-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WZU3RGvojjCx6LnY6ne/TkUlgzjtll7N2P2kTL/rOeVX4I2nbrGaAyJ+1SoB1vPV famWbFdtFXgwJ8FX9ecEbw== 0001035704-01-000309.txt : 20010409 0001035704-01-000309.hdr.sgml : 20010409 ACCESSION NUMBER: 0001035704-01-000309 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLANETCAD INC CENTRAL INDEX KEY: 0000852437 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 841035353 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-28842 FILM NUMBER: 1591608 BUSINESS ADDRESS: STREET 1: 2425 55TH STREET STREET 2: STE 100 CITY: BOULDER STATE: CO ZIP: 80301 BUSINESS PHONE: 3034490649 MAIL ADDRESS: STREET 1: 2425 55TH STREET STREET 2: STE 100 CITY: BOULDER STATE: CO ZIP: 80301 FORMER COMPANY: FORMER CONFORMED NAME: SPATIAL TECHNOLOGY INC DATE OF NAME CHANGE: 19960708 10KSB 1 d85481e10ksb.txt FORM 10-K FOR PE DECEMBER 31, 2000 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-KSB ( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period _____ to _____. COMMISSION FILE NUMBER 0-288-42 PLANETCAD INC. (Name of Small Business Issuer in Its Charter) DELAWARE 84-1035353 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 2520 55TH STREET, SUITE 200, BOULDER, COLORADO 80301 (Address of principal executive offices, including zip code) (303) 209-9100 (Issuer's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered ---------------------------- ------------------------------------------ COMMON STOCK, $.01 PAR VALUE AMERICAN STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE Check whether the Issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such 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 ---- --- Check if no disclosure of delinquent filers in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to be the best of the Issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] The Issuer's revenues for its most recent fiscal year were: $2,100,000. The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity was $9,320,000 as of February 2, 2001.* The number of shares of common stock outstanding was 12,402,238 as of February 2, 2001. Transitional Small Business Disclosure Format. Yes No X ----- ----- DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III (Items 9, 10, 11 and 12) is incorporated by reference to portions of the Issuer's definitive proxy statement for the 2001 Annual Meeting of Stockholders to be held on May 7, 2001. - ---------- * Excludes 4,297,511 shares of Common Stock held by directors and officers and stockholders whose beneficial ownership exceeds five percent of the shares outstanding at February 2, 2001. Exclusion of shares held by any person should not be construed to indicate that such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the Issuer, or that such person is controlled by or under common control with the Issuer. 2 PLANETCAD INC. ANNUAL REPORT ON FORM 10-KSB TABLE OF CONTENTS
PAGE ---- PART I Item 1 Description of Business.......................................................................... 1 Item 2 Description of Property.......................................................................... 9 Item 3 Legal Proceedings................................................................................ 9 Item 4 Submission of Matters to a Vote of Security Holders.............................................. 9 PART II Item 5 Market for Common Equity and Related Stockholder Matters......................................... 11 Item 6 Management's Discussion and Analysis of Financial Condition and Results of Operations............ 12 Item 7 Financial Statements............................................................................. 17 Item 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures............ 31 PART III Item 9 Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act................................................ 31 Item 10 Executive Compensation........................................................................... 31 Item 11 Security Ownership of Certain Beneficial Owners and Management................................... 31 Item 12 Certain Relationships and Related Transactions................................................... 31 Item 13 Exhibits, Lists and Reports on Form 8-K.......................................................... 32 Signatures....................................................................................... 35 The page numbers in the Table of Contents reflect actual page numbers, not EDGAR page tag numbers. PlanetCAD Inc. and the names of all other products and services of PlanetCAD used herein are trademarks or registered trademarks of PlanetCAD Inc. All other product and service names used are trademarks or registered trademarks of their respective owners.
i 3 This Annual Report on Form 10-KSB and the documents incorporated herein by reference contain forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933) that have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations, estimates, and projections about our industry, management beliefs, and certain assumptions made by our management. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," variations of such words, and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict; therefore, actual results may differ materially from those expressed or forecasted in any such forward-looking statements. Such risks and uncertainties include, but are not limited to, those set forth herein under "Factors Affecting Our Business, Operating Results, Financial Condition and Common Stock" on pages 5 through 8. Unless required by law, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. However, you should carefully review the risk factors set forth in other reports and documents that we file from time to time with the Securities and Exchange Commission, particularly the Quarterly Reports on Form 10-QSB and any Current Reports on Form 8-K. PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL PlanetCAD Inc., formerly named Spatial Technology Inc., was incorporated in Delaware on July 7, 1986. We develop, market and support engineering and interoperability software solutions for the manufacturing supply chain. We operate predominantly in the manufacturing industry with special focus on the computer-aided design (CAD), manufacturing (CAM) and engineering (CAE) markets. In July 2000, we acquired certain assets and liabilities of Prescient Technologies, Inc. and with it over 100 major manufacturing customers in the automotive, aerospace, electronics and other discrete manufacturing markets worldwide. Prescient's product line, PrescientQA(TM), is an integrated suite of engineering quality tools that allows users, managers and key executives to quantitatively assess and improve the quality of their product models. In November 2000, we sold our component software division to a subsidiary of Dassault Systemes Corp. in a cash transaction for approximately $25 million, after giving effect to certain adjustments contemplated by the purchase agreement, and amended our certificate of incorporation to change our name from "Spatial Technology Inc." to "PlanetCAD Inc." The sale of our component software division enabled us to focus our efforts entirely on our PlanetCAD division with the goal of addressing problems that affect data quality and interoperability in manufacturing. In the first quarter of 2001, we made a strategic decision, for a period of time, to use our Internet-based services as marketing tools to create name recognition in our market niche and to promote our enterprise solutions, rather than to generate revenues directly from our Internet services. Because we had recently sold our component software division, which had been our most widely recognized division, we placed more emphasis on increasing our presence in our targeted market. This strategy allowed us to concentrate on our enterprise solutions. Our enterprise solutions are software products that are installed behind a corporate firewall to help manage transactions and interactive business processes by speeding engineering data flows between design and manufacturing engineers and their suppliers. Key features of our enterprise solutions include: o engineering data quality tools that allow engineers, managers and key executives to quantitatively assess and improve the quality of their product model data; o translation and healing of 3D models inside a corporate Intranet; and o a full featured viewing solution enabling a user to view, mark-up, measure and convert file formats without requiring the native applications. Our products include software solutions for data interoperability, data quality management, visualization and collaboration, and process automation. We focus on providing applications to enhance business practice in the following areas: o improved time to market; o lower manufacturing costs; and o higher quality products. 1 4 We maintain our corporate headquarters in Boulder, Colorado, from which all executive, marketing, finance and administrative functions, and most research and development functions, are executed. We also have an office in Westborough, Massachusetts where customer service and some research and development functions are located. We have one wholly owned subsidiary, PlanetCAD Limited (United Kingdom), which assists in sales and licensing of our products internationally. PRODUCTS AND TECHNOLOGY General We provide software tools and applications that enhance the value of engineering data in the manufacturing design and procurement supply chain by enabling Quality Data Management(TM) (QDM). Our QDM products enhance engineering processes by addressing data quality and downstream data interoperability. This includes, but is not limited to, CAD data translation and 3D model healing to enable communication of engineering data with varying formats and precision, and data quality assurance tools that improve design quality and reduce or even eliminate iterations. Our java-based technology and products enable efficient engineering information exchange and integration for professional manufacturing and design engineers worldwide. Engineers and managers can benefit from lower costs of production and accelerated introduction of products to market. Responding to changes in the marketplace, we have increased our focus on our core product lines while continuing to assess the future development and business viability of our online engineering application services. We will continue operating the 3Dshare.com(TM) website, but plan to use it primarily as a marketing and sales tool to generate enterprise sales of 3Dshare. Our enterprise solutions include PrescientQA, 3Dshare, and IntraVISION. In addition, we offer professional services that help implement a transparent integration of Quality Data Management products with existing manufacturing systems in corporate product design and production processes. PrescientQA Our PrescientQA product line is an integrated suite of engineering quality tools that provides quality software solutions for manufacturers in the aerospace, automotive, electronics and other discrete manufacturing industries. These enterprise-based products detect, assess, correct and prevent product development problems caused by inaccurate, incomplete or inconsistent design modeling practices. The core components of the Prescient QA suite include: o Drive-QA(TM) - Drive-QA is a management tool that acquires, summarizes, analyzes, reports and depicts engineering quality metrics to determine the health of an engineering organization and the effectiveness of its design process. It provides the critical quality measurement data that a company can use to improve the product development process, and institute training, standards reviews, or other corrective measures to solve costly and time-consuming quality errors. o Design-QA(R) - Design-QA detects, assesses, corrects and prevents product development problems caused by inaccurate, incomplete or inconsistent design modeling practices. o Geometry-QA(TM) - Geometry-QA reduces the number of iterations required to bring new products to market by identifying and eliminating geometric problems that hinder data exchange with suppliers and internal customers and impact the manufacturability of the end product. o Certify-QA(TM) - Certify-QA ensures high quality models are shared throughout the organization. It can either analyze CAD data within the Product Data Management (PDM) system to report substandard models, or actively prevent poor models from being submitted to the system. o AuditQA(TM) - Audit-QA is a short-term consulting service to help companies identify quality problems affecting the organization and establish an economic return-on-investment and implementation plan for deploying quality tools in the engineering process. Our PrescientQA suite provides quality solutions that work in many different design environments and interacts with and obtains design information from leading engineering design systems, including CATIA(R) from Dassault, Pro/ENGINEER(R) from PTC, and Unigraphics(R) from UGS. To leverage the best quality code and support for these design systems, we seek to maintain close and high-level relationships with each of these developers. 2 5 3Dshare Enterprise Our 3Dshare enterprise product provides the functions of CAD/CAM/CAE translation, repair and healing of 3D models. This product provides engineers with a cost-effective solution for enhancing translated models, making them more usable in multiple engineering processes, including design, analysis and manufacturing. With 3Dshare, manufacturers can reduce the difficult, time-consuming task of manually fixing errors found in translated models, resulting in improved time-to-market, reduced costs, and higher quality products. IntraVISION(R) Our IntraVISION product provides users with a single tool to access various forms of product data (legacy information, plot files, documents and CAD models) produced from a variety of different applications, enabling them to share, communicate and review data used in the creation, support and maintenance of manufactured products. IntraVISION preserves the intelligence found in the native CAD/CAM/CAE file. Supporting over 300 file formats, IntraVISION provides users the ability to view, measure, mark-up and manipulate the accurate data of original designs and concurrent engineering processes without the native applications. IntraVISION supports all major CAD formats, including ACIS(R) SAT(R), AutoCAD, CATIA(R), IGES, Pro/ENGINEER(R) (Pro/E), STEP, STL, VDA-FS and VRML. IntraVISION's robust direct format support preserves the intelligence of native CAD/CAM/CAE files, enabling the user to work with accurate, original design data and concurrent engineering processes. In this way, IntraVISION preserves high-quality data for down-stream systems, suppliers, and business partners, without the errors that typically come with conversion to a proprietary format. DEVELOPMENT CONSULTING SERVICES We also provide consulting services to our customers to help them integrate our products into their enterprise or customize our products to address their unique requirements. We believe that providing our customers with this high level of service will help retain and attract new business and differentiate us from our competitors. CUSTOMERS Our customers are typically from the automotive, aerospace, electronics and other discrete manufacturing markets worldwide and they use our Quality Data Management solutions to access, exchange and share product data throughout their engineering and manufacturing processes to reduce their costs of innovation and product development. Many customers are Fortune 1000 manufacturers who manage the production process through a wide network of suppliers needing access to engineering data rapidly and without manual intervention. Significant customers include Lockheed Martin Corporation, Heidelberg Americas, Inc., Silicon Graphics, Inc., Black & Decker, Freightliner Trucks, Boeing Helicopter, Boeing Rocketdyne, Gulfstream Aircraft and Sandia National Laboratories. While one customer accounted for 13% of our sales for 2000, we are not dependent on any one major customer and no customer accounted for more than 10% of our sales during 2000. RESEARCH AND PRODUCT DEVELOPMENT We believe that our continued growth will depend in large part on our ability to maintain and enhance our current products, develop new products and maintain technological competitiveness. We have built a development group with specialized industry-specific development techniques in advanced mathematics and C++ programming. During 1999 and 2000, our research and development expenses were $1.0 million, and $6.3 million, respectively. We augment our internal development capabilities through a network of development partners who have complementary programming expertise. Depending on the product involved, we may either own, co-own or license the technology we market and distribute. For many products, we have exclusive rights to market and distribute the technology. We utilize development partners to reduce our research and development expenses and to obtain the expertise of skilled programmers who are not our employees. SALES, MARKETING AND DISTRIBUTION We sell our software products through our direct and indirect worldwide sales organization. As of December 31, 2000, our direct sales force was located in offices in North America and Europe. Application specialists provide support to prospective customers on product information and deployment options to compliment our direct sales force. Our pre-sales support is comprised of four employees. 3 6 We primarily target our marketing efforts at senior executive and engineering management. Our marketing efforts are designed to generate new sales opportunities for our various products and create brand awareness. We engaged in numerous marketing activities in 2000, including online and offline advertising, direct e-mail campaigns, participation in trade shows and public relations. CUSTOMER SERVICE AND SUPPORT We believe that customer service and support is critical to the success of our products. Customer phone calls or e-mails are answered and managed by our support professionals who review customer communications with the appropriate development group and coordinate the response to the customer. Our response time varies depending upon the complexity of the question or issue at hand, but we generally respond within 24 hours. As part of our licensing arrangements for all products, we offer maintenance services that include technical updates and product support. To date, a majority of our customers have purchased these maintenance services, which we offer on a renewable basis for an annual fee. These services allow our customers full access to the products they have licensed, including all new releases, telephone support and other support required to effectively utilize our products. COMPETITION The markets for our products are highly competitive, subject to rapid change and characterized by constant demand for new product features and pressure to accelerate the release of new products and product enhancements and to reduce prices. We face potential competition on several fronts, including both larger mechanical engineering software companies and smaller start-ups. Depending on the product, our competitors include INCAT Systems, Inc., Parametric Technology Corporation, TransCAT, International TechneGroup Incorporated, and Theorem Solutions, Inc. A number of other large companies compete with us indirectly because they provide similar products to our customers, or potential customers, bundled with the purchase of other products. INTELLECTUAL PROPERTY We regard our technology as proprietary and we rely heavily on a combination of copyright, trademark and trade secret laws, employee and third party nondisclosure agreements, and other intellectual property protection methods to protect our products and technology. Currently, we do not have any patents with respect to our technology. Existing copyright laws afford only limited protection, and it may be possible for unauthorized third parties to copy our products or to reverse engineer or obtain and use information that we regard as proprietary. Because we license portions of our technology and also resell certain component extensions of third party software developers to unrelated third parties, it is difficult to monitor what those third parties do with the licensed or sold property. While we are not aware that any of our products infringe upon the proprietary rights of any third parties, it is possible that third parties will claim infringement by us with respect to current or future products. We expect that we could increasingly be subject to such claims as the number of products and competitors in the enterprise solutions and 3D modeling software markets grow and the functionality of such products overlap with other industry segments. EMPLOYEES As of December 31, 2000, we had 69 full-time employees, 44 of whom were engaged in product development, quality assurance and technical support, 14 of whom were engaged in sales and marketing and 11 of whom were engaged in administration. Our employees are not subject to any collective bargaining agreements, and we believe our relations with our employees are good. 4 7 FACTORS AFFECTING OUR BUSINESS, OPERATING RESULTS, FINANCIAL CONDITION AND COMMON STOCK In addition to other information contained in this Annual Report on Form 10-KSB, and in the documents incorporated by reference herein, the following risk factors should be considered carefully in evaluating PlanetCAD and our business because such factors currently have a significant impact, or may have a significant impact, on the future of our business, operating results or financial condition, and the market for our common stock. WE ARE IMPLEMENTING A NEW AND UNPROVEN BUSINESS MODEL Our business model is new and unproven and may never be successful. The success of the business plan depends on a number of factors. These factors include: o competition from other 3D software developers, some of which are significantly larger or have significantly greater financial and marketing resources than PlanetCAD; o our ability to differentiate our product offerings from those of our competitors; o acceptance by consumers of 3D modeling products as a replacement or supplement to the traditional use of custom developed or licensed software; and o our ability to implement new and additional services useful to the engineering software market. We will need to develop new products and enhance existing products, services and software that stimulate and satisfy customer demand. If we fail to achieve these objectives, our business may not be viable. End-users may fail to adopt 3D modeling application services for a number of reasons, including: o lack of awareness of 3D modeling quality and other manufacturing industry-related applications and services; o limited access to 3D modeling, quality and other manufacturing industry-related applications and services; o the look and feel of 3D modeling, quality and other manufacturing industry-related applications and services; or o actual or perceived limitations in selection and availability of 3D modeling, quality and other manufacturing industry-related applications and services. WE HAVE A LIMITED OPERATING HISTORY The operations of our PlanetCAD division began in June 1999, and we launched our first application service in November of that year. In November 2000 we sold our component software division, the division around which we were founded, to Spatial Corp., a wholly owned subsidiary of Dassault. The limited history of our PlanetCAD division operations makes it difficult to evaluate our business and prospects. Our prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies attempting to use technology to change long-established businesses and consumer behavior. These risks and uncertainties are discussed throughout this section. If we fail to address these risks and uncertainties, we may be unable to grow our business, increase our revenue or become profitable. WE HAVE A HISTORY OF LOSSES AND EXPECT LOSSES TO CONTINUE FOR THE FORESEEABLE FUTURE As of December 31, 2000, we had an accumulated deficit of $18.8 million. On a stand-alone basis, our PlanetCAD division experienced operating losses in each quarterly period since its inception. We expect to continue to incur net losses for the foreseeable future because our expected operating expenses associated with capital expenditures and marketing will increase significantly during the next several years as we attempt to grow our business. With increased expenses, we will need to generate significant additional revenue to achieve profitability. As a result, we may never become profitable. Even if we do achieve profitability in any period, we may not be able to sustain or increase profitability on a quarterly or an annual basis. 5 8 COMPETITION IN OUR INDUSTRY IS INTENSE The markets for our products and services are highly competitive, rapidly changing and subject to constant technological innovation. Participants in these markets face constant pressure to accelerate the release of new products, enhance existing products, introduce new product features and reduce prices. Many of our competitors or potential competitors have significantly greater financial, managerial, technical and marketing resources than we do. Actions by competitors that could materially adversely affect our business, financial condition and results of operations include: o a reduction in prices for their products or services; o increased promotion; o accelerated introduction of, or the announcement of, new or enhanced products, services or features; o acquisitions of software applications or technologies from third parties; or o product or service giveaways or bundling. In addition, our present and future competitors may be able to develop comparable or superior products or respond more quickly to new technologies or evolving standards. Accordingly, we may be unable to consistently compete effectively in our markets, competition might intensify or future competition may develop, all of which could materially adversely affect our business, financial condition, results of operations or market for our common stock. OUR PRODUCTS MAY CONTAIN UNDETECTED ERRORS Our business depends on complex computer software, both internally developed and licensed from third parties. Complex software often contains defects, particularly when first introduced or when new versions are released. Although we conduct extensive testing, we may not discover software defects that affect our new or current products and services or enhancements until after they are deployed. In the past, we have discovered software errors in some new products and enhancements after their introduction. We may find errors in current or future new products or releases after commencement of commercial use. If we market products and services that contain errors or that do not function properly, we may experience negative publicity, loss of or delay in market acceptance, or claims against us by customers, any of which could harm our current and future sales, or result in expenses and liabilities that could reduce our operating results and adversely affect our financial condition and market for our common stock. WE MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL ON FAVORABLE TERMS OR AT ALL In addition to the proceeds of the recent sale of our component software division to Dassault's subsidiary and the recent investment by Dassault in us, we may need to raise additional capital to fund operating losses, develop and enhance our services and products, fund expansion, respond to competitive pressures or acquire complementary products, businesses or technologies. We may not be able to raise additional financing on favorable terms, if at all. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced and the securities issued may have rights, preferences or privileges senior to those of our common stock. If we cannot raise adequate funds on acceptable terms, our ability to fund growth, take advantage of business opportunities, develop or enhance services or products or otherwise respond to competitive pressures will be significantly limited. In that event, our business could be harmed, our operating results and financial condition could be adversely affected and the market price for our common stock could decline. WE DEPEND ON SWIFT AND TIMELY INTRODUCTIONS OF NEW PRODUCTS We compete in an industry faced with evolving standards and rapid technological developments. New products are introduced frequently and customer requirements change with technology developments. Our success will depend upon our ability to anticipate evolving standards, technological developments and customer requirements and to enhance our existing products accordingly. We have experienced delays in the development of certain new products and product versions. Additionally, we use third party development partners to facilitate the development of product enhancements and extensions. Delays in product development may adversely affect our business, financial condition and operating results. Negative reviews of new products or product versions could also materially adversely affect market acceptance. 6 9 WE ARE DEPENDENT UPON KEY PERSONNEL AND THE ABILITY TO HIRE ADDITIONAL PERSONNEL Our executive officers and key employees are vital assets. We depend on the ability to attract, retain and motivate high quality personnel, especially management, skilled development personnel and sales personnel. Competition for skilled development personnel with specialized experience and training relevant to 3D modeling is intense. There are a limited number of experienced people in the United States with the skills and training we require. The loss of any of our key employees could materially adversely affect our business, financial condition or operating results. Our failure to recruit executive officers or key sales, management or development personnel would similarly harm our growth and competitiveness. WE MAY NOT BE ABLE TO EFFECTIVELY EXPAND OUR OPERATIONS Our future success will depend, in part, upon our ability to: o continue to enhance our suite of products, o respond to competitive developments, o expand our sales and marketing efforts, and o attract, train, motivate and retain qualified management, software development and engineering personnel. Although we believe our systems and controls are adequate for our current level of operations, we may need to add additional personnel and expand and upgrade our systems and controls to meet these challenges. Failure to do so could have a material adverse effect upon our business, financial condition and results of operations. In the future, we may acquire additional complementary companies, products or technologies. Managing acquired businesses entails numerous operational and financial risks. These risks include difficulty in assimilating acquired operations, diversion of management's attention and the potential loss of key employees or customers of acquired operations. We may not be able to effectively integrate any such acquisitions, and our failure to do so could result in lost revenues or materially reduce our operating results. WE MAY BE EXPOSED TO RISKS OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS INFRINGEMENT Our proprietary technologies are critical to our success and ability to compete. We rely on trade secret and copyright laws to protect our proprietary technologies, but our efforts may be inadequate to protect these proprietary rights or to prevent others from claiming violations of their proprietary rights. We have no patents with respect to the technology we use. Further, effective trade secret and copyright protection may not be available in all foreign countries. We generally enter into confidentiality or license agreements with employees and consultants. Additionally, we seek to control access to and distribution of our software, documentation and other proprietary information. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Policing unauthorized use of our proprietary information is difficult. The unauthorized misappropriation of our technology could have a material adverse effect on our business, financial condition, results of operations and market for our common stock. If we resort to legal proceedings to enforce our proprietary rights, the proceedings could be burdensome and expensive and could involve a high degree of risk. We may also be subject to claims alleging that we have infringed third party proprietary rights. Litigating such claims, whether meritorious or not, is costly and could materially adversely affect our results of operations. These claims might require us to enter into royalty or license agreements with terms unfavorable to us. If we were found to have infringed upon the proprietary rights of third parties, we could be required to pay damages, cease sales of the 7 10 infringing products or redesign or discontinue such products, any of which could materially reduce our sales and results of operations and cause a decline in the market price for our common stock. FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE We are in the process of registering additional shares of common stock with the Securities and Exchange Commission for the benefit of certain of our stockholders, as required by a registration rights agreement entered into in February 2000 in connection with their investment in our company. After the registration statement is declared effective, the holders of the shares covered by the registration statement will be able to sell such shares in the public market without restriction. Sales of a substantial number of shares of our common stock in the public market may reduce the market price of our common stock. The average daily trading volume of our common stock has been very low. Any sustained sales of shares by our existing or future stockholders or any increase in the average volume of shares traded in the public market may adversely affect the market price of our common stock. OUR STOCK PRICE IS HIGHLY VOLATILE The market price of our common stock has been highly volatile and is likely to continue to be volatile. Factors affecting our stock price may include: o fluctuations in our sales or operating results; o announcements of technological innovations or new software standards by us or competitors; o published reports of securities analysts; o developments in patent or other proprietary rights; o changes in our relationships with development partners; and o general market conditions, especially regarding the general performance of comparable technology stocks. Many of these factors are beyond our control. These factors may materially adversely affect the market price of our common stock, regardless of our operating performance. WE FACE DIFFICULTIES DOING BUSINESS IN INTERNATIONAL MARKETS Our ability to sell our products and services in international markets will depend in part on risks inherent in doing business on an international level. Factors that may affect our international expansion efforts include: o our inability to obtain or resolve uncertainties concerning territorial rights to software; o copyright laws that are not uniform, or uniformly enforced, in all countries; o export restrictions; o export controls relating to encryption technology; o longer payment cycles; o problems in collecting accounts receivable; o political and economic instability; and o potentially adverse tax consequences. We have no control over many of these factors and the occurrence of any of them could harm our international business efforts. 8 11 ITEM 2. DESCRIPTION OF PROPERTY Our principal executive office is located at 2520 55th Street, Suite 200, Boulder, Colorado 80301, where we lease approximately 15,600 square feet of office space. Monthly base lease payments for this facility are approximately $25,400 and the lease for this facility expires September 1, 2007. We also lease approximately 11,300 square feet of office space in Westborough, Massachusetts, at a monthly base rate of approximately $21,650. In addition, we lease international sales offices in the United Kingdom. ITEM 3. LEGAL PROCEEDINGS From time to time, we have been involved in litigation relating to claims arising out of our operations in the normal course of business. As of the date of this filing, neither we are not a party, nor is any of our property subject, to any legal proceedings other than routine litigation incidental to our business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS We held last year's annual meeting of stockholders on November 9, 2000. At the meeting, our stockholders were asked: o to vote upon a proposal to approve the sale of our component software division to a subsidiary of Dassault; o to vote upon a proposal to issue 555,556 shares of our common stock to Dassault in exchange for a cash payment of $2.0 million; o to vote upon a proposal to change our name to PlanetCAD Inc.; o to elect seven incumbent directors to serve on our board; o to vote upon a proposal to approve our 2000 Stock Incentive Plan; and o to ratify the selection of KPMG LLP as our independent auditors for the fiscal year ended December 31, 2000. In connection with the annual meeting, pursuant to Regulation 14A under the Securities Exchange Act of 1934, we furnish our stockholders with a definitive proxy statement with respect to each of the matters acted upon. SALE OF OUR COMPONENT SOFTWARE DIVISION We agreed, subject to stockholder approval, to sell our component software division to Dassault's subsidiary in exchange for approximately $25.0 million in cash, pursuant to a purchase agreement dated July 4, 2000, as amended on September 2, 2000, among Dassault, PlanetCAD and our former wholly owned subsidiary, Spatial Components, LLC. The number of votes cast in respect of the sale was as follows:
BROKER FOR AGAINST ABSTAIN NON-VOTES ------------------ ---------------- ---------------- ---------------- 6,816,412 42,140 16,520 0
ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK We agreed, subject to stockholder approval, to issue 555,556 shares of our common stock to Dassault in exchange for a cash payment of $2.0 million (approximately $3.60 per share), pursuant to a share purchase agreement dated November 14, 2000 between us and Dassault. The number of votes cast in respect of the share issuance was as follows:
BROKER FOR AGAINST ABSTAIN NON-VOTES ------------------ ---------------- ---------------- ---------------- 6,821,312 40,740 13,020 0
9 12 AMENDMENT OF OUR CERTIFICATE OF INCORPORATION We agreed, subject to stockholder approval, to sell our corporate name, Spatial Technology Inc., to Dassault's subsidiary as part of our component software division. Accordingly, we were required under the purchase agreement to amend our certificate of incorporation to change our corporate name, and we chose PlanetCAD Inc. as our new name to reflect our changed corporate focus. The number of votes cast in respect of the amendment was as follows:
BROKER FOR AGAINST ABSTAIN NON-VOTES ------------------ ---------------- ---------------- ---------------- 6,797,503 59,349 18,220 0
ELECTION OF DIRECTORS Generally, our directors are elected annually by the stockholders at our annual stockholder meeting. Our board recommended that the stockholders elect the seven incumbent directors to serve until the next annual meeting of stockholders and until their successors are elected and have qualified. The number of votes cast for each of the nominees for director, and the number of votes withheld, is set forth opposite the names of each of the nominees below:
AUTHORITY NOMINEE FOR WITHHELD ------- --- --------- Richard M. Sowar......................... 6,551,239 323,833 R. Bruce Morgan.......................... 6,043,431 831,641 Eugene J. Fischer........................ 6,588,219 286,853 Philip E. Barak.......................... 6,556,402 318,670 H. Robert Gill........................... 6,587,030 288,042 M. Thomas Hull........................... 6,557,591 317,481 Chuck Bay................................ 6,557,591 317,481
APPROVAL OF OUR 2000 STOCK INCENTIVE PLAN We approved our 2000 Stock Incentive Plan to attract and to encourage the continued employment and service of, and maximum efforts by, officers, key employees and other key individuals by offering them an opportunity to acquire or increase a direct proprietary interest in our operations and future success. The number of votes cast in respect of the approval of the plan was as follows:
BROKER FOR AGAINST ABSTAIN NON-VOTES ------------------ ---------------- ---------------- ---------------- 6,438,732 411,620 24,720 0
RATIFICATION OF THE SELECTION OF KPMG LLP We selected KPMG LLP, our independent auditors since the 1992 fiscal year, to be our independent auditors for the fiscal year ended December 31, 2000. Our stockholders were requested to ratify the selection at the meeting. The number of votes cast in respect of the auditor ratification was as follows:
BROKER FOR AGAINST ABSTAIN NON-VOTES ------------------ ---------------- ---------------- ---------------- 6,853,832 5,070 16,170 0
10 13 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Our common stock is listed on the American Stock Exchange under the symbol "PCD". The following table indicates the high and low sales prices per share reported by the American Stock Exchange for the periods indicated.
1999 2000 ----------------- ------------------ HIGH LOW HIGH LOW ----- ----- ------ ------ First Quarter $4.31 $2.69 $11.13 $ 4.06 Second Quarter $4.88 $2.56 $ 7.75 $ 3.19 Third Quarter $4.94 $3.25 $ 4.25 $ 2.00 Fourth Quarter $5.88 $2.88 $ 2.94 $ 0.63
As of March 1, 2001, there were approximately 118 holders of record of the Common Stock. We have never declared or paid dividends on our common stock. We currently intend to retain any future earnings to finance the growth and development of our business and therefore do not anticipate paying any cash dividends in the foreseeable future. (b) None. 11 14 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth our selected financial data. The selected financial data has been derived from our consolidated financial statements, which have been audited by KPMG LLP, our independent auditors. The component software division, sold in November 2000, has been presented as a discontinued operation in the table below, and in the accompanying consolidated financial statements. The data should be read in conjunction with the consolidated financial statements and related notes included in Item 7 of this Annual Report on Form 10-KSB.
STATEMENT OF OPERATIONS DATA: Year ended December 31, ----------------------------------------- 1998 1999 2000 ----------- ---------- ------------ (in thousands except per share data) Revenue: License fees and royalties .............................. $ -- $ 569 $ 1,513 Services ................................................ -- 255 587 ------ -------- -------- Total revenue ...................................... -- 824 2,100 ------ -------- -------- Cost of sales: License fees and royalties .............................. -- 43 818 Services ................................................ -- 148 220 ------ -------- -------- Total cost of sales ................................ -- 191 1,038 ------ -------- -------- Gross profit ................................................. -- 633 1,062 ------ -------- -------- Operating expenses: Sales and marketing ..................................... -- 498 3,102 Research and development ................................ -- 1,022 6,291 General and administrative .............................. -- 221 2,697 Acquired in-process research and development ............ -- -- 332 ------ -------- -------- Total operating expenses ...................... 1,741 12,422 Interest expense, net ........................................ -- -- (46) ------ -------- -------- Loss from continuing operations .............................. -- (1,108) (11,406) Discontinued operations: Income (loss) from discontinued operations, net of income tax of $316, $246 and $28, respectively ......................................... 201 (1,753) (4,818) Gain on sale of discontinued operations, net of income tax expense of $70 ............................ -- -- 17,379 ------ -------- -------- Net earnings (loss) .......................................... $ 201 $ (2,861) $ 1,155 ====== ======== ======== Earnings (loss) per common share: Basic and diluted earnings (loss) per common share: Continuing operations ................................. $ 0.00 $ (0.12) $ (1.00) Discontinued operations ............................... 0.02 (0.19) 1.10 ------ -------- -------- Net earnings (loss) ....................... $ 0.02 $ (0.31) $ 0.10 ====== ======== ======== Basic and diluted weighted average number of common shares outstanding ........................................... 9,307 9,345 11,439
BALANCE SHEET DATA: December 31, ---------------------------------------- 1998 1999 2000 ----------- ---------- ----------- (in thousands) Cash and cash equivalents........................ $ 4,534 $ 1,324 $18,310 Working capital ................................. 7,881 5,842 14,892 Total assets .................................... 9,720 8,151 22,697 Long-term debt and capital lease obligation...... 79 -- -- Total stockholders' equity ...................... 7,802 5,878 17,331
12 15 OVERVIEW Except for the historical information contained herein, the following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section under the caption "Factors Affecting Our Business, Operating Results, Financial Condition and Common Stock" in Part 1 of this Annual Report on Form 10-KSB. Historically, our core business has been to provide 3D modeling software; however, in 1999 we supplemented our core business when we launched our PlanetCAD division operations, which provides interoperability solutions and services. In July 2000, we acquired certain assets and liabilities of Prescient Technologies, Inc. and with it over 100 major manufacturing customers in the automotive, aerospace, electronics and other discrete manufacturing markets worldwide. Prescient's product line, PrescientQA(TM), is an integrated suite of engineering quality tools that allows users, managers and key executives to quantitatively assess and improve the quality of their product models. In November 2000, we sold our component software division to a subsidiary of Dassault in a cash transaction for approximately $25 million, after giving effect to certain adjustments contemplated by the purchase agreement, and amended our certificate of incorporation to change our name from "Spatial Technology Inc." to "PlanetCAD Inc." The sale of our component software division enabled us to focus our efforts entirely on our PlanetCAD division with the goal of addressing problems that affect data quality and interoperability in manufacturing. In the first quarter of 2001, we made a strategic decision, for a period of time, to use our Internet-based services as marketing tools to create name recognition in our market niche and to promote our enterprise solutions, rather than to generate revenues directly from our Internet services. Because we had recently sold our component software division, which had been our most widely recognized division, we placed more emphasis on increasing our presence in our targeted market. This strategy allowed us to concentrate on our enterprise solutions. Our enterprise solutions are software products that are installed within a corporate firewall to help manage transactions and interactive business processes by speeding engineering data flows between design and manufacturing engineers and their suppliers. We have three sources of revenue: license fees, royalties, and services, which include maintenance, training and consulting. License fees consist of fees paid by customers to license our products for use in customers' product development efforts. Revenue from license fees is recognized upon completion of a signed contract and shipment of product assuming all other criteria for revenue recognition are met. Some licensees also pay royalties based on a percentage of net revenue received from applications incorporating our software. Royalty revenue is generally recognized upon receipt of payment. Maintenance revenue, consisting of fees received by us for customer support and product upgrades, is generally based on annual contracts recognized ratably over the period of the contract. Other revenue consists of training and consulting fees, which is recognized upon completion of a training class or performance of services, respectively. For the year ended December 31, 2000, we had a net income of $1.2 million (or $0.10 per share) on total revenue of $2.1 million, as compared to a loss of $2.8 million (or $0.31 per share) on total revenue of $824,000 reported for 1999. The net income for 2000 includes a $4.8 million loss from discontinued operations and a $17.4 million gain on the sale of our component software division. As of December 31, 2000, we had net operating loss carryforwards totaling approximately $13.2 million, which may be used to reduce future income taxes. Utilization of these net operating loss carryforwards may be limited under certain circumstances. See Note 6 of the Notes to Consolidated Financial Statements. 13 16 RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain statement of operations data expressed as a percentage of total revenue:
Year ended December 31, -------------------- 1999 2000 --------- -------- Revenue: License fees and royalties ................................ 69% 72% Services .................................................. 31 28 ---- ---- Total revenue .................................................. 100 100 Cost of sales: License fees and royalties ................................ 5 39 Services .................................................. 18 10 ---- ---- Total cost of sales .................................. 23 49 Gross profit ................................................... 77 51 Operating expenses: Sales and marketing ....................................... 60 148 Research and development .................................. 124 300 General and administrative ................................ 27 128 Acquired in-process research and development .............. -- 16 ---- ---- Total operating expenses ....................................... 211 592 Interest expense, net .......................................... -- 2 ---- ---- Net loss from continuing operations ............................ (134) (543) ---- ---- Discontinued operations: Loss from discontinued operations, net of tax ............. (213) (229) Gain on sale of discontinued operations, net of tax ....... -- 828 ---- ---- Net earnings (loss) ............................................ (347)% 55% ==== ====
FISCAL YEARS ENDED DECEMBER 31, 2000 AND 1999 REVENUE. Total revenue increased 155% to $2.1 million for 2000 as compared to $824,000 for 1999. License fees and royalties increased 166% to $1.5 million for 2000, as compared to $569,000 for 1999. The increase in license fees and royalties was primarily due to sales of products acquired in the July 2000 acquisition of Prescient's net assets. Service revenue increased 130% to $587,000 for 2000, as compared to $255,000 for 1999, reflecting increased services to acquired customers of Prescient. COST OF REVENUE. Cost of revenue increased 444% to $1.0 million for 2000 from $191,000 for 1999. The increase in cost of revenue was primarily due to increased customer support costs for former Prescient customers. As a percent of total revenue, cost of revenue increased to 49% for 2000, as compared to 23% for 1999. OPERATING EXPENSES. Total operating expenses increased 613% to $12.4 million for 2000 from $1.7 million for 1999. The increase in total operating expenses was primarily due to increased staffing costs associated with the acquisition of Prescient's net assets as well as increased staffing to support the development of our Web infrastructure for engineering services. Operating expenses also included an expense of approximately $700,000 for outside consulting services related to development of the JAVA version of our proprietary Web framework. As a percent of total revenue, total operating expenses increased to 592% for 2000 as compared to 211% for 1999. SALES AND MARKETING EXPENSES. Sales and marketing expense increased 523% to $3.1 million for 2000 from $498,000 for 1999. Increased sales and marketing expense in 2000 as compared to 1999 was due to increased marketing efforts, including wide-range advertising across the manufacturing industry, trade shows and user events throughout the year, promotional activities such as direct mail campaigns, e-mail campaigns, web banner advertising and public and press relations. Sales and marketing expense for 2000 increased as a percent of total revenue to 148% versus 60% for 1999. 14 17 RESEARCH AND DEVELOPMENT EXPENSES. Research and development expense increased 516% to $6.3 million for 2000 from $1.0 million for 1999. Increased research and development expense was due to increased staffing in support of the continued development of our Web infrastructure for engineering services, including the 3Dshare.com, Bits2Parts.com and 3Dpublish.com application services, as well as products in the former Prescient product line. In addition, research and development expenses for the period also included an expense of approximately $700,000 for outside consulting services related to development of the JAVA version of our proprietary Web framework. As a percent of total revenue, research and development expense increased to 300% for 2000 from 124% for 1999. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased 1,120% to $2.7 million for 2000 from $221,000 for 1999. The increase in general and administrative expenses was due to increased staffing and legal costs to support the Prescient products as well as support for the increased activities in the development of our Web infrastructure for engineering services. As a percent of total revenue, general and administrative expense increased to 128% for 2000 from 27% for 1999. IN-PROCESS RESEARCH AND DEVELOPMENT. In-process research and development expense of $332,000 for 2000 relates to the acquisition of certain assets and liabilities of Prescient. There was no acquired in-process research and development expense for 1999. DISCONTINUED OPERATIONS, COMPONENT SOFTWARE DIVISION. Net loss from discontinued operations for 2000 increased to $4.8 million from $1.8 million for 1999. The increase in net loss was primarily due to decreased revenue due in part to increased resistance to up-front license fees by software developers in an increasingly competitive market, as well as from changes to the pricing model for our component software division products. Under the new pricing model, component licensees paid only recurring fixed and variable partner fees upon the release and shipment of a software application that incorporated our component software. FISCAL YEARS ENDED DECEMBER 31, 1999 AND 1998 REVENUE. For the year ended December 31, 1999, we had $824,000 in revenue compared to no revenue in the prior year. The revenue was primarily from sales of an end-use product related to the product purchased in the December 1998 acquisition of InterData Access, Inc. We acquired all of the outstanding common stock of InterData in exchange for 1,400,000 shares of our common stock. Established in 1983, InterData developed and marketed software for the sharing, access and exchange of electronic product data throughout the manufacturing process. COST OF REVENUE. For the year ended December 31, 1999, we had $191,000 in cost of revenue as compared to no cost of revenue in the prior year primarily due to services to support the InterData end-use product. SALES AND MARKETING EXPENSE. For the year ended December 31, 1999, we had $498,000 in sales and marketing expense compared to no expenses in the prior year primarily due to expenses to sell and market the InterData end-user products. RESEARCH AND DEVELOPMENT EXPENSE. For the year ended December 31, 1999, we had approximately $1.0 million in research and development expense compared to no expense in the prior year. Research and development in 1999 was primarily focused on the development of the InterData end-use product. GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense in 1999 was $221,000 compared to no expense in the prior year primarily due to expenses to support the marketing, sales and development of the InterData end-use product. DISCONTINUED OPERATIONS, COMPONENT SOFTWARE DIVISION. For the year ended December 31, 1999, discontinued operations reported a loss of $1.8 million as compared to income of $201,000 reported in the comparable period in the prior year. The increase in net loss was primarily due increased research and development expenditures to continue development and support of the component software division products. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2000, we had $18.3 million in cash and cash equivalents. Cash and cash equivalents increased $17.0 million for the year ended December 31, 2000, as compared to a decrease of $3.2 million for the prior year. The increase in cash was primarily due to the sale of the component software division to Dassault's subsidiary, the sale of 555,556 shares of our common stock to Dassault, and the sale of shares to the investors in the February 2000 private equity transaction. The 555,556 shares were sold to Dassault for $2.0 million or approximately $3.60 per share. In the private equity transaction, we sold 1.9 million 15 18 shares of our common stock at a price of $3.60 per share and warrants to purchase 1.2 million shares of common stock for $0.05 per share. Net cash for the year ended December 31, 1999 decreased $3.2 million primarily due to a net operating loss of $2.9 million, $1.0 million in equipment purchases and $500,000 cash paid for assets acquired from Sven Technologies, Inc. In June 1999, we acquired certain assets and liabilities of Sven Technologies for a total consideration of $1.4 million, including $500,000 cash, 193,861 shares of common stock and a warrant to purchase 250,000 shares of common stock at $12.50 per share. For the year ended December 31, 1998, net cash decreased $1.3 million primarily due to equipment and software purchases. Net cash used by operating activities was $12.4 million for the year ended December 31, 2000 as compared to $1.6 million for the year ended December 31, 1999. For the year ended December 31, 2000, net cash used by operations was primarily from our loss from continuing operations, which excludes the gain on the sale of the component software division. For the year ended December 31, 1999, net cash used by operations was $1.6 million, which amount was impacted by our net loss of $2.9 million. For the year ended December 31, 1998, net cash used by operations was $150,000 primarily from an increase in accounts receivable. Net cash provided by investing activities totaling $16.1 million for the year ended December 31, 2000 reflects $1.7 million used for equipment purchases, $500,000 used for purchased computer software and $100,000 paid for Prescient, offset by net proceeds of $18.4 million received in the sale of the component software division to Dassault. Net cash used by investing activities for the year ended December 31, 1999 was $1.7 million, comprised of $1 million used for equipment purchases, $219,000 used for purchased computer software and $500,000 used for the Sven acquisition. For the year ended December 31, 1998, net cash used by investing activities was $1.1 million, comprised of $629,000 used for equipment purchases and $446,000 used for purchased computer software. Net cash provided by financing activities was $13.1 million for the year ended December 31, 2000, primarily comprised of proceeds from the $6.9 million equity transaction in February 2000, proceeds from the $2.0 million equity investment of Dassault in November 2000 and $200,000 from the exercise of stock options. An additional $4.0 million was received from Dassault in the form of notes payable that were advanced prior to the closing of the sale of the component software division. Net cash provided by financing activities for the year ended December 31, 1999 was $51,000, comprised of $141,000 received from the issuance of common stock partially offset by $90,000 used for principal payments on debt. For the year ended December 31, 1998, cash used by financing activities was $7,000, comprised of principal payments on debt of $190,000 offset by $183,000 in proceeds received from the issuance of common stock. Management believes it has sufficient cash to meet the operating requirements for the foreseeable future including at least the next 12 months. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issues SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," which defines derivatives, requires that all derivatives be carried at fair value, and provides for hedging accounting when certain conditions are met. SFAS No. 133, which has been amended by SFAS 137, is effective for our fiscal year ending December 31, 2001. The adoption of SFAS No. 133 will not have a significant impact on our financial position, results of operations or cash flows. In December 1999, the SEC released Staff Accounting Bulletin No. 101 ("SAB 101") "Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. Subsequently, the SEC released SAB 101B, which delayed the implementation of SAB 101 for registrants with fiscal years beginning between December 16, 1999 and March 15, 2000. The adoption of SAB 101 had no significant impact on our financial position, results of operations, or cash flows. In March 2000, the FASB issued FASB Interpretation No. 44 ("Fin 44") "Accounting for Certain Transactions involving Stock Compensation - an Interpretation of APB Opinion No. 25." This interpretation provides guidance on the accounting for certain stock option transactions and subsequent amendments to stock option transactions. FIN 44 is effective July 1, 2000, but certain conclusions cover specific events that occur after either December 15, 1998 or January 12, 2000. To the extent that FIN 44 covers events occurring during the period from December 15, 1998 and January 12, 2000, but before July 1, 2000, the effect of applying this Interpretation are to be recognized on a prospective basis. The adoption of FIN 44 had no significant impact on our financial position, results of operations or cash flows. 16 19 ITEM 7. FINANCIAL STATEMENTS PLANETCAD INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report......................................................................... 18 Financial Statements: Consolidated Balance Sheets, as of December 31, 1999 and 2000................................... 19 Consolidated Statements of Operations and Comprehensive Income (Loss), years ended December 31, 1998, 1999 and 2000............................................... 20 Consolidated Statements of Stockholders' Equity, years ended December 31, 1998, 1999 and 2000........................................................................ 21 Consolidated Statements of Cash Flows, years ended December 31, 1998, 1999 and 2000............. 22 Notes to Consolidated Financial Statements...................................................... 23
17 20 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders PlanetCAD Inc. (formerly Spatial Technology Inc.): We have audited the accompanying consolidated balance sheets of PlanetCAD Inc. and subsidiaries (formerly Spatial Technology Inc.) as of December 31, 1999 and 2000, and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of PlanetCAD Inc. and subsidiaries as of December 31, 1999 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Boulder, Colorado March 9, 2001 18 21 PLANETCAD INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARES)
December 31, ----------------------- 1999 2000 -------- -------- ASSETS Current assets: Cash and cash equivalents .......................................... $ 1,324 $ 18,310 Accounts receivable, net of allowance of $400 in 2000 .............. -- 1,276 Prepaid expenses and other ......................................... -- 672 Net assets of discontinued operations .............................. 4,936 -- -------- -------- Total current assets ........................................... 6,260 20,258 Equipment, net (note 3) ............................................... 36 1,433 Net assets of discontinued operations ................................. 1,855 -- Purchased computer software, net (note 2) ............................. -- 795 Other assets .......................................................... -- 211 -------- -------- Total assets ............................................... $ 8,151 $ 22,697 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ................................................... $ 1,028 $ 2,474 Accrued expenses ................................................... 1,245 2,255 Deferred revenue ................................................... -- 637 -------- -------- Total current liabilities ...................................... 2,273 5,366 -------- -------- Stockholders' equity (note 5): Common stock, $.01 par value; 22,500,000 shares authorized; 9,508,179 and 12,402,238 shares issued and outstanding in 1999 and 2000, respectively ............................................. 95 124 Additional paid-in capital ......................................... 25,828 35,988 Accumulated deficit ................................................ (19,936) (18,781) Accumulated other comprehensive loss ............................... (109) -- -------- -------- Total stockholders' equity ..................................... 5,878 17,331 -------- -------- Total liabilities and stockholders' equity ..................... $ 8,151 $ 22,697 ======== ========
See accompanying notes to consolidated financial statements. 19 22 PLANETCAD INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Year ended December 31, ------------------------------------ 1998 1999 2000 -------- -------- ------- Revenue: License fees and royalties ................................................ $ -- $ 569 $ 1,513 Services .................................................................. -- 255 587 ------ ------- -------- Total revenue ....................................................... -- 824 2,100 ------ ------- -------- Cost of sales: License fees and royalties ................................................ -- 43 818 Services .................................................................. -- 148 220 ------ ------- -------- Total cost of sales ................................................. -- 191 1,038 ------ ------- -------- Gross profit ................................................................. -- 633 1,062 ------ ------- -------- Operating expenses: Sales and marketing ....................................................... -- 498 3,102 Research and development .................................................. -- 1,022 6,291 General and administrative ................................................ -- 221 2,697 Acquired in-process research and development (note 2) ..................... -- -- 332 ------ ------- -------- Total operating expenses ............................................ -- 1,741 12,422 Interest expense, net ...................................................... -- -- (46) ------ ------- -------- Net loss from continuing operations ..................................... -- (1,108) (11,406) Discontinued operations: Income (loss) from discontinued operations, net of income tax expense of $316, $246 and $28, respectively ............................ 201 (1,753) (4,818) Gain on sale of component business, net of income tax expense of $70 ..... -- -- 17,379 ------ ------- -------- Net earnings (loss) .......................................................... $ 201 $(2,861) $ 1,155 ====== ======= ======== Other comprehensive income (loss): Foreign currency translation adjustment ................................. (29) 35 -- ------ ------- -------- Comprehensive income (loss) ........................................ $ 172 (2,826) 1,155 ====== ======= ======== Earnings (loss) per common share: Basic and diluted income (loss) per common share: Continuing operations ................................................... $ 0.00 $ (0.12) $ (1.00) Discontinued operations ................................................. 0.02 (0.19) 1.10 ------ ------- -------- Net earnings (loss) .......................................................... $ 0.02 $ (0.31) $ 0.10 ====== ======= ======== Basic and diluted weighted average number of common shares outstanding ....... 9,307 9,345 11,439
See accompanying notes to consolidated financial statements. 20 23 PLANETCAD INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (AMOUNTS IN THOUSANDS, EXCEPT SHARES)
Common Stock Additional ------------------------ paid-in- Accumulated Shares Amount capital deficit ----------- ----------- ------------- ----------- Balances at January 1, 1998 .................................... 9,141,348 $ 91 $24,569 $(17,276) Exercise of common stock options for cash ...................... 1,625 -- 3 -- Common stock issued under employee stock purchase plan ......... 96,818 1 179 -- Common stock options issued for purchased computer software and services ..................................... -- -- 178 -- Net earnings ................................................... -- -- -- 201 Foreign currency translation adjustment ........................ -- -- -- -- ---------- ---- ------- -------- Balances at December 31, 1998 .................................. 9,239,791 92 24,929 (17,075) Exercise of common stock options and warrant for cash ......... 53,321 1 97 -- Common stock issued under employee stock purchase plan ......... 21,206 -- 43 -- Common stock and warrant issued in connection with Sven acquisition .......................................... 193,861 2 759 -- Net loss ....................................................... -- -- -- (2,861) Foreign currency translation adjustment ........................ -- -- -- -- ---------- ---- ------- -------- Balances at December 31, 1999 .................................. 9,508,179 95 25,828 (19,936) Common stock issued under employee stock purchase plan ......... 71,219 -- 165 -- Exercise of common stock options for cash ...................... 67,284 1 203 -- Common stock and warrants issued in connection with Prescient acquisition ................................ 300,000 3 1,054 -- Common stock options issued for services ....................... -- -- 2 -- Common stock and warrant issued in connection with private placement, net .................................... 2,455,556 25 8,736 -- Net earnings ................................................... -- -- -- 1,155 Foreign currency translation adjustment ........................ -- -- -- -- Realized foreign currency loss on sale of subsidiary ........... -- -- -- -- ---------- ---- ------- -------- Balances at December 31, 2000 .................................. 12,402,238 $124 $35,988 $(18,781) ========== ==== ======= ======== Accumulated other Total comprehensive stockholders' income (loss) equity ------------- ------------ Balances at January 1, 1998 .................................... $(115) $ 7,269 Exercise of common stock options for cash ...................... -- 3 Common stock issued under employee stock purchase plan ......... -- 180 Common stock options issued for purchased computer software and services ..................................... -- 178 Net earnings ................................................... -- 201 Foreign currency translation adjustment ........................ (29) (29) ----- -------- Balances at December 31, 1998 .................................. (144) 7,802 Exercise of common stock options and warrant for cash ......... -- 98 Common stock issued under employee stock purchase plan ......... -- 43 Common stock and warrant issued in connection with Sven acquisition .......................................... -- 761 Net loss ....................................................... -- (2,861) Foreign currency translation adjustment ........................ 35 35 ----- -------- Balances at December 31, 1999 .................................. (109) 5,878 Common stock issued under employee stock purchase plan ......... -- 165 Exercise of common stock options for cash ...................... -- 204 Common stock and warrants issued in connection with Prescient acquisition ................................ -- 1,057 Common stock options issued for services ....................... -- 2 Common stock and warrant issued in connection with private placement, net .................................... -- 8,761 Net earnings ................................................... 1,155 Foreign currency translation adjustment ........................ (30) (30) Realized foreign currency loss on sale of subsidiary ........... 139 139 ----- -------- Balances at December 31, 2000 .................................. $ -- $ 17,331 ===== ========
See accompanying notes to consolidated financial statements. 21 24 PLANETCAD INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
Year ended December 31, ------------------------------------ 1998 1999 2000 ------- ------- -------- Cash flows from operating activities: Net earnings (loss) ............................................... $ 201 $(2,861) $ 1,155 Adjustments to reconcile net earnings (loss) to net cash used by operating activities: Gain on sale of component software division ..................... -- -- (17,379) Realized loss on foreign currency translation ................... -- -- (139) Depreciation and amortization ................................... 598 791 1,073 Acquired in-process research and development .................... -- 500 332 Stock options issued for services................................ -- -- 2 Provision for, and write-off of, uncollectible accounts receivable ................................................... -- 383 -- Changes in operating assets and liabilities excluding the effects of business combinations and sale of component software division: Accounts receivable ........................................... (1,249) (558) 2,555 Prepaid expenses and other .................................... (133) (205) (92) Accounts payable .............................................. 320 402 1,218 Accrued expenses .............................................. (286) (72) 611 Deferred revenue .............................................. 399 52 (1,727) ------- ------- -------- Net cash used by operating activities ....................... (150) (1,568) (12,391) ------- ------- -------- Cash flows from investing activities: Additions to equipment ............................................ (629) (1,009) (1,696) Additions to purchased computer software .......................... (446) (219) (499) Proceeds from sale of component software division ................. -- -- 18,433 Cash paid in business combinations ................................ -- (500) (100) ------- ------- -------- Net cash provided (used) by investing activities ............ (1,075) (1,728) 16,138 ------- ------- -------- Cash flows from financing activities: Proceeds from issuance of notes payable ........................... -- -- 4,000 Principal payments on debt ........................................ (190) (90) -- Proceeds from issuance of common stock, net ....................... 183 141 9,130 ------- ------- -------- Net cash provided (used) by financing activities ............ (7) 51 13,130 ------- ------- -------- Foreign currency translation adjustment affecting cash ............... (29) 35 109 ------- ------- -------- Net decrease in cash and cash equivalents ................... (1,261) (3,210) 16,986 Cash and cash equivalents at beginning of period ..................... 5,795 4,534 1,324 ------- ------- -------- Cash and cash equivalents at end of period ........................... $ 4,534 $ 1,324 $ 18,310 ======= ======= ======== Supplemental cash flow information: Cash paid for interest ............................................ $ 29 $ 5 $ 35 ======= ======= ======== Cash paid for income taxes ........................................ $ 229 $ 211 $ -- ======= ======= ======== Supplemental disclosure of non-cash investing and financing activities: Common stock and warrants issued in business combination ........ $ -- $ 932 $ 1,057 ======= ======= ======== Extinguishment of notes payable in conjunction with the sale of component software division ............................... $ -- $ -- $ 4,000 ======= ======= ========
See accompanying notes to consolidated financial statements. 22 25 PLANETCAD INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION PlanetCAD Inc. (PlanetCAD or the Company) (formerly Spatial Technology Inc.) was incorporated under the laws of the State of Delaware on July 7, 1986 to design, develop, and market 3D modeling software. In November 2000, the Company's shareholders approved plans to sell the assets of its component software division to Dassault Systemes Corp. or its assignee ("Dassault") in a cash transaction for $25.0 million, subject to certain price adjustments, and amended Article I of the Company's certificate of incorporation to change its name from Spatial Technology Inc. to PlanetCAD Inc. The Company consummated the sale to Dassault and effected the name change on November 14, 2000. The net assets and results of operations of the component software business have been reclassified as discontinued operations and, accordingly, prior periods have been restated. The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates. (b) EARNINGS (LOSS) PER SHARE Basic earnings (loss) per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed based on the weighted average number of common shares outstanding plus the dilutive effect of potential dilutive securities. For the years ended December 31, 1998, 1999 and 2000, diluted loss per share is the same as basic loss per share, as the effect of potential dilutive securities, consisting of common stock options and warrants is antidilutive. For the years ended December 31, 1998, 1999 and 2000, the number of potential dilutive securities excluded from the computation of the diluted weighted average number of common shares outstanding was 107,587, 420,397 and 576,835, respectively, consisting primarily of common stock options and warrants. (c) CASH AND CASH EQUIVALENTS The Company considers all highly liquid investment instruments purchased with an original maturity of three months or less to be cash equivalents. (d) OTHER COMPREHENSIVE INCOME OR LOSS Assets and liabilities of the Company's international subsidiaries are translated into U.S. dollars using current exchange rates in effect at the balance sheet date, and revenue and expense accounts are translated using a weighted average exchange rate during the period. Net exchange gains and losses resulting from such translations are included as a separate component of stockholders' equity as other comprehensive income or loss. Gains and losses from foreign currency transactions, when applicable, are included in other income (expense). There were no significant gains or losses in foreign currency transactions during the years ended December 31, 1998, 1999 and 2000. The unrealized loss was realized in conjunction with the sale of the component business. (e) REVENUE RECOGNITION The Company recognizes revenue in accordance with the provisions of Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), which requires that revenue for licensing, selling, leasing, or otherwise marketing computer software be recognized when evidence of an arrangement exists, delivery of the product has occurred, collectibility of the related receivable is assured and the vendor's fee is fixed or determinable. In addition, revenue is recognized for the multiple elements of software arrangements based upon the vendor specific objective evidence of fair value for each element. Accordingly, revenue from products or services is recognized based upon shipment of products or performance of services. In December 1998, the American Institute of Certified Public Accountants ("AICPA") issued SOP No. 98-9, "Modification of SOP No. 97-2, Software Revenue Recognition, with Respect to 23 26 Certain Transactions." SOP No. 98-9 clarifies certain provisions of SOP No. 97-2. Effective January 1, 1999, the Company adopted the provision of SOP No. 98-9, and the impact on the Company's results of operations, financial position or cash flows was not material. License fee revenue is generally recognized upon completion of a signed contract and shipment of the software assuming all other criteria for revenue recognition are met. Revenue from royalties is generally recognized upon receipt of payment. Revenue from maintenance contracts is deferred and recognized ratably over the period of the agreement. Training and consulting revenue is recognized upon completion of the training or performance of services, respectively. (f) EQUIPMENT AND PURCHASED COMPUTER SOFTWARE Equipment is recorded at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets, which range from five to seven years. Purchased computer software represents software enhancements acquired from third parties, and is amortized over its estimated useful life of three to seven years, beginning when the software is incorporated into the Company's products. (g) STOCK-BASED COMPENSATION The Company accounts for its stock-based compensation plans using the intrinsic value based method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations (APB 25). The Company has provided pro forma disclosures of net earnings (loss) and earnings (loss) per share as if the fair value based method of accounting for these plans, as required by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation (SFAS 123)," had been applied. (h) IMPAIRMENT OF LONG-LIVED ASSETS The Company accounts for long lived assets under the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121") which requires that long-lived assets and certain identifiable intangibles, including goodwill, held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to be generated by the asset are less than its carrying value. Measurement of the impairment loss is based on the fair value of the asset, which is generally determined using valuation techniques such as discounted present value of expected future cash flows. (i) RESEARCH AND DEVELOPMENT COSTS Costs to establish the technological feasibility of computer software products are expensed as incurred. Generally, products are ready for sale upon establishment of technological feasibility. Accordingly, no software development costs have been capitalized by the Company in 1998, 1999 and 2000. (j) INCOME TAXES The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory rates applicable to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. (k) DISCONTINUED OPERATIONS The sale of the component software division resulted in a gain of $17.4 million, net of tax. An additional $1.0 million has been placed in escrow by Dassault and will be paid to the Company on the first anniversary of the sale provided certain deliverables and general representations and warranties are satisfied. This amount is not reflected in the gain due to its uncertainty. The results of operations of the component software division through the date of the sale are shown as income (loss) from discontinued operations in the consolidated statements of operations. The associated net assets, consisting of accounts receivable, prepaid assets, equipment, computer software and deferred revenue, have been reclassified as "Net assets of discontinued operations" in the consolidated balance sheets prior to the date of sale. Summary operating results of the discontinued operations were as follows: 24 27
Year ended December 31, -------------------------------------- 1998 1999 2000 -------- -------- -------- Revenue ..................................... $ 14,350 $ 14,076 $ 10,078 Cost of revenue ............................. 764 941 4,071 -------- -------- -------- Gross profit ................................ 13,586 13,135 6,007 Operating expenses .......................... 13,307 14,781 10,753 -------- -------- -------- Operating income (loss) from discontinued operations ................ 279 (1,646) (4,746) Other income (expense),net .................. 238 139 (44) -------- -------- -------- Income (loss) from discontinued operations before income taxes ........ 517 (1,507) (4,790) Income tax expense .......................... (316) (246) (28) -------- -------- -------- Income (loss) from discontinued operations ................ $ 201 $ (1,753) $ (4,818) ======== ======== ========
(2) ACQUISITIONS AND IN-PROCESS RESEARCH AND DEVELOPMENT In July 2000, the Company acquired certain assets and liabilities of Prescient Technologies, Inc. for total consideration of approximately $1.3 million, including $100,000 cash and between 300,000 and 350,000 shares of the Company's common stock, depending on the achievement of certain performance objectives. The acquisition was accounted for using the purchase method and accordingly results of the operations of Prescient have been included in the Company's financial statements from the date of acquisition. The purchase price was allocated to the assets and liabilities acquired based on their estimated fair values including $298,000 of accounts receivable, $209,000 of furniture and equipment, $174,000 of other assets, and the assumption of $493,000 of liabilities. In addition, the Company allocated $773,000 of the purchase price to software costs and other intangible assets and $332,000 to in-process research and development projects. The software costs and other intangible assets will be amortized over 3 years. The Company charged the in-process research and development to operations as of the date of acquisition as such technology had not reached technological feasibility and had no probable alternative future use by the Company. In June 1999, the Company acquired certain assets and liabilities of Sven Technologies, Inc. ("Sven") for total consideration of $1.4 million, including $500,000 cash and 193,861 shares of common stock and immediately exercisable warrants to purchase 250,000 shares of common stock at $12.50 per share. The acquisition was accounted for using the purchase method, and the purchase price was allocated to the assets acquired based on their estimated fair values, including $932,000 of purchased computer software and $500,000 of research and development projects. The purchased computer software is being amortized over seven years. The Company charged the in-process research and development to operations at the date of acquisition as such technology had not reached technological feasibility and had no probable alternative future use by the Company. The summary table below, prepared on an unaudited pro forma basis, combines the Company's consolidated results of operations with Prescient's and Sven's results of operations as if the acquisitions took place on January 1, 1999 (in thousands, except per share data).
Year ended December 31, ------------------------------- 1999 2000 -------- -------- Revenue $ 3,937 $ 3,124 Net loss $ (7,998) $(1,092) Loss per share - basic and diluted $ (0.82) $ (.02)
In December 1998, the Company acquired all of the outstanding common stock of InterData in exchange for 1.4 million shares of the Company's common stock. Established in 1983, InterData develops and markets software for the sharing, access and exchange of electronic product data throughout the manufacturing process. The merger was 25 28 accounted for as a pooling of interests and, accordingly, the financial statements for all periods presented were restated to include the assets, liabilities and operations of InterData. Total charges associated with the merger were approximately $319,000 and represent legal, accounting and other costs associated with the integration of the two companies. These costs were charged to operations in December 1998. (3) EQUIPMENT Equipment consists of the following (in thousands):
December 31, ------------------- 1999 2000 ------ ------- Computer equipment $ 36 $ 1,272 Furniture and office equipment -- 135 Leasehold improvements -- 216 ------ ------- 36 1,623 Less accumulated depreciation and amortization -- (190) ------ ------- $ 36 $ 1,433 ====== =======
(4) NOTES PAYABLE InterData issued subordinated promissory notes to two stockholders. Each promissory note bore interest at 10% per annum, and requires monthly payments of $760 through 2005. Both promissory notes were paid in full during 1999. In September 2000, Dassault made a loan to the Company for $2 million of the purchase price for the sale of the component software division in advance of the closing of the transaction, which amount, including accrued and unpaid interest, was repaid by the Company as an offset against the purchase price at the closing. In November 2000, Dassault advanced an additional $2 million to the Company, which was also repaid at the closing. (5) STOCKHOLDERS' EQUITY PREFERRED STOCK In June 1996, the Board of Directors of the Company authorized, at their discretion, the issuance of up to 2,500,000 shares of preferred stock in one or more series and to fix the rights, preferences, and privileges of such series. As of December 31, 2000, no shares of preferred stock were outstanding. STOCK OPTIONS In November 2000, the shareholders of the Company approved the 2000 Stock Incentive Plan (2000 Plan). Up to 2,000,000 shares of common stock may be issued pursuant to the 2000 Plan. Under the 2000 Plan, the Company may issue incentive stock options, which are granted with exercise prices equal to the fair market value of the common stock on the date of grant. Vesting and option term, which may not exceed ten (10) years from the date of grant, are determined by the Board of Directors at the time of grant. As of December 31, 2000, options to purchase 500,000 shares of common stock under the 2000 Plan were outstanding at a weighted average exercise price of $1.125. In July 1998, the Board of Directors of the Company approved the 1998 Non-officer Stock Option Plan (1998 Plan). Up to 505,000 shares of common stock may be issued pursuant to the 1998 Plan. Under the 1998 Plan, the Company may issue nonqualified stock options, which are granted with exercise prices equal to the fair market value of the common stock on the date of grant. Vesting and option term, which may not exceed ten (10) years from the date of grant, are determined by the Board of Directors at the time of grant. As of December 31, 2000 options to purchase 586,100 shares of common stock under the 1998 Plan were outstanding at a weighted average exercise price of $3.46. In June 1996, the Board of Directors of the Company approved the 1996 Equity Incentive Plan (1996 Plan). Up to 1,350,000 shares of common stock may be issued pursuant to the 1996 Plan. Under the 1996 Plan the Company may issue incentive stock options and nonqualified stock options. Incentive stock options are granted with exercise prices equal to or greater than the fair market value of the common stock on the date of grant, vest over a four-year employment period, and are exercisable over a maximum ten-year employment period. The Company also grants nonqualified stock options under the 1996 Plan that vest over a four-year period or earlier upon the attainment of specific performance objectives, and are exercisable over a maximum ten-year period or upon attainment of such 26 29 objectives. As of December 31, 2000 options to purchase 1,220,770 shares of common stock under the 1996 Plan were outstanding at a weighted average exercise price of $3.01. In June 1996, the Board of Directors approved the 1996 Non-Employee Directors' Stock Option Plan (Directors' Plan). Up to 250,000 shares of common stock may be issued pursuant to the Directors' Plan. Stock options granted under the Directors' Plan are granted with exercise prices equal to or greater than the fair market value of the common stock on the date of grant and are immediately exercisable over a ten-year period from date of grant. As of December 31, 2000, options to purchase 178,500 shares of common stock under the Directors' Plan were outstanding at a weighted average exercise price of $4.21. In August 1996, the Company's Board of Directors approved the termination, effective upon the initial public offering described above, of the Amended and Restated 1987 Stock Option Plan (1987 Plan). Under the 1987 Plan the Company issued incentive stock options and nonqualified stock options. Incentive stock options were granted with exercise prices equal to or greater than the fair market value of the common stock on the date of grant, vest over a four-year employment period, and are exercisable over either a five-year or ten-year employment period. The Company also granted nonqualified stock options under the 1987 Plan that vest over a four-year period or upon the attainment of specific performance objectives, and are exercisable over a five-year period or upon attainment of such objectives. As a result of such termination, no additional options may be issued under the 1987 Plan. The options to purchase 29,599 shares of common stock at a weighted average exercise price of $4.52 outstanding as of December 31, 2000 will remain exercisable until they expire or terminate pursuant to their terms. A summary of the status of the Company's fixed option plans as of December 31, 1998, 1999 and 2000 and changes during the years then ended is presented below:
Year ended December 31, ------------------------------------------------------------------------------------- 1998 1999 2000 --------------------------- --------------------------- --------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Prices Shares Prices Shares Prices ------------ ------------- ------------ ------------- ------------ ------------- Outstanding at beginning of year 1,170,649 $3.18 1,207,930 $2.78 1,773,925 $3.20 Granted 416,800 2.12 658,811 3.93 1,394,684 3.14 Exercised (1,625) 1.88 (37,673) 2.59 (57,909) 3.21 Forfeited (377,894) 3.28 (55,143) 3.38 (594,731) 4.56 --------- --------- --------- Outstanding at end of year......... 1,207,930 2.78 1,773,925 3.20 2,515,969 2.84 ========= ========= ========= Weighted-average fair value of options granted during the year at exercise prices equal to market price at grant date........ $1.33 $2.71 $2.84 ========= ========= =========
The following table summarizes information about fixed stock options outstanding as of December 31, 2000:
Options Outstanding Options Exercisable ----------------------------------------------------- ---------------------------------- Number Weighted-Average Number Outstanding at Remaining Exercisable Weighted-Average December 31, Contractual Weighted-Average at December 31, Exercise Range of Exercise Prices 2000 Life Exercise Price 2000 Price ------------------------- ---------------- --------------- ------------------ --------------- ---------------- $1.13 - 2.00 1,049,041 7.6 $1.60 410,751 $1.76 $2.31 - 5.00 1,331,828 7.9 3.59 513,589 3.48 $5.88 - 9.50 135,100 8.8 6.16 24,000 6.25 ---------- --------- 2,515,969 8.1 2.84 948,340 3.83 ========== =========
27 30 The fair value of options granted during 1998, 1999 and 2000 was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 1998, 1999 and 2000:
1998 1999 2000 ------------ ----------- ----------- Risk free interest rate............ 5.19% 6.60% 6.63% Expected life...................... 4 years 4 years 4 years Volatility......................... 68% 73% 122%
Pro forma financial information assuming the use of SFAS 123 in accounting for stock based compensation is as follows:
Years ended December 31, ----------------------------------------------- 1998 1999 2000 ------------ ----------- ----------- Net earnings (loss): As reported .................... $ 201 $(2,861) $1,155 Adjusted pro forma.............. (219) (4,080) 128 Basic and diluted earnings (loss) per share: As reported..................... $0.02 $(0.31) $0.10 Adjusted pro forma.............. (0.02) (0.44) 0.01
In July 2000, the Company entered into a consulting agreement with Chuck Bay, a non-employee director. Under this agreement, the Company agreed to issue options to purchase an additional 65,000 shares of common stock to Mr. Bay in addition to the non-discretionary grant of options to purchase 15,000 shares of common stock. Of the additional grant, 25,000 options will vest in equal annual increments over four years, and the remaining 40,000 options will vest on the fifth anniversary of the date of the option grant. However, the Company may accelerate the vesting of the 40,000 options based on Mr. Bay's performance of strategic and financial consulting services for PlanetCAD and achieving financial milestones. The fair value of the options granted to Mr. Bay for services other than his capacity as a director is being recognized to expense over the vesting period with the final measurement of fair value occurring when the options vest. In November 2000 and in connection with the Dassault transaction, the Company provided early vesting of options held by employees of the component software division who were hired by Dassault if they continue to work for Dassault through November 14, 2001. The modification of the previously granted stock option awards resulted in a new measurement date but no additional compensation expense since the exercise price of the options exceeded the fair market value of the Company's common stock on the modification date. In December 2000, the Company entered into separation agreements with 3 former employees. The terms of these agreements included $120,000 in severance payments as well as $250,000 in a bonus payment and $250,000 in exchange for a non-competition agreement. In addition, the Company issued 101,000 non-qualified, fully vested, stock options pursuant to these agreements, priced as of their separation dates, with contractual terms ranging from five to ten years. The fair value of the options was insignificant at the date of issuance. EMPLOYEE STOCK PURCHASE PLAN In June 1996, the Board of Directors approved the Employee Stock Purchase Plan. Up to 300,000 shares of common stock may be issued pursuant to the plan. Employees may elect to withhold up to 15% of their compensation for the purchase of the Company's common stock. The amounts withheld are used to purchase the Company's common stock at a price equal to 85% of the fair market value of shares at the beginning or end of each purchase period. During 1998, 1999 and 2000 the Company has issued an aggregate of 71,219 shares at an average price of $2.32. 28 31 WARRANTS A summary of outstanding common stock purchase warrants as of December 31, 2000 is as follows:
Exercise Expiration Shares Price Date -------------- ------------ ------------- 166,665(a) 8.22 2001 210,000(a) 6.50 2002 22,500(a) 8.22 2003 250,000(b) 12.50 2004 1,200,000(a) 6.50 2005
(a) These warrants were issued in connection with common stock transactions and were immediately exercisable. (b) These warrants were issued in connection with the Sven acquisition, as described in note 2, and were valued using the Black-Scholes option pricing model with the following assumptions: no dividends, volatility of 68%, risk free interest of 6.60% and an expected life of two years. (6) TAXES Tax expense for 1999 is comprised solely of taxes on foreign sales. Tax expense for 1998 consists of foreign taxes for PlanetCAD and federal and state income tax expense for InterData. Income tax expense differs from the amount computed by applying the statutory federal income tax rate to earnings (loss) from continuing operations before income taxes as follows (in thousands):
Years ended December 31, 1998 1999 2000 ------- ------- ------- Expected income tax expense (benefit) ....... $ -- $ (388) $(3,992) Non deductible expenses, net ................ -- 9 20 Change in deferred tax valuation allowance... -- 519 4,458 Taxes on foreign sales ...................... -- -- -- State taxes, net of federal benefit ......... -- (40) (409) Research and development tax credit ......... -- -- -- Adjustment of previously provided taxes ..... -- -- -- Other, net .................................. -- (100) (77) ------ ------ ------- Actual income tax expense ................... $ -- $ -- $ -- ====== ====== =======
The tax effects of significant temporary differences that result in deferred tax assets and liabilities are as follows (in thousands):
December 31, ------------------ 1999 2000 ------- ------- Accounts receivable, primarily due to differences in accounting for bad debts .............................................................. $ 79 $ 86 Property and equipment, primarily due to differences in Depreciation ............................................................... (20) (120) Deferred revenue, due to differences in revenue recognition for financial statement and income tax purposes ................................ 1 220 Accrued expenses, primarily due to difference in the period of recognition for financial statement and income tax purposes ................................ 182 248 Purchased software, primarily due to differences in carrying values for financial statement and income tax purposes ............................ (254) (244) Acquired in-process research and development, amortized for income tax purposes ................................................................... 172 308 Research and development and other tax credit carryforwards ................... 1,896 1,906 Net operating loss carryforwards .............................................. 6,620 5,918 ------- ------- Total deferred tax assets ................................................ 8,676 8,322 Less valuation allowance ...................................................... (8,676) (8,322) ------- ------- Net deferred tax assets .................................................. $ -- $ -- ======= =======
29 32 At December 31, 2000, the Company had net operating loss carryforwards for regular income tax purposes of approximately $13.2 million, which if not utilized expire in the years 2003 through 2019. The net operating loss carryforwards at December 31, 2000 are subject to limitation under Section 382 of the Internal Revenue Code. The Company has provided a valuation allowance for the entire deferred tax balance due to uncertainty of the realization of the asset. The Company also has research and development credit carryforwards for income tax purposes available totaling approximately $1,495, which if not utilized expire in the years 2003 through 2019. Approximately $284 of the total credit carryforwards is also subject to limitation under Section 382 of the Internal Revenue Code. (7) COMMITMENTS AND CONTINGENCIES The Company leases its office facilities and various office equipment under noncancelable operating leases. Future minimum rental payments on these leases are as follows (in thousands): 2001 ....................................................... $ 577 2002 ....................................................... 586 2003 ....................................................... 597 2004 ....................................................... 617 Thereafter ................................................. 982 ---------- Total ................................................ $ 3,359 ==========
Rent expense was approximately $528,000, $555,000 and $613,000 in 1998, 1999 and 2000, respectively. The Company executed a long-term development agreement with Three-Space Limited, a United Kingdom corporation (TSL), in 1989 (the 1989 Development Agreement) obligating the Company to pay approximately $30,000 per month for specified research and marketing activities. In connection with the Prescient acquisition, the Company terminated the 1989 Development Agreement and entered into a Software Consulting Agreement with substantially the same financial obligation to the Company. Expenses under the 1989 Development Agreement and the software consulting agreement were approximately $400,000, $398,000 and $200,000 in 1998, 1999 and 2000 respectively. In connection with the sale of the component business, the Software Consulting Agreement was assigned to Dassault. The Company has entered into various licensing agreements, which require the Company to pay royalties on each sale of the licensed software products. Royalty expense under these agreements is included in costs of sales and totaled approximately $291,000, $349,000 and $265,000 in 1998, 1999 and 2000 respectively. (8) CONCENTRATIONS OF CREDIT RISK The Company is exposed to potential concentrations of credit risk from its accounts receivable with its various customers. The Company's accounts receivable are from both large multinational corporate customers and smaller companies in a variety of industries, with no concentration in a single industry. However, the Company is subject to credit risk due to economic events or circumstances in the various international and domestic markets in which the Company operates. To reduce this risk, the Company evaluates the creditworthiness of its customers prior to the shipment of software or performance of services. The Company had one customer that accounted for 13% of its total revenue for the year ended December 31, 2000. 30 33 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The information required by this item concerning our directors and executive officers is incorporated by reference to the information set forth in the sections entitled "Nominees for Director," "Compensation of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in our proxy statement for the 2001 Annual Meeting of Stockholders to be filed with the Commission within 120 days after the end of our fiscal year ended December 31, 2000. ITEM 10. EXECUTIVE COMPENSATION The information required by this item is incorporated by reference to the information set forth in the section entitled "Executive Compensation" in our 2001 proxy statement. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference to the information set forth in the section entitled "Security Ownership of Certain Beneficial Owners and Management" in our 2001 proxy statement. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference to the information set forth in the section entitled "Certain Relationships and Related Transactions" in our 2001 proxy statement. 31 34 ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K (a) EXHIBITS EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 3(i).1* Restated Certificate of Incorporation 3(i).2* Certificate of Amendment to Restated Certificate of Incorporation 3(ii)* Bylaws of the Registrant, as amended 4.1 Reference is made to Exhibits 3(i).1, 3(i).2 and 3(ii) 10.1** Form of Indemnification Agreement entered into between the Registrant and its directors and officers, with related schedule 10.2** Investment Agreement dated August 12, 1986 10.3** Investors' Rights Agreement dated February 4, 1993 10.4** 1996 Amended and Restated 1987 Stock Option Plan of the Registrant, including form of Incentive Stock Option and Nonstatutory Stock Option thereunder 10.5** 1996 Equity Incentive Plan of the Registrant, including form of Incentive Stock Option and Nonstatutory Stock Option thereunder 10.6** 1996 Non-Employee Directors' Stock Option Plan of the Registrant, including form of Nonstatutory Stock Option thereunder 10.7** Employee Stock Purchase Plan of the Registrant and related offering document 10.8** Lease Agreement between the Registrant and Flatirons Cottonwood, Inc. (formerly Cottonwood Development Partners) dated June 29, 1990, as amended 10.9** Warrant to Purchase 33,333 shares of Next Preferred Stock issued by the Registrant to New York Life Insurance Company dated November 1, 1994 10.10** Warrant to Purchase 66,667 shares of Next Preferred Stock issued by the Registrant to Nazem & Company II, L.P. dated November 1, 1994 10.11** Warrant to Purchase 66,667 shares of Next Preferred Stock issued by the Registrant to Benefit Capital Management Corporation dated November 1, 1994 10.12** Warrant to Purchase 12,500 shares of Next Preferred Stock issued by the Registrant to Benefit Capital Management Corporation dated January 2, 1996 10.13*** Separation and Release Agreement between the Registrant and Jerry T. Sisson dated June 23, 1997 10.14**** Software Consulting Agreement between the Registrant and Three-Space Limited dated December 31, 1997 10.15***** Asset Purchase Agreement between the Registrant and Sven Technologies, Inc., dated June 29, 1999 10.16+ Securities Purchase Agreement between the Registrant and certain purchasers dated February 22, 2000 10.17++ Asset Purchase Agreement among the Registrant, Prescient Technologies, Inc. and Stone and Webster dated June 28, 2000 10.18+++ 2000 Stock Incentive Plan of the Registrant 10.19++++ Share Purchase Agreement between the Registrant and Dassault Systemes Corp. dated November 14, 2000 10.20******# Cross License Agreement between the Registrant and Dassault Systemes S.A. dated November 14, 2000 10.21******# Co-Branding Agreement between the Registrant and Dassault Systemes S.A. dated November 14, 2000 10.22******# Server Software License Agreement between the Registrant and Dassault Systemes S.A. dated November 14, 2000 32 35 10.23******# Web Services Agreement between the Registrant and Dassault Systemes S.A. dated November 14, 2000 10.24******# Joint Software License Agreement between the Registrant and Dassault Systemes S.A. dated November 14, 2000 10.25******# Master Software Reseller Agreement between the Registrant and Dassault Systemes S.A. dated November 14, 2000 10.26******# IntraVISION License Agreement between the Registrant and Spatial Components, LLC dated November 14, 2000 10.27******# Catia V5 Galaxy Program Solution Provider Agreement between the Registrant and Dassault Systemes S.A. dated November 14, 2000 10.28+++ Purchase Agreement among the Registrant, Dassault Systemes Corp. and Spatial Components, LLC dated July 4, 2000 10.29+++ Amendment No. 1 to Purchase Agreement among the Registrant, Dassault Systemes Corp. and Spatial Components, LLC dated September 2, 2000 10.30 Lease Agreement between Flatirons North, LLC and the Registrant dated June 9, 2000 10.31 Agreement of Lease between OTR and the Registrant dated July 28, 2000 10.32 Separation and Release Agreement between the Registrant and R. Bruce Morgan dated December 28, 2000 21.1 List of Subsidiaries of the Registrant 23.1 Consent of KPMG LLP - ---------- * Incorporated by reference to the Registrant's Registration Statement on Form SB-2, File No. 333-50426, filed November 21, 2000. ** Incorporated by reference to the Registrant's Registration Statement on Form SB-2, File No. 333-05416-D, filed on August 12, 1996. *** Incorporated by reference to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1997. **** Incorporated by reference to the Registrant's Report on Form 8-K dated January 16, 1998. ***** Incorporated by reference to the Registrant's Report on Form 8-K dated July 14, 1999. ****** Incorporated by reference to the Registrant's Report on Form 8-K/A dated April 2, 2001. + Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1999. ++ Incorporated by reference to the Registrant's Report on Form 8-K dated October 18, 2000. +++ Incorporated by reference to the Registrant's Definitive Proxy Statement on Schedule 14A dated October 17, 2000. ++++ Incorporated by reference to the Registrant's Report on Form 8-K dated November 21, 2000. # Confidential treatment has been requested as to certain portions of exhibit. Such portions have been redacted and filed separately with the Commission. (b) REPORTS ON FORM 8-K On October 18, 2000, we filed a Current Report on Form 8-K, including financial statements, with respect to our acquisition of Prescient Technologies, Inc. on July 12, 2000. On November 21, 2000, we filed a Current Report on Form 8-K, including financial statements, with respect to the disposition of our component software division to a subsidiary of Dassault on November 14, 2000. 33 36 On December 18, 2000, we filed a Current Report on Form 8-K with respect to the resignation of our former President and Chief Executive Officer, R. Bruce Morgan, and the appointment of our new President and Chief Executive Officer, Jim Bracking, effective on December 18, 2000. 34 37 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 30, 2001 PlanetCAD INC. By: /s/ Jim Bracking ------------------------------------------ Name: Jim Bracking Title: President and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: March 30, 2001 By: /s/ Jim Bracking ------------------------------------------------ Name: Jim Bracking Title: President and Chief Executive Officer (Chief Accounting Officer) Date: March 30, 2001 By: /s/ Richard M. Sowar ------------------------------------------------ Name: Richard M. Sowar Title: Chairman, Director, Chief Technology Officer and Vice President, Engineering Date: March 30, 2001 By: /s/ Philip E. Barak ------------------------------------------------ Name: Philip E. Barak Title: Director Date: March 30, 2001 By: /s/ Eugene J. Fischer ------------------------------------------------ Name: Eugene J. Fischer Title: Director Date: March 30, 2001 By: /s/ H. Robert Gill ------------------------------------------------ Name: H. Robert Gill Title: Director Date: March 30, 2001 By: /s/ M. Thomas Hull ------------------------------------------------ Name: M. Thomas Hull Title: Director Date: March 30, 2001 By: /s/ Chuck Bay ------------------------------------------------ Name: Chuck Bay Title: Director 38 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3(i).1* Restated Certificate of Incorporation 3(i).2* Certificate of Amendment to Restated Certificate of Incorporation 3(ii)* Bylaws of the Registrant, as amended 4.1 Reference is made to Exhibits 3(i).1, 3(i).2 and 3(ii) 10.1** Form of Indemnification Agreement entered into between the Registrant and its directors and officers, with related schedule 10.2** Investment Agreement dated August 12, 1986 10.3** Investors' Rights Agreement dated February 4, 1993 10.4** 1996 Amended and Restated 1987 Stock Option Plan of the Registrant, including form of Incentive Stock Option and Nonstatutory Stock Option thereunder 10.5** 1996 Equity Incentive Plan of the Registrant, including form of Incentive Stock Option and Nonstatutory Stock Option thereunder 10.6** 1996 Non-Employee Directors' Stock Option Plan of the Registrant, including form of Nonstatutory Stock Option thereunder 10.7** Employee Stock Purchase Plan of the Registrant and related offering document 10.8** Lease Agreement between the Registrant and Flatirons Cottonwood, Inc. (formerly Cottonwood Development Partners) dated June 29, 1990, as amended 10.9** Warrant to Purchase 33,333 shares of Next Preferred Stock issued by the Registrant to New York Life Insurance Company dated November 1, 1994 10.10** Warrant to Purchase 66,667 shares of Next Preferred Stock issued by the Registrant to Nazem & Company II, L.P. dated November 1, 1994 10.11** Warrant to Purchase 66,667 shares of Next Preferred Stock issued by the Registrant to Benefit Capital Management Corporation dated November 1, 1994 10.12** Warrant to Purchase 12,500 shares of Next Preferred Stock issued by the Registrant to Benefit Capital Management Corporation dated January 2, 1996 10.13*** Separation and Release Agreement between the Registrant and Jerry T. Sisson dated June 23, 1997 10.14**** Software Consulting Agreement between the Registrant and Three-Space Limited dated December 31, 1997 10.15***** Asset Purchase Agreement between the Registrant and Sven Technologies, Inc., dated June 29, 1999 10.16+ Securities Purchase Agreement between the Registrant and certain purchasers dated February 22, 2000 10.17++ Asset Purchase Agreement among the Registrant, Prescient Technologies, Inc. and Stone and Webster dated June 28, 2000 10.18+++ 2000 Stock Incentive Plan of the Registrant 10.19++++ Share Purchase Agreement between the Registrant and Dassault Systemes Corp. dated November 14, 2000 10.20******# Cross License Agreement between the Registrant and Dassault Systemes S.A. dated November 14, 2000 10.21******# Co-Branding Agreement between the Registrant and Dassault Systemes S.A. dated November 14, 2000 10.22******# Server Software License Agreement between the Registrant and Dassault Systemes S.A. dated November 14, 2000
39 10.23******# Web Services Agreement between the Registrant and Dassault Systemes S.A. dated November 14, 2000 10.24******# Joint Software License Agreement between the Registrant and Dassault Systemes S.A. dated November 14, 2000 10.25******# Master Software Reseller Agreement between the Registrant and Dassault Systemes S.A. dated November 14, 2000 10.26******# IntraVISION License Agreement between the Registrant and Spatial Components, LLC dated November 14, 2000 10.27******# Catia V5 Galaxy Program Solution Provider Agreement between the Registrant and Dassault Systemes S.A. dated November 14, 2000 10.28+++ Purchase Agreement among the Registrant, Dassault Systemes Corp. and Spatial Components, LLC dated July 4, 2000 10.29+++ Amendment No. 1 to Purchase Agreement among the Registrant, Dassault Systemes Corp. and Spatial Components, LLC dated September 2, 2000 10.30 Lease Agreement between Flatirons North, LLC and the Registrant dated June 9, 2000 10.31 Agreement of Lease between OTR and the Registrant dated July 28, 2000 10.32 Separation and Release Agreement between the Registrant and R. Bruce Morgan dated December 28, 2000 21.1 List of Subsidiaries of the Registrant 23.1 Consent of KPMG LLP
- ---------- * Incorporated by reference to the Registrant's Registration Statement on Form SB-2, File No. 333-50426, filed November 21, 2000. ** Incorporated by reference to the Registrant's Registration Statement on Form SB-2, File No. 333-05416-D, filed on August 12, 1996. *** Incorporated by reference to the Registrant's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1997. **** Incorporated by reference to the Registrant's Report on Form 8-K dated January 16, 1998. ***** Incorporated by reference to the Registrant's Report on Form 8-K dated July 14, 1999. ****** Incorporated by reference to the Registrant's Report on Form 8-K/A dated April 2, 2001. + Incorporated by reference to the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 1999. ++ Incorporated by reference to the Registrant's Report on Form 8-K dated October 18, 2000. +++ Incorporated by reference to the Registrant's Definitive Proxy Statement on Schedule 14A dated October 17, 2000. ++++ Incorporated by reference to the Registrant's Report on Form 8-K dated November 21, 2000. # Confidential treatment has been requested as to certain portions of exhibit. Such portions have been redacted and filed separately with the Commission. EX-10.30 2 d85481ex10-30.txt LEASE AGREEMENT 1 EXHIBIT 10.30 LEASE AGREEMENT OFFICE AND INDUSTRIAL SPACE This Lease Agreement is made and entered into as of the 9th day of June, 2000, by and between Flatirons North, LLC ("Landlord"), whose address is 4875 Pearl East Cr. #300, Boulder, CO 80301, and Spatial Technology, Inc. ("Tenant"), whose address is 2520 55th Street. Suite 200, Boulder, Colorado, 80301. In consideration of the covenants, terms, conditions, agreements and payments as herein set forth, the Landlord and Tenant hereby enter into the following Lease: 1. Definitions. Whenever the following words or phrases are used in this Lease, said words or phrases shall have the following meaning: A. "Area" shall mean the parcel of land and depicted on Exhibit "A" attached hereto and commonly and known and referred to as 2500 55th Street, Boulder, Colorado. The Area includes the Leased Premises and one or more buildings. The Area may include Common Areas. B. "Building" shall mean a building located in the Area more commonly known as 2520 55th Street. C. "Common Areas" shall mean all entrances, exits, driveways, curbs, walkways, hallways, parking areas, landscaped areas, restrooms, loading and service areas, and like areas or facilities which are located in the Area and which are designated by the Landlord as areas or facilities available for the nonexclusive use in common by persons designated by the Landlord. D. "Leased Premises" shall mean the premises herein leased to the Tenant by the Landlord. E. "Rentable Area" shall mean: (1) For a Single Tenant Floor. With respect to a single tenant floor, Rentable Area will mean the sum of (i) the floor area (in square feet) excluding standard openings in the floor slab used, for example, for Building stairs, elevator and other shafts and vertical ducts (collectively, the "Excluded Spaces"), and (ii) an allocation of the floor area of Common Areas located in or serving the Building. (2) For a Multiple Tenant Floor. With respect to a multiple tenant floor, Rentable Area will mean the sum of (i) the floor area (in square feet) less any Excluded Spaces located within the Rentable Area, and (ii) an allocation of the floor area of the Common Areas and Services Areas on such floor, and (iii) an allocation of the floor area of Common Areas located in or serving the Building. (3) Columns and Non-Standard Openings. No deductions will be made in either Paragraph 1.E.(l) or Paragraph 1.E.(2) for (i) columns and projections necessary to the structural support of the Building or (ii) for openings in the floor slab which were made at the request of Tenant or to accommodate items installed at the request of Tenant. F. "Tenant's Prorata Share" as to the Building in which the Leased Premises are located shall mean an amount (expressed as a percentage) equal to the rentable area included in the Leased Premises divided by the total rentable area included in said Building. The Tenant's Prorata Share as to Common Areas shall mean an amount (expressed as a percentage) equal to the rentable area included in the Leased Premises divided by the total rentable area included in all the Buildings located in the Area. The Tenant's Prorata Share for Common Areas may change from time to time as the rentable area in at Buildings located in the Area is increased or decreased. 2. Leased Premises. The Landlord hereby leases unto the Tenant, and the Tenant hereby leases from the Landlord, the following described premises: Space 200 in Building 2520 consisting of 15,608 square feet of rentable area, all as depicted on Exhibit "B" attached hereto. 3. Base Term. The term of this Lease shall commence at 12:00 noon on September 1, 2000, and, unless sooner terminated as herein provided for, shall end at 12:00 noon on September 1, 2007 ("Lease Term"). Except as specifically provided to the contrary herein, the Leased Premises shall, upon the termination of this Lease, by virtue of the expiration of the Lease Term or otherwise, be returned to the Landlord by the Tenant in as good or better condition than when entered upon by the Tenant, ordinary wear and tear excepted. 4. Rent. Tenant shall pay the following rent for the Leased Premises: A. Base Monthly Rent. Tenant shall pay to Landlord, without notice and without setoff, at the address of Landlord as herein set forth, the following Base Monthly Rent ("Base Monthly Rent"), said Base Monthly Rent to be paid in advance on the first day of each month during the term hereof. In the event that this Lease commences on a date other than the first day of a month, the Base Monthly Rent for the first month of the Lease Term shall be prorated for said partial month. Below is a schedule of Base Monthly Rental payments as agreed upon: During Lease Term
For Period To Period A Base Monthly Starting Ending Rent of September 1, 2000 September 1, 2001 $25,353.00 September 1, 2001 September 1, 2002 $28,124.00 September 1, 2002 September 1, 2003 $26,908.00 September 1, 2003 September 1, 2004 $27,715.00 September 1, 2004 September 1, 2005 $28,546.00 September 1, 2005 September 1, 2005 $29,403.00 September 1, 2006 September 1, 2007 $30,285.00
B. Lease Term Adjustment. If, for any reason, other than delays caused by the Tenant, the Leased Premises are not ready for Tenant's occupancy on September 1, 2000, the Tenant's rental obligation and other monetary expenses (i.e. taxes, utilities, etc.) shall be abated in direct Page 1 of 17 2 proportion to the number of days of delay. It is hereby agreed that the premises shall be deemed ready for occupancy on the day the Landlord receives a Temporary Certificate of Occupancy (it being understood that the issuance of such Temporary Certificate of Occupancy shall not relieve Landlord of its responsibility to obtain a final Certificate of Occupancy), or Certificate of Occupancy from the appropriate authority, or on the day the Landlord gives Tenant the keys to the Leased Premises if a building permit has not been applied for and is not required by the appropriate authority. If Landlord is unable to receive a Certificate of Occupancy or Temporary Certificate of Occupancy and deliver the space to the Tenant by December 1, 2000, Tenant will have the option to terminate this Lease Agreement upon written notice to Landlord by December 2, 2000. Upon receipt of Tenant notice to terminate this Lease, Landlord shall promptly refund the Security Deposit and any monies paid by Tenant to Landlord under the terms of this Lease. C. Additional Rent: All amounts and charges (if any) in addition to the Base Monthly Rent required to be paid by the Tenant under this Lease shall be deemed to be additional rent (the "Additional Real"). D. Total Net Lease. The Tenant understands and agrees that this Lease is a total net lease (a "net, net, net lease"), whereby the Tenant has the obligation to reimburse the Landlord for a share or all costs and expenses (taxes, assessments, other charges, insurance, trash removal, Common Area operation and maintenance and like costs and expenses), incurred by the Landlord as a result of the Landlord's ownership and operation of the Area. 5. Security Deposit. Landlord acknowledges receipt from the Tenant of the sum of twenty five thousand four hundred and 00/100 Dollars ($25,400.00) to be retained by Landlord without responsibility for payment of interest thereon, as security for performance of all the terms and conditions of this Lease Agreement to be performed by Tenant, including payment of all rent due under the terms hereof. Deductions may be made by Landlord from the amount so retained for the reasonable cost of repairs to the Leased Premises (ordinary wear and tear excepted), for any rent delinquent under the terms hereof and/or for any sum used in any manner to cure any Default of Tenant under the terms of this Lease. In the event deductions are so made, the Tenant shall, upon notice from the Landlord, redeposit with the Landlord such amounts so expended so as to maintain the deposit in the amount as herein provided for, and failure to so redeposit shall be deemed a failure in pay rent under the terms hereof. Nothing herein contained shall limit the liability of Tenant as to any damage to the Leased Premises, and Tenant shall be responsible for the total amount of any damage and/or loss occasioned by actions of Tenant. Landlord may deliver the funds deposited hereunder by Tenant to any purchaser of Landlord's interest in the Leased Premises in the event such interest shall be sold, and thereupon Landlord shall be discharged from any further liability with respect to such deposit, provided that such purchase agrees to be liable for the same. Upon expiration of the Lease Term, including any applicable lease extensions and modifications, provided that the Tenant is not in Default under this Lease, the Landlord shall return the security deposit to the Tenant. 6. Use of Premises. Tenant shall use the Leased Premises only for research and development offices, computer equipment/data room with telephone equipment and ancillary purposed thereto and for no other purpose whatsoever except with the written consent of Landlord. Tenant shall not cause any accumulation of trash or debris on the Leased Premises or within any portion of the Area. All receiving and delivery of goods and merchandise and all removal of garbage and refuse shall be made only by way of the rear and/or other service door provided therefore. In the event the Leased Premises shall have no such door, then these matters shall be handled in a manner satisfactory to Landlord. No storage of any material outside of the Leased Premises shall be allowed unless first approved by Landlord in writing, and then in only such areas as are designated by Landlord. Tenant shall not commit or suffer any waste on the Leased Premises nor shall Tenant permit any nuisance to be maintained on the Leased Premises or permit any disorderly conduct or other activity having a tendency to annoy or disturb any occupants of any part of the Area and/or any adjoining property. 7. Laws and Regulations. - Tenant Responsibility. Except for any obligation by Landlord to obtain a Certificate of Occupancy, the Tenant shall, at its sole cost and expense, comply with all laws and regulations of any governmental entity, board, commission or agency having jurisdiction over the Leased Premises. Tenant agrees not to install any of electrical equipment that overloads any electrical paneling, circuitry or wiring and further agrees to comply with the requirements of the insurance underwriter or any governmental authorities having jurisdiction thereof. 8. Landlord's Rules and Regulations. Landlord reserves the right to adopt and promulgate commercially reasonable rules and regulations applicable to the Leased Premises and from time to time amend or supplement said rules or regulations. Notice of such rules and regulations and amendments and supplements thereto shall be given to Tenant, and Tenant agrees to comply with and observe such rules and regulations and amendments and supplements thereto provided that the same apply uniformly to all Tenants of the Landlord in the Area. In the event a conflict between the rules and regulation and this Lease, the terms of this Lease shall control. 9. Parking. If the Landlord provides off street parking for the common use of Tenants, employees and customers of the Area, the Tenant shall park all vehicles of whatever type used by Tenant and/or Tenant's employees only in such areas thereof as are designated by Landlord for this purpose, and Tenant accepts the responsibility of seeing that Tenant's employees park only in the areas so designated. Tenant shall, upon the request of the Landlord, provide to the Landlord license numbers of the Tenant's vehicles and the vehicles of Tenant's employees. Notwithstanding the foregoing, Landlord agrees to provide (and designate) a reasonable number, as determined by Landlord, of visitor parking spaces for the Building. Current parking ratio in the Area is approximately one (1) space per 325 square feet of the buildings in the Area. 10. Control of Common Areas. - Exclusive control of the Landlord. All Common Areas shall at all times be subject to the exclusive control and management of Landlord, notwithstanding that Tenant and/or Tenant's employees and/or customers may have a nonexclusive right to the use thereof. Landlord shall have the right from time to time to establish, modify and enforce rules and regulations with respect to the use of said facilities and Common Areas. 11. Taxes. A. Real Property Taxes and Assessments. The Tenant shall pay to the Landlord on the first day of each month, as Additional Rent, the Tenant's Prorata Share of all real estate taxes and special assessments levied and assessed against the Building in which the Leased Premises are located and the Common Areas. If the first and last years of the Lease Term are not calendar years, the obligations of the Tenant hereunder shall be prorated for the number of days during the calendar year that this Lease is in effect. The monthly payments for such taxes and assessments shall be $2,926.50 until the Landlord receives the first tax statement for the referred to properties. Thereafter, the monthly payments shall be based upon 1/12th of the prior year's taxes and assessments. Once each year the Landlord shall determine the actual Tenant's Prorata Share of taxes and assessments for the prior year and if the Tenant has paid less than the Tenant's Prorata Share for the prior year the Tenant shall pay the deficiency to the Landlord with the next payment of Base Monthly Rent, or, if the Tenant has paid in excess of the Tenant's Prorata Share for the prior year the Landlord shall forthwith refund said excess to the Tenant. Additionally, upon Lease expiration or termination Landlord shall also determine Tenant's Prorata Share of taxes and assessments for the calendar year in which the Lease expires or terminates based on the most recent valuation and estimate of taxes provided by Boulder County. If the Tenant has paid less than the Tenant's prorated Prorata Share for the current year the Tenant shall pay the deficiency, or, if the Tenant has paid in excess of the Tenant's prorated Prorata Share for the current year the Page 2 of 17 3 Landlord shall forthwith refund the excess to the Tenant. Tenant shall be entitled to a copy of the tax or assessment statement and such other documentation reasonably required to confirm Tenant's Prorata Share of Taxes and Assessments. Once each Lease Year (during the 30-day period immediately following the Tenant's receipt of Landlord's determination of Tenant's actual Prorata Share of taxes and assessments), the Landlord shall make its books and records upon which such determination was based available to certified public accountant to the Tenant's choice, to be audited at the Tenant's expense at the Landlord's corporate headquarters. If as a result of such audit, it is determined that such determination provided for a taxes and assessments increase in excess of taxes and assessments actually due, Landlord shall promptly refund any such excess to the Tenant. B. Personal Property Taxes. Tenant shall be responsible for, and shall pay promptly when due, any and all taxes and/or assessments levied and/or assessed against any furniture, fixtures, equipment and items of a similar nature installed and/or located in or about the Leased Premises by Tenant. C. Rent Tax. If a special tax, charge or assessment is imposed or levied upon the rents paid or payable hereunder or upon the right of the Landlord to receive the rents hereunder (other than to the extent that such rents are included as a part of the Landlord's income for the purpose of an income tax), the Tenant shall reimburse the Landlord for the amount of such tax within fifteen (15) days after demand therefore is made upon the Tenant by the Landlord. D. Other Taxes, Fees and Charges. Tenant shall pay to Landlord, on the first day of each month, as additional rent, Tenant's Pro Rata Share of any "Other Charges" (as hereinafter defined) levied, assessed, charged or imposed against the Area, as a whole. Unless paid directly by Tenant to the authority levying, assessing, charging or imposing same, Tenant shall also pay to Landlord, on the first day of the month following payment of same by Landlord, the entire costs of any such "Other Charges" levied, assessed, charged or imposed against the Leased Premises, Tenant's use of same, or Tenant's conduct of business thereon. For purposes of this provision, "Other Charges" shall mean and refer to any and all taxes, assessments, impositions, user fees, impact fees, utility fees, transportation fees, infrastructure fees, system fees, license fees, and any other charge or assessment imposed by any governmental authority or applicable subdivision on the Area, the Leased Premises or the ownership or use of the Area or Leased Premises, or the business conducted thereon, whether or not formally denominated as a tax, assessment charge or other nominal description, whether now in effect or hereafter enacted or imposed (excluding, however, Landlord's income taxes). E. Should Landlord protest and win a reduction in the real estate taxes for the Building and Area, Tenant shall be obligated to pay its Prorata Share of the reasonable cost of such protest, if the protest is handled by a party other than the Landlord, and only to the extent of the actual reduction in real estate taxes. 12. Insurance. A. Landlord's Insurance. Landlord shall obtain and maintain such fire and casualty insurance on the core and shell of the Building in which the Leased Premises are located and the Common Areas, as well as such loss of rents, business interruption, liability or any other insurance, as it deems appropriate, with such companies and on such terms and conditions as Landlord deems acceptable. Such insurance shall not be required to cover any of Tenant's inventory, furniture, furnishings, fixtures, equipment or tenant improvements (whether or not installed on the Leased Premises by or for Tenant and whether or not included within the tenant finish provided by Landlord), and Landlord shall not be obligated to repair any damage thereto or replace any of same, and Tenant shall have no interest in any proceeds of Landlord's insurance. B. Tenant's Insurance. Tenant shall, at its sole cost and expense, obtain and maintain throughout the term of this Lease, on a full replacement cost basis, "all risk" insurance covering all of Tenant's inventory, furniture, furnishings, fixtures, equipment and all tenant improvements or tenant finish (whether or not installed by Landlord) and betterments located on or within the Leased Premises. In addition, Tenant shall obtain and maintain, at its sole cost and expense, comprehensive general public liability insurance providing coverage from and against any loss or damage occasioned by an accident or casualty on, about or adjacent to the Leased Premises, including protection against death, personal injury and property damage. Such liability coverage shall be written on an "occurrence" basis, with limits of not less than $1,000,000.00 combined single limit coverage. All policies of insurance required to be carried by Tenant hereunder shall be written by an insurance company licensed to do business in the State of Colorado, and shall name Landlord as an additional named insured and/or loss payee, as Landlord may direct. Each such policy shall provide that same shall not be changed or modified without at least thirty (30) days' prior written notice to Landlord and any mortgagee of Landlord. Certificates evidencing the extent and effectiveness of all Tenant's insurance shall be delivered to Landlord. The limits of such insurance shall not, under any circumstances, limit the liability of Tenant under this Lease. In the event that Tenant fails to maintain any of the insurance required of it pursuant to this provision, and such failure constitutes a Default under this Lease, Landlord shall have the right (but not the obligation) at Landlord's election, to pay Tenant's premiums or to arrange substitute insurance with an insurance company of Landlord's choosing, in which event any premiums advanced by Landlord shall constitute additional rent payable under this Lease and shall be payable by Tenant to Landlord immediately upon demand for same. Landlord shall also have the right, but no the obligation, whether or not Tenant maintains coverage to carry any such insurance as Landlord may elect in order to provide coverage in the event Tenant fails to properly maintain such insurance. The rights of Landlord hereunder shall be in addition to, and not in lieu of, of any other rights or remedies available to Landlord under this Lease or provided by law or in equity. Without limiting the foregoing, in the event that coverage of any risk for which Tenant is responsible pursuant to this Section 12 is ultimately provided by coverage maintained by Landlord, whether due to Tenant's failure to provided or maintain such insurance or otherwise, Tenant shall promptly reimburse Landlord for an amount equal to any deductible incurred, immediately upon demand for same. C. Tenant's High Pressure Steam Boiler Insurance. If Tenant makes use of any kind of steam or other high pressure boiler or other apparatus which presents a risk of damage to the Leased Premises or to the Building or other improvements of which the Leased Premises are a part or to the life or limb of persons within such premises, Tenant shall secure and maintain appropriate boiler insurance in an amount satisfactory to Landlord. The Landlord shall be named insured in any such policy or policies. Certificates for such insurance shall be delivered to Landlord and shall provide that said insurance shall not be changed, modified, reduced or canceled without thirty (30) days prior written notice thereof being given to Landlord. D. Tenant's Share of Landlord Insurance. Tenant shall pay the Landlord as Additional Rent Tenant's Prorata Share of the insurance secured by the Landlord pursuant to "12A" above. Payment shall be made on the first day of each month as additional rent. The monthly payments for such insurance shall be $104.00 until changed by Landlord as a result of an increase or decrease in the cost of such insurance. Page 3 of 17 4 E. Mutual Subrogation Waiver. Landlord and Tenant hereby grant to each other, on behalf of any insurer providing fire and extended coverage to either of them covering the Leased Premises, Buildings or other improvements thereon or contents thereof, a waiver of any right of subrogation any such insurer of one party may acquire against the other or as against the Landlord or Tenant by virtue of payments any loss under such insurance. Such a waiver shall be effective so long as the Landlord and Tenant are empowered to grant such waiver under the terms of their respective insurance policy or policies and such waiver shall stand mutually terminated as of the date either Landlord or Tenant gives notice to the other that the power to grant such waiver has been so terminated. 13. Utilities. A. Provided that Landlord provides a separate meter to the Leased Premises for utilities, Tenant shall be solely responsible for and promptly pay all charges for heat, water, gas, electric, sewer service and any other utility service used or consumed on the Leased Premises. In no event shall Landlord be liable for any interruption or failure In the supply of any such utility to the Leased Premises. In the event the utility company supplying water and/or sewer to the Leased Premises determines that an additional service fee, impact fee, and/or assessment, or any type of payment or penalty is necessary due to Tenant's use and occupancy of the Building, nature of operation and/or consumption of utilities, said expense shall be borne solely by the Tenant. Said expense shall be paid promptly and any repairs requested by the utility company shall be performed by Tenant immediately and without any delay. B. Landlord Controls Selection. Landlord has advised Tenant that presently Public Service Company of Colorado ("Utility Service Provider") is the utility company selected by Landlord to provide electricity and gas service for the Building. Notwithstanding the foregoing, if permitted by Law, Landlord shall have the right at any time and from time to time during the Lease Term to either contract for service from a different company or companies providing electricity and/or gas service (each such company shall hereinafter be referred to as an ("Alternative Service Provider") or continue to contract for service from the Utility Service Provider, provided that Landlord shall not select an Alternative Service Provider if the change would result in a degradation of services from the current Utility Service Provider and a minimum thirty (30) days written notice is provided to Tenant. C. Tenant Shall Give Landlord Access. Tenant shall cooperate with Landlord, Utility Service Provider, and any Alternative Service Provider at all times and, as reasonably necessary, upon reasonable prior notice (except in the event of an emergency), shall allow Landlord, Utility Service Provider, and any Alternative Service Provider reasonable access to the Building's electric lines, feeders, risers, wiring, gas lines, and any other machinery within the Premises. D. Landlord Not Responsible for Interruption of Service. Landlord shall in no way be liable or responsible for any loss, damage, or expense that Tenant may sustain or incur by reason of any change, failure, interference, disruption, or defect in the supply or character of the electrical and/or gas energy furnished to the Premises, or if the quantity or character of the electric and/or gas energy supplied by the Utility Service Provider or any Alternate Service Provider is no longer available or suitable for Tenant's requirements, and no such change, failure, defect, unavailability, or unsuitability shall constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of rent, or relieve Tenant from any of its obligations under the Lease. E. Landlord shall cooperate with Tenant in securing the rights to fiber optics for Tenant's use. Landlord shall not incur any additional expense with such cooperation, the sole cost and expense to be borne by Tenant and/or such fiber optic provider. Landlord acknowledges that certain right-of-way and other utility easements may be required in order to provide such connectivity to the Leased Premises. 14. Maintenance Obligations of Landlord. Except as herein otherwise specifically provided for, Landlord shall keep and maintain the roof, common areas as described in paragraph 16, and exterior of the Building of which the Leased Premises are a part, the plumbing systems up to the Leased Premises and the electrical systems up to the Leased Premises in good repair and condition. Tenant shall repair and pay for any damage to roof, foundation and external walls caused by Tenant's action, negligence, intentional misconduct, or fault. 15. Maintenance Obligations of the Tenant. Subject only to the maintenance obligations of the Landlord as herein provided for, the Tenant shall, during the entire Lease Term, including all extensions thereof, at the Tenant's sole cost and expense (except for damage caused by Landlord's gross negligence or intentional misconduct), keep and maintain the Leased Premises in good condition and repair including specifically the following: A. Electrical Systems. Tenant agrees to maintain in good working order and to make all required repairs and replacements to the electrical systems for the Leased Premises. B. Plumbing Systems. Tenant agrees to maintain in good working order and to make all required repairs or replacements to the plumbing systems for the Leased Premises. C. Tenant's Responsibility for Building and Area Repairs. Tenant shall be responsible for any repairs required for any part of the Building or Area of which the Leased Premises are a part if such repairs are necessitated by the gross negligence or intentional misconduct of Tenant. D. Cutting Roof. Tenant must obtain in writing the Landlord's approval prior to making any roof penetrations. Failure by Tenant to obtain written permission to penetrate a roof shall relieve Landlord of any roof repair obligations as set forth in Paragraph "14" hereof. Tenant further agrees to repair, at its sole cost and expense, all roof penetrations made by the Tenant and to use, if so requested by Landlord, a licensed contractor selected by the Landlord to make such penetrations and repairs. E. Glass and Doors. The repair and replacement of all glass and doors on the Leased Premises shall be the responsibility of the Tenant. Any such replacements or repairs shall be promptly completed at the expense of the Tenant. F. Liability for Overload. Tenants shall be responsible for the repair or replacement of any damage to the Leased Premises, the Building or the Area which result from the Tenant's movement of heavy articles therein or thereon. Tenant shall not overload the floors of any part of the Leased Premises. G. Liability for Overuse and Overload of Operating Systems. Tenant shall be responsible for the repair, upgrade, modification, and/or replacement of any operating systems servicing the Leased Premises and/or all or part of the Building which is necessitated by Tenant's change or increase in use of or non-disclosed use of all or a part of the Leased Premises. Operating systems include, but are not limited to, electrical systems, plumbing systems (both water and natural gas); heating, ventilating, and air conditioning systems; telecommunications systems, computer Page 4 of 17 5 and network systems; lighting systems, fire sprinkler systems; security systems; and building control systems, if any. H. Failure of Tenant to Maintain Premises. Should Tenant neglect to keep and maintain the Leased Premises as required herein and such failure constitutes a Default under this Lease, the Landlord shall have the right, but not the obligation, to have the work done and any reasonable costs plus a ten percent (10%) overhead charge therefore shall be charged to Tenant as Additional Rent and shall become payable by Tenant with the payment of the rental next due. 16. Common Area Maintenance. A. Tenant shall be responsible for Tenant's Prorata share of the total costs incurred for the operation, maintenance and repair of the Common Areas, including, but not limited to, the costs and expenses incurred for the operation, maintenance and repair of parking areas (including restriping and repaving); removal of snow; all utilities including water, gas, and electric for the building; janitorial for common areas and tenant occupied space; normal HVAC maintenance and elevator maintenance (if applicable); trash removal; security to protect and secure the Area; common entrances, exits, and lobbies of the Building; all common utilities, including water to maintain landscaping; replanting in order to maintain a smart appearance of landscape areas; supplies; depreciation on the machinery and equipment used in such operation, maintenance and repair; the cost of personnel to implement such services; the cost of maintaining in good working condition the HVAC system(s) for the Leased premises; the cost of maintaining in good working condition the elevator(s) for the Leased Premises, if applicable; and costs to cover Landlord's reasonable management fees paid for the management of the property. These costs shall be estimated on an annual basis by the Landlord and shall be adjusted upwards or downwards depending on the actual costs for the preceding twelve months. Tenant shall pay monthly, commencing with the first month of the Lease Term, as additional rent due under the terms hereof, a sum equal to Tenant's Prorata Share of the estimated costs for said twelve (12) month period, divided by 12. The estimated initial monthly costs are $2,926.50. Once each year the Landlord shall determine the actual costs of the foregoing expenses for the prior year and if the actual costs are greater than the estimated costs, the Tenant shall pay its Tenant's Prorata Share of the difference between the estimated costs and the actual costs to the Landlord with the next payment of Base Monthly Rent, or, if the actual costs are less than the estimated costs, the Landlord shall forthwith refund the amount of the Tenant's excess payment to the Tenant. Additionally, upon Lease expiration or termination Landlord shall also determine Tenant's prorated Prorata Share of the annualized actual costs of the foregoing expenses for the number of days the Lease is in effect during the calendar year in which the Lease expires or terminates. If the annualized actual costs are greater than the estimated costs, the Tenant shall pay its prorated Tenant's Prorata Share of the difference between the estimated costs and the annualized actual costs to the Landlord, or, if the annualized actual costs are less than the estimated costs, the Landlord shall forthwith refund the excess to the Tenant. For purposes of calculating Tenant's share of expenses under this paragraph, annualized actual costs shall be the sum of actual costs for the year at the time of reconciliation plus the total estimated costs prorated for the number of days from the days the from the date the last actual cost was paid to the end of the year. B. Once each Lease Year (during the 30-day period immediately following the Tenant's receipt of Landlord's determination of Tenant's actual Prorata Share of the foregoing expenses), the Landlord shall make its books and records upon which such determination was based available to a certified public accountant of the Tenant's choice, to be audited at the Tenant's expense at the Landlord's corporate headquarters in Colorado (and if no such location shall exist, at the Landlord's management offices at the premises). If as a result of such audit, it is determined that such determination provided for common area maintenance cost increase in excess of common area maintenance costs actually due and such excess is three percent (3%) or more, the Landlord promptly refund any such excess to the Tenant. 17. Inspection of and Right of Entry to Leased Premises-Regular, Emergency, Reletting. Landlord and/or Landlord's agents and employees, shall have the right to enter the Leased Premises at all times during regular business hours upon reasonable prior notice to the Tenant and, at all times during emergencies (without prior notice), to examine the Leased Premises, to make such repairs, alterations, improvements or additions as Landlord deems necessary, and Landlord shall be allowed to take all materials into and upon said Leased Premises that may be required therefore without the same constituting an eviction of Tenant in whole or in part, and the rent reserved shall in no way abate while such repairs, alterations, improvements or additions are being made, by reason of loss or interruption of business of Tenant or otherwise. During the six months prior to the expiration of the term of this Lease or any renewal thereof, Landlord may exhibit the Leased Premises to prospective tenants and/or purchasers and may place upon the Leased Premises the usual notices indicating that the Leased Premises are for lease and/or sale. Landlord shall use commercially reasonable efforts to minimize disruption of Tenant's business during any entry under this Section 17. 18. Alteration-Changes and Additions-Responsibility. Unless the Landlord's approval is first secured in writing, which consent shall not be unreasonably withheld, conditioned, or delayed, the Tenant shall not install or erect inside partitions, add to existing electric power service, add telephone outlets, add light fixtures, install additional heating and/or air conditioning or make any other changes or alterations to the interior or exterior of the Leased Premises. Any such changes or alterations shall be made at the sole cost and expense of the Tenant. At the end of this Lease, all such fixtures, equipment, additions, changes and/or alterations (except trade fixtures installed by Tenant) shall be and remain the property of Landlord; provided, however, Landlord shall have the option to require Tenant to remove any or all such fixtures, equipment, additions and/or alterations and restore the Leased Premises to the condition existing immediately prior to such change and/or installation, normal wear and tear excepted, all at Tenant's cost and expense, provided that Landlord has designated at the time of installation, those fixtures, equipment, additions and/or alterations to be removed. All such work shall be done in a good and workmanlike manner and shall consist of new materials unless agreed to otherwise by Landlord. Any and all repairs, changes and/or modifications thereto shall be the responsibility of, and at the cost of, Tenant. Landlord may require reasonably adequate security from Tenant assuring no mechanics' liens on account of work done on the Leased Premises by Tenant and may post the Leased Premises, or take such other action as is then permitted by law, to protect the Landlord and the Leased Premises against mechanics' liens. Landlord may also require reasonably adequate security to assure Landlord that the Leased Premises will be restored to their original condition upon termination of this Lease. 19. Sign Approval. Except for signs which are located inside of the Leased Premises and which are not attached to any part of the Leased Premises, and except for signs previously approved by the Landlord, the Landlord must approve in writing any sign to be placed in or on the interior or exterior of the Leased Premises, regardless of size or value, which approval shall not be unreasonably withheld, conditioned or delayed. Tenant shall have the same rights to signage as any other tenant in the Building. Specifically, signs attached to windows of the Leased Premises must be so approved by the Landlord. Tenant shall, during the entire Lease Term, maintain Tenant's signs in good condition and repair at Tenant's sole cost and expense. Tenant shall, remove all signs at the termination of this Lease, at Tenant's sole risk and expense and shall in a workmanlike manner properly repair any damage and close any holes caused by the installation and/or removal of Tenant's signs. Tenant shall give Landlord prior notice of such removal so that a representative of Landlord shall have the opportunity of being present when the signage is removed, or shall pre-approve the manner and materials used to repair damage and dose the holes caused by removal. 20. Right of Landlord to Make Changes and Additions. Landlord reserves the right at any time to make alterations or additions to the Building or Area of which the Leased Premises are a part and agrees to use commercially reasonable efforts to minimize disruption of Tenant's business during such work. Landlord also reserves the right to construct other buildings and/or improvements in the Area and to make alterations Page 5 of 17 6 or additions thereto, all as Landlord shall determine. Easements for light and air are not included in the leasing of the Leased Premises to Tenant. Landlord further reserves the exclusive right to the roof of the Building of which the Leased Premises are a part. Landlord also reserves the right at any time to relocate, vary and adjust the size of any of the improvements or Common Areas located in the Area, provided, however, that all such changes shall be in compliance with the requirements of governmental authorities having jurisdiction over the Area. 21. Damage or Destruction of Leased Premises. In the event the Leased Premises and/or the Building of which the Leased Premises are a part shall be totally destroyed by fire or other casualty or so badly damaged that, in the reasonable opinion of Landlord, it is not feasible to repair or rebuild same, Landlord shall have the right to terminate this Lease upon written notice to Tenant. If the Leased Premises are partially damaged by fire or other casualty, except if caused by Tenant's negligence or intentional misconduct, and said Leased Premises are not rendered untenable thereby, as reasonably determined by Landlord, an appropriate reduction of the rent shall be allowed for the unoccupied portion of the Leased Premises until repair thereof shall be substantially completed. If the Landlord elects to exercise the right herein vested in it to terminate this Lease as a result of damage to or destruction of the Leased Premises or the Building in which the Leased Premises are located, said election shall be made by giving notice thereof to the Tenant within thirty (30) days after the date of said damage or destruction. Notwithstanding the foregoing, Landlord shall not have the right to terminate this Lease for any damaged caused by a casualty covered by the insurance Landlord is required to carry under Paragraph 12A. Above; in such event, Landlord shall promptly repair the damage and Tenant shall be entitled to the rent abatement described above. If any damage cannot, or is not, repaired within one hundred eighty (180) days, then Tenant shall have the right to terminate this Lease, provided that if such repair is not capable of being performed within such one hundred eighty(180) day period, it shall be deemed cured if Landlord has commenced such repair and is diligently pursuing such repair but not to exceed two hundred seventy (270) days. Tenant shall be responsible for the cost of repair caused by Tenant's negligence if the damage results from and event not covered by the insurance required to be carried by the Landlord under this Lease. 22. Governmental Acquisition of Property. The parties agree that Landlord shall have complete freedom of negotiation and settlement of all matters pertaining to the acquisition of the Leased Premises, the Building, the Area, or any part thereof, by any governmental body or other person or entity via the exercise of the power of eminent domain, it being understood and agreed that any financial settlement made or compensation paid respecting said land or improvements to be so taken, whether resulting from negotiation and agreement or legal proceedings, shall be the exclusive property of Landlord, there being no sharing whatsoever between Landlord and Tenant of any sum so paid. In the event of any such taking, Landlord shall have the right to terminate this Lease on the date possession is delivered to the condemning person or authority. Such taking of the property shall not be a breach of this Lease by Landlord nor give rise to any claims in Tenant for damages or compensation from Landlord. Nothing herein contained shall be construed as depriving the Tenant of the right to retain as its sole property any compensation paid for any tangible personal property owned by the Tenant which is taken in any such condemnation proceeding. 23. Assignment or Subletting. Tenant may not assign this Lease, or sublet the Leased Premises or any part thereof, without the written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. No such assignment or subletting if approved by the Landlord shall relieve Tenant of any of its obligations hereunder, and, the performance or nonperformance of any of the covenants herein contained by subtenants shall be considered as the performance or the nonperformance by the Tenant. Notwithstanding the foregoing, Tenant shall have the right without Landlord's consent to assign or sublet the Leased premises to an entity which (i) is controlled, controlled by or in common control with Tenant, or (ii) acquires all of substantially all of Tenant's stock or assets (a "Successor"), provided that such Successor has a net worth of at least the same net worth of Tenant at the time this Lease was executed. 24. Warranty of Title. Subject to the provisions of the following three (3) paragraphs hereof, Landlord covenants it has good right to lease the Leased Premises in the manner described herein and that Tenant shall peaceably and quietly have, hold, occupy and enjoy the Leased Premises during the term of the Lease. 25. Access. Landlord shall provide Tenant nonexclusive access to the Leased Premises through and across land and/or other improvements owned by Landlord. Landlord shall have the right, during the term of this Lease, to designate, and to change, such nonexclusive access. 26. Subordination. Tenant agrees that this Lease shall be subordinate to any mortgages, trust deeds or ground leases that may now exist or which may hereafter be placed upon said Leased Premises and to any and all advances to be made thereunder, and to the interest thereon, and all renewals, replacements and extensions thereof, provided that Landlord makes reasonable efforts to obtains from (i) any current mortgagee an agreement by such mortgagee to not disturb Tenant's possession, so long Tenant is not in default of any terms or conditions of this lease, of the Leased Premises in a form reasonably acceptable to Tenant, and (ii) any future mortgage an agreement by such mortgagee to not disturb Tenant's possession, so long Tenant is not in default of any terms or conditions of this lease, of the Leased Premises on such mortgagee's form. Tenant shall execute and deliver whatever instruments may be required for the above purposes, and failing to do so within ten (10) days after demand in writing, does hereby make, constitute and irrevocably appoint Landlord as its attorney-in-fact and in its name, place and stead so to do. Tenant shall in the event of the sale or assignment of Landlord's interest in the Area or in the Building of which the Leased Premises form a part, or in the event of any proceedings brought for the foreclosure of or in the event of exercise of the power of sale under any mortgage made by Landlord covering the Leased Premises, attorn to the purchaser and recognize such purchaser as Landlord under this Lease provided such purchaser agrees to not disturb Tenant's possession, so long Tenant is not in default of any terms or conditions of this lease, of the Leased Premises. 27. Easements. The Landlord shall have the right to grant any easement on, over, under and above the Area for such purposes as Landlord determines, provided that such easements do not materially interfere with Tenant's occupancy and use of the Leased Premises. 28. Indemnification and Waiver. Except in the case of a breach or default in the performance of any obligation under this Lease, each party shall indemnify, defend and hold harmless the other party and nothing in this Lease shall be construed as imposing any liability on them for any loss, costs, expense (including reasonable attorney's fees), or any claims, suits, actions or damages arising from the ownership, use, control or occupancy of any portion of the Project including the Building, Common Areas and Premises unless such loss, cost, expense, claim, suit or action is a result of or caused by the negligent acts or omissions or intentional misconduct of such other party or its agents, servants, employees, contractors, or invitees. Tenant shall not indemnify Landlord for acts or failure to observe or comply with any of the rules by any other Tenant or occupant of the Building or Project that adversely affect Tenant's use and occupancy in which Landlord has been put on notice of such adverse impact to Tenant. 29. Acts or Omission of Others. The Landlord, or its employees or agents, or any of them, shall not be responsible or liable to the Tenant or the Tenant's guests, invitees, employees, agents or any other person or entity, for any loss or damage that may be caused by the acts or omission of other tenants, their guests or invitees, occupying any other part of the Area or by persons who are trespassers on or in the Area, or for any loss or damage caused or resulting from the bursting, stoppage, backing up or leaking of water, gas, electricity or sewers or caused in any other manner whatsoever, unless such loss or damage is caused by or results from the negligent acts of the Landlord, its agents or contractors. Page 6 of 17 7 30. Interest on Past Due Obligations. Any amount due to Landlord not paid when due (after the expiration of any applicable notice period) shall bear interest at two (2%) percent per month from due date until paid. Payment of such interest shall not excuse or cure any default by Tenant under this Lease. 31. Holding Over. If Tenant shall remain in possession of the Leased Premises after the termination of this Lease, whether by expiration of the Lease Term or otherwise, without a written agreement as to such possession, then Tenant shall be deemed a month-to-month Tenant. The rent rate during such holdover tenancy shall be equivalent to one hundred fifty percent (150%) the monthly rent paid for the last full month a tenancy under this Lease, excluding any free rent concessions which may have been made for the last full month of the Lease. No holding over by Tenant shall operate to renew or extend this Lease without the written consent of Landlord to such renewal or extension having been first obtained. Tenant shall indemnify Landlord against loss or liability resulting from the delay by Tenant in surrendering possession of the Leased Premises including, without limitation, any claims made with regard to any succeeding occupancy bounded by such holdover period. 32. Modification or Extensions. No modification or extension of this Lease shall be binding upon the parties hereto unless in writing and unless signed by the parties hereto. 33. Notice Procedure. All notices, demands and requests which may be or are required to be given by either party to the other shall be in writing and such that are to be given to Tenant shall be deemed to have been properly given if served on Tenant upon actual receipt (or refusal of receipt) and may be sent by (i) United States registered or certified mail, return receipt requested, properly sealed, stamped and addressed to such party, (ii) by hand delivery or (iii) by a nationally recognized overnight delivery service at: A. If to Tenant during occupancy: at the address set forth on page one; and if prior to occupancy: 2425 55th Street, Suite 100, Boulder, Colorado 80301. B. If to Landlord at 4875 Pearl East Cr. #300, Boulder, CO 80301, or at such other place as Tenant or Landlord may from time to time designate in a written notice to such other party. 34. Memorandum of Lease-Notice to Mortgagee. The Landlord and Tenant agree not to place this Lease of record, but upon the request of either party to execute and acknowledge so the same may be recorded a short form lease indicating the names and respective addresses of the Landlord and Tenant, the Leased Premises, the Lease Term, the dates of the commencement and termination of the Lease Term and options for renewal, if any, but omitting rent and other terms of this Lease. Tenant agrees to an assignment by Landlord of rents and of the Landlord's interest in this Lease to a mortgagee, if the same be made by Landlord. Tenant further agrees if requested to do so by the Landlord that it will give to said mortgagee a copy of any request for performance by Landlord or notice of default by Landlord; and in the event Landlord fails to cure such default, the Tenant will give said mortgagee a sixty (60) day period in which to cure the same. Said period shall begin with the last day on which Landlord could cure such default before Tenant has the right to exercise any remedy by reason of such default. All notices to the mortgagee shall be sent by United States registered or certified mail, postage prepaid, return receipt requested. 35. Controlling Law. The Lease, and all terms hereunder shall be construed consistent with the laws of the State of Colorado. Any dispute resulting in litigation hereunder shall be resolved in court proceedings instituted in Boulder County and in no other jurisdiction. 36. Landlord Not a Partner With the Tenant. Nothing contained in this Lease shall be deemed, held or construed as creating Landlord as partner, agent, associate of or in joint venture with Tenant in the conduct of Tenant's business, it being expressly understood and agreed that the relationship between the parties hereto is and shall at all times remain that of Landlord and Tenant. 37. Partial Invalidity. If any term, covenant or condition of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease or the application of such term, covenant or condition to persons and circumstances other than those to which it has been held invalid or unenforceable, shall not be affected thereby, and each term, covenant and condition of this Lease shall be valid and shall be enforced to the fullest extent permitted by law. 38. Default-Remedies of Landlord. A. The occurrence of any of the following events shall constitute a default by Tenant under this Lease (a "Default"): (1) Failure to make due and punctual payment of rent or any other charges, assessments or amounts due or payable or required to be paid under this Lease within three (3) days of notice from Landlord of such payment; or (2) Neglect or failure by Tenant to perform or observe, or any other breach of, any other item, covenant or condition of this Lease, which failure by Tenant has not been cured within fifteen (15) days of the date of notice thereof by Landlord, provided that if such cure is not capable of being performed within such fifteen (15) day period, it shall be deemed cured if Tenant has commenced such cure and is diligently pursuing such cure (but not to exceed sixty (60) days; or (3) Adjudication of Tenant as bankrupt or insolvent, or filing by Tenant of any petition in bankruptcy or for reorganization or for the adoption of any arrangement under the Bankruptcy Code; application is made for the appointment of receiver or conservator for Tenant's business or property; or assignment by Tenant is made of its property for the benefit of its creditors; or Tenant's interest in this Lease or any substantial amount of Tenant's other real or personal property is levied or executed upon by process of law; or (4) Petition or other proceeding is made by Tenant for its dissolution or liquidation; or voluntary dissolution or liquidation of Tenant; or (5) Abandonment of the Leased Premises, or any part thereof, by Tenant for a period of time in excess of thirty (30) consecutive days. B. If Tenant shall default in the payment of rent or in the keeping of any of the items, covenants or conditions of this Lease to be kept and/or performed by Tenant or shall otherwise commit any event of default as defined above, Landlord may upon the expiration of any applicable cure, immediately, or at any time thereafter in accordance with applicable Colorado law, reenter the Leased Premises, remove all persons and property therefrom, without being liable to indictment, prosecution for damage therefore, or for forcible entry and detainer and repossess and enjoy the Leased Premises, together with all additions thereto or alterations and improvements thereof. Landlord may, at its option, at any time and from time to time thereafter, relet the Leased Premises or any part thereof for the account of Tenant or otherwise, and receive and collect the rents therefore and apply the same first to the payment of such expenses as Landlord may have incurred in recovering possession and for putting the Page 7 of 17 8 same in good order and condition for rerental, and expense, commissions and charges paid by Landlord in reletting the Leased Premises. Any such reletting may be for the remainder of the term of this Lease or for a longer or shorter period. In lieu of reletting such Leased Premises, Landlord may occupy the same or cause the same to be occupied by others. Whether or not the Leased Premises or any part thereof be relet, Tenant shall pay the Landlord the rent and all other charges required to be paid by Tenant up to the time of the expiration of this Lease or such recovered possession, as the case may be and thereafter, Tenant, if required by Landlord, shall pay to Landlord until the end of the term of this Lease, the equivalent of the amount of all rent reserved herein and all other charges required to be paid by Tenant, less the net amount received by Landlord for such reletting, if any, unless waived by written notice from Landlord to Tenant. No action by Landlord to obtain possession of the Leased Premises and/or to recover any amount due to Landlord hereunder shall be taken as a waiver of Landlord's right to require full and complete performance by Tenant of all items hereof, including payment of all amounts due hereunder or as an election on the part of Landlord to terminate this Lease Agreement. If the Leased Premises shall be reoccupied by Landlord, then, from and after the date of repossession, Tenant shall be discharged of any obligations to Landlord under the provisions hereof for the payment of rent. If the Leased Premises are reoccupied by the Landlord pursuant hereto, and regardless of whether the Leased Premises shall be relet or possessed by Landlord, all fixtures, additions, furniture, and the like then on the Leased Premises may be retained by Landlord. In the event Tenant is in Default under the terms hereof and, by the sole determination of Landlord, has abandoned the Leased Premises, Landlord shall have the right to remove all the Tenant's property from the Leased Premises and dispose said property in such a manner as determined best by Landlord, at the sole cost and expense of Tenant and without liability of Landlord for the actions so taken and without liability on the part of Landlord for any action so taken. C. In the event an assignment of Tenant's business or property shall be made for the benefit of creditors, or, if the Tenant's leasehold interest under the terms of this Lease Agreement shall be levied upon by execution or seized by virtue of any writ of any court of law, or, if application be made for the appointment of a receiver for the business or property of Tenant, or, if a petition in bankruptcy shall be filed by or against Tenant, then and in any such case, at Landlord's option, with or without notice, Landlord may terminate this Lease and immediately retake possession of the Leased Premises without the same working any forfeiture of the obligations of Tenant hereunder. D. In addition to all rights and remedies granted to Landlord by the terms hereof, Landlord shall have available any and all rights and remedies available at law or in equity, or under the statutes of the State of Colorado. No remedy herein or otherwise conferred upon or reserved to Landlord shall be considered exclusive of any other remedy but shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Further, all powers and remedies given by this Lease to Landlord may be exercised, from time to time, and as often as occasion may arise or as may be deemed expedient. No delay or omission of Landlord to exercise any right or power arising from any default shall impair any such right or power or shall be considered to be a waiver of any such default or acquiescence thereof. The acceptance of rent by Landlord shall not be deemed to be a waiver of any breach of any of the covenants herein contained or any of the rights of Landlord to any remedies herein given. E. If Tenant shall, for any reason, vacate the Leased Premises before the current expiration date and such constitutes a Default under this Lease, landlord shall have the right to accelerate rental payments and any and all future rent payments due during the course of the Lease Term shall become immediately payable in full to the Landlord. 39. Legal Proceedings-Responsibilities. In the event of proceeding at law or in equity by either party hereto, the defaulting party shall pay all costs and expenses, including all reasonable attorney's fees incurred by the non-defaulting party in pursuing such remedy, if such non-defaulting party is awarded substantially the relief requested. 40. Administrative Charges. In the event any check, bank draft or negotiable instrument given for any money payment hereunder shall be dishonored at any time and from time to time, for any reason whatsoever not attributable to Landlord, Landlord shall be entitled, in addition to any other remedy that may be available, (1) to make an administrative charge of $100.00 or three times the face value of the check, bank draft or negotiable instrument, whichever is smaller, and (2) at Landlord's sole option, to require Tenant to make all future rental payments in cash or cashiers check. 41. Hazardous Materials and Environmental Considerations. A. Tenant covenants and agrees that Tenant and its agents, employees, contractors and invitees shall comply with all Hazardous Materials Laws (as hereinafter defined). Without limiting the foregoing, Tenant covenants and agrees that it will not use, generate, store or dispose of, nor permit the use, generation, storage or disposal of Hazardous Materials (as hereinafter defined) on, under or about the Leased Premises, nor will it transport or permit the transportation of Hazardous Materials to or from the Leased Premises, except in full compliance with any applicable Hazardous Materials Laws, provided that Tenant may use and store such Hazardous Substances as are customarily used in Tenant's business or customarily used in offices, further provided that such use and storage shall comply with all applicable Hazardous Materials Laws. Any Hazardous Materials located on the Leased Premises shall be handled in an appropriately controlled environment which shall include the use of such equipment (at Tenant's expense) as is necessary to meet or exceed standards imposed by any Hazardous Materials Laws and in such a way as not to interfere with any other tenant's use of its premises. Upon breach of any covenant contained herein, Tenant shall, at Tenant's sole expense, cure such breach by taking all action prescribed by any applicable Hazardous Materials Laws or by any governmental authority with jurisdiction over such matters. B. Tenant shall inform Landlord at any time of (i) any Hazardous Materials it intends to use, generate, handle, store or dispose of, on or about or transport from, the Leased Premises and (ii) of Tenant's discovery of any event or condition which constitutes a violation of any applicable Hazardous Materials Laws. Tenant shall provide to Landlord copies of all communications to or from any governmental authority or any other party relating to Hazardous Materials affecting the Leased Premises. C. Tenant shall indemnify and hold Landlord harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities, expenses or losses (including, without limitation, diminution on value of the Leased Premises, damages for loss or restriction on use of all or part of the Leased Premises, sums paid in settlement of claims, investigation of site conditions, or any cleanup, removal or restoration work required by any federal, state or local governmental agency, attorney's fees, consultant fees, and expert fees) which arise as a result of or in connection with any breach of the foregoing covenants or any other violation of any Hazardous Materials laws by Tenant. The indemnification contained herein shall also accrue to the benefit of the employees, agents, officers, directors and/or partners of Landlord. D. Upon termination of this Lease and/or vacation of the Leased Premises, Tenant shall properly remove all Hazardous Materials and shall then provide to Landlord an environmental audit report, prepared by a professional consultant satisfactory to Landlord and at Tenant's sole expense, certifying that the Leased Premises have not been subjected to environmental harm caused by Tenant's use and occupancy of the Leased Premises. Landlord shall grant to Tenant and its agents or contractors such access to the Leased Premises as is necessary to accomplish such removal and prepare such report. Page 8 of 17 9 E. "Hazardous Materials" shall mean (a) any chemical, material, substance or pollutant which poses a hazard to the Leased Premises or to persons on or about the Leased Premises or would cause a violation of or is regulated by any Hazardous Materials Laws, and (b) any chemical, material or substance defined as or included in the definitions of "hazardous substances", "hazardous wastes", "extremely hazardous waste", "restricted hazardous waste", "toxic substances", "regulated substance", or words of similar import under any applicable federal, state or local law or under the regulations adopted or publications promulgated pursuant thereto, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sec. 9501, et seq.; the Hazardous Materials Transportation Act, as amended, 49 U.S.C. Sec. 1801, et seq.; the Resource Conservation and Recovery Act as amended, 42 U.S.C. Sec 6901, et seq.; the Solid Waste Disposal Act, 42 U.S.C. Sec 6991 et seq., the Federal Water Pollution Control Act, as amended, 33 U.S.C. Sec. 1251, et seq.; and Sections 25-15-101, et seq., 25-16-101, et seq., 25-7-101, et seq., and 25-8-101, et seq., of the Colorado Revised Statutes. "Hazardous Materials Laws" shall mean any federal state or local laws, ordinances, rules, regulations, or policies (including, but not limited to those laws specified above) relating to the environment, health and safety or the use, handling, transportation, production, disposal, discharge or storage of Hazardous Materials, or to industrial hygiene or the environmental conditions on, under or about the Leased Premises. Said term shall be deemed to include all such laws as are now in effect or as hereafter amended and all other such laws as may hereafter be enacted or adopted during the term of this Lease. F. All obligations of Tenant hereunder shall survive and continue after the expiration of this Lease or its earlier termination for any reason. G. Tenant further covenants and agrees that it shall not install any storage tank (whether above or below the ground) on the Leased Premises without obtaining the prior written consent of the Landlord, which consent may be conditioned upon further requirements imposed by Landlord with respect to, among other things, compliance by Tenant with any applicable laws, rules, regulations or ordinances and safety measures or financial responsibility requirements. H. Should any local governmental entity having jurisdiction over the Leased Premises require any type of environmental audit or report prior to or during the occupancy of the Leased Premises by the Tenant, such cost of the audit report shall be the sole responsibility of the Tenant. 42. Entire Agreement. It is expressly understood and agree by and between the parties hereto that this Lease sets forth all the promises, agreements, conditions, and understandings between Landlord and/or its agents and Tenant relative to the Leased Premises and that there are no promises, agreements, conditions, or understandings either oral or written, between them other than that are herein set forth. 43. Estoppel Certificates. Within no more than ten (10) days after receipt of written request, the Tenant shall furnish to the owner a certificate, duly acknowledged, certifying, to the extent true: A. That this Lease is in full force and effect. B. That the Tenant knows of no default hereunder on the part of the owner, or if it has reason to believe that such a default exists, the nature thereof in reasonable detail. C. The amount of the rent being paid and the last date to which rent has been paid. D. That this Lease has not been modified, or if it has been modified, the terms and dates of such modifications. E. That the term of this Lease has commenced. F. The commencement and expiration dates. G. Whether all work to be performed by the owner has been completed. H. Whether the renewal term option has been exercised if applicable. I. Whether there exist any claims or deductions from, or defenses to, the payment of rent. J. Such other factual matters as may be reasonably requested by owner. 44. Financial Statements. As requested by the Landlord, Tenant shall provide copies of its most recent financial statements and shall also provide Landlord with up to three (3) prior years of financial statements, if so requested. 45. Brokers. Tenant represents and warrants that it has dealt only with Equis Corporation (the "Broker") in the negotiation of this Lease. Landlord shall make payment of the commission according to the terms of a separate agreement with the Broker. Tenant hereby agrees to indemnify and hold Landlord harmless of an from any and all loss, costs, damages or expenses (including, without limitation, all attorney's fees and disbursements) by reason of any claim of, or liability to, any other broker or person claiming through Tenant and arising out of this Lease. Additionally, Tenant acknowledges and agrees that Landlord shall have no obligation for payment of any brokerage fee or similar compensation to any person with whom Tenant has dealt or may deal with in the future with respect to leasing of any additional or expansion space in the Building or any renewals or extensions of this Lease unless specifically provided for by separate written agreement with Landlord. In the event any claim shall be made against Landlord by any other broker who shall claim to have negotiated this Lease on behalf of Tenant or to have introduced Tenant to the Building or to Landlord, Tenant hereby indemnifies Landlord, and Tenant shall be liable for the payment of all reasonable attorney's fees, costs, and expenses incurred by Landlord in defending against the same, and in the event such broker shall be successful in any such action, Tenant shall, upon demand, make payment to such broker. 46. Real Estate Broker Disclosure. Tenant acknowledges that William W. Reynolds (individually as Landlord, or as a principal in Landlord if Landlord is an entity) is a licensed Colorado real estate broker, acting on his own behalf in connection with this lease transaction. Tenant furthermore acknowledges that neither William W. Reynolds nor The W.W. Reynolds Companies, Inc., a licensed Colorado real estate brokerage firm, of which William W. Reynolds is a principal, is representing Tenant in connection with this lease transaction. 47. Lease Exhibits Attached. This Lease includes the following Lease Exhibits which are incorporated herein and made a part of this Lease Agreement: Exhibit "A" - Site Plan Depicting Area Exhibit "B" - Interior Space Plan Exhibit "C" - Landlord and Tenant's Construction Obligations Exhibit "D" - Sign Code Obligations Exhibit "E" - Additional Terms and Conditions Exhibit "F" - Option to Extend Page 9 of 17 10 48. Miscellaneous. All marginal notations and paragraph headings are for purposes of reference and shall not affect the true meaning and intent of the terms hereof. Throughout this Lease, wherever the words "Landlord" and "Tenant" are used they shall include and imply to the singular, plural, persons both male and female, companies, partnerships and corporations, and in reading said Lease, the necessary grammatical changes required to make the provisions hereof mean and apply as aforesaid shall be made in the same manner as though originally included in said Lease. 49. Quiet Enjoyment. Provided the Tenant is not in Default in the performance of any of its obligations under this Lease and any extensions thereof, the Landlord covenants that the Tenant shall have quiet and peaceful possession and enjoyment of the Leased Premises for the term hereof. IN WITNESS WHEREOF, the parties have executed this Lease as of the date hereof. LANDLORD: Flatirons North, LLC By: /s/ WILLIAM W. REYNOLDS ------------------------------------ William W. Reynolds, Member TENANT: Spatial Technology, Inc. By: /s/ R. BRUCE MORGAN ------------------------------------ R. Bruce Morgan President & Chief Executive Officer Page 10 of 17 EX-10.31 3 d85481ex10-31.txt AGREEMENT OF LEASE 1 EXHIBIT 10.31 Agreement of Lease Between OTR, an Ohio general partnership AND Spatial Technology Inc., a Delaware Corporation 110 Turnpike Road Westborough, MA 2 Table of Contents ARTICLE 1 BASIC LEASE PROVISIONS 1.1 INTRODUCTION 1.2 BASIC DATA 1.3 ADDITIONAL DEFINITIONS ARTICLE 2 PREMISES AND APPURTENANT RIGHTS 2.1 LEASE OF PREMISES 2.2 APPURTENANT RIGHTS AND RESERVATIONS ARTICLE 3 BASIC RENT 3.1 PAYMENT ARTICLE 4 COMMENCEMENT AND CONDITION 4.1 COMMENCEMENT DATE 4.2 PREPARATION OF THE PREMISES 4.3 CONCLUSIVENESS OF LANDLORD'S PERFORMANCE 4.4 TENANT'S DELAYS ARTICLE 5 USE OF PREMISES 5.1 PERMITTED USE 5.2 INSTALLATIONS AND ALTERATIONS BY TENANT ARTICLE 6 ASSIGNMENT AND SUBLETTING 6.1 PROHIBITION 6.2 CONSENT TO SUBLEASE 6.3 EXCESS PAYMENTS 6.4 TERMINATION 6.5 MISCELLANEOUS 6.6 ACCEPTANCE OF RENT ARTICLE 7 RESPONSIBILITY FOR REPAIRS AND CONDITION OF PREMISES; SERVICES TO BE FURNISHED BY LANDLORD 7.1 LANDLORD REPAIRS 7.2 TENANT'S AGREEMENT 7.3 FLOOR LOAD - HEAVY MACHINERY 7.4 BUILDING SERVICES 7.5 ELECTRICITY ARTICLE 8 REAL ESTATE TAXES 8.1 PAYMENTS ON ACCOUNT OF REAL ESTATE TAXES 8.2 ABATEMENT 8.3 ALTERNATE TAXES ARTICLE 9 OPERATING AND UTILITY EXPENSES 9.1 DEFINITIONS 9.2 TENANT'S PAYMENTS ARTICLE 10 INDEMNITY AND PUBLIC LIABILITY INSURANCE 10.1 TENANT'S INDEMNITY 3 10.2 PUBLIC LIABILITY INSURANCE 10.3 TENANT'S RISK 10.4 INJURY CAUSED BY THIRD PARTIES ARTICLE 11 LANDLORD'S ACCESS TO PREMISES 11.1 LANDLORD'S RIGHTS ARTICLE 12 FIRE, EMINENT DOMAIN, ETC 12.1 ABATEMENT OF RENT 12.2 LANDLORD'S RIGHT OF TERMINATION 12.3 RESTORATION 12.4 AWARD ARTICLE 13 DEFAULT 13.1 TENANT'S DEFAULT 13.2 LANDLORD'S DEFAULT ARTICLE 14 MISCELLANEOUS PROVISIONS 14.1 EXTRA HAZARDOUS USE 14.2 WAIVER 14.3 COVENANT OF QUIET ENJOYMENT 14.4 LANDLORD'S LIABILITY 14.5 NOTICE TO MORTGAGEE OR GROUND LESSOR 14.6 ASSIGNMENT OF RENTS AND TRANSFER OF TITLE 14.7 RULES AND REGULATIONS 14.8 ADDITIONAL CHARGES 14.9 INVALIDITY OF PARTICULAR PROVISIONS 14.10 PROVISIONS BINDING, ETC 14.11 RECORDING 14.12 NOTICES 14.13 WHEN LEASE BECOMES BINDING; TENANT'S REPRESENTATION 14.14 PARAGRAPH HEADINGS AND INTERPRETATION OF SECTIONS 14.15 RIGHTS OF MORTGAGEE OR GROUND LESSOR 14.16 STATUS REPORT 14.17 SECURITY DEPOSIT 14.18 REMEDYING DEFAULTS 14.19 HOLDING OVER 14.20 WAIVER OF SUBROGATION 14.21 SURRENDER OF PREMISES 14.22 SUBSTITUTE SPACE; DEMOLITION 14.23 BROKERAGE 14.24 GOVERNING LAW 14.25 LANDLORD'S LIEN ARTICLE 15 OPTION TO EXTEND 15.1 TENANT'S RIGHT 15.2 EXTENDED TERM RENT EXHIBIT A PREMISES EXHIBIT B RULES AND REGULATIONS OF BUILDING 2 4 EXHIBIT C ITEMS INCLUDED IN OPERATING EXPENSES EXHIBIT D CONTRACTOR'S INSURANCE REQUIREMENTS EXHIBIT E COMMENCEMENT LETTER EXHIBIT F FIT/LAYOUT PLAN EXHIBIT LOC LETTER OF CREDIT 3 5 LEASE THIS INSTRUMENT IS A LEASE, dated as of July 28, 2000 in which the Landlord and the Tenant are the parties hereinafter named, and which relates to space in the building (the "Building") located at 110 Turnpike Road, Westborough, Massachusetts. The parties to this instrument hereby agree with each other as follows: ARTICLE 1 BASIC LEASE PROVISIONS 1.1 INTRODUCTION. The following set forth basic data and, where appropriate, constitute definitions of the terms hereinafter listed. 1.2 BASIC DATA. Landlord: OTR, an Ohio general partnership, acting as the duly designated nominee of the State Teachers Retirement System of Ohio. Landlord's Original Address: 275 East Broad Street, Columbus, Ohio 43215. Tenant: Spatial Technology Inc., A Delaware corporation. Tenant's Original Address: 2425 55th Street, Suite 100, Boulder, Colorado 80301 Guarantor; None. Basic Rent: The sum of (i)(A) for the period commencing on the Commencement Date and ending on the day immediately preceding the third anniversary of the Commencement Date, $259,762.00 ($23.00 per square foot of Premises Rentable Area) per annum, and (B) for the remainder of the Initial Term, $271,056.00 ($24.00 per square foot of Premises Rentable Area) per annum, plus (ii) $10,729.30 ($0.95 per square foot of Premises Rentable Area) per annum as an allowance (the "Estimated Electricity Payment") toward the actual cost to Landlord of providing electricity to the Premises, as all of the same may be adjusted and/or abated pursuant to Sections 7.5 and 12.1. Premises Rentable Area: Agreed to be 11,294 square feet located on the third floor of the Building. Permitted Uses: Executive or professional offices, and uses ancillary thereto, including, without limitation, computer data room and storage, with telephone switching equipment, of the type generally found in first-class office buildings in the suburban Boston area, subject to the provisions of Section 5.1(a). Escalation Factor: 16.99%, as computed in accordance with the Escalation Factor Computation. Initial Term: Five (5) years commencing on the Commencement Date and expiring at the close of the day immediately preceding the fifth anniversary of the Commencement Date, except that if the Commencement Date shall be other than the first day of a calendar month, the expiration of the Initial Term shall be at the close of the day on the last day of the calendar month on which such anniversary shall fall. 6 Version - August 1, 2000 Security Deposit: $129,881, subject to adjustment pursuant to Section 14.17. Base Operating Expenses: The actual Operating Expenses with respect to the calendar year ending December 31, 2000 (which includes an allowance of $0.95 per square foot of Building Rentable Area toward the actual cost to Landlord of providing convenience electricity to those portions of the Building leased or intended to be leased to tenants). Base Taxes: The sum of (x) one-half (1/2) the Taxes assessed with respect to the fiscal year ending June 30, 2000, as the same may be reduced by the amount of any abatement, and (y) one-half (1/2) the Taxes assessed with respect to the fiscal year ending June 30, 2001, as the same may be reduced by the amount of any abatement. Broker: Spaulding & Slye and Hunneman Commercial Company. Inc. 1.3 ADDITIONAL DEFINITIONS. Agent: Spaulding & Slye, Inc., or such other person or entity from time to time designated by Landlord. Building Rentable Area: Agreed to be 71,496 square feet. Business Days: All days except Saturday, Sunday, New Year's Day, Martin Luther King Day, President's Day, Patriots Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day, Christmas Day (and the following day when any such day occurs on Sunday) and such other days that tenants occupying at least 50% of Building Rentable Area now or in the future recognize as holidays for their general office staff. Commencement Date: As defined in Section 4.1. Default of Tenant: As defined in Section 13.1. Escalation Charges: The amounts prescribed in Sections 8.1 and 9.2. Escalation Factor Computation: Premises Rentable Area divided by 93% of Building Rentable Area. Force Majeure: Collectively and individually, strike or other labor trouble, fire or other casualty, governmental preemption of priorities or other controls in connection with a national or other public emergency or shortages of fuel, supplies or labor resulting therefrom, or any other cause, whether similar or dissimilar, beyond Landlord's or Tenant's reasonable control (provided however that no force majeure event shall relieve either party of any monetary obligations hereunder). Initial Public Liability Insurance: $2,000,000 per occurrence/$3,000,000 aggregate (combined single limit) for property damage, bodily injury or death. Landlord's Work: As defined in Section 4.2. Operating Expenses: As determined in accordance with Section 9.1. Operating Year: As defined in Section 9.1. 5 7 Version - August 1, 2000 Park: The properties owned by Landlord at 110, 112 and 114 Turnpike Road, Westborough, Massachusetts. Premises: A portion of the Building as shown on Exhibit A annexed hereto. Property: The Building and the land parcels on which it is located (including adjacent sidewalks and other portions of the Park). Substantial Completion Date: As defined in Section 4.2. Tax Year: As defined in Section 8.1. Taxes: As determined in accordance with Section 8.1. Tenant's Removable Property: As defined in Section 5.2. Term of this Lease: The Initial Term and any extension thereof in accordance with the provisions hereof. ARTICLE 2 PREMISES AND APPURTENANT RIGHTS 2.1 LEASE OF PREMISES. Landlord hereby demises and leases to Tenant for the Term of this Lease and upon the terms and conditions hereinafter set forth, and Tenant hereby accepts from Landlord, the Premises. 2.2 APPURTENANT RIGHTS AND RESERVATIONS. (a) Tenant shall have, as appurtenant to the Premises, the non-exclusive right to use, and permit its invitees to use in common with others, public or common lobbies, hallways, stairways, elevators and common walkways necessary for access to the Building, and if the portion of the Premises on any floor includes less than the entire floor, the common toilets, corridors and elevator lobby of such floor; but such rights shall always be subject to reasonable rules and regulations from time to time established by Landlord pursuant to Section 14.7 and to the right of Landlord to designate and change from time to time areas and facilities so to be used. (b) Excepted and excluded from the Premises are the ceiling, floor, perimeter walls and exterior windows (except the inner surface of each thereof), and any space in the Premises used for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other utilities, sinks or other Building facilities, but the entry doors (and related glass and finish work) to the Premises are a part thereof. Landlord shall have the right to place in the Premises (but in such manner as to reduce to a minimum interference with Tenant's use of the Premises) interior storm windows, sun control devices, utility lines, equipment, stacks, pipes, conduits, ducts and the like. In the event that Tenant shall install any hung ceilings or walls in the Premises, Tenant shall install and maintain, as Landlord may require, proper access panels therein to afford access to any facilities above the ceiling or within or behind the walls. 6 8 Version - August 1, 2000 (c) Tenant shall also have the right (subject to reasonable rules and regulations from time to time established by Landlord) to use, on an non-exclusive, unreserved basis the parking areas located on the Property adjacent to the Building. The parking areas serving the Park contain approximately 4 spaces per 1,000 square feet of rentable area in the Park. ARTICLE 3 BASIC RENT 3.1 PAYMENT. (a) Tenant agrees to pay to Landlord, or as directed by Landlord, commencing on the Commencement Date without offset, abatement (except as provided in Section 12.2), deduction or demand, the Basic Rent. Such Basic Rent shall be payable in equal monthly installments, in advance, on the first day of each and every calendar month during the Term of this Lease, to OTR/Westborough Executive Park, c/o Spaulding & Slye, P.O. Box 30474, Hartford, CT 06150, or at such other place as Landlord shall from time to time designate by notice, in lawful money of the United States. In the event that any installment of Basic Rent is not paid within five (5) days after the date on which the same were due (provided that such 5-day grace period shall not apply more than once in any twelve-month period). I Tenant shall pay, in an addition to any charges under Section 14.18, at Landlord's request an administrative fee equal to five percent (5%) of the overdue payment. Landlord and Tenant agree that all amounts due from Tenant under or in respect of this Lease, whether labeled Basic Rent, Escalation Charges, additional charges or otherwise, shall be considered as rental reserved under this Lease for all purposes, including without limitation regulations promulgated pursuant to the Bankruptcy Code, and including further without limitation Section 502(b) thereof. (b) Basic Rent for any partial month shall be pro-rated on a daily basis, and if the first day on which Tenant must pay Basic Rent shall be other than the first day of a calendar month, the first payment which Tenant shall make to Landlord shall be equal to a proportionate part of the monthly installment of Basic Rent for the partial month from the first day on which Tenant must pay Basic Rent to the last day of the month in which such day occurs, plus the installment of Basic Rent for the succeeding calendar month. ARTICLE 4 COMMENCEMENT AND CONDITION 4.1 COMMENCEMENT DATE. The Commencement Date shall be the first full day following the Substantial Completion Date (as defined in Section 4.2(c)). Landlord estimates that the Commencement Date will occur on or around September 15, 2000 (the "Target Commencement Date"). If Landlord shall fail to deliver the Premises on the Target Commencement Date, Landlord shall not be liable to Tenant for any damages, and the adjustment of the Commencement Date and, accordingly, the postponement of Tenant's obligation to pay Basic Rent shall be Tenant's sole remedy and shall constitute full settlement of all claims that Tenant might otherwise have against Landlord by reason of failure to deliver the Premises on the Target Commencement Date. 7 9 Version - August 1, 2000 Notwithstanding the foregoing, if Tenant's personnel shall occupy all or any part of the Premises for the conduct of its business prior to the Commencement Date as determined pursuant to the preceding sentence, such date of occupancy shall, for all purposes of this Lease, be the Commencement Date. Promptly upon the occurrence of the Commencement Date, Landlord and Tenant shall enter into a letter agreement substantially in the form annexed hereto as Exhibit E but the failure by either party to execute such a letter shall have no effect on the Commencement Date, as hereinabove determined. 4.2 PREPARATION OF THE PREMISES. (a) Landlord has prepared and Tenant has approved a so-called "fit" or layout plan, reflecting the work described on Exhibit F hereto. From the layout plan, Tenant shall prepare and deliver to Landlord architectural plans and specifications (the "Plans"), suitable for obtaining necessary permits and approvals to complete such work. Such Plans shall comply with all applicable laws, codes and ordinances. If any aspect of the Plans is reasonably disapproved by Landlord, Tenant shall promptly amend the Plans so as to make the same acceptable to Landlord, in its reasonable discretion. (b) Promptly after approval of the Plans (and execution of a work letter in form and substance reasonably acceptable to the parties, if requested by Landlord) Landlord shall exercise all reasonable efforts to complete the work ("Landlord's Work") specified therein necessary to prepare the Premises for Tenant's occupancy, but Tenant shall have no claim against Landlord for failure so to complete such Work except the delay in the Commencement Date provided above; provided, however, that if Landlord shall not have completed Landlord's Work by December 1, 2000, other than as a result of Tenant's Delay, then Tenant shall have the right to terminate this Lease by giving written notice thereof to Landlord. To the extent that the cost to Landlord of completing Landlord's Work (as reasonably estimated by Landlord's contractor as of the time of approval of Tenant's Plans, and including if Tenant so desires, the cost to Tenant of preparing the Plans) exceeds an amount ("Landlord's Contribution") equal to One Hundred Thirty-five Thousand Five Hundred Twenty-eight Dollars ($135,528.00), Tenant shall pay such excess to Landlord, fifty percent (50%) thereof to be paid on the date Tenant's Plans are approved and fifty percent (50%) on the Commencement Date (or, in either case, at such later time as Landlord advises Tenant of the amount of such excess). Tenant shall, if requested by Landlord, execute a work letter confirming such excess costs prior to the time Landlord shall be required to commence work. In the event that the actual cost to Landlord of completing Tenant's Work is greater or less than the estimate of Landlord's contractor, then Tenant shall pay, or Landlord shall credit, such difference (as the case may be) within fifteen (15) days after Landlord shall advise Tenant of such actual cost. (c) Landlord shall undertake Landlord's Work in accordance with applicable laws and codes, including without limitation the Americans with Disabilities Act of 1990. The Premises shall be deemed ready for occupancy on the first day (the "Substantial Completion Date") as of which Landlord's Work has been completed except for items of work (and, if applicable, adjustment of equipment and fixtures) which can be completed after occupancy has been taken without causing undue interference with Tenant's use of the Premises (i.e. so-called "punch list" items) and Tenant has been given notice thereof. Landlord shall complete as soon as conditions permit all "punch list" items and Tenant shall afford Landlord access to the Premises for such purposes. 4.3 CONCLUSIVENESS OF LANDLORD'S PERFORMANCE. Except to the extent to which Tenant shall have given Landlord notice, not later than the end of the second full calendar month of the Term of this Lease next beginning after the Commencement Date, of respects in which Landlord has not performed Landlord's Work, Tenant shall have no claim that Landlord has failed to perform any of 8 10 Version - August 1, 2000 Landlord's Work. Except for Landlord's Work, the Premises are being leased in their condition AS IS WITHOUT REPRESENTATION OR WARRANTY by Landlord. Tenant acknowledges that it has inspected the Premises and common areas of the Building and, except for Landlord's Work, have found the same satisfactory. 4.4 TENANT'S DELAYS. (a) If a delay shall occur in the Substantial Completion Date as the result of: (i) any request by Tenant that Landlord delay in the commencement or completion of Landlord's Work for any reason; (ii) failure by Tenant to deliver the Plans in form acceptable to Landlord, or any change by Tenant in any of the Plans after approval by Landlord; (iii) any other act or omission of Tenant or its officers, agents, servants or contractors; (iv) any special requirement of the Plans not in accordance with Landlord's building standards; or (v) any reasonably necessary displacement of any of Landlord's Work from its place in Landlord's construction schedule resulting from any of the causes for delay referred to in clauses (i), (ii), (iii) or (iv) of this paragraph and the fitting of such Work back into such schedule; then Tenant shall, from time to time and within ten (10) days after demand therefor, pay to Landlord for each day of such delay the amount of Basic Rent, Escalation Charges and other charges that would have been payable hereunder had the Tenant's obligation to pay Basic Rent (without regard to any period of free rent) commenced immediately prior to such delay. (b) If a delay in the Substantial Completion Date, or if any substantial portion of such delay, is the result of Force Majeure, and such delay would not have occurred but for a delay described in paragraph (a), such delay shall be deemed added to the delay described in that paragraph. (c) The delays referred to in paragraphs (a) and (b) are herein referred to collectively and individually as "Tenant's Delay." (d) If, as a result of Tenant's Delay(s), the Substantial Completion Date is delayed beyond November 1, 2000, Landlord may (but shall not be required to) at any time thereafter terminate this Lease by giving written notice of such termination to Tenant and thereupon this Lease shall terminate without further liability or obligation on the part of either party, except that Tenant shall pay to Landlord the cost theretofore incurred by Landlord in performing Landlord's Work, plus an amount equal to Landlord's out-of-pocket expenses incurred in connection with this Lease, including, without limitation, brokerage and legal fees, together with any amount required to be paid pursuant to paragraph (a) through the effective termination date. (e) The Construction Deadline shall automatically be extended for the period of any delays caused by Tenant's Delay(s) or Force Majeure. 9 11 Version - August 1, 2000 ARTICLE 5 USE OF PREMISES 5.1 PERMITTED USE. (a) Tenant agrees that the Premises shall be used and occupied by Tenant only for Permitted Uses specifically excluding use for medical, dental, governmental, utility company or employment agency offices. (b) Tenant agrees to conform to the following provisions during the Term of this Lease: (i) Tenant shall cause all freight to be delivered to or removed from the Building and the Premises in accordance with reasonable rules and regulations established by Landlord therefor; (ii) Tenant will not place on the exterior of the Premises (including both interior and exterior surfaces of doors and interior surfaces of windows) or on any part of the Building outside the Premises, any signs, symbol, advertisement or the like visible to public view outside of the Premises. Landlord will not withhold consent for signs or lettering on the entry doors to the Premises provided such signs conform to building standards adopted by Landlord in its reasonable discretion and Tenant has submitted to Landlord a plan or sketch in reasonable detail (showing, without limitation, size, color, location, materials and method of affixation) of the sign to be placed on such entry doors. Landlord agrees, however, to maintain a tenant directory in the lobby of the Building (and, in the case of multi-tenant floors, in that floor's elevator lobby) in which will be placed Tenant's name and the location of the Premises in the Building; (iii) Tenant shall not perform any act or carry on any practice which may injure the Premises, or any other part of the Building, or cause any offensive odors or loud noise or constitute a nuisance or a menace to any other tenant or tenants or other persons in the Building; (iv) Tenant shall, in its use of the Premises, comply with the requirements of all applicable governmental laws, rules and regulations, including without limitation the Americans With Disabilities Act of 1990; and (v) Tenant shall continuously throughout the Term of this Lease occupy the Premises for Permitted Uses. (c) Landlord represents that, to the best actual knowledge of Landlord's employees involved on a day-to-day basis with the operation of the Property, and without any independent investigation beyond reports prepared at the time of Landlord's acquisition of the Property, there exist no unlawful quantities of asbestos or hazardous materials in the Premises or the Building. Tenant shall not, at any time, bring any so called "Hazardous Material" to the Premises or the Property, and shall never use the Premises in such a way as could generate "Hazardous Material," in either case except in strict accordance with all "Environmental Laws" and requirements of federal, state or local 10 12 Version - August 1, 2000 government with respect to "Hazardous Material" and other environmental matters at its sole cost and expense. Tenant hereby indemnifies and agrees to defend and hold the Landlord harmless from and against any and all liens, damages, losses, liabilities, obligations, penalties, claims, litigation, demands, judgments, suits, proceedings, costs, disbursements or expenses of any kind or nature whatsoever (including, without limitation, attorneys' and experts' fees and expenses) which may at any time be imposed upon, incurred by or asserted or awarded against the Landlord, the Premises, the Building or the Property arising from or out of (i) the release by Tenant of any Hazardous Materials at any time during the Term of this Lease on, in, under or affecting all or any portion of the Property, (ii) the violation or alleged violation by Tenant during the term of this Lease of any Environmental Law with respect to the Property or any portion thereof, and (iii) any attempts by the Landlord to enforce the foregoing rights. The foregoing indemnification shall include, without limitation (x) the cost of removal of any and all Hazardous Materials released by Tenant from all or any portion of the Property or any surrounding areas, (y) additional costs required as a result of such release or violation by Tenant to take necessary precautions to protect against the discharge, spillage, emission, leakage, seepage or release of Hazardous Materials on, in, under or affecting the Premises or the Property or into the air water or soil, and (z) costs incurred as a result of such release or violation by Tenant to comply with Environmental Laws in connection with all or any portion of the Premises or any surrounding areas. In determining whether the Tenant is liable under this paragraph (c), the term "Tenant" shall include Tenant and its agents, employees and independent contractors. For purposes hereof, "Hazardous Material" or "Hazardous Materials" means and includes petroleum products, flammable explosives, radioactive materials, asbestos or any material containing asbestos, polychlorinated biphenyls, and/or any hazardous, toxic or dangerous waste, substance or material now or hereafter defined as such, or as a hazardous substance, or any similar term, by or in the Environmental Laws. For purposes of this Lease, "Environmental Law" or "Environmental Laws" shall mean: (x) any "Superfund" or "Super Lien" law, or any other federal, state or local statute, law ordinance, code, rule, regulation, order or decree, regulating, relating to or imposing liability or standards of conduct concerning, any Hazardous Materials as may now or at any time hereafter be in effect, including without limitation, the following as the same may be amended or replaced from time to time, and all regulations promulgated thereunder or in connection therewith: the Super Fund Amendments and Reauthorization Act of 1986, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, the Clean Air Act, the Clean Water Act, the Toxic Substances Control Act, the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act, the Hazardous Waste Management System, and the Occupational Safety and Health Act of 1970; and (y) any law, ordinance or regulation the primary purpose of which is to protect the quality of the environment. Notwithstanding the foregoing, Tenant shall be permitted to use and store reasonable amounts of Hazardous Materials on the Premises which are commonly used in offices, provided that such Hazardous Materials are used and stored in accordance with all applicable Environmental Laws. 5.2 INSTALLATIONS AND ALTERATIONS BY TENANT. (a) Tenant shall make no alterations, additions (including, for the purposes hereof, wall-to-wall carpeting), or improvements in or to the Premises (including any improvements other than Landlord's Work necessary for Tenant's initial occupancy of the Premises) without Landlord's prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed as to alterations, additions and improvements that do not affect the structure of the Building or the electrical, mechanical or plumbing systems therein. Any such alterations, additions or improvements shall be in accordance with complete plans and specifications meeting the requirements set forth in the rules and regulations from time to time in effect 11 13 Version - August 1, 2000 and approved in advance by Landlord. Such work shall (i) be performed in a good and workmanlike manner and in compliance with all applicable laws, (ii) be made at Tenant's sole cost and expense and at such times and in such a manner as Landlord may from time to time reasonably designate, (iii) be made only in accordance with the rules and regulations from time to time in effect with respect thereto, and (iv) become part of the Premises and the property of Landlord. If any alterations or improvements shall involve the removal of fixtures, equipment or other property in the Premises which are not Tenant's Removable Property, such fixtures, equipment or property shall be promptly replaced by Tenant at its expense with new fixtures, equipment or property of like utility and of at least equal quality. (b) All articles of personal property and all business fixtures, machinery and equipment and furniture owned or installed by Tenant solely at its expense in the Premises ("Tenant's Removable Property") shall remain the property of Tenant and may be removed by Tenant at any time prior to the expiration of this Lease, provided that Tenant, at its expense, shall repair any damage to the Building caused by such removal. Should Landlord require Tenant to remove any fixtures or alterations not defined as being included in Tenant's Removable Property, Landlord agrees to designate such fixtures or alterations at the time of installation. (c) Notice is hereby given that Landlord shall not be liable for any labor or materials furnished or to be furnished to Tenant upon credit, and that no mechanic's or other lien for any such labor or materials shall attach to or affect the reversion or other estate or interest of Landlord in and to the Premises. To the maximum extent permitted by law, before such time as any contractor commences to perform work on behalf of Tenant, such contractor (and any subcontractors) shall furnish a written statement acknowledging the provisions set forth in the prior clause. Whenever and as often as any mechanic's lien shall have been filed against the Property based upon any act or interest of Tenant or of anyone claiming through Tenant, Tenant shall forthwith take such action by bonding, deposit or payment as will remove or satisfy the lien. (d) In the course of any work being performed by Tenant (including without limitation the "field installation" of any Tenant's Removable Property), Tenant agrees to use labor compatible with that being employed by Landlord for work in or to the Building or other buildings owned by Landlord or its affiliates (which term, for purposes hereof, shall include, without limitation, entities which control or are under common control with Landlord, or which are controlled by Landlord or, if Landlord is a partnership, by any partner of Landlord) and not to employ or permit the use of any labor or otherwise take any action which might result in a labor dispute involving personnel providing services in the Building pursuant to arrangements made by Landlord. ARTICLE 6 ASSIGNMENT AND SUBLETTING 6.1 PROHIBITION. (a) Tenant covenants and agrees that whether voluntarily, involuntarily, by operation of law or otherwise neither this Lease nor the term and estate hereby granted, nor any interest herein or therein, will be assigned, mortgaged, pledged, encumbered, subleased or otherwise transferred and that neither the Premises nor any part thereof will be encumbered in any manner by reason of any act or omission on the part of Tenant, or used or occupied or permitted to be used or occupied, by anyone other than Tenant, or for any use or purpose other than a Permitted Use, or be sublet (which term, 12 14 Version - August 1, 2000 without limitation, shall include granting of concessions, licenses and the like) in whole or in part, or be offered or advertised for assignment or subletting. Without limiting the foregoing, any agreement pursuant to which: (x) Tenant is relieved from the obligation to pay, or a third party agrees to pay on Tenant's behalf; all or any portion of Basic Rent, Escalation Charges or other charges due under this Lease; and/or (y) a third party undertakes or is granted the right to assign or attempt to assign this Lease or sublet or attempt to sublet all or any portion of the Premises, shall for all purposes hereof be deemed to be an assignment of this Lease and subject to the provisions of this Article VI. Except as provided herein, the provisions of this paragraph (a) shall apply to a transfer (by one or more transfers) of a majority of the stock or partnership interests or other evidences of ownership of Tenant as if such transfer were an assignment of this Lease. (b) The provisions of paragraph (a) shall not apply to either: transactions with an entity into or with which Tenant is merged or consolidated, or to which substantially all of Tenant's assets are transferred; or transactions with any entity which controls or is controlled by Tenant or is under common control with Tenant ("Permitted Assignments"); provided that in either such event: (i) the successor to Tenant has a net worth computed in accordance with generally accepted accounting principles consistently applied at least equal to the greater of (1) the net worth of Tenant immediately prior to such merger, consolidation or transfer, or (2) the net worth of Tenant herein named on the date of this Lease, (ii) proof satisfactory to Landlord of such net worth shall have been delivered to Landlord at least 10 days prior to the effective date of any such transaction, and (iii) the assignee agrees directly with Landlord, by written instrument in form satisfactory to Landlord, to be bound by all the obligations of Tenant hereunder including, without limitation, the covenant against further assignment and subletting. (c) If, in violation of this Article 6, this Lease be assigned, or if the Premises or any part thereof be sublet or occupied by anyone other than Tenant, Landlord may, at any time and from time to time, collect rent and other charges from the assignee, subtenant or occupant, and apply the net amount collected to the rent and other charges herein reserved, but no such assignment, subletting, occupancy, collection or modification of any provisions of this Lease shall be deemed a waiver of this covenant, or the acceptance of the assignee, subtenant or occupant as a tenant or a release of Tenant from the further performance of covenants on the part of Tenant to be performed hereunder. Any consent by Landlord to a particular subletting or occupancy shall not in any way diminish the prohibition stated in paragraph (a) of this Section 6.1 or the continuing liability of the original named Tenant. No assignment or subletting hereunder shall relieve Tenant from its obligations hereunder and Tenant shall remain fully and primarily liable therefor. No such assignment, subletting, or occupancy shall affect or be contrary to Permitted Uses. Any consent by Landlord to a particular assignment, subletting or occupancy shall be revocable, and any assignment, subletting or occupancy shall be void ab initio, if the same shall fail to require that such assignee, subtenant or occupant agree therein to be independently bound by and upon all of the covenants, agreements, terms, provisions and conditions set forth in this Lease on the part of Tenant to be kept and performed. 13 15 Version - August 1, 2000 6.2 CONSENT TO SUBLEASE. Notwithstanding the prohibition set forth in Section 6.1(a), Landlord shall not unreasonably withhold its consent to one or more sublettings requested by Tenant, provided further that: (i) The business of each proposed subtenant and its use of the Premises shall be consistent with the Permitted Uses. (ii) Neither the proposed subtenant, nor any person who directly or indirectly, controls, is controlled by, or is under common control with, the proposed subtenant or any person who controls the proposed subtenant, shall be (A) a government (or subdivision or agency thereof), except as otherwise provided in Section 5.1, or (B) an occupant of any building in the Park owned by Landlord; (iii) The form of the proposed sublease shall be reasonably satisfactory to Landlord and its counsel and shall comply with the applicable provisions of this Article 6; (iv) No proposed sublease shall cover less than 2,000 square feet of Premises Rentable Area, nor shall the total number of occupants of the Premises (including Tenant and any subtenant) exceed four (4); and (v) not later than thirty (30) days prior to the proposed commencement of such sublease, Landlord shall have received information reasonably sufficient to determine compliance with the foregoing conditions. Moreover, notwithstanding such sublease, Tenant shall in all cases remain fully and primarily liable hereunder. Landlord agrees to respond with reasonable promptness to any request by Tenant for any consent described above. It is agreed that this Section 6.2 shall not apply to Permitted Assignments. 6.3 EXCESS PAYMENTS. In the event that Tenant shall enter into one or more subleases pursuant to Section 6.2, if the rent and other sums (including without limitation the fair value of any services provided by such subtenant for Tenant) on account of any such sublease exceed the Basic Rent and Escalation Charges allocable to that portion of the Premises subject to such sublease, plus actual out-of-pocket third party costs actually paid in connection with such sublease (such expenses to be pro-rated evenly over the term of such sublease), including without limitation legal expenses, marketing expenses, tenant improvements, and reasonable brokerage commissions actually paid to a licensed broker, Tenant shall pay to Landlord, as an additional charge, 75% of such excess, such amount to be paid monthly with payments by Tenant of Basic Rent hereunder. 6.4 TERMINATION. Notwithstanding any other provision of this Article 6 to the contrary, if and at each such time as Tenant shall intend to enter into any sublease pursuant to Section 6,2, which sublease either (i) covers all or substantially all of the Premises, or (ii) has a term (including options to extend or renew) covering all or substantially all of the remainder of the Term of this Lease (excluding any extension options with respect to which Tenant shall not then have exercised its options), then Tenant shall give Landlord notice of such intent not earlier than sixty (60), and not later than thirty (30), days prior to the effective date of such proposed sublease, and Landlord may then elect to terminate this Lease (if less than all or substantially all of the Premises are covered by such sublease, then such termination shall affect only that portion of the Premises proposed to be covered by such sublease) by 14 16 Version - August 1, 2000 giving notice to Tenant of such election not later than fifteen (15) days after receipt of Tenant's notice and, upon the giving of such notice by Landlord, this Lease shall terminate with respect to such portion as of the date on which such sublease would have become effective (or, if later, on the date on which Landlord's replacement tenant for the area affected becomes effective) with the same force and effect as if such date were the date originally set forth herein as the expiration date hereof. If Landlord shall elect to terminate this Lease with respect to any portion of the Premises as hereinabove provided, then (A) from and after the effective date of such termination, the definitions of Basic Rent, Premises, Premises Rentable Area and Escalation Factor shall be adjusted to reflect that portion of the Premises that remains subject to this Lease after such termination, and (B) Tenant shall pay to Landlord, as an additional charge, any costs incurred by Landlord in connection with physically separating such terminated portion from the remainder of the Premises and complying with any laws, regulations and requirements of governmental authorities regarding the creation of multi-tenant floors. It is agreed that this Section 6.4 shall not apply to Permitted Assignments. 6.5 MISCELLANEOUS. (a) Any sublease consented to by Landlord shall be expressly subject and subordinate to all of the covenants, agreements, terms, provisions and conditions contained in this Lease. Any proposed sub-sublease or proposed assignment of a sublease shall be subject to the provisions of this Article. Tenant shall reimburse Landlord on demand, as an additional charge, for any out-of-pocket costs (including reasonable attorneys' fees and expenses) incurred by Landlord in connection with any actual or proposed assignment or sublease, whether or not consummated, including the costs of making investigations as to the acceptability of the proposed assignee or subtenant. Any sublease to which Landlord gives its consent shall not be valid or binding on Landlord unless and until Tenant and the sublessee execute a consent agreement in form and substance reasonably satisfactory to Landlord. (b) Notwithstanding any sublease, or any amendments or modifications subsequent thereto, Tenant will remain fully liable for the payment of Basic Rent, Escalation Charges and other charges and for the performance of all other obligations of Tenant contained in this Lease. Any act or omission of any subtenant, or of anyone claiming under or through any subtenant, that violates any of the obligations of this Lease shall be deemed a violation of this Lease by Tenant. (c) The consent by Landlord to any sublease shall not relieve Tenant or any person claiming through or under Tenant of the obligation to obtain the consent of Landlord, pursuant to the provisions of this Article, to any subsequent sublease. (d) With respect to each and every sublease authorized by Landlord under the provisions of this Article, it is further agreed that any such sublease shall provide that: (i) the term of the sublease must end no later than one day before the last day of the Term of this Lease; (ii) no sublease shall be valid, and no subtenant shall take possession of all or any part of the Premises until a fully executed counterpart of such sublease has been delivered to Landlord; (iii) each sublease shall provide that it is subject and subordinate to this Lease; (iv) Landlord may enforce the provisions of the sublease, including collection of rents; (v) in the event of termination of this Lease or reentry or repossession of the Premises by Landlord, Landlord may, at its sole discretion and option, take over all of the right, title and interest of Tenant, as sublessor, under such sublease, and such subtenant shall, at Landlord's option, attorn to Landlord but nevertheless Landlord shall not (A) be liable for any previous act or omission of Tenant under such sublease; (B) be subject to any defense or offset previously accrued in favor of the subtenant against Tenant; or (C) be bound by any previous modification of such sublease made without Landlord's written consent or by any previous prepayment of more than one month's rent. 15 17 Version - August 1, 2000 6.6 ACCEPTANCE OF RENT. If this Lease is assigned, whether or not in violation of the provisions of this Lease, Landlord may collect rent from the assignee. If all or any part of the Premises are sublet, whether or not in violation of this Lease, Landlord may, after a Default of Tenant has occurred, collect rent from the subtenant. In either event, Landlord may apply the net amount collected to payment of Rents, but no such assignment, subletting, or collection shall be deemed a waiver of any of the provisions of this Article, an acceptance of the assignee or subtenant as a lessee, or a release of Tenant from the performance by Tenant of Tenant's obligations under this Lease. ARTICLE 7 RESPONSIBILITY FOR REPAIRS AND CONDITION OF PREMISES; SERVICES TO BE FURNISHED BY LANDLORD 7.1 LANDLORD REPAIRS. (a) Except as otherwise provided in this Lease, Landlord agrees to keep in good order, condition and repair the roof, public areas, exterior walls (including exterior glass) and structure of the Building (including all plumbing, mechanical and electrical systems installed by Landlord, but specifically excluding any supplemental heating, ventilation or air conditioning equipment or systems installed at Tenant's request or as a result of Tenant's requirements in excess of building standard design criteria), all insofar as they affect the Premises, except that Landlord shall in no event be responsible to Tenant for the repair of glass in the Premises, the doors (or related glass and finish work) leading to the Premises, or any condition in the Premises or the Building caused by any act or neglect of Tenant, its invitees or contractors. Landlord shall not be responsible to make any improvements or repairs to the Building other than as expressly in this Section 7.1 provided, unless expressly provided otherwise in this Lease. (b) Landlord shall never be liable for any failure to make repairs which Landlord has undertaken to make under the provisions of this Section 7.1 or elsewhere in this Lease, unless Tenant has given notice to Landlord of the need to make such repairs, and Landlord has failed to commence to make such repairs within a reasonable time after receipt of such notice, or falls to proceed with reasonable diligence to complete such repairs. 7.2 TENANT'S AGREEMENT. (a) Tenant will keep neat and clean and maintain in good order, condition and repair the Premises and every part thereof, excepting only those repairs for which Landlord is responsible under the terms of this Lease, reasonable wear and tear of the Premises, and damage by fire or other casualty or as a consequence of the exercise of the power of eminent domain; and shall surrender the Premises, at the end of the Term, in such condition. Without limitation, Tenant shall continually during the Term of this Lease maintain the Premises in accordance with all laws, codes and ordinances from time to time in effect and all directions, rules and regulations of the proper officers of governmental agencies having jurisdiction, and the standards recommended by the Boston Board of Fire Underwriters, and shall, at Tenant's expense, obtain all permits, licenses and the like required by applicable law. To the extent that the Premises constitute a "Place of Public Accommodation" within the meaning of the Americans With Disabilities Act of 1990, Tenant shall be responsible, subject to the requirements of Section 5.2, for making the Premises comply with such Act. Notwithstanding the foregoing or the provisions of Article XII, to the maximum extent this provision may be enforceable according to law, Tenant shall be responsible for the cost of repairs which may be 16 18 Version - August 1, 2000 made necessary by reason of damage to the Building caused by any act or neglect of Tenant, or its contractors or invitees (including any damage by fire or other casualty arising therefrom) and, if the premium or rates payable with respect to any policy or policies of insurance purchased by Landlord or Agent with respect to the Property increases as a result of payment by the insurer of any claim arising from the any act or neglect of Tenant, or its contractors or invitees, Tenant shall be pay such increase, from time to time, within fifteen (15) days after demand therefor by Landlord, as an additional charge. (b) If repairs are required to be made by Tenant pursuant to the terms hereof, Landlord may demand that Tenant make the same forthwith, and if Tenant refuses or neglects to commence such repairs and complete the same with reasonable dispatch, after such demand (except in the case of an emergency, in which event Landlord may make such repairs immediately), Landlord may (but shall not be required to do so) make or cause such repairs to be made (the provisions of Section 14.18 being applicable to the costs thereof), and shall not be responsible to Tenant for any loss or damage whatsoever that may accrue to Tenant's stock or business by reason thereof. 7.3 FLOOR LOAD - HEAVY MACHINERY. (a) Tenant shall not place a load upon any floor in the Premises exceeding the floor load per square foot of area which such floor was designed to carry and which is allowed by law. Landlord reserves the right to reasonably prescribe the weight and position of all business machines and mechanical equipment, including safes, which shall be placed so as to distribute the weight. Business machines and mechanical equipment shall be placed and maintained by Tenant at Tenant's expense in settings sufficient, in Landlord's reasonable judgment, to absorb and prevent vibration, noise and annoyance. Tenant shall not move any safe, heavy machinery, heavy equipment, freight, bulky matter or fixtures into or out of the Building without Landlord's prior consent, which consent shall not be unreasonably withheld, conditioned or delayed, but may include a requirement to provide insurance, naming Landlord as an insured, in such amounts as Landlord may deem reasonable. (b) If any such safe, machinery, equipment, freight, bulky matter or fixtures requires special handling, Tenant agrees to employ only persons holding a Master Rigger's License to do such work, and that all work in connection therewith shall comply with applicable laws and regulations. Any such moving shall be at the sole risk and hazard of Tenant, and Tenant will exonerate, indemnify and save Landlord harmless against and from any liability, loss, injury, claim or suit resulting directly or indirectly from such moving. 7.4 BINDING SERVICES. (a) Landlord shall, on Business Days from 8:00 a.m. to 6:00 p.m. and on Saturdays from 8:00 am. to 1:00 p.m., furnish heating and cooling as normal seasonal changes may require to provide reasonably comfortable space temperature and ventilation for occupants of the Premises under normal business operation at an occupancy of not more than one person per 150 square feet of Premises Rentable Area and an electrical load not exceeding 4.5 watts per square foot of Premises Rentable Area. If Tenant shall require air conditioning, heating or ventilation outside the hours and days above specified, Landlord shall furnish such service and Tenant shall pay therefor such charges as may from time to time be in effect. In the event Tenant introduces into the Premises personnel or equipment which overloads the capacity of the Building system or in any other way interferes with the system's ability to perform adequately its proper functions, supplementary systems may, if and as needed, at Landlord's option, be provided by Landlord, at Tenant's expense. (b) Landlord shall also provide: 17 19 Version - August 1, 2000 (i) Passenger elevator service from the existing passenger elevator system in common with Landlord and other tenants in the Building. (ii) Warm water for lavatory purposes and cold water (at temperatures supplied by the city in which the Property is located) for drinking, lavatory and toilet purposes. If Tenant uses water for any purpose other than for ordinary lavatory and drinking purposes, Landlord may assess a reasonable charge for the additional water so used, or install a water meter and thereby measure Tenant's water consumption for all purposes. In the latter event, Tenant shall pay the cost of the meter and the cost of installation thereof and shall keep such meter and installation equipment in good working order and repair. Tenant agrees to pay for water consumed, as shown on such meter, together with the sewer charge based on such meter charges, as and when bills are rendered, and in default in making such payment Landlord may pay such charges and collect the same from Tenant as an additional charge. (iii) Cleaning and janitorial services to the Premises, provided the same are kept in order by Tenant, substantially in accordance with the cleaning standards from time to time in effect for the Building. (iv) Free access to the Premises on Business Days from 8:00 a.m. to 6:00 p.m., and at all other times subject to security precautions from time to time in effect, and subject always to restrictions based on emergency conditions. (c) Landlord or Agent may from time to time, but shall not be obligated to, provide one or more uniformed attendants in or about the lobby of the Building. Unless Landlord expressly agrees otherwise in writing, such attendant(s) shall serve functions such as assisting visitors and invitees of tenants and others in the Building, monitoring fire control and alarm equipment, and summoning emergency services to the Building as and when needed. Tenant expressly acknowledges and agrees that: (i) such attendants shall not serve as police officers, and will be unarmed, and will not be trained in situations involving potentially physical confrontation; and (ii) if provided, such attendants will be provided solely as an amenity to tenants of the Building for the sole purposes set forth above, and not for the purpose of securing any individual tenant premises or guaranteeing the physical safety of Tenant's Premises or of Tenant's employees, agents, contractors or invitees. If and to the extent that Tenant desires to provide security for the Premises or for such persons or their property, Tenant shall be responsible for so doing, after having first consulted with Landlord and after obtaining Landlord's consent, which shall not be unreasonably withheld. Landlord expressly disclaims any and all responsibility and/or liability for the physical safety of Tenant's property, and for that of Tenant's employees, agents, contractors and invitees, and, without in any way limiting the operation of Article X hereof, Tenant, for itself and its agents, contractors, invitees and employees, hereby expressly waives any claim, action, cause of action or other right which may accrue or arise as a result of any damage or injury to the person or property of Tenant or any such agent, invitee, contractor or employee. Tenant agrees that, as between Landlord and Tenant, it is Tenant's responsibility to advise its employees, agents, contractors and invitees as to necessary and appropriate safety precautions. 7.5 ELECTRICITY. (a) Landlord shall supply electricity to the Premises to meet a demand requirement not to exceed 4.5 watts per square foot of Premises Rentable Area for standard single-phase 120 volt alternating current and Tenant agrees in its use of the Premises (i) not to exceed such requirements and 18 20 Version - August 1, 2000 (ii) that its total connected lighting load will not exceed the maximum from time to time permitted under applicable governmental regulations. If, without in any way derogating from the foregoing limitation, Tenant shall require electricity in excess of the requirements set forth above, Tenant shall notify Landlord and Landlord may (without being obligated to do so) supply such additional service or equipment at Tenant's sole cost and expense. Landlord shall purchase and install, at Tenant's expense, all lamps, tubes, bulbs, starters and ballasts. In order to assure that the foregoing requirements are not exceeded and to avert possible adverse affect on the Building's electric system, Tenant shall not, without Landlord's prior consent, which consent shall not be unreasonably withheld, conditioned or delayed, connect any fixtures, appliances or equipment to the Building's electric distribution system other than personal computers, facsimile transceivers, typewriters, pencil sharpeners, adding machines, photocopiers, word and data processors, clocks, radios, hand-held or desk top calculators, dictaphones, desktop computers and other similar small electrical equipment normally found in business offices and not drawing more than 15 amps at 120/208 volts. (b) From time to time during the Term of this Lease, Landlord shall have the right to have an independent electrical consultant selected by Landlord make a survey of Tenant's electric usage, the result of which survey shall be conclusive and binding upon Landlord and Tenant. In the event that such survey shows that Tenant has exceeded the requirements set forth in paragraph (a), in addition to any other rights Landlord may have hereunder, Tenant shall, upon demand, reimburse Landlord for the cost of such survey and the cost, as determined by such consultant, of electricity usage in excess of such requirements as an additional charge. (c) Landlord shall have the right to discontinue furnishing electricity to the Premises at any time upon not less than thirty (30) days' notice to Tenant provided Landlord shall, at Landlord's expense (unless such separate metering shall be as a result of Tenant's having exceeded the limits set forth in paragraph (a) above, in which case Tenant shall bear such expense), separately meter the Premises directly to the applicable public utility company and further provided that such discontinuance by Landlord does not cause a material interruption in utility service to the Premises during such transition. If Landlord exercises such right, from and after the effective date of such discontinuance, Landlord shall not be obligated to furnish electricity to the Premises, and (i) in the computation of Operating Expenses, only the cost of electricity supplied to those portions of the Building other than those leased or intended to be leased to tenants for their exclusive use and occupancy, i.e., only those areas which are so-called common areas, shall be included; (ii) Tenant shall no longer be required to pay the Estimated Electricity Payment, and Base Operating Expenses shall be reduced by $0.95 per square foot of Building Rentable Area; and (iii) Landlord shall permit Landlord's existing wires, risers, conduits and other electrical equipment of Landlord to be used to supply electricity to Tenant provided that the limits set forth in paragraph (a) shall not be exceeded, and Tenant shall be responsible for payment of all electricity charges directly to such utility. (d) Tenant shall not at any time contract to purchase electricity from any provider (an "ASP") other than the service provider from whom Landlord from time to time shall purchase electricity for the common areas of the Building, or give any such ASP permission to install lines or other equipment, without in each case obtaining the Landlord's prior written consent. Such consent shall not be 19 21 Version - August 1, 2000 unreasonably withheld, provided that it shall not be unreasonable in any case for Landlord to require: (i) that Landlord shall not be required to incur any expense in connection with any aspect of the service to be provided by Tenant's ASP, including without limitation, the cost of installation, service and/or removal of equipment, fixtures or materials associated therewith; (ii) that prior to the commencement of any work in the Building by the ASP, Landlord shall have been furnished with information (acceptable to Landlord in its reasonable discretion) as to the ASP's financial condition, business reputation and insurance coverage; (iii) that Landlord shall have determined that there is sufficient space in the Premises and in any common electrical closets (for which Landlord may charge a reasonable fee) or other facilities for the ASP to install, maintain and repair its equipment, and that the installation, maintenance and repair of such equipment shall not have any detrimental effect on the Building, the Property or on the property or facilities of any other tenant or occupant of any part thereof; (iv) that Tenant and/or the ASP shall have obtained all necessary permits, licenses and approvals; (v) that Landlord shall have the right to have access to any equipment placed in the Building for purposes of inspection and ensuring compliance herewith; and (vi) that Tenant's agreement with the ASP shall not result in any adverse financial impact on Landlord or the other tenants in the Building. Tenant shall be solely responsible for any and all costs and expenses incurred in connection with the installation, use, maintenance, repair and removal of such equipment and shall indemnify, defend and hold Landlord harmless from and against any loss, cost, damage or expense suffered by Landlord as a result of Tenant's arrangements with its ASP (except to the extent arising from Landlord's grossly negligent acts or omissions). Landlord shall have no liability for the service to be provided by any ASP, including without limitation any loss or interruption of service or any damages to Tenant or its business arising therefrom. ARTICLE 8 REAL ESTATE TAXES 8.1 PAYMENTS ON ACCOUNT OF REAL ESTATE TAXES. (a) For the purposes of this Article, the term "Tax Year" shall mean the twelve-month period commencing on the July 1 immediately preceding the Commencement Date and each twelve-month period thereafter commencing during the Term of this Lease; and the term "Taxes" shall mean real estate taxes assessed with respect to (i) the Property for any Tax Year. (b) in the event that for any reason, Taxes during any Tax Year shall exceed Base Taxes, Tenant shall pay to Landlord, as an Escalation Charge, an amount equal to (i) the excess of Taxes over Base Taxes for such Tax Year, multiplied by (ii) the Escalation Factor, such amount to be apportioned for any portion of a Tax Year in which the Commencement Date falls or the Term of this Lease ends. (c) Estimated payments by Tenant on account of Taxes shall be made on the first day of each and every calendar month during the Term of this Lease, in the fashion herein provided for the payment of Basic Rent. The monthly amount so to be paid to Landlord shall be sufficient to provide Landlord by the time real estate tax payments are due with a sum equal to Tenant's required payments, as estimated by Landlord from time to time, on account of Taxes for the then current Tax Year. Promptly after receipt by Landlord of bills for such Taxes, Landlord shall advise Tenant of the amount thereof and the computation of Tenant's payment on account thereof. If estimated payments theretofore made by Tenant for the Tax Year covered by such bills exceed the required payments on account thereof for 20 22 Version - August 1, 2000 such Year, Landlord shall credit the amount of overpayment against subsequent obligations of Tenant on account of Taxes (or refund such overpayment if the Term of this Lease has ended and Tenant has no further obligation to Landlord); but if the required payments on account thereof for such Year are greater than estimated payments theretofore made on account thereof for such Year, Tenant shall make payment to Landlord within 30 days after being so advised by Landlord. 8.2 ABATEMENT. If Landlord shall receive any tax refund or reimbursement of Taxes or sum in lieu thereof with respect to any Tax Year, then out of any balance remaining thereof after deducting Landlord's expenses reasonably incurred in obtaining such refund, Landlord shall pay to Tenant, provided there does not then exist a Default of Tenant, an amount equal to such refund or reimbursement or sum in lieu thereof (exclusive of any interest) multiplied by the Escalation Factor; provided, that in no event, shall Tenant be entitled to receive more than the payments made by Tenant on account of Taxes for such Tax Year pursuant to paragraph (b) of Section 8.1 or to receive any payments or abatement of Basic Rent if Taxes for any year are less than Base Taxes or Base Taxes are abated. 8.3 ALTERNATE TAXES. (a) If some method or type of taxation shall replace the current method of assessment of real estate taxes in whole or part, or the type thereof, or if additional types of taxes are imposed upon the Property or Landlord, Tenant agrees that such taxes or other charges shall be deemed to be, and shall be, Taxes hereunder and Tenant shall pay an equitable share of the same as an additional charge computed in a fashion consistent with the method of computation herein provided, to the end that Tenant's share thereof shall be, to the maximum extent practicable, comparable to that which Tenant would bear under the foregoing provisions. (b) If a tax (other than a Federal or State net income tax) is assessed on account of the rents or other charges payable by Tenant to Landlord under this Lease, Tenant agrees to pay the same as an additional charge within ten (10) days after billing therefor, unless applicable law prohibits the payment of such tax by Tenant. ARTICLE 9 OPERATING AND UTILITY EXPENSES 9.1 DEFINITIONS. For the purposes of this Article, the following terms shall have the following respective meanings: Operating Year: Each calendar year in which any part of the Term of this Lease shall fall. Operating Expenses: aggregate costs or expenses reasonably incurred by Landlord with respect to the operation, administration, cleaning, repair, maintenance and management of the Property all as set forth in Exhibit C annexed hereto, provided that, if during any portion of the Operating Year for which Operating Expenses are being computed, less than all of Building Rentable Area was occupied by tenants or if Landlord was not supplying all tenants with the services being supplied hereunder, actual Operating Expenses incurred shall be reasonably extrapolated by Landlord on an item by item basis to the estimated Operating Expenses that would have been incurred if the Building were fully occupied for such Year and such services were being supplied to all tenants, and such extrapolated amount shall, 21 23 Version - August 1, 2000 for the purposes hereof, be deemed to be the Operating Expenses for such Year. Without limitation of the foregoing, Tenant acknowledges that the Building is a portion of the Park, and that under certain circumstances, Landlord will have services performed or materials supplied to one or more buildings or common areas in the Park. Landlord shall allocate the cost of such services and materials among one, two or all three buildings in the Park, as Landlord shall deem reasonably appropriate (Landlord's allocation being conclusive and binding) and, to the extent that any such cost would be included in Operating Expenses if supplied only to the Building, the Building's reasonable share of any such costs provided to the Park shall likewise be included in Operating Expenses. 9.2 TENANT'S PAYMENTS. (a) In the event that for any Operating Year Operating Expenses shall exceed Base Operating Expenses, Tenant shall pay to Landlord, as an Escalation Charge, an amount equal to (i) such excess Operating Expenses multiplied by (ii) the Escalation Factor, such amount to be apportioned for any portion of an Operating Year in which the Commencement Date falls or the Term of this Lease ends. (b) Estimated payments by Tenant on account of Operating Expenses shall be made on the first day of each and every calendar month during the Term of this Lease, in the fashion herein provided for the payment of Basic Rent. The monthly amount so to be paid to Landlord shall be sufficient to provide Landlord by the end of each Operating Year a sum equal to Tenant's required payments, as estimated by Landlord from time to time during each Operating Year, on account of Operating Expenses for such Operating Year. After the end of each Operating Year, Landlord shall submit to Tenant a reasonably detailed accounting of Operating Expenses for such Year, and Landlord shall certify to the accuracy thereof. If estimated payments theretofore made for such Year by Tenant exceed Tenant's required payment on account thereof for such Year, according to such statement, Landlord shall credit the amount of overpayment against subsequent obligations of Tenant with respect to Operating Expenses (or refund such overpayment if the Term of this Lease has ended and Tenant has no further obligation to Landlord); but, if the required payments on account thereof for such Year are greater than the estimated payments (if any) theretofore made on account thereof for such Year, Tenant shall make payment to Landlord within 30 days after being so advised by Landlord. Landlord shall have the same rights and remedies for the nonpayment by Tenant of any payments due on account of Operating Expenses as Landlord has hereunder for the failure of Tenant to pay Basic Rent. (c) If Tenant shall so request, within 30 days after receipt of any accounting required to be presented by Landlord hereunder, Landlord shall permit Tenant, at Tenant's expense and during normal business hours, to review Landlord's invoices relating to Operating Expenses for the Operating Year in respect of which such accounting was prepared for the purpose of verifying any accounting that Landlord is required to give hereunder. Any such request shall be accompanied by a statement setting forth, in reasonable detail, the particular respects which Tenant disputes or questions such accounting. In making any such examination, Tenant agrees, and shall cause its auditors, accountants and any other employees, agents or contractors having access to such information to agree, to keep strictly confidential (i) any and all information contained in such books and records, and (ii) the circumstances and details pertaining to such examination, including without limitation the nature of any dispute in respect of Operating Expenses and the nature or details of any settlement thereof; and Tenant will confirm and cause its auditors, accountants, employees, agents and contractors to confirm such agreement in writing, if so requested by Landlord, prior to such examination. If Tenant shall not request any such review within the 30-day period hereinabove referred to, then Landlord's accounting shall be binding and conclusive. During the pendency of any such examination, Tenant shall make all payments claimed by Landlord to be due, such payments to 22 24 Version - August 1, 2000 be without prejudice to Tenant's position. (d) If Tenant elects to conduct such an examination, and fails to notify Landlord in writing within 60 days after receipt of such accounting that, based upon such examination, Tenant disputes the correctness of such accounting (and specifies the particular respects in which the accounting is claimed to be incorrect), Landlord's accounting shall be binding and conclusive upon Tenant. If any dispute has not been resolved by agreement within thirty (30) days after Tenant's notice, then Tenant may, within 15 days after the expiration of such 30-day period, submit the matter to arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, except that there shall be only one arbitrator, who shall have had at least ten (10) years' experience as a certified property manager in buildings similar to the Building and in the same general location and market. If Tenant shall fail to submit the matter to arbitration within such 15-day period, then the accounting shall be conclusively deemed to be correct. Pending resolution by agreement or arbitration, Tenant shall make any payments claimed by Landlord to be due on account of Operating Expenses, such payment to be without prejudice to Tenant's position. Any decision by an arbitrator shall be final and binding on the parties. If the dispute shall be resolved in Tenant's favor, Landlord shall forthwith credit the amount overpaid by Tenant against amounts subsequently coming due on account of Operating Expenses, and Landlord shall reimburse Tenant for one-half of the reasonable cost of such arbitrator. If such dispute shall be resolved in Landlord's favor, Tenant shall reimburse Landlord for one-half of the reasonable cost of such arbitrator. ARTICLE 10 INDEMNITY AND PUBLIC LIABILITY INSURANCE 10.1 TENANT'S INDEMNITY. Except to the extent that such claims arise from the intentional or negligent acts or omissions of Landlord or its agents or employees, Tenant agrees to indemnify and save harmless Landlord from and against all claims, loss, cost, damage or expense of whatever nature arising: (i) from any accident, injury or damage whatsoever to any person, or to the property of any person, occurring in or about the Premises; (ii) from any accident, injury or damage occurring outside of the Premises but on the Property where such accident, damage or injury results or is claimed to have resulted from an act or omission on the part of Tenant or Tenant's agents or employees or independent contractors; or (iii) in connection with the conduct or management of the Premises or of any business therein, or any thing or work whatsoever done, or any condition created (other than by Landlord) in or about the Premises; and, in any case, occurring after the date of this Lease until the end of the Term of this Lease and thereafter so long as Tenant is in occupancy of any part of the Premises. This indemnity and hold harmless agreement shall include indemnity against all losses, costs, damages, expenses and liabilities incurred in or in connection with any such claim or proceeding brought thereon, and the defense thereof; including, without limitation, reasonable attorneys' fees and costs at both the trial and appellate levels. 10.2 PUBLIC LIABILITY INSURANCE. Tenant agrees to maintain in full force from the date upon which Tenant first enters the Premises for any reason, throughout the Term of this Lease, and thereafter so long as Tenant is in occupancy of any part of the Premises, a policy of commercial general liability and property damage insurance (including broad form contractual liability, independent contractor's hazard and completed operations coverage) under which Tenant is named as an insured and Landlord, Agent 23 25 Version - August 1, 2000 (and such other persons as are in privity of estate with Landlord as may be set out in a notice from time to time) are named as additional insureds, and under which the insurer agrees to indemnify and hold Landlord, Agent and those in privity of estate with Landlord, harmless from and against all cost, expense and/or liability arising out of or based upon any and all claims, accidents, injuries and damages set forth in Section 10.1. Each such policy shall be non-cancelable and non-amendable with respect to Landlord, Agent and Landlord's said designees without thirty (30) days' prior notice, shall be written on an "occurrence" basis, and shall be in at least the amounts of the Initial Public Liability Insurance specified in Section 1.3 or such greater amounts as Landlord shall from time to time request, and a duplicate original thereof shall be delivered to Landlord. 10.3 TENANT'S RISK. Tenant agrees to use and occupy the Premises and to use such other portions of the Property as Tenant is herein given the right to use at Tenant's own risk. Except to the extent that such claims arise from the intentional or negligent acts or omissions of Landlord or its agents or employees, neither Landlord nor Landlord's insurers shall have any responsibility or liability for any loss of or damage to Tenant's Removable Property. Tenant shall carry "all-risk" property insurance on a "replacement cost" basis, insuring Tenant's Removable Property and any alterations, additions or improvements installed by Tenant pursuant to Section 5.2., to the extent that the same have not become the property of Landlord, and other so-called improvements and betterments. The provisions of this Section 10.3 shall be applicable from and after the execution of this Lease and until the end of the Term of this Lease, and during such further period as Tenant may use or be in occupancy of any part of the Premises or of the Building. 10.4 INJURY CAUSED BY THIRD PARTIES. Except to the extent that such claims arise from the intentional or negligent acts or omissions of Landlord or its agents or employees, Tenant agrees that Landlord shall not be responsible or liable to Tenant, or to those claiming by, through or under Tenant, for any loss or damage that may be occasioned by or through the acts or omissions of persons occupying adjoining premises or any part of the premises adjacent to or connecting with the Premises or any part of the Property or otherwise. ARTICLE 11 LANDLORDS ACCESS TO PREMISES 11.1 LANDLORD'S RIGHTS. Landlord and Agent shall have the right to enter the Premises at all reasonable hours upon reasonable prior notice to Tenant (which notice may be oral, but in no event shall notice be required in the event of an emergency) for the purpose of inspecting or making repairs to the same, and Landlord and Agent shall also have the right to make access available at all reasonable hours upon reasonable prior notice to Tenant (which notice may be oral) to prospective or existing mortgagees, purchasers or tenants of any part of the Property. Landlord and Agent agree to use commercially reasonable efforts to minimize disruption of Tenant's business during any entry hereunder. ARTICLE 12 FIRE, EMINENT DOMAIN, ETC. 24 26 Version - August 1, 2000 12.1 ABATEMENT OF RENT. If the Premises shall be damaged by fire or casualty, Basic Rent and Escalation Charges payable by Tenant shall abate proportionately for the period in which, by reason of such damage, there is substantial interference with Tenant's use of the Premises, having regard for the extent to which Tenant may be required to discontinue Tenant's use of all or a portion of the Premises, but such abatement or reduction shall end if and when Landlord shall have substantially restored the Premises (excluding any alterations, additions or improvements made by Tenant pursuant to Section 5.2) to the condition in which they were prior to such damage. If the Premises shall be affected by any exercise of the power of eminent domain, Basic Rent and Escalation Charges payable by Tenant shall be justly and equitably abated and reduced according to the nature and extent of the loss of use thereof suffered by Tenant. In no event shall Landlord have any liability for damages to Tenant for inconvenience, annoyance, or interruption of business arising from such fire, casualty or eminent domain. 12.2 LANDLORD'S RIGHT OF TERMINATION. If the Premises or the Building are substantially damaged by fire or casualty (the term "substantially damaged" meaning damage of such a character that the same cannot, in ordinary course, reasonably be expected to be repaired within sixty (60) days from the time that repair work would commence), or if any part of the Building is taken by any exercise of the right of eminent domain, then Landlord shall have the right to terminate this Lease (even if Landlord's entire interest in the Premises may have been divested) by giving notice of Landlord's election so to do within ninety (90) days after the occurrence of such casualty or the effective date of such taking, whereupon this Lease shall terminate thirty (30) days after the date of such notice with the same force and effect as if such date were the date originally established as the expiration date hereof. 12.3 RESTORATION. If this Lease shall not be terminated pursuant to Section 12.2, Landlord shall thereafter use due diligence to restore the Premises (excluding any alterations, additions or improvements made by Tenant pursuant to Section 5.2) to original condition for Tenant's use and occupation, provided that Landlord's obligation shall be limited to the amount of insurance proceeds available therefor. If, for any reason, such restoration shall not be substantially completed within six (6) months after the expiration of the 90-day period referred to in Section 12.2 (which six-month period may be extended for such periods of time as Landlord is prevented from proceeding with or completing such restoration for any cause beyond Landlord's reasonable control, but in no event for more than an additional three (3) months), Tenant shall have the right to terminate this Lease by giving notice to Landlord thereof within thirty (30) days after the expiration of such period (as so extended) provided that such restoration is not completed within such period. This Lease shall cease and come to an end without further liability or obligation on the part of either party thirty (30) days after such giving of notice by Tenant unless, within such 30-day period, Landlord substantially completes such restoration. Such right of termination shall be Tenant's sole and exclusive remedy at law or in equity for Landlord's failure so to complete such restoration, and time shall be of the essence with respect thereto. 12.4 AWARD. Landlord shall have and hereby reserves and excepts, and Tenant hereby grants and assigns to Landlord, all rights to recover for damages to the Property and the leasehold interest hereby created, and to compensation accrued or hereafter to accrue by reason of such taking, damage or destruction, and by way of confirming the foregoing, Tenant hereby grants and assigns, and covenants with Landlord to grant and assign to Landlord, all rights to such damages or compensation, and covenants to deliver such further assignments and assurances thereof as Landlord may from time to time request, and Tenant hereby irrevocably appoints Landlord its attorney-in-fact to execute and deliver in Tenant's name all such assignments and assurances. Nothing contained herein shall be construed to prevent Tenant from prosecuting in any condemnation proceedings a claim for the value of any of Tenant's 25 27 Version - August 1, 2000 Removable Property installed in the Premises by Tenant at Tenant's expense and for relocation expenses, provided that such action shall not affect the amount of compensation otherwise recoverable by Landlord from the taking authority. ARTICLE 13 DEFAULT 13.1 TENANT'S DEFAULT. (a) If at any time subsequent to the date of this Lease any one or more of the following events (herein referred to as a "Default of Tenant") shall happen: (i) Tenant shall fail to pay the Basic Rent, Escalation Charges or additional charges hereunder when due and such failure shall continue for three (3) full Business Days after notice to Tenant from Landlord; or (ii) Tenant shall neglect or fail to perform or observe any other covenant herein contained on Tenant's part to be performed or observed and Tenant shall fail to remedy the same within thirty (30) days after notice to Tenant specifying such neglect or failure, or if such failure is of such a nature that Tenant cannot reasonably remedy the same within such thirty (30) day period, Tenant shall fail to commence promptly to remedy the same and to prosecute such remedy to completion with diligence and continuity; or (iii) Tenant's leasehold interest in the Premises shall be taken on execution or by other process of law directed against Tenant; or (iv) Tenant shall make an assignment for the benefit of creditors or shall be adjudicated insolvent, or shall file any petition or answer seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future Federal, State or other statute, law or regulation for the relief of debtors (other than the Bankruptcy Code, as hereinafter defined), or shall seek or consent to or acquiesce in the appointment of any trustee, receiver or liquidator of Tenant or of all or any substantial part of its properties, or shall admit in writing its inability to pay its debts generally as they become due; or (v) An Event of Bankruptcy (as hereinafter defined) shall occur with respect to Tenant; or (vi) A petition shall be filed against Tenant under any law (other than the Bankruptcy Code) seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any present or future Federal, State or other statute, law or regulation and shall remain undismissed or unstayed for an aggregate of sixty (60) days (whether or not consecutive), or if any trustee, conservator, receiver or liquidator of Tenant or of all or any substantial part of its properties shall be appointed without the 26 28 Version - August 1, 2000 consent or acquiescence of Tenant and such appointment shall remain unvacated or unstayed for an aggregate of sixty (60) days (whether or not consecutive); or (vii) If: (x) Tenant shall fail to pay the Basic Rent, Escalation Charges, additional charges or other charges hereunder when due or shall fall to perform or observe any other covenant herein contained on Tenant's part to be performed or observed and Tenant shall cure any such failure within the applicable grace period set forth in clauses (i) or (ii) above; or (y) a Default of Tenant of the kind set forth in clauses (i) or (ii) above shall occur and Landlord shall, in its sole discretion, permit Tenant to cure such Default after the applicable grace period has expired; and a similar failure or Default shall occur more than twice within the next 365 days (whether or not such similar failure is cured within the applicable grace period); then in any such case Landlord may terminate this Lease by notice to Tenant, specifying a date not less than five (5) days after the giving of such notice on which this Lease shall terminate and this Lease shall come to an end on the date specified therein as fully and completely as if such date were the date herein originally fixed for the expiration of the Term of this Lease, and Tenant will then quit and surrender the Premises to Landlord, but Tenant shall remain liable as hereinafter provided. (b) For purposes of clause (a)(v) above, an "Event of Bankruptcy" means the filing of a voluntary petition by Tenant, or the entry of an order for relief against Tenant, under Chapter 7, 11, or 13 of the Bankruptcy Code, and the term "Bankruptcy Code" means 11 U.S.C Section 101, et. seq. If an Event of Bankruptcy occurs, then the trustee of Tenant's bankruptcy estate or Tenant as debtor-in-possession may (subject to final approval of the court) assume this Lease, and may subsequently assign it, only if it does the following within sixty (60) days after the date of the filing of the voluntary petition, the entry of the order for relief (or such additional time as a court of competent jurisdiction may grant, for cause, upon a motion made within the original 60-day period): (i) file a motion to assume the Lease with the appropriate court; (ii) satisfy all of the following conditions, which Landlord and Tenant acknowledge to be commercially reasonable: (A) cure all Defaults of Tenant under this Lease or provide Landlord with Adequate Assurance (as defined below) that it will (x) cure all monetary Defaults of Tenant hereunder within ten (10) days from the date of the assumption; and (y) cure all nonmonetary Defaults of Tenant hereunder within 30 days from the date of the assumption; (B) compensate Landlord and any other person or entity, or provide Landlord with Adequate Assurance that within ten (10) days after the date of the assumption, it will compensate Landlord and such other person or entity, for any pecuniary loss that Landlord and such other person or entity incurred as a result of any Default of Tenant, the trustee, or the debtor-in-possession; 27 29 Version - August 1, 2000 (C) provide Landlord with Adequate Assurance of Future Performance (as defined below) of all of Tenant's obligations under this Lease; and (D) deliver to Landlord a written statement that the conditions herein have been satisfied. (c) For purposes only of the foregoing paragraph (b), and in addition to any other requirements under the Bankruptcy Code, any future federal bankruptcy law and applicable case law, "Adequate Assurance" means at least meeting the following conditions, which Landlord and Tenant acknowledge to be commercially reasonable: (i) entering an order segregating sufficient cash to pay Landlord and any other person or entity under paragraph (b) above, and (ii) granting to Landlord a valid first lien and security interest (in form acceptable to Landlord) in all property comprising the Tenant's "property of the estate," as that term is defined in Section 541 of the Bankruptcy Code, which lien and security interest secures the trustee's or debtor-in-possession's obligation to cure the monetary and nonmonetary defaults under the Lease within the periods set forth in paragraph (b) above; (d) For purposes only of paragraph (b), and in addition to any other requirements under the Bankruptcy Code, any future federal bankruptcy law and applicable case law, "Adequate Assurance of Future Performance" means at least meeting the following conditions, which Landlord and Tenant acknowledge to be commercially reasonable: (i) the trustee or debtor-in-possession depositing with Landlord, as security for the timely payment of rent and other monetary obligations, an amount equal to the sum of two (2) months' Basic Rent plus an amount equal to two (2) months' installments on account of Operating Expenses and Taxes, computed in accordance with Articles 8 and 9; (ii) the trustee or the debtor-in-possession agreeing to pay in advance, on each day that the Basic Rent is payable, the monthly installments on account of Operating Expenses and Taxes, computed in accordance with Articles 8 and 9 hereof; (iii) the trustee or debtor-in-possession providing adequate assurance of the source of the rent and other consideration due under this Lease; (iv) Tenant's bankruptcy estate and the trustee or debtor-in-possession providing Adequate Assurance that the bankruptcy estate (and any successor after the conclusion of the Tenant's bankruptcy proceedings) will continue to have sufficient unencumbered assets after the payment of all secured obligations and administrative expenses to assure Landlord that the bankruptcy estate (and any successor after the conclusion of the Tenant's bankruptcy proceedings) will have sufficient funds to fulfill Tenant's obligations hereunder; and (e) If the trustee or the debtor-in-possession assumes the Lease under paragraph (b) above and applicable bankruptcy law, it may assign its interest in this Lease only if the proposed assignee first 28 30 Version - August 1, 2000 provides Landlord with Adequate Assurance of Future Performance of all of Tenant's obligations under the Lease, and if Landlord determines, in the exercise of its reasonable business judgment, that the assignment of this Lease will not breach any other lease, or any mortgage, financing agreement, or other agreement relating to the Property by which Landlord or the Property is then bound (and Landlord shall not be required to obtain consents or waivers from any third party required under any lease, mortgage, financing agreement, or other such agreement by which Landlord is then bound). (f) For purposes only of paragraph (e) above, and in addition to any other requirements under the Bankruptcy Code, any future federal bankruptcy law and applicable case law, "Adequate Assurance of Future Performance" means at least the satisfaction of the following conditions, which Landlord and Tenant acknowledge to be commercially reasonable: (i) the proposed assignee submitting a current financial statement, audited by a certified public accountant, that allows a net worth and working capital in amounts determined in the reasonable business judgment of Landlord to be sufficient to assure the future performance by the assignee of Tenant's obligation under this Lease; and (ii) if requested by Landlord in the exercise of its reasonable business judgment, the proposed assignee obtaining a guarantee (in form and substance satisfactory to Landlord) from one or more persons who satisfy Landlord's standards of creditworthiness; (g) If this Lease shall have been terminated as provided in this Article, or if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the Premises shall be taken or occupied by someone other than Tenant, then Landlord may re-enter the Premises, either by summary proceedings, ejectment or otherwise, and remove and dispossess Tenant and all other persons and any and all property from the same, as if this Lease had not been made. (h) In the event of any termination, Tenant shall pay the Basic Rent, Escalation Charges and other sums payable hereunder up to the time of such termination, and thereafter Tenant, until the end of what would have been the Term of this Lease in the absence of such termination, and whether or not the Premises shall have been relet, shall be liable to Landlord for, and shall pay to Landlord, as liquidated current damages: (x) the Basic Rent, Escalation Charges and other sums that would be payable hereunder if such termination had not occurred, less the net proceeds, if any, of any reletting of the Premises, after deducting all expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, legal expenses, reasonable attorneys' fees, advertising, expenses of employees, alteration costs and expenses of preparation for such reletting; and (y) if in accordance with Section 3.1(a), Tenant commenced payment of the full amount of Basic Rent on any day other than the Commencement Date, the amount of Basic Rent that would have been payable during the period beginning on the Commencement Date and ending on the day Tenant commenced payment of the full amount of Basic Rent under such Section 3.1(a). Tenant shall pay the portion of such current damages referred to in clause (x) above to Landlord monthly on the days which the Basic Rent would have been payable hereunder if this Lease had not been terminated, and Tenant shall pay the portion of such current damages referred to in clause (y) above to Landlord upon such termination. (i) At any time after such termination, whether or not Landlord shall have collected any such current damages, as liquidated final damages and in lieu of all such current damages beyond the date of such demand, at Landlord's election Tenant shall pay to Landlord an amount equal to the excess, if any, 29 31 Version - August 1, 2000 of the Basic Rent, Escalation Charges and other sums as hereinbefore provided which would be payable hereunder from the date of such demand assuming that, for the purposes of this paragraph, annual payments by Tenant on account of Taxes and Operating Expenses would be the same as the payments required for the immediately preceding Operating or Tax Year for what would be the then unexpired Term of this Lease if the same remained in effect, over the then fair net rental value of the Premises for the same period. (j) In case of any Default by Tenant, re-entry, expiration and dispossession by summary proceedings or otherwise, Landlord may (i) re-let the Premises or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms which may at Landlord's option be equal to or less than or exceed the period which would otherwise have constituted the balance of the Term of this Lease and may grant concessions or free rent to the extent that Landlord considers advisable and necessary to re-let the same and (ii) may make such reasonable alterations, repairs and decorations in the Premises as Landlord in its sole judgment considers advisable and necessary for the purpose of reletting the Premises; and the making of such alterations, repairs and decorations shall not operate or be construed to release Tenant from liability hereunder as aforesaid. Landlord shall in no event be liable in any way whatsoever for failure to re-let the Premises, or, in the event that the Premises are re-let, for failure to collect the rent under such re-letting. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed, or in the event of Landlord obtaining possession of the Premises, by reason of the violation by Tenant of any of the covenants and conditions of this Lease. (k) If a Guarantor of this Lease is named in Section 1.2, the happening of any of the events described in paragraphs (a)(iv)-(a)(vi) of this Section 13.1 with respect to the Guarantor shall constitute a Default of Tenant hereunder. (l) The specified remedies to which Landlord may resort hereunder are not intended to be exclusive of any remedies or means of redress to which Landlord may at any time be entitled lawfully, and Landlord may invoke any remedy (including the remedy of specific performance) allowed at law or in equity as if specific remedies were not herein provided for. (m) All costs and expenses incurred by or on behalf of Landlord (including, without limitation, attorneys' fees and expenses at both the trial and appellate levels) in enforcing its rights hereunder or occasioned by any Default of Tenant shall be paid by Tenant. 13.2 LANDLORD'S DEFAULT. Landlord shall in no event be in default in the performance of any of Landlord's obligations hereunder unless and until Landlord shall have failed to perform such obligations within thirty (30) days, or if such failure is of such a nature that Landlord cannot reasonably remedy the same within such thirty (30) day period, Landlord shall fail to commence promptly (and in any event within such thirty (30) day period) to remedy the same and to prosecute such remedy to completion with diligence and continuity. ARTICLE 14 MISCELLANEOUS PROVISIONS 30 32 Version August 1, 2000 14.1 EXTRA HAZARDOUS USE. Tenant covenants and agrees that Tenant will not do or permit anything to be done in or upon the Premises, or bring in anything or keep anything therein, which shall increase the rate of property or liability insurance on the Premises or the Property above the standard rate applicable to Premises being occupied for Permitted Uses; and Tenant further agrees that, in the event that Tenant shall do any of the foregoing, Tenant will promptly pay to Landlord, on demand, any such increase resulting therefrom, which shall be due and payable as an additional charge hereunder. 14.2 WAIVER. (a) Failure on the part of Landlord or Tenant to complain of any action or non-action on the part of the other, no matter how long the same may continue, shall never be a waiver by Tenant or Landlord, respectively, of any of the other's rights hereunder. Further, no waiver at any time of any of the provisions hereof by Landlord or Tenant shall be construed as a waiver of any of the other provisions hereof, and a waiver at any time of any of the provisions hereof shall not be construed as a waiver at any subsequent time of the same provisions. The consent or approval of Landlord or Tenant to or of any action by the other requiring such consent or approval shall not be construed to waive or render unnecessary Landlord's or Tenant's consent or approval to or of any subsequent similar act by the other. (b) No payment by Tenant, or acceptance by Landlord, of a lesser amount than shall be due from Tenant to Landlord shall be treated otherwise than as a payment on account of the earliest installment of any payment due from Tenant under the provisions hereof. The acceptance by Landlord of a check for a lesser amount with an endorsement or statement thereon, or upon any letter accompanying such check, that such lesser amount is payment in full, shall be given no effect, and Landlord may accept such check without prejudice to any other rights or remedies which Landlord may have against Tenant. 14.3 COVENANT OF QUIET ENJOYMENT. Tenant, subject to the terms and provisions of this Lease, on payment of the Basic Rent and Escalation Charges and, no Default of Tenant having occurred, shall lawfully, peaceably and quietly have, hold, occupy and enjoy the Premises during the term hereof, without hindrance or ejection by any persons lawfully claiming under Landlord to have title to the Premises superior to Tenant; the foregoing covenant of quiet enjoyment is in lieu of any other covenant, express or implied. 14.4 LANDLORD'S LIABILITY. (a) Tenant specifically agrees to look solely to Landlord's then equity interest in the Property at the time owned (including any condemnation or casualty proceeds), for recovery of any judgment from Landlord; it being specifically agreed that Landlord (original or successor) shall never be personally liable for any such judgment, or for the payment of any monetary obligation to Tenant. The provision contained in the foregoing sentence is not intended to, and shall not, limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or Landlord's successors in interest, or to take any action not involving the personal liability of Landlord (original or successor) to respond in monetary damages from Landlord's assets other than Landlord's equity interest in the Property. (b) With respect to any services or utilities to be furnished by Landlord to Tenant, Landlord shall in no event be liable for failure to furnish the same when prevented from doing so by strike, lockout, breakdown, accident, order or regulation of or by any governmental authority, or failure of supply, or failure whenever and for so long as may be necessary by reason of the making of repairs or changes which Landlord is required or is permitted by this Lease or by law to make or in good faith deems necessary, or inability by the exercise of reasonable diligence to obtain supplies, parts or employees necessary to furnish such services, or because of war or other emergency, or for any other cause beyond 31 33 Version August 1, 2000 Landlord's reasonable control, or for any cause due to any act or neglect of Tenant or Tenant's servants, agents, employees, licensees or any person claiming by, through or under Tenant, nor shall any such failure give rise to any claim in Tenant's favor that Tenant has been evicted, either constructively or actually, partially or wholly. (c) In no event shall Landlord ever be liable to Tenant for any loss of business or any other indirect or consequential damages suffered by Tenant from whatever cause. (d) Where provision is made in this Lease for Landlord's consent and Tenant shall request such consent and Landlord shall fail or refuse to give such consent, Tenant shall not be entitled to any damages for any withholding by Landlord of its consent, it being intended that Tenant's sole remedy shall be an action for specific performance or injunction, and that such remedy shall be available only in those cases where Landlord has expressly agreed in writing not to unreasonably withhold its consent. Furthermore, whenever Tenant requests Landlord's consent or approval (whether or not provided for herein), Tenant shall pay to Landlord, on demand, as an additional charge, any expenses incurred by Landlord (including without limitation reasonable legal fees and costs, if any) in connection therewith. (e) With respect to any repairs or restoration which are required or permitted to be made by Landlord, the same may be made during normal business hours and Landlord shall have no liability for damages to Tenant for inconvenience, annoyance or interruption of business arising therefrom. (f) This Lease is executed by certain employees of the State Teachers Retirement System of Ohio, not individually, but solely on behalf of Landlord, the authorized nominee and agent for The State Teachers Retirement Board of Ohio ("STRBO"). In consideration for entering into this Lease, Tenant hereby waives any rights to bring a cause of action against the individuals executing this Lease on behalf of Landlord (except for any cause of action based upon lack of authority or fraud), and all persons dealing with Landlord must look solely to Landlord's assets for the enforcement of any claim against Landlord, and the obligations hereunder are not binding upon, not shall resort be had to the private property of any of the trustees, officers, directors, employees or agents of STRBO. 14.5 NOTICE TO MORTGAGEE OR GROUND LESSOR. After receiving notice from any person, firm or other entity that it holds a mortgage or a ground lease which includes the Premises, no notice from Tenant to Landlord alleging any default by Landlord shall be effective unless and until a copy of the same is given to such holder or ground lessor (provided Tenant shall have been furnished with the name and address of such holder or ground lessor), and the curing of any of Landlord's defaults by such holder or ground lessor shall be treated as performance by Landlord. Landlord hereby gives Tenant notice that the holder of a mortgage on the Property as of the date hereof is IDS Life Insurance Company, 733 Marquette Avenue, Minneapolis, MN 55402, Attn: RELM Unit #401. 14.6 ASSIGNMENT OF RENTS AND TRANSFER OF TITLE. (a) With reference to any assignment by Landlord of Landlord's interest in this Lease, or the rents payable hereunder, conditional in nature or otherwise, which assignment is made to the holder of a mortgage on property which includes the Premises, Tenant agrees that the execution thereof by Landlord, and the acceptance thereof by the holder of such mortgage shall never be treated as an assumption by such holder of any of the obligations of Landlord hereunder unless such holder shall, by notice sent to Tenant, specifically otherwise elect and that, except as aforesaid, such holder shall be treated as having assumed Landlord's obligations hereunder only upon foreclosure of such holder's mortgage and the taking of possession of the Premises. 32 34 Version August 1, 2000 (b) In no event shall the acquisition of Landlord's interest in the Property by a purchaser which, simultaneously therewith, leases Landlord's entire interest in the Property back to the seller thereof be treated as an assumption by operation of law or otherwise, of Landlord's obligations hereunder, but Tenant shall look solely to such seller-lessee, and its successors from time to time in title, for performance of Landlord's obligations hereunder. In any such event, this Lease shall be subject and subordinate to the lease to such purchaser. For all purposes, such seller-lessee, and its successors in title, shall be the Landlord hereunder unless and until Landlord's position shall have been assumed by such purchaser-lessor. (c) Except as provided in paragraph (b) of this Section, in the event of any transfer of title to the Property by Landlord, Landlord shall thereafter be entirely freed and relieved from the performance and observance of all covenants and obligations hereunder. 14.7 RULES AND REGULATIONS. Tenant shall abide by rules and regulations from time to time established by Landlord, it being agreed that such rules and regulations will be established and applied by Landlord in a non-discriminatory fashion, such that all rules and regulations shall be generally applicable to other tenants, of similar nature to the Tenant named herein, of the Building. Landlord agrees to use reasonable efforts to insure that any such rules and regulations are uniformly enforced, but Landlord shall not be liable to Tenant for violation of the same by any other tenant or occupant of the Building, or persons having business with them. In the event that there shall be a conflict between such rules and regulations and the provisions of this Lease, the provisions of this Lease shall control. Rules and Regulations currently in effect are set forth in Exhibit B. 14.8 ADDITIONAL CHARGES. If Tenant shall fail to pay when due any sums under this Lease designated as an Escalation Charge or additional charge, Landlord shall have the same rights and remedies as Landlord has hereunder for failure to pay Basic Rent. 14.9 INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this Lease, or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. 14.10 PROVISIONS BINDING, ETC. Except as herein otherwise provided, the terms hereof shall be binding upon and shall inure to the benefit of the successors and assigns, respectively, of Landlord and Tenant (except in the case of Tenant, only such assigns as may be permitted hereunder) and, if Tenant shall be an individual, upon and to his heirs, executors, administrators, successors and permitted assigns. Each term and each provision of this Lease to be performed by Tenant shall be construed to be both a covenant and a condition. The reference contained to successors and assigns of Tenant is not intended to constitute a consent to assignment by Tenant, but has reference only to those instances in which Landlord may later give consent to a particular assignment as required by those provisions of Article 6 hereof. 14.11 RECORDING. Tenant agrees not to record this Lease, but, if the Term of this Lease (including any extended term) is seven (7) years or longer, each party hereto agrees, on the request of the other, to execute a so-called notice of lease in recordable form and complying with applicable law and reasonably satisfactory to Landlord's attorneys. In no event shall such document set forth the rent or 33 35 Version August 1, 2000 other charges payable by Tenant under this Lease; and any such document shall expressly state that it is executed pursuant to the provisions contained in this Lease, and is not intended to vary the terms and conditions of this Lease. 14.12 NOTICES. Whenever, by the terms of this Lease, notices shall or may be given either to Landlord or to Tenant, such notice shall be in writing and shall be sent by (i) registered or certified mail, postage prepaid, return receipt requested, (ii) nationally recognized overnight carrier, or (iii) hand delivery, as follows: If intended for Landlord, addressed to Landlord at Landlord's Original Address and marked: "Attention: Director of Real Estate" with a copy to Stephen T. Langer, Esq., Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial Center, Boston, MA 02111 (or to such other address or addresses as may from time to time hereafter be designated by Landlord by like notice). If intended for Tenant, addressed to Tenant at Tenant's Original Address until the Commencement Date and thereafter to the Premises, (or to such other address or addresses as may from time to time hereafter be designated by Tenant by like notice). All such notices shall be effective upon the first to occur of attempted delivery, actual receipt or refusal of delivery. 14.13 WHEN LEASE BECOMES BINDING; TENANT'S REPRESENTATION. The submission of this document for examination and negotiation does not constitute an offer to lease, or a reservation of, or option for, the Premises, and this document shall become effective and binding only upon the execution and delivery hereof by both Landlord and Tenant. All negotiations, considerations, representations and understandings between Landlord and Tenant are incorporated herein and this Lease expressly supersedes any proposals or other written documents relating hereto. This Lease may be modified or altered only by written agreement between Landlord and Tenant, and no act or omission of any employee or agent of Landlord shall alter, change or modify any of the provisions hereof. As a material inducement to Landlord to enter into this Lease, Tenant hereby represents and warrants to Landlord that Tenant is not a political subdivision of the State of Ohio, or an authority, instrumentality, or municipality of the State of Ohio or a corporation or other entity in which any of the foregoing described entities own or control fifty percent (50%) or more of the stock or other evidence of ownership. 14.14 PARAGRAPH HEADINGS AND INTERPRETATION OF SECTIONS. The paragraph headings throughout this instrument are for convenience and reference only, and the words contained therein shall in no way be held to explain, modify, amplify or aid in the interpretation, construction or meaning of the provisions of this Lease. The provisions of this Lease shall be construed as a whole, according to their common meaning (except where a precise legal interpretation is clearly evidenced), and not for or against either party. Use in this Lease of the words "including," "such as" or words of similar import, when followed by any general term, statement or matter, shall not be construed to limit such term, statement or matter to the specified item(s), whether or not language of non-limitation, such as "without limitation" or "including, but not limited to," or words of similar import, are used with reference thereto, but rather shall be deemed to refer to all other terms or matters that could fall within a reasonably broad scope of such term, statement or matter. 34 36 Version August 1, 2000 14.15 RIGHTS OF MORTGAGEE OR GROUND LESSOR. This Lease shall be subordinate to any mortgage or ground lease from time to time encumbering the Premises, whether executed and delivered prior to or subsequent to the date of this Lease, if the holder of such mortgage or ground lease shall so elect. If this Lease is subordinate to any mortgage or ground lease and the holder thereof (or successor) shall succeed to the interest of Landlord, at the election of such holder (or successor) Tenant shall attorn to such holder and this Lease shall continue in full force and effect between such holder (or successor) and Tenant. Tenant agrees to execute such instruments of subordination or attornment in confirmation of the foregoing agreement as such holder may request. In no event shall the holder of any mortgage or ground lease ever: (A) be liable for any act or omission of Landlord hereunder occurring prior to such holder's succession to Landlord's interest hereunder; or (B) be subject to any defense or offset accruing in favor of the Tenant against Landlord prior to such holder's succession to Landlord's interest hereunder; or (C) be bound by any modification of this Lease made without such holder's written consent or by any prepayment of more than one month's rent. Notwithstanding the foregoing, if the holder of such mortgage or ground lease elects to make this Lease subordinate as aforesaid, then upon the request of Tenant, Landlord agrees to use all reasonable efforts to obtain the holder's written agreement in a form acceptable to such holder that, subject to such qualifications as such holder may reasonably impose, in the event that the holder shall succeed to the interests of Landlord hereunder pursuant to such mortgage, ground lease or encumbrance, so long as no Default of Tenant exists hereunder, Tenant's right to possession of the Premises shall not be disturbed and Tenant's other rights hereunder shall not be adversely affected by any foreclosure of such mortgage or encumbrance or by termination of such ground lease. For purposes hereof, the term "all reasonable efforts" shall not include the payment of any sum of money or the consent to less favorable terms and conditions with respect to the obligations of indebtedness secured or created by such mortgage, ground lease or encumbrance. In the event that, despite such reasonable efforts, Landlord is unable to obtain such an agreement, then this Lease shall be subordinate as aforesaid. 14.16 STATUS REPORT. Recognizing that both parties may find it necessary to establish to third parties, such as accountants, banks, mortgagees, ground lessors, or the like, the then current status of performance hereunder, either party, on the request of the other made from time to time and upon twenty (20) days' request therefor, will promptly furnish to Landlord, or the holder of any mortgage or ground lease encumbering the Premises, or to Tenant, as the case may be, a statement of the factual status of any matter pertaining to this Lease, including, without limitation, acknowledgments that (or the extent to which) each party is in compliance with its obligations under the terms of this Lease. 14.17 SECURITY DEPOSIT. (a) Tenant agrees that the security deposit referred to in Section 1.2 will be paid by way of an irrevocable letter of credit in such form and amount as specified in paragraphs (b) and (c) below, upon execution and delivery of this Lease, and that Landlord shall hold the same throughout the Term of this Lease as security for the performance by Tenant of all obligations on the part of Tenant hereunder. Upon the occurrence of a Default of Tenant hereunder, Landlord may at its election draw such portion of the letter of credit as shall be required to cure such Default, and Tenant shall immediately deposit with the issuing bank the amount necessary to replenish the letter of credit to the original full amount. Upon the failure of Tenant to replace any such letter at least twenty (20) Business Days prior to its expiration, and written certification thereof by Landlord to the issuing bank, Landlord may at its election draw the full amount or any part thereof, and hold, use and apply the proceeds thereof as if such proceeds were originally deposited with Landlord in cash under this Section. In the event that Landlord draws any such letter of credit, Landlord may elect to use such proceeds (or any excess proceeds after application) to obtain from another Massachusetts bank a replacement letter of credit, and the cost of such replacement shall be deducted from the available balance and reimbursed 35 37 Version August 1, 2000 by Tenant. Tenant hereby agrees, if so requested by Landlord, to enter into a letter of credit agreement with the bank so designated by Landlord, failing which Landlord may do so in Tenant's name and behalf. If Landlord conveys Landlord's interest in this Lease and assigns to the transferee its right under the letter of credit, Landlord shall be responsible for any administrative or transfer fee imposed by the issuer, provided that Landlord shall not be required to pay such a fee for the first such transfer for which such a fee is imposed, it being agreed that Tenant shall be responsible therefor. (b) Landlord and Tenant agree that, instead of a cash security deposit, Tenant shall satisfy the security deposit requirement under this Lease by delivering to Landlord (at the time described above) a clean, irrevocable, unconditional standby letter of credit, with a right of assignment (without charge or cost to Landlord) to any successor to Landlord's interests hereunder, in favor of Landlord in the amount of the security deposit referred to in Section 1.2. Such letter of credit, and any replacement thereof, shall be drawn on a Massachusetts or New York bank approved by Landlord from time to time. The form of the Letter of Credit annexed hereto as Exhibit LOC is acceptable to Landlord. In the event of a material adverse change in the financial position of any bank which has issued a letter of credit hereunder, Landlord reserves the right, on any scheduled expiration or renewal date of any such letter (or, in the event that Landlord reasonably determines that the condition of the issuing bank is in imminent danger of insolvency, upon 10 days' notice), to request that Tenant change the issuing bank to another bank reasonably approved by Landlord. Regardless of whether Landlord shall have previously requested that Tenant change issuing banks, if the bank on which the original letter of credit or any replacement letter is drawn is declared insolvent or placed into conservatorship or receivership, Tenant shall, within twenty (20) days thereafter, replace the then-outstanding letter of credit with a like letter of credit from another bank acceptable to Landlord. (c) Provided that, in each instance, (i) Tenant shall so request in writing, and (ii) at the effective date of such reduction there exists no Default of Tenant (nor any event or circumstance which, with the giving of notice or passage of time, would constitute a Default of Tenant), then effective on (x) the first anniversary of the Commencement Date, the letter of credit amount required to be maintained hereunder shall be reduced to an amount equal to Eighty-six Thousand Five Hundred Eighty-seven Dollars ($86,587), and (y) the second anniversary of the Commencement Date and for the remainder of the Term, the letter of credit amount required to be maintained hereunder shall be further reduced to an amount equal to Forty-three Thousand Two Hundred Ninety-four Dollars ($43,294). (d) From and after the time at which Landlord shall have drawn all or any portion of the proceeds of such a letter of credit, if Landlord shall not elect to obtain its own replacement letter of credit, Landlord shall have the right from time to time without prejudice to any other remedy Landlord may have on account thereof, to apply such proceeds, or any part thereof, to Landlord's damages arising from any then existing or subsequently occurring Default of Tenant hereunder. While Landlord holds any unapplied proceeds, Landlord shall have no obligation to pay interest on the same, and may commingle the same with Landlord's other funds. There then existing no Default of Tenant hereunder (nor any event or circumstance which, with the giving of notice or the passage of time, or both, would constitute a Default of Tenant), at the expiration of the Term of this Lease, Landlord shall return to Tenant the proceeds thereof (or, if not drawn upon, any letter of credit), or so much thereof as shall not have theretofore been applied in accordance with the terms of this Section. If Landlord conveys Landlord's interest under this Lease, the proceeds (or, if not drawn upon, any letter of credit), or any part thereof not previously applied, shall be turned over by Landlord to Landlord's grantee, and, when actually turned over, Tenant agrees to look solely to such grantee for proper application of the proceeds in accordance with the terms of this Section, and the return thereof in accordance herewith. The holder of 36 38 Version - August 1, 2000 a mortgage shall not be responsible to Tenant for the return of any letter of credit or application of any such proceeds, whether or not it succeeds to the position of Landlord hereunder, unless such proceeds or letter of credit shall have actually been received by such holder. 14.18 REMEDYING DEFAULTS. Landlord shall have the right, but shall not be required, to pay such sums or do any act which requires the expenditure of monies which may be necessary or appropriate by reason of the failure or neglect of Tenant to perform any of the provisions of this Lease, and in the event of the exercise of such right by Landlord, Tenant agrees to pay to Landlord forthwith upon demand all such sums, together with interest thereon at a rate equal to 3% over the base rate in effect from time to time at Fleet Bank, N.A. (but in no event less than 18% per annum), as an additional charge. Any payment of Basic Rent, Escalation Charges or other sums payable hereunder not paid when due shall, at the option of Landlord, bear interest at a rate equal to 3% over the base rate in effect from time to time at Fleet Bank, N.A. (but in no event less than 18% per annum) from the due date thereof and shall be payable forthwith on demand by Landlord, as an additional charge. 14.19 HOLDING OVER. Any holding over by Tenant after the expiration of the term of this Lease shall be treated as a daily tenancy at sufferance at a rate equal to one and one-half (1-1/2) times the Basic Rent then in effect plus Escalation Charges and other charges herein provided (prorated on a daily basis). Tenant shall also pay to Landlord all actual damages, direct and/or indirect, sustained by reason of any such holding over. Otherwise, such holding over shall be on the terms and conditions set forth in this Lease as far as applicable. The Landlord may, but shall not be required to, and only on written notice to Tenant after the expiration of the Term hereof, elect to treat such holding over as a renewal of one (1) year, to be on the terms and conditions set forth in this Paragraph 14.19. 14.20 WAIVER OF SUBROGATION. Insofar as, and to the extent that, the following provision shall not make it impossible to secure insurance coverage obtainable from responsible insurance companies doing business in the locality in which the Property is located (even though extra premium may result therefrom) Landlord and Tenant: (i) mutually agree that, with respect to any damage to property, the loss from which is covered by insurance then being carried by them, respectively, the one carrying such insurance and suffering such loss releases the other of and from, and forever waives, any and all claims with respect to such loss, but only to the extent of the limits of insurance carried with respect thereto, less the amount of any deductible; and (ii) mutually agree that any property damage insurance carried by either shall provide for the waiver by the insurance carrier of any right of subrogation against the other. 14.21 SURRENDER OF PREMISES. Upon the expiration or earlier termination of the Term of this Lease, Tenant shall peaceably quit and surrender to Landlord the Premises in neat and clean condition and in good order, condition and repair, together with all alterations, additions and improvements which may have been made or installed in, on or to the Premises prior to or during the Term of this Lease, excepting only ordinary wear and use and damage by fire or other casualty for which, under other provisions of this Lease, Tenant has no responsibility of repair or restoration. Tenant shall remove all of Tenant's Removable Property and, to the extent specified by Landlord, all alterations and additions made by Tenant and all partitions wholly within the Premises unless installed initially by Landlord in preparing the Premises for Tenant's occupancy; and shall repair any damages to the Premises or the Building caused by such removal. Any Tenant's Removable Property which shall remain in the Building or on the Premises after the expiration or termination of the Term of this Lease shall be deemed conclusively to have been abandoned, and either may be retained by Landlord as its property or may be disposed of in such manner as Landlord may see fit, at Tenant's sole cost and expense. 37 39 Version - August 1, 2000 14.22 SUBSTITUTE SPACE; DEMOLITION. If Landlord so requests, Tenant shall vacate the Premises and relinquish its rights with respect to the same provided that Landlord shall provide to Tenant substitute space in the Building, such space to be reasonably comparable in size, layout, finish and utility to the Premises, and further provided that Landlord shall, at its sole cost and expense, move Tenant and its Removable Property from the Premises to such new space in such manner as will minimize, to the greatest extent practicable, undue interference with the business or operations of Tenant, and shall reimburse Tenant up to $1,000 for the cost of reprinting Tenant's letterhead, business cards and other printed materials showing Tenant's address. Any such substitute space shall, from and after such relocation, be treated as the Premises demised under this Lease, and shall be occupied by Tenant under the same terms, provisions and conditions as are set forth in this Lease. 14.23 BROKERAGE. Tenant warrants and represents that Tenant has dealt with no broker in connection with the consummation of this Lease other than Broker, and, in the event of any brokerage claims against Landlord predicated upon prior dealings with Tenant, Tenant agrees to defend the same and indemnify Landlord against any such claim (except any claim by Broker). 14.24 GOVERNING LAW. This Lease shall be governed exclusively by the provisions hereof and by the laws of the Commonwealth of Massachusetts as the same may from time to time exist (but not including the choice of law rules thereof). 14.25 LANDLORD'S LIEN. So long as, at the time of Tenant's request therefor, there exists no Default of Tenant, Landlord hereby agrees to subordinate any current or future lien it may have under statute or otherwise with respect to Tenant's personal property in favor of Tenant's equipment or chattel lenders or lessors. Such subordination shall be by written agreement in form and substance reasonably acceptable to Landlord. 38 40 Version -- August 1, 2000 ARTICLE 15 OPTION TO EXTEND 15.1 TENANT'S RIGHT. Provided that, at the time of such exercise, (i) there exists no Default of Tenant; (ii) this Lease is still in full force and effect; and (iii) Tenant shall not have assigned this Lease or sublet any or all of the Premises (except for Permitted Assignments), Tenant shall have the right to extend the Term of this Lease for one extended term (the "Extended Term") of five (5) years. The Extended Term shall commence on the day immediately following the expiration date of the Initial Term, and shall end on the day immediately preceding the fifth anniversary of the first day of the Extended Term. Tenant shall exercise such option by giving Landlord notice of its desire to do so, not later than nine (9) months prior to the expiration of the Initial Term, it being agreed that time shall be of the essence with respect to the giving of such notice. The giving of such notice shall automatically extend the Term of this Lease for the Extended Term, and no instrument of renewal need be executed. In the event that Tenant fails to give such notice to Landlord, the Term of this Lease shall automatically terminate at the end of the Initial Term, and Tenant shall have no further right or option to extend the Term of this Lease. The Extended Term shall be on all the terms and conditions of this Lease, except that: (i) Landlord shall have no obligation to pay any construction or improvements allowance, or to perform any alterations or improvements to the Premises, with respect to the Extended Term; and (ii) the Basic Rent for the Extended Term shall be determined in accordance with section 15.2. 15.2 EXTENDED TERM RENT. The Basic Rent for the Extended Term shall be the fair market rental value of the Premises (exclusive of the cost of supplying electricity to the Premises) as of the commencement of the Extended Term (including without limitation such inflation indicators or periodic increases as may then be customary in the market), determined without regard to Tenant's right to extend, as agreed by the parties, plus the Estimated Electricity Payment. In the event that Landlord and Tenant are unable to agree on the fair market rental value of the Premises for the Extended Term sooner than the first day of the sixth month before the expiration of the Initial Term, the fair market rental value shall be determined by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association, except that there shall be only one arbitrator, who shall have had at least ten (10) years' experience as a real estate broker or appraiser in the greater Boston area. In no event, however, shall the Basic Rent for the Extended Term (which does not include Escalation Charges) be less than the Basic Rent (which does not include Escalation Charges) in effect on the last day of the Initial Term, it being understood that during the Extended Term Escalation Charges shall continue to be calculated based on Base Taxes and Base Operating Expenses set forth in Section 1.2 of this Lease. 39 41 VERSION- AUGUST 1,2000 IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be duly executed, under seal, by persons hereunto duly authorized, in multiple copies, each to be considered an original hereof, as of the date first set forth above. LANDLORD: OTR, an Ohio General Partnership By: /s/ MATTHEW J. VULANICH Hereunto Duly Authorized Matthew J. Vulanich Director, Eastern Region - Real Estate TENANT: SPATIAL TECHNOLOGY INC. /s/ R. Bruce Morgan By: R. Bruce Morgan President/CEO By: (Assistant) Treasurer 40 EX-10.32 4 d85481ex10-32.txt SEPARATION OF RELEASE AGREEMENT 1 EXHIBIT 10.32 SEPARATION AND RELEASE AGREEMENT This SEPARATION AND RELEASE AGREEMENT (the "Agreement") is made and entered into by and between PLANETCAD INC., ("PlanetCAD") and Bruce Morgan ("Mr. Morgan") (collectively "parties") and shall be effective on the date on which Mr. Morgan executes it (the "Effective Date"). I. RECITALS WHEREAS, effective as of December 31, 2000, Mr. Morgan's employment as Chief Executive Officer and any and all other employment positions that Mr. Morgan may have held at PlanetCAD or its subsidiaries shall cease; and WHEREAS, the parties wish to make the separation amicable but conclusive on the terms and conditions set forth herein; and WHEREAS, the mutual considerations expressed herein are deemed by each party sufficient for their respective promises and covenants; and WHEREAS, Mr. Morgan accepts the benefits of this Agreement with the acknowledgment that by its terms he has been fully and satisfactorily compensated. II. COVENANTS THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, it is hereby agreed by and between the parties hereto as follows: 1. TERMINATION OF EMPLOYMENT AND CONSULTING. As of December 31, 2000, ("Separation Date") Mr. Morgan's employment as Chief Executive Officer and any and all other employment positions that Mr. Morgan may have held at PlanetCAD or its subsidiaries shall cease and Mr. Morgan shall serve solely as a consultant as provided in this paragraph 1. From the Separation Date until the one-year anniversary thereof (the "Consulting Period"), Mr. Morgan shall provide continuing services as a consultant to PlanetCAD on an as-requested basis; provided that (a) Mr. Morgan shall not be required to report to work regularly at Planet CAD's facility, but shall provide such consulting services as are reasonably requested from time to time by Planet CAD's chief executive officer or his designee, at such times and places as PlanetCAD shall reasonably request, and (b) PlanetCAD shall reimburse Mr. Morgan for out-of-pocket expenses that he reasonably and necessarily incurs in connection with providing such consulting services, so long as Mr. Morgan seeks and receives prior approval of such expenses; and (c) PlanetCAD shall exercise reasonable efforts to eliminate or minimize the extent to which its requests for consulting services create scheduling conflicts with respect to other business matters in which Mr. Morgan may be engaged; PlanetCAD will reimburse Mr. Morgan for the expenses that he incurs in continuing, during the Consulting Period, his benefits, as permitted by COBRA. All options granted to Mr. Morgan pursuant to PlanetCAD's 1996 Equity Incentive Plan (the Plan") shall cease vesting and be exercisable pursuant to the terms of the option agreements and the Plan, provided that for all purposes the effective date of the termination of Mr. Morgan's 1 2 employment shall be December 31, 2000. If Mr. Morgan does not exercise his right of revocation under paragraph 18(b), below, then: a. all such option agreements shall be deemed amended by this agreement such that all such options shall be deemed to be non-qualified stock options, and not incentive stock options, and such that all vested options shall remain exercisable until December 31, 2005; but such option agreements shall otherwise remain in full force and effect according to their terms; and b. within ten business days after the Effective Date, PlanetCAD shall grant Mr. Morgan non-qualified options to purchase 87,500 shares of PlanetCAD common stock, which options shall be fully vested on the grant date, which shall carry an exercise price equal to the fair market value of PlanetCAD's common stock as of the date of the grant, and which shall be subject to the terms and conditions of the standard form of PlanetCAD sock option agreement and the then-current PlanetCAD equity incentive plan. 2. BONUS. For the consideration set forth in this Agreement, and in recognition of Mr. Morgan's efforts in negotiating and closing the sale of the component software division to Spatial Corp., a wholly owned subsidiary of Dassault Systemes Corp., PlanetCAD shall pay to Mr. Morgan the sum of $250,000, less legally required withholdings, within 10 days of the execution of this Agreement by Mr. Morgan. 3. LOAN FORGIVENESS. As of the Effective Date, the Company shall forgive all outstanding principal and interest payable to it by Mr. Morgan under that certain promissory note, a copy of which is attached as Exhibit B, and shall mark the note "cancelled" and return it to Mr. Morgan. 4. ACKNOWLEDGEMENT AND COVENANT NOT TO COMPETE PAYMENT. Except as provided for in paragraph 2, Mr. Morgan acknowledges and agrees that before the effective date of this Agreement he had been paid all sums that he had earned, or to which he otherwise was entitled, in connection with his employment with PlanetCAD. If Mr. Morgan does not exercise his right of revocation under paragraph 18(b), below, and thereafter complies with his obligations under this Agreement, in consideration for compliance with the obligations under this Agreement, PlanetCAD shall pay Mr. Morgan a covenant not to compete payment in the total amount of $250,000, in 24 semimonthly installments in accordance with PlanetCAD's standard payment practices, during the Consulting Period. Mr. Morgan will be responsible for all taxes related to this payment. 5. OTHER COMPENSATION. Except as expressly provided herein, Mr. Morgan acknowledges and agrees that he will not receive (nor is he entitled to receive) any additional consideration, payments, reimbursements, incentive payments, stock, equity interests, or benefits of any kind. Mr. Morgan also acknowledges and agrees that neither this Agreement, nor any other agreement which he has with PlanetCAD, creates any obligation on the part of PlanetCAD to repurchase any shares of PlanetCAD stock owned by Mr. Morgan at any time. 2 3 6. DENIAL OF LIABILITY. The parties acknowledge that any payment by PlanetCAD and any release by Mr. Morgan pursuant to this Agreement are made in compromise of disputed claims; that in making any such payment or release, PlanetCAD and Mr. Morgan in no way admit any liability to each other; and that the parties expressly deny any such liability. 7. NONDISPARAGEMENT. Mr. Morgan and PlanetCAD agree that neither party will at any time disparage the other to third parties in any manner likely to be harmful to the other party, their business reputation, or the personal or business reputation of its directors, shareholders and/or employees. Notwithstanding the prohibition in the preceding sentence, each party shall respond accurately and fully to any question, inquiry, or request for information when required by legal process. 8. PLANETCAD PROPERTY. Immediately preceding the Separation Date, Mr. Morgan agrees to return to PlanetCAD all PlanetCAD documents (and all copies thereof) and any and all other PlanetCAD property in his possession, custody or control, including, but not limited to, financial information, customer information, customer lists, employee lists, PlanetCAD files, notes, cellular telephones, contracts, drawings, records, business plans and forecasts, financial information, specifications, computer-recorded information, software, tangible property, credit cards, entry cards, identification badges and keys, and any materials of any kind which contain or embody any proprietary or confidential material of PlanetCAD and all reproductions thereof (collectively, "PlanetCAD Information"). Notwithstanding any other provision of this agreement, until the end of the Consulting Period Mr. Morgan shall be entitled to retain, and use in connection with his performance of the consulting services contemplated by paragraph 1, above, such PlanetCAD Information as is necessary for the performance of such services, provided that at the end of the Consulting Period Mr. Morgan shall return all such PlanetCAD information to PlanetCAD, and not retain any such PlanetCAD Information in any form. In addition, this agreement shall not prohibit Mr. Morgan from making and retaining a paper and/or electronic copy of his personal contact database. 9. RESIGNATION FROM BOARD. Effective on the Separation Date, Mr. Morgan hereby resigns his seat on PlanetCAD's Board of Directors (the "Board"). 10. NONSOLICITATION, NONDISCLOSURE OF PROPRIETARY INFORMATION, NONCOMPETITION. Mr. Morgan acknowledges and agrees that he has executed and is and shall be bound by the Proprietary Information Agreement attached as Exhibit A, which is and shall remain a separate and distinct agreement between Mr. Morgan and PlanetCAD and which shall survive the execution of this agreement. Nothing in this agreement shall be construed to narrow, supercede, modify or affect in any way the obligations of Mr. Morgan imposed by that or any other agreement, law, or other source. 11. CONFIDENTIALITY OF AGREEMENT. Mr. Morgan and PlanetCAD acknowledge that confidentiality and nondisclosure are material considerations for the parties entering into this Agreement. As such, the provisions of this Agreement shall be held in strictest confidence by Mr. Morgan and PlanetCAD and shall not be publicized or disclosed in any manner whatsoever, including but not limited to, the print or broadcast media, any public network such as the Internet, any other outbound data program such as computer generated mail, reports or faxes, or 3 4 any source likely to result in publication or computerized access. Notwithstanding the prohibition in the preceding sentence: (a) the parties may disclose this Agreement in confidence to their respective attorneys, accountants, auditors, tax preparers, and financial advisors; (b) PlanetCAD may disclose this Agreement as necessary to fulfill standard or legally required corporate reporting or disclosure requirements; (c) the parties may disclose this Agreement upon request from any government entity or court of law; and (d) the parties may disclose this Agreement insofar as such disclosure may be necessary to enforce its terms or as otherwise required by law, including without limitation as required by any form of securities-related statute or regulation. 12. COVENANT NOT TO COMPETE. During the Consulting Period, Mr. Morgan shall not, directly or indirectly, as an officer, director, employee, consultant, owner, shareholder, adviser, joint venturer, or otherwise, compete with PlanetCAD anywhere in the world (the "Protected Region") in: (i) the development, implementation, marketing or sale of automated solutions for manufacturing and design engineers to enable data interchange, improve data quality and streamline the manufacturing process; or (ii) any other line of business in which PlanetCAD was engaged at the Effective Date; or (iii) any other line of business into which PlanetCAD, during Mr. Morgan's employment with PlanetCAD, formed an intention to enter during the Consulting Period. This covenant shall not prohibit Mr. Morgan from owning less than two percent of the securities of any competitor of PlanetCAD, if such securities are publicly traded on a nationally recognized stock exchange or over-the-counter market. Mr. Morgan acknowledges that the foregoing geographic restriction on competition is fair and reasonable, given the nature and geographic scope of PlanetCAD's business operations and the nature of Mr. Morgan's position with PlanetCAD. Mr. Morgan also acknowledges that while employed by PlanetCAD, Mr. Morgan has had access to information that would be valuable or useful to PlanetCAD's competitors, and therefore acknowledges that the foregoing restrictions on Mr. Morgan's future activities are fair and reasonable. Mr. Morgan acknowledges the following provisions of Colorado law, set forth in Colorado Revised Statute Section 8-2-113(2): Any covenant not to compete which restricts the right of any person to receive compensation for performance of skilled or unskilled labor for any employer shall be void, but this subsection (2) shall not apply to: ... (b) Any contract for the protection of trade secrets; ... (d) Executive and management personnel and officers and employees who constitute professional staff to executive and management personnel. Mr. Morgan acknowledges that this Agreement is a contract for the protection of trade secrets within the meaning of Section 8-2-113(2)(b) and is intended to protect the Confidential Information and Confidential Records identified above and that during his employment with PlanetCAD he 4 5 served as an executive or manager, or professional staff to an executive or manager, within the meaning of Section 8-2-113(2)(d). 13. RELEASE OF CLAIMS BY MR. MORGAN. For the consideration set forth in this Agreement and the mutual covenants of PlanetCAD and Mr. Morgan, Mr. Morgan hereby releases, acquits and forever discharges PlanetCAD and its affiliated corporations and entities, predecessors, officers, directors, agents, representatives, servants, attorneys, employees, shareholders, heirs, personal representative, spouses, beneficiaries, executors, trustees, successors and assigns of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys' fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known or unknown, suspected and unsuspected, disclosed and undisclosed, liquidated or contingent, arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the Effective Date, including but not limited to: any and all such claims and demands directly or indirectly arising out of or in any way connected with Mr. Morgan's employment with PlanetCAD or the conclusion of that employment; claims or demands related to salary, bonuses, commissions, incentive payments, stock, stock options, or any ownership or equity interests in PlanetCAD; vacation pay, personal time off, fringe benefits, expense reimbursements, sabbatical benefits, severance benefits, or any other form of compensation; claims pursuant to any federal, any state or any local law, statute, common law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; attorney's fees, costs, or any other expenses under Title VII of the Civil Rights Act of 1964, as amended; the Employment Retirement Income Security Act; the federal Americans with Disabilities Act of 1990; the Family and Medical Leave Act; the Colorado Discrimination and Unfair Employment Act, tort law; wrongful discharge; discrimination; harassment; fraud; negligence, breach of fiduciary duty; claims for expense reimbursement; defamation; libel; emotional distress; and breach of the implied covenant of good faith and fair dealing. Mr. Morgan warrants and represents that he has not filed or otherwise made or asserted any claim, complaint, or charge against PlanetCAD or any predecessor, affiliate or agent thereof with any entity including without limitation the Equal Employment Opportunity Commission and any local, state or federal administrative body or court. Mr. Morgan agrees that in the event he brings a claim or charge covered by this release or does not dismiss and withdraw any claim covered by this release, in which he seeks damages or any other relief against PlanetCAD or in the event he seeks to recover against PlanetCAD in any claim brought by a governmental agency on his behalf, this Agreement shall serve as a complete defense to such claims or charges. By this provision, Mr. Morgan does not waive any right he has to assert claims in the future based upon any act or omission committed by PlanetCAD after the Effective Date of this Agreement. In addition nothing in this release shall impair Mr. Morgan's rights to be defended or indemnified by PlanetCAD or its insurance carriers for any claim made against him arising out of or relating to his work for PlanetCAD. 14. PLANETCAD RELEASE OF MR. MORGAN. PlanetCAD, for itself and its affiliates, (collectively, "PlanetCAD Releasers"), hereby fully and forever releases and discharges Mr. Morgan, his heirs, representatives, assigns, attorneys, and any and all other persons or entities that are now or may become liable to any PlanetCAD Releaser on account of Mr. Morgan's employment with PlanetCAD or separation therefrom, all of whom are collectively 5 6 referred to as "PlanetCAD Releasees," of and from any and all actions, causes of action, claims, demands, costs and expenses, including attorneys' fees, of every kind and nature whatsoever, in law or in equity, whether now known or unknown, including but not limited to negligence, negligent misrepresentation, lack of due care and poor performance, that PlanetCAD Releasers, or any person acting under any of them, may now have, or claim at any future time to have, based in whole or in part upon any act or omission occurring before the Effective Date, without regard to present actual knowledge of such acts or omissions; EXCEPT as specifically provided otherwise in this agreement; and EXCEPT claims arising from or relating to any intentional misconduct on the part of Mr. Morgan. 15. TAX CONSEQUENCES. Mr. Morgan agrees to pay all taxes due in connection with payment or other benefits he receives under this Agreement, and to indemnify PlanetCAD for and hold PlanetCAD harmless from any and all taxes, interest, penalties and all related costs and expenses asserted against or incurred by PlanetCAD in connection with any failure to withhold or pay taxes due on any consideration provided by PlanetCAD pursuant to this Agreement, and/or the loan forgiveness reflected in paragraph 3, above. Mr. Morgan expressly acknowledges that PlanetCAD has not made, nor herein makes, any representation about the tax consequences of any consideration provided by PlanetCAD to Mr. Morgan pursuant to this Agreement, and that he understands that he should seek professional tax advice before executing this Agreement. 16. ADMINISTRATIVE MATTERS. Mr. Morgan covenants that following the Effective Date he will not take any action, or encourage any other person to take any action, calculated or likely to result in the initiation or an inquiry, investigation or other action concerning PlanetCAD, with respect to circumstances arising prior to the Effective Date, by any federal, state or local governmental body or agency, and that were he to do so he would commit a material breach and default under this Agreement, for which PlanetCAD would be entitled to return of all sums paid to Mr. Morgan under this Agreement and, in addition, all remedies available to PlanetCAD pursuant to applicable law, including specific performance of this covenant. Mr. Morgan does not intend to take any such action, nor encourage any other person to take any such action, nor is he aware of any circumstances that would support the basis for such action. Mr. Morgan shall not be in breach of this provision should he take any such action, or encourage any other person to take any such action, calculated or likely to result in the initiation or an inquiry, investigation or other action concerning PlanetCAD, with respect to circumstances arising after the Effective Date, by any federal, state or local governmental body or agency. 17. COVENANT OF COOPERATION IN LITIGATION. Mr. Morgan acknowledges that because of his position with PlanetCAD, he may possess information that may be relevant to or discoverable in litigation in which PlanetCAD is involved or may in the future be involved. Mr. Morgan agrees that he shall testify truthfully in connection with any such litigation, shall cooperate with PlanetCAD in connection with such litigation, and that his duty of 6 7 cooperation shall include an obligation to meet with PlanetCAD representatives and/or counsel concerning such litigation for such purposes, and at such times and places, as PlanetCAD deems necessary, in its sole discretion, and to appear for deposition upon PlanetCAD's request and without a subpoena. Mr. Morgan shall not be entitled to any compensation in connection with his duty of cooperation, except that PlanetCAD may reimburse Mr. Morgan for reasonable out-of-pocket expenses that he incurs in honoring his obligation of cooperation. 18. ACKNOWLEDGMENT OF RIGHTS UNDER THE OLDER WORKER'S BENEFITS PROTECTION ACT. (a) Mr. Morgan agrees and acknowledges that he: (i) understands the language used in this Agreement and the Agreement's legal effect; (ii) understands that by signing this Agreement he is giving up the right to sue PlanetCAD for age discrimination; (iii) will receive compensation under this Agreement to which he would not have been entitled without signing this Agreement; (iv) has been advised by PlanetCAD to consult with an attorney and tax advisor before signing this Agreement; and (v) was given no less than twenty-one days to consider whether to sign this Agreement. (b) For a period of seven days after the Effective Date, Mr. Morgan may, in his sole discretion, rescind this Agreement, by delivering a written notice of recision to PlanetCAD. If Mr. Morgan rescinds this Agreement within seven calendar days after the Effective Date, this Agreement shall be void, all actions taken pursuant to this Agreement shall be reversed, and neither this Agreement nor the fact of or circumstances surrounding its execution shall be admissible for any purpose whatsoever in any proceeding between the parties, except in connection with a claim or defense involving the validity or effective rescission of this Agreement. If Mr. Morgan does not rescind this Agreement within seven calendar days after the Effective Date, this Agreement shall become final and binding and shall be irrevocable. 19. NO THIRD-PARTY RIGHTS. The parties agree that by making this Agreement they do not intend to confer any benefits, privileges, or rights to others. The Agreement is strictly between the parties hereto, subject to the terms of paragraph 22 below, and that it shall not be construed to vest in any other the status of third-party beneficiary. 20. VOLUNTARY AND KNOWINGLY. Mr. Morgan acknowledges that in executing this Agreement, he has reviewed it and understands its terms and has had an opportunity and was advised to seek guidance from counsel of his own choosing, and was fully advised of his rights under law, and acted knowingly and voluntarily. 21. DUTY TO EFFECTUATE. The parties agree to perform any lawful additional acts, including the execution of additional agreements, as are reasonably necessary to effectuate the purpose of this Agreement. 22. ENTIRE AGREEMENT. This Agreement, including the incorporated Exhibit A, constitutes the complete, final and exclusive embodiment of the entire agreement between Mr. Morgan and PlanetCAD with regard to the subject matter hereof. This Agreement is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein. It may not be modified except in writing signed by Mr. Morgan and the President and CEO of PlanetCAD Inc. 7 8 23. SUCCESSORS AND ASSIGNS. This Agreement shall bind the heirs, personal representatives, successors, assigns, executors and administrators of each party, and inure to the benefit of each party, its heirs, successors and assigns. 24. APPLICABLE LAW. The parties agree and intend that this Agreement be construed and enforced in accordance with the laws of the State of Colorado. 25. FORUM. Any controversy arising out of or relating to this Agreement or the breach thereof, or any claim or action to enforce this Agreement or portion thereof, or any controversy or claim requiring interpretation of this Agreement must be brought in a forum located within the State of Colorado. No such action may be brought in any forum outside the State of Colorado. Any action brought in contravention of this paragraph by one party is subject to dismissal at any time and at any stage of the proceedings by the other, and no action taken by the other in defending, counterclaiming, or appealing shall be construed as a waiver of this right to immediate dismissal. A party bringing an action in contravention of this paragraph shall be liable to the other party for the costs, expenses and attorney's fees incurred in successfully dismissing the action or successfully transferring the action to a forum located within the State of Colorado. 26. SEVERABLE. If any provision of this Agreement is determined to be invalid, void or unenforceable, in whole or in part, this determination will not affect any other provision of this Agreement, and the provision in question shall be modified so as to be rendered enforceable. 27. ENFORCE ACCORDING TO TERMS. The parties intend this Agreement to be enforced according to its terms. 28. ATTORNEY'S FEES. The prevailing party in an action to enforce the terms of this Agreement shall be entitled to its reasonable costs, expenses, and attorney's fees. 29. SECTION HEADINGS. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 8 9 IN WITNESS WHEREOF, the parties have duly authorized and caused this Agreement to be executed as follows: Bruce Morgan PLANETCAD INC. An individual /s/ R. Bruce Morgan By: /s/ Richard M. Sowar - ---------------------------------- --------------------------- Bruce Morgan Its: Chairman -------------------------- Date: 12/28 , 2000 Date: Dec. 28 , 2000 ----------------------- ------------------------- 9 EX-21.1 5 d85481ex21-1.txt SUBSIDIARIES 1 EXHIBIT 21.1 LIST OF SUBSIDIARIES OF THE REGISTRANT The following table sets forth the only subsidiary of the Registrant and the jurisdiction of its organization as of December 31, 2000. The following subsidiary conducts its business only under the name identified below and is included in the Registrant's consolidated financial statements. Name Jurisdiction of Organization ---- ---------------------------- PlanetCAD Limited United Kingdom EX-23.1 6 d85481ex23-1.txt CONSENT OF KPMG LLP 1 CONSENT OF KPMG LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors PlanetCAD Inc.: We consent to incorporation by reference in the registration statements on Form S-3 (No. 333-72757) and Form S-8 (No. 333-85939), of PlanetCAD Inc. of our report dated March 9, 2001, relating to the consolidated balance sheets of PlanetCAD Inc. and subsidiaries as of December 31, 1999 and 2000, and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000, which report appears in the December 31, 2000, Annual Report on Form 10-KSB of PlanetCAD Inc. KPMG LLP Boulder, Colorado March 30, 2001 -----END PRIVACY-ENHANCED MESSAGE-----