<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1998.
REGISTRATION NO. 333-51043
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
JDA SOFTWARE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7371 86-0787377
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
11811 NORTH TATUM BOULEVARD, SUITE 2000
PHOENIX, ARIZONA 85028
PH. (602) 404-5500
FAX (602) 404-5520
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
BRENT W. LIPPMAN
CHIEF EXECUTIVE OFFICER
JDA SOFTWARE GROUP, INC.
11811 NORTH TATUM BOULEVARD, SUITE 2000
PHOENIX, ARIZONA 85028
PH. (602) 404-5500
FAX (602) 404-5520
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
PAUL E. HURDLOW, ESQ. CARMELO M. GORDIAN, P.C.
P. STEVEN HACKER, ESQ. RONALD G. SKLOSS, P.C.
MARK T. LEE, ESQ. BROBECK, PHLEGER & HARRISON LLP
GRAY CARY WARE & FREIDENRICH LLP 301 CONGRESS AVENUE, SUITE 1200
100 CONGRESS AVENUE, SUITE 1440 AUSTIN, TEXAS 78701
AUSTIN, TEXAS 78701 PH. (512) 477-5495
PH. (512) 457-7000 FAX (512) 477-5813
FAX (512) 457-7070
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one for use
in connection with an offering of Shares initially in the United States and
Canada (the "Domestic Prospectus") and one for use in connection with an
offering of Shares initially outside the United States and Canada (the
"International Prospectus"). Both forms of prospectus are identical, except for
the outside front cover page of each prospectus. The form of Domestic Prospectus
follows this Explanatory Note and is immediately followed by the alternate
outside front cover page of the International Prospectus, which is labeled
"Alternate Page for International Prospectus." Final forms of each prospectus
will be filed with the Securities and Exchange Commission under Rule 424(b).
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
PROSPECTUS (Subject to Completion)
Issued May 5, 1998
2,400,000 Shares
[JDA LOGO]
COMMON STOCK
------------------------
OF THE 2,400,000 SHARES OF COMMON STOCK OFFERED HEREBY, 1,920,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS
AND 480,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND
CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." OF THE 2,400,000
SHARES OF COMMON STOCK BEING OFFERED, 2,000,000 SHARES ARE BEING SOLD BY THE
COMPANY AND 400,000 SHARES ARE BEING SOLD BY THE SELLING STOCKHOLDERS. SEE
"PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY WILL NOT RECEIVE ANY PROCEEDS
FROM THE SALE OF THE SHARES BY THE SELLING STOCKHOLDERS. THE COMPANY'S COMMON
STOCK IS LISTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "JDAS." ON MAY 4,
1998, THE LAST SALE PRICE OF THE COMMON STOCK AS REPORTED ON THE NASDAQ NATIONAL
MARKET WAS $48 5/8 PER SHARE. SEE "PRICE RANGE OF COMMON STOCK."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
-------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share.............................. $ $ $ $
Total(3)............................... $ $ $ $
</TABLE>
- ------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
360,000 additional Shares at the price to public, less underwriting
discounts and commissions for the purpose of covering over-allotments,
if any. If the U.S. Underwriters exercise such option in full, the total
price to public, underwriting discounts and commissions and proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Brobeck, Phleger & Harrison LLP, counsel for the Underwriters. It is expected
that delivery of the Shares will be made on or about , 1998 at the
office of Morgan Stanley & Co Incorporated, New York, N.Y., against payment
therefor in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
HAMBRECHT & QUIST
, 1998
<PAGE> 4
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH
INFORMATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY
ANY SELLING STOCKHOLDER OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREBY SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Incorporation of Certain Documents by
Reference.................................... 2
Prospectus Summary............................. 3
The Company.................................... 4
Risk Factors................................... 5
Forward Looking Statements..................... 15
Use of Proceeds................................ 15
Dividend Policy................................ 15
Price Range of Common Stock.................... 16
Capitalization................................. 17
Selected Consolidated Financial Data........... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Business....................................... 29
Management..................................... 42
Principal and Selling Stockholders............. 44
Certain United States Federal Income Tax
Considerations for Non-U.S. Holders of Common
Stock........................................ 46
Underwriters................................... 48
Legal Matters.................................. 51
Experts........................................ 51
Available Information.......................... 51
</TABLE>
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange Commission
(the "Commission") by the Company are incorporated in this Prospectus by
reference: (1) the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997; (2) the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998; (3) the Company's Current Report on Form 8-K dated
and filed April 24, 1998; and (4) the description of the Common Stock contained
in the Company's Registration Statement on Form 8-A filed under Section 12(g) of
the Securities Exchange Act of 1934 (the "Exchange Act").
All other documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering of the Common Stock to be made
hereunder shall be deemed to be incorporated herein by reference and made a part
hereof from the date of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
therein or in any other subsequently filed document that also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owners, to whom a copy of the Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the documents
which are incorporated herein by reference, other than exhibits to such
information (unless such exhibits are specifically incorporated by reference
into such documents). Requests should be submitted to Mr. Lindsay L. Hoopes,
Vice President -- Accounting, 11811 North Tatum Boulevard, Suite 2000, Phoenix,
Arizona 85028.
------------------------
The Company has filed domestic trademark applications for the symbols JDA,
Distributed Store System, DSS, Merchandise Management System, MMS, Open DataBase
Merchandising System, ODBMS, Retail IDEAS and Win/DSS and foreign trademark
applications for the symbol JDA. All other trademarks or trade names referred to
in this Prospectus are the property of their respective owners.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
------------------------
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITERS."
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus or incorporated by reference. Except as otherwise
indicated, all information in this Prospectus assumes that the Underwriters'
over-allotment option is not exercised. See "Underwriters."
THE COMPANY
JDA Software Group, Inc. is a leading international provider of integrated
enterprise-wide software products and services that address mission-critical
management information needs of the retail supply chain. The Company offers a
broad array of software products designed to provide integrated technology
solutions for the collection, organization and analysis of data and the
distribution of information throughout a retail organization. The Company's
products include: merchandising, financial and decision support systems at the
corporate level; point-of-sale, back office and distributed processing
applications at the store level; and warehouse management and logistics systems
at the distribution level. The Company offers products that operate on IBM
AS/400-based and DOS-based platforms, as well as products that operate in the
UNIX and Windows NT open client/server environments. 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.
The Company's products and services are marketed and sold primarily through
JDA's direct sales force and through cooperative relationships with sales
agents, distributors and other vendors, including IBM and Siemens Nixdorf. The
Company's solutions have been licensed to more than 300 retail enterprises
worldwide and address a wide variety of retail markets, including hard and soft
lines retailers, warehouse operations, department stores and grocery stores. The
Company's customers include many of the world's leading specialty retailers such
as Bed, Bath and Beyond, Inc., CompUSA, Inc., Gucci SpA, LensCrafters, Inc.,
Office Depot International, Oshman's Sporting Goods, Inc., PETCO Animal
Supplies, Inc., Planet Hollywood International, Royal Duty Free Shop, Inc.,
Sears Clothing Ltd., Staples, Inc., Stride Rite Children's Group, Inc., Virgin
Entertainment Group, Inc. and Williams-Sonoma, Inc.
THE OFFERING
<TABLE>
<S> <C>
U.S. Offering.............................................. 1,920,000 Shares
International Offering..................................... 480,000 Shares
Total.............................................. 2,400,000 Shares (including 2,000,000 Shares by the Company
and 400,000 Shares by the Selling Stockholders)
Common Stock to be outstanding after the offering.......... 15,318,781 Shares(1)
Use of proceeds............................................ For general corporate purposes, including product
development and working capital and potential acquisitions.
See "Use of Proceeds."
Nasdaq National Market symbol.............................. JDAS
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------ -----------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Total revenues............................................ $30,893 $16,844 $91,771 $47,840 $30,084
Gross profit.............................................. 16,544 9,940 52,899 30,986 20,144
Income from operations.................................... 5,246 3,499 19,370 12,277 7,504
Net income(2)............................................. 3,484 2,313 12,466 7,680 4,401
Basic and diluted earnings per share...................... $ .26 $ .18 $ .95 $ .64 $ .42
Shares used to compute basic earnings per share(3)........ 13,236 13,007 13,078 12,010 10,952
Shares used to compute diluted earnings per share(3)...... 13,579 13,168 13,109 12,010 10,952
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------------
ACTUAL AS ADJUSTED(4)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $31,897 $123,541
Working capital........................................... 55,333 146,977
Total assets.............................................. 92,150 183,794
Long-term liabilities..................................... 269 269
Stockholders' equity...................................... 77,564 169,208
</TABLE>
- ------------
(1) Based on the number of shares outstanding as of March 31, 1998. Excludes (i)
1,282,117 shares of Common Stock issuable upon the exercise of stock options
outstanding under the Company's stock option plans as of March 31, 1998, at
a weighted average exercise price of $24.30 per share, the issuance of
99,172 shares of which will not cause further dilution, (ii) 249,005 shares
of Common Stock reserved for option grants under the Company's stock option
plans, (iii) 1,750,000 shares of Common Stock reserved, subject to
stockholder approval, for option grants under the Company's stock option
plans and (iv) 300,000 shares of Common Stock reserved, subject to
stockholder approval, for issuance under the Company's 1998 Employee Stock
Purchase Plan.
(2) Prior to March 30, 1995, certain of JDA's commonly-held predecessor
companies elected S Corporation status. Net income for 1995 includes a pro
forma provision for U.S. federal income taxes at statutory rates. Without
such pro forma provision, net income for 1995 was $5,573.
(3) Includes common and equivalent shares outstanding subsequent to the
Company's reorganization on March 30, 1995.
(4) As adjusted to reflect the sale of 2,000,000 shares of Common Stock offered
by the Company hereby (at an assumed public offering price of $48 5/8 per
share and after deducting estimated underwriting discounts and commissions
and estimated offering expenses payable by the Company) and the application
of the estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
3
<PAGE> 6
THE COMPANY
JDA Software Group, Inc. ("JDA" or the "Company) is a leading international
provider of integrated enterprise-wide software products and services that
address mission-critical management information needs of the retail supply
chain. The Company offers a broad array of software products designed to provide
integrated technology solutions for the collection, organization and analysis of
data and the distribution of information throughout a retail organization. The
Company's products include: merchandising, financial and decision support
systems at the corporate level; point-of-sale, back office and distributed
processing applications at the store level; and warehouse management and
logistics systems at the distribution level. The Company offers products that
operate on IBM AS/400-based and DOS-based platforms, as well as products that
operate in the UNIX and Windows NT open client/server environments. 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.
The retailing industry is experiencing rapid change, driven primarily by
changing consumer preferences, intensifying competition and increasing
globalization. To respond to today's competitive challenges, retailers must
accelerate the rate at which they identify and respond to changing business
conditions and consumer requirements. A retail organization's agility and
ultimate success are dependent upon its ability to rapidly and cost-effectively
collect, organize and analyze data, and disseminate information throughout the
enterprise to facilitate effective business decisions. Retailers are recognizing
the strategic imperative of employing technology to cut costs, reduce
inefficiencies and enhance sales in an increasingly competitive environment
dominated by value-conscious consumers. As a result, retailers are demanding
highly functional, easy to use and scaleable software applications that can be
economically and rapidly implemented and adapted for changes in their
mission-critical business functions.
The Company's products and services are marketed and sold primarily through
JDA's direct sales force and through cooperative relationships with sales
agents, distributors and other vendors, including IBM and Siemens Nixdorf. The
Company's solutions have been licensed to more than 300 retail enterprises
worldwide and address a wide variety of retail markets, including hard and soft
lines retailers, warehouse operations, department stores and grocery stores. The
Company's customers include many of the world's leading specialty retailers such
as Bed, Bath and Beyond, Inc., CompUSA, Inc., Gucci SpA, LensCrafters, Inc.,
Office Depot International, Oshman's Sporting Goods, Inc., PETCO Animal
Supplies, Inc., Planet Hollywood International, Royal Duty Free Shop, Inc.,
Sears Clothing Ltd., Staples, Inc., Stride Rite Children's Group, Inc., Virgin
Entertainment Group, Inc. and Williams-Sonoma, Inc.
The Company's objective is to strengthen its leadership position by
providing a comprehensive suite of software solutions that address
mission-critical management information needs of the retail supply chain. Key
elements of the Company's strategy include: leveraging the Company's the
in-depth understanding of retailers' requirements accumulated from sales to over
300 customers; expanding product sales to existing customers; continuing to
invest in the Company's high quality professional services organization;
expanding the Company's presence in international markets; further developing
and expanding strategic relationships for development, distribution and
implementation of the Company's products; continuing to develop and offer
products and services that address customers' emerging technological and
financial issues; and acquiring complementary businesses, products and
technologies.
The Company's principal executive offices are located at 11811 North Tatum
Blvd., Suite 2000, Phoenix, AZ 85028, and the telephone number at that address
is (602) 404-5500. Unless the context otherwise requires, the "Company" or "JDA"
refers to JDA Software Group, Inc. and its consolidated subsidiaries.
4
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. Actual results may differ
materially from those indicated in such forward-looking statements. Factors that
may cause such a difference include, but are not limited to, those discussed
below and in the sections entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." See "Forward
Looking Statements."
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
products and services sold; 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. The Company's business
has experienced, and is expected to continue to experience, some degree of
seasonality due in large part to its retail customers' buying cycles.
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, 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.
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 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.
Prior to 1998, the Company recognized revenue in accordance with the
provisions of the American Institute of Certified Public Accountants ("AICPA")
Statement of Position No. 91-1, Software Revenue Recognition ("SOP 91-1"). The
AICPA has recently adopted Statement of Position No. 97-2, Software Revenue
Recognition ("SOP 97-2"), that supersedes SOP 91-1. The Company adopted SOP 97-2
effective January 1, 1998. The adoption of SOP 97-2 did not have a significant
impact on the Company's financial statements for the three months ended March
31, 1998. However, there can be no assurance that subsequent interpretations of
this pronouncement by the Company's independent auditors or the Securities and
Exchange Commission will not modify the Company's revenue recognition policies,
or that such modifications will not
5
<PAGE> 8
have a material adverse effect on the operating results reported in any
particular quarter. There can be no assurance that the Company will not be
required to adopt changes in its software licensing or services practices to
conform to SOP 97-2, or that such changes, if adopted, 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 Common Stock would likely be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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 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. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business --
Industry Background" and "-- Company Strategy."
Management of Growth. The Company's business has grown rapidly in recent
years, with revenues increasing from $30.1 million in 1995 to $47.8 million in
1996 to $91.8 million in 1997. 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 continued will continue to place, a
significant strain on the Company's management and operations. 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. Several of the Company's executive management
personnel have only recently joined the Company. In addition, Brent W. Lippman
has only recently assumed the role of Chief Executive Officer. 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 anticipates that continued growth, if any, will require it to
recruit and hire a substantial number of new employees, including consulting and
product development personnel, both domestically and abroad. 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
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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 would not result
in a material adverse impact on the Company's future operating results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "-- Management."
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
plans to significantly increase the number of consulting personnel in connection
with the continuing 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. See
"Business -- Consulting, Maintenance and Other Services" and "-- Employees" and
"Management."
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 18 months. 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. See "Business -- Products."
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Product Concentration. The Company has historically derived the majority
of its revenues from software licenses and consulting, maintenance and other
services related to MMS. MMS revenues are in part dependent on continued
vitality of 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 and
Win/DSS. 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. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Overview" and
"Business -- Products" and "-- Consulting, Maintenance and Other Services."
International Operations. The Company's international revenues, which
include revenues from international subsidiaries and export sales, represented
48% and 51% of total revenues for the three months ended March 31, 1998 and
1997, respectively, and 55%, 43% and 39% of total revenues in fiscal 1997, 1996
and 1995, 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, training or retaining such personnel. In addition, there
can be no assurance that the Company will be able to successfully localize,
market, sell and deliver its products internationally. The inability of the
Company to successfully expand its international operations in a timely manner
could materially adversely affect the Company's business, operating results and
financial condition.
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. The Company does not currently engage in foreign currency hedging
transactions. However, as the Company continues to expand its international
operations, exposures to gains and losses on foreign currency transactions may
increase. The Company may choose to limit such exposure by entering into forward
foreign exchange contracts or engaging in similar hedging strategies. There can
be no assurance that any currency exchange strategy would be
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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 encountered unstable local economies and
significant devaluation in its currencies during the last six months of 1997 and
continuing into 1998. 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 in other geographic locations,
the Company's business, operating results and financial condition could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Company
Strategy" and " -- Sales and Marketing."
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
enterprise systems market, the Company competes with internally developed
systems and with third-party developers such as Intrepid Systems ("Intrepid"),
Island Pacific, Radius PLC, Retek (a subsidiary of HNC Software, Inc.), STS
Systems and Richter Management Services. In addition, the Company believes that
new market entrants may attempt to develop fully integrated enterprise level
systems targeting the retail industry. In particular, SAP AG has announced the
availability of an integrated client/server enterprise system competitive with
the Company's products. In addition, Intrepid has announced the formation of a
joint development and marketing relationship with PeopleSoft, Inc., a provider
of enterprise applications software, to develop products that are expected to
compete directly with ODBMS.
In the in-store systems market, which is more fragmented than the
enterprise 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. 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 and Ernst & Young LLP. These integrators, as well as independent
consulting firms such as IBM Global Services Division, also represent potential
competition to the Company's consulting services group.
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 would not have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Competition."
Risks Associated with Strategic Relationships. The Company has from time
to time established formal and informal relationships with other companies,
including 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 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. See "Business -- Sales and Marketing."
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,
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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 the
implementation of the client/server versions of its products is more complex and
requires more time than the implementation of its DOS-based and IBM AS/400-based
products. In addition, the Company's lack of experience in implementing its
client/server-based 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
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. See
"Business -- Consulting, Maintenance and Other Services."
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. See "Business -- Product
Development and JDA Technology."
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 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.
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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 from third parties. However,
the termination of any such licenses, or the failure of the third-party
licensors to adequately maintain or update their products, could result in
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 from others or
require the Company to cease the marketing or use of certain products, any of
which could have a material adverse effect on the Company's business, operating
results and financial condition. To the extent the Company desires or is
required to obtain licenses to patents or proprietary rights of others, there
can be no assurance that any such licenses will be made available on terms
acceptable to the Company, if at all. As the number of software products in the
industry increases and the functionality of these products further overlaps, the
Company believes 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. See
"Business -- Proprietary Rights."
Product Defects; Product Liability; Risk of Integration Difficulties. The
Company's software products are highly complex and sophisticated and could, from
time to time, contain design defects or software errors that could be difficult
to detect and correct. In addition, implementation of the Company's products
generally involves a significant amount of customer-specific customization, and
may involve integration with systems developed by third parties. In particular,
it is common for complex software programs, such as the Company's newer,
client/server 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
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<PAGE> 14
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 1997, 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. See "Business -- Products" and "-- Product Development and
JDA Technology."
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 will coordinate 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 on 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 financial condition.
The Company is currently reviewing its internal management information and
other systems in order to identify and modify those products, services or
systems that are not Year 2000 compliant. 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. These costs and the
timing in which the Company plans to complete its Year 2000 modification and
testing processes 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, that remedial efforts will not involve
significant time and expense, or that such problems will not have a material
adverse effect on the Company's business, operating results and financial
condition.
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The Company also 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 timely 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. Also, no
assurance can be given that Year 2000 problems within the Company's 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.
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. See "Management."
Volatility of Market Price. The market price of the 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 estimates by analysts or other factors
could cause the market price of the Common Stock to fluctuate substantially. In
addition, stock prices for many technology companies 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 Common Stock. See "Price Range of
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 to date
include 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. Although there are no current
commitments or agreements regarding any acquisition, the Company has taken a
number of actions with acquisition candidates in pursuit of various acquisition
opportunities, including: engaged in preliminary discussions; exchanged
nonpublic information; provided verbal and written expressions of interest;
reviewed technological feasability; and made preliminary proposals regarding
potential transaction structures and prices.
Acquisitions 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 acquired businesses, products and
technologies into the Company's business 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 can 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 potentially dilutive
issuances of equity securities, the incurrence by the Company of debt and
contingent liabilities,
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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.
A relatively large acquisition by the Company could result in the use of a
significant portion of the Company's available cash, including a significant
portion of the net proceeds of this offering. Although the Company is in
negotiation for a credit facility which may include up to $35 million in funds
which may be used for acquisitions by the Company, there can be no assurance
that such financing will be available on acceptable terms, if at all. If the
Company acquires businesses, technologies or products in the near future, it may
use advances under such a credit facility, use proceeds from this offering,
issue equity securities or a combination of the foregoing in order to pay for
any such acquisitions.
Although the Company anticipates that one or more acquisitions, including
material acquisitions, may become available in the near future, the Company is
unable to predict with any reasonable degree of certainty the likelihood of any
such acquisition being completed. Consequently, no assurance can be given that
any acquisition by the Company will occur, or that any completed acquisition
will not materially and adversely affect the Company's business, operating
results or financial condition. See "Business -- Company Strategy."
Potential Effect of Shares Eligible for Future Sale. Sales of a
substantial number of shares of Common Stock in the public market following this
offering could adversely affect the market price of the Common Stock. Upon
completion of this offering, the Company will have outstanding 15,318,781 shares
of Common Stock (15,678,781 shares if the Underwriters' over-allotment option is
exercised in full), assuming no exercise of outstanding options or other
issuances under employee stock plans following March 31, 1998. Each of the
Company and its directors and executive officers, who beneficially owned an
aggregate of 1,889,704 shares of Common Stock as of March 31, 1998, has agreed
that, without the prior written consent of Morgan Stanley & Co. Incorporated on
behalf of the Underwriters, it will not, during the period ending 90 days after
the date of this Prospectus, subject to certain exceptions, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, lend
or otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock or (ii) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of the Common Stock, whether any such transaction described in (i) or (ii) above
is to be settled by delivery of Common Stock or such other securities, in cash
or otherwise. Following the expirations of such lock-up agreements, all of such
shares will be eligible for immediate sale in the public market, subject in some
cases to compliance with the volume and manner of sale requirements of Rule 144
under the Securities Act of 1933 (the "Securities Act").
Anti-Takeover Provisions in Charter Documents and Delaware Law. The
Company is subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which prohibit the Company from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
Further, the Company's Board of Directors has the authority to issue up to
2,000,000 shares of the Company's preferred stock and to fix the rights,
preferences, privileges and restrictions of those shares, including voting
rights, without any further vote or action by the stockholders. The rights of
the holders of the Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of the Company's preferred stock that may
be issued in the future. The ability of the Board of Directors to issue shares
of the Company's preferred stock without further stockholder approval, as well
as certain other provisions of the Company's Certificate of Incorporation and
Bylaws and of Delaware law, could have the effect of delaying, deferring or
preventing a change in control of the Company.
Broad Discretion over Use of Proceeds. Because the net proceeds to the
Company of this offering are allocated to general corporate purposes, including
product development, working capital and potential acquisitions, the Company's
management will have broad discretion over the application of these funds. There
can be no assurance that management will make such application effectively or in
a manner that will not result in a material adverse effect on the Company's
business, operating results and financial condition. See "-- Acquisition
Strategy" and "Use of Proceeds."
14
<PAGE> 17
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus that are not historical
facts, including, but not limited to, statements found in "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," are "forward-looking statements," as that term is
defined in Section 27A of the Securities Act and Section 21E of the Exchange
Act, that involve a number of risks and uncertainties. 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. Such forward-looking statements are based upon management's current
plans, expectations, estimates and assumptions and are subject to a number of
risks and uncertainties that could significantly affect current plans,
anticipated actions, the timing of such actions and the Company's business,
operating results and financial condition. As a consequence, actual results may
differ materially from expectations, estimates or assumptions expressed in or
implied by any forward-looking statements made by or on behalf of the Company.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$91.6 million ($108.2 million if the Underwriters' over-allotment option is
exercised in full) at an assumed public offering price of $48 5/8 per share and
after deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by the Company. The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
The Company intends to use the net proceeds of this offering primarily for
general corporate purposes including product development, working capital and
potential acquisitions. Pending such uses, the proceeds will be invested in
short-term, investment-grade, interest-bearing securities. Although there are no
current commitments or agreements regarding any potential acquisition, the
Company may from time to time acquire businesses, technologies and products that
management believes are complementary to the Company's business, technologies
and products. Consequently, some or all of the net proceeds of this offering may
be used to acquire such businesses, technologies and products. For a summary of
certain risks associated with any such use of proceeds, see "Risk
Factors -- Acquisition Strategy."
DIVIDEND POLICY
The Company anticipates that all earnings subsequent to this offering, if
any, will be retained to finance the growth and development of the business and,
therefore, the Company does not anticipate paying cash dividends on its Common
Stock in the foreseeable future. Future dividends, if any, will be determined by
the Company's Board of Directors. Prior to the Company's reorganization on March
30, 1995, certain of its predecessor companies paid dividends to their S
Corporation stockholders.
15
<PAGE> 18
PRICE RANGE OF COMMON STOCK
The Common Stock has been quoted on the Nasdaq National Market under the
symbol "JDAS" since the Company's initial public offering on March 15, 1996. The
following table sets forth, for the periods indicated, the high and low sale
prices per share of the Common Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Calendar 1996
First Quarter (from March 15, 1996)....................... $13 1/4 $11 1/4
Second Quarter............................................ 26 11 7/8
Third Quarter............................................. 29 14 1/4
Fourth Quarter............................................ 39 3/8 26 1/2
Calendar 1997
First Quarter............................................. $30 3/8 $19
Second Quarter............................................ 34 5/8 17 1/4
Third Quarter............................................. 38 3/4 28 3/4
Fourth Quarter............................................ 45 7/8 27 1/2
Calendar 1998
First Quarter............................................. $55 $27 1/4
Second Quarter (through May 4, 1998)...................... 59 1/8 47
</TABLE>
On May 4, 1998, the last reported sale price of the Common Stock on the
Nasdaq National Market was $48 5/8 per share. There were approximately 100
holders of record and approximately 3,300 beneficial holders of the Common Stock
on April 24, 1998.
16
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998, and as adjusted to give effect to the receipt and application by
the Company of the estimated net proceeds from the sale of 2,000,000 shares of
Common Stock offered by the Company hereby (at an assumed public offering price
of $48 5/8 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company) and the
application of the net proceeds therefrom. See "Use of Proceeds." The table
should be read in conjunction with the Company's consolidated financial
statements and related notes and the other information included or incorporated
by reference in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Common Stock, $.01 par value per share; 18,000,000 shares
authorized; 13,318,781 outstanding and 15,318,781
shares outstanding, as adjusted(1)..................... $ 133 $ 153
Preferred Stock, $.01 par value per share; 2,000,000
shares authorized;
none issued............................................ -- --
Additional paid-in capital................................ 71,930 163,554
Retained earnings......................................... 5,601 5,601
Accumulated other comprehensive income (loss)............. (100) (100)
------- --------
Total stockholders' equity........................ 77,564 169,208
------- --------
Total capitalization......................... $77,564 $169,208
======= ========
</TABLE>
- ------------
(1) Based on the number of shares outstanding as of March 31, 1998. Excludes (i)
1,282,117 shares of Common Stock issuable upon the exercise of stock options
outstanding under the Company's stock option plans as of March 31, 1998, at
a weighted average exercise price of $24.30 per share, the issuance of
99,172 shares of which will not cause further dilution, (ii) 249,005 shares
of Common Stock reserved for option grants under the Company's stock option
plans, (iii) 1,750,000 shares of Common Stock reserved, subject to
stockholder approval, for option grants under the Company's stock option
plans and (iv) 300,000 shares of Common Stock reserved, subject to
stockholder approval, for issuance under the Company's 1998 Employee Stock
Purchase Plan.
17
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Company's consolidated financial statements and
related notes and the other information included or incorporated by reference in
this Prospectus. The "Consolidated Statement of Income Data" and "Consolidated
Balance Sheet Data" as of and for each of the years in the five-year period
ended December 31, 1997 are derived from audited consolidated financial
statements of JDA Software Group, Inc. The "Statement of Income Data" for each
of the three-month periods ended March 31, 1998 and 1997 and the "Balance Sheet
Data" as of March 31, 1998 have been derived from unaudited interim consolidated
financial statements. The unaudited interim consolidated financial statements
reflect all adjustments (consisting only of normal recurring entries) which, in
the opinion of the Company's management, are necessary for a fair presentation
of the results for the interim periods presented.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues:
Software licenses................................ $12,049 $ 7,866 $42,041 $24,296 $15,253 $12,221 $ 9,620
Consulting, maintenance and other services....... 18,844 8,978 49,730 23,544 14,831 11,608 10,701
------- ------- ------- ------- ------- ------- -------
Total revenues............................... 30,893 16,844 91,771 47,840 30,084 23,829 20,321
------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Software licenses................................ 505 200 1,145 438 159 57 305
Consulting, maintenance and other services....... 13,844 6,704 37,727 16,416 9,781 6,870 6,780
------- ------- ------- ------- ------- ------- -------
Total cost of revenues....................... 14,349 6,904 38,872 16,854 9,940 6,927 7,085
------- ------- ------- ------- ------- ------- -------
Gross profit....................................... 16,544 9,940 52,899 30,986 20,144 16,902 13,236
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Product development.............................. 4,279 2,235 11,364 6,478 3,512 1,923 1,345
Sales and marketing.............................. 3,896 2,517 12,633 7,242 5,199 3,228 2,404
General and administrative....................... 3,123 1,689 9,532 4,989 3,929 2,529 2,466
Tax related compensation to S Corporation
Stockholders(1)................................ -- -- -- -- 7,422
------- ------- ------- ------- ------- ------- -------
Total operating expenses..................... 11,298 6,441 33,529 18,709 12,640 7,680 13,637
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations...................... 5,246 3,499 19,370 12,277 7,504 9,222 (401)
Other income (expense) -- net.................... 329 356 1,407 519 (434) (221) (172)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes.................. 5,575 3,855 20,777 12,796 7,070 9,001 (573)
Provision for income taxes(1).................... 2,091 1,542 8,311 5,116 2,669 3,437 (4,886)
------- ------- ------- ------- ------- ------- -------
Net income(1)...................................... $ 3,484 $ 2,313 $12,466 $ 7,680 $ 4,401 $ 5,564 $ 4,313
======= ======= ======= ======= ======= ======= =======
Basic and diluted earnings per share............... $ .26 $ .18 $ .95 $ .64 $ .42 $ .49 $ .38
======= ======= ======= ======= ======= ======= =======
Shares used to compute basic earnings per
share(2)......................................... 13,236 13,007 13,078 12,010 10,952 11,250 11,250
Shares used to compute diluted earnings per
share(2)......................................... 13,579 13,168 13,109 12,010 10,952 11,250 11,250
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------------------------------------
1998 1997 1996 1995 1994 1993
--------- ------- ------- -------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $31,897 $27,304 $30,986 $ 498 $ 2,913 $ 216
Working capital........................................... 55,333 48,384 39,832 607 7,232 2,088
Total Assets.............................................. 92,150 83,202 59,056 27,795 11,557 6,854
Long-term liabilities..................................... 269 267 620 309 2,607 2,513
Redeemable convertible preferred stock.................... -- -- -- 15,000 -- --
Stockholders' equity (deficit)............................ 77,564 67,910 48,661 (12,292) 6,228 864
</TABLE>
- ------------
(1) Prior to March 30, 1995, certain of JDA's commonly-held predecessor
companies elected S Corporation status. The results for 1995, 1994 and 1993
include a pro forma provision for U.S. federal income taxes at statutory
rates and, for 1993, exclude tax-related compensation. Without such pro
forma provision, net income for 1995 was $5,573. In addition, in 1993 these
same companies charged to expense compensation paid to their founding
stockholders in lieu of S Corporation dividends, in order to reduce state
income tax liability.
(2) The results for 1995, 1994 and 1993 include common and equivalent shares
outstanding subsequent to the Company's reorganization on March 30, 1995.
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
JDA Software Group, Inc. ("JDA" or the "Company") is a leading
international provider of integrated enterprise-wide software products and
services that address mission-critical management information needs of the
retail supply chain. The Company's products include: merchandising, financial
and decision support systems at the corporate level; point-of-sale, back office
and distributed processing applications at the store level; and warehouse
management and logistics systems at the distribution 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.
In 1986, the Company introduced MMS, its first enterprise retail
information solution, based on the IBM AS/400 platform. The Company's
development efforts through 1993 were focused exclusively on enhancements,
revisions and upgrades to MMS, which is currently in its fourth generation
release. In 1994, the Company acquired DSS, an in-store system, from JDA
Software Services Ltd. ("JDA Canada"), a then unaffiliated Canadian company.
Since 1994, the Company has significantly increased its product development
expenditures to develop products for open platforms. As a result of these
efforts, the Company commercially released ODBMS, an open client/server
enterprise system, in September 1996, and Win/DSS, a Windows-based in-store
system, in January 1997. The Company also released Retail IDEAS, a data
warehouse system, in January 1997 and acquired WCC, a client/server warehouse
automation and management system, in connection with the acquisition of LIOCS
Corporation ("LIOCS") in April 1997.
JDA has historically derived the majority of its revenues from software
licenses and consulting, maintenance and other services relating to MMS. Total
revenues from the MMS product line represented 50% of the Company's total
revenues during the three months ended March 31, 1998 as compared with 56%, 80%
and 91% in fiscal years 1997, 1996 and 1995, 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 and
Win/DSS.
Software license revenues and consulting, maintenance and other services
revenues represented 39% and 61%, respectively, of JDA's total revenues during
the three months ended March 31, 1998, as compared with 46% and 54%,
respectively in fiscal year 1997, and 51% and 49%, respectively, in fiscal years
1996 and 1995. 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. The Company believes its ability to offer a wide range of
professional services provides it with a competitive advantage as well as
additional revenue streams. Consulting, maintenance and other services revenues
are generally more predictable and 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 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 subsidiaries and export
sales, represented 48% of total revenues for the three months ended March 31,
1998, and 55%, 43% and 39% of total revenues in fiscal years 1997, 1996 and
1995, respectively. Consulting, maintenance and other services in support of
international software licenses typically have lower gross margins than those
achieved domestically due to
19
<PAGE> 22
generally lower prevailing billing rates and/or higher costs in certain of the
Company's international markets. Therefore, significant growth in the Company's
international operations may result in further declines in gross margins on
consulting, maintenance and other services.
The Asia/Pacific region encountered unstable local economies and
significant devaluation in its currencies during the last six months of 1997 and
continuing into 1998. 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 three months ended March 31, 1998 and less than 10% of the
Company's revenues and less than 2% of income from operations in fiscal year
1997. Asia/Pacific receivables, net of reserves, were approximately 9% of the
Company's total net receivables as of March 31, 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.
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 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 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.
Prior to 1998, the Company recognized revenue in accordance with the
provisions of the American Institute of Certified Public Accountants ("AICPA")
Statement of Position No. 91-1, Software Revenue Recognition ("SOP 91-1"). Under
SOP 91-1, software license revenue is recognized upon the shipment of the
product if collection is probable and the Company's remaining obligations under
the license agreement are insignificant. Consulting services are generally
billed on an hourly basis and revenues are recognized as the work is performed.
Maintenance revenues from ongoing customer support are billed on a monthly basis
and recorded as revenue in the applicable month. The AICPA has recently adopted
Statement of Position No. 97-2, Software Revenue Recognition ("SOP 97-2"), that
supersedes SOP 91-1. The Company adopted SOP 97-2 effective January 1, 1998. The
adoption of SOP 97-2 did not have a significant impact on the Company's
financial statements for the three months ended March 31, 1998. However, there
can be no assurance that subsequent interpretations of this pronouncement by the
Company's independent auditors or the Securities and Exchange Commission 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. There can be no assurance that the Company
will not be required to adopt changes in its software licensing or services
practices to conform to SOP 97-2, or that such changes will not result in delays
or cancellations of potential sales of the Company's products.
20
<PAGE> 23
RESULTS OF OPERATIONS
The following table sets forth certain selected financial information
expressed as a percentage of total revenues for the periods indicated and
certain gross margin data expressed as a percentage of software license or
consulting, maintenance and other services revenues, as appropriate:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------ --------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses............................... 39% 47% 46% 51% 51%
Consulting, maintenance and other services...... 61 53 54 49 49
--- --- --- --- ---
Total revenues.......................... 100 100 100 100 100
--- --- --- --- ---
Cost of revenues:
Software licenses............................... 1 1 1 1 1
Consulting, maintenance and other services...... 45 40 41 34 32
--- --- --- --- ---
Total cost of revenues.................. 46 41 42 35 33
--- --- --- --- ---
Gross profit...................................... 54 59 58 65 67
--- --- --- --- ---
Operating expenses:
Product development............................. 14 13 12 14 12
Sales and marketing............................. 13 15 14 15 17
General and administrative...................... 10 10 11 10 13
--- --- --- --- ---
Total operating expenses................ 37 38 37 39 42
--- --- --- --- ---
Income from operations............................ 17 21 21 26 25
Other income (expense) -- net................... 1 2 2 1 (1)
--- --- --- --- ---
Income before income taxes........................ 18 23 23 27 24
Provision for income taxes(1)................... 7 9 9 11 9
--- --- --- --- ---
Net income(1)..................................... 11% 14% 14% 16% 15%
=== === === === ===
Gross margin on software licenses................. 96% 97% 97% 98% 99%
Gross margin on consulting, maintenance and other
services........................................ 27% 25% 24% 30% 34%
</TABLE>
- ---------------
(1) The results for 1995 include a pro forma provision for U.S. federal income
taxes at statutory rates.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
REVENUES
Total revenues for the three months ended March 31, 1998 were $30.9
million, an increase of 83% over the $16.8 million reported in the comparable
prior year period. Revenues consist of software licenses and consulting,
maintenance and other services, which represented 39% and 61%, respectively, of
total revenues during the three months ended March 31, 1998, and 47% and 53%,
respectively in the comparable prior year period.
Software Licenses. Software license revenues for the three months ended
March 31, 1998 were $12.0 million, an increase of 53% over the $7.9 million
reported in the comparable prior year period. Domestic and international
software license revenues increased 106% and 12%, respectively, between the
comparable periods. These increases resulted primarily from the Company's
worldwide expansion of its sales and marketing staff, an increase in domestic
sales of the MMS product line between such periods, and incremental sales of
ODBMS and Retail IDEAS over the comparable prior year period.
Consulting, Maintenance and Other Services. Consulting, maintenance and
other services revenues for the three months ended March 31, 1998 were $18.8
million, an increase of 110% over the $9.0 million reported in the comparable
prior year period. This increase resulted from increased software license sales
and the introduction of client/server products that require longer
implementation cycles. Although domestic
21
<PAGE> 24
consulting, maintenance and other services revenues increased 88% between the
comparable periods, nearly 60% of total revenue growth occurred in the Company's
international markets where the comparative increase was 135%.
COST OF REVENUES
Cost of software licenses was $505,000 for the three months ended March 31,
1998 and $200,000 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 such periods reflects the higher costs associated with
ODBMS and Retail IDEAS that incorporate software technology licensed from third
party suppliers. Consulting, maintenance and other services costs for the three
months ended March 31, 1998 were $13.8 million, an increase of 107% over the
$6.7 million reported in the comparable prior year period. The Company has
expanded its consulting and customer support organizations as a result of, 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 90% between the
comparable periods, and as of March 31, 1998 the Company had approximately 500
employees involved in these functions. The Company anticipates that the dollar
amount of consulting, maintenance and other services will continue to increase
as the Company expands its operations.
GROSS PROFIT
Gross profit for the three months ended March 31, 1998 was $16.5 million,
an increase of 66% over the $9.9 million reported in the comparable prior year
period. Gross profit as a percentage of total revenues decreased from 59% in the
three months ended March 31, 1997 to 54% in the comparable current year period.
This decrease was primarily attributable to an increase in consulting,
maintenance and other services revenues as a percentage of total revenues from
53% to 61% between the comparable periods. The Company did, however, increase
gross margin on consulting, maintenance and other services revenues between the
comparable periods from 25% in 1997 to 27% in 1998. The increase results from
improved utilization rates and economies of scale between periods. 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 expectation, 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 outside contractors in international markets such as the United
Kingdom to service the increased demand for installation work. The Company
currently anticipates that quarterly consulting, maintenance and other services
revenues as a percentage of total revenues will increase in 1998 compared to
1997, and accordingly, that overall gross profit as a percentage of total
revenues will be reduced as a result of the significantly lower gross margins
associated with consulting, maintenance and other services as compared to
software licenses.
OPERATING EXPENSES
Product Development. Product development expenses for the three months
ended March 31, 1998 were $4.3 million, an increase of 91% over the $2.2 million
reported in the comparable prior year period. Product development expenses as a
percentage of total revenues increased between the comparable periods from 13%
in 1997 to 14% in 1998. The Company increased its product development staff by
36% between the comparable periods to continue development efforts on ODBMS,
Win/DSS, Retail IDEAS and WCC, and to make further enhancements to the MMS
product line. In addition, certain product development activities were conducted
by the Company's services organization and by outside contractors during the
three months ended March 31, 1998. Such activities were conducted primarily by
the Company's internal product development staff in the comparable prior year
period. The Company believes that a strong commitment to product 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 it plans to add to the base code in order
22
<PAGE> 25
to shorten the deployment cycle and increase customer satisfaction. The Company
currently expects product development expenses in 1998 to be between $18 million
and $19 million as it incorporates these features into the ODBMS product and
adds similar improvements to Win/DSS and other product lines. 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.
Sales and Marketing. Sales and marketing expenses for the three months
ended March 31, 1998 were $3.9 million, an increase of 55% over the $2.5 million
reported in the comparable prior year period. Sales and marketing expenses as a
percentage of total revenues decreased between the comparable periods from 15%
in 1997 to 13% in 1998 due to the significant increase in total revenues. The
increase in absolute dollars resulted from the Company's increased sales and
marketing presence in both domestic and international markets. The Company
increased its sales and marketing staff from 52 at March 31, 1997 to 76 at March
31, 1998. The Company anticipates that sales and marketing expenses may continue
to increase in absolute dollars as the Company expands its operations.
General and Administrative. General and administrative expenses for the
three months ended March 31, 1998 were $3.1 million, an increase of 85% over the
$1.7 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 results from the
addition of administrative personnel to support the Company's domestic and
international growth. The Company anticipates that general and administrative
expenses may continue to increase in absolute dollars as the Company expands its
operations.
PROVISION FOR INCOME TAXES
The Company's effective income tax rate was 38% for the three months ended
March 31, 1998 compared with a rate of 40% in the comparable prior year period.
This rate reflects statutory federal, state and foreign tax rates, partially
offset by a reduction for research and development expense tax credits.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES
Total revenues for 1997 were $91.8 million, an increase of 92% over the
$47.8 million reported in 1996. Revenues consist of software licenses and
consulting, maintenance and other services, which represented 46% and 54%,
respectively, of total revenues during 1997, and 51% and 49%, respectively in
1996.
Software Licenses. Software license revenues for 1997 were $42.0 million,
an increase of 73% over the $24.3 million reported in 1996. Domestic and
international software license revenues for 1997 increased 44% and 101%,
respectively, over 1996. These increases resulted primarily from the Company's
expanded sales and marketing efforts worldwide, the incremental sales of the
Company's newer product lines such as ODBMS, Win/DSS and Retail IDEAS over the
prior year, and an increase in average transaction size.
Consulting, Maintenance and Other Services. Consulting, maintenance and
other services revenues for 1997 were $49.7 million, an increase of 111% over
the $23.5 million reported in 1996. This increase resulted from increased
software license sales and the introduction of client/server products that
require longer installation cycles. Although domestic consulting, maintenance
and other services revenues increased 62% between the comparable years, nearly
two-thirds of this revenue growth occurred in the Company's international
markets where the comparative increase was 197%.
COST OF REVENUES
Cost of software licenses was $1.1 million and $438,000 in 1997 and 1996,
respectively, representing 3% and 2% of software license revenues in the
respective periods. Consulting, maintenance and other services costs for 1997
were $37.7 million, an increase of 130% over the $16.4 million reported in 1996.
The Company has expanded its consulting and customer support organizations as a
result, and in anticipation of, 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 98% during 1997, and
as of December 31, 1997, the Company had 430 employees involved in these
functions.
23
<PAGE> 26
GROSS PROFIT
Gross Profit for 1997 was $52.9 million, an increase of 71% over the $31.0
million reported in 1996. Gross profit as a percentage of total revenue
decreased from 65% in 1996 to 58% in 1997. This decrease was primarily
attributable to an increase in consulting, maintenance and other services
revenues as a percentage of total revenues in 1997. In addition, the Company's
gross margins on consulting, maintenance and other services revenues decreased
from 30% in 1996 to 24% in 1997 as a result of the rapid expansion of the
consulting infrastructure, including high front-end recruiting, training and
downtime costs associated with the hiring of 213 consultants during 1997.
Consulting, maintenance and other services margins were also reduced by the
higher costs associated with the Company's use of up to 65 outside contractors
in the United Kingdom during the second half of 1997 to service the increased
demand for installation work in that market. The Company's objective is to
improve its consulting, maintenance and other services margins during 1998 by
gradually replacing these contractors with full-time staff and improving
utilization rates and economies of scale, particularly with respect to the
installation of the ODBMS client/server product.
OPERATING EXPENSES
Product Development. Product development expenses for 1997 were $11.4
million, an increase of 75% over the $6.5 million reported in 1996. Product
development expenses as a percentage of total revenues decreased from 14% in
1996 to 12% in 1997. The increase in absolute dollars resulted from increases in
the Company's product development staff to continue 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 1997 were $12.6
million, an increase of 74% over the $7.2 million reported in 1996. Sales and
marketing expenses as a percentage of total revenues decreased from 15% in 1996
to 14% in 1997. The increase in absolute dollars results from the Company's
increased sales and marketing presence in both domestic and international
markets. The Company increased its sales and marketing staff from 49 as of
December 31, 1996 to 73 as of December 31, 1997.
General and Administrative. General and administrative expenses for 1997
were $9.5 million, an increase of 91% over the $5.0 million reported in 1996.
General and administrative expenses as a percentage of total revenues were 11%
and 10% in 1997 and 1996, respectively. The increase in absolute dollars results
from the addition of administrative personnel to support the Company's domestic
and international growth and from a $2.0 million increase in the allowance for
doubtful accounts during 1997, including $1.0 million in specific reserves for
receivables originating in the Asia/Pacific region.
PROVISION FOR INCOME TAXES
The Company's effective income tax rate was 40% for both 1997 and 1996.
This rate reflects statutory federal, state and foreign tax rates, partially
offset by a reduction for research and development expense tax credits.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES
Total revenues for 1996 were $47.8 million, an increase of 59% over the
$30.1 million in 1995. The increase in total revenues was primarily due to
increases in software licenses resulting from expanded sales and marketing
efforts both domestically and internationally, combined with increases in
consulting, maintenance and other services from associated implementations. To a
lesser extent, the increase in total revenues in 1996 was also the result of the
software license revenues generated by the Company's commercial release of its
ODBMS software in September 1996 and revenues generated by JDA Canada which was
acquired by the Company in August 1996.
International revenues comprised 43% and 39% of total revenues in 1996 and
1995, respectively. This increase in international revenues as a percentage of
total revenues was primarily attributable to increased revenues in Latin
America, the Pacific Rim and Europe resulting from the Company's expanded sales
and marketing efforts in those markets, including efforts in new geographic
locations within those markets. The
24
<PAGE> 27
increase in international revenues in 1996 was also the result of the
acquisition of JDA Canada in August 1996 and the related increase in revenues in
Canada.
Software Licenses. Software license revenues increased 59% to $24.3
million in 1996 from $15.3 million in 1995. The increase was primarily
attributable to the expansion of the Company's sales and marketing efforts in
all markets and, to a lesser extent, to the commercial release of ODBMS in
September 1996 and the acquisition of JDA Canada in August 1996.
Consulting Maintenance and Other Services. Consulting, maintenance and
other services revenues increased 59% to $23.5 million in 1996 from $14.8
million in 1995. The increase was primarily attributable to increased software
license revenues and associated implementations both domestically and
internationally.
COST OF REVENUES
Cost of software licenses was $438,000 and $159,000 in 1996 and 1995,
respectively, representing 2% and 1% of software license revenues in the
respective periods. Cost of consulting, maintenance and other services was $16.4
million and $9.8 million, representing 70% and 66% of consulting, maintenance
and other services revenues, in 1996 and 1995, respectively. The increase in
these costs as a percentage of consulting, maintenance and other services
revenues was primarily due to the increased percentage of consulting,
maintenance and other service revenues attributable to international
installations, which typically generate lower gross margins than those achieved
domestically due to generally lower prevailing billing rates in certain of the
Company's international markets.
GROSS PROFIT
Gross profit for 1996 was $31.0 million, an increase of 54% over the $20.1
million reported in 1995. Gross profit as a percentage of total revenues
decreased from 67% in 1995 to 65% in 1996. This decrease resulted primarily from
the higher mix of international consulting, maintenance and other services
revenues, which typically have lower gross margins than those achieved
domestically.
OPERATING EXPENSES
Product Development. Product development expenses increased by 84% from
$3.5 million in 1995 to $6.5 million in 1996, representing 12% and 14%,
respectively, of total revenues in those periods. Increased product development
expenses were primarily a result of an increase in the number of product
development personnel from 48 as of December 31, 1995 to 90 as of December 31,
1996. Significant product development efforts in 1995 included the continued
development and initial beta release of ODBMS, continued enhancements to MMS and
initial development of Win/DSS. Significant product development efforts in 1996
included the continued development of ODBMS and Win/DSS and continued
enhancements to MMS.
Sales and Marketing. Sales and marketing expenses increased 39% to $7.2
million in 1996 from $5.2 million in 1995, representing 15% and 17% of total
revenues in those respective periods. Sales and marketing expenses increased in
absolute dollars in 1996 due to continued additions to sales and marketing
personnel and related expenses, but decreased as a percentage of total revenues
due to the significant increase in total revenues.
General and Administrative. General and administrative expenses increased
by 27% to $5.0 million in 1996 from $3.9 million in 1995, representing 10% and
13% of total revenues in those periods, respectively. The increase in absolute
dollars of general and administrative expenses in 1996 was primarily due to the
continued addition of personnel and increased legal and accounting expenses.
PROVISION FOR INCOME TAXES
The Company's effective income tax rate was 40% in 1996. The effective rate
reflects statutory federal, state and foreign tax rates, partially offset by a
reduction for research and development expense tax credits. Prior to March 30,
1995, certain of JDA's predecessor companies elected S Corporation status. As a
result, the Company's statement of income for the first quarter of 1995 does not
contain a provision for federal income taxes. The 1995 Consolidated Statement of
Income reflects a pro forma adjustment for federal income taxes and an effective
rate of 38%.
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<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statement of
income data, both in absolute dollars and as a percentage of total revenues
(except for gross margin data), for each of the Company's last five quarters.
This data has been derived from unaudited consolidated financial statements that
have been prepared on the same basis as the annual consolidated financial
statements and, in the opinion of the Company, include all adjustments
(consisting only of normal adjustments) necessary for a fair presentation of
such information. These unaudited quarterly results should be read in
conjunction with the Company's consolidated financial statements and related
notes and the other information included or incorporated by reference in this
Prospectus. The consolidated results of operations for any quarter are not
necessarily indicative of the results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------
MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31,
1998 1997 1997 1997 1997
-------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses......................................... $12,049 $14,552 $10,066 $ 9,557 $ 7,866
Consulting, maintenance and other services................ 18,844 15,603 13,609 11,540 8,978
------- ------- ------- ------- -------
Total revenues...................................... 30,893 30,155 23,675 21,097 16,844
Cost of Revenues:
Software licenses......................................... 505 454 258 233 200
Consulting, maintenance and other services................ 13,844 11,723 10,207 9,093 6,704
------- ------- ------- ------- -------
Total cost of revenues.............................. 14,349 12,177 10,465 9,326 6,904
------- ------- ------- ------- -------
Gross profit................................................ 16,544 17,978 13,210 11,771 9,940
------- ------- ------- ------- -------
Operating expenses:
Product development....................................... 4,279 4,031 2,747 2,351 2,235
Sales and marketing....................................... 3,896 3,822 3,235 3,059 2,517
General and administrative................................ 3,123 3,317 2,119 2,407 1,689
------- ------- ------- ------- -------
Total operating expenses............................ 11,298 11,170 8,101 7,817 6,441
------- ------- ------- ------- -------
Income from operations...................................... 5,246 6,808 5,109 3,954 3,499
Other income.............................................. 329 366 321 364 356
------- ------- ------- ------- -------
Income before income taxes.................................. 5,575 7,174 5,430 4,318 3,855
Provision for income taxes................................ 2,091 2,870 2,171 1,728 1,542
------- ------- ------- ------- -------
Net income.................................................. $ 3,484 $ 4,304 $ 3,259 $ 2,590 $ 2,313
======= ======= ======= ======= =======
Basic and diluted earnings per share........................ $ .26 $ .33 $ .25 $ .20 $ .18
======= ======= ======= ======= =======
Shares used to compute:
Basic earnings per share.................................. 13,236 13,151 13,112 13,040 13,007
Diluted earnings per share................................ 13,579 13,208 13,219 13,197 13,168
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
Software licenses......................................... 39% 48% 43% 45% 47%
------- ------- ------- ------- -------
Consulting, maintenance and other services................ 61 52 57 55 53
------- ------- ------- ------- -------
Total revenues...................................... 100 100 100 100 100
Cost of revenues:
Software licenses......................................... 1 1 1 1 1
Consulting, maintenance and other services................ 45 39 43 43 40
------- ------- ------- ------- -------
Total cost of revenues.............................. 46 40 44 44 41
------- ------- ------- ------- -------
Gross profit................................................ 54 60 56 56 59
------- ------- ------- ------- -------
Operating expenses:
Product development....................................... 14 13 11 11 13
Sales and marketing....................................... 13 13 14 15 15
General and administrative................................ 10 11 9 11 10
------- ------- ------- ------- -------
Total operating expenses............................ 37 37 34 37 38
------- ------- ------- ------- -------
Income from operations...................................... 17 23 22 19 21
Other income.............................................. 1 1 1 1 2
------- ------- ------- ------- -------
Income before income taxes.................................. 18 24 23 20 23
Provision for income taxes................................ 7 10 9 8 9
------- ------- ------- ------- -------
Net income.................................................. 11% 14% 14% 12% 14%
======= ======= ======= ======= =======
Gross margin on software licenses........................... 96% 97% 97% 98% 97%
Gross margin on consulting, maintenance and other
services.................................................. 27% 25% 25% 21% 25%
</TABLE>
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<PAGE> 29
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 $55.3 million at March 31, 1998 compared with $48.4
million at December 31, 1997. Cash and cash equivalents at March 31, 1998 were
$31.9 million, an increase of $4.6 million from the $27.3 million reported at
December 31, 1997.
Operating activities provided cash of $2.3 million during the three months
ended March 31, 1998 and $2.1 million, $6.1 million, and $5.5 million in the
years ended December 31, 1997, 1996 and 1995, respectively. The Company had net
accounts receivable of $33.7 million and $32.4 million at March 31, 1998 and
December 31, 1997, respectively, which represented 98 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 $3.9 million during the three months
ended March 31, 1998, utilized cash of $12.4 million in fiscal year 1997,
provided cash of $8.6 million in fiscal year 1996, and utilized cash of $16.1
million in fiscal year 1995. The activity in the three-month period represents
capital expenditures to support the Company's growth. The fiscal year 1997
activity includes $10.8 million in capital expenditures to support the Company's
growth and an initial payment of $1.6 million for the purchase of LIOCS and the
fiscal year 1996 activity includes the redemption of $14.6 million in restricted
short-term investments acquired during fiscal year 1995 and capital expenditures
of $6.2 million.
Financing activities provided cash of $6.0 million during the three months
ended March 31, 1998 and $7.4 million, $15.4 million and $8.2 million during the
years ended December 31, 1997, 1996 and 1995, respectively. The activity in the
three-month period consists primarily of proceeds from the issuance of stock and
related tax benefits. The fiscal year 1997 activity includes $8.0 million in
proceeds from the issuance of stock and related tax benefits. The fiscal year
1996 activity includes the issuance of 2,182,866 shares of Common Stock for
$25.3 million in an initial public offering on March 20, 1996, the net proceeds
of which were offset by the repayment of stockholder notes and the redemption of
preferred stock, and the issuance of 600,000 shares of Common Stock by the
Company for $15.5 million in a secondary offering on November 26, 1996.
Changes in the currency exchange rates of the Company's foreign operations
had the effect of increasing cash by $205,000 during the three months ended
March 31, 1998, and reducing cash by $743,000 in fiscal year 1997. The Company
did not enter into any foreign exchange contracts or engage in similar hedging
strategies during any 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.
Although the Company is in negotiation for a credit facility which may include
up to $35 million in funds which may be used for acquisitions by the Company,
there can be no assurance that such financing will be available on acceptable
terms, if at all.
The Company maintains a $5.0 million line of credit with a commercial bank.
The line of credit 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. The line of credit matures on July 1, 1998, and the Company intends
to seek renewal at that time. There were no amounts outstanding on the line of
credit as of March 31, 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.
27
<PAGE> 30
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 will
coordinate 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 on 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 financial condition.
The Company is currently reviewing its internal management information and
other systems in order to identify and modify those products, services or
systems that are not Year 2000 compliant. 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. These costs and the
timing in which the Company plans to complete its Year 2000 modification and
testing processes 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, that remedial efforts will not involve
significant time and expense, or that such problems will not have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company also 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 timely 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. Also, no
assurance can be given that Year 2000 problems within the Company's 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.
28
<PAGE> 31
BUSINESS
JDA Software Group, Inc. ("JDA" or the "Company") is a leading
international provider of integrated enterprise-wide software products and
services that address mission-critical management information needs of the
retail supply chain. The Company offers a broad array of software products
designed to provide integrated technology solutions for the collection,
organization and analysis of data and the distribution of information throughout
a retail organization. The Company's products include: merchandising, financial
and decision support systems at the corporate level; point-of-sale, back office
and distributed processing applications at the store level; and warehouse
management and logistics systems at the distribution level. The Company offers
products that operate on IBM AS/400-based and DOS-based platforms, as well as
products that operate in the UNIX and Windows NT open client/server
environments. 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.
The Company's products and services are marketed and sold primarily through
JDA's direct sales force and through cooperative relationships with sales
agents, distributors and other vendors, including IBM and Siemens Nixdorf. The
Company's solutions have been licensed to more than 300 retail enterprises
worldwide and address a wide variety of retail markets, including hard and soft
lines retailers, warehouse operations, department stores and grocery stores. The
Company's customers include many of the world's leading specialty retailers such
as Bed, Bath and Beyond, Inc., CompUSA, Inc., Gucci SpA, LensCrafters, Inc.,
Office Depot International, Oshman's Sporting Goods, Inc., PETCO Animal
Supplies, Inc., Planet Hollywood International, Royal Duty Free Shop, Inc.,
Sears Clothing Ltd., Staples, Inc., Stride Rite Children's Group, Inc., Virgin
Entertainment Group, Inc. and Williams-Sonoma, Inc.
INDUSTRY BACKGROUND
The retailing industry is experiencing rapid change, driven primarily by
changing consumer preferences, intensifying competition and increasing
globalization. Consumers' purchase patterns have shifted, with today's consumer
choosing value, in the form of lower prices and improved convenience and
personal service, over brand and retailer loyalty. The result for many retailers
has been increased pressure on operating profits as they try to lower prices and
increase marketing and promotions to increase traffic in stores in order to
increase sales. In addition, new retail formats, such as the "category killer"
format employed by retailers such as Staples and PETCO, have enjoyed broad
market acceptance and are setting the standards for lower prices and improved
customer service. To exploit international growth opportunities a number of
retailers are seeking to apply their concepts outside their domestic markets.
Despite the significant challenges in the retail industry, many retailers have
successfully achieved efficiencies and reduced operating costs by improving
inventory management, decentralizing the decision making process while
centralizing purchasing and other administrative functions, deploying state of
the art information technology and pursuing aggressive roll-out strategies to
achieve economies of scale.
To respond to today's competitive challenges, retailers must accelerate the
rate at which they identify and respond to changing business conditions and
consumer requirements. A retail organization's agility and ultimate success are
dependent upon its ability to rapidly and cost-effectively collect, organize and
analyze data, and disseminate information throughout the enterprise to
facilitate effective business decisions. Such information provides a basis for
critical product, marketing, inventory, pricing and human resource decisions. In
addition, inventory management has become more complicated as retailers seek to
reduce costs and improve margins while replenishing inventory on a just-in-time
basis. Accordingly, retailers are demanding more sophisticated purchasing,
inventory management and merchandising tools that enable them to distribute and
manage goods efficiently. Retailers are also increasingly restructuring existing
operations so that consumers interact effectively with the entire enterprise
from a single store location. This requires store level personnel and decision
makers throughout an enterprise to have a common base of readily available sales
and inventory information and that in-store personnel have the ability to more
rapidly respond to consumers' needs. To meet their increasing requirements for
information, retailers seek information systems that are adept at handling large
volumes of transactions, possess a high degree of reliability, accommodate peak
load and seasonal requirements and rapidly capture and analyze data and
distribute information throughout the
29
<PAGE> 32
geographically dispersed parts of the enterprise. Moreover, global retailers
require applications that support the specialized requirements of international
business, including local language support, multiple currencies, import/export
costing and foreign tax and regulatory requirements. Retailers are also seeking
solutions that address emerging technical and business issues, such as Year 2000
compliance and the increased prevalence of electronic commerce.
Historically, information technology in the retail supply chain has
consisted largely of separate legacy applications at the corporate, store and
distribution levels. These legacy applications have primarily been host-centric
systems that operate on mainframe or mid-range computers. These systems,
developed and modified internally over many years or licensed from third
parties, represent considerable investments by retailers and have provided
benefits within their distinct roles. However, they generally do not have the
flexibility to support diverse and changing operations within a customer's
business or to respond effectively to changing technologies. Additionally, these
solutions have only targeted distinct levels of the retail supply chain such as
the corporate or in-store levels, and have not generally provided the full
benefits of integration, which allows information to be distributed effectively
throughout the retail enterprise. Despite these limitations, many host-centric
systems are still being widely deployed for retail applications because of their
strengths in particular segments, as well as to preserve significant hardware
and software investments. Furthermore, retailers have historically been cautious
in adopting new technologies due to the real-time, transaction-intensive nature
of retailing and the economic consequences of disruptions to their operations.
Despite their reservations, retailers are recognizing the strategic
imperative of employing technology to cut costs, reduce inefficiencies and
enhance sales in an increasingly competitive environment dominated by
value-conscious consumers. The development of distributed client/server
computing has created a technological framework for software applications that
are adaptable, integrated and tailored for the retail supply chain.
Additionally, improved hardware price/performance and database capabilities on
platforms such as the IBM AS/400 have improved the capabilities of the
information systems that can leverage retailers' existing hardware investments.
As a result, retailers are demanding highly functional, easy to use and
scaleable software applications that can be economically and rapidly implemented
and adapted for changes in their mission-critical business functions. The
Company believes that the adoption of new information technologies by retailers
will accelerate as competitive pressures increasingly necessitate the ability to
change business practices quickly and to empower employees with the information
and tools to respond to consumer requirements.
JDA SOLUTION
JDA is a leading international provider of integrated enterprise-wide
software products and related services that address mission-critical management
information needs throughout the retail supply chain. The Company's product
suite is designed to provide integrated technology solutions for the collection,
organization, distribution and analysis of data throughout a retail
organization. At the corporate level, the Company offers two merchandise
management systems, Merchandise Management System ("MMS") for the IBM AS/400
platform, and Open Database Merchandising System ("ODBMS") for open
client/server environments, that distribute data throughout the retail
enterprise and enable management to make more informed and timely decisions,
respond more rapidly to changes in the competitive environment, monitor
store-level activity and achieve greater operating efficiencies. The Company's
in-store systems, DOS-based Distributed Store System ("DSS") and Windows-based
Win/DSS, register transactions at the point-of-sale, capture individual consumer
profiles and demographic information, and leverage enterprise-wide information
such as stock availability, pricing and inventory replenishment by bringing it
to the store level. The Company also offers Warehouse Control Center ("WCC") for
management of the storage and flow of inventory within the warehouse or
distribution center. The Company also offers Retail IDEAS, a multi-platform
client/server data warehouse system that provides retailers with powerful
application tools for analyzing their business, monitoring strategic plans and
supporting tactical actions. Finally, the Company provides a wide range of
professional services designed to enable customers to rapidly achieve the
benefits of the Company's software products. These services, known as Optimum
Pathways, include project management, system planning, design and
implementation, custom modifications, training and support services.
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The Company's solutions are designed to provide the following benefits to
retailers:
Enhanced Decision Making Capabilities. The Company's products are designed
to identify and highlight the most relevant information from large volumes of
transaction and work-flow data. By collecting and distributing valuable
enterprise-wide information, the Company's solutions enable retailers to make
more informed and timely decisions, to quickly adapt their products and
operations to changes in competition and consumer preferences, and to maximize
operational efficiencies.
Fully Integrated Adaptable Solutions. The Company offers an integrated
suite of software products that enables retailers to respond to consumer demand
at the point-of-sale and distribute that information throughout the enterprise.
These products link point-of-sale level information with the centralized
merchandising and financial functions that ultimately affect decisions with
suppliers and vendors. The Company's integrated corporate, in-store and
distribution products operate a range of applications and function seamlessly
with each other's databases, enabling greater speed, data integrity and ease of
modification. The Company's newer products, ODBMS and Win/DSS, are designed to
be adaptable and easily configured by customers to meet their specialized and
evolving needs.
Improved Inventory Planning and Distribution Logistics. The Company's
enterprise-wide solutions are designed to help retailers achieve operating
efficiencies by automating the collection and analysis of data from key
functions, such as the management of inventory, distribution and merchandising,
and providing decision makers with access to critical supply chain information.
JDA provides retailers with tools for vendor analysis, stock status monitoring,
sales capture and analysis, merchandise allocation and replenishment, purchase
order management, distribution center management and other important activities
that enable retailers to improve gross margins and return on inventory
investment through increased inventory turnover, reduced inventory investment,
reduced clearance mark-downs and more efficient management of ordering and
distribution.
Increased Responsiveness to Consumer Needs. The Company's solutions help
retailers better understand and fulfill consumer needs. With the Company's
enterprise systems, retailers can explore "what if" merchandising plans, track
and analyze performance, and adjust quickly to market changes and consumer
purchase patterns, all to help ensure that the appropriate pricing and
merchandise mix is available to the consumer at the point-of-sale. The Company's
in-store software products provide enterprise information at the point-of-sale
enabling store level personnel to track the preferences of individual consumers
and provide a higher level of personalized service.
Ease of Implementation. The Company's products are specifically designed
to meet the needs of the retail industry, and the Company's consulting,
maintenance and other services organization is primarily comprised of
individuals who are trained for and experienced with system implementations in
the retail environment. The Company's newer products, ODBMS and Win/DSS, are
designed to be easily configured by customers to meet their specialized and
evolving needs. As a result, the Company believes it offers rapid, low cost
implementations, which are generally accomplished within three to twelve months.
COMPANY STRATEGY
JDA's objective is to strengthen its position by providing a comprehensive
suite of software solutions that address the mission-critical management
information needs of the retail supply chain. Key elements of the Company's
strategy to achieve this objective are as follows:
Leverage Retail Application Knowledge Base. The Company intends to
continue to leverage its retail industry knowledge base to provide comprehensive
integrated solutions to retailers. The Company believes its in-depth
understanding of retailers' requirements accumulated from its twelve-year
history and over 300 retail customers differentiates it from competitors and
provides a significant advantage in securing new customers. The Company further
augments its knowledge through ongoing customer consulting engagements and
interaction with its user group.
Expand Product Sales to Existing Customers. The Company's products are
designed to meet the enterprise-wide needs of the retail supply chain. Although
most organizations initially deploy one or more of the Company's products in an
organization, the Company believes that initial customer success can lead to
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opportunities for additional sales of products to other parts of the
organization. The Company has a significant installed base of customers from its
twelve-year history to which it intends to market and sell additional products
and services. In addition, the Company believes that references from its
installed base will also provide assistance in making additional sales to new
customers.
Provide High Quality Professional Services. The Company believes that its
high-quality consulting, implementation, support and training services enable
the Company to achieve a high level of customer satisfaction, strong customer
references and long-term relationships as well as facilitate software
improvements based on customer feedback. With the release of its new
client/server products, the Company intends to continue to invest in its
professional services organization to provide better service to its customers.
The Company also plans to continue to provide innovative offerings such as
Direct Path, a streamlined approach for implementing MMS within three months in
order to help respond to customers' Year 2000 requirements well into 1999. In
addition, the Company plans to leverage its cooperative relationships with IBM's
Global Services Division and Siemens Nixdorf to compliment its internal
professional services organization in international markets.
Expand Presence in International Markets. The Company intends to expand
its international presence by continuing to develop localized versions of its
products and investing directly in strategic markets by establishing additional
international operations with local direct sales and consulting personnel, and
through cooperative relationships with companies with established international
presence, such as IBM and Siemens Nixdorf. To date, the Company has established
international offices in Australia, Canada, Chile, France, Germany, Mexico,
Singapore, South Africa and the United Kingdom, and plans to continue to expand
its worldwide infrastructure in order to provide additional localized products
and implementation services.
Enhance Solutions for Evolving Customer Needs. The Company will continue
to develop and offer products and services that address emerging technological
and financial issues confronting retailers such as Year 2000 compliance,
adoption of a common Eurocurrency, and the growth of electronic commerce. JDA's
Direct Path implementation methodology for MMS is designed to quickly address
the requirements of retailers whose systems are not yet Year 2000 compliant.
Eurocurrency functionality has been incorporated into the Company's open
client/server products and the Company currently plans to add Eurocurrency
functionality to its IBM AS/400 products. JDA is implementing a development
strategy to Web-enable ODBMS, MMS and Retail IDEAS. The Company continues to
work on adding additional features and functionality to its product suite.
Further Develop and Leverage Strategic Relationships. The Company intends
to continue to establish strategic business relationships for the development of
products that complement the Company's current software solutions or enhance the
delivery of professional services. The Company has a number of cooperative
relationships with system integrators, other software vendors and retail systems
consulting groups, including, among others, IBM, Siemens Nixdorf, Lawson
Software ("Lawson"), Ernst & Young and Andersen Consulting. The Company believes
these relationships can provide the Company with greater access to international
markets, greater market presence and a greater opportunity to increase its
customer base and sales.
Acquire Complementary Businesses, Products and Technologies. The Company
intends to pursue acquisition opportunities for complementary businesses,
products and technologies in order to add to its current product offerings and
increase its market share. The Company believes that such acquisitions will also
assist its efforts to leverage its installed base.
PRODUCTS
The Company offers a suite of software products which collects, organizes
and analyzes data and distributes information throughout a retail organization.
The Company's products are designed to provide an end-to-end supply chain
solution for the mission-critical components of retailing operations -- from the
planning and purchasing functions through the distribution and final sale of
goods. The Company offers merchandising, financial and decision support systems
at the corporate level, point-of-sale, back office and distributed processing
applications at the store level, and warehouse management and logistics systems
at the
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distribution level. The Company also offers a data warehouse system for the
analysis of information throughout the retail supply chain.
The following table summarizes certain key functions of the retail
enterprise addressed by the Company's products:
[CHART DEPICTING CERTAIN FEATURES AND FUNCTIONALITY OF JDA PRODUCTS]
Merchandise Management Systems
The Company's merchandise management systems process high volumes of
information to provide decision support for inventory control, cost and price
management, purchase order management, automated replenishment, merchandise
planning, transfer management and allocation. Merchandise management systems
distribute data throughout the retail enterprise and enable management to make
more informed and timely decisions, respond more rapidly to changes in the
competitive environment, monitor store-level activity and achieve greater
operating efficiencies. The Company's merchandise management systems can be
integrated with in-store, warehouse and logistics products designed by the
Company or by third parties. The Company offers two merchandise management
systems: MMS for the IBM AS/400 platform and ODBMS for open client/server
environments. Both systems are comprised of functional modules that are selected
by the customer and can be configured to fit the customer's unique requirements.
MMS was first introduced in 1986 and was specifically designed to take
advantage of the IBM AS/400 database and operating environment. MMS can be
configured by the retailer to adapt to changing strategies and prevailing
competitive conditions by performing product price analyses based upon key data
such as gross margin, sales velocity and competitive prices. The product can
then recommend and automate price changes based on the retailer's specifically
defined pricing strategies. To date, the Company has performed over 250 MMS
implementations worldwide. The Company has continued to invest in the
development and enhancement of MMS to address the requirements of a broad
spectrum of retailing formats and processes.
ODBMS, which was commercially released in September 1996, offers the same
core functionality of MMS, excluding the general ledger, accounts payable and
accounts receivable modules of MMS's retail sales accounting system, and also
offers, through its open client/server architecture, enhanced adaptability and
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scaleability. ODBMS is capable of operating with Oracle and Informix relational
database management systems running on Windows NT and the most popular UNIX
platforms. ODBMS is designed to support the information requirements of
international, multi-format retail organizations and features support for
multiple concurrent languages and currencies, user-specific nomenclature and
user-defined data structures and hierarchies. Thus, an international retailer
can centrally establish a product margins objective and apply it to local market
rules, including currency conversions, applicable taxation and rounding
algorithms, to determine final pricing at each location. The Company is party to
a co-marketing agreement with Lawson to develop interfaces between ODBMS and
Lawson's client/server business applications, which provide financial, human
resource, procurement and supply-chain management for the retail industry, and
which are Web-deployable.
License fees for the Company's merchandise management systems vary
depending upon a number of factors, including the size and complexity of the
retail operation and the modules chosen. License fees have generally ranged from
$250,000 to $750,000 for MMS, and from $500,000 to in excess of $1.0 million for
ODBMS.
In-Store Systems
The Company offers two in-store systems: DSS for DOS-based platforms and
Win/DSS for the Windows environment. The Company's in-store systems are designed
to enable a retailer to capture and analyze in-store operations information and
transmit such information to corporate-level systems for sales and other
analysis. These systems also allow store-level personnel to access valuable
enterprise-wide information to better serve the consumer at the point-of-sale.
DSS and Win/DSS are comprised of functional modules that are selected by the
customer and can be configured to fit the customer's unique requirements.
DSS can be licensed independently and utilized with a customer's existing
merchandise management system, or it can work in concert with the Company's MMS
merchandise management system, to provide the retailer the ability to manage
information through a wide range of retail operations. A typical installation of
DSS enables the retailer to perform a number of individual store-level functions
and support back office, store inventory and point-of-sale operations. For
example, store managers can use DSS to measure the results of a store
promotional event. In addition, DSS enables retailers to track the preferences
of individual consumers and provide a higher level of personalized service.
Win/DSS incorporates the core functionality of DSS with the enhanced
capabilities of the Windows platforms. Win/DSS incorporates an object-oriented
software design that is capable of arranging retail business processes to adapt
to a retailer's specialized and evolving requirements. For example, a retailer
can utilize the Win/DSS multi-tasking capabilities by configuring its
point-of-sale systems to simultaneously run credit authorizations, process
transactions and update store inventory records. In addition, to reflect a more
service-oriented workflow, the customer service desk in the same store can be
configured to provide ready access to personal information and purchase
histories of individual consumers. Business information process flows can be
adapted to reflect changing store strategies during special promotions or
periods of peak consumer traffic.
License fees for the Company's in-store systems vary depending upon a
variety of factors, including the size and complexity of the retail operation
and the modules chosen, and generally have ranged from $50,000 to in excess of
$600,000.
Warehouse and Logistics Systems
The Company offers warehouse and logistics systems for client/server and
IBM AS/400 environments. WCC is a client/server system that combines the latest
automation tools, bar coding and radio frequency technologies with the benefits
of a client/server architecture. The product was acquired from LIOCS Corporation
in April 1997 and became commercially available in December 1997. WCC is a
stand-alone system that can be integrated with ODBMS or software supplied by
third-party vendors. WCC provides a variety of functions including receipt
scheduling, license plate labeling, system-directed putaway, and lot and serial
number tracking. For the IBM AS/400 platform, the Company offers warehouse
management,
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merchandise receiving and wholesale order entry modules as part of its MMS
merchandise product. License fees for these modules have generally ranged from
$50,000 to $230,000.
Data Warehouse System
Retail IDEAS is a data warehouse system developed jointly with Silvon
Software, Inc. ("Silvon") that provides a comprehensive set of tools for
analyzing business results, monitoring strategic plans and enabling tactical
decisions. Retail IDEAS is currently available on the IBM AS/400 and Windows NT
platforms, and is under development for UNIX platforms. Retail IDEAS is designed
as a packaged offering that enables retailers to monitor vendor performance,
promotional effectiveness and distribution center productivity, and to analyze
financial measurements related to sales and inventory, margins and
profitability, merchandise categories and items, open and suggested orders, and
promotional and pricing events. The product integrates with the Company's MMS
product and may also be used with non-JDA transactional systems. Integration
with ODBMS is under development.
CONSULTING, MAINTENANCE AND OTHER SERVICES
The Company provides a wide range of professional services designed to
enable customers to rapidly achieve the benefits of the Company's software
products. These services, known as Optimum Pathways, include project management,
system planning, design and implementation, custom modifications, training and
support services. The Company believes that its Optimum Pathways consulting
services facilitate a customer's early success with its products, strengthen its
relationship with the customer, and add to the Company's industry-specific
knowledge base for use in future implementation and product development efforts.
Although the Company's service offerings are optional, the Company has found
that substantially all of its customers utilize some or all of its services to
some degree in connection with the implementation and ongoing support of the
Company's software products. The Company believes its ability to provide these
services provides a competitive advantage, which is expected to be enhanced by a
developing cooperative relationship with IBM Global Services Division to jointly
support, distribute and implement ODBMS. As of March 31, 1998, the Company had
approximately 500 employees in its consulting, maintenance and other services
organization. The Company is pursuing a strategy to increasingly utilize
third-party consultants, such as those from major systems integrators, to assist
in certain large-scale implementations and for extensive business process re-
engineering projects.
Consulting Services
The Company's consulting services group consists of business consultants,
systems analysts and technical personnel with extensive retail industry
experience that are devoted to assisting retailers in all phases of systems
development, including systems planning and design, customer-specific
configuration of application modules, and on-site implementation or conversion
from existing systems. Consulting services are generally billed on a time and
expenses basis. The Company's consulting engagements have typically taken
between six months and one year for merchandise management systems, between
three and six months for in-store systems, between three and six months for
warehouse and logistic systems, and between two and three months for data
warehouse systems. Given the complexity of platforms on which the Company's
ODBMS and Win/DSS systems operate and the increased ability of the customer to
configure these new products to its work flows and processes, the implementation
of such systems generally requires increased levels of consulting services, as
well as longer periods of time. In order to satisfy the demands of both existing
and future customers, the Company plans to substantially increase its consulting
services personnel to support anticipated growth in product implementations. To
the extent anticipated revenues fail to materialize following the hiring and
training of such personnel, the Company's operating results would be adversely
affected.
Education and Training
The Company offers comprehensive education and training programs to its
customers, associates and business partners. The Company initiated JDA
University in 1997 as a formal education program that combines lectures,
demonstrations and hands-on exercise sessions for each of JDA's software
solutions. JDA
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University features a curriculum for each JDA system, and a full-time
administration consisting of professional instructors and course developers. The
JDA University curriculum ranges from introductory to advanced levels and
includes application training on JDA systems, technical courses on design and
data models for such systems, and developer courses for programmers and
designers. Classes are offered at in-house facilities as well as at customer
locations. Approximately 2,700 individuals attended JDA University during 1997.
Customer Support Services
The Company believes that providing business solutions along with a high
level of on-going support to its customers is a critical element in establishing
long-term relationships and maintaining a high level of customer satisfaction.
The Company offers a comprehensive support program that includes maintenance,
on-line support and help desk services. The standard maintenance support program
includes new releases and unspecified upgrades of products. Standard support
programs have historically been purchased by the majority of the Company's
customers and are generally annual contracts that are paid on a monthly basis.
For clients who have licensed DSS or Win/DSS, the Company offers a program,
known as Optimum Store Support, that features help desk services, 24 hours a
day, 7 days per week, and field upgrade support.
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CUSTOMERS
The Company has licensed its software products to more than 300 retail
customers worldwide in a wide variety of retail markets, including hard and soft
lines retailers, warehouse operations, department stores and grocery stores. The
Company generally targets customers having from 50 to over 500 store locations,
with annual sales in excess of $100 million.
The following is a partial list of the Company's customers that have
purchased at least $500,000 of the Company's products or services through March
31, 1998:
APPAREL
Bally Management Ltd.
(Switzerland)
Big M, Inc.
CHANEL, Inc.
Columbia Sportswear
Company
Filenes Basement Corp.
Footstar, Inc.
Foschini Group (Pty) Ltd.
(South Africa)
Gucci SpA (Italy)
Guess?, Inc.
InWear Group A/S
(Denmark)
Johnson's S.A. (Chile)
Moregro Retail Group, Ltd.
(South Africa)
Mothercare, U.K., Ltd. (UK)
Sainsbury's Savacentro,
Ltd. (UK)
Sears Clothing Ltd. (UK)
Stride Rite Children's
Group, Inc.
Today's Man
Wilsons The Leather Experts
AUTOMOTIVE
Chief Auto Parts, Inc.
CSK Auto, Inc.
The Retail Operations Division
of Bridgestone/ Firestone, Inc.
Western Auto Supply
Company
CONVENIENCE STORES
Fina Plc. (UK)
Petro-Canada (Canada)
CRAFTS & TOYS
Frank's Nursery & Crafts, Inc.
Lewiscraft (Canada)
DEPARTMENT STORES
Almacenes Paris Commercial
S.A. (Chile)
Beijing Wang Fu Jing Retail
Management Co. Ltd.
(China)
Cativen (Venezuela)
Royal Duty Free Shop, Inc.
(Philippines)
Specialty Department
Stores, Inc.
DRUG & COSMETICS
A.S. Watson & Co. Limited
(Hong Kong)
Bath & Body Works
Beauty Brands, Inc.
Farmatodo, C.A. (Venezuela)
MedMax, Inc.
FOOD
Calgary Co-operative Assoc.
Ltd. (Canada)
Chedraui (Mexico)
Laura Secord, Inc. (Canada)
Provigo, Inc. (Canada)
Santa Isabel (Chile)
Starbucks Corporation
Whole Foods Market, Inc.
FURNITURE, APPLIANCES &
ELECTRONICS
ABC Carpet & Home, Inc.
British Gas Energy
Centres, Ltd. (UK)
CompUSA, Inc.
Grupo Elektra (Mexico)
Heilig-Meyers Company
Onking Chain-Store Co. Ltd.
(Taiwan)
Sun Television &
Appliances, Inc.
Tandy Corporation
GENERAL MERCHANDISE
PETCO Animal Supplies, Inc.
Sky Connection Limited
(Hong Kong)
Kingfisher Group (UK)
HOME IMPROVEMENT
Eagle Hardware &
Garden, Inc.
Great Mills (Retail)
Ltd. (UK)
Intergamma BV (Netherlands)
Sodimac Chile (Chile)
Westlake ACE Hardware, Inc.
Wolohan Lumber, Inc.
HOUSEWARES
Bed, Bath & Beyond, Inc.
Lechters, Inc.
Robert Dyas Ltd. (UK)
Williams-Sonoma, Inc.
JEWELRY & CATALOG SHOWROOMS
Asprey Plc. (UK)
Carlyle & Co. Jewelers
Helzberg Diamonds, Inc.
LUGGAGE, CARDS & GIFTS
Birthdays Ltd. (UK)
Carlton Retail, Inc.
Factory Card Outlet Corp.
Party City Corporation
MUSIC, BOOKS, VIDEOS &
SOFTWARE
Books-A-Million, Inc.
Guitar Center, Inc.
HMV Group (UK)
Rogers Video
Virgin Entertainment
Group, Inc.
OFFICE PRODUCTS
Maxi-Papier-Market GMBH
(Staples-Germany)
Office Depot International
Staples, Inc. (UK and US)
OPTICAL & CAMERA
Black Photo Corporation
(Canada)
LensCrafters, Inc.
Sunglass Hut
International, Inc.
Vantios Group (UK)
Wolf Camera & Video
SPORTING GOODS
Gart Sports
JumboSports, Inc.
Mountain Equipment Co-op
(Canada)
Oshman's Sporting Goods, Inc.
West Marine, Inc.
THEME RETAIL
MCA/Universal Studios
MGM Grand, Inc.
Planet Hollywood International
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SALES AND MARKETING
The Company's worldwide sales effort is conducted primarily through a
direct sales force located in Phoenix, Arizona and through international
operations in Australia, Brazil, Canada, Chile, France, Germany, Mexico,
Singapore and the United Kingdom. Internationally, in addition to its direct
sales force, the Company leverages its cooperative relationships with sales
agents, distributors, and other vendors, including IBM in China, Columbia,
India, the Middle East and Scandinavia. Additional relationships with system
integrators, other major hardware vendors and the retail systems consulting
groups of major accounting firms are also components of the Company's sales and
marketing strategy. The Company believes these relationships provide important
product endorsements and valuable feedback as well as sales referrals.
While the sales cycle varies substantially from customer to customer, it
typically requires six to nine months from generation of the sales lead to
execution of a license agreement. Because of the complexity and technical nature
of the Company's systems, consulting and product development employees often
participate directly in the sales cycle and educate prospective customers on the
advantages of using the Company's solutions.
The Company's marketing activities are directed at increasing market
awareness of the Company's products and services and identifying prospective
customers. The execution of major agreements with customers, when agreed to by
the customer, are accompanied by press announcements and public relations
activities. The Company combines attendance at key trade shows with a limited
amount of focused advertising and direct mail campaigns to generate prospects.
In addition to these activities, the Company's marketing personnel provide
extensive support to the sales organization, including responding to requests
for proposals, conducting product demonstrations and determining hardware
specifications. The marketing organization is also responsible for corporate
communications and development of sales tools and marketing materials. As of
March 31, 1998, the Company's sales and marketing organization consisted of 37
sales and marketing personnel in the United States and 39 sales and marketing
personnel in the rest of the world.
PRODUCT DEVELOPMENT AND JDA TECHNOLOGY
The Company has invested and expects to continue to invest substantial
resources in research and development. The Company believes that its future
performance will depend in large part on its ability to maintain and enhance its
current products, develop new products that achieve market acceptance, maintain
technological competitiveness and meet an expanding range of customer
requirements. The Company intends to continue development efforts towards new
products, such as its recently released ODBMS product, and enhancements that
address emerging requirements for highly adaptable applications utilizing the
advantages of client/server technologies across multiple platforms. In addition,
the Company continues to devote significant resources to modify its MMS product
line to take advantage of recent client/server enhancements to the IBM AS/400
platform.
The Company's software design philosophy is to develop products with broad,
enterprise-wide retailing functionality that is applicable to the majority of
retailers' needs. At the same time, the Company's objective is to design
products that are easily tailored to the specific work flows and business
processes of the individual retailer and are readily adapted to changing
conditions, reducing the amount of software modification required.
The Company has established a design framework, known as the Advanced
Retail Architecture ("ARA"), based on the principles of open systems and
object-oriented technologies, for developing new products and modules. This
architecture is designed to protect the Company's investment in product
development, as well as its customers' software investment, from changes in
underlying technology and front-end interfaces. The Company believes products
designed to ARA specifications can support multiple platforms and accommodate
platform changes or new platforms generally without significant modification to
the JDA application. The Company's products designed within the ARA framework
are ODBMS, Win/DSS and WCC. The Company intends to apply ARA to the development
of new products and the enhancement of existing products to the extent feasible.
However, the Company's ability to take advantage of the full scope of ARA design
objectives is limited by the proprietary nature of the IBM AS/400-based and
DOS-based platforms upon which MMS and DSS operate.
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As of March 31, 1998, there were 140 employees on the Company's product
development staff. The Company's product development expenditures in 1997, 1996
and 1995 were $11.4 million, $6.5 million and $3.5 million, and represented 12%,
14% and 12% of total revenues, respectively. The Company's product development
expenditures were $4.3 million or 14% of total revenues for the three months
ended March 31, 1998, and the Company currently expects total product
development expenses in 1998 to be between $18 million and $19 million. The
Company's ongoing product development efforts include projects related to
shortening the implementation cycle and facilitating the integration of its
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 18 months. 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.
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.
In addition, the Company strives to achieve compatibility between those
products and retailing systems platforms which management believes are, or will
become, popular and widely adopted. The Company invests substantial resources in
development efforts aimed at achieving such compatibility. Any failure by the
Company to anticipate or respond adequately to technology or market developments
could result in a loss of competitiveness or revenue.
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
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support. A number of companies offer competitive products addressing certain of
the Company's target markets. In the enterprise systems market, the Company
competes with in-house systems developed by the Company's targeted customers and
with third-party developers such as Intrepid Systems ("Intrepid"), Island
Pacific, Radius PLC, Retek (a subsidiary of HNC Software, Inc.), STS Systems and
Richter Management Services. In addition, the Company believes that new market
entrants may attempt to develop fully integrated enterprise level systems
targeting the retail industry. In particular, SAP AG has announced the
availability of an integrated client/server enterprise system competitive with
the Company's products, and Intrepid has announced the formation of a joint
development and marketing relationship with PeopleSoft, Inc., a provider of
enterprise applications software, to develop products that are expected to
compete directly with ODBMS.
In the in-store systems market, which is more fragmented than the
enterprise market, the Company competes with major hardware original equipment
manufacturers such as 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. 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 and Ernst & Young LLP, and other similar major systems integrators.
These integrators, as well as independent consulting firms such as IBM Global
Services Division, also represent potential competition to the Company's
consulting services group.
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 would not have a material
adverse effect on the Company's business, operating results and financial
condition.
PROPRIETARY RIGHTS
The Company's success and ability to compete is dependent in part upon its
proprietary technology, including its software source code. To protect its
proprietary technology, the Company relies on a combination of trade secret,
nondisclosure and copyright law, which may afford only limited protection. In
addition, effective copyright and trade secret protection may be unavailable or
limited in certain foreign countries. 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.
40
<PAGE> 43
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 from third parties. However,
the termination of any such licenses, or the failure of the third-party
licensors to adequately maintain or update their products, could result in
delays in the Company's ability to ship certain of its products while it seeks
to implement technology offered by alternative sources. Any required replacement
licenses could prove costly. Also, any such delay, to the extent it becomes
extended or occurs at or near the end of a fiscal quarter, could result in a
material adverse effect on the Company's 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 from others,
or require the Company to cease the marketing or use of certain products, any of
which could have a material adverse effect on the Company's business, operating
results and financial condition. To the extent the Company desires or is
required to obtain licenses to patents or proprietary rights of others, there
can be no assurance that any such licenses will be made available on terms
acceptable to the Company, if at all. As the number of software products in the
industry increases and the functionality of these products further overlaps, the
Company believes the software developers may become increasingly subject to
infringement claims. Any 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.
EMPLOYEES
As of March 31, 1998, the Company had approximately 780 employees, of which
approximately 450 were located in the United States. The Company has never had a
work stoppage and none of its employees are represented by a collective
bargaining agreement. The Company believes its relations with its employees are
good.
The Company's future operating results depend in significant part upon the
continued service of its key technical and senior management personnel. The
Company's future success also depends on its continuing ability to attract and
retain highly qualified technical and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will retain
its key managerial or technical personnel or that it can attract, assimilate and
retain such personnel in the future. The Company has at times experienced, and
continues to experience, difficulty recruiting qualified personnel and there can
be no assurance that the Company will not experience such difficulties in the
future. The Company actively recruits qualified product development, consulting
and sales and marketing personnel. If the Company is unable to hire and retain
qualified personnel in the future, such inability could have a material adverse
effect on the Company's business, operating results and financial condition.
41
<PAGE> 44
MANAGEMENT
The directors and executive officers of the Company, and their ages as of
March 31, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Brent W. Lippman.......................... 41 Chief Executive Officer and Director
Kristen L. Magnuson....................... 41 Senior Vice President and Chief Financial Officer
Kenneth J. Desmarchais.................... 39 Senior Vice President of Research and Development
J. Timothy Davis.......................... 47 Senior Vice President of Worldwide Consulting
Services
Hamish Brewer............................. 36 Senior Vice President of International
James D. Armstrong........................ 47 Co-Chairman of the Board
Frederick M. Pakis........................ 44 Co-Chairman of the Board
Kurt R. Jaggers(1)........................ 39 Director
William C. Keiper(1)...................... 47 Director
</TABLE>
- ------------
(1) Member of Audit and Compensation Committees.
BRENT W. LIPPMAN serves on the Company's Board of Directors and was
promoted to Chief Executive Officer in October 1997. Mr. Lippman previously
served as the Company's Chief Operating Officer during 1997, as Senior Vice
President of Sales and Marketing during 1996, as Vice President of Marketing
from 1991 to 1995, and as Director of Marketing upon joining the Company in
1990. Prior to joining the Company, Mr. Lippman served as a Sales Manager with
Sterling Software, Inc., a publicly-held software company, from 1984 to 1990,
and as a Senior Systems Consultant for Wang Laboratories from 1983 to 1984. Mr.
Lippman received a Bachelor of Science Degree in Operations Research and a
Masters of Business Administration Degree from Case Western Reserve University.
KRISTEN L. MAGNUSON has served as the Company's Senior Vice President and
Chief Financial Officer since joining the Company in September 1997. Prior to
joining the Company, Ms. Magnuson served as Vice President of Finance and
Planning for Michaels Stores, Inc., a $1.4 billion publicly-held arts and craft
retailer from 1990 to 1997, as Senior Vice President and Controller of MeraBank
FSB, an $8 billion financial institution, from 1987 to 1990, and various
positions in the audit department of Ernst & Young from 1978 to 1987. Ms.
Magnuson is a Certified Public Accountant and received a Bachelor of Business
Administration Degree in Accounting from the University of Washington.
KENNETH J. DESMARCHAIS has served as the Company's Senior Vice President of
Research and Development since June 1997. Mr. Desmarchais previously served as
the Company's Vice President of Technology from 1995 to 1997, as Director of
Technology from 1992 to 1995, as Manager of New Product Development from 1990 to
1992 and as a Project Manager from 1988 to 1990. Prior to joining the Company,
Mr. Desmarchais served as a Project Manager with JDA Canada from 1986 to 1987,
and as an Advisory Systems Engineer with IBM Canada from 1980 to 1985. Mr.
Desmarchais received a Bachelor of Science Degree in Computer Science from
Ryerson Polytechnic Institute in Toronto, Ontario.
J. TIMOTHY DAVIS has served as the Company's Senior Vice President of
Worldwide Consulting Services since October 1997. Mr. Davis previously served as
the Company's Vice President of North American Consulting Services from 1996 to
1997. Prior to joining the Company, Mr. Davis served as Vice President and
Senior Manager with Price Waterhouse's Management Horizons Division from 1991 to
1995, as a Managing Associate with Coopers & Lybrand from 1983 and 1990, and as
Director of Financial Systems Planning and Analysis for Zale Corporation, a
publicly-held retail jewelry corporation, from 1980 to 1982. Mr. Davis received
a Bachelor of Science Degree in Business and Public Administration from the
University of Texas.
HAMISH BREWER was promoted to Senior Vice President of International in
January 1998. Mr. Brewer previously served as Vice President of the Company's
European, Middle East and African operations from 1996 to 1997, as Sales
Director of the Company's European, Middle East and African operations from 1995
to 1996, and as a Marketing Representative from 1994 to 1995. Prior to joining
the Company, Mr. Brewer served as a Retail Marketing Specialist with IBM from
1986 to 1994, and in various operational positions with a
42
<PAGE> 45
privately-held retail sales organization located in England. Mr. Brewer received
a Bachelor of Science and a Bachelor of Commerce Degree from the University of
Birmingham in England.
JAMES D. ARMSTRONG has been a director of the Company since 1985 and
currently serves as Co-Chairman of the Board with Mr. Pakis. Mr. Armstrong
co-founded the Company in 1985 and served as its Chief Executive Officer until
October 1997. Mr. Armstrong founded JDA Software Services, Ltd., a Canadian
software development company, in 1978 and served as its President until 1987.
Mr. Armstrong also served as a director of Mark's Work Wearhouse, a
publicly-held Canadian specialty retailing company from 1985 to 1987. Mr.
Armstrong attended Ryerson Polytechnic Institute in Toronto, Ontario.
FREDERICK M. PAKIS has been a director of the Company since 1985 and
currently serves as Co-Chairman of the Board with Mr. Armstrong. Mr. Pakis
co-founded the Company in 1985 and served as its President until October 1997.
Mr. Pakis served as a Retail Consulting Manager with Touche Ross & Co. from 1981
to 1985, and as Director of Corporate Planning for the Sherwin Williams Company,
a home improvement specialty store company from 1976 to 1981. Mr. Pakis has
served on the Board of Directors of Advanced Food Systems, Inc., a
privately-held food manufacturing and distribution company since October 1997.
Mr. Pakis attended the United States Military Academy at West Point, received a
Bachelor of Science Degree in Operations Research from Case Western Reserve
University and a Master of Business Administration Degree from the London School
of Business, where he studied as a Sloan Fellow.
KURT R. JAGGERS has served as a director of the Company since March 1995.
Mr. Jaggers has served as a Managing Director of TA Associates, an equity
investment firm since 1997. He has also served as a Principal for TA Associates
from 1993 to 1997, and in various advisory capacities with that firm from 1990
to 1993. Mr. Jaggers currently serves on the Board of Directors of Invitrogen
and International Microcircuits, two privately-held technology companies. Mr.
Jaggers attended Stanford University, receiving a Bachelor of Science and a
Master of Science Degree in electrical engineering, and a Master of Business
Administration Degree.
WILLIAM C. KEIPER joined the Company as a director on April 22, 1998. Mr.
Keiper has served as a Managing Director of Software Equity Group, L.L.C., a
software industry mergers, acquisitions and strategic consulting firm based in
Phoenix, Arizona, since January 1998. From January 1993 until October 1997, Mr.
Keiper served in various positions with Artisoft, Inc., a publicly-held software
company that provides local area network, PC communications and computer
telephony solutions. Mr. Keiper served as the President and Chief Operating
Officer of Artisoft, Inc. from January 1993 until June 1993, Chief Executive
Officer from June 1993 until October 1997, and Chairman of the Board from
October 1995 until October 1997. From 1986 through January 1993, Mr. Keiper held
various positions at MicroAge, Inc., a publicly-held distributor of personal
computer hardware and software, including serving as President and Chief
Operating Officer.
Crawford L. Cole resigned from the Company's Board of Directors effective
April 22, 1998.
43
<PAGE> 46
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998 by (i) each person
who is known by the Company to own beneficially more than 5% of the Company's
Common Stock, (ii) each of the Company's current directors and executive
officers, and (iii) all executive officers and directors as a group. Except
pursuant to applicable community property laws or as indicated in the footnotes
to this table, each stockholder identified in the table possesses sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by such stockholder. Unless otherwise noted each person's
address is c/o JDA Software Group, Inc., 11811 North Tatum Boulevard, Phoenix,
Arizona 85028.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE THE OWNED AFTER THE
OFFERING(1) SHARES OFFERING(1)
-------------------- BEING --------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------ ---------- -------- ------- ---------- --------
<S> <C> <C> <C> <C> <C>
James D. Armstrong............................... 1,050,286 7.9% 200,000 850,286 5.6%
Frederick M. Pakis............................... 830,800 6.2 200,000 630,800 4.1
Kurt R. Jaggers(2)............................... 31,294 * -- 31,294 *
William C. Keiper................................ -- -- -- -- --
Brent W. Lippman(3).............................. 13,970 * -- 13,970 *
Kristen L. Magnuson.............................. -- -- -- -- --
Kenneth J. Desmarchais(4)........................ 9,372 * -- 9,372 *
J. Timothy Davis(5).............................. 1,513 * -- 1,513 *
Hamish Brewer(6)................................. 2,456 * -- 2,456 *
Directors and executive officers as a group (9
persons)(7).................................... 1,939,691 14.5 400,000 1,539,691 10.0
Pilgrim Baxter & Associates, Ltd.(8)............. 1,382,707 10.4 -- 1,382,707 9.0
Provident Investment Counsel, Inc.(9)............ 1,111,030 8.3 -- 1,111,030 7.3
Warburg Pincus Asset Management, Inc.(10)........ 877,003 6.6 -- 877,003 5.7
Oppenheimer Funds, Inc.(11)...................... 817,000 6.1 -- 817,000 5.3
</TABLE>
- ------------
* Represents less than 1% of the outstanding Common Stock.
(1) The information regarding security ownership of the Common Stock is as of
March 31, 1998, except for the security ownership information regarding
Provident Investment Counsel, Inc. ("Provident"), which is derived from a
Schedule 13G filed by Provident with the Securities and Exchange Commission
(the "Commission") on February 2, 1998; Pilgrim Baxter & Associates, Ltd.,
("Pilgrim"), which is derived from a Schedule 13G filed by Pilgrim with the
Commission on April 9, 1998; Warburg Pincus Asset Management, Inc.
("Warburg"), which is derived from a Schedule 13G filed by Warburg with the
Commission on January 12, 1998; and Oppenheimer Funds, Inc.
("Oppenheimer"), which is derived from a Schedule 13G filed by Oppenheimer
with the Commission on February 9, 1998. The percentage ownership
calculations are based on the number of shares of Common Stock outstanding
on March 31, 1998 (13,318,781 or 15,318,781 after the offering, as
adjusted) plus, where appropriate, those shares subject to unexercised
options which were exercisable on March 31, 1998, or within 60 days
thereafter.
(2) Includes 30,000 shares subject to unexercised options as to which shares
Mr. Jaggers disclaims beneficial ownership.
(3) Includes 11,500 shares subject to unexercised options.
(4) Includes 5,447 shares subject to unexercised options.
(5) Includes 1,513 shares subject to unexercised options.
(6) Includes 1,527 shares subject to unexercised options.
(7) Includes an aggregate of 49,987 shares subject to unexercised options.
(8) Pilgrim Baxter & Associates, Ltd. is a Pennsylvania-based investment
advisor. The address of Pilgrim is 825 Duportail Road, Wayne, Pennsylvania
19087.
44
<PAGE> 47
(9) Provident Investment Counsel, Inc. is a Massachusetts-based investment
advisor. The address of Provident is 300 North Lake Avenue, Pasadena,
California 91101-4022.
(10) Warburg Pincus Asset Management, Inc. is a New York-based investment
advisor. The address of Warburg is 466 Lexington Avenue, New York, New York
10017
(11) Oppenheimer Funds, Inc. is a New York-based investment advisor. The address
of Oppenheimer is Two World Trade Center, Suite 3400, New York, New York
10048-0203
The Company will pay all costs and expenses of the offering, other than
underwriting discounts and commissions relating to shares sold by the Selling
Stockholders and stock transfer and other taxes attributable to the sale of
shares by the Selling Stockholders, which will be borne by the Selling
Stockholders.
45
<PAGE> 48
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS OF COMMON STOCK
The following discussion concerns the material United States federal income
tax consequences of the ownership and disposition of shares of Common Stock
applicable to Non-U.S. Holders of shares of Common Stock. In general, a
"Non-U.S. Holder" is any holder other than (i) a citizen or an individual
considered under the U.S. tax laws to be a resident of the U.S., (ii) a
corporation or partnership created or organized in the U.S. or under the laws of
the U.S. or any State, (iii) an estate whose income is includible in gross
income for U.S. federal income tax purposes regardless of its source or (iv) a
trust for which a court within the U.S. is able to exercise primary supervision
over the administration of the trust, and for which one or more U.S. fiduciaries
has the authority to control all substantial decisions of the trust. The
discussion is based on current law, which is subject to change retroactively or
prospectively, and is for general information only. The discussion does not
address all aspects of federal income taxation and does not address any aspects
of federal estate taxation or of state, local or foreign tax laws. The
discussion does not consider any specific facts or circumstances that may apply
to a particular Non-U.S. Holder (including the fact that in the case of a
Non-U.S. Holder that is a partnership, the U.S. tax consequences of holding and
disposing of shares of Common Stock may be affected by certain determinations
made at the partner level). Accordingly, prospective investors are urged to
consult their tax advisors regarding the U.S. federal, state, local and non-U.S.
income, estate and other tax consequences of holding and disposing of shares of
Common Stock.
Dividends. Dividends, if any (see "Dividend Policy"), paid to a Non-U.S.
Holder generally will be subject to United States withholding tax at a 30% rate
(or a lower rate as may be prescribed by an applicable tax treaty) unless the
dividends are effectively connected with a trade or business of the Non-U.S.
Holder within the U.S. Dividends effectively connected with a trade or business
will generally not be subject to withholding (if the Non-U.S. Holder complies
with applicable U.S. Internal Revenue Service ("IRS") reporting requirements)
and generally will be subject to U.S. federal income tax on a net income basis
at regular graduated rates. In the case of a Non-U.S. Holder which is a
corporation, such effectively connected income also may be subject to the branch
profits tax (which is generally imposed on a foreign corporation on the deemed
repatriation from the U.S. of effectively connected earnings and profits) at a
30% rate or, if available, a lower treaty rate. Under currently effective U.S.
Treasury regulations, dividends paid to an address outside the U.S. are presumed
to be paid to a resident of such country for purposes of the withholding tax.
Under interpretations of currently effective U.S. Treasury regulations, the same
presumption applies to determine the applicability of a reduced rate of
withholding under a tax treaty. Thus, non-U.S. holders receiving dividends at
addresses outside the U.S. are not currently required to file tax forms to
obtain the benefit of an applicable treaty rate. Recently finalized U.S.
Treasury Regulations applicable to dividends paid after December 31, 1999 (the
"Final Regulations") generally provide that the status of a payee as a Non-U.S.
Holder would be made based upon a withholding certificate. In addition, the
Final Regulations establish certain presumptions upon which the Company may
generally rely to determine whether, in the absence of a certification, a holder
should be treated as a Non-U.S. Holder for purposes of the 30% withholding tax
described above. The presumptions would not apply for purposes of granting a
reduced rate of withholding under a treaty. Under the Final Regulations, to
obtain a reduced rate of withholding under a treaty, a Non-U.S. Holder will
generally be required either (i) to provide an IRS Form W-8 certifying such
Non-U.S. Holder's entitlement to benefits under a treaty together with, in
certain circumstances, additional information or (ii) satisfy certain other
applicable certification requirements. The Final Regulations also provide
special rules to determine whether, for purposes of determining the
applicability of a tax treaty and for purposes of the 30% withholding tax
described above, dividends paid to a Non-U.S. Holder that is an entity should be
treated as paid to the entity or those holding an interest in that entity.
Dispositions of Common Stock. Generally, a Non-U.S. Holder will not be
subject to United States federal income tax on any gain realized upon the
disposition of such holder's shares of Common Stock unless (i) the gain is
effectively connected with a trade or business carried on by the Non-U.S. Holder
with the U.S. (in which case the branch profits tax may also apply); (ii) the
Non-U.S. Holder is an individual who holds the shares of Common Stock as a
capital asset and is present in the U.S. for 183 days or more in the taxable
year of the disposition and to whom such gain is U.S. source; (iii) the Non-U.S.
Holder is subject to tax pursuant
46
<PAGE> 49
to the provisions of U.S. tax law applicable to certain former U.S. citizens or
residents; or (iv) the Company is or has been a "U.S. real property holding
corporation" for federal income tax purposes (which the Company does not believe
that it is or is likely to become) at any time during the five-year period
ending on the date of disposition (or such shorter period that such shares were
held).
BACKUP WITHHOLDING AND INFORMATION REPORTING
Dividends. The Company must report annually to the IRS and to each
Non-U.S. Holder the amount of dividends paid to and the tax withheld, if any,
with respect to such holder. These information reporting requirements apply
regardless of whether withholding was reduced by an applicable tax treaty.
Copies of these information returns may also be available under the provisions
of a specific treaty or agreement with the tax authorities in the country in
which the Non-U.S. Holder resides. Dividends that are subject to U.S.
withholding tax at the 30% statutory rate or at a reduced tax treaty rate and
dividends that are effectively connected with the conduct of a trade or business
in the U.S. (if certain certification and disclosure requirements are met) are
exempt from backup withholding of U.S. federal income tax. In general, backup
withholding at a rate of 31% and information reporting will apply to other
dividends paid on shares of Common Stock to holders that are not "exempt
recipients" and fail to provide in the manner required certain identifying
information (such as the holder's name, address and taxpayer identification
number). Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. For dividends paid
after December 31, 1999, the Final Regulations provide certain presumptions and
other rules under which Non-U.S. Holders may be subject to backup withholding
and related information reporting in the absence of required certifications.
Dispositions of Common Stock. The payment of the proceeds from the
disposition of shares of Common Stock through the U.S. office of a broker will
be subject to information reporting and backup withholding unless the holder,
under penalties of perjury, certifies, among other things, its status as a
Non-U.S. Holder, or otherwise establishes an exemption. Generally, the payment
of the proceeds from the disposition of shares of Common Stock to or through a
non-U.S. office of a broker will not be subject to backup withholding and will
not be subject to information reporting. In the case of the payment of proceeds
from the disposition of shares of Common Stock through a non-U.S. office of a
broker that is a U.S. person or a "U.S.-related person," existing regulations
require information reporting (but not backup withholding) on the payment unless
the broker receives a statement from the owner, signed under penalties of
perjury, certifying, among other things, its status as a Non-U.S. Holder, or the
broker has documentary evidence in its files that the owner is a Non-U.S.
Holder, the broker has no actual knowledge to the contrary and ceratin other
requirements are satisfied. For tax purposes, a "U.S.-related person" is (i) a
"controlled foreign corporation" for U.S. federal income tax purposes, (ii) a
foreign person 50% or more of whose gross income from all sources for the three-
year period ending with the close of its taxable year preceding the payment (or
for such part of the period that the broker has been in existence) is derived
from activities that are effectively connected with the conduct of a U.S. trade
or business or (iii) effective after December 31, 1999, certain brokers that are
foreign partnerships with U.S. partners or that are engaged in a U.S. trade or
business.
Any amounts withheld from a payment to a Non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such holder's U.S. federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS. Non-U.S. Holders should consult
their tax advisors regarding the application of these rules to their particular
situations, the availability of an exemption therefrom and the procedures for
obtaining such an exemption, if available.
47
<PAGE> 50
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below for whom Morgan Stanley & Co. Incorporated, Donaldson,
Lufkin & Jenrette Securities Corporation and Hambrecht & Quist LLC are acting as
U.S. Representatives, and the International Underwriters named below for whom
Morgan Stanley & Co. International Limited, Donaldson, Lufkin & Jenrette
Securities Corporation and Hambrecht & Quist LLC are acting as International
Representatives, have severally agreed to purchase, and the Company and the
Selling Stockholders have agreed to sell to them, severally, the respective
number of shares of Common Stock set forth opposite the names of such
Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- -----------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.........................
Donaldson, Lufkin & Jenrette Securities Corporation.......
Hambrecht & Quist LLC.....................................
-----------
Subtotal............................................... 1,920,000
-----------
International Underwriters:
Morgan Stanley & Co. International Limited................
Donaldson, Lufkin & Jenrette Securities Corporation.......
Hambrecht & Quist LLC.....................................
-----------
Subtotal............................................... 480,000
-----------
Total............................................. 2,400,000
===========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
shares of Common Stock offered hereby (other than those covered by the U.S.
Underwriters' over-allotment option described below) if any such shares are
taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States or
Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and
an International Underwriter, the foregoing representations and agreements (i)
made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement between
U.S. and International Underwriters. As used herein,
48
<PAGE> 51
"United States or Canadian Person" means any national or resident of the United
States or Canada, or any corporation, pension, profit-sharing or other trust or
other entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
Underwriters under the Underwriting Agreement are referred to herein as the
"Shares."
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the Shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, any of such Shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law, and that
such dealer will send to any other dealer to whom it sells any of such Shares a
notice containing substantially the same statement as is contained in this
sentence.
49
<PAGE> 52
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any Underwriter may
allow, and such dealers may reallow, a concession not in excess of $ a share to
other Underwriters or to certain dealers. After the initial offering of the
shares of Common Stock, the offering price and other selling terms may from time
to time be varied by the Representatives.
The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
360,000 additional shares of Common Stock at the public offering price set forth
on the cover page hereof, less underwriting discounts and commissions. The U.S.
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
Common Stock offered hereby. To the extent such option is exercised, each U.S.
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number set forth next to such U.S. Underwriter's name in the preceding table
bears to the total number of shares of Common Stock set forth next to the names
of all U.S. Underwriters in the preceding table.
Each of the Company and the directors and executive officers of the Company
has agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, it will not, during the period
ending 90 days after the date of this Prospectus, subject to certain exceptions,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an Underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Securities and Exchange Commission. In general, a passive
market maker may not bid for, or purchase, the Common Stock at a price that
exceeds the highest independent bid. In addition, the net daily purchases made
by any passive market maker generally may not exceed 30% of its average daily
trading volume in the Common Stock during a specified two month prior period, or
200 shares, whichever is greater. A passive market maker must identify passive
market making bids as such on the Nasdaq electronic inter-dealer reporting
system. Passive market making may stabilize or maintain the market price of the
Common Stock above independent market levels. Underwriters and dealers are not
required to engage in passive market making and may end passive market making
activities at any time.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933.
50
<PAGE> 53
LEGAL MATTERS
The validity of the securities offered hereby has been and general
corporate legal matters will be passed upon for the Company by Gray Cary Ware &
Freidenrich LLP, Austin, Texas. Certain legal matters in connection with the
Offering will be passed upon for the Underwriters by Brobeck, Phleger & Harrison
LLP, Austin, Texas.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference from the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated by reference and has
been so incorporated in reliance upon such firm given upon their authority as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934 and, in connection therewith, files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, or at the Commission's Regional Offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and at 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of
these materials can also be obtained at prescribed rates from the Public
Reference Section of the Commission at the principal offices of the Commission,
450 Fifth Street, NW, Washington, D.C. 20549. In addition, copies of such
materials filed electronically by the Company with the Commission may be
obtained from the web site that the Commission maintains at http://www.sec.gov.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933. This Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain portions of which are omitted in
accordance with the rules and regulations of the Commission. Statements made in
the Prospectus concerning the contents of any documents referred to herein are
not necessarily complete. With respect to each such document filed with the
Commission as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description, and each such statement shall be deemed
qualified in its entirety by such reference.
51
<PAGE> 54
[JDA LOGO]
<PAGE> 55
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
[ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS.]
PROSPECTUS (Subject to Completion)
Issued May 5, 1998
2,400,000 Shares
[JDA LOGO]
COMMON STOCK
------------------------
OF THE 2,400,000 SHARES OF COMMON STOCK BEING OFFERED HEREBY, 480,000 SHARES ARE
BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 1,920,000 SHARES ARE BEING OFFERED INITIALLY IN
THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. OF THE 2,400,000 SHARES
OF COMMON STOCK BEING OFFERED, 2,000,000 SHARES ARE BEING SOLD BY THE COMPANY
AND 400,000 SHARES ARE BEING SOLD BY THE SELLING STOCKHOLDERS. SEE "PRINCIPAL
AND SELLING STOCKHOLDERS." THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THE
SALE OF THE SHARES BY THE SELLING STOCKHOLDERS. THE COMPANY'S COMMON STOCK IS
LISTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "JDAS." ON MAY 4, 1998,
THE LAST SALE PRICE OF THE COMMON STOCK AS REPORTED ON THE NASDAQ NATIONAL
MARKET WAS $48 5/8 PER SHARE. SEE "PRICE RANGE OF COMMON STOCK."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
-------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share.............................. $ $ $ $
Total(3)............................... $ $ $ $
</TABLE>
- ------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
360,000 additional Shares at the price to public, less the underwriting
discounts and commissions, solely to cover over-allotments, if any. If
the U.S. Underwriters exercise such option in full, the total price to
public, underwriting discounts and commissions and proceeds to Company
will be $ , $ and $ , respectively. See
"Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Brobeck, Phleger & Harrison LLP, counsel for the Underwriters. It is expected
that delivery of the Shares will be made on or about , 1998 at the
office of Morgan Stanley & Co Incorporated, New York, N.Y., against payment
therefor in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
HAMBRECHT & QUIST
, 1998
<PAGE> 56
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. The Company is paying all of the expenses
incurred on behalf of the Selling Stockholders (other than underwriting
discounts and commissions and stock transfer and other taxes attributable to the
sale of shares by the Selling Stockholders). All amounts shown are estimates
except for the Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Commission registration fee................................. $ 42,746.00
NASD filing fee............................................. 14,990.00
Nasdaq National Market Fee.................................. 17,500.00
Printing and engraving...................................... 125,000.00
Legal fees and expenses..................................... 175,000.00
Accounting fees and expenses................................ 115,000.00
Miscellaneous expenses...................................... 9,764.00
-----------
Total............................................. $500,000.00
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Subsection (a) of Section 145 of the General Corporation Law of the State
of Delaware empowers a corporation to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by right of the corporation to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect to any claim
issue or matter as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a
corporation has been successful on the merits or otherwise in the defense of any
such action, suit or proceeding referred to in subsections (a) and (b) of
Section 145 or in the defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith; that the indemnification provided for
by Section 145 shall not be deemed exclusive of any other rights which the
indemnified party may be entitled; that indemnification provided by Section 145
shall, unless otherwise
II-1
<PAGE> 57
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of such
person's heirs, executors and administrators; and empowers the corporation to
purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liabilities under
Section 145.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
provides that a certificate of incorporation may contain a provision eliminating
or limiting the personal liability of a director to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provision shall not eliminate or limit the liability of the
director (i) for any breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
Article Ten of the Registrant's Second Restated Certificate of
Incorporation provides that, to the fullest extent permitted by the Delaware
General Corporation Law as the same exists or as it may hereafter be amended, no
director of the Registrant shall be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director.
Article Eight of the Registrant's Bylaws further provides that the
Registrant shall, to the maximum extent and in the manner permitted by the
General Corporation Law of Delaware, indemnify each of its directors and
officers against expenses (including attorneys' fees), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding, arising by reason of the fact that such person is or was an
agent of the Registrant.
The Registrant has entered into indemnification agreements with its
directors and executive officers.
The Registrant maintains officers' and directors' liability insurance.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act of 1933 or otherwise.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 -- Form of Underwriting Agreement.
4.1+ -- Specimen Common Stock certificate.
5.1* -- Opinion of Gray Cary Ware & Freidenrich LLP.
23.1 -- Consent of Deloitte & Touche LLP.
23.2* -- Consent of Gray Cary Ware & Freidenrich LLP (included in
the Opinion filed as Exhibit 5.1).
24.1* -- A power of attorney pursuant to which amendments to this
Registration Statement may be filed (included on the
signature page contained in Part II of this Registration
Statement).
</TABLE>
- ------------
* Previously filed.
+ Incorporated by reference to the Company's Registration Statement on Form S-1
(File No. 333-748) declared effective on March 14, 1996.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration
II-2
<PAGE> 58
Statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer, or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 59
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement No. 333-51043 (this "Registration Statement") to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Phoenix, County of Maricopa, State of Arizona, on the 5th day of May, 1998.
JDA SOFTWARE GROUP, INC.
By: /s/ BRENT W. LIPPMAN
------------------------------------
Brent W. Lippman
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BRENT W. LIPPMAN Chief Executive Officer May 5, 1998
- --------------------------------------------------- (Principal executive officer)
Brent W. Lippman
/s/ KRISTEN L. MAGNUSON* Senior Vice President and Chief May 5, 1998
- --------------------------------------------------- Financial Officer (Principal
Kristen L. Magnuson accounting and financial
officer)
/s/ JAMES D. ARMSTRONG* Co-Chairman of the Board May 5, 1998
- ---------------------------------------------------
James D. Armstrong
/s/ FREDERICK M. PAKIS* Co-Chairman of the Board May 5, 1998
- ---------------------------------------------------
Frederick M. Pakis
/s/ KURT R. JAGGERS* Director May 5, 1998
- ---------------------------------------------------
Kurt R. Jaggers
/s/ WILLIAM C. KEIPER* Director May 5, 1998
- ---------------------------------------------------
William C. Keiper
*By: /s/ BRENT W. LIPPMAN
---------------------------------------------
Brent W. Lippman
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 60
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 -- Form of Underwriting Agreement.
4.1+ -- Specimen Common Stock certificate.
5.1* -- Opinion of Gray Cary Ware & Freidenrich LLP.
23.1 -- Consent of Deloitte & Touche LLP.
23.2* -- Consent of Gray Cary Ware & Freidenrich LLP (included in
the Opinion filed as Exhibit 5.1).
24.1* -- A power of attorney pursuant to which amendments to this
Registration Statement may be filed (included on the
signature page contained in Part II of this Registration
Statement).
</TABLE>
- ------------
* Previously filed.
+ Incorporated by reference to the Company's Registration Statement on Form S-1
(File No. 333-748) declared effective on March 14, 1996.
<PAGE> 1
Exhibit 1.1
2,400,000 SHARES
JDA SOFTWARE GROUP, INC.
COMMON STOCK, $0.01 PAR VALUE PER SHARE
UNDERWRITING AGREEMENT
____________, 1998
<PAGE> 2
_____ ___, 1998
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
Hambrecht & Quist LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
Hambrecht & Quist LLC
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
JDA Software Group, Inc., a Delaware corporation (the "COMPANY"), proposes
to issue and sell to the several Underwriters (as defined below), and certain
stockholders of the Company (the "SELLING STOCKHOLDERS") named in Schedule I
hereto severally propose to sell to the several Underwriters, an aggregate of
2,400,000 shares of the common stock, $0.01 par value per share of the Company
(the "FIRM SHARES"), of which 2,000,000 shares are to be issued and sold by the
Company and 400,000 shares are to be sold by the Selling Stockholders, each
Selling Stockholder selling the amount set forth opposite such Selling
Stockholder's name in Schedule I hereto.
It is understood that, subject to the conditions hereinafter stated,
1,920,000 Firm Shares (the "U.S. FIRM SHARES") will be sold to the several U.S.
Underwriters named in Schedule II hereto (the "U.S. UNDERWRITERS") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith),
and 480,000 Firm Shares (the "INTERNATIONAL SHARES") will be sold to the several
International Underwriters named in Schedule III hereto (the "INTERNATIONAL
UNDERWRITERS") in connection with the offering and sale of such International
Shares outside the United States and Canada to persons other than United States
and Canadian Persons. Morgan Stanley & Co. Incorporated, Donaldson, Lufkin &
Jenrette Securities Corporation and Hambrecht & Quist LLC shall act as
representatives (the "U.S. REPRESENTATIVES") of the several U.S. Underwriters,
and Morgan Stanley & Co. International Limited, Donaldson, Lufkin & Jenrette
Securities Corporation and
<PAGE> 3
Hambrecht & Quist LLC shall act as representatives (the "INTERNATIONAL
REPRESENTATIVES") of the several International Underwriters. The U.S.
Underwriters and the International Underwriters are hereinafter collectively
referred to as the "Underwriters".
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional 360,000 shares of its common stock,
$0.01 par value per share (the "ADDITIONAL SHARES"), if and to the extent that
the U.S. Representatives shall have determined to exercise, on behalf of the
U.S. Underwriters, the right to purchase such shares of common stock granted to
the U.S. Underwriters in Section 3 hereof. The Firm Shares and the Additional
Shares are hereinafter collectively referred to as the "Shares". The shares of
common stock, $0.01 par value per share, of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "Common Stock". The Company and the Selling Stockholders are hereinafter
sometimes referred to individually as a "Seller" or collectively as the
"Sellers".
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement relating to the Shares. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connection
with the offering and sale of Shares outside the United States and Canada to
persons other than United States and Canadian Persons. The international
prospectus is identical to the U.S. prospectus except for the outside front
cover page. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), is hereinafter
referred to as the "Registration Statement"; the U.S. prospectus and the
international prospectus in the respective forms first used to confirm sales of
Shares are hereinafter collectively referred to as the "Prospectus". If the
Company has filed an abbreviated registration statement to register additional
shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the
"RULE 462 REGISTRATION STATEMENT"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462 Registration
Statement (including, in the case of all references to the Registration
Statement and the Prospectus, documents incorporated therein by reference).
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by
the Commission.
(b) (i) Each document, if any, filed or to be filed pursuant to the
Securities Exchange Act of 1934, as amended (the "EXCHANGE Act"), and
incorporated by reference in the Prospectus complied or will comply when
so filed in all material respects with the Exchange Act and the applicable
rules and regulations of the Commission thereunder; (ii)
<PAGE> 4
The Registration Statement, when it became effective, did not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading; (iii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder; and (iv) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; except that the
representations and warranties set forth in this paragraph 1(b) do not
apply to statements or omissions in the Registration Statement or the
Prospectus based upon information relating to any Underwriter furnished to
the Company in writing by such Underwriter through you expressly for use
therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own or lease its
property and to conduct its business as described in the Prospectus and is
duly qualified to transact business as a foreign corporation under the
corporation laws of, and is in good standing as such, in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority
to own or lease its property and to conduct its business as described in
the Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to
the extent that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; all of the issued shares of capital stock
of each subsidiary of the Company have been duly and validly authorized
and issued, are fully paid and non-assessable and are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims.
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof incorporated by reference into the
Prospectus.
(g) The shares of Common Stock (including the Shares to be sold by
the Selling Stockholders) outstanding prior to the issuance of the Shares
have been duly
<PAGE> 5
authorized and are validly issued, fully paid and non-assessable.
(h) The Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar
rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will
not contravene any provision of applicable law or the certificate of
incorporation or bylaws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by the Company of its obligations
under this Agreement, except such as may be required by the securities or
Blue Sky laws of the various states in connection with the offer and sale
of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(k) Except in each case as described in or contemplated by the
Prospectus, subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus: (i) the Company
and its subsidiaries have neither incurred any liability or obligation,
direct or contingent, nor entered into any transaction, in each case, not
in the ordinary course of business and material to the Company and its
subsidiaries as a whole; (ii) the Company has neither purchased any shares
of its outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of its capital stock of any kind; and (iii) there
has not been any material change in the capital stock, short-term debt or
long-term debt of the Company.
(l) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case, that is material to the
business of the Company and its subsidiaries, taken as a whole, in each
case free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not materially affect the
value of such property taken as a whole and do not interfere in any
material respect with the use made and proposed to be made of such
property by the Company and its subsidiaries, taken as a whole; and any
real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere in
any material respect with the use made and proposed to be made of such
property and buildings by the Company and
<PAGE> 6
its subsidiaries, taken as a whole, except as described in or contemplated
by the Prospectus.
(m) No material labor dispute with the employees of the Company or
any of its subsidiaries exists, except as described in or contemplated by
the Prospectus, or, to the knowledge of the Company, is imminent.
(n) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the business in
which each is engaged.
(o) There are no legal or governmental proceedings pending or, to
the Company's knowledge, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company
or any of its subsidiaries is subject that are required to be described in
the Registration Statement or the Prospectus or any document incorporated
therein by reference and are not so described or any statutes,
regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or any document
incorporated therein by reference or to be filed as exhibits to the
Registration Statement or any document incorporated therein by reference
that are not described or filed as required.
(p) The Company and its subsidiaries have obtained all necessary
consents, authorizations, approvals, orders, certificates and permits of
and from, and have made all declarations and filings with, all federal,
state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, to own, lease, license
and use its properties and assets and to conduct its business in the
manner described in the Prospectus, except to the extent that the failure
to obtain such consents, authorizations, approvals, orders, certificates
or permits or to make such declarations or filings would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole; and neither the Company nor any of its subsidiaries has received
any notice of proceedings relating to the revocation or modification of
any such consent, authorization, approval, order, certificate or permit
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a material adverse change in
the condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, except
as described in or contemplated by the Prospectus.
(q) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or
filed pursuant to Rule 424 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder.
(r) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be an "investment company" as such
term is defined in the Investment Company Act of
<PAGE> 7
1940, as amended.
(s) Except as described in the Prospectus: (i) the Company and its
subsidiaries own or possess or can acquire on reasonable terms adequate
licenses or other rights to use all patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names
currently employed by them in connection with the business as currently
conducted by them, except to the extent that the failure to own, possess
or acquire any of the foregoing would not result in a material adverse
effect on the Company and its subsidiaries, taken as a whole and (ii)
neither the Company nor its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to
any of the foregoing which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would result in any material
adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and its subsidiaries,
taken as a whole.
(t) The Company and its subsidiaries: (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("ENVIRONMENTAL LAWS"); (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses; and (iii) are in compliance with all terms
and conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the terms
and conditions of such permits, licenses or approvals would not, singly or
in the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(u) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(v) Except as disclosed or specifically contemplated by the
Prospectus, there are no contracts, agreements or understandings between
the Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement. All such rights arising in connection with the
filing of the Registration Statement have been effectively satisfied or
waived.
(w) The Company and its subsidiaries have complied with all
provisions of
<PAGE> 8
Section 517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
(x) The Company and its subsidiaries, taken as a whole, maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv)
the amounts reflected on the Company's balance sheet for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(y) The Shares have been authorized for listing on the NASDAQ
National Market upon official notice of issuance.
2. Representations and Warranties of the Selling Stockholders. Each
of the Selling Stockholders represents and warrants to and agrees with each
of the Underwriters that:
(a) This Agreement has been duly authorized, executed and delivered
by or on behalf of such Selling Stockholder.
(b) The execution and delivery by such Selling Stockholder of, and
the performance by such Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement signed by such Selling Stockholder and
____________, as Custodian, relating to the deposit of the Shares to be
sold by such Selling Stockholder (the "CUSTODY AGREEMENT") and the Power
of Attorney appointing certain individuals as such Selling Stockholder's
attorneys-in-fact to the extent set forth therein, relating to the
transactions contemplated hereby and by the Registration Statement (the
"POWER OF ATTORNEY") will not contravene any provision of applicable law,
or the certificate of incorporation or bylaws of such Selling Stockholder
(if such Selling Stockholder is a corporation), or the equivalent
organization and governance instruments of such Selling Stockholder (if
such Selling Stockholder is other than a natural person or corporation),
or any agreement or other instrument binding upon and material to such
Selling Stockholder or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over such Selling Stockholder,
and no consent, approval, authorization or order of, or qualification
with, any governmental body or agency is required for the performance by
such Selling Stockholder of its obligations under this Agreement or the
Custody Agreement or Power of Attorney of such Selling Stockholder.
(c) Such Selling Stockholder has, and on the Closing Date will have,
valid title to the Shares to be sold by such Selling Stockholder and the
legal right and power, and all authorization and approval required by law,
to enter into this Agreement and the Custody Agreement and Power of
Attorney of such Selling Stockholder, and to sell, transfer and deliver
the Shares to be sold by such Selling Stockholder.
<PAGE> 9
(d) The Shares to be sold by such Selling Stockholder pursuant to
this Agreement have been duly authorized and are validly issued, fully
paid and non-assessable.
(e) Such Selling Stockholder's Custody Agreement and Power of
Attorney have been duly authorized, executed and delivered by such Selling
Stockholder and are valid and binding agreements of such Selling
Stockholder.
(f) Delivery of the Shares to be sold by such Selling Stockholder
pursuant to this Agreement will pass title to such Shares free and clear
of any security interests, claims, liens, equities and other encumbrances.
(g) (i)The registration statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading and (ii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; except that the representations and warranties
set forth in this Section 2(g) apply only to statements or omissions in
the Registration Statement or the Prospectus based upon information
relating to such Selling Stockholder furnished to the Company in writing
by such Selling Stockholder expressly for use therein.
3. Agreements to Sell and Purchase. Each Seller, severally and not
jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at U.S. $____ per share the
("PURCHASE PRICE") the respective numbers of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the number of Firm Shares to be sold by such Seller hereunder
as the number of Firm Shares set forth in Schedules II and III hereto opposite
the name of such Underwriter bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the U.S. Underwriters up to 360,000 Additional Shares, and the U.S.
Underwriters shall have a one-time right to purchase, severally and not jointly,
up to 360,000 Additional Shares at the Purchase Price. If the U.S.
Representatives, on behalf of the U.S. Underwriters, elect to exercise such
option, the U.S. Representatives shall so notify the Company in writing not
later than 30 days after the date of the this Agreement, at 11811 North Tatum
Boulevard, Phoenix, Arizona, 85028, Attention: Chief Financial Officer, which
notice shall specify the number of Additional Shares to be purchased by the U.S.
Underwriters and the date on which such shares are to be purchased. Such date
may be the same as the Closing Date (as defined below) but not earlier than the
Closing Date nor later
<PAGE> 10
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 5 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each U.S. Underwriter agrees, severally
and not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule
II hereto opposite the name of such U.S. Underwriter bears to the total number
of U.S. Firm Shares.
Each Seller hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 90 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder; (B) the transfer of shares of Common
Stock or securities convertible into or exchangeable or exercisable for Common
Stock to immediate family members of a Selling Stockholder or a trust for the
benefit of such immediate family members or such Selling Stockholder, in each
case, pursuant only to a written agreement whereby such transferee shall agree
to receive and hold such shares or securities subject to the provisions of this
Section 3; (C) the issuance by the Company of shares of Common Stock upon the
exercise of an option or warrant or the conversion of a security outstanding on
the date hereof of which the Underwriters have been advised in writing; or (D)
transactions by any person other than the Company relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the offering of the Shares. In addition, each Selling Stockholder,
agrees that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, it will not, during the period
ending 90 days after the date of the Prospectus, make any demand for, or
exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
4. Terms of Public Offering. The Sellers are advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
U.S.$_____ per share (the "PUBLIC OFFERING PRICE") and to certain dealers
selected by you at a price that represents a concession not in excess of
U.S.$____ per share under the Public Offering Price, and that any Underwriter
may allow, and such dealers may reallow, a concession, not in excess of
U.S.$____ per share, to any Underwriter or to certain other dealers.
5. Payment and Delivery. Payment for the Firm Shares to be sold by each
Seller shall be made to such Seller in Federal or other funds immediately
available in New York City
<PAGE> 11
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on ___ ____, 1998, or at such
other time on the same or such other date, not later than ___ ___, 1998, as
shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "Closing Date".
Payment for any Additional Shares shall be made to the Company in Federal
or other funds immediately available in New York City against delivery of such
Additional Shares for the respective accounts of the several Underwriters at
10:00 a.m., New York City time, on the date specified in the notice described in
Section 3 or at such other time on the same or on such other date, in any event
not later than ____ ___, 1998, as shall be designated in writing by the U.S.
Representatives. The time and date of such payment are hereinafter referred to
as the "Option Closing Date".
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of the
Sellers to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than __:00 _m. (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the following
further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading
or of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the
Company's securities by any "nationally recognized statistical
rating organization," as such term is defined for purposes of Rule
436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations
of the Company and its subsidiaries, taken as a whole, from that set
forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) that, in your
<PAGE> 12
judgment, is material and adverse and that makes it, in your
judgment, impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date, and signed by the Chief Executive
Officer of the Company, to the effect set forth in Section 6(a)(i) above
and to the effect that the representations and warranties of the Company
contained in this Agreement are true and correct as of the Closing Date
and that the Company has complied with all of the agreements and satisfied
all of the conditions on its part to be performed or satisfied hereunder
on or before the Closing Date. The Chief Executive Officer signing and
delivering such certificate may rely upon the best of his or her knowledge
as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Gray Cary Ware & Freidenrich LLP, outside counsel for the
Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own or lease its property and to conduct its business
as described in the Prospectus and is duly qualified to transact
business as a foreign corporation under the corporation laws of, and
is in good standing as such, in each jurisdiction in which the
conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a
whole;
(ii) each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has the
corporate power and authority to own or lease its property and to
conduct its business as described in the Prospectus and is duly
qualified to transact business as a foreign corporation under the
corporation laws of, and is in good standing as such, in each
jurisdiction in which the conduct of its business or its ownership
or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing as
such, would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole;
(iii) the authorized capital stock of the Company conforms as
to legal matters to the description thereof incorporated by
reference into the Prospectus;
(iv) the shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly
issued, and, to such counsel's knowledge, are fully paid and
non-assessable;
<PAGE> 13
(v) the Shares (including the Shares to be sold by the Selling
Stockholders) have been duly authorized and are , or when issued and
delivered in accordance with the terms of this Agreement will be,
validly issued, fully paid and non-assessable; and the issuance of
such Shares will not be subject to any preemptive or similar rights;
(vi) all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable and are owned directly or
indirectly by the Company and, to such counsel's knowledge, free and
clear of all liens, encumbrances, equities or claims;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the execution and delivery by the Company of,
and the performance by the Company of its obligations under, this
Agreement will not contravene any provision of applicable law or
the certificate of incorporation or bylaws of the Company or any
agreement or other instrument binding upon the Company or any of
its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or, to the best of such counsel's
knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of,
or qualification with, any governmental body or agency is
required for the performance by the Company of its obligations
under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection
with the offer and sale of the Shares by the U.S. Underwriters;
(ix) the statements (A) in the Prospectus under the captions
"Risk Factors-Shares Eligible for Future Sale" and "-- Anti-Takeover
Provisions in Charter Documents and Delaware Law," "Certain United
States Federal Income Tax Considerations for Non-U.S. Holders of
Common Stock" and "Underwriters", (B) in the Registration Statement
in Item 15, and (C) regarding the description of capital stock of
the Company incorporated by reference into the Prospectus, in each
case insofar as such statements constitute summaries of the legal
matters, documents or proceedings referred to therein, fairly
present the information called for with respect to such legal
matters, documents and proceedings and fairly summarize the matters
referred to therein;
(x) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject that are required to
be described in the Registration Statement or the Prospectus or in
any document incorporated therein by reference and are not so
described or of any statutes, regulations, contracts or other
<PAGE> 14
documents that are required to be described in the Registration
Statement or the Prospectus or in any document incorporated therein
by reference or to be filed as exhibits to the Registration
Statement or any document incorporated therein by reference that are
not described or filed as required;
(xi) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of
1940, as amended;
(xii) except as disclosed or specifically contemplated by the
Prospectus, to such counsel's knowledge, there is no owner of any
securities of the Company that has any rights, not effectively
satisfied or waived, to require registration of any shares of
capital stock of the Company in connection with the filing of the
Registration Statement;
(xiii) except as disclosed in or specifically contemplated by
the Prospectus, to such counsel's knowledge, there are not
outstanding any options, warrants or other rights calling for the
issuance of, and no commitments, current plans or arrangements
entered into by the Company to issue, any shares of capital stock of
the Company or any security convertible into or exchangeable for
capital stock of the Company; and
(xiv) such counsel (A) is of the opinion that each document
filed pursuant to the Exchange Act and incorporated by reference in
the Registration Statement and the Prospectus (except for financial
statements and schedules and other financial and statistical data
included therein as to which such counsel need not express any
opinion) complied when so filed as to form in all material respects
with the Exchange Act, and the applicable rules and regulations of
the Commission thereunder; (B) is of the opinion that the
Registration Statement and Prospectus (except for financial
statements and schedules and other financial and statistical data
included therein as to which such counsel need not express any
opinion) comply as to form in all material respects with the
Securities Act and the applicable rules and regulations of the
Commission thereunder; (C) has no reason to believe that (except for
financial statements and schedules and other financial and
statistical data as to which such counsel need not express any
belief) the Registration Statement and the prospectus included
therein at the time the Registration Statement became effective
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and (D) has no reason to
believe that (except for financial statements and schedules and
other financial and statistical data as to which such counsel need
not express any belief) the Prospectus contains any untrue statement
of a material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
<PAGE> 15
With respect to the opinion set forth in subsection (ii) above, to the
extent that such opinion addresses questions of law other than those of the
State of California, the State of Texas or the General Corporation Law of the
State of Delaware, such counsel may deliver opinions of local counsel as to such
matters, provided that Gray Cary Ware & Freidenrich LLP shall state that they
believe that you are justified in relying upon such opinions.
(d) The Underwriters shall have received on the Closing Date an
opinion of Charles Whetsine, Esq., counsel for the Selling Stockholders,
dated the Closing Date, to the effect that:
(i) this Agreement has been duly authorized, executed and
delivered by or on behalf of each of the Selling Stockholders;
(ii) the execution and delivery by each Selling Stockholder
of, and the performance by such Selling Stockholder of its
obligations under, this Agreement and the Custody Agreement and
Powers of Attorney of such Selling Stockholder will not contravene
any provision of applicable law, or any agreement or other
instrument binding upon such Selling Stockholder or, any judgment,
order or decree known to such counsel of any governmental body,
agency or court having jurisdiction over such Selling Stockholder,
and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for
the performance by such Selling Stockholder of its obligations under
this Agreement or the Custody Agreement or Power of Attorney of such
Selling Stockholder, except such as may be required by the
securities or Blue Sky laws of the various states in connection with
offer and sale of the Shares;
(iii) each of the Selling Stockholders has valid marketable
title to the Shares to be sold by such Selling Stockholder and the
legal right and power, and all authorization and approval required
by law, to enter into this Agreement, the Custody Agreement and
Power of Attorney of such Selling Stockholder and to sell, transfer
and deliver the Shares to be sold by such Selling Stockholder;
(iv) the Custody Agreement and the Power of Attorney of each
Selling Stockholder have been duly authorized, executed and
delivered by such Selling Stockholder and are valid and binding
agreements of such Selling Stockholder; and
(v) delivery of the Shares to be sold by each Selling
Stockholder pursuant to this Agreement will pass title to such
Shares free and clear of any security interests, claims, liens,
equities and other encumbrances assuming that the Underwriters
purchase the Shares in good faith without notice of any adverse
claim.
(e) The Underwriters shall have received on the Closing Date an
opinion of Brobeck, Phleger & Harrison LLP, counsel for the Underwriters,
dated the Closing Date,
<PAGE> 16
covering the matters referred to in Sections 6(c)(v) (but only as to
Shares sold by the Company), 6(c)(vii), 6(c)(ix) (but only as to the
statements in the Prospectus under "Underwriters" and statements regarding
the description of the Company's capital stock incorporated by reference
into the Prospectus) and clauses (B), (C) and (D) of Section 6(c)(xiv)
above.
With respect to Section 6(c)(xiv) above, Gray Cary Ware &
Freidenrich LLP may state that their opinion and belief are based upon
their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and documents
incorporated by reference and review and discussion of the contents
thereof, but are without independent check or verification except as
specified. With respect to clauses (B), (C) and (D) of Section 6 (c)(xiv)
above, Brobeck, Phleger & Harrison LLP may state that their opinion and
belief are based upon their participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements
thereto (other than the documents incorporated by reference) and upon
review and discussion of the contents thereof (including documents
incorporated by reference), but are without independent check or
verification except as specified.
The opinion of Gray Cary Ware & Freidenrich LLP described in
Sections 6(c) above (and any other opinions of counsel for any Selling
Stockholder referred to in Section 6(d) above) shall be rendered to the
Underwriters at the request of the Company and shall so state therein.
(f) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the
Underwriters, from Deloitte & Touche LLP, independent public accountants,
containing statements and information of the type ordinarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in, or
incorporated by reference into, the Registration Statement and the
Prospectus; provided that the letter delivered on the Closing Date shall
use a "cut-off date" not earlier than the date hereof.
(g) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain stockholders, officers and
directors of the Company relating to sales and certain other dispositions
of shares of Common Stock or certain other securities, delivered to you on
or before the date hereof, shall be in full force and effect on the
Closing Date.
(h) The several obligations of the U.S. Underwriters to purchase
Additional Shares hereunder are subject to the delivery to the U.S.
Representatives on the Option Closing Date of such documents as they may
reasonably request with respect to the good standing of the Company, the
due authorization and issuance of the Additional Shares and other matters
related to the issuance of the Additional Shares.
7. Covenants of the Company. In further consideration of the
agreements of the
<PAGE> 17
Underwriters herein contained, the Company covenants with each Underwriter
as follows:
(a) To furnish to you, without charge, five signed copies of the
Registration Statement (including exhibits thereto and documents
incorporated by reference) and to each other Underwriter a copy of the
Registration Statement (without exhibits thereto but including documents
incorporated by reference) and, during the period mentioned in Section
7(c) below, as many copies of the Prospectus, any documents incorporated
by reference, and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request. The terms
"supplement" and "amendment" or "amend" as used in this Agreement shall
include all documents subsequently filed by the Company with the
Commission pursuant to the Exchange Act that are deemed to be incorporated
by reference in the Prospectus.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment
or supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters,
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will
furnish to the Company) to which Shares may have been sold by you on
behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earning statement covering the
twelve-month period ending ____ ___, 1999 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
8. Expenses. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all
<PAGE> 18
expenses incident to the performance of its obligations under this Agreement,
including: (i) the fees, disbursements and expenses of the Company's counsel and
the Company's accountants and counsel for the Selling Stockholders in connection
with the registration and delivery of the Shares under the Securities Act and
all other fees or expenses in connection with the preparation and filing of the
registration statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Underwriters and dealers, in the quantities hereinabove specified; (ii) all
costs and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon; (iii) all
expenses in connection with any offer and sale of the Shares outside of the
United States, including filing fees and the reasonable fees and disbursements
of counsel for the Underwriters in connection with offers and sales outside of
the United States; (iv) the cost of printing or producing any Blue Sky or Legal
Investment memorandum in connection with the offer and sale of the Shares under
state securities laws and all expenses in connection with the qualification of
the Shares for offer and sale under state securities laws as provided in Section
7(d) hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky or Legal Investment memorandum; (v) all filing fees
and the reasonable fees and disbursements of counsel to the Underwriters
incurred in connection with the review and qualification of the offering of the
Shares by the National Association of Securities Dealers, Inc.; (vi) all costs
and expenses incident to listing the Shares on the Nasdaq National Market; (vii)
the cost of printing certificates representing the Shares; (viii) the costs and
charges of any transfer agent, registrar or depositary; (ix) the costs and
expenses of the Company relating to investor presentations on any "road show"
undertaken in connection with the marketing of the offering of the Shares,
including, without limitation, expenses associated with the production of road
show slides and graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the officers of the Company and one-half
the cost of any aircraft chartered in connection with the road show, it being
understood that the Underwriters will pay for their own expenses for any "road
show"; and (x) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made
in this Section. It is understood, however, that except as provided in this
Section 8, Section 9 entitled "Indemnity and Contribution", and the last
paragraph of Section 11 below, the Underwriters will pay all of their costs and
expenses, including fees and disbursements of their counsel, stock transfer
taxes payable on resale of any of the Shares by them and any advertising
expenses connected with any offers they may make.
Each Selling Stockholder, severally and not jointly, agrees to pay or
cause to be paid all taxes, if any, on the transfer and sale of the Shares being
sold by such Selling Stockholder.
The provisions of this Section shall not supersede or otherwise affect any
agreement that the Sellers may otherwise have for the allocation of such
expenses among themselves.
9. Indemnity and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of either
<PAGE> 19
Section 15 of the Securities Act or Section 20 of the Exchange Act from
and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably
incurred in connection with defending or investigating any such action or
claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue
statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use therein.
(b) Each Selling Stockholder agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who
sign the Registration Statement and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all losses,
claims, damages and liabilities (including, without limitation, any legal
or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the
Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but
only with reference to information relating to such Selling Stockholder
furnished in writing by or on behalf of such Selling Stockholder expressly
for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto. The liability of
each Selling Stockholder under the indemnity agreement contained in this
paragraph shall be limited to an amount equal to the net proceeds received
by such Selling Stockholder (after deducting underwriting discounts and
commissions) from the offering of the Shares by such Selling Stockholder.
(c) Notwithstanding subsections (a) and (b) above, the foregoing
indemnity with respect to any preliminary prospectus shall not inure to
the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered,
at or prior to the written confirmation of the sale of the Shares to such
person, and if the Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such losses, claims, damages or
liabilities, unless such failure is the result of noncompliance by the
Company with Section 7(a) hereof.
<PAGE> 20
(d) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Stockholders, the
directors of the Company, the officers of the Company who sign the
Registration Statement and each person, if any, who controls the Company
or any Selling Stockholder within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and
all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection
with defending or investigating any such action or claim) caused by any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto), or caused by
any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
(e) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to Section 9(a), 9(b) or 9(c)
above, such person (the "INDEMNIFIED PARTY") shall promptly notify the
person against whom such indemnity may be sought (the "INDEMNIFYING
PARTY") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees
and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
It is understood that the indemnifying party shall not, in respect of the
legal expenses of any indemnified party in connection with any proceeding
or related proceedings in the same jurisdiction, be liable for (A) the
fees and expenses of more than one separate firm (in addition to any local
counsel) for all Underwriters and all persons, if any, who control any
Underwriter within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act, (B) the fees and expenses of more than
one separate firm (in addition to any local counsel) for the Company, its
directors, its officers who sign the Registration Statement and each
person, if any, who controls the Company within the meaning of either such
Section and (C) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Selling Stockholders and all
persons, if any, who control any Selling Stockholder within the meaning of
either such Section, and that all such fees and expenses shall be
reimbursed as they are incurred.
<PAGE> 21
(f) In the case of any such separate firm for the Underwriters and
such control persons of any Underwriters, such firm shall be designated in
writing by Morgan Stanley & Co. Incorporated. In the case of any such
separate firm for the Company, and such directors, officers and control
persons of the Company, such firm shall be designated in writing by the
Company. In the case of any such separate firm for the Selling
Stockholders and such control persons of any Selling Stockholders, such
firm shall be designated in writing by the persons named as
attorneys-in-fact for the Selling Stockholders under the Powers of
Attorney. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent, but if settled with
such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the
second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding
effected without its written consent if (i) such settlement is entered
into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to
the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of
any pending or threatened proceeding in respect of which any indemnified
party is or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on
claims that are the subject matter of such proceeding.
(g) To the extent the indemnification provided for in Section 9(a),
9(b) or 9(c) is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities referred to therein,
then each indemnifying party under such paragraph, in lieu of indemnifying
such indemnified party thereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect
the relative benefits received by the indemnifying party or parties on the
one hand and the indemnified party or parties on the other hand from the
offering of the Shares or (ii) if the allocation provided by clause
9(f)(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause 9(f)(i) above but also the relative fault of the indemnifying party
or parties on the one hand and of the indemnified party or parties on the
other hand in connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Sellers on
the one hand and the Underwriters on the other hand in connection with the
offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by each Seller and the total underwriting
discounts and commissions received by the
<PAGE> 22
Underwriters, in each case as set forth in the table on the cover of the
Prospectus, bear to the aggregate Public Offering Price of the Shares. The
relative fault of the Sellers on the one hand and the Underwriters on the
other hand shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Sellers or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Underwriters'
respective obligations to contribute pursuant to this Section 9 are
several in proportion to the respective number of Shares they have
purchased hereunder, and not joint.
(h) The Sellers and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 9(f). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 9, no Underwriter
shall be required to contribute any amount in excess of the amount by
which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages that such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 9 are not
exclusive and shall not limit any rights or remedies which may otherwise
be available to any indemnified party at law or in equity.
(i) The indemnity and contribution provisions contained in this
Section 9 and the representations, warranties and other statements of the
Company and the Selling Stockholders contained in this Agreement shall
remain operative and in full force and effect regardless of (i) any
termination of this Agreement; (ii) any investigation made by or on behalf
of any Underwriter or any person controlling any Underwriter, any Selling
Stockholder or any person controlling any Selling Stockholder, or the
Company, its officers or directors or any person controlling the Company
and (iii) acceptance of and payment for any of the Shares.
10. Termination. This Agreement shall be subject to termination by notice
given by you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National Association of
Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade; (ii) trading of any
securities of the
<PAGE> 23
Company shall have been suspended on any exchange or in any over-the-counter
market; (iii) a general moratorium on commercial banking activities in New York
shall have been declared by either Federal or New York State authorities; or
(iv) there shall have occurred any outbreak or escalation of hostilities or any
change in financial markets or any calamity or crisis that, in your judgment, is
material and adverse and (b) in the case of any of the events specified in
clauses 10(a)(i) through 10(a)(iv), such event, singly or together with any
other such event, makes it, in your judgment, impracticable to market the Shares
on the terms and in the manner contemplated in the Prospectus.
11. Effectiveness; Defaulting Underwriters. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares that
it has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule II or Schedule III bears to the
aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 11 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall fail
or refuse to purchase Firm Shares and the aggregate number of Firm Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Firm Shares to be purchased, and arrangements satisfactory to you and
the Company for the purchase of such Firm Shares are not made within 36 hours
after such default, this Agreement shall terminate without liability on the part
of any non-defaulting Underwriter, the Company or the Selling Stockholders. In
any such case either you or the relevant Sellers shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected. If, on the
Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased, the non-defaulting Underwriters
shall have the option to (i) terminate their obligation hereunder to purchase
Additional Shares or (ii) purchase not less than the number of Additional Shares
that such non-defaulting Underwriters would have been obligated to purchase in
the absence of such default. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of any Seller to comply with the
terms or to fulfill any of the
<PAGE> 24
conditions of this Agreement, or if for any reason any Seller shall be unable to
perform its obligations under this Agreement, the Sellers will reimburse the
Underwriters or such Underwriters as have so terminated this Agreement with
respect to themselves, severally, for all out-of-pocket expenses (including the
fees and disbursements of their counsel) reasonably incurred by such
Underwriters in connection with this Agreement or the offering contemplated
hereunder.
12. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
14. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
<PAGE> 25
Very truly yours,
JDA SOFTWARE GROUP, INC.
By:_______________________________________
Name, Title
The SELLING STOCKHOLDERS named in Schedule I
hereto, acting severally
By: _______________________________________
Attorney-in-Fact
Accepted as of the date hereof
MORGAN STANLEY & CO.
INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HAMBRECHT & QUIST LLC
Acting severally on behalf of themselves
and the several U.S. Underwriters named
in Schedule II hereto.
By: Morgan Stanley & Co. Incorporated
By: ______________________________________
Name, Title:
<PAGE> 26
Accepted as of the date hereof
MORGAN STANLEY & CO.
INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HAMBRECHT & QUIST LLC
Acting severally on behalf of themselves and
the several International Underwriters named
in Schedule III hereto.
By: Morgan Stanley & Co. International
Limited
By: _________________________________________
Name, Title
<PAGE> 27
SCHEDULE I
Number of
Firm Shares
Selling Stockholder To Be Sold
- ------------------- ----------
James D. Armstrong.............................................200,000
Frederic M. Pakis..............................................200,000
-------
Total..........................................................400,000
=======
<PAGE> 28
SCHEDULE II
U.S. UNDERWRITERS
Number of
Firm Shares
Underwriter To Be Purchased
- ----------- ---------------
Morgan Stanley & Co. Incorporated...............................
Donaldson, Lufkin & Jenrette Securities Corporation.............
Hambrecht & Quist LLC...........................................
------------
Total U.S. Firm Shares ................................................1,920,000
=========
<PAGE> 29
SCHEDULE III
INTERNATIONAL UNDERWRITERS
Number of
Firm Shares
Underwriter To Be Purchased
Morgan Stanley & Co. International Limited........................
Donaldson, Lufkin & Jenrette Securities Corporation...............
Hambrecht & Quist LLC.............................................
-----------
Total International Firm Shares ................................480,000
===========
<PAGE> 30
EXHIBIT A
JDA Software Group, Inc.
April ___, 1998
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
Hambrecht & Quist LLC
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("MORGAN STANLEY") proposes to enter into an Underwriting Agreement (the
"UNDERWRITING AGREEMENT") with JDA Software Group, Inc., a Delaware corporation
(the "COMPANY"), providing for the public offering (the "PUBLIC OFFERING") by
the several Underwriters, including Morgan Stanley (the "UNDERWRITERS"), of
shares (the "SHARES") of common stock, $0.01 per value per share, of the Company
(the "COMMON STOCK").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 90 days after the date of the final prospectus relating
to the Public Offering (the "PROSPECTUS"), (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (a) the sale of any Shares
to the Underwriters pursuant to the Underwriting Agreement or (b) transactions
relating to shares of Common Stock or other securities acquired in open market
transactions after the completion of the Public Offering. In addition, the
undersigned agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 90 days after the date of the Prospectus, make any demand
for or exercise any right with respect to, the registration of any shares of
Common Stock or any security convertible into or exercisable or exchangeable for
Common Stock.
Notwithstanding the foregoing, if the undersigned is an individual, he or
she may transfer
<PAGE> 31
any shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock either during his or her lifetime or on death by
will or intestacy to his or her immediate family or to a trust the beneficiaries
of which are exclusively the undersigned or a member of his or her immediate
family; provided however, that prior to any such transfer pursuant to this
sentence, each transferee shall execute an agreement, satisfactory to Morgan
Stanley pursuant to which each transferee shall agree to receive and hold such
shares of Common Stock subject to the provisions hereof, and there shall be no
further transfer except in accordance with the provisions hereof. For purposes
of this paragraph, "immediate family" shall mean spouse, lineal descendant,
father, mother, brother or sister of the transferor.
Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
-----------------------
(Name)
-----------------------
(Address)
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-51043 of JDA Software Group, Inc. and
subsidiaries on Form S-3 of our report dated January 28, 1998, appearing in the
Annual Report on Form 10-K of JDA Software Group Inc., and subsidiaries for the
year ended December 31, 1997 and to the reference to us under the heading
"Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
May 5, 1998
