MANHATTAN ASSOCIATES, INC.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-K


     
(Mark One)
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
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: 000-23999

Manhattan Associates, Inc.

(Exact Name of Registrant As Specified in Its Charter)
     
Georgia
(State or Other Jurisdiction of
Incorporation or Organization
)
2300 Windy Ridge Parkway, Suite 700
Atlanta, Georgia

(Address of Principal Executive Offices)
  58-2373424
(I.R.S. Employer Identification No.)


30339
(Zip Code)

Registrant’s telephone number, including area code: (770) 955-7070

Securities registered pursuant to Section 12(b) of the Act:

     
Title of Each Class   Name of Each Exchange on Which Registered
     
None   None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value per share

     Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     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. o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). þ

     The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based upon the closing sales price of the Common Stock on June 30, 2004 as reported by the Nasdaq Stock Market, was approximately $919,214,409. As of March 14, 2005, the Registrant had outstanding 29,591,324 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

     The Registrant’s definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 20, 2005 is incorporated by reference in Part III of this Form 10-K to the extent stated herein.

 
 

 


TABLE OF CONTENTS

PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Consolidated Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits and Financial Statement Schedules
SIGNATURES
EXHIBIT INDEX
EX-10.7 LEASE BY AND BETWEEN GATEWAY ROSEWOOD, INC. AND MANHATTAN ASSOCIATES, INC.
EX-10.8 AGREEMENT TO BUILD AND LEASE EXECUTED NOVEMBER 19, 2004
EX-10.9 LEASE AGREEMENT DATED FEBRUARY 1, 2005
EX-10.42 SEPARATION AND NON-COMPETITION AGREEMENT DATED JANUARY 25, 2005
EX-21.1 LIST OF SUBSIDIARIES
EX-23.1 CONSENT OF ERNST & YOUNG LLP
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 CERTIFICATE OF THE CEO AND CFO
EX-99.1 SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS


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Forward-Looking Statements

     In addition to historical information, this Annual Report may contain “forward-looking statements” relating to Manhattan Associates, Inc. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are delays in product development, undetected software errors, competitive pressures, technical difficulties, market acceptance, availability of technical personnel, changes in customer requirements and general economic conditions. Additional factors are set forth in “Safe Harbor Compliance Statement for Forward-Looking Statements” included as Exhibit 99.1 to this Annual Report on Form 10-K. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results. Our Annual Report on Form 10-K is available through our Web site at www.manh.com.

PART I

Item 1. Business

     We are a leading global provider of technology-based solutions to improve the effectiveness of and the efficiencies within and across the supply chain. Our solutions, which consist of software, services and hardware, enhance distribution and transportation efficiencies through the real-time integration of supply chain constituents, including manufacturers, distributors, retailers, suppliers, transportation providers and consumers. Our software consists of five key solution groups within supply chain execution (“SCE”) systems: warehouse management, transportation management, trading partner management, distributed order management and reverse logistics management. In addition, we provide additional solutions that support or enhance the functionality of our five key solutions, such as performance management and Radio Frequency Identification (“RFID”). We refer to the combination of our solutions as Integrated Logistics Solutions™. Warehouse management solutions include the performance of the many processes that take place in the warehouse and distribution center, beginning with the placement of an order by a customer and ending with the order fulfillment process. Transportation management solutions include functionality that allows a company to optimally procure, plan and execute transportation services, including the delivery of the order to the end customer. Trading partner management solutions provide real-time synchronization of key processes and their associated information flows across the supply chain, including customer process synchronization, supplier process management, global inventory visibility and supply chain event management. Distributed order management solutions manage the order fulfillment lifecycle across the supply chain to coordinate the movement of goods, orchestrate the re-supply of products and consider global inventory for optimal fulfillment. Reverse logistics management solutions manage and automate the returns process, tracking, storing, referencing and reporting on returned merchandise to increase net asset recovery. Performance management solutions use analytic tools and alerting processes that allow distribution center managers to monitor events within the supply chain cycle, analyze historical data and generate reports. Our RFID in a Box® solution provides an integration and reporting platform between RFID readers and SCE and Enterprise Resource Planning (“ERP”) systems for electronic product code (“EPC”) compliance. We also provide services, including design, configuration, implementation, product assessments and training services, plus customer support services and software enhancement subscriptions.

     We currently provide our solutions to manufacturers, distributors, retailers and transportation providers primarily in the following markets: retail, consumer goods, food and grocery, logistics service providers, industrial and wholesale, high technology and electronics, life sciences and government. As of December 31, 2004, our software has been licensed for use by more than 900 customers including Abbott Laboratories, Inc., AmerisourceBergen Services Corp., BJ’s Wholesale Club, Inc., Bristol-Myers Squibb Company, BMW Group, Cingular Wireless LLC, Costa’s PTY, Limited, Exel plc, Giant Eagle, Inc., Guess?, Inc., Gulf States Toyota, Halfords Ltd., Mary Kay Inc., Newell Rubbermaid Inc., NYK Logistics (Europe) Limited, Olympus America, Inc., Sara Lee Corporation, Sysco Corporation, TDG (UK) Limited, Tiffany and Co. and Wolverine World Wide, Inc.

     We are a Georgia corporation formed in February 1998 to acquire all of the assets and liabilities of Manhattan Associates Software, LLC, our predecessor. References in this filing to the “Company,” “Manhattan,” “Manhattan

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Associates,” “we,” “our,” and “us” refer to Manhattan Associates, Inc., our predecessors, and our wholly-owned and consolidated subsidiaries. Our principal executive offices are located at 2300 Windy Ridge Parkway, Suite 700, Atlanta, Georgia 30339, and our telephone number is 770-955-7070.

Industry Background

     Modern companies face increased globalization, outsourcing, channel convergence and regulatory and security requirements. In addition, technological innovations, such as RFID, rising logistics costs, increasing competition and smaller margins are causing companies to closely examine their supply chain operations. These companies have realized that, if executed properly, the supply chain can be a major competitive differentiator.

     The traditional push methodology, where companies would dictate customers’ options, has given way to a more customer demand-driven, pull methodology. The result has been an increased need for communication with trading partners and a closer examination of business process and systems. Unlike in the past, when companies were looking to simply establish supply chain systems, they are now looking to maximize their investments across the supply chain. In doing so, they are seeking to solve specific operational pain points with solutions that can scale as their business grows and integrate with other systems, such as their ERP, material handling equipment or other solutions. In addition, companies are increasingly seeking to reduce the number of vendors they work with and increase overall integration without compromising quality or performance.

Manhattan Associates’ Solution

     Our solutions are modular and employ leading database technology to address a full range of requirements of modern, complex distribution centers, transportation networks and the overall supply chain, including warehouse management, transportation management, trading partner management, distributed order management, reverse logistics management, RFID and performance management. Our warehouse management solutions include the performance of the many processes that take place in the warehouse and distribution center, beginning with the execution of an order by a customer and ending with the fulfillment and delivery of the order to the end customer. Our transportation management solutions include functionality that allows a company to optimally procure, plan and execute transportation services. Our trading partner management solutions provide real-time synchronization of key processes and their associated information flows across the extended supply chain, including customer process synchronization, supplier process management, global inventory visibility and, supply chain event management, and includes real-time monitoring and alerting. Distributed order management solutions manage the order fulfillment lifecycle across the supply chain to coordinate the movement of goods, orchestrate the re-supply of products and consider global inventory for optimal fulfillment. Reverse logistics management solutions manage and automate the returns process, tracking, storing, referencing and reporting on returned merchandise to increase net asset recovery. In addition to these solutions, we also provide performance management and RFID solutions that enhance the functionality of our other key solutions. Performance management solutions use analytic tools, which allow distribution center managers to monitor events within the supply chain cycle, analyze historical data and generate reports. Our RFID in a Box® solution provides an integration and reporting platform between RFID readers and SCE and ERP systems for EPC compliance. Our solutions, together with our professional services capabilities, enable our customers to optimize their supply chain effectiveness and efficiencies by:

  •   reducing inventory levels and increasing inventory turnover;
 
  •   improving inventory and order accuracy;
 
  •   improving compliance with customer requirements, including the RFID/EPC compliance requirements;
 
  •   facilitating the requirements of multi-channel fulfillment, including complying with industry shipping standards, unique pallet configuration and customer-specific personalization, labeling and packaging;
 
  •   improving visibility of inventory, order status and delivery status;
 
  •   improving communication with other participants in the supply chain, including suppliers, customers and transportation providers;

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  •   bypassing links in the supply chain;
 
  •   enabling and facilitating distribution through multiple delivery channels;
 
  •   increasing the productivity of labor, facilities and materials-handling equipment; and
 
  •   lowering transportation costs.

Strategy

     Our objective is to extend our position as a leading provider of technology-based SCE solutions. We aim to achieve this objective by delivering warehouse management, transportation management, trading partner management, distributed order management, reverse logistics, performance management and RFID solutions that help global manufacturers, retailers and transportation providers successfully manage the growing demands, complexity and volatility of their local and global supply chains. Our solutions are advanced, highly functional, highly scaleable and allow our customers to improve relationships with suppliers, customers and transportation providers, leverage their investments across the supply chain, effectively manage transportation costs and meet dynamically changing customer requirements. Our strategies to accomplish our objective include the following:

     Develop and Enhance Software Solutions. We intend to continue to focus our product development resources on the development and enhancement of our software solutions. We offer what we believe to be the broadest solution set in the SCE marketplace, founded upon software solutions, as described herein, to address all aspects of warehouse management, transportation management, trading partner management, distributed order management, reverse logistics, performance management and RFID. In order to provide additional functionality and value to our solutions, we plan to continue to provide enhancements to existing solutions and to introduce new solutions to address evolving industry standards and market needs. We identify further enhancements to our solutions and opportunities for new solutions through our customer support organization as well as ongoing customer consulting engagements and implementations, interactions with our user groups and participation in industry standards and research committees. Our solutions address the needs of customers in various vertical markets including retail, consumer goods, food and grocery, logistics service providers, industrial and wholesale, high technology and electronics, life sciences and government. We intend to continue to enhance the functionality of our solutions to meet the dynamic requirements of these vertical markets as well as new vertical markets.

     Expand International Sales. We believe that our solutions offer significant benefits for customers in international markets. We have more than 550 employees outside the United States focused on international sales, servicing our international clients and product development. In addition to offices in Australia, China, France, Germany, India, Japan, the Netherlands, Singapore and the United Kingdom, we have also established reseller partnerships in Latin America. Our international strategy includes leveraging the strength of our relationships with current customers that also have significant overseas operations and the pursuit of strategic marketing partnerships with international systems integrators and third-party software application providers.

     Expand Our Strategic Alliances and Indirect Sales Channels. We currently sell our products primarily through our direct sales personnel. We have worked on joint projects and joint sales initiatives with industry-leading consultants and software systems implementers, including most of the large consulting firms and other systems consulting firms specializing in our targeted industries, to supplement our direct sales force and professional services organization. We have been expanding our indirect sales channels through reseller agreements, marketing agreements and agreements with third-party logistics providers. These alliances extend our market coverage and provide us with new business leads and access to trained implementation personnel. We have strategic alliances with complementary software providers, third party integrators/consultants and hardware vendors including Alien Technology, JDA Software, Lawson, Microsoft, Symbol Technologies, FKI Logistix, Siemens Logistics and Assembly Systems and Intentia.

     Acquire or Invest in Complementary Businesses. We intend to pursue strategic acquisitions of technologies, solutions and businesses that enable us to enhance and expand our SCE solutions and service offerings. More specifically, we intend to pursue acquisitions that will provide us with complementary solutions and technologies, expand our geographic presence and distribution channels, extend our presence into other vertical markets with similar challenges and requirements of those we currently meet and/or further solidify our leadership position within

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the seven primary components of SCE: warehouse management, transportation management, trading partner management, distributed order management, reverse logistics management, performance management and RFID.

Solutions and Services

     Solutions. Our solutions are designed to enable our customers to manage the operations of their distribution centers and transportation networks and improve visibility of critical information between supply chain partners to achieve greater effectiveness and efficiency across the supply chain. Our solutions operate across the Unix, iSeries (AS/400) and Windows computing platforms. Our solutions operate on multiple hardware platforms utilizing various hardware systems and inter-operate with many third-party software applications and legacy systems. This interfacing and open system capability enables customers to continue using their existing computer resources and to choose among a wide variety of existing and emerging computer hardware and peripheral technologies. We provide interface toolkits for most ERP systems to enhance communication and reduce implementation costs between our core products and our clients’ host systems. We currently offer interface toolkits to systems developed by Oracle, SAP, Lawson, JDA Software, Essentus and Intentia.

     Our Warehouse Management solution group includes our Warehouse Management solution, Labor Management solution, Slotting Optimization solution and Billing Management solution.

  •   Our Warehouse Management solution manages all aspects of distribution center operations including receiving, returns processing, inventory management and order fulfillment, including replenishment, picking, packing and shipping.
 
  •   Our Labor Management solution enables distribution center managers to access performance levels in real-time; visualize labor in graphics and spreadsheets; measure productivity against Engineered Labor Standards; and analyze efficiency throughout the warehouse.
 
  •   Our Slotting Optimization solution determines the most beneficial and ergonomic placement of items in a distribution center. This solution, which uses genetic algorithms, is a pickline optimization system that performs daily maintenance, is easy to implement and configure and reduces labor costs and workers’ compensation claims, while increasing throughput.
 
  •   Our Billing Management solution is a dynamic billing solution that captures information from SCE systems to enable third-party logistics, or 3PL service providers to track and bill clients for inventory handling, storage, fulfillment and transportation activities.

     Our Transportation Management solution group includes our Transportation Procurement solution, Transportation Planning & Execution solution, Load Management solution and Carrier Management solution.

  •   Our Transportation Procurement solution enables the development and management of a transportation strategy that considers critical business factors and enables shippers to solicit bids from transportation providers, design the most optimal strategic plan, acquire transportation service contracts and manage those contracts on an ongoing basis.
 
  •   Our Transportation Planning & Execution solution allows shippers to execute complex, strategic routing guides in real time and dynamically monitor critical metrics and events, enabling shippers to make ongoing adjustments to the routing guide that protect service and savings.
 
  •   Our Load Management solution provides visibility into yard activities so customers can plan and execute upon loads coming into and going out of their facilities. The solution enables the generation of an efficient plan for yard execution and considers all complex requirements associated with shipping and receiving as well as enables carriers and suppliers to schedule appointments or requests.
 
  •   Our Carrier Management solution is a management and analysis solution that allows transportation providers to determine the most profitable opportunities and then strategically target the most valuable freight and profitable destinations. It helps providers make globally optimal resource-to-load assignments,

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      dramatically reducing overall empty mileage, enhance driver satisfaction and optimize fuel expenditures, while ensuring on-time service and maximizing net contribution per day.

     Our Trading Partner Management solution group includes our Supplier Enablement solution, Logistics Hub Management solution, Carrier Enablement solution and Customer/Store Enablement solution.

  •   Our Supplier Enablement solution extends supply chain execution capabilities to vendors and factories through purchase order management and fulfillment and shipping management to improve visibility, operational efficiencies and inventory accuracy.
 
  •   Our Logistics Hub Management solution extends supply chain execution capabilities to hubs, enabling them to manage advance ship notices associated with incoming receipts as well as create automatic shipping notifications (ASNs) for outbound shipments.
 
  •   Our Carrier Enablement solution provides visibility to in-transit shipments and allows carriers to provide information regarding the status of the shipment to enable better planning around distribution activities as well as improved communication to other supply chain partners.
 
  •   Our Customer/Store Enablement solution provides order/inventory visibility and Web-based order entry for both customers and shippers. Orders are placed through the portal, processed and passed directly to back-end systems, and customers and stores can confirm receipts using the same portal.

     Our Distributed Order Management solution group includes our Distributed Order Management solution.

  •   Our Distributed Order Management solution aggregates and manages customer orders from multiple channels and balances supply with demand to fulfill orders. In addition, it coordinates the movement of goods, orchestrates the re-supply of products and considers all global inventory for optimal fulfillment.
 
      Our Reverse Logistics Management solution group includes our Reverse Logistics Management solution and Multi-Modal Returns Management solution.
 
  •   Our Reverse Logistics Management solution manages the returns process using a sophisticated workflow engine to automate each step of the return and disposition process. This Web-based solution tracks, stores, references and reports on critical business information to help companies boost net asset recovery.
 
  •   Our Multi-Modal Returns Management solution provides a smart label containing customer purchase data that is automatically printed and sent with every outbound order to better track returns.

     Our Performance Management solution group includes our Events solution, Analysis solution and Reporting module.

  •   Our Events solution monitors processes and provides immediate notification of problems or important events, so companies can proactively address issues.
 
  •   Our Analysis solution provides strategic multi-dimensional distribution center activity and trend analysis of historical data presented in a flexible, graphic format.
 
  •   Our Reporting module provides users with a set of pre-configured, browser-based productivity and management reports. Users have the ability to extend and customize the pre-configured reports or create their own ad hoc reports utilizing the embedded report-writing tool.

     Our RFID solution group includes our RFID in a Box® solution, Integration Platform for RFID, RFID Services and RFID-Enabled Applications.

  •   Our RFID in a Box® solution provides all the hardware, software and middleware components and services required to successfully deploy a targeted or enterprise-wide EPC-compliant RFID initiative.

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  •   Our Integration Platform for RFID is comprised of platform-independent middleware that eases deployment across RFID devices. It includes our Integration Manager, which simplifies integration and reduces implementation time, and our EPC Manager, which offers compliance with EPC standards.
 
  •   Our RFID Services are made up of our Implementation Services for RFID, which includes a proven implementation framework, pilot testing, full scale implementation and training, and our RFID Product Assessment, which simulates a variety of RFID environments to provide customers with a best scenario recommendation.
 
  •   Our RFID-Enabled Applications, which include our Warehouse Management and Transportation Management solutions, leverage the data transmitted by RFID tags and execute against it. This increases the speed and efficiency of warehouse processes and allows for easy location and tracking of containers to synchronize supply chain strategies across the trading partner network.

     Professional Services. Our professional services provide our customers with expertise and assistance in planning and implementing our solutions. To ensure a successful product implementation, consultants assist customers with the initial installation of a system, the conversion and transfer of the customer’s historical data onto our system, and ongoing training, education and system upgrades. We believe that our professional services enable the customer to implement our software rapidly, ensure the customer’s success with our solution, strengthen the relationship with the customer, and adds to our industry-specific knowledge base for use in future implementations and product development efforts.

     Although our professional services are optional, substantially all of our customers use at least some portion of these services for the implementation and ongoing support of our software products. Professional services are typically rendered under time and materials-based contracts, with services typically billed on an hourly basis. Professional services are sometimes rendered under fixed-fee based contracts, with payments due on specific dates or milestones. We believe that increased sales of our software solutions will drive higher demand for our consulting services.

     Our professional services group consists of business consultants, systems analysts and technical personnel devoted to assisting customers in all phases of the implementation of our systems, including planning and design, customer-specific configuring of modules, and on-site implementation or conversion from existing systems. Our consulting personnel undergo extensive training on supply chain operations and our products. We believe that this training enables us to productively use newly-hired consulting personnel. At times, we use third-party consultants, such as those from major systems integrators, to assist our customers in certain implementations.

     We have developed a proprietary, standardized implementation methodology called PRISM, which leverages our solutions’ architecture with the knowledge and expertise gained from completing more than 1,600 installations worldwide. The modular design of our solutions significantly reduces the complexities associated with integrating to existing systems, including ERP, Supply Chain Management (“SCM”), Customer Relationship Management (“CRM”), e-business systems and complex material handling systems. As a result, we have been able to deploy a fully automated inbound and outbound system in less than two months.

     Customer Support Services and Software Enhancements. We offer a comprehensive program that provides our customers with timely software upgrades that offer additional or improved functionality and technological advances incorporating emerging supply chain and industry initiatives. Over the last three years, our annual renewal rate of customers subscribing to comprehensive support and enhancements has been approximately 90%. We have the ability to remotely access the customer’s system in order to perform diagnostics, on-line assistance and assist in software upgrades. We offer 24x7 customer support plus software upgrades for an annual fee paid in advance, determined based on the level of service needed by the customer.

     Training. We offer training in a structured environment for new and existing users. Training programs are provided on a per-person, per-class basis at fixed fees. We currently have courses available to provide training on solution use, configuration, implementation and system administration. We have also developed several computer-based training programs that can be purchased for a fixed fee for use at client sites.

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     Hardware. In conjunction with the licensing of our software, we resell a variety of hardware products developed and manufactured by third parties in order to provide our customers with an integrated supply chain execution solution. These products include computer hardware, radio frequency terminal networks, RFID chip readers, bar code printers and scanners, and other peripherals. We resell all third-party hardware products pursuant to agreements with manufacturers or through distributor-authorized reseller agreements pursuant to which we are entitled to purchase hardware products at discount prices and to receive technical support in connection with product installations and any subsequent product malfunctions. We generally purchase hardware from our vendors only after receiving an order from a customer. As a result, we do not maintain significant hardware inventory.

Sales and Marketing

     We employ multiple discipline sales teams that consist of professionals with industry experience in sales and technical sales support. To date, we have generated the majority of our revenue from sales of software through our direct sales force. We plan to continue to invest significantly to expand our sales, services and marketing organizations within the United States, Europe, the Middle East and Africa (“EMEA”) and Asia Pacific and to pursue strategic marketing partnerships. We conduct comprehensive marketing programs that include advertising, public relations, trade shows, joint programs with vendors and consultants and ongoing customer communication programs. The sales cycle typically begins with the generation of a sales lead, through in-house telemarketing efforts, trade shows or other means of referral, or the receipt of a request for proposal from a prospective customer. The sales lead or request for proposal is followed by the qualification of the lead or prospect, an assessment of the customer’s requirements, a formal response to the request for proposal, presentations and product demonstrations, site visits to an existing customer using our supply chain execution system and contract negotiation. The sales cycle can vary substantially from customer to customer, but typically requires three to nine months.

     In addition to sales to new customers, we will continue to leverage our existing customer base to provide for system upgrades, sales of additional licenses of purchased products and sales of new or add-on products. We also plan to further develop and expand our indirect sales channels, including sales through reseller agreements, marketing agreements and agreements with third-party logistics providers. To extend our market coverage and to provide us with new business leads and access to trained implementation personnel, we further intend to develop and expand our strategic alliances with systems integrators capable of performing implementations of our solutions. Business referrals and leads helping us to grow our business continue to be positively influenced by systems integrators, which include most of the large consulting firms and other systems consulting firms specializing in our targeted industries. We believe that our leadership position in providing SCE solutions perpetuates the willingness of systems integrators to recommend our solutions where appropriate.

     We have an established program intended to foster joint sales and marketing efforts with our business partners. In some cases, this included joint development work to make our products and our partner’s products interface seamlessly. Among others, partnerships arising from our Manhattan Associates Partner Program (MAP2) include: JDA Software Group, Inc., a leading global provider of integrated software and professional services to retailers and their suppliers; Intentia International AB, a leading global supplier of ERP solutions; ProClarity Corporation (formerly Knosys, Inc.), a provider of analytic front-end technology designed specifically for Microsoft SQL Server 2000 Analysis Services; Siemens Logistics and Assembly Systems, Inc, a world leader in providing system solutions from concept through implementation in manufacturing, automotive, distribution, parcel and freight, postal, air cargo, baggage handling and software applications; IBM, a globally recognized leader in technology solutions; and Accenture, a leading global consulting company.

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Customers

To date, our customers have been suppliers, manufacturers, distributors, retailers and transportation providers in a variety of industries. The following table sets forth a representative list of customers that contracted to purchase solutions and services from us in 2004.

     
AEC One Stop Group, Inc.
  Interstate Distributor Company
Alco Industries
  JDC Logistics, Inc.
Argos Limited
  Josiah Wedgwood & Sons, Ltd.
Automatiq, Inc.
  Kellwood Company
Averitt Express, Inc.
  KLLM Transport Services, Inc.
BCA (A Partnership)
  Libbey Glass, Inc.
Bed, Bath & Beyond
  LM Services, LLC (Schwab Co.)
Birds Eye Foods, Inc.
  LVMH Perfumes & Cosmetics
Blair Corporation
  Mary Kay, Inc.
Borders Group, Inc.
  Metron North America, Ltd.
Bosch Sicherheitssysteme
  Mothercare UK Limited
British Land Company PLC
  Motorola, Inc.
C&S Wholesale Grocers
  Nippon Express USA, Inc.
CalArk International
  Norauto
Canon (UK) Limited
  Novant Health, Inc.
Chico’s Retail Services, Inc.
  Party City Corporation
Coles Myer, Ltd.
  Pearl, Incorporated
CoLinx
  Perry Ellis International
Co-operative Group (CWS) Limited
  Polo Ralph Lauren Corp.
Cornerstone Brands, Inc.
  PT Sejatibina Delta Informatika
Cost Plus, Inc.
  Revlon Consumer Products
CSK Auto, Inc.
  Revman International
Dart Transit Company
  Samskip hf.
Debenhams Retail, Plc.
  Sara Lee Foods, Inc.
Deluxe Media Services
  Saud Bahwan Automotive
Deschenes Group, Inc.
  Shire, LLC
Distribudora Flexi, S.A. de C.V.
  Sodimac S.A.
Dollar General Corporation
  South Cone, Inc. (dba Reef)
Electronics for Imaging
  Springs Industries
Estee Lauder N.V.
  Tally-Weijl
Ewals Integrated Logistics
  Technicolor Videocassette
Excell Home Fashions, Inc.
  The Boots Company Plc.
Follett Higher Education Group, Ltd.
  The Cato Corporation
GameStop Inc.
  The Children’s Place
Geest Foods Limited
  The Forzani Group, Ltd.
Global Home Products
  The Hillman Group
Global Logistics Services, Inc.
  The Jay Group, Inc.
Global One Logistics
  Thos. Somerville Company
Globe Express Services
  Tibbett and Britten Limited
GSI Commerce Solutions, Inc.
  TNT Fashion Logistics B.V.
Guangzhou Wise Logistics
  TNT Logistics
Guess?, Inc.
  University of Cambridge L.E.S.
Halfords
  Urban Outfitters, Inc.
Healthcare Logistics
  Walgreen Co.
Henkel Corporation
  Warnaco, Inc.
Hewlett-Packard Oy
  Wolverine Worldwide Inc.
HoMedics USA, Inc.
   

     Our top five customers in aggregate accounted for 16%, 16% and 14% of total revenue for each of the years ended December 31, 2002, 2003 and 2004, respectively. No single customer accounted for more than 10% of revenue in 2002, 2003 or 2004.

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Product Development

     Our development efforts are focused on adding new functionality to existing solutions, integrating the various solution offerings, enhancing the operability of our solutions across distributed and alternative hardware platforms, operating systems and database systems and developing new solutions. We believe that our future success depends in part upon our ability to continue to enhance existing solutions, to respond to dynamically changing customer requirements and to develop new or enhanced solutions that incorporate new technological developments and emerging supply chain and industry standards. To that end, our development efforts frequently focus on base system enhancements and the incorporation into our solutions of new user requirements and features identified and created through customer and industry interactions and systems implementations. As a result, we are able to continue to offer our customers a packaged, highly configurable solution with increasing functionality rather than a custom-developed software program. We have also developed interface toolkits for most major ERP systems to enhance communication and improve data flows between our core solutions and our clients’ host systems.

     We plan to principally conduct our development efforts internally in order to retain development knowledge and promote the continuity of programming standards; however, some projects that can be performed separately and/or require special skills may be outsourced. Periodically, we use third-party research and development companies to localize our products into Japanese, German, French and Spanish. We also established an off-shore development center in Bangalore, India during 2002, which now has more than 279 research and development professionals. The off-shore development center also employs several Indian citizens currently working for and holding extensive development experience with us.

     We continue to devote a significant portion of our research and development efforts to the enhancement and integration of all of our solutions. We have developed a release program for all solutions, which provides our customers with updates to all of our solutions. Our product development efforts will principally be focused on enhancement of our existing solutions, development of new solutions and modules and continued localization of our solutions into various international markets.

     Our research and development expenses for the years ended December 31, 2002, 2003 and 2004 were $20.8 million, $27.0 million, and $28.8 million, respectively. We intend to continue to invest significantly in product development.

Competition

     Our solutions are targeted at the SCE market, which is rapidly consolidating, intensely competitive and characterized by rapid technological change. The principal competitive factors affecting the market for our solutions include:

  •   vendor and product reputation;
 
  •   compliance with industry standards;
 
  •   solution architecture;
 
  •   solution functionality and features;
 
  •   ease and speed of implementation;
 
  •   return on investment;
 
  •   solution quality and performance;
 
  •   total cost of ownership;
 
  •   solution price; and
 
  •   level of support.

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     We believe that we compete favorably with respect to each of these factors. Our competitors are diverse and offer a variety of solutions directed at various aspects of the extended supply chain, as well as the enterprise as a whole. Our existing competitors include:

  •   the corporate information technology departments of current or potential customers capable of internally developing solutions;
 
  •   supply chain execution vendors, including Catalyst International, Inc., Highjump (3M), Optum, Inc., Provia Software, Inc., RedPrairie Corporation and SSA Global Technologies, Inc. among others;
 
  •   ERP or SCM application vendors with solutions or modules of their solution offering varying degrees of SCE functionality, such as i2 Technologies, Manugistics Group, Inc., Oracle Corp., Retek, Inc. and SAP AG; and
 
  •   smaller independent companies that have developed or are attempting to develop distribution center management software that competes with our SCE solutions.

     We may face competition in the future from ERP and SCM applications vendors and business application software vendors that may broaden their solution offerings by internally developing or by acquiring or partnering with independent developers of supply chain execution software. To the extent such ERP and SCM vendors develop or acquire systems with functionality comparable or superior to our solutions, their significant installed customer bases, long-standing customer relationships and ability to offer a broad solution could provide a significant competitive advantage over our solutions. In addition, it is possible that new competitors or alliances among current and new competitors may emerge and rapidly gain significant market share. Increased competition could result in price reductions, fewer customer orders, reduced gross margins and loss of market share. Both Oracle and SAP have entered the market for SCM applications. We believe that the domain expertise required to compete provides us with a competitive advantage and is a significant barrier to market entry. However, some of our competitors have significant resources at their disposal, and the degree to which we will compete with these new products in the marketplace is still undetermined.

     Many of our competitors and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, greater name recognition and a larger installed base of customers than we do. In order to be successful in the future, we must continue to respond promptly and effectively to technological change and competitors’ innovations. We cannot assure you that our current or potential competitors will not develop solutions comparable or superior in terms of price and performance features to those developed by us. In addition, we cannot assure you that we will not be required to make substantial additional investments in connection with our research, development, marketing, sales and customer service efforts in order to meet any competitive threat, or that we will be able to compete successfully in the future. Increased competition may result in reductions in market share, pressure for price reductions and related reductions in gross margins, any of which could materially and adversely affect our ability to achieve our financial and business goals. We cannot give assurance that in the future we will be able to successfully compete against current and future competitors.

International Operations

     Our international revenue was approximately $33.4 million, $38.7 million and $48.7 million for the years ended December 31, 2002, 2003 and 2004, respectively, which represents approximately 19%, 20% and 23% of our total revenue for the years ended December 31, 2002, 2003 and 2004, respectively. International revenue includes all revenue derived from sales to customers outside the United States. We now have over 550 employees outside the United States. We have offices in Australia, China, France, Germany, India, Japan, the Netherlands, Singapore and the United Kingdom, as well as representatives in Mexico and reseller partnerships in Latin America.

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     We conduct our direct European operations principally out of offices in the United Kingdom, the Netherlands, Germany and France, consisting of approximately 170 employees. Total revenue for European operations was approximately $29.3 million, $31.9 million and $35.5 million for the years ended December 31, 2002, 2003 and 2004, respectively, which represents approximately 17%, 16% and 17% of our total revenue for the years ended December 31, 2002, 2003 and 2004, respectively.

Proprietary Rights

     We rely on a combination of copyright, trade secret, trademark, service mark and trade dress laws, confidentiality procedures and contractual provisions to protect our proprietary rights in our products and technology. We have registered trademarks for PkMS, PickTicket Management System, PTRS, Have/Needs Analysis, LogisticsPRO, InfoLink, InfoLink Order, Infolink Source, PkCost, PkView, PkAllocate, WorkInfo, SmartInfo, SlotInfo, SystemLink, DCMS, Logistics.com, RFID in a Box, Integrated Logistics Solutions, Manhattan Associates and the Manhattan Associates logo as a design mark. We have no registered copyrights. We generally enter into confidentiality agreements with our employees, consultants, clients and potential clients and limit access to, and distribution of, our proprietary information. We license our solutions to our customers and restrict the customer’s use for internal purposes without the right to sublicense the solutions. However, we believe that this provides us only limited protection. Despite our efforts to safeguard and maintain our proprietary rights both in the United States and abroad, we cannot assure you that we will successfully deter misappropriation or independent third-party development of our technology or prevent an unauthorized third party from copying or obtaining and using our products or technology. In addition, policing unauthorized use of our solutions is difficult, and while we are unable to determine the extent to which piracy of our software solutions exist, software piracy could become a problem.

     As the number of supply chain management solutions in the industry increases and the functionality of these solutions further overlaps, companies that develop software may increasingly become subject to claims of infringement or misappropriation of intellectual property rights. Third parties may assert infringement or misappropriation claims against us in the future for current or future products. Any claims or litigation, with or without merit, could be time-consuming, result in costly litigation, divert management’s attention and cause product shipment delays or require us to enter into royalty or licensing arrangements. Any royalty or licensing arrangements, if required, may not be available on terms acceptable to us, if at all, which could have a material adverse effect on our business, financial condition and results of operations. Adverse determinations in such claims or litigation could also have a material adverse effect on our business, financial condition and results of operations.

     We may be subject to additional risks as we enter into transactions in countries where intellectual property laws are not well developed or are poorly enforced. Legal protections of our rights may be ineffective in such countries. Litigation to defend and enforce our intellectual property rights could result in substantial costs and diversion of resources and could have a material adverse effect on our business, financial condition and results of operations, regardless of the final outcome of such litigation. Despite our efforts to safeguard and maintain our proprietary rights both in the United States and abroad, we cannot assure that we will be successful in doing so, or that the steps taken by us in this regard will be adequate to deter misappropriation or independent third party development of our technology or to prevent an unauthorized third party from copying or otherwise obtaining and using our products or technology. Any of these events could have a material adverse effect on our business, financial condition and results of operations.

Employees

     As of December 31, 2004, we had nearly 1,400 full-time employees. None of our employees are covered by a collective bargaining agreement. We consider our relations with our employees to be good. As of December 31, 2004, certain of our employees were employed pursuant to the H-1(B), non-immigrant work-permitted visa classification.

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Executive Officers and Directors

     Our executive officers and directors and certain information about them are as follows:

             
Name   Age   Position
Peter F. Sinisgalli
    49     President, Chief Executive Officer and Director
Steven R. Norton
    43     Senior Vice President and Chief Financial Officer
Jeffrey S. Mitchell
    37     Executive Vice President, Americas Operations
Jeffry W. Baum
    42     Senior Vice President, International Operations
John J. Huntz, Jr.
    54     Chairman of the Board of Directors(1)(2)(3)
Richard M. Haddrill
    51     Vice Chairman of the Board of Directors
Brian J. Cassidy
    59     Director(2)(3)
Paul R. Goodwin
    61     Director(1)(3)
Thomas E. Noonan
    44     Director(1)(2)
Deepak Raghavan
    38     Director


(1)   Member of the Compensation Committee.
 
(2)   Member of the Audit Committee.
 
(3)   Member of the Nominating and Governance Committee.

     The Board of Directors is divided into three classes, each of whose members serve for a staggered three-year term. The Board is currently comprised of two Class I directors (Messrs. Cassidy and Goodwin), two Class II directors (Messrs. Raghavan and Haddrill) and three Class III directors (Messrs. Huntz, Noonan and Sinisgalli). At each annual meeting of shareholders, a class of directors will be elected for a three-year term to succeed the directors of the same class whose terms are then expiring. The terms of the Class I directors, Class II directors and Class III directors will expire upon the election and qualification of successor directors at the 2005, 2006 and 2007 annual meetings of shareholders, respectively.

     Peter F. Sinisgalli has served as our President and Chief Executive Officer and a member of our Board of Directors since July 1, 2004. Mr. Sinisgalli joined the Company in March 2004 as President and Chief Operating Officer, and assumed the role of Chief Executive Officer in July 2004. From April 2003 until February 2004, Mr. Sinisgalli served as President and Chief Executive Officer of NewRoads, Inc., a provider of outsourced solutions for fulfillment and customer care to companies engaged in one-to-one direct commerce. From November 1996 until January 2003, Mr. Sinisgalli served as President and Chief Operating Officer of CheckFree Corporation, a leading provider of electronic billing and payment services. Mr. Sinisgalli also serves on the Board of Directors of Witness Systems, Inc., a global provider of performance optimization software and services.

     Steven R. Norton has served as our Senior Vice President and Chief Financial Officer since joining the Company in February 2005. Mr. Norton served as the Executive Vice President and Chief Financial Officer for Concurrent Computer Corporation, a publicly traded technology company that offers video-on-demand and real-time computer processing services, from October 1999 to January 2005. From March 1996 to April 1999, Mr. Norton served as Vice President of Finance and Administration for LHS Group, Inc., a provider of billing and customer care software and implementation services to wireless communications service providers. Prior to that, Mr. Norton served as an Audit Senior Manager for Ernst & Young LLP and KPMG LLP, public accounting firms.

     Jeffrey S. Mitchell has served as our Executive Vice President, Americas Operations since January 2005. Previously, Mr. Mitchell served as our Executive Vice President — Americas Sales and Marketing, from January 2004 to January 2005. From April 1997 to January 2004, Mr. Mitchell held various sales management roles with Manhattan Associates. From April 1995 until April 1997, Mr. Mitchell was a sales representative for The Summit Group, now a part of CIBER Enterprise Solutions, a provider of supply chain and ERP services. From May 1991 until April 1995, Mr. Mitchell served in various aspects of account management in the employer services division of Automatic Data Processing, Inc., providing outsource payroll and human resources solutions.

     Jeffry W. Baum has served as our Senior Vice President, International Operations since January 2000. From February 1998 until January 2000, Mr. Baum served as our Vice President — International Business Development. From January 1997 until February 1998, Mr. Baum served as Vice President - Sales and Marketing of Haushahn

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Systems & Engineers, a warehouse management systems and material handling automation provider that is now known as Provia Software. From March 1992 until December 1996, Mr. Baum served as Senior Account Manager at Haushahn. Prior to that, Mr. Baum served in a variety of business development, account management and marketing positions with Logisticon, Inc. and Hewlett-Packard Company.

     John J. Huntz, Jr. has served as Chairman of our Board of Directors since April 2003 and has served as a member of our Board of Directors since January 1999. Mr. Huntz has served as Managing Director of Fuqua Ventures, LLC, a private equity investment firm since March 1998. Mr. Huntz served as Executive Vice President and Chief Operating Officer of Fuqua Enterprises, Inc., a company that manufactures health-care products, from August 1995 until March 1998 and as its Senior Vice President from March 1994 until August 1995. From September 1989 until January 1994, Mr. Huntz served as the Managing Partner of Noble Ventures International, Inc., a private international investment company. From 1984 until 1989, Mr. Huntz served as Director of Capital Resources for Arthur Young & Company, and from 1979 until 1984, Mr. Huntz was with Harrison Capital, Inc., a venture capital investment subsidiary of Texaco, Inc. Mr. Huntz founded and serves as President of the Atlanta Venture Forum, a risk capital network, and is a board member of the National Venture Capital Association. Mr. Huntz serves as a director of several of the portfolio companies of Fuqua Ventures, LLC. Mr. Huntz is also a member of the Securities and Exchange Commission Executive Committee on Small Business Capital Formation.

     Richard M. Haddrill has served as the Vice Chairman of our Board of Directors since July 2004 and been a member of the Board of Directors since October 1999. Mr. Haddrill served as our Chief Executive Officer from April 2004 to July 2004 and served as President and Chief Executive Officer from October 1999 to April 2004. Mr. Haddrill is currently the President and Chief Executive Officer of Alliance Gaming Inc., a publicly traded company supplying technology to the gaming industry and has been on the board of directors of that company since April 2003. Mr. Haddrill previously worked for Powerhouse Technologies, Inc., a technology, services and gaming company where he served as Executive Vice President from December 1994 until September 1996 and as President, Chief Executive Officer and a member of the board of directors from September 1996 until June 1999, when Powerhouse was acquired by Anchor Gaming, which was acquired by International Game Technology in 2001. Mr. Haddrill also served as a consultant and member of the board of directors of Anchor Gaming from June 1999 until October 1999. Prior to Powerhouse, Mr. Haddrill served as the President of international subsidiaries for Knowledgeware, Inc. and as a Partner and Managing Partner of the accounting firm of Ernst & Young LLP. Mr. Haddrill also serves on the board of directors of OutlookSoft, Inc., a privately held business performance management software company.

     Brian J. Cassidy has served as a member of our Board of Directors since May 1998. Mr. Cassidy was the co-founder of Webforia Inc., a developer and supplier of computer software applications, and served as Webforia’s Vice Chairman from April 1996 until February 2003. Prior to forming Webforia, Mr. Cassidy served as Vice President of Business Development of Saros Corporation, a developer of document management software, from January 1993 until March 1996. Prior to joining Saros Corporation, Mr. Cassidy was employed by Oracle Corporation, as Joint Management Director of European Operations and a member of the Executive Management Board from 1983 until 1988 and as Worldwide Vice President of Business Development from 1988 until 1990.

     Paul R. Goodwin has served as a member of our Board of Directors since April 2003. Mr. Goodwin is currently employed as a consultant to CSX Corporation, which, through its subsidiaries, operates the largest rail network in the eastern United States. Mr. Goodwin served as Vice-Chairman and Chief Financial Officer of CSX Corporation from April 2000 until June 2003 when he retired. From April 1995 until April 2000, Mr. Goodwin served as Executive Vice President – Finance and Chief Financial Officer of CSX Corporation. Mr. Goodwin started with CSX Corporation in 1965 and held various senior management positions with the company, including executive vice president and chief financial officer, senior vice president finance and planning, and executive vice president of finance and administration. Mr. Goodwin serves on the board of directors for the National Railroad Retirement Investment Trust, Horizon Lines LLC and Savannah Harbor Holdings LLC.

     Thomas E. Noonan has served as a member of our Board of Directors since January 1999. Mr. Noonan has served as the President and member of the board of directors of Internet Security Systems, Inc., a provider of network security monitoring, detection and response software, since August 1995, and as its Chief Executive Officer and Chairman of the board of directors since November 1996. Prior to joining Internet Security Systems, Mr. Noonan served as Vice President, Sales and Marketing with TSI International, Inc., an electronic commerce

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company, from October 1994 until August 1995. From November 1989 until October 1994, Mr. Noonan held high-level sales and marketing positions at Dun & Bradstreet Software, a developer of enterprise business software.

     Deepak Raghavan has served as a member of our Board of Directors since August 1998. Mr. Raghavan served as our Senior Vice President — Product Strategy from January 2001 until June 2002, as Senior Vice President and Chief Technology Officer from August 1998 until January 2001 and as Chief Technology Officer from our inception in October 1990 until August 1998. From 1987 until 1990, Mr. Raghavan served as a Senior Software Engineer for Infosys Technologies Limited, a software development company, where he specialized in the design and implementation of information systems for the apparel manufacturing industry. Since January 2003, Mr. Raghavan is enrolled as a full-time Graduate Student with the Department of Physics and Astronomy at Georgia State University, Atlanta, Georgia.

Item 2. Properties

     Our principal administrative, sales, marketing, support and research and development facility is located in approximately 137,868 square feet of modern office space in Atlanta, Georgia. Substantially all of this space is leased to us through March 31, 2008. We have additional offices throughout the United States under multi-year agreements in California, Massachusetts, Indiana and Delaware. We also occupy facilities outside of the United States under multi-year agreements in the United Kingdom, the Netherlands, Japan, China, Singapore, India and Australia. We also occupy offices under short-term agreements in other geographical regions. Our office space is adequate to meet our immediate needs; however, we may expand into additional facilities in the future.

Item 3. Legal Proceedings

     Many of our installations involve products that are critical to the operations of our clients’ businesses. Any failure in our products could result in a claim for substantial damages against us, regardless of our responsibility for such failure. Although we attempt to limit contractually our liability for damages arising from product failures or negligent acts or omissions, there can be no assurance the limitations of liability set forth in our contracts will be enforceable in all instances. We are not currently a party to any material legal proceedings that would require disclosure under this Item.

Item 4. Submission of Matters to a Vote of Security Holders

     There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2004.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

     Our common stock is traded on the Nasdaq National Market under the symbol “MANH”. The following table sets forth the high and low closing sales prices of the common stock as reported by the Nasdaq National Market for the periods indicated:

                 
Fiscal Period   High Price     Low Price  
2003
               
First Quarter
  $ 26.30     $ 17.38  
Second Quarter
    30.45       17.65  
Third Quarter
    33.30       25.19  
Fourth Quarter
    33.65       26.64  
 
2004
               
First Quarter
  $ 29.65     $ 26.06  
Second Quarter
    30.88       25.81  
Third Quarter
    29.56       22.64  
Fourth Quarter
    25.94       20.10  

     The closing sale price of our common stock as reported by the Nasdaq National Market on March 14, 2005 was $21.04. The number of shareholders of record of our common stock as of March 14, 2005 was approximately 52.

     We do not intend to declare or pay cash dividends in the foreseeable future. Our management anticipates that all earnings and other cash resources, if any, will be retained by us for investment in our business.

     The following table provides information regarding our current equity compensation plans as of December 31, 2004:

                         
Equity Compensation Plan Information  
    Number of securities to     Weighted-average     Number of securities remaining  
    be issued upon exercise     exercise price of     available for future  
    of outstanding options,     outstanding options,     issuance under  
Plan Category   warrants and rights     warrants and rights     equity compensation plans  
Equity compensation plans approved by security holders
    7,382,512     $ 24.19       111,755  
Equity compensation plans not approved by security holders
                 
 
                 
Total
    7,382,512     $ 24.19       111,755  
 
                 

     Additional information regarding our equity compensation plans can be found in Note 3 of the Notes to our Consolidated Financial Statements.

     The following table provides information regarding our purchases under our publicly-announced repurchase program:

                                 
                            (d) Maximum Number  
                    (c) Total Number     (or Approximate Dollar  
                    of Shares (or Units)     Value) of Shares (or  
    (a) Total Number     (b) Average Price     Purchased as Part of     Units) that May Yet Be  
    of Shares (or     Paid per Share     Publicly Announced     Purchased Under the  
Period   Units) Purchased     (or Unit)     Plans or Programs     Plans or Programs  
October 1 – October 31, 2004
                    $ 16,307,685  
 
                       
November 1 – November 30, 2004
    217,500     $ 23.39       217,500     $ 11,219,815  
 
                       
December 1 – December 31, 2004
    294,400     $ 23.75       294,400     $ 4,228,167  
 
                       
Total
    511,900     $ 23.60       511,900     $ 4,228,167  
 
                       

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Item 6. Selected Consolidated Financial Data

     You should read the following selected consolidated financial data in conjunction with our Consolidated Financial Statements and related Notes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K. The statement of income data for the years ended December 31, 2002, 2003 and 2004, and the balance sheet data as of December 31, 2003 and 2004, are derived from, and are qualified by reference to, the audited financial statements included elsewhere in this Form 10-K. The statement of income data for the years ended December 31, 2000 and 2001, and the balance sheet data as of December 31, 2000, 2001 and 2002, are derived from the audited financial statements not included herein. Historical results are not necessarily indicative of results to be expected in the future.

                                         
    Year Ended December 31,  
    2000     2001     2002     2003     2004  
    (In thousands, except per share data)          
Statement of Income Data:
                                       
Revenue:
                                       
Software and hosting fees
  $ 26,190     $ 35,436     $ 40,233     $ 43,229     $ 49,886  
Services
    81,085       97,510       110,516       129,320       141,492  
Hardware and other
    31,344       27,760       22,675       23,417       23,541  
Recovery (allowance) relating to bankrupt customer (1)
          (4,328 )     2,297       848        
 
                             
Total revenue
    138,619       156,378       175,721       196,814       214,919  
Costs and expenses:
                                       
Cost of software and hosting fees
    1,239       1,455       1,927       4,470       4,085  
Amortization of acquired developed technology
    250       1,500       1,500       1,999       2,079  
Cost of services
    34,299       42,372       46,611       54,218       65,853  
Cost of hardware and other
    26,345       23,092       19,027       20,123       20,071  
Research and development
    16,106       19,413       20,780       26,982       28,822  
Sales and marketing
    18,051       22,334       26,413       31,200       34,049  
General and administrative
    15,123       18,822       20,943       24,087       27,046  
In-process research and development and acquisition-related charges
    3,001             1,470       885        
Restructuring charge
                      893        
Amortization of acquisition-related intangibles
    915       3,740       272       1,433       1,496  
 
                             
Total costs and expenses
    115,329       132,728       138,943       166,290       183,501  
 
                             
Income from operations
    23,290       23,650       36,778       30,524       31,418  
Other income, net
    2,718       2,059       2,801       2,746       3,257  
 
                             
Income before income taxes
    26,008       25,709       39,579       33,270       34,675  
Income tax expense
    9,740       9,522       14,383       11,425       12,566  
 
                             
Net income
  $ 16,268     $ 16,187     $ 25,196     $ 21,845     $ 22,109  
 
                             
Diluted net income per share
  $ 0.53     $ 0.53     $ 0.83     $ 0.71     $ 0.71  
 
                             
 
Shares used in computing diluted net income per share
    30,453       30,742       30,451       30,882       31,067  
 
                             
                                         
    December 31,  
    2000     2001     2002     2003     2004  
    (In thousands)  
Balance Sheet Data:
                                       
Cash, cash equivalents and investments
  $ 67,667     $ 104,189     $ 121,857     $ 155,403     $ 172,656  
Working capital
    70,192       101,224       124,679       158,163       138,760  
Total assets
    152,406       180,720       220,196       264,882       290,501  
Long-term portion of capital lease obligations and note payable
    5,866       2,182       240       288       148  
Total shareholders’ equity
    110,032       141,204       185,286       228,242       244,627  


(1)   In connection with a significant customer filing for bankruptcy under Chapter 11 of the United States Bankruptcy Code, an allowance of $4.3 million was recorded to effectively defer revenues arising in the fourth quarter of 2001 from the significant customer, but unpaid at the time of the bankruptcy declaration. In the fourth quarter of 2002 and the second quarter of 2003, $2.3 million and $0.8 million of the receivable was recovered, respectively. See Note 1 of Notes to Consolidated Financial Statements for further details.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     All statements, trend analyses and other information contained in the following discussion relative to markets for our products and trends in revenue, gross margins and anticipated expense levels, as well as other statements including words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” and “intend” and other similar expressions constitute forward-looking statements. These forward-looking statements are subject to business and economic risks and uncertainties, and our actual results of operations may differ materially from those contained in the forward-looking statements.

Business

     We are a global leader in providing supply chain execution and optimization solutions. Our integrated logistics solutions leverage a comprehensive set of applications that can be implemented as an integrated whole or as individual point solutions to better manage the supply chain. This platform for logistics is comprised of various applications including warehouse management, transportation management, distributed order management, reverse logistics and trading partner management along with Radio Frequency Identification (“RFID”) and performance management. Our solution offering is comprised of software, services, and hardware.

     Our warehouse management solutions (“WMS”) manage the processes that take place within the distribution center, from receipt of goods to fulfillment of orders, and include applications for optimizing labor and slotting. With our transportation management solutions (“TMS”), companies can optimally procure, plan and execute transportation services across transportation modes, such as air, ship and ground. Our distributed order management solution enables companies to balance supply with demand and source goods to meet customer needs in a timely and cost effective manner. With our reverse logistics management solutions, companies can effectively manage the returns process and improve net asset recovery. Our trading partner management solutions (“TPM”) provide Web-based synchronization between trading partners, improving communication and visibility across the entire supply chain. Our RFID solutions offer a flexible, scalable and modular solution that provide an integration and reporting platform between RFID chip readers and supply chain execution and enterprise resource planning systems. Finally, our performance management applications include event management, alerting and reporting modules, which use analytic tools and alerting processes to monitor and proactively respond to events within the supply chain cycle, analyze historical and operational data and generate reports.

     In addition to our software solutions, we also offer a variety of services to enhance the value we provide customers. Our offerings include design, configuration, implementation, training, product assessment, customer support, hardware, consulting services and software enhancement subscriptions.

Application of Critical Accounting Policies and Estimates

     The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related footnotes. In preparing these financial statements, management has made estimates and judgments relating to certain amounts included in the financial statements. As a result, application of these accounting policies, could cause actual results to differ from these estimates.

     We have identified the following as our critical accounting policies:

Revenues and Revenue Recognition

     Our revenue is derived from (i) Software and Hosting Fees, which consist of revenue from the licensing and hosting of software and revenue from funded research and development efforts; (ii) Services Revenue, which consist of fees from consulting, implementation and training services (collectively, “professional services”), plus customer

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support services and software enhancement subscriptions; and (iii) Hardware and Other Revenue, which consists of sales of hardware and reimbursed project expenses.

     Revenue recognition rules for software companies are very complex. We recognize software fees in accordance with Statement of Position No. 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended by Statement of Position No. 98-9, “Software Revenue Recognition, With Respect to Certain Transactions” (“SOP 98-9”). Although we follow very specific and detailed guidelines in measuring revenue, the application of those guidelines requires judgment including: (i) whether a software arrangement includes multiple elements, and if so, whether vendor-specific objective evidence of fair value exists for those elements; (ii) whether customizations or modifications of the software are significant; and (iii) whether collection of the software fee is probable. Additionally, we specifically evaluate any other elements in our license transactions, including but not limited to options to purchase additional software at a future date, extended payment terms, functionality commitments not delivered with the software and existing outstanding receivable balances in making the determination of the amount and timing of revenue recognition.

     Most of our software arrangements include professional services. Professional services revenues are generally accounted for separately from the software license revenues because the arrangements qualify as “service transactions” as defined by SOP 97-2. The most significant factors considered in determining whether the revenue should be accounted for separately include the nature of the services (i.e., consideration of whether the services are essential to the functionality of the licensed product), degree of risk, availability of services from other vendors and timing of payments. We provide our professional services under services agreements on a time and material basis or based on a fixed-price and/or fixed-time arrangement. The revenues from our time and material based professional consulting and implementation services are recognized as the work is performed, provided that the customer has a contractual obligation to pay, the fee is non-refundable and collection is probable. Delays in project implementation will result in delays in revenue recognition. For our professional consulting services under fixed-price and/or fixed-time arrangements, we recognize the related revenues using the percentage-of-completion method, with progress-to-completion measured by using labor costs input compared to estimated cost of completion. Revisions to the estimates are reflected in the period in which changes become known. Project losses are provided for in their entirety in the period they become known, without regard to the percentage-of-completion. If we do not accurately estimate the resources required or the scope of work to be performed, or if we do not manage our projects properly within the planned periods of time, then future consulting margins on our projects may be negatively affected or losses on existing contracts may need to be recognized.

     Hardware revenue is generated from the resale of a variety of hardware products, developed and manufactured by third parties, which are integrated with and complementary to our software solutions. These products include computer equipment, radio frequency terminal networks, RFID chip readers, bar code printers and scanners and other peripherals. We generally purchase hardware from our vendors only after receiving an order from a customer, and revenue is recognized upon shipment by the vendor to the customer.

Accounts Receivable

     We continuously monitor collections and payments from our customers and maintain an allowance for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. Additions to the allowance for doubtful accounts generally represent a sales allowance on services revenue, which are recorded to operations as a reduction to services revenue. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Our top five customers in aggregate accounted for 16%, 16% and 14% of total revenue for each of the years ended December 31, 2002, 2003, and 2004, respectively. No single customer accounted for more than 10% of revenue in 2002, 2003 or 2004.

     On January 22, 2002, a significant customer from 2001 filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. As a result of the filing, the uncertainties around the bankruptcy proceedings and the ultimate timing of payment, we recorded an allowance of $4.3 million in 2001 to effectively defer revenues arising in the fourth quarter of 2001 from the significant customer, but unpaid at the time of the bankruptcy declaration. We recorded a recovery of approximately $2.3 million of the receivable in the fourth quarter of 2002. Upon receiving the final cash settlement in June 2003, subsequent to the significant customer emerging from bankruptcy, we recovered an additional $848,000 of the receivable during the second quarter of 2003. The recoveries were recorded as separate revenue line items in the Consolidated Statements of Income and reductions to the allowance for doubtful accounts in the Consolidated Balance Sheets during the respective quarters.

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Valuation of long-lived and intangible assets and goodwill

     In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), we do not amortize goodwill and other intangible assets with indefinite lives. Our long-lived and intangible assets and goodwill are subject to annual impairment tests, which require us to estimate the fair value of our business compared to the carrying value. The impairment reviews require an analysis of future projections and assumptions about our operating performance. Should such review indicate the assets are impaired, we would record an expense for the impaired assets.

     Annual tests or other future events could cause us to conclude that impairment indicators exist and that our goodwill is impaired. For example, if we had reason to believe that our recorded goodwill and intangible assets had become impaired due to decreases in the fair market value of the underlying business, we would have to take a charge to income for that portion of goodwill or intangible assets that we believed was impaired. Any resulting impairment loss could have a material adverse impact on our financial position and results of operations. At December 31, 2004, our goodwill balance was $32.5 million and our intangible assets with definite lives balance was $8.3 million, net of accumulated amortization.

Income Taxes

     We provide for the effect of income taxes on our financial position and results of operations in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under this accounting pronouncement, income tax expense is recognized for the amount of income taxes payable or refundable for the current year and for the change in net deferred tax assets or liabilities resulting from events that are recorded for financial reporting purposes in a different reporting period than recorded in the tax return. Management must make significant assumptions, judgments and estimates to determine our current provision for income taxes and also our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax asset. Our judgments, assumptions and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws, allowable deductions, projected tax credits and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Changes in tax law or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in our financial position and results of operations. Our assumptions, judgments and estimates relative to the value of our net deferred tax asset take into account predictions of the amount and category of future taxable income. Actual operating results and the underlying amount and category of income in future years could render our current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate, thus materially impacting our financial position and results of operations.

Results of Operations

Overview

     Over the past several years, our primary goal has been and continues to be to expand of our position as a leading provider of supply chain execution and optimization solutions by delivering integrated, modular solutions to our customers. With the addition and integration of new products resulting from the acquisitions completed during 2002, 2003 and 2004, as discussed above, along with the synchronized release of new versions of our product suite with enhanced functionality, we were able to accomplish continued revenue growth.

     During 2004, we continued to experience the effects of a weak spending environment for information technology in the United States and Europe, in the form of delayed and cancelled buying decisions by customers for our software, services and hardware, deferrals by customers of service engagements previously scheduled and pressure by our customers and competitors to discount our offerings. We believe that a deterioration in the current business climates or continued delay in capital spending within the United States and/or other geographic regions in which we operate, principally the United Kingdom and continental Europe, could have a material adverse impact on our future operations.

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     In 2005, we plan to continue to enhance our solutions, expand globally and further develop our sales and marketing, including strategic alliances and indirect sales channels. Our success could be limited by several factors, including spending on information technology, the timely release of quality new products and releases, continued market acceptance of our solutions and the introduction of new products by existing or new competitors.

     On December 31, 2002, we acquired certain assets of Logistics.com, Inc. for a cash payment of approximately $21.3 million. The acquisition has been accounted for under the purchase method of accounting; thus the results of operations reflect the incremental effect beginning January 1, 2003. $1.5 million of the purchase price was allocated to acquired in-process research and development. Values assigned to the acquired in-process research and development (“IPRD”) were determined using the income approach. To determine the value of the IPRD, we considered, among other factors, the state of development of each project, the time and costs required to complete each project, expected income and associated risks, which included the inherent difficulties and uncertainties in completing the project and achieving technological feasibility and risks related to the viability of and potential changes in future target markets. This analysis resulted in amounts assigned to IPRD for projects that had not yet reached technological feasibility and do not have alternative future uses.

Revenue

                                         
    Year Ended             Year Ended             Year Ended  
    December 31,     % Change   December 31,     % Change   December 31,  
    2002     2002 to 2003   2003     2003 to 2004   2004  
Software and hosting fees
  $ 40,233       7 %   $ 43,229       15 %   $ 49,886  
Percentage of total revenues
    23 %             22 %             23 %
 
                                       
Services
    110,516       17 %     129,320       9 %     141,492  
Percentage of total revenues
    63 %             66 %             66 %
 
                                       
Hardware and other
    22,675       3 %     23,417       1 %     23,541  
Percentage of total revenues
    13 %             12 %             11 %
 
                                       
Recovery relating to bankrupt customer
    2,297       *       848       *        
 
                                 
Total revenue
  $ 175,721       12 %   $ 196,814       9 %   $ 214,919  


*   Percentage is not meaningful

     Our revenue consists of fees generated from the licensing and hosting of software; fees from professional services, customer support services and software enhancement subscriptions; and sales of complementary radio frequency and computer equipment, which are considered non-strategic. We believe our revenue growth in the last two years is attributable to several factors, including, among others, increased sales of our expanded product suite, geographic expansion, our market leadership positions as to breadth of product offerings and financial stability and a compelling return on investment proposition for our customers.

     Software and hosting fees. The increase in software and hosting fees from 2002 to 2003 was due to sales of newer products, hosting fees and funded development, relating primarily to the TMS products obtained through the acquisition of Logistics.com. Sales of our solution groups other than our warehouse management solution group increased by $10.9 million, or 166%, from 2002 to 2003, while sales of our warehouse management solution group decreased by $7.9 million, or 24%, from 2002 to 2003. The increase from 2003 to 2004 was attributable to an increase of $2.8 million, or 11%, in sales of our warehouse management solution group and an increase of $3.9 million, or 22%, for all other solution groups. Sales outside of North America also impacted the increase from 2003 to 2004 as sales increased from 18% of total software and hosting fees in 2003 to 28% in 2004.

     Services revenue. The increases in services revenue from 2002 to 2003 and 2003 to 2004 were principally due to: (i) increases of 14% and 13% in 2003 and 2004, respectively, in the number of active engagements required to implement the increased amount of software sold and to upgrade existing customers to more current versions of our offerings; and (ii) renewals of customer support services and software enhancement subscription agreements on a growing installed base. Revenue from software enhancement subscription agreements increased by 30% and 20% during 2003 and 2004, respectively. During the economic downturn, we have experienced some pricing pressures with regard to our services. We believe that the pricing pressures are attributable to global macro-economic conditions and competitive pressures. Our services revenue growth has been and will likely continue to be affected

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by the mix of products sold. The individual engagements involving our newer products, including TMS, RFID and TPM, typically require less implementation services; however, the number of engagements continue to grow.

     Hardware and other. Sales of hardware are non-strategic and largely dependent upon customer-specific desires. Sales of hardware decreased $0.4 million, or 2%, from approximately $17.3 million in 2002 to approximately $16.9 million in 2003 and decreased an additional $0.4 million, or 2%, to approximately $16.5 million in 2004. The decreases in hardware sales from 2002 to 2003 and 2003 to 2004 are attributable to customers’ desires in the current macro-economic environment to buy hardware from other suppliers offering greater discounts, combined with increased sales of our optimization and transportation products, which require less hardware than our core warehouse management products. As described in the Notes to Consolidated Financial Statements, reimbursements for out-of-pocket expenses are required to be classified as revenue and are included in hardware and other revenue. For 2002, 2003 and 2004, reimbursements by customers for out-of-pocket expenses were approximately $5.4 million, $6.5 million and $7.0 million, respectively.

     Recovery relating to bankrupt customer. On January 22, 2002, a significant customer for 2001 filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. As a result of the filing, the uncertainties around the bankruptcy proceedings and the ultimate timing of payment, we recorded an allowance of $4.3 million in 2001 to effectively defer revenues arising in the fourth quarter of 2001 from the significant customer, but unpaid at the time of the bankruptcy declaration. We recorded a recovery of approximately $2.3 million of the receivable in the fourth quarter of 2002. Upon receiving the final cash settlement in June 2003, subsequent to the significant customer emerging from bankruptcy, we recovered an additional $848,000 of the receivable during the second quarter of 2003. The recoveries were recorded as separate revenue line items in the Consolidated Statements of Income and reductions to the allowance for doubtful accounts in the Consolidated Balance Sheets during the respective quarters.

Costs and Expenses

                                         
    Year Ended           Year Ended           Year Ended
    December 31,   % Change   December 31,   % Change   December 31,
    2002   2002 to 2003   2003   2003 to 2004   2004
Cost of software and hosting fees
  $ 1,927       132 %   $ 4,470       (9 %)   $ 4,085  
Percentage of software and hosting fees
    5 %             10 %             8 %
 
                                       
Amortization of acquired developed technology
    1,500       33 %     1,999       4 %     2,079  
Percentage of software and hosting fees
    4 %             5 %             4 %
 
                                       
Cost of services
    46,611       16 %     54,218       21 %     65,853  
Percentage of services revenues
    42 %             42 %             47 %
 
                                       
Cost of hardware and other
    19,027       6 %     20,123       0 %     20,071  
Percentage of hardware and other revenues
    84 %             86 %             85 %
 
                                       
Research and development
    20,780       30 %     26,982       7 %     28,822  
Percentage of total revenues
    12 %             14 %             13 %
 
                                       
Sales and marketing
    26,413       18 %     31,200       9 %     34,049  
Percentage of total revenues
    15 %             16 %             16 %
 
                                       
General and administrative
    20,943       15 %     24,087       12 %     27,046  
Percentage of total revenues
    12 %             12 %             13 %
 
                                       
Amortization of acquisition-related intangibles
    272       427 %     1,433       4 %     1,496  
Percentage of total revenues
    0 %             1 %             1 %
 
                                       
In-process research and development and acquisition-related charges
    1,470       *       885       *        
Restructuring charge
          *       893       *        


*   Percentage is not meaningful

     Cost of Software and Hosting Fees. Cost of software and hosting fees consists of the costs associated with software reproduction; hosting services; funded development; media, packaging and delivery, documentation and other related costs; royalties on third-party software sold with or as part of our products; and the amortization of capitalized research and development costs. The increase in cost of software fees, as a percent of software and hosting fees and in absolute dollars, in 2003 is principally attributable to the costs associated with hosting certain of our software solutions, which was approximately $1.7 million in 2003. As discussed above, we did not offer hosting services during 2002. In addition, sales of our open systems products as a percentage of total revenue from all

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products sold, increased from approximately 50% in 2002 to approximately 80% in 2003 which resulted in higher royalties paid to third parties during 2003. The decrease in cost of software fees, as a percentage of software and hosting fees and in absolute dollars, in 2004 is attributable to lower telecommunication costs associated with hosting certain of our software solutions and lower amortization expense. There was approximately $300,000 of amortization expense in 2003 associated with capitalized development costs, which were fully amortized by the end of 2003.

     Amortization of Acquired Developed Technology. Amortization of acquired developed technology increased from $1.5 million in 2002 to $2.0 million in 2003 to $2.1 million in 2004. The increases were the result of the acquisitions of Logistics.com in December 2002, ReturnCentral in June 2003, Streamsoft in October 2003 and Avere in January 2004.

     Cost of Services. Cost of services consists primarily of salaries and other personnel-related expenses of employees dedicated to professional and technical services and customer support services. The increases in cost of services from 2002 to 2003 and 2003 to 2004 were principally due to increases in salary-related costs resulting from: (i) increases of 11% and 19%, respectively, in the number of personnel dedicated to the delivery of professional and technical services; and (ii) annual compensation increases. The decrease in the services gross margin from 58% in 2002 and 2003 to 53.5% during 2004 was attributable to the shift in the product mix to open systems, fixed price contracts, including unusually high costs associated with the implementation for one particularly challenging customer, and increased costs due to international expansion and training. The implementation of our warehouse management open systems products is more costly than the implementation of our legacy warehouse management product, the iSeries or AS400, due to the lower maturity level of the product and limited experience of the services personnel and integration requirements with multiple third party hardware and software products. Due to the shift towards open systems sales and less implementation services on our other products outside of warehouse management, we do not anticipate our services gross margin to return to the 2002 and 2003 levels, although some improvement is anticipated.

     Cost of Hardware and other. Cost of hardware decreased from approximately $13.6 million in 2002 and 2003 to approximately $13.1 million in 2004 as a direct result of lower sales of hardware. Cost of hardware and other includes out-of-pocket expenses to be reimbursed by customers of approximately $5.4 million, $6.5 million and $7.0 million for 2002, 2003 and 2004, respectively. The increase in reimbursed out-of-pocket expenses is due to increased travel related to the increase in services projects.

     Research and Development. Research and development expenses primarily consist of salaries and other personnel-related costs for personnel involved in our research and development activities. The increases in research and development expenses from 2002 to 2003 and 2003 to 2004 are principally attributable to: (i) increases in the number of full-time and contracted personnel dedicated to our ongoing research and development activities; (ii) the expansion of our offshore development center in India, which was formed in 2002; and (iii) annual compensation increases. Domestic research and development personnel increased by approximately 11% from the end of 2002 to the end of 2003 and 4% from the end of 2003 to the end of 2004. The number of personnel related to our offshore development center increased from 32 at December 31, 2002 to 164 at December 31, 2003 to 279 at December 31, 2004. Our principal research and development activities in 2004 focused on the expansion and integration of new products and the synchronized product release, which included expanded product functionality, interoperability and testing.

     Computer software development costs are charged to research and development expense until technological feasibility is established, after which remaining software production costs are capitalized. We have defined technological feasibility as the point in time at which we have a detailed program design or a working model of the related product, depending upon the type of development effort. For the years ended December 31, 2002, 2003 and 2004, we capitalized no research and development costs because the costs between the attainment of technological feasibility for the related software product through the date of general release were insignificant.

     Sales and Marketing. Sales and marketing expenses include salaries, commissions, travel and other personnel-related costs of sales and marketing personnel and the costs of our marketing and alliance programs and related activities. The increases in sales and marketing expenses from 2002 to 2003 and 2003 to 2004 are principally attributable to: (i) an increase in salary-related costs resulting from a 9% increase in the average number of international and domestic sales and marketing personnel in 2003 compared to 2002 and no increase in 2004 compared to 2003; (ii) greater incentive compensation paid on 7% and 15% higher license and hosting fees in 2003 over 2002 and 2004 over 2003, respectively; and (iii) continued global expansion of our sales and marketing programs.

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     General and Administrative. General and administrative expenses consist primarily of salaries and other personnel-related costs of executive, financial, human resources, information technology and administrative personnel, as well as facilities, depreciation, legal, insurance, accounting and other administrative expenses. The increases in general and administrative expenses from 2002 to 2003 and 2003 to 2004 were principally attributable to increases in salary-related costs from increases of approximately 16% each year in the average number of general and administrative personnel, primarily from our international expansion, and increased audit and outside consulting costs associated with Sarbanes-Oxley compliance. Depreciation expense is included in general and administrative expenses and was $6.3 million, $7.6 million and $7.2 million during 2002, 2003 and 2004, respectively.

     Amortization of Acquisition-Related Intangibles. We have recorded goodwill and other acquisition-related intangible assets as part of the purchase accounting associated with various acquisitions, including the acquisitions of Logistics.com in December 2002, ReturnCentral in June 2003, Streamsoft in October 2003, Avere in January 2004, and eebiznet in July 2004. The increase in the amortization of acquisition-related intangibles is the result of amortization of intangible assets with finite lives that were purchased as part of the various acquisitions. Effective January 1, 2002, we adopted SFAS No. 142, which requires that goodwill and certain intangible assets no longer be amortized to earnings, but instead be tested for impairment at least annually.

     In-Process Research and Development and Acquisition-Related Charges. On December 31, 2002, we acquired certain assets of Logistics.com, Inc. from Internet Capital Group for a cash payment of approximately $21.3 million. The acquisition was accounted for under the purchase method of accounting. The purchase price was allocated to net assets acquired of $1.2 million, acquired in-process research and development of $1.5 million, acquired developed technology of $1.5 million, and other intangible assets of $17.1 million.

     During the third quarter of 2003, we recorded expenses of $885,000 relating to fees incurred in connection with two potential acquisitions that we decided not to consummate. The acquisition-related charges are presented as a separate line item in the Consolidated Statements of Income and consist primarily of legal, accounting and travel expenses associated with the two transactions.

     Restructuring Charge. During the second quarter of 2003, we recorded a restructuring charge of $893,000 relating to an internal reorganization. The reorganization more closely aligned our implementation teams and customer support organization with our technical teams. The charge consisted primarily of severance payments. Approximately $857,000 was paid prior to December 31, 2003 and the remaining $36,000 was and paid out in January 2004.

                                         
    Year Ended             Year Ended             Year Ended  
    December 31,     % Change   December 31,     % Change   December 31,  
    2002     2002 to 2003   2003     2003 to 2004   2004  
Income from operations
  $ 36,778       (17 %)   $ 30,524       3 %   $ 31,418  
Percentage of total revenues
    21 %             16 %             15 %
 
                                       
Other income, net
    2,801       (2 %)     2,746       19 %     3,257  
Percentage of total revenues
    2 %             1 %             2 %
 
                                       
Income tax provision
    14,383       (21 %)     11,425       10 %     12,566  
Percentage of income before income taxes
    36 %             34 %             36 %

     Income from Operations. The decrease in operating income from 2002 to 2003 was attributable to a lower margin on our software fees resulting from our hosting services, a $1.5 million decrease in the amount recovered relating to the bankrupt customer and an overall increase in operating expenses from the continued investment in global expansion initiatives and the further development of our product suite. Operating income for 2002 reflects a recovery relating to the bankrupt customer totaling $2.3 million; a charge for in-process research and development totaling $1.5 million associated with the acquisition of Logistics.com and non-cash, acquisition-related intangible asset amortization totaling $1.8 million. Operating income for 2003 reflects a recovery relating to the bankrupt customer totaling $0.8 million; acquisition-related expenses of $0.9 million; a restructuring charge of $0.9 million; and non-cash, acquisition-related intangible asset amortization totaling $3.4 million. The increase in operating income from 2003 to 2004 resulted from the growth in higher margin software fees. Operating income for 2004 reflects acquisition-related intangible asset amortization totaling $3.6 million.

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     Other Income, Net. Other income, net includes interest income and interest expense and foreign currency gains and losses. Interest income decreased from $2.1 million in 2002 to $1.5 million in 2003 due to an overall decline in market interest rates, and increased to $2.4 million in 2004 due to an overall increase in market interest rates along with an increase in the cash available to invest. The weighted-average interest rates on investment securities at December 31, 2002 was approximately 1.4%, as compared to 1.1% at December 31, 2003 and 2.2% at December 31, 2004. Interest expense was $147,000 in 2002, $13,000 in 2003, and $26,000 in 2004. We recorded net foreign currency gains of $0.8 million in 2002, $1.3 million in 2003, and $0.9 million in 2004. The foreign currency gains resulted from gains on intercompany transactions denominated in U.S. dollars with subsidiaries due to the weakening of the U.S. dollar relative to other foreign currencies, primarily the British Pound and Euro.

     Income Tax Provision. The fluctuation in the income tax provision during 2003 and 2004 is directly attributable to the decrease during 2003 and increase during 2004 of income before income taxes. Our effective income tax rates were 36.3%, 34.3% and 36.2% in 2002, 2003 and 2004, respectively. Our effective income tax rate takes into account the source of taxable income, domestically by state and internationally by country, and available income tax credits. The decrease in the tax rates in 2003 was attributable to an increase in income generated in countries with lower tax rates along with an increase in the utilization of research and development credits. The increase in the tax rates in 2004 was attributable to a decrease in income generated in countries with lower tax rates. The provisions for income taxes for 2002, 2003 and 2004 do not include the $14.0 million, $11.3 million and $10.7 million of tax benefits realized from stock options exercised during the years, respectively. These tax benefits reduce our income tax liabilities and are included in additional paid-in capital.

Liquidity and Capital Resources

     During 2003 and 2004, we funded our operations primarily through cash generated from operations. As of December 31, 2003, we had $155.4 million in cash, cash equivalents and investments compared to $172.7 million at December 31, 2004.

     Our operating activities provided cash of $45.5 million in 2002, $37.0 million in 2003 and $44.5 million in 2004. Cash from operating activities for 2002 arose principally from a substantial increase in operating income, the income tax benefits arising from exercises of stock options by employees, partially off-set by the increase in accounts receivable. Cash from operating activities for 2003 arose principally from operating income, the income tax benefits arising from exercises of stock options by employees, the increase in deferred revenue and rent, partially off-set by the increase in accounts receivable and decreases in accounts payable and accrued liabilities. Days sales outstanding increased from 65 days at December 31, 2002 to 76 days at December 31, 2003, as a result of slower collections associated with international revenues. Cash from operating activities for 2004 arose principally from operating income, the income tax benefits arising from exercises of stock options by employees, increases in deferred revenue, accounts payable and accrued liabilities, partially off-set by the increase in accounts receivable. Days sales outstanding was 76 days at December 31, 2004, consistent with the prior year.

     Our investing activities used approximately $65.7 million, $77.8 million, and $20.9 million of cash during the years ended December 31, 2002, 2003 and 2004, respectively. During 2002, our principal uses of cash were $21.2 million for the acquisition of Logistics.com, $6.0 million for purchases of capital equipment to support our business and infrastructure and net purchases of $38.6 million in investments. During 2003, our principal uses of cash were for net purchases of $65.3 million in investments, purchases of capital equipment of $7.7 million to support our business and infrastructure, $2.6 million for the acquisitions of ReturnCentral and Streamsoft, and the $2.0 million investment in Alien Technology. During 2004, our principal uses of cash were $7.6 million for purchases of capital equipment to support our business and infrastructure, $1.7 million for acquisitions and net purchases of $11.6 million in investments.

     Our financing activities used cash of approximately $0.9 million in 2002 and $17.9 million in 2004 and provided approximately $9.0 million of cash in 2003. The principal uses of cash for financing activities in 2002 was for the repurchase of 260,000 shares of our common stock for approximately $4.1 million and the repayment of $5.3 million relating to the note payable issued in conjunction with the acquisition of Intrepa, L.L.C. in October 2000. The principal source of cash provided by financing activities in 2003 was $9.3 million in proceeds from the issuance

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of common stock pursuant to the exercise of stock options. The principal uses of cash for financing activities in 2004 was for repurchase of 885,400 shares of our common stock for approximately $21.8 million, partially off-set by the proceeds from the issuance of common stock pursuant to the exercise of stock options of approximately $4.0 million. The stock purchases in 2002 and 2004 were through open market transactions as part of a publicly-announced repurchase program.

     We believe there are opportunities to grow our business through the acquisition of complementary and synergistic companies, products and technologies. Any material acquisition could result in a decrease to our working capital depending on the amount, timing and nature of the consideration to be paid. Our Board of Directors has approved a stock repurchase program covering up to $20 million of our common stock over a period ending no later than July 21, 2005, of which $4.2 million in approved but unspent stock repurchases remains at December 31, 2004. In February 2005, our Board of Directors authorized us to purchase up to $20 million of our common stock, including the amount that had previously been approved but not yet spent, over a period ending no latter than February 3, 2006. We expect to fund purchases under the program through existing cash, cash equivalents and investments.

     We believe that our existing liquidity and expected cash flows from operations will satisfy our capital requirements for normal operations for the foreseeable future. We believe that existing balances of cash, cash equivalents and short-term investments will be sufficient to meet our working capital and capital expenditure needs at least for the next twelve months, although there can be no assurance that this will be the case.

New Accounting Pronouncements

     In March 2004, the Financial Accounting Standards Board (“FASB”) approved the consensus reached on the EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” The objective of this Issue is to provide guidance for identifying impaired investments. EITF 03-1 also provides new disclosure requirements for investments that are deemed to be temporarily impaired. The accounting provisions of EITF 03-1 were effective for all reporting periods beginning after June 15, 2004, while the disclosure requirements were effective only for annual periods ending after June 15, 2004. The adoption of EITF 03-1 did not have a material effect on the Consolidated Statements of Income, financial position or liquidity.

     In December 2004, the FASB issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

     Statement 123(R) must be adopted no later than July 1, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued.

     Statement 123(R) permits public companies to adopt its requirements using one of two methods:

1. A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date.

2. A “modified retrospective” method, which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

     We will adopt Statement 123(R) beginning on July 1, 2005 and are currently in the process of evaluating which method we will adopt.

     As permitted by Statement 123, we currently account for share-based payments to employees using Opinion 25’s intrinsic value method and, as such, generally recognize no compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)’s fair value method will have a significant impact on our result of operations. The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the

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future. However, had we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share in Note 1. Pro forma net income for 2002 was $182,000 compared to reported net income of $25.2 million. Pro forma net loss for 2003 and 2004 was $6.5 million and $8.5 million, respectively, compared to reported net income of $21.8 million and $22.1 million in 2003 and 2004, respectively. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While we cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were $14.0 million, $11.3 million, and $10.7 million in 2002, 2003 and 2004, respectively.

     In December 2004, the FASB issued FASB Staff Position (“FSP”) Financial Accounting Standard (“FAS”) 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004 (the Act)” that provides tax relief to U.S. domestic manufacturers. The FSP states that the manufacturers’ deduction provided for under the Act should be accounted for as a special deduction in accordance with Statement 109 rather than as a tax rate reduction. Also in December 2004, the FASB issued FSP FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004,” addressing accounting and disclosure guidance relating to a company’s repatriation program. The additional disclosures required under this FSP are included in Note 2, Income Taxes. Both FSPs were effective upon issuance.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

     Our principal commitments as of December 31, 2004, consist of obligations under operating leases. We expect to fulfill all of the following commitments from our working capital.

Lease Commitments

     We lease certain of our facilities and some of our equipment under noncancelable operating lease arrangements that expire at various dates through 2008. Rent expense for these leases aggregated $4.0 million, $5.0 million and $5.9 million during fiscal 2002, 2003 and 2004, respectively.

     The following table summarizes our contractual commitments as of December 31, 2004 (in thousands):

                                                         
                                                    After  
    Total     2005     2006     2007     2008     2009     2009  
Non-cancelable operating leases
  $ 22,233     $ 5,554     $ 6,373     $ 6,007     $ 2,715     $ 1,298     $ 286  
Capital leases
  $ 304     $ 152     $ 152     $     $     $     $  

Indemnifications

     Our sales agreements with customers generally contain infringement indemnity provisions. Under these agreements, we agree to indemnify, defend and hold harmless the customer in connection with patent, copyright or trade secret infringement claims made by third parties with respect to the customer’s authorized use of our products and services. The indemnity provisions generally provide for our control of defense and settlement and cover costs and damages finally awarded against the customer, as well as our modification of the product so it is no longer infringing or, if it cannot be corrected, return of the product for a refund. Our sales agreements with customers sometimes also contain indemnity provisions for death, personal injury or property damage caused by our personnel or contractors in the course of performing services to customers. Under these agreements, we agree to indemnify, defend and hold harmless the customer in connection with death, personal injury and property damage claims made by third parties with respect to actions of our personnel or contractors. The indemnity provisions generally provide for our control of defense and settlement and cover costs and damages finally awarded against the customer. The indemnity obligations contained in sales agreements generally have no specified expiration date and no specified monetary limitation on the amount of award covered. We have not previously incurred costs to settle claims or pay awards under these indemnification obligations. We account for these indemnity obligations in accordance with SFAS No. 5, Accounting for Contingencies, and record a liability for these obligations when a loss is probable and reasonably estimable. We have not recorded any liabilities for these agreements as of December 31, 2004.

     We warrant to our customers that our software products will perform in all material respects in accordance with our standard published specifications in effect at the time of delivery of the licensed products to the customer for 90 days after first use of the licensed products, but no more than 24 months after execution of the license agreement. Additionally, we warrant to our customers that our services will be performed consistent with generally accepted industry standards or specific service levels through completion of the agreed upon services. If necessary, we would provide for the estimated cost of product and service warranties based on specific warranty claims and claim history. However, we have not incurred significant recurring expense under our product or service warranties. As a result, we believe the estimated fair value of these agreements is nominal. Accordingly, we have no liabilities recorded for these agreements as of December 31, 2004.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Foreign Business

     Our international business is subject to risks typical of an international business, including, but not limited to: differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Our international operations currently include business activity out of offices in the United Kingdom, the Netherlands, Germany, France, Australia, Japan, China, Singapore and India. When the U.S. dollar strengthens against a foreign currency, the value of our sales and expenses in that currency converted to U.S. dollars decreases. When the U.S. dollar weakens, the value of our sales and expenses in that currency converted to U.S. dollars increases.

     We recognized foreign exchange rate gains of approximately $0.8 million during 2002, $1.3 million in 2003, and $0.9 million in 2004, classified in “Other income, net” on our Consolidated Statements of Income. A fluctuation of 10% in the period end exchange rates at December 31, 2003 and December 31, 2004 relative to the US dollar would result in changes of approximately $0.2 million and $1.0 million in the reported foreign currency gains, respectively.

Interest Rates

     We invest our cash in a variety of financial instruments, including taxable and tax-advantaged floating rate and fixed rate obligations of corporations, municipalities, and local, state and national governmental entities and agencies. These investments are denominated in U.S. dollars. Cash balances in foreign currencies overseas are derived from operations.

     We account for our investment instruments in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 115”). All of the cash equivalents and investments are treated as available-for-sale under SFAS No. 115.

     Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if forced to sell securities that have seen a decline in market value due to changes in interest rates. The weighted-average interest rate on investment securities at December 31, 2003 was approximately 1.1%, as compared to 2.2% at December 31, 2004. The fair value of cash equivalents and investments held at December 31, 2003 and 2004 was $149.3 million and $161.3 million, respectively. Based on the average investments outstanding during 2003 and 2004, increases or decreases of 25 basis points would result in increases or decreases to interest income of approximately $325,000 and $400,000 in 2003 and 2004, respectively, from the reported interest income.

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Item 8. Financial Statements and Supplementary Data

     Financial Statements

         
Index   Page  
Management’s Report on Internal Control over Financial Reporting
    30  
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
    31  
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements
    33  
Consolidated Balance Sheets as of December 31, 2003 and 2004
    34  
Consolidated Statements of Income for the Years Ended December 31, 2002, 2003 and 2004
    35  
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2002, 2003 and 2004
    36  
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2002, 2003 and 2004
    37  
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2003 and 2004
    38  
Notes to Consolidated Financial Statements
    39  

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

     Under the supervision and with the participation of our management, including our Chief Financial Officer and Principal Accounting Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2004 based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, our management concluded that our internal control over financial reporting was not effective as of December 31, 2004 due to a material weakness.

     A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 31, 2004, management has determined that the Company’s controls over monitoring vendor-specific objective evidence of fair value for undelivered elements related to sales contracts with multiple revenue elements were insufficient. Although no material misstatements related to revenue recognition were discovered, until this deficiency is remediated, there is a more than remote likelihood that a material misstatement to the annual or interim consolidated financial statements could occur and not be prevented or detected by the Company’s controls in a timely manner. Because of this material weakness, we have concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2004 based on the criteria in the Internal Control — Integrated Framework.

     Management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2004, has been audited by Ernst & Young LLP, the independent registered public accounting firm who also audited the Company’s consolidated financial statements. Ernst & Young’s attestation report on management’s assessment of the Company’s internal control over financial reporting appears beginning on page 31 hereof.

         
     
  /s/ Steven R. Norton  
  Steven R. Norton   
  Senior Vice President and Chief Financial Officer   
         
  /s/ Peter F. Sinisgalli    
  Peter F. Sinisgalli   
  President and Chief Executive Officer   

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Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

The Board of Directors and Shareholders
Manhattan Associates, Inc.

     We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Manhattan Associates, Inc. did not maintain effective internal control over financial reporting as of December 31, 2004, because of the effect of the material weakness identified in management’s assessment related to insufficient controls over monitoring vendor-specific objective evidence of fair value for undelivered elements related to sales contracts with multiple revenue elements, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). Manhattan Associates, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

     A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management’s assessment. As of December 31, 2004, management has determined that the Company’s controls over monitoring vendor-specific objective evidence of fair value for undelivered elements related to sales contracts with multiple revenue elements were insufficient. Although no material misstatements related to revenue recognition were discovered, until this deficiency is remediated, there is a more than remote likelihood that a material misstatement to the annual or interim consolidated financial statements could occur and not be prevented or detected by the Company’s controls in a timely manner. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 financial statements, and this report does not affect our report dated March 16, 2005 on those financial statements.

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     In our opinion, management’s assessment that Manhattan Associates, Inc. did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO control criteria. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Manhattan Associates, Inc. has not maintained effective internal control over financial reporting as of December 31, 2004, based on the COSO control criteria.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Manhattan Associates, Inc. and subsidiaries as of December 31, 2003 and 2004, and the related consolidated statements of income, shareholders’ equity, comprehensive income and cash flows for each of the three years in the period ended December 31, 2004 and our report dated March 16, 2005 expressed an unqualified opinion thereon.

     
  /s/ ERNST & YOUNG LLP
 
   
Atlanta, Georgia
   
March 16, 2005
   

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON THE CONSOLIDATED FINANCIAL STATEMENTS

The Board of Directors and Shareholders
Manhattan Associates, Inc.

     We have audited the accompanying consolidated balance sheets of Manhattan Associates, Inc. and subsidiaries (the “Company”) as of December 31, 2003 and 2004, and the related consolidated statements of income, shareholders’ equity, comprehensive income and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15(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 and schedule based on our audits.

     We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2003 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. 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.

     We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2005 expressed an unqualified opinion on management’s assessment and an adverse opinion on the effectiveness of internal control over financial reporting.

     
  /s/ ERNST & YOUNG LLP
 
   
Atlanta, Georgia
   
March 16, 2005
   

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MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

                 
    December 31,  
    2003     2004  
ASSETS
               
 
               
Current assets:
               
Cash and cash equivalents
  $ 31,407     $ 37,429  
Short-term investments
    114,549       88,794  
Accounts receivable, net of a $3,181 and $4,171 allowance for doubtful accounts in 2003 and 2004, respectively
    40,790       45,996  
Deferred income taxes
    2,086       4,257  
Refundable income taxes
          776  
Prepaid expenses and other current assets
    4,627       6,311  
 
           
Total current assets
    193,459       183,563  
 
           
 
               
Property and equipment, net
    13,015       13,598  
Long-term investments
    9,447       46,433  
Acquisition-related intangible assets, net
    10,942       8,320  
Goodwill, net
    31,688       32,469  
Deferred income taxes
    4,110       3,583  
Other assets
    2,221       2,535  
 
           
Total assets
  $ 264,882     $ 290,501  
 
           
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
 
               
Current liabilities:
               
Accounts payable
  $ 5,235     $ 6,800  
Accrued compensation and benefits
    6,702       6,639  
Accrued liabilities
    3,617       6,079  
Current portion of capital lease obligations
    132       139  
Income taxes payable
    1,470       2,233  
Deferred rent
    203       203  
Deferred revenue
    17,937       22,710  
 
           
Total current liabilities
    35,296       44,803  
 
           
 
               
Long-term portion of capital lease obligations
    288       148  
Deferred income taxes
    396       466  
Deferred rent
    660       457  
Commitments and contingencies (see footnote 5)
               
 
               
Shareholders’ equity:
               
Preferred stock, no par value; 20,000,000 shares authorized, no shares issued or outstanding in 2003 or 2004
           
Common stock, $.01 par value; 100,000,000 shares authorized, 30,086,164 shares issued and outstanding in 2003 and 29,580,724 shares issued and outstanding in 2004
    301       296  
Additional paid-in-capital
    143,766       138,074  
Retained earnings
    83,653       105,762  
Accumulated other comprehensive income
    720       882  
Deferred compensation
    (198 )     (387 )
 
           
Total shareholders’ equity
    228,242       244,627  
 
           
 
               
Total liabilities and shareholders’ equity
  $ 264,882     $ 290,501  
 
           

The accompanying notes are an integral part of these Consolidated Balance Sheets.

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MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)

                         
    Year Ended December 31,  
    2002     2003     2004  
Revenue:
                       
Software and hosting fees
  $ 40,233     $ 43,229     $ 49,886  
Services
    110,516       129,320       141,492  
Hardware and other
    22,675       23,417       23,541  
Recovery relating to bankrupt customer
    2,297       848        
 
                 
Total revenue
    175,721       196,814       214,919  
 
                 
 
                       
Costs and expenses:
                       
Cost of software and hosting fees
    1,927       4,470       4,085  
Amortization of acquired developed technology
    1,500       1,999       2,079  
Cost of services
    46,611       54,218       65,853  
Cost of hardware and other
    19,027       20,123       20,071  
Research and development
    20,780       26,982       28,822  
Sales and marketing
    26,413       31,200       34,049  
General and administrative
    20,943       24,087       27,046  
In-process research and development and other acquisition-related charges
    1,470       885        
Restructuring charge
          893        
Amortization of acquisition-related intangibles
    272       1,433       1,496  
 
                 
Total operating expenses
    138,943       166,290       183,501  
 
                 
 
                       
Income from operations
    36,778       30,524       31,418  
 
                       
Interest income
    2,098       1,503       2,383  
Interest expense
    (147 )     (13 )     (26 )
Other income, net
    850       1,256       900  
 
                 
Income before income taxes
    39,579       33,270       34,675  
Income tax provision
    14,383       11,425       12,566  
 
                 
Net income
  $ 25,196     $ 21,845     $ 22,109  
 
                 
 
                       
Basic net income per share
  $ 0.88     $ 0.74     $ 0.74  
 
                 
Diluted net income per share
  $ 0.83     $ 0.71     $ 0.71  
 
                 
 
                       
Weighted average shares:
                       
Basic
    28,653       29,532       30,056  
 
                 
Diluted
    30,451       30,882       31,067  
 
                 

The accompanying notes are an integral part of these Consolidated Statements of Income.

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MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except share data)

                                                         
                                    Accumulated                
                                    Other                
          Additional             Comprehensive             Total  
    Common Stock     Paid-In     Retained     Income     Deferred     Shareholders’  
    Shares     Amount     Capital     Earnings     (Loss)     Compensation     Equity  
Balance, December 31, 2001
    27,719,753     $ 277     $ 104,445     $ 36,612     $ (25 )   $ (105 )   $ 141,204  
Cancellation of common stock options
                (5 )                 5        
Exercise of common stock options
    1,571,354       16       8,620                         8,636  
Buyback of Manhattan common stock
    (260,000 )     (3 )     (4,107 )                       (4,110 )
Tax benefit from stock options exercised
                14,024                         14,024  
Amortization of deferred compensation
                                  58       58  
Foreign currency translation adjustment
                            306             306  
Unrealized loss on investments
                            (28 )           (28 )
Net income
                      25,196                   25,196  
 
                                         
Balance, December 31, 2002
    29,031,107       290       122,977       61,808       253       (42 )     185,286  
Cancellation of common stock options
                (24 )                 24        
Exercise of common stock options
    1,046,948       11       9,259                         9,270  
Issuance of restricted stock
    8,109             232                   (232 )      
Tax benefit from stock options exercised
                11,322                         11,322  
Amortization of deferred compensation
                                  52       52  
Foreign currency translation adjustment
                            482             482  
Unrealized loss on investments
                            (15 )           (15 )
Net income
                      21,845                   21,845  
 
                                         
Balance, December 31, 2003
    30,086,164       301       143,766       83,653       720       (198 )     228,242  
Exercise of common stock options
    334,157       3       4,036                         4,039  
Issuance of restricted stock
    45,803       1       1,289                   (1,290 )      
Buyback of Manhattan common stock
    (885,400 )     (9 )     (21,754 )                       (21,763 )
Tax benefit from stock options exercised
                10,737                         10,737  
Amortization of deferred compensation
                                  1,101       1,101  
Foreign currency translation adjustment
                            421             421  
Unrealized loss on investments
                            (259 )           (259 )
Net income
                      22,109                   22,109  
 
                                         
Balance, December 31, 2004
    29,580,724     $ 296     $ 138,074     $ 105,762     $ 882     $ (387 )   $ 244,627  
 
                                         

The accompanying notes are an integral part of these Consolidated Statements of Shareholders’ Equity.

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Table of Contents

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

                         
    Year Ended December 31,  
    2002     2003     2004  
Net income
  $ 25,196     $ 21,845     $ 22,109  
 
                       
Other comprehensive income (loss), net of tax:
                       
Foreign currency translation adjustment, net of tax expense of $174, $248, and $222 in 2002, 2003 and 2004, respectively
    306       482       421  
Unrealized loss on investments, net of tax benefit of $16, $8, and $136 in 2002, 2003 and 2004, respectively
    (28 )     (15 )     (259 )
 
                 
Other comprehensive income
    278       467       162  
 
                 
 
                       
Comprehensive income
  $ 25,474     $ 22,312     $ 22,271  
 
                 

The accompanying notes are an integral part of these Consolidated Statements of Comprehensive Income.

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Table of Contents

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

                         
    Year Ended December 31,  
    2002     2003     2004  
Cash flows from operating activities:
                       
Net income
  $ 25,196     $ 21,845     $ 22,109  
 
                       
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation and amortization
    6,801       7,982       7,207  
Amortization of acquired developed technology and acquisition-related intangibles
    1,772       3,432       3,575  
Stock compensation
    58       52       1,101  
Loss (gain) on disposal of equipment
    (8 )           42  
Unrealized foreign currency gain
    (520 )     (281 )     (643 )
Acquired in-process research and development
    1,470              
Tax benefit of options exercised
    14,024       11,322       10,737  
Deferred income taxes
    (627 )     (273 )     (1,632 )
 
                       
Changes in operating assets and liabilities, net of acquisitions:
                       
Accounts receivable, net
    (3,685 )     (6,814 )     (4,018 )
Other assets
    1,437       (1,345 )     (1,878 )
Accounts payable
    (2,237 )     (1,750 )     1,413  
Accrued liabilities
    (1,017 )     (658 )     2,089  
Income taxes
    2,314       253       26  
Deferred rent
          863       (203 )
Deferred revenue
    468       2,367       4,556  
 
                 
Net cash provided by operating activities
    45,446       36,995       44,481  
 
                       
Cash flows from investing activities:
                       
Purchases of property and equipment
    (5,990 )     (7,733 )     (7,572 )
Purchases of investments
    (114,728 )     (609,078 )     (1,095,608 )
Maturities and sales of investments
    76,151       543,751       1,083,982  
Payments in connection with the investment in Alien Technologies
          (2,000 )      
Payments in connection with various acquisitions, net of cash acquired (see footnote 6)
    (21,163 )     (2,750 )     (1,698 )
 
                 
Net cash used in investing activities
    (65,730 )     (77,810 )     (20,896 )
 
                       
Cash flows from financing activities:
                       
Repayment of note payable
    (5,250 )            
Payment of capital lease obligations
    (191 )     (234 )     (133 )
Purchase of Manhattan common stock
    (4,110 )           (21,763 )
Proceeds from issuance of common stock from option exercises
    8,636       9,270       4,039  
 
                 
Net cash provided by (used in) financing activities
    (915 )     9,036       (17,857 )
 
                       
Foreign currency impact on cash
    334       22       294  
 
                 
Increase (decrease) in cash and cash equivalents
    (20,865 )     (31,757 )     6,022  
Cash and cash equivalents, beginning of year
    84,029       63,164       31,407  
 
                 
Cash and cash equivalents, end of year
  $ 63,164     $ 31,407     $ 37,429  
 
                 
 
                       
Supplemental cash flow disclosures:
                       
Cash paid for interest
  $ 248     $ 14     $ 26  
 
                 
Cash paid (refund received) for income taxes
  $ (2,478 )   $ 163     $ 2,816  
 
                 
 
                       
Non-cash transaction:
                       
Issuance of restricted stock
  $     $ 232     $ 1,290  
 
                 

The accompanying notes are an integral part of these Consolidated Statements of Cash Flows.

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Table of Contents

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2002, 2003 and 2004

1. Organization and Summary of Significant Accounting Policies

Organization and Business

     Manhattan Associates, Inc. (“Manhattan” or the “Company”) is a provider of technology-based solutions to improve supply chain effectiveness and efficiencies across the supply chain. The Company’s solutions are designed to optimize the receipt, storage, assembly and distribution of inventory and the management of equipment and personnel within a distribution center, enhance the management of transportation costs and transportation providers, and improve the management of trading partners. The Company’s solutions consist of software, including, the licensing or hosting of a comprehensive suite of robust and modular software products; services, including design, configuration, implementation and training services, plus customer support services and software enhancements subscriptions; and hardware.

     The Company’s operations are in North America, Europe and Asia/Pacific. Its European operations are conducted through its wholly-owned subsidiaries, Manhattan Associates Limited, Manhattan Associates Europe B.V., Manhattan France SARL, and Manhattan Associates GmbH, in the United Kingdom, the Netherlands, France, and Germany, respectively. The Company’s Asia/Pacific operations are conducted through its wholly-owned subsidiaries, Manhattan Associates Pty Ltd., Manhattan Associates KK, Manhattan Associates Software (Shanghai), Co. Ltd., Manhattan Associates Software Pte Ltd., and Manhattan Associates (India) Development Centre Private Limited in Australia, Japan, China, Singapore, and India, respectively. The Company occasionally sells its products and services in other countries, such as countries in Latin America, through its direct sales channel as well as various reseller channels.

Principles of Consolidation and Foreign Currency Translation

     The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

     The financial statements of foreign subsidiaries have been translated into United States dollars in accordance with Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 52, Foreign Currency Translation. Revenues and expenses from international operations were denominated in the respective local currencies and translated using the average monthly exchange rates for the year. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date and the effect of changes in exchange rates from year to year are disclosed as a separate component of shareholders’ equity and comprehensive income.

Summary of Significant Accounting Policies

     Cash and Cash Equivalents

     The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash or cash equivalents.

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1. Organization and Summary of Significant Accounting Policies (continued)

     Concentrations of Credit Risk

     Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, short- and long-term investments and accounts receivable. The Company maintains cash and cash equivalents and short- and long-term investments with various financial institutions. The Company’s sales are primarily to companies located in the United States, Europe and Asia. The Company performs periodic credit evaluations of its customers’ financial condition and does not require collateral. Accounts receivable are due principally from large U.S., European and Asia Pacific companies under stated contract terms. Accounts receivable as of December 31, 2003 for the United States, Europe and Asia Pacific companies were $31.1 million, $9.3 million and $0.4 million, respectively. Accounts receivable as of December 31, 2004 for the United States, Europe and Asia Pacific companies were $32.3 million, $11.0 million and $2.7 million, respectively. The Company provides for estimated uncollectible amounts and credit losses at the time of sale.

     The Company’s top five customers in aggregate accounted for 16%, 16% and 14% of total revenue for each of the years ended December 31, 2002, 2003, and 2004, respectively. No single customer accounted for more than 10% of revenue in the years ended December 31, 2002, 2003, and 2004. On January 22, 2002, a significant customer for 2001 filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code. As a result of the filing, the uncertainties around the bankruptcy proceedings and the ultimate timing of payment, we recorded an allowance of $4.3 million in 2001 to effectively defer revenues arising in the fourth quarter of 2001 from the significant customer, but unpaid at the time of the bankruptcy declaration. The allowance included approximately $2.3 million of software fees, $1.6 million of fees for professional services and $0.4 million of hardware. In September 2002, the United States Bankruptcy Court for the Northern District of Illinois Eastern Division authorized the significant customer’s request to assume the software license, services, support and enhancement agreement. With the appeals process completed in October 2002, the Company recovered approximately $2.3 million of the receivable during the fourth quarter of 2002. Upon receiving the final cash settlement in June 2003, subsequent to the significant customer emerging from bankruptcy, the Company recovered an additional $848,000 of the receivable during the second quarter of 2003. The recoveries were recorded as separate revenue line items in the Consolidated Statements of Income and reductions to the allowance for doubtful accounts in the Consolidated Balance Sheets during the respective quarters.

     Investments

     The Company’s investments in marketable securities consist of debt instruments of the U.S. Treasury, U.S. government agencies, state and local government agencies and corporate commercial paper. These investments are categorized as available-for-sale securities and recorded at fair market value, as defined by SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Investments with original maturities of 90 days or less are classified as cash equivalents; investments with original maturities of greater than 90 days but less than one year are classified as short-term investments; and those with original maturities of greater than one year are classified as long-term investments. The long-term investments consist of debt instruments of U.S. government agencies and mature after one year through five years. The Company holds investments in Auction Rate Securities, which have original maturities greater than one year, but which have auctions to reset the yield every 7 to 35 days. The Company has classified these assets as short-term investments. Unrealized holding gains and losses are reflected as a net amount in a separate component of shareholders’ equity until realized. For the purposes of computing realized gains and losses, cost is identified on a specific identification basis.

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Table of Contents

1. Organization and Summary of Significant Accounting Policies (continued)

     The following is a summary of the available-for-sale securities (in thousands):

                                                         
            Unrealized     Unrealized     Market     Cash and     Short-term     Long-term  
    Cost     gains     losses     Value     Equivalents     Investments     Investments  
 
December 31, 2003
                                                       
Investments:
                                                       
U.S. government obligations
  $ 25,823     $ 14     $ 9     $ 25,828     $ 13,150     $ 4,231     $ 8,447  
State and local obligations
    110,909                   110,909             109,909       1,000  
U.S. corporate commercial paper
    12,580                   12,580       12,171       409        
 
                                         
Total
  $ 149,312     $ 14     $ 9     $ 149,317     $ 25,321     $ 114,549     $ 9,447  
                                                         
            Unrealized     Unrealized     Market     Cash and     Short-term     Long-term  
    Cost     gains     losses     Value     Equivalents     Investments     Investments  
 
December 31, 2004
                                                       
Investments:
                                                       
U.S. government obligations
  $ 7,659     $     $ 16     $ 7,643     $     $     $ 7,643  
State and local obligations
    87,450             1       87,449             85,949       1,500  
U.S. corporate commercial paper
    66,568             373       66,195       26,060       2,845       37,290  
 
                                         
Total
  $ 161,677     $     $ 390     $ 161,287     $ 26,060     $ 88,794     $ 46,433  

     As of December 31, 2004, $38.1 million, $35.7 million, $0 and $87.5 million of the Company’s investments mature within 1 year, after 1 year through 5 years, after 5 years through 10 years and after 10 years, respectively.

     On July 11, 2003, the Company made a cash investment of $2 million in Alien Technology Corp. (“Alien”), a provider of ultra-low cost radio frequency identification (RFID) tags and hardware. The investment represents approximately a 1.5% ownership interest in the privately-held corporation. The Company’s maximum exposure to loss as a result of its involvement with Alien is its investment of $2 million. The investment has been accounted for under the cost method, and is included in “Other Assets” on the Consolidated Balance Sheets. The fair value of this investment is not estimated as there were no identified events or changes in circumstances that had a significant adverse effect on the fair value of the investment.

     Use of Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates include the allowance for doubtful accounts, which is based upon an evaluation of historical amounts written-off, the Company’s customers’ ability to pay and general economic conditions; the useful lives of intangible assets; self insurance accruals; the recoverability or impairment of intangible asset values; and the Company’s effective income tax rate and deferred tax assets, which are based upon the Company’s expectations of future taxable income, allowable deductions, and projected tax credits. Actual results could differ from these estimates.

     Fair Value of Financial Instruments

     The carrying values of cash, accounts receivable, accounts payable, and other financial instruments included in the accompanying Consolidated Balance Sheets approximate their fair values principally due to the short-term maturities of these instruments. Unrealized gains and losses on investments are included as a separate component of “Accumulated other comprehensive income”, net of any related tax effect, in the Consolidated Balance Sheets.

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Table of Contents

1. Organization and Summary of Significant Accounting Policies (continued)

     Risks Associated with Single Business Line, Technological Advances, and Foreign Operations

     The Company currently derives a substantial portion of its revenues from sales of its software and related services and hardware. The markets for supply chain execution are subject to rapid technological change, changing customer needs, frequent new product introductions, and evolving industry standards that may render existing products and services obsolete. As a result, the Company’s position in these markets could be eroded rapidly by unforeseen changes in customer requirements for application features, functions, and technologies. The Company’s growth and future operating results will depend, in part, upon its ability to enhance existing applications and develop and introduce new applications that meet changing customer requirements that respond to competitive products and that achieve market acceptance. Any factor adversely affecting the markets for supply chain execution solutions could have an adverse effect on the Company’s business, financial condition, and results of operations.

     The Company’s international business is subject to risks typical of an international business, including, but not limited to: differing economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. Accordingly, the future results could be materially adversely impacted by changes in these or other factors. The Company recognized foreign exchange rate gains of approximately $830,000 in 2002, $1,283,000 in 2003 and $927,000 in 2004, classified in “Other income, net” on the Consolidated Statements of Income.

     Revenue Recognition

     The Company’s revenue consists of revenues from the licensing and hosting of software; fees from consulting, implementation and training services (collectively, “professional services”), plus customer support services and software enhancement subscriptions; and sales of hardware.

     The Company recognizes software license revenue under Statement of Position No. 97-2, “Software Revenue Recognition” (“SOP 97-2”), as amended by Statement of Position No. 98-9, “Software Revenue Recognition, With Respect to Certain Transactions” (“SOP 98-9”), specifically when the following criteria are met: (1) a signed contract is obtained; (2) delivery of the product has occurred; (3) the license fee is fixed or determinable; and (4) collectibility is probable. SOP 98-9 requires recognition of revenue using the “residual method” when (1) there is vendor-specific objective evidence of the fair values of all undelivered elements in a multiple-element arrangement that is not accounted for using long-term contract accounting; (2) vendor-specific objective evidence of fair value does not exist for one or more of the delivered elements in the arrangement; and (3) all revenue-recognition criteria in SOP 97-2, other than the requirement for vendor-specific objective evidence of the fair value of each delivered element of the arrangement are satisfied. For those contracts that contain significant customization or modifications, license revenue is recognized under the percentage of completion method.

     The Company’s services revenue consists of fees generated from professional services, customer support services and software enhancement subscriptions related to the Company’s software products. Fees from professional services performed by the Company are generally billed on an hourly basis, and revenue is recognized as the services are performed. Professional services are sometimes rendered under agreements in which billings are limited to contractual maximums or based upon a fixed-fee for portions of or all of the engagement. Revenue related to fixed-fee based contracts is recognized on a percent complete basis based on the hours incurred. Project losses are provided for in their entirety in the period in which they become known. Revenue related to customer support services and software enhancement subscriptions are generally paid in advance and recognized ratably over the term of the agreement, typically 12 months.

     Hardware revenue is generated from the resale of a variety of hardware products, developed and manufactured by third parties, that are integrated with and complementary to the Company’s software solutions. As part of a complete solution, the Company’s customers frequently purchase hardware from the Company in conjunction with the licensing of software. These products include computer hardware, radio frequency terminals networks, RFID chip readers, bar code printers and scanners, and other peripherals. Hardware revenue is recognized upon shipment to the customer when title passes. The Company generally purchases hardware from its vendors only after receiving an order from a customer. As a result, the Company does not maintain significant hardware inventory.

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Table of Contents

1. Organization and Summary of Significant Accounting Policies (continued)

     In accordance with the FASB’s Emerging Issues Task Force Issue No. 01-14 (“EITF No. 01-14”), “Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred,” the Company recognizes amounts associated with reimbursements from customers for out-of-pocket expenses as revenue. Such amounts have been classified to hardware and other revenue. The total amount of expense reimbursement recorded to revenue was $5.4 million, $6.5 million and $7.0 million for 2002, 2003 and 2004, respectively.

     Deferred Revenue

     Deferred revenue represents amounts collected prior to having completed performance of professional services, customer support services and software enhancement subscriptions and significant remaining obligations under license agreements. The Company expects to complete such services or obligations within the next twelve months.

     Returns and Allowances

     The Company has not experienced significant returns or warranty claims to date and, as a result, has not recorded a provision for the cost of returns and product warranty claims at December 31, 2003 or 2004.

     The Company records an allowance for doubtful accounts based on the historical experience of write-offs and a detailed assessment of accounts receivable. Additions to the allowance for doubtful accounts generally represent a sales allowance on services revenue, which are recorded to operations as a reduction to services revenue. The total amounts charged to operations were $3.1 million, $3.5 million and $4.0 million for 2002, 2003 and 2004, respectively. In estimating the allowance for doubtful accounts, management considers the age of the accounts receivable, the Company’s historical write-offs, and the credit worthiness of the customer, among others. Should any of these factors change, the estimates made by management will also change accordingly, which could affect the level of the Company’s future provision for doubtful accounts. Uncollectible accounts are written off when it is determined that the specific balance is not collectible.

     Property and Equipment

     Property and equipment consists of furniture, computers, other office equipment, purchased software for internal use, and leasehold improvements recorded at cost. The Company depreciates the cost of furniture, computers, other office equipment and purchased software on a straight-line basis over their estimated useful lives (three years for computer equipment and software, five years for office equipment, seven years for furniture). Leasehold improvements are depreciated over the lesser of their useful lives or the term of the lease. Included in computer equipment and software are assets under a capital lease of approximately $247,000 as of December 31, 2003 and 2004. Accumulated depreciation relating to the assets under a capital lease was $0 and $82,000 as of December 31, 2003 and 2004, respectively. Depreciation and amortization expense for property and equipment, including assets under a capital lease, for the years ended December 31, 2002, 2003 and 2004 was approximately $6,275,000, $7,639,000 and $7,207,000, respectively, and was included in general and administrative expenses in the Consolidated Statements of Income.

     Property and equipment, at cost, consist of the following (in thousands):

                 
    December 31,  
    2003     2004  
Computer equipment and software
  $ 23,624     $ 29,198  
Furniture and office equipment
    7,432       8,221  
Leasehold improvements
    4,743       5,258  
 
           
 
    35,799       42,677  
Less accumulated depreciation and amortization
    (22,784 )     (29,079 )
 
           
 
  $ 13,015     $ 13,598  
 
           

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Table of Contents

1. Organization and Summary of Significant Accounting Policies (continued)

     Acquisition-Related Intangible Assets

     Acquisition-related intangible assets are stated at historical cost and include acquired software and certain other intangible assets with definite lives. The acquired software is being amortized over the greater of the amount computed using (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product including the period being reported on. The other intangible assets are being amortized on a straight-line basis over a period of two to ten years. Total amortization expense related to acquisition-related intangible assets was approximately $1,772,000, $3,432,000 and $3,575,000 for the years ended December 31, 2002, 2003 and 2004, respectively, and is included in amortization of acquired developed technology and amortization of acquisition-related intangibles in the accompanying Consolidated Statements of Income.

     Acquisition-Related Intangible Assets consist of the following (in thousands):

                 
    December 31,  
    2003     2004  
Cost:
               
Acquired software
  $ 10,218     $ 11,171  
Other intangible assets with definite lives
    8,597       8,597  
 
           
 
    18,815       19,768  
 
               
Accumulated amortization:
               
Acquired software
    5,460       7,528  
Other intangible assets with definite lives
    2,413       3,920  
 
           
 
    7,873       11,448  
 
               
Net book value:
               
Acquired software
  $ 4,758     $ 3,643  
Other intangible assets with definite lives
    6,184       4,677  
 
           
 
  $ 10,942     $ 8,320  
 
           

     The Company expects amortization expense for the next five years to be as follows based on intangible assets as of December 31, 2004 (in thousands):

         
2005
  $ 3,264  
2006
    2,014  
2007
    1,855  
2008
    744  
2009
    418  
Thereafter
    25  

     Goodwill

Goodwill, which represents the excess of purchase price over fair value of net identified tangible and intangible assets and liabilities acquired is no longer being amortized. On January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” Under the new statement, the Company no longer amortizes goodwill, but instead tests for impairment on at least an annual basis. Goodwill consists of the following (in thousands):

                 
    December 31,  
    2003     2004  
Goodwill
  $ 36,268     $ 37,049  
Less accumulated amortization
    (4,580 )     (4,580 )
 
           
 
  $ 31,688     $ 32,469  
 
           

     Approximately $35.8 million of the gross Goodwill is deductible for income tax purposes.

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1. Organization and Summary of Significant Accounting Policies (continued)

     Software Development Costs

     Research and development expenses are charged to expense as incurred. The Company determines the amount of development costs capitalizable under the provisions of SFAS No. 86, “Accounting for Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.” Computer software development costs are charged to research and development expense until technological feasibility is established, after which remaining software production costs are capitalized in accordance with SFAS No. 86. The Company has defined technological feasibility as the point in time at which the Company has a detailed program design or a working model of the related product, depending on the type of development efforts. For the years ended December 31, 2002, 2003 and 2004, the Company capitalized no internal research and development costs because the costs incurred between the attainment of technological feasibility for the related software product through the date when the product was available for general release to customers has been insignificant. Total amortization expense related to software development costs capitalized prior to 2002 was approximately $526,000, $343,000 and $0 for the years ended December 31, 2002, 2003 and 2004, respectively, and is included in cost of software and hosting fees in the accompanying Consolidated Statements of Income. As of December 31, 2003 and 2004, all capitalized development costs were fully amortized.

     Impairment of Long-Lived and Intangible Assets

     The Company periodically reviews the values assigned to long-lived assets, including property and certain intangible assets, to determine whether events and circumstances have occurred which indicate that the remaining estimated useful lives may warrant revision or that the remaining balances may not be recoverable. In such reviews, undiscounted cash flows associated with these assets are compared with their carrying value to determine if a write-down to fair value is required. Management believes the long-lived and intangible assets in the accompanying Consolidated Balance Sheets are fairly valued.

     The evaluation of asset impairment requires management to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment, and actual results may differ from assumed and estimated amounts.

     Impairment of Goodwill

     In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” which was adopted in its entirety on January 1, 2002, the Company evaluates the carrying value of goodwill and other intangible assets annually as of December 31 and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to, (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating whether the goodwill or other intangible asset is impaired, the Company compares the fair value of the reporting unit to which the goodwill or other intangible asset is assigned to its carrying amount, including goodwill and the other intangible assets. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of reporting unit goodwill to its carrying amount. In calculating the implied fair value of goodwill or other intangible assets, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. The initial evaluation of goodwill and other intangible assets completed as of June 30, 2002 in accordance with SFAS No. 142 resulted in no impairment losses. Additionally, the Company performed its periodic review of its goodwill and other intangible assets for impairment as of December 31, 2002, 2003 and 2004, and did not identify any asset impairment as a result of the review.

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1. Organization and Summary of Significant Accounting Policies (continued)

     Guarantees and Indemnifications

     The Company accounts for guarantees in accordance with Financial Interpretation No. 45 (“FIN 45”), Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Company’s sales agreements with customers generally contain infringement indemnity provisions. Under these agreements, the Company agrees to indemnify, defend and hold harmless the customer in connection with patent, copyright or trade secret infringement claims made by third parties with respect to the customer’s authorized use of the Company’s products and services. The indemnity provisions generally provide for the Company’s control of defense and settlement and cover costs and damages finally awarded against the customer, as well as the Company’s modification of the product so it is no longer infringing or, if it cannot be corrected, return of the product for a refund. The sales agreements with customers sometimes also contain indemnity provisions for death, personal injury or property damage caused by the Company’s personnel or contractors in the course of performing services to customers. Under these agreements, the Company agrees to indemnify, defend and hold harmless the customer in connection with death, personal injury and property damage claims made by third parties with respect to actions of the Company’s personnel or contractors. The indemnity provisions generally provide for the Company’s control of defense and settlement and cover costs and damages finally awarded against the customer. The indemnity obligations contained in sales agreements generally have no specified expiration date and no specified monetary limitation on the amount of award covered. The Company has not previously incurred costs to settle claims or pay awards under these indemnification obligations. The Company accounts for these indemnity obligations in accordance with SFAS No. 5, Accounting for Contingencies, and records a liability for these obligations when a loss is probable and reasonably estimable. The Company has not recorded any liabilities for these agreements as of December 31, 2004.

     The Company warrants to its customers that its software products will perform in all material respects in accordance with the standard published specifications in effect at the time of delivery of the licensed products to the customer for 90 days after first use of the licensed products, but no more than 24 months after execution of the license agreement. Additionally, the Company warrants to its customers that services will be performed consistent with generally accepted industry standards or specific service levels through completion of the agreed upon services. If necessary, the Company will provide for the estimated cost of product and service warranties based on specific warranty claims and claim history. However, the Company has not incurred significant recurring expense under product or service warranties. As a result, the Company believes the estimated fair value of these agreements is nominal. Accordingly, the Company has no liabilities recorded for these agreements as of December 31, 2004.

     Segment Information

     The Company operates in a single segment as defined by SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” See Note 8 for discussion of foreign operations.

     Advertising Costs

     Advertising costs are expensed as incurred and totaled approximately $715,000, $855,000 and $534,000 in 2002, 2003 and 2004, respectively. Advertising costs are included in sales and marketing on the Consolidated Statements of Income.

     Basic and Diluted Net Income Per Share

     Basic net income per share is computed using net income divided by the weighted average number of shares of common stock outstanding (“Weighted Shares”) for the period presented.

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1. Organization and Summary of Significant Accounting Policies (continued)

     Diluted net income per share is computed using net income divided by Weighted Shares, and the treasury stock method effect of common equivalent shares (“CESs”) outstanding for each period presented. The following is a reconciliation of the shares used in the computation of net income per share for the years ended December 31, 2002, 2003 and 2004:

                                                 
    2002     2003     2004  
    Basic     Diluted     Basic     Diluted     Basic     Diluted  
Weighted shares
    28,652,609       28,652,609       29,532,466       29,532,466       30,055,916       30,055,916  
Effect of CESs
          1,797,952             1,349,210             1,010,873  
 
                                   
 
    28,652,609       30,450,561       29,532,466       30,881,676       30,055,916       31,066,789  
 
                                   

     Options to purchase 1,924,075 shares, 1,866,351 shares and 3,020,952 shares of common stock were outstanding during the years ended December 31, 2002, 2003 and 2004, respectively, but were not included in the computation of diluted earnings per share because the options exercise price was greater than the average market price of the common shares during the respective years. See Note 3 for further information on those securities.

     Stock-Based Compensation

     The Company accounts for its stock-based compensation plan for stock issued to employees under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and, accordingly, records deferred compensation for options granted at an exercise price below the fair value of the underlying stock. The deferred compensation is presented as a component of equity in the accompanying Consolidated Balance Sheets and is amortized over the periods to be benefited, generally the vesting period of the options. Effective in fiscal year 1996, the Company adopted the pro forma disclosure option for stock-based compensation issued to employees of SFAS No. 123, “Accounting for Stock-Based Compensation.”

     Pro forma information regarding net income and net income per share is required by SFAS No. 123, which also requires that the information be determined as if the Company had accounted for its employee stock option grants under the fair value method required by SFAS No. 123. The fair value of each option grant has been estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

                         
    2002     2003     2004  
Dividend yield
                 
Expected volatility
    84 %     73 %     62 %
Risk-free interest rate at the date of grant
    2.0 %     3.3 %     4.3 %
Expected life
  6 years   6 years   7.5 years

     Using these assumptions, the fair values of the stock options granted during the years ended December 31, 2002, 2003 and 2004 are $24,693,000, $24,980,000 and $32,257,000, respectively, which would be amortized over the vesting period of the options.

     The weighted average fair values of options at the date of grant for the years ended December 31, 2002, 2003 and 2004 was $16.61, $17.52 and $16.95 per share, respectively.

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1. Organization and Summary of Significant Accounting Policies (continued)

     The following pro forma information adjusts the net income and net income per share of common stock for the impact of SFAS No. 123:

                         
    2002     2003     2004  
Net income (loss):
                       
As reported
  $ 25,196     $ 21,845     $ 22,109  
Add: Stock-based employee compensation expense included in reported net income, net of taxes
    58       52       658  
Deduct: Stock-based employee compensation expense determined under the fair-value method for all awards, net of taxes
    (25,072 )     (28,380 )     (31,290 )
 
                 
Pro forma in accordance with SFAS No. 123
  $ 182     $ (6,483 )   $ (8,523 )
 
                 
Basic net income or pro forma net income (loss) per share:
                       
As reported
  $ 0.88     $ 0.74     $ 0.74  
Pro forma in accordance with SFAS No. 123
  $ 0.01     $ (0.22 )   $ (0.28 )
Diluted net income or pro forma net income (loss) per share:
                       
As reported
  $ 0.83     $ 0.71     $ 0.71  
Pro forma in accordance with SFAS No. 123
  $ 0.01     $ (0.22 )   $ (0.28 )

     The Company’s estimated forfeiture rate of unvested stock options used in 2002 and 2003 when determining the stock-based employee compensation expense determined under the fair-value method, net of taxes, used an incorrect assumption when determining the appropriate forfeiture rate. As a result, the pro forma information was restated to reflect the proper forfeiture rate. The impact of the restatement is presented below (in thousands):

                                 
    2002     2003    
    As previously
reported
    As restated     As previously
reported
    As restated  
Pro forma net income (loss)
  $ 2,463     $ 182     $ (3,672 )   $ (6,483 )
Pro forma net income (loss) per share:
                       
Basic
  $ 0.09     $ 0.01     $ (0.12 )   $ (0.22 )
Diluted
  $ 0.09     $ 0.01     $ (0.12 )   $ (0.22 )

     On December 16, 2004, the FASB issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

     Statement 123(R) must be adopted no later than July 1, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued.

     Statement 123(R) permits public companies to adopt its requirements using one of two methods:

1. A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date.

2. A “modified retrospective” method, which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

     The Company will be adopting Statement 123(R) beginning July 1, 2005 and is currently in the process of evaluating which method will be adopted.

     As permitted by Statement 123, the Company currently accounts for share-based payments to employees using Opinion 25’s intrinsic value method and, as such, generally recognize no compensation cost for employee stock options. Accordingly, the adoption of Statement 123(R)’s fair value method will have a significant impact on the Company’s results of operations. The impact of adoption of Statement 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had the Company adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share above. Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While the Company cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such excess tax deductions were $14.0 million, $11.3 million, and $10.7 million in 2002, 2003 and 2004, respectively.

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1. Organization and Summary of Significant Accounting Policies (continued)

     Comprehensive Income

     The Company’s comprehensive income includes net income, foreign currency translation adjustments and unrealized gains and losses on short-term investments. The components of accumulated other comprehensive income (loss) as of December 31, 2003 and 2004 are as follows (in thousands):

                 
    December 31,  
    2003     2004  
Foreign currency translation adjustment
  $ 717     $ 1,138  
Unrealized gain (loss) on investments
    3       (256 )
 
           
Total
  $ 720     $ 882  
 
           

     Reclassifications

     Certain reclassifications were made to the prior years’ financial statements to conform to the 2004 presentation. Auction rate securities previously included in cash and cash equivalents in the Consolidated Balance Sheets were reclassified to short-term investments. These reclassifications also impacted the amounts relating to both cash and investments in the Consolidated Statements of Cash Flows. See Investments above for a further description of these securities.

     A lease incentive payment received during 2003 previously included as a reduction to net property and equipment was reclassified from net property and equipment and to deferred rent in the Consolidated Balance Sheets. These reclassifications also impacted the amounts relating to depreciation and amortization, deferred rent and property and equipment in the Consolidated Statements of Cash Flows.

     Amortization expense relating to acquired developed technology previously included in amortization of acquisition-related intangibles in the Consolidated Statements of Income was reclassified to amortization of acquired developed technology.

     Depreciation expense relating to the off-shore development center in India previously included in research and development in the Consolidated Statements of Income was reclassified to general and administrative.

     Unrealized gains and losses on intercompany balances were previously included in foreign currency impact on cash and were reclassified to unrealized foreign currency gain under cash flow from operations in the Consolidated Statements of Cash Flows.

     The reclassifications described above were not considered material. The following represents the previously reported amounts and amounts after the reclassification adjustments (in thousands):

                                                 
    As reported     Reclassification     Adjusted     As reported     Reclassification     Adjusted  
Balance Sheets:   2002     2002     2002     2003     2003     2003  
Cash and cash equivalents
  $ 20,780     $ (1,500 )   $ 63,164     $ 140,964     $ (109,557 )   $ 31,407  
Short-term investments
    57,193       1,500       58,693       4,992       109,557       114,549  
Property and equipment, net
    12,352             12,352       12,152       863       13,015  
Deferred rent
                            863       863  
                                                 
    As reported     Reclassification     Adjusted     As reported     Reclassification     Adjusted  
Statements of Income:   2002     2002     2002     2003     2003     2003  
Amortization of acquired developed technology
  $     $ 1,500     $ 1,500     $     $ 1,999   $ 1,999  
Research and development
    20,780             20,780       27,358       (376 )     26,982  
General and administrative
    20,943             20,943       23,711       376       24,087  
Amortization of acquisition-related intangibles
    1,772     (1,500 )     272       3,432       (1,999 )     1,433  
                                                 
    As reported     Reclassification     Adjusted     As reported     Reclassification     Adjusted  
Statements of Cash Flow:   2002     2002     2002     2003     2003     2003  
Depreciation and amortization
  $ 6,801     $     $ 6,801     $ 7,830     $ 152     $ 7,982  
Unrealized foreign currency gain
          (520 )     (520 )           (281 )     (281 )
Deferred rent
                            863       863  
Net cash provided by operating activities
    45,966       (520 )     45,446       36,261       734       36,995  
Purchases of property and equipment
    (5,990 )           (5,990 )     (6,718 )     (1,015 )     (7,733 )
Net purchases (maturities) of investments
    (37,077 )     (1,500 )     (38,577 )     42,730       (108,057 )     (65,327 )
Net cash provided by (used in) investing activities
    (64,230 )     (1,500 )     (65,730 )     31,262       (109,072 )     (77,810 )
Foreign currency impact on cash
    (186 )     520       334       (259 )     281       22  

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Table of Contents

1. Organization and Summary of Significant Accounting Policies (continued)

     New Accounting Pronouncements

     In March 2004, the FASB approved the consensus reached on the EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” The objective of this Issue is to provide guidance for identifying impaired investments. EITF 03-1 also provides new disclosure requirements for investments that are deemed to be temporarily impaired. The accounting provisions of EITF 03-1 were effective for all reporting periods beginning after June 15, 2004, while the disclosure requirements were effective only for annual periods ending after June 15, 2004. The adoption of EITF 03-1 did not have a material effect on the Consolidated Statements of Income, financial position or liquidity.

     In December 2004, the FASB issued FASB Staff Position (“FSP”) Financial Accounting Standard (“FAS”) 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004 (the Act)” that provides tax relief to U.S. domestic manufacturers. The FSP states that the manufacturers’ deduction provided for under the Act should be accounted for as a special deduction in accordance with Statement 109 rather than as a tax rate reduction. Also in December 2004, the FASB issued FSP FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004,” addressing accounting and disclosure guidance relating to a company’s repatriation program. The additional disclosures required under this staff position are included in Note 2, Income Taxes. Both FSPs were effective upon issuance.

2. Income Taxes

     The Company is subject to future federal and state income taxes and has recorded net deferred tax assets on the Consolidated Balance Sheets at December 31, 2003 and 2004. Deferred tax assets and liabilities are determined based on the difference between the financial accounting and the tax bases of assets and liabilities. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2003 and 2004 are as follows (in thousands):

                 
    December 31,  
    2003     2004  
Deferred tax assets:
               
Accounts receivable
  $ 970     $ 1,069  
Net operating loss carryforwards
    7,938        
Accrued liabilities
    1,011       878  
Stock compensation expense
    26       368  
Intangible assets
    2,407       2,293  
Depreciation
    1,001       542  
Research and development credits
    4,846       2,834  
AMT Credit
          1,911  
Other
    21        
 
           
 
    18,220       9,895  
 
               
Deferred tax liabilities:
               
Other
    396       466  
 
           
 
    17,824       9,429  
Tax reserve
    (1,700 )     (2,055 )
Valuation allowance
    (10,324 )    
 
           
Net deferred tax assets
  $ 5,800     $ 7,374  
 
           

     The components of income from domestic and foreign operations before income tax expense for the years ended December 31, 2002, 2003 and 2004 are as follows (in thousands):

                         
    2002     2003     2004  
Domestic
  $ 37,658     $ 31,498     $ 33,334  
Foreign
    1,921       1,772       1,341  
 
                 
 
                       
Total
  $ 39,579     $ 33,270     $ 34,675  
 
                 

     The components of the historical income tax provision for the years ended December 31, 2002, 2003 and 2004 are as follows (in thousands):

                         
    2002     2003     2004  
Current:
                       
Federal
  $ 12,218     $ 9,811     $ 11,629  
State
    1,801       1,361       1,752  
Foreign
    991       375       759  
 
                 
 
    15,010       11,547       14,140  
 
                 
Deferred:
                       
Federal
    (551 )     (192 )     (1,554 )
State
    (76 )     (34 )     39  
Foreign
          104       (59 )
 
                 
 
    (627 )     (122 )     (1,574 )
 
                 
Total
  $ 14,383     $ 11,425     $ 12,566  
 
                 

     The income tax benefits related to the exercise of stock options were allocated to additional paid-in capital. Such amounts were approximately $14,024,000, $11,322,000 and $10,737,000 for 2002, 2003 and 2004, respectively.

     The Company has approximately $2.8 million of research and development tax credit carryforwards that expire in 2020 to 2024. The Company has provided a tax reserve of $2.1 million for the carryforwards. As the Company utilizes the carryforwards, the amount of tax benefit realized will be charged to Additional paid-in-capital.

     The valuation allowance referred to above represents the removal of deferred tax items for net operating loss carryforwards which were generated by stock option exercises recorded to additional paid-in-capital. In fiscal 2004, all net operating loss carryforwards were utilized therefore the deferred tax asset and related valuation allowance decreased to $0 at December 31, 2004.

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Table of Contents

2. Income Taxes (continued)

     The Company currently has a tax holiday in India through March of 2009. As a result of this holiday, the Company had income of approximately $771,000 in 2003 and $2,028,000 in 2004 that was not subject to tax. The India entity did not have income in 2002. The impact on diluted earnings per share if the income had been taxable was decreases of $.01 per share and $.02 per share in 2003 and 2004, respectively.

     Deferred taxes are not provided for temporary differences of approximately $4.2 million, $5.5 million and $8.7 million as of December 31, 2002, 2003 and 2004, respectively, representing earnings of non-U.S. subsidiaries that are intended to be permanently reinvested. Those earnings are considered to be indefinitely reinvested; accordingly, no provision for U.S. federal and state income taxes has been provided thereon. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various foreign countries.

     In October 2004, the American Jobs Creation Act of 2004 (the Act) was signed into law. The Act provides for a special one-time deduction of 85% of certain foreign earnings that are repatriated. The Company may elect to apply this provision to qualifying earnings repatriations in 2005. As of December 31, 2004, the Company has started an evaluation of the effects of the repatriation provision, but does not expect to be able to complete this evaluation until the second quarter of 2005. While no repatriation decisions have been made as of December 31, 2004, the range of possible amounts that the Company is considering for repatriation is between zero and $8.7 million. The related potential range of deferred taxes that would have to be provided should a repatriation decision be made is between zero and $3 million.

     The following is a summary of the items that cause recorded income taxes to differ from taxes computed using the statutory federal income tax rate for the years ended December 31, 2002, 2003 and 2004:

                         
    2002     2003     2004  
Statutory federal income tax rate
    35.0 %     35.0 %     35.0 %
Effect of:
                       
State income tax, net of federal benefit
    2.9       2.8       3.4  
Research and development credits
    (2.2 )     (2.6 )     (0.7 )
Foreign operations
    0.6       (0.8 )     0.1  
Tax exempt income
    (0.2 )     (0.5 )     (1.2 )
Meals and entertainment
    0.2       0.5       0.4  
Intangibles
    (0.1 )     (0.1 )      
Other
    0.1             (0.8 )
 
                 
Income taxes
    36.3 %     34.3 %     36.2 %
 
                 

3. Stock Option Plans

     The Manhattan Associates LLC Option Plan (the “LLC Option Plan”) became effective on January 1, 1997. The LLC Option Plan is administered by a committee appointed by the Board of Directors. The options are granted at terms determined by the committee; however, the options cannot have a term exceeding ten years. Options granted under the LLC Option Plan have vesting periods ranging from immediately to six years. Subsequent to February 28, 1998, no additional options could be granted pursuant to the LLC Option Plan.

     Prior to the establishment of the LLC Option Plan, the Company issued options to purchase 661,784 shares of common stock to certain employees. These grants contain provisions similar to options issued under the LLC Option Plan.

     The Manhattan Associates, Inc. 1998 Stock Incentive Plan (the “Stock Incentive Plan”) was adopted by the Board of Directors and approved by the shareholders in February 1998. The Stock Incentive Plan provides for the grant of incentive stock options. Optionees have the right to purchase a specified number of shares of common stock at a specified option price and subject to such terms and conditions as are specified in connection with the option grant. The Stock Incentive Plan is administered by the Compensation Committee of the Board of Directors. The committee has the authority to adopt, amend and repeal the administrative rules, guidelines and practices relating to the Stock Incentive Plan generally and to interpret the provisions thereof. Options granted under the Stock Incentive Plan cannot have a term exceeding ten years and typically vest over a period of two to six years.

     As of December 31, 2004, the Stock Incentive Plan provides for issuance of up to 13,603,085 shares of common stock (subject to adjustment in the event of stock splits and other similar events), less the number of shares issued under the LLC Option Plan, in the form of stock options and other stock incentives. The number of shares available for issuance under the Plan is automatically adjusted, without shareholder approval, on the first day of each fiscal year, beginning with the 2000 fiscal year, by a number of shares such that the total number of shares reserved for issuance under the Plan equals the sum of (i) the aggregate number of shares previously issued under the Plan and the LLC Option Plan; (ii) the aggregate number of shares subject to then outstanding stock incentives granted under the Plan and the LLC Option Plan; and (iii) 5% of the number of shares of common stock outstanding on the last day of the preceding fiscal year. However, no more than 1,000,000 of the shares available for grant each year shall be available for issuance pursuant to incentive stock options, and no more than 10,000,000 shares resulting from such automatic adjustments may ever be issued during the term of the Plan.

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3. Stock Option Plans (continued)

     A summary of changes in outstanding options is as follows:

                 
            Weighted Average  
    Options     Exercise Price  
December 31, 2001
    6,532,767     $ 17.04  
Granted
    1,637,900     $ 23.12  
Canceled
    (270,871 )   $ 26.54  
Exercised
    (1,571,354 )   $ 5.49  
 
             
December 31, 2002
    6,328,442     $ 21.08  
Granted
    1,541,075     $ 26.40  
Canceled
    (444,541 )   $ 27.90  
Exercised
    (1,046,948 )   $ 8.86  
 
             
December 31, 2003
    6,378,028     $ 23.90  
Granted
    1,938,825     $ 25.15  
Canceled
    (600,184 )   $ 30.86  
Exercised
    (334,157 )   $ 12.09  
 
             
December 31, 2004
    7,382,512     $ 24.19  
 
             

     Details of options outstanding at December 31, 2004 are as follows:

                                         
    Outstanding     Exercisable  
            Weighted                    
            Average     Weighted              
Exercise   Options     Remaining     Average     Options     Average  
Prices   Outstanding     Contractual Life     Exercise Prices     Exercisable     Exercise Price  
$0.56-3.50
    286,250       1.9     $ 2.10       286,250     $ 2.10  
3.51 - 7.50
    172,354       3.8       5.87       172,236       5.87  
7.51 - 15.00
    690,699       5.0       10.64       611,366       10.25  
15.01 - 23.00
    1,529,100       8.3       19.68       511,857       18.31  
23.01 – 27.00
    1,736,215       7.7       25.38       964,909       25.55  
27.01 – 31.00
    2,230,744       8.4       28.15       849,522       28.05  
31.01 - 40.00
    460,400       6.2       37.52       422,825       37.84  
40.01 - 68.38
    276,750       5.8       55.48       265,700       55.66  
 
                                   
 
    7,382,512       7.3     $ 24.19       4,084,665     $ 23.63  
 
                                   

     At December 31, 2004, the Company has 7,548,179 shares of common stock reserved for issuance and 111,755 shares available for future grant under the Stock Incentive Plan. On January 1, 2005, the number of shares of common stock available for future grant under the Stock Incentive Plan was increased by 1,359,172 in accordance with the automatic adjustment described above.

     The Company recorded deferred compensation of $580,000 on options granted during 1998, as the exercise price was less than the deemed fair value of the underlying common stock. In addition, the Company recorded deferred compensation of $232,000 and $1,290,000 during 2003 and 2004, respectively, for the issuance of 8,109 and 45,803 shares of restricted stock under the stock incentive plan. The Company amortizes deferred compensation over the vesting periods on a straight-line basis. The Company recorded compensation expense of $58,000, $52,000 and $1,101,000 for the years ended December 31, 2002, 2003 and 2004, respectively, and had deferred compensation expense of $198,000 and $387,000 at December 31, 2003 and 2004, respectively.

4. Shareholders’ Equity

     During 2002 and 2004, the Company purchased 260,000 and 885,400 shares of the Company’s common stock for approximately $4,110,000 and $21,763,000, respectively, through open market transactions as part of a publicly-announced buy-back program. No shares of the Company’s common stock were purchased during 2003.

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5. Commitments and Contingencies

Leases

     Rents charged to expense were approximately $4,015,000, $5,020,000 and $5,907,000 for the years ended December 31, 2002, 2003 and 2004, respectively. The leases for the Company’s headquarters in Atlanta, Georgia expire on March 31, 2008, at which time the Company has the option to renew for an additional five years at then current market rates. Aggregate future minimum lease payments under the capital lease and noncancellable operating leases as of December 31, 2004 are as follows (in thousands):

                 
    Capital     Operating  
Year Ended December 31,   Leases     Leases  
2005
  $ 152     $ 5,554  
2006
    152       6,373  
2007
          6,007  
2008
          2,715  
2009
          1,298  
Thereafter
          286  
 
           
Total
  $ 304     $ 22,233  
Less amount representing interest
    (17 )        
 
             
Net present value of future minimum lease payments
    287          
Less current portion of capital lease obligation
    (139 )        
 
             
Long-term portion of capital lease obligation
  $ 148          
 
             

Employment Agreements

     The Company has entered into employment contracts with certain executives and other key employees. The agreements provide for total severance payments of up to approximately $2.1 million for termination of employment for any reason other than cause. Payment terms vary from a lump sum payment to equal monthly installments over a period of not more than 24 months. No amounts have been accrued because the amounts cannot be reasonably estimated.

Legal and Other Matters

     The Company is currently in the process of implementing its warehouse management system at a large customer with whom it is having challenging discussions surrounding their delayed implementation, although no legal claims have been filed by either party to date. The Company believes that its contractual obligations to date have been met and it is entitled to the outstanding receivables of approximately $3 million from the customer at December 31, 2004. The Company is in discussions with this customer regarding resolution of this matter as well as payment; however, no such resolution has been reached at this time. While no assurance can be given regarding the outcome of the matter discussed, because of the nature and inherent uncertainties of disputes, should the outcome of this matter be unfavorable, the Company’s business, financial condition, results of operations and cash flows could be materially adversely affected.

     From time to time, the Company may be involved in litigation relating to claims arising out of its ordinary course of business. Many of the Company’s installations involve products that are critical to the operations of its clients’ businesses. Any failure in a Company product could result in a claim for substantial damages against the Company, regardless of the Company’s responsibility for such failure. Although the Company attempts to limit contractually its liability for damages arising from product failures or negligent acts or omissions, there can be no assurance the limitations of liability set forth in its contracts will be enforceable in all instances. The Company is not presently involved in any material litigation. However, it is involved in various legal proceedings. The Company believes that any liability that may arise as a result of these proceedings will not have a material adverse effect on its financial condition. The Company expenses legal costs associated with loss contingencies as such legal costs are incurred.

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6. Acquisitions

     Logistics.com

     On December 31, 2002, the Company acquired certain assets of Logistics.com, Inc. from Internet Capital Group for a one-time cash payment of approximately $21.3 million, of which $1.5 million was held in escrow until December 31, 2003. Logistics.com provided logistics planning and execution solutions that provide cost savings to shippers and carriers. The Company acquired the assets of Logistics.com to enhance its existing transportation management product offering and to expand its customer base. The acquisition has been accounted for under the purchase method of accounting, and the results of operations are included in the Company’s operations after that date. No amounts were included in the operating results for the year ended December 31, 2002.

     The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition, December 31, 2002 (in thousands):

                 
Current assets
          $ 1,825  
Property and equipment
            1,190  
Research and development assets
            1,470  
Intangible assets subject to amortization:
               
Computer software (5 year life)
  $ 1,530          
Customers (7 year life)
    2,880          
Tradename (5 year life)
    1,920          
Other intangibles (2 year life)
    360          
 
             
 
               
 
            6,690  
Goodwill
            11,944  
 
             
Total assets acquired
            23,119  
Current liabilities
            1,782  
 
             
Total liabilities assumed
            1,782  
 
             
Net assets acquired
          $ 21,337  
 
             

     The $1.5 million assigned to in-process research and development assets was written off at the date of acquisition in accordance with FASB Interpretation No. 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method.

     The Goodwill is not being amortized, but is reviewed for impairment on an annual basis.

     Unaudited pro forma operating results for the year ended December 31, 2002, assuming that the acquisition had occurred at the beginning of 2002 is as follows (in thousands):

         
    2002  
Revenues
  $ 183,537  
Pro forma net income
    15,090  
Pro forma diluted net income per share
  $ 0.50  

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6. Acquisitions (continued)

     ReturnCentral

     On June 30, 2003, the Company acquired certain assets of ReturnCentral for a cash payment of approximately $1.5 million. The purchase price includes the earnout of approximately $900,000 recorded through December 31, 2004, and will be further adjusted for additional potential earnout based upon the total ReturnCentral software and services fees received and recognized prior to August 31, 2005. The earnout payment for the first twelve months is the sum of: (i) 30% of all ReturnCentral software fees up to and including $800,000; plus 33% of all ReturnCentral software fees greater than $800,000 and up to and including $1.3 million; plus 36% of all ReturnCentral software fees greater than $1.3 million and up to and including $2.0 million; plus 40% of all ReturnCentral software fees greater than $2.0 million; and (ii) 13% of all ReturnCentral service fees. The earnout payment, if any, for the following fourteen month period will be the sum of: (i) 30% of all ReturnCentral software fees up to and including $2.0 million; plus 33% of all ReturnCentral software fees greater than $2.0 million and up to and including $3.0 million; plus 36% of all ReturnCentral software fees greater than $3.0 million and up to and including $4.0 million; plus 40% of all ReturnCentral software fees greater than $4.0 million; and (ii) 13% of all ReturnCentral service fees. The results of operations are included in operations after June 30, 2003. The entire purchase price has been recorded as acquired developed technology and is being amortized over the greater of the amount computed using (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product (5 years) including the period being reported on.

     Streamsoft

     On October 14, 2003, the Company closed an Asset Purchase Agreement with Streamsoft, a provider of warehouse optimization software. The Company acquired substantially all of the assets of Streamsoft for a purchase price of approximately $2.1 million. The purchase price includes the earnout of approximately $250,000 recorded through December 31, 2004, and will be further adjusted for additional potential earnout based upon the total Streamsoft software fees received and recognized prior to September 30, 2005. The earnout payment shall be calculated as 10% of all net software fees recognized, and is subject to additional terms and conditions, as defined in the purchase agreement. The acquisition has been accounted for under the purchase method of accounting, and the results of operations are included in operations after October 14, 2003. The purchase price has been allocated to net assets acquired of $0.2 million, acquired developed technology of $0.2 million, and other intangible assets of $1.7 million. Acquired developed technology is being amortized over the greater of the amount computed using (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product (5 years) including the period being reported on. Approximately $0.1 million of other intangible assets is being amortized over a ten-year useful life. The remaining $1.6 million of other intangible assets is goodwill, which is not being amortized, but is being reviewed for impairment on an annual basis.

     Avere

     On January 23, 2004, the Company acquired certain assets of Avere, Inc. (“Avere”), a provider of order management software. The Company completed the acquisition to enhance its product offering. The Company acquired substantially all of the assets of Avere for a purchase price of approximately $285,000 in cash plus a potential earnout based upon the total Avere software fees recognized by the Company during the period starting on December 31, 2003 and ending on December 31, 2005. The earnout payment, if any, will be calculated as the following percentages of all Avere software fees recognized during the earnout period: (i) 25% of the Avere software fees greater than $200,000 and up to and including $2 million; (ii) 30% of the Avere software fees greater than $2 million and up to and including $4 million; and (iii) 35% of the Avere software fees greater than $4 million. The entire purchase price has been recorded as acquired developed technology and is being amortized over the greater of the amount computed using (a) the ratio that current gross revenues for a product bear to the total of current and anticipated future gross revenues for that product or (b) the straight-line method over the remaining five-year estimated economic life of the product, including the period being reported on. The operating results of Avere were included in the Company’s operations after January 23, 2004.

     eebiznet

     On July 9, 2004, the Company acquired certain assets of eebiznet (“eebiznet”), whose primary business activities consist of the marketing and sale of supply software in France. The Company acquired eebiznet to expand its presence in Europe. The Company acquired all the outstanding shares of eebiznet for approximately $493,000 in cash plus a potential earnout based upon the sales of its software and service solutions in France during the period

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6. Acquisitions (continued)

starting April 1, 2004 through March 31, 2006. The earnout payment, if any, will be calculated based on the following percentages of all license sales in France recognized during the period: (i) 30% of the software fees in France up to 1.5 million ($2.05 million as of December 31, 2004); (ii) 40% of the software fees in France over 1.5 million ($2.05 million as of December 31, 2004); and (iii) 2% of all service revenues. The entire purchase price has been recorded on a preliminary basis to goodwill, as eebiznet’s assets and liabilities were immaterial. The operating results of eebiznet were included in the Company’s operations after July 9, 2004.

7. In-Process Research and Development, Acquisition-Related Expenses and Restructuring Charge

     In-process research and development represents the value assigned in a purchase business combination to research and development projects of the acquired business that had commenced but had not reached technological feasibility and has no alternative future use. In accordance with SFAS No. 2, “Accounting for Research and Development Costs,” as clarified by FASB Interpretation No. 4, amounts assigned to in-process research and development meeting the above stated criteria must be charged to expense as part of the allocation of the purchase price of the business combination. Accordingly, a charge totaling $1,470,000 was recorded during 2002 as part of the allocation of the purchase price related to the acquisition of Logistics.com.

     During the third quarter of 2003, the Company recorded expenses of approximately $885,000 relating to fees incurred in connection with two potential acquisitions that the Company decided not to consummate. The acquisition-related expenses are presented as a separate line item in the Consolidated Statements of Income. The expenses consist primarily of legal, accounting and travel expenses associated with the two transactions.

     During the second quarter of 2003, the Company recorded a restructuring charge relating to an internal reorganization of $893,000. The restructuring charge is presented as a separate line item in the Consolidated Statements of Income. The reorganization more closely aligns the Company’s customer advocates with implementation teams, and the customer support organization with the technical teams. The charge consists primarily of one-time severance payments to 25 employees. The Company anticipates no further costs relating to this reorganization.

                         
    2003 Charge     Paid 2003     Paid 2004  
Employee severance-related costs
  $ 893,000     $ 857,000     $ 36,000  

8. Geographic and Product Information

     Geographic revenue information for the three years ended December 31, 2004 is based on the location of the customer. Long-lived asset information is based on the physical location of the assets at the end of each of the fiscal years.

     Revenue by geographic region/country was as follows (in thousands):

                         
    2002     2003     2004  
United States
  $ 142,296     $ 158,120     $ 166,267  
 
               
Europe
    29,333       31,920       35,532  
Rest of world
    4,092       6,774       13,120  
 
                 
Total international
    33,425       38,694       48,652  
 
               
Total revenue
  $ 175,721     $ 196,814     $ 214,919  
 
                 

     Total U.S. long-lived assets were approximately $66.8 million and $100.6 million as of December 31, 2003 and 2004, respectively. Total international long-lived assets, which include assets in Australia, China, France, Germany, India, Japan, the Netherlands, Singapore and the United Kingdom, were approximately $3.8 million and $5.7 million as of December 31, 2003 and 2004, respectively.

     The software products that the Company sells consist of the following Solution Groups: Warehouse Management, Transportation Management, Trading Partner Management, Distributed Order Management, Reverse Logistics Management, Performance Management and RFID. The Company has not included annual revenue for each of the solution groups in the footnote disclosures primarily to avoid the somewhat misleading method of allocating the revenue to the various products when multiple solutions groups are sold in a single contract. Although the Company currently uses the list prices as a basis for allocating the revenue to the various products, it does not believe that this information is always an accurate indicator of the products’ success because of the way certain products are added to contracts for incentive reasons, although the customer may not have the desire to implement that product immediately. The allocation method places revenue on products that could be significantly in excess of the value the customer would place on it in some cases. Therefore, the Company believes that disclosing the software and hosting fees for the Warehouse Management Solution Group and combining all other Solution Groups into one is the most useful information. Software and hosting fees for the three years ended December 31, 2004 were as follows (in thousands):

                         
    2002     2003     2004  
Warehouse Management Solution Group
  $ 33,653     $ 25,704     $ 28,455  
All Other Solution Groups
    6,580       17,525       21,431  
 
                 
 
                       
Total Software and Hosting Fees
  $ 40,233     $ 43,229     $ 49,886  
 
                 

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9. Employee Benefit Plan

     The Company sponsors the Manhattan Associates 401(k) Plan and Trust (the “401(k) Plan”), a qualified profit sharing plan with a 401(k) feature covering substantially all employees of the Company. Under the 401(k) Plan’s deferred compensation arrangement, eligible employees who elect to participate in the 401(k) Plan may contribute up to 60% of eligible compensation up to $14,000, as defined, to the 401(k) Plan. The Company provides for a 50% matching contribution up to 6% of eligible compensation being contributed after the participant’s first year of employment. During the years ended December 31, 2002, 2003 and 2004, the Company made matching contributions to the 401(k) Plan of $1,006,000, $1,250,000 and $1,314,000, respectively.

10. Related Party Transactions

     During the years ended December 31, 2003 and 2004, the Company purchased software and services for approximately $250,000 and $63,000, respectively, from a company whose President and Chief Executive Officer is a member of Manhattan’s Board of Directors. In the opinion of management, the rates, terms and consideration of the transaction approximated those with unrelated parties. As of December 31, 2004, there was $1,400 outstanding relating to the purchases.

     During the year ended December 31, 2003 and 2004, the Company sold software and services for approximately $400,000 and $90,000, respectively, to a company whose Chief Executive Officer is a relative of a member of the Company’s executive management team. In the opinion of management, the rates, terms and consideration of the transaction approximated those with unrelated parties. As of December 31, 2004, there was $90,000 outstanding and included in accounts receivable relating to the 2004 sales.

     During the years ended December 31, 2003 and 2004, the Company purchased hardware of approximately $75,000 and $200,000, respectively, from Alien Technology, a party in which the Company made a $2 million investment during 2003. See Note 1 for further details on the investment. In the opinion of management, the rates, terms and consideration of the transaction approximated those with unrelated parties. As of December 31, 2004, there was approximately $13,000 outstanding relating to the purchases.

     During the year ended December 31, 2002, there were no related party transactions.

11. Quarterly Results of Operations (Unaudited)

     The following is a summary of the quarterly results of operations of the Company for the years ended December 31, 2003 and 2004. The unaudited quarterly results have been prepared on substantially the same basis as the audited Consolidated Financial Statements.

                                                                 
    Quarter Ended  
    Mar. 31,     June 30,     Sept. 30,     Dec. 31,     Mar. 31,     June 30,     Sept. 30,     Dec. 31,  
    2003     2003     2003     2003     2004     2004     2004     2004  
    (In thousands, except per share data)  
Statement of Income Data:
                                                               
Revenue:
                                                               
Software and hosting fees
  $ 10,159     $ 11,357     $ 9,636     $ 12,077     $ 12,306     $ 13,784     $ 10,257     $ 13,539  
Services
    30,240       33,385       33,546       32,149       33,606       36,328       36,759       34,799  
Hardware and other
    5,698       5,455       7,045       5,219       5,381       5,858       4,853       7,449  
Recovery (allowance) relating to bankrupt customer
          848                                      
 
                                               
Total revenue
    46,097       51,045       50,227       49,445       51,293       55,970       51,869       55,787  
Costs and expenses:
                                                               
Cost of software and hosting fees
    1,123       1,222       1,027       1,098       823       850       977       1,435  
Amortization of acquired developed technology
    452       452       492       603       493       518       521       547  
Cost of services
    12,766       14,084       13,911       13,457       15,096       16,523       17,009       17,225  
Cost of hardware and other
    4,927       4,629       6,016       4,551       4,578       5,071       4,211       6,211  
Research and development
    6,717       6,947       6,708       6,610       7,200       7,281       7,090       7,251  
Sales and marketing
    7,572       8,608       7,276       7,744       7,920       8,942       8,062       9,125  
General and administrative
    5,771       5,929       6,155       6,232       6,528       6,605       6,833       7,080  
In-process research and development charge and other acquisition-related charges
                885                                
Amortization of acquisition-related intangibles
    311       373       374       375       377       373       373       373  
Restructuring Charge
          893                                      
 
                                               
Total costs and expenses
    39,639       43,137       42,844       40,670       43,015       46,163       45,076       49,247  
 
                                               
Income from operations
    6,458       7,908       7,383       8,775       8,278       9,807       6,793       6,540  
Other income, net
    557       1,055       402       732       389       304       540       2,024  
 
                                               
Income before income taxes
    7,015       8,963       7,785       9,507       8,667       10,111       7,333       8,564  
Income taxes
    2,475       3,174       2,795       2,981       2,990       3,491       2,683       3,402  
 
                                               
Net income
  $ 4,540     $ 5,789     $ 4,990     $ 6,526     $ 5,677     $ 6,620     $ 4,650     $ 5,162  
 
                                               
Diluted net income per share
  $ 0.15     $ 0.19     $ 0.16     $ 0.21     $ 0.18     $ 0.21     $ 0.15     $ 0.17  
 
                                               
Shares used in diluted net income per share
    30,446       30,688       31,208       31,341       31,349       31,403       30,786       30,770  
 
                                               

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     We have established disclosure controls and procedures to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors.

     Based on their evaluation as of December 31, 2004, the principal executive officer and principal financial officer of the Company have concluded that, due to the material weakness discussed in Management’s Report on Internal Control over Financial Reporting on page 30 hereof, the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were not effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

     The material weakness identified by management relates to revenue recognition for sales contracts with multiple revenue elements. The Company has historically been able to establish vendor specific objective evidence (“VSOE”) of fair value of its professional services and customer support services and software enhancement subscriptions (“maintenance”) but not for its software licenses and, therefore, typically allocates arrangement consideration using the residual method and recognizes software license revenue upon the execution of the software license contract, provided that all other revenue recognition criteria have been met. Although various preventive controls have been in place, management believes that additional detective controls should be established to ensure that professional services and maintenance, when sold separately, are not being offered at prices substantially different than the established VSOE of fair market value for those services. If substantial variations from VSOE of fair value exist, then appropriate evidence of fair value does not exist and the Company would be required to recognize the revenue from software license fees ratably over the service period, rather than at the time of contract execution.

     The Company does not believe that the lack of these additional controls has resulted in errors in our revenue recognition. Based on analyses performed by management, we believe that appropriate VSOE of fair value did exist during 2004 for professional services and maintenance. We are improving our internal controls over monitoring VSOE of fair value as it relates to revenue recognition beginning immediately by:

  •   establishing a quarterly procedure of comparing actual professional services billing rates and rates for maintenance renewals to management’s assessment of VSOE of fair value for those services to ensure that VSOE of fair value still exists for our consulting and maintenance services, and
 
  •   providing additional training and documentation of our internal pricing policies to our sales, services, and product management personnel.

Management’s Report on Internal Control over Financial Reporting

     Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004 and the attestation report of Ernst & Young LLP on management’s assessment of the Company’s internal control over financial reporting are contained on pages 30, 31 and 32, respectively, of this report.

Change in Internal Control over Financial Reporting

     There are no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Item 9B. Other Information

     None.

PART III

Item 10. Directors and Executive Officers of the Registrant

     Certain information required by this item is incorporated by reference from the information contained in our Proxy Statement for the Annual Meeting of Shareholders expected to be filed with the Commission on or prior to April 29, 2005 under the captions “Code of Ethics,” “Election of Directors,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance.” Certain information regarding our executive officers is included in Part I of this report on Form 10-K under the caption “Executive Officers.”

Item 11. Executive Compensation

     The information required by this item is incorporated by reference from the information contained in our Proxy Statement for the Annual Meeting of Shareholders expected to be filed with the Commission on or prior to April 29, 2005 under the caption “Executive Compensation.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

     The information required by this item is incorporated by reference from the information contained in our Proxy Statement for the Annual Meeting of Shareholders expected to be filed with the Commission on or prior to April 29, 2005 under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.”

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Item 13. Certain Relationships and Related Transactions

     The information required by this item is incorporated by reference from the information contained in our Proxy Statement for the Annual Meeting of Shareholders expected to be filed with the Commission on or prior to April 29, 2005 under the caption “Certain Transactions.”

Item 14. Principal Accountant Fees and Services

     The information required by this item is incorporated by reference from the information contained in our Proxy Statement for the Annual Meeting of Shareholders expected to be filed with the Commission on or prior to April 29, 2005.

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) 1. Financial Statements.

     The response to this item is submitted as a separate section of this Form 10-K. See Item 8.

     2. Financial Statement Schedule.

     The following financial statement schedule is filed as a part of this report:

SCHEDULE II

MANHATTAN ASSOCIATES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS

                                 
    Balance at     Additions             Balance  
    Beginning of     Charged to     Net     at End of  
Classification:   Period     Operations     Deductions     Period  
Allowance for doubtful accounts for the year ended:
                               
December 31, 2002
  $ 8,533,000     $ 3,082,000     $ 6,442,000  (1)   $ 5,173,000  
December 31, 2003
  $ 5,173,000     $ 3,453,000     $ 5,445,000  (2)   $ 3,181,000  
December 31, 2004
  $ 3,181,000     $ 4,048,000     $ 3,058,000     $ 4,171,000  


(1)   Included in the net deductions for 2002 is the write-off of approximately $1.8 million and recovery of approximately $2.3 million relating to the significant customer. Also included is the addition of the allowance balance of approximately $477,000 acquired as part of the Logistics.com acquisition, which did not impact operations. Excluding these amounts, the net deduction amount for 2002 was $2.8 million.
 
(2)   Included in the net deductions for 2003 is the recovery of approximately $0.8 million relating to the significant customer. Also included is a true-up of approximately $0.2 million relating to the allowance balance acquired as part of the Logistics.com acquisition, which did not impact operations. Excluding these amounts, the net deduction amount for 2003 was $4.4 million.

     All other schedules are omitted because they are not required or the required information is shown in the consolidated financial statements or notes thereto.

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(b)   Exhibits. The following exhibits are filed as part of, or are incorporated by reference into, this report on Form 10-K:
     
Exhibit    
Number   Description
3.1
  Articles of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
3.2
  Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report for the period ended September 30, 2003 (File No. 000-23999), filed on November 14, 2003).
 
   
4.1
  Provisions of the Articles of Incorporation and Bylaws of the Registrant defining rights of the holders of common stock of the Registrant (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
4.2
  Specimen Stock Certificate (Incorporated by reference to Exhibit 4.2 to the Company’s Pre-Effective Amendment No. 1 to its Registration Statement on Form S-1 (File No. 333-47095), filed on April 2, 1998).
 
   
10.1
  Lease Agreement by and between Wildwood Associates, a Georgia general partnership, and the Registrant dated September 24, 1997 (Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
10.2
  First Amendment to Lease between Wildwood Associates, a Georgia general partnership, and the Registrant dated October 31, 1997 (Incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
10.3
  Second Amendment to Lease Agreement between Wildwood Associates, a Georgia general partnership, and the Registrant, dated February 27, 1998 (Incorporated by reference to Exhibit 10.8 to the Company’s Pre-Effective Amendment No. 1 to its Registration Statement on Form S-1 (File No. 333-47095), filed on April 2, 1998).
 
   
10.4
  Third Amendment to Lease Agreement between Wildwood Associates and the Registrant, dated October 24, 2000 (Incorporated by reference to Exhibit 10.9 to the Company’s Annual Report for the period ended December 31, 2000 (File No. 000-23999), filed on April 2, 2001).
 
   
10.5
  Lease Agreement by and between Wildwood Associates, a Georgia general partnership, and the Registrant, dated June 25, 2001 (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report for the period ended June 30, 2001 (File No. 000-23999), filed August 14, 2001).
 
   
10.6
  Lease Agreement by and between Tektronix UK Limited, Manhattan Associates Limited and Manhattan Associates, Inc., dated October 21, 1999 (Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report for the period ended December 31, 1999 (File No. 000-23999), filed on March 30, 2000).
 
   
10.7
  Lease (Burlington Business Center) by and between Gateway Rosewood, Inc. and Manhattan Associates, Inc., dated August 23, 2004.
 
   
10.8
  Agreement to Build and Lease between Orchid Apartments Private Limited and Manhattan Associates India Development Centre Private Limited, executed on November 19, 2004.
 
   
10.9
  Lease Agreement between IGE Energy Services (UK) Limited, Manhattan Associates Limited and Manhattan Associates, Inc., dated February 1, 2005.

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Exhibit    
Number   Description
10.10
  Sub-Sublease Agreement between Scientific Research Corporation, a Georgia corporation, and the Registrant, dated July 2, 1998 (Incorporated by reference to Exhibit 10.19 to the Company’s Annual Report for the period ended December 31,1998 (File No. 000-23999), filed on March 31, 1999).
 
   
10.11
  Sub-Sublease Agreement between The Profit Recovery Group International 1, Inc., a Georgia corporation, and the Registrant, dated August 19, 1998 (Incorporated by reference to Exhibit 10.20 to the Company’s Annual Report for the period ended December 31, 1998 (File No. 000-23999), filed on March 31, 1999).
 
   
10.12
  Standard Sublease Agreement between Life Office Management Association, Inc. and the Registrant, dated October 20, 2000 (Incorporated by reference to Exhibit 10.17 to the Company’s Annual Report for the period ended December 31, 2000 (File No. 000-23999), filed on April 2, 2001).
 
   
10.13
  Standard Sublease Agreement between Chevron USA Inc. and the Registrant, dated November 20, 2000 (Incorporated by reference to Exhibit 10.18 to the Company’s Annual Report for the period ended December 31, 2000 (File No. 000-23999), filed on April 2, 2001).
 
   
10.14
  Form of Indemnification Agreement with certain directors and officers of the Registrant (Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No.000-23999), filed on August 9, 2004).
 
   
10.15
  Form of Tax Indemnification Agreement for direct and indirect shareholders of Manhattan Associates Software, LLC (Incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
10.16
  Summary Plan Description of the Registrant’s Money Purchase Plan & Trust, effective January 1, 1997 (Incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
10.17
  Summary Plan Description of the Registrant’s 401(k) Plan and Trust, effective January 1, 1995 (Incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
10.18
  Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
10.19
  First Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by reference to Exhibit 10.22 to the Company’s Annual Report for the period ended December 31, 1998 (File No. 000-23999), filed on March 31, 1999).
 
   
10.20
  Second Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by reference to Exhibit 10.23 to the Company’s Annual Report for the period ended December 31, 1998 (File No. 000-23999), filed on March 31, 1999).
 
   
10.21
  Third Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by reference to Exhibit 10.24 to the Company’s Annual Report for the period ended December 31, 1998 (File No. 000-23999), filed on March 31, 1999).
 
   
10.22
  Fourth Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by reference to Exhibit 10.25 to the Company’s Annual Report for the period ended December 31, 1999 (File No. 000-23999), filed on March 30, 2000).
 
   
10.23
  Fifth Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by reference to Exhibit 4.8 to the Company’s Form S-8 (File No. 333-68968), filed on September 5, 2001).

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Exhibit    
Number   Description
10.24
  Sixth Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by reference to Annex A to the Company’s Annual Report for the period ended December 31, 2001 (File No. 000-23999), filed on April 1, 2002).
 
   
10.25
  Amendment No. 7 to the Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by reference to Exhibit 4.10 to the Company’s Form S-8 (File No. 333-105913), filed on June 6, 2003).
 
   
10.26
  Manhattan Associates, LLC Option Plan (Incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
10.27
  Executive Employment Agreement by and between the Registrant and Peter F. Sinisgalli, effective as of February 25, 2004 (Incorporated by reference to Exhibit 10.28 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.28
  Separation and Non-Competition Agreement by and between the Registrant and Peter F. Sinisgalli, effective as of February 25, 2004 (Incorporated by reference to Exhibit 10.29 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.29
  Executive Employment Agreement by and between the Registrant and Steve Norton, effective as of January 24, 2005 (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 000-23999), filed on January 12, 2005).
 
   
10.30
  Severance and Non-Competition Agreement by and between the Registrant and Steve Norton, effective as of January 24, 2005 (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 000-23999), filed on January 12, 2005).
 
   
10.31
  Executive Employment Agreement by and between the Registrant and Richard M. Haddrill, dated October 11, 1999 (Incorporated by reference to Exhibit 10.26 to the Company’s Annual Report for the period ended December 31, 1999 (File No. 000-23999), filed on March 30, 2000).
 
   
10.32
  Executive Employment Agreement Modification by and between the Registrant and Richard M. Haddrill, effective July 19, 2001 (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report for the period ended September 30, 2001 (File No. 000-23999), filed on November 14, 2001).
 
   
10.33
  Executive Employment Agreement Second Modification by and between the Registrant and Richard M. Haddrill, effective November 10, 2003 (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report for the period ended September 30, 2003 (File No. 000-23999), filed on November 14, 2003).
 
   
10.34
  Executive Employment Agreement Third Modification by and between the Registrant and Richard M. Haddrill, effective February 25, 2004 (Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.35
  Executive Employment Agreement by and between the Registrant and Edward K. Quibell, effective as of April 25, 2003 (Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.36
  Severance and Non-Competition Agreement by and between the Registrant and Edward K. Quibell, dated April 25, 2003 (Incorporated by reference to Exhibit 10.31 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).

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Exhibit    
Number   Description
10.37
  Executive Employment Agreement by and between the Registrant and Jeffrey Mitchell, effective as of September 3, 1999 (Incorporated by reference to Exhibit 10.32 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.38
  Executive Non-Competition and Severance Agreement by and between the Registrant and Jeffrey S. Mitchell, dated June 22, 2004 (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No. 000-23999), filed on August 9, 2004).
 
   
10.39
  Executive Employment Agreement by and between the Registrant and Jeffry Baum, effective as of October 30, 2000 (Incorporated by reference to Exhibit 10.36 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.40
  Executive Employment Agreement by and between the Registrant and Ramesh Srinivasan, effective as of January 1, 2004 (Incorporated by reference to Exhibit 10.33 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.41
  Severance and Non-Competition Agreement by and between the Registrant and Ramesh Srinivasan, dated January 1, 2004 (Incorporated by reference to Exhibit 10.34 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.42
  Separation and Non-Competition Agreement by and between the Registrant and Ramesh Srinivasan, dated January 25, 2005.
 
   
10.43
  Employment Agreement by and between the Registrant and Eric Peters, dated April 23, 2002 (Incorporated by reference to Exhibit 10.35 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.44
  Separation Agreement and Release, by and between the Registrant and Neil Thall, dated March 26, 2003 (Incorporated by reference to Exhibit 10.28 to the Company’s Annual Report for the period ended December 31, 2002 (File No. 000-23999), filed on March 31, 2003).
 
   
10.45
  Non-Competition Agreement, by and between the Registrant and Neil Thall, dated March 26, 2003 (Incorporated by reference to Exhibit 10.29 to the Company’s Annual Report for the period ended December 31, 2002 (File No. 000-23999), filed on March 31, 2003).
 
   
10.46
  Form of License Agreement, Software Maintenance Agreement and Consulting Agreement (Incorporated by reference to Exhibit 10.18 to the Company’s Pre-Effective Amendment No. 1 to its Registration Statement on Form S-1 (File No. 333-47095), filed on April 2, 1998).
 
   
10.47
  Form of Software License, Services and Maintenance Agreement (Incorporated by reference to Exhibit 10.21 to the Company’s Annual Report for the period ended December 31, 1998 (File No. 000-23999), filed on March 31, 1999).
 
   
10.48
  Asset Purchase Agreement, dated December 31, 2002, by and between the Registrant and Logistics.com, Inc. (Incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K (File No. 000-23999), filed on January 15, 2003).
 
   
16.1
  Letter from Arthur Andersen LLP, dated April 25, 2002, to the Securities and Exchange Commission (Incorporated by reference to Exhibit 16.1 to the Company’s Form 8-K (File No. 000-23999), filed on April 29, 2002).
 
   
21.1
  List of Subsidiaries.
 
   
23.1
  Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
 
   
31.1
  Certificate of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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Exhibit    
Number   Description
31.2
  Certificate of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1
  Certificate of Chief Executive Officer and Chief Financial Officer.
 
   
99.1
  Safe Harbor Compliance Statement for Forward-Looking Statements.

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

         
  MANHATTAN ASSOCIATES, INC.
 
 
  By:   /s/ Peter F. Sinisgalli    
    Peter F. Sinisgalli   
Date: March 16, 2005    Chief Executive Officer, President and Director
 

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

         
Signature   Title   Date
 
               
/s/ JOHN J. HUNTZ, JR.
  Chairman of the Board   March 16, 2005

       
John J. Huntz, Jr.
       
 
       
/s/ PETER F. SINISGALLI
  Chief Executive Officer,   March 16, 2005

  President and Director    
Peter F. Sinisgalli
  (Principal Executive Officer)    
 
       
/s/ STEVEN R. NORTON
  Senior Vice President, Chief   March 16, 2005

  Financial Officer and Treasurer    
Steven R. Norton
  (Principal Financial and    
  Accounting Officer)    
 
       
/s/ RICHARD M. HADDRILL
  Vice-Chairman of the Board   March 16, 2005

       
Richard M. Haddrill
       
 
       
/s/ BRIAN J. CASSIDY
  Director   March 16, 2005

       
Brian J. Cassidy
       
 
       
/s/ PAUL R. GOODWIN
  Director   March 16, 2005

       
Paul R. Goodwin
       
 
       
/s/ THOMAS E. NOONAN
  Director   March 16, 2005

       
Thomas E. Noonan
       
 
       
/s/ DEEPAK RAGHAVAN
  Director   March 16, 2005

       
Deepak Raghavan
       

 


Table of Contents

EXHIBIT INDEX

     
Exhibit    
Number   Description
3.1
  Articles of Incorporation of the Registrant (Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
3.2
  Bylaws of the Registrant (Incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report for the period ended September 30, 2003 (File No. 000-23999), filed on November 14, 2003).
 
   
4.1
  Provisions of the Articles of Incorporation and Bylaws of the Registrant defining rights of the holders of common stock of the Registrant (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
4.2
  Specimen Stock Certificate (Incorporated by reference to Exhibit 4.2 to the Company’s Pre-Effective Amendment No. 1 to its Registration Statement on Form S-1 (File No. 333-47095), filed on April 2, 1998).
 
   
10.1
  Lease Agreement by and between Wildwood Associates, a Georgia general partnership, and the Registrant dated September 24, 1997 (Incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
10.2
  First Amendment to Lease between Wildwood Associates, a Georgia general partnership, and the Registrant dated October 31, 1997 (Incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
10.3
  Second Amendment to Lease Agreement between Wildwood Associates, a Georgia general partnership, and the Registrant, dated February 27, 1998 (Incorporated by reference to Exhibit 10.8 to the Company’s Pre-Effective Amendment No. 1 to its Registration Statement on Form S-1 (File No. 333-47095), filed on April 2, 1998).
 
   
10.4
  Third Amendment to Lease Agreement between Wildwood Associates and the Registrant, dated October 24, 2000 (Incorporated by reference to Exhibit 10.9 to the Company’s Annual Report for the period ended December 31, 2000 (File No. 000-23999), filed on April 2, 2001).
 
   
10.5
  Lease Agreement by and between Wildwood Associates, a Georgia general partnership, and the Registrant, dated June 25, 2001 (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report for the period ended June 30, 2001 (File No. 000-23999), filed August 14, 2001).
 
   
10.6
  Lease Agreement by and between Tektronix UK Limited, Manhattan Associates Limited and Manhattan Associates, Inc., dated October 21, 1999 (Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report for the period ended December 31, 1999 (File No. 000-23999), filed on March 30, 2000).
 
   
10.7
  Lease (Burlington Business Center) by and between Gateway Rosewood, Inc. and Manhattan Associates, Inc., dated August 23, 2004.
 
   
10.8
  Agreement to Build and Lease between Orchid Apartments Private Limited and Manhattan Associates India Development Centre Private Limited, executed on November 19, 2004.
 
   
10.9
  Lease Agreement between IGE Energy Services (UK) Limited, Manhattan Associates Limited and Manhattan Associates, Inc., dated February 1, 2005.
 
   
10.10
  Sub-Sublease Agreement between Scientific Research Corporation, a Georgia corporation, and the Registrant, dated July 2, 1998 (Incorporated by reference to Exhibit 10.19 to the Company’s Annual Report for the period ended December 31,1998 (File No. 000-23999), filed on March 31, 1999).

 


Table of Contents

     
Exhibit    
Number   Description
10.11
  Sub-Sublease Agreement between The Profit Recovery Group International 1, Inc., a Georgia corporation, and the Registrant, dated August 19, 1998 (Incorporated by reference to Exhibit 10.20 to the Company’s Annual Report for the period ended December 31, 1998 (File No. 000-23999), filed on March 31, 1999).
 
   
10.12
  Standard Sublease Agreement between Life Office Management Association, Inc. and the Registrant, dated October 20, 2000 (Incorporated by reference to Exhibit 10.17 to the Company’s Annual Report for the period ended December 31, 2000 (File No. 000-23999), filed on April 2, 2001).
 
   
10.13
  Standard Sublease Agreement between Chevron USA Inc. and the Registrant, dated November 20, 2000 (Incorporated by reference to Exhibit 10.18 to the Company’s Annual Report for the period ended December 31, 2000 (File No. 000-23999), filed on April 2, 2001).
 
   
10.14
  Form of Indemnification Agreement with certain directors and officers of the Registrant (Incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No.000-23999), filed on August 9, 2004).
 
   
10.15
  Form of Tax Indemnification Agreement for direct and indirect shareholders of Manhattan Associates Software, LLC (Incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
10.16
  Summary Plan Description of the Registrant’s Money Purchase Plan & Trust, effective January 1, 1997 (Incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
10.17
  Summary Plan Description of the Registrant’s 401(k) Plan and Trust, effective January 1, 1995 (Incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
10.18
  Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
10.19
  First Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by reference to Exhibit 10.22 to the Company’s Annual Report for the period ended December 31, 1998 (File No. 000-23999), filed on March 31, 1999).
 
   
10.20
  Second Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by reference to Exhibit 10.23 to the Company’s Annual Report for the period ended December 31, 1998 (File No. 000-23999), filed on March 31, 1999).
 
   
10.21
  Third Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by reference to Exhibit 10.24 to the Company’s Annual Report for the period ended December 31, 1998 (File No. 000-23999), filed on March 31, 1999).
 
   
10.22
  Fourth Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by reference to Exhibit 10.25 to the Company’s Annual Report for the period ended December 31, 1999 (File No. 000-23999), filed on March 30, 2000).
 
   
10.23
  Fifth Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by reference to Exhibit 4.8 to the Company’s Form S-8 (File No. 333-68968), filed on September 5, 2001).
 
   
10.24
  Sixth Amendment to the Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by reference to Annex A to the Company’s Annual Report for the period ended December 31, 2001 (File No. 000-23999), filed on April 1, 2002).

 


Table of Contents

     
Exhibit    
Number   Description
10.25
  Amendment No. 7 to the Manhattan Associates, Inc. 1998 Stock Incentive Plan (Incorporated by reference to Exhibit 4.10 to the Company’s Form S-8 (File No. 333-105913), filed on June 6, 2003).
 
   
10.26
  Manhattan Associates, LLC Option Plan (Incorporated by reference to Exhibit 10.11 to the Company’s Registration Statement on Form S-1 (File No. 333-47095), filed on February 27, 1998).
 
   
10.27
  Executive Employment Agreement by and between the Registrant and Peter F. Sinisgalli, effective as of February 25, 2004 (Incorporated by reference to Exhibit 10.28 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.28
  Separation and Non-Competition Agreement by and between the Registrant and Peter F. Sinisgalli, effective as of February 25, 2004 (Incorporated by reference to Exhibit 10.29 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.29
  Executive Employment Agreement by and between the Registrant and Steve Norton, effective as of January 24, 2005 (Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K (File No. 000-23999), filed on January 12, 2005).
 
   
10.30
  Severance and Non-Competition Agreement by and between the Registrant and Steve Norton, effective as of January 24, 2005 (Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K (File No. 000-23999), filed on January 12, 2005).
 
   
10.31
  Executive Employment Agreement by and between the Registrant and Richard M. Haddrill, dated October 11, 1999 (Incorporated by reference to Exhibit 10.26 to the Company’s Annual Report for the period ended December 31, 1999 (File No. 000-23999), filed on March 30, 2000).
 
   
10.32
  Executive Employment Agreement Modification by and between the Registrant and Richard M. Haddrill, effective July 19, 2001 (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report for the period ended September 30, 2001 (File No. 000-23999), filed on November 14, 2001).
 
   
10.33
  Executive Employment Agreement Second Modification by and between the Registrant and Richard M. Haddrill, effective November 10, 2003 (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report for the period ended September 30, 2003 (File No. 000-23999), filed on November 14, 2003).
 
   
10.34
  Executive Employment Agreement Third Modification by and between the Registrant and Richard M. Haddrill, effective February 25, 2004 (Incorporated by reference to Exhibit 10.27 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.35
  Executive Employment Agreement by and between the Registrant and Edward K. Quibell, effective as of April 25, 2003 (Incorporated by reference to Exhibit 10.30 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.36
  Severance and Non-Competition Agreement by and between the Registrant and Edward K. Quibell, dated April 25, 2003 (Incorporated by reference to Exhibit 10.31 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.37
  Executive Employment Agreement by and between the Registrant and Jeffrey Mitchell, effective as of September 3, 1999 (Incorporated by reference to Exhibit 10.32 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.38
  Executive Non-Competition and Severance Agreement by and between the Registrant and Jeffrey S. Mitchell, dated June 22, 2004 (Incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report for the period ended June 30, 2004 (File No. 000-23999), filed on August 9, 2004).

 


Table of Contents

     
Exhibit    
Number   Description
10.39
  Executive Employment Agreement by and between the Registrant and Jeffry Baum, effective as of October 30, 2000 (Incorporated by reference to Exhibit 10.36 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.40
  Executive Employment Agreement by and between the Registrant and Ramesh Srinivasan, effective as of January 1, 2004 (Incorporated by reference to Exhibit 10.33 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.41
  Severance and Non-Competition Agreement by and between the Registrant and Ramesh Srinivasan, dated January 1, 2004 (Incorporated by reference to Exhibit 10.34 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.42
  Separation and Non-Competition Agreement by and between the Registrant and Ramesh Srinivasan, dated January 25, 2005.
 
   
10.43
  Employment Agreement by and between the Registrant and Eric Peters, dated April 23, 2002 (Incorporated by reference to Exhibit 10.35 to the Company’s Annual Report for the period ended December 31, 2003 (File No. 000-23999), filed on March 15, 2004).
 
   
10.44
  Separation Agreement and Release, by and between the Registrant and Neil Thall, dated March 26, 2003 (Incorporated by reference to Exhibit 10.28 to the Company’s Annual Report for the period ended December 31, 2002 (File No. 000-23999), filed on March 31, 2003).
 
   
10.45
  Non-Competition Agreement, by and between the Registrant and Neil Thall, dated March 26, 2003 (Incorporated by reference to Exhibit 10.29 to the Company’s Annual Report for the period ended December 31, 2002 (File No. 000-23999), filed on March 31, 2003).
 
   
10.46
  Form of License Agreement, Software Maintenance Agreement and Consulting Agreement (Incorporated by reference to Exhibit 10.18 to the Company’s Pre-Effective Amendment No. 1 to its Registration Statement on Form S-1 (File No. 333-47095), filed on April 2, 1998).
 
   
10.47
  Form of Software License, Services and Maintenance Agreement (Incorporated by reference to Exhibit 10.21 to the Company’s Annual Report for the period ended December 31, 1998 (File No. 000-23999), filed on March 31, 1999).
 
   
10.48
  Asset Purchase Agreement, dated December 31, 2002, by and between the Registrant and Logistics.com, Inc. (Incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K (File No. 000-23999), filed on January 15, 2003).
 
   
16.1
  Letter from Arthur Andersen LLP, dated April 25, 2002, to the Securities and Exchange Commission (Incorporated by reference to Exhibit 16.1 to the Company’s Form 8-K (File No. 000-23999), filed on April 29, 2002).
 
   
21.1
  List of Subsidiaries.
 
   
23.1
  Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.
 
   
31.1
  Certificate of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
31.2
  Certificate of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
   
32.1
  Certificate of Chief Executive Officer and Chief Financial Officer.
 
   
99.1
  Safe Harbor Compliance Statement for Forward-Looking Statements.

 



                                                                    EXHIBIT 10.7

                           BURLINGTON BUSINESS CENTER
                            BURLINGTON, MASSACHUSETTS
                        LEASE dated as of August 23, 2004

                                    ARTICLE I

1.1   Reference Data

Each reference in this Lease to any of the following subjects shall be construed
to incorporate the data stated for that subject in this Article:

LANDLORD:   GATEWAY ROSEWOOD, INC.

LANDLORD'S ORIGINAL ADDRESS:      c/o Lincoln Properties Company
                                  101 Arch Street
                                  Boston, Massachusetts  02110

LANDLORD'S CONSTRUCTION REPRESENTATIVE:

TENANT:  Manhattan Associates, Inc.
         a Georgia corporation

TENANT'S ORIGINAL ADDRESS:        2300 Windy Ridge Parkway
                                  7th Floor
                                  Atlanta, GA  30339
                                  Attn:  Director of Real Estate

TENANT'S CONSTRUCTION REPRESENTATIVE:    Joe Howard

TENANT'S FINAL PLANS DATE:        Not Applicable

SCHEDULED TERM COMMENCEMENT DATE:   October 1, 2004

RENT COMMENCEMENT DATE:               The date two (2) months after the Term
                                      Commencement Date. Tenant's obligation to
                                      pay Annual Fixed Rent shall not commence
                                      to accrue until the Rent Commencement Date
                                      ("Annual Fixed Rent Abatement Period")
                                      (i.e., Tenant shall have no obligation to
                                      pay Annual Fixed Rent during the first
                                      (1st) two (2) months of the Term of the
                                      Lease ("Abated Annual Fixed Rent").
                                      Notwithstanding anything to the contrary
                                      herein contained, if Tenant defaults at
                                      any time during the Term of the Lease and
                                      fails to cure such default within any
                                      applicable cure period under the Lease,

                                       1


                                      all Abated Annual Fixed Rent shall
                                      immediately become due and payable. The
                                      payment by Tenant of the Abated Annual
                                      Fixed Rent in the event of a default shall
                                      not limit or affect any of Landlord's
                                      other rights, pursuant to this Lease or at
                                      law or in equity. During the Annual Fixed
                                      Rent Abatement Period, only Annual Fixed
                                      Rent shall be abated, and Electricity
                                      Charges and all other costs and charges
                                      specified in the Lease shall remain as due
                                      and payable pursuant to the provisions of
                                      the Lease.

TENANT'S SPACE:                 An area on the second (2nd) floor of Pod B of
                                the Building, containing approximately 16,422
                                rentable square feet, substantially as shown on
                                Exhibit F attached hereto

TERM:                           The period commencing as of the Term
                                Commencement Date and subject to Paragraph K of
                                Exhibit B to the Lease, ending as of the date
                                seventy-four (74) months after the Term
                                Commencement Date ("Termination Date")

RENT YEAR:                      Any twelve month period during the term of the
                                Lease commencing as of the Rent Commencement
                                Date, or as of any anniversary of the Rent
                                Commencement Date

ANNUAL FIXED RENT: Rent Year Annual Fixed Rent Monthly Payment --------- ----------------- --------------- Term of Commencement Date through the end of Rent Year 2: $295,596.00 $24,633.00 3-5: $303,807.00 $25,317.25 6: $312,018.00 $26,001.50
Subject to the definition of Rent Commencement Date above, Tenant has no obligation to pay Annual Fixed Rent prior- to the Rent Commencement Date. TENANT'S ANNUAL ELECTRICITY CHARGE: $20,527.50 per annum (i.e., $1,710.63 per month) (i.e., $1.25 per square foot of Rentable Floor Area of the Premises per annum. 2 TENANT'S TAX BASE: The actual amount of Tax Expenses Allocable to the Premises in respect of fiscal tax year 2005 (i.e., July 1, 2004 - June 30, 2005) TENANT'S OPERATING EXPENSE BASE: Subject to Section 2.6A(c), the actual amount of Operating Expenses Allocable to the Premises in respect of calendar year 2005 RENTABLE FLOOR AREA OF THE BUILDING: 175,423 Rentable Square Feet PERMITTED USES: General business, office and administration-related activities PUBLIC LIABILITY INSURANCE: Bodily Injury - $2,000,000.00 in the aggregate/$ 1,000,000.00 per occurrence. Property Damage - $2,000,000.00 in the aggregate/$ 1,000,000.00 per occurrence. SECURITY DEPOSIT: Twenty-Four Thousand Six Hundred Thirty-Three and 001/00 ($24,633.00) Dollars. 1.2 Exhibits. There are nine (9) incorporated as a part of this Lease: EXHIBIT A - Description of Lot EXHIBIT B - Landlord's Work EXHIBIT C - Plans and Specifications for Landlord's Work EXHIBIT D - Building Standard Tenant Improvements EXHIBIT E - Landlord's Services EXHIBIT F - Floor Plan EXHIBIT G - Required Tenant Work General Conditions EXHIBIT H - Building Rules and Regulations EXHIBIT I - Building Alterations Rules and Regulations 3 1.3 Tables of Articles and Sections ARTICLE I ..................................................................... 1 1.1 Reference Data....................................................... 1 1.2 Exhibits............................................................. 3 1.3 Tables of Articles and Sections...................................... 4 ARTICLE II PREMISES, TERM AND RENT.............................................. 7 2.1 The Premises......................................................... 7 2.2 Rights to Use Common Facilities...................................... 7 2.3 Landlord's Reservations.............................................. 7 2.4 Commencement of Term................................................. 8 2.5 Monthly Fixed Rent Payments.......................................... 8 2.6 Adjustment for Operating Expenses.................................... 9 2.7 Adjustments for Real Estate Taxes.................................... 11 2.8 Due Date, Additional Rent; No Offsets................................ 13 ARTICLE III TENANT ALTERATIONS AND CONSTRUCTION.................................. 13 3.1 Alterations and Additions by Tenant.................................. 13 3.2 Real Estate Taxes on Leasehold Improvements.......................... 15 3.3 Landlord's Right to Make Alterations................................. 16 ARTICLE IV LANDLORD'S COVENANTS; INTERRUPTIONS AND DELAYS....................... 17 4.1 Services Furnished by Landlord....................................... 17 4.2 Additional Services Available to Tenant.............................. 17 4.3 Additional Air Conditioning Equipment................................ 17 4.4 Roof, Exterior Wall, Floor Slab, and Common Facility Repair.......... 18 4.5 Door Signs........................................................... 18 4.6 Quiet Enjoyment...................................................... 18 ARTICLE V TENANT'S COVENANTS................................................... 19 5.1 Payments............................................................. 19 5.2 Repair and Yield Up.................................................. 19 5.3 Use.................................................................. 19 5.4 Obstructions, Items Visible from Exterior; Rules and Regulations..... 20 5.5 Safety Appliances.................................................... 20 5.6 Assignment; Sublease................................................. 20 5.7 Indemnity; Insurance................................................. 25 5.8 Personal Property at Tenant's Risk................................... 25
4 5.9 Right of Entry....................................................... 25 5.10 Floor Load; Prevention of Vibration and Noise........................ 26 5.11 Personal Property Taxes.............................................. 26 5.12 Payment of Litigation Expenses....................................... 26 5.13 Compliance with Insurance Regulations................................ 26 ARTICLE VI CASUALTY AND TAKING.......................................................... 27 6.1 Termination or Restoration; Rent Adjustment.......................... 27 6.2 Eminent Domain....................................................... 28 6.3 Temporary Taking..................................................... 28 ARTICLE VII DEFAULT..................................................................... 29 7.1 Events of Default.................................................... 29 7.2 Damages.............................................................. 29 7.3 Landlord's Default................................................... 30 ARTICLE VIII MISCELLANEOUS.............................................................. 31 8.1 Computation of Rentable Floor Areas.................................. 31 8.2 Notice of Lease; Consent of Approval; Notices: Bind and Inure........ 32 8.3 Landlord's Failure to Enforce........................................ 32 8.4 Acceptance of Partial Payments of Rent; Delivery of Keys............. 33 8.5 Cumulative Remedies.................................................. 33 8.6 Partial Invalidity................................................... 33 8.7 Self-Help............................................................ 33 8.8 Tenant's Estoppel Certificate ....................................... 34 8.9 Waiver of Subrogation................................................ 34 8.10 All Agreements Contained............................................. 35 8.11 Brokerage............................................................ 35 8 12 Submission Not an Option............................................. 35 8.13 Applicable Law....................................................... 35 8.14 Waiver of Jury Trial................................................. 35 8.15 Holdover............................................................. 35 8.16 Arbitration ......................................................... 36 8.17 Requirements of Law - Fines and Penalties............................ 37 8.18 Inability to Perform -Exculpatory Clause............................. 37 8.19 Parties Bound - Seizin of Title ..................................... 38 8.20 Security Deposit..................................................... 38 ARTICLE IX RIGHTS OF PARTIES HOLDING PRIOR INTERESTS.................................... 39 9.1 Lease Subordinate.................................................... 39 9.2 Rights of Holder of Mortgage to Notice of Defaults by Landlord and to Cure Same ........................................................... 40
5 ARTICLE X TENANT'S OPTION TO EXTEND THE TERM OF THE LEASE....................... 40 ARTICLE XI TENANT'S EXPANSION RIGHTS............................................ 41 ARTICLE XII ANTENNA AREA........................................................ 43 ARTICLE XIII CONDITION OF LANDLORD'S EXECUTION.................................. 47
6 ARTICLE II PREMISES, TERM AND RENT 2.1 The Premises Landlord hereby leases to Tenant and Tenant hereby hires from Landlord Tenant's Space in the Building. The demise herein excludes exterior faces of exterior walls, the common stairways and stairwells, elevators and elevator shafts, fan rooms, electric and telephone closets, janitor closets, freight elevator vestibules, and pipe, ducts, conduits, wires and appurtenant fixtures serving exclusively or in common other parts of the Building, and if Tenant's Space includes less than the entire rentable area of any floor, excluding the common corridors, elevator lobbies and toilets located on such floor. Tenant's Space with such exclusions is hereinafter referred to as "the Premises." The term "Building" means the building erected on the Lot by Landlord, and the term "Lot" means all, and also any part of, the land described in Exhibit A in whole or in part and subject to minor adjustments of the lot boundaries. "Property" means the Building and Lot. 2.2 Rights to Use Common Facilities Tenant shall have, as appurtenant to the Premises, rights to use in common, subject to reasonable rules of general applicability to tenants of the Building from time to time made by Landlord of which Tenant is given notice: (a) the common lobbies, corridors, stairways, elevators and loading platform of the Building, and the pipes, ducts, conduits, wires and appurtenant meters and equipment serving the Premises in common with others, (b) common walkways and driveways necessary for access to the Building, (c) if the Premises included less than the entire rentable area of any floor, the common toilets, corridors and elevator lobbies of such floor and (d) up to sixty-one (61) parking spaces in the common parking facilities adjacent to the Building (Tenant hereby acknowledging that parking is available on a first-come, first-served basis only); and no other appurtenant rights or easements. Landlord shall have no obligation to police the use of such parking spaces. Landlord shall have no obligation to police said common parking areas and Landlord shall not be responsible for money, jewelry, automobiles or other personal property lost in or stolen from the common parking areas. Landlord shall not be liable for any loss, injury or damage to persons using the common parking areas or automobiles or other property therein, it being agreed that, to the fullest extent permitted by law, the use of the common parking areas shall be at the sole risk of Tenant and its employees. 2.3 Landlord's Reservations Landlord reserves the right from, time to time, without unreasonable interference with Tenant's use: (a) to install, use, maintain, repair, replace and relocate for service to the Premises and other parts of the Building, or either, pipes, ducts, conduits, wires and appurtenant fixtures, wherever located in the Premises or Building, and (b) to alter or relocate any other common 7 facility, provided that substitutions are substantially equivalent or better. Installations, replacements and relocations referred to in clause (a) above shall be located so far as practicable in the central core area of the Building, above ceiling surfaces, below floor surfaces or within perimeter walls of the Premises. 2.4 Commencement of Term Tenant shall have and hold the Premises for a period commencing on the date ("Term Commencement Date") which is the earlier of (a) the later of: (i) the Substantial Completion Date, as defined in Exhibit B to the Lease, or (ii) October 1, 2004, or (b) that date on which Tenant commences occupancy of any portion of the Premises for the Permitted Uses. If Landlord shall be unable to give possession of the Premises on the Scheduled Term Commencement Date because the Premises are not completed and ready for occupancy, or due to the holding over or retention of possession of any tenant or occupant, or if repairs, improvements or decorations of the Premises or of the Building are not completed, or for any other reason, Landlord shall not be subject to any liability for failure to give possession on said date, nor shall such failure affect the continuing validity of this Lease. 2.5 Monthly Fixed Rent Payments Tenant shall pay, without notice or demand, monthly installments of 1/12 of (a) the Annual Fixed Rent, and (b) a charge ("Annual Electricity Charge") equal to $1.25 per annum for each square foot of Rentable Floor Area of the Premises for tenant electricity, as described in paragraph VI (A) of Exhibit E, in advance oil the first day of each month for each full calendar month of the Term, and the corresponding fraction of said amounts for any fraction of a calendar month at the beginning or end of the Term. Notwithstanding the provisions hereof, Tenant shall pay the first monthly installment of Annual Fixed Rent on the execution of this Lease. Rental and any other sums due hereunder not paid within ten (10) days after the date due shall bear interest for each month or fraction thereof from the due date until paid computed at the annual rate of two (2) percentage points over the so-called prime rate then currently from time to time charged by Bank of America, or its successor, or at any applicable lesser maximum legally permissible rate for debts of this nature. In addition, should Tenant fail to pay when due rental and any other sums due hereunder, Tenant acknowledges that Landlord will incur additional administrative expenses which are difficult to determine. Therefore, in such event, Landlord may assess against Tenant, from and after the tenth (10th) day following the date on which any sum shall be due and payable, a late payment fee ("Late Fee") equal to three (3%) percent of the sum due from Tenant to Landlord. Notwithstanding the foregoing, Landlord hereby 8 agrees to waive the Late Fee with respect to the first two late payments (i.e., any payment which are not paid within ten (10) days of the due date) in any twelve month period. 2.6 Adjustment for Operating Expenses A. Terms used herein are defined as follows: (a) "Operating Year" shall mean any 12 month period elected by Landlord for operating purposes. Landlord's current Operating Year commences on January 1 of each year. If Landlord should elect to change said Operating Year, Landlord shall notify Tenant thereof, and all calculations required to be made at the end of an Operating Year shall be made and proportioned accordingly. (b) "Operating Expenses for the Property" means the cost of operation of the Property which shall exclude costs of special services rendered to tenants (including Tenant) for which a separate charge is made, and items of expense referred to in Section 2.7 hereof, but shall include, without limitation, the following: Premiums for insurance carried with respect to the Property (including insurance against loss in case of fire or casualty, rent interruption insurance, and any insurance required by Landlord's mortgagee); compensation and all fringe benefits, Workmen's Compensation Insurance premiums and payroll taxes paid to, for or with respect to all persons engaged in the operating, repairing, maintaining, or cleaning of the Building or Lot; steam, water, sewer, gas, oil and telephone charges; electricity provided to the Building and to electricity provided to the tenanted areas ("Premises Electricity") to the extent that the cost of Premises Electricity exceeds $1.25 per square foot of Rentable Floor Area of the Building per annum); cost of building and cleaning supplies and equipment; related equipment, facilities and appurtenances, elevators, cooling and heating equipment, provided, however, that (i) if, during the term of this Lease, Landlord shall replace any capital items or make any capital expenditures (collectively called "capital expenditures") the total amount of which is not properly includible in Operating Expenses for the Operating Year in which they were made, there shall nevertheless be included in such Operating Expenses and in Operating Expenses for each succeeding Operating Year the amount, if any, by which the annual charge-off (determined as hereinafter provided) of such capital expenditure (less insurance proceeds, if any, collected by Landlord by reason of damage to, or destruction of the capital item being replaced) exceeds the annual charge-off of the capital expenditure for the item being replaced; and (ii) if a new capital item is acquired which does not replace another capital item which has worn out, has become obsolete, etc., then there shall be included in Operating Expenses for each Operating Year in which and after such capital expenditure is made the annual charge-off of such capital expenditure. (Annual charge-off shall be determined by (i) dividing the original cost of the capital expenditure by the number of years of life thereof [The useful life shall be reasonably determined by Landlord in accordance generally accepted accounting principles and practices in effect at the time of acquisition of the capital item], and (ii) adding to such quotient an interest factor computed 9 on the unamortized balance of such capital expenditure at an annual rate of either one percentage point over the AA Bond rate [Standard & Poor's corporate composite or, if unavailable, its equivalent] as reported in the financial press at the time the capital expenditure is made or, if the capital item is acquired through third-party financing, then the actual [including fluctuating] rate paid by Landlord in financing the acquisition of such capital item.) Provided, further, that if Landlord reasonably concludes on the basis of engineering estimates that a particular capital expenditure will effect savings in Operating Expenses for the Property, including, without limitation, energy-related costs, and that such annual projected savings will exceed the annual charge-off of capital expenditure computed as aforesaid, then and in such events, the annual charge-off shall be determined by dividing the amount of such capital expenditure by the number of years over which the projected amount of such savings shall fully amortize the cost of such capital item or the amount of such capital expenditure; and by adding the interest factor, as aforesaid; cost of maintenance, cleaning and repairs, cost of snow removal and care of landscaping; payments under service contracts with independent contractors or subsidiaries or affiliates of Landlord; management fees to the extent the same do not exceed market rate management fees charged with respect to comparable buildings in the Town of Burlington; and all other expenses paid in connection with the operation, repair, cleaning and maintenance of the Building and Lot. (c) If during all or part of any Operating Year (including, without limitation, the base year of 2005), Landlord is not performing or furnishing any item to any portion of the Building (the cost of which, if performed or furnished by Landlord to such portion of the Property would constitute a part of Operating Expenses for the Property) on account of (a) such portion of the Building not being occupied or leased, (b) such item not being required or desired by a tenant, (c) any tenant itself obtaining or providing such item, or (d) any other reason, whether similar or dissimilar to the foregoing; then, Operating Expenses for the Property shall be deemed to be increased by an amount equal to the additional costs and expenses which would reasonably have been incurred during such period by Landlord if it had performed or furnished such item to 100% of the Building. (d) "Operating Expenses Allocable to the Premises", as may be adjusted pursuant to Subparagraph (c) hereof, shall mean Operating Expenses for the Property, multiplied by a fraction, which is equal to the greater of: (i) ninety-five (95%) percent of the ratio of the Rentable Floor Area of Tenant's Space to the Rentable Floor Area of the Building, or (ii) the ratio of the Rentable Floor Area of Tenant's Space to the Rentable Floor Area of the Building actually leased on an average annual basis for said Operating Year. (e) The "Statement" shall mean a statement rendered to Tenant by Landlord within 90 days or as soon thereafter as reasonably possible after the end of each Operating Year. The Statement shall be in reasonable detail, certified by Landlord's representative, and show the Operating Expenses for the Property, the Operating Expenses Allocable to the Premises, amounts already paid by Tenant for Operating Expenses Allocable to the Premises (including Tenant's Operating Expense Base, amounts received on account of 10 Annual Electricity Charge pursuant to Section 2.5 hereof, and amounts paid pursuant to part C of this Section 2.6), and the amount of Operating Expenses Allocable to the Premises remaining due from or overpaid by Tenant for the Operating Year or fraction thereof covered by the Statement with appropriate prorations for fractional years. B. If with respect to any Operating Year of the Term, Operating Expenses Allocable to the Premises exceed Tenant's Operating Expense Base, then Tenant shall pay to Landlord as additional rent the amount of such excess ("Operating Expense Excess"). Such payments shall be made at the times and in the manner hereinafter provided in this Section 2.6. Appropriate prorations shall be made for those periods at the beginning or end of the Term which are less than a full Operating Year (Tenant's Operating Expense Base includes the $1.25 per Rentable Square Foot charge for Annual Electricity Charge to be paid pursuant to Section 2.5 hereof). Within 30 days after the date of delivery of such Statement, Tenant shall pay to Landlord or Landlord shall pay to Tenant as the case may be, the balance of the amounts, if any, required to be paid pursuant to the above provisions of this Section 2.6, except that Landlord may at its option credit any amounts due from it to Tenant against monthly installments of Annual Fixed Rent next thereafter coming due. C. Commencing on the first day of the first month following the delivery to Tenant of the Statement referred to above and on the first day of each month thereafter until delivery to Tenant of the next such Statement, Tenant shall pay to Landlord, on account of Tenant's share of increases in Operating Expenses Allocable to the Premises anticipated by Landlord for the then current Operating Year, 1/12th of the difference between Operating Expenses Allocable to the Premises calculated by Landlord on the basis of the most recent Operating Expense data or budget available from time to time, and Tenant's Operating Expense Base. 2.7 Adjustments for Real Estate Taxes Terms used herein are defined as follows: (a) "Tax Year" means the twelve-month period beginning July 1 each year during the Term or if the appropriate governmental tax fiscal period shall begin on any date other than July 1, such other date. (b) In any Tax Year when the Building has an average annual occupancy rate of less than 95% then "Tax Expenses Allocable to the premises" means the same proportion of the Landlord's Tax Expenses as Rentable Floor Area of Tenant's Space bears to 95% of the Rentable Floor Area of the Building. 11 (c) In any Tax Year when the Building has an average annual occupancy rate of 95% or more "Tax Expenses Allocable to the Premises" means the same proportion of Landlord's Tax Expenses as Rentable Floor Area of Tenant's Space bears to the Rentable Floor Area of the Building actually leased on an average annual basis for said Tax Year. (d) "Landlord's Tax Expenses" with respect to any Tax Year means the aggregate Real Estate Taxes on the Property with respect to that Tax Year, reduced by any abatements actually received with respect to that Tax Year. (e) "Real Estate Taxes" means all taxes, levies, betterments, and special assessments of every kind and nature assessed by National, State, Municipal or by any other governmental authority on the Lot or the Building or the Property which the Landlord shall become obligated to pay because of or in connection with the ownership, leasing, operating, use or occupancy of the Lot, the Building, and the Property or based upon rentals derived therefrom; charges, fees and assessments for transit, housing, police, fire or other governmental services or purported benefits to the Building; service or user payments in lieu of taxes; and reasonable expenses of any proceedings for abatement of taxes. The amount of special taxes or special assessments to be included shall be limited to the amount of the installment (plus any interest, other than penalty interest, payable therein) of such special tax or special assessment required to be paid during the year in respect of which such taxes are being determined. There shall be excluded from such taxes all income, estate, succession, inheritance and transfer taxes; provided, however, that if at any time during the Term the present system of ad valorem tax of real property shall be changed so that in lieu of or in addition to the whole or any part of the ad valorem tax on real property, there shall be assessed on Landlord a capital levy or other tax on the gross rents received with respect to the Lot or Building or Property, or a federal, state, county, municipal, or other local income, franchise, excise or similar tax, assessment, levy or charge (distinct from any now in effect in the jurisdiction in which the Property is located) measured by or based, in whole or in part, upon any such gross rents, than any and all of such taxes shall be included within the term "Real Estate Taxes" but only to the extent that the same would be payable if the Lot, Building or Property were the only property of Landlord. If with respect to any Tax Year of the Term, Tax Expenses Allocable to the Premises exceed Tenant's Tax Base, then Tenant shall pay to Landlord as additional rent the amount of such excess ("Tax Excess"). Such payments shall be made at the times and in the manner hereinafter provided in this Section 2.7. Appropriate prorations shall be made for those periods at the beginning or end of the Term which are less than a full Tax Year. Within ninety (90) days or as soon thereafter as reasonably possible after the end of such first Tax Year or fraction thereof at the beginning of the Term, and of each succeeding Tax Year during the Term and within ninety (90) days or as soon thereafter as reasonably possible after lease termination, Landlord shall render to Tenant a statement in reasonable detail certified by a representative of Landlord showing for the preceding Tax Year or fraction thereof, as the case may be, Landlord's Tax Expenses for the Property, and Tax Expenses Allocable to the Premises. 12 Commencing on the first day of the first month following the delivery to Tenant of the statement referred to above and on the first day of each month thereafter until delivery to Tenant of the next such statement, Tenant shall pay to Landlord, on account toward Tenant's share of increases in Tax Expenses Allocable to the Premises anticipated for the then current Tax Year, 1/12th of the total amount of Tax Expenses Allocable to the Premises as shown on the most recent such statement delivered to Tenant. The statements to be rendered to Tenant referred to above shall also show for the preceding Tax Year amounts of Real Estate Taxes already paid by Tenant on account for such year and the amount of Tax Expenses Allocable to the Premises remaining due from or overpaid by Tenant for the Tax Year or fraction thereof covered by the statement. Within 30 days after the date of delivery of such statement, Tenant shall pay to Landlord or Landlord shall pay to Tenant as the case may be, the balance of the amounts, if any, required to be paid pursuant to the above provisions of this Section 2.7, except that Landlord may at its option credit any amounts due from it to Tenant against installments of Annual Fixed Rent and other charges due under the Lease next thereafter coming due; provided however, that if such statement is delivered after the termination of the term of the Lease, Landlord shall reimburse Tenant for the amount of any overpayment on account of Tax Expenses Allocable to the Premises to the extent that it exceeds any amount then due from Tenant to Landlord. To the extent that Real Estate Taxes shall be payable to the taxing authority in installments for periods less than a Tax Year, the foregoing statement shall be rendered and payments made on account of such installments with respect to such periods rather than with respect to such full Tax Year. 2.8 Due Date, Additional Rent, No Offsets Except as otherwise specifically provided herein, all sums, amounts, items or charges payable by Tenant to Landlord under this Lease shall be considered as additional rent, and shall be paid by Tenant to Landlord on the first day of the month following the date on which Landlord notifies Tenant of the amount payable or on the tenth day after the giving of such notice, whichever shall be later. Any such notice shall specify in reasonable detail the basis of such additional rent. Annual Fixed Rent and additional rent shall be paid by Tenant to Landlord without offset or deduction. ARTICLE III TENANT ALTERNATIONS AND CONSTRUCTION 3.1 Alterations and Additions by Tenant (a) This Section 3.1 shall apply before and during the Term. Tenant shall not make alterations and additions to Tenant's Space except in accordance with plans and 13 specifications and a time schedule therefor first approved by Landlord in writing. All alterations and additions to Tenant's Space shall equal or exceed the specifications and quantities provided in Exhibit D. No amendments or additions to Tenant's approved plans shall be made without the prior written consent of Landlord. Landlord shall not be deemed unreasonable for withholding approval of any alterations or additions which (a) involve or might affect any structural or exterior element of the Building, any area or element outside of the Premises, or any facility serving any area of the Building outside the Premises, or (b) will delay completion of the Premises or Building or (c) will require unusual expense to readapt the Premises to normal office use on Lease termination or increase the cost of construction or of insurance or taxes on the Building or of the services called for by Section 4.1 unless Tenant first gives assurance acceptable to Landlord for payment of such increased cost and that such readaption will be made prior to such termination without expense to landlord. (b) All alterations and additions shall be part of the Building unless and until Landlord shall specify the same for removal pursuant to Section 5.2. Landlord may elect to require Tenant at the expiration or sooner termination of the term of this Lease to restore the Premises to substantially the same condition as existed at the Term Commencement Date. (c) All of Tenant's alterations and additions and installation of furnishings shall be coordinated with any work being performed by Landlord in such manner as to not damage the Property or interfere with Building construction or operation and, except for installation of furnishings, shall be performed by Landlord's general contractor or by contractors or workmen first approved by Landlord. In the event that Tenant shall engage its own contractors to perform such work, Tenant shall pay to Landlord the cost of services provided by Landlord or Landlord's contractor to Tenant and to Tenant's contractors while performing such work, which services shall include, but not be limited to, cleaning, security, rubbish removal, electricity, toilet facilities, and elevators. Tenant's contract with any such contractors shall include the Required Tenant Work General Conditions attached hereto as Exhibit G, and Landlord shall have the right to enforce such General Conditions directly against any of Tenant's contractors. Tenant shall defend, save harmless, exonerate and indemnify Landlord from all injury, loss or damage to any person or property occasioned by or growing out of such work. Tenant agrees that it will not, either directly or indirectly, use any contractors and/or materials if their use will create any difficulty, whether in the nature of a labor dispute or otherwise, with other contractors and/or labor engaged by Tenant or Landlord or others in the construction, maintenance and/or operation of the Building or any part thereof. Except for work by Landlord's general contractor, Tenant, before its work is started, shall: secure all licenses and permits necessary therefor; deliver to Landlord a statement of the names of all its contractors and subcontractors and the estimated cost of all labor and material to be furnished by them; and cause each contractor to carry Workmen's Compensation insurance in statutory amounts covering all the contractor's and subcontractor's employees, Automobile Liability Insurance and comprehensive public liability insurance and property damage 14 insurance with such limits as Landlord may reasonably require but in no event less than, with respect to public liability insurance, the applicable Minimum Liability Insurance Limit, as hereinafter defined and with respect to property damage insurance, the applicable Minimum Liability Insurance Limit (all insurance to be written in companies approved by Landlord and insuring Landlord and Tenant as well as the contractors, and to deliver to Landlord certificates of all such insurance. With respect to any alteration, addition, or installation made by, or on behalf of Tenant, the cost of which exceeds One Hundred Thousand ($100,000.00) Dollars (referred to herein as "Bonded Project"), no installations or work shall be undertaken or begun by Tenant until Tenant has either: (i) procured appropriate surety payment and performance bonds which shall name Landlord as an additional obligee and filed lien bonds on behalf of such contractors, laborers and suppliers, or (ii) obtained other appropriate protective measures, approved by Landlord. The "Minimum Liability Insurance Limit" for any general contractor which performs construction work within the Premises shall be $5,000,000.00, and the Minimum Liability Insurance Limit for all other contractors (e.g. furniture movers, telecommunications installation contractors, etc.) and all subcontractors shall be $2,000,000.00. (d) In no event shall any material or equipment be incorporated in or added to the Premises, so as to become a fixture or otherwise a part of the Building, in connection with any such alteration, decoration, installation, addition or improvement which is subject to any lien, charge, mortgage or other encumbrance of any kind whatsoever or is subject to any security interest or any form of title retention agreement. Any mechanic's lien filed against the Premises or the Building for work claimed to have been done for, or materials claimed to have been furnished to, Tenant shall be discharged by Tenant within ten (10) days thereafter, at Tenant's expense, by filing the bond required by law or otherwise. If Tenant fails so to discharge any lien, Landlord may do so at Tenant's expense and Tenant shall reimburse Landlord for or any expense or cost incurred by Landlord in so doing within fifteen (15) days after rendition of a bill therefor. (e) All installations or work done by Tenant shall be at its own expense and shall at all times comply with (i) laws, rules, orders and regulations of governmental authorities having jurisdiction thereof; (ii) orders, rules and regulations of any Board of Fire Underwriters, or any other body hereafter constituted exercising similar functions, and governing insurance rating bureaus; (iii) Rules and Regulations of Landlord; and (iv) plans and specifications prepared by and at the expense of Tenant theretofore submitted to and approved by Landlord. All construction work required or permitted by this Lease shall be done in a good and workmanlike manner. Tenant agrees to pay promptly when due the entire cost of any work done on the Premises by Tenant, its agents, employees, or independent contractors. 3.2 Real Estate Taxes on Leasehold Improvements If under Massachusetts law or regulations, the tax assessor is required to include leasehold (real property) improvements in determining the assessed value of the Building, then to the extent that Tenant makes leasehold improvements (including Tenant's original installation and Tenant's subsequent alterations, additions, substitutions and improvements) which are in excess of the Building Standard Tenant Improvements set forth in Exhibit D, 15 whether done prior to or after the commencement of the Term of this Lease, Tenant shall pay the real estate taxes attributable to the value of such excess leasehold improvements throughout the Term of this Lease within thirty (30) days after being billed therefor by Landlord. 3.3 Landlord's Right to Make Alterations Landlord reserves the right, exercisable by itself or its nominee, at any time and from time to time without the same constituting an actual or constructive eviction and without incurring any liability to Tenant therefor or otherwise affecting Tenant's obligations under this Lease, to make such changes, alterations, additions, improvements, repairs or replacements (collectively "Alterations') in or to the Building (including the Premises, provided however, that no Alterations shall be made with the Premises in the volume below the ceiling, outside of the walls, and above the floor without obtaining Tenant's prior written consent, which consent shall not be unreasonably withheld conditioned or delayed) and the fixtures and equipment thereof, as well as in or to the street entrances, halls, passages, elevators, escalators, and stairways thereof, as it may deem necessary or desirable, and to change the arrangement and/or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets, or other public parts of the Building, provided, however, that there be no unreasonable obstruction of the right to access to, or unreasonable interference with the use of the premises by Tenant. Nothing contained in this Section 3.3 shall be deemed to relieve Tenant of any duty, obligation or liability of Tenant with respect to making any repair, replacement or improvement or complying with any law, order or requirement of any governmental or other authority. Landlord reserves the right to adopt at any time and from time to time to change the name or address of the Building. Neither this Lease nor any use by Tenant shall give Tenant any right or easement for the use of any door or any passage or any concourse connecting with any other building or to any public convenience, and the use of such doors, passes and concourses and of such conveniences may be regulated or discontinued at any time and from time to time by Landlord without notice to Tenant and without affecting the obligation of Tenant hereunder or incurring any liability to Tenant therefor, provided, however, that there be no unreasonable obstruction of the right to access to, or unreasonable interference with the use of the Premises by Tenant. Landlord shall not be liable to Tenant for any compensation or reduction of rent by reason of inconvenience or annoyance or for loss of business arising from the necessity of Landlord or its agents entering the Premises for any of the purposes in this Lease authorized, or for repairing the Premises or any portion of the Building, however the necessity may occur. Subject to Section 8.18, in case Landlord is prevented or delayed from making any repairs, alterations or improvements, or furnishing any services or performing any other covenant or duty to be performed on Landlord's part, by reason of any cause reasonably beyond Landlord's control, Landlord shall not be liable to Tenant therefor, nor except as expressly otherwise provided in Section 6.1 shall Tenant be entitled to any abatement or reduction of rent by reason thereof, nor shall the same give rise to a claim in Tenant's favor that such failure constitutes actual or constructive, total or partial, eviction from the Premises. 16 Landlord reserves the right to stop any service or utility system, when necessary by reason of accident or emergency, or until necessary repairs have been completed; provided, however, that in each instance of stoppage Landlord shall exercise reasonable diligence to eliminate the cause thereof. Except in case of emergency repairs Landlord will give Tenant reasonable advance notice of any contemplated stoppage and will use reasonable efforts to avoid unnecessary inconvenience to Tenant by reason thereof. ARTICLE IV LANDLORD'S COVENANTS; INTERRUPTIONS AND DELAYS Landlord covenants: 4.1 Services Furnished by Landlord To furnish services, utilities, facilities and supplies ("Landlord's Services") set forth in Exhibit E, which Landlord's Services Landlord shall have the right to change, from time to time, provided that Landlord's Services (i.e., at the time that Landlord changes such services) shall be equal in quality to those customarily provided by landlords in comparable buildings in the Burlington area. 4.2 Additional Services Available to Tenant To furnish, at Tenant's expense, reasonable additional Building operation services which are usual and customary in similar office buildings in the Burlington area upon reasonable advance request of Tenant at reasonable and equitable rates from time to time established by Landlord. 4.3 Additional Air Conditioning Equipment In the event Tenant requires additional air conditioning for business machines, meeting rooms or other special purposes, or because of occupancy or excess electrical loads, any additional air conditioning units, chillers, condensers, compressors, ducts, piping and other equipment, such additional air conditioning equipment will be installed and maintained by Landlord at Tenant's sole cost and expense (provided however, that Landlord's Contribution, as defined in Paragraph C of Exhibit B towards the cost of installing such equipment), but only if Tenant has obtained Landlord's prior written consent, which consent shall not be unreasonably withheld and if the same will not cause damage or injury to the Building or create a dangerous or hazardous condition or entail excessive or unreasonable alterations, repairs or expense or interfere with or disturb other tenants; and Tenant shall reimburse Landlord in such an amounts as will 17 compensate it for the cost incurred by it in operating such additional air conditioning equipment. 4.4 Roof, Exterior Wall, Floor Slab, and Common Facility Repair Except as otherwise provided in Article VI to make such repairs to the roof, exterior walls, floor slabs, and common areas and facilities as may be necessary to keep them in serviceable condition, the expense of which shall be charged in accordance with Section 2.6. 4.5 Door Signs To provide and install, at Landlord's expense, letters or numerals on doors in the Premises to identify Tenant's name and Building address; all such letters and numerals shall be in the building standard graphics and no others shall be used or permitted on the Premises if the same are visible from anywhere outside of the Premises other than the elevator lobby. 4.6 Quiet Enjoyment Landlord covenants that if, and so long as, Tenant keeps and performs each and every covenant, agreement, term, provision and condition herein contained on the part and on behalf of Tenant to be kept and performed, Tenant shall quietly enjoy the Premises from and against the claims of all persons claiming by, through or under Landlord subject, nevertheless, to the covenants, agreements, terms, provisions and conditions of this Lease and to any instrument to which this Lease is subject and subordinate. 4.7 Indemnification Landlord, subject to the limitations on Landlord's liability contained elsewhere in this Lease, agrees to hold Tenant harmless and to defend, exonerate and indemnify Tenant from and against any and all claims, liabilities, or penalties asserted by or on behalf of any third party for damage to property or injuries to persons sustained or occurring in the Building to the extent arising from the negligence or willful misconduct of Landlord or Landlord's agents, employees or contractors. 4.8 Liability Insurance Landlord shall maintain, in responsible companies qualified to do business, and in good standing, in Massachusetts public liability insurance covering the Premises insuring Landlord with a limit of not less than $5,000,000.00. Such insurance may be effected with a combination a base policy and umbrella insurance. 18 ARTICLE V TENANT'S COVENANTS Tenant covenants during the Term and such further time as Tenant occupies any part of the Premises: 5.1 Payments To pay when due all Annual Fixed Rent and additional rent and all charges for utility services rendered to the Premises (except as otherwise provided in Exhibit E) and, as further additional rent, all charges for additional services rendered pursuant to Section 4.2; 5.2 Repair and Yield Up Except as otherwise provided in Article VI and Section 4.4, to keep the Premises in good order, repair and condition, reasonable wear and tear only excepted, and all glass in windows (except glass in exterior walls of the Building unless the damage thereto is attributable to Tenant's negligence or misuse) and doors of the Premises whole and in good condition with glass of the same quality as that injured or broken, damage by fire only excepted; and at the expiration or termination of this Lease, peaceably to yield up the Premises and all alterations and additions thereto in good order, repair and condition, reasonable wear and tear excepted, first removing all goods and effects of Tenant and, to the extent specified by Landlord by notice to Tenant given at least ten (10) days before such expiration or termination, all alterations and additions made by Tenant and all partitions, and repairing any damage caused by such removal and restoring the Premises and leaving them clean and neat. Tenant will remove any personal property from the Building and the Premises upon or prior to the expiration or termination of this Lease and any such property which shall remain in the Building or the Premises thereafter shall be conclusively deemed to have been abandoned, and may either be retained by Landlord as its property or sold or otherwise disposed of in such manner as Landlord may see fit. If any part thereof shall be sold, then Landlord may receive and retain the proceeds of such sale and apply the same at its option, against the expenses of the sale, the cost of moving any storage, any arrears of Annual Fixed Rent, additional or other charges payable hereunder by Tenant to Landlord and any damages to which Landlord may be entitled under Section 7.2 hereof or pursuant to law. 5.3 Use A. From the commencement of the Term to only use and occupy the Premises for the Permitted uses, and not to injure or deface the Premises, Building or Lot, nor to permit in the Premises any auction sale, or inflammable fluids or chemicals, or nuisance, 19 or the emission from the Premises of any objectionable noise or odor, nor to use or devote the Premises or any part thereof for any purpose other than the Permitted Uses, nor any use thereof which is inconsistent with the maintenance of the Building as an office building of first class quality in maintenance, use and occupancy, or which is improper, offensive, contrary to law or ordinance or liable to invalidate or increase the premiums for any insurance on the Building or its contents or liable to render necessary any alteration or addition to the Building. B. Notwithstanding anything to the contrary in the Lease contained, if Tenant shall abandon or vacate the Premises for a period of no less than one hundred twenty (120) days, then Landlord shall have the right to terminate this Lease upon written notice to Tenant. Such termination shall not be deemed to be based upon the default of Tenant under this Lease, provided that Tenant is then in compliance with all of its obligations under the Lease. 5.4 Obstructions, Items Visible from Exterior; Rules and Regulations Not to obstruct in any manner any portion of the Building not hereby leased or any portion thereof or of the Lot used by Tenant in common with others; not without prior consent of Landlord to permit the painting or placing of any signs, curtains, blinds, shades, awnings, aerials or flagpoles, or the like, visible from outside the Premises; and to comply with all reasonable Rules and Regulations now or hereafter made by Landlord, or which Tenant has been given notice, for the care and use of the Building and Lot and their facilities and approaches; Landlord shall not be liable to Tenant for the failure of other occupants of the Building to conform to such Rules and Regulations. 5.5 Safe Appliances To keep the Premises equipped with all safety appliances required by law or ordinance or any other regulation of any public authority because of any use made by Tenant other than normal office use, and to procure all licenses and permits so required because of such use and, if requested by Landlord, to do any work so required because of such use, it being understood that the foregoing provisions shall be construed to broaden in any way Tenant's Permitted Uses. 5.6 Assignment; Sublease A. Except as provided in this Section 5.6: (i) Tenant covenants and agrees that neither this Lease nor the term and estate hereby granted, nor any interest herein or therein, will be assigned, mortgaged, pledged, encumbered or otherwise transferred, voluntarily, by operation of law or otherwise, and that neither the Premises, nor any part thereof will be encumbered in any manner by reason of any act or omission on the part of Tenant, or used or occupied, or permitted to be used or occupied, or utilized for desk space for mailing privileges, by anyone other than Tenant, or for any use or purposes other than the Permitted Uses stated in Article 1, and (ii) in no event shall Tenant have the right to sublet the Premises, or any portion thereof, or to offer or advertise the 20 Premises, or any portion thereof, for subletting. Notwithstanding the foregoing, it is hereby expressly understood and agreed, however, if Tenant is a corporation, Tenant shall have the right, without obtaining Landlord's consent and without giving Landlord a Recapture Offer to assign its interest in this Lease to any corporation ("Permitted Tenant Successor") into which Tenant is merged or with which Tenant is consolidated which corporation shall have a net worth at least equal to that of Tenant immediately prior to such merger or consolidation upon the express condition that Assignee and Tenant shall promptly execute, acknowledge and deliver to Landlord an agreement ("Assumption Agreement") in form and substance satisfactory to Landlord whereby Assignee shall agree to be independently bound by and upon all the covenants, agreements, terms, provisions and conditions set forth in this Lease on the part of Tenant to be performed, and whereby Assignee shall expressly agree that the provisions of this Section 5.6 shall, notwithstanding such assignment or transfer, continue to be binding upon it with respect to all future assignments and transfers. B. Notwithstanding anything to the contrary in the Lease contained: 1. Tenant shall, prior to offering or advertising the Premises, or any portion thereof for sublease or assignment, other than to a Permitted Tenant Successor or Affiliated Entity, as defined in this Section 5.6, give Landlord a Recapture Offer, as hereinafter defined. 2. For the purposes hereof a "Recapture Offer" shall be defined as a notice in writing from Tenant to Landlord which: (a) States that Tenant desires to sublet the Premises, or a portion thereof, or to assign its interest in this Lease. (b) Identifies the affected portion of the Premises ("Recapture Premises"). (c) Identifies the period of time ("Recapture Period") during which Tenant proposes to sublet the Recapture Premises or to assign its interest in the Lease. (d) Offers to Landlord to terminate the Lease in respect of the Recapture Premises (in the case of a proposed assignment of Tenant's interest in the Lease or a subletting for the remainder of the term of the Lease) or to suspend the term of the Lease pro tanto in respect of the Recapture Period (i.e., the term of the Lease in respect of the Recapture Premises shall be terminated during the Recapture Period and 21 Tenant's rental obligations shall be reduced in proportion to the ratio of the Total Rentable Area of the Recapture Premises to the Total Rentable Area of the premises then demised to Tenant). 3. Landlord shall have the applicable Offer Period, as hereinafter defined, to accept a Recapture Offer. If Landlord does not timely give written notice to Tenant accepting a Recapture Offer, then Landlord agrees that it will not unreasonably withhold or delay its consent to a sublease of the Recapture Premises for the Recapture Period, or an assignment of Tenant's interest in the Lease, as the case may be, to a Qualified Transferee, as hereinafter defined. If the Recapture Premises is 10,000 square feet of Total Rentable Area or less, then the Offer Period shall be thirty (30) days after Landlord receives the Recapture Offer in question. If the Recapture Premises exceeds 10,000 square feet of Total Rentable Area, then the Offer Period shall be forty-five (45) days after Landlord receives the Recapture Offer in question. 4. For the purposes hereof, a "Qualified Transferee" shall be defined as a person, firm or corporation which, in Landlord's reasonable opinion: (a) is financially responsible and of good reputation; (b) is engaged in a business, the functional aspects of which, with respect to the premises, are similar to the use of other premises made by other office space tenants in the Building; and (c) is not a tenant or subtenant of premises in the Building. 5. Notwithstanding anything to the contrary in this Paragraph B contained: (a) If Tenant is in default of its obligations under the Lease at the time that it makes the aforesaid offer to Landlord, such default shall be deemed to be a "reasonable" reason for Landlord withholding its consent to any proposed subletting or assignment; and 22 (b) If Tenant does not enter into a sublease with a subtenant (or an assignment to an assignee, as the case may be) approved by Landlord, as aforesaid, on or before the date which is one hundred eighty (180) days after the earlier of: (x) the expiration of the applicable Offer Period, or (y) the date that Landlord notifies Tenant that Landlord will not accept Tenant's offer to terminate or suspend the Lease, then Landlord shall have the right arbitrarily to withhold its consent to any subletting or assignment proposed to be entered into by Tenant after the expiration of said one hundred eighty (180) day period unless Tenant again offers, in accordance with this Paragraph B, either to terminate or to suspend the Lease in respect of the portion of the premises proposed to be sublet (or in respect of the entirety of the premises in the event of a proposed assignment, as the case may be). If Tenant shall make any subsequent offers to terminate or suspend the Lease pursuant to this Paragraph B, any such subsequent offers shall be treated in all respects as if it is Tenant's first offer to suspend or terminate the Lease pursuant to this Paragraph B, provided that the period of time Landlord shall have in which to accept or reject such subsequent offer shall be fifteen (15) days. C. Notwithstanding anything to the contrary herein contained, Tenant shall have the right, without obtaining Landlord's consent and without giving Landlord a Recapture Offer to assign its interest in this Lease and to sublease the Premises, or any portion thereof, to an Affiliated Entity, as hereinafter defined, so long as such entity remains in such relationship to Tenant, and provided that prior to or simultaneously with such assignment or sublease, such Affiliated Entity executes and delivers to Landlord an Assumption Agreement. For the purposes hereof, an "Affiliated Entity" shall be defined as any entity which is controlled by, is under common control with, or which controls Tenant. For the purposes hereof, control shall mean the direct or indirect ownership of more than fifty (50%) percent of the beneficial interest of the entity in question. D. If Tenant is an individual who uses and/or occupies the Premises with partners, or Tenant is a partnership, then: (i) Each present and future partner shall be personally bound by and upon all of the covenants, agreements, terms, provisions and conditions set forth in this Lease on the part of Tenant to be performed; and 23 (ii) In confirmation of the foregoing, Landlord may (but without being required to do so) request (and Tenant shall duly comply) that Tenant, at the time that Tenant admits any new partner to its partnership, shall require each such new partner to execute an agreement in form and substance satisfactory to Landlord whereby such new partner shall agree to be personally bound by and upon all of the covenants, agreements, terms, provisions and conditions of this Lease on the part of Tenant to be performed, without regard to the time when such new partner is admitted to partnership or when any obligations under any such covenants, etc., accrue. E. The listing of any name other than that of Tenant, whether on the doors of the premises or on the Building directory, or otherwise, shall not operate to vest in any such other person, firm or corporation any right or interest in this Lease or in the premises or be deemed to effect or evidence any consent of Landlord, it being expressly understood that any such listing is a privilege extended by Landlord revocable at will by written notice to Tenant. F. If this Lease be assigned, or if the premises or any part thereof be sublet or occupied by anybody other than tenant, Landlord may, at any time and from time to time, collect rent and other charges from the assignee, subtenant or occupant, and apply the net amount collected to the rent and other charges herein reserved, then due and hereafter becoming due, but no assignment, subletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, subtenant or occupant as a tenant, or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. Any consent by Landlord to a particular assignment or subletting shall not in any way diminish the prohibition stated in the first sentence of this Section 5.6 or the continuing liability of the Tenant named in Article I as the party-Tenant under this Lease. No assignment or subletting or use of the premises by an affiliate of Tenant shall affect the Permitted Uses for which the premises may be used as stated in Article 1. G. In the event of an assignment of this Lease or a sublease of the Premises or any portion thereof to anyone other than a Permitted Tenant Successor or an Affiliated Entity, Tenant shall pay to Landlord fifty (50%) percent of any Net Sublease Profits (as defined below), payable in accordance with the following. In the case of an assignment of this Lease, "Net Sublease Profit": (1) shall be defined as a lump sum in the amount (if any) by which any consideration paid by the assignee in consideration of or as an inducement to Tenant to make said assignment exceeds the reasonable attorneys' fees, construction costs and brokerage fees incurred by Tenant in order to effect such assignment (collectively, "Sublease Expenses"), and (2) be payable concurrently with the payment to be made by the assignee to Tenant. In the case of a sublease, "Net Sublease Profit": (3) shall be defined as a monthly amount equal to the amount by which the sublease rent and other charges payable by the subtenant to Tenant under the sublease exceed the sum of the rent and other charges payable under this Lease for the premises or allocable to the sublet portion thereof, plus a monthly amount equal to the Sublease Expenses divided by the 24 number of months in the term of the sublease, and (4) shall be payable on a monthly basis concurrently with the subtenant's payment of rent to Tenant under the sublease. 5.7 Indemnity; Insurance To defend with counsel first approved by Landlord (which approval shall not be unreasonably withheld), save harmless, and indemnify Landlord from any liability for injury, loss, accident or damage to any person or property, and from any claims, actions, proceedings and expenses and costs in connection therewith (including without limitation reasonable counsel fees) arising from (a) the negligence or willful misconduct of Tenant, or of Tenant's employees, agents or contractors, or (b) from any use made or thing done or occurring on the Premises not due to the omission, fault, willful act, negligence or other misconduct of Landlord or of Landlord's employees, agents, or contractors; to maintain in responsible companies qualified to do business, and in good standing, in Massachusetts public liability insurance covering the Premises insuring Landlord as well as Tenant with limits which shall, at the commencement of the Term, be at least equal to those stated in Article I and from time to time during the Term shall be for such higher limits, if any as are customarily carried in the Burlington area with respect to similar properties, and Workmen's Compensation Insurance with statutory limits covering all of Tenant's employees working in the Premises, and to deposit promptly with Landlord certificates for such insurance, and all renewals thereof bearing the endorsement that the policies will not be cancelled until after ten (10) days' written notice to Landlord. 5.8 Personal Property at Tenant's Risk That all of the furnishings, fixtures, equipment, effects and property of every kind, nature and description of Tenant, and all persons claiming by, through or under Tenant which, during the continuance of this Lease or any occupancy of the Premises by Tenant or anyone claiming under Tenant, may be on the Premises or elsewhere in the Building or on the Lot, shall be at the sole risk and hazard of Tenant, and if the whole or any part thereof shall be destroyed or damaged by fire, water or otherwise, or by the leakage or bursting of water pipes, steam pipes, or other pipes, by theft or from any other cause, no part of said loss or damage is to be charged to or be borne by Landlord, except that Landlord shall in no event be indemnified or held harmless or exonerated from any liability to Tenant or to any person, for any injury, loss, damage or liability to the extent such indemnity, hold harmless or exoneration is prohibited by law or, subject to Section 8.9, to the extent caused by the negligence or willful misconduct of Landlord, or Landlord's agents, employees or contractors. 5.9 Right of Entry To permit Landlord and its agents: to examine the Premises at reasonable times and, if Landlord shall so elect, to make any repairs or replacements Landlord may deem necessary; to remove, at Tenant's expense, any alterations, additions, signs, curtains, blinds, shades, awnings, 25 aerials, flagpoles, or the like not consented to in writing; and to show the Premises to prospective Tenants during the nine months preceding expiration of the Term and to prospective purchasers and mortgagees at all reasonable times. Without incurring any liability to Tenant, Landlord may permit access to the Premises and open the same, whether or not Tenant shall be present, upon any demand or any receiver, trustee, assignee for the benefit of creditors, sheriff, marshall or court officer entitled to, or reasonably purporting to be entitled to, such access for the purposes of taking possession of, or removing, Tenant's property or for any other lawful purposes (but this provision and any action by Landlord hereunder shall not be deemed a recognition by Landlord that the person or official making such demand has any right or interest in or to this Lease, or in or to the premises), or upon demand of any representation of the fire, police, building, sanitation or other department of the city, state or federal governments. 5.10 Floor Load; Prevention of Vibration and Noise Not to place a load upon the Premises exceeding an average rate of 70 pounds of live load per square foot of floor area (partitions shall be considered as part of the live load); Landlord reserves the right to prescribe the weight and position of all safes, files and heavy equipment which Tenant desires to place in the Premises so as properly to distribute the weight thereof; Tenant's business machines and mechanical equipment which cause vibration or noise that may be transmitted to the Building structure or to any other space in the Building shall be so installed, maintained and used by Tenant as to eliminate such vibration or noise. 5.11 Personal Property Taxes To pay promptly when due all taxes which may be imposed upon personal property (including without limitation, fixtures and equipment) in the Premises to whomever assessed. 5.12 Payment of Litigation Expenses In the event of any litigation between the parties, the losing party will reimburse the prevailing party for its reasonable attorney's fees and court costs incurred in connection with such litigation. 5.13 Compliance with Insurance Regulations Not to do or permit to be done any act or thing upon the Premises which will invalidate or be in conflict with the terms of the Massachusetts standard form of fire, boiler, sprinkler, water damage or other insurance policies covering the Building and the fixtures and property therein; Tenant shall, at its own expense, comply with all rules, regulations, and requirements of the National Board of Fire Underwriters or any state or other similar body having jurisdiction, and shall not knowingly do or permit anything to be done in or upon the Premises 26 in a manner which increases the rate of fire insurance upon the building or on any property or equipment located therein. ARTICLE VI CASUALTY AND TAKING 6.1 Termination or Restoration; Rent Adjustment A. In case during the Term all or any material part of the Premises or the Building or the Lot are damaged materially by fire or other casualty or by action of public or other authority in consequence thereof, or are taken by eminent domain or Landlord receives compensable damage by reason of anything lawfully done in pursuance of public or other authority, this Lease shall terminate at Landlord's election, which may be made notwithstanding Landlord's entire interest may have been divested, by notice given to Tenant within three (3) months after the casualty or taking specifying the effective date of termination. The effective date of termination specified by Landlord shall not be less than 15 nor more than 30 days after the date of notice of such termination. Unless terminated pursuant to the foregoing provisions, this Lease shall remain in full force and effect following any such damage or taking, subject, however, to the following provisions. If in any such case the Premises are rendered unfit for use and occupation and this Lease is not so terminated, Landlord shall use due diligence (following the expiration of the period in which Landlord may terminate this Lease pursuant to the foregoing provisions of this Section 6.1), subject to the then applicable statutes, building codes, zoning ordinances, and regulations of any governmental authority and at the expense of Landlord (but only to the extent of insurance proceeds made available to Landlord) to put the Premises, or in case of taking what may remain thereof (excluding in case of both casualty and taking any items installed or paid for by Tenant which Tenant may be required to remove pursuant to Section 5.2), into proper condition for use and occupation and a just proportion of the Annual Fixed Rent and additional rent according to the nature and extent of the injury shall be abated from the date of such casualty or taking until the Premises or such remainder shall have been put by Landlord in such condition; and in case of taking which permanently reduces the area of the Premises, a just proportion of the Annual Fixed Rent and additional rent shall be abated for the remainder of the Term. B. In the event that the premises or the Building are damaged by fire or other casualty to such an extent so as to render the premises untenantable, and if Landlord shall fail to substantially complete said repairs or restoration within one hundred eighty (180) days after the date of such fire or other casualty for any reason other than Tenant's fault, Tenant may terminate this Lease by giving Landlord written notice as follows: (1) Said notice shall be given after said one hundred eighty day period. 27 (2) Said notice shall set forth an effective date which is not earlier than thirty (30) days after Landlord receives said notice. (3) If said repairs or restoration are substantially complete on or before the date thirty (30) days (which thirty-(30)-day period shall be extended by the length of any delays caused by Tenant or Tenant's contractors) after Landlord receives such notice, said notice shall have no further force and effect. (4) If said repairs or restoration are not substantially complete on or before the date thirty (30) days (which thirty-(30)-day period shall be extended by the length of any delays caused by Tenant or Tenant's contractors) after Landlord receives such notice, the Lease shall terminate as of said effective date. 6.2 Eminent Domain Except for award to Tenant for moving expenses and lost profits, and except for any separate award which does not reduce Landlord's award (collectively "Tenant Awards"), Landlord reserves to itself any and all rights to receive awards made for damages to the Premises and Building and Lot and the leasehold hereby created, or any one or more of them, accruing by reason of exercise of eminent domain or by reason of anything lawfully done in pursuance of public or other authority. Tenant hereby releases and assigns to Landlord all Tenant's rights to all such awards other than Tenant Awards, and covenants to deliver such further assignments and assurances thereof as Landlord may from to time request. Tenant hereby irrevocably designates and appoints Landlord as its attorney-in-fact to execute and deliver in Tenant's name and behalf all such further assignments thereof if Tenant fails, without cause, to execute such assignments within ten (10) days of written request therefore. 6.3 Temporary Taking In the event of taking of the Premises or any part thereof for temporary use, (i) this Lease shall be and remain unaffected thereby and rent shall not abate, and (ii) Tenant shall be entitled to receive for itself such portion or portions of any award made for such use with respect to the period of the taking which is within the Term, provided that if such taking shall remain in force at the expiration or earlier termination of this Lease, Tenant shall then pay to Landlord a sum equal to the reasonable cost of performing Tenant's obligations under Section 5.2 with respect to surrender of the Premises and upon such payment shall be excused from such obligations. 28 ARTICLE VII DEFAULT 7.1 Events of Default If (a) Tenant shall neglect or fail to perform or observe any of Tenant's covenants or agreements herein, including the obligation to pay, when due, Annual Fixed Rent or additional rent, and such failure continues, in the case of Annual Fixed Rent or additional rent, for more than ten (10) days, or in any other case, for more than thirty (30) days and such additional time, if any, as is reasonably necessary to cure the default if the default is of such a nature that it cannot reasonably be cured in thirty (30) days, provided however, that no such notice need be given and no such default shall be curable if on two (2) prior occasions within the same calendar year there had been a default which had been cured after notice thereof had been given by Landlord to Tenant as herein provided; or if Tenant or any guarantor or any guarantor of any of Tenant's obligations under this Lease, (b) is not paying its debts as such debts become due, becomes insolvent, seeks relief under any chapter of the U.S. Bankruptcy Code (or any insolvency or similar law of any jurisdiction), or (c) proposes any dissolution, liquidation, composition, financial reorganization or recapitalization with creditors; or (d) makes an assignment or trust mortgage for the benefit of creditors or (e) if a receiver, trustee, custodian or similar agent is appointed or takes possession with respect to any property or business of Tenant or such guarantor, or (f) any event shall occur or any contingency shall arise whereby this Lease, or the term and estate thereby created, would (by operation of law or otherwise) devolve upon or pass to any person, firm or corporation other than Tenant, except as expressly permitted under Section 5.6 hereof then, in any such case, whether or not the Term shall have begun, Landlord may immediately, or at any time while such default exists and without further notice, terminate this Lease by entry by Landlord or upon the giving of notice to Tenant, and this Lease shall come to an end as fully and completely as if such date were the date herein originally fixed for the expiration of the Term, and Tenant shall then quit and surrender the Premises to Landlord, but Tenant shall remain liable as hereinafter provided. 7.2 Damages In the event that this Lease is terminated under any of the provisions contained in Section 7.1 or shall be otherwise terminated for breach of any obligation of Tenant, Tenant covenants to pay forthwith to Landlord, as compensation, the excess of the total rent reserved for the residue of the Term over the rental value of the Premises for said residue of the Term. In calculating the rent reserved there shall be included, in addition to the Annual Fixed Rent and all additional rent, the value of all other considerations agreed to be paid or performed by Tenant for said residue. Tenant further covenants as an additional and cumulative obligation after any such ending to pay punctually to Landlord all the sums and perform all the obligations which Tenant covenants in this Lease to pay and to perform in the same manner and to the same extent and at the same 29 time as if this Lease had not been terminated. In calculating the amounts to be paid by Tenant under the next foregoing covenant Tenant shall be credited with any amount paid to Landlord as compensation as in this Section 7.2 provided and also with the net proceeds of any rent obtained by Landlord by reletting the Premises, after deducting all Landlord's expenses in connection with such reletting, including, without limitation, all repossession costs, brokerage commissions, fees for legal services and expenses of preparing the Premises for such reletting, it being agreed by Tenant that Landlord may (i) relet the Premises or any part or parts thereof, for a term or terms which may at Landlord's option be equal to or less than or exceed the period which would otherwise have constituted the balance of the Term and may grant such concessions and free rent as Landlord in its sole judgment considers advisable or necessary to relet the same and (ii) make such alterations, repairs and decorations in the Premises as Landlord in its sole judgment considers advisable or necessary to relet the same, and no action of Landlord in accordance with the foregoing or failure to relet or to collect rent under reletting shall operate or be construed to release or reduce Tenant's liability as aforesaid. In lieu of any other damages or indemnity and in lieu of full recovery by Landlord of all sums payable under all the foregoing provisions of this Section 7.2, Landlord may by written notice to Tenant, at any time after this Lease is terminated under any of the provisions contained in Section 7.1 or is otherwise terminated for breach of any obligation of Tenant and before such full recovery, elect to recover, and Tenant shall thereupon pay, as liquidated damages, an amount equal to the aggregate of the Annual Fixed Rent and additional rent accrued under Section 2.5, 2.6 and 2.7 in the 12 months ended next following such termination plus the amount of Annual Fixed Rent and additional rent of any kind accrued and unpaid at the time of termination and less the amount of any recovery by Landlord under the foregoing provisions of this Section 7.2 up to the time of payment of such liquidated damages. Nothing contained in this Lease shall limit or prejudice the right of Landlord to prove for and obtain in proceedings for bankruptcy or insolvency by reason of the termination of this Lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater, equal to, or less than the amount of the loss or damages referred to above. 7.3 Landlord's Default A. Landlord shall not be deemed to be in default of its obligations under the Lease unless Tenant has given Landlord written notice of such default, and Landlord has failed to cure said default within thirty (30) days after Landlord receives such notice or such longer period of time as Landlord may reasonably require to cure such default. B. Except as otherwise expressly provided in the Lease, in no event shall Tenant have the right to terminate the Lease nor shall Tenant's obligation to pay 30 Annual Fixed Rent or other charges under the Lease abate based upon any default by Landlord of its obligations under the Lease. C. Notwithstanding anything to the contrary in this Lease contained, if the Premises shall lack any service which Landlord is required to provide hereunder (thereby rendering the Premises or a portion thereof untenantable) so that, for the Landlord Service Interruption Cure Period, as hereinafter defined, the continued operation in the ordinary course of Tenant's business is materially adversely affected and if Tenant ceases to use the affected portion of the Premises during the period of untenantability as the direct result of such lack of service, then, provided that Tenant ceases to use the affected portion of the Premises during the entirety of the Landlord Service Interruption Cure Period and that such untenantability and Landlord's inability to cure such condition is not caused by the fault or neglect of Tenant or Tenant's agents, employees or contractors, Annual Fixed Rent, Operating Expense Excess and Tax Excess shall thereafter be abated in proportion to such untenantability until the day such condition is completely corrected. For the purposes hereof, the "Landlord Service Interruption Cure Period" shall be defined as five (5) consecutive business days after Landlord's receipt of written notice from Tenant of the condition causing untenantability in the Premises, provided however, that the Landlord Service Interruption Cure Period shall be ten (10) consecutive business days after Landlord's receipt of written notice from Tenant of such condition causing untenantability in the Premises if either the condition was caused by causes beyond Landlord's control or Landlord is unable to cure such condition as the result of causes beyond Landlord's control. The provisions of Paragraph B of this Section 7.3 shall not apply in the event of untenantability caused by fire or other casualty, or taking (see Section VI). ARTICLE VIII MISCELLANEOUS 8.1 Computation of Rentable Floor Areas For all purposes of this Lease, (a) the rentable area for single tenant office floors is the gross area of the floor measured from the plane of the inside surface of the exterior glass line deducting therefrom the non rentable areas of the floor and adding a pro-rata share of the building common area, but allowing no deductions for columns or projections within such floor, (b) the rentable area for multi-tenant office floors is the gross area of Tenant's Space measured from the plane of the inside surface of the exterior glass line to the middle of the demising walls, and adding a pro-rata share of the building common areas and of the floor common area, but allowing no deductions for columns or projections within such floor, (c) non-rentable areas of the floor are: public elevator shafts and elevator machine rooms, machinery shafts and common stairways and stairwells, (d) floor common areas are restrooms, elevator lobby, janitor closets, common corridors, and mechanical rooms, (e) the building common area is the first floor lobby, loading dock, mail room, electrical equipment, mechanical room and health club. 31 8.2 Notice of Lease; Consent of Approval; Notices; Bind and Inure The titles of the Articles are for convenience only and are not to be considered in construing this Lease. Tenant agrees not to record this Lease, but upon request of either party both parties shall execute and deliver a notice of this Lease in form appropriate for recording or registration, and if this Lease is terminated before the term expires, an instrument in such form acknowledging the date of termination. Whenever any notice, approval, consent, request or election is given or made pursuant to this Lease it shall be in writing. Communications and payments shall be addressed if to Landlord at Landlord's Original Address or at such other address as may have been specified by prior notice to Tenant, and if to Tenant, at Tenant's Original Address or at such other place as may have been specified by prior notice to Landlord. Any communication so addressed shall be deemed duly given when mailed by registered or certified mail, return receipt requested or reputable national overnight courier. If Landlord by notice to Tenant at any time designates some other person to receive payments or notices, all payments or notices thereafter by Tenant shall be paid or given to the person designated until notice to the contrary is received by Tenant from Landlord. The obligations of this Lease shall run with the land, and this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that only the original Landlord named herein shall be liable for obligations accruing before the beginning of the Term, and thereafter the original Landlord named herein and each successive owner of the Premises shall be liable only for obligations accruing during the period of ownership. 8.3 Landlord's Failure to Enforce The failure of Landlord to seek redress for violation of, or to insist upon strict performance of, any covenant or condition of this Lease, or with respect to such failure of Landlord to enforce any of the Rules and Regulations referred to in Section 5.4, whether heretofore or hereafter adopted by Landlord, shall not be deemed a waiver of such violation nor prevent a subsequent act which would have originally constituted a violation, from having all the force and effect of an original violation, nor shall the failure of Landlord to enforce any of said Rules and Regulations against any other tenant of the Building be deemed a waiver of any such Rule or Regulation. The receipt by Landlord of Annual Fixed Rent or additional rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. No provision of this Lease shall be deemed to have been waived by Landlord, or by Tenant, unless such waiver be in writing signed by the party to be charged. No consent or waiver, express or implied, by Landlord or Tenant, to or of any breach of any agreement or duty shall be construed as a waiver or consent to or of any other breach of the same or any other agreement or duty. 32 8.4 Acceptance of Partial Payments of Rent; Delivery of Keys No acceptance by Landlord of a lesser sum than the Annual Fixed Rent and additional rent then due shall be deemed to be other than on account of the earliest installment of such rent due, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such installment or pursue any other remedy in this Lease provided. The delivery of keys to any employee of Landlord or to Landlord's agent or any employee thereof shall not operate as a termination of this Lease or surrender of the Premises. 8.5 Cumulative Remedies The specific remedies to which Landlord may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which it may be lawfully entitled in case of any breach or threatened breach by Tenant of any provisions of this Lease. In addition to other remedies provided in this Lease, Landlord shall be entitled to the restraint by injunction of the violation or attempted or threatened violation of any of the covenants, conditions or provisions of this Lease or to a decree compelling specific performance of any such covenants, conditions or provisions. 8.6 Partial Invalidity If any term of this Lease, or the application thereof to any person or circumstances, shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such term to persons or circumstances other than those as to which it is invalid or unenforceable shall not be affected thereby, and each term of this Lease shall be valid and enforceable to the fullest extent permitted by law. 8.7 Self Help If Tenant shall at any time default in the performance of any obligation under this Lease, Landlord shall have the right, but shall not be obligated, to enter upon the Premises and to perform such obligation notwithstanding the fact that no specific provision for such substituted performance by Landlord is made in this Lease with respect to such default. In performing such obligation, Landlord may make any payment of money or perform any other act. All sums so paid by Landlord (together with interest at the rate of 2 1/2 percentage points over the then prevailing prime rate in Boston as set by The First National Bank in Boston) and all necessary incidental costs and expenses in connection with the performance of any such act by Landlord, shall be deemed to be additional rent under this Lease and shall be payable to Landlord immediately or on demand. Landlord may exercise the foregoing rights without waiving any other of its rights or releasing Tenant from any of its obligations under this Lease. 33 8.8 Tenant's Estoppel Certificate Tenant agrees from time to time, upon not less than fifteen (15) days' prior written request by Landlord, to execute, acknowledge and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect and that Tenant has no defenses, offsets or counterclaims against its obligations to pay the Annual Fixed Rent and additional rent and to perform its other covenants under this Lease and that there are no uncured defaults of Landlord or Tenant under this lease (or, if there have been any modifications that the same is in full force and effect as modified and stating the modifications and, if there are any defenses, offsets, counterclaims, or defaults, setting them forth in reasonable detail), and the dates to which the Annual Fixed Rent, additional rent and other charges have been paid. Any such statement delivered pursuant to this Section 8.8 maybe relied upon by a prospective purchaser or mortgagee of the Premises or any prospective assignee of any mortgagee of the Premises. Time is of the essence in respect of any such requested certificate, Tenant hereby acknowledging the importance of such certificates in mortgage financing arrangements, prospective sale and the like. 8.9 Waiver of Subrogation In any case in which Tenant shall be obligated to pay to Landlord any loss, cost, damage, liability, or expense suffered or incurred by Landlord, Landlord shall allow to Tenant as an offset against the amount thereof (i) the net proceeds of any insurance collected by Landlord for or on account of such loss, cost, damage, liability or expense, provided that the allowance of such offset does not invalidate or prejudice the policy or policies under which such proceeds were payable, and (ii) if such loss, cost, damage, liability or expense shall have been caused by a peril against which Landlord has agreed to procure insurance coverage under the terms of this Lease, the amount of' such insurance coverage, whether or not actually procured by Landlord. In any case in which Landlord or Landlord's agents shall be obligated to pay to Tenant any loss, cost, damage, liability or expense suffered or incurred by Tenant, Tenant shall allow to Landlord and Landlord's agents as an offset against the amount thereof (i) the net proceeds of any insurance collected by Tenant for or on account of such loss, cost, damage, liability, or expense, provided that the allowance of such offset does not invalidate the policy or policies under which such proceeds were payable and (ii) the amount of any loss, cost, damage, liability or expense caused by a peril covered by fire insurance with the broadest form of property insurance generally available on property in buildings of the type of the Building, whether or not actually procured by Tenant. The parties hereto shall each procure an appropriate clause in, or endorsement on, any property insurance policy covering the premises and the Building and personal property, fixtures and equipment located thereon and therein, pursuant to which the insurance companies waive subrogation or consent to a waiver of right of recovery. Having obtained such clauses and/or endorsements each party hereby agrees that it will not 34 make any claim against or seek to recover from the other for any loss or damage to its property or the property of others resulting from firm or other perils covered by such property insurance. 8.10 All Agreements Contained This Lease contains all of the agreements of the parties with respect to the subject matter thereof and supersedes all prior dealings between them with respect to such subject matter. 8.11 Brokerage Landlord and Tenant each warrant that they have had no dealings with any broker or agent other than CB Richard Ellis and Meredith & Grew (the "Brokers") in connection with the Lease and covenant to defend, hold harmless and indemnify each other from and against any and all cost, expense or liability for any compensation, commissions and charges claimed by any broker or agent, other than the Brokers, claiming by or through them with respect to dealings in connection with this Lease or the negotiation thereof. 8.12 Submission Not an Option The submission of this Lease or a summary of some or all of its provisions for examination does not constitute a reservation of or option for the Premises or an offer to lease. 8.13 Applicable Law This Lease, and the rights and obligations of the parties hereto, shall be construed and enforced in accordance with the laws of the Commonwealth of Massachusetts. 8.14 Waiver of Jury Trial Landlord and Tenant hereby waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other, on or in respect to any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant hereunder. Tenant's use or occupancy of the Premises, and/or claim of injury or damages. 8.15 Holdover Any holding over by Tenant after the expiration of the term of this Lease shall be treated as a tenancy at sufferance and shall be on the terms and conditions as set forth in this Lease, as far as applicable except that Tenant shall pay as a use and occupancy charge an amount equal to the greater of (x) the Holdover Percentage, as hereinafter defined, of the Annual Fixed Rent and Additional Rent calculated (on a 35 daily basis) at the highest rate payable under the terms of this Lease or (y) the fair market value of the Premises, in each case for the period measured from the day on which Tenant's hold-over commences and terminating on the day on which Tenant vacates the Premises. For purposes hereof, the "Holdover Percentage" shall mean one hundred fifty percent (150%). In addition, Tenant shall save Landlord, its agents and employees harmless and will exonerate, defend and indemnify Landlord, its agents and employees from and against any and all damages which Landlord may suffer on account of Tenant's hold-over in the Premises after the expiration or prior termination of the term of this Lease. Nothing in the foregoing nor any other term or provision of this Lease shall be deemed to permit Tenant to retain possession of the Premises or hold over in the Premises after the expiration or earlier termination of the Lease Term. All property which remains in the Building or the Premises after the expiration or termination of this Lease shall be conclusively deemed to be abandoned and may either be retained by Landlord as its property or sold or otherwise disposed of in such manner as Landlord may see fit. If any part thereof shall be sold, then Landlord may receive the proceeds of such sale and apply the same, at its option against the expenses of the sale, the cost of moving and storage, any arrears of rent or other charges payable hereunder by Tenant to Landlord and any damages to which Landlord may be entitled under this Lease and at law and in equity. 8.16 Arbitration Any disputes relating to provisions or obligations in this Lease as to which a specific provision for a reference to arbitration is made herein shall be submitted to arbitration in accordance with the provisions of applicable state law, as from time to time amended. Arbitration proceedings, including the selection of an arbitrator, shall be conducted pursuant to the rules, regulations and procedures from time to time in effect as promulgated by the American Arbitration Association. Prior written notice of application by either party for arbitration shall be given to the other at least ten (10) days before submission of the application to the said Association's office in the city wherein the Building is situated (or the nearest other city having an Association office). The arbitrator shall hear the parties and their evidence. The decision of the arbitrator shall be binding and conclusive, and judgment upon the award or decision of the arbitrator may be entered in the Superior Court of the Commonwealth of Massachusetts. The parties consent to the jurisdiction of the Superior Court of the Commonwealth of Massachusetts and further agree that any process or notice of motion or other application to the Superior Court or a Judge thereof may be served outside the Commonwealth of Massachusetts by registered mail or by personal service, provided a reasonable time for appearance is allowed. The costs and expenses of each arbitration hereunder and their apportionment between the parties shall be determined by the arbitrator in his award or decision. No arbitrable dispute shall be deemed to have arisen under this Lease prior to (i) the expiration of the period of twenty (20) days after the date of the giving of written notice by the party asserting the existence of the dispute together with a description thereof sufficient for an understanding thereof; and (ii) where a Tenant payment is in issue, the amount 36 billed by Landlord having been paid by Tenant. 8.17 Requirements of Law - Fines and Penalties Tenant at its sole expense shall comply with all laws, rules, orders and regulations, including, without limitation, all energy-related requirements, of Federal, State, County and Municipal Authorities and with any direction of any public officer or officers, pursuant to law, which shall impose any duty upon Landlord or Tenant with respect to or arising out of Tenant's use or occupancy of the Premises. Tenant shall reimburse and compensate Landlord for all expenditures made by, or damages or fines sustained or incurred by, Landlord due to nonperformance or noncompliance with or breach or failure to observe any item, covenant, or condition of this Lease upon Tenant's part to be kept, observed, performed or complied with. If Tenant receives notice of any violation of law, ordinance, order or regulation applicable to the Premises, it shall give prompt notice thereof to Landlord. 8.18 Inability to Perform - Exculpatory Clause This Lease and the obligations of Tenant to pay rent hereunder and perform all the other covenants, agreements, terms, provisions and conditions hereunder on the part of Tenant to be performed shall in no way be affected, impaired or excused because Landlord is unable to fulfill any of its obligations under this Lease or is unable to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make or is delayed in making any repairs, replacement, additions, alterations, improvements or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Landlord is prevented or delayed from so doing by reason of strikes or labor troubles or any other similar or dissimilar cause whatsoever beyond Landlord's reasonable control, including but not limited to, governmental preemption in connection with a national emergency or by reason of any rule, order or regulation of any department thereof of any governmental agency or by reason of the conditions of supply and demand which have been or are affected by war, hostilities or other similar or dissimilar emergency. In each such instance or inability of Landlord to perform, Landlord shall exercise reasonable diligence to eliminate the cause of such inability to perform. Tenant shall neither assert nor seek to enforce any claim or breach of this Lease against any of Landlord's assets other than Landlord's equity interest in the Building and in the uncollected rents, issues and profits thereof, and Tenant agrees to look solely to such interest for the satisfaction of any liability of Landlord or Landlord's agents under this Lease or otherwise, it being specifically agreed that in no event shall Landlord (or any of the officers, trustees, directors, partners, beneficiaries, joint venturers, members, stockholders or other principals, agents or representatives, and the like, disclosed or undisclosed, thereof) ever by personally liable for any such liability. This paragraph shall not limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or to take any other action which shall not involve the personal liability of Landlord to respond in monetary damages from Landlord's assets other than the Landlord's 37 interest in the Building, as aforesaid. In no event shall Landlord (or any of the officers, trustees, directors, partners, beneficiaries, joint venturers, members, stockholders or other principals or representatives and the like, disclosed or undisclosed, thereof) ever be liable for consequential damages. If by reason of Landlord's failure to complete construction of the Premises, Landlord shall be held to be in breach of this Lease, Tenant's sole and exclusive remedy shall be a right to terminate this Lease. In no event shall Tenant (or any of the officers, trustees, directors, partners, beneficiaries, joint venturers, members, stockholders or other principals, agents or representatives, and the like, disclosed or undisclosed, thereof) ever by personally liable for any liability of Tenant under this Lease. In no event shall Tenant (or any of the officers, trustees, directors, partners, beneficiaries, joint venturers, members, stockholders or other principals or representatives and the like, disclosed or undisclosed, thereof) ever be liable for consequential damages; provided however, that nothing herein shall relieve Tenant from any liability in the event that Tenant breaches its obligations under Section 8.15 of this Lease. 8.19 Parties Bound - Seizin of Title The covenants, agreements, terms, provisions and conditions of this Lease shall bind and benefit the successors and assigns of the parties hereto with the same effect as if mentioned in each instance where a party hereto is named or referred to, except that no violation of the provisions of Section 5.6 hereof shall operate to vest any rights in any successor or assignee of Tenant and that the provisions of this Section 8.19 shall not be construed as modifying the default provisions contained in Article VII hereof. If, in connection with or as a consequence of the sale, transfer or other disposition of Landlord's interest in the Building, any party who is Landlord ceases to be the owner of the reversionary interest in the Premises, Landlord, upon written notice to Tenant, shall be entirely freed and relieved from the performance and observance thereafter of all covenants and obligations hereunder on the part of Landlord to be performed and observed, it being understood and agreed in such event (and it shall be deemed and construed as a covenant running with the land) that the person succeeding to Landlord's ownership of said reversionary interest shall thereupon and thereafter assume, and perform and observe, any and all of such covenants and obligations of Landlord. 8.20 Security Deposit The Security Deposit shall be delivered to Landlord upon the execution of this Lease by Tenant and shall be held by Landlord without liability for interest as security for the performance of Tenant's obligations. The Security Deposit is not an advance payment of Rent or a measure of Tenant's liability for damages. Landlord may, from time to time, without prejudice to any other remedy, use all or a portion of the Security Deposit to satisfy past due Annual Fixed Rent or to cure any uncured default by 38 Tenant. If Landlord uses the Security Deposit, Tenant shall on demand restore the Security Deposit to its original amount. Landlord shall return any unapplied portion of the Security Deposit to Tenant within 45 days after the later to occur of: (1) the determination of Tenant's Share of any Tax Expenses Allocable to the Premises or Operating Expenses Allocable to the Premises in accordance with Article II hereof for the final year of the Term; (2) the date Tenant surrenders possession of the Premises to Landlord in accordance with this Lease; or (3) the expiration of the Term hereof. If Landlord transfers its interest in the Premises, Landlord shall assign the Security Deposit to the transferee and, following the assignment, Landlord shall have no further liability for the return of the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from its other accounts. ARTICLE IX RIGHTS OF PARTIES HOLDING PRIOR INTERESTS 9.1 Lease Subordinate This Lease shall be subject and subordinate to any mortgage now or hereafter on the Lot or Building, or both, which are separately and together hereinafter in this Article IX referred to as "the mortgaged premises", and to each advance made or hereafter to be made under any mortgage, and to all renewals, modifications, consolidation, replacements and extensions thereof and all substitutions therefor, provided that the holder thereof enters into an agreement with Tenant by the terms of which such holder will agree to recognize the rights of tenant under this Lease and to accept Tenant as tenant of the Premises under the terms and conditions of this Lease in the event of acquisition of title by such holder through foreclosure proceedings or otherwise and Tenant will agree to recognize the holder of such mortgage as Landlord in such event, which agreement shall be made expressly to bind and inure to the benefit of the successors and assigns of Tenant and of the holder and upon anyone purchasing the Premises at any foreclosure sale, provided however, that such holder shall not: (i) be liable for any previous act or omission of Landlord under this Lease; (ii) be subject to any offset, defense or counterclaim which shall theretofore have accrued to Tenant against Landlord; (iii) have any obligation with respect to any security deposit unless it shall have been paid over or physically delivered to such successor; or (iv) be bound by any previous modification of this Lease or by any previous payment of Annual Fixed Rent for a period greater than one (1) month, made without the consent of such holder where such consent is required by the applicable instrument. Notwithstanding the foregoing any such holder may at its election subordinate its mortgage to this Lease without the consent or approval of Tenant. Tenant and Landlord agree to execute and deliver any appropriate instruments necessary to carry out the agreements contained in this Section 9.1. Tenant acknowledges that, where applicable, any consent or approval hereafter given by Landlord may be subject to the further consent or approval of the holder; and the failure or refusal of such holder to give such consent or approval shall, notwithstanding anything to the contrary in this Lease contained, constitute reasonable justification for Landlord's 39 withholding its consent or approval. Tenant hereby irrevocably constitutes and appoints Landlord or any holder, and their respective successors in interest, acting singly, Tenant's attorney-in-fact to execute and deliver any such certificate or instrument for, on behalf and in the name of Tenant, but only if Tenant fails to execute, acknowledge and deliver any such certificate or instrument within ten (10) days after Landlord or such holder has made written request therefor. Landlord represents to Tenant that, as of the date of this Lease, there are no mortgages affecting the Building. Landlord agrees that, as to any future mortgages affecting the Building, Landlord shall use reasonable efforts to obtain from the holder of such mortgage a written instrument in recordable form and in the customary form of such mortgagee that, as long as Tenant shall not be in terminable default of the obligations on its part to be kept and performed under the terms of this Lease, this Lease will not be affected and Tenant's possession hereunder will not be disturbed by any default in and/or foreclosure of, such mortgage. 9.2 Rights of Holder of Mortgage to Notice of Defaults by Landlord and to Cure Same No act or failure to act on the part of Landlord which would entitle Tenant under the terms of this Lease, or by law, to be relieved of Tenant's obligations hereunder or to terminate this Lease, shall result in a release or termination of such obligations or a termination of this Lease unless (i) Tenant shall have first given written notice of Landlord's act or failure to act to Landlord's mortgagees of record, if any, specifying the act or failure to act on the part of Landlord which could or would give basis to Tenant's rights; and (ii) such mortgagees after receipt of such notice, have failed or refused to correct or cure the condition complained of within a reasonable time thereafter; but nothing contained in this Section 9.3 shall be deemed to impose any obligation on any such mortgagees to correct or cure any condition. "Reasonable time" as used above means and includes a reasonable time to obtain possession of the mortgaged premises if the mortgagee elects to do so and a reasonable time to correct or cure the condition if such condition is determined to exist. ARTICLE X TENANT'S OPTION TO EXTEND THE TERM OF THE LEASE A. On the conditions, which conditions Landlord may waive, at its election, by written notice to Tenant at any time, that Tenant is not in default of any of its monetary obligations under the Lease or in any other material covenants and obligations under the Lease beyond any applicable period of notice and cure, and that only Manhattan Associates, Inc., itself, and/or a Permitted Tenant Successor and/or Affiliated Entity, each as defined in Section 5.6 are occupying the entirety of the Premises then demised to Tenant, both as of the time of option exercise and as of the commencement of the hereinafter described additional term, Tenant shall have the option to extend the term of this Lease for one (1) additional three (3) year term, such 40 additional term commencing as of the expiration of the initial term of the Lease. Tenant may exercise such option to extend by giving Landlord written notice on or before the date nine (9) months prior to the expiration date of the initial term of the Lease. Upon the timely giving of such such notice, the term of this Lease shall be deemed extended upon all of the terms and conditions of this Lease (including, without limitation, Tenant's Operating Expense Base and Tenant's Tax Base), except that Landlord shall have no obligation to construct or renovate the Premises and that the Annual Fixed Rent and the Annual Electricity Charge during such additional term shall be as hereinafter set forth. If Tenant fails to give timely notice, as aforesaid, Tenant shall have no further right to extend the term of this Lease, time being of the essence of this Article X. B. Annual Fixed Rent The Annual Fixed Rent during the additional term shall be as follows:
Rent Year Annual Fixed Rent Monthly Payment - --------- ----------------- --------------- 8: $336,651.00 $28,054.25 9: $344,862.00 $28,738.50 10: $361,284.00 $30,107.00
C. Tenant shall have no further option to extend the term of the Lease other than the one (1) additional three (3) year term herein provided. D. Notwithstanding the fact that upon Tenant's exercise of the herein option to extend the term of the Lease such extension shall be self-executing, as aforesaid, the parties shall promptly execute a lease amendment reflecting such additional term after Tenant exercises the herein option. The execution of such lease amendment shall not be deemed to waive any of the conditions to Tenant's exercise of its rights under this Article X, unless otherwise specifically provided in such lease amendment. ARTICLE XI TENANT'S EXPANSION RIGHTS On the conditions (which conditions Landlord may waive, at its election, by written notice to Tenant at any time) that Tenant is not in default of its covenants and obligations under the Lease and that Manhattan Associates, Inc., itself, and/or a Permitted Tenant Successor and/or Affiliated Entity, each as defined in Section 5.6 are occupying the entirety of the Premises then demised to Tenant, both at the time that Tenant gives a Tenant Request, as hereinafter defined, and as of the Term Commencement Date in respect of the Expansion Premises, Tenant shall have the following right to lease the Expansion Premises, as hereinafter defined. A. Definition of Expansion Premises 41 "Expansion Premises" shall be defined as any separately demised area located on the second (2nd) floor of Pod B of the Building which is contiguous to the Premises initially demised to Tenant. The Expansion Premises are currently vacant. B. Exercise of Tenant's Right to Lease the Expansion Premises Tenant has the right to give Landlord a written request ("Tenant's Request") on or before the date two (2) years prior to the expiration of the then current Term of the Lease to ask Landlord whether the Expansion Premises are available for lease to Tenant, as hereinafter defined. The Expansion Premises shall be deemed to be available to Tenant if, at the time that Landlord receives such Tenant's Request, Landlord has not entered into a lease for the Expansion Premises with a third party and Landlord is not then presently negotiating in good faith to enter into a lease of the Expansion Premises with a third party at the time Landlord receives such Tenant's Request. Landlord shall, on or before the date five (5) business days of Tenant's Request, give written notice ("Landlord's Response") to Tenant advising Tenant as to whether the Expansion Premises are then available for lease to Tenant. If the Expansion Premises are then available for lease to Tenant, Tenant shall have the right, which right shall be exercisable b written notice ("Tenant's Exercise Notice") given by Tenant to Landlord on or before the date five (5) days after receipt of Landlord's Response, to lease the Expansion Premises. If Landlord advises Tenant that the Expansion Premises are not then available for lease to Tenant, or if Tenant does not timely give Tenant's Exercise Notice, Tenant shall have no right to lease the Expansion Premises in response to Tenant's Request, but Tenant shall have the right to give subsequent Tenant's Requests pursuant to the provisions of this Article XI. C. Lease Provisions Applying to Expansion Premises The leasing to Tenant of the Expansion Premises shall be upon all of the same terms and conditions of the Lease applicable to the Premises initially demised to Tenant, except as follows: (1) Term Commencement Date The Term Commencement Date in respect of the Expansion Premises shall be the date Landlord receives Tenant's Exercise Notice. (2) Rent Commencement Date The Rent Commencement Date in respect of the Expansion Premises shall be the Term Commencement Date in respect of the Expansion Premises. (3) Annual Fixed Rent 42 The Annual Fixed Rent rental rate in respect of the Expansion Premises shall be the same Annual Fixed Rent rental rate as is then in effect in respect of the Premises initially demised to Tenant under this Lease, from time to time, and rental rate applicable to Tenant's Annual Electricity Charge in respect of the Expansion Premises shall be the same Tenant's Annual Electricity Charge rental rate as is then in effect in respect of the Premises initially demised to Tenant under this Lease, from time to time. (4) Operating Expense Base The Operating Expense Base in respect of the Expansion Premises shall be, subject to Section 2.6A(c) of the Lease, the actual amount of Operating Expenses Allocable to the Premises in respect of calendar year 2005. (5) Tax Base The Tax Base in respect of the Expansion Premises shall be the actual amount of Tax Expenses Allocable to the Premises in respect of fiscal tax year 2005 (i.e., July 1, 2004 - June 30, 2005). (6) Condition of Expansion Premises Tenant shall take the Expansion Premises "as-is" in its then (i.e., as of the date of premises delivery) state of construction, finish, and decoration, without any obligation on the part of Landlord to construct or prepare the Expansion Premises for Tenant's occupancy and with no obligation on the part of Landlord to provide any allowance to Tenant on account of Tenant's demise of the Expansion Premises. Without limiting the foregoing, Exhibit B of the Lease shall have no applicability to the Expansion Premises. D. Execution of Lease Amendments Notwithstanding the fact that Tenant's exercise of the above-described option to lease the Expansion Premises shall be self-executing, as aforesaid, the parties hereby agree promptly to execute a lease amendment reflecting the addition of the Expansion Premises. The execution of' such lease amendment shall not be deemed to waive any of the conditions to Tenant's exercise of the herein option to lease the Expansion Premises, unless otherwise specifically provided in such lease amendment. ARTICLE XII ANTENNA AREA Tenant shall have the right to use the Antenna Area, as hereinafter defined, to install a satellite dish antenna ("Antenna') for a period commencing as of the date that 43 Tenant installs the Antenna, as hereinafter defined, in the Antenna Area ("Term Commencement Date in respect of the Antenna Area") and terminating as of the termination date of the Lease. The "Antenna Area" shall be an area on the roof of the Building designated by Landlord. Tenant shall be permitted to use the Antenna Area solely for one (1) Antenna installed in accordance with specifications approved by Landlord in advance utilizing a frequency or frequencies and transmission power identified in such approved specifications which Tenant will be installing in the Antenna Area and no other frequencies or transmission power shall be used by Tenant without Landlord's prior written consent. Such installation shall be designed in such manner as to be easily removable and so as not to damage the roof of the Building. The Antenna and any replacement shall be subject to Landlord's approval. Tenant's use of the Antenna Area shall be upon all of the conditions of the Lease except as follows: A. Tenant shall have no obligation to pay Annual Fixed Rent in respect of the Antenna Area; B. Tenant shall have no obligation to pay Annual Electricity Charge, Operating Expenses or Real Estate Taxes in respect of the Antenna Area. C. Landlord shall have no obligation to provide any services to the Antenna Area. D. Tenant shall have no right to make any changes, alterations, signs, decoration, or other improvements (which changes, alterations, signs, decoration or other improvements, together with the Antenna, are hereby collectively referred to as "Rooftop Installations") to the Antenna Area or to the Antenna without Landlord's prior written consent, which consent Landlord may hold it its sole discretion. E. Tenant shall have no right of access to the roof of the Building unless Tenant has given Landlord reasonable advance notice and unless Tenant's representatives are accompanied by a representative of Landlord. Landlord shall provide Tenant with 24-hour access to the Antenna Area, subject to Landlord's reasonable security procedures and restrictions based on emergency conditions and to other causes beyond Landlord's reasonable control. Tenant shall give Landlord reasonable advance written notice of the need for access to the Antenna Area (except that such notice may be oral in an emergency), and Landlord must be present during any entry by Tenant onto the Antenna Area. Each notice for access shall be in the form of a work order referencing the lease and describing, as applicable, the date access is needed, the name of the contractor or other personnel requiring access, the name of the supervisor authorizing the access/work, the areas to which access is required, the Building common elements to be impacted (risers, electrical rooms, etc.) and the description of new equipment or other Rooftop Installations to be installed and evidence of Landlord's approval thereof. In the event of an emergency, such notice shall follow within five (5) days after access to the Antenna Area. 44 F. At the expiration or prior termination of Tenant's right to use the Antenna Area, Tenant shall remove all Installations (including, without limitation, the Antenna) from the Antenna Area. G. Tenant shall be responsible for the cost of repairing any damage to the roof of the Building caused by she installation or removal of any Rooftop Installations. H. Tenant shall have no right to sublet the Antenna Area. I. No other person, firm or entity (including, without limitation, other tenants, licensees or occupants of the Building) shall have the right to benefit from the services provided by the Antenna other than Tenant. J. In the event that Landlord performs repairs to or replacement of the roof, Tenant shall, at Tenant's cost, remove the Antenna until such time as Landlord has completed such repairs or replacements. Tenant recognizes that there may be an interference with Tenant's use of the Antenna in connection with such work. Landlord shall use reasonable efforts to complete such work as promptly as possible and to perform such work in a manner which will minimize or, if reasonably possible, eliminate any interruption in Tenant's use of the Antenna. K. Any services required by Tenant in connection with Tenant's use of the Antenna Area or the Antenna shall be installed by Tenant, at Tenant's expense, subject to Landlord's prior approval. L. To the maximum extent permitted by law, all Rooftop Installations in the Antenna Area shall be at the sole risk of Tenant, and Landlord shall have no liability to Tenant in the event that any Rooftop Installations are damaged for any reason. M. Tenant shall take the Antenna Area "as-is' in the condition in which the Antenna Area is in as of the Term Commencement Date in respect of the Antenna Area. N. Tenant shall comply with all applicable laws, ordinances and regulations in Tenant's use of the Antenna Area and the Antenna. O. Landlord shall have the right, upon thirty (30) days notice to Tenant, to require Tenant to relocate the Antenna Area to another area ("Relocated Rooftop Area") on the roof of the Building suitable for the use of Rooftop Installations. In such event, Tenant shall, at Landlord's cost and expense, on or before the thirtieth (30th) day after Landlord gives such notice, relocate all of its Rooftop Installations from the Antenna Area to the Relocation Rooftop Area. 45 P. In addition to complying with the applicable construction provisions of the Lease, Tenant shall not install or operate Rooftop Installations in any portion of the Antenna Area until (x) Tenant shall have obtained Landlord's prior written approval, which approval will not be unreasonably withheld or delayed, of Tenant's plans and specifications for the placement and installation of the Rooftop Installations in the Premises, and (y) Tenant shall have obtained and delivered to Landlord copies of all required governmental and quasi-governmental permits, approvals, licenses and authorizations necessary for the lawful installation, operation and maintenance of the Rooftop Installations. The parties hereby acknowledge and agree, by way of illustration and not limitation, that Landlord shall have the right to withhold its approval of Tenant's plans and specifications hereunder, and shall not be deemed to be unreasonable in doing so, if Tenant's intended placement or method of installation or operation of the Rooftop Installations (i) may subject other licensees, tenants or occupants of the Building, or other surrounding or neighboring landowners or their occupants, to signal interference, Tenant hereby acknowledging that a shield may be required in order to prevent such interference, (ii) does not minimize to the fullest extent practicable the obstruction of the views from the windows of the Building that are adjacent to the Rooftop Installations, if any, (iii) does not complement (in Landlord's sole judgment, which shall not, however, require Tenant to incur unreasonable expense) the design and finish of the Building, (iv) may damage the structural integrity of the Building or the roof thereof, or (v) may constitute a violation of any consent, approval, permit or authorization necessary for the lawful installation of the Rooftop Installations. Q. In addition to the indemnification provisions set forth in the Lease which shall be applicable to the Antenna Area, Tenant shall, to the maximum extent permitted by law, indemnify, defend, and hold Landlord, its agents, contractors and employees harmless from any and all claims, losses, demands, actions or causes of actions suffered by any person, firm, corporation, or other entity arising from Tenant's use of the Antenna Area. R. Landlord shall have the right to designate or identify the Rooftop Installations with or by a lease or license number (or other marking) and to place such number (or marking) on or near such Rooftop Installations. S. (i) Tenant recognizes that Landlord may wish to (and Landlord hereby reserves the right to) install a central Building system (the "Central Building System") capable of, among other things, providing Tenant with the type of service (to be) provided by Tenant's Rooftop Installations. If Landlord elects to install the Central Building System, (i) Tenant shall, upon Landlord's request and at Tenant's expense, remove its Rooftop Installations and other Alterations (including any existing cabling) from the Building and repair any damage caused their installation or removal, (ii) Tenant may, at Tenant's expense and subject to the provisions of this Agreement (including, without limitation, subparagraph P hereof), have access to and use (and tie into) the Central Building System for the uses permitted hereunder, and (ii) commencing upon Tenant's use of the Central Building System and continuing thereafter throughout the term, the Yearly Rent payable hereunder shall be adjusted to be that which is reasonably designated by 46 Landlord from time to time based upon Landlord's determination of the fair market value of the access rights to the Central Building System granted herein. (ii) Landlord shall maintain, repair or replace the Central Building System, in accordance with the standards for the repair and maintenance of such systems generally prevailing in the industry from time to time, so as to eliminate any material interruption or other adverse effects caused by malfunction, damage or destruction of the Central Building System, the cost of which shall be borne by Tenant if the problem was caused by the act or omission of Tenant or its agents, contractors or employees. Notwithstanding the foregoing, Landlord's obligation to maintain, repair or replace the Central Building System shall apply only to the extent necessary to reach premises in the Building that are then used by tenants after the malfunction, damage or destruction or that, if damaged or destroyed, will be again used by tenants upon the completion of restoration or repair thereof. In no event shall Tenant have any claim or right to make any claim against Landlord whatsoever for any damages, including, without limitation, consequential or incidental damages, or lost profits, in any such circumstance. ARTICLE XIII CONDITION OF LANDLORD'S EXECUTION The parties hereby acknowledge that Landlord is only willing to execute this Lease in the event that the current tenant (the "Current Tenant") of the Premises agrees to terminate the term of its lease with Landlord. Therefore, Landlord shall have the right, exercisable upon written notice to Tenant, to render the foregoing Lease void and without further force or effect, unless both of the following events occur: A. Tenant executes and delivers to Landlord the foregoing Lease; and B. The Current Tenant executes and delivers to Landlord an agreement, in form and substance acceptable to Landlord, whereby the Current Tenant agrees to terminate the term of its lease with Landlord. 47 EXECUTED as a sealed instrument in two or more counterparts on the day and year first above written. LANDLORD: GATEWAY ROSEWOOD, INC., a California corporation By: INVESCO Institutional (N.A.), Inc. (formerly known as INVESCO Realty Advisors, Inc.), Advisor By: INVESCO Real Estate Division By:/s/ Michael Kirby ------------------------------- Name: Michael Kirby Title: Vice President TENANT: MANHATTAN ASSOCIATES, INC. By:/s/Edward K. Quibell ------------------------------- (Name) (Title) Hereto Duly Authorized Edward K. Quibell - CFO [APPROVED BY LEGAL MANHATTAN ASSOCIATES(R)] 48 EXHIBIT A DESCRIPTION OF LOT The land in Burlington, Middlesex County, Massachusetts being shown as Lot 75 on a plan by Raymond C. Pressey, Inc. dated December 16, 1980 filed with the Land Court Engineer's office as Plan No. 26172R and bounded and described according to said plan as follows: by the southwesterly line of South Bedford Street, one hundred fifty (150) feet; SOUTHWESTERLY, SOUTHEASTERLY AND NORTHEASTERLY by Lot 74 on said plan, thirty-five (35) feet, ninety-seven and 70/100 (97.70) feet, five hundred seventy-one and 80/100 (571.80) feet and four hundred forty-eight (448), respectively; by the northwesterly line of Northern Circumferential Highway (Route 128 non access), eight hundred seventy-nine and 81/100 (879.81) feet; by Lot 27 as shown on said plan, five hundred eight and 19/100 (508.19) feet; and by Lots 73 and 68 shown on said plan, one thousand four hundred sixty-three and 37/100 (1463.37) feet. 49 EXHIBIT B LANDLORD'S WORK A. For the purposes of Article II of the Lease, the "Substantial Completion Date" shall be the date that (i) Landlord's Work, as defined in Paragraph B hereof, has been completed except for items of work and adjustment of equipment and fixtures which can be completed after occupancy has been taken without causing substantial interference with Tenant's use of the Premises (i.e., so-called "punch list" items) and (ii) Tenant has received Landlord's certificate of substantial completion of the Premises in accordance with clause (i) of this Paragraph A. Notwithstanding the foregoing, if Landlord is delayed in the performance of Landlord's Work by reason of any Tenant Delay, as hereinafter defined, then the Substantial Completion Date shall be deemed to be the date as of which Landlord would have achieved the Substantial Complete Date but for such Tenant Delays. B. Notwithstanding anything to the contrary in this Lease contained, Tenant shall take the Premises "as-is", without any obligation on the part of Landlord to prepare the Premises for Tenant's occupancy, except for the work ("Landlord's Work") shown on the plans and specifications referenced on Exhibit C attached to the Lease. C. Tenant shall pay to Landlord, as additional rent, the cost of any changes to Landlord's Work within thirty (30) days of billing therefore. D. Landlord agrees to use due diligence to complete Landlord's Work on or before the Scheduled Term Commencement Date as set forth in Article I to the Lease. However, except as set forth in Paragraph K of this Exhibit B, the failure to have the premises ready for Tenant's occupancy on the Scheduled Term Commencement Date shall in no way affect the validity of the Lease or the obligations of Tenant hereunder nor shall the same be construed in any way to extend the term of the Lease. Except as set forth in Paragraph K of this Exhibit B, if the Substantial Completion Date does not occur on the Scheduled Term Commencement Date, Tenant shall not have any claim against Landlord, and Landlord shall have no liability to Tenant, by reason thereof. D. Tenant shall, within three (3) business days of request therefor, respond to any request from Landlord or Landlord's architect for approvals, authorizations to proceed or information in connection with Landlord's Work. E. Tenant shall promptly pay to Landlord any additional costs to Landlord in connection with the completion of the Premises in accordance with the terms of the Lease and of this Exhibit B if such additional cost is in whole or in part the result of any Tenant Delay. Such additional rent shall be paid by Tenant to Landlord within thirty (30) days after receipt by Tenant of Landlord's invoice therefor. For the purposes of hereof: 50 - "Tenant Delays" shall defined as any delays in the performance of Landlord's Work to the extent caused by: (i) changes in Landlord's Work, (ii) long leadtime items, (iii) Tenant's failure or omits to timely supply information, approve plans, specifications or estimates, or give authorizations, (iv) Tenant's failure to honor or perform its obligations under this Lease, or (v) the acts or omissions of Tenant, or Tenant's agents, employees or contractors; and - "Additional costs to Landlord" shall mean the costs over and above such costs as would have been the aggregate costs to Landlord of completing the Premises in accordance with the terms of the Lease and this Exhibit B had there been no such failure, omission or delay. Nothing contained in this Paragraph E shall limit or qualify or prejudice any other covenants, agreements, terms, provisions and conditions contained in the Lease. F. Landlord's architect's certificate of substantial completion, given in good faith, or of any other facts pertinent to this Exhibit B shall be deemed conclusive of the statements therein contained and binding upon Tenant, unless, within seven (7) days of Tenant's receipt of such certificate, Tenant gives Landlord written notice setting forth, with specificity, Tenant's objections thereto. G. In the event that Tenant engages any separate contractors in the initial construction of the Premises, Tenant and Tenant's contractors shall comply with the provisions of Paragraph 3.1(c) and Exhibit G to the Lease, and Tenant's contractors shall cooperate in all ways with Landlord's contractors to avoid any delay to the work being performed by Landlord's contractors or conflict in any other way with the performance of such work, or any damages which might occur to any work or materials to be installed by Landlord's Contractors in the Premises. H. Tenant shall be conclusively deemed to have agreed that Landlord has performed all of its obligations under this Exhibit B unless not later than the end of the second calendar month next beginning after the Term Commencement Date Tenant shall give Landlord written notice specifying the respects in which Landlord has not performed any such obligation; provided however, that with respect to latent defects in any portion of Landlord's Work, Tenant shall be conclusively deemed to have agreed that Landlord has performed all of its obligations under this Article 4 unless, not later than the date eleven months and two weeks after the date Landlord substantially completes Landlord's Work, Tenant shall give written notice to Landlord specifying the respects in which Landlord has not performed any such obligation. I. Landlord shall have the same rights and remedies which Landlord has upon the nonpayment of Annual Fixed Rent and other charges due under this Lease for nonpayment of any amounts which Tenant is required to pay to Landlord or Landlord's contractor in connection with the construction and initial preparation of the Premises (including, without limitation, any amounts which Tenant is required to pay in 51 accordance with Paragraph C and F hereof) or in connection with any construction in the Premises performed for Tenant by Landlord, Landlord's contractor or any other person, firm or entity after the Term Commencement Date. J. Landlord will give Tenant reasonable advance notice of the date on which the Premises will be ready for any contractors engaged by Tenant in the preparation of the Premises for Tenant's occupancy and a reasonable time will be allowed from such date for doing the work to be performed by such other contractors. Such access by Tenant's contractors shall be with Landlord's prior written consent, which shall not be unreasonably withheld, during normal business hours and without payment of rent and shall otherwise be in compliance with the terms of this Lease. Such right of entry shall be deemed a license from Landlord to Tenant, and any entry thereunder shall be at the risk of Tenant. K. If the Term Commencement Date shall not have occurred on or before October 8, 2004, then, and as Tenant's sole remedy, (i) the Rent Commencement Date shall be delayed one (1) day for each day ("Day of Delay") between the date as of which the Term Commencement Date occurs and October 8, 2004. For example, if the Term Commencement Date occurs on October 18, 2004 (a delay of ten (10) days), then the Rent Commencement Date shall occur on December 28, 2004; and (ii) The Termination Date of the Lease shall be extended by the same number of days as the number of Days of Delay. For example, if the Term Commencement Date occurs on October 18, 2004 (a delay of ten (10) days), then the Termination Date shall occur on December 28, 2010. 52 EXHIBIT C PLANS AND SPECIFICATIONS FOR LANDLORD'S WORK [Architectural Design of Floor Space] [Manhattan Associates 2nd Floor 67 South Bedford Street Burlington MA 01803] Construction Drawings Completed By: The McKenna Group Limited Date: August 16, 2004 - DM: Demolition Plan - CN: Construction Plan - E: Electrical Plan - RC: Reflected Ceiling Plan - EL/DL: Interior Elevations and Door Schedule 53 EXHIBIT D Building Standard Tenant Improvements Attached to and made part of Lease dated as of Between Gateway Rosewood, Inc. and Manhattan Associates, Inc. A. Partitions Partitions shall extend six inches beyond the ceiling height and be comprised of 2 1/2" metal studs and one (1) layer of 5/8" gypsum board on each side of the studs. All partitions shall have a vinyl base 4" high, color selections from building standard. B. Tenant Entries 1. Where possible, Tenants will have double-leaf, full height mahogany doors set in a wood frame with glass sidelights on each side. 2. Alternatively, a single-leaf full-height mahogany door set in a wood frame with a glass sidelight. 3. First Floor - all Tenant Entries visible to the first floor lobby areas will consist of double glass doors with butt-glazed glass on each side. C. Interior Doors Solid core with sealed or stained mahogany face, set in aluminum frames. Hardware shall include 1 1/2 pairs of paint grade butts, a lever handled chrome finished lockset and one floor stop. 54 D. Paint All building standard interior partitioning shall receive two (2) coats of eggshell latex paint, one (1) color per room. E. Ceiling Acoustical ceiling shall consist of 3/4", foil backed, revealed edge, 2' x 2' U.S.G. Glacier textured ceiling tiles. F. Flooring J&J Industries "Echelon" 30 oz. plush nylon pile carpet, or a carpet of equivalent cost and quality should appropriate color be available. G. Electrical Outlets 15 amp. 120 volt duplex wall-type electrical outlet. H. Telephone Outlets Wall-type telephone pull string prepared to receive a telephone outlet, installation by Tenant's telephone company. I. Lighting One (1) 2' x 4' fluorescent light fixture with parabolic reflector and (1) 18 cell cover shall be provided for each 80 square feet of Useable Area. J. Switching One (1) single pole light switch with brushed chrome cover shall be provided for each 314 square feet of Useable Area. K. Sprinklers One (1) recessed chrome pendant sprinkler head shall be provided to meet all applicable code requirements. L. Sun Control All exterior windows shall receive Louver Drape Model El Elite Vertical Blinds with solid vinyl traversing and rotating louvers. Track will be finished in bronze baked enamel to match window frames. 55 M. Drinking Fountain All floors will have a drinking fountain accessible to all Tenants on the floor. N. Wet Stacks Wet Stacks containing cold water, waste and vents will be available on each floor. O. Heating, Ventilating and Air Conditioning A variable air volume (VAV) system will be employed for both heating and air conditioning. P. Exit Sign One (1) exit sign shall be provided for every 1,000 square feet of Useable Area or an appropriate amount to meet local and national codes and regulations. Q. Emergency Light One (1) emergency light shall be provided for every 1,000 square feet of Useable Area or an appropriate amount to meet local and national codes and regulations. 56 EXHIBIT E Landlord Services Attached to and made part of Lease dated Between Gateway Rosewood, Inc. and Manhattan Associates, Inc. 1. CLEANING A. Office Area Daily: (Monday through Friday, inclusive. Holidays excepted.) Empty and clean all waste receptacles and ash trays and remove waste material from Premises; wash receptacles as necessary. Sweep and dust mop all uncarpeted areas using a dust-treated mop. Vacuum all rugs and carpeted areas. Hand dust and wipe clean with treated cloths all horizontal surfaces including furniture, office equipment, window sills, door ledges, chair rails, and convector tops, within normal reach. Wash clean all water fountains. Remove and dust under all desk equipment and telephones and replace same. Wipe clean all brass and other bright work. Hand dust all grill work within normal reach. 57 Upon completion of cleaning, all lights will be turned off and doors locked, leaving the Premises in an orderly condition. Weekly: Dust coat racks, and the like. Remove all finger marks from private entrance doors, light switches and doorways. Quarterly: Render high dusting not reached in daily cleaning to include: Dusting all pictures, frames, charts, graphs, and similar wall hangings. Dusting all vertical surfaces, such as walls, partitions, doors and bucks. Dusting of all pipes, ducts and high moldings. Dusting of all venetian blinds. B. Lavatories Daily: (Monday through Friday, inclusive, holidays excepted.) Sweep and damp mop floors. Clean all mirrors, powder shelves, dispensers and receptacles, bright work, flushometers, piping, and toilet seat hinges. Wash both sides of all toilet seats. Wash all basins, bowls and urinals. Dust and clean all powder room fixtures. Empty and clean paper towel and sanitary disposal receptacles. Remove waste paper and refuse. 58 Refill tissue holders, soap dispensers, towel dispensers, vending sanitary dispensers; materials to be furnished by Landlord. A sanitizing solution will be used in all lavatory cleaning. Monthly: Machine scrub lavatory floors. Wash all partitions and tile walls in lavatories. C. Main Lobby, Elevators, Building Exterior and Corridors Daily: (Monday through Friday, inclusive, holidays excepted.) Sweep and wash all floors. (Buff both main public lobby floors.) Wash all rubber mats. Clean elevators, wash or vacuum floors, wipe down walls and doors. Spot clean any metal work inside lobby. Spot clean any metal work surrounding Building Entrance doors. Weekly: All resilient tile floors in public areas to be treated equivalent to spray buffing. D. Window Cleaning Windows of exterior walls will be washed semiannually. E. Tenant requiring services in excess of those described above shall request same through Landlord, at Tenant's expense. II. HEATING, VENTILATING, AIR CONDITIONING A. Landlord shall furnish space heating and cooling as normal seasonal changes may require to provide reasonably comfortable space temperature and ventilation for occupants of the Premises under normal business operation, daily from 8:00 a.m. to 6:00 p.m. (Saturdays to 1:00 p.m.), Sundays and holidays excepted. 59 After hours heating, venting and air conditioning to be billed to tenant at cost, including reasonable cost and management expense. B. The air conditioning system is based upon an occupancy of not more than one person per 150 square feet of floor area, and upon a combined lighting and standard electrical load not to exceed 2.5 watts per square foot of usable area. In the event Tenant exceeds this condition or introduces onto the Premises equipment which overloads the system, and/or in any other way causes the system not adequately to perform their proper functions, supplementary systems may at Landlord's option be provided by Landlord at Tenant's expense, and Tenant shall reimburse Landlord in such an amount as will compensate it for the cost incurred by it in operating such supplementary systems. III. WATER A. Cold water at temperatures supplied by the local utility water mains for drinking, lavatory, kitchen, restaurant and toilet purposes and hot water for lavatory purposes only from regular building supply at prevailing temperatures; provided however, that Landlord may, at its expense, install a meter or meters to measure the water supplied to any kitchen (including dishwashing) and restaurant areas in the Premises, in which case Tenant shall upon Landlord's request reimburse Landlord for the cost of the water (including heating thereof) consumed in such areas and the sewer use charge resulting therefrom. Notwithstanding anything to the contrary in the Lease contained, Landlord shall, at Tenant's request and at Tenant's cost, perform any maintenance, repairs and replacements necessary for any hot water heaters serving the Premises and Landlord shall arrange for the unclogging of drains within the Premises. IV. ELEVATORS A. The passenger elevator system shall be in automatic operation and available to Tenant at all times. Use of the elevators for service purposes will have to be scheduled with the Landlord and coordinated with the needs of the other tenants. V. ELECTRICAL SERVICE A. Landlord shall provide electric power for up to 1.8 watts per square foot of usable area for lighting plus 1.0 watts per square foot of usable area for office machines through standard receptacles for the typical office space. B. Landlord, at his option, may require separate metering and billing to Tenant for the electric power required for any special equipment (such as computers and reproduction equipment) that require either 3-phase electrical power or any 60 voltage other than 120. Landlord will furnish and install at Tenant's expense all replacement lighting tubes, lamps, and ballasts required by Tenant. Landlord will clean lighting fixtures on a regularly scheduled basis at Tenant's expense. 61 EXHIBIT F FLOOR PLAN [Architectural Schematic of Second Floor, Center Space] [16,422 RSF] 62 EXHIBIT G, SHEET 1 (Required Tenant Work General Conditions) The following General Conditions are promulgated pursuant to Section 3.1 of the Lease ("Lease"). 1. DEFINITIONS 1.1 Building: Burlington Business Center 1.2 Consultant: Any architectural, engineering, or design consultant engaged by a Tenant in connection with Tenant Work. 1.3 Contractor: Any Contractor engaged by a Tenant of the Building for the performance of any Tenant Work, and any Subcontractor employed by any such Contractor. 1.4 Plans: All architectural, electrical and mechanical construction drawings and specifications required for the proper construction of the Tenant Work. 1.5 Regular Business Hours: Monday through Friday, 9:00 a.m. through 5:00 p.m., holidays excluded. 1.6 Construction Coordinator: Such individual or organization as Landlord may designate from time to time. 1.7 Senior Tenant Design Coordinator: Such individual as Landlord may designate from time to time. 1.8 Tenant: Any occupant of the Building. 1.9 Tenant Work: Any alterations, improvements, additions, repairs or installations in the Building performed by or on behalf of any Tenant. 63 1.10 Tradesperson: Any employee (including, without limitation, any mechanic, laborer, or Tradesperson) employed by a Contractor performing Tenant Work. 2. GENERAL 2.1 All Tenant Work shall be performed in accordance with these General Conditions and the applicable provisions of the Lease. 2.2 The provisions of these General Conditions shall be incorporated in all agreements governing the performance of all Tenant Work, including, without limitation, any agreements governing services to be rendered by each Contractor and Consultant. 3. PRECONSTRUCTION NOTIFICATION AND APPROVALS 3.1 Approval to Commence Work a. Tenant shall submit to Construction Coordinator, for the approval of Retail Construction Coordinator, the names of all prospective Contractors prior to issuing any bid packages to such Contractors. b. No Tenant Work shall be undertaken by any Contractor or Tradesperson unless and until all the matters set forth in Article 3.2 below have been received for the Tenant Work in question and unless Construction Coordinator has approved the matters set forth in Article 3.2 below. 3.2 No Tenant Work shall be performed unless, at least one (1) business day before any Tenant Work is to begin, all of the following has been provided to the Construction Coordinator and approved. In the event that Tenant proposes to change any of the following, the Construction Coordinator shall be immediately notified of such change and such change shall be subject to the approval of the Construction Coordinator. a. Schedule for the work, indicating start and completion dates, any phasing and special working hours, and also a list of anticipated shutdown of building systems. b. List of all Contractors and Subcontractors, including addresses, telephone numbers, trades employed, and the union affiliation of each Contractor and Subcontractor. 64 c. Names and telephone numbers of the supervisors of the work. d. Copies of all necessary governmental permits, licenses and approvals. e. Proof of current insurance, to the limits set out in Exhibit A to these General Conditions, naming Landlord and Construction Coordinator as an additional insured party. f. Notice of the involvement of any Contractor in any ongoing or threatened labor dispute. g. With respect to Bonded Projects, as defined in Section 3.1(c ) of the Lease, Payment, Performance and Lien Bonds from sureties acceptable to Landlord, in form acceptable to Landlord, naming Landlord as an additional obligee. h. Evidence that Tenant has made provision for either written waivers of lien from all Contractors and suppliers of material, or other appropriate protective measures approved by Landlord, which approval shall not be unreasonably withheld. 3.3 Reporting Incidents All accidents, disturbances, labor disputes or threats thereof, and other noteworthy events pertaining to the Building or the Tenant's property shall be reported immediately to the Construction Coordinator. A written report must follow within 24 hours. 4. CONSTRUCTION SCHEDULE 4.1 Coordination a. All Tenant Work shall be carried out expeditiously and with minimum disturbance and disruption to the operation of the Building and without causing discomfort, inconvenience, or annoyance to any of the other tenants or occupants of the Building or the public at large. b. All schedules for the performance of construction, including materials deliveries, must be coordinated through the Construction Coordinator. The Construction Coordinator shall have the right, without incurring any liability to any Tenant, to stop activities and/or to require rescheduling of Tenant Work based upon adverse impact on the tenants or occupants of the Building or on the maintenance or operation of the Building. 65 c. If any Tenant Work requires the shutdown of risers and mains for electrical, mechanical, sprinklers and plumbing work, such work shall be supervised by a representative of Landlord. No Tenant Work will be performed in the Building's mechanical or electrical equipment rooms without both Landlord's prior approval and the supervision of a representative of Landlord, the cost of which shall be reimbursed by the Tenant. 4.2 Time Restrictions a. Subject to Paragraph 4.1 of these General Conditions, general construction work will generally be permitted during Regular Business Hours. b. Tenant shall provide the Construction Coordinator with at least twenty-four (24) hours notice before proceeding with Special Work, as hereinafter defined, and such Special Work will be permitted only at times agreed to by the Building Manager during periods outside of Regular Business Hours. Tenant shall pay for all additional supervisory and other premium costs incurred by Landlord as the result of any such Special Work. "Special Work" shall be defined as the following operations: (1) All utility disruptions, shutoffs and turnovers; (2) Activities involving high levels of noise, including demolition, coring, drilling and ramsetting; (3) Activities resulting in excessive dust or odors, including demolition and spray painting; and (4) Any other work which Tenant proposes to perform outside of Regular Business Hours. c. If coordination, labor disputes or other circumstances require, the Construction Coordinator may change the hours during which regular construction work can be scheduled and/or restrict or refuse entry to and exit from the Building by any Contractor. 5. CONTRACTOR PERSONNEL 66 5.1 Work in Harmony a. All Contractors shall be responsible for employing skilled and competent personnel and suppliers who shall abide by the Supplemental Conditions herein set forth as amended from time to time by Landlord. b. No Tenant shall at any time, either directly or indirectly, employ, permit the employment, or continue the employment of any Contractor if such employment or continued employment will or does interfere or cause any labor disharmony, coordination difficulty, delay or conflict with any other contractors engaged in construction work in or about the Building. c. Should a work stoppage or other action occur anywhere in or about the Building as a result of the presence, anywhere in the Building, of a Contractor engaged directly or indirectly by a Tenant, or should such Contractor be deemed by Landlord to have violated by applicable rules or regulations, then upon twelve hours written notice, Landlord may, without incurring any liability to Tenant or said contractor, require any such Contractor to vacate the premises demised by such Tenant and the Building, and to cease all further construction work therein. d. Tenant agrees that all Tenant Work shall be performed by any Contractors which shall work in harmony with all other labor and contractors working in or about the Property. e. Tenant shall use, and Tenant shall require the Contractor to use his best efforts to prevent work stoppages on the Premises, or elsewhere in the Building, to the extent attributable to work being performed on the Premises, irrespective of the reason for any such stoppage, in recognition of the fact that it is of the utmost importance to Landlord and all those occupying space in the Building that there be no interruption in the progress of the work. 5.2 Conduct a. Tradespersons shall wear clothing suitable for their work and shall remain fully attired at all times. All Contractors will be responsible for their Tradespersons' proper behavior and conduct. b. The Construction Coordinator reserves the right to remove anyone who, or any Contractor which is causing a disturbance to any Tenant or Occupant of the Building or any other person using or servicing the Building; is interfering with the work of others; or is in any other way displaying conduct or performance not compatible with the Landlord's standards. Tenant shall exonerate, indemnify and hold Landlord and the Construction Coordinator harmless from any loss, cost, damages, or liability incurred by reason of compliance with any such demand. 67 5.3 Access a. All Contractors and Tradespersons shall contact the Construction Coordinator prior to commencing work, to confirm work location and Building access, including elevator usage and times of operation. Access to the Building before and after Regular Business Hours or any other hours designated from time to time by the Building Manager and all day on weekends and holidays will only be provided when twenty-four (24) hours advance notice is given to the Construction Coordinator. b. No Contractor or Tradesperson will be permitted to enter any private or public space in the Building except through entrances designated by the Construction Coordinator. 5.4 Parking Parking is not allowed in or near truck docks, in handicapped or fire access lanes, or any private ways in or surrounding the property. Vehicles so parked will be towed at the expense of the Tenant who has engaged the Contractor for whom the Owner of such vehicle is employed. 6. BUILDING MATERIALS 6.1 Delivery a. All deliveries of construction materials shall be made at the predetermined times approved by the Construction Coordinator and shall be effected safely and expeditiously only at the location determined by the Construction Coordinator. b. Tenant shall give the Construction Coordinator at least twenty-four (24) hours notice of deliveries of any materials in the Building. 6.2 Transportation in Building a. Distribution of materials from delivery point to the work area in the Building shall be accomplished with the least disruption to the operation of the Building possible. Elevators will be assigned for material delivery and will be controlled by the Construction Coordinator. b. Contractors shall provide adequate protection to all carpets, wall surfaces, doors and trim in all public areas through which materials are transported. Contractors shall continuously clean all such areas. Protective measures shall 68 include runners over carpet, padding in elevators and any other measures determined by the Construction Coordinator. c. Any damage caused to the Building through the movement of construction materials by any Contractor or otherwise caused by a Contractor shall be the responsibility of the tenant who has engaged the Contractor involved. Charges for such damage will be submitted by the Landlord directly to such tenant. 6.3 Storage and Placement a. All construction materials shall be stored only in the premises where they are to be installed. No storage of materials will be permitted in any public areas, loading docks or corridors leading to the premises. b. No flammable, toxic, or otherwise hazardous materials may be brought in or about the Building unless: (1) authorized by the Construction Coordinator, (ii) all applicable laws, ordinances, rules and regulations are complied with, and (iii) all necessary permits have been obtained. All necessary precautions shall be taken by the Contractor handling such materials against damage or injury caused by such materials. c. All materials required for the construction of the premises must conform with the plans and specifications approved by Landlord, and must be installed in the locations shown on the drawings approved by the Landlord. d. All work shall be subject to reasonable supervision and inspection by a representative of Landlord. e. No alterations to approved plans will be made without prior knowledge and approval of the Senior Tenant Design Coordinator. Such changes shall be documented on the as-built drawings required to be delivered to Landlord pursuant to Paragraph 10 of these General Conditions. At the time that such changes are prepared by the Tenant and approved by Landlord, Tenant shall submit such approved changes to the Construction Coordinator. At the time that any shop drawing is approved by the Senior Tenant Design Coordinator, Tenant shall submit such approved shop drawings to the Construction Coordinator. f. All protective devices (e.g., temporary enclosures and partitions) and materials, as well as their placement, must be approved by the Construction Coordinator. g. It is the responsibility of Contractors to ensure that the temporary placement of materials does not impose a hazard to the Building or its occupants, either through overloading, or interference with Building systems, access, egress or in any other manner whatsoever. h. All existing and/or new openings made through the floor slab for piping, 69 cabling, etc. must be firestopped in accordance with applicable codes. All holes in the floor slab at abandoned floor outlets, etc. will be filled with solid concrete. 6.4 Salvage and Waste Removal a. All rubbish, waste and debris shall be neatly and cleanly removed from the Building by Contractors daily and placed in a trash container designated by the Construction Coordinator, unless otherwise approved by the Construction Coordinator. For any demolition and debris, each Contractor must make arrangements with the Construction Coordinator for the scheduling and location of an additional dumpster to be supplied at the cost of the Tenant engaging such Contractor. Where, in the opinion of the Construction Coordinator, such arrangements are not practical, such Contractors will make alternative arrangements for removal at the cost of the Tenants engaging such Contractors. b. Toxic or flammable waste is to be properly removed daily and disposed of in full accordance with all applicable laws, ordinances, rules and regulations, c. Contractors shall, prior to removing any item from the Building, notify the Construction Coordinator that it intends to remove such item. At the election of Construction Coordinator, Contractors shall deliver any such items to the Construction Coordinator. Such items will be delivered, without cost, to an area designated by the Construction Coordinator which area shall be within the Building or the complex in which the Building is located. 7. PAYMENT OF CONTRACTORS Tenant shall promptly pay the cost of all Tenant Work so that Tenant's premises and the Building shall be free of liens for labor or materials. If any mechanic's lien is filed against the Building or any part thereof which is claimed to be attributable to the Tenant, its agents, employees or contractors, Tenant shall give immediate notice of such lien to the Landlord and shall promptly discharge the same by payment or filing any necessary bond within ten (10) days after Tenant has first notice of such mechanic's lien. 70 8. CONTRACTOR'S INSURANCE Prior to commencing any Tenant Work, and throughout the performance of the Tenant Work, each Contractor shall obtain and maintain insurance in accordance with Exhibit A attached hereto. Each Contractor shall, prior to making entry into the Building, provide Landlord with certificates that such insurance is in full force and effect. 9. SUBMISSIONS UPON COMPLETION a. Upon completion of any Tenant Work and prior to taking occupancy. Tenant shall submit to Landlord a permanent Certificate of Occupancy and final approval of any other governmental agencies having jurisdiction. b. Tenant shall submit to the Senior Tenant Design Coordinator a final "as-built" set of drawings showing all items of the work in full detail as required in the Tenant Design Criteria Manual. Tenant shall have no obligation to submit "as-built" drawings with respect to Landlord's Work. 10. ADJUSTMENTS OF REGULATIONS In accordance with Section 5.4 of the Lease, Landlord has the right to cancel or amend these General Conditions. 11. CONFLICT BETWEEN RULES AND REGULATIONS AND LEASE In the event of any conflict between the Lease and these General Conditions, the term of the Lease shall control. 71 EXHIBIT A TO REQUIRED TENANT WORK GENERAL CONDITIONS INSURANCE REQUIREMENTS FOR CONTRACTORS When Tenant Work is to be done by Contractors in the Building, the Tenant authorizing such work shall be responsible for including in the contract for such work the following insurance and indemnity requirements to the extent that they are applicable. Insurance certificates must be received prior to construction. Landlord and the Construction Coordinator shall be name as an additional insured party on all certificates. INSURANCE Each Contractor and each Subcontractor shall, until the completion of the Tenant Work in question, procure and maintain at its expense, the following insurance coverages with companies acceptable to Landlord in the following minimum limits: Worker's Compensation (including coverage for Occupational Disease) Limit of Liability Worker's Compensation As required by law Employer's Liability Comprehensive General Liability (including Broad Form Comprehensive Liability Endorsement, Contractual Liability assumed by the Contractor and the Tenant under Article 15.3 of the Lease and Completed Operations coverage) Limit of Liability Bodily Injury & Property Damage The applicable Minimum Liability Insurance Limit, as defined in Section 3.1(c) Comprehensive Automobile Liability (including coverage for Hired and Non-owned Automobiles) Limit of Liability Bodily Injury & Property Damage The applicable Minimum Liability Insurance Limit, as defined in Section 3.1(c) 72 INDEMNITY Each Contractor shall indemnify, defend with counsel acceptable to Landlord, and hold Landlord and Landlord's agents from and against any claims, losses, and damages arising out of the work performed by such Contractor, unless such claim, loss or damage arises from the negligence or willful misconduct of Landlord or its agents. 73 EXHIBIT H BUILDING RULES AND REGULATIONS 1. BUILDING ACCESS RESTRICTIONS Employee access to the building is through the main lobby. 2. OBSTRUCTION OF SIDEWALKS, DOORWAY, VESTIBULE, HALLS, ETC. Sidewalks, doorways, vestibules, halls, stairways, and similar areas shall not be obstructed nor shall refuse, furniture, umbrellas, boxes or other items to be placed therein by Tenant or its officers, agents, servants or employees, or used for any purpose other than ingress and egress to and from the Premises, or for going from one part of the Building to another part of the Building. Canvassing, soliciting and peddling in the Building are prohibited. 3. PERMISSION REQUIRED FOR POSTING OR DISTRIBUTION OF PRINTED MATTER, ETC. No person shall post, distribute, exhibit, inscribe, paint or affix (or shall any person cause, direct or order the posting, distributing, exhibiting, inscribing, painting or affixing of) signs, advertisements, circulars, notices, posters, or printed or written or pictorial matter of articles or objects of any kind at, in, on or to any part of the common areas and facilities of One Burlington Business Center, In the event of the violation of the foregoing, the Building Management may remove the same without any liability, and may charge the expense and cost incurred for such removal to the person or persons violating this rule. 4. SOLICITATION Solicitation of any kind is strictly forbidden unless approved in advance by the Building Management office. 5. BUILDING STANDARD SIGNAGE No signs, directories, posters, advertisements, or notices shall be painted or affixed on or to any of the windows or doors, or in corridors or other parts of the Building, except in such color, size and style, and in such places, as shall be first approved in writing by the Property Manager in its discretion. Building standard suite identification signs will be prepared by the Property Manager at Landlord's expense, however, Tenant may install its own sign identification within the Premises, subject to Property Manager's approval thereof. Property Manager shall have the right to remove all unapproved signs without 74 notice to the Tenant, at the expense of the Tenant. It is also further understood that furnishings in Tenant's area which are viewed from the common area shall be subject to Property Management's approval. 6. LOST ARTICLES Person finding lost articles at the Building shall turn them over to the Building Management Office. Articles not claimed by the owner within ninety days may be turned over to the finders thereof. 7. LOST OR STOLEN PROPERTY Building Management shall not be responsible for lost or stolen personal property, money or jewelry from Tenant's leased area or public areas regardless of whether such loss occurs when area is locked against entry or not. 8. REQUESTS TO PERFORM WORK OR SERVICES Additional services requested by tenants will be backcharged by Lincoln Property Company to the tenant. This charge will include an hourly rate and material cost. All expenditures must be approved before any work begins through the Tenant Alteration process. No person shall request any building services employees to do any work or perform any service, but shall make all such request(s) directly to the Building Management Office (781) 238-4488. Each office Tenant of One Burlington Business Center shall submit a list of two authorized individuals to request service and approve expenditures to the Building Manager. 9. INSTALLATIONS IN OFFICE AREAS No nails, hooks, or screws shall be driven into or inserted in any part of the Building except as approved by the Building Manager, which approval shall not be unreasonably withheld. Subject to obtaining Landlord's approval, as aforesaid, Landlord shall, at Tenant's request, without charge to Tenant, hang any whiteboards, cork boards, pictures and other typical corporate wall hangings on the walls in the Premises. 75 10. ANIMALS AND PETS BARRED; EXCEPTION No animals shall be brought into or kept in or about the Building, with the exception of seeing-eye dogs. 11. CLEANLINESS OF PREMISES Tenant shall cooperate with Lincoln Property Company's employees in keeping premises neat and clean. 12. NOISE AND ODORS Tenant shall not cause or permit any improper noises in the Building, or allow any unpleasant odors to emanate from the premises, or otherwise interfere, injure or annoy in any way other Tenants, or persons having business with them. 13. FOOD AND BEVERAGES No food and/or beverages shall be distributed from the premises, except in connection with the operation of vending machines installed for the exclusive use of Tenants employees or the operation of cafeteria for Tenants' employees. 14. NO SMOKING POLICY The Building is a non-smoking facility. Smoking in any form, including but not limited to the smoking of cigarettes, cigars and pipes, is strictly prohibited anywhere in or on the Premises. Notwithstanding the foregoing policy, smoking may be permitted only in the areas of the exterior grounds designated by the Property Manager. 15. STORAGE, ETC. OF CERTAIN MATERIALS AND SUBSTANCES PROHIBITED No person shall store, keep, handle, use, dispense, or transport at, in, or upon the Building, or bring into the Building for any purpose: (a) any firearms or any other weapons, except persons carrying firearms pursuant to and in compliance with the law and all licenses, permits, etc. including but not limited to authorized peace officers, customs, or express carrier employees or members of the armed forces of the United States; (b) any flammable, combustible, explosive, corrosive, oxidizing, poisonous, compressed or otherwise offensive fluid, gas, chemical, substance or material, at such time or place or in such manner or condition as to endanger unreasonably or as to be likely to endanger unreasonably persons or property; or (c) any radioactive materials. 76 16. TAMPERING WITH CONTROLS, EQUIPMENT, ETC. PROHIBITED No person shall tamper with any One Burlington Business Center building controls, machinery, or equipment including without limitation thermostats, heater valves, sprinkler valves and devices, or blower motors. 17. OVERLOADING OF UTILITY, MECHANICAL, ETC. SYSTEMS PROHIBITED No person shall keep, maintain, place or install, use or connect at the Building any equipment or engage in any activity or operation at the Building which will cause or tend to cause an overloading of the capacity or any electrical circuit or system or portion of any other utility, mechanical, electrical communication or other systems servicing the Building. No person shall do or permit to be done anything which may interfere with the effectiveness or accessibility or existing and future utility, mechanical, electrical, communication or other systems or portions thereof at the Building. 18. OVERTIME HEATING AND AIR CONDITIONING All requests for overtime air conditioning and/or heat must be submitted in writing to the Building Management office using the Maintenance Request Form. A fee is charged for overtime HVAC. 19. ACCESS TO MECHANICAL AREAS Tenant will not relocate furnishings or cabinets adjacent to mechanical or electrical access panels or over air conditioning outlets so as to prevent operating personnel from servicing such units as routine or emergency access may require. Cost of moving such furnishings for Building Manager's access will be at Tenant's expense. The lighting and air conditioning equipment of the Building will remain the exclusive charge of the Building designated personnel. 20. LOCATION OF HEAVY OBJECTS Lincoln Property Company shall have the right to prescribe the weight and position of heavy equipment or objects which may overstress any portion of the floors of the Premises. All damage done to the Building by the improper placing of such heavy items will be repaired at the sole expense of Tenant. 77 21. MOVEMENT OF FURNITURE AND EQUIPMENT Movement in or out of the Building of furniture or office equipment, or dispatch or receipt by Tenant of any bulky material, merchandise or materials which requires use of elevators or stairways or movement through the Building entrances or lobby shall be restricted to such hours as Building Manager shall designate. All such movement shall be under the supervision of Building Manager by prearrangement before performance. Such prearrangement initiated by a Tenant shall include determination by Building Manager, and subject to this decision and control, as to the time, method, and routing of movement and as to limitations for safety or other concern which may prohibit any article, equipment, or any item from being brought into the Building. The Tenant assumes all risks as to the damage to articles moved and injury to persons or public engaged or not engaged in such movement, including equipment, property, and personnel of Lincoln Property Company if damaged or injured as a result of an act in connection with carrying out this service a for an Tenant from time of entering property to completion of work; and Lincoln Property Company shall not be liable for acts of any persons engaged in or any damage or loss of any said property or persons resulting from any act in connection with such service performed for an Tenant. 22. INSTALLATION AND REMOVAL OF HEAVY EQUIPMENT Tenants shall notify the Building Manager when safes or other heavy equipment are to be taken in or out of the Building, and such moving shall only be done after written permission is obtained from Lincoln Property Company on such conditions as Lincoln Property Company shall require. Additional costs related to the installation of such equipment, such as for elevator use of window removal, will be borne by Tenant. 23. CORRIDOR AND STAIRWELL DOORS Corridor doors, when not in use, shall be kept closed. Tenant shall lock all office doors leading to corridors and turn out all lights at the close of the working day. 24. RIGHT RESERVED TO INSPECT FREIGHT, ARTICLES, PACKAGES, ETC. BROUGHT IN AND OUT The Building Management reserves the right to inspect all freight and other articles including hand-carried packages brought into or out of the Building. 78 25. BICYCLE AND MOTORCYCLE PARKING No bicycles, motorcycles or similar vehicles will be allowed in the Building. Parking for such vehicles will be allowed only in areas designated by the building manager. 26. PARKING RULES AND REGULATIONS Tenant personnel shall comply with reasonable parking rules and regulations as may be posted and distributed form time to time. Refer to the parking policies section of this manual for standard parking procedures. 27. KEYS AND LOCKS No additional locks shall be placed upon any door without the prior written consent of the Building Manager. All necessary keys shall be furnished by the Building Manager, and the same shall be surrendered upon termination of Tenant's Use. Tenant shall then give Building Manager or his Tenant an explanation of the combination of all locks on the doors or vaults. 28. FIRE SAFETY RULES AND REGULATIONS All Fire Safety Rules and Regulations are set forth by the Town of Burlington Fire Department Code, and the Massachusetts State Building Code. A. No occupants of One Burlington Business Center shall use or allow the use of any of the following: 1. Multi-plug adapter at convenience outlets, except those approved by Building Management (Landlord hereby agreeing that it will not unreasonably withhold its consent to power strips). 2. Any extension cord other than heavy duty cord authorized in writing by Building Management and listed and approved by Underwrites Laboratories, Inc. 3. Any temporary wiring except as provided for in the Boston Edison Code and approved by Building management. 4. Any electrical appliance or equipment not listed and approved by underwriters. 79 All occupants of One Burlington Business Center shall at all times maintain such space as to permit all persons within to expeditiously leave in the event of an emergency through any door opening on to any public corridor. 29. BUILDING EVACUATIONS Building Management has the right to evacuate the Building in the event of an emergency or catastrophe. 30. SECURITY PROCEDURES Tenant will comply with all requirements necessary for the security of the premises, including the use of security control cards for after hours entry. 31. USE OF PREMISES FOR LODGING OF SLEEPING No portion of the Building shall be used for the purpose of sleeping or lodging rooms. 32. INSTALLATION OF WINDOW TREATMENTS Prior written approval, which shall be at Building Manager's sole discretion, must be obtained for installation of window shades, blinds, drapes, or any other window treatment of any kind whatsoever. Building Manager will control all internal lighting that may be visible from the exterior of the Building and shall have the right to change any unapproved lighting, without notice to Tenant, at Tenant's expense. 33. AMENDMENTS TO RULES AND REGULATIONS Lincoln Property Company reserves the right to rescind any of these rules and regulations and to make such other and further rules and regulations as in its judgment shall, from time to time, be needed for the safety, protection, care and cleanliness of the Building, the operation thereof, the preservation of good order therein and the protection and comfort of the Tenant and their agents, employees and invitees, which rules and regulations, when made and written notice thereof is given to Tenant, shall be binding upon it in like manner as if originally herein prescribed. Landlord agrees that it shall not discriminate between Tenant and other similarly situated tenants in the enforcement or implementation of any rules or regulations. 80 The Building Rules and Regulations Booklet was developed by Lincoln Property Company, One Burlington Business Center Property Manager, to insure the safety of tenants and their employees. If you have questions or require further information on any of the policies set forth in the Building Rules and Regulations Booklet, please contact Lincoln Property Company at (781) 238-4488. 81 EXHIBIT I BUILDING ALTERATIONS RULES AND REGULATIONS The following rules and regulations shall be followed by all contractors performing work for Tenant: 1. HOURS OF WORK No construction personnel are allowed in Building common areas on occupied floors during the hours of 9:00 a.m. to 5:00 p.m. unless approved by building management. Exception: Entry and exit from Tenant's area under construction via the elevator. 2. ELEVATOR ACCESS Elevator access should be coordinated with Building Management. 3. MUSIC No loud music is allowed in construction areas. Doors to spaces on occupied floors shall be closed at all times. 4. CLEANLINESS OF PREMISES Areas under construction as well as storage areas, and all unoccupied space are to be kept clean and in an orderly fashion. 5. LOADING & UNLOADING Contractor is to use only designated areas for working, loading and unloading, and trash containment and removal. The Building shall not be responsible for the removal of construction debris or clean-up. The contractor shall be responsible for providing adequate dump truck service at its sole expense. 6. REMOVAL OF DEBRIS The contractor shall be held responsible for leaving the construction area completely cleaned and broom swept, and free of all rubbish and debris. Additionally, the contractor shall be held responsible for the protection and cleaning of interior glass, venetian blinds, and drapes. Areas adjacent to the work area are to be kept clean and free of stored materials. 82 7. DUST BARRIERS Contractor shall be responsible for providing construction walk-off mats to be utilized and maintained where deemed necessary by common sense and Building Management. This will include spare carpet to scuff dust and dirt off work footgear. The contractor must also supply and install polyethylene dust barriers when and where deemed necessary by Management. 8. DAILY CLEAN UP Occupied floors with area under construction are to have all construction debris (vacuumed if necessary) removed from Building common areas (corridors, restrooms, elevator lobbies, service elevator lobby, stairwells, electrical and mechanical rooms, etc.) on a daily basis. No staging of materials will be permitted in hallways, lobbies, sidewalks or other areas that can be seen by the public. 9. NO LOITERING Construction personnel are confined to those areas in which they are working. They will not be allowed to congregate on grounds. 10. DUMPSTERS Area around trash dumpsters and parking areas are to be kept clean by contractor. 11. ALCOHOLIC BEVERAGES Contractors are not allowed to consume or bring to the property alcoholic beverages. 12. LANDSCAPING Construction personnel are prohibited to travel on landscaped areas. 13. REMOVAL OF MATERIALS No owner-supplied material is to leave the job site. 14. BACK CHARGING FOR CLEAN UP Contractor's failure to remove material or clean up work area, will result in Lincoln Property Company performing the work, and holding all costs for the Contractor's account. 83 15. WELDING AND CORE DRILLING All/any burning or welding, core drilling and other extremely noisy or messy jobs must be prearranged through the Building Management Office prior to doing the work. Burning and welding requires prior notification to Management and shall be performed only with an assistant who will hold an ABC fire extinguisher or firewatch provided by the Burlington Fire Department and observe said procedure at all times. Welding and burn permits must be submitted to the building management office prior to work commencing from the Burlington Fire Department. 16. LIFE SAFETY SYSTEMS Under no circumstances will any work be performed on the base building MEP systems or life support systems without prior approval of the Building Management Office (i.e., fire sprinkler system, smoke detector system, water supply system, sanitary/storm system, and main electrical distribution system, etc.) All equipment rooms must be attended to at all times during work. If the area is left unattended, it is to be secured. 17. FIRE ALARM SYSTEM Fire Protection/Life Safety Systems shall not be disconnected or otherwise rendered unserviceable without first notifying the Building Management Office in writing. This must be done at least 48 hours in advance. Restoration of protective systems shall be diligently pursued. 18. FIRE SAFETY Any perforation and/or penetration through any fire rated wall or partition, telephone closet and/or electrical closet must be completely fire safe. 19. FIRE SYSTEM SHUTDOWNS Contractor will be responsible for any charges pertinent to fire alarm system and sprinkler supervisory shutdowns as they relate to contractor's work. 20. STAIRWELLS Stairwell doors are not be wedged open under any circumstances. 84 21. CONTRACTING REPRESENTATIVE The General Contractor will provide a qualified representative for the full duration of his or any of his subcontractor's daily activities within the Building. The representative will be equipped with a voice page. 22. CONTRACTOR EMPLOYEE IDENTIFICATION Identification will be required for all construction personnel and said personnel must comply with any and all check-in/check-out procedures as required by Tenant and Management. 23. DELIVERY OF MATERIALS All work, material delivery and access to Building before 7:30 a.m. or after 5:00 p.m. and on weekends and holidays, must be coordinated with Building Management in advance. Any access to Tenant's space must be arranged by the Tenant. 24. PROFANITY Any contractor acting in a less than professional manner will be removed from the project and prohibited future access (i.e., use of profanity, lewd remarks to tenants, etc.) 25. SECURITY OF TOOLS Contractor is responsible for securing all materials and tools as well as that of his subcontractors. 26. PUNCHLIST INSPECTION No work will be accepted as complete or final without a final punchlist and inspection approval by Lincoln Property Management. 27. CONTRACTOR EMPLOYEE TRAINING Contractor and all employees, as well as subcontractors and their employees must be properly trained and certified for work they perform. 85 28. PLAN SUBMITTAL It is a requirement that three (3) complete sets of construction drawings and specifications be submitted to the Building Management Office prior to the commencement of any construction activity. There will be no exceptions to this requirement. 29. HVAC REQUIREMENTS Contractor and/or Tenant shall provide heat load calculations and utility load calculations based on total square foot of buildout per floor; provided however, that Tenant shall have no obligation to provide such calculations with respect to Landlord's Work. Anything that exceeds normal building consumption or HVAC capacities for that area will be the responsibility of the Tenant. This is so that other Tenants do not absorb additional costs and the building operating costs are not elevated. Calculations should include: A. Electrical consumption of all devices, equipment fixtures or specialty items that require electricity. B. Heat load should include computer and copy equipment, lighting or persons working in the area, and all other heat-producing items. C. Consumption and requirements for domestic, condenser/cooling tower, and chilled water. Sewage charges may be included and added depending on usage. 30. FEES AND ADDITIONAL COSTS The Tenant shall pay the full cost of all Tenant initiated alterations, additions, and improvements, including construction management fees and other costs in connection with such work (including without limitation, all costs incurred by the building, along with the cost of any additional building services consumed by the Tenant as a result of such work. This includes fees incurred by the building to update and modify all as-built CAD drawings. 86 31. AMENDMENTS TO BUILDING ALTERATIONS RULES AND REGULATIONS Lincoln Property Company reserves the right to rescind any of these rules and regulations and to make such other and further rules and regulations as in its judgment shall, from time to time, be needed for the safety, protection, care and cleanliness of One Burlington Business Center building, the operation thereof, the preservation of good order therein and the protection and comfort of the Tenant and their agents, employees and invitees, which rules and regulations, when made and written notice thereof is given to Tenant, shall be binding upon it in like manner as if originally herein prescribed. 87


                                                                    EXHIBIT 10.8













                          AGREEMENT TO BUILD AND LEASE

                                     BETWEEN

                        ORCHID APARTMENTS PRIVATE LIMITED
                               (An Indian company)

                                       AND


          MANHATTAN ASSOCIATES INDIA DEVELOPMENT CENTRE PRIVATE LIMITED
                               (An Indian company)


                            DATED: NOVEMBER 19, 2004




                                  CONTENTS PAGE



    SERIAL NO.                     DESCRIPTION                       PAGE NO.


        1.                 Construction of the Building                  5

        2.            Conditions Precedent to this Agreement             7

        3.            Conditions Precedent to the Lease Deed             8

        4.                Representations and Warranties                12

        5.                             Term                             14

        6.                           Notices                            14

        7.                     Assignments and Sale                     14

        8.          Protection of Intellectual Property Rights          15

        9.                       Additional Space                       15

       10.                          Insurance                           16

       11.                Governing Law and Arbitration                 17

       12.                    Real Estate Commission                    17

       13.                           General                            18

       14.                        Signature Page                        19

       15.                          Schedules                           20



                                       1






                               LIST OF DEFINITIONS



     DEFINED TERM                             SECTION                   PAGE

Acceptance Certificate                          1.5                      6
Adjudicator                                     1.6                      7
Advance                                         1.3                      5
Agreement                                Opening Paragraph               4
Building                                     Recital B                   4
CBRE                                           12.1                      17
Certificate                                   3.2(h)                     9
Conditions                                      2.1                      7
Conditions Precedent                            3.3                      8
Consent Certificate                             2.1                      7
Cure Period                                     1.5                      6
Dispute                                        11.2                      17
Effective Date                                  2.1                      7
Expansion Plot                                  9.3                      16
Expansion Premises                              9.2                      15
Fit-Out Commencement Date                     3.5(a)                     10
Installments                                  1.4(b)                     6
KIADB                                        Recital A                   4
KSPCB                                         3.3(e)                     9
Land                                         Recital A                   4
Lease Commencement Date                         3.1                      8
Lease Deed                                      1.3                      5
Lessee                                   Opening Paragraph               4
Lessor                                   Opening Paragraph               4
Loss                                            3.6                      12
Notice                                          1.5                      7
Offer                                           7.3                      15
Parties                                  Opening Paragraph               4
Party                                    Opening Paragraph               4
Premises                                     Recital C                   5
Project Architect                               1.5                      6
Rejection Certificate                           1.5                      6
Satisfaction Certificate                        3.4                      10
Signature Date                           Opening Paragraph               4
Specifications                               Recital D                   5



                                       2



                                LIST OF SCHEDULES


                                    SCHEDULES

                       Schedule I- Description of the Land

                    Schedule II- Description of the Building

                    Schedule III- Description of the Premises

                           Schedule IV- Specifications

                   Schedule V- Benchmarks and Payment Schedule

                             Schedule VI- Lease Deed

                   Schedule VII- Scope of Maintenance Services

                       Schedule VIII- Consent Certificate

                      Schedule IX- Satisfaction Certificate

                       Schedule X- Schedule of Competitors



                                       3






                          AGREEMENT TO BUILD AND LEASE


This Agreement to Build and Lease (this "AGREEMENT") is made and executed on
this the 19th day of November, 2004 (the "SIGNATURE DATE") at Bangalore.

BETWEEN

I.       M/s. Orchid Apartments Private Limited, a company incorporated in
         accordance with the provisions of the [Indian] Companies Act, 1956,
         with its registered office at No. 10, Vittal Mallya Road, Bangalore 560
         001 (hereinafter referred to as the "LESSOR" which expression shall
         mean and include its successors and permitted assigns) and represented
         herein by its authorised signatory Shri. B M Jayeshankar of the One
         Part

AND

II.      M/s. Manhattan Associates India Development Centre Private Limited, a
         company incorporated in accordance with the provisions of the [Indian]
         Companies Act 1956, with its registered office at Unit No.2, Level 2,
         Explorer Building, ITPL, Whitefield Road, Bangalore 560 066
         (hereinafter, referred to as the "LESSEE" which expression shall mean
         and include its successors and permitted assigns) and represented by
         its authorised signatory Shri. Srinivasan Raghavan of the Other Part.

The Lessor and the Lessee are also referred to as the "PARTY" in the singular
and as the "PARTIES" in the collective.

WHEREAS:

A.       The Lessor represents that it is in sole and absolute possession of
         land measuring approximately one hundred and eight thousand nine
         hundred (108,900) square feet in Plot Nos. 170, 171 and 172, EPIP Zone,
         Whitefield, Bangalore 560 066 (hereinafter referred to as the "LAND",
         more fully described in Schedule I of this Agreement and by this
         reference made a part hereof) and enjoys right, title and interest over
         the Land by virtue of a Lease cum Sale Agreement executed between the
         Lessor and the Karnataka Industrial Areas Development Board ("KIADB");

B.       The Lessor will construct a building measuring approximately eighty
         thousand (80,000) square feet of Built Up Area (defined below in
         Section 1.2), consisting of a ground floor plus three (3) floors, on
         the Land (the "BUILDING", more fully described in Schedule II of this
         Agreement, and by this reference made a part hereof);

C.       The Lessor has agreed to lease the ground, first and second floors of
         the Building admeasuring approximately sixty thousand (60,000) square
         feet of Built Up Area along with cafeteria space and provision for
         training rooms and gymnasiums admeasuring


                                       4



         approximately seven thousand two hundred (7,200) square feet on the
         terrace of the Building (the "PREMISES", more fully described in
         Schedule III of this Agreement and by this reference made a part
         hereof) to the Lessee, in accordance with the terms and conditions of
         this Agreement;

D.       The Lessor represents that the Building shall be built in accordance
         with the specifications contained in Schedule IV (the "SPECIFICATIONS")
         to this Agreement, and by this reference made a part hereof; and

E.       The Parties agree and undertake that they shall abide by the terms,
         conditions and stipulations contained in this Agreement and therefore
         agree to sign this Agreement confirming their commitment and intention.

NOW THEREFORE in consideration of the promises and covenants herein set forth
and for other good and valuable consideration, the receipt, adequacy and legal
sufficiency of which are hereby acknowledged, the Parties mutually agree as
follows:

1.       CONSTRUCTION OF THE BUILDING.

1.1      Description. The Lessor agrees that the Premises will be constructed in
         adherence to the Specifications and the Drawings (as defined in
         Schedule IV). The common areas of the Land and Building (which include
         the basement areas, staircases, elevators, open spaces in the Land and
         Building) shall also be constructed in accordance with the
         Specifications and the Drawings. Any variation in the construction of
         the Building from the Specifications and the Drawings shall only be
         effective if mutually agreed to by the Parties.

1.2      Built Up Area. The term "Built Up Area" shall mean the total area of
         the Building including the main entrance lobby, lift lobby, shafts,
         staircase, D.G. room, electrical room, lift machine room, and passenger
         and service lift cores, excluding external atriums, basement parking
         areas, all unenclosed areas, and the terrace area.

1.3      Advance. The Lessee agrees to pay the Lessor a cumulative sum of Rupees
         Two Crore Nineteen Lakhs Sixty Thousand Only (Rs. 2,19,60,000/-) (the
         "ADVANCE") as an Advance under this Agreement. The Parties further
         agree that on the execution and registration of the lease deed (the
         "LEASE DEED") for the Premises, the Advance shall be treated as the
         interest free refundable security deposit payable by the Lessee under
         the Lease Deed.

1.4      Payment of Advance. The Parties agree that the Advance shall be paid by
         the Lessee to the Lessor in the following manner and as defined in
         Schedule V of this Agreement:

         (a)      The Lessee shall pay a sum of Rupees Eighteen Lakhs Thirty
                  Thousand Only (Rs. 18,30,000/-) by demand draft to the Lessor
                  on the date of execution of this Agreement; and


                                       5


         (b)      The balance of the Advance shall be paid by the Lessee to the
                  Lessor in installments (the "INSTALLMENTS") on:

                  (i)      the achievement of mutually agreed benchmarks as
                           described in Schedule V; and

                  (ii)     the issuance of the Acceptance Certificates (as
                           defined in Clause 1.4).

         It is hereby clarified that the Parties agree that the Installments
         shall be paid by the Lessee to the Lessor as follows:

         (a)      Upon completion of the basement roof slab and ground floor
                  roof slab of the Building: Rupees Fifty Lakhs Thirty Two
                  Thousand Five Hundred Only (Rs. 50,32,500/-);

         (b)      Upon completion of the first floor roof slab, the second floor
                  roof slab and the third floor roof slab of the Building:
                  Rupees Fifty Lakhs Thirty Two Thousand Five Hundred Only (Rs.
                  50,32,500/-);

         (c)      Upon completion of the construction of the Building,
                  production of the occupancy certificate and issuance of the
                  Acceptance Certificate: Rupees Fifty Lakhs Sixty Five Thousand
                  Only (Rs. 50,65,000); and

         (d)      On the execution and registration of the Lease Deed: Rupees
                  Fifty Lakhs Only (Rs. 50,00,000/-).

1.5      Acceptance Certificate. The Lessor shall issue a written notice of
         completion (the "NOTICE") to the Lessee on the achievement of each
         mutually agreed benchmark as described in Schedule V, supported by the
         certificate of M/s Thomas Associates, Bangalore (the "PROJECT
         ARCHITECT"). The Lessee shall within seven (7) days from the receipt of
         the Notice, inspect the completed benchmark and issue either (i) a
         certificate of acceptance, accepting the achievement of the particular
         benchmark (the "ACCEPTANCE CERTIFICATE"); or (ii) a certificate of
         rejection, rejecting the achievement of the particular benchmark and
         recording its reasons which shall be reasonably sufficient to prove the
         grounds for such rejection (the "REJECTION CERTIFICATE"). Failure to
         inspect and issue an Acceptance Certificate or a Rejection Certificate
         within fourteen (14) days from the date of receipt of the Notice shall
         be construed as a deemed acceptance of the Notice and the Lessee shall
         be liable to pay the Lessor the applicable Installment. In the event
         the Lessee issues a Rejection Certificate, the Lessor shall have
         fourteen (14) days from its receipt to cure the defects detailed in the
         Rejection Certificate (the "CURE PERIOD"). In the event the defects
         detailed by the Lessee in the Rejection Certificate are not cured to
         the sole satisfaction of the Lessee and the Project Architect within
         the Cure Period, the Parties and the Project Architect shall meet to
         discuss whether the Cure Period for rectifying the defect should be
         extended. Within one (1) day from the date of such meeting, the Lessee
         shall at its sole option, notify the Lessor as to whether the Lessee
         will extend the Cure Period or will exercise its right to terminate
         this Agreement in accordance with the provisions of this Agreement. The
         Lessee shall pay the Installments within seven (7) days from the date
         on which the relevant Acceptance Certificate has been issued.


                                       6


1.6      Disputes. Notwithstanding the provisions of Clause 11 of this
         Agreement, if any dispute arises between the Parties under Clause 1.5
         above, the dispute shall be adjudicated by one (1) neutral third party
         architect (the "ADJUDICATOR") mutually agreed upon by the Parties,
         whose decision would be final and binding on the Parties. The Lessor
         undertakes that during the pendency of any dispute under this Clause
         1.6 it shall not suspend constructing the Building in accordance with
         the Specifications and the mutually agreed benchmarks.

1.7      Inspection. Subject to complying with applicable security and safety
         requirements and at its own risk, commencing from the Effective Date,
         the Lessee shall have the right to inspect the Land and the
         construction of the Building at all times without requiring to provide
         any notice to the Lessor.

2.       CONDITIONS PRECEDENT TO THIS AGREEMENT.

2.1      Effective Date. The Parties agree that this Agreement shall come into
         force within seven (7) days from the date (the "EFFECTIVE DATE") on
         which the Lessee issues a written Certificate of Consent (the "CONSENT
         CERTIFICATE") certifying that the conditions described in Clause 2.2
         (the "CONDITIONS") of this Agreement have been satisfied to the
         complete and sole satisfaction of the Lessee.

2.2      Conditions. The Parties agree that the execution of this Agreement is
         conditional on the satisfaction (as provided for in Clause 2.3 of this
         Agreement), or the waiver (such waiver to be expressed on a written
         instrument signed by the authorised representative of the Lessee) of
         the following Conditions:

         (a)      The completion of a property due diligence that shall be
                  carried out by the Lessee to ascertain the title and status of
                  the Land. The property due diligence shall be based on the
                  documents and the title certificate provided to the Lessee by
                  the Lessor; and

         (b)      The Lessor shall submit the Drawings of the Building to the
                  Lessee and the Lessee shall approve or reject the Drawings in
                  writing, within seven (7) days from the date of receipt of the
                  Drawings from the Lessor. In the event the Lessee rejects the
                  Drawings it shall state the reasons for rejecting the Drawings
                  and the Lessor shall submit revised and corrected Drawings to
                  the Lessee. The Lessee shall approve or reject the revised
                  Drawings in writing, within seven (7) days from the date of
                  receipt of the revised Drawings from the Lessor.

         The Conditions described in Clause 2.2 above shall be satisfied on the
         date when the Lessee issues a duly executed Consent Certificate to the
         Lessor stating that the Conditions have been satisfied. The Consent
         Certificate shall be in the form and substance as provided for in
         Schedule VIII to this Agreement.


                                       7


2.3      Satisfaction of Conditions. The Parties agree that the Conditions
         described in Clause 2.2 above shall be satisfied by the Lessor within
         thirty (30) days from the Signature Date, unless otherwise agreed by
         the Lessee in writing. It is hereby clarified that the Parties agree
         that subject to any delays attributable to the Lessee, if the
         Conditions described in Clause 2.2 above are not satisfied within
         thirty (30) days from the Signature Date, this Agreement shall expire
         with immediate effect and the Lessor shall forthwith and without demur
         refund all the amounts paid by the Lessee towards the Advance.

2.4      Absolute Ingress and Egress Rights.The Lessor hereby agrees that the
         Lessee shall have absolute ingress and egress rights to the ground and
         first floors of the Building for the purpose of planning and conducting
         its fit-outs, commencing on or before January 8, 2005. The Parties
         hereby agree that consequent to such rights being granted to the
         Lessee, the Lessor shall make reasonable attempts not to impede the
         Lessee in the carrying out of its fit-outs on the ground and first
         floor of the Building and the Lessee shall make reasonable attempts not
         to impede the Lessor in its construction of the Building.

3.       CONDITIONS PRECEDENT TO THE LEASE DEED.

3.1      Lease Commencement Date. The Parties hereby agree that the lease
         commencement date for the purposes of this Agreement and the Lease Deed
         (the "LEASE COMMENCEMENT DATE") shall be May 15, 2005.

3.2      Execution of the Lease Deed. The Parties agree that within fifteen (15)
         days of the Lessee issuing the Satisfaction Certificate (as defined in
         Clause 3.4 of the Agreement), the Parties shall execute and duly
         register the Lease Deed recording the terms of the lease of the
         Premises by the Lessor to the Lessee. The Parties agree that the terms
         and conditions of the Lease Deed shall be in the same material form and
         substance as the terms and conditions of the lease deed contained in
         Schedule VI to this Agreement. It is hereby clarified that under no
         circumstances would the Lease Deed be amended or modified in such a
         manner as would derogate, prejudicially affect, or in any way dilute
         the rights provided to the Parties in Schedule VI except through an
         instrument executed by both Parties in writing. The Parties further
         agree that on the execution of the Lease Deed, the Advance paid by the
         Lessee under this Agreement shall be treated as the interest free
         refundable security deposit under the Lease Deed. It is hereby
         specifically clarified that the terms and conditions contained in
         Schedule VI of this Agreement form a part of this Agreement and are
         binding on the Parties.

3.3      Conditions Precedent. The Parties agree that the execution of the Lease
         Deed is conditional on the satisfaction (as provided for in Clause 3.3
         of this Agreement), or the waiver (such waiver to be expressed on a
         written instrument signed by the authorised representative of the
         Lessee) of the following conditions (the "CONDITIONS PRECEDENT"):


                                       8


         (a)      The Lessor obtains applicable statutory approvals for the use
                  of the Building by the Lessee including the Occupancy
                  Certificate for the Building;

         (b)      The Building and the Premises are constructed in adherence to
                  the Drawings and the Specifications;

         (c)      The common areas of the Building and the Land should be in
                  accordance with the Specifications;

         (d)      The Lessor obtains absolute, sole, registered and beneficial
                  title to the Land and Building;

         (e)      The Lessor obtains applicable approvals and permission from
                  the Karnataka State Pollution Control Board ("KSPCB") to use
                  and operate the diesel generators and the sewerage treatment
                  plant that are installed/constructed on the Land;

         (f)      On the Fit Out Commencement Date the Premises should be handed
                  over to the Lessee in a water tight, clean and clear condition
                  with tapping points for all major service installations,
                  including the provision of tapping points for power, water and
                  HVAC facilities for the entire Building (provided that the
                  Lessor shall not be required to provide for the connection of
                  chillers in working condition to the HVAC infrastructure),
                  broadband infrastructure terminating in a central mechanical
                  room in the Building (provided that the Lessor shall not be
                  required to provide actual broadband connectivity) and such
                  other cabling as the Lessee requires for its business
                  purposes;

         (g)      The final and exact Built Up Area of the Premises that will be
                  leased by the Lessee is identified and agreed upon by the
                  Parties. It is further clarified that the Advance shall be
                  adjusted in accordance with the exact Built Up Area of the
                  Premises that is identified and agreed upon by both the
                  Parties. Any increase or decrease in the Advance shall be
                  adjusted against the last Installment payable by the Lessee to
                  the Lessor on the issuance of the final Acceptance
                  Certificate;

         (h)      By January 7, 2005 or such other date as is agreed upon by the
                  Lessee in writing, the Lessor shall provide the Lessee with a
                  certificate or such other document (the "CERTIFICATE") issued
                  by the KIADB granting the Lessor the permission to lease the
                  Building to the Lessee; and

         (i)      The Lessee issues the final Acceptance Certificate
                  corresponding to the final benchmark contained in Schedule V
                  to this Agreement.


                                       9


3.4      Satisfaction Certificate. The Conditions Precedent shall be satisfied
         on the date, when the Lessee issues a duly executed certificate to the
         Lessor stating that the Conditions Precedent have been satisfied (the
         "SATISFACTION CERTIFICATE"). The Satisfaction Certificate shall be in
         the form and substance as provided for in Schedule IX to this
         Agreement.

3.5      Failure to satisfy Conditions Precedent. In the event the Conditions
         Precedent are not fulfilled within the time period specified in this
         Clause, the Lessor agrees that the Lessee shall enjoy the following
         rights:

         (a)      If the Premises, including the completed warm shell and the
                  entire base building with glass curtain, is not handed over to
                  the Lessee for commencement of fit outs by March 15, 2005 (the
                  "FIT-OUT COMMENCEMENT DATE"), the Lessor shall provide the
                  Lessee with (i) three (3) days' rent free period for every
                  day's delay between March 16, 2005 and March 31, 2005; and
                  (ii) six (6) days' rent free period for every day's delay is
                  beyond April 1, 2005. If the delay in the Fit Out Commencement
                  Date extends to a date beyond April 15, 2005, the Lessee shall
                  have the right to terminate this Agreement with immediate
                  effect;

         (b)      If all the Conditions Precedent are not satisfied by April 15,
                  2005, the Lessor shall provide the Lessee with (i) three (3)
                  days' rent free period for every day's delay between May 1,
                  2005 and May 15, 2005; and (ii) six (6) days' rent free period
                  for every day's delay beyond May 16, 2005. If the delay in
                  fulfilling all the Conditions Precedent extends to a date
                  beyond May 30, 2005, the Lessee shall have the right to
                  terminate this Agreement with immediate effect. In the event
                  the Lessee exercises its right to terminate this Agreement as
                  provided for in this Clause 3.5, the Lessor shall within seven
                  (7) days from the date of termination of this Agreement repay
                  all Installments or any part of the Advance paid till such
                  date; and

         (c)      Notwithstanding any of the provisions of this Agreement, in
                  the event the Lessor fails to provide the Lessee with the
                  Certificate by January 7, 2005 or such date as may be agreed
                  upon and extended by the Lessee in writing, the Lessor shall:

                  (i)      Pay the Lessee a sum of Rupees One Crore Only
                           (Rs.1,00,00,000/-) as liquidated damages to
                           compensate the business and other losses suffered by
                           the Lessee. The Parties acknowledge that the sum of
                           Rupees One Crore Only (Rs.1,00,00,000/-) payable as
                           liquidated damages has been quantified after
                           reasonably estimating the business and other losses
                           that the Lessee would suffer on account of the breach
                           of the condition set out in Clause 3.3(h) above; and


                                       10


                  (ii)     At no cost whatsoever, obtain for the Lessee the
                           lease of an international standard office premises
                           suitable for an IT/ITES operation and measuring
                           approximately sixty thousand (60,000) square feet of
                           Built Up Area in the Whitefield EPIP area by February
                           15, 2005. The terms and conditions governing the
                           lease of such property shall be similar to the terms
                           and conditions contained in this Agreement and the
                           Lease Deed; or

                  (iii)    In the event the Lessor is not able to obtain office
                           space to lease to the Lessee in the Whitefield EPIP
                           Area by March 15, 2005, at no cost whatsoever, obtain
                           for the Lessee the lease of an international standard
                           office premises suitable for an IT/ITES operation and
                           measuring sixty thousand (60,000) square feet of
                           Built Up Area in any other area in Bangalore by March
                           15, 2005. The terms and conditions governing the
                           lease of such property shall be similar to the terms
                           and conditions contained in this Agreement and the
                           Lease Deed, except as regards the rent payable to the
                           Lessor.

         It is hereby clarified that the rent-free periods provided in Clauses
         (a) and (b) above shall take effect after the completion of the two (2)
         month Rent Free Period provided in the Lease Deed.

3.6      Other Grounds for Termination. The Lessee may terminate this Agreement
         by providing the Lessor with thirty (30) days' prior written notice of
         termination on the occurrence of any of the following events:

         (a)      Any of the representations, warranties and assurances provided
                  by the Lessor in Clause 4 of this Agreement are false and
                  untrue or are found to be false and untrue during the term of
                  this Agreement;

         (b)      The Lessor fails to cure any breach of the provisions of this
                  Agreement;

         (c)      The Lessor transfers, sells or alienates the Land and/or the
                  Building and the Premises, without reserving the rights of the
                  Lessee in terms of this Agreement; or

         (d)      The Lessor is dissolved in accordance with applicable
                  bankruptcy law, or a petition for dissolution of the Lessor is
                  admitted by a court of competent jurisdiction.

3.7      Consequences of Termination. The Lessor shall within seven (7) days
         from the date of termination of this Agreement repay all Installments
         or any part of the Advance hereunder paid to the Lessor prior to such
         date of termination along with all capital expenditure, attorney and
         project management fees, and other expenditure incurred by


                                       11


         the Lessee in pursuance of the transaction (the "LOSS") contemplated
         herein. For the purposes of determining the Loss, the Lessee shall
         along with the termination notice, provide the Lessor with an audited
         statement of account. The Lessor shall pay the Lessee the Loss as
         depicted in the audited statement of account or as per Clause 3.5(c)(i)
         whichever is lower.

3.8      Lessee's failure to execute the Lease Deed. The Parties agree that if
         the Lessee issues the Satisfaction Certificate but fails to execute the
         Lease Deed otherwise than for the reasons of termination as provided in
         Clauses 3.5 and 3.6 above the Lessee shall become liable to pay the
         Lessor an amount equal to the Rent payable for the first thirty six
         (36) months of the Term being the lock in period under the Lease Deed.
         On receipt of the said amount, the Lessor shall have no other claims
         whatsoever against the Lessee.

3.9      Delay due to Force Majeure. In the event (i) the Fit Out Commencement
         Date or the satisfaction of the other Conditions Precedent is delayed
         on account of any act of god, governmental action including any action
         of the federal or state Governments of the United States of America or
         any other force majeure event beyond the control of either Party, for
         every day's delay caused in this regard, the Lessor shall be provided
         with an additional day to achieve the Fit Out Commencement Date and/or
         the other Conditions Precedent, as the case may be. The penalties
         described in Clause 3.5 shall apply on the expiry of the additional
         days provided to the Lessor to adhere to the Benchmarks and Payment
         Schedule contained in Schedule V of this Agreement. It is hereby
         clarified that in the event the period of delay on account of a force
         majeure event beyond the control of either Party, is in excess of one
         hundred and twenty (120) days from the date of occurrence, the Lessee
         shall be entitled to terminate this Agreement, without any liability
         whatsoever. In the event the Lessee chooses to terminate this Agreement
         under this Clause 3.9, the Lessor shall within thirty (30) days from
         the date of receipt of a notice of termination, refund to the Lessee
         all amounts paid to the Lessor under this Agreement, as of the date of
         termination.

4.       REPRESENTATIONS AND WARRANTIES.

A.       Representations of the Lessor.

4.1      The Lessor represents and warrants to the Lessee that it (i) enjoys
         right, title and interest in the Land by virtue of a Lease cum Sale
         Agreement executed between the Lessor and the KIADB; (ii) is the sole,
         absolute, registered and beneficial owner of the Land, Building and the
         Premises; (iii) shall have valid effective title to the Land, Building
         and Premises; (iv) enjoys the uninterrupted, quiet, peaceful, physical,
         vacant and legal possession of the Land; and (v) shall enjoy the
         uninterrupted, quiet, peaceful, physical, vacant and legal possession
         of the Building and the Premises without any interference whatsoever
         from any third party;

4.2      The Lessor represents and warrants to the Lessee that it shall obtain
         all permissions necessary for the occupation and use of the Building
         and the Premises by the Lessee and


                                       12


         the Building and the Premises may be legally used and occupied by the
         Lessee on or before the Lease Commencement Date;

4.3      The Lessor represents and warrants to the Lessee that the Building and
         the Premises will be constructed in accordance with the Specifications,
         the Drawings and the plan sanctioned by the concerned municipal and
         governmental authorities;

4.4      The Lessor represents and warrants to the Lessee that there are no
         claims, actions, litigations, arbitrations, land acquisition
         proceedings, garnishee or other proceedings relating to the Land or the
         transactions contemplated hereunder;

4.5      The Lessor represents and warrants to the Lessee that it does not have
         any liability for any taxes, or any interest or penalty in respect
         thereof, of any nature that may become a lien against the Land. The
         Lessor agrees to indemnify the Lessee and save, defend and hold the
         Lessee harmless from and in respect of any Loss resulting from or
         related to the non-payment of any such taxes and applicable
         governmental levies, provided that nothing in this clause shall prevent
         the Lessor from securing project finance by mortgaging the Land and the
         Building to any financial institution. The Lessor shall ensure that the
         rights of the Lessee shall not be derogated from or prejudiced in any
         manner whatsoever by the securing of such project finance;

4.6      The Lessor represents and warrants to the Lessee that it has authorised
         Mr. B. M. Jayeshankar vide a resolution of its Board of Directors dated
         November 15, 2004, to enter into this Agreement and has obtained all
         applicable approvals and permissions to execute this Agreement; and

4.7      The Lessor agrees to indemnify and keep indemnified the Lessee against
         any Loss arising out of (i) any breach of the terms and conditions of
         this Agreement by the Lessor; or (ii) any of the representations and
         assurances provided in this Clause 4 being false and untrue.

B.       Representations of the Lessee.

4.8      The Lessee represents to the Lessor that it has authorised Mr.
         Srinivasan Raghavan vide a resolution of its Board of Directors dated
         October 13, 2004 to enter into this Agreement; and

4.9      The Lessee shall always observe and perform all the terms and
         conditions, covenants and provisions of this Agreement and shall not
         do, omit or suffer to be done any thing whereby the right of the Lessor
         to the Land, the Building or the Premises is violated, forfeited,
         jeopardised or extinguished or the Lessor is prevented from carrying
         out its obligations under this Agreement.

                                       13





5.       TERM.

5.1      Term. This Agreement shall be valid and in force from the Signature
         Date till the date on which the Lessee's right to exercise its option
         for the Expansion Premises, as provided in Clause 9.2 below, expires or
         the date on which the Lessee's right to exercise its option for the
         Expansion Plot, as provided in Clause 9.3 below, expires, whichever is
         later; or until the prior termination of this Agreement. It is hereby
         clarified that the Lease Deed shall be valid and in force for a period
         of five (5) years commencing from the Lease Commencement Date. At the
         sole option of the Lessee, the Parties may renew the Lease Deed for a
         further term of four (4) years by executing a fresh lease deed that
         shall be duly registered.

6.       NOTICES.

6.1      Notices. All notices, documents and other forms of communication under
         this Agreement shall be in writing and shall be sent through registered
         post acknowledgement due to the applicable Party at the addresses
         mentioned below:

         If to the Lessor:

                  Orchid Apartments Private Limited,
                  No. 10, Vittal Mallya Road,
                  Bangalore 560 001

                  Attn: Mr. B M Jayeshankar

         If to the Lessee:

                  Manhattan Associates India Development Centre Private Limited,
                  Unit No. 2, Level 2,
                  Explorer Building, ITPL,
                  Whitefield Road, Bangalore 560 066

                  Attn: Mr. Srinivasan Raghavan

7.       ASSIGNMENTS AND SALE.

7.1      Assignment. The Parties agree that the Lessor may assign its rights or
         obligations under this Agreement to any third party upon provision to
         the Lessee of prior notice in writing. The Lessor hereby agrees that
         any agreement or other instrument governing the assignment of rights or
         obligations to such third party shall expressly provide that such third
         party assignee will be bound by the terms and conditions of this
         Agreement. The Lessor further agrees that in the event of the
         assignment of any rights or obligations under this Agreement or on the
         sale, transfer or alienation of the Land, Building or the Premises
         (subject to the provisions of this Agreement) by the Lessor, the Lessor
         shall


                                       14


         ensure that the rights of the Lessee under this Agreement remain
         protected and are not derogated from or diluted in any manner
         whatsoever.

7.2      Sale to a Competitor. Notwithstanding any of the other provisions
         contained in this Agreement, the Parties agree that the Lessor shall
         not sell or lease the Premises to any competitor of the Lessee as
         listed in Schedule X of this Agreement.

7.3      Right of First Refusal. Notwithstanding any of the provisions contained
         in this Agreement, in the event the Lessor decides to sell to any third
         party all or any portion of the Land, Building or the Premises, then
         before concluding such sale, the Lessor shall provide written notice of
         such intended sale to the Lessee specifying in detail the terms of such
         intended sale and shall irrevocably offer to sell to the Lessee the
         Land, Building or the Premises or any portion thereof at the same price
         and on the same terms as the Lessor intends to sell the Land, Building
         or the Premises or any portion thereof to a third party (the "OFFER").
         The Lessee may accept the Offer on the same terms and conditions as set
         forth in the notice, by serving on the Lessor a written notice
         accepting or rejecting the Offer, in that respect within forty five
         (45) days of the receipt of the Offer from the Lessor, and shall set
         forth the portion of the Land, Building or Premises or any portion
         thereof as to which the Offer is accepted.

8.       PROTECTION OF INTELLECTUAL PROPERTY RIGHTS.

8.1      Intellectual Property Rights. This Agreement shall not be construed or
         sought to be interpreted to authorise either of the Parties to use any
         of the intellectual property rights of the other. None of the terms of
         this Agreement shall be understood to, nor shall this Agreement be
         interpreted to permit either of the Parties to use the logo, trade
         names or trade marks of the other Party in any manner whatsoever save
         for the purpose of marketing and business communication, except with
         such other Party's prior written consent, such consent not to be
         unreasonably withheld or delayed.

9.       ADDITIONAL SPACE.

9.1      Additional Space. In consideration of the Lessee having agreed to take
         the Premises on lease, the Lessor has agreed to reserve for the Lessee
         certain additional areas in the Land and the Building, which the Lessee
         proposes to take for its proposed expansion in accordance with this
         Clause 9.

9.2      Expansion Premises. The Lessor shall make available to the Lessee an
         additional twenty thousand (20,000) square feet of space in the
         Building (the "EXPANSION PREMISES") on an exclusive basis during the
         Term (as defined in the Lease Deed). Further, the Lessee shall have the
         right to exercise this option in installments and lease such portion or
         portions of the Expansion Premises as it deems fit at any time. In the
         event the Lessee exercises its option(s) under this Clause 9.2, the
         Lessee shall pay Lease Rentals (as defined in the Lease Deed) at the
         then applicable rate. Further, the Parties shall execute a fresh lease
         deed on identical terms and conditions as contained in the Lease Deed,
         on each occasion that the Lessee exercises its option(s) under this
         Clause 9.2.


                                       15



9.3      Expansion Plot. The Lessee shall have the exclusive right to exercise
         the option for an additional eighty thousand (80,000) square feet of
         Built Up Area on the Land (the "EXPANSION PLOT"), which option shall be
         exercised by the Lessee within twenty four (24) months from the Lease
         Commencement Date. It is hereby clarified that this option shall be
         exercised by the Lessee by the provision of three (3) months' notice in
         writing to the Lessor and the twenty four (24) month option period
         mentioned above shall be deemed to include such three (3) month notice
         period. In the event of the Lessee exercising its option under this
         Clause 9.3, the Lessor will construct the facility to be constructed on
         such premises in accordance with the specifications of the Lessee and
         make the same available to the Lessee within twelve (12) months of the
         Lessee exercising the option. Further, the Parties shall execute a
         fresh lease in identical terms and conditions as contained in the Lease
         Deed, in the event that the Lessee exercises its option under this
         Clause 9.3.

10.      INSURANCE.

10.1     "All Risks" Coverage. During the Term of this Agreement, the Lessor
         will keep its personal property, the Premises, the Building, and
         leasehold improvements for which it retains ownership (including the
         Premises), insured against loss or damage by fire and all other risks
         of direct physical loss, only excepting the customary exclusions that
         are contained in a standard "all risks" policy, for not less than one
         hundred percent (100%) of the replacement value thereof. For purposes
         of this Clause, "replacement value" will be deemed to be the cost of
         replacing the property less the cost of excavation, foundations and
         footings. Damages that are not insured and/or amounts for which the
         Lessor becomes a co-insurer under its policy, including any related
         costs, which occur due to the Lessor's failure to maintain property
         insurance at the most recent replacement value, will be borne by the
         Lessor. It is hereby clarified that the Lessor shall not be required to
         insure any of the fit-outs or equipment installed in the Premises or
         the Building by the Lessee. The Lessor hereby agrees that it will seek
         reimbursement for any losses from its insurance provider and not from
         the Lessee.

10.2     Evidence of Insurance. The Lessor shall furnish to the Lessee a true,
         correct and validly certified True Copy of the certificates of such
         insurance policies as are referenced in any and all Clauses contained
         in this Agreement, within fifteen (15) days of the Lease Commencement
         Date and shall provide evidence of the renewal of such insurance prior
         to the expiration of the policies. The Lessor hereby undertakes that
         any such insurance policies will not be cancelled without the provision
         of at least thirty (30) days' prior written notice to the Lessee. The
         Lessor agrees to notify the Lessee in writing thirty (30) days prior to
         the date any material adverse change in, or any non-renewal of, such
         policies is to become effective.

10.3     Lessor's Indemnification. The Lessor will indemnify, defend, and hold
         the Lessee, and its employees and agents, harmless from any and all
         loss or damage which the Lessee may sustain by reason of claims brought
         against the Lessee alleging bodily injury or death to any person or
         damage to property to the extent that such loss or damage is caused by


                                       16



         (a) the negligence or willful misconduct of the Lessor, or its
         employees or agents, in connection with the Premises or the Building,
         including Common Areas; or (b) the Lessor's default under the terms of
         this Lease. Nothing contained herein will require the Lessor to defend,
         indemnify or hold harmless the Lessee, or its employees and agents, for
         losses or damages related to claims of bodily injury or death to any
         person or damage to property to the extent caused by the negligence or
         willful misconduct of the Lessee, or its employees or agents.

11.      GOVERNING LAW AND ARBITRATION.

11.1     Governing Law. This Agreement is governed by and shall be construed in
         accordance with the laws of the Republic of India.

11.2     Dispute Resolution. Subject to Clause 1.5, the Parties shall attempt to
         amicably settle any dispute arising out of this Agreement and the
         obligations hereunder (the "DISPUTE"). Either Party may give written
         notice of the Dispute to the other Party within ten (10) days of the
         day of the occurrence of the event which gives rise to such Dispute or
         the day such event comes to the notice of the applicable Party. Both
         Parties shall nominate one (1) person to attempt amicable settlement of
         the Dispute within fifteen (15) days of notice under this Clause 11.2
         and such attempt shall commence immediately.

11.3     Arbitration. If any Dispute arising between the Parties is not amicably
         settled within thirty (30) days of commencement of attempts to settle
         the same, the Dispute shall be referred to and be finally settled by
         arbitration. The Parties agree that the arbitration proceedings will be
         conducted at Bangalore in the English language in accordance with the
         provisions of the [Indian] Arbitration and Conciliation Act, 1996 as it
         then would be prevalent by a sole arbitrator mutually appointed by the
         Parties. The decision of the sole arbitrator shall be final and binding
         on the Parties.

11.4     Jurisdiction. Subject to the foregoing the courts at Bangalore only
         shall have exclusive jurisdiction in all matters arising out of this
         Agreement or any arbitration hereunder.

12.      REAL ESTATE COMMISSION.

12.1     The Lessee hereby acknowledges and agrees that the Lessor has appointed
         CB Richard Ellis South Asia Private Limited, ("CBRE") with its offices
         at The Hulkul, 3rd Floor, 81/37, Lavelle Road, Bangalore 560 001, to
         act as its exclusive real estate representative. The Lessor will
         compensate CBRE with a one time payment on the basis of real estate
         commission equal to one (1) months' gross rentals as payable during the
         first year of the Term, net of any applicable governmental levies and
         service tax as payable, with fifty percent (50%) of such amount payable
         upon execution of this Agreement and the remaining fifty percent (50%)
         payable upon the execution of the Lease deed. It is hereby clarified
         that the Lessee shall have no obligation towards CBRE whatsoever.


                                       17




13.      GENERAL.

13.1     This Agreement may be executed in one original and one counterpart. The
         Lessee shall retain the original of this Agreement and the Lessor shall
         retain the counterpart thereof.

13.2     The rights of each Party under this Agreement:

         (a)      may be exercised as often as necessary;

         (b)      are cumulative and not exclusive of rights and remedies
                  provided by law;

         (c)      may be waived only in writing and specifically; and

         (d)      shall not be construed as waived in the event of a delay in
                  exercising or non-exercise of any such right.

13.3     This Agreement may only be enforced by the Parties to this Agreement.

13.4     The Parties agree that if any of the provisions of this Agreement are
         illegal or are declared to be invalid or illegal, the remaining
         provisions of this Agreement shall continue to be in force and this
         Agreement shall be interpreted accordingly.

13.5     Unless otherwise agreed to between the Parties, this Agreement and the
         documents referred to in it contain the whole and definitive agreement
         between the Parties relating to the transactions contemplated by this
         Agreement and supercede all previous agreements, negotiations,
         proposals and documents between the Parties relating to these
         transactions.

13.6     The Lessee shall bear the stamp duty, registration and notarisation
         charges payable on this Agreement and the stamp duty and registration
         charges payable on the Lease Deed, and the Lessor shall bear the costs
         of procuring the approval of all applicable authorities contemplated
         under this Agreement and the Lease Deed, if required. All expenses
         related to the execution and registration of this Agreement and the
         Lease Deed shall be to the account of the Lessee.

13.7     The Parties hereby agree that time is the essence of this Agreement.

13.8     Each Party shall bear its own attorney's fees and other fees.


                                       18




IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed
as of the date written below by their duly authorised representatives.

ORCHID APARTMENTS PRIVATE LIMITED               WITNESS:

Signature:/s/ B.M. Jayeshanker                  Signature:

Name: B.M. Jayeshanker                          Name:

Title:                                          Date:

Date:                                           Address:


MANHATTAN ASSOCIATES INDIA
DEVELOPMENT CENTRE PRIVATE LIMITED              WITNESS:

Signature:/s/ Srinivasan Raghavan               Signature:

Name: Srinivasan Raghavan                       Name:

Title:                                          Date:

Date:                                           Address:



                                       19




                                   SCHEDULE I
                             DESCRIPTION OF THE LAND


Land bearing Survey Numbers 170, 171 and 172, situated at EPIP II-Phase,
Whitefield Industrial Area, K. R. Puram, Bangalore East Taluk, admeasuring to
the East by seventy four point five (74.5) metres, West by seventy two point
five (72.5) metres, North by one hundred and twenty nine point two (129.2)
metres, South by one hundred and fifty three point nine eight (153.98) metres,
totally admeasuring a total area of ten thousand two hundred and eleven
(10,211.00) square metres and bounded on the:

                       EAST BY  :       Road No.1-B;
                       WEST BY  :       Private Land;
                       NORTH BY :       KIADB Storm Water Drain;
                       SOUTH BY :       Road No.1-C;

And as further described in the map attached.




                                       20




                                   SCHEDULE II
                           DESCRIPTION OF THE BUILDING


The Building admeasuring approximately eighty thousand (80,000) square feet of
Built Up Area, consisting of a basement, a ground floor and three (3) upper
floors, on the portion of the Land described under Schedule I to this Agreement,
and as further described in the drawings attached.




                                       21




                                  SCHEDULE III
                           DESCRIPTION OF THE PREMISES

The premises situated at the basement, ground, first and second floors of the
Building approximately admeasuring sixty thousand (60,000) square feet of Built
Up Area, and terrace area consisting of cafeteria, gymnasium, training rooms
approximately admeasuring seven thousand two hundred (7200) square feet of Built
Up Area, in the Building, and as further described in the drawings attached.






                                       22





                                   SCHEDULE IV
                                 SPECIFICATIONS

SCHEDULE OF FINISHES FOR MANHATTAN ASSOCIATES FACILITY AT EPIP, WHITEFIELD,
BANGALORE

A        OFFICE BLOCK

      1  External Walls

    1.1  Front                       Curtain wall / Structural Glazing / ACP

    1.2  Other three sides           Recessed Punch windows and block work
                                     plastered with 2 coats sponge plaster 25mm
                                     thick with water proof compound / painted
                                     with texture paint

      2  MASONRY

    2.1  Peripheral walls and main
         walls                       Solid concrete block 200mm thick

    2.2  Internal partitions -
         toilet walls / shaft walls  Solid concrete block 100mm thick

      3  FLOOR FINISHES

    3.1  Office Space                IPS Flooring 50mm thick

    3.2  Main Entrance Lobby         Polished Granite

    3.3  Passenger Lift Lobby -
         All Floors                  Polished Granite and vitrified tiles
                                     combination.

    3.4  Service Lift Lobbies        Polished Granite and vitrified tiles
                                     combination.

    3.5  Toilets                     Combination of Polished Granite and
                                     vitrified ceramic tile flooring.

    3.6  Staircase treads / risers
         / skirting & landings       Kota stone

    3.7  AHU / Service Rooms         IPS Flooring 50mm thick

    3.8  Pantry / Janitor's Closet   Vitrified tiles

    3.9  Terrace                     Cement rendered finish

   3.10  Basement ramp               IPS Flooring 50mm thick

      4  INTERNAL WALLS

    4.1  Office Areas                C.M. 1:4 lime plaster 15mm thick and
                                     painted with Oil Bound Distemper.

    4.2  Main Entrance Lobby         Polished Granite Cladding

    4.3  Passenger Lift Lobby -
         All Floors                  Polished Granite and vitrified tiles
                                     combination

    4.4  Service Lift Lobbies        Polished Granite and vitrified tiles
                                     combination.

    4.5  Toilets                     Cladding (7' high) in vitrified ceramic
                                     tiles with granite border, Washbasin
                                     platforms & counter and Urinal Partitions
                                     in polished marble / granite

    4.6  Service Shafts(inside)      15mm thick sponge plaster

    4.7  Staircase well              C.M. 1:4 lime plaster 12mm thick and
                                     painted with Oil Bound Distemper.

    4.8  Ducts                       15mm thick sponge plaster  with white lime
                                     wash finish

      5  CEILING


                                       23



    5.1  Office Area                 Modular Acoustic tile ceiling with
                                     Aluminium 'T' suspension system, 600 X 600
                                     tiles,
                                     Make Armstrong / USG / Celltox / equivalent

    5.2  Lift Lobby                  Gypsum Plaster Board with Cornice and cove
                                     lighting

    5.3  Entrance Lobby              Combination of modular Acoustic & Gypsum
                                     Plaster Board with cove lighting

    5.4  Toilets                     Modular GRG Board Tiles or Aluminium 'T'
                                     suspension system

    5.5  Service room and
         staircase core              C.M. 1:4 lime plaster 12mm thick and
                                     painted with oil bound distemper

    5.6  Basement                    C.M. 1:4 lime plaster 12mm thick and
                                     painted with cement paint

      6  DOORS

    6.1  Service Shaft / Staircase
         / AHU / Elec. Rooms         Painted wooden Fire doors, with 2 hr fire
                                     rating / as per code requirements, with
                                     Brush steel finish Ironmongery. All
                                     staircase fire escape doors fitted with
                                     panic bars.

    6.2  Lift lobby doors            Veneer Finished 2 hrs. Fire rated wooden
                                     Flush doors with Brush steel finish
                                     Ironmongery & Vision panels

    6.3  Main Entrance Doors         12mm thick frame less Double swing glass
                                     doors with heavy duty floor springs


    6.4  Toilet Doors                Flush doors, with sal wood frames &
                                     finished with lamination on both sides,
                                     with Brush steel finish Ironmongery.

    6.5  Fire Escape door in
         Ground Floor                Painted wooden Fire doors, with 2 hr fire
                                     rating / as per code requirements, with
                                     Brush steel finish Ironmongery.

      7  RAILING

    7.1  Staircase                   MS railing

    7.2  Handicapped ramp            SS / Brush steel railing

B        EXTERNAL DEVELOPMENT

         Driveways and Parking
         slots                       Combination of Interlocking Paver blocks &
                                     Asphalted Surface

         Parking Slots               Interlocking Paver Blocks / Asphalted
                                     Surface

         Landscape                   Soft & hard landscape to design



                                       24



                                   SCHEDULE V
                         BENCHMARKS AND PAYMENT SCHEDULE



DATE OF AGREED DATE DATE OF NOTICE CERTIFICATE INSTALLMENT BENCHMARK OF COMPLETION OF COMPLETION OF ACCEPTANCE PAYABLE --------- ------------- -------------- ------------- ----------- Basement Roof Slab, 20.11.2004 20.11.2004 27.11.2004 Rs. 50,32,500/- Ground Floor Roof Slab First Floor Roof Slab, Second Floor Roof Slab and Third Floor Roof 20.02.2005 20.02.2005 27.02.2005 Rs. 50,32,500/- Slab Fit Out Commencement Date 15.03.2005 15.03.2005 22.03.2005 Nil Completion of Building and Occupation Certificate and issuance of the final 30.03.2005 30.03.2005 07.04.2005 Rs. 50,65,000/- Acceptance Certificate Lease Commencement Date 15.05.2005 -- -- -- Registration of Lease Deed 20.05.2005 -- -- Rs. 50,00,000/-
25 SCHEDULE VI LEASE DEED 1. TERMS OF THE LEASE DEED. 1.1 The Parties agree that the following terms contained in this Schedule VI shall form a part of the Lease Deed and shall be binding on the Parties. 2. REPRESENTATIONS AND WARRANTIES. 2.1 Lessor's Representations. As on the Lease Commencement Date, the Lessor will represent and warrant to the Lessee the following covenants: (a) That the Lessor (i) is the sole and absolute owner of the Land, Building and the Premises; (ii) has valid title and registered ownership rights to the Premises; and (iii) enjoys the uninterrupted, quiet, peaceful, physical, vacant and legal possession of the Premises without any interference whatsoever; (b) That the Premises are free from any and all encumbrances; (c) That all necessary and applicable statutory approvals and permiss