<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER: 0-20735
RESTRAC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 04-2935271
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3 ALLIED DRIVE
DEDHAM, MA 02026
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(617) 320-5600
(REGISTRANT'S TELEPHONE NUMBER)
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. YES X NO __
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing price of the Common Stock on November 15,
1996 , as reported on NASDAQ National Market System was approximately
$26,100,000. Shares of Common Stock held by each executive officer and director
and by each person who owned 5% or more of the outstanding Common Stock as of
such date have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes .
The number of shares of the registrant's $0.01 par value Common Stock
outstanding on December 19, 1996, was 7,894,936.
Part III incorporates by reference from the definitive proxy statement for the
registrant's fiscal 1996 annual meeting of stockholders to be filed with the
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this Form.
This report consists of 30 sequentially numbered pages, with the Index to
Exhibits commencing on page 28 and the Index to Consolidated Financial
Statements commencing on page F-1.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
RESTRAC, INC.
FORM 10-K
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
ITEM PAGE
- ----- ----
<S> <C>
1. Business......................................................................... 2
2. Properties....................................................................... 15
3. Legal Proceedings................................................................ 15
4. Submission of Matters to a Vote of Securities Holders............................ 15
PART II
5. Market for Registrant's Common Stock and Related Stockholder Matters............. 16
6. Selected Consolidated Financial Data............................................. 17
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 18
8. Financial Statements and Supplementary Data...................................... 25
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure....................................................................... 25
PART III
10. Directors and Executive Officers of the Registrant............................... 26
11. Executive Compensation........................................................... 26
12. Security Ownership of Certain Beneficial Owners and Management................... 26
13. Certain Relationships and Related Transactions................................... 26
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................. 27
</TABLE>
1
<PAGE> 3
PART I
STATEMENTS MADE OR INCORPORATED IN THIS FORM 10-K INCLUDE A NUMBER OF
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. FORWARD
LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS
"ANTICIPATES", "BELIEVES", "EXPECTS", "INTENDS", "FUTURE", AND WORDS OF SIMILAR
IMPORT WHICH EXPRESS MANAGEMENT'S BELIEF, EXPECTATIONS OR INTENTIONS REGARDING
THE COMPANY'S FUTURE PERFORMANCE. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS. CERTAIN
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE ARE DISCUSSED IN THE SECTION ENTITLED
"FACTORS AFFECTING FUTURE OPERATING RESULTS" ON PAGE 24 OF THIS FORM 10-K.
ITEM 1. BUSINESS
OVERVIEW
Restrac, Inc. ("the Company"), designs, develops, markets, implements and
supports HR staffing software to automate the recruitment, selection and
placement of an organization's workforce. The Company's staffing software
enables organizations to strategically manage their human capital by reducing
hiring and placement costs, decreasing time to fill positions and providing more
effective skills management and worker deployment. The Company's
products -- Restrac Hire and Resume Reader for PeopleSoft -- provide HR
departments with client/server solutions to quickly and efficiently build and
search comprehensive "pools" of resume skills data to find the workers they
need, while also managing the workflow of the staffing process.
The Company's current software offerings are open, client/server
applications that utilize standard industry communications protocols, such as
TCP/IP, allowing for high performance, scaleable implementations across local
area networks, wide area networks, the Internet and intranets. The Company's
software supports industry standards, such as Microsoft Windows and most leading
relational databases (including Oracle, Microsoft SQLServer and Sybase), server
platforms (including Windows NT and many UNIX variants), e-mail systems
(including Microsoft Mail and Lotus cc:Mail) and desktop productivity tools
(including Lotus Notes and Microsoft Word). This open architecture has
facilitated integration with other systems providing customers with integrated,
multi-vendor solutions to meet their specific needs.
Since the introduction of Restrac Hire in 1993, the Company has licensed
its client/server, Windows-based staffing software to approximately 220
customers. Approximately 200 other organizations continue to use the Company's
earlier DOS-based recruiting and succession planning products. Within these
organizations, there are over 4,500 licensed users of the Company's products.
The Company's products are primarily licensed by large corporate employers
experiencing accelerated growth, significant reorganization or downsizing or a
scarcity of skilled labor, or by companies reengineering their HR function to
reduce costs. Due to its flexible skills management and search capabilities, the
Company's software is also licensed by consulting firms and providers of
full-time, contract or temporary labor. Twenty-eight of the 50 most profitable
U.S. companies cited in Fortune magazine's 1996 "Fortune 1000" report use the
Company's software. The Company's customer base includes Hewlett-Packard
Company, American Express, British Telecom, AT&T, Intel Corporation, Johnson &
Johnson and Levi Strauss & Co.
The Company was incorporated in 1982 as a Massachusetts corporation and was
reincorporated as a Delaware corporation in 1994. Restrac Securities
Corporation, a wholly-owned subsidiary of Restrac, Inc., was incorporated in
September 1996 as a Massachusetts securities corporation for the purpose of
holding and managing certain of the Company's cash and cash equivalents.
2
<PAGE> 4
INDUSTRY BACKGROUND
The management of human capital is increasingly being viewed as a business
imperative and has emerged in recent years as a key element of corporate
strategy. Recruiting and deploying the most qualified employees is now being
recognized as critical to an organization's long-term success. In addition,
intensifying global competition, shortened product lifecycles and the need to
improve operating efficiencies have caused organizations to search for more
efficient ways to employ and deploy a more dynamic and skilled workforce. As a
result, HR departments have come under pressure to improve the quality of the
candidates they hire, to shorten the time to fill open positions and to reduce
the costs associated with staffing.
Historically, the recruitment, hiring and deployment of an organization's
workforce has been an inefficient, expensive and time-consuming process.
Industry sources estimate that the average cost to hire a salaried exempt
employee from outside the company in 1994 was $8,566 and ranged as high as
$15,766 in skilled industries such as electronics. In recent years, the average
company hired approximately 14% of its workforce externally and redeployed
approximately 7% of its internal workforce annually. The complexities and
inefficiencies inherent in the hiring process have resulted in a plethora of
recruiting and employment agencies charging fees representing as much as 30% of
an employee's starting annual salary, contributing to the hiring costs described
above. Despite the widespread use of such agencies, in 1994, companies took an
average of 41 days to hire an employee. The inefficiencies and costs associated
with the hiring process are particularly acute problems for large organizations
with 1,000 or more employees, of which there are estimated to be more than
15,000 in the United States.
These costs and inefficiencies are due in large part to the difficulty that
organizations have in managing data on workers' skills and to a complex staffing
process which typically involves significant data collection, numerous manual
functions and the coordination of activities among many participants both within
and outside the organization. Organizations need to collect and manage extensive
skills data on their own employees as well as an even larger applicant pool in
order to manage hiring, redeployment, attrition, turnover and growth.
Historically, organizations seeking to fill a position would receive numerous
applications and resumes that were, once the position had been filled, either
discarded or stored in a manner that did not allow the organization to
effectively access and search this data when it sought to fill additional
positions in the future.
The typical staffing process is initiated by a hiring manager who fills out
a job requisition form to define the job's skill requirements, duties, pay and
other parameters. Copies of the requisition are routed to finance and accounting
and a compensation specialist for budget and salary approvals. An internal
recruiter then generates applicants through job advertising, requiring the
coordination of recruitment advertising firms, employment agencies, outplacement
companies and college placement offices. Recruiters must read and categorize
incoming resumes and, with the aid of administrators, copy, file and distribute
the appropriate resumes to managers. Follow-up letters are typically sent to
applicants. Recruiters and administrators then coordinate and track the
selection process with the applicants, hiring manager and an interviewing team.
This process typically requires the completion of multiple forms for interview
scheduling, skills assessment and feedback, reference checking, testing, equal
opportunity compliance and job offers and may involve the coordination of
outside suppliers for credit checking, testing and assessment and relocation.
Each division within an organization may have its own staffing process,
resulting in further inefficiencies and complicating the creation of
consolidated governmental compliance and management reports.
In order to address the challenges of hiring and deploying workers, HR
departments have begun to automate the staffing process. Until recently, the
only staffing software applications available were applicant tracking systems,
which were primarily designed to perform record-keeping functions and did not
offer automated workflow or resume searching capabilities. These applicant
tracking applications traditionally operated on centralized mainframe or
mini-computer systems, although such applications today are also being deployed
with client/server-based human resource
3
<PAGE> 5
information systems. These applications, however, are ill-suited for capturing
and managing the vast amount, variety and diverse formatting of skills,
experience and education information supplied by candidates. Coding this
information is generally a manual process which is cumbersome, time-consuming
and costly. Moreover, because the candidate information is recorded in an
oversimplified format, searches of this information typically yield poor
results. A more effective solution would allow organizations to easily collect
and manage large amounts of unstructured skills and experience data on both job
candidates and their current workforce and perform sophisticated structured
searches on this data to select the best candidates.
The development of distributed client/server computing and enabling
technologies such as document scanning, optical character recognition (OCR) and
concept-based text searching have created a technological framework for the
efficient collection of staffing information and its dissemination among
recruiters, managers and, with the emergence of the Internet, other members of
the extended enterprise. Client/server technology not only permits any member of
the organization to effectively collect information relating to a particular
job, applicant or employee, but also gives other members of the organization in
geographically dispersed locations rapid access to that information and enables
them to participate in the hiring process. In addition, the proliferation of
Internet career sites is a dramatic recent development which creates a
significant new forum for the exchange of candidate and job information. These
new technologies, together with the increased emphasis on the strategic
management of human capital, have created a demand for a new generation of human
resource staffing systems.
THE RESTRAC SOLUTION
The Company's staffing software enables organizations to strategically
manage their human capital by reducing hiring and placement costs, decreasing
time to fill positions and providing more effective skills management and worker
deployment. The Company's software provides HR departments with client/server
solutions to quickly and efficiently build and search comprehensive electronic
pools of resume skills data to find the workers they need, while also managing
the workflow of the staffing process. Key attributes of the Restrac solution are
as follows:
Sophisticated Skills Management and Selection. The Company's software uses
a sophisticated search process to rapidly identify and rank qualified candidates
based on skills criteria determined by the user. User searches are enhanced by
the Company's integrated skills library, which translates high-level job
requirements into the words and synonyms commonly used by candidates on resumes.
These same capabilities facilitate the quick and efficient management and
redeployment of an organization's existing workforce in response to job
openings, downsizings and restructurings.
More Efficient Staffing Process. The Company's software incorporates a
user-friendly, process-oriented GUI and is designed to reduce the time required
to fill positions by prompting users to advance candidates through the staffing
process. Such automatic workflow notifications reduce delays typical to the
staffing process and eliminate redundancies. The Company's software also
integrates with e-mail and interactive voice response technologies to facilitate
access to and participation in the staffing process. The Company's software can
be easily adapted by the customer to its own staffing requirements without
extensive customization. In addition, the Company's software eliminates the time
and expense associated with maintaining multiple parallel databases to track
different aspects of the staffing process.
Comprehensive, Reusable Candidate Pools. The Company's software uses
resume scanning and integrated e-mail input from intranets or the Internet to
create consolidated, reusable candidate pools that can be shared throughout the
organization. Manual input is virtually eliminated, allowing organizations to
collect and store skills and experience data on hundreds of thousands of
candidates. The Company's software is designed to provide a shared, re-useable
pool of candi-
4
<PAGE> 6
dates, limiting the need for organizations to use employment agencies and
advertising to source candidates.
Open, Rapidly Deployable and Scaleable Technology. The Company's software
is based on an open, client/server architecture that supports industry
standards, such as Microsoft Windows and most leading relational databases,
server platforms, e-mail systems and desktop productivity tools. The customer's
implementation cycle, including hardware implementation and basic process
reengineering, is typically less than three months. The Company's software is
scaleable from the departmental level to multi-site, enterprise-wide
implementations and is designed to easily incorporate new technologies as they
become available.
Reduced Costs. By providing an easily-accessible, shared, re-useable pool
of candidates, the Company's software allows organizations to significantly
reduce recruitment advertising costs and employment agency fees. In addition,
the Company's software is designed to reduce HR headcount and increase recruiter
productivity through the elimination of manual entry of resume information and
by increasing the efficiency of the hiring process.
STRATEGY
The Company's objective is to become the leading provider of human resource
staffing software. To achieve this objective, the Company has adopted the
following strategies:
Expand Presence in Principal Markets. The Company's Restrac Hire product
has achieved a leading market position among large organizations (1,000+
employees), which are estimated to represent over 15,000 companies in the United
States alone. The Company believes that only a small portion of such large
organizations currently use automated staffing software, and the Company plans
to expand its established market position among such organizations by leveraging
its existing customer base and expanding its sales and marketing efforts.
Offer Self-Service Solutions. The Company's software is currently used
primarily by HR departments. In response to the increasing dispersion of the
staffing process outside of HR departments, the Company intends to enhance its
software to allow line managers, employees and job candidates to directly access
staffing information. Such self-service solutions should significantly expand
the Company's potential user-base while further reducing the administrative
demand on HR departments.
Expand Markets to Include Smaller Organizations. The Company intends to
expand the markets for its software to smaller organizations with 100 to 1,000
employees (of which there are estimated to be over 100,000 in the United States)
by adapting its current products and by offering customers access to staffing
solutions on a transaction-fee basis. Such offerings should allow smaller
organizations to take advantage of the Company's technologies without the
associated infrastructure investment necessary to support a client/server
application.
Pursue Internet Opportunities. The Company believes that the emergence of
the Internet creates opportunities to streamline the connection between job
seekers and employers. By enabling a new, more efficient channel of
communication, the Internet can allow information about jobs to be more widely
distributed and permit easy, on-line application by job seekers. The Company
believes that its high-volume, unstructured search technologies and the
utilization of TCP/IP, the Internet communications protocol, in its software
should facilitate the Company's development of staffing solutions which are
accessible across intranets and over the Internet. The Company has enhanced its
software to allow users to directly post jobs and receive applications via
Internet career sites. In conjunction with the development of this enhancement,
the Company has entered into strategic relationships with Career Mosaic, The
Monster Board, IntelliMatch, Inc., CareerWEB, Adams JobBank, E-Span, 4Work,
Inc., and the Online Career Center, and intends to enter into similar
arrangements with other career sites. In addition, the Company is currently
exploring other strategies to capitalize on opportunities offered by the
Internet.
5
<PAGE> 7
Leverage Strategic Relationships. The Company has established a number of
relationships both to leverage marketing channels and complementary technologies
and to meet customer demands for open, integrated, multi-vendor solutions. The
Company's partners include leading technology vendors such as Verity, Inc.
which, as part of an OEM relationship, provides its text search software for
integration with the Company's internally-developed skills library. The Company
also has a relationship with PeopleSoft, a leading HR management system vendor,
under which PeopleSoft jointly markets the Company's Resume Reader for
PeopleSoft product as an integrated solution with its HRMS product. The Company
believes that its strategic relationships allow it to bring products to market
more quickly and enhance its image as a provider of industry standard automated
staffing products. The Company intends to continue to pursue the establishment
of such relationships to take advantage of emerging technologies and marketing
opportunities.
Develop International Presence. The Company believes that the growing
globalization of the workforce combined with the increasing standardization of
regulations across the European Community will provide it with significant
opportunities to continue its international expansion. The Company markets its
software in Canada and the United Kingdom. In addition, the Company has
developed a localized version of its software specifically for the United
Kingdom and intends to develop additional localized versions to accommodate
different business practices and foreign languages.
PRODUCTS
The Company's principal products are Restrac Hire and Resume Reader for
PeopleSoft, which is sold in conjunction with PeopleSoft's HRMS product.
RESTRAC HIRE
The Company's primary product, Restrac Hire, automates the applicant
sourcing and selection functions in the staffing process and supports industry
standards such as Microsoft Windows and most leading relational databases
(including Oracle, Microsoft SQLServer and Sybase), server platforms (including
Windows NT and many UNIX variants), e-mail systems (including Microsoft's Mail
and Lotus cc:Mail) and desktop productivity tools (including Lotus Notes and
Microsoft Word). System prices vary based on a customer's configuration and
range from approximately $60,000 to $1 million. Implementation services, which
are not included in the license fee, generally amount to an additional 25% of
the license fee. Maintenance for the first year is included in the license fee
and is renewable on an annual basis thereafter, at approximately 15% of the
license fee.
Restrac Hire is comprised of three bundled functional modules: Skill
Server, Candidate Finder and Recruiting Workbench.
Skill Server. The Company's Skill Server module automates the collection
of worker skills data by integrating scanning and OCR technologies for the
processing of paper or faxed resumes. Using Skill Server, electronic resumes can
also be received and input through e-mail, commonly available World-Wide Web
("Web") browsers and PC-based kiosk stations. Skill Server retains an electronic
image of the original resume as well as a text file which is made available for
searching the candidate pool. Managers can conduct a comprehensive search of
this candidate pool by using Candidate Finder before seeking candidates from
external sources.
Candidate Finder. The Company's Candidate Finder module provides users
with a search capability to rapidly identify and rank qualified job candidates
based upon skills criteria determined by the user, using the Company's extensive
skills library and Verity's text search software. Candidate Finder presents
users with an intuitive, flexible GUI for defining job requirements by clicking
on relevant skills from the Company's extensive skills library and reviewing
selected candidates' resumes and skills. Once a candidate is selected, Candidate
Finder automatically initiates the staffing process in the Recruiting Workbench
module.
6
<PAGE> 8
Recruiting Workbench. The Company's Recruiting Workbench, which provides
database management and workflow functionality, automates the staffing process,
including: requisition management for job openings, job advertising, candidate
screening, interview scheduling, reference checking, correspondence, cost
tracking and government compliance reporting. Recruiting Workbench is designed
to guide users through each step in the staffing process. Activity history,
current status and pending actions are displayed for each candidate. Integrated
business rules and workflow processes help prevent common errors and delays
which can often result in poor selection results and extended placement times.
Recruiting Workbench also contains a report writer which allows users to
generate management reports, including standard reports used to benchmark
effectiveness or demonstrate compliance with Equal Employment Opportunity (EEO)
requirements.
RESUME READER FOR PEOPLESOFT
The Company's open architecture, which accommodates integration with other
HR software solutions, has allowed the Company to create a plug-in product that
offers high volume resume-scanning, skills management and search capabilities to
users of PeopleSoft's HRMS product. Resume Reader for PeopleSoft incorporates
the Skill Server and Candidate Finder modules of Restrac Hire.
CUSTOMER SERVICES
The Company believes that superior customer service and support are
critical to customer satisfaction. As of September 30, 1996, the Company's
customer service organization was led by a Vice President and included 55 total
people who were assigned to one of four groups -- Account Management,
Professional Services, Technical Support and Outsourced Services -- as well as
administrative support personnel.
Account Management. As of September 30, 1996, the Company had 7 Account
Managers who were responsible for coordinating the corporate resources necessary
to ensure customer satisfaction. An Account Manager is assigned to each new
Restrac customer and oversees all aspects of the customer relationship. The
Company believes that its Account Manager program has helped it establish a high
degree of customer satisfaction.
Professional Services. The Professional Services Group, which was
comprised of 32 people as of September 30, 1996, manages system implementation,
provides additional services such as process design and system tailoring and
provides basic and advanced training both on-site during system implementation
and at the Company's Corporate Training Center throughout the year. In order to
ensure an effective and timely implementation, the implementation process is
coordinated by a Restrac project manager. The customer's implementation cycle is
typically less than three months, including hardware implementation and basic
process reengineering.
Technical Support. The Technical Support Group, which was comprised of 12
people as of September 30, 1996, provides daily assistance to customers with
maintenance agreements through the Company's support help line. More than 95% of
customers who have purchased the Company's client/server, Windows-based products
since their introduction are currently under maintenance agreements. The Company
provides support Monday through Friday from 8:00 a.m.-8:30 p.m. Eastern Time as
well as 4:00 a.m.-8:00 a.m. Eastern Time to support the Company's European
customers.
Outsourced Services. Outsourced Services were introduced by the Company in
July 1996 and, to date, consist primarily of scanning services provided
principally through a partnership arrangement with ScanCenters of America. The
Company plans to extend these services to include correspondence and other
administrative tasks associated with the staffing process. Revenue associated
with Outsourced Services through September 30, 1996 was not material.
7
<PAGE> 9
TECHNOLOGY
In 1993, the Company introduced Restrac Hire, the industry's first
Windows-based client/server staffing system. The Company's Restrac Hire software
is based on the Company's unique client/server development platform, which can
accommodate changing customer needs and technical infrastructure, simplify the
deployment of the Company's client/server software, and enable the rapid
integration of leading edge technologies and other innovations. Key aspects of
the Company's development platform are as follows:
Development Toolset. The Company's development platform includes a unique
application toolset which allows it to create and change its interfaces through
high level "screen painting" rather than low level programming. This toolset
also accommodates the creation and editing of business and workflow rules.
Applications developed with the Company's toolset inherit its full
functionality, including features critical to sophisticated, mission-critical,
enterprise-wide applications. The Company also includes in its software a
scaled-down version of the Company's application development tool, which allows
customers to make interface changes to accommodate their specific staffing
processes without compromising the integrity of the system.
Data Model. The Company's software includes an open, flexible and
extensible model for enterprise staffing that can operate in multiple standard
SQL databases. The model incorporates the Company's expertise in staffing
process modeling and allows for effective workflow and third-party integration.
Centralized Administration and Security. The Company's development
platform includes functionality for application deployment and version control,
reducing costs through centralized management by allowing the application to be
configured and updated automatically from a central location. The Company's
products also include security features to control user access. Access to
information and functionality is configured based on the user's login, allowing
users to access their recruiting desktop from anywhere in the system and further
securing against unauthorized access.
Support for Heterogeneous Computing Environments. The Company's
development platform is designed to enable applications developed on the
platform to operate in diverse computing environments. The platform supports
Microsoft Windows on the client as well as most leading relational databases
(including Oracle, Microsoft SQLServer and Sybase) and server platforms
(including Windows NT and many UNIX variants). The Company's products use the
industry-standard TCP/IP protocol, which allows the Company to develop
applications which operate over local area networks, wide area networks,
intranets and the Internet.
Advanced Technology Integration. The Company has designed its development
platform to facilitate the integration of advanced technologies while insulating
the user from the complexities associated with multiple interfaces,
import/export utilities and switching between different applications. The
Company's products take advantage of Verity's text search software, TASC's
imaging technology and Caere's OCR technology.
PRODUCT DEVELOPMENT
The Company believes that its future success will depend upon its ability
to enhance its existing software and develop and introduce new products and
functionalities which keep pace with rapid changes in the marketplace. The
Company has made increasing investments in its engineering and quality groups to
enhance product functionality, improve performance and expand the ability of its
software to interoperate with third-party software. Research and development
expenses totalled $2,341,000, $1,365,000, and $1,343,000, for fiscal years 1996,
1995, and 1994, respectively. While the Company expects that certain of its new
products and functionalities will be developed internally, the Company may,
based on timing and cost considerations, expand its product offerings through
acquisitions or strategic relationships. Software products as complex as those
currently under development by the Company are subject to frequent delays and
there can be no assurance that the
8
<PAGE> 10
Company will not encounter difficulties that could delay or prevent the
successful and timely development, introduction and marketing of these potential
new products.
The Company is currently developing several potential new products and
technologies, including capabilities which will enable organizations to deploy
Restrac Hire over an intranet, with access provided by a standard Web browser or
in conjunction with Lotus Notes. The Company plans to offer customers access to
staffing solutions on a transaction-fee basis. Such transaction-fee offerings
and other adaptations to the current products are intended to allow smaller
organizations to take advantage of the Company's technologies without the
associated infrastructure investment necessary to support a client/server
application. The Company is currently undertaking development efforts to enable
solutions in combination with the myriad of Internet-hosted pools of candidates
that are continuing to emerge from sources such as Internet career sites,
colleges and graduate schools and professional organizations. The Company is
also planning to integrate foreign language capabilities into its products.
SALES AND MARKETING
The Company currently markets its products and services through a direct
sales force in North America and the United Kingdom and also markets its Resume
Reader for PeopleSoft product through a joint marketing arrangement with
PeopleSoft. The Company supports its sales force through comprehensive marketing
programs which include telemarketing, public relations, direct mail,
advertising, seminars, trade shows, ongoing customer communication programs and
strategic relationships. While the sales cycle varies from customer to customer,
it typically spans four to nine months from generation of a lead from one of
these sources to execution of a license agreement. The Company's sales force is
structured regionally and, as of September 30, 1996, included three area
directors -- two domestic and one international. A third domestic area director
was added October 1, 1996, increasing the total to four. The sales staff is
managed through sales and service offices in Dedham, Massachusetts, Palo Alto,
California and Reading, England and through sales personnel located in Chicago,
Illinois, Dallas, Texas, Flemington, New Jersey and Atlanta, Georgia. As of
September 30, 1996, the Company's sales and marketing organization consisted of
42 employees, including 16 sales representatives, several of whom were hired in
the fourth quarter to fill territories established for fiscal 1997. Additional
sales locations added after September 30, 1996 include Seattle, Washington,
Denver, Colorado and Toronto, Ontario.
Restrac seeks to build goodwill with its customers by playing an active
role in its user community. Since 1994, the Company has hosted an annual Users
Conference, a three-day event that provides an environment of extensive learning
and peer networking. In addition, five user-hosted conferences are conducted
annually, organized regionally into East, South, Midwest, West and UK user
groups. The Company has also formed a Client Advisory Board to further guide
product strategy.
CUSTOMERS
Since the introduction of Restrac Hire in 1993, the Company has licensed
its client/server, Windows-based staffing software to approximately 220
customers. Approximately 200 other organizations continue to license the
Company's earlier DOS-based recruiting and succession planning products. Within
these organizations, there are over 4,500 licensed users of the Company's
products. Twenty-eight of the 50 most profitable U.S. companies cited in Fortune
magazine's 1996 "Fortune 1000" report use the Company's software. In fiscal
1996, no customer accounted for more than 10% of the Company's total revenue.
9
<PAGE> 11
<TABLE>
The following is a partial listing of the Company's customers as of
September 30, 1996:
<CAPTION>
<S> <C> <C>
FINANCIAL SERVICES HEALTHCARE/PHARMACEUTICALS EMC
American Express Abbott Laboratories Genentech
Bank of America Baxter International Hewlett-Packard
Banc One Bristol Myers Squibb Intel
BankBoston Johnson & Johnson Lucent Technologies
Fleet Bank The Mayo Clinic Lockheed
Merrill Lynch Memorial Sloan Kettering Microsoft Corporation
M&T Bank PacifiCare Sequent Computers
Union Bank SmithKline Beecham Stratus Computers
The World Bank U.S. Robotics Corporation
INSURANCE Vanstar
PUBLISHING/ENTERTAINMENT Aetna Life and Casualty
Blockbuster Entertainment Blue Cross/Blue Shield CONSUMER
Conde Nast Publications Cigna Anheuser-Busch
Gannett John Hancock British Airways Plc
The New York Times Nationwide Campbell Soup Company
Paramount Pictures Occidental Insurance Canadian Tire
The Washington Post Phoenix Home Life Cargill
Prudential Delco
ENGINEERING/CONSULTING Levi Strauss
Brown & Root TECHNOLOGY/COMMUNICATIONS Mattel Toys
CH2M Hill AT&T Overnite Transportation
Logica Amdahl Reebok
Mason & Hanger The Boeing Company Starbucks
Modern Engineering British Telecom Toys R' Us
Cellular One the good guys!
Cray Computers
</TABLE>
Examples of how the Company's customers have used Restrac software
successfully to address their needs are described below. The benefits achieved
by these customers will not necessarily be achieved by every customer.
Overnite Transportation, a Union-Pacific company, employs 15,000 workers in
44 states. Overnite's decentralized organizational structure and reliance on
paper-based recruiting resulted in multiple redundant staffing efforts being
conducted in different offices. Prior to implementing the Company's products,
managers in the field would often initiate a new recruitment effort every time a
position opened, incurring advertising, agency and administrative expenses that
could have been avoided. Overnite implemented Restrac Hire at its corporate
office in 1994. Since then, Overnite has reportedly streamlined its recruiting
process, reduced advertising and relocation expenses by 20%, eliminated manual
tabulation of government reporting data and cut agency fees by 80%, resulting in
annual savings of $300,000 per year.
Amdahl Corporation, a provider of hardware/software solutions and
consulting services to help organizations achieve productivity improvements in
information technology, employs more than 8,000 people worldwide. Amdahl's
growing consulting business places demand on staffing to find specialized
skills. In addition, a recent acquisition has added 2,000 employees to its
current employee base. Amdahl replaced its previous resume scanning system with
Restrac Hire in 1995, and has linked the Restrac product to its information
systems infrastructure to allow for greater productivity and to assist in the
integration of the additional employees.
Logica plc, an international systems integrator with over 3,600 employees
in 18 countries, implemented Restrac products in the United States, the United
Kingdom and the Netherlands in 1995 to manage its global consulting business.
Resumes are collected from offices throughout the
10
<PAGE> 12
world and consolidated to provide shared access for bidding on upcoming jobs and
staffing projects for which Logica has been engaged. Logica also has used the
Restrac system to direct projects to offices where the most appropriate skill
sets exist to increase effectiveness and reduce expenses.
Brown & Root, a worldwide engineering and construction company which
employs 40,000 engineers, used Restrac Hire to identify and quickly deploy more
than 1,000 engineers in connection with the U.S. Department of Defense's Bosnian
recruitment effort. These engineers were needed to establish five military base
camps in and around Tuzla. Brown & Root was able to compile a list of personnel
with disparate skills such as telecommunications, construction, computer system
management and armored vehicle maintenance.
STRATEGIC RELATIONSHIPS
The Company has established a number of relationships both to leverage
marketing channels and complementary technology and to meet customer demands for
open, integrated, multi-vendor solutions. Strategic partners are categorized
into three groups: Technology Partners, who provide the Company with innovative
technologies that are integrated into the Company's products; Joint Marketing
Partners, who provide the Company's customers with value-added software,
consulting or other services that are complementary to the Company's software
and services and that enable the Company's customers to better utilize the
Company's software; and ConnecTeam Partners, who develop and deliver integrated
products and/or services that are designed specifically for Restrac systems and
for which the Company receives a royalty. Examples of the Company's strategic
partners include:
Verity, Inc. The Company's software incorporates the text search software
tools developed by Verity, Inc., a Technology Partner, which allows Restrac
clients to search through vast amounts of candidate and job data, delivering
only the most relevant information directly to the desktop.
PeopleSoft, Inc. PeopleSoft, Inc., a leading worldwide provider of human
resource software, is a Joint Marketing Partner. In conjunction with the
Company's sales force, PeopleSoft markets the Company's Resume Reader for
PeopleSoft product, which integrates the Company's high-volume resume-scanning,
skills management and search technology with PeopleSoft's HRMS product. The
Company makes a royalty payment to PeopleSoft for each Resume Reader for
PeopleSoft product licensed.
The Monster Board. The Company has enhanced its software to allow users to
directly post jobs and receive applications via Internet career sites. In
conjunction with the development of this enhancement, the Company has entered
into a strategic relationship with The Monster Board, one of the largest
Internet career sites, pursuant to which the Company will receive a portion of
the fees paid to The Monster Board in connection with such postings.
ESSENSE Systems, Inc. ESSENSE Systems, Inc., a Restrac ConnecTeam Partner,
has developed a suite of kiosk and interactive voice response self-service
applications called Restrac ExprESS, which are specifically designed to operate
with the Company's software. Through the use of its advanced development
environment and server system and Edify Corporation's interactive voice response
technology, ESSENSE offers a complete multi-platform self-service solution for
Restrac customers, including desktop PC, kiosk and touch-tone telephone.
COMPETITION
The marketplace for staffing solutions is intensely competitive and is
rapidly changing. The Company encounters direct competition from a number of
companies providing human resource staffing solutions, including (i) other human
resource staffing software companies, (ii) providers of general human resource
information systems, (iii) agencies providing or sourcing full-time, contract
and temporary labor, (iv) information systems departments of potential prospects
that develop
11
<PAGE> 13
custom software, and (v) providers of other client/server application software
or document management systems.
The Company's primary direct competitor is Resumix, Inc., which was
acquired by Ceridian, Inc. in 1995. The Company also competes directly against
other providers of human resource staffing software, most of which are small
privately held companies providing less functional products at lower prices. In
addition, vendors of general human resource information systems generally
include applicant tracking modules in their offerings which can compete with the
Company's products. Moreover, there can be no assurance that such vendors will
not develop and market products in direct competition with the Company. Some of
the Company's current and many of the Company's potential competitors, including
PeopleSoft, IBM and many other providers of general human resource information
systems, are large, publicly traded organizations with long operating histories
and access to significantly greater financial, technical, marketing and other
resources. As a result, they may be able to respond to market changes, emerging
technologies or changes in customer requirements more rapidly and devote more
resources to the development, marketing and sales of their products than the
Company. Competition may increase from new market entrants (particularly if the
market for automated staffing solutions continues to develop) or through
consolidations in the software industry and/or cooperative relationships among
companies or with third parties.
The Company believes that the principal competitive factors affecting its
market include product functionality, breadth, ease of use, scalability and
flexibility, integration and interoperability with standard platforms and
operating systems and other software products, price, product reputation,
customer service and support, sales and marketing effectiveness and company
reputation. Although the Company believes it competes favorably with respect to
such factors, there can be no assurance that the Company can maintain this
position against current and potential competitors.
INTELLECTUAL PROPERTY
The Company relies on a combination of copyright and trade secret laws,
employee and third-party non-disclosure agreements and other methods to protect
its proprietary rights. The Company believes that, due to the rapid pace of
technological innovation within its industry, the Company's ability to establish
and maintain a position of technology leadership in the industry is dependent
more upon the skills of its development personnel and its existing skills
library than upon the legal protections afforded its existing technology.
The Company's success is dependent in part upon its proprietary software.
There can be no assurance that the Company's agreements with employees,
consultants and others who participate in the development of its software will
not be breached, that the Company will have adequate remedies for any breach, or
that the Company's trade secrets will not otherwise become known. Furthermore,
there can be no assurance that the measures taken by the Company to protect its
proprietary rights will be adequate to prevent misappropriation of its
technology or independent development by others of similar technology.
The Company is not aware of any patent infringement charge or any violation
of other proprietary rights claimed by any third party relating to the Company
or the Company's products. However, the computer technology market is
characterized by frequent and substantial intellectual property litigation.
Intellectual property litigation is complex and expensive, and the outcome of
such litigation is difficult to predict.
The Company relies on Verity for text search software, TASC for image
compression and Caere for OCR technology. The Company's success will depend in
part on its continued ability to obtain and use licensed technology that is
important to the functionality of its products. An inability to continue to
procure or use such technology would likely have a material adverse effect on
the Company's business, financial condition and operating results.
12
<PAGE> 14
EMPLOYEES
As of September 30, 1996, the Company had 147 full time employees
consisting of 42 in sales and marketing, 29 in product development, 55 in client
services and 21 in corporate operations. The Company's employees are not
represented by any collective bargaining organizations, and the Company has
never experienced any work stoppages. The Company considers its relations with
its employees to be good.
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Lars D. Perkins................ 37 President, Chief Executive Officer and
Chairman of the Board
Michael L. Amato............... 39 Vice President of Client Services
Charles A. Borwick............. 34 Vice President of Marketing
Raymond M. Desrochers.......... 29 Vice President of Product Development & Quality
Cynthia G. Eades............... 40 Chief Financial Officer, Vice President of
Finance and Treasurer
Martin J. Fahey................ 42 Vice President and Chief Operating Officer
Thomas J. McCarthy III......... 34 Vice President of Sales
Robert J. Perry................ 39 Vice President of Marketing
Rachael T. Shanahan............ 30 Vice President of Business Development,
General Counsel and Secretary
Russell J. Campanello.......... 40 Director
A. Bruce Johnston.............. 37 Director
J. Paul Costello............... 57 Director
</TABLE>
Lars D. Perkins, co-founder of the Company, has served as President, Chief
Executive Officer and Chairman of the Board of the Company since 1986.
Michael L. Amato has been the Company's Vice President of Client Services
since November 1994. From November 1988 to October 1994, Mr. Amato was Area
Manager for the Northeast Region of Innovative Information Systems, Inc., a
client/server systems integration company.
Charles A. Borwick was elected Vice President of Marketing of the Company
in October 1995. From August 1993 to September 1995, Mr. Borwick served as the
Company's Vice President of Business Development; from June 1992 to July 1993,
he served as its Vice President of Client Services; and from January 1991 to May
1992, he served as Vice President of the Company's SuccessPlan product line. In
July 1996, Mr. Borwick began transitioning responsibility for the Company's
marketing organization to Martin J. Fahey, the Company's Chief Operating
Officer. Mr. Borwick resigned from the Company effective December 31, 1996.
Raymond M. Desrochers was elected Vice President of Product Development and
Quality of the Company in October 1995. From April 1995 to October 1995, he
served as the Company's Director of Product Development and from October 1994 to
March 1995, he served as the Company's Manager of Software Development. Mr.
Desrochers was a senior software engineer for the Company from July 1992 to
September 1994. Prior to joining the Company in July 1992, he had been Software
Project Manager for New England Business Service, Inc., a company that provides
accounting software solutions to both small and medium-sized businesses, from
October 1991 to June 1992.
Cynthia G. Eades joined the Company as Chief Financial Officer, Vice
President of Finance and Treasurer in December 1994. From February 1993 to
February 1994, she was Vice President and
13
<PAGE> 15
Chief Financial Officer of Virtual World Entertainment, a developer and operator
of virtual reality entertainment centers. Prior to such time, Ms. Eades was
employed by Dun & Bradstreet Software Services, Inc., a business applications
software company, as Controller from October 1991 to February 1993 and Director
of Finance from June 1990 to October 1991. Ms. Eades is a Certified Public
Accountant and was employed by Price Waterhouse from June 1978 to June 1990.
Martin J. Fahey joined the Company as Vice President and Chief Operating
Officer in May 1996. From January 1995 to May 1996, Mr. Fahey was an independent
consultant. From July 1991 to December 1994, he was Chief Executive Officer of
Vertigo Development, a multimedia company which Mr. Fahey co-founded. Mr. Fahey
was employed by Lotus Development Corporation, a software company, from January
1983 to June 1991, most recently as the Director of Spreadsheet Marketing. He
had previously served as the General Manager of the OS/2 Spreadsheet Group,
Director of Investor Relations, and Program Manager for the Advanced Products
Division.
Thomas J. McCarthy III joined the Company as Vice President of Sales in
February 1995. From October 1994 to January 1995, Mr. McCarthy was Vice
President and General Manager of Padcom Inc., a clinical studies software
company, where he was responsible for all North American operations. Prior to
joining Padcom, Mr. McCarthy had been employed by Software 2000, Inc., a
business applications software company, as a regional manager from May 1993 to
September 1994, a district manager from September 1992 to April 1993 and an
account executive from January 1992 to August 1992. Mr. McCarthy was an account
executive at Dun & Bradstreet Software Services, Inc., a business applications
software company, from December 1989 to December 1991.
Robert J. Perry assumed operational responsibility for the marketing
organization in November, 1996 and was elected to the office of Vice President,
Marketing effective as of January 1, 1997. Mr. Perry joined the Company in May
1996 as Director of Product Management. From November 1995 through May 1996, Mr.
Perry was an independent marketing and product management consultant. From
October 1983 to November 1995 Mr. Perry was employed by Lotus Development
Corporation most recently as Director of Advanced Corporate Technology Liaisons.
He had previously served as Director of Product Management for Notes, Director
of Product Management for Graphical Spreadsheets and Group Product Manager for
Spreadsheets.
Rachael T. Shanahan was elected Vice President of Business Development of
the Company in October 1995 and has served as the Company's Secretary since
January 1994 and its General Counsel since August 1993. Prior to such time, she
had been the Company's Contract Administrator/Legal Assistant since December
1990. Ms. Shanahan first joined the Company in 1988 as a systems specialist.
Russell Campanello was elected as a director of the Company in October
1994. He has been Vice President of Human Development and Organizational
Productivity at Nets Inc., (formerly Industry.Net) a facilitator of electronic
commerce on the Internet, since February 1996. Prior to joining Nets Inc., Mr.
Campanello spent eight years as the Vice President of Human Resources of Lotus
Development Corporation.
A. Bruce Johnston was elected as a director of the Company in January 1994.
Since January 1996, Mr. Johnston has been a Principal of TA Associates, Inc., a
private equity firm. From June 1992 to January 1996, Mr. Johnston was a Vice
President of TA Associates. Prior to such time, Mr. Johnston was a General
Manager of Lotus Development Corporation from June 1988 to June 1992. Mr.
Johnston also serves on the Boards of Directors of Expert Software, Inc. and
Trident International, Inc., both NASDAQ-traded public companies, as well as on
the Boards of Directors of several private companies.
J. Paul Costello, co-founder of the Company and member of the Board of
Directors of the Company since its founding. Mr. Costello has served as
President of J. Paul Costello Associates, Inc., a consulting company, since 1969
and of Costello & Company, Inc., a contract recruiting company, since 1979. In
December 1992, he also was named President of Corporate Staffing
14
<PAGE> 16
Center, Inc., a provider of outsourced staffing services to large corporate
clients. Mr. Costello has been a human resource management consultant for over
thirty years.
ITEM 2. PROPERTIES
The Company's corporate headquarters are currently located in Dedham,
Massachusetts, where it occupies approximately 24,000 square feet of office
space under a lease expiring in December 1996 . The Company has regional sales
and service offices on the West Coast and in the United Kingdom. The Company
occupies approximately 2,200 square feet of office space in Palo Alto,
California under a lease expiring in September 1997 and 400 square feet of
office space in Reading, England under a lease expiring in October 1997. The
Company also leases office space for its sales representatives in Chicago,
Dallas, Atlanta and Toronto, Ontario. During November 1996 the Company entered
into new leases for its corporate headquarters and for its Chicago office. The
new headquarters lease is for approximately 60,000 square feet of office space
located in Lexington, Massachusetts under a lease expiring in December 2003. The
expected move date is February 1997. The new Chicago lease is for approximately
5,500 square feet of office space under a lease expiring in February 2002. The
Company is also currently pursuing a new lease to expand its West Coast office.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not Applicable.
15
<PAGE> 17
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
MARKET PRICE OF COMMON STOCK
The Company's common stock (NASDAQ symbol RTRK) began trading publicly in
the over-the-counter market through the NASDAQ National Market System on July
23, 1996. The following table sets forth, for the period indicated, the high and
low closing prices of the common stock as reported on the NASDAQ National Market
System. These prices do not include retail markups, markdowns, or commissions.
Common Stock Price
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 1996 HIGH LOW
- ------------------------------------------------------------------------- ------ ------
<S> <C> <C>
Fourth Quarter (July 23, 1996-September 30, 1996)........................ $21.00 $10.00
</TABLE>
HOLDERS OF COMMON STOCK
The closing sale price of the Common Stock on September 30, 1996 was
$18.75.
As of December 19, 1996, there were approximately 52 shareholders of record
of the Company's Common Stock and 7,894,936 shares of common stock outstanding.
On December 19, 1996 the closing price reported on the NASDAQ National Market
System for the Common Stock was $5.125.
The market price of the Company's Common Stock has fluctuated significantly
and is subject to significant fluctuations in the future.
DIVIDEND POLICY
Common Stock. The Company has never paid any cash dividends on the Common
Stock and does not anticipate paying such dividends in the foreseeable future.
The Company intends to retain any future earnings for use in the Company's
business. The payment of any future dividends will be determined by the Board of
Directors in light of conditions then existing, including the Company's
financial condition and requirements, future prospects, restrictions in
financing agreements, business conditions and other factors deemed relevant by
the Board of Directors.
Redeemable Convertible Preferred Stock. Upon closing of the initial public
offering of common stock, accumulated dividends of $568,526 remained outstanding
and were included in accrued expenses at September 30, 1996. In October 1996,
the Company paid these dividends to the preferred shareholders. During July
1996, as a result of the public offering the 556,155 shares of Preferred Stock
were automatically converted into 2,502,696 shares of common stock.
16
<PAGE> 18
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
The selected financial data set forth below with respect to the Company's
statements of operations for the three fiscal years ended September 30, 1994,
1995 and 1996 and the balance sheets at September 30, 1995 and 1996 are derived
from the financial statements of the Company included elsewhere in this Form
10-K. The data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and Notes thereto included elsewhere in this Form 10-K.
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Product revenue............................. $2,365 $3,776 $6,816 $10,024 $13,265
Services revenue............................ 1,514 1,894 2,921 4,990 8,327
------ ------ ------ ------- -------
Total revenue.......................... 3,879 5,670 9,737 15,014 21,592
------ ------ ------ ------- -------
Cost of revenue:
Product revenue............................. 325 719 1,350 1,425 1,485
Services revenue............................ 746 1,362 1,589 2,984 4,827
------ ------ ------ ------- -------
Total cost of revenue.................. 1,071 2,081 2,939 4,409 6,312
------ ------ ------ ------- -------
Gross margin................................... 2,808 3,589 6,798 10,605 15,280
------ ------ ------ ------- -------
Operating expenses:
Research and development.................... 515 674 1,343 1,365 2,341
Sales and marketing......................... 1,145 1,553 3,335 5,978 8,004
General and administrative.................. 1,094 1,190 1,249 1,714 2,610
Non-recurring charge........................ -- -- -- 1,011 --
------ ------ ------ ------- -------
Total operating expenses............... 2,754 3,417 5,927 10,068 12,955
------ ------ ------ ------- -------
Income from operations......................... 54 172 871 537 2,325
Other income (expense), net.................... (26) 24 73 138 326
------ ------ ------ ------- -------
Income before provision for income taxes....... 28 196 944 675 2,651
Provision for income taxes..................... 15 107 338 274 1,167
------ ------ ------ ------- -------
Net income..................................... $ 13 $ 89 $ 606 $ 401 $ 1,484
------ ------ ------ ------- -------
Pro forma net income per common and common
equivalent share............................ $ .06 $ .21
------- -------
Pro forma weighted average number of common and
common equivalent shares outstanding........ 6,949 7,212
======= =======
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...................... $ 272 $ 200 $2,735 $2,967 $20,368
Working capital................................ (227) (315) 2,466 2,079 17,418
Total assets................................... 1,616 2,609 6,150 9,139 26,310
Total liabilities.............................. 1,587 2,430 6,629 9,498 7,337
Stockholders' equity (deficit)................. 29 179 (479) (359) 18,973
</TABLE>
17
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company's products and the markets it serves have evolved and expanded
in concert with the rapid advancements in technology and the elevated focus on
human resource management. From its inception in 1982 through the first half of
fiscal 1993, the Company's product revenue consisted primarily of DOS-based
applicant tracking and succession planning systems. In June 1993, the Company
introduced a new generation of Windows-based, client/server staffing software,
which incorporates high-volume resume-scanning, skills management and search
capabilities.
From its inception through fiscal 1993, the Company was essentially
self-financed. In January 1994, the Company raised approximately $3.2 million in
net proceeds from a preferred equity financing from various venture capital
funds, of which approximately $800,000 was used to redeem certain outstanding
shares of Common Stock. In July 1996, the Company successfully completed an
initial public offering of its common stock raising approximately $14.5 million
in net proceeds.
At September 30, 1996 the Company had approximately 420 licensed customers,
approximately 220 of which were using its client/server, Windows-based software.
Prior to fiscal 1995, the Company focused primarily on the North American
market. To date, revenue from outside of North America has not exceeded 4% of
total revenue for any fiscal year.
Total revenue consists of product revenue and services revenue. In recent
years, product revenue has represented approximately 60-70% of total revenue,
with services revenue accounting for approximately 30-40%. Product revenue is
primarily derived from perpetual end-user licenses to use the Company's
products. Through September 30, 1995, the Company's product revenue included
revenue from the resale of third-party scanning hardware. In October 1995, the
Company effectively stopped serving as a reseller of hardware. Scanning hardware
resale revenue represented 11%, 21% and 3% of total product revenue for fiscal
1994, 1995, and 1996, respectively. Royalty income is also included in product
revenue and accounted for less than 1% of total product revenue in all periods
presented except for fiscal 1994 when it was 4%. Royalty income consisted
primarily of royalties paid to the Company by PeopleSoft, Inc., in connection
with PeopleSoft's distribution of one of the Company's software products. The
relationship was restructured so that for periods subsequent to fiscal 1994, the
product is licensed to PeopleSoft customers directly by the Company, and the
Company makes royalty payments to, rather than receiving royalty payments from,
PeopleSoft. Services revenue consists of revenue from product support and
maintenance and installation, training and consulting services.
Product revenue is recognized upon delivery, provided there are no
significant Company obligations remaining and collectibility is probable. Prior
to fiscal 1994, the Company recognized product revenue upon installation rather
than delivery, as its then current product releases required extensive
customization subsequent to delivery. Fiscal 1994 product revenue included
$1,262,000 in software license fees for products delivered in fiscal 1993 but
for which revenue was deferred until installation under this former business
practice. Revenue from product support and maintenance contracts is recognized
ratably over the applicable 12-month maintenance period. Since October 1, 1995,
the Company has included first year maintenance with the purchase of a system
license; however, for accounting purposes, 15% of the software license fee is
treated as a maintenance fee and is recognized ratably over the 12-month
maintenance period. Services revenue from installation, training and consulting
is recognized as the related services are performed. Deferred revenue represents
cash received by the Company in advance of product delivery or service
performance.
In accordance with SFAS No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed, the Company is required to
capitalize software development costs incurred after the establishment of the
technological feasibility of a project. Generally, the Company's products are
released soon after technological feasibility has been established. Conse-
18
<PAGE> 20
quently, the Company has not capitalized any software development costs since
costs qualifying for capitalization have not been material.
During November 1996 the Company entered into new leases for its corporate
headquarters and its Chicago office. The Company is also currently pursuing a
new lease to expand its West Coast office. The direct increase in facilities
costs associated with these leases will approximate $1.4 million per year as
compared to fiscal 1996. The increase for fiscal 1997 will approximate $1.0
million. Facilities costs are allocated among income statement expense
categories based principally on functional headcount.
RESULTS OF OPERATIONS
<TABLE>
The following table sets forth, for the periods indicated, the percentage
of total revenue represented by each item reflected in the Company's Statements
of Income.
<CAPTION>
FISCAL YEAR ENDED
----------------------
SEPTEMBER 30,
----------------------
AS A PERCENTAGE OF TOTAL REVENUE: 1994 1995 1996
--------------------------------- ---- ---- ----
<S> <C> <C> <C>
Revenue:
Product revenue.............................................. 70% 67% 61%
Services revenue............................................. 30 33 39
--- --- ---
Total revenue........................................ 100 100 100
--- --- ---
Cost of revenue:
Product revenue.............................................. 14 9 7
Services revenue............................................. 16 20 22
--- --- ---
Total cost of revenue................................ 30 29 29
--- --- ---
Gross margin................................................... 70 71 71
--- --- ---
Operating expenses:
Research and development..................................... 14 9 11
Sales and marketing.......................................... 34 40 37
General and administrative................................... 13 11 12
Non-recurring charge......................................... -- 7 --
--- --- ---
Total operating expenses............................. 61 67 60
--- --- ---
Income from operations......................................... 9 4 11
Other income, net.............................................. 1 1 2
--- --- ---
Income before provision for income taxes....................... 10 5 13
Provision for income taxes..................................... 4 2 6
--- --- ---
Net income..................................................... 6% 3% 7%
=== === ===
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUE
Product Revenue. Product revenue increased 32% to $13,265,000 for fiscal
1996 from $10,024,000 for fiscal 1995. Approximately 57% of the growth in
product revenue was attributable to the purchase of additional user licenses by
existing customers, demonstrating the natural progression of the Company's
client/server Windows installed base. Many customers initially deploy the
product on a selective, divisional or business unit basis and later license
additional users. For fiscal 1996, sales to existing customers represented
approximately 26% of total software licenses as compared to 11% in fiscal 1995,
while the number of new systems licensed decreased from 100 in
19
<PAGE> 21
fiscal 1995 to 71 in fiscal 1996. The remainder of the increase in product
revenue for 1996 was attributable to a combination of price increases and a
greater number of licensed users per system. Product revenue represented 61% of
total revenue for fiscal year 1996 as compared to 67% in fiscal 1995 and 70% in
fiscal 1994. Enhancements to services revenue offerings account for this change
in mix. Management does not expect the product/service revenue mix for fiscal
year 1997 to vary significantly from 1996.
Services Revenue. Services revenue increased 67% to $8,327,000 for fiscal
1996 from $4,990,000 for fiscal 1995. Installation, training and consulting
services accounted for approximately $1,700,000, or 51%, of this increase, with
the remainder attributable to increased maintenance revenue. Throughout fiscal
1995, the Company significantly enhanced its service offerings, adding project
management and standardized training and education programs. These enhancements,
combined with a higher number of larger implementations and price increases,
resulted in a 90% increase in average services revenue per system license in
fiscal 1996. Maintenance revenue increased approximately 66% for fiscal 1996 as
compared to 1995 due to the increase in the installed base of client/server,
Windows-based customers. While the Company no longer enhances its legacy DOS
solutions and a number of DOS customers have elected not to renew their
maintenance contracts, the relative dollar value of such annual maintenance
contracts is significantly lower than for client/server, Windows-based
customers.
COST OF REVENUE
Cost of Product Revenue. Cost of product revenue includes third-party
hardware costs, royalty payments for third-party software embedded in the
Company's products, royalty payments to PeopleSoft, Inc. (beginning in fiscal
1995) and costs of documentation and shipping. Cost of product revenue increased
4% to $1,485,000 for fiscal 1996 from $1,425,000 for fiscal 1995. Cost of
product revenue decreased as a percentage of product revenue to approximately
11% for 1996 from approximately 14% for 1995. This percentage decrease is
primarily attributable to the Company's decision to discontinue reselling
scanning hardware, which represented 58% of cost of product revenue for fiscal
1995. This reduction was partially offset by the increase in royalty payments to
PeopleSoft resulting from a proportional increase in sales of Resume Reader for
PeopleSoft during 1996.
Cost of Services Revenue. Cost of services revenue includes royalty
payments for third-party hardware and software maintenance and all costs of
maintaining the client services organization, including salaries and
personnel-related expenses, travel, outside consulting services and facilities
costs. Cost of services revenue increased 62% to $4,827,000 for fiscal 1996 from
$2,984,000 for fiscal 1995. Cost of services revenue decreased as a percentage
of services revenue to 58% for 1996 from 60% for 1995. The absolute dollar
increase was due largely to increased service personnel, including the addition
of a dedicated customer account management group and overhead costs associated
with a training facility at the Company's corporate headquarters that was opened
in June 1995. Increased services revenue offset the impact of these costs as a
percentage of revenue.
OPERATING EXPENSES
Research and Development. Research and development expenses include all
costs associated with the product engineering and quality functions, including
salaries and personnel-related expenses, travel, outside consulting services and
facilities costs. Research and development expenses increased 72% to $2,341,000
for fiscal 1996 from $1,365,000 for fiscal 1995. As a percentage of total
revenue, research and development expenses increased to 11% for fiscal 1996 from
9% for 1995. The increase in total expenses was largely attributable to an
increase in personnel and in consulting costs. The development organization grew
from 17 employees at the end of fiscal 1995 to 29 employees at the end of fiscal
1996. The absolute dollar amount of research and development expenses is
expected to increase significantly in fiscal 1997 due to costs associated
20
<PAGE> 22
with the expansion of the development organization and other costs relating to
the Company's new product and service initiatives.
Sales and Marketing. Sales and marketing expenses include promotional
costs and trade shows and costs associated with personnel involved in sales and
marketing functions, including salaries, commissions and other personnel-related
expenses, travel, outside consulting services and facilities costs. Sales and
marketing expenses increased 34% to $8,004,000 for fiscal 1996 from $5,978,000
for fiscal 1995. As a percentage of total revenue, sales and marketing expenses
were 37% for 1996 and 40% for 1995. Approximately 25% of the dollar increase
related to increased marketing program costs in support of the Company's sales
efforts. The remainder was largely attributable to increases in the number of
sales and marketing personnel. Continued increases in sales and marketing
expenses are expected, generally in proportion to increases in revenue.
Management may, however, determine that additional costs are necessary to
promote its new product and service initiatives.
General and Administrative. General and administrative expenses consist
principally of costs for corporate operations personnel (executive, finance and
accounting, information technology, human resources, legal and administrative),
professional fees and other general corporate expenses. General and
administrative expenses increased 52% to $2,610,000 for fiscal 1996 from
$1,714,000 for fiscal 1995. As a percentage of total revenue, general and
administrative expenses were 12% for fiscal 1996 and 11% for fiscal 1995. These
increases were principally due to personnel increases to support the Company's
growth and infrastructure. Similar increases are expected to continue.
OTHER INCOME, NET
Other income consists primarily of interest income from cash and cash
equivalents. The Company generally invests its cash balances in
interest-bearing, investment grade securities. Other income increased 136% to
$326,000 for fiscal 1996 from $138,000 for fiscal 1995, due to an increase in
average funds available for investment resulting principally from the Company's
initial public offering.
PROVISION FOR INCOME TAXES
The Company's effective tax rate increased to 44% for 1996 from 41% for
1995 due primarily to equity related compensation not benefited for financial
statement purposes. The effective tax rate is expected to decrease in fiscal
1997.
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUE
Product Revenue. Product revenue increased 47% to $10,024,000 for fiscal
1995 from $6,816,000 for fiscal 1994. The increase would have been 80%, after
deducting $1,262,000 in fiscal 1994 product revenue resulting from recognizing
revenue upon shipment rather than upon installation. The increase in fiscal 1995
product revenue was due principally to an increase in the number of systems
licensed and the number of licensed users per system. The Company experienced a
40% increase in the number of new systems licensed in fiscal 1995, due largely
to the growth of the sales force, which provided broader and deeper geographical
coverage, and to increased acceptance of its principal product, Restrac Hire.
Services Revenue. Services revenue increased 71% to $4,990,000 for fiscal
1995 from $2,921,000 for fiscal 1994. Approximately half of the services revenue
increase was attributable to greater revenue for installation, training and
consulting, with the remaining half associated with increased maintenance
revenue. These increases resulted from the expansion of the client services
organization to service the new accounts and from the growing installed customer
base.
21
<PAGE> 23
COST OF REVENUE
Cost of Product Revenue. Cost of product revenue increased 6% to
$1,425,000 for fiscal 1995 from $1,350,000 for fiscal 1994. The cost of product
revenue decreased as a percentage of product revenue to 14% in fiscal 1995 from
20% in fiscal 1994 primarily due to low-margin scanning hardware becoming a
proportionately lower component of total product revenue. Customers can
generally operate one scanning station for an unlimited number of users.
Consequently, as the average number of licensed users increased, the hardware
needs of customers and, therefore, hardware revenue remained relatively
constant. In addition, more customers purchased scanning hardware directly
rather than through the Company as the ease of use and reliability of this
technology was enhanced over time. The Company discontinued reselling scanning
hardware in October 1995.
Cost of Services Revenue. Cost of services revenue increased 88% to
$2,984,000 for fiscal 1995 from $1,589,000 for fiscal 1994. The cost of services
revenue also increased as a percentage of services revenue to 60% in fiscal 1995
from 54% in fiscal 1994. Personnel increases accounted for a substantial portion
of these increases. The client services staff increased to 46 at September 30,
1995 from 28 employees at September 30, 1994. Cost of services revenue for
fiscal 1995 also included overhead costs associated with a training facility at
the Company's corporate headquarters that was opened in June 1995.
OPERATING EXPENSES
Research and Development. Research and development expenses increased 2%
to $1,365,000 for fiscal 1995 from $1,343,000 for fiscal 1994. As a percentage
of total revenue, research and development expenses decreased to 9% for fiscal
1995 from 14% for fiscal 1994. While the development organization grew from 10
employees at the end of fiscal 1994 to 17 employees at the end of fiscal 1995,
the relatively flat level of expenses and reduction in costs as a percentage of
revenue was attributable in part to expenses related to beta testing performed
by client services personnel in fiscal 1994 which were charged to research and
development expense. In fiscal 1995, these services were performed by product
development personnel.
Sales and Marketing. Sales and marketing expenses increased 79% to
$5,978,000 for fiscal 1995 from $3,336,000 for fiscal 1994. As a percentage of
total revenue, sales and marketing expenses increased to 40% for fiscal 1995
from 34% for fiscal 1994. These increases were largely attributed to increases
in the number of sales and marketing personnel, which increased from 22
employees at the end of fiscal 1994 to 38 employees at the end of fiscal 1995,
and increases in commissions as a result of higher revenue. The Company also
increased its participation in trade shows, seminars and other promotional
activities. In addition, the Company positioned sales personnel in Sacramento,
Chicago, Dallas and Orlando (now Atlanta) in fiscal 1995, and the Palo Alto
office, which opened in fiscal 1993, was also expanded in fiscal 1995.
General and Administrative. General and administrative expenses increased
37% to $1,714,000 for fiscal 1995 from $1,249,000 for fiscal 1994. As a
percentage of total revenue, general and administrative expenses decreased to
11% in fiscal 1995 from 13% in fiscal 1994. To support the Company's growth and
infrastructure, the corporate operations staff increased from 13 employees at
the end of fiscal 1994 to 20 employees at the end of fiscal 1995.
Non-recurring Charge. On January 1, 1991, the Company acquired certain of
the assets of Borwick International, Inc., an international consulting firm
which developed and marketed related software known as SuccessPlan. As part of
this 1991 agreement, Borwick International was granted the exclusive right to
distribute SuccessPlan outside of North America, and the Company was prohibited
from selling any competitive products in these territories. On September 30,
1995, the Company entered into an agreement that terminated the remaining
distribution rights of Borwick International to SuccessPlan and removed any
restrictions on the Company's ability to sell competitive products. The process
of succession planning is in transition; thus the Company's
22
<PAGE> 24
succession planning product strategy is in flux. The Company's evolving line of
staffing products may incorporate certain elements that could be construed as
succession planning under a broad interpretation of the 1991 agreement.
Accordingly, the Company believed that removal of these restrictions was
necessary. As a result of the September 1995 agreement, the Company recorded a
non-recurring charge to operations of $1,010,952 in fiscal 1995, representing
the present value of payments made and payable under the terms of this
agreement. The Company does not have a succession planning product which is
suitably responsive to the international market. In addition, the Company lacks
the internal infrastructure and established distribution channels necessary to
license and support such products outside of North America. Based on the minimal
current and anticipated cash flows from succession planning products, any
intangible asset recorded would be deemed to be non-recoverable and require
recognition of an impairment loss in accordance with SFAS No. 121. Accordingly,
the cost of the distribution rights was charged to operations, as management
believes that the realizability of such cost is uncertain. The Company also
executed a Finder's Fee and Non-Competition Agreement with Irving P. Borwick, a
principal of Borwick International, in conjunction with the September 1995
termination agreement. Although the Company wished to ensure that Borwick
International and Irving P. Borwick would not compete with the Company, neither
was viewed as a serious competitive threat. Accordingly, the stated amounts in
the non-competition agreement were not deemed to reflect their overall value to
the Company and were included in the total ascribed to the termination of
distribution rights.
OTHER INCOME, NET
Other income increased 89% to $138,000 in fiscal 1995 from $73,000 in
fiscal 1994, due to an increase in average funds available for investment.
PROVISION FOR INCOME TAXES
The Company's effective tax rate increased to 40.6% in fiscal 1995 from
35.9% in fiscal 1994. This increase was attributable to the utilization of
research and development tax credits in fiscal 1994. The Company had a valuation
allowance of $258,550 and $171,672 against its gross deferred tax asset at
September 30, 1994 and 1995, respectively. The valuation allowance at September
30, 1994 and 1995 was established due to management's estimate that it was more
likely than not that a benefit of certain deferred tax assets would not be
realized in the future. In assessing the realizability of these assets at
September 30, 1994, management took into consideration historical levels of
taxable income, the volatile nature of the industry in which it competes and the
potential levels of future taxable income. At September 30, 1995, the valuation
allowance related specifically to the buyout of distribution rights.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has primarily financed its operations and
capital expenditures through internally generated cash flow. Additional
financing which has been secured by the Company includes $3.2 million of net
proceeds from the issuance of Convertible Preferred Stock in January 1994 and
$14.5 million of net proceeds from the Company's initial public offering in July
1996.
The Company generated cash from operations of $3,798,000, $1,414,000 and
$679,000 for fiscal 1996, 1995 and 1994, respectively. Cash and cash equivalents
were approximately $20.4 million and $3.0 million at September 30, 1996 and
1995, respectively. In 1995, the Company experienced significant growth in
accounts receivable, accompanying increased revenue volume. While revenue
continued to increase in 1996, favorable collection experience resulted in
minimal net change in the accounts receivable balance at September 30, 1996 as
compared to September 30, 1995 and in an increase in net cash provided by
operating activities. Deferred revenue increased for fiscal 1996 and 1995,
representing cash received on contracts pending delivery of product or
performance of services. Accrued expenses reflected significant increases for
fiscal 1996 due to
23
<PAGE> 25
general corporate growth and the increased expense base commensurate with that
growth, and for 1995 due to bonuses and commissions associated with the
increased sales volume and employee base.
Investing activities have consisted principally of the acquisition of
property and equipment, most notably computer and networking equipment to
support the growing employee base and corporate infrastructure. The Company
expects to continue its purchases of property and equipment as part of its
infrastructure growth.
There have been several notable financing activities by the Company. In
January 1994, the Company generated $3.2 million of net proceeds from the
issuance of Convertible Preferred Stock and subsequently repurchased 607,500
shares of Common Stock at $1.32 per share or an aggregate price of approximately
$800,000. In November 1995, the Company repurchased 56,900 shares of Common
Stock for $2.00 per share or an aggregate purchase price of $113,799. In July
1996 the Company, through its initial public offering sold 1,500,000 shares of
Common Stock at $11.00 per share which generated proceeds, net of the expenses
of the offering, of $14.5 million.
The Company had available a bank revolving line of credit. Borrowings
outstanding under the line were limited to the lesser of $1 million or 70% of
eligible accounts receivable, as defined, bore interest at the bank's corporate
base rate plus 1% and were collateralized by all corporate assets. There were no
borrowings outstanding as of September 30, 1996 or as of September 30, 1995.
This revolving line of credit was cancelled by the Company in November 1996.
To date, the Company has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk. Cash has
been, and the Company contemplates that it will continue to be, invested in
interest-bearing, investment grade securities.
From time to time, the Company evaluates potential acquisitions of
products, businesses and technologies that may complement or expand the
Company's business. The Company currently does not have any understandings,
commitments or agreements with respect to any such acquisitions. Any such
transactions consummated may use a portion of the Company's working capital or
require the issuance of equity or debt.
The Company believes that its current cash balances and cash provided by
future operations will be sufficient to meet its working capital and anticipated
capital expenditure requirements for at least the next twelve months. Although
operating activities may provide cash in certain periods, to the extent the
Company experiences growth in the future, its operating and investing activities
may use cash. Consequently, any such future growth may require the Company to
obtain additional equity or debt financing.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Statements made or incorporated in this Form 10-K include a number of
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward
looking statements include, without limitation, statements containing the words
"Anticipates", "Believes", "Expects", "Intends", "Future", and words of similar
import which express management's belief, expectations or intentions regarding
the Company's future performance. The Company's actual results could differ
materially from its historical operating results and from those set forth in the
forward-looking statements and may fluctuate between operating periods. Factors
that might cause such differences and fluctuations include the following: risks
related to the management of growth, the Company's ability to attract, train and
retain qualified personnel, product development risks, new product announcements
and introductions, development and promotional expenses relating to the
introduction of new products, changes in technology and industry standards,
dependence on certain strategic partnerships, increased competition, changes in
pricing policies by the Company and its competitors, the timing of the receipt
of orders from major customers, the size and rate of growth of the market for
human
24
<PAGE> 26
resources staffing software, market acceptance of the Company's products and
those of its competitors, and general economic conditions. In addition, a
significant portion of product revenue within a quarter is typically not
realized until late in that quarter. As a result, it may be difficult for the
Company to predict its total revenue for the quarter or to quickly adapt its
spending levels within a quarter to reflect changes in demand for its products.
The market price of the Company's common stock has been, and in the future will
likely be, subject to significant fluctuations in response to variations in
quarterly operating results and other factors, such as announcements of
technological innovations or new products by the Company or its competitors, or
other events.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Supplementary Data of the Company
are listed under Part IV, Item 14, of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
25
<PAGE> 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is hereby incorporated by
reference to the text appearing under Part I, Item 1 -- Business under the
caption "Executive Officers and Directors" in this Report, and by reference to
the Company's definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders to be filed by the Company within 120 days after close of its
fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is hereby incorporated by
reference to the information under the heading "Executive Compensation" in the
Company's definitive Proxy Statement for the 1996 Annual Meeting of Stockholders
to be filed by the Company within 120 days after the close of its fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is hereby incorporated by
reference to the information under the heading "Securities Beneficially Owned by
Directors, Officers and Principal Stockholders" in the Company's definitive
Proxy Statement for the 1996 Annual Meeting of Stockholders to be filed by the
Company within 120 days after the close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is hereby incorporated by
reference to the information under the heading "Certain Transactions", if any,
in the Company's definitive Proxy Statement for the 1996 Annual Meeting of
Stockholders to be filed by the Company within 120 days after the close of its
fiscal year.
26
<PAGE> 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
1. Report of Arthur Andersen LLP dated October 25, 1996 (See Page F-2
hereof).
2. Consolidated Balance Sheets as of September 30, 1995 and 1996. (See Page
F-3 hereof).
3. Consolidated Statements of Income for the years ended September 30,
1994, 1995 and 1996 (See Page F-4 hereof).
4. Consolidated Statements of Redeemable Convertible Preferred Stock and
Stockholders' Equity (Deficit) for the years ended September 30, 1994,
1995 and 1996. (See Page F-5 hereof).
5. Consolidated Statements of Cash Flows for the years ended September 30,
1994, 1995 and 1996. (See Page F-6 hereof).
6. Notes to Consolidated Financial Statements. (See pages F-7 through F-16
hereof).
(a)(2) FINANCIAL STATEMENT SCHEDULES
SCHEDULE NO. DESCRIPTION
------------ -----------
Schedule II Valuation and Qualifying Accounts
Other schedules are not provided because of the absence of conditions under
which they are required or because the required information is given in the
financial statements or notes thereto.
27
<PAGE> 29
(A)(3) EXHIBITS
<TABLE>
(a) Exhibits. The following is a complete list of Exhibits filed as part
of this Form 10-K.
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
*3.1 Form of Third Amended and Restated Certificate of Incorporation of the Company
*3.2 Amended and Restated By-laws of the Company
*4.1 Specimen certificate for shares of Common Stock, $.01 par value, of the
Company
*10.1 Stock Purchase Agreement dated January 5, 1994, as amended, by and between the
Company and the Purchasers identified therein
*10.2 Stock Redemption Agreement dated January 5, 1994 between the Company and J.
Paul Costello, Lars D. Perkins and John P. Jopling
*10.3 Registration Rights Agreement dated January 5, 1994 between the Company and
Lars D. Perkins, J. Paul Costello and John P. Jopling
*10.4 Restrac, Inc. 1994 Stock Option Plan
*10.5 Restrac, Inc. 1996 Stock Option and Grant Plan
10.6 Restrac, Inc. 1996 Employee Stock Purchase Plan
*10.7 Paid-up Software License dated as of January 1, 1993 by and between the
Company and Costello and Company, Inc.
*+10.8 VAR Agreement dated November 27, 1991 between the Company and Verity, Inc. and
all amendments thereto -- see 10.25 below
*+10.9 Value Added Reseller License Agreement dated August 31, 1992 by and between
The Analytic Sciences Corporation and the Company and all amendments thereto
*+10.10 Joint Marketing Agreement with Referral Fee Payments dated as of October 1,
1994 between the Company and PeopleSoft, Inc.
*10.11 Lease Agreement dated March 31, 1993 by and between Dedham Place Office
Associates Limited Partnership and the Company and all amendments thereto
(x)*10.12 Form of Director's Indemnification Agreements
(x)*10.13 Form of Employment Agreement with Senior Management
(x)*10.14 Form of Addendum to Employment Agreement with Senior Management
*10.15 Agreement Pertaining to the Election of Directors dated January 5, 1994 by
Lars D. Perkins, J. Paul Costello and the Purchasers identified therein
*10.16 Shareholder Agreement dated January 5, 1994 by and among the Company and the
Shareholders identified therein
*10.17 Agreement Pertaining to Certain Activities dated January 5, 1994 by and
between Lars D. Perkins and the Company
*10.18 Termination Agreement dated September 30, 1995 by and among the Company and
Borwick International, Inc. and Irving P. Borwick
*10.19 Finder's Fee and Non-Competition Agreement dated September 30, 1995 between
the Company and Irving P. Borwick
(x)10.20 Fiscal 1997 Senior Management Compensation Plan
(x)10.21 Fiscal 1997 Management Incentive Plan
10.22 Lease agreement dated November 12, 1996 between Boston Properties, Inc. and
the Company
+10.23 Scanning Services Agreement dated May 1, 1996 between the Company and
ScanCenters of America and all exhibits thereto
+10.24 Amendment #3 to VAR Agreement dated November 27, 1991, between the Company and
Verity, Inc.
11.1 Schedule regarding computation of earnings per share
21.1 Subsidiaries of registrant
</TABLE>
28
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------
<C> <S>
23.1 Consent of Arthur Andersen LLP
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* All exhibits with an asterisk are incorporated by reference to the specified
exhibit with the corresponding numbers in the Company's Registration Statement
on Form S-1, as amended (No. 333-03521), declared effective on July 22, 1996.
+ Confidential treatment requested as to portions of this document.
x Required to be filed pursuant to item 14(c) of Part IV of this report, Form
10-K.
(b) Report on Form 8-K.
The Company has not filed any Form 8-K's during the fourth quarter of 1996.
29
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on this twenty-seventh day
of December 1996.
By: /s/ LARS D. PERKINS
-----------------------------
Lars D. Perkins, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LARS D. PERKINS Director, Chief Executive Officer December 27, 1996
- --------------------------- and President (Principal
Lars D. Perkins Executive Officer)
/s/ CYNTHIA G. EADES Chief Financial Officer December 27, 1996
- --------------------------- (Principal Financial Officer
Cynthia G. Eades and Principal Accounting
Officer)
/s/ RUSSELL J. CAMPANELLO Director December 27, 1996
- ---------------------------
Russell J. Campanello
/s/ J. PAUL COSTELLO Director December 27, 1996
- ---------------------------
J. Paul Costello
/s/ A. BRUCE JOHNSTON Director December 27, 1996
- ---------------------------
A. Bruce Johnston
30
<PAGE> 32
RESTRAC, INC.
<TABLE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets as of September 30, 1995 and 1996......................... F-3
Consolidated Statements of Income for the Years Ended September 30, 1994,
1995 and 1996....................................................................... F-4
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders'
Equity (Deficit) for the Years Ended September 30, 1994, 1995 and 1996.............. F-5
Consolidated Statements of Cash Flows for the Years Ended September 30, 1994,
1995 and 1996....................................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Restrac, Inc.:
We have audited the accompanying consolidated balance sheets of Restrac,
Inc. as of September 30, 1995 and 1996, and the related consolidated statements
of income, redeemable convertible preferred stock and stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
September 30, 1996. These consolidated financial statements and schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Restrac, Inc. as of September 30, 1995 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole . The schedule listed on
Schedule II is presented for purposes of additional analysis and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 25, 1996
F-2
<PAGE> 34
RESTRAC, INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
SEPTEMBER 30,
--------------------------
1995 1996
---------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................... $2,966,637 $20,367,641
Accounts receivable, less allowance for doubtful accounts of
approximately $300,000 and $350,000, at September 30, 1995
and 1996, respectively..................................... 3,485,744 3,387,010
Other current assets.......................................... 454,470 229,577
Deferred income taxes......................................... 718,254 770,965
---------- -----------
Total current assets.................................. 7,625,105 24,755,193
---------- -----------
Property and Equipment, net..................................... 1,452,548 1,520,893
---------- -----------
Deferred Income Taxes........................................... 46,328 --
---------- -----------
Other Assets, net............................................... 14,832 33,898
---------- -----------
$9,138,813 $26,309,984
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of long-term debt............................. $ 14,367 $ 5,060
Accounts payable.............................................. 585,471 570,603
Accrued expenses.............................................. 2,180,479 3,339,895
Deferred revenue.............................................. 2,526,073 3,140,801
Accrued income taxes.......................................... 239,900 280,917
---------- -----------
Total current liabilities............................. 5,546,290 7,337,276
---------- -----------
Deferred Income Taxes........................................... 63,777 --
---------- -----------
Other Liabilities............................................... 45,119 --
---------- -----------
Commitments (Note 4)............................................ -- --
Redeemable Convertible Preferred Stock (Note 5)................. 3,842,474 --
---------- -----------
Stockholders' Equity (Deficit) (Note 6):
Preferred stock, $.01 par value -- Authorized -- 5,000,000
shares, Issued and outstanding -- none..................... -- --
Common stock, $.01 par value -- Authorized -- 30,000,000
shares, Issued -- 4,500,000 shares at September 30, 1995,
8,569,711 shares at September 30, 1996..................... 45,000 85,697
Additional paid-in capital...................................... 160,618 18,222,648
Treasury stock, at cost......................................... (804,970) (830,764)
Retained earnings............................................... 240,505 1,495,127
---------- -----------
Total stockholders' equity (deficit).................. (358,847) 18,972,708
---------- -----------
$9,138,813 $26,309,984
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 35
RESTRAC, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------------
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Product revenue................................ $6,816,249 $10,023,919 $13,264,809
Services revenue............................... 2,921,248 4,989,965 8,327,263
---------- ----------- -----------
Total revenue.......................... 9,737,497 15,013,884 21,592,072
---------- ----------- -----------
Cost of Revenue:
Product revenue................................ 1,350,318 1,424,847 1,484,629
Services revenue............................... 1,588,778 2,983,931 4,827,332
---------- ----------- -----------
Total cost of revenue.................. 2,939,096 4,408,778 6,311,961
---------- ----------- -----------
Gross Margin..................................... 6,798,401 10,605,106 15,280,111
---------- ----------- -----------
Operating Expenses:
Research and development....................... 1,342,692 1,364,542 2,341,300
Sales and marketing............................ 3,335,599 5,978,133 8,004,156
General and administrative..................... 1,248,630 1,714,079 2,609,679
Non-recurring charge (Note 2).................. -- 1,010,952 --
---------- ----------- -----------
Total operating expenses............... 5,926,921 10,067,706 12,955,135
---------- ----------- -----------
Income From Operations........................... 871,480 537,400 2,324,976
Other Income, net................................ 73,063 137,707 326,294
---------- ----------- -----------
Income Before Provision for Income Taxes......... 944,543 675,107 2,651,270
Provision for Income Taxes (Note 7).............. 338,835 274,300 1,166,820
---------- ----------- -----------
Net Income....................................... $ 605,708 $ 400,807 $ 1,484,450
---------- ----------- -----------
Pro Forma Net Income per Common and Common
Equivalent Share............................... $ 0.06 $ 0.21
----------- -----------
Pro Forma Weighted Average Number of Common and
Common Equivalent Shares Outstanding........... 6,949,273 7,212,171
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 36
RESTRAC, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
(NOTE 6)
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK -------------------------------
PREFERRED STOCK -------------------- TREASURY STOCK TOTAL
---------------------- $.01 ADDITIONAL ------------------- RETAINED STOCKHOLDERS'
NUMBER CARRYING NUMBER PAR PAID-IN NUMBER EARNINGS EQUITY
OF SHARES VALUE OF SHARES VALUE CAPITAL OF SHARES COST (DEFICIT) (DEFICIT)
--------- ---------- --------- --------- ---------- --------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, -- -- 4,500,000 45,000 149,282 22,500 (5,500) (10,214) 178,568
September 30, 1993....
Issuance of preferred 556,155 3,503,776 -- -- -- -- -- (270,227) (270,227)
stock, less issuance
costs of $270,227.....
Purchase of treasury -- -- -- -- -- 607,500 (799,470) -- (799,470)
stock.................
Amortization of deferred -- -- -- -- 11,336 -- -- -- 11,336
compensation
expense...............
Dividends paid on -- -- -- -- -- -- -- (146,871) (146,871)
redeemable convertible
preferred stock.......
Accretion of -- 58,396 -- -- -- -- -- (58,396) (58,396)
dividends.............
Net income.............. -- -- -- -- -- -- -- 605,708 605,708
--------- ---------- --------- --------- ---------- --------- -------- --------- -------------
Balance, 556,155 3,562,172 4,500,000 45,000 160,618 630,000 (804,970) 120,000 (479,352)
September 30, 1994....
Accretion of -- 280,302 -- -- -- -- -- (280,302) (280,302)
dividends.............
Net income.............. -- -- -- -- -- -- -- 400,807 400,807
--------- ---------- --------- --------- ---------- --------- -------- --------- -------------
Balance, 556,155 3,842,474 4,500,000 45,000 160,618 630,000 (804,970) 240,505 (358,847)
September 30, 1995....
Exercise of common stock -- -- 67,015 670 37,744 -- -- -- 38,414
options...............
Purchase of treasury -- -- -- -- -- 56,900 (25,794) -- (25,794)
stock.................
Accretion of -- 229,828 -- -- -- -- -- (229,828) (229,828)
dividends.............
Tax benefit from stock -- -- -- -- 35,000 -- -- -- 35,000
options exercised.....
Effect of preferred (556,155) (4,072,302) 2,502,696 25,027 3,478,749 -- -- -- 3,503,776
stock
conversion............
Public offering -- -- 1,500,000 15,000 14,496,345 -- -- -- 14,511,345
proceeds,
net...................
Issuance of warrants.... -- -- -- -- 14,192 -- -- -- 14,192
Net income.............. -- -- -- -- -- -- -- 1,484,450 1,484,450
--------- ---------- --------- --------- ---------- --------- -------- --------- -------------
Balance, 0 0 8,569,711 85,697 18,222,648 686,900 (830,764) 1,495,127 18,972,708
September 30, 1996....
--------- ---------- --------- --------- ---------- --------- -------- --------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 37
RESTRAC, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
------------------------------------------
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income............................................... $ 605,708 $ 400,807 $ 1,484,450
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation and amortization......................... 243,948 430,597 861,130
Provision for doubtful accounts....................... -- 317,080 200,588
Deferred income taxes, net............................ (153,669) (448,000) (70,160)
Amortization of deferred compensation expense......... 11,336 -- --
Loss on disposal of property and equipment............ -- 9,061 --
Issuance of warrants.................................. -- -- 14,192
Changes in assets and liabilities --
Accounts receivable................................. (885,961) (1,650,069) (101,854)
Other current assets................................ 66,425 (297,180) 224,893
Accounts payable.................................... 118,502 45,582 (14,868)
Accrued expenses.................................... 251,088 1,474,914 589,264
Deferred revenue.................................... (108,680) 1,529,779 614,728
Other liabilities................................... 23,124 (64,329) (45,119)
Accrued income taxes................................ 507,118 (334,148) 41,017
---------- ----------- -----------
Net cash provided by operating activities........ 678,939 1,414,094 3,798,261
---------- ----------- -----------
Cash Flows from Investing Activities:
Purchases of property and equipment...................... (285,088) (1,115,455) (927,849)
Proceeds from sale of property and equipment............. -- 7,770 --
Increase in other assets................................. (4,255) (941) (19,066)
---------- ----------- -----------
Net cash used in investing activities............ (289,343) (1,108,626) (946,915)
---------- ----------- -----------
Cash Flows from Financing Activities:
Payments on capital lease obligations.................... (74,182) (26,936) (9,307)
Payments of bank notes payable........................... (40,000) (46,667) --
Net proceeds from initial public offering of common
stock................................................. -- -- 14,511,345
Payment of promissory note payable to a related party.... (28,114) -- --
Proceeds from issuance of redeemable convertible
preferred stock, net of $270,227 of issuance costs.... 3,233,549 -- --
Proceeds from exercise of common stock options........... -- -- 38,414
Tax benefit of stock option exercise transactions........ -- -- 35,000
Dividends paid............................................. (146,871) -- --
Purchase of treasury stock............................... (799,470) -- (25,794)
---------- ----------- -----------
Net cash (used in) provided by financing
activities..................................... 2,144,912 (73,603) 14,549,658
---------- ----------- -----------
Net Increase in Cash and Cash Equivalents.................. 2,534,508 231,865 17,401,004
---------- ----------- -----------
Cash and Cash Equivalents, beginning of period............. 200,264 2,734,772 2,966,637
---------- ----------- -----------
Cash and Cash Equivalents, end of period................... $2,734,772 $ 2,966,637 $20,367,641
---------- ----------- -----------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for
Interest.............................................. $ 23,028 $ 9,683 $ 15,853
---------- ----------- -----------
Income taxes.......................................... $ 105,241 $ 1,280,025 $ 892,726
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 38
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
Restrac, Inc. (formerly MicroTrac Systems, Inc.) and its wholly-owned
subsidiary, Restrac Securities Corporation, collectively referred to in these
Notes to Consolidated Financial Statements as, "the Company". All intercompany
accounts and transactions have been eliminated in consolidation.
The Company designs, develops, markets, implements and supports human
resource staffing software to automate the recruitment, selection and placement
of an organization's workforce. The Company's staffing software enables
organizations to strategically manage their human capital by reducing hiring and
placement costs, decreasing time to fill positions and providing more effective
skills management and worker deployment. The Company's products -- Restrac Hire
and Resume Reader for PeopleSoft -- provide human resource departments with
client/server solutions to quickly and efficiently build and search
comprehensive "pools" of resume skills data to find the workers they need, while
also managing the workflow of the staffing process.
In 1982 the Company was incorporated under the laws of the Commonwealth of
Massachusetts. On January 5, 1994, the Company was reincorporated as a Delaware
corporation. On June 15, 1995, the Company amended its Certificate of
Incorporation to effect a name change from MicroTrac Systems, Inc. to Restrac,
Inc.
The accompanying consolidated financial statements reflect the application
of certain significant accounting policies as described below and elsewhere in
the Notes to the Consolidated Financial Statements.
(a) Revenue Recognition
Product revenue includes software license fees, third-party hardware and
royalty revenue. Services revenue includes customer maintenance fees, training,
installation and consulting. The Company recognizes product and services revenue
in accordance with the provisions of Statement of Position No. 91-1 (SOP No.
91-1), Software Revenue Recognition.
Product revenue from software license fees and hardware is recognized upon
delivery provided there are no significant Company obligations remaining and
collectibility of the revenue is probable. If an acceptance period is required,
revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period, as defined in the applicable software
license agreement. Prior to fiscal 1994, the Company recognized software license
fees upon installation rather than delivery, as its then current product
releases required extensive customization subsequent to delivery. Software
license fees for fiscal 1994 included $1,262,000 related to this former business
practice. Royalty revenue is recognized as earned.
Services revenue from customer maintenance fees for postcontract support is
recognized ratably over the maintenance term, which is typically 12 months. When
customer maintenance fees are included in an initial software license fee, the
Company allocates 15% of the software license fee to the first year's
maintenance. The amount allocated to customer maintenance fees for the first
year is comparable to customer maintenance fees charged separately by the
Company. Other services revenue from training, installation and consulting is
recognized as the related services are performed.
Deferred revenue represents payments received by the Company in advance of
product delivery or service performance.
F-7
<PAGE> 39
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
(b) Research and Development Costs
Research and development costs are generally charged to operations as
incurred. Statement of Financial Accounting Standards (SFAS) No. 86, Accounting
for the Costs of Computer Software To Be Sold, Leased or Otherwise Marketed,
requires capitalization of certain software development costs subsequent to the
establishment of technological feasibility. Based on the Company's product
development process, technological feasibility is established upon completion of
a working model. Costs incurred by the Company between completion of the working
model and the point at which the product is ready for general release have not
been material. For the years ended September 30, 1994, 1995 and 1996 all
research and development costs have been expensed.
(c) Cash and Cash Equivalents
<TABLE>
Cash equivalents consist of highly liquid investment grade securities with
original maturities of 90 days or less. The Company adopted SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, effective
October 1, 1994. Under SFAS No. 115, the Company's cash equivalents are
classified as held-to-maturity securities. At September 30, 1995 and 1996 , cash
and cash equivalents consisted of the following:
<CAPTION>
SEPTEMBER 30,
--------------------------
1995 1996
---------- -----------
<S> <C> <C>
Cash/Money Market Funds......................... $2,966,637 $ 5,367,641
Security Purchased Under Agreement to Resell.... -- 15,000,000
---------- -----------
$2,966,637 $20,367,641
========== ===========
</TABLE>
The "Security Purchased Under Agreement to Resell" at September 30, 1996
consisted of a United States Government agency security acquired to facilitate
the transfer of funds from Restrac, Inc. to Restrac Securities Corporation upon
the latter's incorporation. Subsequent to the initial investment, the Company,
in accordance with its investment policy has diversified its investment
portfolio. The Company's investment policy has established guidelines relative
to concentration, maturities, and credit ratings that maintain the safety and
liquidity of its investments.
(d) Other Current Assets
Other current assets primarily consist of prepaid operating expenses. The
Company capitalizes prepaid expenses and amortizes them over the applicable
period. Prepaid expenses amounted to $229,577 and $330,238 at September 30, 1996
and 1995, respectively. Also included in other current assets are refundable
income taxes of approximately $73,000 and $0 at September 30, 1995 and 1996,
respectively.
F-8
<PAGE> 40
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
(e) Property and Equipment
<TABLE>
The Company records property and equipment at cost and provides for
depreciation and amortization on a straight-line basis over the estimated useful
lives of the assets, as follows:
<CAPTION>
SEPTEMBER 30,
ESTIMATED -------------------------
ASSET CLASSIFICATION USEFUL LIFE 1995 1996
-------------------- -------------- ---------- ----------
<S> <C> <C> <C>
Office equipment................. 3 - 5 Years $1,854,638 $2,684,062
Furniture and fixtures........... 3 - 7 Years 307,423 405,850
Leasehold improvements........... Life of Lease 133,129 133,129
Equipment under capital lease.... Life of Lease 123,098 123,098
---------- ----------
2,418,288 3,346,139
Less -- Accumulated depreciation
and amortization............... 965,740 1,825,246
---------- ----------
$1,452,548 $1,520,893
========== ==========
</TABLE>
Depreciation expenses for the years ended September 30, 1994, 1995, and 1996
amounted to approximately $244,000, $431,000, and $861,000 respectively.
(f) Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under SFAS No. 109, a deferred tax asset or
liability is measured by the enacted tax rates expected to be in effect when the
differences between the financial statement and tax bases of assets and
liabilities reverse.
(g) Use of Estimates in the Preparation of Financial Statements
The preparation of 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 from those estimates.
(h) Concentration of Credit Risk
The Company has no significant off-balance-sheet concentration of credit
risk such as foreign exchange contracts, option contracts or other foreign
hedging arrangements. The Company's accounts receivable credit risk is not
concentrated within any geographical area, and no single customer accounts for
greater than 10% of total revenue or represents a significant credit risk to the
Company.
(i) Postretirement Benefits
The Company offers no postretirement benefits.
(j) Pro Forma Net Income per Common and Common Equivalent Share
For the fiscal years ended September 30, 1995 and 1996, net income per
common and common equivalent share was based on the weighted average number of
common and common equivalent
F-9
<PAGE> 41
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
shares outstanding during the period, computed in accordance with the treasury
stock method, plus the number of shares of common stock issuable upon conversion
of the redeemable convertible preferred stock and the number of shares of common
stock issued pursuant to the initial public offering sufficient to generate
proceeds for the payment of $338,698 and $568,526, respectively, of estimated
accumulated redeemable convertible preferred stock dividends payable subsequent
to the initial public offering. The weighted average number of common and common
equivalent shares assumes that common stock options granted and shares issued
one year prior to the initial filing of the registration statement for the
Company's initial public offering are outstanding for the periods presented,
computed in accordance with the treasury stock method. Historical net income per
share data for 1994 has not been presented, as such information is not
considered to be relevant or meaningful.
(k) New Accounting Standards
During March 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of, which is effective for fiscal years
beginning after December 15, 1995. The Company elected early adoption of SFAS
No. 121 in the fiscal year ended September 30, 1995. The adoption of this
standard did not have a material effect on its financial position or results of
operations.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. The Company has determined that it will continue to account for
employee stock-based compensation under Accounting Principles Board Opinion No.
25 and elect the disclosure-only alternative under SFAS No. 123. The Company
will be required to disclose the pro forma net income or loss and per share
amounts in the notes to the financial statements using the fair value based
method beginning in the fiscal year ending September 30, 1997 with comparable
disclosures for the fiscal year ended September 30, 1996. The Company has not
determined the impact of these pro forma adjustments.
(l) Financial Instruments
The estimated fair value of the Company's financial instruments, which
include cash equivalents, accounts receivable and long-term debt, approximates
their carrying value.
(m) Noncash Investing and Financing Activities
Noncash investment and financing activities include conversion of
redeemable convertible preferred stock into common stock of $3,503,776 and the
tax benefit from the issuance of warrants of $14,190 for the year ended
September 30, 1996 and dividend accretion in the amount of $58,396, $280,302 and
$229,828 for the fiscal years ended September 30, 1994 , 1995 and 1996,
respectively. Additional noncash investing and financing activities during the
fiscal year ended September 30, 1994 include a $31,174 increase in equipment
under capital leases and a $100,000 increase in property and equipment under a
note payable.
(n) Reclassifications
Certain reclassifications have been made to the fiscal 1994 and 1995
consolidated financial statements to conform to the fiscal 1996 presentation.
Such reclassifications have no effect on previously reported net income.
F-10
<PAGE> 42
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
(2) BUYOUT OF DISTRIBUTION RIGHTS
On January 1, 1991, the Company acquired certain of the assets of Borwick
International, Inc. (Borwick), an international consulting firm which developed
and marketed related software known as SuccessPlan (the Product). As part of
this 1991 agreement, Borwick was granted the exclusive right to distribute the
Product outside of North America, and the Company was prohibited from selling
any competitive products in these territories.
On September 30, 1995, the Company entered into an agreement that
terminated Borwick's remaining distribution rights to the Product and removed
any restrictions on the Company's ability to sell competitive products. The
process of succession planning is in transition; thus the Company's succession
planning product strategy is in flux. Its evolving line of staffing products may
incorporate certain elements that could be construed as succession planning
under a broad interpretation of the 1991 agreement. Accordingly, the Company
believed that removal of these restrictions was necessary.
As a result of the September 1995 agreement, the Company recorded a
non-recurring charge to operations of $1,010,952 in the fiscal year ended
September 30, 1995, representing the present value of payments made and payable
under the terms of this agreement. The Company does not have a succession
planning product which is suitably responsive to the international market. In
addition, the Company lacks the internal infrastructure and established
distribution channels necessary to license and support such products outside of
North America. Based on the minimal current and anticipated cash flows from
succession planning products, any intangible asset recorded would be deemed to
be non-recoverable and require recognition of an impairment loss in accordance
with SFAS No. 121. Accordingly, the cost of the distribution rights was charged
to operations, as management believes that the realizability of such cost is
uncertain.
The Company also executed a Finder's Fee and Non-Competition Agreement with
Irving P. Borwick, a principal of Borwick, in conjunction with the September
1995 termination agreement. Although the Company wished to ensure that Borwick
and Irving P. Borwick would not compete with the Company, neither was viewed as
a serious competitive threat. Accordingly, the stated amounts in the
non-competition agreement were not deemed to reflect their overall value to the
Company and were included in the total ascribed to the termination of
distribution rights.
(3) LINE OF CREDIT
At September 30, 1996 and 1995 the Company had a $1,000,000 revolving line
of credit with a bank. Borrowings outstanding under the line are limited to 70%
of eligible accounts receivable, as defined, bear interest at the bank's prime
rate (8.25 at September 30, 1996) plus 1%, and are collateralized by all
corporate assets. There were no borrowings outstanding as of September 30, 1995
and 1996. This revolving line of credit was cancelled by the Company in November
1996.
(4) LEASE COMMITMENTS
The Company's corporate headquarters are located in Dedham, Massachusetts,
where it currently occupies approximately 24,000 square feet of office space
under a lease expiring in December 1996. The Company has regional sales and
service offices on the West Coast and in the United Kingdom. The Company
occupies approximately 2,200 square feet of office space in Palo Alto,
California under a lease expiring in September 1997 and 400 square feet of
office space in Reading, England under a lease expiring in October 1997. The
Company also leases office space for its sales representatives in Chicago,
Dallas, Atlanta and Toronto, Ontario.
F-11
<PAGE> 43
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
During November 1996 the Company entered into a new lease for its corporate
headquarters and for its Chicago office. The new headquarters lease calls for
approximately 60,000 square feet of office space under a lease expiring in
December 2003. The new Chicago lease calls for approximately 5,500 square feet
of office space under a lease expiring in February 2002. Future minimum rental
payments as of September 30, 1996 under both the operating and capital leases
(related to equipment), including the effect of the new leases for the Company's
corporate headquarters and Chicago office, is shown in the following table:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- -----------
<S> <C> <C>
1997.................................................. $ 5,343 $ 1,321,780
1998.................................................. -- 1,517,412
1999.................................................. -- 1,554,475
2000.................................................. -- 1,569,440
2001.................................................. -- 1,614,684
Thereafter............................................ -- 3,433,331
------- -----------
5,343 $11,011,122
============
Less -- Amount representing interest................ 283
-------
Present value of minimum lease payments............... 5,060
Less -- Current portion............................. 5,060
-------
$ 0
======
</TABLE>
Aggregate net rental expense included in the accompanying statements of
income for the fiscal years ended September 30, 1994, 1995 and 1996 is
approximately $188,000, $330,000 and $542,000, respectively.
Leases with escalating rents or free rent periods are expensed on a
straight-line basis over the fixed term of the lease. Deferred rent arises when
expense recorded exceeds actual payments. Deferred rent of approximately $45,119
and $0 is included in other liabilities in the accompanying consolidated balance
sheets at September 30, 1995 and 1996, respectively.
(5) REDEEMABLE CONVERTIBLE PREFERRED STOCK
On January 5, 1994, the Company amended its Certificate of Incorporation to
authorize the issuance of 1,000,000 shares of Preferred Stock with a par value
of $1.00 per share and issued 556,155 shares of redeemable convertible preferred
stock (Preferred Stock) for a purchase price of $6.30 per share for proceeds of
$3,233,549, net of $270,227 of issuance costs. On July 26, 1996, as a result of
the initial public offering, the Company converted the 556,155 shares of
Preferred Stock stock into 2,502,696 shares of common stock.
During the fiscal years ended September 30, 1994, 1995 and 1996, the
carrying value of the Preferred Stock had been increased by accreted dividends
of $58,396, $280,302 and $229,828, respectively. In fiscal 1994, dividends of
$146,871 were declared and paid; no dividends were declared or paid in fiscal
years 1995 and fiscal 1996. Both accreted and paid dividends were charged to
retained earnings in the accompanying consolidated financial statements. Upon
the closing of the initial public offering of common stock, accumulated
dividends of $568,526 remained outstanding and are included in accrued expenses
as of September 30, 1996. In October 1996, the company paid these dividends to
the preferred stockholders.
F-12
<PAGE> 44
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
(6) STOCKHOLDERS' EQUITY (DEFICIT)
(a) Authorized Capital Stock
On June 5, 1996 the Company filed a Second Amended and Restated Certificate
of Incorporation, which provided, among other things for (i) an increase in the
number of authorized shares of Common Stock, par value $.01 per share of the
Corporation, to 30,000,000 shares, par value $.01 per share, (ii) the
authorization of 556,155 shares of Convertible Preferred Stock, par value $.01
per share, and 5,000,000 shares of undesignated preferred stock, par value $.01
per share.
On July 26, 1996 the Company filed a Third Amended and Restated Certificate
of Incorporation, which provided for the elimination of the Company's authority
to issue Convertible Preferred Stock and a prohibition on action by written
consent of stockholders.
(b) Stock Dividends
On May 22, 1995, the Company's Board of Directors declared a three-for-one
stock split, effected in the form of a stock dividend, payable on May 22, 1995.
On May 8, 1996, the Board of Directors approved a three-for-two stock split,
effected in the form of a stock dividend. Accordingly, all shares of common
stock, options to purchase common stock and the conversion ratio of the
Preferred Stock have been retroactively adjusted to reflect these stock splits
for all periods presented in the accompanying balance sheets and statements of
changes in redeemable convertible preferred stock and stockholders' equity
(deficit).
(c) Initial Public Offering
On July 26, 1996 the Company completed its initial public offering of
common stock. The Company sold 1,500,000 shares of common stock at $11.00 per
share which generated proceeds of $14,511,345, net of issuance costs of
$833,655.
(d) Stock Option Plans
All of the outstanding options under the 1990 Stock Option Plan (the 1990
Plan) were exercised prior to the establishment of the 1994 Stock Option Plan
(the 1994 Plan). The 1994 and 1996 Plans enable the Company's Board of Directors
to grant nonqualified and incentive stock options (ISOs) and shares of common
stock. ISOs are granted at the then fair market value as determined by the
Company's Board of Directors. On May 8, 1996, the 1994 Plan was amended to
decrease the maximum number of shares reserved for issuance of statutory and
nonstatutory options to 641,844 shares of common stock.
In October 1995, an employee exercised options under the 1994 Plan to
purchase 56,900 shares of common stock at an exercise price of $0.44 per share.
The Company repurchased these shares at $2.00 per share for an aggregate of
$113,799. The Company recorded the difference between the aggregate exercise
price and the amount paid to the former employee as compensation expense
included in sales and marketing expense for the year ended September 30, 1996.
On May 8, 1996, the Board of Directors and stockholders of the Company
approved the adoption of the 1996 Stock Option and Grant Plan (the 1996 Plan),
which provides for the issuance of options to purchase 958,156 shares of Common
Stock. The 1996 Plan permits the grant of (i) options to purchase shares of
Common Stock intended to qualify as incentive stock options under Section 422 of
the Internal Revenue Code of 1986, as amended, (ii) options that do not so
F-13
<PAGE> 45
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
qualify and (iii) shares of Common Stock. The 1996 Plan is administered by the
Compensation Committee as appointed by the Board of Directors from time to time.
Under the terms of the 1994 and 1996 Plans, options generally vest over
four years and expire ten years after the date of grant.
In connection with a software development agreement, the Company granted to
a third party warrants to purchase 66,000 shares of common stock in July, 1996
at $11.00 a share. The fair value of the warrants was estimated at approximately
$85,000. The warrants vest over one year and $14,192 was charged to cost of
product revenue and additional paid in capital in fiscal 1996 related to these
warrants.
<TABLE>
Stock option activity for the 1990, 1994 and 1996 Stock Option Plans are as
follows:
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Outstanding, September 30, 1994.................. 325,134 $0.44
Granted........................................ 471,313 0.44- 2.00
Canceled....................................... (195,079) 0.44
---------
Outstanding, September 30, 1995.................. 601,368 $0.44- 2.00
Granted........................................ 347,280 2.00- 19.75
Exercised...................................... (67,015) 0.44- 2.00
Canceled....................................... (79,342) 0.44- 2.00
--------- ------------
Outstanding, September 30, 1996.................. 802,291 $0.44-$19.75
--------- ------------
Vested, September 30, 1996....................... 211,655 $0.44-$ 2.00
========= ============
</TABLE>
On October 8, 1996 the Company issued 173,000 options under the 1996 plan
to purchase common stock at $7.125 per share.
(e) Employee Stock Purchase Plan
On May 8, 1996, the Board of Directors authorized the 1996 Employee Stock
Purchase Plan (the Employee Plan). Under the Employee Plan, the Company may
issue up to an aggregate of 150,000 shares of common stock to employees at 85%
of the lower of the fair market value of the common stock on the first or last
day of each six-month purchase period. On October 1, 1996 5,375 shares of common
stock were issued pursuant to this plan.
F-14
<PAGE> 46
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
(7) INCOME TAXES
<TABLE>
The provision for income taxes in the accompanying statements of income
consists of the following for the fiscal years ended September 30, 1994, 1995
and 1996:
<CAPTION>
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Current --
Federal................................ $ 378,475 $ 541,200 $ 969,318
State.................................. 114,029 181,100 267,279
--------- --------- ----------
492,504 722,300 1,236,597
--------- --------- ----------
Deferred --
Federal................................ (117,417) (354,250) (50,172)
State.................................. (36,252) (93,750) (19,605)
--------- --------- ----------
(153,669) (448,000) (69,777)
--------- --------- ----------
Total provision................ $ 338,835 $ 274,300 $1,166,820
========= ========= ==========
</TABLE>
<TABLE>
The deferred tax amounts as of September 30, 1995 and 1996 are as follows:
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Deferred tax asset --
Current --
Nondeductible reserves............................ $197,254 $303,965
Deferred revenue.................................. 521,000 434,000
-------- --------
718,254 737,965
-------- --------
Long-term --
Buyout of distribution rights..................... 188,000 188,000
Nondeductible reserves............................ 30,000 30,000
-------- --------
218,000 218,000
-------- --------
Total gross deferred tax asset............... 936,254 955,965
-------- --------
Less -- Valuation allowance.......................... 171,672 185,000
-------- --------
Net deferred tax asset....................... $764,582 $770,965
-------- --------
Deferred tax liability --
Long-term --
Differences between book and tax depreciation..... $ 63,777 $ --
======== ========
</TABLE>
The Company had a valuation allowance of $ 171,672 and $ 185,000 against
its gross deferred tax asset at September 30, 1995 and 1996, respectively. The
valuation allowance at September 30, 1995 and 1996 was established due to
management's estimate that it was more likely than not that a benefit of certain
deferred tax assets would not be realized in the future. At September 30, 1995
and 1996, the valuation allowance related specifically to the buyout of
distribution rights.
F-15
<PAGE> 47
RESTRAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1996
<TABLE>
At September 30, 1994, 1995 and 1996, management took into consideration
historical levels of taxable income, the volatile nature of the industry in
which it competes and the potential levels of future taxable income The
provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate as follows:
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Provision at federal statutory rate............... 34.0% 34.0% 34.0%
State income tax, net of federal benefit.......... 6.3 6.3 6.3
Tax effect of equity transaction (Note 6(d))...... -- -- 3.0
Utilization of R&D tax credits.................... (4.0) -- --
Other, net........................................ (0.4) .3 .2
---- ---- ----
Effective tax rate...................... 35.9% 40.6% 43.5%
==== ==== ====
</TABLE>
(8) EMPLOYEE BENEFIT PLAN
The Company maintains an employee benefit plan (the Benefit Plan) under
Section 401(k) of the Internal Revenue Code. The Benefit Plan is available to
all full-time U.S. employees. The Benefit Plan allows for employees to make
contributions up to a specified percentage of their compensation. Under the
Benefit Plan, the Company makes discretionary contributions, which for the
fiscal years ended September 30, 1994, 1995 and 1996 was a match of 20% of the
employees' contributions up to a maximum annual match of 1% of each employee's
salary. The Company contributed approximately $14,000, $33,000 and $53,000
during the fiscal years ended September 30, 1994 ,1995 and 1996, respectively.
(9) ACCRUED EXPENSES
Accrued expenses at September 30, 1995 and 1996 consist of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Payroll and payroll-related costs................. $1,338,855 $1,063,402
Accumulated Redeemable Convertible Preferred
Stock Dividend Payable.......................... -- 568,526
Buyout of distribution rights (Note 2)............ 310,000 176,000
Other accrued expenses............................ 531,624 1,531,967
---------- ----------
$2,180,479 $3,339,895
========== ==========
</TABLE>
(10) OTHER INCOME
Other income consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Interest income....................... $ 70,592 $163,003 $331,039
Interest expense...................... (23,028) (9,683) (15,853)
Other................................. 25,499 (15,613) 11,108
-------- -------- --------
$ 73,063 $137,707 $326,294
======== ======== ========
</TABLE>
F-16
<PAGE> 48
SCHEDULE II
RESTRAC, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1995, 1996
<TABLE>
<CAPTION>
BALANCE,
BEGINNING OF CHARGED BALANCE,
ALLOWANCE FOR DOUBTFUL ACCOUNTS YEAR TO EXPENSE WRITE-OFFS END OF YEAR
- ------------------------------------------------ ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended September 30, 1994................... $ 23,000 $ 0 $ 6,000 $ 17,000
Year ended September 30, 1995................... $ 17,000 317,080 34,080 $300,000
Year ended September 30, 1996................... $300,000 200,588 150,588 $350,000
</TABLE>
<PAGE> 1
RESTRAC, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
The purpose of the Restrac, Inc. 1996 Employee Stock Purchase Plan ("the
Plan") is to provide eligible employees of Restrac, Inc. (the "Company") and
certain of its subsidiaries with opportunities to purchase shares of the
Company's common stock, $.01 par value (the "Common Stock"). One hundred fifty
thousand (150,000) shares of Common Stock in the aggregate have been approved
for this purpose. The Plan is intended to constitute an "employee stock purchase
plan" within the meaning of Section 423(b) of the Internal Revenue Code of 1986,
as amended (the "Code"), and shall be interpreted in accordance with that
intent.
1. ADMINISTRATION. The Plan will be administered by the Company's Board of
Directors (the "Board") or by a committee appointed by the Board for such
purpose (the "Committee"). The Board or the Committee has authority to make
rules and regulations for the administration of the Plan, and its
interpretations and decisions with regard thereto shall be final and conclusive.
No member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
hereunder.
2. OFFERINGS. The Company will make one or more offerings to eligible
employees to purchase Common Stock under the Plan ("Offerings"). The initial
Offering will begin on the effective date of the IPO and will end on September
30, 1996 (the "Initial Offering"). Thereafter, an Offering will begin on the
first business day occurring on or after each October 1 and April 1 and will end
on the last business day occurring on or before the following March 31 and
September 30, respectively.
<PAGE> 2
3. ELIGIBILITY. All employees of the Company (including employees who are
also directors of the Company) and all employees of each Designated Subsidiary
(as defined in Section 11) are eligible to participate in any one or more of the
Offerings under the Plan, provided that as of the first day of the applicable
Offering (the "Offering Date") they are customarily employed by the Company or a
Designated Subsidiary for more than twenty (20) hours a week and have completed
at least six (6) months of employment.
4. PARTICIPATION. An employee eligible on any Offering Date may participate
in such Offering by submitting an enrollment form to his appropriate payroll
location at least ten (10) business days before the Offering Date (or by such
other deadline as shall be established for the Offering). The form will (a)
state the percentage to be deducted from his Compensation (as defined in Section
11) per pay period, (b) authorize the purchase of Common Stock for him in each
Offering in accordance with the terms of the Plan and (c) specify the exact name
or names in which shares of Common Stock purchased for him are to be issued
pursuant to Section 10. An employee who does not enroll in accordance with these
procedures will be deemed to have waived his right to participate. Unless an
employee files a new enrollment form or withdraws from the Plan, his deductions
and purchases will continue at the same percentage of Compensation for future
Offerings, provided he remains eligible. Notwithstanding the foregoing,
participation in the Plan will neither be permitted nor be denied contrary to
the requirements of the Code.
5. EMPLOYEE CONTRIBUTIONS. Each eligible employee may authorize payroll
deductions at a minimum of one percent (1%) up to a maximum of ten percent (10%)
of his Compensation for each pay period. The Company will maintain book accounts
showing the
3
<PAGE> 3
amount of payroll deductions made by each participating employee for each
Offering. No interest will accrue or be paid on payroll deductions.
6. DEDUCTION CHANGES. An employee may not increase or decrease his payroll
deduction during any Offering, but may increase or decrease his payroll
deduction with respect to the next Offering (subject to the limitations of
Section 5) by filing a new enrollment form at least ten (10) business days
before the next Offering Date (or by such other deadline as shall be established
for the Offering).
7. WITHDRAWAL. An employee may withdraw from participation in the Plan by
delivering a written notice of withdrawal to his appropriate payroll location.
The employee's withdrawal will be effective as of the next business day.
Following an employee's withdrawal, the Company will promptly refund to him his
entire account balance under the Plan (after payment for any Common Stock
purchased before the effective date of withdrawal). Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Offering, but may enroll in a subsequent Offering in accordance with
Section 4.
8. GRANT OF OPTIONS. On each Offering Date, the Company will grant to each
eligible employee who is then a participant in the Plan an option ("Option") to
purchase on the last day of such Offering (the "Exercise Date"), at the Option
Price hereinafter provided for, up to 500 whole shares of Common Stock reserved
for the purposes of the Plan. The purchase price for each share purchased under
such Option (the "Option Price") will be 85% of the Fair Market Value of the
Common Stock on the Offering Date or the Exercise Date, whichever is less.
Notwithstanding the foregoing, no employee may be granted an option
hereunder if such employee, immediately after the option was granted, would be
treated as owning stock possessing
4
<PAGE> 4
five percent (5%) or more of the total combined voting power or value of all
classes of stock of the Company or any Parent or Subsidiary (as defined in
Section 11). For purposes of the preceding sentence, the attribution rules of
Section 424(d) of the Code shall apply in determining the stock ownership of an
employee, and all stock which the employee has a contractual right to purchase
shall be treated as stock owned by the employee. In addition, no employee may be
granted an Option which permits his rights to purchase stock under the Plan, and
any other employee stock purchase plan of the Company and its Parents and
Subsidiaries, to accrue at a rate which exceeds $25,000 of the fair market value
of such stock (determined on the option grant date or dates) for each calendar
year in which the Option is outstanding at any time. The purpose of the
limitation in the preceding sentence is to comply with Section 423(b)(8) of the
Code.
9. EXERCISE OF OPTION AND PURCHASE OF SHARES. Each employee who continues
to be a participant in the Plan on the Exercise Date shall be deemed to have
exercised his Option on such date and shall acquire from the Company such number
of whole shares of Common Stock reserved for the purpose of the Plan as his
accumulated payroll deductions on such date will purchase at the Option Price,
subject to any other limitations contained in the Plan. Any balance remaining in
an employee's account at the end of an Offering will be refunded to the employee
promptly; provided that any balance remaining in an employee's account at the
end of an Offering solely by reason of the inability to purchase a fractional
share will be carried forward to the next Offering.
10. ISSUANCE OF CERTIFICATES. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or in the
5
<PAGE> 5
name of a broker authorized by the employee to be his, or their, nominee for
such purpose.
11. Definitions.
-----------
The term "Compensation" means the amount of total cash compensation, prior
to salary reduction pursuant to either Section 125 or 401(k) of the Code,
including base pay, commissions, overtime, and incentive and bonus awards, but
excluding allowances and reimbursements for expenses such as relocation
allowances or travel expenses, income or gains on the exercise of Company stock
options, and similar items.
The term "Designated Subsidiary" means any present or future Subsidiary (as
defined below) that is designated from time to time by the Board or the
Committee to participate in the Plan. Subsidiaries may be so designated either
before or after the Plan is approved by the stockholders.
The term "Fair Market Value of the Common Stock" means the last reported
sale price of the Common Stock on the Nasdaq National Market ("NASDAQ") on a
given day or, if no sales of Common Stock were made on that day, the last
reported sale price of the Common Stock on the next preceding day on which sales
were made.
The term "Parent" means a "parent corporation" with respect to the Company,
as defined in Section 424(e) of the Code.
The term "Subsidiary" means a "subsidiary corporation" with respect to the
Company, as defined in Section 424(f) of the Code.
12. RIGHTS ON RETIREMENT, DEATH, OR OTHER TERMINATION OF EMPLOYMENT. If a
participating employee's employment terminates for any reason before the
Exercise Date for any Offering, no payroll deduction will be taken from any pay
due and owing to the employee and the
<PAGE> 6
balance in his account will be paid to him or, in the case of his death, to his
designated beneficiary as if he had withdrawn from the Plan under Section 7. An
employee will be deemed to have terminated employment, for this purpose, if the
corporation that employs him, having been a Designated Subsidiary, ceases to be
a Subsidiary, or if the employee is transferred to any corporation other than
the Company or a Designated Subsidiary.
13. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under the Plan
until such shares have been purchased by and issued to him.
14. RIGHTS NOT TRANSFERABLE. Rights under the Plan are not transferable by
a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
15. APPLICATION OF FUNDS. All funds received or held by the Company under
the Plan may be combined with other corporate funds and may be used for any
corporate purpose.
16. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. In the event of a
subdivision of outstanding shares of Common Stock, or the payment of a dividend
in Common Stock, the number of shares approved for the Plan, and the share
limitation set forth in Section 8, shall be increased proportionately, and such
other adjustment shall be made as may be deemed equitable by the Board or the
Committee. In the event of any other change affecting the Common Stock, such
adjustment shall be made as may be deemed equitable by the Board or the
Committee to give proper effect to such event.
7
<PAGE> 7
17. AMENDMENT OF THE PLAN. The Board or the Committee may at any time, and
from time to time, amend the Plan in any respect, except that without the
approval, within twelve (12) months of such Board or Committee action, by the
holders of a majority of the shares of stock of the Company present or
represented and entitled to vote at a meeting of stockholders, no amendment
shall be made (a) increasing the number of shares approved for the Plan or (b)
redefining the class of corporations whose employees are eligible to receive
Options under the Plan.
18. INSUFFICIENT SHARES. If the total number of shares of Common Stock that
would otherwise be purchased on any Exercise Date plus the number of shares
purchased under previous Offerings under the Plan exceeds the maximum number of
shares issuable under the Plan, the shares then available shall be apportioned
among participants in proportion to the amount of payroll deductions accumulated
on behalf of each participant that would otherwise be used to purchase Common
Stock on such Exercise Date.
19. TERMINATION OF THE PLAN. The Plan may be terminated at any time by the
Board or the Committee. Upon termination of the Plan, all amounts in the
accounts of participating employees shall be promptly refunded.
20. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and deliver
Common Stock under the Plan is subject to listing on NASDAQ (or other national
exchange) and obtaining all governmental approvals required in connection with
the authorization, issuance, or sale of such stock.
The Plan shall be governed by Delaware law except to the extent that such
law is preempted by federal law.
8
<PAGE> 8
21. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
22. TAX WITHHOLDING. Participation in the Plan is subject to any required
tax withholding on income of the participant in connection with the Plan. Each
employee agrees, by entering the Plan, that the Company and its Subsidiaries
shall have the right to deduct any such taxes from any payment of any kind
otherwise due to the employee, including shares issuable under the Plan.
23. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by entering the
Plan, to give the Company prompt notice of any disposition of shares purchased
under the Plan where such disposition occurs within two years after the date of
grant of the Option pursuant to which such shares were purchased.
24. EFFECTIVE DATE AND APPROVAL OF SHAREHOLDERS. The Plan shall take effect
on the first day of the Company's initial public offering, subject to approval
by the holders of a majority of the shares of stock of the Company present or
represented and entitled to vote at a meeting of stockholders, which approval
must occur within twelve (12) months of the adoption of the Plan by the Board.
9
<PAGE> 1
RESTRAC, INC. EXHIBIT 10.20
SENIOR MANAGEMENT INCENTIVE PLAN 10-K FILING
INCENTIVE COMPENSATION:
Incentive compensation is earned by senior managers in two ways: through
individual performance, and through overall Company performance. Senior managers
will have the ability to earn up to 25% of their base salary in incentive
compensation. Up to 10% can be earned from achievement of quarterly individual
performance goals, and an additional bonus of up to 15% can be earned based on
the Company's achievement of its annual financial goals.
<PAGE> 1
RESTRAC, INC. EXHIBIT 10.21
MANAGEMENT INCENTIVE PLAN 10-K FILING
INCENTIVE COMPENSATION:
Incentive compensation is earned by managers in two ways: through individual
performance, and through overall Company performance. Managers will have the
ability to earn up to 15% of their base salary in incentive compensation. Up to
7.5% can be earned from achievement of quarterly individual performance goals,
and an additional bonus of up to 7.5% can be earned based on the Company's
achievement of its annual financial goals.
<PAGE> 1
EXHIBIT 10.22
10-K Filing
91 HARTWELL AVENUE
LEXINGTON, MASSACHUSETTS
LEASE DATED NOVEMBER 12, 1996
THIS INSTRUMENT IS AN INDENTURE OF LEASE in which the Landlord and the
Tenant are the parties hereinafter named, and which relates to space in a
certain building (the "Building") known as, and with an address at, 91 Hartwell
Avenue, Lexington, Massachusetts.
The parties to this Indenture of Lease hereby agree with each other as
follows:
ARTICLE I
---------
REFERENCE DATA
--------------
1.1 Subjects Referred To:
Each reference in this Lease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this Article:
LANDLORD: Mortimer B. Zuckerman and Edward H.
Linde, Trustees of 91 Hartwell Avenue Trust
under Declaration of Trust dated September
28, 1981 filed with the Middlesex South
Registry District as Document No. 616455
as amended by instruments dated December
10, 1984 and April 17, 1991 respectively
filed with said Registry District as
Document Nos. 675674 and 844541 but not
individually.
LANDLORD'S ORIGINAL c/o Boston Properties, Inc.
ADDRESS: 8 Arlington Street
Boston, Massachusetts 02116
LANDLORD'S CONSTRUCTION James C. Rosenfeld or Stacey A. Baker
REPRESENTATIVE:
TENANT: RESTRAC, INC. a Delaware corporation.
-1-
<PAGE> 2
TENANT'S ORIGINAL 3 Allied Drive
ADDRESS: Dedham, Massachusetts 02026
TENANT'S CONSTRUCTION Martin J. Fahey
REPRESENTATIVE:
SPECIAL ALLOWANCE: As defined in Section 3.1.1
SCHEDULED TERM January 1, 1997.
COMMENCEMENT DATE:
COMMENCEMENT DATE: As defined in Sections 2.4 and 3.2
OUTSIDE COMPLETION DATE: March 15, 1997.
ORIGINAL TERM: Eighty-four (84) calendar months (plus the
partial month, if any, immediately following
the Commencement Date), unless extended
or sooner terminated as provided in this
Lease.
EXTENSION OPTIONS: Two (2) periods of three (3) years each as
provided in and on the terms set forth in
Section 2.4.1 hereof.
TERM OR LEASE TERM: All references in this Lease to the Term or
Lease Term shall mean the Original Term
and if extended pursuant to Section 2.4.1,
the Original Term as extended by the
exercise of the applicable extension options
unless otherwise specifically provided in
this Lease.
THE SITE: That certain parcel of land known as and
numbered 91 Hartwell Avenue, Lexington,
Middlesex County, Massachusetts, being more
particularly described in Exhibit A attached
hereto.
THE BUILDING: The Building known as and numbered
91 Hartwell Avenue, Lexington,
-2-
<PAGE> 3
Massachusetts. The Building is
appropriately labeled on Exhibit A-1
attached hereto and hereby made a part
hereof.
THE COMPLEX: The Building together with all surface
parking areas, the Site and all improvements
(including landscaping) thereon and thereto.
TENANT'S SPACE: (i) The entire second (2nd) floor of the
Building and (ii) a portion of the first
(1st) floor of the Building, all in
accordance with the floor plan attached
hereto as Exhibit D and incorporated herein
by reference.
NUMBER OF PARKING SPACES: 210 spaces.
ANNUAL FIXED RENT: (a) During the Original Term of this Lease
at the following annual rates:
(i) For the period beginning on the
Commencement Date and continuing
through the date which is six (6)
months following the Commencement Date
(the "Reduced Rent Period"), at the
ANNUAL RATE of $1,152,139.00 (being the
product of (x) $23.00 and (y) 50,093
rentable square feet of the total
60,093 square feet of "Rentable Floor
Area of the Premises" (hereinafter
defined in the Section 1.1); and
(ii) For the period beginning on the
day immediately following the
expiration of the Reduced Rent Period
and continuing through the day
immediately preceding the second annual
anniversary of the Commencement Date,
at the ANNUAL RATE of $1,382,139.00
(being the
-3-
<PAGE> 4
product of (x) $23.00 and (y) the total
Rentable Floor Area of the Premises);
and
(iii) For the period beginning on the
second (2nd) annual anniversary of the
Commencement Date and continuing
through the day immediately preceding
the fifth (5th) annual anniversary of
the Commencement Date, at the ANNUAL
RATE of $1,442,232.00 (being the
product of (x) $24.00 and (y) the total
Rentable Floor Area of the Premises);
and
(iv) For the period beginning on the
fifth (5th) annual anniversary of the
Commencement Date and continuing though
the last day of the Original Term, at
the ANNUAL RATE of $1,502,325.00 (being
the product of (x) $25.00 and (y) the
total Rentable Floor Area of the
Premises).
(b) During the extension option periods (if
exercised), as determined pursuant to
Section 2.4.1.
OPERATING EXPENSES: As provided in Section 2.6 hereof.
REAL ESTATE TAXES: As provided in Section 2.7 hereof.
TENANT ELECTRICITY: Initially as provided in Section 2.5 subject
to adjustment as provided in Section 2.8
hereof.
ADDITIONAL RENT: All charges and other sums payable by Tenant
as set forth in this Lease, in addition to
Annual Fixed Rent.
-4-
<PAGE> 5
RENTABLE FLOOR AREA 60,093 square feet.
OF TENANT'S SPACE
(SOMETIMES ALSO
CALLED RENTABLE FLOOR
AREA OF THE PREMISES):
TOTAL RENTABLE FLOOR 122,328 square feet.
AREA OF THE BUILDING:
PERMITTED USES: General office purposes, computer software
development and non retail sales, and
related services, including without
limitation training and customer support.
INITIAL MINIMUM $2,000,000.00 combined single limit
LIMITS OF TENANT'S on a per occurrence basis and
COMMERCIAL GENERAL $5,000,000.00 on an aggregate basis.
LIABILITY INSURANCE:
RECOGNIZED BROKERS: Spaulding & Slye Services Limited
Partnership
125 High Street, 16th Floor
Boston, Massachusetts 02110
and
Lynch Murphy Walsh & Partners
Incorporated
One Financial Center
Boston, Massachusetts 02111
SECURITY DEPOSIT: $720,000.00 subject to reduction on the
terms set forth in Section 8.20 hereof.
1.2 Exhibits. There are incorporated as part of this Lease:
EXHIBIT A Description of Site
EXHIBIT A-1 Site Plan
EXHIBIT B Schedule of Tenant's Preliminary Construction Plans
EXHIBIT C Landlord's Services
-5-
<PAGE> 6
EXHIBIT D Floor Plans
EXHIBIT E Form of Commencement Date Agreement
EXHIBIT F Plan of Balance of First Floor Space
EXHIBIT G Broker Determination of Prevailing Market Rent
EXHIBIT H Form of Subordination, Non-Disturbance and Attornment
Agreement with Existing Mortgagee
1.3 Table of Articles and Sections
ARTICLE I-REFERENCE DATA
1.1 Subjects Referred to
1.2 Exhibits
1.3 Table of Articles and Sections
ARTICLE II-THE BUILDINGS, PREMISES, TERM AND RENT
2.1 The Premises
2.1.1 Tenant's Right of First Offer
2.2 Rights To Use Common Facilities
2.2.1 Tenant's Parking
2.3 Landlord's Reservations
2.4 Original Term
2.4.1 Extension Options
-6-
<PAGE> 7
2.5 Monthly Fixed Rent Payments
2.6 Adjustment for Operating Expenses
2.7 Adjustment for Real Estate Taxes
2.8 Adjustment for Tenant Electricity
ARTICLE III-CONSTRUCTION
3.1 Tenant's Plans
3.1.1 Special Allowance
3.2 Landlord's and Tenant's Work; Delays
3.3 Alterations and Additions
3.4 General Provisions Applicable to Construction
ARTICLE IV-LANDLORD'S COVENANTS; INTERRUPTIONS AND DELAYS
4.1 Landlord's Covenants
4.1.1 Services Furnished by Landlord
4.1.2 Additional Services Available to Tenant
4.1.3 Roof, Exterior Wall, Floor Slab and Common Facility Repairs
4.1.4 Door Signs and Monument Sign
4.2 Interruptions and Delays in Services and Repairs, etc.
ARTICLE V-TENANT'S COVENANTS
5.1 Payments
-7-
<PAGE> 8
5.2 Repair and Yield Up
5.3 Use
5.4 Obstructions; Items Visible From Exterior; Rules and Regulations
5.5 Safety Appliances; Licenses
5.6 Assignment; Sublease
5.7 Indemnity; Insurance
5.8 Personal Property at Tenant's Risk
5.9 Right of Entry
5.10 Floor Load; Prevention of Vibration and Noise
5.11 Personal Property Taxes
5.12 Compliance with Laws
5.13 Payment of Litigation Expenses
ARTICLE VI-LANDLORD'S INSURANCE, CASUALTY AND TAKING
6.0 Landlord's Insurance
6.1 Fire and Casualty-Termination or Restoration; Rent Adjustment
6.2 Uninsured Casualty
6.3 Eminent Domain-Termination or Restoration
6.4 Eminent Domain Damages Reserved
ARTICLE VII-DEFAULT
7.1 Tenant's Default
-8-
<PAGE> 9
7.2 Landlord's Default
ARTICLE VIII-MISCELLANEOUS PROVISIONS
8.1 Extra Hazardous Use
8.2 Waiver
8.3 Cumulative Remedies
8.4 Quiet Enjoyment
8.5 Notice To Mortgagee and Ground Lessor
8.6 Assignment of Rents
8.7 Surrender
8.8 Brokerage
8.9 Invalidity of Particular Provisions
8.10 Provisions Binding, Etc.
8.11 Recording
8.12 Notices
8.13 When Lease Becomes Binding
8.14 Section Headings
8.15 Rights of Mortgagee
8.16 Status Report and Financial Statements
8.17 Self-Help
8.18 Holding Over
-9-
<PAGE> 10
8.19 Non-Subrogation
8.20 Security Deposit
8.21 Late Payment
8.22 Volleyball Court
8.23 Governing Law
ARTICLE II
----------
BUILDING, PREMISES, TERM AND RENT
---------------------------------
2.1 Landlord hereby demises and leases to Tenant, and Tenant hereby hires and
accepts from Landlord, Tenant's Space in the Building excluding exterior
faces of exterior walls, the common stairways and stairwells, elevators
and elevator wells, fan rooms, electric and telephone closets, janitor
closets, and pipes, ducts, conduits, wires and appurtenant fixtures
serving exclusively, or in common, other parts of the Building, and if
Tenant's Space includes less than the entire rentable area of any floor,
excluding the common corridors, elevator lobbies and toilets located on
such floor.
Tenant's Space with such exclusions is hereinafter referred to as the
"Premises". The term "Building" means the Building identified on the first
page, and which is the subject of this Lease; the term "Site" means all,
and also any part of the Land described in Exhibit A, plus any additions
or reductions thereto resulting from the change of any abutting street
line and all parking areas and structures. The term "Property" means the
Building and the Site. Tenant shall have available for its employees
twenty-four (24) hour per day card access to the Premises except in the
case of emergencies or events beyond Landlord's reasonable control
including, but not limited to, events constituting "Landlord's Force
Majeure (defined in Section 3.2 hereof).
2.1.1 (A) This Section applies only to that portion of the first (1st) floor of
the Building shown on Exhibit F as the "Offer Space". Landlord shall have
the right, in its sole discretion and upon terms and conditions solely
determined by it, initially to lease all or any portion of the Offer Space
to any one or more tenants without Tenant having any right or opportunity
to lease such space. Such leases and the terms thereof, (including, but
not limited to, the original lease terms thereof, options to extend the
terms thereof, rights of first offer, rights of first refusal and other
expansion rights thereunder), any subsequent extensions of the lease term
thereof and amendments to such leases are
-10-
<PAGE> 11
hereinafter called the "Initial Leases" and the tenants under the Initial
Leases are hereinafter called the "Initial Tenants". Subject to (i) the
Initial Leases and (ii) the rights of the Initial Tenants thereunder, all
of which rights are hereby made prior to the rights of Tenant under this
Section 2.1.1 notwithstanding that the Initial Leases may have been
executed subsequent to the Date of this Lease or before the Date of the
Lease and provided that at any time any portion of the Offer Space becomes
so available for reletting to a tenant other than an Initial Tenant (i)
Tenant is not then in default of its obligations under this Lease, (ii)
Tenant has not assigned this Lease nor sublet fifty percent (50%) or more
of the Rentable Floor Area of the Premises (other than an assignment or
subletting under Section 5.6.1 hereof) and (iii) this Lease is still in
full force and effect, Landlord agrees not to enter into a lease or leases
to relet the Offer Space (or such portion thereof) to a tenant other than
an Initial Tenant without first giving to Tenant an opportunity to lease
such space upon the terms and conditions hereinafter set forth.
(B) When any such space becomes so available for reletting to a tenant
other than an Initial Tenant for such space upon the foregoing conditions,
Landlord shall notify Tenant of the availability of such space and shall
advise Tenant of the then fair market rent and business terms reasonably
determined by Landlord upon which Landlord is willing so to lease such
space. If Tenant wishes to exercise Tenant's right of first offer, Tenant
shall do so, if at all, by giving Landlord notice of Tenant's desire to
lease the entire amount of such space so available for reletting (it being
agreed that Tenant has no right to lease less than the entire amount of
the space which is so available) on such terms set forth in Landlord's
notice within sixteen (16) days after Tenant's receipt of Landlord's
notice to Tenant of the availability of such space and of such terms. If
Tenant shall give such notice, the same shall constitute an agreement to
enter into an amendment to this Lease within fifteen (15) days following
Tenant's acceptance to incorporate such space into the Premises upon the
terms set forth in Landlord's notice. If Tenant shall not so exercise such
right within such period or if Tenant shall timely give an acceptance to
Landlord but shall not enter into such an amendment to this Lease within
said fifteen (15) day period (time being of the essence in respect of such
exercise and execution), Landlord shall be free at any time thereafter to
enter into a lease of such space with another prospective tenant or
tenants upon terms and conditions as determined by Landlord without having
any further obligation to offer such space to Tenant and Tenant shall have
no further right under this Section to such space (unless such space again
becomes available for reletting in which case the provisions of this
Section 2.1.1 shall again apply when such space again becomes available
for reletting). Time is of the essence with respect to the time periods
set forth herein.
(C) If Tenant shall exercise any such right of first offer and if,
thereafter, the then occupant of the premises with respect to which Tenant
shall have so exercised such right
-11-
<PAGE> 12
wrongfully fails to deliver possession of such premises at the time when
its tenancy is scheduled to expire, Landlord shall use reasonable efforts
(which shall be limited to the commencement and prosecution thereafter of
eviction proceedings and to the payment of legal fees and other expenses
reasonably associated with such proceedings but which shall not require
the taking of any appeal) to evict such occupant from the applicable
portion of the Offer Space and to deliver possession of the applicable
portion of the Offer Space to Tenant as soon as may be practicable.
Commencement of the term of Tenant's occupancy and lease of such
additional space and all obligations of Tenant with respect to such Offer
Space (including, without limitation, rental and additional rent
obligations as to such Offer Space) shall, in the event of such holding
over by such occupant, be deferred until possession of the additional
space is delivered to Tenant. Notwithstanding the foregoing, Tenant may
revoke its exercise of its right of first offer if occupancy of the
applicable Offer Space is not delivered by Landlord within three (3)
months after the date set for commencement in the lease amendment for such
space (an "Exercise Revocation"). However, the failure of the then
occupant of such premises to so vacate and/or such Exercise Revocation
shall not constitute a default of Landlord and shall not give Tenant any
right to terminate this Lease or to deduct from, offset against or
withhold Annual Fixed Rent, Additional Rent or other charges due under
this Lease (or any portions thereof).
(D) If Tenant shall lease additional space in the Building pursuant to
this Section 2.1.1, Tenant's parking rights under this Lease shall be
increased on the basis of 3.5 parking spaces for each 1,000 square feet of
rentable floor area of such additional space.
2.2 Tenant shall have, as appurtenant to the Premises, the non-exclusive right
to use in common with others, subject to reasonable rules of general
applicability to tenants of the Building from time to time made by
Landlord of which Tenant is given notice (a) the common lobbies,
corridors, stairways, elevators and loading area of the Building, and the
pipes, ducts, conduits, wires and appurtenant meters and equipment serving
the Premises in common with others, (b) common walkways and driveways
necessary for access to the Building, and (c) if the Premises include less
than the entire rentable floor area of any floor, the common toilets,
corridors and elevator lobby of such floor.
2.2.1 In addition, Tenant shall have the right to use the Number of Parking
Spaces (referred to in Section 1.1) of the parking area, in common with
use by other tenants from time to time of the Complex; provided, however,
Landlord shall not be obligated to furnish stalls or spaces in any parking
area specifically designated for Tenant's use. Tenant covenants and agrees
that it and all persons claiming by, through and under it, shall at all
times abide by all reasonable rules and regulations promulgated by
Landlord with respect to the use of the parking areas on the Site. The
parking privileges granted herein are non- transferrable except to a
permitted assignee or subtenant as provided in Section 5.6
-12-
<PAGE> 13
through Section 5.6.6. Further, Landlord assumes no responsibility
whatsoever for loss or damage due to fire, theft or otherwise to any
automobile(s) parked on the Site or to any personal property therein,
however caused, and Tenant covenants and agrees, upon request from
Landlord from time to time, to notify its officers, employees, agents and
invitees of such limitation of liability. Tenant acknowledges and agrees
that a license only is hereby granted, and no bailment is intended or
shall be created.
2.3 Landlord reserves the right from time to time, without unreasonable
interference with Tenant's use and upon reasonable notice and at agreed
times unless otherwise required by emergency: (a) to install, use,
maintain, repair, replace and relocate for service to the Premises and
other parts of the Building, or either, pipes, ducts, conduits, wires and
appurtenant fixtures, wherever located in the Premises or Building, and
(b) to alter or relocate any other common facility, provided that
substitutions are substantially equivalent or better. Installations,
replacements and relocations referred to in clause (a) above shall be
located so far as practicable in the central core area of the Building,
above ceiling surfaces, below floor surfaces or within perimeter walls of
the Premises.
2.4 Tenant shall have and hold the Premises for a period commencing on (the
"Commencement Date") the earlier of (a) that date on which the Premises
are ready for occupancy as in Section 3.2 provided, or (b) that date on
which Tenant commences occupancy of any portion of the Premises for the
Permitted Uses, and continuing for the Term unless sooner terminated as
provided in Article VI or Article VII or unless extended as provided in
Section 2.4.1; provided, that for purposes of this Lease, the Commencement
Date shall not be deemed to occur prior to January 1, 1997, unless Tenant
elects, in its sole discretion, to occupy the Premises (or portion
thereof) prior to such date.
As soon as may be convenient after the date has been determined on which
the Term commences as aforesaid, Landlord and Tenant agree to join with
each other in the execution of a written Declaration, in the form of
Exhibit E, in which the date on which the Term commences as aforesaid and
the Term of this Lease shall be stated. If Tenant shall fail to execute
such Declaration, the Commencement Date and Lease Term shall be as
reasonably determined by Landlord in accordance with the terms of this
Lease.
2.4.1 (A) Provided that at the time of exercise of the then applicable option to
extend and at the commencement date of the then applicable extension
option period (i) there exists no Event of Default (defined in Section
7.1), (ii) this Lease is still in full force and effect, and (iii) Tenant
has neither assigned this Lease nor sublet more than fifty percent (50%)
of the Rentable Floor Area of the Premises in the aggregate (except for an
assignment or subletting permitted under Section 5.6.1 hereof), Tenant
shall have the right to extend the Term hereof upon all the same terms,
conditions, covenants and agreements herein
-13-
<PAGE> 14
contained (except for the Annual Fixed Rent which shall be adjusted during
the option periods as hereinbelow set forth) for two (2) successive
periods of three (3) years each as hereinafter set forth. Each option
period is sometimes herein referred to as an "Extended Term".
(B)(i) If Tenant desires to exercise the then applicable option to extend
the Term, then Tenant shall give notice to Landlord, not earlier than
fifteen (15) months nor later than nine (9) months prior to the expiration
of the Term as it may have been previously extended hereunder of Tenant's
request for Landlord's quotation of a proposed annual fixed rent for the
then applicable Extended Term. If at the expiration of thirty (30) days
after the date when Landlord receives Tenant's written request as
aforesaid (the "Negotiation Period"), Landlord and Tenant have not reached
agreement on a determination of an annual fixed rent for the then
applicable Extended Term and executed a written instrument extending the
Term of this Lease pursuant to such agreement, then Tenant shall have the
right, for thirty (30) days following the expiration of the Negotiation
Period, to make a request to Landlord for a broker determination (the
"Broker Determination") of the Prevailing Market Rent (as defined in
Exhibit G) for the applicable Extended Term, which Broker Determination
shall be made in the manner set forth in Exhibit G.
(B) (ii) If Tenant timely shall have requested the Broker Determination,
then in order to exercise its right to extend the Term of this Lease for
the then applicable Extended Term, Tenant, within fifteen (15) days after
receipt of the Broker Determination, shall give written notice to Landlord
of Tenant's exercise of its right to extend the Lease Term for the then
applicable Extended Term pursuant to this subsection 2.4.1(B)(ii), in
which case the Annual Fixed Rent for the applicable Extended Term shall be
the greater of (a) ninety-five percent (95%) of the Prevailing Market Rent
as determined by the Broker Determination or (b) an annual rate equal to
the product of $22.80 and the Rentable Floor Area of the Premises. Upon
the giving of notice by Tenant within said fifteen (15) day period as
provided in this subsection (B)(ii) then this Lease and Lease Term hereof
shall be extended for an additional term of three (3) years upon all of
the same terms, conditions, covenants and agreements contained in this
Lease except that the Annual Fixed Rent for the applicable Extended Term
shall be the rent determined as described in this subparagraph.
(C) Upon the giving of notice by Tenant to Landlord exercising Tenant's
then applicable option to extend the Lease Term in accordance with the
provisions of either subsection (B)(i) or (B)(ii) above, this Lease and
the Lease Term hereof shall be extended, for the applicable Extended Term,
without the necessity for the execution of any additional documents,
except that Landlord and Tenant agree to enter into an instrument in
writing setting forth the Annual Fixed Rent for the then applicable
-14-
<PAGE> 15
Extended Term but the failure to so enter into such a written instrument
shall not negate the exercise of the applicable option to extend.
Notwithstanding anything herein contained to the contrary, in no event
shall Tenant have the right to exercise more than one extension option at
a time and, further, Tenant shall not have the right to exercise its
second extension option unless it has duly exercised its first extension
option and in no event shall the Lease Term hereof be extended for more
than six (6) years after the expiration of the Original Term hereof.
2.5 Tenant agrees to pay to Landlord, or as directed by Landlord, at
Landlord's Original Address specified in Section 1.1 hereof, or at such
other place as Landlord shall from time to time designate by notice, (1)
(a) on the Commencement Date (defined in Section 1.1 hereof) and
thereafter monthly, in advance, on the first day of each and every
calendar month during the Original Term, a sum equal to one twelfth
(1/12th) of the applicable Annual Fixed Rent (sometimes hereinafter
referred to as "fixed rent") and (1) (b) on the Commencement Date and
thereafter monthly, in advance, on the first day of each and every
calendar month during the Original Term, a sum equal to one twelfth
(1/12th) of $0.85 per annum for each square foot of Rentable Floor Area of
Tenant's Space for tenant electricity subject to escalation as provided in
Section 2.8 and (2) on the first day of each and every calendar month
during each extension option period (if exercised), a sum equal to (a) one
twelfth (1/12th) of the applicable annual fixed rent as determined in
Section 2.4.1 for the applicable extension option period plus (b) then
applicable monthly electricity charges (subject to escalation for
electricity as provided in Section 2.8 hereof). Until notice of some other
designation is given, fixed rent and all other charges for which provision
is herein made shall be paid by remittance to or for the order of Boston
Properties, Inc., Agents, at 8 Arlington Street, Boston, Massachusetts
02116, and all remittances received by Boston Properties, Inc., as Agents
as aforesaid, or by any subsequently designated recipient, shall be
treated as payment to Landlord.
Annual Fixed Rent for any partial month shall be paid by Tenant to
Landlord at such rate on a pro rata basis, and, if the Commencement Date
is a day other than the first day of a calendar month, the first payment
which Tenant shall make to Landlord shall be a payment equal to a
proportionate part of such monthly Annual Fixed Rent for the partial month
from the Commencement Date to the first day of the succeeding calendar
month.
Other charges payable by Tenant on a monthly basis, as hereinafter
provided, likewise shall be prorated, and the first payment on account
thereof shall be determined in similar fashion but shall commence on the
Commencement Date; and other provisions of this Lease calling for monthly
payments shall be read as incorporating this undertaking by Tenant.
-15-
<PAGE> 16
The Annual Fixed Rent and all other charges for which provision is herein
made shall be paid by Tenant to Landlord, without offset, deduction or
abatement except as otherwise specifically set forth in this Lease.
2.6 "Landlord's Operating Expenses" means the cost of operation of the
Building and the Site which shall exclude costs of special services
rendered to tenants (including Tenant) for which a separate charge is
made, but shall include, without limitation, the following: premiums for
insurance carried with respect to the Building and the Site (including,
without limitation, liability insurance, insurance against loss in case of
fire or casualty and insurance of monthly installments of fixed rent and
any Additional Rent which may be due under this Lease and other leases of
space in the Building for not more than 12 months in the case of both
fixed rent and Additional Rent and if there be any first mortgage of the
Property, including such insurance as may be required by the holder of
such first mortgage); compensation and all fringe benefits, workmen's
compensation insurance premiums and payroll taxes paid to, for or with
respect to all persons engaged in the operating, maintaining or cleaning
of the Building or Site, water, sewer, electric, gas, oil and telephone
charges (excluding utility charges separately chargeable to tenants for
additional or special services); cost of building and cleaning supplies
and equipment; cost of maintenance, cleaning and repairs (other than
repairs not properly chargeable against income or reimbursed from
contractors under guarantees); cost of snow removal and care of
landscaping; payments under service contracts with independent
contractors; management fees at reasonable rates consistent with the type
of occupancy and the service rendered; and all other reasonable and
necessary expenses paid in connection with the operation, cleaning and
maintenance of the Building and the Site and properly chargeable against
income, provided, however, there shall be included (a) depreciation for
capital expenditures made by Landlord (i) to reduce operating expenses if
Landlord shall have reasonably determined that the annual reduction in
operating expenses shall exceed depreciation therefor or (ii) to comply
with applicable laws, rules, regulations, requirements, statutes,
ordinances, by-laws and court decisions of all public authorities which
are now or hereafter in force (herein collectively called "Legal
Requirements"); plus (b) in the case of both (i) and (ii) an interest
factor, reasonably determined by Landlord, as being the interest rate then
charged for long term mortgages by institutional lenders on like
properties within the locality in which the Building is located;
depreciation in the case of both (i) and (ii) shall be determined by
dividing the original cost of such capital expenditure by the number of
years of useful life of the capital item acquired and the useful life
shall be reasonably determined by Landlord in accordance with generally
accepted accounting principles and practices in effect at the time of
acquisition of the capital item.
"Operating Expenses Allocable to the Premises" shall mean the same
proportion of Landlord's Operating Expenses for and pertaining to the
Building and the Site as the
-16-
<PAGE> 17
Rentable Floor Area of Tenant's Space bears to the Total Rentable Floor
Area of the Building.
"Base Operating Expenses" shall mean Landlord's Operating Expenses for
calendar year 1997 (that is, the period beginning January 1, 1997 and
ending December 31, 1997).
"Base Operating Expenses Allocable to the Premises" shall mean the same
proportion of Base Operating Expenses as the Rentable Floor Area of
Tenant's Space bears to the Total Rentable Floor Area of the Building.
If with respect to any calendar year falling within the Term after the
period for which Base Operating Expenses are calculated, or fraction of a
calendar year falling within the Term at the beginning or end thereof, the
Operating Expenses Allocable to the Premises for a full calendar year
exceed Base Operating Expenses Allocable to the Premises or for any such
fraction of a calendar year exceed the corresponding fraction of Base
Operating Expenses Allocable to the Premises (such amount being
hereinafter sometimes referred to as the "Operating Cost Excess") then
Tenant shall pay to Landlord, as Additional Rent, the amount of such
excess. Such payments shall be made at the times and in the manner
hereinafter provided in this Section 2.6. (The Base Operating Expenses
Allocable to the Premises do not include the $0.85 for tenant electricity
to be paid by Tenant together with Annual Fixed Rent and for which
provision is made in Section 2.5 hereof, separate provision being made in
Section 2.8 of this Lease for Tenant's share of increases in electricity
costs.)
Not later than ninety (90) days after the end of the first calendar year
or fraction thereof ending December 31 and of each succeeding calendar
year during the Term or fraction thereof at the end of the Term, Landlord
shall render Tenant a statement in reasonable detail and according to
usual accounting practices certified by a representative of Landlord,
showing for the preceding calendar year or fraction thereof, as the case
may be, Base Operating Expenses, Landlord's Operating Expenses and
Operating Expenses Allocable to the Premises. Said statement to be
rendered to Tenant shall also show for the preceding year or fraction
thereof as the case may be the amounts of operating expenses already paid
by Tenant as Additional Rent on account of the operating expenses and the
amount of the Operating Cost Excess remaining due from, or overpaid by,
Tenant for the year or other period covered by the statement. Within
thirty (30) days after the date of delivery of such statement, Tenant
shall pay to Landlord the balance of the amounts, if any, required to be
paid pursuant to the above provisions of this Section 2.6 with respect to
the preceding year or fraction thereof, or Landlord shall credit any
amounts overpaid by Tenant against (i) monthly installments of fixed rent
next thereafter coming due or (ii) any sums then due from Tenant to
Landlord under this Lease (or
-17-
<PAGE> 18
refund such portion of the overpayment as aforesaid if the Term has ended
and Tenant has no further obligation to Landlord).
In addition, Tenant shall make payments monthly on account of Tenant's
share of increases in operating expenses anticipated for the then current
year at the time and in the fashion herein provided for the payment of
fixed rent. The amount to be paid to Landlord shall be an amount
reasonably estimated annually by Landlord to be sufficient to cover, in
the aggregate, a sum equal to the Operating Cost Excess for each calendar
year during the Term.
Notwithstanding the foregoing provisions, no decrease in Landlord's
Operating Expenses shall result in a reduction of the amount otherwise
payable by Tenant if and to the extent said decrease is attributable to
vacancies in the Building rather than to any other causes.
Tenant shall have the right to audit the applicable records of Landlord to
confirm as the case may be (i) that the Operating Expenses billed to
Tenant are proper and conform to this Section 2.6. Such right shall be
exercisable by Tenant within ninety (90) days following Tenant's receipt
of Landlord's annual statement of such charges. Landlord shall cooperate
with Tenant in providing Tenant reasonable access to Landlord's books and
records during normal business hours to enable Tenant to audit Landlord's
books and records as they relate to any costs and expenses passed through
to Tenant pursuant to this Section 2.6. If the audit discloses any
overpayment on the part of Tenant, then Tenant shall be entitled to a
refund of any such amount unless within fifteen (15) days after receipt of
written notice from Tenant accompanied by the audit results, Landlord
challenges the methodology or results of the audit in which case no
adjustment shall be made until final resolution. No audit or challenge
shall postpone, defer or reduce any requisite payments by Tenant.
2.7 If with respect to any full Tax Year or fraction of a Tax Year falling
within the Term after the period for which Base Taxes are calculated,
Landlord's Tax Expenses Allocable to the Premises (as hereinafter defined)
for a full Tax Year exceed Base Taxes Allocable to the Premises or for any
such fraction of a Tax Year exceed the corresponding fraction of Base
Taxes Allocable to the Premises (such amount being hereinafter sometimes
referred to as the "Tax Excess") then, on or before the thirtieth (30th)
day following receipt by Tenant of the certified statement referred to
below in this Section 2.7, Tenant shall pay to Landlord, as Additional
Rent, the amount of the Tax Excess. In addition, payments by Tenant on
account of the Tax Excess anticipated for the then current year shall be
made monthly at the time and in the fashion herein provided for the
payment of fixed rent. The amount so to be paid to Landlord shall be an
amount reasonably estimated by Landlord to be sufficient to provide
Landlord, in the aggregate, a sum equal to the Tax Excess at least ten
(10) days before the day on which such payments by Landlord would become
-18-
<PAGE> 19
delinquent. Not later than ninety (90) days after Landlord's Tax Expenses
Allocable to the Premises are determined for the first such Tax Year or
fraction thereof and for each succeeding Tax Year or fraction thereof
during the Term, Landlord shall render Tenant a statement in reasonable
detail certified by a representative of Landlord showing for the preceding
year or fraction thereof, as the case may be, real estate taxes on the
Building and the Site and abatements and refunds of any taxes and
assessments. Expenditures for legal fees and for other expenses incurred
in obtaining the tax refund or abatement may be charged against the tax
refund or abatement before the adjustments are made for the Tax Year.
To the extent that real estate taxes shall be payable to the taxing
authority in installments with respect to periods less than a Tax Year,
the foregoing statement shall be rendered and payments made on account of
such installments. Notwithstanding the foregoing provisions, no decrease
in Landlord's Tax Expenses with respect to any Tax Year shall result in a
reduction of the amount otherwise payable by Tenant if and to the extent
said decrease is attributable to vacancies in the Building or partial
completion of the Building rather than to any other causes.
Terms used herein are defined as follows:
(i) "Tax Year" means the twelve-month period beginning July 1 each
year during the Term or if the appropriate governmental tax
fiscal period shall begin on any date other than July 1, such
other date.
(ii) "Landlord's Tax Expenses Allocable to the Premises" shall mean
the same proportion of Landlord's Tax Expenses for and
pertaining to the Building and the Site as the Rentable Floor
Area of Tenant's Space bears to 95% of the Total Rentable
Floor Area of the Building.
(iii) "Landlord's Tax Expenses" with respect to any Tax Year means
the aggregate real estate taxes on the Building and Site with
respect to that Tax Year, reduced by any abatement receipts
with respect to that Tax Year.
(iv) "Base Taxes" means Landlord's Tax Expenses (hereinbefore
defined) for fiscal tax year 1997 (that is, the period
beginning July 1, 1996 and ending June 30, 1997).
(v) "Base Taxes Allocable to the Premises" means the same
proportion of Base Taxes as the Rentable Floor Area of
Tenant's Space bears to 95% of the Total Rentable Floor Area
of the Building.
-19-
<PAGE> 20
(vi) "Real estate taxes" means all taxes and special assessments of
every kind and nature assessed by any governmental authority
on the Building or Site which the Landlord shall become
obligated to pay because of or in connection with the
ownership, leasing and operation of the Site, the Building and
the Property (including, without limitation, if applicable the
excise prescribed by Mass Gen Laws Chapter 121A, Section 10
and amounts in excess thereof paid to the Town of Lexington
pursuant to agreement between Landlord and the Town) and
reasonable expenses of any proceedings for abatement of taxes.
The amount of special taxes or special assessments to be
included shall be limited to the amount of the minimum
permissible installment (plus any interest, other than penalty
interest, payable thereon) of such special tax or special
assessment required to be paid during the year in respect of
which such taxes are being determined. There shall be excluded
from such taxes all income, estate, succession, inheritance
and transfer taxes; provided, however, that if at any time
during the Term the present system of ad valorem taxation of
real property shall be changed so that in lieu of, or in
addition to, the whole or any part of the ad valorem tax on
real property there shall be assessed on Landlord a capital
levy or other tax on the gross rents received with respect to
the Site or Building or Property, or a federal, state, county,
municipal, or other local income, franchise, excise or similar
tax, assessment, levy or charge (distinct from any now in
effect in the jurisdiction in which the Property is located)
measured by or based, in whole or in part, upon any such gross
rents, then any and all of such taxes, assessments, levies or
charges, to the extent so measured or based, shall be deemed
to be included within the term "real estate taxes" but only to
the extent that the same would be payable if the Site and
Building were the only property of Landlord.
Tenant shall have the right to audit the applicable records of Landlord to
confirm as the case may be (i) that the real estate taxes billed to Tenant
are proper and conform to this Section 2.7. Such right shall be
exercisable by Tenant within ninety (90) days following Tenant's receipt
of Landlord's annual statement of such charges. Landlord shall cooperate
with Tenant in providing Tenant reasonable access to Landlord's books and
records during normal business hours to enable Tenant to audit Landlord's
books and records as they relate to any costs and expenses passed through
to Tenant pursuant to this Section 2.7. If the audit discloses any
overpayment on the part of Tenant, then Tenant shall be entitled to a
refund of any such amount unless within fifteen (15) days after receipt of
written notice from Tenant accompanied by the audit results, Landlord
challenges the methodology or results of the audit in which case no
adjustment shall be
-20-
<PAGE> 21
made until final resolution. No audit or challenge shall postpone, defer
or reduce any requisite payments by Tenant.
2.8 If with respect to any calendar year falling within the Term or fraction
of a calendar year falling within the Term at the beginning or end
thereof, the cost of furnishing electricity to the Building and the Site,
including common areas and facilities and space occupied by tenants, (but
expressly excluding utility charges separately chargeable to tenants for
additional or special services) for a full calendar year exceeds $0.85 per
square foot of Rentable Floor Area of the Building, or for any such
fraction of a calendar year exceeds the corresponding fraction of $0.85
per square foot of Rentable Floor Area of the Building, then Tenant shall
pay to Landlord, as Additional Rent, on or before the thirtieth (30th) day
following receipt by Tenant of the statement referred to below in this
Section 2.8, its proportionate share of the amount of such excess (i.e.
the same proportion of such excess as the Rentable Floor Area of Tenant's
Space bears to the Total Rentable Floor Area of the Building). Payments by
Tenant on account of such excess shall be made monthly at the time and in
the fashion herein provided for the payment of Annual Fixed Rent. The
amount so to be paid to Landlord shall be an amount from time to time
reasonably estimated by Landlord to be sufficient to cover, in the
aggregate, a sum equal to such excess for each calendar year during the
Term. If for any calendar year falling within the Term such cost is less
than $0.85 per square foot of Rentable Floor Area of the Building (or if
for any fraction of a calendar year falling within the Term at the
beginning or end thereof, such cost is less than the corresponding
fraction of $0.85 per square foot of Rentable Floor Area of the Building)
an appropriate reduction shall be made in the amount payable by Tenant.
Not later than ninety (90) days after the end of the first calendar year
or fraction thereof ending December 31 and of each succeeding calendar
year during the Term or fraction thereof at the end of the Term, Landlord
shall render Tenant a reasonably detailed accounting certified by a
representative of Landlord showing for the preceding calendar year, or
fraction thereof, as the case may be, the costs of furnishing electricity
to the Building. Said statement to be rendered to Tenant also shall show
for the preceding year or fraction thereof, as the case may be, the amount
already paid by Tenant on account of electricity, and the amount remaining
due from, or overpaid by, Tenant for the year or other period covered by
the statement. Within thirty (30) days after the date of the delivery of
such statement, Tenant shall pay to Landlord the balance of the amounts,
if any required to be paid pursuant to the above provisions of this
Section 2.8 with respect to the preceding year, or fraction thereof, or
Landlord shall credit any amounts due from it to Tenant pursuant to the
above provisions of this Section 2.8 against monthly installments of
Annual Fixed Rent or Additional Rent next thereafter coming due unless the
Lease Term has expired and Tenant has no other or further obligations to
Landlord, in which case Landlord shall promptly refund such amount to
Tenant.
-21-
<PAGE> 22
If at any time during the Term, or any extended term, Tenant reasonably
concludes that the amount payable by Tenant hereunder for electricity for
lights and power to the Premises is materially less than results from the
above calculation, Tenant shall have the right to first give written
notice to Landlord setting forth in reasonable detail Tenant's reasons
therefor and Landlord and Tenant shall, in good faith, attempt to resolve
such situation to their reasonable and mutual satisfaction. If such a
resolution shall not result, then Tenant shall have the right, at its sole
cost and expense, to arrange for a study or audit of electrical usage at
the Complex by an electrical engineer acceptable to both Landlord and
Tenant, in the respective exercise of their reasonable judgement. If the
results of such study or inspection establish that the amount payment by
Tenant is greater or lesser than the sum of the cost of electricity for
lights and power to the Premises, the amount payable under this Section
2.8 shall be appropriately adjusted; provided, however, that Landlord
shall have the right to review the methodology used and results obtained
by such engineer and to challenge the results of such study or audit.
ARTICLE III
-----------
CONSTRUCTION
------------
3.1 Attached hereto as Exhibit B is a schedule of the preliminary construction
plans showing in general terms the layout of and anticipated construction
in the Premises ("Tenant's Preliminary Construction Plans"). The final
plans for the construction of the initial improvements to the Premises are
in the process of being completed (the "Final Tenant Construction Plans").
Both Landlord and Tenant acting reasonably and promptly shall have the
right to approve the Final Tenant Construction Plans. In addition, Tenant
shall have the right to review all construction cost estimates and to
require competitive bidding if Tenant determines, in its discretion, that
such estimates are unreasonable. Landlord shall perform the work shown on
the Final Tenant Construction Plans as so approved by Landlord and Tenant.
In no event, however, shall Landlord's monetary obligation exceed the
amount of the special allowance set forth in Section 3.1.1 hereof.
However, except as otherwise provided in Exhibit B, Landlord shall have no
responsibility for the installation or connection of Tenant's computer,
telephone or other communications equipment, systems or wiring.
3.1.1 Landlord shall provide Tenant with a special allowance in the amount of
$781,209.00 to be applied towards (i) the cost of the architectural plans
and space planning respecting the work shown on the Final Tenant
Construction Plans; (ii) the cost of demolition as shall be necessary or
is associated with preparing the Premises for the construction of the work
shown on the Final Tenant Construction Plans and (iii) the cost of the
work to be performed by Landlord shown on the Final Tenant Construction
Plans. Tenant shall pay
-22-
<PAGE> 23
Landlord, as Additional Rent, any cost of performing the work or items
described in items (i) through (iii) above (collectively sometimes called
the "Space Planning, Demolition And Construction Work") in excess of said
special allowance within thirty (30) days after being billed therefor. In
the event that the cost of the Space Planning, Demolition And Construction
Work is less than the special allowance, such excess shall be applied
against Annual Fixed Rent or Additional Rent next due pursuant to this
Lease.
3.2 Landlord agrees to use due diligence to complete the work described in
Section 3.1 on or before the Scheduled Term Commencement Date. Landlord
shall not be required to install any improvements which are not in
conformity with the plans and specifications for the Building or which are
not approved by Landlord's architect. In case of delays due to
governmental regulation, unusual scarcity of or inability to obtain labor
or materials, labor difficulties, casualty or other causes reasonably
beyond Landlord's control (collectively, "Landlord's Force Majeure"), the
Scheduled Term Commencement Date shall be extended for the period of such
delays. The Premises shall be deemed ready for occupancy on the date on
which the work described in Section 3.1, together with common facilities
for access and service to the Premises, has been substantially completed
except for (i) items of work and adjustment of equipment and fixtures
which can be completed after occupancy thereof has been taken without
causing substantial interference with Tenant's use of the Premises (i.e.
so-called "punch list" items) and (ii) items of work for which there is a
long lead time in obtaining the materials therefor or which are specially
or specifically manufactured, produced or milled for the work in or to the
Premises and require additional time for receipt or installation, the
absence of which do not substantially interfere with Tenant's occupancy of
the Premises ("long lead" items). Landlord shall complete as soon as
conditions practically permit the punch list items and the long lead items
and Tenant shall not use the Premises in such manner as will increase the
cost of completion. Landlord shall permit Tenant access for installing
furnishings in portions of the Premises when it can be done without
material interference with remaining work.
If, however, Landlord shall have failed to substantially complete the work
to be performed by Landlord in accordance with Section 3.1 (excluding
punch list items and long lead items) on or before the Outside Completion
Date (which date shall be extended automatically for such periods of time
as Landlord is prevented from proceeding with or completing the same by
reason of Landlord's Force Majeure or any act or failure to act of Tenant
which interferes with Landlord's construction of the Premises, without
limiting Landlord's other rights on account thereof), Tenant shall have
the right to terminate this Lease by giving notice to Landlord of Tenant's
desire to do so within the time period from the Outside Completion Date
(as so extended) until the date which is thirty (30) days subsequent to
the Outside Completion Date (as so extended); and, upon the giving of such
notice, the Term of this Lease shall cease and come to an end without
further
-23-
<PAGE> 24
liability or obligation on the part of either party unless, within thirty
(30) days after Landlord's receipt of Tenant's notice Landlord
substantially completes the work to be performed by Landlord under Section
3.1 (except for punch list items and long lead items) and such right of
termination shall be Tenant's sole and exclusive remedy at law or in
equity or otherwise for Landlord's failure so to complete such work within
such time.
Tenant agrees that no delay by it, or anyone employed by it, in performing
work to prepare the Premises for occupancy (including, without limitation,
the work in installing telephones and other communications equipment or
systems) shall delay commencement of the Term or the obligation to pay
rent, regardless of the reason for such delay or whether or not it is
within the control of Tenant or any such employee.
3.3 This Section 3.3 shall apply before and during the Term. Tenant shall not
make alterations and additions to Tenant's space except in accordance with
plans and specifications therefor first approved by Landlord, which
approval shall not be unreasonably withheld. Landlord shall not be deemed
unreasonable for withholding approval of any alterations or additions
which (a) involve or might affect any structural or exterior element of
the Building, any area or element outside of the Premises, or any facility
serving any area of the Building outside of the Premises, or (b) will
delay completion of the Premises or Building, or (c) will require unusual
expense to readapt the Premises to normal office use on Lease termination
or increase the cost of construction or of insurance or taxes on the
Building or of the services called for by Section 4.1 unless Tenant first
gives assurance acceptable to Landlord for payment of such increased cost
and that such readaptation will be made prior to such termination without
expense to Landlord. Landlord's review and approval of any such plans and
specifications and consent to perform work described therein shall not be
deemed an agreement by Landlord that such plans, specifications and work
conform with applicable Legal Requirements and requirements of insurers of
the Building (herein called "Insurance Requirements") nor deemed a waiver
of Tenant's obligations under this Lease with respect to applicable Legal
Requirements and Insurance Requirements nor impose any liability or
obligation upon Landlord with respect to the completeness, design
sufficiency or compliance of such plans, specifications and work with
applicable Legal Requirements and Insurance Requirements. In the case of
all alterations, additions and improvements, Tenant shall deliver
reasonably detailed plans and specifications to Landlord at the time
Tenant seeks Landlord's approval. Landlord may elect to require Tenant (i)
to remove any alterations, additions, improvements upon lease expiration
or termination by stating such election in Landlord's approval if given
pursuant to the foregoing and/or (ii) to remove upon lease expiration or
termination any of the tenant improvements not shown on the Tenant's
Preliminary Construction Plans (attached hereto as Exhibit B) but which
are shown the "Final Tenant Construction Plans" (approved pursuant to
Section 3.1 hereof) by stating such election at the time of Landlord's and
Tenant's approval of the Final Tenant's
-24-
<PAGE> 25
Construction Plans pursuant to Section 3.1 hereof. Any items or matters so
to be removed shall be specified by Landlord in reasonable detail. Unless
specified for removal as aforesaid, all alterations, additions and
improvements (and the initial improvements) shall be part of the Building
unless specifically otherwise agreed upon in writing by Landlord and
Tenant. All of Tenant's alterations and additions and installation of
furnishings shall be coordinated with any work being performed by Landlord
and in such manner as to maintain harmonious labor relations and not to
damage the Building or Site or interfere with construction or operation of
the Building and other improvements to the Site and, except for
installation of furnishings, shall be performed by Landlord's general
contractor or by contractors or workmen first approved by Landlord. Except
for work by Landlord's general contractor, Tenant, before its work is
started, shall secure all licenses and permits necessary therefor; deliver
to Landlord a statement of the names of all its contractors and
subcontractors and the estimated cost of all labor and material to be
furnished by them and security satisfactory to Landlord protecting
Landlord against liens arising out of the furnishing of such labor and
material; and cause each contractor to carry workmen's compensation
insurance in statutory amounts covering all the contractor's and
subcontractor's employees and commercial general liability insurance or
comprehensive general liability insurance with a broad form comprehensive
liability endorsement with such limits as Landlord may reasonably require,
but in no event less than $1,000,000.00 combined single limit per
occurrence on a per location basis (all such insurance to be written in
companies approved by Landlord and naming and insuring Landlord and
Landlord's managing agent as additional insureds and insuring Tenant as
well as the contractors), and to deliver to Landlord certificates of all
such insurance. Tenant agrees to pay promptly when due the entire cost of
any work done on the Premises by Tenant, its agents, employees, or
independent contractors, and not to cause or permit any liens for labor or
materials performed or furnished in connection therewith to attach to the
Premises or the Building or the Site and immediately to discharge any such
liens which may so attach. Tenant shall pay, as Additional Rent, 100% of
any real estate taxes on the Complex which shall, at any time after
commencement of the Term, result from any alteration, addition or
improvement to the Premises made by Tenant.
3.4 All construction work required or permitted by this Lease shall be done in
a good and workmanlike manner and in compliance with all applicable Legal
Requirements and Insurance Requirements now or hereafter in force. Each
party may inspect the work of the other at reasonable times and shall
promptly give notice of observed defects. Each party authorizes the other
to rely in connection with design and construction upon approval and other
actions on the party's behalf by any Construction Representative of the
party named in Article I or any person hereafter designated in
substitution or addition by notice to the party relying. Except for items
identified by Tenant by written notice to Landlord given within thirty
(30) days after Tenant takes occupancy of the Premises, and as otherwise
provided in Article IV, the work required of Landlord pursuant to this
-25-
<PAGE> 26
Article III shall be deemed approved by Tenant when Tenant commences
occupancy of the Premises for the Permitted Uses, except for items which
are then uncompleted (including punch list items and long lead items) and
as to which Tenant shall have given notice to Landlord prior to such date.
ARTICLE IV
----------
LANDLORD'S COVENANTS; INTERRUPTIONS AND DELAYS
----------------------------------------------
4.1 Landlord covenants:
4.1.1 To furnish services, utilities, facilities and supplies set forth in
Exhibit C equal to those customarily provided by landlords in high quality
buildings in the Boston West Suburban Market subject to escalation
reimbursement in accordance with Section 2.6. Landlord's said services
include periodic, unscheduled and random visits to the Site by a roving
independent contracted for third party security company during the hours
of 6:00 p.m. and 6:00 a.m. excluding Saturdays, Sundays and holidays. Such
visits to the Site are limited to checking the burglar alarm panel in the
Building and the perimeter of the Building and parking lot on the Site.
Tenant acknowledges that Landlord does not provide any security services
other than contracting with the third party security company as stated
above and for the card access systems referred to in Exhibit E. Tenant
further acknowledges that Landlord does not assume or undertake any
obligation to provide security beyond the security specifically listed
above and in Exhibit E or to increase the level of said security for which
provisions is made above and in Exhibit E.
4.1.2 To furnish, at Tenant's expense, reasonable additional Building operation
services which are usual and customary in similar office buildings in the
Boston West Suburban Market upon reasonable advance request of Tenant at
reasonable and equitable rates from time to time established by Landlord.
4.1.3 Subject to the escalation provisions of Section 2.6 and except as
otherwise provided in Article VI, (i) to make in timely fashion (subject
to "Landlord's Force Majeure" as defined in Section 3.2) such repairs to
the roof, exterior walls, floor slabs and common areas and facilities as
may be necessary to keep them in serviceable condition and (ii) to
maintain the Building (exclusive of Tenant's responsibilities under this
Lease) in a first class manner comparable to the maintenance of similar
properties in the Boston West Suburban Market including providing and
performing the services for which Landlord is entitled to escalation
reimbursement pursuant to Section 2.6 hereof.
-26-
<PAGE> 27
4.1.4 To provide and install, at Landlord's expense, letters or numerals on the
entrance doors to the Premises to identify Tenant's official name and
Building address; all such letters and numerals shall be in the building
standard graphics and no others shall be used or permitted on the
Premises. In addition, there exists on the Site a monument type sign
identifying the address of the Property. Landlord shall include Tenant's
name ("RESTRAC, INC.") on said sign in addition to such other tenants and
other parties as Landlord shall determine but said sign need not identify
any subtenants or assignees of Tenant.
4.2 Landlord shall not be liable to Tenant for any compensation or reduction
of rent by reason of inconvenience or annoyance or for loss of business
arising from the necessity of Landlord or its agents entering the Premises
for any of the purposes in this Lease authorized, or for repairing the
Premises or any portion of the Building however the necessity may occur.
In case Landlord is prevented or delayed from making any repairs,
alterations or improvements, or furnishing any services or performing any
other covenant or duty to be performed on Landlord's part, by reason of
any cause reasonably beyond Landlord's control, including without
limitation the causes set forth in Section 3.2 hereof as being reasonably
beyond Landlord's control, Landlord shall not be liable to Tenant
therefor, nor, except as expressly otherwise provided in Article VI, shall
Tenant be entitled to any abatement or reduction of rent by reason
thereof, nor shall the same give rise to a claim in Tenant's favor that
such failure constitutes actual or constructive, total or partial,
eviction from the Premises.
Landlord reserves the right to stop any service or utility system, when
necessary by reason of accident or emergency, or until necessary repairs
have been completed; provided, however, that in each instance of stoppage,
Landlord shall exercise reasonable diligence to eliminate the cause
thereof. Except in case of emergency repairs and when required by the
nature of the emergency, Landlord will give Tenant reasonable advance
notice of any contemplated stoppage and will use reasonable efforts to
avoid unnecessary inconvenience to Tenant by reason thereof.
ARTICLE V
---------
TENANT'S COVENANTS
------------------
Tenant covenants during the term and such further time as Tenant occupies
any part of the Premises:
-27-
<PAGE> 28
5.1 To pay when due all fixed rent and Additional Rent and all charges for
utility services rendered to the Premises (except as otherwise provided in
Exhibit C) and, further, as Additional Rent, all charges for additional
services rendered pursuant to Section 4.1.2.
5.2 Except as otherwise provided in Article VI and Section 4.1.3, to keep the
Premises in good order, repair and condition, reasonable wear and tear
only excepted, and all glass in windows and doors of the Premises whole
and in good condition with glass of the same type and quality as that
injured or broken, damage by fire or taking under the power of eminent
domain only excepted, and at the expiration or termination of this Lease
peaceably to yield up the Premises all construction, work, improvements,
and all alterations and additions thereto in good order, repair and
condition, reasonable wear and tear only excepted, first removing all
goods and effects of Tenant and (i) to the extent specified by Landlord by
notice to Tenant given at least ten (10) days before such expiration or
termination, the wiring for Tenant's computer, telephone and other
communication systems and equipment and (ii) to the extent specified in
Landlord's notice of removal given pursuant to Section 3.3, all
alterations, additions, improvements and initial improvements. Tenant
shall repair any damage caused by such removal and shall restore the
Premises and leave them clean and neat. Tenant shall not permit or commit
any waste, and Tenant shall be responsible for the cost of repairs which
may be made necessary by reason of damage to common areas in the Building
or to the Site caused by Tenant, Tenant's independent contractors,
Tenant's employees or Tenant's invitees.
5.3 Continuously from the commencement of the Term, to use and occupy the
Premises for the Permitted Uses only, and not to injure or deface the
Premises, Building, the Site or any other part of the Complex nor to
permit in the Premises or on the Site any auction sale, vending machine,
(except as set forth below) or inflammable fluids or chemicals, or
nuisance, or the emission from the Premises of any objectionable noise or
odor, nor to use or devote the Premises or any part thereof for any
purpose other than the Permitted Uses, nor for any use thereof which is
inconsistent with maintaining the Building as a first class office
building in the quality of its maintenance, use and occupancy, or which is
improper, offensive, contrary to law or ordinance or liable to render
necessary any alteration or addition to the Building. Notwithstanding the
foregoing respecting vending machines, Tenant may, at its sole cost,
expense and risk, keep a reasonable number of vending machines in the
Premises dispensing non-alcoholic beverages, candy, other food products
and sundries, Tenant covenanting and agreeing that Tenant shall be solely
responsible for compliance with applicable laws, by-laws, rules and
regulations, for obtaining all permits, licenses and approvals therefor
and for maintaining such permits, licenses and approvals in full force and
effect. Further, (i) Tenant shall not, nor shall Tenant permit its
employees, invitees, agents, independent contractors, contractors,
assignees or subtenants to, keep, maintain, store or dispose of (into the
sewage or waste
-28-
<PAGE> 29
disposal system or otherwise) or engage in any activity which might
produce or generate any substance which is or may hereafter be classified
as a hazardous material, waste or substance (collectively "Hazardous
Materials"), under federal, state or local laws, rules and regulations,
including, without limitation, 42 U.S.C. Section 6901 et seq., 42 U.S.C.
Section 9601 et seq., 42 U.S.C. Section 2601 et seq., 49 U.S.C. Section
1802 et seq. and Massachusetts General Laws, Chapter 21E and the rules and
regulations promulgated under any of the foregoing, as such laws, rules
and regulations may be amended from time to time (collectively "Hazardous
Materials Laws"), (ii) Tenant shall immediately notify Landlord of any
incident in, on or about the Premises, the Building or the Site that would
require the filing of a notice under any Hazardous Materials Laws, (iii)
Tenant shall comply and shall cause its employees, invitees, agents,
independent contractors, contractors, assignees and subtenants to comply
with each of the foregoing and (iv) Landlord shall have the right to make
such inspections (including testing) as Landlord shall elect from time to
time to determine that Tenant is complying with the foregoing.
5.4 Not to obstruct in any manner any portion of the Building not hereby
leased or any portion thereof or of the Site used by Tenant in common with
others; not without prior consent of Landlord to permit the painting or
placing of any signs, curtains, blinds, shades, awnings, aerials or
flagpoles, or the like, visible from outside the Premises; and to comply
with all reasonable rules and regulations now or hereafter made by
Landlord, of which Tenant has been given notice, for the care and use of
the Building and Site and their facilities and approaches; Landlord shall
not be liable to Tenant for the failure of other occupants of the Building
to conform to such rules and regulations.
5.5 To keep the Premises equipped with all safety appliances required by any
public authority because of any use made by Tenant other than the
Permitted Uses and to procure all licenses and permits so required because
of such use and, if requested by Landlord, to do any work so required
because of such use, it being understood that the foregoing provisions
shall not be construed to broaden in any way Tenant's Permitted Uses.
5.6 Except as otherwise expressly provided herein, Tenant covenants and agrees
that it shall not assign, mortgage, pledge, hypothecate or otherwise
transfer this Lease and/or Tenant's interest in this Lease or sublet
(which term, without limitation, shall include granting of concessions,
licenses or the like) the whole or any part of the Premises. Any
assignment, mortgage, pledge, hypothecation, transfer or subletting not
expressly permitted in or consented to by Landlord under Sections
5.6.1-5.6.6 shall be void, ab initio; shall be of no force and effect; and
shall confer no rights on or in favor of third parties. In addition,
Landlord shall be entitled to seek specific performance of or other
equitable relief with respect to the provisions hereof.
-29-
<PAGE> 30
5.6.1 Notwithstanding the provisions of Section 5.6 above and the provisions of
Section 5.6.2, 5.6.3 and 5.6.5 below, Tenant shall have the right to
assign this Lease or to sublet the Premises (in whole or in part) to any
parent or subsidiary corporation of Tenant or to any corporation into
which Tenant may be converted or with which it may merge, provided that
the entity to which this Lease is so assigned or which so sublets the
Premises has the financial capability, credit worthiness and liquidity to
perform the obligations of the Tenant under this Lease as and when
required under this Lease. For all purposes of this Section 5.6.1, as long
as Tenant remains liable for all payments due under this Lease, Tenant's
financial capability, credit worthiness and liquidity shall be sufficient
with respect to the assignee or subtenant. Any such assignment or
subletting shall be subject to the provisions of Section 5.6.4 and Section
5.6.6 below.
5.6.2 Notwithstanding the provisions of Section 5.6 above, in the event Tenant
desires to assign this Lease or to sublet the Premises in whole or in
part, Tenant shall notify Landlord thereof in writing and Landlord shall
have the right at its sole option, to be exercised within thirty (30) days
after receipt of Tenant's notice, to:
(i) In the case of a proposed assignment of the Lease or
subletting of the entire Premises, Landlord may, at its sole
option, elect to terminate this Lease as of a date specified
in a notice to Tenant, which date shall not be earlier than
sixty (60) days nor later than one hundred twenty (120) days
after Landlord's notice to Tenant; provided, however, that
upon the termination date as set forth in Landlord's notice,
all obligations relating to the period after such termination
date (but not those relating to the period before such
termination date) shall cease and promptly upon being billed
therefor by Landlord, Tenant shall make final payment of all
rent and Additional Rent due from Tenant through the
termination date.
(ii) In the case of a proposed subleasing of less than the entire
Premises, Landlord may, at its sole option, elect to terminate
this Lease as to such portion of the Premises proposed to be
sublet (herein called the "Terminated Portion of the
Premises") as of a date which shall be not earlier than sixty
(60) days nor later than one hundred twenty (120) days after
Landlord's notice to Tenant; provided, however, that upon the
termination date as set forth in Landlord's notice, all of
Landlord's and Tenant's obligations as to the Terminated
Portion of the Premises relating to the period after such
termination date (but not those relating to the period before
such termination date) shall cease and promptly upon being
billed therefor by Landlord, Tenant shall make final payment
of all rent and Additional Rent due from Tenant respecting the
Terminated Portion of the Premises through the termination
date and provided, further, that this
-30-
<PAGE> 31
Lease shall remain in full force and effect as to the
remainder of the Premises, except that from and after the
termination date the Rentable Floor Area of the Premises shall
be reduced to the rentable floor area of the remainder of the
Premises and the definition of Rentable Floor Area of the
Premises shall be so amended and after such termination all
references in this Lease to the "Premises" or the "Rentable
Floor Area of the Premises" shall be deemed to be references
to the remainder of the Premises, and provided further that
Landlord shall have the right to make such alterations and
improvements as may be required to separately demise the
Terminated Portion of the Premises. In addition, from and
after the effective date of any such termination, Annual Fixed
Rent shall be at the rate set forth in Section 1.1 but shall
be calculated using the rentable floor area of the remainder
of the Premises and Tenant's payments for operating costs,
real estate taxes and electricity shall be calculated on the
same basis set forth in this Lease using the rentable floor
area of the remainder of the Premises.
(iii) In the event that Landlord shall not exercise its termination
rights as aforesaid, or shall fail to give any or timely
notice under subsection (i) or subsection (ii) immediately
above, the provisions of Sections 5.6.3-5.6.6 shall be
applicable. This Section 5.6.2 shall not be applicable to an
assignment or sublease pursuant to Section 5.6.1.
5.6.3 Notwithstanding the provisions of Section 5.6 above, BUT subject to the
provisions of this Section 5.6.3 and the provisions of Sections 5.6.4,
5.6.5 and 5.6.6 below, in the event that Landlord shall not have exercised
the termination right as set forth in Section 5.6.2 or shall have failed
to give any or timely notice under Section 5.6.2, then for a period of one
hundred twenty (120) days (i) after the receipt of Tenant's notice
referred to in Section 5.6.2, or (ii) after the expiration of the thirty
(30) day period referred to in Section 5.6.2 in the event Landlord shall
not give any or timely notice under section 5.6.2, as the case may be,
Tenant shall have the right to assign this Lease or sublet the whole or
part of the Premises in accordance with Tenant's notice to Landlord given
as provided in Section 5.6.4 provided that, in each instance, Tenant first
obtains the express prior written consent of Landlord, which consent shall
not be unreasonably withheld or delayed. Landlord shall not be deemed to
be unreasonably withholding its consent to such a proposed assignment or
subleasing if:
(a) the proposed assignee or subtenant is not of a character
consistent with the operation of a first class office building
(by way of example Landlord shall not be deemed to be
unreasonably withholding its consent to an assignment or
subleasing to any governmental agency), or
-31-
<PAGE> 32
(b) the proposed assignee or subtenant is not of good character
and reputation, or
(c) the proposed assignee or subtenant does not possess adequate
financial capability and liquidity to perform the Tenant
obligations as and when due or required, or
(d) the assignee or subtenant proposes to use the Premises (or
part thereof) for a purpose other than the purpose for which
the Premises may be used as stated in Section 1.1 hereof, or
(e) the character of the business to be conducted or the proposed
use of the Premises by the proposed subtenant or assignee
shall (i) be likely to materially increase Landlord's
Operating Expenses beyond that which Landlord now incurs for
use by Tenant; (ii) be likely to materially increase the
burden on elevators or other Building systems or equipment
over the burden prior to such proposed subletting or
assignment; or (iii) violate or be likely to violate any
provisions or restrictions contained herein relating to the
use or occupancy of the Premises, or
(f) there shall be existing an Event of Default (defined in
Section 7.1).
5.6.4 Tenant shall give Landlord notice of any proposed sublease or assignment,
and said notice shall specify the provisions of the proposed assignment or
subletting, including (a) the name and address of the proposed assignee or
subtenant, (b) in the case of a proposed assignment or subletting pursuant
to Section 5.6.2, such information as to the proposed assignee's or
proposed subtenant's net worth and financial capability and standing as
may reasonably be required for Landlord to make the determination referred
to in Section 5.6.3 above (provided, however, that Landlord shall hold
such information confidential having the right to release same to its
officers, accountants, attorneys and mortgage lenders on a confidential
basis), (c) all of the terms and provisions upon which the proposed
assignment or subletting is to be made, (d) in the case of a proposed
assignment or subletting pursuant to Section 5.6.2, all other information
necessary to make the determination referred to in Section 5.6.3 above and
(e) in the case of a proposed assignment or subletting pursuant to Section
5.6.1 above, such information as may be reasonably required by Landlord to
determine that such proposed assignment or subletting complies with the
requirements of said Section 5.6.1.
If Landlord shall consent to the proposed assignment or subletting, as the
case may be, then, in such event, Tenant may thereafter sublease or assign
pursuant to Tenant's notice, as given hereunder; provided, however, that
if such assignment or sublease shall not be
-32-
<PAGE> 33
executed and delivered to Landlord within one hundred and twenty (120)
days after the date of Landlord's consent, the consent shall be deemed
null and void and the provisions of Section 5.6.2 shall be applicable.
5.6.5 In addition, in the case of any assignment or subleasing as to which
Landlord may consent (other than an assignment or subletting permitted
under Section 5.6.1 hereof) such consent shall be upon the express and
further condition, covenant and agreement, and Tenant hereby covenants and
agrees that, in addition to the Annual Fixed Rent, Additional Rent and
other charges to be paid pursuant to this Lease, fifty percent (50%) of
the "Assignment/Sublease Profits" (hereinafter defined), if any, shall be
paid to Landlord.
The "Assignment/Sublease Profits" shall be the excess, if any, of (a) the
"Assignment/Sublease Net Revenues" as hereinafter defined over (b) the
Annual Fixed Rent and Additional Rent and other charges provided in this
Lease prorated in the case of a partial subletting. The
"Assignment/Sublease Net Revenues" shall be the fixed rent, Additional
Rent and all other charges and sums payable for lease of the Premises
either initially or over the term of the sublease or assignment PLUS all
other profits and increases to be derived by Tenant as a result of such
subletting or assignment, less the reasonable costs of Tenant incurred in
such subleasing or assignment (the definition of which shall include but
not necessarily be limited to rent concessions, brokerage commissions and
alteration allowances) amortized over the term of the sublease or
assignment.
All payments of the Assignment/Sublease Profits due Landlord shall be made
within ten (10) days of receipt of same by Tenant.
5.6.6 (A) It shall be a condition of the validity of any assignment or
subletting of right under Section 5.6.1 above, or consented to under
Section 5.6.3 above, that the assignee or sublessee agrees directly with
Landlord, in form reasonably satisfactory to Landlord, to be bound by all
the obligations of the Tenant hereunder, including, without limitation,
the obligation to pay the rent and other amounts provided for under this
Lease (but in the case of a partial subletting pursuant to Section 5.6.1,
such subtenant shall agree on a pro rata basis to be so bound) including
the provisions of Sections 5.6 through 5.6.6 hereof, but such assignment
or subletting shall not relieve the Tenant named herein of any of the
obligations of the Tenant hereunder, Tenant shall remain fully and
primarily liable therefor and the liability of Tenant and such assignee
(or subtenant, as the case may be) shall be joint and several. Further,
and notwithstanding the foregoing, the provisions hereof shall not
constitute a recognition of the assignment or the assignee thereunder or
the sublease or the subtenant thereunder, as the case may be, and at
Landlord's option, upon the termination of the Lease, the assignment or
sublease shall be terminated.
-33-
<PAGE> 34
(B) As Additional Rent, Tenant shall reimburse Landlord promptly for
reasonable out of pocket legal and other expenses incurred by Landlord in
connection with any request by Tenant for consent to assignment or
subletting.
(C) If this Lease be assigned, or if the Premises or any part thereof be
sublet or occupied by anyone other than Tenant, Landlord may upon prior
notice to Tenant, at any time and from time to time, collect rent and
other charges from the assignee, sublessee or occupant and apply the net
amount collected to the rent and other charges herein reserved, but no
such assignment, subletting, occupancy or collection shall be deemed a
waiver of this covenant, or a waiver of the provisions of Sections 5.6
through 5.6.6 hereof, or the acceptance of the assignee, sublessee or
occupant as a tenant or a release of Tenant from the further performance
by Tenant of covenants on the part of Tenant herein contained, the Tenant
herein named to remain primarily liable under this Lease.
(D) The consent by Landlord to an assignment or subletting under any of
the provisions of Sections 5.6.1 or 5.6.3 shall in no way be construed to
relieve Tenant from obtaining the express consent in writing to Landlord
to any further assignment or subletting.
5.7 To defend with counsel first approved by Landlord (which approval shall
not be unreasonably withheld or delayed), save harmless, and indemnify
Landlord from any liability for injury, loss, accident or damage to any
person or property, and from any claims, actions, proceedings and expenses
and costs in connection therewith (including without limitation reasonable
counsel fees) (i) to the extent arising from or claimed to have arisen
from (a) the omission, fault, willful act, negligence or other misconduct
of Tenant or Tenant's contractors, licensees, invitees, agents, servants,
independent contractors or employees or (b) any use made or thing done or
occurring on the Premises not due to the omission, fault, willful act,
negligence or other misconduct of Landlord or not due to structural
alterations, new construction or demolition operations performed by or on
behalf of Landlord, or (ii) resulting from the failure of Tenant to
perform and discharge its covenants and obligations under this Lease;
provided, however, (x) that with respect to the omission, fault, willful
act, negligence or other misconduct of any third parties for whom Tenant
is not legally responsible (hereinafter in this Section called "Third
Parties"), Tenant's indemnify therefor shall be limited to the amount of
the liability insurance required to be maintained by Tenant pursuant to
this Lease so long as Landlord is not precluded from maintaining an action
or pursuing its remedies against such Third Parties and Landlord's
recovery from such Third Parties is not limited hereby and (y) that with
respect to a claim brought against Landlord as to which indemnification is
sought by Landlord from Tenant, Landlord shall give Tenant reasonably
prompt notice after Landlord's receipt of actual notice of such claim so
as to afford Tenant the opportunity to defend such claim and (z) Tenant
shall have the right to settle such claim
-34-
<PAGE> 35
provided Landlord is fully released therefrom without payment by Landlord
and Landlord otherwise first consents thereto, such consent not to be
unreasonably withheld; to maintain commercial general liability insurance
or comprehensive general liability insurance written on an occurrence
basis with a broad form comprehensive liability endorsement covering the
Premises insuring Landlord and Landlord's managing agent (and such persons
as are in privity of estate with Landlord and Landlord's managing agent as
may be set out in notice from time to time) as additional insureds as well
as Tenant with limits which shall, at the commencement of the Term, be at
least equal to those stated in Section 1.1 and from time to time during
the Term shall be for such higher limits, if any, as are customarily
carried in Greater Boston with respect to similar properties or which may
reasonably be required by Landlord (Landlord agreeing not to request
higher limits during the Original Term), and workmen's compensation
insurance with statutory limits covering all of Tenant's employees working
in the Premises, and to deposit with Landlord on or before the
Commencement Date and concurrent with all renewals thereof, certificates
for such insurance bearing the endorsement that the policies will not be
canceled until after thirty (30) days' written notice to Landlord. All
insurance required to be maintained by Tenant pursuant to this Lease shall
be maintained with responsible companies qualified to do business, and in
good standing, in the Commonwealth of Massachusetts reasonably approved by
Landlord.
5.8 That all of the furnishings, fixtures, equipment, effects and property of
every kind, nature and description of Tenant and of all persons claiming
by, through or under Tenant which, during the continuance of this Lease or
any occupancy of the Premises by Tenant or anyone claiming under Tenant,
may be on the Premises or elsewhere in the Building or on the Site, shall
be at the sole risk and hazard of Tenant, and if the whole or any part
thereof shall be destroyed or damaged by fire, water or otherwise, or by
the leakage or bursting of water pipes, or other pipes, by theft or from
any other cause, no part of said loss or damage is to be charged to or be
borne by Landlord, except that Landlord shall in no event be indemnified
or held harmless or exonerated from any liability to Tenant or to any
other person, for any injury, loss, damage or liability to the extent such
indemnity, hold harmless or exoneration is prohibited by law. Further,
Tenant, at Tenant's expense, shall maintain at all times during the Term
of this Lease insurance against loss or damage covered by the so-called
"all risk" type insurance coverage with respect to Tenant's fixtures,
equipment, goods, wares and merchandise, tenant improvements made by or
paid for by Tenant, and other property of Tenant (collectively "Tenant's
Property"). Such insurance shall be in an amount at least equal to the
full replacement cost of Tenant's Property.
5.9 To permit Landlord and its agents to examine the Premises at reasonable
times and, if Landlord shall so elect, to make any repairs or replacements
Landlord may deem necessary; to remove, at Tenant's expense, any
alterations, addition, signs, curtains,
-35-
<PAGE> 36
blinds, shades, awnings, aerials, flagpoles, or the like not consented to
in writing; and to show the Premises to prospective tenants during the
nine (9) months preceding expiration of the Term and to prospective
purchasers and mortgagees at all reasonable times.
5.10 Not to place a load upon the Premises exceeding an average rate of 100
pounds of live load per square foot of floor area (partitions shall be
considered as part of the live load); and not to move any safe, vault or
other heavy equipment in, about or out of the Premises except in such
manner and at such time as Landlord shall in each instance authorize;
Tenant's business machines and mechanical equipment which cause vibration
or noise that may be transmitted to the Building structure or to any other
space in the Building shall be so installed, maintained and used by Tenant
so as to eliminate such vibration or noise.
5.11 To pay promptly when due all taxes which may be imposed upon Tenant's
Property in the Premises to whomever assessed.
5.12 To comply with all applicable Legal Requirements now or hereafter in force
which shall impose a duty on Landlord or Tenant relating to or as a result
of the use or occupancy of the Premises; provided that Tenant shall not be
required to make any alterations or additions to the structure, roof,
exterior and load bearing walls, foundation, structural floor slabs and
other structural elements of the Building unless the same are required by
such Legal Requirements as a result of or in connection with Tenant's use
or occupancy of the Premises beyond normal use of space of this kind.
Tenant shall promptly pay all fines, penalties and damages that may arise
out of or be imposed because of its failure to comply with the provisions
of this Section 5.12. Landlord represents to Tenant that the Permitted
Uses are permitted in the Premises under the applicable Town of Lexington
Zoning By-Law.
5.13 To pay as Additional Rent all reasonable costs, counsel and other fees
incurred by Landlord in connection with the successful enforcement by
Landlord of any obligations of Tenant under this Lease.
ARTICLE VI
----------
LANDLORD'S INSURANCE CASUALTY AND TAKING
----------------------------------------
6.0 Landlord shall maintain in full force from the date upon which Tenant
first enters the Premises for any reason, throughout the Term, and
thereafter so long as Tenant is in occupancy of any part of the Premises,
a policy of insurance upon the Building and Landlord's furniture,
fixtures, and other equipment insuring against all risks of physical
-36-
<PAGE> 37
loss or damage under an All Risk coverage endorsement in an amount at
least equal to the full replacement value of the property insured (as
reasonably determined by Landlord), with an Agreed Amount endorsement to
satisfy co-insurance requirements, as well as insurance against breakdown
of boilers and other machinery as customarily insured against. Upon
request of Tenant from time to time, a certificate of such insurance shall
be delivered to Tenant. Such insurance may be written with a deductible as
determined by Landlord. Further, if at any time during the Term all risk
type insurance coverage shall cease to be written, then the type of fire
and casualty insurance and amount of coverage shall be as determined by
Landlord. Landlord may also maintain such other insurance as may from time
to time be required by any mortgagee holding a first mortgage lien on the
Site. In addition, Landlord may also maintain such insurance against loss
of Annual Fixed Rent and Additional Rent and such other risks and perils
as Landlord deems proper. Any and all such insurance together with the
liability insurance required or permitted to be carried under this Lease
by Landlord may be maintained under a blanket policy affecting other
premises of Landlord and/or affiliated business organizations.
6.1 In case during the Lease Term the Building or the Site are damaged by fire
or other casualty and such fire or casualty damage cannot, in the ordinary
course, reasonably be expected to be repaired within one hundred fifty
(150) days from the time that repair work would commence, Landlord may, at
its election, terminate this Lease by notice given to Tenant within sixty
(60) days after the date of such fire or other casualty, specifying the
effective date of termination. The effective date of termination specified
by Landlord shall not be less than thirty (30) days nor more than
forty-five (45) days after the date of notice of such termination.
In case during the Lease Term, the Premises are damaged by fire or other
casualty and such fire or casualty damage cannot, in the ordinary course,
reasonably be expected to be repaired within two hundred forty (240) days
(and/or as to special work or work which requires long lead time then if
such work cannot reasonably be expected to be repaired within such
additional time as is reasonable under the circumstances given the nature
of the work) from the time that repair work would commence, Tenant may, at
its election, terminate this Lease by notice given to Landlord within
thirty (30) days after the date of such fire or other casualty, specifying
the effective date of termination. The effective date of termination
specified by Tenant shall be not less than thirty (30) days nor more than
forty-five (45) days after the date of notice of such termination.
However, in case during the last year of the Lease Term, the Premises are
damaged by fire or other casualty and such fire or casualty damage cannot,
in the ordinary course, reasonably be expected to be repaired within one
hundred fifty (150) days (and/or as to special work or work which requires
long lead time then if such work cannot reasonably
-37-
<PAGE> 38
be expected to be repaired within such additional time as is reasonable
under the circumstances given the nature of the work) from the time that
repair work would commence, Tenant may, at its election, terminate this
Lease by notice given to Landlord within thirty (30) days after the date
of such fire or other casualty, specifying the effective date of
termination. The effective date of termination specified by Tenant shall
be not less than thirty (30) days nor more than forty-five (45) days after
the date of notice of such termination.
Unless terminated pursuant to the foregoing provisions, this Lease shall
remain in full force and effect following any such damage subject,
however, to the following provisions.
If the Building or the Site or any part thereof are damaged by fire or
other casualty and this Lease is not so terminated, or Landlord or Tenant
have no right to terminate this Lease, and in any such case the holder of
any mortgage which includes the Building as a part of the mortgaged
premises or any ground lessor of any ground lease which includes the Site
as part of the demised premises allows the net insurance proceeds to be
applied to the restoration of the Building (and/or the Site), Landlord
shall, promptly after such damage and the determination of the net amount
of insurance proceeds available, use due diligence to restore the Premises
and the Building in the event of damage thereto (excluding Tenant's
Property) into proper condition for use and occupation and a just
proportion of the Annual Fixed Rent, Tenant's share of Operating Costs and
Tenant's share of real estate taxes shall be abated according to the
nature and extent of the injury to the Premises, until the Premises shall
have been restored by Landlord substantially into such condition except
for punch list items and long lead items. Notwithstanding anything herein
contained to the contrary, Landlord shall not be obligated to expend for
such repair and restoration any amount in excess of the net insurance
proceeds.
If such restoration is not completed within eleven (11) months from the
date of the fire or casualty, such period to be subject, however, to
extension where the delay in completion of such work is due to causes
beyond Landlord's reasonable control (but in no event beyond fifteen (15)
months from the date of the fire or casualty), Tenant shall have the right
to terminate this Lease at any time after the expiration of such one-year
period (as extended), which right shall continue until the restoration is
substantially completed. Such termination shall be effective as of the
thirtieth (30th) day after the date of receipt by Landlord of Tenant's
notice, with the same force and effect as if such date were the date
originally established as the expiration date hereof unless, within thirty
(30) days after Landlord's receipt of Tenant's notice, such restoration is
substantially completed, in which case Tenant's notice of termination
shall be of no force and effect and this Lease and the Lease Term shall
continue in full force and effect.
-38-
<PAGE> 39
6.2 Notwithstanding anything to the contrary contained in this Lease, if the
Building or the Premises shall be substantially damaged by fire or
casualty as the result of a risk not covered by the forms of casualty
insurance at the time maintained by Landlord and such fire or casualty
damage cannot, in the ordinary course, reasonably be expected to be
repaired within ninety (90) days from the time that repair work would
commence, Landlord may, at its election, terminate the Term of this Lease
by notice to the Tenant given within thirty (30) days after such loss. If
Landlord shall give such notice, then this Lease shall terminate as of 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.
6.3 If the entire Building, or such portion of the Premises as to render the
balance (if reconstructed to the maximum extent practicable in the
circumstances) unsuitable for Tenant's purposes, shall be taken by
condemnation or right of eminent domain, Landlord or Tenant shall have the
right to terminate this Lease by notice to the other of its desire to do
so, provided that such notice is given not later than thirty (30) days
after Tenant has been deprived of possession. If either party shall give
such notice, then this Lease shall terminate as of 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.
Further, if so much of the Building shall be so taken that continued
operation of the Building would be uneconomic as a result of the taking,
Landlord shall have the right to terminate this Lease by giving notice to
Tenant of Landlord's desire to do so not later than thirty (30) days after
Landlord receives written notice of such taking. If Landlord shall give
such notice, then this Lease shall terminate as of 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.
Should any part of the Premises be so taken or condemned during the Lease
Term hereof, and should this Lease not be terminated in accordance with
the foregoing provisions, and the holder of any mortgage which includes
the Premises as part of the mortgaged premises or any ground lessor of any
ground lease which includes the Site as part of the demised premises
allows the net condemnation proceeds to be applied to the restoration of
the Building, Landlord agrees, after the determination of the net amount
of condemnation proceeds available to Landlord, to use due diligence to
put what may remain of the Premises into proper condition for use and
occupation as nearly like the condition of the Premises prior to such
taking as shall be practicable (excluding Tenant's Property).
Notwithstanding the foregoing, Landlord shall not be obligated to expend
for such repair and restoration any amount in excess of the net
condemnation proceeds.
If the Premises shall be affected by any exercise of the power of eminent
domain, then the Annual Fixed Rent, Tenant's share of operating costs and
Tenant's share of real estate
-39-
<PAGE> 40
taxes shall be justly and equitably abated and reduced according to the
nature and extent of the loss of use thereof suffered by Tenant; and in
case of a taking which permanently reduces the Rentable Floor Area of the
Premises, a just proportion of the Annual Fixed Rent, Tenant's share of
operating costs and Tenant's share of real estate taxes shall be abated
for the remainder of the Lease Term.
6.4 Landlord shall have and hereby reserves to itself any and all rights to
receive awards made for damages to the Premises, the Building, the Complex
and the Site and the leasehold hereby created, or any one or more of them,
accruing by reason of exercise of eminent domain or by reason of anything
lawfully done in pursuance of public or other authority. Tenant hereby
grants, releases and assigns to Landlord all Tenant's rights to such
awards, and covenants to execute and deliver such further assignments and
assurances thereof as Landlord may from time to time request, and if
Tenant shall fail to execute and deliver the same within fifteen (15) days
after notice from Landlord, Tenant hereby covenants and agrees that
Landlord shall be irrevocably designated and appointed as its
attorney-in-fact to execute and deliver in Tenant's name and behalf all
such further assignments thereof which conform with the provisions hereof.
Nothing contained herein shall be construed to prevent Tenant from
prosecuting in any condemnation proceeding a claim for the value of any of
Tenant's usual trade fixtures installed in the Premises by Tenant at
Tenant's expense and for relocation and moving expenses, provided that
such action and any resulting award shall not affect or diminish the
amount of compensation otherwise recoverable by Landlord from the taking
authority.
ARTICLE VII
-----------
DEFAULT
-------
7.1 (a) If at any time subsequent to the date of this Lease any one or more of
the following events (herein sometimes called an "Event of Default") shall
occur:
(i) Tenant shall fail to pay the fixed rent, Additional Rent or
other charges for which provision is made herein on or before
the date on which the same become due and payable, and the
same continues for ten (10) days after notice from Landlord
thereof, or
(ii) Landlord having rightfully given the notice specified in
subdivision (a) above twice in any calendar year, Tenant shall
thereafter in the same calendar year fail to pay the fixed
rent, Additional Rent or other charges
-40-
<PAGE> 41
on or before the date on which the same become due and
payable and the same continues for two (2) business days after
notice from Landlord thereof, or,
(iii) 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
(iv) Tenant's leasehold interest in the Premises shall be taken on
execution or by other process of law directed against Tenant;
or
(v) Tenant shall make an assignment for the benefit of creditors
or shall file a voluntary petition in bankruptcy or shall be
adjudicated bankrupt or 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,
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
(vi) A petition shall be filed against Tenant in bankruptcy or
under any other law 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 debtor in possession (whether or
not Tenant) trustee, receiver or liquidator of Tenant or of
all or any substantial part of its properties or of the
Premises shall be appointed without the consent or
acquiescence of Tenant and such appointment shall remain
unvacated or unstayed for an aggregate of sixty (60) days
(whether or not consecutive)--
then after the applicable notice and cure period when no cure has been
fully effected, and in any of said cases (notwithstanding any license of a
former breach of covenant or waiver of the benefit hereof or consent in a
former instance, Landlord lawfully may, immediately or at any time
thereafter, and without demand or further notice terminate this Lease by
notice to Tenant, specifying a date not less than twenty (20) days after
the
-41-
<PAGE> 42
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 Lease Term (Tenant hereby waiving any rights of redemption), and
Tenant will then quit and surrender the Premises to Landlord, but Tenant
shall remain liable as hereinafter provided.
(b) If This Lease shall have been terminated as provided in this Article,
then Landlord may, without notice, re-enter the Premises, either by
force, 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, and Tenant hereby waives the
service of notice of intention to re-enter or to institute legal
proceedings to that end.
(c) In the event that this Lease is terminated under any of the provisions
contained in Section 7.1 (a) or shall be otherwise terminated by breach of
any obligation of Tenant, Tenant covenants and agrees forthwith to pay and
be liable for, on the days originally fixed herein for the payment
thereof, amounts equal to the several installments of rent and other
charges reserved as they would, under the terms of this Lease, become due
if this Lease had not been terminated or if Landlord had not entered or
re-entered, as aforesaid, and whether the Premises be relet or remain
vacant, in whole or in part, or relet for a period less than the remainder
of the Term, and for the whole thereof, but in the event the Premises be
relet by Landlord, Tenant shall be entitled to a credit in the net amount
of rent and other charges received by Landlord in reletting, after
deduction of all expenses incurred in reletting the Premises (including,
without limitation, remodeling costs, brokerage fees and the like), and in
collecting the rent in connection therewith, in the following manner:
Amounts received by Landlord after reletting shall first be applied
against such Landlord's expenses, until the same are recovered, and until
such recovery, Tenant shall pay, as of each day when a payment would fall
due under this Lease, the amount which Tenant is obligated to pay under
the terms of this Lease (Tenant's liability prior to any such reletting
and such recovery not in any way to be diminished as a result of the fact
that such reletting might be for a rent higher than the rent provided for
in this Lease); when and if such expenses have been completely recovered,
the amounts received from reletting by Landlord as have not previously
been applied shall be credited against Tenant's obligations as of each day
when a payment would fall due under this Lease, and only the net amount
thereof shall be payable by Tenant. Further, amounts received by Landlord
from such reletting for any period shall be credited only against
obligations of Tenant allocable to such period, and shall not be credited
against obligations of Tenant hereunder accruing subsequent or prior to
such period; nor shall any credit of any kind be
-42-
<PAGE> 43
due for any period after the date when the term of this Lease is scheduled
to expire according to its terms.
(d)(i) At any time after such termination and whether or not Landlord
shall have collected any damages as aforesaid, Tenant shall pay to
Landlord as liquidated final damages and in lieu of all other damages
beyond the date of notice from Landlord to Tenant, at Landlord's election,
such a sum as at the time of the giving of such notice represents the
amount of the excess, if any, of the then cash value (in advance) of the
total rent and other benefits which would have accrued to Landlord under
this Lease from the date of such notice for what would be the then
unexpired Lease Term if the Lease terms had been fully complied with by
Tenant over and above the then cash rental value (in advance) of the
Premises for the balance of the Lease Term.
(d)(ii) For the purposes of this Article, if Landlord elects to require
Tenant to pay damages in accordance with the immediately preceding
paragraph, the total rent shall be computed by assuming that Tenant's
share of excess taxes, Tenant's share of excess operating costs and
Tenant's share of excess electrical costs would be, for the balance of the
unexpired Term from the date of such notice, the amount thereof (if any)
for the immediately preceding annual period payable by Tenant to Landlord.
(e) In case of any Event of Default, re-entry, dispossession by summary
proceedings or otherwise, Landlord may (i) relet 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 or necessary to relet the same and (ii) may
make such alterations, repairs and decorations in the Premises as Landlord
in its sole judgment considers advisable or 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 use reasonable efforts to
relet the Premises after Tenant vacates the Premises (which reasonable
efforts shall be deemed satisfied by Landlord offering the Premises for
lease either directly or through a commercial real estate leasing broker
or brokerage firm) but the failure to relet in whole or in part shall not
give rise to any claim, action or counterclaim by Tenant nor release,
limit, reduce, affect or otherwise modify Tenant's liability. Also,
Landlord shall in no event be liable in any way whatsoever for failure to
relet the Premises, or, in the event that the Premises are relet, for
failure to collect the rent under reletting. 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.
-43-
<PAGE> 44
(f) Except as provided in Subsection (d)(i) above, 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. Further, nothing contained in this
Lease shall limit or prejudice the right of Landlord to prove and obtain
in proceedings for bankruptcy or insolvency by reason of the termination
of this Lease, an amount equal to the maximum allowed by any statute or
rule of law in effect at the time when, and governing the proceedings in
which, the damages are to be proved, whether or not the amount be greater,
equal to, or less than the amount of the loss or damages referred to
above.
7.2 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 such
additional time as is reasonably required to correct any such default,
after notice by Tenant to Landlord properly specifying wherein Landlord
has failed to perform any such obligation.
ARTICLE VIII
------------
8.1 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 invalidate or increase the rate of insurance on the
Premises or on the Building above the standard rate applicable to premises
being occupied for the use to which Tenant has agreed to devote the
Premises; 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
Additional Rent thereunder.
8.2 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 its 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 subsequent similar act by the other.
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. The
-44-
<PAGE> 45
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.
8.3 The specific remedies to which Landlord may resort under the terms of this
Lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which such party may be lawfully entitled
in case of any breach or threatened breach by Tenant of any provisions of
this Lease. In addition to the other remedies provided in this Lease,
Landlord shall be entitled to the restraint by injunction of the violation
or attempted or threatened violation of any of the covenants, conditions
or provisions of this Lease or to a decree compelling specific performance
of any such covenants, conditions or provisions.
8.4 Tenant, subject to the terms and provisions of this Lease on payment of
the rent and observing, keeping and performing all of the terms and
provisions of this Lease on Tenant's part to be observed, kept and
performed, shall lawfully, peaceably and quietly have, hold, occupy and
enjoy the Premises during the Term, 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; and it is understood and agreed
that this covenant and any and all other covenants of Landlord contained
in this Lease shall be binding upon Landlord and Landlord's successors
only with respect to breaches occurring during Landlord's or Landlord's
successors' respective ownership of Landlord's interest hereunder, as the
case may be.
Further, Tenant specifically agrees to look solely to Landlord's then
equity interest in the Building at the time owned, or in which Landlord
holds an interest as ground lessee, for recovery of any judgment from
Landlord; it being specifically agreed that neither Landlord (original or
successor), nor any partner in or of Landlord, nor any beneficiary of any
Trust of which any person holding Landlord's interest is Trustee, shall
ever 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 any action not involving the
personal liability of Landlord (original or successor), any partner in or
of Landlord, any successor Trustee to the persons named herein as
Landlord, or any beneficiary of any Trust of which any person holding
Landlord's interest is Trustee, to respond in monetary damages from
Landlord's assets other than Landlord's equity interest aforesaid in the
Building. In no event shall Landlord ever be liable to Tenant for any
indirect or consequential
-45-
<PAGE> 46
damages suffered by Tenant from whatever cause or for any special or
punitive damages of whatever nature.
8.5 After receiving notice from any person, firm or other entity that it holds
a mortgage which includes the Premises as part of the mortgaged premises,
or that it is the ground lessor under a lease with Landlord, as ground
lessee, which includes the Premises as a part of the demised premises, no
notice from Tenant to Landlord shall be effective unless and until a copy
of the same is given to such holder or ground lessor, and the curing of
any of Landlord's defaults by such holder or ground lessor within a
reasonable time thereafter (including a reasonable time to obtain
possession of the premises if the mortgagee or ground lessor elects to do
so) shall be treated as performance by Landlord. For the purposes of this
Section 8.5 or Section 8.15, the term "mortgage" includes a mortgage on a
leasehold interest of Landlord (but not one on Tenant's leasehold
interest).
8.6 With reference to any assignment by Landlord or 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 or ground
lease on property which includes the Premises, Tenant agrees:
(a) That the execution thereof by Landlord, and the acceptance
thereof by the holder of such mortgage or the ground lessor,
shall never be treated as an assumption by such holder or
ground lessor of any of the obligations of Landlord hereunder,
unless such holder, or ground lessor, shall, by notice sent to
Tenant, specifically otherwise elect; and
(b) That, except as aforesaid, such holder or ground lessor 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, or, in the case of a ground
lessor, the assumption of Landlord's position hereunder by
such ground lessor.
In no event shall the acquisition of title to the Building and
the land on which the same is located by a purchaser which,
simultaneously therewith, leases the entire Building or such
land back to the seller thereof be treated as an assumption by
such purchaser-lessor, 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
subject to the provisions of Section 8.4 hereof. In any such
event, this Lease shall be subject and subordinate to the
lease to such purchaser provided that such purchaser agrees to
recognize the right of Tenant to use and occupy the Premises
-46-
<PAGE> 47
upon the payment of rent and other charges payable by Tenant
under this Lease and the performance by Tenant of Tenant's
obligations under this Lease and provided that Tenant agrees
to attorn 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.
8.7 No act or thing done by Landlord during the Lease Term shall be deemed an
acceptance of a surrender of the Premises, and no agreement to accept such
surrender shall be valid, unless in writing signed by Landlord. No
employee of Landlord or of Landlord's agents shall have any power to
accept the keys of the Premises prior to the termination of this Lease.
The delivery of keys to any employee of Landlord or of Landlord's agents
shall not operate as a termination of the Lease or a surrender of the
Premises.
8.8 (A) Tenant warrants and represents that Tenant has not dealt with any
broker, finder or other agent in connection with the consummation of this
Lease other than the Recognized Brokers designated in Section 1.1 hereof;
and in the event any claim is made against the Landlord relative to
dealings by Tenant with brokers, finders or other agents other than the
Recognized Brokers designated in Section 1.1 hereof, Tenant shall defend
the claim against Landlord with counsel of Tenant's selection first
approved by Landlord (which approval will not be unreasonably withheld)
and save harmless and indemnify Landlord on account of loss, cost or
damage which may arise by reason of such claim.
(B) Landlord warrants and represents that Landlord has not dealt with any
broker, finder or other agent in connection with the consummation of this
Lease other than the Recognized Brokers designated in Section 1.1 hereof;
and in the event any claim is made against the Tenant relative to dealings
by Landlord with brokers, finders or other agents other than the
Recognized Brokers designated in Section 1.1 hereof, Landlord shall defend
the claim against Tenant with counsel of Landlord's selection and save
harmless and indemnify Tenant on account of loss, cost or damage which may
arise by reason of such claim. Landlord agrees that it shall be solely
responsible for the payment of brokerage commissions to the Recognized
Brokers designated in Section 1.1 hereof.
8.9 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.
-47-
<PAGE> 48
8.10 The obligations of this Lease shall run with the land, and 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 and, if Tenant shall be an individual, upon and to his
heirs, executors, administrators, successors and 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 subletting or assignment by Tenant.
8.11 Tenant agrees not to record the within Lease, but each party hereto
agrees, on the request of the other, to execute a so-called Notice of
Lease or short form lease in form recordable and complying with applicable
law and reasonably satisfactory to both Landlord's and Tenant's attorneys.
In no event shall such document set forth rent or 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.
8.12 Whenever, by the terms of this Lease, notice shall or may be given either
to Landlord or to Tenant, such notice shall be in writing and shall be
sent by registered or certified mail postage prepaid:
If intended for Landlord, addressed to Landlord at the address set
forth on the first page of this Lease (or to such other address or
addresses as may from time to time hereafter be designated by
Landlord by like notice) with a copy to Landlord, Attention: General
Counsel.
If intended for Tenant, addressed to Tenant, Attention: President at
the address set forth on the second page of this Lease except that
from and after the Commencement Date the address of Tenant shall be
the Premises (or to such other address or addresses as may from time
to time hereafter be designated by Tenant by like notice) with a copy
to Tenant, Attention: General Counsel.
Except as otherwise provided herein, all such notices shall be effective
when received; provided, that (i) if receipt is refused, notice shall be
effective upon the first occasion that such receipt is refused or (ii) if
the notice is unable to be delivered due to a change of address of which
no notice was given, notice shall be effective upon the date such delivery
was attempted.
Where provision is made for the attention of an individual or department,
the notice shall be effective only if the wrapper in which such notice is
sent is addressed to the attention of such individual or department.
-48-
<PAGE> 49
Time is of the essence with respect to any and all notices and periods for
giving notice or taking any action thereto under this Lease.
8.13 Employees or agents of Landlord have no authority to make or agree to make
a lease or any other agreement or undertaking in connection herewith. 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 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.
8.14 The titles of the Articles throughout this Lease 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.
8.15 This Lease shall be subject and subordinate to any mortgage now or
hereafter on the Site or the Building, or both, and to each advance made
or hereafter to be made under any mortgage, and to all renewals,
modifications, consolidations, replacements and extensions thereof and all
substitutions therefor provided that the holder of such mortgage agrees to
recognize the rights of Tenant under this Lease (including the right to
use and occupy the Premises) upon the payment of rent and other charges
payable by Tenant under this Lease and the performance by Tenant of
Tenant's obligations hereunder in which event Tenant shall agree to attorn
to such holder and its successors as landlord. In confirmation of such
subordination and recognition, Tenant shall execute and deliver promptly
such instruments of subordination and recognition as such mortgagee may
reasonably request. Tenant hereby appoints such mortgagee (from time to
time) as Tenant's attorney-in-fact to execute such subordination upon
default of Tenant in complying with such mortgagee's (from time to time)
request. In the event that any mortgagee or its respective successor in
title shall succeed to the interest of Landlord, then, this Lease shall
nevertheless continue in full force and effect and Tenant shall and does
hereby agree to attorn to such mortgagee or successor and to recognize
such mortgagee or successor as its landlord. If any holder of a mortgage
which includes the Premises, executed and recorded prior to the date of
this Lease, shall so elect, this Lease and the rights of Tenant hereunder,
shall be superior in right to the rights of such holder, with the same
force and effect as if this Lease had been executed, delivered and
recorded, or a statutory Notice hereof recorded, prior to the execution,
delivery and recording of any such mortgage. The election of any such
holder shall become effective upon either notice from such holder to
Tenant in the same fashion as notices from Landlord to Tenant are to be
given hereunder or by the recording in the appropriate registry or
recorder's office of an instrument in which such
-49-
<PAGE> 50
holder subordinates its rights under such mortgage to this Lease. With
respect to the present mortgage encumbering the Property, on or before the
Commencement Date, Landlord shall use reasonable efforts to obtain a
Subordination, Non-Disturbance and Attornment Agreement in substantially
the form of Exhibit H attached hereto which shall be executed by Landlord,
Tenant and said mortgagee.
If in connection with obtaining financing for the Building or Complex, a
bank, insurance company, pension trust or other institutional lender shall
request reasonable modifications in this Lease as a condition to such
financing, Tenant will not unreasonably withhold, delay or condition its
consent thereto, provided that such modifications do not increase the
monetary obligations of Tenant hereunder or materially adversely affect
the leasehold interest hereby created.
8.16 Recognizing that Landlord may find it necessary to establish to third
parties, such as accountants, banks, potential or existing mortgagees,
potential purchasers or the like, the then current status of performance
hereunder, Tenant, on the request of Landlord made from time to time, will
promptly furnish to Landlord, or any existing or potential holder of any
mortgage encumbering the Premises, the Building, the Site and/or the
Complex or any potential purchaser of the Premises, the Building, the Site
and/or the Complex, (each an "Interested Party"), a statement of the
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. In
addition, Tenant shall deliver to Landlord, or any Interested Party
designated by Landlord, financial statements of Tenant and any guarantor
of Tenant's obligations under this Lease, as reasonably requested by
Landlord, including, but not limited to financial statements for the past
three (3) years. Any such status statement or financial statement
delivered by Tenant pursuant to this Section 8.16 may be relied upon by
any Interested Party.
8.17 If Tenant shall at any time default in the performance of any obligation
under this Lease, Landlord shall have the right, but shall not be
obligated, to enter upon the Premises and to perform such obligation
notwithstanding the fact that no specific provision for such substituted
performance by Landlord is made in this Lease with respect to such
default. In performing such obligation, Landlord may make any payment of
money or perform any other act. All sums so paid by Landlord (together
with interest at the rate of one and one-half percentage points over the
then prevailing prime rate in Boston as set by The First National Bank of
Boston) and all costs and expenses in connection with the performance of
any such act by Landlord, shall be deemed to be Additional Rent under this
Lease and shall be payable to Landlord immediately on demand. Landlord may
exercise the foregoing rights without waiving any other of its rights or
releasing Tenant from any of its obligations under this Lease.
-50-
<PAGE> 51
8.18 Any holding over by Tenant after the expiration of the term of this Lease
shall be treated as a tenancy at sufferance at one and one-half times the
rents and other charges herein (prorated on a daily basis) and shall
otherwise be on the terms and conditions set forth in this Lease, as far
as applicable; provided, however, that neither the foregoing nor any other
term or provision of this Lease shall be deemed to permit Tenant to retain
possession of the Premises or hold over in the Premises after the
expiration or earlier termination of the Lease Term.
8.19 Any insurance carried by either party with respect to the Premises,
Building or property therein shall include a clause or endorsement denying
to the insurer rights of subrogation against the other party to the extent
rights have been waived by the insured prior to occurrence of injury or
loss. Each party, notwithstanding any provisions of this Lease to the
contrary, hereby waives any rights of recovery against the other for
injury or loss due to hazards covered by such insurance to the extent of
the indemnification received thereunder.
8.20 (A) Tenant agrees to deposit with Landlord upon the execution and delivery
of this Lease a security deposit (the "Security Deposit") in the amount of
$720,000.00 which shall be paid in cash or by wire transfer in either case
in good funds. Landlord shall hold such Security Deposit in a separate
interest bearing account (in which Landlord is identified as trustee and
Tenant is identified as the beneficial owner but in which Landlord (or its
managing agent) is the sole signatory) at a banking institution and in an
investment vehicle selected by Tenant, which banking institution and
investment vehicle shall be subject to Landlord's reasonable prior
approval. If Tenant shall not select a banking institution or investment
vehicle or if Landlord shall not reasonably approve either, Landlord shall
have the right to designate the banking institution and investment
vehicle. The interest so earned shall be added to and be deemed a part of
the Security Deposit. Landlord shall hold the Security Deposit throughout
the term of this Lease , as security for the performance by Tenant of all
obligations on the part of Tenant to be performed. Landlord shall have the
right from time to time without prejudice to any other remedy Landlord may
have on account thereof, to apply the Security Deposit and all interest
earned thereon, or any part thereof, to Landlord's damages arising from
any default on the part of Tenant. If Landlord so applies all or any
portion of such deposit, Tenant shall within seven (7) days after notice
from Landlord deliver cash to Landlord in an amount sufficient to restore
such deposit to the full amount stated in Section 1.2. Tenant not then
being in default, Landlord shall return the Security Deposit, or so much
thereof as shall not have theretofore been applied in accordance with the
terms of this Section 8.20(A) or returned to Tenant in accordance with
Section 8.20(B), to Tenant on the expiration or earlier termination of the
Lease Term and surrender of possession of the Premises by Tenant to
Landlord at such time. If Landlord conveys Landlord's interest under this
Lease, the deposit, or any part thereof not previously applied, shall be
turned
-51-
<PAGE> 52
over by Landlord to Landlord's grantee for proper application of the
Security Deposit in accordance with the terms of this Section 8.20 and the
return thereof in accordance herewith.
(B) Provided that on the applicable date (i) there exists no Event of
Default of Tenant under the Lease and there exists no event which with the
giving of notice or passage of time or both would constitute an Event of
Default or (ii) if Landlord has previously applied the Security Deposit or
any portion thereof to Landlord's damages arising from any default and
Tenant has fully restored the amount so applied, then:
(a) On the last day of the twenty-fourth (24th) full calendar
month of the Lease Term, the Security Deposit shall be reduced
to $480,000.00 and within fifteen (15) days thereafter
Landlord shall return to Tenant such amount as shall be
necessary to reduce the Security Deposit to $480,000.00; and
(b) On the last day of the sixtieth (60th) full calendar month of
the Lease Term, the Security Deposit shall be further reduced
to $300,000.00 and within fifteen (15) days thereafter
Landlord shall return to Tenant such amount as shall be
necessary to reduce the Security Deposit to $300,000.00.
provided, however, in no event shall the foregoing require Landlord to pay
Tenant any amount in excess of the Security Deposit then being held by
Landlord.
(C) Neither the holder of any mortgage nor the lessor in any ground lease
on property which includes the Premises shall ever be responsible to
Tenant for the return or application of any such deposit, whether or not
it succeeds to the position of Landlord hereunder, unless such deposit
shall have been received in hand by such holder or ground lessor.
8.21 If Landlord shall not have received any payment or installment of rent on
or before the date (the "Due Date") on which the same first becomes
payable under this Lease, the amount of such payment or installment shall
bear interest from the Due Date through and including the date such
payment or installment is received by Landlord, at a rate equal to the
lesser of (i) the rate announced by The First National Bank of Boston from
time to time as its prime or base rate (or if such rate is no longer
available, a comparable rate reasonably selected by Landlord), plus two
percent (2%), or (ii) the maximum applicable legal rate, if any. Such
interest shall be deemed Additional Rent and shall be paid by Tenant to
Landlord upon demand.
-52-
<PAGE> 53
8.22 (A) Landlord shall review the Site respecting the feasibility of
constructing an outdoor volleyball court on the Site and shall make
reasonable efforts to provide Tenant with an exterior area on the Site
where a volleyball court can be constructed, given the shape and
topography, soil conditions and existing improvements. If practicable and
if there is sufficient space, Landlord will attempt to locate the
volleyball court in the existing grass area on the southwest, back side of
the Building between the Building and Hartwell Place or in the wooded area
east of the parking lot opposite the front entrance of the Building,
subject to the following provisions hereof. Further, to the extent
required, Landlord shall make reasonable efforts to obtain such
governmental permits and approvals or amendments to existing permits and
approvals as may be necessary for the construction and operation of such a
volleyball court (the "Governmental Approvals"). Tenant shall reasonably
cooperate with Landlord in the foregoing. If Landlord shall be able to
obtain the requisite Governmental Approvals and construct a volleyball
court, the cost of obtaining the Governmental Approvals and construction
the volleyball court shall be paid for entirely by Landlord. In no event
shall Tenant have any obligation to pay for any portion of the cost of
obtaining the Governmental Approvals and/or any portion of the cost of
constructing such volleyball court. If Landlord shall not be able to
obtain the requisite Governmental Approvals and/or if Landlord reasonably
determines that it is not feasible to construct an outdoor volleyball
court on the Site or if Landlord shall be unable to construct an outdoor
volleyball court on the Site, the same shall not constitute a default of
Landlord under this Lease, shall not give Tenant any right to terminate
this Lease and shall not give Tenant any right to reduce, withhold, offset
against or otherwise deduct from Annual Fixed Rent or any Additional Rent.
(B) In addition, Landlord agrees to erect, at its sole cost and expense,
one (1) basketball hoop at the north end of the parking lot area in a
location mutually acceptable to Landlord and Tenant. Tenant shall have the
right to use same and shall not interfere with the use of the parking
areas.
8.23 This Lease shall be governed exclusively by the provisions hereof and by
the law of the Commonwealth of Massachusetts, as the same may from time to
time exist.
-53-
<PAGE> 54
EXECUTED as a sealed instrument in two or more counterparts each of which
shall be deemed to be an original.
LANDLORD:
WITNESS: BY: EDWARD H. LINDE, AS TRUSTEE OF
signature 91 HARTWELL AVENUE TRUST FOR
- --------- HIMSELF AND CO-TRUSTEE BUT NOT
INDIVIDUALLY
TENANT:
RESTRAC, INC.
By MARTIN FAHEY
Title (VICE PRESIDENT)
-----------------
HERETO DULY AUTHORIZED
ATTEST:
BY: CYNTHA EADES
RACHAEL SHANAHAN TREASURER
- ---------------- ---------
SECRETARY HERETO DULY AUTHORIZED
- ---------
(CORPORATE SEAL)
-54-
<PAGE> 55
EXHIBIT A
---------
That certain parcel of land situate in Lexington in the County of
Middlesex and Commonwealth of Massachusetts, described as follows:
SOUTHEASTERLY by Hartwell Avenue, two hundred thirty-seven and 47/100
feet;
SOUTHEASTERLY by a curving line forming the junction of said Hartwell
Avenue and Hartwell Place, as shown on plan hereinafter
mentioned, thirty-nine and 27/100 feet;
SOUTHWESTERLY five hundred thirty-two and 23/100 feet, and
SOUTHWESTERLY, SOUTHERLY and SOUTHEASTERLY one hundred ninety and
25/100 feet, by said Hartwell Place;
SOUTHERLY by lot 9 on said plan, three hundred seventy-four and
57/100 feet;
SOUTHWESTERLY three hundred sixty-seven and 65/100 feet;
NORTHWESTERLY thirty-one and 12/100 feet, and
NORTHWESTERLY again, eight hundred ninety and 63/100 feet, by land
now or formerly of The United States of America;
NORTHEASTERLY by said United States of America land and by land now
or formerly of John W. O'Connor et al, nine hundred
thirty-three and 87/100 feet.
Said parcel is shown as lot 10 on said plan, (Plan No. 31330D).
All of said boundaries are determined by the Court to be located as shown
on a subdivision plan, as approved by the Court, filed in the Land Registration
Office, a copy of which is filed in the Registry of Deeds for the South Registry
District of Middlesex County in Registration Book 835, Page 146, with
Certificate 141096.
The above described land is subject to and has the benefit of the ditches
as approximately shown on said plan at date of original decree, (May 17, 1963).
-55-
<PAGE> 56
So much of the above described land as is included within the area marked
"Tennessee Gas Transmission Company Easement 30' wide" is subject to the
easements set forth in a taking by the Northeastern Gas Transmission Company,
dated July 13, 1951 and duly recorded in Book 7772, Page 162.
The above described land is subject to an Avigation Easement set forth in
a Declaration of Taking by the United States of America dated February 12, 1954
recorded with the Middlesex South District Registry of Deeds in Book 8219, Page
421 and more particularly shown as "Avigation Easement A-130E-1" on Plan No.
31330-D (referred to above).
The above described land is subject to an Order by the Town of Lexington
for construction of water main in Hartwell Avenue, Document No. 461902 as
affected by Certificate for Dissolving Betterments filed as Document No. 499500.
The above described land is subject to a Grant of Easement from Wilbur C.
Nylander et al Trs. to the Town of Lexington to construct and maintain sewer in
Hartwell Place, Document No. 508567.
The above described land is subject to a grant of Easement over 20 feet
wide drain easement (i) for the benefit of lot 9 in common with others entitled
thereto, set forth in Document 511666 and (ii) set forth in Document No. 479843
for the benefit of lot 7 shown on plan recorded with said Document No. 479843.
The above described land is subject to a Taking of easement by the Town of
Lexington in Hartwell Place, Document No. 544200.
The above described land is subject to and has the benefit of a Grant of
Easement and Reservation from Wilbur C. Nylander et al Trs. to the Town of
Lexington for conservation purposes, Document No. 616453.
The above described land is subject to and has the benefit of the
following:
A. Order of Conditions issued by the Town of Lexington
Conservation Commission filed as Document No. 616456 as
extended by Extension Permits issued by said Conservation
Commission filed as Document Nos. 627154, 635069, 655552 and
669180.
B. Decision of the Town of Lexington Board of Appeals filed as
Document No. 616457.
-56-
<PAGE> 57
C. Decision of the Town of Lexington Board of Appeals filed as
Document No. 616458.
D. Decision of the Town of Lexington Board of Appeals filed as
Document No. 616459.
E. Decision of the Town of Lexington Board of Appeals filed as
Document No. 634489.
F. Decision of the Town of Lexington Board of Appeals filed as
Document No. 646344.
G. Decision of the Town of Lexington Board of Appeals filed as
Document No. 646345.
H. Decision of the Town of Lexington Board of Appeals filed as
Document No. 646346.
The above described land is subject to an Easement granted to Boston
Edison Company filed as Document No. 672152.
The above described land is subject to such other easements, agreements
and matters of record, if any, insofar as in force and applicable.
-57-
<PAGE> 1
EXHIBIT 10.23
10-K Filing
Scanning Services Agreement
between
Restrac, Inc.
and
ScanCenters of America
This AGREEMENT. made as of June 7, 1996, between Restrac, Inc., with a
principal place of business at One Dedham Place, Dedham, MA 02026 ("Restrac")
and ScanCenters of America, L.P. with a principal place of business at 5
Strathmore Road, Natick, Massachusetts 01760 ("SCA"). sets forth the terms and
conditions under which SCA will provide resume scanning services to Restrac.
1. SCANNING SERVICES. During the term of this Agreement, SCA will make
available to Restrac the resume scanning services described in Exhibit A to this
Agreement (the "Scanning Services"), in accordance with the terms and conditions
contained in this Agreement. Resumes will be shipped in batches ("Resume
Batches") directly from the Restrac end user ("End User") to SCA and SCA will
perform the Scanning- Services on each page of resume text and such other PAGES
of text as are specified by the End User ("Resume Page"),and return the
resulting resume text and image files on a zip floppy disk (or such substitute
or replacement media as Restrac and SCA shall mutually agree) ("Zip Files") to
Restrac within minimum response times set forth in Section 3 below, ("Response
Times").
2. SCANNING SERVICE CAPACITY. On the first business day of each calendar month,
Restrac will report to SCA the estimated capacity, in numbers of Resume pages
("Restrac Capacity") that Restrac can process through its client services
organization each day. At all times during the term of this Agreement, SCA
agrees to maintain the infrastructure necessary to provide Scanning Services for
at least a number of Resume Pages equal to 150% of the reported Restrac Capacity
per day (the "Minimum SCA Capacity"). For purposes of this Agreement, the "Daily
Average" shall mean the Three Month Rolling Average (as defined in Section 6.2
of this Agreement) divided by twenty-two. Notwithstanding the foregoing, SCA
shall not be required to maintain a Minimum SCA Capacity in excess of 150% of
the Daily Average (the "Minimum Daily Capacity") unless Restrac provides
evidence of anticipated Resume Scanning orders which justify the need for such
an increase in the reasonable opinion of SCA.
3. RESPONSE TIMES. Unless otherwise specified by Restrac, SCA shall perform all
Scanning Services on a first in first out basis. For all Resume Batches
delivered to SCA by 10:30 a.m. Eastern Time on normal business days, SCA shall
perform the Scanning Services for a number of Resume Pages at least equal to the
Minimum Daily Capacity and return the Zip Files for any completed Resume Batches
to Restrac, by 10:30 a.m. Eastern Time on the next business day. Restrac will
make best efforts to provide SCA with advance notice of all Scanning Service
orders, and to schedule the delivery of such Resume Batches in a manner which
divides SCA's workload over SCA's normal days of operation. Following receipt of
the Zip Files, Restrac will perform data population services and deliver the
resume text and image files and data records to each End User. Unless otherwise
notified by Restrac, SCA will ship (via UPS red or comparable delivery service)
the End User's Resume Batch back to the End User within ten business days after
the date SCA forwards the associated Zip Files to Restrac.
4. WARRANTY OF QUALITY. SCA warrants that the Scanning Services will be
performed in a workmanlike manner, and that the resulting Zip Files will contain
resume text files with average character recognition accuracy rates of 99% or
higher. SCA further warrants that Scanning Services will be performed, and
Resume Batches will be returned, within the minimum Response Times set forth
above. Restrac's sole remedy for the breach of this Warranty of Quality
1
<PAGE> 2
with respect to any Resume Batch shall be a refund of all fees paid or payable
for such Resume Batch and/or the termination of this Agreement in accordance
with the provisions of Section 10 of this Agreement.
5. PRICING AND PAYMENT. SCA will send Restrac an invoice for each Resume Batch
with shipment of the Zip Files. The initial fees for the Scanning Service shall
be $X.XXX for each Resume Page for which SCA performs the Scanning Service (the
"Fee"). and the invoice shall include the cost of shipping the Resume Batch
back to the End User. and the cost of the zip disk or replacement or substitute
media that SCA provides Restrac in connection with the delivery of the Zip Files
to Restrac. SCA will also make available the optional services, described in
Exhibit B. for the fees set forth therein. Unless Restrac provides SCA, with a
valid resale certificate or other evidence of exemption. SCA's invoices will
include any sales or use tax related to this transaction. SCA shall be
responsible for the shipping and handling charges associated WITH the delivery
of the Zip Files to Restrac, and each party will be responsible for payment of
any other shipping or handling charges incurred by it in connection with the
performance of this Agreement. Restrac will pay all undisputed invoices within
thirty (30) days of receipt.
6. Adjustments of Pricing and Payments.
------------------------------------
6.1 Notwithstanding anything to the contrary contained in Section 5
above, in the event that Restrac is unable to collect on an End User invoice
which relates to a Scanning Service, and Restrac reasonably determines that the
uncollectability of the invoice is due to a breach of SCA's warrantv of quality
set forth in Section 2 above, Restrac shall be entitled to either withhold
payment to SCA for such Scanning Service or, if payment has already been made,
deduct the Fee for such Scanning Service from a future invoice, until such time
as Restrac and SCA are able to resolve the End User problem and collect payment
from the End User.
6.2 Restrac acknowledges that the Fee set forth in Section 3 above is
based upon SCA's expectation that the volume of Resume Pages per month (the
"Volume"), will approximate 100,000 pages per month, on average, within twelve
months following execution of this Agreement. Accordingly, SCA and Restrac will
monitor the Volume and will, on the first business day of each calendar month.
calculate the average Volume for the preceding three month period (the "Three
Month rolling Average"). In the event that the Three Month Rolling Average as of
January 1, 1997 is less than 40.000 Resume Pages, SCA will have the option to
increase the Fee for Scanning Services to $0.XX per Resume Page effective
January 1, 1997, provided that, in the event that the Three Month Rolling
Average calculated on the first business day of April, 1997 meets or exceeds
100,000 Resume Pages per month, the Fee shall revert to $0.XX per Resume Page
effective April 1, 1997. SCA will also have the option to increase the Fee to
$0.XX per Resume Page effective July 1, 1997, in the event that the Three Month
Rolling Average on that date is less than 100,000 Resume Pages per month;
provided, that, in the event of such an increase. the Fee shall automatically
revert to $0.XX per Resume Pace effective on the first business day of any month
where the Three Month Rolling Average meets or exceeds 100,000 pages per month.
6.3 If at any time after November 30, 1996 the Three Month Rolling
Average falls below 10,000 Resume Pages, each party shall have the option to
terminate this Agreement effective upon 120 days prior written notice.
7. LICENSE GRANT. Subject to the restrictions contained in this Agreement,
Restrac hereby grants to SCA a nonexclusive, nontransferable license to use the
Restrac text and image formatting and conversion software ("Restrac Formatting
Software") provided to SCA during the term of this Agreement, solely for the
purposes of providing Scanning Services to Restrac. SCA agrees not to cause or
permit the reverse engineering, disassembly or decompilation of the Restrac
Software. SCA agrees not to remove any product identification, copyright
notices. or other notices of proprietary rights from the Restrac Software, to
reproduce such notices on all permitted copies, and to take such measures to
keep confidential and safeguard the Restrac Software as it takes with regard to
its own similar proprietary and confidential material. RESTRAC DISCLAIMS ANY AND
ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED
WARRANTIES OF MERCHANTABILITY AND SS FOR A PARTICULAR PURPOSE,
WITH RESPECT TO THE RESTRAC SOFTWARE PROVIDED TO SCA UNDER THIS AGREEMENT.
2
<PAGE> 3
8. Confidentiality
----------------
8.1 SCA and Restrac each acknowledge that, in connection with this
Agreement, each party will be exposed to confidential information of the other
party, including. but not limited to price lists, business plans. financial
reports, products. trade secrets, computer programs and related materials and
other data, concepts or information which are not public and which are
proprietary ("Confidential Information"). For purposes of this Agreement,
"Confidential Information" shall also include information provided to SCA by End
Users, including, but not limited to, the candidate information contained in End
User Resume Batches. Accordingly, both parties agree to maintain such
Confidential Information in strict confidence and not to use it for its benefit
(except as authorized in writing by the disclosing party and to take reasonable
precautions to prevent unauthorized use or disclosure of Confidential
Information, including without limitation, restricting the disclosure of
Confidential Information to employees having a need to know and obtaining from
such persons a commitment of nondisclosure of such information. All Confidential
Information of End Users in the possession of SCA shall be either returned to
the End User and all copies, compilations and derivations destroyed. upon
completion of the associated Scanning Services for such End User. Any and all
other materials containing Confidential Information and all copies thereof will
be returned to the disclosing party or destroyed immediately upon termination of
this Agreement.
8.2 Notwithstanding the provisions of the above paragraph, the parties
will not be restricted in the use or disclosure of information:
(a) which the receiving party rightfully possessed before
it received such information from the disclosing
party,
(b) which is or becomes publicly available through no
fault of the receiving party, or
(c) which is furnished to the receiving party by a third
party without restrictions on use or disclosure.
8.3 SCA will hold Restrac free and harmless from any loss, cost,
liability or damage, including attorney' fees, that Restrac becomes liable for
arising out of or as a result of SCA's breach of the provisions of this
Section 8 relating to the confidentiality of End User Resume Batches.
8.4 The provisions of this Section 8 shall survive termination of this
Agreement.
9. Cooperative Relationship.
------------------------
9.1 Promptly upon execution of this Agreement, SCA and Restrac will
work together to develop a ramp up plan, service scheduling procedure, a roll
out plan and a marketing and promotion plan for the delivery of the Scanning
Services. During the term of this Agreement, each party will cooperate fully in
good faith in order to achieve the purpose of this Agreement, and will provide
the other with a reasonable level of technical assistance and education on a
continuing basis in order to ensure the successful delivery of the Scanning
Services.
3
<PAGE> 4
9.2 During the term of this Agreement, SCA will not make available Scanning-
Services or any similar services involving the scanning, of resumes for use with
the Restrac Software, directly to any End User, and any inquiries received by
SCA from an End User will be referred directly to Restrac.
9.3 SCA and Restrac will each designate one central account contact
("Account Manager") who will be responsible for monitoring the success of the
relationship, and identifying any issues or problems that arise. If a problem
should arise, the parties shall work together to solve the problem in an
equitable manner mutually acceptable to the parties. Restrac make reasonable
efforts to provide SCA with End User feedback and notice of any End User
complaints on an ongoing, basis. The parties will also each designate a
technical contact, who will be responsible for troubleshooting problems and
providing technical information and assistance to the other party. The initial
Account Managers and technical contacts will be:
SCA Restrac
Account Manager: Stephen L. Watson Lynne Ramsay
Technical Contact: Douglas E. Thompson Randy Froc
9.4 In the event of any dispute or disagreement between the parties with
respect to the interpretation of any provision of this Agreement, or with
respect to the performance of either party hereunder, the parties will designate
representatives for the purpose of resolving the dispute. The representatives
shall immediately discuss the issue. ascertain the facts and work TOGETHER to
arrive at an equitable and mutually acceptable solution. In the event that the
representatives are unable to resolve a dispute, the parties agree to consider
alternative dispute resolution techniques such as arbitration or mediation prior
to SEEKING whatever remedy is available in law or in equity.
10. Term/Termination. The initial term of this Agreement shall be for a period
of one year. Thereafter, this Agreement shall be automatically extended for
successive one year periods, unless either party gives the other notice of its
intent not to renew at least ninety days prior to the expiration of the initial
term or any renewal thereof. Except as specifically provided in Section 8.2
above, SCA may only increase the Fee by providing Restrac with written notice at
least ninety (90) days prior to the expiration of the initial term or any
renewal thereof. and in no event shall the Fee be increased more than 10% in any
given year. The Agreement may be terminated by either party in the event of a
material breach by the other that has not been cured within thirty (30) days
after written notice thereof. Upon termination, SCA agrees either to return to
Restrac all copies of the Restrac Software in SCA's possession or control, or
destroy and certify to Restrac the destruction of all such copies.
11. General.
-------
11.1 All notices, requests, consents and other communications
hereunder shall be in writing and shall be delivered the attention of a party's
President, at such party's address set forth on the first page of this Agreement
or such other address as shall have been provided by notice hereunder.
11.2 Neither party will use the name of the other in any publicity,
marketing or promotion, without the prior consent of the other, which consent
may be revoked or subsequently withheld at any time.
11.3 The parties are independent contractors, and neither is
authorized to represent or bind the other except as expressly set forth in this
Agreement.
11.4 SCA may utilize affiliated entities to perform Scanning Services
provided, however, that SCA will remain primarily liable for the performance of
such Scanning Services and all other obligations hereunder. Subject to the
foregoing this Agreement is binding upon and will inure to the benefit of a
party and its successors and assigns.
11.5 This Agreement may not be modified, nor may any of its provisions
be waived, except by an instrument signed by the party against whom such
modification or
4
<PAGE> 5
waiver is to be enforced. Neither party's failure to exercise any of its rights
hereunder shall constitute or be deemed a waiver or forfeiture of such rights.
11.6 This Agreement, including all Exhibits hereto, which are
incorporated herein b reference, embodies the entire agreement and understanding
between Restrac and SCA with respect to the subject matter hereof and supersedes
any prior agreements and understandings between the parties hereto.
11.7 If any provision of this Agreement shall be otherwise unlawful.
void, or for an reason unenforceable, then that provision shall be enforced to
the maximum extent permissible so as to effect the intent of the parties. In
either case, the remainder of this Agreement shall continue in full force and
effect.
11.8 Neither party shall be held responsible to the other for any
failure to perform any of its obligations under this Agreement due to a natural
catastrophe or other act of God, act of the other party, act of civil or
military authority, government priority. or strike. In the event of any such
delay, the date of delivery or performance shall be extended for a period equal
to the time lost by reason of the delay.
11.9 The headings of the articles and sections used in this Agreement
are included for convenience only and are not to be used in construing or
interpreting this Agreement.
11.10 This Agreement shall be governed by and construed in accordance
with the laws of Massachusetts and the United States of America.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on their behalf by their duly authorized officers as of the date set
forth above.
ScanCenters of America, L.P. Restrac, Inc.
By: Stephen L. Watson By: Cynthia G. Eades
Title: President Title: Chief Financial Officer
5
<PAGE> 1
EXHIBIT 10.24
10-K Filing
AMENDMENT NO. 3 TO VAR AGREEMENT
BETWEEN VERITY, INC.
AND RESTRAC, INC. (FORMERLY MICROTRAC SYSTEMS, INC.)
DATED NOVEMBER 27, 1991
This Amendment No. 3 ("Amendment") to the VAR Agreement between Verity,
Inc. ("Verity") and Restrac, Inc. (formerly MicroTrac Systems, Inc.) ("VAR")
dated November 27, 199 1, and all prior amendments thereto ("VAR Agreement")
(collectively, "Agreement") amends the VAR Agreement as follows:
A. VAR shall pay Verity a one-time, up-front nonrefundable, nonrecoupable
license fee in the amount of XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
(US $XXXXXXXXX) within forty-five (45) days of execution of this
Amendment in full satisfaction of any and ALL sublicense fee royalty paymnent
requirements under Section 2.0 of EXHIBIT C (Pricing Addendum) which would
otherwise be payable with respect to shipments of an unlimited number of
Application Packages during the period commencing September 1, 1996 and ending
September 30, 1998 (the "Period").
B. Section 2 of EXHIBIT B (Product Addendum) is amended to reflect that the
Verity software products for which VAR is granted rights to sublicense under the
Agreement (i) may be sublicensed solely as part of VAR's Application Package
pursuant to such Section, and (ii) shall consist of all of Verity's
currently-released products (and all Updates thereto pursuant to Section 5.2.1
of the VAR Agreement), other than the following products (and the optional
features as they relate to the following products and Updates relating TO the
following products):
Topic Internet Server
Topic Remote Site Indexer
SQL Database Access Option for Topic Internet Server
Topic Agent Server Toolkit
Topic Agent Server
Topic NetNews Access Server
Topic Newswire Access Server
Topic Developer's Kit
Topic CD Publisher's Toolkit
Topic CD Publisher's Toolkit CD-ROM Runtime
C. Within thirty (30) days after the end of each calendar quarter, VAR shall pay
Verity maintenance fees in the amount of fifteen percent (15%) of Accruable
Amounts (as defined below) applicable to such calendar quarter. "Accruable
Amounts" shall mean the aggregate amount equal to $XXXX.00 multiplied by the
number of servers upon which the indices of information used with an Application
Package is installed or accessed for any End User then under maintenance with
Restrac during a particular calendar quarter (which includes as many seats as
can be supported on such server and any additional backup, testing or training
copies). Such maintenance fees shall be in satisfaction of all maintenance fee
requirements otherwise payable under the Agreement with respect to the Period,
notwithstanding Section 4.0 of EXHIBIT C (Pricing Addendum). VAR shall submit
reports detailing all information related to calculation of such maintenance
FEES (including, without limitation, the number of applicable servers) in
conjunction with each payment of such maintenance fees
1
<PAGE> 2
D. Section 3 of EXHIBIT B (Product Addendum) is amended to reflect that the
Products subject to this Agreement (the Application Package) are now labeled and
marketed as Restrac's suite of staffing products known as Restrac Enterprise or
Restrac Hire.
E. The initial term of the Agreement is hereby extended to remain in full force
and effect until September 30, 1998.
F. This Amendment may be signed by the parties in counterparts. All other terms
and conditions of the VAR Agreement unchanged.
IN WITNESSS WHEREOF, the parties have executed this Amendment effective as of
August 30, 1996.
Verity, Inc. VAR: Restrac, Inc.
By: /s/ Timothy J. Moore By: /s/ Lars Perkins
------------------------------ ------------------------------
Name: Timothy J. Moore Name: Lars Perkins
----------------------------- -----------------------------
Title: Vice President Title:
---------------------------- ----------------------------
Date: August 30, 1996 Date:
----------------------------- -----------------------------
2
<PAGE> 1
EXHIBIT 11.1
<TABLE>
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND SHARE AMOUNTS)
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------- -------------------
<S> <C> <C>
PRIMARY:
Net income............................................ $401 $1,484
Weighted Average Shares of Common Stock Outstanding... 3,870,000 3,871,153
Dilutive Effect of Options Issued prior to 5/10/96.... 360,119 351,344
Dilutive Effect of Options Exercised 964
Effect of Cheap Stock Options......................... 174,248 163,562
Conversion of Preferred Stock......................... 2,502,696 2,502,696
Shares issued in IPO.................................. -- 285,326
Shares issuable in IPO to fund Cumulative Dividends... 42,210 37,126
--------- ---------
Primary weighted average number of common and common
equivalent shares outstanding....................... 6,949,273 7,212,171
========= =========
Primary net income per share.......................... $0.06 $0.21
========= =========
FULLY DILUTED:
Net income............................................ $401 $1,484
Weighted Average Shares of Common Stock Outstanding... 3,870,000 3,871,153
Dilutive Effect of Options Issued prior to 5/10/96.... 360,119 361,442
Dilutive Effect of Options Exercised.................. -- 991
Effect of Cheap Stock Options......................... 174,248 163,562
Conversion of Preferred Stock......................... 2,502,696 2,502,696
Shares issued in IPO.................................. -- 285,326
Shares issuable in IPO to fund Cumulative Dividends... 42,210 37,127
--------- ---------
Fully Diluted weighted average number of common and
common equivalent shares outstanding................ 6,949,273 7,222,297
Fully Diluted net income per share.................... $0.06 $0.21
========= =========
</TABLE>
<PAGE> 1
RESTRAC, INC. EXHIBIT 21.1
SUBSIDIARIES 10-K FILING
Restrac Securities Corporation, a wholly owned subsidiary of Restrac, Inc. was
incorporated in September, 1996.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Restrac, Inc.:
As independent public accountants, we hereby consent to the incorporation
by reference in the Registration Statement on Form S-8, pertaining to the
Restrac, Inc. 1994 Stock Option Plan, the Restrac, Inc. 1996 Stock Option and
Grant Plan and the Restrac, Inc. 1996 Employee Stock Purchase Plan, of our
report dated October 25, 1996 on the financial statements and schedule included
in this Form 10-K. It should be noted that we have not audited any financial
statements of the Company subsequent to September 30, 1996 or performed any
audit procedures subsequent to the date of our report.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
December 19, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27.1
10-K Filing
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 20,367,641
<SECURITIES> 0
<RECEIVABLES> 3,737,010
<ALLOWANCES> 350,000
<INVENTORY> 0
<CURRENT-ASSETS> 24,755,193
<PP&E> 3,346,139
<DEPRECIATION> 1,825,246
<TOTAL-ASSETS> 26,309,984
<CURRENT-LIABILITIES> 7,337,276
<BONDS> 0
0
0
<COMMON> 85,697
<OTHER-SE> 18,887,011
<TOTAL-LIABILITY-AND-EQUITY> 26,309,984
<SALES> 21,592,072
<TOTAL-REVENUES> 21,592,072
<CGS> 6,311,961
<TOTAL-COSTS> 6,311,961
<OTHER-EXPENSES> 12,955,135
<LOSS-PROVISION> 50,000
<INTEREST-EXPENSE> 15,853
<INCOME-PRETAX> 2,651,270
<INCOME-TAX> 1,166,820
<INCOME-CONTINUING> 1,484,450
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,484,450
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
</TABLE>
