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, 1998
Transition Report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934.
Commission File number 000-22841
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MARCAM SOLUTIONS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 04-3371621
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
95 Wells Avenue
Newton, Massachusetts 02459
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (617) 965-0220
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
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Series A Junior Participating Preferred Stock Purchase Rights, $.01 Par Value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Common Stock, $.01 Par Value, of the
registrant held by non-affiliates of the registrant as of December 16, 1998
(computed based on the closing price of such stock on the Nasdaq National
Market) was $44,544,888.
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The number of shares outstanding of the registrant's Common Stock, $.01 Par
Value, as of December 16, 1998 was 7,746,937 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, or indicated portions thereof, have been
incorporated herein by reference:
Specifically identified information in the Registrant's definitive proxy
materials for its Annual Meeting of Stockholders to be held on February 24, 1999
is incorporated by reference into Part III hereof.
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PART I
Except for the historical information contained herein, the matters
discussed in this Annual Report on Form 10-K may include forward-looking
statements that involve risks and uncertainties. Marcam Solutions makes such
forward-looking statements under the provisions of the "Safe Harbor" section of
the Private Securities Litigation Reform Act of 1995. Any forward-looking
statements should be considered in light of the factors described below in Item
7 under "Factors Affecting Future Performance." Actual results may vary
materially from those projected, anticipated or indicated in any forward-looking
statements. In this Annual Report on Form 10-K, the words "anticipates,"
"believes," "could," "expects," "future," "intends," "may," and similar words or
expressions (as well as other words or expressions referencing future events,
conditions or circumstances) identify forward-looking statements.
ITEM I. BUSINESS
GENERAL
Marcam Solutions, Inc. was incorporated in 1997. Unless the context
otherwise requires, the terms "Company," "Marcam Solutions" and "Marcam" refer
to Marcam Solutions, Inc. and its subsidiaries. The Company's principal offices
are located at 95 Wells Avenue, Newton, Massachusetts 02459, and its telephone
number is (617) 965-0220. The Company's World Wide Web address is
www.marcam.com.
Fiscal 1998 marked the first full year of operations for Marcam Solutions
since its spin-off from Marcam Corporation. On July 29, 1997, Marcam Corporation
spun off, in a tax-free distribution, the portion of its business relating to
its PRISM(R), Protean(R) and Avantis(TM) product lines. Prior to the spin-off,
Marcam Corporation transferred to Marcam Solutions, at that time a wholly-owned
subsidiary of Marcam Corporation, substantially all of the business, assets and
liabilities relating to Marcam Corporation's PRISM, Protean and Avantis product
lines and an aggregate of $39.0 million in cash in exchange for (i) the
assumption by Marcam Solutions of certain liabilities and obligations relating
to the business to be conducted by Marcam Solutions, (ii) a number of shares of
common stock of Marcam Solutions sufficient for Marcam Corporation to make the
Distribution (as defined below) and (iii) warrants to purchase an aggregate of
500,000 shares of common stock of Marcam Solutions. Marcam Corporation
distributed all of its ownership interest in Marcam Solutions by means of a
distribution on July 29, 1997 to its stockholders of record on July 23, 1997
(the "Distribution"). In connection with the Distribution, Marcam Corporation
changed its name from "Marcam Corporation" to "MAPICS, Inc." ("MAPICS").
Marcam Solutions develops, globally markets, implements, and supports
enterprise resource planning (ERP) software applications designed exclusively
for process manufacturers and enterprise asset management (EAM) software for all
capital-intensive industries. The Company's mission is to provide process
manufacturing companies with specialized, agile business solutions that enable
them to achieve process operational excellence while realizing low total cost of
ownership, and to provide best-of-breed asset management solutions to industries
that must protect and optimize their capital investments. Effective October 1,
1998, the Company now manages its business through two separate industry
business groups -- the PRISM and Protean business group and the Avantis business
group -- to better focus its resources to address the specific needs of the
process manufacturing and the stand-alone EAM market segments, respectively.
Each industry business group oversees all worldwide activities associated with
its respective products, including sales and marketing, service, implementation,
development, and support.
Specialized features designed to support a process manufacturer's unique
characteristics are integral to the base design of all Marcam products. As a
result, more meaningful inventory, planning, production, costing, and financial
information enable Marcam's process manufacturing customers to streamline their
processes and better monitor and constantly improve the performance of their
operations. Additionally, Marcam's Protean ERP component products integrate with
existing applications from other ERP, Manufacturing Execution Systems (MES) and
Supply Chain Planning vendors. The process industry expertise of Marcam's
employees and the excellent functional fit, agility, and ease of integration of
Marcam's solutions results in faster deployment of software applications and the
ability to support changing business requirements at a lower total cost of
ownership for process manufacturing companies.
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PRISM is Marcam Solutions' ERP software applications product line for
process companies using IBM's AS/400 computers. Protean is the Company's product
line that provides industry-leading ERP software applications for process
manufacturers requiring an open client/server environment. Avantis.XA is the
Company's EAM solution for capital-intensive industries running on IBM's AS/400
platform. Avantis.Pro is Marcam Solutions' object-oriented EAM solution for
capital-intensive industries needing an open client/server environment. All of
Marcam Solutions' independently developed applications are Year 2000 compliant,
and contain Euro functionality enabling companies to process multiple currencies
and address the requirements of Euro compliance.
INDUSTRY BACKGROUND
Industrial manufacturing companies can be characterized by the type of
manufacturing conducted: process or discrete. Process companies, such as food,
chemical, steel, pulp and paper, consumer product goods, pharmaceutical, rubber,
glass/plastics and building materials companies, produce products by controlling
chemical reactions, including mixing, separating, heating, forming and refining.
Discrete companies, such as automotive, appliance, electronics and aerospace
companies, produce products by assembling and/or machining.
Process manufacturing has unique characteristics with respect to four
fundamental areas:
o Existence of by-products, co-products, recyclables and waste
materials--By-products, co-products, recyclables and waste materials may be
produced at various stages of the manufacturing process, and the cost,
further use and disposal of these by-products, co-products, recyclables and
waste materials is important to the overall efficiency of a process
manufacturing organization;
o Material and production variability and predictability--Process manufacturers
may use different manufacturing processes for any given product. The
processes depend upon the inherent variability of the input (often
agricultural products or chemicals as opposed to manufactured components) and
on the price, quality and availability of raw materials and equipment
creating unique challenges for process manufacturers;
o Product cost characteristics--Process manufacturers have a relatively large
portion of their investment in plant and capital equipment and rely upon
inputs that are normally part of overhead, such as utilities, equipment
maintenance and waste disposal. Accordingly, costs other than direct labor
and material represent a relatively large portion of total costs for process
companies; and
o Inventory management--Process manufacturers have a small portion of their
assets in inventory because they purposefully limit on-hand inventories due
to storage costs of bulk liquids and gases and do not keep substantial
work-in-progress inventories because production flows through the plant.
Inventory management is further complicated because of multiple units of
measures, a requirement for lot control to separate materials of differing
quality attributes, and the challenges of fluctuating costs of commodities.
The manufacturing resource planning ("MRP") systems of the 1980's centered
around streamlining processes within a single manufacturing plant. The success
of these applications led to the integration of other operations, such as
forecasting, costing, quality management and transportation, into the more
streamlined manufacturing systems. Additionally, the reach of MRP systems began
to extend beyond the plant floor. As competition increased, manufacturers
responded by looking for ways to further reduce costs and improve customer
service across their enterprises. MRP systems, with their plant-oriented
features, could not address the needs of increasingly multi-regional or global
enterprises.
MRP systems have now evolved into an enterprise resource planning ("ERP")
model, encompassing features to support an enterprise's complete supply chain
(production, customer service, logistics, and asset management) and financial
business requirements across multiple sites. Today, the majority of process
manufacturers require an ERP system that can support their enterprise-wide
functions and activities. An ERP system may consist of an integrated solution
from a single vendor or may be assembled through a combination of core
applications from one supplier and specialized ERP components from other
suppliers.
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Although current-generation client/server solutions enable companies to be
platform independent, they generally do not allow easy, inexpensive
interoperability of software applications obtained from different vendors.
Object technology allows enterprises to implement business processes more
rapidly. This ability to more rapidly respond to change is increasingly
important as companies are forced to change in response to pressures from
competition, customer expectations, growth and regulation. Applications based on
object technology allow greater on-going flexibility at a lower cost than
applications built with alternative technologies.
According to industry sources, the total worldwide market for ERP systems
was approximately $15 billion in 1998. Approximately 32% of this market is
comprised of software and software-related services for process manufacturers.
Process manufacturing companies typically manage significant investments in
physical assets, such as plant equipment, fleets of vehicles and facilities.
Other capital-intensive industries that have similarly significant investments
in physical assets (such as mining, education and municipalities, and wastewater
treatment facilities) consider an EAM solution to be the primary
mission-critical application in their operations.
According to industry sources, the total worldwide market for software and
services for the EAM systems is estimated to be over $850 million in 1998.
STRATEGY SUMMARY
The Company's approach to addressing the ERP and EAM markets includes
providing:
o Specialized ERP and/or EAM applications designed exclusively for process and
capital-intensive industries;
o A comprehensive set of integrated, horizontal applications, including
financials, asset management and customer order management, for mid-sized
manufacturers seeking a full ERP solution from a single vendor;
o Platform alternatives, including open client/server and AS/400 environments;
o Attractive migration paths between open client/server and AS/400 computing
environments;
o Applications based on object-oriented technology that have benefits of
advanced fit, agility and low total cost of ownership; and
o High quality service and support through its employee staff and services
partners.
PRODUCTS FOR PROCESS MANUFACTURING COMPANIES
Marcam Solutions offers two product lines that provide ERP solutions for
process manufacturers: Protean and PRISM. PRISM was first introduced in 1987.
Protean was introduced in 1994. PRISM is available exclusively on the IBM AS/400
and is noted for its process application depth and its strong integration.
Protean is an open client/server product line developed in an object-oriented
environment. Marcam Solutions believes Protean is the first ERP process plant
operation solution using this technology. Protean is available on leading UNIX
and Microsoft Windows 95 and NT platforms.
Unique Design Features
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Marcam Solutions believes that the distinct management challenges faced by
process manufacturers necessitate software applications designed specifically to
address these unique requirements. Marcam Solutions' PRISM and Protean product
lines incorporate design features which differentiate them from traditional
manufacturing application software. Marcam Solutions believes that these design
features provide its customers with business benefits that they would not
typically receive from applications not designed specifically for the process
business environment. The design features are:
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Resource Management--permits users to easily model and control all of the
different inputs and outputs of their production process, including materials,
utilities, equipment, facilities, labor and overhead, and multiple outputs,
including multiple finished products, recycled materials, by-products, waste and
grades of material. The inclusion of all of these resources provides for a more
accurate assignment of costs, which in turn leads to a more accurate product
cost picture, better visibility into production requirements during planning
cycles and enhanced performance measurements.
Production Model (U.S. Patent #4,864,507)--permits users to develop
detailed models of (i) processes with multiple outputs, (ii) multiple processes
for the same produced products, (iii) recycled products, (iv) processes where an
accurate definition of time dependencies is necessary and (v) flow and batch
process steps. The alternative modeling method (bill of materials and routing)
was designed to model the products produced in discrete industries and is
utilized in traditional manufacturing software.
Integrated Quality Management--provides users with the ability to integrate
quality control management information within inventory control, sales to
customers and production control. Since the quality of raw materials in process
goods and finished products can fluctuate for process manufacturers from one
time to the next, quality management and the tracking of quality results is a
fundamental requirement. This feature provides customers with strict quality
control overview and access to information that is fundamental to their
business.
Formula Management and Regulatory Compliance--provides reformulation
capabilities to address product quality, variability and seasonality. For the
chemical processing industry in particular, the requirement for Material Safety
Data Sheets must be tied to this reformulation, so that any changes to the
formula will be reflected in updated information about the handling,
transportation and storage of such products.
Enterprise Management (U.S. Patent #5,493,671)--permits users to address
their business requirements, including supply chain management, multi-regional
or global management models and multiple production sites. Enterprise-enabled
means that applications contain the logic needed to assess whether information
must be processed locally or be communicated to other production locations.
Marcam Solutions' software is able to supervise such communications
automatically, ensuring that all data is communicated accurately and resending
communications as needed.
Activity Based Costing--provides more accurate cost information for process
manufacturers than traditional accounting methods. Overhead items are charged on
the basis of another directly measured activity which varies with the overhead
item, allowing the measurement and control of all resources and permitting the
establishment of many different relationships between direct and indirect costs.
This is particularly important for process companies because of their high
investment in plant and equipment and their use of other inputs that are
normally part of overhead.
PRISM
First released in 1987, PRISM is a comprehensive ERP product line
consisting of numerous integrated production, logistics, financial and asset
management applications. Marcam Solutions believes that while the breadth of the
PRISM offering is similar to competitive product lines, there are significant
differences in the depth of the offering, including PRISM's patented production
model. All Marcam independently-developed PRISM applications are Year 2000
enabled.
PRISM Enhancements and New Applications
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In 1998, enhancements to two existing applications of the PRISM product
line were made available -- Visual WorkPlace and Info WorkPlace -- that
significantly improve user productivity. The new Visual WorkPlace capabilities
provide tighter desktop integration and ease-of-use. Info WorkPlace, PRISM's
reporting tool, extends its use across the entire PRISM product line, offering
users easier access to the rich PRISM database for improved monitoring of
business trends and decision making.
PRISM 5.10, released in 1998, includes full Euro functionality permitting
companies to address the requirements of Euro compliance.
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In 1998 Protean Financials was integrated to PRISM Production, Logistics
and Maintenance applications enabling continuous measurement of financial
performance throughout an enterprise's profit and cost centers.
Marcam Solutions' strategy is to enable co-existence of PRISM and Protean
applications for its PRISM customers, allowing PRISM customers to leverage the
business benefits of Protean's object-oriented technology while protecting their
PRISM investment.
In support of Marcam Solutions' sales to companies that have selected SAP
for a financials backbone, the Company delivered integration of PRISM to SAP
financial applications in June 1998.
PROTEAN
The first Protean components were released in 1994. Protean offers numerous
integrated ERP components including comprehensive inventory, production,
planning, costing, order management, financial and asset management
applications. The available Protean components deliver robust capabilities that
differ from competitive product lines in the depth of the Protean offering, with
capabilities designed to meet the special characteristics of process plant
operations. This includes, but is not limited to, Marcam's patented Production
Model concept that enables superior capabilities for the management of complex
production and costing processes.
Protean products are designed to provide manufacturing, logistics,
financial and asset management capabilities necessary to manage a company's
supply chain from raw material procurement, through processing and distribution
to the customer. Marcam Solutions believes that its Protean product line is the
first fully object-oriented, mission-critical set of application components for
the ERP market. Protean's object-oriented, component-based architecture and
design allow Protean to be offered to the market in multiple ways. Protean
applications are designed to meet a user's current business needs by providing
superior fit for process companies, while providing the ability to rapidly adapt
enterprise applications to fit new and evolving requirements without the
time-consuming and costly process of rewriting software code. The strength and
depth of the Protean applications also allow customers to address particular
needs within their existing business and plant applications from other ERP
vendors by integrating specific component solutions from Marcam Solutions. All
Marcam independently developed Protean applications are Year 2000 enabled.
Protean Enhancements and New Applications
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In June 1998, the Company delivered Protean Release 3.0, which included a
comprehensive version of the Customer Order Management (COM) application. The
COM application helps process manufacturers reduce their total cost of ownership
and improve responsiveness to their customers' needs. The Protean COM
application contains features such as Trading Partners, Market Profiles, Order
Automation and an Order Entry interface, which process manufacturers can adapt
to their specific needs.
The Protean Financial applications, previously delivered in December 1997,
were enhanced by the delivery of full Euro functionality, which enables
companies to process multiple currencies and address the requirements of Euro
compliance.
With the delivery of standard integrations to both the SAP and PeopleSoft
financial applications in 1998, customers now have the opportunity to integrate
Protean applications with their existing applications.
PRODUCTS FOR ENTERPRISE ASSET MANAGEMENT
In addition to marketing its enterprise asset management applications as
part of an integrated PRISM or Protean solution, the Company delivers a
stand-alone EAM solution under the brand name Avantis. Marcam Solutions believes
that the high level of functionality in the Avantis applications makes them an
appropriate choice for large companies that demand industry-leading solutions to
protect their substantial capital investment.
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AVANTIS.XA
Avantis.XA, a comprehensive enterprise asset management product line,
originally introduced in 1981, remains available exclusively on the IBM AS/400
and is noted for its application depth and its large base of satisfied
customers. All Marcam independently-developed Avantis.XA applications are Year
2000 enabled.
Avantis.XA Enhancements and New Applications
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During 1998, the Company delivered Avantis.XA Release 11.0 EC 12. This
extensive release included several significant enhancements resulting from
customer requests, enhancements to support the Euro currency functionality, and
to integrate with SAP Financials.
An enhanced Visual WorkPlace that provided a graphical user interface for
the entire Avantis.XA solution was delivered in December 1998. The new Visual
WorkPlace capabilities allow increased user productivity through tighter desktop
integration and improved ease-of-use.
AVANTIS.Pro
Avantis.Pro is an enterprise asset management solution that enables
customers to more quickly and easily reflect business changes within the
software. Avantis.Pro is an open, client/server application developed with an
object-oriented design. Objects within the solution integrate with
industry-leading solutions for work flow, document management and imaging. This
object-oriented design offers many advantages to customers that see technology
as a key element of their corporate strategy. Avantis.Pro is available on
leading UNIX platforms and runs Microsoft Windows 95 and Windows NT as its PC
client operating systems. All Marcam independently-developed Avantis.Pro
applications are year 2000 enabled.
Avantis.Pro Enhancements and New Applications
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The Company delivered Avantis.Pro Release 2.3 in March 1998 and Avantis.Pro
3.0 in December 1998. Release 2.3 provides enhancements across the product,
including multi-line transactions, cycle count, and middle tier technology for
true NT environments, while Release 3.0 focused on Euro Currency support.
LICENSE FEES
Marcam Solutions generally licenses its PRISM, Protean and Avantis products
for a one-time fee. The list prices for Marcam Solutions' applications vary
depending on the number of concurrent users and local pricing variations in
international markets. A typical initial license fee is between $150,000 and
$750,000, depending upon the number of concurrent users licensed. Marcam
Solutions typically receives an additional license fee when a customer increases
the number of users.
BUSINESS PARTNERS
Marcam Solutions is working with business partners to provide more complete
solutions to our customers, promote revenue growth and leverage the potential of
our specialized technology products. The Company has a working relationship with
NEC Corporation ("NEC") designed to complement the business goals of each party.
As a result of this relationship, the parties have focused additional resources
on Protean product development, accelerated delivery of Protean products and
expanded the use of Protean products worldwide. Marcam Solutions and NEC are
parties to a distribution agreement under which NEC has the right to distribute
Marcam Solutions' Protean products, including Avantis.Pro, generally to
customers in Japan and to Japanese companies located outside Japan. As part of
this agreement, NEC has the right to use Protean to build software for its
customers in non-manufacturing markets. NEC also uses Protean in its system
integration and services business. Additionally, Marcam Solutions and NEC are
parties to a technology transfer agreement under which NEC was granted the right
to use certain Protean technology within NEC. In return, NEC has committed
significant financial resources for continued investment in Protean technology.
During 1998, Marcam divested its interest in a company jointly
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formed by Marcam and NEC, Obtech LLC, but continues to maintain a services
partnership with the company under which Obtech LLC provides certain
implementation and customization services for Marcam's products.
Marcam Solutions has joined together with industry-leading vendors
including Microsoft Corporation, PeopleSoft Inc., Compaq Computer Corporation,
Hewlett-Packard Company, International Business Machine Corporation, Oracle
Corporation, MCI Systemhouse, Inc., and Informix Software, Inc., in order to
provide more complete solutions to its customers and to address the specialized
business requirements of process manufacturers. The Company is in the process of
formalizing and expanding its business partner program with applications,
technology and services partners.
CUSTOMER SUPPORT AND SERVICE
Marcam Solutions provides a high level of customer support and consulting
services to assist customers in the use of its applications. Marcam Solutions'
customer support services include telephone access to application experts and
assistance in issue resolution as well as remote diagnostics and program
corrections. Customers can also access on-line information about products and
known solutions via the Company's support web site.
The Company presently maintains three support centers located in Newton,
Massachusetts, United States; Burlington, Ontario, Canada; and Eindhoven,
Netherlands.
The Company also offers its customers implementation consulting, education
services, customization services and technical consulting on a project
consulting basis. The implementation consulting personnel provide on-site
consulting to assist customers in the implementation and use of the Company's
application products. Marcam Solutions has a methodology for implementing its
applications, including supplemental materials, plans and programs, which guide
the customer through the implementation process. The Company's customization
services generally involve the connection of modules with the customer's
existing applications or the creation of new application functions that
complement Marcam Solutions' products. The Company also provides technical
consulting assistance for installation and performance management. While Marcam
Solutions is committed to providing services directly, it is also taking steps
to increase its capacity by partnering with other service providers.
MARKETING AND SALES
Marcam Solutions markets its products through direct sales and support
offices and affiliates in North America, Europe, Africa, the Middle East, the
Asia Pacific region and Latin America. Marcam Solutions' marketing and sales
organization allows Marcam Solutions to offer a coordinated, standardized,
worldwide approach to multi-site, multinational companies, while providing for
local support of individual sites.
The headquarters for the PRISM and Protean business group is at Marcam
Solutions' offices in Newton, Massachusetts. Headquarters for the Avantis
business group is located at Marcam Solutions' offices in Burlington, Ontario,
Canada.
Marcam Solutions' headquarters for its Europe, Middle East and Africa
(EMEA) operations is located in Paris, France. Asia Pacific operations are
currently conducted from locations in Singapore, Tokyo, Japan and Sydney,
Australia. Latin American operations are conducted from locations in Atlanta,
Georgia and Buenos Aires, Argentina.
Information concerning the results of foreign and domestic operations is
located in Note 11 in the Notes to Consolidated Financial Statements.
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CUSTOMERS
Marcam Solutions' target customers range from multi-site, multinational
manufacturers to small and medium-size companies with one or two sites. Marcam
Solutions believes that by creating specialized, agile applications that best
fit the business requirements of specific markets and by offering technology
choices and comprehensive services, the Company will deliver solutions that
create significant value for customers. Marcam Solutions believes that its
products and services help customers create value by enabling them to
continuously improve their operations while realizing the lowest total cost of
ownership.
None of Marcam Solutions' customers accounted for more than 10% of total
revenues in fiscal 1998, 1997, or 1996. Marcam Solutions generally ships its
products upon the execution of license agreements. Accordingly, Marcam Solutions
does not believe that its backlog at any particular point in time is indicative
of future sales.
Marcam Solutions' customers include divisions, sites and subsidiaries of
the following enterprises:
<TABLE>
<S> <C>
ACE Hardware Corporation Impala Platinum, Ltd.
African Rainbow Minerals & Exploration Ingwe Coal Corporation Limited
Alberto-Culver USA, Inc. Jeyes Limited
American Foods Group JR Simplot
Baxter Healthcare Corporation Kraft Jacob Suchard Strasbourg France
Bernard Matthews PLC LaPorte Group PLC
BF Goodrich Specialty Chemical McCormick & Co., Inc.
Biolandes Technologies MedImmune, Inc.
Canarail Consultants, Inc. Norsk Hydro Canada
City of Toronto (Municipality of Metropolitan Toronto) Novo Nordisk A/S
Cuddy International Corporation Philip Morris International, Inc.
D.F. Stauffer Biscuit Company, Inc. PPG Industries, Inc.
Edwards Baking Company Ralcorp Holdings, Inc.
Fonderies Aluminum Cleon (Renault) Sauder Woodworking Company
Frigidaire Company Schick (Division of Warner Lambert)
HB Fuller Company The School District of Philadelphia
Heineken Nederland B.V. Tolka Manitoba, Inc.
Henkel KG and A Vitarich Corporation
Holco B.V. Weldwood of Canada
Zamek Handelsgesellschaft GmbH
</TABLE>
PRODUCT DEVELOPMENT
During 1998, Marcam continued its significant investments in PRISM,
Protean, Avantis.XA and Avantis.Pro products. Marcam continued to deliver
subsequent versions of its Protean and Avantis.Pro products for production,
inventory, financial, order management and asset management applications. Marcam
Solutions believes that it is the first provider to deliver mission-critical,
object-oriented applications for the ERP and EAM markets. Object technology
enables Marcam Solutions to deliver applications that are flexible, open and
easy-to-use and, therefore, Marcam Solutions believes its use of object
technology will enable it to offer agility to its customers through customized
applications made from standard reusable objects. The benefits of this approach
to customers include a high level of fit and function with support costs
comparable with those of standard applications.
When appropriate, Marcam Solutions may also enter into development
agreements with current and prospective customers and others as part of its
product development efforts. Often, periodic enhancements to products for
subscribers to Marcam Solutions' customer support program are provided. Further,
custom programming services are made available for a fee to customers. During
fiscal years 1998, 1997 and 1996, Marcam's gross research and product
development expenditures (including expenditures in 1997 and 1996 related to the
product line retained by MAPICS) were $32.1 million, $41.9 million and $39.9
million, respectively.
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PROPRIETARY RIGHTS AND LICENSES
Marcam Solutions usually provides its products to end users under
non-exclusive, non-transferable licenses that have perpetual terms. Under Marcam
Solutions' current form of license agreement, the licensed software may be
installed on customers' computers and used solely for internal operations by an
agreed-upon number of named or concurrent users. Marcam Solutions protects many
of its software modules as trade secrets and unpublished copyrighted works, as
well as by patents. Because of the size and complexity of its products, Marcam
Solutions typically makes the source code for many of its AS/400-based modules
available to its customers. Although Marcam Solutions takes steps to protect its
trade secrets, misappropriation could occur. In addition, copyright and trade
secret protection may not be available in certain countries for the source code
or object code versions of Marcam Solutions' products.
Marcam Solutions currently relies on a combination of patent, trade secret,
copyright and trademark laws and license and non-disclosure agreements to
protect its proprietary rights in its products. Marcam Solutions has obtained a
patent on a method for modeling production processes, which is embodied in
certain PRISM and Protean products. Marcam Solutions has also obtained a patent
on a method for managing how computer programs communicate with each other
across dispersed systems and different release levels of software throughout an
enterprise, which is also embodied in the PRISM and Protean databases. An
additional patent, issued in April 1998, covers certain testing methods for
object-oriented programs and is utilized in the development of Protean. Marcam
Solutions is also seeking U.S. and foreign patent protection on key aspects of
its Protean product line. Marcam Solutions believes that, because of the rapid
pace of technological change in the computer software industry, patent, trade
secret and copyright protection are less significant than factors such as the
knowledge, ability and experience of Marcam Solutions' employees, frequent
product enhancements and the timeliness and quality of support services.
Despite the measures taken by Marcam Solutions to protect its proprietary
rights, unauthorized parties may attempt to reverse engineer or copy aspects of
Marcam Solutions' products or to obtain and use information that Marcam
Solutions regards as proprietary. Policing unauthorized use of Marcam Solutions'
products is difficult. Litigation may be necessary in the future to enforce
Marcam Solutions' intellectual property rights, to protect Marcam Solutions'
trade secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on Marcam Solutions' business, operating
results and financial condition. In addition, to the extent Marcam Solutions
desires or is required to obtain licenses to proprietary rights of others, such
licenses may not be made available on terms acceptable to Marcam Solutions, if
at all. Any litigation or dispute regarding proprietary technology which results
in a ruling or settlement that is adverse to Marcam Solutions, could have a
material adverse effect on Marcam Solutions' business, operating results and
financial condition. Claims against Marcam Solutions, with or without merit, as
well as claims initiated by Marcam Solutions against third parties, can be time
consuming and expensive to defend, prosecute or resolve.
COMPETITION
Marcam Solutions' ERP products are targeted for process manufacturing, and
the EAM products and targeted for capital-intensive companies. The market for
ERP software is highly competitive, changes rapidly and is, to a significant
degree, affected by new product introductions and other market activities of
industry participants. Vendors typically address the market requirements either
by offering a complete ERP core application solution or by offering specialized
ERP applications targeted for specific types of companies and functions within
companies. Marcam Solutions competes in both of these categories. Marcam
Solutions' primary competition comes from ERP core application providers such as
Baan, N. V., Oracle Corporation, SAP AG and PeopleSoft, Inc. In addition, Marcam
Solutions faces competition from suppliers of specialized ERP applications such
as J. D. Edwards and Company, QAD Inc., Ross Systems, Inc., and SCT Adage.
The market for EAM software is also highly competitive with over 200
vendors offering computerized maintenance management systems (CMMS)/EAM
software. Marcam Solutions' primary competitors for Avantis include Project
Software and Development, Inc. and Indus International, Inc. In addition, some
asset management competition comes from ERP vendors, such as J. D. Edwards and
Company and SAP AG, with asset management components within their application
offerings.
11
<PAGE>
In the future, Marcam Solutions' competitors could introduce products with
more features, lower prices or both than Marcam Solutions' PRISM, Protean and
Avantis products, and could also seek competitive advantage by bundling existing
or new products and services with other, more established products and services.
The principal competitive factors in the market for ERP and EAM software
and services include product functionality, technology, quality, performance,
reliability, ease-of-use, size of installed base, service, vendor reputation and
financial stability. Marcam Solutions believes that its products currently
compete favorably on the foregoing bases, although in certain instances, it may
be at a competitive disadvantage against companies with greater financial,
marketing, service, support and technological resources, and better name
recognition. Marcam Solutions believes its competitive strengths include its
process and asset management industry expertise, its proven functional
leadership, ability to easily integrate with core ERP and EAM business and plant
applications from other providers, customer implementation results, and its
long-term vision and early leadership position with object technology.
In order to be successful in the future, Marcam Solutions must continue to
respond promptly and effectively to the challenges of technological change and
its competitors' innovations by continually enhancing its own product offerings.
There can be no assurance, however, that Marcam Solutions' products will
continue to compete favorably or that Marcam Solutions will be successful in the
face of increasing competition from new products and enhancements introduced by
existing competitors or by new companies entering this market. In addition,
because Marcam Solutions relies in part on a network of distribution affiliates
for implementation and other support of its products, there can be no assurance
that these affiliates will maintain high quality standards sufficient to
maintain the reputation and competitive position of Marcam Solutions. Marcam
Solutions must continue to respond effectively to customer needs and properly
select and incorporate those technologies and application functionalities that
will meet the challenges posed by competitors' innovations. To accomplish these
critical objectives, Marcam Solutions must continue enhancing its current
products and introduce new products to remain competitive.
EMPLOYEES
As of September 30, 1998, the Company employed a total of 805 employees.
None of the Company's employees are represented by a labor union. The Company
has experienced no work stoppages and believes that its employee relations are
good.
12
<PAGE>
ITEM 2. PROPERTIES
The Company's principal administrative, marketing and product development
and support facilities are located in Newton, Massachusetts, where the Company
currently leases a total of 102,494 square feet under an agreement that expires
in 1999. The Company has recently entered into a new lease for its Newton,
Massachusetts facility which will commence in May 1999 and expire in April 2005
and will cover a total of 102,494 square feet. The Company also leases office
space for its other North American, Latin American, European and Asian sales,
development, and service offices.
The Company believes that its facilities are adequate for its current
needs. See Note 9 of Notes to Consolidated Financial Statements for information
regarding the Company's obligations under its facilities leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims that arise in the
normal course of business. While the outcome of these matters cannot be
predicted with certainty, management does not believe the outcome of any of
these legal matters will have a material adverse effect on the Company's
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
13
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of December 18, 1998, who are
elected on an annual basis and serve at the discretion of the Board of
Directors, are as follows:
<TABLE>
<CAPTION>
Name Age Position and Offices Served
- ---- --- -------------------- ------
<S> <C> <C> <C>
Jonathan C. Crane 49 Chairman of the Board, November 1997 -
President, Chief Executive Present
Officer and Director
Denis E. Liptak 45 Chief Financial Officer August 1997 -
and Vice President of Present
Finance
Stephen R. Quehl 45 Executive Vice President, November 1998 -
Worldwide Field Operations Present
Thomas D. Ebling 43 Executive Vice President, September 1998 -
Customer Operations Present
</TABLE>
Mr. Crane has served as Chairman of the Board of Directors, President and
Chief Executive Officer since November 1997. From October 1995 until July 31,
1997, Mr. Crane was Chief Operating Officer of Geotek Communications, Inc., a
wireless voice and data communications company. From February 1995 to October
1995, Mr. Crane was a consultant in the telecommunications industry. From
January 1994 to January 1995, Mr. Crane was President and Chief Executive
Officer of Lightstream Corporation, a majority owned subsidiary of Bolt, Beranek
& Newman, which developed and marketed ATM switching network products. Prior to
1994, Mr. Crane held a number of management positions with MCI Corporation,
including Executive Vice President, Multi-National Accounts.
Mr. Liptak has served the Company as its Chief Financial Officer since
August 1997. From July 1997 to August 1997, he was Vice President, Treasurer and
Controller of the Company. From December 1996 to July 1997, he was Vice
President, Treasurer and Controller of Marcam Corporation. From December 1994 to
November 1996, Mr. Liptak was Director of Finance of Marcam Corporation. Prior
to joining Marcam Corporation in 1994, Mr. Liptak held a number of financial
management positions at Digital Equipment Corporation.
Mr. Quehl has served as Executive Vice President, Worldwide Field
Operations since November 1998. From October 1997 to November 1998, Mr. Quehl
was the Senior Vice President, Worldwide Field Operations for Gensym
Corporation, an expert systems software and services company. From September
1994 to August 1997, he was Senior Vice President, Americas Field Operations at
Wang Software, Wang Laboratories, Inc., which later became Eastman Software,
Inc., a subsidiary of Eastman Kodak. From 1989 to 1994, Mr. Quehl held several
executive positions at ViewStar Corporation, a work management software and
services company.
Mr. Ebling has served as the Company's Executive Vice President, Customer
Operations since September 1998. From December 1997 to September 1998, he was
Senior Vice President, Customer Operations. Mr. Ebling was the Company's Senior
Vice President, Support and Development from July 1997 to December 1997. Mr.
Ebling was Senior Vice President, Protean Development of Marcam Corporation from
September 1996 through August 1997. Mr. Ebling joined Marcam Corporation in
1981, and served as its Vice President, Product Development and Support from
1981 to 1988, Senior Vice President, Product Development and Support from 1988
to 1994 and Senior Vice President, Development from 1994 to August 1996.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the Nasdaq National Market under
the symbol "MRCM." The following table sets forth the range of quarterly high
and low sales prices for the Common Stock since July 30, 1997, the first day of
trading of the Company's common stock:
<TABLE>
<CAPTION>
Low High
--- ----
Fiscal 1998
-----------
<S> <C> <C>
Fourth Quarter $ 7-1/2 $ 19
Third Quarter $7-15/16 $19-1/2
Second Quarter $ 5-5/16 $ 8-3/4
First Quarter $ 6-1/2 $11-1/4
Fiscal 1997
-----------
Fourth Quarter $ 5 $11-3/8
</TABLE>
The Company believes that, as of December 17, 1998, there were over 5,000
beneficial holders of the Company's common stock. The Company did not declare or
pay any cash dividends to stockholders in 1998 and does not anticipate any
payment of cash dividends in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Statement of Operations Data:
Year Ended September 30, 1998 1997(F) 1996(F) 1995(F) 1994(F)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $124,520 $163,880 $201,424 $202,332 $172,876
Loss before income tax expense
and extraordinary item (4,425)(A) (38,674)(B) (21,740)(C) (31,723)(D) (1,756)
Net loss (5,525)(A) (46,883)(B) (26,326)(C) (34,357)(D) (1,018)
Net loss per share (E) (0.73)(A) (7.77)(B) (4.63)(C) (6.10)(D) (0.18)
Weighted average number of basic
and diluted shares
outstanding (E) 7,580 6,035 5,692 5,634 5,514
Balance Sheet Data:
September 30, 1998 1997 1996(F) 1995(F) 1994(F)
- ---------------------------------------------------------------------------------------------------
Total assets $ 69,502 $ 77,869 $132,202 $146,852 $128,948
Total long-term obligations 218 1,012 26,525 26,359 35,483
Total stockholders' equity 17,202 20,862 11,674 26,646 38,126
</TABLE>
(A) Fiscal 1998 results include a restructuring charge reversal of $1,896, or
$0.25 per diluted share.
(B) Fiscal 1997 results include restructuring charges of $19,175, or $3.18 per
diluted share, and an extraordinary loss from early extinguishment of debt
of $3,009, or $.50 per diluted share.
(C) Fiscal 1996 results include restructuring charges of $10,600, or $1.86 per
diluted share, and a litigation settlement of $3,250, or $.57 per diluted
share.
(D) Fiscal 1995 results include a restructuring charge of $28,756, or $5.10 per
diluted share.
(E) Historical weighted average shares outstanding and net loss per share have
been restated for the Distribution, which has been presented in part as a
2-for-1 reverse stock split occurring on July 29, 1997.
(F) See Note 2 of Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
"Distribution" for discussion of the Distribution which occurred on July 29,
1997, which is presented in part as a disposal of the business, assets and
liabilities of the Company's MAPICS product line. Consequently, the
Statement of Operations Data for the years ended, and the Balance Sheet Data
as of, September 30, 1996, 1995 and 1994 includes results related to the
MAPICS business, and the Statement of Operations for the year ended
September 30, 1997 includes ten months of results related to the MAPICS
business.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties. Marcam Solutions makes such forward-looking statements
under the provisions of the "Safe Harbor" section of the Private Securities
Litigation Reform Act of 1995. Any forward-looking statements should be
considered in light of the factors described below in this Item 7 under "Factors
Affecting Future Performance." Actual results may vary materially from those
projected, anticipated or indicated in any forward-looking statements. In this
Item 7, the words "anticipates," "believes," "could," "expects," "future,"
"intends," "may," and similar words or expressions (as well as other words or
expressions referencing future events, conditions or circumstances) identify
forward-looking statements.
Distribution
- ------------
On July 29, 1997, Marcam Corporation spun off in a tax-free distribution
the portion of its business relating to its PRISM, Protean and Avantis product
lines. In connection with the distribution, Marcam Corporation transferred to
Marcam Solutions, Inc. ("Marcam Solutions"), at that time a wholly owned
subsidiary of Marcam Corporation, substantially all of the business, assets and
liabilities relating to its PRISM, Protean and Avantis product lines and an
aggregate of $39.0 million in cash in exchange for (i) the assumption by Marcam
Solutions of certain liabilities and obligations relating to the business to be
conducted by Marcam Solutions, (ii) a number of shares of common stock of Marcam
Solutions sufficient for Marcam Corporation to make the Distribution (as defined
below) and (iii) warrants to purchase an aggregate of 500,000 shares of common
stock of Marcam Solutions. Marcam Corporation distributed all of its ownership
interest in Marcam Solutions by means of a distribution on July 29, 1997 to its
stockholders (the "Distribution"). In connection with the Distribution, Marcam
Corporation changed its name from "Marcam Corporation" to "MAPICS, Inc."
("MAPICS").
Although the common stock of Marcam Solutions was distributed to Marcam
Corporation's shareholders, the Distribution was recorded for accounting
purposes as a disposal of the business conducted by MAPICS, due to the relative
significance of the business conducted by Marcam Solutions. The financial
statements of Marcam Solutions for reporting periods after the Distribution
reflect the Distribution as a disposal of the business conducted by MAPICS and
were not restated to remove the effects of the prior operating results of the
MAPICS business. The financial statements of Marcam Solutions for periods prior
to the Distribution correspond to the historical consolidated financial
statements of Marcam Corporation.
Except for the information provided under the caption "Selected Pro Forma
Results of Operations" which gives effect to the Distribution, the following
discussion and analysis includes data relating to the MAPICS product line
through July 1997. Only the pro forma information reflects Marcam Solutions as
if it had been operated as a separate entity.
Overview
- --------
For the year ended September 30, 1998, the Company recorded a net loss of
$5.5 million. The net loss included an operating loss, excluding the reversal of
restructuring and other charges, of $8.1 million. The Company's revenues for the
year ended September 30, 1998 were less than the Company expected. The revenue
shortfall, combined with the relatively fixed nature of expenses over the short
term, resulted in the loss.
The Company's revenues have historically been derived from licensing its
Protean, PRISM, Avantis and MAPICS product lines. As described above, the
disposal of the business related to the MAPICS product line was effective as of
July 29, 1997. For the first three quarters of fiscal 1996, the Company also
derived revenues from its subsidiary, Foresight Software, Inc. ("Foresight") and
its MXP product line, which was divested effective as of June 30, 1996. Each of
the Company's current product lines support different customers' technology
strategies. The Protean product line, which utilizes advanced object technology,
tools and databases, is platform independent. The PRISM and MAPICS product lines
provide customer solutions on the IBM AS/400 platform. The Avantis product line
provides customer solutions on both the IBM AS/400 platform and open systems,
utilizing object technology. During fiscal 1998, license revenues from each of
the Company's current product lines (excluding the Company's
16
<PAGE>
MAPICS product line, which was disposed of effective July 29, 1997) increased
compared to license revenues in fiscal 1997. The increase represented the
increased market acceptance of the Company's products, the competitiveness of
which have been improved by several new releases, including enhanced versions of
the Company's Protean and Avantis.Pro products. Prior to fiscal 1998, a majority
of the Company's license revenues were derived from products operating on the
IBM AS/400 platform. In fiscal 1998, however, a majority of the Company's
license revenues were derived from licensing the Protean and Avantis.Pro product
lines. The Company expects the percentage of total license revenues derived from
Protean and Avantis.Pro products to continue to increase in the future.
Marcam Solutions also derives revenues from providing customer support and
consulting services. Customer support is offered to license customers generally
based on agreements that are billed annually, with revenues recognized on a
ratable basis during the contract period. Consulting services include assisting
with customer implementation of licensed software, providing custom programming
and system integration services, and providing educational material and
instruction in the use of licensed software.
The Company distributes its products and services primarily through a
direct sales channel in North America and major European markets, and through
affiliates in other parts of the world. On a pro forma basis, excluding revenues
from the MAPICS product line, total revenues increased within each of the
Company's three main geographic segments, the United States, Europe, and All
Other, from fiscal 1997 to fiscal 1998. While revenues in Asia grew during the
fiscal year, growth within the region did not meet the Company's expectations.
The Company believes that revenues within Asia were negatively impacted by the
recent economic conditions within the Asian marketplace. Although the Company
does not anticipate that the Asian economic conditions will materially affect
the Company's total business, there can be no assurance that the conditions in
Asia will not worsen, and that the conditions in Asia will not have a more
significant negative impact on economies outside of Asia or on the Company. It
should be noted that, historically, the Company has recognized only a small
percentage of its revenues and operating income from the Asian market, and the
Company does not expect that revenues or operating margin from this market will
increase in the foreseeable future.
During the final quarter of 1998, the Company increased its investment in
its distribution channel, as evidenced by increased selling and marketing
expenses, compared to the final quarter of 1997 on a pro forma basis. The
Company believes that such expenditures, primarily those related to expanding
the direct sales capacity, are critical to generating future revenue growth. In
addition, the Company continues to undertake a number of actions designed to
increase revenues, including introducing enhanced versions of its Protean and
Avantis.Pro products which are designed to make the products more competitive.
The Company continues to invest not only in the translation of its software into
additional foreign languages, but also in the integration of its products with a
number of third-party software packages.
The Company believes continued increases in license revenues are required
to offset the costs of growing the distribution channel and funding development,
translation and integration activities related to the Protean product line. In
the event that license revenues are not increased in both the short and long
term, the Company may be required to take additional cost saving measures in
order to reduce the costs of operating the business. There can be no assurances
that the continued development of the distribution channel will result in
increased revenues or, when combined with potential cost control measures, that
these actions will result in operating profitability or positive cash flows from
operations. Failure to achieve operating profitability or to generate positive
cash flows from operations would materially and adversely affect Marcam
Solutions' business, results of operations and financial condition.
17
<PAGE>
Results of Operations
- ---------------------
The following table sets forth the percentage of total revenues represented
by items reflected in the Company's consolidated statements of operations.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
License 43.3% 40.5% 46.2%
Services 56.7 59.5 53.8
----- ----- -----
Total revenues 100.0 100.0 100.0
----- ----- -----
Operating expenses:
Cost of license revenues 3.4 8.9 8.3
Cost of services revenues 39.7 34.3 34.5
Selling and marketing 32.5 40.7 41.1
Product development 25.8 20.9 13.7
General and administrative 5.1 5.8 4.9
Restructuring and other charges (1.5) 11.7 5.3
----- ----- -----
Total operating expenses 105.0 122.3 107.8
----- ----- -----
Operating loss (5.0) (22.3) (7.8)
Litigation settlement -- -- (1.6)
Interest and other income (expense), net 1.4 (1.3) (1.3)
----- ----- -----
Loss before income tax expense and extraordinary item (3.6) (23.6) (10.7)
Income tax expense (0.8) (3.2) (2.3)
----- ----- -----
Loss before extraordinary item (4.4) (26.8) (13.0)
Extraordinary loss -- (1.8) --
----- ----- -----
Net loss (4.4)% (28.6)% (13.0)%
===== ===== =====
</TABLE>
1998 Compared to 1997
- ---------------------
Due to the timing of the Distribution, results during 1997 include 10
months of results related to the MAPICS business. MAPICS' revenues historically
occurred predominantly in the third month of each quarter. Results during 1998
do not include any results related to the MAPICS business. See "Selected Pro
Forma Results of Operations" for additional discussion of the stand-alone
results of Marcam Solutions.
Revenues
- --------
Total revenues decreased 24.0% to $124.5 million in 1998 from $163.9
million in 1997.
License revenues decreased 18.8% to $53.9 million in 1998 from $66.4
million in 1997. The decrease in license revenues resulted from the lack of
MAPICS license revenues during 1998, compared to MAPICS license revenues of
$38.9 million in 1997. This decrease was partially offset by a $26.4 million
increase in license revenues from the PRISM, Protean and Avantis product lines.
18
<PAGE>
Services revenues decreased 27.5% to $70.7 million in 1998 from $97.5
million in 1997. Service revenues include two distinct components: customer
support, including annual software maintenance and support, and consulting,
which includes customization, implementation and integration of Marcam Solutions
products to meet customer requirements. The decrease in services revenues was
primarily due to the lack of MAPICS service revenues in 1998, as compared to
MAPICS service revenues of $32.0 million in 1997. Total customer support
revenues and consulting revenues for all non-MAPICS product lines for the year
ended September 30, 1998 increased by $5.2 million compared to the same period
in 1997.
Cost of License Revenues
- ------------------------
Cost of license revenues represented 7.9% and 22.0% of license revenues in
1998 and 1997, respectively. The decrease in cost of license revenues, both in
dollar terms and as a percentage of license revenues, for the year ended
September 30, 1998 as compared to the same period in 1997 was primarily due to
decreased amortization of capitalized software translation and software
development costs related to the MAPICS and Protean products. In the third
quarter of fiscal 1997, capitalized software assets related to the Protean and
Avantis.Pro product lines were written-off as a result of an assessment of net
realizable value. See "Restructuring and Other Charges." In addition to the
decrease in amortization costs, a portion of the percentage decrease in cost of
license revenues was attributable to a decrease in product royalties as a result
of the absence of MAPICS revenues following the Distribution.
Cost of Services Revenues
- -------------------------
Cost of services revenues represented 70.0% and 57.7% of services revenues
in 1998 and 1997, respectively. The increase in cost of services revenues as a
percentage of services revenues in 1998 was the result of a decrease in the
proportion of support revenues as a percentage of total services revenues, which
resulted from the absence of MAPICS service revenues. Support revenues typically
provide better margins than the Company's other services.
Selling and Marketing
- ---------------------
Selling and marketing expenses decreased $26.1 million, or 39.1%, in 1998
from 1997. The decrease in selling and marketing expenses in 1998 was primarily
related to the lack of MAPICS related expenses during 1998 and, to a lesser
extent, a reduction in headcount in both the marketing and sales staff as part
of the 1997 restructuring actions.
Product Development
- -------------------
Gross research and product development expenditures in 1998 and 1997 were
$32.1 million and $41.9 million, respectively. The $9.8 million decrease was
primarily due to the lack of expenditures related to the MAPICS product line and
a decrease in spending on the PRISM product line. These decreases in gross
research and product development spending were partially offset by an increase
in development costs for the Protean product line and additional costs incurred
to integrate the Company's products with various third-party software products.
No computer software development costs were capitalized during the year
ended September 30, 1998. Computer software costs capitalized during the year
ended September 30, 1997 totaled $7.6 million, representing 18.1% of gross
research and development expenditures. Capitalization of Protean and Avantis.Pro
development and translation costs ceased during the third quarter of fiscal
1997. See "Restructuring and Other Charges."
As a result, product development expenses were $32.1 million and $34.3
million, representing 25.8% and 20.9% of total revenues in 1998 and 1997,
respectively. The decrease in the amount of product development expenses was
primarily related to having no MAPICS related expenditures during 1998, which
was offset somewhat by having no costs qualifying for capitalization in 1998.
The increase in product development expenses as a percentage of revenues was
attributable to the decrease in total revenues during 1998.
General and Administrative
- --------------------------
General and administrative expenses, which include the Company's finance,
accounting and corporate administrative functions, decreased by $3.2 million in
1998 from 1997. The decrease was primarily due to the absence of expenses
related to the MAPICS business during 1998 and, to a lesser extent, decreases in
non-income taxes and employee compensation charges related to the separation of
the MAPICS business.
19
<PAGE>
Restructuring and Other Charges
- -------------------------------
During the third quarter of fiscal 1998, as a result of the substantial
completion of the planned restructuring actions and the Company's assessment of
future payments required, the Company reversed $1.9 million of restructuring and
other charges accrued in previous periods. This amount represented the cost
savings achieved in relation to the amounts forecast at the time of the
restructurings. Savings from the original forecast were a result of lower than
expected severance payments to employees, lower than expected expenses
associated with the termination of leases, and the sale of fixed assets
associated with several facilities that were closed.
During the third and fourth quarters of fiscal 1997, the Company recorded
restructuring and other charges totaling $19.2 million. Of this amount,
approximately $1.7 million related principally to reductions in number of
employees, $1.5 million related to the closure of certain European facilities,
and $1.0 million related to other restructuring actions. An additional $11.1
million of this charge related to the write-off of the capitalized software
costs relating to the Protean and Avantis.Pro product lines. This write-off
resulted from lower than expected revenue from these product lines during fiscal
1997 and the continuing uncertainty regarding market acceptance of, and
significant revenue generation from, the product lines in the near future. The
charge also included costs of $3.9 million associated with the spin-off of
Marcam Solutions, Inc. in connection with the Distribution.
Interest and Other Income (Expense), net
- ----------------------------------------
The net income of interest and other income (expense) increased from a net
expense of $2.1 million in 1997 to a net income of $1.8 million in 1998. The
increase was primarily related to interest earned on significantly higher
average cash and short-term investment balances during 1998 as compared to 1997;
lower interest expense as the result of the repayment of all of Marcam
Corporation's long-term debt during the fourth quarter of fiscal 1997; and, to a
lesser extent, gains resulting from favorable changes in foreign currency rates.
Income Tax Expense
- ------------------
The income tax expense for 1998 of $1.1 million and 1997 of $5.2 million
were primarily due to foreign withholding taxes and taxes on income generated in
foreign jurisdictions for which U.S. tax credit utilization is currently
uncertain. The 1997 provision included foreign tax charges of $1.1 million
incurred in connection with the Distribution. There was no tax benefit recorded
in 1998 or 1997 for losses generated in the U.S. during either period or for
other taxes paid in connection with the Distribution due to the uncertainty of
realizing such benefits.
Extraordinary Loss from Early Extinguishment of Debt
- ----------------------------------------------------
During the fourth quarter of 1997, the Company's outstanding $25.0 million
9.82% unsecured Subordinated Notes due April 30, 2001 (the "Subordinated Notes")
were repaid. In connection with the repayment, the Company recorded charges of
$3.0 million associated with prepayment penalties and the write-off of deferred
financing costs. No extraordinary costs were incurred during 1998.
1997 Compared to 1996
- ---------------------
Results during 1996 include twelve months of results related to the MAPICS
business. Due to the timing of the Distribution, 1997 results include only 10
months of results related to the MAPICS business. MAPICS' revenues historically
occurred predominantly in the third month of each quarter. See "Selected Pro
Forma Results of Operations" for additional discussion of the stand-alone
results of Marcam Solutions. The 1996 results include the results of Marcam
Corporation's Foresight subsidiary through June 30, 1996, the date of
divestiture. This divestiture resulted in reductions in revenues and expenses in
the subsequent quarters.
Revenues
- --------
Total revenues decreased 18.6% to $163.9 million in 1997 from $201.4
million in 1996.
License revenues decreased 28.7% to $66.4 million in 1997 from $93.1
million in 1996. The decrease in license revenues resulted from a decline of
approximately $13.8 million, or 33.5%, in license revenue for PRISM, Protean and
Avantis products; a decline of approximately $6.4 million, or 14.2%, in MAPICS
license revenue comparing 10 months in 1997 to 12 months in 1996, reflecting
growth over the corresponding ten-month period in 1996 resulting primarily from
an increase in MAPICS license sales to new customers; and a decline of
approximately $6.5 million due to the divestment of the Foresight subsidiary in
June 1996.
20
<PAGE>
Services revenues decreased 10.0% to $97.5 million in 1997 from $108.3
million in 1996. The services revenues decrease, which occurred in all
geographies, was due to decreased implementation consulting and customization
revenues for the PRISM products and a decrease of approximately $4.7 million due
to the divestment of the Foresight subsidiary in June 1996. MAPICS services
revenues were unchanged comparing 10 months in 1997 to 12 months in 1996,
reflecting growth over the corresponding ten-month period in 1996 principally as
a result of an increase in the MAPICS installed base of customers.
Cost of License Revenues
- ------------------------
Cost of license revenues represented 22.0% and 17.9% of license revenues in
1997 and 1996, respectively. The margin decrease in 1997 primarily related to
the fixed nature of amortization costs of capitalized software and translation
assets included in cost of license revenues. Such costs were consistent on a
year-to-year basis, and since license revenue decreased, these costs represented
a larger percentage of license revenue. As discussed in "Restructuring and Other
Charges," during the third quarter of 1997, the Company wrote-off the
capitalized software assets related to the Protean and Avantis.Pro product
lines.
Cost of Services Revenues
- -------------------------
Cost of services revenues represented 57.7% and 64.2% of services revenues
in 1997 and 1996, respectively. The decrease in cost of services revenues as a
percentage of services revenues in 1997 was primarily the result of higher
margins realized in the Company's implementation consulting and customization
businesses. This is attributable to the fact that a higher percentage of total
services revenues was being derived from support revenues in 1997 than in 1996.
Support revenues typically have better margins than other types of service
revenues. The Company also realized slightly higher margins on its support
business due to decreased headcount in the support area as a result of the 1996
and 1997 restructuring actions. In addition, the decreased use of external
resources as compared to the prior year has also helped to reduce the cost of
services revenues. External resources, although flexible, are generally more
costly than internal resources. Finally, a portion of the decrease was due to
the services revenues of the Foresight product line having lower gross margins
in 1996 than other product lines.
Selling and Marketing
- ---------------------
Selling and marketing expenses decreased $16.2 million, or 19.6%, in 1997
from 1996. The decrease in selling and marketing expenses in 1997 was due to
reduced headcount and the decline in license revenues that led to lower
commission expenses. Additionally, the 1996 amounts included costs associated
with the Foresight product line. The decreases were partially offset by
increased marketing program expenditures in 1997 related to the PRISM, Protean
and Avantis product lines. As a percentage of revenues, selling and marketing
expenses decreased to 40.7% in 1997 from 41.1% in 1996.
Product Development
- -------------------
Gross research and product development expenditures in 1997 and 1996 were
$41.9 million and $39.9 million, respectively. The $2.0 million increase was
primarily due to the increased investment in the development of the Protean and
MAPICS product lines, partially offset by lower spending to translate and
localize software products for international sale.
The amounts of computer software costs capitalized were $7.6 million and
$12.2 million for 1997 and 1996, respectively, representing 18.1% and 30.6% of
gross research and development expenditures. The decrease in capitalization
overall and as a percentage of gross expenditures was due primarily to lower
amounts of software development and translation expenditures qualifying for
capitalization in 1997, including the cessation during the third fiscal quarter
of 1997 of capitalization of Protean and Avantis.Pro development and translation
costs.
Therefore, product development expenses were $34.3 million and $27.7
million, representing 20.9% and 13.7% of total revenues in 1997 and 1996,
respectively. The increase of $6.6 million in 1997 was primarily due to
increased development spending as well as lower amounts of capitalization. The
increase as a percentage of revenues is also attributable to the decrease in
total revenues in 1997 as compared to 1996.
21
<PAGE>
General and Administrative
- --------------------------
General and administrative expenses, which include the Company's finance,
accounting and corporate administrative functions, decreased by $482,000 in 1997
from 1996. The decrease was due primarily to a $1.0 million special provision in
1996 for additional contract claims and legal costs, partially offset by
provisions for employee compensation charges related to the Distribution and an
increase in non-income taxes incurred in 1997.
Restructuring and Other Charges
- -------------------------------
During the third and fourth quarters of fiscal 1997 the Company recorded
restructuring and other charges totaling $19.2 million. Of this amount,
approximately $1.7 million related principally to reductions in number of
employees, $1.5 million related to the closure of certain European facilities,
and $1.0 million related to other restructuring actions. An additional $11.1
million of this charge related to the write-off of the capitalized software
costs relating to the Protean and Avantis.Pro product lines. This write-off
resulted from lower than expected revenue from these product lines during fiscal
1997 and the continuing uncertainty regarding market acceptance of, and
significant revenue generation from, the product lines in the near future. The
charge also included costs of $3.9 million associated with the spin-off of
Marcam Solutions, Inc. in connection with the Distribution. Approximately $7.8
million of the restructuring charges was expected to result in cash
expenditures. At September 30, 1997, $2.4 million related to these charges
remained in accrued liabilities.
During fiscal 1996, the Company recorded restructuring charges of $10.6
million related to a restructuring of the Company's global operations and the
divestiture of Foresight. At September 30, 1997, the Company had accrued $1.2
million related to the 1996 restructuring costs.
Litigation Settlement
- ---------------------
During the second quarter of 1996, the Company reached an agreement to
settle the shareholder class action litigation which was brought against the
Company in August 1994. Of the $5.8 million settlement, the Company contributed
$2.8 million from its own funds, with the remainder provided by insurance. The
Company recorded a charge of $3.3 million to cover this settlement and other
related expenses.
Interest and Other Income (Expense), Net
- ----------------------------------------
The net expense of interest and other income (expense) decreased $588,000
in 1997 from 1996. The decrease was primarily due to lower interest expense
resulting from the July 25, 1997 repayment of the $25 million Subordinated
Notes. See "Extraordinary Loss from Early Extinguishment of Debt."
Income Tax Expense
- ------------------
The income tax expense for 1997 of $5.2 million and 1996 of $4.6 million
were primarily due to foreign withholding taxes and taxes on income generated in
foreign jurisdictions for which U.S. tax credit utilization is currently
uncertain. The 1997 provision included foreign tax charges of $1.1 million
incurred in connection with the Distribution. There was no tax benefit recorded
in 1997 or 1996 for losses generated in the U.S. during the periods or for other
taxes paid in connection with the Distribution due to the uncertainty of
realizing such benefits.
Extraordinary Loss from Early Extinguishment of Debt
- ----------------------------------------------------
During the fourth quarter of 1997, the Company's outstanding Subordinated
Notes were repaid. In connection with the repayment, the Company recorded
charges of $3.0 million associated with prepayment penalties and the write-off
of deferred financing costs.
Liquidity and Capital Resources
- -------------------------------
Prior to the Distribution, the Company funded its activities with cash
generated from operations, from borrowings and from equity financings. Since the
time of the Distribution, the Company has funded its activities with the capital
contribution from MAPICS made in connection with the Distribution.
22
<PAGE>
Current assets decreased by $6.9 million to $62.0 million at September 30,
1998, compared to $68.9 million at September 30, 1997. This decrease was
primarily due to lower cash and short-term investment balances. Total cash and
short-term investments of $28.1 million as of September 30, 1998 had decreased
by $9.9 million from $38.0 million as of September 30, 1997. Cash was used
during the fiscal year to fund operating losses and pay restructuring related
items; to make investments in fixed assets; and to fund increases in accounts
receivable balances. Accounts receivable as of September 30, 1998 of $29.6
million had increased by $5.3 million from $24.3 million as of September 30,
1997, due principally to higher revenues in the last quarter of fiscal 1998,
compared to the same quarter in fiscal 1997.
Current liabilities decreased by $3.9 million during fiscal 1998 to $52.1
million as of September 30, 1998, compared to $56.0 million at September 30,
1997. This decrease was due to decreases in accrued expenses and other current
liabilities and deferred revenue, and was partially offset by an increase in
accounts payable. As of September 30, 1998, the Company had no material
commitments for capital expenditures. As a result of the changes in current
assets and current liabilities, working capital decreased by $3.0 million from
$12.9 million as of September 30, 1997 to $9.9 million as of September 30, 1998.
During 1998, operating activities used approximately $8.0 million of cash.
Investing activities provided approximately $4.3 million of cash, resulting from
$8.4 million of net proceeds from the sale of short-term investments, offset
partially by $4.1 million used for the purchase of fixed assets. Financing
activities provided $1.6 million of cash, primarily related to the exercise of
stock options and common stock sold through the Company's employee stock
purchase plan.
The Company used cash during fiscal 1998, 1997 and 1996 to fund strategic
investments, in particular, substantial expenditures for marketing and selling
activities and for product development, and operating losses. During fiscal
years 1998, 1997 and 1996, the Company's selling and marketing expenditures were
$40.5 million, $66.6 million and $82.8 million, respectively. During fiscal
years 1998, 1997 and 1996, the Company's product development expenditures were
$32.1 million, $41.9 million, and $39.9 million, respectively. During 1999, the
Company intends to continue to make investments in selling and marketing
activities and product development. The Company's objective is to fund these
investments primarily with cash from improved operations and existing cash
resources. The Company's timely ability to generate cash from operations depends
upon, among other things, revenue growth, completion and market acceptance of
new products, success in selling its current family of products, improvements in
operating productivity, and payment terms and collection of accounts receivable.
There can be no assurance that the Company's operations will generate
sufficient cash to finance these activities. Until operations improve to meet
its cash requirements, the Company will need to rely on existing cash resources.
The Company currently anticipates that cash from operations and its available
cash will be sufficient to fund operations through at least fiscal year 1999.
If, however, such sources prove insufficient in 1999, or over the longer term,
the Company will be required to make changes in operations or seek additional
debt or equity financing. Marcam Solutions currently believes that its potential
borrowing capacity is limited to revolving lines of credit with borrowing
availability based on qualifying accounts receivable. There can be no assurances
that such a revolving line of credit or any other additional debt or equity
financing will be available or available on terms acceptable to Marcam
Solutions. The continued incurrence of operating losses by Marcam Solutions
would have a material adverse affect on Marcam Solutions' business, financial
condition and results of operations.
Selected Pro Forma Results of Operations
The following discussion and analysis relates to Marcam Solutions on a pro
forma basis, giving effect to the Distribution. The unaudited pro forma
financial information for the fiscal years ended September 30, 1997 and 1996 is
presented as if Marcam Solutions had been operated as a separate entity,
principally by deducting the operating results of MAPICS from the historical
consolidated operating results of Marcam Corporation. The pro forma data is for
informational purposes only and may not necessarily reflect future results of
operations or what the actual results of operations would have been had Marcam
Solutions been operating as a separate entity. See Note 2 of Notes to
Consolidated Financial Statements.
23
<PAGE>
1998 Compared to 1997
- ---------------------
Revenues
- --------
Total revenues increased 33.9% to $124.5 million in 1998 from $93.0 million
in 1997. Total revenues increased within each geography from fiscal 1997 to
fiscal 1998. The increase represented the increased market acceptance of the
Company's products, the competitiveness of which have been improved by several
new releases, including enhanced versions of the Company's Protean and
Avantis.Pro products.
License revenues increased 96.0% to $53.9 million in 1998 from $27.5
million in 1997. The increase in license revenues resulted from increases in
license revenues from each of the Company's product lines. Prior to fiscal 1998,
a majority of the Company's license revenues were derived from products
operating on the IBM AS/400 platform. In fiscal 1998, however, a majority of the
Company's license revenues were derived from the Protean and Avantis.Pro product
lines.
Services revenues increased 7.9% to $70.7 million in 1998 from $65.5
million in 1997. The services revenues increase was primarily due to increased
implementation consulting and support revenues, and was partially offset by a
decrease in customization revenues.
Cost of License Revenues
- ------------------------
Cost of license revenues represented 7.9% and 27.8% of license revenues in
1998 and 1997, respectively. The decrease in cost of license revenues as a
percentage of license revenues for the year ended September 30, 1998, as
compared to the same period in 1997, was due to decreased amortization of
capitalized software translation and software development costs related to the
Protean products. In the third quarter of fiscal 1997, capitalized software
assets related to the Protean and Avantis.Pro product lines were written-off as
a result of an assessment of net realizable value. In addition, the royalty fees
associated with third-party software decreased as a percent of license revenue,
due to an increase in the proportion of Protean license revenues (which generate
lower royalty fees) to overall license revenues.
Cost of Services Revenues
- -------------------------
Cost of services revenues represented 69.9% and 68.5% of services revenues
in 1998 and 1997, respectively. This increase was primarily related to increased
investments in the Company's service delivery capabilities, primarily related to
the Protean and Avantis.Pro product lines.
Selling and Marketing
- ---------------------
Selling and marketing expenses increased $235,000, or 0.6%, in 1998 from
1997. The increase in selling and marketing expenses in 1998 was primarily
related to actions taken to develop the Company's distribution channels, which
was partially offset by a reduction in headcount in both the marketing and sales
staff as part of the 1997 restructuring actions.
Product Development
- -------------------
Gross research and product development expenditures in 1998 and 1997 were
$32.1 million and $29.2 million, respectively. The $2.9 million increase was
primarily due to an increase in development costs for the Protean product line
and costs incurred to integrate the Company's products with various third-party
software products.
No computer software development costs were capitalized during the year
ended September 30, 1998. Computer software costs capitalized during the year
ended September 30, 1997 totaled $3.4 million, representing 11.6% of gross
research and development expenditures. Capitalization of Protean and Avantis.Pro
development and translation costs ceased during the third fiscal quarter of
1997.
Therefore, product development expenses were $32.1 million and $25.8
million, representing 25.8% and 27.7% of total revenues in 1998 and 1997,
respectively. This increase in product development expenses was primarily
related to the continuing investment in the Company's Protean product line and
having no costs qualifying for capitalization. The percentage decrease in
product development expenses as a percentage of revenues was attributable to the
increase in total revenues during 1998.
24
<PAGE>
General and Administrative
- --------------------------
General and administrative expenses, which include the Company's finance,
accounting and corporate administrative functions, decreased by $940,000 in 1998
from 1997. The decrease was due primarily to decreases in non-income taxes and
employee compensation charges related to the separation of the MAPICS business.
Restructuring and Other Charges
- -------------------------------
During the third quarter of fiscal 1998, as a result of the substantial
completion of the planned restructuring actions and the Company's assessment of
future payments required, the Company reversed $1.9 million of restructuring and
other charges accrued in previous periods. This amount represented the cost
savings achieved in relation to the amounts forecast at the time of the
restructurings. Savings from the original forecast were a result of lower than
expected severance payments to employees, lower than expected expenses
associated with the termination of leases, and the sale of fixed assets
associated with several facilities that were closed.
During the third and fourth quarters of fiscal 1997, the Company recorded
restructuring and other charges totaling $19.2 million. Of this amount,
approximately $1.7 million related principally to reductions in number of
employees, $1.5 million related to the closure of certain European facilities,
and $1.0 million related to other restructuring actions. An additional $11.1
million of this charge related to the write-off of the capitalized software
costs relating to the Protean and Avantis.Pro product lines. This write-off
resulted from lower than expected revenue from these product lines during fiscal
1997 and the continuing uncertainty regarding market acceptance of, and
significant revenue generation from, the product lines in the near future. The
charge also included costs of $3.9 million associated with the spin-off of
Marcam Solutions, Inc. in connection with the Distribution. Approximately $7.8
million of the restructuring and other charges was expected to result in cash
expenditures.
Interest and Other Income (Expense), net
- ----------------------------------------
The net income of interest and other income (expense) increased from a net
expense of $2.1 million in 1997 to a net income of $1.8 million in 1998. The
increase was primarily related to interest earned on significantly higher cash
and short-term investment balances during 1998 as compared to 1997; lower
interest expense as the result of the repayment of all of Marcam Corporation's
long-term debt during the fourth quarter of fiscal 1997; and, to a lesser
extent, gains resulting from favorable changes in foreign currency rates.
Income Tax Expense
- ------------------
The income tax expense for 1998 of $1.1 million and 1997 of $3.9 million
were primarily due to foreign withholding taxes and taxes on income generated in
foreign jurisdictions for which U.S. tax credit utilization is currently
uncertain. There was no tax benefit for losses generated in the U.S. during
either period due to the uncertainty of realizing such benefits.
Extraordinary Loss from Early Extinguishment of Debt
- ----------------------------------------------------
During the fourth quarter of 1997, the Company's outstanding $25.0 million
9.82% unsecured Subordinated Notes due April 30, 2001 were repaid. In connection
with the repayment, the Company recorded charges of $3.0 million associated with
prepayment penalties and the write-off of deferred financing costs. No
extraordinary costs were incurred during 1998.
1997 Compared to 1996
- ---------------------
Revenues
- --------
Total revenues decreased 24.9% to $93.0 million in 1997 from $123.8 million
in 1996. Excluding revenues from the Foresight product line, which was divested
effective as of June 30, 1996, total revenues decreased 17.5% in 1997 from
$112.6 million in 1996.
License revenues decreased 42.5% to $27.5 million in 1997 from $47.8
million in 1996. Excluding revenues from the Foresight product line, license
revenues decreased 33.5% from $41.3 million in 1996. The decrease in license
revenues in 1997 was primarily due to lower license revenue from the PRISM and
Avantis product lines. Protean license revenue in 1997 decreased slightly as
compared to 1996.
25
<PAGE>
Services revenues decreased 13.9% to $65.5 million in 1997 from $76.0
million in 1996. Excluding revenues from the Foresight product line, services
revenues decreased 8.2% in 1997 from $71.3 million in 1996. The decrease in
services revenues in 1997 was primarily due to decreased implementation
consulting and customization revenues for the PRISM products.
Cost of License Revenues
- ------------------------
Cost of license revenues represented 27.8% and 20.4% of license revenues in
1997 and 1996, respectively. The decrease in license revenue margins was
primarily due to the less than proportional decrease in the amortization of
capitalized software costs relative to the decline in license revenue. As
discussed above, during the third fiscal quarter of 1997, the Company wrote off
the capitalized software assets related to the Protean and Avantis.Pro product
lines and ceased further capitalization.
Cost of Services Revenues
- -------------------------
Cost of services revenues represented 68.5% and 76.7% of services in 1997
and 1996, respectively. The improvement in cost of services revenues as a
percentage of services revenues in 1997 was primarily due to a higher percentage
of the total service revenues being derived from support revenues in 1997 than
in 1996. Support revenues typically have better margins than other types of
service revenues. The Company also realized higher margins on its support
business due to decreased headcount in the support area as a result of the 1996
and 1997 restructuring actions. In addition, the decreased use of external
resources as compared to the prior year has also helped to reduce the cost of
service revenues. External resources, although flexible, are generally more
costly than internal resources.
Selling and Marketing
- ---------------------
Selling and marketing expense decreased $12.4 million, or 23.5%, in 1997
from 1996. The decrease in selling and marketing expenses in 1997 was due to
reduced headcount and the decline in license revenues which led to lower
commission expenses. Additionally, the 1996 amounts included costs associated
with the Foresight product line. The decreases were partially offset by
increased marketing expenditures in 1997 related to the PRISM, Protean and
Avantis product lines.
Product Development
- -------------------
Gross research and product development expenditures in 1997 and 1996 were
$29.2 million and $27.1 million, respectively. The $2.1 million increase in
gross research and product development expenses in 1997 was primarily due to
increased development costs for the Protean product line which were partially
offset by lower spending to translate and localize software products for
international sale and no development costs in 1997 related to the divested
Foresight product line.
The amounts of computer software costs capitalized were $3.4 million and
$5.8 million for 1997 and 1996, respectively, representing 11.6% and 21.4% of
gross research and development expenditures. The decrease in capitalization
overall and as a percentage of gross expenditures in 1997 was due primarily to
lower translation efforts and a lower amount of software development expenditure
qualifying for capitalization. Additionally, capitalization of Protean and
Avantis.Pro development and translation costs ceased during the third fiscal
quarter of 1997.
Therefore, product development expenses were $25.8 million in 1997,
representing 27.7% of total revenues. In 1996, product development expenses were
$21.3 million, representing 17.2% of total revenues. The increase of $4.5
million in 1997 was primarily due to the continuing investment in all of the
Company's products and lower amounts of capitalization, as described above. The
increase as a percentage of revenues is also attributable to the decrease in
total revenues in 1997 as compared to 1996.
General and Administrative
- --------------------------
General and administrative expenses, which include the Company's finance,
accounting and corporate administrative functions, decreased by $675,000 in 1997
from 1996. The decrease was due primarily to a $1.0 million special provision in
1996 for additional contract claims and legal costs, partially offset by
provisions for employee compensation charges related to the Distribution and an
increase in non-income taxes incurred in 1997.
26
<PAGE>
Restructuring and Other Charges
- -------------------------------
During the third and fourth quarters of fiscal 1997, the Company recorded
restructuring and other charges totaling $19.2 million. Of this amount,
approximately $1.7 million related principally to reductions in staffing, $1.5
million related to the closure of certain European facilities, and $1.0 million
related to other restructuring actions. An additional $11.1 million of this
charge related to the write-off of the capitalized software costs relating to
the Protean and Avantis.Pro product lines. This write-off resulted from lower
than expected revenue from these product lines during fiscal 1997 and the
continuing uncertainty regarding market acceptance of, and significant revenue
generation from, the product lines in the near future. The charge also included
costs of $3.9 million associated with the spin-off of Marcam Solutions, Inc. in
connection with the Distribution. Approximately $7.8 million of the
restructuring and other charges was expected to result in cash expenditures. At
September 30, 1997, $2.4 million related to these charges remained in accrued
liabilities.
During fiscal 1996, the Company recorded restructuring charges of $10.6
million related to a restructuring of the Company's global operations and the
divestiture of Foresight at June 30, 1996. At September 30, 1997, the Company
had accrued $1.2 million related to the 1996 restructuring costs.
Interest and Other Income (Expense), Net
- ----------------------------------------
The net expense of interest and other income (expense) decreased $3.8
million in 1997 from 1996. In fiscal 1996, the Company reached an agreement in
principle to settle the shareholder class action litigation that was brought
against the Company in August 1994. Of the $5.8 million settlement, the Company
contributed $2.8 million from its own funds, with the remainder provided by
insurance. The Company recorded a charge in 1996 of $3.3 million to cover the
settlement and other related expenses. In addition, the decrease resulted from
lower interest expense caused by the July 25, 1997 repayment of the $25.0
million Subordinated Notes (see above).
Income Tax Expense
- ------------------
The income tax expense for the year ended September 30, 1997 was $3.9
million. The income tax expense for the year ended September 30, 1996 was $4.2
million. The expense in each period was primarily due to foreign withholding
taxes and taxes on income generated in foreign jurisdictions for which U.S. tax
credit utilization is currently uncertain. There was no tax benefit recorded for
losses generated in the U.S. during these periods due to the uncertainty of
realizing such benefits.
Extraordinary Loss from Early Extinguishment of Debt
- ----------------------------------------------------
During the fourth quarter of 1997, the Company's outstanding $25.0 million
9.82% unsecured Subordinated Notes due April 30, 2001 were repaid. In connection
with the repayment, the Company recorded charges of $3.0 million associated with
prepayment penalties and the write-off of deferred financing costs.
27
<PAGE>
Other Matters
- -------------
To date, management believes inflation has not had a material impact on the
Company's operations.
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), was issued, which requires
businesses to disclose comprehensive income and its components in general
purpose financial statements, with reclassification of prior period financial
statements. SFAS 130 is effective for fiscal periods beginning after December
15, 1997; its adoption is not expected to have a material impact on the
Company's disclosures.
In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), was issued, which redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about a
company's operating segments. SFAS 131 is effective for fiscal periods beginning
after December 15, 1997; its adoption may require additional disclosure of the
Company's historical financial data.
In October 1997, Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), was issued, which provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions and
replaces Statement of Position 91-1. SOP 97-2 is effective for transactions
entered into in fiscal periods beginning after December 15, 1997. The Company
will adopt the guidelines of SOP 97-2 as of October 1, 1998; its adoption is not
expected to have a material impact on the Company's financial position and
results of operations.
In March 1998, Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"), was
issued, which provides guidance on applying generally accepted accounting
principles in accounting for the costs of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998 (although earlier application is
encouraged), and will result in the capitalization of certain qualifying costs
incurred in the development of software for internal use. The Company will adopt
the guidelines of SOP 98-1 as of October 1, 1998; its adoption is not expected
to have a material impact on the Company's financial position and results of
operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (October 1, 1999 for
the Company). SFAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. Management anticipates that, due
to the Company's limited use of derivative instruments, the adoption of FAS 133
will not have a material impact on the Company's financial position and results
of operations.
28
<PAGE>
Factors Affecting Future Performance
- ------------------------------------
This Annual Report on Form 10-K contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including, without limitation, those set forth in the
following risk factors and elsewhere in this Annual Report on Form 10-K. In
addition to the other information included or incorporated by reference in this
Annual Report on Form 10-K, the following risk factors should be considered
carefully in evaluating the Company and its business.
Recent Operating Losses; Lack of Liquidity
- ------------------------------------------
The Company has incurred operating losses of $6.2 million, $36.6 million
and $15.8 million for the fiscal years ended September 30, 1998, 1997 and 1996,
respectively. On a pro forma basis giving effect to the Distribution, Marcam
Solutions incurred operating losses of $52.1 million and $36.8 million for the
fiscal years ended September 30, 1997 and 1996, respectively. At September 30,
1998, Marcam Solutions' accumulated deficit was $126.6 million. It is currently
expected that quarterly net losses will continue for at least the next few
quarters. There can be no assurance that Marcam Solutions will be profitable
thereafter or that profitability, if achieved, will be sustained. In order to
support the anticipated growth of its business, Marcam Solutions expects to
continue to invest in its marketing and sales and product development
activities. Marcam Solutions' expenses for these and other activities are based
in significant part on its expectations regarding future revenues and to a large
extent are fixed in the short term. Marcam Solutions may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfalls.
Marcam Solutions believes that achievement of profitability and positive
cash flow from operations as soon as possible is essential. The Company
currently believes that a combination of cost reductions and increased revenues
is necessary to achieve this result. Marcam Solutions' business and operating
expense structures are being reviewed to identify opportunities for cost
reductions, and actions may be initiated to further reduce operating expenses.
In addition, Marcam Solutions has undertaken a number of actions designed
to increase revenues, including introducing enhanced versions of its Protean and
Avantis.Pro products designed to make them more competitive and refocusing its
sales and marketing efforts on the PRISM product line. The Company currently
believes that significant increases in Protean license revenues are required to
offset the costs of its sales and marketing initiatives, including the expansion
of its distribution channels, and development activities relating to the Protean
product line. There can be no assurance, however, that such actions will result
in increased revenues or that, when combined with any cost reductions, will
result in Marcam Solutions achieving profitability or positive cash flow from
operations. Failure to achieve profitability or positive cash flows from
operations would materially and adversely affect Marcam Solutions' business and
financial condition.
Marcam Solutions has used cash during fiscal years 1998, 1997 and 1996 to
fund strategic investments, in particular substantial expenditures for marketing
and selling activities and product development, and operating losses. During
1999, Marcam Solutions currently intends to continue to make investments in
selling and marketing activities and product development. Marcam Solutions'
objective is to fund these investments and any losses primarily with cash from
improved operations and existing cash resources. Marcam Solutions' ability to
generate cash from operations depends upon, among other things, revenue growth,
market acceptance of its Protean and Avantis.Pro products, success in enhancing
and selling its current family of products, improvements in operating
productivity, and payment terms and collection of accounts receivable. There can
be no assurance that Marcam Solutions' operations will generate sufficient cash
to finance its activities. Until operations improve to meet its cash
requirements, Marcam Solutions will need to rely on existing cash resources.
Marcam Solutions currently anticipates that cash from operations and its
available cash will be sufficient to fund its operations and other cash needs
through at least fiscal year 1999. If, however, such sources prove insufficient,
Marcam Solutions will be required to make changes in operations or seek
additional debt or equity financing. Marcam Solutions currently believes that
its potential borrowing capacity is limited to revolving lines of credit with
borrowing availability based on qualifying accounts receivable. There can be no
assurances that such a revolving line of credit or any other additional debt or
equity financing will be available or available on terms acceptable to Marcam
Solutions. The continued incurrence of operating losses by Marcam Solutions
would have a material adverse affect on Marcam Solutions' business, financial
condition and results of operations.
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Variability of Quarterly Results
- --------------------------------
Marcam Solutions has experienced fluctuations in its quarterly operating
results and anticipates that such fluctuations will continue. Marcam Solutions'
quarterly operating results are affected by a number of factors that could
materially and adversely affect revenues and profitability, including the
relatively long sales cycles for Marcam Solutions' products; the size and timing
of license transactions; the timing of the Company's recognition of revenue from
certain contracts that involve delivery of products in the future, acceptance
criteria, extended payment terms and certain other conditions; the demand for
Marcam Solutions' products; the proportion of revenues attributable to licenses,
customer support and consulting services; changes in the level of operating
expenses; the potential for delay or deferral of customer purchases of Marcam
Solutions' products and services; the timing of the introduction or market
acceptance of new or enhanced products offered by Marcam Solutions or its
competitors; changes in customer budgets; and the general economic and political
conditions and other factors affecting capital expenditures by customers. Marcam
Solutions' sales cycle typically ranges from three to twelve months, and the
cost of acquiring its software and associated computer hardware and of training
system users represents a significant expenditure for customers. The purchase of
Marcam Solutions' products and services may involve a significant commitment of
capital and other resources by its customers with the attendant delays
frequently associated with large capital expenditures and authorization
procedures within an organization. Accordingly, the sales cycles for Marcam
Solutions' products and services are subject to a number of significant risks
over which Marcam Solutions has little or no control, including customers'
budgetary constraints and internal authorization procedures.
Marcam Solutions' revenues occur predominantly in the third month of each
quarter and tend to be concentrated in the latter half of that third month.
Accordingly, Marcam Solutions' quarterly operating results are difficult to
predict and delays in product delivery or in closings of sales near the end of a
quarter could cause quarterly revenues and, to a greater degree, net income to
fall substantially short of anticipated levels. Although Marcam Solutions has no
customer that comprised greater than 10% of the Company's total revenues in any
of the three years ended September 30, 1998, seven customers accounted for 40%
of total license revenues during the year ended September 30, 1998. The
contracts entered into with these seven customers are larger than is typical for
Marcam Solutions. Marcam Solutions' relatively long sales cycle and variable
average revenue per transaction, together with fixed short-term expenses, such
as marketing, sales and product development expenditures, can cause significant
variations in operating results from quarter to quarter, if projected revenues
are not realized in the expected period.
There can be no assurance that Marcam Solutions will be able to achieve or
maintain profitability in the future or that its levels of profitability will
not vary significantly between quarterly periods. Further, it is possible that
Marcam Solutions' operating results could fail to meet the expectations of
securities analysts or investors. In such event, or in the event that adverse
conditions in the manufacturing, enterprise resource planning ("ERP") or
enterprise asset management ("EAM") marketplaces prevail or are perceived to
prevail, the price of Marcam Solutions Common Stock and Marcam Solutions'
business, financial condition and results of operations would likely be
materially adversely affected.
New Products and Technological Change
- -------------------------------------
The market for Marcam Solutions' ERP and EAM software products is
characterized by rapid technological advances, evolving industry standards in
computer hardware and software technology, changes in customer requirements, and
frequent new product line introductions and enhancements. Marcam Solutions'
future success will depend on its ability to continue to enhance its current
product lines and to develop and introduce new products that keep pace with
technological developments, satisfy increasingly sophisticated customer
requirements, and achieve and sustain market acceptance. Marcam Solutions must
continue to anticipate and respond adequately to advances in standard business
applications software and client/server solutions, as well as object-oriented
technology. There can be no assurance that Marcam Solutions will be successful
in developing and marketing, on a timely and cost-effective basis, functioning
product enhancements or new products that respond to technological advances by
its competitors, or that its new products will achieve or sustain market
acceptance.
Marcam Solutions is currently facing the challenges of a product and
technology transition. In particular, many of Marcam Solutions' software
products (such as PRISM and Avantis.XA products) are designed to operate on
International Business Machines Corporation's ("IBM") proprietary hardware,
including IBM's AS/400 computer systems. Marcam Solutions must continue to
invest in enhancements and support for these products in a cost-effective
manner. Marcam Solutions' newest products (such as Protean and Avantis.Pro) are
designed to be platform independent
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and utilize object technology. Products embodying this technology are beginning
to be introduced into the existing ERP and EAM marketplaces. There can be no
assurance that such products will be accepted by users to a significant degree
or at all. As a result of the complexities inherent in the functionality and
performance demanded by ERP and EAM software customers, major new product
enhancements and new products can require long development and testing periods
to achieve market acceptance. In addition, despite testing by Marcam Solutions,
ERP and EAM software programs as complex as those offered by Marcam Solutions
may contain errors which are discovered only after a product has been installed
and used by customers. There can be no assurance that undetected errors will not
impair the market acceptance of these products or adversely affect Marcam
Solutions' business and operating results. Marcam Solutions has from time to
time experienced problems with customers not being able to install or implement
certain of its new product releases and with product performance, including
problems related to product functionality, scalability, product response time
and program errors. Currently, Marcam Solutions is not aware of any product
implementation issues which have not been addressed, or are not currently being
addressed by it. There can be no assurance that the problems encountered by
customers installing and implementing new releases or with the performance of
Marcam Solutions' products will not arise in the future, and if such problems
arise, that such problems will not have a material adverse effect on Marcam
Solutions' business, financial condition and results of operations.
Challenge of Expanding Distribution Channels
- --------------------------------------------
The Company believes that its' future success is dependent upon the
Company's ability to expand and strengthen, and increase revenues derived from,
both direct and indirect sales channels. Marcam Solutions has recently hired a
senior executive responsible for the world-wide development of the direct and
indirect channels, including the recruitment and hiring of experienced,
top-level salespeople and sales support personnel. There can be no assurance
that sufficient qualified salespeople will be available, or that the Company
will be able to attract and retain them. In addition, the Company plans to
develop indirect channels to distribute the Company's products in those emerging
markets where the Company does not have existing distribution affiliates. There
can be no assurance that the Company will be able to locate partners interested
in distributing the Company's products in emerging markets, or if located, to
engage them on terms acceptable to the Company. Failure to expand and strengthen
its distribution channels or to increase revenues derived from them will have a
material adverse effect on the Company's business, results of operations and
financial condition.
Dependence on IBM's AS/400
- --------------------------
Historically, a significant portion of Marcam Solutions' revenues have been
derived from products designed to operate primarily on IBM's AS/400 series of
computers. While license revenues from the Company's Protean and Avantis.Pro
product lines exceeded license revenues from its PRISM and Avantis.XA product
lines in 1998, PRISM and Avantis.XA revenues still account for a significant
portion of the Company's total revenues. Therefore, until Marcam Solutions'
Protean and Avantis.Pro products, which are designed to be platform independent,
achieve sustained market acceptance, Marcam Solutions' future revenues will be
dependent upon the continued widespread use of the AS/400 and the continued
support of the AS/400 by IBM. While Marcam Solutions believes that customers
will continue to use, and IBM will continue to support, the AS/400, there can be
no assurance of such continued use or support and the loss of either would have
a material adverse effect on Marcam Solutions' business and operating results.
Marcam Solutions will be required and intends to continue to devote resources to
supporting its installed base of AS/400 customers. In addition, in order to
retain its AS/400 customers, Marcam Solutions may be required to adapt its
products to any changes made in the AS/400 operating system in the future.
Marcam Solutions' inability to adapt to future changes in the AS/400 operating
system, or delays in doing so, could have a material adverse effect on Marcam
Solutions' business, financial condition and results of operations.
Limited Relevance of Certain Historical Financial Information
- -------------------------------------------------------------
Although the Marcam Solutions Common Stock was distributed to the Marcam
Corporation stockholders, because of the relative significance of Marcam
Corporation's business relating to the PRISM, Protean and Avantis product lines,
the Distribution was recorded for accounting purposes as a disposal of the
business relating to the MAPICS product line. Accordingly, the consolidated
financial statements of Marcam Corporation have become the historical
consolidated financial statements of Marcam Solutions. Marcam Solutions'
financial statements reflect the Distribution as a disposal of the MAPICS
product line as of the Distribution Date and have not been restated to remove
the effects of the prior operating results of the MAPICS business. The
historical financial statements of Marcam Solutions do not reflect what the
financial position, results of operations or cash flows would have been had
Marcam Solutions been a separate, stand-alone entity during the fiscal years
ended September 30, 1997 and 1996, because they include financial
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information relating to the MAPICS product line. In addition, the unaudited pro
forma financial information of Marcam Solutions included elsewhere in this
Annual Report on Form 10-K is for informational purposes only and may not
necessarily reflect future results of operations and financial position or what
the results of operations or financial position would have been had Marcam
Solutions been operating as a separate entity. See Note 2 to the Consolidated
Financial Statements.
Competition
- -----------
Marcam Solutions' ERP products are targeted for process manufacturing, and
the EAM products and targeted for capital-intensive companies. The market for
ERP software is highly competitive, changes rapidly and is, to a significant
degree, affected by new product introductions and other market activities of
industry participants. Vendors typically address the market requirements either
by offering a complete ERP core application solution or by offering specialized
ERP applications targeted for specific types of companies and functions within
companies. Marcam Solutions competes in both of these categories. Marcam
Solutions' primary competition comes from ERP core application providers such as
Baan, N. V., Oracle Corporation, SAP AG and PeopleSoft, Inc. In addition, Marcam
Solutions faces competition from suppliers of specialized ERP applications such
as J. D. Edwards and Company, QAD Inc., Ross Systems, Inc., and SCT Adage.
The market for EAM software is also highly competitive with over 200
vendors offering computerized maintenance management systems (CMMS)/EAM
software. Marcam Solutions' primary competitors for Avantis include Project
Software and Development, Inc. and Indus International, Inc. In addition, some
asset management competition comes from ERP vendors, such as J. D. Edwards and
Company and SAP AG, with asset management components within their application
offerings.
The principal competitive factors in the market for ERP and EAM software
and services include product functionality, technology, quality, performance,
reliability, ease-of-use, size of installed base, service, vendor reputation and
financial stability. Marcam Solutions believes that its products currently
compete favorably on the foregoing bases, although in certain instances, it may
be at a competitive disadvantage against companies with greater financial,
marketing, service, support and technological resources, and greater name
recognition. Marcam Solutions believes its competitive strengths include its
process and asset management industry expertise, its proven functional
leadership, ability to easily integrate with core ERP and EAM business and plant
applications from other providers, customer implementation results, and its
long-term vision and early leadership position with object technology.
Certain of Marcam Solutions' competitors have a full ERP suite and
significantly greater financial, marketing, service, support and technical
resources, and greater name recognition than Marcam Solutions. In order to be
successful in the future, Marcam Solutions must continue to respond promptly and
effectively to the challenges of technological change and its competitors'
innovations. Marcam Solutions' competitors may be able to respond more quickly
to new or emerging technologies or changes in customer requirements or devote
greater resources to the development, promotion and sale of their products than
Marcam Solutions. Marcam Solutions also expects to face additional competition
as other established and emerging companies enter the market for business
software and new technologies are introduced for alternative platforms. In
addition, current and potential competitors may make acquisitions or establish
alliances among themselves or with third parties, thereby increasing the ability
of their products to address the needs of Marcam Solutions' prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share, resulting in price or fee rate reductions, fewer customer orders and
reduced gross margin, any one of which could have a material adverse effect on
Marcam Solutions' business, financial condition and results of operations. There
can be no assurance that Marcam Solutions will be able to compete successfully
with existing or new competitors or that competition will not have a material
adverse effect on Marcam Solutions' business, financial condition and results of
operations. In addition, because Marcam Solutions relies in part on a network of
distribution affiliates for implementation and other support of its products,
there can be no assurance that these affiliates will maintain sufficiently high
quality standards so that Marcam Solutions' reputation and competitive position
will not be adversely affected.
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Dependence on Key Personnel; Ability to Attract and Retain Skilled Personnel
- ----------------------------------------------------------------------------
Marcam Solutions' future performance depends to a significant extent upon
the continued service of a number of senior management and key technical
personnel. The loss of the services of one or more key employees could have a
material adverse effect on Marcam Solutions. Marcam Solutions' future financial
results also will depend in large part upon its ability to attract on a timely
basis and retain highly skilled technical, managerial and marketing personnel,
and the ability of its officers and key employees to manage growth successfully
and to continue successful development of new products and enhancements to
existing products. Competition for such personnel is intense and is likely to
intensify further as companies compete to hire personnel. Marcam Solutions
competes in the market for such personnel against numerous companies, including
larger, more established companies with significantly greater financial
resources than Marcam Solutions. There can be no assurance that Marcam Solutions
will be successful in attracting and retaining the personnel it requires to
successfully develop new and enhanced products. The inability of Marcam
Solutions to attract or retain key personnel could have a material adverse
effect on Marcam Solutions' business, financial condition and results of
operations.
Dependence on Worldwide Manufacturing Industry
- ----------------------------------------------
Marcam Solutions' business depends substantially upon the capital
expenditures of manufacturers, which expenditures depend in part upon the demand
for such manufacturers' products. A recession or other adverse events affecting
the worldwide manufacturing industry served by Marcam Solutions could affect
such demand, forcing manufacturers in Marcam Solutions' target market to curtail
or postpone capital expenditures on business information systems. Any such
change in the amount or timing of capital expenditures in its target market
could have a material adverse effect on Marcam Solutions' business, financial
condition and results of operations.
Uncertain Protection of Proprietary Technology
- ----------------------------------------------
Marcam Solutions' success is heavily dependent upon protection of its
proprietary software. Marcam Solutions relies on a combination of patent,
copyright, trademark and trade secret laws and license and non-disclosure
agreements to establish and protect its proprietary rights in its products.
Marcam Solutions has obtained a patent on a method for modeling production
processes, which is embodied in certain of the PRISM and Protean products.
Marcam Solutions has also obtained a patent on a method for managing how
computer programs communicate with each other across dispersed systems and
different release levels of software throughout an enterprise, which is also
embodied in the PRISM and Protean databases. An additional patent, issued in
April 1998, covers certain testing methods for object-oriented programs and is
utilized in the development of Protean. Marcam Solutions is also seeking U.S.
and foreign patent protection on key aspects of its Protean product line. Marcam
Solutions protects many of its software modules as trade secrets and unpublished
copyrighted works. Marcam Solutions enters into confidentiality and/or license
agreements with its employees, distributors, customers and potential customers,
and limits access to and distribution of its software, documentation and other
proprietary information. There can be no assurance, however, that despite these
precautions, an unauthorized third party will not copy or reverse-engineer
certain portions of Marcam Solutions' products or obtain and use information
that Marcam Solutions regards as proprietary. Marcam Solutions typically makes
the source code for many of its AS/400-based modules available to its customers.
In addition, the laws of some foreign countries do not protect Marcam Solutions'
proprietary rights to the same extent as do the laws of the U.S. There can be no
assurance that the mechanisms used by Marcam Solutions to protect its software
will be adequate or that Marcam Solutions' competitors will not independently
develop software products that are substantially equivalent or superior to
Marcam Solutions' software products.
In the future, Marcam Solutions may receive notices claiming that it is
infringing the proprietary rights of third parties and there can be no assurance
that Marcam Solutions will not become the subject of infringement claims or
legal proceedings by third parties with respect to current or future products.
In addition, Marcam Solutions may initiate claims or litigation against third
parties for infringement of Marcam Solutions' proprietary rights or to establish
the validity of Marcam Solutions' proprietary rights. Any such claim could be
time consuming, result in costly litigation, cause product shipment delays or
force Marcam Solutions to enter into royalty or license agreements rather than
dispute the merits of such claims. Moreover, an adverse outcome in litigation or
similar adversarial proceedings could subject Marcam Solutions to significant
liabilities to third parties, require the expenditure of significant resources
to develop non-infringing technology, require disputed rights to be licensed
from others or require Marcam Solutions to cease the marketing or use of certain
products, any of which could have a material adverse effect on Marcam Solutions'
business, financial condition and results of operations. To the extent Marcam
Solutions desires or is required to obtain licenses to proprietary rights of
others, there can be no assurance that any such licenses will be made available
on terms acceptable
33
<PAGE>
to Marcam Solutions, if at all. Claims against Marcam Solutions, with or without
merit, as well as claims initiated by Marcam Solutions against third parties,
can be time consuming and expensive to defend, prosecute or resolve. The
inability to effectively protect its proprietary technology or the necessity of
prosecuting or defending infringement claims could have a material adverse
affect on the business, financial condition or results of operations of Marcam
Solutions.
Risks Associated with International Operations and Currency Fluctuations.
- -------------------------------------------------------------------------
A material portion of Marcam Solutions' business comes from outside the
U.S. Marcam Solutions derived approximately 61%, 59% and 50% of its total
revenues from customers located outside of the U.S. in fiscal years 1998, 1997
and 1996, respectively. As a result of the continued expansion of Marcam
Solutions' international operations, the fluctuations in the value of foreign
currencies in which Marcam Solutions conducts its business may cause currency
transaction gains and losses. International sales are typically denominated in
the local currency of the Company's subsidiary or affiliate involved in the
transaction. In addition, the expenses of the Company's international
subsidiaries are typically denominated in its local currency. Due to the number
of foreign currencies involved, the constantly changing currency exposures and
volatility of currency exchange rates, Marcam Solutions cannot predict the
effect of exchange rate fluctuations upon future operating results. Marcam
Solutions' business, financial condition and results of operations could be
materially adversely affected by any of these factors. However, due to recent
fluctuations in currency exchange rates, and an increase in both intercompany
balances and international revenues, the Company is currently investigating
various alternatives, such as hedging, designed to help reduce the risk of
foreign exchange rate fluctuations.
Marcam Solutions believes that its growth and profitability will require
continued expansion of its sales in international markets. To successfully
expand international sales, Marcam Solutions has utilized, and will continue to
utilize, substantial resources to enlarge existing foreign operations, establish
additional foreign operations and hire additional personnel. International
expansion of Marcam Solutions' operations has required, and will continue to
require, Marcam Solutions to translate and localize its software products. To
the extent Marcam Solutions is unable to expand its international operations or
translate and localize its software products in a timely manner, it may
adversely impact Marcam Solutions' operating results. In addition, even if
international operations are successfully expanded, there can be no assurance
that Marcam Solutions will be able to maintain or increase international market
presence or demand for its products.
Risks inherent in Marcam Solutions' international business activities
include imposition of government controls, restrictions on the export of
critical technology, political and economic instability (including fluctuations
in foreign currency exchange rates), trade restrictions, difficulties in
staffing international offices, longer accounts receivable collection cycles in
certain countries, burdens of complying with a wide variety of foreign laws and
regulations, management of an organization spread over various countries,
unexpected changes in regulatory requirements and overlap of different tax
structures. In addition, effective copyright, trademark and trade secret
protection may not be available in every foreign country in which Marcam
Solutions sells its products. Marcam Solutions' business, financial condition
and results of operations could be materially adversely affected by any of these
factors.
Risks of Product Liability
- --------------------------
Marcam Solutions' products are generally used to manage data critical to
large organizations. As a result, the sale and support of products by Marcam
Solutions may entail the risk of product liability claims. While Marcam
Solutions' license agreements with its customers typically contain provisions
designed to limit Marcam Solutions' exposure to potential product liability
claims, it is possible that such limitations of liability provisions may not be
effective under the laws of all jurisdictions. In addition, Marcam Solutions is
insured for product liability protection against claims for personal injury or
damage to property, as well as for customer losses for which Marcam Solutions is
liable, although such insurance may not be sufficient to cover all claims in the
event the limitation of liability provisions contained in Marcam Solutions'
license agreements are not effective. Although Marcam Solutions has not
experienced any significant product liability claims to date, there can be no
assurance that Marcam Solutions will not be subject to such claims in the
future. A successful product liability claim brought against Marcam Solutions
could have a material adverse effect on Marcam Solutions' business, financial
condition and results of operations. Moreover, defending such a suit, regardless
of its merits, could entail substantial expense and require the time and
attention of key management personnel, either of which could have a material
adverse effect on Marcam Solutions' business, financial condition and results of
operations.
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Contract Terms and Revenue Recognition
- --------------------------------------
Contract structure, terms and customer expectations may affect the
Company's ability to recognize revenue under certain contracts based upon
accounting criteria for revenue recognition. Under the following circumstances,
the Company may be required to defer revenue for extended periods: (i) a
contract is entered into for which none of the products are currently
deliverable; (ii) a contract provides a customer with the right to currently
available software products, as well as additional products that are not
currently available (in order to recognize revenue on the delivered products,
the Company must have established separate values for all elements included in
the license agreement, and the terms and arrangements contained within the
contract and supporting documentation must meet the strict requirements
established by generally accepted accounting principles); (iii) the license
agreement may include acceptance criteria allowing the customer to return the
software and receive a refund of payment; (iv) the license agreement may include
extended payment terms that are unusual to the Company's normal business terms;
or (v) the license agreement may require, or the customer may expect, the
Company to perform additional services that would be considered significant
modifications or adjustments to the Company's standard software products. These
examples, among others, could preclude the Company from recognizing revenue
under generally accepted accounting standards for software revenue recognition.
Contract negotiations often require the Company to revise the terms and
conditions contained in its master license agreement. Such negotiations may
result in contract terms that extend the sales cycle, and could possibly result
in the deferral of revenues for an extended period. The Company's inability to
recognize revenue, or significant deferral in recognizing revenue, would have a
material adverse effect on the Company's results of operations and could have a
material adverse effect on its business and financial condition.
As of September 30, 1998, as a normal course of business, the Company has
not entered into service arrangements whereby the Company is obligated to
perform services for a fixed price. There can be no assurances, however, that
due to competitive pressures or normal contract negotiations, the Company will
not enter into such arrangements in the future. If the Company were to enter
into such an arrangement, the Company would be required to develop and budget
for the cost to complete such a project, and revenues related to the project
would be recognized on a percentage-of-completion basis, as project costs are
incurred. If it became apparent that the project would result in costs exceeding
revenues, such a loss would be recorded immediately.
Year 2000 Readiness Disclosure Statement and Related Information
- ----------------------------------------------------------------
Until recently, many computer programs were written using two digits rather
than four digits to define the applicable year in the twentieth century. Such
software may recognize a date using "00" as the year 1900 rather than the year
2000. The consequences of this issue may include systems failures and business
process interruption to the extent companies fail to upgrade, replace or
otherwise address so-called year 2000 problems. Year 2000 problems may also
result in additional business and competitive differentiation. Aside from the
well-known calculation problems with the use of two-digit date formats as the
year changes from 1999 to 2000, the year 2000 is a special case in that it is a
leap year. Significant uncertainty exists in the software industry concerning
the potential impact of the year 2000 problem.
Marcam believes that all of its independently-developed software programs
(including the PRISM Release 4.3 and higher, Avantis.XA Release 11 EC-9 and
higher, Protean and Avantis.Pro computer software programs and all upgrades,
enhancements and newly issued versions) as delivered by Marcam, unmodified by
anyone, are "Year 2000 Enabled." "Year 2000 Enabled" means that the Programs,
when used in accordance with the applicable documentation, will (a) accurately
process date data (including, but not limited to, calculating, comparing, and
sequencing) from, into, and between the twentieth and twenty-first centuries,
including the years 1999 and 2000, and (b) operate without error or interruption
relating to date data which represents or references different centuries or more
than one century; provided that (i) a customer's license to the Program(s)
remains in effect and that customer remains current with support services from
Marcam and adopts and implements all upgrades, enhancements and new versions of
the Programs that Marcam may ship from time to time, and (ii) all products
(e.g., hardware, software and firmware) used in combination with the Programs
properly exchange date data with the Programs. Customers can obtain current
information about the year 2000 compliance of the Company's products from the
Company's web site. Information on the Company's Web site is provided to
customers for the sole purpose of assisting in planning for the transition to
the year 2000. Such information is the most currently available concerning the
behavior of the Company's products in the next century and is provided "as is"
without warranty of any kind.
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There can be no assurance that the Company's software products that are
designed to be Year 2000 Enabled are entirely Year 2000 Enabled. Further, there
can be no assurance that the Company's products will not be integrated by the
Company or its customers with, or otherwise interact with, software of other
products which is not Year 2000 Enabled and which may malfunction and expose the
Company to claims from its customers or other third parties. Additionally, there
can be no assurance that software products developed by others and distributed
by the Company either as part of, or together with, its software products are
Year 2000 enabled. If any of the Company's licensees experience year 2000
problems, such licensees could assert claims for damages against the Company. In
addition, the emergence of year 2000 problems with the Company's software
products or claims to that effect could result in the loss or delay in market
acceptance of the Company's products and services, potentially resulting in
decreased sales and the refusal by customers to pay for software already
purchased; increased service costs to the Company; or payment by the Company of
compensatory or other damages. While it is uncertain as to whether the Company
is exposed to potential litigation, or if the market acceptance of the Company's
products will be impacted by year 2000 problems, litigation or decreased product
acceptance could have an adverse affect on the Company's business, results of
operations and financial condition.
In addition to software products licensed by the Company, there is
additional risk to the Company due to the potential failure of applications and
products used internally by the Company and those used by significant
third-parties who transact business with the Company (such as important vendors,
customers, etc.). The Company has formed a Year 2000 group in order to assess
the Company's Year 2000 exposures related to software and hardware applications
and processes used internally by the Company, and to determine risks that may
exist due to Year 2000 non-compliance of third-parties. This group is also
assessing Year 2000 exposures related to third-party software products provided
with, or as part of, the Company's software products.
In its assessment of products and applications used internally, the group
is responsible for reviewing all microprocessor applications used by the
Company, including both information technology applications and non-information
technology applications (such as telephone and voice mail systems, etc.). The
group's assessment of information technology applications is underway. With
respect to third-party information technology applications and products utilized
by the Company, the group is currently completing its review of these systems,
but does not anticipate a material Year 2000 risk associated with such
applications and services. For its internal-use software programs, the Company
typically utilizes the most recent versions of third-party products. Therefore,
the Company believes the risks and associated costs related to non-compliant
third-party products will not be material. With respect to non-information
technology applications, the group has started its initial review of the
Company's processes and applications. The Company expects the group to have
completed its assessment of non-information technology applications within the
next six months. While the Company is unable to estimate the future costs that
may be incurred in making these systems Year 2000 compliant, it does not
anticipate such costs will be material.
The Year 2000 assessment group is currently working with third-parties to
determine if their systems are Year 2000 compliant. The Company is developing
contingency plans to ensure continuity of operations in the event that a
significant third-party is not Year 2000 compliant. Failure of third-party
applications could result in non-payment of customer invoices or the inability
of suppliers to produce and deliver mission critical products, among other
things.
To date, the Company has not incurred any material expenditure in
connection with identifying or evaluating year 2000 compliance issues. The
Company estimates it will not incur any material levels of expenditure on this
issue during 1998 and 1999 to support its compliance initiatives. Most of these
expenses have been, and in the future are expected to be, related to the
opportunity costs of employees evaluating the Company's financial and accounting
software, the current versions of the Company's products, and year 2000
compliance matters generally. The Company believes that it is unlikely to
experience a material adverse impact on its financial condition or results of
operations due to year 2000 compliance issues. However, since the assessment
process is ongoing, year 2000 complications are not fully known, and potential
liability issues are not clear, the full potential impact of the year 2000 on
the Company is not known at this time.
The Company's expectations as to the extent and timeliness of modifications
required in order to achieve year 2000 compliance constitute forward-looking
statements which are subject to risks and uncertainties. Actual results may vary
materially as a result of a number of factors, including, among others, those
described under the heading
36
<PAGE>
"Year 2000 Readiness Disclosure Statement and Related Information." There can be
no assurance, however, that the Company will be able to successfully modify on a
timely basis such products and systems to comply with year 2000 requirements,
which failure could have a material adverse effect on the Company's operating
results. Further, while the Company believes that its year 2000 compliance
efforts will be completed on a timely basis, and in advance of the year 2000
date transition, there can be no assurance that unexpected delays or problems,
including the failure to ensure year 2000 compliance by systems or products
supplied to the Company by third parties, will not have an adverse effect on the
Company, its business, results of operations or financial condition, or the
competitiveness or customer acceptance of its products. Further, the Company's
current understanding of expected costs is subject to change as the project
progresses and does not include potential costs related to actual customer
claims, or the cost of internal software and hardware replaced in the normal
course of business unless such installation has been accelerated to provide
solutions to year 2000 compliance issues.
Impact of the Euro Currency
- ---------------------------
On January 1, 1999, eleven of the fifteen member countries of the European
Union are scheduled to establish fixed conversion rates between their existing
currencies ("legacy currencies") and one common currency, the "euro". At that
time the euro will trade on currency exchanges and may be used for business
transactions utilizing electronic fund transfer. Conversion to the euro will
eliminate exchange rate risk between member countries, as exchange ranges will
be permanent. Beginning in January 2002, new euro-denominated currency will be
issued, and legacy currency will be removed from circulation during the first
six months of that year. The Company's subsidiaries affected by the euro
conversion have established plans to address issues raised by the euro currency
conversion. These issues include, among other things, the need to adapt
computer, financial and business systems to accommodate euro denominated
transactions, and the impact that a fixed exchange rate may have on contract
pricing, such as the amount that may be charged in different countries for the
same product. The Company does not expect the euro conversion will have a
material impact on the Company's business or results of operations, and believes
that the Company's currency risk in participating countries may be reduced as
the legacy currencies are converted to the euro.
Possible Volatility of Stock Price
- ----------------------------------
The stock market from time to time experiences extreme price and volume
fluctuations, particularly in the high technology sector. In addition, factors
such as announcements of technological innovations or new products by Marcam
Solutions or its competitors, quarterly financial releases, as well as market
conditions in the computer software or hardware industries, may have a
significant impact on the market price of Marcam Solutions' Common Stock. Marcam
Solutions' Common Stock has experienced, and may in the future exhibit, price
volatility because of factors related, as well as unrelated, to the Company's
operating performance.
Anti-Takeover Provisions; Rights Plan; Issuance of Preferred Stock
- ------------------------------------------------------------------
Marcam Solutions' certificate of incorporation and by-laws contain
provisions that may make it more difficult for a third party to acquire, or
discourage acquisition bids for, or discourage changes in management of, Marcam
Solutions. These provisions could limit the price that certain investors might
be willing to pay in the future for shares of Marcam Solutions Common Stock.
Also, Marcam Solutions has adopted a Shareholder Rights Plan, pursuant to which
Marcam Solutions has distributed to its stockholders rights to purchase shares
of junior participating preferred stock (the "Rights Plan"). Upon certain
triggering events, such rights become exercisable to purchase Marcam Solutions
Common Stock at a price substantially discounted from the then applicable market
price of Marcam Solutions Common Stock. The Rights Plan could generally
discourage a merger or tender offer involving the securities of Marcam Solutions
that is not approved by the Marcam Solutions Board by increasing the cost of
effecting any such transaction and, accordingly, could have an adverse impact on
stockholders who might want to vote in favor of such merger or participate in
such tender offer. The issuance of Preferred Stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, a majority of the
outstanding voting stock of Marcam Solutions.
Marcam Solutions has no present plans to issue any shares of Preferred Stock.
The Marcam Solutions Board is divided into three classes, each of which serves
for a staggered three-year term. Such staggered Board may make it more difficult
for a third party to gain control of the Marcam Solutions Board. The by-laws
impose various procedural and other requirements that could make it more
difficult for stockholders to effect certain corporate actions.
37
<PAGE>
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
38
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The following is a list of the Consolidated Financial Statements and
Supplemental Data appearing herein:
<TABLE>
Page
----
<S> <C>
Report of Independent Accountants........................................................40
Consolidated Balance Sheets as of September 30, 1998 and 1997............................41
Consolidated Statements of Operations for each of the three years in the period
ended September 30, 1998...............................................................42
Consolidated Statements of Stockholders' Equity for each of the three years in
the period ended September 30, 1998.....................................................43
Consolidated Statements of Cash Flows for each of the three years in
the period ended September 30, 1998.....................................................44
Notes to Consolidated Financial Statements...............................................45
Supplemental Financial Information.......................................................64
</TABLE>
39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Marcam Solutions, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of Marcam
Solutions, Inc. and its subsidiaries at September 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended September 30, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
October 23, 1998
40
<PAGE>
MARCAM SOLUTIONS, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
<TABLE>
<CAPTION>
September 30,
------------------------
1998 1997
--------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (Note 3) $ 24,929 $ 26,474
Short-term investments (Note 3) 3,131 11,503
Accounts receivable, net of allowances of $2,235 in 1998
and $2,037 in 1997 (Note 4) 29,623 24,273
Prepaid expenses and other current assets 4,335 6,639
--------- ---------
Total current assets 62,018 68,889
--------- ---------
Property and equipment, net (Notes 3 and 5) 6,372 6,224
Computer software costs, net (Note 3) 917 2,475
Other assets 195 281
--------- ---------
Total assets $ 69,502 $ 77,869
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 7,379 $ 4,142
Accrued expenses and other current liabilities (Note 6) 28,652 29,457
Deferred revenue 16,051 22,396
--------- ---------
Total current liabilities 52,082 55,995
--------- ---------
Capital lease obligations (Note 7) 119 318
Deferred income taxes (Note 8) 99 694
--------- ---------
Total liabilities 52,300 57,007
--------- ---------
Commitments and contingencies (Note 9)
Stockholders' equity (Notes 7 and 10):
Preferred stock, $.01 par value; 5,000 shares authorized -- --
at September 30, 1998 and 1997
Common stock, $.01 par value; 30,000 shares 77 75
authorized at September 30, 1998 and 1997; 7,740 and 7,457 shares
issued and outstanding at September 30, 1998 and 1997, respectively
Additional paid-in capital 144,604 142,766
Accumulated deficit (126,597) (121,072)
Cumulative translation adjustment (882) (907)
--------- ---------
Total stockholders' equity 17,202 20,862
--------- ---------
Total liabilities and stockholders' equity $ 69,502 $ 77,869
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
41
<PAGE>
MARCAM SOLUTIONS, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Revenues:
License $ 53,861 $ 66,390 $ 93,137
Services 70,659 97,490 108,287
-------- -------- --------
Total revenues 124,520 163,880 201,424
-------- -------- --------
Operating expenses:
Cost of license revenues 4,275 14,636 16,669
Cost of services revenues 49,411 56,234 69,493
Selling and marketing (Note 4) 40,533 66,596 82,790
Product development 32,085 34,301 27,680
General and administrative 6,350 9,505 9,987
Restructuring and other charges (Note 6) (1,896) 19,175 10,600
-------- -------- --------
Total operating expenses 130,758 200,447 217,219
-------- -------- --------
Operating loss (6,238) (36,567) (15,795)
Litigation settlement (Note 9) -- -- (3,250)
Interest and other income 3,152 1,411 1,443
Interest and other expense (1,339) (3,518) (4,138)
-------- -------- --------
Loss before income tax expense and extraordinary item (4,425) (38,674) (21,740)
Income tax expense (Note 8) (1,100) (5,200) (4,586)
-------- -------- --------
Loss before extraordinary item (5,525) (43,874) (26,326)
Extraordinary loss from early extinguishment
of debt, net of $0 of income taxes (Note 7) -- (3,009) --
-------- -------- --------
Net loss $ (5,525) $(46,883) $(26,326)
======== ======== ========
Basic and diluted loss per share before extraordinary item $ (0.73) $ (7.27) $ (4.63)
Basic and diluted extraordinary loss per share -- (0.50) --
-------- -------- --------
Basic and diluted net loss per share $ (0.73) $ (7.77) $ (4.63)
======== ======== ========
Weighted average number of basic and diluted
shares outstanding (Note 3) 7,580 6,035 5,692
======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
42
<PAGE>
MARCAM SOLUTIONS, INC.
Consolidated Statements of Stockholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Series D and E
Convertible Additional Unamortized Cumulative Total
Preferred Stock Common Stock Paid-in Accumulated Deferred Translation Stockholders'
Shares Par Value Shares Par Value Capital Deficit Compensation Adjustment Equity
------ --------- ------ --------- ------- ------- ------------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1995 225 $ 225 11,271 $ 113 $ 65,672 $ (36,469) $(1,100) $(1,795) $ 26,646
Sale of convertible
preferred stock
(Note 10) 100 100 -- -- 9,400 -- -- -- 9,500
Issuance of warrants
with preferred
stock (Note 10) -- -- -- -- 500 -- -- -- 500
Exercise of stock
options -- -- 113 1 566 -- -- -- 567
Sale of common stock
under the
Employee Stock
Purchase Plan -- -- 86 -- 791 -- -- -- 791
Stock grants canceled and
compensation
expense (Note 10) -- -- (39) -- (327) -- 515 -- 188
Effect of foreign
currency translation -- -- -- -- -- -- -- (192) (192)
Net loss -- -- -- -- -- (26,326) -- -- (26,326)
--- ----- ------ ----- -------- --------- ------- ------- --------
Balance at September 30,
1996 325 325 11,431 114 76,602 (62,795) (585) (1,987) 11,674
--- ----- ------ ----- -------- --------- ------- ------- --------
Exercise of stock
options -- -- 102 1 704 -- -- -- 705
Sale of common stock
under the
Employee Stock
Purchase Plan -- -- 81 1 822 -- -- -- 823
Stock grants canceled
and compensation
expense (Note 10) -- -- (10) -- (106) -- 585 -- 479
Compensation related
to unexercised
stock options -- -- -- -- 378 -- -- -- 378
The Distribution (Notes 2 and 7):
Effect of the
Distribution on
shares outstanding (325) (325) (4,147) (41) 366 -- -- -- --
Disposal of MAPICS,
Inc. -- -- -- -- -- (11,394) -- -- (11,394)
Capital contributed
and Subordinated
Notes assumed by
MAPICS, Inc. -- -- -- -- 64,000 -- -- -- 64,000
Effect of foreign
currency translation -- -- -- -- -- -- -- 1,080 1,080
Net loss -- -- -- -- -- (46,883) -- -- (46,883)
--- ----- ------ ----- -------- --------- ------- ------- --------
Balance at September 30,
1997 -- -- 7,457 75 142,766 (121,072) -- (907) 20,862
--- ----- ------ ----- -------- --------- ------- ------- --------
Exercise of stock
options -- -- 198 2 1,376 -- -- -- 1,378
Sale of common stock
under the
Employee Stock
Purchase Plan -- -- 85 -- 462 -- -- -- 462
Effect of foreign
currency translation -- -- -- -- 25 25
Net loss -- -- -- -- -- (5,525) -- -- (5,525)
--- ----- ------ ----- -------- --------- ------- ------- --------
Balance at September 30,
1998 -- $ -- 7,740 $ 77 $144,604 $(126,597) $ -- $ (882) $ 17,202
=== ===== ====== ===== ======== ========= ======= ======= ========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
43
<PAGE>
MARCAM SOLUTIONS, INC.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------------------
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (5,525) $ (46,883) $(26,326)
Adjustments to reconcile net loss to net cash provided by (used
for) operating activities:
Depreciation and amortization 5,444 15,093 15,877
Provision for (reversal of) restructuring and other charges,
non-cash portion (1,896) 11,743 3,730
Extraordinary loss from extinguishment of debt, non-cash portion -- 1,259 --
Provision for bad debts 1,676 3,820 3,828
Deferred income taxes (3) 49 (459)
Changes in operating assets and liabilities, net of effects
of acquisitions and divestitures:
Accounts receivable (7,263) 2,984 1,779
Prepaid expenses and other assets 1,564 (1,446) (2,648)
Accounts payable 3,063 (3,324) 2,748
Accrued expenses and other current liabilities 335 2,944 (148)
Deferred revenue (5,369) 4,272 2,220
------- --------- -------
Net cash provided by (used for) operating activities (7,974) (9,489) 601
------- --------- -------
Cash flows from investing activities:
Purchases of property and equipment (4,073) (3,510) (6,114)
Additions to computer software costs -- (7,563) (12,233)
Purchases of short-term investments (3,131) (11,503) (6,909)
Proceeds from the sale of short-term investments 11,503 -- 8,928
Net cash divested in disposal of subsidiaries -- (3,632) (461)
------- --------- -------
Net cash provided by (used for) investing activities 4,299 (26,208) (16,789)
------- --------- -------
Cash flows from financing activities:
Proceeds from issuance of convertible preferred stock -- -- 9,500
Proceeds from issuance of warrants -- -- 500
Principal payments on debt and capital lease obligations (250) (436) (379)
Capital contributed by MAPICS, Inc. -- 39,000 --
Common stock issued under Employee Stock Purchase Plan 462 823 791
Proceeds from stock option exercises 1,378 705 567
------- --------- -------
Net cash provided by financing activities 1,590 40,092 10,979
------- --------- -------
Effect of exchange rate changes on cash and cash equivalents 540 262 (286)
------- --------- -------
Net increase (decrease) in cash and cash equivalents (1,545) 4,657 (5,495)
Cash and cash equivalents at beginning of year 26,474 21,817 27,312
------- --------- -------
Cash and cash equivalents at end of year $24,929 $ 26,474 $21,817
======= ========= =======
See supplemental disclosure of cash flow information in Note 12.
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
44
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements
1. NATURE OF BUSINESS
Marcam Solutions, Inc. and subsidiaries ("Marcam Solutions" or the
"Company") develops, globally markets, implements, and supports enterprise
resource planning software applications components designed exclusively for
process plant manufacturers and enterprise asset management software for all
capital-intensive industries. The Company's mission is to provide process
manufacturing companies with specialized, agile, business solutions that enable
them to achieve process operational excellence while realizing low total cost of
ownership and to provide best-of-breed asset management solutions to industries
that must protect and optimize their capital investments. The Company also
provides customer support, consulting services, education, and programming
services to its customers. The Company's primary geographic markets include
North America, Europe, Latin America, Asia Pacific, Africa and the Middle East.
2. THE DISTRIBUTION
On July 29, 1997, Marcam Corporation spun off in a tax-free distribution
the portion of its business relating to its PRISM, Protean and Avantis product
lines. In connection with the distribution, Marcam Corporation transferred to
Marcam Solutions, Inc., at that time a new wholly-owned subsidiary of Marcam
Corporation, substantially all of the business, assets and liabilities relating
to its PRISM, Protean and Avantis product lines and an aggregate of $39.0
million in cash in exchange for (i) the assumption by Marcam Solutions of
certain liabilities and obligations relating to the business to be conducted by
Marcam Solutions, (ii) a number of shares of common stock of Marcam Solutions
sufficient for Marcam Corporation to make the distribution and (iii) warrants to
purchase an aggregate of 500,000 shares of common stock of Marcam Solutions.
Marcam Corporation distributed all of its ownership interest in Marcam Solutions
by means of a distribution on July 29, 1997 to its stockholders of record on
July 23, 1997 (the "Distribution"). In the Distribution, each stockholder of
Marcam Corporation received one share of Marcam Solutions common stock for each
two shares of Marcam Corporation common stock held and five shares of Marcam
Solutions common stock for each share of Marcam Corporation preferred stock
held. In connection with the Distribution, Marcam Corporation changed its name
from "Marcam Corporation" to "MAPICS, Inc." ("MAPICS").
Although the common stock of Marcam Solutions was distributed to Marcam
Corporation's shareholders, the Distribution was recorded for accounting
purposes as a disposal of the business conducted by MAPICS, due to the relative
significance of the business conducted by Marcam Solutions. The financial
statements of Marcam Solutions for reporting periods after the Distribution
reflect the Distribution as a disposal of the business conducted by MAPICS and
have not been restated to remove the effects of the prior operating results of
the MAPICS business. The financial statements of Marcam Solutions for periods
prior to the Distribution correspond to the historical consolidated financial
statements of Marcam Corporation.
For accounting purposes, in connection with the Distribution, MAPICS
assumed and repaid Marcam Corporation's outstanding $25,000,000 9.82% unsecured
Subordinated Notes. The repayment resulted in an extraordinary loss to Marcam
Solutions of $3,009,000 related to the early extinguishment of this debt. The
extraordinary loss included prepayment penalties of $1,750,000 and the write-off
of deferred financing costs approximating $1,259,000. No tax benefit was
recognized for the extraordinary loss due to the uncertainty of realizing that
benefit. At September 30, 1998 and 1997, the Company had no debt other than
capitalized leases (See Note 7).
Marcam Corporation and Marcam Solutions entered into various agreements
providing for the separation of the product lines and governing various ongoing
relationships between MAPICS and Marcam Solutions after the Distribution,
including a distribution agreement, a general services agreement and a tax
sharing agreement.
45
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
The following unaudited pro forma financial information for the years ended
September 30, 1997 and 1996 reflects how the disposition of the MAPICS business
might have affected the statements of operations of Marcam Solutions if the
disposition had occurred on October 1, 1995. The pro forma financial information
is presented as if Marcam Solutions had been operated as a separate entity,
principally by deducting the operating results of MAPICS from the historical
consolidated operating results of Marcam Corporation. The pro forma data is for
informational purposes only and may not necessarily reflect future results of
operations or what the results of operations would have been had Marcam
Solutions been operating as a separate entity. Actual results for the year ended
September 30, 1998 have been presented for comparative purposes.
Pro Forma Results of Operations
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------
1998 1997 1996
---------------- --------------- ---------------
Actual Pro Forma Pro Forma
---------------- --------------- ---------------
<S> <C> <C> <C>
Revenues:
License $ 53,861 $ 27,466 $ 47,796
Services 70,659 65,485 76,026
-------- -------- --------
Total revenues 124,520 92,951 123,822
-------- -------- --------
Operating expenses:
Cost of license revenues 4,275 7,628 9,756
Cost of services revenues 49,411 44,857 58,341
Selling and marketing 40,533 40,298 52,649
Product development 32,085 25,790 21,282
General and administrative 6,350 7,290 7,965
Restructuring and other charges (1,896) 19,175 10,600
-------- -------- --------
Total operating expenses 130,758 145,038 160,593
-------- -------- --------
Operating loss (6,238) (52,087) (36,771)
Other income (expense), net 1,813 (2,107) (5,945)
Income tax expense (1,100) (3,936) (4,160)
-------- -------- --------
Loss before extraordinary item (5,525) (58,130) (46,876)
Extraordinary item -- (3,009) --
-------- -------- --------
Net loss $ (5,525) $(61,139) $(46,876)
======== ======== ========
Basic and diluted net loss per share before extraordinary item $ (0.73) $ (9.63) $ (8.24)
Basic and diluted extraordinary loss per share -- (0.50) --
-------- -------- --------
Basic and diluted net loss per share $ (0.73) $ (10.13) $ (8.24)
======== ======== ========
Weighted average number of basic and diluted
shares outstanding 7,580 6,035 5,692
======== ======== ========
</TABLE>
46
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
3. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
---------------------
The consolidated financial statements include the accounts of Marcam
Solutions, Inc. and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. See Note 2 for basis of
presentation of the Distribution.
(b) Use of Estimates by Management
------------------------------
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions. These estimates and assumptions 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
revenues and expenses during the reporting periods. The most significant
estimates included in these financial statements are the valuation of accounts
receivable, deferred tax assets, capitalized software development costs and
intangible assets. Actual results may differ from estimates.
(c) Revenue Recognition
-------------------
The Company recognizes revenues from the sale of its software licenses
upon the signing of license agreements, delivery of the software and
determination that collection of the related receivable is probable. Under the
terms of the Company's license agreements, the customer is responsible for
installation and training. At the time the Company recognizes revenues from the
sale of software licenses, no significant vendor obligations remain, and the
costs of insignificant support obligations are accrued. Fees from licenses sold
together with consulting services are recognized as above, provided that payment
of the license fee is not contingent upon the performance of the consulting
services.
Revenues from exclusive marketing agreements with resellers are included in
license revenues and recognized when no additional obligations remain under the
agreement and collection is probable.
The Company recognizes revenues from license renewals (which typically
include some customer support obligations) and post-contract customer support
agreements as services revenues ratably over the terms of the agreements.
Revenues from consulting and custom programming services are recognized as
services are performed. Related expenses are included in cost of services
revenues.
Generally, revenues from sales through third-party representatives are
included in revenues, and related commissions are included in selling and
marketing expenses. In certain situations, revenues from affiliates are recorded
as royalties in license revenues (See Note 15).
(d) Cash Equivalents and Short-Term Investments
-------------------------------------------
Cash equivalents consist of highly liquid investments with original
maturities of three months or less from the date of purchase. Investments with
maturities greater than three months and less than twelve months are considered
to be short-term investments. Cash equivalents and short-term investments
consist primarily of commercial paper, corporate bonds, time deposits and money
market investments.
The Company classifies all securities that mature in less than one year as
"held to maturity" securities. At September 30, 1998, held to maturity
securities consisted of corporate bonds of $202,000 and commercial paper of
$2,929,000. At September 30, 1997, held to maturity securities consisted of
corporate bonds of $7,556,000, government and agency obligations of $2,000,000,
and commercial paper of $1,947,000. Held to maturity securities are recorded at
amortized cost, which approximated fair value at September 30, 1998 and 1997. No
unrealized gains or losses have been recognized on these investments.
47
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
(e) Concentrations of Credit Risk
-----------------------------
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company provides credit, in the normal course of business, to various types
and sizes of manufacturers located throughout the world, and typically does not
require collateral from customers. Management does not believe significant
credit risk exists at September 30, 1998, or existed at September 30, 1997.
(f) Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation is calculated using
the straight-line method based upon the following estimated useful lives:
<TABLE>
<S> <C>
Furniture and fixtures 5 to 7 years
Computer equipment and software 3 to 5 years
Leasehold improvements Shorter of lease term or useful life of asset
</TABLE>
(g) Computer Software Costs
-----------------------
The Company charges all costs of establishing technological feasibility of
computer software products to product development expense as they are incurred.
Thereafter, computer software costs are capitalized and reported at the lower of
unamortized cost or net realizable value. Computer software costs include
in-house software development costs and the costs incurred to translate software
into various foreign languages. Amortization of computer software costs
commences upon general release of the product to customers and is computed on a
product-by-product basis using the greater of the amount determined using (a)
the ratio that current period gross revenues bear to the total of current and
anticipated future gross revenues or (b) the straight-line method over the
estimated economic life of the product (generally five years). Amortization of
capitalized software costs is generally charged to cost of license revenues.
No computer software costs were capitalized during 1998. Computer software
costs capitalized during 1997 and 1996 amounted to approximately $7,563,000 and
$12,233,000, respectively. Amortization of computer software costs during the
years ended September 30, 1998, 1997 and 1996 was approximately $1,523,000,
$8,991,000 and $9,034,000, respectively. In fiscal 1997, capitalized software
and translation costs related to the Protean and Avantis.Pro product lines with
a net book value of $11,125,000 were written off as a result of management's
assessment of net realizable value (See Note 6). Additionally in fiscal 1997,
capitalized software and translation costs with a net book value of $15,863,000
were transferred to MAPICS, Inc. in connection with the Distribution described
in Note 2. In fiscal 1996, capitalized software and translation costs with a net
book value of $2,090,000 were written off as part of the 1996 restructuring
charges described in Note 6. Accumulated amortization at September 30, 1998 and
1997 totaled $17,201,000 and $21,491,000, respectively.
(h) Goodwill
--------
The excess of the cost of businesses acquired over the fair market value of
net assets acquired is being amortized to expense on a straight-line basis over
eight years.
(i) Intangible Assets
-----------------
The Company evaluates the net realizable value of capitalized software and
other intangibles on a quarterly basis using undiscounted cash flows. The
Company's review of intangible assets includes an analysis of past operating
results, business plans and budgets related to recoverability of the specific
assets.
48
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
(j) Foreign Currency Translation
----------------------------
The functional currency for each of the Company's foreign operations is
generally its local currency. Assets and liabilities of foreign subsidiaries are
translated into U.S. dollars at year-end rates of exchange. Revenues and
expenses are translated into U.S. dollars at the average rates for the periods.
The resultant translation adjustments are reflected as a separate component of
stockholders' equity on the consolidated balance sheets. Foreign currency
transaction gains and losses are included in results of operations.
(k) Income Taxes
------------
The Company accounts for income taxes using the asset and liability method,
pursuant to which deferred income taxes are recognized for the tax consequences
of differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. The effect on deferred income taxes of
a change in tax rates is recognized in the period that includes the enactment
date. Valuation allowances are provided if, based upon the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
The Company does not provide for U.S. income taxes on the undistributed
earnings of foreign subsidiaries, which the Company considers to be permanent
investments.
(l) Basic and Diluted Earnings Per Share
------------------------------------
Basic earnings per share is based upon the weighted average number of
common shares outstanding during the period. Diluted earnings per share is based
upon the weighted average number of common shares outstanding during the period
plus additional weighted average common equivalent shares outstanding during the
period. Common equivalent shares have been excluded from the computation of
diluted loss per share in each period, as their effect would have been
anti-dilutive. The following table reconciles the numerator and denominator of
the basic and diluted earnings per share computations shown on the Consolidated
Statements of Operations:
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ----------------
(In thousands, except per share data)
<S> <C> <C> <C>
BASIC AND DILUTED LOSS PER SHARE
Numerator:
Loss before extraordinary item $(5,525) $(43,874) $(26,326)
------- -------- --------
Denominator:
Common shares outstanding 7,580 6,035 5,692
------- -------- --------
Basic and diluted loss per share before extraordinary item $ (0.73) $ (7.27) $ (4.63)
======= ======== ========
</TABLE>
Options and warrants to purchase 2,046,109, 1,213,587 and 1,912,938
weighted shares of common stock outstanding at September 30, 1998, 1997, and
1996, respectively, and 1,340,068 and 1,625,000 weighted shares of common stock
issuable upon the conversion of preferred stock at September 30, 1997 and 1996,
respectively, were excluded from the calculation of diluted earnings per share
because the effect of their inclusion would have been anti-dilutive.
49
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
For purposes of computations of basic and diluted loss per share, the
distribution of one share of Marcam Solutions common stock for each two shares
of Marcam Corporation common stock in connection with the Distribution was
reflected as a 2-for-1 reverse stock split occurring on July 29, 1997.
Accordingly, historical basic and diluted loss per share and the corresponding
weighted average shares outstanding have been restated to present this stock
split.
(m) New Accounting Pronouncements
-----------------------------
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), was issued, which requires
businesses to disclose comprehensive income and its components in general
purpose financial statements, with reclassification of prior period financial
statements. SFAS 130 is effective for fiscal periods beginning after December
15, 1997 and its adoption is not expected to have a material impact on the
Company's disclosures.
In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), was issued, which redefines how operating segments are determined and
requires disclosures of certain financial and descriptive information about a
company's operating segments. SFAS 131 is effective for fiscal periods beginning
after December 15, 1997 and its adoption may require additional disclosure of
the Company's historical financial data.
In October 1997, Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), was issued, which provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions and
replaces Statement of Position 91-1. SOP 97-2 is effective for transactions
entered into in fiscal periods beginning after December 15, 1997. The Company
will adopt the guidelines of SOP 97-2 as of October 1, 1998 and its adoption is
not expected to have a material impact on the Company's financial position and
results of operations.
In March 1998, Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"), was
issued, which provides guidance on applying generally accepted accounting
principles in accounting for the costs of computer software developed or
obtained for internal use. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998 (although earlier application is
encouraged), and will result in the capitalization of certain qualifying costs
incurred in the development of software for internal use. The Company will adopt
the guidelines of SOP 98-1 as of October 1, 1998, and its adoption is not
expected to have a material impact on the Company's financial position and
results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999 (October 1, 1999 for
the Company). SFAS 133 requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge transaction
and, if it is, the type of hedge transaction. Management anticipates that, due
to the Company's limited use of derivative instruments, the adoption of FAS 133
will not have a material impact on the Company's financial position and results
of operations.
50
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
4. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company provides reserves for customer receivable balances considered
potentially uncollectible. The Company's allowance for doubtful accounts
amounted to $2,235,000, $2,037,000 and $2,472,000 at September 30, 1998, 1997
and 1996, respectively. The provision charged to bad debt expense, which is
generally included in selling and marketing expenses, was $1,676,000, $3,820,000
and $3,828,000 for fiscal 1998, 1997 and 1996, respectively, and write-offs
against the allowance were $1,478,000, $2,598,000 and $4,361,000 for fiscal
1998, 1997 and 1996, respectively. In fiscal 1997, $1,657,000 of the allowance
was transferred to MAPICS, Inc. in connection with the Distribution described in
Note 2.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30,
-------------------------------------
1998 1997
----------------- ----------------
(In thousands)
<S> <C> <C>
Furniture and fixtures $ 2,965 $ 2,742
Computer equipment and software 21,437 18,635
Leasehold improvements 1,323 1,431
-------- --------
25,725 22,808
Accumulated depreciation and amortization (19,353) (16,584)
-------- --------
$ 6,372 $ 6,224
======== ========
</TABLE>
The carrying value of assets under capital leases included in the above
was $570,000 and $612,000 at September 30, 1998 and 1997, respectively, which
was net of accumulated amortization of $595,000 and $586,000 at September 30,
1998 and 1997, respectively. In connection with the Distribution described in
Note 2, property and equipment with a net book value of $3,188,000 was
transferred to MAPICS during fiscal 1997.
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consists of:
<TABLE>
<CAPTION>
September 30,
-------------------------------------
1998 1997
---------------- ----------------
(In thousands)
<S> <C> <C>
Accrued commissions and royalties $ 7,320 $ 3,892
Accrued payroll and related expenses 7,677 6,468
Accrued restructuring and other charges 343 3,548
Accrued taxes 4,492 5,747
Other 8,820 9,802
------- -------
$28,652 $29,457
======= =======
</TABLE>
In connection with the Distribution described in Note 2, accrued expenses
and other current liabilities of $13,691,000 were transferred to MAPICS in
fiscal 1997.
51
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
Restructuring and other charges reflected in the statements of operations
consist of the following:
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ----------------
(In thousands)
<S> <C> <C> <C>
Restructuring charges $(1,758) $ 4,210 $10,600
Write-off capitalized software -- 11,125 --
Spin-off costs incurred in the Distribution (138) 3,840 --
------- ------- -------
$(1,896) $19,175 $10,600
======= ======= =======
</TABLE>
1998 Charge Reversal
During the third quarter of fiscal 1998, as a result of the substantial
completion of the planned restructuring actions and management's assessment of
future payments required, the Company reversed $1,896,000 of restructuring and
other charges accrued in previous periods. This amount is primarily the result
of cost savings achieved in relation to the amounts forecast at the time of the
restructurings. Savings from the original forecast were a result of lower than
expected severance payments to employees, lower than expected expenses
associated with the termination of leases, and the sale of fixed assets
associated with several facilities that were closed.
1997 Charges
During the third quarter of fiscal 1997, the Company's business and
operating expense structure were reviewed to identify opportunities for cost
reductions, and actions were initiated to reduce operating expenses. As a result
of these actions as well as an assessment of capitalized software costs and the
costs associated with the Distribution, the Company recorded restructuring and
other charges in the third and fourth fiscal quarters of 1997 totaling
$19,175,000. Of this amount, approximately $1,710,000 related principally to
reductions in staffing (approximately 100 employees) throughout the business,
except the Protean and Avantis development organizations; $1,500,000 related to
the closure of certain European facilities, including associated write-offs of
property and equipment and lease cancellation costs; and $1,000,000 related to
other restructuring actions.
An additional $11,125,000 of the fiscal 1997 charge related to the
write-off of the capitalized software development costs related to the Protean
and Avantis.Pro product lines. This write-off resulted from lower than expected
revenue from these product lines during fiscal 1997 and the continuing
uncertainty regarding market acceptance of, and significant revenue generation
from, these product lines in the near future.
The charge also included costs of $3,840,000 incurred in connection with
the Distribution. See Note 2.
Approximately $7,770,000 of the 1997 charges was expected to result in cash
expenditures. As of September 30, 1997, $2,379,000 related to the restructuring
charges remained in accrued liabilities.
1996 Charges
In the third and fourth quarters of 1996, the Company recorded
restructuring charges of $8,300,000 and $2,300,000, respectively. These charges
resulted from the Company's completion of a review of its operating expenses and
overall operations. As a result, the Company divested its MXP product line and
committed to the restructuring of global operations. Approximately $6,870,000 of
the total 1996 restructuring charges was expected to result in cash
expenditures. As of September 30, 1997, $1,169,000 related to these charges
remained in accrued liabilities.
52
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
Included in the 1996 restructuring charges was $5,500,000 associated with
the Company's decision to divest itself of the MXP product line, represented by
its Foresight Software, Inc. subsidiary. This charge represented the net loss
incurred in connection with the disposition of the stock of Foresight Software,
Inc. in a sale effective as of June 30, 1996, as well as additional costs of
divestiture. The Company received a promissory note, as revised, in the amount
of $1,847,000 from Foresight Software, Inc. and may be entitled to future
royalties. The Company has been recognizing the proceeds from the note and any
future royalties as cash payments are received, due to the uncertainty of
collection. The results of operations for fiscal 1996 of Foresight Software,
Inc. and the net assets divested were immaterial to the Company's consolidated
results of operations and financial position.
The remaining $5,100,000 of the 1996 restructuring charges related to the
conversion of certain direct sales operations in the Asia Pacific region and in
Latin America to affiliate distribution channels and a headcount reduction in
Europe and North America. Of this amount, $570,000 related to the cost of
customer commitments, $1,990,000 related to employee severance payments for
approximately ninety employees, $1,370,000 related to lease cancellations and
other costs, and $1,170,000 related to the write-off of certain related fixed
assets and intangible assets.
7. CAPITAL LEASE OBLIGATIONS AND CREDIT ARRANGEMENTS
Capital lease obligations consists of the following:
<TABLE>
<CAPTION>
September 30,
-------------------------------------
1998 1997
---------------- ----------------
(In thousands)
<S> <C> <C>
Capital lease obligations $295 $624
Less: current maturities 176 306
---- ----
Long-term capital lease obligations $119 $318
==== ====
</TABLE>
In May 1994, the Company issued to institutional investors $25,000,000 of
9.82% unsecured Subordinated Notes due April 30, 2001 (the "Subordinated Notes")
and warrants to purchase 383,333 shares of the Company's common stock (See Note
10). In July 1997, in connection with the Distribution, MAPICS assumed and
repaid the Subordinated Notes. The repayment resulted in an extraordinary loss
to Marcam Solutions of $3,009,000 related to the early extinguishment of this
debt. The extraordinary loss included prepayment penalties of $1,750,000 and the
write-off of deferred financing costs approximating $1,259,000. No tax benefit
was recognized for the extraordinary loss due to the uncertainty of realizing
that benefit.
53
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
8. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ----------------
(In Thousands)
<S> <C> <C> <C>
State:
Current $ -- $ 33 $ --
Deferred -- -- --
------ ------ ------
Total -- 33 --
------ ------ ------
Foreign:
Current 1,695 5,234 4,975
Deferred (595) (67) (389)
------ ------ ------
Total 1,100 5,167 4,586
------ ------ ------
Total $1,100 $5,200 $4,586
====== ====== ======
</TABLE>
The components of income (loss) from domestic and foreign operations before
provision for income taxes are as follows:
<TABLE>
Year Ended September 30,
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ----------------
(In thousands)
<S> <C> <C> <C>
Domestic $(7,151) $(41,863) $(25,593)
Foreign 2,726 180 3,853
------- -------- --------
Total $(4,425) $(41,683) $(21,740)
======= ======== ========
</TABLE>
The Company's effective income tax rates of 24.9%, 12.5% and 21.1% for the
years ended September 30, 1998, 1997 and 1996, respectively, differ from the
expected income taxes for those years calculated by applying the Federal
statutory rate of 34% to loss before income taxes as follows:
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------------
1998 1997 1996
--------------- --------------- ----------------
(In thousands)
<S> <C> <C> <C>
Expected tax benefit $(1,505) $(14,172) $(7,392)
Losses not benefited 2,387 12,723 8,503
Tax effect of foreign activities 173 4,006 3,272
Foreign taxes incurred in the Distribution -- 1,100 --
Non-deductible expenses 45 1,489 --
Other -- 54 203
------- -------- -------
$ 1,100 $ 5,200 $ 4,586
======= ======== =======
</TABLE>
54
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant portions of
the net deferred income tax liability at September 30, 1998 and 1997 relate to
the following:
<TABLE>
<CAPTION>
September 30,
-------------------------------------
1998 1997
---------------- ----------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 4,213 $ 101
Foreign, research and experimentation and other tax credits 1,642 532
Deferred revenue 998 2,391
Accrued vacation 380 345
Accrued compensation 685 345
Reserve for bad debts 483 --
Restructuring reserves 131 860
Other reserves 804 156
Depreciation 344 --
Other 548 1,487
-------- -------
10,228 6,217
Less: Valuation reserve (10,005) (5,831)
-------- -------
Net deferred tax assets 223 386
-------- -------
Deferred tax liabilities:
Capitalized software (290) (731)
Other (32) (349)
-------- -------
(322) (1,080)
-------- -------
Net deferred tax liabilities $ (99) $ (694)
======== =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during periods in which
those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and other matters in making this assessment. As a result of its evaluation of
these factors, at September 30, 1998, management recorded a valuation reserve
for deferred tax assets of $10,005,000.
At September 30, 1998, the Company had operating loss carryforwards of
approximately $10,500,000, foreign tax credit carryforwards of approximately
$786,000, and research and experimentation credit carryforwards of approximately
$820,000, expiring between 2002 and 2013. The current year net operating loss
includes amounts related to stock option exercises, the benefits of which will
be allocated to additional paid-in capital when realized.
Pursuant to the tax sharing agreement between Marcam Solutions and MAPICS,
Marcam Solutions is generally responsible for certain state and local non-income
taxes and certain foreign income taxes for periods ending on or before the date
of the Distribution. MAPICS is generally responsible for all other taxes for
such periods, including any tax payments arising out of the Distribution. The
Company's tax provision for the year ended September 30, 1997 includes foreign
income taxes of $1,100,000 related to the sale for tax purposes of foreign
assets in connection with the Distribution.
55
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
A provision has not been made for U.S. or additional foreign taxes on
$7,300,000 of undistributed earnings of foreign subsidiaries that could be
subject to taxation if remitted to the U.S., because the Company plans to keep
these amounts permanently reinvested overseas.
9. COMMITMENTS AND CONTINGENCIES
Lease Commitments
- -----------------
The Company leases certain equipment and office space under noncancelable
agreements and leases which expire at various dates through 2004. At September
30, 1998, future minimum lease payments under noncancelable operating and
capital leases were as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
---------------- ----------------
(In thousands)
<S> <C> <C>
Year ended September 30:
1999 $ 4,710 $200
2000 3,202 64
2001 1,296 76
2002 662 --
2003 426 --
Thereafter 142 --
======= ----
Total minimum lease payments $10,438 340
=======
Less: Amounts representing interest (annual rates from 6% to 12%) (45)
----
Present value of minimum capital lease obligations 295
Less: Current maturities (176)
-----
Capital lease obligations, less current maturities $119
====
</TABLE>
Total rental expense charged to operations was $5,258,000, $6,934,000 and
$9,087,000 for 1998, 1997 and 1996, respectively.
On October 23, 1998, the Company entered into a non-cancelable lease
agreement for its headquarter operations. The lease term is for six years,
commencing on May 1, 1999. Aggregate lease payments during the six-year term of
this lease will amount to $18,449,000.
Litigation
- ----------
On May 20, 1996, the Company entered into a definitive agreement to settle
the shareholder class action litigation brought against the Company and certain
of its former officers. An order of Final Approval and Final Judgment and an
Order of Dismissal was issued by the Federal District Court in Massachusetts.
The litigation, which was brought in August 1994, alleged violations of federal
securities law. Of the $5,750,000 settlement, the Company contributed $2,750,000
from its own funds, with the remainder provided by insurance. The Company
recorded a charge of $3,250,000 in the second quarter of fiscal 1996 to cover
the settlement and other expenses incurred in connection therewith.
56
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
The Company is also subject to other legal proceedings and claims which
arise in the normal course of business. While the outcome of these matters
cannot be predicted with certainty, management does not believe the outcome of
any of these other legal matters will have a material adverse effect on the
Company's financial position or results of operations.
10. STOCKHOLDERS' EQUITY
As described in Note 2, on July 29, 1997, Marcam Corporation spun off in a
tax-free distribution to its stockholders the stock of Marcam Solutions, Inc.,
representing its business related to its PRISM, Protean and Avantis product
lines. In the Distribution, each stockholder of Marcam Corporation received one
share of Marcam Solutions common stock for each two shares of Marcam Corporation
common stock held and five shares of Marcam Solutions common stock for each
share of Marcam Corporation preferred stock held. Each holder of an outstanding
stock option to purchase shares of Marcam Corporation common stock retained such
Marcam Corporation option, which after the Distribution became an option to
purchase the same number of shares of MAPICS common stock, and was granted an
option to purchase shares of Marcam Solutions common stock equal to one-half of
the number of shares of Marcam Corporation common stock subject to such Marcam
Corporation option. Warrants outstanding at the Distribution date were similarly
modified or were transferred to MAPICS, Inc.
(a) Preferred Stock
---------------
In September 1995, Marcam Corporation issued and sold 225,000 shares of
Series D Convertible Preferred Stock, par value $1.00 per share, for an
aggregate purchase price of $22,500,000. In July 1996, Marcam Corporation issued
and sold 100,000 shares of Series E Convertible Preferred Stock, par value $1.00
per share, for an aggregate purchase price of $9,500,000, and warrants to
purchase an aggregate of 1,000,000 shares of Marcam Corporation common stock for
an aggregate purchase price of $500,000. In connection with the Distribution
described in Note 2, 325,000 shares of Series D and Series E preferred stock
were converted into 1,625,000 shares of Marcam Solutions common stock (See Note
10(e) regarding warrants).
Marcam Solutions is authorized to issue 5,000,000 shares of Preferred
Stock, $0.01 par value per share.
(b) Stock Option Plans
------------------
The 1987 Marcam Corporation Stock Plan (the "1987 Plan") provided that the
Board of Directors may grant incentive options to key employees and
non-qualified options and stock awards to officers, employees and consultants to
purchase up to 1,750,000 shares of the Company's common stock. Incentive stock
options were granted at not less than the fair market value of the common stock
at the time of the grant. Non-qualified options were granted at not less than
the lesser of the book value per share of common stock as of the end of the
fiscal year of Marcam Corporation immediately preceding the date of such grant
or 50% of the fair market value of the common stock at the time of the grant.
Under the 1987 Plan, an aggregate of 120,000 shares of restricted common stock
were granted to various individuals. These grants became 50% vested in 4-1/2
years and 100% vested in 5-1/2 years according to their original vesting
schedules. In fiscal 1997 and 1996, grants representing 10,000 and 45,000 shares
of restricted common stock were canceled, respectively. The Company's ability to
grant additional options under the 1987 Plan expired on December 31, 1996.
The Marcam Corporation 1991 Non-Employee Director Stock Option Plan, as
amended, provided for the issuance of options to purchase up to 210,000 shares
of common stock to eligible members of Marcam Corporation's Board of Directors
who were neither employees nor officers of Marcam Corporation.
57
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
The Marcam Corporation 1994 Stock Plan (the "1994 Plan"), as amended,
provided that the Board of Directors may grant incentive options to key
employees and non-qualified options and stock awards to officers, employees and
consultants to purchase up to 2,000,000 shares of Marcam Corporation common
stock. Incentive stock options were granted at not less than the fair market
value of the common stock at the time of the grant. Non-qualified options were
granted at not less than the lesser of the book value per share of common stock
as of the end of the fiscal year of Marcam Corporation immediately preceding the
date of such grant or 50% of the fair market value of the common stock at the
time of the grant. Under the 1994 Plan, an aggregate of 6,000 shares of
restricted common stock were granted to various individuals in fiscal year 1996.
These grants became 50% vested in 4-1/2 years and 100% vested in 5-1/2 years,
according to their original vesting schedules.
In a prior fiscal year, the Marcam Corporation Board of Directors
authorized options to purchase 25,260 shares of Marcam Corporation common stock
which were granted outside of the three then-existing stock option plans.
In June 1997, the Marcam Solutions Board of Directors adopted the Marcam
Solutions 1997 Stock Plan (the "1997 Plan"). The 1997 Plan provides that the
Board of Directors may grant incentive options to key employees and
non-qualified options and stock awards to officers, employees and consultants to
purchase up to 2,750,000 shares of the Company's common stock. Incentive stock
options must be granted at not less than the fair market value of the common
stock at the time of the grant. The exercise price of non-qualified stock
options may be less than the fair market value of the common stock on the date
of grant, but in no case may the exercise price be less than the statutory
minimum. Options under the 1997 Plan generally vest over a 4 or 5 year period
and expire ten years from the date of grant.
In June 1997, the Marcam Solutions Board of Directors adopted the Marcam
Solutions, Inc. 1997 Non-Employee Director Stock Option Plan (the "Directors
Plan"). The Directors Plan provides for the issuance of options to purchase up
to 160,000 shares of common stock to eligible members of the Company's Board of
Directors who are neither employees nor officers of the Company. The options
must be granted at not less than the fair market value of the common stock on
the date of grant. Options under the Directors Plan vest over a 4 year period
and expire ten years from the date of grant.
Immediately prior to the Distribution, on July 29, 1997, options to
purchase an aggregate of 2,601,561 shares of Marcam Corporation common stock
were held by employees, consultants and directors of Marcam Corporation under
the stock option plans. In connection with the Distribution, each holder of an
outstanding stock option to purchase shares of Marcam Corporation common stock
(i) retained such Marcam Corporation option, which after the Distribution became
an option to purchase the same number of shares of MAPICS common stock (the
"Adjusted MAPICS Options"), and (ii) was granted an option to purchase shares of
Marcam Solutions common stock equal to one-half of the number of shares of
Marcam Corporation common stock subject to such Marcam Corporation option (the
"Adjusted Marcam Solutions Option"). The current exercise price of the Marcam
Corporation options was allocated between the Adjusted MAPICS Options and the
Adjusted Marcam Solutions Options on a basis intended to preserve the "spread"
value of the existing Marcam Corporation options. As adjusted, each of the two
options had the same ratio of exercise price per option to the market value per
share, the same vesting provisions, option periods and other terms and
conditions and, in the aggregate, the same difference between the market value
and exercise price as reflected in the original Marcam Corporation option.
Generally, each adjusted stock option vests based on years of service with
either Marcam Solutions or MAPICS, Inc. pursuant to the Distribution agreement.
Certain modifications made by MAPICS, Inc. to an Adjusted MAPICS Option may
require the Company to make similar modifications to the related Marcam
Solutions Option.
The table presented below reflects the activity and historical prices of
Marcam Corporation stock options for the periods from September 30, 1995 through
July 29, 1997, the date of the Distribution. As of July 29, 1997, the Marcam
Corporation stock options were modified and options in Marcam Solutions, Inc.
were issued as described above. The table reflects activity and adjusted prices
of stock options for the period following the Distribution through September 30,
1998:
58
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Number of Shares Weighted Average
Under Options Exercise Price
----------------------- -------------------
<S> <C> <C>
Balance, September 30, 1995 1,937,935 $14.58
Granted 739,704 14.32
Exercised (112,789) 5.17
Canceled (455,371) 13.23
---------
Balance, September 30, 1996 2,109,479 15.28
Granted 783,870 12.50
Exercised (43,803) 8.80
Canceled (247,985) 13.37
---------
Balance, July 29, 1997 2,601,561 14.74
Modification of Marcam Corporation Stock Options (1,313,280) 7.21
Granted 778,070 8.21
Exercised (58,270) 5.45
Canceled (35,596) 6.37
---------
Balance, September 30, 1997 1,972,485 7.76
Granted 746,999 9.06
Exercised (197,900) 6.96
Canceled (312,641) 8.12
---------
Balance, September 30, 1998 2,208,943 $ 8.22
=========
</TABLE>
At September 30, 1998 and 1997, 946,805 and 605,881 options, respectively,
were exercisable under the Marcam Solutions stock option plans. Options for
444,887 shares were available for grant at September 30, 1998.
The following table summarizes information regarding stock options
outstanding at September 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- -----------------------------------
Weighted
Average
Remaining Weighted Weighted
Number Contractual Average Number Average
Range of exercise prices Outstanding Life (years) Exercise Price Outstanding Exercise Price
- --------------------------- ---------------------------------- ---------------- --------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
$0.50 750 0.6 $ 0.50 750 $ 0.50
$4.36 - $5.98 252,239 6.7 5.44 164,733 5.40
$6.10 - $7.75 480,867 7.5 7.03 227,363 6.95
$8.10 - $9.96 1,116,211 8.7 8.41 319,834 8.52
$10.00 - $11.58 346,876 5.7 11.10 233,125 11.17
$13.14 - $14.57 12,000 9.7 13.76 1,000 14.57
--------- -------
2,208,943 7.7 $ 8.22 946,805 $ 8.25
========= =======
</TABLE>
59
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
(c) Stock Purchase Plan
-------------------
The 1990 Marcam Corporation Employee Stock Purchase Plan ("1990 Plan")
permitted each full-time employee, excluding those owning 5% or more of the
Company's stock, to purchase, at 85% of the lesser of beginning or end of period
fair market value, up to 500 shares of common stock for each six-month period. A
total of 600,000 shares of common stock were authorized for issuance under the
1990 Plan. In fiscal years 1997 and 1996, 81,246 and 86,440 shares were issued,
respectively.
In June 1997, the Marcam Solutions Board of Directors adopted the 1997
Marcam Solutions Employee Stock Purchase Plan ("1997 Stock Purchase Plan") which
permits each full-time employee, excluding those owning 5% or more of the
Company's stock, to purchase, at 85% of the lesser of beginning or end of period
fair market value, up to 250 shares of common stock for each six-month period. A
total of 300,000 shares of common stock are authorized for issuance under the
1997 Stock Purchase Plan. In fiscal year 1998, 85,254 shares were issued under
the 1997 Stock Purchase Plan. No shares were issued under the 1997 Stock
Purchase Plan in fiscal year 1997.
(d) Accounting for Stock Based Compensation
---------------------------------------
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation ("FAS 123"), was issued which required
the Company to elect either expense recognition under FAS 123 or its
disclosure-only alternative for stock-based employee compensation. No expense
for stock-based compensation was recorded during 1998, 1997 or 1996. The expense
recognition provision encouraged by FAS 123 requires fair-value based financial
accounting to recognize compensation expense for employee stock compensation
plans. The Company adopted FAS 123 in 1997 and elected the disclosure-only
alternative provisions. Had compensation costs for stock-based compensation
plans related to employees of Marcam Corporation prior to the Distribution and
employees of Marcam Solutions subsequent to the Distribution been determined
based on the fair value at the grant date as calculated in accordance with FAS
123, the Company's net loss and basic and diluted loss per share for the years
ended September 30, 1998, 1997 and 1996 would have been as follows (in
thousands, except per share data).
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
September 30, 1998 September 30, 1997 September 30, 1996
------------------------------- ------------------------------- --------------------------------
As reported Pro forma As reported Pro forma As reported Pro Forma
--------------- --------------- -------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net loss $(5,525) $(9,221) $(46,883) $(52,671) $(26,326) $(27,667)
Net loss per share $ (0.73) $ (1.22) $ (7.77) $ (8.73) $ (4.63) $ (4.86)
</TABLE>
The fair value of stock-based compensation awards is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in fiscal 1998, 1997 and 1996,
respectively: dividend yield of 0%, 0% and 0%; expected volatility of 72% in
1998, 55% prior to the Distribution and 65% subsequent to the Distribution in
1997, and 55% in 1996; risk-free interest rates of 5.71%, 6.23% and 5.68%; and
expected lives of 5 years, 5 years and 5 years. The weighted-average fair value
of options granted during fiscal 1998, 1997 and 1996 was $5.78, $5.80 and $7.66,
respectively. The weighted-average fair values on the grant date of shares
issued in connection with employee stock plans in fiscal 1998, 1997 and 1996 was
$5.81, $4.38 and $3.70, respectively. The effects of applying FAS 123 in this
pro forma disclosure are not likely to be representative of the effects on
reported net income in future years. Additional awards in future years are
anticipated. FAS 123 does not apply to awards prior to fiscal 1996. The 1997 pro
forma compensation charge under FAS 123 included a one-time charge of $3,034,000
related to the modification of options in connection with the Distribution.
60
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
(e) Warrants
--------
Warrants to purchase an aggregate of 383,333 shares of Marcam Corporation
common stock issued in connection with the Subordinated Notes were valued in May
1994 at $1,300,000 and were recorded as other assets and additional paid-in
capital. The asset was being amortized over the term of the subordinated debt.
The asset was expensed upon the prepayment of the Subordinated Notes (see Note
7). In connection with the Distribution, these warrants were transferred to
MAPICS, Inc. in fiscal 1997.
Warrants to purchase an aggregate of 1,000,000 shares of Marcam Corporation
Common Stock issued in connection with the issuance of the Series E Convertible
Preferred Stock (the "GA Warrants") were recorded as additional paid-in capital
in the amount of $500,000. The warrants may be exercised anytime between July
23, 1996 and July 23, 2003 and were originally priced at $15.36 per share. In
connection with the Distribution, the holders of the GA Warrants (i) retained
such GA Warrants, which after the Distribution became warrants to purchase
MAPICS common stock (the "MAPICS GA Warrants") and (ii) received warrants to
purchase 500,000 shares of Marcam Solutions common stock (the "Marcam Solutions
GA Warrants"). The exercise price of the GA warrants was allocated between the
MAPICS GA Warrants and the Marcam Solutions GA Warrants on a basis intended to
preserve the spread value of the original GA Warrants. The resulting exercise
price for the Marcam Solutions GA Warrants is $7.66 per share. No warrants have
been exercised as of September 30, 1998.
(f) Stockholder Rights Plan
-----------------------
On July 17, 1997, the Company's Board of Directors adopted a Stockholder
Rights Agreement. The plan declared a dividend of one preferred stock purchase
right (a "Right") for each outstanding share of common stock to stockholders of
record at the close of business on July 21, 1997. Each Right entitles holders to
purchase one one-thousandth of a share (a "Unit") of a new series of junior
participating preferred stock, par value $0.01 per share, at an exercise price
of $25 per Unit, subject to adjustment. The Rights become exercisable for common
stock only under certain circumstances and in the event of particular events
relating to a change in control of the Company. The Rights may be redeemed by
the Company under certain circumstances pursuant to the Plan. The Rights expire
on July 17, 2007 unless earlier redeemed or exchanged. The Rights have certain
anti-takeover effects, in that they would cause substantial dilution to a person
or group that attempts to acquire a significant interest in the Company on terms
not approved by the Board of Directors.
11. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company had no customers which accounted for 10% or more of total
revenues in fiscal 1998, 1997 or 1996.
The Company markets its products worldwide. Revenues are grouped into three
main geographic segments: U.S., Europe and All Other. Financial data by
geographic area is as follows (in thousands):
61
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
U.S. Europe All Other Eliminations Total
------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
1998
- ----
Net sales to unaffiliated customers $ 48,365 $46,329 $29,826 $ -- $124,520
Transfers between geographic areas 8,536 -- 2,800 (11,336) --
-------- ------- ------- -------- --------
Total revenues 56,901 46,329 32,626 (11,336) 124,520
-------- ------- ------- -------- --------
Net income (loss) (20,896) 6,018 886 8,467 (5,525)
Identifiable assets 36,418 21,157 11,927 -- 69,502
1997
- ----
Net sales to unaffiliated customers $ 90,533 $44,227 $29,120 $ -- $163,880
Transfers between geographic areas 3,248 -- 2,298 (5,546) --
-------- ------- ------- -------- --------
Total revenues 93,781 44,227 31,418 (5,546) 163,880
-------- ------- ------- -------- --------
Net income (loss) (42,536) 1,908 3,006 (9,261) (46,883)
Identifiable assets 50,356 16,760 10,753 -- 77,869
1996
- ----
Net sales to unaffiliated customers $119,021 $51,990 $30,413 $ -- $201,424
Transfers between geographic areas 6,169 -- 6,493 (12,662) --
-------- ------- ------- -------- --------
Total revenues 125,190 51,990 36,906 (12,662) 201,424
-------- ------- ------- -------- --------
Net income (loss) (24,662) 7,804 6,016 (15,484) (26,326)
Identifiable assets 94,135 28,399 9,668 -- 132,202
</TABLE>
12. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for income taxes and interest and non-cash investing and
financing activities for the years ended September 30, 1998, 1997 and 1996 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ---------------- -----------------
<S> <C> <C> <C>
Cash paid during the year for:
Income taxes $3,249 $ 3,645 $1,241
Interest $ 70 $ 2,256 $2,793
Capital lease obligations incurred $ -- $ -- $1,388
Assumption of Subordinated Notes by MAPICS $ -- $25,000 $ --
</TABLE>
13. EMPLOYEE BENEFIT PLAN
In fiscal 1995, Marcam Corporation began to sponsor for eligible
employees a profit sharing retirement plan, and in fiscal 1997 Marcam Solutions
began to sponsor a similar plan (the "Plans"). In connection with the
Distribution described in Note 2, the Marcam Corporation plan was transferred to
MAPICS, Inc. The Plans were established under the provisions of Internal Revenue
Code Section 401(k). Participants may defer a portion of their annual
compensation on a pre-tax basis. The Company may elect to make matching
contributions based on a percentage of employees' contributions, subject to
limitations as defined in the Plans. Company matching contributions amounted to
$738,000, $877,000 and $431,000 for the years ended September 30, 1998, 1997 and
1996, respectively.
62
<PAGE>
MARCAM SOLUTIONS, INC.
Notes to Consolidated Financial Statements (Continued)
14. ACQUISITIONS
On February 26, 1993, the Company acquired from International Business
Machines Corporation ("IBM") the exclusive worldwide marketing rights to the
MAPICS product line for 25 years. The Company also acquired the option to
purchase the MAPICS product line and certain related intellectual property
rights. As part of the acquisition of the marketing rights, the Company recorded
$10,699,000 of intangible assets acquired, consisting principally of installed
customer base and affiliation networks, trade names and trademarks, and software
technology. The intangible assets were being amortized over their estimated
useful lives of 5 to 15 years. In connection with the Distribution, MAPICS
intangible costs with a net book value of $4,895,000 were transferred to MAPICS,
Inc.
15. RELATED PARTY TRANSACTIONS
The Company has a number of marketing and product development relationships
with IBM. IBM has also purchased licenses for the Company's product for internal
use, as well as for marketing purposes. The Company has purchased certain
services, equipment and software licenses from IBM.
IBM also markets and distributes some Marcam products on the Company's
behalf in certain geographies, including Europe, Latin America and Asia Pacific.
In fiscal year 1996, the Company recorded royalties from IBM of approximately
$604,000 relating to sales of the Company's products.
The Company also licenses products and provides services to IBM in the
ordinary course of business. During fiscal years 1996, the Company recognized an
aggregate of approximately $409,000 from licensing products and providing
services to IBM. IBM also sells products and provides services, including
distribution and translation services, to the Company in the ordinary course of
business.
The Company's total revenues that were derived from transactions with IBM
were $1,100,000 for fiscal 1996. Transactions with IBM in 1998 and 1997 were
immaterial.
63
<PAGE>
Supplemental Financial Information
The following quarterly information is unaudited and, in the opinion of
management, includes all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the operating results for each quarter.
The length of the Company's sales cycle, which typically ranges from three to
twelve months, and the timing of major contracts are factors in the variability
in quarterly results.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
---------- ---------- ---------- ----------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
1998
- ----
Revenues $28,108 $31,049 $ 30,953 $ 34,410 $124,520
Operating loss (3,297) (311) (393)(C) (2,237) (6,238)
Net income (loss) (3,343) 20 13 (C) (2,215) (5,525)
Basic and diluted net income (loss)
per share (0.45) 0.00 0.00 (C) (0.29) (0.73)
1997(E)
- -----------
Revenues $45,747 $43,804 $ 44,042 $ 30,287 $163,880
Operating loss (1,394) (3,601) (24,817)(A) (6,755)(B) (36,567)
Loss before extraordinary item (3,095) (5,321) (26,977)(A) (8,481)(B) (43,874)
Net loss (3,095) (5,321) (26,977)(A) (11,490)(B) (46,883)
Basic and diluted loss per share
before extraordinary item (0.54) (0.92) (4.70)(A) (1.23)(B) (7.27)
Basic and diluted net loss per share
(D) (0.54) (0.92) (4.70)(A) (1.66)(B) (7.77)
(A) The Third Quarter 1997 results include restructuring and other charges of
$18,535, or $3.22 per diluted share.
(B) Fourth Quarter 1997 results include other charges of $640, or $.09 per
diluted share, and an extraordinary loss of $3,009, or $.43 per diluted
share.
(C) Third Quarter 1998 results include a restructuring charge reversal of
$1,896, or $0.22 per diluted share.
(D) Historical weighted average shares outstanding and basic and diluted net
loss per share have been restated for the Distribution, which has been
presented in part as a 2-for-1 reverse stock split occurring on July 29,
1997.
(E) See Note 2 of the Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations "Overview" for discussion of the Distribution occurring on July
29, 1997, which is presented in part as a disposal of the business, assets
and liabilities of the Company's MAPICS product line. Consequently, the
supplemental financial information for the year ended September 30, 1997
includes ten months of results related to the MAPICS business.
64
<PAGE>
Supplemental Pro Forma Financial Information
The following unaudited pro forma financial information for the fiscal
quarters during 1997 reflects how the disposition of the MAPICS business might
have affected the statements of operations if the disposition had occurred on
October 1, 1996. The pro forma financial information is presented as if Marcam
Solutions had been operated as a separate entity, principally by deducting the
operating results of MAPICS from the historical consolidated operating results
of Marcam Corporation. The pro forma data is for informational purposes only and
may not necessarily reflect future results of operations or what the results of
operations would have been had Marcam Solutions been operating as a separate
entity. Actual results for the year ended September 30, 1998 have been presented
for comparative purposes.
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
---------- ---------- ---------- ----------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
1998
- ----
Revenues $28,108 $31,049 $ 30,953 $ 34,410 $124,520
Operating loss (3,297) (311) (393)(C) (2,237) (6,238)
Net income (loss) (3,343) 20 13 (C) (2,215) (5,525)
Basic and diluted net income (loss)
per share (0.45) 0.00 0.00 (C) (0.29) (0.73)
1997(E)
- -------
Revenues $22,368 $23,018 $ 22,045 $ 25,520 $ 92,951
Operating loss (7,187) (8,380) (29,678)(A) (6,842)(B) (52,087)
Loss before extraordinary item (8,767) (9,932) (31,698)(A) (7,733)(B) (58,130)
Net loss (8,767) (9,932) (31,698)(A) (10,742)(B) (61,139)
Basic and diluted loss per share
before extraordinary item (1.53) (1.73) (5.51)(A) (1.12)(B) (9.63)
Basic and diluted net loss per share
(D) (1.53) (1.73) (5.51)(A) (1.55)(B) (10.13)
</TABLE>
(A) The Third Quarter 1997 results include restructuring and other charges of
$18,535, or $3.22 per diluted share.
(B) Fourth Quarter 1997 results include other charges of $640, or $.09 per
diluted share, and an extraordinary loss of $3,009, or $.43 per diluted
share.
(C) Third Quarter 1998 results include a restructuring charge reversal of
$1,896, or $0.22 per diluted share.
(D) Historical weighted average shares outstanding and basic and diluted net
loss per share have been restated for the Distribution, which has been
presented in part as a 2-for-1 reverse stock split occurring on July 29,
1997.
(E) See Note 2 of the Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations "Overview" for discussion of the Distribution occurring on July
29, 1997, which is presented in part as a disposal of the business, assets
and liabilities of the Company's MAPICS product line.
65
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
66
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's directors will be set forth under the
captions "Election of Directors" and "The Board of Directors and its Committees"
in the Company's definitive proxy statement for its annual meeting of
stockholders to be held on February 24, 1999 which will be filed with the
Securities and Exchange Commission within 120 days of September 30, 1998, and is
incorporated herein by reference.
Information regarding the Company's executive officers is contained in Part
I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item will appear under the caption "Executive
Compensation" in the Company's definitive proxy statement for its annual meeting
of stockholders to be held on February 24, 1999 which will be filed with the
Securities and Exchange Commission within 120 days of September 30, 1998, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item will appear under the caption "Securities
Ownership of Certain Beneficial Owners and Management" in the Company's
definitive proxy statement for its annual meeting of stockholders to be held on
February 24, 1999 which will be filed with the Securities and Exchange
Commission within 120 days of September 30, 1998, and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item will appear under the caption "Certain
Relationships and Related Transactions" in the Company's definitive proxy
statement for its annual meeting of stockholders to be held on February 24, 1999
which will be filed with the Securities and Exchange Commission within 120 days
of September 30, 1998, and is incorporated herein by reference.
67
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) List of Financial Statements
----------------------------
The following are the consolidated financial statements of Marcam
Solutions, Inc. and its subsidiaries appearing elsewhere herein:
Report of Independent Accountants
Consolidated Balance Sheets as of September 30, 1998 and 1997
Consolidated Statements of Operations for each of the three years in the
period ended September 30, 1998
Consolidated Statements of Stockholders' Equity for each of the three years
in the period ended September 30, 1998
Consolidated Statements of Cash Flows for each of the three years in
the period ended September 30, 1998
Notes to Consolidated Financial Statements
(a)(2) List of Schedules
-----------------
All other schedules to the consolidated financial statements are omitted as
the required information is either inapplicable or presented in the consolidated
financial statements or related notes.
(a)(3) List of Exhibits
----------------
The Exhibits which are filed with this report or which are incorporated by
reference are set forth in the Exhibit Index hereto.
(b) Reports on Form 8-K:
--------------------
None
68
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, this 17th day of December,
1998.
MARCAM SOLUTIONS, INC.
/s/ Jonathan C. Crane
-------------------------------------
Jonathan C. Crane
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed below by the following persons on behalf of the registrant
on this 17th day of December, 1998 in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title(s)
- --------- --------
<S> <C>
/s/ Jonathan C. Crane Chairman of the Board of Directors, President
- ------------------------------- and Chief Executive Officer and Director (principal
Jonathan C. Crane executive officer)
/s/ Denis E. Liptak Chief Financial Officer (principal financial
- ------------------------------- and accounting officer)
Denis E. Liptak
/s/ John Campbell Director
- -------------------------------
John Campbell
/s/ William O. Grabe Director
- -------------------------------
William O. Grabe
/s/ Joe M. Henson Director
- -------------------------------
Joe M. Henson
/s/ Michael J. Quinlan Director
- -------------------------------
Michael J. Quinlan
/s/ Franchon M. Smithson Director
- -------------------------------
Franchon M. Smithson
</TABLE>
69
<PAGE>
EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission and are referred to and incorporated by reference to such filings.
<TABLE>
<CAPTION>
Exhibit No. Description SEC Document Reference
----------- ----------- ----------------------
<S> <C> <C>
2 Revised form of Distribution Agreement between the 000-22841
Registrant and MAPICS, Inc. Exhibit 2 to Form 10 dated July
15, 1997 as amended on July 22,
1997
3.1, 4.1 Certificate of Incorporation of the Registrant 333-29285
Exhibit 3.1
3.2, 4.2 By-laws of the Registrant 333-29285
Exhibit 3.2
4.3 Specimen certificate representing the Common Stock 333-29285
Exhibit 4.1
4.4 Form of Warrant 000-22841
Exhibit 4.3 to Form 10 dated
July 15, 1997 as amended on
July 22, 1997
4.5 Amended and Restated Rights Agreement dated as of
September 18, 1998, between the Registrant and
BankBoston, N.A., which includes as Exhibit A the
form of Certificate of Designation of Preferred
Stock, as Exhibit B the Form of Rights Certificate,
and as Exhibit C the Summary of Rights to Purchase
Preferred Stock
10.1 Revised form of General Services Agreement between 000-22841
MAPICS, Inc. and the Registrant Exhibit 10.1 to Form 10 dated
July 15, 1997 as amended on
July 22, 1997
10.2 Revised form of Tax Sharing between MAPICS, Inc. and the 000-22841
Registrant Exhibit 10.2 to Form 10 dated
July 15, 1997 as amended on
July 22, 1997
10.3 Marcam Solutions, Inc. 1997 Stock Plan, as amended 333-53599
Exhibit 4.1
10.4 Marcam Solutions, Inc. 1997 Non-Employee Director Stock 333-29285
Option Plan Exhibit 10.6
10.5 Lease by and between the Registrant and Dominic J. 33-3566
Saraceno, as amended, dated June 13, 1988 Exhibit 10.7
</TABLE>
70
<PAGE>
<TABLE>
<S> <C> <C>
10.6 Second and Third Amendments, each dated as of August 29, 0-18674
1990,to Lease by and between Registrant and Dominic J. Exhibit 10.17 to Annual Report
Saraceno, as amended, dated June 13, 1988 on Form 10-K for the fiscal
year ended September 30, 1990
10.7 Fourth Amendment, dated June 30, 1992, to Lease by and 0-18674
between Registrant and Dominic J. Saraceno, as amended, Exhibit 10.19 to Annual Report
dated June 13, 1988 on Form 10-K for the fiscal
year ended September 30, 1992
10.8 Fifth Amendment, dated May 19, 1993, to Lease by and 0-18674
between Registrant and Dominic J. Saraceno, as amended, Exhibit 10.27 to Annual Report
dated June 13, 1988 on Form 10-K for the fiscal
year ended September 30, 1993
10.9 Letter Agreement dated June 10, 1997 by and among Marcam 000-22841
Corporation, the Registrant and Michael J. Quinlan Exhibit 10.1 to Quarterly
Report on Form 10-Q dated
August 22, 1997
10.10* Marcam/NEC Distribution Agreement between Marcam World 0-18674
Trade Corporation and NEC Corporation dated as Exhibit 10.33 to Annual Report
of March 31, 1995 on Form 10-K for the fiscal
year ended September 30, 1995,
as amended
10.11* Marcam/NEC Technology Transfer and License Agreement by 0-18674
and between the Registrant and NEC Corporation dated as Exhibit 10.34 to Annual Report
of March 31, 1995 on Form 10-K for the fiscal
year ended September 30, 1995,
as amended
10.12 Form of Letter Agreement dated June 10, 1997 by and 000-22841
among Marcam Corporation, the Registrant and Messrs. Exhibit 10.2 to Quarterly
Ebling and Liptak and Ms. Clark Report on Form 10-Q dated
August 22, 1997
10.13 Letter Agreement dated October 23, 1997 by and between 000-2284
the Registrant and Michael J. Quinlan Exhibit 10.13 to Annual Report
on Form 10-K for the fiscal
year ended September 30, 1997
10.14 1997 Employee Stock Purchase Plan, as amended. 000-2284
Exhibit 10.15 to Annual Report
on Form 10-K for the fiscal
year ended September 30, 1997
10.15 Form of Indemnification Agreements entered into by the
Registrant with Messrs. Crane, Campbell, Grabe, Henson,
Margolis, Quinlan, Smithson, Ebling, and Liptak
</TABLE>
71
<PAGE>
<TABLE>
<S> <C>
10.16 Lease by and between the Registrant and Wells
Avenue Senior Holdings, LLC dated October 23, 1998
21 Subsidiaries of the Registrant
23.1 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule
</TABLE>
- ---------------------------------------
* Confidential Treatment Granted
72
-----------------------------------------------------------------
MARCAM SOLUTIONS, INC.
and
BANKBOSTON, N.A.
as Rights Agent
----------
AMENDED AND RESTATED
RIGHTS AGREEMENT
Dated as of September 18, 1998
----------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
Section 1. Certain Definitions..........................................................................1
Section 2. Appointment of Rights Agent..................................................................6
Section 3. Issue of Rights Certificates.................................................................6
Section 4. Form of Rights Certificates..................................................................8
Section 5. Countersignature and Registration............................................................9
Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates.....................................9
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights...............................10
Section 8. Cancellation and Destruction of Rights Certificates.........................................12
Section 9. Reservation and Availability of Capital Stock...............................................12
Section 10. Preferred Stock Record Date................................................................13
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or Number of Rights................14
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.................................23
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power......................23
Section 14. Fractional Rights and Fractional Shares....................................................25
Section 15. Rights of Action...........................................................................26
Section 16. Agreement of Rights Holders................................................................27
Section 17. Rights Certificate Holder Not Deemed a Stockholder.........................................27
Section 18. Concerning the Rights Agent................................................................28
Section 19. Merger or Consolidation or Change of Name of Rights Agent..................................28
Section 21. Change of Rights Agent.....................................................................30
Section 22. Issuance of New Rights Certificates........................................................31
Section 23. Redemption and Termination.................................................................31
Section 24. Exchange...................................................................................32
Section 25. Notice of Certain Events...................................................................33
Section 26. Notices....................................................................................34
Section 27. Supplements and Amendments.................................................................35
Section 28. Successors.................................................................................35
Section 29. Determinations and Actions by the Board of Directors, etc..................................35
Section 30. Benefits of this Agreement..................................................................36
-i-
<PAGE>
TABLE OF CONTENTS
-----------------
Section Page
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Section 31. Severability...............................................................................36
Section 32. Governing Law..............................................................................36
Section 33. Counterparts...............................................................................36
Section 34. Descriptive Headings.......................................................................36
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Exhibits:
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Exhibit A -- Form of Certificate of Designation of Preferred Stock
Exhibit B -- Form of Rights Certificate
Exhibit C -- Form of Summary of Rights
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RIGHTS AGREEMENT
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AMENDED AND RESTATED RIGHTS AGREEMENT, dated as of September 18, 1998
(the "Agreement"), between MARCAM SOLUTIONS, INC., a Delaware corporation (the
"Company"), and BankBoston, N.A., a national banking association (the "Rights
Agent"):
WITNESSETH:
WHEREAS, on June 13, 1997 (the "Rights Dividend Declaration Date"), the
Board of Directors of the Company (the "Board") authorized and declared a
dividend distribution of one Right for each share of Common Stock (as
hereinafter defined) of the Company outstanding at the close of business on July
21, 1997 (the "Record Date"), and has authorized the issuance of one Right (as
such number may hereinafter be adjusted pursuant to the provisions of Section
11(p) hereof) for each share of Common Stock of the Company issued (whether
originally issued or delivered from the Company's treasury) between the Record
Date and the Distribution Date, each Right initially representing the right to
purchase one one-thousandth of a share of Series A Junior Participating
Preferred Stock of the Company upon the terms and conditions hereinafter set
forth (the "Rights");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 20% or more of the shares of Common Stock then outstanding,
but shall not include the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company, any Person or
entity organized, appointed or established by the Company for or pursuant to the
terms of any such plan, or any Exempt Person. Notwithstanding the foregoing, no
Person shall become an "Acquiring Person" as the result of an acquisition of
Common Stock by the Company which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such Person
to 20% or more of the Common Stock of the Company then outstanding; provided,
however, that if a Person shall become the Beneficial Owner of 20% or more of
the Common Stock of the Company then outstanding by reason of share purchases by
the Company and shall, after such share purchases by the Company, become the
Beneficial Owner of any additional shares of Common Stock of the Company, then
such Person shall be deemed to be an "Acquiring Person." Notwithstanding the
foregoing, if the Board determines in good faith that a Person who would
otherwise be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this paragraph (a), has become such inadvertently, and such Person
divests as promptly as practicable a sufficient number of shares of Common Stock
so that such Person would no longer be an "Acquiring Person," as defined
pursuant to the foregoing provisions of this paragraph (a), then such Person
shall not be deemed to be an "Acquiring Person" for any purposes of this
Agreement.
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(b) "Act" shall mean the Securities Act of 1933, as amended.
(c) "Adjustment Shares" shall have the meaning set forth in
Section 11(a)(ii) hereof.
(d) "Adverse Person" shall mean any Person declared to be an
Adverse Person by the Board upon determination that the criteria set forth in
Section 11(a)(ii)(D) hereof apply to such Person.
(e) "Adverse Person Event" shall mean the determination by the
Board, pursuant to Section 11(a)(ii)(D) hereof, that a Person is an Adverse
Person.
(f) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended and in effect
on the date of this Agreement (the "Exchange Act").
(g) "Agreement" shall mean this Rights Agreement as originally
executed or as it may from time to time be supplemented or amended pursuant to
the applicable provisions hereof.
(h) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or Associates,
directly or indirectly, has the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding, whether or not in writing, or upon the
exercise of conversion rights, exchange rights, other rights, warrants or
options, or otherwise; provided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own", (A) securities tendered
pursuant to a tender offer or exchange offer made by such Person or any of such
Person's Affiliates or Associates until such tendered securities are accepted
for purchase or exchange, or (B) securities issuable upon exercise of Rights at
any time prior to the occurrence of a Triggering Event, or (C) securities
issuable upon exercise of Rights from and after the occurrence of a Triggering
Event which Rights were acquired by such Person or any of such Person's
Affiliates or Associates prior to the Distribution Date or pursuant to Section
3(a) or Section 22 hereof (the "Original Rights") or pursuant to Section
11(a)(i) hereof in connection with an adjustment made with respect to any
Original Rights;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or has
"beneficial ownership" of (as determined pursuant to Rule 13d-3 of the General
Rules and Regulations under the Exchange Act, or any comparable or successor
rule), including pursuant to any agreement, arrangement or understanding,
whether or not in writing; provided, however, that a Person shall not be deemed
the "Beneficial Owner" of, or to "beneficially own", any security under this
subparagraph (ii) as a result of an agreement, arrangement or understanding to
vote such security if such agreement, arrangement or understanding: (A) arises
solely from a revocable proxy or consent given in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act, and (B)
is
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not also then reportable by such Person on Schedule 13D under the Exchange Act
(or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person (or
any of such Person's Affiliates or Associates) has any agreement, arrangement or
understanding, whether or not in writing, for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy or consent as described in the
proviso to subparagraph (ii) of this paragraph (h)) or disposing of any voting
securities of the Company (a joint filing of a Schedule 13D under the Exchange
Act or any comparable or successor report being deemed to be conclusive evidence
of such an agreement, arrangement or understanding); provided, however, that
nothing in this paragraph (h) shall cause a Person engaged in business as an
underwriter of securities to be the "Beneficial Owner" of, or to "beneficially
own", any securities acquired through such Person's participation in good faith
in a firm commitment underwriting until the expiration of forty days after the
date of such acquisition. Notwithstanding anything in this definition of
Beneficial Ownership to the contrary, the phrase "then outstanding," when used
with reference to a Person's Beneficial Ownership of securities of the Company,
shall mean the number of such securities then issued and outstanding together
with the number of such securities not then actually issued and outstanding
which such Person would be deemed to own beneficially hereunder.
(i) "Board" means the Board of Directors of the Company.
(j) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the Commonwealth of
Massachusetts are authorized or obligated by law or executive order to close.
(k) "Close of Business" on any given date shall mean 5:00
P.M., Boston time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., Boston time, on the next succeeding
Business Day.
(l) "Common Stock" shall mean the common stock, $.01 par value
per share, of the Company, except that "Common Stock" when used with reference
to any Person other than the Company shall mean the capital stock of such Person
with the greatest voting power, or the equity securities or other equity
interest having power to control or direct the management, of such Person.
(m) "Common Stock Equivalents" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(n) "Company" shall mean the Person named as the "Company" in
the first paragraph of this Agreement until a successor corporation shall have
become such or until a Principal Party shall assume, and thereafter be liable
for, all obligations and duties of the Company hereunder, pursuant to the
applicable provisions of this Agreement, and thereafter "Company" shall mean
such successor corporation or Principal Party.
(o) "Company Securities" shall mean the Common Stock of the
Company (whether originally issued or delivered from the Company's treasury).
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(p) [Reserved]
(q) "Current Market Price" shall have the meaning set forth in
Section 11(d)(i) hereof.
(r) "Current Value" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(s) "Distribution Date" shall have the meaning set forth in
Section 3(a) hereof.
(t) "Equivalent Preferred Stock" shall have the meaning set
forth in Section 11(b) hereof.
(u) "Exchange Act" shall have the meaning set forth in Section
1(f) hereof.
(v) "Exempt Person" shall mean (1) General Atlantic Partners
32, L.P., General Atlantic Partners 21, L.P. and GAP Coinvestment Partners,
L.P., together with any of their Affiliates and Associates; provided, however,
if such Exempt Person, together with all Affiliates and Associates of such
Exempt Person, shall either (i) become the Beneficial Owner of an additional 1%
or more of the shares of Common Stock of the Company then outstanding from the
number of shares of Common Stock Beneficially Owned immediately after the
completion of the Share Distribution or (ii) enter into any of the transactions
set forth in Section 11(a)(ii)(A) hereof, then such Exempt Person shall cease to
be an Exempt Person and shall be deemed to be an "Acquiring Person" from and
after the time immediately preceding the earliest to occur of the events
specified in clause (i) or (ii) of this proviso, unless the Board approves the
transaction specified in clause (i) or (ii) of this proviso prior to the time
the Exempt Person enters into such transaction; and (2) during all periods prior
to the completion of the Share Distribution, Marcam Corporation, a Massachusetts
corporation.
(w) "Expiration Date" shall have the meaning set forth in
Section 7(a) hereof.
(x) "Final Amendment Date" shall mean the earlier of the
Distribution Date or the occurrence of an Adverse Person Event.
(y) "Final Expiration Date" shall mean the close of business
on July 17, 2007.
(z) [Reserved]
(aa) "Initial Exercise Price" shall be $25.00.
(bb) "Nasdaq" shall mean the National Association of
Securities Dealers, Inc. Automated Quotation System.
(cc) "Original Rights" shall have the meaning set forth in
Section 1(h)(i) hereof.
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(dd) "Person" shall mean any natural person, firm,
association, corporation, partnership, trust or other entity or organization.
(ee) "Preferred Stock" shall mean the Series A Junior
Participating Preferred Stock, par value $.01 per share, of the Company having
the terms set forth in the form of certificate of designation attached hereto as
Exhibit A.
(ff) "Principal Party" shall have the meaning set forth in
Section 13(b) hereof.
(gg) "Purchase Price" shall have the meaning set forth in
Section 4(a) hereof.
(hh) "Record Date" shall have the meaning set forth in the
preamble of the Agreement.
(ii) "Redemption Price" shall have the meaning set forth in
Section 23(a) hereof.
(jj) "Rights" shall have the meaning set forth in the preamble
of the Agreement.
(kk) "Rights Agent" shall mean the Person named as the "Rights
Agent" in the first paragraph of this Agreement until a successor Rights Agent
shall have become such pursuant to the applicable provisions hereof, and
thereafter "Rights Agent" shall mean such successor Rights Agent. If at any time
there is more than one Person appointed by the Company as Rights Agent pursuant
to the applicable provisions of this Agreement, "Rights Agent" shall mean and
include each such Person.
(ll) "Rights Certificates" shall have the meaning set forth in
Section 3(a) hereof.
(mm) "Rights Dividend Declaration Date" shall have the meaning
set forth in the preamble of this Agreement.
(nn) "Section 11(a)(ii) Event" shall mean any event described
in Section 11(a)(ii)(A), (B), (C) or (D) hereof.
(oo) "Section 11(a)(ii) Trigger Date" shall have the meaning
set forth in Section 11(a)(iii) hereof.
(pp) "Section 13 Event" shall mean any event described in
clauses (x), (y) or (z) of Section 13(a) hereof.
(qq) "Share Distribution" shall mean the distribution by
Marcam Corporation of all the then outstanding shares of Common Stock to the
holders of Marcam Corporation's common stock and preferred stock.
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(rr) "Spread" shall have the meaning set forth in Section
11(a)(iii) hereof.
(ss) "Stock Acquisition Date" shall mean the first date of a
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such.
(tt) "Subsidiary" shall mean, with reference to any Person,
including the Company, any corporation (or other entity) of which an amount of
voting securities sufficient to elect at least a majority of the directors (or
their equivalent) of such corporation (or other entity) is beneficially owned,
directly or indirectly, by such Person, or which is otherwise controlled by such
Person.
(uu) "Substitute Consideration" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(vv) "Substitution Period" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(ww) "Trading Day" shall have the meaning set forth in Section
11(d)(i) hereof.
(xx) "Triggering Event" shall mean any Section 11(a)(ii) Event
or any Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company and the holders of the Rights (who,
in accordance with Section 3 hereof, shall prior to the Distribution Date also
be the holders of the Common Stock) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable upon ten (10) days' prior written notice to the Rights Agent. The
Rights Agent shall have no duty to supervise, and shall in no event be liable
for, the acts or omissions of any such co-Rights Agent.
Section 3. Issue of Rights Certificates.
(a) Until the earliest of (i) the Close of Business on the
tenth day (or such later date as may be determined by action of the Board after
the Stock Acquisition Date (or, if the tenth day after the Stock Acquisition
Date occurs before the Record Date, the Close of Business on the Record Date),
(ii) the Close of Business on the tenth Business Day (or, if such tenth Business
Day occurs before the Record Date, the Close of Business on the Record Date), or
such later date as may be determined by action of the Board, after the date that
a tender offer or exchange offer by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such plan) is
first published or sent or given within the meaning of Rule 14d-2(a) of the
General Rules and Regulations under the Exchange Act, if upon consummation
thereof for the maximum number of shares that may be purchased thereunder, such
Person would be the Beneficial Owner of 20% or more of the shares of Common
Stock then outstanding or (iii) the Close of Business
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on the tenth Business Day after an Adverse Person Event (the earliest of (i),
(ii) and (iii) being herein referred to as the "Distribution Date"), (x) the
Rights will be evidenced (subject to the provisions of paragraph (b) of this
Section 3) by the certificates for the Company Securities registered in the
names of the holders of the Company Securities (which certificates for Company
Securities shall be deemed also to be certificates for Rights) and not by
separate certificates, and (y) the Rights will be transferable only in
connection with the transfer of the underlying shares of Company Securities
(including a transfer to the Company). As soon as practicable after the
Distribution Date, the Rights Agent will send by first-class, insured, postage
prepaid mail, to each record holder of the Company Securities as of the Close of
Business on the Distribution Date, at the address of such holder shown on the
records of the Company, one or more rights certificates, in the form specified
in Section 4 hereof (the "Rights Certificates"), evidencing one Right for each
share of Common Stock so held, subject to adjustment as provided herein. In the
event that an adjustment in the number of Rights per share of Company Securities
has been made pursuant to Section 11(p) hereof, at the time of distribution of
the Rights Certificates, the Company shall make the necessary and appropriate
rounding adjustments (in accordance with Section 14(a) hereof) so that Rights
Certificates representing only whole numbers of Rights are distributed and cash
is paid in lieu of any fractional rights. As of and after the Distribution Date,
the Rights will be evidenced solely by such Rights Certificates.
(b) As promptly as practicable following the Record Date, the
Company will send a copy of a Summary of Rights, in substantially the form
attached hereto as Exhibit C, by first-class, postage prepaid mail, to each
record holder of the Company Securities as of the Close of Business on the
Record Date, at the address of such holder shown on the records of the Company.
With respect to certificates for the Company Securities outstanding as of the
Record Date, until the Distribution Date, the Rights will be evidenced by such
certificates for the Company Securities and the registered holders of the
Company Securities shall also be the registered holders of the associated
Rights. Until the earlier of the Distribution Date or the Expiration Date (as
such term is defined in Section 7 hereof), the transfer of any certificates
representing shares of Company Securities in respect of which Rights have been
issued shall also constitute the transfer of the Rights associated with such
shares of Company Securities.
(c) Rights shall be issued in respect of all shares of Common
Stock that are issued (whether originally issued or from the Company's treasury)
after the Record Date but prior to the earlier of the Distribution Date or the
Expiration Date. Rights shall also be issued to the extent provided in Section
22 in respect of all shares of Common Stock which are issued (whether originally
issued or from the Company's treasury) after the Distribution Date and prior to
the Expiration Date. Certificates representing such shares of Common Stock in
respect of which Rights are issued pursuant to the first sentence of this
Section 3(c) shall also be deemed to be certificates for Rights, and commencing
as soon as reasonably practicable following the date hereof shall bear the
following legend:
This certificate also evidences and entitles the holder hereof
to certain Rights as set forth in the Rights Agreement between
Marcam Solutions, Inc. (the "Company") and BankBoston, N.A.
(the "Rights Agent") dated as of July 17, 1997 (the "Rights
Agreement"), the terms of which are hereby incorporated herein
by reference and a copy of which is on file at the principal
offices of the Company. Under certain circumstances, as set
forth in the Rights Agreement, such Rights will be evidenced
by separate certificates and will no longer be evidenced by
this certificate. The
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Company will mail to the holder of this certificate a copy of
the Rights Agreement, as in effect on the date of mailing,
without charge promptly after receipt of a written request
therefor. Under certain circumstances set forth in the Rights
Agreement, Rights issued to, or held by, any Person who is,
was or becomes an Acquiring Person, an Adverse Person or any
Affiliate or Associate of an Acquiring Person or an Adverse
Person (as such terms are defined in the Rights Agreement),
whether currently held by or on behalf of such Person or by
any subsequent holder, may become null and void.
Commencing as soon as reasonably practicable following the date hereof,
certificates representing shares of Company Securities that are delivered prior
to the Distribution Date shall also bear the foregoing legend. With respect to
such certificates containing the foregoing legend, until the earlier of (i) the
Distribution Date or (ii) the Expiration Date, the Rights associated with the
Company Securities represented by such certificates shall be evidenced by such
certificates alone and registered holders of Company Securities shall also be
the registered holders of the associated Rights, and the transfer of any of such
certificates shall also constitute the transfer of the Rights associated with
the Company Securities represented by such certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to
purchase and of assignment to be printed on the reverse thereof) shall each be
substantially in the form set forth in Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or trading market on which the Rights
may from time to time be listed or traded, or to conform to usage. Subject to
the provisions of Section 11 and Section 22 hereof, the Rights Certificates,
whenever distributed, shall be dated as of the Record Date and on their face
shall entitle the holders thereof to purchase such number of one one-thousandths
of a share of Preferred Stock as shall be set forth therein at the price per
share set forth therein (such exercise price per one one-thousandth of a share
hereinafter referred to as the "Purchase Price"), but the amount and type of
securities purchasable upon the exercise of each Right and the Purchase Price
thereof shall be subject to adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring
Person, an Adverse Person or any Associate or Affiliate of an Acquiring Person
or an Adverse Person, (ii) a transferee of an Acquiring Person or an Adverse
Person (or of any such Associate or Affiliate of an Acquiring Person or an
Adverse Person) who becomes a transferee after the Acquiring Person or Adverse
Person becomes such, or (iii) a transferee of an Acquiring Person or an Adverse
Person (or of any such Associate or Affiliate of an Acquiring Person or an
Adverse Person) who becomes a transferee prior to or concurrently with the
Acquiring Person or the Adverse Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person or the Adverse Person to holders of equity interests in such
Acquiring Person or Adverse Person or to any Person with whom such Acquiring
Person or Adverse Person has any continuing agreement, arrangement or
understanding regarding the transferred Rights or (B) a transfer which a
majority of the Board has determined is part of a plan, arrangement or
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understanding that has as a primary purpose or effect avoidance of Section 7(e)
hereof, and any Rights Certificate issued pursuant to Section 6 or Section 11
hereof upon transfer, exchange, replacement or adjustment of any other Rights
Certificate referred to in this sentence, shall contain (to the extent feasible)
the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring
Person, Adverse Person, or an Affiliate or Associate of an
Acquiring Person or Adverse Person (as such terms are defined
in the Rights Agreement). Accordingly, this Rights Certificate
and the Rights represented hereby may become null and void in
the circumstances specified in Section 7(e) of such Agreement.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, President or any Vice President, either
manually or by facsimile signature, and shall have affixed thereto the Company's
seal or a facsimile thereof which shall be attested by the Secretary or an
Assistant Secretary of the Company, either manually or by facsimile signature.
The Rights Certificates shall be manually countersigned by the Rights Agent and
shall not be valid for any purpose unless so countersigned. In case any officer
of the Company who shall have signed any of the Rights Certificates shall cease
to be such officer of the Company before countersignature by the Rights Agent
and issuance and delivery by the Company, such Rights Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by the Company with the same force and effect as though the person who signed
such Rights Certificates had not ceased to be such officer of the Company; and
any Rights Certificates may be signed on behalf of the Company by any person
who, at the actual date of the execution of such Rights Certificate, shall be a
proper officer of the Company to sign such Rights Certificate, although at the
date of the execution of this Rights Agreement any such person was not such an
officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates, the Rights Certificate number and the date
of each of the Rights Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Section 4(b), Section 7(e)
and Section 14 hereof, at any time after the Close of Business on the
Distribution Date, and at or prior to the Close of Business on the Expiration
Date, any Rights Certificate or Certificates may be transferred, split up,
combined or exchanged for another Rights Certificate or Certificates, entitling
the registered holder to purchase a like number of one one-thousandths of a
share of Preferred Stock (or, following a Triggering Event, Common Stock, other
securities, cash or other assets, as the case may be) as the Rights Certificate
or Certificates surrendered then entitled such holder (or former holder in the
case of a transfer) to purchase. Any registered holder desiring to
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transfer, split up, combine or exchange any Rights Certificate or Certificates
shall make such request in writing delivered to the Rights Agent, and shall
surrender the Rights Certificate or Certificates to be transferred, split up,
combined or exchanged at the office of the Rights Agent designated for such
purpose. Neither the Rights Agent nor the Company shall be obligated to take any
action whatsoever with respect to the transfer of any such surrendered Rights
Certificate or Certificates until the registered holder shall have completed and
signed the certificate contained in the form of assignment set forth on the
reverse side of each such Rights Certificate and shall have provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b),
Section 7(e) and Section 14 hereof, countersign and deliver to the Person
entitled thereto a Rights Certificate or Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient to cover any tax
or governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security reasonably satisfactory to them, and reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Rights
Certificate if mutilated, the Company will execute and deliver a new Rights
Certificate of like tenor to the Rights Agent for countersignature and delivery
to the registered owner in lieu of the Rights Certificate so lost, stolen,
destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) Subject to Section 7(e) hereof, the registered holder of
any Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restrictions set
forth in Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or
in part at any time after the Distribution Date upon surrender of the Rights
Certificate, with the form of election to purchase set forth on the reverse side
thereof and the certificate contained therein completed and duly executed, to
the Rights Agent at the office of the Rights Agent designated for such purpose,
together with payment of the aggregate Purchase Price with respect to the total
number of one one-thousandths of a share of Preferred Stock (or other
securities, cash or other assets, as the case may be) as to which such
surrendered Rights are then exercisable, at or prior to the earlier of (i) the
Final Expiration Date, (ii) the time at which the Rights are redeemed as
provided in Section 23 hereof, (iii) the time at which the Rights expire
pursuant to Section 13(d) hereof or (iv) the time at which such Rights are
exchanged as provided in Section 24 hereof (the earliest of (i), (ii), (iii) or
(iv) being herein referred to as the "Expiration Date").
(b) The Purchase Price for each one one-thousandth of a share
of Preferred Stock pursuant to the exercise of a Right shall initially be the
Initial Exercise Price, and shall be subject to adjustment from time to time as
provided in Sections 11 and 13(a) hereof and shall be payable in accordance with
paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase set forth on the
reverse side thereof and the certificate
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contained therein completed and duly executed, accompanied by payment, with
respect to each Right so exercised, of the Purchase Price per one one-thousandth
of a share of Preferred Stock (or other securities, cash or other assets, as the
case may be) to be purchased as set forth below and an amount equal to any
applicable transfer tax, the Rights Agent shall, subject to Section 20(k)
hereof, promptly (i) requisition from any transfer agent of the shares of
Preferred Stock (or make available, if the Rights Agent is the transfer agent
for such shares) certificates for the total number of one one-thousandths of a
share of Preferred Stock to be purchased and the Company hereby irrevocably
authorizes its transfer agent to comply with all such requests, (ii) requisition
from the Company the amount of cash, if any, to be paid in lieu of fractional
shares in accordance with Section 14 hereof, (iii) after receipt of such
certificates, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, and (iv) after receipt thereof, deliver
such cash, if any, to or upon the order of the registered holder of such Rights
Certificate. The payment of the Purchase Price (as such amount may be reduced
pursuant to Section 11(a)(iii) hereof) shall be made in cash or by certified
check, cashier's check or bank draft payable to the order of the Company. In the
event that the Company is obligated to issue other securities (including Common
Stock) of the Company, pay cash or distribute other property pursuant to Section
11(a) hereof, the Company will make all arrangements necessary so that such
other securities, cash or other property are available for distribution by the
Rights Agent, if and when appropriate. The Company reserves the right to require
prior to the occurrence of a Triggering Event that, upon any exercise of Rights,
such number of Rights be exercised so that only whole shares of Preferred Stock
would be issued.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing the Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent and delivered to, or upon the order of, the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, subject to the provisions of Section 14
hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of an event described in Section
11(a)(ii)(A) or (C) and from and after the Close of Business on the tenth day
after the occurrence of an event described in Section 11(a)(ii)(B) or (D), any
Rights beneficially owned by (i) an Acquiring Person, an Adverse Person or an
Associate or Affiliate of an Acquiring Person or Adverse Person, (ii) a
transferee of any such Acquiring Person or Adverse Person (or of any such
Associate or Affiliate of an Acquiring Person or an Adverse Person) who becomes
a transferee after such Acquiring Person or Adverse Person becomes such, or
(iii) a transferee of any such Acquiring Person or Adverse Person (or of any
such Associate or Affiliate of an Acquiring Person or an Adverse Person) who
becomes a transferee prior to or concurrently with such Acquiring Person or
Adverse Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from such Acquiring Person or
Adverse Person to holders of equity interests in such Acquiring Person or
Adverse Person or to any Person with whom such Acquiring Person or Adverse
Person has any continuing agreement, arrangement or understanding regarding the
transferred Rights or (B) a transfer which a majority of the Board has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect the avoidance of this Section 7(e), shall become null
and void without any further action and no holder of such Rights shall have any
rights whatsoever with respect to such Rights, whether under any provision of
this Agreement or otherwise. The Company shall use all
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reasonable efforts to ensure that the provisions of this Section 7(e) and
Section 4(b) hereof are complied with, but shall have no liability to any holder
of Rights Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring Person or Adverse Person or any of
their Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall have (i) completed and signed the certificate contained in the form
of election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such exercise, and (ii) provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Rights Certificates to the Company, or shall, at the written request
of the Company, destroy such cancelled Rights Certificates, and in such case
shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock or other securities or out of its
authorized and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock or other securities) that, as provided in this Agreement, including
Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of
all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following
the occurrence of a Triggering Event, Common Stock or other securities) issuable
and deliverable upon the exercise of the Rights may be listed on any national
securities exchange, the Nasdaq National Market or any over-the-counter market
on which the Common Stock is traded, the Company shall use its best efforts to
cause all shares reserved for such issuance to be listed on such exchange or
market upon official notice of issuance upon such exercise.
(c) The Company shall use its best efforts to (i) file, as
soon as practicable following the earliest date after the first occurrence of a
Triggering Event in which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with this Agreement, a
registration statement under the Act, with respect to the Common Stock or other
securities purchasable upon exercise of the Rights on an appropriate
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form, (ii) cause such registration statement to become effective as soon as
practicable after such filing, and (iii) cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of the
Act) until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities, and (B) the Expiration Date. The Company will
also take such action as may be appropriate under, or to ensure compliance with,
the securities or "blue sky" laws of the various states in connection with the
exercisability of the Rights. The Company may temporarily suspend, for a period
of time not to exceed ninety (90) days after the date set forth in clause (i) of
the first sentence of this Section 9(c), the exercisability of the Rights in
order to prepare and file such registration statement and permit it to become
effective. In addition, if the Company shall determine that a registration
statement is required following the Distribution Date, the Company may
temporarily suspend the exercisability of the Rights until such time as a
registration statement has been declared effective. Upon any suspension of the
exercisability of the Rights referred to in this Section 9(c), the Company shall
issue a public announcement stating that the exercisability of the Rights has
been temporarily suspended, as well as a public announcement at such time as the
suspension is no longer in effect. Notwithstanding any provision of this
Agreement to the contrary, the Rights shall not be exercisable and shall be void
so long as held by a holder in any jurisdiction where the requisite
qualification to the issuance to such holder, or the exercise by such holder, of
the Rights in such jurisdiction shall not have been obtained or be obtainable,
the exercise thereof shall not be permitted under applicable law or a
registration statement shall not have been declared effective.
(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all one one-thousandths of a
share of Preferred Stock (and, following the occurrence of a Triggering Event,
Common Stock or other securities) delivered upon exercise of Rights shall, at
the time of delivery of the certificates for such shares (subject to payment of
the Purchase Price), be duly and validly authorized and issued and fully paid
and nonassessable.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all federal and state transfer taxes and charges
that may be payable in respect of the issuance or delivery of the Rights
Certificates and of any certificates for a number of one one-thousandths of a
share of Preferred Stock (or Common Stock or other securities, as the case may
be) upon the exercise of Rights. The Company shall not, however, be required to
pay any transfer tax that may be payable in respect of any transfer or delivery
of Rights Certificates to a Person other than, or the issuance or delivery of a
number of one one-thousandths of a share of Preferred Stock (or Common Stock or
other securities, as the case may be) in respect of a name other than that of,
the registered holder of the Rights Certificates evidencing Rights surrendered
for exercise or to issue or deliver any certificates for a number of one
one-thousandths of a share of Preferred Stock (or Common Stock or other
securities, as the case may be) in a name other than that of the registered
holder upon the exercise of any Rights until such tax shall have been paid (any
such tax being payable by the holder of such Rights Certificates at the time of
surrender) or until it has been established to the Company's satisfaction that
no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose name any
certificate for a number of one one-thousandths of a share of Preferred Stock
(or Common Stock or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of such Preferred Stock (or Common Stock or other securities, as the case
may be) represented thereby on, and such certificate shall be dated, the
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date upon which the Rights Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and all applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Stock (or Common Stock or other
securities, as the case may be) transfer books of the Company are closed, such
Person shall be deemed to have become the record holder of such shares on, and
such certificate shall be dated, the next succeeding Business Day on which the
Preferred Stock (or Common Stock or other securities, as the case may be)
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Rights Certificate shall not be entitled to
any rights of a stockholder of the Company with respect to shares for which the
Rights shall be exercisable, including, without limitation, the right to vote,
to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights. The Purchase Price, the number and kind of shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C)
combine the outstanding Preferred Stock into a smaller number of shares, or (D)
issue any shares of its capital stock in a reclassification of the Preferred
Stock (including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a) and Section 7(e) hereof, the
Purchase Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision, combination or reclassification, and the
number and kind of shares of Preferred Stock or capital stock, as the case may
be, issuable on such date, shall be proportionately adjusted so that the holder
of any Right exercised after such time shall be entitled to receive, upon
payment of the Purchase Price then in effect, the aggregate number and kind of
shares of Preferred Stock or capital stock, as the case may be, which, if such
Right had been exercised immediately prior to such time and at a time when the
Preferred Stock transfer books (or other capital stock transfer books, as the
case may be) of the Company were open, he would have owned upon such exercise
and been entitled to receive by virtue of such dividend, subdivision,
combination or reclassification. If an event occurs that would require an
adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the
adjustment provided for in this Section 11(a)(i) shall be in addition to, and
shall be made prior to, any adjustment required pursuant to Section 11(a)(ii)
hereof.
(ii) In the event:
(A) any Acquiring Person or any Associate or Affiliate of any
Acquiring Person, at any time after the date of this Agreement, directly or
indirectly, (1) shall merge into the Company or otherwise combine with the
Company and the Company shall be the continuing or surviving corporation of such
merger or combination and the Common Stock of the Company shall remain
outstanding and unchanged, (2) shall merge or otherwise combine with any
Subsidiary of the Company, (3) shall, in one transaction or a series of
transactions, transfer any assets to the Company or to any of its Subsidiaries
in exchange (in whole or in part) for shares of Common Stock, for shares of
other equity or voting securities of the Company or any Subsidiary
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of the Company, or for securities exercisable for or convertible into shares of
equity or voting securities of the Company or any Subsidiary of the Company
(Common Stock or otherwise) or otherwise obtain from the Company, with or
without consideration, any additional shares of equity or voting securities of
the Company or securities exercisable for or convertible into shares of such
equity or voting securities of the Company (other than pursuant to a pro rata
distribution to all holders of Common Stock or upon the exercise of a
convertible security of the Company or any Subsidiary of the Company in
accordance with its terms), (4) shall sell, purchase, lease, exchange, mortgage,
pledge, transfer or otherwise acquire or dispose of, in one transaction or a
series of transactions, to, from or with (as the case may be) the Company or any
of its Subsidiaries, assets on terms and conditions less favorable to the
Company than the Company would be able to obtain in arm's-length negotiations
with an unaffiliated third party, other than pursuant to a transaction set forth
in Section 13(a) hereof, (5) shall sell, purchase, lease, exchange, mortgage,
pledge, transfer or otherwise acquire or dispose of in one transaction or a
series of transactions, to, from or with (as the case may be) the Company or any
of its Subsidiaries (other than incidental to the lines of business, if any,
engaged in as of the date hereof between the Company and such Acquiring Person
or Associate or Affiliate) assets having an aggregate fair market value of more
than $1,000,000, other than pursuant to a transaction set forth in Section 13(a)
hereof and other than pursuant to a transaction or series of transactions that
have been approved by action of the Board, (6) shall receive any compensation
from the Company or any of the Company's Subsidiaries other than compensation
for full-time employment as a regular employee at rates in accordance with the
Company's (or its Subsidiaries') past practices, or (7) shall receive the
benefit, directly or indirectly (except proportionately as a stockholder and
except if resulting from a requirement of law or governmental regulation), of
any loans, advances, guarantees, pledges or other financial assistance or any
tax credits or other tax advantages provided by the Company or any of its
Subsidiaries, or
(B) (X) any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, any Person or entity organized, appointed or established by the
Company for or pursuant to the terms of any such plan or an Exempt Person),
alone or together with any Affiliates and Associates of such Person, shall, at
any time after the Rights Dividend Declaration Date, become the Beneficial Owner
of 20% or more of the shares of Common Stock then outstanding, or (Y) any Person
who was at any time an Exempt Person but is subsequently no longer considered to
be an Exempt Person, alone or together with any Affiliates and Associates of
such Person, becomes an Acquiring Person, in either case (1) unless the event
causing the 20% threshold to be crossed is a transaction set forth in Section
13(a) hereof, or is an acquisition of shares of Common Stock pursuant to a
tender offer or an exchange offer for all outstanding shares of Common Stock at
a price and on terms determined by action of the Board, after receiving advice
from one or more investment banking firms, to be (a) at a price that is fair to
stockholders (taking into account all factors which such members of the Board
deem relevant including, without limitation, prices which could reasonably be
achieved if the Company or its assets were sold on an orderly basis designed to
realize maximum value) and (b) otherwise in the best interest of the Company and
its stockholders, (2) unless the event causing the 20% threshold to be crossed
is the result of an acquisition of the Common Stock by the Company which, by
reducing the number of shares outstanding, increases the proportionate number of
shares beneficially owned by such Person, alone or together with any Affiliates
and Associates of such Person, to 20% or more of the Common Stock of the Company
then outstanding (provided, however, that if such Person, alone
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or together with any Affiliates and Associates of such Person, shall become the
Beneficial Owner of 20% or more of the Common Stock of the Company then
outstanding by reason of share purchases by the Company and shall after such
share purchases by the Company become the Beneficial Owner of any additional
Common Stock of the Company, then such Person shall be deemed to become the
Beneficial Owner of 20% or more of the shares of Common Stock then outstanding
for purposes of this clause (B)); or (3) unless the Board determines in good
faith that such Person, alone or together with any Affiliates and Associates of
such Person, has become the Beneficial Owner of 20% or more of the shares of
Common Stock then outstanding inadvertently, and such Person divests as promptly
as practicable a sufficient number of shares of Common Stock so that such Person
would no longer be the Beneficial Owner of 20% or more of the shares of Common
Stock then outstanding, or
(C) during such time as there is an Acquiring Person, there
shall be any reclassification of securities (including any reverse stock split),
or recapitalization of the Company, or any merger or consolidation of the
Company with any of its Subsidiaries or any other transaction or series of
transactions involving the Company or any of its Subsidiaries (whether or not
with or into or otherwise involving an Acquiring Person), other than a
transaction or transactions to which the provisions of Section 13(a) hereof
apply (whether or not with or into or otherwise involving an Acquiring Person),
which has the effect, directly or indirectly, of increasing by more than 1% the
proportionate share of the outstanding shares of any class of equity securities
of the Company or any of its Subsidiaries which is directly or indirectly
beneficially owned by any Acquiring Person or any Associate or Affiliate of any
Acquiring Person, or
(D) the Board shall declare any Person to be an Adverse
Person, upon a determination that such Person, alone or together with its
Affiliates and Associates, has, at any time after the Rights Dividend
Declaration Date, become the Beneficial Owner of an amount of Common Stock which
the Board determines to be substantial (which amount shall in no event be less
than 10% of the shares of Common Stock then outstanding) and the Board
determines, after reasonable inquiry and investigation, which may include a
review of the public record regarding such Person and any information such
directors may request from such Person and consultation with such persons as
such directors shall deem appropriate, that (1) such Beneficial Ownership by
such Person is intended to cause the Company to repurchase the Common Stock
beneficially owned by such Person or to cause pressure on the Company to take
action or enter into a transaction or series of transactions intended to provide
such Person with short-term financial gain under circumstances where such
directors determine that the best long-term interests of the Company and its
stockholders would not be served by taking such action or entering into such
transactions or series of transactions at that time or (2) such Beneficial
Ownership is causing or is reasonably likely to cause a material adverse impact
(including, but not limited to, impairment of relationships with customers,
impairment of the Company's ability to maintain its competitive position or
impairment of the Company's business reputation) on the business or prospects of
the Company, then, promptly following the occurrence of any event described in
Section 11(a)(ii)(A), (B), (C) or (D) hereof, proper provision shall be made so
that each holder of a Right (except as provided below and in Section 7(e)
hereof) shall thereafter have the right to receive, upon exercise thereof at the
then current Purchase Price in accordance with the terms of this Agreement, in
lieu of a number of one one-thousandths of a share of Preferred Stock, such
number of shares of Common
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Stock of the Company as shall equal the result obtained by (x) multiplying the
then current Purchase Price by the then number of one one-thousandths of a share
of Preferred Stock for which a Right was or would have been exercisable
immediately prior to the first occurrence of a Section 11(a)(ii) Event, whether
or not such Right was then exercisable, and (y) dividing that product (which,
following such first occurrence, shall thereafter be referred to as the
"Purchase Price" for each Right and for all purposes of this Agreement) by 50%
of the Current Market Price per share of Common Stock (determined pursuant to
Section 11(d) hereof) on the date of such first occurrence (such number of
shares being referred to herein as the "Adjustment Shares").
(iii) In the event that the number of shares of
Common Stock which are authorized by the Company's articles of organization but
not outstanding or reserved for issuance for purposes other than upon exercise
of the Rights are not sufficient to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii) of this Section 11(a), the
Company shall (A) determine the value of the Adjustment Shares issuable upon the
exercise of a Right (the "Current Value"), and (B) with respect to each Right
(subject to Section 7(e) hereof), make adequate provision to substitute, upon
the exercise of a Right and payment of the applicable Purchase Price, (1) cash,
(2) a reduction in the Purchase Price, (3) Common Stock or other equity
securities of the Company (including, without limitation, shares, or units of
shares, of preferred stock which the Board has deemed to have the same value as
shares of Common Stock (such shares of preferred stock being referred to herein
as "Common Stock Equivalents")), (4) debt securities of the Company, (5) other
assets, or (6) any combination of the foregoing, having an aggregate value equal
to the Current Value, as adjusted (less the amount of any reduction in the
Purchase Price), where such aggregate value has been determined by the Board
based upon the advice of a nationally recognized investment banking firm
selected by the Board; provided, however, that if the Company shall not have
made adequate provision to deliver value pursuant to clause (B) above within
thirty (30) days following the later of (x) the first occurrence of a Section
11(a)(ii) Event and (y) the date on which the Company's right of redemption
pursuant to Section 23(a) expires (the later of (x) and (y) being referred to
herein as the "Section 11(a)(ii) Trigger Date"), then the Company shall be
obligated to deliver, upon the surrender for exercise of a Right and without
requiring payment of the Purchase Price, shares of Common Stock (to the extent
available) and then, if necessary, cash, which shares or cash have an aggregate
value equal to the Spread. For purposes of the preceding sentence, the term
"Spread" shall mean the excess of (i) the Current Value over (ii) the Purchase
Price. If the number of shares of Common Stock that are authorized by the
Company's articles of organization but not outstanding or reserved for issuance
for purposes other than upon exercise of the Rights are not sufficient to permit
the exercise in full of any Rights and the Board determines in good faith that
it is likely that sufficient additional shares of Common Stock could be
authorized for issuance upon exercise in full of the Rights, the thirty (30) day
period set forth above may be extended to the extent necessary, but not more
than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that
the Company may seek stockholder approval for the authorization of such
additional shares (such thirty (30) day period, as it may be extended, shall be
referred to as the "Substitution Period"). To the extent that the Company
determines that some action need be taken pursuant to the preceding provisions
of this Section 11(a)(iii), the Company (x) shall provide, subject to Section
7(e) hereof, that such action shall apply uniformly to all outstanding Rights,
and (y) may suspend the exercisability of the Rights until the expiration of the
Substitution Period in order to seek any authorization of additional shares or
to decide the appropriate form of distribution to be made pursuant to such
provisions and to
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determine the value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at such time as
the suspension is no longer in effect. For purposes of this Section 11(a)(iii),
the value of each Adjustment Share shall be the Current Market Price per share
of the Common Stock (as determined pursuant to Section 11(d) hereof) on the
Section 11(a)(ii) Trigger Date and the per share or per unit value of any Common
Stock Equivalent shall be deemed to equal the Current Market Price per share of
the Common Stock on such date.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Stock
entitling them to subscribe for or purchase (for a period expiring within
forty-five (45) calendar days after such record date) Preferred Stock, shares
having the same rights, privileges and preferences as the shares of Preferred
Stock ("Equivalent Preferred Stock") or securities convertible into Preferred
Stock or Equivalent Preferred Stock at a price per share of Preferred Stock or
per share of Equivalent Preferred Stock (or having a conversion price per share,
if a security convertible into Preferred Stock or Equivalent Preferred Stock)
less than the Current Market Price per share of Preferred Stock (as determined
pursuant to Section 11(d) hereof) on such record date, the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of shares of Preferred Stock outstanding
on such record date, plus the number of shares of Preferred Stock which the
aggregate offering price of the total number of shares of Preferred Stock or
Equivalent Preferred Stock (or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at such Current Market
Price, and the denominator of which shall be the number of shares of Preferred
Stock outstanding on such record date, plus the number of additional shares of
Preferred Stock or Equivalent Preferred Stock to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible). In case such subscription price may be paid by delivery
of consideration part or all of which may be in a form other than cash, the
value of such noncash consideration shall be as determined in good faith by the
Board, whose determination shall be described in a statement filed with the
Rights Agent and shall be binding on the Rights Agent and the holders of the
Rights. Shares of Preferred Stock owned by or held for the account of the
Company shall not be deemed outstanding for the purpose of any such computation.
Such adjustment shall be made successively whenever such a record date is fixed,
and in the event that such rights, options or warrants are not so issued, the
Purchase Price shall be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for a
distribution to all holders of Preferred Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing or surviving corporation) of evidences of indebtedness, cash (other
than a regular quarterly or other periodic cash dividend out of the earnings or
retained earnings of the Company), assets (other than a dividend payable in
Preferred Stock, but including any dividend payable in stock other than
Preferred Stock) or subscription rights or warrants (excluding those referred to
in Section 11(b) hereof), the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
Current Market Price per share of Preferred Stock (as determined pursuant to
Section 11(d) hereof) on such record date, less the fair market value (as
determined in good faith by the Board
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whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent) of the portion of the cash,
assets or evidences of indebtedness so to be distributed or of such subscription
rights or warrants applicable to a share of Preferred Stock and the denominator
of which shall be such Current Market Price per share of Preferred Stock (as
determined pursuant to Section 11(d) hereof). Such adjustments shall be made
successively whenever such a record date is fixed, and in the event that such
distribution is not so made, the Purchase Price shall be adjusted to be the
Purchase Price which would have been in effect if such record date had not been
fixed.
(d) (i) For the purpose of any computation hereunder, other
than computations made pursuant to Section 11(a)(iii) hereof, the "Current
Market Price" per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices per share of such Common Stock for the
thirty (30) consecutive Trading Days immediately prior to such date, and for the
purposes of computations made pursuant to Section 11(a)(iii) hereof, the Current
Market Price per share of Common Stock on any date shall be deemed to be the
average of the daily closing prices per share of such Common Stock for the ten
(10) consecutive Trading Days immediately following such date; provided,
however, that in the event that the Current Market Price per share of the Common
Stock is determined during a period following the announcement by the issuer of
such Common Stock of (A) any dividend or distribution on such Common Stock
payable in shares of such Common Stock or securities convertible into shares of
such Common Stock (other than the Rights), or (B) any subdivision, combination
or reclassification of such Common Stock, and the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification shall not have occurred prior to the commencement of the
requisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth
above, then, and in each such case, the Current Market Price shall be properly
adjusted to take into account ex-dividend trading. The closing price for each
day shall be the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the shares of Common Stock are listed or admitted to trading
or, if the shares of Common Stock are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices on the Nasdaq National Market or in
the over-the-counter market, as reported by Nasdaq or such other system then in
use, or, if on any such date the shares of Common Stock are not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Common Stock selected by
the Board. If on any such date no market maker is making a market in the Common
Stock, the fair value of such shares on such date as determined in good faith by
the Board shall be used. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the shares of Common Stock are
listed or admitted to trading is open for the transaction of business or, if the
shares of Common Stock are not listed or admitted to trading on any national
securities exchange, a Business Day. If the Common Stock is not publicly held or
not so listed or traded, Current Market Price per share shall mean the fair
value per share as determined in good faith by the Board whose determination
shall be described in a statement filed with the Rights Agent and shall be
conclusive for all purposes.
(ii) For the purpose of any computation hereunder,
the Current Market Price per share of Preferred Stock shall be determined in the
same manner as set forth above for
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the Common Stock in clause (i) of this Section 11(d) (other than the last
sentence thereof). If the Current Market Price per share of Preferred Stock
cannot be determined in the manner provided above or if the Preferred Stock is
not publicly held or listed or traded in a manner described in clause (i) of
this Section 11(d), the Current Market Price per share of Preferred Stock shall
be conclusively deemed to be an amount equal to 1,000 (as such number may be
appropriately adjusted for such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock occurring after the date of
this Agreement) multiplied by the Current Market Price per share of the Common
Stock. If neither the Common Stock nor the Preferred Stock is publicly held or
so listed or traded, Current Market Price per share of the Preferred Stock shall
mean the fair value per share as determined in good faith by the Board, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes. For all purposes of this Agreement, the
Current Market Price of one one-thousandth of a share of Preferred Stock shall
be equal to the Current Market Price of one share of Preferred Stock divided by
1,000.
(iii) For the purpose of any computation hereunder,
the value of any securities or assets other than Common Stock or Preferred Stock
shall be the fair value as determined in good faith by the Board, or, if at the
time of such determination there is an Acquiring Person, by a nationally
recognized investment banking firm selected by the Board, which determination
shall be described in a statement filed with the Rights Agent and shall be
conclusive for all purposes.
(e) Anything herein to the contrary notwithstanding, no
adjustment in the Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one hundred-thousandth of a
share of Common Stock or other share or one ten-millionth of a share of
Preferred Stock, as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no later
than the earlier of (i) three (3) years from the date of the transaction which
mandates such adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Stock contained in
Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m) hereof, and the
provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
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(h) Unless the Company shall have exercised its election as
provided in Section 11(i) hereof, upon each adjustment of the Purchase Price as
a result of the calculations made in Sections 11(b) and (c) hereof, each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-thousandths of a share of Preferred Stock obtained by (i) multiplying
(x) the number of one one-thousandths of a share covered by a Right immediately
prior to this adjustment, by (y) the Purchase Price in effect immediately prior
to such adjustment of the Purchase Price, and (ii) dividing the product so
obtained by the Purchase Price in effect immediately after such adjustment of
the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in lieu of any
adjustment in the number of shares of Preferred Stock purchasable upon the
exercise of a Right. Each of the Rights outstanding after the adjustment in the
number of Rights shall be exercisable for the number of one one-thousandths of a
share of Preferred Stock for which a Right was exercisable immediately prior to
such adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the nearest
one-hundred-thousandth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price. The Company shall
make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least ten (10) days later than the
date of the public announcement. If Rights Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-thousandths of a share of Preferred Stock
issuable upon the exercise of the Rights, the Rights Certificates theretofore
and thereafter issued may continue to express the Purchase Price per share and
the number of shares which were expressed in the initial Rights Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then par value of the shares of Common
Stock issuable upon exercise of the Rights, the Company shall take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and
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nonassessable such number of one one-thousandths of a share of Preferred Stock
at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of one one-thousandths of a share of Preferred Stock and other
capital stock or securities of the Company, if any, issuable upon such exercise
over and above the number of one one-thousandths of a share of Preferred Stock
and other capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive such
additional shares or securities upon the occurrence of the event requiring such
adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that in their good faith judgment the Board
shall determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares
of Preferred Stock at less than the Current Market Price, (iii) issuance wholly
for cash of shares of Preferred Stock or securities which by their terms are
convertible into or exchangeable for shares of Preferred Stock, (iv) stock
dividends, or (v) issuance of rights, options or warrants referred to in this
Section 11, hereafter made by the Company to holders of its Preferred Stock
shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Company in a transaction that complies with Section
11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary
of the Company in a transaction which complies with Section 11(o) hereof), or
(iii) sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company or any of its Subsidiaries in one or more transactions each of which
complies with Section 11(o) hereof), if (x) at the time of or immediately after
such consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect that would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately after
such consolidation, merger or sale, the stockholders of the Person who
constitutes, or would constitute, the Principal Party for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Section 23 or Section 27
hereof, take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded by the
Rights.
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(p) (i) Anything in this Agreement to the contrary
notwithstanding, in the event that the Company shall at any time after the
Rights Dividend Declaration Date and prior to the Distribution Date (A) declare
a dividend on the outstanding shares of Common Stock payable in shares of Common
Stock, (B) subdivide the outstanding shares of Common Stock, or (C) combine the
outstanding shares of Common Stock into a smaller number of shares, the number
of Rights associated with each share of Common Stock then outstanding, or issued
or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
following the occurrence of such event.
(q) The failure by the Board to declare a Person to be an
Adverse Person following such Person becoming the Beneficial Owner of 10% or
more of the outstanding Common Stock shall not imply that such Person is not an
Adverse Person or limit such directors' right at any time in the future to
declare such Person to be an Adverse Person.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is made as provided in Section 11 and Section 13 hereof,
the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Preferred Stock and the Company Securities, a copy of such certificate, and (c)
mail a brief summary thereof to each holder of a Rights Certificate (or, if
prior to the Distribution Date, to each holder of a certificate representing
shares of Company Securities) in accordance with Section 26 hereof. The Rights
Agent shall be fully protected in relying on any such certificate and on any
adjustment therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following the Stock Acquisition Date,
directly or indirectly, (x) the Company shall consolidate with, or merge with
and into, any other Person (other than a Subsidiary of the Company in a
transaction that complies with Section 11(o) hereof), and the Company shall not
be the continuing or surviving corporation of such consolidation or merger, (y)
any Person (other than a Subsidiary of the Company in a transaction that
complies with Section 11(o) hereof) shall consolidate with, or merge with or
into, the Company, and the Company shall be the continuing or surviving
corporation of such consolidation or merger and, in connection with such
consolidation or merger, all or part of the outstanding shares of Common Stock
shall be changed into or exchanged for stock or other securities of any other
Person or cash or any other property, or (z) the Company shall sell or otherwise
transfer (or one or more of its Subsidiaries shall sell or otherwise transfer),
in one transaction or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any Person or Persons (other than the Company
or any Subsidiary of the Company in one or more transactions each of which
complies with Section 11(o) hereof), then, and in each such case and except as
contemplated in Section 13(d) hereof, proper provision shall be made so that:
(i) each holder of a Right, except as provided in Section 7(e) hereof, shall
thereafter have the
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right to receive, upon the exercise thereof at the then current Purchase Price
in accordance with the terms of this Agreement, such number of validly
authorized and issued, fully paid, nonassessable and freely tradeable shares of
Common Stock of the Principal Party, not subject to any liens, encumbrances,
rights of first refusal or other adverse claims, as shall be equal to the result
obtained by (1) multiplying the then current Purchase Price by the number of one
one-thousandths of a share of Preferred Stock for which a Right was exercisable
immediately prior to the first occurrence of a Section 13 Event (or, if a
Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section
13 Event, multiplying the number of such one one-thousandths of a share for
which a Right was exercisable immediately prior to the first occurrence of a
Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to
such first occurrence), and dividing that product (which, following the first
occurrence of a Section 13 Event, shall be referred to as the "Purchase Price"
for each Right and for all purposes of this Agreement) by (2) 50% of the Current
Market Price (determined pursuant to Section 11(d)(i) hereof) per share of the
Common Stock of such Principal Party on the date of consummation of such Section
13 Event; (ii) such Principal Party shall thereafter be liable for, and shall
assume, by virtue of such Section 13 Event, all the obligations and duties of
the Company pursuant to this Agreement; (iii) the term "Company" shall
thereafter be deemed to refer to such Principal Party, it being specifically
intended that the provisions of Section 11 hereof shall apply only to such
Principal Party following the first occurrence of a Section 13 Event; (iv) such
Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its Common Stock) in connection
with the consummation of any such transaction as may be necessary to assure that
the provisions hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to its shares of Common Stock thereafter deliverable upon
the exercise of the Rights; and (v) the provisions of Section 11(a)(ii) hereof
shall be of no effect following the first occurrence of any Section 13 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in
clause (x) or (y) of the first sentence of Section 13(a) hereof, the Person that
is the issuer of any securities into which shares of Common Stock of the Company
are converted in such merger or consolidation, and if no securities are so
issued, the Person that is the other party to such merger or consolidation; and
(ii) in the case of any transaction described in
clause (z) of the first sentence of Section 13(a) hereof, the Person that is the
party receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions; provided, however, that in any
such case, (1) if the Common Stock of such Person is not at such time and has
not been continuously over the preceding twelve (12) month period registered
under Section 12 of the Exchange Act, and such Person is a direct or indirect
Subsidiary of another Person the Common Stock of which is and has been so
registered, "Principal Party" shall refer to such other Person; and (2) in case
such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Stocks of two or more of which are and have been so registered,
"Principal Party" shall refer to whichever of such Persons is the issuer of the
Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless the Principal Party shall have a sufficient
number of authorized shares of
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its Common Stock which have not been issued or reserved for issuance to permit
the exercise in full of the Rights in accordance with this Section 13 and unless
prior thereto the Company and such Principal Party shall have executed and
delivered to the Rights Agent a supplemental agreement providing for the terms
set forth in paragraphs (a) and (b) of this Section 13 and further providing
that, as soon as practicable after the date of any Section 13 Event, the
Principal Party will:
(i) prepare and file a registration statement under
the Act, with respect to the Rights and the securities purchasable upon exercise
of the Rights on an appropriate form, and will use its best efforts to cause
such registration statement to (A) become effective as soon as practicable after
such filing and (B) remain effective (with a prospectus at all times meeting the
requirements of the Act) until the Expiration Date; and
(ii) deliver to holders of the Rights historical
financial statements for the Principal Party and each of its Affiliates that
comply in all respects with the requirements for registration on Form 10 under
the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13 Event
shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the
Rights which have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a) hereof.
(d) Notwithstanding anything in this Agreement to the
contrary, Section 13 shall not be applicable to a transaction described in
subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is
consummated with a Person or Persons who acquired shares of Common Stock
pursuant to a tender offer or exchange offer for all outstanding shares of
Common Stock which complies with the provisions of Section 11(a)(ii)(B) hereof
(or a wholly owned subsidiary of any such Person or Persons), (ii) the price per
share of Common Stock offered in such transaction is not less than the price per
share of Common Stock paid to all holders of shares of Common Stock whose shares
were purchased pursuant to such tender offer or exchange offer, and (iii) the
form of consideration being offered to the remaining holders of shares of Common
Stock pursuant to such transaction is the same as the form of consideration paid
pursuant to such tender offer or exchange offer. Upon consummation of any such
transaction contemplated by this Section 13(d), all Rights hereunder shall
expire.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights, except prior to the Distribution Date as provided in Section 11(p)
hereof, or to distribute Rights Certificates that evidence fractional Rights. If
the Company determines not to issue fractional Rights, there shall be paid in
lieu thereof to the registered holders of the Rights Certificates with regard to
which such fractional Rights would otherwise be issuable, an amount in cash
equal to the same fraction of the current market value of a whole Right. For
purposes of this Section 14(a), the current market value of a whole Right shall
be the closing price of the Rights for the Trading Day immediately prior to the
date on which such fractional Rights would have been otherwise issuable. The
closing price of the Rights for any day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction
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reporting system with respect to securities listed on the principal national
securities exchange on which the Rights are listed or admitted to trading, or if
the Rights are not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by Nasdaq
or such other system then in use or, if on any such date the Rights are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Rights
selected by the Board. If on any such date no such market maker is making a
market in the Rights the fair value of the Rights on such date as determined in
good faith by the Board shall be used.
(b) The Company shall not be required to issue fractions of
shares of Preferred Stock (other than fractions which are integral multiples of
one one-thousandth of a share of Preferred Stock) upon exercise of the Rights or
to distribute certificates that evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-thousandth of a
share of Preferred Stock). In lieu of fractional shares of Preferred Stock that
are not integral multiples of one one-thousandth of a share of Preferred Stock,
the Company may pay to the registered holders of Rights Certificates, with
regard to which such fractional shares of Preferred Stock would otherwise be
issuable, at the time such Rights are exercised as herein provided, an amount in
cash equal to the same fraction of the current market value of one
one-thousandth of a share of Preferred Stock. For purposes of this Section
14(b), the current market value of one one-thousandth share of Preferred Stock
shall be one one-thousandth of the closing price per share of Common Stock
(determined pursuant to Section 11(d)(ii) hereof) on the Trading Day immediately
prior to the date of such exercise.
(c) Following the occurrence of a Triggering Event, the
Company shall not be required to issue fractions of shares of Common Stock upon
exercise of the Rights or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of fractional shares of Common Stock, the
Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one share of Common Stock. For purposes
of this Section 14(c), the current market value of one share of Common Stock
shall be the closing price of one share of Common Stock (as determined pursuant
to Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of
such exercise.
(d) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of this
Agreement, other than rights of action vested in the Rights Agent in Section 18
hereof, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Company Securities); and any registered holder of any Rights Certificate (or,
prior to the Distribution Date, of the Company Securities), without the consent
of the Rights Agent or of the holder of any other Rights Certificate (or, prior
to the Distribution Date, of the Company Securities), may, in his own behalf and
for his own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Rights Certificate in the manner
provided in such Rights Certificate and in this Agreement. Without limiting the
foregoing or any
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remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and shall be entitled to specific performance of the
obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of Company Securities;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of transfer and
with the appropriate forms and certificates duly completed and fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the
Company and the Rights Agent may deem and treat the person in whose name a
Rights Certificate (or, prior to the Distribution Date, the associated Company
Securities certificate) is registered as the absolute owner thereof and of the
Rights evidenced thereby (notwithstanding any notations of ownership or writing
on the Rights Certificates or the associated Company Securities certificate made
by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent, subject to the last
sentence of Section 7(e) hereof, shall be required to be affected by any notice
to the contrary; and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission, or any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of one
one-thousandths of a share of Preferred Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 25 hereof), or to receive dividends or subscription rights,
or otherwise, until the Right or
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Rights evidenced by such Rights Certificate shall have been exercised in
accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability or expense, incurred without gross
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no
liability for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Company Securities or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be consolidated, or
any corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust or stock transfer business of the Rights Agent
or any successor Rights Agent, shall be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or any further act
on the part of any of the parties hereto; provided, however, that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Rights
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the counter-signature of a predecessor Rights Agent and
deliver such Rights Certificates so countersigned; and in case at that time any
of the Rights Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Rights Certificates either in the name of the
predecessor or the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name
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or in its changed name; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the identity of any Acquiring Person or
Adverse Person and the determination of Current Market Price) be proved or
established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and established
by a certificate signed by the Chairman of the Board, the President, any Vice
President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action taken
or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its
own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Rights Certificate;
nor shall it be responsible for any adjustment required under the provisions of
Section 11 or Section 13 hereof or responsible for the manner, method or amount
of any such adjustment or the ascertaining of the existence of facts that would
require any such adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after actual notice of any such adjustment);
nor shall it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Common Stock to
be issued pursuant to this Agreement or any Rights Certificate or as to whether
any shares of Common Stock will, when so issued, be validly authorized and
issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and
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<PAGE>
other acts, instruments and assurances as may reasonably be required by the
Rights Agent for the carrying out or performing by the Rights Agent of the
provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the President, any Vice President, the Clerk, any
Assistant Clerk, the Treasurer or any Assistant Treasurer of the Company, and to
apply to such officers for advice or instructions in connection with its duties,
and it shall not be liable for any action taken or suffered to be taken by it in
good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct; provided, however, reasonable care was
exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of such
funds or adequate indemnification against such risk or liability is not
reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate contained in the form
of assignment or the form of election to purchase set forth on the reverse
thereof, as the case may be, has either not been completed or indicates an
affirmative response to clause 1 or 2 thereof, the Rights Agent shall not take
any further action with respect to such requested exercise of transfer without
first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company, and to each
transfer agent of the Company Securities and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent upon
thirty (30) days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Company
Securities and Preferred Stock, by registered or certified mail, and to the
holders of the Rights Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall fail
to make such appointment within a period of thirty (30) days after giving notice
of such removal or after it has
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<PAGE>
been notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by any registered holder of a Rights Certificate
(who shall, with such notice, submit his Rights Certificate for inspection by
the Company), then any registered holder of any Rights Certificate may apply to
any court of competent jurisdiction for the appointment of a new Rights Agent.
Any successor Rights Agent, whether appointed by the Company or by such a court,
shall be (a) a corporation organized and doing business under the laws of the
United States or any state thereof in good standing, which is authorized under
such laws to exercise corporate trust or stock transfer powers and is subject to
supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50,000,000 or (b) an affiliate of a corporation described in clause (a)
of this sentence. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Company Securities and Preferred Stock, and mail a notice thereof in writing
to the registered holders of the Rights Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Rights Certificates evidencing Rights in such form
as may be approved by the Board to reflect any adjustment or change in the
Purchase Price and the number or kind or class of shares or other securities or
property purchasable under the Rights Certificates made in accordance with the
provisions of this Agreement. In addition, in connection with the issuance or
sale of shares of Common Stock following the Distribution Date (other than upon
exercise of a Right) and prior to the redemption or expiration of the Rights,
the Company (a) shall, with respect to shares of Common Stock so issued or sold
pursuant to the exercise of stock options or under any employee plan or
arrangement, or upon the exercise, conversion or exchange of securities, notes,
warrants or debentures issued by the Company, and (b) may, in any other case, if
deemed necessary or appropriate by the Board, issue Rights Certificates
representing the appropriate number of Rights in connection with such issuance
or sale; provided, however, that (i) no such Rights Certificate shall be issued
if, and to the extent that, the Company shall be advised by counsel that such
issuance would create a significant risk of material adverse tax consequences to
the Company or the Person to whom such Rights Certificate would be issued, (ii)
no such Rights Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof, and (iii) no such Rights Certificate shall be issued upon the
conversion of any shares of the Convertible Preferred Stock.
Section 23. Redemption and Termination.
(a) The Board may, at its option, at any time prior to the
earlier of (i) the Close of Business on the tenth day following the Stock
Acquisition Date (or, if the Stock Acquisition Date shall have occurred prior to
the Record Date, the close of business on the tenth day following the Record
Date), or such later date as may be determined by action of the Board,
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<PAGE>
or (ii) the Final Expiration Date, redeem all but not less than all of the then
outstanding Rights at a redemption price of $.01 per Right, as such amount may
be appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"); provided, however, that the
Board may not redeem any Rights following an Adverse Person Event.
Notwithstanding anything contained in this Agreement to the contrary, the Rights
shall not be exercisable after the first occurrence of a Section 11(a)(ii) Event
until such time as the Company's right of redemption set forth in the first
sentence of this Section 23(a) has expired. The Company may, at its option, pay
the Redemption Price in cash, shares of Common Stock (based on the Current
Market Price as defined in Section 11(d) hereof, of the Common Stock at the time
of redemption) or any other form of consideration deemed appropriate by the
Board. The redemption of the Rights by the Board may be made effective at such
time, on such basis and with such conditions as the Board in its sole discretion
may establish.
(b) Immediately upon the action of the Board ordering the
redemption of the Rights, evidence of which shall have been filed with the
Rights Agent and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price for each Right so held.
Promptly after the action of the Board ordering the redemption of the Rights,
the Company shall give notice of such redemption to the Rights Agent and the
holders of the then outstanding Rights by mailing such notice to all such
holders at each holder's last address as it appears upon the registry books of
the Rights Agent or, prior to the Distribution Date, on the registry books of
the Transfer Agent for the Common Stock. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of the redemption will state the method by which
the payment of the Redemption Price will be made.
Section 24. Exchange. (a) At any time after any Person becomes an
Acquiring Person or an Adverse Person, the Board may, at their option, exchange
all or part of the then outstanding and exercisable Rights (which (i) shall not
include Rights that have become void pursuant to Section 7(e) and (ii) shall
include, without limitation, any Rights issued after the Distribution Date as
contemplated by Section 22 hereof) for shares of Common Stock at an exchange
ratio of one share of Common Stock per Right, appropriately adjusted to reflect
any stock split, stock dividend or similar transaction occurring after the date
hereof (such exchange ratio being hereinafter referred to as the "Exchange
Ratio"). Notwithstanding the foregoing, the Board of Directors shall not be
empowered to effect such exchange at any time after any Person (other than the
Company, any of its Subsidiaries, any employee benefit plan of the Company or
any of its Subsidiaries or any Person organized, appointed or established by the
Company or any of its Subsidiaries for or pursuant to the terms of any such
plan), together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the shares of Common Stock then outstanding.
(b) Immediately upon the action of the Board electing to
exchange any Rights pursuant to Section 24(a) and without any further action and
without any notice, the right to exercise such Rights will terminate and
thereafter the only right of a holder of such Rights shall be to receive that
number of shares of Common Stock equal to the number of such Rights held by such
holder multiplied by the Exchange Ratio. The Company shall promptly thereafter
give notice of such exchange to the Rights Agent and the holders of the Rights
to be exchanged
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<PAGE>
in the manner set forth in Section 26; provided, however, that the failure to
give, or any defect in, such notice shall not affect the validity of such
exchange. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
exchange will state the method by which the exchange of the shares of Common
Stock for Rights will be effected and, in the event of any partial exchange, the
number of Rights which will be exchanged. Any partial exchange shall be effected
pro rata based on the number of Rights (other than Rights which have become void
pursuant to Section 7(e)) held by each holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company,
at its option, may substitute Common Stock Equivalents (as defined in Section
11(a)(iii)) for shares of Common Stock exchangeable for Rights, at the initial
rate of one Common Stock Equivalent for each share of Common Stock, as
appropriately adjusted to reflect adjustments in dividend, liquidation and
voting rights of Common Stock Equivalents pursuant to the terms thereof, so that
each Common Stock Equivalent delivered in lieu of each share of Common Stock
shall have essentially the same dividend, liquidation and voting rights as one
share of Common Stock.
(d) In the event that the number of shares of Common Stock
which are authorized by the Company's certificate of incorporation, but not
outstanding or reserved for issuance are not sufficient to permit an exchange of
Rights as contemplated by this Section 24, the Company shall take all such
action as may be necessary to authorize additional shares of Common Stock for
issuance upon exchange of the Rights.
(e) The Company shall not be required to issue fractions of
shares of Common Stock or to distribute certificates that evidence fractional
shares of Common Stock. In lieu of fractional shares of Common Stock, the
Company may pay to the registered holders of Rights Certificates with regard to
which such fractional shares of Common Stock would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
share of Common Stock. For purposes of this Section 24(e), the current market
value of a whole share of Common Stock shall be the closing price per share of
Common Stock (determined pursuant to Section 11(d)(ii) hereof) on the Trading
Day immediately prior to the date of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with any other Person (other than a Subsidiary of the Company in
a transaction which complies with Section 11(o) hereof), or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer), in one transaction or a series of related transactions,
of more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company or any of
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<PAGE>
its Subsidiaries in one or more transactions each of which complies with Section
11(o) hereof), or (v) to effect the liquidation, dissolution or winding up of
the Company, then, in each such case, the Company shall give to each holder of a
Rights Certificate, to the extent feasible, in accordance with Section 26
hereof, a notice of such proposed action, which shall specify the record date
for the purposes of such stock dividend or distribution of rights or warrants,
or the date on which such reclassification, consolidation, merger, sale,
transfer, liquidation, dissolution, or winding up is to take place and the date
of participation therein by the holders of the shares of Preferred Stock, if any
such date is to be fixed, and such notice shall be so given in the case of any
action covered by clause (i) or (ii) above at least twenty (20) days prior to
the record date for determining holders of the shares of Preferred Stock for
purposes of such action, and in the case of any such other action, at least
twenty (20) days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of the shares of Preferred Stock,
whichever shall be the earlier.
(b) In case any Section 11(a)(ii) Event shall occur, then, in
any such case, (i) the Company shall as soon as practicable thereafter give to
each holder of a Rights Certificate, to the extent feasible, and in accordance
with Section 26 hereof, a notice of the occurrence of such event, which shall
specify the event and the consequences of the event to holders of Rights under
Section 11(a)(ii) hereof and (ii) all references in the preceding paragraph to
Common Stock shall, to the extent appropriate, also be deemed thereafter to
refer to Common Stock or, if appropriate, other securities.
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Marcam Solutions, Inc.
95 Wells Avenue
Newton, MA 02159
Attention: President and Chief Executive Officer
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
BankBoston, N.A.
c/o Boston EquiServe Limited Partnership
150 Royall Street
Canton, Massachusetts 02021
Attention: Client Administration
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Company Securities) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
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<PAGE>
Section 27. Supplements and Amendments. At any time prior to the Final
Amendment Date, the Company and the Rights Agent shall, if the Company so
directs, supplement or amend any provision of this Agreement without the
approval of any holders of certificates representing shares of Common Stock.
From and after the Final Amendment Date, the Company and the Rights Agent shall,
if the Company so directs, supplement or amend this Agreement without the
approval of any holders of Rights Certificates in order (i) to cure any
ambiguity, (ii) to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provisions herein, (iii) to
shorten or lengthen any time period hereunder or (iv) to change or supplement
the provisions hereunder in any manner which the Company may deem necessary or
desirable and which shall not adversely affect the interests of the holders of
Rights Certificates (other than an Acquiring Person, an Adverse Person or an
Affiliate or Associate of such Person); provided, however, that this Agreement
may not be supplemented or amended, pursuant to clause (iii) of this sentence,
to lengthen (A) a time period relating to when the Rights may be redeemed at
such time as the Rights are not then redeemable or (B) any other time period
unless such lengthening is for the purpose of protecting, enhancing or
clarifying the rights of or the benefits to the holders of Rights (other than
any Acquiring Person, an Adverse Person or an Associate or Affiliate of such
Person). Upon the delivery of a certificate from an appropriate officer of the
Company which states that the proposed supplement or amendment is in compliance
with the terms of this Section 27, the Rights Agent shall execute such
supplement or amendment. Prior to the Distribution Date, the interests of the
holders of Rights shall be deemed coincident with the interests of the holders
of Company Securities.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors, etc.
For all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common Stock
of which any Person is the Beneficial Owner, shall be made in accordance with
the provisions of the last sentence of Rule 13d-3(d)(l)(i) of the General Rules
and Regulations under the Exchange Act; provided, however, that for all purposes
of this Agreement any calculation of the number of shares of Common Stock
outstanding at any particular time shall also include all shares of Common Stock
issuable upon conversion of all shares of Convertible Preferred Stock
outstanding at the applicable time. The Board shall have the exclusive power and
authority to administer this Agreement and to exercise all rights and powers
specifically granted to the Board or to the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement, and (ii) make all determinations deemed necessary or advisable for
the administration of this Agreement (including a determination to redeem or not
redeem the Rights, to declare that a Person is an Adverse Person or to amend the
Agreement). All such actions, calculations, interpretations and determinations
(including, for purposes of clause (y) below, all omissions with respect to the
foregoing) which are done or made by the Board in good faith, shall (x) be
final, conclusive and binding on the Company, the Rights Agent, the holders of
the Rights and all other parties, and (y) not subject any member of the Board to
any liability to the holders of the Rights.
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<PAGE>
Section 30. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board determines
in its good faith judgment that severing the invalid language from this
Agreement would materially and adversely affect the purpose or effect of this
Agreement, the right of redemption set forth in Section 23 hereof shall be
reinstated and shall not expire until the close of business on the tenth day
following the date of such determination by the Board. Without limiting the
foregoing, if any provision requiring that a determination made by less than the
entire Board is held by a court of competent jurisdiction or other authority to
be invalid, void or unenforceable, such determination shall then be made by the
entire Board.
Section 32. Governing Law. This Agreement, each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts made
and to be performed entirely within such State.
Section 33. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.
Section 34. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Rights Agreement to be duly executed and their respective corporate
seals to be hereunto affixed and attested, all as of the day and year first
above written.
<TABLE>
<S> <C>
ATTEST: MARCAM SOLUTIONS, INC.
By: /s/ Diane R. Tormey By: /s/ Jonathan Crane
--------------------------------------- -------------------------------
Name: Diane R. Tormey Name: Jonathan Crane
Title: Vice President, General Counsel Title: President and
and Secretary Chief Executive Officer
ATTEST: BANKBOSTON, N.A.,
As Rights Agent
By: /s/ Karen Finnegan By: /s/ Carol Mulvey-Eori
--------------------------------------- ------------------------------------------
Name: Karen Finnegan Name: Carol Mulvey-Eori
--------------------------------- -----------------------------------
Title: Account Manager Title: Director of Administration
--------------------------------- -----------------------------------
</TABLE>
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Form of Indemnification Agreement with Directors and Officers
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") dated as of _______ __,
1997 by and between Marcam Solutions, Inc., a Delaware corporation (the
"Company"), and ___________, a [director and officer] of the Company (the
"Indemnitee"):
WITNESSETH:
WHEREAS, the Indemnitee is presently serving as a [director and officer] of
the Company, and the Company desires the Indemnitee to continue in such
capacity;
WHEREAS, the Indemnitee is willing, subject to certain conditions
(including the execution and performance of this Agreement by the Company), to
continue in that capacity;
WHEREAS, in addition to the indemnification to which the Indemnitee is
entitled under the Company's certificate of incorporation (the "Certificate"),
the Company maintains at its sole expense insurance protecting its officers and
directors (including the Indemnitee) against certain losses arising out of
actual or threatened actions, suits or proceedings to which such persons may be
made, or threatened to be made, parties; and
WHEREAS, as a result of circumstances having no relation to, and beyond the
control of, the Company and the Indemnitee, there can be no assurance of the
continuation or renewal of that insurance;
NOW, THEREFORE, to induce the Indemnitee to continue to serve in his
present capacity and in consideration of these premises and the mutual
agreements set forth in this Agreement, the Company and the Indemnitee agree as
follows:
1. Continued Service. The Indemnitee will continue to serve as a [director
and officer] of the Company so long as he is duly elected and qualified in
accordance with the Certificate and the Company's by-laws (the "By-Laws") or
until he resigns, dies or is removed in accordance with applicable law.
2. Initial Indemnity. (a) The Company shall indemnify the Indemnitee who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Company) by
reason of the fact that he is or was or had agreed to become a director,
officer, employee or agent of the Company, or is or was serving or had agreed to
serve at the request of the Company as a director, officer, trustee, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or by reason of any actual or alleged act or failure to act in such
capacity, against any and all costs, charges and expenses (including attorneys'
and others' fees and expenses), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the Indemnitee in connection with such
action, suit or proceeding (and any appeal therefrom) if the Indemnitee acted in
good faith and in a
<PAGE>
-2-
manner he reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendre or its equivalent shall not, of itself, create a
presumption that the Indemnitee did not act in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had reasonable
cause to believe his conduct was unlawful.
(b) The Company shall indemnify the Indemnitee who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by or in the right of the Company to procure a judgment in
its favor by reason of the fact that he is or was or had agreed to become a
director, officer, employee or agent of the Company, or is or was serving or had
agreed to serve at the request of the Company as a director, officer, trustee,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any and all costs, charges and expenses (including
attorneys' and others' fees and expenses) actually and reasonably incurred by
the Indemnitee in connection with the defense or settlement of such action, suit
or proceeding (or any appeal therefrom) if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company and except that no indemnification shall be made in respect of any
claim, issue or matter as to which the Indemnitee shall have been adjudged to be
liable to the Company unless and only to the extent that the Court of Chancery
or the court in which such action, suit or proceeding was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
(c) To the extent that the Indemnitee has been successful on the merits
or otherwise, including (without limitation) the dismissal of an action without
prejudice, in any action, suit or proceeding referred to in Sections 2(a) or
2(b), or in defense of any claim, issue or matter therein, the Indemnitee shall
be indemnified against costs, charges and expenses (including attorneys' and
others' fees and expenses) actually and reasonably incurred by the Indemnitee in
connection therewith.
(d) Any indemnification under Sections 2(a) or 2(b) (unless ordered by a
court) shall be made by the Company only as authorized in the specific case upon
a determination, made in accordance with this Section 2(d), Section 4 or any
applicable provision of the Certificate, By-Laws, other agreement, resolution or
otherwise, that indemnification of the Indemnitee is proper in the circumstances
because the Indemnitee has met the applicable standard of conduct set forth in
Sections 2(a) or 2(b). Such determination shall be made (i) by a majority vote
of the directors who are not parties to such action, suit or proceeding, even
though less than a quorum of the entire Board of Directors of the Company (the
"Board"), (ii) by a committee of such directors designated by majority vote of
such directors, even though less than a quorum of the entire Board, (iii) if
there are no such directors, or if such directors so direct, by independent
legal counsel (designated in the manner provided below in this subsection (d))
in a written opinion or (iv) by the stockholders of the Company (the
"Stockholders"). In addition, if
<PAGE>
-3-
the Indemnitee is not an officer or director of the Company at the time of such
determination, such determination may also be made by a majority vote of the
directors who then constitute the entire Board, at a meeting at which a quorum
is present and acting. Independent legal counsel shall be designated by vote of
a majority of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum of the entire Board; provided,
however, that if such directors are unable or fail to so designate, such
designation shall be made by the Indemnitee subject to the approval of a
majority of such directors (which approval shall not be unreasonably withheld).
Independent legal counsel shall not be any person or firm who, under the
applicable standards professional conduct then prevailing, would have a conflict
of interest in representing either the Company or the Indemnitee in an action to
determine the Indemnitee's rights under this Agreement. The Company shall pay
the reasonable fees and expenses of such independent legal counsel and to
indemnify fully such counsel against costs, charges and expenses (including
attorneys' and others' fees and expenses) actually and reasonably incurred by
such counsel in connection with this Agreement or the opinion of such counsel
pursuant hereto.
(e) All expenses (including attorneys' and others' fees and expenses)
incurred by the Indemnitee in defending an actual or threatened civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
in the manner prescribed by Section 4(b).
(f) The Company shall not adopt any amendment to the Certificate or
By-Laws the effect of which would be to deny, diminish or encumber the
Indemnitee's rights to indemnity pursuant to the Certificate, By-Laws, the
General Corporation Law of the State of Delaware (the "DCGL") or any other
applicable law as applied to any act or failure to act occurring in whole or in
part prior to the date (the "Effective Date") upon which the amendment was
approved by the Board or the Stockholders, as the case may be. If the Company
shall adopt any amendment to the Certificate or By-Laws the effect of which
would be to so deny, diminish or encumber the Indemnitee's rights to indemnity,
such amendment shall apply only to acts or failures to act occurring entirely
after the Effective Date thereof.
3. Additional Indemnification. (a) Pursuant to Section 145(f) of the DCGL,
without limiting any right which the Indemnitee may have pursuant to Section 2,
the Certificate, the By-Laws, the DCGL, any vote of stockholders or
disinterested directors, any policy of insurance or otherwise, but subject to
the limitations on the maximum permissible indemnity which may exist under
applicable law at the time of any request for indemnity hereunder determined as
contemplated by Section 3(a), the Company shall indemnify the Indemnitee against
any amount which he is or becomes legally obligated to pay relating to or
arising out of any claim made against him because of any actual or alleged act,
failure to act, neglect or breach of duty, including any actual or alleged
error, misstatement or misleading statement, which he commits, suffers, permits
or acquiesces in while acting in his capacity as a director, officer, employee
or agent of the Company, or, at the request of the Company, as a director,
officer, trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. The payments which the Company is obligated
to make pursuant to this Section 3 shall include (without limitation) damages,
judgments, settlements and charges, costs, expenses, expenses of
<PAGE>
-4-
investigation and expenses of defense of legal actions, suits, proceedings or
claims and appeals therefrom, and expenses of appeal, attachment or similar
bonds; provided, however, that the Company shall not be obligated under this
Section 3(a) to make any payment in connection with any claim against the
Indemnitee if a final judgment or other final adjudication adverse to the
Indemnitee establishes that his acts or omissions (i) were in breach of his duty
of loyalty to the Company or the Stockholders, (ii) were not in good faith or
involved intentional misconduct or a knowing violation of law, (iii) resulted in
him being liable under Section 174 of the DGCL, or (iv) resulted in receipt by
the Indemnitee of an improper personal benefit. The determination of whether the
Indemnitee shall be entitled to indemnification under this Section 3(a) may be,
but shall not be required to, be made in accordance with Section 4(a). If that
determination is so made, it shall be binding upon the Company and the
Indemnitee for all purposes.
(b) Expenses (including without limitation attorneys' and others'
fees and expenses) incurred by Indemnitee in defending any actual or threatened
civil or criminal action, suit, proceeding or claim shall be paid by the Company
in advance of the final disposition thereof as authorized in accordance with
Section 4(b).
4. Certain Procedures Relating to Indemnification and Advancement of
Expenses. (a) Except as otherwise permitted or required by the DCGL, for
purposes of pursuing the Indemnitee's rights to indemnification under Sections
2(a), 2(b) or 3(a), as the case may be, the Indemnitee may, but shall not be
required to, (i) submit to the Board a request for indemnification substantially
in the form of Exhibit A (the "Indemnification Statement") averring that he is
entitled to indemnification hereunder; and (ii) present to the Company
reasonable evidence of all expenses for which payment is requested. Submission
of an Indemnification Statement to the Board shall create a presumption that the
Indemnitee is entitled to indemnification under Sections 2(a), 2(b) or 3(a), as
the case may be, and it shall be deemed to have determined by the appropriate
body or person (including the Board, the directors who are not parties to the
particular action, suit or proceeding at issue (or a committee thereof),
independent legal counsel or the Stockholders, as the case may be) that the
Indemnitee is entitled to such indemnification unless within 30 calendar days
after submission of the Indemnification Statement such body or person shall
determine in accordance with Section 2(d), based upon clear and convincing
evidence (sufficient to rebut the foregoing presumption), and the Indemnitee
shall have received notice within such period in writing of such determination,
that the Indemnitee is not so entitled to indemnification because the Indemnitee
failed to meet the standard of conduct set forth in Sections 2(a), 2(b) or 3(a),
as the case may be, which notice shall disclose with particularity the evidence
in support of such determination. The foregoing notice shall be signed by the
director presiding as chairman at the meeting at which the vote to deny
indemnification was taken or, if the action to deny indemnification was by
written consent without a meeting, signed by all persons who participated in the
determination and voted to deny indemnification. The provisions of this Section
4(a) are intended to be procedural only and shall not affect the right of the
Indemnitee to indemnification under this Agreement, and any determination that
the Indemnitee is not entitled to indemnification and any failure to make the
payments requested in the Indemnification Statement shall be subject to judicial
review.
<PAGE>
-5-
(b) For purposes of determining whether to authorize advancement
of expenses pursuant to Sections 2(e), the Indemnitee shall submit to the Board
a request for advancement of expenses substantially in the form of Exhibit B
(the "Undertaking"), averring that (i) he has reasonably incurred or will
reasonably incur actual expenses in defending an actual or threatened action,
suit, proceeding or claim, whether civil, criminal, administrative or
investigative, and (ii) he undertakes to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Company under this Agreement or otherwise. For purposes of requesting
advancement of expenses pursuant to Section 3(b), the Indemnitee may, but shall
not be required to, submit an Undertaking or such other form of request as he
determines to be appropriate (an "Expense Request"). Upon receipt of an
Undertaking or Expense Request, as the case may be, the Board shall, within 10
calendar days, authorize immediate payment of the expenses stated in the
Undertaking or Expense Request, as the case may be, whereupon such payments
shall immediately be made by the Company. No security shall be required in
connection with any Undertaking or Expense Request and any Undertaking or
Expense Request shall be accepted without reference to the Indemnitee's ability
to make repayment. For purposes of pursuing his rights to advancement of
expenses hereunder, the Indemnitee shall present to the Company reasonable
evidence of all expenses for which advancement is requested, including
appropriate invoices.
5. Subrogation; Duplication of Payments. (a) In the event of payment
under this Agreement, the Company shall be subrogated to the extent of such
payment to all of the rights of recovery of the Indemnitee, who shall execute
all papers required and shall do everything that may be necessary to secure such
rights, including the execution of such documents necessary to enable the
Company effectively to bring suit to enforce such rights.
(b) The Company shall not be liable under this Agreement to make
any payment in connection with any claim made against the Indemnitee to the
extent the Indemnitee has actually received payment (under any insurance policy,
the Certificate, the By-Laws or otherwise) of the amounts otherwise payable
hereunder.
6. Enforcement. (a) If a claim for indemnification made to the Company
pursuant to Section 4 is not paid in full by the Company within 30 calendar days
after a written claim has been received by the Company, the Indemnitee may at
any time thereafter bring suit against the Company to recover the unpaid amount
of the claim.
(b) In any action brought under Section 6(a), it shall be a
defense to a claim for indemnification pursuant to Sections 2(a) or 2(b) (other
than an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the Undertaking, if any is
required, has been tendered to the Company) that the Indemnitee has not met the
standards of conduct which make it permissible under the DCGL for the Company to
indemnify the Indemnitee for the amount claimed, but the burden or proving such
defense shall be on the Company. Neither the failure of the Company (including
the Board, the directors who are not parties to the particular action, suit or
proceeding at issue (or a committee thereof), independent legal counsel or the
Stockholders) to have made a determination prior to commencement of such action
that indemnification of the Indemnitee is proper in the
<PAGE>
-6-
circumstances because he has met the applicable standard of conduct set forth in
the DCGL, nor an actual determination by the Company (including the Board, the
directors who are not parties to the particular action, suit or proceeding at
issue (or a committee thereof), independent legal counsel or the Stockholders)
that the Indemnitee has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the Indemnitee has not met
the applicable standard of conduct.
(c) The Indemnitee shall not be required to incur the expenses
associated with the enforcement of his rights under this Agreement by litigation
or other legal action because the cost and expense thereof would substantially
detract from the benefits intended to be extended to the Indemnitee hereunder.
Accordingly, if the Company has failed to comply with any of its obligations
under this Agreement or if the Company or any other person takes any action to
declare this Agreement void or unenforceable, or institutes any action, suit or
proceeding designed (or having the effect of being designed) to deny, or to
recover from, the Indemnitee the benefits intended to be provided to the
Indemnitee hereunder, the Company irrevocably authorizes the Indemnitee from
time to time, at the expense of the Company as hereinafter provided, to retain
counsel to represent the Indemnitee in connection with the initiation or defense
of any such action, suit or proceeding, whether by or against the Company or any
director, officer, stockholder or other person, in any jurisdiction. Regardless
of the outcome thereof, the Company shall pay and be solely responsible for any
and all costs, charges and expenses (including attorneys' and others' fees and
expenses) reasonably incurred by the Indemnitee (i) as a result of the Company's
failure to perform this Agreement or any provision hereof or (ii) as a result of
the Company or any person contesting the validity or enforceability of this
Agreement or any provision hereof as aforesaid.
7. Counsel. Except as provided in Section 6(c), with respect to any
action, suit, proceeding or claim for which indemnification or advancement of
expenses may be sought pursuant to this Agreement and upon request of the
Indemnitee after the Indemnitee has submitted an Indemnification Statement to
the Board, the Company shall retain counsel reasonably satisfactory to the
Indemnitee to represent the Indemnitee and any other party the Company may
designate (which may include the Company) in connection with the action, suit,
proceeding or claim to which the Indemnification Statement relates. In
connection with any such action, suit, proceeding or claim, the Indemnitee shall
have the right to retain his own counsel at his own expense, except that the
fees and expenses of such counsel retained by the Indemnitee shall be expenses
for which indemnification and advancement shall be available under this
Agreement if (i) the Company and the Indemnitee shall have agreed to the
retention of such counsel or (ii) the parties named or threatened to be named in
any such action, suit, proceeding or claim (including impleaded parties)
include, in addition to the Indemnitee, the Company or another party who may be
indemnified by the Company and representation of more than one party by the same
counsel would be inappropriate due to actual or, in the reasonable opinion of
the Indemnitee, potential conflicts of interests between them.
8. Merger or Consolidation. If the Company shall be a constituent
corporation in a consolidation, merger or other reorganization, the Company, if
it shall not be the surviving, resulting
<PAGE>
-7-
or other corporation therein, shall require as a condition thereto the
surviving, resulting or acquiring corporation to agree to indemnify the
Indemnitee to the full extent provided in this Agreement. Whether or not the
Company is the resulting, surviving or acquiring corporation in any such
transaction, the Indemnitee shall also stand in the same position under this
Agreement with respect to the resulting, surviving or acquiring corporation as
he would have with respect to the Company if its separate existence had
continued.
9. Nonexclusivity and Severability. (a) The right to indemnification and
advancement of expenses provided by, or granted pursuant to, this Agreement
shall not be exclusive of any other rights to which the Indemnitee may be
entitled under the Certificate, By-Laws, the DCGL, any other statute, insurance
policy, agreement, vote of stockholders or directors or otherwise, both as to
actions in his official capacity and as to actions in another capacity while
holding such office.
(b) If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid, unenforceable
or otherwise illegal, the remainder of this Agreement and the application of
such provision to other persons or circumstances shall not be affected, and the
provision so held to be invalid, unenforceable or otherwise illegal shall be
reformed to the extent (and only to the extent) necessary to make it
enforceable, valid and legal.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
11. Modification; Survival. This Agreement contains the entire agreement
of the parties relating to the subject matter hereof. This Agreement may be
modified only by an instrument in writing signed by both parties hereto. The
right to indemnification and advancement of expenses provided by, or granted
pursuant to, this Agreement shall continue after the Indemnitee has ceased to be
a director, officer, trustee, employee or agent and shall inure to the benefit
of his heirs, executors and administrators.
12. Certain Terms. (a) For purposes of this section, references to "the
Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under this Agreement with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to any employee
benefit plan; and references to "serving at the request
<PAGE>
-8-
of the Company" shall include any service as a director, officer, trustee,
employee or agent of the Company which imposes duties on, or involves services
by, the Indemnitee with respect to an employee benefit plan, its participants or
beneficiaries; references to the masculine shall include the feminine;
references to the singular shall include the plural and vice versa; and if the
Indemnitee acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
he shall be deemed to have acted in a manner "not opposed to the best interests
of the Company" as referenced to herein.
13. Headings and Interpretation. When a reference is made in this
Agreement to Sections or Exhibits, such references shall be to a Section or
Exhibit to this Agreement unless otherwise indicated.
IN WITNESS WHEREOF, the Company and the Indemnitee have duly executed
this Agreement as of the date first above written.
MARCAM SOLUTIONS, INC. _________________________________
Indemnitee
By:________________________________
Title:_____________________________
<PAGE>
-9-
Exhibit A
---------
INDEMNIFICATION STATEMENT
-------------------------
This Indemnification Statement is submitted pursuant to the
Indemnification Agreement dated as of ________ __, 1997 between Marcam
Solutions, Inc., a Delaware corporation (the "Company"), and the undersigned.
I am requesting indemnification against charges, costs, expenses
(including attorneys' and others' fees and expenses), judgments, fines and
amounts paid in settlement, all of which (collectively, "Liabilities") have been
or will be incurred by me in connection with an actual or threatened action,
suit, proceeding or claim to which I am a party or am threatened to be made a
party.
With respect to all matters related to any such action, suit, proceeding
or claim, I am entitled to be indemnified pursuant to the aforesaid
Indemnification Agreement.
Without limiting any other rights which I have or may have, I am
requesting indemnification against Liabilities which have or may arise out of:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Respectfully submitted,
-------------------------------------
<PAGE>
-10-
Exhibit B
---------
UNDERTAKING
This Indemnification Statement is submitted pursuant to the
Indemnification Agreement dated as of ________ __, 1997 between Marcam
Solutions, Inc., a Delaware corporation (the "Company"), and the undersigned.
I am requesting advancement of certain costs, charges and expenses which
I have incurred or will incur in defending an actual or threatened action, suit,
proceeding or claim, whether civil, criminal, administrative or investigative.
I hereby undertake to repay this advancement of expenses if it shall
ultimately be determined that I am not entitled to be indemnified by the Company
under the aforesaid Indemnity Agreement or otherwise.
The costs, charges and expenses for which advancement is requested are,
in general, all expenses related to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Respectfully submitted,
-------------------------------------
LEASE
By and Between
WELLS AVENUE SENIOR HOLDINGS, LLC
("Landlord")
and
MARCAM SOLUTIONS, INC.
("Tenant")
95 WELLS AVENUE
NEWTON, MASSACHUSETTS 02459
<PAGE>
TABLE OF CONTENTS
1. TERMS 2
2. PAYMENT OF RENT & ADDITIONAL RENT 4
---------------------------------
3. SECURITY DEPOSIT; ADVANCE DEPOSIT 5
---------------------------------
4. USES; TENANT COVENANTS 10
----------------------
5. ENVIRONMENTAL PROVISIONS; RECYCLING. 11
------------------------------------
6. LATE CHARGES; INTEREST 15
----------------------
7. REPAIRS AND MAINTENANCE 16
-----------------------
8. UTILITIES AND SERVICES 17
----------------------
9. EXPENSE INCREASES. 19
------------------
10. INCREASES IN REAL ESTATE TAXES 24
------------------------------
11. ADDITIONAL PROVISIONS; OPERATING COSTS AND REAL ESTATE TAXES 26
------------------------------------------------------------
12. TENANT'S INSURANCE 26
------------------
13. LANDLORD'S INSURANCE 27
--------------------
14. DAMAGE OR DESTRUCTION 27
---------------------
15. MACHINES AND EQUIPMENT; ALTERATIONS AND ADDITIONS: REMOVAL
----------------------------------------------------------
OF FIXTURES 30
-----------
16. ACCEPTANCE OF PREMISES 33
----------------------
17. TENANT IMPROVEMENTS 33
-------------------
18. ACCESS 33
------
19. MUTUAL WAIVER OF CLAIMS AND SUBROGATION 34
---------------------------------------
20. INDEMNIFICATION 35
---------------
21. ASSIGNMENT AND SUBLETTING 35
-------------------------
22. ADVERTISING 39
-----------
23. LIENS 40
-----
<PAGE>
24. DEFAULT 40
-------
25. SUBORDINATION 44
-------------
26. SURRENDER OF POSSESSION 45
-----------------------
27. NON-WAIVER 45
----------
28. HOLDOVER 45
--------
29. CONDEMNATION 46
------------
30. NOTICES 48
-------
31. MORTGAGEE PROTECTION 48
--------------------
32. COSTS AND ATTORNEYS' FEES 48
-------------------------
33. BROKERS 48
-------
34. LANDLORD'S LIABILITY AND DEFAULT 49
--------------------------------
35. ESTOPPEL CERTIFICATES 50
---------------------
36. FINANCIAL STATEMENTS 51
--------------------
37. TRANSFER OF LANDLORD'S INTEREST 51
-------------------------------
38. RIGHT TO PERFORM 52
---------------
39. [INTENTIONALLY DELETED] 52
-----------------------
40. SALES AND AUCTIONS 52
------------------
41. NO ACCESS TO ROOF 52
-----------------
42. SECURITY 53
--------
43. AUTHORITY OF TENANT 53
-------------------
44. NO ACCORD OR SATISFACTION 53
-------------------------
45. MODIFICATION FOR LENDER 53
-----------------------
46. PARKING 53
-------
47. GENERAL PROVISIONS 54
------------------
<PAGE>
48. [INTENTIONALLY DELETED] 57
----------------------
49. WAIVER OF JURY TRIAL 57
--------------------
50. RENEWAL OPTION 57
--------------
51. RIGHT OF FIRST OFFER. 59
---------------------
52. ADDITIONAL SCHEDULES 60
--------------------
EXHIBITS
- --------
EXHIBIT A-1 Location and Dimensions of Premises
EXHIBIT A-2 Description of Land
EXHIBIT A-3 Depiction of Unreserved Parking Spaces
EXHIBIT B Declaration of Lease Commencement
EXHIBIT C Construction Exhibit
EXHIBIT D Rules and Regulations
EXHIBIT E Janitorial Specifications
EXHIBIT F Form Estoppel Certificate
EXHIBIT G [Intentionally Deleted]
EXHIBIT H Form of SNDA
<PAGE>
LEASE
-----
THIS LEASE is made this 23rd day of October, 1998, by and between WELLS
AVENUE SENIOR HOLDINGS, LLC, ("Landlord") c/o Wellsford Real Properties, Inc.,
610 Fifth Avenue, New York, NY 10020, and MARCAM SOLUTIONS, INC. ("Tenant") with
a mailing address of 95 Wells Avenue, Newton, Massachusetts 02459.
R E C I T A L S:
----------------
R-1. Landlord (as successor to Dominic J. Saraceno, as Trustee of
Saraceno Holding Trust under Declaration of Trust dated November 20, 1991 and
recorded with the Middlesex County Registry of Deeds in Book 21569, Page 368,
recorded November 27, 1991, record title holder for Wells Research Associates
Limited Partnership, successor in interest to Dominic J. Saraceno) and Tenant
are currently parties to that certain Office Lease dated June 13, 1988, as
amended by that certain First Amendment to Lease dated as of October 11, 1989,
that certain Second Amendment to Lease dated as of August 29, 1990, that certain
Third Amendment to Lease dated as of August 29, 1990, that certain Fourth
Amendment to Lease dated as of June 30, 1992, that certain Fifth Amendment to
Lease dated as of May 10, 1993, and that certain Sixth Amendment to Lease dated
as of June 12, 1998 (as amended, the "Original Lease");
R-2. Tenant entered into a Sublease with Saracen Companies, Inc. dated
January 12, 1993, as amended by Amendment No. 1 to Sublease dated August 1,
1995, for an additional 33,277 rentable square feet, as well as a Letter dated
March 29, 1996 and a Letter dated December 4, 1997 for the leasing of additional
rentable square footage in the Premises;
R-3. By Letter of Understanding dated May 13, 1998, Tenant confirmed
that the Original Lease, and the other instruments referenced above constituted
a single direct lease between Landlord and Tenant for 128,398 rentable square
feet, for a Basic Rent of $218,707.11 per month (or $2,624,485.32 per annum) for
the entire Premises, plus Tenant's share of increases in Operating Expenses and
Taxes (which as of such date was stated to equal $1,332.00 per month);
R-4. The aforesaid Sixth Amendment to Lease provided for Tenant's
surrender of possession of a portion of the Premises to Landlord, and the
termination of all leasehold obligations with respect to such surrendered
portion of the Premises; and
R-5. Landlord and Tenant now wish to enter into a new lease agreement to
replace the Original Lease, on the terms and conditions hereinafter set forth.
W I T N E S S E T H :
THAT LANDLORD, for and in consideration of the rents and all other
charges and payments hereunder and of the covenants, agreements, terms,
provisions and conditions to be kept and performed hereunder by Tenant, hereby
grants and conveys to Tenant, and Tenant hereby hires and takes from Landlord, a
leasehold interest in the premises described below ("Premises"), subject to all
matters hereinafter set forth and upon and subject to the covenants, agreements,
terms, provisions and conditions of this Lease for the term hereinafter stated.
<PAGE>
1. TERMS.
------
1.1 Premises. The Premises demised by this Lease are approximately
102,494 rentable square feet on the first (1st) and second (2nd) floor of the
building located at 95 Wells Avenue, Newton, Massachusetts 02159 (the
"Building"), together with a nonexclusive right to use parking and other common
areas. The land upon which the Building is situated, which is described in
Exhibit A-2 attached hereto and incorporated herein by reference, shall be
referred to hereinafter as the "Land". The location and dimensions of the
Premises are shown on Exhibit A-1, attached hereto and incorporated herein by
reference. No easement for light or air is incorporated in this Premises. The
rentable area of the Building is 228,250 square feet, and Landlord and Tenant
hereby stipulate that the rentable area of the Building and Premises are as set
forth herein.
1.2 Tenant's Share. "Tenant's Share" shall mean a fraction, the
numerator of which is the total rentable square footage of the Premises, and the
denominator of which is the total rentable square footage of the Building.
Tenant's Share as of the Commencement Date of this Lease shall be Forty-Four and
90/100 percent (44.9%) (calculated as 102,494/228,250). Tenant's Share shall be
adjusted for changes in the total rentable square footage of the Premises and/or
Building, including without limitation changes which may result from any
condemnation of a portion of the Building.
1.3 Lease Term. The term of this Lease (the "Term" or "Lease Term")
shall commence on the "Commencement Date", as defined in Section 1.4, below
(e.g., May 1, 1999), and shall expire seventy-two (72) months thereafter (e.g.,
April 30, 2005) (the "Lease Expiration Date"). Tenant shall be in occupancy of
the Premises prior to the Commencement Date pursuant to the terms of the
Original Lease, which shall continue in full force and effect between the date
of execution of this Lease and the Commencement Date hereunder, provided that on
and as of the Commencement Date hereunder, the Original Lease shall terminate
and cease to be of any further force and effect (except for any obligations
accrued thereunder prior to the Commencement Date hereunder, which accrued
obligations shall survive such termination), and Tenant's occupancy of the
Premises shall thereafter be subject to the terms and conditions of this Lease.
1.4 Commencement Date. The "Commencement Date" shall be May 1, 1999.
Landlord and Tenant hereby agree to execute a Declaration, in the form attached
hereto as Exhibit B, to confirm the Commencement Date. Tenant's failure to
execute said Declaration shall not affect the Commencement Date or the Lease
Expiration Date, as same are determined by the terms of this Lease.
Notwithstanding the foregoing provisions of this Section 1.4, for purposes of
this Lease, the term "Commencement Date" shall also mean any adjusted
Commencement Date which may be established pursuant to the operation of the
provisions of Exhibit C to this Lease.
1.5 Rent. The base rent payable by Tenant hereunder ("Base Rent") is set
forth in this Section 1.5, below. In addition to the Base Rent, Tenant shall pay
(as additional rent) Tenant's Share of Expense Increases as described in Section
9, Tenant's Share of Tax Increases as described in Section 10, and the increases
in Base Rent described in the table set forth below in this Section 1.5, below,
all of which shall be deemed additional rent due under this Lease. The
combination of Base Rent and additional rent as described in this Section 1.5 is
sometimes
<PAGE>
collectively referred to in this Lease as "Rent". Base Rent shall be payable
monthly, in advance, on first day of each calendar month of the Term, without
prior notice, demand, deduction or offset, except as expressly set forth to the
contrary herein. The monthly payments of Rent for the Premises (which may be
referred to herein as "Monthly Rent") shall be as follows:
<TABLE>
<CAPTION>
Annual Base Rent
Months Per Square Foot Annual Base Rent Monthly Rent
------ ---------------- ---------------- ------------
<S> <C> <C> <C>
1 - 24 $28.00 $2,869,832.00 $239,152.67
25 - 48 $30.00 $3,074,820.00 $256,235.00
49 - 72 $32.00 $3,279,808.00 $273,317.33
</TABLE>
1.6 Additional Rent. Any sum owed or reimbursable by Tenant to Landlord
under this Lease (excluding monthly Rent) shall be considered "additional rent"
hereunder, and, except for items of additional rent for which demand is required
pursuant to the express terms of this Lease, shall be payable without demand,
set-off or deduction, except as expressly set forth to the contrary herein. The
items of additional rent described in Section 1.5, above, shall be payable
monthly, in advance, on first day of each calendar month of the Term, together
with Tenant's monthly Rent payment.
1.7 [Intentionally Deleted]
1.8 Notice and Payment Addresses. Any notices under this Lease shall be
governed by the terms of Section 30, below. The notice addresses of the parties
are as follows:
If to Landlord: Wells Avenue Senior Holdings, LLC
c/o Wellsford Real Properties, Inc.
610 Fifth Avenue, 7th Floor
New York, NY 10020
with a copy to: Tenenbaum & Saas, P.C.
4330 East-West Highway
Suite 1150
Bethesda, Maryland 20814
If to Tenant: 95 Wells Avenue
Newton, Massachusetts 02459
Either party may, upon (10) days' prior written notice to the other, designate a
new address to which all notices hereunder shall be directed.
1.9 Rent Payment Address. Tenant shall send payments of Rent and
additional rent hereunder to Landlord at the following address:
Wells Avenue Deposit Account #01-96-02545
c/o Federal Savings Bank
P.O. Box 1275
Waltham, MA 02454
<PAGE>
1.10 Lease Year. Each twelve (12) month period within the Lease Term
shall be referred to herein as a "Lease Year." The first Lease Year shall
commence on the Commencement Date and terminate on the last day of the twelfth
full calendar month after such Commencement Date. Each subsequent Lease Year
shall commence on the date immediately following the last day of the preceding
Lease Year and shall continue for a period of twelve (12) full calendar months,
except that the last Lease Year of the Lease Term shall terminate on the date
this Lease expires or is otherwise terminated.
1.11 Deed of Lease. To the extent required under applicable law to make
this Lease legally effective, this Lease shall constitute a deed of lease.
2. PAYMENT OF RENT & ADDITIONAL RENT.
----------------------------------
Tenant shall pay Landlord the Rent due under this Lease in lawful money
of the United States. Rent (including any monthly estimated payments for
Tenant's Share of Expense Increases and Tax Increases payable in accordance with
this Lease) shall (except for Tenant's Advance Deposit under Section 3.2, below)
be paid in advance on or before the first day of each month, at the address
noted in Section 1.9, or to such other party or at such other place as Landlord
may hereafter from time to time designate in writing. Rent under this Lease for
any partial month at the beginning of the Lease Term shall be prorated based on
the Rent in effect for the first month in which Rent is payable hereunder. All
other payments due under this Lease shall be paid no later than thirty (30) days
after the date Landlord provides Tenant with a written request for payment which
sets forth the amount due. In the event of any dispute concerning the
computation of the amount of any additional rent due, Tenant shall pay the
amount specified by Landlord (under protest, if applicable) pending the
resolution of the dispute, provided such payment shall be without prejudice to
Tenant's right to continue to challenge the disputed computation. In the event
that Tenant successfully challenges the disputed computation, Landlord shall
refund to Tenant the amount of any overpayment of such additional rent, together
with interest from the date paid by Tenant to Landlord until the date repaid by
Landlord to Tenant at the Default Rate (as defined below), within thirty (30)
days after the dispute is finally resolved.
3. SECURITY DEPOSIT; ADVANCE DEPOSIT
---------------------------------
3.1 Security Deposit.
-----------------
(a) For purposes of this Lease (1) the term "Cash" shall mean and
refer to cash, cash equivalents, cash on deposit and cash held in short-term
investments and reported as such in Tenant's then-current publicly available
financial statements (or such other financial statements as are required to be
provided by Tenant to Landlord hereunder), and (2) the term "Utilized Allowance"
shall mean that portion of the Improvement Allowance (as such term is defined in
Paragraph 6 of Exhibit C to this Lease) as has been disbursed or funded by
Landlord (determined as of the date of calculation of the Utilized Allowance) in
accordance with the terms and provisions of Exhibit C . In the event that, at
any time after the date of execution of this
<PAGE>
Lease, the total amount of Cash held by Tenant falls below Ten Million Dollars
($10,000,000.00), Tenant shall, within ten (10) business days thereafter deliver
to Landlord a security deposit in an amount equal to the "Required Deposit", as
such term is defined in Section 3.1(d), below, in the form of an irrevocable and
unconditional letter of credit, and otherwise in accordance with the
requirements more fully set forth in this Section 3.1, below (the "Security
Deposit"). Upon the posting thereof (if ever), the Security Deposit shall
constitute security for payment of Rent and additional rent and for the
performance of any and all other covenants, agreements and obligations of Tenant
under this Lease. If Tenant defaults (giving effect to all, if any, applicable
notice and right to cure periods) with respect to any covenant or condition of
this Lease, including but not limited to the payment of Rent, additional rent or
any other payment due under this Lease, and the obligation of Tenant to maintain
the Premises and deliver possession thereof back to Landlord at the expiration
or earlier termination of the Lease Term in the condition required herein, then
Landlord may (without any waiver of Tenant's default being deemed to have
occurred) draw upon such letter of credit and apply all or any part of the
proceeds thereof to the payment of any sum in default, or any other sum which
Landlord may be required or reasonably deem necessary to spend or incur by
reason of Tenant's default, or to satisfy in part or in whole any damages
suffered by Landlord as a result of Tenant's default. All amounts drawn by
Landlord shall be held in an interest-bearing account solely for the benefit of
and in the name of Landlord and, after the full and complete application of such
funds by Landlord as permitted pursuant to this Lease, any amount remaining in
such interest-bearing account shall be returned by Landlord to Tenant upon
Tenant's full compliance with the provisions of the immediately following
sentence. In the event of such application of letter of credit proceeds by
Landlord, Tenant shall promptly deposit with Landlord (either in cash or in the
form of an additional letter of credit) the amount necessary to restore the
Security Deposit to the full amount then required under this Lease. The parties
expressly acknowledge and agree that the Security Deposit is not an advance
payment of Rent or additional rent, nor a measure of Landlord's damages in the
event of any default by Tenant. If Tenant shall have fully complied with all of
the covenants and conditions of this Lease, but not otherwise (except as
hereafter provided), the amount of the Security Deposit then held by Landlord
shall be repaid to Tenant (or to the extent then held in the form of a letter of
credit, such letter of credit shall be returned to Tenant) within thirty (30)
days after the expiration or sooner termination of this Lease.
(b) The letter of credit to be delivered by Tenant to Landlord
under Section 3.1(a), above (the "Letter of Credit"), shall be (1) in form and
substance satisfactory to Landlord in its sole discretion; (2) at all times in
the amount of the Security Deposit, and shall permit multiple draws without a
corresponding reduction in the amount of the Letter of Credit; (3) issued by a
commercial bank reasonably acceptable to Landlord and located either (i) in the
Boston metropolitan area, (ii) in Manhattan, New York, or (iii) in Northern New
Jersey; (4) made payable to, and expressly transferable and assignable at no
charge by, the owner from time to time of the Building (which
transfer/assignment shall be conditioned only upon the execution by such owner
of a customary form written transfer/assignment document in connection
therewith); (5) payable at sight upon presentment to a local branch of the
issuer of a simple sight draft accompanied by a notarized certificate stating
either that Tenant is in default (giving effect to all, if any, applicable
notice and right to cure periods) under this Lease or that Landlord is otherwise
permitted to draw upon such Letter of Credit under the express terms of this
Lease, and the amount that Landlord is owed (or is permitted to draw) in
connection therewith; (6) a term of not less than one year; and (7) at least
thirty (30) days prior to the then-current expiration date of such Letter of
Credit, either (A) renewed (or automatically and unconditionally extended)
<PAGE>
from time to time through the sixtieth (60th) day after expiration of the Lease
Term, or (B) replaced with cash in the amount of the Security Deposit then
required under this Lease, or (C) replaced with a substitute letter of credit in
the full amount of the Security Deposit then required under this Lease and
satisfying all requirements of this Section 3.1. If Lessor assigns or transfers
the Security Deposit to any assignee or transferee of the Building or Landlord's
right, title and interest therein, then, immediately upon such assignment or
transfer, such assignee or transferee shall be and become liable as "Landlord"
hereunder for the return of the Security Deposit (as and to the extent provided
herein), and Landlord shall thereupon be released from all liability for the
return thereof. Notwithstanding anything in this Lease to the contrary, any
grace period or cure periods which are otherwise applicable under Section 24,
hereof, shall not apply to any of the foregoing, and, specifically, if Tenant
fails to comply with the requirements of subsection (7), above, Landlord shall
have the immediate right to draw upon the Letter of Credit in full and hold the
proceeds thereof as a cash Security Deposit hereunder. If Landlord exercises
such right to draw upon the Letter of Credit, such cash shall be deposited in an
interest-bearing account solely for the benefit of and in the name of Landlord,
and such cash, together with all interest thereon, to the extent not applied
pursuant to the provisions of this Section 3.1, shall be returned to Tenant upon
Landlord's receipt of a substitute letter of credit in the full amount of the
Security Deposit then required and satisfying the requirements of this Section
3.1.
(c) Each Letter of Credit provided as a Security Deposit
hereunder shall be issued by a commercial bank that has a credit rating with
respect to certificates of deposit, short term deposits or commercial paper of
at least P-2 (or equivalent) by Moody's Investor Service, Inc., or at least A-2
(or equivalent) by Standard & Poor's Corporation. If the issuer's credit rating
is reduced below P-2 (or equivalent) by Moody's Investor Service, Inc., or at
least A-2 (or equivalent) by Standard & Poor's Corporation, or if the financial
condition of the issuer changes in any other materially adverse way, then
Landlord shall have the right to require that Tenant obtain from a different
issuer a substitute letter of credit that complies in all respects with the
requirements of this Section, and Tenant's failure to obtain such substitute
letter of credit within ten (10) business days after Landlord's written demand
therefor (with no other notice, or grace or cure period being applicable
thereto) shall entitle Landlord to immediately draw upon the existing Letter of
Credit in full, without any further notice to Tenant. In the event that any
issuer of a Letter of Credit held by Landlord is placed into receivership or
conservatorship by the Federal Deposit Insurance Corporation, or any successor
or similar entity, then, effective as of the date such receivership or
conservatorship commences, said Letter of Credit shall be deemed not to meet the
requirements of this Section, and, within ten (10) business days thereof, Tenant
shall replace such Letter of Credit with cash, a substitute letter of credit
satisfying the requirements of this Section 3.1 or other collateral acceptable
to Lessor in its sole and absolute discretion (and Tenant's failure to do so
shall constitute an Event of Default under this Lease (with no other notice, or
grace or cure period being applicable thereto). Any failure or refusal of the
issuer to honor the Letter of Credit shall be at Tenant's sole risk and shall
not relieve Tenant of its obligations hereunder with respect to the Security
Deposit.
(d) If the Tenant is required by the Terms hereof to post a
Security Deposit, the amount to be posted by Tenant (herein referred to as the
"Required Deposit") shall be as follows:
<PAGE>
<TABLE>
<CAPTION>
Lease Year Required Deposit
---------- ----------------
<S> <C>
1 100% of the Utilized Allowance
2 5/6 of the Utilized Allowance
3 2/3 of the Utilized Allowance
4 1/2 of the Utilized Allowance
5 1/3 of the Utilized Allowance
6 1/6 of the Utilized Allowance
</TABLE>
To the extent Tenant has posted a Security Deposit hereunder, and provided
Tenant is not then in Default hereunder and there is not then outstanding any
breach of this Lease which, with the giving of notice or the passage of time or
both would constitute a Default under the terms of this Lease, Tenant shall have
the right, commencing on the first day of each Lease Year hereunder, to seek a
reduction in the amount of the Security Deposit so that the same does not exceed
the Required Deposit amount for the applicable time period. By way of example,
if (i) Tenant posts a $1,024,940 Security Deposit during the first Lease Year,
and (ii) Tenant is not, at the time of such reduction, in Default or breach of
this Lease, Tenant shall have the right to reduce the Security Deposit to
$854,116.67 effective as of the first day of the second Lease Year. Any such
reduction of the Security Deposit shall be effected by Tenant's presentation of
a substitute Letter of Credit for the reduced amount accompanied by Tenant's
written certification to Landlord (1) that Tenant is not in Default of this
Lease, and that, to the best of Tenant's knowledge, no event has occurred which,
with the giving of notice or the passage of time or both, would constitute a
Default under the terms of this Lease, and (2) that Tenant is therefore
authorized to reduce the Letter of Credit in the amount requested; and provided
such conditions are met, Landlord will, upon its receipt of the Tenant's Letter
of Credit in the amount of the Required Deposit, return the Letter of Credit
held by Landlord with respect to the previous Lease Year to Tenant for
cancellation. Any reduction in the Security Deposit pursuant to this Section
3.1(d) shall be effective as of the thirtieth (30th) day after Tenant has
delivered materials to Landlord substantiating such reduction in accordance with
this subsection to the reasonable satisfaction of Landlord.
(e) In addition to the reduction provisions set forth in Section
3.1(d), above, and provided Tenant is not then in Default hereunder and there is
not then outstanding any breach of this Lease by Tenant which, with the giving
of notice or the passage of time or both would constitute a Default under the
terms of this Lease, if at any time after Tenant has posted a Security Deposit
hereunder, Tenant achieves or surpasses the financial criteria described below
as the "Minimum Financial Performance Standard", then Tenant shall be entitled
to the return of its Security Deposit until such time (if ever) as the total
amount of Cash held by Tenant is again reduced below Ten Million and 00/100
Dollars ($10,000,000.00), at which time Tenant shall again be required to post a
Security Deposit in an amount equal to the Required Deposit as of such date. For
purposes of this provision, the "Minimum Financial Performance Standard" shall
mean (i) Tenant's achievement operating profitability (e.g., net income derived
solely from Tenant's operations and exclusive of any extraordinary or
non-recurring transactions such as sales of assets, etc.) for four (4)
consecutive fiscal quarters, commencing after that fiscal quarter in which the
total amount of Cash held by Tenant again exceeded Ten Million Dollars
($10,000,000.00) after being reduced below such amount, and (ii) maintenance by
Tenant of a minimum Cash balance of Ten Million Dollars ($10,000,000.00) or more
at all times during the four (4) consecutive fiscal quarters described in the
preceding clause (i). Examples of this calculation are set forth in Section 3.2,
below.
<PAGE>
(f) Tenant shall be obligated to notify Landlord in writing of
its Cash balance on a monthly basis, in the form of a written certification (the
"Cash Certification") (i) stating the amount of Tenant's Cash balance as of the
first day of the second month preceding the month in which such Cash
Certification is given, and (ii) certifying that Tenant's Cash balance for the
immediately preceding month did not fall below Ten Million Dollars
($10,000,000.00) at any time during the immediately preceding month, which Cash
Certification will be certified to Landlord by Tenant's chief financial officer
and delivered to Landlord together with the payments of monthly Base Rent
contemplated herein. For example, together with Tenant's monthly Rent for the
month of September 2001 (due on September 1, 2001), Tenant will provide a Cash
Certification setting forth Tenant's Cash Balance as of July 1, 2001, and
certifying to Landlord that Tenant's Cash balance during the month of August
2001 did not fall below Ten Million Dollars ($10,000,000). In addition, if,
after Tenant's Cash balance has fallen below Ten Million Dollars
($10,000,000.00), Tenant seeks to establish that it has met and satisfied the
Minimum Financial Performance Standard in order to secure the return of its
Security Deposit, Tenant shall be obligated to provide Landlord with financial
statements certified to Landlord by Tenant's chief financial officer or
otherwise prepared (and certified to Landlord by) an independent certified
public accountant, providing financial disclosure sufficient in Landlord's
reasonable judgment to establish Tenant's operating profitability and
achievement of the Minimum Financial Performance Standard. Tenant agrees that
Landlord will have the right, subject to the last sentence of this Section
3.1(f), to review Tenant's financial and banking records to confirm the accuracy
of any Cash Certification, provided that the applicable records for any month
will not be required to be provided by Tenant until thirty (30) days after the
end of such month. Landlord agrees that the financial statements which form a
part of Tenant's publicly filed Form 10Q, together with the applicable Cash
Certifications for the relevant period, will be deemed sufficient to satisfy the
foregoing reporting requirements for establishing Tenant's achievement of the
Minimum Financial Performance Standard, assuming the applicable financial
criteria are met. If Tenant fails to provide any Cash Certification in a timely
fashion, and such failure continues for five (5) business days after Landlord's
written notice of such failure to Tenant, Tenant shall be deemed to have failed
to maintain the required $10,000,000 cash balance for the period with respect to
which such Cash Certification was required, and Landlord shall thereupon have
the right to require Tenant to post the Security Deposit (if Tenant has not
already done so) or to decline a requested return of the Security Deposit for
such period. In addition, any false certification made by Tenant under this
Section 3.1(f) (which shall be deemed to include Tenant's failure to notify
Landlord promptly if its Cash balance falls below $10,000,000 during any month),
shall constitute a default by Tenant under this Lease. Landlord acknowledges and
agrees that any financial reports or certifications provided to Landlord
pursuant to this Section 3.1(f) which are not public information (e.g., not
disclosed in any SEC filings made by Tenant and otherwise not publicly available
information) shall be held in confidence by Landlord and not disclosed to any
party (other than Landlord's lender) except to the extent required by lawful
process (such as court order, subpoena or document production request) or other
applicable legal requirements.
3.2 Examples of Security Deposit Reduction Provisions. By way of example
only, and not of limitation, the following examples reflect the intent of the
parties with respect to Section 3.1, above:
(i) If Tenant reports financially on a calendar year basis,
Tenant's Cash balance is reduced below $10,000,000 on September 26, 1999 (as
reflected in Tenant's Cash
<PAGE>
Certification dated October 1, 1999), Tenant shall post the Required Deposit on
or before October 10, 1999 (being ten (10) business days after September 26,
1999). If (1) Tenant's Cash balance then remains under $10,000,000 until
February 1, 2001, at which time it again exceeds $10,000,000 for the balance of
the Term of this Lease, (2) Tenant first achieves operating profitability for an
entire fiscal quarter in the third quarter of 2001, and (3) Tenant continues to
maintain operating profitability for the balance of the Term of this Lease, then
Tenant shall be entitled to the return of its Security Deposit as of July 1,
2002.
(ii) If Tenant reports financially on a calendar year basis,
Tenant's Cash balance is reduced below $10,000,000 on September 26, 1999 (as
reflected in Tenant's Cash Certification dated October 1, 1999), Tenant shall
post the Required Deposit on or before October 10, 1999 (being ten (10) business
days after September 26, 1999). If (1) Tenant's Cash balance then remains under
$10,000,000 until February 1, 2001, at which time it again exceeds $10,000,000
until January 15, 2002, at which time it is again reduced below $10,000,000, (2)
Tenant's Cash balance then remains under $10,000,000 until February 15, 2002, at
which time it again exceeds $10,000,000 for the balance of the Term of this
Lease, (3) Tenant first achieves operating profitability for an entire fiscal
quarter in the second quarter of 2001, and continues thereafter to maintain
operating profitability for the balance of the Term of this Lease, then Tenant
shall be entitled to the return of its Security Deposit as of April 1, 2003.
3.3 Separate Account. Landlord shall not be obligated to hold the
Security Deposit or Advance Deposit (if any) in a separate account from other
Building or project funds.
4. USES; TENANT COVENANTS.
-----------------------
4.1 Permitted Uses. The Premises are to be used only for general office
and administrative purposes ("Permitted Uses"), and for no other business or
purpose.
4.2 Other General Use Covenants.
----------------------------
4.2.1 Tenant shall not commit or allow to be committed any waste
upon the Premises, nor any public or private nuisance nor any other act which
disturbs the quiet enjoyment of any other tenant in the Building. If any of the
Tenant's office machines or equipment or other activities within the Premises
involve unusual volume or vibration and disturb any other tenant in the
Building, then Tenant shall provide adequate insulation, or take such other
action, as may be necessary to eliminate the noise or disturbance.
4.2.2 Except as provided below with respect to Landlord's
responsibility to ensure that Landlord's Work (as defined in Exhibit C)complies
with applicable building codes and the Americans With Disabilities Act ("ADA")
in existence on the date that Landlord's Work is Substantially Complete, Tenant
will, at its own cost, promptly comply with and carry out all orders,
requirements or conditions now or hereafter imposed upon it by the ordinances,
laws, rules, orders, and/or regulations of the State in which the Premises are
located and the federal government and any other federal, state or local
governmental authority, or public or quasi-public authority, having jurisdiction
over the Premises to the extent relating to the manner of Tenant's occupation or
use of the Premises, the conduct of Tenant's business therein, or the
construction of any improvements or alterations therein by (or at the request
of) Tenant,
<PAGE>
including all present and future laws, orders and regulations regarding
recycling of trash and smoking in the workplace, and all building and life
safety codes applicable to Tenant's alterations. The foregoing notwithstanding,
to the extent that any such orders, requirements or conditions relate to the
compliance of the Premises (or any portion thereof) with applicable building
codes, regulations, or laws which were in effect prior to Tenant's occupancy of
the Premises pursuant to the Original Lease or which pertain to the Building as
a whole, or the land upon which same is located, either of which require
Landlord to make modifications thereto (the "Compliance Laws") and the design or
installation of the item(s) whose compliance with such Compliance Laws is at
issue was Landlord's responsibility under this Lease, then Landlord shall be
responsible for the compliance of such item(s) with such Compliance Laws,
including but not limited to, costs of compliance of Landlord's Work (if any)
with the physical accessibility requirements of the ADA in existence on the date
that Landlord's Work is Substantially Complete; provided, however, if the
Compliance Laws require Landlord to make modifications to the Building, the
Land, or the Premises, because of any improvements made by the Tenant (including
without limitation Tenant's Work) or because of any particular use made of the
Premises by Tenant which is not in the nature of customary general office use,
all such costs shall be paid by Tenant. Tenant, at Tenant's cost, shall be
responsible for ensuring that Tenant's policies and business operations with
respect to the Premises comply with the ADA, and that Tenant's Work (and that
Landlord's Work solely to the extent designed by Tenant's architect) complies
with the ADA.
4.2.3 Tenant shall observe such reasonable rules and regulations
as may be adopted and made available to Tenant by Landlord from time to time for
the safety, care and cleanliness of the Premises or the Building and for the
preservation of good order therein. The initial rules and regulations for the
Building are attached as Exhibit D hereto and made a part hereof by this
reference (as the same may be amended in accordance herewith, the "Rules and
Regulations"). Landlord shall have the right from time to time to make
reasonable modifications to the Rules and Regulations, provided (i) such
modifications shall only be applicable to Tenant if communicated to Tenant in
writing at least ten (10) days prior to the effective date of such modification,
(ii) such modified Rules and Regulations shall not materially modify any
economic obligations of Tenant hereunder, and (iii) in the event of any
irreconcilable conflict between the terms of this Lease and the terms of the
Rules and Regulations (as amended), the terms of this Lease shall be
controlling. Landlord shall not be responsible to Tenant for the nonperformance
of any of said rules and regulations by any other tenants or occupants of the
Building.
4.2.4 No act shall be done or knowingly permitted by Tenant, or
its agents, employees and/or contractors, in or about the Premises that is
unlawful or that will increase the existing rate of insurance on the Building.
To Landlord's knowledge, general office use is neither unlawful, nor will it
result in any increase in the existing rate of insurance in the Building. In the
event the existing rate of insurance is increased because of any breach by
Tenant of this covenant, Tenant shall pay to Landlord any and all fines,
penalties, and/or increases in insurance premiums resulting from such breach.
5. ENVIRONMENTAL PROVISIONS; RECYCLING.
------------------------------------
5.1 General. Tenant agrees to comply with any and all Environmental Laws
(defined below) in connection with (1) Tenant's use of the Premises, (2) any
assignment, sublease or license of the Premises or any part thereof, (3) any
termination of this Lease and
<PAGE>
surrender of possession upon a default by Tenant hereunder, (4) any corporate
reorganization, consolidation, recomposition or similar change in Tenant's
organization, (5) any acts, omissions and other activities of Tenant in or on
the Building and Land, and/or (6) any other fact or circumstance the existence
and continuation of which imposes upon Tenant the obligation to so comply
therewith.
5.2 Tenant's Warranties and Covenants. During the Term and any Renewal
Term of this Lease, Tenant warrants, represents and covenants to and with
Landlord as follows:
5.2.1 The Premises will not, as the result of any acts or
omissions of Tenant, contain (A) asbestos in any form, (B) urea formaldehyde
foam insulation, (C) transformers or other equipment which contain dielectric
fluid containing levels of polychlorinated biphenyls in excess of fifty (50)
parts per million, or (D) any flammable explosives, radioactive materials,
hazardous materials, hazardous wastes, hazardous, controlled or toxic
substances, or any pollutant or contaminant, or related materials defined in or
controlled pursuant to the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended (42 U.S.C. Sections 9601 et seq.), the
Hazardous Materials Transportation Act, as amended (49 U.S.C. Sections 1801 et
seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C.
Sections 9601 et seq.), the Federal Water Pollution Control Act (33 U.S.C.
Section 1251 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), and
in the regulations adopted and publications promulgated pursuant thereto, and
any and all other federal, state and local laws, rules and regulations or orders
pertaining to health, the environment and/or Hazardous Materials (collectively,
"Environmental Laws") (the substances described in (A), (B), (C) or (D) above
being hereinafter collectively referred to as "Hazardous Materials"); (ii)
except as specifically permitted by this Lease, the Premises will never be used
by Tenant for any activities involving, directly or indirectly, the use,
generation, treatment, transportation, storage or disposal of any Hazardous
Materials.
5.2.2 Tenant (A) shall comply in the operation of its business,
and in its use and occupancy of the Premises, with all Environmental Laws, (B)
shall not store, utilize, generate, treat, transport or dispose of (or permit or
acquiesce in the storage, utilization, generation, transportation, treatment or
disposal of) any Hazardous Materials on or from the Premises, and (C) shall
cause its employees, agents, contractors, assignees, sublessees, licensees and
(while within the Premises) invitees and business visitors to comply with the
representations, warranties and covenants herein contained. For all purposes of
this Section 5, references to "Tenant" shall be deemed to include acts and
omissions committed by Tenant and Tenant's agents, employees, contractors,
subcontractors, assignees, sublessees, licensees and, while within the Premises,
invitees and business visitors.
5.2.3 In the event of any storage, presence, utilization,
generation, transportation, treatment or disposal of Hazardous Materials by
Tenant in, on or about the Premises, Building and/or Land, or in the event of
any Hazardous Materials Release (as hereinafter defined)for which Tenant bears
responsibility under the provisions of this Section 5, Tenant shall, at the
direction of Landlord or any federal, state, or local authority or other
governmental authority, remove or cause the removal of any such Hazardous
Materials and rectify any such Hazardous Materials Release, and otherwise comply
or cause compliance with the laws, rules, regulations or orders of such
authority, all at the expense of Tenant, including without limitation, the
undertaking and completion of all investigations, studies, sampling and
<PAGE>
testing and all remedial, removal and other actions necessary to clean up and
remove all such Hazardous Materials, on, from or affecting the Premises. If
Tenant shall fail to proceed with such removal or otherwise comply with such
laws, rules, regulations or orders within the cure period permitted under the
applicable law, regulation or order, the same shall constitute a default under
Section 23 hereof, and Landlord may, but shall not be obligated to, do whatever
is necessary to eliminate such Hazardous Materials from the Premises or
otherwise comply with the applicable law, rule, regulation or order, acting
either in its own name or in the name of Tenant pursuant to this Section, and
the cost thereof shall be borne by Tenant and thereupon become due and payable
as additional rent hereunder. Tenant shall give to Landlord and its agents and
employees access to the Premises for such purposes and hereby specifically
grants to Landlord a license to remove the Hazardous Materials and otherwise
comply with such applicable laws, rules, regulations or orders, acting either in
its own name or in the name of the Tenant pursuant to this Section.
5.2.4 Tenant hereby indemnifies and holds Landlord and each of
its shareholders, subsidiaries, affiliates, officers, directors, partners,
employees, agents and trustees, and any receiver, trustee or other fiduciary
appointed for the Building, harmless from, against, for and in respect of, any
and all damages, losses, settlement payments, obligations, liabilities, claims,
actions or causes of actions, encumbrances, fines, penalties, and costs and
expenses suffered, sustained, incurred or required to be paid by any such
indemnified party (including, without limitation, reasonable fees and
disbursements or attorneys, engineers, laboratories, contractors and
consultants) because of, or arising out of or relating to (A) the violation by
Tenant (or any of its agents, employees, contractors and, while within the
Premises, invitees) of any of its representations, warranties and covenants
under this Section 5, and (B) any Environmental Liabilities (as hereinbelow
defined) in connection with the Premises for which Tenant is responsible under
the terms of this Section 5 of the Lease. For purposes of this indemnification
clause, "Environmental Liabilities" shall include all costs and liabilities with
respect to the future presence, removal, utilization, generation, storage,
transportation, disposal or treatment of any Hazardous Materials or any release,
spill, leak, pumping, pouring, emitting, emptying, discharge, injection,
escaping, leaching, dumping or disposing into the environment (air, land or
water) of any Hazardous Materials (each a "Hazardous Materials Release"),
including without limitation, cleanups, remedial and response actions, remedial
investigations and feasibility studies, permits and licenses required by, or
undertaken in order to comply with the requirements of, any federal, state or
local law, regulation, or agency or court, any damages for injury to person,
property or natural resources, claims of governmental agencies or third parties
for cleanup costs and costs of removal, discharge, and satisfaction of all
liens, encumbrances and restrictions on the Premises relating to the foregoing.
The foregoing indemnification and the responsibilities of Tenant under this
Section 5 shall survive the termination or expiration of this Lease.
5.2.5 Tenant shall promptly notify Landlord in writing of the
occurrence of any Hazardous Materials Release or any pending or threatened
regulatory actions known to Tenant, or any claims made by any governmental
authority or third party, relating to any Hazardous Materials or Hazardous
Materials Release on or from, the Premises and shall promptly furnish Landlord
with copies of any correspondence or legal pleadings or documents in connection
therewith. Landlord shall have the right, but shall not be obligated, to notify
any governmental authority of any state of facts which may come to its attention
with respect to any Hazardous Materials or Hazardous Materials Release on or
from the Premises.
<PAGE>
5.2.6 Upon expiration of the Term or any Renewal Term, as
applicable, Tenant shall deliver the Premises to Landlord free of any and all
Hazardous Materials and any liens, encumbrances and restrictions relating to
Environmental Liabilities, to the extent Tenant was otherwise responsible
therefor.
5.3 Permitted Materials. Notwithstanding Section 5.2 to the contrary,
but subject to clauses (i) and (ii) of this Section 5.3, below, Tenant shall be
permitted to temporarily store reasonable amounts of Hazardous Materials that
are used in the ordinary course of Tenant's operation of the Permitted Use (the
"Permitted Materials") provided (i) such Permitted Materials are properly used,
stored and disposed of in a manner and location meeting the requirements of all
Environmental Laws and (ii) all Permitted Materials shall be approved in advance
by Landlord with the exception those materials typically used in the operation
of standard office equipment or for cleaning purposes, such as office cleaners,
printing toners and the like, and which are used stored and disposed of in
accordance with all applicable Environmental Laws (which common materials shall
not require special written approval by Landlord). Any use, storage and disposal
of Permitted Materials shall be subject to all of the terms of this Section 5
(except for the terms prohibiting same), and Tenant shall be responsible for
obtaining any required permits and paying any fees and providing any testing
required by any governmental agency with respect to any Permitted Materials. If
said Permitted Materials are not being stored, used, or disposed of in
compliance with all applicable laws, then Tenant shall immediately take such
corrective action as requested by Landlord. Should Tenant fail to take such
corrective action within forty-eight (48) hours (or such lesser time period as
may be appropriate in the event of Emergency (as defined herein), Landlord shall
have the right to perform such work on Tenant's behalf and at Tenant's sole
expense, and Tenant shall promptly reimburse Landlord for any and all reasonable
costs associated with said work.
5.4 Landlord's Covenants. If, during the Lease Term, (a) Landlord
introduces Hazardous Materials in, on or under the Building or Land, or
otherwise violates the requirements of any Environmental Laws, or (b) Hazardous
Materials contamination in, on or under the Building or Land which existed prior
to Tenant's taking occupancy of the Premises is discovered, or (c) Hazardous
Materials contamination is discovered in, on or under the Building or Land and
in each case described in clauses (a), (b) and (c) of this Section 5.4, such
contamination is not the responsibility of Tenant pursuant to Sections 5.2 and
5.3, above, then as between Landlord and Tenant, Landlord shall be responsible
for making a prompt assessment of the scope and nature of the problem, and for
taking remedial action, in conjunction (if appropriate) with applicable federal,
state or local authorities; and in the event the presence of such Hazardous
Materials was caused by Landlord, or its authorized agents, employees or
contractors, Landlord shall be responsible for the cost to remediate any such
contamination and/or correct any such violation, and for all fines, penalties
and other actual damages arising therefrom. The foregoing is without prejudice
to Landlord's right to seek recovery of damages or losses from the parties at
fault in any Hazardous Materials Release.
5.5 Recycling Regulations. Tenant shall comply with all orders,
requirements and con ditions now or hereafter imposed by any ordinances, laws,
orders and/or regulations (hereinafter collectively called "regulations") of any
governmental body having jurisdiction over the Premises or the Building, whether
required of Landlord or otherwise, regarding the collection, sorting, separation
and recycling of waste products, garbage, refuse and trash
<PAGE>
(hereinafter collectively called "waste products") including but not limited to
the separation of such waste products into receptacles reasonably approved by
Landlord and the removal of such receptacles in accordance with any collection
schedules prescribed by such regulations. Landlord reserves the right (a) to
refuse to accept from Tenant any waste products that are not prepared for
collection in accordance with any such regulations, and (b) to require Tenant to
pay all costs, expenses, fines, penalties or damages that may be imposed on
Landlord or Tenant by reason of Tenant's failure to comply with any such
regulations.
5.6 Medical Wastes.
---------------
5.6.1 To the extent Tenant's Permitted Use of the Premises in any way
involves the handling, use, disposal and/ or processing of medical waste,
including but not limited to (A) human or animal tissue, blood, urine and/or
other bodily fluids, materials and/or biological byproducts, and (B) medical
supplies (such as, but not limited to, used syringes, gauze and bandages, etc.)
(hereinafter, collectively, "Medical Waste"), Tenant shall be solely responsible
for the proper use, storage, removal and disposal of same from the Premises.
Tenant shall make arrangements with a reputable and duly licensed disposal
company or contractor for the proper disposal of Medical Waste, in accordance
with lawfully permitted methods of Medical Waste disposal, and Tenant shall pay
all costs associated with such disposal. Tenant shall not place any Medical
Waste in any of the Common Areas without Landlord's prior consent. In its
processing, use and disposal of Medical Waste, Tenant shall comply with all
applicable laws, regulations and ordinances governing the generation, use,
processing and disposal thereof, as well as any additional requirements which
Landlord may reasonably establish from time to time by written notice to Tenant.
5.6.2 Tenant shall bear all costs and liability resulting from the
presence of Medical Waste which is caused or permitted by Tenant (or Tenant's
agents, employees or contractors) in, on or under the Premises, the Building or
the Land (including without limitation, liability arising from the
transportation of Medical Waste to or from the Premises, Building and/or Land
and the cleanup of Medical Waste therefrom.)
5.6.3 Tenant shall indemnify Landlord, its agents, employees or
contractors, from and against any and all claims, losses, damages, liabilities
and expenses (including reasonable attorneys' fees) incurred, suffered or
sustained by (or brought against) Landlord arising from or associated with: (i)
the acts or omissions of Tenant, its agents, employees or contractors with
respect to the presence of Medical Waste at the Premises, the Building and/or
the Land (including without limitation, liability arising from the
transportation of Medical Waste to or from the Premises or the cleanup of
Medical Waste); (ii) the storage and disposal of Medical Waste by Tenant, its
agents, employees or contractors; or (iii) Tenant's operations at the Premises
related to the processing, use and disposal of Medical Waste. This
indemnification shall survive termination of the Lease.]
6. LATE CHARGES; INTEREST.
-----------------------
6.1 Late Charge. Tenant hereby acknowledges that late payment to
Landlord of Base Rent or additional rent will cause Landlord to incur
administrative costs and loss of investment income not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. If
any Rent or additional rent due from Tenant is not received by Landlord or
<PAGE>
Landlord's designated agent within ten (10) business days after the date due,
then Tenant shall pay to Landlord a late charge equal to five percent (5%) of
such overdue amount, plus any attorneys' fees and costs incurred by Landlord by
reason of Tenant's failure to pay Rent and other charges when due hereunder;
provided, however, Landlord agrees to waive the first (1st) such late charge
arising during any Lease Year during the Term, up to a maximum of five (5) such
waivers during the Term, provided that Landlord receives such overdue Base Rent,
additional rent, or other sum within ten (10) business days after the date
Landlord provides Tenant with a written notice that such payment of Rent,
additional rent or other charges is overdue. Landlord's acceptance of such late
charges shall not constitute a waiver of Tenant's default with respect to such
overdue amount or estop Landlord from exercising any of the other rights and
remedies granted hereunder in respect thereof, unless and solely to the extent
Tenant has completely cured the applicable default (including payment of the
underlying amount due plus all late charges and interest accrued in respect
thereof) before Landlord's commencement of the exercise of such remedies
pursuant to Section 24 of this Lease, or Landlord accepts Tenant's cure of such
default thereafter in writing.
6.2 Interest. In addition to the administrative late charge provided for
under Section 6.1, above, if any Rent or additional rent due from Tenant to
Landlord is not paid within ten (10) business days after the date due (if Tenant
was not assessed a late charge by virtue of such late payment) or thirty (30)
days after the date due (if Tenant was assessed a late charge by virtue of such
late payment), such unpaid amount shall bear interest from the date originally
due until the date paid at an annual rate of interest (the "Default Rate") equal
to the lesser of (a) the Prime Rate plus three percent (3%) or (b) the highest
annual rate of interest permitted under applicable law. Landlord's acceptance of
such interest shall not constitute a waiver of Tenant's default with respect to
such overdue amount or estop Landlord from exercising any of the other rights
and remedies granted hereunder in respect thereof, unless and solely to the
extent Tenant has completely cured the applicable default (including payment of
the underlying amount due plus all late charges and interest accrued in respect
thereof) before Landlord's commencement of the exercise of such remedies
pursuant to Section 24 of this Lease, or Landlord accepts Tenant's cure of such
default thereafter in writing. The term "Prime Rate" shall mean the "Prime Rate"
of interest as published from time to time in the Wall Street Journal, or if not
so published, then the "Prime Rate" as established from time to time by the bank
in which Landlord maintains its bank accounts with respect to the Building.
7. REPAIRS AND MAINTENANCE.
------------------------
7.1 Landlord's Responsibilities. Landlord shall maintain or cause to be
maintained, and after receiving notice or actual knowledge of the need for
repair, shall repair all structural and non-structural portions of the Building
Systems (as hereafter defined), Common Areas (as hereafter defined) and
Structural Elements (as hereafter defined), provided that, to the extent any of
such maintenance or repairs is rendered necessary by the negligence or willful
misconduct of Tenant, its agents, customers, employees, independent contractors,
guests or (while within the Premises) invitees, Tenant shall be obligated to
reimburse Landlord for all costs sustained by Landlord in connection therewith
to the extent such costs are not covered by the fire and casualty insurance
maintained, or required to be maintained, by Landlord on the Building, which
reimbursement shall be due no later than ten (10) days after Landlord's written
demand. For the purposes of this Section 7, "Building Systems" shall mean the
mechanical, electrical, plumbing, and HVAC systems serving the Building and
located outside of the confines of the Premises;
<PAGE>
"Common Areas" shall mean those areas of the Building which are available for
the non-exclusive use of any tenant of the Building, including without
limitation parking areas, lobbies, elevators, restrooms, stairs, corridors,
janitor's closets, and electrical and telephone closets; and "Structural
Elements" shall mean the structural components of the Building's base building
improvements, including structural components which integrate with the interior
tenant improvements within the Premises, including without limitation the roof,
foundations, exterior structural walls and other load-bearing elements of the
Building.
7.2 Tenant's Responsibilities. Except for (i) repairs to Building
Systems, Common Areas and Structural Elements, (ii) warranty repairs related to
Landlord's Work (if any), (iii) janitorial and cleaning services to the extent
provided by or through Landlord under Section 8.2, below, and (iv) repairs to
the interior of the Premises to the extent the same are rendered necessary by
the negligence or willful misconduct of Landlord and its agents, employees and
independent contractors, and are not covered by the fire and casualty insurance
maintained, or required to be maintained, by Tenant under this Lease, Tenant
shall be responsible (at Tenant's sole expense) for repairs and maintenance to
the interior of the Premises.
7.3 Notification Requirements. Landlord shall be under no obligation to
inspect the Premises. Tenant shall promptly report in writing to Landlord any
defective condition in the Premises actually known to Tenant which Landlord is
required to repair, and failure to so report such defects shall excuse any delay
by Landlord in commencing and completing such repair to the extent the same
would otherwise be Landlord's responsibility under this Lease. In addition, if
Tenant fails to report a defective condition within the Premises promptly, and
such failure results in any incremental additional repair expense, Tenant shall
be responsible for such incremental additional expense.
7.4 Expenses. All expenses incurred by Landlord pursuant to this Section
7 (to the extent not payable directly by Tenant as above provided) will be
included within "Operating Costs" as defined in Section 9, below, to the extent
not excluded under Section 9.6.
8. UTILITIES AND SERVICES.
-----------------------
8.1 Hours of Service. From 8:00 a.m. to 6:00 p.m. on weekdays and from
8:00 a.m. to 1:00 p.m. on Saturday (collectively "Normal Business Hours") (but
excluding the following holidays: New Year's Day, Martin Luther King's Birthday,
President's Day, Patriot's Day, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day, Christmas Day and any holiday
designated as such by an Executive Order of the President of the United States
or by Act of Congress, herein collectively referred to as "Holidays"), Landlord
shall furnish (i) electricity to the Premises for lighting and for the operation
of normal and customary office machines, heating, ventilation and
air-conditioning ("HVAC") service, (ii) hot and cold water to common area
restrooms, and (iii) if applicable, elevator service. Landlord shall also
provide for toilet cleaning and supply, common area and in-suite janitorial
services, and window washing (collectively "Janitorial Services") on weekdays
(excluding Holidays) in accordance with the specifications set forth in Exhibit
E. Landlord shall also provide electrical service (excluding HVAC), hot and cold
water and at least one elevator (if applicable), as above provided, at all times
other than Normal Business Hours. The cost of all of the foregoing services
furnished by Landlord shall constitute Operating Costs and shall be payable as
provided in Section 9 of this Lease.
<PAGE>
8.2 Additional HVAC Service. If requested by Tenant, Landlord shall
furnish HVAC service at times other than Normal Business Hours and the cost of
such services as established from time to time by Landlord shall be paid by
Tenant as additional rent, payable as provided in Section 2. If the quantity or
kind of utilities or services furnished by Landlord to the Premises to meet
Tenant's requirements is excessive or abnormal relative to the utilities and
services consumed by office tenants generally, as determined by engineering
surveys conducted by a licensed third party engineer selected by Landlord at
Landlord's expense, Tenant shall reimburse Landlord upon demand for the
additional cost resulting from Tenant's excessive or abnormal consumption.
8.3 Additional Provisions. Except as specifically provided in Section
8.5, below, and except for actual damages caused by the gross negligence or
willful misconduct of Landlord, its agents, employees and contractors and not
covered by the fire and casualty insurance maintained, or required to be
maintained, by Tenant under this Lease, Landlord shall not be liable to Tenant
for any loss, injury or damage to property, or loss of income or other business
loss, caused by or resulting from any variation, interruption, or failure of
such services due to any cause whatsoever, or from failure to make any repairs
or perform any maintenance . In addition, Landlord shall not be liable to Tenant
for (a) any damage to the Premises, (b) any loss, damage or injury to any
property therein or thereon, (c) any claims for the interruption of or loss to
Tenant's business or (d) for any indirect damages or consequential losses, to
the extent occasioned by bursting, rupture, leakage or overflow of any plumbing
or other pipes, other water leakage or flooding, or other similar causes in,
above, upon or about the Premises or the Building. If any public utility or
governmental body shall require Landlord or Tenant to restrict the consumption
of any utility or reduce any service to the Premises or the Building, Landlord
and Tenant shall comply with such requirements, without any abatement or
reduction of the Rent, additional rent or other sums payable by Tenant
hereunder.
8.4 Measurement of Tenant's Electrical Consumption. Landlord reserves
the right (i) to install electrical measurement devices or submeters to measure
Tenant's electrical consumption precisely or (ii) to determine Tenant's
electrical consumption by engineering surveys (to the extent that Landlord does
not install separate electrical measurement devices), which surveys shall be
based on the actual electrical consumption for the Building in which the
Premises is located. Such engineering surveys will be conducted by a licensed
third party engineer selected by Landlord whose findings will be determinative
except as hereafter provided, and such survey(s) will be conducted in accordance
with reasonable and sound engineering practices.
8.5 Interruption in Services. Section 8.3, above, to the contrary
notwithstanding, in the event that (i) the supply of hot and cold water, HVAC
Service, electricity and/or (if applicable) elevator service for a minimum of
one (1) elevator (hereinafter, each an "Essential Service" and collectively
"Essential Services") is interrupted as a result of the negligence or willful
misconduct of Landlord, or its agents, employees or contractors (and not as a
result of any cause beyond Landlord's reasonable control, such as a general
electrical outage or blackout),
and (ii) such interruption continues for a period exceeding five (5)
consecutive business days after Tenant first notifies Landlord of such
interruption, and (iii) as a result thereof Tenant is unable to and does not in
fact conduct business from the Premises or any portion thereof, then from and
after such fifth (5th) consecutive business day, Tenant shall be entitled to
abate its Base
<PAGE>
Rent and additional rent obligations hereunder as to the Premises or portion
thereof which is not usable (and is in fact not used) until such time as the
applicable Essential Service(s) are restored. The foregoing shall constitute
Tenant's sole and exclusive remedy in the event of an interruption of services
to the Premises. In addition, if Landlord fails promptly to commence, and to use
diligent efforts thereafter, to cure (or to cause the applicable utility
provider to cure) the applicable interruption or failure (even if not caused by
Landlord's negligence or misconduct), then Tenant shall have the right to
exercise its right of self-help as more fully set forth in Section 34, below
(subject to any provisions therein requiring notice and the opportunity to
cure), and all reasonable expenses incurred by Tenant in the exercise of such
right shall be recoverable by Tenant from Landlord.
9. EXPENSE INCREASES.
------------------
9.1 Defined. For each calendar year or portion thereof during the Term,
Tenant shall pay as additional rent to Landlord an amount (hereinafter referred
to as "Expense Increases") equal to the difference between:
(A) Tenant's Share of Operating Costs (defined in Section 9.5,
below) for such calendar year; and
(B) Tenant's Share of Operating Costs for the "Operating Costs
Base Year" (defined in Section 9.2, below).
9.2 Base Year. For all purposes hereof, the "Operating Costs Base Year"
shall be Calendar Year 1999.
9.3 Estimated Payments. Tenant shall make monthly installment payments
on an estimated basis toward Tenant's Share of Expense Increases, in an amount
equal to one-twelfth (1/12th) of Landlord's estimate of Tenant's Share of
Expense Increases for the then-current calendar year, respectively. Tenant's
obligation to make monthly installment payments toward Tenant's Share of Expense
Increases shall not commence until the first (1st) day of the thirteenth (13th)
month of the Term. The foregoing estimate(s) shall based on Landlord's
reasonable estimate of Expense Increases for such calendar year (which shall not
exceed 105% of the prior year's Expense Increases in the absence of evidence
that a larger estimate is warranted). Landlord shall endeavor to communicate
such estimate to Tenant on or before the date Landlord provides Tenant with the
Expense Statement referenced in Section 9.4, below, provided that until Landlord
provides such estimate to Tenant, Tenant's estimated payments will be based upon
the prior year's estimate. If at any time or times during such calendar year, it
appears to Landlord that Tenant's Share of Expense Increases for such calendar
year will vary from Landlord's estimate by more than five percent (5%) on an
annualized basis, Landlord may, by written notice to Tenant, revise its estimate
for such calendar year and Tenant's estimated payments hereunder for such
calendar year shall thereupon be based on such revised estimate.
9.4 Annual Reconciliation. Within approximately one hundred twenty (120)
days after the end of each calendar year after the Operating Costs Base Year,
Landlord shall provide to Tenant a statement (the "Expense Statement") setting
forth Operating Costs for such calendar year and Tenant's Share of Expense
Increases for such year, calculated in accordance with Section 9.1, above.
Within thirty (30) days after the delivery of such Expense Statement, Tenant
<PAGE>
shall pay to Landlord any deficiency between (a) the amount shown as Tenant's
Share of Expense Increases for such calendar year, and (b) any payments made by
Tenant toward such amount in accordance with Section 9.3, above. If the payments
made by Tenant pursuant to Section 9.3 exceed the amount shown in the Expense
Statement as Tenant's Share of Expense Increases for such calendar year, the
excess amount shall be applied against the next payment(s) of Rent or additional
rent coming due hereunder, unless the Lease shall have expired, in which event
Landlord shall refund such excess at the time of its delivery of the Expense
Statement.
9.5 Operating Costs. The term "Operating Costs" shall mean any and all
expenses incurred by Landlord in connection with the operation, management,
maintenance and repair of the Building and the Land, and all easements, rights
and appurtenances thereto, but excluding the expenses identified in Section 9.6,
below. Operating Costs shall include:
(a) the cost of the personal property used in conjunction
therewith;
(b) subject to Section 9.5(l), below, costs to repair and
maintain the Building, Land, Building Systems, Common Areas and Premises (but
excluding repairs to Structural Elements, which shall be Landlord's sole
responsibility, and which are hereinafter referred to as "Structural Repairs");
(c) all expenses paid or incurred by Landlord for electricity,
water, gas, sewer, oil, and other utility services for the Building, and any
utility surcharges imposed;
(d) any other the costs and expenses incurred in connection with
the provision of the utilities and services set forth in Section 8, above,
including without limitation the maintenance, repair and replacement of the
Building Systems furnishing such utilities and/or services;
(e) the cost of Building supplies and materials;
(f) the cost of cleaning and janitorial services in or about the
Premises, the Building (including without limitation common areas) and the Land;
(g) the cost of window glass replacement, repair and cleaning;
(h) the cost of repair and maintenance of the grounds, including
costs of landscaping, gardening and planting, including service or management
contracts with independent contractors, and including security and energy
management services and costs;
(i) costs to achieve compliance with any governmental laws,
rules, orders or regulations in the operation of the Building and the provision
of services hereunder;
(j) utility taxes;
(k) the amount of compensation (including employment taxes,
fringe benefits, salaries, wages, medical, surgical, and general welfare
benefits such as health, accident and group life insurance, pension payments,
payroll taxes, and worker's compensation insurance) paid for all persons who
perform duties in connection with the operation, management,
<PAGE>
maintenance and repair of the Building, including building engineers, custodial
staff and similar operating personnel, and including the property manager, but
excluding any executives or other employees of Landlord or its property
management firm who are above the level of property manager, and excluding any
portion of such compensation which is not reasonably allocable to services
performed for the Building;
(l) any capital expenditures incurred to reduce Operating Costs,
to comply with any governmental law, order, regulation or other legal
requirement enacted after the Commencement Date of this Lease, to replace
existing equipment and machinery necessary to the day to day operation of the
Building, or which are capital replacements (i.e., replacements of common area
or common usage Building components and systems in lieu of capital repairs
otherwise required to be made thereto, but excluding capital replacements made
in lieu of Structural Repairs), provided that (i) each such capital expenditures
shall be amortized on a monthly basis over the useful life thereof (not to
exceed one hundred twenty (120) months) at an interest rate of twelve percent
(12%) per annum, and the amount recoverable by Landlord as an Operating Cost in
each year of the Term thereafter occurring (including the year in which such
expenditure is made) shall equal the sum of all such amortization payments
payable during each such year, and (ii) with respect to any capital expenditure
which is incurred solely to reduce Operating Costs, the amount otherwise
recoverable under clause 9.5(l)(i), above, shall be further limited by the
amount of such reduction which is achieved in each applicable year.
(m) cost of premiums for casualty, liability, elevator, workman's
compensation, boiler and machinery, sprinkler leakage, rent loss, use and
occupancy and other insurance;
(n) license, permit and inspection fees;
(o) management fees;
(p) vault space rentals and public space rentals, if any;
(q) the cost of ordinary compliance with Environmental Laws;
(r) personal property taxes;
(s) the cost of operating any fitness facility, conference
facility, transportation service, concierge service, or other similar amenity
furnished generally to tenants of the Building;
(t) the cost of trash removal, including all costs incurred in
connection with waste product recycling pursuant to Section 5.5 (except to the
extent any such costs are charged directly to the tenants);
(u) any local and state governmental or quasi-governmental
surcharges or special charges assessed in connection with the operation and
maintenance of the Building;
<PAGE>
(v) the cost of uniforms and dry cleaning for on-site Building
personnel;
(w) the cost of snow and ice removal or prevention;
(x) the cost of telephone, telegraph, postage, stationery
supplies and other materials and expenses required for the routine operation of
the Building;
(y) environmental remediation costs for the common or public
areas of the Building, but only to the extent that the need for such remediation
is not caused by Landlord, its agents or employees;
(z) association assessments or other assessments for project-wide
common area services;
(aa) a share (equal to the percentage computed by a fraction, the
numerator of which is the gross rentable area of the Building and the
denominator of which is the gross rentable area of all constructed buildings
(including the Building) at 75/85/95 Wells Avenue, Newton, MA 02159 of the cost
to Landlord of operating, repairing and maintaining exterior common areas and
facilities of 75/85/95 Wells Avenue, Newton, MA 02159 (of which development the
Building is a part) which may not be located entirely on the Land but which are
available for use by the Tenant, including but not limited to snow removal,
landscaping, security and maintenance for common roadways and open areas; and
(bb) any other expense or charge whether or not hereinbefore
described which, in accordance with generally accepted accounting and management
practices, would be considered a reasonable and necessary expense of
maintaining, managing, operating or repairing the Building and/or the Land.
9.6 Exclusions. Notwithstanding the foregoing, Operating Costs shall not
include any of the following: (1) capital expenditures, except those set forth
in item 9.5 (l), above; (2) costs of any special services rendered to individual
tenants (including Tenant), for which a special, separate charge shall be made;
(3) painting, redecorating or other similar work which Landlord performs for
specific tenants, the expenses of which are paid by such tenants or, if paid by
Landlord, do not arise out of necessary repairs recoverable under Section 9.5;
(4) Real Estate Taxes (as defined in Section 10); (5) depreciation or
amortization of costs required to be capitalized in accordance with generally
accepted accounting practices (except as set forth in Section 9.5(l), above);
(6) ground rent, if Landlord's interest in the land upon which the Building is
located derives solely from a ground lease; (7) interest and amortization of
funds borrowed by Landlord (except as specifically provided above); (8) leasing
commissions, and advertising, legal, space planning and construction expenses,
incurred in procuring, negotiating leases with, and installing leasehold
improvements for, tenants or prospective tenants of the Building; (9) salaries,
wages, or other compensation paid to officers or
<PAGE>
executives of Landlord (or Landlord's property management firm) in their
capacities as officers and executives; (10) and any other expenses for which
Landlord actually receives direct reimbursement from insurance, condemnation
awards, other tenants or any other source, excluding general payments of Expense
Increases pursuant to this Section 9 by Tenant and other tenants of the
Building.
9.7 Further Adjustment. In the event Landlord shall furnish any utility
or service which is included in the definition of Operating Costs to less than
one hundred percent (100%) of the rentable area of the Building because (i) the
average occupancy level of the Building for the Base Services Year and/or any
subsequent calendar year was less than one hundred percent (100%) of full
occupancy, (ii) any such utility or service is not required by or provided to
one or more of the tenants or occupants of the Building, and such tenant(s)
is(are) not required to contribute its(their) proportionate share thereof, or
(iii) any tenant or occupant is itself obtaining or providing any such utility
or services directly, then the Operating Costs for such year (including the Base
Services Year) shall be adjusted to include all additional costs, expenses and
disbursements that Landlord reasonably determines would have been incurred had
the Building been one hundred percent (100%) occupied during the year in
question and such utilities and services provided to all tenants. The intent of
this Section 9.7 is to ensure that the reimbursement of all Operating Costs is
fair and equitably allocated among the tenants receiving such utilities and
services. In the calculation of Operating Costs hereunder, no expense shall be
charged more than once.
9.8 Allocation of Multi-Building Operating Costs. If and to the extent
the Building is part of a larger project, business park or master development,
and services or items which are within the definition of Operating Costs are
provided to multiple buildings in such project on a shared basis, Landlord shall
allocate to the Building an equitable portion of the Operating Costs arising out
of such services or items, that is, the portion of the total cost of such
services or items which corresponds to the Building's equitable share thereof.
By way of example, landscaping costs which are contracted as an entirety for a
multi-building project shall be allocated on an appropriate basis between all
tenantable buildings in such project.
9.9 Tenant's Right of Review.
9.9.1 Each Expense Statement which Landlord provides to Tenant
pursuant to this Section 9, above, shall be conclusive and binding upon Tenant
unless, within thirty (30) days after Tenant's receipt of the Expense Statement
for a particular calendar year, Tenant provides Landlord with written notice
(the "Review Notice") stating that Tenant is exercising its right to undertake a
more extensive review of the Operating Costs or Real Estate Taxes (hereinafter
"Total Expenses") for the Building for such calendar year. Such review shall
commence within thirty (30) days after Tenant's Review Notice on a mutually
agreeable time and date, at the offices of Landlord (or such other location as
is reasonably designated by Landlord), and shall be completed within thirty (30)
days after commenced. Tenant's review shall take place during Landlord's normal
business hours, and shall be limited to those books and/or documentation which
contain the data for and the method used by Landlord in calculating the Total
Expenses for the Building for the applicable year. Tenant's right to review
Total Expenses for the Building for a particular calendar year shall be a
one-time right for each calendar year.
<PAGE>
9.9.2 Tenant shall notify Landlord in writing of the results of
Tenant's review within ten (10) business days after such review is completed. If
Tenant's review demonstrates that Landlord has overstated Total Expenses, but by
less than five percent (5%), then Landlord shall credit the amount of such
overstatement against Tenant's next due payment of Base Rent and additional
rent, and Tenant shall bear the full cost of Tenant's review. If Tenant's review
demonstrates that Landlord has overstated Total Expenses by five percent (5%) or
more, then Landlord shall credit such amount against Tenant's next due payment
of Base Rent and additional rent, and Landlord shall reimburse Tenant the
reasonable and actual costs (including any third party costs) of Tenant's
review, not to exceed Two Thousand Five Hundred Dollars ($2,500.00). If Tenant's
review demonstrates that Landlord has not overstated Total Expenses, then (i)
Landlord shall have the right to invoice Tenant for any amount by which Tenant's
share of Total Expenses was understated, which invoice shall be payable by
Tenant within fifteen (15) days after receipt thereof, (ii) Tenant shall bear
the full cost of Tenant's review, and (iii) Tenant shall reimburse Landlord for
any reasonable and actual third party costs which Landlord incurred in
connection with such review, not to exceed Two Thousand Five Hundred Dollars
($2,500.00). .
9.9.3 If Landlord disputes the results of Tenant's review, and
the parties are unable to reach agreement with regard thereto despite good faith
efforts to do so, Tenant may submit the matter for resolution by binding
arbitration, in accordance with the commercial arbitration rules of the American
Arbitration Association. In no event will Tenant withhold any Base Rent or
additional rent otherwise due under this Lease during the pendency of any such
review (or during the pendency of any dispute with regard to the results of such
review), provided that if Landlord is required to refund any monies paid by
Tenant by virtue of the results of such arbitration, such repayment shall
include interest from the date paid by Tenant until the repaid to Tenant by
Landlord, calculated at the Default Rate.
10. INCREASES IN REAL ESTATE TAXES
------------------------------
10.1 Defined. For each calendar year or portion thereof during the Term,
Tenant shall pay as additional rent to Landlord, without diminution, set-off or
deduction, Tenant's share of an amount (hereinafter referred to as "Tax
Increases") equal to the difference between:
(A) "Tenant's Share" of "Real Estate Taxes" (defined in Section
10.5, below) paid in such calendar year; and
(B) "Tenant's Share" of "Real Estate Taxes" paid in the "Real
Estate Tax Base Year" (defined below.)
10.2 Base Year. For all purposes hereof, the Real Estate Tax Base Year
shall be Calendar Year 1999.
10.3 Estimated Payments. Tenant shall make monthly installment payments
toward Tenant's Share of Tax Increases on an estimated basis, based on
Landlord's reasonable estimate of Tax Increases for such calendar year. Tenant
shall pay Landlord commencing on the first day of the month immediately
following the last day of the Real Estate Tax Base Year, and on the first day of
each month thereafter during the Term, one-twelfth (1/12th) of Landlord's
estimate of Tenant's Share of Tax Increases for the then-current calendar year.
If at any time or times during
<PAGE>
such calendar year, it appears to Landlord that Tenant's Share of Tax Increases
for such calendar year will vary from Landlord's estimate by more than five
percent (5%) on an annualized basis, Landlord may, by written notice to Tenant,
revise its estimate for such calendar year and Tenant's estimated payments
hereunder for such calendar year shall thereupon be based on such revised
estimate.
10.4 Annual Reconciliation. Within one hundred twenty (120) days after
the end of each calendar year after the Real Estate Tax Base Year, Landlord
shall provide to Tenant a statement (the "Expense Statement") setting forth the
total Real Estate Taxes for such calendar year and Tenant's Share of Tax
Increases for the applicable year. Within fifteen (15) days after the delivery
of such Expense Statement, Tenant shall pay to Landlord any deficiency between
the amount shown as Tenant's Share of Tax Increases for such calendar year and
the estimated payments made by Tenant toward such amount in accordance with
Section 10.3, above. In the case of excess estimated payments, the excess shall
be applied against estimated payments of Real Estate Taxes for the subsequent
calendar year, unless the Lease shall have expired, in which event Landlord
shall refund such excess, without interest, with the delivery of the Expense
Statement.
10.5 Real Estate Taxes. For purposes of this Lease, "Real Estate Taxes"
shall mean all taxes and assessments, general or special, ordinary or
extraordinary, foreseen or unforeseen, assessed, levied or imposed upon the
Property, or assessed, levied or imposed upon the fixtures, machinery, equipment
or systems in, upon or used in connection with the operation of the Property
under the current or any future taxation or assessment system or modification
of, supplement to, or substitute for such system. Real Estate Taxes (a) shall
include all reasonable expenses (including, but not limited to, attorneys' fees,
disbursements and actual costs) incurred by Landlord in obtaining or attempting
to obtain a reduction of such taxes, rates or assessments, including any legal
fees and costs incurred in connection with contesting or appealing the amounts
or the imposition of any Real Estate Taxes, and (b) shall exclude any franchise,
capital stock, capital, rent, income, profit or similar tax or charge. Landlord
shall pay any special assessment by installments to the extent it has the right
to do so, and in such event, Real Estate Taxes shall include such installments
and interest paid on the unpaid balance of the assessment. In the event Landlord
succeeds in obtaining a reduction of such taxes, rates or assessments, then,
after reimbursement to Landlord of all reasonable expenses (including, but not
limited to, reasonable attorneys' fees, disbursements and actual costs) incurred
by Landlord in obtaining such reduction, Tenant shall be entitled to receive its
proportionate share of the net amount of any refund received or reduction
obtained by Landlord to the extent allocable to the Term of this Lease.
10.6 Project Taxes. To the extent the Building and/or Land is part of a
larger project or development, Landlord shall have the right (but not the
obligation) to allocate to the Building an appropriate portion of those Real
Estate Taxes which are incurred with respect to the project as a whole. By way
of example, except to the extent there are separate tax assessments for each
such building, taxes for a multi-building project shall be allocated on an
appropriate basis between all tenantable buildings in the project.
<PAGE>
11. ADDITIONAL PROVISIONS; OPERATING COSTS AND REAL ESTATE TAXES.
-------------------------------------------------------------
11.1 Partial Year; End of Term. To the extent Real Estate Taxes, and/or
any items of Operating Costs, cannot more accurately be determined for any
partial calendar year of the Term by a method other than proration, the parties
agree that such determination shall be made by multiplying the amount thereof
for the full calendar year by a fraction, the numerator of which is the number
of days during such partial calendar year falling within the Term and the
denominator of which is 365. If this Lease terminates on a day other than the
last day of a calendar year, the amount of any adjustment to Tenant's Share of
Expense Increases and Tax Increases with respect to the calendar year in which
such termination occurs shall be prorated on the basis which the number of days
from the commencement of such calendar year to and including such termination
date bears to 365; and any amount payable by Landlord to Tenant or Tenant to
Landlord with respect to such adjustment shall be payable within thirty (30)
days after delivery by Landlord to Tenant of the applicable Expense Statement
with respect to such calendar year.
11.2 Other Taxes. In addition to Tenant's Share of both Expense
Increases and Tax Increases: (a) Tenant shall pay to Landlord (in accordance
with Section 1.5, above) Tenant's Share of any taxes imposed upon the Premises,
the Building, the Land or the rents payable hereunder in the nature of a sales
or use tax or other levy (but not including any income or franchise tax, net
profits tax, estate tax, inheritance tax or payroll tax); and (b) Tenant shall
pay, prior to delinquency, all personal property taxes payable with respect to
all property of Tenant located in the Premises or the Building and shall provide
promptly, upon request of Landlord, written proof of such payment.
11.3 Timing of Estimates. If Landlord does not determine its estimate
for the then current calendar year of Tenant's Share of Expense Increases and/or
Tax Increases until February 1 or later, Tenant shall continue to make such
payments at the prior calendar year's rate, and in such event, Tenant's first
such estimated payment installment after such estimate is first made or updated
shall include, retroactively, any increases in the monthly estimated payments
applicable since January 1 of the same calendar year.
12. TENANT'S INSURANCE.
-------------------
12.1 Coverage Requirements. Tenant shall during the Term of this Lease,
procure at its expense and keep in force the following insurance: (i) Commercial
general liability insurance naming the Landlord and Landlord's managing agent as
additional insureds against any and all claims for bodily injury and property
damage occurring in or about the Premises. Such insurance shall have a combined
single limit of not less than One Million Dollars ($1,000,000) per occurrence
with a Two Million Dollar ($2,000,000) aggregate limit and excess umbrella
liability insurance in the amount of Two Million Dollars ($2,000,000). If Tenant
has other locations that it owns or leases, the policy shall include an
aggregate limit per location endorsement. Such liability insurance shall be
primary and not contributing to any insurance available to Landlord and
Landlord's insurance shall be in excess thereto. In no event shall the limits of
such insurance be considered as limiting the liability of Tenant under this
Lease; (ii) personal property insurance insuring all equipment, trade fixtures,
inventory, fixtures and personal property located within the Premises for perils
covered by the causes of loss -- special form (all risk) and in addition,
coverage for flood, earthquake and boiler and machinery (if applicable), which
insurance shall be
<PAGE>
written on a replacement cost basis in an amount equal to one hundred percent
(100%) of the full replacement value of the aggregate of the foregoing; (iii)
workers' compensation insurance in accordance with statutory laws and employers'
liability insurance with a limit of not less than One Hundred Thousand Dollars
($100,000) per employee and Five Hundred Thousand Dollars ($500,000) per
occurrence; (iv) business interruption and/or loss of rental insurance in an
amount equal to at least to twelve (12) months of Base Rent payable by Tenant
hereunder, and which shall not contain a deductible greater than an amount equal
to seventy-two (72) hours of the Rent in effect at such time (or an equivalent
amount expressed in dollars), and which shall name Landlord as an additional
insured; and (v) such other insurance as may be required by Landlord's
beneficiaries or mortgagees of any deed of trust or mortgage encumbering the
Premises, or as is reasonable and customary for first class office buildings in
the area in which the Building is located.
12.2 Rating; Certificates; Cancellation. The policies required to be
maintained by Tenant shall be with companies rated A:X or better in the most
current issue of Best's Insurance Reports, and licensed to do business in the
state in which the Premises are located and domiciled in the USA. Except as
provided in Section 12.1, above, any deductible amounts under any insurance
policies required hereunder shall not exceed Ten Thousand Dollars ($10,000).
Evidence of insurance (certificates and copies of the policies may be required)
shall be delivered to Landlord prior to the Commencement Date. Each policy of
insurance shall provide notification to Landlord at least thirty (30) days prior
to any cancellation or modification. Tenant shall have the right to provide
insurance coverage which it is obligated to carry pursuant to the terms hereof
in a blanket policy, provided such blanket policy expressly affords coverage to
the Premises and to Landlord as required by this Lease.
13. LANDLORD'S INSURANCE.
---------------------
At all times during the Lease Term, Landlord will maintain (a) fire and
extended coverage insurance covering the Building, in an amount sufficient to
prevent Landlord from being a co-insurer under its policies of insurance, and
(b) public liability and property damage insurance in an amount customary for
properties which are comparable to the Building, as determined by Landlord in
its sole but reasonable discretion. Landlord shall also have the right to obtain
such other types and amounts of insurance coverage on the Building and
Landlord's liability in connection with the Building as Landlord determines is
customary or advisable for a first class office building in the Boston
metropolitan area. Tenant acknowledges and agrees that all premiums for
insurance obtained by Landlord pursuant to this Section 13 shall be included
within "Operating Costs", as such term is defined in Section 9, above.
<PAGE>
14. DAMAGE OR DESTRUCTION.
----------------------
14.1 Damage Repair.
--------------
14.1.1 If the Premises shall be destroyed or rendered
untenantable, either wholly or in part, by fire or other casualty, then, unless
this Lease is terminated for reasons permitted pursuant to Sections 14.2 and/or
14.5, below, Landlord shall, within thirty (30) days after the date of such
casualty, provide Tenant with Landlord's good faith written estimate (the
"Estimate") of how long it will take to repair or restore the Premises.
14.1.2 If the Estimate indicates that Landlord will require less
than one hundred eighty (180) days after the date of such casualty to perform
such repairs or restoration, then this Lease shall continue in full force and
effect, and Landlord shall, promptly after adjusting the insurance claim and
obtaining governmental approvals for reconstruction, commence and diligently
prosecute to completion the restoration of the Premises to their previous
condition, subject to Section 14.4 below and subject to Force Majeure (as
defined herein) or delay caused by Tenant. Pending substantial completion of
such restoration, the Rent shall be abated in the same proportion as the
untenantable portion of the Premises bears to the whole thereof.
14.1.3 If Landlord indicates within the Estimate that it will
require in excess of one hundred eighty (180) days after the date of such
casualty to fully repair or restore the Premises in accordance herewith, then
within thirty (30) days after Landlord delivers Tenant the Estimate, either
Landlord or Tenant shall have the right to terminate this Lease by written
notice to the other, which termination shall be effective as of the date of such
notice of termination, and all liabilities and obligations of Landlord and
Tenant thereafter accruing shall terminate and be of no legal force and effect.
14.1.4 If neither party elects to terminate the Lease, as
aforesaid, and Landlord fails or declines to exercise any other termination
right pursuant to this Section 14, Landlord shall, promptly after adjusting the
insurance claim and obtaining governmental approvals for reconstruction,
commence and diligently prosecute to completion such restoration. If such
restoration is not substantially completed within one hundred eighty (180) days
after the date of the casualty (or such longer period as was referenced in the
Estimate, if applicable), then for a period of up to thirty (30) days after the
expiration of such period (but in all events no later than the date Landlord
substantially completes its restoration of the Premises), Tenant shall have the
right to terminate this Lease upon thirty (30) days prior written notice to
Landlord; provided, however, that if Landlord completes such restoration prior
to the end of the thirty (30) day notice period, Tenant's notice of termination
shall be deemed rescinded and ineffective for all purposes, and this Lease shall
continue in full force and effect. The provisions of this Section are in lieu of
any statutory termination provisions allowable in the event of casualty damage.
14.2 Termination for Material or Uninsured Damages. If (i) the Building
shall be materially destroyed or damaged to the extent that the restoration of
such, in Landlord's judgment, is not economical or feasible, or (ii) the
Building shall be materially destroyed or damaged by any other casualty other
than those covered by such insurance policy, notwithstanding that the Premises
may be unaffected directly by such destruction or damage, or (iii) Landlord's
<PAGE>
mortgagee (if any) requires that the proceeds of insurance be applied to reduce
any amounts outstanding under such mortgage, then in any such event, Landlord
may, at its election, terminate this Lease by notice in writing to Tenant within
thirty (30) days after such destruction or damage. Such notice shall be
effective thirty (30) days after receipt thereof by Tenant.
14.3 Business Interruption. Other than rental abatement as and to the
extent provided in Section 14.1, no damages, compensation or claim shall be
payable by Landlord for inconvenience or loss of business arising from
interruption of business, repair or restoration of the Building or Premises.
14.4 Repairs. Landlord's repair obligations, should it elect to repair,
shall be limited to restoration of improvements which are covered by Landlord's
insurance. Tenant acknowledges that any such repairs or restorations shall be
subject to applicable laws and governmental requirements, the requirements of
Landlord's mortgagee (if any), and to delay in the process of adjusting any
insurance claim associated therewith; and neither delays resulting from any of
the foregoing, nor modifications to the Building or to the interior of the
Premises occurring by virtue of the application of such requirements, shall not
constitute a breach of this Lease by Landlord as long as Landlord uses
reasonable efforts to commence and complete such repairs and restorations in a
timely fashion consistent with the pre-existing condition of the applicable
improvements.
14.5 End of Term Casualty. Anything herein to the contrary
notwithstanding, if the Premises are destroyed or damaged during the last
eighteen (18) months of the Lease Term, then either Landlord or Tenant shall
have the right to terminate this Lease upon thirty (30) days prior written
notice to the other, which termination shall be effective on the thirtieth
(30th) day after the other party's receipt of such notice. Such notice must be
delivered within thirty (30) days after such casualty, or shall be deemed
waived.
14.6 Relocation to Interim Space. If all or part of the Premises is
damaged or destroyed by fire or other casualty and neither party elects to
exercise its termination right hereunder (or if no termination rights are
triggered), then Landlord shall have the option, to be exercised by delivering
written notice to Tenant within thirty (30) days after the date of such
casualty, to relocate Tenant to available space in the Building which is
comparable to the Premises (the "Interim Space") for the period during which the
Premises are repaired or restored, provided that (i) Landlord shall pay the
reasonable and actual costs to move Tenant's moveable fixtures, furniture and
equipment into the Interim Space, and out of the Interim Space when the Premises
is repaired, (ii) the square footage of the Interim Space shall not be less than
ninety percent (90%) of the square footage of the Premises unless Tenant agrees
otherwise, (iii) the Interim Space shall be reasonably suitable for the conduct
and operation of Tenant's business, and (iv) upon occupancy of the Interim
Space, Tenant shall pay Landlord Base Rent and additional rent for the Interim
Space as set forth in this Lease, which shall be adjusted to reflect the square
footage of the Interim Space; however, in no event shall the Base Rent and
additional rent for the Interim Space exceed the Base Rent and additional rent
for the Premises. If Landlord exercises the foregoing option, Tenant shall
relocate from the Premises to the Interim Space within thirty (30) days after
receipt of Landlord's notice; and Tenant shall relocate from the
<PAGE>
Interim Space to the reconstructed Premises within thirty (30) days after
Landlord notifies Tenant that the repair of the Premises has been substantially
completed.
15. MACHINES AND EQUIPMENT; ALTERATIONS AND ADDITIONS: REMOVAL OF FIXTURES.
-----------------------------------------------------------------------
15.1 Floor Load, and Excessive Noise, Vibration, and Electrical Usage.
Tenant shall not, without Landlord's prior consent, place a load upon the floor
of the Premises which exceeds the maximum live load per square foot which
Landlord (or Landlord's architect or engineer) determines (in its good faith
professional judgment) is appropriate for the Building. Tenant will notify
Landlord prior to the installation of any high-density filing systems, or any
unusually heavy equipment or machinery, in the Premises, and all such
installations shall be subject to Landlord's reasonable consent. Business
machines, mechanical equipment and materials belonging to Tenant which cause
vibration, noise, cold, heat or fumes that may be transmitted to the Building or
to any other leased space therein to such a degree as to be objectionable to
Landlord or to any other tenant in the Building shall be placed, maintained,
isolated, stored and/or vented by Tenant (at its expense) so as to absorb and
prevent such vibration, noise, cold, heat or fumes. Landlord shall not be
required to supply electrical current for equipment that requires more than 110
volts, and Tenant will not install or operate in the Premises any electrical or
other equipment whose electrical energy consumption exceeds that of normal
office use, without first obtaining the prior consent in writing of Landlord,
who may condition such consent upon the payment by Tenant of additional rent to
compensate (at cost) for excess consumption of water and/or electricity, excess
wiring and other similar requirements. All changes, replacements or additions to
any base building Systems which may be necessitated by the installation and
operation of such electrical equipment and/or machinery by Tenant shall be
subject to Landlord's consent, and shall be performed under Landlord's direction
at Tenant's expense.
15.2 Alterations - Generally. Tenant may make cosmetic alterations
(i.e., repainting, replacement of carpeting, installation of wall covering,
etc.) to the Premises without Landlord's consent, provided that Landlord is
notified in writing prior to commencement of any such cosmetic alterations and
the same do not diminish the value of the Premises in more than a de minimis
amount. All other alterations, additions and improvements proposed to be made to
the Premises by Tenant (hereinafter, "Alterations") shall be subject to
Landlord's prior written approval, in accordance with the standards hereafter
set forth. In the case of Alterations which are structural or visible from the
exterior of the Premises, such approval may be withheld or conditioned in
Landlord's sole, absolute, and subjective discretion. In the case of all other
Alterations, such consent may not be unreasonably withheld, conditioned, or
delayed. Without limitation, it shall not be unreasonable for Landlord to deny
its consent to any Alterations (a) which would diminish the value of the
leasehold improvements to the Premises in more than a de minimis amount, (b)
which would adversely affect any Building Systems, (c) which would adversely
affect the structural elements of the Building, (d) which would impose on
Landlord any special maintenance, repair, or replacement obligations not within
the scope of those expressly provided for herein, or (e) which would constitute
"non-standard office improvements", meaning improvements which are unusual or
extraordinary for standard office usage, including curved walls, circular rooms,
windowless office areas, vault areas, areas
<PAGE>
involving special electrical or fire suppression systems, etc. The foregoing
notwithstanding, (i) Landlord will not withhold its consent to a proposed
Alteration solely on the basis described in clause (d) if Tenant agrees, at the
time of its request for approval or notice of such Alterations, to pay all costs
associated with Landlord's meeting the additional obligations described in
clause (d), and (ii) Landlord will not withhold its consent to a proposed
Alteration solely on the basis described in clause (e) if Tenant agrees, at the
time of its request for approval or notice of such Alterations, to remove such
Alteration(s) and restore the Premises to its condition prior to the
installation thereof, at Tenant's sole expense, upon the expiration or sooner
termination of this Lease. All Alterations (including without limitation
cosmetic alterations) shall be made (1) at Tenant's sole expense, (2) according
to plans and specifications approved in writing by Landlord (to the extent
Landlord's consent is required), (3) in compliance with all applicable laws, (4)
by a licensed contractor, and (5) in a good and workmanlike manner conforming in
quality and design with the Premises existing as of the Commencement Date. In
addition, except for any alterations which Landlord requires Tenant to remove as
a pre-condition to the installation thereof, and except for Tenant's movable
office partitions, furniture, and trade fixtures, all Alterations (including
without limitation cosmetic alterations) made by Tenant shall at once become a
part of the realty and shall be surrendered with the Premises.
15.3 Removal of Alterations. Upon the expiration or sooner termination
of the Lease Term, Tenant shall, at Tenant's expense, diligently remove all
Alterations made by Tenant after the Commencement Date and designated by
Landlord or agreed to by Tenant, as the case may be, to be removed at the time
of Landlord's approval or Tenant's request for approval or notice thereof (or
otherwise required to be removed by Tenant pursuant to Exhibit C). Tenant shall
repair any damage to the Premises caused by such removal and, except as
otherwise provided herein, restore the applicable portion of the Premises to its
condition prior to such Alteration. Tenant shall remove all of its movable
property and trade fixtures at the expiration or earlier termination of this
Lease, and shall pay to Landlord the cost of repairing any damage to the
Premises or Building resulting from such removal. In no event shall Tenant
remove any portion of Landlord's Work except in connection with a permitted
Alteration hereunder. All items of Tenant's movable property, trade fixtures and
personal property that are not removed from the Premises or the Building by
Tenant at the termination of this Lease (or at any time when Landlord has the
right of reentry due to a Tenant default) shall be deemed abandoned and become
the exclusive property of Landlord, without further notice to or demand upon
Tenant. Tenant's obligations under these Sections 15.2 and 15.3 shall survive
the expiration or termination of this Lease.
15.4 Additional Covenants Regarding Alterations.
-------------------------------------------
15.4.1 Tenant shall be responsible for and shall pay when due all
costs associated with the preparation of plans and the performance of
Alterations, and the same shall be performed in a lien-free, first-class, and
good and workmanlike manner, and in accordance with applicable codes and
requirements, including the requirements of the Americans with Disabilities Act
("ADA"). Failure by Tenant to pay the costs associated with Alterations on a
timely basis so as to avoid the assertion of any statutory and/or common law
lien against the Premises or the Building shall constitute a default by Tenant
for all purposes of this Lease. Unless otherwise approved by Landlord, Tenant
shall only use new, first-class materials in connection with
<PAGE>
Alterations. All contractors and subcontractors performing any work on behalf of
Tenant within the Premises shall be subject to Landlord's approval, licensed to
do business in jurisdiction within which the Premises is located, and for work
involving a cost in excess of $10,000, shall be bonded (or at Landlord's sole
option, bondable).
15.4.2 Tenant shall ensure that all contractors and
subcontractors performing Alterations are insured in amounts required by law and
reasonably acceptable to Landlord. Alterations may not commence, nor may Tenant
permit its contractors and subcontractors to commence or continue any such work,
until all required insurance has been obtained, and, if Landlord requests, until
certificates of such insurance have been delivered to Landlord. Such insurance
policies shall name the Landlord, Landlord's property manager, and Landlord's
mortgagee(s) as additional insureds. Such certificates of insurance shall
provide that no change or cancellation of such insurance coverage shall be
undertaken without thirty (30) days' prior written notice to Landlord. In the
event Tenant employs a contractor or subcontractor to perform all or part of any
Alterations, Tenant shall purchase, or cause its contractor to carry, General
Contractor's and Subcontractor's Required Minimum Coverages and Limits of
Liability as follows, which coverages shall be in amounts required by law and
reasonably acceptable to Landlord and in addition to any and all insurance
required to be procured by Tenant pursuant to the terms of this Lease: Worker's
Compensation, Employer's Liability Insurance, any insurance required by any
Employee Benefit Act (or similar statute), Comprehensive General Liability
Insurance (including Contractor's Protective Liability), Comprehensive
Automotive Liability Insurance, and Builder's Risk insurance.
15.4.3 Tenant agrees that Landlord and its agents and managers
will have the right to inspect any Alterations made by Tenant's contractor(s)
and subcontractor(s), and Tenant agrees to cooperate with Landlord to facilitate
such inspections. In the performance of Alterations in accordance with this
Lease, Tenant shall cause its contractor to use reasonable and diligent efforts
not to interfere with ongoing operations in the Building. Tenant's contractor
shall be responsible for all utility costs associated with the performance of
Alterations and shall either supply its own electricity and other utilities, or
shall reimburse Landlord for all utility consumption associated with such work.
Tenant shall cause its contractor(s) to keep all construction areas clean and
free of trash and debris and shall otherwise comply with any other reasonable
rules and regulations established by Landlord with regard to construction
activities within the Building. Tenant's construction contract shall indemnify
Tenant and Landlord from damages, losses and expenses associated with the acts
and omissions of Tenant's contractor, its agents, employees and subcontractors.
To the extent that any Alterations involve construction work which affects any
exterior portions of the Building or Common Areas, Landlord may impose
additional requirements as a condition of its approval of such Alterations to
ensure that Tenant restores all affected areas of the Building's exterior and/or
common areas to their original condition upon completion and otherwise protects
and restores all affected work areas within the Building (including any portions
of the Common Areas of the Building) utilized or affected in performing such
Alterations.
15.4.4 Tenant shall provide to Landlord copies of all
applications for permits, copies of all governmental inspection reports and/or
certificates, and any and all notices or violations communicated to Tenant or
its contractors by applicable governmental authorities,
<PAGE>
promptly upon receipt and/or submission thereof, as the case may be. Tenant
agrees to comply (or to cause its contractors to comply) with all applicable
federal, state and local laws, regulations and ordinances in the performance of
Alterations, and to promptly rectify any violations of such laws caused by the
acts or omission of Tenant, its employees, agents and/or contractors, and Tenant
shall be responsible for any non-compliance by Tenant or its agents, employees
and contractors. Tenant and its contractor performing Alterations shall (a)
provide copies of warranties for Alterations and the materials and equipment
which are incorporated into the Building and Premises in connection therewith,
(b) provide to Landlord all operating and maintenance manuals for all equipment
and materials incorporated into the Building and/or Premises as part of any
Alterations, and (c) either assign to Landlord, or enforce on Landlord's behalf,
all such warranties to the extent repairs and/or maintenance on warranted items
would be covered by such warranties and are otherwise Landlord's responsibility
under this Lease.
16. ACCEPTANCE OF PREMISES.
-----------------------
Tenant acknowledges that it is currently in possession of the Premises,
and Tenant agrees to accept continued possession of the Premises in its current
"as-is, where-is" condition.
17. TENANT IMPROVEMENTS.
--------------------
Exhibit C provides for Landlord to make available to Tenant a
"Refurbishment Allowance" in an amount equal to $10.00 per rentable square foot
of the Premises (or $1,024,940 total), which Tenant acknowledges and agrees that
it shall be obligated to utilize (i) prior to expiration of (or earlier
termination of) the Term, and (ii) solely for purposes of improvements to the
Premises (which may include repainting, recarpeting, and/or any other
alterations permitted by the terms of this Lease, as more fully set forth in
Exhibit C). If Tenant fails to utilize the entire Refurbishment Allowance prior
to expiration of (or earlier termination of) the Term, Landlord's obligation to
make available to Tenant any remaining unused portion thereof shall fully and
forever cease, and be deemed fully satisfied. Any refurbishments or other
improvements to be performed by Tenant to the Premises pursuant hereto shall be
treated as Alterations to the Premises and thus governed by Article 15, above,
to the extent not specifically addressed in Exhibit C hereto.
18. ACCESS.
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Tenant shall permit Landlord and its agents to enter the Premises at all
reasonable times and (except in cases of Emergency, as defined herein) upon
reasonable prior notice, not to exceed two (2) business days: to inspect the
same; to show the Premises to prospective tenants, or interested parties such as
prospective lenders and purchasers; to exercise its rights under Section 48; to
clean, repair, alter or improve the Premises or the Building; to discharge
Tenant's obligations when Tenant has failed to do so within any applicable grace
period provided for herein; to post notices of non-responsibility and similar
notices and "For Sale" signs and to place "For Lease" signs upon or adjacent to
the Building or the Premises at any time within the twelve (12) month period
prior to the expiration of the Lease Term or at any time after the premises has
<PAGE>
been vacated by Tenant; or for any other legitimate business purpose. Tenant
shall permit Landlord and its agents to enter the Premises at any time, and
without notice, in the event of an Emergency. When reasonably necessary,
Landlord may temporarily close entrances, doors, corridors, elevators or other
facilities without liability to Tenant by reason of such closure. Landlord, in
the exercise of all of its rights under this Section 18, shall use commercially
reasonable efforts to minimize disruption of Tenant's use and occupancy of the
Premises.
19. MUTUAL WAIVER OF CLAIMS AND SUBROGATION.
----------------------------------------
19.1 Tenant. Notwithstanding anything to the contrary in this Lease,
whether the loss or damage is due to the negligence of Landlord or Landlord's
agents or employees, or any other cause, Tenant hereby releases Landlord and
Landlord's agents and employees from responsibility for and waives its entire
claim of recovery for (i) any and all loss or damage to the personal property of
Tenant located in the Building, including, without limitation, the Building
itself and such property as may be attached to the Building itself, arising out
of any of the perils which are covered by Tenant's property insurance policy,
with extended coverage endorsements which Tenant is required to obtain under the
applicable provisions of this Lease, whether or not actually obtained, or (ii)
loss resulting from business interruption or loss of rental income, at the
Premises, arising out of any of the perils which may be covered by the business
interruption or by the loss of rental income insurance policy held by Tenant.
19.2 Landlord. Notwithstanding anything to the contrary in this Lease,
whether the loss or damage is due to the negligence of Tenant or Tenant's agents
or employees, or any other cause, Landlord hereby releases Tenant and Tenant's
agents and employees from responsibility for and waives its entire claim of
recovery for any and all loss or damage to the personal property of Landlord
located in the Building, including, without limitation, the Building itself and
such property as may be attached to the Building itself, arising out of any of
the perils which are covered by Landlord's property insurance policy which
Landlord is required to obtain under the applicable provisions of this Lease,
whether or not actually obtained.
19.3 Carriers. Landlord and Tenant shall each cause its respective
insurance carrier(s) to consent to such waiver of all rights of subrogation
against the other, and to issue an endorsement to all policies of insurance
obtained by such party confirming that the foregoing release and waiver will not
invalidate such policies.
20. INDEMNIFICATION.
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20.1 Tenant's Indemnity. Tenant shall indemnify and hold harmless
Landlord, its agents, employees, officers, directors, partners and shareholders
from and against any and all third party liabilities, judgments, demands, causes
of action, claims, losses, damages, costs and expenses, including reasonable
attorneys' fees and costs, asserted against Landlord by third parties or
sustained in connection with any third party claims for injury or death to
persons or damage to property against Landlord, by third parties and arising out
of the use, occupancy, conduct, or operation of the Premises by, or the willful
misconduct or negligence of, Tenant, its officers, contractors, licensees,
agents, servants, employees, or (while within the Premises) its guests or
invitees, or caused by any failure of Tenant to comply with the terms of this
Lease.
<PAGE>
This indemnification shall survive termination of this Lease. This provision
shall not be construed to make Tenant responsible for loss, damage, liability or
expense resulting from injuries or death to third parties or to the property of
third parties to the extent caused by the negligence of Landlord, or its
officers, contractors, licensees, agents, employees or invitees.
20.2 Landlord's Indemnity. Landlord shall indemnify and hold harmless
Tenant, its agents, employees, officers, directors, partners and shareholders
from and against any and all third party liabilities, judgments, demands, causes
of action, claims, losses, damages, costs and expenses, including reasonable
attorneys' fees and costs, asserted against Tenant by third parties or sustained
by Tenant in connection with any third party claims for injury or death to
persons or damage to property, and arising out of the use, occupancy, conduct,
operation, or management of the Building by, or the willful misconduct or
negligence of, Landlord, its officers, contractors, licensees, agents, servants,
or employees, or caused by any failure of Landlord to comply with the terms of
this Lease. This indemnification shall survive termination of this Lease. This
provision shall not be construed to make Landlord responsible for loss, damage,
liability or expense resulting from injuries or death to third parties or to the
property of third parties to the extent caused by the negligence of Tenant, or
its officers, contractors, licensees, agents, employees or invitees, or by the
acts or omission of any other tenants or occupants of the Building.
21. ASSIGNMENT AND SUBLETTING.
--------------------------
21.1 Consent Required. Subject to the terms of this Article 21, Tenant
shall not assign, encumber, mortgage, pledge, license, hypothecate or otherwise
transfer the Premises or this Lease, or sublease all or any part of the
Premises, or permit the use or occupancy of the Premises by any party other than
Tenant, without the prior written consent of Landlord, which shall not be
unreasonably withheld as more fully set forth below.
21.2 Procedure.
----------
21.2.1 Tenant must request Landlord's consent to any such
assignment or sublease in writing at least thirty (30) days prior to the
commencement date of the proposed sublease or assignment, which written request
(a "Proposal Notice") must include (1) the name and address of the proposed
assignee or subtenant, (2) the nature and character of the business of the
proposed assignee or subtenant, (3) financial information (including financial
statements) of the proposed assignee or subtenant, (4) the proposed effective
date of the assignment or sublease, which shall be not less than thirty (30)
days thereafter, and (5) a copy of the proposed sublease or assignment
agreement. Tenant shall also reasonable and diligent efforts to provide any
additional information Landlord reasonably requests regarding such proposed
assignment or subletting. Within thirty (30) days after Landlord receives
Tenant's Proposal Notice (with all required information included), but subject
to Section 21.5, below, Landlord shall have the option (i) to grant its consent
to such proposed assignment or subletting, or (ii) to deny its consent to such
proposed assignment or subletting on a reasonable basis. If Landlord does not
exercise one of the above options (or the termination right set forth in Section
21.5, below) within thirty (30) days after Landlord receives such Proposal
Notice, then Tenant may assign or sublease the Premises upon the terms stated in
the Proposal Notice.
<PAGE>
21.2.2 Section 21.2.1 and 21.5, below, to the contrary
notwithstanding, Tenant shall have the right to sublet up to ten percent (10%)
of the net rentable area of the Premises (in the aggregate), for periods not in
excess of one (1) year, before a proposed sublease triggers Landlord's right of
termination under clause 21.5, but any such sublease(s) shall nevertheless be
subject to Landlord's approval, which shall not be unreasonably withheld as
provided herein.
21.2.3 Without limitation, it shall not be unreasonable for
Landlord to deny its consent to any proposed assignment or sublease if the
proposed assignee or subtenant fails to satisfy any one or more of the following
criteria: (1) if the proposed assignee or sublessee has a net worth less than
that of the Tenant as of the date of execution of this Lease, or it otherwise
appears that the proposed assignee or subtenant may be unable to meet its
financial and other obligations under this Lease after such assignment or
sublease; (2) if the proposed assignee or subtenant proposes to use the Premises
for a purpose which is not a general office or administrative use; (3) if the
proposed assignee or subtenant has a history of landlord/tenant, debtor/creditor
or other contractual problems (such as, but not limited to, defaults, evictions,
enforcement litigation or other disputes) with Landlord, other landlords and/or
creditors or other contracting parties; (4) if the proposed assignee or
subtenant lacks reasonable prior successful operating experience, which the
parties agree shall mean operating profitability (exclusive of extraordinary
income or charges) for the three (3) consecutive years prior to the date of the
proposed assignment or sublease; (5) if the proposed assignee or subtenant is an
existing tenant, or the affiliate of an existing tenant, in any building owned
or operated by Landlord or any affiliate of Landlord; and/or (6) if the space is
one as to which Landlord has a right of termination under Section 21.5, the
proposed sublease involves, in Landlord's reasonable judgment, a portion of the
Premises which is not independently leasable space (which shall be understood to
mean that, in order to satisfy this criteria, the proposed sublease space must
have a proportion of windowed offices relative to the Rentable Area thereof
which is comparable to the floor as a whole, and cannot lack reasonable means of
ingress, egress or access to the Common Areas, common facilities and/or core
areas of the Building located on such floor of the Building, such as access to
elevators, bathrooms, telephone and electrical closets, etc.) (any space meeting
such criteria being referred to herein as "Independently Leasable Space").
21.3 Conditions. Any subleases and/or assignments hereunder are also
subject to all of the following terms and conditions:
21.3.1 If Landlord approves an assignment or sublease as herein
provided, Tenant shall pay to Landlord, as additional rent due under this Lease,
(i) in the case of an assignment, all sums received by Tenant in consideration
of such assignment, calculated after Tenant has recovered in full from such
consideration its "Transaction Expenses" (as hereafter defined), and (ii) in the
case of a sublease , the amount, if any, by which the rent, any additional rent
and any other sums payable by the subtenant to Tenant under such sublease,
exceeds that portion of the Base Rent plus Costs of Electricity, Expense
Increases and Tax Increases payable by Tenant hereunder which is allocable to
the portion of the Premises which is the subject of such sublease, calculated
after Tenant has recovered in full its Transaction Expenses from such net
amount. The term "Transaction Expenses" shall mean all reasonable and actual
out-of-pocket expenses incurred by Tenant in procuring such assignment or
sublease, including broker
<PAGE>
fees and legal fees (if any) paid by Tenant, any improvements which Tenant makes
to the applicable portion of the Premises at Tenant's expense in connection with
such assignment or sublease, and any buy-out of the assignee's or sublessee's
existing lease paid for by Tenant as a part of such transaction. The foregoing
payments shall be made on not less than a monthly basis by Tenant (in the case
of subleases) and in all cases within ten (10) business days after Tenant
receives the applicable consideration from the assignee or subtenant.
21.3.2 No consent to any assignment or sublease shall constitute
a further waiver of the provisions of this section, and all subsequent
assignments or subleases may be made only with the prior written consent of
Landlord. In no event shall any consent by Landlord be construed to permit
reassignment or resubletting by a permitted assignee or sublessee.
21.3.3 The assignee under any assignment of this Lease shall be
fully (and, at landlord's option, directly) liable for all of the obligations of
"Tenant" under this Lease, on a joint and several basis with Tenant. Tenant
shall nevertheless remain fully liable to Landlord for all Lease obligations,
including those accruing after the effective date of such assignment.
21.3.4 Any sublease or assignment shall be subject to the
condition that the sublessee or assignee thereunder shall be bound by all of the
terms, covenants and conditions of this Lease (in the case of a sublease,
insofar as such terms, covenants and conditions relate to the portion of the
Premises subleased and/or the operations and conduct of business by the
sublessee).
21.3.5 Without limitation, any and all guaranties of this Lease
shall be unaffected by such sublease and assignment, and shall remain in full
force and effect for all purposes.
21.3.6 Any assignment or sublease without Landlord's prior
written consent shall be void, and shall, at the option of the Landlord,
constitute a default under this Lease.
21.3.7 Tenant shall pay to Landlord a Two Hundred Fifty and
no/100ths Dollars ($250.00) processing fee, which shall accompany any proposed
assignment or sublease delivered by Tenant to Landlord, and which processing fee
shall be in addition to Landlord's reasonable attorneys fees and out-of-pocket
expenses incurred in connection with Landlord's review of such sublease or
assignment (if any), which shall also be reimbursed by Tenant.
21.3.8 In no event will any assignment, sublease, occupancy
arrangement or other transfer of this Lease be entered into by Tenant on a basis
pursuant to which rental or any other payments payable to Landlord or Tenant
under such arrangement are based in whole or in part on the net income or
profits derived by the assignee, sublessee, transferee or occupant from
operations at the Premises.
21.4 Affiliated Entity; Sale of Business.
------------------------------------
21.4.1 Notwithstanding anything to the contrary in this Lease, so
long as such transfer is not effectuated as part of a transaction or series of
transfers orchestrated in order to effect a transfer of this Lease (or Tenant's
interest herein) in isolation to Tenant's other leasehold
<PAGE>
interests and assets, Landlord's shall not unreasonably withhold its consent to
any sublease, assignment or other transfer of this Lease to any other entity
which (i) controls or is controlled by Tenant, or (ii) is controlled by Tenant's
parent company, or (iii) which purchases all or substantially all of the assets
of Tenant, or (iv) which purchases all or substantially all of the stock of
Tenant or (v) which merges with Tenant pursuant to a valid statutory merger;
provided, that (1) the assignee or sublessee is financially able to meet all of
its obligations under the proposed assignment or sublease, and (2) in such
event, (a) except in cases of statutory merger, in which case the surviving
entity in the merger shall be liable as the Tenant under this Lease, Tenant
shall continue to remain fully liable under the Lease, on a joint and several
basis with the assignee or acquiror of such assets or stock, (b) the terms of
any guaranty of this Lease shall remain in full force and effect, unmodified,
and (c) following such sublease or assignment, Tenant shall continue to comply
with all of its obligations under this Lease, including with respect to its
Permitted Use of the Premises, as set forth in Section 4.1, above.
21.4.2 Tenant shall be required to give Landlord written notice
of any sublease or assignment within the scope of Section 21.4.1, above at the
time such transaction is effectuated (and in all events no later than five (5)
business days thereafter. Any other transfer of fifty percent (50%) or more of
the ownership interests (including, without limitation, partnership interests or
stock) in Tenant or of operating control over Tenant (whether by management
agreement, stock sale or other means) shall be deemed to constitute an
assignment of this Lease, and shall be subject to Landlord's consent as
aforesaid.
21.4.3 Notwithstanding the last sentence of Section 21.4.1 to the
contrary, Landlord agrees that the offer and sale by Tenant (or any stockholder
of Tenant) of any stock pursuant to an effective registration statement filed
pursuant to the Securities Act of 1933 (including any initial public offering of
registered stock of the Tenant) or pursuant to and in accordance with the
securities laws of any foreign country governing publicly traded companies and
not in violation of U.S. law, shall not constitute an assignment of this Lease,
and shall not require the consent or approval of Landlord.
21.4.4 Tenant shall not transfer all or substantially all of its
assets to any person or entity unless either (i) this Lease is one of the assets
so transferred to such other person or entity, and the transferee assumes in
writing, for Landlord's benefit, the obligations of Tenant accruing hereunder
from and after the effective date of the transfer, or (ii) the transferee(s)
thereof otherwise delivers to Landlord a written assumption of Tenant's
obligations hereunder.
21.5. Right of Termination. Except for any assignment or sublease
permitted pursuant to Section 21.4, above, in the event of (i) a proposed
assignment of this Lease, (ii) a proposed sublease in excess of one (1) year
involving more than ten percent (10%) of the Premises, Landlord shall have the
right, by notice to Tenant delivered within thirty (30) days after Landlord's
receipt of Tenant's Proposal Notice (and in lieu of the granting or denial of
consent provided for in Section 21.2, above), to terminate this Lease as to all
of the Premises (in the event of an assignment) or as to the subleased portion
of the Premises only (in the event of a sublease), for the balance of the Term.
In the event Landlord shall elect to terminate this Lease in connection with a
proposed assignment or sublease of this Lease as provided above in whole or in
part (as the case may be): (a) this Lease and the term hereof shall terminate
(either as to the
<PAGE>
Premises as a whole, or only as to the portion thereof which Tenant is proposing
to sublease, as the case may be) as of the later of (i) the proposed effective
date of such assignment or sublease, as set forth in Tenant's Proposal Notice,
or (ii) thirty (30) days after the date Landlord received Tenant's Proposal
Notice; (b) Tenant shall be released from all liability under the Lease (as to
the Premises as a whole, in the case of an assignment, or as to the terminated
portion of the Premises only, in the case of a partial termination due to
sublease) with respect to the period after the date of termination (other than
obligations and indemnities of Tenant which accrued with respect to the
applicable portion of the Premises prior to the effective date of such
termination, which obligations shall expressly survive such termination or
partial termination of this Lease); (c) all Base Rent, Additional Rent and other
charges shall be prorated to the date of such termination, and appropriately
adjusted if there is only a partial termination; (d) upon such termination date,
Tenant shall surrender the Premises (or the applicable portion thereof) to
Landlord in accordance with Section 26 hereof; and (e) in the case of a partial
termination of this Lease, Landlord shall have the right to separate the portion
of the Premises being terminated from the balance of the Premises, including the
erection of a demising wall and, to the extent necessary under the
circumstances, the separation of any applicable Building Systems.
22. ADVERTISING.
------------
22.1 Generally. Except as provided below, Tenant shall not display any
sign, graphics, notice, picture, or poster, or any advertising matter
whatsoever, anywhere in or about the Premises or the Building at places visible
from anywhere outside or at the entrance to the Premises without first obtaining
Landlord's written consent thereto, which Landlord may grant or withhold in its
sole discretion. All signage, including interior and exterior signage, shall be
at Tenant's sole expense, and subject to compliance with all applicable laws.
Tenant shall be responsible to maintain any permitted signs and remove the same
at Lease termination. In addition, upon the expiration or earlier of this Lease,
all exterior signs identifying Tenant shall be removed by Tenant at Tenant's
sole expense, and the affected portions of the Building shall be restored by
Tenant. If Tenant shall fail to maintain or remove its signs, as aforesaid,
Landlord may do so at Tenant's cost. Tenant shall be responsible to Landlord for
any damage caused by the installation, use, maintenance or removal of any such
signs.
22.2 Signage Program/ Permitted Signage. Notwithstanding Section 22.1 to
the contrary, lobby and suite identification signage shall be permitted in
accordance with applicable legal requirements and the Landlord's overall signage
program for the Building, subject to Landlord's approval which shall not be
unreasonably withheld (in light of Landlord's overall signage program for the
Building). Generally, Tenant shall be permitted (at Tenant's expense) to install
a standard suite entry sign, and (if applicable) directory identification panels
on that portion of the Building's lobby directory located in the main lobby of
the Building (if any), commensurate with the relative square footage of the
Premises as compared to the square footage of the Building as a whole. Landlord
agrees that Tenant's current signage at the Premises is acceptable to Landlord.
<PAGE>
23. LIENS.
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Tenant shall keep the Premises and the Building free from any liens
arising out of any work performed, materials ordered or obligations incurred by
or on behalf of Tenant, and Tenant hereby agrees to indemnify and hold Landlord,
its agents, employees, independent contractors, officers, directors, partners,
and shareholders harmless from any liability, cost or expense for such liens.
Tenant shall cause any such lien imposed to be released of record by payment or
posting of the proper bond acceptable to Landlord within thirty (30) days after
the earlier of notice of intent to impose the lien or written request by
Landlord. If Tenant fails to remove any lien within the prescribed thirty (30)
day period, then Landlord may do so at Tenant's expense and Tenant shall
reimburse Landlord for such amount, including reasonable attorneys' fees and
costs.
24. DEFAULT.
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24.1 Tenant's Default. A default under this Lease by Tenant shall exist
if any of the following occurs:
24.1.1 If Tenant fails to pay Rent, additional rent or any other
sum required to be paid hereunder within ten (10) business days after written
notice from Landlord that such payment was due, but was not paid as of the due
date (provided, however, if Landlord has delivered two (2) such notices to
Tenant in any twelve (12) month period, or four (4) such notices over the Term
of this Lease, whichever first occurs, then any subsequent failure to pay Base
Rent, additional rent or any other sum required to be paid to Landlord hereunder
on or before the due date for such payment shall constitute a default by Tenant
without requirement of such ten (10) business day notice and opportunity to
cure); or
24.1.2 If Tenant fails to perform any term, covenant or condition
of this Lease except those requiring the payment of money to Landlord as set
forth in Section 24.1.1 above, and Tenant fails to cure such breach within
fifteen (15) days after written notice from Landlord where such breach could
reasonably be cured within such fifteen (15) day period; provided, however, that
where such failure could not reasonably be cured within the fifteen (15) day
period, Tenant shall not be considered in default if it commences such
performance within the fifteen (15) day period and diligently thereafter
prosecutes the same to completion, such grace period not to exceed a maximum of
sixty (60) days in the aggregate. If any provisions of this Lease calls for a
shorter or different grace period than that set forth above, then such other
provision shall control over this provision. The foregoing notice and cure
period notwithstanding, Landlord may exercise its self-help rights hereunder
(i.e., Landlord's right to perform any obligation of Tenant which Tenant has
failed to perform hereunder) without any prior notice or upon such shorter
notice as may be reasonable under the circumstances in the event of any one or
more of the following circumstances is present: (i) there exists a reasonable
risk of prosecution of the Landlord unless such obligation is performed sooner
than the stated cure period, (ii) there exists an imminent possibility of danger
to the health or safety of the Landlord, the Tenant, Tenant's invitees, or any
other occupants of, or visitors to, the Building, unless such obligation is
performed sooner than the stated cure period, and/or (iii) the Tenant has
<PAGE>
failed to obtain insurance required by this Lease, or such insurance has been
canceled by the insurer without being timely replaced by Tenant, as required
herein.
24.1.3 If Tenant or any guarantor of this Lease shall (i) make an
assignment for the benefit of creditors, (ii) acquiesce in a petition in any
court in any bankruptcy, reorganization, composition, extension or insolvency
proceedings, (iii) seek, consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of Tenant or of any guarantor of this Lease and
of all or any part of Tenant's or such guarantor's property, (iv) file a
petition seeking an order for relief under the Bankruptcy Code, as now or
hereafter amended or supplemented, or by filing any petition under any other
present or future federal, state or other statute or law for the same or similar
relief, or (v) fail to win the dismissal, discontinuation or vacating of any
involuntary bankruptcy proceeding within sixty (60) days after such proceeding
is initiated.
24.2 Remedies. Upon a default, Landlord shall have the following
remedies, in addition to all other rights and remedies provided by law or
otherwise provided in this Lease, any one or more of which Landlord may resort
cumulatively, consecutively, or in the alternative:
24.2.1 Landlord may continue this Lease in full force and effect,
and this Lease shall continue in full force and effect as long as Landlord does
not terminate this Lease, and Landlord shall have the right to collect Base
Rent, additional rent and other charges when due.
24.2.2 Landlord may terminate this Lease, or may terminate
Tenant's right to possession of the Premises, at any time by giving written
notice to that effect, in which event Landlord may (but shall not be obligated
to) relet the Premises or any part thereof. Upon the giving of a notice of the
termination of this Lease, this Lease (and all of Tenant's rights hereunder)
shall immediately terminate, provided that, without limitation, Tenant's
obligation to pay Base Rent, Costs of Electricity, Expense Increases and Tax
Increases (as well as any damages otherwise payable under this Section 24),
shall survive any such termination and shall not be extinguished thereby (but
shall be reduced by any rental payments Landlord in fact receives after any
reletting of the Premises or any portion thereof, as more fully set forth
below). Upon the giving of a notice of the termination of Tenant's right of
possession, all of Tenant's rights in and to possession of the Premises shall
terminate but this Lease shall continue subject to the effect of this Section
24. Upon either such termination, Tenant shall surrender and vacate the Premises
in the condition required by Section 26, and Landlord may re-enter and take
possession of the Premises and all the remaining improvements or property and
eject Tenant or any of the Tenant's subtenants, assignees or other person or
persons claiming any right under or through Tenant or eject some and not others
or eject none. This Lease may also be terminated by a judgment specifically
providing for termination. Any termination under this section shall not release
Tenant from the payment of any sum then due Landlord or from any claim for
damages or Base Rent, additional rent or other sum previously accrued or
thereafter accruing against Tenant, all of which shall expressly survive such
termination. Upon such termination Tenant shall be liable immediately to
Landlord for all costs Landlord incurs in attempting to relet the Premises or
any part thereof, including, without limitation, broker's commissions, expenses
of cleaning and redecorating the Premises required by the reletting and like
costs. Reletting may be for a period shorter or longer than the remaining Lease
Term. No act by Landlord other than giving written notice to Tenant shall
terminate this Lease. Acts of maintenance, efforts to relet
<PAGE>
the Premises or the appointment of a receiver on Landlord's initiative to
protect Landlord's interest under this Lease shall not constitute a constructive
or other termination of Tenant's right to possession or of this Lease, either of
which may be effected solely by an express written notice from Landlord to
Tenant. On termination, Landlord has the right to recover from Tenant as
damages:
(a) The worth at the time of award of unpaid Base Rent,
additional rent and other sums due and payable which had been earned at the time
of termination; plus
(b) The worth at the time of award of the amount by which
the unpaid Base Rent, additional rent and other sums due and payable which would
have been payable after termination until the time of award exceeds the amount
of such rent loss that Tenant proves could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by which
the unpaid Base Rent, additional rent or other sums due and payable for the
balance of the Lease Term after the time of award exceeds the amount of such
rent loss that Tenant proves could be reasonably avoided; plus
(d) Any other amount necessary which is to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease, or which, in the ordinary course of
things, would be likely to result therefrom, including, without limitation, any
costs or expenses incurred by Landlord: (i) in retaking possession of the
Premises; (ii) in maintaining, repairing, preserving, restoring, replacing,
cleaning, altering or rehabilitating the Premises or a portion thereof,
including such acts for reletting to a new tenant or tenants; (iii) for leasing
commissions; or (iv) for any other costs necessary or appropriate to relet the
Premises; plus
(e) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
the laws of the State in which the Premises are located.
The "worth at the time of award" of the amounts referred
to in Sections 24.2.2(a) and (b) is computed by allowing interest at the Default
Rate on the unpaid rent and other sums due and payable from the termination date
through the date of award. In lieu of the amounts recoverable in a lump sum by
Landlord pursuant to clauses (b) and (c) of this Section 24.2.2, above, but in
addition to the amounts specified in clauses (a), (d), and (e) (or any other
portion of this Section 24), Landlord may, at its sole election, recover
"Indemnity Payments," as defined hereinbelow, from Tenant. For purposes of this
Lease "Indemnity Payments" means an amount equal to the Base Rent, additional
rent and other payments provided for in this Lease which would have become due
and owing thereunder from time to time during the unexpired Lease Term after the
effective date of the termination, but for such termination, less the Base Rent,
additional rent and other payments, if any, actually collected by Landlord and
allocable to the Premises. If Landlord elects to pursue Indemnity Payments in
lieu of the amount recoverable in a lump sum by Landlord under clauses (b) and
(c), above, Tenant shall, on demand, make Indemnity Payments monthly, and
Landlord may sue for all Indemnity Payments at any time
<PAGE>
after they accrue, either monthly, or at less frequent intervals. Tenant further
agrees that Landlord may bring suit for Indemnity Payments at or after the end
of the Lease Term as originally contemplated under this Lease, and Tenant agrees
that, in such event, Landlord's cause of action to recover the Indemnity
Payments shall be deemed to have accrued on the last day of the Lease Term as
originally contemplated. In seeking any new tenant for the Premises, Landlord
shall be entitled to grant any concessions it deems reasonably necessary. In no
event shall Tenant be entitled to any excess of any rental obtained by reletting
over and above the rental herein reserved. Tenant waives redemption or relief
from forfeiture under any other present or future law, in the event Tenant is
evicted or Landlord takes possession of the Premises by reason of any default of
Tenant hereunder.
24.2.3 Landlord may, with or without terminating this Lease, but
only upon applicable legal process, re-enter the Premises and remove all persons
and property from the Premises; such property may be removed and stored in a
public warehouse or elsewhere at the cost of and for the account of Tenant, or,
as otherwise provided in this Lease, shall be deemed abandoned by Tenant, and
may be disposed of by Landlord at Tenant's expense and free from any claim by
Tenant or anyone claiming by, through or under Tenant. No re-entry or taking
possession of the Premises by Landlord pursuant to this Section shall be
construed as an election to terminate this Lease unless a written notice of such
intention is given to Tenant.
24.2.4 To the extent such waivers are permitted by applicable
law, and solely after an Event of Default by Tenant (after expiration of all
applicable cure periods, if any), Tenant, on its own behalf and on behalf of all
persons claiming through or under Tenant, including all creditors, does hereby
specifically waive and surrender any and all rights and privileges which Tenant
and all such persons might otherwise have under any present or future law (1) to
the service of any notice to quit or of Landlord's intention to re-enter or to
institute legal proceedings, which notice may otherwise be required to be given,
except the foregoing shall not waive any notices required under Section 24.1,
above; (2) to redeem re-enter or repossess the Premises after Tenant's right of
possession has been terminated by Landlord after such Event of Default by
Tenant; (3) to restore the operation of this Lease, with respect to any
dispossession of Tenant by judgment or warrant of any court or judge, or any
expiration or termination of this Lease, whether such dispossession, expiration
or termination shall be by operation of law or pursuant to the provisions of
this Lease, or (4) to the benefit of any law which exempts property from
liability for debt or for distress for rent.
25. SUBORDINATION.
--------------
25.1 Subordination. Subject to Section 25.2, below, this Lease is and
shall at all times be and remain subject and subordinate to the lien of any
mortgage, deed of trust, ground lease or underlying lease now or hereafter in
force against the Premises, and to all advances made or hereafter to be made
upon the security thereof. Although the foregoing subordination shall be
self-effectuating, Tenant shall execute and return to Landlord any documentation
requested by Landlord consistent with this Section 25 in order to confirm the
foregoing subordination, within five (5) business days after Landlord's written
request. If Tenant fails to provide Landlord with such subordination documents
within five (5) business days after Landlord's written request, the same shall
constitute a default by Tenant hereunder without requirement of any further
notice or
<PAGE>
right to cure. In the event any proceedings are brought for foreclosure, or in
the event of the exercise of the power of sale under any mortgage or deed of
trust made by the Landlord covering the Premises, Tenant shall attorn to the
purchaser at any such foreclosure, or to the grantee of a deed in lieu of
foreclosure, and recognize such purchaser or grantee as the Landlord under this
Lease, provided such purchaser assumes, either expressly or by operation of law,
the obligations of "Landlord" arising under this Lease after the date title to
the Land and Building is transferred to such purchaser or grantee. Tenant agrees
that no mortgagee or successor to such mortgagee shall be (i) bound by any
payment of Rent or additional rent for more than one (1) month in advance, (ii)
bound by any amendment or modification of this Lease made without the consent of
Landlord's mortgagee or such successor in interest, (iii) liable for damages for
any breach, act or omission of any prior landlord, except for a breach which is
of a continuing nature and which continues after such mortgagee or successor has
taken possession of the Building, has been notified of the applicable breach in
writing, and has failed to cure same within the cure period otherwise afforded
Landlord hereunder, (iv) bound to effect or pay for any construction for
Tenant's occupancy, (v) subject to any claim of offset or defenses that Tenant
may have against any prior landlord and which have accrued prior to the date
that such mortgagee or successor takes legal title to the Land and Building, or
(vi) liable for the return of any security deposit, unless such security deposit
has been physically received by such mortgagee. Any such mortgagee shall have
the right, at any time, to subordinate to this Lease any instrument to which
this Lease is otherwise subordinated by operation of this Section 25.
25.2 Notwithstanding Section 25.1, above, to the contrary, Landlord
agrees that the subordination of this Lease to any future mortgage (or ground
lease) shall be conditioned upon the delivery to Tenant of a "Subordination,
Non-Disturbance and Attornment Agreement" ("SNDA") from such future mortgagee
(or ground lessor), in substantially the form attached as Exhibit H hereto or
such other commercially reasonable form of SNDA which may be required by such
mortgagee (or ground lessor), and which shall provide, inter alia, that so long
as Tenant is not in default hereunder (beyond any applicable notice and cure
period) and attorns to such mortgagee (or ground lessor) or any
successor-in-title thereto due to a foreclosure or deed-in-lieu thereof (or a
termination of such ground lease), Tenant's rights under this Lease, including
its right of possession of the Premises, shall not be disturbed in the event of
a foreclosure of such mortgage or deed of trust (or a termination of such ground
lease). Landlord shall also use commercially reasonable efforts to obtain an
SNDA from its current mortgagee of the Property.
26. SURRENDER OF POSSESSION.
------------------------
Upon expiration of the Lease Term, Tenant shall promptly and peacefully
surrender the Premises to Landlord, broom clean and free of all of its
furniture, movable fixtures and equipment and otherwise in as good condition as
when received by Tenant from Landlord or as thereafter improved, reasonable use
and wear and tear and damage by insured casualty excepted, all to the reasonable
satisfaction of Landlord. If the Premises are not surrendered as and when
aforesaid, and in accordance with the terms of this Lease, Tenant shall
indemnify Landlord against all claims, losses, costs, expenses (including
reasonable attorneys' fees) and liabilities resulting from the delay by Tenant
in so surrendering the same, including any claims made by any succeeding
occupant founded on such delay. This indemnification shall survive termination
of this Lease.
<PAGE>
27. NON-WAIVER.
-----------
Waiver by Landlord of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of such term, covenant, or
condition(s), or any subsequent breach of the same or any other term, covenant
or condition of this Lease, other than the failure of Tenant to pay the
particular rental so accepted, regardless of Landlord's knowledge of such
preceding breach at the time of acceptance of such Rent.
28. HOLDOVER.
---------
28.1 Holdover - Generally. If Tenant shall, without the written consent
of Landlord, hold over after the expiration of the Lease Term (hereinafter, an
"unauthorized holdover"), Tenant shall be deemed to be a tenant at sufferance,
which tenancy may be terminated immediately by Landlord as provided by
applicable state law. During any such holdover tenancy, unless Landlord has
otherwise agreed in writing, Tenant agrees to pay to Landlord a per diem
occupancy charge equal to (A) five percent (5%) of the stated monthly Base Rent
for the last full month of the Lease Term then ending for each day of the first
month of such holdover (or 150% of such monthly Base Rent for the entire first
month), (B) six percent (6%) of the stated monthly Base Rent for the last full
month of the Lease Term then ending for each day of the second month of such
holdover (or 180% of such monthly Base Rent for the entire second month), (C)
seven percent (7%) of the stated monthly Base Rent for that last full month of
the Lease Term then ending for each day of such holdover after the first two (2)
months thereof (but not to exceed 200% of such monthly Rent for each such full
month), and (D) one hundred percent (100%) of the additional rent which would
have been payable by Tenant for the period of such holdover, calculated on a per
diem basis using the additional rent which had otherwise been payable by Tenant
for the last full month of the Lease Term then ending. Such payments shall be
made within five (5) days after Landlord's demand, and in no event less often
than once per month (in arrears). In the case of a holdover which has been
consented to by Landlord, Tenant shall be deemed to be a month to month tenant
upon all of the terms and provisions of this Lease, except the monthly Base Rent
shall be as agreed by Landlord and Tenant with respect to such consented
holdover. Upon expiration of the Lease Term as provided herein, Tenant shall not
be entitled to any notice to quit, the usual notice to quit being hereby
expressly waived under such circumstances, and Tenant shall surrender the
Premises on the last day of the Lease Term as provided in Section 26, above. The
foregoing described per diem occupancy charge is in addition to, and not in lieu
of, any other claims for damages which Landlord may have or assert against
Tenant in connection with any unauthorized holdover, including any claims
arising out of Tenant's indemnity under Section 26, above.
29. CONDEMNATION.
-------------
29.1 Definitions. The terms "eminent domain", "condemnation", and
"taken", and the like in this Section 29 include takings for public or
quasi-public use, and sales under threat of condemnation and private purchases
in place of condemnation by any authority authorized to exercise the power of
eminent domain. Any temporary taking for a period in excess of twelve
<PAGE>
(12) consecutive months shall be deemed to be a permanent taking within the
meaning of this Section 29.
29.2 Taking. "Taking" shall mean and refer to the acquisition or taking
of property (or any right, title or interest therein) by any governmental or
quasi-governmental authority acting under power of condemnation or eminent
domain, and shall encompass contested as well as uncontested takings as long as
initiated by the applicable governmental or quasi-governmental authority. If the
whole of the Premises is temporarily taken for a period in excess of thirty (30)
days, or is permanently taken, in either case by virtue of a Taking, this Lease
shall automatically terminate as of the date title vests in the condemning
authority, and Tenant shall pay all Base Rent, additional rent, and other
payments up to that date. If (a) twenty percent (20%) or more of the Premises is
permanently taken by virtue of a Taking, or (b) in the case of a Taking of less
than twenty percent (20%) of the Premises, Tenant is unable to make reasonable
use of the balance of the Premises remaining after the Taking, as determined by
Tenant in its reasonable, good faith discretion, or (c) access to the Building
or Premises by Tenant is, by virtue of a Taking, permanently denied, or (d) if
free parking is provided for under this Lease, the parking ratio for the
Building is, by virtue of a Taking of any parking areas serving the Building,
permanently reduced to a ratio which fails to meet applicable code requirements
after taking into account any portion of the Building taken and any reasonable
substitute parking provided by Landlord in lieu of the parking areas so taken,
then Landlord and Tenant shall each have the right (to be exercised by written
notice to the other within sixty (60) days after receipt of notice of said
taking) to terminate this Lease effective upon the date when possession of the
applicable portion of the Property is taken thereunder pursuant to such Taking.
If neither party elects to terminate this Lease, as aforesaid, then Landlord
shall diligently, and within a reasonable time, after title vests in the
condemning authority, repair and restore, at Landlord's expense, the portion not
taken so as to render same into an architectural whole to the extent reasonably
practicable, and, if any portion of the Premises is taken, thereafter the Base
Rent (and Tenant's Share) shall be reduced (on a per square foot basis) in
proportion to the portion of the Premises taken. If there is a temporary Taking
involving the Premises or Building, or if a Taking of other portions of the
Building or common areas does not deny Tenant access to the Building and
Premises, or if less than twenty percent (20%) of the Premises is permanently
taken by a Taking and Tenant is able to make reasonable use of the balance of
the Premises as determined by Tenant in its reasonable good faith discretion,
then this Lease shall not terminate, and Landlord shall, as soon as reasonably
practicable thereafter, repair and restore, at its own expense, the portion not
taken so as to render same into an architectural whole to the fullest extent
reasonably practicable. If any portion of the Premises was permanently taken,
then the Base Rent (and Tenant's Share) shall be reduced (on a per square foot
basis) in proportion to the portion of the Premises taken, commencing on the
date Tenant is deprived of the use of such portion of the Premises. If any
portion of the Premises was temporarily taken, then the Base Rent (and Tenant's
Share) shall be reduced (on a per square foot basis) in proportion to the
portion of the Premises taken for the period of such temporary taking, that is,
from the date upon which Tenant is deprived of the use of such portion of the
Premises until the date Tenant is restored to the use of such portion of the
Premises.
29.3 Award. Landlord reserves all rights to damages to the Premises or
Building, or arising out of the loss of any leasehold interest in the Building
or Premises created hereby,
<PAGE>
arising in connection with any partial or entire taking by eminent domain or
condemnation. Tenant hereby assigns to Landlord any right Tenant may have to
such damages or award, and Tenant shall make no claim against Landlord or the
condemning authority for damages for termination of Tenant's leasehold interest
or for interference with Tenant's business as a result of such taking. The
foregoing notwithstanding, Tenant shall have the right to claim and recover from
the condemning authority separate compensation for any loss which Tenant may
incur for Tenant's moving expenses, business interruption or taking of Tenant's
personal property (but specifically excluding any leasehold interest in the
Building or Premises) under the then applicable eminent domain code, provided
that Tenant shall not make any claim that will detract from or diminish any
award for which Landlord may make a claim.
29.4 Mortgagee Rights. Tenant acknowledges that Landlord's right to any
condemnation award may be subject to the rights of Landlord's mortgagee (if any)
in and to such award under the mortgage or deed of trust (if any) which
encumbers the Building and Premises. Accordingly, Landlord's obligation to
repair and restore, as set forth in Section 29, above, shall be subject to the
requirements of Landlord's mortgagee with regard thereto, and the time within
which such obligation must be satisfied shall be adjusted as reasonably
necessary to reflect delays occasioned by the exercise by the mortgagee of such
mortgagee's rights.
30. NOTICES.
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All notices and demands which may be required or permitted to be given
to either party hereunder shall be in writing, and shall be delivered personally
or sent by United States certified mail, postage prepaid, return receipt
requested, or by Federal Express or other reputable overnight carrier, to the
addresses set out in Section 1.8, and to such other person or place as each
party may from time to time designate in a notice to the other. Notice shall be
deemed given upon the earlier of actual receipt or refusal of delivery.
31. MORTGAGEE PROTECTION.
---------------------
Tenant agrees to give any mortgagee(s) and/or trust deed holder(s), by
registered mail, a copy of any notice of default served upon the Landlord,
provided that prior to such notice Tenant has been notified in writing (by way
of notice of assignment of rents and leases, or otherwise) of the addresses of
such mortgagee(s) and/or trust deed holder(s). Tenant further agrees that if
Landlord shall have failed to cure such default within the time provided for in
this Lease, then the mortgagee(s) and/or trust deed holder(s) shall have an
additional thirty (30) days within which to cure such default or if such default
cannot be cured within that time, then such additional time as may be necessary
if within such thirty (30) days any mortgagee and/or trust deed holder(s) has
commenced and is diligently pursuing the remedies necessary to cure such default
(including but not limited to commencement of foreclosure proceedings, if
necessary to effect such cure), in which event Tenant shall not have the right
to pursue any claim against Landlord, such mortgagee and/or such trust deed
holder(s), including but not limited to any claim of actual or constructive
eviction, so long as such remedies are being so diligently pursued.
<PAGE>
32. COSTS AND ATTORNEYS' FEES.
--------------------------
In any litigation between the parties arising out of this Lease, and in
connection with any consultations with counsel and other actions taken or
notices delivered, in relation to a default by any party to this Lease, the
non-prevailing party shall pay to the prevailing party all reasonable expenses
and court costs including attorneys' fees incurred by the prevailing party, in
preparation for and (if applicable) at trial, and on appeal. Such attorneys'
fees and costs shall be payable upon demand.
33. BROKERS.
--------
Tenant represents and warrants to Landlord that neither it nor its
officers or agents nor anyone acting on its behalf has dealt with any real
estate broker in the negotiating or making of this Lease, and Tenant agrees to
indemnify and hold Landlord, its agents, employees, partners, directors,
shareholders and independent contractors harmless from all liabilities, costs,
demands, judgments, settlements, claims and losses, including reasonable
attorneys fees and costs, incurred by Landlord in conjunction with any such
claim or claims of any broker or brokers claiming to have interested Tenant in
the Building or Premises or claiming to have caused Tenant to enter into this
Lease.
34. LANDLORD'S LIABILITY AND DEFAULT.
---------------------------------
34.1 No Personal Liability. Anything in this Lease to the contrary
notwithstanding, covenants, undertakings and agreements herein made on the part
of the Landlord are made and intended not for the purpose of binding Landlord
personally or the assets of Landlord generally, but are made and intended to
bind only the Landlord's interest in the Premises and Building, as the same may,
from time to time, be encumbered, and no personal liability shall at any time be
asserted or enforceable against Landlord or its stockholders, officers or
partners or their respective heirs, legal representatives, successors and
assigns on account of the Lease or on account of any covenant, undertaking or
agreement of Landlord in this Lease. Accordingly, and notwithstanding any other
provisions of this Lease to the contrary, Tenant shall look solely to Landlord's
interest in the Premises and Building, and not to any other or separate business
or non-business assets of Landlord, or any partner, shareholder, member, officer
or representative of Landlord, for the satisfaction of any claim brought by
Tenant against Landlord, and if Landlord shall fail to perform any covenant,
term or condition of this Lease upon Landlord's part to be performed, and as a
consequence of such default Tenant shall recover a money judgment against
Landlord, such judgment shall be satisfied only (i) out of the proceeds of sale
received upon levy against the right, title and interest of Landlord in the
Building and/or (ii) to the extent not encumbered by a secured creditor, out of
the rents or other incomes receivable by Landlord from the property of which the
Premises are a part. In addition, in no event shall Landlord be in default of
this Lease unless Tenant notifies Landlord of the precise nature of the alleged
breach by Landlord, and Landlord fails to cure such breach within fifteen (15)
days after the date of Landlord's receipt of such notice (provided that if the
alleged breach is of such a nature that it cannot reasonably be cured within
such fifteen (15) day period, then Landlord shall not be in default if Landlord
commences a cure within such fifteen (15) day period and diligently thereafter
prosecutes such cure to completion).
<PAGE>
34.2 Notice and Cure. In no event shall Landlord be in default of this
Lease unless Tenant notifies Landlord of the precise nature of the alleged
breach by Landlord, and Landlord fails to cure such breach within fifteen (15)
days after the date of Landlord's receipt of such notice (provided (i) that if
the alleged breach is of such a nature that it cannot reasonably be cured within
such fifteen (15) day period, then Landlord shall not be in default if Landlord
commences a cure within such fifteen (15) day period and diligently thereafter
prosecutes such cure to completion, not to exceed ninety (90) days in the
aggregate within which to complete such cure, and (ii) in the event of an
Emergency, such grace or cure period may be shortened as reasonably necessary
given the scope and nature of the Emergency, provided such shortened grace or
cure period shall only apply to permit the exercise of Tenant's self help rights
under Section 34.4, below.
34.3 Rights and Remedies - Generally. In the event of a default by
Landlord after expiration of applicable cure periods, Tenant shall be entitled
to pursue all rights and remedies available at law or in equity except as
limited by this Lease, and in all events excluding consequential damages. In
addition, in no event shall Tenant have any right to terminate this Lease by
virtue of any uncured default by Landlord, except under circumstances which
amount to a constructive eviction under applicable principles of the law of the
state within which the Premises is located (and with respect to which Tenant
satisfies the requirements for a constructive eviction claim under applicable
law). Tenant shall use commercially reasonable efforts to mitigate its damages
in the event of any default by Landlord hereunder.
34.4 Tenant's Right to Perform Landlord's Obligations After a Default by
Landlord.
(a) Among other remedies permitted to be exercised by Tenant upon
a default by Landlord of its obligations hereunder after expiration of
applicable cure periods, and without waiving or releasing Landlord from any such
obligation of Landlord, Tenant may, but shall not be obligated to, perform any
such obligation of Landlord, and to recover from Landlord the reasonable and
actual costs incurred by Tenant in performing such obligation, which shall be
payable within thirty (30) days after Tenant's written demand accompanied by
reasonable substantiation of the applicable costs. The foregoing right to
perform Landlord's obligations shall only apply after the requisite notice and
opportunity to cure has been afforded to Landlord (including any shortened cure
period permitted in cases of Emergency, as long as Tenant notifies Landlord of
the needed repair or other default as soon as possible after tenant learns of
its existence).
(b) If Landlord fails to reimburse Tenant for its reasonable
costs and expenses in exercising its rights and remedies pursuant to Section
34.4(a), above, within thirty (30) days after receipt from Tenant of its written
demand for payment thereof, accompanied by reasonable substantiation of the
amount demanded and establishing Tenant's right thereto, and Landlord does not
dispute Tenant's right to such reimbursement in good faith by a written
communication specifying the nature of the dispute which is delivered to Tenant
prior to the end of such thirty (30) day period, then Tenant may thereafter
deduct the amount which is not in dispute, but which has not been paid by
Landlord within such thirty (30) day period, from the next payments of Base Rent
and Additional Rent payable by Tenant hereunder, until such amount has been
<PAGE>
satisfied in full. To the extent Landlord disputes any portion of the amount
demanded by Tenant (as specified in Landlord's written communication as
aforesaid), then Tenant may seek entry of a judgment against Landlord for the
amount thereof, plus interest at the Default Rate and Tenant's reasonable costs
of collection (including reasonable attorney's fees). If Tenant receives a
final, non-appealable judgment against Landlord, and Landlord fails to pay the
amount thereof within thirty (30) days after the same becomes final and
non-appealable, Tenant shall thereafter have the right (in addition to execution
upon Landlord as and to the extent permitted under Section 34.1, below) to
deduct the amount of such judgment against the next payments of Base Rent and
Additional Rent payable by Tenant hereunder, until such amount has been
satisfied in full. Except as set forth in this Section 34.4(b), Tenant shall not
have any right of offset or deduction due to a default by Landlord.
35. ESTOPPEL CERTIFICATES.
----------------------
Tenant shall, from time to time, within ten (10) days of Landlord's
written request, execute, acknowledge and deliver to Landlord or its designee a
written statement stating: the date the Lease was executed and the date it
expires; the date the Tenant entered occupancy of the Premises; the amount of
Rent, additional rent and other charges due hereunder and the date to which such
amounts have been paid; that this Lease is in full force and effect and has not
been assigned, modified, supplemented or amended in any way (or specifying the
date and terms of any agreement so affecting this Lease); that this Lease
represents the entire agreement between the parties as to this leasing (or
identifying any such other agreements); that all conditions under this Lease to
be performed by the Landlord have been satisfied (or specifying any such
conditions that have not been satisfied); that all required contributions by
Landlord to Tenant on account of Tenant's improvements have been received (or
specifying any such contributions that have not been received); that on the date
of such certificate there are no existing defenses or offset which the Tenant
has against the enforcement of this Lease by the Landlord (or specifying any
such defenses or offsets); that no Rent has been paid more than one (1) month in
advance (or, if so, the amount thereof); that no security has been deposited
with Landlord (or, if so, the amount thereof); and/or any other matters
evidencing the status of the Lease as may be required either by a lender or
prospective lender with respect to any loan to Landlord secured or to be secured
by a deed of trust or mortgage against the Building, or by a purchaser or
prospective purchaser of the Building, Landlord's interest therein or Landlord's
ownership interests, which written statement shall be in substantially the same
form as Exhibit F attached hereto and made a part hereof by this reference. It
is intended that any such statement delivered pursuant to this paragraph may be
relied upon by a prospective purchaser of Landlord's interest or a mortgagee of
Landlord's interest or assignee of any mortgage upon Landlord's interest in the
Building. If Tenant fails to respond within ten (10) days after receipt by
Tenant of a written request by Landlord as herein provided, Tenant shall be
deemed to have given such certificate as above provided without modification and
shall be deemed to have admitted the accuracy of any information supplied by
Landlord to a prospective purchaser or mortgagee.
<PAGE>
36. FINANCIAL STATEMENTS.
---------------------
In addition to any financial reporting required under Section 3.1,
above, Tenant agrees that, within ten (10) days after Landlord's request, which
may be made not more than once per fiscal quarter with regard to quarterly
reports, and once per annum with regard to annual reports, Tenant shall deliver
to Landlord Tenant's unaudited quarterly financial statement for the most recent
fiscal quarter and (to the extent not previously delivered by Tenant to
Landlord) Tenant's audited annual financial statement for the two (2) most
recent fiscal years. Such quarterly and annual financial statements shall
include, at a minimum, a balance sheet, a profit and loss statement and
accompanying notes, as of the date prepared. Tenant hereby agrees and Landlord
hereby acknowledges that Tenant's annual financial statements shall be completed
within ninety (90) days after Tenant's fiscal year-end and that Tenant's
quarterly financial statements shall be completed within thirty (30) days after
Tenant's fiscal quarter-end. The certified public accountant preparing such
annual financial statements shall provide an opinion that any such annual
financial statements are complete and materially accurate and that the same have
been prepared in accordance with generally accepted accounting principles
consistently applied.
37. TRANSFER OF LANDLORD'S INTEREST.
--------------------------------
In the event of any transfer(s) of Landlord's interest in the Premises
or the Building, other than a transfer for security purposes only, the
transferor shall be automatically relieved of any and all obligations and
liabilities on the part of Landlord accruing from and after the date of such
transfer, to the extent such obligations are assumed by the transferee either
expressly or by operation of law, and Tenant agrees to attorn to the transferee.
38. RIGHT TO PERFORM.
-----------------
If Tenant shall fail to make any payment or perform any other act on its
part to be performed hereunder, and such failure is not cured within fifteen
(15) days after written notice from Landlord (provided that (a) where such
failure cannot reasonably be cured within a fifteen (15) day period, Tenant
shall not be in default if it commences such performance promptly after
receiving Landlord's notice of Tenant's failure to perform and diligently
thereafter prosecutes the same to completion, such grace period not to exceed a
maximum of sixty (60) days in the aggregate, and (b) no such grace or cure
period (or such shorter grace or cure period as is set forth below) shall be
required in the event of Emergency), Landlord may, but shall not be obligated
to, perform any such obligation of Tenant, and to recover from Tenant the
reasonable and actual costs incurred by Landlord in performing such obligation,
which shall be payable within thirty (30) days after Landlord's written demand
accompanied by reasonable substantiation of the applicable costs, as additional
rent hereunder. Landlord shall have (in addition to any other right or remedy of
Landlord) the same rights and remedies in the event of the nonpayment of sums
due under this section as in the case of default by Tenant in the payment of
Rent. All sums paid by Landlord and all penalties, interest and costs in
connection therewith, shall be due and payable by Tenant together with interest
thereon at the Default Rate, which shall be calculated from the date incurred by
Landlord until the date of payment.
39. [INTENTIONALLY DELETED]
<PAGE>
40. SALES AND AUCTIONS.
-------------------
Tenant may not display or sell merchandise outside the exterior walls
and doorways of the Premises and may not use such areas for storage. Tenant
agrees not to install any exterior lighting, amplifiers or similar devices in or
about the Premises. Tenant shall not conduct or permit to be conducted any sale
by auction in, upon or from the Premises whether said auction be voluntary,
involuntary, pursuant to any assignment for the payment of creditors or pursuant
to any bankruptcy or other insolvency proceedings.
41. NO ACCESS TO ROOF.
------------------
Except as and solely to the extent expressly set forth in this Lease,
Tenant shall have no right of access to the roof of the Premises or the Building
and shall not install, repair or replace any aerial, fan, air conditioner or
other device on the roof of the Premises or the Building without the prior
written consent of Landlord.
42. SECURITY.
---------
Tenant hereby agrees to the exercise by Landlord and its agents and
employees, within their sole discretion, of such security measures as Landlord
deems necessary for the Building. Tenant may install a security system within
the Premises, provided such system and its installation (i) shall be subject to
Landlord's prior written approval, which shall not be unreasonably withheld
(provided it shall not be unreasonable for Landlord to deny consent to any
system which is not compatible with the building's overall security and fire
safety and life safety systems, or which is not reasonably usable by any
successor tenants in the Premises), (ii) shall be in accordance with all
applicable legal requirements (iii) shall be performed at Tenant's sole expense,
and shall be otherwise be installed in accordance with the provisions governing
Alterations under this Lease.
43. AUTHORITY OF TENANT.
--------------------
If Tenant is a corporation or partnership, each individual executing
this Lease on behalf of said corporation or partnership represents and warrants
that he is duly authorized to execute and deliver this Lease on behalf of said
corporation or partnership, and that this Lease is binding upon said corporation
or partnership.
44. NO ACCORD OR SATISFACTION.
--------------------------
No payment by Tenant or receipt by Landlord of a lesser amount than the
Rent and other sums due hereunder shall be deemed to be other than on account of
the earliest rent or other sums due, nor shall any endorsement or statement on
any check or accompanying any check or payment be deemed an accord and
satisfaction; and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such Rent or other sum and to pursue
any other remedy provided in this Lease.
<PAGE>
45. MODIFICATION FOR LENDER.
------------------------
If in connection with obtaining financing for the Building or any
portion thereof, Landlord's lender shall request reasonable modifications to
this Lease as a condition to such financing, or as a condition to such Lender's
approval of this Lease, Tenant shall not unreasonably withhold, delay, or defer
its consent to such modification provided such modifications do not materially
adversely affect Tenant's rights hereunder.
46. PARKING.
--------
Tenant shall have the right to park in the Building parking facilities
in common with other tenants of the Building upon such terms and conditions,
including the imposition of a reasonable parking charge, if the same is
established by Landlord at any time during the term of this Lease. Tenant agrees
not to overburden the parking facilities and agrees to cooperate with Landlord
and other tenants in use of the parking facilities. Landlord reserves the right
in its sole, but reasonable, discretion to determine whether the parking
facilities are becoming overburdened by any tenant of the Building (including
Tenant) based on such tenant's percentage share of the rentable area of the
Building. Landlord shall have the absolute right (i) to allocate and assign
parking spaces among some or all of the tenants of the Building (and Tenant
shall comply with any such parking assignments), (ii) to reconfigure the parking
area and (iii) modify the existing ingress to and egress from the parking area
as Landlord shall deem appropriate, as long as access to such area is maintained
after such modification is completed. The foregoing notwithstanding, Landlord
agrees that, as part of Tenant's total parking allocation, Landlord shall assign
and reserve for the exclusive use of Tenant's employees, agents and invitees
thirty (30) reserved parking spaces in the location marked on Exhibit A-3 as the
"Reserved Parking Spaces".
47. GENERAL PROVISIONS.
-------------------
47.1 Acceptance. The delivery of any draft of this Lease, including a
so-called "execution draft", shall not constitute an offer of any kind, and this
Lease shall only become effective and binding upon full execution hereof by
Landlord and Tenant, and delivery of a signed copy by Landlord to Tenant.
47.2 Joint Obligation. If there be more than one Tenant, the obligations
hereunder imposed shall be joint and several.
47.3 Marginal Headings, Etc. The marginal headings, Table of Contents,
lease summary sheet and titles to the sections of this Lease are not a part of
the Lease and shall have no effect upon the construction or interpretation of
any part hereof.
47.4 Choice of Law. This Lease shall be governed by and construed in
accordance with the laws of the State in which the Premises is located (without
regard to the choice of law and/or conflict of law principles applicable in such
State).
47.5 Successors and Assigns. The covenants and conditions herein
contained, subject to the provisions as to assignment, inure to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
<PAGE>
47.6 Recordation. Except to the extent otherwise required by law,
neither Landlord nor Tenant shall record this Lease, but a short-form memorandum
hereof may be recorded at the request of Landlord.
47.7 Quiet Possession. Upon Tenant's paying the Rent reserved hereunder
and observing and performing all of the covenants, conditions and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Premises for the Lease Term hereof, free from any disturbance
or molestation by Landlord, or anyone claiming by, through or under Landlord,
but in all events subject to all the provisions of this Lease.
47.8 Inability to Perform; Force Majeure. This Lease and the obligations
of the parties hereunder shall not be affected or impaired because the other
party is unable to fulfill any of its obligations hereunder (or is delayed in
doing so) to the extent such inability or delay is caused by reason of war,
civil unrest, strike, labor troubles, unusually inclement weather, unusual
governmental delays, inability to procure services or materials despite
reasonable efforts, third party delays, acts of God, or any other cause(s)
beyond the reasonable control of such party (which causes are referred to
collectively herein as "Force Majeure"), provided (i) in no event shall any
monetary obligations, including without limitation the Tenant's obligation to
pay Base Rent or additional rent, be extended due to Force Majeure, (ii) in no
event shall financial inability constitute a cause beyond the reasonable control
of a party, and (iii) in order for any party hereto to claim the benefit of a
delay due to Force Majeure, such party shall be required to use reasonable
efforts to minimize the extent and duration of such delay, and to notify the
other party of the existence and nature of the cause of such delay within a
reasonable time after the such delay first commences. Except as limited by the
foregoing clauses (i), (ii) and (iii), any time specified non-monetary
obligation of a party in this Lease shall be extended one day for each day of
delay suffered by such party as a result of the occurrence of any Force Majeure.
47.9 Partial Invalidity. Any provision of this Lease which shall prove
to be invalid, void, or illegal shall in no way affect, impair or invalidate any
other provision hereof and such other provision(s) shall remain in full force
and effect.
47.10 Cumulative Remedies. No remedy or election hereunder shall be
deemed exclusive but shall, whenever possible, be cumulative with all other
remedies at law or in equity.
47.11 Entire Agreement. This Lease contains the entire agreement of the
parties hereto and no representations, inducements, promises or agreements, oral
or otherwise, between the parties, not embodied herein, shall be of any force or
effect.
47.12 Survival. All indemnities set forth in this Lease shall survive
the expiration or earlier termination of this Lease.
47.13 Consents. If any provision of this Lease subjects any action,
inaction, activity or other right or obligation of Tenant to the prior consent
or approval of Landlord, Landlord shall be deemed to have the right to exercise
its sole and unfettered discretion in determining whether to grant or deny such
consent or approval, unless the provision in question states that Landlord's
consent or approval "shall not be unreasonably withheld", in which event
Landlord's consent shall be subject to Landlord's sole, but reasonable,
discretion.
<PAGE>
47.14 Saving Clause. In the event (but solely to the extent) the
limitations on Landlord's liability set forth in Section 8.3 of this Lease would
be held to be unenforceable or void in the absence of a modification holding the
Landlord liable to Tenant or to another person for injury, loss, damage or
liability arising from Landlord's omission, fault, negligence or other
misconduct on or about the Premises, or other areas of the Building appurtenant
thereto or used in connection therewith and not under Tenant's exclusive
control, then such provision shall be deemed modified as and to the extent (but
solely to the extent) necessary to render such provision enforceable under
applicable law. The foregoing shall not affect the application of Section 34 of
this Lease to limit the assets available for execution of any claim against
Landlord.
47.15 Reservation. Nothing herein set forth shall be deemed or construed
to restrict Landlord from making any modifications to any of the parking and/or
common areas serving the Building and/or Premises as of the date of execution
hereof, and Landlord expressly reserves the right to make any modifications to
such areas as Landlord may deem appropriate, including but not limited to, the
addition or deletion of temporary and/or permanent improvements therein, and/or
the conversion of areas now dedicated for the non-exclusive common use of
tenants (including Tenant) to the exclusive use of one (1) or more tenants or
licensees within the Building.
47.16 Keys. The cost of any suite keys or security keys to the Building
beyond those already within Tenant's possession shall be reimbursed by Tenant to
Landlord upon demand.
47.17 Rule Against Perpetuities. In order to ensure the compliance of
this Lease with any rule against perpetuities that may be in force in the state
in which the Premises are located, and without limiting or otherwise affecting
Landlord's and Tenant's rights and obligations under this Lease, as stated in
the other sections hereof, Landlord and Tenant agree that, irrespective of the
reasons therefor (other than a default by Tenant), in the event Tenant fails to
take possession of the Premises and commence paying Base Rent hereunder within
twenty (20) years after the date of execution of this Lease, then this Lease,
and the obligations of the parties hereunder, shall be deemed to be null and
void and of no further force and effect. Without affecting the specific timing
requirements otherwise applicable thereto under this Lease, any and all options
granted to Tenant under this Lease (including, without limitation, expansion,
renewal, right of first refusal, right of first offer, and like options) must be
exercised by Tenant, if at all, during the term of this Lease.
47.18 Certain Terminology.
--------------------
A. The terms "including", "includes" and terms of like import
shall be interpreted to mean "including, but not limited to" and/or "includes,
without limitation."
B. The terms "herein", "hereunder", "hereinbelow", "above" and/or
"below", and any terms of like import, shall be interpreted to mean this Lease
as a whole, and not merely the Section, paragraph or subparagraph within which
such term is set forth.
C. As used in those provisions of this Lease where Tenant is
agreeing to assume responsibility for certain conduct, actions and/or omissions
of "Tenant", the term "Tenant" shall be construed to mean Tenant, and Tenant's
agents, employees, contractors,
<PAGE>
subcontractors, assignees, sublessees, licensees and, while within the Premises,
invitees and business visitors.
D. The term "Emergency" shall mean and refer to any situation or
circumstance where there is an immediate or imminent risk of injury or death to
persons or damage to property unless immediate action is taken to address such
situation or circumstances, as determined by the party invoking such term in
good faith.
48. [INTENTIONALLY DELETED]
-----------------------
49. WAIVER OF JURY TRIAL.
---------------------
Landlord and Tenant hereby waive trial by jury in any action, proceeding
or counterclaim brought by either of them against the other on all matters
arising out of this Lease, or the use and occupancy of the Premises. If Landlord
commences any summary proceeding for non-payment of Rent, Tenant will not
interpose (and waives the right to interpose) any non-mandatory counterclaim in
any such proceeding.
50. RENEWAL OPTION
A. General. Provided that (i) both at the time of the exercise of the
option hereinafter set forth and at the time of commencement of the Renewal Term
(as hereinafter defined) this Lease is in full force and effect, and provided
further that Tenant is not then in default hereunder beyond the expiration of
any applicable notice and cure period provided for in this Lease and (ii) Tenant
is in occupancy of at least fifty percent (50%) of the Premises for the purpose
of conducting its own business, Tenant is hereby granted the option to renew the
Lease Term for one (1) additional period(s) of sixty (60) months (the "Renewal
Term"), such Renewal Term to commence at the expiration of the initial Lease
Term. Tenant shall exercise its option to renew by delivering notice of such
election (the "Renewal Notice") to Landlord not less than nine (9) months nor
more than twelve (12) months prior to the expiration of the initial Lease Term.
In the event that Landlord does not receive the Renewal Notice prior to the
expiration of such time period (time being of the essence with respect thereto),
then such option to renew the Lease Term shall, upon the expiration of such time
period, become null and void and be of no further force or effect and Tenant
shall, at the request of Landlord, execute an instrument in form and substance
acceptable to Landlord confirming such facts.
B. Terms. The Renewal Term shall be upon the same terms and conditions
of this Lease except that (a) unless Landlord and Tenant reach agreement on a
different Base Rent amount at the time, the annual Base Rent during each year of
the Renewal Term shall be equal to the greater of (i) $32.00 per rentable square
foot of the Premises (being the Base Rent in effect as of the last day of the
initial Lease Term), escalating annually in an amount equal to three percent
(3%) of the prior year's Base Rent per annum, or (ii) at an annual rate equal to
the annual fair market rental and escalation rate ("FMR") for space comparable
to the Premises for the Renewal Term as determined by the Three Appraiser Method
set forth in Section 50.C of this Lease; (b) Tenant shall have no option to
renew the Lease Term beyond the expiration of the Renewal Term; and (c) the
Premises shall be delivered in their existing condition (on an "as is" basis) at
the time the Renewal Term commences.
<PAGE>
C. Three Appraiser Method. If the parties are unable to agree upon the
FMR for comparable space, said rental rate shall be determined by arbitration in
the following manner:
(i) Landlord and Tenant shall each appoint one arbitrator who
shall, by profession, be an M.A.I. real estate appraiser, and who shall have
been active over the five (5) year period ending on the date of the Renewal
Notice in the appraisal of office properties in the Boston metropolitan area,
including specifically the Newton submarket. Each such arbitrator shall be
appointed within ten (10) business days after the date of the Renewal Notice.
(ii) The two arbitrators so appointed shall, within ten (10)
business days of the date of the appointment of the last appointed arbitrator,
agree upon and appoint a third arbitrator who shall be qualified based upon the
same criteria set forth hereinabove for the qualification of the initial two
arbitrators.
(iii) The three arbitrators shall within thirty (30) days of the
appointment of the third arbitrator reach a decision the regarding the
prevailing fair market rental and escalation rate for comparable space in the
Boston metropolitan area, including specifically the Newton submarket and notify
Landlord and Tenant thereof.
(iv) The decision of the majority of the three arbitrators shall
be binding upon Landlord and Tenant. Failure of a majority of said arbitrators
to reach agreement shall result in the prevailing fair market rental for
comparable space in the Boston metropolitan area, including specifically the
Newton submarket being designated by averaging the appraisals of the three
arbitrators, ignoring for the purposes of such averaging any appraisal which is
more than ten percent (10%) in excess of or ten percent (10%) less than the
middle appraisal.
(v) If either Landlord or Tenant fails to appoint an arbitrator
within the time period specified in subparagraph (i) hereinabove, the arbitrator
appointed by one of them shall reach a decision and notify Landlord and Tenant
thereof, and such arbitrator's decision shall be binding upon Landlord and
Tenant.
(vi) The cost of arbitration shall be paid by Landlord and Tenant
equally.
(vii) In no event shall the Base Rent payable during the first
year of the Renewal Term be less than the Base Rent payable immediately
preceding the Renewal Term.
The term "comparable space" as used herein for the purpose of
determining "market rates" shall mean buildings of the same quality as the
Building and located in the Boston metropolitan area, including specifically the
Newton submarket.
D. New Lease After Renewal Term. Except for the renewal option set forth
above in this Section 50, this Lease may only be extended beyond the Lease
Expiration Date by the parties executing a mutually agreeable new lease based on
Landlord's then current lease form or by an extension agreement signed by both
parties making specific reference to this Lease. No proposals, offers,
correspondence, or the like shall be legally binding upon Landlord unless and
until the terms thereof are incorporated in either a new lease or a formal
amendment to this Lease as provided in this subsection.
<PAGE>
51. RIGHT OF FIRST OFFER.
---------------------
51.1 Subject to all pre-existing renewal and/or expansion rights of any
other tenants in the Building as of the date hereof, if any, Tenant is hereby
granted a right of first offer on any space in the Building which is contiguous
to (and, for purposes of determining contiguity, located on the same floor as)
the Premises (such space, "Contiguous Space"), in accordance with and subject to
the terms of this Section 51. Such right of first offer shall apply to all, but
not less than all, of each Contiguous Space that becomes available for lease
during the Term of this Lease (including any extension Term) provided the terms
of this Section 51 regarding the minimum term of any Expansion Lease are
satisfied. All references in this Section 51 to any right of first offer shall
mean and refer only the right of first offer which is established and applicable
under this Section 51. The right of first offer under this Section 51 shall be
"activated" once Landlord has determined that a Contiguous Space will become
available for occupancy as of a date certain, and has notified Tenant of such
determination in writing. At such time (hereinafter, each an "Offer Date"),
Landlord shall give notice (an "Offer Notice") to Tenant of the activation of
such right of first offer on such Contiguous Space, including a description of
the rentable area of the building as to which such Offer Notice is given (herein
referred to as the "Offer Space"); and (ii) the date on which Landlord estimates
in good faith that the Offer Space will be available for occupancy (the
"Applicable Expansion Date").
51.2 Tenant may, within ten (10) business days after the receipt of each
such Offer Notice, give notice to Landlord in writing agreeing to lease the
Offer Space in accordance with the terms set forth in this Section 51. If Tenant
shall give such notice, then Landlord shall within ten (10) business days after
deliver to Tenant a new lease or amendment to this Lease (either, an "Offer
Lease") with respect to the Offer Space having the legal terms consistent with
the legal terms specified in this Lease, and incorporating such Offer Space into
this Lease as of the Applicable Expansion Date, except for any modifications to
the business terms of such Offer Lease as described in Section 51.4, below.
51.3 Should Tenant fail to give notice under Subparagraph 51.2 above
within the time provided, or if Tenant shall fail to execute and deliver the
Offer Lease to Landlord within fifteen (15) business days after delivery to
Tenant of an Offer Lease which reflects the agreed upon terms, then in either
such event, Tenant's right of first offer under this Section 29.3 as to such
Offer Space shall be deemed to have lapsed, and Landlord shall be free to lease
such Offer Space to a third party on any terms Landlord deems appropriate, and
Tenant's right of first offer under this Section 51 as to such Offer Space shall
thereafter be null and void. In addition, if Tenant exercises its right of first
offer hereunder as to an Offer Space, and then fails or refuses to execute an
Offer Lease which reflects the agreed upon terms applicable to such Offer Space,
then Tenant's right of first offer under this Section 51 shall fully and forever
terminate for all purposes, and Tenant shall thereafter have no further right of
first offer under this Lease. Time is of the essence of this Section 51.
51.4 If Tenant exercises its right of first offer under this Section 51,
then the Offer Space shall be incorporated within this Lease as of the
Applicable Expansion Date on the same business terms as are in effect under this
Lease as of the Applicable Expansion Date, except as hereafter provided. In all
events, the Lease Expiration Date under this Lease and the Lease Expiration Date
under any Offer Lease shall coincide. The foregoing notwithstanding (i) in no
event shall the term of any Offer Lease be less than three (3) full years, so
that Tenant shall not have the right to exercise its right of first offer
hereunder as to any Offer Space at any time when
<PAGE>
there are less than three (3) full years remaining in the Term, unless Tenant
concurrently exercises its renewal option (and then solely to the extent Tenant
is still entitled to exercise its renewal option hereunder) so as to extend the
Term of this Lease (and thus the Term of the Offer Lease) beyond three (3)
years; (ii) Base Rent under the Offer Lease shall equal the Base Rent in effect
under this Lease as of the Applicable Expansion Date, and shall escalate
concurrently with any escalations provided for hereunder, so that the Base Rent
under the Offer Lease is at all times equal to the Base Rent payable hereunder
for the originally leased Premises; (iii) the Offer Space shall be added to the
Premises for purposes of calculating Tenant's Share hereunder, and Tenant's
Share of Expense Increases and Tenant's Share of Tax Increases, as described in
Sections 9 and 10 herein, shall be calculated for the Offer Space in exactly the
same manner (and using the same Base Year) as such items are calculated for the
originally leased Premises; and (iv) the Offer Space shall be delivered to
Tenant in its then current "as-is, where-is" condition, except Landlord shall
provide to Tenant, on the same basis as the same is provided to Tenant pursuant
to Exhibit C hereof, a Refurbishment Allowance (which must be used for
improvements or refurbishment to the Offer Space within one (1) year after the
Applicable Expansion Date), equal to the product of (a) Ten Dollars ($10.00) per
rentable square foot of the Offer Space, and (b) a fraction, the numerator of
which is the number of months of the Term of the Offer Lease, but not more than
72, and the denominator of which is 72. The construction of any Tenant
Improvements to the Offer Space shall be handled in a manner substantially
identical to Exhibit C hereto. Such Offer Lease will not provide for any further
expansion options.
51.5 The right of first offer provided for in this Section 51 shall be
personal to Tenant, and may not be assigned by Tenant. Accordingly, upon any
assignment of this Lease by Tenant, this Section 51 shall be null and void and
of no further force and effect.
52. ADDITIONAL SCHEDULES.
---------------------
The following additional schedules are attached hereto and made a part
of this Lease:
EXHIBIT A-1 Location and Dimensions of Premises
EXHIBIT A-2 Description of Land
EXHIBIT A-3 Depiction of Unreserved Parking Spaces
EXHIBIT B Declaration of Lease Commencement
EXHIBIT C Construction Exhibit
EXHIBIT D Rules and Regulations
EXHIBIT E Janitorial Specifications
EXHIBIT F Form Estoppel Certificate
EXHIBIT G [Intentionally Deleted]
EXHIBIT H Form of SNDA
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Deed of
Lease, in triplicate, on the day and year first above written.
LANDLORD:
WELLS AVENUE SENIOR HOLDINGS,
L.L.C.
By: Wells Avenue Holdings, L.L.C. its
Managing Member
By: Wellsford/Whitehall Holdings, L.L.C., its
Managing Member
By: Wellsford/Whitehall Properties II, L.L.C.,
its Managing Member
By: Wellsford Commercial Properties Trust, its
Managing Member
By: /s/ Richard R. Prevardi
-----------------------
Richard R. Previdi, Chief Operating Officer
TENANT:
MARCAM SOLUTIONS, INC.
By: /s/ Denis E. Liptak (seal)
-------------------
Name: Denis E. Liptak
Title: Chief Financial Officer
Exhibit 21
Subsidiaries of Marcam Solutions, Inc.
Unless otherwise noted, the Company owns, directly or indirectly, 100% of
the outstanding voting securities of the following corporations
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
---- -------------
<S> <C>
GmbH Holdings Corporation Delaware
MaCam K.K. Japan
Maincor Consulting Inc. Canada
Marcam Argentina S.A.(1) Argentina
Marcam Asia Pacific Pte. Ltd. Singapore
Marcam Australia Pty Limited Australia
Marcam do Brazil Sistemas Ltda. Brazil
Marcam Canada Corporation Canada
Marcam Canada Holding Corporation Canada
Marcam Europe Limited United Kingdom
Marcam Europe Middle East & Africa S.a.r.l. France
Marcam France S.a.r.l. France
Marcam GmbH Germany
Marcam International Sales Corporation Virgin Islands
Marcam Nederland B.V. Holland
Marcam Securities Corporation Massachusetts
Marcam Solutions Ltd. United Kingdom
Marcam UK Company United Kingdom
ShawWare, Inc. Oregon
</TABLE>
- --------------------------------------------
(1) 1% owned by Gonzalo E. Caceres
Exhibit 23.1
Consent of Independent Accountants
We consent to the incorporation by reference in the Post-effective Amendment No.
1 to the registration statement on Form S-4 of Marcam Solutions, Inc. on Form
S-8 (file number 333-29285) and in the registration statement of Marcam
Solutions, Inc. on Form S-8 (file number 333-53599) of our report, dated October
23, 1998, on our audits of the consolidated financial statements of Marcam
Solutions, Inc. as of September 30, 1998 and 1997, and for each of the three
years in the period ended September 30, 1998, which report is included in this
Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
December 18, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 24,929
<SECURITIES> 3,131
<RECEIVABLES> 29,623
<ALLOWANCES> 2,235
<INVENTORY> 0
<CURRENT-ASSETS> 62,018
<PP&E> 25,725
<DEPRECIATION> 19,353
<TOTAL-ASSETS> 69,502
<CURRENT-LIABILITIES> 52,082
<BONDS> 99
0
0
<COMMON> 77
<OTHER-SE> 17,125
<TOTAL-LIABILITY-AND-EQUITY> 69,502
<SALES> 53,861
<TOTAL-REVENUES> 124,520
<CGS> 4,275
<TOTAL-COSTS> 53,686
<OTHER-EXPENSES> 32,085
<LOSS-PROVISION> 1,676
<INTEREST-EXPENSE> 1,339
<INCOME-PRETAX> (4,425)
<INCOME-TAX> 1,100
<INCOME-CONTINUING> (5,525)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,525)
<EPS-PRIMARY> (0.73)
<EPS-DILUTED> (0.73)
</TABLE>
