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Securities And Exchange Commission
Washington, DC 20549
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FORM 10-K
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FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File Number: 0-23999
Manhattan Associates, Inc.
(Exact Name of Registrant As Specified in Its Charter)
Georgia 58-2373424
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2300 Windy Ridge Parkway, Suite 700
Atlanta, Georgia 30339
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (770) 955-7070
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
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None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
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 check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No
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The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the average of the closing bid and ask quotations for
the Common Stock on March 26, 1999 as reported by the Nasdaq Stock Market, was
approximately $10.81. The shares of Common Stock held by each officer and
director and by each person known to the Registrant who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons may be deemed
to be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes. As of March 26, 1999, the
Registrant had outstanding 24,013,137 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended December 31, 1998 are incorporated by reference in Parts II and IV of
this Form 10-K to the extent stated herein. The Registrant's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held May 15, 1999 is
incorporated by reference in Part III of this Form 10-K to the extent stated
herein.
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Forward-Looking Statements
In addition to historical information, this Annual Report may contain
"forward-looking statements" relating to Manhattan Associates, Inc. ("Manhattan"
or the "Company"). Prospective investors are cautioned that any such forward-
looking statements are not guarantees of future performance and involve risks
and uncertainties, and that actual results may differ materially from those
contemplated by such forward-looking statements. Among the important factors
that could cause actual results to differ materially from those indicated by
such forward-looking statements are delays in product development, undetected
software errors, competitive pressures, technical difficulties, market
acceptance, availability of technical personnel, changes in customer
requirements and general economic conditions. Additional factors are set forth
in "Safe Harbor Compliance Statement for Forward-Looking Statements" included as
Exhibit 99.1 to this Annual Report on Form 10-K. Manhattan Associates, Inc.
undertakes no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes
in future operating results.
PART I
ITEM 1. BUSINESS.
Manhattan provides information technology solutions for distribution
centers that are designed to enable the efficient movement of goods through the
supply chain. Our solutions are designed to optimize the receipt, storage,
assembly and distribution of inventory and the management of equipment and
personnel within a distribution center, and to meet the increasingly complex
information requirements of manufacturers, distributors and retailers. Our
solutions consist of software, including PkMS, a comprehensive and modular
software system; services, including design, configuration, implementation,
training and support; maintenance, including scheduled software upgrades; and
hardware. We currently provide solutions to manufacturers, distributors,
retailers and transportation providers primarily in the apparel, consumer
products, food service and grocery markets. As of December 31, 1998, our
software was licensed for use by more than 375 customers including Abbott
Laboratories, Calvin Klein, Dean Foods, Jockey International, Mikasa, Nordstrom,
Patagonia, Playtex Apparel, SEIKO Corporation of America, Siemens Energy and
Automations, The Sports Authority, Timberland, Warnaco and Venator Group.
Industry Background
Over the past two decades, the flow of goods through the supply chain from
manufacturers to consumers has undergone significant changes. These changes
began in the United States textile industry, which, faced with increased global
competition, implemented an industry-wide initiative in the 1980s to lower the
cost of goods sold through more efficient inventory management. This
initiative, which became known as "Quick Response," uses technology to improve
the flow of information among manufacturers, distributors, retailers and
transportation providers. Quick Response has allowed retailers to more rapidly
advise manufacturers and distributors of their inventory replenishment needs and
has allowed manufacturers and distributors to more efficiently restock
retailers. As a result, textile product retailers have been able not only to
reduce their idle inventory and cost of goods sold, but also to offer a broader
range of products with fewer product shortages or stock-outs. The increase in
direct-to-consumer, catalog and Internet distribution strategies represents an
additional competitive threat to these retailers.
More recently, the consumer products industry experienced a similar supply
chain re-engineering, driven primarily by the emergence of national superstore
chains and category stores. The business model of these stores, which promotes
wider product offerings, lower gross profit margins and a higher rate of
inventory turnover than traditional stores, represented a competitive threat to
retailers of similar products.
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In order to remain competitive in this changing retail landscape, many
retailers have demanded that manufacturers and distributors apply Quick Response
principles to their supply chain operations to achieve lower costs and higher
levels of service. These retailers impose financial penalties, or charge-backs,
on providers who fail to comply with these services. Retailers' demands include
more sophisticated distribution services, including:
. more frequent store-specific inventory replenishments;
. more customized packing of goods within each delivery to reduce in-store
unpacking times;
. more sophisticated packaging and labeling of goods to meet merchandising
strategies;
. compliance with unique, customer-specific shipping standards; and
. the exchange of trading information in compliance with electronic data
interchange, or EDI, standards.
Demand for these more sophisticated distribution services requires
significant modification of distribution center operations for manufacturers and
distributors. For example, a manufacturer that previously may have made one
bulk shipment to each of six customer distribution centers each month may now be
required to ship more than 10,000 custom-packed and labeled orders per month
directly to multiple customers' stores or to the customers' distribution centers
for immediate reshipment to stores. This level of customization requires a
continuous exchange of information among manufacturers, distributors, retailers
and transportation providers.
As a result of these retailer demands, distribution centers have increased
in size, complexity and cost. Distribution centers today can comprise one
million square feet or more with thousands of stock keeping units, or "SKUs",
and multi-million dollar investments in automated materials handling equipment.
The efficient management of a distribution center operation now requires
collecting information regarding:
. customer orders;
. inbound shipments of products;
. products available on-site;
. product storage locations;
. weights and sizes;
. outbound shipping data including customer- or store-specific shipping
requirements, routing data and carrier requirements; and
. electronic communication with other participants in the supply chain.
This information must be analyzed dynamically to determine the most
efficient use of the distribution center's labor, materials handling equipment,
packaging equipment and shipping and receiving areas. Additionally,
manufacturers, distributors and retailers must exchange information with other
participants in the supply chain in order to effectively integrate the operation
of their distribution centers with the entire supply chain.
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In response to these new distribution center challenges, companies have
implemented information technology systems designed to manage this new
distribution environment. Gartner Group, an independent industry analysis and
research firm, estimates that the distribution center management systems market
totaled more than $900 million in revenue in 1997, and that the market is
currently growing at 35% annually. Furthermore, Gartner Group projects that the
majority of the current installed base of largely internally developed software
will be replaced by 2001. An effective distribution center management system
must have the ability to integrate with:
. enterprise resource planning, or ERP, systems;
. supply chain management, or SCM, systems such as transportation, order
management and demand planning; and
. the existing distribution center equipment, including related radio
frequency, or RF, equipment and automated materials handling equipment.
In addition, customers frequently require their distribution center
management systems to incorporate customer-driven modifications to their
packaging, information and transportation services, new technologies and newly-
defined best practices in their industry. Distribution center management
systems also must operate with high reliability and efficiency while supporting
very high transaction volumes and multiple users, and therefore are almost
exclusively deployed on UNIX or large-scale enterprise servers.
Traditionally, distribution center management systems have been highly
customized, difficult to upgrade and have required costly and lengthy
implementations. Furthermore, these systems have not readily supported the
increased volumes and complexities associated with recent advances in supply
chain re-engineering initiatives. Specifically, they have failed to quickly
incorporate changing industry and customer-specific shipping standards. Most
providers of these systems have not focused on specific vertical markets but
rather have attempted to customize their solutions to differing vertical market
demands with each implementation. As a result, many of these providers have
been unable to effectively leverage industry-specific expertise for use in
future implementations.
The Manhattan Solution
We provide information technology solutions for distribution centers that
are designed to enable the efficient movement of goods through the supply chain.
Our solutions are designed to optimize the receipt, storage and distribution of
inventory and the management of equipment and personnel within a distribution
center, and to meet the increasingly complex information requirements of
manufacturers, distributors and retailers. Our solutions consist of software,
including PkMS, a comprehensive and modular software system; services, including
design, configuration, implementation, training and support; maintenance,
including software upgrades; and hardware. We currently provide solutions to
manufacturers, distributors and retailers primarily in the apparel, consumer
products, food service and grocery markets.
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PkMS allows organizations to manage the receiving, storage, stock locating,
stock picking, order verification, assembly, order packing and shipment of
products in complex distribution centers. PkMS is designed to optimize the
operation of a distribution center by:
. increasing inventory turnover;
. improving inventory accuracy;
. reducing response times;
. reducing inventory levels;
. complying with industry shipping standards;
. communicating with other participants in the supply chain; and
. increasing the productivity of labor, facilities and materials handling
equipment.
We have developed robust, high volume systems for manufacturers,
distributors and retailers of consumer products to support Quick Response and
other industry and supply chain initiatives. PkMS employs leading database
technology and can be easily integrated with third party software applications,
including the ERP and SCM systems of our customers.
Our solutions feature PkMS, a modular software system that, together with
our consulting, implementation and maintenance services, provides:
. Comprehensive Functionality--PkMS addresses a full range of requirements
of modern, complex distribution centers with an existing product rather
than custom-designed and developed applications. PkMS provides
comprehensive functionality for specific vertical markets incorporating
industry-wide initiatives.
. Ease of Implementation--PkMS' modular design, along with our knowledge of
specific vertical markets and expertise in planning and installation,
allows our solutions to be implemented more rapidly than highly-
customized distribution center management systems. A typical
implementation can often be completed within six months. Because of
its modular design, PkMS can be implemented in phases to meet specific
customer demands.
. Timely Response to Industry Initiatives--PkMS features a comprehensive
maintenance program to provide our customers with timely software
upgrades offering increased functionality and technological advances
which address emerging supply chain and other industry initiatives.
. Flexibility and Configurability--PkMS is designed to be easily configured
to meet a distribution center's specific requirements and reconfigured to
meet changing customer requirements.
. Scaleability--PkMS is designed to facilitate the management of evolving
distribution center systems to accommodate increases in the number of
system users, complexity and distribution volume.
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Strategy
Our objective is to be the leading provider of information technology
solutions that enable distribution centers to more efficiently manage the
movement of goods through the supply chain. We will continue to provide
solutions to targeted vertical markets by offering advanced, highly functional,
highly scaleable applications that allow customers to leverage their investment
in distribution centers and meet frequently-changing customer requirements. Our
strategy to achieve this objective includes the following key elements:
Enhance Core Product Functionality. We intend to continue to focus our
product development resources on the development and enhancement of PkMS to
extend its functionality within our targeted vertical markets. We also plan to
continue to provide frequent upgrades to address evolving industry standards. We
identify further enhancements to PkMS through on-going customer consulting
engagements and implementations, interactions with our user groups and
participation in industry standards and research committees.
Target New Vertical Markets. To date we have focused our marketing, sales
and product development efforts on specific vertical markets, particularly in
the apparel manufacturing industry. We are increasingly targeting additional
vertical markets, including food service, grocery and other retailers. In
addition, we plan to target other vertical markets that adopt Quick Response,
Efficient Consumer Response and similar industry initiatives. We will also
target industries employing direct-to-consumer, catalog and Internet
distribution strategies.
Expand Sales, Services and Marketing Organizations. We currently sell and
support our products primarily through our direct sales and services personnel.
We plan to invest significantly in expanding our sales, services and marketing
organizations and to pursue strategic marketing partnerships with systems
integrators and third party software application providers.
Develop International Sales. We have historically focused our sales
efforts on customers in the United States. We intend to add sales personnel and
establish additional offices focused on international opportunities and pursue
strategic marketing partnerships with international systems integrators and
third party software application providers.
Expand Integration with Complementary Products. We believe that the
ability to offer a software solution that can extend integration with leading
third party software applications will continue to provide a significant
competitive advantage. We intend to continue to develop PkMS to integrate with
complementary ERP, SCM and other business applications.
Expand Supply Chain Information Offering. We plan to expand our current
product offerings to include functions to help synchronize electronic
information exchange among supply chain partners. Because of our large customer
base and industry experience, we believe we are well-positioned to compile
retail routing guides, shipping instructions and additional compliance
requirements and incorporate this information on an ongoing basis into our
software products.
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Products and Services
Software. Our software products feature a modular design that permits
customers to selectively implement specific functionality depending on the needs
of each distribution facility or operation.
The following table describes the functions of the PkMS modules as well as
additional software products:
<TABLE>
<CAPTION>
MODULE DESCRIPTION
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<S> <C>
Inventory Management Manages the receipt, put-away and movement of all inventory throughout the distribution center
System ("IMS")
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Receiving . Verifies the accuracy of incoming shipments against the advanced shipping notice
. Designates incoming inventory for quality audit and immediate out-going shipment
(cross-docking)
. Manages receiving yard by scheduling time, dock location and priority of shipments
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Stock Locator . Enhances inventory movement efficiency by directing put-away, minimizing travel distances and
optimizing storage capacity
. Tracks movement of inventory by allowing real-time inquiries by location, SKU and other
criteria
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Cycle Count . Enables more efficient inventory counts by permitting specific zones of a distribution center
to be "frozen" without interrupting ongoing operations
. Automatically generates cycle count tasks for specific SKUs, locations or other user-
designated criteria
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Work Order Management . Directs the assembly of finished goods within a distribution center to match customer demands
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Radio Frequency Functions . Allows the real-time collection of inventory product information and location with remote,
for the IMS hand-held mobile devices for integration with the IMS
. Communicates real-time task assignments to workers in remote locations of the distribution
center
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Task Management System . Coordinates the sequence of distribution center tasks to optimize labor efficiency
for the IMS
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Outbound Distribution System Manages the picking, packing and shipping of orders in efficient release waves
("ODS")
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Wave Management . Selects, prioritizes and groups outgoing orders in manageable increments based upon user-
defined criteria
. Routes picktickets based upon retailer requirements and pre-determines carton contents to
minimize the number of outgoing cartons
. Facilitates stock replenishment for active picking and packing locations
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Verification . Provides automatic verification of orders and identifies order shortages and overages to
maximize shipping accuracy at several different points within the order fulfillment process
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Radio Frequency Functions . Allows the real-time collection of shipment information and location with remote, hand-held
for the ODS mobile devices
. Communicates real-time task assignments to workers in remote locations of the distribution
center
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Freight Management . Sorts orders by specific freight carriers, calculates shipping charges and controls load
System sequencing based upon truck routes
. Generates all documentation required for shipping such as bills of lading and retailer
compliant required manifests
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Parcel Shipping System . Calculates all shipping charges for parcel shipments, generates tracking numbers and
provides appropriate documentation for parcel carriers
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Additional Software Additional software available for an incremental purchase price
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Order Allocation System . Prioritizes and allocates orders based on current aggregate inventory levels for customers
whose host system is unable to perform this function
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Advance Ship Notice Enabler System . Enables a customer's suppliers in remote locations to create advanced ship notices for the
customer's receiving distribution center
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SLOT-IT . Optimizes inventory physical location within a distribution center based on volume, seasonal
demands, location of products and size
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Foreign Trade Zone . Provides specialized reporting and output features for companies that operate distribution
centers under the U.S. Customs Foreign Trade Zone Program
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Performance Truck . Manages transportation fleet scheduling based on delivery times, dates, volume, weight,
Routing System trailer capacities and other transportation data
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SmartSite . Determines efficient locations for distributions centers based on transportation routing and
estimated outbound load and service capacity
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</TABLE>
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Consulting Services. Our consulting services provide our customers with
expertise and assistance in planning and implementing our solutions. To ensure
a successful product implementation, consultants assist customers with the
initial installation of a system, the conversion and transfer of the customer's
historical data onto our system, and ongoing training, education and upgrades.
We believe that our consulting services enable the customer to implement our
software rapidly, ensure the customer's success with our solution, strengthen
the relationship with the customer, and add to our industry-specific knowledge
base for use in future implementations and product development efforts.
Although our consulting services are optional, substantially all of our
customers use these services for the implementation and ongoing support of our
software products. Consulting services are billed on an hourly basis. We
believe that increased sales of our software products will drive higher demand
for our consulting services. Accordingly, we plan to continue to substantially
increase the number of consultants to support anticipated growth in product
implementations and upgrades. To the extent we are unable to attract, train and
retain qualified consulting personnel, our operating results may be adversely
affected.
Our consulting services group consists of business consultants, systems
analysts and technical personnel devoted to assisting customers in all phases of
systems implementation including planning and design, customer-specific
configuring of modules, and on-site implementation or conversion from existing
systems. Our consulting personnel undergo training on distribution center
operations and our products. We believe that this training, together with the
ease of implementation of our products, enables us to productively use newly-
hired consulting personnel more rapidly than our competitors. We may
increasingly use third party consultants, such as those from major systems
integrators, to assist in certain implementations.
Maintenance. We offer a comprehensive maintenance program which provides
our customers with timely software upgrades offering increased functionality and
technological advances that incorporate emerging supply chain and other industry
initiatives. As of December 31, 1998, a majority of our customers had
subscribed to our comprehensive maintenance support program. We have the
ability to remotely access the customer's system in order to perform
diagnostics, on-line assistance and software upgrades. All of our annual
maintenance agreements entitle customers to software product upgrades. We offer
a standard annual maintenance option providing for customer telephone support
during normal business hours for 15% of the current software license fee and 24
hour maintenance for 20% percent of the current software license fee.
Hardware. Our products operate on multiple hardware platforms utilizing
various hardware systems and interoperate with many third party software
applications and legacy systems. This open system capability enables customers
to continue using their existing computer resources and to choose among a wide
variety of existing and emerging computer hardware and peripheral technologies.
In conjunction with the licensing of our software, we resell a variety of
hardware products developed and manufactured by third parties in order to
provide our customers with an integrated distribution center management
solution. These products include computer hardware, radio frequency terminal
networks, bar code printers and scanners, and other peripherals. We resell all
third party hardware products pursuant to agreements with manufacturers or
through distributor authorized reseller agreements pursuant to which we are
entitled to purchase hardware products at discount prices and to receive
technical support in connection with product installations and any subsequent
product malfunctions. We generally purchase hardware from our vendors only
after receiving an order from a customer. As a result, we do not maintain any
significant hardware inventory.
Sales and Marketing
To date, we have generated substantially all of our revenue through our
direct sales force. We plan to continue to invest significantly in expanding
our sales, support, services and marketing organizations within the United
States and Europe, and to pursue strategic marketing partnerships. We conduct
comprehensive marketing programs that include advertising, public relations,
trade shows, joint programs with vendors and consultants and ongoing customer
communication programs. The sales cycle typically begins with the generation of
a sales lead or
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the receipt of a request for proposal from a prospective customer. The sales
lead or request for proposal is followed by the qualification of the lead or
prospect, an assessment of the customer's requirements, a formal response to the
request for proposal, presentations and product demonstrations, site visits to
an existing customer using our distribution center management system and
contract negotiation. The sales cycle can vary substantially from customer to
customer but typically requires three to six months.
Customers
To date, our customers have been primarily manufacturers, distributors and
retailers in the apparel, consumer products, food service and grocery market
segments. We plan to expand our presence in the retail, direct consumer, health
and beauty products, and industrial products markets and among outsourcers of
distribution center management services and third party logistics providers. As
of December 31, 1998, we had licensed our software for use by more than 375
customers including Abbott Laboratories, Calvin Klein, Dean Foods, Jockey
International, Mikasa, Nordstrom, Patagonia, Playtex Apparel, SEIKO Corporation
of America, Siemens Energy and Automations, The Sports Authority, Timberland,
Warnaco and Venator Group. The following table sets forth a representative list
of our customers as of December 31, 1998, that have purchased at least $100,000
in products and services from us.
<TABLE>
<CAPTION>
Apparel Manufacturers Food Service and Distribution Industrial Products
<S> <C> <C>
Aris Isotoner Abbott Foods AGFA/Bayer
ASICS Tiger Alliant Atlantic Foodservice American Tack & Hardware
Authentic Fitness Arrow Industries Delta International Machinery
Bugle Boy Associated Grocers Familian Pipe & Supply
Calvin Klein Austin Quality Foods Festo
Columbia Sportswear Burns Philp Food/Tones Brothers Liberty Hardware
Danskin Canned Foods Loctite
Duck Head Apparel Dean Foods PPG Architectural Finishes
Esprit Federal Wholesale Rain Bird Sales
Farah (U.S.A.) Maines Paper and Food Service Siemens Energy and Automations
Garan Manufacturing Reser's Fine Foods Motors and Armatures, Inc.
Great American Knitting Mills Tanimura & Antle
Hartmarx Zacky Farms Retailers
Hugo Boss
Jockey International Consumer Products Casual Corner Group
Jones Apparel Edison Brothers
London Fog Alliance Entertainment Mars Music
Oxford Industries Brother International Nordstrom
Playtex Apparel Bulova The Children's Place
Stride Rite Conair Group The Sports Authority
Timberland Hunter Fan Venator Group
The North Face Mikasa
Tropical Sportswear Remington Products Direct to Consumer
Warnaco SEIKO Corp. of America
Tandy Brands Accessories Coldwater Creek
Health and Beauty Products Villeroy & Boch Tableware Cornerstone Brands
DM Management
Abbott Laboratories, Inc. Third Party Logistics Genesis Direct
Andrew Jergens Lenox Collections
Beiersdorf USA Burnham Service Corporation Nordstrom--The Catalog
Bonne Bell Skyway Freight Systems Patagonia
Dana Perfume Speigel
Ocular Sciences
</TABLE>
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Our top five customers in aggregate accounted for 14%, 22% and 26% of total
revenue for each of the years ended December 31, 1998, 1997 and 1996,
respectively. No single customer accounted for 10% or more of our total revenue
during any of the three years ended December 31, 1998.
Product Development
Our development efforts are focused on adding new functionality to existing
products and enhancing the operability of our products across distributed and
changing hardware platforms, operating systems and database systems. We believe
that our future success depends in part upon our ability to continue to enhance
existing products, respond to changing customer requirements and develop and
introduce new or enhanced products that incorporate new technological
developments and emerging industry standards. To that end, our development
efforts frequently focus on base system enhancements incorporating new user
requirements and potential features identified through customer interaction and
systems implementations. As a result, we are able to continue to offer our
customers a highly configurable product with increasing functionality rather
than a custom-developed software program.
We are currently devoting a significant portion of our research and
development efforts to the enhancement of the distributed N-Tier architecture
version of PkMS, which currently operates using Windows 95/98/NT and standard
radio frequency device clients and the UNIX server operating environments. This
distributed N-Tier version is designed to allow different software applications
and systems and hardware platforms to operate together more efficiently. We are
also currently developing new functionality for PkMS, such as features designed
to enhance worker productivity, improve yard management and schedule inbound
shipment receiving appointments. We also plan to focus development efforts on
integrating the SLOT-IT application into future releases of PkMS. We plan to
continue to conduct our development efforts internally in order to retain
development knowledge and promote the continuity of programming standards.
Our research and development expenditures for the years ended December 31,
1998, 1997 and 1996 were $7.4 million, $3.0 million and $1.2 million,
respectively. We intend to continue to increase our investment in product
development in the future.
Competition
Our products are targeted at the distribution center management systems
market, which is intensely competitive and characterized by rapid technological
change. The principal competitive factors affecting the market for our products
include:
. vendor and product reputation;
. compliance with industry standards;
. product architecture, functionality and features;
. ease and speed of implementation;
. return on investment;
. product quality, price and performance; and
. level of support.
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We believe that we compete favorably with respect to each of these factors.
Our competitors are diverse and offer a variety of solutions directed at various
aspects of the supply chain, as well as the enterprise as a whole. Our existing
competitors include:
. distribution center management software vendors including Catalyst
International, Inc., EXE Technologies, Inc., Optum, Inc. and McHugh
Software International, Inc.;
. ERP or SCM application vendors that offer warehouse management
functionality or modules of their suite, such as JD Edwards or SAP;
. the corporate information technology departments of potential customers
capable of internally developing solutions; and
. smaller independent companies that have developed or are attempting to
develop distribution center management software that competes with our
software solution.
We may face competition in the future from ERP and SCM applications vendors
and business application software vendors that may broaden their product
offerings by internally developing, or by acquiring or partnering with
independent developers of, distribution center management software. To the
extent such ERP and SCM vendors develop or acquire systems with functionality
comparable or superior to our products, their significant installed customer
bases, long-standing customer relationships and ability to offer a broad
solution could provide a significant competitive advantage over us. In
addition, it is possible that new competitors or alliances among current and new
competitors may emerge and rapidly gain significant market share. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margins and loss of market share.
Many of our competitors and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, greater name recognition and a larger installed base of customers
than we do. In order to be successful in the future, we must continue to respond
promptly and effectively to technological change and competitors' innovations.
There can be no assurance that our current or potential competitors will not
develop products comparable or superior in terms of price and performance
features to those developed by us. In addition, no assurance can be given that
we will not be required to make substantial additional investments in connection
with our research, development, marketing, sales and customer service efforts in
order to meet any competitive threat, or that we will be able to compete
successfully in the future. Increased competition will result in reductions in
market share, pressure for price reductions and related reductions in gross
margins, any of which could materially and adversely affect our ability to
achieve our financial and business goals. There can be no assurance that in the
future we will be able to successfully compete against current and future
competitors.
International Operations
During 1998, the Company commenced operations in the United Kingdom. Total
revenues for the United Kingdom were approximately $130,000 for the year ended
December 31, 1998, which represents less than 1% of the Company's total
revenues.
Proprietary Rights
We rely on a combination of copyright, trade secret, trademark, service
mark and trade dress laws, confidentiality procedures and contractual provisions
to protect our proprietary rights in our products and technology. We have a
registered trademark in "PkMS" and trademarks in "SLOT-IT" and the Manhattan
logo. We have no registered copyrights. We generally enter into
confidentiality agreements with our employees, consultants, clients and
potential clients and limit access to, and distribution of, our proprietary
information. We license PkMS to our customers in source code format and
restrict the customer's use for internal purposes without the right to
sublicense the PkMS or SLOT-IT product. However, we believe that this provides
us only limited protection. Despite our efforts to safeguard and maintain our
proprietary rights both in the United States and abroad, we cannot
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assure that we will successfully deter misappropriation or independent third
party development of our technology or to prevent an unauthorized third party
from copying or obtaining and using our products or technology. In addition,
policing unauthorized use of our products is difficult, and while we are unable
to determine the extent to which piracy of our software products exist, software
piracy could become a problem.
As the number of supply chain management applications in the industry
increases and the functionality of these products further overlaps, companies
that develop software may increasingly become subject to claims of infringement
or misappropriation of intellectual property rights. Third parties may assert
infringement or misappropriation claims against us in the future for current or
future products. Any claims or litigation, with or without merit, could be
time-consuming, result in costly litigation, divert management's attention and
cause product shipment delays or require us to enter into royalty or licensing
arrangements. Any royalty or licensing arrangements, if required, may not be
available on terms acceptable to us, if at all, which could have a material
adverse effect on our business, financial condition and results of operations.
Adverse determinations in such claims or litigation could also have a material
adverse effect on our business, financial condition and results of operations.
We may be subject to additional risks as we enter into transactions in
countries where intellectual property laws are not well developed or are poorly
enforced. Legal protections of our rights may be ineffective in such countries.
Litigation to defend and enforce our intellectual property rights could result
in substantial costs and diversion of resources and could have a material
adverse effect on our business, financial condition and results of operations,
regardless of the final outcome of such litigation. Despite our efforts to
safeguard and maintain our proprietary rights both in the United States and
abroad, we cannot assure that we will be successful in doing so, or that the
steps taken by us in this regard will be adequate to deter misappropriation or
independent third party development of our technology or to prevent an
unauthorized third party from copying or otherwise obtaining and using our
products or technology. Any of these events could have a material adverse
effect on our business, financial condition and results of operations.
Employees
As of December 31, 1998, we had 517 full-time employees. None of our
employees are covered by a collective bargaining agreement. We consider our
relations with our employees to be good. As of December 31, 1998, certain of
our employees were employed pursuant to the H-1(B), non-immigrant work-permitted
visa classification.
Executive Officers
The executive officers of Manhattan and certain information about them are
as follows:
<TABLE>
<CAPTION>
Name Age Position
---- ----- ---------
<S> <C> <C>
Alan J. Dabbiere........... 37 Chairman of the Board of Directors, Chief Executive Officer and President
Deepak Raghavan............ 32 Senior Vice President, Chief Technology Officer and Director
Robert Bearden............. 32 Senior Vice President--Global Sales
David K. Dabbiere.......... 39 Senior Vice President, Chief Legal Officer and Secretary
Michael J. Casey........... 35 Senior Vice President, Chief Financial Officer and Treasurer
Neil Thall................. 52 Senior Vice President--Supply Chain Strategy
</TABLE>
Alan J. Dabbiere, a founder of Manhattan, has served as Chief Executive
Officer and President of Manhattan since its inception in 1990 and Chairman of
the Board since February 1998. From 1986 until 1990, Mr. Dabbiere was employed
by Kurt Salmon Associates, a management consulting firm specializing in consumer
products manufacturing and retailing, where he specialized in consulting for the
retail and consumer products manufacturing industries. At Kurt Salmon
Associates, Mr. Dabbiere participated in Quick Response pilot projects focused
on the value of an integrated supply chain initiative. Mr. Dabbiere serves on
the American Apparel Manufacturer Association's Management Systems Committee.
12
<PAGE>
Deepak Raghavan, a founder of Manhattan, has served as Senior Vice
President of Manhattan since August 1998, Chief Technology Officer since its
inception in 1990 and as a Director since February 1998. From 1987 until 1990,
Mr. Raghavan was a Senior Software Engineer for Infosys Technologies Limited, a
software development company, where he specialized in the design and
implementation of information systems for the apparel manufacturing industry.
Robert Bearden has served as Senior Vice President--Global Sales of
Manhattan since August 1998. From 1993 to July 1998, Mr. Bearden was employed by
Oracle Corporation in several capacities in sales management, most recently as
Group Vice President, Central/Western United States, where he was responsible
for the sale of all products, including financial and manufacturing
applications, database, decision support, development tools and professional
services.
David K. Dabbiere has served as Senior Vice President, Chief Legal Officer
and Secretary of Manhattan since August 1998. From March 1998 to August 1998,
Mr. Dabbiere served as Vice President, General Counsel and Secretary of
Manhattan. From 1984 to 1998, Mr. Dabbiere was employed by The Procter & Gamble
Company, most recently as Associate General Counsel. Mr. Dabbiere was
responsible for, among other duties, the intellectual property matters for
Procter & Gamble's Beauty Care & Cosmetic and Fragrances sectors.
Michael J. Casey has served as Senior Vice President of Manhattan since
August 1998 and as Chief Financial Officer and Treasurer since November 1997.
Prior to joining Manhattan, Mr. Casey served as Chief Financial Officer of
Intellivoice Communications, Inc., a developer of voice recognition software
applications from April 1997 until November 1997. From February 1996 to
February 1997, Mr. Casey was Chief Financial Officer, Treasurer and Secretary of
Colorocs Information Technologies, Inc., a publicly traded information
technology company. From 1992 to 1996, Mr. Casey served as Vice President--
Finance for IQ Software Corporation, a publicly traded software developer.
Prior to 1992, Mr. Casey was employed by Arthur Andersen LLP, where he served
the technology and communications industries. Mr. Casey is a member of the
American Institute of Certified Public Accountants and is a Certified Public
Accountant in the State of Georgia.
Neil Thall has served as Senior Vice President--Supply Chain Strategy of
Manhattan since August 1998. From January 1998 to August 1998, Mr. Thall served
as Vice President--Supply Chain Strategy of Manhattan. From 1992 to 1997, Mr.
Thall served as President of Neil Thall Associates, a software development and
management consulting subsidiary of HNC Software, Inc. that specialized in
inventory management, Quick Response and vendor managed inventory initiatives.
Prior to 1992, Mr. Thall was employed by Kurt Salmon Associates as National
Service Director--Retail Consulting, where he specialized in the development and
implementation of information systems for major department stores and specialty
and mass merchant chains.
Other Key Employees
Deepak M.J. Rao, a founder of Manhattan, has served as a Vice President of
Manhattan since its inception in 1990. From 1987 until 1990, Mr. Rao was an
Assistant Project Manager for Infosys Technologies Limited, a software
development company, where he specialized in the design and implementation of
information systems for the banking industry.
Ponnambalam Muthiah, a founder of Manhattan, has served as a Vice President
of Manhattan since its inception in 1990. From 1987 until 1990, Mr. Muthiah was
a Senior Software Engineer for Infosys Technologies Limited, a software
development company, where he specialized in the design and implementation of
information systems for the apparel manufacturing industry.
Zachary Todaro has served as Vice President of Consulting Services since
August 1998. From August 1997 to August 1998, he served as Director of
Consulting Services of Manhattan. Prior to serving as Director of Consulting
Services, Mr. Todaro served in several capacities with Manhattan including
sales, product development and consulting, since April 1993.
13
<PAGE>
Jeffry W. Baum joined Manhattan in February 1998 as Vice President--
International Business Development. From January 1997 until February 1998, Mr.
Baum served as Vice President--Sales and Marketing of Haushahn Systems &
Engineers, a warehouse management systems and material handling automation
provider. From March 1992 until December 1996, Mr. Baum served as Senior Account
Manager at Haushahn. Prior to that, Mr. Baum served in a variety of business
development, account management and marketing positions with Logisticon, Inc.
and Hewlett-Packard.
Daniel Basmajian, Sr. has served as President of Performance Analysis
Corporation since 1987. Performance Analysis Corporation became a wholly-owned
subsidiary of Manhattan in February 1998, when we acquired all of its issued and
outstanding shares.
ITEM 2. PROPERTIES.
Our principal administrative, sales, marketing, support and research and
development facility is located in approximately 112,000 square feet of modern
office space in Atlanta, Georgia. Substantially all of this space is leased to
us through December 31, 2002. In addition, we expect in the future to expand
into additional facilities.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material legal proceeding. From time to
time, the Company is involved in various routine legal proceedings incidental to
the conduct of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "MANH". The price per share reflected in the table below represents
the range of low and high closing sale prices for the Company's Common Stock as
reported by The Nasdaq Stock Market for each of the quarters since our initial
public offering:
Fiscal Period High Price Low Price
------------------------------------------------ ---------- ---------
1998
Second Quarter (from April 23, 1998)............ $26.50 $17.50
Third Quarter................................... 28.13 10.00
Fourth Quarter.................................. 27.63 8.00
The closing sale price of our Common Stock as reported by the Nasdaq
National Market on March 26, 1999 was $10.75. The number of shareholders of our
Common Stock as of March 26, 1999 was approximately 24,013,137.
Prior to our initial public offering in April 1998, the predecessors of
Manhattan historically made distributions to shareholders related to their
limited liability company status and the resulting tax payment obligations
imposed on its shareholders. We do not intend to declare or pay cash dividends
in the foreseeable future. Our management anticipates that all of our earnings
and other cash resources, if any, will be retained by us for investment in our
business. We are prevented by our line of credit agreement from paying cash
dividends without the consent of our commercial lender.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 7 of this Form 10-K and the consolidated
financial statements and notes thereto included in Item 8 of this Form 10-K.
The statement of income data for the years ended December 31, 1996, 1997 and
1998, and the balance sheet data as of December 31, 1997, and 1998, are derived
from, and are qualified by reference to, the audited financial statements
included elsewhere in this Form 10-K. The statement of income data for the year
ended December 31, 1995, and the balance sheet data as of December 31, 1995, and
1996, are derived from the audited financial statements not included herein.
The statement of income data for the year ended December 31, 1994, and the
balance sheet data as of December 31, 1994 are derived from the Company's
unaudited financial statements not included herein. In the opinion of
management, the unaudited financial statements have been prepared on a basis
consistent with the financial statements which appear elsewhere in the Form 10-
K, and include all adjustments, consisting only of normal recurring adjustments
necessary for a fair statement of the financial position and results of
operations for this unaudited year. Historical and pro forma results are not
necessarily indicative of results to be expected in the future.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenue:
Software license............................................... $ 1,781 $ 2,463 $ 3,354 $ 7,160 $13,816
Services....................................................... 1,587 3,503 6,236 14,411 32,358
Hardware....................................................... 3,144 5,255 4,810 10,886 15,891
------- ------- ------- ------- -------
Total revenue................................................. 6,512 11,221 14,400 32,457 62,065
Cost of revenue:
Software license............................................... 2 6 177 461 920
Services....................................................... 1,293 1,740 2,026 6,147 15,286
Hardware....................................................... 2,457 3,991 3,734 8,001 11,791
------- ------- ------- ------- -------
Total cost of revenue......................................... 3,752 5,737 5,937 14,609 27,997
------- ------- ------- ------- -------
Gross margin.................................................... 2,760 5,484 8,463 17,848 34,068
Operating expenses:
Research and development....................................... 328 1,138 1,236 3,025 7,429
Acquired research and development.............................. -- -- -- -- 1,602
Sales and marketing............................................ 526 1,147 1,900 3,570 9,045
General and administrative..................................... 414 1,058 1,454 2,975 6,731
------- ------- ------- ------- -------
Total operating expenses...................................... 1,268 3,343 4,590 9,570 24,807
------- ------- ------- ------- -------
Income from operations.......................................... 1,492 2,141 3,873 8,278 9,261
Other income, net............................................... 5 40 103 56 1,070
------- ------- ------- ------- -------
Income before income taxes...................................... 1,497 2,181 3,976 8,334 10,331
Income tax expense (benefit):
Tax provision as a "C" corporation............................ -- -- -- -- 3,329
Deferred tax adjustment....................................... -- -- -- -- (316)
------- ------- ------- ------- -------
Historical net income........................................... $ 1,497 $ 2,181 $ 3,976 $ 8,334 $ 7,318
======= ======= ======= ======= =======
Historical diluted net income per share......................... $ 0.08 $ 0.11 $ 0.20 $ 0.40 $ 0.29
======= ======= ======= ======= =======
Shares used in computing historical diluted net
income per share............................................... 20,000 20,010 20,308 20,761 25,651
======= ======= ======= ======= =======
Income before pro forma income taxes............................ $ 1,497 $ 2,181 $ 3,976 $ 8,334 $10,331
Pro forma income taxes (1)...................................... 564 800 1,486 3,023 4,244
------- ------- ------- ------- -------
Pro forma net income (1)........................................ $ 933 $ 1,381 $ 2,490 $ 5,311 $ 6,087
======= ======= ======= ======= =======
Pro forma diluted net income per share (2)...................... $ 0.24
=======
Shares used in computing pro forma diluted net
income per share (2)........................................... 25,686
=======
December 31,
--------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
(In thousands)
Balance Sheet Data:
Working capital.................................................. $ 1,974 $ 3,199 $ 4,116 $ 6,268 $44,561
Total assets..................................................... 2,949 5,332 7,276 15,006 67,775
Total shareholders' equity....................................... 1,997 3,755 4,882 8,454 55,635
</TABLE>
(1) In connection with the conversion from limited liability company status on
April 23, 1998, we became subject to federal and state corporate income
taxes. Pro forma net income is presented as if we had been subject to
corporate income taxes for all periods presented.
(2) See Note 1 of Notes to Consolidated Financial Statements.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
All statements, trend analysis and other information contained in the
following discussion relative to markets for our products and trends in revenue,
gross margins and anticipated expense levels, as well as other statements
including words such as "anticipate," "believe," "plan," "estimate,"
"expect," and "intend" and other similar expressions constitute forward-
looking statements. These forward-looking statements are subject to business
and economic risks and uncertainties, and our actual results of operations may
differ materially from those contained in the forward-looking statements.
Overview
Manhattan provides information technology solutions for distribution
centers that are designed to enable the efficient movement of goods through the
supply chain. Our solutions are designed to optimize the receipt, storage and
distribution of inventory and the management of equipment and personnel within a
distribution center, and to meet the increasingly complex information
requirements of manufacturers, distributors, retailers and transportation
providers. Our solutions consist of software, including PkMS, a comprehensive
and modular software system; services, including design, configuration,
implementation, training and support; maintenance, including software upgrades;
and hardware. We currently provide solutions to manufacturers, distributors,
retailers and transportation providers primarily in the apparel, consumer
products, food service and grocery markets.
Manhattan's revenue consists of revenue from the licensing of PkMS, and
beginning in February 1998, SLOT-IT; fees for consulting, implementation,
training and maintenance services; and revenue from the resale of complementary
radio frequency and computer equipment. In recent years, we have experienced an
increase in services revenue and a decrease in hardware revenue as a percentage
of total revenue. Services revenue generally provides us with greater profit
margins than hardware revenue.
Effective January 1, 1998, we adopted Statement of Position No. 97-2,
"Software Revenue Recognition" ("SOP 97-2"), which supersedes Statement of
Position No. 91-1, "Software Revenue Recognition." Under SOP 97-2, we
recognize software license revenue when the following criteria are met: (1) a
signed contract is obtained; (2) shipment of the product has occurred; (3) the
license fee is fixed and determinable; (4) collectibility is probable; and (5)
remaining obligations under the license agreement are insignificant.
Manhattan's services revenue consists of revenue generated from services
and maintenance related to our software solutions. Services revenue is derived
from fees based on consulting, implementation and training services. Consulting,
implementation and training services performed by Manhattan are generally billed
on an hourly basis and revenue is recognized as the services are performed.
Maintenance revenue represents amounts paid, generally in advance, by users for
the support and enhancements to the software. Maintenance revenue is recognized
ratably over the term of the maintenance agreement, typically 12 months.
Hardware revenue is generated from the resale of a variety of hardware
products, developed and manufactured by third parties, that are integrated with
and complementary to our software solutions. As part of a complete distribution
center management solution, our customers frequently purchase hardware from us
in conjunction with the licensing of PkMS and other software. These products
include computer hardware, radio frequency terminal networks, bar code printers
and scanners and other peripherals. We recognize hardware revenue upon
shipment. We generally purchase hardware from our vendors only after receiving
an order from a customer. As a result, we do not maintain any significant
hardware inventory.
16
<PAGE>
During the fourth quarter of 1998, we invested substantially in new product
development. In particular, we invested in a Third Party Logistics billing
product and an Engineered Labor Standards product and made significant progress
in the development of three new products: an integrated version of Slot-It for
windows, the Optimization suite of products and the Internet Transportation
Guides. In conjunction with the development of these products we capitalized
approximately $600,000 of research and development expenses in the fourth
quarter. Those capitalized costs will be amortized over three years commencing
upon the availability of the anticipated products. We anticipate capitalizing
additional costs relating to these products as well as new products in the
future.
Prior to April 23, 1998, we elected to report as a limited liability
company that is treated as a partnership for income tax purposes, and, as a
result, we were not subject to federal and state income taxes. Pro forma net
income amounts discussed below include additional provisions for income taxes on
a pro forma basis as if we were liable for federal and state income taxes as a
taxable corporate entity throughout the periods presented. The pro forma tax
provision is calculated by applying our statutory tax rate to pretax income,
adjusted for permanent tax differences. Our status as a limited liability
company terminated immediately prior to the effectiveness of our initial public
offering in April 1998, and we have been taxed as a business corporation since
that time.
On February 16, 1998, we purchased all of the outstanding stock of
Performance Analysis Corporation, or PAC, for approximately $2.2 million in cash
and 106,666 shares of our common stock valued at $10.00 per share. PAC is a
developer of distribution center slotting software. The acquisition was
accounted for as a purchase. The purchase price of approximately $3.3 million
was allocated to the assets acquired and liabilities assumed, including acquired
research and development of approximately $1.6 million, purchased software of
$500,000, and other intangible assets of $765,000. Purchased software is being
amortized over an estimated two-year useful life and other intangible assets are
being amortized over a seven-year period. In connection with the PAC
acquisition, we recorded a charge to income of $1.6 million in the first quarter
of 1998 for acquired research and development. We have focused development
efforts on integrating the SLOT-IT application into future products.
We determined the value of the acquired research and development of
approximately $1.6 million based on the estimated costs to reproduce the efforts
that PAC incurred to begin the development of the Windows NT version of SLOT-IT.
We estimated the time to reproduce the product to be 20 man years. This
estimate was based on the actual time incurred by PAC to develop the software
and our years of experience developing and commercializing technologies on these
platforms in this industry. Our management and the President and founder of
PAC, Daniel Basmajian, Sr., estimated that PAC has put in 40 man years (based on
an average of 4 developers over a period of 10 years) to develop both the DOS
based version of SLOT-IT (which was being marketed at the time of the
acquisition) and the Windows NT version of SLOT-IT (which was being developed at
the time of the acquisition.). If we were to have recreated the Windows NT
version of SLOT-IT with the benefit of an existing DOS based version, we believe
we would have spent 20 man years to conceive, design and develop the Windows NT
version that existed at the acquisition date. We estimated that this
development would have taken 10 employees approximately 2 years to develop, or
20 man years. We estimated the cost per employee based on an estimated fully-
loaded cost per development employee per year and applied that cost to the 20
man years. The fully-loaded cost of $77,000 per year per development employee
was based on the actual average salary per development employee of $70,000 plus
payroll taxes of 7% ($5,000) and employee benefits of 3% ($2,000). This fully-
loaded cost per development employee was increased by 8% for the second year of
development.
17
<PAGE>
We used the cost-based approach to value acquired research and development
in the acquisition of PAC. While the cost-based approach is not a widely used
methodology, we believe this approach is acceptable based on our experience with
similar transactions in the past and our experience in developing cost estimates
for designing and developing technology in the industry. Many acquisitions in
the software industry, however, are accounted for utilizing an income-based
approach to the valuation of acquired research and development. Although we
believe that an income-based approach often provides a more precise valuation,
because a market had not been established for the Windows NT product, and future
cash flow projections were thus not available, we elected to use the cost-based
approach.
We accounted for this $1.6 million amount as acquired research and
development as we intend to continue completing the development and integration
of the SLOT-IT Windows NT version into PkMS. We originally estimated the cost
to complete the development of the Windows NT version of SLOT-IT and to fully
integrate the product into PkMS to range from approximately $500,000 to
$1,000,000. We originally expected to complete development and to begin to
benefit from the acquired project in the last half of 1999. We currently expect
to complete the Windows NT version of SLOT-IT in the first quarter of 1999. We
are still in the process of integrating the SLOT-IT software into PkMS. We
cannot assure a successful completion of this integration or that the resulting
products, if completed, will achieve market acceptance. If such projects are
unsuccessful, our business, financial condition and results of operations would
likely be materially adversely affected.
In October 1998, we purchased certain assets of Kurt Salmon Associates,
Inc., or KSA. The total purchase price for these assets was approximately $2.2
million consisting of $1.75 million in cash and assumed liabilities of
approximately $450,000. The purchase price was allocated to the intangible
assets acquired, including a customer list, assembled workforce, purchased
software, trade names and goodwill. The assets are being amortized over periods
ranging from one to ten years.
Recent Accounting Pronouncement
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 is effective for the Company's
fiscal year ending December 31, 2000. The Company's management does not believe
that the adoption of SFAS 133 will have a material impact on the Company's
financial position or results of operations.
18
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the percentages
of total revenues represented by certain items reflected in the Company's
consolidated statements of income:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1996 1997 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Statement of Income Data:
Revenue:
Software license...................................... 23.3% 22.1% 22.3%
Services.............................................. 43.3 44.4 52.1
Hardware.............................................. 33.4 33.5 25.6
----- ----- -----
Total revenue........................................ 100.0 100.0 100.0
----- ----- -----
Cost of revenue:
Software license...................................... 1.2 1.4 1.5
Services.............................................. 14.1 18.9 24.6
Hardware.............................................. 25.9 24.7 19.0
----- ----- -----
Total cost of revenue................................ 41.2 45.0 45.1
----- ----- -----
Gross margin........................................... 58.8 55.0 54.9
Operating expenses:
Research and development.............................. 8.6 9.3 12.0
Acquired research and development..................... -- -- 2.6
Sales and marketing................................... 13.2 11.0 14.6
General and administrative............................ 10.1 9.2 10.8
----- ----- -----
Total operating expenses............................. 31.9 29.5 40.0
----- ----- -----
Income from operations................................. 26.9 25.5 14.9
Other income, net...................................... 0.7 0.2 1.7
----- ----- -----
Income before income taxes............................. 27.6 25.7 16.6
Income tax expense (benefit):
Tax provision as a "C" corporation.................... -- -- 5.3
Deferred tax adjustment............................... -- -- (0.5)
----- ----- -----
Historical net income.................................. 27.6% 25.7% 11.8%
===== ===== =====
Income before pro forma income taxes................... 27.6 25.7 16.6
Pro forma income taxes................................ 10.3 9.3 6.8
----- ----- -----
Pro forma net income................................... 17.3% 16.4% 9.8%
===== ===== =====
</TABLE>
Years Ended December 31, 1996, 1997 and 1998
Revenue
Our revenue consists of software license revenue, revenue derived from
consulting, maintenance and other services and revenue from the sale of
hardware. Total revenue increased 125.4% from $14.4 million in 1996 to $32.5
million in 1997. Total revenue increased 91.2% from $32.5 million in 1997 to
$62.1 million in 1998. The increase in total revenue was primarily due to an
increase in revenue from services and an increase in revenue from software
licenses.
Software License. Software license revenue increased 113.5% from $3.4
million in 1996 to $7.2 million in 1997. Software license revenue increased
93.0% from $7.2 million in 1997 to $13.8 million in 1998. The increase in
revenue from software licenses was primarily due to an increase in the number
of licenses of the Company's PkMS product and, to a lesser extent, new license
revenue as a result of the acquisition of PAC. Additionally, there was an
increase in the average price of software licenses. The increase in the
average price of software licenses is primarily due to increased product
functionality and market acceptance of PkMS.
19
<PAGE>
Services. Services revenue increased 131.1% from $6.2 million in 1996 to
$14.4 million in 1997 Services revenue increased 124.5% from $14.4 million in
1997 to $32.4 million in 1998. The increase in revenue from services was
principally due to the increased demand for these services resulting from the
increased demand for the Company's PkMS product.
Hardware. Hardware revenue increased 126.3% from $4.8 million in 1996 to
$10.9 million in 1997. Hardware revenue increased 46.0% from $10.9 million in
1997 to $15.9 million in 1998. The increase in revenue from hardware was
principally due to the increased demand for the Company's PkMS product.
Cost of Revenue
Cost of Software License. Cost of software license revenue consists of the
costs of software reproduction and delivery, media, packaging, documentation
and other related costs and the amortization of capitalized software. Cost of
software license revenue increased from $177,000 or 5.3% of software license
revenue, in 1996 to $461,000, or 6.4% of software license revenue, in 1997.
Cost of software license revenue increased from $461,000, or 6.4% of software
license revenue, in 1997 to $920,000, or 6.7% of software license revenue, in
1998. As a percentage of software license revenue, cost of software license
revenue remained relatively constant from 1996 to 1998.
Cost of Services. Cost of services revenue consists primarily of
consultant salaries and other personnel-related expenses incurred in system
implementation projects and software support services. Cost of services
revenue increased from $2.0 million, or 32.5% of services revenue, in 1996 to
$6.1 million, or 42.7% of services revenue, in 1997. Cost of services revenue
increased from $6.1 million, or 42.7% of services revenue, in 1997 to $15.3
million, or 47.2% of services revenue, in 1998. The increase in cost of
services revenue was primarily due to increased personnel as a result of
increased demand for services. The increase in cost of services revenue as a
percentage of services revenue in both 1997 and 1998 is principally due to
increased training and other costs related to the increase in services
personnel.
Cost of Hardware. Cost of hardware revenue increased from $3.7 million, or
77.6% of hardware revenue, in 1996 to $8.0 million, or 73.5% of hardware
revenue, in 1997. Cost of hardware revenue increased from $8.0 million, or
73.5% of hardware revenue, in 1997 to $11.8 million, or 74.2% of hardware
revenue, in 1998. The cost of hardware as a percentage of hardware revenue
decreased in 1997 compared to 1996 principally due to an increase in the
volume of sales of hardware products with higher gross margins. The increase
in the cost of hardware revenue as a percentage of hardware revenue in 1998 as
compared to 1997 was attributable to an increase in the volume of sales of
hardware products with lower gross margins.
Operating Expenses
Research and Development. Research and development expenses principally
consist of salaries and other personnel-related costs for personnel involved
in the Company's product development efforts. The Company's research and
development expenses increased by 144.7% from $1.2 million in 1996, or 8.6% of
total revenue to $3.0 million in 1997, or 9.3% of total revenue. The
Company's research and development expenses increased by 145.6% from $3.0
million in 1997, or 9.3% of total revenue to $7.4 million in 1998, or 12.0% of
total revenue. The increases in research and development expenses were
principally due to the addition of development personnel to enhance existing
products and for new product development efforts. Significant product
development efforts include the continued development of enhancements to PkMS
and the development of a client/server version of PkMS. The Company believes
that a continued commitment to product development will be required for the
Company to remain competitive and expects the dollar amount of research and
development expenses to increase in the near future.
20
<PAGE>
Acquired Research and Development. In February 1998, the Company purchased
all of the outstanding stock of PAC for approximately $2.2 million in cash and
106,666 shares of the Company's Common Stock valued at $10.00 per share. The
acquisition has been accounted for as a purchase. In connection with this
acquisition, approximately $1.6 million of the purchase price was allocated to
acquired research and development and expensed during the first quarter of
1998.
Sales and Marketing. Sales and marketing expenses include salaries,
commissions and other personnel-related costs, travel expenses, advertising
programs and other promotional activities. Sales and marketing expenses
increased by 87.9% from $1.9 million in 1996, or 13.2% of total revenue to
$3.6 million in 1997, or 11.0% of total revenue. Sales and marketing expenses
increased by 153.4% from $3.6 million in 1997, or 11.0% of total revenue to
$9.0 million in 1998, or 14.6% of total revenue. The increase in sales and
marketing expenses was the result of additional sales and marketing personnel,
an increase in sales commissions and expanded marketing program activities.
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related costs of executive,
financial and human resources and administrative personnel, as well as
facilities, legal, insurance, accounting and other administrative expenses.
General and administrative expenses increased by 104.6% from $1.5 million in
1996, or 10.1% of total revenue to $3.0 million in 1997, or 9.2% of total
revenue. General and administrative expenses increased by 126.3% from $3.0
million in 1997, or 9.2% of total revenue to $6.7 million in 1998, or 10.8% of
total revenue. The increase in general and administrative expenses was
principally due to increased staffing and other administrative expenses
necessary to support the Company's growth.
Income Taxes
Provision for Income Taxes. Prior to the initial public offering in April
1998, the Company's predecessor, Manhattan Associates Software, LLC, was
treated as a partnership and was not subject to federal income taxes. The
income or loss of Manhattan Associates Software, LLC was included in the
owners' individual federal and state tax returns, and as such, no provision
for income taxes was recorded in the accompanying statements of income prior
to April 23, 1998. The provision for income taxes in 1998 was $3.0 million,
net of a one-time benefit of $316,000, and the Company's effective income tax
rate was 36.0%.
In connection with the conversion of Manhattan Associates Software, LLC to
Manhattan Associates, Inc., the Company recognized a one-time benefit of
$316,000 by recording the asset related to the future reduction of income tax
payments due to temporary differences between the recognition of income for
financial statements and income tax regulations.
Pro Forma Provision for Income Taxes. The pro forma provision for income
taxes was $1.5 million in 1996 as compared to $3.0 million in 1997, as a
result of the Company's substantially increased income in 1997. The pro forma
provision for income taxes was $3.0 million in 1997, as compared to $4.2
million in 1998, as a result of the Company's substantially increased income
in 1998. The Company's effective pro forma income tax rates were 37.4%, 36.3%
and 41.1% in 1996, 1997 and 1998. The increase in the effective pro forma
income tax rate during 1998 was the result of the in-process research and
development charge being non-deductible. Excluding the effect of the in-
process research and development charge, the Company's effective pro forma tax
rate was 35.6% in 1998.
Earnings per Share
Pro Forma Net Income per Share. Pro forma net income was $2.5 million, or
$0.12 per diluted share, and $5.3 million, or $0.25 per diluted share, for the
years ended December 31, 1996 and 1997, respectively. Excluding the effect of
a one-time acquired research and development charge of $1.6 million, pro forma
net income was $7.7 million, or $0.30 per diluted share, for the year ended
December 31, 1998. Including the effect of the one-time acquired research and
development charge, the Company's pro forma net income was $6.1 million, or
$0.24 per diluted share, for the year ended December 31, 1998.
21
<PAGE>
Quarterly Results of Operations
The following table presents certain unaudited quarterly statements of
income data for each of the Company's last eight quarters in the period ended
December 31, 1998, as well as the percentage of the Company's total revenue
represented by each item. The information has been derived from the Company's
audited Financial Statements. The unaudited quarterly Financial Statements have
been prepared on substantially the same basis as the audited Financial
Statements contained herein. In the opinion of management, the unaudited
quarterly Financial Statements include all adjustments, consisting only of
normal recurring adjustments that the Company considers to be necessary to
present fairly this information when read in conjunction with the Company's
Financial Statements and notes thereto appearing elsewhere herein. The results
of operations for any quarter are not necessarily indicative of the results to
be expected for any future period.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- --------- -------- --------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenue:
Software license............................. $ 1,494 $ 1,833 $ 1,981 $ 1,852 $ 2,152 $ 2,849 $ 3,898 $ 4,917
Services..................................... 2,509 3,466 3,820 4,616 5,284 7,169 9,830 10,075
Hardware..................................... 2,241 2,469 3,081 3,095 3,934 4,076 2,860 5,021
------- ------- ------- ------- ------- ------- ------- -------
Total revenue............................... 6,244 7,768 8,882 9,563 11,370 14,094 16,588 20,013
Cost of revenue:
Software license............................. 89 105 122 145 69 171 372 308
Services..................................... 983 1,326 1,691 2,147 2,519 3,377 4,312 5,078
Hardware..................................... 1,644 1,953 2,230 2,174 3,080 2,924 2,038 3,749
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenue....................... 2,716 3,384 4,043 4,466 5,668 6,472 6,722 9,135
------- ------- ------- ------- ------- ------- ------- -------
Gross margin.................................. 3,528 4,384 4,839 5,097 5,702 7,622 9,866 10,878
Operating expenses:
Research and development..................... 428 662 791 1,144 1,285 1,937 2,058 2,149
Acquired research and development............ -- -- -- -- 1,602 -- -- --
Sales and marketing.......................... 507 913 989 1,161 1,313 2,008 2,692 3,032
General and administrative................... 398 589 981 1,007 1,127 1,370 1,884 2,350
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses.................... 1,333 2,164 2,761 3,312 5,327 5,315 6,634 7,531
------- ------- ------- ------- ------- ------- ------- -------
Income from operations........................ 2,195 2,220 2,078 1,785 375 2,307 3,232 3,347
Other income, net............................. 23 16 9 8 14 278 442 336
------- ------- ------- ------- ------- ------- ------- -------
Income before pro forma income taxes.......... 2,218 2,236 2,087 1,793 389 2,585 3,674 3,683
Pro forma income taxes........................ 804 811 757 651 713 904 1,361 1,266
------- ------- ------- ------- ------- ------- ------- -------
Pro forma net income.......................... $ 1,414 $ 1,425 $ 1,330 $ 1,142 $ (324) $ 1,681 $ 2,313 $ 2,417
======= ======= ======= ======= ======= ======= ======= =======
Pro forma diluted net income per share........ $ 0.07 $ 0.07 $ 0.06 $ 0.05 $ (0.02) $ 0.07 $ 0.09 $ 0.09
======= ======= ======= ======= ======= ======= ======= =======
Shares used in pro forma diluted net
income per share............................. 20,397 20,673 20,673 21,661 20,241 25,425 26,999 27,182
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
As a Percentage of Total Revenue
---------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1997 1997 1997 1997 1998 1998 1998 1998
-------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software license............................. 23.9% 23.6% 22.3% 19.4% 18.9% 20.2% 23.5% 24.6%
Services..................................... 40.2 44.6 43.0 48.3 46.5 50.9 59.3 50.3
Hardware..................................... 35.9 31.8 34.7 32.3 34.6 28.9 17.2 25.1
----- ----- ------ ------ ------ ------ ------ ------
Total revenue............................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Software license............................. 1.4 1.4 1.4 1.5 0.6 1.2 2.2 1.5
Services..................................... 15.7 17.1 19.0 22.4 22.2 24.0 26.0 25.4
Hardware..................................... 26.3 25.1 25.1 22.7 27.1 20.7 12.3 18.7
----- ----- ----- ----- ----- ----- ----- -----
Total cost of revenue....................... 43.4 43.6 45.5 46.6 49.9 45.9 40.5 45.6
----- ----- ----- ----- ----- ----- ----- -----
Gross margin.................................. 56.6 56.4 54.5 53.4 50.1 54.1 59.5 54.4
Operating expenses:
Research and development..................... 6.9 8.5 8.9 12.0 11.3 13.7 12.4 10.7
Acquired research and development............ -- -- -- -- 14.1 -- -- --
Sales and marketing.......................... 8.1 11.7 11.1 12.1 11.5 14.3 16.2 15.2
General and administrative................... 6.4 7.6 11.0 10.5 9.9 9.7 11.4 11.7
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses.................... 21.4 27.8 31.0 34.6 46.8 37.7 40.0 37.6
----- ----- ----- ----- ----- ----- ----- -----
Income from operations........................ 35.2 28.6 23.5 18.8 3.3 16.4 19.5 16.8
Other income, net............................. 0.3 0.2 0.1 0.1 0.1 2.0 2.6 1.7
----- ----- ----- ----- ----- ----- ----- -----
Income before pro forma income taxes.......... 35.5% 28.8% 23.6% 18.9% 3.4% 18.4% 22.1% 18.5%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
Our quarterly revenue and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter. Factors which could cause
variations in our quarterly revenue and operating results are:
. demand for our products;
. introductions of new products by our competitors;
. the level of price competition by our competitors;
. customers' budgeting and purchasing cycles;
. delays in our implementations at customer sites;
. timing of hiring new services employees and the rate at which such
employees become productive;
. development and performance of our distribution channels;
. timing of any acquisitions and related costs; and
. identification of software quality problems.
Most of our expenses, such as employee compensation and rent, are
relatively fixed. Moreover, our expense levels are based, in part, on our
expectations regarding future revenue increases. As a result, any shortfall in
revenue in relation to our expectations could cause significant changes in our
operating results from quarter to quarter and could result in quarterly losses.
As a result of these factors, we believe that period-to-period comparisons of
our revenue levels and operating results are not necessarily meaningful. You
should not rely on our quarterly revenue and operating results to predict our
future performance.
23
<PAGE>
Our ability to undertake new projects and increase revenue is substantially
dependent on the availability of our consulting services personnel to assist in
the implementation of our software solution. We believe that supporting high
growth in revenue requires us to rapidly hire additional skilled personnel for
our consulting services group, and there can be no assurance that qualified
personnel could be located, trained or retained in a timely and cost-effective
manner.
As a result of the foregoing and other factors, we believe that quarter-to-
quarter comparisons of results are not necessarily meaningful, and such
comparisons should not be relied upon as indications of future performance.
Fluctuations in operating results may also result in volatility in the price of
the shares of our common stock.
Liquidity and Capital Resources
As of December 31, 1998, we had $32.8 million in cash, cash equivalents and
short-term investments compared to $3.2 million at December 31, 1997. We
maintain a line of credit of $8.0 million that can be used for working capital
requirements on an as-needed basis.
Our operating activities provided cash of $2.9 million in 1998, $7.0
million in 1997 and $4.0 million in 1996. Cash from operating activities arose
principally from our profitable operations and was used for working capital
purposes, principally increases in accounts receivable. The increase in
accounts receivable was primarily the result of our continued revenue growth.
Our investing activities used approximately $14.5 million, $1.8 million and
$485,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Our
use of cash for the year ended December 31, 1998 was primarily for the purchase
of short term investments, the acquisition of PAC and certain assets of KSA, and
the purchase of capital equipment, such as computer equipment and furniture and
fixtures, to support our growth. Our use of cash for 1997 and 1996 was primarily
for the purchase of capital equipment, such as computer equipment and furniture
and fixtures, to support our growth.
Our financing activities provided approximately $36.1 million in 1998. The
principal source of cash provided by financing activities for the year ended
December 31, 1998 was additional borrowings under a Grid Promissory Note with
the majority shareholder and proceeds from the issuance of common stock in our
initial public offering, partially reduced by distributions to our shareholders
prior to our initial public offering and the repayment of the note payable to
the majority shareholder. Our financing activities used approximately $5.1
million in 1997 and $2.8 million in 1996. The principal use of cash was
distributions to our shareholders, partially reduced by borrowings from our
majority shareholder.
We entered into a line of credit with a commercial bank to fund our April
1998 distribution to Manhattan LLC shareholders and other working capital needs.
The line of credit does not contain any conditions or restrictive covenants that
would materially affect our business, financial condition or results of
operations. No amounts were outstanding under this line of credit at December
31, 1998.
We believe that our existing balances of cash, cash equivalents and short-
term investments will be sufficient to meet our working capital and capital
expenditure needs at least for the next twelve months. Thereafter, we may
require additional sources of funds to continue to support our business.
Year 2000 Readiness Disclosure Statement
Many currently installed computer systems and software products are coded
to accept only two digit entries in date code fields. Beginning in the year
2000, many of these systems will need to be modified to accept four digit
entries or otherwise distinguish twenty-first century dates from twentieth
century dates. As a result, over the next year, many companies will need to
upgrade their computer systems and software products to comply with these "Year
2000" requirements.
24
<PAGE>
In September 1998, we formed our Year 2000 Readiness Committee to oversee
our Year 2000 Readiness Assessment Program, which includes the following tasks:
. establishing our standard for Year 2000 Readiness;
. designing test parameters for our products, information technology, or
IT, and non-IT systems;
. overseeing our remediation program, including establishing priorities for
remediation and allocating available resources;
. overseeing the communication of the status of our efforts to our
customers; and
. establishing contingency plans in the event that we experience Year 2000
disruptions.
We describe our products as "Year 2000 Ready" when they have been
successfully tested using the procedure prescribed in our Readiness Assessment
Program. This procedure defines the criteria used to design tests that seek to
determine the Year 2000 readiness of a product. Under our criteria, a software
product is Year 2000 Ready if it:
. will completely and accurately address, present (in a two-digit format),
produce, store and calculate data involving dates beginning January 1,
2000 and will not produce abnormally ending or incorrect results
involving such dates as used in many forward or regression date based
functions;
. will provide that all "date"-related functionalities and data fields
include the indication of century and millennium, whether shown on-screen
or internally noted; and
. will perform calculations that involve a four-digit year field, provided
that the data input into our software from any other source has the same
Year 2000 capabilities and is in a format that is compatible with our
software.
Because the latest versions of our products are designed to be Year 2000
compliant, our Year 2000 remediation efforts with respect to our own products
have focused on determining the compliance of our earlier software products as
implemented in our installed customer base, as well as the impact of any non-
compliance on us and our customers. We offer our customers the alternatives of
implementing a modification to their non-compliant versions of our software or
migrating to a later version of the software that is Year 2000 Ready. Because
our software is often marketed as an integrated system that includes hardware
and operating or interface software from third parties over which we can assert
little control, the Year 2000 Readiness Committee is evaluating the Year 2000
Readiness of such systems and the risks associated with the failure of such
third parties to adequately address the Year 2000 issue.
Our Year 2000 Readiness Committee is also addressing our Year 2000
readiness with respect to both IT and non-IT systems on which our operations
rely. As a result of our recent rapid growth, we have, or expect we will have by
the end of 1999, replaced or significantly upgraded substantially all of our
core IT systems, including those related to sales, customer service, human
resources, finance and other enterprise resource planning functions. We believe
that the upgraded systems are all Year 2000 Ready, and we have received
assurances from the vendors of these systems to that effect. We are reviewing
our remaining IT systems for Year 2000 Readiness and expect to modify, replace
or discontinue the use of non-compliant systems before the end of 1999. In
addition, we are in the process of evaluating our Year 2000 readiness with
respect to non-IT systems, including systems embedded in our communications and
office facilities. In many cases these facilities have been recently upgraded or
are scheduled to be upgraded before year-end 1999 as a result of our recent
growth. Finally, because we rely upon relationships with third parties, such as
providers of telecommunications and similar infrastructure services, over which
we can assert little control, the Year 2000 Readiness Committee is also
assessing the risks associated with the failure of these third parties to
adequately address Year 2000 issues.
25
<PAGE>
We do not currently believe that the effects of any Year 2000 non-
compliance in our installed base of software will result in a material adverse
effect on our business, financial condition or results of operations. However,
our investigation is in its preliminary stages, we may be exposed to potential
claims resulting from system problems associated with the century change. There
can also be no assurance that our software products that are designed to be Year
2000 compliant contain all necessary date code changes. In addition, Year 2000
non-compliance in our internal IT systems or certain non-IT systems on which our
operations rely or by our business partners may have an adverse impact on our
business, financial condition or results of operations.
The majority of the work performed for our Year 2000 Readiness Assessment
Program has been completed by our staff. The total costs for completing the Year
2000 Readiness Assessment Program, including modifications to our software
products, is estimated to be between $0.5 million and $1.0 million, funded
through our internal operating cash flows. This cost does not include the cost
of new software, or for modifications to existing software, or our core IT and
non-IT systems, as these projects were not accelerated due to the Year 2000
issue.
Our evaluation of Year 2000 issues includes the development of contingency
plans for business functions that are most susceptible to a substantive risk of
disruption resulting from a Year 2000 related event. Because we have not yet
identified any business function that is materially at risk of Year 2000 related
disruption, we have not yet developed detailed contingency plans specific to
Year 2000 events for any business function. We are prepared for the possibility,
however, that we may identify risks in certain business functions, and we will
develop contingency plans for these business functions when and if we identify
them as being at risk.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Foreign Exchange
During 1998, the Company commenced operations in the United Kingdom. Total
revenues for the United Kingdom were less than 1% of the Company's total
revenues for the year ended December 31, 1998.
The Company's international business is subject to risks typical of an
international business, including, but not limited to: differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility.
Accordingly, the Company's future results could be materially adversely impacted
by changes in these or other factors. The effect of foreign exchange rate
fluctuations on the Company in 1998 was not material.
Interest Rates
The Company invests its cash in a variety of financial instruments,
including taxable and tax-advantaged variable rate and fixed rate obligations of
corporations, municipalities, and local, state and national governmental
entities and agencies. These investments are denominated in U.S. dollars. Cash
balances in foreign currencies overseas are operating balances.
Interest income on the Company's investments is carried in "Other income,
net" on our Consolidated Financial Statements. The Company accounts for its
investment instruments in accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). All of the cash equivalents and short-term
investments are treated as available-for-sale under SFAS 115.
Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, the Company's future investment
income may fall short of expectations due to changes in interest rates, or the
Company may suffer losses in principal if forced to sell securities which have
seen a decline in market value due to changes in interest rates. The weighted-
average interest rate on investment securities at December 31, 1998 was
approximately 4%. The fair value of securities held at December 31, 1998 was
$26.0 million.
26
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(a) 1. Financial Statements
<TABLE>
<CAPTION>
Index Page
----- ----
<S> <C>
Report of Independent Public Accountants.................................................................. 28
Consolidated Balance Sheets as of December 31, 1997 and 1998.............................................. 29
Consolidated Statements of Income for the Years Ended December 31, 1996, 1997 and 1998.................... 30
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1997 and 1998...... 31
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1996, 1997 and 1998...... 32
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998................ 33
Notes to Consolidated Financial Statements................................................................ 34
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Manhattan Associates, Inc.:
We have audited the accompanying consolidated balance sheets of MANHATTAN
ASSOCIATES, INC. (a Georgia corporation) AND SUBSIDIARIES as of December 31,
1997 and 1998 and the related consolidated statements of income, shareholders'
equity, comprehensive income and cash flows for each of the three years in the
period ended December 31, 1998. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Manhattan Associates, Inc.
and subsidiaries as of December 31, 1997 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 20, 1999
28
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................. $ 3,194 $27,751
Short-term investments..................................................... -- 5,012
Accounts receivable, net of a $970 and $1,600 allowance for
doubtful accounts, in 1997 and 1998, respectively........................ 9,242 20,806
Deferred income taxes...................................................... -- 622
Refundable income taxes.................................................... -- 342
Other current assets....................................................... 384 1,328
------- -------
Total current assets.................................................... 12,820 55,861
------- -------
Property and equipment:
Property and equipment..................................................... 2,605 9,185
Less accumulated depreciation........................................... (662) (1,754)
------- -------
Property and equipment, net................................................ 1,943 7,431
------- -------
Intangible assets, net of accumulated amortization of $266 and $673 in
1997 and 1998, respectively................................................. 133 4,204
Deferred taxes............................................................... -- 155
Other assets................................................................. 110 124
------- -------
Total assets............................................................ $15,006 $67,775
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................... $ 2,479 $ 4,954
Accrued compensation and benefits.......................................... 753 1,674
Accrued liabilities........................................................ 455 1,568
Notes payable to shareholders.............................................. 1,019 --
Current portion of capital lease obligations............................... -- 126
Deferred revenue........................................................... 1,846 2,978
------- -------
Total current liabilities............................................... 6,552 11,300
------- -------
Long-term portion of capital lease obligations............................... -- 840
Shareholders' equity:
Preferred stock, no par value; 20,000,000 shares authorized, no shares
issued or outstanding in 1997 or 1998.................................... -- --
Common stock, $.01 par value; 100,000,000 shares authorized,
20,000,008 shares issued and outstanding in 1997 and
23,937,874 shares issued and outstanding in 1998......................... 200 239
Additional paid-in-capital................................................. 1,459 53,305
Retained earnings.......................................................... 7,458 3,056
Accumulated other comprehensive income..................................... -- (7)
Deferred compensation...................................................... (663) (958)
------- -------
Total shareholders' equity.............................................. 8,454 55,635
------- -------
Total liabilities and shareholders' equity.............................. $15,006 $67,775
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
29
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1997 1998
------------ ------------ -------------
<S> <C> <C> <C>
Revenue:
Software license.......................... $ 3,354 $ 7,160 $13,816
Services.................................. 6,236 14,411 32,358
Hardware.................................. 4,810 10,886 15,891
------- ------- -------
Total revenue.......................... 14,400 32,457 62,065
------- ------- -------
Cost of revenue:
Software license.......................... 177 461 920
Services.................................. 2,026 6,147 15,286
Hardware.................................. 3,734 8,001 11,791
------- ------- -------
Total cost of revenue.................. 5,937 14,609 27,997
------- ------- -------
Gross margin................................ 8,463 17,848 34,068
Operating expenses:
Research and development.................. 1,236 3,025 7,429
Acquired research and development......... -- -- 1,602
Sales and marketing....................... 1,900 3,570 9,045
General and administrative................ 1,454 2,975 6,731
------- ------- -------
Total operating expenses............... 4,590 9,570 24,807
------- ------- -------
Income from operations...................... 3,873 8,278 9,261
Other income, net........................... 103 56 1,070
------- ------- -------
Income before income taxes.................. 3,976 8,334 10,331
Income tax expense (benefit):
Tax provision as a "C" corporation........ -- -- 3,329
Deferred tax adjustment................... -- -- (316)
------- ------- -------
Historical net income....................... $ 3,976 $ 8,334 $ 7,318
======= ======= =======
Historical basic net income per share....... $0.20 $0.42 $0.32
======= ======= =======
Historical diluted net income per share..... $0.20 $0.40 $0.29
======= ======= =======
Income before pro forma income taxes........ $ 3,976 $ 8,334 $10,331
Pro forma income taxes...................... 1,486 3,023 4,244
------- ------- -------
Pro forma net income........................ $ 2,490 $ 5,311 $ 6,087
======= ======= =======
Pro forma basic net income per share........ $ 0.27
=======
Pro forma diluted net income per share...... $ 0.24
=======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
30
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
------------------- Paid-In Retained Compensation Deferred Shareholders
Shares Amount Capital Earnings Income Compensation Equity
------------------- ---------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.................... 20,000,008 $200 $ 414 $ 3,141 $ -- $ -- $ 3,755
Distributions to shareholders................ -- -- -- (2,849) -- -- (2,849)
Historical net income........................ -- -- -- 3,976 -- -- 3,976
---------- ---- ------- -------- ------- ------ -------
Balance, December 31, 1996.................... 20,000,008 200 414 4,268 -- -- 4,882
Issuance of stock options.................... -- -- 970 -- -- (970) --
Issuance of stock options to consultant
(Note 7).................................... -- -- 75 -- -- -- 75
Distributions to shareholders................ -- -- -- (5,144) -- -- (5,144)
Amortization of deferred
compensation................................ -- -- -- -- -- 307 307
Historical net income........................ -- -- -- 8,334 -- -- 8,334
---------- ---- ------- -------- ------- ------ -------
Balance, December 31, 1997.................... 20,000,008 200 1,459 7,458 -- (663) 8,454
Distribution to Manhattan LLC
shareholders................................ -- -- -- (11,720) -- -- (11,720)
Issuance of stock in connection with the
purchase of Performance Analysis
Corporation................................. 106,666 1 1,066 -- -- -- 1,067
Issuance of stock to minority holder
(Note 7).................................... 100,000 1 999 -- -- -- 1,000
Issuance of stock in connection with the
initial public offering..................... 3,500,000 35 47,223 -- -- -- 47,258
Issuance of common stock options............. -- -- 580 -- -- (580) --
Exercise of common stock options............. 231,200 2 647 -- -- -- 649
Tax benefit from stock options exercised..... -- -- 1,331 -- -- -- 1,331
Amortization of deferred
compensation................................ -- -- -- -- -- 285 285
Foreign currency translation
adjustment.................................. -- -- -- -- (7) -- (7)
Historical net income........................ -- -- -- 7,318 -- -- 7,318
---------- ---- ------- -------- ------ ------ -------
Balance, December 31, 1998.................... 23,937,874 $239 $53,305 $ 3,056 $ (7) $ (958) $55,635
========== ==== ======= ======== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
31
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1997 1998
------------ ------------ ----------
<S> <C> <C> <C>
Net income....................................... $3,976 $8,334 $7,318
Other comprehensive net income, net of tax:
Foreign currency translation adjustment........ -- -- (7)
------ ------ ------
Comprehensive net income......................... $3,976 $8,334 $7,311
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
32
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1996 1997 1998
----------------- -------------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Pro forma net income......................................... $ 2,490 $ 5,311 $ 6,087
Adjustments to reconcile pro forma net income to net
cash provided by operating activities:
Pro forma income taxes...................................... 1,486 3,023 899
Depreciation and amortization............................... 276 483 1,702
Stock compensation.......................................... -- 382 285
Gain on sale of equipment................................... -- -- (30)
Acquired research and development........................... -- -- 1,602
Deferred income taxes....................................... -- -- (403)
Accrued interest on note payable to shareholder............. 33 50 34
Changes in operating assets and liabilities:
Accounts receivable, net.................................. (1,114) (5,931) (11,470)
Other assets.............................................. (1) (474) (1,691)
Accounts payable.......................................... 26 2,057 2,399
Accrued liabilities....................................... 324 804 1,373
Income taxes payable...................................... -- -- 1,203
Deferred revenue.......................................... 434 1,247 927
------- ------- --------
Net cash provided by operating activities...................... 3,954 6,952 2,917
------- ------- --------
Cash flows from investing activities:
Purchases of property and equipment.......................... (485) (1,813) (6,036)
Proceeds from the sale of equipment.......................... -- -- 275
Capitalized software development costs....................... -- -- (614)
Purchase of short-term investments, net...................... -- -- (5,012)
Payments in connection with the purchase of certain assets
of Kurt Salmon Associates, Inc............................. -- -- (1,750)
Payments in connection with the acquisition of Performance
Analysis Corporation, net of cash acquired................. -- -- (1,351)
------- ------- --------
Net cash used in investing activities.......................... (485) (1,813) (14,488)
------- ------- --------
Cash flows from financing activities:
Distributions to shareholders................................ (2,849) (5,144) (11,720)
Borrowings under note payable to shareholder................. -- -- 900
Repayment of note payable to shareholder..................... -- -- (1,953)
Proceeds from issuance of common stock....................... -- -- 48,907
------- ------- --------
Net cash provided by (used in) financing activities............ (2,849) (5,144) 36,134
------- ------- --------
Foreign currency impact on cash................................ -- -- (6)
Increase (decrease) in cash and cash equivalents............... 620 (5) 24,557
Cash and cash equivalents, beginning of period................. 2,579 3,199 3,194
------- ------- --------
Cash and cash equivalents, end of period....................... $ 3,199 $ 3,194 $ 27,751
======= ======= ========
Supplemental cash flow disclosures:
Issuance of common stock in connection with the
acquisition of Performance Analysis Corporation............ $ -- $ -- $ 1,067
======= ======= ========
Assets acquired under capital lease.......................... $ -- $ -- $ 965
======= ======= ========
Cash paid for income taxes................................... $ -- $ -- $ 2,845
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
33
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1997 and 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Manhattan Associates, Inc. ("Manhattan" or the "Company") develops,
markets, and supports supply chain execution systems primarily focused on
distribution center management. The Company's primary product, PkMS, is a
comprehensive and modular designed software system that assists in the
management of inventory, storage, distribution, equipment, and personnel within
a distribution center. The Company also provides professional services
including design, configuration, implementation, training, and support.
Completion of Initial Public Offering and Conversion
On April 23, 1998, the Company completed an initial public offering (the
"Offering") of its $.01 par value per share common stock (the "Common Stock").
The Company sold 3,500,000 shares of common stock, excluding 525,000 shares sold
by certain selling shareholders as part of the underwriters' over-allotment, for
$52,500,000 less issuance costs of approximately $5,242,000.
In connection with the Company's initial public offering Manhattan
Associates, Inc., a Georgia corporation, was formed. The attached consolidated
financial statements include the accounts of Manhattan Associates, LLC
("Manhattan LLC") from January 1, 1996 to April 23, 1998 and include the
accounts of Pegasys Systems Incorporated ("Pegasys") prior to January 1, 1996.
Prior to December 31, 1995, Manhattan operated as Pegasys which was, at the
time, 100% owned by Manhattan LLC's current majority shareholder ("Majority
Holder"). As of the effective date of the Offering, Manhattan LLC contributed
its assets and liabilities to the Company in exchange for common stock of the
Company (the "Conversion"). Manhattan LLC then distributed the common stock of
the Company received to its shareholders and Manhattan LLC was dissolved.
Prior to the completion of the initial public offering, Manhattan LLC
distributed all undistributed earnings, calculated on a tax basis, to the
shareholders of Manhattan LLC. The amount distributed subsequent to December
31, 1997 and prior to the completion of the initial public offering was
approximately $11,720,000. These distributions were funded through a series of
payments from available Company cash and from the proceeds of the Company's line
of credit. The advances or balance on the line of credit incurred to fund these
distributions was repaid using a portion of the net proceeds of the Offering.
All share and per share data in the accompanying consolidated financial
statements have been adjusted to reflect the Conversion. Unless otherwise
indicated, all references to the Company or Manhattan assume the completion of
the Conversion and include Manhattan LLC and Pegasys.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
34
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Summary of Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash or cash equivalents.
Short-term Investments
The Company's short-term investments are categorized as available-for-sale
securities, as defined by Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
Unrealized holding gains and losses are reflected as a net amount in a separate
component of shareholders' equity until realized. For the purposes of computing
realized gains and losses, cost is identified on a specific identification
basis. At December 31, 1998, unrealized gains and losses were not significant
and have not been presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying values of cash, trade accounts receivable, trade accounts
payable, and other financial instruments included in the accompanying balance
sheets approximate their fair values principally due to the short-term
maturities of these instruments.
Risks Associated with Single Product Line, Technological Advances, and Hardware
Revenue
The Company currently derives substantially all its revenues from sales of
its PkMS software and related services and hardware. Any factor adversely
affecting the distribution management center market could have an adverse effect
on the Company's business, financial condition, and results of operations.
The market for distribution center management systems is subject to rapid
technological change, changing customer needs, frequent new product
introductions, and evolving industry standards that may render existing products
and services obsolete. As a result, the Company's position in this market could
be eroded rapidly by unforeseen changes in customer requirements for application
features, functions, and technologies. The Company's growth and future
operating results will depend, in part, upon its ability to enhance existing
applications and develop and introduce new applications that meet changing
customer requirements, that respond to competitive products and that achieve
market acceptance.
The Company resells a variety of hardware products developed and
manufactured by third parties. Revenue from such hardware sales can amount to a
significant portion of the Company's total revenue in any period. As the market
for distribution of hardware products becomes more competitive, the Company's
customers may find it attractive to purchase such hardware directly from the
manufacturer of such products, with a resultant decrease in the Company's
revenues from hardware.
35
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Revenue Recognition
The Company's revenue consists of revenues from the licensing of software;
fees from consulting, implementation, training, and maintenance services; and
revenue from the sale of complementary radio frequency and computer equipment.
For the years ended December 31, 1996 and 1997, the Company recognized software
license revenue in accordance with the provisions of American Institute of
Certified Public Accountants Statement of Position ("SOP") No. 91-1, "Software
Revenue Recognition." Accordingly, software license revenue is recognized upon
shipment of the software following execution of a contract, provided that no
significant vendor obligations remain outstanding, amounts are due within one
year, and collection is considered probable by management. If significant post-
delivery obligations exist, the revenue from the sale of the software license,
as well as other components of the contract, is recognized using percentage of
completion accounting.
Effective January 1, 1998, the Company adopted SOP No. 97-2, "Software
Revenue Recognition" ("SOP 97-2"), that supersedes SOP No. 91-1, "Software
Revenue Recognition." Under SOP 97-2, the Company recognizes software license
revenue when the following criteria are met: (1) a signed and executed contract
is obtained; (2) shipment of the product has occurred; (3) the license fee is
fixed and determinable; (4) collectibility is probable; and (5) remaining
obligations under the license agreement are insignificant.
The Company's services revenue consists of revenue generated from
consulting and maintenance related to the Company's software product. Services
revenue is derived from fees based on consulting, implementation, and training
services contracted under separate service agreements. Revenue related to
consulting, implementation, and training services performed by the Company are
generally billed on an hourly basis and revenue is recognized as the services
are performed. Maintenance revenue represents amounts paid, generally in
advance, by users for the support and enhancements to the software. Maintenance
revenue is recognized ratably over the term of the maintenance agreement,
typically 12 months.
Hardware revenue is generated from the resale of a variety of hardware
products, developed and manufactured by third parties, that are integrated with
and complementary to the Company's software solution. As part of a complete
distribution center management system solution the Company's customers
frequently purchase hardware from the Company in conjunction with the licensing
of software. These products include computer hardware, radio frequency
terminals networks, bar code printers and scanners, and other peripherals.
Hardware revenue is recognized upon shipment The Company generally purchases
hardware from its vendors only after receiving an order from a customer. As a
result, the Company does not maintain significant hardware inventory.
Deferred Revenue
Deferred revenue primarily represents amounts collected prior to complete
performance of maintenance services.
36
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Returns and Allowances
The Company provides for the costs of returns and product warranty claims
at the time of sale. The Company has not experienced significant returns or
warranty claims to date and, as a result, has not recorded a provision for the
cost of returns and product warranty claims at December 31, 1997 or 1998.
Property and Equipment
Property and equipment consists of furniture, computers, other office
equipment, purchased software, and leasehold improvements. The Company
depreciates the cost of furniture, computers, other office equipment and
purchased software on a straight-line basis over their estimated useful lives
(three years for computer equipment and software, five years for office
equipment, seven years for furniture). Leasehold improvements are depreciated
over the term of the lease. Included in computer equipment and software is a
capital lease of approximately $965,000 as of December 31, 1998. Depreciation
and amortization expense for property and equipment for the years ended December
31, 1996, 1997, and 1998 was $143,000, $349,000 and $1,294,000, respectively.
Property and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1998
------------------ ----------------
<S> <C> <C>
Computer equipment and software........................ $1,547 $ 5,629
Furniture and office equipment......................... 1,055 2,702
Leasehold improvements................................. 3 854
------ -------
2,605 9,185
Less accumulated depreciation and amortization......... (662) (1,754)
------ -------
$1,943 $ 7,431
====== =======
</TABLE>
Intangible Assets
Intangible assets include purchased software, goodwill and capitalized
development costs. The assets are being amortized on a straight-line basis over
a period of 1 to 10 years. Total amortization expense was $133,000, $133,000
and $406,000 for the years ended December 31, 1996, 1997 and 1998, respectively,
and is included in cost of software licenses and general and administrative
expenses in the accompanying statements of income.
37
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Income Taxes
Prior to April 23, 1998, Manhattan LLC was treated as a partnership, and
Pegasys was an S Corporation under the provisions of the Internal Revenue Code
of 1986, as amended; therefore, neither company was subject to federal income
taxes. The income or loss of Manhattan LLC and Pegasys was included in the
owners' individual federal and state tax returns, and as such, no provision for
income taxes is recorded in the accompanying statements of income prior to April
23, 1998. The Company and Pegasys have historically made distributions on
behalf of the owners to pay anticipated tax liability.
In connection with the Conversion, the Company recognized a one-time
benefit in April 1998 of $316,000 by recording the asset related to the future
reduction of income tax payments due to temporary differences between the
recognition of income for financial statements and income tax regulations. Pro
forma net income amounts discussed herein include provisions for income taxes on
a pro forma basis as if the Company were liable for federal and state income
taxes as a taxable corporate entity throughout the periods presented. The pro
forma income tax provision has been computed by applying the Company's
anticipated statutory tax rate to pretax income, adjusted for permanent tax
differences (Note 3).
Capitalized Software Development Costs
Research and development expenses are charged to expense as incurred.
Computer software development costs are charged to research and development
expense until technological feasibility is established, after which remaining
software production costs are capitalized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, "Accounting for Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed." The Company has
defined technological feasibility as the point in time at which the Company has
a detailed program design or a working model of the related product, depending
on the type of development efforts. The Company concluded that the amount of
development costs capitalizable under the provisions of SFAS No. 86 was not
material to the financial statements for the years ended December 31, 1996 and
1997. Therefore, the Company expensed all internal software development costs
as incurred for the years ended December 31, 1996, and 1997. For the year ended
December 31, 1998, the Company capitalized $614,000 in development costs.
Amounts capitalized include salaries and other payroll-related costs and other
direct expenses.
Impairment of Long-Lived and Intangible Assets
The Company periodically reviews the values assigned to long-lived assets,
including property and intangible assets, to determine whether events and
circumstances have occurred which indicate that the remaining estimated useful
lives may warrant revision or that the remaining balances may not be
recoverable. Management believes the long-lived assets in the accompanying
balance sheets are appropriately valued.
Segment Information
The Company operates in a single segment as defined by Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of and
Enterprise and Related Information" and does not have significant operations in
foreign locations.
38
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Basic and Diluted Net Income Per Share
Basic net income per share is computed using historical or pro forma net
income divided by the weighted average number of shares of common stock
outstanding ("Weighted Shares") for the period presented.
Diluted net income per share is computed using historical or pro forma net
income divided by Weighted Shares, and the treasury stock method effect of
common equivalent shares ("CES's") outstanding for each period presented. Pro
forma basic and diluted net income per share also includes the number of shares
pursuant to the Securities and Exchange Commission Staff Accounting Bulletin
1B.3, that at the assumed public offering price would yield proceeds in the
amount necessary to pay the shareholder distribution that is not covered by the
earnings for the year ("Distribution Shares").
No adjustment is necessary for historical and pro forma net income for net
income per share presentation. The following is a reconciliation of the shares
used in the computation of net income per share for the years ended December 31,
1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
-------------------------- -------------------------- --------------------------
Basic Diluted Basic Diluted Basic Diluted
------------ ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Weighted shares......... 20,000,008 20,000,008 20,000,008 20,000,008 22,610,153 22,610,153
Effect of CES's......... -- 307,503 -- 761,300 -- 3,040,440
---------- ---------- ---------- ---------- ---------- ----------
20,000,008 20,307,511 20,000,008 20,761,308 22,610,153 25,650,593
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
--------------------------
Basic Diluted
------------ ------------
<S> <C> <C>
Weighted Shares......................................................... 22,610,153 22,610,153
Shares sold to Minority Holder (Note 7)................................. -- 12,877
Distribution Shares..................................................... -- 22,447
Effect of CES's......................................................... -- 3,040,440
---------- ----------
22,610,153 25,685,917
========== ==========
</TABLE>
Stock-Based Compensation Plan
The Company accounts for its stock-based compensation plan for stock issued
to employees under Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and, accordingly, records deferred
compensation for options granted at an exercise price below the fair value of
the underlying stock. The deferred compensation is presented as a component of
equity in the accompanying balance sheets and is amortized over the periods to
be benefited, generally the vesting period of the options. Effective in fiscal
year 1996, the Company adopted the pro forma disclosure option for stock-based
compensation issued to employees of Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation."
New Accounting Pronouncement
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 is effective for the Company's fiscal
year ending December 31, 2000. The Company does not expect that SFAS No. 133
will have a significant impact on the Company's financial position.
39
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
2. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1996, 1997 and 1998, the Company
contracted with parties related to the Majority Holder for marketing and legal
services for an aggregate amount of $289,000, $389,000 and $17,000,
respectively. In the opinion of management, the rates, terms, and
considerations of the transactions with related parties approximate those with
unrelated entities. At December 31, 1996, 1997 and 1998, there were no fees
outstanding for the services provided.
During the year ended December 31, 1998, the Company advanced approximately
$105,000 to four shareholders. As of December 31, 1998, the amount is included
in other current assets in the accompanying balance sheet.
3. INCOME TAXES
After the Conversion, the Company is subject to future federal and state
income taxes and has recorded net deferred tax assets. Deferred tax assets and
liabilities are determined based on the difference between the financial
accounting and the tax bases of assets and liabilities. Significant components
of the Company's deferred tax assets and liabilities as of December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Accounts receivable................................................. $607,000
Stock compensation expense.......................................... 198,000
Accrued liabilities................................................. 53,000
Other............................................................... 4,000
--------
862,000
--------
Deferred tax liabilities:
Depreciation........................................................ 85,000
--------
Net deferred tax assets.................................................. $777,000
========
</TABLE>
The components of the pro forma income tax provision for the years ended
December 31, 1996, 1997, and 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------------- -------------- ---------------
Current:
<S> <C> <C> <C>
Federal................................... $1,272,000 $2,565,000 $3,985,000
State..................................... 150,000 303,000 662,000
---------- ---------- ----------
1,422,000 2,868,000 4,647,000
---------- ---------- ----------
Deferred:
Federal................................... 57,000 138,000 (339,000)
State..................................... 7,000 17,000 (64,000)
---------- ---------- ----------
64,000 155,000 (403,000)
---------- ---------- ----------
Total.................................. $1,486,000 $3,023,000 $4,244,000
========== ========== ==========
</TABLE>
40
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
The following is a summary of the items which resulted in recorded pro
forma income taxes to differ from taxes computed using the statutory federal
income tax rate for the years ended December 31, 1996, 1997, and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
------------ -------------- -------------
<S> <C> <C> <C>
Statutory federal income tax rate................ 34.0% 34.0% 34.0%
Effect of:
State income tax, net of federal benefit....... 3.9 3.9 4.0
Research and development credits............... (0.9) (1.9) (4.6)
Other tax credits.............................. -- -- (1.0)
Acquired research and development.............. -- -- 5.9
Foreign operations............................. -- -- 2.3
Tax exempt income.............................. -- -- (1.0)
Other.......................................... 0.4 0.3 1.5
---- ---- ----
Pro forma income taxes........................... 37.4% 36.3% 41.1%
==== ==== ====
</TABLE>
4. NOTE PAYABLE TO SHAREHOLDER
The Company's short-term debt as of December 31, 1997 consists of a note
payable (the "Shareholder Note") to the Majority Holder, bearing interest at 5%.
The Shareholder Note was due on demand and unpaid interest accrued to the
principle balance. The balance of the Shareholder Note including accrued
interest was $1,019,000 as of December 31, 1997. In February 1998, the Company
borrowed an additional $900,000 under the Shareholder Note. The balance of the
Shareholder Note was repaid using a portion of the net proceeds of the Offering.
5. LINE OF CREDIT
The Company has a revolving line of credit facility with a commercial bank
secured by substantially all of the assets of the Company. Under the terms of
the facility, the Company may request advances in an aggregate amount of up to
$8,000,000. Borrowings under the facility bear interest at the prime rate plus
one-half percent. The facility contains certain financial covenants that the
Company believes are typical for a facility of this nature and amount, including
a covenant not to pay cash dividends. This facility will expire in March 1999,
unless renewed. There were no outstanding amounts under the credit facility at
December 31, 1998.
41
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
6. STOCK OPTION PLANS
The Manhattan Associates LLC Option Plan (the "LLC Option Plan") became
effective on January 1, 1997. The LLC Option Plan is administered by a
committee appointed by the Board of Directors. The aggregate number of shares
reserved for issuance under the LLC Option Plan was 5,000,000 shares. The
options are granted at terms determined by the committee; however, the option
cannot have a term exceeding ten years. Options granted under the LLC Option
Plan have vesting periods ranging from immediately to six years. Subsequent to
February 28, 1998, no additional options could be granted pursuant to the LLC
Option Plan.
Prior to the establishment of the LLC Option Plan, the Company issued
options to purchase 661,784 shares of common stock to certain employees. These
grants contain provisions similar to options issued under the LLC Option Plan.
The Company's 1998 Stock Incentive Plan (the "Stock Incentive Plan") was
adopted by the Board of Directors and approved by the shareholders in February
1998. The Stock Incentive Plan provides for the grant of incentive stock
options. Optionees have the right to purchase a specified number of shares of
common stock at a specified option price and subject to such terms and
conditions as are specified in connection with the option grant. The Stock
Incentive Plan is administered by the Compensation Committee of the Board of
Directors. The committee has the authority to adopt, amend and repeal the
administrative rules, guidelines and practices relating to the Stock Incentive
Plan generally and to interpret the provisions thereof. Options granted under
the Stock Incentive Plan cannot have a term exceeding ten years and typically
vest over a period of three to six years.
As adopted originally, up to 5,000,000 shares of common stock (subject to
adjustment in the event of stock splits and other similar events), less the
number of shares issued under the LLC Option Plan, could be issued pursuant to
stock options and other stock incentives granted under the Stock Incentive Plan.
In August 1998, the Board of Directors amended the Stock Incentive Plan to
increase by 1,000,000 the number of shares which can be issued pursuant to stock
options and other stock incentives granted under the Stock Incentive Plan.
A summary of changes in outstanding options is as follows:
<TABLE>
<CAPTION>
Weighted Average
Options Price Exercise Price
------------- ------------------ ---------------------
<S> <C> <C> <C>
December 31, 1995................................. 533,326 $ 0.24 $ 0.24
Granted......................................... 128,458 0.56 0.56
Canceled........................................ -- -- --
Exercised....................................... -- -- --
--------- ------------ ------
December 31, 1996................................. 661,784 0.24-0.56 0.30
Granted......................................... 2,495,166 2.50-7.50 2.99
Canceled........................................ (127,000) 2.50 2.50
Exercised....................................... -- -- --
--------- ------------ ------
December 31, 1997................................. 3,029,950 0.24-7.50 2.42
Granted......................................... 3,719,520 7.50-23.50 12.06
Canceled........................................ (549,300) 2.50-22.375 9.54
Exercised....................................... (231,200) 0.24-7.50 3.08
--------- ------------ ------
December 31, 1998................................. 5,968,970 $ 0.24-23.50 $ 7.71
========= ============ ======
</TABLE>
42
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Details of options outstanding at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise Options Remaining Weighted Average Options Average
Prices Outstanding Contractual Life Exercise Prices Exercisable Exercise Price
- ---------------- ------------ ---------------- ----------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.24-3.50 2,435,900 8.0 $ 2.05 1,020,067 $ 1.81
3.51-7.50 777,400 9.0 6.70 86,139 6.86
7.51-15.00 2,228,320 9.5 12.00 296,600 11.64
15.01-20.00 502,850 9.6 16.96 -- --
20.01-23.50 24,500 9.0 21.79 -- --
</TABLE>
At December 31, 1998, 1,402,806 options outstanding are exercisable and
529,614 are available for future grant.
The Company recorded deferred compensation of $970,000 and $580,000 on
options granted during 1997 and 1998, respectively, as the exercise price was
less than the deemed fair value of the underlying common stock. The Company
amortizes deferred compensation over a period not to exceed six years. The
Company recognized compensation expense of $307,000 and $285,000 for the year
ended December 31, 1997 and 1998, respectively, and had deferred compensation
expense of $958,000 at December 31, 1998.
Statement of Financial Accounting Standards No. 123
Pro forma information regarding net income and net income per share is
required by SFAS No. 123, which also requires that the information be determined
as if the Company had accounted for its employee stock option grants under the
fair value method required by SFAS No. 123. The fair value of each option grant
has been estimated as of the date of grant using the Black-Scholes option
pricing model with the following assumptions:
<TABLE>
<CAPTION>
1996 1997 1998
----------------- ---------------- -------------
<S> <C> <C> <C>
Dividend yield......................................... -- -- --
Expected volatility................................... 65% 65% 88%
Risk-free interest rate at the date of grant.......... 5.8%-6.3% 5.7%-6.3% 4.0%
Expected life......................................... 4-6 years 1-6 years 5 years
</TABLE>
Using these assumptions, the fair values of the stock options granted
during the years ended December 31, 1996, 1997 and 1998 are $35,000, $3,625,000
and $9,099,000, respectively, which would be amortized over the vesting period
of the options.
The weighted average fair market values of options at the date of grant for
the years ended December 31, 1996, 1997 and 1998 was $0.30, $1.67 and $8.48,
respectively.
43
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
The following pro forma information adjusts the pro forma net income and
pro forma net income per share of common stock for the impact of SFAS No. 123:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ----------- ------------
<S> <C> <C> <C>
Pro forma net income:
As reported.......................................... $2,490 $5,311 $ 6,087
Pro forma in accordance with SFAS No. 123............ $2,474 $4,842 $(2,727)
Pro forma basic net income per share:
As reported.......................................... $ 0.12 $ 0.26 $ 0.27
Pro forma in accordance with SFAS No. 123............ $ 0.12 $ 0.24 $ (0.12)
Pro forma diluted net income per share:
As reported.......................................... $ 0.12 $ 0.25 $ 0.24
Pro forma in accordance with SFAS No. 123............ $ 0.12 $ 0.23 $ (0.12)
</TABLE>
The following table summarizes the range of exercise price and the weighted
average exercise price, for the options granted during the three years ending
December 31, 1998:
<TABLE>
<CAPTION>
Number Weight
of Range of Average
Year of Grant Shares Exercise Price Exercise Price
- ------------- ------------- ---------------- ----------------
1996
<S> <C> <C> <C>
Options granted at fair market value............ 128,458 $ 0.56 $ 0.56
1997
Options granted at fair market value............ 1,718,166 2.50-7.56 2.50
Options granted at less than fair market value.. 650,000 3.50-4.25 3.85
1998
Options granted at fair market value............ 3,134,320 10.00-23.50 12.85
Options granted at less than fair market value.. 585,200 7.50 7.50
</TABLE>
7. SHAREHOLDERS' EQUITY
Issuance of Stock
On May 5, 1997, the Majority Holder granted to two employees and a
consultant, all of whom are related to the Majority Holder, options to purchase
shares of the Company's stock from the Majority Holder. This grant did not
result in additional shares being outstanding as the shares under option were
currently outstanding and held by the Majority Holder. This grant included a
grant of an option to purchase 80,000 and 50,000 shares of the Company's stock
held by the Majority Holder to two employees of the Company and a grant of an
option to purchase 50,000 shares of the Company's stock held by the Majority
Holder to a consultant of the Company. The stock options were then exercised by
the employees and the consultant of the Company for a nonrecourse, noninterest-
bearing note to the Majority Holder with a term equal to the contractual term of
the option. The exercise price was equal to the fair value of the Company's
stock at the date of grant of $2.50 per share. The Company recorded the grant
to the employees of the Company under APB Opinion No. 25 and recorded no
compensation expense on the date of grant as the grant was issued at fair value
and due to the nonvariable nature of the nonrecourse note. The Company recorded
$75,000 of compensation expense in the year ended December 31, 1997 for the
option granted to the consultant.
44
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Sale of Stock to Shareholder
One of the Company's shareholders purchased 100,000 shares of the Company's
common stock for $1,000,000 on February 16, 1998.
8. COMMITMENTS AND CONTINGENCIES
Leases
In September 1997, the Company entered into a 62-month lease for office
space beginning on November 1, 1997. The lease requires monthly payments of
$90,000 for the 14-month period ended December 31, 1998 subject to annual
increases as defined. In addition, the Company is a party to a lease agreement
ending in 2001. The agreement required monthly payments of approximately
$20,000 subject to an increase of 3% in each 12 month period after the first
year. Additionally, the Company received the first month's rent free. The 3%
escalation and the first month's free rent were recognized on a straight-line
basis over the life of the lease. Accordingly, as of December 31, 1997 and
1998, the Company has recorded a liability for deferred rent in the amount of
$108,000 and $87,000, respectively, included in accrued liabilities in the
accompanying balance sheets.
In November 1998, the Company entered into an 84-month capital lease for
telephone equipment beginning on December 1, 1998. The lease requires monthly
payments of approximately $17,000.
Rents charged to expense were approximately $257,000, $466,000 and
$1,740,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
Aggregate future minimum lease payments under the capital lease and
noncancellable operating leases as of December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
Capital Operating
Lease Leases
------------- ------------
<S> <C> <C>
Year Ended December 31,:
1999...................................................................... $ 223 $2,454
2000...................................................................... 206 2,357
2001...................................................................... 206 2,183
2002...................................................................... 206 2,033
2003 and thereafter....................................................... 389 --
------ ------
Total $1,230 $9,027
Less amount representing interest....................................... (265)
------
Net present value of future minimum lease payments...................... 965
Less current portion of capital lease obligation........................ (125)
------
Long-term portion of capital lease obligation........................... $ 840
======
</TABLE>
45
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
Legal Matters
Many of the Company's installations involve products that are critical to
the operations of its clients' businesses. Any failure in a Company product
could result in a claim for substantial damages against the Company, regardless
of the Company's responsibility for such failure. Although the Company attempts
to limit contractually its liability for damages arising from product failures
or negligent acts or omissions, there can be no assurance the limitations of
liability set forth in its contracts will be enforceable in all instances.
The Company is subject to legal proceedings and claims which have arisen in
the ordinary course of business. In the opinion of management, the amount of
potential liability with respect to these actions will not materially affect the
financial position or results of operations of the Company.
9. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income", which
establishes standards for reporting and display of "comprehensive income" and
its components, in the first quarter of 1998. Comprehensive income for the
Company consists of net income and foreign currency translation adjustments.
Total historical comprehensive income was $3,976,000, $8,334,000 and $7,311,000
for the years ended December 31, 1996, 1997 and 1998. The difference between
net income and comprehensive income for the year ended December 31, 1998 was
$7,000 related to the foreign currency translation adjustment.
10. ACQUISITIONS
On February 16, 1998, the Company purchased all of the outstanding stock of
Performance Analysis Corporation ("PAC") for $2,200,000 in cash and 106,666
shares of the Company's common stock valued at $10.00 per share (the "PAC
Acquisition"). PAC is a developer of distribution center slotting software.
The PAC Acquisition was accounted for as a purchase. The purchase price of
approximately $3,300,000, has been allocated to the assets acquired and
liabilities assumed of $464,000, including acquired research and development of
$1,602,000, purchased software of $500,000, and other intangible assets of
$765,000. Purchased software is being amortized over an estimated two-year
useful life and other intangible assets are being amortized over a seven-year
useful life.
In October 1998, the Company purchased certain assets of Kurt Salmon
Associates, Inc., or KSA. The total purchase price for these assets was
approximately $2,200,000 consisting of $1,750,000 in cash and assumed
liabilities of approximately $450,000. The purchase price was allocated to the
intangible assets acquired, including a customer list, assembled workforce,
purchased software, trade names and goodwill. The assets are being amortized
over periods ranging from one to ten years.
Unaudited pro forma operating results for the years ended December 31, 1997
and 1998, assuming that the acquisitions had occurred at the beginning of 1997
are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1997 1998
--------------- -------------
<S> <C> <C>
Revenues................................................................ $37,795 $66,249
Pro forma net income.................................................... 5,375 6,195
Pro forma diluted net income per share.................................. 0.26 0.24
</TABLE>
46
<PAGE>
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31, 1996, 1997 and 1998
11. FOREIGN OPERATIONS
During 1998, the Company commenced operations in the United Kingdom. Total
revenue, net losses and total assets for the United Kingdom were approximately
$130,000, $609,000 and $283,000, respectively, for the year ended December 31,
1998.
12. EMPLOYEE BENEFIT PLAN
The Company sponsors the Manhattan Associates 401(k) Plan and Trust (the
"401(k) Plan"), a qualified profit sharing plan with a 401(k) feature covering
substantially all employees of the Company. Under the 401(k) Plan's deferred
compensation arrangement, eligible employees who elect to participate in the
401(k) Plan may contribute up to 10% of eligible compensation, as defined, to
the 401(k) Plan. The Company provides for a 50% matching contribution up to 6%
of eligible compensation being contributed after the participant's first year of
employment. During the years ended December 31, 1996, 1997 and 1998, the
Company made matching contributions to the 401(k) Plan of $48,000, $53,000 and
$159,000, respectively.
The Company also has a defined contribution pension plan (the "Pension
Plan") covering substantially all employees of the Company. Through December
31, 1997, the Company provided up to 8% of the participant's yearly compensation
after the participant's first year of employment. During the years ended
December 31, 1996 and 1997, the Company made matching contributions to the
Pension Plan of $162,000 and $224,000, respectively. The Plan was terminated in
1998.
47
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information required by this item is incorporated by reference from
the information contained in the Company's Proxy Statement for the Annual
Meeting of Shareholders expected to be filed with the Commission on April 7,
1999 under the captions "Election of Directors," "Executive Officers" and
"Section 16(a) Beneficial Ownership Reporting Compliance." Certain information
regarding executive officers of the Company is included in Part I of this report
on Form 10-K under the caption "Executive Officers."
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the
information contained in the Company's Proxy Statement for the Annual Meeting of
Shareholders expected to be filed with the Commission on April 7, 1999 under the
caption "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from the
information contained in the Company's Proxy Statement for the Annual Meeting of
Shareholders expected to be filed with the Commission on April 7, 1999 under the
caption "Security Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from the
information contained in the Company's Proxy Statement for the Annual Meeting of
Shareholders expected to be filed with the Commission on April 7, 1999 under the
caption "Certain Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The response to this item is submitted as a separate section of this Form
10-K. See item 8.
48
<PAGE>
2. Financial Statement Schedule
The following financial statement schedule is filed as a part of this
report:
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Manhattan Associates, Inc.
We have audited in accordance with generally accepted auditing standards, the
financial statements of Manhattan Associates, Inc. and subsidiaries included in
this Form 10-K and have issued our report thereon dated January 20, 1999. Our
audit was made for the purpose of forming an opinion on those statements taken
as a whole. The forgoing schedule is the responsibility of the company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 20, 1999
<PAGE>
SCHEDULE II
MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Additions Balance
Beginning of Charged to at End of
Period Operations Deductions Period
------------ ---------- ------------ ---------
<S> <C> <C> <C> <C>
Classification:
- ---------------
Allowance for Doubtful Accounts
Year Ended:
December 31, 1996................... $100,000 $ 225,000 $ -- $ 325,000
December 31, 1997................... 325,000 645,000 -- 970,000
December 31, 1998................... 970,000 3,409,000 2,779,000 1,600,000
</TABLE>
All other schedules are omitted because they are not required or the required
information is shown in the financial statements or notes thereto.
49
<PAGE>
(b) Reports on Form 8-K.
None.
(c) Exhibits. The following exhibits are filed as part of, or are incorporated
by reference into, this report on Form 10-K:
<TABLE>
<CAPTION>
Exhibit
- -------
Number Description
- ------- -----------
<S> <C>
3.1 Articles of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1 (File No. 333-47095) filed on February 27, 1998).
3.2 Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (File No. 333-47095) filed on February 27, 1998).
4.1 Provisions of the Articles of Incorporation and Bylaws of the Registrant defining rights of the
holders of common stock of the Registrant (Incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-1 (File No. 333-47095) filed on February 27, 1998).
4.2 Specimen Stock Certificate (Incorporated by reference to Exhibit 4.2 filed to the Company's
Pre-Effective Amendment No. 1 to its Registration Statement on Form S-1 (File No. 333-47095)
filed on April 2, 1998).
10.1 Lease Agreement by and between Wildwood Associates, a Georgia general partnership, and the
Registrant dated September 24, 1997 (Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (File No. 333-47095) filed on February 27, 1998).
10.2 First Amendment to Lease between Wildwood Associates, a Georgia general partnership, and the
Registrant dated October 31, 1997 (Incorporated by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-1 (File No. 333-47095) filed on February 27, 1998).
10.3 Summary Plan Description of the Registrant's Money Purchase Plan & Trust, effective January 1,
1997 (Incorporated by reference to Exhibit 10.3 to the Company's Registration Statement on Form
S-1 (File No. 333-47095) filed on February 27, 1998).
10.4 Summary Plan Description of the Registrant's 401(k) Plan and Trust, effective January 1, 1995
(Incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1
(File No. 333-47095) filed on February 27, 1998).
10.5 Form of Indemnification Agreement with certain directors and officers of the Registrant
(Incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1
(File No. 333-47095) filed on February 27, 1998).
10.6 Contribution Agreement between the Registrant and Daniel Basmajian, Sr. (Incorporated by
reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1 (File No.
333-47095) filed on February 27, 1998).
10.7 Form of Tax Indemnification Agreement for direct and indirect shareholders of Manhattan
Associates Software, LLC (Incorporated by reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-1 (File No. 333-47095) filed on February 27, 1998).
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.8 Second Amendment to Lease Agreement between Wildwood Associates, a Georgia general partnership,
and the Registrant, dated February 27, 1998 (Incorporated by reference to Exhibit 10.8 to the
Company's Pre-Effective Amendment No. 1 to its Registration Statement on Form S-1 (File No.
333-47095) filed on April 2, 1998).
10.9 Share Purchase Agreement between Deepak Raghavan and the Registrant effective as of February 16,
1998 (Incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form
S-1 (File No. 333-47095) filed on February 27, 1998).
10.10 Manhattan Associates, Inc. Stock Incentive Plan (Incorporated by reference to Exhibit 10.10 to
the Company's Registration Statement on Form S-1 (File No. 333-47095) filed on February 27, 1998).
10.11 Manhattan Associates, LLC Option Plan (Incorporated by reference to Exhibit 10.11 to the
Company's Registration Statement on Form S-1 (File No. 333-47095) filed on February 27, 1998).
10.12 Grid Promissory Note of the Registrant in favor of Alan J. Dabbiere (Incorporated by reference to
Exhibit 10.12 to the Company's Registration Statement on Form S-1 (File No. 333-47095) filed on
February 27, 1998).
10.13 Loan and Security Agreement by and between Silicon Valley Bank and the Registrant, dated March
30, 1998 (Incorporated by reference to Exhibit 10.13 to the Company's Pre-Effective Amendment No.
1 to its Registration Statement on Form S-1 (File No. 333-47095) filed on April 2, 1998).
10.14 Executive Employment Agreement executed by Neil Thall (Incorporated by reference to Exhibit 10.14
to the Company's Pre-Effective Amendment No. 1 to its Registration Statement on Form S-1 (File
No. 333-47095) filed on April 2, 1998).
10.15 Executive Employment Agreement executed by Michael J. Casey (Incorporated by reference to Exhibit
10.15 to the Company's Pre-Effective Amendment No. 1 to its Registration Statement on Form S-1
(File No. 333-47095) filed on April 2, 1998).
10.16 Executive Employment Agreement executed by Gregory Cronin (Incorporated by reference to Exhibit
10.16 to the Company's Pre-Effective Amendment No. 1 to its Registration Statement on Form S-1
(File No. 333-47095) filed on April 2, 1998).
10.17 Executive Employment Agreement executed by Robert Bearden (Incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998,
filed on November 16, 1998).
10.18 Form of License Agreement, Software Maintenance Agreement and Consulting Agreement (Incorporated
by reference to Exhibit 10.18 to the Company's Pre-Effective Amendment No. 1 to its Registration
Statement on Form S-1 (File No. 333-47095) filed on April 2, 1998).
10.19 Sub-Sublease Agreement between Scientific Research Corporation, a Georgia corporation, and the
Registrant, dated July 2, 1998.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.20 Sub-Sublease Agreement between The Profit Recovery Group International 1, Inc., a Georgia
corporation, and the Registrant, dated August 19, 1998.
10.21 Form of Software License, Services and Maintenance Agreement.
10.22 First Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan.
10.23 Second Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan.
10.24 Third Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan.
21.1 List of Subsidiaries (Incorporated by reference to Exhibit 21.1 to the Company's Registration
Statement on Form S-1 (File No. 333-47095) filed on February 27, 1998).
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
99.1 Safe Harbor Compliance Statement for Forward-Looking Statements.
</TABLE>
<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.
MANHATTAN ASSOCIATES, INC.
By: /s/ Alan J. Dabbiere
-------------------------------------
Date: March 31, 1999 Alan J. Dabbiere
Chairman of the Board of Directors,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Alan J. Dabbiere Chairman of the Board, Chief March 31, 1999
- ------------------------------------------- Executive Officer and President
Alan J. Dabbiere (Principal Executive Officer)
/s/ Michael J. Casey Senior Vice President, Chief March 31, 1999
- ------------------------------------------- Financial Officer and Treasurer
Michael J. Casey (Principal Financial and Accounting
Officer)
/s/ Deepak Raghavan Director March 31, 1999
- -------------------------------------------
Deepak Raghavan
/s/ Brian J. Cassidy Director March 31, 1999
- -------------------------------------------
Brian J. Cassidy
/s/ John J. Huntz, Jr. Director March 31, 1999
- -------------------------------------------
John J. Huntz, Jr.
/s/ Thomas E. Noonan Director March 31, 1999
- -------------------------------------------
Thomas E. Noonan
/s/ Gregory Cronin Director March 31, 1999
- -------------------------------------------
Gregory Cronin
</TABLE>
53
<PAGE>
EXHIBIT 10.19
SUB-SUBLEASE AGREEMENT
THIS AGREEMENT is made this 2nd day July, 1998, by and between
Scientific Research Corporation, a Georgia Corporation, with an office at 2300
Windy Ridge Parkway, Suite 400 South, Atlanta, Georgia 30339, hereinafter called
"SRC" and Manhattan Associates, Inc., a Georgia Corporation, with its principal
place of business at 2300 Windy Ridge Parkway, Suite 700, Atlanta, Georgia
30339, hereinafter called "MA".
W I T N E S S E T H:
WHEREAS, by Agreement of Lease, dated July 31, 1987, as amended
November 10, 1987, April 30, 1988, August 4, 1989, October 10, 1989, November 7,
1989, December 1, 1989, March 12, 1990, September 14, 1994, January 4, 1995,
April 3, 1995, April 24, 1995, May 26, 1995, June 30, 1995, November 20, 1996,
and November 10, 1997 and supplemented by that Supplemental Agreement, dated
July 31, 1987 (herein collectively called the "Prime Lease" and attached as
Exhibit "A"), International Business Machines Corporation ("Sublessor") leases
from Wildwood Associates (the "Prime Lessor") the third (3rd) and fourth (4th)
floor and certain additional space in the building known as 2300 Windy Ridge
Parkway, (South Tower), Wildwood Office Park, Atlanta, Georgia (the "Building");
and
WHEREAS, by Sublease Agreement, dated December 22, 1993, as amended
January 31, 1995, (herein collectively called "Sublease" and attached as Exhibit
"B") SRC subleases from Sublessor the third (3rd ) and fourth (4th) floors of
the South Tower; and
WHEREAS, SRC desires to sub-sublease to MA and MA desires to sub-
sublease from SRC a portion of the third (3rd) floor in the South Tower
consisting of approximately 6,551 rentable square feet [5,623 usable square feet
as measured per BOMA standards] (the "Premises") attached as Exhibit "C".
NOW, THEREFORE, for and in consideration of the foregoing and for
other good and valuable consideration and of the mutual agreements hereinafter
set forth, SRC and MA stipulate, covenant and agree as follows:
1. PREMISES
SRC does hereby Sub-sublease to MA a portion of the Building
consisting of approximately 6,551 square feet of rentable area on the
third (3rd) floor (the "Premises") as outlined in red and crosshatched
on Exhibit "A" attached hereto and made a part hereof. This Sub-
sublease includes the right of MA to use the Common Building
Facilities in common with other tenants in the Building and SRC's
parking spaces, as provided in Section 14 of this Sub-sublease.
2. TERM
The term shall commence on the Commencement Date, as defined in
Section 4 hereof, and shall expire on December 30, 2002.
3. USES
The Premises shall be used for office space in accordance with all
applicable laws, ordinances, rules and regulations of governmental
authorities and the Rules and Regulations attached to the Prime Lease.
MA covenants and agrees to abide by the Rules and Regulations in all
respects as
<PAGE>
now set forth and as hereafter promulgated by Prime Lessor. Prime
Lessor shall have the right at all times during the Lease Term to
publish and promulgate and thereafter enforce such rules and
regulations or changes in the existing Rules and Regulations as it may
reasonably deem.
4. RENT
Beginning on the Commencement Date, MA shall pay annual Base Rent of
$20.00 per square foot, in the amount of one hundred thirty-one
thousand and twenty dollars ($131,020) per year, to be paid each year
while this Sub-sublease Agreement is in effect in twelve equal monthly
installments of ten thousand nine hundred and eighteen and 33/100
dollars ($10,918.33). The Commencement Date shall be the earlier of
(a) the date when MA has commenced doing business at the Premises or
(b) August 1, 1998. There will not be any increase of the Base Rent
throughout the entire term.
MA shall pay the Base Rent and Additional Rent, as described in
Paragraph 5, (collectively the "Rent") provided for hereunder in
advance on the first day of every month during the Term. Rent shall be
a prorated rate for fractions of a month if this Sub-sublease
commences or expires (as the case may be) for any reason on any day
other than the lst or last day of the calendar month, respectively. MA
shall make payment of Base Rent and any additional rent payable to
SRC, to SRC at the address in Paragraph 9.
5. ADDITIONAL RENT
If MA shall procure any additional services from the Building, such as
alterations or after-hour air-conditioning MA shall pay for same at
the rates charged therefor by the Prime Lessor and shall make such
payment to SRC or Prime Lessor, as SRC shall direct. Any Rent or other
sums payable by MA under this Paragraph 5 shall be considered
Additional Rent and collectible by SRC as such. If SRC shall receive
any refund from Prime Lessor, MA shall be entitled to the return of so
much thereof as shall be attributable to prior payments by MA.
However, MA is not responsible for paying any pass through in
operating expenses above the base year amount of $6.50 per rentable
square foot per annum.
6. PREPARATION FOR OCCUPANCY
On or before July 17, 1998, SRC shall at its own expense construct a
demising wall between the Premises and SRC's other space in the
Building. SRC shall pay for all costs associated with the demising of
the space including any permits or plans required to demise the space.
On or before July 17, 1998, SRC shall deliver possession of the
Premises to MA for the purpose of constructing tenant improvements, if
any. The Premises shall then be vacant and in broom clean condition.
MA will at its sole expense, perform or cause to be performed,
construction of the Premises as it desires, provided that prior to the
commencement of construction MA shall have obtained the written
consent of SRC, which consent shall not be unreasonably withheld or
delayed, to MA's construction plans. MA shall be responsible for
obtaining a certificate of occupancy for the Premises following the
completion of construction, if any.
7. INCORPORATION OF PRIME LEASE
(a) This Sub-sublease is subject to all of the terms of the Prime
Lease and the Sublease with the same force and effect as if fully
set forth herein at length, excepting only as otherwise
<PAGE>
specifically provided herein. All of the terms with which Sublessor is
bound to comply under the Prime Lease shall, to the extent only that
they apply to the Premises and except as otherwise provided herein, be
binding upon MA, and all of the obligations of Prime Lessor set forth
in the Prime Lease shall, to the extent only that they apply to the
Premises and except as otherwise provided herein, inure to the benefit
of MA. It is the intention of the parties that, except as otherwise
provided in this Sub-sublease, the relationship between SRC and MA
shall be governed by the language of the various articles of the Prime
Lease as if they were typed out in this Sub-sublease in full, and the
words "Landlord," "Tenant" and "Lease" as used in the Prime Lease,
shall read, respectively "SRC," "MA" and "Sub-sublease".
(b) For the purpose of this Sub-sublease, the following provisions of the
Prime Lease are hereby deleted in their entirety:
Section 1.01(b); Section 2.01; Section 2.02; Section 2.03; Section
3.01; Section 3.02; Section 3.03; Section 3.04; Section 3.05; Section
3.06; Section 3.07; Section 3.08; Article 4, titled "Preparation for
Occupancy, Term Commencement Date"; Section 10.02(d); Section 10.02(e);
Section 10.02(g); Article 21, titled "Option for Additional Space";
Article 22; Article 23, titled "First Refusal Sale"; Article 25, titled
"Holdover"; Article 26, Article 27, titled "Assignment and Subletting";
Article 36, Article 37, titled "Broker"; and Section 39.07.
8. QUIET ENJOYMENT
(a) SRC covenants and agrees with MA that upon MA paying the rent and
additional rent reserved in this Sub-sublease and materially observing
and performing all of the other obligations, terms, covenants and
conditions of this Sub-sublease on MA's part to be observed and
performed, MA may peaceably and quietly enjoy the Premises and Common
Building Facilities (in common with other tenants) during the term;
provided, however, that this Sub-sublease shall automatically terminate
upon termination of the Prime Lease and MA shall have no claim against
SRC unless such termination was caused by the default of SRC in the
performance of those obligations (under the Prime Lease) which have not
been assumed by MA hereunder. SRC will indemnify and hold harmless MA
from and defend MA against all claims, liabilities, losses and damages
(excepting special and consequential damages) that MA may incur by
reason of, resulting from or arising out of any such termination of the
Sub-sublease due to SRC's default. SRC covenants and agrees that (i)
SRC will not enter into a consensual agreement with Sublessor to
terminate the Sublease, and (ii) SRC will not terminate the Sublease as
it pertains to the Premises unless SRC is entitled to do so by reason
of Sublessor's default or by the condemnation and casualty provisions
of the Sublease.
(b) MA covenants and agrees that MA shall not do or suffer or permit
anything to be done (within its control) which would constitute a
default under the Prime Lease or the Sublease or would cause the Prime
Lease or Sublease to be canceled, terminated or forfeited by virtue of
any rights of cancellation, termination, or forfeiture reserved or
vested in Prime Lessor under the Prime Lease and Sublessor under the
Sublease, and that MA will indemnify and hold harmless SRC from and
defend SRC against all claims, liabilities, losses and damages of any
kind whatsoever (excepting special and consequential damages) that SRC
may incur by reason of, resulting from or arising out of any such
cancellation, termination or forfeiture.
<PAGE>
9. NOTICES
Any notice, demand, or request under this Sub-sublease shall be in writing
and shall be considered properly delivered when addressed as hereinafter
provided and delivered by hand or by nationally recognized overnight
courier service to the addressee set forth in the preamble of this
Agreement. Rejection or other refusal to accept or the inability to deliver
because of a changed address of which no notice was given shall be deemed
to be receipt of the notice, demand or request sent. Address for notice may
be changed by either party by giving 30 days written notice to the current
address of record.
10. ASSIGNMENT AND SUBLETTING
MA agrees that it shall not assign, mortgage, transfer, pledge or encumber
its interest in this Sub-sublease, in whole or in part, or sublet or permit
the subletting of the Premises, or permit the Premises or any part thereof
to be occupied or used by any person or entity other than MA, in each case
without first obtaining the prior written consent of SRC, which consent SRC
will not unreasonably withhold or delay. Notwithstanding the foregoing, MA
may Sub-sublease or assign its interest in the Premises to an "Affiliate,"
as hereinafter defined, without Sublessor's consent, but MA shall notify
SRC in advance of such proposed assignment or Sub-sublease to an Affiliate
and shall promptly deliver to SRC copies of all documentation related to
such assignment or Sub-sublease. No such assignment or Sub-sublease shall
operate to release MA from its obligations under this Sub-sublease. Failure
of SRC to obtain the consent of Prime Lessor or submission by MA of a
proposed assignee or subtenant who, in the option of SRC reasonably
exercised, is a competitor of SRC shall in each case be a reasonable and
conclusive basis for withholding consent. The term "Affiliate" as used
herein shall mean any parent corporation or any subsidiary which controls
or is controlled by MA or any corporation in which or with which MA is
merged or consolidated, provided that by operation of law or by effective
provisions contained in the instruments of merger or consolidation the
liabilities of the corporations participating in such merger or
consolidation are assumed by the corporation surviving such merger or
created by such consolidation. The term "control" shall mean ownership of
not less than fifty-one percent (51%) of the voting rights attributable to
the shares of the controlled corporation.
11. PRIME LESSOR'S RESPONSIBILITIES
MA recognizes that SRC is not in a position to furnish the services set
forth in the Prime Lease, obtain an agreement of nondisturbance, or to
perform certain other obligations which are not within the control of SRC,
such as, without limitation, maintenance, repairs and replacements to the
Building and Premises, compliance with laws and restoration of the Premises
and Building after casualty or condemnation. Therefore, notwithstanding
anything to the contrary contained in this Sub-sublease, MA agrees that MA
will look solely to the Prime Lessor, to furnish all services and to
perform all obligations which are applicable to MA as agreed upon by Prime
Lessor under the Lease to furnish and perform. Except as specifically set
forth in this Section 11, SRC shall not be liable to MA or be deemed in
default hereunder for failure of Prime Lessor to furnish or perform the
same. However, whenever under the terms of the Prime Lease, Prime Lessor
shall fail to perform any of its Prime Lease obligations pertaining to the
Premises. MA may, at its option, enforce performance thereof if and to the
extent authorized by the terms of the Prime Lease, and SRC shall cooperate
with MA in such enforcement. In addition, SRC agrees to use reasonable good
faith efforts to enforce Prime Lessor's obligations under the Prime Lease.
<PAGE>
12. FAILURE TO PROVIDE SERVICES
Provided MA is not in default hereunder, in the event that there is a
failure to furnish the janitorial, water, electricity, elevator or HVAC
services specified in the Prime Lease, and if the loss of such service is
of a material nature so as to render the Premises substantially unusable
for the purposes contemplated by this Sub-sublease, after written notice
thereof by MA to SRC and Prime Lessor, and if Prime Lessor does not
promptly commence action to restore same or if so commenced, does not
continue such action with reasonable diligence until the same are restored,
then, in such event, and upon the giving of written notice to SRC and Prime
Lessor, and if such default continues to remain uncured for more than five
(5) consecutive business days after such written notice, MA's Rent shall
abate, based upon the portion or portions of the Premises affected by such
interruption of service and the degree of adverse affect of the
interruption upon the normal conduct of MA's business at the Premises,
until such interruption is remedied. Notwithstanding the forgoing, SRC may
prevent or stop any such abatement of Base Rental by providing
substantially the same service by temporary or alternative means until the
cause of loss of service can be corrected, and provided further, abatement
under this stipulation shall be MA's sole remedy for failure to provide
services. In the event that such services are not substantially restored
within thirty (30) consecutive days after such written notice, then MA
shall have the right, upon written notice to SRC given within forty-five
(45) days after such written notice, to terminate this Sub-sublease.
13. CASUALTY AND CONDEMNATION
Article 10.01, titled "Damage or Destruction," and Article 12, titled
"Condemnation," of the Prime Lease are modified to provide that if by
operation of either of these two Articles the Prime Lease is not terminated
and continues in full force and effect, this Sub-sublease shall not be
terminated but shall also continue in full force and effect, except that
until the Premises are restored in accordance with these two Articles there
shall be a proportionate abatement of annual rent and additional rent
payable hereunder to the extent of damage to the Premises; provided,
however, that such abatement shall in no event exceed the abatement granted
to SRC under the Prime Lease for the Premises and, provided further, that
no compensation or claim or reduction will be allowed or paid by SRC by
reason of inconvenience, annoyance or injury to MA's business arising from
the necessity of affecting repairs to the Premises or any portion of the
Building, whether such repairs are required by operation of these two
Articles or any other provision of the Prime Lease. Notwithstanding the
foregoing, if the Premises cannot be restored within one hundred twenty
(120) days after damage, destruction or condemnation (in the reasonable
opinion of SRC, then MA may elect to terminate this Sub-sublease by written
notice (to SRC) given within thirty (30) days after MA's receipt of
Sublessor's estimate of the time required to restore the Premises.
14. PARKING
SRC, through Prime Lessor, shall make available to MA twenty-four (24)
hours per day, seven (7) days per week, throughout the term of the Sub-
sublease, without additional charge, on-site, non-reserved deck parking for
3.5 cars per 1,000 square feet of rentable area subleased, for the use of
MA, its employees and invitees, in the garage attached to the Building in
the area delineated as Exhibit "C" in the Sublease Agreement attached as
Exhibit "B".
<PAGE>
15. INSURANCE
(a) MA shall maintain comprehensive general liability insurance covering
the legal liability of SRC and MA against all claims for any bodily
injury or death of persons and for damage to or destruction to property
occurring on, in or about the Premises and arising out of the use or
occupation of the Premises by MA in the minimum amount of $2,000,000.00
in connection with any single occurrence of bodily injury or death and
$500,000.00 in connection with claims for property damage. Such policy
shall provide that it may not be canceled or materially changed
without at least thirty (30) days prior written notice to each name
insured.
(b) SRC and MA shall each have included in all policies of commercial
property insurance and other insurance (required under the Prime Lease
or this Sub-sublease) obtained by them covering the Premises, the
Building and the contents therein, a waiver by the insurer of all right
or subrogation against the other in connection with any loss or damage
thereby insured against. Any additional premium for such waiver shall
be paid by the primary insured. To the full extent permitted by law,
SRC and MA each waive all right to recovery against the other for, and
agrees to release the other from liability for, loss or damage to the
extent such loss or damage is covered by valid and collectible
insurance in effect at the time of such loss or damage or would be
covered by the insurance required to be maintained under this Sub-
sublease by the party seeking recovery.
(c) The Introductory clauses in Sections 11.01 and 11.02 of the Prime Lease
which read "Subject to the provisions of Section 10.20(d)" shall be
deemed to refer to the provisions of the foregoing Subsection 14(b).
16. BROKERAGE
Carter & Associates, LLC has acted as agent for SRC in this transaction and
CB Richard Ellis has acted as agent for MA in this transaction. SRC shall
pay a fee to CB Richard Ellis equal to one full month's rent in addition to
four percent (4%) of the remaining aggregate rental payments. This amount
shall be payable one-half upon execution of this document and one-half upon
MA's occupancy of the premises. MA represents and warrants to SRC that,
except as stated herein, no broker, agent or other person has represented
MA in the negotiations for and procurement of the Sub-sublease and that,
except as set forth herein no commissions, fees or compensation of any kind
are due and payable in connection herewith to any broker, agent, or other
person as a result of any act or agreement of MA. MA agrees to indemnify
and hold SRC harmless from all loss, liability, damage, claim, cost or
expense (including reasonable attorneys' fees and court costs) suffered or
incurred by SRC as a result of a breach by MA of the representations and
warranties contained in the immediately preceding sentence. SRC represents
and warrants to MA that no broker, agent, or other person has represented
SRC in the negotiations for and procurement of the Sub-sublease and that
except as set forth herein, no commissions, fees or compensation of any
kind are due and payable in connection herewith to any broker, agent, or
other person as a result of any act or agreement of SRC. SRC agrees to
indemnify and hold MA harmless from all loss, liability, damage, claim,
cost or expense (including reasonable attorneys' fees and court costs)
suffered or incurred by MA as a result of a breach by SRC of the
representations and warranties contained in the immediately preceding
sentence.
<PAGE>
17. BINDING AND ENTIRE AGREEMENT
This Sub-sublease shall be binding on MA and its heirs and executors, and
on the respective legal representatives, successors and assigns of the
parties. This Sub-sublease contains the entire agreement of the parties
with respect to the subject matter herein and may not be modified except by
instrument in writing which is signed by both parties.
18. CONSENT OF PRIME LESSOR
Anything hereinabove to the contrary notwithstanding, it is understood and
agreed that this Sub-sublease shall not become effective unless and until
SRC has obtained the written consent of Prime Lessor and Sublessor to the
subletting herein. SRC agrees to provide MA with a copy of the fully
executed Consent to Sublease document within ten (10) days of receipt from
Prime Lessor.
IN WITNESS WHEREOF, duly authorized representatives of the parties hereto
have executed this Sub-sublease as of the day and year first above written.
WITNESS: SCIENTIFIC RESEARCH CORPORATION
/s/ Kelly McBride By: /s/ S. Watt
- ----------------------------- ---------------------------
Title: VP Administrator
------------------------
(CORPORATE SEAL)
WITNESS: MANHATTAN ASSOCIATES, INC.
/s/ Maureen I. Vara By: : /s/ Michael J. Casey
- ----------------------------- -------------------------
Title: Chief Financial Officer
------------------------
(CORPORATE SEAL)
<PAGE>
SUBLEASE AGREEMENT
THIS AGREEMENT, made the 22nd of December, 1993, between INTERNATIONAL
BUSINESS MACHINES CORPORATION, a New York corporation, having its principal
office at Armonk, New York 10504, hereinafter called "Sublessor" and SCIENTIFIC
RESEARCH CORPORATION, a Georgia corporation, with an office at 280 Interstate
North Parkway, Suite 430, Atlanta, Georgia 30339, hereinafter called
"Sublessee."
W I T N E S S E T H:
--------------------
WHEREAS, by Agreement of lease, dated July 31, 1987, as amended November
10, 1987, April 30, 1988, August 4, 1989, October 10, 1989, November 7, 1989,
December 1, 1989, and March 12, 1990, and supplemented by that Supplemental
Agreement, dated July 31, 1987 (herein collectively called the "Prime Lease"),
Sublessor leases from Wildwood Associates (the "Prime Lessor") the third (3rd)
and fourth (4th) floor and certain additional space in the building known as
2300 Windy Ridge Parkway (South Tower), Wildwood Office Park (the "Building");
and
WHEREAS, Sublessee desires to sublease the entire third (3rd) and fourth
(4th) floor(s) of the South Tower from Sublessor.
NOW, THEREFORE, for and in consideration of the foregoing and for other
good and valuable consideration and of the mutual agreements hereinafter set
forth, Sublessor and Sublessee stipulate, covenant and agree as follows:
1. Premises. Sublessor does hereby sublease to Sublessee a portion of the
--------
Building consisting of approximately 51,474 square feet of rentable area on
the third (3rd) and fourth (4th) floor(s) (the "Premises") as outlined in
red and crosshatched on Exhibit "A" attached hereto and made a part hereof.
This Sublease includes the right of Sublessee to use the Common Building
Facilities in common with other tenants in the Building and Sublessee's
parking spaces, as provided in Section 12 of this Sublease.
2. Term. The term shall commence as of the date of this Agreement and shall
----
expire on December 30, 2002.
3. Uses. The Premises shall be used for executive, general administrative and
----
office space purposes, for scientific and computer research, and no other
purposes, and in accordance with all applicable laws, ordinances, rules and
regulations of governmental authorities and the Rules and Regulations
attached to the Prime Lease. Sublessee covenants and agrees to abide by the
Rules and Regulations in all respects as now set forth and as hereafter
promulgated by Prime Lessor. Prime Lessor shall have the right at all times
during the Lease Term to publish and promulgate and thereafter enforce such
rules and regulations or changes in the existing Rules and Regulations as
it may reasonably deem necessary to protect the tenantability, safety,
operation, and welfare of the Premises, the Project and Wildwood Office
Park; provided, however, any such changes shall not have a material adverse
effect on Sublessee's ability to maintain a security area in accordance
with Special Stipulation No. 7 of this Sublease.
4. Rents and Additional Rent. Sublessee shall pay base annual rental in
-------------------------
accordance with the following schedule:
-1-
<PAGE>
<TABLE>
<CAPTION>
Rental Rate
Calendar Year Per Square Foot Annual Rental Monthly Rental
------------- ----------------------------- --------------
<S> <C> <C>
5/l/94 thru 12/31/94
1/1/95 thru 12/31/95
1/1/96 thru 12/31/96
1/1/97 thru 12/31/97
1/1/98 thru 12/31/98
1/1/99 thru 12/31/99
1/1/00 thru 12/31/00
1/1/01 thru 12/31/01
1/1/02 thru 12/31/02
</TABLE>
Sublessor acknowledges and agrees that no rent shall be due under this
Sublease for the time period prior to May 1, 1994.
All Rents are due in advance on the first day of each month during the term
of this Sublease without deduction, set off or demand, except as
specifically set forth in Special Stipulation No. 6. Rents shall be
delivered to Sublessor's office located at Scribcor, Inc., As Agent for IBM
Lease Administration, Suite 1200, 400 North Michigan Avenue, Chicago, IL
60611, or such other place as Sublessor may designate.
Sublessee shall pay as Additional Rental its prorata share of increases in
operating expenses, as that term is defined in Section 3.04 of the Prime
Lease, incurred over $6.50 per square foot of Rentable Floor Area per annum
as outlined under Section 3.04 of the Prime Lease. Sublessor's prorata
share is 8.32%, which is the ratio that 51,474 square feet of rentable area
of the Premises bears to 618,540 square feet of rentable area in the
building. Sublessor shall furnish Sublessee with a true copy of the
statement of operating expenses, delivered by Prime Lessor to Sublessor
pursuant to the Prime Lease and include thereon a detailed statement of
Sublessee's prorata share of any increase in operating expenses. Sublessee
shall reimburse Sublessor within thirty (30) days after the operating
expense statement is furnished to Sublessee.
5. Preparation for Occupancy. Sublessor shall deliver the Premises to
-------------------------
Sublessee on or before fifteen (15) days after full Sublease execution for
the purpose of allowing Sublessee to make certain improvements thereto
pursuant to Special Stipulation No. 2. At such time, Sublessee shall
accept the Premises in its then "as is" condition (which shall not be
materially different from its current condition), "broom clean," and all of
Sublessor's furniture, fixtures, equipment and other personal property
shall be removed therefrom at Sublessor's expense prior to such date.
Sublessor shall not be required to perform work of any kind or nature, and
all work performed by Sublessee or any other party shall be subject to
provisions of this Sublease and the Prime Lease. Sublessor shall not
remove any cabling and shall leave all labeling of communication wiring,
path devices and patch panel. In addition, any whiteboards and screens for
visual images shall remain with the Premises.
6. Incorporation of Prime Lease. (a) This Sublease is subject to all of the
----------------------------
terms of the Prime Lease with the same force and effect as if fully set
forth herein at length, excepting only as otherwise specifically provided
herein. All of the terms with which Sublessor is bound to comply under the
Prime Lease shall, to the extent only that they apply to the Premises and
except as otherwise
-2-
<PAGE>
provided herein, be binding upon Sublessee, and all of the obligations of
Prime Lessor set forth in the Prime Lease shall, to the extent only that
they apply to the Premises and except as otherwise provided herein, inure
to the Sublessee's benefit. It is the intention of the parties that, except
as otherwise provided in this Sublease, the relationship between Sublessor
and Sublessee shall be governed by the language of the various articles of
the Prime Lease as if they were typed out in this Sublease in full, and the
words "Landlord," "Tenant" and "Lease" as used in the Prime Lease, shall
read, respectively, "Sublessor," "Sublessee" and "Sublease."
(b) For the purposes of this Sublease, the following provisions of the
Prime Lease are hereby deleted in their entirety:
Section 1.01(b); Section 2.01; Section 2.02; Section 3.01;
Section 3.02; Article 4, titled "Preparation for Occupancy,
Term Commencement Date"; Section 10.02(d); Section 10.02(e);
Section 10.02(g); Article 23, titled "First Refusal Sale";
Article 25, titled, "Holdover"; Article 21, titled "Option
for Additional Space"; Article 27, titled "Assignment and
Subletting"; Article 37, titled "Broker"; and Section 39.07.
7. Quiet Enjoyment. (a) Sublessor covenants and agrees with Sublessee that
---------------
upon Sublessee paying the rent and additional rent reserved in this
Sublease and observing and performing all of the other obligations, terms,
covenants and conditions of this Sublease on Sublessee's part to be
observed and performed, Sublessee may peaceably and quietly enjoy the
Premises and Common Building Facilities (in common with other tenants)
during the term; provided, however, that this Sublease shall automatically
terminate upon termination of the Prime Lease and Sublessee shall have no
claim against Sublessor unless such termination was caused by the default
of Sublessor in the performance of those obligations (under the Prime
Lease) which have not been assumed by Sublessee hereunder. Sublessor will
indemnify and hold harmless Sublessee from and defend Sublessee against all
claims, liabilities, losses and damages (excepting special and
consequential damages) that Sublessee may incur by reason of, resulting
from or arising out of any such termination of the Prime Lease, due to
Sublessor's default. Sublessor covenants and agrees that (i) Sublessor will
not enter into a consensual agreement with Prime lessor to terminate the
Prime Lease, and (ii) Sublessor will not terminate the Prime Lease as it
pertains to the Premises unless Sublessor is entitled to do so by reason of
Prime Lessor's default or by the condemnation and casualty provisions of
the Prime Lease.
(b) Sublessee covenants and agrees that Sublessee shall not do or suffer
or permit anything to be done (within its control) which would constitute a
default under the Prime Lease or would cause the Prime Lease to be
canceled, terminated or forfeited by virtue of any rights of cancellation,
termination, or forfeiture reserved or vested in Prime Lessor under the
Prime Lease, and that Sublessee will indemnify and hold harmless Sublessor
from and defend Sublessor against all claims, liabilities, losses and
damages of any kind whatsoever (excepting special and consequential
damages) that Sublessor may incur by reason of, resulting from or arising
out of any such cancellation, termination or forfeiture.
8. Notices. Any notice, demand or request under this Sublease shall be in
-------
writing and shall be considered properly delivered when addressed as
hereinafter provided and delivered by hand or by nationally recognized
overnight courier service. After May 1, 1994, any notice, demand or
-3-
<PAGE>
request by Sublessor to Sublessee shall be addressed to Sublessee at 2300
Windy Ridge Parkway, Suite 400 South Tower, Marietta, Georgia 30067, to the
attention of James Huffman until otherwise directed in writing by
Sublessee. Prior to said date, all such notices shall be sent to Sublessee
at 280 Interstate North Parkway, Suite 430, Atlanta, Georgia 30339. Any
notice, demand or request by Sublessee to Sublessor shall be addressed to
Sublessor, attention of the Regional Manager, Trex Morris, IBM Corporation,
3200 Windy Hill Road WG08C, Marietta, Georgia 30067, with a copy sent
simultaneously to Sublessor, attention of IBM Counsel, IBM Corporation, 208
Harbor Drive, Stamford, CT 06904, until otherwise directed in writing by
Sublessor. Either party may change its notice address by notice to the
other party given in accordance with the provisions of this Article 8.
Rejection or other refusal to accept or the inability to deliver because of
a changed address of which no notice was given shall be deemed to be
receipt of the notice, demand or request sent.
9. Assignment and Subletting. Sublessee agrees that it shall not assign,
---------------------------
mortgage, transfer, pledge or encumber its interest in this Sublease, in
whole or in part, or sublet or permit the subletting of the Premises, or
permit the Premises or any part thereof to be occupied or used by any
person or entity other than Sublessee, in each case without first obtaining
the prior written consent of Sublessor, which consent Sublessor will not
unreasonably withhold or delay. Notwithstanding the foregoing, Sublessee
may sublease or assign its interest in the Premises to an "Affiliate," as
hereinafter defined, without Sublessor's consent, but Sublessee shall
notify Sublessor in advance of such proposed assignment or sublease to an
Affiliate and shall promptly deliver to Sublessor copies of all
documentation related to such assignment or sublease. No such assignment or
sublease shall operate to release Sublessee from its obligations under this
Sublease. Failure of Sublessor to obtain the consent of Prime Lessor or
submission by Sublessee of a proposed assignee or subtenant who, in the
opinion of Sublessor reasonably exercised, is a competitor of Sublessor
shall in each case be a reasonable and conclusive basis for withholding
consent. The term "Affiliate" as used herein shall mean any parent
corporation or any subsidiary which controls or is controlled by Sublessee,
or any corporation in which or with which Sublessee is merged or
consolidated, provided that by operation of law or by effective provisions
contained in the instruments of merger or consolidation the liabilities of
the corporations participating in such merger or consolidation are assumed
by the corporation surviving such merger or created by such consolidation.
The term "control" shall mean ownership of not less than fifty-one percent
(51%) of the voting rights attributable to the shares of the controlled
corporation.
10. Prime Lessor's Responsibility. Sublessee recognizes that Sublessor is not
-----------------------------
in a position to furnish the services set forth in the Prime Lease, obtain
an agreement of nondisturbance, or to perform certain other obligations
which are not within the control of Sublessor, such as, without limitation,
maintenance, repairs and replacements to the Building and Premises,
compliance with laws, and restoration of the Premises and Building after
casualty or condemnation. Therefore, notwithstanding anything to the
contrary contained in this Sublease, Sublessee agrees that Sublessee shall
look solely to Prime Lessor to furnish an services and to perform all
obligations agreed upon by Prime Lessor under the Lease to furnish and
perform. Except as specifically set forth in this Section 10 and Special
Stipulation No. 6, Sublessor shall not be liable to Sublessee or be deemed
in default hereunder for failure of Prime Lessor to furnish or perform the
same. However, whenever under the terms of the Prime Lease, Prime Lessor
shall fail to perform any of its Prime Lease obligations pertaining to the
Premises, Sublessee may, at its option, enforce performance thereof if and
to the extent authorized by the terms of the Prime Lease, and
-4-
<PAGE>
Sublessor shall cooperate with Sublessee in such enforcement. In addition,
Sublessor agrees to use reasonable good faith efforts to enforce Prime
Lessor's obligations under the Prime Lease.
11. Casualty and Condemnation. Article 10.01, titled "Damage or Destruction,"
-------------------------
and Article 12, titled "Condemnation," of the Prime Lease are modified to
provide that if by operation of either of these two Articles the Prime
Lease is not terminated and continues in full force and effect, this
Sublease shall not be terminated but shall also continue in full force and
effect, except that until the Premises are restored in accordance with
these two Articles there shall be a proportionate abatement of annual rent
and additional rent payable hereunder to the extent of damage to the
Premises; provided, however, that such abatement shall in no event exceed
the abatement granted to Sublessor under the Prime Lease for the Premises
and, provided further, that no compensation or claim or reduction will be
allowed or paid by Sublessor by reason of inconvenience, annoyance or
injury to Sublessee's business arising from the necessity of affecting
repairs to the Premises or any portion of the Building, whether such
repairs are required by operation of these two Articles or any other
provision of the Prime Lease. Notwithstanding the foregoing, if the
Premises cannot be restored within one hundred twenty (120) days after
damage, destruction or condemnation (in the reasonable opinion of
Sublessor), then Sublessee may elect to terminate this Sublease by written
notice (to Sublessor) given within thirty (30) days after Sublessee's
receipt of Sublessor's estimate of the time required to restore the
Premises.
12. Parking. Sublessor, through Prime Lessor, shall make available to Sublessee
-------
twenty-four (24) hours per day, seven (7) days per week, throughout the
term of the Sublease, without additional charge, on-site, non-reserved deck
parking for 3.05 cars per 1,000 square feet of rentable area subleased, for
the use of Sublessee, its employees and invitees, in the garage attached to
the Building in the area delineated on Exhibit "C" attached hereto and made
a part hereof. As a portion of the aforesaid parking allowance, Sublessor,
through Prime Lessor, shall make available to Sublessee throughout the term
of the Sublease ten (10) reserved spaces on Level 6 (being space nos. 31-35
and 50-54).
13. Insurance. (a) Sublessee shall maintain comprehensive general liability
---------
insurance covering the legal liability of Sublessor and Sublessee against
all claims for any bodily injury or death of persons and for damage to or
destruction to property occurring on, in or about the Premises and arising
out of the use or occupation of the Premises by Sublessee in the minimum
amount of $2,000,000.00 in connection with any single occurrence of bodily
injury or death and $500,000.00 in connection with claims for property
damage. Such policy shall provide that it may not be canceled or materially
changed without at least thirty (30) days prior written notice to each
named insured.
(b) Sublessor and Sublessee shall each have included in all policies of
commercial property insurance and other insurance (required under the Prime
Lease or this Sublease) obtained by them covering the Premises, the
Building and the contents therein, a waiver by the insurer of all right of
subrogation against the other in connection with any loss or damage thereby
insured against. Any additional premium for such waiver shall be paid by
the primary insured. To the full extent permitted by law, Sublessor and
Sublessee each waive all right of recovery against the other for, and
agrees to release the other from liability for, loss or damage to the
extent such loss or damage is covered by valid and collectible insurance in
effect at the time of such loss or damage or would be covered by the
insurance required to be maintained under this Sublease by the party
seeking recovery.
-5-
<PAGE>
(c) The introductory clauses in Sections 11.01 and 11.02 of the Prime
Lease which read "Subject to the provisions of Section 10.02(d)" shall be
deemed to refer to the provisions of the foregoing Subsection 13(b).
14. Brokerage. Cousins Real Estate Corporation and Carter (referred to
---------
collectively as "Broker") are entitled to a lease commission from Sublessor
by virtue of this Sublease, which commission shall be paid by Sublessor to
Broker in accordance with the terms of a separate agreement between
Sublessor and Broker. Cousins Real Estate Corporation has acted as agent
for Sublessor in this transaction, and Carter has acted as agent for
Sublessee in this transaction. Sublessee represents and warrants to
Sublessor that, except as stated herein, no broker, agent, or other person
has represented Sublessee in the negotiations for and procurement of the
Sublease and that, except as set forth herein, no commissions, fees or
compensation of any kind are due and payable in connection herewith to any
broker, agent, or other person as a result of any act or agreement of
Sublessee. Sublessee agrees to indemnify and hold Sublessor harmless from
all loss, liability, damage, claim, cost or expense (including reasonable
attorneys' fees and court costs) suffered or incurred by Sublessor as a
result of a breach by Sublessee of the representations and warranties
contained in the immediately preceding sentence. Sublessor represents and
warrants to Sublessee that, except as stated herein, no broker, agent, or
other person has represented Sublessor in the negotiations for and
procurement of the Sublease and that, except as set forth herein, no
commissions, fees or compensation of any kind are due and payable in
connection herewith to any broker, agent, or other person as a result of
any act or agreement of Sublessor. Sublessor agrees to indemnify and hold
Sublessee harmless from all loss, liability, damage, claim, cost or expense
(including reasonable attorneys' fees and court costs) suffered or incurred
by Sublessee as a result of a breach by Sublessor of the representations
and warranties contained in the immediately preceding sentence.
15. Binding and Entire Agreement. This Sublease shall be binding on Sublessee
----------------------------
and its heirs and executors, and on the respective legal representatives,
successors and assigns of the parties. This Sublease contains the entire
agreement of the parties with respect to the subject matter herein and may
not be modified except by instrument in writing which is signed by both
parties.
16. Consent of Prime Lessor. Anything hereinabove to the contrary
-----------------------
notwithstanding, it is understood and agreed that this Sublease shall not
become effective unless and until Sublessor has obtained and delivered to
Sublessee the written consent of Prime Lessor to the subletting herein on
or before December 30, 1993, failing which either party may, at its option
------------------
exercised by giving the other notice on or before January 15, 1994,
terminate this Sublease. If this Sublease is terminated as aforesaid,
neither party hereto shall have any further claim against the other
hereunder.
17. The terms and conditions contained in Exhibit "B" titled "Special
-----------
Stipulations," attached hereto, are hereby incorporated into and agreed to
be a party of this Sublease.
-6-
<PAGE>
IN WITNESS WHEREOF, duly authorized representatives of the parties hereto
have executed this Sublease as of the day and year first above written.
WITNESS: INTERNATIONAL BUSINESS
MACHINES CORPORATION
/s/ Tom Duley [sp]
- ---------------------------------
By: /s/ G. T. Morris
----------------------------
Title: Proj. Manager
-------------------------
[CORPORATE SEAL]
WITNESS: SCIENTIFIC RESEARCH
CORPORATION
/s/ J. Wright
- ---------------------------------
By: /s/ Charles K. Watt
---------------------------
Title: President
------------------------
[CORPORATE SEAL]
-7-
<PAGE>
FIRST SUBLEASE AMENDMENT
THIS AGREEMENT, made the 31st of January, 1995, between INTERNATIONAL
BUSINESS MACHINES CORPORATION, a New York corporation, having its principal
office at Armonk, New York 10504, hereinafter called the "Sublessor" and
SCIENTIFIC RESEARCH CORPORATION, a Georgia corporation, with an office at 2300
Windy Ridge Parkway, Suite 400, South Tower, Atlanta, Georgia 30339,
hereinafter called "Sublessee".
WITNESSETH:
WHEREAS, the Sublessor and the Sublessee entered into a written agreement
of Sublease dated December 22, 1993 (herein collectively called the "Sublease")
whereby Sublessor subleased to the Sublessee approximately 51,474 square feet of
rentable area on the 3rd and 4th floors (the "Subleased Premises") in the
building known as 2300 Windy Ridge Parkway (South Tower), Wildwood Office Park
(the "Building"); and
WHEREAS, Sublessee desires to sublease additional office space on the
second (2nd) floor of the South Tower from Sublessor.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration and of the mutual agreements hereinafter set forth, it is
hereby mutually agreed as follows:
1. The Sublessee hereby subleases from the Sublessor approximately 2,928
square feet of rentable floor area (the "Additional Sublease Space"), as more
particularly shown (cross-hatched) on the floor plan attached and marked Exhibit
A, thereby increasing the square feet of rentable area comprising the Subleased
Premises to 54,402.
2. Effective February 1, 1995, the annual rent due for the Additional
Sublease Space on the second floor shall be Forty-six Thousand Eight Hundred
Forty-eight and no/100 Dollars ($46,848.00) annually to be paid in equal monthly
installments of Three Thousand Nine Hundred Four and no/100 Dollars ($3,904.00)
3. The term for the Additional Sublease Space shall commence on February
1, 1995 and expire on December 31, 1998.
4. Sublessor shall accept the Additional Sublease Space in its then "as
is" condition. Sublessor shall not be required to perform work of any kind or
nature and all such work and performance hereof shall be subject to the
provisions of this Sublease and the Prime Lease.
5. The Tenant's share of operating expenses and real estate taxes under
Section 4 are hereby increased from 8.32% to 8.80%.
6. Sublessor shall provide a used ten ton Liebert unit to Sublessee.
Sublessee shall accept the unit in its then "as is" condition. The unit is
currently located on the 6th/7th floor of the Building. Sublessee shall be
responsible for relocating the unit to the Additional Sublease Space by March 1,
1995 and will assume responsibility and liability for this relocation.
7. Extension Option. Provided that this Sublease is then in effect and no
event of default under this Sublease then exists, and subject to the terms and
conditions herein set forth Sublessee shall have the option to extend the Term
for the Additional Sublease Space for one (1) consecutive extended
-8-
<PAGE>
term of (4) years (such period being herein referred to as the "Extended Term").
Such option shall be exercised by irrevocable written notice to Sublessor given
on or before December 31, 1997, and such notice shall be irrevocable. The
Extended Term shall be upon the same covenants, agreements, term, provisions and
conditions that are contained in the Sublease dated December 22, 1993, except
that the annual Base Rental amount shall be Forty Thousand and Nine Hundred and
Ninety-two and no/100 Dollars ($40,992.00), to be paid in equal monthly
installments of Three Thousand Four Hundred and Sixteen and no/100 Dollars
($3,416.00).
Sublessee shall continue to pay as Additional Rental its prorata share of
increase in operating expenses, as that term is defined in Section 3.04 of the
Prime Lease, incurred over $6.50 per square feet of rentable floor area.
8. Except as herein modified, the Sublease shall continue in full force
and effect without change.
IN WITNESS WHEREOF, this instrument has been executed by the duly
authorized representatives of the parties as of the day and year first above
written.
WITNESS: SCIENTIFIC RESEARCH CORPORATION
/s/ S. Watt By: /s/ James D. Huffman
- ---------------------------- ------------------------------------
Name: James D. Huffman
Title: Treasurer
WITNESS: INTERNATIONAL BUSINESS MACHINES
CORPORATION
/s/ James N. Monet [sp] By: /s/ G. T. Morris
- ---------------------------- ------------------------------------
Name: G.T. Morris
Title: Proj. Manager
-9-
<PAGE>
EXHIBIT 10.20
SUB-SUBLEASE AGREEMENT
THIS AGREEMENT is made this day of 19th day of August, 1998, by and between
The Profit Recovery Group International 1, Inc., a Georgia corporation with its
principal place of business at 2300 Windy Ridge Parkway, Suite 100 North,
Atlanta, Georgia 30339-8426 (hereinafter called "PRG") and Manhattan Associates,
Inc., a Georgia corporation with its principal place of business at 2300 Windy
Ridge Parkway, Suite 700 North, Atlanta, Georgia 30339 (hereinafter called
"Manhattan").
WITNESSETH:
WHEREAS, pursuant to a Lease, dated July 31, 1987, as subsequently amended
on November 10, 1987, April 30, 1988, August 4, 1989, October 10, 1989, November
7, 1989, December 1, 1989 and March 12, 1990 (herein collectively called the
"Prime Lease" and attached as Exhibit "A"), International Business Machine
Corporation, a New York corporation (hereinafter called the "Prime Sublessor")
leased from Wildwood Associates, a Georgia general partnership (hereinafter
called the "Prime Lessor") certain portions of the building known as 2300 Windy
Ridge Parkway, Wildwood Office Park, Atlanta Georgia (the "Building"), including
but not limited to the third (3rd) floor thereof; and
WHEREAS, pursuant to a Sublease, dated October 29, 1993, (herein called the
"Prime Sublease" and attached as Exhibit "B"), PRG's predecessor in interest
sublet from the Prime Sublessor the third (3rd) floor of the Building; and
WHEREAS, PRG desires to Sub-Sublease to Manhattan and Manhattan desires to
SubSublease from PRG the third (3rd) floor consisting of approximately 23,776
rentable square feet (the "Premises").
NOW THEREFORE, for and in consideration of the foregoing and for other good
and valuable consideration and of the mutual agreements hereinafter set forth,
PRG and Manhattan stipulate, covenant and agree as follows:
1. PREMISES
PRG does hereby Sub-Sublease to Manhattan a portion of the Building
consisting of approximately 23,776 square feet of rentable area on the third
(3rd) floor of the North Tower thereof (the "Premises") as outlined in red and
crosshatched on Exhibit "C" attached hereto and made a part hereof.
2. DELIVERY OF PREMISES
On or before September 15, 1998, PRG shall make available to Manhattan that
portion of the Premises consisting of approximately 7,998 square feet of
rentable area as identified on Exhibit "C". On or before March 1, 1999, PRG
shall make available to Manhattan the remaining portion of the Premises.
3. TERM
The term shall commence on the date of delivery specified in Section 4
hereof, and except as provided herein, shall expire on December 30, 2002.
1
<PAGE>
4. USES
The Premises shall be used for office space in accordance with all
applicable laws, ordinances, rules and regulations of governmental authorities
and the Rules and Regulations attached to the Prime Lease, as same may have been
modified or amended by virtue of the Prime Sublease. Manhattan covenants and
agrees to abide by the Rules and Regulations in all respects as now set forth
and as hereafter promulgated by Prime Lessor. Prime Lessor shall have the right
at all times during the Lease Term to publish and promulgate and thereafter
enforce such rules and regulations or changes in the existing Rules and
Regulations as it may reasonably deem.
5. RENT
Commencing on the date the Premises, or the applicable portion thereof,
shall be delivered to Manhattan, Manhattan shall pay to PRG Annual Base Rent
equal to (a) $20.76 per rentable square foot for portions of the Premises which
it occupies, plus (b) $20.76 per rentable square foot for its pro-rata portion
of the "common area" described in Paragraph 7, and computed by multiplying the
Annual Base Rent by a fraction, the numerator of which shall be the number of
rentable square feet of the Premises occupied by Manhattan, and the denominator
of which shall be the number of square feet of the Premises occupied by
Manhattan plus the number of square feet of the Premises occupied by PRG
(exclusive of any portion of the Premises designated as "common area").
In addition to Annual Base Rent, Manhattan shall pay Additional Rental as
described in Paragraph 6, (collectively the "Rent") provided for hereunder in
advance on the first day of every month during the Term. Rent shall be a
prorated rate for fractions of a month if this Sub-Sublease commences or expires
(as the case may be) for any reason on any day other than the first or last day
of the calendar month, respectively. Manhattan shall make payment of Rent to
PRG, at the address specified the preamble of this Agreement and directed to the
attention of the Controller.
6. ADDITIONAL RENTAL
(a) In addition to Annual Rent, Manhattan shall pay as Additional Rental its
pro-rata share of increases in operating expenses over and above $6.50 per
rentable square foot of the Premises, as defined in Article 3.04 of the Prime
Lease. PRG shall furnish Manhattan with a true copy of the statement of
operating expenses delivered by Prime Lessor to PRG pursuant to the Prime Lease
and the Prime Sublease. Manhattan shall reimburse PRG within twenty (20) days
after the operating expense statement is furnished to Manhattan.
For purposes of this Sub-Sublease, Manhattan shall pay Additional Rent on
the Premises and its pro-rata portion of the "common area" described in
Paragraph 7 hereof. Manhattan's share of said "common area" shall be equal to a
fraction having as its numerator the number of rentable square feet of the
Premises actually occupied by Manhattan, and as its denominator, the number of
square feet of the Premises occupied by Manhattan plus the number of square feet
of the Premises occupied by PRG; both the numerator and denominator shall
exclude any portion of the Premises designated as "common area."
(b) In addition to the foregoing, if Manhattan shall procure any services
from the Building beyond the Building standard services specified in the Prime
Lease, (such as alterations or after-hour air-conditioning) Manhattan shall pay
for same at the rates charged therefor by the Prime Lessor and shall make such
payment to PRG or Prime Lessor, as PRG shall direct.
2
<PAGE>
(c) Any Additional Rent or other sums payable by Manhattan under this
Paragraph 6 shall be considered rent and collectible by PRG as such. If PRG
shall receive any refund from either the Prime Sublessor or the Prime Lessor,
Manhattan shall be entitled to the return of so much thereof as shall be
attributable to prior payments by Manhattan.
7. PREPARATION FOR OCCUPANCY
Prior to delivery of the first portion of the Premises, as described in
Paragraph 2, PRG shall arrange for the construction of certain demising walls,
corridors and doorways, as are indicated on Exhibit "C" to create a "common
area" within the Premises, consisting of approximately 1,491 rentable square
feet and identified on Exhibit "C". The cost of such construction shall be
evenly divided by PRG and Manhattan, and Manhattan shall reimburse PRG for its
share of such construction costs within thirty (30) days of an invoice therefor.
Manhattan shall at its sole expense, perform or cause to be performed, such
construction of the Premises as it desires; provided, however, that prior to the
commencement of construction, Manhattan shall obtain the written consent of PRG,
the Prime Sublessor and the Prime Lessor, as same may be required under the
Prime Lease or the Prime Sublease, which consent shall not be unreasonably
withheld or delayed by PRG, to Manhattan's construction plans.
8. INCORPORATION OF PRIME LEASE
(a) This Sublease is subject to all of the terms of the Prime Lease and
the Prime Sublease with the same force and effect as if fully set forth herein
at length, excepting only those provisions specified herein. All of the terms
with which PRG is bound to comply under the Prime Lease or the Prime Sublease
shall, to the extent they apply to the Premises and except as otherwise provided
herein, be binding upon Manhattan, and all of the obligations of Prime Lessor
set forth in the Prime Lease shall and all of the obligations of IBM set forth
in the Prime Sublease, to the extent only that they apply to the Premises and
except as otherwise provided herein, inure to the benefit of Manhattan. It is
the intention of the parties that, except as otherwise provided in this Sub-
Sublease, the relationship between PRG and Manhattan shall be governed by the
language of the various articles of the Prime Lease and the Prime Sublease as if
they were typed out in this Sub-Sublease in full, and the words "Lessor"
"Lessee" and "Prime Lease" as used in the Prime Lease, and the words "Sublessor"
"Sublessee" and "Sublease", shall read, respectively "PRG" "Manhattan" and "Sub-
Sublease".
(b) For the purpose of this Sub-Sublease, the following provisions of the
Prime Sublease are hereby deleted in their entirety:
Sections 4, 12, and 15 of the Sublease dated October 29, 1993;
Sections 1, 2, 3, 4, 5, 11 and 12 of Exhibit "B" to the Sublease dated
October 29, 1993; and all provisions of the First Sublease Amendment
dated as of February 12, 1996.
9. PARKING
PRG shall provide Manhattan with a total of seven (7) of PRG's reserved
parking spaces, in the area designated for reserved parking by the Prime Lessor,
and as subject to change by the Prime Lessor. Subject to the rights of the Prime
Lessor or Prime Sublessor, PRG shall have the sole authority to designate which
of its reserved parking spaces shall be provided to Manhattan hereunder. Two (2)
reserved parking spaces shall be provided to Manhattan upon commencement of its
occupancy of the
3
<PAGE>
first portion of the Premises, and the remaining five (5) spaces shall be made
available to Manhattan on or before March 1, 1999.
10. QUIET ENJOYMENT
(a) PRG covenants and agrees with Manhattan that upon Manhattan paying the
Rent and Additional Rent reserved in this Sub-Sublease and observing and
performing all of the other obligations, terms, covenants and conditions of this
Sub-Sublease on Manhattan's part to be observed and performed, Manhattan may
peaceably and quietly enjoy the Premises and Common Building Facilities (in
common with other tenants) during the Term; provided, however, that this Sub-
Sublease shall automatically terminate upon termination of either the Prime
Lease or the Prime Sublease, and Manhattan shall have no claim against PRG
unless such termination was caused by the default of PRG in the performance of
those material obligations (under either the Prime Lease or the Prime Sublease)
which have not been assumed by Manhattan hereunder. PRG will indemnify and hold
harmless Manhattan from and defend Manhattan against all claims, liabilities
losses and damages that Manhattan may incur by reason of, resulting from or
arising out of any such termination of the Prime Lease or the Prime Sublease due
to PRG's default thereunder. PRG covenants and agrees that (i) PRG will not
enter into a consensual agreement with the Prime Lessor under the Prime Lease or
with the Prime Sublessor under the Prime Sublease to terminate either the Prime
Lease or the Prime Sublease, as the case may be, (ii) PRG will not terminate
this Sub-Sublease as it pertains to the Premises unless PRG is entitled to do so
under the Sublease or under this Sub-Sublease or by the condemnation and
casualty provisions of this Sublease.
(b) Manhattan covenants and agrees that Manhattan shall not do or suffer or
permit anything to be done (within its reasonable and direct control) which
would constitute a default under the Prime Lease or the Prime Sublease, or would
cause the Prime Lease or the Prime Sublease to be canceled, terminated or
forfeited by virtue of any rights of cancellation, termination, or forfeiture
reserved or vested in Prime Lessor under the Prime Lease or the Prime Sublessor
under the Prime Sublease, Manhattan will indemnify and hold harmless PRG from
and defend PRG against all claims, liabilities, losses and damages of any kind
whatsoever that PRG may incur by reason of, resulting from or arising out of the
cancellation, termination or forfeiture of the Prime Lease or the Prime
Sublease, which is caused by any act or omission of Manhattan.
11. NOTICES
Any notice, demand, or request under this Sublease shall be in writing and
shall be considered properly delivered when addressed as hereinafter provided
and delivered by hand or by nationally recognized overnight courier service to
the addressee set forth in the preamble of this Agreement with all notices to
PRG being directed to the attention of Clinton McKellar, Jr., Esq. and all
notices to Manhattan being directed to the attention its President. Rejection or
other refusal to accept or the inability to deliver because of a changed address
of which no notice was given shall be deemed to be receipt of the notice, demand
or request sent. Address for notice may be changed by either party by giving 30
days written notice to the current address of record.
PRG agrees to provide, in a timely manner, copies of any notices it
receives from the Prime Lessor or the Prime Sublessor with respect to the
Premises.
4
<PAGE>
12. ASSIGNMENT AND SUBLETTING
Except as permitted by Paragraph 9 of the Prime Sublease, Manhattan shall
not assign, mortgage, transfer, pledge or encumber its interest in this Sub-
Sublease, in whole or in part, or sublet or permit the subletting of the
Premises, or permit the Premises or any part thereof to be occupied or used by
any person or entity other than Manhattan, without in each case having first
obtained the written consent of (a) PRG, which consent shall not be unreasonably
withheld, delayed or conditioned, and (b) the Prime Sublessor. Failure of any
party to obtain the consent of the Prime Lessor shall in each case constitute a
reasonable and conclusive basis for withholding consent.
13. PRIME LESSOR'S RESPONSIBILITIES
Notwithstanding anything to the contrary contained in this Sub-Sublease,
Manhattan agrees and acknowledges that it will look solely to the Prime Lessor,
and to neither PRG nor Prime Sublessor, to furnish all services and to perform
all obligations of Prime Lessor pursuant to the Prime Lease. PRG shall not be
liable to Manhattan or be deemed in default hereunder for failure of Prime
Lessor to furnish such services or perform such obligations. If Prime Lessor
shall fail to perform any of its obligations under the Prime Lease, Manhattan
may, at its option, enforce performance thereof if and to the extent authorized
by the Prime Lease, and PRG shall cooperate with Manhattan in such enforcement.
14. DESTRUCTION AND EMINENT DOMAIN
Article 10.01, titled "Damage or Destruction," and Article 12, titled
"Condemnation," of the Prime Lease are modified to provide that if by operation
of either of these two Articles the Prime Lease is not terminated and continues
in full force and effect, this Sub-Sublease shall not be terminated but shall
also continue in full force and effect, except that until the Premises are
restored in accordance with these two Articles there shall be a proportionate
abatement of Annual Rental and payable hereunder to the extent of damage to the
Premises; provided, however, that such abatement shall in no event exceed the
abatement granted to PRG under the Prime Sublease for the Premises and, provided
further, that no compensation or claim or reduction will be allowed or paid by
PRG by reason of inconvenience, annoyance or injury to Manhattan's business
arising from the necessity of affecting repairs to the Premises or any portion
of the Building, whether such repairs are required by operation of these two
Articles or any other provision of the Prime Lease. Notwithstanding the
foregoing, if the Premises cannot be restored within ninety (90) days after
damage, destruction or condemnation (in the reasonable opinion of the Prime
Lessor's architect), then Manhattan may elect to terminate this Sublease by
written notice (to PRG) given within thirty (30) days after PRG's receipt of
Sublessor's estimate of the time required to restore the Premises.
15. INSURANCE
(a) Manhattan shall maintain comprehensive general liability insurance
covering the legal liability of Manhattan and PRG against all claims for any
bodily injury or death of persons and for damage to or destruction to property
occurring on, in or about the Premises and arising out of the use or occupation
of the Premises by Manhattan in the minimum amount of $5,000,000.00 in
connection with any single occurrence of bodily injury or death and $500,000.00
in connection with claims for property damage. Such policy shall provide that it
may not be canceled or materially changed without at least thirty-(30) days
prior written notice to each name insured. PRG shall be named as an additional
insured on the insurance policies required of Manhattan under this Sub-Sublease.
5
<PAGE>
(b) PRG and Manhattan shall each have included in all policies of
commercial property insurance and other insurance (required under the Prime
Lease, the Prime Sublease or this SubSublease) obtained by them covering the
Premises, the Building and the contents therein, a waiver by the insurer of all
right or subrogation against the other in connection with any loss or damage
thereby insured against. Any additional premium for such waiver shall be paid by
the primary insured. To the full extent permitted by law, PRG and Manhattan each
waives all right to recovery against the other for, and agrees to release the
other from liability for, loss or damage to the extent such loss or damage is
covered by valid and collectible insurance in effect at the time of such loss or
damage or would be covered by the insurance required to be maintained under this
Sublease by the party seeking recovery.
16. BROKERAGE
Each party represents and warrants to the other that no broker, agent, or
other person has represented such party in the negotiations for and procurement
of this Sub-Sublease and that except as may be set forth herein, no commissions,
fees or compensation of any kind are due and payable in connection herewith to
any broker, agent, or other person as a result of any act or agreement of such
party. Each party through which such a claim arises agrees to indemnify and hold
the other harmless from all loss, liability, damage, claim, cost or expense
(including reasonable attorneys' fees and court costs) suffered or incurred as a
result of a breach of the representations and warranties contained in the
immediately preceding sentence.
17. BINDING AND ENTIRE AGREEMENT
This Sub-Sublease shall be binding on PRG and Manhattan, and each of its
respective legal representatives, successors and permitted assigns. This Sub-
Sublease contains the entire agreement of the parties with respect to the
subject matter herein and may not be modified except by instrument in writing,
which is signed by both parties.
[Signatures on Next Page]
6
<PAGE>
18. CONSENT OF PRIME SUBLESSOR
In accordance with Section 9 of the Prime Sublease, it is understood and
agreed that this Sub-Sublease shall not become effective unless and until PRG
has obtained and delivered to Manhattan the written consent of Prime Sublessor
to the subletting herein on or before the Commencement Date.
IN WITNESS WHEREOF, duly authorized representatives of the parties hereto
have executed this Sub-Sublease as of the day and year first above written.
WITNESS: MANHATTAN ASSOCIATES, INC.
__________________________ By: /s/ Michael J. Casey
---------------------------------
Title: Chief Financial Officer
[CORPORATE SEAL]
WITNESS: THE PROFIT RECOVERY GROUP
INTERNATIONAL 1, INC.
__________________________ By: /s/ Dall E. Ells, Jr.
---------------------------------
Title: Senior VP & CFO
[CORPORATE SEAL]
7
<PAGE>
EXHIBIT "A"
________________________________________________________________________________
________________________________________________________________________________
LEASE
WILDWOOD ASSOCIATES
LANDLORD
AND
INTERNATIONAL BUSINESS MACHINES CORPORATION
TENANT
Dated: As of July 31, 1987
________________________________________________________________________________
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE ONE - LEASE OF PREMISES.......................................... 3
ARTICLE TWO - TERM....................................................... 4
Section 2.01 Initial Term of this Lease........................ 5
Section 2.02 Extended Terms.................................... 5
Section 2.03 Term of this Lease................................ 6
ARTICLE THREE - RENT AND ADDITIONAL RENT................................. 6
Section 3.01 Annual Rent....................................... 6
Section 3.02 Extended Rent..................................... 7
Section 3.03 Additional Rental................................. 7
Section 3.04 Operating Expenses................................ 7
Section 3.05 Real Estate Taxes................................. 13
Section 3.06 Taxes Payable by Tenant........................... 14
Section 3.07 Tax Contest....................................... 15
Section 3.08 Tenant's Share.................................... 15
ARTICLE FOUR - PREPARATION FOR OCCUPANCY TERM
COMMENCEMENT DATE......................................... 16
Section 4.01 Construction...................................... 16
Section 4.02 Rental Commencement Date.......................... 16
Section 4.03 Punch List Items.................................. 18
Section 4.04 Excusable Delays.................................. 18
Section 4.05 Tenant's Rights................................... 19
Section 4.06 Tenant Allowance.................................. 19
ARTICLE FIVE - LANDLORD'S TITLE AND ALLOWABLE USE........................ 19
Section 5.01 Landlord's Covenant Regarding
Title and Use..................................... 19
Section 5.02 Landlord's Covenant Regarding
Lawsuits.......................................... 20
ARTICLE SIX - SERVICES................................................... 20
Section 6.01 Services Provided by Landlord..................... 20
Section 6.02 Security to Leased Premises....................... 23
Section 6.03 Landlord's Default -
Tenant's Remedies................................. 23
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ARTICLE SEVEN - TENANT'S PARKING......................................... 23
Section 7.01 Tenant's Parking.................................. 23
ARTICLE EIGHT - USE...................................................... 24
ARTICLE NINE - REPAIRS AND MAINTENANCE................................... 25
Section 9.01 Landlord's Repairs................................ 25
Section 9.02 Tenant's Repairs.................................. 25
Section 9.03 Landlord's Failure to Make Repairs................ 25
Section 9.04 Emergency Repairs................................. 26
Section 9.05 Tenant's Remedies................................. 26
ARTICLE TEN - FIRE AND OTHER CASUALTY - CASUALTY
INSURANCE.................................................. 26
Section 10.01 Damage or Destruction................................. 26
Section 10.02. Casualty and Liability Insurance..................... 28
ARTICLE ELEVEN - LIABILITY............................................... 30
Section 11.01 Indemnification by Tenant......................... 30
Section 11.02 Indemnification by Landlord....................... 30
ARTICLE TWELVE - CONDEMNATION............................................ 31
Section 12.01 Taking - Termination of Lease..................... 31
Section 12.02 Taking - Lease Continues.......................... 31
Section 12.03 Temporary Taking.................................. 31
Section 12.04 Landlord's Award.................................. 32
Section 12.05 Tenant's Award.................................... 32
Section 12.06 Restoration by Landlord........................... 32
Section 12.07 Definitions....................................... 32
ARTICLE THIRTEEN - ALTERATIONS AND IMPROVEMENTS.......................... 33
Section 13.01 Alterations and Improvements...................... 33
Section 13.02 Ownership of Tenant's Alterations and
Improvements...................................... 33
Section 13.03 Removal........................................... 33
Section 13.04 Landlord's Approval............................... 33
Section 13.05 Definitions....................................... 34
Section 13.06 Landlord's Alterations and Improvements........... 34
ARTICLE FOURTEEN - LANDLORD'S ACCESS..................................... 34
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ARTICLE FIFTEEN - COMPLIANCE WITH LAWS................................... 35
Section 15.01 Tenant's Compliance with Laws..................... 35
Section 15.02 Landlord's Compliance with Laws................... 35
ARTICLE SIXTEEN - SURRENDER OF POSSESSION OF THE
LEASED PREMISES................................... 36
ARTICLE SEVENTEEN - SIGNS 36
Section 17.01 Tenant's Signs.................................... 36
Section 17.02 Directory......................................... 36
Section 17.03 Building Sign..................................... 36
Section 17.014 Compliance with Code.............................. 37
ARTICLE EIGHTEEN - SUBORDINATION AND NON-DISTURBANCE..................... 37
ARTICLE NINETEEN - MECHANICS' LIENS...................................... 38
ARTICLE TWENTY - INTENTIONALLY OMITTED................................... 38
ARTICLE TWENTY-ONE - OPTION FOR ADDITIONAL SPACE......................... 38
ARTICLE TWENTY-TWO - TENANT'S SECURITY IN THE
LEASED PREMISES..................................... 42
Section 22.01 Limited Restrictions Against
Other Tenants..................................... 42
Section 22.02 Inclusion of Restrictions in Other
Leases and Subleases.............................. 43
Section 22.03 Advance Consultation with Tenant.................. 43
Section 22.04 Inapplicability................................... 43
ARTICLE TWENTY-THREE - FIRST REFUSAL SALE................................ 43
Section 23.01 Sale of the Building.............................. 43
Section 23.02 Changes in Landlord's Entity...................... 45
Section 23.03 Mortgagee Exemption............................... 45
Section 23.04 Other Exemptions.................................. 45
ARTICLE TWENTY-FOUR - DEFAULT............................................ 46
Section 24.01 Default by Tenant................................. 46
Section 24.02 Suspension of Tenant Default...................... 47
Section 24.03 Default by Landlord............................... 48
ARTICLE TWENTY-FIVE - HOLDOVER........................................... 48
ARTICLE TWENTY-SIX - NOTICES TO LANDLORD AND TENANT...................... 49
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ARTICLE TWENTY-SEVEN - ASSIGNMENT AND SUBLETTING.......................... 49
Section 27.01 Assignment or Sublease to Subsidiary or Affiliate.. 49
Section 27.02 Assignment or Sublease to a Third Party............ 49
ARTICLE TWENTY-EIGHT - EQUAL EMPLOYMENT OPPORTUNITY....................... 51
ARTICLE TWENTY-NINE - QUIET ENJOYMENT..................................... 51
ARTICLE THIRTY - NON-WAIVER............................................... 51
ARTICLE THIRTY-ONE - PARTIAL INVALIDITY................................... 52
ARTICLE THIRTY-TWO - RULES AND REGULATIONS................................ 52
Section 32.01 Tenant's Obligation............................... 52
Section 32.02 Standards Applicable to Landlord.................. 52
Section 32.03 Landlord's Enforcement............................ 52
Section 32.04 Conflict.......................................... 53
ARTICLE THIRTY-THREE - ESTOPPEL CERTIFICATES............................. 53
Section 33.01 Tenant's Estoppel Certificate..................... 53
Section 33.02 Landlord's Estoppel Certificate................... 53
ARTICLE THIRTY-FOUR - EXAMINATION OF LEASE............................... 53
ARTICLE THIRTY-FIVE - COUNTERPARTS....................................... 54
ARTICLE THIRTY-SIX - ANTENNA............................................. 54
ARTICLE THIRTY-SEVEN - BROKER............................................ 55
ARTICLE THIRTY-EIGHT - ARBITRATION....................................... 55
ARTICLE THIRTY-NINE - MISCELLANEOUS...................................... 57
Section 39.01 Lease is Not Strictly Construed................... 57
Section 39.02 No Exclusive Remedies............................. 57
Section 39.03 Intentionally Omitted............................. 57
Section 39.04 Tenant's Rights to Deal with Its
Own Contractors and Suppliers..................... 57
Section 39.05 Governing Law..................................... 57
Section 39.06 Non-disclosure of Lease........................... 57
Section 39.07 Exculpation....................................... 57
Section 39.08 Time of Essence................................... 58
Section 39.09 Late Charges...................................... 58
Section 39.10 Attorney's Fees................................... 58
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ARTICLE FORTY - MEMORANDUM OF LEASE...................................... 58
ARTICLE FORTY-ONE - BINDING AGREEMENT.................................... 59
ARTICLE FORTY-TWO - ENTIRE AGREEMENT..................................... 59
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EXHIBIT A - Floor Plans of the Leased Premises
EXHIBIT B - Description of Land
EXHIBIT C - Supplemental Agreements
EXHIBIT D - Base Building Work And/or Layout Work
EXHIBIT E - Schedule of Rentable Areas
EXHIBIT F - Heat, Ventilation and Air Conditioning
Specifications
EXHIBIT G - Janitor and Cleaning Specifications
EXHIBIT H - Rules and Regulations
EXHIBIT I - Description of Base Building Plans
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BASIC LEASE INFORMATION
The following Basic Lease Information is attached to the Lease for
reference and convenience purposes only. The Basic Lease Information is
Qualified in all respects by reference to the applicable portions of the Lease,
and in the event of any conflict between the Basic Lease Information and the
provisions of the Lease, the Lease shall control.
Date of Lease July 31, 1987
Landlord: Wildwood Associates, a Georgia general
partnership comprised of International
Business Machines Corporation, a New York
corporation and Cousins Properties
Incorporated, a Georgia corporation
Tenant: International Business Machines
Corporation (IBM)
Building Address: 2300 Windy Ridge Parkway, Marietta,
Georgia 30067
Leased Premises: Subject to Section 1.01(b), approximately
221,000 square feet of contiguous
rentable area (calculated using usable
area plus a 15% common area factor)
located on and comprising all of the
third, fourth and fifth floors of the
north tower of the Building, the entire
sixth and seventh floors of the Building
(north and south towers) and the balance
(approximately 17,463 square feet of
rentable area) on the second floor of the
north tower of the Building.
Term: From the date of this Lease through
December 31, 2002.
Options to Extend: Two (2) successive five (5) year options.
Rental Commencement Date: The date determined in accordance with
Section 4.02, but in no event earlier
than January 1, 1988 and as otherwise
provided in Section 3.01 as to the
payment of Annual Rent.
Tenant's Share: The percentage determined by dividing the
rentable square feet in the Leased
Premises by 614,543. See Supplemental
Agreement.
Annual Rental: From May 1, 1988 through December 31,
1988, _________ per square foot of
rentable area per year.
From January 1, 1989 through December 31,
1989, _________ per square foot of
rentable area per year.
From January 1, 1990 through December 31,
1990, _________ per square foot of
rentable area per year.
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From January 1, 1991 through December 31,
1991, _________ per square foot of rentable
area per year.
From January 1, 1992 through December 31,
1992, _________ per square foot of rentable
area per year.
From January 1, 1993 through December 31,
1997, _________ per square foot of rentable
area per year.
From January 1, 1998 through December 31,
2002, _________ per square foot of rentable
area per year.
During the first Extended Term, __________
per square foot of rentable area per year.
During the second Extended Term, _________
per square foot of rentable area per year.
Operating Expenses: Tenant is responsible for Tenant's Share of
Operating Expenses as provided in Section
3.03 (initially estimated __________ per
square foot of rentable area per year).
Expansion Options: In accordance with the provisions of
Article 21 of the Lease, up to __________
square feet of contiguous rentable area on,
at Landlord's option, either the fifth
floor of the south tower of the Building or
the eighth floor of the Building during
1993 and up to 25,000 square feet of
contiguous rentable area on, at Landlord's
option, either the fifth floor of the south
tower of the Building, or the eighth floor
of the Building during 1998.
Service of Notice: By personal delivery, registered, certified
or express mail as set forth in Article 26
of the Lease
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LEASE
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PARTIES
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THIS LEASE, made as of the 31st day of July, 1987, between WILDWOOD
ASSOCIATES, a Georgia general partnership comprised of International Business
Machines Corporation, a New York corporation, and Cousins Properties
Incorporated, a Georgia corporation, having an office at Suite 1600, 2500 Windy
Ridge Parkway, Marietta, Georgia 30067, hereinafter called "Landlord" and
INTERNATIONAL BUSINESS MACHINES CORPORATION, a New York corporation, having its
principal office at Armonk, New York 10504, hereinafter called "Tenant".
ARTICLE ONE
LEASE OF THE PREMISES
Section 1.01. Lease of the Premises. (a) Landlord hereby leases to Tenant,
---------------------
and Tenant hereby leases from Landlord, upon and subject to the covenants,
agreements, terms, provisions and conditions of this Lease, the Leased Premises,
as more particularly shown and described below in the building, as well as the
parking area and related improvements (the "Building") at the address known as
2300 Windy Ridge Parkway, Marietta, Georgia 30067 situated on a plot of land
(the "Land") located in Cobb County, Georgia and being more particularly
described on Exhibit B attached hereto. The Building located on the Land is
comprised of two segments which are referred to herein and on floor plans
attached hereto as Exhibit A as the "north tower" of the Building and the "south
tower" of the Building.
(b) The Leased Premises shall mean that certain floor area of the Building
containing approximately 221,000 square feet of contiguous rentable area located
on and comprising all of the third (3rd), fourth (4th) and fifth (5th) floors of
the north tower of the Building, the entire sixth (6th) and seventh (7th) floors
of the Building (north and south towers) and approximately 17,463 square feet of
contiguous rentable floor area located on the second (2nd) floor of the north
tower of the Building) (i) together with such additional space as Tenant may
lease in the Building pursuant to any provisions of the Lease (when added to the
Leased Premises) (ii) less such space as may be deleted from the Leased Premises
pursuant to any provision of this Lease (when so deleted). The floor plans for
the second (2nd), third (3rd), fourth (4th) and fifth (5th) floors of the north
tower of the Building and the entire sixth (6th) and seventh (7th) floors of the
Building (north and south towers) are attached hereto as Exhibit A. The actual
rentable area of the Building is approximately 614,543 square feet which square
footage has been determined as set forth in Section 4.02.
(c) This Lease includes the right of Tenant to use the Common Building
Facilities in common with other tenants in the Building and Tenant's parking
spaces (as provided for in Article 7) in the Building Parking Area. In addition,
upon the completion of the extension of Windy Hill Road from its current
terminus, and prior to the dedication of such extension, this Lease includes the
non-exclusive right of Tenant to use such extension of Windy Hill Road.
(d) The term "Common Building Facilities" shall mean all of the common
facilities in or around the Building designed and intended for use by the
tenants in the Building in common with Landlord and each other, including but
not limited to hallways, elevators, fire stairs, telephone and electric closets,
and risers, aisles, walkways, truck docks, plazas, courts, restrooms (excluding
restrooms on floors entirely leased by or held for lease to other tenants),
service areas, lobbies, landscaped areas, and all other common and service areas
of the Land and the Building intended for such use on the date
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hereof. Notwithstanding the foregoing, the restrooms on floors entirely leased
by Tenant shall be for the exclusive use of Tenant and shall not be used in
common with other tenants or occupants of the Building.
ARTICLE TWO
TERM
Section 2.01. Initial Term of. This Lease. The initial term of this Lease
---------------------------
(the "Initial Term") shall commence on the date hereof and shall expire on
December 31, 2002, subject to extension and earlier termination as hereinafter
provided.
Section 2.02. Extended Terms. Tenant shall have the option to extend the
--------------
term of this Lease for the Leased Premises for two (2), consecutive five (5)
year extended terms (each an "Extended Term"). Such option shall be exercised by
written notice to Landlord given at least twelve (12) months prior to the
expiration of the Initial Term or the applicable Extended Term. Each Extended
Term shall be upon the same covenants, agreements, terms, provisions and
conditions as are contained herein for the Initial Term, except as expressly
provided here to the contrary and except for such terms as are inapplicable to
an Extended Term. The Annual Rent payable during each Extended Term shall be as
provided in Section 3.0.2.
Section 2.03. Term of this Lease. The phrase "term" or "term of this
------------------
Lease" shall mean the Initial Term and any Extended Term which may become
effective.
ARTICLE THREE
RENT AND ADDITIONAL RENT
Section 3.01. Annual Rent. Commencing on May 1, 1988, Tenant hereby
-----------
agrees to pay a base annual rental per square foot of rentable area within the
Leased Premises per year (herein called "Annual Rent") in accordance with the
following schedule:
From May 1, 1988 through December 31, 1988,
From January 1, 1989 through December 31, 1989,
From January 1, 1990 through December 31, 1990,
From January 1, 1991 through December 31, 1991,
From January 1, 1992 through December 31, 1992,
From January 1, 1993 through December 31, 1997,
From January 1, 1998 through December 31, 2002,
Tenant will pay the Annual Rent and Additional Rent to Landlord at Suite
1600, 2500 Windy Ridge Parkway, Marietta, Georgia 30067 or to such other person
or at such other place as the Landlord may designate in writing.
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Section 3.02. Extended Rent. The Annual rent for the first Extended Term
-------------
shall be
Section 3.03. Additional Rent. The term "Additional Rent" shall mean all
---------------
sums of money payable by Tenant under the Lease other than Annual Rent.
Section 3.04. Operating Expenses. Commencing on February 1, 1988 and
------------------
thereafter during the term of this Lease, Tenant shall pay as Additional Rent,
the sum of (i) Tenant's Share of Operating Expenses (as hereinafter defined),
plus (ii) management fees equal to two and one-half percent (2-1/2%) of the sum
of (x) _________________________________________ Additional Rent payable under
this Section 3.04 for any period of less than one month shall be apportioned on
the basis of the number of days in such month. During December of each calendar
year during the term of this Lease, or as soon thereafter as practicable,
Landlord shall give Tenant written notice of its estimate of Additional Rent
payable under this Section 3.04 for the ensuing calendar year; provided,
however, Additional Rent during calendar year 1988 shall be calculated on the
basis of an estimate of Additional Rent in the amount of _____________________
of rentable area in the Leased Premises. On or before the first day of each
month during the ensuing calendar year, Tenant shall pay to Landlord one-twelfth
(1/12) of such estimated amounts together with the Annual Rent, provided that if
such notice is not given in December, Tenant shall continue to pay during the
ensuing calendar year on the basis of the amount payable during the calendar
year just ended, until the month after such notice is given. If at any time or
times it appears to Landlord that the Additional Rent payable under this Section
3.04 for the current calendar year will vary from Landlord's estimate by more
than five percent (5%), Landlord shall revise, by notice to Tenant, its estimate
for such year, and subsequent payments by Tenant for such year shall be based
upon such revised estimate. Failure to make a revision contemplated by the
immediately preceding sentence shall not prejudice Landlord's right to collect
the full amounts of Additional Rent.
(a) "Operating Expenses" shall mean the operating costs necessary to
manage, operate, repair and maintain the Building and Land in a manner deemed
reasonable and appropriate and for the best interest of the tenants of the
Building, to the extent they are properly allocable (in accordance with
generally accepted accounting principles consistently applied) to the
management, operation, repair and maintenance of the Building and Land
(including the Building Parking Area and the Common Building Facilities),
including, but not limited to, the items specified below in A. If the Building
is not one hundred percent (100%) occupied during any calendar year, the
Operating Expenses actually incurred shall be adjusted to reflect the amount of
Operating Expenses which would have been incurred at one hundred percent (100%)
occupancy for such calendar year. Any cost allocable to the items specified
below in B and any operating costs incurred after the expiration of the term of
this Lease shall be excluded from Operating Expenses.
A. Items Included In Operating Expenses.
-------------------------------------
(1) salaries, wages, and all other expenses, including fringe benefits,
incurred for the employment of personnel who work full or part-time at the
Building or Land and a portion of such off-premises personnel as shall devote
time to the Building and Land, excluding accounting and key-punch operators and
excluding such personnel above the grade of office park manager (which office
park manager may also carry a title of vice president and/or general manager);
(2) the cost of materials and supplies;
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(3) the cost of replacements for tools and maintenance equipment
(excluding items of a capital nature, except as herein provided); all tools and
equipment purchased during the first year of occupancy of the Building shall be
considered capital items;
(4) amounts paid by the Landlord to independent contractors for services
(including full or part-time labor) and materials;
(5) water charges and sewer rents;
(6) the cost of repainting or otherwise redecorating any part of Common
Building Facilities;
(7) the cost of telephone service, postage, office supplies, maintenance
and repair of office equipment and similar charges related to operating of the
office park manager's office;
(8) premiums for insurance obtained by Landlord applicable to the Building
and Land, including but not limited to, fire, liability insurance and insurance
covering loss of rents;
(9) all costs, and expenses (other than those of a capital nature, except
as herein provided) of maintaining, repairing and replacing paving, curbs,
bridges, walkways, landscaping (including replanting and replacing flowers and
other plantings);
(10) the cost of electricity, fuel, trash and garbage removal, vermin
extermination, and snow, ice and debris removal;
(11) normal maintenance of mechanical and electrical equipment, including
heating, ventilating and air conditioning equipment but excluding capital
expenditures, except as herein provided;
(12) maintenance of elevators, restrooms, lobbies, hallways (including
replacement of carpeting and wall finishes) and other common and public areas
located in the Building;
(13) all costs and expenses, other than those of a capital nature (except
as herein provided), of maintaining, repairing or replacing the roof, common and
public lighting facilities and lamps;
(14) janitorial services, both exterior and interior, including janitor
equipment and supplies for the common and public areas;
(15) all Real Estate Taxes (as defined in Section 3.05 below) and all
personal property taxes and any other types of special assessments in lieu
thereof assessed against Landlord with regard to items of personal property used
in connection with the operation, maintenance and repair of the Building and
Land;
(16) depreciation of capital expenditures for capital items and
improvements to the Common Building Facilities (together with interest on the
undepreciated cost thereof at not more than the "prime rate" that may be from
time to time announced or published by The First National Bank of Atlanta) made
by Landlord after completion of the Building;
(17) rental payments for equipment and other items used in the operation or
maintenance of the Building and Common Building Facilities, whether or not the
cost of such items, if purchased, would be capital expenditures, but excluding
rental payments for any base building items such as HVAC equipment and
elevators;
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(18) costs of repairs, alterations, additional changes, replacements and
other items required by law or governmental regulation imposed after the date of
this Lease, including amortization for capital expenditures for same if they
relate to items or components of the Building which are not structural,
mechanical or electrical in nature;
(19) fees of an independent certified public accounting firm which relate
directly to the preparation and audit of the detailed statement of Operation
Expenses for the Building and Land as hereinafter provided and legal expenses
incurred by Landlord in connection with the maintenance, repair and operation of
the Building and Land;
(20) the pro rata share applicable to the Building of the expenses
(including rental payments, if any, with regard to maintenance equipment) in
connection with the landscaping and irrigation along Windy Ridge Parkway, Windy
Hill Road Extension and any other roads now or hereafter constructed within
Wildwood Office Park, the landscaping and irrigation of the right of way areas
of Powers Ferry Road adjoining Wildwood Office Park, the maintenance and repair
of the gutters and curbways of Windy Ridge Parkway, Windy Hill Road Extension
and such other roads now or hereafter constructed within Wildwood Office Park,
and the maintenance and repair of all non-impervious surfaces and storm drainage
systems within the rights-of-way of said Windy Ridge Parkway, Windy Hill Road
Extension and such other roads. The pro rata share of such expenses shall be
equal to the product obtained by multiplying (i) the total amount of such
expenses (net of reimbursements from any commercial tenants) by (ii) a fraction,
the numerator of which shall be the number of rentable square feet contained in
the Building, and the denominator of which shall be the aggregate number of
rentable square feet contained in all the office buildings located along Windy
Ridge Parkway, Windy Hill Road Extension and any other roads now or hereafter
constructed within Wildwood Office Park, all exclusive of basement areas. In no
event, however, shall. more than forty-five percent (45%) of the total of such
expenses be allocated to the Building;
(21) the cost of security services for the common and public areas of the
Building and Land; and
(22) all other costs and expenses directly related to the Building and
Land, including any reimbursements by Landlord to Tenant for work performed by
Tenant unless specifically excluded hereinafter.
Operating Expenses shall be "net" only, and for that purpose shall be
reduced by the amounts of any reimbursement, refund or credit received or
receivable by Landlord with respect to any item of cost that is included in
Operating Expenses including but not limited to heating, ventilating, air
conditioning and electricity. In the event any such reimbursement, refund or
credit is received or receivable by Landlord in a later year, it shall be
applied against the Operating Expenses for such later year; provided, however,
that, if the term of this Lease has expired, Tenant's Share of such item shall
promptly be refunded by Landlord to Tenant.
B. Items Excluded from Operating Expenses.
---------------------------------------
(1) the cost of any work or service performed for any tenant (including
Tenant) at such tenant's cost;
(2) the cost of installing, operating and maintaining any specialty
service, such as an observatory, broadcasting facility, luncheon club, retail
store, sundry shop, newsstand, concession, but
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only to the extent such costs exceed those which would normally be expected to
be incurred had such space been general office space;
(3) the cost of correcting defects in construction;
(4) salaries of officers and executives of Landlord;
(5) the cost of any work performed or service provided (including
electricity) for any tenant of the Building (other than Tenant) to a materially
greater extent or in a materially more favorable manner than that furnished
generally to the tenants and other occupants (including Tenant), but only to the
extent such costs exceed those which would be incurred if such work or service
were not provided to a materially greater extent or in a materially more
favorable manner;
(6) the cost of any work performed or service provided (including
electricity) for any facility other than the Building, such as a garage, for
which fees are charged, but only to the extent of the fees collected by
Landlord, less administrative expenses incurred in the collection of such fees;
(7) the cost of any items for which Landlord is reimbursed by insurance,
condemnation or otherwise;
(8) the cost of any additions to the Building after the date of the Lease;
(9) the cost of any repair in accordance with Articles 10 and 12 of this
Lease entitled "Fire and Other Casualty - Casualty Insurance" and
"Condemnation";
(10) insurance premiums to the extent Landlord may be reimbursed therefor;
(11) interest on debt or amortization payments on any mortgage and rental
under any ground lease or other underlying lease;
(12) any real estate brokerage commissions or other cost incurred in
procuring tenants or any fee lieu of such commission;
(13) any advertising expenses incurred in connection with the marketing of
any rentable space;
(14) any costs representing an amount paid to any entity related to
Landlord which is in excess of the amount which would have been paid in the
absence of such relationship;
(15) rental payments for base building equipment such as HVAC equipment and
elevators, and rental payments for equipment not used in the operation or
maintenance of the Building or Common Building Facilities;
(16) any expenses for repairs or maintenance which are covered by
warranties and service contracts, to the extent such maintenance and repairs are
made at no cost to Landlord; and
(17) legal expenses arising out of the construction of the improvements on
the Land or the enforcement of the provisions of any lease affecting the Land or
Building including without limitation this Lease, except as herein provided.
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(b) If this Lease shall terminate on a day other than the last day of a
calendar year, the amount of Additional Rent payable pursuant to this Section
3.04 that is applicable to the calendar year in which such termination shall
occur 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. The termination of this Lease will not affect the obligations of
Landlord and Tenant pursuant to Section 3.08 to be performed after such
termination.
Section 3.05. Real Estate Taxes. Landlord shall pay when due all real
-----------------
estate taxes, assessments and other governmental charges which shall be levied
or assessed or which become liens upon the Leased Premises, Building, Building
Parking Area and Land, plus reasonable expenses incurred by Landlord in
contesting such taxes, assessments and charges (hereinafter called "Real Estate
Taxes"), and such Real Estate Taxes shall be included in Operating Expenses as
provided in Section 3.04(a) above.
(a) Real Estate Taxes shall not include (i) income tax, tax on rents or
rentals, excess profits or revenue tax, excise or inheritance tax, gift tax,
franchise tax, capital levy, transfer, estate, succession or other similar tax
or charge that may be payable by or chargeable to Landlord under any present or
future law of the United States or the state in which the Building is located or
imposed by any political or taxing subdivision thereof; (ii) interest or
penalties imposed upon Landlord for late payment of Real Estate Taxes; and (iii)
special assessments for improvements resulting from the expansion of the
Building and Land.
(b) If the Land, Building and improvements are not taxed as a separate and
independent tax lot, Landlord shall make application to the taxing authorities
to obtain a separate and independent assessment tax lot. If the taxing
authorities refuse to do so, the taxes assessed against the said tax lot shall
be equitably apportioned.
(c) The Real Estate Taxes which are includable in Operating Expenses
hereunder shall be the amount of Real Estate Taxes as are finally determined to
be legally payable by legal proceedings or otherwise. If allowed by law Landlord
shall pay Real Estate Taxes in installments.
(d) Any real estate tax incentives or abatements received by Landlord
shall be passed through to Tenant to the extent of Tenant's Share.
Section 3.06. Taxes Payable by Tenant. In addition to Annual Rent and
-----------------------
other charges to be paid by Tenant hereunder, Tenant shall reimburse Landlord
upon demand for any and all taxes due and payable by Landlord (other than income
tax, excess profits or revenue tax, excise or inheritance tax, gift tax,
franchise tax, capital levy, transfer, estate, succession, or other similar tax
or charge) whether or not now customary or within the contemplation of the
parties hereto: (a) upon, measured by or reasonably attributable to the cost or
value of Tenant's equipment, furniture, fixtures and other personal property
located in the Leased Premises or by the cost or value of any improvements made
in or to the Leased Premises by Tenant other than building standard tenant
improvements made by Landlord, regardless of whether title to such improvements
shall be in Tenant or Landlord; (b) upon or measured by the monthly rental
payable hereunder, whether in addition to or in lieu of all or any portion of
Real Estate Taxes; (c) upon or with respect to the possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Leased Premises or any portion thereof; and (d) upon this
transaction or any document to which Tenant (as a tenant) is a party creating or
transferring an interest in the Leased Premises. In the event that it shall not
be lawful for Tenant so to reimburse Landlord, the Annual Rent payable to
Landlord under this Lease shall be revised to net Landlord the same net Annual
Rent after
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imposition of such tax upon Landlord as would have been payable to Landlord
prior to the imposition of any such tax.
Section 3.07. Tax Contest. Landlord agrees to notify Tenant of any changes
-----------
of more than 5% in the assessment for any Real Estate Taxes or any taxes payable
by Tenant to Landlord under Section 3.06 hereof within thirty (30) days after
Landlord receives the bills for such taxes. In the event Tenant requests
Landlord to do so in a timely manner, Landlord shall contest such change in said
assessment or tax rate, and provided that (i) Tenant shall pay and reimburse
Landlord for all costs and expenses incurred in connection with such contest,
including, without limitation, penalties, late charges, interest and other fees
payable in connection with such taxes, (ii) such contest shall operate to
suspend the collection of such taxes, (iii) Landlord shall not be exposed to any
civil or criminal liability as a result of such contest, and (iv) such contest
or any acts taken in connection therewith would not constitute a breach or
default under any security deed, mortgage or other instrument encumbering the
Land or Building or any portion thereof, or to which Landlord may be subject.
Section 3.08. Tenant's Share. (a) The term "Tenant's Share" shall mean
--------------
the percentage (to the nearest 1/100 of 1%) determined by dividing the rentable
square feet in the Leased Premises by 614,543 rentable square feet in the
Building. Tenant's Share shall be adjusted to reflect any change in the rentable
square feet in the Leased Premises or the Building.
(b) Landlord's "Statement" shall mean a statement audited by a firm of
independent certified public accountants designated by Landlord setting forth in
detail the amount of each item included in Operating Expenses for the preceding
calendar year and the computation of any Additional Rent payable under Section
3.04 for such calendar year. The Tenant shall be furnished a copy of such
Statement. If the total of the Additional Rent payments made by Tenant during
the preceding calendar year on account of Operating Expenses pursuant to Section
3.04 is less than Tenant's Share of Operating Expenses for such period as shown
on the Statement, Tenant shall pay the difference within thirty (30) days after
its receipt of such Statement. If the total Additional Rent payments made by
Tenant during the preceding calendar year on account of Operating Expenses
pursuant to Section 3.04 hereof is more than Tenant's Share of such Operating
Expenses for such period as shown on the Statement, Landlord shall pay such
excess to Tenant by check accompanying such Statement, if Tenant is not then in
default under this Lease beyond any applicable grace period.
Landlord shall, at Tenant's request, make available to Tenant for
inspection and examination, all the books and records that relate to such
Statement. However, if the books and records are not made promptly available at
Landlord's offices upon request by Tenant, the Additional Rent due in that year
shall be due and payable thirty (30) days after the Tenant's request is honored.
In the event Tenant shall dispute Landlord's Statement and the parties cannot
resolve their differences within thirty (30) days thereafter, then the matter
shall be referred to arbitration as provided in Article 38. Pending resolution
of any dispute, by agreement, arbitration or otherwise, Tenant may not withhold
payment of so much of the amount claimed as shall be disputed.
(c) If Tenant has not received the Statement by the end of the calendar
year following the calendar year in which the Statement is due from Landlord, it
shall be conclusively presumed that Landlord has waived its claim against Tenant
for Tenant's Share of any additional Operating Expenses that would have been set
forth in such Statement.
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ARTICLE FOUR
PREPARATION FOR OCCUPANCY TERM COMMENCEMENT DATE
Section 4.01. Construction. Landlord has heretofore commenced, and shall
------------
pursue with due diligence and continuity until completion, the construction of
the improvements on the Land to Base Building Condition as provided in the
Workletter attached hereto as Exhibit D. Landlord shall also cause the
improvements within the Leased Premises to be constructed as provided in the
Workletter.
Section 4.02. Rental Commencement Date. (a) The term "Rental Commencement
------------------------
Date" shall mean the later to occur of (i) January 1, 1988, or (ii) the first
day after the date of Substantial Completion and delivery of actual possession
of the Leased Premises to Tenant free of all tenants and occupants. The term
"Substantial Completion" shall mean (except for Punch List Items) the date when:
(1) all of the Base Building Work and Layout Work as such terms are
defined in the Workletter (the "Work") shall have been completed;
(2) all of the Building's sanitary, electrical, heating, ventilating, air
conditioning and other systems, to the extent they serve or run through the
Leased Premises, shall be completed and in good order and operating condition;
(3) Landlord shall have obtained a Certificate of Occupancy (permanent or
temporary) for the portion of the Building that includes the Leased Premises,
permitting use of the Leased Premises and Building Parking Area by Tenant for
purposes set forth in this Lease;
(4) the Common Building Facilities as are required for access to the
Leased Premises shall have been completed;
(5) the exterior walls of the Building (including the installation of
glass therein) shall have been completed and the Building fully enclosed;
(6) the exterior of the Building, sidewalks, streets and plazas adjacent
thereto shall be free of scaffolding, hoists, construction equipment and
materials;
(7) the Building Parking Area shall have been completed; and
(8) Landlord shall have delivered to Tenant written certification from
Landlord's architect that Landlord has met its obligations under clauses (1)
through (7) of this subsection.
Notwithstanding the foregoing, if the Rental Commencement Date is a date
described in clause (ii) of this subsection (a), then the Rental Commencement
Date shall be accelerated by the number of days, if any, that Substantial
Completion is delayed due to (i) delays caused by Tenant or its architects,
engineers or consultants, (ii) delays in the completion of Tenant's leasehold
improvements caused by non-Building Standard items which require a longer lead
time than Building Standard items, and (iii) delays caused by changes made by
Tenant in the Tenant's leasehold improvements or the Design Control Drawings or
the Working Drawings and Specifications therefor, either before or during
construction of such improvements. In no event shall the Rental Commencement
Date be accelerated pursuant to the preceding sentence to a date prior to
January 1, 1988.
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(b) Tenant shall have at least thirty (30) days prior to the Rental
Commencement Date to install its equipment and furnishings and to perform other
such related activity in the Leased Premises preparatory to its occupancy. If
such activities if Tenant can, in Landlord's judgment, be performed without
interference with the Work, Landlord may elect for such. thirty (30) day period
to run concurrently with the prosecution of the Work. Landlord shall notify
Tenant at least forty-five (45) days in advance of Substantial Completion to
permit the Tenant to enter the Leased Premises for the purposes stated herein.
(c) Within sixty (60) days of the Rental Commencement Date or occupancy of
the Leased Premises by Tenant, if later, Landlord shall deliver to Tenant, at
Tenant's expense, one complete set of "as-built" plans (drawn on sepia) and
specifications for the Base Building Work and/or Layout Work.
(d) The rentable area of the Building and each full floor thereof shall be
deemed to be the amounts set forth on Exhibit E attached hereto, and the
rentable area of any partial floor comprising a part of the Leased Premises
shall be computed whenever required pursuant to this Lease in accordance with
Exhibit E with appropriate prorations and adjustments.
Section 4.03. Punch List Items. (a) The term "Punch List Items" shall mean
----------------
details of construction, decoration and mechanical and electrical adjustment
which, in the aggregate, are minor in character and do not materially interfere
with Tenant's use or enjoyment of the Leased Premises, Building Parking Area or
the Common Building Facilities. Punch List Items shall be completed as promptly
as practicable under the circumstances after Substantial Completion. If Landlord
has obtained a temporary Certificate of Occupancy, Landlord shall, with due
diligence, complete the remaining work required to obtain, and shall thereupon
obtain, a permanent Certificate of Occupancy for the Leased Premises.
(b) After entering into occupancy of any part of the Leased Premises
Tenant shall, with reasonable promptness, bring to Landlord's attention any
deficiencies in construction which come to Tenant's attention, and Landlord
shall promptly correct the same at Landlord's expense.
Section 4.04. Excusable Delays. The term "Excusable Delays" as used in
----------------
this Article shall mean any delay due to strikes, lockouts or other labor or
industrial disturbance, civil disturbance, future order of any government, court
or regulatory body claiming jurisdiction, act of the public enemy, war, riot,
sabotage, blockade, embargo, failure or inability to secure materials, supplies
or labor through ordinary sources by reason of shortages or priority or similar
regulation or order of any government or regulatory body, lightning, earthquake,
fire, storm, hurricane, tornado, flood, washout, and explosion. An Excusable
Delay shall be deemed to exist only so long as Landlord promptly and
specifically notifies Tenant in writing of such delay and exercises due
diligence to remove or overcome it.
Section 4.05. Tenant's Rights. Notwithstanding the foregoing or Article 24
---------------
to the contrary, if for any reason other than delays which are caused by Tenant
which adversely affect the Schedule set forth in the Workletter, Landlord has
not substantially completed the Base Building Work and/or the Layout Work and
delivered actual possession of the Leased Premises to Tenant on or before April
1, 1988, Tenant may, by written notice to Landlord, complete the Work and deduct
the cost thereof from the Annual Rent and Additional Rent due and to become due
under this Lease or terminate this Lease effective as of the date of such notice
and such date shall be considered the expiration date.
Section 4.06. Tenant Allowance. Landlord shall furnish Tenant with a one
----------------
time allowance for the construction of the leasehold improvements desired by
Tenant in the amount equal to the product of
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_______________________________. All costs and expenses of constructing and
installing the improvements desired by Tenant in the Leased Premises not
included with or covered by the Base Building Work or the allowance set forth
herein shall be the sole responsibility of Tenant, and shall be paid by Tenant
to Landlord as provided in the Workletter.
ARTICLE FIVE
LANDLORD'S TITLE AND ALLOWABLE USE
Section 5.01. Landlord's Covenant Regarding Title and Use. Landlord
-------------------------------------------
covenants as a condition of this Lease that Landlord has good marketable fee
title to the Building, Land and Building Parking Area and the right to make this
Lease for the term aforesaid; that the provisions of this Lease do not or will
not conflict with or violate the provisions of existing or future. agreements
between Landlord and third parties, that the Certificate of Occupancy for the
Building allows or will allow Tenant to use the Leased Premises for office
purposes; that the Leased Premises and Building Parking Area and the office uses
thereof for the purposes specified in this Lease are in conformity with all
applicable legal requirements including, without limitation, zoning and planning
ordinances, and environmental matters and do not violate applicable
restrictions, if any; and that it will deliver the Leased Premises to Tenant
free of all tenants and occupants.
Section 5.02. Landlord's Covenant Regarding Lawsuits. Landlord covenants
--------------------------------------
that as of the date hereof there are no claims, causes of action, lawsuits, or
judgments against the Building and Land which affect title, zoning or
environmental matters. In the event any such lawsuit is filed against the
Building and Land, Landlord shall notify Tenant within fifteen (15) days of
obtaining knowledge thereof.
ARTICLE SIX
SERVICES
Section 6.01. Services Provided by Landlord. (a) Landlord shall furnish to
-----------------------------
Tenant the following services, utilities, supplies and facilities, the cost of
which, except where expressly prescribed to be paid by Tenant, shall be included
within Operating Expenses:
(1) Access to the Leased Premises twenty-four (24) hours a day, seven (7)
days a week.
(2) Passenger elevator service twenty-four (24) hours a day, seven (7)
days a week and non-exclusive freight elevator service during normal business
hours and at other times as required by Tenant upon reasonable prior notice.
(3) Subject to curtailment as required by governmental laws, rules or
mandatory regulations, heat, ventilation and air conditioning in accordance with
Exhibit F, attached hereto, on Tenant's business days from 8:00 a.m. to 6:00
p.m. and on Saturdays from 8:00 a.m. to 1:00 p.m. and, at Tenant's request, at
all other times as hereinafter provided in this Article. Landlord hereby
represents that the Building's heating, ventilating and air conditioning systems
(hereinafter referred to as "HVAC") have the capacity, flexibility and ability
to maintain the design conditions specified in Exhibit F throughout the Leased
Premises and Common Building Facilities.
Landlord shall furnish HVAC beyond the above stated hours, provided that
notice requesting such service is delivered to Landlord before noon on the
business day when such service is required for
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that evening, and by noon of the preceding business day when such service is
required on a Saturday, Sunday or holiday. Landlord's Cost of supplying this
additional service shall be paid by Tenant or, alternatively, shall be shared
proportionately between Tenant and other tenants, if any, located in the same
HVAC zone who have requested and are receiving the benefit of such service at
the same time as Tenant. This service shall be furnished at "Landlord's Cost"
which shall mean the actual labor and utilities costs without a markup of any
kind. Landlord shall bill Tenant on or before the last day of the month
following the month in which such charges are incurred, and shall submit with
its invoice a tabulation of the hours and the dates on which the overtime HVAC
was furnished. Tenant shall reimburse Landlord therefor within thirty (30) days
after receipt of the invoice and such other data supporting the charges as
Tenant may reasonably request. If Landlord has not billed Tenant for such
charges within three months after the end of the lease year in which Landlord
claims the charges accrued, Landlord shall be conclusively presumed to have
waived such charges.
(4) Cleaning and janitorial services, in the Leased Premises, Common
Building Facilities and the Building Parking Area, including removal of refuse
and rubbish and furnishing and installation of washroom supplies in accordance
with Exhibit G.
(5) Hot and cold running potable water adequate for Tenant's purposes.
(6) Electricity for lighting and for operation of standard office
machines, appliances and equipment, and, in the event Tenant desires to install
major office machines, appliances or equipment such as main frame computers,
additional HVAC units, etc., the same shall be separately metered and Tenant
shall reimburse and pay Landlord from time to time within thirty (30) days after
receipt of a statement from Landlord, for all reasonable costs and expenses
actually incurred by Landlord in connection with such metering and the operation
of such machines, appliances and equipment.
(7) Provision, installation and replacement of light bulbs, tubes and
ballasts in the Leased Premises, Common Building Facilities and Building Parking
Area.
(8) Removal of ice and snow from the Common Building Facilities and
Building Parking Area.
(9) Vermin extermination.
(10) Facilities for Tenant's loading, unloading delivery and pick-up
activity, including access thereto twenty-four (24) hours a day, seven (7) days
week.
(11) Security for the Building and Building Parking Area which is
comparable to the security provided by landlords in other first class office
buildings in the North Atlanta office market; provided Landlord shall have no
responsibility to prevent, and shall not be liable to Tenant for losses due to
theft, burglary, or damage or injury to persons or property caused by persons
gaining access to the Leased Premises, and Tenant hereby releases Landlord from
all liability for such losses, damages or injury except as may be caused by the
gross negligence or willful misconduct of Landlord.
In the event the level or amount of the services provided by Landlord to
Tenant under subsections (a)(5), (a)(6) and/or (a)(11) shall, as a result of the
conduct of Tenant's business in the Leased Premises beyond the hours stated in
subsection (a)(3) above, exceed the level or amount of such services which is
comparable to the level or amount of such services provided by landlords in
other first class office buildings in the North Atlanta office market, Tenant
shall be responsible for the excess costs
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thereof and Landlord shall have the right to either (i) add such excess costs to
Tenant's Share of Operating Expenses, or (ii) bill Tenant separately for such
excess costs. In the event Landlord elects to bill Tenant for such excess costs,
Tenant shall reimburse Landlord therefor within thirty (30) days after receipt
of the invoice and such other supporting data as Tenant may reasonably request.
Section 6.02. Security to Leased Premises. Landlord shall not be required
---------------------------
to furnish security services to the Leased Premises, Tenant hereby assuming full
and sole responsibility for the supply of such services in the event Tenant
desires same.
Section 6.03. Landlord's Default - Tenant's Remedies. (a) After notice to
--------------------------------------
Landlord of a default in furnishing or paying for any utilities, services or
facilities to be furnished Tenant hereunder and failure or Landlord to cure such
default within a reasonable time specified by Tenant in the notice, Tenant may
cure such default and invoice Landlord therefore and Landlord shall reimburse
Tenant within thirty (30) days after receipt of the invoice.
(b) If the cleaning and janitor service is performed in accordance with
Exhibit G in the Leased Premises, Tenant may notify Landlord and Landlord shall
have thirty (30) days thereafter to improve this service to Tenant's reasonable
satisfaction. If Landlord fails do so, Tenant may, after fifteen (15) days
advance notice to Landlord, provide its own cleaning and janitorial service and
without adjustment to the Annual Rent and Additional Rent due and to become due
hereunder, except that the amount of cleaning and janitorial expenses included
in the Operating Expenses shall be equitably adjusted so that Tenant will not be
required to pay Tenant's Share of the cost of cleaning other tenants' space.
(c) If Landlord, in good faith, disputes any default claimed by Tenant
pursuant to this Article, within thirty (30) days after receiving Tenant's
notice or Tenant's invoice Landlord may submit such dispute to arbitration in
accordance with Article 33.
ARTICLE SEVEN
TENANT'S PARKING
Section 7.01. Tenant's Parking. (a) At all times during the term of this
----------------
Lease, without charge to Tenant, Landlord shall provide for the non-exclusive
use of the Tenant and its employees and invitees, a Building Parking Area to
accommodate a minimum of 3.5 parking spaces per 1,000 square feet of usable area
in the Building. The Building Parking Area shall be available for use twenty-
four (24) hours a day, every day of the year and shall be illuminated at all
times, and Landlord shall keep and maintain the Building Parking Area in a clean
condition.
(b) If Tenant, its employees, licensees or guests are not able to use the
Building Parking Area because of unauthorized use thereof, Landlord shall take
whatever steps are deemed reasonably necessary by Landlord including, if
appropriate, the posting of signs, the distribution of parking stickers and the
towing away of unauthorized vehicles, to end and prevent further unauthorized
use.
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ARTICLE EIGHT
USE
Section 8.01. Use. (a) Tenant shall have the right to use the Leased
---
Premises for offices, sales, display, storage, service, repair and use of
Tenant's products and equipment, engineering, education and training of Tenant's
customers and employees, and all other uses incidental and related thereto and.,
without limitation, for other lawful business and commercial purposes; all such
non-office uses shall be permitted to the extent (and only to the extent) the
same are permitted under the existing zoning ordinance or classification
affecting the Building and Land, a copy of which has been delivered by Landlord
to Tenant. Landlord represents that the Land is currently zoned "OI" (office
and institutional) under the zoning ordinance of Cobb County, Georgia.
(b) To the extent any of the non-office uses set forth in subsection (a)
above or any other special uses lawfully permitted (i) are set forth in Tenant's
Plans and (ii) require a specific Certificate of Occupancy, or a special entry
on the general Certificate of Occupancy for the Building, Tenant shall obtain
the same. Tenant shall also be responsible for obtaining any special health,
safety or other governmental permit, approval or license required in connection
with any such specific use. If, after completion of the Layout Work, Tenant
shall institute a special use of the Leased Premises which requires an amendment
to the existing Certificate of Occupancy, Tenant shall be responsible for
obtaining the same as well as any other governmental permit, approval or license
required by applicable law. Landlord shall cooperate with Tenant and shall
execute all applications, authorizations and other instruments reasonably
required to enable Tenant to fulfill its responsibilities under this subsection.
ARTICLE NINE
REPAIRS AND MAINTENANCE
Section 9.01. Landlord's Repairs. Landlord shall perform all maintenance
------------------
and make all repairs and replacements to the Leased Premises, Leased Premises
Service Systems, Building, Building Service Systems, Building Parking Area, and
Common Building Facilities not specifically imposed upon Tenant by the
provisions hereof and not due to the willful act or negligence of Tenant, its
agents, contractors, employees, invitees and licensees. Without limiting the
generality of the foregoing sentence or the following, Landlord shall maintain,
repair and replace, as necessary, and keep in good order, safe and clean
condition (1) the plumbing, sprinkler, HVAC, electrical and mechanical lines and
equipment associated therewith, elevators and boilers, broken or damaged glass
and damage by vandals; (2) underground utility lines, tanks and transformers and
interior and exterior structure of the Building, the roof, exterior walls,
bearing walls, support beams, foundation, columns, exterior doors and windows;
(3) the interior walls, ceilings, floors and floor coverings (including carpets
and tiles) of the Common Building Facilities; (4) the improvements to the Land,
including ditches, shrubbery, landscaping and fencing, and (5) the Common
Building Facilities located within or outside the Building, including the common
entrances, corridors, doors and windows, loading dock, stairways and lavatory
facilities and the Building Parking Area and access ways therefor. The Landlord
shall perform all repairs and restoration required of Landlord by Article 10
"Casualty" and Article 12 "Condemnation".
Section 9.02. Tenant's Repairs. Tenant shall at all times during the term
----------------
of this Lease and at Tenant's sole cost and expense, keep the Leased Premises
and every part thereof in good condition and repair, except for ordinary wear
and tear, damage by fire or other casualty and damage caused by others for whom
Tenant is not responsible. Tenant shall also repair and replace any and all
damage to the
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Leased Premises, Leased Premises Service Systems, the Building, Building Service
Systems, Building Parking Area and Common Building Facilities, caused by the
willful acts or negligence of Tenant, its agents, contractors, employees,
invitees and licensees.
Section 9.03. Landlord's Failure to Make Repairs Tenant covenants and
-----------------------------------
agrees to notify Landlord of any necessary repairs or replacements which are
required to be made by Landlord under this Article. If Landlord fails to make
any repairs or replacements, which it is required to make under Section 9.01
within a reasonable period of time after notice by Tenant of each failure to
make such repairs or replacements, Tenant may do so.
Section 9.04. Emergency Repairs. If by reason of emergency, repairs or
------------------
replacements become necessary which by the terms hereof are the responsibility
of Landlord, Tenant may make such repairs or replacements which, in the opinion
of Tenant, are necessary for the preservation of the Leased Premises, or for the
safety or health of the occupants therein or in the Building, or of Tenant's
property; provided, however, that Tenant shall first make a reasonable effort to
inform Landlord before proceeding with such repairs or replacements.
Section 9.05. Tenant's Remedies. In the event Tenant makes any repairs or
------------------
replacements which are required to be made by Landlord hereunder after the
failure of Landlord to do so as provided herein, Tenant shall submit an invoice
to Landlord therefor and Landlord shall reimburse Tenant within thirty (30) days
following receipt of an invoice and data supporting the sum requested.
If Landlord, in good faith, disputes any default claimed by Tenant pursuant
to this Article, within thirty (30) days after receiving Tenant's notice or
invoice, Landlord may submit such dispute to arbitration in accordance with
Article 33.
ARTICLE TEN
FIRE AND OTHER CASUALTY - CASUALTY INSURANCE
Section 10.01. Damage or Destruction. (a) If any portion of the Leased
----------------------
Premises, Leased Premises Service Systems, such of the Building Service Systems
as serve the Leased Premises, Building Parking Area or Common Building
Facilities (hereinafter collectively referred to as the "damaged property") is
damaged by fire or other casualty, earthquake or flood or by any other insurable
cause of any kind or nature and the damaged property can, in the opinion of
Landlord's architect, be repaired within one hundred eighty (180) days from the
date of the damage, Landlord shall proceed immediately to make such repairs as
required by paragraph (d). This Lease shall not terminate, but Tenant shall be
entitled to a proportionate abatement of Annual Rent and Additional Rent payable
during the period commencing on the date of the damage and ending on the date
the damaged property is repaired as aforesaid and the Leased Premises are
delivered to Tenant. The extent of rental abatement shall be based upon the
portion of the Leased Premises rendered untenantable, unfit or inaccessible for
use by Tenant for the purposes stated in the Lease during such period. When
required by this Article, the architect's opinion shall be delivered to Tenant
within thirty (30) days from the date of damage.
(b) If (1) in the opinion of Landlord's architect, damage to the damaged
property cannot be repaired within one hundred eighty (180) days from the date
of the damage, or (2) Landlord commences but fails to substantially complete
repair of the damaged property as required by paragraph (d) within the one
hundred eighty (180) day period after commencement thereof, subject to an
extension of time allowed for an Excusable Delay, either party may terminate
this Lease by notice to the other within
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twenty (20) days from the date on which the architect's opinion is delivered to
Tenant when termination is based on the architect's opinion, and otherwise by
such notice within twenty (20) days from the end of the (180) day period, as it
may have been extended by an Excusable Delay. Annual Rent and Additional Rent
shall be apportioned as of the date of the damage and all prepaid Annual Rent
and Additional Rent shall be repaid.
(c) If, in the opinion of Landlord's architect, damage to the damaged
property cannot be repaired within sixty (60) days from the date of the damage
and such damage shall occur within the final twelve (12) months of the term of
this Lease, either party may terminate this Lease by notice to the other within
twenty (20) days from the date on which the architect's opinion is delivered to
Tenant; provided, however, Landlord's termination shall be rendered ineffective
and this Lease shall be reinstated and in full force and effect if within ten
(10) days after Tenant's receipt of such notice of termination, Tenant shall
exercise any option to extend the term of this Lease set forth in this Lease.
(d) If neither party exercises its option to terminate hereunder Landlord
shall, with due diligence, repair the damaged property as a complete
architectural unit of substantially the same proportionate usefulness, design
and construction existing immediately prior to the date of the damage. Tenant
shall be entitled to a proportionate abatement of Annual Rent and Additional
Rent in the manner and to the extent provided in paragraph (a).
(e) Notwithstanding provisions of this Article or Article 24 to the
contrary, if by operation of this Article Landlord undertakes but fails to
repair the damaged property as required by the provisions of this Article and
deliver the Leased Premises to the Tenant within two hundred seventy (270) days
from the date of the damage, for any reason other than a delay caused by an act
or omission of Tenant, either party may terminate this Lease by notice to the
other within two hundred eighty (280) days from the date of the damage. In such
event, this Lease and the term hereof shall terminate on the date specified in
the notice and Annual Rent and Additional Rent shall be apportioned as of the
date of the damage and all prepaid Annual Rent and Additional Rent shall be
repaid.
(f) Landlord and Tenant hereby covenant and agree that in the event of
loss, damage or destruction, and, as a consequence, Landlord is hereby required
to repair and restore the Leased Premises, such obligation to repair and restore
shall be limited to the proceeds received by Landlord under the policies of
insurance provided by the Landlord, and such proceeds shall be applied to repair
and reconstruct the damaged property to the extent required by this Lease,
subject to any election of Landlord or Tenant to terminate the Lease as herein
provided and subject to the provisions of any then existing mortgage or Deed to
Secure Debt on the Leased Premises, Building or Land, or any portion thereof.
Section 10.02 Casualty and Liability Insurance. (a) Landlord shall, from
---------------------------------
and after the date hereof, maintain All Risk insurance covering the Building,
Building Parking Area (if applicable) and Landlord's property in the Leased
Premises against loss, damage, or destruction. Such coverage shall equal at
least one hundred percent (100%) of the replacement cost of the Building,
Building Parking Area and Landlord's property in the Leased Premises, exclusive
of architectural and engineering fees, excavation, footings and foundations.
(b) Landlord shall also, from and after the date hereof, maintain general
public liability and property damage insurance in the minimum amounts of Five
Million and No/100 Dollars ($5,000,000.00) in connection with any single
occurrence of bodily injury or death and Five Hundred Thousand and No/100
Dollars ($500,000.00) in connection with claims for property damage.
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(c) Tenant shall from and after the date Tenant (as tenant) commences any
activities whatsoever in the Leased Premises, whether before or after the Rental
Commencement Date, maintain insurance covering the personal property and
leasehold improvements paid for by Tenant in the Leased Premises against loss,
damage or destruction caused by boiler explosion or machinery breakdown, fire
and the perils specified in the standard extended coverage endorsement, by
vandalism and malicious mischief, and by sprinkler, gas, water, steam and sewer
leakage. Fire and extended coverage shall equal actual cash value less any
deductible.
(d) Landlord and Tenant each hereby waives its respective right of
recovery against the other and each releases the other from any claim arising
out of loss, damage or destruction to the Building, Building Service Systems,
Leased Premises, Leased Premises Service Systems, Building Parking Area, or
contents thereon or therein, whether or not such loss, damage or destruction may
be attributable to the negligence of either party or its respective agent,
visitor, contractor, servant or employee. Each policy shall include a waiver of
the insurer's rights of subrogation against the party hereto who is not an
insured under said policy.
(e) Tenant shall maintain general public liability and property damage
insurance covering the legal liability of Landlord and Tenant against all claims
for any bodily injury or death of persons and for damage to or destruction to
property occurring on, in or about the Leased Premises and arising out of the
use or occupation of the Leased Premises by Tenant in the minimum amounts of
Five Million and No/100 Dollars ($5,000,000.00) in connection with any single
occurrence of bodily injury or death and Five Hundred Thousand and No/100
Dollars ($500,000.00) in connection with claims for property damage. Such policy
shall provide that it may not be cancelled or materially changed without at
least thirty (30) days' prior written notice to each named insured.
(f) All insurance required hereunder shall be written by companies of
recognized financial standing which are authorized to do insurance business in
the State of Georgia. Tenant shall deliver to Landlord a Certificate of
Insurance showing Landlord as a named insured under the general public liability
and property damage insurance policy.
(g) The minimum limits of liability of any insurance required in specific
dollar amounts under this Section 10.02 shall automatically increase on every
five (5) year anniversary of the Rental Commencement Date to the amount equal to
the applicable dollar amount specified herein multiplied by a fraction, the
numerator of which is the CPI (as herein defined) for the month preceding the
applicable anniversary date and the denominator of which is the CPI for the
month preceding the Rental Commencement Date. As used herein, the term "CPI"
shall mean the Consumer Price Index (all items; Urban Wage Earners and Clinical
Workers, Atlanta, Georgia SMSA; Base Year 1967-100) as published by the United
States Bureau of Labor Statistics. In the event the Bureau of Labor Statistics
changes the current base year (1967-100) or ceases to publish a Consumer Price
Index using such base year, then the numerator specified above shall be changed
to reflect what that number would have been if the base year had not changed or
ceased to be published. In the event the United States Bureau of Labor
Statistics or any successor government agency discontinues the publication of
the Consumer Price Index, then such dollar amounts shall be adjusted on the
basis of such nearly comparable data as is then available and regularly
published by a recognized financial or governmental authority or institution
designated by Landlord and approved by Tenant, each acting reasonably and in
good faith.
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ARTICLE ELEVEN
LIABILITY
Section 11.01. Indemnification by Tenant. Subject to the provisions of
--------------------------
Section 10.02(d), Tenant hereby indemnifies and agrees to hold Landlord harmless
from and against any and all loss, cost, damage or expense (including, without
limitation, all attorneys' fees and costs of litigation) ever suffered or
incurred by Landlord arising out of Tenant's use and occupancy of the Leased
Premises, Building and Land based upon, arising from or connected in any manner
with (a) injury to or the death of any person or damage to any property
occurring on the Leased Premises, (b) the use, possession, operation or
occupation of the Leased Premises or any part thereof, (c) any negligence on the
part of Tenant or its employees, agents, contractors, servants, licensees, or
invitees, and (d) the violation by Tenant of any term, condition or covenant of
this Lease or of any restriction or regulation affecting the Leased Premises or
any part thereof.
Section 11.02. Indemnification by Landlord. Subject to the provisions of
----------------------------
Section 10.02(d), Landlord hereby indemnifies and agrees to hold Tenant harmless
from and against any and all loss, cost, damage or expense (including, without
limitation, all attorneys' fees and costs of litigation) ever suffered or
incurred by Tenant arising out of any act or omission. of Landlord or its
tenants (excluding Tenant), agents, employees, contractors or servants,
occurring in the Common Building Facilities and the Building Parking Area during
the term of this Lease, but only to the extent of the proceeds of insurance
actually received from Landlord's comprehensive general liability insurance with
respect to the Building and Land.
ARTICLE TWELVE
CONDEMNATION
Section 12.01. Taking - Termination of Lease. If at any time during the
-----------------------------
term of the Lease the whole of the Building shall be taken for any public or
quasi-public use, under any statute, or by right of eminent domain, except as
provided in Section 12.03, this Lease shall terminate on the date of such
taking. If less than all of the Building shall be so taken and in Tenant's
reasonable opinion the remaining part is insufficient for the conduct of
Tenant's business Tenant or Landlord may, by notice to the other within sixty
(60) days after notice of such taking, terminate this Lease. If this lease is so
terminated, this Lease and the term hereof shall end on the date that the
condemning authority actually takes possession of the part condemned and the
Annual Rent and Additional Rent shall be apportioned and paid to the date of
such taking.
Section 12.02. Taking - Lease Continues. If less than all of the Leased
-------------------------
Premises shall be taken and, in Tenant's reasonable opinion communicated by
notice to Landlord within sixty (60) days after notice of such taking, Tenant is
able to gain access to and continue the conduct of its business in the part not
taken, this Lease shall remain unaffected, except that Tenant shall be entitled
to a pro rata abatement of Annual Rent and Additional Rent based on the
proportion which the area of the Leased Premises so taken bears to the area of
the space demised hereunder immediately prior to such taking.
Section 12.03. Temporary Taking. If the use and occupancy of the whole or
----------------
any part of the Leased Premises is temporarily taken for a public or quasi-
public use for a period in excess of four (4) months but less than the balance
of the term, at Tenant's or Landlord's option to be exercised in writing and
delivered to the other not later than sixty (60) days after the date Tenant is
notified of such taking,
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this Lease and the term hereby granted shall terminate on the date of such
taking. If this Lease remains in effect Tenant shall be entitled to a
proportionate abatement of Annual Rent and Additional Rent in the manner and to
the extent provided in Section 12.02 or, at its option, receive that portion of
the award for such taking which represents compensation for the value of
Tenant's leasehold estate and the term demised hereunder, in which case Tenant
shall continue to pay in full the Annual Rent and Additional Rent when due.
Section 12.04. Landlord's Award. Landlord shall be entitled to receive the
-----------------
entire award or awards in any condemnation proceeding without deduction
therefrom for any estate vested in Tenant and Tenant shall receive no part of
such award or awards from Landlord or in the proceedings except as otherwise
expressly provided in this Article. Subject to the foregoing, Tenant hereby
assigns to Landlord any and all of its right, title and interest in or to such
award or awards or any part thereof.
Section 12.05. Tenant's Award. In the event of a taking hereunder, Tenant
---------------
shall be entitled to appear, claim, prove and receive in the condemnation
proceeding (1) the unamortized value over the term of this Lease of the
improvements and alterations to the Leased Premises, depreciated from the date
of installation thereof to the date of taking, provided the same shall have been
installed by and at Tenant's expense but regardless of whether the improvements
and alterations might be considered a part of the Leased Premises or shall be or
become the property of Landlord under the terms of this Lease; (2) the value of
Tenant's fixtures; (3) the cost of relocation and (4) special awards or
allowances provided by law to tenants in the event their rental space is taken
by eminent domain.
Section 12.06. Restoration by Landlord. If there is a taking hereunder and
------------------------
this Lease is continued, Landlord shall, at its expense, proceed with reasonable
diligence to repair, alter and restore the Building as a complete architectural
unit of substantially the same proportionate usefulness, design and construction
existing immediately prior to the date of taking.
Section 12.07. Definitions. Taking by condemnation or eminent domain
------------
hereunder shall include the exercise of any similar governmental power and any
sale, transfer or other disposition of the Building or Land in lieu or under
threat of condemnation. The term "Building", as used in this Article, shall
include the Leased Premises and Building Parking Area, Common Building
Facilities and access ways thereto.
ARTICLE THIRTEEN
ALTERATIONS AND IMPROVEMENTS
Section 13.01. Alterations and Improvements. (a) Tenant may place
-----------------------------
partitions, trade or other fixtures (including lighting fixtures), personal
property, machinery, equipment and the like in the Leased Premises and may make
alterations and improvements to the Leased Premises Services Systems and such
non-structural improvements and alterations in the interior of the Leased
Premises thereof as it may desire at its own expense.
(b) Tenant may make alterations and improvements to the Building Service
Systems and structural alterations and improvements in the Leased Premises only
with Landlord's consent, which consent may be withheld for any reason. Tenant
shall be responsible for obtaining any permits with regard to any such
alteration and improvements made by Tenant pursuant to this Section 13.01.
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Section 13.02. Ownership of Tenant's Alterations and Improvements. All
---------------------------------------------------
partitions, trade or other fixtures (including lighting fixtures), personal
property, machinery, equipment and structural and non-structural alterations and
improvements paid for by Tenant prior to or during the term shall remain the
property of Tenant during the term of this Lease.
Section 13.03. Removal. Provided Tenant is not in default hereunder,
--------
Tenant may remove all or any of its removable partitions, trade fixtures,
personal property, and unattached, removable machinery and equipment upon the
expiration or earlier termination of this Lease, or at its option, Tenant may
abandon the same, in whole or in part, to Landlord at the expiration or earlier
termination of the term by vacating the Leased Premises without removing the
same. In the event of the removal of such things or any of them, Tenant shall
not be required to remove pipes, wires and the like from the walls, ceilings or
floors, provided Tenant properly cuts, disconnects and caps such pipes and wires
and seals them off, if necessary, in a safe and lawful manner.
Section 13.04. Landlord's Approval. (a) In the event Landlord does consent
--------------------
to structural alterations and structural improvements to the Leased Premises
and/or the Building Service Systems, Landlord shall have the right to approve
Tenant's plans and specifications and a list of Tenant's proposed contractors
for structural alterations and structural improvements to the Leased Premises
and to the Building Service Systems.
(b) Tenant shall make a request for approval hereunder by submission of a
list of proposed contractors and plans and specifications for the work to be
performed by Tenant under this Section and Section 13.01(b). Landlord shall
respond within five (5) business days from receipt of the same, approving those
contractors and those portions of the work that are acceptable and disapproving
those contractors and portions of the work that are, in Landlord's judgment,
reasonably exercised, unacceptable and with respect to the plans, specifying in
detail the nature of Landlord's objection. Failure of Landlord to respond as
aforesaid shall be tantamount to approval of such contractors and plans and
specifications and Tenant's request in all requests.
Section 13.05. Definitions. (a) The term "Leased Premises Services
-----------
Systems" shall mean the electrical, HVAC, plumbing and telecommunication
(voice/data/signal) systems that directly service the Leased Premises from a
localized point of distribution. Such systems are dedicated to the Leased
Premises at their available capacities and do not service any space other than
the Leased Premises.
(b) The term "Building Service Systems" shall mean the electrical, HVAC,
plumbing and telecommunication (voice/data/signal) systems that service the
Building up to the point of localized distribution serving the Leased Premises
only. Such systems provide the main source of supply and distribution throughout
the Building.
(c) The term "structural" shall mean such as affect bearing walls, support
beams, foundations and columns.
Section 13.06. Landlord's Alterations and Improvements. Unless required by
---------------------------------------
law, Landlord shall not, without Tenant's consent which shall not be
unreasonably withheld or delayed, at any time during the term of this Lease make
any substantial addition to the Building or alteration to the external
appearance thereof.
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ARTICLE FOURTEEN
LANDLORD'S ACCESS
Section 14.01. Landlord's Access. (a) Landlord shall, upon advance oral
------------------
notice to Tenant (except in an emergency), have the right at all reasonable
times during Tenant's business hours to inspect the Leased Premises and show the
same to prospective mortgagees and purchasers and to prospective tenants during
the last twelve (12) months of the term and, at all times to make repairs or
replacements as required by this Lease or as may be necessary; provided,
however, that Landlord shall use all reasonable efforts not to disturb Tenant's
use and occupancy of the Leased Premises.
(b) Landlord shall have the right to enter the Leased Premises after
Tenant's business hours to perform cleaning and janitorial services.
(c) Landlord shall have the right to enter the Leased Premises in
emergencies.
(d) Tenant may designate one or more areas in the Leased Premises as
secure areas, and Landlord shall have no access thereto without being
accompanied by a designated representative of Tenant except in the case of
emergencies.
ARTICLE FIFTEEN
COMPLIANCE WITH LAWS
Section 15.01. Tenant's Compliance with Laws. Tenant shall comply with all
-----------------------------
laws, rules, ordinances, orders and regulations of any federal, state and local
authority which are applicable to Tenant's use and operation of the Leased
Premises. Nothing herein contained shall be deemed to impose any obligation upon
Tenant to make any structural alterations, improvements or repairs to the Leased
Premises.
Section 15.02. Landlord's Compliance with Laws. (a) Landlord shall comply
--------------------------------
with all rules, regulations, orders, laws, ordinances, and legal requirements
and standard issued thereunder which affect (1) the Leased Premises, the
Building, the Land and the Building Parking Area, Common Building Facilities and
Building; (2) the design, construction and operation of the Building (including
the Leased Premises); or (3) which relate to the performance by Landlord of any
duties or obligations to be performed by Landlord under this Lease. Without
limiting the foregoing, Landlord shall comply or cause the Building to comply
with all energy conservation, environmental, and fire safety and health laws,
regulations and codes.
(b) All boilers and other pressure vessel equipment shall be constructed
and maintained by Landlord in accordance with the ASME Standards and Code.
(c) Landlord shall regularly inspect and maintain the HVAC system and
treat the cooling tower water with EPA registered chemicals to prevent the
buildup of slime, algae and bacteria following the latest recommendations of the
Center for Disease Control or current practices of the American Society of
Heating, Refrigeration and Air Conditioning Engineers.
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ARTICLE SIXTEEN
SURRENDER OF POSSESSION OF THE LEASED PREMISES
Subject to Section 13.03, at the expiration or earlier termination of the
term of this Lease, Tenant will (a) peaceably yield up to Landlord the Leased
Premises in good order and condition, excepting ordinary wear and tear and (b)
repair all damage to the Leased Premises and to the Building caused by Tenant's
removal of its property.
ARTICLE SEVENTEEN
SIGNS
Section 17.01. Tenant's Signs. Tenant may place its signs on the entrance
---------------
doors to the Leased Premises and on floors wholly leased by Tenant, provided the
same comply with Landlord's graphic specifications.
Section 17.02. Directory. Landlord at its own cost and expense shall place
----------
a directory in the Building lobby and shall cause Tenant's name and the name of
each division, subsidiary or affiliate thereof occupying space in the Building
to be affixed thereto or included therein.
Section 17.03. Building Sign. (a) If Tenant shall lease and occupy fifty-
--------------
one percent (51%) or mote of the rentable area in the Building, it shall have
the exclusive right to place one (1) identification sign on the Land, provided
that such sign shall comply in all respects with the criteria established by
Landlord.
(b) If Tenant occupies fifty-one percent (51%) or more of the rentable
area of the Building, Tenant shall have the right to cause Landlord to name the
Building the "IBM Building" or such derivation thereof as may be reasonably
determined by Tenant.
(c) If Tenant occupies fifty-one percent (51%) or more of the rentable
area of the Building and if at any time after the execution of this Lease
Landlord changes the name of the Building or the exterior signs affixed to the
Building or the Land, Landlord shall notify Tenant at least sixty (60) days
prior to the date of such a change. If the proposed new name or signs identify
or may be associated with a competitor of Tenant and Landlord denies Tenant's
written request, made within thirty (30) days after notification of the proposed
change, not to use the proposed name or install the new sign, Tenant may, at its
option exercised by notice to Landlord within ninety (90) days from the date the
proposed name is adopted or the sign is installed, terminate this Lease. In such
event, the term hereof shall end on the date specified in Tenant's notice.
Annual Rent and Additional Rent shall be apportioned and paid to the date of
termination and Tenant shall have no further liability to Landlord arising out
of this Lease. It is understood and agreed that Tenant's rights and Landlord's
obligations under Section 17.03 shall be effective only if and so long as
International Business Machines Corporation is the "Tenant" under this Lease and
occupies at least 51% of the rentable area of the Building.
Section 17.04. Compliance with Code. All signs installed by Landlord and
----------------
Tenant shall be in compliance with applicable code and shall be installed in a
good and workmanlike manner.
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ARTICLE EIGHTEEN
SUBORDINATION AND NON-DISTURBANCE
This Lease shall be subordinate and subject to all ground and underlying
leases and to any first mortgages or deeds to secure debt thereon and to any
first mortgages or deeds to secure debt covering the fee of the Building,
Building Parking Area or Land, that now or may hereafter affect the Building,
Building Parking Area or Land, and to all renewals, modifications or
replacements provided, however, that with respect to any ground lease,
underlying lease and/ or first mortgage or deed to secure debt, within thirty
(30) days after Tenant executes this Lease and, with respect to any future
ground lease, underlying lease and/or first mortgage or deed to secure debt, on
or before the effective date thereof, Landlord shall obtain from its ground
lessor, underlying lessor and/or mortgagee a written agreement with Tenant which
shall be binding on their respective successors and assigns and shall provide
that so long as this Lease shall be in full force and effect (a) Tenant shall
not be joined as a defendant in any proceeding which may be instituted to
terminate or enforce the ground or underlying lease or to foreclose or enforce
the mortgage or deed to secure debt; (b) Tenant's possession and use of the
Land, Building Parking Area and Building in accordance with the provisions of
this Lease shall not be affected or disturbed by reason of the subordination to
or any modification of or default under the ground or underlying lease or first
mortgage or deed to secure debt; and (c) the ground and underlying lessor and
mortgagee will subordinate and subject their respective rights, if any, to the
insurance proceeds payable under policies of insurance required to be carried by
Landlord under Article 10 hereof. If the ground or underlying lessor and/or
mortgagee or any successor in interest shall succeed to the rights of Landlord
under this Lease, whether through possession, surrender, assignment, subletting,
judicial or foreclosure action, or delivery of a deed or otherwise, Tenant will
attorn to and recognize such successor-landlord as Tenant's landlord and the
successor-landlord will accept such attornment and recognize such successor-
landlord as Tenant's rights of possession and use of the Leased Premises in
accordance with the provisions of this Lease. This clause shall be self-
operative and no further instrument of attornment or recognition shall be
required.
ARTICLE NINETEEN
MECHANICS' LIENS
During the term of this Lease Tenant shall discharge by payment, bond or
otherwise mechanics' liens filed against the Building for work, labor, services
or materials claimed to have been performed at or furnished to the Leased
Premises for or on behalf of Tenant, except when the mechanics' liens are filed
by a contractor, subcontractor, materialman or laborer of Landlord, in which
event Landlord shall discharge the liens by payment, bond or otherwise.
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ARTICLE TWENTY
INTENTIONALLY OMITTED
ARTICLE TWENTY-ONE
OPTION FOR ADDITIONAL SPACE
(a) Tenant has requested that Landlord, and Landlord has agreed and does
hereby, grant unto Tenant two (2) mutually exclusive expansion options (both of
the expansion options being herein called the "Expansion Options" and each
respective Expansion Option, in chronological order, is referred to herein as
the "First Expansion Option" and the "Second Expansion Option", respectively)
exercisable as hereinafter set forth pursuant to subsection (b) hereof.
(b) For each Expansion Option, Tenant shall be entitled to lease, at
Tenant's election, space comprising a maximum of 25,000 square feet of
contiguous rentable area on, at Landlord's option, either the fifth (5th) floor
of the south tower of the Building or the eighth (8th) floor of the Building
(such space subject to an Expansion Option being herein referred to as
"Expansion Space"). The First Expansion Option shall be exercisable by Tenant by
written notice to Landlord given on or before July 1, 1992. The Second Option
shall be exercisable by Tenant by written notice to Landlord given on or before
July 1, 1997. Each such written notice of exercise of an Expansion Option shall
specify the amount of Expansion Space (up to 25,000 square feet of contiguous
rentable area) requested by Tenant. Landlord shall deliver possession of the
Expansion Space requested by Tenant during 1993, in the case of the exercise of
the First Expansion Option, and 1998, in the case of the exercise of the Second
Expansion Option. Landlord shall have the right to deliver such Expansion Space
to Tenant in either one or two increments, provided that the first increment
must be contiguous to the existing Leased Premises and include at least fifty
percent (50%) of the total Expansion Space requested by Tenant. The specific
date(s) within the applicable year for delivery by Landlord to Tenant of such
Expansion Space shall be determined by Landlord. The exercise of each Expansion
option shall be subject to the following provisions: (i) Tenant may not exercise
an Expansion Option if Tenant has prior thereto received a notice of default in
the performance of Tenant's covenants under this Lease from Landlord and Tenant
has not then cured such default; (ii) if the amount of Expansion Space
designated by Tenant shall be such that the portion of a floor not leased by
Tenant shall contain less than 5,000 square feet of contiguous rentable area,
Landlord shall have the right to either increase the size of the Expansion Space
to include all the remaining portion of such floor, or to reduce the size of the
Expansion Space so that the remaining portion of such floor not leased by Tenant
shall contain at least 5,000 square feet of contiguous rentable area; and (iii)
any Expansion Space Tenant so elects to lease shall become a part of the Leased
Premises upon the delivery thereof to Tenant (whether in one or two increments)
and Tenant shall be obligated to commence the payment of Annual Rent and.
Additional rent thereon in accordance with subparagraph (e) below.
(c) Any reference to "square feet of contiguous rentable area" shall mean
space on any floor which is contiguous to space then leased by Tenant on such
floor and/or space on another floor which is directly above or directly below at
least a portion of other space then leased by Tenant. The location and
configuration of the Expansion Space shall be determined by Landlord, provided
that such Expansion Space which does not comprise a full floor of the Building
shall be configured in a manner that is
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practicable for Tenant's intended use thereof and shall have independent
corridor access to the rest rooms, elevator and elevator lobby area on such
floor.
(d) Tenant hereby acknowledges and agrees that any Expansion Space which
is leased by Tenant under an Expansion Option in accordance with this Article
and which was improved for occupancy in any way and for any tenant prior to the
commencement of Tenant's leasing of such Expansion Space shall be delivered to
Tenant for occupancy hereunder in an "as is" condition (but free of all tenants
and occupants) and shall be accepted as such by Tenant. With respect to any
Expansion Space which is leased by Tenant under an Expansion Option in
accordance with this Article which has not been improved for occupancy for any
tenant, Landlord shall (i) either furnish, or provide an allowance equal to the
cost of furnishing, the Building Standard improvements described in Article III
of the Workletter, plus (ii) furnish Tenant with a one-time allowance for the
construction of the leasehold improvements desired by Tenant in an amount equal
to the product obtained by multiplying (x) the number of rentable square feet in
the Expansion Space times (y) the dollar amount set forth in clause (x) of
Section 4.06 hereof. All costs and expenses in constructing and installing the
improvements desired by Tenant in the Expansion Space not included with or
covered by Landlord's work or the allowance set forth herein shall be the sole
responsibility of Tenant. The allowance payable by Landlord to Tenant for
construction of the leasehold improvements in the Expansion Space shall be paid
by Landlord to Tenant at the times and in the same manner and upon the same
terms and conditions as set forth in Section 4.06 of this Lease.
(e) Annual Rent for the Expansion Space which is leased by Tenant under
the First Expansion Option and under the Second Expansion Option in accordance
with this Article shall be calculated at the same rental rate and shall be
subject to the same adjustments as for other portions of the Leased Premises as
provided in Section 3.01 of this Lease. Tenant shall be obligated to commence
the payment of Annual Rent and Additional Rent for each increment on the earlier
of (i) the date which is four (4) months after the delivery of such Expansion
Space (or increment thereof) by Landlord to Tenant for the construction by
Tenant of its leasehold improvements in the Expansion Space, or (ii) the date
Tenant takes occupancy of the Expansion Space for business purposes.
(f) Landlord shall not be liable for failure to deliver possession to
Tenant of any space covered by an Expansion Option or any part thereof by reason
of the unlawful holding over or retention of possession of any previous tenant,
tenants or occupants of same, nor shall such failure impair the validity of this
Lease, nor extend the term hereof. However, Landlord does covenant that it will
use reasonable diligence to deliver possession of all space covered by an
Expansion Option to Tenant upon the respective dates above-described and
Landlord shall pay to Tenant any holdover rentals collected by Landlord from
such tenant or occupant to the extent they exceed the sums Tenant would have
paid had such tenant or occupant not held over, less the costs incurred by
Landlord in attempting to remove such holdover tenant(s). Additionally, if
Tenant reasonably believes Landlord is not being diligent in its efforts to
deliver possession of any Expansion Space to Tenant, Tenant shall so notify
Landlord in writing, whereupon Tenant may itself bring such actions or
proceedings (which must meet with Landlord's reasonable approval) necessary to
deliver such possession to Tenant, but Tenant shall indemnify and hold harmless
Landlord from any and all costs (including attorney's fees or costs of suit),
expenses, damages or liabilities arising thereby.
(g) The failure by Tenant to give timely the written notice described in
subparagraph (a) of this Article shall constitute Tenant's decision not to
exercise the respective Expansion Option and Tenant shall be considered to have
given up its rights to the Expansion Space covered by said Expansion Option. If
Tenant fails or elects not to lease the Expansion Space covered by an Expansion
Option, Landlord shall be free to lease the same to third parties.
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(h) Upon the exercise of an Expansion Option pursuant to the terms hereof,
Landlord and Tenant shall execute, at the request of either, an instrument
delineating and describing the portions of the floor(s) added to this Lease
thereby and any then unsatisfied conditions thereto.
(i) The term for each Expansion Space added to this Lease pursuant to the
Expansion Options shall terminate when the term of this Lease for the initial
Leased elects not to lease the Expansion Space covered by an Expansion option,
Landlord shall be free to lease the same to third patties.
(h) Upon the exercise of an Expansion Option pursuant to the terms hereof,
Landlord and Tenant shall execute, at the request of either, an instrument
delineating and describing the portions of the floor(s) added to this Lease
thereby and any then unsatisfied conditions thereto.
(i) The term for each Expansion Space added to this Lease pursuant to the
Expansion Options shall terminate when the term of this Lease for the initial
Leased Premises described in Section 1.01 terminates. Tenant shall renew the
term of this Lease as to said Expansion Space whenever Tenant renews the term of
this Lease as to the initial Leased Premises. Notwithstanding any provisions
hereof to the contrary, in no event shall this Lease continue in force and
effect as to any space covered by the Expansion Options beyond the termination
of this Lease and any renewals and extensions thereof as to said initial Leased
Premises.
(j) Tenant may not assign its Expansion options except to a permitted
assignee of all of Tenant's rights under this Lease, but Tenant may sublease
this space covered thereby if and to the extent permitted in Article 27.
ARTICLE TWENTY-TWO
TENANT'S SECURITY IN THE LEASED PREMISES
Section 22.01. Limited Restrictions Against Other Tenants. In order to
-------------------------------------------
protect Tenant's trade secrets and confidential information in the Leased
Premises, Landlord agrees that with respect to the Building, Landlord will not
lease or consent to any lease, sublease or consent to the assignment of any
lease or sublease to any person, firm or corporation which, as a major part of
its business (1) leases or sells data processing equipment, or typewriting,
photocopying or other products similar to the products sold by Tenant, or
manufactures, leases or sells parts or supplies manufactured by Tenant for such
equipment or products, or furnishes services therefor, including programming,
engineering, repair or maintenance; or (2) offers training in the use, repair or
application of such equipment or products or any of them or provides consulting
services or advice in the use or application of such equipment or products, or
is in the data processing service business. If Landlord is prohibited from
lawfully performing the agreements set forth in this Section 22.01 by any law,
regulation, statute or court decision of any federal, state or other
governmental agency or authority or of any court, then Landlord shall not be
required to perform the agreements in this Section 22.01, and Landlord shall not
be deemed to be in default under this Lease for failure to perform or abide by
the agreements in this Section 22.01, nor shall Landlord be responsible or
liable to Tenant for any damages or otherwise. Tenant hereby indemnifies and
agrees to hold Landlord harmless from and against any and all loss, cost, damage
or expense (including, without limitation, all attorneys' fees and costs of
litigation) ever suffered or incurred by Landlord arising from, resulting from,
or i-n any manner connected with a claim or assertion by a third party that the
agreements of Landlord in this Section 22.01 are unlawful or unenforceable, or
both.
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Section 22.02. Inclusion of Restriction in Other Leases and Subleases.
-------------------------------------------------------
Landlord shall be bound by the foregoing prohibitions, but Landlord shall not be
obligated to include the foregoing prohibition in any tenant leases and
subleases covering space in the Building to which this Article is applicable.
Section 22.03. Advance Consultation with Tenant. Landlord shall consult
---------------------------------
with Tenant before refusing any prospective tenant, subtenant or assignee or
making any commitment which may violate this Article.
Section 22.04. Inapplicability. Notwithstanding the foregoing, this
----------------
Article shall not apply during any portion of the term of this Lease that
International Business Machines Corporation or any affiliate thereof is the
Landlord or a partner of Landlord or an affiliate of Landlord. This Article
shall also not apply to any lease entered into while International Business
Machines Corporation or any affiliate thereof is the Landlord or a partner of
Landlord. For purposes of this Article 22, an "affiliate" shall mean any Person
owning directly or indirectly more than 5% of the issued and outstanding stock
of, or more than a 5% beneficial interest in, the party in question. "Person"
shall mean an individual, partnership, corporation, trust, firm or other entity.
ARTICLE TWENTY-THREE
FIRST REFUSAL SALE
Section 23.01 Sale of the Building. (a) Landlord shall have the right from
---------------------
time to time to submit to Tenant one or more names of prospective purchasers or
transferees of an interest in the Building and/or Land and to request Tenant to
approve or reject the identity of such proposed purchaser or transferee. Tenant
agrees to respond to Landlord within five (5) business days after receipt of
such request from Landlord. In the event Tenant fails to so respond within such
five (5) business day period, Tenant shall be deemed to have approved the
identity of such prospective purchaser and/or transferee.
(b) If at any time after the execution of this Lease Landlord desires to
sell or transfer the Building and/or the Land or an interest therein Landlord
shall notify Tenant of the terms of sale or transfer which would be acceptable
to Landlord, and Tenant shall have the right to purchase such property for the
consideration and other terms stated in Landlord's notice. Tenant shall exercise
such right, if at all, within thirty (30) days after receipt of the notice from
Landlord given pursuant to this subsection (b). Should Tenant fail to exercise
this right, Landlord shall, upon the expiration of said thirty (30) day period
and subject to the right of Tenant to reject the purchaser or transferee and
purchase the property as provided in subsection (c) below, be thereafter free to
consummate a sale or transfer to any party for any consideration and upon any
terms, so long as such consideration shall be equal to or more than the
consideration set forth in Landlord's notice and the other terms of such sale or
transfer shall be no less favorable to Landlord.
(c) Prior to any such sale or transfer, if the identity of the prospective
purchaser or transferee has not previously been approved by Tenant, Landlord
shall notify Tenant of the identity of the purchaser or transferee, the amount
of the consideration and the other terms of the sale or transfer. Tenant shall
have five (5) business days after Tenant's receipt of the notice given by
Landlord under this subsection (c) to either approve or reject the identity of
such proposed purchaser or transferee. Whether Tenant approves or rejects the
proposed purchaser of transferee, if the consideration to be paid to Landlord
shall be less than the consideration set forth in the most recent notice given
by Landlord pursuant to subsection (b) above, or if the other terms of such sale
are less favorable to Landlord when compared to such notice, Tenant shall have
the right to purchase the property for the consideration and
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other terms stated in the Landlord's notice. Tenant must exercise such right, if
at all, within thirty (30) days after receipt of the notice from Landlord given
pursuant to this subsection (c). If Tenant approves the identity of the
prospective purchaser or transferee, and if the consideration to be paid to
Landlord shall be equal to or more than the consideration set forth in the
notice given by Landlord pursuant to subsection (b) above, and the other terms
of such sale or transfer are no less favorable to Landlord when compared to such
notice, Tenant shall have no right to acquire the property. If Tenant rejects
the proposed purchaser or transferee, and if the consideration to be paid to
Landlord shall be equal to or more than the consideration set forth in the most
recent notice given by Landlord pursuant to subsection (b) above, and the other
terms of such sale or transfer shall be no less favorable to Landlord than the
terms set forth in such most recent notice to Tenant under subsection (b) above,
Tenant shall have the right to purchase such property for the consideration and
other terms set forth in the notice given by Landlord to Tenant under this
subsection (c), provided that Tenant shall pay to Landlord, in cash at the
closing, in addition to the other consideration payable to Landlord, an amount
equal to one percent (1%) of the total consideration payable to Landlord from
such sale or transfer. Tenant shall exercise such right under the preceding
sentence, if at all, by giving Landlord written notice of such exercise within
ten (10) days after receipt of the notice from Landlord given pursuant to this
subsection (c). If Tenant shall fail to exercise such right, Landlord shall,
upon the expiration of such ten (10) day period, be thereafter free to
consummate such sale or transfer to such party.
(d) If any sale or transfer is not consummated by Landlord after following
the procedure set forth in this Article, the rights granted to Tenant in this
Article shall remain in effect. If Landlord shall sell or transfer such property
after a failure of Tenant to exercise its rights hereunder, such sale or
transfer shall be subject to the provisions of this Lease including, without
limitation, this right of first refusal.
Section 23.02. Changes in Landlord's Entity. Without limitation, this
----------------------------
restriction on the sale or transfer of the Building and/or the Land shall apply
with equal force to the sale, assignment or transfer, by operation of law or
otherwise, of the majority of stock or voting rights in Landlord's corporation,
or the change in the membership of Landlord's partnership as constituted as of
the date hereof, or one or more sales or transfers by operation of law or
otherwise, or creation of new stock by which an aggregate of more than 50% of
Landlord's stock shall be vested in a party or parties who are non-stockholders
as of the date hereof.
Section 23.03. Mortgagee Exemption. This Article shall not apply in the
--------------------
event of a sale or transfer of the Building and/or the Land or any interest
therein in connection with the foreclosure of any mortgage or deed to secure
debt covering the Building or Land or leasehold interest therein; provided,
however, that the restrictions contained in this Article shall bind the
Landlord's heirs, executors, distributees, representatives, successors, assigns,
transferees and grantees other than the first mortgagee, and any successor or
assignee, of the first mortgagee.
Sections 23.04. Other Exemptions. This Article 23 shall not apply to any
-----------------
transfer by Landlord during any period of time that International Business
Machines Corporation or any affiliate thereof is the Landlord or a partner of
Landlord; to any transfer by reason of the death of any person having an
interest in Landlord; to conveyances among parties having an interest in
Landlord on the date hereof or conveyances to the spouses or children of those
persons having an interest in Landlord; to a sale lease-back transaction or any
other financing arrangement whereby the Landlord or an affiliated party
continues to have an interest in the Building or Land; or to a sale or transfer
(which involves the transfer of title) as a part of any financing for the
Building, the Land or other improvements on the Land to an institutional lender;
or to a sale or transfer to a related or affiliated party. For the purposes of
this Article
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23, an "affiliate" shall mean a Person owning directly or indirectly more than
5% of the issued and outstanding stock of, or more than a 5% beneficial interest
in, the party in question. For purposes of this Article 23, a related or
affiliated party shall mean a Person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
Landlord. The term "control," as used in the immediately preceding sentence,
means, with respect to a Person that is a corporation, the right to exercise,
directly or indirectly, fifty-one percent (51%) or more of the voting rights
attributable to the shares of the controlled corporation and, with respect to a
Person that is not a corporation, the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of the
controlled Person. "Person" shall mean individual, partnership, trust,
corporation, firm, or other entity.
ARTICLE TWENTY-FOUR
DEFAULT
Section 24.01. Default by Tenant. If Tenant shall default in the payment
------------------
of Annual Rent or Additional Rent and such default shall continue for fifteen
(15) days after notice thereof from Landlord or if Tenant shall default in the
performance of any of its other obligations under this Lease and if such default
shall continue for thirty (30) days after notice thereof from Landlord
specifying in what manner Tenant has defaulted (except that if such default
cannot be cured within said thirty (30) day period, this period shall be
extended for a reasonable additional time, provided that Tenant commences to
cure such default within the initial thirty (30) day period and proceeds
diligently thereafter to effect such cure) Landlord may (i) cure such default
and any costs and expenses incurred by Landlord therefor shall be deemed
Additional Rent payable on demand or (ii) enter the Leased Premises without
terminating the Lease and repossess the same and expel Tenant and those claiming
under Tenant, without being liable to prosecution or any claim for damages
therefor, and relet the Leased Premises as the agent of the Tenant, and receive
the rental therefor, and the Tenant shall pay the Landlord any deficiency that
may arise by reason of such reletting, on demand at any time and from time to
time at the office of Landlord, or (iii) terminate this Lease by written notice
at once or at any time thereafter so long as any default remains uncured, in
which event Tenant shall immediately surrender the Leased Premises to Landlord,
but if Tenant fails to do so, Landlord may, without further notice and without
prejudice to any other remedy Landlord may have for possession or arrearages in
rental or damages for breach of contract, enter upon the Leased Premises and
expel or remove Tenant and its personalty, without being liable to prosecution
or any claim for damages therefor; and Tenant agrees to indemnify Landlord for
all loss and damage which Landlord may suffer by reason of such Lease
termination, whether through inability to relet the Leased Premises, or through
decrease in rentals, or otherwise.
Ten (10) days of the resolution of such dispute. Tenant and Landlord shall
proceed diligently to resolve any such dispute by agreement or arbitration in
accordance with Article 38 or otherwise. Any amount determined to be payable
hereunder shall be paid together with interest from the date same was first due
hereunder at the rate set forth in Section 39.09 hereof.
Section 24.03. Default by Landlord. If Landlord defaults in the
--------------------
performance or observance of any provision of this Lease, Tenant shall give
Landlord notice specifying in what manner Landlord has defaulted and if such
default shall not be cured by Landlord within the period of time provided for
elsewhere in this Lease, and otherwise within thirty (30) days after the
delivery of such notice (except that if such default cannot be cured within said
thirty (30) day period, this period shall be extended for a reasonable
additional time, provided that Landlord commences to cure such default within
the thirty (30) day period and proceeds diligently thereafter to effect such
cure) Tenant may cure such default and
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invoice Landlord for costs and expenses (including, without limitation,
reasonable attorneys' fees and court costs) incurred by Tenant therefor, and
Landlord shall reimburse Tenant within thirty (30) days following receipt of
such invoice and the data supporting the sum requested.
ARTICLE TWENTY-FIVE
HOLDOVER
If Tenant remains in the Leased Premises beyond the expiration or earlier
termination of the term of this Lease, such holding over in itself shall not
constitute renewal or extension of this Lease but in such event, a tenancy from
month to month shall arise at one and one-half times the then Annual Rent and
Additional Rent. if Tenant fails to surrender the Leased Premises and the Leased
Premises have been committed to another tenant upon the termination of this
Lease, then Tenant shall, in addition to any other liabilities to Landlord
accruing therefrom, indemnify and hold Landlord harmless from any loss and
liability resulting from claims made by such succeeding tenant founded on such
failure.
ARTICLE TWENTY-SIX
NOTICES
Section 26.01 Notices to Landlord or Tenant. Any notice, request,
-----------------------------
communication or demand under this Lease shall be in writing and shall be
considered properly delivered when addressed as hereinafter provided, given or
served personally or by registered or certified mail (return receipt requested)
and deposited in the United States general or branch post office or express
mail. Any notice, request, communication or demand by the Tenant to Landlord
shall be addressed to Landlord at Suite 1600, 2500 Windy Ridge Parkway,
Marietta, Georgia 30067, until otherwise directed in writing by Landlord and, if
requested in writing by Landlord, given or served simultaneously to Landlord's
first mortgagee at the address specified in such request. Any notice, request,
communication or demand by Landlord to Tenant shall be addressed to Tenant's
Administration Manager at the Leased Premises with copies addressed
simultaneously to Tenant, attention of the Division Counsel, Real Estate and
Construction Division, Building 1, 4-B-13, 208 Harbor Drive, P. 0. Box 10501,
Stamford, Connecticut 06904-2501 and to the Regional Manager, IBM, Suite 400,
2580 Cumberland Parkway, Atlanta, Georgia 30339, until otherwise directed in
writing by Tenant. Rejection or other refusal to accept a notice, request,
communication or demand or the inability to deliver the same because of a
changed address of which no notice was given shall be deemed to be receipt of
the notice, request, communication or demand sent.
ARTICLE TWENTY-SEVEN
ASSIGNMENT AND SUBLETTING
Section 27.01. Assignment or Sublease to Subsidiary or Affiliate. Tenant
--------------------------------------------------
may assign this Lease or sublet all or any part of the Leased Premises at any
time during the term of this Lease, without the consent of Landlord, to a
subsidiary or affiliate of Tenant or an entity created by merger by Tenant and
another corporation.
Section 27.02. Assignment or Sublease to a Third Party. (a) Subject to
----------------------------------------
Section 27.01, if Tenant should desire to assign this Lease or sublet the Leased
Premises or any part thereof, Tenant shall give Landlord written notice (which
shall specify the proposed duration of said proposed sublease or
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assignment) of such desire at least sixty (60) days in advance of the date on
which Tenant desires to make such assignment or sublease. Landlord shall have a
period of thirty (30) days following receipt of such notice within which to
notify Tenant in writing that Landlord elects either (i) to suspend this Lease
as to that portion of the space proposed to be subject to such assignment or
subletting as of the date and for the duration so specified by Tenant in its
notice, in which event Tenant will be relieved of all obligations hereunder as
to such space during said suspension (but after said suspension, the affected
portion of the Leased Premises shall be returned to Tenant in the condition that
existed immediately prior to such suspension, subject to normal wear and tear
and minor changes, alterations and additions, and Tenant shall once again become
fully liable as to the applicable space), or (ii) to terminate this Lease as to
that portion of the space proposed to be subject to such assignment or
subletting as of the date specified by Tenant in its notice, in which event all
rights and obligations of Tenant as to such space shall be terminated as of such
date, or (iii) to permit Tenant to assign this Lease or sublet such space for
the duration so specified by Tenant in its notice. If Landlord should fail to
notify Tenant in writing of such election within said thirty (30) day period,
Landlord shall be deemed to have elected option (iii) above. Each sublessee or
assignee shall fully observe all covenants of this Lease, including without
limitation, the provisions of Section 8.01 of this Lease, and no consent by
Landlord to an assignment or sublease shall be deemed in any manner to be a
consent to a use not permitted under Section 8.01. No assignment or subletting
shall relieve Tenant of any of Tenant's obligations under this Lease, and Tenant
shall remain fully liable for the faithful performance of all covenants, terms
and conditions hereof on the Tenant's part to be performed. Any attempted
assignment or sublease by Tenant in violation of the terms and covenants of this
Section 27.02 shall be void. Any consent by Landlord to a particular assignment
or sublease shall not constitute Landlord's consent to any other or subsequent
assignment or sublease, and any proposed sublease or assignment by a sublessee
or assignee of Tenant shall be subject to the provisions of this Section 27.02
as if it were a proposed sublease or assignment by Tenant. The prohibition
against an assignment or sublease described in this Section 27.02 shall be
deemed to include prohibition against Tenant's mortgaging its leasehold estate,
as well as against an assignment or sublease which may occur by operation of
law.
(b) The Landlord agrees that if the Tenant assigns this Lease and the
assignee defaults, any applicable notice required pursuant to the terms of this
Lease shall also be sent to the Tenant. If the assignee fails to cure such
default within the applicable grace period provided herein, Tenant shall have an
additional ten (10) days, in the case of monetary defaults, or thirty (30) days,
in the case of non-monetary defaults, in which to cure the assignee's default
and recover possession of the Leased Premises.
(c) No assignment of this Lease or subletting of the Leased Premises, or
any part thereof, shall be effective unless and until there shall have been
delivered to Landlord an agreement in recordable form, executed by Tenant and
the proposed assignee or subtenant, as the case may be, wherein and whereby any
assignee assumes due performance of this Lease to be done and performed for the
balance then remaining in the term of this Lease, and any subtenant acknowledges
the right of Landlord to continue or terminate any sublease, in Landlord's sole
discretion, upon termination of this Lease, and such subtenant agrees to
recognize and attorn to Landlord in the event that Landlord elects to continue
such sublease.
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ARTICLE TWENTY-EIGHT
EQUAL EMPLOYMENT OPPORTUNITY
There are incorporated in this Lease the provisions of Executive Order
11246 (as amended) of the President of the United States on Equal Employment
Opportunities and the rules and regulations issued pursuant thereto with which
the Landlord represents that it will comply unless exempted.
ARTICLE TWENTY-NINE
QUIET ENJOYMENT
Landlord's Covenant of Quiet Enjoyment. Provided Tenant performs the
---------------------------------------
terms, conditions and covenants of this Lease, Landlord covenants and agrees to
take all necessary steps to secure and to maintain for the benefit of Tenant the
quiet and peaceful possession of the Leased Premises, the Common Building
Facilities and Building Parking Area for the term of this Lease, without
hindrance, claim or molestation by Landlord or any other person lawfully
claiming under Landlord.
ARTICLE THIRTY
NON-WAIVER
Non-Waiver by Either Party. (a) Failure by either party to complain of any
---------------------------
action, non-action or default of the other party shall not constitute a waiver
of the aggrieved party's rights hereunder. Waiver by either party of any right
for any default of the other party shall not constitute a waiver of any right
for either a subsequent default of the same obligation or for any other default,
past, present or future.
(b) The acceptance of possession of the Leased Premises by the Tenant shall
not be deemed a waiver of any of the obligations under this Lease to be
performed by Landlord.
ARTICLE THIRTY-ONE
PARTIAL INVALIDITY
Severability Clause. If any term, covenant or condition of this Lease, or
--------------------
the application thereof to any person or circumstance, shall ever be held to be
invalid or unenforceable, then in each such event the remainder of this Lease or
the application of such term, covenant or condition to any other person or any
other circumstance (other than those as to which it shall be invalid or
unenforceable) shall not be thereby affected, and each term, covenant, condition
and provision hereof shall remain valid and enforceable to the fullest extent
permitted by law.
ARTICLE THIRTY-TWO
RULES AND REGULATIONS
Section 32.01. Tenant's Obligation. Tenant shall abide by and observe the
--------------------
rules and regulations attached hereto as Exhibit H, as well as such other
reasonable rules and regulations as may be promulgated from time to time by
Landlord (hereinafter called Rules and Regulations) which Rules and Regulations
are necessary for the safety, reputation, care and appearance of the Building,
Building
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Parking Area and Land, or the preservation of good order therein or the
operation and maintenance of the Building and Building Parking Area or equipment
therein.
Section 32.02. Standards Applicable to Landlord. Landlord shall (a) not
---------------------------------
discriminate against Tenant in enforcing the Rules and Regulations; and (b)
exercise its judgment in good faith in any instance when the exercise of
Landlord's judgment under the Rules and Regulations is required.
Section 32.03. Landlord's Enforcement. Landlord shall use its best efforts
-----------------------
to obtain compliance by all tenants and other occupants in the Building with the
Rules and Regulations, but Landlord may permit reasonable waivers with respect
to other parties so long as such waivers do not unreasonably interfere with or
materially and adversely affect Tenant in the conduct of its business in the
Leased Premises or violate any rights granted to Tenant under this Lease.
Section 32.04. Conflict. If there is a conflict or ambiguity created by
---------
the provisions of this Lease and the Rules and Regulations the provisions of
this Lease shall control and be binding on the parties.
ARTICLE THIRTY-THREE
ESTOPPEL CERTIFICATES
Section 33.01. Tenant's Estoppel Certificate. Tenant agrees, at any time
------------------------------
and from time to time, upon not less than fifteen (15) business days' prior
notice from Landlord, to execute, acknowledge and deliver to Landlord or
Landlord's mortgagee a statement in writing (1) certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that this Lease is in full force and effect as modified and stating the
modifications); (2) whether or not the term has commenced and if so stating the
dates to which the Annual Rent and Additional Rent hereunder have been paid by
Tenant; (3) stating whether or not Tenant has knowledge that Landlord is in
default in the performance of any covenant, agreement or condition contained in
this Lease, and if Tenant has knowledge of such a default, specifying each such
default; (4) stating the address to which notices to Tenant shall be sent; and
(5) stating such other matters as Landlord may reasonably request.
Section 33.02. Landlord's Estoppel Certificate. Prior to commencement of
--------------------------------
or during the term of this Lease Landlord shall, if requested by Tenant, deliver
an estoppel certificate to Tenant or a person designated by Tenant, in the
substance and form described in Section 33.01., relative to the status of this
Lease and/or any ground lease, underlying lease and/or mortgage encumbering the
Building, Building Parking Area or Land.
ARTICLE THIRTY-FOUR
EXAMINATION OF LEASE
The submission of this document for examination, negotiation and signature
does not constitute an offer to lease, or a reservation of or option for the
Leased Premises and this document shall not be binding and in effect until at
least one counterpart, duly executed by authorized persons of Landlord and
Tenant, has been delivered to each party hereto.
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ARTICLE THIRTY-FIVE
COUNTERPARTS
This Lease has been executed in several counterparts, all of which
constitute one and the same instrument.
ARTICLE THIRTY-SIX
ANTENNA
Tenant's Right to Install Antenna. (a) Upon receipt of prior written
----------------------------------
approval of Landlord, which approval shall not be unreasonably withheld or
delayed, Tenant may install, and once installed modify, a microwave, satellite
or other antenna communications system in a location within Wildwood Office Park
designated by Landlord and reasonably approved by Tenant for use in connection
with Tenant's business in the Leased Premises. Tenant shall furnish detailed
plans and specifications for such system (or modification) to Landlord for its
approval, which approval shall not be unreasonably withheld or delayed. Upon
approval, such system shall be installed, at Tenant's expense (including the
expense of any approved alterations to the Building reasonably required by
Landlord as a result thereof), by a contractor selected in the manner agreed to
in Section 13.04. The antenna system shall include the use of a four (4) inch
sleeve at each telephone equipment room as required to bring Tenant's electrical
wiring from the location of such system to the Leased Premises. Tenant shall
have access to the location of such system and Tenant's equipment relating to
such system at all times throughout the term of this Lease. Tenant shall be
responsible for procuring whatever licenses or permits may be required for the
use of such system or operation of any equipment served thereby, and Landlord
makes no warranties whatsoever as to the permissibility of such a system under
applicable laws.
(b) Tenant agrees that Tenant's antenna system shall not constitute a
nuisance or unreasonably interfere with the operations of Landlord or other
tenants occupying the Building or Wildwood Office Park. Landlord agrees that it
will not permit the installation of an antenna on the roof of the Building by
any person or entity other than Tenant without Tenant's prior written approval,
which approval shall not be unreasonably withheld; provided that Tenant may
withhold such approval where the installation and/or operation of such other
antenna would interfere with the operation of Tenant's antenna system.
ARTICLE THIRTY-SEVEN
BROKER
The parties warrant and represent to each other that no broker,
commissioned agent, real estate agent or salesman has participated in the
negotiation of this Lease, its procurement or in the procurement of Landlord and
Tenant and that no such person, firm, corporation or other entity is or shall be
entitled to the payment of any fee, commission, compensation or other form of
remuneration in connection herewith in any manner. Tenant shall defend and save
harmless Landlord from and against any claim which may be asserted against
Landlord by any broker in connection with this transaction, and shall reimburse
Landlord for reasonable expenses, losses, costs and damages (including
attorneys' fees and court costs) incurred by Landlord in connection with such
claim, provided the claim arises out of conversations or dealings between Tenant
and such broker. Landlord shall defend and save harmless Tenant from and against
any claim which may be asserted against Tenant by any broker in connection with
this
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transaction, and shall reimburse Tenant for reasonable expenses, losses, costs
and damages (including attorneys' fees and court costs) incurred by Tenant in
connection with such claim, or claim of any other broker, provided the claim
arises out of conversations or dealings between Landlord and such broker. This
Article shall survive the expiration or earlier termination of this Lease.
ARTICLE THIRTY-EIGHT
ARBITRATION
Section 38.01. Arbitration. (a) Whenever in this Lease it is provided that
------------
a dispute may be or shall be determined by arbitration, the arbitration shall be
conducted as provided in this Article. All proceedings shall be conducted
according to the Rules of The American Arbitration Association except as
hereinafter provided. No action at law or equity in connection with any such
disputes shall be brought until arbitration hereunder shall have been waived,
either expressly or pursuant to this Article.
(b) All disputes subject to arbitration in accordance with this Article
shall be raised by notice to the other party hereto, which notice shall state
with particularity the nature of the dispute and the demand for relief, making
specific reference by article number and title to the provisions of this Lease
alleged to give rise to the dispute. Such notice shall also refer to this
Article and shall state whether or not the party giving the notice demands
arbitration under this Article. If no such demand is contained in such notice,
the other party hereto against whom relief is sought shall have the right to
demand arbitration under this Article within five (5) business days after such
notice is received. Unless one of the parties thus demands arbitration, the
provisions of this Article shall be deemed to have been waived with respect to
the demand or dispute in question.
(c) Tenant and Landlord shall mutually and promptly select a person who has
had substantial experience in commercial real estate matters in the area of the
alleged dispute to act as arbitrator hereunder. If a selection is not made
within thirty (30) days after a demand for arbitration is made, the arbitrator
shall, upon the request of either party, be appointed by The American
Arbitration Association. The arbitration proceedings shall take place at a
mutually acceptable location in the City of Atlanta, Georgia.
(d) During any arbitration proceedings pursuant to this Article, the
parties hereto shall continue to perform and discharge all their respective
obligations under this Lease.
(e) In determining any controversy or dispute the arbitrator shall apply
the pertinent provisions of this Lease without departure therefrom in any
respect. The arbitrator shall not have the power to add to, modify or change any
of the provisions of this Lease, but this provision shall not prevent in any
appropriate case the interpretation, construction and determination by the
arbitrator of the applicable provisions of this Lease to the extent necessary in
applying the same to the matters to be determined by arbitration. The rights and
obligations of Landlord and Tenant to submit a dispute to arbitration is limited
to issues agreed in this Lease to be submitted to arbitration.
ARTICLE THIRTY-NINE
MISCELLANEOUS
Section 39.01. Lease Is Not Strictly Construed. This Lease shall be
--------------------------------
strictly construed neither against Landlord nor Tenant.
-43-
<PAGE>
Section 39.02. No Exclusive Remedies. No remedy or election given by any
----------------------
provision in this Lease shall be deemed exclusive unless so indicated, but each
shall, wherever possible, be cumulative in addition to all other remedies in law
or equity which either party may have arising out of the default of the other
party and failure to cure such default within the applicable grace period.
Section 39.03. Intentionally Omitted.
----------------------
Section 39.04. Tenant's Rights to Deal with Its Own Contractors and
----------------------------------------------------
Suppliers. Except as otherwise specifically set forth in this Lease and subject
- ----------
to the Rules and Regulations, Landlord hereby covenants that Tenant may deal
with any person, firm or corporation for services, including food and vending
services, supplies, materials, labor, equipment, transportation, tools,
machinery and any other similar or dissimilar services or items in connection
with the use and occupation of the Leased Premises and any work performed by
Tenant therein.
Section 39.05. Governing Law. This Lease shall be governed in all respects
--------------
by the laws of the State in which the Building is located.
Section 39.06. Non-Disclosure of Lease. (a) Landlord shall keep the terms
------------------------
of this Lease in confidence at all times and shall not publish or disclose the
same except as permitted by Article 40.
(b) This Section shall not apply to disclosures that must be made by
Landlord to secure mortgage financing or in connection with a sale or transfer
of an interest in the Building or Land or in Landlord.
Section 39.07. Exculpation. Tenant shall look solely to Landlord's estate
------------
and interest in the Land and Building and the rentals therefrom for the
satisfaction of any right of Tenant for the collection of a judgment or other
judicial process or arbitration award requiring the payment of money by
Landlord, subject, however, to the prior rights of any mortgagee, and no other
property or assets of Landlord, Landlord's agents, incorporators, shareholders,
officers, directors, partners, principals (disclosed or undisclosed) or
affiliates shall be subject to levy, lien, execution, attachment, or other
enforcement procedure for the satisfaction of Tenant's rights and remedies under
or with respect to this Lease, the relationship of Landlord and Tenant hereunder
or under law, or Tenant's use and occupancy of the Leased Premises or any other
liability of Landlord to Tenant.
Section 39.08. Time of Essence. Time is of the essence of this Lease.
----------------
Whenever a certain day is provided for the payment of any sum of money or the
performance of any act or thing, the same enters into and becomes a part of the
consideration for this Lease.
Section 39.09. Late Charges. Any Annual Rent, Additional Rent and other
-------------
amounts payable to Landlord under this Lease shall incur interest at the rate of
twelve percent (12%) per annum from and after the due date for such payment, if
not paid, in the case of Annual Rent and of Additional Rent payable under
Section 3.04 hereof, within fifteen (15) days after notice from Landlord of the
non-payment thereof, and in the case of other Additional Rent and other amounts
due hereunder, within thirty (30) days after receipt by Tenant of invoices from
Landlord therefor. In no event shall the rate of interest payable on any late
payment exceed the legal limits for such interest enforceable under applicable
law.
-44-
<PAGE>
Section 39.10. Attorney's Fees. In the event any action or proceeding is
---------------
commenced by Landlord or Tenant to enforce the terms and provisions of this
Lease, the non-prevailing party shall pay the reasonable attorney's fees and
court costs incurred by the other party.
ARTICLE FORTY
MEMORANDUM OF LEASE
This Lease shall not be recorded by either Landlord or Tenant. If requested
by Landlord or Tenant, the parties shall execute a memorandum of this Lease for
recording purposes in a form reasonable acceptable to Tenant and Landlord and
the requesting party shall pay all costs of recording.
ARTICLE FORTY-ONE
BINDING AGREEMENT
This Lease shall bind and inure to the benefit of the parties thereto and
their respective executors, distributees, heirs, representatives, successors and
permitted assigns.
ARTICLE FORTY-TWO
ENTIRE AGREEMENT
This Lease contains the entire agreement of the parties and may not be
modified except by an instrument in writing which is signed by both parties.
IN WITNESS WHEREOF, this Lease has been duly executed by the parties hereto
as of the day and year first above written.
LANDLORD:
WILDWOOD ASSOCIATES, a Georgia
general partnership
By: Cousins Properties Incorporated,
Managing General Partner
WITNESSES
/s/ R. Walter Osborne By: /s/ Robert P. Hayes
- ------------------------ -----------------------------------------
/s/ Kathleen A. Bobinski Title: Senior Vice President
- ------------------------
TENANT:
INTERNATIONAL BUSINESS MACHINES
CORPORATION
/s/ J. Wolfen By: /s/ A. J. Hedge, Jr.
- ------------------------ -----------------------------------------
/s/ Kenneth M. Hill [sp] Title: IBM Vice President and President,
- ------------------------
Real Estate and Construction Division
-45-
<PAGE>
SUPPLEMENTAL AGREEMENT
----------------------
To the Lease dated as of the 31st day of July, 1987, made by and between
WILDWOOD ASSOCIATES, as Landlord, and INTERNATIONAL BUSINESS MACHINES
CORPORATION, as Tenant.
By this Supplemental Agreement dated as of the 1st day of May, 1988, the
parties to the Lease agree as follows with respect to the Lease Premises located
at 2300 Windy Ridge Parkway, Marietta, Georgia:
1. The improvements required to be constructed and finished by Landlord in
accordance with the terms of the Lease have been satisfactorily completed by
Landlord and accepted by Tenant, subject to latent defects.
2. The Lease Premises have been delivered to and accepted by Tenant.
3. The Rental Commencement Date of the Leased Premises is the 1st day of
January, 1988, and the expiration date is the 31st day of December, 2002,
subject, however, to the terms and provisions of the Lease. Tenant has
commenced to pay Annual Rent under the Lease as of May 1, 1988. Such initial
Annual Rent is calculated at the ______________________________ square foot for
the office space and ____________ feet for the Storage Area.
4. The Leased Premises contain 224,427 rentable square feet for office
space and 1,390 usable square feet of storage area on the basement level.
5. The Building consists of 618,540 rentable square feet.
6. The term "Tenant's Share" shall initially mean 36.28%.
IN WITNESS WHEREOF, this instrument has been duly executed by the parties
hereto as of the date set forth above.
Landlord:
WILDWOOD ASSOCIATES, a general partnership
By: Cousins Properties Incorporated,
Managing General Partner
By: /s/ Robert P. Hays
-------------------------------------
Senior Vice President
<PAGE>
Tenant:
INTERNATIONAL BUSINESS MACHINES
CORPORATION
By: /s/ J.R. Mayo
-------------------------------
J. R. Mayo
Title: Manager of Business Analysis
Real Estate and Construction
-2-
<PAGE>
FIRST AMENDMENT TO LEASE
------------------------
THIS FIRST AMENDMENT TO LEASE ("Amendment"), is made the 10th day of
November, 1987 between WILDWOOD ASSOCIATES, a Georgia general partnership
comprised of International Business Machines Corporation, a New York
corporation, and Cousins Properties Incorporated, a Georgia corporation, having
an office at Suite 1600, 2500 Windy Ridge Parkway, Marietta, Georgia 30067,
hereinafter called "Landlord," and INTERNATIONAL BUSINESS MACHINES CORPORATION,
a New York corporation, having its principal office at Armonk, New York 10504,
hereinafter called "Tenant."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Landlord and Tenant entered into that certain Lease dated as of
July 31, 1987 (herein called the "Lease") with respect to the Leased Premises
(as defined in the Lease) located within the Building at 2300 Windy Ridge
Parkway, Marietta, Georgia; and
WHEREAS, Landlord and Tenant desire to modify and amend the Lease as herein
provided.
NOW, THEREFORE, for and in consideration of the premises, and the mutual
promises contained in this Amendment and other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged by the
parties hereto, Landlord and Tenant do hereby agree as follows:
1. All terms and words of art used herein, as indicated by the initial
capitalization thereof, shall have the same respective meaning designated for
such terms and of art in the Lease.
2. Notwithstanding anything contained in Section 22.01 of the Lease to the
contrary, Landlord shall not be deemed to be in default under the Lease for
failure to perform or abide by the agreements in Section 22.01, nor shall
Landlord be responsible or liable to Tenant for any damages or otherwise, as a
result of (a) the transfer or assignment of any lease in the Building (whether
with or without the consent of Landlord) in connection with a merger,
consolidation or reorganization of the tenant under such lease or in connection
with the transfer to a third party of corporate stock or partnership interests
of a tenant under such lease or in connection with the sale to a purchaser of
all or substantially all of the assets of a tenant under such lease, or (b) the
acquisition by a tenant of the Building of a business of the nature described in
clauses (1) and (2) of Section 22.01, whether such acquisition is of stock,
partnership interests, assets or otherwise.
3. Except as expressly modified herein, the Lease shall remain in full
force and effect and, as hereby modified, is expressly ratified and confirmed by
the parties hereto. This Amendment shall be binding upon and shall inure to the
benefit of Landlord and Tenant and their respective legal representatives,
successors and assigns.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
signed and their respective seals to be hereunto duly affixed as of the date and
year first above written.
Signed, sealed and "LANDLORD"
delivered in the presence of:
WILDWOOD ASSOCIATES, a
Georgia general partnership
/s/ Jack S. Lahue
- -------------------------------
Unofficial Witness By: Cousins Properties,
Incorporated
/s/ Rosemarie Fisher Managing General Partner
- -------------------------------
Notary Public
By: /s/ Robert P. Hayes
----------------------------
My Commission Expires: Its: Senior Vice President
August 27, 1990
- -------------------------------
[CORPORATE SEAL]
[NOTARIAL SEAL]
Signed, sealed and "TENANT"
delivered in the presence of:
INTERNATIONAL BUSINESS
MACHINES CORPORATION, a
/s/ J. Wolfen New York Corporation
- -------------------------------
Unofficial Witness
By: /s/ Arthur J. Hedge, Jr.
----------------------------
/s/ Robert C. Hansen Arthur J. Hedge, Jr.,
- -------------------------------
Notary Public IBM Vice President and
President, Real Estate
My Commission Expires: and Construction Division
[CORPORATE SEAL]
/s/ March 3, 1992
- -------------------------------
[NOTARIAL SEAL]
-4-
<PAGE>
2300 BUILDING
WILDWOOD OFFICE PARK
SECOND AMENDMENT TO LEASE
-------------------------
THIS SECOND AMENDMENT TO LEASE ("Amendment"), is made as of this 30th day
of April, 1988 between WILDWOOD ASSOCIATES, a Georgia general partnership
comprised of International Business Machines Corporation, a New York
corporation, and Cousins Properties Incorporated, a Georgia corporation, having
an office at 2500 Windy Ridge Parkway, Suite 1600, Marietta, Georgia 30067,
hereinafter called "Landlord," and INTERNATIONAL BUSINESS MACHINES CORPORATION,
a New York corporation, having its principal office at Armonk, New York 10504,
hereinafter called "Tenant".
W I T N E S S E T H:
-------------------
WHEREAS, Wildwood Associates and Tenant entered into that certain Lease
dated as of July 31, 1987, as amended November 10, 1987 (herein called the
"Lease") located within the Building known as the 2300 Building, Wildwood Office
Park, Marietta, Georgia; and
WHEREAS, Tenant wishes to lease certain additional space on the basement
level of the Building and to correct certain space measurements in the Leased
Premises; and
WHEREAS, Landlord and Tenant desire to modify and amend the Lease as herein
provided.
NOW, THEREFORE, for and in consideration of the premises, and the mutual
promises contained in this Amendment and other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged by the
parties hereto, Landlord and Tenant do hereby agree as follows:
1. All terms and words of art used herein, as indicated by the initial
capitalization thereof, shall have the same respective meaning designated for
such terms and words of art in the Lease.
2. Tenant hereby leases an additional 1,390 Useable Square Feet on the
basement level of the Building as shown in red on the floor plan of the basement
level attached as Exhibit "A" hereto and made a part hereof (hereinafter called
the "Storage Area").
3. The Annual Rental for the Storage Area shall be:
a. __________________________________________________________________
b. Thereafter the Annual Rental for the Storage Area shall be as follows:
Annual Rental per
Calendar Years Useable Square Feet Monthly Rent
-------------- ------------------- ------------
1989
1990
1991
1992
-5-
<PAGE>
1993 - 1997
1998 - 2002
If Tenant exercises its right to extend this Lease after December 31, 2002,
Landlord and Tenant shall agree on a revised Annual Rental Rate for the Storage
Area during the extended term(s), but if no such Annual Rental Rate is agreed to
at least one month before the start of the Extended Term, then such extension
shall not apply to the Storage Area and Tenant shall vacate the Storage Area on
or before the expiration date of the Initial Term.
4. Tenant shall have the right to terminate its lease of the Storage
Area at any time upon six (6) months prior written notice to Landlord except
that if this Lease Agreement shall expire or terminate prior to the six month
notice provision, such other expiration or termination date shall prevail.
5. Any leasehold improvements for the Storage Area shall be at the sole
cost and expense of Tenant. All plans for such improvements are subject to
Landlord's prior written consent and all construction work by Tenant shall be in
accordance with the construction work rules set forth in this Lease Agreement.
6. Landlord agrees to provide water, if any, electricity for lights and
outlets to the Storage Area, but shall not provide any cleaning services to
Storage Area. Tenant covenants that it shall maintain the Storage Area at its
sole cost and expense in a clean, orderly, and sanitary condition and free of
insects, rodents, vermin and other pests. Tenant will not permit undue
accumulation of trash, rubbish and other refuse and will remove the same from
the Storage Area on a regular basis and will keep such refuse in proper
containers in the Storage Area until so removed from the Storage Area. Landlord
shall have the right to approve the cleaning and janitorial contractor, if any,
engaged by Tenant for the Storage Area, which approval shall not be unreasonably
withheld. Tenant covenants that it will not store any combustible, toxic or
dangerous materials in the Storage Area.
7. The Basic Lease Information, Leased Premises, on page 1 of the Lease
shall be deleted and the following paragraphs shall be inserted in lieu thereof:
-6-
<PAGE>
Leased Premises: Approximately 224,427 rentable square feet as
more fully shown on Exhibit "J" attached hereto
and made a part hereof.
Tenant's Share: As of February 1, 1988, The Tenant's share of
operating expenses shall be 36.28% (224,427/
618,540).
8. Section 1.01(b) Lease of the Premises, on page 4 of the Lease, shall
----------------------
be deleted and the following paragraph shall be inserted in lieu thereof:
(b) The Leased Premises shall mean that certain floor area of the
Building containing approximately 224,427 rentable square feet as shown on
Exhibit "J" attached hereto and made a part hereof (i) together with such
additional space as Tenant may lease in the Building pursuant to any provisions
of the Lease (when added to the Leased Premises) (ii) less such space as may be
deleted from the Leased Premises pursuant to any provision of this Lease (when
so deleted). The floor plans for the Building (North and South Towers) are
attached hereto as Exhibit "A". The actual rentable area of the Building is
approximately 618,540 square feet which square footage has been determined as
set forth in section 4.02 (d). (For purposes of defining Leased Premises for the
payment of Annual Rent and Extended Rent pursuant to Sections 3.01 and 3.02 and
Operating Expenses pursuant to Section 3.04, the Storage Area shall be omitted).
9. Section 3.08(a), page 15, shall be amended by deleting in the fourth
line thereof the figure "614,543" and inserting in lieu thereof "618,540". In
addition, the following sentence shall be added at the end of such subsection:
"Effective February 1, 1988, the Tenant's Share shall equal 36.28%."
10. Exhibit "A," plans for the Basement area and the Second floor are
hereby deleted in their entirety and new plans for the Basement area and the
Second floor, showing the space occupied by Tenant in red, copies of which are
attached hereto, are inserted in lieu thereof.
11. Exhibit "E" is hereby deleted in its entirety and a new Exhibit "E," a
copy of which is attached hereto, is inserted in lieu thereof.
12. There shall be added to the Lease Exhibit "J," a schedule showing
Tenant's floor area in the Building, a copy of which is attached hereto and made
a part hereof.
13. Except as expressly modified herein, the Lease shall remain in full
force and effect and, as hereby modified, is expressly ratified and confirmed by
the parties hereto. This Amendment shall be binding upon and shall inure to the
benefit of Landlord and Tenant and their respective legal representatives,
successors and assigns.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
signed and their respective seals to be affixed as of the date and year first
above written.
Signed, sealed and "LANDLORD"
delivered in the presence of
the undersigned this 8th day WILDWOOD ASSOCIATES, a
of July, 1988. Georgia general partnership
/s/ Barbara Arogeti By: Cousins Properties, Incorporated
- --------------------------------
Unofficial Witness Managing General Partner
/s/ Kim Lawson
- --------------------------------
Notary Public By: /s/ Robert P. Hayes
------------------------------------
Its: Senior Vice President
My Commission Expires:
[CORPORATE SEAL]
May 9, 1992
- --------------------------------
[NOTARIAL SEAL]
Signed, sealed and "TENANT"
delivered before the undersigned
this 30th day of June, 1988. INTERNATIONAL BUSINESS
MACHINES CORPORATION, a
New York Corporation
/s/ Robert C. Hanson
- --------------------------------
Unofficial Witness
By: /s/ J. R. Mayo
------------------------------------
Its: Manager of Business Analysis
Real Estate and Construction
-8-
<PAGE>
2300 BUILDING
WILDWOOD OFFICE PARK
THIRD AMENDMENT TO LEASE
------------------------
THIS THIRD AMENDMENT TO LEASE ("Amendment"), is made as of this 4th day of
August, 1989 between WILDWOOD ASSOCIATES, a Georgia general partnership
comprised of International Business Machines Corporation, a New York
corporation, and Cousins Properties Incorporated, a Georgia corporation, having
an office at 2500 Windy Ridge Parkway, Suite 1600, Marietta, Georgia, 30067,
hereinafter called "Landlord", and INTERNATIONAL BUSINESS MACHINES CORPORATION,
a New York corporation, having its principal office at Armonk, New York, 10504,
hereinafter called "Tenant".
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Wildwood Associates and Tenant entered into that certain Lease
dated as of July 31, 1987, as amended November 10, 1987 and April 30, 1988
(herein called the "Lease") located within the Building known as the 2300
Building, Wildwood Office Park, Marietta, Georgia; and
WHEREAS, Tenant wishes to lease certain additional space in the Building;
and
WHEREAS, Landlord and Tenant desire to modify and amend the Lease as herein
provided.
NOW, THEREFORE, for and in consideration of the premises, and the mutual
promises contained in this Amendment and other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged by the
parties hereto, Landlord and Tenant do hereby agree as follows:
1. All terms and words of art used herein, as indicated by the initial
capitalization thereof, shall have the same respective meaning
designated for such terms and words of art in the Lease.
2. Tenant hereby leases an additional 78,854 Rentable Square Feet of the
Building as shown in red on the floor plans attached as Exhibit "A-1"
hereto and made a part hereof (hereinafter called the "Expansion
Area"). The Expansion Area shall be included in the definition of
Leased Premises for all purposes of this Lease when such definition
would not be inconsistent with the specific reference to the Expansion
Area.
3. On the Rental Commencement Date of the Expansion Area, the initial
Base Rent Rate for the Expansion Area shall be the then current
applicable rate per square foot of Rentable Square Feet for the Leased
Premises.
4. The Basic Lease Information on page 1 of the Lease shall be modified
by deleting the following captions and inserting in lieu thereof:
Leased Premises: Approximately 303,281 rentable square feet as more
fully shown on Exhibit "J-1" attached hereto and
made a part hereof.
-9-
<PAGE>
Tenant's Share: On the Rental Commencement Date for the Expansion
Area, the Tenant's share of Operating Expenses
shall be 49.03% (303,281 / 618,540).
Expansion Options: None
5. Section 1.01(b) Lease of the Premises, on page 4 of the Lease, shall
---------------------
be deleted and the following paragraph shall be inserted in lieu thereof:
"(b) The Leased Premises shall mean that certain floor area of the
Building containing approximately 303,281 Rentable Square Feet as
shown on Exhibit "J-1" attached hereto and made a part hereof (i)
together with such additional space as Tenant may lease in the
Building pursuant to any provisions of the Lease (when added to the
Leased Premises) (ii) less such space as may be deleted from the
Leased Premises pursuant to any provisions of the Lease (when so
deleted). The floor plans for the Building (North and South Towers)
are attached hereto as Exhibit "A". The actual rentable area of the
Building is approximately 618,540 square feet which square footage
has been determined as set forth in Section 4.02(d). (For purposes of
defining Leased Premises for the payment of Annual Rent and Extended
Rent pursuant to Sections 3.01 and 3.02 and operating Expenses
pursuant to Section 3.04, the Storage Area shall be omitted)."
6. Section 4.02 Rental Commencement Date, a new subparagraph (e) shall
------------------------
be added at the end thereof as follows:
"(e) As to the Expansion Area, the Rental Commencement Date, shall be the
earlier of (1) December 1, 1989 or (2) the date upon which the Tenant
takes possession and occupies the Expansion Area for business
purposes."
7. Section 4.06 Tenant Allowance, the following sentence shall be added:
----------------
"As to the Expansion Area, Landlord shall furnish Tenant with a one-
time allowance for construction of the leasehold improvements desired
by Tenant in the amount equal to the product of ______________ times
(y) the number of rentable square feet in the Expansion Area. All
costs and expenses of constructing and installing the improvements
desired by Tenant in the Expansion Area not included with or covered
by the Base Building Work or the Tenant Allowance for the Expansion
Area shall be the sole responsibility of Tenant. Construction of the
leasehold improvements in the Expansion Area shall be governed by the
terms and provisions of Exhibit "L" attached hereto and made a part
hereof."
8. Article 21, Option for Additional Space, this Article is deleted in
---------------------------
its entirety.
9. Concession to Tenant: As of the Rental Commencement Date of the
--------------------
Expansion Area, Landlord shall assume Tenant's obligations arising on
or after that date under that certain lease agreement between Tenant
and Cousins Properties Incorporated dated April 10, 1984 as amended
March 15, 1987, a copy of which has been delivered to Landlord.
Landlord and Tenant shall execute the Transfer and Assignment
Agreement attached hereto as Exhibit "K". Tenant covenants that it
will not amend or modify said lease agreement or take any actions
contrary to the terms of such lease agreement after the date hereof
which would increase the obligations of Landlord under such agreement
after the transfer date.
-10-
<PAGE>
10. Attached as Exhibit "J" is a schedule showing Tenant's floor area in
the Building.
11. Except as expressly modified herein, the Lease shall remain in full
force and effect and, as hereby modified, is expressly ratified and
confirmed by the parties hereto. This Amendment shall be binding upon
and shall inure to the benefit of Landlord and Tenant and their
respective legal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
signed and their respective seals to be affixed as of the date and year first
above written.
"LANDLORD"
WILDWOOD ASSOCIATES, a
Georgia general partnership
By: Cousins Properties Incorporated
Managing General Partner
By: /s/ Robert P. Hayes
---------------------------------------
Its: Senior Vice President
-----------------------------------
[CORPORATE SEAL]
"TENANT"
INTERNATIONAL BUSINESS MACHINES CORPORATION,
a New York corporation
By: /s/ A. J. Hedge Jr.
----------------------------------------
Its: VP-Real Estate and Construction
------------------------------------
[CORPORATE SEAL]
-11-
<PAGE>
2300 BUILDING
WILDWOOD OFFICE PARK
FOURTH AMENDMENT TO LEASE
-------------------------
THIS FOURTH AMENDMENT TO LEASE ("Amendment"), is made as of this 10th day
of October, 1989 between WILDWOOD ASSOCIATES, a Georgia general partnership
comprised of International Business Machines Corporation, a New York
corporation, and Cousins Properties Incorporated, a Georgia corporation, having
an office at 2500 Windy Ridge Parkway, Suite 1600, Marietta, Georgia 30067,
hereinafter called "Landlord", and INTERNATIONAL BUSINESS MACHINES CORPORATION,
a New York corporation, having its principal office at Armonk, New York 10504,
hereinafter called "Tenant".
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Landlord and Tenant entered into that certain Lease dated as of
July 31, 1987, as amended November 10, 1987, April 30, 1988, and August 4, 1989
(herein called the "Lease") located within the Building known as the 2300
Building, Wildwood Office Park, Marietta, Georgia; and
WHEREAS, Tenant wishes to lease certain additional space on the basement
level of the Building; and
WHEREAS, Landlord and Tenant desire to modify and amend the Lease as herein
provided.
NOW, THEREFORE, for and in consideration of the premises, and the mutual
promises contained in this Amendment and other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged by the
parties hereto, Landlord and Tenant do hereby agree as follows:
12. All terms and words of art used herein, as indicated by the initial
capitalization thereof, shall have the same respective meaning
designated for such terms and words of art in the Lease.
13. Tenant hereby leases an additional 1,145 Useable Square Feet on the
basement level of the Building, comprising an Additional Storage Area
of 745 Useable Square Feet and a 400 Useable Square Foot Receiving
Office, as shown in red on the floor plan of the basement level
attached as Exhibit "A" hereto and made a part hereof (hereinafter
called the "Additional Storage Area and Receiving Office, where
applicable").
14. The Annual Rental for the Additional Storage Area shall be:
a. ____________________________________
b. Thereafter the Annual Rental for the Additional Storage Area shall
be as follows, payable in equal monthly installments in advance:
Annual Rental per
Calendar Years Useable Square Feet Monthly Rent
-------------- ------------------- ------------
1990
1991
-12-
<PAGE>
1992
15. The Annual Rental for the Receiving Office shall be:
a. From November 1, 1989 through December 31, 1989, _______ per square
feet of useable area per year ________ payable in equal monthly
installments, in advance, _____________.
b. Thereafter, the Annual Rental for the Receiving Office shall be,
payable in equal monthly installments in advance:
Annual Rental per
Calendar Years Useable Square Feet Monthly Rent
-------------- ------------------- ------------
1990
1991
1992
16. The Rental Commencement Date for the Additional Storage Area and the
Receiving Office shall be November 1, 1989.
17. The term for the Additional Storage Area and Receiving office shall
commence November 1, 1989 and end on December 31, 1992; provided,
however, Tenant shall have the right to terminate its lease of the
Additional Storage Area and the Receiving Office at any time upon six
(6) months prior written notice to Landlord except that if this Lease
Agreement shall expire or terminate prior to the six month notice
provision, such other expiration or termination date shall prevail.
The Tenant shall have the right to extend the leased term for the
additional storage and receiving office beyond December 31, 1992 for a
term of up to ten (10) years at a negotiated and mutually agreeable
rental rate by giving the Landlord at least six (6) months notice of
its intention to extend.
18. Any leasehold improvements for the Additional Storage Area and/or the
Receiving Office shall be at the sole cost and expense of Tenant. All
plans for such improvements are subject to Landlord's prior written
consent and all construction work by Tenant shall be in accordance
with the construction work rules set forth in this Lease Agreement.
19. Landlord agrees to provide electricity for lights and outlets to the
Additional Storage Area and the Receiving Office, but shall not
provide any cleaning services to the Additional Storage Area or the
Receiving office. Tenant covenants that it shall maintain the
Additional Storage Area and the Receiving office at its sole cost and
expense in a clean, orderly, and sanitary condition and free of
insects, rodents, vermin and other pests. Tenant will not permit undue
"accumulation of trash, rubbish and other refuse and will remove the
same from the Additional Storage Area and the Receiving Office on a
regular basis and will keep such refuse in proper containers in the
Additional Storage Area and the Receiving office until so removed from
the Additional Storage Area and the Receiving Office. Landlord shall
have the right to approve the cleaning and janitorial contractor, if
any, engaged by Tenant for the Additional Storage Area and the
Receiving office, which approval shall not be unreasonably withheld.
Tenant covenants that it will not store any combustible, toxic or
dangerous materials in the Additional Storage Area or the Receiving
office.
-13-
<PAGE>
20. Exhibit "A", the plan for the Basement area, is hereby deleted in its
entirety and a new Exhibit "A", plan for the Basement area, showing
the original storage area in green and the Additional Storage Area and
the Receiving office in red, a copy of which is attached hereto, is
inserted in lieu thereof.
21. Exhibit "J-1" is hereby deleted in its entirety and a new Exhibit "J-
1", a copy of which is attached hereto, is inserted in lieu thereof.
22. Except as expressly modified herein, the Lease shall remain in full
force and effect and, as hereby modified, is expressly ratified and
confirmed by the parties hereto. This Amendment shall be binding upon
and shall inure to the benefit of Landlord and Tenant and their
respective legal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
signed and their respective seals to be affixed as of the date and year first
above written.
<TABLE>
<S> <C>
Signed, sealed and delivered before the "LANDLORD"
undersigned this 12th day of October, 1989.
WILDWOOD ASSOCIATES, a
/s/ J. Durham Georgia general partnership
- ---------------------------------------
Unofficial Witness
By: Cousins Properties Incorporated
Managing General Partner
/s/ Kim Lawson By:/s/ Robert P. Hayes
- ---------------------------------------- --------------------------------------------------
Notary Public Its: Senior Vice President
[CORPORATE SEAL]
My Commission Expires: May 9, 1992
[NOTARIAL SEAL]
Signed, sealed and delivered before the TENANT"
undersigned this 10th day of October, 1989.
INTERNATIONAL BUSINESS MACHINES CORPORATION, a New
York corporation
/s/ Diane S. Ward
- ----------------------------------------
Unofficial Witness By:/s/ B. R. Sanders
---------------------------------------------------
Its: Manager of Real Estate
Southeastern Region
/s/ Tally J. Maxwell
- ----------------------------------------
Notary Public [CORPORATE SEAL]
My Commission Expires: July 31, 1993
[NOTARIAL SEAL]
</TABLE>
-14-
<PAGE>
2300 BUILDING
WILDWOOD OFFICE PARK
FIFTH AMENDMENT TO LEASE
------------------------
THIS FIFTH AMENDMENT TO LEASE ("Amendment"), is made as of this 7th day of
November, 1989 between WILDWOOD ASSOCIATES, a Georgia general partnership
comprised of International Business Machines Corporation, a New York
corporation, and Cousins Properties Incorporated, a Georgia corporation, having
an office at 2500 Windy Ridge Parkway, Suite 1600, Marietta, Georgia 30067,
hereinafter called "Landlord", and INTERNATIONAL BUSINESS MACHINES CORPORATION,
a New York corporation, having its principal office at Armonk, New York 10504,
hereinafter called "Tenant".
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Landlord and Tenant entered into that certain Lease dated as of
July 31, 1987, as amended November 10, 1987, April 30, 1988, August 4, 1989 and
October 10, 1989 (herein called the "Lease") located within the Building known
as the 2300 Building, Wildwood Office Park, Marietta, Georgia; and
WHEREAS, Tenant wishes to lease certain additional space in the Building;
and
WHEREAS, Landlord and Tenant desire to modify and amend the Lease as herein
provided.
NOW, THEREFORE, for and in consideration of the premises, and the mutual
promises contained in this Amendment and other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged by the
parties hereto, Landlord and Tenant do hereby agree as follows:
23. All terms and words of art used herein, as indicated by the initial
capitalization thereof, shall have the same respective meaning
designated for such terms and words of art in the Lease.
24. In the Third Amendment to Lease dated August 4, 1989, Tenant had
agreed to lease 2,773 rentable square feet on the fifth floor, South
Tower of the Building. Due to a reconfiguration of the uses needed by
Tenant in the Building, that 2,773 rentable square feet of space,
which as of the date hereof has not yet been improved, will be
relocated to the first floor, South Tower of the Building as more
fully shown on Exhibit "A" attached hereto and made a part hereof.
25. Tenant hereby leases 11,608 Rentable Square Feet on the fifth floor,
South Tower, of the Building, as shown in red on the floor plan
attached as Exhibit "B" hereto and made a part hereof (hereinafter
called the "Suite 575 Expansion Space"). The Suite 575 Expansion
Space shall be included in the definition of Leased Premises for all
purposes of this Lease when such definition would not be inconsistent
with the specific reference to the Suite 575 Expansion Space.
26. On the Rental Commencement Date of the Suite 575 Expansion Space, the
initial Base Rent Rate for the Suite 575 Expansion Space shall be:
<PAGE>
Annual Base Rent Rate
Calendar Years Rentable Square Feet Monthly Rent
-------------- --------------------- ------------
1990
1991
1992
1993
1994
27. The term for the Suite 575 Expansion Space shall commence on the
Rental Commencement Date for the 575 Expansion Space and end on
December 31, 1994. The Tenant shall have the right to extend the
lease term for the Suite 575 Expansion Space beyond December 31, 1994
for a term up to December 31, 2002 at a negotiated and mutually
agreeable rental rate by giving the Landlord at least six (6) months
advance, written notice of its intention to extend. If Landlord and
Tenant cannot agree on a mutually acceptable rental rate within three
(3) months of Landlord's receipt of Tenant's notice of its intention
to extend, then such term shall not be extended and the term for the
Suite 575 Expansion Space shall end on December 31, 1994 or earlier if
the Lease has been earlier terminated pursuant to its terms.
28. The Basic Lease Information on page 1 of the Lease shall be modified
by deleting the following captions and inserting in lieu thereof:
Leased Premises: On the Rental Commencement Date for the Suite 575
Expansion Area, approximately 314,889 rental square
feet as more fully shown on Exhibit "J-1" attached
hereto and made a part hereof; provided, however,
the total rentable square feet shall be adjusted if
the Suite 575 Expansion Area term is not extended.
Tenant's Share: On the Rental Commencement Date for the Suite 575
Expansion Area, the Tenant's share of Operating
Expenses shall be 50.91% (314, 889 / 618,540);
provided, however the Operating Expenses percentage
shall be adjusted if the Suite 575 Expansion Area
term is not extended.
29. Section 1.01(b) Lease of the Premises, on page 4 of the Lease, shall
---------------------
be deleted and the following paragraph shall be inserted in lieu
thereof effective January 1, 1990:
"(b) The Leased Premises shall mean that certain floor area of the
Building containing approximately 314,889 Rentable Square Feet as
shown on Exhibit "J-1" attached hereto and made a part hereof (i)
together with such additional space as Tenant may lease in the
Building from time to time (when added to the Leased Premises) (ii)
less such space as may be deleted from the Leased Premises pursuant to
any provisions of the Lease (when so deleted). The floor plans for the
Building (North and South Towers) are attached as an Exhibit to this
Lease. The actual rentable area of the Building is approximately
618,540 square feet which square footage has been determined as set
forth in Section 4.02(d). (For purposes of defining Leased Premises
for the payment of Annual Rent and
-16-
<PAGE>
Extended Rent pursuant to Sections 3.01 and 3.02 and Operating
Expenses pursuant to Section 3.04, the Storage Area shall be
omitted)."
30. Section 4.02 Rental Commencement Date, a new subparagraph (f) shall be
------------------------
added at the end thereof as follows:
"(f) As to the suite 575 Expansion Area, the Rental Commencement Date,
shall be the earlier of (1) January 1, 1990 or (2) the date upon which
the Tenant takes possession and occupies the Suite 575 Expansion Area
for business purposes."
31. Section 4.06 Tenant Allowance, the following sentence shall be added:
----------------
"As to the Suite 575 Expansion Area, Landlord shall furnish Tenant
with a one time allowance for construction of the leasehold
improvements desired by Tenant in the amount equal to the product of
(x) fifteen dollars ($15.00) times (y) the number of rentable square
feet in the Suite 575 Expansion Area. All costs and expenses of
constructing and installing the improvements desired by Tenant in the
Expansion Area not included with or covered by the Base Building Work
or the Tenant Allowance for the Suite 575 Expansion Area shall be the
sole responsibility of Tenant. Construction of the leasehold
improvements in the Suite 575 Expansion Area shall be governed by the
terms and provisions of Exhibit "L" of the Lease, as attached hereto
for the Suite 575 Expansion Area."
32. Concession to Tenant: As to the Suite 575 Expansion Area only, Tenant
--------------------
shall not be required to pay any Base Rent or Additional Rent for the
first three (3) months of occupancy of such space.
33. Attached as Exhibit "J-1" is a schedule showing Tenant's floor area in
the Building.
34. Except as expressly modified herein, the Lease shall remain in full
force and effect and, as hereby modified, is expressly ratified and
confirmed by the parties hereto. This Amendment shall be binding upon
and shall inure to the benefit of Landlord and Tenant and their
respective legal representatives, successors and assigns.
-17-
<PAGE>
IN WITNESS WHEREOF, the parties, hereto have caused this Amendment to be
signed and their respective seals to be affixed as of the date and year first
above written.
"LANDLORD"
WILDWOOD ASSOCIATES, a
Georgia general partnership
By: Cousins Properties Incorporated
Managing General Partner
By:/s/ Robert P. Hayes
------------------------------------
Its: Senior Vice President
[CORPORATE SEAL]
"TENANT"
INTERNATIONAL BUSINESS MACHINES CORPORATION,
a New York corporation
By:/s/ B. R. Sanders
------------------------------------
Its: Manager of Real Estate
Southeastern Region
[CORPORATE SEAL]
-18-
<PAGE>
2300 BUILDING
WILDWOOD OFFICE PARK
SIXTH AMENDMENT TO LEASE
------------------------
THIS SIXTH AMENDMENT TO LEASE ("Amendment"), is made as of this lst day of
December, 1989, between WILDWOOD ASSOCIATES, a. Georgia general partnership
comprised of International Business Machines Corporation, a New York
corporation, and Cousins Properties Incorporated, a Georgia corporation, having
an office at 2500 Windy Ridge Parkway, Suite 1600, Marietta, Georgia 30067,
hereinafter called "Landlord", and INTERNATIONAL BUSINESS MACHINES CORPORATION,
a New York corporation, having its principal office at Armonk, New York 10504,
hereinafter called "Tenant".
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Landlord and Tenant entered into that certain Lease dated as of
July 31, 1987, as amended November 10, 1987, April 30, 1988, August 4, 1989,
October 10, 1989, and November 7, 1989 (herein called the "Lease") located
within the Building known as the 2300 Building, Wildwood office Park, Marietta,
Georgia; and
WHEREAS, Landlord and Tenant desire to modify and amend the Lease as herein
provided.
NOW, THEREFORE, for and in consideration of the premises, and the mutual
promises contained in this Amendment and other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged by the
parties hereto, Landlord and Tenant do hereby agree as follows:
1. All terms and words of art used herein, as indicated by the initial
capitalization thereof, shall have the same respective meaning designated
for such terms and words of art in the Lease.
2. Paragraph 9, Third Amendment to Lease dated August 4, 1989, shall be
deleted in its entirety and the following paragraph shall be inserted in
lieu thereof:
"9. Concession to Tenant: Commencing with the Rental Commencement Date of
--------------------
the Expansion Area, Landlord shall reimburse Tenant for its
obligations arising on or after that date under that certain lease
agreement between Tenant and Cousins Properties Incorporated dated
April 10, 1984, as amended March 15, 1987, a copy of which has been
delivered to Landlord. Tenant covenants that it will not amend or
modify said lease agreement or take any actions contrary to the terms
of such lease agreement after the date hereof which would increase the
obligations under said lease agreement."
3. Exhibit K of the Third Amendment to Lease dated August 4, 1989, shall be
deleted in its entirety.
4. Except as expressly modified herein, the Lease shall remain in full force
and effect and, as hereby modified, is expressly ratified and confirmed by
the parties hereto. This Amendment shall be binding upon and shall inure to
the benefit of Landlord and Tenant and their respective legal
representatives, successors and assigns.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
signed and their respective seals to be affixed as of the date and year first
above written.
"LANDLORD"
WILDWOOD ASSOCIATES, a
Georgia general partnership
By: Cousins Properties Incorporated
Managing General Partner
By:/s/ Robert P. Hayes
-----------------------------------
Its: Senior Vice President
---------------------
(Corporate Seal)
"TENANT"
INTERNATIONAL BUSINESS MACHINES CORPORATION,
a New York Corporation
By: /s/ B. R. Sanders
----------------------------------
Its: B. R. SANDERS
MANAGER Of REAL ESTATE
SOUTHEASTERN REGION
(Corporate Seal)
-20-
<PAGE>
2300 BUILDING
WILDWOOD OFFICE PARK
SEVENTH AMENDMENT TO LEASE
--------------------------
THIS SEVENTH AMENDMENT TO LEASE ("Amendment"), is made as of this 12th day
of March, 1990 between WILDWOOD ASSOCIATES, a Georgia general partnership
comprised of International Business Machines Corporation, a New York
corporation, and Cousins Properties Incorporated, a Georgia corporation, having
an office at 2500 Windy Ridge Parkway, Suite 1600, Marietta, Georgia 30067,
hereinafter called "Landlord", and INTERNATIONAL BUSINESS MACHINES CORPORATION,
a New York corporation, having its principal office at Armonk, New York 10504,
hereinafter called "Tenant".
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Landlord and Tenant entered into that certain Lease dated as of
July 31, 1987, as amended November 10, 1987, April 30, 1988, August 4, 1989,
October 10, 1989, November 7, 1989 and December 1, 1989 (herein called the
"Lease") located within the Building known as the 2300 Building, Wildwood Office
Park, Marietta, Georgia; and
WHEREAS, Tenant wishes to relocate certain space within the Building and to
lease certain additional space in the Building; and
WHEREAS, Landlord and Tenant desire to modify and amend the Lease as herein
provided.
NOW, THEREFORE, for and in consideration of the premises, and the mutual
promises contained in this Amendment and other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged by the
parties hereto, Landlord and Tenant do hereby agree as follows:
1. All terms and words of art used herein, as indicated by the initial
capitalization thereof, shall have the same respective meaning designated
for such terms and words of art in the Lease.
2. In the Third Amendment to Lease dated August 4, 1989, Tenant had leased
2,773 Rentable Square Feet on the fifth floor, South Tower of the Building.
In the Fifth Amendment to Lease dated November 7, 1989 that space had been
relocated to the first floor, South Tower of the Building. Due to a
reconfiguration of the uses needed by Tenant in the Building, that 2,773
Rentable Square Feet of space, which as of the date hereof has not yet been
improved, will be relocated to the second floor, South Tower of the
Building as more fully shown on Exhibit "A" attached hereto and made a part
hereof.
3. In addition, Tenant hereby leases an additional 155 Rentable Square Feet on
the second floor, South Tower, of the Building, as shown in green on the
floor plan attached as Exhibit "A" hereto and made a part hereof
(hereinafter called the "Seventh Amendment Space"). The Seventh Amendment
Space shall be included in the definition of Leased Premises for all
purposes of this Lease when such definition would not be inconsistent with
the specific reference to the Seventh Amendment Space.
-21-
<PAGE>
4. On the Rental Commencement Date of the Seventh Amendment Space, the initial
Base Rent Rate for the Seventh Amendment Space shall be the same as the
then rental rate on the 2,773 Rentable Square Feet identified in paragraph
2 of this Amendment.
5. The term for the Seventh Amendment Space shall commence on the Rental
Commencement Date for the Seventh Amendment Space and end on the same date
as the 2,773 Rentable Square Feet identified in Paragraph 2 of this
Amendment.
6. The Basic Lease Information on page 1 of the Lease shall be modified by
deleting the following captions and inserting in lieu thereof:
Leased Premises: On the Rental Commencement Date for the Seventh Amendment
Space, approximately 315,044 rentable square feet as more
fully shown on Exhibit "J-1" attached hereto and made a
part hereof.
Tenant's Share: On the Rental Commencement Date for the Seventh Amendment
Space, the Tenant's share of Operating Expenses shall be
50.93% (315,044 618,540).
7. Section 1.01(b) Lease of the Premises, on page 4 of the Lease, shall be
----------------------
deleted and the following paragraph shall be inserted in lieu thereof
effective on the Rental Commencement Date of the Seventh Amendment Space:
"(b) The Leased Premises shall mean that certain floor area of the Building
containing approximately 315,044 Rentable Square Feet as shown on Exhibit
"J-1" attached hereto and made a part hereof (i) together with such
additional space as Tenant may lease in the Building from to time (when
added to the Leased Premises) (ii) less such space as may be deleted from
the Leased Premises pursuant to any provisions of the Lease (when so
deleted). The floor plans for the Building (North and South Towers) are
attached as an Exhibit to this Lease. The actual rentable area of the
Building is approximately 618,540 square feet which square footage has been
determined as set forth in Section 4.02(d). (For purposes of defining
Leased Premises for the payment of Annual Rent and Extended Rent pursuant
to Sections 3.01 and 3.02 and Operating Expenses pursuant to Section 3.04,
the Storage Area shall be omitted)."
8. Section 4.02 Rental Commencement Date, a new subparagraph (g) shall be
-------------------------
added at the end thereof as follows:
"(g) As to the Seventh Amendment Space, the Rental Commencement Date, shall
be the earlier of (1) April 1, 1990 or (2) the date upon which the
Tenant takes possession and occupies the Seventh Amendment Space for
business purposes."
9. Section 4.06 Tenant Allowance, the following sentence shall be added:
----------------
"As to the Seventh Amendment Space, Landlord shall furnish Tenant with a
one-time allowance for construction of the leasehold improvements desired
by Tenant in the amount equal to the product of
(__________________________) (y) the number of rentable square feet in the
-22-
<PAGE>
Seventh Amendment Space. All costs and expenses of constructing and
installing the improvements desired by Tenant in the Seventh Amendment
Space not included with or covered by the Base Building Work or the Tenant
Allowance for the Seventh Amendment Space shall be the sole responsibility
of Tenant. Construction of the leasehold improvements in the Seventh
Amendment Space shall be governed by the terms and provisions of Exhibit
"L" of the Lease."
10. Attached as Exhibit "J-1" is a schedule showing Tenant's floor area in
the Building.
11. Except as expressly modified herein, the Lease shall remain in full force
and effect and, as hereby modified, is expressly ratified and confirmed by
the parties hereto. This Amendment shall be binding upon and shall inure to
the benefit of Landlord and Tenant and their respective legal
representatives, successors and assigns.
-Signature Page to Follow-
-23-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
signed and their respective seals to be affixed as of the date and year first
above written.
"LANDLORD"
WILDWOOD ASSOCIATES, a
Georgia general partnership
By: Cousins Properties Incorporated
Managing General Partner
By: /s/ Robert P. Hayes
----------------------------------
Its: Senior Vice President
---------------------
(Corporate Seal)
"TENANT"
INTERNATIONAL BUSINESS MACHINES CORPORATION,
a New York corporation
By: /s/ B. R. Sanders
----------------------------------
Its: B. . Sanders
(Corporate Seal)
-24-
<PAGE>
EXHIBIT 10.21
FORM OF SOFTWARE LICENSE, SERVICES AND 2300 WINDY RIDGE PARKWAY
MAINTENANCE AGREEMENT ("AGREEMENT") ATLANTA, GA 30339
CLIENT
---------------------------------------------------------------------
ADDRESS
---------------------------------------------------------------------
---------------------------------------------------------------------
Manhattan Associates, Inc., a Georgia corporation, ("Manhattan"), markets and
supports certain software applications licensed hereunder as "Licensed Products"
and Client is a ___________ [ ] corporation or [ ] _________________ having a
principal place of business as noted above and Client is desirous of obtaining a
license to use the Licensed Products, subject to the terms and conditions of
this Agreement.
NOW THEREFORE, in consideration of the background, the covenants herein
contained, and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I. DEFINITIONS
For purposes of this Agreement, the following terms shall mean:
CONFIDENTIAL INFORMATION
Certain confidential technical and business information, including without
limitation, business plans and interests, the Licensed Products and associated
documentation.
DESIGNATED PROCESSOR
The computer processing unit(s) (CPUs) identified in any Attachment to this
Agreement or a written notification.
DESIGNATED SITE
The physical location(s) where the Licensed Products are installed upon the
Designated Processor(s) or are otherwise utilized and which are specifically
identified in any Attachment to this Agreement or a written notification.
DISCLOSER
The party disclosing Confidential Information.
LICENSE FEE
The fee(s) defined in Article V, Section 5(A).
LICENSED PRODUCT(S)
For the AS/400 and UNIX versions, the computer programming source and object
code for the Licensed Products identified in each Attachment A to this
Agreement, any Software Updates, the media in which the Licensed Products are
delivered, and the associated documentation. The Client/Server version, certain
security operational controls of the AS/400 and UNIX versions, the SLOT-IT
System, and the ASN Enabler System are provided in object code only.
MAINTENANCE FEE
The fee(s) defined in Article V, Section 5(C).
PERIOD OF COVERAGE
The time periods in annual increments during which Maintenance is available
under this Agreement.
PUBLISHED PRODUCT SPECIFICATIONS
The User Guides and the Implementation Guides (in whatever media) associated
with the Licensed Products, as they may exist from time to time.
RECIPIENT
The party receiving Confidential Information.
SOFTWARE UPDATES
Cumulative releases containing corrections to the Licensed Products and new
system versions and releases provided during the Period of Coverage.
ARTICLE II. SOFTWARE LICENSE ("LICENSE")
1. LICENSE GRANT.
(A) Manhattan grants to Client a non-exclusive perpetual license to use the
Licensed Products indicated in the Attachments A which may be executed from
time to time by the parties, as follows:
(i) only on the Designated Processor(s) and at the Designated Site(s)
identified in Attachments A attendant to this Agreement;
(ii) in the case of the Client/Server version of the Licensed Products,
to also utilize the Licensed Products on personal computers used as
clients in conjunction with the Designated Processor;
(iii)only by Client and not for the benefit of any third party,
including without limitation, commercial timesharing or service
bureau or other rental or sharing arrangements, data processing or
management information or services;
(iv) only in the country in which they are first installed and may
only be moved to another country with the prior written permission
of Manhattan; and,
(v) copy the Licensed Products for archival or backup purposes only, so
long as all titles, trademark, copyright, and restriction notices
are reproduced.
No other uses are granted hereunder.
(B) Client may not:
(i) reverse engineer, disassemble, or decompile any part of the
Licensed Products, except to the extent required to obtain
interoperability with other independently created or procured
software or as specified by law;
(ii) distribute, sell or otherwise transfer any part of the Licensed
Products; or
(iii)remove the patent, copyright, trade secret or other proprietary
protection legends or notices that appear on or in the Licensed
Products.
2. OWNERSHIP. Manhattan retains all title, copyright and other proprietary
rights in the Licensed Products. Client does not acquire any rights, express
or implied, in the Licensed Products, other than those specified in this
Agreement. Client agrees to secure and protect the Licensed Products in a
manner consistent with maintaining Manhattan's rights therein and to take
appropriate action by instruction or agreement with its employees or agents
who are permitted access to same to satisfy these obligations. Violation of
any provisions herein shall be the basis for immediate termination of this
Agreement, which shall be in addition to and not in lieu of any equitable
remedies available to Manhattan.
3. WRONGFUL POSSESSION OR ACCESS. Upon knowledge of any unauthorized
possession, use of, or access to, any Licensed Products, Client shall
promptly notify Manhattan and furnish Manhattan with full details of such
knowledge, assist in preventing any recurrence thereof, and cooperate at
Manhattan's expense in any litigation or other proceedings reasonably
necessary to protect the rights of Manhattan.
4. VERIFICATION. At Manhattan's written request, not more frequently than
annually, Client shall furnish Manhattan with a signed certification
verifying that the Licensed Products are being used pursuant to this
Agreement. Manhattan may audit Client's use of the Licensed Products at
Manhattan's expense, but not more frequently than annually. Such audit will
be conducted during regular business hours at Client's facilities and shall
not unreasonably interfere with Client's business activities. If an audit
reveals that Client has underpaid fees to Manhattan, Client shall promptly
pay any such underpaid fees.
5. SOURCE CODE ESCROW. By executing an Attachment C attendant to this
Agreement, Client elects to have the remaining source code of the Licensed
Products which it does not receive placed on deposit in Manhattan's master
escrow account, which source code shall be released upon the conditions
outlined in said Attachment. Upon making such election, Client agrees to pay
to Manhattan the then-
Page 1/4
<PAGE>
current annual fee associated with being a beneficiary of such account.
Further, Client will receive written confirmation from the escrow agent of
Client's registration.
ARTICLE III. SOFTWARE SERVICES ("SERVICES")
1. SERVICES PROVISION. Manhattan will provide Programming, Consulting,
Analysis, and Training Services ("Services") from time to time at Client's
request and under the terms and conditions of this Agreement.
2. MODIFICATIONS. As a part of Services, Manhattan will also provide mutually
agreed upon modifications or enhancements to the Licensed Products
("Modifications") at Client's request, as documented by a Detailed Design
Specification or similar mutually agreed upon instrument. Manhattan retains
ownership of all rights, title and interest to the Modifications provided
hereunder and all versions thereof. Manhattan grants to Client a non-
exclusive, perpetual license to use the Modifications subject to the same
terms and conditions of Article II of this Agreement. Client and Manhattan
agree that the Modifications provided to Client shall not be a "work made
for hire".
3. CLIENT MODIFICATIONS. Any enhancements, modifications, or substitutions to
the Licensed Products made by or at the direction of Client and not made by
Manhattan ("Client Modifications") shall be owned by Manhattan and may not
be sold, assigned, licensed, sublicensed or otherwise transferred by Client
except in connection with an assignment of all rights to the Licensed
Products. Manhattan makes no warranty with respect to the Client
Modifications and shall have no responsibility or liability whatsoever with
respect to same. All Client Modifications, if made, shall be made at the
sole risk and expense of Client.
4. SERVICES TERMINATION. Client may, at its election and upon thirty (30) days
prior written notice, terminate the Services to be provided hereunder.
However, such termination shall not affect any right or claim of either
party incurred or accruing prior to the date of termination, including
without limitation, any right or claim of Manhattan payable for services
rendered or reimbursable expenses incurred prior to such termination date.
ARTICLE IV. MAINTENANCE SERVICES ("MAINTENANCE")
1. MAINTENANCE SERVICES. Maintenance shall be provided in accordance with
Manhattan's Maintenance policies in effect at the beginning of each annual
renewal of the Period of Coverage. Maintenance is offered for only the
Licensed Products for which Manhattan has expressly agreed to offer a
warranty under this Agreement. Client may not elect to exclude any of the
Licensed Products or any of the Designated Site(s) from Maintenance during
the Period of Coverage.
2. MAINTENANCE TERM. The Period of Coverage begins upon execution of an
Attachment B attendant to this Agreement. At least thirty (30) days prior to
expiration of a Period of Coverage, Manhattan shall notify Client of the
applicable Maintenance Fees for the succeeding year, whereupon, unless
Client notifies Manhattan in writing of its desire to terminate Maintenance
upon the expiration date for that Period of Coverage, Client's subscription
to Maintenance shall be extended and renewed for an additional period of one
(1) year at the then-current fees specified by Manhattan.
ARTICLE V. GENERAL
1. MUTUAL NONDISCLOSURE.
(A) Pursuant to this Agreement, each party may, from time to time, furnish the
other party with certain Confidential Information. The parties agree to hold
each other's Confidential Information in confidence. Each party agrees to
take all reasonable steps to ensure that Confidential Information is not
disclosed or distributed by its employees or agents in violation of this
Agreement. The disclosure of Discloser's Confidential Information does not
grant to the Recipient any license or rights to any trade secrets or under
any patents or copyrights, except as expressly provided by the licenses
granted in this Agreement.
(B) The obligations of Recipient with respect to any particular portion of
Confidential Information shall terminate or shall not attach, as the case
may be, when such information:
(ii) was in the public domain at the time of Discloser's communication
thereof to Recipient;
(iii) entered the public domain through no fault of Recipient subsequent to
the time of Discloser's communication thereof to Recipient;
(iv) was in Recipient's possession free of any obligation of confidence at
the time of Discloser's communication thereof to Recipient;
(v) was independently developed by Recipient as demonstrated by written
records; or,
(vi) is required to be disclosed by court or government order and
Discloser has been given notice of such order.
(C) Discloser understands that Recipient may develop information internally, or
receive information from other parties, that may be similar to Discloser's
information. Accordingly, nothing in this Agreement shall be construed as a
representation or inference that Recipient will not independently develop
products, for itself or for others, that compete with the products or
systems contemplated by Discloser's information. The parties agree that a
breach of the confidentiality obligations by Recipient shall cause immediate
and irreparable monetary damage to Discloser and shall entitle Discloser to
injunctive relief in addition to all other remedies.
2. WARRANTIES.
(A) LICENSED PRODUCTS. Manhattan warrants for a period of six (6) months
following shipment that the Licensed Products will materially perform the
functions described in the Published Product Specifications. Manhattan shall
have no responsibility for problems in the Licensed Products caused by or
arising out of the malfunction of Client's equipment or other software
products.
(B) SERVICES. Manhattan warrants for a period of ninety (90) days following
performance that the Services supplied hereunder shall be performed in a
professional and workmanlike manner.
(C) MAINTENANCE. During the Period of Coverage, Manhattan warrants that the
Licensed Products will materially perform the functions described in the
Published Product Specifications as they may exist during the Period of
Coverage.
(D) WARRANTY EXCLUSIONS. THIS AGREEMENT PROVIDES LICENSES AND SERVICES AND IS
NOT A SALE OF GOODS. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THERE
ARE NO WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
3. EXCLUSIVE REMEDIES.
For any breach of warranties contained in Section 2 of this Article, Client's
exclusive remedy shall be as follows:
(A) LICENSED PRODUCTS. The correction of errors in the Licensed Products that
cause breach of warranty, or if Manhattan is unable to provide such
correction, Client shall be entitled to terminate this Agreement as it
relates to the non-conforming Licensed Products and receive a refund of the
License Fees paid for the non-conforming Licensed Products.
Page 2/4
<PAGE>
(B) SERVICES. The reperformance of the Services, or if Manhattan is unable to
perform the Services as warranted, Client shall be entitled to recover the
fees paid to Manhattan for the unsatisfactory Services.
(C) MAINTENANCE. The correction of errors in the Licensed Products that cause
breach of warranty, or if Manhattan is unable to provide such correction,
Client shall be entitled to terminate this Agreement as it relates to the
non-conforming Licensed Products and receive a refund of the Maintenance
Fees paid for the non-conforming Licensed Products for the then-current
Period of Coverage.
4. INDEMNITIES. Manhattan agrees to indemnify, defend and hold Client harmless
from and against any claim by any third party in connection with any patent,
copyright or other infringement claim related to the Licensed Products or
Modifications; provided that : (i) Client notifies Manhattan in writing
within thirty (30) days of the claim; (ii) Manhattan has sole control of the
defense and all related settlement negotiations; and (iii) Client provides
Manhattan with the information, assistance and authority to enable Manhattan
to do so. However, Manhattan shall have no liability for any claims of
infringement that result from the use of the Licensed Products in
conjunction with non-Manhattan software or other non-Manhattan products or
upon a use of the Licensed Products in a manner not contemplated by the
Published Product Specifications. Nothing in this provision shall be
construed as a limitation on Client's ability to retain legal counsel at its
own expense to monitor the proceedings.
Manhattan further agrees that if Client is prevented from using the Licensed
Product(s) due to an actual or claimed infringement of any patent, copyright
or other intellectual property right, then at Manhattan's option, Manhattan
shall promptly either:
(i) procure for Client, at Manhattan's expense, the right to continue to
use the Licensed Product(s);
(ii) replace or modify the Licensed Product(s) at Manhattan's expense so
that the Licensed Product(s) become non-infringing, but substantially
equivalent in functionality; or
(iii) in the event that neither (i) or (ii) are reasonably feasible,
terminate the Agreement as to the infringing Licensed Products and
return Client's License Fees for the infringing Licensed Product(s).
This Section states Manhattan's entire obligation to Client with respect to
any claim of infringement.
5. PAYMENT.
(A) LICENSE FEES. In consideration for the License granted in Article II, Client
agrees to pay to Manhattan the License Fees designated on any Attachment A
attendant to this Agreement upon the execution of this Agreement and any
Attachment A attendant to this Agreement.
(B) SERVICES FEES / EXPENSES. As compensation for performing Services, Client
agrees to pay Manhattan on a time and materials basis, with the exception of
Training, which shall be billed at Manhattan's then-current list prices.
Manhattan will invoice Client every two (2) weeks while Services are being
performed. Client agrees to reimburse Manhattan for all reasonable out-of-
pocket expenses Manhattan incurs in providing Services. If uncontested
amounts remain unpaid for thirty (30) days or more, Manhattan may, at its
option, refuse to perform additional Services under this Agreement until
such amounts are paid.
(C) MAINTENANCE FEES. In consideration for the Maintenance to be provided
hereunder and for which Client elects to subscribe, Client shall pay
Maintenance Fees in accordance with any Attachment B attendant to this
Agreement and subsequently as an annual charge. The first payment shall be
due upon execution of any Attachment B attendant to this Agreement. During
the Period of Coverage, Client may be billed additional Maintenance Fees
resulting from additional Designated Sites or additional Licensed Products
or from the upgrade of service level from Basic to Extended. If Client fails
to remit Maintenance Fees pursuant to the terms hereof, Manhattan will have
no duty to provide Maintenance as specified under Article IV.
(D) TAXES. The fees listed in this Agreement do not include taxes. If Manhattan
is required to pay any sales, use, property, excise, value added, gross
receipts, or other taxes levied on the Licensed Products or Services under
this Agreement or on Client's use thereof, then such taxes shall be billed
to and paid by Client. This Section does not apply to taxes based on
Manhattan's net income or Manhattan's employer contributions and taxes.
(E) INVOICES. Unless notified otherwise in writing by Client, Manhattan will
invoice all amounts to Client's address as it appears on Page One of this
Agreement. Client agrees to pay for all uncontested amounts due under this
Agreement upon receipt of invoice. Amounts not contested in good faith and
which remain unpaid for thirty (30) days after invoice date will bear
interest from the invoice date of one and one-half percent (1 1/2%) per
month or the highest rate permitted by law, if less. Time is of the essence
for all payments due under this Agreement, and in the event any payment due
to Manhattan is collected at law, through an attorney-at-law or a collection
agency, Client agrees to pay all costs of collection, including without
limitation, all court costs and reasonable attorney's fees.
(F) All payments made hereunder are nonrefundable, except as specifically
provided otherwise in this Agreement.
6. LIMITED LIABILITY. EXCEPT FOR a) FAILURE TO COMPLY WITH MANHATTAN'S
PROPRIETARY RIGHTS, b) FAILURE TO COMPLY WITH THE MUTUAL NONDISCLOSURE
PROVISION, OR c) THE INFRINGEMENT INDEMNITY PROVISIONS CONTAINED HEREIN: (A)
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR A MONETARY
AMOUNT GREATER THAN THE AMOUNTS PAID OR DUE PURSUANT TO THIS AGREEMENT AND
(B) IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR ANY LOSS
OR INJURIES TO EARNINGS, PROFITS OR GOODWILL, OR FOR ANY INCIDENTAL,
SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OF ANY PERSON OR ENTITY WHETHER
ARISING IN CONTRACT, TORT OR OTHERWISE, EVEN IF EITHER PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE LIMITATIONS SET FORTH IN
THIS SECTION SHALL APPLY EVEN IF ANY OTHER REMEDIES FAIL OF THEIR ESSENTIAL
PURPOSE.
The provisions of this Agreement allocate the risks between Manhattan and
Client. Manhattan's pricing reflects this allocation of risk and the
limitation of liability specified herein.
7. EMPLOYEE RECRUITING. Each party acknowledges that the other party's
employees are critical to the servicing of its customers. Therefore, Client
agrees not to solicit, employ or otherwise engage Manhattan's employees
without Manhattan's prior written consent for a period of thirty-six (36)
months following that employee's last date of employment by Manhattan and
Manhattan agrees not to solicit, employ or otherwise engage Client's
employees involved in the services contemplated by this Agreement without
Client's prior written consent for a period of thirty-six (36) months
following that employee's last date of employment by Client. Should either
party violate this provision, the violating party agrees to pay the other
party the greater of one-half of the former employee's annual salary or
fifty thousand dollars ($50,000). The parties further agree that in the
event of any actual or threatened breach of any of the provisions of this
section, the non-breaching party shall be entitled (in addition to any and
all other rights and remedies at law or in equity for damages or otherwise,
which rights and remedies are and shall be cumulative) to specific
performance, a temporary restraining order, or an injunction to prevent such
breach or contemplated breach. Further, such payment and additional relief
does not restrict the non-breaching party's rights or remedies as they
relate to such former employee.
(8) TERMINATION. If either party materially breaches this Agreement, the other
party may give written notice of its desire to terminate and the specific
grounds for termination and, if such default is capable of cure and the
party in default fails to cure the default within thirty (30)
Page 3/4
<PAGE>
days of the notice, the other party may terminate this Agreement. If such
default is incapable of cure, the other party may terminate this Agreement
immediately upon written notice of its desire to terminate. Upon
termination, the License to use the Licensed Products shall be immediately
revoked and all Licensed Products and supporting materials will be returned
to Manhattan or destroyed and documentation supplied to Manhattan certifying
destruction. Confidentiality obligations shall survive this Agreement.
(9) EXPORT ADMINISTRATION. Client agrees to comply fully with all relevant
export laws and regulations of the United States ("Export Laws") to assure
that neither the Licensed Products nor any direct product thereof are (A)
exported, directly or indirectly, in violation of Export Laws; or (B) are
intended to be used for any purposes prohibited by Export Laws. Client will
indemnify Manhattan for any losses, costs, liability, and damages, including
reasonable legal fees, incurred by Manhattan as a result of failure by
Client to comply with this Section. Manhattan may, from time to time, deny
Client the right to license in certain countries in order to protect
Manhattan's interests.
10. GENERAL.
(A) WAIVER. The waiver of one breach hereunder shall not constitute the waiver
of any other or subsequent breach. No amendments, modifications or
supplements to this Agreement shall be binding unless in writing and signed
by the parties. No action arising out of this Agreement, regardless of form,
may be brought more than one (1) year after the claiming party knew or
should have known of the cause of action.
(B) NOTICES. All notices shall be in writing and personally delivered or sent by
certified mail, postage prepaid, return receipt requested, to the address
written above or such other address as notified to the other party and such
notice shall be deemed to be made on the fifth (5th) day after such mailing.
To expedite order processing, Client agrees that Manhattan may treat
documents faxed by Client to Manhattan as original documents. However,
either party may require the other to exchange original signed documents.
(C) GOVERNING LAW. This Agreement, and all matters arising out of or related to
this Agreement, except actions arising under the patent and copyright
provisions of the U.S. Code, shall be governed by the laws of the State of
Georgia. The parties agree that this Agreement is not subject to and shall
not be interpreted by the United Nations Convention on Contracts for the
International Sale of Goods.
(D) ASSIGNMENT. Except as provided in this subsection, this Agreement may not be
assigned by either party and any attempted assignment which does not adhere
to these provisions shall be void. However, either party may, upon written
notice to the other party, assign this Agreement to any entities under
common control and ownership of the assigning party, such common control and
ownership being defined as the direct or beneficial ownership of a voting
interest of at least fifty percent (50%) or the right or power, directly or
indirectly, to elect a majority of the Board of Directors, or the right or
power to control management. Either party may assign this Agreement in the
event of the sale of all or substantially all of its assets or equity.
(E) PUBLICITY RIGHTS. Manhattan may include Client's name and logo among its
list of customers and may include a brief description of the services
furnished by Manhattan and the functions performed thereby.
(F) LANGUAGE. Should a counterpart to this Agreement be prepared in a language
other than English, then English shall be the language of this Agreement and
the English language counterpart shall govern all disputes, performances and
interpretations, and the counterpart in another language shall be for
convenience only and shall not affect the performance or interpretation of
this Agreement.
(G) CURRENCY. All amounts stated in and payable under this Agreement shall be
denominated and payable in United States Dollars.
(H) SEVERABILITY. If any provision or portion thereof of this Agreement is held
to be invalid or unenforceable, the remaining provisions will remain in full
force.
This Agreement, including its terms and conditions and its attachments and
amendments, is a complete and exclusive statement of the agreement between the
parties, which supersedes all prior or concurrent proposals and understandings,
whether oral or written, and all other communications between the parties
relating to the subject matter of this Agreement. This Agreement shall not be
effective until executed by Client and accepted and executed by an authorized
representative of Manhattan.
By execution, signer certifies that By execution, signer certifies that
signer is duly authorized to execute signer is duly authorized to execute
this Agreement on behalf of this Agreement on behalf of Client.
Manhattan. Accepted by Manhattan
and effective as of , 19 .
---- --
MANHATTAN ASSOCIATES, INC. CLIENT
By By
---------------------------------- -----------------------------------
(Authorized Signature) (Authorized Signature)
---------------------------------- -----------------------------------
(Print or Type Name) (Print or Type Name and Title)
---------------------------------- -----------------------------------
(Title) (Date Signed)
Page 4/4
<PAGE>
EXHIBIT 10.22
FIRST AMENDMENT TO THE MANHATTAN ASSOCIATES, INC.
STOCK INCENTIVE PLAN
THIS FIRST AMENDMENT TO THE MANHATTAN ASSOCIATES, INC. STOCK INCENTIVE PLAN
(the "Amendment") is made effective as of the 12th day of August, 1998 (the
"Effective Date"), by MANHATTAN ASSOCIATES, INC., a corporation organized under
and doing business under the laws of the State of Georgia (the "Company"). All
capitalized terms in this Amendment have the meaning ascribed to such term as in
the Manhattan Associates, Inc. Stock Incentive Plan (the "Plan"), unless
otherwise stated herein.
W I T N E S S E T H :
WHEREAS, the Plan was adopted by the Board of Directors and approved by the
shareholders of the Company in February 1998; and
WHEREAS, the Board of Directors of the Company desires to amend the Plan to
increase the number of shares that may be granted under the Plan;
NOW, THEREFORE, in consideration of the premises and mutual promises
contained herein, the Plan is hereby amended as follows:
SECTION 1. Section 3 of the Plan is hereby amended by deleting the first
sentence of Section 3 of the Plan in its entirety and substituting in lieu
thereof the following:
"The total number of Shares that may be issued pursuant to
Stock Incentives under this Plan shall not exceed six million
(6,000,000), as adjusted pursuant to Section 11, less the number of
Shares subject to options issued under the Manhattan Associates, LLC
Option Plan."
SECTION 2. Except as specifically amended by this Amendment, the Plan
shall remain in full force and effect as prior to this Amendment.
IN WITNESS WHEREOF, the Company has caused this FIRST AMENDMENT TO THE
MANHATTAN ASSOCIATES, INC. STOCK INCENTIVE PLAN to be executed on the Effective
Date.
MANHATTAN ASSOCIATES, INC.
By: /s/ Alan J. Dabbiere
---------------------------
Alan J. Dabbiere, President
ATTEST:
By: /s/ David K. Dabbiere
----------------------------
David K. Dabbiere, Secretary
<PAGE>
EXHIBIT 10.23
Amendment No. 2
to
Manhattan Associates, Inc.
Stock Incentive Plan
The Manhattan Associates, Inc. Stock Incentive Plan (the "Plan") is hereby
amended as follows:
1. Amendment Regarding Administration. Section 5 of the Plan is hereby
----------------------------------
amended by adding the following sentence at the end of Section 5 of the Plan:
Furthermore, the Board may authorize the appointment of one or more
persons, who need not be members of the Board, to serve as the New
Employee Stock Option Committee, solely for the purpose of authorizing
stock option grants to new employees of the Company immediately upon their
hiring.
2. Effective Date. The effective date of this Amendment shall be March 4,
--------------
1999.
3. Miscellaneous.
-------------
(a) Capitalized terms not otherwise defined herein shall have the
meanings given them in the Plan.
(b) Except as specifically amended hereby, the Plan shall remain in
full force and effect.
IN WITNESS WHEREOF, the Company has caused this Amendment No. 2 to the
Manhattan Associates, Inc. Stock Incentive Plan to be executed on the Effective
Date.
Manhattan Associates, Inc.
By: /s/ Alan J. Dabbiere
---------------------------
Alan J. Dabbiere, President
ATTEST:
By: /s/ David K. Dabbiere
----------------------------
David K. Dabbiere, Secretary
<PAGE>
EXHIBIT 10.24
Amendment No. 3
to
Manhattan Associates, Inc.
Stock Incentive Plan
The Manhattan Associates, Inc. Stock Incentive Plan (the "Plan") is hereby
amended as follows:
1. Amendment Regarding Option Replenishment. Section 3 of the Plan is
----------------------------------------
hereby amended by deleting Section 3 in its entirety and substituting the
following new Section 3 therefor:
Section 3.
Shares Subject to Stock Incentives
The initial number of Shares reserved for issuance under this Plan shall
be 7,000,000, as adjusted pursuant to Section 11, less the number of Shares
subject to options issued under the Manhattan Associates, LLC Option Plan
(the "LLC Plan"). The number of Shares available for issuance under the
Plan shall be automatically adjusted on the first day of each fiscal year,
beginning with the 2000 fiscal year, by a number of Shares such that the
total number of Shares reserved for issuance under this Plan equals the sum
of (i) the aggregate number of Shares previously issued under this Plan and
the LLC Plan; (ii) the aggregate number of Shares subject to then
outstanding Stock Incentives granted under this Plan and the LLC Plan; and
(iii) 5% of the number of Shares of Common Stock outstanding on the last
day of the preceding fiscal year. Notwithstanding the foregoing, not more
than 1,000,000 of the Shares available for grant each year shall be
available for issuance pursuant to ISOs, such that not more than 10,000,000
Shares resulting from such automatic adjustments may ever be issued
pursuant to ISOs during the term of the Plan.
Such Shares shall be reserved, to the extent that the Company deems
appropriate, from authorized but unissued Shares, and from Shares which
have been reacquired by the Company. Furthermore, any Shares subject to a
Stock Incentive which remain after the cancellation, expiration or exchange
of such Stock Incentive thereafter shall again become available for use
under this Plan, but any Surrendered Shares which remain after the
surrender of an ISO or a Non-ISO under Section 8 shall not again become
available for use under this Plan.
2. Effective Date. The effective date of this Amendment shall be March 4,
--------------
1999, provided, the shareholders of the Company approve this Amendment within 12
months after such effective date. Any Stock Incentives granted under the Plan
as amended hereby before the date of such approval automatically shall be
granted subject to such approval.
3. Miscellaneous.
-------------
(a) Capitalized terms not otherwise defined herein shall have the
meanings given them in the Plan.
(b) Except as specifically amended hereby, the Plan shall remain in
full force and effect.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Amendment No. 3 to the
Manhattan Associates, Inc. Stock Incentive Plan to be executed on the Effective
Date.
Manhattan Associates, Inc.
By: /s/ Alan J. Dabbiere
---------------------------
Alan J. Dabbiere, President
ATTEST:
By: /s/ David K. Dabbiere
----------------------------
David K. Dabbiere, Secretary
-2-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into Manhattan Associates, Inc.'s previously
filed Registration Statement File No. 333-60635.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 26, 1999
54
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF MANHATTAN ASSOCIATES, INC. FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 27,751
<SECURITIES> 5,012
<RECEIVABLES> 22,406
<ALLOWANCES> (1,600)
<INVENTORY> 0
<CURRENT-ASSETS> 55,861
<PP&E> 9,185
<DEPRECIATION> (1,754)
<TOTAL-ASSETS> 67,775
<CURRENT-LIABILITIES> 11,300
<BONDS> 0
0
0
<COMMON> 239
<OTHER-SE> 55,396
<TOTAL-LIABILITY-AND-EQUITY> 67,775
<SALES> 62,065
<TOTAL-REVENUES> 62,065
<CGS> 27,997
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 24,807
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,331
<INCOME-TAX> 4,244
<INCOME-CONTINUING> 6,087
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,087
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.24
</TABLE>
<PAGE>
EXHIBIT 99.1
SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS
You should consider the following factors in evaluating us and our
business. If any of the following or other risks actually occurs, our business,
financial condition and results of operations could be adversely affected. In
such case, the trading price of our common stock could decline.
Our Failure To Manage Growth Of Operations May Adversely Affect Us
We continue to increase the scope of our operations domestically and
internationally and have increased our number of employees substantially. For
example, at December 31, 1997, we had a total of 191 employees and at December
31, 1998, we had a total of 517 employees. This growth will continue to place a
significant strain on our management systems and resources. If we are unable to
manage our growth effectively, our business, financial condition and results of
operations will be adversely affected. We may further expand domestically or
internationally through internal growth or through acquisitions of related
companies and technologies. Since November 1997, we have implemented new
accounting, timekeeping and customer service systems. Our ability to manage any
growth will depend in large part on the performance of these new systems.
For us to effectively manage our growth, we must continue to:
. improve our operational, financial and management controls;
. improve our reporting systems and procedures;
. enhance management and information control systems;
. develop the management skills of our managers and supervisors; and
. train and motivate our employees.
Several of our executive officers joined our company since November 1997:
Name Title Start Date
- ---- ----- ---------
Robert Bearden Senior Vice President-- August 1998
Global Sales
Michael J. Casey Senior Vice President, November 1997
Chief Financial Officer
and Treasurer
David K. Dabbiere Senior Vice President, March 1998
Chief Legal Officer
and Secretary
Neil Thall Senior Vice President-- January 1998
Supply Chain Strategy
Our ability to manage any growth will depend in large part on the
performance of these new managers. Each of these individuals has been involved
only with our most recent operating activity. These executive officers must
integrate themselves into daily operations, gain the trust and confidence of the
other employees and work effectively as a team if we are to be successful.
56
<PAGE>
Our Fluctuating Operating Results Could Cause Our Stock Price To Fall
Our quarterly revenue and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter If our quarterly revenue or
operating results fall below the expectations of investors or public market
analysts, the price of our common stock could fall substantially. Our quarterly
revenue is difficult to forecast for several reasons, including the following:
. the market for distribution center management and supply
chain execution software is in an early stage of development, and it is
therefore difficult to accurately predict customer demand; and
. the sales cycle for our products and services varies substantially from
customer to customer, and we expect the sales cycle to lengthen. As a
result, we have difficulty determining whether and when we will receive
revenue from a particular customer.
As a result of these and other factors, our license revenue is difficult to
predict. Because our revenue from services is largely correlated to our license
revenue, a decline in license revenue could also cause a decline in our services
revenue in the same quarter or in subsequent quarters. In addition, an increase
or decrease in hardware sales, which provide us with lower gross margins than
sales of software licenses or services, may cause variations in our quarterly
operating results.
Other factors, many of which are outside our control, could also cause
variations in our quarterly revenue and operating results. Some of these other
factors are:
. demand for our products;
. introductions of new products by our competitors;
. the level of price competition by our competitors;
. customers' budgeting and purchasing cycles;
. delays in our implementations at customer sites;
. timing of hiring new services employees and the rate at which these
employees become productive;
. development and performance of our distribution channels;
. timing of any acquisitions and related costs; and
. identification of software quality problems.
Most of our expenses, including employee compensation and rent, are
relatively fixed. In addition, our expense levels are based, in part, on our
expectations regarding future revenue increases. As a result, any shortfall in
revenue in relation to our expectations could cause significant changes in our
operating results from quarter to quarter and could result in quarterly losses.
As a result of these factors, we believe that period-to-period comparisons of
our revenue levels and operating results are not necessarily meaningful. You
should not rely on our historical quarterly revenue and operating results to
predict our future performance.
57
<PAGE>
Our Operating Results Are Substantially Dependent On One Product
Substantially all of our revenue comes from the sale of our PkMS software
and related services and hardware, and we expect this pattern to continue.
Accordingly, our future operating results will depend on the demand for PkMS and
related services and hardware by future customers, including new and enhanced
releases that are subsequently introduced. We cannot assure that the market
will continue to demand our current products or that we will be successful in
marketing any new or enhanced products. If our competitors release new products
that are superior to PkMS in performance or price, demand for our products may
decline. A decline in demand for PkMS as a result of competition, technological
change or other factors would have a material adverse effect on our business,
financial condition and results of operations.
Our Lengthy Sales Cycle And Delays In Implementations Of Our Products Could
Adversely Impact Us
Delays in, or cancellations of, sales or implementations of our products
and services could have a material adverse effect on our business, financial
condition and results of operations. The length of time between our initial
contact with a customer and the agreement by the customer to buy our products
typically ranges from three to six months, and is subject to delays over which
we may have little or no control. Our sales cycle is long because:
. we often must educate our customers regarding the use and benefits of our
products before they decide to purchase;
. our products are often used by our customers in mission critical
operations of their business, and they want to evaluate completely a
proposed implementation before purchasing; and
. our customers must commit significant resources to the integration of our
products with their existing systems.
As the average dollar size of each sale of our products and services
increases, we expect this sales cycle to lengthen because our customers will
take longer to approve spending the larger amount of money. The time it takes
us to implement our products for a customer can also be longer when the
implementation is larger and more complex.
We Have A Short Operating History
We commenced operations and shipped our first version of PkMS in 1990.
Accordingly, we have only a limited operating history on which you can base your
evaluation of our business and prospects. In addition, our prospects must be
considered in light of the risks and uncertainties encountered by companies in
an early stage of development in new and rapidly evolving markets. Although we
have grown significantly during the past five years, we do not believe that our
prior growth rates are sustainable or a good predictor of future operating
results.
Our Inability To Attract And Retain Management And Other Personnel May Adversely
Affect Us
Our success greatly depends on the continued service of Alan J. Dabbiere,
our Chairman of the Board, Chief Executive Officer and President, and Deepak
Raghavan, our Chief Technology Officer, as well as our other key senior
management, technical and sales personnel. The loss of any of our senior
management or other key research, development, sales and marketing personnel,
particularly if lost to competitors, could have a material adverse effect on our
future operating results. We do not maintain key man life insurance on any of
our executive officers. Our future success will depend in large part upon our
ability to attract, retain and motivate highly skilled employees. We face
significant competition for individuals with the skills required to perform the
services we offer. We cannot assure that we will be able to attract and retain
sufficient numbers of these highly skilled employees or to motivate them.
Because of the complexity of the distribution center management software market,
we may experience a significant time lag between the date on which technical and
sales personnel are hired and the time at which such persons become fully
productive.
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Fluctuations In Hardware Sales May Adversely Affect Us
A significant portion of our revenue in any period is comprised of the
resale of a variety of third party hardware products to purchasers of our
software. Our customers may choose to purchase this hardware directly from
manufacturers or distributors of such products. Revenue from hardware sales as
a percentage of total revenue decreased in 1996, 1997 and 1998, and may continue
to decrease in the future. If we are not able to increase our revenue from
software licenses and services or maintain our hardware revenue, our business,
financial condition and results of operations may be adversely affected.
Immigration Restrictions May Hinder Our Employee Retention And Hiring
A number of our employees are Indian nationals employed pursuant to non-
immigrant work-permitted visas issued by the United States Immigration and
Naturalization Service, or INS. There is a limit on the number of new visas
issued by the INS each year. In years in which this limit is reached, we may be
unable to retain or hire additional foreign employees. The federal government
may in the future further restrict the issuance of new visas. If we are unable
to retain or hire additional foreign employees, we may incur additional labor
costs and expenses or not have sufficient qualified personnel to carry on our
business, which could have a material adverse effect on our business, financial
condition and results of operations.
We May Not Be Able To Continue To Compete Successfully With Other Companies
We compete in markets that are intensely competitive and are expected to
become more competitive as current competitors expand their product offerings
and new competitors enter the market. Our current competitors come from many
segments of the software industry and offer a variety of solutions directed at
various aspects of the supply chain, as well as the enterprise as a whole. We
have faced competition for product sales from:
. other distribution center management software vendors;
. the corporate information technology departments of potential customers
capable of internally developing solutions; and
. smaller independent companies that have developed or are attempting to
develop distribution center management software.
We may face competition in the future from business application software
vendors that may broaden their product offerings by developing or acquiring
distribution center management software, and Enterprise Resource Planning, or
ERP, and Supply Chain Management, or SCM, applications vendors. These ERP and
SCM vendors have a large number of strong customer relationships which could
provide a significant competitive advantage. New competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Many of our current or potential future competitors have longer
operating histories, greater financial, technical, marketing and other
resources, greater name recognition, and a larger installed base of customers
than we do. To be successful, we must continue to produce products based on the
leading technology in our market. If we cannot maintain our technological
leadership or assemble the development, marketing, sales and customer service
resources to meet any competitive threat, we may lose market share and suffer
reductions in sales prices and gross margins. These developments could
materially and adversely affect our business, financial condition and results of
operations.
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If We Cannot Integrate Acquired Companies With Our Business, Our Profitability
May Be Adversely Affected
We acquired Performance Analysis Corporation, or PAC, in February 1998 and
the Distribution Center Management Systems software product and related assets
of Kurt Salmon Associates in October 1998. We may from time to time acquire
companies with complementary products and services. These acquisitions will
continue to expose us to increased risks and costs, including the following:
. difficulties in assimilating new operations and personnel;
. diverting financial and management resources from existing operations;
and
. difficulties in integrating acquired technologies.
We may not be able to generate sufficient revenue from any of these
acquisitions to offset the associated acquisition costs. We will also be
required to maintain uniform standards of quality and service, controls,
procedures and policies. Our failure to achieve any of these standards may hurt
relationships with customers, employees, and new management personnel. In
addition, future acquisitions may result in additional stock issuances which
could be dilutive to our shareholders.
We may also evaluate joint venture relationships with complementary
businesses. Any joint venture we enter into would involve many of the same risks
posed by acquisitions, particularly the following:
. risks associated with the diversion of resources;
. the inability to generate sufficient revenue;
. the management of relationships with third parties; and
. potential additional expenses.
Many business acquisitions must be accounted for using the purchase method
of accounting. Many acquisition candidates have significant intangible assets,
and an acquisition of these businesses, if accounted for as a purchase, would
result in substantial goodwill amortization charges to us, reducing future
earnings. In addition, these acquisitions could involve acquisition-related
charges, such as one-time acquired research and development charges. For
example, we recorded an acquired research and development expense of
approximately $1.6 million in the first quarter of 1998 in connection with the
acquisition of PAC.
We accounted for the $1.6 million expense in the PAC acquisition using a
cost-based approach. This cost-based approach is not a widely used methodology
to value acquired research and development in a technology acquisition. Many
software companies account for acquisitions using an income-based approach to
value acquired research and development. Although we believe that an income-
based approach often provides a more precise valuation, because there was not
then a market for PAC's Windows NT product, which prevented us from preparing
meaningful projections of future cash flow, we elected to use the cost-based
approach.
Our Growth Is Dependent Upon The Successful Development Of Our Direct And
Indirect Sales Channels
We sell our products primarily through our direct sales force and we
support our customers with our internal technical and customer support staff.
Our ability to achieve significant revenue growth in the future will greatly
depend on our ability to recruit and train sufficient technical, customer and
direct sales personnel, particularly additional sales personnel focusing on the
new vertical market segments that we target. We have in the past and may in the
future experience difficulty in recruiting qualified sales, technical and
support personnel. Our inability to rapidly and effectively expand our direct
sales force and our technical and support staff could materially adversely
affect our business.
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We believe that future growth also will depend on developing and
maintaining successful strategic relationships with systems integrators and
third party software application providers. Our strategy is to continue to
increase the proportion of customers served through these indirect channels. We
are currently investing, and plan to continue to invest, significant resources
to develop these indirect channels. This investment could adversely affect our
operating results if these efforts do not generate license and service revenue
necessary to offset this investment. Also, our inability to recruit and retain
qualified systems integrators could adversely affect our results of operations.
Because lower unit prices are typically charged on sales made through indirect
channels, increased indirect sales could adversely affect our average selling
prices and result in lower gross margins. In addition, sales of our products
through indirect channels will reduce our consulting service revenues as the
third party systems integrators provide these services. As indirect sales
increase, our direct contact with our customer base will decrease, and we may
have more difficulty accurately forecasting sales, evaluating customer
satisfaction and recognizing emerging customer requirements. In addition, these
systems integrators and third party software providers may develop, acquire or
market products competitive with our products.
Our strategy of marketing our products directly to customers and indirectly
through systems integrators and third party software application providers may
result in distribution channel conflicts. Our direct sales efforts may compete
with those of our indirect channels and, to the extent different systems
integrators target the same customers, systems integrators may also come into
conflict with each other. Any channel conflicts which develop may have a
material adverse effect on our relationships with systems integrators or hurt
our ability to attract new systems integrators.
There Are Many Risks Associated With International Operations
We continue to expand our international operations, and these efforts
require significant management attention and financial resources. We may not be
able to successfully penetrate international markets or if we do, there can be
no assurance that we will grow these markets at the same rate as in North
America. Because of the complex nature of this expansion, it may adversely
affect our business and operating results.
We have committed resources to the opening and integration of additional
international sales offices and the expansion of international sales and support
channels. Our efforts to develop and expand international sales and support
channels may not be successful. International sales are subject to many risks,
including the following:
. difficulties in staffing and managing foreign operations;
. difficulties in managing international systems integrators;
. difficulties and expenses associated with complying with a variety of
foreign laws;
. difficulties in producing localized versions of our products;
. import and export restrictions and tariffs;
. difficulties in collecting accounts receivable;
. unexpected changes in regulatory requirements;
. currency fluctuations; and
. political and economic instability abroad.
International sales can also be affected to a greater extent by seasonal
fluctuations resulting from the lower sales that typically occur during the
summer months in Europe and other parts of the world.
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We Must Continue To Advance Our Technology To Remain Competitive
The market for our products is characterized by rapid technological change,
frequent new product introductions and enhancements, changes in customer demands
and evolving industry standards. Our existing products could be rendered
obsolete if we fail to continue to advance our technology. We have also found
that the technological life cycles of our products are difficult to estimate,
partially because of changing demands of other participants in the supply chain.
We believe that our future success will depend upon our ability to continue to
enhance our current product line while we concurrently develop and introduce new
products that keep pace with competitive and technological developments. These
developments require us to continue to make substantial product development
investments. Although we are presently developing a number of product
enhancements to the PkMS product suite, we cannot assure that these enhancements
will be completed on a timely basis or gain customer acceptance.
We May Face Liability To Clients If Our Systems Fail
Our products are often critical to the operations of our customers'
businesses and provide benefits that may be difficult to quantify. We have
guaranteed that our products will comply with certain labeling requirements of
the top 100 consumer goods retailers as ranked by Stores Magazine. If our
products fail to function as required, we may be subject to claims for
substantial damages. Courts may not enforce provisions in our contracts which
would limit our liability or otherwise protect us from liability for damages.
Although we maintain general liability insurance coverage, including coverage
for errors or omissions, this coverage may not continue to be available on
reasonable terms or in sufficient amounts to cover claims against us. In
addition, our insurer may disclaim coverage as to any future claim. If claims
exceeding the available insurance coverage are successfully asserted against us,
or our insurer imposes premium increases, large deductibles or co-insurance
requirements on us, our business, financial condition and results of operations
could be adversely affected.
Our Failure To Adequately Protect Our Proprietary Rights May Adversely Affect Us
Our success and ability to compete is dependent in part upon our
proprietary technology. There can be no assurance that we will be able to
protect our proprietary rights against unauthorized third-party copying or use.
We rely on a combination of copyright, trademark and trade secret laws, as well
as confidentiality agreements and licensing arrangements, to establish and
protect our proprietary rights. Despite our efforts to protect our proprietary
rights, existing copyright, trademark and trade secret laws afford only limited
protection. In addition, the laws of certain foreign countries do not protect
our rights to the same extent as do the laws of the United States. Attempts may
be made to copy or reverse engineer aspects of our products or to obtain and use
information that we regard as proprietary. Any infringement of our proprietary
rights could materially adversely affect our future operating results.
Furthermore, policing the unauthorized use of our products is difficult and
litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets or to determine the validity and scope of
the proprietary rights of others. Such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on our
future operating results.
Intellectual Property Claims Can Be Costly And Result In The Loss Of Significant
Rights
It is possible that third parties will claim that we have infringed their
current or future products. We expect that distribution center management
software developers like us will increasingly be subject to infringement claims
as the number of products grow. Any claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays, or
require us to enter into royalty or licensing agreements, any of which could
have a material adverse effect upon our operating results. We cannot assure
that these royalty or licensing agreements, if required, would be available on
terms acceptable to us, if at all. We cannot assure that legal action claiming
patent infringement will not be commenced against us, or that we would prevail
in such litigation given the complex technical issues and inherent uncertainties
in patent litigation. If a patent claim against us were successful and we could
not obtain a license on acceptable terms or license a substitute technology or
redesign to avoid infringement, our business, financial condition and results of
operations would be materially adversely affected.
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Year 2000 Risks May Result In Material Adverse Effects On Our Business
Over the next 12 months, many companies will need to upgrade their computer
systems and software products in order to ensure that these systems and software
are able to distinguish 21st century dates from 20th century dates. While our
current products are designed to comply with these "Year 2000" requirements, we
may still face claims resulting from system problems associated with the century
change. Our software products that are designed to be Year 2000 compliant may
not contain all necessary date code changes. Customers using earlier versions
of our products which were not Year 2000 compliant may have to install a later
version of the software that is Year 2000 compliant or implement a modification
to correct that version. Because our software system is often integrated with
hardware and operating or interface software over which we exert little control,
the failure of the manufacturers of those systems to insure that they are Year
2000 compliant may cause the integrated system to fail. Any Year 2000 problems
with our products and implementations which are not satisfactorily corrected may
adversely affect our business, financial condition and results of operations.
In addition, Year 2000 non-compliance in our internal information
technology, or IT, systems and non-IT systems on which our operations rely may
have an adverse impact on our business, financial condition or results of
operations. While we believe that these systems, many of which have been
recently upgraded, are all Year 2000 compliant, they may not be. Non-compliance
by our business partners may also have an adverse impact on our business,
financial condition or results of operations.
We believe that the purchasing patterns of customers and potential
customers may be affected by Year 2000 issues in a variety of ways.
Expenditures by many companies to address Year 2000 issues may result in reduced
funds available to purchase software products such as those that we offer.
Potential customers may also choose to defer purchasing Year 2000 compliant
products until they believe it is absolutely necessary, thus potentially
resulting in stalled market sales within the industry. Conversely, Year 2000
issues may cause companies to accelerate purchases, thereby causing an increase
in short-term demand and a consequent decrease in long-term demand for software
products. Additionally, Year 2000 issues could cause a significant number of
companies, including our customers, to reevaluate their current software needs
and as a result switch to other systems or suppliers. Any of the foregoing
could result in a material adverse effect on our business, financial condition
and results of operations.
Our directors, executive officers and key employees together control
approximately 80.7% of our outstanding common stock. In particular, Alan J.
Dabbiere, the Chairman of the Board, Chief Executive Officer and President,
controls approximately 45.6% of our common stock. As a result, these
shareholders, if they act together, are able to influence the management and
affairs of our company and all matters requiring shareholder approval, including
the election of directors and approval of significant corporate transactions.
This concentration of ownership may have the effect of delaying or preventing a
change in control of our company and might affect the market price of the common
stock.
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We May Require Additional Capital
We may require additional capital to finance our growth or to fund
acquisitions or investments in complementary businesses, technologies or product
lines. Our capital requirements will depend on many factors, including:
. demand for our products;
. the timing of and extent to which we invest in new technology;
. the level and timing of revenue;
. the expenses of sales and marketing and new product development;
. the success and related expense of increasing our brand awareness;
. the extent to which competitors are successful in developing new products
and increasing their market share; and
. the costs involved in maintaining and enforcing intellectual property
rights.
To the extent that our resources are insufficient to fund our future
activities, we may need to raise additional funds through public or private
financing. However, additional funding, if needed, may not be available on
terms attractive to us, or at all. Our inability to raise capital when needed
could have a material adverse effect on our business, operating results and
financial condition. If additional funds are raised through the issuance of
equity securities, the percentage ownership of our Company by our shareholders
would be diluted.
Our Articles Of Incorporation And Bylaws And Georgia Law May Inhibit A Takeover
Of Our Company
Our basic corporate documents and Georgia law contain provisions that might
enable our management to resist a takeover of our Company. These provisions
might discourage, delay or prevent a change in the control of our Company or a
change in our management. These provisions could also discourage proxy contests
and make it more difficult for you and other shareholders to elect directors and
take other corporate actions. The existence of these provisions could limit the
price that investors might be willing to pay in the future for shares of the
common stock.
Our Stock Price Has Been Highly Volatile
The trading price of our common stock has fluctuated significantly since
our initial public offering in April 1998. In addition, the trading price of
our common stock could be subject to wide fluctuations in response to various
factors, including:
. quarterly variations in operating results;
. announcements of technological innovations or new products by us or our
competitors;
. developments with respect to patents or proprietary rights; and
. changes in financial estimates by securities analysts.
In addition, the stock market has experienced volatility that has
particularly affected the market prices of equity securities of many technology
companies and that often has been unrelated or disproportionate to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of our common stock.
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