<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-27876
JDA SOFTWARE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 86-0787377
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
11811 NORTH TATUM BLVD., SUITE 2000
PHOENIX, ARIZONA 85028
(602) 404-5500
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) had been subject to such
filing requirements for the past 90 days.
YES [x] NO [ ]
The number of shares outstanding of the Registrant's Common Stock,
$0.01 par value, was 23,419,808 as of October 31, 1998.
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JDA SOFTWARE GROUP, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997........... 3
Condensed Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 1998 and September 30, 1997.......................................... 4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and September 30, 1997................................................ 5
Notes to Interim Condensed Consolidated Financial Statements................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 10
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................................... 27
Signature............................................................................................ 28
</TABLE>
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 85,469 $ 27,304
Accounts receivable, net ............................. 45,005 32,444
Deferred tax asset ................................... 3,388 1,190
Prepaid expenses and other current assets ............ 7,492 2,471
--------- ---------
Total current assets .............................. 141,354 63,409
PROPERTY AND EQUIPMENT, NET ............................. 23,030 16,071
GOODWILL AND OTHER INTANGIBLES, NET ..................... 13,423 3,722
DEFERRED TAX ASSET ...................................... 14,295 --
--------- ---------
Total assets ...................................... $ 192,102 $ 83,202
========= =========
CURRENT LIABILITIES:
Accounts payable ..................................... $ 3,506 $ 3,076
Accrued expenses and other liabilities ............... 17,023 8,268
Income taxes payable ................................. 3,720 668
Deferred revenue ..................................... 5,659 3,058
--------- ---------
Total current liabilities ......................... 29,908 15,070
DEFERRED TAX LIABILITY .................................. -- 222
--------- ---------
Total liabilities ................................. 29,908 15,292
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value. Authorized 2,000,000
Shares; None issued or outstanding................. -- --
Common stock, $.01 par value. authorized 50,000,000
Shares; Issued and outstanding 23,419,808 and
19,726,869, respectively........................... 234 197
Additional paid in capital ........................... 172,557 65,901
Retained earnings (deficit) .......................... (9,937) 2,117
Accumulated other comprehensive income (loss) ........ (660) (305)
--------- ---------
Total stockholders' equity ........................ 162,194 67,910
--------- ---------
Total liabilities and stockholders' equity .. $ 192,102 $ 83,202
========= =========
</TABLE>
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JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------- --------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Software licenses .............................. $ 12,355 $ 10,066 $ 36,717 $ 27,489
Consulting, maintenance and other services ..... 26,507 13,609 68,724 34,127
--------- --------- --------- ---------
Total revenues .............................. 38,862 23,675 105,441 61,616
--------- --------- --------- ---------
COST OF REVENUES:
Software licenses .............................. 455 258 1,564 691
Consulting, maintenance and other services ..... 17,064 10,207 46,952 26,004
--------- --------- --------- ---------
Total cost of revenues ...................... 17,519 10,465 48,516 26,695
--------- --------- --------- ---------
GROSS PROFIT ...................................... 21,343 13,210 56,925 34,921
--------- --------- --------- ---------
OPERATING EXPENSES:
Product development ............................ 5,879 2,747 14,911 7,333
Sales and marketing ............................ 6,099 3,235 14,595 8,811
General and administrative ..................... 4,063 2,119 10,602 6,216
Purchased in-process research and development... -- -- 40,000 --
--------- --------- --------- ---------
Total operating expenses .................... 16,041 8,101 80,108 22,360
--------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS ..................... 5,302 5,109 (23,183) 12,561
Other income ................................... 1,153 321 2,327 1,042
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES ................. 6,455 5,430 (20,856) 13,603
Income tax (benefit) provision ................. 2,582 2,171 (8,881) 5,441
--------- --------- --------- ---------
NET INCOME (LOSS) ................................. $ 3,873 $ 3,259 $ (11,975) $ 8,162
========= ========= ========= =========
BASIC EARNINGS (LOSS) PER SHARE ................... $ .17 $ .17 $ (.55) $ .42
========= ========= ========= =========
DILUTED EARNINGS (LOSS) PER SHARE ................. $ .17 $ .16 $ (.55) $ .42
========= ========= ========= =========
SHARES USED TO COMPUTE:
Basic earnings per share ....................... 23,418 19,668 21,781 19,580
========= ========= ========= =========
Diluted earnings per share ..................... 23,418 19,829 21,781 19,645
========= ========= ========= =========
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
--------------------------
1998 1997
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income(loss) .............................................. $ (11,975) $ 8,162
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization .............................. 4,695 1,680
Provision for doubtful accounts ............................ 472 716
Write-off of purchased in-process research and development.. 40,000 --
Deferred income taxes ...................................... (16,715) (292)
Changes in assets and liabilities:
Accounts receivable, net ................................... (13,033) (12,386)
Prepaid expenses and other current assets .................. (5,021) (1,049)
Accounts payable ........................................... 430 331
Accrued expenses and other liabilities ..................... 2,417 1,424
Income taxes payable ....................................... 3,052 (1,685)
Deferred revenue ........................................... 2,601 755
--------- --------
Net cash provided by (used in) operating activities ..... 6,923 (2,344)
--------- --------
INVESTING ACTIVITIES:
Purchase of Arthur Retail Business Unit ....................... (44,000) --
Purchase of property and equipment ............................ (10,976) (6,761)
Purchase of LIOCS Corporation, net of cash acquired ........... -- (1,588)
--------- --------
Net cash used in investing activities ................... (54,976) (8,349)
--------- --------
FINANCING ACTIVITIES:
Issuance of common stock - secondary offering ................. 99,628 --
Issuance of common stock - stock option plan .................. 4,182 1,346
Issuance of common stock - employee stock purchase plan ....... 434 1,585
Tax benefit - stock options and employee stock purchase plan... 2,368 4,041
Payments on capital lease obligations ......................... (39) (71)
Other ......................................................... -- (499)
--------- --------
Net cash provided by financing activities ............... 106,573 6,402
--------- --------
Effect of exchange rates on cash ................................. (355) (599)
--------- --------
Net increase (decrease) in cash and cash equivalents ............. 58,165 (4,890)
--------- --------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................... 27,304 30,986
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................... $ 85,469 $ 26,096
========= =========
</TABLE>
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JDA SOFTWARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
1998 1997
-------- -------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for:
Interest.............................................. $ 11 $ 3
======== =======
Income taxes.......................................... $ 2,531 $ 2,634
======== =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Acquisition of the Arthur Retail Business Unit:
In-process research and development................... $(40,000)
Purchase price in excess of net assets acquired....... (3,590)
Other intangibles..................................... (6,700)
Liabilities assumed................................... 6,290
--------
Net cash used to purchase the Arthur
Retail Business Unit.................... $(44,000)
========
Acquisition of LIOCS Corporation:
Fair value of assets acquired, other than cash........ $(622)
Purchase price in excess of net assets acquired....... (2,022)
Liabilities assumed................................... 366
Notes payable......................................... 690
-------
Net cash used to purchase LIOCS Corporation........ $(1,588)
=======
</TABLE>
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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JDA SOFTWARE GROUP, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PERCENTAGES, SHARES, PER SHARE AMOUNTS, OR AS OTHERWISE
STATED)
(UNAUDITED)
1. 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 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 nature.
Operating results for the three and nine months ended September 30, 1998,
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998.
2. SECONDARY PUBLIC OFFERING
The Company completed a secondary public offering of 3,450,000 common
shares in May 1998, receiving approximately $99.6 million in net proceeds.
The Company intends to use the net proceeds of this offering for general
corporate purposes including product development, working capital and
potential acquisitions. In June 1998, the Company used $44 million of the
proceeds to acquire the Arthur Retail Business Unit.
See note 6.
3. STOCK SPLIT
The Company announced a three-for-two stock split on June 15, 1998 to be
effected in the form of a 50% stock dividend. The stock dividend was paid
on or about July 17, 1998 to stockholders of record on June 26, 1998. An
amount equal to the par value of the common shares issued plus cash paid
in lieu of fractional shares was transferred from retained earnings to
effect the split. All historical share, weighted average share and per
share amounts have been restated to reflect the stock split.
4. PREFERRED STOCK PURCHASE RIGHTS PLAN
The Company adopted a Preferred Stock Purchase Rights Plan (the "Plan") on
October 2, 1998 designed to deter coercive or unfair takeover tactics and
to prevent a person or group from gaining control of the Company without
offering a fair price to all stockholders.
Under the terms of the Plan, a dividend distribution of one Preferred
Stock Purchase Right ("Right") for each outstanding share of the Company's
common stock outstanding was made to holders of record on October 20,
1998. These Rights entitle the holder to purchase one one-hundredth of a
share of the Company's Series A Preferred Stock ("Preferred Stock") at an
exercise price of $100 per one one-hundredth of a share. The Rights become
exercisable (a) 10 days after a public announcement that a person or group
has acquired shares representing 15% or more of the outstanding shares of
common stock, or (b) 10 business days following commencement of a tender
or exchange offer for 15% or more of such outstanding shares of common
stock.
The Company can redeem the Rights for $0.001 per Right at any time prior
to their becoming exercisable. The Rights will expire on October 1, 2008,
unless redeemed earlier by the Company or exchanged for common stock.
Under certain circumstances, if a person or group acquires 15% or more of
the Company's common stock, the Rights permit stockholders other than the
acquiror to purchase common stock having a market value of twice the
exercise price of the Rights, in lieu of the Preferred Stock. In addition,
in the event of certain business combinations, the Rights permit
stockholders to purchase the common stock of an acquiror at a 50%
discount. Rights held by the acquiror will become null and void in both
cases.
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5. EARNINGS (LOSS) PER SHARE
Shares used in the earnings (loss) per share calculation are as follows.
Common stock equivalents have been excluded from the earnings (loss) per
share calculation for the three and nine months ended September 30, 1998
as their effect would be antidilutive:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shares--Basic earnings per share............ 23,418 19,668 21,781 19,580
Dilutive common stock equivalents........... -- 161 -- 65
------- ------- ------- -------
Shares--Diluted earnings per share.......... 23,418 19,829 21,781 19,645
======= ======= ======= =======
</TABLE>
6. ACQUISITION OF THE ARTHUR RETAIL BUSINESS UNIT
The Company acquired the Arthur Retail Business Unit ("Arthur Retail")
from Comshare, Incorporated on June 4, 1998 for $44 million in cash.
Arthur Retail is a leading provider of strategic merchandise management
software applications that provide retailers with integrated tools for
merchandise planning, product, store allocation and store assortment
decision making, as well as enterprise-wide decision support.
The acquisition has been accounted for as a purchase and, accordingly, the
operating results of Arthur Retail have been included in the Company's
consolidated financial statements from the date of acquisition. The
purchase price was allocated to certain intangible assets and in-process
research and development ("R&D") based on their fair market values. The
excess of the purchase price over the fair market value of the underlying
assets is being amortized over a period of ten years. Purchased in-process
R&D includes the value of products in the development stage for which
technological feasibility has not been established and which the Company
believes have no alternative future use. In accordance with applicable
accounting rules, the Company expensed $40 million of purchased in-process
R&D during the three months ended June 30, 1998 and recorded a related tax
benefit of $16.2 million.
The following unaudited pro forma consolidated results of operations for
the nine months ended September 30, 1998 and 1997 assume the Arthur Retail
acquisition occurred as of January 1 of each year. The pro forma results
are not necessarily indicative of the actual results that would have
occurred had the acquisition been completed as of the beginning of each of
the periods presented, nor are they necessarily indicative of future
consolidated results.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
1998 1997
---- ----
<S> <C> <C>
Total revenues........................... $ 113,671 $ 76,347
Net income............................... $ 9,995 $ 6,392
Basic and diluted earnings per share..... $ 0.46 $ 0.33
</TABLE>
7. Baan-JDA RETAIL JOINT VENTURE
The Company signed a letter of intent in August 1998 with Baan Company
N.V. ("Baan") to form a 50/50 joint venture. The Company anticipates that
a definitive agreement will be executed with Baan before the end of fiscal
1998. The new organization, Baan-JDA Retail, will target tier one global
retailers, manufacturers that have their own retail operations, and
enterprises with wholesale, catalog, mail order and electronic commerce
requirements. The planned offering will consist of a comprehensive suite
of products for the retail supply chain that combine JDA's support of
traditional retail operations with Baan's enterprise business software.
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8. CORPORATE OFFICE LEASE
The Company entered into a ten-year lease in April 1998 for a 100,000
square foot office facility in Phoenix. The lease is scheduled to commence
in April 1999 at an initial monthly rate of approximately $112,000.
Concurrent with the execution of the lease, the Company was granted an
option to purchase approximately five acres of real property contiguous to
the office facility. The option may be exercised at a pre-determined price
on or before August 2001 provided the Company occupies at least 25% of the
office facility. The Company also has a Right of First Refusal on the
office facility until the date of occupancy.
9. COMPREHENSIVE INCOME (LOSS)
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS No. 130") effective January 1, 1998.
SFAS No. 130 requires that items defined as other comprehensive income,
such as foreign currency translation adjustments, be separately classified
in the financial statements and that the accumulated balance of other
comprehensive income be reported separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet. The
components of comprehensive income for the three and nine months ended
September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------- --------------------
1998 1997 1998 1997
------ ------ -------- ------
<S> <C> <C> <C> <C>
Comprehensive income(loss):
Net income (loss)...................... $3,873 $3,259 $(11,975) $8,162
Other comprehensive income (loss) -
Foreign currency adjustment......... (130) (418) (355) (599)
------ ------ -------- ------
Comprehensive income (loss)......... $3,743 $2,841 $(12,330) $7,563
====== ====== ======== ======
</TABLE>
10. SEGMENT DISCLOSURES
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS
No. 131") effective January 1, 1998. SFAS No. 131 requires public
companies to report certain information about operating segments in their
financial statements and establishes related disclosures about products
and services, geographic areas and major customers. SFAS No. 131 does not
need to be applied to interim financial statements in the initial year of
application; however, comparative information for interim periods in the
initial year of application will be reported in the financial statements
for interim periods in fiscal 1999.
11. RECLASSIFICATIONS
Certain reclassifications were made to the December 31, 1997 balance sheet
to conform with the September 30, 1998 presentation.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report on Form 10-Q contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Discussion containing such forward-looking statements may be found in
Management's Discussion and Analysis of Financial Condition and Results of
Operations under the captions "Overview," "Three Months Ended September 30, 1998
Compared to Three Months Ended September 30, 1997," "Nine Months Ended September
30, 1998 Compared to Nine Months Ended September 30, 1997," "Liquidity and
Capital Resources," "Year 2000 Compliance," and "Certain Risks." Such forward
looking statements may concern growth and future operating results, capital
expenditures, potential acquisitions, new products and product enhancements,
research and development activities and expenditures, the hiring of additional
personnel, strategic relationships with third parties, liquidity and the
Company's strategy. Such forward looking statements are generally accompanied by
words such as "plan," "estimate," "expect," "believe," "should," "would,"
"could," "anticipate" or other words that convey uncertainty of future events or
outcomes. Actual results for future periods could differ materially from those
discussed in this report on Form 10-Q as a result of the various risks and
uncertainties discussed herein.
OVERVIEW
JDA Software Group, Inc. ("JDA" or the "Company") is a global provider of
integrated enterprise-wide software products and services that address the
mission-critical management information needs of the entire retail supply chain.
The Company offers merchandising, merchandise planning and allocation, decision
support and financial systems at the corporate level; warehouse management and
logistic systems at the distribution level; and point-of-sale, back office and
distributed processing applications at the store level. JDA also offers a wide
range of professional services through its consulting and customer support
organizations, including project management, system planning, design and
implementation, custom modifications, training and support services.
JDA historically has derived a significant portion of its revenues from
software licenses and consulting, maintenance and other services relating to
MMS. Total revenues from the MMS product line represented 45% of the Company's
total revenues during the nine months ended September 30, 1998 as compared with
56% and 80% in fiscal years 1997 and 1996, respectively. Although the Company
expects MMS revenues to continue to represent a significant portion of total
revenues for the foreseeable future, MMS revenues as a percentage of total
revenues may continue to decline as a result of the increased revenues
attributable to the Company's newer product lines, particularly ODBMS, Win/DSS,
Retail IDEAS, WCC, and the Arthur Enterprise Suite.
Software license revenues and consulting, maintenance and other services
revenues represented 35% and 65%, respectively, of JDA's total revenues during
the nine months ended September 30, 1998, as compared with 45% and 55% during
the nine months ended September 30, 1997. JDA's software license revenues and
overall revenue mix were affected during the past two quarters by lower than
anticipated software license revenues in the Company's international business
which declined 23% in the second quarter of 1998 and 40% in the third quarter of
1998, as compared to the comparable prior year quarters. These declines resulted
from the elongation of international sales cycles, deferred purchasing decisions
for merchandising systems, weakening international economies, and increased
competition. The software license results have also been adversely impacted over
past two quarters by vacancies in senior management positions in Europe and
Latin America.
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. During the past two
years, the Company has accelerated the growth of its services organization in
anticipation of an increased mix of consulting, maintenance and other services
revenues in both domestic and international markets, and continued market
acceptance of its newer client/server product lines, which require longer
implementation cycles. Consulting, maintenance and other services comprised 62%
of the Company's revenue base over the twelve months ended September 30, 1998.
The mix of service revenues in relation to total revenues has historically been
higher during the first, second and third quarters of each fiscal year because,
the Company believes, retailers prefer to implement systems during those periods
that have the least amount of disruption to their sales cycle. Consulting,
maintenance and other services revenues are generally more predictable but
generate significantly lower gross margins than software revenues. In addition,
consulting, maintenance and other services costs tend to be higher during
periods of rapid expansion, particularly with the opening of new international
offices where initial recruiting costs, training and other start-up expenses
must be incurred in advance of anticipated revenues, and as a result of the
reduced labor
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efficiencies associated with the introduction of products to a new customer
base.
The Company has pursued 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 offices and export sales,
represented 45% of total revenues for the nine months ended September 30, 1998,
as compared with 55% and 43% of total revenues in fiscal years 1997 and 1996,
respectively. Consulting, maintenance and other services in support of
international software licenses typically have lower gross margins than those
achieved domestically due to higher costs and/or generally lower prevailing
billing rates in certain of the Company's international markets. Therefore,
significant growth in the Company's international operations may result in
declines in gross margins on consulting, maintenance and other services.
The Asia/Pacific region continues to have unstable local economies and
significant devaluation in its currencies. The economic situation in the region
has resulted in slower payment of outstanding receivable balances and various
requests for extended or modified payment terms. This region represented 4% of
the Company's revenues for the nine months ended September 30, 1998 and less
than 10% of revenues and 2% of income from operations during fiscal year 1997.
Asia/Pacific receivables, net of reserves, were approximately 7% of the
Company's total net receivables at September 30, 1998. To the extent the
Asia/Pacific region grows in importance to the Company, or that the factors
affecting the region begin to adversely affect retailers in other geographic
locations, the Company's business, operating results and financial condition
could be adversely affected. The Company believes that certain of these factors
have begun to affect the Latin American region and may affect other regions in
the future.
The Company is cautious about its expectations from international
operations in the near term, and the Company expects its operating results to be
less predictable in the future as a result of the overall economic uncertainties
described above. Management believes these economic conditions could adversely
impact the Company's business, operating results and financial condition for an
indefinite period of time. The Company has taken steps to resolve the
organizational issues that have impacted its execution in Europe and Latin
America over the past two quarters. The Company filled the Director - Latin
America position in September 1998 and a candidate has accepted the Vice
President - EMEA position and is expected to begin working for the Company in
mid-November 1998. The Company anticipates that other changes will be made to
the sales organizations in these regions. The Company has recently initiated a
realignment of its European sales force around a product line orientation
similar to the orientation the Company implemented domestically during 1998. The
Company believes this resulted in the higher year-over-year growth in domestic
software license revenues during 1998 versus 1997.
To the extent the Company's international operations expand, the Company
expects that an increasing portion of its international software license and
consulting, maintenance and other services revenues will be denominated in
foreign currencies, subjecting the Company to risks related to fluctuations in
foreign currency exchange rates. Historically, the Company's operations have not
been materially adversely affected by fluctuations in foreign currency exchange
rates, and the Company has not engaged 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
or reducing 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.
RECENT DEVELOPMENTS
The Company announced a three-for-two stock split in June 1998 to be
effected in the form of a 50% stock dividend. The stock dividend was paid in
July 1998 and an amount equal to the par value of the common shares issued plus
cash paid in lieu of fractional shares was transferred from retained earnings to
effect the split. All historical share, weighted average share and per share
amounts have been restated to reflect the stock split.
JDA has undertaken several key initiatives during 1998. In June 1998, the
Company acquired the Arthur Retail Business Unit ("Arthur Retail") from
Comshare, Incorporated. Arthur Retail is a provider of strategic merchandise
management software applications, collectively referred to as the Arthur
Enterprise Suite. The suite
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<PAGE> 12
includes applications that complement and expand the Company's existing product
lines by providing retailers with integrated tools for merchandise planning,
product, store allocation and store assortment decision making, as well as
enterprise-wide decision support. The Company also signed a letter of intent in
August 1998 with Baan Company N.V. ("Baan") to form a 50/50 joint venture. The
Company anticipates, although there can be no assurance, that a definitive
agreement will be executed with Baan before the end of fiscal 1998. The new
organization, Baan-JDA Retail, will target tier one global retailers,
manufacturers that have their own retail operations, and enterprises with
wholesale, catalog, mail order and electronic commerce requirements. The planned
offering by Baan-JDA Retail will consist of a comprehensive suite of products
for the retail supply chain that combine JDA's support of traditional retail
operations with Baan's enterprise business software. The Company also announced
the formation of an Electronic Commerce division during August 1998. The Company
intends for this division to deliver business solutions that web-enable a
retailer's existing computing system and allow the exchange of both external and
internal content through any Web browser.
The Company adopted a Preferred Stock Purchase Rights Plan (the "Plan") on
October 2, 1998 designed to deter coercive or unfair takeover tactics and to
prevent a person or group from gaining control of the Company without offering a
fair price to all stockholders. Under the terms of the Plan, a dividend
distribution of one Preferred Stock Purchase Right ("Right") for each
outstanding share of the Company's common stock outstanding was made to holders
of record on October 20, 1998. These Rights entitle the holder to purchase one
one-hundredth of a share of the Company's Series A Preferred Stock ("Preferred
Stock") at an exercise price of $100 per one one-hundredth of a share. The
Rights become exercisable (a) 10 days after a public announcement that a person
or group has acquired shares representing 15% or more of the outstanding shares
of common stock, or (b) 10 business days following commencement of a tender or
exchange offer for 15% or more of such outstanding shares of common stock. The
Company can redeem the Rights for $0.001 per Right at any time prior to their
becoming exercisable. The Rights will expire on October 1, 2008, unless redeemed
earlier by the Company or exchanged for common stock. Under certain
circumstances, if a person or group acquires 15% or more of the Company's common
stock, the Rights permit stockholders other than the acquiror to purchase common
stock having a market value of twice the exercise price of the Rights, in lieu
of the Preferred Stock. In addition, in the event of certain business
combinations, the Rights permit stockholders to purchase the common stock of an
acquiror at a 50% discount. Rights held by the acquiror will become null and
void in both cases.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Revenues
Total revenues for the three months ended September 30, 1998 were $38.9
million, an increase of 64% over the $23.7 million reported in the comparable
prior year period. Revenues consist of software licenses and consulting,
maintenance and other services, which represented 32% and 68%, respectively, of
total revenues during the three months ended September 30, 1998, and 43% and
57%, respectively in the comparable prior year period. The decrease in software
license revenues as a percentage of total revenues during the current quarter
resulted primarily from slower than expected growth in international software
license revenues.
Software Licenses. Software license revenues for the three months ended
September 30, 1998 were $12.4 million, an increase of 23% over the $10.1 million
reported in the comparable prior year quarter. Domestic software license
revenues increased 130% between the comparable quarters on increased sales of
the MMS, Win/DSS, Retail IDEAS and WCC product lines, and incremental sales of
the Arthur Enterprise Suite. International software license revenues decreased
40% from the comparable prior year quarter as a result of the elongation of
international sales cycles, deferred purchasing decisions for merchandising
systems, weakening international economies and increased competition. The
results for the three months ended September 30, 1998 were also impacted by the
Company's strategic realignment of its international sales management group
which began in the second quarter of 1998. This realignment involved the
movement of certain key employees to other roles within the Company in order to
ensure a rapid assimilation of Arthur Retail and to position JDA for future
growth opportunities. The Company filled the Director - Latin America position
in September 1998 and a candidate has accepted the Vice President - EMEA
position and is expected to begin working for the Company in mid-November 1998.
The Company anticipates that other changes will be made to the sales
organizations in these regions. The Company does not anticipate sequential
growth rates to exceed those achieved during the current quarter without
improved results from its international business units.
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Consulting, Maintenance and Other Services. Consulting, maintenance and
other services revenues for the three months ended September 30, 1998 were $26.5
million, an increase of 95% over the $13.6 million reported in the comparable
prior year quarter. This increase resulted from the higher volume of software
license sales, including client/server products that require longer
implementation cycles, improved utilization, increased billing rates and the
incremental consulting and maintenance revenues related to the Arthur Enterprise
Suite. Domestic and international consulting, maintenance and other services
revenues increased 115% and 77%, respectively, between the comparable quarters.
International software license revenues have slowed over the past two quarters.
Although the Company has a significant backlog of consulting work, if
international software license revenue growth continues to slow, the Company may
be required to reevaluate the utilization rates and size of its consulting
services workforce.
Cost of Revenues
Cost of software licenses was $455,000 for the three months ended
September 30, 1998 and $258,000 in the comparable prior year quarter. Cost of
software licenses represented 4% and 3% of software license revenues in the
respective quarters. The increase between quarters reflects the higher costs
associated with the Company's increased sales of products that incorporate
software technology licensed from third party suppliers. Consulting, maintenance
and other services costs for the three months ended September 30, 1998 were
$17.1 million, an increase of 67% over the $10.2 million reported in the
comparable prior year quarter. The Company has expanded its consulting and
customer support organizations as a result, and in anticipation, of continued
increased sales of new software licenses and increased demand from the existing
client base for additional support and professional services. The Company
increased the number of personnel in its consulting, maintenance and other
services organization by 69% between the comparable periods, and as of September
30, 1998 there were more than 670 employees involved in these functions
worldwide. In addition, the Company has utilized a significant number of
subcontractors in Europe over the past twelve months to provide timely
implementation work. To the extent international software license revenues do
not improve, the Company intends to reduce its utilization and reliance upon
European subcontractors and may take additional actions with respect to its
consulting services workforce.
Gross Profit
Gross profit for the three months ended September 30, 1998 was $21.3
million, an increase of 62% over the $13.2 million reported in the comparable
prior year quarter. Gross profit, as a percentage of total revenues, decreased
from 56% in the three months ended September 30, 1997 to 55% in the comparable
current year quarter. This decrease resulted from the higher mix of consulting,
maintenance and other services revenues as a percentage of total revenues
between the comparable periods. Gross margins on consulting, maintenance and
other services revenues increased between the comparable quarters, however, from
25% in 1997 to 36% in 1998, reflecting the favorable impact of higher average
billing rates, improved utilization rates, higher maintenance revenues,
primarily from Arthur Retail, increased training revenues and continued
leveraging of costs in the consulting practice.
There can be no assurance that the Company will successfully maintain or
improve consulting, maintenance and other services margins, and such margins
could be materially, adversely affected if revenues were to fall short of
expectations, or if other factors were to significantly affect the utilization
rates of the service personnel. Other factors include the continued rapid
expansion of the Company's consulting infrastructure and the resulting high
front-end recruiting, training and downtime costs, and the higher costs
associated with the continued or increased use of subcontractors in
international markets such as the United Kingdom to service the increased demand
for installation work. The Company expects its gross margins on consulting,
maintenance and other services to be lower during the fourth quarter due to the
normal holiday season impact.
Operating Expenses
Product Development. Product development expenses for the three months
ended September 30, 1998 were $5.9 million, an increase of 114% over the $2.7
million reported in the comparable prior year quarter. Product development
expenses as a percentage of total revenues increased between the comparable
periods from 12% in 1997 to 15% in 1998. The Company increased its product
development staff by 81% between the comparable quarters and currently has
nearly 180 employees in its product development group. In addition, certain
product development activities were conducted by the Company's service
organization and by outside contractors during the three months ended September
30, 1998. Such activities were conducted primarily by the Company's internal
product development staff in the prior year quarter. The Company believes that a
strong commitment to product
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<PAGE> 14
development will be required in order to remain competitive. JDA has identified
certain functions and design features in connection with early installations of
ODBMS that are being added to the base code in order to shorten the deployment
cycle and increase customer satisfaction. The Company expects product
development expenses for 1998 to be between $21 million and $22 million as it
continues to incorporate these features into the next release of ODBMS,
completes the integration between ODBMS and the WCC product, develops a European
version of MMS with European Monetary Unit capabilities, and adds enhancements
to its other product lines including Win/DSS and the Arthur Enterprise Suite.
The Company believes its current process for developing software is essentially
completed concurrent with the establishment of technological feasibility, and
accordingly, no costs have been capitalized. The Company anticipates that
product development expenses will increase in each of the next two quarters as
it uses field resources to supplement the existing product development staff to
complete the development of the next release of ODBMS.
Sales and Marketing. Sales and marketing expenses for the three months
ended September 30, 1998 were $6.1 million, an increase of 89% over the $3.2
million reported in the comparable prior year quarter. Sales and marketing
expenses, as a percentage of total revenues, increased between the comparable
periods from 14% in 1997 to 16% in 1998. The increase results from the Company's
efforts to increase its sales and marketing presence in both domestic and
international markets. The Company more than doubled the number of sales
representatives between the comparable quarters from 26 to 55. The Company
anticipates that sales and marketing expenses may continue to increase as the
Company expands its operations.
General and Administrative. General and administrative expenses for the
three months ended September 30, 1998 were $4.1 million, an increase of 92% over
the $2.1 million reported in the prior year quarter. General and administrative
expenses, as a percentage of total revenues, increased between the comparable
periods from 9% in 1997 to 10% in 1998. The increase results from the addition
of administrative personnel to support the Company's domestic and international
growth, together with the incremental costs of Arthur Retail and the
amortization of intangibles associated with the acquisition of Arthur Retail
in June 1998. Management anticipates that general and administrative expenses
will continue to increase as the Company expands its operations.
Provision for Income Taxes
The Company's effective tax rate reflects statutory federal, state and
foreign tax rates, partially offset by reductions for research and development
expense tax credits ("R & D tax credit"). The Company expects its effective
income tax rate to be approximately 37.5% for the remainder of 1998. This rate
is lower than the 40% used during the three months ended September 30, 1998 due
to the re-instatement of the federal R & D tax credit.
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<PAGE> 15
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
Revenues
Total revenues for the nine months ended September 30, 1998 were $105.4
million, an increase of 71% over the $61.6 million reported in the comparable
prior year period. Revenues consist of software licenses and consulting,
maintenance and other services, which represented 35% and 65%, respectively, of
total revenues during the nine months ended September 30, 1998, and 45% and 55%,
respectively in the comparable prior year period. The decrease in software
license revenues as a percentage of total revenues during the nine months ended
September 30, 1998 resulted primarily from slower than expected growth in
international software license revenues during the second and third quarters of
1998.
Software Licenses. Software license revenues for the nine months ended
September 30, 1998 were $36.7 million, an increase of 34% over the $27.5 million
reported in the comparable prior year period. Domestic software license revenues
increased 108% between the comparable periods on increased sales of the MMS,
Win/DSS, Retail IDEAS, and WCC product lines and incremental sales of the Arthur
Enterprise Suite. International software license revenues decreased 20% between
the comparable periods as a result of the elongation of international sales
cycles, deferred purchasing decisions for merchandising systems, weakening
international economies, and increased competition. The results for the nine
months ended September 30, 1998 were also impacted by the Company's strategic
realignment of its international sales management group which began in the
second quarter of 1998. This realignment involved the movement of certain key
employees to other roles within the Company in order to ensure a rapid
assimilation of Arthur Retail and to position JDA for future growth
opportunities. The Company filled the Director - Latin America position in
September 1998 and a candidate accepted the Vice President - EMEA position and
is expected to begin working for the Company in mid-November 1998. The Company
anticipates that other changes will be made to the sales organizations in these
regions.
Consulting, Maintenance and Other Services. Consulting, maintenance and
other services revenues for the nine months ended September 30, 1998 were $68.7
million, an increase of 101% over the $34.1 million reported in the comparable
prior year period. This increase resulted from the higher volume of software
license sales including client/server products that require longer
implementation cycles, improved utilization, increased billing rates and the
incremental consulting and maintenance revenues related to the Arthur Enterprise
Suite. Domestic and international consulting, maintenance and other services
revenues increased 99% and 104%, respectively, between the comparable periods.
Cost of Revenues
Cost of software licenses was $1.6 million for the nine months ended
September 30, 1998 and $691,000 in the comparable prior year period. Cost of
software licenses represented 4% and 3% of software license revenues in the
respective periods. The increase between the comparable periods results from the
higher costs associated with the Company's increased sales of products that
incorporate software technology licensed from third party suppliers. Consulting,
maintenance and other services costs for the nine months ended September 30,
1998 were $47 million, an increase of 81% over the $26.0 million reported in
the comparable prior year period. The Company has expanded its consulting and
customer support organizations as a result, and in anticipation, of continued
increased sales of new software licenses and increased demand from the existing
customer base for additional professional services. The Company has utilized a
significant number of subcontractors in Europe over the past twelve months to
provide timely implementation work. To the extent international software license
revenues do not improve, the Company intends to reduce its utilization and
reliance upon European subcontractors and may take additional actions with
respect to its internal consulting services workforce.
Gross Profit
Gross profit for the nine months ended September 30, 1998 was $56.9
million, an increase of 63% over the $34.9 million reported in the comparable
prior year period. Gross profit, as a percentage of total revenues, decreased
from 57% in the nine months ended September 30, 1997 to 54% in the comparable
current year period. This decrease resulted from the higher mix of consulting,
maintenance and other services revenues as a percentage of total revenues
between the comparable periods. Gross margins on consulting, maintenance and
other services revenues increased between the comparable periods from 24% in
1997 to 32% in 1998, reflecting the favorable
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<PAGE> 16
impact of higher average billing rates, improved utilization rates, higher
maintenance revenues, primarily from Arthur Retail, increased training revenues
and continued leveraging of costs in the consulting practice.
Operating Expenses
Product Development. Product development expenses for the nine months
ended September 30, 1998 were $14.9 million, an increase of 103% over the $7.3
million reported in the comparable prior year period. Product development
expenses, as a percentage of total revenues, increased between the comparable
periods from 12% in 1997 to 14% in 1998. The Company increased its incremental
spending in 1998 for development efforts on ODBMS, Win/DSS, Retail IDEAS, and
WCC, and to make further enhancements to the MMS product line.
Sales and Marketing. Sales and marketing expenses for the nine months
ended September 30, 1998 were $14.6 million, an increase of 66% over the $8.8
million reported in the comparable prior year period. Sales and marketing
expenses, as a percentage of total revenues, were 14% in each of the comparable
periods. The increase in absolute dollars between the comparable periods
resulted from the Company's efforts to increase its sales and marketing presence
in both domestic and international markets and the inclusion of Arthur Retail
for four months of 1998.
General and Administrative. General and Administrative expenses for the
nine months ended September 30, 1998 were $10.6 million, an increase of 71% over
the $6.2 million reported in the comparable prior year period. General and
Administrative expenses, as a percentage of total revenues, were 10% in each of
the comparable periods. The increase in absolute dollars resulted from the
addition of administrative personnel to support the Company's domestic and
international growth, together with the incremental costs of Arthur Retail and
the amortization of intangibles associated with the acquisition of Arthur Retail
in June 1998.
Purchased In-process Research and Development. The Company took a one-time
charge of $40 million during the nine months ended September 30, 1998 for
in-process research and development acquired in connection with the purchase of
Arthur Retail, and recorded a related tax benefit of $16.2 million. Earnings per
share for the nine months ended September 30, 1998, excluding the one-time
charge for in-process research and development and related tax benefit, was $.54
per share.
Provision for Income Taxes
The Company's effective income tax rate reflects statutory federal, state
and foreign tax rates, partially offset by reductions for R & D tax credits.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through cash generated from operations and public sales of equity securities
and, to a lesser extent, borrowings under its bank line of credit. The Company
had working capital of $111.4 million at September 30, 1998 compared with $48.3
million at December 31, 1997. Cash and cash equivalents at September 30, 1998
were $85.5 million, an increase of $58.2 million from the $27.3 million reported
at December 31, 1997.
Operating activities provided cash of $6.9 million and utilized cash of
$2.3 million during the nine months ended September 30, 1998 and 1997,
respectively. Cash provided by operating activities increased in 1998 due to an
increase of $3.6 million in net income, excluding the one-time charge for
purchased in-process research and development and related tax benefit. The
Company had net accounts receivable of $45 million and $32.4 million at
September 30, 1998 and December 31, 1997, respectively, which represented 107
days and 99 days of sales outstanding ("DSOs"). DSOs have historically been
higher in the second and third quarters of each fiscal year, as a result, the
Company believes, of the seasonal cash flow requirements of its retail
customers. DSOs may fluctuate significantly on a quarterly basis due to a number
of factors including seasonality, shifts in customer buying patterns, the
underlying mix of products and services, and the geographic concentration of
revenues.
Investing activities utilized cash of $55 million and $8.3 million during
the nine months ended September
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<PAGE> 17
30, 1998 and 1997, respectively. The 1998 activity includes the $44 million
purchase of Arthur Retail and $11 million in capital expenditures to support the
Company's growth. The 1997 activity includes an initial payment of $1.6 million
for the purchase of LIOCS Corporation and $6.8 million in capital expenditures.
Financing activities provided cash of $106.6 million and $6.4 million
during the nine months ended September 30, 1998 and 1997, respectively. The 1998
activity includes net proceeds of $99.6 million from the issuance of 3,450,000
shares of the Company's stock in May 1998 in a secondary public offering. The
remaining activity in both periods consists primarily of proceeds from the
issuance of stock and related tax benefits under the Company's stock option and
employee stock purchase plans.
Changes in the currency exchange rates of the Company's foreign operations
had the effect of decreasing cash by $355,000 and $599,000 during the nine
months ended September 30, 1998 and 1997, respectively. The Company did not
enter into any foreign exchange contracts or engage in similar hedging
strategies during either of these periods.
The Company may in the future pursue additional acquisitions of
businesses, products and technologies, or enter into joint venture arrangements,
that could complement or expand the Company's business. Any material acquisition
or joint venture could result in a decrease to the Company's working capital
depending on the amount, timing and nature of the consideration to be paid. In
addition, any material acquisitions of complementary businesses, products or
technologies could require the Company to obtain additional equity or debt
financing.
The Company maintains a $5 million revolving line of credit for working
capital purposes which matures on July 1, 2000. The credit facility is
collateralized by property and equipment, receivables and intangibles; accrues
interest at the bank's reference rate, which approximates prime; and requires
the Company to maintain certain current ratios and tangible net worth. There
were no amounts outstanding on the line of credit as of September 30, 1998. The
Company believes that its cash and cash equivalents, available borrowings under
the bank line of credit and funds generated from operations will provide
adequate liquidity to meet the Company's normal operating requirements for at
least the next twelve months.
YEAR 2000 COMPLIANCE
Many currently installed computer systems are not capable of
distinguishing 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and/or software used by many companies in a
very wide variety of applications will experience operating difficulties unless
they are modified or upgraded to adequately process information involving,
related to or dependent upon the century change. Significant uncertainty exists
in the software and other industries concerning the scope and magnitude of
problems associated with the century change. The Company recognizes the need to
ensure its operations will not be adversely impacted by Year 2000 software
failures, and has established a project team to assess Year 2000 risks. The
project team is coordinating the identification and implementation of changes to
computer hardware and software applications that will ensure availability and
integrity of the Company's financial systems and the reliability of its
operational systems. The Company is also assessing the potential overall impact
of the impending century change on the Company's business, operating results and
financial condition.
Based on the Company's assessment to date, the Company believes its
current versions of its software products and services are "Year 2000
compliant," that is, they are capable of adequately distinguishing 21st century
dates from 20th century dates. However, the Company believes some of the
Company's customers are running earlier versions of the Company's software
products that are not Year 2000 compliant, and the Company has been encouraging
such customers to migrate to current product versions. Moreover, the Company's
products are generally integrated into enterprise systems involving complicated
software products developed by other vendors. The Company may in the future be
subject to claims based on Year 2000 problems in others' products, custom
modifications made by third parties to the Company's products, or issues arising
from the integration of multiple products within an overall system. Although the
Company has not been a party to any litigation or arbitration proceeding to date
involving its products or services and related to Year 2000 compliance issues,
there can be no assurance that the Company will not in the future be required to
defend its products or services in such proceedings, or to negotiate resolutions
of claims based upon Year 2000 issues. The costs of defending and resolving Year
2000-related disputes, and any liability of the Company for Year 2000-related
damages, including consequential damages, could have a material adverse effect
on the Company's business, operating results and
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<PAGE> 18
financial condition.
The Company is reviewing its major internal corporate systems for Year
2000 compliance and intends to take appropriate action based on the results of
such review. The Company is currently in the process of converting its existing
legacy accounting software to a Year 2000 compliant version. Although there can
be no assurance, this conversion is expected to be completed by March 1999 and
is expected to be performed entirely by the Company's internal IS staff. The
costs of modifying this software are being expensed as incurred. During
September 1998, the Company selected a new time and billing system from an
independent third party distributor. This system will replace an existing legacy
system, which is not Year 2000 compliant, and will be used to accumulate and
track billable hours incurred by the Company's consulting and customer support
staff. The current project plan calls for this system to be fully implemented by
September 1999, however, the Company intends to modify its existing legacy
system to be Year 2000 compliant in order to provide a safeguard against any
potential movement in the implementation time frame of the new system. The total
cost of these Year 2000 compliance activities has not been, and is not
anticipated to be, material to the Company's financial condition or its
operating results and will be funded from existing cash balances. These costs
and the timing in which the Company plans to complete its Year 2000 modification
and testing procedures are based on management's best estimates. However, there
can be no assurance that the Company will timely identify and remediate all
significant Year 2000 problems, or that any such remedial efforts will not have
a material adverse effect on the Company's business, operating results and
financial condition.
The Company faces risk to the extent that suppliers of products, services
and systems purchased by the Company and others with whom the Company transacts
business on a worldwide basis do not comply with Year 2000 requirements. In the
event any such third parties cannot provide the Company with products, services
or systems that meet the Year 2000 requirements on a timely basis, or in the
event Year 2000 issues prevent such third parties from timely delivery of
products or services required by the Company, the Company's operating results
could be materially adversely affected. The Company's plan for the Year 2000
calls for compliance verification of external vendors supplying software and
information systems to the Company and communication with significant suppliers
to determine the readiness of third parties' remediation of their own Year 2000
issues. As part of its assessment, the Company is evaluating the level of
validation it will require of third parties to ensure their Year 2000 readiness.
The Company is also subject to risk that the purchasing patterns of
customers and potential customers may be affected by Year 2000 issues as
companies expend significant resources and reduce available funds to correct or
patch their current software systems for Year 2000 compliance. As a result, no
assurance can be given that Year 2000 problems within the Company's existing or
prospective customer base of retail organizations will not result in the
deferral or cancellation of such organizations' decisions to license and
implement information systems such as those offered by the Company. To the
extent Year 2000 issues cause significant delays in, or cancellation of,
decisions to purchase the Company's products or services, the Company's
business, operating results and financial condition would be materially
adversely affected.
CERTAIN RISKS
Variability 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: demand for
the Company's products and services; the size and timing of individual sales;
the lengthening of the Company's sales cycle; competitive pricing pressures;
customer order deferrals in anticipation of new products; changes in the mix of
software license revenues; changes in the mix of software license revenues
versus consulting, maintenance and other services revenues; the timing of
introductions and enhancements of products by the Company or its competitors;
market acceptance of new products; technological changes in platforms supporting
the Company's products; changes in the Company's operating expenses; changes in
the mix of domestic and international revenues; the Company's ability to
complete fixed-price consulting contracts within budget; personnel changes;
foreign currency exchange rate fluctuations; expansion of international
operations; changes in the Company's strategies; and general industry and
economic conditions. In addition, the Company has begun to encounter what it
believes is a decline in the sense of urgency on the part of retailers
surrounding the Year 2000 issue. To the extent that the Year 2000 issue has been
resolved or remediated for most retailers, the Company may experience a slowing
in demand for its MMS and ODBMS merchandising systems. Although management
believes that the prevailing business reasons for purchasing merchandising
systems and the other software products offered by the Company still exist,
there can be no assurance that future demand will exist or that growth rates
will return to those levels that have been historically achieved by the Company.
The Company's business has experienced, and is expected to continue to
experience, some degree of
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<PAGE> 19
seasonality due in large part to its retail customers' buying cycles.
Specifically, within each fiscal year software license revenues have been
highest in the fourth quarter. Further, the gross margin on software licenses is
significantly greater than the gross margins on consulting, maintenance and
other services. As a result, the Company's gross margin has fluctuated from
quarter to quarter, and management expects that its gross margin may continue to
fluctuate significantly based on revenue mix and seasonality.
The Company's software products typically ship when contracts are
signed. Consequently, software license backlog at the beginning of any quarter
has represented only a small portion of that quarter's expected revenues. As a
result, software license revenues in any quarter are difficult to forecast
because such revenues are substantially dependent on agreements executed and the
related shipment of software in that quarter. Moreover, the Company typically
recognizes a substantial amount of its revenues in the last weeks or days of the
quarter. The Company generally derives a significant portion of its quarterly
software license revenues from a small number of relatively large sales. The
timing of large individual sales is difficult to predict, and in some cases,
large individual sales have occurred in quarters subsequent to those originally
anticipated by the Company. The Company anticipates that the foregoing trends
will continue. Any significant cancellation or deferral of customer orders, or
the Company's inability to conclude license negotiations in the compressed time
frame at the end of a fiscal quarter may have a material adverse effect on its
operating results reported in any particular quarter. In addition, weakening
international economies may cause the Company's quarterly results to be less
predictable in the future. Such economic uncertainties could adversely impact
the Company's business, operating results and financial condition for an
indefinite period of time.
Further, the Company's expense levels are based on its expectations of
future revenues. Since software license sales are typically accompanied by a
significant amount of consulting, implementation and support services, the
Company's consulting and support resources must be managed to meet anticipated
software license revenues. As a result, service personnel are generally hired
and trained in advance of anticipated software license revenues. If such
revenues were to fall short of expectations, or if other factors were to
significantly affect the utilization rates of the service personnel, the
operating results reported in any particular quarter are likely to be adversely
affected because a significant portion of the Company's expenses are not
variable in the short-term, and cannot be quickly reduced to respond to any
unexpected revenue shortfall.
The Company adopted the American Institute of Certified Public
Accountants' Statement of Position No. 97-2, Software Revenue Recognition ("SOP
97-2") effective January 1, 1998. There can be no assurance that any
interpretations of this pronouncement by the Company's independent auditors will
not modify the Company's revenue recognition policies, or that such
modifications will not have a material adverse effect on the operating results
reported in any particular quarter. Moreover, there can be no assurance that the
Company will not be required to adopt changes in its software licensing or
services practices as a result of such interpretations to SOP 97-2, or that such
interpretations will not result in delays or cancellations of potential sales of
the Company's products.
Based on all of the foregoing, the Company believes that future revenues,
expenses and operating results are likely to vary significantly from quarter to
quarter. As a result, quarter to quarter comparisons of operating results are
not necessarily meaningful or indicative of future performance. Furthermore, the
Company believes it is likely that in some future quarter the Company's
operating results may be below the expectations of public market analysts or
investors. In such event, or in the event that adverse conditions prevail, or
are perceived to prevail, with respect to the Company's business or generally,
the market price of the Company's common stock would likely be materially
adversely affected.
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 software products is relatively discretionary and generally involves a
significant commitment of capital, which is 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 products and services could be adversely 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
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<PAGE> 20
affect the demand for the Company's products. 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 operating results will not be
adversely affected by 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, operating results and financial
condition.
Management of Growth. The Company's business has grown rapidly in recent
years, with revenues increasing from $47.8 million in 1996, to $91.8 million in
1997 and to $105.4 million for the nine months ended September 30, 1998. The
Company's recent expansion has resulted in substantial growth in the number of
its employees, the scope of its operating systems and the geographic
distribution of its operations and customers. This recent rapid growth has
placed, and if it continues, will continue to place, a significant strain on the
Company's management and operations. For example, the Company believes that
management realignments in support of the Company's international operations and
the acquisition of Arthur Retail in June 1998 may have adversely affected sales
efforts in Europe and Latin America during the second and third quarters of
1998. The Company's ability to compete effectively and to manage future growth,
if any, will depend on its ability to continue to implement and improve
operational, financial and management information systems on a timely basis, to
expand, train, motivate and manage its work force, in particular its direct
sales force and consulting services organization, and to deal effectively with
third-party systems integrators and consultants. The Company filled the Director
- - Latin American position in September 1998 and a candidate accepted the Vice
President - EMEA position and is expected to begin working for the Company in
mid-November 1998. The Company anticipates that other changes will be made to
the sales organizations in these regions. In addition, the Company is actively
seeking to fill other senior management positions. There can be no assurance
that the Company will be able to locate, attract, retain or motivate qualified
candidates for such positions. Several of the Company's executive management
team, including Brent W. Lippman, Chief Executive Officer, have served in their
current positions for less than two years. The Company's future growth and
success depends in significant part upon the ability of the Company's executive
management team to effectively manage the expansion of the Company's operations.
There can be no assurance that the Company will be able 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.
The Company believes that additional middle and senior management may be
required in the future to assist with new product development. The Company has
begun recruiting such management but there can be no assurance that the Company
will be able to attract or retain such personnel. In addition, the Company
anticipates that continued growth, if any, will require it to recruit and hire a
substantial number of other new employees, including consulting and product
development personnel, both domestically and abroad. The Company's ability to
undertake new projects and increase revenues is substantially dependent on the
availability of consulting personnel to assist in the design, planning and
implementation of the Company's solutions. Consequently, the Company will not be
able to continue to increase its business at historical rates without adding
significant numbers of trained consulting personnel. Moreover, in the event the
Company is unable to sufficiently increase 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. Therefore, in anticipation of
increasing its business the Company continues to significantly increase its
consulting capacity. However, 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. The addition of significant
numbers of new personnel requires the Company to incur significant start-up
expenses, including procurement of office space and equipment, initial training
costs and low utilization rates of new personnel. Such start-up expenses have in
the past contributed and may in the future contribute to significant reductions
in gross margin on consulting, maintenance and other services revenues and on
overall gross margin. There can be no assurance that start-up expenses incurred
in connection with the hiring of additional technical personnel will not result
in a material adverse impact on the Company's future operating results.
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 design, planning
and implementation of the Company's solutions. In particular, the Company's
ability to install, maintain and enhance its products is substantially dependent
upon its ability to locate, hire, train and retain qualified software engineers.
The market for such individuals is intensely competitive, particularly in
international markets. In this regard, as part of its strategy, the Company has
significantly increased the number of consulting personnel in connection with
the continuing
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<PAGE> 21
development and roll-out of its client/server products, and to support further
development and implementation of MMS. Given the critical roles 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 and
retain other highly qualified technical and managerial personnel in the future.
The inability to attract and retain the necessary technical and managerial
personnel could have a material adverse effect upon the Company's business,
operating results and financial condition.
Limited Deployment of and Uncertain Market for New Software Products. The
Company's newer software products, ODBMS, Win/DSS, Retail IDEAS and WCC, which
are designed for open, client/server environments, have all been commercially
released within the last two years. To date, only a limited number of customers
have licensed or implemented the Company's client/server products. The market
for these products is new and evolving, and the Company believes that retailers
may generally be more cautious than other businesses in adopting client/server
technologies. Consequently, it is difficult to assess or predict with any
assurance the growth rate, if any, and size of the market for the Company's
client/server products, and there can be no assurance that this market will
continue to develop. Potential and existing customers may find it difficult, or
be unable, to successfully implement the Company's client/server products, or
may not purchase such products for a variety of reasons, including: the
customer's inability to obtain hardware, software, networking infrastructure, or
sufficient internal staff required to implement, operate and maintain an open,
client/server solution; the generally longer time periods and greater cost
required to implement such products as compared to IBM AS/400-based products;
and limited implementation experience with such products by the Company's
service personnel or third-party implementation providers. Furthermore, the
Company must overcome significant obstacles to successfully market its
client/server solutions, including limited experience of the Company's sales and
consulting personnel in the client/server market and limited existing reference
accounts in this market. If the market for the Company's client/server products
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.
Product Concentration. The Company has historically derived a significant
portion of its revenues from software licenses and consulting, maintenance and
other services related to MMS. MMS revenues are in part dependent on the
continued vitality in and support by IBM of its AS/400 platform. Although the
Company expects MMS revenues to continue to represent a significant portion of
total revenues for the foreseeable future, MMS revenues as a percentage of total
revenues may continue to decline as a result of the increased revenues
attributable to the Company's newer software products, particularly ODBMS,
Win/DSS, Retail IDEAS, WCC, and the Arthur Enterprise Suite. The life cycle of
the MMS product line is difficult to estimate due largely 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. Any decline in MMS revenues, as a result of competition,
technological change, a decline in the market for or support of the IBM AS/400
platform, or other factors, 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. There can be no assurance
that prospective purchasers of the Company's IBM AS/400-based products will
respond favorably to the Company's future or enhanced software products or that
the Company will continue to be successful in selling its software products or
services in the IBM AS/400 market.
International Operations. The Company's international revenues, which
include revenues from international subsidiaries and export sales, represented
45% of total revenues for the nine months ended September 30, 1998 as compared
with 55% and 43% of total revenues in fiscal 1997 and 1996, respectively. The
Company expects that international revenues will continue to account for a
significant percentage of the Company's revenues for the foreseeable future. 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 offices. In addition, the Company has only limited
experience in developing localized versions of its products and in marketing and
distributing its products internationally. International introductions of the
Company's products often require 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. There can be no assurance that the countries in which the Company
operates will have a sufficient pool of qualified personnel from which the
Company may hire, or that the Company will be successful at hiring,
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<PAGE> 22
training or retaining such personnel. In addition, there can be no assurance
that the Company will be able to successfully expand its international
operations in a timely manner which could materially adversely affect the
Company's business, operating results and financial condition.
The Company's international business operations are subject to risks
inherent in international 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 in
certain countries, potentially adverse tax consequences, difficulties in
staffing and managing geographically disparate operations, greater difficulty in
safeguarding intellectual property, licensing and other trade restrictions,
currency fluctuations, repatriation of earnings, the burdens of complying with a
wide variety of foreign laws, and general economic conditions in international
markets. In addition, consulting, maintenance and other services in support of
international software licenses typically have lower gross margins than those
achieved domestically due to generally lower prevailing billing rates and/or
higher costs in certain of the Company's international markets. Accordingly, any
significant growth in the Company's international operations may result in
further declines in gross margins 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 software 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's operations have not been materially adversely
affected by fluctuations in foreign currency rates, and the Company has not
currently engaged 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.
The Asia/Pacific region continues to have unstable local economies and
significant devaluation in its currencies. The economic situation in the region
has resulted in slower payments of outstanding receivable balances and various
requests for extended or modified payment terms. To date, this region has not
represented a significant portion of the Company's revenues. However, to the
extent the Asia/Pacific region grows in importance to the Company, or the
factors affecting the region begin to adversely affect retailers on other
geographic locations, the Company's business, operating results and financial
condition could be materially adversely affected. The Company believes that
certain of these factors have begun to affect the Latin American region and may
affect other regions in the future.
Competition. The markets for retail information systems are highly
competitive. The Company believes the principal competitive factors in such
markets are product quality, reliability, performance and price, vendor and
product reputation, retail industry expertise, 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
merchandising systems market, the Company competes with internally developed
systems and with third-party developers such as Island Pacific, PeopleSoft, Inc.
(who acquired Intrepid Systems), Radius PLC, Retek (a subsidiary of HNC
Software, Inc.), Richter Management Services, SAP AG, and STS Systems. In
addition, the Company believes that new market entrants may offer fully
integrated merchandising level systems targeting the retail industry.
In the in-store systems market, which is more fragmented than the
merchandising systems market, the Company competes with major hardware original
equipment manufacturers such as ICL, NCR and IBM, as well as software companies
such as CRS Business Computers, Datavantage, STS Systems, Trimax and GERS Retail
Systems. In the distribution and warehouse management systems market, the
Company's WCC product competes with products from Catalyst International, Inc.,
EXE and McHugh Freeman. The Retail IDEAS product competes with products from
Microstrategy and Intrepid, among other vendors. The Arthur Enterprise Suite
competes with products from STS Systems and Mitech, and IBM's Makaro product
line. In the market for consulting services, the Company is pursuing a strategy
of forming informal working relationships with leading retail systems
integrators such as Andersen Consulting, Price Waterhouse and Deloitte & Touche.
These integrators, as well as independent consulting firms such as the Global
Services Division of IBM, also represent potential competition to the Company's
consulting services group.
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<PAGE> 23
Many of the Company's existing competitors, as well as a number of
potential new competitors, have significantly greater financial, technical,
marketing and other resources than the Company, each of which could provide them
with a significant competitive advantage over 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.
Risks Associates with Strategic Relationships. The Company has from time
to time established formal and informal relationships with other companies,
including Baan, IBM and Silvon, Inc., involving collaboration in areas such as
product development, marketing and distribution. The maintenance of these
relationships and the development of other such relationships is a meaningful
part of the Company's business strategy. Currently, the Company's relationship
with IBM is cooperative in that there is no written agreement defining the
parties' obligations. There can be no assurance that the Company's current
informal relationships with IBM or other companies will be beneficial to the
Company, that such relationships will be sustained, or that the Company will be
able to enter into successful new strategic relationships in the future. In
addition, the Company's relationship with Baan is evidenced by a letter of
intent to form a 50/50 joint venture. There can be no assurance that a
definitive agreement for the joint venture will be executed or that the
relationship will be beneficial to the Company.
Lengthy Implementation Process; Fixed-Price Service Contracts. The
Company's software products are complex and perform or directly affect
business-critical functions across many different functional and geographic
areas of the enterprise. Consequently, implementation of the Company's software
is a complex, lengthy process that involves a significant commitment of
resources by the Company's customers and that is subject to a number of
significant risks over which the Company has little or no control. The Company
believes that implementation of the client/server versions of its products may
contribute to the length of the implementation process. Delays in the completion
of implementations of any of its software products, whether by the Company or
its business partners, may result in customer dissatisfaction or damage to the
Company's reputation and could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company offers a combination of software products, implementation and
support services to its customers. Typically, the Company enters into service
agreements with its customers that provide for consulting and implementation
services on a "time and expenses" basis. Certain customers have asked for, and
the Company has from time to time entered into, fixed-price service contracts.
These contracts specify certain milestones to be met by the Company regardless
of actual costs incurred by the Company in fulfilling those obligations. The
Company believes that fixed-price service contracts may increasingly be offered
by its competitors to differentiate their product and service offerings. As a
result, the Company may enter into more fixed-price contracts in the future.
There can be no assurance that the Company can successfully complete these
contracts on budget, and the Company's inability to do so could have a material
adverse effect on its business, operating results and financial condition.
Technological Change and 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 markets, 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.
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. To protect its proprietary technology, the Company relies
on a combination of trade secret, nondisclosure and copyright law, which may
afford only limited
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<PAGE> 24
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. The source code for the Company's
proprietary software is protected both as a trade secret and as a copyrighted
work. 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 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 alternative resources exist for each of the material
components of technology licensed by the Company form 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
delays in the Company's ability to sell 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 operating results. 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, if 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 form 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 that software developers may become increasingly subject to
infringement claims. Any such claims against the Company, with or without merit
as well as claims initiated by the Company against third parties, could be time
consuming and expensive to defend, prosecute or resolve.
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. In particular,
it is common for complex software programs, such as the Company's newer,
client/server
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<PAGE> 25
software products, to contain undetected errors when first released which are
discovered only after the product has been implemented and used over time with
different computer systems and in a variety of applications and environments.
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. In addition, the Company or its customers may from
time to time experience difficulties integrating 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 errors in the
Company's software products will not be discovered or, if discovered, that they
will be successfully corrected on a timely basis, if at all. Further, 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. The Company's future business
growth is substantially dependent on the continued development of market
acceptance of its newer, client/server products. If customers experience
significant problems with implementation of the Company's client/server products
or are otherwise dissatisfied with the functionality or performance of such
products, or if such products fail to achieve market acceptance for any reason,
the Company's business, operating results and financial condition would be
materially adversely affected.
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. Prior to 1998, the Company did 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 on the Company's business, operating results and
financial condition.
Dependence on Key Personnel. The Company's performance is substantially
dependent on the continued performance of its executive officers and other key
employees, particularly the performance and services of Brent W. Lippman, the
Company's Chief Executive Officer. The Company does not have in place "key
person" life insurance policies on any of its employees. The loss of the
services of Mr. Lippman or other key executive officers or employees could have
a material adverse effect on the business, operating results and financial
condition of the Company.
Volatility of Market Price. The market price of the Company's common stock
has experienced large fluctuations which may be expected to continue. Future
announcements concerning the Company or its competitors, quarterly variations in
operating results, accounts receivable balances or aging, 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, changes in earnings or other estimates, or recommendations
by analysts or other factors could cause the market price of the Company's
common stock to fluctuate substantially. In addition, stock prices for many
technology companies have fluctuated widely for reasons which have often been
unrelated to the operating results of such companies. 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.
Acquisition Strategy. It is expected that the Company will grow internally
and through strategic acquisitions in order, among other things, to expand the
breadth and depth of its product suite and to build its professional services
organization. The Company continually evaluates potential acquisitions of
complementary businesses, products and technologies, including those which could
be material in size and scope. Acquisition opportunities considered have
included private companies, public companies and divisions and product lines of
companies with annual revenues that range from several million dollars to
revenues comparable to those of the Company.
Acquisitions, such as the recently completed acquisition of Arthur Retail,
involve a number of special risks, including diversion of management's attention
to the assimilation of the operations and personnel of acquired businesses, and
the integration of the acquired businesses' products and technologies into the
Company's business
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<PAGE> 26
and product offerings. Achieving the anticipated benefits of any acquisition
will depend, in part, upon whether the integration of the acquired business,
products or technology is accomplished in an efficient and effective manner, and
there an be no assurance that this will occur. The difficulties of such
integration may be increased by the necessity of coordinating geographically
disparate organizations, the complexity of the technologies being integrated,
and the necessity of integrating personnel with disparate business backgrounds
and combining different corporate cultures. The inability of management to
successfully integrate any acquisition the Company may pursue, and any related
diversion of management's attention, could have a material adverse effect on the
business, operating results and financial condition of the Company. Moreover,
there can be no assurance that any products acquired will gain acceptance in the
Company's markets, or that the Company will obtain the anticipated or desired
benefits of such acquisitions. Any acquisition pursued or consummated by the
Company could result in a potentially dilutive issuance of equity securities,
the incurrence by the Company of debt and contingent liabilities, amortization
of goodwill and other intangibles, purchased research and development expense,
other acquisition-related expenses and the loss of key employees, any of which
items could have a material adverse effect on the Company's business, operating
results and financial condition.
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<PAGE> 27
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits: See Exhibit Index
(b) Reports on Form 8-K:
A Form 8-K dated October 2, 1998 was filed with the Securities and
Exchange Commission to announce the adoption of a Preferred Stock
Purchase Rights Plan.
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<PAGE> 28
JDA SOFTWARE GROUP, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JDA SOFTWARE GROUP, INC.
Dated: November 13, 1998 By: /s/ Kristen L. Magnuson
---------------------------------
Kristen L. Magnuson
Chief Financial Officer
(Principal Financial and Accounting Officer)
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<PAGE> 29
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1* Asset Purchase Agreement dated as of June 4, 1998 by and among JDA
Software Group, Inc., JDA Software, Inc. and Comshare, Incorporated.
2.2* Software License Agreement dated as of June 4, 1998 by and between
Comshare, Incorporated and JDA Software, Inc.
3.1** Second Restated Certificate of Incorporation together with
Certificate of Amendment dated June 12, 1998.
3.2** First Amended and Restated Bylaws.
4.2*** Stock Redemption Agreement by and among the Company, James D.
Armstrong, and Frederick M. Pakis dated March 30, 1995.
10.6** Employment Agreement between James D. Armstrong and JDA Software
Group, Inc. dated January 1, 1998.
10.7** Employment Agreement between Frederick M. Pakis and JDA Software
Group, Inc. dated January 1, 1998.
10.32** Lease Agreement between Opus West Corporation and JDA Software
Group, Inc. dated April 30, 1998, together with First Amendment
dated June 30, 1998.
10.33** Real Estate Option Agreement and Escrow Instructions between Mall at
the Crossroads, Inc. and JDA Software Group, Inc. dated June 8,
1998.
10.34** Form of Amendment of Stock Option Agreement between JDA Software
Group, Inc. and Brent W. Lippman, amending certain stock options
granted to Mr. Lippman pursuant to the JDA Software Group, Inc. 1996
Stock Option Plan on (I) June 19, 1996; (ii) January 28, 1997; (iii)
July 10, 1997; and (iv) January 27, 1998.
10.35** Form of Amendment of Stock Option Agreement between JDA Software
Group, Inc. and Kristen L. Magnuson, amending certain stock options
granted to Ms. Magnuson pursuant to the JDA Software Group, Inc.
1996 Stock Option Plan on September 11, 1997 and January 27, 1998.
10.36** Form of Amendment of Stock Option Agreement between JDA Software
Group, Inc. and Brent W. Lippman, amending that certain stock option
granted to Mr. Lippman pursuant to the JDA Software Group, Inc. 1995
Stock Option Plan on November 15, 1995.
10.37****Form of Rights Agreement between the Company and ChaseMellon
Shareholder Services, as Rights Agent (including as Exhibit A the
Form of Certificate of Designation, Preferences and Rights of the
Terms of the Series A Preferred Stock, as Exhibit B the Form of
Right Certificate, and as Exhibit C the Summary of Terms and Rights
Agreement).
10.38 Form of Incentive Stock Option Agreement between JDA Software Group,
Inc. and Brent W. Lippman to be used in connection with stock option
grants to Mr. Lippman pursuant to the JDA Software Group, Inc. 1996
Stock Option Plan.
10.39 Form of Incentive Stock Option Agreement between JDA Software Group,
Inc. and Kristen L. Magnuson to be used in connection with stock
option grants to Ms. Magnuson pursuant to the JDA Software Group,
Inc. 1996 Stock Option Plan.
27.1 Financial Data Schedule.
- --------------------------------------------------------------------------------
* Incorporated by reference to the Company's Current Report on Form
8-K dated June 4, 1998, as filed on June 19, 1998.
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<PAGE> 30
** Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998.
*** Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-748), declared effective March 14, 1996.
**** Incorporated by reference to the Company's Current Report on Form
8-K dated October 2, 1998, as filed on October 28, 1998.
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<PAGE> 1
EXHIBIT 10.38
JDA SOFTWARE GROUP, INC.
INCENTIVE STOCK OPTION AGREEMENT
The Company has granted to Brent W. Lippman (the "OPTIONEE") an option to
purchase certain shares of Stock, upon the terms and conditions set forth in
this Option Agreement and the Notice of Stock Option Grant to which this Option
Agreement is attached as Exhibit A (the "NOTICE").
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Unless otherwise defined herein, capitalized terms
shall have the meanings assigned to such terms in the Notice. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "OPTION EXPIRATION DATE" means the date ten (10) years after
the Date of Option Grant.
(b) "BOARD" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
(c) "CAUSE" shall occur if the Optionee's Service is terminated
for any of the following reasons:
(i) theft, dishonesty, or intentional falsification of any
employment or Company records;
(ii) improper disclosure of the Company's confidential or
proprietary information; or
(iii) the Optionee's conviction (including any plea of
guilty or nolo contendre) for any criminal act that impairs his ability to
perform his duties for the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(e) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted in the Plan, including, without limitation, the power to amend
or terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
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(f) "COMPANY" means JDA Software Group, Inc., a Delaware
corporation, or any successor corporation thereto.
(g) "CONSULTANT" means any person, including an advisor, engaged
by a Participating Company to render services other than as an Employee or a
Director.
(h) "CONSULTING AGREEMENT" means an agreement in substantially
the same form as the Consulting Agreement attached hereto as Exhibit A-1.
(i) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(j) "DISABILITY" means the permanent and total disability of the
Optionee within the meaning of Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person treated as an employee (including
an officer or a Director who is also treated as an employee) in the records of a
Participating Company; provided, however, that neither service as a Director nor
payment of a director's fee shall be sufficient to constitute employment for
this purpose.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of a
share of stock or other property, as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein.
(n) "GOOD REASON" shall mean the occurrence of any of the
following conditions, without the Optionee's written consent, which condition(s)
remain(s) in effect twenty (20) days after written notice to the Company from
Optionee of such condition(s):
(i) a material, adverse change in the Optionee's
responsibilities or duties, as measured against the Optionee's responsibilities
or duties immediately prior to the Transfer of Control (as defined in Section
8.1(b)), causing the Optionee's position to be of materially less stature or
responsibility; provided, that for purposes of this Option Agreement, a
material, adverse change shall be deemed to occur if the Optionee no longer
serves as Chief Executive Officer of a publicly-traded company reporting
directly to the Board;
(ii) the relocation of the Optionee's work place for the
Company to a location more than thirty (30) miles from the Optionee's work
location prior to the Transfer of Control;
(iii) a failure to pay, or any reduction of the Optionee's
base salary as in effect immediately prior to the Transfer of Control or the
Optionee's bonus compensation in effect prior to the Transfer of Control
(subject to applicable performance
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requirements with respect to the actual amount of bonus compensation earned by
the Optionee); or
(iv) any material breach of this Option Agreement by the
Company.
(o) "INSIDER" means an officer or a Director of the Company or
any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(p) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(q) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(r) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(s) "PLAN" means the JDA Software Group, Inc. 1996 Stock Option
Plan.
(t) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(u) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(v) "SERVICE" means the Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. The Optionee's Service shall be deemed
to have terminated either upon an actual termination of Service or upon the
corporation for which the Optionee performs Service ceasing to be a
Participating Company. Subject to the foregoing, the Company, in its sole
discretion, shall determine whether the Optionee's Service has terminated and
the effective date of such termination. (NOTE: If the Option is exercised more
than three (3) months after the date on which the Optionee ceased to be an
Employee (other than by reason of death or Disability), the Option will be
treated as a Nonstatutory Stock Option and not as an Incentive Stock Option to
the extent required by Section 422 of the Code.)
(w) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(x) "TERMINATION AFTER TRANSFER OF CONTROL" shall mean the
occurrence, within eighteen (18) months following a Transfer of Control, of
either (i) termination
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of the Optionee's Service by the Company for any reason other than for Cause, or
(ii) the Optionee's resignation for Good Reason. "Termination After Transfer of
Control" shall not include any termination of the Service of the Optionee (i) by
the Company for Cause; (ii) by the Company as a result of the Disability of the
Optionee; (iii) as a result of the death of the Optionee; or (iv) as a result of
the voluntary termination of Service by the Optionee (other than for Good
Reason).
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
2. TAX STATUS OF OPTION. This Option is intended to be an Incentive Stock
Option within the meaning of Section 422(b) of the Code, but the Company does
not represent or warrant that this Option qualifies as such. The Optionee should
consult with the Optionee's own tax advisor regarding the tax effects of this
Option and the requirements necessary to obtain favorable income tax treatment
under Section 422 of the Code, including, but not limited to, holding period
requirements. (NOTE: If the aggregate Exercise Price of the Option (that is, the
Exercise Price multiplied by the Number of Option Shares) plus the aggregate
exercise price of any other Incentive Stock Options held by the Optionee
(whether granted pursuant to the Plan or any other stock option plan of the
Participating Company Group) is greater than One Hundred Thousand Dollars
($100,000), the Optionee should contact the Chief Financial Officer of the
Company to ascertain whether the entire Option qualifies as an Incentive Stock
Option.)
3. ADMINISTRATION. All questions of interpretation concerning this Option
Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE. Except as otherwise provided herein, the Option
shall be exercisable on and after the Initial Exercise Date and prior to the
termination of the Option (as provided in Section 6) in an amount not to exceed
the Number of Option Shares multiplied by the Vested Ratio less the number of
shares previously acquired upon exercise of the Option. In no event shall the
Option be exercisable for more shares than the Number of Option Shares.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and
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must be delivered in person, by certified or registered mail, return receipt
requested, by confirmed facsimile transmission, or by such other means as the
Company may permit, to the Chief Financial Officer of the Company, or other
authorized representative of the Participating Company Group, prior to the
termination of the Option as set forth in Section 6, accompanied by (i) full
payment of the aggregate Exercise Price for the number of shares of Stock being
purchased and (ii) an executed copy, if required herein, of the then current
form of security agreement referenced below. The Option shall be deemed to be
exercised upon receipt by the Company of such written notice, the aggregate
Exercise Price, and, if required by the Company, such executed agreement.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, (iii)
by means of a Cashless Exercise, as defined in Section 4.3(c), (iv) in the
Company's sole discretion at the time the Option is exercised, by cash for a
portion of the aggregate Exercise Price not less than the par value of the
shares being acquired and the Optionee's promissory note for the balance of the
aggregate Exercise Price, or (v) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the assignment
in a form acceptable to the Company of the proceeds of a sale or loan with
respect to some or all of the shares of Stock acquired upon the exercise of the
Option pursuant to a program or procedure approved by the Company (including,
without limitation, through an exercise complying with the provisions of
Regulation T as promulgated from time to time by the Board of Governors of the
Federal Reserve System). The Company reserves, at any and all times, the right,
in the Company's sole and absolute discretion, to decline to approve or
terminate any such program or procedure.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if an exercise of the Option using a promissory note would be a
violation of any law. Unless otherwise specified by the Board at the time the
Option is granted, the promissory note permitted in clause (iv) of Section
4.3(a) shall be a full recourse note in a form satisfactory to the Company, with
principal payable four (4) years after the date the Option is exercised.
Interest on
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the principal balance of the promissory note shall be payable in annual
installments at the minimum interest rate necessary to avoid imputed interest
pursuant to all applicable sections of the Code. Such recourse promissory note
shall be secured by the shares of Stock acquired pursuant to the then current
form of security agreement as approved by the Company. At any time the Company
is subject to the regulations promulgated by the Board of Governors of the
Federal Reserve System or any other governmental entity affecting the extension
of credit in connection with the Company's securities, any promissory note shall
comply with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply with
such applicable regulations. Except as the Company in its sole discretion shall
determine, the Optionee shall pay the unpaid principal balance of the promissory
note and any accrued interest thereon upon termination of the Optionee's Service
with the Participating Company Group for any reason, with or without cause.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in whole or
in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for (including by
means of a Cashless Exercise to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Participating Company Group, if any, which arise in
connection with the Option, including, without limitation, obligations arising
upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in
whole or in part, of any shares acquired upon exercise of the Option, (iii) the
operation of any law or regulation providing for the imputation of interest, or
(iv) the lapsing of any restriction with respect to any shares acquired upon
exercise of the Option. The Optionee is cautioned that the Option is not
exercisable unless the tax withholding obligations of the Participating Company
Group are satisfied. Accordingly, the Optionee may not be able to exercise the
Option when desired even though the Option is vested, and the Company shall have
no obligation to issue a certificate for such shares or release such shares from
any escrow provided for herein.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise Price
is paid by means of a Cashless Exercise, the certificate for the shares as to
which the Option is exercised shall be registered in the name of the Optionee,
or, if applicable, in the names of the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The
grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the Option be in effect with respect to the
shares issuable upon exercise of the Option or (ii) in the opinion of legal
counsel to the Company, the shares issuable upon exercise of the Option may be
issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act.
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THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO
EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions
concerning this restriction should be directed to the Chief Financial Officer of
the Company. The inability of the Company to obtain from any regulatory body
having jurisdiction the authority, if any, deemed by the Company's legal counsel
to be necessary to the lawful issuance and sale of any shares subject to the
Option shall relieve the Company of any liability in respect of the failure to
issue or sell such shares as to which such requisite authority shall not have
been obtained. As a condition to the exercise of the Option, the Company may
require the Optionee to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation and to
make any representation or warranty with respect thereto as may be requested by
the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during the
lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer
be exercised on the first to occur of (a) the Option Expiration Date, (b) the
last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee (or the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death) at any time prior to the expiration of twelve
(12) months after the date on which the Optionee's Service terminated, but in
any event
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no later than the Option Expiration Date. The Optionee's Service shall be deemed
to have terminated on account of death if the Optionee dies within one (1) month
after the Optionee's termination of Service (other than a termination for
Cause).
(c) TERMINATION AFTER TRANSFER OF CONTROL.
(i) General. In the event of a Termination After Transfer of
Control, any unexercised portion of the Option shall be immediately exercisable
and vested in full as of the date of the Optionee's termination of Service,
subject to Section 10 below. In addition, the Option, to the extent unexercised
by the Optionee on the later of (A) the date on which the Optionee's Service
terminated and, if applicable, (B) the termination of the Consulting Agreement
(such later date, the "TERMINATION DATE"), may be exercised by the Optionee
within three (3) months (or six (6) months if the Optionee is subject to
restrictions on transfer to comply with "Pooling-of-Interests" accounting rules)
following the Termination Date, but in any event no later than the Option
Expiration Date.
(ii) Escrow. In the event that the Termination After
Transfer of Control results from the Optionee's resignation for Good Reason and
such termination occurs within nine (9) months after the Transfer of Control,
the Company may require that any certificates evidencing shares which were
acquired upon an exercise of the Option that was permissible solely by reason of
this Section 7.1(c) be deposited with an agent designated by the Company under
the terms and conditions of an escrow agreement reasonably approved by the
Optionee and the Company. The escrow agent shall hold the certificates in order
to secure the Optionee's agreement to continue in the full-time employ of the
Company or its parent or successor for a period of up to nine (9) months
following a Transfer of Control. Such employment shall be pursuant to an
employment agreement ("EMPLOYMENT AGREEMENT") reasonably acceptable to the
Optionee which shall provide in its essential terms (A) that Optionee shall
continue to receive his salary and bonus at such rate and upon such terms as
prior to the Transfer of Control; (B) that Optionee's responsibilities shall not
be diminished during the term of the Employment Agreement; (C) that Optionee
shall not be required to relocate during the term of the Employment Agreement;
and (D) such other terms as are consistent with maintaining Optionee's stature
and responsibilities. While the certificates are held in escrow, the Optionee
may direct the use (including without limitation, the sale, transfer or other
distribution for fair value) and voting of the shares represented by the
escrowed certificates, although the escrowed shares (or the proceeds from the
transfer thereof) may not be released from escrow until the expiration of the
term of the Employment Agreement. The Company shall bear the expenses of any
escrow established pursuant to this Section.
(iii) Pooling of Interests Accounting. Notwithstanding
anything in the Option Agreement to the contrary, no acceleration of
exercisability or vesting of the Option shall occur pursuant to this Section
7.1(c) in the event that (A) the Securities and Exchange Commission (the "SEC")
asserts that such acceleration of exercisability or vesting precludes the use of
"pooling of interests" accounting treatment of the Transfer of Control, (B) the
Transfer of Control is supported by the Board, and (C) the SEC will not reverse
its position following reasonable persuasive efforts by the Company. In the
event that acceleration
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of exercisability or vesting of the Option is precluded as a result of this
Section 7.1(c)(iii), the Company and the Optionee shall enter into the
Consulting Agreement as soon as practicable following such determination.
(d) OTHER TERMINATION OF SERVICE. If the Optionee's Service with
the Participating Company Group terminates for any reason, except Disability,
death, or Termination After Transfer of Control, the Option, to the extent
unexercised and exercisable by the Optionee on the date on which the Optionee's
Service terminated, may be exercised by the Optionee within one (1) month (or
such other longer period of time as determined by the Board, in its sole
discretion) after the date on which the Optionee's Service terminated, but in
any event no later than the Option Expiration Date.
7.2 ADDITIONAL LIMITATION ON OPTION EXERCISE. Except as the Company
and the Optionee otherwise agree, exercise of the Option pursuant to Section 7.1
following termination of the Optionee's Service may not be made by delivery of a
promissory note as provided in Section 4.3(a).
7.3 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date. The Company makes no representation as to
the tax consequences of any such delayed exercise. The Optionee should consult
with the Optionee's own tax advisor as to the tax consequences to the Optionee
of any such delayed exercise.
7.4 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
7.1 of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisors as to the tax consequences to the Optionee of any such delayed
exercise.
7.5 LEAVE OF ABSENCE. For purposes of Section 7.1, the Optionee's
Service with the Participating Company Group shall not be deemed to terminate if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave of absence in excess of ninety (90) days, the Optionee's Service shall be
deemed to terminate on the ninety-first (91st) day of such leave unless the
Optionee's right to reemployment with the Participating Company Group remains
guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by
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the Company (or required by law), a leave of absence shall not be treated as
Service for purposes of determining the Optionee's Vested Ratio.
8. TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred
if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single or
series of related transactions by the stockholders of the Company of more than
fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, the "TRANSACTION")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. In the event that the Acquiring Corporation
elects not to assume the Company's rights and obligations under the Option or
substitute for the Option in connection with the Transfer of Control, any
unexercised portion of the Option shall be immediately exercisable and vested in
full as of the date ten (10) days prior to the date of the Transfer of Control,
subject to Section 10 below. Any exercise of the Option that was
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permissible solely by reason of this Section 8.2 shall be conditioned upon the
consummation of the Transfer of Control. The Option shall terminate and cease to
be outstanding effective as of the date of the Transfer of Control to the extent
that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control. Notwithstanding the foregoing, shares acquired
upon exercise of the Option prior to the Transfer of Control and any
consideration received pursuant to the Transfer of Control with respect to such
shares shall continue to be subject to all applicable provisions of this Option
Agreement except as otherwise provided herein. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the Option
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the Option shall not terminate unless
the Board otherwise provides in its sole discretion.
8.3 FAIR MARKET VALUE LIMITATION. Should the exercisability of this
Option be accelerated in connection with a Transfer of Control in accordance
with Section 8.2, then to the extent that the aggregate Fair Market Value of the
shares of Stock with respect to which the Optionee may exercise the Option for
the first time during the calendar year of the Transfer of Control, when added
to the aggregate Fair Market Value of the shares subject to any other options
designated as Incentive Stock Options granted to the Optionee under all stock
option plans of the Participating Company Group prior to the Date of Option
Grant with respect to which such options are exercisable for the first time
during the same calendar year, exceeds One Hundred Thousand Dollars ($100,000)
(or such other limit, if any, imposed by Section 422 of the Code), the portion
of the Option which exceeds such amount shall be treated as a Nonstatutory Stock
Option. For purposes of the preceding sentence, options designated as Incentive
Stock Options shall be taken into account in the order in which they were
granted, and the Fair Market Value of shares of stock shall be determined as of
the time the option with respect to such shares is granted.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded down to the nearest whole number, and in no event may the Exercise
Price be decreased to an amount less than the par value, if any, of the stock
subject to the Option.
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10. SECTION 4999 LIMITATION. This Section 10 shall apply only if the
Optionee, on an after-tax basis, would receive more value under this Option
after the application of this Section than before the application of this
Section. For this purpose, "after-tax basis" shall mean a calculation taking
into account all federal and state income and excise taxes imposed on the
Optionee, including (without limitation) the excise tax described in section
4999 of the Code. If this Section 10 is applicable, it shall supersede any
conflicting provision of this Option Agreement.
Options shall accelerate pursuant to the provisions of this Option
Agreement, including without limitation those set forth in Sections 7.1(c) and 8
hereof, to the extent but only to the extent that such acceleration would not
subject the Optionee to the excise tax described in section 4999 of the Code.
All calculations required by this Section 10 shall be made by the independent
auditors retained by the Company most recently prior to the Transfer of Control,
based on information supplied by Company and Optionee, and shall be binding on
the Company and the Optionee. All fees and expenses of such auditors shall be
paid by the Company.
11. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a stockholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. Nothing in this Option Agreement shall confer upon the
Optionee any right to continue in the Service of a Participating Company or
interfere in any way with any right of the Participating Company Group to
terminate the Optionee's Service as an Employee or Consultant, as the case may
be, at any time.
12. ESCROW.
12.1 ESTABLISHMENT OF ESCROW. To ensure that shares securing any
promissory note will be available for repurchase, the Company may require the
Optionee to deposit the certificate evidencing the shares which the Optionee
purchases upon exercise of the Option with an agent designated by the Company
under the terms and conditions of a security agreement approved by the Company.
If the Company does not require such deposit as a condition of exercise of the
Option, the Company reserves the right at any time to require the Optionee to so
deposit the certificate in escrow. Upon the occurrence of an Ownership Change
Event or a change, as described in Section 9, in the character or amount of any
of the outstanding stock of the corporation the stock of which is subject to the
provisions of this Option Agreement, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of shares of Stock acquired upon exercise of the Option
that remain, following such Ownership Change Event or change described in
Section 9, subject to any security interest held by the Company shall be
immediately subject to the escrow to the same extent as such shares of Stock
immediately before such event. The Company shall bear the expenses of the
escrow.
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12.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after full
repayment of any promissory note secured by the shares or other property in
escrow, the agent shall deliver to the Optionee the shares and any other
property no longer securing any promissory note.
13. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to time,
there is any stock dividend, stock split or other change, as described in
Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to any security interest held by the Company with the same
force and effect as the shares subject to such security interest immediately
before such event.
14. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year after the date the Optionee exercises all or part of the Option or within
two (2) years after the Date of Option Grant. Until such time as the Optionee
disposes of such shares in a manner consistent with the provisions of this
Option Agreement, unless otherwise expressly authorized by the Company, the
Optionee shall hold all shares acquired pursuant to the Option in the Optionee's
name (and not in the name of any nominee) for the one-year period immediately
after the exercise of the Option and the two-year period immediately after Date
of Option Grant. At any time during the one-year or two-year periods set forth
above, the Company may place a legend on any certificate representing shares
acquired pursuant to the Option requesting the transfer agent for the Company's
stock to notify the Company of any such transfers. The obligation of the
Optionee to notify the Company of any such transfer shall continue
notwithstanding that a legend has been placed on the certificate pursuant to the
preceding sentence.
15. LEGENDS. The Company may at any time place legends referencing any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section.
16. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
or to all or substantially all of the Company's business and/or assets shall
assume the obligations under this Option Agreement and agree expressly to
perform the obligations under this Option Agreement in the same manner and to
the same extent as the
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Company would be required to perform such obligations in the absence of a
succession. Failure of the Company to obtain such agreement shall be a material
breach of this Option Agreement.
17. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or
the Option at any time; provided, however, that except as provided in Section
8.2 in connection with a Transfer of Control, no such termination or amendment
may adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such termination or amendment is necessary to
comply with any applicable law or government regulation or is required to enable
the Option to qualify as an Incentive Stock Option. No amendment or addition to
this Option Agreement shall be effective unless in writing.
18. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
19. APPLICABLE LAW. This Option Agreement shall be governed by the laws of
the State of Delaware as such laws are applied to agreements between Delaware
residents entered into and to be performed entirely within the State of
Delaware.
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EXHIBIT 10.39
EXHIBIT A
JDA SOFTWARE GROUP, INC.
INCENTIVE STOCK OPTION AGREEMENT
The Company has granted to Kristen L. Magnuson (the "OPTIONEE") an option
to purchase certain shares of Stock, upon the terms and conditions set forth in
this Option Agreement and the Notice of Stock Option Grant to which this Option
Agreement is attached as Exhibit A (the "NOTICE").
1. DEFINITIONS AND CONSTRUCTION.
1.1 DEFINITIONS. Unless otherwise defined herein, capitalized terms
shall have the meanings assigned to such terms in the Notice. Whenever used
herein, the following terms shall have their respective meanings set forth
below:
(a) "OPTION EXPIRATION DATE" means the date ten (10) years
after the Date of Option Grant.
(b) "BOARD" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
(c) "CAUSE" shall occur if the Optionee's Service is
terminated for any of the following reasons:
(i) theft, dishonesty, or intentional falsification of
any employment or Company records;
(ii) improper disclosure of the Company's confidential
or proprietary information; or
(iii) the Optionee's conviction (including any plea of
guilty or nolo contendre) for any criminal act that impairs his ability to
perform his duties for the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(e) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted in the Plan, including, without limitation, the power to amend
or terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
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(f) "COMPANY" means JDA Software Group, Inc., a Delaware
corporation, or any successor corporation thereto.
(g) "CONSULTANT" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
(h) "CONSULTING AGREEMENT" means an agreement in substantially
the same form as the Consulting Agreement attached hereto as Exhibit A-1.
(i) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(j) "DISABILITY" means the permanent and total disability of
the Optionee within the meaning of Section 22(e)(3) of the Code.
(k) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for this purpose.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of a
share of stock or other property, as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein.
(n) "GOOD REASON" shall mean the occurrence of any of the
following conditions, without the Optionee's written consent, which condition(s)
remain(s) in effect twenty (20) days after written notice to the Company from
Optionee of such condition(s):
(i) a material, adverse change in the Optionee's
responsibilities or duties, as measured against the Optionee's responsibilities
or duties immediately prior to the Transfer of Control (as defined in Section
8.1(b)), causing the Optionee's position to be of materially less stature or
responsibility; provided, that for purposes of this Option Agreement, a
material, adverse change shall be deemed to occur if the Optionee no longer
serves as Chief Financial Officer (who shall be the most senior financial
officer) of a publicly-traded company reporting directly to the Chief Executive
Officer;
(ii) the relocation of the Optionee's work place for the
Company to a location more than thirty (30) miles from the Optionee's work
location prior to the Transfer of Control;
(iii) a failure to pay, or any reduction of the
Optionee's base salary as in effect immediately prior to the Transfer of Control
or the Optionee's bonus compensation in effect prior to the Transfer of Control
(subject to applicable performance
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requirements with respect to the actual amount of bonus compensation earned by
the Optionee); or
(iv) any material breach of this Option Agreement by the
Company.
(o) "INSIDER" means an officer or a Director of the Company or
any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(p) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(q) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(r) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(s) "PLAN" means the JDA Software Group, Inc. 1996 Stock
Option Plan.
(t) "RULE 16B-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(u) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(v) "SERVICE" means the Optionee's employment or service with
the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. The
Optionee's Service shall be deemed to have terminated either upon an actual
termination of Service or upon the corporation for which the Optionee performs
Service ceasing to be a Participating Company. Subject to the foregoing, the
Company, in its sole discretion, shall determine whether the Optionee's Service
has terminated and the effective date of such termination. (NOTE: If the Option
is exercised more than three (3) months after the date on which the Optionee
ceased to be an Employee (other than by reason of death or Disability), the
Option will be treated as a Nonstatutory Stock Option and not as an Incentive
Stock Option to the extent required by Section 422 of the Code.)
(w) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(x) "TERMINATION AFTER TRANSFER OF CONTROL" shall mean the
occurrence, within eighteen (18) months following a Transfer of Control, of
either (i) termination
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of the Optionee's Service by the Company for any reason other than for Cause, or
(ii) the Optionee's resignation for Good Reason. "Termination After Transfer of
Control" shall not include any termination of the Service of the Optionee (i) by
the Company for Cause; (ii) by the Company as a result of the Disability of the
Optionee; (iii) as a result of the death of the Optionee; or (iv) as a result of
the voluntary termination of Service by the Optionee (other than for Good
Reason).
1.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural, the plural shall include the
singular, and the term "or" shall include the conjunctive as well as the
disjunctive.
2. TAX STATUS OF OPTION. This Option is intended to be an Incentive Stock
Option within the meaning of Section 422(b) of the Code, but the Company does
not represent or warrant that this Option qualifies as such. The Optionee should
consult with the Optionee's own tax advisor regarding the tax effects of this
Option and the requirements necessary to obtain favorable income tax treatment
under Section 422 of the Code, including, but not limited to, holding period
requirements. (NOTE: If the aggregate Exercise Price of the Option (that is, the
Exercise Price multiplied by the Number of Option Shares) plus the aggregate
exercise price of any other Incentive Stock Options held by the Optionee
(whether granted pursuant to the Plan or any other stock option plan of the
Participating Company Group) is greater than One Hundred Thousand Dollars
($100,000), the Optionee should contact the Chief Financial Officer of the
Company to ascertain whether the entire Option qualifies as an Incentive Stock
Option.)
3. ADMINISTRATION. All questions of interpretation concerning this Option
Agreement shall be determined by the Board, including any duly appointed
Committee of the Board. All determinations by the Board shall be final and
binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. EXERCISE OF THE OPTION.
4.1 RIGHT TO EXERCISE. Except as otherwise provided herein, the
Option shall be exercisable on and after the Initial Exercise Date and prior to
the termination of the Option (as provided in Section 6) in an amount not to
exceed the Number of Option Shares multiplied by the Vested Ratio less the
number of shares previously acquired upon exercise of the Option. In no event
shall the Option be exercisable for more shares than the Number of Option
Shares.
4.2 METHOD OF EXERCISE. Exercise of the Option shall be by written
notice to the Company which must state the election to exercise the Option, the
number of whole shares of Stock for which the Option is being exercised and such
other representations and agreements as to the Optionee's investment intent with
respect to such shares as may be required pursuant to the provisions of this
Option Agreement. The written notice must be signed by the Optionee and
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must be delivered in person, by certified or registered mail, return receipt
requested, by confirmed facsimile transmission, or by such other means as the
Company may permit, to the Chief Financial Officer of the Company, or other
authorized representative of the Participating Company Group, prior to the
termination of the Option as set forth in Section 6, accompanied by (i) full
payment of the aggregate Exercise Price for the number of shares of Stock being
purchased and (ii) an executed copy, if required herein, of the then current
form of security agreement referenced below. The Option shall be deemed to be
exercised upon receipt by the Company of such written notice, the aggregate
Exercise Price, and, if required by the Company, such executed agreement.
4.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash, by
check, or cash equivalent, (ii) by tender to the Company of whole shares of
Stock owned by the Optionee having a Fair Market Value (as determined by the
Company without regard to any restrictions on transferability applicable to such
stock by reason of federal or state securities laws or agreements with an
underwriter for the Company) not less than the aggregate Exercise Price, (iii)
by means of a Cashless Exercise, as defined in Section 4.3(c), (iv) in the
Company's sole discretion at the time the Option is exercised, by cash for a
portion of the aggregate Exercise Price not less than the par value of the
shares being acquired and the Optionee's promissory note for the balance of the
aggregate Exercise Price, or (v) by any combination of the foregoing.
(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option
may not be exercised by tender to the Company of shares of Stock to the extent
such tender of Stock would constitute a violation of the provisions of any law,
regulation or agreement restricting the redemption of the Company's stock. The
Option may not be exercised by tender to the Company of shares of Stock unless
such shares either have been owned by the Optionee for more than six (6) months
or were not acquired, directly or indirectly, from the Company.
(c) CASHLESS EXERCISE. A "CASHLESS EXERCISE" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
(d) PAYMENT BY PROMISSORY NOTE. No promissory note shall be
permitted if an exercise of the Option using a promissory note would be a
violation of any law. Unless otherwise specified by the Board at the time the
Option is granted, the promissory note permitted in clause (iv) of Section
4.3(a) shall be a full recourse note in a form satisfactory to the Company, with
principal payable four (4) years after the date the Option is exercised.
Interest on
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the principal balance of the promissory note shall be payable in annual
installments at the minimum interest rate necessary to avoid imputed interest
pursuant to all applicable sections of the Code. Such recourse promissory note
shall be secured by the shares of Stock acquired pursuant to the then current
form of security agreement as approved by the Company. At any time the Company
is subject to the regulations promulgated by the Board of Governors of the
Federal Reserve System or any other governmental entity affecting the extension
of credit in connection with the Company's securities, any promissory note shall
comply with such applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to comply with
such applicable regulations. Except as the Company in its sole discretion shall
determine, the Optionee shall pay the unpaid principal balance of the promissory
note and any accrued interest thereon upon termination of the Optionee's Service
with the Participating Company Group for any reason, with or without cause.
4.4 TAX WITHHOLDING. At the time the Option is exercised, in
whole or in part, or at any time thereafter as requested by the Company, the
Optionee hereby authorizes withholding from payroll and any other amounts
payable to the Optionee, and otherwise agrees to make adequate provision for
(including by means of a Cashless Exercise to the extent permitted by the
Company), any sums required to satisfy the federal, state, local and foreign tax
withholding obligations of the Participating Company Group, if any, which arise
in connection with the Option, including, without limitation, obligations
arising upon (i) the exercise, in whole or in part, of the Option, (ii) the
transfer, in whole or in part, of any shares acquired upon exercise of the
Option, (iii) the operation of any law or regulation providing for the
imputation of interest, or (iv) the lapsing of any restriction with respect to
any shares acquired upon exercise of the Option. The Optionee is cautioned that
the Option is not exercisable unless the tax withholding obligations of the
Participating Company Group are satisfied. Accordingly, the Optionee may not be
able to exercise the Option when desired even though the Option is vested, and
the Company shall have no obligation to issue a certificate for such shares or
release such shares from any escrow provided for herein.
4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF
SHARES. The grant of the Option and the issuance of shares of Stock upon
exercise of the Option shall be subject to compliance with all applicable
requirements of federal, state or foreign law with respect to such securities.
The Option may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
the Option may not be exercised unless (i) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (ii) in the
opinion of legal counsel to the Company, the shares issuable upon exercise of
the Option may be issued in accordance with the terms of an applicable exemption
from the registration requirements of the Securities Act.
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THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO
EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions
concerning this restriction should be directed to the Chief Financial Officer of
the Company. The inability of the Company to obtain from any regulatory body
having jurisdiction the authority, if any, deemed by the Company's legal counsel
to be necessary to the lawful issuance and sale of any shares subject to the
Option shall relieve the Company of any liability in respect of the failure to
issue or sell such shares as to which such requisite authority shall not have
been obtained. As a condition to the exercise of the Option, the Company may
require the Optionee to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation and to
make any representation or warranty with respect thereto as may be requested by
the Company.
4.7 FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares upon the exercise of the Option.
5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during
the lifetime of the Optionee only by the Optionee or the Optionee's guardian or
legal representative and may not be assigned or transferred in any manner except
by will or by the laws of descent and distribution. Following the death of the
Optionee, the Option, to the extent provided in Section 7, may be exercised by
the Optionee's legal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution.
6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer
be exercised on the first to occur of (a) the Option Expiration Date, (b) the
last date for exercising the Option following termination of the Optionee's
Service as described in Section 7, or (c) a Transfer of Control to the extent
provided in Section 8.
7. EFFECT OF TERMINATION OF SERVICE.
7.1 OPTION EXERCISABILITY.
(a) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twelve (12) months after the date on which the Optionee's Service
terminated, but in any event no later than the Option Expiration Date.
(b) DEATH. If the Optionee's Service with the Participating
Company Group is terminated because of the death of the Optionee, the Option, to
the extent unexercised and exercisable on the date on which the Optionee's
Service terminated, may be exercised by the Optionee (or the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death) at any time prior to the expiration of twelve
(12) months after the date on which the Optionee's Service terminated, but in
any event
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no later than the Option Expiration Date. The Optionee's Service shall be deemed
to have terminated on account of death if the Optionee dies within one (1) month
after the Optionee's termination of Service (other than a termination for
Cause).
(C) TERMINATION AFTER TRANSFER OF CONTROL.
(i) General. In the event of a Termination After
Transfer of Control, any unexercised portion of the Option shall be immediately
exercisable and vested in full as of the date of the Optionee's termination of
Service, subject to Section 10 below. In addition, the Option, to the extent
unexercised by the Optionee on the later of (A) the date on which the Optionee's
Service terminated and, if applicable, (B) the termination of the Consulting
Agreement (such later date, the "TERMINATION DATE"), may be exercised by the
Optionee within three (3) months (or six (6) months if the Optionee is subject
to restrictions on transfer to comply with "Pooling-of-Interests" accounting
rules) following the Termination Date, but in any event no later than the Option
Expiration Date.
(ii) Pooling of Interests Accounting. Notwithstanding
anything in the Option Agreement to the contrary, no acceleration of
exercisability or vesting of the Option shall occur pursuant to this Section
7.1(c) in the event that (A) the Securities and Exchange Commission (the "SEC")
asserts that such acceleration of exercisability or vesting precludes the use of
"pooling of interests" accounting treatment of the Transfer of Control, (B) the
Transfer of Control is supported by the Board, and (C) the SEC will not reverse
its position following reasonable persuasive efforts by the Company. In the
event that acceleration of exercisability or vesting of the Option is precluded
as a result of this Section 7.1(c)(ii), the Company and the Optionee shall enter
into the Consulting Agreement as soon as practicable following such
determination.
(d) OTHER TERMINATION OF SERVICE. If the Optionee's Service
with the Participating Company Group terminates for any reason, except
Disability, death, or Termination After Transfer of Control, the Option, to the
extent unexercised and exercisable by the Optionee on the date on which the
Optionee's Service terminated, may be exercised by the Optionee within one (1)
month (or such other longer period of time as determined by the Board, in its
sole discretion) after the date on which the Optionee's Service terminated, but
in any event no later than the Option Expiration Date.
7.2 ADDITIONAL LIMITATION ON OPTION EXERCISE. Except as the Company
and the Optionee otherwise agree, exercise of the Option pursuant to Section 7.1
following termination of the Optionee's Service may not be made by delivery of a
promissory note as provided in Section 4.3(a).
7.3 EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date. The Company makes no representation as to
the tax consequences of any such delayed exercise. The Optionee should consult
with the
8
<PAGE> 9
Optionee's own tax advisor as to the tax consequences to the Optionee
of any such delayed exercise.
7.4 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding
the foregoing, if a sale within the applicable time periods set forth in Section
7.1 of shares acquired upon the exercise of the Option would subject the
Optionee to suit under Section 16(b) of the Exchange Act, the Option shall
remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date. The Company makes no representation as to the tax consequences of any such
delayed exercise. The Optionee should consult with the Optionee's own tax
advisors as to the tax consequences to the Optionee of any such delayed
exercise.
7.5 LEAVE OF ABSENCE. For purposes of Section 7.1, the Optionee's
Service with the Participating Company Group shall not be deemed to terminate if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company of ninety (90) days or less. In the event of a
leave of absence in excess of ninety (90) days, the Optionee's Service shall be
deemed to terminate on the ninety-first (91st) day of such leave unless the
Optionee's right to reemployment with the Participating Company Group remains
guaranteed by statute or contract. Notwithstanding the foregoing, unless
otherwise designated by the Company (or required by law), a leave of absence
shall not be treated as Service for purposes of determining the Optionee's
Vested Ratio.
8. TRANSFER OF CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single
or series of related transactions by the stockholders of the Company of more
than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a
party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "TRANSFER OF CONTROL" shall mean an Ownership Change
Event or a series of related Ownership Change Events (collectively, the
"TRANSACTION") wherein the stockholders of the Company immediately before the
Transaction do not retain immediately after the Transaction, in substantially
the same proportions as their ownership of shares of the
9
<PAGE> 10
Company's voting stock immediately before the Transaction, direct or indirect
beneficial ownership of more than fifty percent (50%) of the total combined
voting power of the outstanding voting stock of the Company or the corporation
or corporations to which the assets of the Company were transferred (the
"TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the preceding
sentence, indirect beneficial ownership shall include, without limitation, an
interest resulting from ownership of the voting stock of one or more
corporations which, as a result of the Transaction, own the Company or the
Transferee Corporation(s), as the case may be, either directly or through one or
more subsidiary corporations. The Board shall have the right to determine
whether multiple sales or exchanges of the voting stock of the Company or
multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
8.2 EFFECT OF TRANSFER OF CONTROL ON OPTION. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "ACQUIRING
CORPORATION"), may either assume the Company's rights and obligations under the
Option or substitute for the Option a substantially equivalent option for the
Acquiring Corporation's stock. In the event that the Acquiring Corporation
elects not to assume the Company's rights and obligations under the Option or
substitute for the Option in connection with the Transfer of Control, any
unexercised portion of the Option shall be immediately exercisable and vested in
full as of the date ten (10) days prior to the date of the Transfer of Control,
subject to Section 10 below. Any exercise of the Option that was permissible
solely by reason of this Section 8.2 shall be conditioned upon the consummation
of the Transfer of Control. The Option shall terminate and cease to be
outstanding effective as of the date of the Transfer of Control to the extent
that the Option is neither assumed or substituted for by the Acquiring
Corporation in connection with the Transfer of Control nor exercised as of the
date of the Transfer of Control. Notwithstanding the foregoing, shares acquired
upon exercise of the Option prior to the Transfer of Control and any
consideration received pursuant to the Transfer of Control with respect to such
shares shall continue to be subject to all applicable provisions of this Option
Agreement except as otherwise provided herein. Furthermore, notwithstanding the
foregoing, if the corporation the stock of which is subject to the Option
immediately prior to an Ownership Change Event described in Section 8.1(a)(i)
constituting a Transfer of Control is the surviving or continuing corporation
and immediately after such Ownership Change Event less than fifty percent (50%)
of the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the Option shall not terminate unless
the Board otherwise provides in its sole discretion.
8.3 FAIR MARKET VALUE LIMITATION. Should the exercisability of this
Option be accelerated in connection with a Transfer of Control in accordance
with Section 8.2, then to the extent that the aggregate Fair Market Value of the
shares of Stock with respect to which the Optionee may exercise the Option for
the first time during the calendar year of the Transfer of Control, when added
to the aggregate Fair Market Value of the shares subject to any other options
designated as Incentive Stock Options granted to the Optionee under all stock
option plans of the Participating Company Group prior to the Date of Option
Grant with respect to
10
<PAGE> 11
which such options are exercisable for the first time during the same calendar
year, exceeds One Hundred Thousand Dollars ($100,000) (or such other limit, if
any, imposed by Section 422 of the Code), the portion of the Option which
exceeds such amount shall be treated as a Nonstatutory Stock Option. For
purposes of the preceding sentence, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of shares of stock shall be determined as of the time the
option with respect to such shares is granted.
9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments shall be made in the number, Exercise Price and class of
shares of stock subject to the Option. If a majority of the shares which are of
the same class as the shares that are subject to the Option are exchanged for,
converted into, or otherwise become (whether or not pursuant to an Ownership
Change Event) shares of another corporation (the "NEW SHARES"), the Board may
unilaterally amend the Option to provide that the Option is exercisable for New
Shares. In the event of any such amendment, the Number of Option Shares and the
Exercise Price shall be adjusted in a fair and equitable manner, as determined
by the Board, in its sole discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 9 shall
be rounded down to the nearest whole number, and in no event may the Exercise
Price be decreased to an amount less than the par value, if any, of the stock
subject to the Option.
10. SECTION 4999 LIMITATION. This Section 10 shall apply only if the
Optionee, on an after-tax basis, would receive more value under this Option
after the application of this Section than before the application of this
Section. For this purpose, "after-tax basis" shall mean a calculation taking
into account all federal and state income and excise taxes imposed on the
Optionee, including (without limitation) the excise tax described in section
4999 of the Code. If this Section 10 is applicable, it shall supersede any
conflicting provision of this Option Agreement.
Options shall accelerate pursuant to the provisions of this Option
Agreement, including without limitation those set forth in Sections 7.1(c) and 8
hereof, to the extent but only to the extent that such acceleration would not
subject the Optionee to the excise tax described in section 4999 of the Code.
All calculations required by this Section 10 shall be made by the independent
auditors retained by the Company most recently prior to the Transfer of Control,
based on information supplied by Company and Optionee, and shall be binding on
the Company and the Optionee. All fees and expenses of such auditors shall be
paid by the Company.
11. RIGHTS AS A STOCKHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall
have no rights as a stockholder with respect to any shares covered by the Option
until the date of the issuance of a certificate for the shares for which the
Option has been exercised (as evidenced by the appropriate entry on the books of
the Company or of a duly authorized transfer agent of the Company). No
adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date such certificate is issued, except as
provided in Section 9. Nothing in this Option Agreement shall confer upon the
Optionee any right to continue in the
11
<PAGE> 12
Service of a Participating Company or interfere in any way with any right of the
Participating Company Group to terminate the Optionee's Service as an Employee
or Consultant, as the case may be, at any time.
12. ESCROW.
12.1 ESTABLISHMENT OF ESCROW. To ensure that shares securing any
promissory note will be available for repurchase, the Company may require the
Optionee to deposit the certificate evidencing the shares which the Optionee
purchases upon exercise of the Option with an agent designated by the Company
under the terms and conditions of a security agreement approved by the Company.
If the Company does not require such deposit as a condition of exercise of the
Option, the Company reserves the right at any time to require the Optionee to so
deposit the certificate in escrow. Upon the occurrence of an Ownership Change
Event or a change, as described in Section 9, in the character or amount of any
of the outstanding stock of the corporation the stock of which is subject to the
provisions of this Option Agreement, any and all new, substituted or additional
securities or other property to which the Optionee is entitled by reason of the
Optionee's ownership of shares of Stock acquired upon exercise of the Option
that remain, following such Ownership Change Event or change described in
Section 9, subject to any security interest held by the Company shall be
immediately subject to the escrow to the same extent as such shares of Stock
immediately before such event. The Company shall bear the expenses of the
escrow.
12.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after
full repayment of any promissory note secured by the shares or other property in
escrow, the agent shall deliver to the Optionee the shares and any other
property no longer securing any promissory note.
13. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. If, from time to
time, there is any stock dividend, stock split or other change, as described in
Section 9, in the character or amount of any of the outstanding stock of the
corporation the stock of which is subject to the provisions of this Option
Agreement, then in such event any and all new, substituted or additional
securities to which the Optionee is entitled by reason of the Optionee's
ownership of the shares acquired upon exercise of the Option shall be
immediately subject to any security interest held by the Company with the same
force and effect as the shares subject to such security interest immediately
before such event.
14. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall
dispose of the shares acquired pursuant to the Option only in accordance with
the provisions of this Option Agreement. In addition, the Optionee shall
promptly notify the Chief Financial Officer of the Company if the Optionee
disposes of any of the shares acquired pursuant to the Option within one (1)
year after the date the Optionee exercises all or part of the Option or within
two (2) years after the Date of Option Grant. Until such time as the Optionee
disposes of such shares in a manner consistent with the provisions of this
Option Agreement, unless otherwise expressly authorized by the Company, the
Optionee shall hold all shares acquired pursuant to the Option in the Optionee's
name (and not in the name of any nominee) for the one-year period immediately
12
<PAGE> 13
after the exercise of the Option and the two-year period immediately after Date
of Option Grant. At any time during the one-year or two-year periods set forth
above, the Company may place a legend on any certificate representing shares
acquired pursuant to the Option requesting the transfer agent for the Company's
stock to notify the Company of any such transfers. The obligation of the
Optionee to notify the Company of any such transfer shall continue
notwithstanding that a legend has been placed on the certificate pursuant to the
preceding sentence.
15. LEGENDS. The Company may at any time place legends referencing any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section.
16. BINDING EFFECT. Subject to the restrictions on transfer set forth
herein, this Option Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs, executors, administrators,
successors and assigns. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
or to all or substantially all of the Company's business and/or assets shall
assume the obligations under this Option Agreement and agree expressly to
perform the obligations under this Option Agreement in the same manner and to
the same extent as the Company would be required to perform such obligations in
the absence of a succession. Failure of the Company to obtain such agreement
shall be a material breach of this Option Agreement.
17. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or
the Option at any time; provided, however, that except as provided in Section
8.2 in connection with a Transfer of Control, no such termination or amendment
may adversely affect the Option or any unexercised portion hereof without the
consent of the Optionee unless such termination or amendment is necessary to
comply with any applicable law or government regulation or is required to enable
the Option to qualify as an Incentive Stock Option. No amendment or addition to
this Option Agreement shall be effective unless in writing.
18. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein, and there are no
agreements, understandings, restrictions, representations, or warranties among
the Optionee and the Participating Company Group with respect to such subject
matter other than those as set forth or provided for herein. To the extent
contemplated herein, the provisions of this Option Agreement shall survive any
exercise of the Option and shall remain in full force and effect.
19. APPLICABLE LAW. This Option Agreement shall be governed by the laws of
the State of Delaware as such laws are applied to agreements between Delaware
residents entered into and to be performed entirely within the State of
Delaware.
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JDA SOFTWARE
GROUP, INC.'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 85,469
<SECURITIES> 0
<RECEIVABLES> 47,679
<ALLOWANCES> (2,674)
<INVENTORY> 0
<CURRENT-ASSETS> 141,354
<PP&E> 32,048
<DEPRECIATION> (9,018)
<TOTAL-ASSETS> 192,102
<CURRENT-LIABILITIES> 29,908
<BONDS> 0
0
0
<COMMON> 234
<OTHER-SE> 161,960
<TOTAL-LIABILITY-AND-EQUITY> 192,102
<SALES> 0
<TOTAL-REVENUES> 105,441
<CGS> 0
<TOTAL-COSTS> 48,516
<OTHER-EXPENSES> 80,108
<LOSS-PROVISION> 472
<INTEREST-EXPENSE> (2,327)
<INCOME-PRETAX> (20,856)
<INCOME-TAX> (8,881)
<INCOME-CONTINUING> (11,975)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,975)
<EPS-PRIMARY> (.55)
<EPS-DILUTED> (.55)
</TABLE>
