<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 19, 1996
REGISTRATION NO. 333-15659
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
JDA SOFTWARE GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7371 86-0787377
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
11811 NORTH TATUM BLVD., SUITE 2000
PHOENIX, AZ 85028
(602) 404-5500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
JAMES D. ARMSTRONG
CHIEF EXECUTIVE OFFICER
FREDERICK M. PAKIS
PRESIDENT
JDA SOFTWARE GROUP, INC.
11811 NORTH TATUM BLVD., SUITE 2000
PHOENIX, AZ 85028
(602) 404-5500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
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<S> <C>
PAUL E. HURDLOW, ESQ. ROBERT M. MATTSON, JR., ESQ.
JEFFREY T. BAGLIO, ESQ. TAMARA POWELL TATE, ESQ.
DAVID R. YOUNG, ESQ. KRISTINA M. JODIS, ESQ.
GRAY CARY WARE & FREIDENRICH MORRISON & FOERSTER LLP
A PROFESSIONAL CORPORATION 19900 MACARTHUR BLVD., STE. 1200
4365 EXECUTIVE DRIVE, SUITE 1600 IRVINE, CA 92612
SAN DIEGO, CA 92121 (714) 251-7500
(619) 677-1400
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 19, 1996
2,450,000 SHARES
JDA SOFTWARE GROUP, INC.
COMMON STOCK
Of the 2,450,000 shares of Common Stock offered hereby, 750,000 shares are
being sold by the Company and 1,700,000 shares are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "JDAS." On November 4, 1996, the last reported sale price of the
Common Stock on the Nasdaq National Market was $34.00 per share. See "Price
Range of Common Stock."
SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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Price to Underwriting Proceeds to
Public Discount(1) Company(2) Proceeds to
Selling
Stockholders
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<S> <C> <C> <C> <C>
Per Share.............................. $ $ $ $
Total(3)............................... $ $ $ $
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</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $350,000.
(3) The Company and certain of the Selling Stockholders have granted the
Underwriters a 30-day option to purchase up to 367,500 additional shares of
Common Stock solely to cover over-allotments, if any. If the Underwriters
exercise this option in full, the Price to Public will total $ ,
the Underwriting Discount will total $ , the Proceeds to the
Company will total $ and the Proceeds to Selling Stockholders will
total $ . See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1996.
------------------------
MONTGOMERY SECURITIES
HAMBRECHT & QUIST
PIPER JAFFRAY INC.
November , 1996
<PAGE> 3
<TABLE>
<S> <C> <C>
[COMPUSA LOGO] [BED BATH & BEYOND LOGO]
[WILLIAMS-SONOMA GRANDE
CUISINE LOGO]
[SUNGLASS HUT LOGO] [WILSONS LOGO]
[JDA SOFTWARE GROUP INC. LOGO]
Comprehensive Solutions for the World's Leading Retailers
[INCREDIBLE UNIVERSE LOGO] [HMV GROUP LIMITED LOGO]
[WEST MARINE LOGO] [SEIYU LOGO] [WOOLWORTHS LOGO]
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS, IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE
10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
The Company has filed domestic and foreign trademark applications for the
symbols JDA, Distributed Store System, DSS, Merchandise Management System, MMS,
Open Database Merchandising System, ODBMS, Win/Distributed Store System and
WinDSS. This Prospectus also includes trade names and trademarks of companies
other than JDA. The above trademarks are the trademarks and properties of their
respective owners.
<PAGE> 4
JDA Software Group
Integrated Enterprise-Wide Software Solutions for Retailers
[Flowchart depicting information flow from corporate headquarters, distribution
center and in-store.]
[Photograph of office building, photograph of forklift operating and photograph
of customer and store clerk.]
[Computer screen shots of the Company's ODBMS, WinDSS, DSS and MMS products.]
[Text attached to computer screen shots: Open DataBase Merchandising System -
ODBMS comprehensive retail enterprise solutions for open, client/server
environment. In limited beta release.
- Enterprise Database
- Data Warehouse
- Inventory Control and Reporting
- Price and Cost Management
- Store Data Interchange
- Purchase Order Management and Merchandise Receiving
- Automated Replenishment
- Retail Stock Ledger
- Warehouse/Distribution Center
WinDSS
Point-of-sale, back office, transaction processing and customer analyzer
applications for Windows in-store systems. In limited beta release.
Distributed Store System - DSS
Point-of-sale, back office, and customer analyzer applications for
traditional in-store systems.
Merchandise Management System - MMS
Comprehensive Retail Enterprise Solution for IBM AS/400 Environments
- Enterprise Database
- Data Warehouse
- Inventory Control and Reporting
- Price and Cost Management
- Store Data Interchange
- Purchase Order Management and Merchandise Receiving
- Automated Replenishment
- Retail Stock Ledger
- Warehouse/Distribution Center
- Accounts Payable
- General Ledger]
Automating the Mission Critical Business Information Requirements of
the Retailing Enterprise
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus.
THE COMPANY
JDA is a leading international provider of comprehensive enterprise-wide
software solutions that address the mission-critical business information
requirements of retailing organizations. The Company offers two enterprise
product lines: Merchandise Management System ("MMS") for the IBM AS/400 platform
and Open Database Management System ("ODBMS") for open, client/server
environments. MMS is a feature-rich solution that integrates and distributes
data throughout the retailing enterprise and enables management to make more
informed and timely decisions, respond rapidly to changes in the competitive
environment, monitor store-level activity and achieve operational efficiencies.
ODBMS, currently in limited beta installations and recently released for general
commercial availability, is designed as an open (multi-platform), client/server
solution that incorporates the basic functionality of MMS with enhanced
adaptability and scalability. The Company's in-store products, Distributed Store
System ("DSS") and Windows-based WinDSS, currently in limited beta
installations, can be licensed independently or as part of an integrated
enterprise-wide system. These in-store systems capture data at the point of sale
and leverage valuable enterprise-wide information by bringing it to the store
level, the primary point of consumer contact.
JDA's products have been licensed to over 215 customers, with the Company's
consulting services group performing the substantial majority of the
implementations. The Company's consulting services group provides system
planning, design and implementation services to tailor the Company's solutions
to each retailer's unique specifications and to ensure timely and successful
implementation. The Company's solutions have been deployed by a broad range of
retail enterprises worldwide including hard and soft line retailers, warehouse
stores, superstores and grocery stores. The Company's customers include many of
the world's leading specialty retailers such as Bed, Bath and Beyond, CompUSA,
Incredible Universe, Kingfisher Group, Lenscrafters, Melville Corporation,
Natural Wonders, Office Depot, Staples, Starbucks, Sunglass Hut, West Marine
Products and Williams-Sonoma. Revenues from customers outside the U.S. comprised
39% and 43% of total revenues in 1995 and in the first nine months of 1996,
respectively.
Retailers are recognizing the strategic imperative of employing technology
to cut costs, reduce inefficiencies and enhance sales in an environment
dominated by intensifying competition and value conscious consumers. As a
result, they are increasingly demanding highly functional, easy to use and
scalable software applications that can be economically and rapidly adapted for
changes in their mission-critical business functions. The Company's strategy is
to strengthen its position as a leading supplier of comprehensive software
solutions for the retailing marketplace worldwide. Key elements of the Company's
strategy are to: leverage its retail application knowledge base; offer a broad
line of modular, enterprise-wide solutions; extend its solutions to emerging
technology platforms; grow its industry-specific consulting services; leverage
its presence in international markets; and expand revenues and distribution
through strategic relationships.
The Company's principal executive offices are located at 11811 North Tatum
Blvd., Suite 2000, Phoenix, AZ 85028, and the telephone number at that address
is (602) 404-5500. Unless the context otherwise requires, the "Company" or "JDA"
refers to JDA Software Group, Inc. and its consolidated subsidiaries.
THE OFFERING
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<S> <C>
Common Stock offered by the Company.......... 750,000 shares
Common Stock offered by the Selling
Stockholders............................... 1,700,000 shares
Common Stock to be outstanding after the
offering................................... 13,115,237 shares(1)
Use of proceeds.............................. General corporate purposes, including product
development and working capital.
Nasdaq National Market symbol................ JDAS
</TABLE>
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(1) Excludes 1,236,242 shares of Common Stock issuable upon the exercise of
outstanding options at September 30, 1996 at a weighted average exercise
price of $6.98 per share, 532,708 of which were exercisable as of that
date. As a result of a Redemption Agreement with certain of the Company's
founders, exercise of up to 931,242 of these options outstanding under the
Company's 1995 Stock Option Plan will not be dilutive. See
"Capitalization," "Management -- Benefit Plans," "Certain Transactions" and
Note 8 of Notes to Consolidated Financial Statements. Also excludes 504,000
unissued shares that are the subject of a pending arbitration claim. See
"Risk Factors -- Pending Arbitrations" and "Business -- Legal Proceedings."
3
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
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1991 1992 1993 1994 1995 1995 1996
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<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Total revenues........................ $9,649 $15,974 $20,321 $23,829 $30,084 $20,812 $32,354
Gross profit.......................... 6,051 10,354 13,236 16,902 20,144 13,506 20,935
Tax related compensation to S
Corporation stockholders(1)......... 1,720 6,900 7,422 0 0 0 0
Income (loss) from operations......... 2,285 (1,262) (401) 9,222 7,504 4,927 8,172
Net income (loss)(1).................. $2,165 $ (951) $(1,438) $ 8,501 $ 5,573 $ 3,829 $ 5,074
PRO FORMA STATEMENTS OF OPERATIONS
DATA:
Pro forma net income(2)............... $ 4,401 $ 2,874 --
Pro forma net income per share........ $ 0.42 $ 0.27 $ 0.43
Shares used in per share
calculation(3)...................... 10,952 10,952 11,884
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
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ACTUAL AS ADJUSTED(4)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................................ $23,128 $ 47,003
Total assets............................................................... 37,047 60,922
Long-term liabilities...................................................... 224 224
Stockholders' equity....................................................... 28,582 52,457
</TABLE>
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(1) Prior to March 30, 1995, certain predecessor companies of the Company
elected S Corporation status. The Company's historical statements of
operations data, therefore, do not include a provision for U.S. federal
income taxes for periods prior to March 30, 1995. In addition, in 1991,
1992 and 1993, these same companies charged to expense compensation paid to
their founding stockholders in lieu of S Corporation dividends, in order to
reduce state income tax liability. See "Reorganization and Prior S
Corporation Status" and Note 1 of Notes to Consolidated Financial
Statements. Pro forma net income excluding tax related compensation and
including U.S. federal income tax provisions at statutory rates was $2,464,
$3,424, $4,313 and $5,564 for 1991 through 1994, respectively.
(2) Includes U.S. federal income tax provision at statutory tax rates.
(3) Pro forma net income per share includes common and equivalent shares
outstanding and the estimated number of shares that would be needed to be
issued to repay certain stockholder notes issued in the Reorganization and
to redeem the Series B Redeemable Preferred Stock. Pro forma net income has
been adjusted for the interest applicable to such notes. See Notes 1 and 2
of Notes to Consolidated Financial Statements.
(4) Adjusted to reflect the sale of 750,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $34.00 per share
and the application of the net proceeds therefrom. See "Use of Proceeds."
Except as otherwise noted, information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting."
4
<PAGE> 7
RISK FACTORS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended. Discussion containing
such forward-looking statements will be found in the material set forth under
"Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," as well as within the Prospectus generally. Actual results could
differ materially from those projected in the forward-looking statements as a
result of the risk factors set forth below and the matters set forth in this
Prospectus generally. The Company cautions the reader, however, that this list
of factors may not be exhaustive. The following risk factors should be
considered carefully in addition to the other information contained in this
Prospectus before purchasing the Common Stock offered hereby:
Fluctuations in Quarterly Operating Results. The Company's quarterly
operating results have varied and are expected to continue to vary in the
future. These fluctuations may be caused by many factors, including, among
others: the size and timing of individual orders; competitive pricing pressures;
customer order deferrals in anticipation of new products; variation of
consulting, maintenance and other services as a percentage of total revenues;
timing of introduction or enhancement of products by the Company or its
competitors; market acceptance of new products; technological changes in
platforms supporting the Company's products; changes in networking or
communication technology; changes in the Company's operating expenses; personnel
changes; foreign currency exchange rates; fluctuations in the level of warranty
claims; and general industry and economic conditions.
The Company's business has experienced and is expected to continue to
experience some degree of seasonality due in large part to its retail customers'
buying cycles, with license revenues typically higher in the fourth quarter and
consulting revenues typically higher in the first quarter. Further, software
license gross margin is significantly greater than consulting, maintenance and
other services gross margin. As a result, overall gross margin has fluctuated
significantly based on revenue mix, and the Company expects this trend to
continue.
Historically, a significant portion of the Company's quarterly revenues
have been derived from relatively large licenses to a limited number of
customers, and the Company currently anticipates that this trend will continue.
Any significant cancellation or deferral of customer orders could have a
material adverse effect on the Company's operating results in any particular
quarter.
The Company's expense levels are based, in part, on its expectations as to
future revenues and to a large extent are fixed. Licenses of the Company's
products are typically accompanied by a significant amount of systems
implementation consulting. The Company's consulting resources must be managed to
meet future sales, and additional consulting personnel must be hired and trained
in advance of anticipated license revenues. The Company may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall
and, accordingly, any significant shortfall of demand in relation to the
Company's expectations or any material delay of customer orders would have an
almost immediate adverse effect on the Company's operating results.
As a result of the foregoing and other factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Fluctuations in operating results may also result in volatility in the price of
the shares of the Company's Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview,"
"Business -- Products" and "-- Professional Services."
Dependence on Retail Industry. The Company has derived substantially all
of its revenues to date from the license of software products and related
services to the retail industry, and its future growth is critically dependent
on increased sales to the retail industry. The success of the Company's
customers is intrinsically linked to economic conditions in the retail industry,
which in turn are subject to intense competitive pressures and are affected by
overall economic conditions. In addition, the Company believes the license of
its products is relatively discretionary and generally involves a significant
commitment of capital, because the Company's products are often accompanied by
large scale hardware purchases or commitments. As a result, although the Company
believes its products can assist retailers in a competitive environment, demand
for the Company's
5
<PAGE> 8
products and services could be disproportionately affected by instability or
downturns in the retail industry which may cause customers to exit the industry
or delay, cancel or reduce any planned expenditures for information management
systems and software products. The Company also believes that the retail
industry is experiencing a period of increased consolidation, which has in the
past and may in the future affect the demand for the Company's products. Recent
results in the overall retail industry have been disappointing, and the Company
anticipates that existing or prospective customers may be experiencing or may in
the future experience severe financial hardship. There can be no assurance that
the Company will be able to continue its revenue growth or sustain its
profitability on a quarterly or annual basis or that its results of operations
will not be adversely affected by continuing or future downturns in the retail
industry. Any resulting decline in demand for the Company's products and
services would have a material adverse effect on the Company's business, results
of operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Business -- Industry
Background" and "-- Company Strategy."
Management of Growth. The growth in the size and complexity of the
Company's business and expansion of its product lines and its customer base have
placed and are expected to continue to place a significant strain on the
Company's management and operations. The Company anticipates that continued
growth, if any, will require it to recruit and hire a substantial number of new
employees, including consulting and product development personnel, both
domestically and abroad. In particular, the Company's ability to undertake new
projects and increase license revenues is substantially dependent on the
availability of the Company's consulting personnel to assist in the licensing
and implementation of the Company's solutions. The Company will not be able to
continue to increase its business at historical rates without adding significant
numbers of trained consulting personnel. Accordingly, the Company is currently
attempting to significantly increase consulting capacity in anticipation of
future revenues. In their first year of employment by the Company, new
consulting personnel typically spend between two to ten weeks in training,
during which period they do not generally generate revenues. To the extent
anticipated revenues fail to materialize following the hiring and training of
new personnel, the Company's operating results would be adversely affected.
There can be no assurance that qualified personnel will be located, retained or
trained in a timely manner. In the event the Company is unable to increase
sufficiently its consulting capacity, the Company may be required to forego
licensing opportunities or become increasingly dependent on systems integrators
and professional consulting firms to provide implementation services for its
products. The Company's ability to compete effectively and to manage future
growth, if any, also will depend on its ability to continue to implement and
improve operational, financial and management information systems on a timely
basis and to expand, train, motivate and manage its work force. Accordingly, the
Company's future operating results will depend on the ability of its management
and other key employees to continue to implement and improve its systems for
operations, financial control and information management, to recruit, train and
manage its employee base, in particular its direct sales force and consulting
services organization, and to deal effectively with third-party systems
integrators and consultants. There can be no assurance that the Company will be
able to manage or continue to manage its recent or any future growth, and any
failure to do so would have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Company Strategy"
and "-- Professional Services."
Ability to Attract and Retain Technical Personnel. The Company is heavily
dependent upon its ability to attract, retain and motivate skilled technical and
managerial personnel, especially highly skilled engineers involved in ongoing
product development and consulting personnel who assist in the license and
implementation of the Company's solutions. In particular, the Company's ability
to install, maintain and enhance its enterprise products is substantially
dependent upon its ability to locate, hire and train qualified software
engineers. The market for such individuals is intensely competitive,
particularly in foreign markets. In this regard the Company, as part of its
strategy, plans to significantly increase the number of consulting personnel in
connection with the roll-out of its ODBMS and WinDSS products and to support
continued development and implementation of its MMS product line. Given the
critical role of the Company's product development and consulting staffs, the
inability to recruit successfully or the loss of a significant part of its
product development or consulting staffs would have a material adverse effect on
the Company. The software industry is characterized by a high level of employee
mobility and aggressive recruiting of skilled personnel. There can be no
assurance that the Company will be able to retain its current personnel, or that
it will be able to attract,
6
<PAGE> 9
assimilate or retain other highly qualified technical and managerial personnel
in the future. The inability to attract, hire or retain the necessary technical
and managerial personnel could have a material adverse effect upon the Company's
business, operating results and financial condition. See
"Business -- Professional Services," "-- Employees" and "Management."
Uncertain Market for ODBMS WinDSS. The Company has recently released ODBMS
in limited commercial installations and WinDSS in limited beta installations.
Both products are open, client/server solutions. The retail industry has only
recently begun limited adoption of open, client/server information systems. The
Company believes that retailers in general may be relatively cautious in
adopting new technologies. In addition, many retailers do not have the personnel
or staff required to implement, operate and maintain an open, client/server
system, and the difficulties associated with implementing new technology may
slow or prevent adoption of the Company's new products. Because the market for
these products is new and evolving, it is difficult to assess or predict with
any assurance the growth rate, if any, and size of this market. There also can
be no assurance that the market for ODBMS or WinDSS will develop, or that either
of these products or related services will be adopted or utilized. If the market
fails to develop, develops more slowly than expected or becomes saturated with
competitors, or if the Company's products do not achieve market acceptance, the
Company's business, operating results and financial condition will be materially
adversely affected.
The Company is directing a significant amount of its product development
expenditures to the ongoing development of ODBMS and WinDSS and a significant
amount of its sales and marketing resources to the full commercial introduction
of ODBMS and WinDSS. A significant effort is still required to develop and
release additional application modules for these products. The Company has
limited experience in developing and marketing products for open system
applications, and ODBMS and WinDSS have not yet been fully implemented in
customers' environments. As a result, there can be no assurance that ODBMS and
WinDSS will not require substantial software enhancements or modifications to
satisfy performance requirements of customers or to fix design defects or
previously undetected errors. It is common for complex software programs such as
ODBMS and WinDSS to contain undetected errors when first released, which are
discovered only after the product has been used over time with different
computer systems and in varying applications and environments. While the Company
is not aware of any significant technical problems with these products, there
can be no assurance that errors will not be discovered, or if discovered, that
they will be successfully corrected on a timely basis, if at all. The Company's
future business growth is substantially dependent on the continued development,
introduction and market acceptance of ODBMS and WinDSS. Should the Company fail
to release a fully commercial version of WinDSS, if customers experience
significant problems with implementation of ODBMS and WinDSS or are otherwise
dissatisfied with the functionality or performance of ODBMS or WinDSS, or if
either of these products fails to achieve market acceptance for any reason, the
Company's business, operating results and financial condition will be materially
adversely affected. See "Business -- Products" and "-- Product Development and
JDA Technology."
Product Concentration. The Company has derived substantially all of its
revenues from the license of a limited number of information management software
applications for the retail industry and consulting and maintenance services
related to such applications. Software licenses and related consulting,
maintenance and other services revenues from the Company's MMS product line
represented over 90% of the Company's revenues in each of the three most recent
fiscal years, and 86% for the nine months ended September 30, 1996. The Company
expects that revenues related to this product will continue to account for a
substantial but reduced percentage of total revenues as market acceptance of the
Company's newer products increases. The life cycle of the MMS product line is
difficult to estimate due in large measure to the potential effect of new
products, applications and product enhancements, including those introduced by
the Company, changes in the retail industry and future competition. The Company
expects that revenues attributable to its MMS and ODBMS enterprise products will
comprise the substantial majority of software license revenues for the
forseeable future. Any decline in MMS revenues, to the extent not offset by
increases in revenues from other products, would have a material adverse effect
on the Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview," "Business -- Products" and "-- Professional Services."
7
<PAGE> 10
International Operations. In 1993, 1994, 1995 and the nine months ended
September 30, 1996, international revenues, which include revenues from
international subsidiaries and export sales, comprised approximately 31%, 28%,
39% and 43%, respectively, of the Company's revenues. The Company expects that
international revenues will continue to account for a significant percentage of
the Company's revenues for the foreseeable future, and the Company intends to
continue expansion of its international infrastructure. Although the Company
maintains operations in the U.K., Singapore, Canada, Chile, Mexico and Germany,
and is currently investing significant resources in its international
operations, there can be no assurance that the Company will be successful in
expanding its international operations. The Company anticipates that continued
growth of its international operations will require the Company to recruit and
hire a number of new consulting, sales and marketing and support personnel in
the countries in which the Company has established or will establish operations.
In addition, the Company has only limited experience in developing localized
versions of its products and in marketing and distributing its products
internationally. International rollout of the Company's products requires
significant investment by the Company in advance of anticipated future revenues.
The opening of new offices by the Company typically results in initial
recruiting and training expenses and reduced labor efficiencies associated with
the introduction of products to a new market. In particular, successful
introduction of the Company's product into new markets requires the Company to
locate and hire qualified local sales and consulting personnel and train them in
the operation of the Company's products. There can be no assurance that the
countries in which the Company operates will have a sufficient pool of qualified
personnel for the Company to hire from, or that the Company will be successful
at hiring, training or retaining such personnel. In addition, there can be no
assurance that the Company will be able to successfully localize, market, sell
and deliver its products internationally. The inability of the Company to
successfully expand its international operations in a timely manner could
materially adversely affect the Company's business, operating results and
financial condition.
There are a number of other risks inherent in the Company's international
business activities, including unexpected changes in regulatory requirements,
tariffs and other trade barriers, costs and risks of localizing products for
foreign countries, longer accounts receivable payment cycles, potentially
adverse tax consequences, currency fluctuations, repatriation of earnings and
the burdens of complying with a wide variety of foreign laws. In addition,
consulting, maintenance and other services in support of international licenses
typically have lower gross margins than those achieved domestically due to lower
prevailing billing rates in certain of the Company's international markets.
Therefore, planned growth in the Company's continued operations may result in
further declines in gross margin on consulting, maintenance and other services.
To the extent the Company's international operations expand, the Company expects
that an increasing portion of its international license and consulting,
maintenance and other services revenues will be denominated in foreign
currencies, subjecting the Company to fluctuations in foreign currency exchange
rates. The Company does not currently engage in foreign currency hedging
transactions. However, as the Company continues to expand its international
operations, exposures to gains and losses on foreign currency transactions may
increase. The Company may choose to limit such exposure by entering into forward
foreign exchange contracts or engaging in similar hedging strategies. There can
be no assurance that any currency exchange strategy would be successful in
avoiding exchange-related losses. In addition, revenues of the Company earned in
various countries where the Company does business may be subject to taxation by
more than one jurisdiction, thereby adversely affecting the Company's earnings.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Company Strategy" and "-- Sales and Marketing."
Competition. The market for retail information systems software is
intensely competitive. The Company believes the principal competitive factors in
such market are product quality, reliability, performance and price, vendor and
product reputation, financial stability, features and functions, ease of use and
quality of support. A number of companies offer competitive products addressing
certain of the Company's target markets. In the enterprise systems market, the
Company competes with in-house systems developed by the Company's targeted
customers and with third-party developers such as Intrepid, Island Pacific,
Radius PLC, Retek (which agreed in October 1996 to be acquired by HNC Software,
Inc.), STS Systems and Richter Management Services, among others. In addition,
the Company believes that new market entrants may attempt to develop fully
integrated enterprise-level systems targeting the retail industry. In
particular, SAP Aktiengesellschaft announced in August 1996 its intention to
release an integrated client/server enterprise
8
<PAGE> 11
system competitive with the Company's products. In the in-store systems market,
which is more fragmented than the enterprise market, the Company competes with
major systems manufacturers such as AT&T/NCR, IBM and ICL, as well as software
companies such as Applied Intelligence Group, CRS Business Computers, Inc., Post
Software International, STS Systems, GERS Retail Systems and Gateway Data
Sciences Corporation, among others. In the market for consulting services, the
Company competes with major systems integrators such as Andersen Consulting,
Deloitte & Touche LLP, Ernst & Young LLP and Price Waterhouse's Management
Horizons Division, as well as independent consulting firms such as the ISSC
Division of IBM. Many of the Company's existing competitors, as well as a number
of potential new competitors, have significantly greater financial, technical
and marketing resources than the Company. There can be no assurance that the
Company will be able to compete successfully against its current or future
competitors or that competition will not have a material adverse effect on the
Company's business, operating results and financial condition. See
"Business -- Competition."
Technological Change; Market Acceptance of Evolving Standards. The
computer software industry is subject to rapid technological change, changing
customer requirements, frequent new product introductions and evolving industry
standards that may render existing products and services obsolete. As a result,
the Company's position in its existing market or other markets that it may enter
could be eroded rapidly by technological advancements not embraced by the
Company. The life cycles of the Company's products are difficult to estimate.
The products must keep pace with technological developments, conform to evolving
industry standards and address increasingly sophisticated customer needs. In
particular, the Company believes that it must continue to respond quickly to
users' needs for broad functionality and multi-platform support and to advances
in hardware and operating systems. Introduction of new products embodying new
technologies and the emergence of new industry standards could render the
Company's products obsolete and unmarketable. There can be no assurance that the
Company will not experience future difficulties that could delay or prevent the
successful development, introduction and marketing of new products, or that new
products and product enhancements will meet the requirements of the marketplace
and achieve market acceptance. If the Company is unable to develop and introduce
products in a timely manner in response to changing market conditions or
customer requirements, the Company's business, operating results and financial
condition would be materially adversely affected.
In addition, the Company strives to achieve compatibility between the
Company's products and retailing systems platforms the Company believes are or
will become popular and widely adopted. The Company invests substantial
resources in development efforts aimed at achieving such compatibility. Any
failure by the Company to anticipate or respond adequately to technology or
market developments could result in a loss of competitiveness or revenue. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview," "Business -- Products," "-- Professional Services" and
"-- Product Development and JDA Technology."
Dependence on Key Personnel. The Company's performance is substantially
dependent on the performance of its executive officers and key employees. In
particular, the services of James D. Armstrong, the Company's Chief Executive
Officer, and Frederick M. Pakis, the Company's President, would be difficult to
replace. The Company does not have in place "key person" life insurance policies
on any of its employees. The loss of the services of any of its executive
officers or other key employees could have a material adverse effect on the
business, operating results and financial condition of the Company. See
"Management."
Dependence on Proprietary Technology. The Company's success and ability to
compete is dependent in part upon its proprietary technology, including its
software source code. The Company relies on a combination of trade secret,
nondisclosure and copyright law, which may afford only limited protection. In
addition, effective copyright and trade secret protection may be unavailable or
limited in certain foreign countries. The Company presently has no patents or
patent applications pending. There can be no assurance that others will not
develop technologies that are similar or superior to the Company's technology.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties, including customers who receive listings of the source code for the
Company's products pursuant to the terms of their license agreements with the
Company, may attempt to reverse engineer or copy aspects of the Company's
products or to obtain and use information
9
<PAGE> 12
that the Company regards as proprietary. As a result, there can be no assurance
that unauthorized use of the Company's technology may not occur.
Certain technology used by the Company's products is licensed from third
parties, generally on a non-exclusive basis. The termination of any such
licenses, or the failure of the third-party licensors to adequately maintain or
update their products, could result in delay in the Company's ability to ship
certain of its products while it seeks to implement technology offered by
alternative sources, and any required replacement licenses could prove costly.
While it may be necessary or desirable in the future to obtain other licenses
relating to one or more of the Company's products or relating to current or
future technologies, there can be no assurance that the Company will be able to
do so on commercially reasonable terms or at all.
In the future the Company may receive notices claiming that it is
infringing the proprietary rights of third parties, and there can be no
assurance that the Company will not become the subject of infringement claims or
legal proceedings by third parties with respect to current or future products.
In addition, the Company may initiate claims or litigation against third parties
for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Any such claim could be time
consuming, result in costly litigation, cause product shipment delays or force
the Company to enter into royalty or license agreements rather than dispute the
merits of such claims and could have a material adverse effect on the Company's
business, operating results and financial condition. See
"Business -- Proprietary Rights."
Product Defects; Product Liability; Risk of Integration Difficulties. The
Company's software products are highly complex and sophisticated and could, from
time to time, contain design defects or software errors that could be difficult
to detect and correct. In addition, implementation of the Company's products
generally involves a significant amount of customer-specific customization, and
may involve integration with systems developed by third parties. Despite
extensive testing, the Company from time to time has discovered defects or
errors in its products or custom modifications only after its systems have been
used by many customers. The Company has also experienced delays in shipment of
products during the period required to correct such errors. In addition, the
Company or its customers may from time to time experience difficulties relating
to the integration of the Company's products with other hardware or software in
the customer's environment that are unrelated to defects in the Company's
products. There can be no assurance that such defects, errors or difficulties
will not cause future delays in product introductions and shipments, result in
increased costs and diversion of development resources, require design
modifications or impair customer satisfaction with the Company's products. Since
the Company's products may be used by its customers to perform mission-critical
functions, design defects, software errors, misuse of the Company's products,
incorrect data from external sources or other potential problems within or out
of the Company's control that may arise from the use of the Company's products
could result in financial or other damages to the Company's customers. The
Company does not maintain product liability insurance. Although the Company's
license agreements with its customers typically contain provisions designed to
limit the Company's exposure to potential claims as well as any liabilities
arising from such claims, such provisions may not effectively protect the
Company against such claims and the liability and costs associated therewith.
Accordingly, any such claim could have a material adverse effect upon the
Company's business, operating results and financial condition. The Company
provides warranties for its products for a period of time (usually 6 or 12
months) after the software is installed and, if applicable, accepted by the
licensee. The Company's license agreements generally do not permit product
returns by the customer, and product returns and warranty expense for 1993,
1994, 1995 and the nine months ended September 30, 1996 represented less than
two percent of total revenues during each of such periods. However, no assurance
can be given that product returns will not increase as a percentage of total
revenues in future periods. See "Business -- Product Development and JDA
Technology."
Pending Arbitrations. In February 1996, a dispute arose with one of the
Company's customers. The Company initiated arbitration proceedings against the
customer in an effort to collect approximately $100,000 in remaining amounts due
pursuant to its contract with the customer. The customer counterclaimed for a
full refund of the approximately $985,000 previously paid to the Company, and
the Company is vigorously defending such counterclaim. The arbitration
proceedings remain ongoing, and the parties are engaged in settlement
negotiations. Although management believes, based upon information currently
available, that a settlement can be reached upon terms acceptable to the
Company, there can be no assurance that such will be
10
<PAGE> 13
the case or that any settlement can be reached in this matter. The Company does
not believe that the ultimate outcome of this proceeding will have a material
adverse effect on the Company.
In May 1996, Niederhoffer and Niederhoffer, Inc. ("Niederhoffer") filed a
demand for arbitration asserting a claim against JDA Software Services, Inc., a
wholly owned subsidiary of the Company. Niederhoffer's claims are based upon an
agreement between it and JDA Software Services, Inc. dated April 6, 1990 (the
"Finder's Agreement"). Niederhoffer alleges entitlement to a finder's fee in
connection with the purchase of convertible preferred stock in the Company in
March 1995 by six investment funds advised by TA Associates, Inc. and its
affiliates ("TA Investment"), and a claim for Common Stock arising from the
related establishment of the Company and reorganization of the Company's wholly
owned subsidiaries pursuant to which Company Common Stock was issued to such
subsidiaries' stockholders (the "Reorganization"). In the arbitration,
Niederhoffer claims damages of approximately $770,000 and asserts a right to
504,000 shares of the Company's Common Stock.
The Company is contesting both the applicability of the Finder's Agreement
to the TA Investment and the related Reorganization and the measurement of the
damages as claimed by Niederhoffer. The arbitration is expected to be concluded
in December 1996, with the arbitrators' decision rendered following conclusion
of the arbitration.
The Company and its counsel believe that the Company has meritorious
defenses to Niederhoffer's claims, and the Company intends to vigorously defend
its position in the arbitration. However, since the results of arbitration
proceedings are inherently unpredictable, no assurance can be given with respect
to the arbitration's outcome or the total expense or possible damages, if any,
that may be incurred in the arbitration proceedings or as a result of a
settlement or an arbitration award. In the event the arbitration panel concludes
that the TA Investment and related Reorganization fell within the scope of the
Finder's Agreement, and further agrees with Niederhoffer's assessment of
damages, the Company could be required to make cash payments as well as issue to
Niederhoffer up to 504,000 shares of the Company's Common Stock or make an
additional cash payment to Niederhoffer based upon the arbitrators'
determination of the value of such shares. The Company believes that an
arbitrators' decision to award up to 504,000 shares of Common Stock to
Niederhoffer based upon a determination that such shares are issuable as a
result of the TA Investment would be treated as a charge to additional paid-in
capital. Such charge would reduce additional paid-in capital by the amount of
any cash paid plus the value of the Common Stock issued, valued as of the date
of the TA Investment. However, any cash awarded in lieu of shares in excess of
the value of such shares at the date of the TA Investment would be recorded as
litigation expense and could have an immediate and material adverse effect on
the Company's operating results. In addition, any cash awarded to Niederhoffer
would reduce the Company's available liquidity. Any shares of Common Stock
awarded to Niederhoffer would have a dilutive effect on the Company's earnings
per share.
Possible Volatility. Since the Company's initial public offering in March
1996, the price of the Company's Common Stock has experienced large
fluctuations. Future announcements concerning the Company or its competitors,
quarterly variations in operating results, announcements of technological
innovations, the introduction of new products or changes in product pricing
policies by the Company or its competitors, proprietary rights or other
litigation (including without limitation the arbitration proceedings described
in "-- Pending Arbitrations"), changes in earnings estimates by analysts or
other factors could cause the market price of the Common Stock to fluctuate
substantially. In addition, stock prices for many technology companies fluctuate
widely for reasons which may be unrelated to operating results. These
fluctuations, as well as general economic, market and political conditions such
as recessions or military conflicts, may materially and adversely affect the
market price of the Company's Common Stock. See "Price Range of Common Stock."
Control by Existing Stockholders; Anti-takeover Effects. The Company's
executive officers, directors and their affiliates will beneficially own
approximately 54.9%, and Messrs. Armstrong and Pakis will collectively
beneficially own 37.0%, of the outstanding shares of the Company's Common Stock
immediately following this offering, assuming no exercise of the Underwriters'
over-allotment option. As a result, these stockholders may be able to elect a
majority of the Company's directors, and will continue to have significant
influence over the affairs of the Company. Such concentration of ownership may
have the effect of delaying,
11
<PAGE> 14
deferring or preventing a change in control of the Company. In addition, the
Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which will prohibit the Company from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. The application of Section 203 also could have the effect of
delaying or preventing a change of control of the Company. Further, the
Company's Board of Directors has the authority to issue up to 2,000,000 shares
of preferred stock and to fix the rights, preferences, privileges and
restrictions of those shares, including voting rights, without any further vote
or action by the stockholders. The rights of the holders of the Common Stock
will be subject to, and may be adversely affected by, the rights of the holders
of the preferred stock that may be issued in the future. The ability of the
Board of Directors to issue shares of preferred stock without further
stockholder approval, as well as certain other provisions of the Company's
Certificate of Incorporation and Bylaws and of Delaware law, could have the
effect of delaying, deferring or preventing a change in control of the Company.
See "Principal and Selling Stockholders" and "Description of Capital Stock."
Broad Discretion over Use of Proceeds. Because all the net proceeds to the
Company of this offering are allocated to general corporate purposes, including
product development and working capital, the Company's management will have
broad discretion over the application of these funds. There can be no assurance
that management will make such application effectively or in a manner that will
not result in a material adverse effect on the Company or its results of
operations. See "Use of Proceeds."
Shares Eligible for Future Sale; Registration Rights. Upon completion of
this offering, the Company will have outstanding an aggregate of 13,115,237
shares of Common Stock. Immediately upon the effectiveness of this offering, the
2,450,000 shares offered hereby and approximately 3,713,928 additional shares
already outstanding will be freely tradeable. Sale of substantial amounts of
Common Stock in the public market following the offering made hereby could have
an adverse effect on the price of the Common Stock. Of the remaining 6,932,824
shares currently issued and outstanding, 6,875,395 shares are subject to lock-up
agreements that will expire 180 days from the effective date of this offering
and 190,201 shares are subject to lock-up agreements that will expire 90 days
from the effective date of this offering. Of the 6,875,395 shares subject to
180-day lock-up agreements, 981,242 shares are subject to redemption by the
Company in connection with its 1995 Stock Option Plan. See
"Management -- Benefit Plans." The remaining 5,894,153 shares become eligible
for sale following expiration of such 180-day lock-up agreements, subject to the
limitations of Rule 144. Montgomery Securities may, in its sole discretion and
at any time without notice, release all or any portion of the securities subject
to lock-up agreements.
As of the effective date of the Registration Statement, the holders of
approximately 2,025,000 shares will be entitled to certain demand registration
rights with respect to such shares. In addition, in connection with a pending
claim in arbitration, registration rights are being sought and could be awarded
with respect to 504,000 unissued shares of Common Stock. See "Risk
Factors -- Pending Arbitrations" and "Business -- Legal Proceedings." If such
holders, by exercising their demand registration rights, cause a large number of
shares to be registered and sold in the public market, such sales could have an
adverse effect on the market price for the Company's Common Stock. If the
Company were required to include in a Company-initiated registration shares held
by such holders pursuant to the exercise of their piggyback registration rights,
such sale might have an adverse effect on the Company's ability to raise needed
capital in the capital markets at a time and price favorable to the Company. See
"Shares Eligible for Future Sale" and "Description of Capital Stock."
12
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 750,000 shares of
Common Stock offered by the Company hereby, at an assumed public offering price
of $34.00 per share, are estimated to be approximately $23,875,000 ($26,842,600
if the Underwriters' over-allotment option is exercised in full) after deducting
the estimated underwriting discount and offering expenses payable by the
Company. The Company will not receive any proceeds from the sale of the shares
of Common Stock offered by the Selling Stockholders.
The Company expects the net proceeds to be used for general corporate
purposes including product development and working capital. Pending such uses,
the proceeds will be invested in short-term, investment-grade, interest-bearing
securities. A portion of the proceeds may also be used to acquire or invest in
complementary businesses or products or to obtain the right to use complementary
technologies. While from time to time the Company evaluates potential
acquisitions of such businesses, products or technologies, there are no present
understandings, commitments or agreements with respect to any acquisition of
other businesses, products or technologies.
REORGANIZATION AND PRIOR S CORPORATION STATUS
Prior to March 30, 1995, the business currently conducted by the Company
was conducted by five affiliated companies: JDA Software Services, Inc., a
Delaware corporation ("JDA Services"); JDA International Ltd., a U.K.
corporation ("JDA International"); JDA Software, Inc., an Arizona corporation
("JDA Software"); JDA Worldwide, Inc., an Arizona corporation ("JDA Worldwide");
and JDA Asia Pte Ltd., a Singapore corporation ("JDA Asia") (together, the
"Predecessor Companies"). Effective March 30, 1995 (the "Effective Date"), the
Predecessor Companies were consolidated under the Company in a holding company
structure (the "Reorganization") in connection with an investment in the Company
by six investment funds advised by TA Associates, Inc. and its affiliates (such
funds defined as "TA Associates"). See "Principal and Selling Stockholders" and
Note 1 of Notes to Consolidated Financial Statements.
From January 1991 to the Effective Date, certain of the Predecessor
Companies elected to be treated as S Corporations under Subchapter S of the
Internal Revenue Code and comparable state tax laws. As a result, until the
Effective Date the earnings of the Predecessor Companies were attributable, with
certain exceptions, for federal and certain state income tax purposes to their
existing stockholders rather than to the companies.
Dividends of approximately $2.7 million, $3.2 million and $3.9 million were
paid to the S Corporations' stockholders in 1993, 1994 and 1995, respectively.
In addition to these stockholder dividends, the S Corporations paid tax related
compensation to their stockholders of $7.4 million in 1993. Further, on the
Effective Date such stockholders received as part of the Reorganization
distributions of cash and notes aggregating approximately $20 million, which
notes were subsequently repaid from the proceeds of the Company's initial public
offering in March 1996. Tax related dividends and tax related compensation paid
to S Corporation stockholders were discontinued as of the Effective Date. See
"Certain Transactions."
DIVIDEND POLICY
The Company anticipates that all earnings subsequent to the closing of this
offering, if any, will be retained to finance the growth and development of the
business and, therefore, the Company does not anticipate paying cash dividends
on its Common Stock in the foreseeable future. In the past certain of the
Predecessor Companies paid dividends to their S Corporation stockholders. See
"Reorganization and Prior S Corporation Status."
13
<PAGE> 16
PRICE RANGE OF COMMON STOCK
The Company effected its initial public offering on March 15, 1996 at a
price of $13.00 per share. The Company's Common Stock is quoted on the Nasdaq
National Market under the symbol "JDAS." The following table sets forth, for the
periods indicated, the high and low sale prices per share of the Common Stock as
reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
CALENDAR 1996 HIGH LOW
- ------------------------------------------------------------------------------- ---- ----
<S> <C> <C>
1st Quarter (from March 15, 1996).............................................. $13 1/4 $11 1/4
2nd Quarter.................................................................... $ 26 $11 7/8
3rd Quarter.................................................................... $ 29 $14 1/4
4th Quarter (through November 4, 1996)......................................... $39 3/8 $ 27
</TABLE>
On November 4, 1996, the last reported sales price of the Common Stock on
the Nasdaq National Market was $34.00 per share. As of September 30, 1996, there
were approximately 99 shareholders of record of the Common Stock.
14
<PAGE> 17
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996, and as adjusted to give effect to the receipt and
application by the Company of the estimated net proceeds from the sale of
750,000 shares of Common Stock offered hereby at an assumed offering price of
$34.00 per share after deducting the estimated underwriting discount and
offering expenses payable by the Company. The table should be read in
conjunction with the Consolidated Financial Statements of the Company and
related Notes thereto included elsewhere in this Prospectus. See "Use of
Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Capital lease obligations, less current portion......................... $ 116 $ 116
Stockholders' equity:
Common stock, $.01 par value; 18,000,000 shares authorized; 12,365,237
outstanding(1)..................................................... 124 131
Additional paid-in capital............................................ 41,369 65,237
-------- --------
Retained earnings (deficit)........................................... (12,955) (12,955)
-------- --------
Foreign currency translation adjustment............................... 44 44
-------- --------
Total stockholders' equity.................................... 28,582 52,457
-------- --------
Total capitalization.......................................... $ 28,698 $ 52,573
======== ========
</TABLE>
- ---------------
(1) Excludes (i) 1,236,242 shares of Common Stock issuable upon the exercise of
stock options outstanding as of September 30, 1996, at a weighted average
exercise price of $6.98 per share, the issuance of 931,242 of which will
not cause further dilution, (ii) 50,000 shares of Common Stock reserved for
issuance under the 1995 Stock Option Plan, (iii) 945,000 remaining shares
of Common Stock reserved for issuance under the 1996 Employee Stock Option
Plan, (iv) 150,000 shares of Common Stock reserved for issuance under the
1996 Outside Directors Stock Option Plan and (v) 161,555 remaining shares
of Common Stock reserved for issuance under the 1996 Employee Stock
Purchase Plan. Also excludes 504,000 unissued shares that are the subject
of a pending arbitration claim. See "Risk Factors -- Pending Arbitrations,"
"Business -- Legal Proceedings," "Management -- Benefit Plans," "Certain
Transactions" and Note 8 of Notes to Consolidated Financial Statements.
15
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for the five years
ended December 31, 1995 and as of December 31, 1991, 1992, 1993, 1994 and 1995
were derived from the audited Consolidated Financial Statements of the Company.
The financial statements of the Company for the three years ended December 31,
1995 and as of December 31, 1994 and 1995 were audited by Deloitte & Touche LLP,
independent certified public accountants, and are included elsewhere in this
Prospectus. The selected consolidated financial data as of September 30, 1996
and for the nine months ended September 30, 1995 and 1996 have been derived from
the unaudited consolidated financial statements of the Company included
elsewhere in this Prospectus. The unaudited consolidated financial statements
have been prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, include all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the results of operations for the periods presented.
The data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements, including the Notes thereto, appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Software licenses........................ $4,136 $ 8,119 $ 9,620 $12,221 $15,253 $ 9,499 $16,153
Consulting, maintenance and other
services............................... 5,513 7,855 10,701 11,608 14,831 11,313 16,201
------ ------- ------- ------- ------- ------- -------
Total revenues.................... 9,649 15,974 20,321 23,829 30,084 20,812 32,354
Cost of revenues:
Software licenses........................ 0 0 305 57 159 148 266
Consulting, maintenance and other
services............................... 3,598 5,620 6,780 6,870 9,781 7,158 11,153
------ ------- ------- ------- ------- ------- -------
Total cost of revenues............ 3,598 5,620 7,085 6,927 9,940 7,306 11,419
------ ------- ------- ------- ------- ------- -------
Gross profit............................... 6,051 10,354 13,236 16,902 20,144 13,506 20,935
------ ------- ------- ------- ------- ------- -------
Operating expenses:
Product development...................... 343 953 1,345 1,923 3,512 2,384 4,593
Sales and marketing...................... 638 1,420 2,404 3,228 5,199 3,588 4,783
General and administrative............... 1,065 2,343 2,466 2,529 3,929 2,607 3,387
Tax related compensation to S Corporation
stockholders(1)........................ 1,720 6,900 7,422 0 0 0 0
------ ------- ------- ------- ------- ------- -------
Total operating expenses.......... 3,766 11,616 13,637 7,680 12,640 8,579 12,763
------ ------- ------- ------- ------- ------- -------
Income (loss) from operations.............. 2,285 (1,262) (401) 9,222 7,504 4,927 8,172
Other income (expense) -- net.............. 106 143 (172) (221) (434) (311) 277
------ ------- ------- ------- ------- ------- -------
Income (loss) before income taxes.......... 2,391 (1,119) (573) 9,001 7,070 4,616 8,449
Provision for income taxes(1).............. 226 (168) 865 500 1,497 787 3,375
------ ------- ------- ------- ------- ------- -------
Net income (loss)(1)....................... $2,165 $ (951) $(1,438) $ 8,501 $ 5,573 $ 3,829 $ 5,074
====== ======= ======= ======= ======= ======= =======
PRO FORMA STATEMENTS OF OPERATIONS DATA(2):
Pro forma net income....................... $ 4,401 $ 2,874
======= =======
Pro forma net income per share............. $ 0.42 $ 0.27 $ 0.43
======= ======= =======
Shares used in per share calculation(3).... 10,952 10,952 11,884
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
DECEMBER 31, --------------------
--------------------------------------------- AS
1991 1992 1993 1994 1995 ACTUAL ADJUSTED
------ ------ ------ ------- -------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $1,687 $1,096 $2,088 $ 7,232 $ 607 $23,128 $ 47,003
Total assets.............................. 3,636 4,853 6,854 11,557 28,095 37,047 60,922
Long-term liabilities..................... 0 75 2,513 2,607 309 224 224
Redeemable convertible preferred stock.... 0 0 0 0 15,000 0 0
Stockholders' equity (deficit)............ 2,588 2,210 864 6,228 (12,292) 28,582 52,457
</TABLE>
- ---------------
(1) Prior to March 30, 1995, certain Predecessor Companies elected S Corporation
status. The Company's historical statements of operations data, therefore,
do not include a provision for U.S. federal income taxes for periods prior
to March 30, 1995. In addition, through 1993, these same companies charged
to expense compensation paid to their founding stockholders in lieu of S
Corporation dividends, in order to reduce state income tax liability. See
"Reorganization and Prior S Corporation Status" and Note 1 of Notes to
Consolidated Financial Statements.
(2) Pro forma net income includes a pro forma provision for income taxes at
statutory rates. Pro forma net income excluding the tax related
compensation and including U.S. federal income tax provisions at statutory
rates was $2,464, $3,424, $4,313 and $5,564 for 1991 through 1994,
respectively.
(3) Pro forma net income per share includes common and equivalent shares
outstanding and the estimated number of shares that would be needed to be
issued to repay certain stockholder notes issued in the Reorganization and
to redeem the Series B Preferred Stock. Pro forma net income has been
adjusted for the interest applicable to such notes. See Notes 1 and 2 of
Notes to Consolidated Financial Statements.
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
JDA is an international provider of comprehensive enterprise-wide software
solutions that address the mission-critical business information requirements of
retailing organizations. Prior to the Company's formation in connection with the
Reorganization in March 1995, the Company's operations were conducted by the
Predecessor Companies, the first of which was formed in November 1985. Certain
of these Predecessor Companies operated as S Corporations for tax purposes prior
to the Reorganization. Thus, for periods prior to the Reorganization, the
Company's historical statements of operations do not include a provision for
U.S. federal income taxes and reflect certain tax strategies. See
"Reorganization and Prior S Corporation Status" and Note 1 of Notes to
Consolidated Financial Statements.
In 1986 the Company introduced MMS, its first enterprise retail information
solution, based on the IBM AS/400 platform. The Company's development efforts
through 1993 were focused exclusively on enhancements, revisions and upgrades to
MMS, which is currently in its fourth generation release. In 1994, the Company
acquired DSS, an in-store system, from JDA Software Services Ltd. ("JDA
Canada"), a then-unaffiliated Canadian company. Since 1994 the Company has
significantly increased its product development expenditures to develop products
for emerging, open platforms. The Company began limited beta installations of
ODBMS, an open, client/server enterprise system, and WinDSS, a Windows-based
in-store system, in 1995 and 1996, respectively. The commercial general
availability of ODBMS was announced in September 1996. On August 15, 1996 the
Company acquired JDA Canada in exchange for 143,926 shares of the Company's
newly issued Common Stock. The acquisition was accounted for as a purchase, and
the Company recorded $1.67 million in goodwill which it is amortizing over 15
years.
The Company has historically derived substantially all of its revenues from
software licenses and consulting, maintenance and other services relating to
MMS. The Company expects that revenues related to MMS, which accounted for 93%,
95%, 91% and 86% of total revenues in 1993, 1994, 1995 and the nine months ended
September 30, 1996, respectively, will represent a smaller portion of the
Company's total revenues as market acceptance of the Company's newer products,
particularly ODBMS and WinDSS, increases. Revenues from MMS have grown in recent
periods primarily as a result of the Company's increased international presence.
The Company expects that revenues attributable to the license of MMS and ODBMS
enterprise systems will continue to comprise the substantial majority of
software licenses revenues for the foreseeable future.
Consulting, maintenance and other services revenues are derived from a
range of services, including system design and implementation and, to a lesser
extent, software maintenance and support, and training. Historically, the level
of consulting, maintenance and other services revenues has approximated on an
annual basis the level of software license revenues. Consulting, maintenance and
other services revenues were 53% of total revenues in 1993, 49% of total
revenues in each of 1994 and 1995, and 50% of total revenues for the nine months
ended September 30, 1996. Gross margin on consulting, maintenance and other
services has historically been significantly lower than gross margin on software
licenses and the Company expects this relationship to continue. Consulting,
maintenance and other services in support of international licenses typically
have lower gross margins than those achieved domestically due to generally lower
prevailing billing rates in certain of the Company's international markets.
Therefore, planned growth in the Company's international operations may result
in further declines in gross margin on consulting, maintenance and other
services.
The Company is pursuing a strategy of addressing international markets by
developing localized versions of its products and establishing international
subsidiaries with direct sales and consulting capabilities. International
revenues, which include revenues from international subsidiaries and export
sales, comprised 31%, 28%, 39% and 43%, respectively, of total revenues in each
of 1993, 1994, 1995 and the nine months ended September 30, 1996. The Company
has operations in the U.K., Singapore, Canada, Chile, Mexico and Germany and
plans to continue to expand its international infrastructure. The Company
anticipates that
18
<PAGE> 21
international revenues will continue to increase as a percentage of total
revenues. However, there can be no assurance that the Company's international
expansion will be successful. In addition, the opening of new offices by the
Company typically results in initial recruiting and training expenses and
reduced labor efficiencies associated with the introduction of products to a new
customer base. Other risks inherent in the Company's international business
activities include changes in regulatory requirements, tariffs and other trade
barriers, costs and risks of localizing products, longer accounts receivable
payment cycles, potentially adverse tax consequences, currency fluctuations,
repatriation of earnings and burdens of complying with a wide variety of local
laws.
To the extent the Company's international operations expand, the Company
expects that an increasing portion of its international license and consulting,
maintenance and other services revenues will be denominated in foreign
currencies, subjecting the Company to fluctuations in foreign currency exchange
rates. Historically, the Company has conducted a substantial majority of its
business in currencies which have been relatively stable, and exposure to
fluctuations in such currencies has been considered minimal. Accordingly, the
Company does not currently engage in foreign currency hedging transactions.
However, as the Company continues to expand its international operations,
exposures to gains and losses on foreign currency transactions may increase. The
Company may choose to limit such exposure by entering into forward foreign
exchange contracts or engaging in similar hedging strategies. There can be no
assurance that any currency exchange strategy would be successful in avoiding
exchange-related losses.
The Company's revenues are derived primarily from non-refundable license
fees for its software products and from fees for services complementary to its
products, including software consulting, maintenance and training. The Company
recognizes revenues in accordance with the provisions of American Institute of
Certified Public Accountants Statement of Position No. 91-1, Software Revenue
Recognition. Accordingly, software license revenue is recognized upon the
shipment of a product to the customer if collection is probable and the
Company's remaining obligations under the license agreement are insignificant.
License revenues for licenses with remaining significant obligations are
deferred until the Company's related obligations become insignificant.
Consulting, maintenance and other services are performed and billed under
separate agreements related to the implementation of the Company's software
products, and such revenues generally are recorded when the services are
performed. Maintenance revenues from ongoing customer support and product
upgrades are billed on a monthly basis and are recorded as revenue in the
applicable month.
19
<PAGE> 22
RESULTS OF OPERATIONS
The following table sets forth certain selected financial information
expressed as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------- ---------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses........................ 47.3% 51.3% 50.7% 45.6% 49.9%
Consulting, maintenance and other
services.............................. 52.7 48.7 49.3 54.4 50.1
--- --- --- --- ---
Total revenues................... 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Software licenses........................ 1.4 0.2 0.4 0.7 0.8
Consulting, maintenance and other
services.............................. 33.5 28.9 32.6 34.4 34.5
--- --- --- --- ---
Total cost of revenues........... 34.9 29.1 33.0 35.1 35.3
--- --- --- --- ---
Gross profit............................... 65.1 70.9 67.0 64.9 64.7
Operating expenses:
Product development...................... 6.6 8.1 11.7 11.5 14.2
Sales and marketing...................... 11.8 13.4 17.3 17.2 14.8
General and administrative............... 12.1 10.7 13.1 12.5 10.4
Tax related compensation to S Corporation
stockholders.......................... 36.6 0.0 0.0 0.0 0.0
--- --- --- --- ---
Total operating expenses......... 67.1 32.2 42.1 41.2 39.4
--- --- --- --- ---
Income (loss) from operations.............. (2.0) 38.7 24.9 23.7 25.3
Other income (expense) -- net.............. (0.8) (0.9) (1.4) (1.5) 0.8
--- --- --- --- ---
Income (loss) before income taxes.......... (2.8) 37.8 23.5 22.2 26.1
Provision for income taxes................. 4.3 2.1 5.0 3.8 10.4
--- --- --- --- ---
Net income (loss).......................... (7.1)% 35.7% 18.5% 18.4% 15.7%
=== === === === ===
Pro Forma Statements of Operations Data:
Historical net income...................... 18.5% 18.4%
Pro forma adjustment to adjust income tax
provision................................ (3.9) (4.6)
--- ---
Pro forma net income....................... 14.6% 13.8%
=== ===
</TABLE>
Nine Months Ended September 30, 1995 and 1996
Revenues
Total revenues increased by 55% from $20.8 million for the first nine
months ended September 30, 1995 to $32.4 million in the comparable period of
1996. The increase is primarily due to increases in software licenses resulting
from expanded sales and marketing efforts both domestically and internationally,
combined with increases in consulting, maintenance and other services from
associated implementations. International revenues comprised 39% and 43% of
total revenues in the first nine months of 1995 and 1996, respectively.
Software Licenses. Software license revenues increased by 70% from $9.5
million for the nine months ended September 30, 1995 to $16.2 million in the
comparable period in 1996. The increase resulted from expanded sales and
marketing efforts in both domestic and international markets, and was comprised
of increases in software license revenues of 59% domestically and 81%
internationally.
Consulting, Maintenance and Other Services. Consulting, maintenance and
other services revenues increased by 43% from $11.3 million for the nine months
ended September 30, 1995 to $16.2 million in the comparable period in 1996. The
increase was primarily attributable to increased software license revenues and
associated implementations both domestically and internationally.
20
<PAGE> 23
Cost of Revenues
Cost of Software Licenses. Cost of software licenses consists primarily of
royalties payable for licensing of third-party software incorporated in the
Company's products and commissions payable to third parties on sales of the
Company's products. Cost of software licenses increased by 81% from $148,000 in
the nine months ended September 30, 1995 to $266,000 in the comparable period in
1996, representing less than 2% of software license revenues in both years. The
increase was primarily attributable to increased software license revenues.
Cost of Consulting, Maintenance and Other Services. Cost of consulting,
maintenance and other services consists primarily of consultant salaries and
other personnel related expenses incurred in system implementation projects and
software support services. These costs increased by 56% from $7.2 million in the
nine months ended September 30, 1995 to $11.2 million in the comparable period
in 1996. These costs represented 63% and 69%, respectively, of consulting,
maintenance and other services revenues, for the nine months ended September 30,
1995 and 1996. The increase in the comparable period in 1996 was primarily due
to expenditures associated with the Company's domestic and international growth
and expansion. The Company anticipates that the costs of consulting, maintenance
and other services will increase during 1997 both in absolute dollars and as a
percentage of revenues due to the substantial increase in the number of
consulting personnel the Company anticipates during that period. In their first
year of employment by the Company, new consulting personnel typically spend
between 2 and 10 weeks in training, during which period they do not generally
generate revenues.
Operating Expenses
Product Development. Product development expenses increased by 93% from
$2.4 million for the nine months ended September 30, 1995 to $4.6 million in the
comparable period in 1996, representing 11% and 14% of total revenues,
respectively. The increase in product development expenses was primarily a
result of an increase in the number of product development personnel from 40 as
of September 30, 1995 to 82 as of September 30, 1996. Significant product
development efforts in 1996 included the continued development of ODBMS and
WinDSS and expenditures of $1.5 million related to continued enhancements to
MMS. The Company believes that a continued commitment to product development
will be required for the Company to remain competitive. Accordingly, the Company
intends to continue to allocate substantial resources to product development and
product development expenses are expected to increase in absolute dollars in
future periods. However, such expenses may fluctuate as a percentage of total
revenues. Product development costs subsequent to the achievement of
technological feasibility have not been significant during the period and,
accordingly, all such costs have been expensed as incurred.
Sales and Marketing. Sales and marketing expenses increased by 33% from
$3.6 million for the nine months ended September 30, 1995 to $4.8 million for
the comparable period in 1996, representing 17% and 15% of total revenues,
respectively. The dollar increase was due to the addition of sales and marketing
personnel and related expenses to implement the Company's strategy to increase
its presence in international and domestic markets.
General and Administrative. General and administrative expenses increased
by 30% from $2.6 million for the nine months ended September 30, 1995 to $3.4
million for the comparable period in 1996, representing 13% and 10% of total
revenues, respectively. The dollar increase was primarily due to increased
staffing and associated expenses necessary to support the Company's increased
scale of operations. The Company anticipates that general and administrative
expenses may continue to increase in absolute dollars, but may fluctuate as a
percent of total revenues, as the Company expands its operations.
Provision for Income Taxes. Substantially all U.S. federal income through
March 30, 1995 was attributed to the stockholders of the Predecessor Companies,
reflecting the prior S Corporation status of certain Predecessor Companies.
Accordingly, the Company's tax provisions do not include U.S. federal income
taxes through that date. Pro forma income tax provisions have been presented for
the nine months ended September 30, 1995 in order to indicate the tax provision
that would have been recorded had all income been taxable to the Company. The
income tax provisions include tax provisions for U.S. federal income taxes and
reflect effective tax rates of 38% (pro forma) for the nine months ended
September 30, 1995 and 40% for
21
<PAGE> 24
the comparable period in 1996. Such tax rates approximate statutory federal,
state and foreign tax rates after a reduction for U.S. research and development
expense tax credits.
Years Ended December 31, 1993, 1994 and 1995
Revenues
Total revenues were $20.3 million, $23.8 million and $30.1 million in 1993,
1994 and 1995, respectively, representing increases of 17% from 1993 to 1994 and
26% from 1994 to 1995. International revenues comprised 31%, 28% and 39% of
total revenues in each of 1993, 1994 and 1995, respectively. The increase in
international revenues as a percentage of total revenues from 1994 to 1995 was
primarily attributable to increased revenues in Latin America, Southeast Asia
and the U.K. resulting from the Company's expanded sales and marketing efforts
in those markets.
Software Licenses. Software license revenues were $9.6 million, $12.2
million and $15.3 million in 1993, 1994 and 1995, respectively, representing
increases of 27% from 1993 to 1994 and 25% from 1994 to 1995. The increase in
1994 was primarily attributable to the Company's expanded sales and marketing
efforts in the U.S., Latin America and Asia, including the establishment of the
Company's Singapore subsidiary. The increase in 1995 was primarily attributable
to an increase in international revenues resulting from expanded sales and
marketing efforts by the Company during that period, partially offset by a
decline in domestic MMS license revenues due in part to competitive pricing
pressures.
Consulting, Maintenance and Other Services. Consulting, maintenance and
other services revenues were $10.7 million, $11.6 million and $14.8 million in
1993, 1994 and 1995, respectively, representing increases of 8% from 1993 to
1994 and 28% from 1994 to 1995. The increases in both 1994 and 1995 were
primarily attributable to increased international license revenues and
associated implementations.
Cost of Revenues
Cost of Software Licenses. Cost of software licenses was $305,000, $57,000
and $159,000 in 1993, 1994 and 1995, respectively, representing 3%, 1% and 1% of
software license revenues in these periods.
Cost of Consulting, Maintenance and Other Services. These costs were $6.8
million, $6.9 million and $9.8 million, representing 63%, 59% and 66%,
respectively, of consulting, maintenance and other services revenues in 1993,
1994 and 1995. The decrease in these costs as a percentage of consulting,
maintenance and other services revenues from 1993 to 1994 was primarily due to
more efficient utilization of consulting personnel and the increase from 1994 to
1995 was primarily due to expenditures associated with the Company's
international expansion.
Operating Expenses
Product Development. Product development expenses increased by 43% from
$1.3 million in 1993 to $1.9 million in 1994 and by 83% to $3.5 million in 1995,
representing 7%, 8% and 12%, respectively, of total revenues in these periods.
The increase in product development expenses in 1994 was primarily a result of
an increase in the number of product development personnel from 11 as of
December 31, 1993 to 21 at December 31, 1994. Significant product development
efforts in 1994 included enhancements to MMS for international markets,
modifications to MMS to take advantage of client/server enhancements to the IBM
AS/400 platform and initial development of ODBMS. Increased product development
expenses in 1995 were primarily a result of continued expansion in the number of
product development personnel to 48 at December 31, 1995. Significant product
development efforts in 1995 included the continued development and initial beta
release of ODBMS, continued enhancements to MMS and initial development of
WinDSS. Product development costs subsequent to the achievement of technological
feasibility have not been significant during these periods and, accordingly, all
such costs have been expensed as incurred.
Sales and Marketing. Sales and marketing expenses increased 34% from $2.4
million in 1993 to $3.2 million in 1994 and by 61% to $5.2 million in 1995,
representing 12%, 13% and 17%, respectively, of total revenues in these periods.
The increase in sales and marketing expenses in 1994 was primarily due to the
22
<PAGE> 25
addition of sales and marketing personnel to implement the Company's strategy to
increase its presence in international markets. Increased sales and marketing
expenses in 1995 were due to continued additions to sales and marketing
personnel and related expenses.
General and Administrative. General and administrative expenses were $2.5
million in each of 1993 and 1994, and increased by 55% to $3.9 million in 1995,
representing 12%, 11% and 13%, respectively, of total revenues. The increase in
1994 was primarily due to the addition of administrative personnel required to
support the Company's growth. The increase in 1995 reflects the continued
addition of personnel, increased legal and accounting expenses and increased bad
debt allowance.
Provision for Income Taxes. Substantially all U.S. federal taxable income
through March 30, 1995 was attributed to Predecessor Companies' stockholders,
reflecting the prior S Corporation status of certain Predecessor Companies.
Accordingly, the Company's tax provisions do not include U.S. federal income
taxes through that date. The pro forma income tax provisions reflected in Notes
1 and 9 of Notes to Consolidated Financial Statements include tax provisions for
U.S. federal income taxes and reflect effective tax rates of 37%, 38% and 38%
for the years 1993, 1994 and 1995, respectively. Such tax rates approximate
statutory federal, state and foreign tax rates after a reduction for U.S.
research and development expense tax credits.
Pro Forma Statements of Operations Data
Prior to the Reorganization, certain Predecessor Companies elected S
Corporation status under Subchapter S of the Internal Revenue Code through March
30, 1995. In 1993 such Predecessor Companies paid tax related compensation of
$7.4 million to their founding stockholders in lieu of S Corporation dividends
so that such amounts could be charged to expense and deducted for state income
tax purposes. Accordingly, the Company's statements of operations for 1993, 1994
and the first quarter of 1995 do not contain provisions for U.S. federal income
taxes and for 1993 contain tax related compensation expense of $7.4 million. As
a result, the historical statements of operations for 1993, 1994, 1995 and the
nine months ended September 30, 1995 are not directly comparable, and such
periods will not be comparable to future periods.
In order to facilitate an understanding and a comparison of the Company's
results of operations for the periods discussed below, pro forma statements of
operations have been included to eliminate the tax related compensation paid to
the Predecessor Companies' stockholders and include U.S. federal tax provision
for all periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
--------------------------- SEPTEMBER 30,
1993 1994 1995 1995
------- ------- ------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
PRO FORMA STATEMENTS OF OPERATIONS DATA:
Total revenues.................................... $20,321 $23,829 $30,084 $20,812
Gross profit...................................... 13,236 16,902 20,144 13,506
Operating expenses:
Product development............................. 1,345 1,923 3,512 2,384
Sales and marketing............................. 2,404 3,228 5,199 3,588
General and administrative ..................... 2,466 2,529 3,929 2,607
Income from operations............................ 7,021 9,222 7,504 4,927
Income before income taxes........................ 6,849 9,001 7,070 4,616
Provision for income taxes........................ 2,536 3,437 2,669 1,742
Pro forma net income.............................. $ 4,313 $ 5,564 $ 4,401 $ 2,874
Pro forma net income per share.................... $ 0.42 $ 0.27
Shares used in per share calculation.............. 10,952 10,952
</TABLE>
23
<PAGE> 26
SELECTED QUARTERLY OPERATING RESULTS
The following tables present unaudited quarterly financial information for
the seven quarters ended September 30, 1996 as well as the percentage of the
Company's total revenues represented by each item. Management believes this
information, including the pro forma information, is consistent with the audited
Consolidated Financial Statements appearing elsewhere in the Prospectus. In
management's opinion, the information presented below includes all necessary
adjustments (consisting only of normal recurring adjustments) to present fairly
the unaudited quarterly results when read in conjunction with the audited
Consolidated Financial Statements of the Company and the Notes thereto appearing
elsewhere in this Prospectus. These operating results are not necessarily
indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1995 1995 1995 1996 1996 1996
--------- -------- ------------- ------------ --------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses................... $ 2,714 $2,628 $ 4,156 $5,755 $ 5,013 $5,042 $ 6,098
Consulting, maintenance and other
services.......................... 3,289 3,974 4,050 3,518 4,391 5,394 6,416
------ ------ ------ ------ ------ ------ ------
Total revenues................ 6,003 6,602 8,206 9,273 9,404 10,436 12,514
Cost of revenues:
Software licenses................... 14 70 63 12 25 220 21
Consulting, maintenance and other
services.......................... 2,059 2,385 2,714 2,624 2,958 3,563 4,633
------ ------ ------ ------ ------ ------ ------
Total cost of revenues........ 2,073 2,455 2,777 2,636 2,983 3,783 4,654
------ ------ ------ ------ ------ ------ ------
Gross profit......................... 3,930 4,147 5,429 6,637 6,421 6,653 7,860
Operating expenses:
Product development................. 636 733 1,015 1,128 1,220 1,645 1,728
Sales and marketing................. 1,012 1,136 1,440 1,611 1,628 1,525 1,630
General and administrative.......... 780 756 1,071 1,322 1,140 1,055 1,191
------ ------ ------ ------ ------ ------ ------
Total operating expenses...... 2,428 2,625 3,526 4,061 3,988 4,225 4,549
------ ------ ------ ------ ------ ------ ------
Income from operations............... 1,502 1,522 1,903 2,576 2,433 2,428 3,311
Other income (expense) -- net........ (57) (135) (119) (123) (65) 169 173
------ ------ ------ ------ ------ ------ ------
Income before income taxes........... 1,445 1,387 1,784 2,453 2,368 2,597 3,484
Provision for income taxes........... 18 351 418 710 941 1,038 1,396
------ ------ ------ ------ ------ ------ ------
Net income........................... $ 1,427 $1,036 $ 1,366 $1,743 $ 1,427 $1,559 $ 2,088
====== ====== ====== ====== ====== ====== ======
Pro Forma Statements of Operations
Data:
Income before income taxes.......... 1,445 1,388 1,784 2,453
Provision for income taxes.......... 545 524 674 926
------ ------ ------ ------
Pro forma net income................ $ 900 $ 864 $ 1,110 $1,527
====== ====== ====== ======
Pro forma net income per share...... $ 0.08 $ 0.08 $ 0.11 $ 0.15 $ 0.13 $ 0.13 $ 0.17
====== ====== ====== ====== ====== ====== ======
Shares used in per share
calculation....................... 10,952 10,952 10,952 10,952 11,182 12,183 12,283
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses................... 45% 40% 51% 62% 53% 48% 49%
Consulting, maintenance and other
services.......................... 55 60 49 38 47 52 51
--- --- ----- ----- --- --- -----
Total revenues................ 100 100 100 100 100 100 100
Cost of revenues:
Software licenses................... 0 1 1 0 0 2 0
Consulting, maintenance and other
services.......................... 35 36 33 28 32 34 37
--- --- ----- ----- --- --- -----
Total cost of revenues........ 35 37 34 28 32 36 37
--- --- ----- ----- --- --- -----
Gross profit......................... 65 63 66 72 68 64 63
Operating expenses:
Product development................. 10 11 12 12 13 16 14
Sales and marketing................. 17 17 18 18 17 15 13
General and administrative.......... 13 12 13 14 12 10 9
--- --- ----- ----- --- --- -----
Total operating expenses...... 40 40 43 44 42 41 36
--- --- ----- ----- --- --- -----
Income from operations............... 25 23 23 28 26 23 27
Other income (expense) -- net........ (1) (2) (1) (1) (1) 2 1
--- --- ----- ----- --- --- -----
Income before income taxes........... 24 21 22 27 25 25 28
Provision for income taxes........... 0 5 5 8 10 10 11
--- --- ----- ----- --- --- -----
Net income........................... 24% 16% 17% 19% 15% 15% 17%
--- --- ----- ----- --- --- -----
--- --- ----- ----- --- --- -----
Pro Forma Statements of Operations
Data:
Income before income taxes.......... 24 21 22 27
Provision for income taxes.......... 9 8 8 11
--- --- ----- -----
Pro forma net income................ 15% 13% 14% 16%
--- --- ----- -----
--- --- ----- -----
</TABLE>
The Company's business has experienced and is expected to continue to
experience some degree of seasonality due in large part to its retail customers'
buying cycles. In 1994 and 1995, the Company experienced increased license
revenues in the fourth quarters, reflecting customers' budget cycles.
Consulting,
24
<PAGE> 27
maintenance and other services were lower in the fourth quarter and higher in
the succeeding first quarter, reflecting retailers' desire to minimize
disruption during the holiday season as well as increased post-holiday demand
for implementation services associated with the higher level of software
licenses in the preceding fourth quarter. In addition, sales and marketing
expenses may vary as a percentage of total revenues due to several factors,
including start-up costs associated with the establishment of international
operations and sales commission schedules associated with performance targets.
For example, sales and marketing expenses as a percentage of total revenues
increased in the quarter ended December 1994 due to start-up costs associated
with the establishment of operations in Asia and sales commission bonuses
associated with the achievement of annual performance targets.
The Company's quarterly operating results have varied and are expected to
continue to vary in the future. These fluctuations may be caused by many
factors, including, among others: the size and timing of individual orders;
competitive pricing pressures; customer order deferrals in anticipation of new
products; variation of consulting, maintenance and other services as a
percentage of total revenues; timing of introduction or enhancement of products
by the Company or its competitors; market acceptance of new products;
technological changes in platforms supporting the Company's products; changes in
networking or communication technology; changes in the Company's operating
expenses; personnel changes; currency exchange rates; fluctuations in the level
of warranty claims; and general industry and economic conditions.
A significant portion of the Company's historical revenues has been derived
from relatively large licenses to a limited number of customers, and the Company
currently anticipates that this trend will continue. Accordingly, any
significant cancellation or deferral of customer orders could have a material
adverse effect on the Company's operating results in any particular quarter.
License revenues are also difficult to forecast because the market for the
Company's next generation open systems products is uncertain and evolving. The
Company's expense levels are based, in part, on its expectations as to future
revenues and to a large extent are fixed. In particular, the Company is required
to increase consulting services capacity, including hiring additional consulting
personnel, in advance of anticipated license revenues. Therefore, the Company
may be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall and, accordingly, any significant shortfall of
demand in relation to the Company's expectations or any material delay of
customer orders would have an almost immediate adverse effect on the Company's
operating results.
The Company's ability to undertake new projects and increase license
revenues is substantially dependent on the availability of the Company's
consulting personnel to assist in the license and implementation of the
Company's solutions. Growth in the Company's international operations is
particularly dependent upon the ability of the Company to locate, hire and train
qualified foreign personnel. The Company believes that supporting
greater-than-anticipated growth in product licensing would require the Company
to rapidly hire skilled additional personnel for the Company's consulting
services group, and there can be no assurance that qualified personnel could be
located or retained in a timely manner.
As a result of the foregoing and other factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Fluctuations in operating results may also result in volatility in the price of
the shares of the Company's Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through cash generated from operations and, to a lesser extent, borrowings under
its bank lines of credit. As of September 30, 1996, the Company had $14.4
million in cash and cash equivalents and $5.2 million available under its bank
lines of credit.
The Company's operating activities provided cash in 1993 of $1.2 million
after the payment of $5.0 million of tax related compensation to the Predecessor
Companies' stockholders. The Company's operating activities provided cash of
$7.4 million, $5.5 million and $2.9 million in 1994, 1995 and the nine months
ended
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<PAGE> 28
September 30, 1996, respectively. Cash from operating activities arose
principally from the Company's profitable operations and was utilized for
working capital purposes, principally increases in accounts receivable.
Cash used in investing activities in 1993, 1994 and 1995 was $405,000,
$705,000 and $16.1 million, respectively, and cash of $12.7 million was provided
by investing activities in the nine months ended September 30, 1996. Such
investing activities principally consisted of purchases of property and
equipment and, in 1995, the acquisition of $14.6 million of restricted
short-term investments used for the repayment of stockholder notes and the
redemption of such investments in 1996. See Note 1 of Notes to Consolidated
Financial Statements.
Cash used in financing activities was $722,000 and $4.0 million in 1993 and
1994, respectively, cash of $8.2 million was provided by financing activities in
1995, and cash of $1.7 million was used in financing activities in the nine
months ended September 30, 1996. Such financing activities in 1993 and 1994
consisted of repayment of borrowings under the bank line of credit and dividends
to and capital contributions by the stockholders. Financing activities in 1995
consisted of borrowings under the bank line of credit, dividends and other
distributions made to the Predecessor Companies' stockholders and the sale of
Series A Preferred Stock to the Company's stockholders as described in Note 1 of
Notes to Consolidated Financial Statements. Financing activities in the nine
months ended September 30, 1996 consisted of the issuance of 2,182,866 shares
for the account of the Company in its initial public offering on March 15, 1996
and the repayment of shareholder notes therefrom.
Borrowings under the Company's secured line of credit with Bank of America
Arizona bear interest based upon the bank's publicly announced reference rate.
At September 30, 1996 the Bank of America credit line bore interest at 8.25% and
no borrowings were outstanding under the line of credit. This line of credit
expires July 1, 1998 and the Company intends to seek renewal at that time. See
Note 3 of Notes to Consolidated Financial Statements. JDA Canada has a
cdn$200,000 secured line of credit with the Hongkong Bank of Canada. This line
of credit bears interest at the bank's prime rate plus 1%, and expires on
February 28, 1997. At September 30, 1996, no borrowings were outstanding under
this line of credit.
Capital expenditures were approximately $405,000, $705,000, $1.4 million
and $2.1 million in fiscal years 1993, 1994, 1995 and the nine months ended
September 30, 1996, respectively. These expenditures were for property and
equipment, primarily computer hardware and furniture and fixtures. Within the
next nine to twelve months, the Company anticipates acquiring the building
currently utilized in the U.K. and making necessary capital expenditures to
support growth.
The Company believes that the net proceeds from this offering, its bank
lines of credit and funds generated from operations will provide adequate
liquidity to meet the Company's planned capital and operating requirements for
at least the twelve month period following this offering. Thereafter, if the
Company's spending plans change, the Company may find it necessary to seek to
obtain additional sources of financing to support its capital needs, but there
can be no assurance that such financing will be available on commercially
reasonable terms, if at all.
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<PAGE> 29
BUSINESS
JDA is a leading international provider of comprehensive enterprise-wide
software solutions that address the mission-critical business information
requirements of retailing organizations. The Company offers two enterprise
product lines: MMS for the IBM AS/400 platform and ODBMS for open, client/server
environments. MMS is a feature-rich solution that integrates and distributes
data throughout the retailing enterprise and enables management to make more
informed and timely decisions, respond rapidly to changes in the competitive
environment, monitor store-level activity and achieve operational efficiencies.
ODBMS, currently in limited beta installations and recently released for general
commercial availability, is designed as an open (multi-platform), client/server
solution that incorporates the basic functionality of MMS with enhanced
adaptability and scalability. The Company's in-store products, DSS and
Windows-based WinDSS, currently in limited beta installations, can be licensed
independently or as part of an integrated enterprise-wide system. These in-store
systems capture data at the point of sale and leverage valuable enterprise-wide
information by bringing it to the store level, the primary point of consumer
contact. The Company's consulting services group provides system planning,
design and implementation services to tailor the Company's solutions to each
retailer's unique specifications and to ensure timely and successful
implementation.
The Company's products and services are marketed and sold in the United
States through the Company's direct sales force and a network of value-added
implementors, systems integrators and consultants. International revenues, which
comprised 39% of Company revenues in 1995 and 43% in the first nine months of
1996, are facilitated by an international direct sales force employed by the
Company's subsidiaries and through a network of sales agents and distributors,
including IBM. The Company's solutions have been deployed by a broad range of
retail enterprises worldwide, including hard and soft lines retailers, warehouse
stores, superstores and grocery stores. The Company's customers include many of
the world's leading specialty retailers such as Bed, Bath and Beyond, CompUSA,
Incredible Universe, Kingfisher Group, Lenscrafters, Melville Corporation,
Natural Wonders, Office Depot, Staples, Starbucks, Sunglass Hut, West Marine
Products and Williams-Sonoma.
INDUSTRY BACKGROUND
The retailing industry has experienced rapid change during the 1990s,
driven primarily by changing consumer preferences, intensifying competition and
increased globalization. Economic uncertainty has caused a shift in consumer
purchase patterns, with today's consumer choosing value -- in the form of lower
prices, convenience and personalized service -- over brand and retailer loyalty.
The result for many retailers has been less traffic in their stores, more
markdowns and slimmer profits. Within this new competitive environment, a number
of successful retail formats and concepts have emerged that are more reactive,
cost-driven and responsive to consumers' demand for increased value. The "big
box" or "category killer" format employed by, for example, Staples and Sunglass
Hut, focus on offering a wide assortment of competitively priced products within
a single product category. These new retail formats are setting the standard for
lower prices and improved customer service and have enjoyed broad market
acceptance. As a result, these formats have expanded to many categories formerly
dominated by traditional department stores, such as home furnishings, apparel,
toys and sporting goods, while traditional retailing formats are experiencing
consolidation and shakeout. Many successful retailers are producing efficiencies
and reducing operating costs by managing inventories precisely, decentralizing
the decision making process while centralizing purchasing and other
administrative functions, deploying state of the art information technology and
pursuing aggressive roll-out strategies to achieve economies of scale. In
addition, a number of these retailers are seeking to apply their concepts
outside their domestic markets, certain of which markets are enjoying consumer
expenditure growth rates significantly exceeding those of the U.S.
To respond to today's competitive challenges, retailers must accelerate the
rate at which they identify and respond to changing business conditions and
consumer requirements. An organization's agility and ultimate success are
dependent upon its ability to rapidly and cost-effectively collect, organize,
analyze and disseminate data throughout the enterprise to make effective
business decisions. Such analyses provide a basis for critical product,
marketing, inventory, pricing and human resource decisions. In addition,
inventory management has become more complicated as retailers seek to reduce
costs and improve margins while replenishing inventory on a just-in-time basis.
Accordingly, retailers are demanding more sophisticated purchasing, inventory
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<PAGE> 30
management and merchandising tools that enable them to distribute goods
efficiently. Retailers also are increasingly restructuring existing operations
so that consumers effectively interact with the entire enterprise whenever they
are in contact with any single store within the enterprise. This requires that
store level personnel and corporate decision makers within an enterprise be
empowered with a common base of readily available sales and inventory
information and that in-store personnel have the ability to respond to
consumers' immediate needs. To meet their increasing requirements for
information, retailers seek information systems that are adept at handling large
volumes of transactions, possess a high degree of reliability, accommodate peak
load and seasonal requirements and are able to rapidly capture, analyze and
distribute data throughout geographically dispersed parts of the enterprise.
Moreover, global retailers require applications that support the specialized
requirements of international business, including local language support,
multiple currencies, import/export costing and foreign tax and regulatory
requirements.
At the headquarters, or enterprise, level retailers typically have utilized
expensive mainframes and mid-range computers in highly centralized environments
running customized, platform-specific legacy software developed internally or
licensed from third-party suppliers. At the store level, retailers have utilized
proprietary point-of-sale systems offered by large hardware manufacturers such
as AT&T/NCR, IBM and ICL or one of many commercially available DOS-based
systems. Enterprise legacy applications typically require large MIS departments
to implement and support, generally are difficult and expensive to scale with
growth and have limited interoperability with a variety of information resources
and systems available in the market today. As a result, many retailers have not
been able to effectively distribute information throughout the retail
enterprise. Furthermore, retailers have historically been cautious in adopting
new technologies due to the real-time, transaction-intensive nature of retailing
and the economic consequences of disruptions to their point of sale operations.
Despite their reservations, today's retailers are recognizing the strategic
imperative of employing technology to cut costs, reduce inefficiencies and
enhance sales in an environment dominated by intensifying competition and value
conscious consumers. As a result, they are increasingly demanding highly
functional, easy to use and scalable software applications that can be
economically and rapidly adapted for changes in their mission-critical business
functions. Recent advances in technology, including the improved hardware
price/performance available on platforms such as the IBM AS/400 and the
introduction of sophisticated relational databases such as DB/400, have improved
the capabilities of the information systems available to retailers. In addition,
a number of retailers are increasingly considering new platforms that
incorporate open, client/server technology and adaptable, business process
driven applications. The Company believes that the adoption of new information
technologies by retailers will accelerate as competitive pressures increasingly
necessitate the ability to change business practices quickly and to empower
employees with the information and tools to respond to consumer requirements.
JDA SOLUTION
JDA provides a suite of comprehensive enterprise-wide software solutions
that address the mission-critical business information requirements of retailing
organizations. Each of the Company's enterprise systems, MMS and ODBMS, is
designed to serve as the primary merchandise information system for domestic and
international retailers and to address their specific information management
needs and operational considerations. The Company's in-store systems, DSS and
WinDSS, are designed to capture data at the point of sale and leverage valuable
enterprise-wide information by bringing it to the store level, the primary point
of consumer contact. These products can be licensed independently or as part of
an integrated enterprise-wide solution.
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<PAGE> 31
The following chart depicts the typical information flow in retail
enterprises supported by the Company's products:
see pn 500 for description
The Company's solutions provide the following benefits to retailers:
- Enhance decision making capabilities. By leveraging valuable
enterprise-wide information throughout the retailing organization, the
Company's solutions enable personnel to make more informed and timely
decisions, to quickly adapt their products and operations to changes in
competition and consumer preferences, and to maximize operational
efficiencies. The Company's products are designed to filter and distill
the information that is most meaningful and relevant to the retailer from
large volumes of transaction and work flow data.
- Provide fully integrated adaptable solutions. JDA offers fully
integrated adaptable solutions that enable retailers to respond to
consumer demand at the point of sale and channel that crucial information
back throughout their organizations and supply chains. These solutions
link store level point-of-sale information with the centralized
merchandising and financial functions that ultimately drive replenishment
communications with suppliers and vendors. JDA's integrated enterprise and
in-store systems operate a range of applications and function seamlessly
within their respective databases, promoting speed, data integrity and
ease of modifications. The Company's new products, ODBMS and WinDSS, are
designed to be tailored by customers to meet their specialized and
evolving business requirements with minimal or no re-programming.
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<PAGE> 32
- Streamline inventory planning and distribution logistics. The Company's
enterprise-wide solutions are designed to help retailers achieve operating
efficiencies by automating key functions such as the management of
inventory, distribution and merchandising by providing decision makers
with access to critical supply chain data. JDA provides retailers with
tools for vendor analysis, monitoring stock status, sales capture and
analysis, merchandise allocation and replenishment, purchase order
management, distribution center management and other important activities
that enable retailers to improve inventory gross margin return on
investment through increased inventory turnover, reduced inventory
investment, and more efficient management of ordering and distribution.
- Promote responsiveness to consumer needs. The Company's solutions help
retailers better understand and fulfill consumer needs. With the Company's
enterprise systems, retailers can explore "what if" merchandising plans,
track and analyze performance, and adjust quickly to market changes and
consumer purchase patterns, all to ensure that the appropriate pricing and
merchandise mix is available to the consumer at the store. The Company's
in-store products automate store operations and gather, analyze and
provide information at the level closest to the consumer. These products
enable store level personnel to track the preferences of consumers and
provide a higher level of personalized service.
The Company believes its focus on retail industry requirements and trends
has yielded significant applications depth and breadth relative to less
established and non-retail focused competitors. Further, this history of
responsiveness to industry requirements and trends has led to the development of
software solutions that are interoperable with a wide variety of in-store
systems and has also prompted development of open, client/server solutions for
retailers. JDA's products have been licensed by over 215 customers, with the
Company's consulting services group performing the substantial majority of the
implementations. This experience has created a significant industry-specific
knowledge base that the Company leverages in its product development and
implementation efforts to facilitate product reliability and rapid deployment,
generate customer satisfaction and create opportunities for future reputational
sales.
COMPANY STRATEGY
The Company's objective is to strengthen its position as a leading supplier
of comprehensive software solutions for the retailing marketplace worldwide. To
achieve this objective, the Company is pursuing the following strategies:
Leverage Retail Application Knowledge Base. The Company intends to
continue to leverage its retail industry knowledge base to provide
comprehensive integrated solutions to retailers. The Company believes its
in-depth understanding of retailers' requirements accumulated from its
ten-year history, four generations of its MMS product line and over 200
implementations differentiates it from competitors and provides a
significant advantage in securing new customers. The Company further
augments its knowledge through on-going customer consulting engagements and
interaction with its user group.
Offer a Broad Line of Modular, Enterprise-Wide Solutions. The
Company's strategy is to offer enterprise-wide solutions addressing a broad
scope of operations within the retail enterprise. The Company sells its
products as modules, enabling customers to select and incrementally
implement the specific functionality that they require. The modularity of
the Company's solutions offers enhanced reliability and protects the
customers' investment because of the ease of integrating individual modules
with all other modules, including previous releases, minimizing disruption
to a customer's operations.
Extend Solutions to Emerging Technology Platforms. The Company's
early recognition of the benefits of client/server solutions in other
industries, together with its understanding of the potential benefits of
those solutions in the retail industry, led the Company in 1994 to begin
extending its set of solutions to open, client/server platforms. The
Company's design strategy is to create adaptable products that can be
tailored by its customers to meet their specialized and evolving business
requirements, with minimal or no re-programming. The Company believes its
ODBMS product line will enable the Company to address an emerging market of
retail enterprises seeking the scalability and adaptability of open,
client/server solutions, particularly those larger, transaction intensive
retailers such as grocery and convenience stores. Additionally, the Company
believes that the enhanced functionality of its WinDSS
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<PAGE> 33
product currently in limited beta release and the broad appeal of Windows
platforms will position the Company to successfully market next generation
in-store systems to customers who seek an industry standard operating
system.
Grow Industry-Specific Consulting Services. The Company plans to
substantially increase its consulting services personnel to support its
anticipated growth. The Company's strategy is to attract and retain
experienced consulting personnel who use their retail industry knowledge
and the modular architecture of the Company's products to provide customers
with solutions tailored to their specific enterprise and in-store
requirements. The Company believes that its consulting, implementation and
support services distinguish it from its competitors and facilitate its
customers' early success with its products, strengthen the relationship
with the customer and generate valuable feedback for the Company. In
addition, interaction between the Company's consulting and product
development groups provides a high level of information exchange, thus
facilitating efficiencies in implementation and product development.
Leverage Presence in International Markets. The Company's
international revenues were 28%, 39% and 43% of total revenues in 1994 and
1995 and the nine months ended September 30, 1996 respectively. The
Company's strategy is to expand its international presence by developing
localized versions of its products and investing directly in strategic
markets through establishment of international subsidiaries with local
direct sales and consulting personnel. The Company has established
operations in the U.K., Singapore, Canada, Chile, Mexico and Germany and
plans to continue to expand its worldwide infrastructure in order to
provide localized products and implementation services. The Company
believes its established international presence and localized product
offerings position the Company to benefit from the globalization of
successful retail concepts and favorable international industry dynamics,
including, in certain markets, growth rates exceeding U.S. growth rates.
Expand Sales and Distribution through Strategic Relationships. JDA
has established relationships with leading systems integrators to provide
implementation services for its products and intends to expand the number
of such relationships. In pursuit of its strategy to strengthen its
presence in Europe, the Company recently established a joint marketing
relationship with Siemens Nixdorf. In addition, the Company has established
informal working relationships with leading retail systems consulting
groups of Andersen Consulting, Ernst & Young LLP, Price Waterhouse's
Management Horizons Division and similar major systems integrators. In
addition, in selected international markets the Company relies upon a
network of sales agents and distributors, including IBM, to license, and in
some cases implement, its software solutions. These relationships provide
important product endorsements and valuable feedback as well as sales
referrals.
PRODUCTS
The Company offers enterprise and in-store software products designed to
automate and integrate the flow of information throughout the retail
organization. The Company's products are intended to improve retailers'
financial performance, enhance consumer service and free management from
operational details to enable increased focus on strategic issues and enhancing
consumer satisfaction. JDA's product lines offer solutions for a wide range of
multi-store retail enterprises, including hard and soft lines retailers, food
and drug, convenience and grocery stores. Certain of the Company's product
modules have been translated into Spanish, German and French.
Enterprise Products
The Company's enterprise products automate the full scope of retail
operations from the planning and purchasing functions through the distribution
and final sale of goods, and provide management with sophisticated tools for
enhanced business planning and analysis. The Company's enterprise products can
be integrated with in-store products designed by the Company or by third
parties. The Company offers two enterprise product lines: MMS for the IBM AS/400
platform and ODBMS for open, client/server environments. These products are
comprised of modules that are selected by the customer and can be
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<PAGE> 34
configured to fit the customer's unique requirements. A typical installation of
the Company's enterprise products would include the following seven core
modules: Enterprise Database/Master Files, Merchandise Performance Analysis,
Inventory Control and Reporting, Price and Cost Management, Store Data
Interchange, Purchase Order Management and Merchandise Receiving, and Automated
Replenishment. Customers may add supplementary modules such as Distribution
Center Management and major accounting modules. The Company believes these
modules embody functionality critically important to retailers, and enable the
Company to provide the most advanced and comprehensive solutions available in
its market.
The following table describes the primary features and development status
of the Company's enterprise systems:
<TABLE>
<CAPTION>
MODULE DESCRIPTION MMS ODBMS
<S> <C> <C> <C>
Enterprise Defines the underlying Commercially Commercially
Database/Master Files organization, products and released available
business relationships
Merchandise Performance Executive-level analysis and Commercially Commercially
Analysis decision support tools released available
Inventory Control and Perpetual inventory tracking Commercially Commercially
Reporting and analytical reporting released available
Price and Cost Central management of Commercially Commercially
Management permanent and promotional released available
pricing strategies
Store Data Interchange Common interface structure to Commercially Commercially
communicate data to and from released available
in-store systems
Purchase Order Creation, tracking and Commercially Commercially
Management and analysis of product purchase released available
Merchandise Receiving orders and online entry of
receipts at stores or
warehouses
Automated Replenishment Algorithms to automatically Commercially Commercially
calculate suggested order released available
quantities
Retail Stock Ledger Analysis and calculation of Commercially In beta release
gross margin and inventory released
using the retail method of
accounting
Warehouse/Distribution Operational data and inventory Commercially Under development
Center Management management of a warehouse released
distribution center including
resource scheduling, slot
location definition,
receiving, putaway, picking
and shipping
Accounts Payable Invoice capture, management Commercially Not planned
and analysis and automatic released
interface to General Ledger
General Ledger Retail specific capture, audit Commercially Not planned
and reporting released
</TABLE>
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In addition to the above modules, the Company recently announced the
commercial availability of its Retail IDEAS data warehousing application, which
was jointly developed by the Company and Silvon Software, Inc. Retail IDEAS
incorporates a number of components of data warehousing into a packaged offering
to provide retailers with enhanced ability to capture, store, manage and view
business information on a timely basis. Retail IDEAS provides retailers with
increased access to more current enterprise information to assist them in
analyzing important areas such as sales and inventory, merchandise categories
and items, open and suggested orders, and promotional and pricing events.
Currently, Retail IDEAS is commercially available for use with the Company's MMS
product.
ODBMS is designed to offer an enterprise solution capable of supporting the
information requirements of international, multi-format retail organizations.
ODBMS offers the core functionality of MMS with enhanced adaptability and
scalability enabled by its open, client/server architecture. ODBMS also offers
certain additional functions relative to MMS, including embedded support for
multiple languages and currencies, user-specific nomenclature, and user-defined
data structures and hierarchies. Retailers seeking to move to ODBMS are able to
ease their organizational transition by incrementally implementing selected
ODBMS modules at their own pace. ODBMS is designed to be interoperable with MMS
and other enterprise systems.
The Company's strategy in designing ODBMS is to incorporate industry
knowledge gained from over 200 MMS implementations with current generation tool
sets and object oriented software design methodologies. ODBMS offers a broad
inventory of common business objects that encapsulate rules, data structures and
processes of mission-critical retailing functions. ODBMS can be configured by
the retailer to adapt to changing strategies and prevailing competitive
conditions. For example, the ODBMS Price and Cost Management module performs
product price analysis based upon key data such as gross margin, sales velocity
and competitive prices, and recommends and automates price changes based on the
retailer's specifically defined pricing strategies. Thus, an international
retailer can centrally establish a product margin objective and apply it to
local market rules, including currency conversions, applicable taxation and
rounding algorithms, to determine final pricing at each location. A change in
pricing strategy based, for example, on intensified competition or promotional
events can be implemented by the retailer with minimal or no re-programming.
ODBMS is currently installed in Petro-Canada convenience stores and is
scheduled to be fully operational at Wilsons' specialty clothing stores in the
first quarter of 1997.
In addition to MMS and ODBMS, the Company currently offers Sirus, a version
of the Company's enterprise product with modules specifically modified for use
by soft lines retailers. Sirus is currently available for use on the IBM AS/400
platform.
License fees for the Company's enterprise systems vary depending upon the
modules selected and the size and complexity of the retail operation, and
generally range from $200,000 for smaller customers to in excess of $1.0 million
for large, multi-site or multi-country licenses.
In-Store Products
The Company offers two in-store product lines: DSS for traditional in-store
platforms and WinDSS, which is in limited beta release, for the Windows
environment. The Company's in-store products are designed to enable a retailer
to capture and analyze in-store operations information and transmit such
information to enterprise-level systems for corporate analysis. These products
also allow store level personnel to access valuable enterprise-wide information
to enable more informed decisions at the closest point of consumer contact.
WinDSS provides the functionality of DSS with the flexibility and ease of use of
Windows platforms. As with the Company's enterprise products, DSS and WinDSS are
comprised of modules that are selected by the customer and can be configured to
fit the customer's unique requirements.
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The following table describes the primary features and development status
of the Company's in-store products:
<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
MODULES DESCRIPTION DSS WINDSS
- ------------------------------------------------------------------------------------------------
Back Office Cash balancing, perpetual inventory Commercially In beta release
management, purchasing, released
receiving, reporting, time and
attendance, and product transfers
- ------------------------------------------------------------------------------------------------
Transaction Store schedule, query by example, Not planned In beta release
Processor daily/hourly sales graphs and
transaction logging
- ------------------------------------------------------------------------------------------------
Customer Analyzer Customer purchase history, Commercially In beta release
extensive customer information, released
extensive reporting and multiple
profile information
- ------------------------------------------------------------------------------------------------
Point of Sale Credit authorization, foreign Commercially In beta release
tenders, layaway, multiple released
discounting, multiple tenders,
payment processing, promotional
events and UPC scanning
- ------------------------------------------------------------------------------------------------
</TABLE>
DSS can be licensed independently and utilized with a customer's existing
enterprise system, or it can work in concert with the Company's MMS enterprise
system, to provide the retailer the ability to manage information through the
full range of retail operations. A typical installation of DSS enables the
retailer to perform a number of individual store level functions and support
back office, store inventory and point-of-sale operations. For example, store
managers can use DSS to measure the results of a store promotional event. In
addition, DSS enables retailers to track the preferences of consumers and
provide a higher level of personalized service.
WinDSS is designed to incorporate the core store level functionality of DSS
with the graphical user interface and multi-tasking and other enhanced
capabilities of the Windows NT, Windows 95 and Windows 3.1 platforms. WinDSS
incorporates an object-oriented software design that is capable of dynamically
linking and arranging retail business processes to adapt to a retailer's
specialized and evolving requirements.
For example, a retailer can exploit WinDSS's multi-tasking capabilities by
configuring its point-of-sale systems to simultaneously run credit
authorizations, process transactions and update store inventory records. In
contrast, to reflect a more service-oriented work flow, the customer service
desk in the same store can be configured to provide ready access to consumer
personal information and purchase histories. Business information process flows
can be adapted to reflect changing store strategies during special promotions or
periods of peak consumer traffic.
WinDSS is currently in limited beta release. The Company licensed and
installed the WinDSS product with SunTV, an electronics specialty retailer, in
the first quarter of 1996. The Company recently completed initial beta
installations of the WinDSS product with West Marine Products, a retailer and
wholesaler of boating equipment and apparel, and Auto Palace, an auto parts
specialty retailer.
License fees for the Company's in-store products vary depending upon a
variety of factors, including the modules selected and size and complexity of
the retail operation, and generally range from $75,000 to $500,000.
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PROFESSIONAL SERVICES
Consulting
The Company's consulting services provide retailers with expertise and
assistance in planning, design and implementation of the Company's retail
information solutions. To ensure a successful product implementation,
consultants assist customers with the initial installation of a system, the
conversion of the customer's historical data and ongoing training and education.
With the help of the Company's consultants, the retailer can more easily enhance
its existing systems and manage upgrades and conversions. The Company believes
that its consulting services facilitate a customer's early success with its
products, strengthen the relationship with the customer, and add to the
Company's industry-specific knowledge base for use in future implementation and
product development efforts.
Although the Company's consulting services are optional, the Company has
found that substantially all of its customers utilize its consulting services to
some degree in connection with the implementation and on-going support of the
Company's software products. The duration of consulting engagements has
typically been between six months and one year for enterprise systems and
between three and six months for in-store systems. The Company does not yet have
sufficient experience implementing its ODBMS and WinDSS products to determine
the degree of consulting services generally required in connection with these
products. However, given the complexity of platforms on which these products
operate and the increased ability of the customer to configure these new
products to its work flows and processes, the Company believes their
implementation will require increased levels of consulting services.
Accordingly, the Company plans to substantially increase its consulting services
personnel to support anticipated growth in product implementations. To the
extent anticipated revenues fail to materialize following the hiring and
training of such personnel, the Company's operating results would be adversely
affected. In August 1996, the Company acquired JDA Canada which resulted in the
addition of over 30 consultants trained in the implementation of the Company's
products.
The Company's consulting services group consists of business consultants,
systems analysts and technical personnel devoted to assisting retailers in all
phases of systems development, including systems planning and design,
customer-specific configuring of application modules, and on-site implementation
or conversion from existing systems. Managers in the Company's consulting
organization typically have extensive retail industry experience, and consulting
personnel undergo extensive training in both retail operations and the Company's
products. In order to enhance and improve this training process, the Company
plans to establish JDA University, an in-house training program designed to
offer standardized instruction for its consultants, customers and certain
third-party integrators. The Company may increasingly utilize third-party
consultants, such as those from major systems integrators, to assist in certain
large scale implementations and for extensive business process re-engineering
projects. As of September 30, 1996, the Company had 182 employees providing
consulting services. Consulting services are billed on a time and materials
basis.
Maintenance
The Company also offers comprehensive maintenance support, which has
historically been purchased by the majority of its customers. The Company offers
remote accessibility to the customer's system in order to perform quick
diagnostics and provide on-line assistance. In addition, the Company provides
assistance through its telephone help line. The annual maintenance option is
typically priced at 12% of the software license fee and entitles the customer to
product upgrades and telephone support. As of September 30, 1996 the Company had
11 employees providing maintenance services. Of the 41 new customers who first
licensed the Company's systems in 1995, over 70% purchased the maintenance
option. Of those customers who licensed the Company's systems and purchased the
maintenance option in 1994, over 90% renewed the maintenance option in 1995.
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CUSTOMERS
As of September 30, 1996, the Company's products had been licensed to more
than 215 retail enterprises addressing a wide variety of retail markets. No
customer accounted for 10% or more of total revenues in 1993, 1994, 1995 or the
first nine months of 1996. The following is a partial list of the Company's
customers that have purchased at least $100,000 of the Company's products and
services as of September 30, 1996. The number of stores operated by the
Company's targeted customers generally ranges from 50 to over 500, with annual
sales generally ranging from $100 million to, in certain cases, over $1 billion.
The Company believes that its recently released products, including ODBMS and
WinDSS, will enable the Company to market to retailers outside of its historical
customer base.
APPAREL & DEPARTMENT STORES
American Retail Group
Bradley Specialty Retailing
Calvin Klein Jeanswear Co.
CHANEL, Inc.
Designs, Inc.
Mohamed Mahmoud (Egypt)
Mothercare (UK)
Seiyu (Singapore)
Stride Rite
The Limited
CATALOG SHOWROOM
Argos (UK)
Brand Names Sales
L. Luria & Son
CRAFTS & TOYS
Early Learning Centres (UK)
Old America Stores
Rag Shop
FOOD, DRUG & COSMETICS
Cosmetic Centers
Cosmetics Plus
Delray Farms, Inc.
Duane Reade
Food Pantry
Fred W. Albrecht Grocery Co.
Genuardi Super Markets
Hickory Farms
Perfumania
Petro-Canada (Canada)
Starbucks
Superdrug (Kingfisher) (UK)
FURNITURE, APPLIANCES &
COMPUTERS
ABC Carpet & Home
The Bombay Company
Comet (Kingfisher) (UK)
CompUSA
Grupo Elektra (Mexico)
Grupo K-2 (Mexico)
Heilig-Meyers
Incredible Universe
Inter'Tan (Tandy) (UK)
Sun TV
GENERAL MERCHANDISE
Globus Office World (UK)
Gramex
Office Depot
Penn-Daniels
Pet Food Warehouse
Pic 'N Save
Staples
Woolworth (Kingfisher) (UK)
HOME IMPROVEMENT
B&Q (Kingfisher) (UK)
Color Tile
Eagle Hardware & Garden
Handy Andy
Quality Stores
TSC Stores
HOUSEWARES
Bed, Bath & Beyond
Kitchens, Etc.
Lenox, Inc.
Linens 'n Things (Melville)
Royal Doulton
Strouds
Westpoint Stevens
Williams-Sonoma
JEWELRY
Helzberg Diamonds
Henry Silverman's Factory Jewelers
Jan Bell
Little Switzerland
Rogers, Ltd.
MUSIC, BOOKS & SOFTWARE
Books-A-Million
Eason (Ireland)
Electronics Boutique
Family Bookstores
HMV LTD (UK)
Virgin Retail
Yamaha Music (Singapore)
OPTICAL AND CAMERA
Cole Vision
Lenscrafters
National Vision Associates
New West Eyeworks
Sunglass Hut
Wolf Camera
OTHER
American Greetings
Bentley's Luggage
Factory Card Outlet
Franklin Mint Gallery
Home Shopping Club
MGM Grand Hotel, Inc.
Monte Carlo Resort
Natural Wonders
Planet Hollywood
Universal Studios
Western Auto (Sears Roebuck)
SPORTING GOODS
Bass Pro Shops
Bicycle Exchange
Gander Mountain
Recreational Equipment, Inc.
SportMart
West Marine Products
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SALES AND MARKETING
The Company's worldwide sales effort is conducted primarily through a
direct sales force located in Phoenix, Arizona and through operations in the
U.K., Singapore, Canada, Chile, Mexico and Germany. The Company also maintains a
network of value-added implementors, third-party systems integrators and
consultants who incorporate the Company's products as part of overall systems
solutions. Internationally, in addition to its direct sales force, the Company
relies upon a network of sales agents and distributors, including IBM in
Venezuela, Mexico, Scandinavia and the Middle East. The Company has recently
established a joint marketing relationship with Siemens Nixdorf. Less formal
working relationships with system integrators, other major hardware vendors and
the retail systems consulting groups of major accounting firms are also key
components of the Company's sales and marketing strategy. The Company believes
these relationships provide important product endorsements and valuable feedback
as well as sales referrals.
While the sales cycle varies substantially from customer to customer, it
typically requires six to nine months from generation of the sales lead to
execution of a license agreement. Because of the complexity and technical nature
of the Company's systems, consulting and product development employees
participate directly in the sales cycle and educate prospective customers on the
advantages of using the Company's solutions.
The Company's marketing activities are directed at increasing market
awareness of the Company's products and services and identifying prospective
customers. The execution of major agreements with customers are accompanied by
press announcements and public relations activities. The Company combines
attendance at key trade shows with a limited amount of focused advertising and
direct mail campaigns to generate prospects. In addition to these activities,
the Company's marketing personnel provide extensive support to the sales
organization, including responding to requests for proposals, conducting product
demonstrations and determining hardware specifications. The marketing
organization is also responsible for internal product training, corporate
communications, and development of sales tools and marketing materials. As of
September 30, 1996, the Company's sales and marketing organization consisted of
7 sales and 12 marketing personnel in the United States and 9 sales and 7
marketing personnel in the rest of the world.
PRODUCT DEVELOPMENT AND JDA TECHNOLOGY
The Company's current product development efforts are directed towards new
products addressing emerging requirements for highly adaptable applications
utilizing the advantages of client/server technologies across multiple
platforms. A key element of the Company's product development strategy is to
design into its products broad, enterprise-wide retailing functionality that is
applicable to the majority of retailers' needs. At the same time, the Company's
objective is to design products that are easily tailored to the specific work
flows and business processes of the individual retailer and are readily adapted
to changing conditions, reducing the amount of software modification required.
In pursuit of its strategy, the Company continues to develop ODBMS, an
enterprise system designed to operate in an open, client/server environment, and
WinDSS, a next generation Windows-based system for in-store and point-of-sale
applications. ODBMS is currently being implemented at two beta sites and
recently was released for general commercial availability, and WinDSS is
currently being implemented at three beta sites and is scheduled to be released
for general commercial availability in the first quarter of 1997. In addition,
the Company continues to devote substantial development resources to modify its
MMS product line to take advantage of recent client/server enhancements to the
IBM AS/400 platform.
Advanced Retail Architecture. The Company has established its Advanced
Retail Architecture ("ARA"), based on the principles of open systems and
client/server technologies, for developing new products and modules. This
architecture was adopted to protect the Company's investment in product
development, as well as its customers' software investment, from changes in
underlying technology and front-end interfaces. Products designed to ARA
specifications can support multiple platforms and accommodate platform changes
or new platforms generally without modification to the JDA application.
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The following schematic illustrates the platform-independent nature of the
ARA framework across major systems levels:
LOGO
Although the Company's initial products were developed prior to the
establishment of ARA, the Company's ODBMS and WinDSS products were designed from
inception within the ARA framework. The Company intends to apply ARA to the
development of new products and enhancement of existing products to the extent
feasible. However, the Company's ability to take advantage of the full scope of
ARA design objectives is limited by the proprietary nature of the IBM AS/400 and
DOS-based platforms upon which MMS and DSS operate. In addition, WinDSS is
designed to operate only with Windows presentation level platforms.
The Company's software design philosophy is to design software with a work
flow orientation, incorporating user-defined environments that can be easily
adapted by the retailer to address its specialized and evolving business
requirements.
Work Flow Orientation. Retailers are increasingly reorganizing their
operations from static, discrete tasks into dynamic business processes, or work
flows. These work flows may include multiple transactions among multiple
individuals in multiple locations and in varying sequences. For example, the
generation of a purchase order may be initiated from many decision
makers -- from merchandise manager to distribution manager to store level
personnel -- with different information requirements and controls at various
points and locations within the retail enterprise. By reflecting and
accommodating key business information work flows, the Company's products
facilitate coordination of individuals and functions within the enterprise.
Furthermore, the Company's products can be adapted as work flows change and as
exceptions to standard work flows arise.
User-Defined Environments. The Company's products are embedded with a
broad inventory of pre-defined business objects that model mission-critical
retailing functions. These business objects encapsulate the general rules, data
structures and hierarchies, and processes required to accomplish each function
and can be configured by retailers to develop information views that are
tailored to their specific operations. For example, a music store retailer may
configure a business object relating to stock replenishment by defining two
different classes of merchandise -- fashion items and staples -- requiring
different replenishment algorithms and frequencies. Specifically, current
compact disc releases would require high frequency replenishment using a
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<PAGE> 41
weighted average sales method that reflects daily sales trends, while blank
cassette tapes would require a low frequency, fixed replenishment. These
user-defined environments represent an advance over conventional software
architectures that require programming intervention to accommodate even the most
simple changes to business processes.
As of September 30, 1996, there were 82 employees on the Company's product
development staff. The Company's product development expenditures in 1993, 1994,
1995 and the nine months ended September 30, 1996 were $1.3 million, $1.9
million, $3.5 million and $4.6 million and represented 7%, 8%, 12% and 14% of
revenues, respectively. The Company expects that it will continue to commit
substantial resources to product development in the future.
Both WinDSS and certain modules of ODBMS remain under development, and
neither has been fully implemented by customers in a retail environment. There
can be no assurance that these products will not require substantial software
enhancements or modifications to satisfy performance requirements of customers
or to fix design defects or previously undetected errors. In addition, there can
be no assurance that modules or features under development or planned for
development will be completed in a timely fashion or without unanticipated
excess development expense. Should the Company fail to successfully complete the
planned development of either ODBMS or WinDSS, or fail to timely effect any
required modifications, the Company's business, operating results and financial
condition will be materially adversely affected.
Software products as complex as those offered by the Company may contain
errors that may be detected at any point in the products' life cycles. There can
be no assurance that, despite testing by the Company and by current and
potential customers, errors will not be found, resulting in loss of, or delay
in, market acceptance, sales, diversion of development resources, injury to the
Company's reputation, or increased service and warranty costs, any of which
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Risk Factors -- Product Defects; Product
Liability; Risk of Integration Difficulties."
The computer software industry is subject to rapid technological change,
changing customer requirements, frequent new product introductions and evolving
industry standards that may render existing products and services obsolete. As a
result, the Company's position in its existing markets or other markets that it
may enter could be eroded rapidly by technology advancements not embraced by the
Company. The life cycles of the Company's products are difficult to estimate.
The products must keep pace with technological developments, conform to evolving
industry standards and address increasingly sophisticated customer needs. There
can be no assurance that the Company will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of new
products or that new products or product enhancements will meet the requirements
of the marketplace and achieve market acceptance. If the Company is unable to
develop and introduce products in a timely manner in response to changing market
conditions or customer requirements, the Company's business, operating results
and financial condition will be materially adversely affected.
COMPETITION
The market for retail information systems is intensely competitive. The
Company believes the principal competitive factors in such market are product
quality, reliability, performance and price, vendor and product reputation,
financial stability, features and functions, ease of use and quality of support.
A number of companies offer competitive products addressing certain of the
Company's target markets. In the enterprise systems market, the Company competes
with in-house systems developed by the Company's targeted customers and with
third-party developers such as Intrepid, Island Pacific, Radius PLC, Retek
(which agreed in October 1996 to be acquired by HNC Software, Inc.), STS Systems
and Richter Management Services, among others. In addition, the Company believes
that new market entrants may attempt to develop fully integrated enterprise
level systems targeting the retail industry. In particular, SAP
Aktiengesellschaft announced in August 1996 its intention to release an
integrated client/server enterprise system competitive with the Company's
products. In the in-store systems market, which is more fragmented than the
enterprise market, the Company competes with major hardware original equipment
manufacturers such as AT&T/NCR, IBM, and ICL, as well as software companies such
as Applied Intelligence Group, CRS Business Computers, Post Software
International, STS Systems, GERS Retail Systems and Gateway Data
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Sciences Corporation, among others. In the market for consulting services, the
Company competes with major systems integrators such as Andersen Consulting,
Price Waterhouse's Management Horizons Division, Deloitte & Touche LLP and Ernst
& Young LLP, as well as independent consulting firms such as the ISSC Division
of IBM. Many of the Company's existing competitors, as well as a number of
potential new competitors, have significantly greater financial, technical and
marketing resources than the Company. There can be no assurance that the Company
will be able to compete successfully against its current or future competitors
or that competition will not have a material adverse effect on the Company's
business, operating results and financial condition.
LEGAL PROCEEDINGS
In February 1996, a dispute arose with one of the Company's customers. The
Company initiated arbitration proceedings against the customer in an effort to
collect approximately $100,000 in remaining amounts due pursuant to its contract
with the customer. The customer counterclaimed for a full refund of the
approximately $985,000 previously paid to the Company, and the Company is
vigorously defending such counterclaim. The arbitration proceedings remain
ongoing, and the parties are engaged in settlement negotiations. Although
management believes, based upon information currently available, that a
settlement can be reached upon terms acceptable to the Company, there can be no
assurance that such will be the case or that any settlement can be reached in
this matter. The Company does not believe that the ultimate outcome of this
proceeding will have a material adverse effect on the Company.
In May 1996, Niederhoffer and Niederhoffer, Inc. ("Niederhoffer") filed a
demand for arbitration asserting a claim against JDA Software Services, Inc., a
wholly owned subsidiary of the Company. Niederhoffer's claims are based upon an
agreement between it and JDA Software Services, Inc. dated April 6, 1990 (the
"Finder's Agreement"). Niederhoffer alleges entitlement to a finder's fee in
connection with the purchase of convertible preferred stock in the Company in
March 1995 by six investment funds advised by TA Associates, Inc. and its
affiliates ("TA Investment"), and a claim for Common Stock arising from the
related establishment of the Company and reorganization of the Company's wholly
owned subsidiaries pursuant to which Company Common Stock was issued to such
subsidiaries' stockholders (the "Reorganization"). In the arbitration,
Niederhoffer claims damages of approximately $770,000 and asserts a right to
504,000 shares of the Company's Common Stock.
The Company is contesting both the applicability of the Finder's Agreement
to the TA Investment and the related Reorganization and the measurement of the
damages as claimed by Niederhoffer. The arbitration is expected to be concluded
in December 1996, with the arbitrators' decision rendered following conclusion
of the arbitration.
The Company and its counsel believe that the Company has meritorious
defenses to Niederhoffer's claims, and the Company intends to vigorously defend
its position in the arbitration. However, since the results of arbitration
proceedings are inherently unpredictable, no assurance can be given with respect
to the arbitration's outcome or the total expense or possible damages, if any,
that may be incurred in the arbitration proceedings or as a result of a
settlement or an arbitration award. In the event the arbitration panel concludes
that the TA Investment and related Reorganization fell within the scope of the
Finder's Agreement, and further agrees with Niederhoffer's assessment of
damages, the Company could be required to make cash payments as well as issue to
Niederhoffer up to 504,000 shares of the Company's Common Stock or make an
additional cash payment to Niederhoffer based upon the arbitrators'
determination of the value of such Shares. The Company believes that an
arbitrator's decision to award up to 504,000 shares of Common Stock to
Niederhoffer based upon a determination that such shares are issuable as a
result of the TA Investment would be treated as a charge to additional paid-in
capital. Such charge would reduce additional paid-in capital by the amount of
any cash paid plus the value of the Common Stock issued, valued as of the date
of the TA Investment. However, any cash awarded in lieu of shares in excess of
the value of such shares at the date of the TA Investment would be recorded as
litigation expense and could have an immediate and material adverse effect on
the Company's operating results. In addition, any cash awarded to Niederhoffer
would reduce the Company's available liquidity. Any shares of Common Stock
awarded to Niederhoffer would have a dilutive effect on the Company's earnings
per share.
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PROPRIETARY RIGHTS
The Company's success and ability to compete is dependent in part upon its
proprietary technology, including its software source code. To protect its
proprietary technology, the Company relies on a combination of trade secret,
nondisclosure and copyright law, which may afford only limited protection. In
addition, effective copyright and trade secret protection may be unavailable or
limited in certain foreign countries. Although the Company relies on the limited
protection afforded by such intellectual property laws, it also believes that
factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable maintenance are also essential to establishing and maintaining a
technology leadership position. The Company presently has no patents or patent
applications pending. The source code for the Company's proprietary software is
protected both as a trade secret and as a copyrighted work. The Company
generally enters into confidentiality or license agreements with its employees,
consultants and customers, and generally controls access to and distribution of
its software, documentation and other proprietary information. The terms of the
Company's license agreements with its customers often require the Company to
provide the customer with a listing of the product source code. Although the
license agreements place restrictions on the use by the customer of the
Company's source code and do not permit the re-sale, sublicense or other
transfer of such source code, there can be no assurance that unauthorized use of
the Company's technology will not occur.
Despite the measures taken by the Company to protect its proprietary
rights, unauthorized parties may attempt to reverse engineer or copy aspects of
the Company's products or to obtain and use information that the Company regards
as proprietary. Policing unauthorized use of the Company's products is
difficult. In addition, litigation may be necessary in the future to enforce the
Company's intellectual property rights, to
protect the Company's trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. Such litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
operating results and financial condition.
Certain technology used by the Company's products is licensed from third
parties, generally on a non-exclusive basis. These licenses generally require
the Company to pay royalties and fulfill confidentiality obligations. The
Company believes that there are alternative resources for each of the material
components of technology licensed by the Company from third parties. However,
the termination of any such licenses, or the failure of the third-party
licensors to adequately maintain or update their products, could result in delay
in the Company's ability to ship certain of its products while it seeks to
implement technology offered by alternative sources. Any required replacement
licenses could prove costly. Also, any such delay, to the extent it becomes
extended or occurs at or near the end of a fiscal quarter, could result in a
material adverse effect on the Company's results of operations. While it may be
necessary or desirable in the future to obtain other licenses relating to one or
more of the Company's products or relating to current or future technologies,
there can be no assurance that the Company will be able to do so on commercially
reasonable terms or at all.
In the future the Company may receive notices claiming that it is
infringing the proprietary rights of third parties and there can be no assurance
that the Company will not become the subject of infringement claims or legal
proceedings by third parties with respect to current or future products. In
addition, the Company may initiate claims or litigation against third parties
for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Any such claim could be time
consuming, result in costly litigation, cause product shipment delays or force
the Company to enter into royalty or license agreements rather than dispute the
merits of such claims. Moreover, an adverse outcome in litigation or similar
adversarial proceedings could subject the Company to significant liabilities to
third parties, require the expenditure of significant resources to develop
non-infringing technology, require disputed rights to be licensed from others or
require the Company to cease the marketing or use of certain products, any of
which could have a material adverse effect on the Company's business, operating
results and financial condition. To the extent the Company desires or is
required to obtain licenses to patents or proprietary rights of others, there
can be no assurance that any such licenses will be made available on terms
acceptable to the Company, if at all. As the number of software products in the
industry increases and the functionality of these products further overlaps, the
Company believes the software developers may become increasingly subject to
infringement claims. Any
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such claims against the Company, with or without merit, as well as claims
initiated by the Company against third parties, can be time consuming and
expensive to defend, prosecute or resolve.
EMPLOYEES
As of September 30, 1996, the Company employed 345 employees, including 182
in consulting services, 82 in product development, 35 in sales and marketing, 35
in administration, and 11 in maintenance and other services. Of these employees,
219 were located in the United States, 41 in the United Kingdom, 49 in Canada,
24 in Singapore, 2 in Germany and 10 in Latin America. None of the Company's
employees is represented by a collective bargaining agreement, nor has the
Company experienced any work stoppage. The Company considers its relations with
its employees to be good.
The Company's future operating results depend in significant part upon the
continued service of its key technical and senior management personnel. The
Company's future success also depends on its continuing ability to attract and
retain highly qualified technical and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will retain
its key managerial or technical personnel or attract such personnel in the
future. The Company has at times experienced and continues to experience
difficulty recruiting qualified personnel and there can be no assurance that the
Company will not experience such difficulties in the future. The Company, either
directly or through personnel search firms, actively recruits qualified product
development, consulting and sales and marketing personnel. If the Company is
unable to hire and retain qualified personnel in the future, such inability
could have a material adverse effect on the Company's business, operating
results and financial condition.
FACILITIES
The Company's principal facility occupies approximately 42,000 square feet
in Phoenix, Arizona, the lease for which expires on March 31, 1999. The Company
also leases office space in the United States in Scottsdale, Arizona; Stamford,
Connecticut; Atlanta, Georgia; and abroad in London, Calgary, Toronto,
Singapore, Frankfurt, Santiago and Mexico City. The Company believes that its
existing facilities are adequate for its current needs and that suitable
additional or alternative space will be available in the future on commercially
reasonable terms as needed.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------------------------------- --- -------------------------------------------
<S> <C> <C>
James D. Armstrong...................... 45 Chief Executive Officer and Director
Frederick M. Pakis...................... 43 President and Director
Thomas M. Proud......................... 51 Vice President and Chief Financial Officer
James L. Smith.......................... 41 Executive Vice President
Brent W. Lippman........................ 39 Senior Vice President, Sales and Marketing
Kenneth J. Desmarchais.................. 37 Vice President, Technology
J. Timothy Davis........................ 45 Vice President, U.S. Consulting Services
Kurt R. Jaggers(1)...................... 38 Director
Crawford L. Cole(1)..................... 38 Director
</TABLE>
- ---------------
(1) Member of the Compensation and Audit Committees.
Mr. Armstrong co-founded the Company with Mr. Pakis in 1985 and has since
served as the Chief Executive Officer and a director. In 1978, Mr. Armstrong
founded JDA Canada and served as its President until 1987. From September 1985
to December 1987, Mr. Armstrong served on the board of directors of Mark's Work
Wearhouse, a publicly held Canadian specialty retailing company. Mr. Armstrong
attended Ryerson Polytechnic Institute in Toronto, Ontario.
Mr. Pakis co-founded the Company with Mr. Armstrong in 1985 and has since
served as President and a director. From April 1981 to December 1985, Mr. Pakis
was a Manager -- Retail Consulting with Touche Ross & Co. From April 1976 to
March 1981, Mr. Pakis served as Director of Corporate Planning for The Sherwin
Williams Company, a home improvement specialty store company. Mr. Pakis attended
the United States Military Academy at West Point, received a B.S. in Operations
Research from Case Western Reserve University and an M.B.A. from the London
School of Business, where he studied as a Sloan Fellow.
Mr. Proud joined the Company in November 1995 as Vice President and Chief
Financial Officer. Prior to joining the Company, Mr. Proud served as Chief
Financial Officer for Syntellect, Inc., a publicly held interactive voice
response company, from June 1994 to November 1995. From July 1993 to May 1994,
Mr. Proud served as Chief Financial Officer of Axxess Technologies, Inc., a
privately held manufacturing company. From March 1987 to June 1993, Mr. Proud
served as Chief Financial Officer for Dataphaz, which was acquired by
Computerland Corporation in April 1991. Prior to that, Mr. Proud was employed
for eleven years by Price Waterhouse. Mr. Proud received a B.A. in Accounting
from Thiel College and an M.S. in Accounting from Kent State University and is a
certified public accountant.
Mr. Smith joined the Company in September 1986 as a project manager. Mr.
Smith was promoted to Director of Systems Development in January 1988, to Vice
President, Operations in September 1989 and to Executive Vice President of the
Company in January 1993. Prior to joining the Company, Mr. Smith was a
consultant with the Management Information Consulting Division of Arthur
Andersen. Mr. Smith received a B.S. in Mathematics from Cleveland State
University and an M.B.A. from Ohio State University.
Mr. Lippman joined the Company in October 1990 as Director of Marketing. In
October 1991 Mr. Lippman was promoted to Vice President of the Company and in
October 1996, Mr. Lippman was promoted to Senior Vice President of the Company.
Prior to joining the Company, Mr. Lippman served as Sales Manager with Sterling
Software, Inc., a publicly held software company, from 1984 to September 1990,
and was a Senior Systems Consultant for Wang Laboratories from 1983 to 1984. Mr.
Lippman received a B.S. in Operations Research and an M.B.A. from Case Western
Reserve University.
Mr. Desmarchais joined JDA Canada in November 1985 and joined the Company
in February 1988 as a project manager. Mr. Desmarchais was promoted to Manager,
New Product Development in June 1990 and to Director of Technology in December
1992. Mr. Desmarchais was promoted to Vice President, Technology in
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<PAGE> 46
March 1995. Prior to 1985, Mr. Desmarchais was employed for five years as an
Advisory Systems Engineer with IBM Canada. Mr. Desmarchais received a B.S. in
Computer Science from Ryerson Polytechnic Institute in Toronto, Ontario.
Mr. Davis joined the Company in September 1996 as Vice President, U.S.
Consulting Services. From July 1990 to August 1996, Mr. Davis was Vice President
and Senior Manager with Price Waterhouse's Management Horizons Division. From
April 1983 to July 1990, Mr. Davis was with Coopers & Lybrand where he held the
positions of Senior Consultant, Supervising Consultant and Managing Associate.
From May 1980 to August 1982, Mr. Davis was Director, Financial Systems Planning
and Analysis for Zale Corporation, a publicly held retail jewelry corporation.
Mr. Davis received a B.S. in Business and Public Administration from the
University of Texas.
Mr. Jaggers has served as a director of the Company since March 1995. Mr.
Jaggers joined TA Associates, an equity investment firm, in August 1990 and has
been a Principal there since January 1993. Mr. Jaggers also serves on the Board
of Directors of Network Appliance, Inc., a network file server company. Mr.
Jaggers received a B.S. and an M.S. in electrical engineering and an M.B.A. from
Stanford University.
Mr. Cole has served as a director of the Company since January 1996. Mr.
Cole is the Chief Executive Officer and President of West Marine, Inc., a
publicly held retailer and wholesaler of boating equipment and apparel, and has
served in those positions since April 1995. Mr. Cole has been a director of West
Marine, Inc. since July 1990. Mr. Cole also held the position of President of
West Marine, Inc. from July 1990 to August 1993, before resigning his position
to live abroad. Prior to West Marine, Inc., Mr. Cole held a variety of positions
with Northern Automotive from July 1987 to May 1990, including Senior Vice
President, Store Operations. Prior to that, for three years Mr. Cole was with
Garr Consulting Group, a retail consulting firm, where his last position was
Vice President, Retail Consulting. Mr. Cole received a B.S.M.E. degree from the
University of Virginia and an M.B.A. from the University of Georgia.
Mr. Jaggers was elected to the Board of Directors in March 1995 pursuant to
the Exchange Agreement between the Company and TA Associates. See "Certain
Transactions." The Board of Directors is divided into three classes, with each
class serving a staggered three-year term. At each annual meeting of
stockholders, the successors to the class of directors whose term expires at
that time are elected and qualified, so that the term of one class of directors
expires at each such annual meeting. The terms of office of the Company's
current directors expire as follows: Mr. Cole, 1997; Mr. Jaggers, 1998; and
Messrs. Armstrong and Pakis, 1999. See "Description of Capital
Stock -- Anti-takeover Effects of Delaware Law and Charter Documents." Officers
are elected by and serve at the discretion of the Board of Directors. There are
no family relationships among the directors or officers of the Company.
44
<PAGE> 47
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the compensation paid
by the Company during the fiscal year ended December 31, 1995 to the Company's
chief executive officer and each of the Company's four other most highly
compensated executive officers.
SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 1995
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------
------------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS COMPENSATION
- -------------------------------------------- -------- -------- ------------------- ------------
<S> <C> <C> <C> <C>
James D. Armstrong.......................... $360,000 $100,000 0 $ 8,949(1)
Chief Executive Officer
Frederick M. Pakis.......................... 360,000 100,000 0 8,019(2)
President
Geoffrey J. Finlay(3)....................... 141,675 310,000 235,000 51,422(4)
Managing Director, JDA International
James L. Smith.............................. 150,000 175,000 235,000 5,769(5)
Executive Vice President
Brent W. Lippman............................ 125,000 200,000 235,000 1,109(6)
Senior Vice President
</TABLE>
- ---------------
(1) Includes $1,109 of Company contributions under its 401(k) Plan and $7,840
for premiums paid for life insurance coverage.
(2) Includes $1,109 of Company contributions under its 401(k) Plan and $6,910
for premiums paid for life insurance coverage.
(3) Mr. Finlay served as the Managing Director of JDA International until
October 1996.
(4) Includes $24,287 paid by the Company into an individual retirement account
and $27,135 paid for vehicle expenses.
(5) Includes $1,109 of Company contributions under its 401(k) Plan and $4,660
for premiums paid for life insurance coverage.
(6) Includes $1,109 of Company contributions under its 401(k) Plan.
45
<PAGE> 48
The following table provides information concerning grants of options to
purchase the Company's Common Stock made during the fiscal year ended December
31, 1995 to the persons named in the Summary Compensation Table. Also shown
below is the potential realizable value over the option term (the period from
the grant date to the expiration date) based on assumed rates of stock
appreciation of 5% and 10%, compounded annually. These amounts and assumed rates
of appreciation do not represent the Company's estimate of future stock price.
Actual gains, if any, on stock option exercises will be dependent on future
performance of the Common Stock.
OPTION GRANTS IN FISCAL YEAR 1995
<TABLE>
<CAPTION>
% OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(2)
OPTIONS IN FISCAL PRICE PER EXPIRATION ---------------------
NAME GRANTED 1995 SHARE(1) DATE 5% 10%
- ---------------------------------- ---------- --------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
James D. Armstrong................ 0 0 -- -- 0 0
Frederick M. Pakis................ 0 0 -- -- 0 0
Geoffrey J. Finlay................ 200,000 15.4 $3.50 3/29/05 $440,226 $1,115,620
35,000 2.7 5.25 11/14/05 115,559 292,850
James L. Smith.................... 200,000 15.4 3.50 3/29/05 440,226 1,115,620
35,000 2.7 5.25 11/14/05 115,559 292,850
Brent W. Lippman.................. 200,000 15.4 3.50 3/29/05 440,226 1,115,620
35,000 2.7 5.25 11/14/05 115,559 292,850
</TABLE>
- ---------------
(1) All options were granted at an exercise price equal to the fair market value
of the Company's Common Stock as determined by the Board of Directors of
the Company on the date of grant. The Company's Common Stock was not
publicly traded at the time of the option grants to the officers.
(2) The 5% and 10% assumed compounded annual rates of stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance that the actual stock price appreciation over the ten-year
option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates over
the option term, no value will be realized from the option grants made to
the persons named in the Summary Compensation Table.
OPTION EXERCISES AND FISCAL 1995 YEAR-END VALUES
The following table provides the specified information concerning
unexercised options held as of December 31, 1995 by the persons named in the
Summary Compensation Table:
AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT AT
SHARES 12/31/95 12/31/95(2)
ACQUIRED VALUE ------------------ ---------------------
NAME ON EXERCISE REALIZED(1) VESTED UNVESTED VESTED UNVESTED
-------------------------- ----------- ----------- ------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
James D. Armstrong........ 0 0 0 0 0 0
Frederick M. Pakis........ 0 0 0 0 0 0
Geoffrey J. Finlay........ 0 0 170,000 65,000 $1,037,000 $335,250
James L. Smith............ 114,287 $85,715 28,571 92,142 174,283 500,816
Brent W. Lippman.......... 42,859 32,144 99,999 92,142 609,994 500,816
</TABLE>
- ---------------
(1) "Value Realized" represents fair market value of the underlying securities
on the exercise date minus the aggregate exercise price of such options.
For purposes of this calculation, a fair market value of $4.25 per share
was used, the fair market value of the securities as determined by the
Board of Directors on September 30, 1995.
(2) Calculated on the basis of the fair market value of the underlying
securities as of December 31, 1995 of $9.60 per share, as determined by the
Company's board of directors, minus the aggregate exercise price.
46
<PAGE> 49
No compensation intended to serve as incentive for performance to occur
over a period longer than one fiscal year was paid pursuant to a long-term
incentive plan during the last fiscal year to any of the persons named in the
Summary Compensation Table. The Company does not have any defined benefit or
actuarial plan with any of the persons named in the Summary Compensation Table
under which benefits are determined primarily by final compensation or average
final compensation and years of service.
BENEFIT PLANS
1995 Stock Option Plan. The Board of Directors has reserved a total of
1,350,000 shares of Common Stock for issuance under the Company's 1995 Stock
Option Plan (the "Option Plan"). At September 30, 1996, 368,758 shares of Common
Stock had been issued upon exercise of options, 931,242 shares were subject to
outstanding options at a weighted average exercise price of $4.02 and 50,000
shares remained available for future grant under the Option Plan. Options may be
granted to employees (including officers) whom the Board of Directors has
determined will contribute substantially to the progress of the Company or are
key employees. Both incentive stock options and non-incentive stock options may
be granted under the Option Plan. The exercise price of an incentive stock
option and a non-incentive stock option must be no less than the fair market
value at the time of grant. Options granted under the Option Plan are subject to
individual vesting schedules, but must be exercised within ten years of the date
of grant. On March 30, 1995, the Company entered into a Redemption Agreement
with Messrs. Armstrong and Pakis whereby each individual agreed to have his
stock in the Company redeemed by the Company if options to purchase up to an
aggregate of 1,350,000 shares of the Company's Common Stock are exercised by any
of the option holders who acquire options under the Company's 1995 Stock Option
Plan. See "Certain Transactions."
1996 Stock Option Plan. The Board of Directors has reserved a total of
1,250,000 shares of Common Stock for issuance under the Company's 1996 Stock
Option Plan (the "1996 Option Plan"). At September 30, 1996, 305,000 shares were
subject to outstanding options at a weighted average exercise price of $16.00,
and 945,000 shares remained available for future grant under the 1996 Option
Plan. Options may be granted to employees (including officers), consultants,
advisors and directors who are also employees, although only employees and
directors and officers who are also employees may receive "incentive stock
options" intended to qualify for certain tax treatment. The exercise price of
non-qualified stock options must equal at least 85% of the fair market value of
the Common Stock on the date of grant, and in the case of incentive stock
options must be no less than the fair market value on the date of the grant.
Options granted under the Option Plan generally vest over four years and must be
exercised within ten years.
1996 Outside Directors Stock Option Plan. A total of 150,000 shares of
Common Stock have been reserved for issuance under the Company's 1996 Outside
Directors Stock Option Plan (the "Directors Plan"). As of September 30, 1996, no
options have been granted under the Directors Plan. The Directors Plan provides
for the automatic granting of non-qualified stock options to directors of the
Company who are not employees of the Company ("Outside Directors"). Under the
Directors Plan, each new Outside Director elected after March 15, 1996 will
automatically be granted an option to purchase 12,500 shares of Common Stock on
the date of his or her election. In addition, each serving Outside Director will
thereafter automatically be granted an option to purchase 4,000 shares of Common
Stock at each annual meeting of stockholders after their election provided that
the Outside Director continues to serve in such capacity. The exercise price of
the options in all cases will be equal to the fair market value of the Common
Stock on the date of grant. Options granted under the Directors Plan generally
vest over three years and must be exercised within ten years.
1996 Employee Stock Purchase Plan. A total of 200,000 shares of the
Company's Common Stock have been reserved for issuance under the Company's 1996
Employee Stock Purchase Plan (the "Purchase Plan") and as of September 30, 1996,
38,445 shares had been issued. The Purchase Plan permits eligible employees to
purchase Common Stock at a discount through payroll deductions, during
concurrent 24-month offering periods. Each offering period will be divided into
four consecutive six-month purchase periods. The price at which stock is
purchased under the Purchase Plan is equal to 85% of the fair market value of
the Common Stock on the first day of the offering period or the last day of the
purchase period, whichever is lower. The initial offering period commenced on
March 15, 1996. On August 9, 1996, the Purchase Plan was amended to
47
<PAGE> 50
provide for a new offering period commencing on August 15, 1996, and the Company
provided for the participation in the Purchase Plan by the employees of JDA
Canada.
401(k) Profit Sharing Plan. The Company has adopted a tax-qualified
employee savings and profit sharing plan (the "401(k) Plan") covering
substantially all of the Company's employees located in the United States,
including officers, after one month of service. Pursuant to the 401(k) Plan,
employees may elect to reduce their current compensation by up to the lesser of
20% of eligible compensation or the annual limit prescribed by law ($9,240 in
1995 and $9,500 in 1996) and have the amount of such reduction contributed to
the 401(k) Plan. The 401(k) Plan permits, but does not require, additional cash
contributions to the 401(k) Plan by the Company. The Company made approximately
$57,000 of contributions to the 401(k) Plan in 1995, and no contributions in
1994 and 1993. Such Company contributions allocated to a participant do not vest
the first year of service and thereafter vest at the rate of 20% percent per
year of service. The trustee under the 401(k) Plan, at the direction of each
participant, invests the assets of the 401(k) Plan in designated investment
options. The 401(k) Plan is intended to qualify under section 401(a) and (k) of
the Internal Revenue Code so that contributions to the 401(k) Plan, and income
earned on the contributions, are not taxable to employees until distributed
following termination of employment, and so that the contributions are currently
deductible by the Company for income tax purposes.
COMPENSATION OF DIRECTORS
Directors of the Company do not receive cash for services provided as a
director. On January 12, 1996, the Company granted options to purchase 30,000
shares of Common Stock under the 1996 Option Plan at an exercise price of $9.60
per share to each of its current outside directors, Kurt R. Jaggers and Crawford
L. Cole, which options vested one-third on March 31, 1996 and fully vest over
the next two years. See "Certain Transactions." Under the Directors Plan,
directors who are not employees of the Company will receive yearly grants of
options to purchase Common Stock. See "-- Benefit Plans -- 1996 Outside
Directors Stock Option Plan." The Company does not pay additional amounts for
committee participation or special assignments of the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
During the fiscal year completed December 31, 1995, the Board of Directors
of the Company, of which James D. Armstrong, Chief Executive Officer of the
Company, and Frederick M. Pakis, President of the Company, were and are members,
fulfilled all functions of the Compensation Committee with regard to
compensation of executive officers of the Company. In January 1996, Mr. Cole and
Mr. Jaggers, the Company's outside directors, were appointed to the Company's
Audit and Compensation Committees for the fiscal year ending December 31, 1996.
No other directors were at any time during the year ended December 31, 1995
an officer or employee of the Company, and there are no Compensation Committee
interlocks between the Company and other entities involving the Company's
executive officers and board members who serve as executive officers of such
entities.
On March 30, 1995, the Company entered into employment agreements with Mr.
Armstrong, Mr. Pakis and Mr. Smith. Under the terms of the agreements, as
amended, in 1995 Mr. Armstrong received an annual base salary of $360,000, Mr.
Pakis received an annual base salary of $360,000 and Mr. Smith received an
annual base salary of $150,000, each subject to annual review and adjustment by
the Board of Directors. Also under the agreements, Messrs. Armstrong, Pakis and
Smith each receive a bonus to be determined by the Compensation Committee of the
Board of Directors. Effective January 1, 1996, Messrs. Armstrong's and Pakis'
annual base salaries have been reduced to $175,000, Mr. Smith's annual base
salary has been increased to $165,000, and each may receive a bonus in 1996
targeted to be $100,000. The agreements have terms of two years and renew
automatically for not less than a one year period.
On November 13, 1995, the Company entered into an employment agreement with
Thomas M. Proud, the Company's Vice President and Chief Financial Officer. Under
the agreement, Mr. Proud receives an annual base salary of $150,000 and may
receive a bonus in 1996 targeted to be $50,000. In addition, Mr. Proud
48
<PAGE> 51
was granted options to purchase 60,000 shares of the Company's Common Stock at
an exercise price of $5.25 per share.
On January 12, 1996, the Company granted to each of Mr. Jaggers and Mr.
Cole options to purchase 30,000 shares of Common Stock at $9.60 per share that
vest over two years. See "-- Compensation of Directors."
The Company has entered into indemnification agreements with its directors
and certain executive officers, as well as with TA Associates. The Company
intends to enter into indemnification agreements with its remaining executive
officers. Such agreements require the Company to indemnify such individuals to
the fullest extent permitted by Delaware law. See "Limitation of Liability and
Indemnification."
LIMITATION OF LIABILITY AND INDEMNIFICATION
Pursuant to the provisions of the Delaware General Corporation Law, the
Company has adopted provisions in its Certificate of Incorporation which provide
that directors of the Company shall not be personally liable for monetary
damages to the Company or its stockholders for a breach of fiduciary duty as a
director, except for liability as a result of (i) a breach of the director's
duty of loyalty to the Company or its stockholders; (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) an act related to the unlawful stock repurchase or payment of a
dividend under Section 174 of Delaware General Corporation Law; and (iv)
transactions from which the director derived an improper personal benefit. Such
limitation of liability does not affect the availability of equitable remedies
such as injunctive relief or rescission.
The Company's Certificate of Incorporation also authorizes the Company to
indemnify its officers, directors and other agents, by bylaws, agreements or
otherwise, to the full extent permitted under Delaware law. The Company has
entered into separate indemnification agreements with its directors, certain
executive officers and TA Associates which may, in some cases, be broader than
the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements may require the Company, among
other things, to indemnify such officers, directors and TA Associates against
certain liabilities that may arise by reason of their status or service as
directors, officers or control persons (other than liabilities arising from
willful misconduct of a culpable nature), to advance their expenses incurred as
a result of any proceeding against them as to which they could be indemnified,
and to obtain directors' and officers' insurance if available on reasonable
terms.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted.
CERTAIN TRANSACTIONS
Prior to March 30, 1995, the Company's business was conducted through five
affiliated companies, the stock of four of which was owned by Messrs. James D.
Armstrong (either directly or through JDA Investments Ltd., a Canadian
corporation wholly owned by Mr. Armstrong), Frederick M. Pakis and James L.
Smith, and the fifth of which was a wholly-owned subsidiary. The four principal
affiliated companies were JDA Services, JDA Software, JDA Worldwide and JDA
International.
On March 14, 1995, the Company was formed and subsequently, on March 30,
1995, JDA Services, JDA Software, JDA Worldwide, JDA International, Messrs.
Armstrong, Pakis and Smith, JDA Investments Ltd. and TA Associates entered into
a Series A Preferred Stock and Common Stock Exchange Agreement (the "Exchange
Agreement"). Pursuant to the Exchange Agreement: (1) Messrs. Armstrong, Pakis
and Smith and JDA Investments Ltd. each exchanged all of the outstanding shares
of stock of JDA Services, JDA Software, JDA Worldwide and JDA International
owned by them for an aggregate of 7,200,000 shares of Common Stock of the
Company, Promissory Notes executed by the Company in the aggregate amounts of
$15,285,197, and cash in the aggregate amount of $1,000,000; and (2) TA
Associates exchanged $15,000,000 in cash for an aggregate of 2,800,000 shares of
Series A Preferred Stock of the Company. As a result of the Exchange Agreement,
Mr. Armstrong received 3,510,000 shares of Common Stock of the Company,
49
<PAGE> 52
Promissory Notes in the aggregate amount of $6,964,034 and cash in the amount of
$487,500; JDA Investments Ltd. received a Promissory Note in the amount of
$487,500; Mr. Pakis received 3,510,000 shares of Common Stock of the Company,
Promissory Notes in the aggregate amount of $7,451,534 and cash in the amount of
$487,500; and Mr. Smith received 180,000 shares of Common Stock of the Company,
Promissory Notes in the aggregate amount of $382,130 and cash in the amount of
$25,000. As a result of the Exchange Agreement, JDA Services, JDA Software, JDA
Worldwide and JDA International became wholly-owned subsidiaries of the Company.
Of the Promissory Notes described above, Promissory Notes in the principal
amounts of $6,337,500, $487,500, $6,825,000, and $350,000 payable to Mr.
Armstrong, JDA Investments Ltd. and Messrs. Pakis and Smith, respectively, each
bore interest at the rate of 6.32297% per annum and, according to their terms,
were paid in full by the Company on January 11, 1996. The remaining Promissory
Notes in the principal amounts of $626,534, $626,534 and $32,130 payable to
Messrs. Armstrong, Pakis and Smith, respectively, each bore interest at the rate
of 8% per annum, and provided for annual payment of accrued interest and were
paid in full in March 1996.
Kurt R. Jaggers, a director of the Company, is a Principal of TA
Associates, Inc. Pursuant to the terms of the Exchange Agreement, TA Associates
is entitled to registration rights with respect to the Common Stock of the
Company issued upon conversion of the Company's Series A Preferred Stock. See
"Description of Capital Stock -- Registration Rights."
Also as part of the Exchange Agreement, the Company guaranteed six
Promissory Notes payable by its newly acquired subsidiaries, JDA Software and
JDA Worldwide, to Messrs. Armstrong and Pakis. These Promissory Notes
represented distributions to Messrs. Armstrong and Pakis from JDA Software and
JDA Worldwide when these two corporations were S Corporations prior to the
Exchange Agreement. Two of these Promissory Notes were each in the principal
amount of $449,495, bore interest at 8% per annum and, according to their terms,
were paid in full by JDA Software and JDA Worldwide to Messrs. Armstrong and
Pakis on January 13, 1996. The other four Promissory Notes were payable by JDA
Software and JDA Worldwide to Messrs. Armstrong and Pakis in the principal
amounts of $1,718,002 and $241,365 each, bore interest at the rate of 8% per
annum, provided for monthly payments of principal and interest and were paid in
full upon the closing in March 1996.
On March 30, 1995, the Company entered into a Redemption Agreement with
Messrs. Armstrong and Pakis whereby each individual agreed to have his stock in
the Company redeemed by the Company upon the exercise of up to an aggregate of
1,350,000 shares of the Company's Common Stock by the option holders under the
Option Plan. See "Management -- Benefit Plans." The Redemption Agreement
requires the Company to redeem from Messrs. Armstrong and Pakis, pro rata, a
number of shares of Common Stock of the Company equal to the number of shares as
to which applicable options are exercised. As to the first 850,000 options
exercised under the Option Plan, the redemption price is equal to the exercise
price of the option (as set forth in the applicable option agreements), and as
to the remaining 500,000 options exercised under the Option Plan, the redemption
price is $.01 per share. As a result of the Redemption Agreement, existing
stockholders of the Company will not be diluted by the exercise of stock options
under the Option Plan, and only the ownership percentages of Messrs. Armstrong
and Pakis are diluted by the stock options exercised under the Option Plan. As
of September 30, 1996, Messrs. Armstrong and Pakis had sold 368,758 shares of
Common Stock to the Company for an aggregate of $1,333,915 pursuant to the
Redemption Agreement to cover exercises of options.
Prior to June 1, 1995, the Company leased its principal facilities in
Scottsdale, Arizona from Pakis-Armstrong Venture, an Arizona general
partnership, the general partners of which are Mr. Armstrong and Mr. Pakis. The
Company leased these facilities, totalling approximately 9,600 square feet, from
July 1, 1990 to May 31, 1995. The base rent at the time of the termination of
these leases was $120,000 per year, plus the annual cost of the real property
taxes, insurance and ordinary maintenance of the facilities. All amounts paid by
the Company to Pakis-Armstrong Venture were evenly distributed to Messrs.
Armstrong and Pakis.
Effective January 1, 1996, the Company entered into a lease with
Pakis-Armstrong Venture for approximately 5,400 square feet of office space in
Scottsdale, Arizona, at a base rent of $67,500 per year. The
50
<PAGE> 53
Company is also required to pay all real property taxes, insurance and ordinary
maintenance on the premises and to name Pakis-Armstrong Venture as an additional
insured on an insurance policy for general liability. The term of the lease
commences on January 1, 1996, and terminates on December 31, 1997, unless
otherwise extended by the parties. The Company intends to use this facility
primarily for training purposes. The Company understands that all amounts to be
paid by the Company to Pakis-Armstrong Venture for the lease described in this
paragraph will be evenly distributed to Messrs. Armstrong and Pakis. The Company
believes that the terms of the lease agreement with Pakis-Armstrong Venture are
at least as favorable as those that would have been obtained for a similar lease
of a comparable property from unaffiliated third parties.
In the first nine months of 1996, the Company granted Messrs. Smith and
Lippman options to purchase 20,000 shares of Common Stock at an exercise price
of $18.44 per share, Messrs. Proud and Desmarchais options to purchase 15,000
shares of Common Stock at an exercise price of $18.44 per share, and Mr. Davis
options to purchase 15,000 shares of Common Stock at an exercise price of $19.00
per share. The exercise prices of such options were set at the fair market value
of the Common Stock on the date of grant, as determined by the Compensation
Committee of the Board of Directors. Such options vest ratably over a five-year
period.
On April 26, 1996, the Company entered into its standard form Software
License Agreement with West Marine Products, Inc., for the license of the
Company's WinDSS product. Crawford Cole, the President of West Marine Products,
Inc. is a director of the Company. The Software License Agreement provides for a
license fee of approximately $400,000 to be paid to the Company over time.
The Company entered into an employment agreement, effective January 1,
1996, with Geoffrey J. Finlay, who as of such date was the Managing Director of
JDA International. Mr. Finlay receives an annual base salary of $188,000 and may
receive a bonus in 1996 of approximately $37,000. In October 1996, the Company
and Mr. Finlay entered into an agreement pursuant to which Mr. Finlay will
continue as an employee of the Company at his then current salary through
January 2, 1997 and pursuant to which Mr. Finlay has agreed not to compete with
the Company for a period of one year, in exchange for a payment of approximately
$60,000.
The lease for the Company's principal facility in Phoenix, Arizona is
individually guaranteed by Messrs. Armstrong and Pakis. See
"Business -- Facilities."
51
<PAGE> 54
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1996, and as
adjusted to reflect the sale of the shares offered hereby, assuming no exercise
of the Underwriters' over-allotment option, (i) by each person who is known by
the Company to own beneficially more than 5% of the Company's Common Stock, (ii)
by each of the Company's executive officers named in the Summary Compensation
Table and by each of the Company's directors, (iii) by all executive officers
and directors as a group, and (iv) by the Selling Stockholders. Except pursuant
to applicable community property laws or as indicated in the footnotes to this
table, each stockholder identified in the table possesses sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by such stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING SHARES OFFERING
------------------- BEING -------------------
BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
TA Associates Group(1)......................... 2,435,435 19.7% 485,965 1,949,470 14.9%
435 Tasso St., Suite 200
Palo Alto, CA 94301
OFFICERS AND DIRECTORS
James D. Armstrong(2)(13)...................... 2,919,412 23.6 504,833 2,414,579 18.4
Frederick M. Pakis(3)(13)...................... 2,957,233 23.9 521,583 2,435,650 18.6
Geoffrey J. Finlay(4)(13)...................... 163,160 1.3 0 163,160 1.2
James L. Smith(5)(13).......................... 339,429 2.7 70,000 269,429 2.0
Brent W. Lippman(6)(13)........................ 179,213 1.4 30,000 149,213 1.1
Kenneth J. Desmarchais(7)(13).................. 124,558 1.0 18,000 106,558 *
Thomas M. Proud(8)(13)......................... 20,000 * 20,000 0 *
Kurt R. Jaggers(9)(13)......................... 32,771 * 4,544 28,227 *
Crawford L. Cole(10)(13)....................... 45,000 * 0 45,000 *
All executive officers and directors as a group
(10 persons)................................. 6,780,776 52.6 1,168,960 5,611,816 41.2
OTHER SELLING STOCKHOLDERS
Chestnut Capital International III L.P.(11).... 94,565 * 18,869 75,696 *
Other Selling Stockholders(12)................. 30,750 * 30,750 0 *
</TABLE>
- ---------------
* Represents less than one percent.
(1) Includes 1,265,067 shares held by Advent VII L.P., 750,637 shares held by
Advent Atlantic and Pacific II Limited Partnership, 126,507 shares held by
Advent New York L.P., 270,453 shares held by Advent Industrial II L.P. and
22,771 shares held by TA Venture Investors L.P. Advent VII L.P., Advent
Atlantic and Pacific II Limited Partnership, Advent Industrial II L.P.,
Advent New York L.P. and TA Venture Investors, L.P. are part of an
affiliated group of investment partnerships referred to, collectively, as
the TA Associates Group. The general partner of Advent VII L.P. is TA
Associates VI, L.P. The general partner of Advent Atlantic and Pacific II
Limited Partnership is TA Associates AAP II Partners, L.P. The general
partner of each of TA Associates VII, L.P., TA Associates VI L.P. and TA
Associates AAP II Partners, L.P. is TA Associates, Inc. In such capacity,
TA Associates, Inc. exercises sole voting and investment power with respect
to all of the shares held of record by the named investment partnerships,
with the exception of those shares held by TA Venture Investors, L.P.;
individually no stockholder, director or officer of TA Associates, Inc. is
deemed to have or share such voting or investment power. Principals and
employees of TA Associates, Inc. (including Mr. Jaggers, a director of the
Company) comprise the general partners of TA Venture Investors, L.P. In
such capacity, Mr. Jaggers may be deemed to share voting and investment
power with respect to the 22,771 shares held of record by TA Venture
Investors, L.P. Mr. Jaggers disclaims beneficial ownership of such shares,
52
<PAGE> 55
except to the extent of the 3,329 shares as to which he holds a pecuniary
interest. In the event the Underwriters exercise the over-allotment option,
the five investment funds comprising TA Associates Group will sell an
aggregate of up to 88,441 additional shares in this offering on a pro rata
basis.
(2) Mr. Armstrong is the Chief Executive Officer of the Company. Includes
81,784 shares held by a trust for the benefit of Mr. Armstrong's children.
Mr. Armstrong disclaims beneficial ownership of such shares. Of the 504,833
shares attributed to Mr. Armstrong in the "Shares Offered" column herein,
463,049 shares are being offered by Mr. Armstrong and 41,784 shares are
being offered by the trust for the benefit of Mr. Armstrong's children. The
2,414,579 shares attributed to Mr. Armstrong in the "Shares Beneficially
Owned After the Offering" column herein do not reflect the redemption of
10,000 shares of Common Stock which will occur prior to the effective date
of this offering in connection with the exercise of stock options and the
sale of shares in the offering by Mr. Proud. In the event the Underwriters
exercise the over-allotment option, Mr. Armstrong will sell up to an
additional 91,875 shares in this offering.
(3) Mr. Pakis is the President of the Company. Includes 60,713 shares held by a
trust for the benefit of Mr. Pakis' children. Mr. Pakis disclaims
beneficial ownership of such shares. Of the 521,583 shares attributed to
Mr. Pakis in the "Shares Offered" column herein, 490,870 shares are being
offered by Mr. Pakis and 30,713 shares are being offered by the trust for
the benefit of Mr. Pakis' children. The 2,435,650 shares attributed to Mr.
Pakis in the "Shares Beneficially Owned After the Offering" column herein
do not reflect the redemption of 10,000 shares of Common Stock which will
occur prior to the effective date in connection with the exercise of stock
options and the sale of shares in the offering by Mr. Proud. In the event
the Underwriters exercise the over-allotment option, Mr. Pakis will sell up
to an additional 91,875 shares in this offering.
(4) Mr. Finlay served as the Managing Director of JDA International until
October 1996. Includes 162,000 shares subject to options exercisable within
60 days of the date of this offering.
(5) Mr. Smith is the Executive Vice President of the Company. Includes 97,713
shares subject to options exercisable within 60 days of the date of this
offering.
(6) Mr. Lippman is the Senior Vice President, Sales and Marketing, of the
Company. Includes 135,570 shares subject to options exercisable within 60
days of the date of this offering.
(7) Mr. Desmarchais is the Vice President, Technology, of the Company. Includes
102,500 shares subject to options exercisable within 60 days of the date of
this offering.
(8) Mr. Proud is a Vice President and the Chief Financial Officer of the
Company. Includes 20,000 shares subject to options exercisable within 60
days of the date of this offering. Excludes 55,000 shares subject to
periodic vesting following expiration of such 60-day period.
(9) Mr. Jaggers is a director of the Company. Includes 22,771 shares held by TA
Venture Investors, L.P., all of which are included in the 2,435,435 shares
described in footnote (1) above. Mr. Jaggers disclaims beneficial ownership
to such shares, except to the extent of the 3,329 shares as to which he
holds a pecuniary interest. Does not include any shares beneficially owned
by Advent VII L.P., Advent Atlantic and Pacific II Limited Partnership,
Advent Industrial II L.P. or Advent New York L.P., of which Mr. Jaggers
disclaims beneficial ownership. Includes 10,000 shares subject to options
exercisable within 60 days of the date of this offering.
(10) Mr. Cole is a director of the Company. Includes 10,000 shares subject to
options exercisable within 60 days of the date of this offering.
(11) Messrs. Jonathan J. Fleming, Michael F. Schiavo, Peter A. Schober and John
G. Turner are the general partners of MVP Capital Limited Partnership which
has voting and investment power to act for Chestnut Capital International
III L.P. In the event the Underwriters exercise the over-allotment option,
Chestnut Capital International II L.P. will sell an additional 3,434 shares
in this offering.
(12) Includes 17 individuals who are each selling 1,000 shares and 11
individuals who are each selling 1,250 shares.
(13) The individual's address is c/o the Company, 11811 North Tatum Boulevard,
Suite 2000, Phoenix, Arizona 85028.
53
<PAGE> 56
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 18,000,000 shares
of Common Stock, par value $.01 per share, and 2,000,000 shares of preferred
stock, par value $1.00 per share. The following summary of certain provisions of
the Common Stock and the preferred stock of the Company does not purport to be
complete and is subject to, and qualified in its entirety by, the Second
Restated Certificate of Incorporation and Bylaws of the Company that are
included as exhibits to the Registration Statement of which this Prospectus
forms a part and the provisions of applicable law.
COMMON STOCK
As of September 30, 1996, there were 12,365,237 shares of Common Stock
outstanding and held of record by approximately 99 stockholders. In addition, as
of such date 1,236,242 shares were subject to outstanding options, and 504,000
unissued shares were subject to a pending claim in arbitration. See "Risk
Factors -- Pending Arbitrations" and "Business -- Legal Proceedings." The
holders of Common Stock are entitled to one vote for each share held of record
on all matters submitted to a vote of the holders of Common Stock. Subject to
preferences applicable to any outstanding preferred stock, holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any preferred stock. Holders of
Common Stock have no preemptive or subscription rights, and there are no
redemption or conversion rights with respect to such shares. All outstanding
shares of Common Stock are fully paid and non-assessable, and the shares of
Common Stock to be issued upon completion of the offering will be fully paid and
non-assessable.
PREFERRED STOCK
The Board of Directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the dividend rate, voting rights and other rights, preferences and
restrictions of each series, any or all of which may be greater than the rights
of the Common Stock. It is not possible to state the actual effect of the
issuance of any shares of preferred stock upon the rights of holders of the
Common Stock until the Board of Directors determines the specific rights of the
holders of such preferred stock. However, the effects might include, among other
things, restricting dividends on the Common Stock, diluting the voting power of
the Common Stock, impairing the liquidation rights of the Common Stock and
delaying or preventing a change in control of the Company without further action
by the stockholders. The Company has no present plans to issue any shares of
preferred stock.
REGISTRATION RIGHTS
Following the sale of the shares of Common Stock offered hereby, the
holders of approximately 2,025,000 shares of Common Stock will have certain
rights to register those shares under the Securities Act of 1933, as amended
(the "Securities Act") pursuant to the Exchange Agreement. See "Certain
Transactions." Subject to certain limitations, the holders of at least 20% of
such shares then outstanding may require, on up to two occasions, that the
Company use its best efforts to register such shares for public resale. If the
Company registers any of its Common Stock either for its own account or for the
account of other security holders, the holders of such registration rights are
entitled to include their shares of Common Stock in the registration, subject to
the ability of the underwriters to limit the number of shares included in the
offering. The holders of at least 20% of such shares may also require the
Company to register all or a portion of their registrable securities on Form S-3
when use of such form becomes available to the Company, provided, among other
limitations, that the proposed aggregate selling price is at least $500,000. All
fees, costs and expenses of such registrations (other than underwriting
discounts and commissions) will be borne by the Company. In connection with a
pending claim in arbitration, registration rights similar to those described
above are being sought and could be awarded with respect to 504,000 unissued
shares of the Company's Common Stock. See "Risk Factors -- Pending Arbitrations"
and "Business -- Legal Proceedings."
54
<PAGE> 57
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND CHARTER DOCUMENTS
The Company is a Delaware corporation and subject to Section 203 of the
Delaware General Corporation Law (the "Delaware Law"), an anti-takeover law. In
general, Section 203 of the Delaware Law prevents an "interested stockholder"
(defined generally as a person owning 15% or more of a corporation's outstanding
voting stock) from engaging in a "business combination" (as defined) with a
Delaware corporation for three years following the date such person became an
interested stockholder, subject to certain exceptions such as the approval of
the board of directors and of the holders of at least two-thirds of the
outstanding shares of voting stock not owned by the interested stockholder. The
existence of this provision would be expected to have an anti-takeover effect,
including attempts that might result in a premium over the market price for the
shares of Common Stock held by stockholders.
The Company's Certificate of Incorporation provides that the Board of
Directors is divided into three classes of directors with each class serving a
staggered three-year term. The classification system of electing directors may
tend to discourage a third party from making a tender offer or otherwise
attempting to obtain control of the Company and may maintain the incumbency of
the Board of Directors, as it generally makes it more difficult for stockholders
to replace a majority of the directors. The Company's Certificate of
Incorporation also eliminates the right of stockholders to act without a meeting
and does not provide for cumulative voting in the election of directors. These
and other provisions may have the effect of deferring hostile takeovers or
delaying changes in control or management of the Company. The amendment of any
of these provisions would require approval by holders of 66 2/3% or more of the
outstanding Common Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of Common Stock in the public market
could adversely affect the market price of the Common Stock.
As of September 30, 1996 and giving effect to this offering, the Company
will have outstanding an aggregate of 13,115,237 shares of Common Stock. Of
these shares, the 2,450,000 shares sold in the offering and approximately
3,713,928 shares already outstanding will be freely tradeable without
restriction or further registration under the Securities Act, except for any
shares purchased by "affiliates" of the Company as that term is defined in Rule
144 under the Securities Act (subject to certain limitations and restrictions
described below). The remaining 6,932,824 shares of Common Stock held by
existing stockholders were issued and sold by the Company in reliance on
exemptions from the registration requirements of the Securities Act. Such
outstanding shares will be subject to the lock-up agreements as described below
on the date of this Prospectus. Of those 6,932,824 shares of Common Stock,
6,875,395 shares will be subject to lock-up agreements until the date 180 days
from the effective date of this offering. In addition, 190,201 shares will be
subject to lock-up agreements until the date 90 days from the effective date of
this offering. However, 981,242 of these 6,875,395 shares may be redeemed by the
Company and become treasury stock pursuant to the Redemption Agreement between
the Company and Mr. Armstrong and Mr. Pakis as the result of the exercise of
stock options issued under the Option Plan. See "Management -- Benefit
Plans -- 1995 Stock Option Plan" and "Certain Transactions." Upon expiration of
the lock-up agreements 180 days from the effective date of this offering, the
5,894,153 shares of Common Stock not subject to redemption by the Company will
be eligible for sale, subject to the limitations of Rule 144. In addition,
existing registration rights or registration rights the Company may be required
to grant could increase the number of shares available for sale in the public
markets. See "Description of Capital Stock -- Registration Rights."
As of September 30, 1996, there were a total of 931,242 shares of Common
Stock subject to outstanding options under the Option Plan, 512,708 of which
were vested and exercisable, and 305,000 shares of Common Stock subject to
outstanding options under the 1996 Option Plan, 20,000 of which were vested and
exercisable. All options held by officers and directors of the Company are
subject to 180 day lock-up agreements described
55
<PAGE> 58
below. On June 13, 1996, the Company filed registration statements on Form S-8
under the Securities Act to register all of the shares of Common Stock issued or
reserved for future issuance under the Option Plan, the 1996 Option Plan, the
Directors Plan and the Purchase Plan. Therefore, shares purchased upon exercise
of options granted pursuant to the Option Plan, the 1996 Option Plan or the
Directors Plan or purchased under the Purchase Plan generally are available for
resale in the public market.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years (including the holding period of any prior owner except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately 131,152 shares
immediately after this offering) or (ii) generally, the average weekly trading
volume in the Common Stock during the four calendar weeks preceding the required
filing of a Form 144 with respect to such sale. Sales under Rule 144 are
generally subject to the availability of current public information about the
Company. Under Rule 144(k), a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for a least three years, is
entitled to sell such shares without having to comply with the manner of sale,
public information, volume limitation or notice filing provisions of Rule 144.
Under Rule 701 under the Securities Act, persons who purchase shares upon
exercise of options granted prior to the effective date of this offering are
entitled to sell such shares 90 days after the effective date of this offering
in reliance on Rule 144, without having to comply with the holding period and
notice filing requirements of Rule 144 and, in the case of non-affiliates,
without having to comply with the public information, volume limitation or
notice filing provisions of Rule 144.
Certain Selling Stockholders have agreed that they will not, subject to
certain limited exceptions, directly or indirectly, offer, sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for any such shares for a period of 180 days after
the effective date of the offering without the prior written consent of
Montgomery Securities. The remaining Selling Stockholders and the remaining
executive officers and director of the Company have agreed that they will not,
subject to certain limited exceptions, directly or indirectly, offer, sell or
otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for any such shares for a period of 90 days
after the effective date of the offering without the prior written consent of
Montgomery Securities.
56
<PAGE> 59
UNDERWRITING
Montgomery Securities, Hambrecht & Quist LLC and Piper Jaffray Inc. (the
"Underwriters") have severally agreed, subject to the terms and conditions set
forth in the Underwriting Agreement, to purchase from the Company and the
Selling Stockholders the number of shares of Common Stock indicated below
opposite their respective names at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of such shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ---------------------------------------------------------------------------------- ---------
<S> <C>
Montgomery Securities.............................................................
Hambrecht & Quist LLC.............................................................
Piper Jaffray Inc. ...............................................................
---------
Total................................................................... 2,450,000
=========
</TABLE>
The Underwriters have advised the Company that they initially propose to
offer the Common Stock to the public on the terms set forth on the cover page of
this Prospectus. The Underwriters may allow to selected dealers a concession of
not more than $ per share, and the Underwriters may allow, and such
dealers may reallow, a concession of not more than $ per share to
certain other dealers. After the public offering, the offering price and other
selling terms may be changed by the Underwriters. The Common Stock is offered
subject to receipt and acceptance by the Underwriters and to certain other
conditions, including the right to reject orders in whole or in part. The
Underwriters may offer the shares of Common Stock through a selling group.
In connection with this offering, the Underwriters and selling group
members, if any, may engage in passive market making transactions in the Common
Stock on the Nasdaq National Market immediately prior to the commencement of
sales in this offering in accordance with Rule 10b-6A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Passive market making
consists of displaying bids on the Nasdaq National Market limited by the prices
of independent market makers and effecting purchases limited by such prices and
in response to order flow. Net purchases by a passive market maker on each day
are limited in amount to a specified percentage of the passive market maker's
average daily trading volume in the Common Stock during a specified prior period
and must be discontinued when such limit is reached. Passive market making may
stabilize the market price of the Common Stock at a level above that which might
otherwise prevail and, if commenced, may be discontinued at any time.
The Company and certain of the Selling Stockholders have granted an option
to the Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to a maximum of 367,500 additional shares of Common
Stock to cover over-allotments, if any, at the same price per share as the
initial 2,450,000 shares to be purchased by the Underwriters. To the extent the
Underwriters exercise this option, each of the Underwriters will be committed,
subject to certain conditions, to purchase such additional shares in the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.
Certain of the Selling Stockholders have agreed not to sell or offer to
sell or otherwise dispose of the shares of Common Stock currently held by them,
any options or warrants to purchase any shares of Common Stock or any securities
convertible into or exchangeable for any shares of Common Stock for a period of
180 days after the effective date of this offering, without the prior written
consent of Montgomery Securities. The remaining Selling Stockholders and the
remaining executive officers and director of the Company have agreed not to sell
or offer or otherwise dispose of Common Stock or any securities convertible into
or exchangeable for any shares of Common Stock for a period of 90 days after the
date of this Prospectus without the prior written consent of Montgomery
Securities. Montgomery Securities may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to these
lock-up agreements. In addition, the Company has agreed that for a period of 180
days after the effective date of this offering it will not, without
57
<PAGE> 60
the consent of Montgomery Securities, issue, offer, sell, grant options to
purchase or otherwise dispose of any equity securities or securities convertible
into or exchangeable for equity securities except for shares of Common Stock
offered hereby and shares issued pursuant to the Company's option plans or stock
purchase plan.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters against certain liabilities under
the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
LEGAL MATTERS
The validity of the securities offered hereby has been and general
corporate legal matters will be passed upon for the Company by Gray Cary Ware &
Freidenrich, A Professional Corporation, San Diego, California. Morrison &
Foerster LLP, Irvine, California is acting as counsel for the Underwriters in
connection with certain legal matters relating to the sale of the Common Stock
offered hereby.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1994
and for each of the three years in the period ended December 31, 1995 and the
related financial statement schedule included in this Prospectus and the
Registration Statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports thereon appearing elsewhere herein and in
the Registration Statement, and are included in reliance upon such reports given
upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549; on the Internet at http://www.sec.gov;
and at the following regional offices: Chicago Regional Office, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661; and New York Regional Office, 7
World Trade Center, Suite 1300, New York, New York 10048. The Common Stock of
the Company is quoted on the Nasdaq National Market. Reports, proxy statements
and other information concerning the Company may also be inspected at the
National Association of Securities Dealers, Inc., 1735 K. Street, N.W.,
Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement and the
exhibits and schedules thereto, which may be inspected without charge at, and
copies thereof may be obtained at prescribed rates from, the Public Reference
Section of the Commission.
58
<PAGE> 61
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Stockholders' Equity (Deficit)............................. F-5
Combined Statements of Cash Flows..................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 62
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
JDA Software Group, Inc.
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of JDA
Software Group, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of JDA Software
Group, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Phoenix, Arizona
January 20, 1996
F-2
<PAGE> 63
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- SEPTEMBER 30,
1994 1995 1996
----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 2,912,876 $ 498,302 $14,411,323
Restricted investments (Note 1)............................... -- 14,649,072 --
Accounts receivable -- net of allowance for doubtful accounts
of $112,700, $350,700 and $809,000 (Note 3)................. 6,709,352 9,835,371 15,923,795
Receivables from related parties.............................. 81,414 -- --
Prepaid expenses and other current assets..................... 249,982 276,884 574,907
Deferred tax asset (Note 9)................................... -- 425,300 460,000
----------- ------------ ------------
Total current assets................................... 9,953,624 25,684,929 31,370,025
----------- ------------ ------------
GOODWILL -- net of accumulated amortization of $10,600.......... -- -- 1,666,907
------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS (Notes 3 and 5):
Computer and office equipment................................. 2,957,663 4,253,125 6,534,870
Leasehold improvements........................................ 317,795 179,698 219,667
----------- ------------ ------------
3,275,458 4,432,823 6,754,537
Less accumulated depreciation and amortization................ 1,671,828 2,022,773 2,744,328
----------- ------------ ------------
Equipment and leasehold improvements -- net................. 1,603,630 2,410,050 4,010,209
----------- ------------ ------------
TOTAL.................................................. $11,557,254 $ 28,094,979 $37,047,141
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank line of credit (Note 3).................................. $ -- $ 575,000 $ --
Notes payable to stockholders (Notes 1 and 10)................ -- 19,180,496 --
Interest payable to stockholders.............................. -- 732,301 --
Accounts payable.............................................. 486,754 881,028 614,968
Accrued and other liabilities (Note 4)........................ 1,704,717 2,589,309 5,087,695
Corporate taxes payable....................................... 378,500 300,100 663,080
Deferred revenue.............................................. 95,758 767,066 1,815,903
Current portion of capital lease obligations (Note 5)......... 56,132 52,651 60,000
----------- ------------ ------------
Total current liabilities.............................. 2,721,861 25,077,951 8,241,646
CAPITAL LEASE OBLIGATIONS, less current portion (Note 5)........ 193,953 200,709 115,831
DEFERRED TAX LIABILITY (Note 9)................................. 108,000 108,000
NOTES PAYABLE TO STOCKHOLDERS (Notes 1 and 10).................. 2,413,000 -- --
----------- ------------ ------------
Total liabilities...................................... 5,328,814 25,386,660 8,465,477
----------- ------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 5)
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK (Notes 1 and
7)............................................................ -- 15,000,000 --
SERIES B REDEEMABLE PREFERRED STOCK (Notes 1 and 7)............. -- -- --
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 1, 7 and 8):
Common stock in 1996, $.01 par value -- authorized, 18,000,000
shares; issued and outstanding, 7,200,000 and 12,365,237
shares...................................................... 5,583 72,000 123,652
Additional paid-in capital.................................... 5,254,000 5,652,748 41,369,368
Retained earnings (deficit)................................... 952,920 (18,029,225) (12,955,025)
Foreign currency translation adjustment (Note 6).............. 15,937 12,796 43,669
----------- ------------ ------------
Total stockholders' equity (deficit)................... 6,228,440 (12,291,681) 28,581,664
----------- ------------ ------------
TOTAL.................................................. $11,557,254 $ 28,094,979 $37,047,141
=========== ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 64
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Software licenses............. $ 9,620,396 $12,220,624 $15,253,102 $ 9,498,378 $16,152,577
Consulting, maintenance and
other services............. 10,700,706 11,608,381 14,831,149 11,313,155 16,201,645
----------- ----------- ----------- ----------- -----------
Total revenues........ 20,321,102 23,829,005 30,084,251 20,811,533 32,354,222
COST OF REVENUES:
Software licenses............. 304,751 56,850 159,237 147,200 266,020
Consulting, maintenance and
other services............. 6,780,536 6,870,499 9,781,454 7,157,990 11,153,340
----------- ----------- ----------- ----------- -----------
Total cost of
revenues............ 7,085,287 6,927,349 9,940,691 7,305,190 11,419,360
----------- ----------- ----------- ----------- -----------
GROSS PROFIT.................... 13,235,815 16,901,656 20,143,560 13,506,343 20,934,862
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Product development........... 1,345,124 1,922,791 3,511,737 2,383,729 4,592,757
Sales and marketing........... 2,404,414 3,227,763 5,198,982 3,588,548 4,783,163
General and administrative
(Notes 5, 8 and 10)........ 2,466,067 2,528,852 3,929,404 2,607,069 3,386,570
Tax related compensation to
S Corporation
stockholders (Note 1)...... 7,422,035 -- -- -- --
----------- ----------- ----------- ----------- -----------
Total operating
expenses............ 13,637,640 7,679,406 12,640,123 8,579,346 12,762,490
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS... (401,825) 9,222,250 7,503,437 4,926,997 8,172,372
OTHER INCOME (EXPENSE) --
Net (Note 10)................. (171,658) (221,152) (433,609) (311,115) 277,133
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES......................... (573,483) 9,001,098 7,069,828 4,615,882 8,449,505
PROVISION FOR INCOME TAXES
(Note 9)...................... 865,000 500,000 1,497,000 786,758 3,375,305
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS)............... $(1,438,483) $ 8,501,098 $ 5,572,828 $ 3,829,124 $ 5,074,200
=========== =========== =========== =========== ===========
PRO FORMA (Note 1):
Historical net income (loss).. $ 5,572,828 $ 3,829,124
Pro forma adjustment to adjust
income tax provision
(Note 9)................... (1,172,000) (955,000)
----------- -----------
Pro forma net income.......... $ 4,400,828 $ 2,874,124
=========== ===========
PRO FORMA NET INCOME PER
SHARE......................... $ 0.42 $ 0.27 $ 0.43
=========== =========== ===========
SHARES USED IN PER SHARE
CALCULATION................... 10,952,000 10,952,000 11,884,215
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 65
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
THREE YEARS ENDED DECEMBER 31, 1995 AND NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
UNREALIZED
FOREIGN
COMMON STOCK ADDITIONAL RETAINED CURRENCY
--------------------- PAID-IN EARNINGS TRANSLATION
SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENTS TOTAL
---------- -------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993.............. 4,495 $ 4,495 $ 2,323,986 $ (218,772) $ 99,975 $ 2,209,684
Stockholder contribution (Note 1)... 2,625,000 2,625,000
Dividends........................... (2,733,029) (2,733,029)
Issuance of common stock............ 26 26 179,974 180,000
Acquisition of minority interest and
other............................. 1,062 1,062 125,040 126,102
Unrealized foreign currency
translation adjustment (Note 6)... (104,890) (104,890)
Net loss............................ (1,438,483) (1,438,483)
--------- ------- ---------- ------------ ---------- ------------
BALANCE, DECEMBER 31, 1993............ 5,583 5,583 5,254,000 (4,390,284) (4,915) 864,384
Dividends........................... (3,157,894) (3,157,894)
Unrealized foreign currency
translation adjustment (Note 6)... 20,852 20,852
Net income.......................... 8,501,098 8,501,098
--------- ------- ---------- ------------ ---------- ------------
BALANCE, DECEMBER 31, 1994............ 5,583 5,583 5,254,000 952,920 15,937 6,228,440
Dividends........................... (3,897,425) (3,897,425)
Reorganization and issuance of
preferred stock (Note 1).......... 7,194,417 66,417 (274,340) (19,984,460) (20,192,383)
Stock options exercised (Note 8).... 673,088 (673,088)
Unrealized foreign currency
translation adjustment (Note 6)... (3,141) (3,141)
Net income.......................... 5,572,828 5,572,828
--------- ------- ---------- ------------ ---------- ------------
BALANCE, DECEMBER 31, 1995............ 7,200,000 72,000 5,652,748 (18,029,225) 12,796 (12,291,681)
Issuance of common stock:
IPO (Notes 1 and 11).............. 2,182,866 21,829 25,279,461 25,301,290
Conversion of preferred stock
(Note 11)....................... 2,800,000 28,000 7,472,000 7,500,000
Employee stock purchase plan...... 38,445 384 424,433 424,817
Acquisition of JDA Canada (Note
11)............................. 143,926 1,439 2,540,726 2,542,165
Foreign currency translation
adjustment........................ 30,873 30,873
Net income.......................... 5,074,200 5,074,200
--------- ------- ---------- ------------ ---------- ------------
BALANCE, SEPTEMBER 30, 1996
(unaudited)......................... 12,365,237 $123,652 $41,369,368 $(12,955,025) $ 43,669 $ 28,581,664
========= ======= ========== ============ ========== ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 66
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEARS ENDED DECEMBER 31 30,
--------------------------------------- ---------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)....................................... $(1,438,483) $ 8,501,098 $ 5,572,828 $ 3,829,124 $ 5,074,200
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization......................... 465,777 525,611 637,205 242,178 802,290
Allowance for doubtful accounts....................... (73,500) 110,160 238,000 195,007 349,144
Deferred income taxes................................. (317,300) (90,285) 269,146
Tax related compensation (Note 1)..................... 2,413,000 --
Other................................................. (104,890) 42,901 70,478
Changes in assets and liabilities, net of effects from
purchase of JDA Canada:
Accounts receivable................................... (2,092,794) (1,812,378) (3,364,019) (1,525,086) (5,787,689)
Receivables from related parties...................... 32,141 53,766 81,414 182,656
Prepaid expenses and other current assets............. 349,545 (43,138) (26,902) (735,602) (35,980)
Accounts payable...................................... (269,220) 155,733 394,274 (6,940) (325,629)
Accrued and other liabilities......................... 1,970,063 (200,831) 806,192 1,096,732 2,193,059
Deferred revenue...................................... (9,484) 34,188 671,308 146,952 1,048,837
Interest payable to stockholders...................... -- -- 732,301 (732,301)
----------- ----------- ----------- ------------ ------------
Net cash provided by operating activities......... 1,242,155 7,367,110 5,495,779 3,334,736 2,855,077
----------- ----------- ----------- ------------ ------------
INVESTING ACTIVITIES:
Purchase of investments................................. -- -- (14,649,072) (14,432,395)
Redemption of investments............................... 14,649,072
Cash acquired from purchase of TDA Canada............... 214,210
Purchase of equipment and leasehold improvements........ (404,615) (704,966) (1,421,542) (820,272) (2,154,023)
----------- ----------- ----------- ------------ ------------
Net cash (used in) provided by investing
activities...................................... (404,615) (704,966) (16,070,614) (15,252,667) 12,709,259
----------- ----------- ----------- ------------ ------------
FINANCING ACTIVITIES:
Initial public offering transactions:
Issuance of common stock.............................. 25,301,290
Redemption of Series B preferred stock................ (7,500,000)
Payments on notes to stockholders..................... (4,880,832)
Stockholder transactions:
Issuance of redeemable preferred stock -- net......... -- -- 14,792,077 14,792,077
Reorganization distribution........................... -- -- (2,294,539) (2,295,433)
Dividends............................................. (2,733,029) (3,157,894) (3,897,425) (3,897,425)
Payments on notes payable to stockholders............. (57,081) -- (922,456) (354,000) (14,299,664)
Cash capital contribution from S Corporation
stockholders........................................ 2,625,000 -- --
Issuance of common stock.............................. 181,102 -- --
Net borrowings (payments) on bank line of credit........ (850,000) (650,000) 575,000 1,130,000 (575,000)
Issuance of common stock -- employee stock purchase
plan.................................................. 424,817
Capital lease payments and other........................ 111,519 (157,244) (92,396) (2,860) (121,926)
----------- ----------- ----------- ------------ ------------
Net cash provided by (used in) financing
activities...................................... (722,489) (3,965,138) 8,160,261 9,372,359 (1,651,315)
----------- ----------- ----------- ------------ ------------
NET (DECREASE) INCREASE IN CASH........................... 115,051 2,697,006 (2,414,574) (2,545,572) 13,913,021
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.............. 100,819 215,870 2,912,876 2,912,876 498,302
----------- ----------- ----------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR.................... $ 215,870 $ 2,912,876 $ 498,302 $ 367,304 $ 14,411,323
=========== =========== =========== ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest.............................................. $ 262,277 $ 261,160 $ 367,210 $ 40,179 $ 1,301,959
=========== =========== =========== ============ ============
Income taxes.......................................... -- $ 867,220 $ 1,827,899 $ 14,880 $ 2,877,766
=========== =========== =========== ============ ============
Tax related compensation paid with a note payable....... $ 2,413,000 -- -- -- --
=========== =========== =========== ============ ============
Assets under capital lease.............................. $ 161,755 $ 157,640 $ 95,702 -- --
=========== =========== =========== ============ ============
Net issuance of common stock against additional paid-in
capital (Note 1)...................................... -- -- $ 66,417 $ 66,417 --
=========== =========== =========== ============ ============
Distributions to stockholders paid with a note payable
(Note 1).............................................. -- -- $17,689,921 $ 17,689,921 --
=========== =========== =========== ============ ============
Conversion of Series A preferred stock.................. -- -- -- -- $ 7,500,000
=========== =========== =========== ============ ============
Acquisition of JDA Canada:
Common stock issued..................................... -- -- -- -- $ 2,542,165
Fair value of assets acquired, other than cash.......... -- -- -- -- (1,149,750)
Liabilities assumed..................................... -- -- -- -- 499,302
Goodwill................................................ -- -- -- -- (1,677,507)
=========== =========== =========== ============
------------
Cash acquired........................................... $ 214,210
=========== =========== =========== ============ ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 67
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1995
1. REORGANIZATION
Prior to March 1995, JDA Software Services, Inc., JDA International
Limited, JDA Software, Inc., JDA Worldwide, Inc. and JDA Asia Pte Ltd. ("the
Predecessor Companies") issued combined financial statements because such
companies operated under the common control and management of the Company's two
principal stockholders, Mr. James Armstrong and Mr. Frederick Pakis ("Armstrong
and Pakis"). At that time, the common stockholders of the Predecessor Companies
agreed to enter into a transaction to be effective March 30, 1995 (the
"Reorganization") under which the Predecessor Companies were consolidated under
a common holding company, the holding company issued $15,000,000 of redeemable
convertible preferred stock and the stockholders of the Predecessor Companies
received the proceeds from the issuance of the preferred stock as well as any
undistributed equity of the Predecessor Companies. Accordingly, JDA Software
Group, Inc. ("JDA" or the "Company") was formed in March 1995 and on March 30,
1995, JDA and the stockholders of the Predecessor Companies entered into
simultaneous transactions under which (1) the Predecessor Companies were
contributed into JDA, the Predecessor Company stockholders received 7,200,000
shares of common stock representing all of JDA's then outstanding common stock,
$2,294,539 of cash, $14,000,000 of notes due January 11, 1996, $898,990 of notes
due through January 13, 1996 and $2,790,931 of notes due through 2000 (together
the "Notes"); and (2) JDA issued $15,000,000 of its Series A Redeemable
Convertible Preferred Stock (the "Preferred Stock") (Note 7) for $15,000,000
cash. The transaction has been accounted for as a combination of companies under
common control in a manner similar to a pooling of interests, the issuance of
$15,000,000 of Preferred Stock and the distribution of cash and the Notes as a
dividend. Additional paid-in capital has been charged for $66,417 to reflect the
new par value of common stock outstanding and $207,923 for expenses applicable
to the Reorganization.
$14,000,000 of the Notes were issued to the common stockholders and the
proceeds from the issuance of the Preferred Stock were invested in restricted
short-term investments which were used for the payment of the Notes.
Accordingly, at December 31, 1995, the assets and liabilities of JDA include
short-term notes payable of $14,000,000 and restricted investments of
$14,649,072. Such investments were held to their January 11, 1996 maturity date
when the $14,000,000 of Notes were repaid. The remaining stockholder notes
provide an acceleration clause whereby the holder may demand payment from the
Company upon the closing of an initial public offering ("IPO") of at least
$15,000,000. The Company intends to repay the notes upon the closing of an IPO
and therefore, the notes have been classified as a current liability.
Prior to the Reorganization, JDA pursued a tax strategy designed to
maximize private company stockholder value. Under this strategy:
a. Certain of the Predecessor Companies, which earned substantially
all of the Company's U.S. taxable income, elected S Corporation status
under Subchapter S of the Internal Revenue Code. This election resulted in
substantially all U.S. federal taxable income being taxed to the
stockholders rather than to the Predecessor Companies; and,
b. For the years 1991, 1992 and 1993, these Predecessor Companies paid
annual tax related compensation to the stockholders that was charged to
expense in order to minimize income taxes in those tax jurisdictions that
did not recognize S Corporations. This compensation was in lieu of S
Corporation dividends to the stockholders, and in 1993, $2,625,000 of such
payments were contributed to the capital of the Company.
The tax related compensation was terminated after 1993 and the S
Corporation status was terminated at the date of the Reorganization. The
historical financial statements include tax related compensation expense of
$7,422,035 for 1993. For 1993, 1994 and the first three months of 1995, the
historical financial statements do not include a provision for U.S. federal
income taxes.
F-7
<PAGE> 68
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma financial statement information has been included to present the
1995 income statement data as if U.S. federal income had been taxable to JDA
rather than the stockholders; and to eliminate the tax provision at March 31,
1995 which established deferred taxes applicable to the Predecessor Companies
which were taxed as S Corporations.
The Company is preparing for an IPO of its common stock which, upon
completion, will result in the conversion of all outstanding shares of Preferred
Stock into 2,800,000 shares of common stock and $7,500,000 of Series B Preferred
Stock (Note 7), which Series B Preferred Stock will be redeemed from the
proceeds from the offering. The accompanying pro forma balance sheet information
gives effect to the conversion of all outstanding shares of Preferred Stock into
common stock and Series B Preferred Stock at the closing of the offering. The
provisions of the Series B Preferred Stock require that the stock be redeemed
within two days after receipt of the proceeds from the offering.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS -- JDA is a leading international provider of
comprehensive enterprise-wide solutions that address mission-critical business
information requirements of retail organizations. The Company's products and
services are marketed and sold on credit terms in the United States through the
Company's direct sales force and a network of value-added implementors, systems
integrators and consultants. Sales to customers outside the U.S. are facilitated
by an overseas direct sales force employed by the Company's subsidiaries and
through a network of sales agents and distributors. The Company's solutions have
been deployed by a broad range of retail enterprises worldwide.
A summary of significant accounting policies is as follows:
a. Principles of Consolidation -- The consolidated financial
statements include the accounts of JDA and its wholly-owned subsidiaries.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
b. Revenue -- JDA derives its revenues from software licenses and
consulting, maintenance and other services. The Company records revenues
from software licenses as completed products are shipped if collection of
the related receivable is probable and the Company's remaining obligation
with respect to the contract is insignificant. Allowances for product
returns are estimated based on previous experience and are recorded as a
reduction of revenue at the time sales are recognized. Consulting services
are billed on an hourly basis and revenues are recorded as the work is
performed. Maintenance revenues are recorded as revenue in the applicable
month.
c. Cash and Cash Equivalents -- All highly liquid investments with an
original maturity of three months or less are recorded as cash equivalents.
d. Equipment and Leasehold Improvements are stated at cost.
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives of the related assets, generally three to
seven years, or the life of the lease, whichever is shorter.
e. Product Development Costs -- Development costs incurred in the
research and development of new software products are expensed as incurred
until technological feasibility has been established. JDA considers
technological feasibility to be established when all planning, designing,
coding and testing has been completed according to design specifications.
After technological feasibility is established, any additional costs would
be capitalized in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 86, Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed. Historically product development has
been substantially completed concurrently with the establishment of
technological feasibility and, accordingly, no costs have been capitalized.
F-8
<PAGE> 69
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
f. Deferred Revenue represents advance customer billings on
maintenance, software license receivables due after 12 months and
consulting projects which will be recognized as revenue as the work is
performed.
g. Income Taxes through March 30, 1995 have been provided on income
taxable to the Predecessor Companies in accordance with SFAS No. 109,
Accounting for Income Taxes. Through that date, substantially all income
subject to U.S. federal income tax was attributable to certain Predecessor
Companies which had elected S Corporation status under the Internal Revenue
Code. Accordingly, historical tax provisions through that date do not
include provisions for U.S. federal income taxes. Subsequent to March 30,
1995, taxes have been provided on all income in accordance with SFAS No.
109.
At March 31, 1995, deferred income taxes were established for those
Predecessor Companies that had been treated as S Corporations. Such income
taxes aggregating $260,000 have been included in the historical income tax
provision at that date.
h. Pro Forma Net Income Per Share has been calculated for 1995 based
upon the number of shares of common and equivalent shares outstanding
subsequent to the Reorganization including the common shares that will be
issued upon the conversion of the Preferred Stock, plus the estimated
number of shares that will be necessary to repay certain stockholder notes
arising from the Reorganization and the redemption of Series B Preferred
Stock. Outstanding options have not been considered because, as described
in Note 8, no dilution will result from the exercise of such options.
i. Foreign Currency -- Foreign currency assets and liabilities are
generally translated into U.S. dollars using the exchange rates in effect
at the statement of financial position date. Results of operations are
generally translated using the average exchange rates throughout the
period. The effects of exchange rate fluctuations on translation of assets
and liabilities are reported as a separate component of equity.
j. New Accounting Pronouncements -- In October 1995, the Financial
Accounting Standards Board issued SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" and SFAS No. 123 "Accounting for Stock Based Compensation." Management
believes the impact of SFAS No. 121 will not have a significant impact on
the Company's financial statements. With respect to SFAS No. 123, the
Company has determined that it will not change to the fair value method and
will continue to use Accounting Principles Board Opinion No. 25 for
measurement and recognition of employee stock based transactions. (Note 8)
k. Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles necessarily
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
l. Product Concentration -- The Company has to date derived
substantially all of its revenues from the license and related consulting
services of a limited number of information management software
applications for the retail industry.
m. Reclassifications -- Certain reclassifications were made to the
1993 and 1994 financial statements to conform with the 1995 presentation.
F-9
<PAGE> 70
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LINE OF CREDIT
The Company has a $2,500,000 line of credit, bearing interest at the bank's
reference rate plus .25% (8.75% at December 31, 1995), collateralized by
accounts receivable and equipment. $1,925,000 of this line of credit was
available to the Company at December 31, 1995. The line of credit is guaranteed
by Armstrong and Pakis and matures on July 1, 1996. Under the terms of the line
of credit, the Company is required to maintain certain tangible net worth and
profitability requirements. JDA is in compliance with the agreement at December
31, 1995.
4. ACCRUED AND OTHER LIABILITIES
Accrued and other liabilities at December 31 consist of the following:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Accrued compensation and benefits............................. $ 534,171 $ 753,723
Sales returns allowance....................................... -- 300,000
Value added tax............................................... 532,881 244,144
Accrued vacation.............................................. 107,500 238,774
Customer deposits............................................. 183,568 215,193
Other accrued expenses........................................ 346,597 837,475
---------- ----------
Total............................................... $1,704,717 $2,589,309
========== ==========
</TABLE>
A sales returns allowance was established in 1995 following changes in
software license contract terms and the introduction of new products.
5. COMMITMENTS AND CONTINGENCIES
The Company leases office space and certain equipment under capital and
operating leases, including leases with stockholders (Note 10). The leases
expire at various dates and include renewal options. Armstrong and Pakis
guarantee certain of these leases. Capital leases included in equipment and
leasehold improvements total approximately $279,000 and $192,000 (net of
accumulated amortization of approximately $198,000 and $71,000) as of December
31, 1994 and 1995, respectively.
Future minimum lease payments for such leases for the years ending December
31 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASE
-------- ----------
<S> <C> <C>
1996........................................................... $ 67,000 $1,153,000
1997........................................................... 67,000 931,000
1998........................................................... 53,600 749,000
1999........................................................... 38,800 344,000
2000........................................................... 15,400 198,000
Thereafter..................................................... 52,000 2,600,000
-------- ----------
Total................................................ 293,800 $5,975,000
==========
Less amounts representing interest............................. (40,440)
--------
Net present value of future minimum lease payments............. 253,360
Less current portion........................................... (52,651)
--------
$200,709
========
</TABLE>
F-10
<PAGE> 71
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense incurred under the operating leases for the three years ended
December 31, 1995 was approximately $224,000, $289,000 and $707,000,
respectively.
6. INTERNATIONAL OPERATIONS
For the three years ended December 31, amounts included in the consolidated
financial statements applicable to international operations, principally those
in the United Kingdom and Europe, were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
United States................................. $14,058,785 $17,691,505 $20,827,569
United Kingdom and Europe..................... 6,262,317 5,662,800 8,113,328
Asia.......................................... -- 474,700 1,143,354
----------- ----------- -----------
Total revenues........................ $20,321,102 $23,829,005 $30,084,251
=========== =========== ===========
INCOME (LOSS) FROM OPERATIONS:
United States................................. $(3,061,689) $ 7,142,093 $ 4,817,466
United Kingdom and Europe..................... 2,659,864 2,016,107 2,173,226
Asia.......................................... -- 64,050 512,745
----------- ----------- -----------
Total income (loss) from operations... $ (401,825) $ 9,222,250 $ 7,503,437
=========== =========== ===========
ASSETS:
United States................................. $ 3,620,120 $ 9,145,065 $25,489,895
United Kingdom and Europe..................... 3,233,592 2,062,155 2,033,366
Asia.......................................... -- 350,034 571,718
----------- ----------- -----------
Total assets.......................... $ 6,853,712 $11,557,254 $28,094,979
=========== =========== ===========
</TABLE>
In 1995, United States revenue includes export sales to Latin America
totaling approximately $2,435,000.
Transaction gains and losses recorded in income in 1993, 1994 and 1995 were
immaterial.
Translation adjustments recorded as a separate component of equity were:
<TABLE>
<CAPTION>
1993 1994 1995
--------- -------- -------
<S> <C> <C> <C>
Balance, beginning of year............................. $ 99,975 $ (4,915) $15,937
Unrealized gain (loss)................................. (104,890) 20,852 (3,141)
--------- -------- -------
Balance, end of year................................... $ (4,915) $ 15,937 $12,796
========= ======== =======
</TABLE>
7. REDEEMABLE PREFERRED STOCK
As explained in Note 1, the Preferred Stock was issued March 30, 1995 in
connection with the Reorganization. Dividends are payable on the Preferred Stock
only to the extent that dividends are declared payable on the common stock. In
the event of an IPO as contemplated in Note 1 or at the option of the holder,
the Preferred Stock is convertible into (1) 2,800,000 shares of common stock or
28% of total then outstanding shares of common stock, subject to certain
anti-dilutive adjustments; and (2) 1,250,004 shares of Series B Redeemable
Preferred Stock aggregating $7,500,000. The Series B Redeemable Preferred Stock
is required to be redeemed by JDA no more than two days after the closing of a
JDA IPO. The Preferred Stock may be redeemed by JDA for $15,000,000 until 2001
and after six years must be redeemed for $15,000,000 if requested by the holder.
F-11
<PAGE> 72
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLANS
JDA has adopted three stock option plans. The Board of Directors has
reserved a total of 1,350,000 shares of common stock for issuance under the
Company's 1995 Stock Option Plan (the "1995 Option Plan"). Both incentive stock
options and nonstatutory stock options may be granted under the 1995 Option
Plan. The exercise price of an incentive stock option and a nonstatutory stock
option must be no less than the fair market value at the date of grant. Options
granted under the 1995 Option Plan are subject to individual vesting schedules,
but must be exercised within ten years of the date of grant.
In connection with the issuance of the Preferred Stock (Note 1), two of the
common stockholders, Armstrong and Pakis, have agreed that upon (1) the exercise
of the first 850,000 employee stock options, they will sell an equivalent number
of their common shares to JDA at the specific option exercise price; and (2)
upon the exercise of the next 500,000 options, they will sell an equivalent
number of their common shares to JDA at $.01 per share. Accordingly, shares
outstanding of the Company will not increase upon the exercise of the first
1,350,000 stock options.
At December 31, 1995, 50,000 options were available for additional grants
under the 1995 Option Plan.
The Board of Directors has also reserved a total of 1,250,000 shares of
common stock for issuance under the Company's 1996 Employee Stock Option Plan
(the "1996 Option Plan") and a total of 150,000 shares of common stock have been
reserved for issuance under the Company's 1996 Outside Directors Stock Option
Plan (the "Directors Plan"). At December 31, 1995, no options had been issued
under the 1996 Option Plan. Options may be granted to employees, consultants,
advisors and directors who are also employees, although only directors and
officers who are also employees may receive incentive stock options intended to
qualify for certain tax treatment. The exercise price of nonqualified stock
options must equal at least 85% of the fair market value of the common stock on
the date of grant, and in the case of incentive stock options must be no less
than the fair market value. Options granted under the option plans generally
vest over four years and must be exercised within ten years. No options have
been granted under the Directors Plan. The Directors Plan provides for the
automatic granting of nonqualified stock options to directors of the Company who
are not employees of the Company ("Outside Directors").
The following is a summary of changes in outstanding options related to the
1995 Option Plan:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1994.......................... -- --
Granted................................................. 1,310,000 $3.50 to $5.25
Cancelled or expired.................................... (10,000) $4.25
Exercised............................................... (192,862) $3.50
---------
Outstanding at December 31, 1995.......................... 1,107,138 $3.50 to $5.25
========
Exercisable at December 31, 1995.......................... 544,320
========
</TABLE>
The options granted during 1995 include 190,000 options issued at $5.25
which were compensatory, although such compensation was considered immaterial.
The 192,862 options exercised in 1995 resulted in a charge to retained earnings
and a credit to additional paid-in capital of $673,088 representing the
acquisition of shares from Armstrong and Pakis, the cancellation of such shares
and the reissuance of the shares to the option holders. Amounts paid to
Armstrong and Pakis were equal to amounts received from the option holders upon
exercise of their options.
JDA has a defined contribution plan under Section 401(k) of the Internal
Revenue Code. Employees of JDA are eligible to participate in the plan after
reaching age 21. Voluntary salary reductions may be elected by each
participating employee and contributed to the plan. JDA may contribute an amount
equal to 100% of the
F-12
<PAGE> 73
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employee's contribution up to 20% of the employee's annual wages. Employees are
immediately vested for their own contributions and they are 100% vested in the
Company's matching contributions after six years of service. The Company made
approximately $57,000 of contributions to the plan in 1995, and no contributions
in 1994 and 1993.
In addition, a total of 200,000 shares of common stock have been reserved
for issuance under the Company's 1996 Employee Stock Purchase Plan (the
"Purchase Plan"). At December 31, 1995, no shares had been issued. The Purchase
Plan permits eligible employees to purchase common stock at a discount through
payroll deductions. The purchase price of the stock will be equal to 85% of the
fair market value.
9. INCOME TAXES
As explained in Note 1, all U.S. federal taxable income was taxed to the
Company's stockholders through March 31, 1995. Accordingly, the tax provision
does not include provisions for U.S. federal income taxes through that date. Pro
forma income tax provisions have been presented for 1995 in order to indicate
the tax provision that would have been recorded had all income been taxable to
JDA. The following presents income tax provisions for the three years ended
December 31, 1995:
<TABLE>
<CAPTION>
1995
------------------
1993 1994 ACTUAL PRO FORMA
----- ---- ------ ---------
(IN
THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal............................................. $1,354 $2,410
State............................................... $ 71 $ 62 320 362
Foreign............................................. 794 438 140 140
---- ---- ------ ------
Total current............................... 865 500 1,814 2,912
---- ---- ------ ------
Deferred:
Federal............................................. (299) (236)
State............................................... (53) (42)
Foreign............................................. 35 35
------ ------
Total deferred.............................. (317) (243)
------ ------
Total provisions............................ $865 $500 $1,497 $2,669
==== ==== ====== ======
</TABLE>
JDA's effective tax rate differs from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
1995
------
1993 1994 ACTUAL PRO FORMA
----- ------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal statutory rate.............................. $(195) $3,060 $2,404 $2,404
Research and development credit..................... (30) (30)
Record deferred income taxes........................ (260)
Foreign and state income taxes...................... 793 62 274 384
S Corporation benefit............................... 267 (2,622) (802)
Other............................................... (89) (89)
----- ------ ------ ------
Total............................................. $ 865 $ 500 $1,497 $2,669
===== ====== ====== ======
</TABLE>
F-13
<PAGE> 74
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's net deferred tax asset (liability)
as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CURRENT NON-CURRENT
-------- -----------
<S> <C> <C>
Deferred tax asset:
Accrued compensation......................................... $ 95,500
Sales returns allowance...................................... 120,000
Allowance for doubtful accounts.............................. 120,000
Other........................................................ 124,800
--------
460,300
Deferred tax liability:
Tax over book depreciation................................... $(108,000)
Other........................................................ (35,000)
--------
$425,300 $(108,000)
======== =========
</TABLE>
No deferred taxes were recorded at December 31, 1994 due to the S
Corporation status of the Predecessor Companies which earned substantially all
of the Company's U.S. taxable income.
10. RELATED PARTIES
Transactions with stockholders for the three years ended December 31, 1995
consist principally of the leasing of office space to JDA, the receipt by
Armstrong and Pakis of dividends and other tax related compensation arising from
the former S corporation status of certain of the Predecessor Companies,
interest to Armstrong and Pakis and the receipt by Armstrong and Pakis of Notes
and cash arising from the Reorganization discussed in Note 1.
The following summarizes such transactions:
a. Notes issued to stockholders consist of $14,000,000 of notes due on
January 11, 1996 with interest at 6.3%, $898,990 of notes with interest at
8% due January 13, 1996 and $5,203,931 of notes with interest at 8% due
through 2000. A portion of the 1993 tax related compensation expense
($2,413,000) was paid with a note payable which has been consolidated with
the $5,203,931 notes issued in connection with the Reorganization. The
$14,000,000 notes were repaid on January 11, 1996 and the $898,990 notes
were paid January 13, 1996; the notes with a face value of $5,203,931
provide for an acceleration clause whereby the holder may demand payment
upon the Company's closing of an IPO of at least $15,000,000. (Note 1). At
December 31, 1995, the remaining balance of such notes was $4,880,832.
b. Interest expenses applicable to stockholder notes aggregated
$182,200, $241,300 and $1,046,300 in the three years ended December 31,
1995.
c. Office lease payments to stockholders aggregated $120,000, $120,000
and $50,000 for the three years ended December 31, 1995.
11. UNAUDITED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
applicable to interim financial statements. Accordingly, they do not include all
of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments and reclassifications considered necessary for a fair and comparable
presentation have been included and are of a normal recurring
F-14
<PAGE> 75
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
nature. Operating results for the nine months ended September 30, 1996, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
COMPLETION OF INITIAL PUBLIC OFFERING
On March 15, 1996, the Company successfully completed its initial public
offering of common stock. The Company sold 2,182,866 shares of common stock in
the initial public offering for $25,301,290 net of issuance costs of $1,089,560.
In March 1996, subsequent to the initial public offering, all outstanding
shares of the Series A Redeemable Convertible Preferred Stock were converted
into (1) 2,800,000 shares of common stock and (2) 1,250,004 shares of Series B
Redeemable Preferred Stock. The Series B Redeemable Preferred Stock was then
redeemed for $7,500,000 in cash.
ACQUISITION OF JDA SOFTWARE SERVICES LTD
On August 15, 1996, the Company acquired JDA Software Services Ltd. ("JDA
Canada") for 143,926 shares of common stock. JDA Canada was previously an
affiliated company, but has been independently owned since 1987. The acquisition
was accounted for as a purchase resulting in goodwill of $1,677,507, which will
be amortized over 15 years. Unaudited pro-forma operating results for the year
ended December 31, 1995, and the nine months ended September 30, 1996, assuming
that the acquisition had occurred at the beginning of the applicable year are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Revenues................................................... $33,273,314 $35,026,070
=========== ===========
Net income................................................. $ 4,318,633 $ 5,099,379
=========== ===========
Net income per share....................................... $ 0.39 $ 0.43
=========== ===========
</TABLE>
NET INCOME PER SHARE
Income per common and common equivalent share for the nine months ended
September 30, 1996 is computed on the weighted average number of common shares
outstanding during the period and includes the effect of shares issuable upon
exercise of stock options utilizing the treasury stock method when the effect of
such issuance is dilutive.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
to be Disposed Of". The adoption of SFAS No. 121 had no effect on these interim
unaudited condensed consolidated financial statements.
COMMON STOCK OFFERING
The Company is preparing for a common stock offering of an aggregate of
2,450,000 shares of which 750,000 will be sold by the Company and 1,700,000
shares will be sold by selling stockholders.
RELATED PARTIES
In March 1996, with the proceeds of the IPO, the Company repaid notes of
$4,880,832 held by stockholders.
F-15
<PAGE> 76
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LITIGATION
In February 1996, a dispute arose with one of the Company's customers. The
Company initiated arbitration proceedings against the customer in an effort to
collect approximately $100,000 in remaining amounts due pursuant to its contract
with the customer. The customer counterclaimed for a full refund of the
approximately $985,000 previously paid to the Company, and the Company is
vigorously defending such counterclaim. The arbitration proceedings remain
ongoing, and the parties are engaged in settlement negotiations. Although
management believes, based upon information currently available, that a
settlement can be reached upon terms acceptable to the Company, there can be no
assurance that such will be the case or that any settlement can be reached in
this matter. The Company does not believe that the ultimate outcome of this
proceeding will have a material adverse effect on the Company.
In May 1996, Niederhoffer and Niederhoffer, Inc. ("Niederhoffer") filed a
demand for arbitration asserting a claim against JDA Software Services, Inc., a
wholly owned subsidiary of the Company. Niederhoffer's claims are based upon an
agreement between it and JDA Software Services, Inc. dated April 6, 1990 (the
"Finder's Agreement"). Niederhoffer alleges entitlement to a finder's fee in
connection with the purchase of convertible preferred stock in the Company in
March 1995 by six investment funds advised by TA Associates, Inc. and its
affiliates ("TA Investment"), and a claim for Common Stock arising from the
related establishment of the Company and reorganization of the Company's wholly
owned subsidiaries pursuant to which Company Common Stock was issued to such
subsidiaries' stockholders (the "Reorganization"). In the arbitration,
Niederhoffer claims damages of approximately $770,000 and asserts a right to
504,000 shares of the Company's Common Stock.
The Company is contesting both the applicability of the Finder's Agreement
to the TA Investment and the related Reorganization and the measurement of the
damages as claimed by Niederhoffer. The arbitration is expected to be concluded
in December 1996, with the arbitrators' decision rendered following conclusion
of the arbitration.
The Company and its counsel believe that the Company has meritorious
defenses to Niederhoffer's claims, and the Company intends to vigorously defend
its position in the arbitration. However, since the results of arbitration
proceedings are inherently unpredictable, no assurance can be given with respect
to the arbitration's outcome or the total expense or possible damages, if any,
that may be incurred in the arbitration proceedings or as a result of a
settlement or an arbitration award. In the event the arbitration panel concludes
that the TA Investment and related Reorganization fell within the scope of the
Finder's Agreement, and further agrees with Niederhoffer's assessment of
damages, the Company could be required to make cash payments as well as issue to
Niederhoffer up to 504,000 shares of the Company's Common Stock or make an
additional cash payment to Niederhoffer based upon the arbitrators'
determination of the value of such shares. The Company believes that an
arbitrators' decision to award up to 504,000 shares of Common Stock to
Niederhoffer based upon a determination that such shares were issuable as a
result of the TA Investment would be treated as a charge to additional paid-in
capital. Such charge would reduce additional paid-in capital by the amount of
any cash paid plus the value of the Common Stock issued, valued as of the date
of the TA Investment. However, any cash awarded in lieu of shares in excess of
the value of such shares at the date of the TA Investment would be recorded as
litigation expense and could have an immediate and material adverse effect on
the Company's operating results. In addition, any cash awarded to Niederhoffer
would reduce the Company's available liquidity. Any shares of Common Stock
awarded to Niederhoffer would have a dilutive effect on the Company's earnings
per share.
F-16
<PAGE> 77
JDA SOFTWARE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTIONS
The following is a summary of changes in outstanding options related to:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------------
<S> <C> <C>
The 1995 Option Plan:
Outstanding at December 31, 1995............... 1,107,138 $3.50 to $5.25
Exercised.................................... (175,896) $3.50 to $4.25
---------
Outstanding at September 30, 1996.............. 931,242 $3.50 to $5.25
========
Exercisable at September 30, 1996.............. 512,708 $3.50 to $5.25
========
The 1996 Option Plan:
Outstanding at December 31, 1995............... 0
Granted...................................... 305,000 $9.60 to $19.75
Cancelled or expired......................... 0
Exercised.................................... (0)
---------
Outstanding at September 30, 1996.............. 305,000 $9.60 to $19.75
========
Exercisable at September 30, 1996.............. 20,000 $9.60
========
</TABLE>
LINE OF CREDIT
The Company's $2,500,000 line of credit was increased to $5,000,000 on June
17, 1996 and bears interest at the bank's reference rate. The line of credit is
no longer guaranteed by Armstrong and Pakis and matures July 1, 1998.
* * * * * *
F-17
<PAGE> 78
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, sales representative or other person has been authorized to give
any information or to make any representations in connection with this offering
other than those contained in this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company, the Selling Stockholders or any of the Underwriters. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any securities other than the shares of Common Stock to which it relates or
an offer to, or a solicitation of, any person in any jurisdiction where such an
offer or solicitation would be unlawful. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of the Company or that
information contained herein is correct as of any time subsequent to the date
hereof.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 5
Use of Proceeds........................ 13
Reorganization and Prior S Corporation
Status............................... 13
Dividend Policy........................ 13
Price Range of Common Stock............ 14
Capitalization......................... 15
Selected Consolidated Financial Data... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 18
Business............................... 27
Management............................. 43
Certain Transactions................... 49
Principal and Selling Stockholders..... 52
Description of Capital Stock........... 54
Shares Eligible for Future Sale........ 55
Underwriting........................... 57
Legal Matters.......................... 58
Experts................................ 58
Available Information.................. 58
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,450,000 SHARES
JDA SOFTWARE GROUP, INC.
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MONTGOMERY SECURITIES
HAMBRECHT & QUIST
PIPER JAFFRAY INC.
November , 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. The Company is paying all of the expenses
incurred on behalf of the Selling Stockholders (other than underwriting
discounts and commissions). All amounts shown are estimates except for the
registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee.................................................................. 29,136
NASD filing fee................................................................... 10,115
Nasdaq National Market fee........................................................ 16,838
Blue sky qualification fees and expenses.......................................... 10,000
Printing and engraving expenses................................................... 100,000
Legal fees and expenses........................................................... 100,000
Accounting fees and expenses...................................................... 45,000
Transfer agent and registrar fees................................................. 8,000
Fee for Custodian for Selling Stockholders........................................ 3,000
Miscellaneous..................................................................... 27,911
Total................................................................... $350,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Second Restated Certificate
of Incorporation and Bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant has entered into separate indemnification agreements with its
directors, certain of its executive officers and TA Associates that require the
Registrant, among other things, to indemnify them against certain liabilities
which may arise by reason of their status or service (other than liabilities
arising from willful misconduct of a culpable nature) and to maintain directors'
and officers' liability insurance, if available on reasonable terms.
These indemnification provisions and the indemnification agreements entered
into between the Registrant and its directors, certain of its executive officers
and TA Associates, may be sufficiently broad to permit indemnification of the
Registrant's officers, directors and TA Associates for liabilities (including
reimbursement of expenses incurred) arising under the Securities Act.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since November 1, 1993, the Registrant has sold and issued the following
unregistered securities:
(a) Issuances of Shares of Common and Preferred Stock.
On March 30, 1995, the registrant issued a total of 2,800,000 shares
of Series A Preferred Stock to TA Associates at a price of $5.35715 per
share.
On March 30, 1995, the Registrant also issued 7,200,000 shares of
Common Stock to three current officers of the Company and one corporation
wholly-owned by one of the officers in exchange for stock in certain
Subsidiaries of the Registrant, Promissory Notes executed by the Company in
favor of the officers
II-1
<PAGE> 80
in the aggregate amount of $15,285,197 and cash in the amount of $1
million. See "Certain Transactions."
On August 15, 1996, the Company issued an aggregate of 143,926 shares
of Common Stock to the shareholders of JDA Software Services Ltd., a
Canadian corporation, in exchange for all of the outstanding capital stock
of JDA Software Services Ltd. The issuance of Common Stock in connection
with the acquisition of JDA Software Services Ltd. was exempt from the
registration requirements of the Securities Act pursuant to Regulation S
promulgated thereunder.
(b) Option Issuances to, and Exercises by, Employees and
Directors. From March 30, 1995 to June 13, 1996, the Registrant issued
options to purchase a total of 1,420,000 shares of Common Stock at exercise
prices ranging from $3.50 to $13.00 per share to 36 employees and two
Outside Directors. No consideration was paid to the Registrant by any
recipient of any of the foregoing options for the grant of any such
options. From March 30, 1995 to June 13, 1996, the Registrant issued a
total of 211,075 shares of Common Stock to 24 employees upon exercise of
stock options at an exercise price of $3.50 per share.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
Unless otherwise provided above, the issuances described in Items 15(a)
were deemed to be exempt from registration under the Securities Act in reliance
on Section 4(2) of the Securities Act as transactions by an issuer not involving
a public offering. In addition, the issuances described in Item 15(b) were
deemed exempt from registration under the Securities Act in reliance on Rule 701
promulgated thereunder as transactions pursuant to compensatory benefit plans
and contracts relating to compensation. The recipients of securities in each
such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about the Registrant or had access, through
employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ----------------------------------------------------------------------------
<C> <S> <C>
1.1 -- Form of Underwriting Agreement.
3.1* -- Second Restated Certificate of Incorporation of the Company.
3.2* -- Bylaws.
4.1* -- Specimen Common Stock certificate.
4.2* -- Stock Redemption Agreement among the Company, James D. Armstrong and
Frederick M. Pakis dated March 30, 1995.
4.3* -- Stockholders' Agreement among the Company, James D. Armstrong, Frederick M.
Pakis, James L. Smith and the purchasers of the Series A Preferred Stock
dated March 30, 1995.
5.1 -- Opinion of Gray Cary Ware & Freidenrich, A Professional Corporation.
10.1* -- Form of Indemnification Agreement.
10.2* -- 1995 Stock Option Plan, as amended, and form of agreement thereunder.
10.3* -- 1996 Stock Option Plan and forms of agreements thereunder.
(1)10.4 -- 1996 Employee Stock Purchase Plan, as amended, and form of agreement
thereunder.
10.5* -- 1996 Outside Directors Stock Option Plan and forms of agreements thereunder.
10.6* -- Employment Agreement between James D. Armstrong and JDA Software, Inc. dated
March 30, 1995, as amended.
10.7* -- Employment Agreement between Frederick M. Pakis and JDA Software, Inc. dated
March 30, 1995, as amended.
10.8* -- Employment Agreement between James L. Smith and JDA Software, Inc. dated
March 30, 1995, as amended.
</TABLE>
II-2
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ----------------------------------------------------------------------------
<C> <S> <C>
10.9* -- Employment Agreement between Thomas M. Proud and JDA Software, Inc. dated
November 13, 1995.
(1)10.10 -- Lease Agreement between The Manufacturers Life Insurance Company and JDA
Software Canada Ltd. (formerly known as JDA Software Services Ltd.) dated
December 6, 1995 (North York, Ontario).
10.11* -- Series A Preferred Stock and Common Stock Exchange Agreement among the
Company, James D. Armstrong, Frederick M. Pakis, James L. Smith and the
purchasers named therein dated March 30, 1995.
10.12* -- Assignment and Assumption Agreement regarding Master Lease between Pacific
Atlantic Systems Leasing, Inc. and JDA Software, Inc. and Consent of
Paradise Partners Limited Partnership to Assignment, dated March 17, 1995
(Phoenix, Arizona).
10.13* -- Lease Agreement between Pakis-Armstrong Venture and JDA Software, Inc. dated
January 1, 1996 (Scottsdale, Arizona).
10.14* -- Lease Agreement between Holly Pond Associates Limited Partnership and JDA
Software, Inc. dated June 16, 1993 (Stamford, Connecticut).
10.15* -- Lease Agreement between Woodhill Associates and JDA Software, Inc. dated
July 10, 1992 and First Lease Amendment between Metropolitan Life Insurance
Company, successor in interest to Woodhill Associates, and JDA Software,
Inc. dated May 16, 1995 (Norcross, Georgia).
10.16* -- Lease Agreement between The Port of Singapore Authority and JDA Asia Pte
Ltd. dated September 12, 1995 (Singapore).
10.17* -- Lease Agreements between Skanda Developments Limited and JDA Software
Services Ltd. (predecessor to JDA International Ltd.) dated June 25, 1991
(England).
10.18* -- Lease Agreement between BBS Business -- und Buroservice in Niederrad GmbH
and JDA Software GmbH dated July 4, 1995 (Germany).
10.19*+ -- License Agreement between Uniface Corporation and JDA Software, Inc. dated
February 9, 1994.
10.20*+ -- Standard Value-Added Reseller Agreement between Uniface Corporation and JDA
Software, Inc. dated February 9, 1994.
10.21*** -- Acquisition and Exchange Agreement among the Company and the Shareholders of
JDA Software Services Ltd. dated August 15, 1996.
10.22* -- Promissory Notes of the Company payable to James D. Armstrong, Frederick M.
Pakis and James L. Smith dated March 30, 1995.
10.23* -- Promissory Notes of JDA Software, Inc. payable to James D. Armstrong and
Frederick M. Pakis, guaranteed by the Company, dated March 29, 1995.
10.24* -- Promissory Notes of JDA Worldwide, Inc. payable to James D. Armstrong and
Frederick M. Pakis, guaranteed by the Company, dated March 29, 1995.
10.25* -- JDA Software, Inc. 401(k) Profit Sharing Plan, adopted as amended effective
January 1, 1995.
(1)10.26 -- Business Loan Agreement between Bank of America Arizona and JDA Software,
Inc. dated June 17, 1996.
10.27** -- Second Amendment to Employment Agreement between James D. Armstrong and JDA
Software, Inc. dated April 23, 1996.
10.28** -- Second Amendment to Employment Agreement between Frederick M. Pakis and JDA
Software, Inc. dated April 23, 1996.
10.29** -- Second Amendment to Employment Agreement between James L. Smith and JDA
Software, Inc. dated April 23, 1996.
(1)10.30 -- Lease Agreement between Oxford Development Group, Inc. and JDA Software
Canada Ltd. (formerly known as JDA Software Services Ltd.) dated July 11,
1994 (Calgary, Alberta).
</TABLE>
II-3
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- ----------------------------------------------------------------------------
<C> <S> <C>
(1)11.1 -- Statement regarding computation of earnings per share.
(1)21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Independent Auditors.
23.2 -- Consent of Counsel (included in Exhibit 5.1).
(1)24.1 -- Power of Attorney (see page II-5).
(1)27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference to the Company's Registration Statement Form S-1
(No. 333-748), declared effective on March 14, 1996.
** Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1996, as filed on August 14, 1996.
*** Incorporated by reference to the Company's Current Report on Form 8-K dated
August 15, 1996, as filed on August 30, 1996.
+ Confidential treatment has been granted as to part of this exhibit.
(1) Previously filed as an exhibit to this Registration Statement.
(B) FINANCIAL STATEMENT SCHEDULES.
Schedule II -- Valuation and Qualifying Accounts and Reserves
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Phoenix, County of Maricopa, State of Arizona, on the 19th day of November,
1996.
JDA SOFTWARE GROUP, INC.
By: /s/ FREDERICK M. PAKIS
------------------------------------
Frederick M. Pakis
President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- -----------------
<C> <S> <C>
JAMES D. ARMSTRONG* Chief Executive Officer and November 19, 1996
- --------------------------------------------- Director (Principal
James D. Armstrong Executive Officer)
FREDERICK M. PAKIS* President and Director November 19, 1996
- --------------------------------------------- (Principal Executive
Frederick M. Pakis Officer)
THOMAS M. PROUD* Vice President and Chief November 19, 1996
- --------------------------------------------- Financial Officer
Thomas M. Proud (Principal Financial and
Accounting Officer)
KURT R. JAGGERS* Director November 19, 1996
- ---------------------------------------------
Kurt R. Jaggers
CRAWFORD L. COLE* Director November 19, 1996
- ---------------------------------------------
Crawford L. Cole
*By: /s/ FREDERICK M. PAKIS
- ---------------------------------------------
Frederick M. Pakis
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 84
JDA SOFTWARE GROUP, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
1995 AND 1994
<TABLE>
<CAPTION>
ADDITIONS CHARGED
BALANCE AT CHARGED TO TO
BEGINNING OF COSTS AND OTHER BALANCE AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------- ------------ ---------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED SEPTEMBER
30:
1996 (UNAUDITED)
Allowance for Doubtful Accounts...... $350,700 $435,000 $110,130 $(86,830) $ 809,000
Sales Returns Allowance.............. 300,000 150,000 -- -- 450,000
-------- -------- ------- -------- --------
Total...................... $650,700 $585,000 $110,130 $(86,830) $1,259,000
======== ======== ======= ======== ========
FOR THE YEARS ENDED DECEMBER 31:
1995
Allowance for Doubtful Accounts...... $112,700 $327,453 -- $(89,453)(1) $ 350,700
Sales Returns Allowance.............. -- 300,000 -- -- 300,000
-------- -------- ------- -------- --------
Total...................... $112,700 $627,453 -- $(89,453) $ 650,700
======== ======== ======= ======== ========
1994
Allowance for Doubtful Accounts...... $ 2,500 $110,200 -- -- $ 112,700
======== ======== ======= ======== ========
1993
Allowance for Doubtful Accounts...... $ 76,000 -- -- $(73,500)(1) $ 2,500
======== ======== ======= ======== ========
</TABLE>
- ---------------
(1) Represents accounts receivable which were written off.
II-6
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C> <C>
1.1 -- Form of Underwriting Agreement.
3.1* -- Second Restated Certificate of Incorporation of the Company.
3.2* -- Bylaws.
4.1* -- Specimen Common Stock certificate.
4.2* -- Stock Redemption Agreement among the Company, James D. Armstrong
and Frederick M. Pakis dated March 30, 1995.
4.3* -- Stockholders' Agreement among the Company, James D. Armstrong,
Frederick M. Pakis, James L. Smith and the purchasers of the
Series A Preferred Stock dated March 30, 1995.
5.1 -- Opinion of Gray Cary Ware & Freidenrich, A Professional
Corporation.
10.1* -- Form of Indemnification Agreement.
10.2* -- 1995 Stock Option Plan, as amended, and form of agreement
thereunder.
10.3* -- 1996 Stock Option Plan and forms of agreements thereunder.
(1)10.4 -- 1996 Employee Stock Purchase Plan, as amended, and form of
agreement thereunder.
10.5* -- 1996 Outside Directors Stock Option Plan and forms of agreements
thereunder.
10.6* -- Employment Agreement between James D. Armstrong and JDA
Software, Inc. dated March 30, 1995, as amended.
10.7* -- Employment Agreement between Frederick M. Pakis and JDA
Software, Inc. dated March 30, 1995, as amended.
10.8* -- Employment Agreement between James L. Smith and JDA Software,
Inc. dated March 30, 1995, as amended.
10.9* -- Employment Agreement between Thomas M. Proud and JDA Software,
Inc. dated November 13, 1995.
(1)10.10 -- Lease Agreement between The Manufacturers Life Insurance Company
and JDA Software Canada Ltd. (formerly known as JDA Software
Services Ltd.) dated December 6, 1995 (North York, Ontario).
10.11* -- Series A Preferred Stock and Common Stock Exchange Agreement
among the Company, James D. Armstrong, Frederick M. Pakis, James
L. Smith and the purchasers named therein dated March 30, 1995.
10.12* -- Assignment and Assumption Agreement regarding Master Lease
between Pacific Atlantic Systems Leasing, Inc. and JDA Software,
Inc. and Consent of Paradise Partners Limited Partnership to
Assignment, dated March 17, 1995 (Phoenix, Arizona).
10.13* -- Lease Agreement between Pakis-Armstrong Venture and JDA
Software, Inc. dated January 1, 1996 (Scottsdale, Arizona).
10.14* -- Lease Agreement between Holly Pond Associates Limited
Partnership and JDA Software, Inc. dated June 16, 1993
(Stamford, Connecticut).
10.15* -- Lease Agreement between Woodhill Associates and JDA Software,
Inc. dated July 10, 1992 and First Lease Amendment between
Metropolitan Life Insurance Company, successor in interest to
Woodhill Associates, and JDA Software, Inc. dated May 16, 1995
(Norcross, Georgia).
10.16* -- Lease Agreement between The Port of Singapore Authority and JDA
Asia Pte Ltd. dated September 12, 1995 (Singapore).
10.17* -- Lease Agreements between Skanda Developments Limited and JDA
Software Services Ltd. (predecessor to JDA International Ltd.)
dated June 25, 1991 (England).
</TABLE>
<PAGE> 86
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ----------- ---------------------------------------------------------------- ------------
<C> <S> <C> <C>
10.18* -- Lease Agreement between BBS Business -- und Buroservice in
Niederrad GmbH and JDA Software GmbH dated July 4, 1995
(Germany).
10.19*+ -- License Agreement between Uniface Corporation and JDA Software,
Inc. dated February 9, 1994.
10.20*+ -- Standard Value-Added Reseller Agreement between Uniface
Corporation and JDA Software, Inc. dated February 9, 1994.
10.21*** -- Acquisition and Exchange Agreement among the Company and the
Shareholders of JDA Software Services Ltd. dated August 15,
1996.
10.22* -- Promissory Notes of the Company payable to James D. Armstrong,
Frederick M. Pakis and James L. Smith dated March 30, 1995.
10.23* -- Promissory Notes of JDA Software, Inc. payable to James D.
Armstrong and Frederick M. Pakis, guaranteed by the Company,
dated March 29, 1995.
10.24* -- Promissory Notes of JDA Worldwide, Inc. payable to James D.
Armstrong and Frederick M. Pakis, guaranteed by the Company,
dated March 29, 1995.
10.25* -- JDA Software, Inc. 401(k) Profit Sharing Plan, adopted as
amended effective January 1, 1995.
(1)10.26 -- Business Loan Agreement between Bank of America Arizona and JDA
Software, Inc. dated June 17, 1996.
10.27** -- Second Amendment to Employment Agreement between James D.
Armstrong and JDA Software, Inc. dated April 23, 1996.
10.28** -- Second Amendment to Employment Agreement between Frederick M.
Pakis and JDA Software, Inc. dated April 23, 1996.
10.29** -- Second Amendment to Employment Agreement between James L. Smith
and JDA Software, Inc. dated April 23, 1996.
(1)10.30 -- Lease Agreement between Oxford Development Group, Inc. and JDA
Software Canada Ltd. (formerly known as JDA Software Services
Ltd.) dated July 11, 1994 (Calgary, Alberta).
(1)11.1 -- Statement regarding computation of earnings per share.
(1)21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Independent Auditors.
23.2 -- Consent of Counsel (included in Exhibit 5.1).
(1)24.1 -- Power of Attorney (see page II-5).
(1)27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
* Incorporated by reference to the Company's Registration Statement Form S-1
(No. 333-748), declared effective on March 14, 1996.
** Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1996, as filed on August 14, 1996.
*** Incorporated by reference to the Company's Current Report on Form 8-K dated
August 15, 1996, as filed on August 30, 1996.
+ Confidential treatment has been granted as to part of this exhibit.
(1) Previously filed as an exhibit to this Registration Statement.
<PAGE> 1
EXHIBIT 1.1
2,450,000 SHARES
JDA SOFTWARE GROUP, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
November ___, 1996
MONTGOMERY SECURITIES
HAMBRECHT & QUIST LLC
PIPER JAFFRAY INC.
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. Introductory. JDA Software Group, Inc., a Delaware
corporation (the "Company"), proposes to issue and sell 750,000 shares of its
authorized but unissued Common Stock (the "Common Stock") and certain
stockholders of the Company named in Schedule B annexed hereto (the "Selling
Stockholders") propose to sell an aggregate of 1,700,000 shares of the Company's
issued and outstanding Common Stock to the several underwriters named in
Schedule A annexed hereto (the "Underwriters"), for whom you are acting as
Representatives. Said aggregate of 2,450,000 shares are herein called the "Firm
Common Shares." In addition, the Company and certain Selling Stockholders
propose to grant to the Underwriters an option to purchase up to 367,500
additional shares of Common Stock (the "Optional Common Shares"), as provided in
Section 5 hereof. The Firm Common Shares and, to the extent such option is
exercised, the Optional Common Shares are hereinafter collectively referred to
as the "Common Shares."
You have advised the Company and the Selling Stockholders that
the Underwriters propose to make a public offering of their respective portions
of the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
1
<PAGE> 2
The Company and each of the Selling Stockholders hereby
confirms their respective agreements with respect to the purchase of the Common
Shares by the Underwriters as follows:
SECTION 2. Representations and Warranties of the Company and
the Management Selling Stockholders. The Company, James Armstrong and Frederick
Pakis (Mr. Armstrong and Mr. Pakis are collectively referred to herein as the
"Management Selling Stockholders") each represents and warrants to the several
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-15659)
with respect to the Common Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission. The
Company has prepared and has filed or proposes to file prior to the
effective date of such registration statement an amendment or
amendments to such registration statement, which amendment or
amendments have been or will be similarly prepared. There have been
delivered to you a signed copy of such registration statement and
amendments, together with one copy of each exhibit filed therewith.
Conformed copies of such registration statement and amendments (but
without exhibits) and of the related preliminary prospectus have been
delivered to you in such reasonable quantities as you have requested
for each of the Underwriters. The Company will next file with the
Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the form
of final prospectus, (ii) a final prospectus in accordance with Rules
430A and 424(b) of the Rules and Regulations or (iii) a term sheet (the
"Term Sheet") as described in and in accordance with Rules 434 and
424(b) of the Rules and Regulations. As filed, the final prospectus, if
one is used, or the Term Sheet and Preliminary Prospectus, if a final
prospectus is not used, shall include all Rule 430A Information and,
except to the extent that you shall agree in writing to a modification,
shall be in all substantive respects in the form furnished to you prior
to the date and time that this Agreement was executed and delivered by
the parties hereto, or, to the extent not completed at such date and
time, shall contain only such specific additional information and other
changes (beyond that contained in the latest Preliminary Prospectus) as
are customary in the public offering process and as approved by your
counsel.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement
becomes effective and, in the event any post-effective amendment
thereto becomes effective prior to the First Closing Date (as
hereinafter defined), shall also mean such registration statement as so
amended; provided, however, that such term shall also include (i) all
Rule 430A Information deemed to be included in such registration
statement at the time such registration statement becomes effective as
provided by Rule 430A of the Rules and Regulations and (ii) any
registration statement filed pursuant to 462(b) of the Rules and
Regulations relating to the Common Shares. The term "Preliminary
Prospectus" shall mean any preliminary prospectus referred to in the
preceding paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits Rule
430A Information. The term "Prospectus" as used in this Agreement shall
mean either (i) the prospectus relating to the Common Shares in the
form in which it is first filed with the Commission pursuant to Rule
424(b) of the Rules and Regulations
2
<PAGE> 3
or, (ii) if a Term Sheet is not used and no filing pursuant to Rule
424(b) of the Rules and Regulations is required, shall mean the form of
final prospectus included in the Registration Statement at the time
such registration statement becomes effective, or (iii) if a Term Sheet
is used, the Term Sheet in the form in which it is first filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations,
together with the Preliminary Prospectus included in the Registration
Statement at the time it becomes effective. The term "Rule 430A
Information" means information with respect to the Common Shares and
the offering thereof permitted to be omitted from the Registration
Statement when it becomes effective pursuant to Rule 430A of the Rules
and Regulations.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus has conformed in all material respects to the requirements
of the Act and the Rules and Regulations and, as of its date, has not
included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at
the time the Registration Statement becomes effective, and at all times
subsequent thereto up to and including each Closing Date hereinafter
mentioned, the Registration Statement and the Prospectus, and any
amendments or supplements thereto, will contain all material statements
and information required to be included therein by the Act and the
Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, and neither the
Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, will include any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided,
however, no representation or warranty contained in this subsection
2(b) shall be applicable to information contained in or omitted from
any Preliminary Prospectus, the Registration Statement, the Prospectus
or any such amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of
any Underwriter, directly or through the Representatives, specifically
for use in the preparation thereof.
(c) The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 22 to the Registration Statement. The
Company and each of its subsidiaries have been duly incorporated and
are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation, with full power and
authority (corporate and other) to own and lease their properties and
conduct their respective businesses as described in the Prospectus;
except as set forth in the Prospectus, the Company owns all of the
outstanding capital stock of its subsidiaries free and clear of all
claims, liens, charges and encumbrances; the Company and each of its
subsidiaries are in possession of and operating in compliance with all
authorizations, licenses, permits, consents, certificates and orders
material to the conduct of their respective businesses, all of which
are valid and in full force and effect; the Company and each of its
subsidiaries are duly qualified to do business and in good standing as
foreign corporations in each jurisdiction in which the ownership or
leasing of properties or the conduct of their respective businesses
requires such qualification, except for jurisdictions in which the
failure to so qualify would not have a material adverse effect on the
business, properties, financial conditions or results of operations of
the Company and its subsidiaries, taken as a whole; and no proceeding
has been
3
<PAGE> 4
instituted in any such jurisdiction, revoking, limiting or curtailing,
or seeking to revoke, limit or curtail, such power and authority or
qualification.
(d) As of September 30, 1996, the Company had authorized and
outstanding capital stock as set forth under the heading
"Capitalization" in the Prospectus; the issued and outstanding shares
of Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable, are duly listed on the Nasdaq National Market,
have been issued in compliance with all federal and state securities
laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and
conform to the description thereof contained in the Prospectus. All
issued and outstanding shares of capital stock of each subsidiary of
the Company have been duly authorized and validly issued and are fully
paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company, and the related
notes thereto, included in the Prospectus, as of September 30, 1996,
neither the Company nor any subsidiary has outstanding any options to
purchase, or any preemptive rights or other rights to subscribe for or
to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of its capital stock
or any such options, rights, convertible securities or obligations. The
description of the Company's stock option, stock bonus and other stock
plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such
plans, arrangements, options and rights.
(e) The Common Shares to be sold by the Company have been duly
authorized and, when issued, delivered and paid for in the manner set
forth in this Agreement, will be, validly issued, fully paid and
nonassessable, and will conform to the description thereof contained in
the Prospectus. No preemptive rights or other rights to subscribe for
or purchase exist with respect to the issuance and sale of the Common
Shares by the Company pursuant to this Agreement. Except as disclosed
or contemplated by the Prospectus and the financial statements
contained therein, no stockholder of the Company has any right which
has not been waived or complied with to require the Company to register
the sale of any shares owned by such stockholder under the Act in the
public offering contemplated by this Agreement. No further approval or
authority of the stockholders or the Board of Directors of the Company
will be required for the transfer and sale of the Common Shares to be
sold by the Selling Stockholders or the issuance and sale of the Common
Shares to be sold by the Company as contemplated herein.
(f) The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered
by the Company and constitutes a valid and binding obligation of the
Company in accordance with its terms. The making and performance of
this Agreement by the Company and the consummation of the transactions
herein contemplated will not violate any provisions of the certificate
of incorporation or bylaws, or other organizational documents, of the
Company or any of its subsidiaries, and will not conflict with, result
in the breach or violation of, or constitute, either by itself or upon
notice or the passage of time or both, a default under any agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which the Company or any of its subsidiaries is
a party or by which the Company or any of its subsidiaries or any of
its respective properties may be bound or affected which default is (or
in the aggregate, defaults, are) of material significance in respect of
the condition,
4
<PAGE> 5
financial or otherwise of the Company and its subsidiaries taken as a
whole or the business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the
Company and its subsidiaries taken as a whole, or any statute or any
authorization, judgment, decree, order, rule or regulation of any court
or any regulatory body, administrative agency or other governmental
body applicable to the Company or any of its subsidiaries or any of its
respective properties. No consent, approval, authorization or other
order of any court, regulatory body, administrative agency or other
governmental body is required for the execution and delivery of this
Agreement or the consummation of the transactions contemplated by this
Agreement, except for compliance with the Act, the Blue Sky laws
applicable to the public offering of the Common Shares by the several
Underwriters and the clearance of such offering with the National
Association of Securities Dealers, Inc. (the "NASD") and the approval
of the listing of additional shares of Common Stock on the Nasdaq
National Market.
(g) Deloitte & Touche LLP, who have expressed their opinion
with respect to the financial statements and schedules filed with the
Commission as a part of the Registration Statement and included in the
Prospectus and in the Registration Statement, are independent
accountants as required by the Act and the Rules and Regulations.
(h) The consolidated financial statements and schedules of the
Company and the related notes thereto, included in the Registration
Statement and the Prospectus present fairly the financial position of
the Company and its subsidiaries as of the respective dates of such
financial statements and schedules, and the results of operations and
changes in financial position of the Company and its subsidiaries for
the respective periods covered thereby. Such statements, schedules and
related notes have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, except as
disclosed therein, as certified by the independent accountants named in
subsection 2(g). No other financial statements or schedules are
required to be included in the Registration Statement. The summary and
selected financial data set forth in the Prospectus under the captions
"Capitalization," "Summary Consolidated Financial Information" and
"Selected Consolidated Financial Data" fairly present the information
set forth therein on the basis stated in the Registration Statement.
(i) Except as disclosed in the Prospectus, and except as to
defaults which individually or in the aggregate would not be material
to the Company, neither the Company nor any of its subsidiaries (i) is
in violation or default of any provision of its certificate of
incorporation or bylaws, or other organizational documents, or (ii) is
in breach of or default with respect to any provision of any agreement,
judgment, decree, order, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which it is a party
or by which it or any of its properties are bound and which default is
of material significance in respect of the condition, financial or
otherwise, of the Company and its subsidiaries taken as a whole or the
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or properties of the Company and the
subsidiaries taken as a whole; and to the Company's knowledge, there
does not exist any state of facts which constitutes an event of default
on the part of the Company or any such subsidiary as defined in such
documents or which, with notice or lapse of time or both, would
constitute such an event of default which is of material significance
in respect of the condition, financial or otherwise, of the Company and
its subsidiaries, taken as a whole, or the business, management,
properties, assets, rights, operations,
5
<PAGE> 6
condition (financial or otherwise) or properties of the Company and the
subsidiaries taken as a whole.
(j) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to
the Registration Statement by the Act or by the Rules and Regulations
which have not been described or filed as required. The contracts so
described in the Prospectus are in full force and effect on the date
hereof (except those that expired pursuant to their terms); and neither
the Company nor any of its subsidiaries, nor to the best of the
Company's knowledge, any other party is in breach of or default under
any of such contracts.
(k) Except as disclosed in the Prospectus, there are no legal
or governmental actions, suits or proceedings pending or, to the best
of the Company's knowledge, threatened to which the Company or any of
its subsidiaries is or may be a party or of which property owned or
leased by the Company or any of its subsidiaries is or may be the
subject which actions, suits or proceedings might, individually or in
the aggregate, prevent or materially adversely affect the transactions
contemplated by this Agreement or result in a material adverse change
in the condition (financial or otherwise), properties, business,
results of operations or prospects of the Company and its subsidiaries;
and no labor disturbance by the employees of the Company or any of its
subsidiaries exists or is imminent which might be expected to
materially adversely affect such condition, properties, business,
results of operations or prospects. Neither the Company nor any of its
subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
(l) The Company or the applicable subsidiary has good and
marketable title to all material properties and assets reflected as
owned in the financial statements hereinabove described (or elsewhere
in the Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except (i) those, if any, reflected in such
financial statements (or elsewhere in the Prospectus), or (ii) those
which are not material in amount and do not adversely affect the use
made and proposed to be made of such property by the Company and its
subsidiaries. The Company or the applicable subsidiary holds its leased
properties under valid and binding leases, with such exceptions as are
not materially significant in relation to the business of the Company.
Except as disclosed in the Prospectus, the Company owns or leases all
such properties as are necessary to its operations as now conducted or
as proposed to be conducted. The agreements to which the Company is a
party filed as part of the Registration Statement are valid and
enforceable by the Company, except as enforcement may be limited by
applicable bankruptcy, insolvency and other similar laws affecting
creditors' rights and rules of law governing specific performance,
injunctive relief and other equitable remedies and to its knowledge,
the other contracting party or parties thereto are not in material
breach or material default under any of such agreements.
(m) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as
described in or specifically contemplated by the Prospectus: (i) the
Company and its subsidiaries have not incurred any material liabilities
or obligations, indirect, direct or contingent, or entered into any
material verbal or written agreement or other transaction which is not
in the ordinary course of business and which could result in a material
reduction in the future earnings of the Company and its subsidiaries;
(ii) the
6
<PAGE> 7
Company and its subsidiaries have not sustained any material loss or
interference with their respective businesses or properties from fire,
flood, windstorm, accident or other calamity, whether or not covered by
insurance; (iii) the Company has not paid or declared any dividends or
other distributions with respect to its capital stock and the Company
and its subsidiaries are not in default in the payment of principal or
interest on any material outstanding debt obligations; (iv) there has
not been any change in the capital stock (other than upon the sale of
the Common Shares hereunder and upon the exercise of options and
warrants described in the Registration Statement) or indebtedness
material to the Company and its subsidiaries (other than in the
ordinary course of business); and (v) there has not been any material
adverse change in the condition (financial or otherwise), business,
properties, results of operations or prospects of the Company and its
subsidiaries, taken as a whole.
(n) Except as disclosed in or specifically contemplated by the
Prospectus, the Company and its subsidiaries have sufficient
trademarks, trade names, patent rights, mask works, copyrights,
licenses, approvals and governmental authorizations to conduct their
businesses as now conducted; and the Company has no knowledge of any
material infringement by it or its subsidiaries of trademark, trade
name rights, patent rights, mask works, copyrights, licenses, trade
secret or other similar rights of others, and there is no claim being
made against the Company or its subsidiaries regarding trademark, trade
name, patent, mask work, copyright, license, trade secret or other
infringement which could have a material adverse effect on the
condition (financial or otherwise), business, results of operations or
prospects of the Company and its subsidiaries.
(o) The Company has not been advised, and has no reason to
believe, that either it or any of its subsidiaries is not conducting
business in compliance with all applicable laws, rules and regulations
of the jurisdictions in which it is conducting business, including,
without limitation, all applicable local, state and federal
environmental laws and regulations; except where failure to be so in
compliance would not materially adversely affect the condition
(financial or otherwise), business, results of operations or prospects
of the Company and its subsidiaries.
(p) The Company and its subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns and have
paid all taxes shown as due thereon; and the Company has no knowledge
of any tax deficiency which has been or might be asserted or threatened
against the Company or its subsidiaries which could materially and
adversely affect the business, operations or properties of the Company
and its subsidiaries; to its knowledge all tax liabilities accrued
through the date hereof have been adequately provided for on the books
of the Company.
(q) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(r) Each of the Company and its subsidiaries maintain
insurance of the types and in the amounts generally deemed adequate for
its business, including, but not limited to, insurance covering real
and personal property owned or leased by the Company and its
subsidiaries against theft, damage, destruction, acts of vandalism and
all other risks customarily insured against, all of which insurance is
in full force and effect.
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(s) Neither the Company nor any of its subsidiaries has at any
time during the last five years (i) made any unlawful contribution to
any candidate for foreign office, or failed to disclose fully any
contribution in violation of law, or (ii) made any payment to any
federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any
jurisdiction thereof.
(t) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected
to cause or result in stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Common Shares.
(u) The Company has not incurred any liability for a fee,
commission, or other compensation on account of the employment of a
broker or finder in connection with the transactions contemplated by
this Agreement other than as contemplated hereby.
(v) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (d) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(w) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder (the "Code"); and each
"pension plan" for which the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such
qualification.
(x) No relationship, direct or indirect, exists between or
among the Company or its subsidiaries, on the one hand, and the
directors, officers, stockholders, customers or suppliers of the
Company or the subsidiaries, on the other hand, which is required to be
described in the Prospectus that is not so described.
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SECTION 3. Representations, Warranties and Covenants of the Selling
Stockholders.
(a) Each of the Selling Stockholders, severally and not
jointly, represents and warrants to, and agrees with, the several
Underwriters that:
(i) Such Selling Stockholder has, and on the First
Closing Date and the Second Closing Date hereinafter mentioned
will have, good title to the Common Shares proposed to be sold
by such Selling Stockholder hereunder on such Closing Date and
full right, power and authority to enter into this Agreement
and to sell, assign, transfer and deliver such Common Shares
hereunder, free and clear of all voting trust arrangements,
liens, encumbrances, equities, security interests,
restrictions and claims whatsoever; and upon delivery of and
payment for such Common Shares hereunder, the Underwriters
will acquire good title thereto, free and clear of all liens,
encumbrances, equities, claims, restrictions, security
interests, voting trusts or other defects of title whatsoever.
(ii) Such Selling Stockholder has executed and
delivered a Power of Attorney and caused to be executed and
delivered on his behalf a Custody Agreement (hereinafter
collectively referred to as the "Stockholders Agreement") and
in connection herewith such Selling Stockholder further
represents, warrants and agrees that such Selling Stockholder
has deposited in custody, under the Stockholders Agreement,
with the agent named therein (the "Agent") as custodian,
certificates in negotiable form for the Common Shares to be
sold hereunder by such Selling Stockholder, for the purpose of
further delivery pursuant to this Agreement. Such Selling
Stockholder agrees that the Common Shares to be sold by such
Selling Stockholder on deposit with the Agent are subject to
the interests of the Company and the Underwriters, that the
arrangements made for such custody are to that extent
irrevocable, and that the obligations of such Selling
Stockholder hereunder shall not be terminated, except as
provided in this Agreement or in the Stockholders Agreement,
by any act of such Selling Stockholder, by operation of law,
by the death or incapacity of such Selling Stockholder or by
the occurrence of any other event. If the Selling Stockholder
should die or become incapacitated, or if any other event
should occur, before the delivery of the Common Shares
hereunder, the documents evidencing Common Shares then on
deposit with the Agent shall be delivered by the Agent in
accordance with the terms and conditions of this Agreement as
if such death, incapacity or other event had not occurred,
regardless of whether or not the Agent shall have received
notice thereof. This Agreement and the Stockholders Agreement
have been duly executed and delivered by or on behalf of such
Selling Stockholder and the form of such Stockholders
Agreement has been delivered to you.
(iii) The performance of this Agreement and the
Stockholders Agreement, and the consummation of the
transactions contemplated hereby and by the Stockholders
Agreement, will not result in a breach or violation by such
Selling Stockholder of any of the terms or provisions of, or
constitute a default by such Selling Stockholder under, any
indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any of its
properties is bound, any
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<PAGE> 10
statute, or any judgment, decree, order, rule or regulation of
any court or governmental agency or body applicable to such
Selling Stockholder or any of its properties.
(iv) Such Selling Stockholder has not taken and will
not take, directly or indirectly, any action designed to or
which has constituted or which might reasonably be expected to
cause or result in stabilization or manipulation of the price
of any security of the Company to facilitate the sale or
resale of the Common Shares.
(v) Such Selling Stockholder has reviewed the
Registration Statement and Prospectus and, although such
Selling Stockholder has not independently verified the
accuracy or completeness of all the information contained
therein, nothing has come to the attention of such Selling
Stockholder that would lead such Selling Stockholder to
believe that (i) on the effective date thereof, the
Registration Statement contained any untrue statement of a
material fact or omitted to state any material fact required
to be stated therein or necessary in order to make the
statements therein not misleading; or (ii) that on the
effective date the Prospectus contained and, on the First
Closing Date and Second Closing Date contains, any untrue
statement of a material fact or omitted or omits to state any
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading.
(vi) Such Selling Stockholder has not distributed and
will not distribute any prospectus or other offering material
in connection with the offering and sale of the Common Shares.
(vii) Such parts of the Registration Statement,
comprised of the table and notes thereto under the caption
"Principal and Selling Stockholders," in the form supplied to
each Selling Stockholder, which specifically relates to such
Selling Stockholder do not, and will not on the First Closing
Date or the Second Closing Date, contain any untrue statement
of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements
therein not misleading.
(b) Each of the Selling Stockholders agrees with the Company
and the Underwriters not to offer to sell, sell or contract to sell or
otherwise dispose of any shares of Common Stock or securities
convertible into or exchangeable for any shares of Common Stock, for a
period of 180 days, in the case of the Management Selling Stockholders
and [TA GROUP], or 90 days, in the case of the other Selling
Stockholders after the first date that any of the Common Shares are
released by you for sale to the public, without the prior written
consent of Montgomery Securities, which consent may be withheld at the
sole discretion of Montgomery Securities.
SECTION 4. Representations and Warranties of the Underwriters. The
Representatives, on behalf of the several Underwriters, represent and warrant to
the Company and to the Selling Stockholders that the information set forth (i)
on the cover page of the Prospectus with respect to price, underwriting
discounts and commissions and terms of offering and (ii) under "Underwriting" in
the Registration Statement, the Preliminary Prospectus and the Prospectus was
furnished to the Company by and on behalf of the Underwriters for use in
connection with the preparation of the Registration Statement and the Prospectus
and is correct in all material respects, does not include any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances
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under which they were made, not misleading. The Representatives represent and
warrant that they have been authorized by each of the other Underwriters as the
Representatives to enter into this Agreement on its behalf and to act for it in
the manner herein provided.
SECTION 5. Purchase, Sale and Delivery of Common Shares. On the basis
of the representations, warranties and agreements herein contained, but subject
to the terms and conditions herein set forth, (i) the Company agrees to issue
and sell to the Underwriters 750,000 of the Firm Common Shares, and (ii) the
Selling Stockholders agree, severally and not jointly, to sell to the
Underwriters in the respective amounts set forth in Schedule B hereto, an
aggregate of 1,700,000 of the Firm Common Shares. The Underwriters agree,
severally and not jointly, to purchase from the Company and the Selling
Stockholders, respectively, the number of Firm Common Shares described below.
The purchase price per share to be paid by the several Underwriters to the
Company and to the Selling Stockholders, respectively, shall be $___ per share.
The obligation of each Underwriter to the Company shall be to purchase from the
Company that number of full shares which (as nearly as practicable, as
determined by you) bears to 750,000 the same proportion as the number of shares
set forth opposite the name of such Underwriter in Schedule A hereto bears to
the total number of Firm Common Shares. The obligation of each Underwriter to
the Selling Stockholders shall be to purchase from the Selling Stockholders that
number of full shares which (as nearly as practicable, as determined by you)
bears to 1,700,000 the same proportion as the number of shares set forth
opposite the name of such Underwriter in Schedule A hereto bears to the total
number of Firm Common Shares.
Not later than 4:00 p.m. on the business day following the date the Common
Shares are released by the Underwriter for sale to the public, the Company shall
deliver or cause to be delivered copies of the Prospectus in such quantities and
at such places as the Representatives shall request.
Delivery of certificates for the Firm Common Shares to be purchased by the
Underwriters and payment therefor shall be made at the offices of Montgomery
Securities, 600 Montgomery Street, San Francisco, California (or such other
place as may be agreed upon by the Company and the Representatives) at such time
and date, not later than the third (or, if the Firm Common Shares are priced, as
contemplated by Rule 15c6-1(c) under the Securities Exchange Act of 1934, after
4:30 P.M. Washington D.C. time, the fourth) full business day following the
first date that any of the Common Shares are released by you for sale to the
public, as you shall designate by at least 48 hours prior notice to the Company
(or at such other time and date, not later than one week after such third or
fourth, as the case may be, full business day as may be agreed upon by the
Company and the Representatives) (the "First Closing Date"); provided, however,
that if the Prospectus is at any time prior to the First Closing Date
recalculated to the public, the First Closing Date shall occur upon the later of
the third or fourth, as the case may be, full business day following the first
date that any of the Common Shares are released by you for sale to the public or
the date that is 48 hours after the date that the Prospectus has been so
recalculated.
Delivery of certificates for the Firm Common Shares shall be made by or on
behalf of the Company and the Selling Stockholders to you, for the respective
accounts of the Underwriters with respect to the Firm Common Shares to be sold
by the Company and by the Selling Stockholders against payment by you, for the
accounts of the several Underwriters, of the purchase price therefor by a wire
transfer of immediately available funds to an account designated by the Company
and by the Agent in proportion to the number of Firm Common Shares to be sold by
the Company and the Selling Stockholders, respectively. The
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certificates for the Firm Common Shares shall be registered in such names and
denominations as you shall have requested at least two full business days prior
to the First Closing Date, and shall be made available for checking and
packaging on the business day preceding the First Closing Date at a location in
New York, New York, as may be designated by you. Time shall be of the essence,
and delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company and certain of the Selling Stockholders as indicated on Schedule B
hereby grant an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of 367,500 Optional Common Shares at the
purchase price per share to be paid for the Firm Common Shares, for use solely
in covering any over-allotments made by you for the account of the Underwriters
in the sale and distribution of the Firm Common Shares. The option granted
hereunder may be exercised at any time (but not more than once) within 30 days
after the first date that any of the Common Shares are released by you for sale
to the public, upon notice by you to the Company and said Selling Stockholders
setting forth the aggregate number of Optional Common Shares as to which the
Underwriters are exercising the option, the names and denominations in which the
certificates for such shares are to be registered and the time and place at
which such certificates will be delivered. Such time of delivery (which may not
be earlier than the First Closing Date), being herein referred to as the "Second
Closing Date," shall be determined by you, but if at any time other than the
First Closing Date shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. The number of Optional
Common Shares to be purchased by each Underwriter shall be determined by
multiplying the number of Optional Common Shares to be sold by the Company and
each such Selling Stockholder pursuant to such notice of exercise by a fraction,
the numerator of which is the number of Firm Common Shares to be purchased by
such Underwriter as set forth opposite its name in Schedule A and the
denominator of which is 2,450,000 (subject to such adjustments to eliminate any
fractional share purchases as you in your discretion may make). Certificates for
the Optional Common Shares will be made available for checking and packaging on
the business day preceding the Second Closing Date at a location in New York,
New York, as may be designated by you. The manner of payment for and delivery of
the Optional Common Shares shall be the same as for the Firm Common Shares
purchased from the Company and each such Selling Stockholder as specified in the
two preceding paragraphs. At any time before lapse of the option, you may cancel
such option by giving written notice of such cancellation to the Company and
each such Selling Stockholder. If the option is canceled or expires unexercised
in whole or in part, the Company will deregister under the Act the number of
Option Shares as to which the option has not been exercised.
You have advised the Company and the Selling Stockholders that each Underwriter
has authorized you to accept delivery of its Common Shares, to make payment and
to receipt therefor. You, individually and not as the Representatives of the
Underwriters, may (but shall not be obligated to) make payment for any Common
Shares to be purchased by any Underwriter whose funds shall not have been
received by you by the First Closing Date or the Second Closing Date, as the
case may be, for the account of such Underwriter, but any such payment shall not
relieve such Underwriter from any of its obligations under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose to make a
public offering of their respective portions of the Common Shares as soon after
the effective date of the Registration Statement as in the judgment of the
Representatives is advisable and at the public offering price set forth on the
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cover page of and on the terms set forth in the final prospectus, if one is
used, or on the first page of the Term Sheet, if one is used.
SECTION 6. Covenants of the Company. The Company covenants and agrees
that:
(a) The Company will use every reasonable effort to cause the
Registration Statement and any amendment thereof, if not effective at
the time and date that this Agreement is executed and delivered by the
parties hereto, to become effective. If the Registration Statement has
become or becomes effective pursuant to Rule 430A of the Rules and
Regulations, or the filing of the Prospectus is otherwise required
under Rule 424(b) of the Rules and Regulations, the Company will file
the Prospectus, properly completed, pursuant to the applicable
paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to you of such
timely filing. The Company will promptly advise you in writing (i) of
the receipt of any comments of the Commission, (ii) of any request of
the Commission for amendment of or supplement to the Registration
Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus or for additional information,
(iii) when the Registration Statement shall have become effective, and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of
any proceedings for that purpose. If the Commission shall enter any
such stop order at any time, the Company will use every reasonable
effort to obtain the lifting of such order at the earliest possible
moment. The Company will not file any amendment or supplement to the
Registration Statement (either before or after it becomes effective),
any Preliminary Prospectus or the Prospectus of which you have not been
furnished with a copy a reasonable time prior to such filing or to
which you reasonably object or which is not in compliance with the Act
and the Rules and Regulations.
(b) The Company will prepare and file with the Commission,
promptly upon your request, any amendments or supplements to the
Registration Statement or the Prospectus which in your judgment may be
reasonably necessary or advisable to enable the several Underwriters to
continue the distribution of the Common Shares and will use its best
efforts to cause the same to become effective as promptly as possible.
The Company will fully and completely comply with the provisions of
Rule 430A of the Rules and Regulations with respect to information
omitted from the Registration Statement in reliance upon such Rule.
(c) If at any time within the period during which a prospectus
relating to the Common Shares is required to be delivered under the Act
or the Rules and Regulations any event occurs, as a result of which the
Prospectus, including any amendments or supplements, would include an
untrue statement of a material fact, or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, or if it is necessary at any time to amend the
Prospectus, including any amendments or supplements, to comply with the
Act or the Rules and Regulations, the Company will promptly advise you
thereof and will promptly prepare and file with the Commission, at its
own expense, an amendment or supplement which will correct such
statement or omission or an amendment or supplement which will effect
such compliance and will use its best efforts to cause the same to
become effective as soon as possible; and, in case any Underwriter is
required to deliver a prospectus after such nine-month period, the
Company upon request, but at the expense of such Underwriter, will
promptly prepare such amendment or amendments to the Registration
Statement and such Prospectus or
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Prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act.
(d) As soon as practicable, but not later than 45 days after
the end of the first quarter ending after one year following the
"effective date of the Registration Statement" (as defined in Rule
158(c) of the Rules and Regulations), the Company will make generally
available to its security holders an earnings statement (which need not
be audited) covering a period of 12 consecutive months beginning after
the effective date of the Registration Statement which will satisfy the
provisions of the last paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to
be delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the nine-month period referred to
in Section 10(a)(3) of the Act, will furnish to you and the Selling
Stockholders or mail to your order copies of the Registration
Statement, the Prospectus, the Preliminary Prospectus and all
amendments and supplements to any such documents in each case as soon
as available and in such quantities as you and the Selling Stockholders
may request, for the purposes contemplated by the Act.
(f) The Company shall cooperate with you and your counsel in
order to qualify or register the Common Shares for sale under (or
obtain exemptions from the application of) the Blue Sky laws of such
jurisdictions as you reasonably designate, will comply with such laws
and will continue such qualifications, registrations and exemptions in
effect so long as reasonably required for the distribution of the
Common Shares. The Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process
in any such jurisdiction where it is not presently qualified or where
it would be subject to taxation as a foreign corporation. The Company
will advise you promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Common Shares
for offering, sale or trading in any jurisdiction or any initiation or
threat of any proceeding for any such purpose, and in the event of the
issuance of any order suspending such qualification, registration or
exemption, the Company, with your cooperation, will use its best
efforts to obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company
will furnish to the Representatives and, upon request of the
Representatives, to each of the other Underwriters: (i) as soon as
practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as of
the close of such fiscal year and statements of income, stockholders'
equity and cash flows for the year then ended and the opinion thereon
of the Company's independent public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement,
Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Report on
Form 8-K or other report filed by the Company with the Commission, the
NASD or any securities exchange; and (iii) as soon as available, copies
of any report or communication of the Company mailed generally to
holders of its Common Stock.
(h) During the period of 180 days after the first date that
any of the Common Shares are released by you for sale to the public,
without the prior written consent of Montgomery Securities (which
consent may be withheld at the sole discretion of Montgomery
Securities), the Company will not, other than pursuant to outstanding
stock options disclosed in the Prospectus,
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<PAGE> 15
any options granted under the stock option plans of the Company, shares
issued pursuant to Employee Stock Purchase Plan or shares issued in
connection with legal proceedings described in the Registration
Statement, issue, offer, sell, grant options to purchase or otherwise
dispose of any of the Company's equity securities or any other
securities convertible into or exchangeable with its Common Stock or
other equity security. The Company agrees that any options granted
pursuant to the preceding sentence shall not vest, in whole or in part,
for 180 days following the commencement of the public offering of the
Common Shares.
(i) The Company will apply the net proceeds of the sale of the
Common Shares sold by it substantially in accordance with its
statements under the caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to maintain the
qualifications and registrations of its Common Stock as are currently
in existence.
(k) The Company will use its best efforts to list the Common
Shares on the Nasdaq National Market.
You, on behalf of the Underwriters, may, in your sole
discretion, waive in writing the performance by the Company of any one or more
of the foregoing covenants or extend the time for their performance.
SECTION 7. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company and, unless otherwise paid by the Company, the
Management Stockholders agree to pay in such proportions as they may agree upon
among themselves all costs, fees and expenses incurred in connection with the
performance of their obligations hereunder, including without limiting the
generality of the foregoing, (i) all expenses incident to the issuance and
delivery of the Common Shares (including all printing and engraving costs), (ii)
all fees and expenses of the registrar and transfer agent of the Common Stock,
(iii) all necessary issue, transfer and other stamp taxes in connection with the
issuance and sale of the Common Shares to the Underwriters will be paid by all
Selling Stockholders, (iv) all fees and expenses of the Company's counsel and
the Company's independent accountants, (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution of
the Registration Statement, each Preliminary Prospectus and the Prospectus
(including all exhibits and financial statements) and all amendments and
supplements provided for herein, this Agreement, the Agreement Among
Underwriters, the Selected Dealers Agreement, the Underwriters' Questionnaire,
the Underwriters' Power of Attorney and the Blue Sky memorandum, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with providing notice of the offer and sale of all or any part of
the Common Shares under the Blue Sky laws, (vii) the filing fee of the National
Association of Securities Dealers, Inc., and (viii) all other fees, costs and
expenses referred to in Item 14 of the Registration Statement. The Underwriters
may deem the Company to be the primary obligor with respect to all costs, fees
and expenses to be paid by the Company and by the Selling Stockholders. Except
as provided in this Section 7, Section 9 and Section 11 hereof, the Underwriters
shall pay all of their own expenses, including the fees and disbursements of
their counsel (excluding those relating to qualification, registration or
exemption under the Blue Sky laws and the Blue Sky memorandum referred to
above). This Section 7 shall not affect any agreements relating to the payment
of expenses between the Company and the Selling Stockholders.
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The Selling Stockholders will pay (directly or by reimbursement) all fees and
expenses incident to the performance of their obligations under this Agreement
which are not otherwise specifically provided for herein, including but not
limited to (i) any fees and expenses of counsel for such Selling Stockholders;
(ii) any fees and expenses of the Agent; and (iii) all expenses and taxes
incident to the sale and delivery of the Common Shares to be sold by such
Selling Stockholders to the Underwriters hereunder.
SECTION 8. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Optional Common Shares on the Second
Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein set
forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers and the Selling Stockholders made in certificates delivered pursuant to
the provisions hereof, to the performance by the Company and the Selling
Stockholders of their respective obligations hereunder, and to the following
additional conditions:
(a) The Registration Statement shall have become effective not
later than 5:30 P.M. (or, in the case of a registration statement filed
pursuant to Rule 462(b) of the Rules and Regulations relating to the
Common Shares, not later than 10 P.M.), Washington, D.C. Time, on the
date of this Agreement, or at such later time as shall have been
consented to by you; if the filing of the Prospectus, or any supplement
thereto, is required pursuant to Rule 424(b) of the Rules and
Regulations, the Prospectus shall have been filed in the manner and
within the time period required by Rule 424(b) of the Rules and
Regulations; and prior to such Closing Date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued
and no proceedings for that purpose shall have been instituted or shall
be pending or, to the knowledge of the Company, the Selling
Stockholders or you, shall be contemplated by the Commission; and any
request of the Commission for inclusion of additional information in
the Registration Statement, or otherwise, shall have been complied with
to your reasonable satisfaction.
(b) You shall be satisfied that since the respective dates as
of which information is given in the Registration Statement and
Prospectus, (i) there shall not have been any change in the capital
stock other than pursuant to the exercise of outstanding options
disclosed in the Prospectus of the Company or any of its subsidiaries,
or pursuant to the Company's Employee Stock Purchase Plan or the
litigation disclosed in the Prospectus, or any material change in the
indebtedness (other than in the ordinary course of business) of the
Company or any of its subsidiaries, (ii) except as set forth or
contemplated by the Registration Statement or the Prospectus, no
material verbal or written agreement or other transaction shall have
been entered into by the Company or any of its subsidiaries, which is
not in the ordinary course of business and which could result in a
material reduction in the future earnings of the Company and its
subsidiaries, (iii) no loss or damage (whether or not insured) to the
property of the Company or any of its subsidiaries shall have been
sustained which materially and adversely affects the condition
(financial or otherwise), business, results of operations or prospects
of the Company and its subsidiaries, (iv) except as disclosed in the
Prospectus, no legal or governmental action, suit or proceeding
affecting the Company or any of its subsidiaries which is material to
the Company and its subsidiaries or which affects or may affect the
transactions contemplated by this Agreement shall have been instituted
or threatened, and (v) there shall not have been any material change in
the condition (financial or otherwise), business, management, results
of
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<PAGE> 17
operations or prospects of the Company and its subsidiaries which makes
it impractical or inadvisable in the judgment of the Representatives to
proceed with the public offering or purchase the Common Shares as
contemplated hereby.
(c) There shall have been furnished to you, as Representatives
of the Underwriters, on each Closing Date, in form and substance
satisfactory to you, except as otherwise expressly provided below:
(i) An opinion of Gray Cary Ware & Freidenrich,
counsel for the Company and the Selling Stockholders,
addressed to the Underwriters and dated the First Closing
Date, or the Second Closing Date, as the case may be, to the
effect that:
(1) Each of the Company and its subsidiaries
has been duly incorporated and is validly existing as
a corporation in good standing under the laws of its
jurisdiction of incorporation, is duly qualified to
do business as a foreign corporation and is in good
standing in all other jurisdictions where the
ownership or leasing of properties or the conduct of
its business requires such qualification, except for
jurisdictions in which the failure to so qualify
would not have a material adverse effect on the
Company and its subsidiaries, and has full corporate
power and authority to own its properties and conduct
its business as described in the Registration
Statement;
(2) The authorized, issued and outstanding
capital stock of the Company is as set forth under
the captions "Capitalization" and "Description of
Capital Stock" in the Prospectus; all necessary and
proper corporate proceedings have been taken in order
to authorize validly such authorized Common Stock;
all outstanding shares of Common Stock (including the
Firm Common Shares and any Optional Common Shares)
have been duly and validly issued, are fully paid and
nonassessable, have been issued in compliance with
federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or
other rights to subscribe for or purchase any
securities and conform to the description thereof
contained in the Prospectus; without limiting the
foregoing, to such counsel's knowledge there are no
preemptive or other rights to subscribe for or
purchase any of the Common Shares to be sold by the
Company hereunder;
(3) All of the issued and outstanding shares
of the Company's subsidiaries have been duly and
validly authorized and issued, are fully paid and
nonassessable and are owned beneficially by the
Company free and clear of all liens, encumbrances,
equities, claims, security interests, voting trusts
or other defects of title whatsoever;
(4) The certificates evidencing the Common
Shares to be delivered hereunder are in due and
proper form under Delaware law, and when duly
countersigned by the Company's transfer agent and
registrar, and delivered to you or upon your order
against payment of the agreed consideration therefor
in accordance with the provisions of this Agreement,
the Common Shares
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<PAGE> 18
represented thereby will be duly authorized and
validly issued, fully paid and nonassessable, will
not have been issued in violation of or subject to
any preemptive rights or other rights to subscribe
for or purchase securities and will conform in all
respects to the description thereof contained in the
Prospectus; good title to the Common Shares sold by
the Company and the Selling Stockholders hereunder,
free and clear of all liens, encumbrances, security
interests and claims, has been transferred to the
Underwriters who have severally purchased such Common
Shares, assuming for the purpose of this opinion that
the Underwriters purchased the same in good faith
without notice of any adverse claim;
(5)
(a) The Registration Statement has
become effective under the Act, and, to such
counsel's knowledge, no stop order
suspending the effectiveness of the
Registration Statement or preventing the use
of the Prospectus has been issued and no
proceedings for that purpose have been
instituted or are pending or contemplated by
the Commission; any required filing of the
Prospectus and any supplement thereto
pursuant to Rule 424(b) of the Rules and
Regulations has been made in the manner and
within the time period required by such Rule
424(b);
(b) The Registration Statement, the
Prospectus and each amendment or supplement
thereto (except for the financial statements
and schedules and statistical information
included therein as to which such counsel
need express no opinion) comply as to form
in all material respects with the
requirements of the Act and the Rules and
Regulations;
(c) To such counsel's knowledge,
there are no franchises, leases, contracts,
agreements or documents of a character
required to be disclosed in the Registration
Statement or Prospectus or to be filed as
exhibits to the Registration Statement which
are not disclosed or filed, as required;
(d) To such counsel's knowledge,
there are no legal or governmental actions,
suits or proceedings pending or threatened
against the Company which are required to be
described in the Prospectus which are not
described as required; and
(e) The information required to be
set forth in the Registration Statement in
answer to Items 9, 10 (insofar as it relates
to such counsel) and 11(c) of Form S-1 is,
to such counsel's knowledge, accurately and
adequately set forth therein in all material
respects or no response is required with
respect to such Items, and the description
of the Company's stock option plans and the
options granted and which may be granted
thereunder and stock purchase plans in the
Prospectus accurately and fairly present the
information required to be shown with
respect to
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<PAGE> 19
said plans and options to the extent
required by the Act and the Rules and
Regulations.
(6) The Company has full corporate right,
power and authority to enter into this Agreement and
to sell and deliver the Common Shares to be sold by
it to the several Underwriters; this Agreement has
been duly and validly authorized by all necessary
corporate action by the Company, has been duly and
validly executed and delivered by and on behalf of
the Company, and is a valid and binding agreement of
the Company in accordance with its terms, except as
enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights
generally and except as to those provisions relating
to indemnity or contribution for liabilities arising
under the Act as to which no opinion need be
expressed; and no approval, authorization, order,
consent, registration, filing, qualification, license
or permit of or with any court, regulatory,
administrative or other governmental body is required
for the execution and delivery of this Agreement by
the Company or the consummation of the transactions
contemplated by this Agreement, except such as have
been obtained and are in full force and effect under
the Act and such as may be required under applicable
Blue Sky laws in connection with the purchase and
distribution of the Common Shares by the Underwriters
and the clearance of such offering with the NASD;
(7) The execution and performance of this
Agreement and the consummation of the transactions
herein contemplated will not conflict with, result in
the breach of, or constitute, either by itself or
upon notice or the passage of time or both, a default
under, any material agreement or instrument known to
us, to which the Company or any of its subsidiaries
is a party or violate any of the provisions of the
certificate of incorporation or bylaws of the Company
or any of its subsidiaries or, so far as is known to
such counsel, violate any order, writ, injunction or
decree of any court or governmental body having
jurisdiction over the Company or any of its
subsidiaries;
(8) To such counsel's knowledge, no holders
of securities of the Company have rights which have
not been waived or complied with to the registration
of shares of Common Stock or other securities,
because of the filing of the Registration Statement
by the Company or the offering contemplated hereby;
(9) To such counsel's knowledge, this
Agreement and the Stockholders Agreement have been
duly authorized, executed and delivered by or on
behalf of each of the Selling Stockholders; the Agent
has been duly and validly authorized to act as the
custodian of the Common Shares to be sold by each
such Selling Stockholder; and to such counsel's
knowledge, no approval, authorization, order or
consent of any court, regulatory body, administrative
agency or other governmental body is required for the
execution and delivery of this Agreement or the
Stockholders Agreement or the consummation by the
Selling Stockholders of the transactions contemplated
by this Agreement, except such as have been
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<PAGE> 20
obtained and are in full force and effect under the
Act and such as may be required under the rules of
the NASD and applicable Blue Sky laws;
(10) To such counsel's knowledge, the
Selling Stockholders have full right, power and
authority to enter into this Agreement and the
Stockholders Agreement and to sell, transfer and
deliver the Common Shares to be sold on such Closing
Date by such Selling Stockholders hereunder and good
and marketable title to such Common Shares so sold,
free and clear of all liens, encumbrances, equities,
claims, restrictions, security interests, voting
trusts, or other defects of title whatsoever, has
been transferred to the Underwriters (whom counsel
may assume to be bona fide purchasers) who have
purchased such Common Shares hereunder;
(11) To such counsel's knowledge, this
Agreement and the Stockholders Agreement are valid
and binding agreements of each of the Selling
Stockholders in accordance with their terms except as
enforceability may be limited by general equitable
principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights
generally and except with respect to those provisions
relating to indemnities or contributions for
liabilities under the Act, as to which no opinion
need be expressed; and
(12) The Common Shares to be sold by the
Selling Stockholders and to be issued and sold by the
Company have been duly authorized for listing by the
Nasdaq National Market upon official notice of
issuance.
In rendering such opinion, such counsel may rely as to questions of law
not involving the laws of the United States or the State of California
upon opinions of local counsel satisfactory in form and scope to
counsel for the Underwriters. Copies of any opinions relied upon shall
be delivered to the Representatives and to counsel for the Underwriters
and the foregoing opinion shall also state that counsel knows of no
reason the Underwriters are not entitled to rely upon the opinions of
such local counsel. Such counsel shall also include a statement to the
effect that nothing has come to such counsel's attention that would
lead such counsel to believe that either at the effective date of the
Registration Statement or at the applicable Closing Date the
Registration Statement or the Prospectus, or any such amendment or
supplement, contains any untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading;
(ii) Such opinion or opinions of Morrison & Foerster
LLP, counsel for the Underwriters dated the First Closing Date
or the Second Closing Date, as the case may be, with respect
to the incorporation of the Company, the sufficiency of all
corporate proceedings and other legal matters relating to this
Agreement, the validity of the Common Shares, the Registration
Statement and the Prospectus and other related matters as you
may reasonably require, and the Company and the Selling
Stockholders shall have furnished to such counsel such
documents and shall have exhibited to them such papers and
records as they may reasonably request for the purpose of
enabling them to pass upon such matters. In connection with
such opinions, such counsel may rely on representations or
certificates of officers of the Company and governmental
officials.
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<PAGE> 21
(iii) A certificate of the Company executed by the
Chief Executive Officer or President and the chief financial
or accounting officer of the Company, dated the First Closing
Date or the Second Closing Date, as the case may be, to the
effect that:
(1) The representations and warranties of
the Company set forth in Section 2 of this Agreement
are true and correct as of the date of this Agreement
and as of the First Closing Date or the Second
Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all
the conditions on its part to be performed or
satisfied on or prior to such Closing Date;
(2) The Commission has not issued any order
preventing or suspending the use of the Prospectus or
any Preliminary Prospectus filed as a part of the
Registration Statement or any amendment thereto; no
stop order suspending the effectiveness of the
Registration Statement has been issued; and to the
best of the knowledge of the respective signers, no
proceedings for that purpose have been instituted or
are pending or contemplated under the Act;
(3) Each of the respective signers of the
certificate has carefully examined the Registration
Statement and the Prospectus; to his knowledge, the
Registration Statement and the Prospectus and any
amendments or supplements thereto contain all
material facts required to be stated therein
regarding the Company and its subsidiaries; and
neither the Registration Statement nor the Prospectus
nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state
any material fact required to be stated therein or
necessary to make the statements therein not
misleading;
(4) Since the initial date on which the
Registration Statement was filed, no agreement,
written or oral, transaction or event has occurred
which should have been set forth in an amendment to
the Registration Statement or in a supplement to or
amendment of any prospectus which has not been
disclosed in such a supplement or amendment;
(5) Since the respective dates as of which
information is given in the Registration Statement
and the Prospectus, and except as disclosed in or
contemplated by the Prospectus, (i) there has not
been any material adverse change or a development
involving a material adverse change in the condition
(financial or otherwise), business, properties,
results of operations, management or prospects of the
Company and its subsidiaries, taken as a whole, (ii)
no legal or governmental action, suit or proceeding
is pending or, to their knowledge, threatened against
the Company or any of its subsidiaries which is
material to the Company and its subsidiaries, taken
as a whole, whether or not arising from transactions
in the ordinary course of business, or which may
adversely affect the transactions contemplated by
this Agreement; (iii) neither the Company nor any of
its subsidiaries has entered into any verbal or
written agreement or other transaction which is not
in the ordinary course of business or which could
result
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<PAGE> 22
in a material reduction in the future earnings of the
Company or incurred any material liability or
obligation, direct, contingent or indirect, made any
change in its capital stock, made any material change
in its short-term debt or funded debt or repurchased
or otherwise acquired any of the Company's capital
stock; and (iv) the Company has not declared or paid
any dividend, or made any other distribution, upon
its outstanding capital stock payable to stockholders
of record on a date prior to the First Closing Date
or Second Closing Date; and
(6) Since the respective dates as of which
information is given in the Registration Statement
and the Prospectus and except as disclosed in or
contemplated by the Prospectus, the Company and its
subsidiaries have not sustained a material loss or
damage by strike, fire, flood, windstorm, accident or
other calamity (whether or not insured).
(iv) On the First Closing Date or the Second Closing
Date, as the case may be, a certificate, dated such Closing
Date and addressed to you, signed by or on behalf of each of
the Selling Stockholders to the effect that the
representations and warranties of such Selling Stockholder in
this Agreement are true and correct, as if made at and as of
the First Closing Date or the Second Closing Date, as the case
may be, and such Selling Stockholder has complied with all the
agreements and satisfied all the conditions on his part to be
performed or satisfied prior to the First Closing Date or the
Second Closing Date, as the case may be.
(v) On the date this Agreement is executed and also
on the First Closing Date and the Second Closing Date a letter
addressed to you, as Representatives of the Underwriters, from
Deloitte & Touche LLP, independent accountants, the first one
to be dated the day of this Agreement, the second one to be
dated the First Closing Date and the third one (in the event
of a Second Closing) to be dated the Second Closing Date, in
form and substance satisfactory to you. In addition, you shall
have received from Deloitte & Touche LLP a letter stating that
their review of the Company's system of internal accounting
controls, to the extent they deemed necessary in establishing
the scope of their examination of the Company's financial
statements as at December 31, 1995, did not disclose any
weakness in internal controls that they considered to be
material weaknesses.
(vi) On or before the First Closing Date, letters
from each of the Selling Stockholders, and each director and
officer of the Company, in form and substance satisfactory to
you, confirming that for a period of 90 days (180 days in the
case of the Management Selling Stockholders and TA Group)
after the first date that any of the Common Shares are
released by you for sale to the public, such person will not
directly or indirectly sell or offer to sell or otherwise
dispose of any shares of Common Stock or any right to acquire
such shares without the prior written consent of either
Montgomery Securities, which consent may be withheld at the
sole discretion of Montgomery Securities.
All such opinions, certificates, letters and documents shall be in compliance
with the provisions hereof only if they are satisfactory to you and to Morrison
& Foerster LLP, counsel for the Underwriters. The
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<PAGE> 23
Company shall furnish you with such manually signed or conformed copies of such
opinions, certificates, letters and documents as you request. Any certificate
signed by any officer of the Company and delivered to the Representatives or to
counsel for the Underwriters shall be deemed to be a representation and warranty
by the Company to the Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the First Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification by you as Representatives to the
Company and the Selling Stockholders without liability on the part of any
Underwriter or the Company or the Selling Stockholders except for the expenses
to be paid or reimbursed by the Company and by the Selling Stockholders pursuant
to Sections 7 and 9 hereof and except to the extent provided in Section 11
hereof.
SECTION 9. Reimbursement of Underwriters' Expenses. Notwithstanding any
other provisions hereof, if this Agreement shall be terminated by you pursuant
to Section 8, or if the sale to the Underwriters of the Common Shares at the
First Closing is not consummated because of any refusal, inability or failure on
the part of the Company or the Selling Stockholders to perform any agreement
herein or to comply with any provision hereof, the Company agrees to reimburse
you and the other Underwriters upon demand for all out-of-pocket expenses that
shall have been reasonably incurred by you and them in connection with the
proposed purchase and the sale of the Common Shares, including but not limited
to fees and disbursements of counsel, printing expenses, travel expenses,
postage, telegraph charges and telephone charges relating directly to the
offering contemplated by the Prospectus. Any such termination shall be without
liability of any party to any other party except that the provisions of this
Section , Section 7 and Section 11 shall at all times be effective and shall
apply.
SECTION 10. Effectiveness of Registration Statement. You, the Company
and the Selling Stockholders will use your and its and their best efforts to
cause the Registration Statement to become effective, to prevent the issuance of
any stop order suspending the effectiveness of the Registration Statement and,
if such stop order be issued, to obtain as soon as possible the lifting thereof.
SECTION 11. Indemnification. (a) The Company and each of the Selling
Stockholders, jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act against any losses, claims, damages, liabilities or expenses,
joint or several, to which such Underwriter or such controlling person may
become subject, under the Act, the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof
as contemplated below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in any of them not misleading, or arise out
of or are based in whole or in part on any inaccuracy in the representations and
warranties of the Company or the Selling Stockholders contained herein or any
failure of the Company or the Selling Stockholders to perform their respective
obligations hereunder; and will reimburse each Underwriter and each such
controlling person for any legal and other expenses as such expenses are
reasonably incurred by such Underwriter or such controlling person in connection
with investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action;
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<PAGE> 24
provided, however, that neither the Company nor the Selling Stockholders will be
liable in any such case to the extent that any such loss, claim, damage,
liability or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with the
information furnished to the Company pursuant to Section 4 hereof; provided,
further, that (i) the indemnity agreements of the Company and the Selling
Stockholders contained in this paragraph (a) shall not apply to any such losses,
claims, damages, liabilities or expenses if such statement or omission was made
in reliance upon and in conformity with information furnished as herein stated
or otherwise furnished in writing to the Company by or on behalf of any
Underwriter for use in any Preliminary Prospectus or the Registration Statement
or the Prospectus or any such amendment thereof or supplement thereto, and (ii)
the indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Common Shares which is the subject thereof (or to the
benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Common Shares a copy of the Prospectus
(or the Prospectus as amended or supplemented) was not sent or delivered to such
person and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company. In addition to its other obligations under this Section 11(a), the
Company and the Selling Stockholders agree that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged statement
or omission, or any inaccuracy in the representations and warranties of the
Company or the Selling Stockholders herein or failure to perform its obligations
hereunder, all as described in this Section 11(a), it will reimburse each
Underwriter on a quarterly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
or the Selling Stockholders' obligation to reimburse each Underwriter for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, each Underwriter
shall promptly return it to the Company together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial lending
rate for borrowers of the highest credit standing) announced from time to time
by Bank of America NT&SA, San Francisco, California (the "Prime Rate"). Any such
interim reimbursement payments which are not made to an Underwriter within 30
days of a request for reimbursement, shall bear interest at the Prime Rate from
the date of such request. This indemnity agreement will be in addition to any
liability which the Company or the Selling Stockholders may otherwise have.
(b) Each Underwriter will severally indemnify and hold
harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, the Selling Stockholders and each
person, if any, who controls the Company or any Selling Stockholder
within the meaning of the Act, against any losses, claims, damages,
liabilities or expenses to which the Company, or any such director,
officer, Selling Stockholder or controlling person may become subject,
under the Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the
written consent of such Underwriter), insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in the
24
<PAGE> 25
Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with the
information furnished in writing to the Company by or on behalf of such
indemnifying Underwriter for use in the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto; and will
reimburse the Company, or any such director, officer, Selling
Stockholder or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer,
Selling Stockholder or controlling person in connection with
investigating, defending, settling, compromising or paying any such
loss, claim, damage, liability, expense or action. In addition to its
other obligations under this Section 11(b), each Underwriter severally
agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or
based upon any statement or omission, or any alleged statement or
omission, described in this Section 11(b) which relates to information
furnished in writing to the Company by the Underwriters, it will
reimburse the Company (and, to the extent applicable, each officer,
director, controlling person or Selling Stockholder) on a quarterly
basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation,
inquiry or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director, controlling person or Selling
Stockholder) for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment
is so held to have been improper, the Company (and, to the extent
applicable, each officer, director, controlling person or Selling
Stockholder) shall promptly return it to the Underwriters together with
interest, compounded daily, determined on the basis of the Prime Rate.
Any such interim reimbursement payments which are not made to the
Company within 30 days of a request for reimbursement, shall bear
interest at the Prime Rate from the date of such request. This
indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an
indemnifying party under this Section , notify the indemnifying party
in writing of the commencement thereof; but the omission so to notify
the indemnifying party will not relieve it from any liability which it
may have to any indemnified party for contribution or otherwise than
under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In
case any such action is brought against any indemnified party and such
indemnified party seeks or intends to seek indemnity from an
indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with all
other indemnifying parties similarly notified, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that there may be a conflict
between the positions of the indemnifying party and the indemnified
party in
25
<PAGE> 26
conducting the defense of any such action or that there may be legal
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select
separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under
this Section for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless
(i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the
proviso to the next preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of
more than one separate counsel, approved by the Representatives in the
case of paragraph (a) and the Company in the case of paragraph (b),
representing the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall
be at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 11 is
required by its terms but is for any reason held to be unavailable to
or otherwise insufficient to hold harmless an indemnified party under
paragraphs (a), (b) or (c) in respect of any losses, claims, damages,
liabilities or expenses referred to herein, then each applicable
indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of any losses, claims, damages,
liabilities or expenses referred to herein (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company,
the Selling Stockholders and the Underwriters from the offering of the
Common Shares or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company, the Selling
Stockholders and the Underwriters in connection with the statements or
omissions or inaccuracies in the representations and warranties herein
which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
respective relative benefits received by the Company, the Selling
Stockholders and the Underwriters shall be deemed to be in the same
proportion, in the case of the Company and the Selling Stockholders as
the total price paid to the Company and to the Selling Stockholders,
respectively, for the Common Shares sold by them to the Underwriters
(net of underwriting commissions but before deducting expenses), bears
to the total price to the public set forth in the cover of the
Prospectus, and in the case of the Underwriters as the underwriting
commissions received by them bears to the total price to the public set
forth on the cover of the Prospectus of such amounts paid to the
Company and to the Selling Stockholders and received by the
Underwriters as underwriting commissions. The relative fault of the
Company, the Selling Stockholders and the Underwriters shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact or the inaccurate or the alleged
inaccurate representation and/or warranty relates to information
supplied by the Company, the Selling Stockholders or the Underwriters
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
amount paid or payable by a party as a result
26
<PAGE> 27
of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth
in subparagraph (c) of this Section 11, any legal or other fees or
expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. The provisions set
forth in subparagraph (c) of this Section 11 with respect to notice of
commencement of any action shall apply if a claim for contribution is
to be made under this subparagraph (d); provided, however, that no
additional notice shall be required with respect to any action for
which notice has been given under subparagraph (c) for purposes of
indemnification. The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if
contribution pursuant to this Section 11 were determined solely by pro
rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this
paragraph. Notwithstanding the provisions of this Section 11, no
Underwriter shall be required to contribute any amount in excess of the
amount of the total underwriting commissions received by such
Underwriter in connection with the Common Shares underwritten by it and
distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 11 are several in proportion to
their respective underwriting commitments and not joint.
(e) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in
Sections 11(a) and 11(b) hereof, including the amounts of any requested
reimbursement payments and the method of determining such amounts,
shall be settled by arbitration conducted under the provisions of the
Constitution and Rules of the Board of Governors of the New York Stock
Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the
NASD. Any such arbitration must be commenced by service of a written
demand for arbitration or written notice of intention to arbitrate,
therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration
tribunal in such demand or notice, then the party responding to said
demand or notice is authorized to do so. Such an arbitration would be
limited to the operation of the interim reimbursement provisions
contained in Sections 11(a) and 11(b) hereof and would not resolve the
ultimate propriety or enforceability of the obligation to reimburse
expenses which is created by the provisions of such Sections 11(a) and
11(b) hereof.
(f) The liability of each Selling Stockholder under such
Selling Stockholder's representations and warranties contained in
Sections 2 and 3 hereof and under the indemnity, contribution and
reimbursement agreements contained in the provisions of this Section 11
shall be limited to an amount equal to the proceeds (net of
underwriting discounts and commissions) received upon the sale of
Common Shares sold by such Selling Stockholder to the Underwriters. The
Company and the Selling Stockholders have agreed, as among themselves
and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which
they each shall be responsible.
SECTION 12. Default of Underwriters. It shall be a condition to this
Agreement and the obligation of the Company and the Selling Stockholders to sell
and deliver the Common Shares hereunder, and of each Underwriter to purchase the
Common Shares in the manner as described herein, that, except as hereinafter in
this paragraph provided, each of the Underwriters shall purchase and pay for
27
<PAGE> 28
all the Common Shares agreed to be purchased by such Underwriter hereunder upon
tender to the Representatives of all such shares in accordance with the terms
hereof. If any Underwriter or Underwriters default in their obligations to
purchase Common Shares hereunder on either the First or Second Closing Date and
the aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase on such Closing Date does not exceed
10% of the total number of Common Shares which the Underwriters are obligated to
purchase on such Closing Date, the non-defaulting Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the Common Shares which such defaulting Underwriters agreed but failed
to purchase on such Closing Date. If any Underwriter or Underwriters so default
and the aggregate number of Common Shares with respect to which such default
occurs is more than the above percentage and arrangements satisfactory to the
Representatives and the Company for the purchase of such Common Shares by other
persons are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company or the Selling Stockholders.
In the event that Common Shares to which a default relates are to be purchased
by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected. As used
in this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section . Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 13. Effective Date. This Agreement shall become effective
immediately as to Sections 7, 9, 11, 14 and 16 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement has
not become effective, upon such effectiveness of the Registration Statement, or
(ii) if at the time of execution of this Agreement the Registration Statement
has been declared effective, upon the execution of this Agreement.
SECTION 14. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may also be terminated by you prior to the
First Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum
or maximum prices shall have been generally established on the New York
Stock Exchange or on the American Stock Exchange or in the over the
counter market by the NASD, or trading in securities generally shall
have been suspended on either such Exchange or in the over the counter
market by the NASD, or a general banking moratorium shall have been
established by federal, New York or California authorities, (ii) if an
outbreak of major hostilities or other national or international
calamity or any substantial change in political, financial or economic
conditions shall have occurred or shall have accelerated or escalated
to such an extent, as, in the reasonable judgment of the
Representatives, to affect adversely the marketability of the Common
Shares, (iii) if any adverse event shall have occurred or shall exist
which makes untrue or incorrect in any material respect any statement
or information contained in the Registration Statement or Prospectus or
which is not reflected in the Registration Statement or Prospectus but
should be reflected therein in order to make the statements or
information contained therein not misleading
28
<PAGE> 29
in any material respect, or (iv) if there shall be any action, suit or
proceeding pending or threatened, or there shall have been any
development or prospective development involving particularly the
business or properties or securities of the Company or any of its
subsidiaries or the transactions contemplated by this Agreement not
disclosed in the Prospectus, which, in the reasonable judgment of the
Representatives, may materially and adversely affect the Company's
business or earnings and makes it impracticable or inadvisable to offer
or sell the Common Shares. Any termination pursuant to this subsection
(b) shall without liability on the part of any Underwriter to the
Company or the Selling Stockholders or on the part of the Company or
the Selling Stockholders to any Underwriter (except for expenses to be
paid or reimbursed by the Company and the Selling Stockholders pursuant
to Sections 7 and 9 hereof and except to the extent provided in Section
11 hereof.
(b) This Agreement shall also terminate at 5:00 P.M.,
California time, on the tenth full business day after the Registration
Statement shall have become effective if the initial public offering
price of the Common Shares shall not then as yet have been determined
as provided in Section 5 hereof. Any termination pursuant to this
subsection (c) shall be without liability on the part of any
Underwriter to the Company or the Selling Stockholders or on the part
of the Company or the Selling Stockholders to any Underwriter.
SECTION 15. Failure of the Selling Stockholders to Sell and Deliver. If
one or more of the Selling Stockholders shall fail to sell and deliver to the
Underwriters the Common Shares to be sold and delivered by such Selling
Stockholders at the First Closing Date under the terms of this Agreement, then
the Underwriters may at their option, by written notice from you to the Company
and the Selling Stockholders, either (i) terminate this Agreement without any
liability on the part of any Underwriter or, except as provided in Sections 7, 9
and 11 hereof, the Company or the Selling Stockholders, or (ii) purchase the
shares which the Company and other Selling Stockholders have agreed to sell and
deliver in accordance with the terms hereof. In the event of a failure by one or
more of the Selling Stockholders to sell and deliver as referred to in this
Section , either you or the Company shall have the right to postpone the Closing
Date for a period not exceeding seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected.
SECTION 16. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 17. Notices. All communications hereunder shall be in writing
and, if sent to the Representatives shall be mailed, delivered or telegraphed
and confirmed to you at 600 Montgomery Street, San Francisco, California 94111,
Attention: David Ketsdever, with a copy to Morrison & Foerster LLP, 19900
MacArthur Boulevard, Irvine, California 92612, Attention: Robert M. Mattson,
Jr., Esq.; and if sent to the Company or the Selling Stockholders shall be
mailed, delivered or telegraphed and confirmed to the Company at 11811 North
Tatum Boulevard, Suite 2000, Phoenix, Arizona 85028, Attention: Frederick M.
Pakis, with a copy to Gray Cary Ware & Freidenrich, 4365 Executive Drive,
29
<PAGE> 30
#1600, San Diego, California 92121, Attention: Paul E. Hurdlow, Esq. The
Company, the Selling Stockholders or you may change the address for receipt of
communications hereunder by giving notice to the others.
SECTION 18. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 12 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 11, and in each case their
respective successors, personal representatives and assigns, and no other person
will have any right or obligation hereunder. No such assignment shall relieve
any party of its obligations hereunder. The term "successors" shall not include
any purchaser of the Common Shares as such from any of the Underwriters merely
by reason of such purchase.
SECTION 19. Representation of Underwriters. You will act as
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you
jointly or by Montgomery Securities, as Representatives, will be binding upon
all the Underwriters.
SECTION 20. Partial Unenforceability. The invalidity or
unenforceability of any Section , paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section , paragraph or
provision hereof. If any Section , paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 21. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 22. General. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the singular
and the plural include one another. The section headings in this Agreement are
for the convenience of the parties only and will not affect the construction or
interpretation of this Agreement. This Agreement may be amended or modified, and
the observance of any term of this Agreement may be waived, only by a writing
signed by the Company, the Selling Stockholders and you.
Any person executing and delivering this Agreement as Attorney-in-fact for the
Selling Stockholders represents by so doing that he has been duly appointed as
Attorney-in-fact by such Selling Stockholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-fact to take such
action. Any action taken under this Agreement by any of the Attorneys-in-fact
will be binding on all the Selling Stockholders.
30
<PAGE> 31
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed copies hereof, whereupon it will
become a binding agreement among the Company, the Selling Stockholders and the
several Underwriters including you, all in accordance with its terms.
Very truly yours,
JDA SOFTWARE GROUP, INC.
By:__________________________
James D. Armstrong,
Chief Executive Officer
By:__________________________
Frederick M. Pakis
President
SELLING STOCKHOLDERS NAMED IN THE
ATTACHED SCHEDULE B
By:__________________________
(Attorney-in-fact)
By:__________________________
(Attorney-in-fact)
31
<PAGE> 32
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written.
MONTGOMERY SECURITIES
HAMBRECHT & QUIST LLC
PIPER JAFFRAY INC.
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By: MONTGOMERY SECURITIES
By:______________________________
32
<PAGE> 33
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm
Common Shares to
Name of Underwriter be Purchased
- -------------------------------------------------------------------- -------------------------------------------
<S> <C>
Montgomery Securities...........................................
Hambrecht & Quist LLC...........................................
Piper Jaffray Inc...............................................
TOTAL........................................................... 2,450,000
=========
</TABLE>
Schedule A
<PAGE> 34
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Number of Firm Optional
Common Shares to Common Shares
be Sold by Selling to be Sold By Selling
Name of Selling Stockholder Stockholders Stockholders
- ------------------------------------------------ ------------------ ---------------------
<S> <C> <C>
James P. Armstrong............................... 504,833 91,875
Frederick M. Pakis............................... 521,583 91,875
[TA ASSOCIATES GROUP]............................ 485,965 88,441
James L. Smith................................... 70,000 -0-
Brent W. Lippman................................. 30,000 -0-
Kenneth J. Desmarchais........................... 18,000 -0-
Thomas M. Proud.................................. 20,000 -0-
[OTHER SELLING STOCKHOLDERS]..................... 30,750 -0-
--------- -------
TOTAL............................................ 1,700,000 275,625
========= =======
</TABLE>
Schedule B
<PAGE> 1
Exhibit 5.1
[LETTERHEAD]
Our File No.
102128-150086
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: JDA SOFTWARE GROUP, INC. REGISTRATION STATEMENT FORM S-1 FILE
NO. 333-15659
Ladies and Gentlemen:
As counsel to JDA Software Group, Inc. (the "Company"), we are
rendering this opinion in connection with a proposed sale of those certain
shares of the Company's newly-issued Common Stock and those certain additional
shares of the Company's Common Stock held by certain stockholders as set forth
in the Registration Statement on Form S-1 to which this opinion is being filed
as Exhibit 5.1 (the "Shares"). We have examined all instruments, documents and
records which we deemed relevant and necessary for the basis of our opinion
hereinafter expressed. In such examination, we have assumed the genuineness of
all signatures and the authenticity of all documents submitted to us as
originals and the conformity to the originals of all documents submitted to us
as copies.
We express no opinion with respect to (i) the availability of equitable
remedies, including specific performance, or (ii) the effect of bankruptcy,
insolvency, reorganization, moratorium or equitable principles relating to or
limiting creditors' rights generally.
Based on such examination, we are of the opinion that the Shares
identified in the above-referenced Registration Statement will be, upon
effectiveness of the Registration Statement and receipt by the Company of
payment therefor, validly authorized, legally issued, fully paid, and
nonassessable.
<PAGE> 2
GRAY CARY WARE & FREIDENRICH
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever it
appears in said Registration Statement, including the Prospectus constituting
a part thereof, as originally filed or as subsequently amended.
Respectfully submitted,
/s/ Gray Cary Ware & Freidenrich
GRAY CARY WARE & FREIDENRICH
A Professional Corporation
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULES
To the Board of Directors and Stockholders of
JDA Software Group, Inc.
Phoenix, Arizona
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-15659 of JDA Software Group, Inc. on Form S-1 of our report dated January
20, 1996, appearing in the Prospectus, which is a part of this Registration
Statement, and to the references to us under the headings "Selected Consolidated
Financial Data" and "Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of JDA Software Group,
Inc., listed in Item 16b. The financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, such 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.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
November 19, 1996
