SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended September 30, 1996
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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 0-20109
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Kronos Incorporated
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2640942
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Fifth Avenue, Waltham MA 02154
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 890-3232
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 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. [ X ]
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State the aggregate market value of the voting stock held by
non-affiliates of the registrant.
Non-Affiliate Voting Aggregate
Date Shares Outstanding Market Value
November 30, 1996 7,075,763 $201,659,246
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Date Class Outstanding Shares
Common Stock, $0.01 par
November 30, 1996 value per share 8,132,450
DOCUMENTS INCORPORATED BY REFERENCE.
The Company's definitive proxy statement dated December 13, 1996 for the Annual
Meeting of Stockholders to be held on January 31, 1997 (Part III - Items
10,11,12 and 13).
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PART I
Item 1. Business
Kronos Incorporated (the "Company" or "Kronos") designs, develops,
manufactures and markets time and attendance, workforce management and shop
floor data collection systems, and application software that enhance
productivity in the workplace. The Company's systems consist of fully integrated
software and intelligent data collection terminals. Kronos(R) also maintains an
extensive service and technical support organization which provides a suite of
maintenance, professional and educational services. The Company was organized in
1977 as a Massachusetts corporation.
Products and Services
Kronos' products include fully-integrated software, intelligent data
collection terminals and related components for time and attendance, workforce
management and shop floor data collection systems and value-added software
designed to expand the functions of its systems. These products are designed for
a wide range of businesses and applications from single-user to large multi-site
enterprises. In addition, the Company maintains an extensive service and support
organization that is responsible for maintaining systems and providing
professional and educational services. To date, the majority of the Company's
revenues and profits have been derived from its time and attendance systems and
services.
Time and Attendance, Workforce Management and Shop Floor Data Collection Systems
Kronos' Time and Attendance and Workforce Management systems are
designed to operate independently or in conjunction with other Kronos systems,
or to interface with third party systems. The Shop Floor Data Collection systems
are designed to operate independently or to interface with third party
Manufacturing Resource Planning ("MRP") systems.
The software incorporated in Kronos' systems is parameter-driven, which
allows it to be configured upon installation to meet the needs of an individual
customer and reconfigured as customer needs evolve. Currently, the Company
offers various releases of its software which run on such popular operating
systems as Windows, UNIX, DOS, and VMS. The Company's new client/server time and
attendance system runs on Windows 95 and Windows NT and integrates with Oracle,
Informix and Microsoft databases. In addition, the Company offers an IBM AS/400
based time and attendance package and shop floor data collection package.
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Kronos provides a wide range of data collection options to accommodate
various work environments and markets and to satisfy the price/performance
requirements of its customers. The Company manufactures a family of intelligent
data collection terminals which collect time and attendance and factory-floor
data via keypad, bar code readers, lasers and charged coupled device ("CCD")
scanners. Terminal choices include wall-mounted, desk-mounted and hand-held
devices which are available in various sizes and models, some of which are
designed to operate in harsh environments. The Company also offers desktop
computer and telephone based data collection options. The Company believes that
the functions and features of its data collection options provide it with an
important advantage over its competition.
Major Systems
The major systems currently offered by the Company include:
Time and Attendance Systems. The Timekeeper Central(R), Timekeeper(R)/AS and
Timekeeper(R) C/S Systems are designed to reduce payroll preparation time,
consistently apply payroll rules, improve labor scheduling and control labor
costs. These systems automatically calculate employee hours data according to
the payroll policies of the individual customer, which are configured using the
parameter capabilities of the systems. In these systems, information is
consolidated into a number of standard labor management reports such as
absenteeism, tardiness, projected overtime, on-premises, and budget versus
actual costs. The Company's new client/server system, Timekeeper C/S, offers
open database connectivity and more powerful query and reporting tools. The
Company's time and attendance systems work in conjunction with a variety of data
collection methods described above.
Shop Floor Data Collection Systems. The ShopTrac Data Collection System and
Timekeeper/AS Labor Data Collection System consist of intelligent data
collection terminals and a suite of software applications for use primarily in
manufacturing plants. They are designed for manufacturers who build product in a
series of steps, such as job shops, work order based environments and repetitive
manufacturing. The systems capture labor and material data to provide real time
information on cost, location and completion time. This includes time and
attendance data to provide information for the basis of managing labor
resources; labor allocation data for the measurement of costs; the status of
work-in-process for communication to MRP, quality control and production
planning systems as well as quality control data.
Workforce Management System. The Workforce Management System is an integrated
labor management solution developed for the retail and hospitality markets. It
consists of several integrated modules, including Business Forecaster, which
predicts the level of activity a location can expect by analyzing key business
volume indicators, and WorkForce Planner, which then applies the appropriate
work standards to generate the correct staffing level required for the expected
level of business. The core of the system is the Smart Scheduler(TM) module,
which combines data from the WorkForce Planner, along with detailed employee
information about skill level, availability, seniority and work preferences, and
produces a complete, detailed work schedule. This information can then be
integrated with the applicable Kronos time and attendance system enabling
management to compare actual labor costs to budgeted costs. Together these
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modules provide a full set of tools to increase productivity, manage labor costs
and meet customer service goals.
Value-Added Software
The Company offers optional application software designed to expand and
enhance the range of functions performed by its time and attendance and shop
floor data collection systems. Such software includes the following:
Kronos Scheduling Module. The Kronos Scheduling Module assists in the process of
creating and assigning employee schedules and reports to help managers make
labor scheduling decisions.
Kronos Archive Program. The Kronos Archive Program is designed to automatically
perform long-term record keeping by accumulating labor hours, absences, late
arrivals, vacation time and wages.
Kronos CardSaver(R) Module. The Kronos CardSaver Module automatically saves
employee in and out data for wage and hour inquiries, performance reviews or
resolving employee grievances.
Kronos Accruals Module. The Kronos Accrual Module provides added functionality
by automatically calculating the balances of each employee's available benefit
time ensuring that benefit time is administered fairly, consistently and
automatically across all classes of employees.
Kronos Attendance Tracker Module. The Kronos Attendance Tracker module
systematically records and documents all types of employee absences and provides
for attendance and performance data to be reported in detail or summary reports.
Other Products
The Company markets Time Bank, a product which provides an interface to
most major payroll service bureau software and also supports interfaces to major
human resources and automated scheduling based systems. The Company purchases
this product from a third party. The Company's Gatekeeper(R) product is used in
access control applications and can limit access to only authorized personnel or
allow scheduled access based on schedules in the Timekeeper Central system. The
Kronos TeleTime(R) System allows customer telephones to serve as data input
devices. This product incorporates technology which is licensed from a third
party. The Company also markets products called ACES and ACES PLUS, which it
obtains from a third party, and which use optical scanning mark sensitive
technology to read data from forms and transmit that data to a time and
attendance database. The Company also offers an imaging system, ImageKeeper(TM),
which utilizes high-resolution video imaging to create and store digital
photographs and signatures of employees. Finally, the Company markets a number
of other accessories to its products including badges, traditional badge making
equipment, time cards, bar code labels and modems.
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Services and Support
Kronos maintains an extensive service and technical support
organization which provides a suite of maintenance, professional and educational
services. A range of maintenance services are available for hardware and
software and are delivered through either the Company's Global Support Center or
through local service personnel. The Company's wide range of professional
services include project management, technical consulting as well as system
integration and optimization. When necessary, the Company may also provide
customized software to meet its customers' unique software requirements. The
Company's educational services provide a full range of local classroom or
computer-based training courses.
Marketing and Sales
Kronos markets and sells its products in the United States and other
countries through its direct sales and support organization and through
independent dealers. In addition, the Company has a joint marketing agreement
with ADP, Inc. ("ADP"). Under the terms of the agreement, which was recently
extended to the year 2001, ADP markets a proprietary version of the Company's
PC-based time and attendance software, together with data collection terminals
manufactured by the Company. The product is offered to both new and existing ADP
clients, and is now also available in a customer-installable version.
The Company recognizes that the information needs of businesses in
various industries continue to be increasingly specialized and sophisticated. As
a result, the Company's marketing, field sales and service personnel are
organized into industry specific divisions. These divisions focus on the needs
of the manufacturing, healthcare, retail/hospitality and government/education
markets. These divisions operate with the following objectives:
o To gain expertise in their respective industry environments
and pursue opportunities for growth and product leadership.
o To focus engineering and marketing resources on industry
specific product development efforts required to deliver
products and services that meet those industry needs.
o Develop long-term business relationships with select industry
partners.
o Educate and train industry specific sales and service staff.
Focusing on industry specific divisions permits Kronos to better
understand the needs of its customers and to respond quickly to the
opportunities presented by these markets.
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Direct Sales Organization
In fiscal 1996 the Company re-aligned its field sales and service
personnel into the industry specific teams discussed above. The Company has 37
direct sales and support offices located in the United States. In addition, the
Company has two sales and support offices located in Canada, two in the United
Kingdom, one in Mexico and, as of July 1996, two in South Africa and one in
Australia. Each direct sales office covers a defined territory, and has sales
and support functions.
For the fiscal years ended September 30, 1996, 1995 and 1994, the
Company's international subsidiaries generated net revenues of $8,025,000,
$5,598,000 and $3,620,000, respectively. Total assets at these locations for
these periods were $5,496,000, $2,868,000 and $2,196,000, respectively.
Dealers
Kronos also markets and sells its products through independent dealers
within designated geographic territories generally not covered by Kronos' direct
sales offices. These dealers provide sales, support, and installation services
for Kronos' products. There are presently approximately 40 dealers in the United
States actively selling and supporting Kronos' products. Kronos also has dealers
in Australia, Argentina, Canada, Guam, Guatemala, Guyana, Hong Kong, Jamaica,
Malaysia, Mexico, Netherland Antilles, Panama, Phillipines, Puerto Rico,
Singapore, and the West Indies. Sales to independent international dealers for
the years ended September 30, 1996, 1995 and 1994 were $2,367,000, $2,508,000
and $1,659,000, respectively. Kronos supports its dealers with training,
technical assistance, and major account marketing assistance.
Customers
The Company estimates it has an installed base of approximately 100,000
customer sites. End-users of the Company's products range from small companies
with as few as five employees to some of the world's largest multi-site
organizations.
The Company believes that the dollar amount of backlog is not material
to an understanding of its business. Although the Company has contracts to
supply systems to certain customers over an extended period of time,
substantially all of the Company's product revenue in each quarter results from
orders received in that quarter.
Product Development
The Company's product development efforts are focused on enhancing and
increasing the performance of its existing products, developing new products and
developing interfaces to third party products to meet customer needs. During
1996, 1995 and 1994, Kronos' engineering, research and development expenses were
$12,730,000, $8,192,000 and $5,593,000, respectively. The Company intends to
continue to commit substantial resources to enhance and extend its product lines
and develop interfaces to third party products. Although the Company is
continually seeking to further enhance its product offerings, develop new
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products and to develop interfaces to third party products, there can be no
assurance that these efforts will succeed, or that, if successful, such product
enhancements or new products will achieve widespread market acceptance, or that
the Company's competitors will not develop and market products which are
superior to the Company's products or achieve greater market acceptance.
Competition
The Company's operations constitute a single segment within the data
collection industry--the design, development, manufacture and marketing of
integrated time and attendance, workforce management and shop floor data
collection systems that enhance productivity in the workplace.
The industry is highly competitive, and although the Company believes
it has certain technological and other advantages over its current competitors,
maintaining such advantages will require continued investment by the Company in
research and development, and sales and marketing. Competition could increase as
competitors in related industries, such as human resources and payroll, enter
the market. Advances in software development tools have accelerated the software
development process and, therefore, can allow competitors to penetrate certain
of the Company's markets.
The Company competes primarily on the basis of price/performance,
quality, reliability and customer service. In the time and attendance industry,
the Company competes against firms that sell automated time and attendance
products to many industries (typically to customers with 250 employees or less),
against firms that focus on particular industries, and against firms selling
related products, such as payroll or human resources products.
Proprietary Rights
The Company relies on a combination of patents, copyrights, trade
secret law and contracts to protect its proprietary technology.
The Company generally provides software products to end-users under
non-exclusive shrink-wrap licenses or under signed licenses, both of which may
be terminated by Kronos if the end-user breaches the terms of the license. These
licenses generally require that the software be used only internally subject to
certain limitations, such as the number of employees, simultaneous users,
computer model and serial number, features and/or terminals for which the
end-user has paid the required license fee. The Company authorizes its dealers
to sublicense software products to end-users under similar terms. In certain
circumstances, the Company also makes master software licenses available to
end-users which permit either a specified limited number of copies or an
unlimited number of copies of the software to be made for internal use. Some
major customers license software products under individually negotiated terms.
Despite these precautions, it may be possible to copy or otherwise
obtain and use the Company's products or technology without authorization. In
addition, effective copyright and trade secret protection may be unavailable or
limited in certain foreign countries.
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The Company has registered trademarks for Kronos, Timekeeper,
Timekeeper Central, Jobkeeper, Jobkeeper Central, Datakeeper, Datakeeper
Central, Gatekeeper, Gatekeeper Central, TeleTime, TimeMaker, CardSaver,
ShopTrac, the ShopTrac logo, Start.Time, Keep.Trac, Solution In A Box and the
Company's logo in the United States. In addition, certain trademarks have been
obtained or are in process in various foreign countries.
The Company purchases the Time Bank payroll interface software from a
single vendor for resale in certain of its time accounting systems. Although the
Company believes its relationship with this vendor is good, any interruption or
termination of the Company's right to resell such software could delay shipment
of certain of the Company's products and require the Company to write its own
software to perform this function. Although the Company believes it would be
able to produce its own payroll interface software, any delay or problems
encountered in doing so could temporarily and adversely affect the Company's
results of operations.
Manufacturing and Sources of Supply
The duplication of the Company's software and the printing of
documentation are outsourced to suppliers. The Company currently has four
suppliers who have been certified to the Company's manufacturing specifications
to perform the software duplication process. The Company's data collection
terminals are assembled from the printed circuit board level in its facility in
Chelmsford, Massachusetts. Although most of the parts and components included
within the Company's products are available from multiple suppliers, certain
parts and components are purchased from single suppliers. The Company has chosen
to source these items from single suppliers because it believes that the
supplier chosen is able to consistently provide the Company with the highest
quality product at a competitive price on a timely basis. While the Company has
to date been able to obtain adequate supplies of these parts and components, the
Company's inability to transition to alternate sources on a timely basis if and
as required in the future could result in delays or reductions in product
shipments which could have a material adverse effect on the Company's operating
results.
Employees
As of December 9, 1996, the Company had 1,235 employees. None of the
Company's employees is represented by a union or other collective bargaining
agent, and the Company considers its relations with its employees to be good.
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Item 2. Properties
The Company leases approximately 73,000 square feet at its headquarters
in Waltham, Massachusetts and leases 46 sales and support offices located
throughout North America, Europe, Africa and Australia. The Company also leases
a total of approximately 165,000 square feet in two facilities located in
Chelmsford, Massachusetts. The Company's manufacturing operations, Global
Support Center and various engineering and administrative operations are located
in these facilities. The Company's aggregate rental expense for all of its
facilities in fiscal 1996 was approximately $4,761,000. The Company considers
its facilities to be adequate for its current requirements and that additional
space will be available as needed in the future.
Item 3. Legal Proceedings
From time to time, the Company is involved in legal proceedings arising
in the normal course of business. None of the legal proceedings in which the
Company is currently involved is considered material by the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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Executive Officers of the Registrant
Name Age Position
Mark S. Ain 53 Chief Executive Officer and Chairman
of the Board
W. Patrick Decker 49 President, Chief Operating Officer
Verne S. Kayser 53 Vice President, Engineering
Paul A. Lacy 49 Vice President, Finance and Administration,
Treasurer and Clerk
Aron J. Ain 39 Vice President, Marketing and Worldwide
Field Operations
Lloyd B. Bussell 51 Vice President, Manufacturing
Sally J. Wallace 46 Vice President, General Counsel
Mark S. Ain, a founder of the Company, has served as Chief Executive
Officer and Chairman since its organization in 1977. He also served as President
from 1977 until October, 1996. Mr. Ain is the brother of Aron J. Ain, Vice
President, Marketing and Worldwide Field Operations of the Company.
W. Patrick Decker served as Vice President, Marketing and Field Operations
from 1982 until October, 1996, when he was appointed President and Chief
Operating Officer.
Verne S. Kayser served as Vice President, Engineering from 1984 until
November 20, 1996.
Paul A. Lacy has been Vice President, Finance and Administration, Treasurer
and Clerk since 1988.
Aron J. Ain served as Vice President, Sales and Service from 1988 until
October, 1996, when he was appointed Vice President, Marketing and Worldwide
Field Operations. Mr. Ain is the brother of Mark S. Ain, Chief Executive Officer
and Chairman.
Lloyd B. Bussell has served as Vice President, Manufacturing since 1987.
Sally J. Wallace has served as General Counsel since 1988 and was elected
Vice President in October, 1994.
Officers of the Company hold office until the first meeting of directors
following the next annual meeting of stockholders and, in the case of the
President, Treasurer and Clerk, until their successors are chosen and qualified.
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PART II
Item 5. Market for Registrant's Common Equity and Stockholder Matters
STOCK MARKET INFORMATION
The Company's common stock is traded under the National Association of
Securities Dealers Automated Quotation System (NASDAQ) symbol KRON. The
following table sets forth the high and low sales prices for fiscal 1996 and
fiscal 1995. Such over-the-counter market quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
1996
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High Low
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First quarter $33 5/8 $25
Second quarter 37 25 1/2
Third quarter 35 1/2 25 1/2
Fourth quarter 37 24 3/4
1995
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High Low
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First quarter $18 $12 1/2
Second quarter 21 1/4 17
Third quarter 25 1/4 16 1/4
Fourth quarter 32 3/4 24 5/8
Prices reflect the Company's stock split paid on January 29, 1996 to
shareholders of record as of January 15, 1996.
HOLDERS
On November 30, 1996 there were approximately 3,600 shareholders of record of
the Company's common stock.
DIVIDENDS
The Company has not paid cash dividends on its common stock, and the present
policy of the Company is to retain earnings for use in its business.
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Item 6. Selected Financial Data
The following table data should be read in conjunction with the consolidated
financial statements and notes thereto.
<TABLE>
<CAPTION>
Financial Highlights
In thousands, except share data Year Ended September 30,
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1996 1995 1994 1993 1992
--------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Operating Data:
Net revenues $142,957 $120,373 $92,919 $67,960 $59,784
Income before change in
accounting principle $11,425 $8,398 $4,892 $3,606 $3,432
Extraordinary item and change
in accounting principle $264 $53
--------------- --------------- --------------- --------------- --------------
Net income $11,425 $8,398 $4,892 $3,870 $3,485
Per share data (1):
Income before change in
accounting principle $1.37 $1.03 $0.62 $0.47 $0.51
Extraordinary item and change
in accounting principle $0.03 $0.01
--------------- --------------- --------------- --------------- --------------
Net income per common share $1.37 $1.03 $0.62 $0.50 $0.52
Average common and common
equivalent shares outstanding 8,330,060 8,150,903 7,859,513 7,745,691 6,729,390
Balance Sheet Data:
Total assets $104,866 $78,518 $60,284 $46,788 $38,022
Long-term obligations $28 $164 $510
</TABLE>
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(1) The per share data presented above are for primary net income per common
share. Fully diluted net income per common share amounts have not been presented
as they did not differ significantly from primary net income per common share
amounts in any year.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenues. Revenues amounted to $143.0 million, $120.4 million and $92.9 million
in fiscal 1996, 1995 and 1994, respectively. Annual revenue growth amounted to
19% in fiscal 1996, 30% in fiscal 1995 and 37% in fiscal 1994. While revenue
growth in fiscal 1996 approximated the Company's historical growth rate of 20%
prior to fiscal 1994, it declined from the accelerated levels experienced in
fiscal 1995 and 1994. Revenue growth during fiscal 1995 and 1994 was driven by a
variety of factors including customer demand and the acquisition of distribution
rights to certain domestic sales territories previously held by certain of the
Company's independent dealers. The decline in the rate of revenue growth in
fiscal 1996 as compared with fiscal 1995 and 1994 can be attributed to a variety
of factors including the accelerated rate of growth experienced in fiscal 1995
and 1994 and a transition of the Company's core products from DOS and Unix
platforms to the Windows and client/server environments. The impact of these
factors was most significant over the first three quarters of fiscal 1996 which
reflected revenue growth of 17% over the comparable period in fiscal 1995. In
the fourth quarter of fiscal 1996 revenues grew by 24% over the comparable
period in fiscal 1995. During this quarter the Company released a client/server
version of its time and attendance product. The Company is also anticipating
releases of enhanced versions of its time and attendance product on
client/server and Windows platforms in the first part of fiscal 1997. The
Company's revenue growth in fiscal 1997 will depend in part on the commercial
success of these initiatives.
Product revenues amounted to $101.0 million, $87.9 million and $68.4 million in
fiscal 1996, 1995 and 1994, respectively. Product revenues grew by 15% in fiscal
1996, 28% in fiscal 1995 and 34% in fiscal 1994. Product revenue growth in
fiscal 1996 was principally the result of an increase in sales volume driven by
customer demand. The reduced rate of product revenue growth experienced in
fiscal 1996 as compared with fiscal 1995 and 1994 is attributable to the factors
described above. Consistent with total revenues, product revenue growth
increased in the fourth quarter to 22% from 12% over the first nine months of
fiscal 1996. Product demand resulting from the Company's small business
marketing program with ADP, Inc. contributed approximately one-third of the
product revenue increase in fiscal 1996. Product revenue growth in fiscal 1995
was principally the result of increased sales volume driven by customer demand.
Product revenue growth in fiscal 1994 was the result of an increase in sales
volume driven by customer demand, the impact of the shift of product sales from
wholesale to retail pricing for the acquired dealer territories, as well as the
unusually strong level of product shipments in the fourth quarter of that fiscal
year.
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Service revenues were $42.0 million, $32.5 million and $24.5 million in fiscal
1996, 1995 and 1994, respectively. Service revenues grew by 29% in fiscal 1996,
33% in fiscal 1995 and 43% in fiscal 1994. Service revenues amounted to 29%, 27%
and 26% of total revenues in fiscal 1996, 1995 and 1994, respectively. The
growth in service revenues in all periods reflects increases in maintenance
revenue from expansion of the installed base, as well as an increase in the
level of services accompanying the sale of new products. In addition, the growth
rate experienced in fiscal 1994 was impacted by the transition of the acquired
dealer territories into direct sales and service districts. Prior to
acquisition, all service revenues for these territories were retained by the
independent dealers as they were responsible for providing such services.
International revenues, which include both revenues from the Company's
international subsidiaries and sales to independent international dealers, grew
28% in fiscal 1996 to $10.4 million from $8.1 million in fiscal 1995.
International revenues in fiscal 1994 were $5.3 million. The establishment of
the Company's Australian and South African subsidiaries in the fourth quarter
contributed significantly to the overall increase in fiscal 1996 international
revenues.
Gross Profit. Gross profit, as a percentage of revenues, was 62%, 59% and 57% in
fiscal 1996, 1995 and 1994, respectively. The improvement in gross profit in
each of the three fiscal years was evidenced in both product and service gross
profit. Product gross profit was 74%, 72% and 69% in fiscal 1996, 1995 and 1994,
respectively. The improvement in product gross profit in each of the three
fiscal years was a result of increased sales volume and improved product mix. In
each of the periods the Company's product revenue was derived from sales of
systems in which software, which typically generates higher gross profit, was an
increasingly higher proportion of product revenues. In addition, in fiscal 1996
and 1995, the Company experienced increased production volume without
proportionate increases in production overhead costs. Product gross profit was
negatively impacted in fiscal 1994 by a variety of factors including purchase
discounts granted to major account customers and expenses associated with the
move of the Company's manufacturing facility.
Service gross profit as a percentage of service revenues was 33%, 24% and 22%
for fiscal 1996, 1995 and 1994, respectively. The increase in service gross
profit is primarily attributable to the growth in service revenues. Also, the
Company has been able to absorb the increase in service volume without a
proportionate increase in service expenses, favorably impacting gross margins.
This has been accomplished by the implementation of programs which focus on
revenue enhancement for services provided, as well as improved efficiency in the
delivery of such services.
Expenses. Expenses as a percentage of revenues were 49% in fiscal 1996, and 48%
in fiscal 1995 and 1994. Sales and marketing expenses were $47.0 million, $40.1
million and $31.4 million in fiscal 1996, 1995 and 1994, respectively. The
increase in sales and marketing expenses in all periods relates to increased
business volume. Sales and marketing expenses as a percentage of sales were 33%
in fiscal 1996 and 1995 as compared with 34% in fiscal 1994. The Company
anticipates sales and marketing expenses as a percentage of sales to increase
somewhat in fiscal 1997 due to increased investment in the Company's
international direct sales organization. This increase is anticipated to be
partially offset by efficiencies which the Company expects to be realized from
the fiscal 1996 consolidation and reorganization of the North American direct
sales organization from geographic units into industry specific teams.
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Engineering, research and development expenses were $12.7 million, $8.2 million
and $5.6 million in fiscal 1996, 1995 and 1994, respectively. These expenses are
net of capitalized software development costs of $4.0 million, $2.4 million and
$1.8 million, respectively. Engineering, research and development expenses as a
percentage of revenues were 9% in fiscal 1996, 7% in fiscal 1995 and 6% in
fiscal 1994. The growth in engineering, research and development expenses
resulted primarily from the development of new products. Increased spending on
capitalizable software development costs reflects the Company's commitment to
further enhancements of existing products, making them easier to use, and on new
product development. The Company anticipates fiscal 1997 engineering, research
and development expenses as a percentage of revenues to be comparable or
somewhat higher than fiscal 1996.
General and administrative expenses were $9.9 million, $8.5 million and $7.3
million in fiscal 1996, 1995 and 1994, respectively. As a percentage of
revenues, general and administrative expenses were 7% in fiscal 1996 and 1995 as
compared with 8% in fiscal 1994. Fiscal 1996 general and administrative expenses
included start-up costs incurred for an internally funded customer lease program
as well as certain administrative expenses related to Company programs initiated
to improve operating efficiencies. The Company expects fiscal 1997 general and
administrative expenses as a percentage of revenues to decrease slightly from
fiscal 1996. The decline in general and administrative expenses as a percentage
of revenues from fiscal 1994 to fiscal 1995 reflects the benefits and
efficiencies realized from the Company's investment in management information
and communication systems and the reengineering of certain of its administrative
processes. The decline also reflects, to some degree, the impact of leveraging
increased revenues on a fixed level of cost for certain general and
administration functions.
Other expense, net amounted to less than 1% of revenues in fiscal 1996, 1995 and
1994. Other expense, net is composed primarily of amortization of intangible
assets related to acquisitions made by the Company which is offset by interest
income earned on its investments.
Income Taxes. The provision for income taxes as a percentage of pretax income
was 39% in fiscal 1996 and 38% in fiscal 1995 and 1994. The Company's effective
income tax rate may fluctuate between periods as a result of various factors,
none of which is material, either individually or in the aggregate, to the
consolidated results of operations.
Accounting Standards. In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). This statement establishes financial
accounting and reporting standards for stock-based employee compensation plans.
While the Company is reviewing the adoption and impact of SFAS 123, it expects
to adopt the disclosure-only alternative and, accordingly, this standard will
have no impact on the Company's results of operations or its financial position.
16
<PAGE>
Liquidity and Capital Resources
Working capital as of September 30, 1996 amounted to $36.3 million as compared
with $29.1 million at September 30, 1995. Cash and equivalents and marketable
securities at those dates amounted to $32.8 million and $21.4 million,
respectively. The Company has available a bank line of credit of $3.0 million
which expires in June 1998. No amounts were outstanding under the line of credit
as of September 30, 1996.
Cash provided by operations increased to $23.7 million in fiscal 1996 from $18.3
million in fiscal 1995 and $7.9 million in fiscal 1994. The increase in
operating cash flows in fiscal 1996 as compared to fiscal 1995 was principally
due to increased earnings and unearned service revenues as well as non-cash
charges related to depreciation, amortization and deferred taxes. The Company's
investment in the internal customer lease program which it introduced in fiscal
1996 partially offset the cash provided by other operations. The increase in
operating cash flows in fiscal 1995 as compared with fiscal 1994 was principally
due to increased earnings and better management of accounts receivable from
trade customers.
Cash provided by operations was more than sufficient to fund investments in
equipment and capitalized software development costs in fiscal 1996, 1995 and
1994. Investments in equipment in fiscal 1996, 1995 and 1994 totaled $9.7
million, $4.1 million and $4.8 million, respectively. The Company anticipates
that investment in equipment in fiscal 1997 will be comparable to fiscal 1996.
The Company expects to finance these investments from available cash and
operating cash flow generated in fiscal 1997. In fiscal 1996 the Company has
invested a significant portion of its remaining cash balances in short term
marketable securities.
Certain Factors That May Affect Future Operating Results
The following important factors, among others, could cause actual operating
results to differ materially from those indicated by forward-looking statements
made in this Annual Report and presented elsewhere by management from time to
time.
Potential Fluctuations in Results. The Company's operating results may fluctuate
as a result of a variety of factors, including the timing of the introduction of
new products and product enhancements by the Company and its competitors, market
acceptance of new products, mix of products sold, the purchasing patterns of its
customers, competitive pricing pressure and general economic conditions. The
Company historically has realized a relatively larger percentage of its annual
revenues and profits in the fourth quarter and a relatively smaller percentage
in the first quarter of each fiscal year, although there can be no assurance
that this pattern will continue. In addition, while the Company has contracts to
supply systems to certain customers over an extended period of time,
substantially all of the Company's product revenue and profits in each quarter
result from orders received in that quarter. If near-term demand for the
Company's products weakens or if significant anticipated sales in any quarter do
not close when expected, the Company's revenues for that quarter will be
adversely affected. The Company believes that its operating results for any one
period are not necessarily indicative of results for any future period.
17
<PAGE>
Product Development and Technological Change. The markets for time and
attendance and data collection systems are characterized by continual change and
improvement in computer software and hardware technology. The Company's future
success will depend largely on its ability to enhance its existing product lines
and to develop new products and interfaces to third party products on a timely
basis for the increasingly sophisticated needs of its customers. Although the
Company is continually seeking to further enhance its product offerings and to
develop new products and interfaces, there can be no assurance that these
efforts will succeed, or that, if successful, such product enhancements or new
products will achieve widespread market acceptance, or that the Company's
competitors will not develop and market products which are superior to the
Company's products or achieve greater market acceptance.
Competition. The time and attendance and data collection industries are highly
competitive. Competition could increase as competitors in related industries,
such as human resources and payroll, enter the market. Advances in software
development tools have accelerated the software development process and,
therefore, can allow competitors to penetrate certain of the Company's markets.
Maintaining the Company's technological and other advantages over competitors
will require continued investment by the Company in research and development and
marketing and sales programs. There can be no assurance that the Company will
have sufficient resources to make such investments or be able to achieve the
technological advances necessary to maintain its competitive advantages.
Increased competition could adversely affect the Company's operating results
through price reductions and/or loss of market share.
Attracting and Retaining Sufficient Technical Personnel for Product Development,
Support and Sales. The Company has encountered intense competition for
experienced technical personnel for product development, technical support and
sales and expects such competition to continue in the future. Any inability to
attract and retain a sufficient number of qualified technical personnel could
adversely affect the Company's ability to produce, support and sell robust
products in a timely manner.
Dependence on Alternate Distribution Channels. The Company markets and sells its
products through its direct sales organization, independent dealers and OEMs.
For the fiscal year ended September 30, 1996, approximately 25% of the Company's
revenue was generated through sales to dealers and OEMs. Reduction in the sales
efforts of the Company's major dealers and/or OEMs, or termination or changes in
their relationships with the Company, could have a material adverse effect on
the results of the Company's operations.
Dependence on Time and Attendance Product Line. To date, more than 90% of the
Company's revenues have been attributable to sales of time and attendance
systems and services. Competitive pressures or other factors could cause the
Company's time and attendance products to lose market acceptance or experience
significant price erosion, adversely affecting the results of the Company's
operations.
18
<PAGE>
Reliance on Key Vendors. The Company depends upon the reliability and viability
of a variety of software development tools owned by third parties to develop its
products. If these tools are inadequate or not properly supported, the Company's
ability to release competitive products in a timely manner could be adversely
impacted. Also, certain parts and components used in the Company's hardware
products are purchased from single vendors. The Company has chosen to source
these items from single vendors because it believes that the vendor chosen is
able to consistently provide the Company with the highest quality product at a
competitive price on a timely basis. While the Company has to date been able to
obtain adequate supplies of these parts and components, the Company's inability
to transition to alternate sources on a timely basis if and as required in the
future could result in delays or reductions in product shipments which could
have material adverse effect on the Company's operating results. In addition,
the Company purchases payroll interface software from a single vendor for resale
in certain of its time and attendance systems. Although the Company believes its
relationship with this vendor is good, any interruption or termination of the
Company's rights to resell such software could delay shipment of certain of the
Company's products and require the Company to write its own software to perform
this function. Although the Company believes it would be able to produce its own
payroll interface software, any delay or problems encountered in doing so could
temporarily and adversely affect the Company's results of operations.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data are listed in the Index
to Consolidated Financial Statements at Item 14 of this Form 10-K.
Item 9. Changes in and Disagreement with Accountants on Accounting and Financial
Disclosure
None.
19
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information relating to the executive officers of the registrant
appears under the caption "Executive Officers of the Registrant" in Part I,
following Item 4 of this Form 10-K. Information relating to the directors is
incorporated by reference from pages 4 through 6 of the Company's definitive
proxy statement for the Annual Meeting of Stockholders to be held on January 31,
1997 under the caption "Election of Directors."
Item 11. Executive Compensation
Incorporated by reference from pages 6 through 12 of the
Company's definitive proxy statement for the Annual Meeting of Stockholders to
be held on January 31, 1997 under the following captions: "Director
Compensation," "Executive Compensation," "Option Grants and Exercises," and
"Report of Compensation Committee."
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference from pages 2 through 3 of the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be held on
January 31, 1997 under the caption "Security Ownership of Certain Beneficial
Owners and Management."
Item 13. Certain Relationships and Related Transactions
None.
20
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Related Transactions
(a) The following are filed as a part of this report:
1. Financial Statements Page
Consolidated Statements of Income for the Years Ended
September 30, 1996, 1995 and 1994 F-1
Consolidated Balance Sheets as of September 30,
1996 and 1995 F-2
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended September 30, 1996, 1995 and 1994 F-3
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994 F-4
Notes to Consolidated Financial Statements F-5
Report of Ernst & Young LLP, Independent Auditors F-16
2. Financial Statement Schedule
II - Valuation and Qualifying Accounts F-17
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
3. Exhibits
Exhibit
No. Description
3.1 Articles of Organization of the Registrant, as amended.
3.2* Amended and Restated By-laws of the Registrant.
4* Specimen Stock Certificate.
10.1*(10) 1986A Stock Option Plan.
10.2(10) 1992 Equity Incentive Plan, as amended and restated.
21
<PAGE>
3. Exhibits (continued)
Exhibit
No. Description
10.3(4)(10) 1992 Employee Stock Purchase Plan, as amended and restated.
10.4(3) Lease dated November 16, 1993, between Teachers Realty Corporation
and the Registrant, relating to premises leased in Chelmsford, MA.
10.5(6) Lease dated August 8, 1995 between Principal Mutual Life
Insurance Company and the Registrant, relating to premises leased
in Chelmsford, MA.
10.6(3) Loan Agreement dated June 30, 1993 between Fleet Bank of
Massachusetts, N.A. and the Registrant ("Loan Agreement").
10.6.1(9) Amendment dated June 3, 1996 to Loan Agreement dated
June 30, 1993 between Fleet Bank of Massachusetts, N.A. and
the Registrant.
10.7(2)(11) Software License and Support and Hardware Purchase Agreement dated
April 2, 1993 between ADP, Inc. and the Registrant.
10.7.1(12) Amendments dated July 22, 1996 to Software License and Support
and Hardware Purchase Agreement dated April 2, 1993, between
ADP, Inc. and the Registrant.
10.8* Sales Agreement dated December 6, 1990, between Integrated
Design, Inc. and the Registrant.
10.8.1(7) Amendment dated November 2, 1995 to Sales Agreement dated
December 6, 1990, between Integrated Design, Inc. and the
Registrant.
10.9(3)(11) Acquisition Agreement dated November 2, 1993 between Interboro
Systems Corporation and the Registrant.
10.10* Form of Indemnity Agreement entered into among the Registrant and
Directors of the Registrant.
10.11(1) Lease dated November 9, 1992, as amended, between John Hancock
Mutual Life Insurance Company and the Registrant, relating to
premises leased in Waltham, MA.
10.11.1(8) Amendment dated January 1, 1996 to Lease dated November 9,
1992, as amended, between John Hancock Mutual Life Insurance
Company and the Registrant, relating to premises leased in
Waltham, MA.
10.12 (5) Agreement of Reorganization among Kronos Incorporated; Kronos S/T
Corporation, ShopTrac Data Collection Systems, Inc., Thomas J.
O'Malia and Mark J. MacWhirter, dated March 31, 1994.
11 Statement re Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
22
<PAGE>
3. Exhibits (continued)
* Incorporated by reference to the same Exhibit Number in the Company's
Registration Statement on Form S-1 File No. 33-47383.
(1) Incorporated by reference to the same Exhibit Number in the Company's
Form 10-K for the fiscal year ended September 30, 1992.
(2) Incorporated by reference to Exhibit Number 10.1 in the Company's Form
10-Q for the quarterly period ended April 3, 1993.
(3) Incorporated by reference to the same Exhibit Number in the Company's
Form 10-K for the fiscal year ended September 30, 1993.
(4) Incorporated by reference to Exhibit Number 10.1 in the Company's Form
10-Q for the quarterly period ended July 2, 1994.
(5) Incorporated by reference to Exhibit Number 2.1 in the Company's Form
10-Q for the quarterly period ended July 2, 1994.
(6) Incorporated by reference to Exhibit 10.13 in the Company's Form 10-K
for the fiscal year ended September 30,1995.
(7) Incorporated by reference to Exhibit Number 10.1 in the Company's Form
10-Q for the quarterly period ended March 30, 1996.
(8) Incorporated by reference to Exhibit Number 10.2 in the Company's Form
10-Q for the quarterly period ended March 30, 1996.
(9) Incorporated by reference to Exhibit Number 10.1 in the Company's Form
10-Q for the quarterly period ended June 29, 1996.
(10) Management contract or compensatory plan or arrangement filed as an
exhibit to this Form 10-K pursuant to Items 14(a) and 14(c) of Form 10-K.
(11) Confidential treatment was granted for certain portions of this
agreement.
(12) Confidential treatment requested for certain portions of these
amendments, which portions have been omitted and filed separately
with the Securities and Exchange Commission.
23
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last fiscal quarter of the
fiscal year covered by this report.
Kronos, Timekeeper, Timekeeper Central, Jobkeeper, Jobkeeper Central,
Datakeeper, Datakeeper Central, Gatekeeper, Gatekeeper Central, TeleTime,
TimeMaker, CardSaver, ShopTrac, the ShopTrac logo, Start. Time, Keep.Trac,
Solution in a Box and the Company's logo are registered trademarks of the
Company. DKC/Datalink, ImageKeeper, WebTime, HyperFind, Smart Scheduler, Starter
Series, Start.Labor, Start.WIP, Start.Quality, Labor Plus, WIP Plus, Comm.Mgr,
Tempo and the Tempo logo are trademarks of the Company. IBM and OS/2 are
registered trademarks of, and AS and AS/400 are trademarks of, International
Business Machines Corporation. Total Time is a service mark of ADP, Inc. and ADP
is a registered trademark of Automatic Data Processing, Inc. Time Bank is a
registered trademark of Integrated Design Inc. UNIX is a registered trademark in
the U.S. and other countries, licensed exclusively by X/Open Company Ltd. VMS is
a registered trademark of Digital Equipment Corporation. Windows is a registered
trademark of Microsoft Corporation.
24
<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 on December 13, 1996.
KRONOS INCORPORATED
By /s/ MARK S. AIN
Mark S. Ain
Chief Executive
Officer and Chairman of
the Board
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 and in the capacities indicated on December 13, 1996.
Signature Capacity
/s/ MARK S. AIN Chief Executive
Mark S. Ain Officer and Chairman of
the Board
(Principal Executive Officer)
/s/ PAUL A. LACY Vice President, Finance and
Paul A. Lacy Administration
(Principal Financial and
Accounting Officer)
/s/ RICHARD J. DUMLER Director
Richard J. Dumler
/s/ THEODORE G. JOHNSON Director
Theodore G. Johnson
/s/ DAVID B. KISER Director
David B. Kiser
/s/ DONALD S. LEVY Director
Donald S. Levy
/s/ D. BRADLEY McWILLIAMS Director
D. Bradley McWilliams
/s/ LAWRENCE PORTNER Director
Lawrence Portner
/s/ SAMUEL RUBINOVITSZ Director
Samuel Rubinovitz
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income In thousands, except share data
Year Ended September 30, 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net revenues:
Product ........................................... $ 100,951 $ 87,879 $ 68,444
Service ........................................... 42,006 32,494 24,475
---------- ---------- ----------
142,957 120,373 92,919
Cost of sales:
Product ........................................... 26,281 24,762 20,925
Service ........................................... 28,296 24,552 19,143
---------- ---------- ---------- ----------
54,577 49,314 40,068
---------- ---------- ----------
Gross profit ............................. 88,380 71,059 52,851
Expenses:
Sales and marketing ............................... 46,982 40,138 31,381
Engineering, research and development ............. 12,730 8,192 5,593
General and administrative ........................ 9,942 8,455 7,326
Other expense, net ................................ 27 693 716
---------- ---------- ----------
69,681 57,478 45,016
---------- ---------- ----------
Income before income taxes .................... 18,699 13,581 7,835
Provision for income taxes ............................. 7,274 5,183 2,943
---------- ---------- ----------
Net income .................................... $ 11,425 $ 8,398 $ 4,892
========== ========== ==========
Net income per common share:
Primary:
Net income per common share ................... $ 1.37 $ 1.03 $ 0.62
========== ========== ==========
Fully Diluted:
Net income per common share ................... $ 1.37 $ 1.03 $ 0.62
========== ========== ==========
Average common and common equivalent shares outstanding:
Primary ........................................... 8,330,060 8,150,903 7,859,513
========== ========== ==========
Fully Diluted ..................................... 8,343,274 8,156,981 7,888,311
========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets In thousands, except share data
September 30, 1996 1995
--------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents .............................................................. $ 10,795 $ 14,727
Marketable securities ............................................................. 21,995 6,716
Accounts receivable, less allowances for doubtful accounts of $987 in 1996
and $1,001 in 1995 ............................................................ 30,622 28,159
Inventories ....................................................................... 4,149 4,469
Deferred income taxes ............................................................. 3,025 2,427
Other current assets .............................................................. 3,765 1,273
--------- ---------
Total current assets ....................................................... 74,351 57,771
Equipment, net ........................................................................ 14,738 10,079
Excess of cost over net assets of businesses acquired ................................. 7,221 6,606
Other assets .......................................................................... 8,556 4,062
--------- ---------
Total assets ............................................................... $ 104,866 $ 78,518
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ............................................. $ 11,894 $ 8,352
Accrued compensation .............................................................. 8,445 7,149
Federal and state income taxes payable ............................................ 1,367 969
Unearned service revenue .......................................................... 16,388 12,185
--------- ---------
Total current liabilities .................................................. 38,094 28,655
Deferred income taxes ................................................................. 2,236 912
Other liabilities ..................................................................... 3,438 2,382
Shareholders' equity:
Preferred Stock, par value $1.00 per share: authorized 1,000,000 shares, no shares
issued and outstanding
Common Stock, par value $.01 per share: authorized 12,000,000 shares,
8,124,133 shares and 7,940,468 shares issued at September 30, 1996 and
1995, respectively ............................................................ 81 79
Additional paid-in capital ........................................................ 27,512 24,353
Retained earnings ................................................................. 33,773 22,348
Equity adjustment from translation ................................................ (251) (206)
Cost of Treasury Stock (583 shares and 170 shares at September 30, 1996 and
1995, respectively) ........................................................... (17) (5)
--------- ---------
Total shareholders' equity ................................................. 61,098 46,569
--------- ---------
Total liabilities and shareholders' equity ................................. $ 104,866 $ 78,518
========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
In thousands
Equity
Common Stock Additional Adjustment Treasury Stock
---------------------- Paid-in Retained from -------------------
Shares Amount Capital Earnings Translation Shares Amount Total
-------------------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1993 7,629 $77 $21,461 $9,058 $(225) 27 $(335) $30,036
Net income 4,892 4,892
Proceeds from exercise of stock options 28 (114) (34) 412 298
Proceeds from employee stock purchase plan 45 389 389
Amortization of compensation expense
relating to nonqualified stock option plans (2) (2)
Equity adjustment from translation 17 17
Purchase of treasury stock 7 (82) (82)
Tax benefit associated with the exercise
of stock options 334 334
-------------------- ---------- ---------- ----------- ------------------- ---------
Balance at September 30, 1994 7,702 77 22,068 13,950 (208) (5) 35,882
Net income 8,398 8,398
Proceeds from exercise of stock options 186 1 249 (54) 1,077 1,327
Proceeds from employee stock purchase plan 52 1 599 600
Amortization of compensation expense
relating to nonqualified stock option plans (1) (1)
Equity adjustment from translation 2 2
Purchase of treasury stock 54 (1,077) (1,077)
Tax benefit associated with the exercise
of stock options 1,438 1,438
-------------------- ---------- ---------- ----------- ------------------- ---------
Balance at September 30, 1995 7,940 79 24,353 22,348 (206) (5) 46,569
Net income 11,425 11,425
Proceeds from exercise of stock options 144 2 538 (16) 525 1,065
Proceeds from employee stock purchase plan 40 945 945
Amortization of compensation expense
relating to nonqualified stock option plans 68 68
Equity adjustment from translation (45) (45)
Purchase of treasury stock 17 (537) (537)
Tax benefit associated with the exercise
of stock options 1,608 1,608
-------------------- ---------- ---------- ----------- ------------------- ---------
Balance at September 30, 1996 8,124 $81 $27,512 $33,773 $(251) 1 $(17) $61,098
==================== ========== ========== =========== =================== =========
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows In thousands
Year Ended September 30, 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net income ............................................................. $ 11,425 $ 8,398 $ 4,892
Adjustments to reconcile net income to net cash and equivalents
provided by operating activities:
Depreciation .................................................... 4,764 3,678 3,067
Provision for deferred income taxes ............................. 726 (636) 621
Amortization of deferred software development
costs and other assets ...................................... 3,404 2,571 1,820
Changes in certain operating assets and liabilities:
Accounts receivable, net .................................... (2,945) (3,096) (8,275)
Inventories ................................................. 330 (21) (646)
Unearned service revenue .................................... 5,367 2,392 4,479
Accounts payable, accrued compensation
and other liabilities ................................... 5,609 5,214 2,506
Net investment in sales-type leases ......................... (3,766)
Other ........................................................... (1,165) (170) (567)
-------- -------- --------
Net cash and equivalents provided by operating activities 23,749 18,330 7,897
Investing activities:
Purchase of equipment .................................................. (9,656) (4,065) (4,842)
Capitalization of software development costs ........................... (4,014) (2,364) (1,789)
(Increase) decrease in marketable securities ........................... (15,278) (5,914) 2,979
Acquisitions of businesses ............................................. (1,809) (1,322) (5,285)
Other .................................................................. 43 (45) (139)
-------- -------- --------
Net cash and equivalents used in investing activities ... (30,714) (13,710) (9,076)
Financing activities:
Principal payments under capital leases ................................ (27) (116) (392)
Net proceeds and tax benefits from exercise of stock option and
employee purchase plans ............................................ 3,081 2,286 937
-------- -------- --------
Net cash and equivalents provided by financing activities 3,054 2,170 545
Effect of exchange rate changes on cash and equivalents ..................... (21) (1) 20
-------- -------- --------
Increase (decrease) in cash and equivalents ................................. (3,932) 6,789 (614)
Cash and equivalents at the beginning of the period ......................... 14,727 7,938 8,552
-------- -------- --------
Cash and equivalents at the end of the period ............................... $ 10,795 $ 14,727 $ 7,938
======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
KRONOS INCORPORATED
NOTE A--Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include the
accounts of Kronos Incorporated and its wholly-owned subsidiaries (the
"Company"). All intercompany accounts and transactions have been eliminated in
consolidation.
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, if any, at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Translation of Foreign Currencies: The assets and liabilities of the Company's
foreign subsidiaries are denominated in each country's local currency and
translated at the year-end rate of exchange. The related income statement items
are translated at the average rate of exchange for the year. The resulting
translation adjustments are excluded from income and reflected as a separate
component of shareholders' equity. Realized and unrealized exchange gains or
losses arising from transaction adjustments are reflected in operations and are
not material.
Cash Equivalents: Cash equivalents consist of highly liquid investments with
maturities of three months or less at date of acquisition.
Marketable Securities: The Company's marketable securities consist of state
revenue bonds and market auction preferred stocks. State revenue bonds, which
generally mature within one year, are classified as held to maturity and are
carried at amortized cost. Market auction preferred stocks are classified as
available-for-sale and are carried at cost which approximates fair value.
Unrealized gains and losses on investments classified as held to maturity are
not recognized until realized or until a decline in fair value below cost is
deemed to be other-than-temporary. Unrealized gains and losses, if any, on
available-for-sale securities would be reflected as a separate component of
shareholders' equity.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
KRONOS INCORPORATED
NOTE A--Summary of Significant Accounting Policies--(continued)
Equipment: Equipment, which includes assets recorded in connection with capital
leases, are stated on the basis of cost less accumulated depreciation,
provisions for which have been computed using the straight-line method over the
estimated useful lives of the assets, which are principally as follows:
Estimated
Assets Useful Life
- - --------------------------------------------------------------------------------
Machinery and equipment 3-5 years
Furniture and fixtures 8-10 years
Leasehold improvements Shorter of economic life
or lease-term
Accounting for the Impairment of Long-Lived Assets: Long-lived assets used in
operations, such as the excess of cost over net assets of businesses acquired,
capitalized software development costs and equipment, are included in impairment
evaluations when events or circumstances exist that indicate the carrying amount
of those assets may not be recoverable. If the impairment evaluation indicates
the affected asset is not recoverable, the asset's carrying value would be
reduced to fair value. No event has occurred which would impair the value of
long-lived assets recorded in the accompanying consolidated financial
statements.
Revenue Recognition: The Company derives its revenues from the sale of time and
attendance, workforce management and shop floor data collection systems as well
as sales of application software and parts and components. The Company's systems
consist of fully integrated software and intelligent data collection terminals.
The Company also derives revenues by providing maintenance, professional and
educational services to its direct customers. The Company recognizes revenues
from sales of its systems, application software, parts and components at the
time of shipment, unless the Company has significant obligations remaining. When
significant obligations remain, revenue is not recognized until such obligations
have been completed or are no longer significant. The Company recognizes
revenues from its sales-type leases of systems at time of shipment. Service
revenues are recognized ratably over the contractual period or as the services
are performed.
The Company provides installation services and certain warranties to its
customers. It also provides, without additional charge, certain software product
enhancements for customers covered under software maintenance contracts. The
provision for these expenses is made at the time revenues are recognized.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
KRONOS INCORPORATED
NOTE A--Summary of Significant Accounting Policies--(continued)
Income Taxes: The Company accounts for income taxes under the liability method.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Net Income Per Share: Net income per share is based on the weighted average
number of common shares and, when dilutive, common stock equivalents outstanding
during the year. Common stock equivalents are attributable to stock options.
Reclassifications: Certain amounts in 1995 and 1994 have been reclassified to
permit comparison with 1996.
Newly Issued Accounting Standard: In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). This statement
establishes financial accounting and reporting standards for stock-based
employee compensation plans. While the Company is reviewing the adoption and
impact of SFAS 123, it expects to adopt the disclosure-only alternative and,
accordingly, this standard will have no impact on the Company's results of
operations or its financial position.
NOTE B--Concentration of Credit Risk
The Company markets and sells its products through its direct sales
organization, through independent dealers and through an OEM agreement with ADP,
Inc. The Company's dealers have significantly smaller resources than the
Company. The Company's direct sales organization sells to customers who are
dispersed across many different industries and geographic areas. The Company
reviews a customer's (including dealers) credit history before extending credit
and generally does not require collateral. The Company establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of specific
customers, historical trends and other information.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
KRONOS INCORPORATED
NOTE C--Inventories
Inventories consist of the following (in thousands):
September 30,
-----------------------------------
1996 1995
- - --------------------------------------------------------------------------------
Finished goods $2,148 $1,769
Work-in-process 283 315
Raw materials 1,718 2,385
------ ------
$4,149 $4,469
====== ======
NOTE D--Equipment
Equipment consists of the following (in thousands):
September 30,
-----------------------------------
1996 1995
- - --------------------------------------------------------------------------------
Machinery and equipment $24,102 $18,414
Furniture and fixtures 5,363 3,627
Leasehold improvements 3,106 1,758
------- -------
32,571 23,799
Less accumulated depreciation
and amortization 17,833 13,720
------- -------
$14,738 $10,079
======= =======
NOTE E--Acquisitions
In fiscal 1996, 1995 and 1994, the Company completed various acquisitions of
dealer territories in the United States, Mexico and Australia. These
acquisitions were accounted for under the purchase method of accounting and,
accordingly, the operating results are included in the consolidated statements
of income from the date of each respective acquisition.
The combined cost of the acquisitions which amounted to $750,000, $1,000,000 and
$5,800,000 in fiscal 1996, 1995 and 1994, respectively, largely relates to
intangible assets which are being amortized using the straight-line method over
a period of eight years. Related amortization expense amounted to $1,232,000,
$1,006,000 and $797,000 in fiscal 1996, 1995 and 1994, respectively.
F-8
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS -- CONTINUED
KRONOS INCORPORATED
NOTE E--Acquisitions--(continued)
Certain acquisition agreements contain provisions for making additional
payments, if specified minimum revenue requirements are met, to former
shareholders of the acquired companies who have not continued employment with
the Company. These provisions expire during fiscal years 1998 and 1999. Amounts
earned under the terms of the agreements are recorded as an increase in the
excess of the total acquisition cost over the fair value of the net assets
acquired. During fiscal 1996 and 1995, $903,000 and $428,000 of such payments
were made.
NOTE F--Deferred Software Development Costs
Costs incurred in the research, design and development of software for sale to
others are charged to expense until technological feasibility is established.
Thereafter, software development costs are capitalized and amortized to product
cost of sales on a straight-line basis over the lesser of three years or the
estimated economic lives of the respective products, beginning when the products
are offered for sale.
The unamortized portion of capitalized software development costs included in
other assets amounted to $5,259,000 and $3,361,000 at September 30, 1996 and
1995, respectively. Amortization of capitalized software development costs
amounted to $2,115,000, $1,481,000 and $986,000 in fiscal 1996, 1995 and 1994,
respectively. Total research and development expenses charged to operations
amounted to $9,299,000, $5,060,000 and $3,506,000 in fiscal 1996, 1995 and 1994,
respectively.
NOTE G--Credit Arrangements
The Company maintains a credit agreement, expiring June 1, 1998, providing
unsecured borrowings up to $3,000,000. Borrowings under the agreement bear
interest at the bank's prime rate or, with the consent of the bank, the London
Inter-bank Offered Rate ("LIBOR").
The agreement contains restrictive covenants including the maintenance of a
minimum amount of tangible net worth and specific financial statement ratios.
There were no borrowings on the line of credit during the three year period
ended September 30, 1996.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
KRONOS INCORPORATED
NOTE H--Lease Commitments
The Company leases certain office space, manufacturing facilities and equipment
under long-term capital and operating lease agreements. Future minimum rental
commitments under operating leases with noncancellable terms of one year or more
are as follows (in thousands):
Fiscal Year
- - -------------------------------------------------------------------------
1997 .................................... $5,258
1998 .................................... 4,610
1999 .................................... 3,870
2000 .................................... 2,661
2001 .................................... 1,447
Thereafter .............................. 3,110
-------
$20,956
=======
Rent expense was $5,756,000, $4,478,000 and $4,083,000 in fiscal 1996, 1995
and 1994, respectively.
NOTE I--Capital Stock
The Board of Directors is authorized, subject to any limitations prescribed by
law, from time to time to issue up to an aggregate of 1,000,000 shares of
Preferred Stock, $1.00 par value per share, in one or more series, each of such
series to have such preferences, voting powers (up to 10 votes per share),
qualifications, and special or relative rights and privileges as shall be
determined by the Board of Directors in a resolution or resolutions providing
for the issue of such Preferred Stock.
On November 17, 1995, the Company's Board of Directors adopted a Rights
Agreement. Under the Agreement, the Company distributed to stockholders a
dividend of one Right for each outstanding share of Common Stock. Each Right
initially represents the right to purchase one one-thousandth of a share of a
new series of preferred stock at an exercise price of $236, subject to
adjustment. The Company reserved 12,500 shares of its Preferred Stock for
issuance under the agreement. The Rights may be exercised, in whole or in part,
only if a person or group acquires beneficial ownership of 20% or more of the
Company's outstanding Common Stock or announces a tender or exchange offer upon
consummation of which, such person or group would beneficially own 25% or more
of the Company's Common Stock. When exercisable, each Right will entitle its
holder (other than such person or members of such group) to purchase for an
amount equal to the then current exercise price, in lieu of preferred stock, a
number of shares of the Company's Common Stock having a market value of twice
the Right's exercise price. In
F-10
<PAGE>
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS -- CONTINUED
KRONOS INCORPORATED
NOTE I--Capital Stock--(continued)
addition, when exercisable, the Company may exchange the Rights, in whole or in
part, at an exchange ratio of one share of Common Stock or one one-thousandth of
a share of Preferred Stock per Right. In the event that the Company is acquired
in a merger or other business combination, the Rights would entitle the
stockholders (other than the acquirer) to purchase securities of the surviving
company at a similar discount. Until they become exercisable, the Rights will be
evidenced by the Common Stock certificates and will be transferred only with
such certificates.
Under the Agreement, the Company can redeem all outstanding Rights at $.01 per
right at any time until the tenth day following the public announcement that a
20% beneficial ownership position has been acquired or the Company has been
acquired in a merger or other business combination. The Rights will expire on
November 17, 2005.
The Company's Board of Directors approved a three-for-two stock split effected
in the form of a 50% stock dividend that was paid on January 29, 1996 to
stockholders of record as of January 15, 1996. Accordingly, the presentation of
shares outstanding and amounts per share have been restated for all periods
presented to reflect the split. The par value of the additional shares was
transferred from additional paid-in capital to Common Stock.
NOTE J--Employee Benefit Plans
Stock Option Plans
The 1992 Equity Incentive Plan enables the Compensation Committee of the Board
of Directors of the Company to grant awards in the form of options, stock
appreciation rights, restricted or unrestricted stock awards, deferred stock
awards and performance awards, as defined in the Plan. During fiscal 1996, 1995
and 1994, the Company granted under the Plan stock options to purchase 190,400,
180,150 and 178,725 shares , respectively, of Common Stock at a purchase price
equal to the fair value of the Common Stock at the date of grant. No other
awards were made under the Plan through September 30, 1996.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
KRONOS INCORPORATED
NOTE J--Employee Benefit Plans--(continued)
The Company also has several nonqualified and incentive stock option plans
adopted from 1979 through 1987. No additional options may be granted under these
plans.
The following schedule summarizes the changes in stock options issued under
various plans for the three fiscal years in the period ended September 30, 1996.
At September 30, 1996, options to purchase 312,896 shares were exercisable.
<TABLE>
<CAPTION>
Number of Shares Exercise Price Per Share
- - -------------------------------------------------------- -------------------------- ----------------------------------
<S> <C> <C> <C>
Outstanding at
October 1, 1993 751,923 $0.22 -$13.67
Granted 178,725 10.33 - 11.33
Exercised (63,893) 0.22 - 8.00
Canceled (16,414) 0.22 - 13.67
-------- --------------
Outstanding at
September 30, 1994 850,341 0.22 - 13.67
Granted 180,150 13.50 - 23.33
Exercised (239,664) 0.22 - 13.67
Canceled (21,432) 0.22 - 13.67
-------- --------------
Outstanding at
September 30, 1995 769,395 0.22 - 23.33
Granted 190,400 27.00 - 34.50
Exercised (160,727) 0.22 - 20.33
Canceled (41,214) 0.22 - 32.50
-------- --------------
Outstanding at
September 30, 1996 757,854 $0.22 - $34.50
======== ==============
</TABLE>
Stock Purchase Plan
In accordance with the 1992 Employee Stock Purchase Plan, eligible employees may
authorize payroll deductions of up to 10% of their compensation (not to exceed
$3,000 in a six month period) to purchase shares at the lower of 85% of the fair
market value of the Company's Common Stock at the beginning or end of the six
month option period. During fiscal 1996, 39,763 shares were issued to employees
at prices ranging from $21.04 to $26.92 per share.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
KRONOS INCORPORATED
NOTE J--Employee Benefit Plans--(continued)
Defined Contribution Plan
The Company sponsors a defined contribution savings plan for the benefit of
substantially all employees. Total expense under the plan was $777,000, $501,000
and $369,000 in fiscal 1996, 1995 and 1994, respectively.
NOTE K--Income Taxes
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------
1996 1995 1994
- - ------------------------------------------------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
Current:
Federal $5,566 $4,984 $1,965
State 951 835 357
Foreign 31
------ ------ ------
6,548 5,819 2,322
Deferred:
Federal 654 (555) 541
State 72 (81) 80
726 (636) 621
------ ------ ------
$7,274 $5,183 $2,943
====== ====== ======
</TABLE>
At September 30, 1996, a total of 1,598,767 shares of Common Stock were reserved
for issuance. Included in this amount are 1,163,467 shares for the 1992 Equity
Incentive Plan, 235,946 shares for the Employee Stock Purchase Plan and 199,354
shares for the various stock option plans adopted in the period 1979 through
1987.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
KRONOS INCORPORATED
NOTE K--Income Taxes--(continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. For financial reporting
purposes, the Company has determined that recognition of the deferred tax asset
resulting from net operating loss carryforwards of foreign subsidiaries does not
meet the "more likely than not" criteria of the Standard and, therefore, has
provided a valuation allowance for related future tax benefits. Significant
components of the Company's deferred tax assets and liabilities were as follows
(in thousands):
<TABLE>
<CAPTION>
September 30,
-------------------------------
1996 1995
- - ------------------------------------------------------------------------------------------------ ---------------
<S> <C> <C>
Deferred tax assets:
Inventory reserves $ 492 $ 424
Accounts receivable reserves 370 359
Accrued expenses 2,264 1,663
Net operating loss carryforwards of
foreign subsidiaries 694 532
-------- --------
Total deferred tax assets 3,820 2,978
Valuation allowance (694) (532)
-------- --------
3,126 2,446
Deferred tax liabilities:
Capitalized software development costs (2,130) (1,277)
Other (207) 346
-------- --------
Net deferred tax assets $ 789 $1,515
======== ========
</TABLE>
<TABLE>
<CAPTION>
The effective tax rate differed from the United States statutory rate as
follows:
Year ended September 30,
1996 1995 1994
- - ---------------------------------------------------------------- --------------- ---------------- ---------------
<S> <C> <C> <C>
Statutory rate 35% 34% 34%
State income taxes, net of federal
income tax benefit 4 4 4
Foreign losses not benefited 1
Use of foreign net operating loss carryforwards (1) (1)
Income tax credits (1) (1)
Other 2 1
---- ---- ----
39% 38% 38%
==== ==== ====
</TABLE>
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
KRONOS INCORPORATED
NOTE K--Income Taxes--(continued)
There were $200,000 and $328,000 of net operating loss carryforwards utilized in
fiscal 1996 and 1995. At September 30, 1996, the Company had $1,714,000 of
available net operating loss carryforwards from foreign operations which may be
used to reduce future income taxes payable in their respective countries. Of
these carryforwards, $1,053,000 expire from 1997 through 2003. The remaining
carryforwards, totaling $661,000, may be carried forward indefinitely.
The Company made income tax payments of $4,424,000, $4,352,000 and $1,496,000 in
fiscal 1996, 1995 and 1994, respectively.
F-15
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Kronos Incorporated
We have audited the accompanying consolidated balance sheets of Kronos
Incorporated as of September 30, 1996 and 1995, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended September 30, 1996. Our audits also
included the financial statement schedule listed in the index at Item 14(a).
These financial statements and schedule 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 consolidated financial position of Kronos
Incorporated at September 30, 1996 and 1995, and the consolidated results of
operations and cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
Boston, Massachusetts
October 24, 1996
F-16
<PAGE>
<TABLE>
<CAPTION>
KRONOS INCORPORATED
SCHEDULE II - Valuation and Qualifying Accounts
(In thousands)
====================================================================================================================================
COL. A COL. B COL. C COL. D COL. E
- - ------------------------------------------------------------------------------------------------------------------------------------
Additions
-----------------------------
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts- Deductions- End
Description of Period Expenses Describe Describe of Period
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended September 30, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts $809 $264 $209 (1) $864
============ =========== =========== ============ ============
Year ended September 30, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $864 $571 $434 (1) $1,001
============ =========== =========== ============ ============
Year ended September 30, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts $1,001 $322 $336 (1) $987
============ =========== =========== ============ ============
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
<PAGE>
Exhibit Index
Exhibit
No. Description
3.1 Articles of Organization of the Registrant, as amended.
3.2* Amended and Restated By-laws of the Registrant.
4* Specimen Stock Certificate.
10.1*(10) 1986A Stock Option Plan.
10.2(10) 1992 Equity Incentive Plan, as amended and restated.
10.3(4)(10) 1992 Employee Stock Purchase Plan, as amended and restated.
10.4(3) Lease dated November 16, 1993, between Teachers Realty Corporation
and the Registrant, relating to premises leased in Chelmsford, MA.
10.5(6) Lease dated August 8, 1995 between Principal Mutual Life
Insurance Company and the Registrant, relating to premises leased
in Chelmsford, MA.
10.6(3) Loan Agreement dated June 30, 1993 between Fleet Bank of
Massachusetts, N.A. and the Registrant ("Loan Agreement").
10.6.1(9) Amendment dated June 3, 1996 to Loan Agreement dated
June 30, 1993 between Fleet Bank of Massachusetts, N.A. and
the Registrant.
10.7(2)(11) Software License and Support and Hardware Purchase Agreement dated
April 2, 1993 between ADP, Inc. and the Registrant.
10.7.1(12) Amendments dated July 22, 1996 to Software License and Support
and Hardware Purchase Agreement dated April 2, 1993, between
ADP, Inc. and the Registrant.
10.8* Sales Agreement dated December 6, 1990, between Integrated
Design, Inc. and the Registrant.
10.8.1(7) Amendment dated November 2, 1995 to Sales Agreement dated
December 6, 1990, between Integrated Design, Inc. and the
Registrant.
10.9(3)(11) Acquisition Agreement dated November 2, 1993 between Interboro
Systems Corporation and the Registrant.
10.10* Form of Indemnity Agreement entered into among the Registrant and
Directors of the Registrant.
10.11(1) Lease dated November 9, 1992, as amended, between John Hancock
Mutual Life Insurance Company and the Registrant, relating to
premises leased in Waltham, MA.
10.11.1(8) Amendment dated January 1, 1996 to Lease dated November 9,
1992, as amended, between John Hancock Mutual Life Insurance
Company and the Registrant, relating to premises leased in
Waltham, MA.
10.12 (5) Agreement of Reorganization among Kronos Incorporated; Kronos S/T
Corporation, ShopTrac Data Collection Systems, Inc., Thomas J.
O'Malia and Mark J. MacWhirter, dated March 31, 1994.
11 Statement re Computation of Per Share Earnings.
21 Subsidiaries of the Registrant.
<PAGE>
Exhibit Index (continued)
Exhibit
No. Description
23 Consent of Independent Auditors.
27 Financial Data Schedule.
* Incorporated by reference to the same Exhibit Number in the Company's
Registration Statement on Form S-1 File No. 33-47383.
(1) Incorporated by reference to the same Exhibit Number in the Company's
Form 10-K for the fiscal year ended September 30, 1992.
(2) Incorporated by reference to Exhibit Number 10.1 in the Company's Form
10-Q for the quarterly period ended April 3, 1993.
(3) Incorporated by reference to the same Exhibit Number in the Company's
Form 10-K for the fiscal year ended September 30, 1993.
(4) Incorporated by reference to Exhibit Number 10.1 in the Company's Form
10-Q for the quarterly period ended July 2, 1994.
(5) Incorporated by reference to Exhibit Number 2.1 in the Company's Form
10-Q for the quarterly period ended July 2, 1994.
(6) Incorporated by reference to Exhibit 10.13 in the Company's Form 10-K
for the fiscal year ended September 30,1995.
(7) Incorporated by reference to Exhibit Number 10.1 in the Company's Form
10-Q for the quarterly period ended March 30, 1996.
(8) Incorporated by reference to Exhibit Number 10.2 in the Company's Form
10-Q for the quarterly period ended March 30, 1996.
(9) Incorporated by reference to Exhibit Number 10.1 in the Company's Form
10-Q for the quarterly period ended June 29, 1996.
<PAGE>
Exhibit Index (continued)
Exhibit
No. Description
(10) Management contract or compensatory plan or arrangement filed as an
exhibit to this Form 10-K pursuant to Items 14(a) and 14(c) of Form 10-K.
(11) Confidential treatment was granted for certain portions of this
agreement.
(12) Confidential treatment requested for certain portions of these
amendments, which portions have been omitted and filed separately
with the Securities and Exchange Commission.
EXHIBIT 3.1
FORM CD-26-5M-8-83
The Commonwealth of Massachusetts
William Francis Galvin
Secretary of the Commonwealth
RAL IDENTIFICATION
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
NO. 04-2640942
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
General Laws, Chapter 156B, Section 26
-----------
We, Mark S. Ain , President and
Paul A. Lacy , Clerk of
Kronos Incorporated
..........................................................
400 Fifth Avenue, Waltham, Massachusetts 02154
located at ...................................................
do hereby certify that at a meeting of the directors of the corporation held on
November 17
............ 19 95 , the following vote establishing and designating a series
of a class of stock and determining the relative rights and preferences thereof
was duly adopted:-
See Continuation Sheet 2A (Pages 1 through 10)
NOTE: Votes for which the space provided above is not sufficient should be set
out on continuation sheets to be numbered 2A, 2B etc.
Continuation sheets must have a left-hand margin 1 inch wide for binding and
shall be 8 1/2" x 11". Only one side should be used.
-1-
<PAGE>
CONTINUATION OF SHEET 2A
RESOLVED: That pursuant to the authority granted to and vested in the Board of
Directors of this Corporation (hereinafter called the "Board of Directors" or
the "Board") in accordance with the provisions of the Restated Articles of
Organization, the Board of Directors hereby creates a series of Preferred Stock,
$1.00 par value (the "Preferred Stock"), of the Corporation and hereby states
the designation and number of shares, and fixes the relative rights, preferences
and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be designated
as "Series A Junior Participating Preferred Stock" (the "Series A Preferred
Stock") and the number of shares constituting the Series A Preferred Stock shall
be Twelve Thousand Five Hundred (12,500). Such number of shares may be increased
or decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior
to the Series A Preferred Stock with respect to dividends, the holders
of shares of Series A Preferred Stock, in preference to the holders of
Common Stock, par value $.01 per share (the "Common Stock"), of the
Corporation, and of any other junior stock, shall be entitled to
receive, when, as and if declared by the Board of Directors out of
funds of the Corporation legally available for the payment of
dividends, quarterly dividends payable in cash on the last day of each
fiscal quarter of the Corporation in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing
on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series A Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of
(a) $10 or (b) subject to the provision for adjustment hereinafter set
forth, 1,000 times the aggregate per share amount of all cash
dividends, and 1,000 times the aggregate per share
-2-
<PAGE>
amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Preferred Stock. In
the event the Corporation shall at any time (i) declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or
(ii) effect a subdivision, combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) (except, with
respect to subsections (i) or (ii) above, in such case that the
Corporation simultaneously declares or pays a dividend on, or effects
a subdivision, combination or consolidation of, the Series A Preferred
Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under
clause (b) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event. In the event the
Corporation shall at any time declare or pay any dividend on the
Series A Preferred Stock payable in shares of Series A Preferred
Stock, or effect a subdivision, combination or consolidation of the
outstanding shares of Series A Preferred Stock (by reclassification or
otherwise than by payment of a dividend in shares of Series A
Preferred Stock) into a greater or lesser number of shares of Series A
Preferred Stock, then in each such case the amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to
such event under clause (b) of the first sentence of this Section 2(A)
shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Series A Preferred Stock
that were outstanding immediately prior to such event and the
denominator of which is the number of shares of Series A Preferred
Stock outstanding immediately after such event.
(B) The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than
-3-
<PAGE>
a dividend payable in shares of Common Stock) and the Corporation
shall pay such dividend or distribution on the Series A Preferred
Stock before the dividend or distribution declared on the Common Stock
is paid or set apart; provided that, in the event no dividend or
distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $10 per
share on the Series A Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares, unless the date
of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of shares
of Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from
such Quarterly Dividend Payment Date. Accrued but unpaid dividends
shall not bear interest. Dividends paid on the shares of Series A
Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Preferred Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to
10 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision, combination or consolidation of the
outstanding shares of Common Stock (by reclassification
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<PAGE>
or otherwise than by payment of a dividend in shares of Common Stock)
(except, with respect to subsections (i) and (ii) above, in such case
that the Corporation simultaneously declares or pays a dividend on, or
effects a subdivision, combination or consolidation of, the Series A
Preferred Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event. In the event the
Corporation shall at any time (i) declare or pay any dividend on the
Series A Preferred Stock payable in shares of Series A Preferred
Stock, or (ii) effect a subdivision, combination or consolidation of
the outstanding shares of Series A Preferred Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Series A Preferred Stock) into a greater or lesser number of shares
of Series A Preferred Stock, then in each such case the number of
votes per share to which holders of shares of Series A Preferred Stock
were entitled immediately prior to such event shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the
number of shares of Series A Preferred Stock that were outstanding
immediately prior to such event and the denominator of which is the
number of shares of Series A Preferred Stock outstanding immediately
after such event.
(B) Except as otherwise provided herein, in the Restated Articles of
Organization, as amended, or by law, the holders of shares of Series A
Preferred Stock and the holders of shares of Common Stock and any
other capital stock of the Corporation having general voting rights
shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(C)(i) If at any time dividends on any Series A Preferred Stock shall be in
arrears in an amount equal to six quarterly dividends thereon, the
holders of the Series A Preferred Stock, voting as a separate series
from all other series of Preferred Stock and classes of capital stock,
shall be entitled to elect two members of the Board of Directors in
addition to any Directors elected by any other series, class or
classes of securities and the authorized number of Directors will
automatically be increased by two. Promptly thereafter, the Board of
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<PAGE>
Directors of this Corporation shall, as soon as may be practicable,
call a special meeting of holders of Series A Preferred Stock for the
purpose of electing such members of the Board of Directors. Said
special meeting shall in any event be held within 45 days of the
occurrence of such arrearage.
(ii) During any period when the holders of Series A Preferred Stock,
voting as a separate series, shall be entitled and shall have exercised
their right to elect two Directors, then and during such time as such
right continues (a) the then authorized number of Directors shall be
increased by two, and the holders of Series A Preferred Stock, voting
as a separate series, shall be entitled to elect the additional
Directors so provided for, and (b) each such additional Director shall
not be a member of any existing class of the Board of Directors, but
shall serve until the next annual meeting of stockholders for the
election of Directors, or until his successor shall be elected and
shall qualify, or until his right to hold such office terminates
pursuant to the provisions of this Section 3(C)
(iii) A Director elected pursuant to the terms hereof may be removed
with or without cause by the holders of Series A Preferred Stock
entitled to vote in an election of such Director.
(iv) If, during any interval between annual meetings of stockholders
for the election of Directors and while the holders of Series A
Preferred Stock shall be entitled to elect two Directors, there is no
such Director in office by reason of resignation, death or removal,
then, promptly thereafter, the Board of Directors shall call a special
meeting of the holders of Series A Preferred Stock for the purpose of
filling such vacancy and such vacancy shall be filled at such special
meeting. Such special meeting shall in any event be held within 45 days
of the occurrence of such vacancy.
(v) At such time as the arrearage is fully cured, and all dividends
accumulated and unpaid on any shares of Series A Preferred Stock
outstanding are paid, and, in addition thereto, at least one regular
dividend has been paid subsequent to curing such arrearage, the term of
office of any Director elected pursuant to this Section 3(C), or his
successor, shall automatically terminate, and the authorized number of
Directors shall automatically decrease by two, the rights of the
holders of the shares of the Series A Preferred Stock to vote as
provided in this Section 3(C) shall cease, subject to
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<PAGE>
renewal from time to time upon the same terms and conditions, and the
holders of shares of the Series A Preferred Stock shall have only the
limited voting rights elsewhere herein set forth.
(D) Except as set forth herein, or as otherwise provided by law, holders of
Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking
any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall
not:
(i) declare or pay dividends, or make any other distributions, on any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends, or make any other distributions, on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock, except dividends paid ratably on the Series A Preferred Stock
and all such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series
A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series
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<PAGE>
A Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time
and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock subject to
the conditions and restrictions on issuance set forth herein, in the Restated
Articles of Organization, as amended, or in any other Certificate of Designation
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock unless, prior thereto, the holders of
shares of Series A Preferred Stock shall have received $10 per share, plus
an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, provided that the
holders of shares of Series A Preferred Stock shall be entitled to receive
an aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1,000 times the aggregate amount to be
distributed per share to holders of shares of Common Stock, or (2) to the
holders of shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A Preferred
Stock, except distributions made ratably on the Series A Preferred Stock
and all such parity stock in proportion to the
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<PAGE>
total amounts to which the holders of all such shares are entitled upon
such liquidation, dissolution or winding up.
(B) Neither the consolidation, merger or other business combination of the
Corporation with or into any other corporation nor the sale, lease,
exchange or conveyance of all or any part of the property, assets or
business of the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation for purposes of this Section
6.
(C) In the event the Corporation shall at any time (i) declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or (ii)
effect a subdivision, combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of
a dividend in shares of Common Stock)(except, with respect to subsections
(i) or (ii) above, in such case that the Corporation simultaneously
declares or pays a dividend on, or effects a subdivision, combination or
consolidation of, the Series A Preferred Stock) into a greater or lesser
number of shares of Common Stock, then in each such case the aggregate
amount to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under the proviso in clause (1) of
paragraph (A) of this Section 6 shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event. In the event the Corporation shall at any
time declare or pay any dividend on the Series A Preferred Stock payable in
shares of Series A Preferred Stock, or effect a subdivision, combination or
consolidation of the outstanding shares of Series A Preferred Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Series A Preferred Stock) into a greater or lesser number of shares of
Series A Preferred Stock, then in each such case the aggregate amount to
which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event under the proviso in clause (1) of
paragraph (A) of this Section 4 shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of
Series A Preferred Stock that were outstanding immediately prior to such
event and the denominator of which is the number of shares of Series A
Preferred Stock outstanding immediately after such event.
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<PAGE>
Section 7. Consolidation, Merger, etc. Notwithstanding anything to the contrary
contained herein, in case the Corporation shall enter into any consolidation,
merger, combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case each share of Series A Preferred Stock shall at
the same time be similarly exchanged or changed into an amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 1,000
times the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Corporation shall at any
time (i) declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or (ii) effect a subdivision, combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) (except, with respect to
subsections (i) and (ii) above, in such case that the Corporation simultaneously
declares or pays a dividend on, or effects a subdivision, combination or
consolidation of, the Series A Preferred Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount set forth in the
preceding sentence with respect to the exchange or change of shares of Series A
Preferred Stock shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event. In
the event the Corporation shall at any time declare or pay any dividend on the
Series A Preferred Stock payable in shares of Series A Preferred Stock, or
effect a subdivision, combination or consolidation of the outstanding shares of
Series A Preferred Stock (by reclassification or otherwise than by payment of a
dividend in shares of Series A Preferred Stock) into a greater or lesser number
of shares of Series A Preferred Stock, then in each such case the amount set
forth in the first sentence of this Section 7 with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
Series A Preferred Stock that were outstanding immediately prior to such event
and the denominator of which is the number of shares of Series A Preferred Stock
outstanding immediately after such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall not be
redeemable.
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<PAGE>
Section 9. Rank. The Series A Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all series of any
other class of the Preferred Stock issued either before or after the issuance of
the Series A Preferred Stock, unless the terms of any such series shall provide
otherwise.
Section 10. Amendment. The Restated Articles of Organization, as amended, of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
Section 11. Fractional Shares. Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and have the benefit of all other rights of holders
of Series A Preferred Stock.
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<PAGE>
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this
30th day of November in the year 1995.
S/ Mark S. Ain
........................................................., President
S/ Paul A. Lacy
........................................................., Clerk
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<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
Certificate of Vote of Directors Establishing
A Series of a Class of Stock
(General Laws, Chapter 156B, Section 26)
I hereby approve the within certificate and, the
filing fee in the amount of $ 100.00
having been paid, said certificate is hereby filed this
4th day of December
1995 .
S/ William Francis Galvin
William Francis Galvin
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTO COPY OF CERTIFICATE TO BE SENT
TO: Sally J. Wallace, Esq...........
Vice President, General Counsel
Kronos Incorporated............
400 Fifth Avenue...............
Waltham, MA 02154..............
........................................
........................................
Telephone......617-890-3232...........
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<PAGE>
EXHIBIT 3.1 (CONTINUED)
The Commonwealth of Massachusetts
MICHAEL JOSEPH CONNOLLY Secretary of State Federal Identification ONE
ASHBURTON PLACE, BOSTON, MASS. 02108 No. 04-2640942
RESTATED ARTICLES OF ORGANIZATION
General Laws, Chapter 156B, Section 74
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
restated articles or organization. The fee for filing this certificate is
prescribed by General Laws, Chapter 156B, Section 114. Make check payable to the
Commonwealth of Massachusetts.
----------
We, Mark S. Ain , President/and
Paul A. Lacy , Clerk of
. . . . . . . . . . . . . . . . Kronos Incorporated . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
(Name of Corporation)
located at . . . . . . . . 62 Fourth Avenue, Waltham, MA 02154 . . . . . . . .
do hereby certify that the following restatement of the articles of organization
of the corporation was duly adopted at a
meeting held on April 16 , 1992 , by vote of
. 1,127,890 . shares of .Common Stock out of .. 1,234,798 . shares outstanding,
(Class of Stock)
.20,152.. shares of Series A. Preferred Stock . out of . 21,855 shares
(Class of Stock)
outstanding, and
. . . . . . shares of . . . . . . . . . out of. . . . . . shares outstanding,
(Class of Stock)
being at least two-thirds of each class of stock outstanding and entitled to
vote and of each class or series of stock
adversely affected thereby: -
1. The name by which the corporation shall be known is: -
Kronos Incorporated
2. The purposes for which the corporation is formed are as follows: -
See Page 2A attached hereto.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than one article may be continued on a single sheet so long as each article
requiring each such addition is clearly indicated.
<PAGE>
3. The total number of shares and the par value, if any, of each class
of stock which the corporation is authorized to issue is as follows:
WITHOUT PAR VALUE WITH PAR VALUE
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
Preferred 1,000,000 $1.00
Common 12,000,000 $ .01
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting
powers, qualifications, special or relative rights or privileges as to
each class thereof and any series now established:
See Pages 4A through 4M attached hereto.
*5. The restrictions, if any, imposed by the articles of organization
upon the transfer of shares of stock of any class are as follows:
None
*6. Other lawful provisions, if any, for the conduct and regulation of
the business and affairs of the corporation, for its voluntary
dissolution, or for limiting, defining, or regulating the powers of
the corporation, or of its directors or stockholders, or of any class
of stockholders:
See Pages 6A through 6G attached hereto.
*If there are no such provisions, state "None".
<PAGE>
Article 2
- - ---------
Purposes
(a) to develop, manufacture and market electrical, electronic and
mechanical products of any kind, and to conduct research in connection with any
of the foregoing.
(b) to carry on any manufacturing, mercantile, selling, management,
service or other business, operation or activity which may be lawfully carried
on by a corporation organized under the Business Corporation Law of The
Commonwealth of Massachusetts, whether or not related to those referred to in
the foregoing paragraph.
-2A-
<PAGE>
Continuation Sheet 4A
ARTICLE 4
PROVISIONS RELATING TO CAPITAL STOCK
The capital stock of the Corporation shall consist of (i) 12,000,000
shares of Common Stock, $.01 par value per share and (ii) 1,000,000 shares of
preferred stock, $1.00 par value per share, issuable in one or more series (the
"Series Preferred Stock"), of which 21,855 shares shall be designated Series A
Cumulative Convertible Preferred Stock (the "Series A Preferred").
SERIES PREFERRED STOCK AND COMMON STOCK
1. The shares of Series Preferred Stock may be issued from time to time
in one or more series. To the extent not inconsistent with the other provisions
of this Article 4, the Board of Directors is authorized to establish and
designate the different series, and to fix and determine the variations and the
relative rights and preferences among the different series, provided that all
shares of Series Preferred Stock shall be identical except for variations so
fixed and determined among the different series to the extent permitted by
Massachusetts General Laws, Chapter 156B, Section 26 and any successor to that
Section.
2. The preferences, voting powers, qualifications, special or relative
rights or privileges of the Common Stock, the Series Preferred Stock and the
Series A Preferred are as follows:
(a) Liquidation Preference. Upon any liquidation, dissolution
or winding up of this Corporation, whether voluntary or involuntary and
after provision for the payment of creditors, the holders of each
series of Series Preferred Stock shall be entitled, before any
distribution or payment is made upon any shares of Common Stock, to be
paid the amount fixed and determined by the Board of Directors for such
series plus (except as otherwise provided for any series of Series
Preferred Stock) an amount equal to dividends accrued to the date of
payment, and to no further payment. Except as otherwise provided for
any series of Series Preferred Stock, in the event that the assets of
this Corporation available for distribution to holders of Series
Preferred Stock shall be insufficient to permit payment to such holders
of such amounts, then all the assets of the Corporation then remaining
shall be distributed among the series of Series Preferred Stock ratably
on the basis of the relative aggregate liquidation preferences of each
series and,
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<PAGE>
within each such series, ratably among the holders of the shares of
such series. The aggregate amount of payments to be made to holders of
Series Preferred Stock upon any liquidation, dissolution or winding up
of this Corporation may be fixed at any amount up to the full amount
legally available for distribution to stockholders. After payment in
full has been made to all holders of Series Preferred Stock, then, and
only then, the remaining assets of this Corporation may be distributed
to the holders of Common Stock. The holders of any series of Series
Preferred Stock shall be entitled to participate in any such
distribution to holders of Common Stock to the extent, if any,
specified for such series by the Board of Directors. Except as
otherwise provided for any series of Series Preferred Stock, neither
the purchase or redemption by this Corporation of shares of any class
or series of its capital stock in any manner permitted by the Restated
Articles of Organization, nor the merger or consolidation of this
Corporation with or into any other corporation or corporations, nor the
sale or transfer by this Corporation of all or any part of its assets,
shall be deemed to be a liquidation, dissolution or winding up of this
Corporation for the purposes of this Article 4.
(b) Dividend Preference. Holders of Series Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available for the purpose, dividends at
such annual rate or rates, and no more, as are fixed for each series of
Series Preferred Stock by the Board of Directors, payable in cash or in
property or in shares of any series of Series Preferred Stock, or in
Common Stock, or in any combination thereof. Holders of Series
Preferred Stock may receive in the aggregate dividends equal to the
full amount of funds legally available for the payment of dividends.
Except as otherwise provided for any series of Series Preferred Stock,
until all accrued dividends, if any, on all shares of Series Preferred
Stock shall have been declared and set apart for payment, no dividend
or distribution shall be made to holders of Common Stock, other than a
dividend payable in Common Stock of this Corporation, nor shall any
shares of Common Stock be repurchased, redeemed or otherwise retired.
The holders of any series of Series Preferred Stock shall be entitled
to participate in any dividend or distribution to holders of Common
Stock to the extent, if any, specified for such series by the Board of
Directors.
(c) Voting Powers and Qualifications. Each share of Common Stock
shall entitle the holder thereof to one vote on all matters presented
to stockholders. The holders of Series Preferred Stock shall be
entitled to vote separately as a class, or in combination with the
holders
-4B-
<PAGE>
of Common Stock as a single class, to the extent (if any), and in
regard to such matters and transactions (if any), as the Board of
Directors may specify in establishing any such series or as may be
otherwise required by law. Matters and transactions as to which the
Board of Directors, in establishing any series, may specify a separate
class vote of holders of Series Preferred Stock or any series thereof
may include, without limitation, the election of a specified number or
percentage of the directors, changes in this Corporation's authorized
capital stock, amendments to this Corporation's Restated Articles of
Organization or By-laws, mergers, a sale of substantially all of the
assets of this Corporation, and dissolution of this Corporation. The
Board of Directors may specify the percentage of votes required to
approve any matter or transaction requiring a separate vote of the
Series Preferred Stock or any series thereof. As to matters and
transactions as to which the Series Preferred Stock is entitled to vote
in combination with holders of Common Stock as a single class, the
Board of Directors, in establishing any such series, may specify that
the voting power of each share of such series may be greater or less
than the voting power of each share of Common Stock, provided that
Series Preferred Stock shall have no more than ten votes per share, or
such greater number as is equivalent to the number of shares of Common
Stock into which such shares of Series Preferred Stock are convertible.
(d) Additional Special or Relative Rights or Privileges.
Holders of any series of Series Preferred Stock shall enjoy such
additional special or relative rights or privileges vis-a-vis the
holders of Common Stock as the Board of Directors (subject to the
limitations imposed by this Article 4) may specify in the votes
creating such series, including, without limitation, rights of
redemption, sinking or purchase fund provisions and conversion rights.
(e) Series A Preferred. The rights, preferences, privileges and
restrictions granted to or imposed on the Series A Preferred and the
Common Stock or the holders thereof are as follows:
1. Dividends.
1.1. The holders of the Series A Preferred shall be entitled
to receive, out of funds legally available therefor, dividends at the
rate of $2.025 per share per annum, payable quarterly beginning on June
30, 1988 and in preference and priority to any payment of any dividend
on any class of stock or series thereof of the Corporation
-4C-
<PAGE>
for such year. The right to such dividends on the Series A Preferred
shall accrue and cumulate on the books of this Corporation as an
obligation of the Corporation on a quarterly basis, whether or not
declared, beginning on July 31, 1987, provided, however, that if the
Series A Preferred is automatically converted pursuant to Section 4.2
hereof on or prior to July 1, 1988, the holders of the Series A
Preferred shall not be entitled to receive any dividends which, on or
prior to such date, have accrued pursuant to this section.
No dividend shall be paid on any class of stock or series
thereof in any year, other than dividends payable solely in Common
Stock, until all accrued dividends have been declared and paid on the
Series A Preferred.
1.2. Increase in Dividend. If the Corporation shall fail to
pay any dividend when due in accordance with this Section 1 or if the
Corporation shall fail to make a mandatory redemption of the Series A
Preferred in accordance with Section 7 hereof, then the rate at which
dividends are payable, and, if dividends are not paid, the rate at
which they accrue and cumulate, shall be increased by $0.1125 per share
for each quarter that such dividend shall remain unpaid or that such
mandatory redemption shall not be made, and shall be increased by
$0.05625 for each successive quarter; provided that the maximum
dividend payable in any quarter shall not exceed $0.8375 per share.
2. Liquidation Preference.
2.1. In the event of any liquidation, dissolution, or winding
up of the Corporation, either voluntary or involuntary, distributions
to the stockholders of the Corporation shall be made in the following
manner: The holders of the Series A Preferred shall be entitled to
receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of any class
of stock or series thereof of the Corporation by reason of their
ownership of such stock, the amount of $22.50 per share for each share
of Series A Preferred then held by them, and, in addition, an amount
equal to all accrued but unpaid dividends on the Series A Preferred
held by them. If the assets and funds thus distributed among the
holders of the Series A Preferred shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amount, then
the entire assets and funds of the Corporation so distributed shall be
distributed ratably among the holders of the Series A Preferred in
proportion to the aggregate preferential amount of all shares of Series
A Preferred then held by them bears to the aggregate preferential
-4D-
<PAGE>
amount of all shares of Series A Preferred outstanding as of the date
of the distribution upon the occurrence of such event. After payment
has been made to the holders of the Series A Preferred of the full
amounts to which they shall be entitled as aforesaid, the holders of
the Common Stock shall be entitled to share ratably in the remaining
assets, based on the number of shares of Common Stock held by each of
them.
3. Voting Rights. The holder of each share of Series A Preferred issued
and outstanding shall be entitled to the number of votes per share as
shall equal the number of shares of Common Stock into which each share
of Series A Preferred is then convertible, and the holders of Series A
Preferred shall be entitled to vote on all matters as to which the
holders of Common Stock shall be entitled to vote, voting together with
the holders of Common Stock as a single class. The holder of each share
of Common Stock issued and outstanding shall be entitled to one vote
per share of such Common Stock.
4. Conversion. The holders of the Series A Preferred have conversion
rights as follows (the "Conversion Rights"):
4.1. Right of Conversion. Each share of Series A Preferred
shall be convertible (at the option of the holder thereof) at any time
after the date of issuance at the office of the Corporation or any
transfer agent for the Series A Preferred into the number of shares of
the Common Stock of the Company obtained by dividing $22.50 by the
conversion price in effect at the time of conversion, determined as
hereinafter provided (the "Conversion Price"). The initial Conversion
Price shall be $22.50 per share. All calculations under this Section 4
shall be made to the nearest cent.
4.2. Automatic Conversion. Each share of Series A Preferred
shall automatically be converted into shares of Common Stock at the
then effective Conversion Price, at the option of the Corporation, upon
the closing of an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock for the account of the
Corporation to the public generally at a price per share (prior to
underwriting commissions and offering expenses) of not less than $35
per share (appropriately adjusted for any recapitalizations, stock
splits, stock combinations and stock dividends) in which the aggregate
proceeds received by the Corporation (after underwriting discounts and
commissions) equal or exceed $7,500,000. In the event of such automatic
conversion of the Series A Preferred, such conversion shall not be
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deemed to have occurred until the person(s) entitled to receive the
Common Stock issuable upon such conversion of Series A Preferred has
received from the Corporation all accrued and unpaid dividends owed on
such person's Series A Preferred.
4.3. Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Series A Preferred. In lieu of
any fractional shares to which the holder would otherwise be entitled,
the Corporation shall pay cash equal to such fraction multiplied by the
then effective Conversion Price. Before any holder of Series A
Preferred shall be entitled to convert the same into full shares of
Common Stock and to receive certificates therefor, he shall surrender
the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Series A Preferred,
and shall give written notice to the Corporation at such office that he
elects to convert the same; provided, however, that in the event of an
automatic conversion pursuant to Section 4.2, the outstanding shares of
Series A Preferred shall be converted automatically without any further
action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the
Corporation or its transfer agent, and provided further that the
Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such automatic conversion unless
the certificates evidencing such shares of Series A Preferred are
either delivered to the Corporation or its transfer agent as provided
above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes
an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such
certificates provided that nothing contained herein shall require the
holder to provide a surety or indemnity bond where the Common Stock
issued is registered in the same name as the Series A Preferred
surrendered for conversion. The Corporation shall, as soon as
practicable after such delivery, or such agreement of indemnification
in the case of a lost certificate, but in no event later than ten (10)
business days after such delivery or agreement of indemnification,
issue and deliver at such office to such holder of Series A Preferred,
a certificate or certificates for the number of shares of Common Stock
to which he shall be entitled as aforesaid and a check payable to the
holder in the amount of any cash amounts payable as the result of a
conversion into fractional shares of Common Stock plus all accrued and
unpaid dividends on such holder's Series A Preferred. Such conversion
shall be deemed to have been made immediately prior to the close of
business on the date of
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such surrender of the shares of Series A Preferred to be
converted, or in the case of automatic conversion on the date
immediately prior to closing of the public offering (provided that all
accrued and unpaid dividends have been paid prior to such date), and
the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
Upon conversion of only a portion of the number of shares
covered by a certificate representing shares of Series A Preferred
surrendered for conversion, the Corporation shall issue and deliver to
the holder of the certificate so surrendered for conversion, at the
expense of the Corporation, a new certificate covering the number of
shares of Series A Preferred representing the unconverted portion of
the certificate so surrendered.
4.4. Adjustment of Conversion Price for Subdivisions,
Combinations, or Consolidation of Common Stock. In the event the
outstanding shares of Common Stock shall be subdivided (by stock split,
or otherwise) into a greater number of shares of Common Stock, the
Conversion Price then in effect shall, concurrently with the
effectiveness of such subdivision, be proportionately decreased. In the
event the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of
shares of Common Stock, the Conversion Price then in effect shall,
concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
4.5. Recapitalizations. If at any time or from time to time
there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger, consolidation or sale of assets
transaction provided for elsewhere herein), provision shall be made so
that the holders of the Series A Preferred shall thereafter be entitled
to receive upon conversion of the Series A Preferred the number of
shares of stock or other securities or property of the Company or
otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any
such case, appropriate adjustment shall be made in the application of
the provisions of this Section 4 with respect to the rights of the
holders of the Series A Preferred after the recapitalization to the end
that the provisions of this Section 4 (including adjustment of the
Conversion Price then in effect and the number of shares purchasable
upon conversion of the Series A Preferred) shall be applicable after
that event in as nearly an equivalent manner as may be practicable.
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4.6. No Impairment. The Company will not, by amendment of its
Articles of Organization or through any reorganization,
recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Company, but will at
all times in good faith assist in the carrying out of all the
provisions of this Section 4 and in the taking of all such action as
may be necessary or appropriate in order to protect the conversion
rights of the holders of the Series A Preferred against impairment.
4.7. Reservation of Shares. The Company agrees that, so long
as any share of Series A Preferred shall remain outstanding, the
Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized capital stock, for the purpose
of issue upon conversion of the Series A Preferred, the full number of
shares of Common Stock then issuable upon exercise of all outstanding
shares of Series A Preferred.
4.8. Validity of Shares. The Company agrees that it will from
time to time take all such actions as may be requisite to assure that
all shares of Common Stock which may be issued upon conversion of any
share of the Series A Preferred will, upon issuance, be validly issued,
fully paid and non-assessable and free from all taxes, liens and
charges with respect to the issue thereof; and, without limiting the
generality of the foregoing, the Company agrees that it will from time
to time take all such action as may be requisite to assure that the par
value per share, if any, of the Common Stock is at all times equal to
or less than the then current Conversion Price of the Series A
Preferred.
4.9. Notice of Adjustment. Upon each adjustment of the
Conversion Price, the Company shall give prompt written notice thereof
addressed to the registered holder of each share of the Series A
Preferred at the address of such holder as shown on the records of the
Company, which notice shall state the Conversion Price resulting from
such adjustment and the increase or decrease, if any, in the number of
shares issuable upon the conversion of his shares of Series A
Preferred, setting forth in reasonable detail the method of calculation
and the facts upon which such calculation is based.
4.10. Notice of Capital Changes. If at any time:
(a) the Company shall declare any dividend or distribution
payable to the holders of its Common Stock;
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(b) the Company shall offer for subscription pro rata
to the holders of Common Stock any additional shares of stock
of any class or other rights;
(c) there shall be any proposed capital
reorganization or reclassification of the capital stock of the
Company, or consolidation or merger of the Company with, or
sale of all or substantially all of its assets to, another
corporation or business organization; or
(d) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give the
registered holders of the Series A Preferred written notice, by
registered or certified mail, of the date on which a record shall be
taken for such dividend, distribution or subscription rights or for
determining stockholders entitled to vote upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation
or winding up and of the date when any such transaction shall take
place, as the case may be. Such notice shall also specify the date as
of which the holders of Common Stock of record shall participate in
such dividend, distribution or subscription rights, or shall be
entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding up,
as the case may be. Such written notice shall be given at least 20 days
prior to the transaction in question and not less than 10 days prior to
the record date with respect thereto.
4.11. Taxes. The Company will pay all taxes and other governmental
charges that may be imposed in respect of the issue or delivery of
shares of the Series A Preferred or Common Stock upon conversion of
the Series A Preferred.
5. Status of Converted Stock. In case any shares of any series of
Series A Preferred shall be converted pursuant to Section 4 hereof, the
shares so converted shall be restored to authorized and undesignated,
but unissued shares of Series Preferred Stock of the Company.
6. Optional Redemption.
(a) The Corporation may, at any time, redeem
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any or all shares of the Series A Preferred on a pro rata
basis. If the Corporation so elects it shall issue a Notice of
Redemption (the "Redemption Notice") to the holders of record
of the Series A Preferred. The Redemption Notice shall set
forth the Redemption Date, which shall be at least thirty (30)
days after the date of the Notice of Redemption, the number of
such holder's shares of Series A Preferred to be redeemed, and
the applicable Redemption Amount. The Redemption Amount of the
Series A Preferred shall be equal to the product of (a) the
number of shares of Series A Preferred of the holder which are
subject to redemption multiplied by the sum of (b) $27.00 plus
(c) the aggregate of all accrued and unpaid dividends per
share but in no event shall the total of the Redemption
Amounts paid to the holders of the Series A Preferred be less
than $750,000. The Redemption Date shall be as specified in
the Redemption Notice. The Redemption Amount shall be paid in
a lump sum payment on the Redemption Date.
(b) The Corporation shall deposit the Redemption
Amount in an escrow account with a state or national bank at
least two (2) days prior to the Redemption Date and shall
notify the holders of the Series A Preferred of such deposit
immediately thereafter. Failure to make such deposit or notify
the holders shall invalidate the Redemption Notice and no
redemption under this Section 6 may be made until such failure
is cured. The holders of the Series A Preferred shall have the
right to convert their shares pursuant to Section 4 at any
time prior to the Redemption Date.
(c) The Redemption Amount set forth in this Section 6
shall be subject to equitable adjustment whenever there shall
occur a stock split, dividend, combination, reclassification
or other similar event involving the Series A Preferred.
(d) Each holder of shares of Series A Preferred to be
redeemed shall surrender his or her certificate or
certificates representing such shares to the Corporation at
the place designated in the Redemption Notice, and thereupon
the applicable Redemption Amount for such shares as set forth
in this Section 6 shall be paid to the order of the person
whose name appears on such certificate or certificates and
each surrendered certificate shall be cancelled and retired.
(e) If any shares of Series A Preferred are not
redeemed solely because a holder fails to surrender
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the certificate or certificates representing such shares as
required by Section 6(d) hereof, then, from and after the
Redemption Date, and except for the right to receive payment
under this Section 6, such shares of Series A Preferred
thereupon subject to redemption shall not be entitled to any
further right as Series A Preferred, including but not limited
to the conversion provisions set forth in Section 4 hereof.
7. Mandatory Redemption.
(a) On August 31, 1991 the Corporation shall redeem
fifty percent (50%) of all of the shares of the Series A
Preferred then outstanding and on August 31, 1992 the
Corporation shall redeem the balance of the shares of Series A
Preferred (the date on which such shares are redeemed by the
Corporation referred to herein as the "Mandatory Redemption
Date"). The redemption price for each share of Series A
Preferred redeemed pursuant to this Section 7 shall be $22.50
per share plus all accrued and unpaid dividends on such share,
whether or not earned or declared, up to and including the
date fixed for redemption (the "Redemption Price"). Each
redemption of Series A Preferred shall be made so that the
number of shares of Series A Preferred held by each registered
owner shall be reduced in an amount which shall bear the same
ratio to the total number of shares of the Series A Preferred
being so redeemed as the number of shares of Series A
Preferred then held by such registered owner bears to the
aggregate number of shares of Series A Preferred then
outstanding.
(b) The Redemption Price set forth in this Section 7
shall be subject to equitable adjustment whenever there shall
occur a stock split, dividend, combination, reclassification
or other similar event involving the Series A Preferred.
(c) At least 45 days before any Mandatory Redemption
Date pursuant to Section 7(a), written notice (hereinafter
referred to as the "Mandatory Redemption Notice") shall be
mailed, postage prepaid, to each holder of record of the
Series A Preferred which is to be redeemed, at its address
shown on the records of the Corporation; provided, however,
that the holders of Series A Preferred shall have the right to
covert their shares pursuant to Section 4 at any time prior to
the Mandatory Redemption Date; provided, further, that the
Corporation's failure to give such Mandatory Redemption Notice
shall in no way affect its obligation to redeem the shares of
Series A Preferred as provided in Section 7(a) hereof.
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(d) Each holder of shares of Series A Preferred to be
redeemed shall surrender his or her certificate or
certificates representing such shares to the Corporation at
the place designated in the Mandatory Redemption Notice, and
thereupon the applicable Redemption Price for such shares as
set forth in this Section 7 shall be paid to the order of the
person whose name appears on such certificate or certificates
and each surrendered certificate shall be cancelled and
retired.
(e) If any shares of Series A Preferred are not
redeemed solely because a holder fails to surrender the
certificate or certificates representing such shares pursuant
to Section 7, then, from and after the Redemption Date, and
except for the right to receive payment under this Section 7,
such shares of Series A Preferred thereupon subject to
redemption shall not be entitled to any further right as
Series A Preferred, including but not limited to the
conversion provisions set forth in Section 4 hereof.
8. Protective Provisions. The Corporation shall not, without the affirmative
consent of the holders of shares representing at least 662/3% in voting power
(90% in voting power with respect to Section 8(b) below) of the Series A
Preferred then outstanding, acting separately as one class, given by written
consent or by vote at a meeting called for such purpose for which notice shall
have been given to the holders of the Series A Preferred:
(a) in any manner authorize, create, or issue any class or
series of capital stock (i) ranking, either as to payment of dividends,
distribution of assets, or redemptions, prior to or on a parity with
the Series A Preferred (other than the Series A Preferred itself), or
(ii) that in any manner adversely affects the holders of Series A
Preferred, or authorize, create, or issue any shares of any class or
series or any bonds, debentures, notes, or other obligations
convertible into or exchangeable for, or having optional rights to
purchase, any shares having any such preference or priority or so
adversely affecting the holders of Series A Preferred;
(b) in any manner alter or change the designations or the
powers, preferences, or rights, or the qualifications,
limitations, or restrictions of the Series A Preferred;
(c) reclassify the shares of Common Stock or any other shares
of any class or series of capital stock hereafter created junior to the
Series A Preferred into shares of any class or series of capital stock
(i)
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ranking, either as to payment of dividends, distribution of assets, or
redemptions prior to or on a parity with the Series A Preferred, or
(ii) that in any manner otherwise adversely affects the holders of
Series A Preferred;
(d) sell or otherwise transfer all or substantially all of the
Corporation's rights in its technology or intellectual property such
that the Corporation no longer owns or has any right to such technology
or intellectual property;
(e) merge or consolidate with or into, or permit any
subsidiary to merge with or into, any other corporation or
corporations, or other entity or entities (in which merger or
consolidation the shareholders of the Corporation receive distributions
of cash or securities of another issuer as a result of such merger or
consolidation).
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Article 6
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Other Lawful Provisions
6.1 The Corporation may carry on any business, operation or activity
referred to in Article 2 to the same extent as might an individual, whether as
principal, agent, contractor or otherwise, and either alone or in conjunction or
a joint venture or other arrangement with any corporation, association, trust,
firm or individual.
6.2 The Corporation may carry on any business, operation or
activity through a wholly or partly owned subsidiary.
6.3 The Corporation may be a partner in any business enterprise
which it would have power to conduct by itself.
6.4 The Board of Directors may make, amend or repeal the By-laws of the
Corporation in whole or in part, except with respect to any provision thereof
which by law or the By-laws requires action by the stockholders and subject to
the right of the stockholders entitled to vote with respect thereto to amend or
repeal By-laws made by the Board of Directors as provided for in these Restated
Articles of Organization. The affirmative vote of two thirds of the total number
of votes of the then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required for the adoption, amendment or repeal of By-laws
by the stockholders of the Corporation. Subject to the provisions set forth
herein, the Corporation reserves the right to amend, alter, repeal or rescind
any provision contained in these Restated Articles of Organization in the manner
now or hereafter prescribed by law.
6.5 Meetings of the stockholders may be held anywhere in the
United States.
6.6 Except as otherwise provided by law, no stockholder shall have any
right to examine any property or any books, accounts or other writings of the
Corporation if there is reasonable ground for belief that such examination will
for any reason be adverse to the interests of the Corporation, and a vote of the
directors refusing permission to make such examination and setting forth that in
the opinion of the directors such examination would be to the interests of the
Corporation shall be prima facie evidence that such examination would be adverse
to the interests of the Corporation. Every such examination shall be subject to
such reasonable regulations as the directors may establish in regard thereto.
6.7 The directors may specify the manner in which the accounts of the
Corporation shall be kept and may determine what constitutes net earnings,
profits and surplus, what amounts, if
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any, shall be reserved for any corporate purpose, and what amounts, if any,
shall be declared as dividends. Unless the Board of Directors otherwise
specifies, the excess of the consideration for any share of its capital stock
with par value issued by it over such par value shall be surplus. The Board of
Directors may allocate to capital stock less than all of the consideration for
any share of its capital stock without par value issued by it, in which case the
balance of such consideration shall be surplus. All surplus shall be available
for any corporate purpose, including the payment of dividends.
6.8 The purchase or other acquisition or retention by the Corporation
of shares of its own capital stock shall not be deemed a reduction of its
capital stock. Upon any reduction of capital or capital stock, no stockholder
shall have any right to demand any distribution from the Corporation, except as
and to the extent that the stockholders shall have provided at the time of
authorizing such reduction.
6.9 (a) A director who has a financial, family or other interest in a
contract or other transaction may be counted for purposes of establishing the
existence of a quorum at a meeting of the board of directors (or of a committee
of the board of directors) at which action with respect to the transaction is
taken and may vote to approve the transaction and any related matters.
(b) A contract or other transaction in which a director or
officer has a financial, family or other interest shall not be void or voidable
for that reason, if any one of the following is met:
(1) The material facts as to the director's or officer's
interest are disclosed or are known to the board of directors or committee of
the board of directors acting on the transaction, and the board or committee
authorizes, approves or ratifies the transaction by the affirmative vote of a
majority of the disinterested directors (or, if applicable, the sole
disinterested director) on the board of directors or committee, as the case may
be, even though the disinterested directors be less than a quorum; or
(2) The material facts as to the director's or officer's
interest are disclosed or are known to the holders of the shares of the
corporation's capital stock then entitled to vote for directors, and such
holders, voting such shares as a single class, by a majority of the votes cast
on the question, specifically authorize, approve or ratify the transaction; or
(3) The transaction was fair to the corporation as of
the time it was entered into by the corporation.
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A failure to meet any of the requirements in subparagraphs (1), (2) or
(3) shall not create an inference that the transaction is void or voidable for
that reason.
(c) The directors shall have the power to fix from
time to time their own compensation.
6.10 A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent that exculpation from liability is not
permitted under the Massachusetts Business Corporation Law as in effect at the
time such liability is determined. No amendment or repeal of this paragraph 6.10
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.
6.11 The Corporation shall have all powers granted to Corporations by
the laws of The Commonwealth of Massachusetts, provided that no such power shall
include any activity inconsistent with the Business Corporation Law or the
general laws of said Commonwealth.
6.12 Any action required or permitted to be taken at any meeting of the
stockholders may be taken without a meeting if all stockholders entitled to vote
on the matter consent to the action in writing and the written consents are
filed with the records of the meetings of stockholders. Such consents shall be
treated for all purposes as a vote at a meeting.
6.13 In determining what he reasonably believes to be in the best
interests of the Corporation in the performance of his duties as a director, a
director may consider, both in the consideration of tender and exchange offers,
mergers, consolidations and sales of all or substantially all of the
Corporation's assets and otherwise, such factors as the Board of Directors
determines to be relevant, including, without limitation:
(i) the long-term and short-term interests of the
Corporation and its stockholders, including the possibility that these interests
may be best served by the continued independence of the Corporation;
(ii) whether the proposed transaction might violate
federal or state laws;
(iii) if applicable, not only the consideration being offered
in a proposed transaction, in relation to the then current market price for the
outstanding capital stock of the Corporation, but also to the market price for
the capital stock
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of the Corporation over a period of years, the estimated price that might be
achieved in a negotiated sale of the Corporation as a whole or in part or
through orderly liquidation, the premiums over market price for the securities
of other corporations in similar transactions, current political, economic and
other factors bearing on securities prices and the Corporation's financial
condition and future prospects; and
(iv) the interests of the Corporation's employees, suppliers,
creditors and customers, the economy of the state, region and nation, and
community and societal considerations.
In connection with any such evaluation, the Board of Directors is authorized to
conduct such investigations and to engage in such legal proceedings as the Board
of Directors may determine.
6.14 Subject to the rights of the holders of shares of any class or
series of Preferred Stock, the Board of Directors of the Corporation is
authorized from time to time to enact by resolution, without additional
authorization by the stockholders of the Corporation, By-laws of the
Corporation, in such form and with such additional terms as the Board of
Directors may determine, with respect to the matters of corporate proceedings
set forth below:
(a) Regulation of the procedure for submitting nominations of persons
to be elected directors, which shall be made only at a meeting of stockholders,
including requirements that nominations of persons to be elected directors,
other than nominations submitted on behalf of the incumbent Board of Directors,
be (i) accompanied by a petition in support of such nominations signed by at
least that number of holders of record of that percentage of shares of capital
stock of the Corporation entitled to vote in the election of directors as are
specified in such By-law (but a number of record holders not greater than 100
and a percentage of such shares not greater than 1%); and (ii) submitted to the
clerk or other designated officer or agent of the Corporation at least that
number of days before the meeting of the stockholders at which such election is
to be held as is specified in such By-law (but not more than sixty days before
such meeting). The presiding officer of the meeting shall, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the provisions prescribed by this paragraph 6.14 or any By-law
adopted pursuant hereto, and if he so determines, he shall so declare to the
meeting, and the defective nomination shall be disregarded.
(b) Regulation of business to be conducted at meetings of stockholders,
including requirements that only such business shall be conducted and only such
proposals shall be acted upon as are directed by the Board of Directors or as
are made by a
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stockholder who has submitted notice thereof to the clerk or other designated
officer or agent of the Corporation at least that number of days before the
meeting of stockholders at which such proposal is to be made as is specified in
such By-law (but not more than sixty days before such meeting) setting forth
such proposal, the reasons therefor, the identity of the stockholder or
stockholders making such proposal, the number of shares of capital stock which
are beneficially owned by them and any financial interest of such stockholders
in such proposal as specified in such By-law. The presiding officer of the
meeting shall, if the facts warrant, determine and declare to the meeting that
proposed business or a proposal was not made in accordance with the provisions
prescribed by this paragraph 6.14 or any By-law adopted pursuant hereto, and if
he so determines, he shall so declare to the meeting, and any such business
shall not be transacted or any such proposal shall be disregarded.
(c) Regulation of the order of business and conduct of stockholder
meetings and the authority of the presiding officer and of the attendance at
annual or special meetings of the stockholders of the Corporation, including the
limitation of attendance through a ticket procedure pursuant to which persons
who wish to attend such meetings would be required to provide written notice to
the clerk or other designated officer or agent of the Corporation at least that
number of days prior to the date of such meeting specified in such By-law (but
not more than thirty days before such meeting) of their intent to attend in
person, and the clerk or other designated officer or agent of the Corporation
would issue a single admission ticket to each holder of shares of the stock of
the Corporation entitled to vote at such meeting and to such other persons as
the Board of Directors may direct, and admission to such meeting would be
limited to holders of such tickets and officers and directors of, counsel to,
and the auditors of, the Corporation and, to the extent authorized by the Board
of Directors, the presiding officer at such meeting, employees or other agents
of the Corporation. Application of any such By-law, if adopted, in any
particular case would be permitted to be waived by the presiding officer at such
meeting.
In the event that any such By-law is adopted pursuant to this paragraph
6.14, such By-law may only be amended or repealed upon the affirmative vote of
two thirds of the total number of votes then outstanding represented by shares
of capital stock of the Corporation entitled to vote generally in the election
of directors, voting together as a single class, at any regular or special
meeting of the stockholders, but only if notice of the proposed amendment or
repeal was contained in the notice of such meeting.
6.15(A) After the consummation of an initial public offering of
the Corporation's common stock registered with the
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Securities and Exchange Commission (the "Public Offering Time"), the directors
of the Corporation, subject to the rights of the holders of shares of any class
or series of Preferred Stock, shall be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in number
as possible, as shall be provided in the By-laws of the Corporation, one class
("Class I") whose term expires at the first annual meeting of stockholders to be
held after the Public Offering Time, and another class ("Class II") whose term
expires at the second annual meeting of stockholders to be held after the Public
Offering Time, and another class ("Class III") whose term expires at the third
annual meeting of stockholders to be held after the Public Offering Time, with
each class to hold office until its successors are elected and qualified. The
classes shall be initially comprised of directors serving on the Board of
Directors at the Public Offering Time, and the membership of each class shall be
initially determined by the Board of Directors at such time. At each annual
meeting of the stockholders of the Corporation after the Public Offering Time,
the date of which shall be fixed by or pursuant to the By-laws of the
Corporation, and subject to the rights of the holders of shares of any class or
series of Preferred Stock, the successors of the class of directors whose term
expires at that meeting shall be elected to hold office for a term expiring at
the annual meeting of stockholders held in the third year following the year of
their election. Any director elected to fill a newly created directorship or any
vacancy on the Board of Directors resulting from any death, resignation, removal
or other cause shall hold office for the remainder of the full term of the class
of directors in which the new directorship was created or the vacancy occurred
and until such director's successor shall have been elected and qualified.
(B) After the Public Offering Time and subject to the rights of the
holders of shares of any class or series of Preferred Stock, any director or
directors may be removed from office at any time, but only for cause and only by
the affirmative vote of 80% of the total number of votes of the then outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class. Any vacancy in the
Board of Directors resulting from any such removal may be filled by vote of a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director, and any director so chosen shall hold office until the
next election of the class for which such director shall have been chosen and
until such director's successor shall be elected and qualified or until such
director's earlier death, resignation or removal. For purposes of this
subparagraph (B), "cause" shall mean the (1) conviction of a felony, (2)
declaration of unsound mind by order of court, (3) gross dereliction of duty,
(4) commission of an action involving moral turpitude, or (5) commission of an
action
-6F-
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which constitutes intentional misconduct or a knowing violation of law if such
action in either event results both in an improper substantial personal benefit
and a material injury to the Corporation.
(C) In the event of any increase or decrease in the authorized number
of directors, the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to maintain such classes as nearly equal as
possible. No decreases in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
6.16 Notwithstanding any other provisions of these Restated Articles of
Organization or the By-laws of the Corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, these Restated Articles of
Organization or the By-laws of the Corporation), the affirmative vote of 80% of
the total number of votes of the then outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class shall be required to amend or repeal, or to adopt any
provision inconsistent with the purpose or intent of paragraphs 6.4, 6.9, 6.10
and 6.13 through 6.16 of Article 6 of these Restated Articles of Organization.
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*We further certify that the foregoing restated articles of organization effect
no amendments to the articles of organization of the corporation as heretofore
amended, except amendments to the following articles ....2,.3,.4.&.6............
................................................................................
(*If there are no such amendments, state "None")
Briefly describe amendments in space below:
Article 2
The language describing the purposes of the corporation has been
revised to delete paragraphs (c) and (d). Said paragraphs (c) and (d) now appear
as paragraphs 6.2 and 6.1 respectively of Article 6.
Article 3
The amount of authorized capital stock of the corporation has been
increased to an aggregate of (i) 12,000,000 shares of Common Stock, $.01 par
value per share, and (ii) 1,000,000 shares of Preferred Stock, $1.00 par value
per share.
Article 4
The capitalization of the corporation has been amended so that the
number of authorized shares of (i) Common Stock, $.01 par value per share, has
been increased from 2,500,000 shares to 12,000,000 shares and (ii) Preferred
Stock, $1.00 par value per share, has been increased from 250,000 shares to
1,000,000 shares.
The voting rights that the Board of Directors may grant to any series
of the Corporation's Preferred Stock, $1.00 par value per share, have been
increased from one (1) vote per share to up to ten (10) votes per share.
Paragraph 5 of the Certificate of Designation of Series A Cumulative
Convertible Preferred Stock has been amended to clarify that converted shares
revert to the status of authorized and undesignated, but unissued shares of the
corporation's Preferred Stock, $1.00 par value per share.
Article 6
New provisions have been added to Article 6 and some existing
provisions have been revised. New provisions added, include but are not limited
to, provisions relating to (i) stockholder action by written consent, (ii)
interested transactions, (iii) a staggered board of directors, (iv)
supermajority voting requirements to amend certain provisions of these Restated
Articles of Organization and (v) the ability of the corporation's directors to
consider special factors when evaluating corporate action.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto
signed our names this 11th day of May in the year 19 92.
................/S/ Mark S. Ain........................ President
.............../S/ Paul A. Lacy............................ Clerk
EXHIBIT 10.2
As amended through
November 8, 1996
KRONOS INCORPORATED
1992 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this Equity Incentive Plan (the "Plan") is to advance
the interests of Kronos Incorporated (the "Company") by enhancing its ability to
attract and retain employees and other persons or entities who are in a position
to make significant contributions to the success of the Company and its
subsidiaries through ownership of shares of the Company's common stock
("Stock").
The Plan is intended to accomplish these goals by enabling the Company
to grant Awards in the form of Options, Stock Appreciation Rights, Restricted
Stock or Unrestricted Stock Awards, Deferred Stock Awards, Performance Awards,
Loans or Supplement Grants, or combinations thereof, all as more fully described
below.
2. ADMINISTRATION
The Plan will be administered by the Board of Directors of the Company
(the "Board"). The Board will have authority, not inconsistent with the express
provisions of the Plan and in addition to other authority granted under the
Plan, to (a) grant Awards at such time or times as it may choose; (b) determine
the size of each Award, including the number of shares of Stock subject to the
Award; (c) determine the type or types of each Award; (d) determine the terms
and conditions of each Award; (e) waive compliance by a Participant (as defined
below) with any obligations to be performed by the Participant under an Award
and waive any term or condition of an Award; (f) amend or cancel an existing
Award in whole or in part (and if an award is canceled, grant another Award in
its place on such terms as the Board shall specify), except that the Board may
not, without the consent of the holder of an Award, take any action under this
clause with respect to such Award if such action would adversely affect the
rights of such holder; (g) prescribe the form or forms of instruments that are
required or deemed appropriate under the Plan, including any written notices and
elections required of Participants, and change such forms from time to time; (h)
adopt, amend and rescind rules and regulations for the administration of the
Plan; and (i) interpret the Plan and decide any questions and settle all
controversies and disputes that may arise in connection with the Plan. Such
determinations and actions of the Board, and all other determinations and
actions of the Board made or taken under
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authority granted by any provision of the Plan, will be conclusive and will bind
all parties. Nothing in this paragraph shall be construed as limiting the power
of the Board to make adjustments under Section 7.3, Section 7.4 or Section 8.6.
The Board may, in its discretion, delegate some or all of its powers
with respect to the Plan to a committee (the "Committee"), in which event all
references (as appropriate) to the Board hereunder shall be deemed to refer to
the Committee. The Committee, if one is appointed, shall consist of at least two
directors. A majority of the members of the Committee shall constitute a quorum,
and all determinations of the Committee shall be made by a majority of its
members. Any determination of the Committee under the Plan may be made without
notice or meeting of the Committee by a writing signed by a majority of the
Committee members. On and after registration of the Stock under the Securities
Exchange Act of 1934 (the "1934 Act"), the Board may delegate any or all of its
powers under the Plan to a Committee, each member of which shall be an "outside
director" within the meaning of Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code") and a "non-employee director" as defined in Rule
16b-3 promulgated under the 1934 Act.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is approved by
the stockholders of the Company. Grants of Awards under the Plan may be made
prior to that date (but after Board adoption of the Plan), subject to such
approval of the Plan.
No Award may be granted under the Plan after March 27, 2002, but Awards
previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
Subject to the adjustment as provided in Section 8.6 below, the
aggregate number of shares of Stock that may be delivered under the Plan will be
1,237,500. If any Award requiring exercise by the Participant for delivery of
Stock terminates without having been exercised in full, or if any Award payable
in Stock or cash is satisfied in cash rather than Stock, the number of shares of
Stock as to which such Award was not exercised or for which cash was substituted
will be available for future grants.
Stock delivered under the Plan may be either authorized but unissued
Stock or previously issued Stock acquired by the Company and held in treasury.
No fractional shares of Stock will be delivered under the Plan.
5. ELIGIBILITY AND PARTICIPATION
Those eligible to receive Awards under the Plan ("Participants") will
be persons in the employ of the Company or
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any of its subsidiaries ("Employees") and other persons or entities (including
without limitation non-Employee directors of the Company or a subsidiary of the
Company) who, in the opinion of the Board, are in a position to make a
significant contribution to the success of the Company or its subsidiaries. A
"subsidiary" for purposes of the Plan will be a corporation in which the Company
owns, directly or indirectly, stock possessing 50% or more of the total combined
voting power of all classes of stock.
Subject to adjustment as provided in Section 8.6 below, the maximum
number of shares of Stock with respect to which Awards may be granted to any
employee under the Plan in any one calendar year shall not exceed 75,000 Shares.
For the purpose of calculating such maximum number, (a) an Award shall continue
to be treated as outstanding notwithstanding its repricing, cancellation or
expiration and (b) the repricing of an outstanding option or the issuance of a
new option in substitution for a cancelled option shall be deemed to constitute
the grant of a new additional option separate from the original grant of the
option that is repriced or cancelled.
6. TYPES OF AWARDS
6.1. OPTIONS
(a) Nature of Options. An Option is an Award entitling the recipient on
exercise thereof to purchase Stock at a specified exercise price.
Both "incentive stock options," as defined in Section 422 of the Code
(any Option intended to qualify as an incentive stock option being hereinafter
referred to as an "ISO"), and Options that are not incentive stock options, may
be granted under the Plan. ISOs shall be awarded only to Employees.
(b) Exercise Price. The exercise price of an Option will be determined by
the Board subject to the following:
(1) The exercise price of an ISO shall not be less than 100%
(110% in the case of an ISO granted to a ten-percent shareholder) of
the fair market value of the Stock subject to the Option, determined as
of the time the Option is granted. A "ten-percent shareholder" is any
person who at the time of grant owns, directly or indirectly, or is
deemed to own by reason of the attribution rules of section 424(d) of
the Code, stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of any of its
subsidiaries.
(2) In no case may the exercise price paid for Stock which is
part of an original issue of authorized Stock be less than the par
value per share of the Stock.
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(3) The Board may reduce the exercise price of an Option at
any time after the time of grant, but in the case of an Option
originally awarded as an ISO, only with the consent of the Participant.
(c) Duration of Options. The latest date on which an Option may be
exercised will be the tenth anniversary (fifth anniversary, in the case of an
ISO granted to a ten-percent shareholder) of the day immediately preceding the
date the Option was granted, or such earlier date as may have been specified by
the Board at the time the Option was granted.
(d) Exercise of Options. An Option will become exercisable at such time
or times, and on such conditions, as the Board may specify. The Board may at any
time accelerate the time at which all or any part of the Option may be
exercised.
Any exercise of an Option must be in writing, signed by the proper
person and delivered or mailed to the Company, accompanied by (1) any documents
required by the Board and (2) payment in full in accordance with paragraph (e)
below for the number of shares for which the Option is exercised.
(e) Payment for Stock. Stock purchased on exercise of an Option must be
paid for as follows: (1) in cash or by check (acceptable to the Company in
accordance with guidelines established for this purpose), bank draft or money
order payable to the order of the Company or (2) if so permitted by the
instrument evidencing the Option (or in the case of an Option which is not an
ISO, by the Board at or after grant of the Option), (i) through the delivery of
shares of Stock which have been outstanding for at least six months (unless the
Board expressly approves a shorter period) and which have a fair market value on
the last business day preceding the date of exercise equal to the exercise
price, or (ii) by delivery of a promissory note of the Option holder to the
Company, payable on such terms as are specified by the Board, or (iii) by
delivery of an unconditional and irrevocable undertaking by a broker to deliver
promptly to the Company sufficient funds to pay the exercise price, or (iv) by
any combination of the permissible forms of payment; provided, that if the Stock
delivered upon exercise of the Option is an original issue of authorized Stock,
at least so much of the exercise price as represents the par value of such Stock
must be paid other than by the Option holder's promissory note.
(f) Discretionary Payments. If the market price of shares of Stock
subject to an Option (other than an Option which is in tandem with a Stock
Appreciation Right as described in Section 6.2 below) exceeds the exercise price
of the Option at the time of its exercise, the Board may cancel the Option and
cause the Company to pay in cash or in shares of Common Stock (at a price per
share equal to the fair market value per share) to the person exercising the
Option an amount equal to the difference between the fair
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market value of the Stock which would have been purchased pursuant to the
exercise (determined on the date the Option is canceled) and the aggregate
exercise price which would have been paid. The Board may exercise its discretion
to take such action only if it has received a written request from the person
exercising the Option, but such a request will not be binding on the Board.
6.2. Stock Appreciation Rights.
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right is
an Award entitling the recipient on exercise of the Right to receive an amount,
in cash or Stock or a combination thereof (such form to be determined by the
Board), determined in whole or in part by reference to appreciation in Stock
Value.
In general, a Stock Appreciation Right entitles the Participant to
receive, with respect to each share of Stock as to which the Right is exercised,
the excess of the share's fair market value on the date of exercise over its
fair market value on the date the Right was granted. However, the Board may
provide at the time of grant that the amount the recipient is entitled to
receive will be adjusted upward or downward under rules established by the Board
to take into account the performance of the Stock in comparison with the
performance of other stocks or an index or indices of other stocks. The Board
may also grant Stock Appreciation Rights that provide, that following a Change
in Control of the Company as defined in Appendix 1 hereto that the holder of
such Right will be entitled to receive, with respect to each share of Stock
subject to the Right, an amount equal to the excess of a specified value (which
may include an average of values) for a share of Stock during a period preceding
such Change in Control over the fair market value of a share of Stock on the
date the Right was granted.
(b) Grant of Stock Appreciation Rights. Stock Appreciation Rights may
be granted in tandem with, or independently of, Options granted under the Plan.
A Stock Appreciation Right granted in tandem with an Option which is not an ISO
may be granted either at or after the time the Option is granted. A Stock
Appreciation Right granted in tandem with an ISO may be granted only at the time
the Option is granted.
(c) Rules Applicable to Tandem Awards. When Stock Appreciation Rights are
granted in tandem with Options, the following will apply:
(1) The Stock Appreciation Right will be exercisable only at
such time or times, and to the extent, that the related Option is
exercisable and will be exercisable in accordance with the procedure
required for exercise of the related Option.
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(2) The Stock Appreciation Right will terminate and no longer
be exercisable upon the termination or exercise of the related Option,
except that a Stock Appreciation Right granted with respect to less
than the full number of shares covered by an Option will not be reduced
until the number of shares as to which the related Option has been
exercised or has terminated exceeds the number of shares not covered by
the Stock Appreciation Right.
(3) The Option will terminate and no longer be exercisable
upon the exercise of the related Stock Appreciation Right.
(4) The Stock Appreciation Right will be transferable only
with the related Option.
(5) A Stock Appreciation Right granted in tandem with an ISO
may be exercised only when the market price of the Stock subject to the
Option exceeds the exercise price of such option.
(d) Exercise of Independent Stock Appreciation Rights. A Stock
Appreciation Right not granted in tandem with an Option will become exercisable
at such time or times, and on such conditions, as the Board may specify. The
Board may at any time accelerate the time at which all or any part of the Right
may be exercised.
Any exercise of an independent Stock Appreciation Right must be in
writing, signed by the proper person and delivered or mailed to the Company,
accompanied by any other documents required by the Board.
6.3. Restricted and Unrestricted Stock.
(a) Nature of Restricted Stock Award. A Restricted Stock Award entitles
the recipient to acquire, for a purchase price equal to par value, shares of
Stock subject to the restrictions described in paragraph (d) below ("Restricted
Stock").
(b) Acceptance of Award. A Participant who is granted a Restricted
Stock Award will have no rights with respect to such Award unless the
Participant accepts the Award by written instrument delivered or mailed to the
Company accompanied by payment in full of the specified purchase price, if any,
of the shares covered by the Award. Payment may be by certified or bank check or
other instrument acceptable to the Board.
(c) Rights as a Stockholder. A Participant who receives Restricted
Stock will have all the rights of a stockholder with respect to the Stock,
including voting and dividend rights, subject to the restrictions described in
paragraph (d) below and any other conditions imposed by the Board at the time of
grant. Unless the Board otherwise determines, certificates evidencing shares of
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Restricted Stock will remain in the possession of the Company until such shares
are free of all restrictions under the Plan.
(d) Restrictions. Except as otherwise specifically provided by the
Plan, Restricted Stock may not be sold, assigned, transferred, pledged or
otherwise encumbered or disposed of, and if the Participant ceases to be an
Employee or otherwise suffers a Status Change (as defined at Section 7.2(a)
below) for any reason, must be offered to the Company for purchase for the
amount of cash paid for the Stock, or forfeited to the Company if no cash was
paid. These restrictions will lapse at such time or times, and on such
conditions, as the Board may specify. The Board may at any time accelerate the
time at which the restrictions on all or any part of the shares will lapse.
(e) Notice of Election. Any Participant making an election under
Section 83(b) of the Code with respect to Restricted Stock must provide a copy
thereof to the Company within 10 days of the filing of such election with the
Internal Revenue Service.
(f) Other Awards Settled with Restricted Stock. The Board may, at the
time any Award described in this Section 6 is granted, provide that any or all
the Stock delivered pursuant to the Award will be Restricted Stock.
(g) Unrestricted Stock. The Board may, in its sole discretion,
approve the sale to any Participant of shares of Stock free of restrictions
under the Plan for a price which is not less than the par value of the Stock.
6.4. Deferred Stock.
A Deferred Stock Award entitles the recipient to receive shares of
Stock to be delivered in the future. Delivery of the Stock will take place at
such time or times, and on such conditions, as the Board may specify. The Board
may at any time accelerate the time at which delivery of all or any part of the
Stock will take place. At the time any Award described in this Section 6 is
granted, the Board may provide that, at the time Stock would otherwise be
delivered pursuant to the Award, the Participant will instead receive an
instrument evidencing the Participant's right to future delivery of Deferred
Stock.
6.5. Performance Awards; Performance Goals.
(a) Nature of Performance Awards. A Performance Award entitles the
recipient to receive, without payment, an amount in cash or Stock or a
combination thereof (such form to be determined by the Board) following the
attainment of Performance Goals. Performance Goals may be related to personal
performance, corporate performance, departmental performance or any other
category of performance deemed by the Board to be important to the success of
the Company. The Board will determine the Performance Goals,
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the period or periods during which performance is to be measured and all other
terms and conditions applicable to the Award.
(b) Other Awards Subject to Performance Condition. The Board may, at
the time any Award described in this Section 6 is granted, impose the condition
(in addition to any conditions specified or authorized in this Section 6 or any
other provision of the Plan) that Performance Goals be met prior to the
Participant's realization of any payment or benefit under the Award.
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6.6. Loans and Supplemental Grants.
(a) Loans. The Company may make a loan to a Participant ("Loan"),
either on the date of or after the grant of any Award to the Participant. A Loan
may be made either in connection with the purchase of Stock under the Award or
with the payment of any Federal, state and local income tax with respect to
income recognized as a result of the Award. The Board will have full authority
to decide whether to make a Loan and to determine the amount, terms and
conditions of the Loan, including the interest rate (which may be zero), whether
the Loan is to be secured or unsecured or with or without recourse against the
borrower, the terms on which the Loan is to be repaid and the conditions, if
any, under which it may be forgiven. However, no Loan may have a term (including
extensions) exceeding ten years in duration.
(b) Supplemental Grants. In connection with any Award, the Board may at
the time such Award is made or at a later date, provide for and grant a cash
award to the Participant ("Supplemental Grant") not to exceed an amount equal to
(1) the amount of any federal, state and local income tax on ordinary income for
which the Participant may be liable with respect to the Award, determined by
assuming taxation at the highest marginal rate, plus (2) an additional amount on
a grossed-up basis intended to make the Participant whole on an after-tax basis
after discharging all the Participant's income tax liabilities arising from all
payments under this Section 6. Any payments under this subsection (b) will be
made at the time the Participant incurs Federal income tax liability with
respect to the Award.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1. Death.
If a Participant dies, the following will apply:
(a) All Options and Stock Appreciation Rights held by the Participant
immediately prior to death, to the extent then exercisable, may be exercised by
the Participant's executor or administrator or the person or persons to whom the
Option or Right is transferred by will or the applicable laws of descent and
distribution, at any time within the one year period ending with the first
anniversary of the Participant's death (or such shorter or longer period as the
Board may determine) and shall thereupon terminate. In no event, however, shall
an Option or Stock Appreciation Right remain exercisable beyond the latest date
on which it could have been exercised without regard to this Section 7. Except
as otherwise determined by the Board, all Options and Stock Appreciation Rights
held by a Participant immediately prior to death that are not then exercisable
shall terminate at death.
(b) Except as otherwise determined by the Board, all Restricted Stock
held by the Participant must be transferred to the
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Company (and, in the event the certificates representing such Restricted Stock
are held by the Company, such Restricted Stock will be so transferred without
any further action by the Participant) in accordance with Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not irrevocably
entitled prior to death will be forfeited and the Award canceled as of the time
of death, unless otherwise determined by the Board.
7.2. Termination of Service (Other Than By Death).
If a Participant who is an Employee ceases to be an Employee for any
reason other than death, or if there is a termination (other than by reason of
death) of the consulting, service or similar relationship in respect of which a
non-Employee Participant was granted an Award hereunder (such termination of the
employment or other relationship being hereinafter referred to as a "Status
Change"), the following will apply:
(a) Except as otherwise determined by the Board, all Options and Stock
Appreciation Rights held by the Participant that were not exercisable
immediately prior to the Status Change shall terminate at the time of the Status
Change. Any Options or Rights that were exercisable immediately prior to the
Status Change will continue to be exercisable for a period of three months (or
such longer period as the Board may determine), and shall thereupon terminate,
unless the Award provides by its terms for immediate termination in the event of
a Status Change or unless the Status Change results from a discharge for cause
which in the opinion of the Board casts such discredit on the Participant as to
justify immediate termination of the Award. In no event, however, shall an
Option or Stock Appreciation Right remain exercisable beyond the latest date on
which it could have been exercised without regard to this Section 7. For
purposes of this paragraph, in the case of a Participant who is an Employee, a
Status Change shall not be deemed to have resulted by reason of (i) a sick leave
or other bona fide leave of absence approved for purposes of the Plan by the
Board, so long as the Employee's right to reemployment is guaranteed either by
statute or by contract, or (ii) a transfer of employment between the Company and
a subsidiary or between subsidiaries, or to the employment of a corporation (or
a parent or subsidiary corporation of such corporation) issuing or assuming an
option in a transaction to which section 424(a) of the Code applies.
(b) Except as otherwise determined by the Board, all Restricted Stock
held by the Participant at the time of the Status Change must be transferred to
the Company (and, in the event the certificates representing such Restricted
Stock are held by the Company, such Restricted Stock will be so transferred
without any further action by the Participant) in accordance with Section 6.3
above.
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(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not irrevocably
entitled prior to the Status Change will be forfeited and the Award canceled as
of the date of such Status Change unless otherwise determined by the Board.
7.3. Change in Control.
Notwithstanding any other provision of the Plan or of any Award to the
contrary, in the event of a Change in Control as defined in Appendix 1 the
following will apply:
(a) Each outstanding Option and Stock Appreciation Right will
immediately become exercisable in full unless otherwise expressly provided at
the time of grant.
(b) Each outstanding share of Restricted Stock will immediately
become free of all restrictions and conditions.
(c) Conditions on Deferred Stock Awards, Performance Awards and
Supplemental Grants which relate only to the passage of time and continued
employment will be removed. Performance or other conditions (other than
conditions relating only to the passage of time and continued employment) will
continue to apply unless otherwise provided in the instrument evidencing the
Awards or in any other agreement between the Participant and the Company or
unless otherwise agreed to by the Committee.
7.4. Certain Corporate Transactions.
Subject to Section 7.3, in the event of a consolidation or merger in
which the Company is not the surviving corporation or which results in the
acquisition of substantially all the Company's outstanding Stock by a single
person or entity or by a group of persons and/or entities acting in concert, or
in the event of the sale or transfer of substantially all the Company's assets
or a dissolution or liquidation of the Company (a "covered transaction"), all
outstanding Awards will terminate as of the effective date of the covered
transaction, and the following rules shall apply:
(a) Subject to paragraphs (b) and (c) below, the Board may in its sole
discretion, prior to the effective date of the covered transaction, (1) make
each outstanding Option and Stock Appreciation Right exercisable in full, (2)
remove the restrictions from each outstanding share of Restricted Stock, (3)
cause the Company to make any payment and provide any benefit under each
outstanding Deferred Stock Award, Performance Award, and Supplemental Grant
which would have been made or provided with the passage of time had the
transaction not occurred and the Participant not suffered a Status Change (or
died), and (4) forgive all or any portion of the principal of or interest on a
Loan.
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(b) If an outstanding Award is subject to performance or other
conditions (other than conditions relating only to the passage of time and
continued employment) which will not have been satisfied at the time of the
covered transaction, the Board may in its sole discretion remove such
conditions. If it does not do so, however, such Award will terminate as of the
date of the covered transaction notwithstanding paragraph (a) above.
(c) With respect to an outstanding Award held by a Participant who,
following the covered transaction, will be employed by or otherwise providing
services to a corporation which is a surviving or acquiring corporation in such
transaction or an affiliate of such a corporation, the Board may, in lieu of or
in addition to any action described in paragraph (a) above, arrange to have such
surviving or acquiring corporation or affiliate grant to the Participant a
replacement award which, in the judgment of the Board, is substantially
equivalent to the Award.
8. GENERAL PROVISIONS
8.1. Documentation of Awards.
Awards will be evidenced by such written instruments, if any, as may be
prescribed by the Board from time to time. Such instruments may be in the form
of agreements to be executed by both the Participant and the Company, or
certificates, letters or similar instruments, which need not be executed by the
Participant but acceptance of which will evidence agreement to the terms
thereof.
8.2. Rights as a Stockholder, Dividend Equivalents.
Except as specifically provided by the Plan, the receipt of an Award
will not give a Participant rights as a stockholder; the Participant will obtain
such rights, subject to any limitations imposed by the Plan or the instrument
evidencing the Award, upon actual receipt of Stock. However, the Board may, on
such conditions as it deems appropriate, provide that a Participant will receive
a benefit in lieu of cash dividends that would have been payable on any or all
Stock subject to the Participant's Award had such Stock been outstanding.
Without limitation, the Board may provide for payment to the Participant of
amounts representing such dividends, either currently or in the future, or for
the investment of such amounts on behalf of the Participant.
8.3. Conditions on Delivery of Stock.
The Company will not be obligated to deliver any shares of Stock
pursuant to the Plan or to remove restriction from shares previously delivered
under the Plan (a) until all conditions of the Award have been satisfied or
removed, (b) until, in the opinion of the Company's counsel, all applicable
federal and state laws
12
<PAGE>
and regulation have been complied with, (c) if the outstanding Stock is at the
time listed on any stock exchange, until the shares to be delivered have been
listed or authorized to be listed on such exchange upon official notice of
notice of issuance, and (d) until all other legal matters in connection with the
issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Stock has not been registered under the Securities Act
of 1933, as amended, the Company may require, as a condition to exercise of the
Award, such representations or agreements as counsel for the Company may
consider appropriate to avoid violation of such Act and may require that the
certificates evidencing such Stock bear an appropriate legend restricting
transfer.
If an Award is exercised by the Participant's legal representative, the
Company will be under no obligation to deliver Stock pursuant to such exercise
until the Company is satisfied as to the authority of such representative.
8.4. Tax Withholding.
The Company will withhold from any cash payment made pursuant to an
Award an amount sufficient to satisfy all federal, state and local withholding
tax requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the
Board will have the right to require that the Participant or other appropriate
person remit to the Company an amount sufficient to satisfy the withholding
requirements, or make other arrangements satisfactory to the Board with regard
to such requirements, prior to the delivery of any Stock. If and to the extent
that such withholding is required, the Board may permit the Participant or such
other person to elect at such time and in such manner as the Board provides to
have the Company hold back from the shares to be delivered, or to deliver to the
Company, Stock having a value calculated to satisfy the withholding requirement.
If at the time an ISO is exercised the Board determines that the
Company could be liable for withholding requirements with respect to a
disposition of the Stock received upon exercise, the Board may require as a
condition of exercise that the person exercising the ISO agree (a) to inform the
Company promptly of any disposition (within the meaning of section 424(c) of the
Code) of Stock received upon exercise, and (b) to give such security as the
Board deems adequate to meet the potential liability of the Company for the
withholding requirements and to augment such security from time to time in any
amount reasonably deemed necessary by the Board to preserve the adequacy of such
security.
13
<PAGE>
8.5. Nontransferabilty of Awards.
Except as otherwise provided in a specific Award agreement, no Award
(other than an Award in the form of an outright transfer of cash or Unrestricted
Stock) may be transferred other than by will or by the laws of descent and
distribution, and during an employee's lifetime an Award requiring exercise may
be exercised only by the Participant (or in the event of the Participant's
incapacity, the person or persons legally appointed to act on the Participant's
behalf.)
8.6. Adjustments in the Event of Certain Transactions.
(a) In the event of a stock dividend, stock split or combination of
shares, recapitalization or other change in the Company's capitalization, or
other distribution to common stockholders other than normal cash dividends,
after the effective date of the Plan, the Board will make any appropriate
adjustments to the maximum number of shares that may be delivered under the Plan
under Section 4 above.
(b) In any event referred to in paragraph (a), the Board will also make
any appropriate adjustments to the number and kind of shares of stock or
securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected by
such change. The Board may also make such adjustments to take into account
material changes in law or in accounting practices or principles, mergers,
consolidations, acquisitions, dispositions or similar corporate transactions, or
any other event, if it is determined by the Board that adjustments are
appropriate to avoid distortion in the operation of the Plan.
8.7. Employment Rights, Etc.
Neither the adoption of the Plan nor the grant of Awards will confer
upon any person any right to continued retention by the Company or any
subsidiary as an Employee or otherwise, or affect in any way the right of the
Company or subsidiary to terminate an employment, service or similar
relationship at any time. Except as specifically provided by the Board in any
particular case, the loss of existing or potential profit in Awards granted
under the Plan will not constitute an element of damages in the event of
termination of an employment, service or similar relationship even if the
termination is in violation of an obligation of the Company to the Participant.
8.8. Deferral of Payments.
The Board may agree at any time, upon request of the Participant, to
defer the date on which any payment under an Award will be made.
14
<PAGE>
8.9. Past Services as Consideration.
Where a Participant purchases Stock under an Award for a price equal to
the par value of the Stock the Board may determine that such price has been
satisfied by past services rendered by the Participant.
9. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of awards to a Participant
will affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock be issued to
Employees.
The Board may at any time or times amend the Plan or any outstanding
Award for any purpose which may at the time be permitted by law, or may at any
time terminate the Plan as to any further grants of Awards, provided that
(except to the extent expressly required or permitted by the Plan) no such
amendment will, without the approval of the stockholders of the Company,
effectuate a change for which stockholder approval is required in order for the
Plan to continue to qualify for the award of ISOs under section 422 of the Code
and to continue to qualify under Rule 16b-3 promulgated under Section 16 of the
1934 Act.
15
<PAGE>
Appendix 1
"Change in Control" shall be deemed to have occurred if:
(a) any `person' as such term is used in Sections 13(d) and 14(d) of
the 1934 Act (other than (i) the Company, (ii) any subsidiary of the Company,
(iii) any trustee or other fiduciary holding securities under an employee
benefit plan of the Company or of any subsidiary of the Company, or (iv) any
Company owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the Company)
is or becomes the `beneficial owner' (as defined in Section 13(d) of the 1934
Act), together with all Affiliates and Associates (as such terms are used in
Rule 12b-2 of the General Rules and Regulations under the 1934 Act) of such
person, directly or indirectly, of securities of the Company representing 35% or
more of the combined voting power of the Company's then outstanding securities
(other than as a result of acquisition of such securities from the Company); or
(b) during any period of two consecutive years (not including any
period prior to the effective date of the Plan), individuals who at the
beginning of such period constitute the Board, and any new director (other than
a director designated by a person who has entered into an agreement with the
Company to effect a transaction described in clause (a) of this definition)
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved
cease for any reason to constitute at least a majority thereof.
16
EXHIBIT 10.7.1
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
TOTAL TIME 120 AMENDMENT
This Amendment, dated as of 7/22/96_______, is between ADP, Inc., a Delaware
corporation ("ADP") with offices at One ADP Boulevard, Roseland, New Jersey
07068, and Kronos Incorporated, a Massachusetts corporation ("Kronos") with
offices at 400 Fifth Avenue, Waltham, Massachusetts 02154.
WHEREAS, the parties entered a Software License and Support and Hardware
Purchase Agreement dated April 2, 1993 as amended on [date of main contract
amendment,] ("Agreement"), and a Development Agreement dated March 21, 1995;
WHEREAS, the parties desire to add new products to the Agreement and to amend
the Agreement in part with respect to those new products;
NOW, THEREFORE, the parties agree as follows:
1. Definitions
The following definitions are added to the Agreement:
(a) "Total Time 120" shall mean the software which meets the
specifications attached to this Agreement as Exhibit A-1.
"Total Time 120" shall also be considered "Kronos Software"
and "Total Time Software," as those terms are defined in the
Agreement; provided, however, that the only part of Exhibit C
which applies to Total Time 120 shall be the additions
contained on Exhibit C-1 added herein.
(b) "ADP 150" and "ADP 154" shall mean the hardware which
meets the specifications attached to this Agreement as Exhibit
A-2. "ADP 150" and "ADP 154" shall also be considered
"Hardware," as that term is defined in the Agreement;
provided, however, that the only part of Exhibit B which
applies to such items shall be the additions contained on
Exhibit B-1 added herein.
2. Applicability of the Agreement
ADP and Kronos agree that all terms and conditions of the Agreement
shall apply to Total Time 120, ADP 150 and ADP 154, except that, with
respect to Total Time 120, ADP 150 and ADP 154, the following
modifications shall apply:
(a) Each time the words "Exhibit B" appear, they shall be deleted
and replaced with "Exhibit B-1". Each time the words "Exhibit
C" appear, they shall be deleted and replaced with "Exhibit
C-1".
1
(b) Section 2(b) is amended by deleting, in the first
sentence, the clause "which is an ADP Client" and by adding,
after the first sentence, the following: "Notwithstanding
the preceding sentence, and subject to the provisions of
Section 2(g), ADP shall have the right to Sublicense Total
Time 120 only to any person or entity which has 120 or fewer
employees using the Total Time 120 at any individual
location. In addition, ADP shall have the right to
Sublicense Total Time 120 only to any person or entity using
the Total Time 120 with an ADP 150 or ADP 154, or using
Total Time 120 independent of any hardware, (not including
Devices) unless Kronos has given ADP its prior written
consent to Sublicense Total Time 120 on different Hardware
for a particular person or entity. Furthermore, ADP shall
only have the right to Sublicense Total Time 120 to any
person or entity located in the Territory of Interboro
Systems Corporation, as defined herein if such person is an
ADP Client."
Section 2(b) is further amended by adding the following
paragraph to the end thereof: "Subject to the provisions of
sections 2(d) and (e) below, Kronos may license/sublicense,
directly or indirectly, the Total Time 120 (which will be
renamed by Kronos for Kronos sublicensing) only to any person
or entity which has 120 or fewer employees using the renamed
Total Time 120 at any individual location. In addition, Kronos
agrees to sublicense, directly or indirectly, the renamed
Total Time 120 only to any person or entity using the renamed
Total Time 120 with a Model 150 or Model 154, or using renamed
Total Time 120 independent of any hardware, (not including
Devices) or on hardware for which Kronos has given its written
consent to ADP pursuant to the preceding paragraph."
(c) Section 2(c) is amended by deleting subsection (ii) and
replacing it with the following: "(ii)to combine Total
Time 120 or any part thereof only with the ADP 150 or ADP 154,
unless Kronos gives ADP its prior written consent for a
particular person or entity. In addition, Kronos grants to
ADP the right to combine Total Time 120 with Devices, as
defined in Section 2.(c) of the Agreement, and Kronos shall
waive the $25.00 fees which would otherwise apply to such
combinations. In the event that ADP desires to combine Total
Time 120 with any data collection equipment other than ADP
150, ADP 154 or Devices, ADP shall be required to obtain
Kronos' prior written consent; provided that if such
equipment, which is non-Kronos data collection equipment,
is materially different from, and not competitive with, any
2
<PAGE>
data collection equipment then being sold by Kronos, ADP shall
first request that Kronos develop equipment equivalent to such
non-Kronos equipment; if Kronos declines to develop such
equipment, Kronos shall not unreasonably withhold its consent
for ADP to combine Total Time 120 with the desired non-Kronos
data collection equipment. ADP can market/sublicense such
Total Time 120 and non-Kronos equipment only to ADP Clients,
if within the Territory of Interboro Systems Corporation.
If ADP believes, for any calendar year during the term of this
Agreement, that the failure rate of all the ADP 150's and
154's sold by Kronos to ADP within the preceding five (5)
years and that are five years old or newer and are no longer
under warranty by Kronos, is greater than twenty-five percent
(25%) in that year, ADP shall notify Kronos in writing and
provide Kronos with verification of such failure rate. The
parties agree that any failures attributable to reasons
specified in Section 12(b) shall be excluded. If Kronos agrees
that the failure rate exceeded 25%, the parties agree that
Kronos shall have six (6) months to correct the failure rate
problem. If Kronos is unable to correct the failure rate
problem within such six (6) month period, Kronos agrees to
sell the Kronos 440 (without modem) terminal to ADP at the
same price as the Total Time 150 and the Kronos 440 (with
modem) at the same price as the ADP 154 for the next six (6)
months. If Kronos has not corrected the failure rate problem
by the end of that second six (6) months period, until Kronos
does correct the failure rate problem, Kronos agrees to waive
the provisions of this Section 2(c) which require ADP to
combine Total Time 120 only with the ADP 150, ADP 154 and/or
Devices. As soon as the failure rate problem is corrected,
that waiver shall no longer remain in effect and the
provisions of this Section 2(c) shall remain in full force and
effect. The termination of the waiver under the preceding
sentence shall not affect combinations of Total Time 120
validly made while the waiver was in effect.
(d) Section 2(g) is amended be deleting the last sentence and
replacing it with the following:, "In addition, ADP will
combine the ADP 150 and/or the ADP 154 Hardware only with
Total Time 120, unless Kronos gives ADP its prior written
consent for a particular person or entity. In the event that
ADP desires to combine the ADP 150 or ADP 154 with software
other than Total Time 120, ADP shall be required to obtain
Kronos' prior written consent; provided that if such non-Total
Time 120, is materially different from, and not competitive
with, any
3
<PAGE>
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE
OMISSIONS.
software then being sold/licensed by Kronos, ADP shall first
request that Kronos develop software substantially equivalent
to such non-Total Time 120; if Kronos declines to develop such
software, Kronos shall not unreasonably withhold its consent
for ADP to combine the desired software with ADP 150 or ADP
154 and Sublicense such software."
(e) Section 5(a)(i). The following shall be inserted after the
word "copy" on the second line: "or bundled".
(f) Sections 5(b) shall apply only to Sublicensees of Total Time
120 to Sublicensees, who pay for the Total Time services on a
recurring basis, rather than a one-time basis.
(g) Section 5(c) is deleted and replaced with the following:
(c) If at any time during the term of this Agreement, Kronos
shall reduce the list prices for the Total Time 120 licensed
hereunder, so that the applicable price charged to ADP on
Exhibit C-1 is greater than the Kronos list price less a ***
discount, then the applicable price listed on Exhibit C-1
shall be reduced to the sum of the following two amounts:
(i) the Kronos list price, less a *** discount, plus (ii) the
Kronos standard manufacturing cost for that item. If Kronos
reduces the list price for the Total Time 120 licensed
hereunder, so that the applicable price charged to ADP on
Exhibit C-1 is greater than the Kronos list price less a
*** discount, ADP may, at its option, reproduce/manufacture
the Total Time 120, and the parties agree they will negotiate
mutually acceptable audit terms and conditions , so that
Kronos has adequate assurances that it will receive the
applicable C-1 license price for each copy of the Total
Time 120 reproduced/manufactured by ADP.
(h) Section 7(d) is amended by deleting the words "Initial Custom
Software" each time they appear and replacing them with the
words "Total Time 120", and by deleting the last sentence
entirely.
(i) Section 8 is amended by adding the following proviso at the
end of the second sentence: "; provided however, that as to
the ADP 150 and ADP 154, such updates or enhancements shall
include only firmware enhancements and time and attendance
(not including features specifically designed for Kronos'
Workforce Management products, such Workforce Management
products to be defined as automated scheduling, business
forecasting and workforce planning) modifications to the
Hardware."
4
In addition Section 8 is amended by adding the following at
the end: "Unless Kronos has given ADP its prior written
consent, ADP agrees that it shall have the right to sell,
lease, rent or otherwise transfer the ADP 150 and the ADP 154
only to persons or entities which are "Sublicensees" of Total
Time 120 under Section 2(b). It is understood that in no event
may ADP sell, lease, rent or transfer the ADP 150 or ADP 154:
(a) to any person or entity which is competitor of Kronos and
(b) within the Territory of Interboro Systems Corporation, to
any person or entity which is not an ADP Client.
(j) The following shall be added to the end of the second sentence
of Section 9(a): ;provided however, that each order of Total
Time 120 shall be required to contain at least 200 units
(i.e., a "unit" is considered to be one "bundled" package or
one separately ordered Total Time 120 or separately ordered
ADP 150 or ADP 154.), with such units to be delivered to a
single delivery point.
(k) The last five sentences of Section 9(a) shall be deleted and
replaced with the following: "Commencing on the signing of
this Amendment, ADP shall provide to Kronos quarterly
forecasts of the expected volume of Hardware orders for the
following four quarters; provided however, that ADP shall have
the right to revise the forecasts for either or both of the
two latest (i.e.,farthest away in time from the revision)
quarters in its most current four-quarter forecasts by
notifying Kronos in writing. Notwithstanding the second
preceding sentence, in the event actual orders for any quarter
exceed forecasted orders for such quarter by up to 20% of such
forecast, Kronos shall be required to deliver an amount equal
to 120% of such forecast within 30 days after receipt of the
P.O. Kronos shall not be obliged to deliver an amount in
excess of the 120% of forecasted orders within 30 days after
Order Acceptance Date. However, Kronos will use its best
efforts to deliver such excess amounts as soon as practicable
and for amounts up to 200% of the original forecast, no later
than 120 days after receipt of the P.O. Kronos shall in any
event confirm the delivery dates with respect to all P.O.'s."
(l) Section 9(b) is amended by adding the following proviso: ";
provided however, that ADP may not cancel any order received
within four (4) months prior to the termination of this Total
Time 120 Amendment."
(m) Section 9(c) is amended by deleting the word "three"
in the second sentence, and replacing it with the word "ten".
5
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE
OMISSIONS.
(n) Section 10(a) is amended by deleting the last four
sentences and replacing them with the following sentence:
"If at any time during the term of this Agreement, Kronos
shall reduce the list prices of items of Hardware (or
replacement or new items described in preceding clauses
(i)and (ii)) purchasable by ADP hereunder so that the
applicable price charged to ADP on Exhibit B-1 for an item
is greater than *** ******* ***** ** ***** ***** ****
**** **** ** *** * ******* ********** **** *** *
********** ****** ****, **** * ** ********, then the
applicable price listed on Exhibit B-1 shall be reduced to
*** ******* ***** ** ***** ***** **** **** **** ** ***
****** ***** *** ****** *** ******** *** ****** *******
***** *** **** ****** ****, **** * ** ********. ***
******* ***** ** ***** ***** **** **** **** ** *** *
******* (excluding ADP), for any particular fiscal year
and item shall be determined by calculating the average prices
at which ***** * ******* purchased that item in
that fiscal year. Any price decreases pursuant to this
section shall apply prospectively only. The calculation
of average price at which Kronos sold an item ** ***
******* shall be made at the end of each Kronos fiscal
year. ***** *** ******* ***** ** ******* ** *** ********
** ***** ******* ***** *** *** ******* ***** **********
*** ******* ************* ******** ********* ** *** *****
******** ** ***** ******.
(o) Section 10(e) is amended by deleting the first two
sentences and replacing them with the following
sentences: "Kronos shall issue one invoice for each
shipment. Invoices shall be directed to ADP corporate
headquarters".
(p) Section 14(a) is amended by deleting the first sentence
and replacing it with the following: "The initial term
of this Total Time 120 Amendment shall commence on the
date of signing and continue until April 2, 2001."
(q) Section 15(a) is deleted, and replaced with the following:
"Kronos and ADP agree that if Kronos develops new hardware
and/or new software during the term of the Agreement which is
to be sold/sublicensed to End-Users with fewer than 120
employees, Kronos will permit ADP to sell/sublicense such
hardware and software, subject to mutually agreed terms and
conditions, and Kronos further agrees to abide by the
restrictions contained in the last sentence of Section 2.(d)
of the Agreement for such hardware and software."
(r) Section 15(b) is amended by adding the following to the end
of the first sentence: "on a one-time, paid-up
6
sublicense basis".
(s) All other terms and conditions of the Agreement remain
in full force and effect.
AGREED TO AND ACCEPTED:
KRONOS INCORPORATED ADP, INC.
By: S/ W. Patrick Decker By: S/ Ron Clarke
(Signature) (Signature)
Name: W. Patrick Decker Name: Ron Clarke
(Please print) (Please print)
Title: Vice President, Marketing Title: President, Electronics
and Field Operations Services Division
Date: 7/22/96 Date: 7/22/96
7
<PAGE>
EXHIBIT A-1
PRODUCT DESCRIPTIONS
PRODUCT SPECIFICATIONS
System 400 Man, Operators ADP/400
System 100 Man, Users 100/Kronos Term
TKC V8 Man, Procedural Guide, TKC V8C/D
TimeMaker II Man, User Manual, TimeMaker II
8A
<PAGE>
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE
OMISSIONS.
EXHIBIT B-1
ADP 150 and ADP 154 Hardware Description and Pricing
If the ADP 150 and/or ADP 154 is purchased by ADP separately from the Total Time
120 Software, the prices are as follows:
Price
ADP 150 ****
ADP 154 (Modem) ****
If the ADP 150 and/or ADP 154 is purchased by ADP "bundled" with the Total Time
120 Software, the "bundled" prices specified on Exhibit C-1 shall apply.
The prices specified above are F.O.B. Chelmsford, Massachusetts, exclude freight
and tax costs, and are valid only for shipments of a minimum of 200 units per
order to a single delivery point. The prices include the user
manual/installation guide.
On October 1, 1997, Kronos shall determine the standard manufacturing cost
("SMC") for the Kronos 150 for Kronos' fiscal year 1996. Beginning in Kronos'
fiscal year 1998 (i.e., October 1, 1997) and continuing for each fiscal year
thereafter during the term of this Amendment, if the SMC for the preceding
fiscal year is less than the SMC for fiscal year 1996, Kronos will reduce the
Price (stated above) on the ADP 150 by *** of the reduction in the SMC. In
addition, the same procedure described herein will be done on the Kronos 154,
with decrease in price to be applied to the ADP 154.
Any decrease in price resulting from the procedure described herein will apply
prospectively only (i.e., beginning on October 1, 1997). The procedure described
herein will be repeated at the beginning of each Kronos fiscal year during the
term of this Amendment.
8B
<PAGE>
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE
OMISSIONS.
EXHIBIT C-1
Total Time 120 Software Description and Pricing
If Total Time 120 is purchased by ADP separately from the ADP 150 or ADP 154
Hardware, the price of Total Time 120 is ****. Total Time 120 includes the ADP
Central Controller, the Scheduler, the Archiver and CardSaver, whether Total
Time 120 is purchased separately or on "bundled" basis.
If Total Time 120 is purchased by ADP "bundled" with the ADP 150 or ADP 154, the
following prices shall apply:
ADP 150
Total Time 120
50 badges
100 feet of cable
Bundled Price is ****
ADP 154 (includes modem)
Total Time 120
50 badges
100 feet of cable
Bundled price is ****
No sales/licenses of Total Time 120, whether sold separately or on "bundled"
basis, shall be counted toward the 15,000 units listed on Exhibit C of the
Agreement.
The prices specified above are F.O.B. Chelmsford, Massachusetts, exclude freight
and tax costs, and are valid only for shipments of a minimum of 200 units per
order to a single delivery point. A "bundled" package counts as one unit. The
prices include the user manual/installation guide.
9
<PAGE>
EXHIBIT 10.7.1 (CONTINUED)
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE
OMISSIONS.
AMENDMENT TO SOFTWARE LICENSE AND
SUPPORT AND HARDWARE PURCHASE AGREEMENT
This Amendment, which shall be effective as of
___________7/22/96__________________, is between ADP, Inc., a Delaware
corporation ("ADP") with offices at One ADP Boulevard, Roseland, New Jersey
07068, and Kronos Incorporated, a Massachusetts corporation ("Kronos") with
offices at 400 Fifth Avenue, Waltham, Massachusetts 02154.
WHEREAS, the parties entered a Software License and Support and Hardware
Purchase Agreement dated April 2, 1993 ("Agreement"), and a Development
Agreement dated March 21, 1995;
WHEREAS, the parties desire to amend the Agreement;
NOW, THEREFORE, the parties agree as follows:
1. Section 1 is amended by adding the following subsection: "(ee) Territory of
Interboro Systems Corporation" shall mean Puerto Rico; the following
counties in New York: Nassau, Suffolk, Bronx, Kings, New York, Queens,
Richmond, Orange, Putnam, Rockland, Westchester; and the following counties
in New Jersey: Atlantic; Bergen, Essex, Hudson, Hunterdon, Mercer,
Middlesex, Monmouth, Morris Ocean, Passaic, Somerset, Sussex, Union, and
Warren."
2. Section 2.(c) is amended by adding the following sentences at the end:
"Subject to the requirements of the following three sentences, Kronos
hereby grants to ADP the right to combine Total Time Software with
telephone data collection devices (comparable to TALX's system), swipe
readers, point of sale systems, palm readers, scanners, portable hand-held
data collectors, excluding personal computers (hereafter collectively
"Devices"); provided however, that such portable hand-held collectors must
be used in a mobile-type of application i.e., not secured to a stationary
object for operation. In each calendar year, ADP shall purchase from Kronos
a minimum of eighty per cent (80%) of the total number of Devices (for
which Kronos has a comparable product) that ADP purchases in that year, so
long as Kronos will sell to ADP such Devices at a competitive price for
similar quantities, functionality and warranty coverage. If ADP sublicenses
Total Time Software for use with any Device (including Devices for which
Kronos has no comparable product) ADP did not purchase from Kronos, ADP
shall pay Kronos a fee of twenty-five dollars ($25.00) for each copy of
Total
1
<PAGE>
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE
OMISSIONS.
Time Software combined with one or more Devices which ADP did not purchase
from Kronos. The fee required under the preceding sentence shall not apply
if the End-User purchasing such a Device also purchases, as part of the
same order, at least one unit of Hardware (i.e., clock) which is connected
to the Total Time Software, or the End-User already had installed at that
same location at least one unit of Hardware (i.e., clock), or the Total
Time Software is connected via modem to a unit of Hardware located
elsewhere."
3. Section 2.(d) is amended by deleting the second sentence and replacing it
with the following: "In addition, during the term of this Agreement, Kronos
shall not in *** ****** ****** ** ******* ***** **** *** ***** ******* **
***** ********* ********* ** ******* *********** **** *** ********** ** ***
** *** ******* ********** ******** ** ***** ********* ********** ********
******** *** *** ******* ** ********** ******** *********** ** ***********
****** **** *** ********** ** ********** ******** **** **** ************
******* ********** ******** ** ***** ********* ********** ********. If
Kronos ****** **** * ***** ******* ** ***** ********* ********* ** *******
*********** **** ** *** ********** ********** **** ************ ********
***** *** *** ******* ********** ** ***** ********* ********** ********,
Kronos agrees, for one year after the termination of this Agreement, that
Kronos will *** ***** **** *** ***** ******* ** ***** ********* *********
** ******* *********** **** **** ********** ********** **** ************
******* ********** ** ***** ********* ********** ********.
4. Section 2.(d) is amended by deleting the last sentence and replacing it
with the following: "Furthermore, Kronos covenants and agrees that, during
the term of this Agreement, it will not in *** ****** ******* ** *******
***** * ****** **** ** ****** **** ****** ** *** ****** ****** *** ********
** *** **** ******* ** *** ********* ********** ***** ******* ******* ****
****** ******** ***** **** * **** ***** *** *** **** *********
**************** ****** ********* ***** *** * **** ********** ** ****
******** ********* *** ******** ********* ***** *** *** ******* *********
5. Section 2.(g) is deleted and replaced with the following: "Except as
provided in the following sentence, ADP hereby covenants and agrees that
during the term of this Agreement it will not enter into any joint venture
or joint marketing agreement or similar arrangement with any third party
for the purpose of
2
<PAGE>
developing, marketing, and/or manufacturing time and attendance or
scheduling hardware or software. Kronos agrees that ADP may enter a joint
venture or joint marketing agreement or similar arrangement with, or
acquire, a third party developing, marketing or manufacturing time and
attendance or scheduling software or hardware, so long as (i) such
agreement is limited to sales/licenses into European countries or, (ii)
such agreement concerns time and attendance or scheduling software (not
hardware) and such time and attendance or scheduling software does not
compete with Kronos products. If any such third party develops, markets
and/or manufactures time and attendance or scheduling hardware or software,
and ADP enters into a joint venture or joint marketing agreement or similar
arrangement concerning that third party's products which are not time and
attendance or scheduling hardware or software, ADP agrees, for one year
after the termination of this Agreement, that ADP will not enter into any
joint venture or joint marketing agreement or similar arrangement with that
third party concerning that third party's time and attendance or scheduling
hardware or software. ADP further agrees that, during the term of this
Agreement, it will not develop, other than pursuant to this Agreement, any
time and attendance or scheduling hardware or software which shall compete
with Kronos products. The parties agree that, for purposes of the three
preceding sentences, the following shall not be deemed to compete with
Kronos products: (i) software which allows businesses to collect employees'
time worked by client/activity for the purpose of generating
bills/invoices, and (ii) electronic capture of employees' time where
processing is limited to basic arithmetic (i.e., subtracting start/stop
times and adding totals across activities or days); provided however, that
this exception shall not include any if/then type logic, such as rounding,
overtime calculations, premium calculations, etc. In addition, ADP will not
combine Hardware with any non-Total Time software without the prior written
consent of Kronos; provided further that in the event that ADP desires to
combine Hardware with non-Total Time software, which is materially
different from, and not competitive with, any software then being
sold/licensed by Kronos, ADP shall first request that Kronos develop
software substantially equivalent to such non-Total Time software; if
Kronos declines to develop such software, Kronos shall not unreasonably
withhold its consent for ADP to combine the desired software with Hardware
and sublicense such software to ADP Clients."
3
<PAGE>
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
6. Section 2 is further amended by adding the following subsection: "(i) The
obligations and rights of Kronos specified in Section 2 of the Agreement
shall be deemed to apply to each Kronos "Subsidiary", as "Subsidiary" is
defined in the Agreement. The obligations and rights of ADP shall be deemed
to apply to each ADP "Subsidiary", as "Subsidiary" is defined in the
Agreement."
7. Exhibit B is deleted and replaced with the Exhibit B attached to this
Amendment.
8. Section 11 is amended by deleting the second and third sentences in the
third paragraph and replacing them with the following: "In addition, ADP
may engage a third party to provide on-site maintenance and/or installation
to Total Time customers of the Hardware and Software; provided however,
that such third party shall not be a direct competitor of Kronos. In
addition, ADP may engage the same, or a different, third party to perform
depot maintenance services, provided however, that such third party shall
not be a direct competitor of Kronos.
9. Section 12.(a)(i) is amended by striking the first sentence and replacing
it with the following: "Kronos warrants that the Kronos 440, 460 and 480
Hardware shipped hereunder will be free from defects in material or
workmanship and will perform in accordance with its published
specifications for a period of *** days from the date of shipment by
Kronos, and the ADP 140, 144, 150 and 154 Hardware shipped hereunder will
be free from defects in material or workmanship and will perform in
accordance with its published specifications for a period of ******* ****
months from the date of shipment by Kronos, (such *** day and such ** month
periods, as applicable, hereafter shall be called "Warranty Period")."
10. Section 14.(a) is amended by deleting "April 2, 1998" and replacing it with
"April 2, 2001".
11. Section 22 is amended by adding the following subsection (m): "The parties
agree to conduct a twelve month "standalone marketing test," subject to the
following requirements. The parties agree that the test shall last for
twelve (12) months, shall be conducted in Houston only, and that there will
be a ninety (90) day period after the end of the twelve (12) month test
when the parties negotiate and mutually
4
<PAGE>
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
agree to terms and conditions governing the "standalone" product. During
the period of the test and for the geographic territory covered by the
test, all terms and conditions of this Agreement shall apply, except that
Kronos agrees to waive the requirement of subsection 2(b) of this Agreement
that ADP Sublicense only to ADP Client(s) and permit ADP to Sublicense to
persons or entities other than ADP Clients. If, at the end of the ninety
(90) day period following the completion of standalone marketing test, ADP
desires to continue the sublicensing on a standalone basis but Kronos does
not agree to such further sublicensing, the parties agree to take the
following steps: (i) make good faith efforts to negotiate the terms and
conditions under which Kronos would develop, and ADP would sublicense, a
modified kind of Total Time Software for standalone sublicenses, and/or,
upon mutual agreement, for sublicenses to ADP Clients as well; and (ii) if
the parties are unable to agree to the terms and conditions in (i) above,
(including pricing), the following will occur: (a) ADP may enter a joint
venture or joint marketing agreement or similar arrangement with one third
party developing, marketing or manufacturing time and attendance or
scheduling software subject to the following restrictions: (i) ADP can have
such an arrangement with only one such third party at any point in time;
(ii) ADP is permitted to sublicense such third party's software only to
persons or entities having between one hundred (100) and one thousand
(1000) employees on any one software database (i.e., profiles/payrolls
maintained on one personal computer); (iii) the third party software must
either work independently of any hardware, or if sold to be used on
hardware (excluding personal computers), such software must be
sold/sublicensed in conjunction with Hardware or in conjunction with
Devices; provided however that the use of Devices shall be subject to all
the requirements of Section 2(c); and (iv) ADP shall notify Kronos in
advance in writing of any contact ADP has with any third party developing,
marketing or manufacturing time and attendance or scheduling software, with
which ADP is considering a joint venture, joint marketing agreement or
similar arrangement.
(b) If ADP enters into a joint venture or joint marketing agreement or
similar arrangement pursuant to the terms of paragraph (a) above, then
Kronos may ***** * ****** **** ** ****** **** ******* ** *** ******
5
<PAGE>
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
****** *** ******** ** *** **** ******* ** *** *** *** ***** ** *****
******* ********** ********* ******* ** ***** ********* ********** ********
******* ** ***** * ***** ******* ** ***** ********* ********* ** *******
*********** **** *** *** *** ***** ** ***** ******* ********** ********
******* ** ***** ********* ********** ******** ******** ******** ********
**** *** **** ******** ***** ******** *** ********* ********* ** *******
*********** shall not be deemed to include the right to sell Hardware; and
provided further that such ******** ** ******* ********** ******** *******
** ***** ********* ********** ******** ******* may only license, sell or
otherwise transfer the Software to persons or entities having between one
hundred (100) and one thousand (1000) employees on any one software
database (i.e., profiles/payroll maintained on one personal computer).
Kronos agrees to notify ADP in advance in writing of any contact Kronos has
with *** ***** ***** ******* ********** ******** ******* ** ***** *********
********** ******** ******** to which Kronos is considering ******** ****
******* ** **** ***** ****** ** *********** * ***** ******** *****
********* ** ******* ************
12. All other terms and conditions of the Agreement remain in full force and
effect.
AGREED TO AND ACCEPTED:
KRONOS INCORPORATED ADP, INC.
By: S/W. Patrick Decker By: S/Ron Clarke
(Signature) (Signature)
Name: W. Patrick Decker Name: Ron Clarke
(Please Print) (Please Print)
Title: VICE PRESIDENT, Title: PRESIDENT,
MARKETING & FIELD OPERATIONS ELECTRONICS
SERVICES DIVISION
Date: 7/22/96 Date: 7/22/96
6
<PAGE>
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
EXHIBIT B
Hardware Description and Pricing
Unit Price Per Unit
Kronos 440 Basic Bar Code 128K $ ***
Kronos 460 Full Bar Code 128K $ ***
Kronos 440 Basic Bar Code Modem 128K $ ***
Kronos 460 Full Bar Code Modem 128K $ ***
Kronos 480 Full 256K $ ***
Kronos 480 Full 512K $*****
ADP 140 Bar Code $ ***
ADP 144 Bar Code (Modem) $ ***
ALL COMPATIBLE PERIPHERAL SERVICES
Ethernet Daughter Board Kit $ ***
Printer Option Upgrade for 460's & 480's $ ***
Smart Converter $ **
Remote Reader $ ***
Bell Relay Kit $ **
Battery Back-up Modem $ ***
Secure Wall Mount $ **
* Should new versions of the 140, 144, 440 and 460 firmware be released
by Kronos which contain features designed to work in conjunction with
newly released software features being used by ADP, these firmware
versions will be provided to ADP at no additional cost.
** Kronos will provide a *** discount on all Kronos manufactured
peripheral devices.
*** ADP recognizes and agrees that the ADP 140 and the ADP 144 are
designed for use at locations with fifty (50) or fewer employees a day
and will only permit fifty (50) or fewer employees to punch during a
day.
**** Should ADP decide to purchase the 440, 460, and/or 480 in lots of
100, and have them shipped to one central location, a discount of ***
per terminal may be applied.
Kronos has determined its standard manufacturing cost ("SMC") for Kronos' fiscal
year 1995. Beginning in Kronos' fiscal year 1997 (i.e., October 1, 1996), if the
SMC for the preceding fiscal year is less than the SMC for fiscal year 1995,
Kronos will reduce the Price Per Unit (stated above) on the Kronos 440, 460, and
480 by *** of the reduction in the
7
<PAGE>
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
SMC. For example, if Kronos determines, at the beginning of its fiscal year
1997, that the SMC for the System 400 was *** less in fiscal year 1996 than in
fiscal year 1995, Kronos would reduce the price per unit on the Kronos 440, 460
and 480 by *** so that the price charged to ADP, beginning on October 1, 1996,
would be ****. Any decrease in price will apply prospectively only beginning
with all orders received after September 30 (i.e., orders placed on or after
October 1). The procedure described herein will be repeated at the beginning of
each Kronos fiscal year during the term of this Agreement.
In addition, beginning in Kronos' fiscal year 1997, Kronos will determine the
average selling price ("ASP") for the System 440, 460, 480, 300, (including
modem and only if sold with TKC 250 or TKC for fewer than 250 employees) for the
preceding fiscal year. If the ASP is below ****, Kronos will reduce the Price
Per Unit (stated above) on the Kronos 440, 460 and 480 by *** of the amount by
which the ASP is less than *****. For example, if the ASP in fiscal year 1996
was *****, Kronos would reduce the price per unit charged to ADP by ***,
beginning on October 1, 1996. Any decrease in price will apply prospectively
only beginning with all orders received after September 30. The procedure
described herein will be repeated at the beginning of each Kronos fiscal year
during the term of this Agreement.
On October 1, 1997, Kronos will determine its standard manufacturing cost
("SMC") for the Kronos 140 for Kronos' fiscal year 1996. Beginning in Kronos'
fiscal year 1998 (i.e., October 1, 1997) and continuing for each fiscal year
thereafter, if the SMC for the preceding fiscal year is less than the SMC for
fiscal year 1996, Kronos will reduce the Price Per Unit (stated above) on the
ADP 140 by *** of the reduction in the SMC. In addition, the same procedure
described herein will be done on the Kronos 144, with any decrease in price
applied to the ADP 144. Any decrease in price will apply prospectively only
(i.e. beginning on October 1, 1997). The procedure described in this paragraph
will be repeated for each fiscal year during the term of this Agreement,
beginning in Kronos' fiscal year 1998.
In addition, beginning in Kronos' fiscal year 1998 (i.e., October 1, 1997)
Kronos will determine the ASP for the Kronos 140 and the Kronos 144. If the ASP
is below ****, Kronos will reduce the Price Per Unit (stated above) on the
Kronos 140 and/or 144, as applicable, by *** of the amount by which the ASP is
less than ****. Any decrease in price will apply prospectively only. The
procedure described herein will be repeated at the beginning of each Kronos
fiscal year during the term of this Agreement.
On April 2, 1998, the parties agree to review, in good faith, the provisions of
the price adjustment paragraphs above.
8
<TABLE>
<CAPTION>
KRONOS INCORPORATED
EXHIBIT 11 - Statement re Computation of Per Share Earnings
(In thousands, except share and per share amounts)
September 30,
---------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Income before change in accounting principle $11,425 $8,398 $4,892
Cumulative effect of change in accounting principle
------------- ------------- -------------
Net income $11,425 $8,398 $4,892
============= ============= =============
Net income per common share:
Primary:
Weighted average shares outstanding 8,041,428 7,824,279 7,653,387
Common Stock equivalents 288,632 326,624 206,126
------------- ------------- -------------
Total 8,330,060 8,150,903 7,859,513
============= ============= =============
Income before change in accounting principle $1.37 $1.03 $0.62
Cumulative effect of change in accounting principle
------------- ------------- -------------
Net income per common share $1.37 $1.03 $0.62
============= ============= =============
Fully diluted:
Weighted average shares outstanding 8,041,428 7,824,279 7,653,387
Common Stock equivalents 301,846 332,702 234,924
------------- ------------- -------------
Total 8,343,274 8,156,981 7,888,311
============= ============= =============
Income before change in accounting principle $1.37 $1.03 $0.62
Cumulative effect of change in accounting principle
------------- ------------- -------------
Net income per common share $1.37 $1.03 $0.62
============= ============= =============
</TABLE>
EXHIBIT 21 - Subsidiaries of the Registrant
Jurisdiction
Corporation of Incorporation
- - ----------- ----------------
Kronos Computerized Time Systems, Inc. Canada
Kronos Systems Limited United Kingdom
Kronos International Sales Corp. U.S. Virgin Islands
Kronos Securities Corporation Massachusetts
Kronos S/T Corporation Massachusetts
Kronos de Mexico, S.A. de C.V. Mexico
Kronos Australia Pty. Ltd. Australia
Kronos Solutions Pty. Ltd. South Africa
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-08987) pertaining to the 1992 Equity Incentive Plan of our report
dated October 24, 1996 with respect to the consolidated financial statements and
schedule of Kronos Incorporated included in this Annual Report (Form 10-K) for
the year ended September 30, 1996.
Ernst & Young LLP
Boston, Massachusetts
December 10, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Financial Statements of the Corporation for the twelve months ended
September 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000886903
<NAME> Kronos Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-START> Oct-01-1995
<PERIOD-END> Sep-30-1996
<EXCHANGE-RATE> 1
<CASH> 10,795
<SECURITIES> 21,995
<RECEIVABLES> 31,609
<ALLOWANCES> 987
<INVENTORY> 4,149
<CURRENT-ASSETS> 74,351
<PP&E> 32,571
<DEPRECIATION> 17,833
<TOTAL-ASSETS> 104,866
<CURRENT-LIABILITIES> 38,094
<BONDS> 0
0
0
<COMMON> 81
<OTHER-SE> 61,017
<TOTAL-LIABILITY-AND-EQUITY> 104,866
<SALES> 100,951
<TOTAL-REVENUES> 142,957
<CGS> 26,281
<TOTAL-COSTS> 54,577
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 322
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18,699
<INCOME-TAX> 7,274
<INCOME-CONTINUING> 11,425
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,425
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.37
</TABLE>
