialization of
additional products and technologies and to finance other working capital
requirements.
As of March 31, 1996, the Company had working capital of $9.7 million.
The Company anticipates, based on currently proposed
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<PAGE>
plans and assumptions relating to its operations, that the amount of working
capital as of March 31, 1996, as augmented by the Company's anticipated revenues
from the sale of its Archistrat Computers, will be sufficient to satisfy the
Company's anticipated cash requirements through September 15, 1996.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following factors, among others, could cause actual results to
differ materially from those contained in forward looking statements made in
this Annual Report on Form 10-K and presented elsewhere by management from time
time.
1. LIMITED PRODUCT DEVELOPMENT AND OPERATING HISTORY. Although the
Company has recently begun commercialization of certain products, other products
and technologies are undergoing additional testing and certification which may
ultimately lead to their commercialization. The Company's viability,
profitability and growth will depend in part upon successful commercialization
of these other products and technologies. There can be no assurance that these
efforts will be successful or that any of the proposed additional products will
be developed successfully. Further, the Company has a limited operating history
upon which an evaluation of its prospects can be made. Such prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered in the establishment of a new business in the evolving computer
industry, which is characterized by an increasing number of market entrants and
intense competition, as well as those encountered in the shift from development
to commercialization of new products based on innovative technologies.
2. LIMITED REVENUES; HISTORY OF SIGNIFICANT LOSSES; ACCUMULATED
DEFICIT; ANTICIPATED FUTURE LOSSES. To date, the Company has generated limited
revenues from the sale of its Archistrat 4s servers; the Company does not
anticipate deriving larger revenues from operations until such time, if ever,
that greater numbers of Archistrat Computers are sold and Archistrat Technology
Products are fully developed and can be manufactured and licensed or
successfully commercialized, as to which there can be no assurance. Since
inception (April 8, 1992), the Company has incurred significant operating
losses, including losses of $1,800,340, $6,931,346 and $23,894,426 during the
fiscal year ended March 31, 1994, the fiscal year ended March 31, 1995, and the
fiscal year ended March 31, 1996, respectively, resulting in an accumulated
deficit of $33,041,800, as of March 31, 1996. In addition, the Company
anticipates substantial losses to continue in the foreseeable future. Inasmuch
as the Company will continue to have a high level of operating expenses and will
be required to make significant expenditures in connection with its research and
development and manufacturing and marketing activities (including salaries of
executive, technical and research and development personnel), the Company
anticipates that such losses will continue until such time, if ever, as the
Company is able to generate sufficient revenues to support its operations. There
can be no assurance that the Company will ever be able to generate sufficient
revenues to achieve profitable operations.
3. SIGNIFICANT CAPITAL REQUIREMENTS; DEPENDENCE ON OFFERING PROCEEDS;
NEED FOR ADDITIONAL FINANCING. The Company's capital requirements in connection
with its operations and development activities have been and will continue to be
significant. The Company has been dependent upon the proceeds of sales of its
securities to fund its activities since inception. During the period from
inception through May 31, 1996, the Company raised capital of approximately
$48,000,000 (after deduction of underwriting discounts, commissions and other
selling costs) through the sale of Common Stock, notes (since repaid) and
warrants, and from the exercise of stock options and warrants. The Company is
dependent upon additional financing to expand its marketing activities in order
to obtain additional orders for its Archistrat Computers, to purchase additional
components for the manufacture of these computers, to continue the efforts
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<PAGE>
that may lead to the commercialization of additional products and technologies
and to finance its other working capital requirements. The Company anticipates,
based on currently proposed plans and assumptions relating to its operations,
that the working capital of the Company at May 31, 1996, as augmented by the
Company's anticipated revenues from the sale of its Archistrat 4s servers, will
be sufficient to satisfy the Company's anticipated cash requirements through
September 15, 1996.
In the event the Company's plans change or its assumptions prove to be
inaccurate or the Company's working capital at May 31, 1996, as augmented by any
sales revenue prove to be insufficient to fund operations (due to unanticipated
expenses, delays, problems, or otherwise), the Company would be required to seek
additional financing. Furthermore, depending upon the Company's progress in the
development of its products and technology and manufacturing capabilities,
acceptance of its products and technology by third parties, and the state of the
capital markets, the Company may also determine that it is advisable to raise
additional equity capital, possibly within the next nine months. In addition, in
the event that the Company receives a larger than anticipated number of purchase
orders for its Archistrat 4s servers or VSPA, it may require resources
substantially greater than it currently has or than are otherwise available to
the Company, and the Company may be required to raise additional capital or
engage third parties (as to which engagement there can be no assurance) to
assist the Company in meeting such orders. The Company has no current
arrangements with respect to, or sources of, additional financing, and there can
be no assurance that additional financing will be available to the Company when
needed on commercially reasonable terms or at all. The inability of the Company
to obtain additional financing when needed would have a material adverse effect
on the Company, including possibly requiring the Company to significantly
curtail or cease its operations. To the extent that any future financing
involves the sale of the Company's equity securities, the Company's then
existing stockholders may be substantially diluted.
4. UNCERTAINTY OF MARKET ACCEPTANCE. The products and technologies
currently being sold or developed by the Company utilize newly developed
designs. Although the Company believes that its existing and proposed technology
and products represent significant advancements in semiconductor packaging and
computer technology, demand for the Company's existing and proposed products is
subject to a high degree of uncertainty, as is typical in the case of
newly-developed products. Achieving marketing acceptance for the Company's
technology and existing and proposed products will require substantial marketing
efforts and expenditure of significant funds to educate key OEMs and VARs and
end users, as to the distinctive characteristics and anticipated benefits of the
Company's proposed products and technologies. Many OEMs and VARs manufacture
and/or sell components and computers competitive with those being developed by
the Company and have achieved significant market acceptance for their products.
Accordingly, due to their commitment to their own products, such entities may be
inhibited from doing business with the Company. In addition, many OEMs and VARs
may be reluctant to use or sell the Company's proposed products and technologies
until a sufficient number of other OEMs and VARs have already committed to do
so. The Company currently has limited marketing experience and limited
financial, personnel and other resources to undertake the extensive marketing
activities that will be necessary to market its proposed products and
technologies as their development is completed. The Company's ability to
generate revenue from the sale of Archistrat Computers or the licensing or sale
of Archistrat Technology Products and related technologies will be dependent
upon, among other things, its ability to build an effective sales organization.
There can be no assurance that the Company will be able to formalize any
marketing arrangements or that its marketing efforts will be successful.
5. UNCERTAINTY OF PRODUCT AND TECHNOLOGY DEVELOPMENT; TECHNOLOGICAL
FACTORS; DEPENDENCE ON THIRD-PARTY PRODUCT DESIGN CHANGES. The Company's
development efforts
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are subject to all of the risks inherent in the development of new products and
technology (including unanticipated delays, expenses or technical or other
problems, as well as the possible insufficiency of funding to complete
development). The Company's success will depend in part upon its products and
technology meeting acceptable cost and performance criteria, and upon their
timely introduction into the marketplace. There can be no assurance that the
Company's products and technology which have not yet been commercialized will
ever be successfully developed, and even if developed, that they will
satisfactorily perform the functions for which they are designed, that they will
meet applicable price or performance objectives or that unanticipated technical
or other problems will not occur which would result in increased costs or
material delays in their development or commercialization. In addition,
technology as complex as that which will be incorporated into the Company's
proposed products may contain errors which become apparent subsequent to
widespread commercial use. Remedying such errors could delay the Company's plans
and cause it to incur additional costs which would have a material adverse
effect on the Company. The Company's success will also be dependent upon the
Company's ability to adapt its products to be compatible with the products of
third-party manufacturers of computer products. In addition, the Company will be
dependent on certain potential customers redesigning or otherwise modifying
their products to fully utilize the Company's proposed products and technology.
Although the Company believes that potential customers will undertake such
modifications to take advantage of the anticipated performance advantages of the
Company's proposed products, the costs of making such adaptations could prevent
them from doing so on a timely basis, or at all. The failure of the Company to
adapt its products and technology to be compatible with products of third-party
manufacturers or the failure of potential customers to make necessary
modifications or to redesign their products to accommodate the Company's
products could have a material adverse effect on the Company's ability to sell
or license its proposed products or technology.
6. COMPETITION; TECHNOLOGICAL OBSOLESCENCE. The markets that the
Company intends to enter are characterized by intense competition. The Company's
Archistrat 4s computers compete with "midrange" systems (server and workstation
systems having prices and performance characteristics between mainframe and
desktop computers and typically utilizing a proprietary operating system), such
as the Hewlett-Packard Net Server LS, Compaq 1500 and Compaq 4500. The related
Archistrat 4b multimedia personal computer (which is designed to stand alone or
be networked with the Archistrat 4s server computer) is expected to compete with
personal computers, such as those produced by IBM, Apple Computer, Inc., Compaq
Computer Corporation, Digital Equipment Corp., Hewlett-Packard Co., Gateway
2000, Inc. and Dell Computer Corp. The Company's Archistrat Technologies
Division will compete with numerous manufacturers of semiconductor packages and
connectors. All of these companies have substantially greater financial,
technical, personnel and other resources than the Company and have established
reputations for success in the development, licensing, sale and servicing of
their products and technology. Certain of these competitors dominate their
industries and have the financial resources necessary to enable them to
withstand substantial price competition or downturns in the market for
semiconductor packages, related technologies and/or computers. In addition,
certain companies may be developing technologies or products of which the
Company is unaware, which may be functionally similar, or superior, to some or
all of those being developed by the Company. The markets for the technology and
products being developed by the Company are characterized by rapid changes and
evolving industry standards often resulting in product obsolescence or short
product life cycles. Accordingly, the ability of the Company to compete will
depend on its ability to complete development and introduce to the marketplace
in a timely and cost-competitive manner additional products and technology, to
continually enhance and improve its existing and proposed products and
technology, to adapt its proposed products to be compatible with specific
products manufactured by others, and to successfully develop and market new
products and technology. There can be no assurance that the Company will be able
to
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compete successfully, that its competitors or future competitors will not
develop technologies or products that render the Company's proposed products and
technology obsolete or less marketable or that the Company will be able to
successfully enhance its proposed products or technology or adapt them
satisfactorily.
7. DEPENDENCE ON MANUFACTURERS AND SUPPLIERS; LACK OF MANUFACTURING
EXPERIENCE AND CAPABILITY. The Company has developed the capability to
manufacture VSPA as well as the Compass Connectors required for its Archistrat
Computers and is currently assembling the Compass Connector in limited
quantities in its own facility. The Company has also entered into an agreement
with Sun Precision Co. for the production of the male connector component of the
Compass Connector; although the Company's supply of this component is currently
adequate to meet its needs, no assurance can be given that such supplier can
produce such component in sufficient quantities in the future, or that the
Company will be able to develop an alternative source of supply within its
projected development schedules, or at all. The Company expects that significant
commercialization of the Archistrat Technology Products will require it to enter
into direct licensing arrangements, joint ventures or strategic alliances with
respect to the manufacture of certain of its Archistrat Technology Products. If
the Company is unsuccessful in developing such manufacturing capabilities or in
licensing certain products and technology being developed by its Archistrat
Technologies Division or in developing relationships with manufacturers and
suppliers, its lack of manufacturing capabilities could limit its ability
otherwise to commercialize such products.
The Company anticipates that it will be dependent on third parties for
the manufacture and/or assembly of the PCBs, frame, exterior, base fabrication
and other subassemblies, as well as for the supply of various of the components,
incorporated into the Archistrat servers, and for performing the final assembly
configuration, certain quality control testing and delivery of such servers.
Although the Company has entered into an agreement with Group Technologies
Corporation to manufacture and assemble the Company's Archistrat 4s servers and
has identified certain other potential manufacturers and suppliers for its
subassembly and component needs, it has not yet entered into any additional
manufacturing or supply arrangements. The Company believes it will be able to
negotiate satisfactory manufacturing and supply contracts; however, the failure
to do so could have a material adverse effect on the Company. Even if the
Company were able to enter into suitable manufacturing arrangements for
necessary subassemblies, there can be no assurance that such manufacturers will
dedicate sufficient production capacity to satisfy the Company's requirements
within scheduled delivery times or at all. In addition, the failure or delay by
the Company's suppliers in fulfilling its anticipated component needs would
adversely affect the Company's ability to develop and market its products and
technology. While the Company believes that these components are available from
multiple sources, the Company anticipates that it will obtain certain of them
from a single or limited number of sources of supply. In the event that certain
of such suppliers are unable or unwilling to provide the Company with components
to be used in the Archistrat Computers on commercially reasonable terms, or at
all, delays in securing alternative sources of supply could result in a material
adverse effect on the Company's operations.
At a future date, the Company may determine that the development of
manufacturing capabilities with respect to the Archistrat Computers (and/or
their subassemblies or components) is necessary or appropriate. To date, the
Company has manufactured limited commercial quantities of the Archistrat 4s
server configuration and completed working prototypes of the Archistrat 4s
workstations. The Company does not have the staff or the facilities necessary to
manufacture, assemble and/or configure its proposed computers internally in
larger commercial quantities. The establishment of manufacturing and/or assembly
capabilities may result in significant expense and is subject to numerous risks,
including unanticipated technological problems and delays. The
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failure of the Company to successfully manufacture its Archistrat Computers
would have a material adverse effect on the Company.
8. DEPENDENCE ON KEY PERSONNEL. The success of the Company will be
dependent on the continued personal efforts of Stanford W. Crane, Jr., its
Chairman and Chief Executive Officer and the principal inventor of its
proprietary products and technologies, and certain other key personnel. Although
Mr. Crane has entered into a five-year employment agreement with the Company,
the agreement provides that he may resign by giving six months' notice at any
time after May 8, 1995. The loss of his services would have a material adverse
effect on the Company. The Company has obtained key-man insurance on Mr. Crane's
life in the amount of $2,000,000. The success of the Company also is dependent
upon its ability to hire and retain additional qualified executive, scientific,
production and marketing personnel. Although the Company has been able to hire
qualified personnel since its initial public offering in May 1994, there can be
no assurance that the Company will be able to hire additional qualified
personnel or retain such necessary personnel.
9. PATENTS AND PROPRIETARY INFORMATION. The Company's success will
depend on its ability to obtain patents, protect trade secrets, and operate
without infringing on the proprietary rights of others. The Company has pending
a total of 21 United States patent applications and 27 foreign patent
applications with respect to VSPA, Compass PGA, Well Tech PCB and Archistrat 4
computer design and in connection with the use of the Compass Connector in its
Compass PGA semiconductor packages and the Archistrat 4 computers. In addition,
the Company has obtained two United Stated design patents and an aggregate of 28
foreign utility and design patents and registrations with respect to Compass PGA
and the Archistrat 4 computers in several countries, including the Republic of
China (Taiwan), Germany, the United Kingdom, Ireland and France. The Company
also intends to file patent applications in several other foreign jurisdictions
to secure protection in those jurisdictions in accordance with the Patent
Cooperation Treaty and the Paris Convention for the Protection of Industrial
Property (which allows such filings to relate back to the original filing date
in the United States). To the extent possible, the Company also intends to file
patent applications with respect to products and technology that it may develop
in the future.
There can be no assurance that any of the Company's patent applications
will ultimately result in an issued patent. Moreover, the patent laws of other
countries may differ from those of the United States as to the patentability of
the Company's products or technology, and the degree of protection afforded by
foreign patents may be different from that in the United States. The failure by
the Company to obtain patents for which applications are currently pending could
have a material adverse effect on the Company's ability to commercialize
successfully its proposed technology and products. Even if the Company is able
to obtain such patents, there can be no assurance that any such patents will
afford the Company commercially significant protection for its technology or
products. In addition, other companies may independently develop equivalent or
superior technologies or products and may obtain patent or similar rights with
respect to them. Although the Company believes that its technology has been
independently developed and that its technology does not infringe on the patents
or violate the proprietary rights of others, there can be no assurance that any
of the Company's technology or products, will not be determined to infringe upon
the patents or proprietary rights of others, or that patents or proprietary
rights of others will not have an adverse effect on the ability of the Company
to do business. If the Company's technology or products were determined to
infringe on the patents, trademarks or proprietary rights of others, the Company
could, under certain circumstances, become liable for damages, which also could
have a material adverse effect on the Company. Moreover, in the event that the
Company's technology or proposed products were deemed to infringe upon the
rights of others, the Company would be required to obtain licenses to utilize
such technology. There can be no assurance that the Company would be able to
obtain such licenses in a timely manner or on acceptable terms and
-19-
<PAGE>
conditions, and the failure to do so could have a material adverse effect on the
Company. If the Company were unable to obtain such licenses, it could encounter
significant delays in product market introductions while it attempted to design
around the infringed upon patents or rights, or could find the development,
manufacture or sale of products requiring such licenses to be foreclosed. In
addition, patent disputes are common in the computer industry and there can be
no assurance that the Company will have the financial resources to enforce or
defend a patent infringement or proprietary rights action.
The Company also relies on trade secrets and proprietary know-how and
employs various methods, including confidentiality and nondisclosure
arrangements with its employees, consultants and others involved with the
Company's product and technological development efforts, to protect the
concepts, ideas and documentation relating to its proprietary technologies.
There can be no assurance that these arrangements will provide meaningful
protection to the Company or that other companies will not acquire information
which the Company considers to be proprietary. Moreover, there can be no
assurance that other companies have not or will not independently develop
know-how comparable to or superior to that of the Company. See "Business -
Patents; Proprietary Information."
10. DEPENDENCE ON THE CRANE-PANDA LICENSING AGREEMENT; POTENTIAL
CONFLICTS OF INTEREST. Pursuant to a license agreement entered into in April
1996 between the Company and Mr. Crane (the "Crane-Panda License"), Mr. Crane
has granted the Company the nonexclusive right to utilize the Compass Connector,
a key component in the commercialization of the Company's Archistrat Computers
and the development and commercialization of Compass PGA. The Crane-Panda
License was executed in connection with the conversion to a nonexclusive license
of the 3M License described below and supersedes an earlier license agreement
between Mr. Crane and the Company relating to the Compass Connector. Under the
Crane-Panda License, the Company is required to pay Mr. Crane a royalty on any
sales of Compass Connectors as discrete parts in the amount of 5% of the net
sales price for the first five years of the term of the agreement, 2.5% of the
net sales price for the next five years of the term of the agreement and 2% of
the net sales price thereafter, provided that no royalty is payable until
aggregate net sales of the Compass Connector as discrete parts exceed $100,000.
The royalty rate will be reduced after the fifth anniversary of the agreement if
no patent remains in effect with respect to the Compass Connector. No royalty is
payable on sales of the Compass Connector as incorporated in the Archistrat
Computers or other computer system on assembly. The Company may grant
sublicenses under the Crane-Panda license, but only for the use of products as
incorporated in the Archistrat Computers or other computer system or assembly.
To date, there have been no sales requiring the payment of royalties to Mr.
Crane under the Crane-Panda License. The Crane-Panda License obligates the
Company to maintain proprietary information relating to the Compass Connector on
a confidential basis, notify Mr. Crane of any evidence of infringement with
respect to the Compass Connector and related technology, and cooperate with Mr.
Crane to contest any such infringement. In the event that the Company becomes
bankrupt or insolvent or defaults in any of its material obligations under the
Crane-Panda License and fails to cure any such defaults within specified cure
periods, Mr. Crane may terminate the Crane-Panda License. The Company is
substantially dependent upon the Crane-Panda License. The termination of the
agreement under any circumstances would have a material adverse effect on the
Company. There can be no assurance that conflicts of interest will not arise
with respect to the Crane-Panda License or that such conflicts will be resolved
in a manner favorable to the Company. In addition, Mr. Crane retains ownership
of the Compass Connector technology, and has the right to grant licenses to or
otherwise transfer rights to the Compass Connector technology to third parties.
In September 1992, Mr. Crane granted an exclusive license (the "3M
License") to Minnesota Mining and Manufacturing Co. ("3M") to develop,
manufacture, use and sell the Compass Connector other than as part of a computer
system. In February 1996, Mr. Crane and 3M agreed to convert the 3M License to a
nonexclusive license. The 3M License provides in
-20-
<PAGE>
certain circumstances for the payment of a royalty to Mr. Crane. As of the date
of this report, Mr. Crane had received no such payments.
11. SUBSTANTIAL CONTROL BY MANAGEMENT. As of the date of this report,
officers and directors of the Company own of record and beneficially
approximately 40.7% of the issued and outstanding shares of Common Stock and are
thus able to exert substantial influence over the policies and affairs of the
Company.
12. RISKS RELATING TO POTENTIAL INTERNATIONAL OPERATIONS. Although the
Company currently prices all of its international sales in U.S. dollars, future
sales or licensing of its products or technologies outside the U.S., may be
subject to the risks associated with fluctuations in currency exchange rates.
The Company may also be subject to other risks associated with international
operations, including tariff regulations and requirements for export licenses,
particularly with respect to the export of certain technologies (which licenses
may on occasion be delayed or difficult to obtain), unexpected changes in
regulatory requirements, longer accounts receivable requirements, difficulties
in managing international operations, potentially adverse tax consequences,
economic and political instability, restrictions on repatriation of earnings,
and the burdens of complying with a wide variety of foreign laws. In addition,
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 such factors will not have a material
adverse effect on the Company's future international sales or licenses and,
consequently, on the Company's business and operations as a whole.
13. GENERAL. Because of these and other factors, past financial
performance should not be considered an indicator of future performance.
Investors should not use historical trends to anticipate future results and
should be aware that the trading price of the Company's Common Stock may be
subject to wide fluctuations in response to quarter-to-quarter variations in
operating results, general conditions in the semiconductor packaging and
computer industries, changes in earnings estimates and recommendations by
analysts and other events.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is incorporated by reference from
pages F-1 through F-22 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item regarding directors of the
Company is incorporated by reference from the Registrant's definitive Proxy
Statement for its 1996 Annual Meeting of Shareholders to be filed with the
Securities and Exchange Commission not later than July 29, 1996. On June 7,
1996, Joseph A. Sarubbi resigned as a director of the Company.
-21-
<PAGE>
Set forth below are the names, ages as of June 1, 1996 and business
experience of the executive officers of the Company:
NAME AGE POSITION
- - ---- --- --------
Stanford W. Crane, Jr...................... 45 President, Chief
Executive Officer and
Chairman of the
Board of Directors
William E. Ahearn.......................... 58 President, Archistrat
Systems Division
T. Scott Shamlin........................... 50 President, Archistrat
Technologies Division
C. Daryl Hollis............................ 52 Chief Financial
Officer and Secretary
STANFORD W. CRANE, JR. has served as President, Chief Executive Officer
and Chairman of the Board of Directors of the Company since its inception in
April 1992 and, since November 1993, as Senior Vice President - Product Design
and Development. From May 1990 to April 1992, Mr. Crane was self-employed,
principally engaged in the development of the Compass Connector. From 1984 to
April 1990, Mr. Crane was president of Crane Electronics, Inc., which supplied
advanced interconnection technology for military and commercial products. From
1980 until 1984, Mr. Crane was an executive at Molex Corporation, a
publicly-held corporation manufacturing and selling electronic interconnect
devices, and served from 1982 to 1984 on the Chairman's staff for the Advanced
Development Committee and assisted in marketing and strategic planning for
domestic and international operations. From 1976 to 1980, Mr. Crane served as a
sales executive for AMP Incorporated, a manufacturer of electronic components.
WILLIAM E. AHEARN joined the Company in March 1996 and has served as
President of the Company's Archistrat Systems Division since April 1996. From
1993 to 1996, he was Director of Multimedia Products at AMP Incorporated. From
1964 to 1993, Mr. Ahearn served in a variety of positions at International
Business Machines Corporation ("IBM"), including Product Manager for Digital
Video Interactive and Collaborative Work Products IBM Europe, Product and
Project Manager for Input/Output Technology Entry Systems and Electro-Optical
Technologies at IBM Corporate Headquarters, and as staff member of IBM's T.J.
Watson Research Center. From 1984 to 1989, Mr. Ahearn was a visiting scholar at
the MIT Media Lab.
T. SCOTT SHAMLIN joined the Company in November 1995 as President of
the Company's Archistrat Technologies Division. From 1978 to 1995, Mr. Shamlin
was employed by Motorola Corporation, most recently as Vice President and
General Manager of Far East operations. Mr. Shamlin serves on the Board of
Directors of Motorola Singapore, Motorola Malaysia and Nippon Motorola.
C. DARYL HOLLIS has served as Chief Financial Officer of the Company
since May 1996 under the terms of a consulting agreement which is cancellable by
either Mr. Hollis or the Company without notice. From March 1993 through March
1996, Mr. Hollis was Senior Vice President, Secretary and Treasurer of Pointe
Financial Corporation, a privately-held bank holding company. From 1991 through
February 1993, Mr. Hollis was an independent business consultant. For more than
10 years prior to 1991, Mr. Hollis was a partner with Ernst & Young.
-22-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the Registrant's definitive Proxy Statement for its 1996 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission not later
than July 29, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the Registrant's definitive Proxy Statement for its 1996 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission not later
than July 29, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the Registrant's definitive Proxy Statement for its 1996 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission not later
than July 29, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS
The financial statements filed as part of this report
are listed on the Index to Financial Statements on page F-1.
(2) FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted as the information required is
inapplicable or the information is presented in the financial statements or
related notes.
(3) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
3.1 Amended and Restated Articles of Incorporation of the
Company (incorporated herein by reference to Exhibit 3.1,
filed as part of the Company's Registration Statement on
Form SB-2 (File No.33-7664-A) (the "Registration Statement")).
3.2 Bylaws of the Company, as amended and restated as of
July 29, 1994 (incorporated hereby by reference to Exhibit 3.2
filed as part of the Company's Form 10-QSB for the quarterly
period ended June 30, 1994 (Commission File No. 0-24030)).
10.1 Amended and Restated Employment Agreement between the
Company and Stanford W. Crane, Jr., dated February 22,
1994 (incorporated herein by reference to Exhibit 10.1 filed
as part of the Registration Statement).
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<PAGE>
10.2 1993 Performance Incentive Plan, dated December 29,
1993 (incorporated herein by reference to Exhibit 10.6 filed
as part of the Registration Statement).
10.3 Nonemployee Director Stock Option Plan, dated December
29, 1993, as amended on January 19, 1995 (incorporated
herein by reference to Exhibit 4.6 filed as part of
the Company's Registration Statement on Form S-8
filed with the Securities and Exchange Commission on
April 5, 1995 (Registration No. 33-86948)).@
10.4 1995 Employee Stock Incentive Plan, dated November 2, 1995
(incorporated herein by reference to Exhibit 4.4 filed as part
of the Company's Registration Statement on Form S-8 filed with
the Securities and Exchange Commission on November 7, 1995
Registration No. 33-99058).@
10.5(a) Lease Agreement between the Company and Fairfax Boca
'92 L.P., dated March 2, 1994 (incorporated herein by
reference to Exhibit 10.9(a) filed as part of the
Registration Statement).
10.5(b) Amendment dated April 1, 1995, to Lease Agreement
dated March 2, 1994, between the Company and Fairfax
Boca '92, L.P.*
10.5(c) Amendment dated as of July 1, 1995, to Lease Agreement
dated March 2, 1994, between the Company and Fairfax
Boca '92, L.P (incorporated herein by reference to Exhibit
10.9(c) filed as part of the Company's Form 10-KSB for the
year ended March 31, 1995 (Commission File No. 0-24030)).
10.5(d) Lease Agreement dated October 28, 1995, between the Company
and Fairfax Boca '92, L.P.
10.6 Form of Indemnification Agreement between the Company
and its directors, dated December 29, 1993 (incorporated
herein by reference to Exhibit 10.10 filed as part of the
Registration Statement).
10.7 Agreement to Purchase, dated May 14, 1995, by and
between the Company and Progressive Business
Solutions, Inc.*
10.8 Design and Manufacturing Agreement Base Agreement
#B94639-00, dated March 27, 1995, by and between the
Company and International Business Machines
Corporation.*
10.9 Design and Manufacturing Agreement Transaction
Document, #B94640-00 dated March 27, 1995 by and
between the Company and International Business
machines Corporation. (Confidential treatment has been
requested for certain portions of Exhibit 10.9).*
10.10 Design and Manufacturing Agreement Transaction Document
#B95149-00, dated March 27, 1995, by and between the Company
and International Business Machines Corporation.*
10.11 Design and Manufacturing Agreement Transaction Document,
#B95244-00, dated May 19, 1995, by and between the Company and
International Business Machines Corporation.*
10.12 Master Task Agreement for Time and Material for Engineering
Support and Prototype Build, executed on May 24, 1995 and
effective as of December 23, 1994, by and between the Company
and Group Technologies Corporation.*
10.13 Manufacturing and Purchase Agreement, dated May 25, 1995, by
and between the Company and Group Technologies Corporation.
(Confidential treatment has been requested for certain
portions of Exhibit 10.13) (incorporated herein by reference
to Exhibit 10.32 filed as part of the Company's Form 10-KSB
for the year ended March 31, 1995 (Commission File No.
0-24030)).
-24-
<PAGE>
10.14 License Agreement dated January 19, 1996 between the Company
and Stanford W. Crane, Jr. (incorporated herein by reference
to Exhibit 10.1 filed as part of the Registrant's Quarterly
Report on Form 10-QSB filed with the Securities and Exchange
Commission on February 14, 1996).@
10.15 Agreement dated March 25, 1996, between the Company and
Parametric Technology Corporation (Confidential treatment has
been requested for certain portions of Exhibit 10.15).
10.16 License Agreement dated June 7, 1996 among the Company, AMP
Incorporated, The Whitaker Corporation and Connectware Inc.
(Confidential treatment has been requested for certain
portions of Exhibit 10.16).
10.17 Consulting Agreement dated May 9, 1996 between the Company and
C. Daryl Hollis.@
21 Subsidiaries of the Company.
27 Financial Data Schedule.
- - ----------------------
*Exhibits 10.5(b), 10.7, 10.8, 10.9, 10.10, 10.11 and 10.12 are incorporated
herein by reference to Exhibits 10.9(b), 10.26, 10.27, 10.28, 10.29, 10.30 and
10.31, respectively, filed as part of the Company's Post-Effective Amendment
No. 1 to the Registration Statement.
@Management contracts and compensatory plans and arrangements.
(B) REPORTS ON FORM 8-K:
None.
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE PANDA PROJECT, INC.
(Registrant)
Date: June 27, 1996 By:
Stanford W. Crane, Jr.
Chairman of the Board
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
_______________________ President, Chief Executive June 27, 1996
Stanford W. Crane, Jr. Officer and Chairman of the
Board (Principal Executive
Officer)
_______________________ Chief Financial June 27, 1996
C. Daryl Hollis Officer and Secretary
(Principal Financial and
Accounting Officer)
_______________________ Director June 27, 1996
James T.A. Wooder
_______________________ Director June 27, 1996
Robert C. Butler
-26-
<PAGE>
THE PANDA PROJECT, INC.
INDEX TO THE FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
PAGE
----
Report of Independent Certified Public Accountants....................... F-2
Balance Sheets as of March 31, 1996 and 1995............................. F-3
Statements of Operations for the three years ended March 31, 1996........ F-4
Statements of Changes in Stockholders' Equity for the three years ended
March 31, 1996........................................................... F-5-6
Statements of Cash Flows for the three years ended March 31, 1996........ F-7-8
Notes to Financial Statements............................................ F-9-22
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
The Panda Project, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of The Panda Project, Inc. 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. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and is dependent on raising additional capital in order to fund its existing
level of operations beyond September 1996. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/Price Waterhouse LLP
Fort Lauderdale, Florida
June 24, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
THE PANDA PROJECT, INC.
BALANCE SHEETS
- - ----------------------------------------------------------------------------------------------------------------
MARCH 31,
1996 1995
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 10,731,540 $ 8,481,300
Accounts receivable-trade (net of allowance of
$171,943 in 1996 and $0 in 1995) 311,375 -
Inventory 1,616,022 173,660
Other receivables 488,556 -
Prepaid expenses and other current assets 246,942 307,921
------------ ------------
Total current assets 13,394,435 8,962,881
------------ ------------
Property and equipment, net 4,315,199 1,282,252
Restricted cash 750,000 -
Other assets 98,047 -
------------ ------------
Total assets $ 18,557,681 $ 10,245,133
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade $ 1,216,530 $ 78,407
Accrued compensation and employee benefits 266,148 119,191
Other current liabilities 2,207,412 872,212
------------ ------------
Total current liabilities 3,690,090 1,069,810
------------ ------------
Commitments and contingencies (Note 15) - -
------------ ------------
Stockholders' Equity:
Common Stock, $.01 par value, 20,000,000 shares authorized,
8,680,488 shares at March 31, 1996 and 6,666,891 shares at
March 31, 1995 issued and outstanding 86,805 66,669
Additional paid-in capital 47,822,586 18,256,028
Accumulated deficit (33,041,800) (9,147,374)
------------ ------------
Total stockholders' equity 14,867,591 9,175,323
------------ ------------
Total liabilities and stockholders' equity $ 18,557,681 $ 10,245,133
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
THE PANDA PROJECT, INC.
STATEMENTS OF OPERATIONS
- - ----------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
MARCH 31,
1996 1995 1994
<S> <C> <C> <C>
Net revenues $ 870,658 $ - $ -
------------ ------------ ------------
Operating expenses:
Cost of sales 741,790 - -
Research and development 7,954,924 3,494,260 887,318
Selling, general and administrative 17,066,012 3,744,914 934,487
------------ ------------ ------------
Total operating expenses 25,762,726 7,239,174 1,821,805
------------ ------------ ------------
Operating loss (24,892,068) (7,239,174) (1,821,805)
Interest income 953,962 293,612 -
Other income 43,680 14,216 21,465
------------ ------------ ------------
Net loss ($23,894,426) ($ 6,931,346) ($ 1,800,340)
============ ============ ============
Net loss per common share ($3.07) ($1.25) ($0.54)
============ ============ ============
Weighted average number of
shares of common stock and
common stock equivalents
outstanding 7,786,426 5,531,941 3,306,532
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
THE PANDA PROJECT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- - --------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
------------------------ ADDITIONAL TOTAL
PAR PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES VALUE CAPITAL DEFICIT EQUITY (DEFICIT)
--------- --------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1993 2,687,139 $ 26,872 $ 277,437 ($ 415,688) ($ 111,379)
Issuance of common stock for
$283,028 cash during July-
December 1993 106,864 1,068 281,960 - 283,028
Issuance of common stock upon
conversion of accrued salary payable
of $79,300 in December 1993 23,668 237 79,063 - 79,300
Issuance of stock options in December
1993 to a director for consulting
services to be rendered through
December 1995, valued at $30,000 - - 30,000 - 30,000
Issuance of common stock for
$200,022 cash in January 1994 59,693 597 199,425 - 200,022
Issuance of common stock
pursuant to private placement
bridge during January-February
1994, net of stock issuance costs
of $152,740 269,682 2,697 721,030 - 723,727
Cancellation of shares for
initial "bridge exchange" (9,560) (96) (31,930) - (32,026)
Issuance of common stock
in March 1994 upon
conversion of a stock
option issued in April
1993 for legal services
rendered valued at $39,773 20,502 205 39,568 - 39,773
Issuance of options in
February 1994 to an officer
to purchase 197,860 escrowed
shares valued at $350,000 - - 350,000 - 350,000
Net loss - - - (1,800,340) (1,800,340)
--------- -------- ------------ ------------ -------------
Balance, March 31, 1994 3,157,988 $ 31,580 $ 1,946,553 ($ 2,216,028) ($ 237,895)
--------- -------- ------------ ------------ -------------
</TABLE>
(Continued)
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
THE PANDA PROJECT, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY CONT'D
- - --------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
------------------------ ADDITIONAL TOTAL
PAR PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES VALUE CAPITAL DEFICIT EQUITY (DEFICIT)
--------- --------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1994
(carryforward) 3,157,988 $ 31,580 $ 1,946,553 ($ 2,216,028) ($ 237,895)
Issuance of common stock
and redeemable warrants
to purchase common stock
pursuant to an Initial Public
Offering in May 1994, net of
$2,335,639 of stock issuance
costs 2,000,000 20,000 7,759,361 - 7,779,361
Issuance of common stock pursuant
to the underwriter's over-allotment
option in June 1994 300,000 3,000 1,497,000 - 1,500,000
Issuance of common stock pursuant to
exercise of outstanding redeemable
warrants to purchase common stock
during December 1994 - February
1995, net of $58,212 of issuance
costs 1,149,735 11,497 6,828,701 - 6,840,198
Issuance of common stock in January
1995 - March 1995 upon conversion
of outstanding warrants for $225,005
cash 59,168 592 224,413 - 225,005
Net loss - - - (6,931,346) (6,931,346)
--------- -------- ------------ ------------ -------------
Balance at March 31, 1995 6,666,891 66,669 18,256,028 (9,147,374) 9,175,323
--------- -------- ------------ ------------ -------------
Exercise of warrants 27,917 279 107,222 - 107,501
Exercise of incentive stock options 48,538 486 358,197 - 358,683
Issuance of common stock in July
1995 pursuant to a private placement,
net of $1,018,420 of issuance costs 1,197,627 11,976 28,351,385 - 28,363,361
Exercise of nonqualified stock
options 739,515 7,395 681,004 - 688,399
Issuance of options below
fair market value - - 68,750 - 68,750
Net loss - - - (23,894,426) (23,894,426)
--------- -------- ------------ ------------ -------------
Balance at March 31, 1996 8,680,488 $ 86,805 $ 47,822,586 ($33,041,800) $ 14,867,591
========= ======== ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
THE PANDA PROJECT, INC.
STATEMENTS OF CASH FLOWS
- - ----------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
MARCH 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($ 23,894,426) ($ 6,931,346) ($ 1,800,340)
------------- ------------- -------------
Adjustments to reconcile net
loss to net cash used by operating
activities:
Stock option compensation 68,750 - 380,000
Depreciation 560,717 54,882 8,089
Increase in accounts receivable, net (311,375) - -
Increase in other receivables (488,556) - -
Decrease (increase) in prepaid expenses
and other current assets 60,981 (226,000) (81,787)
Increase in inventory (1,442,362) (173,660) -
(Increase) decrease in other assets (98,047) (114,683) 117,878
Increase in restricted cash (750,000) - -
Increase (decrease) in accounts payable-
trade 1,138,123 (59,051) 122,023
Increase in accrued compensation and
employee benefits 146,957 - -
Increase in other current liabilities 1,335,200 390,626 591,041
------------- ------------- -------------
Total adjustments 220,388 (127,886) 1,137,244
------------- ------------- -------------
Net cash used by operating
activities (23,674,038) (7,059,232) (663,096)
------------- ------------- -------------
Cash flows from investing activities:
Additions to property and equipment (3,593,664) (1,263,407) (52,530)
------------- ------------- -------------
Net cash used by investing activities ($ 3,593,664) ($ 1,263,407) ($ 52,530)
------------- ------------- -------------
</TABLE>
(Continued)
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
THE PANDA PROJECT, INC.
STATEMENTS OF CASH FLOWS CONT'D
- - ----------------------------------------------------------------------------------------------------------------
FOR THE YEAR ENDED
MARCH 31,
1996 1995 1994
<S> <C> <C> <C>
Net cash used by investing
activities (carryforward) ($ 3,593,664) ($ 1,263,407) ($ 52,530)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from (repayments of) notes
payable - (971,500) 971,500
Proceeds from issuance of stock 30,536,362 18,738,415 1,174,751
Payment of stock issuance costs (1,018,420) (1,789,623) (604,228)
------------- ------------- -------------
Net cash provided by financing activities 29,517,942 15,977,292 1,542,023
------------- ------------- -------------
Net increase in cash and cash equivalents 2,250,240 7,654,653 826,397
Cash and cash equivalents at beginning
of period 8,481,300 826,647 250
------------- ------------- -------------
Cash and cash equivalents at end of period $ 10,731,540 $ 8,481,300 $ 826,647
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ - $ 30,924 $ 19,504
============= ============= =============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
/bullet/ In February 1994, the Board of Directors assigned to an officer options
to purchase escrowed shares valued at $350,000.
/bullet/ In March 1994, 20,502 shares of common stock were issued in exchange
for $39,773 of accrued legal expenses.
/bullet/ In February 1996, the Company recorded compensation expense of $68,750,
in connection with the granting of 20,000 stock options to an employee
at a price below the fair market value at the date of grant.
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
THE PANDA PROJECT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- - --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS:
DESCRIPTION OF BUSINESS
The Panda Project, Inc. (the "Company") designs, develops, and licenses
various products incorporating the Company's proprietary semiconductor
packaging and interconnect technology, and designs, develops,
manufactures, markets, services and supports powerful, modular, universal
platform computers, including servers and workstations. The Company
markets its products and services under the Archistrat brand name through
value-added resellers and directly to its customers. These customers
include corporate, government, and educational institution accounts. Based
in Boca Raton, Florida, the Company conducts operations worldwide and has
an inactive wholly-owned subsidiary, Archistrat Corporation, a Delaware
Corporation.
OPERATIONS
The Company began recognizing revenue from its shipment of production
units of its first commercially available product during the fourth
quarter of the fiscal year ended March 31, 1996. As such, the fiscal year
ended March 31, 1996 is the first fiscal year in which the Company is no
longer considered to be in the development stage. In prior fiscal years,
the Company accounted for its operations as a development stage enterprise
as defined by Statement of Financial Accounting Standards No. 7 (FAS 7),
ACCOUNTING AND REPORTING BY DEVELOPMENT STAGE ENTERPRISES.
As reflected in the accompanying financial statements, the Company has
incurred significant losses. At March 31, 1996, the accumulated deficit
was approximately $33.0 million. The Company's ability to generate
significant revenue from operations is dependent upon, among other things,
its ability to complete development of and commercialize additional
products and technologies.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company had working capital of approximately
$9.7 million, and cash and cash equivalents of approximately $10.7
million. The Company anticipates, based on its current proposed plans and
assumptions relating to its operations and sales, that the current assets
of the Company at March 31, 1996 will not be sufficient to satisfy the
contemplated cash requirements of the Company beyond September 1996. The
Company is currently actively seeking equity financing, but does not have
any current arrangements with respect to, or sources of, any such
financing. There can be no assurance that the Company will be able to
obtain any such equity financing on commercially reasonable terms or at
all. The inability of the Company to obtain equity financing prior to
September 1996 would have a material adverse effect on the Company and
could cause the Company to be unable to implement its business strategy,
to postpone or cancel development of certain of its proposed products, or
to otherwise significantly curtail or cease operations.
F-9
<PAGE>
THE PANDA PROJECT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- - --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A summary of the Company's significant accounting policies is as follows:
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at fiscal year end and
the reported amounts of revenues and expenses during the fiscal year.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
INVENTORY
Inventory, which is principally comprised of component parts, is stated at
the lower of cost or market with cost determined using a first-in,
first-out (FIFO) basis. If the cost of the inventories exceeds their
market value, provisions are made currently for the difference between the
cost and the market value. During fiscal 1996, a provision for inventory
obsolescence was recorded in the amount of $128,412.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives, which range from
three to ten years. Maintenance and repair costs are expensed as incurred.
REVENUE RECOGNITION
The Company recognizes revenue from product sales generally at the time of
shipment. Provision is made currently for estimated product returns.
ADVERTISING COSTS
Advertising costs are charged to expense as incurred. There were no
direct-response advertising costs reported as assets at March 31, 1996 and
1995. Advertising expense was $432,960, $0, and $0 for the years ended
March 31, 1996, 1995, and 1994, respectively.
WARRANTY EXPENSE
The Company provides currently for the estimated costs which may be
incurred for product warranties and post-sale support programs. Such
estimates are periodically reviewed and adjusted, as necessary, to reflect
actual experience.
RESEARCH AND DEVELOPMENT COSTS
The Company's policy is to expense all research and development costs as
incurred.
F-10
<PAGE>
THE PANDA PROJECT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- - --------------------------------------------------------------------------------
LOSS PER SHARE
Net loss per common and common equivalent share has been computed on the
basis of the weighted average number of common shares outstanding during
the related period. Common equivalent shares, consisting of stock options
and stock warrants, have been excluded from net loss per common share
calculations because they are anti-dilutive in all periods presented.
INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards No.
109 (FAS 109), ACCOUNTING FOR INCOME TAXES. FAS 109 is an asset and
liability approach that requires the recognition of deferred liabilities
and assets for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns.
Under FAS 109, the tax effects of future taxable temporary differences
(liabilities) and future deductible temporary differences (assets) are
separately calculated and recorded based upon differences between the
carrying amounts and the tax bases of other assets and liabilities. These
temporary differences relate primarily to depreciation and certain accrued
expenses.
LONG-LIVED ASSETS
The Company has not elected to early adopt Financial Accounting Standard
No. 121 (FAS 121), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF. FAS 121 requires that long-lived
assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable such that assets to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. FAS 121 becomes effective
beginning with the Company's first quarter of fiscal year 1997. Management
believes that its adoption will not have a material effect on the
Company's financial position or results of operation.
STOCK-BASED COMPENSATION
The Company has not elected early adoption of Financial Accounting
Standard No. 123 (FAS 123), ACCOUNTING FOR STOCK-BASED COMPENSATION. FAS
123 becomes effective beginning with the Company's first quarter of fiscal
year 1997, and management believes that its adoption will not have a
material effect on the Company's financial position or results of
operation. Upon adoption of FAS 123, the Company will continue to measure
compensation expense for its stock-based employee compensation plans using
the intrinsic value method prescribed by APB No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, and will provide pro forma disclosures of operating
results and related per share data as if the fair value-based method
prescribed by FAS 123 had been applied in measuring compensation expense.
RECLASSIFICATION
Certain reclassifications have been made to the accompanying fiscal 1994
and 1995 financial statements to conform to the fiscal 1996 presentation.
3. SALES TO SIGNIFICANT CUSTOMERS:
Sales to customers for the year ended March 31, 1996, include sales to two
customers which represented 26% and 13% of total revenues. U.S. export
sales to a Brazilian reseller represented an additional 23% of total
revenues for the year ended March 31, 1996.
F-11
<PAGE>
THE PANDA PROJECT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- - --------------------------------------------------------------------------------
4. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash, accounts receivable, accounts payable, and
accrued compensation and employee benefits approximates fair value due to
the relatively short-term maturity of these instruments.
5. RESTRICTED CASH:
Restricted cash at March 31, 1996 represents a certificate of deposit
which has been pledged as collateral for a standby letter of credit issued
by the Company in the amount of $750,000 used as security for payment for
orders placed by the Company and for performance under a manufacturing
agreement. In April 1996, this standby letter of credit was increased to
$900,000 and was renewed with an expiration date of August, 1996.
6. CONCENTRATIONS OF CREDIT RISK:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
The Company has business activities with large corporate, government and
educational institution customers. In addition, a substantial number of
the Company's trade receivables are also derived from international sales
with 23% of fiscal 1996 net revenues generated from one customer in
Brazil.
The Company has adopted credit policies and standards intended to
accommodate industry growth and inherent risk. Management believes that
credit risks are moderated by the diversity of its customers and
geographic sales areas. The Company performs ongoing credit evaluations of
its customers' financial condition and requires collateral as deemed
necessary. There can be no assurance that the credit quality of the
customers with which the Company transacts business will be stable or that
efforts to diversify receivables will prevent the Company from incurring
material losses.
7. INVENTORY:
Inventory at March 31 consists of the following:
1996 1995
Raw Materials $ 937,388 $ 173,660
Work in Process 225,872 -
Finished Goods 452,762 -
----------- -----------
$ 1,616,022 $ 173,660
=========== ===========
F-12
<PAGE>
THE PANDA PROJECT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- - --------------------------------------------------------------------------------
At March 31, 1996, inventory totaled approximately $1.6 million and is
valued at net realizable value, which is net of obsolescence reserves of
approximately $128,000. Given the rapid pace of technological development
in the computer industry, these inventories are at risk of becoming
technologically obsolete. In light of the potential for technological
obsolescence and the possibility that such inventories will be subject to
market declines which would require the Company to write-down such
inventories to the lower of cost or market and charge to expense the
amount of the write-down, management has developed a program to monitor
and reduce this inventory to desired levels over the near-term and
believes no material loss will be incurred on its disposition. No estimate
can be made of a range of amounts of loss that are reasonably possible
should the program not be successful.
8. PROPERTY AND EQUIPMENT:
Property and equipment at March 31 consists of the following:
ESTIMATED
USEFUL
LIVES 1996 1995
Office furniture and equipment 3-10 years $ 3,135,605 $ 814,185
Machinery and equipment 3-5 years 1,253,562 329,675
Trade show booth and exhibit 5 years 383,027 228,417
Motor vehicles 5 years 54,402 -
Construction in progress 139,345 -
Less: Accumulated depreciation (650,742) (90,025)
----------- -----------
Total property and equipment, net $ 4,315,199 $ 1,282,252
=========== ===========
Depreciation expense for the years ended March 31, 1996, 1995, and 1994
totaled $560,717, $54,882, and $8,089.
9. COMMON STOCK:
In April 1992, upon formation of the Company, 2,283,000 shares were issued
to Stanford W. Crane, Jr., founder of the Company, by decree of the Board
of Directors. Also, in April 1992, 1,095,840 shares were issued to two
former officers of the Company. A dispute arose between the Company and
the two former officers relating to the actual number of shares to which
the two former officers were entitled and, in October 1992, the Board of
Directors voided the stock certificates representing such shares. In
October 1993, the Company settled the dispute by issuing new stock
certificates for 197,860 shares of the Company's common stock and making a
cash payment of $17,500 to the former officers' attorney in satisfaction
of their legal fees and expenses. Under the terms of the settlement, the
197,860 shares of the Company's common stock were to be held by an escrow
agent (the "escrowed shares") subject to the Company's right to repurchase
them. In February 1994, the Company assigned its right to repurchase the
escrowed
F-13
<PAGE>
THE PANDA PROJECT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- - --------------------------------------------------------------------------------
shares to Mr. Crane. In February 1996, Mr. Crane exercised his right to
repurchase the escrowed shares.
On May 24, 1994, the Company completed an initial public offering of
2,000,000 shares of the Company's common stock and redeemable warrants to
purchase 1,150,000 shares of common stock. On June 15, 1994, pursuant to
the underwriter's over-allotment option, the Company sold an additional
300,000 shares of common stock. Total proceeds received from the initial
public offering and the exercise of the over-allotment option, net of
$2,335,639 of issuance costs, amounted to $9,279,361.
In December 1994, the Company exercised its right to call for redemption
its publicly issued outstanding redeemable common stock purchase warrants.
Each warrant entitled the holder to purchase one share of the Company's
common stock at an exercise price of $6.00 per share and remained
exercisable until January 31, 1995. Any warrants which were not exercised
on or prior to January 31, 1995 were redeemed by the Company at a price of
$.10 per warrant. As of March 31, 1995, 1,149,735 redeemable common stock
warrants were exercised to purchase shares of the Company's common stock.
The remaining 265 redeemable common stock warrants were redeemed for an
aggregate of $26.50. Total proceeds received from the exercise of
redeemable common stock warrants, net of $58,212 of issuance costs,
amounted to $6,840,198.
In July 1995, the Company consummated a private placement to accredited
investors of 399,209 units at a purchase price of $73.60 per unit. Each
unit consisted of three shares of common stock and one warrant to purchase
one share of common stock at an exercise price of $40.00 per share,
exercisable beginning in July 1996, resulting in the issuance by the
Company of an aggregate of 1,197,627 shares and 399,209 warrants. The
Company received proceeds of approximately $28.4 million from the private
placement, net of expenses of $1,018,420.
F-14
<PAGE>
THE PANDA PROJECT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- - --------------------------------------------------------------------------------
10. NONQUALIFIED STOCK OPTIONS AND WARRANTS:
The Company has issued various nonqualified stock options and warrants to
investors, employees, consultants and directors. A summary of nonqualified
options and warrant activity for the three year period ended March 31,
1996 is as follows:
<TABLE>
<CAPTION>
OPTIONS WARRANTS
------------------------- -----------------------
OPTION EXERCISE
SHARES PRICE SHARES PRICE
--------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Outstanding, March 31, 1993 684,900 $0.33 -
Granted 282,760 $3.35-$5.00 280,744 $3.75-$4.00
Canceled - (23,250) $4.00
--------- -------
Outstanding, March 31, 1994 967,660 257,494
Granted 160,000 $5.00 -
Exercised - (59,168) $3.75-$4.00
--------- -------
Outstanding, March 31, 1995 1,127,660 198,326
Granted - 436,249 $40.00
Canceled (64,410) $0.33-$5.00 (37,040) $40.00
Exercised (737,515) $0.33-$5.00 (27,917) $3.75-$4.00
--------- -------
Outstanding, March 31, 1996 325,735 $3.35-$5.00 569,618 $3.75-$40.00
========= =======
</TABLE>
In December 1993, the Company entered into an agreement with one of its
directors to provide management and consulting services to the Company
valued at $30,000 for a two year period in exchange for an option to
purchase 91,000 shares of the Company's common stock at the estimated
fair market value at that time of $3.35 per share. The option vested
when granted and expires December 31, 1998. In January 1995, the
director was paid an additional $75,000 as consideration for management
and consulting services rendered and to be rendered from January 1995
through December 1995, due to the director's increased involvement with
the Company. In May 1996, the director was paid an additional $175,000
for consulting services rendered.
11. STOCK OPTION PLANS:
In December 1993, the Company's Board of Directors approved the 1993
Performance Incentive Plan ("1993 Plan") and the Non-Employee Director
Stock Option Plan.
Pursuant to the 1993 Plan, both incentive options and nonqualified
options may be granted under the plan. In addition, stock appreciation
rights or restricted stock may also be granted under the plan; however
no stock appreciation rights and restricted stock have been granted to
date. The maximum number of shares of common stock with respect to which
options may be granted under the 1993 Plan is 5% of the outstanding
shares, not to exceed 1,000,000 shares. The option exercise price for
all stock options is the closing bid price at the date of grant. Each
stock option expires no more than ten years from the date of grant and
no option may be exercised prior to the expiration of six months from
the date of grant unless the recipient dies or becomes disabled.
F-15
<PAGE>
THE PANDA PROJECT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- - --------------------------------------------------------------------------------
In February 1996, an employee was granted stock options pursuant to the
1993 Plan at an exercise price below the fair market value at the date
of grant. Compensation expense associated with this grant in the amount
of $68,750 was recorded.
The following table summarizes stock option activity under the 1993 Plan
for each of the three years in the period ended March 31, 1996:
<TABLE>
<CAPTION>
SHARES PRICE PER SHARE
<S> <C> <C>
Options outstanding, March 31, 1993 and 1994 -
Options granted 136,000 $5.50-$10.75
-------
Options outstanding, March 31, 1995 136,000
Options granted 191,500 $8.00-$24.50
Options canceled (16,500) $8.00-$21.75
Options exercised (48,538) $6.06-$14.00
-------
Options outstanding, March 31, 1996 262,462 $5.50-$24.50
=======
</TABLE>
There were 123,024 shares available for grants under the 1993 Plan at
March 31, 1996.
Under the Non-Employee Director Plan, each non-employee director of the
Company who is serving on or elected to the Board automatically receives
nonqualified stock options on the date of the annual meeting of the
stockholders of the Company at the then current fair market value.
All options granted under the Director's Plan become exercisable 25%
annually one year after date of grant. The maximum number of shares of
common stock with respect to which options may be granted under the
Director's Plan is 50,000 shares.
The following table summarizes stock option activity under the
Non-Employee Director Plan for each of the three years in the period
ended March 31, 1996:
<TABLE>
<CAPTION>
SHARES PRICE PER SHARE
<S> <C> <C>
Options outstanding, March 31, 1993 -
Options granted 4,000 $3.35
-------
Options outstanding, March 31, 1994 and 1995 4,000
Options granted 2,000 $42.00
Options exercised (2,000) $3.35
-------
Options outstanding, March 31, 1996 4,000 $3.35-$42.00
=======
</TABLE>
There were 44,000 shares available for grants under the Non-Employee
Director Plan at March 31, 1996.
F-16
<PAGE>
THE PANDA PROJECT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- - --------------------------------------------------------------------------------
In November 1995, the Company's Board of Directors approved the 1995
Employee Stock Incentive Plan ("1995 Plan"). Pursuant to the 1995 Plan,
incentive options, nonqualified options, or any combination thereof, may
be granted under the plan. In addition, stock appreciation rights or
restricted stock may also be granted under the plan; however, no stock
appreciation rights or restricted stock have been granted to date. The
maximum number of shares of common stock with respect to which options
may be granted under the 1995 Plan is 500,000 shares. Incentive options
granted pursuant to the 1995 Plan are subject to approval by the
shareholders of the Company within twelve months of the date on which
the Board of Directors approved the plan. Although incentive options may
be granted prior to shareholder approval of the Plan, no incentive
options may be exercised prior to shareholder approval. The option
exercise price for all stock options is the closing bid price at the
date of grant.
The following table summarizes stock option activity under the 1995 Plan
through the period ended March 31, 1996:
<TABLE>
<CAPTION>
SHARES PRICE PER SHARE
<S> <C> <C>
Options outstanding, March 31, 1995 -
Options granted 338,141 $19.75-$46.88
Options canceled (24,000) $28.00-$44.25
-------
Options outstanding, March 31, 1996 314,141 $19.75-$46.88
=======
</TABLE>
There were 185,859 shares available for grants under the 1995 Plan at
March 31, 1996.
12. EMPLOYEE SAVINGS PLAN:
During the year ended March 31, 1996, the Company established a defined
contribution retirement plan ("Savings Plan') that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue
Code. Eligibility for participation commences six months from the date
of hire. Under the Plan, participating employees may defer a portion of
their pretax earnings, up to the Internal Revenue Service annual
contribution limit ($9,500 and $9,240 for calendar year 1996 and 1995,
respectively). The Company currently matches 75% of employee
contributions, up to a maximum of 6% of the employee's earnings. The
employer match is made on an annual discretionary basis. Contributions
are invested at the direction of the employee in one or more funds.
Employer contributions vest over five years. The Company's matching
contributions to the Savings Plan were approximately $127,290 for the
year ended March 31, 1996.
F-17
<PAGE>
THE PANDA PROJECT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- - --------------------------------------------------------------------------------
13. RELATED PARTY TRANSACTIONS:
In January 1996, Mr. Crane entered into a license agreement ("the
Crane/Panda License") with the Company with respect to the Compass
Connector which supersedes the prior agreements between Mr. Crane and the
Company with respect thereto. Pursuant to the Crane/Panda License, the
Company continues to have the right, on a nonexclusive and royalty-free
basis, to use and/or sell the Compass Connector as a component in its
computers or other higher level assemblies or systems. The Company may
also sublicense the Compass Connector technology as part of a license of
the Company's proprietary technology provided that any royalty
attributable to such sublicense is to be shared equally by the Company
and Mr. Crane.
In addition, Mr. Crane has granted the Company a nonexclusive license to
sell, lease, or transfer the Compass Connector as loose or discrete
components for specified royalties based on net sales of the Compass
Connectors, commencing when the accumulated net sales price of the
Compass Connectors reaches $100,000 (the "Royalty Date"). For the five
year period following the Royalty Date, the Company is obligated to pay
to Mr. Crane royalties equal to 5% of the net sales price of such Compass
Connectors, including any such Compass Connectors sold prior to the
Royalty Date. The royalty decreases to 2.5% after five years and 2.0%
after ten years. The royalty decreases to 1.0% for any period during
which no valid patent exists anywhere with respect to the Compass
Connector. The royalty is also subject to reduction if Mr. Crane grants a
third party a license with respect to Compass Connectors as loose or
discrete components at a lower royalty than that charged to the Company.
To date, Mr. Crane has received no royalties pursuant to the Crane/Panda
License.
14. INCOME TAXES:
The deferred tax assets (liability) are comprised of the following as of
March 31, 1996 and 1995:
1996 1995
Deferred tax assets:
Net operating loss $ 12,350,000 $ 3,407,000
Research and development credits 534,000 297,000
Allowance for doubtful accounts 66,000 -
Accrued vacation 53,000 18,000
Inventory reserve 50,000 -
Warranty reserve 61,000 -
-------------- -------------
Gross deferred tax asset 13,114,000 3,722,000
Deferred tax asset valuation
allowance (12,849,000) (3,696,000)
-------------- -------------
Net deferred tax asset $ 265,000 $ 26,000
============== =============
F-18
<PAGE>
THE PANDA PROJECT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- - --------------------------------------------------------------------------------
Deferred tax liability:
Property, plant and equipment (265,000) (26,000)
------------ ------------
Deferred tax liability $ (265,000) $ (26,000)
============ ============
Net deferred tax asset $ 0 $ 0
============ ============
Under FAS 109, a valuation allowance reducing the asset recognized must be
recorded if it is determined that it is more likely than not that the
asset will not be realized. Because of the uncertainty surrounding
realizability of future benefits due to cumulative losses, a valuation
allowance in the full amount of the net deferred tax asset has been
provided for financial reporting purposes.
At March 31, 1996, the Company has available approximately $32 million in
net operating loss ("NOL") carryforwards available to offset future
taxable income, if any, for federal and state income tax purposes. If
unutilized, these NOL carryforwards will expire at various times beginning
in the year 2009.
At March 31, 1996, unused credit carryforwards for increasing research
activities of approximately $534,000 are also available. The credit
carryovers will expire at various times beginning in the year 2010.
Due to the change of control effected by the initial public offering of
the Company's stock on May 24, 1994, the amount of future taxable income
that can be offset by the Company's net operating losses incurred prior to
May 24, 1994, as well as the amount of tax liability that can be offset by
research and development credit, may be limited.
15. COMMITMENTS AND CONTINGENCIES:
EMPLOYMENT AGREEMENTS
Under the terms of an employment agreement with Mr. Crane entered into in
November 1993, he serves as the Senior Vice President, Product Design and
Development, and at the discretion of the Board of Directors, as the
Chairman of the Board and the Company's President and Chief Executive
Officer. Mr. Crane's agreement has a base annual salary with salary
increases and bonuses available to him based on the attainment of certain
revenue levels by the Company, which were not achieved for fiscal 1996.
The term of the agreement extends to January 1999. In December 1994,
pursuant to his employment agreement, Mr. Crane received a bonus of
$25,000 related to the completion of a prototype of the Archistrat 4
Computer and its installation in two beta test sites.
Mr. Crane's employment is terminable at will by Mr. Crane upon six months'
prior notice and is terminable by the Company for cause at any time or in
the event that Mr. Crane becomes disabled and, as a result, is unable to
perform his obligations under the agreement for three consecutive months.
In the event that the agreement is terminated other than as a result of
Mr. Crane's death or disability or for cause, Mr. Crane will be entitled
to receive an amount equal to the greater of
F-19
<PAGE>
THE PANDA PROJECT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- - --------------------------------------------------------------------------------
$150,000 or his annual compensation for the preceding calendar year. In
addition, Mr. Crane has agreed not to compete with the Company for a
period of two years after the termination of his employment provided he
receives payments during that period equal to twice the greater of
$150,000 or his salary at the time of such termination, calculated on an
annualized basis.
In connection with the private placement sale of units in January 1994,
the Underwriter who acted as placement agent for the Company with respect
to such sale requested that the terms of Mr. Crane's employment contract
with the Company be modified to limit the Company's obligation to cause
registration of his then existing share holdings to no more than 20%
annually following the second anniversary of the Company's proposed
initial public offering. In February 1994, in consideration for the
modification of Mr. Crane's registration rights, the Company further
modified Mr. Crane's employment agreement to assign to him the Company's
right to repurchase the 197,860 escrowed shares referred to in Note 9.
Compensation expense associated with this assignment in the amount of
approximately $350,000 was recorded in February 1994.
Pursuant to the terms of the agreement, Mr. Crane has assigned to the
Company the rights to all improvements or related discoveries or
inventions developed or conceived by him during the term of the agreement
which relate to the technology developed by him and previously assigned to
the Company. The employment agreement also provides that Mr. Crane may
develop additional products or technologies unrelated to the products
currently being developed by the Company.
In October 1995, the Company entered into an employment agreement with an
individual who serves as an executive of the Company. In addition to a
base salary, the agreement provides for the granting of 75,000 stock
options which vest 15,000 upon employment and 15,000 annually thereafter,
and a bonus available to the executive based on the attainment of certain
targets to be mutually agreed upon. Also, the employment agreement
includes a severance clause such that if terminated, the Company will
provide six months' salary, paid on a monthly basis, and the acceleration
of the vesting of a portion of the stock options previously granted. In
November 1995, pursuant to a provision in his employment agreement, this
individual received a cash bonus of $50,000.
In January 1996, the Company entered into a two-year employment agreement
with an individual who serves as an executive of the Company. In addition
to a base salary, the agreement provides for a bonus attainable based on
achieving periodic performance objectives. The agreement also provides
for the granting of 20,000 stock options to the executive on the first
anniversary of employment.
At March 31, 1996, the Company's aggregate cash commitment under all
employment agreements, should all covered employees be terminated,
approximates $800,000.
F-20
<PAGE>
THE PANDA PROJECT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- - --------------------------------------------------------------------------------
OPERATING LEASES
The Company leases various facilities and equipment under noncancelable
operating lease arrangements. The major facilities leases pertain to the
Company's lease of its principal offices in Boca Raton, Florida, which
house substantially all of the Company's operations, including research
and development, product testing and other operations. Pursuant to the
lease relating to such facility, the Company is currently obligated to
make monthly rental payments of approximately $30,450, $28,600, and
$28,600 for the months of June, July and August 1996. This lease expires
in August 1996 and at such time, the Company intends to relocate its
principal offices to another building in Boca Raton. The Company has
entered into a lease for such new office space beginning June 1, 1996 and
terminating March 31, 2001. Pursuant to such lease, the Company is
required to make monthly rental payments of approximately $67,000,
$80,000, $84,000, $86,000 and $87,000 during each of the first, second,
third, fourth, and fifth years, respectively, of such lease. Rent expense
under all operating leases was approximately $383,203, $167,206, $19,178
for the years ended March 31, 1996, 1995, and 1994 respectively.
Minimum future rental payments on non-cancelable operating leases with
remaining lease terms in excess of one year are as follows:
MARCH 31,
1997 $ 918,287
1998 1,053,742
1999 1,047,162
2000 1,032,000
2001 1,044,000
----------
Total minimum future
rental payments $5,095,191
==========
OTHER COMMITMENTS
In March 1996, the Company entered into an agreement with a developer of
computer assisted design (CAD) software (the "Developer") that will
certify the Company's computer products for use with the Developer's CAD
products. In connection with the agreement, the Company agreed to purchase
from the Developer, over an eighteen month period, CAD software valued at
$1 million, payable either in cash, or at the Company's option, partially
by selling work stations and the related system software to the Developer.
In conjunction with this agreement, the Company has also provided two
computer products to the Developer on an indefinite loan basis.
The Company has various purchase commitments relative to normal business
activities, all of which are expected to be fulfilled with no material
adverse consequences to the Company's financial position.
F-21
<PAGE>
THE PANDA PROJECT, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
- - --------------------------------------------------------------------------------
LITIGATION
In May 1993, the Company entered into an agreement with a company to act
as the Company's financing agent in its capital raising efforts. On June
3, 1994, this company filed a lawsuit against the Company alleging breach
of contract and claiming, among other items, punitive damages. The
plaintiff is seeking approximately $1.8 million in damages, plus interest
and attorneys' fees. On June 27, 1994 the Company filed a motion to
dismiss the complaint. The Company's motion to dismiss was granted on
August 8, 1995. However, on August 10, 1995, the plaintiff filed an
amended complaint alleging a breach of contract claim and alleging that
the plaintiff was entitled to a fee equal to 10% of an unspecified amount
of financing proceeds received by the Company. The amended complaint seeks
unspecified damages, pre-judgment interest, attorneys' fees and costs. At
this time, discovery in the case is proceeding. Management of the Company
believes the claims to be without merit, and intends to vigorously defend
against such claims. The ultimate outcome of the litigation can not be
determined at present. No provision for liability, if any, that may result
upon resolution of this matter has been made in the accompanying financial
statements.
There are various legal proceedings and claims pending against the
Company, including disputes with former employees. While it is not
possible to determine the ultimate outcome of these matters, it is the
opinion of management, based on advice from counsel, that the resolution
of such matters will not have an aggregate material adverse effect on the
Company's financial position.
16. SUBSEQUENT EVENTS:
LICENSING AGREEMENT
In June 1996, the Company entered into a license agreement with AMP
Incorporated ("AMP") under which AMP was granted the right to manufacture
and market the Company's VSPA product. Generally, the agreement grants AMP
non-exclusive rights to the VSPA product for the term of the patents
included in the license agreement. The Company is entitled to receive
royalties on sales by AMP or its affiliates of VSPA packages.
* * * *
F-22
<PAGE>
THE PANDA PROJECT, INC.
Year Ended March 31, 1996
Schedule II --- Valuation and qualifying accounts
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
-----------------------------------
Balance at (1)
Description beginning Charged to (2) Deductions - describe Balance at end
(1) of period costs and Charged to other of period
expenses accounts - describe
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for
doubtful accounts $0 $171,943 $0 $171,943
Obsolescence reserve $0 $128,412 $0 $128,412
</TABLE>
S-1
EXHIBIT 10.5(d)
LEASE AGREEMENT
BOCA RATON, FLORIDA
THIS LEASE AGREEMENT (this "Lease") is made as of this 24 day of
October, 1995, by and between FAIRFAX BOCA 92, L.P., a Georgia limited
partnership ("Landlord") and THE PANDA PROJECT, INC., a Florida corporation
("Tenant");
W I T N E S S E T H:
1. PREMISES. In consideration of the rents, terms and covenants of this
Lease, Landlord hereby leases, lets and demises to Tenant, and Tenant hereby
leases and hires from Landlord, those certain premises (the "Premises")
containing approximately 70,000 rentable square feet, 27,500 rentable square
feet of which is situated on the first floor of Pod E, approximately 15,000
rentable square feet of which is situated on the second floor of Pod E and
27,500 rentable square feet of which is situated on the second floor of Pod D,
all within the North Forty Office Project, Building 235, 901 Yamato Road, Boca
Raton, Florida 33431 (the "Building"), as shown outlined in red on EXHIBIT A,
attached hereto and made a part hereof. The land upon which the Building is
located is more particularly described on EXHIBIT B attached hereto and made a
part hereof (the "Land"; the Building and the Land are collectively referred to
herein as the "Project"). All of the windows and outside walls of the Premises,
and any space in the Premises used for shafts, pipes, conduits, ducts, telephone
ducts and equipment, electric or other utilities, or other Building facilities,
and the use thereof and access thereto through the Premises for the purposes of
operation, maintenance, inspection, display and repairs are hereby reserved to
Landlord.
For all purposes under this Lease, including the measurement of any
Expansion Space, the terms "usable area," "usable square feet" or "USF" has been
and for any other space that shall become subject to this Lease, shall be,
computed in accordance with the American National Standard Method for Measuring
Floor Area in office buildings of the Building Owners and Managers Association
International (ANSI Z65.1-1989; Revision of ANSI Z65.1-1980 and approved June
21, 1989), incorporated herein by reference (the "BOMA Standard"). For all
purposes under this Lease, including the measurement of any expansion space, the
"rentable area," "rentable square feet" or "RSF" of all or any portion of the
Premises shall equal the product of the usable area within the Premises
multiplied times a factor of 1.15. The RSF as measured shall be rounded to the
nearest whole number. Prior to the Rent Commencement Date, Tenant may remeasure
the Premises to confirm the usable area within the Premises. In the event that
such remeasurement indicates a discrepancy between the approximate rentable
square footage referenced herein and the rentable square footage determined by
such remeasurement, Tenant shall provide Landlord with such remeasurement
documentation, duly certified by Tenant's architect, for review by Landlord's
architect. In the event that Landlord's architect disagrees with the results
shown by Tenant's remeasurement, Landlord's architect and Tenant's architect
shall mutually select a third architect, whose remeasurement determination shall
be final and binding for all purposes hereunder (it being agreed that the
parties shall each bear half the costs and fees of such third architect). Upon
final determination of the usable square footage of the Premises, the RSF
hereunder shall be automatically adjusted pursuant to the factor and calculation
referenced hereinabove. In no event shall the determination of RSF delay the
Rent Commencement Date and Base Rent shall be due and payable based upon the
Premises containing 70,000 rentable square feet unless and until such rentable
square footage is adjusted pursuant to this paragraph.
2. TERM. The Term (as hereinafter defined) of this Lease shall commence on
the date hereof (hereinafter referred to as the "Commencement Date") and end at
12:00 midnight on March 31, 2001 (the "Expiration Date"; such term, taking into
account any sooner termination or renewal or extension, is hereinafter referred
to as the "Term"). The Rental Commencement Date shall be May 1, 1996.
3. BASE RENT. (a) Commencing on the Rental Commencement Date, Tenant agrees
to pay Base Rent in monthly installments on the first day of each month, during
the original Term of the Lease in an amount equal to one-twelfth (1/12th) the
product of the number of rentable square feet contained in the Premises,
multiplied by the annual rate per rentable square foot set forth below:
<PAGE>
LEASE YEAR ANNUAL BASE RENT/RSF
---------- --------------------
Rental Commencement Date - March 31, 1997 $4.02 / RSF
April 1, 1997 - March 31, 1998 $7.23 / RSF
April 1, 1998 - March 31, 1999 $7.96 / RSF
April 1, 1999 - March 31, 2000 $8.20 / RSF
April 1, 2000 - March 31, 2001 $8.44 / RSF
In addition to the foregoing, commencing on January 1, 1996, Tenant agrees to
pay supplemental Base Rent in monthly installments on the first day of each
month, until the Rental Commencement Date, in an amount equal to the cost of
heating, ventilating and air-conditioning services consumed within the Premises
during the period from January 1, 1996 to the Rental Commencement Date;
provided, however, that during such period Landlord shall not be obligated to
provide, nor shall Tenant be obligated to pay for heating, ventilating or
air-conditioning services unless Tenant shall have made a request for such
services, in which case such costs shall be billed to Tenant in the manner set
forth in Section 9(b) hereof. Each monthly installment of Base Rent and any
supplemental Base Rent shall be payable to Landlord at the address set forth in
Section 33 below on the first day of each calendar month, in legal tender of the
United States of America, without abatement, demand, reduction or offset
whatsoever, except as may be expressly provided in this Lease. The monthly
installment of Base Rent shall be due and payable on or before the first day of
each calendar month during the Term commencing on the Rental Commencement Date.
Tenant shall pay, as Additional Rent, all other sums due from Tenant under this
Lease, including, but not limited to, any rent tax or other tax imposed upon
Landlord based upon rent payments to the extent not included in Operating
Expenses (as hereinafter defined) (the term "Rent" means all Base Rent,
supplemental Base Rent, Additional Rent and all other amounts payable hereunder
from Tenant to Landlord).
(b) In addition to the Base Rent and any supplemental Base Rent
payable pursuant to Section 3(a) above, Tenant shall promptly pay to Landlord
the cost of electric power consumed in the Premises within any computer room, or
for supplemental air conditioning systems or any equipment installed which
consumes electric current in excess of the amounts specified in Section 9(c). In
furtherance of the foregoing, Tenant shall, at Tenant's sole cost and expense,
to the extent feasible install a submeter to measure all such electric power
consumed in the Premises by Tenant in such locations and Tenant shall pay the
cost of such electric power so consumed as determined by the submeter calculated
at the rate structure then existing of the utility company supplying electrical
energy to the Premises.
4. OPERATING EXPENSES. (a) COMPUTATION AND PAYMENT. Tenant agrees to pay as
Additional Rent, Base Year Operating Expenses in the amount of $6.50 per
rentable square foot contained within the Premises in equal monthly installments
in advance on the first day of each month at the same time and in the same
manner as Base Rent. In addition, Tenant agrees to pay as Additional Rent,
Tenant's pro rata share of Operating Expenses (as hereinafter defined) of the
Project in excess of the Base Year Operating Expenses. At such time as the
estimate for Operating Expenses exceeds $6.50 per rentable square foot on an
annualized basis, Landlord shall inform Tenant of the revised estimate in
writing and Tenant's pro rata share owed by Tenant. The Base Year Operating
Expenses and the amount of Additional Rent specified in such notification shall
be paid by Tenant to Landlord in equal monthly installments in advance on the
first day of each month following such notification, at the same time and in the
same manner as Base Rent. Landlord may from time to time (but not more than
twice in any calendar year) adjust Landlord's estimate of the Operating Expenses
and Tenant shall pay its pro rata share of such adjusted amounts in the manner
set forth above. Landlord shall, within three (3) months following the close of
each calendar year during the Term, provide Tenant with a statement of the
actual Operating Expenses for such calendar year, in reasonable detail,
certified as accurate by an officer of the general partner of Landlord or an
officer of Landlord's management company. If such statement shows an overpayment
by Tenant for its pro rata share of the actual Operating Expenses in excess of
Base Year Operating Expenses during a calendar year, the statement shall be
accompanied by a refund to Tenant of the overpayment. If such statement shows an
underpayment by Tenant for its pro rata share of actual Operating Expenses in
excess of Base Year Operating Expenses during a calendar year, Tenant shall pay
such deficiency to Landlord within sixty (60) days after receipt of such
statement. If the Term shall begin on a day other than January 1 or shall end on
a day other than December 31, the amount of Base Year Operating Expenses and any
Additional Rent for Tenant's pro rata share of Operating Expenses in excess of
Base Year Operating Expenses payable by Tenant applicable to the year in which
the Term begins or ends, respectively, shall be prorated on the ratio that the
actual number of days of the Term and such year bears to 365. Landlord may
invoice Tenant for Tenant's pro rata share of actual Operating Expenses for the
calendar year in which the Term ends (if such amount is more than the sum of the
monthly payments of Base Year Operating Expenses and Additional Rent for
projected Operating Expenses made by Tenant in such calendar year) within thirty
(30) days prior to the end of the Term or at any time thereafter.
Notwithstanding any provision of this Lease to the contrary, if occupancy of the
Building at any time during the Term is less than one hundred percent (100%),
then actual variable Operating Expenses for the Building for such calendar year
shall be increased ("grossed up") to that amount of Operating Expenses that,
using reasonable estimates, would normally be expected to be incurred during
such calendar year if the Building was one hundred percent (100%) occupied
during such calendar year, as determined under generally accepted accounting
principles consistently applied. The term "grossed up" as used in this Section
shall mean and refer to the method of calculating such variable Operating
-2-
<PAGE>
Expenses which is designed to reasonably estimate what would be the cost of
providing a variable Operating Expense service to the rentable areas of the
Building receiving such service. The gross-up treatment shall be applied only
with respect to the variable Operating Expenses, which are those component
expenses that are affected by variations in occupancy levels arising from
services provided to space in the Building being occupied by tenants, in order
to equitably allocate such variable Operating Expenses to the tenants receiving
the benefit thereof.
(b) DEFINITION OF "OPERATING EXPENSES." The term "Operating
Expenses" includes all costs and expenses incurred with respect to the
maintenance and operation of the Building or Project (determined in accordance
with generally accepted accounting principles consistently applied), such as,
but not limited to, Building services, maintenance and repair costs, electricity
(exclusive of any charges made pursuant to Section 3(b) above), fuel, water,
sewer, gas and other utility charges, security, window washing, janitorial
services, trash and snow removal, landscaping, pest control, management fees,
wages and fringe benefits payable to employees of Landlord or of any management
agent of Landlord whose duties are directly connected with the operation and
maintenance of the Building, all services, supplies, repairs, replacements or
other expenses for maintaining and operating the Building, including, but not
limited to lobby and other common use areas, vehicular and pedestrian traffic
areas and plaza areas; all real property taxes and installments of special
assessments, including special assessments due to recorded covenants or
restrictions, if any, which accrue against the Building during the Term (but
excluding any fines, penalties, charges or re-assessments of any kind
attributable to violations of applicable law by Landlord), any and all
reasonable costs and expenses incurred by Landlord in seeking a reduction of any
such taxes or assessments, and all insurance premiums Landlord is required to
pay or deems necessary to pay, including public liability insurance, rent loss
insurance, and contractual liability insurance, with respect to the Building;
the costs, including interest, amortized over its useful life, of any capital
improvement made to the Building by or on behalf of Landlord after the date of
this Lease which is required under any governmental law or regulation that was
not applicable to the Building at the time of its construction, and of the
acquisition and installation of any device or equipment designed and reasonably
expected to reduce Operating Expenses or to improve the operating efficiency of
any system within the Building. The term "Operating Expenses" does not include
any depreciation allowance or expense, the cost of restoration occasioned by
casualty, income or franchise taxes of Landlord, expenses incurred in leasing to
or procuring of Tenants, leasing commissions or expenses for the renovating of
space for new Tenants. Additionally, specifically excluded from the definition
of Operating Expenses are:
(i) the cost of any work or service performed for
any tenant (including Tenant) at such tenant's cost including, without
limitation, space planning fees, commissions and overtime utilities;
(ii) Services provided to retail tenants which are
not provided to office tenants;
(iii) Salaries of officers, principals and executives
of Landlord other than the managers and superintendents of the Building;
(iv) The cost of any repairs, alterations,
additions, changes, replacements and other items which are made in order to
prepare for a tenant's occupancy or renewal;
(v) Interest or other charges on debt or
amortization payments on any mortgage and rental under any ground lease or other
underlying lease;
(vi) All leasing expenses, including, without
limitation, attorneys' fees and any real estate brokerage commissions, incurred,
whether in connection with the enforcement of any rights of Landlord or in
procuring tenants and any mass media or trade journal advertising and
promotional expenses relating to leasing or marketing;
(vii) Any costs included in Operating Expenses
representing an amount paid to a corporation related to Landlord which is in
excess of the amount which it would have paid in the absence of such
relationship;
(viii) Any cost of painting or decorating any part of
the Building occupied exclusively by a tenant and space renovation costs;
(ix) Income or franchise taxes payable by Landlord;
(x) Depreciation of the Building;
(xi) The cost of any items of repair or replacement
to the extent Landlord is actually reimbursed by insurance, warranties, refunds,
condemnation or otherwise; provided, however, that Landlord is not required to
carry any insurance except as may otherwise be required by the Lease;
(xii) Costs which are paid by tenant directly to the
provider of such service or for which Landlord is reimbursed directly by a
tenant; and
-3-
<PAGE>
(xiii) Rental payments by Landlord under any ground or
paramount lease.
Notwithstanding the foregoing, Tenant may elect to engage a janitorial
contractor (reasonably acceptable to Landlord) for the Premises to perform the
janitorial work set forth on EXHIBIT C attached hereto and incorporated herein
by this reference. In such event, the cost of providing such janitorial work to
the other premises in the Building shall not be included when computing the
Operating Expenses payable by Tenant hereunder. In addition, in the event that
after reasonable due diligence, Tenant believes that for security reasons a
change in the janitorial contractor for the Building is warranted, Tenant may
request that Landlord replace the existing janitorial contractor for the
Building.
(c) TENANT'S PRO RATA SHARE. Tenant's pro rata share of Operating
Expenses shall mean the proportion that the rentable square footage in the
Premises bears to the total rentable square footage of the Building, which
Building total rentable square footage is 148,000; provided, however, that
Landlord and Tenant hereby acknowledge and agree that Tenant's pro rata share of
Operating Expenses with respect to the initial Premises taken under this Lease
shall be 47.3%, based upon an initial rentable square footage leased of 70,000
rentable square feet. This percentage is subject to modification based on the
measurement as set forth in Section 1 hereof.
(d) TENANT'S AUDIT OF OPERATING EXPENSES. Tenant shall have the
right to audit Landlord's books and records with respect to, but only to,
expenditures for Operating Expenses for any year with respect to the Premises
upon the following basis, but not otherwise:
(i) Such audit may be conducted as to any given year
only if Tenant disputes a statement furnished by Landlord pursuant to Section 4
of this Lease and only if Tenant (A) has notified Landlord (in the manner
provided in Section 33 of this Lease) of such dispute not later than two (2)
months after receipt of such certified statement by Tenant (which shall state
with particularity the areas of dispute by Tenant) and (B) pays the increase in
Operating Expenses called for by such disputed comparative statement and shall
continue to pay, until final resolution of said dispute, the amounts prescribed
in Section 4 of this Lease;
(ii) If Tenant fails to elect to audit such certified
statement by giving the notice required by subsection (i) of this Section (d)
within such two (2) month period, Tenant shall conclusively be deemed to have
accepted the accuracy of such statement and in such event Tenant shall be deemed
to have waived any right thereafter to question the accuracy of such statement
(other than with respect to fraud and/or wilful and knowing misstatements by
Landlord);
(iii) Such audit shall, as to any given calendar year,
be conducted promptly after the giving of said notice to Landlord and must be
completed not later than sixty (60) days after the giving of such notice
(subject to any delays interposed by Landlord);
(iv) Such audit must be conducted by a certified public
accountant and/or Tenant's senior financial officer and shall be conducted
during regular business hours at the place or places in the Boca Raton, Florida
area where Landlord's records with reference thereto are normally kept and shall
be conducted continuously until completed;
(v) If Landlord does not dispute the results of such
audit, the results of such audit shall be binding on Landlord and Tenant. If
Landlord disputes the results of such Tenant's audit and the parties are unable
to resolve the dispute, the parties shall select an independent third (3rd)
party certified public accountant to select which of the two determinations of
Operating Expenses is most nearly correct and if the parties are unable to agree
upon such third party certified public accountant, the third party certified
public accountant shall be selected by the American Arbitration Association or
any successor organization thereto or similar organization designated by
Landlord, which selection of the third party certified public accountant shall
be made in accordance with the practices and procedures of such organization;
(vi) Any audit conducted by Tenant shall be at Tenant's
sole cost and expense regardless of the outcome of such audit unless the amount
of Operating Expenses is overstated by four percent (4%) or more in which case
Landlord shall pay the cost of such audit;
(vii) Tenant may audit a given calendar year no more
than the greater of: once per year, or per receipt of Landlord's certified
statement(s), and shall, upon completion of such audit, promptly deliver a copy
of such audit to Landlord;
(viii) If such audit shows as to the comparative year
Landlord has overstated the amount of Operating Expenses or the amount thereof
applicable to Tenant, Landlord shall forthwith credit Tenant's rental account
with the amount of any overpayment by Tenant;
(ix) During any audit performed by Tenant, Landlord
shall have the right to submit to Tenant a revised statement of actual Operating
Expenses and any overage or shortfall shall be treated as specified in Section
4(a) hereto.
-4-
<PAGE>
Landlord agrees to cooperate in good faith with any audit of Landlord's books
pursuant to this Section 4. Any such audit shall be performed upon reasonable
notice to Landlord and during normal business hours reasonably acceptable to
Landlord. In any audit of Landlord's operations and/or books and records, Tenant
agrees to use reasonable good faith efforts not to disturb or unreasonably
interfere with the ongoing business operations of Landlord.
5. LATE PAYMENT CHARGE. Other remedies for nonpayment of Rent
notwithstanding, if any payment of Rent is not received by Landlord on or before
the fifth (5th) day of the month for which such payment of Rent is due, or if
any other payment due Landlord by Tenant is not received by Landlord on or
before the tenth (10th) day of the month next following the month in which
Tenant is invoiced, a late payment charge of 2% of the outstanding amount for
each and every thirty (30) day period that said amount remains unpaid (but in no
event shall the amount of such late charge exceed an amount based upon the
highest legally permissible rate chargeable at any time by Landlord under the
circumstances) shall become due and payable in addition to such amounts owed
under this Lease. Should Tenant make a partial payment of past due amounts, the
amount of such partial payment shall be applied first to reduce all accrued and
unpaid late charges, in inverse order of their maturity, and then to reduce all
other past due amounts, in inverse order of their maturity.
6. TENANT ACCEPTANCE. Except as otherwise specifically provided herein,
Tenant has accepted the Premises from Landlord pursuant to this Lease on an
"as-is" basis, and each party acknowledges that, except as specifically provided
herein, Landlord has made, makes and shall make no representations or warranties
with respect to the Premises, express or implied. Tenant acknowledges that
Tenant has had the full and complete opportunity to inspect the Premises (and to
have engineering and other inspection reports prepared by professionals with
respect to the Premises). Landlord warrants, however, that the heating,
air-conditioning and ventilating unit(s) and the electrical, mechanical,
plumbing, life safety and structural (including, without limitation, the roof,
roof membrane, foundation and water tightness systems) presently serving the
Premises are in good condition and repair. Tenant acknowledges and agrees,
however, that any modification to such systems as a result of Tenant's
improvements or use shall be the sole responsibility of Tenant.
7. LANDLORD'S WORK AND WARRANTY. Landlord agrees to provide the
following specific improvements to the Land and the Building on or prior to the
Rental Commencement Date, all as and to the extent such would be customary in
Comparable Buildings (as hereinafter defined):
(a) Recaulk the exterior of the Building, including, without
limitation, all windows (aluminum frames to precast) and
precast joints;
(b) Improve and repair exterior and interior (atrium)
landscaping;
(c) Pressure clean exterior of the Building;
(d) Trim exterior trees in parking areas;
(e) Complete such improvements to the parking areas and
exterior of the Building as may be required for
compliance with the Americans With Disabilities Act;
(f) Paint white the handrails and trusses and visible/exposed
metal components located in the main atrium of the
Building (substantially in manner currently evidenced in
the building occupied by BellSouth Mobility); and
(g) Place furniture in the Building lobby of the main atrium.
8. USAGE. Tenant warrants and represents to Landlord that the Premises
shall be used and occupied only for the purpose of general offices, research and
development, training, educational, sales, marketing and/or customer service
center purposes and for no other purposes, all in compliance with all
ordinances, zoning restrictions and LIRP District restrictions.
9. BUILDING SERVICES. Commencing after the Rental Commencement Date, during
the Term of this Lease, Landlord agrees to operate and maintain the Building in
a manner similar to and in accordance with a standard of comparable office
buildings in the Boca Raton, Florida market area ("Comparable Buildings") and to
provide to Tenant the following services, which include, but are not limited to:
(a) General cleaning and janitorial service required as a result of
normal, prudent use of the Premises in accordance with EXHIBIT C attached hereto
and made a part hereof and only on Mondays through Fridays, inclusive, with New
Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day (herein collectively called the "Holidays") excepted.
(b) Heating, ventilating and air-conditioning service daily on
Mondays through Fridays, inclusive, with Holidays excepted, from 8:00 A.M. to
6:00 P.M. and on Saturdays, if not a Holiday, from 8:00 A.M. to 1:00 P.M. The
range of temperatures maintained in the Building shall be comparable to those
maintained in other like-kind office buildings in the City of Boca Raton,
Florida as the same may be regulated by governmental authority. Should Tenant
desire either heating or air conditioning at times when such services are not
furnished by Landlord under the terms of this Lease, such shall be provided upon
not less than four (4) hours prior notice to Landlord during Landlord's normal
business hours, and Tenant shall pay to Landlord the Landlord's actual costs for
such services without markup or profit (current charges presently are estimated
at $35/hour for each 50,000 rentable square feet or portion thereof). In the
event two or more tenants request after hour utilities, Landlord shall
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prorate the charges for such utilities based upon the rentable square footage
for each tenant being served by such utilities. Tenant may, in accordance with
Section 12 hereof, install supplemental air conditioning systems in the Premises
at the sole cost and expense of Tenant, which systems shall be separately
metered (the installation cost of such meter to be Tenant's expense) and all
utility costs associated with such systems shall be Tenant's responsibility;
(c) Electric current for lighting and reasonable facilities for
furnishing usual and normal electric power for office space. Tenant shall not,
without Landlord's prior written consent, use or install any equipment (i) which
consumes more than 30 Amps and 208 volts or (ii) uses electric current in excess
of the capacity of the feeders or lines to the Building or the risers or wiring
installation of the Building or the Premises;
(d) Property management services;
(e) Installation of building standard replacement fluorescent
lamps, light bulbs and ballasts as needed in the Premises; and
(f) Passenger and freight elevator serving the respective 2nd
floors in Pods D and E as shown on the floor plans where existing elevators are
located.
Failure by Landlord to any extent to furnish these defined services or any other
services not enumerated or any cessation thereof, shall not render Landlord
liable in any respect for damages to either person or property, give rise to any
abatement of rent or relieve Tenant from fulfillment of any covenant contained
in this Lease except to the extent caused by Landlord's gross negligence. Should
any of the equipment or machinery break down, or for any cause cease to function
properly, Landlord shall use reasonable diligence to repair the same promptly,
but in any event, Landlord shall commence such repair within two (2) business
days of receipt of Tenant's notice with respect thereto (subject to force
majeure). Notwithstanding the foregoing, if any essential building service
(i.e., water, electricity, sewer, heating or air conditioning) is interrupted
for a period of three (3) consecutive business days as a result of the
negligence of Landlord (and not arising from the misuse or neglect of Tenant or
failure of a public utility), there shall be an abatement of Base Rent with
respect to the portion of the Premises that shall be materially affected by such
interruption from and after said third day until such services are restored.
Landlord agrees to use good faith efforts to restore such services as soon as
reasonably possible.
10. INTENTIONALLY OMITTED.
11. REPAIRS AND MAINTENANCE. (a) TENANT'S REPAIRS AND MAINTENANCE. Subject
to Section 11(c) below, Tenant shall, at its own cost and expense, maintain the
Premises in good condition and repair, including all necessary repairs and
replacements. Tenant shall further, at its own cost and expense, repair or
restore any damage or injury to all or any part of the Building caused by Tenant
or Tenant's agents, employees, invitees, licensees, visitors or contractors,
including but not limited to any repairs or replacements necessitated by (i) the
construction or installation of improvements to the Premises by or on behalf of
Tenant, (ii) the installation, use or operation of Tenant's property, or (iii)
the moving of any property into or out of the Premises; provided, however, if
Tenant fails to make the repairs or replacements promptly, Landlord may, at its
option upon ten (10) business days written notice, make the repairs or
replacements and the costs of such repairs or replacements shall be charged to
Tenant as Additional Rent and shall become due and payable by Tenant with the
monthly installment of Base Rent next due hereunder.
(b) CONDITION AT END OF TERM. On the Expiration Date, Tenant shall
surrender the Premises to Landlord in the condition in which the Premises were
originally received from Landlord, except for ordinary wear and tear and damage
by casualty or taking not required to be repaired by Tenant hereunder. So long
as Tenant is not in default hereunder, Tenant may remove from the Premises on or
prior to the Expiration Date all property situated therein which is not owned by
Landlord, and Tenant shall, on or prior to the Expiration Date, remove all of
Tenant's office equipment, trade fixtures and moveable furnishings from the
Premises. Property not so removed shall become the property of Landlord, and
Landlord may at Tenant's expense remove such property from the Premises and
dispose the same without any liability of Landlord to Tenant.
(c) LANDLORD'S REPAIRS AND MAINTENANCE. Landlord shall during the
Term maintain the public areas of the Building, landscaped areas of the Land and
Building, elevators, stairs, common restrooms and main lobby area for the
Building, heating, ventilating and air conditioning systems (exclusive of any
Tenant supplemental air conditioning systems that Tenant shall install), other
mechanical systems, plumbing, life safety systems, electrical systems and the
structure (including, without limitation, the roof, roof membrane, foundation
and water tightness, but exclusive of any improvements or alterations to
building systems made by Tenant to any of such systems) of the Building in a
manner comparable to other Comparable Buildings.
12. ALTERATIONS AND IMPROVEMENTS. (a) No alteration, addition, improvement
or installation to the Premises shall be made or permitted to be made by Tenant
(hereinafter collectively "Alterations" or individually referred to as an
"Alteration"), except as provided in Section 12(b) below, without the prior
written consent of Landlord, which consent shall not be unreasonably withheld,
delayed or conditioned (except as otherwise provided herein).
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(b) Tenant may, without Landlord's consent, make Alterations that
are non-structural in nature and do not adversely affect the Building
mechanical, plumbing or electrical systems; provided (i) Tenant shall give
Landlord fifteen (15) days advance notice of such Alterations which notice shall
include a description of such Alterations; (ii) all such Alterations shall be
installed or constructed in accordance with all laws; (iii) Tenant shall obtain
all necessary permits required by governmental or quasi-governmental bodies;
(iv) Tenant shall carry and cause its contractors to carry worker's
compensation, general liability, personal and property damage insurance; (v)
Tenant shall provide Landlord with copies of plans and specifications for any
such Alteration and (vi) the cost of such Alteration shall not exceed Twenty
Thousand and No/100 Dollars ($20,000.00) per Alteration or Fifty Thousand and
No/100 Dollars ($50,000.00) in any calendar year.
(c) Notwithstanding any provision in this Section 12 or otherwise
in this Lease to the contrary: (i) Tenant shall have no right without Landlord's
prior written consent, which consent shall not be unreasonably withheld, delayed
or conditioned, to make any Alterations which would: (1) adversely affect the
load bearing structural components or structural soundness of the Building; (2)
adversely affect the central environmental systems (excluding ventilation ducts,
diffusers and returns); (3) adversely affect the electrical, plumbing or other
utility systems of the Building; or (4) adversely affect the roofing systems,
window glass, window gaskets or glazing; and (ii) Tenant shall not make any
Alteration that shall affect the facade or exterior face of the Building or
otherwise affect the appearance of the Building from the exterior of the
Building in any respect (with respect to which Landlord reserves the right to
unreasonably withhold its consent to any such Alteration in Landlord's sole and
absolute discretion).
(d) All permitted Alterations which may be made to the Premises,
shall be the property of Tenant during the Term hereof but shall become the
property of Landlord upon the expiration or earlier termination of the Term and
remain and be surrendered with the Premises. Tenant agrees to repair any damage
to the Premises caused by or in connection with the removal of any articles of
personal property, business or trade fixtures, including without limitation
thereto, repairing the floor and patching and painting the walls where damaged.
13. STANDARDS FOR WORK. (a) Whenever in this Lease Landlord or Tenant is
permitted or required to maintain and repair, or make additions, alterations,
substitutions or replacements, or reconstruct or restore the Building or the
Premises, such party shall cause such work (the "Work") to be done and completed
in a good, substantial and workmanlike manner, free from faults and defects, and
in compliance with all legal requirements, and shall utilize only new
first-class materials and supplies. The party performing such Work shall be
solely responsible for construction means, methods, techniques, sequences and
procedures, and for coordinating all activities related to the Work, and the
other party shall have no duty or obligation to inspect the Work, but shall have
the right to do so.
(b) Whenever Landlord or Tenant is required to perform any Work
upon the Building or the Premises, such party shall promptly commence the Work
and, once the Work is commenced, diligently and continually pursue the Work and
complete the Work within a reasonable time. The party performing such Work shall
supervise and direct the Work utilizing its best efforts and reasonable care,
and shall assign such qualified personnel to the Work as may be necessary to
cause the Work to be completed in an expeditious fashion.
(c) The party performing such Work shall (i) provide and pay for
all labor, materials, goods, supplies, equipment, appliances, tools,
construction equipment and machinery and other facilities and services necessary
for the proper execution and completion of the Work; (ii) promptly pay when due
all costs and expenses incurred in connection with the Work; (iii) pay all
sales, consumer, use and similar taxes required by law in connection with the
Work; (iv) secure and pay for all permits, fees and licenses necessary for the
performance of the Work; and (v) at all times maintain the Premises and the
Project free and clear from any and all liens, claims, security interests and
encumbrances arising from or in connection with the Work, including, without
limitation, liens for materials delivered, supplied or furnished, or for
services or labor performed or rendered. All materials, supplies, goods,
appliances and equipment incorporated in the Work shall be free from any liens,
security interests or title retention arrangements, other than the lien or
security interest (if any) of the holder of any Mortgage placed upon the
Premises by Landlord. However, nothing contained in this Section is intended to
restrict or affect any right the party performing such Work may otherwise have
under this Lease for reimbursement of any costs or expenses incurred in
connection with such Work.
(d) The party performing such Work shall (i) be responsible for the
acts and omissions of all of its employees and all other persons performing any
of the Work; (ii) be responsible for initiating, maintaining and supervising all
necessary safety precautions and programs in connection with the Work; (iii)
take all reasonable precautions for the safety of, and provide all reasonable
protection to prevent damage, injury or loss to, the Work, all persons
performing the Work, all other persons who may be involved in or affected by the
Work, all materials and equipment to be incorporated in the Work and all other
property in the Building or on the land or adjacent thereto; (iv) purchase and
maintain in full force and effect, and cause its contractors and subcontractors
to purchase and maintain in full force and effect, such insurance (if any) in
addition to that otherwise required of such party under this Lease as may be
necessary to protect such party from claims under worker's compensation acts and
other employee benefit acts, from claims for damages because of bodily injury,
including death, and from claims for damage to property which arise out of
performance of the Work. Such additional insurance policies, if any, shall meet
the requirements set forth elsewhere herein with respect to the insurance
policies otherwise required to be obtained and maintained by such party under
this Lease. The party performing such Work shall pay and shall indemnify and
save the other party and its officers, employees and
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agents harmless from all liabilities, damages, losses, costs, expenses, causes
of action, suits, claims, demands and judgments of any nature arising out of, by
reason of or in connection with the Work.
14. COMPLIANCE WITH LAWS, RULES AND REGULATIONS. Tenant, at Tenant's
expense, shall comply with all laws, ordinances, orders, rules and regulations
of state, federal, county, municipal or other agencies or bodies having
jurisdiction relating to the interior of the Premises and any Alterations or
Tenant improvements made thereto or therein. Tenant will comply with the Rules
and Regulations reasonably adopted by Landlord which are set forth on EXHIBIT D
attached hereto and hereby made a part hereof. Landlord shall have the right at
all times to change the Rules and Regulations in any reasonable manner as
Landlord may deem necessary or advisable. All changes and amendments in the
Rules and Regulations will be sent by Landlord to Tenant in writing and shall
thereafter be carried out and observed by Tenant. Landlord shall not enforce the
Rules and Regulations in a discriminatory manner against Tenant. Landlord, at
Landlord's expense, shall comply with all laws, ordinances, orders, rules and
regulations of state, federal, county, municipal or other agencies or bodies
having jurisdiction relating to the Project exclusive of the interior of the
Premises.
15. CONDEMNATION. (a) SUBSTANTIAL TAKING. If, during the Term, all or a
substantial part of the Premises is permanently taken for any public or
quasi-public use under any governmental law, ordinance or regulation, or by
right of eminent domain or by purchase or exchange in lieu thereof, and the
taking would prevent or materially interfere with the use of the Premises for
the purpose for which they are then being used, the Term shall terminate and the
Rent shall be abated during the otherwise unexpired portion of the Term
effective on the date physical possession of the condemned property is taken by
the condemning authority. The determination of whether such taking would prevent
or materially interfere with the use of the Premises may be made by either
Tenant or Landlord, however such party shall act reasonably in making such
determination. Tenant shall be entitled to make a separate claim in any
condemnation proceeding, action or ruling relating to the Building for Tenant's
moving expenses, loss of goodwill and the unamortized value of leasehold
improvements in the Premises actually paid for by Tenant, together with all
costs and expenses of Tenant in seeking said award, and as otherwise allowed by
applicable law.
(b) LESS THAN SUBSTANTIAL TAKING. In the event a portion of the
Premises shall be taken for any public or quasi- public use under any
governmental law, ordinance or regulation, or by right of eminent domain or by
purchase or exchange in lieu thereof, and the Term is not terminated as provided
in subsection (a) above, Landlord may, at Landlord's option and at Landlord's
expense, restore and reconstruct the Building and other improvements of which
the Premises are a part to the extent necessary to make them reasonably
tenantable for Tenant's permitted use, and the Rent for the remainder of the
Term shall be abated from the date of such taking to such extent as may be fair
and reasonable considering all the circumstances. Tenant shall be entitled to
make a separate claim in any condemnation proceeding, action or ruling relating
to the Building for Tenant's moving expenses, loss of goodwill and the
unamortized value of leasehold improvements in the Premises actually paid for by
Tenant, together with all costs and expenses of Tenant in seeking said award,
and as otherwise allowed by applicable law.
16. FIRE AND CASUALTY. (a) SUBSTANTIAL DAMAGE. If the Premises should be
totally destroyed by fire or other casualty, or if the Premises should be so
damaged such that the rebuilding cannot reasonably be completed within one
hundred eighty (180) days after the date of casualty, either Landlord or Tenant
may terminate this Lease and the Rent shall be abated for the otherwise
unexpired portion of the Term, effective as of the date of such casualty. The
determination of whether such rebuilding can reasonably be completed within such
period shall be made by Landlord, however, Landlord shall act reasonably in
making such determination.
(b) LESS THAN SUBSTANTIAL DAMAGE. If the Premises should be
partially damaged by fire or other casualty, and the rebuilding or repairs can
reasonably be completed within one hundred eighty (180) days after casualty, or
if Landlord or Tenant does not elect to terminate the Lease as set forth in
Section 16(a) above, Landlord may at its option, either terminate this Lease or
proceed with reasonable diligence to rebuild or repair the Building and Tenant
shall proceed with reasonable diligence to rebuild or repair the Tenant's
improvements within the Premises to substantially the same condition as existed
prior to the damage. If the Premises are to be so rebuilt or repaired and are
untenantable in whole or in part following the damage, and the damage was not
caused or contributed to by the willful misconduct of Tenant, its agents,
employees, invitees, visitors, contractors, or those for whom Tenant is legally
responsible, the Rent payable hereunder during the period for which the Premises
are untenantable shall be adjusted to such an extent as may be fair and
reasonable under the circumstances.
17. INSURANCE. (a) LANDLORD'S INSURANCE. Landlord agrees to maintain during
the Term the following insurance (the cost of which is to be included as an
Operating Expense): (i) "all risk" coverage insurance on the Building and the
other improvements on the Property, exclusive of any improvements constructed
within the Premises by or on behalf of Tenant, in an amount equal to the full
replacement cost thereof; and (ii) a policy or policies of worker's compensation
and comprehensive general liability insurance, including personal injury and
property damage in the amount of One Million and No/100 Dollars ($1,000,000.00)
for property damage and One Million and No/100 Dollars ($1,000,000.00) per
occurrence for personal injuries or deaths of persons occurring in or about the
Property. Tenant shall not permit the Premises to be used in any way which
would, in the opinion of Landlord, be extra hazardous on account of fire or
other hazard or casualty or which would otherwise and in other ways increase the
premiums for or render void any insurance relating to the Building or the
contents thereof or any liability of Landlord. If Tenant's specific use and
occupancy of the Premises causes any increase in any insurance premiums paid by
Landlord with respect to the Building, or if Tenant abandons the Premises and
thereby causes an increase in such premiums, then
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Tenant shall pay the Landlord upon demand as Additional Rent the amount of such
increase. Landlord shall not be obligated in any way or manner to insure any
personal property (including but not limited to any furniture, machinery,
equipment, goods or supplies) of Tenant or which Tenant may have upon or within
the Premises or any fixtures installed by or paid for by Tenant upon or within
the Premises or any additional improvements which Tenant may construct on the
Premises.
(b) TENANT'S INSURANCE. Tenant shall, at its sole expense, at all
times during the Term of this Lease maintain in effect a policy or policies of
insurance (i) covering its personal property located in the Premises and tenant
improvements to the Premises, providing protection against any peril included
under insurance practices within the classification "all risk" and to the full
insurable value of such personal property and tenant improvements and (ii)
comprehensive public liability insurance with respect to the Premises and the
conduct or operation of Tenant's business therein, with limits of not less than
One Million and No/100 Dollars ($1,000,000.00) for death or bodily injury to any
one or more persons in a single occurrence and One Million and No/100 Dollars
($1,000,000.00) for property damage. Tenant hereby waives any and all rights of
recovery against Landlord for any insured loss or liability occurring to
Tenant's personal property and tenant improvements and the aforesaid policy or
policies shall contain appropriate provisions recognizing this release by Tenant
and waiving all rights of subrogation by the insurance carrier. Tenant hereby
indemnifies and holds Landlord harmless from all claims, demands, actions,
damages, loss, liabilities, judgments, costs and expenses, including, without
limitation, attorneys' fees and costs which are suffered by, recovered from or
asserted against Landlord and arise proximately from or in connection with the
use or occupancy of the Premises and/or any accident, injury or damage occurring
in the Premises to the extent not caused by the gross negligence or willful
misconduct of Landlord. Tenant shall maintain a policy or policies of insurance
with the premiums paid in advance issued by and binding upon a solvent insurance
company, authorized to transact business in Florida, insuring all personal
property of Tenant upon or within the Premises in an amount equal to the full
replacement cost of such property. Tenant shall deliver certificates of such
insurance to Landlord on or before the Commencement Date, and thereafter from
time to time upon request.
18. WAIVER OF SUBROGATION. Landlord and Tenant, to the fullest extent
permitted by law, each hereby waive all claims, causes of action and rights of
recovery against the other for and hereby release the other from liability for,
loss or damage to the extent such loss or damage is insured by valid and
collectible insurance in effect at the time of such loss or damage.
19. LIABILITY AND INDEMNIFICATION. Landlord shall not be liable to Tenant's
employees, agents, invitees, licensees, contractors or visitors, or to any other
person, for any injury to person or damage to property on or about the Premises
caused by the negligence or misconduct of Tenant, its agents, servants, or
employees or of any other person entering upon the Premises under express or
implied invitation by Tenant. Except for Landlord's negligence or willful
misconduct, Tenant agrees to indemnify and hold harmless Landlord of and from
any loss, attorneys' fees, expenses or claims arising out of (i) any such damage
or injury, (ii) any and all defaults by Tenant hereunder, or otherwise by reason
of or resulting from the use or occupancy of the Premises.
20. QUIET ENJOYMENT. Landlord warrants that it has full right to execute
and to perform this Lease and that Tenant, upon payment in full of the required
Rent and full performance of the terms, conditions, covenants and agreements
contained in this Lease, shall peaceably and quietly have, hold and enjoy the
Premises during the Term, subject only to the matters set forth in Sections 21
and 30 below. Landlord shall not be responsible for the acts or omissions of any
other Tenant, lessee or third party that may interfere with Tenant's use and
enjoyment of the Premises. Landlord represents and warrants to Tenant that
Landlord is vested with fee simple title to the Premises, that no joinder or
consent of any person or entity (other than Landlord's mortgagee) is required in
connection with Landlord's execution hereof and performance of Landlord's
obligations hereunder and that, to Landlord's actual knowledge (without
inquiry), there are no matters of record affecting title to the Premises other
than as set forth on EXHIBIT F attached hereto and incorporated herein by this
reference.
21. LANDLORD'S RIGHT OF ENTRY. With reasonable notice (except in the case
of an emergency), Landlord or its authorized agent shall at any and all
reasonable times have the right to enter the Premises to inspect the same, to
supply janitorial service or any other service to be provided by Landlord, to
show the Premises to perspective purchasers or tenants (only during the last
twelve months of the Term with respect to prospective tenants), and to repair
the Premises or any other portion of the Building. Tenant shall make available a
representative of Tenant during all periods (except in an emergency) during
which Landlord shall access the Premises. Except for Landlord's negligence or
willful misconduct, Tenant hereby waives any claim for damages for injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or use of the Premises, and any other loss occasioned thereby. Landlord agrees
to use good faith efforts to minimize disruption to Tenant's business during any
periods when Landlord requires access to the Premises. Landlord shall at all
times have and retain a key with which to unlock all of the doors in, upon and
about the Premises except with respect to certain secured areas specified by
Tenant to Landlord provided that such secured areas are not in excess of 2,500
rentable square feet. Tenant shall not change Landlord's lock system or in any
other manner prohibit Landlord from entering the Premises. Landlord shall have
the right to use any and all means which Landlord may deem proper to open any
door in an emergency without liability therefore.
22. ASSIGNMENT OR SUBLET. (a) Tenant shall not assign, in whole or in part,
this Lease, or sublet the Premises in whole or in part, without the prior
written consent of Landlord which consent shall not be unreasonably withheld,
conditioned or delayed. Notwithstanding the foregoing, Tenant shall have the
right, without any required consent of Landlord, to sublet the whole or any part
of the Premises to any "Acceptable Tenant" (as hereinafter defined) or to
Tenant's parent corporation or a wholly owned
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subsidiary of Tenant provided that such entity has the same or greater net
worth, market value (number of outstanding shares of stock multiplied by the
daily stock price) and liquidity as Tenant had as of the Commencement Date of
this Lease. Landlord acknowledges that Tenant may desire to sublet the Premises
or a portion thereof as a result of Tenant's anticipated growth and the
inability of Landlord to accommodate such growth. For purposes hereof, an
"Acceptable Tenant" shall mean a tenant whose use, reputation and financial
strength are consistent with those of other tenants in the Project, e.g.
BellSouth Mobility, Inc., Associated Industries of Florida Property and Casualty
Trust and Sensormatic Electronics Corporation.
(b) Any transfer pursuant to the provisions of this Section shall
be subject to the following conditions: (i) Tenant shall remain fully liable
hereunder; (ii) any such assignment, sublease or transfer shall be subject to
all the terms, covenants and conditions of this Lease; and (iii) such assignee
or transferee shall expressly assume the obligations of Tenant under the Lease
by a document reasonably satisfactory to Landlord. Consent by Landlord to any
assignment, transfer or subletting to any party, shall not be construed as a
waiver or a release of Tenant from the terms of any covenant or obligation under
this Lease, nor shall its consent to one assignment, transfer or subletting to
another person, partnership, firm or corporation be deemed to be a consent to
any subsequent assignment, transfer or subletting to another person,
partnership, firm or corporation.
23. EVENTS OF DEFAULT. Each of the following shall be deemed to be an Event
of Default by Tenant under this Lease: (a) Tenant shall fail to pay any
installment of Base Rent, Additional Rent or any other amount required pursuant
to this Lease within five (5) days after written notice by Landlord to Tenant
that such sum is due and unpaid; provided, however, that notwithstanding the
foregoing, Landlord shall have no obligation to notify Tenant of the failure to
pay any sum due from Tenant under this Lease on more than two (2) occasions
during any twelve (12) month period; (b) Tenant shall fail to comply with any
term, provision or covenant of this Lease, other than payment of Base Rent,
Additional Rent, or any other required amount, and the failure is not cured
within thirty (30) days after written notice to Tenant (or if such failure to
comply on the part of Tenant would reasonably require more than thirty (30) days
to rectify, unless Tenant commences rectification within the thirty (30) day
notice period and thereafter promptly, effectively and continuously proceeds
with the rectification of the failure to comply on the part of Tenant and, in
all events, cures such failure to comply on the part of Tenant no later than
sixty (60) after such notice); (c) Tenant shall file a petition for relief or be
adjudged bankrupt or insolvent under the Federal Bankruptcy Act, as amended,
U.S.C.A. Title 11 (entitled "Bankruptcy") Section 101 ET SEQ. as amended, or any
similar law or statute of the United States or any state; or a receiver or
trustee shall be appointed for all or substantially all of the assets of Tenant;
or Tenant shall make a transfer in fraud of creditors or shall make an
assignment for the benefit of creditors; or (d) Tenant shall do or permit to be
done any act which results in a lien being filed against the Premises or the
Building and fails to remove such lien by payment, bond or otherwise within
twenty (20) business days from receipt of Landlord's notice to remove.
24. REMEDIES FOR TENANT'S DEFAULT. Upon the occurrence of any Event of
Default, Landlord, besides any other rights or remedies it may have by law or
otherwise, shall have the immediate right of re-entry and may remove all persons
and property from the Premises. Such property may be removed and stored at the
cost of and for the account of Tenant. Should Landlord elect to re-enter as
herein provided, or should Landlord take possession pursuant to legal
proceedings or pursuant to any notice provided for by law, Landlord may either
terminate this Lease or may, from time to time, without terminating this Lease,
relet the Premises or any part thereof for such term or terms (which may be for
a term extending beyond the Term) and at such rental or rentals and upon such
other terms and conditions as Landlord in the exercise of Landlord's sole
discretion may deem advisable with the right to make alterations and repairs to
the Premises. Upon each such reletting (a) Tenant shall be immediately liable to
pay to Landlord, in addition to any indebtedness other than Base Rent and
Additional Rent due hereunder, the cost and expense of such reletting (including
reasonable attorneys' fees) and of such alterations and repairs incurred by
Landlord, and the amount if any, by which the Rent reserved in this Lease for
the period of such reletting (up to but not beyond the Term) exceeds the amount
agreed to be paid as Rent for the Premises for such period of such reletting; or
(b) at the option of Landlord, rents received by Landlord from such reletting
shall be applied first, to the payment of any indebtedness, other than Rent due
hereunder from Tenant to Landlord; second, to the payment of any costs and
expenses of such reletting (including reasonable attorneys' fees) and of such
alterations and repairs; third, to the payment of Rent due and unpaid hereunder;
and the residue, if any, shall be held by Landlord and applied in payment of
future Rent as the same may become due and payable hereunder.
Should Landlord at any time terminate this Lease for any breach, in addition to
any other remedy Landlord may have, Tenant shall be liable for (a) all Rent,
Additional Rent or damages due or sustained prior to such termination and all
reasonable costs, attorneys' fees and expenses incurred by Landlord in pursuit
of its remedies hereunder or in renting the Premises to others from time to time
(all such Rent, Additional Rent, damages, costs, attorneys' fees and expenses
being herein referred to as "Termination Damages"); and for (b) additional
damages (the "Liquidated Damages") which, at the election of Landlord, shall be
either:
(i) an amount equal to the Rent which but for termination of this
Lease, would have become due during the remainder of the Term, less the
amount of Rent, if any, which Landlord shall receive during such period
from others to whom the Premises may be rented (other than any Additional
Rent received by Landlord as a result of any failure of such other person
to perform any of its obligations to Landlord); or
(ii) an amount equal to the present worth (as of the date of such
termination) of Base Rent and Additional Rent which, but for termination of
the Lease, would have become due during the remainder of the Term, less the
fair rent value of the Premises, as determined by an independent real
estate appraiser named by Landlord, in which case such Liquidated
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Damages shall be payable to Landlord in one lump sum on demand and shall
bear interest at fifteen percent (15%) until paid. For purposes of this
clause, "present worth" shall be computed by discounting such amount to
present worth at a discount rate equal to one percentage point above the
discount rate then in effect at the Federal Reserve Bank nearest the
Premises.
Termination Damages shall be due and payable immediately upon demand by Landlord
following any termination of this Lease. If this Lease is terminated pursuant to
this Section, Landlord may relet the Premises or any part thereof, alone or
together with other Premises, for such term or terms (which may be greater or
less than the period which otherwise would have constituted the balance of the
Term) and on such terms and conditions (which may include concessions or free
rent and alterations of the Premises) as Landlord, in its sole discretion, may
determine. Landlord shall not be liable for, nor shall Tenant's obligations
hereunder be diminished by reason of, any failure by Landlord to relet the
Premises or any failure by Landlord to collect any Rent due upon such reletting.
25. WAIVER OF DEFAULT OR REMEDY. Tenant understands and acknowledges that
no assent, express or implied, by Landlord to any breach of any one or more of
the terms, covenants or conditions hereof shall be deemed or taken to be a
waiver of any succeeding or other breach, whether of the same or any other term,
covenant or condition hereof.
26. EXPANSION.
(a) EXPANSION OPTION. Provided Tenant shall not then be in default
hereunder and that Tenant has not taken any more than 15,000 rentable square
feet on the second floor of Pod E in Building 235 under this Lease AND subject
to the rights of Associated Industries of Florida Property and Casualty Trust
with respect to such space, Tenant shall have one (1) option to lease
approximately 7,000 rentable square feet on the second floor of Pod E in
Building 235 (the "Expansion Space"). Tenant must exercise such option, if at
all, on or before the eighteen (18) month anniversary of the Rental Commencement
Date. Upon receipt of such exercise, the Expansion Space shall be and become
part of the Premises, whereupon the terms and conditions of this Lease shall
govern such Expansion Space except that (i) the Base Rent shall be at the rate
in effect for the Premises and without any contribution by Landlord for tenant
improvements and (ii) the term shall be coterminous with the initial Term of
this Lease, provided, however, that in the event Tenant exercises its renewal
option as provided herein, Tenant recognizes and agrees that the term with
respect to the Expansion Space shall terminate on July 31, 2002.
(b) SECOND RIGHT TO LEASE. (i) Provided Tenant shall not then be in
default hereunder, if Landlord shall receive a bona fide offer (but which need
not be in the form of a lease or letter of intent to be signed) (the "Offer") to
lease the remaining space located on the second floor of Pod E in Building 235
(the "SROR Space"), and (i) if Landlord shall be willing to accept such Offer
and (ii) Associated Industries of Florida Property and Casualty Trust has
declined to exercise its first right of refusal with respect to such SROR Space,
then Landlord shall submit written notice thereof to Tenant. Upon receipt of the
aforesaid notice from Landlord, Tenant shall have the right (the "Second Right
of Refusal"), exercisable at any time within fifteen (15) business days from the
date of such notice, to lease said portion of the said floor that is the subject
of the Offer, which lease will be deemed to be pursuant to this Lease, and such
space shall be taken (i) at Base Rent specified in the Offer and without any
contribution by Landlord for tenant improvements and, (ii) with a term
coterminous with the initial Term of this Lease, provided, however, that in the
event Tenant exercises its renewal option as provided herein, Tenant recognizes
and agrees that the term with respect to the SROR Space shall terminate on July
31, 2002.
(c) If Tenant elects to exercise the Second Right of Refusal, it
shall, prior to the end of said fifteen (15) business day period, deliver
written notice of such exercise to Landlord, and the leasing of said portion of
said floor shall commence thirty (30) days following Tenant's election and shall
be evidenced by a lease amendment to this Lease to reflect such leasing. If
Tenant shall not exercise such Second Right of Refusal within said fifteen (15)
day period or shall fail to deliver written notice of such exercise as provided
above, Landlord shall be free to lease said portion of the Building, or any part
thereof, to the Offeror or any other person or entity on substantially the same
terms and conditions as were set forth in the Offer for a period of six (6)
months following the delivery of the Offer to Tenant, and in no event shall
Tenant have any further right of refusal under this Lease with respect to said
portion of said floor, or any portion thereof during such six (6) month period.
In the event Landlord fails to consummate a lease for such premises during such
six (6) month period, Tenant's Second Right of Refusal for such premises shall
again be in force. Tenant shall not have the right to assign its expansion
option or second right of refusal to any sublessee of the Premises or assignee
of this Lease, nor may any such sublessee or assignee exercise such expansion
option or second right of refusal.
(d) In the event Tenant exercises its Second Right of Refusal
pursuant to the terms hereof, Tenant shall take the SROR Space on an "as is"
basis and Landlord shall have no obligation with respect to improving the SROR
Space.
27. FORCE MAJEURE. Landlord and Tenant (except with respect to the payment
of Base Rent, Additional Rent or any other monetary obligation under this Lease)
shall be excused for the period of any delay and shall not be deemed in default
with respect to the performance of any of the terms, covenants and conditions of
this Lease when prevented from so doing by a cause or causes beyond the
Landlord's or Tenant's (as the case may be) control, which shall include,
without limitation, all labor disputes, governmental regulations or controls,
fire or other casualty, inability to obtain any material or services, acts of
God, or any other cause not within the reasonable control of Landlord or Tenant
(as the case may be).
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28. ATTORNEY'S FEES. In the event of any lawsuit or court action between
Landlord and Tenant arising out of or under this Lease or the terms and
conditions stated herein, the prevailing party in such lawsuit or court action
shall be entitled to and shall collect from the non-prevailing party the
reasonable attorney's fees and court costs actually incurred by the prevailing
party with respect to said lawsuit or court action. The prevailing party shall
be deemed to be that party who obtains substantially the same relief sought
whether by compromise, settlement or judgment.
29. HOLDING OVER. Tenant will, at the termination of this Lease by lapse of
time or otherwise, yield up immediate possession of the Premises to Landlord. If
Tenant retains possession of the Premises or any part thereof after any
termination pursuant to the terms of this Lease, then such holding over shall
create a tenancy at sufferance upon the terms and conditions set forth in this
Lease; provided however that the Base Rent shall, in addition to all other sums
which are to be paid by Tenant hereunder, whether or not as Additional Rent, be
equal to one hundred fifty percent (150%) of the Base Rent being paid to
Landlord under this Lease immediately prior to such termination (prorated for
each day Tenant remains in possession); provided, further, however, that in the
event Landlord has provided Tenant notice of termination and Tenant retains
possession the Base Rent shall be two hundred percent (200%) of the Base Rent
being paid to Landlord under this Lease immediately prior to such termination
(prorated for each day Tenant remains in possession); and there shall be no
renewal of this Lease by operation of law. The provisions of this Section 29
shall not constitute a waiver of any right of re-entry as herein set forth or as
provided by law; nor shall receipt of any rent or other act in apparent
affirmance of the tenancy operate as a waiver of the right to terminate this
Lease for a breach of any of the terms, covenants or obligations herein on
Tenant's part to be performed.
30. RIGHTS OF MORTGAGEES AND OTHERS. Tenant accepts this Lease subject and
subordinate to the lien or security title of any recorded mortgage, deed of
trust or deed to secure debt presently existing or hereafter created upon the
Premises and to all existing recorded restrictions, covenants, easements and
agreements with respect to the Building or any part thereof, and all amendments,
modifications and restatements thereof and all replacements and substitutions
therefor which do not materially affect Tenant's use or occupation of the
Premises. Any provisions of this Lease requiring the approval or consent of
Landlord shall not be deemed to have been unreasonably withheld if any mortgagee
(which shall include the holder of any mortgage, deed of trust or deed to secure
debt) of the Premises or Building or any portion thereof shall refuse or
withhold its approval or consent thereto. Any requirement of Landlord pursuant
to this Lease which is imposed pursuant to the direction of any such mortgagee
shall be deemed to have been reasonably imposed by Landlord if made in good
faith. Landlord agrees to use good faith efforts to obtain a subordination,
nondisturbance and attornment agreement substantially in the form attached
hereto as EXHIBIT E and incorporated herein ("SNDA") from any future mortgagee
of Landlord. Notwithstanding anything contained herein to the contrary, this
Lease shall not be effective until Landlord's current mortgagee shall deliver to
Tenant an SNDA substantially in the form attached as Exhibit E in recordable
form.
31. ESTOPPEL CERTIFICATES. Within ten (10) business days following any
written request which a party may make from time to time (but not more often
than four (4) times in any calendar year), the other party shall execute,
acknowledge and deliver to the requesting party a certificate stating that this
Lease is unmodified and in full effect (or, if there have been modifications,
that this Lease is in full effect as modified, and setting forth such
modifications); the amounts and dates to which Base Rent, Additional Rent and
other sums payable hereunder have been paid; such other reasonable information
pertaining to the Lease as may be requested by Landlord or Tenant, as the case
may be; and either that to the knowledge of the signer of such certificate no
default exists hereunder or specifying each such default of which the signer has
knowledge. Landlord and Tenant intend that any statement delivered pursuant to
this Section 31 may be relied upon by the requesting party and any individual or
entity named by the requesting party in the request therefor.
32. SUCCESSORS AND ASSIGNS. This Lease shall be binding upon and inure to
the benefit of Landlord and Tenant and their respective heirs, representatives
and assigns, subject, however, to the provisions of Section 22 above. It is
hereby covenanted and agreed that should Landlord's interest in the Premises
cease to exist for any reason during the Term, then notwithstanding the
happening of such event this Lease nevertheless shall remain unimpaired and in
full force and effect and Tenant hereby agrees to be bound and obligated
hereunder to the then owner of the Premises as landlord provided the new owner
accepts the obligations of landlord hereunder.
33. NOTICE. (a) Except for legal process, which may also be served as by
law provided or as provided below, all notices required or desired so be given
with respect to this Lease shall be in writing and shall be deemed to be given
to and received by the party intended to receive such notice when delivered by
overnight courier, hand delivered or three (3) days after such notice shall have
been deposited, postage prepaid, in the United States mail, certified, return
receipt requested, properly addressed to the addresses specified below. In the
event of a change of address by either party, such party shall give written
notice thereof in accordance with the foregoing.
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Landlord's Address for Notices: Tenant's Address for Notices:
Flagship Group, Inc. The Panda Project, Inc.
2300 Windy Ridge Parkway 901 N.W. 51st Street
Suite 50 Boca Raton, Florida 33431
Atlanta, Georgia 30339 Attention: Drew Taylor, Vice President
Attention: T. Gordy Germany III & Chief Financial Officer
with a copy to:
Robert R. Adams, Esq.
Steel, Hector & Davis
200 South Biscayne Boulevard
Suite 4000
Miami, Florida 33131
34. BROKERAGE CLAIMS. Tenant and Landlord hereby warrant and represent to
the other that Tenant or Landlord, as the case may be, has not dealt with any
broker, agent or finder in connection with this Agreement other than CB
Commercial. Tenant and Landlord covenant and agree to hold the other harmless
from and against any and all loss, liability, damage, claim, judgment, cost or
expense (including but not limited to attorneys' fees and expenses and court
costs) that may be incurred or suffered by the other party because of any claim
for any fee, commission or similar compensation with respect to this Agreement,
made by any broker, agent or finder claiming to have dealt with such party,
whether or not such claim is meritorious.
35. PARKING. (a) During the Term, Landlord will provide Tenant non-reserved
parking spaces in the existing parking lot for the Building at the ratio of 3.3
spaces per 1,000 rentable square feet contained in the Premises. Tenant shall be
responsible to regulate Tenant's use of such parking spaces to assure that
Tenant and its employees shall not at any time use more than the applicable
number of parking spaces allocated to Tenant under this Section. Landlord shall
have no responsibility with respect to monitoring such parking areas with
respect to Tenant's or others' use thereof.
(b) Tenant acknowledges that Landlord may reserve a reasonable
number of parking spaces for visitor parking. Such parking spaces shall be
designated for visitor parking.
36. SIGNS. (a) Tenant shall not install, paint, display, inscribe, place or
affix any sign, picture, advertisement, notice, lettering, or direction
(hereinafter collectively called "Signs") on the exterior of the Premises, the
common areas of the Building, the interior surface of glass or any other
location which could be visible from outside of the Premises without first
securing written consent from Landlord therefore. Any Sign permitted by Landlord
shall at all times conform with all municipal ordinances or other laws,
regulations, deed restrictions and protective covenants applicable thereto.
Tenant shall remove all Signs at the expiration or other termination of this
Lease, at Tenant's sole risk and expense, and shall in a good and workmanlike
manner properly repair any damage caused by the installation, existence, or
removal of Tenant's Signs.
(b) Notwithstanding the foregoing, subject to local code and
restrictions, Landlord agrees to install a monument sign along Yamato Road in
front of the Building upon which Tenant may install its name and logo, at
Landlord's cost and expense (not to exceed $1,000.00). The monument sign shall
be architecturally consistent with the buildings in the Project and shall be in
compliance with all applicable signage codes and ordinances. In addition,
Tenant's name shall be located on the Building directory located in the Building
lobby area.
37. ENTIRE AGREEMENT, AMENDMENT AND LIMITATION OF WARRANTIES. IT IS
EXPRESSLY AGREED BY TENANT, AS A MATERIAL CONSIDERATION FOR THE EXECUTION OF
THIS LEASE, THAT THIS LEASE, WITH THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC
DOCUMENTS, IS THE ENTIRE AGREEMENT OF THE PARTIES; THAT THERE ARE, AND WERE NO
VERBAL REPRESENTATIONS, WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR
PROMISES PERTAINING TO THIS LEASE OR THE EXPRESSLY MENTIONED EXTRINSIC DOCUMENTS
NOT INCORPORATED IN WRITING IN THIS LEASE. LANDLORD AND TENANT EXPRESSLY AGREE
THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY,
HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR USE OR OF ANY OTHER KIND
ARISING OUT OF THIS LEASE AND THERE ARE NO WARRANTIES (OTHER THAN AS EXPRESSLY
PROVIDED HEREIN) AND/OR WHICH EXTEND BEYOND THOSE EXPRESSLY SET FORTH IN THIS
LEASE. IT IS LIKEWISE AGREED THAT THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED
OR EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY BOTH LANDLORD AND
TENANT.
38. LIMITATION OF LIABILITY. Landlord's obligations and liability with
respect to this Lease shall be limited solely to Landlord's interest in the
Building, as such interest is constituted from time to time, and neither
Landlord nor any officer, director,
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shareholder or partner of Landlord, or of any partner of Landlord, shall have
any personal liability whatsoever with respect to this Lease.
39. SUBMISSION OF AGREEMENT. Submission of this Lease to Tenant for
signature does not constitute a reservation of space or an option to acquire a
right of entry. This Lease is not binding or effective until execution by and
delivery to both Landlord and Tenant.
40. CORPORATE AUTHORITY. (a) If Tenant executes this Lease as a
corporation, each of the persons executing this Lease on behalf of Tenant does
hereby represent and warrant that Tenant is a duly organized and validly
existing corporation, that Tenant is qualified to do business in the State in
which the Building is located, that Tenant has full right, power and authority
to enter into this Lease, and that each person signing on behalf of Tenant is
authorized to do so and Tenant shall provide Landlord evidence reasonably
acceptable to Landlord of such authority. Upon Landlord's request, Tenant shall
provide Landlord with evidence reasonably satisfactory to Tenant confirming the
foregoing representations and warranties.
(b) If Landlord executes this Lease as a corporation, each of the
persons executing this Lease on behalf of Landlord does hereby represent and
warrant that Landlord is a duly organized and validly existing corporation, that
Landlord is qualified to do business in the State in which the Building is
located, that Landlord has full right, power and authority to enter into this
Lease, and that each person signing on behalf of Landlord is authorized to do so
and Landlord shall provide Tenant evidence reasonably acceptable to Tenant of
such authority. Upon Tenant's request, Landlord shall provide Tenant with
evidence reasonably satisfactory to Tenant confirming the foregoing
representations and warranties.
41. MISCELLANEOUS. The captions appearing in this Lease are inserted only
as a matter of convenience and in no way define, limit, construe or describe the
scope or intent of any provision hereof. If any provision of this Lease shall
ever be held to be invalid or unenforceable in any circumstance or as to any
person, such invalidity or unenforceability shall not affect such provision in
any other circumstance or as to any other person or any other provision of this
Lease. This Lease, or any portion hereof, shall not be recorded unless both
parties hereto agreed to the recording.
42. REASONABLENESS. Except as otherwise expressly set forth in this Lease,
whenever under the terms of this Lease either party is required to act
"reasonably", "be reasonable", exercise "reasonable discretion" in connection
with granting any consents or approvals, in exercising any discretion or
otherwise, what is "reasonable" shall take into account and be made with
reference to (i) what comparable landlords operating comparable buildings and
comparable tenants of comparable buildings would do under similar circumstances,
pursuant to commercially reasonable business standards and (ii) considerations
of fairness and commercial fair dealing; and the parties may not, in any event,
act arbitrarily or capriciously.
43. GOVERNING LAW. This Lease shall be governed and construed in
accordance with the laws of the State in which the Building is located.
44. COUNTERPARTS. This Lease may be executed in multiple counterparts,
each of which shall be deemed an original and all of which shall constitute one
agreement, and the signatures of any party to any counterpart shall be deemed to
be a signature to, and may be appended to, any other counterpart.
45. RADON DISCLOSURE. Radon is a naturally occurring radioactive gas that,
when it has accumulated in a building in sufficient quantities, may present
health risks to persons who are exposed to it over time. Levels of radon that
exceed federal and state guidelines have been found in buildings in Florida.
Additional information regarding radon and radon testing may be obtained from
the County Public Health Unit.
46. RENEWAL OPTION. As long as Tenant is not in default in the performance
of its covenants under this Lease, Tenant is hereby granted the option to renew
the Term of this Lease for a period of five (5) additional years (the "Renewal
Term") to commence at the expiration of the initial Term of this Lease. Tenant
shall exercise its option to renew by delivering written notice of such election
to Landlord at least one hundred eighty (180) days prior to the expiration of
the initial Term of this Lease. The renewal of this Lease shall be upon the same
terms and conditions of this Lease, except that (a) the Base Rent during the
Renewal Term shall be ninety percent (90%) of the Market Rate (as hereinafter
defined) at the time the Renewal Term commences, but in no event less than the
Base Rent that Tenant is then paying under the terms of this Lease, (b) Tenant
shall have no option to renew this Lease beyond the expiration of the Renewal
Term, (c) Tenant shall not have the right to assign its renewal rights to any
sublessee of the Premises or assignee of the Lease, nor may any such sublessee
or assignee exercise such renewal rights and (d) the Premises shall be provided
in their then-existing condition (on an "as-is" basis) at the time the Renewal
Term commences. Whenever used herein, the term "Market Rate" shall mean
Landlord's reasonable determination of the annual net rate per square foot of
net rentable area then being charged in comparable buildings located in the Boca
Raton, Florida metropolitan area, for space comparable to the space for which
the Market Rate is being determined.
47. RIGHT OF FIRST REFUSAL TO PURCHASE. Landlord hereby grants to
Tenant the first right of refusal (the "Right of First Refusal") to purchase the
Project, on the following terms and conditions:
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(a) In the event that Landlord, receives a letter of intent to
purchase the Project on terms and conditions which Landlord is willing to accept
(herein called the "Offer"), Landlord shall promptly furnish to Tenant a true
copy of such Offer. Tenant shall have five (5) business days after receipt of
the copy of such Offer in which to give Landlord written notice of Tenant's
election to acquire the Project on substantially the terms contained in such
Offer. In the event Tenant shall elect to exercise its Right of First Refusal to
acquire the Project, Landlord and Tenant shall have ten (10) business days after
the expiration of such five (5) business day period to enter into a binding
contract on substantially the terms and conditions contained in the Offer and on
such other terms and conditions as shall be negotiated in good faith between
Landlord and Tenant during such ten (10) day period. In the event that such
contract is finalized within such ten (10) day period, Tenant shall deposit with
Landlord, ten percent (10%) of the purchase price for the Project specified in
the Offer, as earnest money hereunder (the "Earnest Money"). The closing of the
purchase and sale shall be held as specified in the contract and on such terms
and conditions provided in the contract. Landlord and Tenant agree to use good
faith reasonable efforts to negotiate and execute the contract within the ten
(10) day period provided for herein.
(b) In the event Tenant shall not exercise its Right of First
Refusal or the contract is not executed within the ten (10) day period provided
for in Section 47(a) above, Landlord shall be free to consummate the proposed
sale on substantially the same terms described in the Offer. If the transaction
contemplated by the Offer is not consummated in accordance with such Offer
within one hundred eighty (180) days of the date of the Offer, then the Right of
First Refusal shall be restored and Tenant shall not have waived the Right of
First Refusal with respect to any future sale of the Project and Landlord shall
not thereafter sell the Project to any person or entity without again complying
with the requirements of this Section.
(c) If, after the exercise of Tenant's election, the sale and
purchase of the Project contemplated by this Section is not consummated because
of Tenant's default, failure or refusal to perform hereunder, then Landlord
shall be entitled to retain the Earnest Money as liquidated damages. It is
hereby agreed that Landlord's damages will be difficult to ascertain and that
the Earnest Money constitutes a reasonable liquidation thereof and is intended
not as a penalty, but as full liquidated damages. Landlord agrees that in the
event of a default, it shall not initiate any proceedings to recover damages
from Tenant in excess of the Earnest Money, and Tenant agrees that in the event
of such default, it shall not initiate any proceedings challenging Landlord's
right to keep the full amount of the Earnest Money as liquidated damages.
48. CAFETERIA AGREEMENT. At Landlord's request, Tenant agrees to
enter into a Cafeteria Agreement with respect to food service substantially on
the terms and conditions set forth in EXHIBIT G attached hereto and incorporated
herein by this reference.
49. TENANT WORK/LANDLORD CONTRIBUTION. Landlord agrees to reimburse Tenant
the sum of $30,000.00 toward the cost of an entrance to be constructed by Tenant
for Pod E and approved by Landlord. Tenant shall submit plans and specifications
for such entrance to Landlord for Landlord's review and approval prior to the
commencement of any construction by Tenant. Landlord's reimbursement shall be
made within thirty (30) days after the later to occur of (i) the date Tenant
furnishes lien waivers and releases of liens for all such entrance work, (ii)
the date Tenant's architect certifies to Landlord that such entrance work has
been completed substantially in accordance with the plans and specifications for
such work approved by Landlord and (iii) the Rental Commencement Date.
50. ENVIRONMENTAL.
(a) TENANT'S AGREEMENT RELATING TO HAZARDOUS SUBSTANCES. Tenant
agrees that Tenant and its partners and employees will not generate, store, use,
treat or dispose of, nor will Tenant allow or permit the generation, storage,
use, treatment or disposal by Tenant's agents or contractors of, any hazardous
substances at the Project, except for such hazardous substances as are commonly
used, stored or produced as a consequence of using the Premises for general
office and professional business purposes, but only so long as the quantities
thereof do not pose a threat to public health or to the environment or would
necessitate a "response action", as that term is defined in CERCLA, and so long
as Tenant and its partners, employees, agents and contractors strictly comply
with all applicable legal requirements concerning the use, storage or production
of such hazardous substances. Tenant shall and hereby does agree to pay,
protect, defend, indemnify and hold Landlord harmless from and against any and
all loss, damages, expenses, fees, claims, costs and liabilities (including, but
not limited to, attorneys' fees and costs of litigation) arising out of or in
any manner related to the generation, storage, use, treatment or disposal of
hazardous substances at the Project by Tenant or its partners, agents, employees
or contractors. The obligations of Tenant under this section shall survive any
expiration or termination of this Lease.
(b) LANDLORD'S AGREEMENT RELATING TO HAZARDOUS SUBSTANCES. Landlord
covenants not to generate, store, use, treat or dispose of any hazardous
substances in, on or at the Building or Project, except for hazardous substances
as are commonly legally used, stored or produced in connection with projects
similar to the Project in constructing, maintaining, operating and repairing the
Project as contemplated herein, but only so long as the quantities thereof do
not pose a threat to public health or to the environment or would necessitate a
"response action", as that term is defined in CERCLA, and so long as Landlord
strictly complies with all environmental laws concerning the use, storage or
production of such hazardous substances. To Landlord's actual knowledge (without
inquiry), the Premises is not in violation of existing environmental laws
regulating hazardous substances. In the event that the Premises is determined by
applicable governmental authorities to be in violation of such environmental
laws and such violation, in Tenant's reasonable opinion, constitutes a health
risk to Tenant's employees, then in such event, Landlord
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shall promptly commence remediation and continuously and diligently pursue such
remediation until the Premises is in compliance with such environmental law.
Notwithstanding the foregoing, in the event that Landlord reasonably determines
that such remediation is not economically feasible, Landlord may terminate this
lease upon sixty (60) days prior written notice to Tenant.
As used in this Section 50, the term "hazardous substances" means any and all
hazardous or toxic substances, materials, wastes, contaminants and pollutants,
including, but not limited to, those which are regulated pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Sections 9602-9675, the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901-6992k ("RCRA"), Chapters 376 and 403 of the Florida Statutes, and
Chapter 11 of the Palm Beach County Code, together with asbestos and petroleum
products. As used in this Lease, the term "Landlord's actual knowledge" means
the current, actual knowledge of T. Gordy Germany (without inquiry).
IN WITNESS WHEREOF, the undersigned have executed and delivered this Lease
under seal as of the day and year first above written.
WITNESSES: LANDLORD:
SIGNATURE: /s/ KARYN M. NARLOW FAIRFAX BOCA 92, L.P.,
------------------- Georgia limited partnership
PRINT NAME: Karyn M. Narlow
By: Fairfax Properties, Inc.
Its duly authorized general partner
SIGNATURE: /s/ JOHNNIE ROSS
-------------------
PRINT NAME: Johnnie Ross By: /s/ [illegible]
-----------------------------------
Its: Pres.
[CORPORATE SEAL]
TENANT:
WITNESSES:
THE PANDA PROJECT, INC.
SIGNATURE: /s/ KARYN M. NARLOW
-------------------
PRINT NAME: Karyn M. Narlow By: /s/ [illegible]
-----------------------------------
SIGNATURE: /s/ JOHNNIE ROSS Its: CMO, CSO
--------------------
PRINT NAME: Johnnie Ross
[CORPORATE SEAL]
-16-
<PAGE>
LIST OF EXHIBITS
EXHIBIT A OUTLINE OF PREMISES
EXHIBIT B DESCRIPTION OF LAND
EXHIBIT C JANITORIAL SPECIFICATIONS
EXHIBIT D RULES AND REGULATIONS
EXHIBIT E FORM OF SNDA
EXHIBIT F LIST OF TITLE EXCEPTIONS
EXHIBIT G FORM OF CAFETERIA AGREEMENT
-17-
<PAGE>
EXHIBIT A
[OUTLINE OF PREMISES]
BUILDING 235 "POD-D"
SECOND FLOOR
BUILDING 235 "POD-E"
FIRST FLOOR
BUILDING 235 "POD-E"
SECOND FLOOR
<PAGE>
EXHIBIT B
[LEGAL DESCRIPTION OF LAND]
DESCRIPTION: Parcel "B" of North Forty
A parcel of land lying and being in Sections 1 and 12, Township 47 South, Range
42 East and Sections 6 and 7, Township 47 South, Range 43 East, Palm Beach
County, Florida, described as follows:
Commence at the Northeast corner of said Section 12; thence South
00/degree/29'15" West, along the East line of said Section 12, a distance of
80.01 feet to the North right-of-way line of N.W. 51st Street and the Point of
Beginning of this description; thence North 88/degree/35'00" West, along a line
80.00 feet South of, and parallel with, as measured at right angles to the North
line of said Section 12, a distance of 453.93 feet; thence North
00/degree/24'40" East, a distance of 149.73 feet; thence North 89/degree/35'20"
West, a distance of 4.27 feet; thence North 00/degree/24'40" East, a distance of
69.93 feet; thence North 89/degree/35'20" West, a distance of 2.46 feet; thence
North 00/degree/24'40" East, a distance of 578.59 feet; thence
South 89/degree/35'20" East, a distance of 14.51 feet; thence North
00/degree/24'40" West, a distance of 13.99 feet; thence South 88/degree/35'00"
East, a distance of 504.73 feet to the East line said Section 1; thence continue
South 88/degree/35'00" East, a distance of 57.50 feet; thence South
00/degree/29'15" West, parallel with the East line of said Section 1, a distance
of 250.00 feet; thence South 88/degree/35'00" East, a distance of 20.00 feet;
thence South 00/degree/29'15" West, a distance of 435.82 feet to a line 45.00
feet North of and parallel with the South line of said Section 6; thence South
89/degree/42'30" East, along said parallel line, a distance of 40.00 feet;
thence South 00/degree/29'15" West, a distance of 45.00 feet to the South line
of said Section 6; thence continue South 00/degree/29'15" West, a distance 80.00
feet to a line 80.00 feet South of and parallel with the South line of said
Section 6, said point being further described as being the North right-of-way
line of N.W. 51st Street; thence North 89/degree/42'30" west, along said
parallel line, a distance of 117.50 feet to the said Point of Beginning of this
description.
Said lands situate, lying and being in Palm Beach County, Florida.
Containing 10.03 acres, more or less.
<PAGE>
EXHIBIT C
CLEANING SERVICE FOR THE NORTH 40 INCLUDES:
DAILY OPERATIONS
LOBBY
1. Dust mop floors. Damp mop hard surface floors.
2. Spot clean interior glass partitions, doors, frames, light switches,
baseboards, etc. Wash entrance glass on both sides
3. Dust all partitions, doors, door frame surfaces and all horizontal
surfaces.
4. Wash exterior surfaces of all trash containers.
5. Empty and damp wipe ashtrays.
CORRIDORS, ELEVATORS AND STAIRWELLS -
1. Empty and damp wipe ashtrays.
2. Dust to hand height all horizontal surfaces of ledges, sills,
ventilating louvers, frames, etc
3. Clean and sanitize all drinking fountains.
4. Empty waste containers.
5. Vacuum all carpeted areas.
6. Spot wash walls and exterior surfaces of elevator doors.
7. Sweep and remove leaves from atrium floors.
8. Dust grab rails.
9. Sweep and wash steps and landings, as necessary.
GENERAL OFFICE AREA -
1. Empty all waste baskets in offices and replace basket liners as required.
2. Dust and spot clean all countertops.
3. Dust all horizontal surfaces of desks, chairs, tables and office equipment.
4 Dust all exposed filing cabinets, bookcases and shelves.
<PAGE>
CLEANING SERVICE FOR THE NORTH 40
GENERAL OFFICE AREA - (Continued)
5. Dust to hand height all horizontal surfaces of equipment, ledges, sills,
shelves, frames, partitions, etc.
6. Dust all telephones.
7. Vacuum clean all exposed carpeting.
8. Dust mop or sweep all non-carpeted floors.
9. Spot wash walls, glass surfaces, doors, frames, light switches, baseboards
desk tops, and countertops.
REST ROOMS -
1. Clean and disinfect all fixtures, toilets, urinals and partitions. Mop
floors and clean mirrors. Stock all dispensers.
2. Empty and damp wipe ashtrays.
WORK HOURS -
All cleaning shall be performed in a five (5) day week, Monday through Friday,
between 6:30 P.M. and 11:00 P.M.
ADDITIONAL WORK REQUESTED BY TENANT -
Any additional work requested by tenants can be per an agreed additional charge
and can be paid for by management or the requesting tenant.
INSURANCE
Any company performing janitorial services in The North 40 will maintain
worker's compensation and contractor's liability insurance.
QUARTERLY OR AS REQUIRED:
- - - Wash windows interior and exterior
- - - Clean all mechanical, equipment rooms, plumbing pipes in stairwells
- - - Dust blinds and clean any finger prints
- - - Clean all light fixtures, fire equipment boxes and exit lights
<PAGE>
EXHIBIT D
[RULES AND REGULATIONS]
To ensure minimizing of inconvenience to tenants and to maintain the
interior space in a condition comparable to other first class office space in
the Boca Raton, Florida market area, the following Building regulations are
provided and are applicable to Tenant except as otherwise specifically addressed
in the Lease:
1. The sidewalks, entry passages, corridors, halls, elevators and stairways
shall not be obstructed by Tenant, or used by Tenant for any purpose other than
those of ingress and egress. The floors, skylights and windows that reflect or
admit light into any place in said Building, shall not be covered or obstructed
by Tenant subject to Tenant's right to install window coverings such as blinds.
The water closets and other water apparatus, shall not be used for any other
purpose than those for which they were constructed, and no sweepings, rubbish,
or other obstructing substances shall be thrown therein.
2. No advertisement, sign or other notice, shall be inscribed, painted or
affixed on any part of the outside or inside of said Building, except upon the
interior doors and windows permitted by Landlord, which signs, etc., shall be of
such order, size and style and at such places as shall be designated by
Landlord. Exterior signs on doors will be provided for Tenant by Landlord, the
cost of such signage to be charged to and paid for by Tenant.
3. Nothing shall be thrown by Tenant, its clerks, or servants out of the
windows or doors or down the passages or skylights of the Building. No rooms
shall be occupied or used as sleeping or lodging apartments at anytime.
4. Tenant shall not employ any persons other than the janitors of Landlord
or others reasonably approved by Landlord (who will be provided with pass-keys
into the offices) for the purpose of cleaning or taking charge of said Premises.
It is understood and agreed that the Landlord shall not be responsible to Tenant
for any loss of property from the Premises, however occurring or for any damage
done to the furniture or other effects of Tenant by the janitor or any of its
employees, provided, however, that Landlord shall use its good faith reasonable
efforts to employ service companies for providing such janitorial services which
maintain quality controls for personnel employed.
5. No animals (except service animals), birds, bicycles or other vehicles
shall be allowed in the offices, halls, corridors, elevators or elsewhere in the
Building.
6. No painting shall be done, nor shall any alterations be made to any part
of the Building by putting up or changing any partitions, doors or windows, nor
shall there be any nailing, boring or screwing into the woodwork or plastering,
nor shall any connection be made to the electric wires or electric fixtures,
without the consent in writing on each occasion of Landlord or its Agent. All
glass, locks and trimmings in or upon the doors and windows of the Building
shall be kept whole and, when any part thereof shall be broken, the same shall
be immediately replaced or repaired and put in order under the direction and to
the satisfaction of Landlord, or its Agent, and shall be left whole and in good
repair. Tenant shall not injure, overload or deface the Building, the woodwork
or the walls of the Premises, nor carry on upon the Premises any noisesome,
noxious, noisy, or offensive business.
7. Tenant shall not (without Landlord's prior written consent) put up or
operate any steam engine, boiler, machinery or stove upon the Premises, or carry
on any mechanical business thereon, or do any cooking thereon, or use or allow
to be used upon the Premises oil, burning fluids, camphene, gasoline or kerosene
for heating, warming or lighting. No article deemed extra hazardous on account
of fire and no explosives shall be brought into the Premises. No offensive gases
or liquids will be permitted.
8. Landlord will post on the directory of its Building, if any, at no charge
to Tenant, names of the excutives of Tenant, such executives to be designated
by Tenant. All additional names which Tenant shall desire put upon said
directory
<PAGE>
must be first consented to by Landlord, and if so approved, a charge will be
made for such additional listing as prescribed by Landlord to be paid to
Landlord by Tenant.
9. The Landlord, and its agents, shall have the right to enter the Premises
at all reasonanble hours for the purpose of making any repairs, alterations, or
additions which it shall deem necessary for the safety, preservation, or
improvement of said Building, and the Landlord shall be allowed to take all
material into and upon such Premises that may be required to make such repairs,
improvements, and additions, or any alterations for the benefit of the Tenant
without in any way being deemed or held guilty of an eviction of Tenant; and the
rent reserved shall in no wise abate while said repairs, alterations or
additions are being made; and Tenant shall not be entitled to maintain a set-off
or counterclaim for damage against Landlord by reason of loss or interruption to
the business of Tenant because of the prosecution of any such word. All such
repairs, decorations, additions and improvements shall be done during ordinary
business hours or, if any such work is not the request or the Tenant to be done
during any other hours, Tenant shall pay for all overtime costs.
10. Tenant shall instruct its mover to contact the Building manager two
(2) working days prior to truck arrival for coordination of move in and/or large
furniture/equipment deliveries. Such moves will normally be made after 6:00 p.m.
Friday and prior to 8:00 a.m. Monday. Tenant shall be responsible for any damage
to Building interior including, but not limited to floors and carpet. A Landlord
representatives will be present for all such moves.
11. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgement may from time to time be needed for the safety,
care and cleanliness of the Premises, and for the preservation of good order
therein.
<PAGE>
EXHIBIT F
[LIST OF TITLE EXCEPTIONS]
1. Restrictive covenants, conditions and easements contained in Deed recorded
in Official Records Book 2479, Page 205, amended in Official Records Book
3519, Page 777 Official Records Book 3723, Page 1015, corrected in Official
Records Book 3776, Page 1935 and amended in Official Records Book 3776,
Page 1937.
2. Easement granted to the City of Boca Raton recorded in Official Records
Book 3578, Page 1493, as shown on Survey by Michael G. Purmort &
Associates, Inc. dated 11/5/92 certified to John Hancock Life Insurance
Company for IBM North Forty.
3. Right of Way for canal purposes over the South 80 feet of subject premises
as claimed by Lake Work Drainage District as disclosed by maps attached to
affidavits recorded in Official Records Book 1732, Page 612.
4. Easement granted to Lake Worth Drainage District recorded in Official
Records Book 2787, Page 537.
5. Terms and conditions of unrecorded lease between International Business
Machines Corporation and Fairfax Properties, Inc., dated June 16, 1982, as
affected by unrecorded Assignment of Landlord's interest therein to Farfax
Boca, Ltd. and as modified and/or amended by Lease Amendment dated July 26,
1992 and Subordination, Non-Disturbance and Attornment Agreement executed
in conjunction with Modification and Restatement of Mortgage and Security
Agreement recorded in Official Records Book 7475, Page 1987.
6. Restrictive covenants and conditions recorded in Official Records Book
4140, Page 189.
7. Easements as shown on Plat of Arvida Park of Commerce Plat No. 5 as
recorded in Plat Book 44, Page 111 and 112 of the Public Records of Palm
Beach County, Florida, listed as follows:
a. 10' Utility Easement described in Official Records Book 3733,
Page 1821, Public Records of Palm Beach County, Florida.
b. 5' Non access easement.
c. Landscape easement described in Official Records Book 3714,
Page 885, Public Records of Palm Beach County, Florida.
d. Lift Station Easement.
e. 25' Access Easement described in Official Records Book 3489,
Page 939, Public Records of Palm Beach County, Florida.
8. Terms and provisions of Agreement with the City of Boca Raton recorded in
Official Records Book 4138, Page 618.
9. Easement granted to the City of Boca Raton recorded in Official Records
Book 4458, Page 14, Public Records of Palm Beach County, Florida.
10. Easement granted to the City of Boca Raton recorded in Official Records
Book 3969, Page 345 Public Records of Palm Beach County, Florida.
11. Declaration of Unity of Title recorded in Official Records Book 4193, Page
1087, as modified by partial release from the City of Boca Raton, recorded
in Official Records Book 7480, Page 76.
12. Easement granted to Florida Power and Light Company recorded in Official
Records Book 3733, Page 1796.
13. Easement granted to Arvida Park of Commerce West Association, Inc., Arvida
Park of Commerce Association, Inc. and Arvida Park of Commerce East
Association, Inc. recorded in Official Records Book 3714, Page 891.
14. Terms, provisions, covenants, restrictions and easements contained in the
Declaration for Arvida Park of Commerce recorded in Official Records Book
3047, Page 1110, as amended in Official Records Book 3238, Page 1565;
Official Records Book 3321, Page 1572; Official Records Book 3489, Page
943; Official Records Book 3767, Page 1941; Official Records Book 3767;
Page 1944; Official Records Book 3894, Page 1258; Official Records Book
4039, Page 69; Official Records Book 4051, Page 569; Official Records Book
4051, Page 571; Official Records Book 5609, Page 868; Official Records Book
8709,
-20-
<PAGE>
Page 1262, including but not limited to one or more of the following:
provisions for private charges or assessments; liens for liquidated
damages; and/or option, right of first refusal or prior approval or a
future purchaser or occupant.
15. Terms and provisions of Agreement between Arvida Park of Commerce
Association and International Business Machines recorded in Official
Records Book 4097, Page 801.
16. Mortgage from Fairfax Boca, Ltd. to Chemical Bank dated July 29, 1982 and
recorded in Official Records Book 3776, Page 1945, as assigned to John
Hancock Mutual Life Insurance Company in Official Records Book 3947, Page
1304, as modified, amended and assigned.
17. Terms and provisions of Easement Agreement recorded in Official Records
Book 3489, Page 939.
18. Easement granted Arvida Park of Commerce West Association, Inc., et al.
recorded in Official Records book 3714, Page 885.
19. Declaration of Reciprocal Easements and Covenants dated July 6, 1995 and
recorded on July 18, 1995 in Official Records Book 8841, Page 423, Public
Records of Palm Beach County, Florida.
-21-
EXHIBIT 10.15
CONFIDENTIAL MATERIALS OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
AGREEMENT
Agreement made this 25th day of March, 1996, by and among Parametric Technology
Corporation, a Massachusetts corporation with its principal place of business at
128 Technology Drive, Waltham, Massachusetts 02154 ("PTC"), and Panda Project, a
Florida corporation with its principal place of business at 5201 Congress
Avenue, Boca Raton, Florida 33487-3630 ("PANDA").
WHEREAS, PTC owns a proprietary software package Pro/ENGINEER which currently
operates on a variety of industry standard workstations ("PTC Software").
WHEREAS, PANDA markets a line of workstations more specifically detailed in
Schedule A attached hereto and the system software to support these workstations
("Computer Products").
WHEREAS, PANDA desires to have PTC Software operate on its Computer Products in
a manner substantially similar to the manner in which PTC Software operates on
other workstations.
WHEREAS, PTC is willing to port PTC Software to the Computer Products.
NOW THEREFORE, in consideration of the mutual covenants and By agreement
contained herein, PTC and PANDA agree as follows:
1. DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:
(a) "PARTY" means PTC, or PANDA; "PARTIES" means PTC, and
PANDA.
(b) "PTC SOFTWARE" means Pro/ENGINEER and its options.
(c) (Intentionally left blank)
(d) "PROPRIETARY INFORMATION" means (i) all information
delivered in writing and designated as "proprietary,"
"confidential," "secret" or with similar key words,
or, if disclosed other than in writing, information as
to which the person to whom such information is
disclosed, prior to or essentially concurrent with
such disclosure, is made aware that Proprietary
Information may be or is being disclosed, and (ii) all
manuals, documentation, codes, customer lists,
copyrighted or patented materials, discoveries,
inventions, technical or business information,
manufacturing techniques and software. Information
will not be deemed Proprietary
-1-
<PAGE>
Information if: (A) it is previously well known and in the
public domain through no fault of the receiving person; (B) it
was previously received by the receiving person from a third
person under circumstances permitting its disclosure to the
receiving person; (C) it was previously and independently
developed by the receiving person as shown by documentation
sufficient to establish the fact of its previous and
independent development; or (D) it becomes known to the
receiving person from a source other than PTC and without
breach of this Agreement by the receiving person and without
breach of a similar agreement by the outside source as shown
by documentation sufficient to establish the outside source of
the information.
(e) "COMPUTER PRODUCTS" means workstations marketed by PANDA
including the Computer Products described in SCHEDULE A
hereto.
(f) "DISTRIBUTORS" means third party companies which have been or
may be appointed by PTC to market, sell and support the
products as defined herein.
2. THE PROJECT.
(a) Subject to the terms and conditions in the Agreement, PANDA
agrees, within thirty (30) days of signing this Agreement, to
supply PTC with two Computer Products with mutually agreed
configurations and related software as set forth in SCHEDULE
A, on an indefinite loan basis. PANDA agrees to maintain such
loaned hardware and software at PTC's office at PANDA's
expense. PANDA further agrees to correct any hardware
breakdowns within 7 days of being notified of such breakdown.
The loan will remain in effect for as long as PTC has support
obligations to PTC customers who are running PTC Software on
the Computer Products.
(b) Upon execution of this Agreement by the parties:
(i) PTC shall perform an evaluation of the loaned
hardware and software for a period of up to 30 days
to determine its suitability for porting
Pro/ENGINEER.
(ii) PANDA agrees to issue a noncancelable purchase order
to PTC for fifty-two (52) Pro/ENGINEER Advanced
Designer Package II seats as described in SCHEDULE B
("Software"), which represents ***
********************************************
-2-
<PAGE>
****************. The Software order will be in
accordance with the following schedule:
Immediate shipment of thirty two (32) seats of
Software and/or modules as further defined in the
attached PTC Product Schedule, on or before March 28,
1996. In connection with this shipment and on or
before September 1, 1996, PANDA may order up to fifty
thousand dollars ($50,000) in training and/or
consulting services from PTC at PTC's then current
applicable list price and subject to PTC's terms and
conditions for such services; PANDA will pay all
reasonable travel and living expenses PTC incurs in
performance of such services. Payment for services is
due at the time the services are performed and, if
payment is to be satisfied by barter, PANDA must
purchase such services in increments equivalent to
the value of each Computer Product to be bartered for
the services. The dollar amount of services ordered
and paid for will be credited to the amount due for
this shipment as set forth below. If PANDA orders in
excess of fifty thousand dollars ($50,000) in
services during this period, it agrees to pay the
excess in cash.
Shipment of twenty (20) seats of Software on or
before September 28, 1997. In connection with this
shipment and on or before September 1, 1997, PANDA
may order up to fifty thousand dollars ($50,000) in
training and/or consulting services from PTC at PTC's
then current applicable list price and subject to
PTC's terms and conditions for such services; PANDA
will pay all reasonable travel and living expenses
PTC incurs in performance of such services. Payment
for services is due at the time the services are
performed and, if payment is to be satisfied by
barter, PANDA must purchase such services in
increments equivalent to the value of each Computer
Product to be bartered for the services. The dollar
amount of services ordered and paid for will be
credited to the amount due for this shipment as set
forth below. If PANDA orders in excess of fifty
thousand dollars ($50,000) in during this period, it
agrees to pay the excess in cash.
Payment for the Software license fees shall be made
as follows:
-3-
<PAGE>
(degree) FIRST SHIPMENT: ***********************
****************** due on or before June 28, 1996 and
****************************** ********** due on or
before September 28, 1996;
(degree) SECOND SHIPMENT: *********************
****************** due on or before September 28,
1997.
At PANDA's option each such payment may be satisfied by (i)
cash payment; (ii) barter, subject to the conditions set forth
in the following sentence; or (iii) a combination of cash
payment and barter. If PANDA's payment obligations are to be
satisfied, in whole or in part, by barter: (i) on the First
Payment, PTC will accept in barter the appropriate number of
the Computer Products as defined in Schedule A, up to a
maximum of ten (10) with the balance, if any, in cash; (ii) on
the Second and Third Payments, the parties will mutually agree
on which PANDA Compute Products PTC may accept as payment.
Customer may exchange Software from the First Shipment on the
following conditions: (i) all exchanges must be completed
within twelve months of the date this Agreement is signed;
(ii) exchanges must be completed prior to installation of the
Software to be exchanged; (iii) there must be no re-shipment
required to accomplish the exchange; (iv) no credits or
refunds will be issued as a result of any exchange; (v) a
Software package may be swapped for another one time only;
(vi) the total value of all exchanges must be *********
********************************.
PTC agrees that PANDA may swap the PTC Software that is
subject of the Third Payment, in whole or in part, for other
PTC software products provided PANDA has notified PTC on or
before September 1, 1997.
In the event that the port is not complete for the initial
shipment, PTC will ship the Software on PANDA's choice of any
one of PTC's currently supported platforms with the
understanding that such Software will be transferred to the
Computer Products upon completion of the port, free of charge.
The Software is subject to the terms and conditions of
Customer Agreement for PTC Licensed Products No. 10672 between
PANDA and PTC.
-4-
<PAGE>
(c) On or before the completion of the 30-day hardware and
software evaluation period, PTC agrees to report to
PANDA, the results of its evaluation. In the event
that deficiencies are discovered by PTC in the PANDA
hardware or software that would, in PTC's opinion,
seriously impede the effort of porting the PTC
Software to the Computer Products, PTC will suspend the
project until such time as the deficiencies are
corrected by PANDA. In the event that PANDA is unable
to provide corrections to the deficiencies reported by
PTC within a mutually agreed time, PTC may, at its
option, terminate this Agreement and return to PANDA
the loaned Computer Products and have no further
obligation under this Agreement. Upon such
termination, PANDA's obligations under the Second
Shipment, as set forth in Section 2(b)(ii) above,
shall also terminate.
(d) At the completion of the 30-day evaluation period or upon
receipt and verification of all corrections to any
deficiencies reported during the evaluation period, whichever
is the later, PTC agrees to commence the porting of
Pro/ENGINEER to the Computer Products.
(e) PTC agrees to complete the porting of Pro/ENGINEER to the
mutually agreed Computer Products within 60 days after
commencement. PTC agrees to notify PANDA in writing that PTC
considers PTC Software to be ready to be shipped to customers
on the Computer Products.
(f) Within fifteen (15) days of receipt of notification
that the porting of PTC Software to the Computer
Products has been completed, PANDA has the right to
send its representative(s) to PTC's offices to confirm
that Pro/ENGINEER has been properly ported to the
Computer Products. In the event that PANDA discovers
deficiencies in the implementation when compared to
the implementation on comparable Computer Products, PANDA
agrees to report any such deficiencies to PTC in
writing within said fifteen (15) days. PTC shall
correct any such deficiencies in a mutually agreed
schedule.
(g) At the completion of the fifteen (15) day verification period,
or whenever PTC has completed making correction to any
deficiencies reported by PANDA, whichever is the later, PTC
agrees to make the Computer Products version of Pro/ENGINEER
available for customer shipment.
-5-
<PAGE>
3. SUPPORT.
PTC shall continue to support the then-current version of Pro/ENGINEER
on the Computer Products and mutually agreed upon future versions of
the Computer Products until the earlier of (i) the termination of this
Agreement, (ii) PANDA ceases to market, ship, or support the Computer
Products, (iii) in the event that in one (1) year after the first
customer shipment (not counting the shipment hereunder to PANDA) on the
Computer Products, PTC has fewer than fifty (50) end-user licenses of
Pro/ENGINEER under active and paid-up maintenance plans and running on
the Computer Products.
4. CONFIDENTIALITY. PTC and PANDA acknowledge that during the development
of the Products, either party may disclose, make available or deliver
to the other, Proprietary Information. Each party shall keep
confidential, and shall require its officers, directors, employees and
agents to keep confidential, all Proprietary Information furnished or
made known to it by the other party. Neither party will disseminate or
disclose Proprietary Information to any person or entity other than
those officers, directors, employees and agents who are directly
involved in the performance of obligations under this Agreement. Each
party retains all rights to Proprietary Information disclosed to it,
and, except as otherwise provided in this Agreement, each party is
prohibited from copying any Proprietary Information for any purpose
without the prior written authorization of an officer of the other
party. Each party will use the same degree of diligence and effort to
protect the other's Proprietary Information from disclosure to third
parties as it uses to protect its own confidential information, but in
no event shall it use less than reasonable and customary diligence and
effort in protecting Proprietary Information.
5. EQUITABLE RELIEF. Both Parties' obligations under Section 4 of this
Agreement are of a special and unique character which gives them a
particular value to the Parties and each Party acknowledges that the
other Party cannot be reasonably or adequately compensated in damages
in an action at law in the event that either Party breaches such
obligations. Therefore, the Parties expressly agree that either Party
shall be entitled to injunctive and other equitable relief in the event
of such breach or threatened breach in addition to, and not in lieu of,
any other rights or remedies in law or equity to which that Party may
be entitled.
6. OWNERSHIP. For purposes of Section 117 of the Copyright
Act of 1976, as amended, and for all other purposes, PTC
shall be
-6-
<PAGE>
considered the owner of the Products (including the source code
thereof) and all related documentation and any copies thereof, and of
all copyright, trade secret, patent and other intellectual or
industrial property rights therein. PANDA shall not modify, decompile,
disassemble or reverse engineer the Products. PTC shall not modify,
decompile, disassemble or reverse engineer the Computer Products
without PANDA's prior consent.
7. DISTRIBUTION.
(a) PTC shall have the sole right to distribute the Products
through any means of distribution selected by PTC. PTC shall
have the sole right to appoint Distributors of the Products.
(b) All documentation provided by PTC to PANDA and
customers and Distributors will be in English only.
8. TERM. This Agreement shall remain in effect unless terminated in
accordance with Section 9 of this Agreement for one and a half years
after the port is completed, or until such time that the Parties
mutually agree to terminate this Agreement. The obligations and rights
of the Parties set forth in Sections 4, 5, 6, and 7 (which by their
nature are intended to survive) shall survive the expiration of this
Agreement pursuant to this Section 8.
9. TERMINATION.
(a) This Agreement may be terminated:
(i) By PTC, in the event that PANDA fails to provide the
general technical support, required under Section 2(a)
of this Agreement and fails to remedy such breach
within 30 days after written notice of such breach is
provided to PANDA;
(ii) By PTC, in the event that PANDA fails to make any of
the payments to PTC when due under Section 2 of this
Agreement and fails to remedy such breach within 15
days after written notice of such breach is provided;
(iii) By PTC, in the event that it is unable to secure the
software and hardware products necessary to implement
the Project on the Computer Products as set forth in
Section 2(a) of this Agreement;
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<PAGE>
(iv) By PTC, in the event that PTC rejects, with appropriate
explanation, the software and hardware products
necessary to implement this Project on the Computer
Products as set forth in Sections 2(a) and 2(c) of this
Agreement; or
(v) By PANDA, in the event that PTC breaches any of is
obligations under this Agreement and fails to remedy
such breach within thirty (30) days after written
notice of such breach is provided to PTC.
(b) Upon any termination of this Agreement pursuant to
Section 9(a) of this Agreement, neither PANDA nor PTC
shall be relieved of any obligations incurred prior to
such termination and the rights and obligations of the
Parties set forth in Sections 2(b)(ii), 4, 5 and 6 of
this Agreement (which by their nature are intended to
survive) shall survive such termination of this
Agreement. PANDA's obligation to take delivery of and
make payment for the Second Shipment of PTC Software
pursuant to Section 2(b)(ii) shall terminate if PTC
terminates this Agreement under Section 9(a)(iv) prior
to said Second Shipment of PTC Software.
(c) The right of PTC and/or PANDA to terminate this Agreement as
set forth in this Article 9 shall be in addition to, and not
in lieu of, any other rights or remedies which PTC and/or
PANDA may have in law or in equity to proceed against the
other.
10. RELATIONSHIP BETWEEN PARTIES. The relationship between PTC and PANDA is that
of independent contractors, and nothing in this Agreement shall be construed to
constitute any Party as an employee, partner or agent of any other Party.
Without limiting the foregoing, no Party shall have authority to act for or to
bind any other Party in any way, to make representations or warranties or to
execute agreements on behalf of any other Party or to represent that any other
Party is in any way responsible for the acts or omissions of such Party. Each
Party shall indemnify and hold the other Party harmless for any liability or
damage to such other Party resulting from a violation of this Section 10.
11. WARRANTIES.
(a) PTC warrants that it is the owner as set forth in
Section 6 of the Products.
(b) PANDA warrants that the Computer Product is an Intel or other
architected Computer Products, that has a Windows NT operating
system and graphical system that
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<PAGE>
substantially conform to the industry accepted standards for
these software products.
(c) PANDA further warrants that each Computer Products shipped to
customers has a unique hardware identification that cannot be
modified by the customer, and that PANDA will provide PTC with
a means of determining such unique hardware identification
each time PTC Software shall run on the customer's machine.
12. LIMITATION OF LIABILITY. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE
LIABLE TO THE OTHER FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
WITH REGARD TO THIS AGREEMENT, EVEN IF SAID PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.
13. FORCE MAJEURE. In the event that a Party is prevented from performing,
or is unable to perform, any of its obligations under this Agreement
due to any act of God, fire, casualty, flood, war, failure of public
utilities, epidemic, destruction of production facilities or
insurrection, and if such Party shall have used its best efforts to
avoid such occurrence and minimize its duration and shall have given
written notice to the other Parties, then the affected Party's
performance shall be excused and the time for performance shall be
extended for the period of delay of inability to perform due to such
occurrence.
14. NOTICE. All notices, demands, requests, consents, approvals or other
communications required or permitted to be given hereunder or which are
govern with respect to this Agreement shall be in writing and may be
personally served or may be sent by a recognized courier service (fees
prepaid), addressed as follows:
If to PTC: Parametric Technology Corporation
Contracts Manager
128 Technology Drive
Waltham, Massachusetts 02154
Attention: Contracts Manager
If to Customer: PANDA
----------------------------------
----------------------------------
5201 Congress Avenue
Boca Raton, FL 33487-3630
or to such other address or person as a Party shall have specified most
recently by written notice provided in accordance with this Section 14.
Notice shall be deemed
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<PAGE>
given on the date of service if personally served. Notice sent as
provided herein shall be deemed given on the third business day
following the date so sent.
15. ENTIRE AGREEMENT. This Agreement and the Schedules hereto constitutes
the entire agreement between PTC and PANDA with respect to the subject
matter hereof. No waiver, consent, modification, amendment or change of
the terms of this Agreement or any Schedule hereto shall apply unless
specifically agreed to in writing by both Parties.
16. SEVERABILITY. In the event that any provision of this Agreement is held
by a court of competent jurisdiction to be unenforceable because it is
invalid or in conflict with any law or any relevant jurisdiction, the
validity of the remaining provisions shall not be affected, and the
rights and obligations of the Parties shall be construed and enforced
as if the Agreement did not contain the particular provisions held to
be unenforceable.
17. ASSIGNMENTS. This Agreement may not be assigned or delegated, whether
by operation of law or otherwise, without the written consent of the
other Parties, which consent shall not be unreasonably withheld. Any
other assignment of rights or delegation of duties or obligations under
this Agreement made without the prior written consent of the other
Parties hereto shall be void and of no effect. For the purposes of this
Section 17, a sale of the majority of the assets of common stock of a
party to this Agreement shall not be considered an assignment.
18. GOVERNING LAW. This Agreement shall be governed by and construed as a
sealed instrument in accordance with the laws of the Commonwealth of
Massachusetts.
19. WAIVERS AND EXTENSIONS. No waiver of any breach of any agreement or
provision herein contained shall be deemed a waiver of any preceding or
succeeding breach thereof or of any other agreement or provision herein
contained. No extension of time for performance of any obligations or
acts shall be deemed an extension of the time for performance of any
other obligations or acts.
20. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together
shall constitute but one and the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto executed this Agreement under seal as of
the day and year indicated above.
PANDA PROJECT PARAMETRIC TECHNOLOGY CORPORATION
By:__________________________ By:____________________________
Name:________________________ Name:__________________________
Title:_______________________ Title:_________________________
Date:________________________ Date:__________________________
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<PAGE>
SCHEDULE A
Quote No.________________ Purchase Order No.____________
Parametric Technology Corporation
CUSTOMER
PRODUCT SCHEDULE TO AGREEMENT FOR PTC LICENSED PRODUCTS
Customer Maintenance Address
Name The Panda Project Customer:
Address 5201 Congress Ave. Address: Same
Boca Raton, FL 33487
Country Country
Telephone (407) 994-2300 Telephone
End User Attn
Distributor and End User Contact & Phone No.
PTC Sales Rep
In accordance with the terms and conditions of the Agreement for PTC Licensed
Products (License Agmt. No. ___) made between PTC and _____ on the ____day of
___19__ ("Agreement"). PTC hereby grants to Customer a License to use the
Licensed Products listed in this Product Schedule, all subject to said terms and
conditions. The following licensed Products are hereby made subject to the
Agreement. Pro/JR products are covered under the Pro/JR license agreement
included in the PRO/JR package. TERM: PERPETUAL
Pro/ENGINEER TRAINING & CONSULTING
Order No. Description Price
COMBINED SOFTWARE TOTALS (Add A+B+C+D+E+F+G)
FROM THE ATTACHED pages ******
Software Total
Training & Consulting Total ******
Maintenance Total (Add Z+Y+X+W+V)
PRODUCT SCHEDULE GRAND TOTAL ******
*Maintenance must be calculated separately from software.
Pro/ENGINEER Default Language Option English __ French __
German __ Japanese __ Italian __
If your default language is not available at the time of your order, PTC will
ship the English translation in its place.
CUSTOMER ACKNOWLEDGES THAT ITS HAS READ THE AGREEMENT AND THIS PRODUCT SCHEDULE
AND AGREES TO BE BOUND BY THEIR TERMS AND CONDITIONS. In the event of conflict
between this Product Schedule and said Agreement, the terms and conditions of
this Product Schedule shall govern.
CUSTOMER PARAMETRIC TECHNOLOGY CORP
- - -----------------------------
Authorized Signature Authorized Signature
- - -----------------------------
Name Name
- - -----------------------------
Title Title
- - -----------------------------
Date Date
Order No. DS-0007 Part No. 500071295
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<PAGE>
SCHEDULE A
PRODUCT SCHEDULE
Pages A-2 and A-3
CONTAIN CONFIDENTIAL MATERIALS WHICH HAVE
BEEN OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
<PAGE>
SCHEDULE B
ARCHISTRAT(TM) 4S SERVER
PRICE SHEET
Prices as of January 30, 1996
ARCHISTRAT 4s 100
CONFIDENTIAL MATERIALS
OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
B-1
<PAGE>
ARCHISTRAT(TM) 4S SERVER
PRICE SHEET
Prices as of January 30, 1996
ARCHISTRAT 4s 200
CONFIDENTIAL MATERIALS
OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
B-2
<PAGE>
ARCHISTRAT(TM) 4S SERVER
PRICE SHEET
Prices as of January 30, 1996
ARCHISTRAT 4s 300
CONFIDENTIAL MATERIALS
OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
B-3
<PAGE>
ARCHISTRAT 4s Options
CONFIDENTIAL MATERIALS
OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
B-4
<PAGE>
Archistrat 4s Options:
Additional Detail
CONFIDENTIAL MATERIALS
OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
B-5
EXHIBIT 10.16
CONFIDENTIAL MATERIALS OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
LICENSE AGREEMENT
This License Agreement is made and entered into as of June __,
1996, by and between THE PANDA PROJECT INC. ("PANDA" or "Licensor") a
corporation existing under the laws of Florida, which has its principal office
at Boca Raton, Florida, and AMP INCORPORATED, a corporation existing under the
laws of Pennsylvania, which has its principal office at Harrisburg,
Pennsylvania, The Whitaker Corporation, a corporation existing under the laws of
Delaware, and a wholly-owned subsidiary of AMP INCORPORATED that owns, manages,
and maintains AMP INCORPORATED's intellectual property, which has its principal
office at Wilmington, Delaware, and Connectware Inc., a corporation existing
under the laws of Delaware and a wholly-owned subsidiary of AMP INCORPORATED,
which has its principal office at Richardson, Texas (collectively "AMP" or
"Licensee").
WHEREAS, Licensor possesses certain valuable intellectual and
industrial property rights; and
WHEREAS, Licensor is willing to grant, and Licensee desires to
acquire, rights to use such rights on a worldwide basis in accordance with the
terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual
promises, terms and conditions of this License Agreement, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
I. DEFINITIONS
A. "Licensed Product" shall mean a semiconductor package as
described in the patent applications identified in Appendix A of this License
Agreement, and any improvements, modifications, and derivations thereof and
know-how related thereto owned, developed, or acquired (except in a grant back
from another PANDA licensee) by PANDA, and which PANDA has the right to license,
during the term of this License Agreement.
B. "Licensed Process" shall mean any process or method
pertaining to the use, manufacture, or testing of Licensed Product and all
know-how related thereto.
<PAGE>
C. "Licensed Product Sold" shall mean the sale, lease, or
other transfer of a Licensed Product or a product incorporating a Licensed
Product to a non-affiliated third party by AMP or an AMP Affiliate; or the
internal use for productive purposes of a Licensed Product, by AMP or an AMP
Affiliate. A product shall be considered sold at the time of invoicing or
shipment, whichever is earlier, or if there is no such invoicing or shipment, in
the case of internal use, at the time of such use.
D. "Patent Rights" shall mean any United States or foreign
applications or patents, owned, controlled, or acquired by PANDA in whole or in
part, during the term of this License Agreement, relating to Licensed Product or
Licensed Process, and which PANDA has the right to license, which disclose and
claim Licensed Process or Licensed Product, including, but not limited to, the
construction thereof, methods for the manufacture and use thereof, and
improvements thereto, and to any reissues or extensions of such patents and all
divisions, continuations, and continuations-in-part. Such "Patent Rights" shall
not include licenses or sublicenses related to Licensed Products or Licensed
Process hereafter granted to PANDA by its other licensees.
E. "Proprietary Information" shall mean all information or
trade secrets of any description relating to Licensed Product or Licensed
Process developed by, owned, or controlled by PANDA at any time prior to the
termination or expiration of this License Agreement, including, but not limited
to, the development, selling, marketing, use, properties, structures,
compositions, manufacture or quality control of Licensed Product or Licensed
Process, and including, but not limited in form, to samples, prototypes, data
books, manufacturing instructions, drawings, formulae, and customer lists.
Proprietary Information does not include: (i) information which was known by AMP
prior to receipt from PANDA; (ii) information lawfully disclosed to AMP by a
third party which did not derive the information from PANDA; (iii) information
which is or becomes a matter of public knowledge or part of the public domain
other than through a breach of this License Agreement; and (iv) information
which AMP independently develops without any reference to the proprietary
information. Such "Proprietary Information" shall not include Proprietary
Information licensed or sublicensed to PANDA by its other licensees.
F. "AMP Affiliate" shall mean any corporation, firm,
partnership, proprietorship, or other form of business organization as to which
control of the business is exercised by AMP, and any corporation, firm,
partnership, proprietorship, or other form of business organization in which AMP
has at least a fifty-one percent (51%) ownership interest, or the maximum
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<PAGE>
ownership interest AMP is permitted to have in the country where such business
organization exists.
G. "PANDA Affiliate" shall mean any corporation, firm,
partnership, proprietorship, or other form of business organization as to which
control of the business is exercised by PANDA, and any corporation, firm,
partnership, proprietorship, or other form of business organization in which
PANDA has at least a fifty-one percent (51%) ownership interest, or the maximum
ownership interest PANDA is permitted to have in the country where such business
organization exists, and any entity under common control with PANDA.
H. "Effective Date" shall mean the later of the date of
signature of this License Agreement by authorized representatives of PANDA and
AMP.
II. GRANT OF LICENSES
A. Subject to the terms of this License Agreement, PANDA
agrees to grant and does grant to AMP a non-exclusive, worldwide license during
the term of this License Agreement to make, have made for it, use, sell, or
otherwise dispose of Licensed Product and to use and have used the Licensed
Process under Patent Rights and Proprietary Information. Such license does not
include the right to grant sublicenses or assign this license. Upon AMP's
written request, PANDA agrees to grant the above license or any part thereof to
an AMP Affiliate (but only so long as such entity is an AMP Affiliate), with the
right of the AMP Affiliate to pay royalties directly to PANDA, provided that
such AMP Affiliate executes as Licensee, an agreement containing terms
substantially identical to this License Agreement (providing for the payment of
Royalties by the AMP Affiliate directly to PANDA). The grant of the above
license or any part thereof to an AMP Affiliate pursuant to this Section II
shall not release AMP from any of its obligations under this License Agreement.
B. Subject to the terms of this License Agreement, PANDA
agrees to grant and does grant to AMP an exclusive, worldwide license for a
period of three years from Licensee's first sale of a Licensed Product, or five
years from the date of this Agreement, whichever occurs first, to make, have
made for it, use, sell, or otherwise dispose of Licensed Product and to use and
have used Licensed Process under Patent Rights and Proprietary Information in
the ATM Switch Field and the Fast Ethernet Field, as hereinafter defined. Such
license does not include the right to grant sublicenses or assign this license.
However, upon AMP's
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<PAGE>
written request, PANDA agrees to grant the above license or any part thereof to
an AMP Affiliate (but only so long as such entity is an AMP Affiliate), with the
right of the AMP Affiliate to pay royalties directly to PANDA, provided that
such AMP Affiliate executes as Licensee, an agreement containing terms
substantially identical to this License Agreement (providing for the payment of
Royalties by the AMP Affiliate directly to PANDA). As used herein, the term "ATM
Switch Field" means the development, manufacture and sale or other distribution
of switches incorporating asynchronous transfer mode technology. The term "Fast
Ethernet Field" means the development, manufacture and sale or other
distribution of switches incorporating Fast Ethernet technology.
III. CONFIDENTIALITY CLAUSE BY AMP
A. Except as may be required by law or by a governmental
agency, AMP agrees that it will not, directly or indirectly, disseminate,
disclose or otherwise make available to any third party, or reverse engineer,
any Proprietary Information and will use the same degree of care to prevent
disclosure thereof that AMP uses to protect its own proprietary and confidential
information, but in any event no less than reasonable. AMP agrees to obligate
any Affiliates to abide by this confidentiality obligation. Employees of AMP or
its Affiliates shall be provided access to Proprietary Information by AMP only
on a "need to know" basis and shall be advised of the confidential nature
thereof, and shall be bound to protect the confidentiality of such information.
The provisions hereof shall survive expiration or termination of this License
Agreement for a period of seven (7) years.
B. AMP and its Affiliates are authorized to disclose to its
distributors and customers only such Proprietary Information received from PANDA
concerning the Licensed Process and Licensed Product as is reasonably necessary
to enable Licensed Product to be sold, leased, placed or used, and AMP and its
Affiliates are authorized to disclose to their respective contractors and
suppliers only such Proprietary Information received from PANDA as is reasonably
necessary to enable AMP or AMP's Affiliate to make or have made the Licensed
Product.
AMP shall have the obligation to bind any such distributor,
customer, contractor, or supplier receiving Proprietary Information to protect
the confidentiality of such information.
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<PAGE>
IV. ROYALTY CLAUSE
A. The Licenses granted under Section II, above, shall be
subject to a Royalty as provided for in Appendix C to this License Agreement for
Licensed Product Sold by AMP or an AMP Affiliate.
B. The Royalties provided herein are in consideration of the
trade secrets, know-how, Patent Rights, and Proprietary Information provided by
PANDA hereunder, and the ability of AMP to achieve a significant competitive
advantage by its early entry into the marketplace due to its access to such
intellectual property rights.
V. PAYMENTS, RECORDS AND REPORTS
A. Within sixty (60) days after the end of each calendar
quarter in which Royalties are earned or otherwise become due under this License
Agreement, AMP shall furnish PANDA with a written report setting forth the
computation of the Royalties payable during the preceding calendar quarter, and
shall make such payment. Royalties shall be paid to PANDA in U.S. dollars. In
case a conversion from one currency to another is involved in determining an
earned Royalty Payment, the exchange rate shall be the exchange rate in effect
at the Chase Manhattan Bank in New York City on the last day of the applicable
Calendar Quarter. Late payments shall bear interest at the rate of prime plus
two percent, as in effect at the Chase Manhattan Bank in New York City at the
time such payments originally became due.
B. AMP shall keep and maintain complete and accurate records
in sufficient detail to enable Royalties payable to PANDA hereunder to be
determined (including records on all conversion of currency under Paragraph A
above), and it shall permit such records to be inspected once per year upon
written notice by PANDA during reasonable business hours by a certified public
accountant or firm of certified public accountants reasonably acceptable to AMP
and appointed by PANDA for this purpose; provided, however, that AMP shall have
the right to destroy or discard such records in accordance with AMP's record
retention policy, provided that such records shall be kept for a minimum of five
(5) years after the end of the Calendar Quarter to which they apply. PANDA shall
bear the cost and expense of such investigation by accountants, unless the
accountants determine that AMP's determination of the Royalties due and owing to
PANDA was incorrect (in AMP's favor) in an amount exceeding six percent (6%) of
the amount calculated by AMP, in which case AMP shall bear such cost and
expense.
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<PAGE>
VI. GRANTBACK OF LICENSE TO PANDA
AMP grants to PANDA a perpetual license under information and
inventions, whether patentable or not, related to improvements, modifications,
and derivatives of Licensed Products or Licensed Process originated or invented
during the term of this License Agreement by employees, agents, contractors, or
suppliers of AMP having access to Licensed Product, Licensed Process or
Proprietary Information. Such license to PANDA shall be non-exclusive,
irrevocable, perpetual, world-wide, and royalty free to make, have made, use,
import, sell and otherwise transfer products covered by such information and
inventions. PANDA may not sublicense or assign this right, other than to a PANDA
Affiliate, or as part of an acquisition of PANDA or sale of PANDA assets.
VII. JOINT PUBLIC ANNOUNCEMENT
Upon the signing of this License Agreement by authorized
representatives of AMP and PANDA, a joint press release in a form mutually
agreed will be issued announcing the execution of this License Agreement.
VIII. USE OF PANDA'S TRADEMARKS
A. USE OF TRADEMARKS. Licensee may use (in the manner specified by
Licensor from time to time during the term of this Agreement) the trademark VSPA
or other similar marks (the "Trademarks") in connection with the sale,
distribution, marketing and promotion of the Licensed Products. Licensee shall
not pay Licensor any additional fee for such use. Licensee may not use third
party trademarks, tradenames, service marks and commercial symbols in connection
with the sale, distribution, marketing and promotion of the Licensed Products,
but Licensee may adopt and use its own trademarks, tradenames, service marks and
commercial symbols in connection therewith. Licensee shall give Licensor thirty
(30) days prior written notice before using any Trademarks for the first time in
a particular jurisdiction outside the United States. At Licensor's request and
expense, Licensee shall execute a registered user agreement and any other
documents which Licensor may reasonably request in order to establish or confirm
Licensor's right, title and interest with respect to the Trademarks.
B. QUALITY CONTROL.
(a) In order to comply with Licensor's quality control
standards, Licensee shall:
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<PAGE>
(i) maintain the quality of the Licensed Products
sold under the Trademarks by adhering to those specific quality control
standards that Licensor may from time to time promulgate and communicate to
Licensee with respect to such Licensed Products sold under the Trademarks;
PROVIDED, HOWEVER, that those standards shall be no higher than the standards by
which Licensor manufactures such Licensed Products itself;
(ii) use the Trademarks in compliance with all
relevant laws and regulations;
(iii) submit samples of Licensed Products sold under
the Trademarks, upon the request of Licensor, so as to enable Licensor to
inspect such samples and confirm that Licensee is in compliance with its
obligations under this Section; and
(iv) not modify any of the Trademarks in any way and
not use any of the Trademarks on any goods or services other than the Licensed
Products.
(v) if Licensee fails to use such Trademarks in
compliance with this provision, such failure shall be deemed to be a material
breach of one of Licensee's obligations under this Agreement, for the purposes
of possible termination of this Agreement.
IX. PURCHASE OF MANUFACTURING MACHINES
AMP shall have the option to purchase two or more
manufacturing machines to make the VSPA packages from PANDA. PANDA shall make
available to AMP one flexible machine (which can make multi-chip modules and
single chip packages); and one gang-loader high volume machine (which makes
single-chip type packages). A separate standard purchase and sale agreement for
each machine shall be executed by the parties, at prices to be determined
through negotiation.
X. MOLDS, PLASTIC FRAMES AND PINS
AMP will have the option to make the molds, plastic frames,
covers and pins, and PANDA will transfer drawings for such manufacture if
requested to do so, at no additional cost. Alternatively, PANDA will supply
molds, plastic frames, covers and pins pursuant to a standard purchase and sale
agreement to be executed by the parties, at prices to be determined by
negotiation.
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<PAGE>
XI. TRAINING OF AMP PERSONNEL
In the first year of this Agreement, AMP shall be entitled to
send two employees to Boca Raton for training with respect to Licensed Product,
Licensed Process, and Proprietary Information. Such training shall not exceed
three (3) weeks per person, and shall be done at a time agreed to by PANDA and
AMP.
In each subsequent year, AMP shall be entitled to send two
employees to PANDA for training with respect to Licensed Product, Licensed
Process, and Proprietary Information. Such training shall not exceed two (2)
weeks per person per year and shall be done at a time agreed to by PANDA and
AMP.
AMP shall be responsible for all expenses and liabilities of
such employees.
XII. TRANSFER OF PROPRIETARY INFORMATION
Within fifteen (15) days of execution of this Agreement, PANDA
shall provide two (2) copies of the materials identified in Appendix B.
XIII. ASSIGNMENT BY PANDA
PANDA may assign any of its rights, including rights to
payments of earned Royalties, to any corporation or other entity which is an
Affiliate of PANDA.
XIV. TERM AND TERMINATION
A. This License Agreement shall become effective as of the
Effective Date and, unless otherwise terminated as provided herein, shall
continue in full force and effect until the last to expire of the Licensed
Patents. Thereafter, AMP may acquire a license to know-how and trade secrets
covered herein at a reduced royalty rate to be agreed upon between AMP and
PANDA.
B. Termination for Cause. After the occurrence of any of the
following events, this License Agreement may be terminated by either Party (the
"Terminating Party") by giving written notice of Termination to the other Party,
such Termination being
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<PAGE>
immediately effective upon the giving of such Notice of Termination:
(a) A material breach or default as to any
obligation hereunder by the other Party and
the failure of the other Party to promptly
pursue (within thirty (30) days after
receiving written notice thereof from the
Terminating Party) a reasonable remedy
designed to cure (in the reasonable judgment
of the Terminating party) such material
breach or default; or
(b) The filing of a petition in bankruptcy,
insolvency or reorganization against or by
the other Party, which petition shall not
have been dismissed within ninety (90) days
of filing thereof, or the other Party
becoming subject to a composition for
Creditors, whether by law or agreement, or
the other Party going into receivership or
otherwise becoming insolvent; or
C. AMP shall have the right to terminate this License
Agreement at any time with or without cause upon six (6) months prior written
notice to PANDA. Termination of this License Agreement by AMP shall not alter or
affect the rights or obligations of either party arising prior to such
termination, nor shall termination pursuant to this Section relieve AMP of its
payment obligations hereunder. Any termination by AMP as provided in this
Paragraph shall not prejudice the right of PANDA to recover any earned Royalty,
or other sums owed or accrued at the time of such termination nor prejudice the
right of PANDA to maintain an action against AMP for infringement of its patent
or other intellectual property rights.
D. The parties agree that upon termination or expiration of
this License Agreement Licensee shall immediately cease: (i) any use or practice
of the Licensed Product or the Licensed Process; and (ii), except as provided in
Section F below, any making, use, or sale of the Licensed Product, including
internal use within AMP or its Affiliates. Upon termination or expiration of
this License Agreement, AMP shall, at its own expense, return to PANDA all
Proprietary Information as soon as practicable after the date of termination or
expiration, including, but not limited to, the materials identified in Appendix
B, original documents, drawings, computer diskettes, models, samples, notes,
reports, notebooks, letters, manuals, prints, memoranda and any copies thereof,
which have been received by AMP. All Proprietary Information and Patent Rights
shall
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<PAGE>
remain the exclusive property of PANDA during the term of this License Agreement
and thereafter.
E. Upon termination or expiration of this License Agreement,
nothing shall be construed to release Licensee from its obligations to pay
Licensor any and all Royalties, license fees or other amounts accrued but unpaid
hereunder prior to the date of such termination or expiration.
F. After termination or expiration of this License Agreement
for any reason by either party, AMP may sell all Licensed Product which it has
on hand upon the date of termination or expiration provided however, that the
sales shall be completed not later than six (6) months from the date of the
termination or expiration and that the termination or expiration shall not
relieve AMP from making the full earned Royalty payments herein provided on all
Licensed Product by it either before or after the date of the termination or
expiration.
XV. INFRINGEMENT
In the event Licensee shall learn of the infringement of any
patent included in the patent Rights, Licensee shall promptly call Licensor's
attention thereto in writing and shall provide Licensor with evidence of the
infringement. Both parties shall use their best efforts in cooperation with each
other to terminate the infringement without litigation. If the efforts of the
parties are not successful in abating the infringement within ninety (90) days
after the infringer has been formally notified by Licensor of the infringement,
Licensor shall have the right to: (a) commence suit on its own account; and (b)
join Licensee in such suit; and Licensor shall give timely notice in writing to
Licensee of its election. Any proceeds of such suit shall be the property of
Licensor. If Licensor declines to participate in such suit, Licensee may, at its
own cost and expense, pursue such legal action. If Licensee pursues such suit,
Licensor may be joined into such suit as a party plaintiff, if such joining is
required under relevant laws. All costs and expenses of such suit shall be borne
by Licensee, and Licensee shall indemnify and hold harmless Licensor from any
costs, expenses, liabilities, or judgments which may result from such action.
All proceeds of such action shall belong to Licensee.
-10-
<PAGE>
XVI. PATENT MARKING
Licensee agrees to mark all Licensed Products made, used, or
sold under the terms of this License Agreement, or their container with the
numbers of applicable patents of PANDA or other appropriate marking in
accordance with the patent marking laws of the country in which the Licensed
Product is manufactured, used, or sold.
XVII. WAIVER OF DEFAULT
A waiver, express or implied, by either of the parties hereto
of any right hereunder or of any default, breach, or other failure to perform by
the other party hereto, shall not constitute or be deemed a future waiver of
that or any other right hereunder or of any default, breach or any other failure
to perform thereafter by such other party. All waivers to be effective must be
in writing and signed by the waiving party.
XVIII. GOVERNING LAW
This License Agreement shall be governed, interpreted, and
construed in accordance with the laws of the State of Florida, USA, excluding
its conflict of law principles.
XIX. NO RIGHTS BY IMPLICATION
No rights or licenses with respect to Licensed Product or
Licensed Process are granted or deemed granted hereunder or in connection
herewith, other than those rights or licenses expressly granted in this License
Agreement.
XX. DEFENSIVE LITIGATION
Licensee shall defend and indemnify Licensor from and against
any damages, liabilities, costs, and expenses, including reasonable attorney's
fees and Court costs, either: (i) arising out of the manufacture, use, sale, or
other transfer of Licensed Product by Licensee or its customers; or (ii) arising
out of improvements, modifications, or derivatives of Licensed Product
-11-
<PAGE>
introduced by Licensee or its customers; or (iii) arising out of injuries or
damages caused by Licensed Product. Such indemnification shall not extend to any
liabilities incurred as a result of infringement by Licensor of any third party
intellectual property rights.
XXI. DISPUTE RESOLUTION
A. Any dispute, controversy, or claim arising out of or relating to
this License Agreement, or to a breach thereof, including its interpretation,
performance, or termination shall be submitted to and finally resolved by
arbitration. The arbitration shall be conducted in the English language in
accordance with the Commercial Rules of the American Arbitration Association
(AAA) in Boca Raton, Florida, USA. The decision of the arbitrators shall be
final and binding upon the parties hereto, and the expense of the arbitration
(including without limitation the award of attorney's fees to the prevailing
party) shall be paid as the arbitrators determine. The arbitration shall be
conducted by three (3) arbitrators to be selected by the American Arbitration
Association in accordance with its normal procedures.
B. Notwithstanding anything contained in this Section, each party shall
have the right to institute judicial proceedings against the other party or
anyone acting by, through or under such other party in order to enforce the
instituting party's rights hereunder through reformation of contract, specific
performance, temporary restraining order, preliminary injunction, final
injunction, or similar equitable relief.
XXII. NOTICES
Each notice required or permitted to be sent under this
License Agreement shall be given by Federal Express or comparable express
delivery service to Licensor and to Licensee at the address indicated below.
For Licensor: The Panda Project
5201 Congress Avenue
Suite C-100
Boca Raton, Florida 33487
Attention: Stanford W. Crane, Jr.
-12-
<PAGE>
For Licensee: The Whitaker Corporation
4550 New Linden Hill Road
Suite 450
Wilmington, DE 19808
Attention: President
Either party may change its address for purposes of this License Agreement by
giving the other party written notice of its new address.
XXIII. ENTIRE UNDERSTANDING
This License Agreement embodies the entire understanding
between the parties relating to the subject matter hereof, whether written or
oral, and there are no prior representations, warranties, or agreements that
relate to Licensed Product, Licensed Process, Proprietary Information, and
Patent Rights.
XXIV. INVALIDITY
If any provision of this License Agreement is declared invalid
or unenforceable by an arbitration panel or by a court having competent
jurisdiction, it is mutually agreed that this License Agreement shall endure
except for the part declared invalid or unenforceable. The parties shall consult
and use their best efforts to agree upon a valid and enforceable provision,
which shall be a reasonable substitute for such invalid or unenforceable
provision, in light of the intent of this License Agreement.
XXV. AMENDMENTS
Any amendment or modification of any provision of this License
Agreement must be in writing, dated and signed by both AMP and PANDA.
XXVI. RESPONSIBILITY FOR TAXES
If Licensee is required to withhold taxes from any amount
payable by Licensee hereunder, then Licensee shall pay to
-13-
<PAGE>
Licensor an additional amount as may be necessary so that Licensor will
receive, after deduction of the withholding tax, the amount that Licensor would
have received in the absence of the withholding tax; provided that if Licensor
takes and is allowed a credit on its United States taxes for such withholding,
then Licensee will not be required to make such additional payment to the extent
of such credit.
XXVII. COUNTERPARTS
This License Agreement may be executed in any number of
counterparts and each such counterpart shall be deemed to be an original.
XXVIII. BINDING EFFECT
This License Agreement shall be binding upon, and inure to the
benefit of, the parties hereto and their successors, assigns, estates,
beneficiaries, representatives, and heirs.
XXIX. WARRANTY AND DISCLAIMER
A. Licensor hereby represents and warrants to Licensee
that:
(1) Licensor has no actual knowledge or actual notice that the
practice of the Licensed Products or Licensed Process by Licensee hereunder will
result in the infringement of any valid rights of any third parties, and
Licensor has received no written notice from any third party of any such
infringement, or challenging the validity of the Patent Rights.
(2) Licensor has full corporate power and authority to enter
into and perform this Agreement. This Agreement has been duly authorized and
duly executed and delivered by Licensor, and it is valid, binding and
enforceable against Licensor in accordance with its terms.
(3) Licensor owns all right, title and interest in and to the
Patent Rights and has the full right to grant the licenses to Licensee herein
granted. Neither this Agreement nor the grant of licenses herein contained
requires the consent of, or notice to, any third party.
-14-
<PAGE>
(4) The Patent Rights are the only patents, patent
applications, or other intellectual property rights held by Licensor under which
Licensee or its Affiliates requires a license in order to practice the invention
of the Patent Rights, or to make, have made, use or sell Licensed Product, or to
use or have used the Licensed Process.
B. In no event shall the aggregate liability or cost to PANDA for any
action or claim arising out of this License Agreement, including without
limitation the provisions of Appendix C or any of the warranties herein,
regardless of the form of such action or claim, exceed an amount equal to
$250,000.
C. EXCEPT AS SET FORTH IN THIS SECTION, THE PARTIES ACKNOWLEDGE AND
AGREE THAT THERE ARE NO WARRANTIES, COVENANTS, REPRESENTATIONS, OR AGREEMENTS BY
PANDA AS TO MARKETABILITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
OTHER ATTRIBUTES, TITLE, AND NON-INFRINGEMENT WHETHER EXPRESS OR IMPLIED (IN LAW
OR IN FACT), ORAL OR WRITTEN.
IN WITNESS WHEREOF, PANDA and AMP have signed this License
Agreement.
THE PANDA PROJECT, INC.
By:
Name:
Title:
Date:
AMP INCORPORATED
By:
Name:
Title:
Date:
-15-
<PAGE>
THE WHITAKER CORPORATION
By:
Name:
Title:
Date:
CONNECTWARE INC.
By:
Name:
Title:
Date:
-16-
<PAGE>
APPENDIX A
PATENT
GRANT DATE COUNTRY
3/11/95 Taiwan
PATENT APPLICATIONS
FILING DATE COUNTRY
3/11/94 U.S.
6/5/95 U.S.
6/7/95 U.S.
6/7/95 U.S.
3/9/95 U.S.
3/16/94 W.O. (P.C.T.)
-17-
<PAGE>
APPENDIX B
Identification of Proprietary Information transferred to AMP
(1) Drawings of relevant components
(2) technical specifications for components
(3) test results
-18-
<PAGE>
CONFIDENTIAL MATERIALS OMITTED AND FILED
SPEARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
ASTERISKS DENOTE SUCH OMISSIONS.
APPENDIX C
Royalty Schedule
NUMBER OF I/O PER PACKAGE ROYALTY PER I/O
------------------------- ---------------
***** *****
***** *****
***** *****
***** *****
***** *****
(regardless of I/Os)
If Licensor has not been paid at least ******* in Royalties under this Agreement
by the fifth anniversary of this Agreement, Licensee shall immediately pay to
Licensor a sum in cash equal to the difference between ******* and the amount of
Royalties that have been paid to Licensor under this Agreement as of such fifth
anniversary (the "minimum payment"). However, if AMP is substantially precluded
from manufacturing and selling Licensed Product or using the Licensed Process by
reason of a third party intellectual property claim which is asserted through
the commencement of litigation, which litigation is not terminated, dismissed,
or successfully resolved, AMP shall be relieved of any further obligation to
make the minimum payment specified herein.
-19-
EXHIBIT 10.17
THE PANDA PROJECT, INC.
5201 CONGRESS AVENUE, SUITE C-100
BOCA RATON, FLORIDA 33487
Confidential
May 9, 1996
Mr. C. Daryl Hollis, CPA
5650 Aspen Ridge Circle
Delray Beach, Florida 33484
RE: Consulting Agreement
This agreement sets forth terms and conditions under which you will perform
consulting services for The Panda Project, Inc. (hereinafter "Panda").
WHEREAS, Panda is currently without a Chief Financial Officer and
requires financial services for a limited period of time; and
WHEREAS, you are a certified public accountant with prior experience as
an independent business consultant and as a Chief Financial Officer, Secretary,
and Treasurer.
NOW, THEREFORE, in consideration of the foregoing premises, and for
good and other valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by the parties hereto, the parties agree as follows:
1. DUTIES AND SERVICES
A. You will provide financial consulting services to and as assigned
by the President and Chief Executive Officer.
B. You will assist Panda and its attorneys with documents required for
filing with the SEC and with coordinating such filings with vendors of
Panda in EDGAR format.
C. You will assist Panda and its attorneys with preparation for the Annual
Meeting scheduled for August, 1996, and with preparation of the Annual
Report to be published prior to that meeting.
D. In order to facilitate your consulting services under this Agreement,
Panda shall provide you with office space and clerical assistance,
PROVIDED, HOWEVER, that the extent of such space and clerical
assistance shall be entirely within the discretion of Panda.
2. TERM AND TERMINATION
A. The term of this Agreement shall be from May 9, 1996, the ("Effective
Date"), to June 8, 1996. It may be extended for subsequent time periods
by mutual (oral or written) agreement of the parties.
<PAGE>
Confidential
B. This Agreement may be terminated by either party upon 5 days' written
notice.
3. COMPENSATION, PAYMENTS AND REIMBURSEMENT FOR EXPENSES
A. Panda shall compensate you at the rate of $3,000.00 per week (or any
portion thereof on a pro-rated basis).
B. You shall be eligible for a performance bonus, the amount and timing
of which shall be entirely at the sole discretion of Panda.
4. CONFIDENTIAL INFORMATION
A. During the performance of your duties under this Agreement, you will
receive confidential, technical and business information from Panda.
You hereby agree to hold all such confidential information in trust and
confidence for Panda, not to disclose such confidential information to
any third party, not to disclose such confidential information to any
employee of Panda who does not have a need to know, and to use such
confidential information solely for the benefit of Panda.
B. The terms and conditions of this Agreement are the confidential
information of Panda and shall not be disclosed by you to any third
party (other than an attorney at law advising you in connection with
this Agreement) or to any employee of Panda who does not have a need to
know.
C. All information developed by you under this Agreement shall be owned by
Panda and held by you in trust and confidence. At Panda's request, you
shall deliver all such information including copies thereof, if any, to
Panda.
5. WARRANTIES AND REPRESENTATIONS
A. You represent and warrant that you are and will remain free of any
obligations or restrictions that would interfere or be inconsistent
with satisfying your obligations under this Agreement.
B. You represent and warrant that you are an independent contractor and
will pay your own self employment and other taxes and insurance and
that under no circumstance will you be considered or permitted to be
considered an employee of Panda. It is acknowledged and agreed by the
parties hereto that Panda is not and shall not be obligated to make,
and it is the sole responsibility of you to make on behalf of yourself,
all periodic filings and payments required to be made in connection
with withholding taxes, FICA taxes, federal unemployment taxes (FUTA)
and any other federal or state taxes, payments of filings required to
be paid, made or maintained with respect to yourself.
6. GENERAL PROVISIONS
A. You will not subcontract or assign any portion of your obligations
under this Agreement.
<PAGE>
Confidential
B. This Agreement is the only agreement between the parties with respect
to the subject matter hereof and supersedes all other agreements
whether oral or in writing.
C. All notices and communications between the parties shall be to the
undersigned.
D. This agreement shall be interpreted under and governed by the laws
of the State of Florida.
E. Paragraphs 4, 5, and 6E will survive any expiration or termination of
this Agreement.
F. Panda, in its sole discretion, may subcontract, assign or transfer all
or any portion of its rights and obligations under this Agreement to a
subsidiary, affiliate or any other entity. This Agreement shall inure
to and be binding upon Panda and its successors and assigns.
If you agree with the above provisions, please sign, date, and return
to us one copy of this Agreement.
Very truly yours,
/s/Stanford W. Crane, Jr.
Stanford W. Crane, Jr.
President and CEO
The Panda Project
Accepted and Agreed:
/s/C. Daryl Hollis
C. Daryl Hollis
Date: May 10, 1996
EXHIBIT 21
SUBSIDIARIES
The Panda Project, Inc. has one subsidiary, Archistrat Corporation, which is
wholly-owned and currently inactive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 10,731,540
<SECURITIES> 0
<RECEIVABLES> 483,318
<ALLOWANCES> 171,943
<INVENTORY> 1,616,022
<CURRENT-ASSETS> 13,394,435
<PP&E> 5,110,256
<DEPRECIATION> 795,057
<TOTAL-ASSETS> 18,557,681
<CURRENT-LIABILITIES> 3,690,090
<BONDS> 0
0
0
<COMMON> 86,805
<OTHER-SE> 14,780,786
<TOTAL-LIABILITY-AND-EQUITY> 14,867,591
<SALES> 870,658
<TOTAL-REVENUES> 870,658
<CGS> 741,790
<TOTAL-COSTS> 741,790
<OTHER-EXPENSES> 24,848,993
<LOSS-PROVISION> 171,943
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (23,894,426)
<INCOME-TAX> 0
<INCOME-CONTINUING> (23,894,426)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,894,426)
<EPS-PRIMARY> (3.07)
<EPS-DILUTED> (3.07)
</TABLE>
