-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, CzRoiRYTToRbDkn6Xp4vM/Bc/ywSQElWjikW+X7tCV4YRZPWHy1JBJGWKR0ougxw /TLiRbnqlM77nEmab9wV4w== 0000891618-94-000165.txt : 19940822 0000891618-94-000165.hdr.sgml : 19940822 ACCESSION NUMBER: 0000891618-94-000165 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19940701 FILED AS OF DATE: 19940812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PYRAMID TECHNOLOGY CORP CENTRAL INDEX KEY: 0000714865 STANDARD INDUSTRIAL CLASSIFICATION: 3571 IRS NUMBER: 942781589 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14686 FILM NUMBER: 94543483 BUSINESS ADDRESS: STREET 1: 3860 N FIRST ST CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4084288000 MAIL ADDRESS: STREET 1: 3860 N FIRST STREET CITY: SAN JOSE STATE: CA ZIP: 95134 10-Q 1 PYRAMID TECH. FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the quarterly period ended July 1, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ______________ to ________________ Commission File Number 0-14686 PYRAMID TECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 94-2781589 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3860 N. FIRST STREET, SAN JOSE, CALIFORNIA 95134 (Address of principal executive offices) Registrant's telephone number, including area code: (408) 428-9000. 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Shares Outstanding at July 29, 1994 -------------------------------------- ----------------------------------- Common Stock, $0.01 par value 13,418,189
2 PYRAMID TECHNOLOGY CORPORATION INDEX
Page No. -------- PART I. FINANCIAL INFORMATION --------------------- Item 1. Financial Statements Consolidated Statement of Operations Three and nine months ended July 1, 1994 and July 2, 1993 3 Condensed Consolidated Balance Sheet July 1, 1994 and September 30, 1993 4 Condensed Consolidated Statement of Cash Flows Nine months ended July 1, 1994 and July 2, 1993 5 Notes to Consolidated Financial Statements 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 PART II. OTHER INFORMATION ----------------- Item 1. Legal Proceedings 12 Item 6. Listing of Exhibits and Reports on Form 8-K 12 Signatures 13 Index to Exhibits 14 First Amendment to Revolving Credit Agreement 15-27 Partnership Agreement 28-72
2 3 PART 1. FINANCIAL INFORMATION PYRAMID TECHNOLOGY CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED ------------------ -------------------- JULY 1 JULY 2 JULY 1 JULY 2 1994 1993 1994 1993 ------- ------- -------- -------- Revenues: Product revenues $37,436 $44,544 $111,609 $129,056 Service revenues 16,376 15,478 48,769 44,093 ------- ------- -------- -------- 53,812 60,022 160,378 173,149 Cost of sales: Cost of products sold 22,263 21,183 66,330 64,135 Cost of services 12,711 11,664 37,642 34,297 ------- ------- -------- -------- 34,974 32,847 103,972 98,432 Gross profit 18,838 27,175 56,406 74,717 Operating expenses: Research and development 5,790 6,811 19,441 21,618 Sales, marketing, general & administrative 18,787 16,751 55,176 47,396 ------- ------- -------- -------- Total operating expenses 24,577 23,562 74,617 69,014 ------- ------- -------- -------- Operating income (loss) (5,739) 3,613 (18,211) 5,703 Interest income 103 201 375 563 Interest expense (152) (110) (507) (442) ------- ------- -------- -------- Income (loss) before income taxes (5,788) 3,704 (18,343) 5,824 Provision for income taxes 152 370 2,935 582 ------- ------- -------- -------- Net income (loss) $(5,940) $ 3,334 $(21,278) $ 5,242 ======= ======= ======== ======== Net income (loss) per common and common equivalent share $ (0.44) $ 0.25 $ (1.59) $ 0.42 ======= ======= ======== ======== Shares used in computing net income (loss) per common and common equivalent share 13,410 13,428 13,346 12,611 ======= ======= ======== ========
See accompanying notes 3 4 PYRAMID TECHNOLOGY CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS) (UNAUDITED)
JULY 1 SEPTEMBER 30 1994 1993 -------- ------------ ASSETS Current assets: Cash and cash equivalents $ 20,344 $ 31,358 Accounts receivable, net 51,607 51,392 Inventories 31,395 35,712 Prepaid expenses and deposits 9,816 11,873 -------- ------------ Total current assets 113,162 130,335 Property and equipment, at cost 102,844 95,273 Less accumulated depreciation and amortization 72,407 60,686 -------- ------------ 30,437 34,587 Capitalized software development costs 17,321 15,959 Service spare parts and other assets 12,965 10,777 -------- ------------ $173,885 $191,658 ======== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 16,207 $ 20,312 Accrued payroll and related liabilities 5,926 7,043 Accrued commissions 2,009 2,419 Defeffed revenue 11,840 7,197 Other accrued liabilities 11,133 8,764 Restructuring accruals 2,792 4,464 Income taxes payable 1,694 1,561 Current portion of long-term debt 1,688 1,795 -------- ------------ Total current liabilities 53,289 53,555 Long-term debt 1,888 487 Shareholders' equity: Common stock 134 132 Additional paid-in capital 156,829 155,078 Accumulated deficit (36,793) (15,514) Accumulated translation adjustment (1,462) (2,080) -------- ------------ Total shareholders' equity 118,708 137,616 -------- ------------ $173,885 $191,658 ======== ============
See accompanying notes 4 5 PYRAMID TECHNOLOGY CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED -------------------- JULY 1 JULY 2 1994 1993 -------- -------- Cash flows from operating activities: Net income (loss) $(21,278) $ 5,242 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation and amortization 22,767 22,713 Changes in: Accounts receivable, net (215) (9,301) Inventories 4,317 (4,382) Prepaid expenses and deposits and income tax receivable 2,057 1,754 Accounts payable, accrued liabilities, and other 542 (4,045) -------- -------- Net cash provided by operating activities 8,190 11,981 -------- -------- Cash flows from investing activities: Investment in property and equipment (9,957) (10,686) Increase in capitalized software development costs (7,128) (6,113) (Increase) decrease in other assets (5,152) 2,418 -------- -------- Net cash used for investing activities (22,237) (14,381) -------- -------- Cash flows from financing activities: Principal payments on long-term debt (1,930) (1,204) Borrowings under loan agreement 3,223 -- Issuance of common stock, net of repurchases 1,740 4,548 -------- -------- Net cash provided by financing activities 3,033 3,344 -------- -------- Increase (decrease) in cash and cash equivalents (11,014) 944 Cash and cash equivalents, at the beginning of the period 31,358 26,458 -------- -------- Cash and cash equivalents, at the end of the period $ 20,344 $ 27,402 ======== ======== Supplemental disclosures of cash flow information: Cash paid for interest................................................ $ 507 $ 442 Cash paid for income taxes............................................ $ 612 $ 116
See accompanying notes 5 6 PYRAMID TECHNOLOGY CORPORATION Notes to Consolidated Financial Statements (unaudited) Basis of presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of all significant intercompany transactions. While the financial information furnished is unaudited, the statements in this report reflect all adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair statement of the results of operations for the interim periods covered and of the financial condition of the Company at the dates of the balance sheets. The operating results for the interim periods presented are not necessarily indicative of the results to be expected for the entire year. Certain footnotes normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. These financial statements should be read in conjunction with the Company's audited financial statements and notes thereto for the fiscal year ended September 30, 1993. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following (in thousands):
July 1 September 30 1994 1993 ---------- ---------- Raw materials $17,278 $12,236 Work-in-process 6,797 14,517 Finished goods 7,320 8,959 --------- --------- $31,395 $35,712 --------- ---------
Related Party Transactions During the second quarter of fiscal 1994, a senior executive of a major customer and vendor of the Company was elected to the Company's board of directors. The related party accounted for approximately 4% of the Company's revenue during the first nine months of fiscal 1994. Additionally, the Company has contracted with the related party to perform consulting services totaling a minimum of $7,000,000 per year over a nine year period. At July 1, 1994, the Company had an account receivable balance of $510,000 from the related party and owed the related party $1,565,000 for consulting services rendered. Additionally, during the third quarter of fiscal 1994, the Company made a sale to a customer which accounted for approximately 2% of the Company's third quarter revenues, and also purchased $900,000 of prepaid software licenses from the customer. The Company's chairman of the board is on the customer's board of directors. At July 1, 1994, the Company had an account receivable balance of $980,000 from the related party and owed the related party $900,000 for the prepaid software licenses. 6 7 PYRAMID TECHNOLOGY CORPORATION Notes to Consolidated Financial Statements (unaudited) Line of Credit In July 1993, the Company obtained a $20,000,000 line of credit. At April 1, 1994, the Company was in violation of certain financial requirements of the line of credit and obtained a waiver from the bank. The credit facility was amended at that time to provide the Company the ability to borrow the lesser of $10,000,000 or an amount computed based on a borrowing base formula. Amounts borrowed under the line of credit are secured by the Company's accounts receivable. The line of credit, which expires on October 31, 1994, requires the maintenance of certain financial ratios and sets limitations on the Company in regards to other indebtedness, guarantees, encumbrances, mergers, consolidations, sale and leaseback of assets, equity distributions, annual capital expenditures and capital software levels. To date, there have been no borrowings under the line of credit. 7 8 PYRAMID TECHNOLOGY CORPORATION Notes to Consolidated Financial Statements (unaudited) Net income (loss) per common and common equivalent share Net income (loss) per common and common equivalent share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Common equivalent shares consist of the dilutive shares issuable upon the exercise of stock options using the treasury stock or modified treasury stock method (whichever applies). For the three and nine month periods ended July 1, 1994, no common equivalent shares were included in the computation of net loss per share as their effect would be anti-dilutive. For the three and nine month periods ended July 2, 1993, common equivalent shares were computed using the modified treasury stock method. (in thousands, except per share amounts)
Three Months Ended ----------------------------- July 1 July 2 1994 1993 ---------- ----------- Average shares outstanding 13,410 12,434 Net effect of dilutive stock options -- 994 ---------- ---------- Shares used in computing net income (loss) per common and common equivalent share 13,410 13,428 Net income (loss) $ (5,940) $ 3,334 Net income (loss) per common and common equivalent share $ (0.44) $ 0.25 Nine Months Ended -------------------------------- July 1 July 2 1994 1993 ---------- ---------- Average shares outstanding 13,346 12,280 Net effect of dilutive stock options -- 331 ---------- ---------- Shares used in computing net income (loss) per common and common equivalent share 13,346 12,611 Net income (loss) $ (21,278) $ 5,242 Net income (loss) per common and common equivalent share $ (1.59) $ 0.42
8 9 PYRAMID TECHNOLOGY CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the attached consolidated financial statements and notes thereto, and with the Company's audited financial statements and notes thereto for the year ended September 30, 1993. Results of Operations Total revenues for the third quarter and first nine months of fiscal 1994 decreased 10% and 7% to $53,812,000 and $160,378,000 from the third quarter and first nine months of fiscal 1993 levels of $60,022,000 and $173,149,000. The decrease in product revenues for the third quarter of fiscal 1994 as compared to the third quarter of fiscal 1993 was primarily attributable to the decline in business with traditional international OEM partners as well as decreases in direct product revenues from that of a year ago. The decrease in product revenues for the first nine months of fiscal 1994 as compared to the first nine months of fiscal 1993 was primarily attributable to the decline in business with traditional international OEM partners such as Siemens Nixdorf, Olivetti, Hyundai, and Sharp. Direct product revenues were $24,683,000 or 66% of total product revenues for the third quarter of fiscal 1994 compared to $29,528,000 or 66% in the third quarter of fiscal 1993, and $70,787,000 or 63% of total product revenues for the first nine months of fiscal 1994 compared to $73,712,000 or 57% in the first nine months of fiscal 1993. Total revenues from AT&T were $9,695,000 or 18% of total revenues for the third quarter of fiscal 1994 compared to $10,285,000 or 17% in the third quarter of fiscal 1993, and $29,967,000 or 19% of total revenues for the first nine months of fiscal 1994 compared to $30,454,000 or 18% in the first nine months of fiscal 1993. A portion of this revenue is a result of the Treasury Multiuser Acquisition Contract "TMAC", which was awarded to AT&T with Pyramid as the major subcontractor. Although revenues appear fairly stable when comparing the aforementioned periods, the Company believes that revenues from AT&T may flucutate as purchase quantities vary in connection with "TMAC". International product revenues were $13,756,000 or 37% of total product revenues for the third quarter of fiscal 1994 compared to $19,794,000 or 44% in the third quarter of fiscal 1993, and $41,824,000 or 37% of total product revenues for the first nine months of fiscal 1994 compared to $58,530,000 or 45% in the first nine months of fiscal 1993. The dollar value of international product revenues decreased 31% from the third quarter of fiscal 1993 to the third quarter of fiscal 1994, as increases in Australian sales and sales to Olivetti and ICL were more than offset by sizeable decreases in sales to Siemens Nixdorf, Hyundai, and Sharp. UK direct product revenues were also down from that of a year ago. There were no nonrecurring software license fees included in international revenues in the third quarter of fiscal 1994 and $4,900,000 in the first nine months of fiscal 1994 compared to $4,132,000 and $7,388,000 in the third quarter and first nine months of fiscal 1993. During the quarter, a partnership agreement between Pyramid Technology Australia PTY, Ltd. and Fujitsu Australia Limited was signed. Pyramid Data Centre Systems, the new joint venture created by the agreement, began operations on July 2, 1994. The new venture will market Pyramid's Nile(TM) Series of scalable enterprise servers along with complimentary Fujitsu and ICL hardware and mainframe connectivity software. Pyramid Data Centre Systems' focus will be the high-end commercial data center computing market, with emphasis on major Australian corporations that are downsizing their mainframe operations. 9 10 PYRAMID TECHNOLOGY CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations Service revenues for the third quarter and first nine months of fiscal 1994 continued to benefit from the increasing base of installed Pyramid systems. In June 1992, the Company announced a North American service agreement with Bull HN Information Systems, Inc., which has increased the number of support personnel available for on-site service to Pyramid customers in North America. In March 1993, the Company entered into a European service agreement with Siemens Nixdorf, which increased the number of support personnel available for on-site service to Pyramid customers in Europe. In December 1993, the Company modified an existing service agreement with Fujitsu Australia, Ltd., which increased the number of support personnel available for on-site service to Pyramid customers in all of Australia. Gross profit as a percentage of revenues in the third quarter and first nine months of fiscal 1994 was 35% compared to 45% and 43% in the third quarter and first nine months of fiscal 1993. The decrease in gross profit was due to the decrease in revenues experienced during the third quarter and first nine months of fiscal 1994 in relation to fixed costs. In the future, gross profit as a percentage of revenues may be adversely affected by a decrease in nonrecurring software license fees, which historically have yielded higher margins, significant fluctuations in currency exchange rates, and intensified competitive pressures. The Company believes that gross profit as a percentage of revenue for the fourth quarter of fiscal 1994 will be lower than the percentage for the fourth quarter of fiscal 1993, which may affect the Company's overall operating results. Research and development expenses as a percentage of revenues were 11% and 12% in the third quarter and first nine months of fiscal 1994 compared to 11% and 12% in the third quarter and first nine months of fiscal 1993. In absolute dollars, these expenses decreased $1,021,000 and $2,177,000 from the third quarter and first nine months of fiscal 1993 to the third quarter and first nine months of fiscal 1994 due primarily to a reduction in research and development personnel. In accordance with Statement of Financial Accounting Standards No. 86, the Company capitalized $1,950,000 and $7,128,000 of software development costs in the third quarter and first nine months of fiscal 1994 compared to $2,348,000 and $6,112,000 in the third quarter and first nine months of fiscal 1993. The Company believes the enhancement of existing products and the development of new products is essential to maintaining a competitive marketing position. Accordingly, the Company is committed to a high level of research and development expenditures. However, because of the inherent uncertainties of product development projects in the Company's technology-intensive industry, there can be no assurance that research and development efforts will result in successful product enhancements or introductions, or, ultimately in increased revenues. Sales, marketing, and general and administrative expenses as a percentage of revenues were 35% and 34% in the third quarter and first nine months of fiscal 1994 compared to 28% and 27% in the third quarter and first nine months of fiscal 1993. In absolute dollars, these expenses increased $2,036,000 and $7,780,000 from the third quarter and first nine months of fiscal 1993 to the third quarter and first nine months of fiscal 1994 due primarily to increases in sales and marketing personnel. The Company expects total sales, marketing, general and administrative expenses to increase during the fourth quarter of fiscal 1994 as commission expenses increase with the increase in cumulative revenue and as the Company increases the number of revenue-producing direct sales people and marketing personnel to enhance the Company's direct sales capacity. 10 11 PYRAMID TECHNOLOGY CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations The amount of interest income for the third quarter and first nine months of fiscal 1994 was $103,000 and $375,000 compared to $201,000 and $563,000 in the third quarter and first nine months of fiscal 1993. The decrease was primarily a result of lower average daily cash balances in the third quarter and first nine months of fiscal 1994 as compared to the year-ago periods. The Company intends to continue investing its available funds in short-term, highly-liquid income producing obligations. The amount of interest expense for the third quarter and first nine months of fiscal 1994 was $152,000 and $507,000 compared to $110,000 and $442,000 in the third quarter and first nine months of fiscal 1993. The increase was due to a higher level of capital lease and loan obligations. The income tax provision for the first nine months of fiscal 1994 includes a $2,523,000 charge for a write-off of the Company's deferred tax assets. For the remainder of fiscal 1994, it is anticipated that the Company will be reporting minimal amounts of income tax liability and the effective tax rate is expected to be less than 10%. Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS 109), which establishes a new method of accounting for income taxes. The effect of the adoption of FAS 109 on net income in fiscal 1994 was not material. The Company's agreements with its OEMs and distributors, including its TMAC agreement through AT&T, do not require minimum purchase quantities and therefore there can be no assurance that the Company will receive future revenues under these agreements. A substantial portion of the Company's revenues in each quarter generally results from shipments during the last month of that quarter, and principally for that reason, the Company's revenues are subject to quarterly fluctuations. In addition, the Company establishes its expenditure-level targets based on expected revenues. If anticipated orders and shipments in any quarter do not occur when expected, expenditure levels could be disproportionately high and the Company's operating results for that quarter could be adversely affected. The Company's operating results may also be subject to quarterly fluctuations as a result of a number of factors, including the timing of orders from and shipments to major customers, product mix, variations in product costs, the mix of revenues, nonrecurring operating system and manufacturing license fees, increased competition, the ability to introduce new products on a timely basis, and general economic conditions. Liquidity and Capital Resources The Company has financed its operating expenses and working capital needs primarily through a combination of internally generated cash and cash balances. Cash and cash equivalents increased during the quarter from $19,256,000 at April 1, 1994 to $20,344,000 at July 1, 1994. Net cash provided by operating activities during the first nine months of fiscal 1994 was $8,190,000 as compared to $11,981,000 during the same period of fiscal 1993. The Company's investing activities used $22,237,000 in cash during the first nine months of fiscal 1994 as compared to $14,381,000 during the same period of fiscal 1993. Financing activities provided $3,033,000 in cash during the first nine months of fiscal 1994 as compared to $3,344,000 during the same period of fiscal 1993. In July 1993, the Company obtained a $20,000,000 line of credit. At April 1, 1994, the Company was in violation of certain financial requirements of the line of credit and obtained a waiver from the bank. The credit facility was amended at that time to provide the Company the ability to borrow the lesser of $10,000,000 or an amount computed based on a borrowing base formula. Amounts borrowed under the line of credit are secured by the Company's accounts receivable. 11 12 PYRAMID TECHNOLOGY CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations The line of credit, which expires on October 31, 1994, requires the maintenance of certain financial ratios and sets limitations on the Company in regards to other indebtedness, guarantees, encumbrances, mergers, consolidations, sale and leaseback of assets, equity distributions, annual capital expenditures and capital software levels. To date, there have been no borrowings under the line of credit. During October 1993, the Company entered into a borrowing agreement with a lending company. The agreement provides for up to $10,500,000 of three year eligible capital equipment financing at interest rates based on three year treasury notes for the week preceding each funding date. All fundings must occur on or before September 30, 1994. At July 1, 1994, $3,150,000 of equipment had been financed under this agreement. Failure to negotiate revisions and/or extensions of these facilities or to obtain new bank agreements on terms favorable to the Company could have an adverse impact on its operations and financial results. Based upon its current operating plan, the Company anticipates that internally generated funds and cash balances, together with existing financing arrangements, will be sufficient to satisfy capital requirements through fiscal 1994. However, the Company may raise additional capital through debt or equity financing to take advantage of market opportunities. PART II. OTHER INFORMATION Item 1. Legal Proceedings During the first quarter of fiscal 1994, two shareholder class action complaints were filed naming as defendants the Company and certain of its officers and directors, and alleging violations of federal securities laws as well as a state law fraud claim. The complaints alleged that the Company made false and misleading statements in press releases and other public statements and that some of the individual defendants traded the Company's common stock on inside information. The complaints sought an award of an unspecified amount of damages. The cases were consolidated by order of the district court on July 14, 1994. After review of initial disclosures made by the Company and discussions with the Company's attorneys, counsel for the plaintiffs agreed to dismiss the actions. On July 26, 1994, pursuant to a stipulation of the parties, the district court entered an order for dismissal without predjudice of the consolidated actions. Item 6. Exhibits and Reports on Form 8-K a. Exhibits (10.49) First Amendment to the Revolving Credit Agreement with Limited Waivers with the Bank of Boston dated May 31, 1994. (10.50) Partnership Agreement with Fujitsu Data Centre Systems PTY Limited and Fujitsu Australia Limited dated June 10, 1994. b. There were no reports on Form 8-K filed during the quarter ended July 1, 1994. 12 13 SIGNATURE Pursuant to the requirements 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. PYRAMID TECHNOLOGY CORPORATION Dated: August 12, 1994 By /s/ Kent L. Robertson ____________________________ Kent L. Robertson Senior Vice President, Chief Financial Officer (Principal Financial Officer) Dated: August 12, 1994 By /s/ James J. Nelson ____________________________ James J. Nelson Vice President, Corporate Controller (Principal Accounting Officer) 13 14 INDEX TO EXHIBITS
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGE ------- ----------- ----------- 10.49 First Amendment to the Revolving Credit Agreement with Limited Waivers with the Bank of Boston dated May 31, 1994 15-27 10.50 Partnership Agreement with Fujitsu Data Centre Systems PTY Limited and Fujitsu Australia Limited dated June 10, 1994 28-72
14 EX-10.49 2 PYRAMID AMENT TO REVOLVING CREDIT AGRMT. 1 EXHIBIT 10.49 FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT WITH LIMITED WAIVERS THIS FIRST AMENDMENT ("Amendment") is made and entered into as of May 31, 1994, by and among PYRAMID TECHNOLOGY CORPORATION, a Delaware corporation ("Borrower"), THE FIRST NATIONAL BANK OF BOSTON, a national banking association ("FNBB"), and each other lender whose name is set forth on the signature pages to the Credit Agreement (defined below) or which may hereafter execute and deliver an instrument of assignment with respect to the Credit Agreement (each, a "Bank", and collectively, "Banks"), and FNBB, as Agent for Banks. RECITALS A. Borrower, Agent and Banks have entered into that certain Revolving Credit Agreement dated as of July 30, 1993 (the "Credit Agreement"), pursuant to which Lender made available to Borrower a revolving credit facility in the aggregate principal amount of up to Twenty Million Dollars ($20,000,000) outstanding at any time. B. Borrower, Agent and Banks desire to amend and to make limited waiver of certain provisions of the Credit Agreement as provided herein. AGREEMENT Now, THEREFORE, in consideration of the foregoing recitals and the mutual covenants herein set forth, and intending to be legally bound, the parties hereto hereby amend the Credit Agreement as follows: 1. DEFINITIONS. Unless otherwise defined herein, all terms defined in the Credit Agreement have the same meaning when used herein. 2. Together with the specific changes set forth below, all references to "Eurodollar Loans" and the conversion of Loans, are hereby deleted from the Credit Agreement. 3. Section 1. 1 is hereby amended by deleting the definitions for "Affected Loan", "Eurodollar Loan" and "Interest Period" in their entirety, and by adding the following definitions in alphabetical order within Section 1.1: "ACCOUNTS. Any "account," as such term is defined in Section 9106 of the UCC, now owned or hereafter acquired by Borrower and, in any event, shall include, without limitation, all accounts receivable, book debts and other forms of obligations (other than forms of obligations evidenced by chattel paper, documents or instruments) now owned or hereafter received or acquired by or belonging or owing to Borrower (including, 1. 2 without limitation, under any trade name, style or division thereof) arising out of goods sold or services rendered by Borrower, and all monies due or to become due to Borrower under all purchase orders and contracts for the sale of goods or the performance of services or both by Borrower (whether or not yet earned by performance on the part of Borrower or in connection with any other transaction), now in existence or hereafter occurring, including, without limitation, the right to receive the proceeds of purchase orders and contracts, and all collateral security and guarantees of any kind given by any person with respect to any of the foregoing." "BORROWING BASE. An amount equal to seventy percent (70%) of Eligible Accounts; or such other percentage as Requisite Lenders shall determine following completion of a commercial finance exam performed by FNBB." "COLLATERAL. The property of Borrower covered by the Security Agreement, and any other property, now existing or hereafter acquired, that may at any time be or become subject to a lien granted or created in favor of Agent, on behalf of Banks, to secure the full and complete payment and performance of Borrower's Obligations." "ELIGIBLE ACCOUNTS. At any time, the aggregate of Borrower's Accounts excluding, however (a) all Accounts in respect of which full payment has not been received within ninety (90) days of the invoice date; (b) all Accounts as to which the goods, merchandise or other personal property or the rendition of services has not been fully and completely delivered or performed; (c) all Accounts against which the account debtor or any other person obligated to make payment thereon asserts any defense, offset, counterclaim or other right to avoid or reduce the liability represented by such Accounts; (d) all Accounts as to which the account debtor or other person obligated to make payment thereon is insolvent, subject to bankruptcy or receivership proceedings or has made an assignment for the benefit of creditors or whose credit standing is unacceptable to Agent and Agent has so notified Borrower; (e) all Accounts in which Borrower or an affiliate of Borrower is the account debtor; (f) all Accounts for any account debtor who comprises fifteen percent (15%) or more of Borrower's total Accounts, but only to the extent such Accounts exceed fifteen percent (15%) of Borrower's total Accounts; (g) all Accounts of any governmental agency unless Agent, on behalf of Banks, has received a lien in and to such Accounts which is perfected; (h) in the event thirty percent (30%) or more of the Accounts of any account debtor shall be deemed ineligible under clause (a) above, all accounts of such account debtor; and (i) any Account which Agent in its reasonable discretion shall deem not to qualify as an Eligible Account." "FINANCING STATEMENTS. The UCC-1 financing statement(s) executed by Borrower, as debtor, in favor of Agent, on behalf of Banks, as secured party." "REQUISITE BANKS. Any combination of Banks whose combined pro rata share of all amounts outstanding hereunder or the Commitment Amount is greater than sixty-six 2. 3 and two-thirds percent (66 2/3%) of all such amounts outstanding or the Commitments, as the case may be." "SECURITY AGREEMENT. The Security Agreement to be entered into between Borrower and Agent, on behalf of Banks, substantially in the form of Exhibit E, and shall refer to such Security Agreement as the same may be in effect from time to time." "UCC. The Uniform Commercial Code as the same may, from time to time, be in effect in the State of California; provided, however, in the event that, by reason of mandatory provisions of law, any and all of the attachment, perfection or priority of the lien of Agent, on behalf of Banks, in and to the Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of California, the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions." 4. The definition of "COMMITMENT AMOUNT" in Section 1.1 is hereby amended by replacing the amount of "$20,000,000" with "$10,000,000" in the first line thereof. 5. The definition of "LOAN DOCUMENTS" in Section 1.1 is hereby amended by insertng the phrase "the Security Agreement" immediately following "the Note," in the first line thereof. 6. The definition of "REVOLVING CREDIT TERMINATION DATE" is hereby deleted in its entirety and replaced with "October 31, 1994". 7. Section 2. 1 (a) is hereby amended by deleting it in its entirety and replacing it with the following: "(a) Subject to the terms and conditions hereof, each Bank severally agrees to make Revolving Loans to the Borrower up to the amount of its Commitment, from time to time until the close of business on the Revolving Credit Termination Date, in such sums as Borrower may request, provided that the aggregate principal amount of all Loans at any one time outstanding hereunder shall not exceed the lesser of (i) the Borrowing Base, and (ii) the Commitment Amount less any outstanding amount of Subsidiary Loans (the "Maximum Availability"). Borrower may borrow, prepay pursuant to Section 2.11 and reborrow, from the date of this Agreement until the Revolving Credit Termination Date, the full amount of the Commitment Amount or any lesser sum that is at least $1,000,000 and an integral multiple of $100,000. Any Revolving Loan not repaid by the Revolving Credit Termination Date shall be due and payable on the Revolving Credit Termination Date." 8. Section 2.1(b) is hereby deleted in its entirety. 3. 4 9. Section 2.2(a) is amended by deleting the section in its entirety and replacing it with the following: "(a) Whenever Borrower desires to obtain a Loan hereunder, the Borrower shall notify the Agent (which notice shall be irrevocable) by telex, electronic facsimile transmission, telegraph or telephone received no later than 1:00 p.m. Boston time on the date one Business Day before the day on which the requested Loan is to be made. Such notice shall specify the effective date and amount of each Loan or portion thereof to be continued or converted, subject to the limitations set forth in Section 2.1. Each such notification (a "NOTICE OF BORROWING") shall be immediately followed by a written confirmation thereof by the Borrower in substantially the form of Exhibit B hereto, provided that if such written confirmation differs in any material respect from the action taken by the Agent, the records of the Agent shall control absent manifest error." 10. Section 2.4 is hereby amended by deleting the section in its entirety and replacing it with the following: "COMMITMENT FEE. Borrower shall pay to Agent for the account of each Bank during the Revolving Credit Period a commitment fee computed at the rate of one-half of one percent (1/2 of 1%) per annum on the average daily amount of the unborrowed portion of the Commitment Amount during each month or portion thereof until such time as Borrower shall receive an injection of additional equity in an amount equal to not less than Fifteen Million Dollars ($15,000,000), and at the rate of one-quarter of one percent (1/4 of 1%) thereafter. Commitment fees shall be payable monthly in arrears, on the last day of each month beginning May 31, 1994, and on the last day of the Revolving Credit Period. Letters of Credit shall be deemed a borrowing to the extent of their undrawn amount for purposes of this Section 2.4(a)." 11. Sections 2.7, 2.9(a) and 2.14 are hereby deleted in their entirety. 12. Section 2.8 is hereby amended by deleting it in its entirety and replacing it with the following: "Each Base Rate Loan shall bear interest on the outstanding principal amount thereof at a rate per annum equal to the Base Rate plus 150 basis points. Such interest shall be payable on the last day of each month commencing August 31, 1993, and when such Loan is due (whether at maturity, by reason of acceleration or otherwise)." 13. Section 2.16 is hereby amended by adding "and shall be secured by all of the Collateral" at the end of such Section. 14. Section 4.9 is hereby amended by deleting it in its entirety and replacing it with the following: 4. 5 "TAXES. All material federal, state, local and foreign tax returns, reports and statements required to be filed by Borrower and, to the best of Borrower's knowledge, after due inquiry, by any of Borrower's Subsidiaries have been filed with the appropriate governmental agencies and all charges and other impositions shown thereon to be due and payable by Borrower or such Subsidiary have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof, or any such fine, penalty, interest, late charge or loss has been paid, or Borrower or such Subsidiary is contesting its liability therefore in good faith and has fully reserved all such amounts in the financial statements provided to Agent pursuant to Section 5.1, or any such fine, penalty, interest or late charge will not have a Material Adverse Effect upon the business operations or assets of Borrower. Borrower and, to the best of Borrower's knowledge, after due inquiry, each of Borrower's Subsidiaries has paid when due and payable all taxes and other charges upon the books of Borrower or such Subsidiary. Proper and accurate amounts have been withheld by Borrower and, to the best of Borrower's knowledge, each of Borrower's Subsidiaries from its employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective governmental agencies." 15. Section 4.14 is hereby deleted in its entirety and replaced with the following: "(a) ERISA. All Pension Plans of Borrower, including terminated Pension Plans, that are intended to be qualified under Section 401(a) of the Internal Revenue Code (the "Code") have been determined by the IRS to be qualified. All Pension Plans existing as of the date hereof continue to be so qualified. No "reportable event" (as defined in Section 4043 of ERISA) has occurred and is continuing with respect to any Pension Plan for which the thirty-day notice requirement may not be waived other than those of which the appropriate Governmental Agency has been notified. All Employee Benefit Plans of Borrower have been operated in all material respects in accordance with their terms and applicable law, including ERISA, and no "prohibited transaction" (as defined in ERISA and the Code) that would result in any material liability to Borrower or any of Borrower's Subsidiaries has occurred with respect to any such Employee Benefit Plan. (b) LABOR MATTERS. There are no strikes or other labor disputes against Borrower or any of Borrower's Subsidiaries or, to the best of Borrower's knowledge, threatened against Borrower or any of Borrower's Subsidiaries, which would have a Material Adverse Effect. Hours worked by and payment made to employees of Borrower or, to the best of Borrower's knowledge, or any of Borrower's Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable law dealing with such matters which would have a Material Adverse Effect. All payments due from Borrower on account of employee health and welfare insurance which would have a Material Adverse Effect if not paid have been paid or, if not due, accrued as a liability on the books of Borrower. 5. 6 (c) EMPLOYMENT AND LABOR AGREEMENTS. Except as set forth on Schedule 4.14, there are no employment agreements covering management of Borrower or any of Borrower's Subsidiaries and there are no collective bargaining agreements or other labor agreements covering any employees of Borrower or any such Subsidiary. A true and complete copy of each such agreement has been furnished to Agent." 16. A new Section 4.16 is hereby added as follows: "4.16 OTHER AGREEMENTS. Neither Borrower nor any of Borrower's Subsidiaries is a party to or is bound by any agreement, contract, lease, license or instrument, or is subject to any restriction under its respective charter or formation documents, which has, or is likely in the future to have, a Material Adverse Effect." 17. A new Section 4.17 is hereby added as follows: "4.17 FULL DISCLOSURE. No information contained in this Agreement, the other Loan Documents or any other documents or written materials furnished by or on behalf of Borrower to Agent or any Bank pursuant to the terms of this Agreement or any of the other Loan Documents contains any untrue or inaccurate statement of a material fact or omits to state a material fact necessary to make the statement contained herein or therein not misleading in light of the circumstances under which made." 18. Section 5.1(b) is hereby amended by deleting it in its entirety and replacing it with the following: "(B) as soon as available, but in any event within 30 days after the end of each month, a consolidated and consolidating balance sheet as of the end of, and a related consolidated and consolidating statements of income and cash flow for, the period then ended, certified by the chief financial officer of Borrower but subject, however, to normal, recurring year-end adjustments that shall not in the aggregate be material in amount;" 19. Section 5.1(c) is hereby amended by deleting it in its entirety and replacing it with the following: "(C) concurrently with the delivery of each financial statement pursuant to subsections (a) and (b) of this Section 5.1, a report in substantially the form of Exhibit C hereto signed on behalf of Borrower by its chief financial officer, which report shall include an aging of Borrower's Accounts;" 20. Section 5.7(a) "Quick Ratio", and Section 5.7(c) "Consolidated Tangible Net Worth", are hereby deleted in their entirety. 6. 7 21. A new Section 5.9 is added as follows: "REMITTANCE OF PROCEEDS. Beginning as soon as practicable and in no event later than July 15, 1994, Borrower shall deliver, on a daily basis or as often as payments are received, its primary cash balances to its account with FNBB at FNBB's head office in Boston, Massachusetts. The balances in such account shall be applied to Borrower's Obligations hereunder on a daily basis to the extent such Obligations exist." 22. Section 6.4(g) is hereby amended by replacing the amount of "$2,000,000" in line two thereof with the amount of "$7,000,000". 23. Section 6.10 is deleted in its entirety and replaced with the following: "PERMITTED LOSSES. Borrower shall not incur operating losses in excess of $15,000,000 for the fiscal quarter ending April 2, 1994; in excess of $6,500,000 for the fiscal quarter ending closest to June 30, 1994; nor in excess of $3,000,000 for the fiscal quarter ending nearest to September 30, 1994." 24. Section 9.1 is hereby amended by replacing the contact name for Borrower with "Kent L. Robertson", and for Cooley Godward Castro Huddleson & Tatum with "Pamela J. Martinson". 25. Section 9.8 is hereby amended by deleting it in its entirety and replacing it with the following: "AMENDMENTS AND WAIVERS. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by Borrower therefrom, shall be effective unless the same shall be in writing and signed by Requisite Banks and the Borrower, and then such waiver shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all of the Banks and the Borrower, do any of the following: (a) increase the Commitment Amount or extend the Revolving Credit Termination Date or subject any Bank to any additional obligations; (b) postpone or delay any date fixed for any payment of principal, interest, fees or other amounts due to the Banks (or any of them) hereunder or under any Loan Document; (c) reduce the principal of, or the rate of interest specified herein on any Loan, or of any fees or other amounts payable hereunder or under any Loan Document; 7. 8 (d) change the percentage of the Commitment Amount or of the aggregate unpaid principal amount of the Loans which shall be required for the Banks or any of them to take any action hereunder; or (e) amend this Section 9.8." 26. Exhibit C, the Report of Chief Financial Officer, is hereby amended by adding "Schedule B - Borrowing Base" in the form attached hereto as Exhibit A. 27. LIMITED WAIVERS. Compliance with the financial covenants contained in Section 6.10 of the Credit Agreement regarding profitability is waived as, and only to the limited extent as, to the fiscal quarter ending April 2, 1994; provided, however, the consents, waivers and amendments set forth in this Amendment shall be limited precisely as written and shall not be deemed (i) to be a consent to any other action prohibited by, or a waiver or modification of, any other term or condition of the Credit Agreement or of any other instrument or agreement referred to therein or to prejudice any right or remedy which Agent or any Bank may now have or may have in the future under or in connection with the Credit Agreement or any instrument or agreement referred to therein; or (ii) to be a consent to any future amendment or modification to any instrument or agreement the execution and delivery of which is consented to hereby, or to any waiver of any of the provisions thereof. 28. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that all of its representations and warranties in Section 4 of the Credit Agreement continue to be true and complete in all material respects as of the date hereof (except to the extent such specifically relate to another date or as specifically described on Schedule 1 hereto) and that the execution, delivery and performance of this Amendment are duly authorized, do not require the consent or approval of any governmental body or regulatory authority and are not in contravention of or in conflict with any law or regulation or any term or provision of any other agreement entered into by Borrower. 29. CONDITIONS PRECEDENT. The legal effectiveness of this Amendment is subject to the following conditions precedent: A. CORPORATE DOCUMENTS. Agent shall have received (i) resolutions of the Board of Directors of Borrower authorizing Borrower to enter into this Amendment and to grant the security interests in the Collateral, and (ii) a certificate of incumbency and specimen signature with respect to the authorized representatives of Borrower executing Loan Documents and requesting Loans or the issuance of Letters of Credit. B. SECURITY DOCUMENTS. Agent shall have received the following: 8. 9 i. the Security Agreement, in form and substance satisfactory to Agent, duly executed and delivered by Borrower; ii. certified copies, dated close to the date hereof, of requests for copies or information (Form UCC-3 or equivalent), or certificates, dated close to the date hereof, satisfactory to Agent, of a UCC Reporter Service, listing all effective financing statements which name Borrower as debtor and which are filed in the appropriate offices in the states in which are located the chief executive offices or any offices or facilities of Borrower together with copies of such financing statements, and accompanied by written evidence (including UCC termination statements) satisfactory to Agent that the Encumbrances indicated in any such financing statements are either permitted hereunder or have been terminated or released; iii. Each Financing Statement, in each instance duly executed by Borrower, required by law or reasonably requested by Agent to be filed, registered or recorded in order to create in favor of Agent, on behalf of Banks, a first priority, fully perfected Encumbrance in and to the Collateral; and iv. An opinion of the in-house counsel to Borrower with respect to (A) the good standing of Borrower in Delaware and its qualification to do business in California, (B) the due authorization, execution and delivery by Borrower of the Amendment and Security Agreement, (C) that the execution, delivery and performance of the Amendment and Security Agreement and the grant of a security interest pursuant thereto do not conflict with, or result in a default under, any applicable law, Borrower's Certificate of Incorporation or Bylaws, or any material agreement to which Borrower is a party or by which it is bound, (D) that the Amendment and Security Agreement are the legal, valid and binding obligations of Borrower, enforceable in accordance with their terms, and (E) that no action, other than the filing of the Financing Statement with the Secretary of State of California, is necessary or required for the perfection of Agent's security interest in the Collateral. C. BORROWING BASE CERTIFICATE. Agent shall have received a completed Schedule B (Borrowing Base Certificate) to the Report of Borrower's Chief Financial Officer, dated as of the month end immediately prior to the date hereof. D. NOTICE AND LOCKBOX. Agent shall have received a letter from Borrower addressed to Bank of America notifying it of Agent's security interest in Borrower's primary deposit account maintained with Bank of America (the "Operating Account"). Immediately following the date of the first Loan after the date hereof and until such time as a lockbox with respect to Borrower's Accounts is established with Agent, Borrower shall manually wire excess balances to Agent from the Operating Account on a daily basis. E. AMENDMENT FEE. Agent shall have received payment of a fee from Borrower in the amount of $10,000. 9. 10 30. RELEASE AND WAIVER. BORROWER HEREBY REPRESENTS AND WARRANTS TO AGENT AND BANKS THAT IT HAS NO KNOWLEDGE OF ANY FACTS THAT WOULD SUPPORT A CLAIM, COUNTERCLAIM, DEFENSE OR RIGHT OF SET-OFF, AND HEREBY RELEASES AGENT AND BANKS FROM ALL LIABILITY ARISING UNDER OR WITH RESPECT TO THE CREDIT AGREEMENT, AND WAIVE ANY AND ALL CLAIMS, COUNTERCLAIMS, DEFENSES AND RIGHTS OF SET-OFF, AT LAW OR IN EQUITY, THAT ANY BORROWER MAY HAVE AGAINST AGENT OR ANY BANK EXISTING AS OF THE DATE OF THIS AMENDMENT ARISING UNDER OR RELATED TO THIS AMENDMENT, THE CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO THE LOANS CONTEMPLATED HEREBY OR THEREBY OR TO ANY ACT OR OMISSION TO ACT BY AGENT OR ANY BANK WITH RESPECT HERETO OR THERETO. 31. Except to the extent expressly provided in this Amendment, the terms and conditions of the Credit Agreement shall remain in full force and effect. This Amendment and the other Loan Documents constitute and contain the entire agreement of the parties hereto and supersede any and all prior agreements, negotiations, correspondence, understandings and communications between the parties, whether written or oral, respecting the subject matter hereof. The parties hereto further agree that the Loan Documents comprise the entire agreement of the parties thereto and supersede any and all prior agreements, negotiations, correspondence, understandings and other communications between the parties thereto, whether written or oral respecting the extension of credit by Banks to Borrower and/or its affiliates. 32. This Amendment may be executed in counterparts, each of which when so executed shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Amendment shall be deemed effective upon the execution of a counterpart hereof by each of Borrower and Agent. WITNESS the due execution hereof by the respective duly authorized officers of the undersigned as of the date first written above. BORROWER PYRAMID TECHNOLOGY CORPORATION By: /s/ Kent Robertson ------------------------------- Name: Kent Robertson Title: Sr. V.P. & CFO 10. 11 AGENT THE FIRST NATIONAL BANK OF BOSTON BY: /s/ George Hibbard ----------------------------- NAME: George Hibbard TITLE: Vice President BANKS THE FIRST NATIONAL BANK OF BOSTON BY: /s/ George Hibbard ------------------------------ NAME: George Hibbard TITLE: Vice President 11. 12 SCHEDULE 1 TO FIRST AMENDMENT TO CREDIT AGREEMENT Borrower represents and warrants that its representations and warranties in Section 4 of the Credit Agreement, except to the extent they specifically relate to another date, are no longer true and accurate only in the following respects: See new Schedule 4.14 attached 1. 13 EXHIBIT A
SCHEDULE B TO EXHIBIT C BORROWING BASE Eligible Accounts - - ----------------- A. The aggregate amount of Borrower's Accounts (per detailed or summary aging of accounts receivable attached hereto). $________ B. Ineligible Accounts - list each such Account only once, in the first category in which it appears. $________ 1. Accounts as to which full payment has not been received within ninety (90) days of the invoice date. $________ 2. Accounts as to which goods, merchandise or other personal property or services have not been fully delivered or performed. $________ 3. Accounts subject to defense, offset, counterclaim or other right to avoid or reduce the liability by the account debtor. $________ 4. Accounts as to which the account debtor is insolvent, subject to bankruptcy or receivership proceedings, has made an assignment for benefit of creditors or whose credit standing is reasonably unacceptable to Banks and Borrower has been notified of such. $________ 5. Accounts as to which an affiliate of a Borrower or Borrower is the account debtor. $________ 6. Accounts for any account debtor who comprises fifteen percent (15%) or more of any Borrower's total Accounts to the extent such Accounts exceed fifteen percent (15%) of Borrower's total Accounts. $________ 7. Government Accounts in which Agent does not have a perfected security interest. $________ 8. Accounts of any account debtor as to which thirty percent (30%) are more than ninety (90) days past due. $________ 9. Other Accounts deemed ineligible by Agent. $________ 10. Total ineligible Accounts (An amount equal to the sum of Lines B.1-B.9). $________ C. The aggregate amount of Borrower's Eligible Accounts (An amount equal to Line A minus Line B.9) $________ D. Borrowing Base (An amount equal to 70% of Eligible Accounts). $________
2. EX-10.50 3 PYRAMID PARRTNERSHIP AGRMT. 1 EXHIBIT 10.50 PARTNERSHIP AGREEMENT between PYRAMID TECHNOLOGY CORPORATION PTY LIMITED ACN 003 262 566 and PYRAMID TECHNOLOGY CORPORATION and FUJITSU DATA CENTRE SYSTEMS PTY LIMITED ACN 064 889 505 and FUJITSU AUSTRALIA LIMITED ACN 001 011 427 BAKER & McKENZIE Solicitors AMP Centre Rialto 50 Bridge Street 525 Collins Street SYDNEY NSW 2000 MELBOURNE VIC 3000 Tel: (02) 225-0200 Tel: (03) 617-4200 Fax: (02) 223-7711 Fax: (03) 614-2103
2 INDEX
Clause Page - - ------ ---- 1. Interpretation 1 2. Formation of Partnership 5 3. Management Committee 7 4. Operation of the Partnership 10 5. Business Plans 13 6. Accounting Procedure, Records of Accounts, Rights of Inspection and Audit 14 7. Operation of Joint Account 15 8. Charges and Credits 17 9. Contributions 20 10. Sourcing of Product and Services 20 11. Profit Distribution 22 12. Insurance 24 13. Term and Termination 24 14. Consequences of Termination 26 15. Dispute Resolution 31 16. Arbitration 32 17. Indemnities 32 18. Confidentiality 33 19. Force Majeure 34 20. Assignment and Encumbrances 35 21. Governing Law, Jurisdiction and Service of Process 35 22. Notices 35 23. Guarantee and Indemnity 36 24. Miscellaneous 40 Execution 42 Schedule A - FPL Contribution 44 Schedule B - PTA Contribution 45 Schedule C - Matters for Unanimous Consent 46 Schedule D - Channel Harmony Agreement 49
3 PARTNERSHIP AGREEMENT THIS AGREEMENT is made on the 10th day of June 1994 BETWEEN PYRAMID TECHNOLOGY CORPORATION PTY LIMITED ACN 003 262 566 of 173 Pacific Highway, North Sydney, NSW ("PTA") AND PYRAMID TECHNOLOGY CORPORATION of 3868 North First Street, San Jose, California 95134-1782, United States of America ("PTC"); AND FUJITSU DATA CENTRE SYSTEMS PTY LIMITED ACN 064 889 505 of 475 Victoria Avenue, Chatswood, NSW ("FPL"). AND FUJITSU AUSTRALIA LIMITED ACN 001 O11 427 of 475 Victoria Avenue, Chatswood, NSW ("FAL") RECITALS: A. PTA and FAL each participate in the market for the supply of computer systems, systems software and related services. B. PTA and FPL, a wholly owned subsidiary of FAL, have agreed, at the request of PTC and FAL, to form a partnership to service the Australasian market for high end open computer systems on the terms and conditions set out in this Agreement. C. In consideration of PTA and FPL entering into this Agreement, PTC and FAL have agreed to enter into this Agreement for the purpose, inter alia, of guaranteeing the performance by their respective subsidiaries of the obligations contained in this Agreement. OPERATIVE PROVISIONS 1. Interpretation 1.1 The following words have these meanings in this Agreement unless the contrary intention appears: "Australian GAAP" means Australian generally accepted accounting procedures; "Authority" includes any government, whether federal, state, territorial or local and any minister, office, delegate, instrumentality or other organ of government, whether statutory or otherwise; "Business Day" means any day on which a bank authorised under the Banking Act, 1959 (Cth) to carry on banking business in Australia is open for business in Sydney; 4 "Business Plan" means a business plan and budget to be prepared in accordance with the requirements of clause 5, for submission to and approval or amendment by the Management Committee in accordance with this Agreement; "Channel Harmony Agreement" means the document attached as Schedule D to this Agreement; "Commencement Date" means July 2, 1994; "Exempt Contract Revenue" means with respect to any contract between PTA and a customer forming part of Partnership Assets, any receivable earned under any such contract by PTA before the Commencement Date; "Existing Contracts" means those contracts between PTA and its customers as further identified in Schedule A (including, without limitation, the Existing Hardware Maintenance Contracts); "Existing Hardware Maintenance Contracts" means the hardware maintenance contracts between PTA and customers as further identified in Schedule A. For the purposes of this definition, any such contract shall be deemed to exist only for the current term of the contract or until the equipment to which it relates is upgraded (in which case it will be deemed to terminate in respect of that equipment); "Fiscal Year" means April 1 to March 31; "FPL Capital Account" means the capital account of FPL as re- flected on the Partnership balance sheet prepared in accordance with Australian GAAP, representing: (a) any contribution of capital contributed to the Partnership by FPL; (b) plus FPL's allocable share of any profit or minus FPL's allocable share of any loss of the Partnership; and (c) minus any distribution of Partnership assets to FPL. "FPL Loan" means the loan from FPL to the Partnership pursuant to clause 7.3; "Hardware Maintenance Sub-Contract" means the hardware maintenance contract between FAL and PTA dated December 31, 1993; "Interest Rate" means, in relation to a period, the rate offered by National Australia Bank for that period as its National Base Rate as published in daily newspapers in Sydney; 2 5 "Joint Account" means a separate bank account maintained by the Partnership for the deposit of all Partnership monies; "Management Committee" means the management committee formed under Clause 3; "Management" means the Managing Director supported by the management and staff employed by the Partnership from time to time and who initially comprise those persons employed pursuant to clause 4.2; "Partners" means PTA and FPL and their respective permitted successors and assigns; "Partnership" means the partnership between the Partners formed under this Agreement for the purpose of achieving the Partnership Objective; "Partnership Accounts" means the set of accounts maintained by the Partnership in accordance with Australian GAAP to record all Partnership: (a) income; (b) costs, expenses, assets and liabilities; (c) loan accounts between the Partners and the Partnership; and (d) capital accounts of the Partners. "Partnership Assets" means all property whether real or personal which is owned, leased, held, developed, constructed or acquired for the Partnership by or on behalf of the Partners including, without limitation, any new contracts with customers entered into by the Partnership. "Partnership Objective" means the sale, support and service of high end open computer systems and related services to the Australasian data centre market; "PTA Capital Account" means the capital account between PTA and the Partnership, representing: (a) PTA's contribution to the Partnership of those assets identified in Schedule B; (b) the Existing Hardware Maintenance Contracts; (c) any further contribution of capital contributed to the Partnership by PTA; (d) plus PTA's allocable share of any profit or minus PTA's allocable share of loss of the Partnership; and 3 6 (e) minus any distribution of Partnership assets to PTA. "Representative" means a representative of a Partner on the Management Committee appointed in accordance with Clause 3; "Share" means the undivided beneficial interest of a Partner in the Partnership Assets, which interest is as set forth in Clause 2.3, but as further subject to the terms and conditions to this Agreement; "Surplus" means the revenue of the Partnership less the expenses of the Partnership as determined under Australian GAAP. 1.2 In this Agreement unless the contrary intention appears: (a) words importing the singular include the plural and vice versa; (b) words importing a gender include every gender; (c) references to any document (including this Agreement) include references to that document as amended, consolidated, supplemented, novated or replaced; (d) references to an agreement include any undertaking, representation, deed, agreement or legally enforceable order, arrangement or understanding whether written or not; (e) references to this Agreement are references to this Agreement and any annexures and schedules; (f) references to paragraphs, clauses, recitals, schedules and annexures are references to paragraphs and clauses of, and recitals, schedules and annexures to this Agreement; (g) headings are for convenience only and must be ignored in construing this Agreement; (h) references to any person or any Party include references to their or its respective successors, permitted assigns or substitutes, executors and administrators; (i) references to law include references to any constitutional provision, treaty, decree, convention, statute, act, regulation, rule, ordinance, proclamation, subordinate legislation, by-law, judgment, rule of court, practice direction, rule of common law, rule of equity, rule of any applicable stock exchange, 4 7 guideline, code, order, approval and standard (including Australian Standard published by the Standards Association of Australia); (j) references to any law are references to that law as amended, consolidated, supplemented or replaced and includes references to regulations and other instruments under it; (k) references to a judgment include references to any order, injunction, decree, determination or award of any court or tribunal; (l) references to proceeding include any litigation, arbitration, injunction, investigation, prosecution and summons; (m) references to a person include references to an individual, company, body corporate, association, partnership, joint venture, trust and Governmental Agency; (n) references to deliver include cause to be delivered and references to sell include procure the sale of; (o) references to time are references to Sydney time; (p) a warranty, representation, covenant, liability, obligation or agreement given or entered into by more than one person binds them jointly and severally; (q) if a period of time is specified and dates from, after or before a given day or the day of an act or event, it is to be calculated exclusive of that day; (r) if a payment or other act must (but for this clause) be made or done on a day which is not a Business Day, then it must be made or done on the next following Business Day; and (s) all references to "dollars" or "$" shall be references to Australian currency. 2. FORMATION OF PARTNERSHIP 2.1 PTA and FPL agree to associate themselves as a partnership, on and with effect from the Commencement Date, for the purposes of: (a) implementing the Partnership Objective; and (b) carrying out such other activities as are contemplated by this Agreement or as they may from time to time agree. 5 8 2.2 The trading name of the Partnership will be: "PYRAMID DATA CENTRE SYSTEMS" and it will, whenever and wherever reasonably possible, be referred to as: "a joint venture of Fujitsu and Pyramid Technology". 2.3 The Partnership Assets will be owned by the Partners as tenants in common and, subject to this Agreement, in proportion to their respective Shares, and each Partner agrees to make available and to dedicate to the Partnership exclusively for the purposes thereof its Share of the Partnership Assets. As at the commencement of the Partnership, the respective Shares of the Partners are as follows: FPL - 51% PTA - 49% 2.4 Each Partner waives its right to bring an action for partition or division of the Partnership Assets or any of them, and for that purpose, agrees that it will not seek, or be entitled to, partition or division of the Partnership Assets or any of them, whether by way of physical partition, judicial sale or otherwise. 2.5 Without in any way limiting the generality of clause 2.4, in the event of a deadlock in the Management Committee or any other failure by the Partners to reach agreement with respect to any matter relevant to the Partnership or the Partnership Assets, neither party will resort to any action at law or in equity to terminate this Agreement or to partition, divide, sell or otherwise deal with the Partnership Assets or any of them, except in accordance with clauses 13, 14 and 15. 2.6 Each Partner covenants and agrees with the other Partner to act in good faith towards the other Partner, and each Partner undertakes without limiting the generality of the foregoing: (a) to be just and faithful in all activities and dealings with the other Partner; (b) to attend diligently to the conduct of all activities in relation to the Partnership; and (c) to account forthwith for all moneys, cheques and negotiable instruments received by it for and on behalf of the other Partner. 6 9 3. MANAGEMENT COMMITTEE 3.1 The Partners agree to form and operate a Management Committee in accordance with the requirements of this clause 3. 3.2 Subject to clause 3.3, the Management Committee will consist of a maximum of 4 Representatives with each Partner entitled to appoint 2 Representatives. 3.3 FPL is entitled to appoint a third representative to the Management Committee. FPL may exercise such right by notice in writing to PTA and the Secretary of the Management Committee and such appointment will take effect upon the giving of such notice. In the event that FPL exercises such right, the Management Committee will then consist of 5 Representatives. 3.4 Each Partner may appoint to the Management Committee alternates for each Representative appointed by it. An alternate may exercise all the powers of the relevant Representative to the extent that such Representative has not exercised them. 3.5 A Partner may remove any Representative or alternate appointed by it, and appoint another in his or her place. 3.6 Any appointment or removal of a Representative or alternate under clause 3.4 or 3.5 will be made by notice by the appointor to the other Partner and the Secretary of the Management Committee and will take effect upon the giving of the notice to the other Partner. 3.7 The business and affairs of the Partnership will be under the control and direction of the Management Committee. Except as otherwise expressly provided in this Agreement, the Partners expressly acknowledge and agree that the Management Committee will decide all matters in relation to the business and affairs of the Partnership in accordance with this clause 3 including: (a) the adoption of accounting procedures for the Partnership; (b) the delegation of matters to the Management; (c) the giving of directions to, and the setting of spending limits and other control mechanisms for the Partnership; (d) the approval and amendment of all Business Plans; (e) the provision of further cash funding or other financial support to the Partnership by the Partners. 7 10 All decisions of the Management Committee which are made in accordance with the terms of this Agreement will be binding on the Partners. 3.8 Each Representative or alternate appointed by a Partner may vote at meetings of the Management Committee. The Representatives or alternates attending a Management Committee meeting on behalf of a Partner shall be entitled, collectively if more than one of such Representatives or alternates are in attendance, to cast on behalf of that Partner that number of votes which is equal to the number of Representatives appointed by that Partner. 3.9 Except for decisions in respect of those matters listed in Schedule C (which must be decided by unanimous vote), all decisions of the Management Committee will be decided by majority vote. 3.10 The quorum for a meeting of the Management Committee will be one Representative or alternate appointed by PTA and one Representative or alternate appointed by FPL provided that if at 2 proposed consecutive meetings of the Management Committee to be held at intervals of not less than 7 days a quorum as aforesaid is not present, any Partner may, within 7 days after the passing of the date for the second proposed meeting, by notice to the other Partner, propose the passing of any resolution which might, having regard to the business described in the notice thereof, have been properly proposed at both proposed meetings. Each of PTA and FPL may within 14 days of the giving of the notice by notice to the Secretary to the Management Committee and to the other of them, vote for or against each of the resolutions proposed. If either PTA or FPL fail to vote in respect of any such resolution, it will be deemed, on the day immediately following the expiration of that 14 day period, to have voted in favour thereof. Any votes given or deemed to have been given by PTA or FPL as aforesaid will be deemed to be votes of their respective Representatives and will take effect as a decision taken at a duly convened meeting of the Management Committee. 3.11 At least 14 days notice in writing of any meeting of the Management Committee will be given to each Representative and alternate at his address nominated in writing from time to time to the Secretary of the Management Committee and to each Partner provided that notice of any meeting may be dispensed with if at least one Representative or alternative appointed by PTA and at least one Representative or alternative appointed by FPL so agree. Such notice may be given at any time by a Partner or any Representative or by the Secretary of the Management Committee at the request of a Partner or a Representative. Wherever possible each notice of a meeting of the Management Committee will describe the business to be conducted at the meeting. Business not described in a notice of meeting will not be dealt with 8 11 at the meeting unless the business is of a routine or administrative nature and the Management Committee unanimously so decides. Failure of a notice to describe any item of business will not invalidate a meeting and neither such failure nor any failure of the Management Committee to decide as aforesaid will invalidate any decisions in regard to any business unanimously taken at the meeting. 3.12 The Management Committee meetings will be held in Sydney on a quarterly basis (unless the Partners otherwise agree). 3.13 All expenditure and costs incurred by the Partners in relation to attendance of the Representatives or alternates appointed by the Partners at meetings of the Management Committee, will be reimbursed to the Partners from the Joint Account. 3.14 The Partners acknowledge and agree that the Managing Director or an alternate nominated by the Managing Director will be entitled to be present (but not be entitled to vote) at meetings of the Management Committee unless the Partners or either of them request that such managing director or his alternate not be present. Other employees of the Partnership or other persons may with the consent of both Partners be asked to attend at Management Committee meetings as invitees, but shall not be entitled to vote on any resolution. 3.15 The Partners agree to appoint Mr. Nori Karasuda to act as chairman of meetings of the Management Committee for the first year of this Agreement. At the commencement of the second and each subsequent year of this Agreement, a new chairman shall be elected by the Management Committee and the Partners agree that they will alternate the election of chairman between PTA appointees and FPL appointees. The chairman will not, in case of an equality of votes, have a second or casting vote. 3.16 The Management Committee will appoint a secretary who will keep minutes of each meeting and records of other resolutions made by the Partners. The secretary need not be a Representative or alternate. A copy of the minutes will be given to each Representative and to each Partner as soon as practicable but not later than 14 days after each meeting. 3.17 The minutes of the Management Committee will be subject to approval as follows: (a) if any Partner does not approve of any matter contained in the minutes it may within 14 days after receipt thereof given notice to the other 9 12 Partner stating that the minutes are not approved and giving full particulars as to the reasons why; (b) if no notice is given pursuant to clause 3.17(a) or if the Partners by notice to each other state that they approve the minutes, the minutes would be deemed to have been approved and will, subject to clause 3.17(c), be signed by the chairman of the Management Committee at the next meeting after the expiration of the said period of 14 days and when so signed will be conclusive evidence of the proceedings and decisions of the meeting to which they relate; and (c) the Management Committee may, whether or not a notice has been given pursuant to clause 3.17(a), agree upon any amendment to the minutes prior to the time the same are signed by the chairman. Any such agreement will be evidenced by the signatures of at least one Representative or alternate appointed by each of the Partners on a copy of the minutes amended as agreed. 3.18. Meetings of the Management Committee may, in addition to taking place where the Representatives or alternates are physically present in the same place, take place by telephone link-up or by other audio or audio-visual telecommunication link- up. 3.19 Resolutions of the Management Committee may also be passed by written resolution. A resolution in writing signed by all of the Representatives, or their respective alternate in substitution, shall be as effectual as if it had been passed by a meeting of the Management Committee duly convened. Any such resolution may consist of several documents in the same form each signed by one or more of the Representatives, or their respective alternates. The effective date of such resolution shall be the date upon which the document or any of its counter-parts was last signed. 4. OPERATION OF THE PARTNERSHIP 4.1 Day to day management of the Partnership is hereby delegated by the Partners to the Management Committee on behalf of each Partner in accordance with this Agreement. 4.2 The parties agree to appoint Mr David Hall to act as the initial "Managing Director" of the Partnership. The Managing Director will, with the approval of the Management Committee, select persons for the following senior management roles: 10 13 * Director of Sales * Director of Finance * Director of Marketing and System Services and the persons selected will be employed in those capacities by the Partnership. In addition to the above senior management, the Partners agree that the Partnership will offer employment to the staff of PTA nominated by PTA and in addition will offer employment to FAL staff, as nominated by FPL with the approval of the Managing Director. The costs of all such persons employed by the Partnership will be charged to the Joint Account in accordance with the provisions of clause 8.2. 4.3 Without restricting the generality of clause 4.1, the Partnership will through the Management, but subject to the control and direction of the Management Committee pursuant to the requirements of this Agreement: (a) implement the Partnership Objective and the approved Business Plans and enter into any necessary agreements in relation to such implementation and the sale of product and services on behalf of the Partnership; (b) maintain, operate and protect the Partnership Assets and any other property and assets of a Partner in the Partnership's possession; (c) supervise and control such contractors as it may engage; (d) prepare and file reports or returns required by law or by any Authority; (e) disburse funds from the Joint Account to operate the Partnership including the payment of taxes (other than income tax of a Partner) payable in connection with the Partnership or the Partnership Assets; (f) obtain, renew and maintain any necessary permits, licences and approvals in relation to the Partnership; (g) enter into any other contracts or agreements relating to the operation of the Partnership as may be required by the Management Committee; (h) do all acts, matters or things as may be reasonably required by the Management Committee; (i) do all acts, matters or things as may be necessary or advisable for the efficient and economic operation of the Partnership. 11 14 4.4 The Partnership, if necessary, but subject to clause 10 and to approval by the Management Committee, may engage contractors to perform services for the Partnership. 4.5 Subject to the discretions conferred upon Management by this Agreement, Management will act at all times in accordance with the control and direction of the Management Committee. 4.6 The Partnership will not use any letterhead, logo or like material in the carrying out of its activities and responsibilities under this Agreement unless the form of such letterhead, logo or like material is first approved by the Management Committee. 4.7 The Management Committee will delegate all such decision making authority to the Managing Director as is sufficient to allow him to operate the Partnership day-to-day in an efficient, effective and profitable manner consistent with the Business Plan and other directives and policies of the Managing Committee. These delegations shall be made with a view toward maximum empowerment and flexibility for the Managing Director to run a competitive and successful business keeping in mind the interests and objectives of the Partners. 4.8 To assist the Managing Director in accomplishing his business charter, the Management Committee shall annually nominate one of its members (the "Delegate") to be a point-of-contact, to provide a consultative and review function on behalf of the Management Committee and to carry out such control and direction functions of the Management Committee as are determined by the Management Committee between the quarterly Management Committee meetings. The Partners agree that the first person to be nominated to fill this Delegate role on behalf of the Management Committee will be Mr Nori Karasuda of FAL. 4.9 The Managing Director will refer all issues to the Delegate which he believes require decision but which exceed his specific delegated authority. The Managing Director may from time-to-time, when he requires it, consult with the Delegate on other issues related to the Partnership's operations or matters of particular sensitivity. The Managing Director will also provide a monthly written report to the Partners covering financial and business performance of the Partnership. This monthly report will be reviewed in person by the Managing Director with the Delegate. 4.10 The relationship between the Delegate and the Managing Director is not intended to foreclose any other communications the managing Director may wish to initiate with staff, executives, or Management Committee 12 15 members representing either of the Partners when he deems such communication necessary or desirable to facilitate the business of the Partnership. Nothing herein contained is intended to prevent or restrict the Managing Director from discussing with the Management Committee (either individually or as a group) any matter in relation to the Partnership including any matter already discussed with the Delegate. 4.11 FAL will appoint a senior official to oversee the operation of the procedures in the Channel Harmony Agreement which have been adopted by FAL and PTA as part of this Agreement. The first nominee to perform this role will be Mr Nori Karasuda. 4.12 If, during the twelve month period immediately following the Commencement Date, PTA believes that the Delegate arrangement referred to in this clause 4 is not working satisfactorily, it may request a review of the arrangement at a Management Committee meeting. FPL will then consider in good faith any modifications that are proposed by PTA to these arrangements including the transfer or sharing of some or all of the Delegate's responsibilities during the twelve month period between the first and second anniversaries of the Commencement Date. 5. BUSINESS PLANS 5.1 The Management Committee and Management will consult to establish budgeting, forecasting, cost control and reporting procedures in accordance with acceptable practices in the computing industry and any accounting procedure adopted by the Management Committee. In the event of any conflicting requirements, the Management Committee will determine which requirements will prevail. The Management will be directed to prepare Business Plans in accordance with this clause 5, which shall include financial targets as well as product and marketing strategies and objectives. Management shall be instructed to liaise with PTA and FAL concerning the preparation and content of the draft Business Plans, prior to their submission to the Management Committee as a final draft. 5.2 Management will be instructed to furnish to the Management Committee, within 30 days after the Commencement Date, a recommended Business Plan to apply for the initial Fiscal Year and thereafter will furnish a copy of its proposed Business Plan for each Fiscal Year 30 days prior to the commencement of that Fiscal Year. The Management Committee will endeavour to reach a decision on a submitted Business Plan not later than 21 days after its submission. 13 16 5.3 The Management Committee may approve any Business Plan with or without amendment, in whole or in part and may at any time after such approval resolve to revise any such Business Plan. 5.4 Management will be instructed to carry out its duties in accordance with the Business Plans approved by the Management Committee, as revised from time to time by the Management Committee. 5.5 Each Business Plan submitted pursuant to this clause 5 will contain a statement of the work proposed to be undertaken during the period to which it relates and will contain sufficient detail regarding marketing plans, strategies and tactics, to enable the Management Committee to give proper consideration to it. A Representative or alternate may, at or prior to a meeting of the Management Committee, direct Management to provide such additional information as that Representative or alternate reasonably requires for the purpose of considering the proposed Business Plan. 5.6 Each Business plan submitted pursuant to this clause 5 will be divided into months. 5.7 The approval of a Business Plan will constitute sufficient direction to the Management to undertake the activities and incur the expenditure contemplated by such Business Plan, until that direction is revoked by the Management Committee and notified to the Management. 5.8 If the Management Committee does not approve any Business Plan prior to the period to which the Business Plan relates, then during the period to which such Business Plan relates and until a Business Plan for such a period is approved by the Management Committee, the Management will be directed to undertake such activities and incur such expenditures as are in the bona fide opinion of Management reasonably necessary for the continued proper operation of the Partnership and where practicable in accordance with the previously approved Business Plan. 6. ACCOUNTING PROCEDURE, RECORDS OF ACCOUNTS, RIGHTS OF INSPECTION AND AUDIT 6.1 Management will be directed to prepare and maintain the Partnership Accounts on behalf of the Partners. All financial records and accounts will be prepared and maintained pursuant to and in accordance with the accounting procedures adopted by the Management Committee pursuant to clause 3.7(a) and generally accepted accounting standards applied in the computing industry in Australia. 14 17 6.2 The Management will keep or cause to be kept in accordance with the provisions of this Agreement, comprehensive true and accurate records and accounts of the Partnership. 6.3 The Management will be responsible for any accounting records required by law to be kept by the Partnership and shall cause a certified audit to be conducted annually by a qualified auditor. The Management will prepare and lodge any partnership tax return required by law to be prepared and lodged by the Partnership, provided that each Partner will separately be responsible for its own accounting records required by law or to support its income tax returns or any other accounting reports required by an Authority in regard to its Share. To enable each Partner to record such data in its own books, the Partnership will provide each Partner with such accounting data as may be required by it for any regulatory procedures to which the Partner may be subjected, provided such data is available from the records and accounts required to be kept by the Partnership in accordance with the terms of this Agreement. 6.4 An unaudited statement of the financial results of the Partnership for the preceding period will be prepared by the Partnership within 5 Business Days after the end of each month. 6.5 Each Partner may appoint an independent qualified representative to, on reasonable notice, inspect and or audit the accounts and records maintained by the Management in relation to the Partnership and the Partnership will co-operate fully in any such inspection or audit. 7. OPERATION OF JOINT ACCOUNT 7.1 Subject to this Agreement, all costs, liabilities and expenses incurred in relation to the Partnership will be contributed and borne by the Partners and all income received will be earned by the Partners in proportion to their respective Shares at the date the same was incurred or received. The Partnership will record and account for all such transactions in the Partnership Accounts in accordance with the provisions of this Agreement. 7.2 The Management shall procure that the Partnership shall establish a separate bank account in the name of the Partnership, to be known as the Joint Account, into which all contributions to and income of the Partnership shall be paid. 15 18 7.3 FPL agrees that upon the Commencement Date it shall loan to the Partnership $1,400,000. This loan shall accrue interest in accordance with paragraph 7.4 and shall be repaid upon termination of the Partnership, in accordance with the provisions of clause 14. 7.4 Interest shall accrue at the Interest Rate, per annum, on the outstanding month end balance of the capital accounts of the Partners and of the loan accounts between the Partners and the Partnership, unless otherwise agreed. For the purpose of calculating the interest, the capital accounts of Partners shall not include profits accrued but not available for distribution. 7.5 When the Management Committee determines that a further contribution to the Partnership is required, the Partners shall contribute the proportion of the required amount equal to their respective Share, such contribution to be made in the manner as shall be designated by the Management Committee. 7.6 The Management Committee will from time to time consult with the Partners and use its best endeavours to manage the receipt and disbursement of funds and the distribution of Surplus to the Partners as directed by the Management Committee, so as to minimise as far as is possible holding surplus funds at any time. 7.7 If at any time there is likely to be a deficiency of available funds in the Joint Account, or through other available facilities, to finance the operations of the Partnership in accordance with the then approved Business Plan, Management shall so notify the Management Committee and will provide to it: (a) the estimated amounts of receipts and expenditure during the then current quarter; (b) the estimated amounts of expenditure required to be made by the Partnership during the then current quarter and the following 2 months. When preparing such a statement regard will be had to: (i) the cash flow schedule in the approved Business Plan; and (ii) the estimated cash on hand and available through the Partnership's bank facility at the beginning of the ensuing month. 7.8 Each Partner will pay to the Partnership the amount required to be paid at the times for payment as directed by resolution of the Management Committee pursuant to 16 19 clause 3.7. Each such payment made by a Partner will be credited to the Joint Account to be held by the Partnership for and on behalf of such Partner for the purpose of being expended in accordance with the provisions of this Agreement. Failure by either party to make a payment when due pursuant to this clause shall be a material default under this Agreement for the purposes of clause 13.2(a). 8. CHARGES AND CREDITS 8.1 The Partnership Account will be charged in accordance with clause 8.2 and the Partnership Account will be credited in accordance with clause 8.3. 8.2 The Partnership Account will be charged all costs incurred in relation to the Partnership, including: (a) Salaries and Wages salaries and wages of employees of the Partnership; (b) Holiday, Vacation, Sickness and Disability Benefits (i) the cost of holiday, vacation, sickness and disability benefits, holiday pay, annual leave and loading, long service leave, travel time, redundancy allowances and other allowances for the time paid but not worked applicable to employees whose salaries and wages are chargeable under section 8.2(a) above provided that such costs and allowances do not exceed amounts which are standard for such items in the computing industry; and (ii) costs under this section 8.2(b) will be charged on an accrual basis, or on a percentage basis on the amount of salaries and wages chargeable under section 8.2(a). If the percentage basis is used, the rate will be adjusted periodically to accord with amounts actually paid or accrued; (c) Government Assessments and Obligations expenditure or contributions made pursuant to assessments or obligations imposed by a Government Authority which are applicable to the Partnership's cost of salaries and wages chargeable under clause 8.2(a) and clause 8.2(b); 17 20 (d) Employee Expenses and Travellina Allowances reasonable personal expenses and travelling allowances for the purposes of the Partnership of employees of the Partnership; (e) Employees' Benefit Plans (i) the Partnership's cost of plans for employees' group life insurance, medical coverage, superannuation, and other benefit plans of like nature applicable to the Partnership's labour costs chargeable under clause 8.2(a) and clause 8.2(b); (ii) costs chargeable under this section 8.2(e) may be charged on an accrual basis or on a percentage basis on the amount of salaries and wages chargeable under section 8.2(a). If the percentage basis is used, the rate will be adjusted periodically to accord with the amounts actually paid or accrued; (f) Personnel on Secondment any reimbursable expenses paid by the Partnership in accordance with clause 10.2 or 10.3 for personnel of PTA or FAL's who are seconded to the Partnership from time to time to perform specific services for the Partnership; (g) Products, Supplies and Equipment the cost of the products, equipment and supplies purchased by the Partnership; (h) Transportation the cost of transportation of employees and material necessary for the Partnership; (i) Services and Facilities the actual cost to the Partnership of sub-contracting and consulting services, utility charges and any expenditures for the use of materials and equipment; (j) Premises the accrued cost to the Partnership for the lease of its premises and any other leases entered into by the Partnership as authorized by the Management Committee; 18 21 (k) Legal Expenses all costs and expenses incurred in obtaining legal advice or in handling, investigating and settling litigation or claims or prosecutions arising by reason of the operation of the Partnership or necessary to protect or recover the Partnership Assets, including but not limited to legal fees, court costs, costs of investigation or procuring evidence and amounts paid in settlement or satisfaction of any such litigation or claims or prosecutions; (l) Insurance net premiums paid for any insurance required to be taken out on behalf of the Partners, including in respect of any insurance required to be taken out pursuant to a contractual commitment undertaken for the benefit of the Partnership, such as the lease of the premises referred to in 8.2(j). Premiums on additional insurance required by only one of the Partners will be separately charged to that Partner; (m) Taxes, Duties, Rental And Fees (i) all fees, duties, rentals and taxes of any kind or nature (except royalties and taxes relating to the income of a Partner) assessed, imposed or levied by any Authority upon, in connection with or in relation to the Partnership Assets or the Partnership; and (ii) all tax payable pursuant to the Fringe Benefits Tax Assessment Act 1986 (Cth) in respect of benefits relating to the employment of employees whose salaries are chargeable to the Joint Account either directly or indirectly pursuant to clause 8.2(a). (n) Other Expenditures (i) any expenditure or costs, other than the expenditures dealt with in the foregoing provisions of this clause 8.2, necessarily incurred in connection with the operation of the Partnership; and (ii) all expenditure and costs incurred by Partners in relation to the administration of the Partnership including costs associated with the attendance of the Representatives or 19 22 their alternates appointed by the Partners at the meetings of the Management Committee. 8.3 The Joint Account will be credited with all income received by the Partnership, including: (a) all revenues from product sales, software and hardware support services and professional services and other revenue generating activities performed by or on behalf of the Partnership; (b) proceeds from any insurance claims from insurance the cost of which has been charged to the Joint Account; (c) receipts from the use of items of Partnership Assets for any purpose; and (d) proceeds from the sale of any item of Partnership Assets. 9. CONTRIBUTIONS 9.1 All costs, liabilities and expenses incurred in relation to the Partnership will be contributed and borne by the Partners in proportion to their respective Shares as at the date the same are incurred, and will be paid in accordance with this Agreement. 9.2 On the Commencement Date, or as soon as practicable thereafter, PTA will contribute to the Partnership the assets identified in Schedule B. 9.3 PTA's obligations under clause 9.2 are subject to obtaining all such consents, approvals and permits as may be required in order to transfer the assets identified in Schedule B. 9.4 Notwithstanding clause 9.3, if PTA is prevented, for any reason, from contributing to the Partnership the assets identified in Schedule B, it will nevertheless contribute to the Partnership assets which have an aggregate book value at least equal to $1,345,000. 10. SOURCING OF PRODUCT AND SERVICES 10.1 Except as provided in clause 10.8, or as otherwise agreed by the Management Committee, all products and services required by customers of the Partnership will be provided by the Partnership. Products will be sourced from PTA and FAL to the extent possible and the cost of such product will be charged to the Joint Account in accordance with clause 8. 20 23 10.2 PTA will sell Pyramid Product to the Partnership at a price calculated in accordance with the same formula used by PTC to sell that same Pyramid Product at the same time to its other wholly owned overseas subsidiaries. The terms and conditions governing the sale of Pyramid Product to the Partnership shall be agreed between PTA and the Partners before any Pyramid Product is supplied to the Partnership. For the purpose of this clause, "Pyramid Product" will mean any product appearing on PTC's then current US price list which is exported by PTC. 10.3 FAL will sell FAL Product to the Partnership at a price calculated in accordance with the same formula used by the FAL Product Group to sell that same product at that same time to the FAL sales Organisation. This transfer price may be augmented by an uplift to reflect the cost of sales support services required by the Partnership for the sale of FAL Products as provided for in the Channel Harmony Agreement. The uplift will be removed when the Partnership has developed the capacity to sell these products directly without sales support from FAL. The terms and conditions governing the sale of FAL Product to the Partnership shall be agreed betweeN FAL and the Partners before any FAL Product is supplied to the Partnership. For the purpose of this clause, "FAL Product" will mean all product supplied by the FAL Product Group to the FAL sales Organisation which FAL is authorised to supply to third parties, such as the Partnership, for on-supply, and where such authority has been given to FAL and is subject to FAL's compliance with specified conditions, then those products shall only be regarded as FAL Products if the Partnership agrees to comply with those conditions. 10.4 PTC and the FAL Product Group each reserve the right to modify at any time their transfer pricing formulae for sale of product to PTA and the Partnership respectively as product changes, cost structure changes and marketplace dynamics warrant. To the extent that the managing Director believes that any price change affects the Partnership's business outlook, he will report to the Management Committee so that the Management Committee may review the potential impact on the financial plans and expectations for the business performance of the Partnership. 10.5 The Partnership will pay all invoices submitted by PTA and FAL for the products referred to in clauses 10.2 and 10.3 within 30 days of the invoice date. 10.6 PTA agrees to use its best endeavours to provide any expert assistance from PTA or PTC, required by the Partnership, subject to availability of persons and subject further to prior agreement with the Management 21 24 Committee on cost reimbursement. Provided however that PTA shall only be entitled to an agreed cost reimbursement if the claim for such reimbursement is rendered to the Management within 60 days of the cost being incurred. 10.7 FPL agrees to use its best endeavours to provide any expert assistance from FPL, FAL or from Fujitsu Limited, subject to availability of persons and subject further to prior agreement with the Management Committee on cost reimbursement. Provided however that FPL shall only be entitled to an agreed cost reimbursement if the claim for such reimbursement is rendered to the Management within 60 days of the cost being incurred. 10.8 All hardware maintenance support services required by customers of the Partnership will be sub-contracted to FAL, unless otherwise determined by the Management Committee. FAL's services shall be provided to the Partnership on the terms and conditions of the Hardware Maintenance Sub-Contract and the cost of those services shall be charged to the Joint Account pursuant to clause 8.2(i). 10.9 Subject to their existing arrangements, PTC and PTA agree that neither they nor any of their related bodies corporate will supply Pyramid Product (as defined in clause 10.2) to any entity based within Australasia other than the Partnership PROVIDED THAT it is acknowledged by FPL and FAL that PTC has previously granted, and may in future grant, rights to third parties based outside Australia which entitle those third parties to sell Pyramid Products worldwide (including in Australia and New Zealand). In addition, PTC and PTA agree that if any third party supplies Pyramid Products in Australasia, neither PTC, PTA nor any of their related bodies corporate will provide any sales or support assistance in Australasia to those third parties or their customers. 10.10 The Partners agree that they, and the Partnership, will act in accordance with the terms of the Channel Harmony Agreement. 11. PROFIT DISTRIBUTION 11.1 The Partners agree that any Surplus declared in the Partnership Accounts shall, unless otherwise unanimously agreed by the Management Committee, be available for distribution as follows: (a) In the first twelve months immediately following the Commencement Date: 22 25 (i) any Surplus up to a cumulative amount of $2,000,000 will be payable to PTA, or as it directs; (ii) any Surplus above the amount of $2,000,000 but less than $4,000,000 will be payable to FPL, or as it directs; (iii) any Surplus above $4,000,000 will be payable to the Partners in proportion to their respective Shares in the relevant twelve month period. (b) In the twelve month period between the first and second anniversaries of the Commencement Date: (i) any Surplus up to cumulative amount of $3,000,000 will be payable to PTA, or as it directs; (ii) any Surplus above the amount of $3,000,000 but less than $6,000,000 will be payable to FPL, or as it directs; (iii) any Surplus above $6,000,000 will be payable to the Partners in proportion to their respective Shares in the relevant twelve month period. (c) As from the second anniversary of the Commencement Date, all Surplus shall be distributed to the Partners in proportion to their respective Shares at the end of the Fiscal Year. 11.2 The Partners acknowledge and agree that the Exempt Contract Revenue is not revenue to which the Partnership is entitled and does not form part of the Partnership Assets. The Exempt Contract Revenue is solely the property of PTA. 11.3 The Partners agree that notwithstanding clause 11.1, all fees paid by the customers in respect of the Existing Hardware Maintenance Contracts shall be distributed on the following basis and in the following order of preference: (a) reimbursement of expenses incurred by the Partnership in connection with the Existing Hardware Maintenance Contracts; (b) payment to FAL of the fees payable to FAL under the Hardware Maintenance Sub-Contract; 23 26 (c) payment to PTA of the following: (i) in the first twelve months immediately following the Commencement Date - 100% of the remaining fees; (ii) in the twelve month period between the first and second anniversaries of the Commencement Date - 80% of the remaining fees; (d) all other fees earned in respect of the Existing Hardware Maintenance Contracts (being 20% of the remaining fees in the period referred to in clause 11.3(c)(ii) and all of the remaining fees after the expiration of that period) will be treated as revenue of the Partnership. 12. INSURANCE The Management Committee shall effect and maintain on behalf of the Partnership such insurances as are determined by it to be appropriate. All insurances effected for the Partnership will incorporate a provision that an insurer has no right of subrogation against any Partner and the Partners will be named to the extent of their respective shares on each policy of insurance. 13. TERM AND TERMINATION 13.1 Subject to clause 13.4, the Partnership shall have an initial term of 3 years which will be renewed automatically for further terms of three years each, unless a Partner gives notice to the other Partner within 90 days prior to the end of a term of its desire to terminate this Agreement on the expiration of the term. 13.2 Notwithstanding clause 13.1, but subject to clauses 13.4 and 15, this Agreement may be terminated upon the occurrence of any of the following events: (a) if a Partner fails to remedy a material default under this Agreement within 30 days after written notice from the other Partner requiring it to do so, or fails within that 30 day period to request the other Partner to attempt to resolve the dispute in accordance with clause 15, the non-defaulting party may elect by 90 days written notice to the other Partner to terminate this Agreement; (b) if an order is made or a resolution is passed for winding-up or dissolving without winding up or if liquidator or administrator or a receiver 24 27 or receiver and manager is appointed to either FPL, FAL or its parent company, Fujitsu Limited, on the one hand or PTA or PTC, the other party shall be entitled to terminate the Partnership by delivering written notice to the other Partner of its intention to do so; (c) there is a failure by the Management Committee to agree within 60 days on a substantive matter requiring unanimous approval, either party may elect by 90 days written notice to the other Partner to terminate this Agreement; (d) if the Partnership makes a loss in 4 out of any 6 consecutive quarters, either party may terminate the Partnership by notice in writing to the other party; (e) if there is a change in the ownership of, or of a controlling interest in PTA or PTC, or in FPL, or its parent corporation, then the other party may terminate the Partnership by notice in writing to the other party; (f) by agreement in writing between the parties. 13.3 In the event that the Partnership realises, in 3 consecutive financial quarters, financial results which are less than 75% of those contained in the approved Business Plan Forecast and PTA believes that such failure has occurred directly or indirectly as a result of any act or omission by or on behalf of FPL, FAL or any of its related bodies corporate (including, without limitation, competitive conduct by FAL or any related body corporate of FAL), an arbitrator shall be appointed pursuant to clause 16 to determine within 14 days of the date of such appointment whether PTA has reasonable grounds for that belief, and if he rules that it has, then PTA shall be entitled by written notice to FPL to immediately terminate this Agreement. 13.4 Any Partner who receives a notice of termination pursuant to clause 13.1, 13.2(c) or 13.2(d) ("the Recipient") will be entitled to request an arbitrator (appointed in accordance with clause 16) to determine if the Partner who issued such notice ("the Issuer") did so substantially for the purpose of damaging the interests of the Recipient or any of its related bodies corporate. The arbitrator will be instructed to make such determination within 14 days of the date of the arbitrator's appointment and each party's rights upon termination will be suspended until such time as the arbitrator makes such determination. If the Recipient is unable to demonstrate to the arbitrator's reasonable satisfaction that the issuer issued its notice of termination substantially for the purpose of damaging 25 28 the interests of the Recipient or any of its related bodies corporate, the termination will be treated as a valid termination of this Agreement and the terms of clause 14.4, 14.5 or 14.6 (as the case may be) will apply. If the Recipient is able to demonstrate to the reasonable satisfaction of the arbitrator that the Issuer issued its notice of termination substantially for the purpose of damaging the interests of the Recipient or any of its related bodies corporate, the Issuer's termination will be deemed to be null and void and the Recipient will be entitled, at any time within 14 days following the arbitrator's determination, to treat the Issuer as being in default and to terminate this Agreement immediately by written notice to the Issuer. 14. CONSEOUENCES OF TERMINATION 14.1 Upon termination of this Agreement, all rights and obligations conferred or imposed on the Partners by this Agreement will be cancelled and this Agreement thereafter will have no further force or effect except as to the following: (a) the parties shall do all things necessary to procure the payment of monies owed by the Partnership to third parties; (b) the parties shall do all things necessary to procure determination of final Partnership Accounts, which accounts shall be prepared in accordance with Australian GAAP; (c) the parties shall do all things necessary to procure the distribution of Partnership Assets pursuant to this clause 14; (d) the parties shall obtain the Final Valuation referred to in clause 14.7; and (e) the rights and obligations under clause 13, clause 17 and this clause 14. 14.2 Upon termination of this Agreement for any cause, PTA shall be solely entitled: (a) to offer employment to the employees of the Partnership and both FPL and FAL agree that they will not, except with PTA's consent, offer employment to or solicit any offer of employment from any employee of the Partnership; (b) to apply to the lessor of the premises occupied by the Partnership to have novated to it the lease of the premises; and 26 29 (c) to use the name "Pyramid Data Centre Systems'' and all names reasonably approximating the same. 14.3 If this Agreement terminates because either party exercises its right under clause 13.1 to not renew this Agreement or if this Agreement is terminated by either party pursuant to clauses 13.2 (c), (d), (e) or (f), then the Partnership Assets shall be distributed not in accordance with the respective Partners' Shares at the date of termination, but in accordance with the following priority order of distribution: (a) repayment in accordance with clause 14.1(a) of all monies owed by the Partnership to third parties; (b) repayment to the Partners (or any of their related bodies corporate) of all monies loaned to the Partnership by those Partners or any of their related bodies corporate (other than the FPL Loan); (c) distribution or repayment (as the case may be), in equal priority, of the FPL Loan, FPL's Capital Account balance and PTA's Capital Account balance (with both Capital Account balances being calculated as per the Partnership balance sheet prepared in accordance with Australian GAAP as at the date of termination). Such distribution or repayment will be made to the extent of any remaining Partnership Assets (if any, after the distributions required by clause 14.3(a) and (b) but subject to clause 14.3(d)) and per the Partnership balance sheet prepared in accordance with Australian GAAP as at the date of termination. To the extent that the remaining Partnership Assets calculated as per the Partnership balance sheet prepared in accordance with Australian GAAP as at the date of termination are less than the sum of the FPL Loan, the FPL Capital Account balance and the PTA Capital Account balance, then the remaining Assets will be distributed to the Partners in proportion to the respective balances of the FPL Loan, the FPL Capital Account and the PTA Capital Account as at the date of termination; (d) the intangible Partnership Assets (whether or not recorded in the Partnership balance sheet prepared in accordance with Australian GAAP) will not be distributed to either Partner under clause 14.3(a), (b) or (c). Instead, PTA will be entitled to purchase, and FPL will be obliged to sell, FPL's Share of the intangible Partnership Assets (including, without limitation, Existing Contracts and customer 27 30 contracts) at such price as may be agreed between the parties or, failing agreement, at the price calculated in accordance with clause 14.4. 14.4 If the parties are unable to agree upon the price referred to in clause 14.3(d) within 14 days of the date of termination of this Agreement, the parties agree that the price payable by PTA to FPL will be calculated in accordance with the following principles: (a) the value of the intangible Partnership Assets will be calculated in accordance with the formula contained in clause 14.7; (b) FPL's share of the value of the intangible Partnership Assets will be determined as at the date of termination on the assumption that its share grows in a linear fashion from 0% on the Commencement Date to 51% on the second anniversary of the Commencement Date; and (c) the price referred to in clause 14.3(d) will be FPL's share (as determined in accordance with clause 14.4(b)) of the value of the intangible Partnership Assets (as determined in accordance with clause 14.4(a)). 14.5 If PTA terminates this Agreement pursuant to clauses 13.2 (a), 13.2 (b), 13.3 or 13.4 the Partnership Assets will be distributed in accordance with clause 14.3 except that: (a) an arbitrator will be appointed and instructed to determine, having regard to the conduct of FPL or any entities related to FPL, the extent to which the purchase price for FPL's Share of the intangible Partnership Assets (determined in accordance with clause 14.4) should be discounted; and (b) to assist the arbitrator in making the determination referred to in sub-paragraph (a) above, the parties agree that the arbitrator should take the following factors into account: (i) it is the intention of the parties that the arbitrator must determine a discount on the purchase price and which will reduce the purchase price payable by PTA; (ii) because the Partnership is intended to replace the operations of PTA and will eliminate PTA's direct distribution capacity in Australia, PTA will be seriously damaged by FPL's breach; 28 31 (iii) the damage suffered by PTA because of the failure of the Partnership to generate anticipated revenues up to the date of termination of this Agreement to the extent that such failure resulted from any act or omission by or on behalf of FPL, FAL or any of their related bodies corporate which triggered termination of this Agreement; (iv) PTA's failure to receive further revenue which it could reasonably have expected the Partnership to generate during the term of this Agreement; (v) loss of momentum in the market; (vi) loss of the opportunity for PTA to sell products or services to the Partnership; and (vii) losses, expenses and inconvenience incurred by PTA in re-establishing its operations in Australia. 14.6 If FPL terminates this Agreement pursuant to clauses 13.2(a), 13.2(b) or 13.4, the Partnership Assets will be distributed in accordance with clause 14.3 except that: (a) an arbitrator will be appointed and instructed to determine, having regard to PTA's conduct, the premium which PTA must pay to FPL in order to purchase its Share of the intangible Partnership Assets (as calculated in accordance with clause 14.4); (b) to assist the arbitrator in making the determination referred to in sub-paragraph above, the parties agree that the arbitrator should take the following matters into account: (i) it is the intention of the parties that the arbitrator must determine a premium on the purchase price which will increase the purchase price payable by PTA; (ii) the damage suffered by FPL because of the failure of the Partnership to generate anticipated revenues up to the date of termination of this Agreement to the extent that such failure resulted from an act or omission by or on behalf of PTA, PTC or any of their related bodies corporate which triggered termination of this Agreement; 29 32 (iii) FPL's failure to receive further revenue which it could reasonably have expected the Partnership to generate during the term of this Agreement; and (iv) loss of the opportunity for FPL to sell products or services to the Partnership. 14.7 The Partners agree that the Partnership will obtain, within 30 days of the Commencement Date, an independent valuation of the Partnership as at the Commencement Date (the "Initial Valuation"). The Partners also agree that, using the same valuation criteria as the Initial Valuation, the Partnership will obtain an independent valuation of the Partnership as soon as reasonably practicable following termination of this Agreement (the "Final Valuation"). The valuations referred to in this clause will be obtained from a valuer mutually agreeable to both Partners and, failing such agreement, by a valuer selected by an arbitrator appointed in accordance with clause 16. The Partners agree that there is no transfer to the Partnership of any goodwill referable to the Australasian operations of PTA and that any value in the trading name of the Partnership inures to the benefit of PTC, the owner of the Pyramid trade mark. In calculating the value of the intangible Partnership Assets for the purpose of clause 14.4, the parties agree that the following formula will apply: A = (X - Y) + Z Where: A = the value of the intangible Partnership Assets as of the date of termination X = Final Valuation (and after deducting the amounts referred to in clause 14.3(c)) Y = either zero or Initial Valuation (and after deducting the amounts referred to in clause 14.3(c)), whichever is the greater Z = all profits allocable to PTA as of the second anniversary of the Commencement Date pursuant to clauses 11.1(a)(i) and 11.1(b)(i) less all profits allocable to FPL as of the second anniversary of the Commencement Date pursuant to clauses 11.1(a)(ii) and 11.1(b)(ii) PROVIDED THAT, in applying the formula, addition of the profits referred to as "Z" above will not be made unless and until the difference between the Final Valuation and the Initial Valuation exceeds $5,000,000. 30 33 15. DISPUTE RESOLUTION 15.1 The Partners agree that in the event of: (a) deadlock of the Management Committee in respect of any decision required to be taken by it; or (b) a dispute as to the existence of a material breach of the Agreement by a Partner, or the means of remedying that default, for the purposes of clause 13.2(a), the parties will exhaust the mechanisms for resolving such issues as provided by this clause 15, prior to taking any steps to terminate this Agreement or to exercise any rights against the other Partner in any Court. 15.2 Upon either of the occurrences referred to in clause 15.1, the Partners shall adopt the following procedure: (a) the Management Committee shall meet and dedicate their time and efforts to negotiate in good faith to attempt to resolve the matter in dispute; (b) if the Management Committee is unable through its discussions to reach an acceptable resolution of the matter in dispute within 15 days of the dispute arising, the Representatives of each Partner shall prepare within a further 3 business days: (i) a written statement of no longer than 5 pages summarising their understanding of the matter in dispute; (ii) a written statement of no longer than 5 pages summarising their proposal for resolution of the matter in dispute, these statements shall then be submitted to a single senior executive nominated by Pyramid Technology Corporation and a single senior executive nominated by FAL who will be vested with authority by each party to meet to discuss and to agree upon terms to resolve the dispute, and who shall meet together at a place and time to be agreed between them, but within 21 days of referral of the dispute to them, to attempt to resolve the dispute. (c) failing the resolution of the dispute in accordance with sub-clause (b), the parties must endeavour to settle the dispute by mediation administered by the Australian Commercial Disputes Centre ("ACDC") in accordance with its guidelines, subject only to any modifications or elections agreed between the Partners. 31 34 16. ARBITRATION The parties agree that in the event of an arbitrator being required to resolve any matter referred to in clauses 13.3, 13.4, 14.5, 14.6 or 14.7, the following provisions shall apply: (a) an independent chartered accountant of at least 10 years standing but who has not previously acted for either Partner or any related corporation of a Partner, shall be appointed by agreement of the parties, or failing agreement within 7 days shall be appointed by the President for the time being of the Institute of Chartered Accountants within 7 days after request being made; (b) the arbitration shall take place in Sydney; (c) the parties agree to request the appointed arbitrator to make his determination as soon as is practicable; (d) the parties will use their best endeavours to do everything necessary to assist the appointed arbitrator to make his or her determination; (e) a decision of the appointed arbitrator shall be final and binding upon the Partners; and (f) the cost of arbitration shall be borne equally between the parties provided that in the case of arbitration in relation to the matters referred to in clause 13.4, the Recipient (as defined in that clause) will bear the costs of such arbitration if the Recipient is unable to demonstrate to the reasonable satisfaction of the arbitrator that the Issuer (as defined in that clause) exercised its right to issue a notice of termination substantially for the purpose of damaging the interests of the Recipient or any of its related bodies corporate. 17. INDEMNITIES 17.1 It is acknowledged and agreed by the Partners that, subject to clause 17.2, all costs, liabilities and expenses incurred in relation to the Partnership are to be borne by them in proportion to their respective Shares at the time the same are incurred, and accordingly each Partner hereby covenants with the other Partner to indemnify and keep indemnified such other Partner against all such costs, liabilities and expenses to the extent that the same are incurred otherwise than in the said proportion. 32 35 17.2 A Partner will not be obliged to indemnify the other Partner in respect of any cost, liability or expense incurred by such other Partner as a result of such other's negligence or wilful act or omission or any material breach or default of such other under this Agreement. 18. CONFIDENTIALITY 18.1 The Partners agree that: (a) the Management is authorised to make routine public announcements regarding the Partnership from time to time to the extent that such announcements are required, in the ordinary course of business, to implement and carry out the Partnership Objectives; and (b) other public announcements may be made by the Partnership from time to time on the basis of texts mutually agreed by the Partners. 18.2 All information obtained by each Partner under this Agreement, or during the negotiations preceding it, is confidential and may not be disclosed by the Partner to any person except: (a) to those employees, legal advisors, auditors and other consultants of the Partner or a Related Body Corporate of the Partner requiring the information for the purpose of this Agreement PROVIDED THAT before disclosure of the information such persons (other than legal advisors or auditors) agree to be bound to and abide by the confidentiality provisions as set out in this clause; (b) if the information is, at the date of this Agreement is entered into, lawfully in the possession of the recipient of the information through sources other than the party who supplied the information; (c) if required by law or a stock exchange; (d) if strictly and necessarily required in connection with legal Proceedings relating to this Agreement or the Management Agreement; (e) if the information is generally and publicly available other than as a result of breach of confidence by the person receiving the information; (f) to any financiers or prospective financier (or any adviser thereto) of a Partner provided such financier or prospective financier will have agreed previously with the relevant Partner to keep the information confidential; 33 36 (g) to any purchaser or potential purchaser of a whole or any part of a Share of a Partner provided such purchaser or potential purchaser or selling agent will have agreed previously with the relevant Partner to keep the said information confidential; or 18.3 A Partner requiring or wishing to disclose information in accordance with clause 15.1(c) will notify the other Partner of the proposed disclosure as far in advance as is reasonably possible. 19. FORCE MAJEURE 19.1 Subject to clause 19.3, where a party is unable, wholly or in part, by reason of force majeure to carry out any of its obligations under this Agreement and that party: (a) gives the other party prompt notice of that force majeure with reasonably full particulars thereof and, insofar as is known, the probable extent to which it will be unable to perform or be delayed in performing the obligation; and (b) uses all possible diligence to remove that force majeure as quickly as possible; that obligation is suspended so far as it is effective by force majeure during the continuance thereof. 19.2 If after a period of one (1) month the force majeure has not ceased, the parties will meet in good faith to discuss the situation and endeavour to achieve a mutually satisfactory resolution to the problem. 19.3 An obligation to pay money is never excused by force majeure. 19.4 The requirement that any force majeure is to be removed with all possible diligence will not require the settlement of strikes, lock-outs or other labour disputes or claims or demands by any government on terms contrary to the wishes of the party affected. 19.5 In this agreement "force majeure' means any act of God, strike, lock-out or other interference with work, war declared or undeclared, black-outs, disturbance, lightning, fire, earthquake, storm, flood, explosion, government or quasi-governmental restraint, expropriation, prohibition, intervention, direction or embargo, unavailability or delay in availability of equipment or transport, inability or delay in obtaining governmental or quasi-government approvals, consents, permits, licences, authorities or allocations, or any other cause whether of the kind specifically enumerated above or not which is not 34 37 reasonably within the control of the party affected. 20. ASSIGNMENT AND ENCUMBRANCES 20.1 A Partner will not, without the prior written consent of the other Partner, sell, assign, transfer, mortgage, pledge, charge, encumber or otherwise dispose of or create or suffer to exist a lien, charge or encumbrance over or trust in respect of the whole or any fractional part of its Share, whether by act or deed or by merger or consolidation or reconstruction or by operation of the law. 21. GOVERNING LAW, JURISDICTION AND SERVICE OF PROCESS 21.1 This agreement and the transactions contemplated by this agreement are governed by the law in force in the State of New South Wales, Australia. 21.2 Each party irrevocably and unconditionally submits to the non-exclusive jurisdiction of the courts of the State of New South Wales and courts of appeal from them for determining any dispute concerning this agreement or the transactions contemplated by this agreement. Each party waives any right it has to object to any action being brought in those courts including, but not limited to, claiming that the action has been brought in an inconvenient forum or that those courts do not have jurisdiction. 21.3 Without preventing any other mode of service, any document in an action (including, but not limited to, any writ of summons or other originating process or any third or other party notice) may be served on any party by being delivered to or left for that party at its address for service of notices under clause 22. 22. NOTICES 22.1 A notice, approval, content or other communication in connection with this agreement: (a) must be in writing; and (b) must be left at the address of the addressee, or sent by pre-paid ordinary post (air mail if posted or or from a place outside Australia) to the address of the addressee or sent by facsimile to the facsimile number of the addressee which is specified in this clause or if the addressee notifies another address or facsimile number then to that address or facsimile number. The address and facsimile number of each party is: 35 38 PTA: Attention: Mr David Hall Address: 173 Pacific Highway NORTH SYDNEY NSW 2060 Facsimile: 02 925 2091 PTC: Attention: Mr Richard Lussier Address: 3860 North First Street SAN JOSE CA 95134-1702 Facsimile: 408 428 7330 FPL: Attention: Mr Nori Karasuda Address: 475 Pacific Highway CHATSWOOD NSW 2067 Facsimile: 02 413 2871 FAL: Attention: Mr Nori Karasuda Address: 475 Pacific Highway CHATSWOOD NSW 2067 Facsimile: 02 413 2871 22.2 A notice, approval, consent or other communication takes effect from the time it is received. 22.3 A letter or facsimile is taken to be received: (a) in the case of a posted letter, on the third (seventh if posted to or from a place outside Australia) day after posting; and (b) in the case of a facsimile, on production of a transmission report by the machine by which the facsimile was sent which indicates that the facsimile was sent in its entirety to the facsimile number of the recipient. 23. GUARANTEE AND INDEMNITY 23.1 PTC and FAL each agree to be bound by the obligations imposed upon the "Guarantor" in clauses 23.2 to 23.16 and to otherwise comply with, and be bound by, the procedures and provisions contained in those clauses. In the case of the obligations assumed by PTC as "Guarantor" in clauses 23.2 to 23.16, PTC agrees that the "Beneficiary" shall mean FPL and the "Subsidiary" shall mean PTA. In the case of 36 39 the obligations assumed by FAL as "Guarantor" in clauses 23.2 to 23.16, FAL agrees that "Beneficiary" shall mean PTA and "Subsidiary" shall mean FPL. 23.2 The Guarantor agrees that it has entered into this Agreement for valuable consideration including, without limitation, the Beneficiary, at the request of the Guarantor, entering into this Agreement. 23.3 The Guarantor unconditionally and irrevocably guarantees to the Beneficiary the due and punctual performance and observance by the Subsidiary of all the obligations of the Subsidiary under this Agreement, including without limitation the payment by the Subsidiary of all monies which may become payable by the Subsidiary under this Agreement (the "Guaranteed Obligations"). 23.4 If the Subsidiary defaults in the due and punctual performance, payment or satisfaction of the Guaranteed obligations, the Guarantor must perform, pay or satisfy the Guaranteed Obligations immediately upon demand. The Beneficiary may make such a demand on the Guarantor from time to time and whether or not demand has been made on the Subsidiary. 23.5 The Guarantor unconditionally and irrevocably indemnifies the Beneficiary from and against all actions, suits, claims, demands, obligations, liabilities, losses, damages, arising directly or indirectly from, and any costs, charges and expenses incurred by the Beneficiary if, the whole or any part of the Guaranteed Obligations: (a) are irrecoverable or have never been recoverable by the Beneficiary from the Subsidiary or from the Guarantor as surety; or (b) cannot be enforced against the Subsidiary or against the Guarantor as surety; or (c) are not paid to the Beneficiary for any other reason in any case for any reason including, without limitation, by reason of: (d) any legal limitation, disability, incapacity, lack of power or lack of authority of or affecting any person; (e) any of the transactions relating to the Guaranteed Obligations being void, voidable or unenforceable (whether or not any of the relevant matters or facts have been or ought to have been within the knowledge of the Beneficiary); or (f) any other fact, matter or thing. 37 40 23.6 The Guarantor agrees that the indemnity contained in clause 23.5 is a separate and distinct obligation and will not be restrictively interpreted by reason of the guarantee set out in clause 23.3. The Guarantor agrees that its liability under clause 23.3 is that of principal debtor. 23.7 The guarantee and indemnity provided by the Guarantor is a continuing guarantee and indemnity and will remain in full force and effect until the whole of the Guaranteed Obligations have been satisfied or paid in full. 23.8 All moneys payable by the Guarantor under this clause 23 must be paid in full without set-off or counterclaim and free and clear of any present or future taxes, deduction or withholding of any kind. 23.9 The Guarantor's obligations as guarantor and indemnifier under this clause 23 are absolute and unconditional and will not be prejudiced, released, discharged or otherwise affected by any one or more of the following (whether occurring with or without the consent of or notice to any person): (a) any release, failure or agreement not to sue, discharge, relinquishment, waiver, replacement, amendment, variation, increase, decrease or compounding of the obligations of the Subsidiary under this Agreement (or any other agreement); (b) any delay, laches, acquiescence, mistake, act or omission on the part of the Beneficiary or any other person; (c) any non-compliance by the Beneficiary or any other person with the provisions of any law or any non-compliance by the Beneficiary or any other person with any provisions of any agreement with the Subsidiary or the Guarantor relating to any Guaranteed Obligations or any omission or negligence by the Beneficiary or any other person in relation to the Subsidiary or the Guarantor; (d) any law or judgment staying or suspending all or any of the rights of the Beneficiary against the Subsidiary, the Guarantor, or any other person (by operation of law or otherwise); (e) the death or incapacity of or any change in the legal capacity of the Subsidiary, the Guarantor or any other person; (f) the insolvency, bankruptcy, winding up, receivership, appointment of an administrator or controller, reconstruction, reorganisation or amalgamation of the Subsidiary, the Guarantor or any other person; 38 41 (g) the Subsidiary, the Guarantor or any other person entering into any scheme of arrangement, composition, assignment for the benefit of, or other arrangement with, creditors or the receipt by the Beneficiary of any moneys under any such scheme, composition, assignment or other arrangement thereunder or any reduction of capital in or voluntary administration of the Subsidiary, the Guarantor or any other person; (h) any setting aside or avoidance of any payment by the Subsidiary or the Guarantor for any reason; (i) any other fact, matter, circumstance or thing which, but for this provision, might operate to prejudice, release, discharge or otherwise affect the Guarantor's obligations under this Agreement. 23.10 The Beneficiary will not be required to proceed against the Subsidiary or exhaust any remedies it may have against the Subsidiary, but will be entitled to demand and receive payment from the Guarantor when any payment is due under this instrument. 23.11 The Guarantor agrees that it has not executed this Agreement as a result of, by reason of, or in reliance upon, any representation or information of any kind made or given by or on behalf of the Beneficiary. 23.12 The Guarantor waives in favour of the Beneficiary all rights (whether at law or otherwise) against the Beneficiary, the Subsidiary and any other person and any property so far as necessary to give effect to this clause 23. 23.13 The Guarantor must not, whether or not the Guaranteed Obligations have been performed or paid or satisfied in full, call on the Beneficiary to sue or take proceedings against the Subsidiary or raise a defence, set-off or counterclaim of itself or of the Subsidiary in reduction of its liability under this clause 23. 23.14 Unless and until the whole of the Guaranteed Obligations have been performed or paid or satisfied in full, the Guarantor must not make any claim for any sum paid under this clause 23 or enforce any rights which it may have (whether by way of defence, indemnity, set-off, counterclaim, contribution, subrogation or otherwise) against the Subsidiary or its property. 23.15 Unless and until the whole of the Guaranteed Obligations have been performed or paid or satisfied in full, upon the winding up, bankruptcy, receivership or appointment of an administrator or controller of the Subsidiary (or any other person) or upon the Subsidiary (or such other person) 39 42 entering into any scheme of arrangement, composition, assignment or arrangement with its creditors or members: (a) the Guarantor must not prove or claim in competition to the Beneficiary so as to diminish any distribution, dividend or payment which, but for such proof or claim, the Beneficiary would be entitled to receive under that claim and the Guarantor must not claim or receive the benefit of any distribution, dividend or payment arising out of or relating to it; and (b) the Beneficiary may prove or claim for payment or satisfaction of the Guaranteed Obligations and payments received by the Beneficiary from the Guarantor under this clause 23 will not affect the Beneficiary's right to prove or claim for the full amount of the Guaranteed Obligations. 23.16 Upon the winding up, bankruptcy, receivership or appointment of an administrator or controller of the Subsidiary (or any other person) or upon the Subsidiary (or such other person) entering into any scheme of arrangement, composition, assignment or arrangement with its creditors or members, the Guarantor authorises the Beneficiary (without being obliged to do so) to do any or all of the following: (a) prove, in the name of the Guarantor, for all moneys for which the Subsidiary is liable to the Guarantor, including any moneys which the Guarantor has paid under this clause 23; (b) retain and carry to a separate account and appropriate at the Beneficiary's discretion any distribution, dividend or payment received until the Guaranteed Obligations have been paid or satisfied in full; (c) do anything and exercise all rights which the Guarantor could lawfully do or exercise in such proceedings and the Guarantor appoints the Beneficiary to be its attorney for the purposes set out above. 24. MISCELLANEOUS 24.1 Waiver and Variation A provision of or a right created under this agreement may not be: (a) waived except in writing signed by the party granting the waiver; or (b) varied except in writing signed by the parties. 40 43 24.2 Survival of Indemnities Each indemnity in this agreement is a continuing obligation, separate and independent from other obligations of the parties and survives termination of this agreement. 24.3 Enforcement of Indemnities It is not necessary for a party to incur expense or make payment before enforcing a right of indemnity conferred by this agreement. 24.4 Further Assurances Each party agrees, at its own expense, on the request of the other parties, to do everything reasonably necessary to give effect to this agreement and the transactions contemplated by it, including, but not limited to, the execution of documents. 24.5 Severability If the whole or any part of a provision of this agreement is void, unenforceable or illegal in a jurisdiction it is severed for that jurisdiction. The remainder of this agreement has full force and effect and the validity and enforceability of that provision in any other jurisdiction is not affected. This clause has no effect if the severance alters the basic nature of this agreement or is contrary to public policy. 24.6 Stamp Duty Each Party must bear, and is solely responsible for, all stamp duty which that Party is liable to pay in relation to the establishment of the Partnership. 41 44 EXECUTED as an agreement. SIGNED by PYRAMID TECHNOLOGY ) CORPORATION PTY LIMITED ) by ) its duly authorised ) representative in the ) presence of: ) ------------------------------------ Signature of duly authorised representative - - ---------------------------- Signature of Witness - - ---------------------------- Name of Witness SIGNED by PYRAMID TECHNOLOGY ) CORPORATION ) by ) its duly authorised ) representative in the ) presence of: ) ------------------------------------ Signature of duly authorised representative - - ---------------------------- Signature of Witness - - ---------------------------- Name of Witness SIGNED by FUJITSU DATA CENTRE ) SYSTEMS PTY LIMITED ) by ) its duly authorised ) representative in the ) presence of: ) ------------------------------------ Signature of duly authorised representative - - ---------------------------- Signature of Witness T.A. RYAN - - ---------------------------- Name of Witness 42 45 SIGNED by FUJITSU AUSTRALIA ) LIMITED ) by ) its duly authorised ) representative in the ) presence of: ) ----------------------------------------- Signature of duly authorised representative - - ------------------------- Signature of Witness T.A. RYAN - - ------------------------- Name of Witness 43 -----END PRIVACY-ENHANCED MESSAGE-----